mmings [2014] NSWSC 1252
- JR Consulting & Drafting Pty Ltd v Cummings (2016) 329 ALR 625; (2016) 116 IPR 440; [2016] FCAFC 20
- Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343
- Lee v Lee's Air Farming Ltd [1960] AC 12
- Lin v Zheng [2023] NSWSCA 174
- Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274; (1988) 84 ALR 700
- New Cap Reinsurance Corporation Ltd v Daya (2008) 66 ACSR 95; [2008] NSWSC 64
- Nicholls & Ors v Michael Wilson & Partners Ltd [2012] NSWCA 383
- No 1 Victoria Dragons Pty Ltd v AEN Developments Pty Ltd [2022] NSWSC 1345
- NRMA Ltd v Yates (2000) 18 ACLC 45; [1999] NSWSC 859
- Oates v Consolidated Capital Services Ltd [2009] NSWCA 183
- OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120
- Performing Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd [1924] 1 KB 762
- Queensland Stations v Federal Commissioner of Taxation (1945) 70 CLR 539
- Re Atlas Advisors Australia Pty Ltd [2022] NSWSC 705
- Re Australian International Yacht Club Pty Ltd (2021) 152 ACSR 492; [2021] NSWSC 586
- Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789
- Re Orix Australia Corporation Ltd [2020] NSWSC 1770
- Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678; [2022] HCA 39
- Schmidt v AHRKalimpa Pty Ltd (recs apptd) [2020] VSCA 193
- SDS Corporation Ltd v Pasdonnay Pty Ltd [2004] WASC 26
- Stav Investments Pty Ltd v Taylor [2022] NSWSC 208
- Stevens v Brodribb Sawmilling (1986) 160 CLR 16; [1986] HCA 1
- Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233
- Taxa Australia Pty Limited v Wang [2018] NSWSC 1412
- Tobiassen v Reilly (2009) 178 IR 213; [2009] WASCA 26
- University of Western Australia v Gray (No 20) (2008) 246 ALR 603; [2008] FCA 498
- University of Western Australia v Gray (2009) 259 ALR 224; [2009] FCAFC 116
- Vanguard Financial Planners Pty Ltd v Ale (2018) 125 ACSR 1; [2018] NSWSC 314
- Victoria University of Technology v Wilson (2004) 60 IPR 392; [2004] VSC 33
- Watson v Foxman (1995) 49 NSWLR 315
- Varma v Varma [2010] NSWSC 786
- Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963
- Yates v Whitlam (1999) 32 ACSR 595; [1999] NSWSC 976
- Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561; [1955] HCA 73
Texts Cited: - Stewart's Guide to Employment Law (Federation Press, 7th ed, 2021)
- C Sappideen et al, Macken's Law of Employment (Thomson Reuters, 9th ed, 2022)
Category: Principal judgment
Parties: Vaughan Stanley Wellington (in his capacity as director of Carbon Copies Composites Pty Ltd (recs and mgrs apptd)) (First Plaintiff)
Vaughan Stanley Wellington (Second Plaintiff)
Darren John Vardy (in his capacity as receiver and manager of Carbon Copies Composites Pty Ltd (First Defendant)
Colin James Hutchison (Second Defendant)
Representation: Counsel:
A J Bulley (First and Second Plaintiffs)
S Bell (direct brief) (Second Defendant)
[2]
Solicitors:
Access Law Group (First and Second Plaintiffs)
File Number(s): 2022/327499
[3]
Nature of the application
By Originating Process filed on 2 November 2022 and Amended Statement of Claim ("ASOC") filed by leave on 18 July 2023, Mr Vaughan Wellington seeks a range of relief in derivative proceedings bought with leave granted to him under s 237 of the Corporations Act 2001 (Cth) ("Act"), in his capacity as a director of Carbon Copies Composites Pty Ltd (recs and mgrs apptd) ("Company"), and in his personal capacity. The Company was incorporated to develop, and then sell commercially, an all-electric carbon fibre aircraft known as the E75 Electron ("Aircraft"). Mr Wellington and the Second Defendant, Mr Hutchison, were directors of the Company since its incorporation, and each holds (in Mr Wellington's case, through an associated entity) 49.25% of the shares in the Company. Mr Wellington provided funds to the Company between 2018 and 2021 in order to develop the Aircraft, and claims that he did so in reliance upon representations made by Mr Hutchison as to the expected progress of the project and when a flying prototype of the Aircraft would be completed and its cost to that stage. The First Defendant, Mr Darren Vardy in his capacity as receiver and manager appointed to the Company's assets, has advised the Court that he is unfunded in the receivership and has not taken an active role in the proceedings.
[4]
Chronology of events
I first set out a chronology of events, drawn from matters admitted in the pleadings, the documents in evidence and partly from the affidavit evidence and cross-examination. This chronology sets out the findings that I have reached, to the extent that it addresses disputed matters. I will address the affidavit evidence and cross-examination further below.
Mr Wellington and Mr Hutchison met in 2018 while the former was having work done on a property and the latter was working as a handyman with a small building company in Bowral. In late 2018, discussions took place between Mr Wellington and Mr Hutchison in relation to Mr Hutchison's interest in developing the Aircraft (Wellington 27.10.22 [7]-[8], [10]; Hutchison 20.3.23 [3]-[5]). On 9 November 2018, Mr Hutchinson texted Mr Wellington suggesting dinner at the Mittagong RSL and said that "I wanted to pick your brain on how I would go about getting funding for an electric plane project" (Hutchison 6.7.23, Annexure E). It appears the discussion at that dinner was not particularly formal or structured.
In late October or early November 2018, and likely after the dinner on 9 November, Mr Wellington and Mr Hutchison discussed the possibility of Mr Wellington funding the Aircraft's development at least to the point of showing a model of the Aircraft at the Avalon air show in Victoria and then at a later air show in Oshkosh, Michigan in the United States of America. In his affidavit evidence, Mr Wellington claims (Wellington 27.10.22 [12]) that Mr Hutchison said:
"I believe I can build an aircraft within 12 months, and I believe it will cost around $500,000. I need to get additional funding for the model for it to be ready for the Avalon Air Show and then for the aircraft, as I can't quit my job and settle my divorce at the same time. The Air Show is in late February. It is the biggest Air Show in Australia. Depending on the public interest, we can then go to Oshkosh in Michigan, United States, which is the biggest air show in the world."
Mr Hutchison initially took issue in his affidavit evidence only with the suggested reference to loans to the Company in that conversation, although he did recall Mr Wellington mentioning financing (Hutchison 20.3.23 [6]). The matters discussed at about this time included whether the proposed Aircraft should be a single seater aircraft as Mr Hutchison initially planned, or whether it should be a two-seater aircraft as Mr Wellington preferred (T196-197). Mr Hutchison's evidence in cross-examination is that he told Mr Wellington that he could build models for the air shows and the Aircraft but would need Mr Wellington to fund the design and construction (T198).
[5]
Affidavit evidence
I have addressed aspects of the affidavit evidence in setting out the chronology of events above. I now turn to the parties' wider affidavit evidence. I have applied well-established principles in assessing that evidence and the witnesses' evidence in cross-examination. I have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319; Varma v Varma [2010] NSWSC 786 at [424]-[425]. I also have regard to the fact that objective evidence, where available, is likely to be the most reliable basis for determining matters of credit that arise as to the affidavit evidence: Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 ("Colorado Products") at [10].
I have applied the principles applicable to assessing claims for representations in oral form as helpfully summarised by Slattery J in Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [87] as follows:
"The principal conduct of the defendants that [the plaintiff] alleges was misleading or deceptive was the speaking of words in the course of a series of conversations. Special considerations apply when assessing alleged misleading and deceptive conduct in such a context. It is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in proved circumstances: Watson v Foxman (1995) 49 NSWLR 315 at 318 per McLelland CJ in Eq. In assessing whether spoken words were misleading the Court may have to examine relatively subtle nuances flowing from the use of one word, a phrase or a grammatical construction rather than another or the presence or absence of some qualifying word, phrase or condition: Watson v Foxman (1995) 49 NSWLR 315 at 31. The fallibility of human memory and the overlaying of memory with perceptions of self interest leading to subconscious reconstruction are all hazards of ordinary human experience to which a Court must be alert in assessing whether particular spoken words are misleading or deceptive: Watson v Foxman (1995) 49 NSWLR 315 at 319. Ultimately each element of the cause of action must be proved to the reasonable satisfaction of the Court which means that the Court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not obtained or established independently of the nature and consequences of the fact or facts to be proved", including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712."
[6]
Mr Wellington's misleading and deceptive conduct claims
Mr Wellington, in his personal capacity, brings misleading and deceptive conduct claims against the Company and Mr Hutchison. He identifies many representations that he contends were misleading and deceptive for the purposes of the Competition and Consumer Act 2010 (Cth) sch 2 - Australian Consumer Law ("ACL"). The multiplication of representational claims is, of course, often not a virtue. The claims raise legal issues as to the scope of misleading and deceptive conduct, the scope of conduct in trade and commerce, whether representations relate to future matters and causation, and it is convenient to address these issues at this point before turning to the pleaded representations in turn.
I outlined the applicable principles in a claim for misleading or deceptive conduct, which are too well known to require extended analysis, in Changizi v Rizaie [2021] NSWSC 613 at [93]-[94] as follows:
"The approach to be adopted in assessing whether conduct is misleading or deceptive was summarised by Gordon J in Australian Competition and Consumer Commission v Telstra Corporation Ltd (2007) 244 ALR 470; [2007] FCA 1904 at [14]-[15], in a passage which Griffiths J followed in Forty Two International Pty Ltd v Barnes (2014) 97 ACSR 450; [2014] FCA 85 at [446] and which I followed in [Colorado Products] at [86], as follows:
"The relevant legal principles have been well traversed by Australian courts. A two-step analysis is required. First, it is necessary to ask whether each or any of the pleaded representations is conveyed by the particular events complained of…Second, it is necessary to ask whether the representations conveyed are false, misleading or deceptive or likely to mislead or deceive. This is a 'quintessential question of fact'… [citations omitted]"
Conduct is misleading or deceptive or likely to mislead or deceive if it is capable of inducing error: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54. It is not necessary for [the plaintiff] to establish that [the defendant] intended to mislead or deceive and the relevant question is whether, viewed objectively, the relevant conduct was misleading or deceptive or likely to mislead or deceive: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197 per Gibbs CJ, 216 per Brennan J; [1982] HCA 44; Australian Competition and Consumer Commission v Jewellery Group Pty Ltd (2012) 293 ALR 335; [2012] FCA 848 at [66]. Conduct is likely to mislead or deceive if there is a real and not remote chance or possibility that a person is likely to be misled or deceived, and this is so even though the possibility of that occurring is less than 50 per cent: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [112] per McHugh J; Colorado Products above at [87]; Redmond Family Holdings v GC Access Pty Ltd [2016] NSWSC 796 at [49] ff."
[7]
Whether Mr Hutchison was an employee of or an independent contractor to the Company
The next question is whether Mr Hutchison was an employee of the Company or an independent contractor to the Company. Mr Wellington, on behalf of the Company, seeks a declaration (ASOC [83A], Relief [14A]) that, by virtue of an employment relationship between the Company and Mr Hutchison, any property that is or relates to the Aircraft that Mr Hutchison designed or developed during his period of employment is property of the Company and an order that he deliver that property to the Company. Mr Wellington pleads (ASOC [18]-[19]) the nature of the work undertaken by Mr Hutchison and alleges that Mr Hutchison received a salary of $1,750 weekly, in accordance with the terms of the pleaded Agreement. Mr Hutchison responds (Defence [16]-[17]) that he "admits he worked full-time to build the models and the electric aircraft until about May 2022" and that he received the equivalent of $1,750 per week from December 2018 until April 2022, but does not accept the description of that remuneration as a "salary" by otherwise denying the paragraph. Mr Wellington in turn pleads (ASOC [19A]) that, between 17 November 2018 when the Company was incorporated and April 2022, Mr Hutchison was employed by the Company. Mr Wellington then pleads (ASOC [83A]) that, by virtue of the employment relationship, property that relates to the Aircraft that Mr Hutchison designed or developed during the period of employment is the Company's property.
Earlier case law treated the question whether a worker was an employee of a company or an independent contractor to the Company as determined by asking whether the putative employer could control not only what work was to be done but how it was to be done: Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd [1924] 1 KB 762 at 766-768. In Stevens v Brodribb Sawmilling (1986) 160 CLR 16; [1986] HCA 1, Mason J criticised the focus on the control test and observed that the "totality of the relationship" between the parties should be considered, observing (at 28-29) that:
"a test which places emphasis on control is more suited to the social conditions of earlier times in which a person engaging another to perform work could and did exercise closer and more direct supervision than is possible today…[I]n modern post-industrial society, technological developments have meant that a person so engaged often exercises a degree of skill and expertise inconsistent with the retention of effective control by the person who engages him. All this may be readily acknowledged, but the common law has been sufficiently flexible to adapt to changing social conditions by shifting the emphasis in the control test from the actual exercise of control to the right to exercise it…Furthermore, control is not now regarded as the only relevant factor. Rather it is the totality of the relationship between the parties which must be considered."
[8]
Whether Mr Hutchinson "owned" the intellectual property in the Aircraft
A consequential question is whether Mr Hutchison or the Company "owned" the intellectual property in the Aircraft, on the basis that Mr Hutchison was an employee of the Company.
Mr Bulley submits that whatever Mr Hutchison designed in November or December 2018 was designed for the purposes of advancing the project that he and Mr Wellington had agreed to commence; he refers to the fact that the Company was incorporated "for the singular purpose of developing and commercialising the Aircraft" and to the arrangement for Mr Wellington to fund the venture and Mr Hutchison would work full-time to develop the Aircraft; and he submits that "[a]ny intellectual property relating to the Aircraft developed by Mr Hutchison or the Company (by his efforts) became the intellectual property of the Company" and "any suggestion by Mr Hutchison that he retained some ownership of any "designs" which may have been created by him prior to the incorporation of the Company ought not… be accepted".
Mr Bulley also refers to the decisions in Gardex Ltd v Sorata Ltd [1986] RPC 623 ("Gardex"), Concrete Pty Limited v Parramatta Design & Developments Pty Limited (2006) 229 CLR; [2006] HCA 55 ("Parramatta Design"), Gram Engineering Pty Ltd v BlueScope Steel Ltd [2013] FCA 508 ("Gram Engineering") and JR Consulting & Drafting Pty Limited v Cummings [2014] NSWSC 1252 ("JR Consulting") which I address below. He submits that, as I have held above, Mr Hutchison was an employee of the Company pursuant to a contract of service and that the intellectual property relating to the Aircraft belongs to the Company, either by virtue of Mr Hutchison being a director or employee of the Company or pursuant to a contract of service, and refers to evidence of Mr Hutchison's work with the Company. He submits that Mr Hutchison does not lead any evidence in his affidavits as to the state of design of the Aircraft prior to the Company's incorporation, other than the drawings attached to his affidavit affirmed 6 July 2023 and notes his acceptance in cross-examination that those drawings were "conceptual" drawings (T203). He also addresses the evidence as to the extent to which the "design" of the Aircraft was developed over time, which I address below.
Mr Bell responds that:
"There is no dispute that the physical items being airframes, aircraft parts, moulds, batteries and engines in the … [A]ircraft is the property of the [C]ompany.
What is in dispute is the ownership of the Intellectual Property ("IP") in the [A]ircraft. The intellectual property is not defined but is assumed to be copyright in the design of the [Aircraft]."
[9]
Claim for breach of directors' statutory and fiduciary duties
Scope of the pleaded duties
Mr Wellington pleads (ASOC [63], admitted Defence [45]) that Mr Hutchison owed the Company a statutory duty to act in good faith and for a proper purpose, relying on s 181 of the Act; that (ASOC [64], admitted Defence [45]) Mr Hutchison owed the Company a statutory duty not to improperly use his position to gain an advantage for himself or cause a detriment to the Company, relying on s 182 of the Act; and that (ASOC [65], admitted Defence [45]) Mr Hutchison owed the Company a statutory duty not to improperly use information to gain an advantage for himself, or cause a detriment to the Company, relying on s 183 of the Act.
It is sufficient that I briefly identify the content of these duties and I have drawn on my decisions in Colorado Products and Re Australian International Yacht Club Pty Ltd (2021) 152 ACSR 492; [2021] NSWSC 586 in this regard. Section 181 of the Act requires a director or officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose. I summarised the relevant principles in respect of that section in Colorado Products (at [419]-[421]) as follows:
"In Chew v R (1991) 4 WAR 21; 5 ACSR 473 at 499, Malcolm CJ summarised the requirements of that duty as being that directors (1) must exercise their powers in the interests of the company, and must not misuse or abuse their power; (2) must avoid conflict between their personal interests and those of the company; (3) must not take advantage of their position to make secret profits; and (4) must not misappropriate the company's assets for themselves.
The case law is divided as to whether a contravention of s 181(1)(a) of the Corporations Act requires that it be established that a director engaged deliberately in conduct which he or she knew was not in the company's best interests: for example, Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574 at [245] per McColl JA (with whom Handley and Santow JJA agreed); Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd [[2011] FCA 1154; (2011) 86 ACSR 393] at [150], varied on appeal on another point in V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [[2013] FCAFC 16; (2013) 93 ACSR 76]. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1, the Court of Appeal of the Supreme Court of Western Australia unanimously held that the corresponding general law duty to act in good faith in the company's best interests was subjective and would be complied with if directors honestly believed they acted in the company's best interests (at [923] per Lee AJA, at [1988] per Drummond AJA, [2027], at [2772], [2795] per Carr AJA). The alternative view is that a contravention of that limb of s 181 can be established if the law objectively considers that what the director did was improper, even if the director subjectively believed that he or she was acting in the company's best interests: see, for example, Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 at 270-271; 6 ACLC 529 per King CJ; Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd [2011] VSCA 392; (2011) 86 ACSR 277 at [32]-[33]. The difference in those approaches does not seem to me to be material for the purposes of this case. The section may be contravened if a director promotes his or her personal interest in a situation where there is a conflict or real or substantial possibility of a conflict between those interests and the company's interests: Australian Securities and Investments Commission v Adler [[2002] NSWSC 171; (2002) 168 FLR 253] at [735]; Parker [v Tucker [2010] FCA 263; (2010) 77 ACSR 525] at [72].
A contravention of s 181(1)(b) may also be established if a director does not exercise his or her powers for the purpose for which they were conferred or exercised them for an improper purpose, and the bulk of authority indicates that question is to be determined objectively: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109 at 137 per Ipp J (with whom Malcolm CJ and Seaman J agreed); Australian Securities and Investments Commission v Adler above at [738]-[739]; Parker above at [73]. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) above, the majority held that whether a director acts for an improper purpose, for the purposes of the corresponding general law duty, is determined objectively involving an assessment by the Court of what was reasonable in the circumstances (at [933] per Lee AJA, at [1988], [2027], [2073] per Drummond AJA). By contrast, Carr AJA held that the test whether directors had acted for an improper purpose was primarily subjective, although a decision would be voidable if directors acted in good faith for a purpose that was beyond their powers or for a collateral purpose (at [2923])."
[10]
Determination as to the relief claimed
Mr Wellington, on his own behalf and on behalf of the Company, seeks numerous orders by way of relief. First, he seeks an order (ASOC [70], Relief [1]) that Mr Hutchison be permanently restrained from accessing, downloading, transferring, interfering with, disclosing, disseminating, altering, removing, deleting, copying, using, or commercially exploiting the Property other than in his role as a director and for the purposes of the Company. The term "Property" is there defined, in relation to the Aircraft, as:
"(a) all designs, plans, drawings, specifications, codes, programs, software, or hardware (whether in hard copy or in electronic form) for the Aircraft;
(b) all designs, plans, drawings, specifications, codes, programs, software, or hardware (whether in hard copy or in electronic form) for any component or part of the Aircraft;
(c) all designs, plans, drawings, specifications, codes, programs, software, or hardware (whether in hard copy or in electronic form) that relate to or concern the Aircraft;
(d) all components, either fully or partially completed, for the Aircraft;
(e) all moulds or parts of moulds used in the manufacture of the Aircraft or any component of the Aircraft;
(f) all batteries or other technology for the Aircraft;
(g) all engines or motors for the Aircraft;
(h) all computer programmes (whether by way of CAD files or otherwise) used in the design and/or manufacture of the Aircraft and/or any component of the Aircraft."
Mr Bulley submits and I accept that the property that falls within this definition (subject to the Company establishing its right to it) has been identified in the course of the evidence as including aircraft parts (T233, T235, T270-272); material mixtures and production methods (T235); software that would be integrated with the Aircraft, as distinct from third party software for design programs that were owned by Mr Hutchison and were of general application, rather than developed for the Aircraft (T265-268); patterns or "plugs" used in creating moulds for construction of parts of the Aircraft and those moulds (T267-268) any aircraft assembly instructions (T269-T270); the files and the contents of the USB delivered to Mr Vardy as receiver on 12 December 2022 (T270); further files and contents of the USB delivered to Mr Vardy on 23 June 2022 (Hutchison 6.7.2023, [21]-[22]) and any printed form of these files, including those appearing in Mr Hutchison's affidavit dated 6 July 2023 (Hutchison 6.7.23, Annexures B,C,D); and structural configurations and calculations (T300-3017).
[11]
Orders
I direct the parties to bring in agreed short minutes of order to give effect to this judgment, including as to costs, within 14 days, or otherwise their respective short minutes of order and submissions not exceeding 10 pages in Arial font 12, one and a half spacing, as to the differences between them.
[12]
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: 03 August 2023
On 27 November 2018, Mr Hutchison sent an email to Mr Wellington (Wellington 27.10.22 [15]; Hutchison 20.3.23 [8]; Ex P1, CB 66) which set out a "breakdown" of costs from then to the Avalon air show and the Oshkosh air show. Mr Hutchison there observes that:
"Overall, there is still a lot of planning and work to go into this. We also need to look at getting some help some time in the future (I would think some time around February/March [2019])."
The budget showed a total cost for the Avalon air show of $44,350 and a total cost for the Oshkosh air show of $120,150, including salary costs for both and workshop lease costs in the budget for the Oshkosh air show. I address Mr Wellington's claim relating to the email, in respect of the "First Representations", below.
Mr Wellington's evidence is that, in late November 2018, he decided to invest in the development of the Aircraft (Wellington 27.10.22 [18]). He is likely mistaken as to that timing since he had advised Mr Hutchison, by email dated 30 November 2018 (Ex P1, CB 68) that "[t]here really are too many competitors and planes with what appears to be a fairly limited market", suggesting that he was then not convinced of the merit of the project. Nonetheless, it appears Mr Wellington committed to the proposal by mid-December 2018 and the Company was incorporated on 17 December 2018 (Wellington 27.10.22 [25]-[26]). In cross-examination, Mr Wellington explained his change of mind between 30 November 2018 and mid-December 2018 as to whether to participate in the project, at least partly, by referring to other discussions which had taken place between him and Mr Hutchison about investing in the Company, getting a bank account and drawing up a model for the Avalon air show to determine public interest in the Aircraft (T58). Mr Wellington denied that he changed his mind between those dates because (as Mr Hutchison contends) he was shown a foam model of the Aircraft and a drawing on a mobile phone of the Aircraft. Mr Wellington's evidence is that he provided his first $50,000 funding to the Company without being shown drawings or models of what the Company was to produce (T59-60). I address the dispute as to that matter below.
