SPARAD (No 100) LTD (formerly known as AEFC Ltd) v J B HARKNESS (as liquidator of Spedley Securities Ltd (In Liq)) SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY and CLARKE JJA, and ABADEE AJA 22 October 1996, 14 February 1997 [1997] NSWCA 290 INSOLVENCY — VOIDABLE PREFERENCES — s122 BANKRUPTCY ACT 1966 (CTH) — WHETHER CHEQUE DISHONOURED WITHIN MEANING OF s69 CHEQUES AND PAYMENT ORDERS ACT 1986 (CTH) INSOLVENCY — VOIDABLE PREFERENCES — BANKRUPTCY ACT 1966 (CTH) S122 — Loan from appellant to Spedley — loan called by appellant — repayment made by cheque by Spedley — bank advised appellant of intention to refuse payment of cheque — intention to refuse payment speedily reversed and cheque met in full — liquidator brought proceedings seeking to recover payment as a preference — appellant argued payment protected by s122(2)(a) Bankruptcy Act 1966 (Cth) — trial judge found for liquidator — On appeal: (1) whether cheque dishonoured within meaning of s69 Cheques and Payment Orders Act 1986; (2) when payment was effected and loan discharged; (3) whether payment made in good faith and in the ordinary course of business; (4) whether s122(4)(c) deeming provision applied. Held: Unnecessary to answer (1) and (2); as to (3) and (4) the repayment was made in good faith and in the ordinary course of business, and was not made under such circumstances as to lead to the inference that the appellant knew or had reason to suspect that Spedley was unable to pay its debts as they became due from its own money. Priestley JA In 1988 Spedley Securities Ltd (Spedley) was, and had been for some years, a dealer in the short term money market. An application to wind Spedley up was filed in the Supreme Court on 11 April 1989. A winding up order was made on 25 May 1989. By its liquidator, Spedley later commenced proceedings against a number of companies seeking to recover property transferred or payments made by Spedley prior to the commencement of the winding up proceedings. A number of these proceedings were for the recovery of allegedly preferential payments by Spedley, in the six months preceding 11 April 1989. of amounts lent to Spedley. In one of these proceedings, which was not a preference claim, it was necessary to decide when Spedley became unable to pay its debts as they fell due, from its own moneys. Cole J held that Spedley had been in this position from 10 October 1988, and every day after that, until the winding up order was made!. Cole J noted in his reasons that the defendants in thirty-one other proceedings brought by the liquidator had agreed to be bound by his finding on this matter. Those proceedings included the present. The claims to recover preferential payments met with varying success. What happened in those I know of was as follows. 1. Spedley Securities Limited (In liquidation) v Bank of New Zealand, unreported, 15 March 1992 2 UNREPORTED JUDGMENTS 1. Amounts of $1,950,000 and $482,500 repaid by Spedley on 27 October 1988 to Tennyson Holdings Ltd and Southern Sea Farms Ltd were held not to be recoverable because the court was satisfied that the payments had been received in good faith; for valuable consideration and in the ordinary course of business, within the meaning of s122(2)(a) of the Bankruptcy Act 1966.2 2. Repayments made to Western United Limited of $1,000,000 on 7 November 1988, $200,000 on 8 November 1988 and $1,200,000 9 November 1988 were held not to be recoverable for the same reason as in 1.3 3. A payment received by Western United Limited on 9 November 1988 of $400,000 was held to be recoverable by Spedley's liquidator because it appeared to have been received otherwise than in the ordinary course of the short term money market dealings between the recipient and Spedley and McLelland J was not affirmatively satisfied that in respect of that payment the payee was a payee in good faith within the meaning of s122(2)(a).4 4. A payment of $15,000,000 to Potts West Trumbell on 9 November 1988 was held to be recoverable because it had not been made in the ordinary course of business.5 5. The present case was decided by Santow J at first instance and, if his decision is correct, is the next in chronological order of payment received. It concerns $1,000,000 paid, on Santow J's views on 10 November 1988 to AEFC Ltd (subsequently renamed Sparad (No 100) Ltd) (AEFC). Santow J held that AEFC had failed to satisfy him of good faith within the meaning of s122(2)(a).6 (The appellant AEFC argues that the date of payment should be held to be 8 November). 6. A repayment of $4,000,000 to Commonwealth Bank of Australia on 6 December 1988 was held not to be recoverable by the liquidator." 