Node Connect Pty Ltd v Foxcomm Australia Pty Ltd

District Court of NSW|2020-10-08

Background
Node Connect Pty Ltd obtained default judgment against Foxcomm Australia Pty Ltd for $305,456.36 in respect of debts arising from a large number of invoices supplied by Node. Foxcomm seeks to set aside the judgment. There was no irregularity in the obtaining of the default judgment, but Foxcomm was served at an obsolete registered address that it had failed to amend with the corporate authorities. It was accepted that Foxcomm had acted promptly when it became aware of the judgment, that it was previously unaware of the proceedings, and that any prejudice, by setting aside the default judgment, could largely be cured by a costs order.

Issue
The determinative issue then was whether Foxcomm had established that it had a bona fide defence. If it does, so that there is a triable or arguable issue, then there is a proper basis for the unfettered discretion in r 36.16(2) of the Uniform Civil Procedure Rules 2005 to be exercised in its favour. [1] Although the Court is not to try issues of fact arising from the defence advanced, it nevertheless must be satisfied that the defence is "fairly arguable in law or fact" and that Foxcomm is "bona fide in seeking to rely upon that defence". [2] The application of these principles is subject to the Civil Procedure Act 2005, including the overriding purpose of a cheap, quick and just resolution of the real issues in dispute as declared by s 56 of the Act. [3]

Analysis
Leaving aside costs and interest, the judgment comprised about $272,000 for unpaid services provided by Node in respect of "Vision Stream Projects", and $17,440.50 in respect of the "Broadspectrum" project.
A draft defence was in evidence, but some of the allegations contained within it were abandoned during the course of the application. The defence, Foxcomm continued to maintain, can be categorised into three components, which are itemised in the headings following.

