Re Bird, Alex Neville (as Trustee of the Estate of Yiangos Arcadiou, a bankrupt) Ex parte M.& G. Casabene & Sons

[1980] FCA 11

CATCHWORDS

Bankruptcy Act 1966 - held, under s.122, a payee

seeking to show that he was a payee In good falth

bore the onus of negativlng the inference referred

to in sub-sec.(4)(c); held, onus dlscharged In

respect of first payment challenged but not

dlscharged in respect of second payment; meanlng

of words "unable to pay his debts as they became

due from his own money" considered. Held in

respect of first payment, payee had also discharged

the burden of proving that It was a payee in good

falth within the meaning	of s.123 and accordlngly
held that that payment	was protected against the

doctrine of relatlon back; first payment declared

void as against the trustee of the bankrupt's estate.

RE :	ALEX NEVILLE BIRD (as Trustce of the Estate of YIANGOS ARCADIOU, a bankrupt)
EX PARTE:	M. & G. CASABENE L SONS
SWEENEY J.

19 DECEMBER 1979

.

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION	No. 6 8 of 1977
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

RE:	ALEX NEVILLE BIRD (as Trustee of the Estate of YIANGOS ARCADIOU, a bankrupt)
EX PARTE:	M. & G. CASABENE & SONS

ORDER

JUDGE MAKING ORDER:  SWEENEY J.

WHERE MADE:	MELBOURNE
DATE OF ORDER:	19 DECEMBER 1979
THE COURT DECLARES THAT;
The payment made	by the bankrupt to the respondent

of $2,500.00 on 4 February 1977 1s vold as against

the applicant and orders that the respondent pay to

the applicant the sum of $2,500.00.	It is ordered
that the applicant pay one thlrd	of the costs of the
respondent of and incidental to the applicatlon,

including reserved costs, such costs to be taxed If

not agreed. The costs so pald to the respondent and

the taxed costs of the appllcant of and incldental

to the application may	be recovered by the appllcant
from the estate of the bankrupt.	Otherwlse, the
appllcatlon is dismissed. Llberty	1 s reserved to
elther party to apply.

IN T m FEDERAL COURT

OF AUSTRALIA	No.	68 of	1 9 7 7
GENERAL DIVISION

R e : ALES NEVILLE B I R D (as T r u s t e e

of the E s t a t e of YIANGOS ARCADIOU,

a bankrup t

Appllcant

and

M . b C;. CASABENE L SO?iS

__- -

Respondent

REASONS FOR JUDGMENT

C . A . Sweeney, 3 .

1 9 December, 1 9 7 9

I n t h i s a p p l i c a t i o n , as amended by leave, Alex

Nevi l le B u d , as trustee 3f t h e estate of Ylangos Arcadlou ,

a b a n k r u p t , s e e k s t h e f o l l o w i n g d l r e c t l o n s a n d o r d e r s :

" ( a ) That payment made by t h e b a n k r u p t t o

t h e R e s p o n d e n t o n t h e 7 t h October, 1976

for $4 ,000 .00 and on the 4 th February ,

1 9 7 7 , for $2,500.00 are v o l d as a g a l n s t

t h e a p p l l c a n t as T r u s t e e of t h e p r o p e r t y

of t h e b a n k r u p t a s belng payment havlng

t h e e f f e c t	of	g l v l n g t h e r e s p o n d e n t	a
p r e f e r e n c e p r l o r l t y	o r	advantage	o v e r
c r e d l t o r s of	t h e b a n k r u p t	or	a l t e r n a t l v e l y

by v l r t u e of	the	Bankruptcy	of	t h e
Bankrupt	havlng	been	deemed	t o have
r e l a t i o n	back	t o d a t e t h e	2 0 t h day	of

September , 1 9 7 6 .

( b ) An o r d e r t h a t t h e r e s p o n d e n t p a y t o t h e

a p p l l c a n t t h e sum of $6,500.00."

I n h l s Notice of I n t e n t l o n t o o p p o s e t h e a p p l l c a t i o n ,

t h e r e s p o n d e n t ' s g r o u n d s were s t a t e d as follows :

1.          Tha t payments were made by t h e sald YIANGOS ARCADIOU a s a d e b t o r t o t h e

Respondent as a credltor o n t h e

7 th 'October , 1 9 7 6 for $4,000.00 and

on t h c 4 t h F e b r u a r y , 1 9 7 7 for $2,500.00.

. . /2

2.     That -

(a) the transactlons encompasslng

the above payments took place

before the date on which the

sald YIANGOS ARCADIOU became a

bankrupt;

(b) the Respondent dld not, at the

time of the said tranractlons,
have notlce of the presentation
of a petitlon against the said

YIANGOS ARCADIOU;

(c) the said transactlons were ln

good faith and In the ordlnary

course of buslness.

3.     That the Respondent has not been qlven

any preference prlorlty or advantage over

credltors of the bankrupt;

4 .     That the above payments to the Respondent are such as to be protected agalnst the doctrine of 'relatlon back'."

At the hearlng, the respondent was given leave

to amend thls	notice, so as to make lt plain that, whlle
It conceded that the applicant	had otherwlse establlshed
the facts necessary to show that It was	entltled to the
relief sought under both	s.122 and s.123 of the Bankruptcy
-	Act 1966, it contended that:

( a )	In relatlon to the clalm based on s.122,
it was a payee ln good faith and for
valuable consideratlon and ln the ordlnary
course of buslness, and
(b)	In relation to the claim based on s.123,
each of the payments made to it was a
payment by a debtor to a creditor and each
transactlon took place on or before the
date on whlch the debtor became a bankrupt; the person, other than the debtor, wlth whom lt took place, namely the respondent, dld not at the tlme of the transactlon have
notlce of the presentation of a petltlon
against the debtor, ancl the transactlon was
ln good faith and In the ordlnary course of

buslness.

. . / 3

Section 122	(2) (a) provldes:
"Nothing in this sectlon affects	-

the rights of a purchaser, payee or

encumbrancer In good faith and for

valuable conslderatlon and In the

ordinary course of business."

Under sub-s.(3) the burden of provlng the matters

referred to In sub-s.(2) (a) llcs upon the person clalming

to have the benefit of that sub-sectlon.

Sub-sectlon ( 4 ) (c) provldes that for the purposes

of S . 122:

"a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good falth if the conveyance, transfer, charge,

payment or obllgatlon was executed, made

or incurred under such clrcumstances as to

lead to the inference that the creditor knew,

or had reason to suspect -

(i) that the debtor was unable to pay

his debts as they became due from
his own money; and

(il) that the effect of thc conveyance,

transfer, charge, payment or obligation

would be to glve hlm a preference,
priorlty or advantage over other

creditors. "

The manner in which sub-secs. (2) ( 3 ) and (4) should

be construed has been considered In a number of cases. In

S. Rlchards E, Company Llmited v. Lloyd L Another (1933) 4 9 C.L.R. 49, dealing wlth the predecessors of the sub-

sections, namely s.95(2) and ( 4 ) of thc Ga)lkG(LyZC!~ A c t 1924,

Rlch and Dixon JJ. said at p . 6 0 :

"It was next said that the appellant had taken
the asslgnment ln good falth and for valuable
consideration and in the ordlnary course of

buslness, and so obtalnfd the protection of

sub-sec.2 (b) of sec. 95. Upon thls issue the burden of proof was upon the appellant and we

think lt 1 s lmposslblc to say that the evldence
rsqulres the concluslon that good falth was
establlshed. The debtor was unable to ?ay hls
large and long-standlng debt to the appellant,
and, of course, thls the appellant's manager

knew only too well. The sole difflculty

arises from sub-sec.4, whlch may	be thought
to be expressed as If, before good falth	1 s

negatlved, facts should afflrmatively appear

justlfylng the posltlve Inference that the

. . /4

credltor suspected that the debtor could

not pay his debts	as they became due and
that the effect	of the transactlon would
be to glve the credltor	r7 preference.

