The now 49-year-old remains behind bars, and has been in custody since his arrest, the morning after the killing on a property near Armidale in mid-June that year.

It was the case against him that he stabbed his 43-year-old friend in the neck, causing a 10cm to 12cm wound. Neither man can be identified due to legal reasons.

The Armidale Supreme Court heard the man died of massive blood loss and his body dragged from the lounge room, where he'd been stabbed, out to the backyard. Police discovered his body the next morning.

The accused was diagnosed with paranoid schizophrenia in his teens, and Justice Stephen Campbell will determine whether the man murdered his friend, or was suffering from a "mental illness of the mind" at the time and killed him in a "delusional belief" he had to save Armidale from "aliens" or another "attack".

Justice Campbell is determining whether the accused knew what he was doing at the time and the "distinction between legally wrong and morally wrong".

The Crown told the court that psychiatric experts for both the Crown and the defence claimed the accused "had at least some sense what he was doing was illegal" but thought it "was morally justifiable" because he "had to save Armidale", and in his mind he had "done what is, in essence, the right thing".

It was "[a] justification that he could save Armidale," the Crown prosecutor submitted.

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Justice Campbell said the psychiatric and observational evidence showed the accused's state of mind, and that he had a "need to protect the community by taking drastic action against one person".

The accused is alleged to have killed his friend while the latter watched TV.

During a search of the crime scene, police found receipts showing the accused had been into Armidale about 5am, after the killing.

The court heard the man bought milk and cigarettes from the BP service station, visited the Armidale police station and bought a coffee at McDonald's cafe.

"We still don't know what the reasoning was," the barrister told the court, adding he obviously wanted to "inform police of something".

"It had to be something to do with what happened ... the motive or intention behind that, we will never know."

The court was told the victim's wife, parents and stepdaughter wanted to make victim impact statements to the court. 

However, under the current laws it is not allowed, if there is objection, because there is no sentencing process before a special verdict of mental illness is given.

The accused's barrister confirmed he did "hold those instructions to object" to the statements being read and tendered in court - something that visibly upset the victim's family.

Justice Campbell said he was "bound by the rules of evidence".

"Although I'm sitting here without a jury, this is a murder trial," he told the court.

He said the "family victims of persons like [the deceased] who have met an untimely death", have "suffered greatly" due to "the loss of life".

"The sense of loss on the family is not lost on me," he said.

"I can well imagine how they feel."

He also acknowledged the "family of the accused", because the evidence showed a man "afflicted by this dreadful disease" of paranoid schizophrenia, that "has flared up frequently; well, not infrequently over the decades", and this death "must represent something of a nightmare as well" for them.

"This is very bad outcome for everybody; it's a very bad outcome for [the victim's] family; it's a bad outcome for the accused's family," Justice Campbell said, labelling it a tragedy.

"These men were friends, and good friends."

The trial continues.

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