Decon Australia Pty Ltd v Town Interiors Pty Ltd

Facts

1. In 2017, Town Interiors was engaged by Decon to work on a development in Epping. Town Interiors made a series of progress claims. In addition, in December 2017 and January 2018, Town Interiors submitted invoices for two variations totalling some $90,000.
2. In June 2018, the Epping project was completed. Unfortunately, the developers for whom Decon did the building work owed Decon some $6 million, but did not pay. This resulted in significant cash flow difficulties for Decon, which meant that it was necessary to manage the payment of invoices with care.
3. In November 2018, Town Interiors commenced proceedings against Decon in the Common Law Division of this Court, seeking payment of $903,408 for work done and materials provided. Mr Saab says the amount claimed was in excess of what Town Interiors was entitled to, as it included variations which had not been approved.
4. Decon did not file a defence. Rather, discussions ensued between Decon and Town Interiors. The versions of these discussions, as described by Mr Saab and Zhao Zhong, differ; it is not necessary on this application to determine whose version should be accepted.
5. A number of emails and text messages also passed between the parties. On 6 December 2018, Mr Singh sent an email to Town Interiors referring to their discussions and advising that he had reviewed cash flow and scheduled four payments, to be made on specified dates. After these payments had been made, Mr Singh advised that he would review cash flow again in late January 2019 with a view to making substantive payments towards the remaining amount. Mr Singh asked Town Interiors to "withdraw the claim from the court considering the above committed amounts". Town Interiors replied, agreeing to this temporary payment arrangement until mid-January 2019 but added, "we really need all outstanding amount to be paid within 3 month period ... [W]e will ask our lawyer to postpone the claim at this stage". Mr Saab responded saying that he understood the financial pressure that Town Interiors was under and thanked them for their co-operation and agreeing to suspend the legal proceedings.
6. Decon proceeded to make some, but not all, of the agreed payments. Zhao Zhong has done a reconciliation and says that Decon paid $421,960. There is no evidence that a further payment arrangement was agreed.
7. In May 2019, Town Interiors obtained default judgment against Decon for $506,271 including costs. This amount was less than that originally sought in the statement of claim as it took into account the payments which Decon had made.
8. In June 2019, Town Interiors obtained a garnishee order. However, the garnishee order returned unsatisfied as Decon's bank account had insufficient credit to enable any funds to be remitted.
9. In August 2019, Decon commenced proceedings in the Construction List of this Court against the developers of the Epping project, presumably in an attempt to obtain payment for the building work which it had done.
10. In September 2019, Town Interiors made further efforts to obtain payment from Decon. On 9 September 2019, Mr Singh sent an email to Town Interiors attaching a reconciliation of outstanding invoices and said he would call "in the next few minutes to discuss and arrange a payment plan and we need to set aside the judgement". This, however, does not appear to have progressed with any particular expedition.
11. In October 2019, Town Interiors served a statutory demand on Decon. This appears to have prompted a response from Mr Singh. On 24 October 2019, Mr Singh sent an account reconciliation as follows: (bold in original) $361,680.00 outstanding excluding the invoices … for variation which I will discuss with Danny for approval. After my meeting with Danny today, I will prepare & send the payment plan later accordingly.
12. On 31 October 2019, Mr Singh sent a further email attaching the reconciliation, again in the amount of $361,680, and also attached a payment plan with regular fortnightly payments to clear the balance. Decon relies on these emails as supporting its claim that conversations took place in which Town Interiors agreed to accept $361,680 only and did not press for payment of the variations. Such an agreement is denied by Town Interiors, which said that Decon had never disputed the variations until recently.
13. It is certainly possible that the emails could be read to infer that Town Interiors waived its claim for payment in respect of the variations. Against that, the fact that Mr Singh - in his email of 24 October 2019 - stated that he was going to seek approval for the variations from Mr Saab suggests that there was nothing unusual about variations being submitted, nor anything particularly controversial about these variations. One could also infer that, if an agreement was reached in the terms suggested by Decon, Mr Singh would have recorded it in his email of 31 October 2019; the absence of such a notation may suggest there was no such agreement.
14. In any event, the payment plan offered by Mr Singh was not adhered to. Town Interiors sent a series of text messages following up unpaid instalments. Town Interiors tried to call Decon, but the calls were not answered.
15. Mr Saab said that, in about December 2019, he reached an oral agreement with Town Interiors to 'roll over' the amounts which Town Interiors was owed for the Epping project into new projects. Mr Saab's description of the 'roll over' agreement is generally expressed. There are no contemporaneous documents which corroborate such an agreement.
16. Rather, text messages from Town Interiors point in the other direction. In particular, on 31 January 2020, a text message was sent by Town Interiors saying: What's happening to outstanding balance, nothing is pay [sic] since December 2019 as promised according to your payment plan. I have suppliers and workers knocking my door every day. Please, I can't hold any more. It seems unlikely that such a text message would be sent if an agreement had been reached that Town Interiors would be paid in subsequent projects.
17. Against this, Decon points to the fact that Town Interiors commenced further work for Decon on a project at Dulwich Hill. No further claims for payment were made for several months. These matters were said to be consistent with the existence of a 'roll over' agreement. That is certainly possible.
18. In May 2020, the developers of the Epping site filed a cross-claim against Decon alleging building defects with the project, including in respect of external cladding. In July 2020, the Epping developers went into administration and subsequently entered into a deed of company arrangement. Also in July 2020, Town Interiors sought legal advice as to how to recover unpaid invoices from Decon but was told it had limited options at that time by reason of COVID-19 regulations. In August 2020, the Owners Corporation of the Epping Development commenced proceedings against Decon for building defects.
19. In February 2021, Town Interiors filed a second motion in the Common Law Division proceedings seeking a garnishee order in the amount of $499,674.04. A garnishee order was issued. The National Australia Bank issued a bank cheque to Town Interiors in the sum of $458,260.89 as a consequence. Mr Saab became aware of the garnishee order and commenced these proceedings.
20. Today, Decon has filed a motion in the Common Law Division proceedings, seeking to set aside the default judgment and garnishee order. I was told that Decon also proposes to file a cross-claim, seeking damages from Town Interiors in respect of building defects. It is said that Town Interiors is responsible for the building defects sought to be pursued by the Owners Corporation. Town Interiors said that it does not select the materials which it installs; such materials are specified by the builder, Decon.
21. It is noteworthy that, although Decon has been the subject of a building defect claim by the Epping developers and the Owners Corporation since May 2020 and August 2020 respectively, it is only now when the second garnishee order was executed that Decon suggested that Town Interiors was responsible for such defects.

