New South Wales Supreme Court CITATION : Fortune Food Manufacturer Pty Ltd v K Young Trading Pty Ltd [2010] NSWSC 407 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 4 May 2010 JUDGMENT DATE : 2 June 2010 JUDGMENT OF : Davies J DECISION : (1) Extend time to 30 September 2009 for the filing of the Summons commencing an appeal. (2) Appeal allowed. (3) Judgment of the Court below be set aside. (4) Judgment for the Plaintiff against the First and Second Defendants in the amount of $60,056.55. (5) The Defendants are to pay the Plaintiff's costs of the appeal and in the Court below. (6) The Defendants are to have a certificate under the Suitors Fund Act 1951 if so entitled. CATCHWORDS : APPEAL - from Local Court - need to show error of law - what amounts to an error of law - findings of primary fact - no evidence to support findings - inferences which cannot reasonably be drawn from evidence - claim for debt - agreement to offset supply of products - whether products supplied referable to the debt or to new contract. LEGISLATION CITED : Local Court Act 2007 Suitors Fund Act 1951 CATEGORY : Principal judgment Akmeemana v Murray & ors [2009] NSWSC 979 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Edlin v Williams [2000] ANZ ConvR 43 CASES CITED : Instrumatic Ltd v Supabrase Ltd [1969] 1WLR 519 Murphy v Timms [1987] 2 Qd R 550 Palindrome Holdings Pty Ltd v Wass [2009] NSWSC 797 R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082; (2002) 37 MVR 479 US Manufacturing Co Pty Ltd v ABB Service Pty Ltd [2008] NSWSC 705 TEXTS CITED : O'Donovan & Phillips, The Modern Contract of Guarantee, 3rd ed (1996) LBC Information Service Fortune Food Manufacturer Pty Ltd (Plaintiff) PARTIES : K Young Trading Pty Ltd (First Defendant) Katerina Young (Second Defendant) FILE NUMBER(S) : SC 2009/296442 COUNSEL : A Lakeman (Plaintiff) C Hockey (Defendants) SOLICITORS : Quy Lawyers (Plaintiff) C Hockey (Defendants) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 598/07 LOWER COURT JUDICIAL OFFICER : Magistrate Spence LOWER COURT DATE OF DECISION : 27 August 2009 1 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DAVIES J 2 JUNE 2010 2009/296442 FORTUNE FOOD MANUFACTURER PTY LTD V K YOUNG TRADING PTY LTD & OR JUDGMENT 1 The Plaintiff, Fortune Food, supplied food to Asian food establishments and other similar food outlets. One of its customers was K Young Trading to whom it supplied tofu products over a period of time. 2 K Young Trading fell into arrears of paying for the products supplied. That resulted in an agreement made on or about 22 June 2005 for the payment of the amount owing, $62,568.61, by instalments of $5000 per week and a final instalment of $2,568.61. The written agreement signed by Ms Katerina Young on behalf of the Defendant and by Mr Choo Peng Keye on behalf of Fortune Food contained a statement: Ms Katerina Young will personally guarantee the payment to Fortune Food Mfg. Pty Ltd. 3 Pursuant to the Agreement the Defendant made payments between 27 June 2005 and 28 December 2005 amounting to $20,267.10. That left a balance owing of $42,301.51. 4 On 6 November 2007 Fortune Food commenced proceedings in the Local Court claiming the sum of $42,301.51. The claim was pleaded against K Young Trading simply on the basis that that was the amount outstanding under the June 2005 Agreement. Katerina Young was sued as Second Defendant pursuant to the guarantee she gave of K Young Trading's performance. 5 K Young Trading defended the claim by alleging a further agreement between Mr Aw on behalf of Fortune Food and Mr Dai on behalf of K Young Trading in about May 2006 where Mr Dai said to Mr Aw: I am having trouble meeting the payments. Would you agree to accept in canola oil as payment against the debt and after that is paid I will continue to supply you with oil to be offset against you supplying me with tofu. According to Mr Dai, Mr Aw agreed to that arrangement. 6 Mr Aw's evidence was somewhat different. He said that there was an agreement made in May 2005 that a new company he had formed, Fortune Soy Manufacturer Pty Ltd, would supply tofu and soy milk products to the Defendant and that the Defendant would pay for those products by bank deposits or by supplying canola oil to Fortune Soy. Mr Aw's evidence was that that agreement was strictly between Fortune Soy and K Young Trading and had no connection with Fortune Food. 7 The learned Magistrate who heard the matter accepted the defence case and held that the debt had been discharged by the supply of canola oil from K Young Trading to Fortune Food. 8 Fortune Food appeals against that determination alleging that the Magistrate made errors of law in coming to that conclusion. Background 9 The evidence before the Magistrate consisted of affidavits of Mr Aw and Mr Dai that dealt with the agreements each side alleged and the course of dealing between them after those agreements. The background is set out particularly in the second affidavit sworn by Mr Henry Aw of 14 May 2009. It discloses the following. 