McLernon, G.D. & Ors v Prebble, P.F. & Anor [1995] FCA 539

Re Cummins (1985) 8 FCR 546 Re Bird; Ex parte M & G Casabene & Sons (1979) 39 FLR 281 Downs Distributing Co Pty Ltd v. Associated Blue Star Stores Pty Ltd (In Liq.) (1948) 76 CLR 463 Queensland Bacon Pty Ltd v. Rees (1966) 115 CLR 266 Bank of Australasia v. Hall (1907) 4 CLR 1514 Re Brechin; Ex parte Putnin & Stokes (Australasia) Ltd (1986) 78 ALR 535 Sandell v. Porter (1966) 115 CLR 666 Re Matheson; Ex parte Worrell v. Matheson (1994) 121 ALR 605 Octavo Investments Pty Ltd v. Knight (1979) 144 CLR 360 Ex parte Chippendale, Re German Mining Co (1854) 4 De G.M. and G. 19 at p.52 [43 ER 415 at p.427] Farbenfabriken Bayer AG v. Bayer Pharma Pty Ltd (1959) 101 CLR 652 The Queen v. Coldham; Ex parte Australian Workers' Union (1983) 153 CLR 415 The Queen v. Marks; Ex parte Australian Building Construction Employees Builders Labourers' Federation (1981) 147 CLR 471 N.A. Kratzmann Pty Ltd (In Liq.) v. Tucker [No. 2] (1968) 123 CLR 257 Bibra Lake Holdings Pty Ltd (In Liq.) v. Firmadoor Australia Pty Ltd (1992) 7 WAR 1 Re Suco Gold Pty Ltd (In Liq.) (1938) 33 SASR 99 Vacuum Oil Co Pty Ltd v. Wiltshire (1945) 72 CLR 319 Re K & R Fabrications (Qld) Pty Ltd (In Liq.) (1980) 49 FLR 350 Taylor v. White (1964) 110 CLR 129 at p.136 Re Brittain; Ex parte Barnes (1984) 2 FCR 35 Re Lee Furniture Pty Ltd (In Liq.) (1983) 8 ACR 251 RE: GERALD DESMOND MCLERNON; EX PARTE SWF HOISTS AND INDUSTRIAL EQUIPMENT PTY LTD v. PETER FREDERICK PREBBLE and CHARLES PHILLIPE LOUIS NILANT No. WX 103 of 1992 CARR J. PERTH 28 JULY 1995

IN THE FEDERAL COURT ) OF AUSTRALIA ) BANKRUPTCY DISTRICT OF THE ) STATE OF WESTERN AUSTRALIA ) No. WX 103/92 GENERAL DIVISION ) B E T W E E N: RE: GERALD DESMOND MCLERNON; EX PARTE SWF HOISTS AND INDUSTRIAL EQUIPMENT PTY LTD Applicant and PETER FREDERICK PREBBLE First Respondent and CHARLES PHILLIPE LOUIS NILANT Second Respondent CORAM: CARR J. PLACE: PERTH DATE: 28 JULY 1995 MINUTE OF ORDERS A. THE APPLICANT'S APPLICATION THE COURT ORDERS THAT:

1. To the extent that any such extension of time may be required, the time for the applicant to bring his application under s.139ZS of the Bankruptcy Act 1966 (Cth) to set aside the first respondent's notice dated 21 December 1993 be extended to 13 May 1994.
2. The application be otherwise dismissed.
3. The applicant pay the second respondent's costs. B. THE SECOND RESPONDENT'S APPLICATION THE COURT:
4. Declares that the payments totalling $20,000 made by Gerald Desmond McLernon to the applicant on 3 May 1992, 15 May 1992 and 22 May 1992 are void as against the second respondent.
5. Orders that the applicant pay to the second respondent the sum of $20,000 together with interest on that sum calculated from 24 March 1993 at the rates of interest from time to time applicable to judgments of this Court.
6. Orders that the applicant pay the second respondent's costs. NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT ) OF AUSTRALIA ) BANKRUPTCY DISTRICT OF THE ) STATE OF WESTERN AUSTRALIA ) No. WX 103/92 GENERAL DIVISION ) B E T W E E N: RE: GERALD DESMOND MCLERNON; EX PARTE SWF HOISTS AND INDUSTRIAL EQUIPMENT PTY LTD Applicant and PETER FREDERICK PREBBLE First Respondent and CHARLES PHILLIPE LOUIS NILANT Second Respondent CORAM: CARR J. PLACE: PERTH DATE: 28 JULY 1995 REASONS FOR JUDGMENT Introduction In this matter there are two applications before the Court. In the first application, SWF Hoists and Industrial Equipment Pty Ltd ("SWF") seeks a declaration that s.139ZQ of the Bankruptcy Act 1966 (Cth) ("the Act") is invalid because, so SWF contends, it provides for an exercise by the Official Receiver in Bankruptcy of Commonwealth judicial power, otherwise than in conformity with Chapter III of the Commonwealth Constitution. The first section in that chapter, section 71, vests such power in the courts described in that section. In the alternative, SWF seeks an order extending the time in which to apply under s.139ZS of the Act for an order setting aside a notice issued to SWF under s.139ZQ of the Act by the first respondent, Mr Peter Frederick Prebble, the Official Receiver in Bankruptcy for the Bankruptcy District of the State of Western Australia. SWF also seeks an order that such notice be set aside. In the second application, Mr Charles Phillipe Louis Nilant ("Mr Nilant"), the trustee of the estate of Mr Gerald Desmond McLernon ("Mr McLernon") seeks an order declaring that three payments totalling $20,000 made by Mr McLernon to SWF are preferences and, by virtue of s.122 of the Act are thereby void as against him. Mr Nilant also seeks an order that SWF pay the sum of $20,000 to him. Both applications were heard together. Factual Background At all material times Mr McLernon was the trustee of the G.D. McLernon Family Trust and in that capacity carried on business under the name "Supercrane Australia". On 8 September 1992 Mr McLernon executed an authority in writing under s.188 of the Act in favour of Mr Nilant authorising him to call a meeting of his creditors. On 8 October 1992 Mr McLernon's creditors passed a resolution requiring him to execute a deed of assignment under Part X of the Act. On the same date Mr McLernon did so and Mr Nilant was by that deed of assignment ("the Deed of Assignment") appointed trustee of Mr McLernon's estate.

On 16 November 1993 Mr Nilant applied to the Official Receiver for the issue of a notice under s.139ZQ to SWF in respect of the three payments referred to above. Those payments comprised $10,000 on 3 May 1992, $5,000 on 15 May 1992 and $5,000 on 22 May 1992. On 21 December 1993 the Official Receiver issued the notice so requested which was served on SWF on 30 December 1993. On 13 May 1994 SWF filed an application in this Court seeking an order that that notice be set aside. SWF was granted leave to amend that application by, in effect, substituting for it the application first referred to above. On 27 July 1994 Mr Nilant filed his application which I have described above. The solicitors for SWF have, as required by s.78B of the Judiciary Act 1903 (Cth), notified the Attorneys-General of the Commonwealth and the States that a constitutional matter has been raised in these proceedings. The Commonwealth has chosen to intervene and submits that the impugned provisions are constitutionally valid. Mr Nilant simply adopts those submissions. The Official Receiver has indicated his willingness to abide by the decision of the Court and has not taken any active part in the matter. The Relevant Statutory Provisions The provisions of the Act principally relevant to these applications are as follows: "Avoidance of preferences 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) Sub-section (1) applies in relation to a conveyance or transfer of property, a charge on property or a payment made, or an obligation incurred, by the debtor in favour of a creditor - (a) whether or not the liability of the debtor to the creditor is his separate liability or is a liability with another person or other persons jointly; and (b) whether or not - (i) the property conveyed, transferred or charged is his own property or is the property of the debtor and of another person or other persons; (ii) the payment is made out of his own moneys or out of moneys of the debtor and another person or other persons; or (iii) the obligation is incurred by the debtor on his own account only or on account of himself and another person or other persons, as the case requires. (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 sub-section (2) lies upon the person claiming to have the benefit of that sub-section. (4) For the purposes of this section - (a) . . . (b) . . . (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." [Section 231(2) of the Act provides that the above section applies in relation to a deed of assignment as if a creditor's petition had been presented on the day of the creditors' resolution, a sequestration order had been made on the date of execution of the deed and the trustee of the deed were the trustee in the debtor's bankruptcy.] "SUBDIVISION J - Collection of money or property by Official Receiver from party to transaction that is void against the trustee Official Receiver may require payment 139ZQ (1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver: (a) if the Official Trustee is the trustee - on the initiative of the Official Receiver; or (b) if a registered trustee is the trustee - on application by the trustee; may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received. (2) The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee. (3) The notice may: (a) require the amount to be paid at a time or within a period set out in the notice; or (b) require the amount to be paid at such times, and in such instalments, as are set out in the notice. (4) After the Official Receiver has given a notice to a person under subsection (1), the Official Receiver may at any time, by a further notice given to the person, revoke or amend the first-mentioned notice. (5) If the Official Receiver gives a notice under this section, the Official Receiver must send a copy of the notice to the bankrupt and, if a registered trustee is the trustee, to the trustee. (6) . . . (7) If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.

