Kep Management Services Pty Ltd v Goldwest Enterprises Pty Ltd - [2015] WASC 132

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: KEP MANAGEMENT SERVICES PTY LTD -v- GOLDWEST ENTERPRISES PTY LTD [2015] WASC 132

CORAM: ACTING MASTER GETHING

HEARD: 9 APRIL 2015

DELIVERED : 17 APRIL 2015

FILE NO/S: COR 272 of 2014

BETWEEN: KEP MANAGEMENT SERVICES PTY LTD t/as PHILLIPS ENGINEERING
Plaintiff
AND
GOLDWEST ENTERPRISES PTY LTD as Trustee for the CHUNG FAMILY TRUST
Defendant

Catchwords:

Statutory demand - Genuine dispute - Sufficiency of evidence as to quantum concerning offsetting claim - Statutory demand set aside - Whether just to impose conditions

Legislation:

Corporations Act 2001 (Cth), s 459H, s 459J, s 459M

Result:

Statutory demand set aside on conditions

Category: A

Representation:

Counsel:

Plaintiff: Mr G J Carter
Defendant: Mr B H Taylor

Solicitors:

Plaintiff: My Law Firm Pty Ltd
Defendant: Taylor Olivier Lawyers

Case(s) referred to in judgment(s):

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22
Asia Pacific Glass Pty Ltd v Sindea Trading Co Pty Ltd (No 2) [2003] NSWSC 845; (2003) 47 ASCR 737
Australia Meat Holdings Pty Ltd v Kazi [2004] QCA 147
Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191
BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410
Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85
David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265
Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91
Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249
Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454
Fitness First Australia Pty Ltd v Dubow [2011] NSWSC 531
Get'm Pty Ltd v Triulcio [2004] NSWSC 291
Greenaways (Australia) Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186
Hadley v Baxendale (1854) 9 Exch 341; (1954) 156 ER 145
Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125
Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 12 ACLC 490
Kellogg Brown & Root Pty Ltd v Doric Contractors Pty Ltd [2014] WASC 206
Kerslake Superannuation Pty Ltd v C & L Buildings Pty Ltd [2010] NSWSC 424
Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWSC 338
Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743
Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290
Natcraft Pty Ltd v WIN Television Pty Ltd [2001] QCA 245; [2003] 1 Qd R 196
No 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146
Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746
Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 3] [2014] WASCA 132
Re Infratel Networks Pty Ltd [2012] NSWSC 943; (2012) 91 ACSR 170
Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 25 ACLC 1392
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332
Smallwood v Ergo Asia Pty Ltd [2014] FWC 964
Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd [2006] NSWCA 334
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 83 ALJR 390
Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509
Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410

ACTING MASTER GETHING: KEP Management Services Pty Ltd carries on a steel fabrication, general engineering and labour hire business trading as 'Phillips Engineering'. In March 2014, and again in July 2014, Phillips Engineering entered into agreements with Goldwest Enterprises Pty Ltd (Goldwest) as trustee for the Chung Family Trust by which Goldwest agreed to provide workers to Phillips Engineering. The agreements were to provide workers for services to be provided by Phillips Engineering for BAE Systems Australia Defence (BAE) and Downer EDI Engineering Power Pty Ltd (Downer).
In November 2014 Phillips Engineering suspended the provision of Goldwest's services on the basis of concerns that some of the workers provided were individuals who were not entitled to work in Australia. It declined to pay Goldwest's outstanding invoices. Goldwest served a statutory demand dated 9 December 2014 on Phillips Engineering in the amount of $524,842.45 in respect of outstanding invoices under the two agreements (Statutory Demand). By application dated 30 December 2014 Phillips Engineering applied to the court pursuant to Corporations Act 2001 (Cth) (CA) s 459G for orders setting aside the Statutory Demand.
Phillips Engineering filed an affidavit sworn by its managing director, Eric James Phillips, dated 30 December 2014, in support of its application (Phillips Affidavit). Phillips Engineering asserts that to the extent that Goldwest provided workers who were not entitled to work in Australia, it is not entitled to enforce the agreements. It also asserts that the workers were not in fact employed by Goldwest, but by a third company Master Welders Australia Pty Ltd (MWA). It says that this means that Goldwest is not entitled to be paid for the services of these workers. Phillips Engineering also asserts an offsetting claim for unliquidated damages against Goldwest arising out of losses it suffered as a result of BAE and Downer ceasing to provide it with further work, a claim it says is in excess of $3 million.
In addition to the affidavit of Mr Phillips, Phillips Engineering relies on the following affidavits:
(a)Ivan Robert Gojak (Phillips Engineering's construction manager) sworn 6 February 2015;
(b)Mr Phillips, sworn 6 February 2015 (Phillips Second Affidavit);
(c)Mr Phillips, sworn 10 March 2015 (Phillips Third Affidavit); and
(d)Mr Gojak, sworn 10 March 2015 (Gojak Second Affidavit).
Phillips Engineering also sought to rely on affidavits sworn on 7 April 2015 by Mr Phillips and Mr Gojak. The material in these affidavits sought to strengthen the evidence that it had a genuine dispute with Goldwest. Goldwest objected to these affidavits being read on the basis that:
(a)the programming orders made by the court did not allow for the filing of the affidavits;
(b)no leave had otherwise been given to file the affidavits; and
(c)it had not had an opportunity to respond to the affidavits.
At the hearing of the application, I declined to grant Phillips Engineering leave to read the affidavits. In my view it is an undesirable practice in an application to set aside a statutory demand to allow parties to file their evidence on a piecemeal basis right up to the date of the hearing. There was nothing in the affidavits which could not have been included in the affidavits of Messrs Phillips and Gojak sworn 10 March 2015. I was satisfied that Phillips Engineering had been given sufficient other opportunities to file evidence to ensure the just resolution of the case.[1]
[1] Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 [98], [102] (Gummow, Hayne, Crennan, Kiefel & Bell JJ).
Goldwest filed three affidavits in opposition to the application:
(a)Chong Ki Chung (Goldwest's director), sworn 20 February 2015;
(b)Janelle Helen Collins (a solicitor employed by Goldwest's lawyers), sworn 20 March 2015;
(c)Ms Collins, sworn 31 March 2015 (Collins' Second Affidavit).
Goldwest conceded that there is not evidence before the court that all workers it provided to Phillips Engineering were entitled to work in Australia. It submitted that the fact that the workers may have been employed by MWA is not relevant. Further, any offsetting claim will sound only in minimal damages. It says that the reason that Phillips Engineering did not pay the invoices was due to cash flow difficulties, rather than a genuine dispute as to the debt owed.