But sub-sec. 4 should not be understood as detracting at all from sub-sec. 3 , or as intendlng to substltute some artiflclal

criterlon for the issue set by sub-sec.Z(b)

In terms it is a prohlbltlon. It denles the possibility of good falth If its condltions are satlsfled. It says nothlng

about onus.	"
In Burns v. McFarlane (1940) 64 C.L.R.	108 at

--

p. 124 Rich, Dixon and McTiernan JJ. said:

"To displace the operation of sub-sec. 4 of

sec. 95 it was enough for the respondent

to establlsh either that the clrcumstances

under which the payment was made were not

such as to lead to an lnference that he knew

or had reason to suspect that Woon was then

unable to pay his debts as they became due

or that the circumstances were not such as to

lead to an inference that he	knew or had
reason to suspect that the effect	of the

payments would be to glve hlm a preference

or a priorlty or an advantage over	ot!lcr
credltors.	"
In Rees v. Bank of New South Wales (1964)	-

111 C.L.R. 210 Barwlck C.J. at p. 217 sald:

"His llonour makes no reference In his reasons

for ~udgment to the lnperatlve provlslons

of sub-s. ( 4 ) of s . 9 5 of thc ~ C I J I ~ ~ U ~ ~ L ~ A c t (Cth).

But for that sub-sectlon,	I would not disturb
his Honour's flndlng of bona fldes	111 the bank

in connexion wlth thc transactlons In yuestlon.

But In my opinlon the lnference that the bank

at least had reason to suspect that the

company throughout the perlod of the payments

was unable to pay Its debts and that the

effect of the payments, as they were to be
applled by the bank, would be to give the bank
a preference, prlorlty or advantage over the
other creditors 1 s lnevltable. That the bank
bears the onus of negatlving such an lnference
makes the result of this appeal even more

certaln. "

. . .5/

.

Queensland Bacon Pty. Ltd. v. - Rees (1965-1966)

115 C.L.R. 266 had been heard at flrst lnstance by the

Supreme Court of Queensland, where Glbbs J. held that

certain payments made	by a company whlch was later wound
up were not made In good faith wlthln	the meanlng of the

E a n k n u p t c y A c t 1924, s.95(2) (b), havlng regard to the

provisions of s.95(4), (see p.280).

At p. 286 Barwick C.J. sald:

"I now turn to the second matter common to

all appeals, namely, the question whether,

if he is to escape avoldance of the preference,

s.95(4) casts any onus upon the preferred

credltor to negative the exlstence of any

circumstances from	whlch the court could lnfer
that he knew or	ouqht to have suspected hls

debtor's lnsolvency. Although hls Honour made

no express flnding In that respect In all the

cases, it would seem from hls reasons for

judgment that, the terms and consequences of

s.95(4) apart, he would have been prepared to

find that the appellants rccelved the payments

whlch he found to be preferences in good taith.

But in each case	hc found that the credltor had
not satlsfled hlm that	the clrcumstanccs of the
receipt of the payment dld not ~ustlfy	the
Inference that the credltor	knew or had reason
to suspect that hls debtor was then	msolvcnt and

that the effect of the payment would be to qlve

him a preference, prlorlty or advantage over

other creditors. Hls Honour does not express

hls conclusion in thls	respect In preclsely the
same terms In each case but hls vlew	IS

substantially the same In each. His expression
of it in the appllcation against Queensland Bacon

indicates that view. He there sald: "The burden

of proof that the payments impeached	were not made
under such clrcumstances as to lead to the
inference that the respondent had reason to suspect
the matters mentloned ln s.95 (4) of the Enl lkhuptcy
A c t is cast upon the respondent by s.95(2)". And
again:  "However I need not conslder that aspect of
the matter" - i.e. the extent of the creditor's
conclusions from the facts  It knew about the
company and Its dealings - "if 1 find that the respondent has not dlscharqed the onus of provlng
that the payment  was not made under such
clrcumstanccs as to lead to the lnference that
the respondent had reason  to suspect that the
company was unablc  to pay Its debts as they became
due".

. . .6 /

In my respectful oplnlon, hls Honour was

in error In reading s . 9 5 as castlng such an

onus on the credltor. No doubt s.95 ( 3 ) casts

upon the crcdltor who has recelved a preiel-ence

the onus of brlnglng hlmself wlthln onc of the

paragraphs of s.95(2). The cxlstence of

knowledge or susplclon of Insolvency ncgatlves good faith: and the knowledge of clrcumstances

from whlch ordinary men	of buslness would
conclude that the debtor	1s unable to meet hls

liabillties is knowledge of Insolvency: t , c b l f : L,$

Au5ttaPa~(n v . Hall ( 1 1 , N n t t o ~ a P Bank 0 ;

A U A ~ ~ C I ~ G A ~ L I W . M o t t ( 5 1 2 1 ; T O I I I ~ C H ~ L'. S C I { $ , ? ? ~ ( 3 ) .

The proof of the circumstances under whlch the payment was made would seem to be an lndlspensable step In an attempt to prove that the credltor in

receiving it was actlng in good faith wlthin the

meaning of s.95(2). But, though s.95(4) relates

to good falth, It does not extend the onus cast
by sub-s.(3) so to require the creditor to

negatlve the existence of clrcumstances Irom

whlch the described Inference could	be drawn
by the court.

It was pointed out In S. R ~ c l l a * ~ d ~ t; Co. L t d . v .

L&oyd ( 4 ) that sectlon 95(4) 1 s in terms a

prohlbition, addressed to the court, denylng the
possibllity of a flndlng of good falth If its
conditions are satlsfled. "It says nothlng about
onus" (5). The conditlon It ralses is that the
court is posltlvely satlsfied that the clrcumstances
of the payment justlfy the Inference by It that
the creditor knew or had reason to suspect the

lnsolvency and the preference. To treat thls as

imposing an onus	on the credltor to negatlve the
exlstence of any such clrcumstances	ls, In my

respectful opinion, to misread the sub-sectlon.

If the court, otherwlse satlsfled of good faith, has no material or msufflclent material from

which It can draw the lnference mentloned In

s.95(4), the credltors' exculpatlon under	s . 9 5 ( 2 ) ,
if otherwise made	out, wlll be complete; or	if,

in such clrcumstances, the court is in doubt as

to whether or not the lnference should be drawn,

the preference should not be avolded."

Section 122 is one of the provislons of the Act,

under which antecedent transactions may be avolded, which are

based upon the cardlnal princlple of administratlon In

bankruptcy, namely, equality between the credltors, whlch

could be slmply frustrated in the absence of such provisions.