(a) The 20% or 30% discount

Foxcomm retained Node as its subcontractor. Node provided Foxcomm with invoices for its work, which Foxcomm passed onto its client, and Node accepted discounted payments from Foxcomm. Foxcomm would retain a discount as its commission. Node initially accepted a 30% discount on payments from Foxcomm. Node alleged that the ordinary discount for Foxcomm subcontractors was 20%, but that the higher discount was agreed because Foxcomm was providing the van and equipment. Node asserted that it had agreed with Foxcomm that once the equipped van was purchased by Node, the discount would revert to the standard rate of 20% Foxcomm offered to all other subcontractors.
Approximately one year later, in July 2017, Node paid the van and equipment price required by Foxcomm, and thereafter commenced accepting payment at the 20% discount.
Foxcomm, in its draft defence, "did not admit" that the 30% rate was agreed to or was changed, said (assuming the relevant paragraph has mistakenly reversed the positions of plaintiff and defendant) that the van and equipment were agreed in July 2017 to be purchased by Node for $58,000, which sum has not been paid.
Thus, the alleged issue is whether the commission changed to 20% or remained at 30%. As indicated earlier, the Court is not concerned to determine that issue, but only to determine whether Foxcomm has established the 30% commission as "fairly arguable" and "bona fide" relied upon as a defence.
The question of the terms of an oral agreement turns on the conversations between The Luan Nguyen for Foxcomm and Duy Khuong Tran for Node. Mr Nguyen put on an affidavit in the motion, but it dealt only with the explanation for the failure to defend the claim and the length of the delay. [4] As these matters were not in issue, the affidavit was ultimately not read on the application.
There is authority for the proposition that where "a defence sought to be advanced involved oral representations on which the defendant relied to his or her detriment", it is "required" that there "is some evidence as to the conversations in which the alleged representations were made". [5] Whilst this case did not strictly involve reliance to detriment upon oral representations, there seems to be no relevant difference in the present context between this and oral conversations asserting a different contract.
As stated, Mr Nguyen gave no evidence about this matter. It "was not for [Node] to cross‑examine into evidence material that [Foxcomm] had not put into evidence". [6] Further, this absence of evidence was not a mere oversight by Foxcomm. Node identified this requirement more than five weeks ago in correspondence with Foxcomm's solicitor, and despite Foxcomm preparing further affidavits in more recent times, it elected not to adduce further evidence from Mr Nguyen about these conversations.
The principle that it was for Mr Nguyen to give evidence of the oral conversations he needed to maintain this defence is supported by other decisions. In Sharples v Northern Territory, Asche CJ stated: "it is normally the rule that the affidavit should disclose a defence and should be sworn by somebody in a position to prove the defence, or by a person who has personal knowledge of the events out of which the claim arises". [7]
The learned Chief Justice also stated: "if a plaintiff has regularly obtained judgment he is entitled to that judgment, and he is entitled to be assured that the defendant has at least an arguable defence. He is entitled, therefore, to be so assured by somebody who is personally concerned with that defence, and is sufficiently personally concerned in that defence to make an affidavit concerning the details of that defence, knowing full well the penalties of perjury. In other words, the defendant [I interpolate this appears more correctly to be "the plaintiff"] is entitled, not to be told by a solicitor that his instructions are that there is a good defence, but to be told by somebody directly concerned with the events that have occurred that there is a good defence, and have that sworn to."
Of course, there are cases when such evidence might not be required, cases that do not involve oral statements such as Cronau v Vavakis (No 3), [8] where in a defamation case, the Court could readily see a real contest as to "whether the imputations pleaded are capable of being carried in the natural and ordinary meaning of the matter complained of". [9] This is not analogous to the present case.
Thus, although hearsay evidence is admissible on an application to satisfy the default judgment, [10] it might not, in some cases, be sufficient to persuade the Court that a bona fide and arguable defence has been established. As Schmidt J in National Australia Bank v Priestley (No 3) stated, "Assertions as to a belief that a defence has merit, or is valid, or that the facts on which it is based are true, is not sufficient". [11]
The evidence relied upon by Foxcomm is that of its solicitor, Breanna Baldwin, who initially, on the question of the level of discount, deposed only to the "elements of the defence", and gave no evidence even on information or belief about Mr Nguyen's account of his dealings with Mr Tran. In an affidavit filed and served on the day of the application, yesterday, she quoted Mr Nguyen telling her what the agreement was, [12] but still there was no evidence relevant to the contents of any conversation Mr Nguyen had with Mr Tran.
There are other reasons why I am unsatisfied that this assertion by Ms Baldwin, or by Mr Nguyen to Ms Baldwin, established an arguable defence to the claim that a wrong discount was charged.
Node sent a number of invoices to Foxcomm from July 2017 until May 2019 that fully detailed the 20% discount rate. During that two‑year period, and afterwards, Foxcomm raised no complaint, orally or in writing, about the discount rate. It made payments in respect of the invoices issued with that discount rate, and on 25 July 2019, it wrote to Node stating: "It is with great concern and regret that Foxcomm is unable to pay Node…Foxcomm would like to apologize…We accept full responsibility for the late payment and we assure that we are taking the necessary steps to gradually process the payment for your outstanding invoices". [13]
In this email, Foxcomm proposed a payment plan: "… until the outstanding amount of $372,373.72 will be paid off Your debt will be paid more when money from our client relating to the retention is released later…" [14]
Subsequently, Foxcomm paid $100,000 of the $372,373.72 accepted to be owing, leaving the Vision Stream debt of approximately $272,000 identified earlier.
This admission by Foxcomm, by its words in the email, and by its conduct in accepting and paying invoices at the 20% discount for more than two years until August 2019, was not referred to, nor explained, in any evidence of the defendant. Counsel for Foxcomm expressly declined to put any submission about that matter.
In these circumstances, I am not satisfied that Foxcomm has a genuine and arguable defence in respect of the higher discount.
I note that in respect of the $272,000 approximately unpaid in respect to the Vision Stream invoices, that the higher discount equates to an amount of about $34,000, a little higher if interest is added.
If Foxcomm maintained a claim in respect of a mistaken overpayment of past invoices, by reason of the higher discount it alleges, the total difference, including in respect of unpaid invoices, would be $109,222.61. Such a claim in respect of the paid invoices is not precluded by the default judgment, and is a matter I considered in the exercise of the discretion under r 36.16(2). In the event that the different discount amounted to a genuine and arguable defence, a matter of which I am not satisfied, I would, on this ground, vary the judgment amount by approximately $35,000, leaving to Foxcomm, if it saw fit, to maintain a cross‑claim (or a claim in new proceedings) for any monies it asserts was wrongly overpaid.

(b) The van, equipment and training

The second aspect of the defence is an allegation that Node owes $118,000 to Foxcomm, comprising $30,000 for the van, $28,000 for the equipment, and $60,000 for training. The evidence before the Court, including business records, establishes that Node offset $30,000 in respect to the van and equipment, recorded this correspondence to Foxcomm in 2017, and is now the registered owner of the van.
Mr Nguyen for Foxcomm gave no evidence about these matters. Foxcomm's solicitor gave evidence on information and belief, but, as with the first defence, no evidence about the conversations establishing an agreement to pay $60,000, or any specific amount for training, nor about any additional $28,000 for equipment.
Ms Baldwin does depose to Mr Nguyen telling her that in July 2015 (again transposing in part the names of Mr Nguyen and Mr Tran, as context indicates must have been intended) [15] Mr Tran was told he needed "to purchase the proper van and equipment and pay for training as a contractor", and that "I will sell you the van and equipment plus give you some training". This alleged conversation occurred two years before the purchase of the van was offset against monies owed by Foxcomm, when the discount rate was reduced to 20%. There was no evidence of any conversation in any form whereby Mr Tran agreed to pay $60,000 for training, and the evidence by Ms Baldwin that Mr Nguyen said he "charged" Node $60,000 for training is not otherwise evidenced. [16]
Nor in the five years since that conversation was there any written invoice, oral request, or evidence about any occasion when Mr Tran was "charged for training". Nor was there any evidence that any training was ever provided to Mr Tran (other than training Mr Tran obtained and paid for himself from third parties).
For reasons already identified, it was incumbent on Mr Nguyen to give evidence about these conversations and training so the Court could identify a genuine and arguable defence. He was silent about them, and the evidence of Ms Baldwin, Foxcomm's solicitor, contains only Mr Nguyen's assertions, not evidence of conversations that might establish an agreement to pay an additional $60,000 for training and $28,000 for equipment. These amounts are also not referred to when Foxcomm acknowledged the debt, or in any other document in evidence. Nor is there any evidence to explain the set‑off of $30,000 in payment for the van and equipment shown in the business records exchanged between Node and Foxcomm dated 16 July 2017.
Thus, Foxcomm's defence on this point comprises an assertion that Node agreed to training at a cost of $60,000 five years ago, without a single document or evidence of an agreement supporting that assertion, apart from Ms Baldwin's evidence of what Mr Nguyen asserts. And no evidence at all of training. As to the van and equipment, the written evidence establishes a payment for it, and both Mr Nguyen's and Ms Baldwin's evidence are silent on that payment, correspondence, and arrangements.
In these circumstances, there is no evidence that satisfied me of a bona fide, arguable defence on the basis of unpaid amounts for training, a van, or equipment.
I note and take into account in the exercise of my discretion that Foxcomm is not precluded by the judgment from pursuing a claim for the non‑payment of amounts of $60,000 for training, and $28,000 for equipment, which are said by it to arise from an oral contract in July 2015.