7. An amount of $5,000,000 paid to Partnership Pacific Ltd on 30 December 1988 was held by McLelland CJ in Eq not to be recoverable.8 An appeal from that decision has today been dismissed by this court. As already mentioned, the present appeal is from Santow J's decision? that an amount of $1,000,000 repaid to AEFC, on 10 November 1988 (as the liquidator asserts) was recoverable as a preference. The liquidator's claim was based on s451 of the Companies (NSW) Code which made applicable s122 of the Bankruptcy Act 1966. The relevant parts of s122 are as follows: "(1) A... payment made,... 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... payment... made 2. (1991) 9 ACLC 1367, Young J; (1992) 26 NSWLR 344, Court of Appeal. Spedley Securities Ltd (In liquidation) v Western United Ltd (In liquidation) (19Y2) 27 NSWLR 111, McLelland J. Spedley Securities Limited (In liquidation) v Western United Ltd (In liquidation) (1992) 27 NSWLR 111, McLelland J. Harkness v Potts (1993) 11 ACLC 501, McLelland CJ in Eq. (1993) 12 ACSR 32. Harkness v Commonwealth Bank of Australia (1993) 12 ACSR 165 (Young J). Spedley Securities Ltd (In liquidation) v Partnership Pacific Ltd (1993) 11 ACSR 631 (McLelland CJ in Eq). 9. (1993) 12 ACSR 32. » a PAIN UGRARAD (No 100) LTD (formerly known as AEFC Ltd) v J B HARKNESS (as liquidator & Spedley Securities Ltd (In Liq)) (Priestley JA) (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. (2) Nothing in this section affects: (a) the rights of... a payee... in good faith and for valuable consideration and in the ordinary course of business; (b) the rights...; or (c)... (3) The burden of proving the matters referred to in subs(2) lies upon the person claiming to have the benefit of that subsection. (4) For the purposes of this section: (a)... (b)...; and (c) a creditor shall be deemed 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: (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... payment... would be to give him a preference, priority or advantage over other creditors." Before Santow J it was not, as he put it, seriously in contest that the payment had the effect of giving AEFC a preference, priority or advantage over other creditors within the meaning of s122(1) of the Bankruptcy Act, or that the payment had been made within six months before the commencement of the winding up proceedings. The payment was thus void as against the trustee pursuant to s122(1), unless AEFC could satisfy the burden of proving the matters referred to in s122(2)(a). Of these, it was not disputed that AEFC was a payee for valuable consideration. The issues before the court were therefore "good faith" and "in the ordinary course of business". In his reasons Santow J described the regime within AEFC for keeping a watch on its short term money market operations. He also detailed AEFC's relationship with Spedley, which included a temporary suspension in November 1985 of the limit it had then fixed for amounts to be lent by it to Spedley in that market. The limit was reinstated in March 1986. It was suspended again in October 1987 and reinstated in December 1987 At the date of reinstatement AEFC rated Spedley as "BB-". This rating was sufficient for AEFC to be satisfied that the short term money markets limits for Spedley should be fixed at $1,500,000 unsecured and $1.500.000 secured. On 22 December 1987 an unsecured loan of $1,000,000 was made, on a "fixed" basis. Between then and 8 November 1988 there were approximately forty "rollovers", mostly for seven days, as well as renegotiation's of the interest rate. A secured loan of $ 1,000,000 was made to Spedley on 21 October 1988, secured by bank bills of equivalent amount, lent at "11 am call". This meant that the loan was payable on the business day repayment was asked for, if that request was made before 11 am the following business day, if after. 4 UNREPORTED JUDGMENTS In evidence before Santow J was a collection of articles from the financial press, commencing with one in the Australian Financial Review of 27 October 1988, dealing with the difficulties being undergone by the West Australian company known as Rothwells. These articles dealt with efforts, emanating from various Western Australian Government agencies to "prop up" Rothwells, which was a financial institution which the Western Australian Government appears to have been very anxious to keep solvent. From 27 October through to and after 8 November 1988 the newspaper articles reported on various aspects of the efforts to save Rothwells. to whom a provisional liquidator was appointed on 3 November 1988. Spedley was mentioned in these newspaper reports as one of the companies believed to have lent money to Rothwells. Santow J summarised the significance of the newspaper comment, so far as it concerned Spedley, by saying it "identified a connection between Spedley and Rothwells and Rothwells' financial difficulties, though none went so far