WorkCover Corporation of South Australia v David John Olifent No. SCGRG 94/1564 Judgment No. 6176 Number of Pages 16 Bankruptcy (1997) 68 Sasr 310

[1997] SASC 6176

IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA

MATHESON, OLSSON AND WILLIAMS JJ

Bankruptcy - taxes and duties - appeal against declaration and determination that the respondent was entitled to recover $67,895.09 from the appellant as a preference over other creditors - Corporations Law, s 565 - definition of tax - whether levy payments, required under the WorkersRehabilitation and Compensation Act 1986, were a tax for the purposes of section 122 of the Bankruptcy Act and therefore payments which took place "in the ordinary course of business" - if so, whether levy payments were received by the appellant in good faith. Workers Rehabilitation and Compensation Act1986 ; Bankruptcy Act 1966s122; The Corporations Law , referred to. Sheehan v Hertz Australia Pty Limited (1995) 16 ACSR 765, applied. Taylor v White (1964) 110 CLR 129; Spedley Securities Limited (in liq) v Western United Limited (in liq) (1992) 7 ACSR 271; A Taxing Time: The High Court and The Tax Provisions of The Constitution (1993) 23 WALR 362, discussed. Australian Tape Manufacturers Association Limited v The Commonwealth (1992-1993) 176 CLR 480; Air Caledonie International v The Commonwealth of Australia (1988) 165 CLR
462; Northern Suburbs General Cemetery Reserve Trust v Commonwealth of Australia (1992-1993) 176 CLR 555; Queensland Bacon Pty Limited and Ors v Rees
(1996) 115 CLR 266; Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR
263; Fairfax v Federal Commissioner of Taxation (1965) 114 CLR 1, considered.

ADELAIDE, 10 April 1997 (hearing), 30 May 1997 (decision)

#DATE 30:5:1997

Appellant:

Counsel: Mr J Sulan QC with Mr M Vincent

Solicitors: Griffins

Respondent:

Counsel: Dr R Baxter

Solicitors: Johnson Winter & Slattery

Order: appeal dismissed.

MATHESON J

1. I agree with Olsson and Williams JJ that the Workers Compensation levy payments were payments of tax within the meaning of s122(4) of the Bankruptcy Act. I had tentatively expressed that view in Sheahan and Magill Constructions Holdings Pty Ltd (In Liquidation) v Workers Rehabilitation and Compensation Corporation (1992) 58 SASR 119 at p123. However, like Olsson and Williams JJ I have also reached the conclusion that the appellant has not discharged the onus of proving the exculpatory matters referred to in s122(2). Specifically, I agree with what Olsson J has said in rejecting the appellant's argument that Debelle J had failed to consider each of the relevant payments at the time it was made. The appeal should be dismissed.

OLSSON J

2. This is an appeal against a declaration and determination made by Debelle J to the effect that the respondent, as liquidator of Ceiling and Roofing Products Proprietary Limited ("C&RP") was entitled to recover a total sum of $67,895.09 from the appellant, because it constituted a preference, by virtue of the provisions of section 565 of the Corporations Law ("the Law"). That sum included interest in the amount of $10,000.00.

3. The evidence revealed that C&PR was a company which carried on business in this State as a roofing contractor. It was registered with the appellant as an employer and, by virtue of the provisions of the WorkersRehabilitation and Compensation Act 1986 (SA) ("the Act"), was required to make workers compensation levy payments to it on a monthly basis. The payments were due on or about the 7th day of each month. Due to the size of the C&RP workforce and the fact that the levy was based on prescribed percentages of payroll to various classes of employee, the monthly payments due to be made were quite substantial.

4. Up until almost the end of 1992, C&RP had a record of prompt payment of its levy obligations. However, due to financial difficulties experienced by it, the company thereafter fell into arrears.

5. That situation was exacerbated by the fact that, in September 1992, a random field audit of C&RP was conducted by a field auditor on the staff of the appellant. This disclosed that C&RP had not correctly characterised some of its labour costs and had, for that reason, underpaid the correct amount of levy. This resulted in the imposition of past arrears of levy and penalties for underpayment totalling $34,538.28. That liability was notified to C&RP by letter written by the appellant on 29 September 1992.

6. It is important to note that the managing director of C&RP (Mr Wegener), having received the letter detailing the arrears and penalties, spoke to the field auditor and requested time in which to pay. It was agreed that the arrears and penalty could be paid by instalments of $5,000.00 per month, commencing on 7 November 1992. The field auditor did not ask, and was, at that point, not told anything concerning the financial position of the company. However, he seems to have taken the view that, as C&RP had been a consistent, good payer in the past, it was not unreasonable to permit payment by instalments, rather than in one lump sum.

7. C&RP paid its levy for the month of October on 7 November 1992 and the first instalment in reduction of arrears on 16 November 1992.