(8) An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction. Charge over property 139ZR. (1) If a notice under section 139ZQ is given to a person in respect of any property: (a) the property is charged with the liability of the person to make payments to the trustee as required by the notice; and (b) if the person makes the payments or transfers the property to the trustee, the property ceases to be subject to the charge. (2) Subject to subsection (3), a charge under subsection (1) has priority over any existing or subsequent mortgage, lien, charge or other encumbrance over the property in favour of an associated entity of the bankrupt, and has that priority despite any other law of the Commonwealth or any law of a State or Territory. (3) A charge under subsection (1) does not have priority over a mortgage, lien, charge or other encumbrance in favour of an associated entity of the bankrupt if that entity satisfies the Court that that mortgage, lien, charge or other encumbrance arose from a transaction that was entered into at arm's length and for valuable and adequate consideration provided by that entity and is not void against the trustee under Division 3. (4) If any property being land is subject to a charge under subsection (1), the Official Receiver may certify by signed writing that the land is subject to a charge under that subsection and may lodge the certificate with the Registrar-General, Registrar of Titles or other proper officer of the State or Territory in which the land is situated. (5) The officer with whom the certificate is lodged may register the charge as nearly as practicable in the way in which mortgages over land are registered under the law in force in the State or Territory in which the land is situated. (6) The trustee has power to sell any property over which a charge exists under subsection (1) and, if the property is so sold, then, subject to any charges that have priority over the first-mentioned charge, the proceeds of the sale are, to the extent of the charge, to be applied in or towards the discharge of the liability to make a payment or payments to the trustee of the person to whom the notice was given. Power of Court to set aside notice 139ZS. (1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice. (2) A notice that has been set aside is taken not to have been given. Failure to comply with notice 139ZT. (1) A person who refuses or fails to comply with a notice under section 139ZQ is guilty of an offence punishable upon conviction by imprisonment for a period not exceeding 6 months. (2) If a person is convicted of an offence against subsection (1) in relation to the refusal or failure of the convicted person or another person to comply with a notice under section 139ZQ, the court that convicted the person may, in addition to imposing a penalty on the convicted person, order that person to pay to the trustee an amount not exceeding the amount, or the total of the amounts, that the convicted person or the other person, as the case may be, refused or failed to pay to the trustee in accordance with the notice." [Other provisions of the Act are relied upon by SWF but it is more convenient either to set them out or summarise them when considering the respective arguments which are based upon them.] The Constitutional Point A useful starting point for assessing whether s.139ZQ of the Act purports to confer part of the judicial power of the Commonwealth on the Official Receiver is to examine precisely what power is conferred upon him by that section. It is also, in my view, necessary to examine the statutorily prescribed consequences which flow from the exercise of such power. First it should be noted that the power conferred on the Official Receiver is conditioned on the existence of circumstances in which a person has received money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3 of Part VI the Act. It should be borne in mind that the expression "void" in s.122(1) does not mean void for all purposes but that the transaction is voidable at the election of the trustee in bankruptcy: Broughton v. Barker (1862) 1 SCR (NSW) Eq. 78; Re Carter and Kenderdine's Contract [1897] 1 Ch.776 (CA); Re Hart; Ex parte Green [1912] 3 KB 6 (CA); N.A. Kratzmann Pty Ltd (In Liq.) v. Tucker [No. 1] (1966) 123 CLR 257 at p.277; Re La Rosa; Ex parte Norgard v. Rodpat Nominees Pty Ltd (French J. unreported, Federal Court Judgment No. 316 of 1989, 26 June 1989 at p.18). It is possibly for that reason that there is reference in s.139ZQ(1)(a) and (b) respectively to the initiative of the Official Receiver where the Official Trustee is the trustee and to an application by the trustee to the Official Receiver where a registered trustee is the trustee. Subject then to the existence of the abovementioned circumstances, s.139ZQ empowers the Official Receiver to require the person who has received the money or property to pay to the trustee an amount equal to the money or the value of property. The Official Receiver is required to set out in the notice the facts and circumstances which he considers cause the transaction to be void against the trustee. There are machinery provisions concerning time limits for payment, payment by instalments and the revocation or amendment of the notice. This latter aspect (power to amend) was regarded as important by the Privy Council as indicating, in the context of review of income tax assessments by a Board of Review, a lack of conclusiveness and thus pointing to something other than the exercise of judicial power, in Shell Company of Australia Ltd v. Federal Commissioner of Taxation (1930) 44 CLR 530 at p.543. Finally, s.139ZQ(8) provides that an amount payable by a person to the trustee under that section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction. There is no provision to the effect that the validity of the notice may not be contested in those or any other proceedings. Nor is there any provision that production of the notice is conclusive evidence of anything, compare for example, s.177(1) of the Income Tax Assessment Act 1936 (Cth). However, s.139ZR(1) provides that where a notice is given under s.139ZQ in respect of any property, that property is charged with the liability of the person to make payments to the trustee as required by the notice. A degree of priority is given to that statutory charge by s.139ZR(2) but only over any existing or subsequent mortgage, lien, charge or other encumbrance over the property in favour of an associated entity of the bankrupt. Even then the charge does not have such priority if the associated entity satisfies the Court that that mortgage, lien, charge or other encumbrance arose from a transaction that was entered into at arm's length and for valuable and adequate consideration provided by that entity and is not void against the trustee under Division 3 - see s.139ZR(3). If land is the subject of the charge then s.139ZR(4) provides a procedure whereby the Official Receiver may lodge with the Registrar-General, Registrar of Titles or other proper officer of a State or Territory a certificate that the land is subject to that charge. In s.139ZR(5) there is provision for such officer to register the charge as nearly as practicable in the way in which mortgages over land are registered under the law in force in the relevant State or Territory. Finally, in relation to s.139ZR, s.139ZR(6) confers a power of sale of any property over which a charge exists under s.139ZR(1) and subject to satisfaction of any charges having priority, the proceeds of sale are to the extent of the charge to be applied in or towards discharge of the liability to make a payment or payments to the trustee of the person to whom the notice was given. Section 139ZS(1) provides that if the Court on application by a person to whom a s.139ZQ notice has been given or by any other interested person is satisfied that Subdivision J does not apply to the person "... on the basis of the alleged facts and circumstances set out in the notice ..." the Court may make an order setting aside the notice. If the Court makes an order setting aside the notice then s.139ZS(2) provides that the notice is taken not to have been given. Failure to comply with a notice under s.139ZQ is made [by s.139ZT(1)] an offence punishable upon conviction by imprisonment for a period not exceeding six months. Upon conviction for such an offence the Court may, in addition to imposing a penalty, order the person to pay to the trustee an amount not exceeding the amount which the person concerned refused or failed to pay to the trustee in accordance with the notice - s.139ZT(2). Mr M.J. Hawkins, counsel for SWF, submitted that s.139ZQ purported to confer part of the judicial power of the Commonwealth upon the Official Receiver and was thus invalid. Those submissions can be summarised as follows:

. it was said that s.139ZQ(2) makes it clear that Parliament intends the Official Receiver to form the view that the payment was void against the trustee in bankruptcy and thus to decide questions of fact and law and to conclude that a person received a voidable preference; . whether or not a payment is a voidable preference is a question arising in bankruptcy and only the courts listed in s.27 of the Act (the Federal Court of Australia, and the Supreme Courts of the States and the Northern Territory of Australia) have jurisdiction in bankruptcy. Section 31A which provides for the delegation of powers does not list the Official Receiver as a person to whom the Court's powers may be delegated; . although judicial power may be delegated in a situation where a Court retains the power to review de novo, that is not the situation in respect of a decision to issue a notice under s.139ZQ. It was submitted that a hearing under s.139ZS is not a hearing de novo because that section restricts the Court's review power to a review of the facts and circumstances set out in the particular notice. It was also submitted that s.139ZQ(8), by characterising the amount referred to in the notice as being recoverable by the trustee as a debt by action in a court of competent jurisdiction means that there is no defence to such action. . it was argued that Subdivision J extends the trustee's rights under s.122 of the Act and at the same time affects the rights of the payee to deny that s.122 applies. This was done, so it was said, by "converting" the trustee's right to make an application based on s.122, exercisable only in federal jurisdiction, to the right to sue for a debt in any Court having jurisdiction in a personal action. The trustee's rights were further extended by preventing the payee from putting the trustee to proof in any court except the Federal Court or a State or Territory Supreme Court which Court is restricted to the facts and circumstances set out in the notice; . it was also submitted that s.139ZT provides for enforcement of the 139ZQ notice by criminal sanction and that in such criminal proceedings the defendant would not be able to avoid conviction by bringing into question the validity of the s.139ZQ notice. Dr C.R. Staker who appeared as counsel for the Commonwealth, intervening, submitted that the purpose of Subdivision J was to provide an alternative administrative mechanism to avoid the need (as it has been referred to in some of the authorities) to obtain a declaration that s.122 applies to a particular transaction. It was said on behalf of the Commonwealth that the Subdivision does not empower the Official Receiver to determine, in any way legally binding on any other person, that the transaction is void but, rather, it is on the pre-existing assumption that the transaction is void, or voidable in effect, that the s.139ZQ notice can then be issued to have the effect of avoiding that voidable transaction. Dr Staker contended that this was not a situation where judicial power was being delegated and that the authorities dealing with such delegation were not in point. Pausing there, I would like to say something about that contention. It is quite true that in issue in the present matter is not a set of provisions whereby power vested in a court is delegated to officers of that court in the manner seen in, for example, Harris v. Caladine (1991) 172 CLR 84. However, in my view the determination of this matter is assisted by considering the approach taken in that case. It must be acknowledged that in Harris it was not disputed that the Family Court registrars were exercising some part of the judicial power vested in the judges of that court. The question was whether that degree of delegation was constitutionally valid. Here the issue is whether Parliament has purported to confer judicial power on the Official Receiver. Nevertheless the underlying question is, in my opinion, very similar. Given that so many functions are common to both the exercise of administrative and judicial power, the question is whether, in all the circumstances, what the particular functionary has been empowered to do can be characterised as the independent exercise by that person of the judicial power of the Commonwealth? (See Dawson J. in Harris at p.122). If so then the forbidden line, which is so hard to draw, has been crossed and whether the power is delegated judicial power or not is not a conclusive factor. For that reason, as will become apparent below, I consider that the scope for judicial review (in its widest sense) of the Official Receiver's decision to issue the notice is a most relevant factor as it was in Harris where it seems, in my view, to have been the most relevant factor. Dr Staker further submitted that if a recipient of a s.139ZQ notice disputes that the impugned transaction is void, the person is not bound by the notice in any way because in proceedings under s.139ZS of the Act the Court may determine whether Subdivision J is applicable. In particular, he submitted that the Court may determine whether the recipient of the notice has received money or property as a result of a transaction that is void against the trustee under Division 3. For that purpose, so it was submitted, the Court may investigate and determine the correctness of the facts and circumstances stated in the notice, and whether any defence to the liability asserted in the notice arises out of additional facts proved by the applicant. In support of that proposition reliance was placed on the decision of Olney J. in Re Lucera; Ex parte the Official Trustee in Bankruptcy v. Lucera and the Registrar of Titles (unreported, Judgment No. 715 of 1994, 5 October 1994) and Einfeld J. in Re McInnes; Ex parte McInnes v. Official Receiver (unreported, Judgment No. 882 of 1994, 18 November 1994). In Re Lucera at p.11, Olney J. made the following observations: "... it would seem to be the case that whatever the words is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice' mean, a person to whom a notice has been given may challenge the statement of facts and circumstances for the purpose of an application to set the notice aside. If this is not the case a notice based upon a wholly erroneous statement of facts which at its face value may lead to a conclusion that the person has received money or property as a result of a transaction that is void under Division 3, would have no recourse either against an action based on the notice pursuant to s.139ZQ(8), or against a prosecution pursuant to s.139ZT(1). In the absence of clear words to that effect it cannot be thought that Parliament would have intended such consequences." In that case Olney J. followed the course of allowing the trustee to adduce further evidence directed to proving the facts asserted in his notice. His Honour held that a necessary consequence of that was that the recipient of the notice or indeed the bankrupt, should be able to challenge the evidence so adduced. It is interesting and useful to note that Olney J. considered that if s.139ZS(1) were not sufficient authority for setting aside the notice in that case then s.30 of the Act would provide such authority. In Re McInnes at pp.42-43 Einfeld J. expressed considerable doubts upon observations concerning s.139ZS said to have been made by Wilcox J. in Re Pearson; Ex parte Wansley [1993] 46 FCR 55 at p.60 and by Gummow J. in Re Fiorino; Ex parte Woodgate [unreported 14 April 1994, Judgment No. 181 of 1994 at p.23]. Einfeld J. construed those observations as being to the effect that s.139ZS does not appear to permit a notice to be set aside on the basis that the alleged facts are found not to be true, or that additional facts are found that alter the conclusion to be drawn from the alleged facts. However, it was not necessary in that case for his Honour to decide the matter because the notices in Re McInnes were held to "fail in any event". This was because the notices did not indicate that the recipients had received property to the value claimed. With all due respect to Einfeld J., my reading of Re Fiorinofails to disclose any suggestion by Gummow J. to the above effect. Gummow J. dealt with the Subdivision J point in the last four pages of his reasons for judgment. Counsel for the trustee in that case did not seek to defend the notice and it was set aside. In Re Pearson the situation was that Wilcox J. raised the questions to which Einfeld J. referred but did not suggest any answer, possibly because his Honour did not have to decide it. I respectfully share the doubts which Einfeld J. expressed in Re McInnes and the views expressed by Olney J. in Re Lucera. In my opinion, when an application is made to the Court under s.139ZS the applicant may challenge the statement (in the Official Receiver's notice) of facts and circumstances, for the purposes of having the notice set aside. The use of the word "alleged" in the phrase "the basis of the alleged facts and circumstances", in my opinion, supports such a construction. There is nothing in the relevant Explanatory Memorandum or in the second reading speech in the Senate which suggests the contrary. Furthermore, as I have endeavoured to point out above, the power to issue the notice is conditioned not upon the Official Receiver's opinion or satisfaction that the transaction is void against the trustee but upon the existence of certain circumstances in which a person has received money or property as a result of a transaction that is void against the trustee. The Official Receiver's power is "dependent upon the existence of a jurisdictional fact" [The Queen v. Coldham; Ex parte Australian Workers' Union (1983) 153 CLR 415 at p.427] and must be subject to challenge in circumstances where the supposed existence of that fact is relied upon; cf. The Queen v. Marks; Ex parte Australian Building Construction Employees Builders Labourers' Federation (1981) 147 CLR 471 at p.489. It is necessary to reach a conclusion on this point because the extent to which a s.139ZQ notice may be challenged has a bearing (as will be seen below) on the question whether that section confers part of the judicial power of the Commonwealth on the Official Receiver. In a situation where it is difficult, if not impossible, to frame an exclusive and exhaustive definition of the subject matter of a prohibition having a constitutional source, one must seek other forms of guidance. A traditional and very useful starting point is the classical statement of Griffith C.J. in Huddart, Parker & Co Pty Ltd v. Moorhead (1909) 8 CLR 330 at p.357 that: "The exercise of this power does not begin until some tribunal which has power to give a binding and authoritative decision (whether subject to appeal or not) is called upon to take action". In Brandy v. Human Rights and Equal Opportunity Commission (1995) 127 ALR 1 at pp.16-17 Deane, Dawson, Gaudron and McHugh JJ. observed: "Difficulty arises in attempting to formulate a comprehensive definition of judicial power not so much because it consists of a number of factors as because the combination is not always the same. It is hard to point to any essential or constant characteristic. Moreover, there are functions which, when performed by a Court, constitute the exercise of judicial power but, when performed by some other body, do not: R. v. Davison (1954) 90 CLR 353 at p.368. These difficulties were recognised by the Court in Precision Data Holdings Ltd v. Wills (1991) 173 CLR 167 at 188-9: The acknowledged difficulty, if not impossibility, of framing a definition of judicial power that is at once exclusive and exhaustive arises from the circumstance that many positive features which are essential to the exercise of the power are not by themselves conclusive of it. Thus, although the finding of facts and the making of value judgments, even the formation of an opinion as to the legal rights and obligations of parties, are common ingredients in the exercise of judicial power, they may also be elements in the exercise of administrative and legislative power.' " One approach is to ascertain whether Subdivision J purports to confer any decision-making functions which are "exclusive and inalienable exercises of judicial power"; Mason CJ, Brennan and Toohey JJ. in Brandy at p.9 in referring to R. v. Davison (1954) 90 CLR 353 at pp.368-370. In Davison the High Court held that the ascertainment of existing rights by the judicial determination of issues of fact or law falls exclusively within the judicial power of the Commonwealth. In Brandy the expression "judicial determination" was explained (again at p.9) as meaning: "... an authoritative determination by means of the judicial method, that is, an enforceable decision reached by applying the relevant principles of law to the facts as found." In Brandy sections 25ZAA, 25ZAB, 25ZAC and 25ZC of the Racial Discrimination Act 1975 (Cth) were held to be invalid. The principal reason for such a conclusion was that s.25ZAB purported to provide that a determination of the Human Rights and Equal Opportunity Commission, upon registration by the Registrar of the Federal Court of Australia (which registration was mandatory) took effect as if it were an order of the Federal Court. The registration and enforcement provisions of the Act and an associated provision were invalid because they purported to confer judicial power. It seems to me that factors of considerable significance in that decision were that: . only the respondent was entitled to seek a review by the Federal Court; . that review could not be described as a hearing de novo and unless leave of the Court were given, "new evidence" was excluded; and . a determination of the Commission was made binding, authoritative and enforceable. In my view the resolution of the constitutional issue in the present matter also depends to a significant extent upon the nature of the review by the Federal Court which is provided in Subdivision J. The question is - precisely how is the matter dealt with by Subdivision J? As Dixon CJ observed in Davison (at p.370): "How a particular act or thing of this kind [a function or duty that is not necessarily of a judicial character but which may be performed judicially either because it is incidental to the exercise of judicial power or because it is a proper subject of its exercise] is treated by legislation may determine its character. If the legislature prescribes a judicial process, it may mean that an exercise of the judicial power is indispensable. It is at that point that the character of the proceeding or the thing to be done becomes all important." and in Farbenfabriken Bayer AG v. Bayer Pharma Pty Ltd (1959) 101 CLR 652 at 659-660:- "The decision of the Privy Council as well as of this Court in the case of the Shell Oil Company ... [references cited] is enough to show that words which might otherwise be sufficient to confer judicial power may be governed by the context as well as by the character of the body or person upon whom the power is conferred and may be construed as going no further than granting administrative power." In the present matter, in my view, an important part of the context is the extent to which the Official Receiver's notice can be reviewed or put another way - how contestable is the notice? In particular how contestable is it before a completely independent body such as the Court? (see J. de Meyrick "Whatever Happened to Boilermakers?" (1995) 69 ALJ 106 at p.199). At the core of the judicial power "... is the adjudication and conclusive settlement of a dispute between parties as to their rights and duties under the law": Zines, "The High Court and the Constitution" (3 ed) p.151. I have already referred above to the fact that there is no provision that a s.139ZQ notice is conclusive. A hearing under s.139ZS is in my opinion a hearing de novo in which the Court may investigate and determine the correctness of the facts and circumstances stated in the notice and whether any defence to the liability asserted in the notice arises out of additional facts proved by the applicant. Furthermore, in my opinion, there are alternative means for challenging the notice. Olney J. in Re Lucera referred to s.30 of the Act as a source of such a power. For example, under s.30(1)(b) the Federal Court would have power in an appropriate case to make a declaration that the condition precedent to the operation of s.139ZQ had not been satisfied and also to grant an injunction restraining any further proceedings based upon a notice issued under that section. In my opinion, s.139ZQ and its associated provisions are distinguishable from those before the High Court of Australia in Brandy. I accept the Commonwealth's submission that a decision to issue such a notice could equally be challenged under the Administrative Decisions (Judicial Review) Act in proceedings which might result in the decision being set aside on various grounds, including error of law. In each of the above circumstances the Federal Court would be exercising original jurisdiction. Another submission put by Dr Staker which I consider has merit is that the Official Receiver is not empowered to decide existing rights conclusively but to create new rights. Furthermore s.139ZQ(4) empowers the Official Receiver to revoke or amend the notice. For that discretion no guidelines are provided. Those matters tend to point against the power being of a judicial nature. Dr Staker submitted that a presumption of the regularity of the notice would arise and that the notice could not be challenged "collaterally" either in civil proceedings under s.139ZQ(8) or criminal proceedings under s.139ZT. This argument was put on the basis that those proceedings might be brought in State Courts not vested with jurisdiction under the Act. In those circumstances, so it was said, a defendant would need to bring proceedings under s.139ZS. Although it is not, in my view, necessary for me to decide those issues, I very much doubt the correctness of those submissions, for which no authority was cited. In my opinion the defendant could raise defences based upon the invalidity of a s.139ZQ notice. The amount recoverable under s.139ZQ is defined as being "an amount payable by a person to the trustee under this section". If the circumstances referred to as conditioning the exercise of the power contained in 139ZQ do not exist, then the notice would be a nullity. There must be an amount payable before the statutorily-created debt comes into existence. Similarly if the factual circumstances which empower the official receiver to issue and serve the s.139ZQ notice did not exist then in terms of s.139ZT the notice is not a "notice under s.139ZQ" and this would, in my view, be a defence to proceedings brought under s.139ZT. Mr Hawkins submitted that if the debt recovery or criminal proceedings were heard in for example the Local Court of Western Australia or the District Court of Western Australia neither of those Courts would have jurisdiction to decide whether the s.139ZQ notice was a valid one. It was said that this would be to exercise jurisdiction in bankruptcy and s.27 of the Act confers that jurisdiction on this Court and the Supreme Court of the States and the Northern Territory only. As I have said above, it is not necessary for me to decide that issue and it was not fully argued. I have had regard to decisions such as Sky Channel Ltd v. Gray (Lee J. unreported 27 November 1992 Judgment No. 891 of 1992) and Putnin v. Jenka Pty Ltd (Full Court of the Supreme Court of Western Australia, unreported 21 March 1994 Judgment No. 940143). However, I am inclined to think that the answer lies in the application of s.15C(a) of the Acts Interpretation Act 1901 (Cth) and that courts dealing with such debt recovery or criminal proceedings would have jurisdiction to hear and determine all issues raised in such "matter" including the validity of the notice. Conclusion In my opinion, s.139ZQ does not provide for the exercise by the Official Receiver in Bankruptcy of the judicial power of the Commonwealth. His decision to issue a notice under that section and the statutory consequences which flow from the issue of such a notice do not, in my view, mean that the Official Receiver makes an authoritative determination by means of the judicial method. As outlined above, the degree to which that decision is open to review and challenge precludes the Official Receiver's function as being characterised as the exercise of judicial power.