as to state that Spedley's solvency was at risk". This seems to me to be a fair summary. The newspaper interest, and the major story, lay with the solvency or otherwise of Rothwells; the references to Spedley were incidental and not concerned with the possibility that if Rothwells were insolvent. Spedley might also be. Relevant officers of AEFC were aware of the articles in the financial press. On 7 November 1988 the secured loan was called before 11 am. It was repaid, probably that morning. Of this Santow J said: "There is no suggestion that the method of payment was other than the usual and ordinary means by which payments of that kind were made and without unusual incident. It is true that the payment followed another article in the Australian Financial Review dealing with Rothwells as well as articles in other daily papers to similar effect. But nothing in those articles would appear to add materially to the previous publicity, other than the fact that Rothwells was to apply to the Queensland Supreme Court for an order to be wound up and that the $15 million repayment in respect of Western Collieries appears to have ended up with Spedleys. Neither of those matters of themselves appear to have given rise to any perception at AEFC that Spedley's solvency was dependent upon Rothwells. " There was debate before Santow J about whether Spedley's secured limit was then suspended or cancelled. Santow J's conclusion was that it was suspended; he did not think the circumstances allowed the inference that the situation was perceived as so serious by AEFC that the secured limit should be cancelled. He pointed out that it was only on 29 June 1989 that the unsecured limit was changed from suspension to cancellation. It thus seems relatively clear that if Santow J had been considering whether AEFC had discharged its burden of proving the matters in s122(2)(a) on the basis that AEFC had received the payment from Spedley on 8 November 1988, then he would have held that AEFC had done so. For him to say what he did about AEFC's not having any perception at the time of repayment of the secured loan that Spedley's solvency was dependent upon Rothwells, he must have been, at least provisionally, of the view that at that date AEFC did not know or have reason to suspect that Spedley was unable to pay its debts as they became due from Spedley's own money or that the effect of the payment would give AEFC a preference, priority or advantage over other creditors: see s122(4)(c). I pause here in my statement of the way Santow J saw the case factually to note that UGRARAD (No 100) LTD (formerly known as AEFC Ltd) v J B HARKNESS (as liquidator & Spedley Securities Ltd (In Liq)) (Priestley JA) counsel for the respondent liquidator did not agree that the trial judge's reasons should be read in this way; the submission was that he did not indicate an opinion one way or the other on this point. I do not agree with this submission. The paragraph I have set out above from Santow J's reasons dealing with the repayment of the secured loan seems to me to show very clearly that if the unsecured loan had been repayable, and repaid, on the same day as the secured loan, there could have been no basis for Santow J saying anything different about it from what he said about the repayment of the secured loan. Nothing had happened by the following morning to change the situation. It seems to me that it was what happened during the period 8-10 November which was critical to Santow J's finding against AEFC. I return to the facts found by Santow J. His survey of the detailed evidence of the internal records of AEFC and the oral evidence of those of AEFC's officers principally connected and authorised to deal with the Spedley transactions led him to conclude that on 4 November 1988 the unsecured limit was suspended following the adverse Rothwells publicity. This finding decided an issue which had been argued on the evidence at the trial. For the liquidator it had been contended that the documentary evidence supported the view that what had happened concerning the unsecured limit amounted to its cancellation and this was used to support a submission that AEFC on 4 November 1988 took a much more serious view of Spedley's financial position than would be indicated by the lesser step of suspension. The liquidator's contention was associated with submissions that the non calling as witnesses, in AEFC's case, of employees who had knowledge of details of relevant events between AEFC and Spedley, should be taken into account against AEFC's interest on the issue of suspension as against cancellation. and on other issues. I do not think either of these submissions should succeed. AEFC read affidavits by Mr Gledhill, its General Manager at relevant times, Mr Blamforth, its State