Platinum Communications Pty Ltd v Computer Networks Pty Limited

Federal Court of Australia|2012-11-14|Before: Griffiths J

The parties are to file and serve by 5:00 pm on 16 November 2012 any brief written submissions on the proposed orders.
Final orders will be made in Chambers in due course. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1367 of 2012

BETWEEN: PLATINUM COMMUNICATIONS PTY LTD ACN 515 618 601

JUDGE: GRIFFITHS J DATE: 14 NOVEMBER 2012 PLACE: SYDNEY

Introduction 1 The proceedings involve an application under s 459G of the Corporations Act 2001 (Cth) ("the Act") to set aside a statutory demand. The two principal issues are: (a) whether the plaintiff should be given leave to amend its application so as to seek an order not only under s 459J of the Act, but also under s 459H; and (b) whether the statutory demand should be set aside and, if so, on what if any conditions.

Summary of background facts 2 The plaintiff operates 28 retail outlets in major shopping centres, supplying mobile phone accessories. Its stores are located in various states, as well as the Australian Capital Territory. The plaintiff company is owned by Mr Moji Ashrafi, who is currently its managing director. At the time of the relevant events the company's managing director was Mr Andrew Mckay and its chief financial officer was Mr Alexis Phitidis. 3 The defendant supplies various information technology products and services to businesses, including since at least September 2011 a software programme called SAP ByDesign ("SAP"). 4 Up until 1 July 2012, the plaintiff used in its retail operations a software program called Pronto. A decision was apparently taken in March 2012 to change from Pronto to SAP. On 30 March 2012 the plaintiff's then chief financial officer and its then managing director executed a Base Agreement with the defendant. The Base Agreement covered the supply under licence of the SAP software. The Base Agreement also contemplated that the defendant would provide related services to the plaintiff in conjunction with the licensing of the software. Subsequently, on 23 April 2012, the same two representatives of the plaintiff executed a document entitled "Statement of Work for SAP Business ByDesign Services". The Statement of Work related to the defendant providing consultancy services to the plaintiff under two distinct phases. Phase 1 concerned what was described as the "Go-Live Execution". Phase 2 related to what was described as the "Solution Expansion". Consultancy services under both phases were to be provided at a cost of $1000 per day. 5 The plaintiff accepts that Mr Mackay and Mr Phitidis had actual authority to enter into the Base Agreement on behalf of it, but denies that they had either actual or ostensible authority to sign the Statement of Work. Mr Ashrafi (who was not cross-examined) gave evidence to the effect that, based on communications he had had with Mr Phitidis, he understood that the defendant would provide his company with the SAP software and install it for an annual licence fee. He said that Mr Phitidis told him that, because the defendant needed to test the software for the first time in a retail point of sale environment, it would install the software for free and the plaintiff would simply have to pay an annual licence fee. Although, as noted above, the plaintiff accepted that there was actual authority to enter into the Base Agreement, Mr Ashrafi said that he had not seen either the Base Agreement or the Statement of Work until after the statutory demand was served. 6 The statutory demand (which is dated 23 August 2012) is for a total amount of $102,981.86. It is made up of 10 separate invoices bearing dates during the period 16 May 2012 to 30 July 2012 inclusively. The total amount is said to be verified by an affidavit affirmed on 23 August 2012 by the defendant's chief executive officer, Mr Brian Pereira. Mr Pereira deposes that the total amount is due in accordance with the Base Agreement. Based upon the defendant's file note of a meeting which took place between representatives of the plaintiff and the defendant on 14 August 2012, it appears that, of the total amount, approximately $85,000 relates to implementation costs and approximately $15,000 represents part of the licence fee. 7 When, on 1 July 2012, the Pronto software was switched off and the SAP software was switched on, many of the plaintiff's stores encountered serious problems. The nature and extent of those difficulties are described in unchallenged evidence given on behalf of the plaintiff by Mr Blackstone and Mr Ohlson. Briefly described, that evidence is to the effect that, from 1 July 2012 until 20 July 2012 (when SAP was switched off and the plaintiff's stores reverted to Pronto), some staff were unable to: log into the SAP system; print sales receipts; open the drawers on the cash registers; complete sales returns for customers; or enter stock levels into the plaintiff's business systems. 8 The defendant did not appear to contest the plaintiff's claim that significant problems were encountered with the SAP software when it went live on 1 July 2012. One of its witnesses, Mr Garpendal, accepted that there were problems, including issues concerning what he described as the "cashing up process at the end of each day in the stores and reconciling the takings to sales entered in the system". He said that these issues "meant that there was no ability to access accurate sales figures". 9 According to Mr Ashrafi, the SAP software was not fit for the plaintiff's purpose. He claims that the failed installation of the system caused a loss of sales for the plaintiff during the month of July 2012 in excess of $400,000. The plaintiff contends that this was only a broad estimate because of the difficulties in being more precise having regard to the problems experienced with the SAP system when it went live on 1 July 2012 and during the relevant subsequent period. The plaintiff was effectively driven to rely on handwritten records of the numerous transactions which took place during that period while the parties sought to overcome the technical problems. 10 As will emerge further below, the defendant places heavy emphasis on its file note of the meeting held on 14 August 2012. The meeting took place after the plaintiff had informed the defendant on 20 July 2012 that it was terminating its contract with the defendant. The file note attributes the following matters to Mr Ashrafi: Moji indicated company in deep trouble - blames Alexis and Angus - Missed ATO payments - non payment of suppliers - non payment of shopping centre retn (sic) Moji sold house to pay ATO bill. Voluntary Admin a real possibility. Next 3 months critical to company survival Potential merger potential(sic) with partner organization who uses Pronto. 11 The file note also records Mr Ashrafi's view that he believed that the software implementation had had a large negative impact on the plaintiff's business. He is recorded as requesting that all invoices from the defendant be declared null and void. The file note also records Mr Pereria making an offer to settle matters by the plaintiff paying 80% of the implementation fee and 100% of the licence fee. According to the file note, this offer was not accepted and Mr Ashrafi is recorded as saying that he had "nothing" to give. He is further recorded as saying that he "can't afford $300 for cleaners let alone our bills".

