After a while Mr Scott telephoned Mr Cooney again and was told:
"Yes, I know you are concerned, but there is no need to worry, you'll be paid."'
10 Mr Scott said "George, I need action, not words." Mr Scott got in touch again after a while and was told "I'm sorry, money has been held up through a legal hitch. I will send you a lump sum next week." The impasse continued; there were 5 sales in January and 6 in February but in March there was only one; Cooney Holdings ceased ordering meat. Mr Cooney told Mr Scott "I am now getting meat from a cheaper supplier." In or soon after March 1997 when Mr Scott was in Sydney he called on George Cooney at Cooney Holdings' shop at Ultimo. He was received in a friendly way and shown around the boning room, which appeared to be extremely busy; the business appeared to be functioning very well. George Cooney said to him "I am buying my carcass beef at cheaper rates now and this is giving me a much better margin of profit. I will soon be able to repay you in full". On a later occasion Mr Scott visited the shop at Ultimo again; George Cooney said "I know why you are here, so let's go and have a drink" and took him to a hotel at Kings Cross. In their conversations George Cooney told him "John you have no need to worry, tell your brothers that I'm using you short term to solve a cash flow problem and as soon as it is over, I will repay you every cent I owe, with interest added. I appreciate what you've done for me and as soon as this real estate is sold, everything will be fine and back to normal." He also said "The only problem I'm having with my business is a short term cash flow problem due to the real estate development. But this will soon pass if you let me have time to pay you. The business is actually running very profitably because we have won some excellent tenders, so we're in good shape to get everything squared up."
11 George Cooney presented to Mr Scott a picture of a continually operating business and an atmosphere of confidence; he drove a Mercedes, entertained him at a hotel in Kings Cross and spoke confidently about his real estate business. However the unpaid account had reached $186,074.58, and Sangria sued Cooney Holdings in the District Court for that amount by a Summons issued on 17 April 1997. The proceedings were conducted with vigour and Sangria made an early application for summary judgment. This led to negotiations. In correspondence before action Mr Van Cooney, solicitor representing Cooney Holdings, proposed to Sangria's solicitors on 20 March 1997 a scale of repayment at $2,000 per month with a payment of $40,000 on 30 June 1997. This proposal was introduced by saying "My client is unable to immediately pay the amount due in full." There was further correspondence on the subject of arrangements for monthly payments. Negotiations proceeded.
12 A letter from Mr Van Cooney of 26 June 1997 to Sangria's solicitor forwarded "… a copy of both my clients' assets and liabilities …" and said "I am again instructed to advise that my client is not attempting to avoid payment of any money due to your client but is merely asking for time to pay." The letter went on to submit proposed arrangements for payment being an immediate payment of $15,000, and a schedule of weekly and monthly payments. Throughout the negotiations it was clear that the company was not in a position to meet its debt forthwith or in any way except by a long series of monthly payments. An agreement for payment by instalments was made at some time in August 1997; there is not a complete copy of the agreement in evidence but it is clear that the agreement was entered into, executed by Cooney Holdings and also by George Cooney, and was followed by discontinuance of the District Court proceedings and a series of payments the last six of which were within the relation back period.
13 Under the agreement Cooney Holdings was to give Sangria security by 26 September 1997, being a registered second charge over its equitable interest in a property in Mary Anne Street Ultimo, including rights to receive proceeds of development of the property. The security provided for in the agreement was never in fact given. $27,000 was to be paid as at the date of the agreement and then instalments were to be made under a schedule which provided for monthly payments of $7,000. Cooney Holdings was also to pay the costs of the proceedings. George Cooney acknowledged that he was jointly and severally liable to Sangria for the debt and interest and he joined in the promises to make payments. Payments were to include interest as if there had been a District Court judgment. The agreement contained some stringent provisions. In cl.3.3 it closely limited the manner in which the company was to pay instalments which had to be by bank cheque, electronic funds transfer or otherwise as agreed in writing. By cl.4.2, on an event of default Sangria was to be entitled to judgment by consent for the whole debt.
14 Payments of $7,000 per month began in September 1997. Sometimes instalments were not paid on the due date, and when this happened Mr John Scott would telephone Mr Cooney to remind him and he would receive a cheque a few days later. He saw nothing unusual about this as Cooney Holdings had never been a prompt payer and Mr Scott had encountered many operators who could pay what they owed but chose not to do so; sometimes this was because they were very busy, sometimes they simply chose not to pay until they were chased up. He had become used to this behaviour in 40 years in the wholesale meat business. It was his evidence that he did not suspect that the late payments were because Cooney Holdings could not pay.
15 There is some evidence dealing with the possibility that a payment for December was missed; whether or not it was missed is unclear but one copy of the agreement in evidence has a schedule from which payments for December 1997 and January 1998 have been deleted; it is not clear exactly what was in the schedule of the document which was executed. (There is an obvious typographical error because one date put in and then struck out was typed as 1 December 1998). The payments sued for in these proceedings were made more or less regularly each month from January to June 1998; they were not significantly late.