Between November 2018 and the incorporation of the Company in mid-December 2018, Mr Hutchison prepared several design files in relation to the Aircraft which, he says, related to the two-seater version preferred by Mr Wellington (Hutchison 6.7.2023 [23], [27]). I accept that these files were created in this period, where that finding is supported by "date modified" dates which appear in respect of corresponding files in a listing of the files that were provided by Mr Hutchison to Mr Vardy as receiver of the Company's assets in December 2022 (Ex P1, 779). On balance, I think it likely that Mr Hutchison also made a simple miniature foam model of the proposed Aircraft at about that time, which he says was made using a computer numerical control ("CNC") machine to cut the foam from one of these designs (Hutchison 6.7.23 [24]). I have no doubt that Mr Hutchison prepared these design files and the model for the purpose of their being used by the Company to develop the Aircraft, with funding that he anticipated would be provided by Mr Wellington, and I address the significance of that matter below.
As I noted above, there is a dispute as to whether Mr Hutchison showed drawings or a model or picture of the proposed Aircraft that he had put on his mobile phone to Mr Wellington between November 2018 and Mr Wellington's decision to invest in the project and the incorporation of the Company in mid-December 2018. Mr Wellington's evidence was that Mr Hutchison did not provide any drawings or plans of the model, or the concept, to him at that time (Wellington 27.10.22 [13]). By a second affidavit dated 2 February 2023, Mr Wellington again referred to his earlier evidence that Mr Hutchison had not provided him with drawings or plans of the model or concept for the Aircraft in November or December 2018 and said that Mr Hutchison did not show him a design of the Aircraft before 14 December 2018 (Wellington 2.2.23 [3]-[5]. By his affidavit dated 20 March 2023, Mr Hutchison responded that he had shown Mr Wellington drawings of the Aircraft and the CNC foam model of it, implicitly by that time (Hutchison 20.3.23 [7]) and he expanded on that evidence by a late affidavit dated 6 July 2023, which I address below. On 2 December 2018, Mr Hutchison emailed a picture he had created of the proposed Aircraft to himself (Hutchison 6.7.23, Annexure D) and his evidence is that he then showed that picture to Mr Wellington on his phone (Wellington 6.7.23) [29]).
It is not necessary to decide whether Mr Wellington's or Mr Hutchison's evidence should be preferred in that respect, although I generally prefer Mr Wellington's evidence to Mr Hutchison's evidence for the reasons noted below. I recognise that Mr Hutchison had good reason to show such design drawings and the model and picture on his phone to Mr Wellington, to seek to persuade him to go forward with funding the development of the Aircraft, and that something occurred in this period to lead Mr Wellington to develop a greater enthusiasm for the project. On the other hand, it seems to me that Mr Hutchison was and is protective of the design of the Aircraft and it may be unlikely that he would have disclosed its design to Mr Wellington, even without providing him with an electronic copy of it, before Mr Wellington was committed to funding the Company. It is not necessary to decide the dispute as to this matter, given the findings that I reach on other grounds below.
By an exchange of emails on 26 December 2018, Mr Wellington and Mr Hutchison again discussed the nature of the proposed Aircraft, with Mr Wellington recognising that Mr Hutchison wanted to produce a high performance light weight aerobatic aircraft under 600kg but expressing the view that that was a limited market in Australia, and raising the possibility of a crop duster, and Mr Hutchison responding identifying the features of an aircraft within the light sport aircraft category (Wellington 27.10.22 [23]; Hutchison 20.3.23 [12]; Ex P1, CB 84). In late December 2018 or on 1 January 2019, Mr Wellington made a first transfer of $50,000 from his personal bank account to the Company's bank account (ASOC [17], [61]; Wellington 27.10.22 [29]). I refer below to Mr Wellington's claim that events between 27 November 2018 and 17 December 2018 gave rise to the "Agreement Representations".
From early January 2019, the Company made weekly payments of $1,750 to Mr Hutchison and there is a dispute as to whether that payment was a salary paid to him as an employee of the Company (Wellington 27.10.22 [30]; Hutchison 20.3.23 [13]).
On 31 January 2019, Mr Hutchison emailed Mr Wellington indicating the name "E75 Electron" for the Aircraft and that he was working on the logo, marketing material, business cards and website (Wellington 27.10.22 [32]) and, on 5 February 2019, Mr Hutchison registered the domain name "electron.aero" in the name of the Company (Wellington 27.10.22 [33]). On 12 February 2019, Mr Hutchison sent an email to Mr Wellington dealing with the website for the Company and the Aircraft (Wellington 27.10.22 [34]; Hutchison 20.3.23 [14]).
In late February and early March 2019, Mr Wellington and Mr Hutchison attended the Avalon air show in Victoria. Mr Wellington claims that Mr Hutchison informed interested parties at the air show that the Aircraft would be air ready and flying within the next 12 months, probably by February 2020 (Wellington 27.10.22 [35]-[36]; Hutchison 20.3.23 [16]-[17]). I refer below to Mr Wellington's claim for the "First Flying Representation" arising out of this matter. I think it likely that interested parties would have understood that the production of the Aircraft was likely to be an engineering challenge and would have understood that statement, if it was made, as an optimistic projection.
On 5 or 6 March 2019, Mr Hutchison forwarded Mr Wellington an email with a further budget for the Oshkosh air show (Wellington 27.10.22 [40]; Ex P1, CB 118). That email described the attached budget as a "pretty rough Oshkosh budget" and noted that "[m]ost things have a fair bit of fluff in them just for safety". Neither observation suggested that the budget provided a firm basis for future costs to be incurred in the development of models for the air shows or the Aircraft. That budget allowed 22 weeks of work for Mr Hutchison and another person, as well as several categories of work, prior to the Oshkosh air show. It is apparent that, by the time of the proposed budget of 5 March 2019, there had been a substantial increase, by about $50,000, in the earlier estimated costs for the costs of attending the Oshkosh air show from the earlier estimate of late November 2018. The uncertainties in the budgeting process must have been apparent to Mr Wellington by that date and he acknowledged in cross-examination that he did not question the increase in the budget and recognised that budgets tended to change (T72).
In his second affidavit dated 20 March 2023, Mr Hutchison took issue with aspects of Mr Wellington's evidence as to discussions concerning the Oshkosh air show and he gave evidence of his preparation of a budget for that air show. His evidence was that he was aiming to produce a kit for the Aircraft for the Oshkosh air show in 2020; that he said words to that effect; and he "hope[d]" to have Aircraft flying in February 2020, prior to the Oshkosh air show in 2020 (Hutchison 20.3.23 [19]. I do not accept that these discussions were directed to the question of Mr Hutchison's "hope[s]" as to the development of the Aircraft, in the sense of a mere aspiration, since there would be no utility in Mr Hutchison discussing mere aspirations with Mr Wellington and potential customers, as distinct from what he realistically expected could be achieved. I address Mr Hutchison's cross-examination as to this matter and Mr Wellington's claim for the "Oshkosh Budget Representation" arising from this matter below.
On 15 March 2019, Mr Wellington contributed a further $150,000 to funding the Company (ASOC [61], Wellington 27.10.22 [42]). By email dated 16 March 2020 (Ex P1, CB 245), Mr Wellington advised that he would provide funding for the Company in the form of a loan where he observed that:
"As [Mr Hutchison] is not able to meet the joint arrangement the amounts provided need to be established in the books as a loan. [Mr Hutchison] and I will need to draw up a loan agreement."
Mr Hutchison responded to that email on 18 March 2020. On 17 and 18 March 2019, Mr Wellington and Mr Hutchison also exchanged emails concerning the progress of the Aircraft in the lead up to the Oshkosh air show (Wellington 27.10.22 [43]-[44]).
By an email dated 28 June 2019, (Hutchison 6.7.23, Annexure L), Mr Hutchison advised Mr Wellington that:
"We are not going to make it with the full size [model of the plane for the Oshkosh air show]. Johns been off for the last two weeks so I've just been trying to get the scale model and new wings sorted. Sorry, this is definitely not what I wanted."
In late July and early August 2019, Mr Wellington and Mr Hutchison attended the Oshkosh air show. Mr Wellington's evidence is that Mr Hutchison told him and others that he was "confident" that there would be a flying version of the Aircraft in the next 12 months and, on other occasions, saying that the aircraft would be flying by February 2020 (Wellington 27.10.22 [46]-[47], denied Hutchison 20.3.23 [19]). I refer below to Mr Wellington's claim for the "Second Flying Representation" arising from this matter. Again, it seems to me that Mr Wellington and others would then have recognised that the production of the Aircraft was likely to be an engineering challenge and would have understood such a statement as an optimistic projection.
On 8 August 2019 (Wellington 27.10.22 [53]; Hutchison 20.3.23 [22]; Ex P1, CB 209), Mr Hutchison sent Mr Wellington a budget breakdown for a flying prototype, estimating completion by February 2020 under cover of an email that read:
"Please see attached budget breakdown for the flying prototype. This would take us to Feb[ruary 2020] with a flying aircraft. I have also included the cost of the two air shows as additional costs.
I have also broken down the cost to build an aircraft. This is the complete cost of the kits that we would be supplying.
What are your suggestions for funds going forward? We need to sort this out fairly quickly. Ray [Tolhurst] is keen to start work and I'd like to make sure we have him onboard."
The attached budget referred to the date 28 February 2020 beside a reference to "flying prototype budget" and also identified the number of weeks to "Feb flying" and the "Oshkosh air show." I refer below to Mr Wellington's claim as to the "Flying Prototype Representations" arising from this matter.
On 9 August 2019, Mr Wellington responded to Mr Hutchison's email concerning the new budget as follows (Ex P1, CB 217):
"As I see it at this stage of the process, there are no other finance alternatives besides us. Maybe if we have a flying model the bank attitude might change as will the grants etc. Then we could start to ask around.
In summary at this point, I have put in so far $A200K to date and it looks like we need say another $250K over the next six months. Are you in a position to put in or pledge assets as we are joint owners?
Meantime my questions are:
(a) What do you think the timing for the cash required is over the next six month? ie how much when?
(b) What will we then have by Feb[ruary] 2020? Would you agree that it could be …
- a flying model,
- all the moulds for production on site,
- a concise picture of the kit cost and
- a clear view of order and production objectives."
Mr Hutchison then advised Mr Wellington, also on 9 August 2019 (Ex P1, CB 219) that he did not then have assets to contribute to the project, and, in response to Mr Wellington's questions, answered:
"(a) I think it will be a more ongoing cost rather than all at once (i.e. salaries more than materials). We could just do $50,000 at a time as required and I keep you up to date as to what has been spent and when/where, and let you know in advance when new funds would be needed. This way we can stay on top of things as we go.
(b) Yes, the plan is to have a fully flying aircraft by Feb[ruary 2020]. This would include all of the moulds and CNC toolpaths etc to make parts for the kits. Except for the wings. The wings are a major aerodynamic component of the aircraft and I wanted to make a single set of wings to test with the aircraft. Once we are happy with the wings we can make moulds for them. We would definitely have a better idea of exact costs associated with the aircraft and also build time for the components. The first one is always going to be the hardest and most time consuming to make, but we will have all of the moulds and engineering work done by the time we fly. So this will dramatically reduce the time to manufacture the first kit we sell. Ray [Tolhurst] is definitely onboard with minimising the final manufacturing costs and times by doing the engineering correct the first time and keeping part counts to a minimum and keeping the [A]ircraft as simple as possible."
On 13 August 2019, Mr Wellington deposited a further amount of $43,973.20 into the Company's bank account (ASOC [61], Wellington 27.10.22 [57]).
On 14 October 2019, Mr Wellington deposited a further $50,000 into the Company's bank account (ASOC [61], Wellington 27.10.22 [58]).
By 28 October 2019, Mr Wellington was seeking to accelerate the development of the Aircraft, emailing Mr Hutchison (EX P1, 226) (in capitals) that "WE REALLY NEED TO GET OUR SKATE'S [sic] ON" and referring to two other reports relating to electric aircraft components. Mr Hutchison responded as to the two other reports and advised that:
""Can we fly in January?? [sic] That depends. At the moment no. If there was a bunch more money and another 2 to 3 guys that know what they are doing then yes, maybe. But at this point I don't see that happening."
This is a significant communication because Mr Hutchison here qualified any previously unqualified representation that the Aircraft would be flying by February 2020 and made clear that that result depended on funding, which Mr Wellington continued to provide, and additional qualified labour which was not obtained, and that result had the uncertainty conveyed by "maybe", and Mr Hutchison did not "see it happening" as matters then stood. Mr Hutchison also then informed Mr Wellington that he was looking to trademark the logo for the Aircraft (Wellington 27.10.22 [61]; Hutchison 20.3.23 [24]).
On 8 November 2019, the Company registered the "Electron" trademark, comprised of a sketch of the Aircraft and the word "Electron" with a stylised propellor, in the Company's name (Wellington 27.10.22 [62]; Ex P1, CB 228).
On 10 November 2019, Mr Wellington advised Mr Hutchison, with a copy to Ms Joelle Maxfield who was assisting with administrative work in the Company, as follows (Ex P1, CB 230):
"This is to you both as both of you are very busy and may not realise just how important this issue of a time line is.
One way is to start by going back to a kit plane. A[s] you know there will be a component list, wings, body, canopy etc. Right now we don[']t have this for either outside purchases or manufacture.
However it is very important that you do this please before the trainees arrive. Can you both please let me have this ASAP and also apply a time line for the items that we will manufacture and or buy in. I really need this to be done right now as it looks to me that you [Mr Hutchison] are not going to have the plane flying in February [2020]. Also I am away at the end of February.
Secondly I do need a budget outline forward until say end April [2020]. I need this before the next money requirement for the trustees."
By email dated 18 November 2019 (Ex P1, CB 231) Mr Hutchison advised Mr Wellington that the cost of production of the Aircraft had been revised down by $11,000 which would increase profit per aircraft sale, noting that "[w]e are a bit low on cash flow at the moment so the next payment would be very much appreciated" and observed that:
"We have Jordan (intern) starting next week. Still looking into more people and trying to get things moving a bit faster now. Most of the moulding is complete and we will be making parts shortly."
An updated budget attached to that document referred to a "flying prototype budget" for 28 February 2020 with a note "to get us to Feb[ruary 2020] with a flying aircraft" and referred to the number of weeks from 18 November 2019 to 28 February 2020 beside a reference to "Feb flying". On the same day, Mr Wellington made a further deposit of $50,000 into the Company's bank account (ASOC [61], Wellington 27.10.22 [64]). I refer below to Mr Wellington's claim for the "Second Flying Prototype Representations" arising out of this matter.
Mr Wellington pleads (ASOC [61]) that, on 20 January 2020, he advanced a further $50,000 to the Company.
By an email dated 20 February 2020 to Mr Hutchison (Ex P1, CB 235), Mr Wellington referred to his then discontent with the then state of the Company's accounts and observed that:
"… we do not have it flying. So when really. Please give me the steps.
Point is [Mr Hutchison] I have had many businesses and this is not going well at all. It must change.
Secondly I am not a bottomless pit. All through last year you were assuring me it would be fine and will fly in Feb. Now it is Oshkosh. That is only 4 months away - and you have still not started key components."
Mr Wellington pleads (ASOC [61]) that, on 6 March 2020, he advanced a further $50,000 to the Company.
On 2 April 2020 (Ex P1, CB 247) Mr Hutchison raised the possibility of appointing a general manager to the Company with Mr Wellington; Mr Wellington responded that he doubted the need for a general manager but indicated that he was "listening"; and Mr Wellington also inquired as to progress as follows:
"… besides knowing who you have with you I do need info on the accounts, get the books (right and correct), the overall Budget now (and the forward look and profitability as you see it), the wings (have you started?), the fit out (where is it at and when,) [sic] when is the next money required, and particularly the date for flying."
On 19 April 2020, Mr Hutchison registered "Electron Aero" as a business name in the Company's name (Wellington 27.10.22 [71]; Ex P1, CB 250).
By emails dated 6 May and 28 May 2020, Mr Hutchison requested Mr Wellington to provide further funds to the Company (Wellington 27.10.22 [74], [77]). Mr Wellington pleads (ASOC [61]) that, on 29 May 2020, he advanced a further $25,000 to the Company.
Between 26 June and 20 July 2020, Mr Wellington and Mr Hutchison exchanged emails as to the execution of further documents in relation to the Company (Wellington 27.10.22 [78]). Mr Wellington pleads (ASOC [61]) that, on 28 July 2020, he advanced a further $25,000 to the Company.
On 18 August 2020, Mr Hutchison emailed Mr Wellington requesting further funds for the Company (Wellington 27.10.22 [80]). Mr Wellington pleads (ASOC [61]) that, on 25 August 2020, he advanced a further $25,000 to the Company.
On 28 August 2020, a resolution was passed at a board meeting of the Company attended by Mr Wellington and Mr Hutchison to execute a Loan Agreement and General Security Deed concerning amounts advanced by Mr Wellington to the Company (Wellington 27.10.22 [81]) and, on 1 September 2020, Mr Wellington executed a Loan Agreement and General Security Deed with the Company (Wellington 27.10.22 [82], Ex P1, CB 338, 351). Mr Wellington pleads (ASOC [61]) that, on 7 September 2020, he advanced a further $25,000 to the Company.
On 18 September 2020, Mr Hutchison advised Mr Wellington that he had been able to obtain a registration for the proposed Aircraft (which was not then complete) with the Civil Aviation Safety Authority using the letters "VH-CCC" (Wellington 27.10.22 [85]; Ex P1, CB 422). It appears Mr Hutchison secured that registration in his own name rather than in the Company's name (Ex P6) but I am inclined to accept his evidence that he did that because it was easier to obtain an aircraft registration in a personal name than a company name and that such registration numbers were quickly taken up when they became available.
On 31 October 2020, Mr Hutchison emailed Mr Wellington requesting that more funds be loaned to the Company (Wellington 27.10.22 [86]; Ex P1, CB 424)
By email dated 17 November 2020, Mr Wellington introduced Mr Elkins to assist Mr Hutchison to complete a flying version of the Aircraft (Wellington 27.10.22 [87]; Ex P1, CB 425) and, on 20 November 2020, Mr Wellington sent Mr Hutchison an email attaching a project spreadsheet from Mr Elkins (Wellington [89]; Ex P1, CB 429).
In early December 2020, Mr Elkins spent a week with Mr Hutchison in the Company's workshop. Mr Elkins' evidence is that he and Mr Hutchison worked together on the development of a project timeline and a budget (Elkins 27.10.22 [4]). A report prepared by Mr Elkins dated 11 December 2020 (Ex P2, 2) noted that there were approximately 300 components in the Aircraft and that the time required by Mr Hutchison to complete work on those items (as at December 2020) was approximately 1,200 hours and approximately 1,800 hours of other resources would be required. Mr Elkins also divided the components of the Aircraft into 24 wider categories, comprising items such as the horizontal tail plan, tail cone, elevators, vertical tail, rudder, fuselage, cowling and wings. That report also annexed a record prepared by Mr Hutchison or those working with him as to individual components which, as Mr Hutchison explained in cross-examination, identified details concerning the moulding process for many components. Mr Elkins also indicated a further breakdown of sub-components within the various categories, and an assessment of the extent to which they were complete based on discussions with Mr Hutchison and others. The listing of components and sub-components in Mr Elkins' report records incomplete design work as at December 2020, which included design work on the elevators, the trim tab servos for the rudder, aspects of the fuselage firewall, the rudder pedal mechanism, tie down points for the wings and tail, the canopy hinge, aspects of the undercarriage, the footstep and control stick torque tube bracket, and matters relating to the motor, propellor and spinner, batteries, joystick handgrips and several aspects of the avionics (Ex P2, 16ff). I address Mr Hutchison's cross-examination as to aspects of this report below.
By a letter dated 4 March 2021 (Hutchinson 6.7.23, Annexure H1), KPMG Law ("KPMG Law") set out the terms under which it would be engaged to provide certain services to the Company and Mr Wellington accepted those terms on behalf of the Company. The scope of the engagement related to the preparation of a terms sheet to document material terms of a founders agreement, the preparation of a founders agreement (which was never executed by Mr Hutchison) and an intellectual property (sometimes abbreviated as "IP") review having the following elements:
● "work with the Company to identify the core confidential information / trade secrets material to the Company's business and review how these are protected;
● undertake a high level review of current access rights and security protocols; and
● identify gaps and provide recommendations for improvements to manage trade secret disclosure risk."
Mr Wellington pleads (ASOC [61]) that, on 29 March 2021, he advanced a further $200,000 to the Company. It is notable that he did so after the delays to which I had referred above had occurred and after Mr Elkin's assessment of the extent to which the Aircraft was complete and the work that remained to be done. Where Mr Wellington by then knew of the delays and risks attached to the development of the Aircraft, It is plainly possible that that amount was then advanced because Mr Wellington was exposed to the loss of his existing investment if he did not continue to provide funding to the Company. As will emerge below, that is not Mr Wellington's evidence or the way in which he puts his case.
The Company, or at least Mr Wellington or Mr Elkins, appears to have understood that the Company owned intellectual property relating to the Aircraft, prior to a dispute that later arose as to that matter. A document prepared by KPMG in April 2021, headed "Business Design Workshop Report" (Ex P2, 57) recorded information provided to KPMG that:
"We [KPMG] are advised that [the Company] owns various items of Intellectual Property (IP) which we understand can be separately identified, licenced and protected. …
Also in April 2021, KPMG Law provided a review to the Company which dealt, inter alia, with intellectual property rights in respect of the Aircraft (Ex P2, 115). That document noted that it was likely that intellectual property rights (in the form of copyright works) subsist in key documents and other materials which had been created in connection with the design and production of the Company's core products including plans, design drawings, documented production methods and assemblage instructions and noted that the Company had not registered any designs in respect of the Aircraft. KPMG Law observed (Ex P2, 117) that:
"We understand that [Mr Hutchison] has been primarily involved in the design and development of the core product and related production processes and that he has been engaged to date as a contractor and not an employee. Unless expressly agreed otherwise, independent contractors own any intellectual property created in the course of their engagement.
We understand that no agreement is in place which expressly assigns ownership of any intellectual property to [the Company]. This creates chain of title issues with [the Company] relying on an implied licence to use any intellectual property owned by [Mr Hutchison] in connection with its business needs. The scope of implied licences are, by their nature, uncertain and may limit [the Company's] use of the relevant intellectual property in the future (ie [the Company] may not be able to sub-licence the relevant IP as part of a future transaction)."