Submissions

1. Decon submitted that the oral agreement reached in October 2019 (referred to at [16]) amounted to an accord and satisfaction and precluded Town Interiors from enforcing the default judgment and obtaining the garnishee order. Decon submitted that, to the extent there was a conflict in the evidence concerning the conversations said to give rise to the agreement, its version of events should be taken at the highest for the purposes of the application for interlocutory relief. As a consequence of the agreement, it was said that Town Interiors' only remedy was to commence fresh proceedings against Decon for breach of the agreement. Whilst Decon accepted that it did not comply with the agreement, Decon also pointed to the foreshadowed cross-claim which, if established, would offset the default judgment.
2. Decon submitted that the entry of the default judgment was contrary to good faith because Town Interiors had agreed to suspend the proceedings and did not give notice it would obtain default judgment. Decon submitted that, under rule 36.15(1), the focus is on irregularity in the giving, entering or making of the judgment or order sought to be set aside, and that the rule applies with particular force to default judgments: Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) (2009) 78 NSWLR 190; [2009] NSWCA 387 at [16]-[17]. Even if the default judgment had not merged into the agreement, Decon submitted that the default judgment was liable to be set aside under rule 36.15 or 36.16 of the Uniform Civil Procedure Rules 2005 (NSW). Whilst Decon accepted that there had been a significant delay in bringing the motion for interim relief, Decon had a satisfactory explanation being its belief that there was a binding arrangement that Town Interiors would not enforce the judgment. Decon submitted that it has good prospects of setting aside the judgment, on this basis alone.
3. Town Interiors submitted that the factual premise of the existence of the agreement alleged by Decon was undermined by the lack of documentary evidence. In Mr Singh's email of 24 October 2019, he acknowledged that $361,680.00 was owing to Town Interiors excluding variations, which he would "discuss with Danny for approval". Mr Singh would not have contemplated seeking approval to pay the invoices relating to the variations if he did not consider Town Interiors' claim for payment for the variations to be legitimate. Further, Town Interiors pointed to Decon's failure to comply with the agreement said to be binding; Decon's conduct thereby indicated that there was no such agreement.
4. In any event, Town Interiors submitted that discretionary factors militated against the interlocutory relief sought by Decon. Where it was not in dispute that Town Interiors was owed at least $300,000, and where Town Interiors made multiple requests for payment in November 2019 to January 2020, Decon's delay in bringing any cross-claim in the building defect proceedings was a discretionary factor militating against the interlocutory relief sought being granted where Decon could have brought the cross-claim when the building defect proceedings against Decon were commenced in August 2020. Any delay by Town Interiors in enforcing the default judgment by obtaining a garnishee order was explained by Zhen Zhong being advised that he had limited recovery options due to the COVID19 regulations introduced by the Government.
5. In reply, Decon submitted that Mr Singh's email of 24 October 2019 should be construed as acknowledging that Decon owed Town Interiors some $350,000 on the premise that the agreement made in October 2019 was in force. Further, there were no further requests for payment by Town Interiors after Zhen Zhong's text message on 13 January 2020. If Town Interiors believed payments were outstanding, Town Interiors would have made further requests but did not do so until obtaining a garnishee order some 12 months later. This delay was consistent with the alleged agreement. Further, the explanation given by Zhen Zhong was unsatisfactory as the COVID19 regulations did not prevent a garnishee order being made.