Application to set aside statutory demand 12 On 12 September 2012, the plaintiff filed an application under s 459G of the Act seeking to have the statutory demand set aside. According to the terms of the application, the plaintiff sought an order pursuant to s 459J(a) (i.e. setting aside the demand if the Court is satisfied that, because of a defect in the demand, substantial injustice will be caused) or, alternatively, under s 459J(b) of the Act (i.e. setting aside the demand where there is "some other reason" why the demand should be set aside). 13 The application was said to be supported by an affidavit of Mr Ashrafi affirmed on 12 September 2012. In paragraph 2 of that affidavit, Mr Ashrafi claimed that there was a genuine dispute about the existence of the debt. He said that this was due to "the nature in which the contract was authorised and the amount of debt in contention". He said that he understood that no set up costs would be charged and that the plaintiff would only have to pay the defendant the relevant licence fees. He also added that he had issued instructions for the plaintiff to commence proceedings in the Federal Court seeking to recover damages, estimated to exceed $400,000, caused by the allegedly defective or inappropriate SAP software. In other words, he asserted that the plaintiff had an offsetting claim.

Amendment application 14 At the commencement of the hearing before me, the plaintiff sought to amend its application by seeking an order under s 459H of the Act (and not just s 459J as specified in the originating application). Section 459H(1) of the Act relevantly provides as follows: (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. An "offsetting claim" is defined in s 459H(5) as meaning: … a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates). 15 The amendment application was opposed by the defendant (the parties were content for the hearing to proceed and for the issue of leave to be determined as part of the reasons for judgment). 16 The defendant contends that, absent a patent error in the plaintiff's originating application, the Court lacks jurisdiction to permit an amendment which would have the effect of adding a reference to relief also being sought under s 459H of the Act. This is said to follow from the High Court's decision in David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265. Reliance is also placed upon Barrett J's decision in Process Machinery v ACN 057 260 590 [2002] NSWSC 45, where his Honour said at [16] and [22]: Furthermore, the applicant is confined to the grounds shown by the application and supporting affidavit filed and served within the 21 day period to which s 459G refers… The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss 459H and 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period. 17 Mr Brennan (who appeared on behalf of the defendant) also drew attention to the decision in this Court of Davies J in Kezarne Pty Ltd v Vital Security System Pty Ltd (1996) 20 ACSR 560, where his Honour granted leave to amend an application for an order to set aside a statutory demand in circumstances where there was a patent error on the face of the application. Mr Brennan contended that that situation was distinguishable from the position here, where there was no such patent error. 18 Mr O'Connor (who appeared on behalf of the plaintiff) described the defendant's opposition to the proposed amendment as a "pleading point". He submitted that, in the absence of any evidence of prejudice to the defendant if the proposed amendment was made, the Court should grant the amendment application having regard to orthodox principles set out in cases such as Dare v Pulham (1982) 148 CLR 658. 