KPMG Law in turn recommended:
"[The Company] to execute an assignment deed with [Mr Hutchison] that includes robust provision assigning all existing intellectual property created by Colin H[utchison] to [the Company]. Note - a draft assignment deed with [the Company] for review."
That document also referred to a similar issue in respect of other current and former contractors who worked with the Company, noted the possibility of seeking other assignments and noted that the Company "will otherwise need to rely on an implied licence (noting the scope of any such licence would always be difficult to define)."
By email dated 11 April 2021 (Ex P1, CB 436), Mr Hutchison sent Mr Wellington a copy of a non-disclosure agreement with a third party working with the Company, Electro.Aero Pty Ltd. Clause 1.1 of that agreement (Ex P1, CB 439) assumes that the Company owned intellectual property relating to the Aircraft, providing as follows:
"The Company possesses certain commercial information in relation to the development, proving, certification, funding and manufacture of the proposed products and services, which is confidential to the Company. All of which Confidential Information together with the Companies [sic] participation in discussion with Electro.Aero will remain confidential under the terms of this agreement."
Also in April 2021, the Company was negotiating an agreement with another third party, Orbx, for the development of a package which could be used for simulator software and a draft agreement recorded (Ex P1, CB 452) that:
"[The Company] has already built various elements of the aircraft kit and has numerous photographs to provide to Orbx for reference. CAD files are also available to aid the production of the 3D model."
That draft agreement contemplated that the Company would provide computer aided design ("CAD") data to Orbx and licence intellectual property to Orbx as follows:
"[The Company] will grant an aircraft manufacturers licence to Orbx for the development of the [flight simulator] add-on and [intellectual property rights] of the add-on will sit with Orbx which allows for the sale of the module to consumers."
Mr Wellington had also clearly recognised at least one of the matters that was delaying development of the Aircraft by early 2021, when he advised representatives of KPMG on 17 April 2021 (Ex P1, CB 466) that:
"As you may have determined from all our discussions with KPMG to date [the Company] is suffering from the lack of capable labour while building the prototype single electric engine plane in Mittagong. …
Our real problem to date has been finding good reliable workers in and or around Mittagong right now. We have met NSW and Federal funding groups but we still have difficulty even with heaps of employment Groups, finding the right people both for the short term, high aeronautical skills, and for the longer term, those keen to learn. With the latter we are also keen to find, train and then have them return, to manufacture the components in Fiji."
KPMG responded with suggestions as to how suitable workers might be identified.
By May 2021, the Company had requested KPMG to assist in seeking government grants and external funding for the project and, on 25 May 2021, Mr Wellington forwarded an email chain to Mr Hutchison dealing with matters including intellectual property protection (Wellington 27.10.22 [98]-[99]; Ex P1, CB464).
On 20 June 2021, Mr Wellington emailed Mr Hutchison and Mr Elkins a draft "business plan" (Ex P1, 473) which referred to both his and Mr Hutchison's qualifications as follows:
"Vaughan Wellington has owned, operated and sold many businesses successfully thru [sic] his career. These businesses have included shipping, trading, chemicals trading, bulk minerals, printing machinery and graphics supply. Subsequently primary production facilities. He brings to the company experience in finance, customs and trade, grants and Government relations.
Colin Hutchison is a successful aeronautical engineer. He has been involved in research and development of drones and aircraft components and assemblies. He has operated [the Company] since its inception."
That business plan identified the date of the first flight of the Aircraft as November 2021, long after the February 2020 date on which Mr Wellington relies in his representational claims (Ex P1, CB 486). I recognise that Mr Wellington had made all but one of his financial contributions to the Company prior to the date of that draft business plan.
On 21 June 2021, Mr Wellington emailed Mr Hutchison noting that the batteries for the Aircraft had arrived and dealing with the completion of a draft information memorandum prepared by KPMG (Wellington 27.10.22 [101]; Ex P1, CB 469). Correspondence then followed concerning the draft business plan (Wellington 27.10.22 [102])
In early August 2021, Mr Wellington and Mr Hutchison again exchanged emails in relation to the estimated date for the Aircraft to be flying (Wellington 27.10.22 [108]; Ex P1, CB 514). Mr Wellington pleads (ASOC [61]) that, on 12 August 2021, he made his last advance of $25,000 to the Company.
On 5 September 2021, Mr Wellington emailed Mr Hutchison concerning a meeting with KPMG as to business plans as well as fundraising for the Company (Wellington 27.10.22 [109]; Ex P1, CB 518).
On 19 September 2021, there was further correspondence between Mr Wellington and Mr Hutchison as to the date for a flying Aircraft (Wellington 27.10.22 [110]; Ex P1, CB 521). On 29 September 2021, Mr Wellington sent Mr Hutchison an email concerning the progress of the project and KPMG's requirements to raise finance for the Company (Wellington 27.10.22 [111]; Ex P1, CB 522).
On 1 October 2021, Mr Elkins was appointed a director of the Company and Mr Wellington and Mr Hutchison each transferred him a parcel of shares in the Company (Wellington 27.10.22 [112]; Elkins 27.10.22 [1]).
On 6 December 2021, Mr Wellington sent Mr Hutchison an email in relation to progress of the Aircraft and introduced two further parties to assist the Company in raising funds (Wellington 27.10.22 [113]; Ex P1, CB 523).
On 7 December 2021, Mr Elkins sent Mr Hutchison an email (Hutchison 6.7.23, Annexure I) requesting that he execute a Deed of Assignment of intellectual property attached to that email. That deed (which Mr Hutchison did not execute) recited that the assignor, implicitly Mr Hutchison, owned the "Assigned Intellectual Property" and that term was defined as:
"All Material relating to the business of the [Company] or created by the Assignor during the provision of any services to, or any collaboration with, or at the instruction of the [Company]."
Even apart from the fact that Mr Hutchison did not execute that draft deed, it seems to me it says little as to who owned any particular intellectual property, since it would have provided only that any intellectual property which was in fact and law owned by Mr Hutchison, so as to fall within that definition, would be assigned to the Company. The practical reasons for such an assignment, to avoid uncertainty, were obvious, as recognised in the advice provided by KPMG Law in April 2021, which was provided to Mr Hutchison no later than December 2021 (Hutchison 17.2.23, Annexure A).
Mr Hutchison may have misunderstood the effect of that draft deed, since he replied "I'm sorry, why are we giving away IP?" (Wellington 27.10.22 [114], Hutchison 20.3.23 [29]; Ex P1, CB 532). By a further email dated 7 December 2021 (Hutchison 6.7.23, Annexure J), Mr Elkins responded that the proposed assignment was, "not giving away - securing your personal IP on the plane to [the Company] so that [the Company] owns it". That email indicated that at least Mr Elkins believed or assumed that Mr Hutchison owned intellectual property that he had developed in relation to the Aircraft, and may have prompted Mr Hutchison to take the same view and seek to leave open the possibility of exploiting that intellectual property for himself, whether by licensing it to the Company for a further fee or using it himself. I will address the correctness or otherwise of that belief or assumption below. There was further discussion of documents at a meeting on that date although what was said is disputed (Wellington, 27.10.22 [115]; Hutchison 20.3.23 [30]).
On 12 December 2021, Mr Wellington emailed Mr Hutchison advising that, in order to secure the fundraising, there needed to be a document which confirmed the ownership of the intellectual property in the Aircraft (Wellington 27.10.22 [117]; Ex P1, CB 540).
The topic of intellectual property in the Aircraft was then discussed at a board meeting on 17 December 2021 attended by Mr Wellington, Mr Hutchison and Mr Elkins. The minutes of that directors meeting (Ex P1, CB 542) record discussions as to progress with the Aircraft, fund raising plans and the assignment of intellectual property. Mr Hutchison begins by stating that "he is not sure of content meaning for the IP assignment deed", and Mr Elkins is recorded as advising of the "need to assign the IP in the [Aircraft] to [the Company]", and stating that "[c]urrently, as the designer [Mr Hutchison] holds this IP personally but needs to confirm that it is 'owned' by [the Company]". The minutes recorded that:
"[Mr Hutchison] advised the IP, in his view was already owned by [the Company] and that an additional deed was not required. [Mr Elkins] advised this was not the view of the other Board members and if in doubt [Mr Hutchison] should get his own legal advice to confirm as he does not believe what [the Company] counsel has advised."
Mr Hutchison then abruptly left that meeting.
Similar evidence as to that meeting is led in each of Mr Wellington's and Mr Elkins' affidavits (Wellington 27.10.22 [118]-[119], Elkins 27.10.22 [16]-[19]). In his second affidavit dated 20 March 2023, Mr Hutchison addressed (Hutchison 20.3.23 [31]) events at that board meeting. He took issue with the minutes of that board meeting and denied that he had said the words recorded in them that "In my view, the Company already owns the IP. I'm not signing". I do not accept Mr Hutchison's evidence in that regard. By contrast with the positions put at that meeting, Mr Wellington now contends that the intellectual property, where developed by Mr Hutchison as a director of the Company, is the Company's property and Mr Hutchison denies that proposition.
By an email dated 19 December 2021 (Hutchison 17.2.23, Annexure A), Mr Elkins sent Mr Hutchison the review of, inter alia, intellectual property rights provided by KPMG Law in April 2021, to which I referred above.
In early March 2022, there was discussion as to possible commercial terms in respect of a resolution of the differences that had by then arisen between the Company's shareholders (Wellington 27.10.22 [123]). On 11 March 2022, Mr Wellington, Mr Hutchison and Mr Elkins executed a Heads of Agreement (Wellington 27.10.22 [125]) which did not resolve disputes as to ownership of intellectual property, which were again raised at a meeting on 12 April 2022 between Mr Wellington and Mr Hutchison (Wellington 27.10.22 [130]-[133])
On 18 May 2022, Mr Wellington's solicitors wrote to Mr Hutchison concerning termination of the Heads of Agreement and a suggested default under the Loan Agreement and a demand for a repayment of Mr Wellington's loan (Wellington [138], CB 576)
On 23 May 2022, Mr Hutchison incorporated a new company, Dasoru Pty Limited ("Dasoru"), of which he was sole director, secretary and shareholder (Wellington 27.10.22 [160]; Ex P1, CB 658). I address Mr Hutchison's evidence concerning that company and the Plaintiffs' claim concerning that company below.
By email dated 5 June 2022 (Wellington [140]; Ex P1, CB 581), Mr Hutchison contended that the Company did not own the intellectual property for the Aircraft, in the context of a debate about funding of the Company, and observed in that email that:
"I will also remind you that the company does not own the IP which I have generated. As a result of this, if the company goes into liquidation then the value of the company will come down to the consumables that are currently in the building, which is very little."
By a further email dated 7 June 2022, Mr Hutchison again claimed that he had the right to the intellectual property of the Aircraft (Wellington 27.10.22 [141]) and observed that:
"I will not be putting one more cent into the company and I will not be signing any IP agreements (even though you have tried to blackmail me to sign agreements in the past). I will make it clear here and now, I own the IP for this project. The IP on the moulds and parts belong to me. So as it stands the moulds and parts are worthless. If required I can clearly show evidence that I own the IP for this project before the company was even started."
On 13 June 2022, Mr Wellington appointed Mr Vardy as receiver and manager of the Company's assets pursuant to the General Security Deed and Loan Agreement (Wellington 27.10.22 [142]; Ex P1, CB 585).
As at October 2022, Mr Hutchison appeared to have been in possession of at least some intellectual property that was relevant to the development of the Aircraft. By an email dated 5 October 2022 (Elkins 27.10.22, Annexure C), Mr Elkins advised Mr Hutchison that:
"Surely you can see that the IP that we developed really belongs to the Company.
We wanted to make a final request for you to agree to do the right thing - formally assign the IP to the Company. This will enable us to commercialise the plane. If you agree, please then deliver all of the IP and company equipment to the Company. This includes everything to do with the project - for example, drawings, designs, parts, tools, coding/software, the drop box documents, the formulas, the moulds, the domain name, website etc…you need to stop using them yourself for your own purposes also.
You must know that [the Company] can't let you walk away with the IP. [Mr Wellington] has invested more than $800,000 in the business.
Please think carefully about this and let me know by 17 October if you agree."
Mr Hutchison responded by an email dated 6 October 2022 (Elkins 27.10.22, Annexure C), asking:
"On the basis that I deliver the IP to the Company as requested, what do you [Mr Wellington] and yourself suggest is the path forward?"
I also bear in mind the observations of Bell P (as the Chief Justice then was, with whom Bathurst CJ agreed) in ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [27]-[29]:
"Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin):
"the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth." (emphasis added)
Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents."
I have here also drawn on my summary of the applicable principles in Re Atlas Advisors Australia Pty Ltd [2022] NSWSC 705 at [5] and No 1 Victoria Dragons Pty Ltd v AEN Developments Pty Ltd [2022] NSWSC 1345 at [53]ff.
Mr Wellington reads his first affidavit dated 27 October 2022, which outlines the circumstances in which he met Mr Hutchison and became involved with a project to develop the Aircraft, investing as a shareholder in the Company and lending money to the Company in connection with that project. I have largely addressed his evidence as to those matters in setting out the chronology of events above. Mr Wellington also refers to subsequent steps taken to progress the development of the Aircraft and to attendance at air shows where models of the Aircraft were displayed. Mr Wellington refers to his introduction of Mr Elkins, who also gave affidavit evidence and was cross-examined, to the project with a view to assisting its completion, and to the circumstances in which KPMG was engaged to assist with capital raising efforts.
Mr Wellington also addresses the circumstances in which the relationship between the shareholders and directors broke down, as between Mr Wellington and Mr Elkins on the one hand and Mr Hutchison on the other. As I have noted above, that occurred in the context that Mr Wellington and Mr Elkins were seeking to have Mr Hutchison, as well as other consultants to the Company, execute deeds of assignment of intellectual property rights that would clarify, confirm, or possibly establish the Company's ownership of intellectual property that was used to develop the Aircraft. That dispute appears to have crystallised at the time of the board meeting on 17 December 2021 to which I referred above, although attempts to clarify the position in respect of intellectual property had occurred prior to that meeting and continued into the early part of 2022.
Mr Wellington also refers to the execution of a Heads of Agreement between the shareholders in March 2022, which does not appear to have resolved the disputes between them. His evidence is that he had seen the Aircraft in a 75-80% finished state in April 2022 (Wellington 27.10.22 [130]), although it has apparently since been disassembled. There is a dispute between the parties, which I need not resolve, as to whether that was done for the purpose of painting the Aircraft, but there appears to be no dispute that the Aircraft has not since been reassembled. Mr Wellington's evidence is that Mr Hutchison did not execute or return documents contemplated by the Heads of Agreement by May 2022, and Mr Wellington subsequently terminated the Heads of Agreement and a loan agreement between him and the Company and demanded repayment of his loan to the Company. As I noted above, following further disputes, Mr Wellington then appointed Mr Vardy as receiver and manager of the Company's assets, exercising his rights as a secured lender to the Company.
By a second affidavit dated 2 February 2023, Mr Wellington responded to Mr Hutchison's account of events and I have addressed aspects of his evidence in the chronology that appears above. Mr Wellington also there gave evidence to seek to establish his reliance on the representations he claims were made by Mr Hutchison. His evidence was that, had he known that Mr Hutchison had already designed the Aircraft by 14 December 2018, he would not have become a shareholder of the Company or loaned money to the Company (Wellington 2.2.23 [7a]). That question does not arise, because I do not find that Mr Hutchison had completely or substantially designed the Aircraft (if that is understood to include the numerous components needed for its production) by 14 December 2018, although he had done several design drawings, prepared a foam model and a picture of it by that time. I also think it unlikely that Mr Wellington would then have recognised any possible adverse implications of that matter for the Company's ownership of intellectual property in the Aircraft, where he had not taken legal advice at that time and it seems to me that he would have likely have treated that matter as a positive rather than a negative in his investment decision-making.
Mr Wellington's evidence was also that, had he known that Mr Hutchison would, or intended to, retain ownership of the design for the Aircraft or its parts or its components, he would not have loaned money to the Company (Wellington 2.2.23 [7b]). I accept that he would likely have taken that view, but I find below that Mr Hutchison did not form such an intention until the issue of ownership of intellectual property was later highlighted in discussions as to the assignment of intellectual property rights to the Company. Mr Wellington's evidence is also that, had he known at the Avalon air show in February 2019 that the Aircraft would not be flying within 12 months, he would have not lent money to the Company, and had he known of the increased cost of developing the Aircraft and that it would not be flying by February 2020, he would have not lent money to the Company. There is a significant degree of artificiality in that evidence, which emerged in Mr Wellington's cross-examination. I accept that Mr Wellington would not have lent money to the Company had it been plain, at the outset, that the development of the Aircraft would be long delayed and significantly more costly than originally anticipated. However, Mr Wellington also plainly recognised the risks attached to the development of a prototype of an electric aircraft and continued to lend money to the Company as those risks began to emerge. This evidence also does not recognise or address the obvious difficulty that, once Mr Wellington had invested a significant amount in the development of the Aircraft, his ceasing to fund its future development would have put his existing investment at risk, and that omission significantly reduced the cogency of that evidence.
By a further affidavit dated 26 April 2023, Mr Wellington took issue with aspects of Mr Hutchison's earlier evidence in the proceedings. It is largely not necessary to resolve disputed details of the early conversations between Mr Hutchison and Mr Wellington. Mr Wellington also addressed a dispute between the parties as to the difficulties of retaining adequately skilled employees and workers for the project. Little turned on that matter, where the question whether Mr Hutchison had reasonable grounds for the alleged representations is to be assessed at the time they were made and not by reference to these later difficulties. Mr Wellington also referred to matters raised in Mr Hutchison's affidavit evidence as to the circumstances in which the loan agreement between Mr Hutchison and the Company was provided to Mr Hutchison and signed, but nothing turns on that matter where no challenge to that loan agreement is raised in these proceedings.
By a fourth affidavit dated 11 July 2023, Mr Wellington responded to Mr Hutchison's late affidavit dated 6 July 2023. He again denied that he was shown a model aircraft by Mr Hutchison or a picture of the aircraft in December 2018, and I have addressed that question above. He maintained he relied on budgets provided by Mr Hutchison in deciding to loan funds to the Company, without acknowledging his recognition of the risks attached to the development of the Aircraft, which he fairly acknowledged in parts of his cross-examination, or the fact that decisions to invest later funds must have been made in the context of the amount of funds that he already had at risk if the project was abandoned. He also referred to matters relating to the falling out between the parties, particularly in mid-December 2021, but those matters are of little relevance to the relief sought in these proceedings.
Mr Wellington was cross-examined at substantial length. He was a largely credible, although occasionally somewhat defensive or argumentative, witness; he readily acknowledged his lack of recollection of some matters; and he made significant admissions which were adverse to his representational claims. There were occasions, in Mr Wellington's cross-examination, where he did not accept the implications of matters that he had accepted or later retreated from matters that he had previously acknowledged. Nonetheless, I am satisfied that Mr Wellington was doing his best to tell the truth and that he was a largely reliable witness.
Mr Wellington fairly acknowledged in cross-examination that he knew the budget for the Aircraft could change where "[w]e are building a prototype" (T73-74); that the construction of the Aircraft required "[q]uite a deal of skill" and that there were a lot of unknowns in building that prototype (T74). Mr Wellington's evidence in cross-examination was also that Mr Tolhurst, who was working part-time with Mr Hutchison on building the plane, mentioned to Mr Wellington that there were faults in the plane (T87-88) and that would plainly be another significant indicator to Mr Wellington of the risks involved in the development process. Mr Wellington's evidence was, oddly, that he had not told Mr Hutchison of those faults, although he sought to explain that on the basis that he understood that Mr Tolhurst had already told Mr Hutchison of them (T89). Mr Wellington fairly accepted that extra time would be involved in rebuilding parts that had a fault, and his evidence was that quite a number of parts were rebuilt, and he would expect that to happen in a prototype plane, although he then somewhat retreated from that evidence (T90). While he did not accept that he would have expected the plane to take longer to build than first estimated (T90), he again acknowledged that there were a lot of unknowns in building the plane when it was first proposed, because it was a prototype; and that estimates of how long things would take and how much they would cost could change over time (T91). That evidence was, however, inconsistent with his further evidence that he "expected that we would be on time" (T91). Mr Wellington initially gave evidence that his conversation with Mr Tolhurst, identifying the faults with the aircraft, was in mid-June or early June 2019, before the Oshkosh air show, although further cross-examination as to the time at which Mr Tolhurst ceased work with the Company raised a question whether he was wrong as to the timing of that conversation (T92-93). On the second day of his cross-examination, Mr Wellington acknowledged that he was confused about when Mr Tolhurst was employed by the Company, but again said that he had a discussion with Mr Tolhurst concerning potential design flaws in the Aircraft just before Mr Tolhurst left the Company (T149). That evidence is consistent with Mr Elkins' evidence that Mr Tolhurst had also told him of such flaws.
Mr Wellington's evidence in cross-examination was that he was not definitive as to the amount that he was prepared to invest in the development of the Aircraft, and the amount that he would invest depended upon the level of public interest in the Aircraft at the Avalon and Oshkosh air shows. He accepted that he would have been prepared to invest up to one million dollars in the Aircraft if the "future indicated that that was a worthwhile investment" (T150). I understood his evidence to indicate that, understandably, he would assess the position as to further funding of the Company on an ongoing basis. There is no reason to think that Mr Wellington had made an early decision to put the entirety of the funds that he was potentially prepared to invest at risk, irrespective of the progress of the development of the Aircraft or the level of public interest in it.
Mr Wellington accepted that he was willing to provide further funds for the development of the Aircraft after February 2020, when it was apparent that it had not yet reached a flying state (T150). He also maintained, and I accept, that the timeline of development of the Aircraft was a factor in his decision whether to invest further funds (T151). His evidence was that he relied on estimates of the completion date of the Aircraft in determining whether to invest further funds into the Company and denied that he had already decided to invest further funds into the Company prior to those estimates (T152). I accept that evidence, with the qualification that he was plainly aware of the risk that these estimates would not be met. In cross-examination, Mr Wellington repeated his affidavit evidence that, at the Oshkosh air show, Mr Hutchison was assuring customers that the Aircraft would be flying "very soon" (T154) and then retreated, to some extent, from his earlier recognition of the risks involved in development of the Aircraft, which undermined any firm date for its completion (T154).
Mr Wellington was also cross-examined as to whether Mr Hutchison had undertaken work in the garage at his home, before the Company rented premises, and as to Mr Hutchison's use of his own computers and cutting and model-making machines prior to March 2019 (T157). I address the relevance of this matter to whether Mr Hutchison was employed by the Company and whether intellectual property relating to the Aircraft that was developed by him was owned by the Company below.
Mr Wellington accepted that, when Mr Hutchison declined to sign assignment agreements relating to intellectual property, Mr Wellington became concerned about the Company's future, because of issues as to the Company's ability to raise funds "without a clear perspective" (T159). I understand that evidence to refer to the Company's need to be able to demonstrate to future investors that it owned the intellectual property relating to the Aircraft, which was emphasised by KPMG since April 2021.