. .l/

A creditor, who has recelved a payment In

respect of which a party seeklng to avoid it has proved

the facts set out in sub-sec.(l) may escape such an order

If he proves that he L S a payee in good falth and for

valuable consideratlon and ln the ordinary course of

buslness (see sub-secs. (2) and (4)). In the course of

decldlng whether he has done so, the court must, of course,

glve a meaning to the expression "payee In good	falth". It
1 s not left at large In dolng so, but must bear	In mnr! the
provisions of sub-sec.	( 4 ) .

That sub-section does not purport to offer an

exhaustive deflnition of the expresslon "purchaser, payee

or encumbrancer in good faith". There may well be facts relevant to the lssue of whether a person answers that

description, which arise apart from the speclflc terns of

sub-sec.(4) (c). In respect of scch facts, the burden of

proof plainly rests upon the payee. In	my opinlon, sub-sec.
(4)(c) does not dlsplace	or yuallfy the appllcation of that

burden of proof In respect of the matters to whlch It refers.

The burden of proof cast upon the payee remains upon hlm	In
all matters relevant to	the lssuc of his belng a payee in
good falth and, If he is to succeed, hls proof	must be such

as to negative the lnference set out In sub-sec. ( 4 ) (c).

The questlon whether a person 1s a payee In good

faith and for valuable consideratlon and in the ordlnary course of buslness withln the meanlng of s.l22(2)(a) lnvolves

the consideration of matters which are often found in

practice to be especially within the knowledge	of such a
person, and sub-sec.(3) plalnly lmposes the burden	of proving
the matters referred to In sub-sec.	( 2 ) (a) upon hlm.

The circumstances under whlch a payment is made

to a creditor which fall for conslderatlon in the decision

of the qucstlons set out in sub-sec.(4)(c) are expressed to

be crltlcal to a flndlng that a credltor is a payee in good

falth, and they are also	often cspcclally withln his
knowledge.

. . E/

The vlew of t h e s e c t l o n w h l c h I h a v e c a r l l e r

expres sed l s , i n my o p i n i o n , t o b c p r e f e r r e d t o a

c o n s t r u c t i o n of it under whlch a c r e d l t o r would bear the

bu rden o f p rov ing t ha t he 1s a payee l n good f a i t h , b u t

wou ld no t be ca l l ed upon t o n e g a t l v e t h e m a t t e r s w h i c h , l n

e f f e c t , d l s q u a l i f y him from belng so r ega rded .

The view whlch I have taken of the c o n s t r u c t l o n

of s.122 is, I b e l i e v e , c o n s l s t e n t w l t h t h e g e n e r a l c o u r s e

of t h e a u t h o r i t l e s c i t e d a b o v e . (See S. Rlchards & Company

Limited v. Lloyd & Another (1933) 49 C.L.R.	49 a t p .60	per
Rich & Dixon JJ; Burns v . McFarlane	(1940) 64 C.L.R.	108 a t

p.124 per Rlch, Dixon and McTlernan JJ; - Rees v . Bank of New

South Wales (1964) 111 C.L.R. 210 a t p.217 per Barwick C.J.;

Queensland Bacon P t y . Ltd. v . - Rees (1965-1966) 115 C.L.R.

266 a t p.	280 per	Glbbs	J.	i n t h e Supreme	Court	of Queensland
e x e r c l s i n g	f e d e r a l	j u r i s d i c t i o n ) .	The	view	expressed	by
Barwlck	C . J .	i n Q u e e n s l a n d Bacon	Pty . L td .	v.	-	Rees a t p.286

a p p e a r s , w l t h r e s p e c t , t o b e m c o n s i s t c n t w i t h t h c s o a u t h o r i t i e s

The q u e s t l o n a r l s e s w h e t h e r t h e r e s p o n d e n t h a s

d i s c h a r g e d t h e b u r d e n	of	p rov ing t ha t	t he paymen t	r ece ived	i n
October 1976 was made	u n d e r	s u c h c l r c u m s t a n c e s a s	t o	l e a d	t o
t h e I n f e r e n c e t h a t	It	knew	or	had	r e a s o n t o s u s p e c t t h a t t h e

bankrupt	was	unable	t o	p a y h l s d e b t s	as	t h e y	became	due	from
h i s	own	money	and	t h a t t h e e f f e c t o f	t h e	payment	would	be	t o

g ive h lm an a d v a n t a g e o v e r o t h e r c r e d l t o r s , w i t h l n t h c

meanlng of s.122(4) ( c ) .

The meaning t o be g lven t o the words “unab le t o

pay h l s d e b t s a s t h e y became due from h i s own money’‘ has

b e e n l a i d down i n Hymix Concrete P ty . L td . v G a r r l t t y (1977)

13 A.L.R. 321. A t pp 321-8 Jacobs J. s a i d :

. . .9/

"The q u e s t i o n r e m a i n s , nrJwever, whether the

c i r c u m s t a n c e s l e a d to t h e l n f e r e n c e t h a t t h e

a p p e l l a n t , t h r o u g h Mr O ' U e 1 1 , had reason to

s u s p e c t t h a t t h e cornp1ny was unab le t o pay

i t s d c b t s as t h e y bi.cdnc:  duc o u t of i t s own

money. Much depends upon t h e c o n n o t a t l o n o f

t h e s e l a s t w o r d s . If t h c y f a l l t o b e a p p l i e d

acco rd ing t o t h e i r l i t e r a l terms t h e n q u i t e

c l e a r l y t h e	circumstances	n o t	o n l y	l e a c i	t o
b u t	compel	t h e	i n f e r e n c e	t h a t	t h e a p p c l l a n t
had reason	t o s u s p c c t .	The	company	had	l a r g e
debts	and no ready noricy	with	whlch	t o	pay

them.	However, i f	t h e	words meant t h a t	t h e
t o t a l	o f l i a b i l i t i e s	esccr!drd	the	t o t a l of
assets ,	t h e f i g u r e s	p l a c e d b e f o r e	Mr	O ' N e i l

b o t h i n t h e Dun a n d B r a d s t r e e t r e p o r t a n d i n

t he 31 of assets. March balancc? s h t v t showed a s u r p l u s

But t hc words "unab le t o pay i t s

d e b t s a s t h e y become duc from i t s own rconey"

s h o u l d n o t b e a p p l l e d I n e l t h e r of these ways .

Thcre i s a n i n t e r m c d l L l t e a p p l i c a t i o n of them

which h a s long b e e n e s t a b l i s h e d . I shall n u t

set	o u t	o n c e a g a l n	thc.	p<lssaycs i n t h c
~ u d g m e n t s	of	t h e	c o u r t	I n fiLzItk ( 1 6 AuAi?nCc.3ta

v H a l i (1907) 4 CLIt 1 5 1 4 , p e r G r i f f i t h C J a t

1 5 2 8 J a t 1543. They a r e s e t

and pc r I s aacs

o u t I n t h e ~ u d g n i e n t 07 Tay lo r J I n R:\ S 1,

BcIIl!:  2 ; !<X' S ( , t i t / : ( [ '<at ( 1 9 6 4 ) 111 CL!! 2 1 0 a t

229-30; 1_196S] ALII l j r 4 d t 149-50. I s h a l l

s e t o u t >omc pasT,lcJc.., from the - judprwnt of

B a r w l c k C';	(111 CLR 21	2 1 8 - 9 ;	1.19651	T i l l < J t
1 4 1 - 2 )	whlch	I	t h i 11::	, ~ I - c p ' > r t l c u l a r l y a p p o s i t e
t o t h e	p i c s e n t	cast' :-