What issues arise for determination?

Phillips Engineering does not assert that the Statutory Demand was invalid. The application by Phillips Engineering to set aside the Statutory Demand was made within 21 days of the date of its service as required by CA s 459G, and otherwise complies with the formal requirements of that section.
CA s 459H(1) grants the court jurisdiction to set aside or adjust a statutory demand in two circumstances:
Determination of application where there is a dispute or offsetting claim
(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.
The court may also set aside a statutory demand on two other grounds pursuant to CA s 459J:
Setting aside demand on other grounds
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
The onus is on Phillips Engineering as the recipient of the Statutory Demand, to establish a genuine dispute, offsetting claim, defect or other reason to set aside the Statutory Demand.[2]
[2] Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 [15] (Murphy JA, with whom Buss JA agreed); Kellogg Brown & Root Pty Ltd v Doric Contractors Pty Ltd [2014] WASC 206 [12] (Acting Master Gething).
On the submissions and affidavits before me, six issues arise for determination:
•Is there a genuine dispute about the existence or amount of the debt based on the provision by Goldwest of workers not entitled to work in Australia?
•Is there a genuine dispute about the existence or amount of the debt based on the workers being employed by MWA?
•Do the claims for losses arising out of the termination of the BAE and Downer contracts constitute a genuine offsetting claim?
•Is there 'some other reason' to set aside the Statutory Demand?
•Should Goldwest be restrained from relying on the Statutory Demand process on the ground that it is abusing this process?
•What final orders are appropriate?

Is there a genuine dispute about the existence or amount of the debt based on the provision by Goldwest of workers not entitled to work in Australia?

The principles which the court must apply in determining whether to set aside a statutory demand on the basis of a genuine dispute were conveniently summarised by Murphy JA, with whom Buss JA agreed, in Central City Pty Ltd v Montevento Holdings Pty Ltd:[3]
The expression 'genuine dispute', within the meaning of s 459H(1)(a) of the Act, connotes a plausible contention requiring investigation: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [44]. The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds: Createc v Design Signs [45]; Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 [35]. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie: Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 [30]. The court will not attempt to weigh or examine the merits of any dispute: Createc v Design Signs [46]; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] Vic Rp 61; [1994] 2 VR 290, 295.
Any claim by the company in dispute of the debt must be one which is 'genuinely believed [by the company] to exist': John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250, 253.
This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable in itself: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787; Createc v Design Signs [4]. Nor does it require the acceptance of a 'patently feeble legal argument' or 'matters of fact unsupported by evidence': Eyota v Hanave (787); Jarpab Pty Ltd v Winter t/as Boldon Haulage (1994) 14 ACSR 255, 261.
[3] Central City [9] ‑ [11]. See also Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd[No 3] [2014] WASCA 132 [69] (Reasons of the Court); Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 [52] (Pullin JA, with whom Newnes & Murphy JJA agreed).
The first agreement between Phillips Engineering and Goldwest is dated 14 March 2014 (AMC Agreement).[4] It provides for the provision of services 'for the AMC site'. In his affidavit, Mr Phillips states that the AMC Agreement was for the provision of labour for the purposes of a contract between Phillips Engineering and BAE concerning BAE's Australian Marine Complex (AMC) site located at Henderson in Western Australia.[5]
[4] Phillips Affidavit, EJP4 (24).
[5] Phillips Affidavit [10].
Phillips Engineering's contract with BAE is annexed to Mr Phillips' affidavit (BAE Agreement).[6] It is dated 16 June 2014 and is for the period 9 July 2014 to 9 July 2016. It relates to work being undertaken by BAE at its facilities at Henderson, that is, the AMC site. By cl 2.1(e), Phillips Engineering agreed to perform the services under the BAE Agreement 'in compliance with all laws including legislation and regulations'.
[6] Phillips Affidavit, EJP5 (25 ‑ 36).
The second agreement between Phillips Engineering and Goldwest is dated 19 July 2014 (Burrup Agreement).[7] It provides for the provision of services 'for the TAN Burrup Project'. In his affidavit, Mr Phillips states that the Burrup Agreement was for the purposes of a contract that Phillips Engineering had with Downer concerning the Burrup Fertiliser plant site in the Pilbara region of Western Australia.[8]
[7] Phillips Affidavit, EJP6 (37).
[8] Phillips Affidavit [13].
Phillips Engineering's contract with Downer is also annexed to Mr Phillips Affidavit (Downer Agreement).[9] It provides for the provision of qualified welders and pipefitters for the period 16 July 2014 to 17 October 2014. By cl 5.1(b), Phillips Engineering warranted that its services would 'comply with all Legal Requirements'. The term 'Legal Requirements' is defined to mean 'any Australian statute, ordinance, regulation, or by‑law' (cl 1.1).
[9] Phillips Affidavit, EJP7 (38).
The invoices the subject of the Statutory Demand also include an amount of $5,929 for work done by workers provided by Goldwest at Phillips Engineering's premises at Henderson. These services were provided pursuant to a verbal agreement in August 2014 (Verbal Agreement).[10]
[10] Chung Affidavit [49] ‑ [52].
It is common ground that:
(a)of the ten workers provided by Goldwest pursuant to the AMC Agreement for which there are outstanding invoices, it is not in dispute that four were entitled to work in Australia;
(b)only one worker was provided by Goldwest pursuant to the Burrup Agreement for which there is an outstanding invoice, and there is a dispute as to whether he was entitled to work in Australia; and
(c)of the three workers provided pursuant to the Verbal Agreement for which there are outstanding invoices, it is not in dispute that one of those workers was entitled to work in Australia.
On the evidence before me, there is a real prospect that more of the workers provided by Goldwest will be found to be entitled to work in Australia.[11]
[11] See for example: Second Collins Affidavit [4] ‑ [7].
Phillips Engineering asserts that the AMC Agreement, the Burrup Agreement and the Verbal Agreement, although lawful according to their terms, were performed by Goldwest in manner prohibited by statute, namely the Migration Act 1958 (Cth) (MA).[12] A person who works in Australia when they are not entitled to do so, for example by being in breach of the conditions on their visa, will contravene the MA.[13] The contravention will render an employment contract for such a person either illegal or at least unenforceable.[14] Counsel for Goldwest conceded that where there is no evidence that a particular worker whose services form part of the invoices claimed was entitled to work in Australia at the relevant time, there is a genuine dispute as to whether Goldwest is entitled to be paid for those services. That concession was appropriate.
[12] Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410, 413 [3] (Gibbs ACJ).
[13] Relevantly for present purposes: MA s 235, s 253.
[14] Australia Meat Holdings Pty Ltd v Kazi [2004] QCA 147 [23] ‑ [25] (Davies JA, with whom Williams JA agreed); Smallwood v Ergo Asia Pty Ltd [2014] FWC 964 [76].
Phillips Engineering advanced what is in essence the same argument as a second ground, namely that the AMC Agreement and the Burrup Agreement were wholly or partly unenforceable as a matter of public policy because Goldwest intended to commit a legal wrong and/or knew that the agreements would be performed illegally, namely by the provision of workers who were not entitled to work in Australia. On the evidence before me I do not consider that there is a genuine dispute on this ground entitling Phillips Engineering to refuse to pay the amounts claimed. Mr Chung seems to have gone to considerable effort to supply information to Phillips Engineering to verify the entitlement of the workers provided to work in Australia. There is no plausible contention requiring investigation in relation to this assertion.
It is common ground that of the $524,842.45 claimed in the Statutory Demand, $190,381.40 relates to work done by workers for whom there is no dispute about their entitlement to work in Australia. I am satisfied that there is a genuine dispute as to the remainder of the amount claimed, being $334,461.05, on the basis of illegality. The Statutory Demand ought to be varied to be reduced to $190,381.40.[15]