Mr Wellington also read an affidavit dated 27 October 2022 of Mr Elkins. Mr Elkins became a director of the Company on 1 October 2021, holds a relatively small number of shares in the Company and was also appointed the chair of the Company. He had experience in project management and business development, and, as I noted in dealing with the chronology of events above, he spent a week with Mr Hutchison at the Company's workshop in December 2020, working on a project timeline and budget. Mr Elkins gave evidence (admitted with a limiting order under s 136 of the Evidence Act 1995 (Cth) ("Evidence Act") as his understanding) of reasons why he understood the Aircraft and intellectual property relating to it was the Company's property. He referred to steps taken by the Company, including by Mr Hutchison, to seek to protect intellectual property in the Aircraft, including obtaining non-disclosure agreements from Mr Tolhurst and from third parties with which the Company was dealing in relation to electric propulsion systems and a flight simulator. Mr Elkins was also required to execute a non-disclosure agreement in his role with the Company. He also referred to work with marketing advisors, including KPMG, and fundraising plans for the Company and expressed the view that intellectual property needed to be assigned to the Company to allow fundraising.
Mr Elkins addressed the engagement of KPMG to assist with external funding from January 2021 and referred to KPMG's advice that ownership of the Aircraft and the intellectual property needed to be formalised to allow potential investors to be comfortable in investing funds in the Company, where the Company had engaged employees, contractors and Mr Hutchison in developing the Aircraft and the intellectual property. Mr Elkins' evidence is that he raised that matter with Mr Hutchison after KPMG had raised it and that Mr Hutchison responded that it was "not a priority" and his priority was to "get the plane flying" (Elkins 27.10.22 [8]). His evidence is that he raised the assignment deed in respect of intellectual property with Mr Hutchison on several subsequent occasions and Mr Hutchison responded in the same way on those occasions (Elkins 27.10.22 [9]). Mr Elkins' evidence was that Mr Hutchison never said to him that Mr Hutchison owned the Aircraft or the intellectual property or that the intellectual property was not the Company's property (Elkins 27.10.22 [11]). That is consistent with my finding below that Mr Hutchison likely did not take that position until the issue of the assignment of intellectual property was pressed in late 2021. Mr Elkins' evidence is that he gave a copy of the proposed assignment deed to Mr Hutchison in mid-November 2021 (Elkins 27.10.22 [14]) and Mr Hutchison again responded that it was "not a priority" but said he would "get to it". I accept Mr Elkins' evidence in preference to Mr Hutchison's evidence in that respect. Mr Elkins also addressed events at the Company's board meeting on 17 December 2021 (Elkins 27.10.22 [19]).
By a second affidavit dated 13 July 2023, in response to Mr Hutchison's 6 July affidavit, Mr Elkins identified several people who had worked with the Company and explained the content of a report that he had prepared after meeting with Mr Hutchison and Mr Wellington in December 2020 (Ex P2, 1), in evidence that was largely admitted with a limiting order under s 136 of the Evidence Act as directed to his understanding. He again expressed the view, admitted as evidence of his understanding, that he then believed the intellectual property in the Aircraft belonged to the Company. Mr Elkins expressed the view that the Aircraft was approximately 75% complete by early 2021 (Elkins 13.7.23 [11]). He referred to the need for additional capital to move from the development stage to the production stage for the Aircraft and to KPMG's retainer to provide assistance in obtaining external funding and business development. His evidence is that he kept Mr Hutchison informed of those matters, although his emails were no longer available after receivers were appointed to the Company's assets. His evidence is also that he believed that he sent the intellectual property review report prepared by KPMG in April 2021 to Mr Hutchison, consistent with his usual practice, and I think it is likely that occurred where there was no reason for him not to have done so given the parties' then commercial relationship.
Mr Elkins took issue with Mr Hutchison's view that the Company never had the "right resources" to complete the Aircraft and he identified employees and third parties who were engaged to assist the Company with these matters (Elkins 13.7.23 [12]). As I have noted above, little turns upon that given the way in which the Plaintiff puts its representational case. Mr Elkins also referred to a discussion with Mr Tolhurst in April 2022, where Mr Tolhurst had referred to "design flaws" in the Aircraft, but says that he does not know whether those design flaws were big or small or what they were (Elkins 13.7.23 [14]). Mr Elkins also expressed the view, in evidence admitted with a limiting order as his understanding, that Mr Hutchison had greater skill with spreadsheets and budgeting than Mr Hutchison now acknowledges (Elkins 13.7.23 [15]).
Mr Elkins was also cross-examined. He was a careful and precise witness and I generally accept his evidence. He was at time cautious in relation to the documents which were shown to him, where he no longer had access to his email to verify the form in which they had previously been sent to him. I do not think that caution was unreasonable, or that it involved any lack of constructiveness on his part, although there does not appear to be any issue as to the authenticity of those documents.
Mr Elkins reiterated, in cross-examination, that his practice was to send documents to the directors including Mr Hutchison as he received them although he acknowledged that there may be cases in which he had not done so (T167). He took issue with the correctness of the reference in KPMG's intellectual property report to Mr Hutchison's status as a contractor, and his evidence in cross-examination was that Mr Hutchison was in a different category from the various contractors used by the Company, as he was a director and shareholder in the Company (T178-179). I accept Mr Elkins' evidence in cross-examination that there was no particular reason for him to seek to correct that reference at the time, where he was generally in agreement with KPMG's recommendations as to what should be done to clarify the status of the intellectual property concerning the Aircraft.
Mr Elkins was cross-examined at some length as to his understanding of whether Mr Hutchison owned the intellectual property relating to the Aircraft so far as he was a contractor to the Company and he held to his belief that the Company owned that intellectual property, although it would be desirable to confirm that by the proposed assignment deed. Little turns on the cross-examination of Mr Elkins or other witnesses as to that matter, where ownership of that intellectual property will be determined, first, by the mixed question of fact and law of whether Mr Hutchison was an employee of the Company; second, whether his development of intellectual property in that capacity had the consequence that it was the Company's property; and, third, whether his statutory and fiduciary duties as a director of the Company prevent him asserting a right to ownership to that property in a manner that would advance his own interests over the Company's interests. I address these issues below. Mr Elkins was also cross-examined as to Mr Wellington's conduct, and particularly his consideration of locking Mr Hutchison out of the premises, when the relationship between the parties deteriorated. That cross-examination did not recognise that Mr Wellington's position was directed to the position of a breakdown in the parties' relationship, and little turns on it, in any event, for the issues that I have to decide.
Mr Hutchison read a brief affidavit dated 17 February 2023 which related to documents held on a USB drive that he provided to the receivers of the Company, and I will address the contents of that USB drive below.
By a second affidavit dated 20 March 2023, Mr Hutchison took issue with aspects of Mr Wellington's evidence of the initial conversations between him and Mr Wellington. As I noted above in dealing with the chronology of events, his evidence was that Mr Wellington had not initially said that the funding Mr Wellington provided to the Company would be treated as a loan, although it is not apparent that it could have been treated in any other way without substantially diluting Mr Hutchison's equity interest in the Company. As I also noted above, Mr Hutchison's evidence was that he had shown Mr Wellington drawings and a foam model of the Aircraft, implicitly in November or early December 2018, and he took issue with Mr Wellington's evidence to the contrary. Mr Hutchison did not then produce the drawings or the model to which he referred, which he first produced with his late affidavit dated 6 July 2023. Mr Hutchison also contested the characterisation of the remuneration paid to him as salary and implicitly contested the Plaintiffs' claim that he was an employee of the Company and that intellectual property that he developed was the Company's property. His evidence was that no PAYE tax was taken out of his remuneration, workers compensation insurance was not paid, no holiday leave was recorded and the Company did not make superannuation contributions for him. His evidence was that he registered a domain name using the words "Carbon Copies" in 2006 and a business name using the words "Carbon Copies Composites" in 2004 and indicated that he was then happy for the Company to use his business name and his website but that he did not transfer ownership of the business name or website to the Company. I have addressed Mr Hutchison's evidence in this affidavit as to the budget for the Oshkosh air show in dealing with the chronology of events above. Mr Hutchison's evidence was also that the Company was ultimately not able to engage suitably qualified and skilled workers to build the Aircraft. I have also addressed Mr Hutchison's evidence concerning the 17 December 2021 board meeting in dealing with the chronology of events above.
Mr Hutchison led fuller evidence by his very late affidavit dated 6 July 2023, which I granted leave for him to read for the reasons set out in a separate unreported judgment. He there sought to explain why he had not previously produced design files which he created in 2018 to the receivers of the Company until 23 June 2023. Mr Hutchison's evidence was again that he created a foam model of the Aircraft in late November or early December 2018 and showed that model to Mr Wellington in November or December 2018 and that he also showed a picture of the proposed Aircraft to Mr Wellington on 2 December 2018 or shortly thereafter. Mr Wellington denies that matter in his affidavit in reply and I have addressed this issue above. Mr Hutchison also claims (Hutchison 6.7.23 [32]) to have done "some preliminary designs" on a single seater electric aircraft in November 2018 but says, without further explanation, that he does not have access to those designs.
Mr Hutchison then sets out his background, which includes his completion of an aeronautical engineering degree and employment as a technical officer, tutor and research assistant at the University of Sydney, his subsequent involvement in the manufacture of unmanned aerial vehicles in other organisations, his work as an aeronautical engineering officer with the Royal Australian Navy and later work in a company in developing drone technology. He also refers to his work as a handyman with a small building company in Bowral, which led to his initial meeting with Mr Wellington. He again refers to his use of the name "Carbon Copies Composites" for a long period prior to the incorporation of the Company.
Mr Hutchison's evidence, which I am inclined to accept, is that he did not give consideration to who owned the intellectual property in the design of the Aircraft between 2018 and 2020. His evidence (Hutchison 6.7.23 [49]) is also that he considered "the Company was entitled to use the design to build the plane if I was a director and/or a major shareholder". I think it unlikely that Mr Hutchison had thought about that matter in the relevant period, and it is plain that he then took the contrary position that he was entitled to the intellectual property in the Aircraft to the exclusion of the Company once the relationship between the shareholders had deteriorated in early 2021. His evidence (Hutchison 6.7.23 [50]) is that he "did not give consideration to transferring [his] rights to the intellectual property to the [C]ompany". That evidence assumes, of course, both that Mr Hutchison had such rights and that he would be entitled to exercise them in a way that preferred his own interests to the Company's interests and I address those issues below. His evidence, which I am also inclined to accept, is that he first thought that he may own the intellectual property when he was asked to execute a deed of assignment that would confirm the Company's ownership of that intellectual property in December 2021 (Hutchison 6.7.23 [55]).
Mr Hutchison also addressed the limited extent of his involvement with KPMG, which seems to me reflects his limited interest in the financial management of the Company as distinct from matters relating to the development of the Aircraft. His evidence is that that he was not shown a report prepared by KPMG Law in April 2021 concerning ownership of the intellectual property in the Aircraft until he was sent that report by Mr Elkins on 19 December 2021 (Hutchison 6.7.23 [61]). I have referred above to Mr Elkins' evidence that he kept Mr Hutchison informed of that report, and likely provided him with the report in or around April 2021. Nothing turns on this dispute, where neither the ownership of the intellectual property, as a matter of law or fact, nor the extent of Mr Hutchison's duties as a director of the Company depend on when he was advised of that report. Mr Hutchison also addresses matters which led to his dissatisfaction with Mr Wellington and Mr Elkins at the directors' meeting on 17 December 2022 and presumably contributed to the breakdown of the relationship between the shareholders. Again, nothing turns on that matter for the questions that I have to decide.
Mr Hutchison reiterates his position, advanced in his earlier affidavit, that PAYE tax was not paid by the Company on the amount that was paid to him by way of remuneration from December 2018 until April 2022 and that no holiday leave accrued for him, no superannuation contributions were made for him and no workers compensation premiums were paid in respect of him (Hutchison 6.7.23 [67]). His evidence is that he was not directed in his daily work for the Company by any person, and it is apparent that the Company's other directors would not have had the technical skills to give such direction. Mr Hutchison also refers to his belief that he was a subcontractor to the Company (Hutchison 6.7.23 [69]), although that subjective belief is of limited relevance to the proper characterisation of the relationship.
Mr Hutchison led evidence that sought to support his estimate of the time which would be required to produce two models for the Avalon air show which was to take place in late February 2019, and to his earlier experience in building models of drones and unmanned aeronautical vehicles prior to December 2018. His evidence was that Mr Wellington did not fund the Company until late December 2018, reducing the time in which funding was available to build the models (Hutchison 6.7.23 [72]). Mr Hutchison also referred to the work undertaken toward building a full size, non-flying, model for the Oshkosh air show which was to take place in July 2019, and his evidence is that he was not able to complete the full-size model when the person assisting him in building that model fell ill in May 2019. He refers to his email sent to Mr Wellington in that respect on 28 June 2019, to which I referred above.
Mr Hutchison also refers to problems which arose in the manufacture of the Aircraft, and particularly emphasises difficulties in obtaining skilled workers who were sufficiently productive. Little turns on that evidence, where the adequacy of the basis for the alleged representations is to be determined at the time they were made. I address the Plaintiffs' representational case further below. Mr Hutchison's evidence (Hutchison 6.7.23 [91]) is also that he had no training or skill in producing budgets, but the budgets he produced were based on his estimate of the time necessary to complete the project "with the right resources and an estimate of the cost of those resources" and his evidence is that the Company did not ever have the "right resources" to complete the project. Mr Hutchison also addressed the risk that he would be locked out of the premises after the relationship between the parties deteriorated and his understanding of the loan agreement and security deed executed between the Company and Mr Wellington, but I need not address these issues to determine the matters which I have to decide.
By a further affidavit dated 17 July 2023, Mr Hutchison referred to the date on which he registered a domain name "dasoru.com.au" (which has personal significance for him) in 2017, and incorporated a company under that name in May 2022 (Ex P1, 658), of which he was the sole director and shareholder. His affidavit evidence was that he created that company to create and sell handmade wood products; that that company does not have a bank account and he uses his personal business account for it; and that company does not do work relating to fixed wing aircraft but has purchased and on-sold parts for vertical take-off drones. An Instagram page annexed to that affidavit contained advertisements for wood products. In cross-examination, Mr Hutchison's evidence was that he incorporated that company in May 2022 for the business activities which he had undertaken throughout his career, which included the manufacture of drones (T297-298). He denied that he incorporated that company in order to continue the development of the Aircraft, although he had by then asserted ownership of the intellectual property relating to the Aircraft. It is not necessary to reach a finding as to his evidence in that respect in order to determine a claim concerning that company in the proceedings, where there is no suggestion that he in fact used that company in any matter relating to the Aircraft.
Mr Hutchison was cross-examined at some length. Mr Bulley submits that Mr Hutchison's evidence should be treated with caution. He points out that, understandably, Mr Hutchison is heavily invested in the case and submits that he gave his oral evidence in a calculated way and with answers that were "at best evasive and sometimes argumentative". It seems to me that Mr Hutchison took every opportunity in cross-examination to seek to make points that he thought would advance his claim to have designed the Aircraft before the Company was incorporated, so as to seek to displace any ownership of intellectual property by the Company. He was at times a somewhat evasive witness, and often responded to questions in cross-examination by interpreting them in a narrow or technical way rather than responding to their substance. He frequently answered to questions as to specific matters with words to the effect of "I'll have to check my records", where it suited his case to do so, although the questions were directed to matters that he would likely recall or would have reviewed in the course of these proceedings, but readily volunteered his recollection or understanding of other matters which he considered advanced his case. On occasion, he took advantage of the fact that he had a greater understanding of aeronautical engineering than Mr Bulley to avoid engaging with questions in cross-examination. He also appears to have responded to questions relating to the "design" of the aircraft by treating that concept as excluding steps that were required by way of structural and engineering analysis to develop a functional design of the Aircraft to the point of manufacture and any sale of the Aircraft to users in kit form or otherwise. That narrow approach to the concept of "design" assisted him to maintain his claim in cross-examination that he had completed the "design" of the Aircraft before the Company was incorporated.
In cross-examination, Mr Hutchison characterised the information that he had provided to cost of building the airframe and attending the Oshkosh air show in 2019 as "my estimate" (T198) and rejected the characterisation of the remuneration payable weekly to him as "salary" (T198-199), although he had himself used that term in an email dated 27 November 2018 to which I refer below (Ex P1, CB 66). Mr Hutchison described the drawings attached to his affidavit dated 6 July 2023 as an "aerodynamic model" of the aircraft (T202) and indicated that the technical detail for the specifications of the Aircraft was incorporated in the CAD files (T203). Neither party led evidence that establishes when the numerous individual CAD files were created. Mr Hutchison's maintained in cross-examination that the design of the Aircraft was done in November and early December 2018 (T205), prior to the Company's incorporation and relied on the drawings attached to his July affidavit as completing the "design" of the Aircraft, although it is apparent that the numerous individual CAD files relating to particular elements of the Aircraft design could not have been created in the month between Mr Hutchison's first drawings and the Company's incorporation. Mr Hutchison also sought to minimise the extent to which the design changed over time, after November or December 2018, giving evidence that "[s]ometimes things [we]re tweaked" (T207) and denying that components were redesigned, before indicating that whether that occurred depended on the component and that he would have to check records to see what aspects of the design was "tweaked" (T207). I do not accept Mr Hutchison's later evidence in cross-examination that the design of the Aircraft was "set in stone" as at December 2018 (T263), even if was there using the term "design" in the narrow way that I noted above.
Mr Hutchison characterised the information he had provided to Mr Wellington and to persons attending the Oshkosh air show, as to the date by which the Aircraft would be flying, as "the plan" and what he "hope[d] to do" and emphasised that he did not "guarantee" that result (T221). His evidence was that the information he later provided to Mr Wellington that there would be a flying prototype by the time of the Oshkosh air show in July 2020 was "a plan" (T229).
Mr Hutchison was also cross-examined at some length as to Mr Elkins' report prepared in December 2020 and to the estimates of the extent to which components of the Aircraft were complete in that report, and he accepted that those estimates were at least partly sourced from information that he had provided, although he said that it was not only himself who provided Mr Elkins with that information (T236).
Mr Hutchison was cross-examined (T239ff) as to the contents of the USB drive (Ex P1, CB 719ff) that he provided to Mr Vardy as receiver and manager of the Company's assets on 12 December 2022, pursuant to the Court's order made on 2 December 2022. A listing of the files on that USB drive indicated many items relating to the design and construction of the Aircraft, many of which were in CAD format. Those items were arranged in folders and subfolders relating to matters such as the aerofoils for the Aircraft, busbars, the electric motor which was to power the Aircraft, an onboard computer, bulkheads, canopy, moulds, wings, cockpit, engine mount, fuselage, fuselage mould, horizontal tail, rudder, rudder pedals and vertical tail. Mr Hutchison's evidence was that some of those items including the onboard computer and electric motor were sourced from third parties, and the relevant information may have been downloaded from the internet rather than developed by him. He also contended that the design of items such as the fuselage and wings was derived from the drawings he prepared in November and December 2018 (T206). I will assume, without deciding, the correctness of Mr Hutchison's evidence as to that matter. Nonetheless, the number of these items indicates that a substantial amount of work was involved in preparing them and I infer that they were necessary for the development and any production of the Aircraft by reason of the fact that they were obviously prepared for that purpose. Mr Bulley put to Mr Hutchison that many of these items were modified, after the Company was incorporated, by reference to a "date modified" record on that listing. I accept Mr Hutchison's evidence that that date is inconclusive, where it is possible that the "date modified" will be updated on the last date the file was accessed rather than modified. Nonetheless, I infer that many of these items were prepared after the Company was incorporated, by reason of their number and the apparently detailed character of the design issues they addressed. In the event, little turns on that, where I find below that the Company's right to use the intellectual property relating to the Aircraft extends to intellectual property relating to the Aircraft that was prepared before it was incorporated.
Mr Hutchison was also cross-examined as to his understanding of ownership of intellectual property in the Company and as to the need to clarify that matter in order to obtain external funding from the Company and emphasised that he did not seek to support attempts to obtain external funding (T255ff). Mr Hutchison was also cross-examined as to design work that remained to be done in respect of the Aircraft and Mr Elkins' report dated December 2021 in that regard (T264ff). He denied that there were numerous items where there was still design to be done in relation to the Aircraft and said that "I don't know that I even went through the report … I was busy building the [A]ircraft" (T266). I prefer Mr Elkins' assessment of the then state of the Aircraft in that report to Mr Hutchison's evidence in cross-examination, although I recognise he may again have treated the concept of "design" in a narrow way in his answer, to exclude any development work beyond the documents prepared in November or December 2018. I approach Mr Hutchison's evidence that he did not read that report with caution, and note that it would have been highly irresponsible for him to take that approach.
In cross-examination, Mr Hutchison indicated that two websites were used in respect of the Aircraft (T281ff), one with the domain name "Carboncopies.com.au" which had been registered to Mr Hutchison some years before the Company was incorporated, and which he says that he permitted the Company to use, and the other with the domain name "Electron.aero" which was registered in the Company's name. Mr Hutchison was also cross-examined as to an engineering status update in respect of the Aircraft prepared by a third party consultant in June 2022 (Ex P1, CB 612ff; T295ff)). He also took issue with aspects of this report, so far as it referred to matters which occurred prior to the inspection, which were presumably not directly known to that consultant, although little turns on that dispute. He was also cross-examined as to the circumstances in which he had claimed ownership of intellectual property relating to the Aircraft following discussions with Mr Wellington in 2022 (T291ff) and by email dated 5 June 2022 (Ex P1, CB 581).
These principles were also helpfully summarised by Payne JA (with whom Bell CJ and White JA agreed) in Lin v Zheng [2023] NSWSCA 174 ("Lin v Zheng") at [31]-[33], delivered after judgment in this matter was reserved, as follows:
"Conduct is misleading or deceptive or likely to mislead or deceive if it has a tendency to lead a person into error: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [39] (French CJ, Crennan, Bell and Keane JJ). It is not necessary for a plaintiff to establish that a person engaging in misleading or deceptive conduct intended to mislead or deceive. The relevant question is whether, viewed objectively, the relevant conduct was misleading or deceptive or likely to mislead or deceive: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44 at 197 per Gibbs CJ, 216 per Brennan J.
Conduct is likely to mislead or deceive if there is a real and not remote chance or possibility that a person is likely to be misled or deceived, and this is so even though the possibility of that occurring is less than 50 per cent: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [112] per McHugh J.