Manager and Mr Dickinson, at relevant times AEFC's Treasurer and in charge of the Treasury Dealing Room in Sydney. In my opinion the evidence showed that these were the principal persons in AEFC with relevant authority and knowledge regarding the Spedley payment in question. I do not think that it was demonstrated either at the trial or in this appeal that there was evidence which subordinate employees of AEFC could have given that was such as to justify any inferences being drawn against AEFC by the non calling of those witnesses. Also, having considered the evidence for and against the propositions that, as AEFC said, the unsecured limit was suspended, and, as the liquidator said, it was cancelled, I see no reason for thinking that Santow J was wrong in his conclusion that AEFC's submission on this matter should be accepted. From Santow J's finding that the unsecured limit was suspended on 4 November 1988, and the further finding which has not been in dispute, that the unsecured loan was due to be repaid on 8 November 1988 at the expiry of the seven day term for which it had been lent, it followed that AEFC had decided that when, in the ordinary course, repayment was effected on 8 November 1988, it would be duly received, and no further unsecured loan then made. As already briefly noted, events occurring between 8 and 10 November 1988, connected with repayment of the loan, led Santow J to conclude that AEFC had failed to discharge the burden of proving that the receipt of the payment was in good faith and in the ordinary course of business. His findings as to these events were (I have added numbers to the paragraphs): 6 UNREPORTED JUDGMENTS "1. The circumstances of actual payment of the unsecured loan were as follows. Cheque No 521101 was drawn by Spedley on its bank account with the ANZ Bank and ANZ's account for that day shows payment of this amount. On 8 November there is a letter from AEFC to Spedley confirming arrangements for the repayment of the relevant amount; see PXI at p 179. This sum of $1m was banked by AEFC with its collecting bank, the Commonwealth Bank of Australia (CBA). The ANZ Spedley Bank statement for that day shows payment of cheque 521101 for $1m. 2. Next day, 9 November 1988, several cheques drawn by Spedley were not met by ANZ Bank including cheque No 521101 for $1m. On the same day ANZ Bank prepared 'Outward Dishonour Register Notice' to the manager Commonwealth Bank, Sydney office, in respect of cheque No 521101. The notice was marked 'refer to drawer'. On the same day a debit note was furnished to the Commonwealth Bank Sydney office from ANZ Bank 'drawing for dishonoured item return direct'. This was a document created contemporaneously with and reproducing part of ANZ Bank's outward dishonour register with the answer 'refer to drawer'. A credit note was also furnished to the Commonwealth Bank reproducing part of the ANZ Bank's Outward Dishonour Register marked with the answer 'refer to drawer'. On the same Spedley's ANZ Bank statement shows reversal of the cheque for $1m. 3. On either 9 or 10 November 1988 an officer of the ANZ Bank advised an officer of the Commonwealth Bank of Australia that the ANZ Bank 'intended to' return Spedley Security Ltd's cheque in favour of AEFC Ltd for $1m marked 'refer to drawer'. 4. An officer of the Commonwealth Bank of Australia then telephoned the then assistant treasurer of AEFC (Mr Peterson) and said words to the effect that an officer of ANZ Bank had notified the Commonwealth Bank that it intended to return Spedley's cheque in the sum of $1m marked refer to drawer. 5. Mr Peterson of AEFC then telephoned Spedley and spoke with an officer of Spedley and advised that he had received advice from Commonwealth Bank of Australia that the Bank had received advice from Australia and New Zealand Banking Group Ltd that it intended to return Spedley's cheque for $1m made payable to AEFC Ltd marker 'refer to drawer' Mr Peterson informed the officer to whom he spoke that he required the problem to be rectified. 6. Within 30 to 60 minutes the relevant officer at Spedley to whom Mr Peterson had spoken telephoned Mr Peterson and said that arrangements had been made for the cheque to be paid by ANZ Bank. In addition, Mr Peterson was informed of the name of an officer of the ANZ Bank who was aware of those arrangements. 7. Mr Peterson then proceeded to telephone Commonwealth Bank of Australia and said to an officer of the Bank that he had been advised by Spedley that arrangements had been made for the cheque to be paid and the name of the relevant officer at ANZ Bank who was aware of those arrangements. Mr Peterson requested the officer at Commonwealth Bank of Australia to telephone the officer of the ANZ Bank to confirm that the arrangements had been made. Mr Peterson then informed Mr Dickinson of what had occurred. 