The application to extend time for making the application to set aside the s.139ZQ notice As Mr Hawkins pointed out, there is no time limited by the Act (or the Bankruptcy Rules) for the bringing of an application under s.139ZS. Mr A.R. Beech, counsel for Mr Nilant, did not submit that there was any particular time limit for the making of such an application. In a letter dated 14 February 1994 to SWF's solicitors his instructing solicitors expressed the view that there was a time limit of 28 days in which to make such an application. Presumably that was because 28 days was the time limited in the Official Receiver's notice to SWF requiring payment of the sum of $20,000 to be made to Mr Nilant. Section 139ZQ does not stipulate any particular period within which the notice must require payment to be made. In fact s.139ZQ(3) gives considerable flexibility in that regard. I was not taken to any rule which applies, nor could I find such a rule. In the absence of any statutory provision, I am not prepared to find that an application under s.139ZS must be made within the period set out in the notice issued under that section. Mr Beech submitted that if I considered that I had power to extend time, I should not exercise that power, in my discretion, on the evidence adduced on behalf of SWF. It was argued that the explanation for the time taken up between service of the notice and filing of SWF's application, as set out in Mr Carter's affidavit sworn 8 December 1994 was wholly inadequate. It was submitted that SWF had only filed its application because Mr Nilant had sued it in the Local Court of Western Australia to recover the amount of $20,000. The application was filed on 13 May 1994. In my opinion, in the absence of any prescribed period for making such an application, it should be made within a reasonable time. What is reasonable will depend upon all the circumstances of any particular case, including whether there is any prejudice to any interested party. In this case there is no evidence of prejudice to any party. The notice was served on 30 December 1993. The application to set the notice aside was filed some 4˝ months later. SWF is based in South Australia. Both Victorian solicitors and Western Australian solicitors and counsel were involved in advising SWF. At the relevant time Subdivision J was still relatively recent legislation. In the circumstances of this particular case I consider that the application was brought within a reasonable time. I would not wish this to be taken as an indication that in other circumstances 4˝ months is a reasonable period of time in which to make such an application. Alternatively, if I am incorrect in my conclusion that the application was filed within a reasonable time, I consider that the Court has power to extend time. On the assumption that an application under s.139ZS must be made within a reasonable time then, in my view, that is a "... time limited by [the] Act ..." within the meaning of s.33(1)(c) of the Act which gives the Court power to extend time. I have taken into account the fact that Mr Nilant has already issued proceedings in the Local Court of Western Australia for recovery of the sum of $20,000 in respect of the impugned payments. Nevertheless, in all the circumstances (if it is necessary to do so) and for substantially the same reasons as I have set out immediately above, I consider that it is reasonable to extend the time for SWF to bring its application to the date upon which it was filed in this Court. There will be an order extending that time to that date. Whether there was a preferential payment? Mr Hawkins first submitted that s.122 had no application to the facts of the present matter because: . the payments made to SWF were out of moneys belonging to the G.D.McLernon Family Trust; . there was thus not a payment out of the debtor's property; . the Deed of Assignment only affected Mr McLernon's personal estate and not the estate of the McLernon Family Trust of which Mr McLernon was trustee. Mr Hawkins referred to s.231(3)(a) which provides that in the application of s.122 to a deed of assignment a reference to the property of the bankrupt shall be read as a reference to the divisible property of the debtor. Section 116(2) of the Act specifically excludes property held by the bankrupt in trust for another person from the definition of property divisible among the creditors. Alternatively, Mr Hawkins submitted that any right which Mr McLernon as trustee may have had to indemnity in respect of the assets of the trust did not vest in Mr Nilant as trustee of Mr McLernon's estate and that the proper applicant to recover the money was Mr McLernon not Mr Nilant. Reliance for this proposition was placed on Ex parte Chippendale, Re German Mining Co (1854) 4 De G.M. and G. 17 at p.52 [43 ER 415 at p.427] and Re Matheson; Ex parte Worrell v. Matheson 121 ALR 605 at p.612. The trust deed pursuant to which the G.D. McLernon Family Trust was constituted includes an express provision that any trustee shall be entitled to be indemnified out of the assets for the time being comprising the Trust Fund against liabilities incurred by them in the execution or attempted execution or as a consequence of the failure to exercise any of the trusts, authorities, powers and discretions of the trust or by virtue of being a trustee of the trust. Mr Hawkins submitted that the payment referred to in s.122(1) must be a payment of money belonging to the payor. In the present matter the evidence was that the payment was not made from Mr McLernon's money but from money which belonged to his family trust. If Mr McLernon had used his own moneys to pay SWF then he would have been entitled to indemnity to that extent out of the trust property. However, although Mr McLernon was personally liable to SWF, that personal liability ceased to the extent that the debt was repaid in May 1992. His right to be indemnified out of the assets of the trust, so it was put, ceased to that extent once the impugned payments were made. It was said that in those circumstances there cannot be a voidable preference in respect of those moneys. In my view this submission must be rejected. First, s.122(1) does not qualify the reference to a payment of money in such a way as to require that money to have belonged beneficially to the payor. The subsection simply refers to a payment made by a person who is unable to pay his debts (as they become due) from his own money. Secondly, the submission conflicts with the decision of the High Court of Australia in Octavo Investments Pty Ltd v. Knight (1979) 144 CLR 360. Furthermore Re Matheson is not, in my opinion, authority for the above propositions. The situation, as I see it, is as follows: . when Mr McLernon as trustee of the G.D.McLernon Family Trust incurred debts in the discharge of his duties, he became personally liable for such debts; Vacuum Oil Co Pty Ltd v. Wiltshire (1945) 72 CLR 319 at p.324; . thus when Mr McLernon paid the abovementioned moneys to SWF he was simultaneously reducing his own personal liabilities and the liabilities of the trust; . in respect of all his personal liabilities incurred in the performance of the trusts of the G.D.McLernon Family Trust, (not only the liability to SWF which was partially discharged by the impugned payments), Mr McLernon was entitled to be indemnified from such trust assets as he was authorised to use for the carrying on of the business. That indemnity was expressly provided in the trust deed but no such express provision is necessary; . Mr McLernon was entitled to use trust assets to pay trust debts; . for the purpose of enforcing that indemnity and that right of use Mr McLernon was entitled in equity to a charge or right of lien over all those assets; . that right amounts to a beneficial interest in those assets which prevails over the cestuis que trust of the trust and must enure by subrogation and through Mr Nilant in this case for the benefit of Mr McLernon's personal creditors: Octavo Investments Pty Ltd v. Knight (1979) 144 CLR 360 at pp.367-8; . neither the right of indemnity nor the right to use trust assets to pay trust debts nor the beneficial interest arising from the charge or lien which arises by virtue of those rights is "property held by the bankrupt in trust for another person". I respectfully agree with the conclusion to that effect reached by Spender J. in Re Matheson and the reasoning by which his Honour came to that conclusion. In that case Spender J. was dealing with an application by a trustee-in-bankruptcy to be appointed as a "receiver" of a family trust in place of a bankrupt who was the sole trustee of that trust. His Honour also held that while the trustee-in-bankruptcy had a charge or lien over the trust debts as at the date of bankruptcy, the legal title to the trust property did not pass to him on Mr Matheson's bankruptcy. That is a matter upon which it is not necessary for me to express any view. Mr Hawkins relied on the decision of the Full Court of the Supreme Court of South Australia in Re Suco Gold Pty Ltd (In Liq.) (1938) 33 SASR 99 at pp.103-104, with which Spender J. in Re Matheson expressly agreed, to the effect that a liquidator in such a situation may use the right of indemnity to resort to the trust property only for the purpose of discharging liabilities incurred in the performance of the trust and that such property retains its character as trust property. Neither of these cases was concerned with the matter of preferential payments and the application of s.122(1) of the Act. Mr Hawkins acknowledged that his submissions rested in part on the proposition that Mr McLernon's equitable right of indemnity was not property divisible among his creditors. Mr Hawkins drew my attention to the particular wording of s.231 of the Act which applies the general provisions of the Act to a debtor who has executed a deed of assignment and also deals with the method of such application. He pointed to s.231(3) which provides that: "a reference to the property of the bankrupt shall be read as a reference to the divisible property of the debtor."