16 Sales and supply resumed in May 1998. In May 1998, when these transactions began, Mr Scott was aware that Mr Cooney and the company had a short supply situation and that one or perhaps more of its suppliers had ceased to supply him. Mr John Scott said in evidence "A few weeks after I first supplied Cooney Holdings with carcasses again, we received a cheque for the full amount of the invoice. Throughout May and June 1998, Sangria continued to supply Cooney Holdings with carcasses and received payment within a few weeks." Mr John Scott did not have any actual detailed knowledge of how the payments were handled, as he did not himself effect deliveries or closely supervise opening the mail and receiving the cheques. By reference to Sangria's invoices and Cooney Holdings' records something more can be seen of the pattern of events. Mr Scott's evidence shows that the practice was that the delivery would be effected by a contract driver, who would take the invoice with him and hand it over at the time of delivering the meat. The invoice took the place of a delivery docket. The invoice was also a statement; it was a claim for payment within 7 days. It was not part of a system in which charges and invoices were collected into statements at the end of an accounting period.
17 There was a curious crossing of forensic objectives. If the deliveries of meat had taken place under arrangements or in circumstances in which a cheque for the cost of the meat delivered was to be handed over to the driver on delivery, the fact that the defendant required such an arrangement would be forensically injurious to the defence under subs.588FG(2) because it would tend to indicate a suspicion about the company's credit-worthiness. On the other hand it could have served the defendant's interest if each sale had been a Cash-On-Delivery transaction in which no debt ever arose; if that were shown it would seem to assist the defendant's position under subs.588FA(1) relating to an unfair preference. However that position would be a difficult one for the defendant because the cheques were post-dated, which opened up consideration of whether payment by a post-dated cheque, conditional on the cheque later being met, should correctly be regarded as a Cash-On-Delivery transaction and outside subs.588FA(1) for that reason. The plaintiffs' counsel sought to establish that the cheques were handed to the driver on delivery, and there was no clear evidence whether or not this happened or whether or not there was an arrangement for this to happen. It may have happened in some or all of the sales, or the cheques may have been sent to the defendant very soon after the delivery; it is not possible to make a more exact finding.
18 The payment of $4,863.50 made for invoice 19185 dated 6 May 1998 was made by cheque 1608; its position in the cheque book immediately following cheque 1607 written on 8 May 1998 suggests strongly that the cheque was post-dated, written about 8 May but given the date 21 May. Invoice 19199 dated 11 May 1998 was paid for by cheque 1619 dated 26 May 1998 which is immediately before cheque 1620 dated 11 May 1998 in the cheque book, establishing clearly that cheque 1619 was post-dated when issued; it was probably issued on 11 May 1998, which was the date of the invoice and probable date of delivery. Invoice 19283 dated 18 May 1998 was paid for by cheque 1646 which appears in the cheque book immediately after cheque 1645 written on 14 May 1998; the cheque butt shows that cheque 1646 was first written out on 15 May 1998 and then altered to 8 June 1998. Curiously 15 May 1998 is earlier than the date of invoice and presumably of delivery. There are two versions of invoice 19283, and the other one referred to as 19283A for $715.05 was paid for by a cheque dated 19 May 1998, the day after the date of the invoice. Invoice 19295 dated 25 May 1998 was paid for in part by cheque 1680 dated 9 June 1998. The cheque butt is marked "Exchange cheque" and is obviously post-dated because it is earlier in the number sequence than cheque 1682 dated 1 June 1998. Invoice 19361 dated 1 June 1998 was paid for by cheque 1681 which bears date 16 June 1998 but was also obviously written before cheque 1682 dated 1 June 1998, so it must have been post-dated.
19 The pattern shown by these cheques is that the small sale for $715.05 was paid for by a cheque dated about the time of delivery, but the others were paid by cheques which were post-dated about a fortnight or even three weeks ahead and probably issued at about the time of delivery; they may have been returned with the delivery driver. Each cheque was specifically for the amount which Cooney Holdings was to pay for the goods in one invoice.
20 Mr John Scott said in evidence about these sales that he received payment within a few weeks and "I was not aware, and did not suspect, at any stage during the period July 1997 to June 1998 that Cooney Holdings was not able to pay its debts as they fell due". He said that he only dealt with Mr Cooney occasionally to remind him to pay the monthly instalments, and he did not notice that any instalments were missed. He also said "Once Sangria started dealing with Cooney Holdings again in May 1998, it met its debts." He also said that he first knew of the insolvency when notified of it by the Administrators.
21 The balance sheets forwarded by Mr Van Cooney, solicitor in June 1997 would not give much confidence to anyone who read them carefully. The Statement of Assets and Liabilities for Mr George Cooney personally gave his surplus of assets over liabilities as $1,165,000 but contained a note saying that his real estate was under first mortgage to a bank to secure lines of credit totalling $2,050,000. The balance sheet for Cooney Holdings relates to 23 June 1997 and showed that the company had (at least) two lines of business as there are references to a property development business. Current assets include: "Property sale instalment due 31/5/97 (Note 2 $850,000)." The non current assets include "final property settlements September 1998 $2,550,000 (see Note 2)" and the contingent liabilities include "Power House Museum Trust & Legals (Note (1) $350,000)."