In Butcher at [109] (followed by a majority of the High Court in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [102]) McHugh J said:
[109] The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 [of the then Trade Practices Act] has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document. [citations omitted]""
Mr Wellington pleads that several representations were made with respect to future matters for the purposes of s 4 of the ACL. In submissions, Mr Bulley rightly excludes claims for misleading omissions from that category and limits it to the First Flying Representations; the Oshkosh Budget Representations; the Second Flying Representations; the Flying Prototype Representations; the Second Flying Prototype Representations; and the Third Flying Prototype Representations as defined, which I address below. He draws attention to s 4(1) of the ACL which provides that where a person makes a representation with respect to any future matter and does not have reasonable grounds for making the representation, the representation is taken, for the purpose of the ACL (which includes s 18 of the ACL), to be misleading. He points out that by s 4(2) of the ACL the maker of a representation as to a future matter bears an evidentiary onus and, for the purpose of s 4(1), that party is taken not to have had reasonable grounds for making a representation with respect to a future matter unless evidence is adduced to the contrary.
Mr Bulley rightly points out that a representation as to a "future matter" is one that expressly or by implication makes a prediction, forecast or projection or otherwise conveys something about what may (or may not) happen in the future: Australian Competition and Consumer Commission v Woolworths Group Ltd (2020) 281 FCR 108; [2020] FCAFC 162 ("Woolworths"). Whether a statement relates to a future matter depends upon the words used and the context in which they were used: Digi-tech (Australia) Ltd v Brand (2004) 62 IPR 184; [2004] NSWCA 58. In Woolworths at [132], the Court observed that:
"A representation will only be with respect to a future matter if it is in the nature of a promise, forecast, prediction or other like statement about something that will only transpire in the future - that is, a representation which is not capable of being proven to be true or false when made."
That approach was followed by Kunc J in Haiye Developments Pty Ltd v Commercial Business Centre Pty Ltd [2022] NSWSC 937 at [384]. In Lin v Zheng at [34]-[36], Payne JA in turn observed that:
"Section 4 of the Competition and Consumer Act 2010 (Cth) sch 2 - Australian Consumer Law (ACL) derives from s 51A of the predecessor to the ACL, the Trade Practices Act 1974 (Cth). Section 4 applies where a representation is made and that representation is with respect to a "future matter". As such, it places an evidential burden on the person who made the relevant representation to adduce evidence that there were reasonable grounds for making it. The term "future matter" is not defined in the ACL. Whether a statement related to a future matter depends upon the words used and the context in which they were used: Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) 62 IPR 184 at [99]-[102]; Australian Competition and Consumer Commission v Woolworths Group Ltd (2020) 281 FCR 108; [2020] FCAFC 162. A representation will only be with respect to a future matter if it is in the nature of a promise, forecast, prediction or other like statement about something that will only transpire in the future.
A statement of what the representor believes a future position will be may be a representation with respect to a future matter even if it implies a representation as to the representor's state of mind, depending on the words used and the context: Digi-Tech at [99]; Sykes v Reserve Bank of Australia (1998) 88 FCR 511; [1998] FCA 1405.
There will not be reasonable grounds for making a representation if, at the time of making it, the representor did not have facts sufficient to induce, in the mind of a reasonable person, a basis for making the representation: Australian Competition and Consumer Commission v Dateline Imports Pty Ltd (2015) 161 FCR 513; [2015] FCAFC 114 at [100]. The fact that a representor may believe in a particular state of affairs does not necessarily mean that there are reasonable grounds for that belief: Cummings v Lewis (1993) 41 FCR 559; [1993] FCA 190. Reasonable grounds for making a representation about a person's intention in relation to a future matter involve both an intention to perform the representation and an ability to perform it: Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200; see also HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [13], referring with approval to Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 at 238-239 and 240-241 per Ormiston J."
Mr Wellington also brings two claims in respect of conduct that he alleges was misleading or deceptive by omission. The applicable principles in such a claim were summarised by the Court of Appeal in OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 at [178] as follows:
"The question of whether silence is misleading is normally answered by asking whether the person alleged to be misled or deceived had a reasonable expectation of disclosure. The relevant principles extracted largely from Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 (BMW Australia) were summarised in the following terms by Sackville AJA in Fabcot Pty Ltd & Anor v Port Macquarie-Hastings Council [2011] NSWCA 167 at [209], which were cited with approval by Barrett JA (Bathurst CJ and Beazley P agreeing) in Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 at [192] (citations omitted):
(iii) The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether in the light of all relevant circumstances, there has been conduct which is misleading or deceptive…While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist.
(iv) In commercial dealings between individual entities, the characterisation of conduct must be undertaken by reference to circumstances and context. The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged.
(v) The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The judgment as to whether there is such a reasonable expectation is objective.
(vi) The invocation of a reasonable expectation that if a fact exists it will be disclosed, directs attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs, or high moral expectations that exceed the requirements of the general law or of the prohibition imposed by [s 42 of the Fair Trading Act].
(vi) In general, [s 42 of the Fair Trading Act] does not require a party to commercial negotiations to volunteer information which will assist the decision-making of the other party. A fortiori, s 42 does not require a party to volunteer information in order to avoid the careless disregard of its own interests of a party of equal bargaining power and competence."
Mr Wellington also contends that representations made by Mr Hutchison as a director, shareholder, employee or contractor of the Company to Mr Wellington as a director or shareholder of the Company were made in trade or commerce, and questions of that kind have also been addressed by the case law. In Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; 92 ALR 193; [1990] HCA 17, the High Court considered the position as to statements made by a foreman to a construction worker in giving instructions in the workplace. The plurality observed (at CLR 604) that:
"What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public. In some areas, the dividing line between what is and what is not conduct "in trade or commerce" may be less clear and may require the identification of what imports a trading or commercial character to an activity which is not, without more, of that character."
Several cases have considered the status of internal communications within corporate governance. In NRMA Ltd v Yates (2000) 18 ACLC 45; [1999] NSWSC 859, Santow J held that communications between a director of a company and its members about matters relevant to an election were made to influence the corporation's future trade and commerce, and were within the scope of the prohibition on misleading or deceptive conduct; a different view was taken by Windeyer J in Yates v Whitlam (1999) 32 ACSR 595; [1999] NSWSC 976 and the difference between the two approaches was noted by Austin J in Cleary v Australian Co-Operative Foods (No 2) (1999) 32 ACSR 701; [1999] NSWSC 1062 at 114. Those cases were considered in New Cap Reinsurance Corporation Ltd v Daya (2008) 66 ACSR 95; [2008] NSWSC 64 where Barrett J held that representations made during a board meeting by officers and employees of a company to its directors were wholly internal to the company and were not made "in trade or commerce", but took a different view in respect of representations made to a due diligence committee meeting which involved persons external to the company.
In Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343, the Court of Appeal (Campbell JA; Hodgson and McColl JJA agreeing) considered, inter alia, the question of whether loans obtained by an individual and a company he controlled for investment with a third party was conduct "in trade or commerce" for the purpose of s 51AC of the Trade Practices Act 1974 (Cth) ("TPA"). Campbell JA observed (at 247) that:
"… not all investment is engaged in "for the purpose of trade or commerce". In Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 603, Mason CJ, Deane J, Dawson J and Gaudron J said that the expression "in trade or commerce" in s 52 of the Trade Practices Act (Cth): "can be construed as referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character."
Their Honours held (at 603) that the expression "in trade or commerce" refers to: "'the central conception' of trade or commerce and not to the 'immense field of activities' in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business."
Similarly, a transaction is entered "for the purpose of trade or commerce" when it is entered to enable some further activity, that has itself a trading or commercial character, to be engaged in. For a private individual, or a private individual's company, to make an investment is not, in my view, to enter a transaction "for the purpose of trade or commerce" when it is not itself a part of a business of investing. It is unnecessary, on the facts of the present case, to decide whether an investment made by such a person or company as part of a business of investing would have the necessary character of being entered "for the purpose of trade or commerce."
In Vanguard Financial Planners Pty Ltd v Ale (2018) 125 ACSR 1; [2018] NSWSC 314 at [202]ff, I held that certain representations as to accounts between shareholders in a company were not in trade or commerce. I also reviewed the applicable principles in Re Orix Australia Corporation Ltd [2020] NSWSC 1770 at [31].
Mr Wellington's claims also, inevitably, raise questions of whether he suffered loss by reason of the allegedly misleading conduct. The principles applicable to causation in a misleading and deceptive conduct case were set out by the High Court in Gould v Vagellas (1985) 157 CLR 215 ("Gould v Vagellas") at 236, where Wilson J observed that:
"1. Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.
2. If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.
3. The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation.
4. The representation need not be the sole inducement. It is sufficient so long as it plays some part, even if only a minor part, in contributing to the formation of the contract."
That approach was followed by the Full Court of the Federal Court in Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 at 240-241 and by Roberts-Smith J in SDS Corporation Ltd v Pasdonnay Pty Ltd [2004] WASC 26 at [400]. Mr Bulley also refers to the observations of the Full Court of the Federal Court in Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274; (1988) 84 ALR 700 at 712-713, in respect of a predecessor provision in the Trade Practices Act 1974 (Cth), that:
"Section 82 creates a remedy in favour of those who have suffered loss or damage "by conduct of another person" in contravention, inter alia, of s 52. What may be recovered is "the amount of that loss or damage". Recovery may be made from the person who contravened the relevant provision of the Act and from any person involved in the contravention, within the meaning of s 75b. ...
Section 82 serves to identify the classes of applicants and respondents in the action, to identify loss or damage as the gist of the action, and to mark out the measure of damages as the amount of that loss or damage. The measure of damages hangs on the words "by conduct"; the preposition "by" has been interpreted to mean "by reason of" or "as a result of". There is thus an apparent telescoping of what to the common law would be concepts of causation, remoteness and measure of damages."
In Lin v Zheng at [50]-[53], after noting the passage from Gould v Vaggelas to which I referred above, Payne JA observed that:
"What must be established is a causal connection between the alleged representations and the loss for which they seek compensation: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55 at 525-526; Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at 469-470 [17] (Gleeson CJ), 480 [61] (Gaudron J), 488-489 [94] (McHugh J with whom Gummow J agreed) and 508-509 [159]-[160] (Hayne J with whom Gummow J agreed). In a claim for misleading or deceptive conduct constituted by representations, acts done by the person to whom the representation was made in reliance upon the misrepresentation will "constitute a sufficient connexion to satisfy the concept of causation": Wardley at 525.
A material representation, in the sense of a representation that is "objectively likely" to act as an inducement to act in a particular way, will be a cause of the relevant loss or damage if it contributed to the loss or damage in some way, even if "other factors or conditions … played an even more significant role in producing the loss or damage": Henville at 493 [106] (McHugh J, with whom Gummow J agreed), 509 [163] (Hayne J, with whom Gummow J also agreed).
In an appropriate case, reliance may be inferred: Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357; (1999) 43 IPR 545 at [11] per Wilcox J, and at [45] per Kiefel J.
The principles stated at 236 of Gould v Vaggelas do not provide an exhaustive rule but may be used as a guide. Gould v Vaggelas has been followed on numerous occasions in the High Court as an appropriate guide to form a conclusion about causation under s 18 of the ACL and its predecessor, s 52 of the Trade Practices Act. In Berry v CCL Secure Pty Ltd [2020] HCA 27; (2020) 271 CLR 151 Bell, Keane and Nettle JJ stated:
[31] Potts v Miller and Gould v Vaggelas relevantly stand as authority that, where a claimant is induced by deceit to enter into a transaction, the claimant is entitled to recover by way of damages the actual damage "directly" flowing from the fraudulent inducement - including losses flowing from causes "inherent" in the transaction - but is not entitled to recover losses of which the cause is "independent", "extrinsic", "supervening" or "accidental" such that those losses cannot rationally be regarded as caused by the deceit."
I also recognise that Mr Wellington puts his case, in respect of the loans that he made to the Company, as a "no transaction" case and I bear in mind the observations of Ward CJ in Eq (as the President then was) in Stav Investments Pty Ltd v Taylor [2022] NSWSC 208 at [541] as to the nature of a "no transaction case", that the plaintiff(s) in such a case should:
"… be put in the position where they are compensated for the entirety of their investment… (Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAFC 167). As I said in Xu v Lindsay Bennelong Developments Pty Ltd [2020] NSWSC 1692 at [460], an award for damages in a "no transaction" case in a suit for misleading and deceptive conduct requires the court to be satisfied that, "but for" the conduct at issue, the plaintiff would not have entered into the transaction, and so would not have suffered the loss."
First Representations
Turning to the first of the pleaded representations, Mr Wellington pleads (ASOC [8]) that:
"On [2]7 November 2018, Mr Hutchison represented to Mr Wellington that:
a. He had a "great idea" to design and develop an electric aircraft;
b. He wanted to build 2 models of the electric aircraft for demonstration at the Avalon Air Show at Avalon, Victoria from 26 February to 3 March 2019;
c. The cost of building the 2 model aircrafts and demonstrating them at Avalon would be $44,350.00;
d. He wanted to build a full-sized airframe mockup (static airframes) for demonstration at the Oshkosh Air Show at Oshkosh, Michigan, United States of America from 22 - 28 July 2019;
e. The cost of building the airframe mockup and demonstrating it at Oshkosh would be $120,150.00;
f. In order to build and demonstrate the models and the airframe, Mr Hutchison would work fulltime and be paid a salary of $1,750.00 per week;
g. Mr Hutchison would be an employee; and
h. Mr Wellington would be required to fund the design, development and demonstration of the models and the airframe"
(the "First Representations")."
Mr Hutchison denies (Defence [6]) the representation pleaded in ASOC [8a]; he denies ASOC [8b] and ASOC [8c] but says he provided a breakdown of estimated costs for two models for the Avalon air show; he denies ASOC [8d] but pleads, not very differently, that he had a plan to have a full size airframe (static, not flying) for Oshkosh; he denies ASOC [8e] but pleads, again not very differently, that a breakdown of the estimated cost would be $120,150; he denies ASOC [8f] and pleads that he proposed he work full-time if the project was to go ahead and he receive $1750 per week, implicitly challenging the characterisation of that payment as a salary; and he denies ASOC [8g] and ASOC [8h], although it appears to have been contemplated that Mr Wellington would in fact fund the Company's development of the Aircraft. It is not necessary to reach a finding as to the dispute as to the content of the pleaded representation given the findings that I reach below as to this claim. Mr Wellington then pleads (ASOC [9], denied Defence [7]) that he relied on the First Representations.
As Mr Bell notes, while the pleaded representation refers to 7 November 2018, it is particularised by reference to the email dated 27 November 2018 (Ex P1, CB 66) to which I referred above. Mr Bulley addresses this representation and other representations together in submissions. Mr Bell responds that the email dated 27 November 2018 is "merely an estimate of costs based on what is known at that point in time" and that "[a] reasonable person would know these were merely ballpark figures and ballpark estimates because nothing had been determined at that stage." Mr Bell also submits that Mr Wellington was then prepared to invest at least $500,000 plus the cost of models and air shows and had already decided to and agreed to invest or loan money to the Company and did not rely on what Mr Hutchison is alleged to have represented. I have not accepted, in my review of the evidence above, that Mr Wellington made an unconditional commitment to investing that amount, as distinct from indicating his willingness to invest on the basis of a review, inter alia, of interest in the proposed Aircraft at the air shows. Mr Bell also submits that Mr Hutchinson gave an estimate of three months to build two models for the Avalon air show in this email; Mr Wellington only provided funds at the end of December 2018, leaving only two months to complete two models; and there was not enough time to complete the second model and the parts of the second model were stored in the workshop (Hutchison 6.7.23 [74]).
It is not clear from the Amended Statement of Claim whether Mr Wellington brings a direct representational case against Mr Hutchison, or only relies on the representation pleaded in ASOC [8] to support his pleaded claim against the Company and his pleaded accessorial claim against Mr Hutchison, although he sought relief against Mr Hutchison which assumed a representational claim and not only an accessorial claim had been brought against him. To the extent that such a claim was brought against Mr Hutchison in respect of the First Representations, it cannot succeed for the reasons noted below.
Mr Wellington pleads (ASOC [57], denied Defence [44]) that, relevantly, the First Representations were made by Mr Hutchison in his capacity as a director of the Company; were made in trade and commerce; and were representations as to future matters. Assuming, without deciding, that the First Representations were made, they were not made by Mr Hutchison as a director of the Company which was not incorporated until 17 December 2018. I accept that any such representations were made by Mr Hutchison in trade or commerce in respect of a possible investment in the development of the Aircraft. I address the question whether the particular representations were representations as to future matters below. Mr Wellington then pleads (ASOC [58], denied Defence [44]) that, by s 4 of the ACL, each of the First Representations were misleading. He does not seek to falsify those representations on any other basis.
Turning now to the several pleaded representations, it seems to me that the representation pleaded at ASOC [8a] relates to Mr Hutchison's then belief in the merit of the Aircraft and should not be characterised as a representation as to the future. Mr Wellington did not submit and the evidence does not establish that the proposed design and development of the Aircraft lacked merit and this representation is not falsified.
It seems to me that the representation pleaded at ASOC [8b] relates to Mr Hutchison's then plans for the Avalon air show and should not be characterised as a representation as to the future. It is not falsified on that basis. If (contrary to my view) that representation should be characterised as a representation as to the future, it seems to me that Mr Hutchison's evidence of the design drawings that he had already done and his experience in aircraft modelling sufficiently supported his stated plan to show two models of the Aircraft at that air show. I address the limited extent to which he fell short of that plan below. It seems to me that the representation pleaded at ASOC [8c] relates to a future matter, but it is directed to building two scale models of the Aircraft for the Avalon air show and not a flying Aircraft. I have referred above to Mr Hutchison's evidence that he had already done some design drawings of the Aircraft and to his substantial experience with aircraft models. I am satisfied that Mr Hutchison has led evidence that he had sufficient experience and prepared a sufficient breakdown of forecast costs to establish reasonable grounds for the plan to build two Aircraft models and the costs estimates referred to at ASOC [8c], given the limited nature of the task. In the event, Mr Hutchison built one (but not two) scale model of the Aircraft in time for the Avalon air show.
It seems to me that the representation pleaded at ASOC [8d] relates to Mr Hutchison's then plans for the Oshkosh air show and should not be characterised as a representation as to a future matter. It is not falsified on that basis. If (contrary to my view) that representation should be characterised as a representation as to the future, it seems to me that Mr Hutchison's evidence of the design drawings that he had already done and his experience in aircraft modelling again sufficiently supported his stated plans for building a non-flying full-size model for the Oshkosh air show. It seems to me that the representation pleaded at ASOC [8e] relates to a future matter, but it is directed only to building a non-flying full-size model of the Aircraft for the Oshkosh air show and not to a flying Aircraft. I have referred above to the evidence that Mr Hutchison had already done design drawings of the Aircraft and to his aircraft modelling experience. I am satisfied that Mr Hutchison has led evidence that he had sufficient experience and prepared a sufficient breakdown of forecast costs to establish reasonable grounds for the plan to build a non-flying full-size model of the Aircraft for the Oshkosh air show and for the costs estimate referred to at ASOC [8e]. That full-size model was ultimately not built in time, at least in part by reason of a lack of skilled labour to assist Mr Hutchison in that task.
I am not satisfied that the representations in respect of ASOC [8f] or [8g] were made using the term "salary" to refer to an employment relationship or so as to accept that Mr Hutchison was an employee rather than a contractor. In any event, they are not falsified on the findings that I reach below and the representation as to the amount payable to Mr Hutchison weekly was true. I am satisfied that Mr Hutchison has led evidence to establish reasonable grounds for the representation at ASOC [8h] where the project could only be funded with Mr Wellington's funding. It follows that the representations pleaded at ASOC [8], to the extent they were made, have not been falsified.
Mr Wellington then pleads (ASOC [59], denied Defence [44]) that:
"In making each of the representations, [the Company] engaged in conduct that was misleading or deceptive, or likely to mislead and deceive, within the meaning of s 18 of the ACL in that none of the… representations relied upon by Mr Wellington came to fruition."
This claim cannot succeed on that basis where a prediction as to the future is not falsified by the mere fact that events do not occur as predicted and the representations were not otherwise falsified.
Mr Wellington pleads (ASOC [60]-[61], denied Defence [44]) that he relied on each of the pleaded representations including the First Representations and that, by reason of the Company's misleading and deceptive conduct, Mr Wellington has suffered loss and damage, particularised by his loans made to the Company. This claim also cannot succeed given the findings that I have reached above. Mr Wellington also pleads (ASOC [62], denied Defence [44]) that Mr Hutchison was a person involved in making each of the pleaded representations including the First Representations. This claim cannot succeed in respect of the First Representations where a claim of misleading and deceptive conduct has not been established and an accessorial claim cannot then succeed.
Omission Representations
Turning to the second of the pleaded representations, Mr Wellington pleads (ASOC [10]) that:
"At the time of the First Representations, and at no other point in time prior to around mid-2022, did Mr Hutchison say to Mr Wellington that:
a. Mr Hutchison had already designed the aircraft;
b. Mr Hutchison had already designed parts of, or components for, the aircraft;
c. Mr Hutchison would retain ownership of the design for the aircraft or its parts or its components; and
d. Mr Hutchison would licence the intellectual property of the aircraft or its parts or its components to Mr Wellington, [the Company] or any other entity
("the Omission Representations")."
Mr Hutchison (Defence [8]) denies the non-disclosure pleaded in ASOC [10a]; admits ASOC [10b]-[10d]; and says that he showed Mr Wellington the design of the proposed aircraft prior to the Company being incorporated. Mr Wellington then pleads and Mr Hutchison denies (ASOC [11], Defence [9]) that Mr Wellington relied on the Omission Representations.
Mr Bulley submits that:
"Mr Hutchison engaged in misleading and deceptive conduct by failing to disclose to Mr Wellington, prior to the middle of 2022 certain matters critical to the Company and the progress of the Aircraft. In the pleading these are described as the Omission Representations and the Second Omission Representations. These are instances of failures to disclose on the part of Mr Hutchison as a Director in circumstances where such matters ought to have been disclosed…
On the facts of this matter Mr Hutchison ought behaved in such a way prior to April 2022 which made it clear to Mr Wellington that he had already designed parts and components for the Aircraft and would, consequently, retain ownership of the design of the Aircraft, parts and components and that he would licence the intellectual property which belonged to him to the Company."
Mr Bell responds that Mr Wellington had already seen the design for the Aircraft in late November or early December 2018, a matter that I have not found it necessary to decide above; that neither Mr Hutchinson nor Mr Wellington had given thought to the ownership of the design of the Aircraft, parts or components or to the licensing of intellectual property; and that it was not reasonable for Mr Wellington to expect Mr Hutchinson to provide this information to him when Mr Hutchison did not know it himself and Mr Wellington had not given any thought to it.
It is again not clear from the Statement of Claim whether Mr Wellington brings a direct representational case against Mr Hutchison in respect of this claim, or only relies on the omissions pleaded in ASOC [10] to support his pleaded claim against the Company and his pleaded accessorial claim against Mr Hutchison, although he again sought relief against Mr Hutchison which assumed a representational claim and not only an accessorial claim had been brought against him. To the extent that such a claim was brought against Mr Hutchison in respect of the Omission Representations, it cannot succeed for the reasons noted below.