Mr Hawkins submitted that this was narrower than the definition in s.5 of the Act of "the property of the bankrupt" which by specific reference extends to "any rights or powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt." His submission depended upon the proposition that Mr McLernon's right of indemnity fell only within those words of extension and that the right of indemnity was not property divisible among Mr McLernon's creditors. In my opinion that proposition cannot be maintained in view of the decision in Octavo Investments. As the headnote to the report of that case indicates, it is authority for the following three propositions of law: . the passing to a trustee in the bankruptcy of the trustee of a trading trust of the trading trustee's beneficial interest in the trust estate is sufficient to attract the provisions of s.122(1) of the Act; . s.122(1) is apt in the case of an individual trading trustee to render void as against his trustee in bankruptcy a payment out of the trust property in circumstances which have the effect of giving the payee a preference, priority or advantage over other creditors; . the phrase "from his own money" in s.122(1) of the Act forms part of the description of the person who makes the payment or engages in the transaction in question and later become bankrupt. It does not qualify the classes of transaction covered by s.122(1). It was an essential part of the High Court's reasoning (see pp.367-368) that the trustee's right to indemnity gave the trustee a beneficial interest in the trust assetsand that such beneficial interest fell within the definitions of both "property" and"property of the bankrupt" in s.5 of the Act. That beneficial interest thus formed part of the property of the bankrupt divisible among his creditors. Left undecided in Octavo Investments was whether, in the case of an individual trading trustee, the money paid by way of preference should be paid to the trustee-in-bankruptcy or to the bankrupt trading trustee. This was the subject of Mr Hawkin's alternative argument. Apart from the fact that the trading trustee in Octavo Investments was incorporated, the facts of the present matter are indistinguishable from the facts in that case. Even that factual distinction is irrelevant because the result in Octavo Investments depended upon whether the payment made by the company in that matter would, if made by an individual, have been void or voidable in the event of the bankruptcy of that individual (see p.368). In the joint judgment of Stephen, Mason, Aickin and Wilson JJ. their Honours first applied the literal reading of the phrase "from his own money" in s.122 as being part of the description of the person who makes the payment rather than a description of the source of the payment. Nevertheless, their Honours, at p.369, added the following observation: "Even if we are mistaken in this conclusion, the words "from his own money" may well be satisfied if a trustee makes payment to a creditor out of trust assets in respect of which he has not only the legal estate but also a beneficial interest to secure his right to an indemnity." At the same page their Honours rejected a submission that the liquidators were in fact seeking to have declared void the surrender of the trading trustee's charge over the trust moneys paid to the preferred creditor. The following passage (again at p.369) is directly in point in the present matter: "If the present payments had not been made by Coastline to Octavo then the liquidator of Coastline would have had access to the charge over those moneys for the benefit of all its creditors. The payments therefore were to the prejudice of the creditors generally and it is those payments which attract s.122." I now turn to Mr Hawkin's submission that the correct applicant should be Mr McLernon as the trading trustee and not Mr Nilant as trustee pursuant to the Deed of Assignment. This question was treated as being bound up with the question whether (in the event that an order is made against SWF for repayment) such moneys ought to be ordered to be paid to Mr Nilant as trustee or to Mr McLernon as trading trustee. In Octavo Investments the High Court held that it was not necessary to decide whether money paid by way of preference would normally have to be repaid to the trustee-in-bankruptcy or to the bankrupt trustee (see p.371). Mr Hawkins pointed to the fact that Spender J. in Re Matheson at p.612 expressed the opinion that the better view was that "... while the trustee has a charge or right of lien over the trust property, in respect of trust debts as at the date of bankruptcy, the legal title to the trust property does not pass to him ..." In my view, (as I have already mentioned) it is not necessary for the purposes of disposing of this matter to resolve that question. The High Court held in Octavo Investments that the beneficial interest in the lien or charge passes to the trustee upon the bankruptcy of the trading trustee. In that case the High Court varied the order made by the Full Court of the Supreme Court of Queensland only to the extent that payment was to be made to the company rather than to the liquidators as the Court below had ordered. This was because in the absence of an order under s.233(2) of the Companies Act [see now s.474(2) of the Corporations Law] the liquidator of a company acquired no title to company property. Mr Beech referred to two cases as being relevant to this issue. The first was the High Court decision in N.A. Kratzmann Pty Ltd (In Liq.) v. Tucker [No. 2] (1968) 123 CLR 257 and in particular a passage of the joint judgment of McTiernan, Taylor and Menzies JJ. at p.301 where their Honours observed that when a trustee in bankruptcy recovers moneys paid as a preference (in that case the moneys had been paid to a chargee) "... they become the moneys of the trustee and his title to them does not depend upon his succession to any title which the bankrupt had." The facts and the issue in Kratzmann were so different to the facts and issues in the present matter that I prefer simply to note the observation which I have quoted and then turn to the second case upon which Mr Beech relied, namely Bibra Lake Holdings Pty Ltd (In Liq.) v. Firmadoor Australia Pty Ltd (1992) 7 WAR 1 where Rowland J. at p.4, after setting out a passage from the joint judgment in Octavo dealing with the variation of the payment orders, referred to: "...the fact that there is a difference between a trustee in bankruptcy and a liquidator in the sense that the assets of a company do not vest in the liquidator on a sequestration order, but remain the property of the company, whereas in bankruptcy the assets of the bankrupt are vested in the trustee." See also Ipp J. at pp.7-8. Pidgeon J. agreed with the reasons of Rowland and Ipp JJ. In my opinion the statutory right to recover a preferential payment in the circumstances of the present matter vests in Mr Nilant and he is the appropriate applicant, not Mr McLernon. Similarly if Mr Nilant needs any further basis for his claim (which I doubt) it is quite clear that the beneficial interest in the rights to be subrogated to the equitable charge also vested in Mr Nilant.