'The r e sponden t ' s counsc l submitted t h a t , b e c a u s e

t h c bank he ld t he beliefs, which the p r imary

~ u d q e a c c e p t e d It c:lC1 h o l d , as t o t h e e x t e n t

of the company's t r d d l r ! q s tock and of t h c

c a u s e s o t I t s c u r r e l l t ~ ~ l b a r r d s s m e n t s , 1 t

c o u l d n o t b e s a l d c . l t l> i . r t o know or t o llsve

reason t o s u s p e c t t 1182 <:uiU~a11y's i n so lvency -

i t s l n a b l l l t y t o IitwI.1 ~ t : , r lehts as t h c y became

due . B u t t h i s s u h ~ ~ ~ . , : , ~ o n sp r lngs f rom a l n s i c

mlsconccpt lon m.3 IS l> ,o t b o r n e o u t Ly tlhe

judqmenLs of t h i s ('(-)!:~-t t o whlch my b r o t h e r

Taylor refers. I L 1:. r l u l t t ? t r u e t h a t a t r s d e r ,

t o rclrlaln solvw:t, 1 l a t . C ; noL need t o ha1.w ready

c a s h by hlm t o cobc.1- lnls commltments 3 s t hey

f a l l fo r payment, LII :CI ti1,zt I n de t e rmlc lnq

whether hc can 111s , i c + I ) t s as t h e y bc=co;ne

due rcyx-d m u s t L E l1'1r1 t.0 111s realizable assets.

The e x t c n t t o w h ~ ? i ~ t l l c LI- c ,x l s t encc w 1 I1 p r e v e n t

a conc1:islon of ln%;c>l < - ~ ' I I C - ~ w i l l depeml o n a

nurdIc.r of surrourli1t..J c - r cu I : s t ances , one of

whicn r ~ u s t b e t h e ' . . I??I : L' 111 t h c a s s e t s a n d i n

t h e c a b c of J. t r a ~ k : , 1.!1(: n a t u r e o f klls bjusiness.

Here	the	company's	L I I L , L I I P \ S was	t h e	s a l e	of
f o o d s t u f f s	t h r o u g h	;L	Ilm1Jt.r	of	r e t a i l	o u t l e t s .

The assc>t whose v ~ l 1 1 t . was s a i d t o n c g a t l v c a

conclusion of ~ n . . ( - t l . I. I ' l:, (3r a t any L > I * _ t o

- -

o b v l a t e t h e s u s p i c l o n of l t , was i t s t r a d l n g

s t o c k of f o o d s t u f f s . In t h c o r d i n a r y c o u r s e

of t h e c o m p a n y ' s b d s l n c s s t h l s asset was n o t

available t o be r e a l l z e d a x c c p t b y means of

r e t a i l s a l e s t h rouc ;h I t s various shops ...

The s t o c k - l n - t r a d e was < ] e a r l y n o t a n a s q e t

whlch was a v a l l a b l c t o h r e a l i z e d t o I c c e t

c u r r e n t d e b t s e x c e p t I n the o r d i n a r y co:msc

of the company ' s buslni.:;.;, a course whlctg

had p roved i t s e l f i na5cq l l . ? t e . . .

"The bank i n t h l s case k n e b t h a t t h e coxpally

was	o v e r t r a d l n g ,	tndt	3 ts o n l y source of
money	t o meet	i t s c u l - r e n t t r a d l n g d e b t s	was

t h e t a k l n g s t h e t a k i n g s of I ts s n o ~ s , t h a t t h e w h o l e o f

were b e l n g d e p o s l t e d t o t h e

overdrawn account ,	and	t h a t t h e	company' S
t r a d i n g d e b t s	were	n o t b e i n g c u r r e n t l y	met.

However a c c e p t a b l e t h e m o t l v e of t h e bank

i n endeavour lng t o keep t he company a f l o a t ,

by proving Its b e l i e f t h a k t h e company had

an excess of t r a d l n q s t o c k o v e r t h o s e d e b t s

of whlch the bank w a s Jwarc , It cannot e scape

t h e c o n c l u s i o n t h a t , a t t h c l e a s t , It had

reason t o b e l i e v e thr\t t h e company was

i n s o l v e n t . C l e a r l y t h d t j t o c k , i n the company's

c l r c u n s t a n c e s , was n o t w Lth ln t he ca t egory of

realizable assets t o t - l i lch Isaacs J refers 111

6at1!:  A 1 i 5 ~ ' L L L < ~ ~ < L ( I' I ! l [ i c ( 1 9 0 7 ) 4 CL[< 1 5 1 4

a t 1543; 1 4 ALI? 51. "

Words u s e d I n l a t e r c ~ I ~ L ' ~ , , 2ppa:ently rrorc

f a v o u r a b i c t o a c r d l t o c , : l u s t be r ead ln t h e

l i g h t of the enuncl '1tLons t o whlch I have

r e f e r r e d a n d s h o u l d hp? t c l k t n a s no more than

an a p p l l c a t l o n o f the w ~ l e s t a b l i s h e d p r l n c l p l e l

t o particular c1rcuns:>nccs:  ~ : ~ ~ . ~ > ; ~ t a , ~ , i GL:cL7c

P l y L t d 1, R e d , (1966) l 1 5 CL]: 2 6 6 ; 1'366

ALR 855; S.7)~dc.2i !' t ' ' ' . < \ '. ( 1 9 6 6 ) 115 CLI' 6 6 6 .

A t emgorary l ack o f l lql :LL!l ty m u s t be

d l s t l n g u l s h e d f r o m cl^' ~l l~ lw1clc shor tage of

w o r k l n g c a p l t a l whcrci,.; l L q u l d l t y can only be

r e s t o r e d by a s u c ~ ~ c s ~ ; i 1 1 1 udtcome of b u s l n n s s

v e n t u r e s 111 whlch t t : c . ,L:' I s t l ng work lng c<:!,ltal

has been deployed. "

Barwlck C . J. and G l b b 5 .I . ro : lcurred it? t h e ~ u d g m e n t

of JacoSs J .

The test so a p p r o v d 1 1 1 t n c IIymlx Cor.crt,te P ty . L td .

c a s e i s e x p r e s s r x i I n t h e worGdl?; oi l ; : - ~ i f i t h C . J . ( 1 9 0 7 4 CLR

a t p 1528) :

II.

"The questlon I S not whether the debtor

would be able, if tlmc were glven	hlm,
to pay his	debts out of his assets, but
whether he 1s presently able to	do so

with moneys actually avallable. The

most favourable constructlon that can

be put on the words 'hls own moneys' 1 s
that they lnclude any moneys of which

the debtor can obtaln lmmedlate command

by sale or pledge of hls assets."

The test as formulated by Isaacs J. (at p. 1543)

was :

"The Act requlres the debtor to be able

to pay his debts as they become due.