10 Fortune Food was first registered with Mr Aw as a Director on 16 December 1999. The evidence was that that company traded until 10 May 2005. Its principal place of business was 111 Fairford Road, Padstow, a property it appears to have owned. 11 On 6 April 2005 Mr Aw registered a new company known as Fortune Soy Manufacturer Pty Ltd. In about April 2005 Fortune Soy acquired Fortune Food's business for a substantial sum of money. On 18 April 2005 Fortune Soy commenced to occupy the premises at 111 Fairford Road pursuant to a 5 + 5 year lease it entered into with Fortune Food. 12 Part of the negotiations for the acquisition of the business by Fortune Soy was that Fortune Soy would take over a number of customers from Fortune Food. However, Mr Aw said Fortune Soy "did not take all the debts of the Plaintiff". By that statement he appears to mean debts that were owed to Fortune Food because his affidavit added immediately after that statement "in particular, the debt the Defendants owed to the Plaintiff". 13 The affidavits described 3 different agreements. The first such agreement (the one referred to in para 2 above) was not in dispute between the parties. 14 The second agreement alleged was referred to in passing by Mr Aw in his first affidavit of 5 June 2008 and again in greater detail in his second affidavit of 14 May 2009. 15 He said that in about May 2005 K Young Trading and Fortune Soy entered into an agreement whereby Fortune Soy would supply tofu and soy milk products to K Young Trading and K Young Trading would pay for those products either by bank deposits into Fortune Soy's account with the Commonwealth Bank at Padstow or would supply canola oil to Fortune Soy in payment for the tofu and soy milk products. 16 No subsequent affidavit was filed by Mr Dai on behalf of K Young Trading to deny the agreement asserted to have been entered into in May 2005. Nor when he gave his evidence before the Magistrate did Mr Dai deny that such an agreement had been made. The thrust of his evidence was that the supply of canola oil was to pay off the debt outstanding to Fortune Food. Nor was Mr Aw cross-examined to suggest that there was no such agreement in May 2005 between Fortune Soy and K Young Trading. 17 On the other hand, in his affidavit of 2 September 2008 Mr Dai alleged an agreement in about May 2006 where he told Mr Aw that he was having trouble meeting the payments to Fortune Food and he said: Would you agree to accept in canola oil as payment against the debt and after that is paid I will continue to supply you with oil to be offset against you supplying me with tofu. He alleges that Mr Aw agreed "as long as you can supply the oil". 18 Somewhat surprisingly, Mr Aw, in his affidavit of 14 May 2009, made no reference to what Mr Dai alleged in his affidavit of 2 September 2008 about that May 2006 agreement. It was put to Mr Aw in cross-examination by Mr Hockey (who appeared for K Young Trading) that Mr Aw had never answered Mr Dai's affidavit in that regard, and it would have to be said that Mr Aw gave no satisfactory answer about that matter. 19 The only accounting records relied upon by both sides were the records of K Young Trading. Both sides submitted before the Magistrate that those records supported the case each wished to make. Judgment of the Magistrate 20 The Magistrate, in a reserved decision delivered on 27 August 2009, recited the facts. He made no findings concerning whether he accepted Mr Aw's evidence or Mr Dai's evidence where they were in conflict although he noted that there was no denial by Mr Aw of the agreement of May 2006 alleged by Mr Dai for the method of payment by K Young Trading. On the other hand, he failed to note the silence and absence of denial, by Mr Dai about the Agreement said to have been made in May 2005. 