8. On 10 November 1988 the decision was made by ANZ Bank that the cheques were to be re-presented without notice to the customers and paid. Finally, after further conversations between the Commonwealth Bank and ANZ Bank which made clear that the ANZ still retained 'the relevant credit and cheque at their office and that the drawing vouchers had already been processed through their system for 9.11.88', the cheque was in fact met in full. UGRARAD (No 100) LTD (formerly known as AEFC Ltd) v J B HARKNESS (as liquidator of Spedley Securities Ltd (In Liq)) (Priestley JA) 9. The debit value of Spedley's cheque for $1m in favour of AEFC was, according to the trace information on the reverse of the relevant items, first received by the clearing section of Commonwealth Bank of Australia on 10 November. There is some further discussion with the Commonwealth Bank and the ANZ Bank as a result of which the ANZ Bank recompensed AEFC through the Commonwealth Bank for one day's interest. It appears that the Sydney branch may not have received the credit value until 14 November which would reinforce the concern at this delay." Santow J then discussed the principles applicable to "good faith", "the ordinary course of business" and the presentment and dishonour of cheques under the Cheques and Payments Orders Act 1986. In dealing with "ordinary course of business" he noted that the authorities disclosed two different types of test, one more stringent than the other. He then applied the principles to the facts and found as follows (the words are substantially those of Santow J. with some paraphrase): 1. Spedley's cheque had been dishonoured before payment. 2. He was not affirmatively satisfied the defendant had satisfied the onus of demonstrating that the challenged payment, with the attendant earlier dishonour, 'falls into place as part of the undistinguished common flow of business... calling 20 for no remark or arising out of no special or particular situation" or "a fair transaction and what a man might do without having any bankruptcy in view". That is, he was not satisfied that it was in the ordinary course of business. (The tests he quoted came from both categories he had earlier described as more and less stringent. The parties had been at issue on the question which test should be applied.) 3. AEFC advanced no convincing explanation for the dishonour. The dishonour had undoubted significance for apprehended insolvency. It had not been overcome without direct AEFC intervention. 4. The dishonour followed earlier cause for concern from the Spedley involvement with Rothwells. The latter, by itself, might not have been sufficient to preclude "good faith" within s122(2)(a) or satisfy the plaintiff's reverse onus under s122(4)(c). However the cumulative effect of these circumstances, when added to the dishonour, albeit remedied. left the defendant with the onus of establishing good faith, in light of those circumstances as at the time payment was finally made, namely 10 November 1988. 5. AEFC had failed to satisfy the onus of establishing good faith for purposes of s122(2)(a). He therefore did not need to deal with good faith as established by the deeming effect of s122(4)(c). The way Santow J reached his conclusion depended on his holding that the cheque had been dishonoured within the definition of dishonour contained in s69 of the Cheques and Payment Orders Act 1986. His reasoning was that the debt had only conditionally been discharged by the acceptance of the cheque, upon dishonour it revived, payment therefore was not made until 10 November 1988 after representation of the cheque and the circumstances known at that time to the relevant officers of AEFC taken cumulatively with earlier circumstances were not sufficiently explained to satisfy him AEFC was a payee in good faith. In the appeal AEFC argued: 1. There had been no dishonour under the Cheques and Payments Orders Act 1986, 2. if there had been dishonour, either Spedley's cheque had been accepted as unconditionally discharging the loan, or, if it was accepted as conditional payment, the condition was that that cheque should be met, the condition was a condition subsequent, the cheque had been met and 8 UNREPORTED JUDGMENTS fulfilment of the condition meant that for all purposes payment was effected on 8 November 1988, and, 3. even if none of submissions | and 2 were accepted, on the facts found by Santow J, AEFC had established the necessary elements of s122(2)(a) and the deeming provision of s122(4)(c) had no application. Counsel for the respondent liquidator submitted that none of AEFC's submissions should be accepted; further, he sought to support the orders made by Santow J on additional grounds stated in a notice of contention These