This does not mean that he 1 s always

bound to keep by him ln cash a sum

sufficlent to meet all hls outstanding

indebtness however dlstant the date	of
payment may be.	If at the tlme he makes

the asslgnment, the debtor's position 1 s

such that he has property either In the

form of assets In possesslon or of debts,

which if realized would produce sufflcient

money to pay all hls Indebtedness, and If

that property is in such a posltion as to

title and otherwlse that It could be
reallzed In tlme to meet the indebtedness
as the claims mature, wlth money thus
belonglng to the debtor, he cannot be
said to be unable to pay hls debts as they
become due from hls own moneys. In other

words, if the debtor can, by sale or

mortgage of property which he owns at the

time of the asslgnment, change the form

of the property lnto cash wholly or partly

but sufflclent for the purpose	of paylng
hls debts as they become	due, that
requirement of the scctlon	1 s satisfled."
Section 123 protects certaln transactlons agalnst

the operatlon of the doctrine of rclatlon back If, as 1s

provlded In sub-sec.(l):

"(e) the transactlon took place on or

before the date on whlch the debtor

became a bankrupt;

(f) the person, other than the debtor,

wlth whom It took place, did not, at

the time of the transactlon, have

notlce of the presentatlon of	a
petltion against the	debtor; and

(g)	the transaction was In good falth and
in the ordinary course of buslness".

. . .12/

Sub-sectlon ( 2 ) places the burden of provlng those

matters upon the person	who relles on the valldlty	of the
transaction.

Sub-section ( 3 ) provldes :

"For the purposes of sub-sectlon (1) of
thls sectlon, a transactlon shall not be
deemed not to have been In good falth
and In the ordinary course of buslness
by reason only that, at the tlme of the
transactlon, the person, other than the

debtor, wlth whom lt took place had

notlce of the commlsslon of an act of

bankruptcy by the debtor".

In support of Its opposltlon to the appllcatlon, the

respondent relled upon an affldavit by Mlchele Casabene, a

partner In that firm, the other members of whlch were hls wlfe

and his son Salvatore. Mr Casabene's account of thc flrm's

dealmgs with the bankrupt was as follows:

" 3 .	THAT the Respondent hercln 1 s a small
business active malnly In drainage and
sewerage works and I usually work on
Its various projects myself. For
several years the Respondent flrm has had
only two permanent employees, RODNEY FRITH
and ERROL RIXON, who are stlll working for the Respondent flrm. I worked on all the
pro-~ects mentioned in thls my Affidavlt
and to the best of mv recollection both RODNEY FRITH and-ERR6L RIXON also worked on all these prolccts.

4 .   THAT at the tlme of cclrrylng out the pro~ccts mentloned In thls m) Affidavit, the Respondent

flrm had adequate business, and was only

lnterested in work whlch could	be performed
so as to yield a proflt.

5.   THAT the Respondent flrm keeps very slmplc records based on a system of Invoices, the

original of whlch is sent out to the

customer, and the carbon copy of whlch 1 s

retalned ln the lnvolce book and marked off

as pald.

6.	THAT I am the person who wrltes out the
involces, which is a job I usually perform
approximately once per month for the pro~ects
carrled out In the lmmedlatcly preceding
monthly perlod. In partlcular, all the
involces mentloned In thls my Affldavlt have

been made and subsequently annotated by me.

. . .10/

7.   THAT I flrst met YIANGOS ARCADIOU (the

bankrupt) in approximately April of 1976.

I do not recollect the preclse clrcumstances

of our flrst meeting, and am not sure whether
he contacted me first, or whether I got in
touch with him as a person who had land In
Werribee (where the Respondent flrn does
most of its work) which needed drainlng.
However, I do recollect that we discussed

dralnage at our flrst meetlng, and that I

informed YIANGOS ARCADIOU that the Respondent

firm would install sewerage at $4.00 per foot

and storm water dralns at $1.00 per foot,

with additlonal charges for such extras as

boundary traps and dlgglng for power llnes. of accounts.

8.   THAT I have long experlence ln the drainage

buslness and consider that the charges quoted

In paragraph 7 of thls my Affldavlt are Calr and reasonable.

9.   THAT shortly after my flrst meetlng with

YIANGOS ARCADIOU he got in contact wlth me

and requested dralnage work which he speclfled

to be performed on Lots 8 4 and 85 of Nanglloc

Court, Werrlbee.

10. THAT the work on the said Lots 84 and 85 was

performed by myself and the employees	of the
Respondent flrm ln May of 1976.	It 1s my
recollectlon that YIANGOS ARCADIOU	was frequently

present on the sltes whenever we were working

at hls request.

11.	THAT on the 3rd day of June, 1976 I prepared involce No. 395 to cover the prices work done on Lot 85, and shortly thereafter had the original lnvolce dellvered to YIANGOS ARCADIOU. Produced and shown to me at the time of swearlnq -	this my Affldavit and marked with the letter	"B"
1s a copy of lnvolce No. 395.
12.	THAT on the 3rd day of June, 1976 I prepared

invoice No. 396 to cover the preclse	work done
on Lot 84, and shortly thereafter	had the orlginal

Invoice dellvered to YIANGOS ARCADIOU. Produced and shown to me at the time of swearing thls my

Affldavlt and marked wlth the letter	"C" 1s a
copy of lnvolce No. 396.