Were the payments preferences? An affidavit sworn by Mr Carey Francis Carter (a director of SWF) was received into evidence. In that affidavit, Mr Carter says that the three payments referred to above were received by SWF in the ordinary course of business without notice, in good faith and for valuable consideration. He swears that he was informed by Mr McLernon that he (Mr McLernon) was able to meet payment of the amount owing to SWF when payment fell due, that SWF's trading terms were agreed to with the debtor and that the payments were in compliance with SWF's trading terms. Mr Carter was cross-examined. In the course of his giving evidence it emerged that SWF's business involved manufacturing and supplying electric overhead cranes and supplying components for the manufacture of such cranes. The cranes were of a type normally installed inside factories, running on elevated rails and with a lifting capacity of up to 50 tonnes. In cross-examination Mr Carter was asked about the terms of payment agreed between SWF and Supercrane Australia. He responded as follows: "There was no hard and fast rules of payment. In fact, it was a fairly loose arrangement, as and when Supercrane would get money in, they would settle some of our account. It was virtually a running account that they had with us." Some eighteen invoices from SWF to Supercrane Australia were put into evidence. On one of those (dated 24 September 1990) there appeared the following: NOTE: In accordance with our agreement payment terms are strictly nett seven days. Interest will accrue after this period.

On another invoice (dated 23 May 1991) there appeared the notation: TERMS: STRICTLY NETT SEVEN (7) DAYS Also in evidence was a statement of account from SWF to Supercrane Australia for the period ended 30 April 1992 on which was endorsed: ACCOUNT IS OVERDUE! Please send cheque urgently That statement under the heading "Remittance Advice" contained five columns of a conventional kind showing, respectively, the amount due, the amount "current", the amount "1 month", the amount "2 months" and the amount "3 months & over". The amount due was shown as $37,607.73. Nothing was shown in either the current or 1 month column. In the 2 months column appeared the figure $348.80 and in the three months & over column appeared the sum of $37,258.93. Exhibit 2 comprised a bundle of twenty-three photocopies of SWF's monthly "Debtor Age Trial Balance". Mr Carter agreed that these documents showed that at the end of April 1992 Supercrane Australia owed SWF $37,607.73 of which more than $37,000 was over "120 days old" and that in fact more than $35,000 of that amount was at least "8 months old". He also agreed that transactions after 31 August 1991 amounted to less than $2,500. Mr Carter acknowledged that in the second half of 1991 there were from time to time problems getting payments from Supercrane Australia, adding "Gerry (a reference to Mr McLernon) had always been fairly slow in paying his bills." Some cheques had been dishonoured, including a cheque for $20,000 in October 1991. No payments had been made by Supercrane Australia between July 1991 and February 1992 when a lump sum payment of $10,000 was made. No payment was made in either March or April 1992. Mr Carter agreed that he had some discussions with Mr McLernon between January and April 1992. Mr Carter denied that Mr McLernon on those occasions told him that he (Mr McLernon) was having trouble paying. Mr Carter said that "to the contrary" Mr McLernon told him that he had a lot of money coming to him which was owed by two particular large companies, one being United Constructions and another being Cignet-Baulderstone. Mr McLernon had told him that there were problems at site in getting the jobs completed and that he could not get paid until such time as the jobs were completed. Mr Carter's evidence was to the effect that from the outset of their dealings Mr McLernon kept him informed about progress on the various projects which were major contracts. There was never any dispute about what Supercrane owed SWF and Mr McLernon had agreed that he was obliged to pay the money shown as outstanding in the documents to which I have referred above. The following exchange took place in cross-examination: "He agreed that he had to pay you?---Yes. He was just saying I can't pay you yet?---He was saying there was problems with the various projects to finish them off and the projects in particular were - a government job at Garden Island and a compressor station job up in the North West, they were two very major jobs that he had and they'd been going on for a period of time." Mr Carter at first swore that SWF had not in April 1992 refused to supply Mr McLernon on credit. He then acknowledged that SWF had not in fact supplied Mr McLernon on credit in April 1992. Finally Mr Carter conceded that Mr McLernon may well have asked for credit but he could not say whether that was so and whether SWF had refused credit. On 13 April 1992 SWF sent to Mr McLernon a document headed "Notice of Intention to Sue" which is reproduced below. The document was sent by facsimile transmission. NOTICE OF INTENTION TO SUE (Photocopy attached) Mr Carter said that the above notice was sent out by a bookkeeper to all SWF customers "that were over 120 days".