Interlocutory injunction

1. There is no doubt that, if interlocutory relief is not granted, Town Interiors will disburse the funds. Town Interiors has been seeking the funds for some time in order to pay its employees and suppliers. Likewise, Decon seeks (as final relief) that the garnisheed funds be returned as it needs funds to pay its employees and suppliers. Resolution of the application for interlocutory relief may for practical purposes be determinative of these proceedings. Thus, it is important to proceed with caution.
2. As to the first form of interim relief - that Town Interiors pay the garnisheed moneys into its solicitor's trust account - this is a form of interlocutory injunction and so the question is whether a serious question arises and where the balance of convenience lies. The questions which, as I understand it, Decon seeks to have determined at a final hearing are: whether Town Interiors is entitled to the amount the subject of the garnishee order, in particular, whether the two variations totalling $90,000 should form part of the judgment amount; and whether Town Interiors is entitled to those moneys now or has entered into an agreement to either accept that amount by instalments or payment in subsequent building projects.
3. I accept that there is a serious issue to be tried. However, I am also entitled to take into account the apparent strength of the parties' substantive cases. As Dowsett, Foster and Yates JJ explained in Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238; [2011] FCAFC 156 at [67]: … when considering whether to grant an interlocutory injunction, the issue of whether the plaintiff has made out a prima facie case and whether the balance of convenience and justice favours the grant of an injunction are related inquiries. The question of whether there is a serious question or a prima facie case should not be considered in isolation from the balance of convenience. The apparent strength of the parties' substantive cases will often be an important consideration to be weighed in the balance … [citations omitted] The strength of Decon's case is undermined by the contemporaneous documents to which I have referred at [15]-[17] and [19]-[20] and by its delay in seeking to agitate these issues: at [25].
4. Turning to the balance of convenience, it is apparent from the contemporaneous documents that Town Interiors has pursued its unpaid invoices for more than two years and has need of the funds to pay its suppliers and staff. Town Interiors has utilised appropriate and available processes of this Court to obtain default judgment and, on two occasions, to issue garnishee orders.
5. Decon - largely for reasons beyond its control - has experienced significant cash flow problems which appear to have contributed to its inability to pay Town Interiors. I am concerned that if I make the orders sought by Decon, such that the garnishee moneys are withheld in some way or repaid to Decon, other factors may intervene which result in Town Interiors never being paid. Having regard also to the apparent strength of Decon's case and its delay, I am not satisfied that the interlocutory relief sought should be granted.

Section 124A Civil Procedure Act

1. As to the second form of interim relief - being the suspension of the garnishee orders - section 124A of the Civil Procedure Act provides: 124A Variation, suspension or repayment of payments under garnishee orders The court may, at any time on the application by a judgment debtor, vary or suspend the making of payments by the judgment debtor under a garnishee order, or order the total amount paid by the judgment debtor under the garnishee order to be repaid, if the court is satisfied that it is appropriate to do so. This is a section in respect of which, there is no reported case law. According to the terms of the section itself, the Court "may" vary or suspend a garnishee order if the Court is "satisfied that it is appropriate to do so". The section gives the Court a wide discretion - to be exercised judicially - having regard to the circumstances of the particular case.
2. Here, the relevant circumstances are: Town Interiors has availed itself of the ability to obtain a garnishee order in a regular manner, having followed proper court processes. There is no suggestion that Decon was unaware that proceedings had been commenced. Rather, Decon endeavoured to resolve the matter by agreeing to pay its debt by instalments, which agreement was not observed, repeatedly. Town Interiors has committed considerable effort to obtain payment of its unpaid invoices through negotiation and compromise - and patience - but ultimately to no avail. Decon's delay in bringing this application also tells against suspending the garnishee order. I am not satisfied that it is appropriate to vary or suspend the operation of the garnishee order under section 124A.
3. For these reasons I make the following orders: 1. Refuse the interim relief claimed in prayers 1 and 2 of the Summons filed on 12 February 2021. 2. Order the plaintiff to pay the defendant's costs of the application for interim relief. 3. Stand the matter over to the registrar's list at 9.00 am on 3 March 2021.

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. Decision last updated: 25 March 2021