Is there a genuine dispute about the existence or amount of the debt based on the workers being employed by MWA?

[15] CA s 459H(4) ‑ (5).

Phillips Engineering asserts that because the workers were not in fact provided by Goldwest, but were in fact provided by MWA, with whom Goldwest had no lawful agreement, Goldwest is not entitled to be paid any of its invoices.
Goldwest asserts that:
(a)neither the AMC Agreement nor the Burrup Agreement required Goldwest to disclose to Phillips Engineering the source of its workforce;
(b)the obligation of Goldwest under the agreements was simply to provide workers to Phillips Engineering; and
(c)the arrangements made between Goldwest and MWA are of no relevance whatsoever to the agreements Goldwest and Phillips Engineering.
The AMC Agreement and the Burrup Agreement are short simple documents. They do not require Goldwest to source workers in any particular way. Nor do they prohibit Goldwest from sourcing workers in a particular way.
Mr Chung's evidence is that 'Goldwest contracted with Master Welders Australia Pty Ltd … to provide Goldwest welders from time to time'.[16] Counsel for Phillips Engineering was critical of the baldness of this assertion. Nonetheless, it is still evidence that there was a contract between Goldwest and MWA. Phillips Engineering was not able to point to any evidence to the effect that there was no contract between Goldwest and MWA. I am not satisfied that there is a 'plausible contention requiring investigation' that there was no contract between Goldwest and MWA.[17] Nor I am persuaded that this is relevant. The evidence before me is to the effect that it was Goldwest who provided the workers to Phillips Engineering pursuant to the AMC Agreement and the Burrup Agreement, and therefore that it is Goldwest who is entitled to be paid for doing so. Phillips Engineering has not satisfied me that there is a genuine dispute as to whether it should pay Goldwest because of the contractual arrangements between Goldwest and the workers in question, and any intermediaries they may have used.

Do the claims for losses arising out of the termination of the BAE and Downer contracts constitute a genuine offsetting claim?

[16] Chung Affidavit [17].

[17] Central City [9]; Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [44] (Martin CJ, Owen & Miller JJA agreeing).