19 For the following reasons, I consider that this is an appropriate case to grant leave to amend the originating application so that an express reference is made to an order being sought under either or both ss 459H and 459J of the Act. First, I have had regard to the decision of Lockhart J in Topfelt Pty Limited v State Bank of New South Wales Limited (1993) 47 FCR 226. Lockhart J made the following observations at 242 in respect of an argument that an application to set aside a statutory demand cannot be amended to add a further ground for setting aside a statutory demand: I shall deal briefly with the argument of counsel for the respondent that it is not open to the applicant to obtain the declaration which it seeks in the amended application. Section 459G provides the procedure whereby a court may set aside a statutory demand. There must be an application to the Court for an order setting it aside; it must be made within 21 days after the demand is served and be accompanied by an appropriate affidavit which has been filed with the Court; and copies of the relevant documents must be served upon the debtor company. But I see nothing in the terms or spirit of s 459G which would lend support to the view that a party may not amend its application under s 459G to add further grounds. Nor is the argument strengthened by resort to O 71, r 36B of this Court's Rules. 20 I respectfully agree with those observations in the context of a case such as here, where the plaintiff is seeking leave to amend the originating application in a way which will bring it into conformity with the contents of the supporting affidavit. In my view, that approach is not inconsistent with the observations of Barrett J set out in paragraph 16 above (nor with the High Court's decision in Grant). It may be one thing to seek leave to amend an application to rely upon a fresh ground about which the defendant had no prior notice arising from the contents of the original application or supporting affidavit. It is quite another if a plaintiff seeks leave to amend an application to bring it into conformity with the contents of the supporting affidavit (see Tuta Healthcare v Nipro Asia [2005] NSWSC 664 at [13] per Campbell J). That is the position here in circumstances where, as noted above, the supporting affidavit put the defendant on prior notice that the plaintiff resisted its statutory demand on the grounds of both an asserted genuine dispute and an offsetting claim. The area of controversy is clearly delineated in the supporting affidavit, which encompasses both those grounds and provides sufficient material to support those grounds at this stage. The proposed amendment will simply bring the application into alignment with the supporting affidavit by including a specific reference to an order being sought under either or both ss 459H and 459J of the Act. 21 Secondly, and perhaps less significantly, the defendant acknowledges that it had that prior notice even earlier than when the supporting affidavit was served. In a letter dated 24 October 2012 written by the defendant's solicitors and sent to the plaintiff's solicitors, the defendant acknowledged that, prior to service of the originating application and supporting affidavit, it understood that the plaintiff was asserting those matters. It might also be noted that the defendant indicated in that letter that it was not claiming that it would suffer any prejudice if it had to meet an application for an order under s 459H of the Act, as well as under s 459J. 22 Accordingly, for those reasons I consider that the plaintiff should have leave to amend its application under s 459G of the Act so that orders are sought under either or both ss 459H and 459J of the Act.

Should the statutory demand be set aside? 23 It emerged during the course of the hearing that the plaintiff places primary reliance on having the statutory demand set aside on the basis of the existence of either a genuine dispute or an offsetting claim. Section 459J was not addressed at all in oral argument. Accordingly, I will focus on the two alternative grounds set out in s 459H. 24 The relevant principles relating to "genuine dispute" and "offsetting claim" are relatively well settled. They are substantially similar, however, it is convenient to consider each ground in turn.