21 The nub of the learned Magistrate's decision is to be found in the following 2 paragraphs of his judgment: The essential question in this whole case is simply, "Has the debt claimed by the plaintiff been repaid?" Frankly, the evidence seems to favour the defendant K Young. Mr Aw never contradicted the verbal agreement between Mr Aw and Mr Dai in May 2006 outlined by Mr Dai in his evidence in court, albeit Mr Aw said that any agreement was as between K Young and Fortune Soy. So far as this court is concerned, Mr Aw was wearing the proverbial "two hats" at the time, being a director of both Fortune Food and Fortune Soy . The evidence establishes to this court's satisfaction that Mr Aw agreed with Mr Dai that the debt owed to Fortune Food could be repaid by K Young supplying canola oil, the costs of which would be offset against the outstanding debt. In short there was an agreement between Mr Aw acting on behalf of Fortune Food to this effect. But there was also an agreement whereby K Young would continue to supply canola oil to Fortune Soy in exchange for tofu and soy milk products. In support of its case K Young produced to the court copies of its accounting records that showed that for the period 6 July 2006 to 17 December 2007 K Young provided to Fortune Food /Fortune Soy canola oil products to the value of $70,169.00. Included in this figure was the sum of $43,462.00 that related to the specific supply of canola oil to Fortune Food to cover the outstanding debt to that company. There was no evidence from the plaintiff showing its accounting records that related to its dealings with K Young. All accounting records were from the defendant. There were no accounting records from the plaintiff, for example, that were referable to specific purchase orders placed on K Young and which could be specifically reconciled with the supply records produced by K Young. In such a case any alleged non payment of a debt would have been more readily discernible. The appeal 22 The summons commencing the appeal was filed on 30 September 2009. Fortune Food seeks an extension of time for the filing of the appeal. It relies on 2 affidavits of its solicitor who explains that the reason for filing the summons late was that he was awaiting the transcript of the hearing before the Magistrate. 23 The Defendants, quite properly, did not oppose the extension of time being given. The summons was filed only 6 days out of time. There is no prejudice to the Defendants. Consistent with the principles that are discussed in Akmeemana v Murray & ors [2009] NSWSC 979 at [27]-[29] I intend to grant an extension of time in which the appeal may be brought. 24 The summons contains 3 appeal grounds as follows: 1. There was an error of law in the Court below in that the learned Magistrate failed to take into account all the affidavit evidence of the Plaintiff/Second Cross-Defendant in his judgment. 2. There was an error of law in the Court below in that the learned Magistrate failed to give proper weight to the evidence contained in the affidavit filed on behalf of the Plaintiff/Second Cross-Defendant in the decision of the Court below. 3. There was an error of law in that the learned Magistrate failed to take into account in his judgment, admissions made by the husband of the Second Defendant during cross-examination in the Court below. Error of law 25 Under s 39 Local Court Act 2007 a party is confined to an error of law in an appeal as of right from the Local Court in its General Division. What amounts to an error of law has been discussed in a number of cases. Because of the way the appeal grounds in the present case are put (viz. the way the Magistrate dealt with evidence) it is important to see what conduct and holdings amount to an error of law. 26 Kirby P discussed the question in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139. He said (at 150): In their article "Error of Law in Administrative Law" (1984) 100 LQR 612, C T Emery and B Smythe call attention to the three stage process typically followed in the decision of a court or tribunal. The stages of their classification are (1) fact-finding; (2) rule-stating; (3) rule application. The most typical error of law, attracting the appeal court's corrective jurisdiction occurs at the "rule stating" stage (ibid at 615). However, it may also occur in the finding of facts if the court or tribunal treats as having occurred what in truth is not shown by the evidence to have occurred . Furthermore, it may occur at the third stage in the application of the law to the facts. … What follows from this review concerning the test that should be applied in this Court to a challenge to the process of fact-finding by the compensation judge? The court is limited, relevantly, to points of law. The finding of what have been called the primary facts of a case does not, in itself expose the trial judge to review on a point of law, unless it can be shown that there is no evidence of a primary fact and that, this being crucial to his decision, the judge's fact finding has involved an error of law. If there is evidence, or if there are available inferences which compete for the judge's acceptance, no error of law occurs simply because the judge prefers one version of the evidence to another or one set of inferences to another. This is his