The court may set aside or vary a statutory demand if it is satisfied that the recipient company has an 'offsetting claim'.[18] An 'offsetting claim' means '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)'.[19] Like a 'genuine dispute', a 'genuine claim' connotes a 'plausible contention requiring investigation'.[20] There must be a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds.[21]
[18] CA s 459H(1)(b).
[19] CA s 459H(5).
[20] Pravenkav [69]; Central City [9].
[21]Diploma Construction [52]; Central City [9].
The basis of the offsetting claim asserted by Phillips Engineering is that Goldwest breached an implied term in the AMC Agreement and the Burrup Agreement that any worker it provided had to be lawfully entitled to work in Australia. A term may be implied into a contract in order to give business efficacy to the contract where five conditions are satisfied:[22]
(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
[22] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283 (Lord Simon of Glaisdale, Viscount Dilhorne, Lord Keith of Kinkel); Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 347 (Mason J); Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410, 422 (Brennan CJ Dawson & Toohey JJ), 441 (McHugh & Gummow JJ).
I am satisfied that there is a plausible contention requiring investigation that the term asserted by Phillips Engineering was implied into both the AMC Agreement and the Burrup Agreement. It is clearly necessary to give business efficacy to the agreements for the workers provided to be lawfully entitled to work in Australia. The term is reasonable and equitable, obvious, capable of clear expression and does not contradict any express term of the two agreements.
I am likewise satisfied that there is a plausible contention requiring investigation that the implied term was breached. On the evidence before me not all of the workers provided by Goldwest can be shown to be entitled to work in Australia. I am therefore satisfied that there is a genuine dispute based on a breach of the implied term.
Phillips Engineering has been paid by BAE and Downer for all the work the subject of the invoices set out in the Statutory Demand.[23] The loss claimed is the loss of profits from work which BAE and Downer would have provided Phillips Engineering were it not for the loss of confidence arising out of the provision of illegal workers by Goldwest.
[23] Second Collins Affidavit [5] ‑ [10].
The submissions of Goldwest were primarily directed to the quantum of damages. I am required to calculate the 'substantiated amount' of the demand, based on the formula: admitted total less offsetting total.[24] Given my findings at [24], the 'admitted total' is $190,381.40, being the $524,842.45 claimed in the Statutory Demand less $334,461.05 being the amounts paid in relation to workers over which there is a dispute as to whether the worker was entitled to work in Australia. The relevant issue for determination is whether there is an offsetting claim in excess of $188,381.40 (being the admitted total less the statutory minimum of $2,000). If this is the case, I must order that the Statutory Demand be set aside.[25]
[24] CA s 459H(2).
[25] CA s 459H(3).
Mr Phillips states that as a result of Goldwest's suspected provision of illegal workers, Downer and BAE lost confidence in the ability of Phillips Engineering to provide legal workers under their respective agreements. He says that on or about 19 November 2014 Downer decided to complete all work Phillips Engineering would have otherwise performed under the Downer Agreement including work to have been done by welders, painters, boilermakers and pipefitters provided by Phillips Engineering.[26] This position is supported by Mr Gojak.[27] Mr Gojak states that Phillips Engineering had offered to provide its direct employees, but that offer was not taken up.[28] Based on the remaining scope of works, Mr Phillips estimates Downer would have required Phillips Engineering to perform three to four months further work under the agreement. He estimates that Phillips Engineering lost approximately $1,176,000 in profit as a result of not performing that work. This is based on 30 workers multiplied by 70 hours per week multiplied by an hourly profit of $35/hour plus GST, multiplied by 16 weeks.[29] Mr Gojak's analysis of the lost profits is of the same order of magnitude.[30]
[26] Phillips Affidavit [38].
[27] Gojak Affidavit [14].
[28] Gojak Affidavit [16] ‑ [22].
[29] Phillips Affidavit [37] ‑ [39].
[30] Gojak Affidavit [22].
Mr Phillips also states that on or about 7 December 2014 BAE stood Phillips Engineering down from further performance on the BAE Agreement because it could not be confident that Phillips Engineering was not providing illegal workers.[31] This position is again supported by Mr Gojak's evidence. Mr Gojak also states that he offered to provide direct employees of Phillips Engineering, an offer which was initially accepted, but later not taken up due to the loss of confidence in Phillips Engineering.[32] At that time, Phillips Engineering was earning approximately $70,000 per month in gross profit from revenues of $220,000 per month. He stated that as the term of that agreement expired on 9 July 2016, he estimated that Phillips Engineering lost approximately 19 months of profit equalling approximately $1,330,000.[33] Mr Gojak's estimate of lost profits is higher, totalling $2.3 million.[34]
[31] Phillips Affidavit [38].
[32] Gojak Affidavit [23] ‑ [30].
[33] Phillips Affidavit [37] ‑ [40].
[34] Gojak Affidavit [30].
Counsel for Goldwest pointed out that under the Downer Agreement, Phillips Engineering agreed to provide welders and pipefitters 'as and when required' in response to the issue of a purchase order.[35] Further, cl 3.4 of the Downer Agreement expressly provided that Downer gave no guarantee, representation of warranty of the volume of services that would be provided under the agreement.[36] Goldwest also asserts that:
(a)for many months before Phillips Engineering alleges it ceased work under the Downer Agreement, it only provided one worker;