Mr Wellington pleads (ASOC [57], denied Defence [44]) that the Omission Representations were made by Mr Hutchison, in his capacity as a director of the Company; were made in trade and commerce; and were representations as to future matters; and (ASOC [58], denied Defence [44]) that, by s 4 of the ACL, the Omission Representations are taken to be misleading. As at 27 November 2018, these representations were not made by Mr Hutchison as a director of the Company, which did not exist until 17 December 2018, and the claim against the Company cannot succeed prior to that date for that reason. It is not necessary to decide whether the pleaded omissions were made by Mr Hutchison as a director of the Company or can be attributed to the Company after that date, or were made in trade or commerce rather than in the Company's internal affairs, given the findings that I reach on other grounds below. In closing submissions, Mr Bulley rightly abandoned any claim that the Omission Representations were representations as to a future matter, so s 4 of the ACL does not apply to them.
Turning now to the pleaded omissions, Mr Wellington does not plead or establish that, at any point up to mid-2022, Mr Hutchison had in fact already designed the whole Aircraft or a substantial part of it, so far as non-disclosure of that matter is alleged by ASOC [10a]. That has not been established on the evidence at the pleaded date of the First Representations, 27 November 2018, where Mr Hutchison had only prepared several design or conceptual drawings, drawn a picture of the proposed Aircraft and made a basic foam model of it between November and mid-December 2018. Even apart from the question of what was completed by 27 November 2018, I do not accept that what had been done by Mr Hutchison at that date amounted to the design of the whole Aircraft or a substantial part of it, given the amount of work that remained to be done to complete that design, as is apparent from the chronology I set out above. Where that proposition is not established, a failure to disclose it was not misleading or deceptive at that date. Mr Wellington was then made aware of the progress of the design and development of the Aircraft after the Company was established.
In respect of ASOC [10b], it seems to me that, as at 27 November 2018, Mr Hutchison's design or conceptual drawings of the Aircraft, the picture of it and the foam model could also not be fairly characterised as a design of parts of, or components of the Aircraft, where they focussed on its overall shape and not its component parts, which would be the subject of the detailed work that was later required. Where that proposition is also not established at that date, a failure to disclose it was also not misleading or deceptive at that date. After that date, it was plainly apparent to Mr Wellington that Mr Hutchison was designing parts or components of the Aircraft and there was no later failure to disclose that matter.
In respect of ASOC [10c]-[10d], Mr Wellington does not plead or establish that, until late 2021, Mr Hutchison had formed any intention or had any understanding that he would retain ownership of the design for the Aircraft or its parts or its components, or licence intellectual property to the Company, and the evidence indicates that he likely formed that intention or understanding when the Company drew attention to the legal advice it had received that he likely owned the relevant intellectual property and sought an assignment of it to confirm the Company's ownership of it. It is not apparent how a failure to disclose an intent or understanding that Mr Hutchison did not then have prior to that date could be misleading or deceptive, and it must have been apparent to Mr Wellington that Mr Hutchison was moving toward that position from late 2021 onwards.
For these reasons, I am not persuaded that Mr Wellington has established that any omission to disclose these matters was misleading or deceptive or likely to mislead or deceive, and a claim against Mr Hutchison or the Company on that basis cannot succeed on that basis. It is therefore not necessary to address Mr Wellington's further claims that he relied on the Omission Representations (ASOC [60], denied Defence [44]); by reason of the Company's misleading and deceptive conduct, he suffered loss and damage, particularised by his loans made to the Company (ASOC [61], denied Defence [44]); or his further claim put in Mr Bulley's submissions for costs associated with the appointment of Mr Vardy as receiver to the Company. Mr Wellington also pleads (ASOC [62], denied Defence [44]) that Mr Hutchison was a person involved in making the Omission Representations. This claim cannot succeed where the claim against the Company of misleading and deceptive conduct has not been established and an accessorial claim cannot then succeed.
Agreement Representations
Third, Mr Wellington pleads (ASOC [12]) that, between 27 November 2018 and 17 December 2018, Mr Hutchison and Mr Wellington formed an agreement for the development and commercialisation of the Aircraft ("Agreement") and (ASOC [13]) that:
"It was a term of the Agreement that:
a. A new company would be incorporated for the purpose of developing and commercialising the electric aircraft.
b. Mr Hutchison and Mr Wellington would be equal shareholders in the new company.
c. Mr Wellington and Mr Hutchison would each be directors of the new company.
d. Mr Hutchison would be paid a salary of $1,750 per week.
e. Mr Hutchison would work full time to design and develop the electric aircraft.
f. Mr Wellington would assist Mr Hutchison with ideas concerning the design and development of the electric aircraft.
g. Mr Wellington would loan money to the new company so that the new company could pay for the costs of designing and developing the electric aircraft.
h. The new company would repay the loan from Mr Wellington when it was able to do so
("the Agreement Representations")"
Mr Hutchison responds (Defence [11]) by denying the Agreement pleaded and contending that the terms of the Agreement were that a new company would be incorporated for the purpose of building the models and Aircraft and to assess their commercial potential; Mr Hutchison and Mr Wellington would be equal shareholders and directors; Mr Hutchison would work full time to build the models and Aircraft; he would be paid $1750 per week; Mr Wellington would provide the funds for the Company; and the Company would reimburse the funds back to Mr Wellington when and if it was able to. Mr Bell submits that the terms of the Agreement are broadly admitted, other than that Mr Hutchison was to be paid a salary (as a basis for the assertion of Mr Hutchison being an employee) and that Mr Wellington would assist with ideas. Mr Bell further submits that there is no misrepresentation.
To the extent that there is a difference between the parties as to the terms of the Agreement, I accept that the Agreement did not commit the parties to commercialising the Aircraft until its feasibility was established, but it also did not leave either shareholder free to take the Aircraft for himself or itself after the Company had funded its development; I think it unlikely that the parties had specifically addressed or then agreed whether Mr Hutchison would be paid a salary as an employee or treated as an independent contractor, and it is plain that they had not then recognised any significance of that matter for ownership of intellectual property developed by Mr Hutchison; and it is not necessary to decide whether they had then agreed that Mr Wellington would fund the Company by loan where a loan agreement was later executed and there was no apparent commercial alternative to that course if Mr Hutchison's equity in the Company was not to be diluted by interests associated with Mr Wellington contributing further funds as equity. Mr Wellington pleads (ASOC [14]) that he relied on the Agreement Representations.
It is again not clear from the Amended Statement of Claim whether Mr Wellington brings a direct representational case against Mr Hutchison in respect of this claim, or only relies on the representations pleaded in ASOC [13] to support his pleaded claim against the Company and his pleaded accessorial claim against Mr Hutchison, although he again sought relief against Mr Hutchison which assumed a representational claim and not only an accessorial claim had been brought against him. If such a claim is brought, it seems to me that Mr Wellington has not falsified the pleaded Agreement Representations, to the extent that they were made by Mr Hutchison, for the reasons noted below.
Mr Wellington then pleads (ASOC [57], denied Defence [44]) that, relevantly, the Agreement Representations were made by Mr Hutchison, in his capacity as a director of the Company; were made in trade and commerce; and were representations as to future matters. Assuming, without deciding, that the Agreement Representations were made, they were not made by Mr Hutchison as a director of the Company, which did not exist until 17 December 2018, and the claim against the Company cannot succeed for that reason. I accept that the pleaded representations were likely made by Mr Hutchison in trade or commerce in respect of a possible investment in the project. It seems to me that they were not representations as to the future but rather as to the then terms of the alleged Agreement.
Mr Wellington then pleads (ASOC [58], denied Defence [44]) that, by s 4 of the ACL, each of these representations are taken to be misleading. That claim must also fail where the representations do not relate to future matters, but the terms of a present agreement, and the Plaintiffs do not seek to falsify them on any other basis. In any event, it appears that it is now common ground that ASOC [13a]-[13c] of the pleaded representations were true; any issue as to ASOC [13d] relates only to whether the amount paid to Mr Hutchison would be treated as a salary paid to an employee or remuneration paid to an independent contractor and the pleaded representation has not been falsified given my findings below; and ASOC [13e]-[13h] also accurately represented the parties' arrangements.
Mr Wellington then pleads (ASOC [59], denied Defence [44]) that:
"In making each of the representations, [the Company] engaged in conduct that was misleading or deceptive, or likely to mislead and deceive, within the meaning of s 18 of the ACL in that none of the… representations relied upon by Mr Wellington came to fruition."
This claim cannot succeed on that basis, where a prediction as to the future is not falsified by the mere fact that events do not occur as predicted and the representations have not otherwise been falsified.
Mr Wellington pleads (ASOC [60], denied Defence [44]) that he relied on each of the pleaded representations including the Agreement Representations. It is not necessary to decide that question where these representations have not been falsified. Mr Wellington also pleads (ASOC [61], denied Defence [44]) that, by reason of the Company's misleading and deceptive conduct, he has suffered loss and damage, particularised by his loans made to the Company. This claim cannot succeed given the findings that I have reached above. Mr Wellington also pleads (ASOC [62], denied Defence [44]) that Mr Hutchison was a person involved in making each of the pleaded representations including the Agreement Representations. This claim must also fail in respect of the Agreement Representations where a claim against the Company for misleading and deceptive conduct has not been established and an accessorial claim cannot then succeed.
First Flying Representation
Fourth, Mr Wellington pleads (ASOC [25], denied Defence [21]) that, at the Avalon air show (in late February and early March 2019), Mr Hutchison represented to Mr Wellington that the Aircraft would be flying within the next 12 months ("First Flying Representation"). As I noted above, Mr Wellington relies on his evidence (Wellington 27.10.22 [35]-[36]) that Mr Hutchison informed him and attendees at the Avalon air show that "[w]e are aiming to have a protype of the Aircraft air-ready and flying within the next 12 months, probably by February 2020".
Mr Bulley also refers to Mr Hutchison's evidence in cross-examination, where he said that he could not recall making that statement (T214) but later accepted that the "plan" was to have the Aircraft flying by that time (T221). Mr Wellington pleads (ASOC [26], denied Defence [21]) that he relied on the First Flying Representation. In closing submissions, Mr Bulley also refers to the evidence on which Mr Wellington relies for this representation and submits the representation was as to a future matter. Mr Bell responds that Mr Hutchison's evidence is that he said that "[w]e hope to get a kit ready by mid-2020" (Hutchison 20.3.23 [17]); that Mr Wellington leads no evidence from any interested customer of what was said at the Avalon air show; and that Mr Wellington should not be believed as to what was said at the Avalon air show. Mr Bell concludes that "[i]t does not make sense that Mr Hutchison would make a representation like it was alleged to have been made to Mr Wellington and to interested customers [and h]e would be more cautious."
It is again not clear from the Amended Statement of Claim whether Mr Wellington brings a direct representational case against Mr Hutchison, or only relies on the representation pleaded in ASOC [25] to support his pleaded claim against the Company and his pleaded accessorial claim against Mr Hutchison, although he again seeks relief against Mr Hutchison which assumed a representational claim and not only an accessorial claim had been brought against him. If he brings such a claim against Mr Hutchison, it cannot succeed because I find that Mr Hutchison did not make an unqualified representation in the form pleaded. It seem to me plain that both Mr Hutchison and Mr Wellington knew the complexities and uncertainties involved in developing a flying prototype of the Aircraft, and the many adverse contingencies that obviously could and in fact did cause delay in the Aircraft's design (using that term in a wider sense than Mr Hutchison uses it) and construction. The statements made by Mr Hutchison in an oral discussion with Mr Wellington as to the timing of a flying Aircraft prototype were impliedly qualified by the complexities and uncertainties known to both of them. Mr Hutchison's not reminding Mr Wellington of the obvious in each such discussion did not give rise to the pleaded unqualified representation, particularly where Mr Wellington's own evidence is that Mr Hutchison here used qualified language such as "aiming" and "probably". I also find below that Mr Wellington did not rely on the pleaded unqualified representation and it did not cause him loss.
Mr Wellington then pleads (ASOC [57], denied Defence [44]) that, relevantly, the First Flying Representation was made by Mr Hutchison, in his capacity as a director of the Company; was made in trade and commerce; and was a representation as to future matters. I accept this representation (if made) was made by Mr Hutchison in his capacity as a director of the Company. On balance, I accept that this representation (if made) was made in trade or commerce, where it was made in the commercial setting of the Avalon air show, although the question of the likely completion date of the Aircraft was also an important question to be addressed between the Company's directors and shareholders in its internal management. I also accept that the representation (if made) was a representation as to a future matter.
Mr Wellington then pleads (ASOC [58], denied Defence [44]) that, by s 4 of the ACL, this representation is taken to be misleading. Mr Bulley addresses the operation of this section in closing submissions, in respect of several representations of this kind, as follows:
"By reason of Mr Hutchison's failure to lead any evidence in any of his Affidavits in the manner identified in order to establish that he had reasonable grounds for making the representations relied on he has failed to satisfy the evidentiary onus cast upon him pursuant to s4(2) of the ACL, such that the representations in question are taken to be misleading by reason of s4(1) and therefore misleading for the purpose of s18 of the ACL. The Court should have no regard to the broad sweeping statements of Mr Hutchison as to [the Company] not having the appropriate "resources" to develop the Aircraft (Affidavit of Hutchison affirmed 6 July 2023 at paragraphs 88 - 89 and 91). It does not address the matters at the time of the representations. It is a hindsight view. Further, Mr Elkins' evidence [a]t Elkins Affidavit affirmed 13 July 2023 at paragraphs 6, 7, and 12 was unchallenged and should be accepted. Mr Wellington ensured that up until December 2021, the Company had all of the financial resources it needed; Wellington Affidavit 11 July 2023 at paragraph 5.f.ii. This evidence was also unchallenged."
Mr Bell responds by reference to Mr Hutchison's experience in building and designing aerial vehicles (Hutchison 6.7.23 [35]-[39]); he submits that there was no challenge as to Mr Hutchison's experience in designing and building aerial vehicles; that Mr Hutchison based his estimate of the work to be done in building models on unmanned aerial vehicles that he had built at Sydney University and other models including the panels for a small size replica of a DC-10; and that there was also no challenge to this evidence. He submits that, on that basis, Mr Hutchinson had a proper basis for his estimates and "the Court should accept that Mr Hutchison made reasonable estimates as to time and cost based on his experience." He also submits that the budgets prepared by Mr Hutchison were only "an estimate based on other factors occurring", and the basis of the budgets were set out in them. Mr Bell also submits that the delays in the development of a flying prototype of the Aircraft resulted from a lack of skilled workers to assist Mr Hutchison and submits that Mr Wellington "knew at all times that competent, skilled staff were needed [and h]e knew that they were not located employed."
Had I found the pleaded representation to have been made in the unqualified form pleaded, I would have that found that it was taken to be misleading, where it seems to me that Mr Hutchison has not led evidence that established reasonable grounds for this prediction. While I have recognised the evidence of Mr Hutchison's qualifications and experience above, it seems to me that they would be insufficient to support an unqualified representation as to the completion date of a flying Aircraft prototype (as distinct from earlier non-flying models of the Aircraft) where there is no evidence that he undertook any structured assessment of the steps and components necessary to build a flying prototype or the order in which they would be undertaken and built or how delays in any one step would affect other steps.
Mr Wellington then pleads (ASOC [59], denied Defence [44]) that:
"In making each of the representations, [the Company] engaged in conduct that was misleading or deceptive, or likely to mislead and deceive, within the meaning of s 18 of the ACL in that none of the…representations relied upon by Mr Wellington came to fruition."
This claim cannot succeed on that basis, where I have not accepted that an unqualified representation was made in the form pleaded and a prediction as to the future is not falsified by the mere fact that events do not occur as predicted.
Mr Wellington pleads (ASOC [60], denied Defence [44]) that he relied on each of the pleaded representations including the First Flying Representation. Mr Bulley in turn emphasises Mr Wellington's evidence that "he relied upon each and every of the representations made by Mr Hutchison". Mr Bell responds that:
"A reasonable person would have understood the alleged representations were to be considered as best guesses in the circumstances.
To the knowledge of Mr Wellington, the type of plane had not been built before and was using new technology.
Mr Wellington knew that it was cutting-edge of technology [sic] in respect to construction and powering of the [A]ircraft.
Mr Wellington would also have known that the success of the enterprise would depend on obtaining qualified and skilled staff in addition to Mr Hutchison.
Mr Wellington did not seek binding "quotes" from Mr Hutchinson as to the budget or as and as to when the plane would be finished. He knew the alleged representations were on a "best efforts" basis.
Mr Wellington would not have relied on the alleged representations as being ones of fact.
It was a speculative venture."
I am not satisfied that Mr Wellington's reliance on the pleaded unqualified representation, if it were made, is established. Mr Wellington was a sophisticated and experienced businessman and, to his credit, he frankly acknowledged in his evidence in cross-examination (to which I referred above) that he had recognised the several material risks that would have undermined the pleaded unqualified representation.
Mr Wellington also pleads (ASOC [61], denied Defence [44]) that, by reason of the Company's misleading and deceptive conduct, he has suffered loss and damage, particularised by his loans made to the Company. This claim cannot succeed where I am not satisfied that the pleaded unqualified representation was made and Mr Wellington had recognised the relevant risk and continued making loans after the delays and difficulties with the development of the Aircraft emerged. Mr Wellington again pleads (ASOC [62], denied Defence [44]) that Mr Hutchison was a person involved in making each of the pleaded representations including the First Flying Representation. It is not necessary to decide this claim where his claim against the Company on this basis has not been established and an accessorial claim cannot then succeed.
Oshkosh Budget Representation
Fifth, Mr Wellington pleads (ASOC [27]) that, on 5 March 2019, Mr Hutchison represented that there was an increase in the cost required to attend the Oshkosh air show, from $120,150 to $169,950 ("Oshkosh Budget Representation") and that he relied on this representation (ASOC [28]). Mr Hutchison responds (Defence [22]) that on 5 March 2019 he provided Mr Wellington with a rough draft Oshkosh budget and otherwise denies the pleaded representation.
Mr Bulley refers to the evidence on which Mr Wellington relies for this representation and submits the representation was as to a future matter. Mr Bell responds that the budget was merely an estimate and Mr Hutchison's estimate was based on the assumptions in the budget; it is a statement of Mr Hutchison's belief or opinion based on the calculations in the budget and on his experience and not a representation of fact; there is no evidence that the calculations made at the time are incorrect; and a worker assisting Mr Hutchison fell ill and the full-size non-flying model of the Aircraft could not be produced on time.
I deal with this claim more briefly where it overlaps with claims that I have addressed in more detail above. I accept that a representation substantially to this effect was made by Mr Hutchison's email with a further budget for the Oshkosh air show (Wellington 27.10.22 [40], CB 117). I also accept that, as Mr Wellington contends, this representation was made by Mr Hutchison in his capacity as a director of the Company. However, it seems to me that, by contrast with a representation made at an air show, it was made in the Company's internal management and not in trade or commerce, where the questions of the cost of attendance at this air show needed to be addressed between the Company's directors and shareholders in its internal management. To the extent that this was a representation as to a future matter rather than a representation of Mr Hutchison's then opinion, it seems to me that Mr Hutchison has led evidence that establishes reasonable grounds for it having regard to his experience in the field and the relatively detailed breakdown of the components of the budget. I am also not persuaded that Mr Wellington gave any significant weight to this matter, which was one component of a more substantial project, in making further loans to the Company.
For these reasons, this claim cannot succeed against Mr Hutchison (if a direct representational claim is brought against him) or against the Company. The accessorial claim against Mr Hutchison cannot succeed where the claim against the Company does not succeed.
Second Flying Representation
Sixth, Mr Wellington pleads (ASOC [30], denied Defence [25]) that, during the Oshkosh air show, Mr Hutchison represented to Mr Wellington that the Aircraft would be flying by February 2020 ("Second Flying Representation"). As I noted above, Mr Wellington relies on his evidence (Wellington 27.10.22 [46]-[47]) that Mr Hutchison informed him and attendees at the Oshkosh air show that "[w]e are confident that we will have a flying version of the aircraft in the next 12 months" and that "[t]he aircraft will be flying by February 2020."
Mr Bulley refers to the evidence on which Mr Wellington relies for this representation; points out that, in cross-examination, Mr Hutchison denied making any representations to this effect (T220) but, as noted above, accepted that it was the "plan" that a version of the Aircraft would be flying by February 2020 (T221); and submits the representation was as to a future matter. Mr Bell responds that Mr Hutchison was hoping to have the Aircraft flying prior to Oshkosh 2020, in about February 2020, and that fits in with having a kit available for sale in July at Oshkosh 2020; Mr Hutchison did not make the representation; and, if he did, Mr Wellington had already agreed to fund development of the Aircraft. I have found above that Mr Wellington's offer of funding contemplated review of, inter alia, the level of public interest in the Aircraft at the air shows.
I again deal with this claim more briefly where it overlaps with claims that I have addressed in more detail above. I recognise that this representation is in less qualified language than the First Flying Representation, where Mr Wellington attributes the term "confident" to Mr Hutchison. Assuming, without deciding, that term was used, it seems to me that the statements made by Mr Hutchison in an oral discussion as to the timing of a flying Aircraft with Mr Wellington were nonetheless again impliedly qualified by the risks, complexities and uncertainties known to both of them, and Mr Wellington could not have understood Mr Hutchison's confidence to have displaced those risks. An unqualified representation in the terms pleaded is therefore not established. I am also not persuaded that Mr Wellington relied on such a representation for the reasons noted above in respect of the First Flying Representation. This claim otherwise raises the same issues as the First Flying Representation and cannot succeed for the same reasons.
Flying Prototype Representations
Seventh, Mr Wellington pleads (ASOC [32]) that, on 8 August 2019, Mr Hutchison represented to Mr Wellington that the cost to design and develop the Aircraft to the stage of a flying prototype would be $220,600 and that the Aircraft would be flying by February 2020 ("Flying Prototype Representations"). Mr Hutchison responds (Defence [26]) that, on 8 August 2019, he forwarded a budget breakdown for a flying prototype to February 2020 and otherwise denies the pleaded representation. I have addressed the emails and budgets relating to this claim in the chronology set out above. Mr Wellington then pleads (ASOC [33], denied Defence [27]) that he relied on the Flying Prototype Representations.
Mr Bulley refers to the evidence on which Mr Wellington relies for this representation and submits that the representation was as to a future matter. Mr Bell responds that the document referred to does not make the allegations pleaded; that it is a budget and estimate providing an arithmetical total based on the calculations contained in it; that the estimate of costs to February 2020 was directed to the position where the Aircraft was to be flying by that date; that the budget is an internal document and not provided in trade and commerce; it is not a representation of fact but an estimate or opinion based on Mr Hutchison's experience and the calculations in the document; that it assumes skilled staff available to do the work required, who were not available; and that Mr Wellington did not rely on the document to provide funds in any event, since he had already agreed to fund the construction of the Aircraft.