8. Thereafter, the progressive state of the levy account of C&RP with the appellant was as under:-

TABLE

Date
Details
Amount Due
Payment
Balance
16/11/92
Audit Adjustment
$34,538.28
$ 34,538.28
16/11/92
Payment
$ 5,000.00
$ 29,538.28
7/12/92
Nov 1992 Levy
$37,703.55
$ 67,241.83
16/12/92
Payment
$ 5,000.00
7/ 1/93
Dec 1992 Levy
$32,899.80
$100,108.63
7/ 2/93
Jan 1993 Levy
$17,962.41
$118,071.04
Nov 1992 Fine
$10,684.72
$128,755.76
Dec 1992 Fine
$23,310.00
$152,065.76
Jan 1993 Fine
$ 4,304.50
$156,370.26
18/ 2/93
$ 5,000.00
$151,370.26
26/ 2/93
$ 8,334.38
$143,035.88
2/ 3/93
$ 9,618.03
$133,417.85
22/ 3/93
$ 7,598.04
$125,819.81
1/ 4/93
$ 6,755.64
$119,064.17
14/ 4/93
$10,200.00
$108,864.17
23/ 4/93
$10,379.00
$ 98,485.17
9. As will be seen, default was made by C&RP in relation to its levy in respect of the month of November 1992, which was due for payment on 7 December of that year. This having come to the attention of Ms Paulin, a recovery officer employed by the appellant, she telephoned Wegener on 17 December 1992. He said he would look into the matter. She again telephoned him on 18 and 21 December 1992 respectively. On the latter occasion, Wegener informed Ms Paulin that C&RP had what he described as "short term cash flow problems"; and said that it could not pay anything until after Christmas. After some discussion, she agreed to extend the time for payment until 31 December 1992.

10. On 7 January 1993 Ms Paulin noted that the levy due on 7 December had still not been paid and, as it turned out, was also, mistakenly, of the belief that the $5,000.00 arrears instalment due in December had not been paid. In fact, that payment had been made, as was subsequently ascertained.

11. On 8 January 1993 Ms Paulin further spoke with Wegener, who told her that C&RP did not have the financial resources to pay what was due to the appellant at that time, because it was chasing debts due to it. He said that it was not having much luck in doing so, because many of the company's debtors were still on holiday. He was informed that the default in payment in December had attracted a penalty fine. The conversation on that occasion concluded on the basis that Wegener hoped that his company might be able to pay something by mid-January.

12. Because of the prior excellent payment record of C&RP, Ms Paulin was prepared to accept those assurances. Accordingly, no further action of note occurred until 20 January 1993, at which point the levies for the months of November and December had both not been paid on the due dates. In addition, the arrears instalment due in January 1993 was also in default.

13. Accordingly, on 20 January 1993, Ms Paulin handed the file to one of her managers, a Mr Smith. He studied it and concluded that, at that point, C&RP then owed the Corporation at least about $100,000.00. On the following day he telephoned Wegener and made an appointment to call on him on 25 January 1993.

14. During the course of a conversation, which spanned a number of topics (including some complaints which Wegener had about delays on the part of the appellant in reimbursing the company for income maintenance instalments which it had paid to workers), Wegener told Smith that C&RP was going through what was described as "a real cash flow shortage". Smith was informed that future contracts of the company were "solid", but that both the appellant and the Australian Tax Office "have been put on ice temporarily to enable the company to continue to trade". This was a reference to the fact that, at the time, Smith became aware, as a result of his conversation with Wegener, that C&RP owed the Australian Taxation Office the sum of $150,000.00, which, he assumed, was for group tax deducted from salaries, but not remitted. Wegener stated to Smith that the ATO had allowed two years for that debt to be discharged.

15. On this occasion, Wegener asked Smith for the same terms as had been granted by the ATO, in relation to the debt due by C&RP to the appellant. Smith said that such a period was too long, that the appellant should be realistic. Ultimately, Smith agreed to recommend a scheme for payment over twelve months.

16. In giving evidence before Debelle J, Smith said that he held the view, at the time of this conversation, that it would exacerbate C&RP's cash flow problems if the appellant insisted on payment in full.

17. It appeared from Smith's evidence that he was given an overview of the financial position of C&RP by Wegener at the meeting. He was given to understand that, on the one hand, C&RP's creditors owed it $1.154m whilst, on the other, $500,000.00 was due to company creditors, in addition to which C&RP had loan and overdraft commitments of the order of $750,000.00. Notes made by Smith at the time include the following entry:-
"He can pay nothing at this time. I told him the debt is enormous and we may effect legal action anyway to secure our position." 18. A further 3.5 weeks passed without receipt by the appellant of any further payment from C&RP. On 17 February 1993, Wegener telephoned Smith to inform him that the levy for January 1993 amounted to $17,962.41. Smith asked that one of the monthly payments of arrears be made immediately and that the levy for January be met by the end of February. He also stated that the arrears due to the appellant would then be capped and arrangements made for future repayment of them. As a consequence, C&RP actually paid $5,000.00 that same day.