were numerous and not all pursued. As presented, they were the contention already mentioned that Spedley's unsecured limit had been cancelled not suspended; that the trial judge should have made various findings of fact more favourable to Spedley than he had done; that the more stringent of the two tests for ordinary course of business mentioned by the judge should have been upheld by him. The argument about dishonour turned upon s69 of the Cheques and Payment Orders Act 1986. The provision is as follows: "69. A cheque is dishonoured if the cheque is duly presented for payment and payment is refused by the drawee bank, being a refusal that is communicated by the drawee bank to the holder or the person who presented the cheque on the holder's behalf:" The central requirement of the section is that payment of the cheque be "refused" and that the refusal be communicated, in this case, to CBA. Santow J was of opinion that the facts as he found them clearly amounted to a communicated refusal. He thought that although some conversations were couched in terms of foreshadowing future action, what was being foreshadowed was an intention to return the cheque with the endorsement "refer to drawer". He correctly pointed out that such a return was not required for dishonour within the meaning of the section. All that was required was a refusal to pay communicated to CBA. However, it does not seem to me that that fact helps, one way or the other, in deciding whether there had been an actual refusal. A difficulty is caused by the fact that in parts of the paragraphs in which Santow J set out what had happened regarding payment of the cheque between 8 and 10 November 1988 he appears to be proceeding on the basis that there was no explicit statement of refusal to pay; on the other hand, in para2 he says three documents were furnished from the ANZ Bank to the Commonwealth Bank in terms leaving it impossible to dispute there had been a communicated refusal. Counsel for AEFC submitted that the evidence concerning the three documents only showed that they had been prepared by ANZ Bank and had not been sent to the Commonwealth Bank. He said if he were wrong in this submission he invited correction from the respondent's side. I do not recall any answer having been made to this submission, nor have I found one in the transcript of the argument. If what was submitted for AEFC about the three documents referred to in para2 of the relevant passage was right, then the way in which Santow J proceeded from para3 onwards becomes more understandable. Linked with this is the fact that the ANZ Bank at no stage sent the cheque to the Commonwealth Bank. The court's attention was drawn however to other matters of evidence relating to the question of dishonour not mentioned in Santow J's account. It is quite clear that officers in both the Commonwealth and ANZ Banks in recording afterwards what had happened on 8-10 November 1988 treated the episode as if it had involved a dishonour. To complicate matters further still, the officers of the two banks agreed that the cheque should be further presented and paid without notice to the customer. UGRARAD (No 100) LTD (formerly known as AEFC Ltd) v J B HARKNESS (as liquidator & Spedley Securities Ltd (In Liq)) (Priestley JA) If there never was any explicit statement of refusal to pay; and everything was put in terms of intention to mark the cheque "refer to drawer", which is how I think Santow J was probably intending to deal with this point, this would seem to me to be at least as consistent with the ANZ Bank communicating an intention to refuse, before refusal of payment, as with actually refusing to pay. In my opinion, before the strong words in s69 "payment... refused" and "refusal... communicated" should be held to be fulfilled, clearer and less equivocal statements should appear than Santow J relied on in the present case, where it seems he relied on the words alone. It may well be that a statement of intention not to pay, combined with non payment in fact for a sufficient period, would warrant an inference of refusal; in such a situation it would be necessary to consider the possible effect of s67 of the Cheques and Payment Orders Act 1986 which requires a drawee bank presented with a cheque for payment either to pay or dishonour the cheque as soon as is reasonably practical. That does not seem to have been argued below. For myself, I would think the time span involved in the relevant events (in particular the short space of time between communication of the intention to return the cheque and the communicated reversal of that intention) would fall within the range of the "reasonably practicable" mentioned in s67(1), but the practice of banks might not agree, and there was no evidence on this topic. The question