(b)the term of the Downer Agreement is stated to be from 16 July 2014 to 17 October 2014, with a further month if required, being up to 17 November 2014;
(c)the one worker working under the Downer Agreement only ceased work on 4 November 2014; and
(d)Phillips Engineering has not put on any evidence that it had ongoing work to perform for Downer under any purchase order.
[35] Clause 3.1 and sch 1, Phillips Affidavit (44), (60).
[36] Phillips Affidavit (45).
In those circumstances, Goldwest submits that there is no basis for the assertion by Phillips Engineering that Downer would have required it to provide 30 welders for a further three to four month period.
In relation to BAE, counsel for Goldwest again pointed out that the BAE agreement does not require BAE to provide a set amount of work to Phillips Engineering. Rather, the services of Phillips Engineering are to be provided in response to a purchase order issued by BAE.[37] Mr Chung's evidence is that the works carried out by BAE on the AMC site were completed by mid‑December 2014, a fact not contradicted in the subsequent affidavits of Mr Phillips and Mr Gojak.[38] He also reports a conversation with a BAE representative to the effect that BAE did not lose confidence in Phillips Engineering due to any perceived wrongdoing on the part of Goldwest.[39] Goldwest asserts that BAE continued to use the services of Phillips Engineering after Mr Gojak purportedly told BAE that Phillips Engineering could not be confident that the workers it was providing to BAE were entitled to work in Australia.[40]
[37] Phillips Affidavit (34).
[38] Chung Affidavit [96].
[39] Chung Affidavit [96].
[40] Chung Affidavit [97]; Gojak Affidavit [23] ‑ [27].
The claim asserted by Phillips Engineering must be one capable of being quantified in monetary terms before it can qualify as a genuine offsetting claim.[41] The affidavit evidence must contain an estimate of the amount of the offsetting claim in monetary terms.[42] Precise quantification is not necessary.[43]
[41] Diploma Construction [90]; No 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146 [27] (Barrett J).
[42] Pravenkav [81]; Diploma Construction [90].
[43] Pravenkav [81]; Kerslake Superannuation Pty Ltd v C & L Buildings Pty Ltd [2010] NSWSC 424 [10] (Barrett J); Re Infratel Networks Pty Ltd [2012] NSWSC 943; (2012) 91 ACSR 170, 179 [32] (Black J).
The inquiry to be made by the court where the offsetting claim is a claim for unliquidated damages is described by Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd in the following terms:[44]
A claim for the purposes of CA s.459H(1) and (2) can encompass both a claim for a liquidated sum, such as a contract debt, and a claim for unliquidated damages. Where the case involves a claim for a liquidated sum, the application of CA s.459H(2) is relatively easy. The Court simply determines whether the cause of action is a genuine one, and if that proves to be the case the amount of the offsetting claim is the amount of the liquidated sum the subject of that claim. The position is by no means as easy where the claim is a claim for unliquidated damages and the damages are said to be economic loss suffered by the plaintiff.
In my view, a 'claim' for the purposes of CA s.459H(1) and (2) means not just a cause of action, so that once a genuine cause of action for unliquidated damages is shown by a plaintiff, the Court is compelled to accept at face value the damages claimed by the plaintiff as the amount of the offsetting claim for the purpose of the calculation required by s.459H(2) … .
In my opinion, a genuine offsetting claim for the purposes of CA s.459H(1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s.459H(1) and (2).
[44] Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 [17] ‑ [18] (Palmer J). See also: Assaf F, Statutory Demands and Winding Up in Insolvency (2nd ed, LexisNexis) [6.6].
The requirement that the claim be made in good faith in the manner described by Palmer J is in substance the same as the requirement identified in recent decisions of the Western Australian Court of Appeal that there must be a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds.[45] I will adopt the latter formulation. However, the key point made by Palmer J is that it is the 'claim' (being the cause of action together with the estimate of unliquidated damages) which must be genuine. It is not for the court to attempt to work out the maximum likely amount to be recovered.[46]
[45] Diploma Construction [52]; Central City [9].
[46] Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2)(1994) 12 ACLC 490, 493 (Young J).
The general principle governing the measure of damages is that the innocent party suing for breach of contract is to be placed in the same position, so far as money can do it, as if the contract had been performed.[47] The corollary of this is that an innocent party is not entitled, by the award of damages upon breach, to be placed in a superior position to that which it would have been in had the contract been performed.[48] The assessment of these damages will ordinarily involve 'a comparison between the position in which the innocent party would have been if the breach of contract had not occurred and what, relevantly, represents the position in which the innocent party is in after the occurrence of the breach'.[49] Those damages may include damages for the loss of an opportunity to make a profit, provided that the loss can be causally linked to the breach of contract.[50] The damages will be assessed by reference to the probabilities or possibilities of what would have happened.[51]
[47] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 83 ALJR 390 [13] (French CJ, Gummow, Heydon, Crennan & Kiefel JJ); Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 80 (Mason & Dawson JJ); Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191 [276] (Buss JA).
[48] Amann Aviation (82).
[49] Australian Goldfields [276], referring to Amann Aviation (116).
[50] Amman Aviation (92) (Mason CJ & Dawson J), (102 ‑ 104) (Brennan J), (118 ‑ 119) (Deane J); Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, 349 (Mason CJ, Dawson, Toohey & Gaudron JJ).