19. Another meeting took place between Smith and Wegener on 24 February 1993. At that time an amount in excess of $140,000.00 was owing by C&RP to the appellant. It was agreed that the company would pay the levy for January 1993 in full when Smith had secured a cheque from the appellant to pay a claim for income maintenance which was outstanding in favour of C&RP. On 1 March 1993, Smith personally delivered the income maintenance cheque to Wegener. That cheque was immediately endorsed by the latter back in favour of the appellant and returned to Smith, together with a C&RP cheque for the balance of $9,618.03 due in respect of the January levy.

20. Smith conceded in evidence that the residual debt of $128,440.35, remaining due after that transaction, was a fairly large amount to be outstanding for levies by any employer registered with the appellant.

21. In the course of his reasons for decision, Debelle J recited further discussions which took place between Smith and Wegener in March and April 1993, related to negotiations aimed at meeting the outstanding levy obligations of the company. These included a further endorsing of a reimbursement cheque from the appellant for income maintenance payments back in favour of the appellant.

22. The learned trial Judge noted that, in cross examination, Smith conceded that, as early as 20 January 1993, he probably realised that C&RP could not then pay either other creditors, or the appellant, for a very lengthy period of time, although he was confident, based on his past experience with the company, that C&RP would probably be able to trade its way out of its financial difficulties, if given time.

23. Debelle J found that the liquidator's report disclosed that C&RP was hopelessly insolvent in the early months of 1993 and had had a substantial deficiency of working capital since at least mid-1992 - with no realistic prospects of borrowing funds, or raising capital in any other way. Its debts to creditors had aged to a considerable extent. By the beginning of 1993 it was, as he put it, "plainly relying on being able to defer payments to creditors in order to be able to continue to trade".

24. The claim by the liquidator essentially focused on payments made on and after 18 February 1993. At the trial before Debelle J it was common ground that the final payment of $10,379.00 made by C&RP to the appellant on 23 April 1993 was a preference under the Law, because it constituted payment of a penalty.

25. Against the background which I have summarised, Debelle J had no hesitation in concluding that all payments made by C&RP to the appellant on and after 18 February 1993 had the effect of giving the appellant a preference or advantage over other creditors and had not been made in good faith, in the sense contemplated by section 122 of the Bankruptcy Act. He also found that they had not been made in the ordinary course of business (see Taylor and Anor v White and Anor (1964) 110 CLR 129 at 136; Spedley Securities Limited (in liq) v Western United Limited (in liq) (1992) 7 ACSR 271 at 278) ("Spedley").

26. In the course of his deliberations as to the latter aspect, Debelle J considered whether or not the appellant was entitled to retain the impugned payments made to it, on the basis that they constituted a payment of tax within the scope of subsection (4)(b) of section 122 of the Bankruptcy Act ("section 122"). Having considered the evidence and the relevant authorities, he concluded that the levy liabilities in favour of the appellant did not constitute a tax and, accordingly, the impugned payments had not been made in the ordinary course of business, in the sense contemplated by section 122.

27. The grounds of appeal now sought to be relied upon by the appellant place in issue the propriety of the conclusions above summarised. Moreover, they complain that the learned trial Judge failed to consider the situation of each individual payment, as and when it was made.

28. The resolution of the issues arising on this appeal requires an initial study of the provisions of section 565 of the Law and section 122.

29. The former section is expressed as follows:-
"565(1) [Void preference] A settlement, a conveyance or transfer of property, a charge on property, a payment made, or an obligation incurred before the commencement of Part 5.7B, by a company that, if it had been made or incurred by a natural person, would, in the event of his or her becoming a bankrupt, be void as against the trustee in the bankruptcy, is, in the event of the company being wound up, void as against the liquidator.
565(2) [Relevant date] For the purposes of subsection (1), the date that corresponds with the date of presentation of the petition in bankruptcy in the case of a natural person is:
(a) if the company was under official management at any time during the 6 months ending on the relation-back day - the day on which the official management commenced; or
(b) otherwise - the relation-back day." 30. In the instant case the relation-back day was the day on which the winding up order was made; i.e., 6 July 1993.

31. As is immediately apparent from the section, the real issues arising in this matter stem from the incorporated detailed provisions of section 122. Those provisions, so far as they are relevant for present purposes, are as under:-
"122. (1) A conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred, by a person who is unable to pay his debts as they become due from his own money (in this section referred to as 'the debtor'), in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred:
(a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt; or
(b) on or after the day on which the petition on which, or by virtue of presentation of which, the debtor becomes a bankrupt is presented and before the day on which the debtor becomes a bankrupt;
is void as against the trustee in the bankruptcy.
(1A) ...
(2) Nothing in this section affects:
(a) the rights of a purchaser, payee or encumbrancer in good faith and for valuable consideration and in the ordinary course of business;
(b) ...
(c) ...
(3) The burden of proving the matters referred to in subsection (2) lies upon the person claiming to have the benefit of that subsection.
(4) For the purposes of this section:
(a) a conveyance, transfer, charge, payment or obligation shall be deemed to have been executed, made or incurred in favour of a creditor if it is executed, made or incurred in favour of a person in trust for that creditor;
(b) a payment of tax or municipal or other local rates under a law of the Commonwealth or of a State or Territory of the Commonwealth shall be deemed to be a payment made for valuable consideration and in the ordinary course of business; and
(c) a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good faith if the conveyance, transfer, charge, payment or obligation was executed, made or incurred under such circumstances 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
(ii) that the effect of the conveyance, transfer, charge, payment or obligation would be to give him a preference, priority or advantage over other creditors.
(4A) ...
(5) ...
(6) ...
(7) In this section, 'tax' includes any amount payable as provisional tax and contribution, or as provisional tax, in accordance with Division 3 of Part VI of the Income Tax Assessment Act, 1936." 32. It is to be observed that, once it is made to appear that a relevant payment has been made to a creditor within the relation-back period, that payment is void, as against the liquidator, unless the payee discharges its onus of establishing both that it received the payment in good faith and for valuable consideration; and, also, that it did so in the ordinary course of business.