function. The evaluation of competing evidence and inferences is reserved in compensation cases to the judge of the Compensation Court. Even if the evidence is strongly one way, the appeal court may not intervene simply because it reaches a different conclusion and this even if it regards the conclusion of the trial judge as against the weight of the evidence. Where the evidence points only in one direction, and, as in Poricanin the trial judge nonetheless states that he disbelieves it, the onus being upon that person, the court, on appeal, may not intervene. (emphasis added) 27 Glass JA (with whom Samuels JA agreed) said (at 155-156): To say of a finding that it is perverse, that it is contrary to the overwhelming weight of the evidence, that it is against the evidence and the weight of the evidence, that it ignores the probative force of the evidence which is all one way or that no reasonable person could have made it, is to say the same thing in different ways. Upon proof that the finding of a jury is vitiated in this way, it will be set aside because it is wrong in fact. Since the Act does not allow this Court to correct errors of fact, any argument that the finding of a Workers' Compensation Commission judge is vitiated in the same way discloses no error of law and will not constitute a valid ground of appeal. It is also pointless to submit that the reasoning by which the court arrived at a finding of fact was demonstrably unsound as this would not amount to an error of law: R v District Court of the Metropolitan District Holden at Sydney; Ex parte White (1966) 116 CLR 644 at 654. … It has been suggested that since judges unlike juries are required to give reasons a perversity of result will or may suggest an error at some stage of the reasoning process and the perversity will then rise to the level of an error of law. It is important, I believe, to remember that whether an error is one of fact or law is determined by legal theory and the theory is the same whether the tribunal be divided or undivided. 28 More recently the matter has been considered by Hall J in US Manufacturing Co Pty Ltd v ABB Service Pty Ltd [2008] NSWSC 705 at [45]-[55]. 29 Hall J first considered and accepted a number of propositions distilled by Kirby J in RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082; (2002) 37 MVR 479 at [12]-[14] as follows: First, there is no error of law in simply making a wrong finding of fact ( Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 per Mason CJ at 341), unless there is no evidence to support that finding. Secondly, it does not amount to an error of law if the finding of fact, or the inference (or the refusal to make a finding of fact or draw an inference) is perverse, in the sense that it is contrary to the overwhelming weight of evidence. (Glass JA in Azzopardi v Tasman UEB Industries Limited (1985) 4 NSWLR 139 at 155). Thirdly, it is not an error of law, even if the reasoning process by which the Court reaches its conclusion of fact is demonstrably unsound or illogical (Menzies J in Regina v District Court: ex parte White (1966) 116 CLR 644 at 654. Fourthly, there is a limited exception (which has no application in this case) in relation to decisions of fact in the context of a statutory description. In such a case there may be an error of law if the decision on the facts is one which could not be reasonably entertained, or supported, if the tribunal had properly understood the true construction of the relevant enactment ( Mahoney v Industrial Registrar of NSW & Anor (1986) 8 NSWLR 1 per Hope JA at 1 at Samuels JA at 5). 30 Hall J then considered a number of other decisions including the observations of Lord Denning MR in Instrumatic Ltd v Supabrase Ltd [1969] 1 WLR 519 at 521 where he said: There are many tribunals from which an appeal lies only on a 'point of law': and we always interpret the provision widely and liberally. In most of the cases, the tribunal finds the primary facts (which cannot be challenged on appeal): and the question at issue is what is the proper inference from those facts. In such cases, if a tribunal draws an inference which cannot reasonably be drawn, it errs in point of law, and its decision can be reviewed by the Courts. That was settled, once and for all, in Edwards (Inspector of Taxes) v Bairstow … In other cases, the question is whether, given the primary facts, the tribunal rightly exercised its discretion. In such cases, if the tribunal exercises its discretion in a way which is plainly wrong, it errs in point of law, and its decision can be reviewed by the Courts. (emphasis added) 31 Hall J then said: [54] It is clear that an error in point of law may include: (1) A finding made where