(a) Genuine dispute 25 In determining whether there is a genuine dispute as to the existence of a debt the Court is not asked to make determinations on contested facts or issues, nor to make determinations as to the merits of the dispute. The Court is asked only to determine whether there is a dispute and, if so, whether it is a genuine dispute (Mibour Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295). 26 Various formulations have been advanced to describe what is entailed by the phrase "genuine dispute". For example, in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464, the Full Court found that the word "genuine" requires that the dispute be "bona fide and truly exist in fact"; and that the grounds for alleging the existence of a dispute are "real and not spurious, hypothetical, illusory or misconceived". 27 Some courts have preferred to approach the matter on a similar basis to that which arises in an application for an interlocutory injunction, namely whether there is a "serious question to be tried". This approach is reflected in the following well-known passage from McLelland CJ in Eq's decision in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787: In my opinion [the] expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. 28 In Spencer Constructions, the Full Court stated that the various formulations of the meaning of the statutory phrase can be helpful, provided that they do not become a substitute for the terms of the statute. A similar approach was recently adopted by Perram J at [7] in Viva Olives Pty Ltd v Origin Olives Australasia Pty Ltd [2012] FCA 545. I respectfully agree with those views. 29 There is competing authority as to the relevance of the solvency of a company asserting a genuine dispute. In Alcatel Australia Ltd v PRB Holdings Pty Ltd (1998) 27 ACSR 708, Santow J took the view that the statutory regime precludes the solvency or otherwise of a company being relevant in circumstances where the criterion for setting aside a demand is limited to an enquiry as to the existence of genuine dispute (or offsetting claim). In contrast, in Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 55 FCR 562 Lindgren J took the view that the solvency of a company may go to an assessment of whether or not the dispute is genuine. The rationale for this approach is that a company which is insolvent or near insolvency will go to greater lengths to find arguments to attempt to set aside a statutory demand (Reavill Farm Management Pty Ltd v Ashford Properties Pty Ltd [2010] NSWSC 1128 per Barrett J at [27]-[28]). I respectfully agree with Lindgren J's views on this issue, but consider that the question of the plaintiff's solvency in this case here does not attract much weight having regard to the limitations of the evidence on that subject, a matter to which I will return below.

(b) Offsetting claim 30 The definition of an offsetting claim in s 459H(5) of the Act imports a requirement of genuineness into s 459H(1)(b). Courts have approached the question of a "genuine offsetting claim" in largely similar terms to those described above in respect of "genuine dispute" (see, for example, Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 at 458 per Emmett J). The claim must be bona fide and not based on mere assertion (see John Shearer Limited v Gehl Company (1995) 60 FCR 136 at 143). In common with the position regarding the alleged existence of a genuine dispute, the threshold for establishing a genuine offsetting claim is relatively low (W & P Reedy Pty Limited v Macadams Baking Systems (Pty) Ltd [2007] NSWCA 146 at [5] per Beazley, Santow and Campbell JJA). 31 While the Court is not required to determine the outcome of any offsetting claim, it must be satisfied that the claim has some chance of success. As Thomas J found in the following well-known passage in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605: The essential task is relevantly simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it). 32 The threshold "serious question to be tried" has also been used in this context (see Beauty Health Group Ltd v Scholl [2011] NSWSC 77 at [23] per Barrett J; Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451 per Beazley J at 465) and Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd (1995) 17 ACSR 128 at 135-136 per Lindgren J). The onus is on the party asserting the offsetting claim to put before the Court sufficient evidence to establish the objective existence and foundation for the claim. 33 It is also necessary for the plaintiff to ascribe an amount to any offsetting claim such that the Court can determine the substantiated amount as required by s 459H(2). This can present difficulties in cases of claims for unliquidated damages. While it is clear that a claim for unliquidated damages can amount to an "offsetting claim" for the purposes of s 459H, the amount claimed must be genuine and made in good faith. In Macleay Nominees v Belle Property East [2001] NSWSC 743, Palmer J held at that it is not sufficient simply to have a genuine cause of action for unliquidated damages. The plaintiff must adduce some evidence of economic loss to show the basis upon which the loss is said to arise and how that loss is calculated (see [16]-[18] of Palmer J's reasons). 34 I respectfully agree with that approach, but would also add that an appropriate allowance may need to be made in a case, such as here, where the plaintiff's ability to adduce the material described by Palmer J is handicapped because of the defendant's conduct which is the subject of the asserted offsetting claim. I consider that such an approach is consistent with the following observations of Barrett J in Beauty Health Group at [23], where his Honour observed that s 459H(1)(b), when read in conjunction with the definition of "offsetting claim" in s 459H(5): … requires the court to consider whether the plaintiff has a "genuine" claim against the defendant in respect of the matter raised. It is also necessary to ascribe an "amount" to any "genuine" claim in order to determine, under s 459H(2), the "offsetting total" which plays a central part in determining whether the "substantiated amount" is less than the statutory minimum of $2,000. The court's task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried (Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith (Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious (Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37).