33. In the instant case, in practical terms, it was therefore incumbent on the appellant to prove:-
(1) that it received the impugned payments under such circumstances that it neither knew, nor had reason to suspect, that C&RP was unable to pay its debts as they became due from their own moneys or that the effect of the payment would be to give it a preference, priority or advantage over other creditors; and
(2) that such payments were made for valuable consideration and in the ordinary course of business. [In this regard, if it can be shown that the relevant payments were a tax, within the meaning of subsection (4)(b) of section 122 then the second requirement will have been satisfied.] 34. The first contention advanced by Mr Sulan QC, of senior counsel for the appellant, was that the learned trial Judge fell into error in not characterising the WorkCover levy payments due by C&PR as a "tax" within the meaning of subsection (4)(b) of section 122.

35. In this regard, it is to be noted that the word "tax" is employed in subsection (4)(b) according to its normal and usual meaning. The definition in subsection (7) of section 122 is merely expansive and, in terms, is inapplicable to the facts in the instant case.

36. Mr Sulan QC took, as his commencement point, the definition of the concept of a tax which fell from the High Court in Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR 263 at 276 ("Matthews") in these terms:-

"It is a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered." 37. It is, of course, trite to say that the question of whether a payment is one which is for a public purpose is determined by reference to the overall scheme of the relevant legislation and whether the imposition of (in this case) the relevant levy is, in the relevant sense, for a government purpose, rather than for services rendered, or constitutes a penalty (see Australian Tape Manufacturers Association Limited and Ors v The Commonwealth (1992-1993) 176 CLR 480 at 505 and 507 ("Australian Tape")).

38. There can be little doubt that, having regard to the reasoning adopted in cases such as Australian Tape and also Air Caledonie International and Ors v The Commonwealth of Australia (1988) 165 CLR 462 ("Air Caledonie"), the High Court has moved somewhat beyond the restrictions of the original formulation of principle expressed in Matthews; and even further away from the dictum of Windeyer J in Fairfax v Federal Commissioner of Taxation (1965) 114 CLR 1 at 19, where he commented that taxes "are ordinarily levied to replenish the Treasury, that is to provide the Crown with revenue to meet the expenses of Government".

39. In Air Caladonie, in its joint judgment, the High Court, in referring to Matthews, made the point that what fell from Latham CJ in that case ought not to be seen as providing an exhaustive definition of what constitutes a tax. Their Honours said:-
"... there is no reason in principle why a tax should not take a form other than the exaction of money or why the compulsory exaction of money under statutory powers could not be properly seen as taxation notwithstanding that it was by a non-public authority or for purposes which could not properly be described as public. The second is that, in Logan Downs Pty Limited v Queensland (1977) 137 CLR 59 at 63, Gibbs J made explicit what was implicit in the reference by Latham CJ to 'a payment for services rendered', namely, that the services be 'rendered to' - or (we would add) at the direction or request of - 'the person required' to make the payment. The third is that the negative attribute - 'not a payment of services rendered' - should be seen as intended to be but an example of various special types of exaction which may not be taxes even though the positive attributes mentioned by Latham CJ are all present. Thus, a charge for the acquisition or use of property, a fee for a privilege and a final penalty imposed for criminal conduct or breach of statutory obligation are other examples of special types of exactions of money which are unlikely to be properly characterised as a tax notwithstanding that they exhibit those positive attributes. On the other hand, a compulsory unenforceable exaction of money by a public authority for public purposes will not necessarily be precluded from being properly seen as a tax merely because it is prescribed as a 'fee for services'. If the person required to pay the exaction is given no choice about whether or not he requires the services and the amount of the exaction has no discernible relationship with the value of what is acquired, circumstances may be such that the exaction is, at least to the extent that it exceeds that value, properly to be seen as a tax." 40. Later in the same judgment the High Court reiterated that:-
"Read in context, the reference to 'fees for services' in section 53 [of the Constitution] should, like the reference to 'payment for services rendered' in the above quoted extract from the judgment of Latham CJ in Matthews v Chicory Marketing Board, be read as referring to a fee or charge exacted for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment." 41. These dicta fall to be contrasted with those to be found in Australian Tape (pages 504-505).