there is no evidence to support it or draws an inference from facts that cannot be reasonably drawn. (2) A finding that no person acting judicially and properly instructed as to the relevant law could have made. (3) Where a Court has misdirected itself in law: Australian Gas Light Co v Valuer-General (supra). The Appellant's argument 32 In a very careful address Mr Lakeman of counsel took me to the accounting records which had been before the Magistrate. These accounting records, as I have said, were created by K Young Trading. What was described as annexure "A" was a list of sales by K Young Trading said to be from 1 January 2006 to 1 August 2008. Because of its importance to the argument, I shall reproduce the document in its entirety as follows: K YOUNG TRADING PTY LTD 5 A GREEN ST BROOKVALE NSW 2100 Sales [Customer] Detail 1/01/2006 through 1/08/2008 9/05/2008 Page 1 9:22:34 AM ID# Date Quantity Item/Acct Description Amount Tax Status Fortune Foods *None SING 6/07/2006 4-1403 $6,300.00 FRE Closed SING 18/08/2006 4-1403 $2,352.00 FRF Closed Closed sing 14/09/2006 4-1403 $9,971.50 FRE Closed Closed Closed SING 8/11/2006 4-1403 $1,734.00 FRE Closed Closed sing 16/11/2006 4-1403 $1,344.00 FRE Closed SING 6/12/2006 4-1403 $998.40 FRE Closed sing 13/12/2006 4-1403 $1,132.80 FRE Closed sing 27/12/2006 4-1403 $1,488.00 FRE Closed SING 9/01/2007 4-1403 $4,608.00 FRE Closed sing 17/01/2007 4-1403 $490.30 FRE Closed SING 26/04/2007 4-1403 $9,216.00 FRE Closed sing 19/06/2007 4-1403 $1,392.00 FRE Closed SING 27/08/2007 31/08/2007 4-1403 $1,632.00 FRE Closed SING 31/08/2007 4-1403 $3,264.00 FRE Closed SING 21/09/2007 24/09/2007 4-1403 $1,632.00 FRE Closed SING 24/09/2007 4-1403 $3,264.00 FRE Closed sing 15/10/2007 29/11/2007 4-1403 $510.00 FRE Closed sing 29/11/2007 4-1403 $204.00 FRE Closed sing 3/12/2007 4-1403 $816.00 FRE Closed sing 17/12/2007 4-1403 $17,820.00 FRE Closed Fortune Foods Total: $70,169.00 Grand Total: $70,169.00 33 A few things should be noted about it. The first is that on the left hand side there is a reference to Fortune Foods. This is a matter upon which K Young Trading places some significance. 34 Secondly, the word "Sing" down the left-hand side is a reference to a company called Singnesia International Corporation Pty Ltd which Mr Dai said was a related corporation of K Young Trading, and the company which supplied the canola oil and other products on behalf of K Young Trading. 35 The third matter to notice is that the first date referred to in the second column is 6 July 2006 and the amount shown in the column headed "Amount" is $6,300. Thereafter regard should be had to each sum in the "Amount" column and the date relative to each such sum. 36 This document was called annexure "A" because it was annexed as such to the affidavit of Mr Dai of 2 September 2008. He said this in connection to it: From 6 July 2006 Singnesia International Corporation Pty Ltd ("Singnesia") a related corporation of the First Defendant commenced supplying canola oil and other products to the Plaintiff. I refer to the statement and invoices annexed as annexure "A" to this affidavit. By 27 August 2007 Singnesia had supplied $43,462 in canola oil and sundry products. In relation to the last sentence in that paragraph it is to be noted that by 27 August 2007 the total of the "Amount" column in annexure "A" was $42,658.20. 37 It is then necessary to turn to another document produced by K Young Trading entitled "Supplier Payment History". It was described as annexure "I". This is a breakdown of the purchase orders issued by K Young Trading apparently to Fortune Foods from 6 November 2005 to 31 December 2005. Once again, because of the importance of this document, I shall reproduce it in full as follows: K YOUNG TRADING PTY LTD 5 A GREEN ST BROOKVALE NSW 2100 Supplier Payment History 06/07/2006 to 06/07/2006 17/08/2006 12:12:53 PM Cheque # Chq Date PO# Date Supplier's inv. # Purchase Total Amt Amount Applied Fortune Foods Manufacturer Pty Ltd CONTRA 06/07/2006 130265H 06/11/2005 $206.10 $8.62 CONTRA 06/07/2006 130357A 07/11/2005 $126.00 $126.00 CONTRA 06/07/2006 130533D 08/11/2005 $175.10 $175.10 CONTRA 06/07/2006 130703A 08/11/2005 $26.60 $26.60 CONTRA 06/07/2006 130726A 10/11/2005 $98.10 $98.10 CONTRA 06/07/2006 130586D 11/11/2005 $119.30 $119.30 CONTRA 06/07/2006 129857H 12/11/2005 $93.60 $93.60 CONTRA 06/07/2006 129867W 12/11/2005 $89.00 $89.00 CONTRA 06/07/2006 130791A 12/11/2005 $111.30 $111.30 CONTRA 06/07/2006 131109A 14/11/2005 $122.80 $122.80 CONTRA 06/07/2006 131047D 16/11/2005 $145.10 $145.10 CONTRA 06/07/2006 131177A 17/11/2005 $37.00 $37.00 CONTRA 06/07/2006 130629H 18/11/2005 $174.20 $174.20 CONTRA 06/07/2006 131098H 18/11/2005 $153.50 $153.50 