[51]Amman Aviation (118 ‑ 119); Sellars (349).
As Mason CJ and Dawson J observe in Amann Aviation, the onus of proving damages lies on the innocent party, and must be objectively determined:[52]
The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation.
[52]Amman Aviation (80).
The general principle is subject to the rules as to remoteness of damage and the innocent party's duty to mitigate its loss.[53] The question of remoteness is governed by the rules in Hadley v Baxendale.[54] In the words of Mason CJ and Dawson J in Amann Aviation:[55]
According to Alderson B's renowned formulation, the plaintiff is entitled to recover such damages as arise naturally, that is, according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach. It is now accepted that this is the statement of a single principle and that its application may depend on the degree of relevant knowledge possessed by the defendant in the particular case.
[53] Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125, 143 (Mason CJ & Wilson J).
[54] Hadley v Baxendale (1854) 9 Exch 341, 354; (1954) 156 ER 145, 151 (Alderson B).
[55] Amman Aviation (91 ‑ 92) (footnotes omitted).
Goldwest submits that the loss claimed is too remote, being outside the loss reasonably in the contemplation of both parties at the time they made the contract.[56] There is a conflict in the evidence as to whether Goldwest was provided with copies of the contracts with BAE and Downer. Mr Gojak says yes.[57] Mr Chung says no.[58] However, nothing turns on this as it is clear from the terms of the AMC Agreement that workers were being provided for the AMC site, and from the Burrup Agreement that workers were being provided for the TAN Burrup project, in each case for a head contractor.
[56] Counsel cited the decision in Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd [2006] NSWCA 334 as an example of a contractor not being able to establish a claim for the loss of profits on subsequent contracts not awarded by a head contractor as a result of a breach of one sub‑contract.
[57] Gojak Affidavit [6] ‑ [10].
[58] Chung Affidavit [11], [16].
Phillips Engineering claims loss of profits from ongoing work from BAE (for the remaining 19 months of the contract) and Downer (for a three to four month period). On the evidence before me, I am satisfied that there is a plausible contention requiring further investigation that it was likely that Phillips Engineering would have obtained some further work from BAE and/or Downer. It would be entitled to some damages; the issue is whether the estimate of Phillips Engineering is a 'genuine claim'.
Goldwest submitted that Phillips Engineering is not entitled to be placed in a better position as a result of the award of any damages. Counsel referred to the following passage from Cheshire & Fifoot, Law of Contract:[59]
The corollary of the principle that the plaintiff is to be put into the position that would have resulted from performance is that the plaintiff is not entitled to be placed in a better position. This means that if the plaintiff would have made a loss had the contract been performed, no damages are awarded for its breach: ... It also means that any benefits received by the plaintiff as a result of making the contract, notwithstanding its breach, must be brought into account in determining whether the actual position resulting from the breach is less valuable than the hypothetical position that would have resulted from performance.
[59] Seddon N, Bigwood R & Ellinghaus M, Cheshire & Fifoot Law of Contract (10th Australian ed, LexisNexis) [23.6], page 1127.
The benefit identified by Goldwest is the profit received by Phillips Engineering under the BAE Agreement and the Downer Agreement prior to the issue of illegal workers arising. Whilst the principle set out in the preceding paragraph is beyond doubt, I do not accept the application proposed by Goldwest. For present purposes, it is sufficient for me to state that I am satisfied that it is clearly arguable that Phillips Engineering is entitled to keep any profit made from the contracts with BAE and Downer prior to the suspension of its services for the reasons alleged; on its case, had there been no breach by Goldwest resulting BAE and Downer suspending requests for further work, it would have been able to both keep the profits made prior to Goldwest's breach and make new profits.
As I have noted, I need to assess whether or not the offsetting claim asserted by Phillips Engineering is genuine based on the face value of the claim. The estimate of unliquidated damages put forward by Phillips Engineering is over $1 million for Downer and over $2 million for BAE. I am only satisfied by a thin margin that the offsetting claim, in this amount, is genuine. There is no evidence that BAE or Downer was in fact going to provide further work for Phillips Engineering, only the inference from the fact that work was provided in the past. The Downer Agreement, on its terms, was concluded by November 2014. The stronger claim is that under the BAE Agreement as by its terms that contract runs until 9 July 2016. Phillips Engineering has simply calculated its net profit on a very positive set of assumptions, possibilities rather than probabilities. On the limited evidence before me, at some point along a continuum it is likely that issues of remoteness and the obligation to mitigate[60] would limit any damages awarded to a figure substantially less than that claimed. On the other hand, I accept that an action for damages will often include an 'ambit claim', that is, a sum which is in excess of that the claimant realistically expects to recover.[61] On balance, although the amount claimed is speculative, as a matter of principle it is plausible.
[60] For example by Phillips Engineering seeking alternative work or taking steps to restore its relationship with BAE and Downer, perhaps by implementing a quality control procedure to verify the entitlement of workers provided to work in Australia.
[61] Jesseron (493); Macleay [17].