42. It will be recalled that Australian Tape focused upon legislation which, in effect, sought to impose a levy upon blank audio tapes sold in Australia, for the purpose of protecting the owners of copyright against complete loss of royalties in relation to pirated tape recordings.

43. In the course of their judgment, the majority had this to say:-
"The only possible reason, apart from those already rejected, for holding that the provision in question in this case is not a law imposing taxation is that an expropriation from one group for the benefit of another as an incident of legislative regulation of interests on a subject matter within power, with a view to bringing about what is conceived to be an equitable outcome, is not an exaction for public purposes and is therefore not a tax. In one sense it may be said that the purpose is private in that it concerns the interests of two groups only. But, in truth, the legislative solution to the problem proceeds on the footing that it is imposed in the public interest. Indeed, the purpose of directing the payment of the levy to the collecting society for ultimate distribution of the net proceeds to the relevant copyright owners as a solution to a complex problem of public importance is, of necessity, a public purpose." 44. Such an approach must be seen to be incompatible with the reasoning of the Canadian Supreme Court in Massey-Ferguson Industries Limited et al v Government of Saskatchewan et al (1982) 127 DLR(3d) 513, in which it was held that a levy, with some characteristics not dissimilar to those in Australian Tape, was held not to be a tax. This was because the Court found that the levy had, as its chief purpose, the creation of a discrete insurance fund, which was aimed at benefiting a limited group of people within the community.

45. The learned author of "A Taxing Time: The High Court and the Tax Provisions of the Constitution" (1993) 23 WALR 362, to which our attention was directed, observes that the Canadian reasoning and the Matthews definition had, as their common root, earlier comments made by the Privy Council in Lower Mainland Dairy Products Sales Adjustment Committee v Crystal Dairy Limited [1933] AC 168 at 175-176. He opines that it must now be accepted that, in the Australian environment, any requirement that a levy must be paid to a public authority and raised for a public purpose (in the strict sense of those expressions) has been rejected in favour of a test which implies what has been described as "a single general notion, namely that a levy be a compulsory exaction of money under law" - at least where the levy has been imposed in the public interest, as a solution to a problem of public importance. I think that this is a reasonable summation of the situation.

46. It must, of course, be recognised that all of the High Court authorities to which I have referred relate to the concept of tax in a constitutional sense. It is strange that both the researches of counsel and of myself have failed to reveal any helpful authority which discusses the question of what constitutes a tax in other than the constitutional setting. It must, therefore, be accepted for present purposes that the decisions, to which I have adverted, are the only authorities extant which enunciate guiding principles by reference to which the present problem may be addressed.

47. An interesting illustration of their practical application is to be found in Northern Suburbs General Cemetery Reserve Trust v Commonwealth of Australia (1992-1993) 176 CLR 555. This related to Commonwealth legislation proposing a so-called "training guarantee charge" designed to require employers to expend a minimum sum, based upon payroll in each year, on what was described as "quality employment related training". The appellant, which employed gravediggers in relation to whom the provision of relevant training opportunities was, to say the least, restricted, by virtue of the very nature of their work, sought to argue that the legislation in question was not a law with respect to taxation. The High Court rejected that contention.

48. In reviewing the legislation, the majority pointed out that, in no sense, was the legislation directed towards making a payment for service rendered, because it did not require either that the money received be expended on the provision of eligible training programmes, or that it be expended in relation to eligible training programmes for those employers who had incurred a liability to pay the charge. They went on to say that the fact that the revenue raising burden might be merely secondary to the attainment of some other object or objects is not a reason for treating the charge otherwise than as a tax. Moreover, it was their view that, if a law, on its face, was one with respect to taxation, that law does not cease to have such a character, simply because the Parliament might seek, by its enactment, to achieve a purpose not within Commonwealth legislative power.

49. Finally, it was not considered that the fact that any charge raised was not directed to be paid into consolidated revenue brought about a consequence that the relevant levy was other than a tax. Such a conclusion was, of course, in conformity with the reasoning in the authorities to which I have already referred.