seems to me to be difficult, and so do those raised by AEFC's second submission, concerning the terms on which the cheque was accepted as payment. Significant to these submissions would be further facts, not apparently in dispute. One was that AEFC wrote to Spedley by letter dated 8 November 1988 saying "We confirm:- arrangement with you of the repayment of the following amount (s) to your loan account:-. Loan No 54 $1m your Loan account balance is nil." Others are that AEFC's account with the Commonwealth Bank was credited with the $1m on 8 November 1988 and the entry never reversed; and that the ANZ and Commonwealth Banks arranged between themselves that the $1m should be treated as having been credited to AEFC's account with the Commonwealth Bank as at 8 November. As Ihave said, these all appear to me to be difficult questions and I do not think it necessary to resolve them, because I think AEFC should succeed on its final and substantial point. In deciding this point, Santow J applied the more stringent of the two sets of tests for "ordinary course of business" to the disadvantage of AEFC. Counsel for AEFC argued he was wrong in doing so. I do not think myself that it is at all clear that any of the various High Court cases which have discussed the test for "ordinary course of business" has established, by virtue of the doctrines of ratio decidendi and precedent, that the more stringent test is binding upon inferior courts. However, I need express no firm opinion on that question in this particular case; for the purpose of deciding the main question, I am content to adopt the more stringent view contended for by the respondent liquidator. Approaching the matter on this footing, in my opinion the events of 8-10 November 1988 fell within the ordinary course of business. A cheque for $1m in payment of the secured loan had been paid on 7 November 1988, in the ordinary way. From AEFC's point of view what happened between 8 and 10 November was that it was notified that Spedley's cheque was not going to be met, Mr Peterson of AEFC rang an officer of Spedley saying he required the problem to be rectified and within sixty minutes was told that it had been rectified. Again from AEFC's point of view, the $1m stood to its credit in its account with the Commonwealth Bank from 8 November 1988. and in all respects, after an 10 UNREPORTED JUDGMENTS indication that there might be a problem with payment of the cheque and the problem disappeared, the discharge of the loan proceeded as if there had never been even a temporary problem. Payment was finalised in the ordinary way. A delay in payment, of itself, is in my opinion quite equivocal. It is when different arrangements from usual are made after delay, the giving of time, the changing of terms of payment, the taking of security for postponed payment, that payment begins to depart from the ordinary course. What took place here was that there had been a regular payment itself completely ordinary but for the short lived possibility that the cheque might not be met. Assuming that technically there had been dishonour of the cheque, nevertheless in practical terms all that ever happened was that for a very short time there was a possibility that it might not be paid. Nothing unusual arose out of that possibility; no alternative arrangements for payment were made, no change to Spedley's obligation was agreed to by AEFC; the possibility of non payment was speedily removed. The speed of removal of the possibility, and the fact of payment in the ordinary way, of themselves furnished strong evidence that Spedley was able to pay. I do not think there is anything calling for remark in a creditor asking an overdue debtor to pay and then immediately receiving payment. Debts are not always paid on time by solvent traders. They should be but experience teaches otherwise. Mr Dickinson gave evidence that he was aware that Spedley was continuing to operate in the short term money market. All these things indicate to my mind that from the point of view of AEFC a loan was repaid in the way that it should have been; it looked briefly as if there might be a problem about it but that happening was not sufficient to take the repayment out of the ordinary course of business. In my opinion whether the more or less stringent formulation of the ordinary course of business test is adopted, the same conclusion follows. The respondent liquidator said the court should not come to the foregoing conclusion for two related reasons. Both arose out of his Honour's having found he was not satisfied AEFC had discharged the onus under s122(2)(a). It was said that this raised the possibility that the judge may not have accepted parts of the evidence of AEFC's witnesses which at the trial had been put in dispute. In the