Jian Xing Knitting Factory v SCASA Pty Ltd

[2004] SASC 152

JIAN XING KNITTING FACTORY v
SCASA PTY LTD
[2004] SASC 152

Appeal from a Master

1. DOYLE CJ: A Master made an order, on application made by Scasa Pty Ltd (“Scasa”) under s 459G of the Corporations Act 2001 (Cth) (“the Act”) setting aside a demand served by Jian Xing Knitting Factory (“Jian Xing”) on Scasa pursuant to s 459E of the Act.

2. Jian Xing now appeals against that decision.

3. Jian Xing argues that the material on which the Master was entitled to rely does not provide a basis for the Master’s finding that there was a genuine dispute between Scasa and Jian Xing about the existence or amount of the debt to which the demand related.

   Facts

4. Jian Xing is a company based in China that manufactures clothing.  Scasa is a company based in South Australia that sells clothing by wholesale and by retail.

5. For some time Jian Xing has supplied clothing to Scasa for sale by Scasa.  On 22 August 2003 Jian Xing served on Scasa a statutory demand for US$80,000.00.  The demand was for that amount “being for goods sold and delivered and as acknowledged in writing by the company [Scasa] on 15th January 2003”.

6. On 11 September 2003 Scasa issued proceedings claiming an order that the demand be set aside.

7. The supporting affidavit required by s 459G(3) was filed on the same day. It was sworn by Mr Smith, a director of Scasa. He denied that Scasa was indebted to Jian Xing, but provided no supporting material on which a finding could be made that the existence of the debt was genuinely disputed. He simply asserted that the debt was denied. He then added:

   “4.I acknowledge that Scasa provided a written undertaking to Jian Xing to make payment of the sum of US$80,000.00 to Jian Xing on 15 January 2003.

   5.Scasa was left with no choice but to provide a written acknowledgement to Jian Xing admitting indebtedness to it in the sum of US$80,000.00, as Jian Xing had refused to release certain goods to Scasa in the absence of the execution of such a document.  The goods referred to were fully paid for by Scasa but Jian Xing still refused to release those goods in the absence of execution of the said undertaking.

   6.In these circumstances, Scasa does not consider itself to be lawfully bound by the said undertaking, as that undertaking was given by it in circumstances of duress.”

8. On 1 October 2003 Jian Xing filed an answering affidavit.  The affidavit deposes to a course of business during which Jian Xing supplied clothing to Scasa, to the fact that Scasa was in arrears with respect to payment, and to acknowledgements of indebtedness in the sum of US$80,000.00 in August 2002, December 2002 and 15 January 2003.  The acknowledgements of December and January are in the form of a “proposed repayment schedule” for an amount of US$80,000.00, signed by Mr Smith.  The affidavit states that Scasa made only two payments pursuant to the schedule, but that since that time goods have been provided worth more than the amount of the two payments.

9. The correspondence exhibited to Jian Xing’s affidavit contains no hint of a claim of duress by Scasa.

10. The application by Scasa was listed before the Master for hearing on 6 November 2003.  On 15 October 2003 the Master had given Scasa leave to file further affidavits by 29 October 2003.  None were filed by that date.

11. On 5 November 2003 the solicitors for Scasa filed two more affidavits.  Being filed outside the period permitted by the Master, Scasa was not entitled to rely upon them unless granted leave to do so.

12. The main affidavit was sworn by Mr Smith.  The affidavit raised a considerable amount of new material, including the history of the business dealings between the parties.  Various complaints are made in the affidavit about Jian Xing’s performance over time.  Mr Smith deposes to an arrangement which meant, according to him, that Scasa was not obliged to pay for goods on supply.  Mr Smith elaborates on the claim of duress, but it is noticeable that none of the correspondence produced by Scasa complains about the matters now relied on to support the claim of duress.  Indeed, the tone of the correspondence is rather to the contrary.  The affidavit also raises, for the first time, cross-claims by Scasa against Jian Xing for defective goods, and for breach of fiduciary duty arising from their joint venture, and a claim for an accounting as between the parties.

13. As I understand the affidavit in effect it denies that Jian Xing has supplied goods to Scasa to the value asserted by Jian Xing, asserts in a vague and rather general way the existence of cross-claims attributable to defects in goods supplied, admits the acknowledgement, denies the debt of US$80,000.00, claims that the acknowledgement was signed because Jian Xing refused to despatch goods that Scasa had paid for, and then goes on to assert, again in rather general terms, cross-claims and claims based on an alleged breach of the joint venture arrangement.

14. On 6 November the matter came before the Master.  The solicitor for Jian Xing was not present.  Without referring (in the note of his order) to the fact that Scasa’s affidavits had been filed out of time, the Master said:

    “…There is sufficient before me to tend a genuine dispute on substantial grounds evident.  It should be fought out in court and not resolved by this procedure.”