50. In the course of his reasons for decision, Debelle J reflected that the scheme of the legislation erected by the Act had, within it, a number of elements of an insurance scheme. He had this to say:-
"Registered employers receive a quid pro quo or a privilege or other benefit for the levies they pay in that, to all intents and purposes, they are relieved from any liability to pay compensation under the Act to workers suffering a compensable disability. They are insured also against any other liability to those workers. The overall scheme of the Act is that employers, other than exempt employers, are not liable to pay compensation to workers employed by them. Instead, the Act imposes on the Corporation the liability to compensate injured workers out of the fund which is constituted by the levies.
There is another similarity to an insurance scheme in that different employers might pay different levies. As already mentioned, a number of factors might affect the rate of levy payable by each employer. The levy is fixed by reference to the claims experience of the employer and the safety measures adopted by the employer in the workplace, as well as to other matters: the levy is fixed for each class of industry, no doubt by reference to the claims experience or the perceived claims potential in each industry; and the levy is calculated by reference to the amount paid as wages or salaries by the employer. The scheme is also similar to a contract of insurance in that a levy is payable notwithstanding that no claim might have been made in the previous year. The absence of a claim might reduce the amount of the levy but the levy is nevertheless payable. Furthermore, the fact that the computation of the levy payable by any employer might be affected by a range of factors including claims history of employer or of the industry in which the employer is engaged distinguishes the levy from a tax, which is usually a fixed contribution or, if not fixed, is not likely to be capable of variation in a manner in which levies might be varied as between employers. The two features, that is to say, that there is a service and levies are capable of variation as between employers in a manner quite unlike a tax, point to the conclusion that the levies are not a tax." 51. With all due respect to Debelle J, it seems to me that his conclusions are in discord with the reasoning of the High Court, as outlined above. As Mr Sulan QC put it, it is within the concept of a tax that a levy may be imposed to give effect to an overall scheme which, itself, might be of the nature of insurance in one sense. The scheme of the present legislation is that the moneys raised are placed into a central fund administered by a public authority, which fund is not exclusively used for the benefit of contributing employers, or any specific group of employers.

52. To adopt the description employed in Australian Tape, the scheme is, essentially, to create a legislative solution to what is perceived to be a social problem; and is one which has been erected in the public interest to address a problem of public importance.

53. It is difficult to see how, on any view, conformably with what has fallen from the High Court as above adverted to, it can properly be said that the present scheme is one which is related to a payment for services rendered; or that the fact that the rate of levy is a variable percentage necessarily carries with it a connotation that the impost is not of the nature of a tax in the relevant sense. It is certainly not arbitrary in its application and the varying percentages which are imposed apply across broad spectrums of industry, given that they may, in effect, reflect discounts in recognition of good claims experiences.

54. In my opinion, the levy imposed by the Act is, relevantly, of the nature of a tax. Accordingly, the appellant brought himself within the ambit of subsection (4)(b) of section 122.

55. However, that is by no means an end to the matter. It remains for consideration whether the appellant can also be said to have discharged its onus of establishing that the impugned payments were received by it in good faith - in the sense that it neither knew, nor had reason to suspect, that C&RP was unable to pay its debts as they became due from its own moneys; and that it did not know, or have reason to suspect, that the effect of the payment would be to give it a preference priority or advantage over other creditors.

56. As to this, Debelle J concluded that the evidence of Smith fell far short of discharging the requisite onus.

57. In addressing this question, it is important to note at the outset that, as was stressed in Sheahan v Hertz Australia Pty Limited (1995) 16 ACSR
765 at 770, the expression "good faith" is not used in its ordinary meaning of honesty. The question to be answered is whether the creditor knew, or had reason to suspect, that the debtor was in fact insolvent at the relevant time and that the payment would give the creditor a preference over other creditors. As the Full Court there said:-
"Absent an actual suspicion, there must be something in the circumstances which would create in the mind of a reasonable person in the position of the payee an apprehension or fear that the payer may be unable to pay his debts as they become due and that the payment would give the payee a preference. That question is to be answered objectively having regard to all the circumstances in which the relevant payments were received." 58. It is not an unfair summation of the case of the appellant to say that this conclusion stemmed from the concept emerging from the dictum of Barwick CJ in Sandell v Porter and Anor (1966) 115 CLR 666 at 670, where the learned Chief Justice said -
"... the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or by purchase of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the court ..." 59. So it was that Mr Sulan QC sought, strenuously, to assert that, as at 18 February 1993 and immediately thereafter, the information available to Smith was such that his understanding was to the effect that C&RP merely had a temporary lack of liquidity, and ought to be able to trade its way out of its difficulties. So, it was argued, there was no substantial basis for him to infer the insolvency of C&RP in the relevant sense. As to this, he specifically referred to these asserted features:-
* the default in payments in respect of November, December and January had to be considered against the background of the explanations provided by Wegener, including the quiet period over Christmas, the absence of debtors on holidays, the reduction of cash flow as a result of inclement weather during the winter, the change to a sub-contracting basis and the increase of work in hand;
* the fact that the ATO had allowed time to pay was suggestive that it did not, at the time, consider that the company had become insolvent;
* there was no evidence that Smith knew of any arrangements for extended terms which the company might have made with other creditors;
* his evidence was that he did not in fact entertain any apprehension or fear in relation to ultimate payment. 60. Reference was also made to the fact that, following 18 February 1993, in general, C&RP did make payments in accordance with arrangements made with Smith.

61. It seems to me, as it seemed to Debelle J, that such a summation did not convey a truly accurate picture of the situation as it actually stood as at 18 February 1993.

62. The plain fact of the matter was that, as Smith clearly must have appreciated, a stage had been reached at which there was no mere temporary short term lack of liquidity. Rather, there had developed a chronic situation of lack of liquidity to the extent that not only had the company been forced to make a long-term, moratorium arrangement with the ATO, but a similar proposition was being advanced to Smith and was, in fact, rejected by him.