circumstances of the case I do not think this submission should be accepted. First, his Honour made no finding of non acceptance of any part of the evidence of AEFC's witnesses. Further, for reasons indicated earlier it seems reasonably clear that he accepted their evidence in respect of matters up to and including 7 November 1988. Also, it seems tolerably clear that in his findings 3 and 4 (see p14 above) he stated quite specifically his reasons for his not being satisfied that AEFC had discharged its onus under s122(2)(a). These were that the cumulative effect of the circumstances he mentioned, added to what he considered as having been no adequate explanation to dispel the significance of the dishonour, left him unsatisfied of the fulfilment of the onus. Counsel for the respondent liquidator was asked what in his submission were the cumulative circumstances his Honour was referring to. The answer was that they were three: (a), the fact that the loan which had been "rolled over" approximately forty times had not on this occasion again been renewed; (b), AEFC's earlier cause for concern from the Spedley involvement with Rothwells; and (c), the involvement of AEFC in the rectification of the dishonour. In my view these matters do not justify the lack of satisfaction which his Honour expressed. As to (a), what was involved in the "rollovers" was that a seven day loan would be discharged and the same amount re-lent; there was no UGRARAD (No 100) LTD (formerly known as AEFC Ltd) v J B HARKNESS (as liquidator tf Spedley Securities Ltd (In Liq)) (Abadee AJA) need for an exchange of cheques when the amount was being re-lent; nevertheless there was a repayment and a further loan. The argument based on this factor amounts to saying that it was unusual for the money not to be re-lent; but that is not the question here, it is whether the payment was not in the ordinary course of business. I find it very hard to see anything unusual in a loan for seven days being repaid at the end of seven days. In any event, taking into account the number of times the loan had been "rolled over" there is nothing unusual in a "rollover" loan coming to an end. The fact that a loan has been rolled over forty times does not mean that it is going to be rolled over forever. As to (b), his Honour had mentioned previously in his reasons AEFC's earlier cause for concern and had accepted that it was a normal prudential concern. By prudential concern I take his Honour to have been referring to what had been emphasised before him as it was before us that AEFC's concern was that money market dealers to whom they put out short term money unsecured, should not merely be solvent but should have a considerable excess of assets over liabilities. In my view the evidence justifies the conclusion that this indeed was AEFC's concern upon seeing the newspaper publicity about Rothwells: that is. AEFC would want to be reassured before further dealing with Spedley that it had that healthy surplus of assets over liabilities it required of its borrowers and was not concerned that Spedley was unable to pay its debts as they fell due. I have already dealt with the third matter, AEFC's involvement in the rectification of the dishonour. The result is that I cannot see that his Honour had a sufficient basis for expressing his lack of satisfaction on the grounds on which he rested it. His Honour did not deal with s122(4)(c) in view of his finding on s122(2)(a). Ihave so far only dealt with the ordinary course of business aspect of s122(2)(a) but what I have already said about the facts generally and my views upon them seems to me to require that I should reach a conclusion that good faith also was established. This makes it necessary for me to refer s122(4)(c). Again, the view of the facts I have expressed seems to me to lead to the conclusion that on the material before his Honour it should not be said that the payment was made under such circumstances as to lead to the inference that AEFC knew or had reason to suspect that Spedley was unable to pay its debts as they became due from its own money. In my opinion the appeal should be upheld, the judgment and orders of Santow J set aside, and the liquidator's summons dismissed. AEFC's costs, both of the trial and the appeal should be borne by the respondent. Clarke JA I agree with Priestley JA. Abadee AJA I agree with the reasons for judgment of Priestley JA. Appeal upheld. Judgment and orders of Santow J set aside. Liquidator's summons dismissed. Appellant's costs, both of the trial and appeal, to be borne by the respondent. RYN Counsel for the appellant: AE Emmett QC and DJ Fagan Solicitors for the appellant: Holman Webb Counsel for the respondent: P Graham QC 12 UNREPORTED JUDGMENTS Solicitors for the respondent: Dibbs Crowther Osborne