13.   THAT payment of involccs 395 and 396 was not received by the 30th clay of June, 1976 so on

that date I oreoared and shortlv thereafter had

~~~ ~ ~ ~~

delivered to- YIiNGOS ARCADIOU 1kvolce No. 407 as an "account rendered". Produced and shown to me at the time of swearlng thls my Affidavlt and marked with the letter "D" 1s a copy of lnvolce

NO. 407.

- - / 14

1 4 .   THAT payment of invoices 3 9 5 and 3 9 6 had stlll not been received by the 30th day of July,

1 9 7 6 so on that date I prepared and shortly

thereafter had delivered to YIANGOS ARCADIOU
invoice No. 4 3 6 as an "account rendered".

Produced and shown to me at the tlme of

swearlng this my Affidavlt and marked wlth the

letter "E" 1 s a copy of lnvolce No. 4 3 6 .
15.	THAT in approxlmately August of 1 9 7 6 , in splte

of havlng recelved no payment at all to that

time, I accepted lnstructlons from YIANGOS ARCADIOU to the Respondent firm to perform
drainage work which he specified on Lots 7 9 ,
80 , 81 , 82 and 8 3 of Nanglloc Crescent, Werribee.
16.	THAT the works on the sald Lots 7 9 , 8 0 , 61, 8 2
and 8 3 was performed by myself and the employees of the Respondent firm In approximately August
of 1 9 7 6 .
1 7 .	THAT on the 8th day of September, 1 9 7 6 I prepared
involces Nos. 473 , 474 , 475 , 476 and 4 7 7 to cover

the precise work done on Lots 63 , 62 , 81 , 80 and 7 9 respectively, and shortly thereafter had the

original lnvolces dellvcred to YIANGOS ARCADIOU. Produced and shown to me at the time of swearing

this my Affldavit and marked wlth the letter "F"

is a copy of invoice No. 4 7 3 , wlth the Letter ''G''

is a copy of involce No. 4 1 4 , wlth the letter "HI'

is a copy of involce No. 4 7 5 , wlth the letter 1111'

1s a copy of involce No. 4 1 6 and with the letter

II J $ 8

1 s a copy of lnvolce No. 477.

1 8 .   THAT on the 8th day of September, 1 9 7 6 I also

prepared lnvolce No. 4 7 8 as an "account rendered"

coverlng invoices Nos. 3 9 5 and 396, and shortly

thereafter had the orlglnal dellvered to YIAKGOS
ARCADIOU. Produced and shown to me at the time

of swearlng this my Affldavlt and marked wlth the

letter "K" 1s a copy of lnvolce No. 478.

1 9 .   THAT by approxlmately September, 1 9 7 6 I was serlously concerned by the fallurc of YIANGOS ARCADIOU to pay any ?art of the money that he owed to the Respondent flrm. I frequently told YIANGOS ARCADIOU that unmedlate payment of a substantial part of the amount outstandlng was

requlred; I mentloned thls when I saw hlm on

work sites, I telephoned hlm at his home number

about thls, and I went to h l s home, 4 Glengala

Road, West Sunshlne, to demand lmmedlate payment, on more than one occaslon. I told YIANGOS ARCADIOU

that the Respondent flrm would do no more work

for him until such tlme as a substantlal payment
had been received.

.

15

20. THAT the Respondent flrm rccelved a cheque

in the amount of $4,000.00 from YIANGOS
ARCADIOU on or about the 7th day of
October, 1976 (not the 7th day of December,
1976 as stated ln the Application In thls

matter) .

21. THAT at about the same tlme as the cheque

from YIANGOS ARCADIOU, I recelved an urgent request from PHILIP ARCADIOU, the son of	in the amount of $4,000.00 was recelved on his own property at Lot 69 Glenmoyne
Square, Werribee; he told me that he was in
a hurry to have the work done because his
wlfe was in the flnal stages of pregnancy,
and that the work was to be charged to him.
Accordingly, the work was performed lmedlately and an invoice sent to Y. Arcadlou's address
(which was where Phlllp Arcadlou was residlng
at that time) by involce No. 513 dated the 12th
day of October, 1976. Produced and shown to me
at the tlme of swearlng thls my Affidavlt and
marked wlth the letter "L" 1s a copy of lnvolce
No. 513.

22. THAT I subsequently dlscovered that the work

covered by lnvolce No. 513 was the sole
responslblllty of PHILIP ARCADIOU; I no longer

conslder that YIANGOS ARCADIOU is responslble

to the Respondent flrm for the amount	of lnvolce
No. 513.

23.   THAT ln October of 1976, I accepted lnstructlons

from YIANGOS ARCADIOU to the Respondent flrm to

perform drainage work whlch he specifled on Lots

60, 61 and 104 Nangiloc Crescent Werrlbec.

24.	THAT the work on the sald Lots 60, 61 and 104
was performed by myself and the employees of the
Respondent flrm ln October of 1976.

25.   THAT ON THE 30th day of October, 1976 I prepared invoices Nos. 526, 527 and 528 to cover the

preclse work done on Lots 60, 61 and 104 respectlvely

and shortly thereafter had the original lnvolces

delivered to YIANGOS ARCADIOU. Produced and
shown to me at the time of swearlng thls my

Affldavlt and marked wlth the letter "M" 1s a

copy of lnvolce No. 526, wlth the letter "h'" is

a copy of lnvolce No. 527, and wlth the letter "0"

1 s a copy of mvolce No. 528.

. . ./ 16

.

16

26. THAT on the 26th day of November, 1976 I

prepared involce No. 543 as an "account

rendered" coverlng the balance outstandlng

after taklng lnto account the payment	of
$4,000.00 from YIANGOS	ARCADIOU, and all

subsequent invoices. This involce was

delivered to YIANGOS ARCADIOU shortly after

I prepared it. I am now aware that this

- .

invoice contalns an over-charge of $46.00

in the "Balance" figure of $1,384.00 and

that It was inapproprlate to charge involce

No. 513 to this "account rendered". Produced
and shown to me at the tlme of swearlng thls my Affldavlt and marked with the letter "P"

is a copy of lnvolce No. 543.

27.   THAT by December 1976 YIANGOS ARCADIOU was once again seriously In arrears with his payments to the Respondent flrm, and I made similar efforts to get hlm to pay as I had made In September, 1976 and whlch I outllned In paragraph 19 of thls my Affldavit. This time I had determined not to let the

Respondent flrm work for hlm agaln because of

the difficulties In obtamlng payment, and
his failure to keep to the 30 day settlement

rule which was a term of our agreement, but I do not belleve that I told hlm of thls, because

I felt that such lnformatlon mlght make hls

payments even slower.

28.    THAT the Respondent flrm recelved a cheque

in the amount of $2,500.00 from YIANGOS ARCADIOU

on or about the 4th day of February, 1977. This

cheque was dellvered to ny home at 26 Powell

Drive, Hoppers Crosslng, but I do not know who dellvered it because I was at work at the tlmc when It arrlved.

29.	THAT I refer to the copy of involce No. 543

attached to thls my Affldavlt and marked wlth

the letter "P" and say that after the 4th day

of February, 1977 I contlnued efforts to obtaln
payment from YIANGOS ARCADIOU of what at that
tlme I thought to be a balance due to thc Respondent flrm of $2,355.00.
30.	THAT on a date whlch I cannot exactly recollcct
but whlch I belleve to be late In March 1977 I

recelved a notice of a meetmq of the credltors Of YIANGOS ARCADIOU, to be hcid at an address ln Queen Street, Melbourne. I attended the meetlnq,

and recollect that ALEX NEVILLE BIRD was appoinfed

Trustee I n the course of the meeting; whlle I have no accurate recollectlon of the date of this meeting, I gather from the Applicant's

documents in this matter that It was on 6th Aprll,

1977.

. . ./l7

31. THAT up t o t h e tlme when I r e c e l v e d t h e

n o t i c e r e f e r r e d t o I n paragraph 30 of

t h i s my A f f i d a v i t , I was not-. a w a r e t h a t

YIANGOS ARCADIOU was u n a b l e t o p a y h i s

d e b t s :  I merely c o n s l d e r e d t h a t h e was

v e r y slow i n paying h l s d e b t s . I continued

my e f f o r t s t o o b t a l n payment of the amount

I c o n s l d e r e d t o b e d u e t o t h e R e s p o n d e n t

f l rm f rom YIANGOS ARCADIOU up t o t h e t l m e

when I r e c e i v e d t h e s a i d n o t l c e .

3 2 . THAT I h a v e r e a d t h e A f f l d a v i t o f ALEX

NEVILLE	B I R D sworn	on	t h e	2 3 r d d a y o f M a y ,
1 9 7 9 which	1 s i n t e n d e d t o	be	used	a t t h e

h e a r i n g o f t h e A p p l i c a t i o n o f t h e s a i d

ALEX NEVILLE BIRD, a n d s a y t h a t p a r a g r a p h

15 of the document marked wlth the l e t t e r

"A" a t t a c h e d t o t h e s a i d A f f i d a v l t i s

a l m o s t i l l e g i b l e i n my c o p y . I n s o f a r a s

t h e s a i d p a r a g r a p h a p p e a r s t o r e f e r t o a

meeting wh lch t ook p l ace on the 20 th day

of September, 1 9 7 6 I s a y t h a t I r e c e l v e d

no no t l ce o f t ha t mee t ing and had no

knowledge of it u n t l l more r e c e n t l y t h a n

March, 1 9 7 7 . I a l s o r e f e r t o t he documen t

marked wi th the l e t te r "B" a t t a c h e d t o t h e

s a i d A f f l d a v i t , w h i c h 1s a schcdule showlng

t h e e x t e n t t o w h l c h t h e a m o u n t s ~ ~ ~ ~~ ~~ d u e t o t h e

~~~ ~

t r a d e c r e d l t o r s of Y I A N G O S Al<CADIOU were

overdue as a t t h e 1 5 t h d a y O E September,

1 9 7 6 and say t h a t I am u n i b l e t o - f i n d t h e

name I n t h a t s c h e d u l e .