63. There is no doubt that Smith was aware of significant other liabilities which C&RP had; and that it had been forced, over a not insubstantial period of time, to divert moneys which should have been available for payment both to the ATO and to the appellant to meet immediate operating requirements - so that the company could continue trading.

64. Furthermore, it is not really accurate to say, as Mr Sulan QC sought to do, that, following the discussions of 18 February 1993, C&RP honoured all of the commitments which it made to the appellant in accordance with the arrangements made. The fact of the matter was that, as already appears, the relevant payments were, in general, not made on time, on the dates on which they were due. Moreover, quite extraordinary arrangements had to be made for income maintenance reimbursement cheques issued by the appellant to be actually taken out to Wegener, to be endorsed by him and immediately returned to the custody of the appellant, as part-payment of moneys due to it.

65. The very reason why Smith was constrained to recommend the 12-month moratorium to the appellant was that he well appreciated that, such was the position of the appellant, there was no practical possibility of it being able to meet the payments in question within the then immediate future.

66. In this regard, I entirely agree with the comment of Debelle J to the effect that:-
"Smith's admission in cross examination that it was reasonable to infer from what Wegener had told him that C&RP could not pay the debt within six months was inescapable. The terms of payment which C&RP had agreed with the ATO, the fact that he had inferred that the amounts payable as group tax had been used to pay other creditors and thus enable the company to continue to trade, and the fact that C&RP requested two years to pay its indebtedness to the Corporation pointed irresistibly to that conclusion. Were it not for those facts, there might have been some force in the submissions for the Corporation that it had no reason to suspect that C&RP was undergoing anything more than a temporary cash flow problem. But those facts would cause ordinary reasonable persons to conclude that C&RP had real financial difficulties which were not temporary." 67. The learned trial Judge went on to point out that the request, in January 1993, for time to pay, coming as it did not long after an earlier request for time to pay, was a further indication of a situation which was of a chronic nature. This was so, even taking care not to look at the facts with the benefit of hindsight.

68. It was his view, with which I unhesitatingly concur, that, looking at all of the facts as I have recited them earlier in these reasons, it is an inescapable conclusion that a creditor, possessing the knowledge available to Smith, would, necessarily, have inferred that C&RP was in the situation (on other than a mere basis of temporary lack of liquidity) in which it was, in truth, unable to pay its debts as they became due, from its own moneys. Furthermore, it must have equally been apparent to Smith, at the time, that the practical effect of the payments made would necessarily be to give the appellant preference over other creditors. It would have been ignoring reality to believe otherwise.

69. In the course of his submissions, Mr Sulan QC criticised the approach of the learned trial Judge for not separately reflecting upon each payment as and when it was made and the relevant circumstances at that time. In this regard, he directed attention to the dicta in Sheahan v Hertz Australia Pty Ltd at 770 and the case of Queensland Bacon Pty Limited & Ors v Rees
(1996) 115 CLR 266 at 303, to the effect that the question to be posed and answered must be directed as at the time when each of the relevant payments was about to be accepted.

70. It seems to me that unanswerable riposte to that complaint is the rejoinder which was made by Dr Baxter of counsel for the respondent. He pointed out that such an exercise would merely have served to illustrate that, had the factual circumstances been examined, stage by stage, as each payment was made after 18 January 1993, the inevitable conclusion would have been to the effect that the situation was in no sense improving. If anything, it was steadily getting worse. The overall scenario had not changed, save to the extent that the payments which had been promised were, at all material times, simply not being made on time.

71. I read the reasons for decision of Debelle J as indicating that it was his assessment that such was the case; and that there was no point in dilating on each of the payments made separately. That was, in my view, simply a counsel of common sense.

72. It follows then that, at the end of the day, Debelle J was, with respect, undoubtedly correct in concluding that the appellant had not discharged the onus, which it bore, of proving the exculpatory matters referred to in subsection (2) of section 122.

73. That being so, the appeal in this matter must, in my opinion, inevitably be dismissed.

WILLIAMS J:

74. The question at issue upon this appeal is whether payments by way of statutory levies made to WorkCover by a company prior to its liquidation are recoverable by the company's liquidator (Mr Olifent) as preferential payments in accordance with the Bankruptcy Act 1966s122 (as applicable by virtue of Corporations Law s565). The obligation of employers to pay levies to the appellant is set out in the Workers Rehabilitation and Compensation Act 1986 Pt5.