CONTRA 06/07/2006 131234A 19/11/2005 $228.10 $228.10 CONTRA 06/07/2006 131256A 21/11/2005 $100.50 $100.50 CONTRA 06/07/2006 131455D 22/11/2005 $192.40 $192.40 CONTRA 06/07/2006 131507W 24/11/2005 $95.70 $95.70 CONTRA 06/07/2006 131620A 24/11/2005 $99.90 $99.90 CONTRA 06/07/2005 131514H 25/11/2005 $159.00 $159.00 CONTRA 06/07/2006 146907D 25/11/2005 $145.50 $145.50 CONTRA 06/07/2006 131685A 26/11/2005 $206.40 $206.40 CONTRA 06/07/2006 131818W 28/11/2005 $70.20 $70.20 CONTRA 06/07/2006 132404A 28/11/2005 $131.70 $131.70 CONTRA 06/07/2006 146965D 29/11/2005 $185.00 $185.00 CONTRA 06/07/2006 132472A 01/12/2005 $76.90 $76.90 CONTRA 06/07/2006 131574H 02/12/2005 $91.00 $91.00 CONTRA 06/07/2006 133712D 02/12/2005 $117.50 $117.50 CONTRA 06/07/2006 131736A 03/12/2005 $131.00 $131.00 CONTRA 06/07/2006 131835w 03/12/2005 $61.70 $61.70 CONTRA 06/07/2006 131760A 05/12/2005 $179.90 $179.90 CONTRA 06/07/2006 133772D 06/12/2005 $152.40 $152.40 CONTRA 06/07/2006 131888W 08/12/2005 $34.70 $34.70 CONTRA 06/07/2006 132529A 08/12/2005 $45.00 $45.00 CONTRA 06/07/2006 133922D 09/12/2005 $28.80 $28.80 CONTRA 06/07/2006 132218H 10/12/2005 $126.00 $126.00 CONTRA 06/07/2006 132595A 10/12/2005 $117.90 $117.90 CONTRA 06/07/2006 132329W 12/12/2005 $43.70 $43.70 CONTRA 06/07/2006 132617A 12/12/2005 $90.40 $90.40 CONTRA 06/07/2006 133979D 13/12/2005 $196.30 $196.30 CONTRA 06/07/2006 132372W 15/12/2005 $33.80 $33.80 CONTRA 06/07/2006 132680A 15/12/2005 $48.20 $48.20 CONTRA 06/07/2006 132027D 16/12/2005 $69.30 $69.30 CONTRA 06/07/2006 133003H 17/12/2005 $79.70 $79.70 CONTRA 06/07/2006 133008W 17/12/2005 $55.20 $55.20 CONTRA 06/07/2006 133847A 17/12/2005 $132.40 $132.40 CONTRA 06/07/2006 133873A 19/12/2005 $83.90 $83.90 CONTRA 06/07/2006 132984D 20/12/2005 $127.40 $127.40 CONTRA 06/07/2006 134241A 22/12/2005 $63.80 $63.80 CONTRA 06/07/2006 134529D 23/12/2005 $133.90 $133.90 CONTRA 06/07/2006 133084H 24/12/2005 $209.70 $209.70 CONTRA 06/07/2006 134925A 24/12/2005 $84.50 $84.50 CONTRA 06/07/2006 134609W 27/12/2005 $66.20 $66.20 CONTRA 06/07/2006 134829D 27/12/2005 $85.50 $85.50 CONTRA 06/07/2006 124838A 27/12/2005 $90.90 $90.90 CONTRA 06/07/2006 134863A 29/12/2005 $84.60 $84.60 CONTRA 06/07/2006 134630H 30/12/2005 $69.30 $69.30 CONTRA 06/07/2006 135017D 30/12/2005 $128.10 $128.10 CONTRA 06/07/2006 135426A 31/12/2005 $113.90 $65.78 Total for Payment CONTRA: $6,300.00 38 A few things should be noted about this document. First, again it refers to Fortune Foods Manufacturer Pty Ltd above the list of cheques. Secondly, the letters "P O" above the third column stand for Purchase Order and they are the purchase orders issued by K Young Trading to (apparently) Fortune Foods. Thirdly, the dates and the amounts speak for themselves but they span the period from 6 November 2005 to 31 December 2005. The total amount at the end of the document is $6,300 which is exactly the same amount as the first amount shown in annexure "A". Further, in annexure "I" the cheque date shown in respect of every purchase order is 6 July 2006, the same date as is shown against $6,300 in annexure "A". 39 The Appellant's submission is that the $6,300 shown in annexure "A" is the supply of canola oil to the exact value of the purchase of products said to be from Fortune Foods between 6 November 2005 to 31 December 2005. 40 It is of some significance that the purchase orders on annexure "I" are in respect of the period 6 November 2005 to 31 December 2005. On Mr Dai's evidence the agreement to pay off the outstanding debt to Fortune Food by the supply of canola oil was not reached until May 2006. This must mean that the "payment" of $6,300 was for the supply of products by Fortune Soy to by K Young Trading. 41 There were also lists of purchase orders issued by K Young Trading that exactly equated with the other amounts shown on annexure "A". In each case the cheque date shown on the breakdown of purchase orders coincided exactly with the dates shown on annexure "A" except in 2 cases referrable to the amounts $1,344 and $816. Nevertheless, the amount paid by cheque in relation to those purchase orders is identical with the amounts shown for the supply of canola oil on annexure "A". Was there an error of law? 42 It seems to me that the Magistrate found the following facts: (1) There was an agreement that the debt owed to Fortune Food could be repaid by K Young Trading in canola oil, the costs of which would be offset against the outstanding debt; (2) There was an agreement whereby K Young Trading would continue to supply canola oil to Fortune Soy in exchange for tofu and soy milk products; (3) There was no evidence of the Plaintiff's accounting records; (4) Included in the figure of $70,169 (being the total on annexure "A") was