On its face value, the offsetting claim asserted by Phillips is in excess of $188,381.40 (being the admitted total less the statutory minimum of $2,000). Accordingly, the Statutory Demand should be set aside.[62]
[62] CA s 459H(3).

Is there 'some other reason' to set aside the Statutory Demand?

The court may set aside the Statutory Demand if 'there is some other reason why' this should occur pursuant to CA s 459J(1)(b). The reference in s 459J(1)(b) to 'some other reason' is a reference to a reason not otherwise indicated by the CA (for example in CA s 459H) as a ground to set aside a demand.[63] It creates a remedial jurisdiction.[64] It will be 'rarely employed, but when employed, it will be for the purpose of meeting the demand of justice'.[65] It contemplates 'a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice'.[66] The discretion in CA s 459J(1)(b), unlike that in s 459J(1)(a), may be exercised in favour of the recipient of the demand even without showing that substantial injustice would otherwise be caused.[67] However, the discretion in s 459J(1)(b) is limited to issues linked to the policy behind CA pt 5.4.[68] The 'essence' of the legislative intent of CA pt 5.4 'is to be found in the proposition that a winding-up application is not to be used for the improper purpose of compelling a solvent company to pay a disputed debt'.[69] It 'is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so'.[70]
[63] Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWSC 338 [98] (Stevenson J); Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 25 ACLC 1392 [27] (Barrett J); Kellogg [40].
[64] Saferack [28]; Kellogg [40].
[65] Diploma Construction [83]; Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249 [11] ‑ [12] (Reasons of the Court); Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454, 458 ‑ 459 (Emmett J); Kellogg [40].
[66] Saferack [28]; Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22 [27] (Crispin P, Gray & Marshall JJ); Kellogg [40].
[67] Eumina (459); Kellogg [40].
[68] Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746, 757 (Bryson J); Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 [59] (Young CJ in Eq); Fitness First Australia Pty Ltd v Dubow [2011] NSWSC 531 [162] (Ward J); Kellogg [40].
[69] Meehan [47] (Santow J, with whom Tobias J agreed and Young CJ in Eq generally agreed); Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, 294 ‑ 295 (Hayne J); Kellogg [40].
[70] Meehan [60] (Young CJ in Eq).
Phillips Engineering provides three bases for its assertion that there is 'some other reason' why the Statutory Demand should be set aside:
(a)Goldwest had clear notice prior to issuing the Statutory Demand that the alleged debts were disputed on the ground of the lawful entitlement of the workers to work;
(b)there is an inference which arises from the affidavit material filed by Goldwest (or lack thereof) that to its knowledge a substantial number of the workers it provided did not have any lawful entitlement to work in Australia for either Goldwest or MWA; and
(c)the invoices the subject of the Statutory Demand were 'grossly inflated by inclusion of matters which from the outset should have been obvious to [Goldwest] were in genuine dispute between the parties at the time the demand was served'.[71]
[71] Phillips Engineering, submissions filed 7 April 2015 [84].
The third point is a restatement of the 'genuine dispute' argument, which I have accepted. It is not 'some other ground'.
It is clear from Mr Chung's affidavit that by email dated 20 November 2014, Goldwest emailed to Phillips Engineering a substantial amount of information seeking to address the concerns raised by the latter about illegal workers.[72] This was prior to the issue of the Statutory Demand. The position of Phillips Engineering would have been stronger had it paid, or clearly agreed to pay, Goldwest for the workers clearly entitled to work in Australia; however, it did not do so.
[72] Chung Affidavit [86].
There is also clear evidence before me of Phillips Engineering having cash flow difficulties throughout the last quarter of 2014.[73] From the perspective of Goldwest, it was not a demonstrably solvent company in the sense of one routinely able to pay all its debts as and when they fell due.
[73]Chung Affidavit [46] ‑ [47].
I am not satisfied that the grounds advanced by Phillips Engineering constitute 'some other reason' to set aside the Statutory Demand.

Should Goldwest be restrained from relying on the Statutory Demand process on the ground that it is abusing this process?

The court retains the residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of abuse of process.[74] In Createc Pty Ltd v Design Signs Pty Ltd, the Chief Justice opined that 'there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt'.[75]
[74] David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265, 279 (Gummow J, with whom Brennan CJ, Dawson, Gaudron & McHugh JJ agreed); Createc [49].
[75] Createc [50], referring to Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 and David Grant (279).
Phillips Engineering raises the same three points under this head as it did for its argument that there is 'some other reason' to set aside the Statutory Demand. For the reasons set out at [53] ‑ [56], I am not satisfied that Goldwest should be restrained from relying on the Statutory Demand on the ground that it is abusing this process.

What final orders are appropriate?