I again deal with this claim more briefly where it overlaps with claims that I have addressed in more detail above. It is again not clear from the Amended Statement of Claim whether Mr Wellington brings a direct representational case against Mr Hutchison, or only relies on the representation pleaded in ASOC [32] to support his pleaded claim against the Company and his pleaded accessorial claim against Mr Hutchison, although relief was sought against Mr Hutchison which assumed a representational claim and not only an accessorial claim had been brought against him. If Mr Wellington brings such a claim, it cannot succeed since the representation was not made in the unqualified form pleaded, for the same reasons that the First Flying Representation and the Second Flying Representation were not made in unqualified form; it seems to me that it was not made in trade or commerce, for the reason noted below in respect of the claim against the Company; and Mr Wellington did not rely on such a representation and it did not cause him loss.
Mr Wellington then pleads (ASOC [57], denied Defence [44]) that, relevantly, the Flying Prototype Representations were made by Mr Hutchison, in his capacity as a director of the Company; were made in trade and commerce; and were representations as to future matters. I accept that, if these representations had been made in the form pleaded, they would have been made by Mr Hutchison as a director and shareholder of the Company to Mr Hutchison also as a director and shareholder of the Company. By contrast with representations made in the commercial setting of air shows, I do not accept that this representation would have been made in trade or commerce, where the questions of the cost to design and the likely completion date of the Aircraft needed to be addressed between the Company's directors and shareholders in its internal management. While I recognise that these matters were relevant to Mr Wellington's decisions as to future funding of the Company, the same could be said of all significant internal discussions between Mr Hutchison and Mr Wellington as the Company's directors and shareholders and it does not follow that all such discussions were in trade or commerce for that reason.
I accept that this representation, had it been made in the unqualified form pleaded, would have been a representation as to the future. Mr Wellington pleads (ASOC [58], denied Defence [44]) that, by s 4 of the ACL, these representations are taken to be misleading. I accept that Mr Hutchison has led evidence that would have established reasonable grounds for this budget, had it been made against an assumed completion date, given his experience and subject to the uncertainties that Mr Wellington had recognised. However, it seems to me that Mr Hutchison's evidence would not establishes reasonable grounds for an unqualified prediction of the completion date for a flying prototype where (as I noted above) there is no evidence that he undertook structured assessment of the steps and components necessary to build a flying prototype, or the order in which they would be undertaken and built and how delays in any one step would affect other steps. Any unqualified representation as to that matter would have been undermined by the obvious complexity of the construction of a prototype electric aircraft and the many adverse contingencies that obviously could and in fact did cause delay in the Aircraft's design and construction. This finding does not assist Mr Wellington, where I have found that these representations were qualified by his and Mr Hutchison's shared knowledge of that complexity and those contingencies were equally obvious to Mr Wellington and were recognised by him.
Mr Wellington again pleads (ASOC [59], denied Defence [44]) that:
"In making each of the representations, [the Company] engaged in conduct that was misleading or deceptive, or likely to mislead and deceive, within the meaning of s 18 of the ACL in that none of the…representations relied upon by Mr Wellington came to fruition."
This claim cannot succeed on that basis, where the representation was not made in unqualified form and a prediction as to the future is not falsified by the mere fact that events do not occur as predicted.
Mr Wellington also again pleads (ASOC [60], denied Defence [44]) that he relied on each of the pleaded representations including the Flying Prototype Representations. That proposition is also not established where, as I noted above, Mr Wellington acknowledged in cross-examination that he had recognised the several material risks that later undermined this budget and anticipated completion date. Mr Wellington again pleads (ASOC [61], denied Defence [44]) that, by reason of the Company's misleading and deceptive conduct, he has suffered loss and damage, particularised by his loans made to the Company. This claim also cannot succeed where he recognised the relevant risks and continued making loans after the delays and difficulties with the development of the Aircraft emerged.
Mr Wellington then pleads (ASOC [62], denied Defence [44]) that Mr Hutchison was a person involved in making each of the pleaded representations including the Flying Prototype Representations. An accessorial claim cannot succeed where Mr Wellington has not established this claim against the Company.
Repeated representations
Eighth, Mr Wellington pleads (ASOC [34], denied Defence [27]) that, on 9 August 2019, Mr Hutchison repeated the First Flying Representation, the Second Flying Representation, and the Flying Prototype Representations. The claim put on this basis cannot succeed for the same reasons that the claims in respect of any repeated representations have not succeeded.
Second Flying Prototype Representations
Ninth, Mr Wellington pleads (ASOC [37]) that, on 18 November 2019, Mr Hutchison represented to him that the then cost to design and develop the Aircraft to the stage of a flying prototype would be $122,700; that most of the moulding was complete and that the Company would be making parts shortly; and that the Aircraft would be flying by February 2020 ("Second Flying Prototype Representations"). Mr Hutchison responds (Defence [29]) that he provided an updated budget to Mr Wellington on 18 November 2019; he denies the representation as to the cost of a flying prototype; he admits that he represented that most of the moulding was complete and that the Company would be making parts shortly; and denies that he represented that the Aircraft would be flying by February 2020. I referred to the relevant email and attached budget in the chronology of events set out above.
Mr Bulley again refers to the evidence on which Mr Wellington relies for this representation and submits that the representation was as to a future matter. Mr Bell largely repeats his submissions as to the First Flying Prototype Representations and adds that Mr Wellington had been informed on 28 October 2019 of the need for two to three skilled staff (Ex P1, CB 226), a matter that I address below.
I also deal with this claim more briefly where it overlaps with claims that I have addressed in more detail above. It seems to me that Mr Hutchison has led evidence that establishes reasonable grounds for this costs estimate having regard to his experience in the field and the relatively detailed breakdown of the components of the budget and the representation as to the position as to the moulding and making of parts have a reasonable basis on the evidence. By this time, Mr Hutchison had also drawn Mr Wellington's attention in his 28 October 2019 email (Ex P1, 226) to the fact that he did not see the Aircraft as flying by February 2020 as matters then stood, at least without the assistance of additional qualified staff. The pleaded claim in respect of the date the Aircraft would be flying cannot succeed for that reason and must also fail for the same reasons that the claim in respect of the Flying Prototype Representations failed.
Third Flying Representation
Tenth, Mr Wellington pleads (ASOC [41], denied Defence [33]) that, in around February 2020, Mr Hutchison represented to Mr Wellington that the Aircraft would be flying by the time of the Oshkosh air show in 2020 ("Third Flying Representation"). This claim refers to the email exchange between Mr Wellington and Mr Hutchison in February 2020 (Ex P1, 235) that I addressed in the chronology of events above. That email records Mr Wellington's understanding that Mr Hutchison was then indicating that the Aircraft would be flying by the next Oshkosh air show in mid 2020, rather than by February 2020 as had previously been foreshadowed.
Mr Bulley again refers to the evidence on which Mr Wellington relies for this representation and submits that the representation was as to a future matter. Mr Bell submits that there is no evidence that the representation was made and that it would fall into the same category as the Second Flying Representation if it had been made.
By contrast with representations made in the commercial setting of air shows, I do not accept that any representation of this character (so far as it gave rise to the understanding that Mr Wellington recorded) was made in trade or commerce, where the questions of the cost to design and the likely completion date of the Aircraft needed to be addressed between the Company's directors and shareholders in its internal management. This claim must also fail for the same reasons the claims in respect of the First Flying Representation and the Second Flying Representation failed.
Second Omission Representation
Eleventh, Mr Wellington pleads (ASOC [46]) that Mr Hutchison did not advise Mr Wellington that there was a "serious problem" with the design, development or demonstration of the Aircraft ("Second Omission Representation"). Mr Wellington does not identify that "serious problem" by way of any pleaded facts and, it appears, was not asked to and did not particularise it. Mr Hutchison responds (Defence [36]) that he kept Mr Wellington informed of the progress of the building of the Aircraft and otherwise does not admit the paragraph.
I had initially understood this claim to relate to the suggested flaw or flaws in the design of the Aircraft to which Mr Tolhurst had drawn Mr Wellington's and Mr Elkins' attention, to which I referred above. A claim on that basis could not succeed because the evidence does not establish that such a flaw or problem in fact existed. Where the existence of the pleaded "serious problem" is not established, there is no basis to find that a failure to disclose it is misleading or deceptive.
However, in submissions, Mr Bulley treated this claim as instead relating to the delay in constructing the Aircraft. He submits that Mr Hutchison ought to have acted in a way which did not mislead or deceive as to the progress of the development of the Aircraft; that, prior to February 2020, Mr Wellington's evidence is that he was not aware that there would not be a flying prototype of the Aircraft by that time (a proposition that, I interpolate, is falsified by the 28 October 2019 email from Mr Hutchison which I noted above); and that, where Mr Wellington and Mr Hutchison were both directors and shareholders in a company specifically incorporated to develop and commercially sell the Aircraft and where Mr Wellington was providing all the funding, a failure on the part of Mr Hutchison to disclose those things was misleading and deceptive. Mr Bell responds that Mr Hutchison had been informed repeatedly of problems with obtaining staff to work on the Aircraft; there were no serious problems with the design and development of the Aircraft other than that skilled staff could not be obtained to build it; and that Mr Wellington did not rely on the omission to provide funds in any event, where he had already agreed to fund the construction of the Aircraft.
There is no evidence that the issues that delayed the development of the Aircraft, and particularly resourcing issues, existed for any significant period before they were apparent to Mr Wellington, and they were recognised by Mr Wellington in his emails concerning the lack of a timeline for completion of the Aircraft and in the communications between Mr Hutchison and Mr Wellington and with KPMG concerning the lack of resources to build the Aircraft to which I referred above. There is no basis to find that a failure to disclose that matter existed or was misleading or deceptive, where I have held that the issues giving rise to delay and the delay itself were apparent to Mr Wellington as those issues developed.
Because Mr Wellington has failed in his several misleading and deceptive conduct claims, it is not necessary to address the further difficulty as to how he could at once recover the loans he made to the Company to fund the development of the Aircraft, and at the same time retain the benefit, as a shareholder in the Company, of any orders that preserved its ability to conduct the development of the Aircraft, implicitly using components which were developed using those loans.
In Hollis v Vabu (2001) 207 CLR 21; [2001] HCA [44 at [24], the High Court (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ) referred to a multifactorial test of employment that had regard to the "totality of the relationship" between the parties. In Abdalla v Viewdaze Pty Ltd (2003) 122 IR 215 at 229-231, the Australian Industrial Relations Commission (Lawler VP, Hamilton DP and Bacon C) referred to a non-exhaustive list of indicia of whether an employment relationship existed, including:
"Whether the putative employer exercises, or has the right to exercise, control over the manner in which work is performed, place of work, hours of work and the like;
Whether the worker performs work for others (or has a genuine and practical entitlement to do so);
Whether the worker has a separate place of work and/or advertises his or her services to the world at large;
Whether the worker provides and maintains significant tools or equipment;
Whether the work can be delegated or subcontracted;
Whether the putative employer has the right to suspend or dismiss the person engaged;
Whether the putative employer presents the worker to the world at large as an emanation of the business;
Whether income tax is deducted from remuneration paid to the worker;
Whether the worker is remunerated by periodic wage or salary or by reference to completion of tasks;
Whether the worker is provided with paid holidays or sick leave;
Whether the work involves a profession, trade or distinct calling on the part of the person engaged;
Whether the worker creates goodwill or saleable assets in the course of his or her work; and
Whether the worker spends a significant portion of his remuneration on business expenses." [citations omitted]
Mr Bell also refers to ACE Insurance Ltd v Trifunovski (2011) 200 FCR 532 at [29], where Perram J observed that:
"… one can at least say this: first, the distinction between an employee and an independent contractor is "rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own" (Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at 39 [40] per Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ citing Marshall v Whittaker's Building Supply Co (1963) 109 CLR 210 at 217 per Windeyer J); secondly, the answers to that question are to be determined by reference to the 'totality' of the relationship (Hollis at 33 [24]); thirdly, a number of indicia have accreted over time in the authorities which are thought to throw light to varying degrees on the outcome without being determinative: the terms of the contract; the intention of the parties; whether tax is deducted; whether sub-contracting is permitted; whether uniforms are worn; whether tools are supplied; whether holidays permitted; the extent of control of, or the right to control, the putative employee whether actual or de jure; whether wages are paid or instead whether there exists a commission structure; what is disclosed in the tax returns; whether one party 'represents' the other; for the benefit of whom does the goodwill in the business inure; how "business-like" is the alleged business of the putative employee - are there systems, manuals and invoices; and so on - the list is neither exhaustive nor short: see Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 24 per Mason J and 36-37 per Wilson and Dawson JJ; for application see Hollis at 42-45 [48]-[57] per Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ; Sweeney at 172-173 [30]-[33] per Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ."
In Construction, Forestry, Maritime, Mining and Energy Union v Personal Contracting (2022) 398 ALR 404; [2022] HCA 1 ("CFMMEU"), the High Court again considered the question whether a worker was an employee or a contractor. That case was partly directed to the approach to be taken to a written contract in determining that question, but that matter does not arise here where it is not suggested that there was a written employment contract between the Company and Mr Hutchison. However, Kiefel CJ, Keane and Edelman JJ also observed (at [33]) that the multifactorial approach did not provide an external test or requirement by which the materiality of the elements may be assessed. Their Honours also observed (at [34]) that in a test of the "totality of the relationship":
"[i]t was not suggested that this assessment should proceed as if the court is running down items on a checklist in order to determine a balance of ticks and crosses. It has never been suggested that the factors identified to be relevant are of equal weight in the characterisation of the relationship. Some understanding as to the relative significance of the various factors is desirable, both to minimise the extent to which application of the test may produce an impressionistic and subjective outcome on the one hand, and to avoid the injustice of a mechanistic checklist approach on the other." [citations omitted]
Their Honours also observed (at [37]-[39]) that the appropriate question is to ask is whether the worker is working in his own business or in the putative employer's business, and that:
"In Marshall v Whittaker's Building Supply Co [(1963) 109 CLR 210 at 217], Windeyer J said that the distinction between an employee and an independent contractor is:
"rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own." …
While the "central question" is always whether or not a person is an employee, and while the "own business/employer's business" dichotomy may not be perfect so as to be of universal application for the reason that not all contractors are entrepreneurs, the dichotomy usefully focusses attention upon those aspects of the relationship generally defined by the contract which bear more directly upon whether the putative employee's work was so subordinate to the employer's business that it can be seen to have been performed as an employee of that business rather than as part of an independent enterprise. In this way, one may discern a more cogent and coherent basis for the time-honoured distinction between a contract of service and a contract for services than merely forming an impressionistic and subjective judgment or engaging in the mechanistic counting of ticks on a multifactorial checklist."
Their Honours emphasise (at [61]) that these matters do not suggest that "it is not appropriate, in the characterisation of a relationship as one of employment or of principal and independent contractor, to consider 'the totality of the relationship between the parties' by reference to the various indicia of employment." They also referred (at [73]) to the importance of the "right to control," observing that:
"Like the "own business/employer's business" dichotomy, the existence of a right of control by a putative employer over the activities of the putative employee serves to sensitise one to the subservient and dependent nature of the work of the employee, so as to assist in an assessment of whether a relationship is properly to be regarded as a contract of service rather than a contract for services."
Their Honours also referred (at [74]), with approval, to the observation of the High Court (Dixon CJ, Williams, Taylor and Webb JJ) in Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561; [1955] HCA 73 at 571, in holding that a circus trapeze artist was an employee, that:
"[w]hat matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters."
Gageler and Gleeson JJ in turn observed (at [158]) that the right to control was the most important indicium in a finding of employment, finding by reference to the facts of that case, that:
"[t]he aspects of the relationship that existed in fact between Mr McCourt and Construct during each of the two relevant periods most pertinent to the legal characterisation of the relationship can be summarised as follows. First, Mr McCourt was engaged by Construct under the ASA to supply nothing but his labour to Hanssen, which he in fact did and for which he was paid an agreed hourly rate by Construct. Second, by supplying his labour to Hanssen, Mr McCourt was at the same time supplying his labour to Construct for the purposes of Construct's business. He was not in any meaningful sense in business for himself. Third, and most importantly, when supplying his labour to Hanssen, Mr McCourt was subject to the direction and control of Hanssen through the back-to-back operation of his obligation to Construct under the ASA and Construct's obligation to Hanssen under the LHA. Those aspects of the relationship made it a relationship of employment." [emphasis added]
I also recognise that significant weight is to be given to whether a worker is free to delegate or subcontract performance of the work to other persons, without any qualification or conditions; an employment contract is regarded as one that involves a commitment of personal service; an unlimited power to delegate or subcontract has often been seen as incompatible with that concept; and a qualified or occasional power to delegate or subcontract (for example, only with permission of the hirer) may suggest that the worker is a contractor: Queensland Stations v Federal Commissioner of Taxation (1945) 70 CLR 539; Australian Air Express v Langford (2005) 147 IR 240; Tobiassen v Reilly (2009) 178 IR 213; [2009] WASCA 26; Stewart's Guide to Employment Law (Federation Press, 7th ed, 2021) at 56; C Sappideen et al, Macken's Law of Employment (Thomson Reuters, 9th ed, 2022) at 55.
In closing submissions, Mr Bulley refers to aspects of the evidence which I note below and submits that:
"In the absence of any clear written agreement to the contrary, what contemporaneous documentation there is could only lead the Court to the conclusion that Mr Hutchison was an employee of the Company. Despite the bare assertions made by Mr Hutchison, there is no contemporary documentation or asserted action of his evidence that is available which is consistent with him being a contractor to the Company."
Mr Bell responds that there is no evidence that PAYE tax was deducted from Mr Hutchison's remuneration or that holiday pay was paid or accrued for Mr Hutchison or that workers compensation, superannuation contributions or long service leave was paid or accrued for Mr Hutchison; the Company's accounts do not indicate that Mr Hutchison was an employee of the Company; Mr Wellington agreed in cross examination that CNC cutting machines used to cut the foam in the development of the Aircraft were owned by Mr Hutchison (T133) that no-one was directing Mr Hutchison's work on the Aircraft (T134); and Mr Bell concludes that "[c]learly Mr Hutchison was not an employee of the [C]ompany."
I here have regard to the several matters identified in the case law as relevant to the characterisation of the relationship between the Company and Mr Hutchison. I give significant weight to the question whether Mr Hutchison was working in his own business or in the Company's business, consistent with the approach taken in CFMMEU. It is plain that he undertook his work activities and the design of the Aircraft within the Company's business from the point at which it was incorporated. The funding for the work that he performed was provided by the Company; and, from the point at which the Company leased premises, that work was performed in the Company's premises and the Aircraft components were developed, assembled and stored there. Mr Hutchison directed the work of other Company employees and received administrative and other assistance from them, and there is no suggestion that he did or could provide aircraft design services to third parties. It seems to me plain that the Company had the legal right to control his performance of the work that he did, albeit that the other directors would practically rely on his expertise in aeronautical engineering, and that right was exercised in the context of, initially, a cooperative relationship between the Company's shareholders and directors. Mr Hutchison was not free to delegate or subcontract the performance of the work to other persons, without any qualification or conditions, where the arrangements plainly contemplated that he personally would work on developing the Aircraft on a full time basis.
It appears that Mr Hutchison provided and maintained some tools or equipment, using his own computer and CNC software that he owned to operate foam cutting equipment, but that appears to have been a pragmatic decision rather than a requirement of his role, where the Company was funded to acquire equipment in situations where Mr Hutchison did not already own it and could make it available. The Company seems to me to have had the right to suspend or dismiss Mr Hutchison, for example, for safety or other reasons, although a decision to do so would have had adverse practical consequences. To the extent that Mr Hutchison dealt with third parties, such as KPMG and suppliers of components, he appears to have represented the Company, rather than identified himself as a contractor to the Company. There is no suggestion that Mr Hutchison spent any significant part of his remuneration on business expenses, which appear to have been paid by the Company.
I recognise that the Company's accounts (Ex D2) did not treat payments to Mr Hutchison as salary or wages and did not record superannuation contributions made in respect of him, and the amounts paid to him were recorded within research and development costs.
On the other hand, the remuneration paid to Mr Hutchison was characterised as a salary in some other documents. In his breakdown of the costs that would be incurred for the Avalon air show and the Oshkosh air show provided to Mr Wellington on 27 November 2018 (Ex P1, CB 66), Mr Hutchison twice referred to "salary" payable to him weekly. In closing submissions, Mr Bell submits that this document is authored by a layperson, namely Mr Hutchison; he does not refer to employment but used a descriptor of the $1750 per week; and the document merely gives "some idea of Mr Hutchison's estimates of costing and timing at that very preliminary stage". A general ledger for the period December 2018 to June 2022 (Ex P3) recorded payments to Mr Hutchison from 1 July 2021 onward, characterised as "wages", although Mr Hutchison denied any involvement with the preparation of that document in cross-examination. Mr Bell submits that the descriptions are merely a descriptor, not a determination of Mr Hutchinson's status. Mr Hutchison also did not invoice the Company for the work that he says he performed as contractor, where no such invoices were produced by him in response to a notice to produce (Ex P4). The remuneration paid to Mr Hutchison was also described as "wages" in the narration in his bank statements (Ex P5), which he accepted in cross-examination was likely provided by him at the time that payment was first made (T276). Mr Bell submits that this document is a description of the payment by a layman and is not a determination of Mr Hutchison's status. It seems to me that these matters have less significance than the Company's failure to deduct PAYE tax from that remuneration or make superannuation contributions for Mr Hutchison or provide him with paid holidays or sick leave. I treat these matters as relevant to but not determinative of the proper characterisation of the relationship between Mr Hutchison and the Company.
On balance, weighting the factors noted above in the manner indicated in CFMMEU and assessing them in their totality, it seems to me that Mr Hutchison was an employee of and not a contractor to the Company and, to the extent that PAYE tax was not deducted from his remuneration and superannuation contributions were not made for him, that was in error. The fact that Mr Hutchison is a director of the Company does not exclude a conclusion that he is also an employee of the Company: Lee v Lee's Air Farming Ltd [1960] AC 12 as followed in Hamilton v Whitehead (1988) 166 CLR 121; Taxa Australia Pty Limited v Wang [2018] NSWSC 1412 at [91]; C Sappideen et al, Macken's Law of Employment (Thomson Reuters, 9th ed, 2022) at 62 [2.400].
Mr Bell in turn submits that Mr Hutchison was not an employee of the Company, a matter that I have determined above, and the "design" of the Aircraft occurred prior to 17 December 2018. Presumably, that proposition is directed to the design drawings and model of the Aircraft that Mr Hutchison prepared prior to that time, and not to the many software files that were subsequently developed in respect of components of the Aircraft. Mr Bell treats the latter as a "specification of a building part" rather than "design" of the Aircraft, although it is not apparent why the characterisation of property as relating to either "design" or a "specification of a building part" has any significance for its ownership. Mr Bell also points to Mr Hutchison's lack of focus on the question who "owned" the intellectual property in the Aircraft until a dispute as to that question arose as I noted above.
The parties assumed the correctness of the KPMG intellectual property advice (to which I referred above) and assumed that Mr Hutchison would own intellectual property created while he was a contractor to the Company but, implicitly, not own intellectual property created while he was an employee of the Company, and the Company would own that property. Their approach to evidence was plainly informed by that assumption, where Mr Wellington sought to establish and Mr Hutchison sought to displace an employment relationship. I now turn to the correctness of that assumption.