Mr Carter's evidence was that he thought that in April 1992 Mr McLernon "... was more interested in getting his projects completed than entering into new projects." On its own that piece of evidence may not amount to much. However, taken in context, in my view it indicates that Mr McLernon's business was being wound down. Mr Carter admitted that the three payments in issue in this matter, made in May 1992, were received in the form of three cheques, two of which were postdated. Mr Carter said that he was "over in Perth" at the time and Mr McLernon had given him the cheques because he was "waiting on" a payment which Mr Carter believed was due from United Constructions. Mr Carter waited and banked those cheques on their respective dates. In re-examination Mr Carter said that SWF supplied cranes or parts for the manufacture of cranes to some half dozen companies and also supplied cranes direct to end customers. He said that in the latter circumstances payment was usually made by a series of progress payments. In respect of supplies to intermediaries Mr Carter said that normally when SWF's customer gets paid SWF would expect to be paid or as he later put it: "The main event is when they get paid for the equipment we would expect to be paid for it." In his experience, the minimum time in which SWF would be paid in respect of direct supply would be one month, the maximum several years and the average in excess of three months. He said that SWF supplied to other intermediary customers such as Supercrane on a similar basis as it supplied Supercrane. Very seldom did they get paid within a month "... more likely it's 3 to 4 months and sometimes longer."

Mr McLernon swore three affidavits which were admitted into evidence and he also gave some evidence orally. In his oral evidence (as I understood it) Mr McLernon said that fifty per cent of the products which his firm used to manufacture the cranes which it built came from SWF. Mr McLernon was referred to paragraph 9 of his affidavit sworn 30 November 1994 which read as follows: "9. As at May 1992 the applicant was well aware that I could not pay my debts as and when they fell due from my own monies. Prior to the payments made by me to the applicant in May 1992 ("the payments") I had several discussions with Carter and numerous people in the Applicant's accounts department whose names I do not recall as to how I was going to extinguish my debt with the Applicant ..." Mr McLernon explained that he told the representatives of SWF that when he got paid SWF would get paid. Mr McLernon swore that on behalf of his firm he had made requests to SWF for supplies on credit during the first five months of 1992 but that he was unable to obtain any further supplies until the existing debt had been cleared other than on the basis of cash on delivery. Various persons at SWF had told him this including Mr Carter. Mr McLernon also said that to the best of his recollection his firm incurred no further credit after about April 1992 "with anybody". Although Mr McLernon was made available for cross-examination, he was not cross-examined. In his affidavit sworn on 12 November 1994 Mr McLernon said that before 8 September 1992 he acted as trustee for the G.D.McLernon Family Trust previously trading as "Supercrane". He said that the business became insolvent and being liable for the debts, he sought professional advice as to his predicament. Following such advice, on 8 September 1992 he signed the authority to Mr Nilant referred to above. Mr McLernon's affidavit continued:

"9. The above payments [a reference to the impugned payments, totalling $20,000] were made as a result of a Notice of Intention to Sue issued by SWF Hoists and Industrial Equipment Pty Ltd dated the 13th of April 1992 .... The Notice was received by me by facsimile transfer on the 13th of April 1992. I also required further supplies from SWF Hoists and Industrial Equipment Pty Ltd, which were actually never supplied as ordered due to my insolvency at the time. I had been experiencing difficulties for some time and advised them of my difficulties. 10. At the time of making the payments, I was indebted to SWF Hoists and Industrial Equipment Pty Ltd to the amount of $39,218.93 for past deliveries. At the time of making payments in May 1992 I was not able to pay all my debts as and when they fell due. Furthermore, my debts substantially exceeded my assets." In a subsequent affidavit, sworn on 30 November 1994, Mr McLernon confirmed the truth of his affidavit verifying his statement of affairs as at 8 September 1992. The statement of affairs as at 8 September 1992 shows that Mr McLernon had assets of $106,995, unsecured liabilities of $325,197 and a total deficiency of $218,202. Mr McLernon swore that the majority of creditors listed in that statement were also outstanding as at May 1992 and that none of those creditors then outstanding had been paid their debts in full or in part. After referring to Mr Carter's affidavit sworn 11 May 1994 (in which Mr Carter stated that Mr McLernon had told him that he was able to meet payment of the amount owing to SWF when payment fell due) Mr McLernon responded in terms of paragraph 9 of his affidavit which is set out above and continued as follows: "10. The payments which were made to the Applicant were a direct result of receiving a notice of intention to sue and from pressure applied by the Applicant in the discussions mentioned in paragraph 9 herein, and not in response to any particular invoice issued by the Applicant. The payments were made in an effort to reduce and/or extinguish my debt to the Applicant as the Applicant was my major trade creditor. 11. The payments received by the Applicant in May 1992 were not within my normal trading terms with the Applicant." Mr Hawkins submitted that in respect of Mr Nilant's application, Mr Nilant had the onus of showing that as at the date of each of the three abovementioned payments: . SWF was a creditor of Mr McLernon; . that there were at that time other creditors who have remained unpaid; . that Mr McLernon was insolvent at the time when the payments were made, and . that the payments were made during the six-month relation back period. Mr Hawkins submitted that there was no evidence that Mr McLernon was insolvent at the time when he made the impugned payments. In particular, he submitted that there was no evidence of Mr McLernon's assets or debts as at May 1992 and no evidence that Mr McLernon had any creditors at that time. I reject that submission. As I have mentioned above, Mr McLernon was not cross-examined and accordingly his affidavit and oral evidence remains unchallenged. In Sandell v. Porter (1966) 115 CLR 666 at p.670, Barwick CJ (with McTiernan and Windeyer JJ concurring) said: "An essential step in making out that a payment is a preference within s.95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s.95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realisation by sale or by mortgage or pledge 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." In that case the Court described the evidence in the Court below as being of the most tenuous kind. One of the three pieces of evidence discounted in Sandell v. Porter was an admission by one of the bankrupts that the relevant partnership was unable to pay its debts on their due dates out of its own moneys. There is other evidence in the present case. I refer to the extracts from Mr McLernon's affidavits, set out above, concerning his financial position in May 1992, and the fact that the majority of his creditors listed in his statement of affairs as at 8 September 1992 were also outstanding as at May 1992. Then there is Mr McLernon's evidence that he did not incur further credit after April 1992. I also refer to the history of the dishonoured cheque for $20,000 in October 1992, the pattern (in particular the absence) of trading on credit with SWF which represented over 50% of Mr McLernon's business supplies and the very long period for which the debts to SWF were outstanding as summarised above. There was an issue between the parties concerning who had the onus of proof of insolvency. Mr Hawkins contended that Mr Nilant carried the onus of proof. In respect of the application brought by Mr Nilant it is quite clear on the authorities that the onus lies upon him to satisfy the Court that the ingredients resulting in the avoidance of a preference exist: Bank of Australasia v. Hall (1907) 4 CLR 1514 at p.1542; Re Brechin; Ex parte Putnin & Stokes (Australasia) Ltd (1986) 78 ALR 535 at p.536. Mr Beech contended that in relation to the application under s.139ZS, assuming the constitutional validity of s.139ZQ, the onus was on SWF in all respects to show that the payment was not a preference and to show that it was made in good faith for valuable consideration and received in the ordinary course of business. Dr Staker made a similar submission in respect of the onus of proof as a matter of statutory construction. Mr Beech acknowledged that "the area where there may be a difference of onus is not a serious issue in this case." In the circumstances of the present matter I do not need to decide that legal issue because Mr Nilant has seen fit to bring his application and I consider that the evidence establishes that: . SWF was a creditor of Mr McLernon when the three impugned payments were made. This was not seriously in issue; . at the time when each of those payments were made, there were other creditors who have remained unpaid. I accept Mr McLernon's evidence to that effect; . at the time when each of the impugned payments were made Mr McLernon was unable to pay his debts as they became due from his own money as that expression has been explained in the cases, including Sandell v. Porter. Again I accept Mr McLernon's evidence to that effect and the other evidence to which I have referred concerning his financial circumstances in May 1992; and . each of those payments was made during the six-month relation back period. Whether the payments were made in good faith for valuable consideration and in the ordinary course of business The impugned payments will not be caught by s.122(1) if in respect of them SWF was a payee in good faith and for valuable consideration and in the ordinary course of business, the burden of proving these matters lying on SWF - s.122(2) and (3) of the Act.