75. It is not in dispute upon the facts of this case that the payments constitute preferences within s122(1) of the Bankruptcy Act unless the appellant can establish that it is entitled to the over-riding protection of s122(2)(a) of the Act which (as now relevant) provides:
"(2) Nothing in this section affects:
(a) the rights of a purchaser, payee or encumbrancer in good faith and for valuable consideration and in the ordinary course of business;" 76. This subsection of s122 must be considered in the light of the following subsections:
"(4) For the purposes of this section
....
(b) A payment of tax or municipal or other local rates under an Act or State Act or Ordinance of a Territory of the Commonwealth shall be deemed to be a payment made for valuable consideration and in the ordinary course of business
(c) a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good faith if the conveyance, transfer, charge, payment or obligation was executed, made or incurred under such circumstances 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
(ii) that the effect of the conveyance, transfer, charge, payment or obligation would be to give him a preference, priority or advantage over other creditors.
(7) In this section, 'tax' includes any amount payable as provisional tax and contribution or as provisional tax, in accordance with Division 3 of Part VI Of the Income Tax Assessment Act 1936-1944, or of that Act as amended." 77. (I note that the payments now in question were made between 18 February 1993 and 14 April 1993; the company was ordered to be wound up on 6 July 1993. I have quoted extracts from the Bankruptcy Act in its form prior to the amending Act No32 of 1993 which has no present application).

78. Upon the present appeal the appellant (WorkCover Corporation) argued that each of the relevant payments:
(1) was made "in good faith" within s122(2)(a)
and
(2) should be characterised as "payment of a tax" within s122(4)(b) and (7) so that the payments be deemed to be "for valuable consideration and in the ordinary course of business" within s122(2)(a). 79. The respondent argued in response:
(1) that good faith could not be attributed to the appellant by reason of the operation of s122(4)(c)
and
(2) the Workcover levies were not a tax within s122. 80. The Trial Judge found that the payments were made in circumstances in which s122(4)(c) should be applied. There was ample evidence to support that conclusion. In my opinion the conclusions reached by the Trial Judge are irresistible for the reasons which he gave. By 18 February 1993 the fund of the appellant's knowledge of the company's financial affairs was such that nothing which happened thereafter was in any way effective so as to diminish the impact of the appellant's knowledge in relation to the application of s122(4)(c). On each of the six occasions when the appellant received a payment now in question the circumstances were such as to lead to the conclusion - applying the standards of an ordinary reasonable person - that there was reason to suspect that the company was unable to pay its debts as they fell due and that the effect of that transaction would be to give the appellant a preference over other creditors.

81. In these circumstances the appeal must fail because the "good faith" required by s122(2) is absent. The Trial Judge's conclusion upon this point is sufficient to dispose of the matter.

82. However, in his comprehensive review, the Trial Judge also dealt with the question as to whether the payments of WorkCover were by way of "a tax" in terms of s122(4) and (7). In my view a WorkCover levy is a "tax" within s122(4)(b).

83. In Workmen's Compensation Board v Canadian Pacific Railway (1920) AC
184 the Privy Council dealt with a compensation scheme not dissimilar to the present in which the Board characterised employer contributions to the Fund as a tax. The present Act (like the Canadian Scheme) is not merely a compulsory insurance scheme. The Workers Rehabilitation and Compensation Act is an important piece of social legislation which provides a scheme for providing and securing civil rights for workers; there is also emphasis upon the rehabilitation of workers. The relevant right of the worker is against WorkCover Corporation and it arises independently of fault. I am inclined to the view that the pith and substance of the system of employer levies is a tax to ensure that WorkCover Corporation is better able to meet its own public statutory obligations to satisfy workers' entitlements - see Canadian Pacific Railway case (1920) AC 184 at 191-192.

84. One of the positive indicia of a tax is that the money is raised for a public purpose. (However, in the Australian cases the absence of public purpose may not be fatal to this characterisation). The Workcover legislation achieves its social objectives by creating a special species of civil right in the worker which is enforceable against the appellant corporation. It is for the satisfaction of that public purpose that the levy is imposed.

85. The notion of taxation was reviewed in Australian Tape Manufacturers v The Commonwealth (1993) 176 CLR 480 at 500-508 but it must be remembered that the Australian cases for the most part are being considered against a background of the application of ss53-55 of the Australian Constitution where s53 for its own purposes specifically distinguishes between laws imposing taxation and laws imposing fees for services.

86. In his extensive analysis Debelle J was influenced by the discretionary nature of the appellant's powers to reach the conclusion that WorkCover levies are not a tax. My view is that the existence of the discretionary powers is not of great significance. The existence of such powers is an accepted feature of Australian Taxation legislation.

87. The respondent mentioned the decision in Massey Ferguson v Saskatchewan
(1982) 127 DLR (3rd) 513 - a decision of the Supreme Court of Canada. In that case statutory levies creating a limited insurance fund (affecting a very restricted class) were held not to give rise to a tax. The structure of the legislation enabled aggrieved farmers to apply to the Board which in turn was empowered to conduct a hearing and award compensation out of a fund without the need for a legal foundation for the claim. That case exemplifies the class of legislation where the impost has been regarded as having an insufficient element of public purpose to enable it to be characterised as a "tax". However, in view of the treatment of that case in Australian Tape Manufacturers 176 CLR at 503-505 the authority of Massey Ferguson in Australia must be in doubt.

88. WorkCover is not a scheme under which money is simply moved from one group of people to another; the scheme of the Act has wide social objectives and the benefits and services provided to individual employers may be difficult to discern. I would be inclined to treat the scheme in the same way as did the Privy Council in the Canadian Pacific Railway case.

89. In my view the appeal should be dismissed.