The third item of the defence maintained by Foxcomm is in respect to $15,950.32 arising from invoices to "Broadspectrum". Again, Mr Nguyen gives no evidence about this. Ms Baldwin also gives no admissible evidence in respect to this debt. She does, however, depose that "from about 20 April 2016 Mr Nguyen told Mr Tran to cease work on all Broadspectrum projects". How she obtained this knowledge is not revealed in her affidavits.
But even if the evidence was admissible to establish the fact asserted so that the Court were to infer that she was told by Mr Nguyen, and believed that Mr Nguyen told Mr Tran to cease work as quoted, still the defence falls short of being genuine and arguable.
20 April 2016 is a date prior to any invoice from Node for Broadspectrum work. The evidence before the Court shows 15 invoices were issued by Node for Broadspectrum work, [17] all in the period July 2016 to November 2017, well after the conversation asserted by Ms Baldwin. Ten of the invoices were paid by Foxcomm and two other invoices were paid by means of the offset arising from the $30,000 payment for the van and equipment disclosed in 2017 correspondence between Node and Foxcomm. The amount outstanding arises from three unpaid invoices. The invoices evidence that Foxcomm received almost $56,000 from Node's Broadspectrum invoices, which totalled $136,000. No explanation about its continual receipt of funds by Foxcomm for the work of Node for Broadspectrum was explained by any evidence. Nor is there any assertion, let alone evidence, that Node did in fact cease work on Broadspectrum projects, or that Foxcomm received no funds from Broadspectrum for work after April 2016. The business records show the contrary.
In these circumstances, the mere assertion by Ms Baldwin of a conversation of an instruction is insufficient to establish a genuine, arguable defence.
It follows, that by reason of the admissions of Foxcomm, a lack of any relevant evidence from Mr Nguyen, the inadequate evidence of Ms Baldwin, and the overwhelming evidence of invoices extending over a number of years, never disputed by Foxcomm until its application, and not explained by any evidence, I am not satisfied that Foxcomm has a genuine, arguable defence to the claim. A theoretical defence asserted without evidence is insufficient.
I dismiss the application to set aside the default judgment.

Costs
Costs should follow the event. Foxcomm must pay the costs of the application.

Orders
Accordingly, the orders the Court are: 1. Notice of motion filed 10 August 2020 dismissed. 2. Applicant/defendant to pay the costs of the application.

Endnotes

Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 at [43]-[44].
Dunwoodie at [45], Reinehr Industrial Lease & Finance Pty Ltd v Jordan (Court of Appeal (NSW), 4 June 1974, unrep), see Dai v Zhu [2013] NSWCA 412 at [83].
Dunwoodie at [46].
See Dunwoodie at [43].
National Australia Bank v Priestley (No 3) [2012] NSWSC 1171 at [11], National Australia Bank Limited v McCarthy [2014] NSWSC 1819 at [75].
Magnate Projects Pty. Ltd. v. Youma Constructions (No.2) Pty. Ltd. [2005] NSWCA 331 at [58].
(1988) 91 FLR 11 at 12.
[2018] NSWSC 1973 at [5] and [22].
At [22].
See Cosenza v Roy Morgan Interviewing Services Pty Ltd [2019] SASC 95 at [37].
[2012] NSWSC 1171 at [9].
At [4].
Court book p 165.
Court book p 166.
See affidavit, Breanna Baldwin, 31 August 2020, at [7].
See also affidavit, Breanna Baldwin, 8 October 2020, at [3].
Affidavit, Duy Khuong Tran, 7 September 2020, Annexure L. 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: 21 October 2022

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Judgment (9 paragraphs)

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Cases Cited (8)