There was no issue joined on the question of valuable consideration. Issue was, however, joined on the issues of good faith and the ordinary course of business. Good Faith It seems to be well accepted that the test for good faith is an objective one. As Barwick CJ observed in Queensland Bacon Pty Ltd v. Rees: "The existence of knowledge or suspicion of insolvency negatives good faith: and the knowledge of circumstances from which ordinary men of business would conclude that the debtor is unable to meet his liabilities is knowledge of insolvency (authorities cited)." It is also necessary to refer to the provisions of s.122(4)(c) which deems a creditor not to be a payee in good faith if the payment was made under such circumstances as to lead to the inference that the creditor knew or had reason to suspect: . that the debtor was unable to pay his debts as they became due from his own money; and . that the effect of the payment would be to give him a preference, priority or advantage over other creditors. In Re Cummins (1985) 8 FCR 546 Spender J. reviewed the authorities both in respect of "ordinary course of business" and "good faith". In respect of the question whether the onus was on the payee to negative the inference set out in s.122(4)(c) his Honour agreed with C.A. Sweeney J. in Re Bird; Ex parte M & G Casabene & Sons (1979) 39 FLR 281 and with the observations of Latham CJ in Downs Distributing Co Pty Ltd v. Associated Blue Star Stores Pty Ltd (In Liq.) (1948) 76 CLR 463 at pp.475-476 and Kitto J. in Queensland Bacon Pty Ltd v. Rees at pp.303-304 to the effect that the onus remained on the payee to negative the inference referred to in the abovementioned subsection and that the test was an objective test. At p.556 Spender J. summed the position up as follows: "Accepting, of course, that insolvency means being unable to pay one's debts as they fall due, if a person entertains a genuine doubt in the sense of being uncertain whether a person is insolvent or solvent (as opposed to being ignorant of his financial circumstances), in my opinion that person has real apprehension as to his solvency and the suspicion referred to in the subsection exists." Alternatively, in applying the objective test, Latham CJ in the Downs Distributing Co case referred to the subsection (at pp.475-476) in the following terms: "It is intended to deal with circumstances such that an inference can fairly be drawn by a court that there was reason to suspect, whether or not in fact the mind of the creditor consciously adverted to the significance with respect to the financial position of the debtor of the matters mentioned in the subsection. In my opinion a transaction falls within subs.(4), so that a creditor is excluded from the category of a creditor dealing in good faith under subs.(2)(b), if, whatever the creditor may think or believe with respect to the circumstances of a transaction, those circumstances are such as to lead to an inference by the court that there was reason to suspect according to the standards of an ordinary reasonable man that the debtor was unable to pay his debts as they became due, and that the effect of the transaction would be to give the creditor a preference over other creditors." In my view the circumstances of this matter are such as to lead to an inference which I have drawn that at the very least there was in May 1992 reason for Mr Carter (representing SWF) to suspect, according to the standards of an ordinary reasonable man, that Mr McLernon was unable to pay his debts as they became due and that the effect of the transaction would be to give SWF a preference over other creditors. I refer to: . the trading pattern between Mr McLernon and SWF (described above); . the history of dishonoured cheques. . the absence of regular payments. I reject Mr Carter's assertion that the impugned payments were in compliance with SWF's trading terms. All the evidence points in the opposite direction. Mr McLernon was, in May 1992, very much overdue in paying the debts to SWF which had fallen due and payable. SWF's endorsement on the April 1992 statement confirms this. The fact that SWF was to some extent prepared to wait until Mr McLernon's customers paid him was, in my opinion, an indulgence not a variation of SWF's trading terms. Even then the Notice of Intention to Sue was faxed to Mr McLernon at a time when, on Mr Carter's evidence, he (Mr McLernon) was having trouble obtaining payment from two of his major customers. If it is necessary for me to find precisely what SWF's trading terms with Mr McLernon were, then I would infer and find that they were the usual monthly terms (despite the reference on occasion to 7 day terms). I so infer from the fact that invoices were raised and posted to a monthly statement, the references in the monthly statements to the age of the respective amounts owing and the particulars shown in the monthly trial balances; . the fact that two of the payments were made by post-dated cheques handed to Mr Carter personally in advance of their due dates; . the fact that Mr McLernon was winding down the business (inconclusive as that is on its own); . the fact (which I so find, despite Mr Carter's evidence to the contrary) that Mr McLernon told him that he was unable to pay his debts. This forms part of the objective circumstances which an ordinary reasonable man would take into account. Whether the payments were made and received in the ordinary course of business Strictly speaking, in view of my finding above in relation to the absence of good faith, it is not necessary to consider whether the payment was made and received in the ordinary course of business. However, I shall do so shortly. Spender J. in Re Cummins (at pp.551-553) reviewed many of the well-known decisions including Re K & R Fabrications (Qld) Pty Ltd (in liq.) (1980) 49 FLR 350; Taylor v. White (1964) 110 CLR 129 at p.136, Downs Distributing Co Pty Ltd v. Associated Blue Star Stores Pty Ltd (in liq.) (1948) 76 CLR 463 at 477, Queensland Bacon Pty Ltd v. Rees (1966) 115 CLR 266, Re Bird (as trustee of the estate of Arcadiou); Ex parte M & G Casabene & Sons (1979) 39 FLR 281, Re Brittain; Ex parte Barnes (1984) 2 FCR 35 and Re Lee Furniture Pty Ltd (In Liq.) (1983) 8 ACR 251. I would select two short passages as providing guidance in this area. The first is from Taylor v. White at p.136 where Dixon J. said: "I do not doubt that in the ordinary course of business' refers to business' as a general conception and is not restricted to the conduct of any particular business such as the business carried on in a shop or merchant's office or the like, but is referring to the transaction of business as a known and recognised activity pursued by anybody engaged in an attempt to win or earn or make' money or a living in a systematic or regular way .... The time-honoured phrase in the ordinary course of business' is meant to refer to transactions regularly taking place in a sustained course of activity or some usual process naturally passing without examination." And in Downs Distributing Co Pty Ltd v. Associated Blue Stores Pty Ltd at p.477 there is the following observation from Rich J: "It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation." As Spender J. noted in Re Cummins (at p.552) "the factual circumstances in each case should not, of course, be elevated into propositions of law."

The fact that the impugned payments were made after SWF issued its notice of intention to sue (a document which at first glance some businessmen might have confused with a writ or similar process) does not of itself require a finding that they were made and received out of the ordinary course of business. It is one factor to be taken into account in assessing the matter. Once again I have considered the pattern of trading and in particular the fact that Mr McLernon, as Mr Carter knew, was winding down his business. In my view the factual circumstances here were such that what was going on was not in the ordinary course of business. The course of business had virtually stopped and SWF was in the course of seeking to obtain the money owing to it cf. Re Lee Furniture Pty Ltd (In Liq.) (No. 2) (1986) 11 ACLR 351 at p.353. During the period of almost nine months from August 1991 to the time when these three impugned payments were made, Mr McLernon made only one payment (in February 1992) to SWF. There was a pattern of nine transactions between the parties in 1990, a further nine transactions between the parties in the first eight months of 1991 and only one transaction in the last four months of 1991 for a relatively small amount. Finally there was a transaction amounting to less than $350 in March 1992. I have already referred to the age of the total amount owing by Mr McLernon to SWF. I accept Mr McLernon's evidence, which was unchallenged, that at the time when he made these three payments to SWF, that company refused him any further supplies on credit. As Woodward J. observed in Re Brittain the question is one of degree and of general impression. Accepting that the term "in the ordinary course of business" refers to business as a general conception and is not restricted to the conduct of any particular business, I think it is appropriate to take into account, to some extent, the course of dealing between SWF and its customers including Mr McLernon. By that I mean to refer to what might be described as a somewhat tolerant credit attitude i.e. that SWF was generally prepared to wait until its trade customers had been paid by their end customers before expecting to be paid. That may well have been the case but there was no evidence to suggest that this was a general conception throughout the business community. I took it into account but I did not give it very great weight. In any event, the sending of the notice of intention to sue followed by receipt of three cheques (two of which were post-dated) stands in stark contrast with such a benign credit policy. In my view, the circumstances were such that the payment of these three cheques was not made or received in the ordinary course of business. Conclusions For the above reasons SWF's application (other than its application for time to be extended) will be dismissed. In relation to Mr Nilant's application there will be a declaration that the three payments totalling $20,000 made by Mr McLernon to SWF are preferential payments and thereby void as against Mr Nilant and an order that SWF pay the sum of $20,000 to him. I will hear the parties on the matter of costs, but my proposed orders are set out in the foregoing minute. I certify that this and the preceding fourty-six (46) pages are a true copy of the Reasons for Judgment of Justice Carr. Associate: Date: 28 July 1995 Counsel for the Applicant: Mr M.J. Hawkins Solicitors for the Applicant: Naveen Pillay Counsel for the Second Respondent: Mr A.R. Beech Solicitors for the Second Respondent: Hotchkin Hanly Counsel for the Commonwealth of Australia, intervening: Dr C.R. Staker Solicitors for the Commonwealth of Australian Government Australia, intervening: Solicitor Date of Hearing: 28, 29 June 1995 Date of Judgment: 28 July 1995