the sum of $43,462 that related to the supply of canola oil to Fortune Food to cover the outstanding debt. No error of law can be shown in relation to the first, second and third facts found because there was evidence to support them. 43 On the other hand, the fourth fact found, the crucial one for determination of the case, not only is based on no evidence at all but is contrary to the evidence provided by the accounting documents to which I have referred. As can be seen, Mr Dai did not in his affidavit relate the supply of the canola oil to the payment of the debt. All he said was that by August 2007 he had supplied canola oil to a certain value. Since the first amount of $6,300 related to specific purchase orders of product from Fortune Soy, and because they related to a period before the Agreement Mr Dai alleges was made in May 2006, Mr Dai's evidence could not have provided support for the Magistrate's conclusion in relation to the fourth fact. There was no evidence to support the Magistrate's finding, and there was positive evidence against the finding. In that way, in finding the fourth fact above, the Magistrate made an error of law. The fact was a primary fact and was one crucial to the Magistrate's decision: Azzopardi at 139; Bisby at [12]; Instrumatic at 521; US Manufacturing Co at [54]. 44 The statement made by the Magistrate that there were no accounting records from Fortune Foods that were referable to specific purchase orders placed on K Young which could be specifically reconciled with the supply records produced by K Young was ultimately irrelevant because all of the information necessary was to be found in the accounting records that K Young Trading put forward. It was by those records that it could be seen products by K Young Trading were in payment for the supply of products by Fortune Soy and not otherwise. 45 This was not a case where different inferences were available or where a finding was simply against the weight of evidence. There was no evidence that the supply of the canola oil was to pay the outstanding debt that K Young Trading owed to Fortune Foods. The supply of the canola oil by the values shown in the "Amount" column in annexure "A" was at all times referable to purchase orders placed by K Young Trading on Fortune Soy and in respect of the supply of those goods by Fortune Soy. 46 K Young Trading submits that because the documents I have set out earlier in this judgment (annexures "A" and "I") and the other documents to which I have made reference contain the words "Fortune Food" or "Fortune Food Manufacturer Pty Ltd" it is clear that K Young Trading was supplying the canola oil to offset the debt owing to Fortune Food. There seems to me to be a number of problems with that submission. The first is the analysis that I have discussed which shows that the supply of canola oil exactly offset the purchase orders that K Young Trading placed with Fortune Soy. Secondly, there was uncontradicted evidence from Mr Aw that Fortune Food ceased trading in May 2005. Thirdly, and most significantly, Mr Dai agreed in cross-examination that where his records referred to Fortune Food Manufacturer they should have referred to Fortune Soy. That is strengthened a little later in his evidence where Mr Dai says "all our supply of canola oil is to Fortune Soy not to Fortune Food". 47 K Young Trading further submits that the evidence detailed on the appeal was not before the Magistrate. However, it is clear that the documents to which I have made reference were all before the Magistrate both annexed to Mr Aw's affidavit as well as Mr Dai's affidavit. Moreover, the solicitor who appeared for the Plaintiff at the hearing before the Magistrate took Mr Dai through annexure "A" and put the position in a way similar to the way the matter was put to me. When he asked if he could go through the other entries with Mr Dai to put similar questions to him, the Magistrate said that there was no need to do so. 48 The position is that all of the evidence was before the Magistrate, the supply was acknowledged by Mr Dai to be a supply to Fortune Soy, and the evidence showed only that the supply of canola oil was to offset the supply of products by the Plaintiff to K Young Trading. 49 Although the grounds of appeal in the summons might have been articulated a little more precisely, the Plaintiff demonstrates that the Magistrate made an error of law in failing to take into account the affidavit evidence and the admissions made by Mr Dai to come to the only view open to him, namely, that the debt was still owing. The result is that the decision of the Magistrate should be set aside and a verdict entered for the Plaintiff against the First Defendant for the sum of $42,301.51. 