For the reasons set out above at [24] and [51], the Statutory Demand should be set aside. The remaining issue is whether this order should be made subject to conditions. The power to make an order under CA s 459H or CA s 459J subject to conditions is contained in CA s 459M. Whether or not conditions should be imposed pursuant to s 459M is 'a case‑by‑case consideration based upon the particular facts of the case'.[76] The court may frame such conditions as it considers just in all the circumstances.[77] The court is not precluded from imposing conditions pursuant to CA s 459M by a finding that the substantiated amount of the Statutory Demand is less than the statutory minimum under CA s 459G.[78] 'The concept underlying a conditional order is that the court, by the condition, specifies what the successful party must do in order to have the benefit of the order; and it is then for that party to decide whether he or she will take the specified steps and secure that benefit or not take them and thereby forego it'.[79]
[76] Get'm Pty Ltd v Triulcio [2004] NSWSC 291 [30] (Palmer J).
[77] Macleay [30].
[78] Natcraft Pty Ltd v WIN Television Pty Ltd [2001] QCA 245; [2003] 1 Qd R 196 [2] (Williams JA), [5] ‑ [16] (Muir J, with whom Atkinson J agreed).
[79] Asia Pacific Glass Pty Ltd v Sindea Trading Co Pty Ltd (No 2) [2003] NSWSC 845; (2003) 47 ASCR 737[13] (Barrett J).
In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd Palmer J observed that where there is an offsetting claim, 'one of the circumstances which the court can take into account in imposing conditions pursuant to s 459M is the strength or weakness of the plaintiff's offsetting claim and the likelihood of the plaintiff being ultimately successful in proving the whole of the amount to which it is entitled as a result of that claim'.[80] His Honour went on to observe that:[81]
That discretion must be exercised, of course, in light of the fact that the evidence in support of the plaintiff's offsetting claim is at this stage of the proceedings likely to fall far short of that which would ultimately be available on a final hearing. Nevertheless, the Court should be in a position to form some view of the strength of the plaintiff's claim if the plaintiff has adduced sufficient evidence to demonstrate that it does have a genuine claim. In this case, I do appreciate that the evidence filed on behalf of the plaintiff in support of its claim is at an early stage.
[80] Macleay [31]; see also: BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982 [21] (Brereton J).
[81] Macleay [32] ‑ [33].
The conditions imposed may include a condition for payment into court of some or all of the debt in question[82] and/or a condition requiring the company receiving the statutory demand to commence proceedings in relation to an offsetting claim.[83] A condition requiring the recipient company to 'take defined steps to make good the claim … may be appropriate where the court sees a need for greater precision to be given to the offsetting claim and for the [company] to show a commitment to pursuing it'.[84]
[82] For example: Natcraft; Macleay [39].
[83] For example: BBB Constructions [26]; Asia Pacific Glass [1]; Macleay [40].
[84] Greenaways (Australia) Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186 [23] (Barrett J).
There is, however, no general proposition that orders for payment into court should readily be made as a condition of setting aside statutory demands.[85] As explained by Palmer J in Get'm Pty Ltd v Triulcio:[86]
If this became the practice, then this Court, in the process of exercising its jurisdiction under the Corporations Act would, in effect, become a small claims court because creditors would routinely serve statutory demands intending to seek an order that, even if the demand is set aside because of the existence of a genuine dispute, the debtor nevertheless pay into Court a substantial amount. If such applications were routinely entertained, this Court would frequently have to embark on the question of “degree of genuineness” of disputes and would be compelled to investigate the merits of the dispute to a depth which it refuses to do, as the law presently stands.
[85] Get'm [30].
[86] Get'm [30]; BBB Constructions [24].
The decision in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd is an instructive and relevant example of a case in which a statutory demand was set aside on conditions. The debt the subject of the statutory demand was in the amount of $121,618.64 which arose out of advertising fees, expenses and sales commissions earned by the defendant from the sale of a number of units in the plaintiff's development in a building at Potts Point. The only basis on which the plaintiff sought to set aside the statutory demand was an offsetting claim that the defendant had provided negligent advice relating to the development design of the plaintiff's project at Potts Point. It was asserted that the defendant negligently advised the plaintiff to develop three bedroom luxury units in the building. These turned out to be difficult to sell as they could not be sold with a guaranteed car bay. His Honour determined that 'despite the fact that the evidence supporting the plaintiff's causes of action is open to criticism on many fronts, it is not possible for me to say at this stage that the plaintiff's claim founded on negligent advice is bound to fail and that the complaint made by the plaintiff is not genuine within the meaning, of and for the purposes of, CA s 459H'.[87]
In Macleay, as in the present case, the real difficulty lay in determining the amount of the plaintiff's claim. With some hesitation, his Honour was persuaded that the plaintiff had adduced 'sufficient evidence to enable the court to identify the basis upon which it claims economic loss and the means by which it calculates at least the sum of $182,000 odd in respect of that economic loss'.[88] His Honour was satisfied that for the purposes of CA s 459H the plaintiff had established a genuine offsetting claim in an amount which exceeded the amount of the defendant's debt as claimed in its statutory demand, and set aside the statutory demand. However, his Honour was of the view that conditions ought to be imposed. Specifically, the statutory demand was to be set aside on the condition that the plaintiff gave two undertakings to the court:[89]
The first undertaking will be to the effect that the plaintiff is to file and serve within 28 days of today a Statement of Claim in the appropriate Court commencing proceedings against the defendant for all causes of action presently known to it arising out of the subject matter of the defendant's statutory demand and the matters referred to by the plaintiff in its affidavits, and that it further undertakes to prosecute those proceedings with diligence.
The second undertaking will be that the plaintiff either pay into the Court which is to hear the proceedings to be commenced a sum of $100,000 to abide the decision of that Court, or else provide by some other satisfactory means security for that payment. I have in mind that a bond or bank guarantee could well be sufficient for that purpose. I have selected the sum of $100,000 as appropriate for payment or security because I am of the view, as the evidence presently stands, that even if the plaintiff succeeds on some aspect of its claim against the defendant, that claim is not likely to exceed some $20,000. I do not by any means intend to express the view that the plaintiff's claim for an amount in excess of $20,000 is not arguable, but for the purposes of exercising the discretion under s.459M I [have formed] a view as to what is the likely value of the plaintiff's claim.
[88] Macleay [27].
[89] Macleay [37] ‑ [38].
I am of the view that conditions along the same lines are just in all the circumstances of the present application. This is for the following reasons:
(a)as I have observed, I am only satisfied by a thin margin that the offsetting claim, in the amount particularised, is genuine;
(b)just over $190,000 of the subject of the Statutory Demand is not in dispute save for the offsetting claim;
(c)on the evidence before me, there is a real prospect that more of the workers provided by Goldwest will be found to be entitled to work in Australia, increasing the prima facie liability of Phillips Engineering to Goldwest;
(d)Phillips Engineering has already been paid by BAE and Downer for the work undertaken using the labour provided by Goldwest the subject of the invoices in the Statutory Demand;
(e)the payment received by Phillips Engineering includes a significant amount of profit;
(f)during the third quarter of 2014 Phillips Engineering was experiencing significant cash flow difficulties;
(g)the recent affidavits filed on behalf of Phillips Engineering do not counter the evidence in (f), so I infer that those difficulties continue; and
(h)on the basis of (d) to (g), it would be unjust for Phillips Engineering to be able to defer payment of the undisputed amounts to Goldwest on the basis of a speculative offsetting claim which is not made out, and then have no funds with which to pay Goldwest at the end of the litigation.
Accordingly, I am of the preliminary view that the Statutory Demand should only be set aside on condition that Phillips Engineering:
(a)within 28 days of the date of the order, commence in a court of competent jurisdiction by filing and serving an originating process containing or accompanied by a statement of claim legal proceedings in relation to the claims described at [37] ‑ [40] of the affidavit of Eric James Phillips sworn 30 December 2014 in the present application; and
(b)within 28 days of the date of the order, either pay into the court which is to hear the proceedings to be commenced in (a) a sum of $190,000 to abide the decision of that court, or else provide by some other means security for that payment satisfactory to Goldwest.
I have described the position in the preceding paragraph as being a preliminary view as I will hear from counsel as to the precise terms of the conditions. It could also be expressed as an undertaking, though my preference is for a condition so that the Statutory Demand is not set aside until there has been compliance. I have consciously not included a term that Phillips Engineering undertakes to prosecute the proceedings with diligence. This is because compliance with the conditions should determine whether or not the Statutory Demand is set aside once and for all; Goldwest should not have the ability to come back at a later stage and argue whether or not the Statutory Demand should be set aside based on non-compliance.
I will also hear from counsel as to costs.

[87] Macleay [15].