Consideration 35 Genuine dispute: The plaintiff contends that there is a genuine dispute about the existence or amount of the debt specified in the statutory demand in circumstances where there is said to be a complete failure of consideration because the SAP software did not do "what it was supposed to do or warranted to do". The plaintiff also relies upon the fact that the defendant does not contest that, on 20 July 2012, the Base Agreement was either terminated or purportedly terminated by the plaintiff nor that, thereafter, it no longer used the SAP software in its stores. I understood the plaintiff to rely upon these matters, at least in part, to support the proposition that four of the 10 invoices relied upon by the defendant in its statutory demand post-dated 20 July 2012, when the Base Agreement was said to have been terminated. At the very least, therefore, there appears to exist a dispute regarding that component of the alleged total debt attributable to those invoices. There is also a dispute as to whether the plaintiff owes the total amount specified in the statutory demand in circumstances where the plaintiff contends that there has been a total failure of consideration by the defendant in supplying the SAP software. 36 The defendant's position seems to be that the SAP software was never intended to address point of sale requirements on 1 July 2012. Its position is that further implementation was required to be undertaken under Phase 2. On one view, this raises a fundamental question as to the proper construction of the Base Agreement, but I do not consider that it is either necessary or appropriate at this stage to engage in that detailed exercise having regard to the relevant legal principles outlined above. In my view, that is further reinforced by the fact that a further question may arise as to whether the parties' agreement was varied in any event by the defendant's conduct, having regard to the fact that some of the invoices appear to relate to work undertaken by the defendant in respect of point of sale requirements. 37 For these reasons, I am satisfied that there is a dispute between the parties about the existence or amount of the debt set out in the defendant's statutory demand. Or to express the matter another way, I am satisfied on the basis of the evidence that there are important issues which require further investigation concerning the existence or amount of the alleged debt. 38 I also consider that the plaintiff has sufficiently established the genuineness of this aspect of its claim. As noted above, the defendant did not contest the plaintiff's assertion that the Base Agreement had either been terminated or, at least, purportedly terminated by it on 20 July 2012. Mr Brennan argued on behalf of the defendant that the plaintiff had not followed the agreed process set out in clause 2.4.1 of the Base Agreement covering situations where a customer is dissatisfied with the product. He also drew attention to other clauses in the Base Agreement dealing with such matters as the effect of any subsidiary agreements which are in force. In my view, however, while these matters may require detailed consideration and determination in due course, they do not provide a complete answer to the threshold issue which is raised by the plaintiff. 39 The defendant also argued that it was not open to the plaintiff to deny that the persons who signed the Statement of Work had ostensible authority to do so, pointing to the effect of ss 128 and 129 of the Act. That submission may have some force but, again, I do not consider that it is either appropriate or necessary at this stage to determine the issue one way or the other, noting that the determination of the question would involve detailed consideration of the relevant provisions and related caselaw. Moreover, even if the submission was accepted at this stage, it would not defeat the plaintiff's claims that there exist both a genuine dispute and an offsetting claim. 40 Finally on the issue of whether a genuine dispute exists, I do not consider that the defendant has adduced sufficient evidence to support its claim that the plaintiff is insolvent or near insolvency so as to impugn the genuineness of the alleged dispute. While the defendant's file note of the 14 August 2012 meeting (extracts of which are set out in [10] above) paints a less than positive picture of the plaintiff's financial circumstances, at least at that time, I do not consider that it supports a finding that the plaintiff is either insolvent or near insolvency. 