50 That gives rise to the issue that the Magistrate did not have to determine, namely, whether the Second Defendant is liable on the guarantee referred to in para [2] above. 51 The terms of the document signed to record the Agreement of 22 June 2005 are as follows: As spoken between Mr. Choo Peng Keye of Fortune Food Mfg. Pty Ltd. And Ms. Katherina Young of K Young Trading Pty. Ltd. We agree of the following: The total sum owing to Fortune Food Mfg. Pty. Ltd. from K Young Trading Pty. Ltd. is $62,568.61(see attached). 12 installments payment of $5000/ per week and the 13 th . installment of $2,568.61 to be credited to Fortune Food bank without fail on a weekly basis effectively from the 27/06/05. Ms. Katerina Young will personally guarantee the payment to Fortune Food Mfg. Pty. Ltd. K Young Trading Pty. Ltd. Katerina Young Fortune Food Mfg. Pty Ltd. Choo Peng Keye22/06/05 Dated 22:0 6 .05 Dated 1 - 20 - 52 In the Defence filed by the Defendants the Second Defendant, Ms Young, admitted to having given a personal guarantee of the First Defendant's performance of the contract to the Plaintiff. That makes it unnecessary to decide the issue that I discussed in Palindrome Holdings Pty Ltd v Wass [2009] NSWSC 797 at [42]-[61]. 53 The remaining issue in terms of the guarantee is whether consideration was provided for the giving of the guarantee. That issue was identified as being one of the issues in dispute when the matter was heard before the Magistrate. 54 The Defendants submit that there was either no consideration or past consideration in circumstances where the guarantee was not contained in a deed. 55 The evidence was that the First Defendant owed to the Plaintiff an amount of $62,568.61 and that resulted in a meeting between Peng Choo of the Plaintiff and Katerina Young of the First Defendant. Mr Choo asked Ms Young how the amount owing was to be paid and Ms Young put the proposal forward of $5,000 per week for 12 weeks with the 13th instalment of $2,568.61 on the basis that no interest was charged by the Plaintiff. Mr Choo said: "Good. But how can we be sure that your company will be making all the payments?" Mr Young said: "I will give you my personal guarantee that my company will make all the payments." Mr Choo said: "With your personal guarantee given in writing, my company agrees to your payment plan." There was then signed the Agreement that I have set out. 56 O'Donovan & Phillips, The Modern Contract of Guarantee, 3rd ed (1996) LBC Information Service state at 55: If the creditor agrees to forbear from suing the principal for a past debt or actually does so at the guarantor's express or implied request, this will constitute good consideration for a guarantee of that past debt or future transactions, or both. The same applies if the creditor promises to give time to the principal at the guarantor's request. The mere fact of forbearance will not be sufficient consideration; it must be at the express or implied request of the guarantor, … 57 Support for that proposition is to be found in the decisions of the Full Court of the Supreme Court of Queensland in Murphy v Timms [1987] 2 Qd R 550 at 551 and 556-557 and the Queensland Court of Appeal in Edlin v Williams [2000] ANZ ConvR 43 at [41]-[43]. 58 It seems to me that the evidence is sufficient to show that there was a forbearance to sue on the part of the Plaintiff at the request of Ms Young and that that was done on the basis of the promise to give the guarantee that Ms Young admits was given. In those circumstances there was good consideration provided for the giving of the guarantee. 59 In my opinion, the Plaintiff is entitled to a judgment against the Second Defendant for the amount of $42,301.51. 60 Since preparing these reasons I have been advised that interest, which was claimed in the Statement of Claim in the Local Court, amounts to $17,755.04 to 2 June 2010. In those circumstances the Plaintiff is entitled to a judgment against both Defendants in the amount of $60,056.55. Conclusion 61 In my opinion the following orders should be made: (1) Extend time to 30 September 2009 for the filing of the Summons commencing an appeal. (2) Appeal allowed. (3) Judgment of the Court below be set aside. (4) Judgment for the Plaintiff against the First and Second Defendants in the amount of $60,056.55. (5) The Defendants are to pay the Plaintiff's costs of the appeal and in the Court below. (6) The Defendants are to have a certificate under the Suitors Fund Act 1951 if so entitled. ********** 03/06/2010 - Paragraph 60 added to judgment. Order 4 in paragraph 61 and coversheet amended accordingly. - Paragraph(s) 60 and 61 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.