15. The solicitor for Jian Xing arrived about 12 minutes late.  He was late because he had been preparing answering affidavits to the affidavits filed for Scasa on 5 November 2003.  The Master declined to call the matter back on.  The solicitor for Jian Xing then filed an application to have the matter reopened, supported by an affidavit explaining his failure to attend at the hearing.   The Master declined to do so, and confirmed his decision setting aside the demand under s 459H(1)(a).

16. Jian Xing has appealed against the Master’s decision.

    Issues on appeal

17. The principles applicable to the application considered by the Master are well established.

18. The court cannot set aside a demand unless application is made and a sufficient affidavit is filed within 21 days of service of the demand: David Grant & Company Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. The court can act on supplementary affidavits filed outside the 21 day period that expand on the grounds raised in an affidavit filed within the 21 days, but the court cannot act on new grounds raised by an affidavit filed outside the 21 day period: Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179. That decision refers to several earlier decisions to the same effect. I consider that in the interest of consistency of approach I should follow that decision.

19. The issue before the Master was whether an affidavit to which the Master could have regard established a genuine dispute about the existence or amount of the debt to which the demand related.  Scasa had to establish nothing more than the fact of a genuine dispute.  It did not have to establish that its denial of liability was sound, or even that it was likely to succeed.  Nor did Scasa have to raise all material facts.  Putting the position a little differently, Scasa had to establish that its denial of liability was bona fide, and that there were real grounds for alleging that there was a dispute: Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452. Another way again of putting the matter is that Scasa had to raise “a plausible contention requiring investigation”: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ASCR 785 at 787.  On the other hand, the affidavits relied on must disclose facts showing there is a genuine dispute.  A mere assertion that there is a dispute, or a bare denial of liability, is not sufficient: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452.

20. On an application to set aside a demand, the court should not embark on an extended enquiry, or even on a preliminary trial.  The issue is whether there is a genuine dispute.

21. Mr Smith’s affidavit does no more than deny the indebtedness, without providing any basis for that denial.  As to the acknowledgment, the assertion of duress is also made in bald terms, but in terms sufficient to raise the issue.

22. I will assume for present purposes that the Master would have permitted Scasa to rely on the affidavits filed on 5 November 2003.  However, I mention here that he should have done so only if he allowed Jian Xing time to file an answering affidavit.  It follows, in my opinion, that the Master erred in proceeding as he did, and that I must consider the matter afresh.  The hearing before the Master miscarried.  The Master should have reopened the hearing of the application, once the reasons for the absence of Jian Xing’s solicitors were explained to him.

23. I consider that the allegations of breaches of the joint venture arrangement, and the allegations of various cross-claims by Scasa against Jian Xing, must be disregarded.  They were not raised within the period of 21 days of service of the Notice of Demand.

24. As to the denial of any indebtedness, I am conscious of the need not to engage in anything like a preliminary trial.  However, my view is that that, standing alone, is not sufficient to establish a genuine dispute as to the existence of indebtedness in some amount.

25. That leaves the acknowledgement of indebtedness.   Ordinarily, one would expect the focus to be on the indebtedness arising from the sale of goods, rather than on a written acknowledgement of indebtedness.  But Jian Xing’s own demand is focused on the acknowledgement of indebtedness.  Perhaps it does so on the basis that the acknowledgement settles the amount owing.  Jian Xing, in its demand, does not identify the goods sold, the period during which they were sold and delivered, or the amounts of the separate debts arising from each sale and delivery.  I do not suggest that it was essential to do each of these, but merely make the point that in the statutory demand the focus is upon the acknowledgement of indebtedness for US$80,000.00 in January 2003.

26. As to that, I must say that the basis for the denial of liability appears tenuous.  As I have already said, there is no clear reference in any of the written material to the claim of duress on the basis on which Scasa now asserts that it is not bound by the acknowledgement of liability.  On the other hand, the affidavits do clearly assert that Scasa denies that it is bound by the acknowledgment, and the affidavits identify a basis for that denial, namely, that it was made in circumstances in which Jian Xing was refusing to deliver goods for which Scasa had paid, with potential severe consequences for Scasa in dealing with its sources of business in South Australia.  The claim that Jian Xing was refusing to make delivery finds some support in the material before the Master.

27. While the basis for the denial of liability is tenuous, I must avoid trying to resolve the dispute, and must avoid even going so far as weighing the merits of the denial.

28. I conclude that Scasa has established that there is a genuine dispute as to its liability arising from the acknowledgement.  It may be that if Jian Xing’s demand had been based on the supply and delivery of goods, the position would be different, but that is a matter for speculation.

    Conclusion:

29. For those reasons, I would dismiss the appeal, although I do so on the basis that having heard the matter afresh I am satisfied that there is a genuine dispute.

30. I wish to hear the parties on the question of costs.  First, because I consider that Jian Xing was entitled to have the Master’s decision set aside because of the fact that it was not heard on Scasa’s application, when it should have been heard.  Second, because the Master may have relied on affidavit material that should not have been considered.  Third, because by the time the matter came on for hearing before me Scasa had decided to take no further part in the proceedings, and simply relied upon written submissions filed somewhat earlier by its counsel.