41 Offsetting claim: For the following reasons, I am also satisfied that the plaintiff has sufficiently established that it has a genuine offsetting claim to the statutory demand. In my view, there is sufficient evidence at this early stage of the proceeding to further investigate the plaintiff's claims regarding the alleged deficiencies or unsuitability of the SAP software for the plaintiff's business. Quite apart from Mr Ashrafi's unchallenged evidence on those matters, the defendant's own file note of the meeting held on 14 August 2012 records Mr Ashrafi's claims that implementation of the SAP software had had a "large negative impact of the business", by reference to costs impacts, low morale and the destruction of business confidence. And, as noted above, Mr Garpendal also acknowledged that there were various problems with the software, some of which were known before the system went live, while others emerged later. 42 I also consider that the plaintiff has provided sufficient evidence to establish that installation of the SAP software has resulted in it sustaining economic loss. It is true that that loss is only broadly estimated as being in excess of $400,000. But that broad estimate far exceeds the total amount of the statutory demand. Moreover, as noted above, I consider that such a broad estimate is sufficient for present purposes in circumstances where the problems associated with the software have affected the plaintiff's accounting and business records including, in particular, in respect of its reduced sales figures during the three week period in July 2012 when it persisted with its use of the SAP software. I do not accept Mr Brennan's submission that there was no evidence to support the plaintiff's claim that it was unable properly to account for its losses in any greater detail. The defendant's own witness, Mr Garpendal, accepted that the issues experienced with the SAP software after the system went live "meant that there was no ability to access accurate sales figures". I cannot accept Mr Brennan's submission that the handmade records were an adequate or reliable substitute. 43 Mr Brennan also contended that the plaintiff's budget papers forecast a decline in sales for the month of July, which forecast decline must have been unrelated to any difficulties with the SAP software. But as Mr O'Connor submitted, while some decline was forecast, the decline which actually occurred was far greater. I agree that a fair inference can be drawn at this stage that the SAP system failures played a role in that downturn. 44 It was common ground that I need not determine the merits of the asserted counterclaim or cross-demand. In my view there is sufficient material to support the existence of a genuine counterclaim or cross-demand in circumstances where the SAP software did not meet the plaintiff's point of sale requirements in terms of such matters as printing receipts, checking on stock, checking on prices, processing and recording cash transactions etc. In my view, while not expressing a concluded view on the merits of the plaintiff's counterclaim or cross-demand, those merits require further investigation. The plaintiff's claims cannot be dismissed as artificial, spurious or baseless. 45 Accordingly, even if I am wrong to accept the existence of a genuine dispute, I am satisfied that the plaintiff has also established that it has an offsetting claim which is sufficient of itself to set aside the statutory demand under s 459H(1)(b) of the Act. 46 One final matter requires some consideration. It relates to the question whether any condition should be imposed on an order setting aside the statutory demand. As noted above, Mr Ashrafi said that he had issued instructions for the plaintiff to begin appropriate proceedings in the Federal Court in respect of the alleged failure of the SAP software. To date that has not occurred. Mr O'Connor submitted that the plaintiff's resources had been focused on dealing with the immediate danger presented by the statutory demand. My current view is that this is an appropriate case in which to impose a condition that the plaintiff institute and diligently prosecute its offsetting claim, as also occurred in BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd (2008) 68 ACSR 1. Such proceedings should be commenced within three weeks hereof. 47 The parties should have an opportunity to make brief written submissions (which should be filed and served by 5:00 pm on Friday, 16 November 2012), on my proposed orders, which are as follows: 1. On condition that the plaintiff give a written undertaking to the Court that it will, by no later than 7 December 2012, institute appropriate proceedings with respect to its offsetting claim and diligently prosecute those proceedings, the statutory demand dated 23 August 2012 by Computer Networks Pty Limited is set aside. 2. The defendant is to pay the plaintiff's costs of its application to have the statutory demand set aside as taxed or agreed. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.

Corporations Act 2001(Cth)ss 459G, 459H, 459J

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