Respondent 's

33. THAT I f I h a d a n y i d e a t h a t YIANGOS ARCADIOU

was i n a p r e c a r i o u s f l n a n c l a l p o s i t i o n a t

any t lme,-I would no t have pcrml t ted the

Responden t f l rm to con t lnuc t o work f o r h l m ,

s lnce the Respondent f l rm had no l a c k of good

work o p p o r t u n i t i e s t h r o u g h o u t 1 9 7 6 . "

The d e t a l l s o f a l l t h e work done f o r t h e b a n k r u p t were

set o u t I n E x h i b l t	R	t o Mr	C a s a b e n e ' s a f f l d a v l t ,	w h l c h r e a d	2 s
f o l l o w s :

"SCHEDULE OF ACCOUNTS RENDERED AND ACCOUNTS SENT I N ERROR

Invo ice Date of Work Address

Document NO. - Amount Comment

- Invoice Per formed of Work

D 407 3 0 . 6 . 7 6 May 1 9 7 6 Lots 8 4 & 85 $1,384.00 Account

Rendered

E 436 30.7.76 May 1 9 7 6 Lots 8 4 & $1,384.00 85 Account

Rendered

K 4 7 8 8 .9 .76 May 1 9 7 6 Lots 8 4 & 85 $1,384.00 Account

Rendered

L 513 1 2 . 1 0 . 7 6 October Glenmoyne $ 1 , 2 1 0 . 0 0 P h l l l p

1 9 7 6 Square Arcadiou

P 543 2 6 . 1 1 . 7 6 August, $4,855.00* Various

October 1 9 7 6

t

Amount o v e r - s t a t e d by $ 1 , 2 5 6 . 0 0 . See paragraph 2 6 of

Mlchele Casabene ' S Af f l d a v l t . "

. . .18 /

Under cross-examinatlon, Mr Casabene agreed

that by September 1976 he was serlously concerned	by the
failure of the bankrupt to pay any part	of the money he
owed, but he said:	"I know he wlll pay me". He wanted
the bankrupt to pay him the whole amount due but	on
7 October 1976 he received a payment	of $4,000, leavlng
a balance of $1,338.00.	He sometimes walted a couple of
hours to catch the bankrupt	on a bulldlng site to repeat
hls request for payment	and kept pressure on hrm "all the

tlme".	The bankrupt would reply: "Don't worry	- money is
coming".

Other contractors told Mr Casabene In 1976 that

the bankrupt was slow to pay but that he would pay, although

he always paid In arrears and kept people waltlng a long
time before paylng. On Chrlstmas Eve 1976 he went to the

bankrupt's home "to knock on the door for the balance of

the money because he promised to pay me before Chrlstmas so

I can pay my men". The bankrupt replled: "Don't worry, no

worrles, I wlll give you the money. The money 1s comlng. I

am sorry you have been let down". Mr Casabene thought that

the bankrupt was the flrst person In 17 years of busmess

agalnst whom he had taken such a step. When asked whether

he believed the excuses glven to hlm on Christmas Eve, he

replied that he believed and dld not belleve.

The respondent recelved the October payment of

$4,000.00 from the bankrupt at about the same tlme as he
was urgently requested	by his son Phlllp to perform drainage

work on the latter's property at Werrlbee. At that time the

total amount owed	by the bankrupt to the respondent was
$5,338.00, being $1,384.00 In respect of work performed	in
May 1976 and $3,954.00 for work done In August	1976.

The bankrupt had been Informed before the work

commenced that the respondent's terms would be	''strictly
30 days for settlement	of accounts". Invoices for the work
done in May were prepared	on 3 June 1976 and shortly there-

. . .19/

after were delivered to the bdnkrupt. Accounts rendered were also sent. Invoices in respect of the August work were delivered to the bankrupt shortly after 8 September, whlch was the date they bore, together with a further account rendered for the May work.

Despite the repeated urglngs of Mr Casabene,

and more than one call at the bankrupt's home, no payment

was received untll about 7 October.

"In approximately August of 1976 in splte of

havlng received no payment at all to that tlme" Mr Casabene

accepted lnstructlons from the bankru2t to carry	out further
work, for whlch lnvolces were	madc out on 8 September 1976
totalling	$3,954.00 .
The nature of the test to be applied ln construlng
the words "the creditor	had reason to suspect" was considered

by Latham C.J. In Downs Dlstrlbutlng Co. Pty. Ltd. ( 1 9 4 8 )

76 C.L.R. 463 at p. 475, as follows:

"It was argued that the words 'the
credltor had reason to suspect' meant
that the creditor had In hls mlnd some
knowledge or belief which to hlm

amounted to reason to suspect; in

other words, that the test was a

subjective test. In my opinlon

there 1s no reason for lnterpretlng

the words of the section In this way,

and there 1 s every reason for

interpretlng them as referring to

an objective test. The sub-section

refers to 'such clrcumstances as to

lead to' one or other of two inferences;
either flrst, that the credltor knew
certain facts: or secondly, that the
credltor had reason to suspect the
existence of certaln facts. The
provislon as to the credltor 'knowihg'

adopts a subjectlve crlterion - applled

by mference made by the court. The
other provislon as to the clrcumstances
leadlng to an Inference that the credltor
had 'reason to suspect' relates In my

opinlon to what may, by way of comparlson,

be descrlbed as an ob~ectlve test. It

is intended to deal wlth circumstances

such that an inference can falrly be

drawn by a court that there was reason

to suspect, whether or not In fact the

. . .20 /

mind of the credltor consclously
adverted to the slgnlflcancc wlth
respect to the flnancial position
of the debtor of thc matters mentioned

In the sub-section. In my oplnlon a

transactlon falls withln sub-s. ( 4 ) , so

that a creditor is excluded from the

category of a creditor deallng in good

faith under sub-s. ( 2 ) (b) , if, whatever

the credltor may thlnk or belleve with

respect to the clrcumstances of a

transaction, those clrcumstances are
such as to lead to an lnference by the
court that there was reason to suspect
accordlng to the standards of an

ordlnary reasonable man that the debtor

was unable to pay his debts as they

became due, and that the effect of the
transactlon would be to glve the

credltor a preference over other

credltors. I'

At p. 480 Wllliams J. Sald:

"Hls Honour found that the clrcumstances were such as to lead to the lnference

that the managlng dmector of the

defendant had reason to suspect these

matters.	It was contended for the
appellant that in drawing such	an

inference the Court should have regard

to the mentality of the particular

credltor. But, in my oplnlon, the

clrcumstances to which the sub-section

refers are such circumstances	as would
lead a reasonable buslness man	to
suspect these matters."

In Queensland Bacon Pty. Ltd. v Rees (1965-1966) -

115 C.L.R. 266 at p. 296 Barwlck C.J. said:	"The question of what lnference should be drawn from all these clrcumstances is a question for the court. But the
inference belng sought  is the inference
which a reasonable buslness  man in the
situation ought to draw. It must be remembered that tradlng of the kind wlth whlch these appllcatlons are concerned IS, as of present tlmes, predomlnantly carrlcd on by means of extenslve credit and that overdraft accommodation supplements that credlt to furnlsh the circulatlng capital.
Consequently, liquidlty can  be lost
overnight upon  a reductlon of overdraft
limlts. Whether thls spells lnsolvency

. . ,21/

must be determined, it seems to me, by the speed with whlch assets of a readily realizable kind can be turned

into cash. That time wlll be relatlve
at least to the nature or extent of
the Indebtedness. Although in the full
knowledge of all the facts the company

was insolvent, his Honour found that

the circumstances did	not lead to the
conclusion that the appellant	knew of
that insolvency.	The questlon remains
what is the proper lnference	whlch the
court thlnks a reasonable	and prudent

business man should draw from those

circumstances. 'I

Kitto J. at p. 312 observed:

"AS in the other three cases, there 1 s

great need to keep steadlly in	vlew
what the preclse lnference	1s to whlch
sub-s.(4) refers.	It is an inference

which the Court draws from the circumstances

known to the creditor at the tlme when

he accepted the payment.	It 1 s an
lnference that the credltor	at that
tlme had reason for an	actual susplclon
of a particular state of	facts, that 1 s

to say a ground whlch a reasonable man

in hls positlon would have considered

sufflclent to raise In hls mlnd a real

suspicion that the state of facts exlsted.

I venture to repeat that the state of

facts consists of two elements. The
flrst is an actual lnablllty on the part
of the payer to pay his debts as they
became due, as distlnguished from a

reluctance to accommodate hls wlder

purposes to the limitations of hls

resources. The second is that the effect

of the payment, i.e. ~ t s ultlmate,

substantial effect, would be that the
payee would be in a better posltlon vis-a-
v1s the other credltors than he would have
been if the company's assets had been
converted and dlstrlbuted amongst all the

creditors in a due course of wlndlng up."

Applying the test whlch the authorities require,

I am satisfied that had the respondent been pald in late

August or early September	1 9 7 6 ,	it would have been a payee
In good faith and that	it would have negatived	the Inference
that It knew or	had reason to suspect that the bankrupt	was

unable to pay his debts as they became due from hls own

money, and that the effect of thc payment would be to glve

. . 2 2 /

.

.. 2 2 .

it a preference, prlority or advantage over other credltors.

It is true that "about September 1976" Mr Casabene

told the bankrupt that the respondent would do no more work

for him "untll such time as a substantial payment had been

received", but I am inclined to the view that this clrcum-

stance is not fatal to the respondent's case. It 1 s a nice

questlon, but, on balance, I am satisfled that the respondent

has discharged the burden of provlng, In respect of the

payment of $4,000.00 made on 7 October 1976, that It was a

payee in good falth and that	it has negatlved the lnference
referred to in s.l22(4)(c).	The work for whlch that payment
was made had been carried	out In May 1976, so that pa}-ment

was overdue but not to a serious extent.

There belng no challenge to the fact that the

payment to the respondent was for valuable conslderation, it remalns to be seen whether it has made out the addltlonal

requlrement that the payment was made I n the ordlnary course

of buslness. The tests to be applied have been lald down In Downs Distributing Co. Pty. Ltd. v Associated Blue Star

Stores Pty. Ltd. (In llquldatlon) (1948) 76 C.L.R.	463 where
at p. 476 Rich J. cited the observatlon	In Burns v McFarlane
(1940) 64 C.L.R. 108, at 125:

"that the expression 'ordlnary course
of business' does not requlre 'an

mvestigation of the course pursued

in any particular trade or vocation

and it does not refer to what is

normal or usual in the business of the debtor or that of the credltor' and went on to say: 'It 1 s an additlonal

requirement and is cumulatlvc upon good faith and valuable conslderation. It 1 s

therefore, not so much a questlon of

fairness and absence of symptoms of

bankruptcy as of the everyday usual or
normal character of the transactlon. The

provislon does not requlrc that the

transactlon shall be In the course of

any particular trade, vocatlon or buslness.

It speaks of the course	of business In
general.	But it does suppose that

accordlng to the ordlnary and common

flow of transactions in affalrs of buslness

there 1 s a course, an ordinary course. It

means that the transactlon must fall Into

. . .23/

place as part of the undlstlngulshed common flow of busmess done, that it should form part of the ordlnary course

of buslness as carried on, calllng for

no remark and arlsincJ out of no speclal

or particular situatlon.'

In R o b c ' l t , c r l U. Gt~>]:~(1932) 47 CLR 257,

at 273; 1933 ALR 40, at 46, Evatt J sald:

'The ordlnary course of busmess 1s not,

I thlnk, to be related to any speclal

business carrled on by either debtor o r
credltor, but 1 s concerned wlth the

character of the lmpeached transaction

itself' . "

In my opinion, the respondent has establlshed

that the October payment	was made In the ordlnary course
of business, as that expression has been	construed.

The debate upon the effect of s.123 upon the

October payment was narrowed by concessions made in the

course of argument. Mr Irllcht conceded that the respondent

had established that the transactlon In question took place

before the date on whlch the debtor became a bankrupt (see

s.123(1) (e) and that the respondent dld not, at thc tlme of

the transaction, have notlce of the presentation of a petition

agalnst the debtor (see s.l23(1)(f)), It was Mr Irllcht's contention that the respondent had failed to show that the

transaction was In good faith and	In the ordlnary course of
busmess (see s.l23(1)(g)). In	my oplnlon, the respondent

has dlscharged the burden of provlncJ that the transactlon met

the requirements of s.l23(1)(g) for the reasons whlch I have

earller set out In relatlon to s.122, bearing ln mind, of

course, that s.123 does not contain any provislon such as

that found in s.122(4) (c).

As the respondent has succeeded in Its defence

to both bases upon which the appllcation	in respect of the
October payment of $4,000.00	was founded, the appllcatlon
falls in relation	to It.

. . .24/

I turn now to consldcr the payment of $ 2 , 5 0 0

made by the bankrupt to the respondent on 4 February 1977.

By that date, Mr Casabene had made many demands upon the

bankrupt for payment, lncludlng	a call to hls home on
Chrlstmas Eve which he made "to abuse him	as to why he let

me down, dld not pay me the money to pay my men". At that date, the amount owed to the respondent was long overdue In

clrcumstances which	in my oplnlon, would have caused a
reasonable buslness man in the posltion	of the respondent to
have reason to suspect the	matters speclfied in s . 1 2 2 ( 4 ) (c) li)
and (ii).	It 1 s not merely a case, in my oplnlon, In which
the respondent has failed to negative the Inference that	It
had reason to suspect those matters, but rather one In which the evldence establishes affirmatlvely that the inference should be drawn.

In the result, the respondent has succeeded In

Its defence In respect of the October 1976 payment of

$ 4 , 0 0 0 . 0 0 and failed in relatlon to the February 1977 payment

of $2,500.00 .	The approprlatc order for costs appears to
be that the appllcant pay	one thlrd of the costs of the
respondent of and incldental to the appllcatlon, such	costs
to be taxed if not agreed.

The Court declares that the payment made by the

bankrupt to the respondent of $2,500.00	on 4 February 1977
IS vold as against the appllcant and	orders that the

respondent pay to the applicant the sum of $2,500.00 . It

1s ordered that the applicant	pay one third of the costs
of the respondent of and lncldental	to the appllcation,
lncludlng reserved	costs, such costs to be taxed If not

agreed. The costs so paid to the respondent and the taxed costs of the appllcant of and lncldental to the application

may be recovered by the appllcant from the estate of the

bankrupt. Otherwlse, the applicatlon 1 s dismlssed. Llberty
is reserved to elther party to apply.