In Gardex, to which Mr Bulley refers, Falconer J held that a company owned a design created by a company's managing director who was also an employee under a contract of service. In Victoria University of Technology v Wilson (2004) 60 IPR 392; [2004] VSC 33 ("Wilson"), Nettle J noted at [104] that:
"The law is well settled upon the position of an officer or employee who makes an invention affecting the business of his or her employer. It is an implied term of employment that any invention or discovery made in the course of the employment of the employee in doing that which he is engaged and instructed to do during the time of his employment, and during working hours, and using the materials of his employers, is the property of the employer and not of the employee. Having made a discovery or invention in course of such work, the employee becomes a trustee for the employer of that invention or discovery, and he is therefore as a trustee bound to give the benefit of any such discovery or invention to his employer." [citations omitted]
His Honour went on to address the position of inventions made outside the scope of the work that an employee was engaged to do, but that question does not arise here.
The observations of Nettle J in Wilson were cited with approval by the Court of Appeal (Campbell JA, Spigelman CJ and Allsop P agreeing) in Oates v Consolidated Capital Services Ltd [2009] NSWCA 183 at [142], [154] and by the Full Court of the Federal Court in University of Western Australia v Gray (2009) 259 ALR 224; [2009] FCAFC 116 at [150].
In a detailed review of the relevant principles in University of Western Australia v Gray (No 20) (2008) 246 ALR 603; [2008] FCA 498 ("Gray"), which was subsequently upheld by the Full Court, French J observed (at [130]) that the character of a contract as a contract of employment does not of itself require the implication of a term that would prevent an employee from taking the benefit of an invention made by the employee during the term of service even if made in part in the employer's time and using some of the employer's human and material resources. However, his Honour went on to observe that:
"Where an employee has been employed for the purpose of solving a technical problem or improving the employer's technology or to make inventions, then there will be an implied term in the contract that the inventions made by the employee in the discharge of such contractual duties belong to the employer.
The preceding implication may be supported by an implied term that the employee will act in good faith in the interests of the employer in discharging his or her duties under the contract of employment.
Where the employee has a position with the employer of such seniority that it carries with it an associated duty to advance the interests of the employer generally, then there may be an implied duty of good faith and an implied term that an invention made by the employee relevant to the employer's business will belong to the employer even if made outside working hours.
Where an employer is entitled to the benefit of an employee's invention by express provision or by implication, the employee will hold the invention in trust for the employer."
In Gram Engineering at [391]-[407], to which Mr Bulley also refers, Jacobson J applied Gardex in holding that a company was entitled to be registered as the owner of a design where a director was paid a salary in regular weekly or monthly instalments, although not employed under a written contract of employment.
I also noted several of the relevant cases in JR Consulting at [79]-[80] as follows:
"The Defendants also contend that Tanmari obtained at least an equitable interest in the copyright, so far as the programs were written by Mr Cummings in his capacity as a director of Tanmari and for the purposes of its business: Antocks Lairn Ltd v I Bloohn Ltd [1971] FSR 490 ; [1972] RPC 219; Gram Engineering Pty Ltd v Bluescope Steel Ltd [2013] FCA 508; (2003) 106 IPR 1 at [391]-[407] per Jacobson J. On the other hand, the Plaintiffs respond that, in Antocks Larin Ltd v I Bloohn Ltd above, the court held that a company did not automatically own copyright works created by the managing director of a company, and the company did not there established that it owned the copyright pursuant to a contract of service because it was not established that there was a contract of service between the managing director and the company requiring the managing director to do the work. The Defendants refer to two cases where a work created by a company's director was owned by the company. In [Gardex], Falconer J held that a company owned a design, where a company's managing director was also an employee under a contract of service. No such contract is in evidence in this case. In Gram Engineering v Bluescope Steel above at [400]-[403], Jacobson J applied [Gardex] in holding that a company was entitled to be registered as the owner of a design, where a director was paid a salary in regular weekly or monthly instalments, although not employed under a written contract of employment. … The Plaintiffs also point out that, whereas a person may be entitled to be registered as the owner of the design if the design is made by a person in the course of the person's employment, under ss 19(2) and (3) Designs Act 1906 (Cth) (applied in Gram Engineering v Bluescope Steel above) and s 13(1)(b) of the Designs Act 2003, the Copyright Act requires that the work must be made "in pursuance of the terms of [a person's] employment by another person under a contract of service" under s 35(6) of the Copyright Act ...
The Defendants also submit that a director who creates copyright works holds the copyright on trust for company, and there is authority that a copyright owner may own the copyright on trust for others: Bulun v R & T Textiles Pty Ltd (1998) 86 FCR 244 ; 157 ALR 193. I accept that is at least a possibility, since it seems to me that it would a breach of Mr Cummings' equitable duties to Tanmari to contend that he had ownership of the copyright to the exclusion of Tanmari, which might well be met by the imposition of a constructive trust. However, as the Plaintiffs point out, that proposition does not divest Mr Cummings of his legal ownership of the copyright."
That decision was largely affirmed on appeal in JR Consulting & Drafting Pty Ltd v Cummings (2016) 329 ALR 625; (2016) 116 IPR 440; [2016] FCAFC 20. As I noted in JR Consulting, these principles may be modified under s 35 of the Copyright Act 1968 (Cth) in relation to a literary, dramatic or artistic works in an appropriate case. However, the parties did not suggest that section applied here and I need not address it further.
Here, Mr Hutchison was employed in the Company for the purpose of developing the Aircraft, and that supports the implied term to which French J referred in Gray, within the undocumented Agreement that both parties accept existed. Mr Hutchison, as a director of the Company with the responsibility for the design of the Aircraft, was in a senior role, albeit in a small company, and that carried the implied duty of good faith to which French J referred in Gray. The consequence is that the intellectual and other property developed by Mr Hutchison relating to the Aircraft, at least from the point of the Company's incorporation, was subject to the trust to which French J referred. I will address the position as to property developed in the period before the Company's incorporation, between November and mid-December 2018, below.
Section 182 of the Act prohibits a director, secretary, officer or employee of a corporation from improperly using his or her position to gain an advantage for himself or herself or someone else, or cause detriment to the corporation. I summarised the applicable principles in Colorado Products (at [432]-[433]) as follows:
"An objective standard is to be applied in determining what amounts to an "improper" use of position, and impropriety is established by "a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case": R v Byrnes [(1995) 183 CLR 501] at 514-515 per Brennan, Deane, Toohey and Gaudron JJ; R v Towey (1996) 132 FLR 434; 21 ACSR 46 at 57 per Gleeson CJ (with whom Allen and James JJ agreed). In Doyle v Australian Securities and Investments Commission [2005] HCA 78; (2005) 227 CLR 18, the High Court observed (at [35]) that the relevant conduct would be improper if it amounted to:
"a breach of the standards of conduct that would be expected of a person in [the director's] position by reasonable persons with knowledge of the duties, powers and authority of his position as director, and the circumstances of the case, including the commercial context."
It is not necessary that the relevant director gain an advantage for himself or herself or cause a detriment to the company in order to establish a contravention of the section: Chew v R [1992] HCA 18; (1992) 173 CLR 626 at 633 per Mason CJ, Brennan, Gaudron and McHugh JJ. An objective test was also applied to determine whether this section was contravened in Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd above and, in Hydrocool Pty Ltd v Hepburn (No 4) [2011] FCA 495; (2011) 279 ALR 646, Siopsis J followed R v Byrnes, above, in holding that impropriety for the purposes of this section was objective and did not require subjective knowledge of impropriety and followed Chew v R, above, in holding that a contravention could be established although the desired object was not achieved. In Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507 at [32], Gleeson CJ and Heydon JJ noted that, although shareholders cannot release directors from the statutory duties imposed by, relevantly, s 229 (4) of the Companies (SA) Code (which was a predecessor to s 182 of the Corporations Act), their acquiescence in a course of conduct might affect the practical content of those duties and be relevant to a question of impropriety."
Mr Wellington pleads (ASOC [66], denied Defence [46]) that, by Mr Hutchison, as a director of the Company, asserting that the legal and equitable interest in the intellectual property of the Aircraft is his, Mr Hutchison breached ss 181, 182 and 183 of the Act. I accept that Mr Hutchison plainly made that claim, at least from the point at which a dispute as to the request that he assign any intellectual property rights he held in the Company arose, and he continued to do so at the hearing, with the qualification in his evidence as to a limited licence to which I referred above. The question whether that claim is a breach of duty raises the questions whether Mr Hutchison owned the intellectual property in the Aircraft, as a matter of law and fact, and whether any licence agreement existed which authorised the Company to use that intellectual property and qualified any rights that would otherwise arise from his ownership of the intellectual property.
Where the Company owned the intellectual property created by Mr Hutchison relating to the Aircraft from the commencement of his employment with the Company in December 2018, Mr Wellington must succeed in his claim brought for the Company that Mr Hutchison, as a director of the Company, in asserting that the legal and equitable interest in the intellectual property of the Aircraft is his, at least without recognising the Company's right to use that intellectual property to develop the Aircraft to the exclusion of his doing so for his own rather than the Company's benefit, breached s 181 of the Act, which requires that directors avoid conflict between their personal interests and those of the company. It is not necessary to decide whether he also breached ss 182 and 183 of the Act in that regard, although I recognise that it is not apparent that he has either used the Company's property or its information in a manner that is inconsistent with those sections.
Mr Wellington also pleads (ASOC [67], denied Defence [46]) that Mr Hutchison has breached sections 181, 182 and 183 of the Act by, on 23 May 2022, incorporating Dasoru; maintaining control of a St George Bank account in the name of "Carbon Copies Composites"; and maintaining control of the domain name "www.carboncopies.com.au". I do not accept that those matters, without more, establish that breach, where it is not shown that Mr Hutchison has used the new company, the bank account or the website in a manner that is inconsistent with the conduct of the Company's business.
Mr Wellington then pleads (ASOC [68], admitted Defence [47]) that Mr Hutchison, as a director of the Company owed fiduciary duties to the Company including a duty not to allow any conflict between his duties as a director and his personal interests and a duty not to profit (implicitly, without the Company's consent) by reason of his position as a director. It is again sufficient to address the content of these duties briefly. A director of a company is a recognised category of fiduciary and the "no conflict" rule applies to a director as a status-based fiduciary. The "no conflict" rule has a strict application when it applies in the sense that, if a transaction has occurred in conflict of interest, a company director cannot avoid a breach of that rule by asserting the fairness of the transaction or that it was in the company's best interests or that the director was not acting with subjective dishonesty. I observed (by reference to authority) in Colorado Products at [351]:
"Broadly, the no conflict rule prohibits conduct where a fiduciary has a personal interest or duty owed to a third party which gives rise to a real and sensible possibility of a conflict. That rule and the no profit rule, which provides that a fiduciary cannot obtain a profit from its fiduciary position without the principal's consent, may overlap."
In Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37, Payne JA (with whom Gleeson and Leeming JJA agreed) summarised the no conflict and no profit rules as follows (at [105]):
"A fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is a conflict, or a real or substantial possibility of a conflict, between the personal interest of the fiduciary and those to whom the duty is owed…A conflict arises if there is a real and sensible possibility that the personal interests of the fiduciary divide the loyalty of the fiduciary with the result that he or she could not properly discharge their duties to the beneficiary…" [citations omitted]
The case law has also long held that, at least in respect of the general law, a director's resignation to pursue a conflict of interest does not discharge him or her from the rule against conflict of interest: Addstead Pty Ltd (in liq) v Liddan Pty Ltd (1997) 70 SASR 21; 25 ACSR 175; Nicholls & Ors v Michael Wilson & Partners Ltd [2012] NSWCA 383 at [177]-[178]; Schmidt v AHRKalimpa Pty Ltd (recs apptd) [2020] VSCA 193 at [93]ff.
Mr Wellington then pleads (ASOC [69], denied Defence [48]) that the matters pleaded in ASOC [66]-[67] also amount to a breach of fiduciary duties. For the reasons noted above in respect of the breach of the statutory duties, I find that Mr Hutchison's reliance on his ownership of intellectual property relating to the Aircraft to assert a right to use it for his own and not the Company's purposes, without recognising the Company's right to use that intellectual property to develop the Aircraft to the exclusion of his doing so for his own rather than the Company's benefit, also breached the conflict of interest rule.
I would also reach that conclusion on an alternative basis, even if Mr Hutchison was a contractor to and not an employee of the Company, and in respect of intellectual property relating to the Aircraft that may have been brought into existence by Mr Hutchison in the period before the Company was incorporated. A somewhat similar issue was considered by the High Court in Parramatta Design. In that case, Parramatta Design & Developments Pty Ltd ("PDD") provided architectural services; its sole director and shareholder, Mr Fares, who was an architect, and a solicitor, Mr Barrak, established a property development company ("Landmark") and entered into a joint venture agreement with another company ("Toyama") to develop land. PDD provided architectural services for the joint venture, including, for a fee, preparing plans for the proposed development, and then further plans with no charge. The relationship between the joint venturers then deteriorated; trustees for the sale of the site were appointed under s 66G of the Conveyancing Act 1919 (NSW); and PDD notified the trustees that it was the owner of the copyright in the plans embodied in the development consent and that it refused to grant a licence to any prospective purchaser of the site. The purchaser of the site, Concrete Pty Ltd ("Concrete") brought proceedings claiming that it had an implied licence to use the plans and that PDD's assertions to the contrary amounted to unjustifiable threats in contravention of s 202 of the Copyright Act 1968 (Cth).
On appeal to the High Court, Gummow ACJ held (at [12]-[17]) that the joint venture between PDD, Landmark and Toyama possessed fiduciary characteristics, and to allow PDD to assert copyright in the plans and drawings so as to deny Concrete its consent to use the plans and drawings would be to allow PDD to pursue its own interests in conflict with the purposes of the joint venture. His Honour observed (at [15]) that:
"For Parramatta to deny consent to the use by Concrete of the plans and drawings as consequent upon the acquisition of the development site would be to pursue its interests in conflict with the purposes of the joint venture as earlier identified."
Kirby and Crennan JJ reached the same result by reference to the architect's role in the venture and also held (at [95]) (with Gummow ACJ agreeing at [16]) that, in the absence of any reservation of copyright in the plans and drawings or the withdrawal of the development application prior to its determination, the implied licence to use the plans and drawings in favour of the purchasers was irrevocable (at [16], [95]). Hayne J similarly held (at [122]-[124]) that PDD, Landmark and Toyama were engaged in a common business enterprise; a relationship of mutual trust and confidence arose between the participants; and following the breakdown of the relationship:
"The obligations of each of the participants, when the relations between them broke down, extended not only to realising, to the advantage of each of the participants, all of the assets that had been committed to the venture, but also to not impeding that realisation whether by pursuing the individual interests of one participant in conflict with the interests of others, or in some other way. As Gummow ACJ points out, for Parramatta to deny consent to the use by Concrete of the plans and drawings would be to pursue its interests in conflict with the interests of other participants."
In Geltch v MacDonald & Ors [2007] NSWSC 1000 ("Geltch") at [49], Brereton J noted the application of these principles in a partnership context, although holding they were there narrowed by the terms of a lease.
I recognise that Parramatta Design was concerned with a fiduciary relationship arising from a joint venture and Geltch was concerned with a partnership. I do not accept Mr Bulley's submission that the arrangements between Mr Wellington and Mr Hutchison gave rise to a joint venture of that character. Here, Mr Hutchison owed statutory and fiduciary duties to the Company, likely to the exclusion of any fiduciary duties owed by him to other directors or shareholders in the Company: Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21; Crossman v Taylor (No 3) [2012] FCA 734 at [300]ff. However, it seems to me that, adopting the language of Gummow ACJ in Parramatta Design, to allow Mr Hutchison to assert ownership of intellectual property relating to the Aircraft, or copyright or design rights in the plans and drawings for it, so as to deny the Company the right to use the plans and drawings would be to allow him to pursue his own interests in conflict with the Company's interests and his duties to it.
As I noted above, Mr Hutchison conceded that he thought a limited licence existed in his affidavit dated 6 July 2023, although I have not accepted that evidence, which is likely a late invention where he had either assumed that the Company owned the intellectual property or given no thought to that question until the Company sought an assignment to confirm the position. I have found above that Mr Hutchison prepared the design files and the model that he created in November and December 2018 for the purpose of their being used by the Company to develop the Aircraft, with funding that he anticipated would be provided by Mr Wellington, and I am satisfied that there was no identified alternative that would have allowed the development of the Aircraft in that way. This was not a case that Mr Hutchison had prepared those files and models with any intent or capacity to fund the development of the Aircraft himself. I have found above that subsequent steps in the development of the Aircraft, including the creation of numerous additional design files dealing with particular components, were undertaken by Mr Hutchison as an employee of the Company and funded by the Company.
It seems to me that, even if (contrary to my findings) Mr Hutchison was a contractor rather than an employee of the Company, and to the extent that he had developed designs for the Aircraft prior to the Company's incorporation and "owned" those designs, he could not rely on that ownership to deny the Company an exclusive and irrevocable entitlement to use that intellectual property to develop the Aircraft, where he was also a director of the Company. Consistent with the result reached in Parramatta Design, and with the "no conflict" element of his fiduciary duties owed to the Company, he cannot deny that the Company has an irrevocable licence to use the intellectual property relating to the Aircraft to his exclusion, whether or not part of that property is owned by him. The same result may well arise as an implied term of the parties' arrangement, in the manner noted by the High Court in Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678; [2022] HCA 39. It seems to me that the parties and a reasonable bystander would recognise that it was inconceivable that Mr Hutchison could be paid by the Company for several years, with funding provided by Mr Wellington; develop a design for the Aircraft at the Company's cost; then announce that he had resigned as a director and disposed of his shares in the Company and would use, licence or monetise the intellectual property relating to the Aircraft for himself and to the Company's exclusion. The result is a fortiori where, here, Mr Hutchison continues to be a director of the Company.
I am satisfied that I should make this first order, on the basis of my findings that design drawings and the model were prepared by Mr Hutchison in anticipation of the Company's development of the Aircraft in late November or early December 2018; Mr Hutchison's status as an employee of the Company after its incorporation and the Company's ownership of property created after its incorporation; and my findings as to breach of fiduciary duty, where Mr Hutchison asserts a continued right to use the intellectual property relating to the Aircraft for his own and not the Company's benefit.
Second, Mr Wellington seeks a declaration (ASOC [71], Relief [2]) that the Property was and is the Company's Property and, third, he seeks an order (ASOC [72], Relief [3]) that Mr Hutchison transfer the Property to the Company. The basis for this relief is established in respect of intellectual property relating to the Aircraft created after Mr Hutchison commenced employment with the Company from its incorporation. On balance, I am persuaded that that declaration should be limited to the Company's entitlement to an irrevocable licence to use the Property relating to the Aircraft created prior to its incorporation (and, I have found above, in anticipation of its incorporation) to the exclusion of Mr Hutchison, whether or not that property is "owned" by Mr Hutchison. It seems to me that the case law which I have referred above does not support the imposition of a trust over that Property, where it was created prior to the incorporation of the Company.
Fourth, Mr Wellington initially sought an order (ASOC [73], Relief [4]) requiring Mr Hutchison to restore the Property to the condition that it was in as at 12 April 2022. That relief was rightly not pressed in closing submissions. I can see no basis on which I could make a mandatory order in that form, not least because the condition of the Property as at that date is not adequately identified.
Fifth, Mr Wellington seeks a declaration (ASOC [74], Relief [5]) that Mr Hutchison used the Company's Property, without any authorisation, improperly and contrary to the obligations binding on Mr Hutchison as a director to the detriment of the Company. I cannot make that declaration where it is not established that Mr Hutchison has in fact used that Property to the Company's detriment, where interlocutory orders were previously made by the Court that placed that Property in the receiver's custody, although he has asserted a right to do so.
Next, Mr Wellington seeks declarations (ASOC [75]-[78], Relief [6]-[9]) that Mr Hutchison breached his fiduciary duties owed to the Company; breached s 181 of the Act because he did not discharge his duties in the Company's best interests and for a proper purpose; breached s 182 of the Act because he improperly used his position with the Company to gain advantage for himself and caused detriment to the Company; and breached s 183 of the Act because he improperly used the Company's Property to gain advantage for himself and caused detriment to the Company. There is no utility in bare declarations in that form, where I have reached the necessary findings above.
Tenth, Mr Wellington initially sought an order (ASOC [79], Relief [10]) that an account for profits be taken to determine the profits made by Mr Hutchison arising from the breaches referred to in the declarations sought above, and, eleventh, he sought an order (ASOC [80], Relief [11]) that Mr Hutchison pay to the Company the amount of profits assessed pursuant to the account ordered to be taken. That relief was rightly not pressed in closing submissions, where there is no evidence that Mr Hutchison has used the Property to make such a profit, and interlocutory orders were previously made by the Court that placed that Property in the receiver's custody.
Twelfth, Mr Wellington initially sought an order (ASOC [81], Relief [12]) that Mr Hutchison pay (unquantified) compensation to the Company under s 1317H of the Act for the contraventions referred to in the declarations sought above. That order was rightly not pressed where there is no evidence that Mr Hutchison made a profit and no evidence is led by Mr Wellington to allow the quantification of any loss suffered by the Company. Thirteenth, Mr Wellington initially sought an order (ASOC [82], Relief [13]) that Mr Hutchison pay the Company (unquantified) equitable compensation or equitable damages and, fourteenth, an order (ASOC [83], Relief [14]) that Mr Hutchison pay (unquantified) damages to the Company. Those orders are rightly also not pressed where no evidence is led by Mr Wellington to allow quantification of any loss suffered by the Company.
Fourteenth, Mr Wellington seeks a declaration (ASOC [83A], Relief [14A]) that, by virtue of the employment relationship between the Company and Mr Hutchison, any property that is or relates to the Aircraft that he designed or developed during his period of employment is the Company's property and an order that he deliver that Property to the Company. That relief overlaps with the relief sought in ASOC [71]-[72], Relief [2]-[3] and I am satisfied that it should properly be ordered.
Next, Mr Wellington, in his personal capacity, seeks declarations (ASOC [84]-[85], Relief [15]-[16]) that the Company engaged in misleading and deceptive conduct within the meaning of the ACL and that Mr Hutchison engaged in misleading and deceptive conduct within the meaning of the ACL and was involved in the Company's contravention of the ACL. I will not make those declarations in respect of the Company and Mr Hutchison's accessorial liability where their basis is not established and they would be anterior to a claim for compensation that is not established. I will not make a declaration that Mr Hutchison engaged in (rather than was accessory to) such conduct where, as I noted above, it is unclear whether Mr Wellington brought such a case and otherwise for the same reasons.
Seventeenth, Mr Wellington seeks, under s 232 of the ACL, an order (ASOC [86(a)], Relief [17(a)]) that Mr Hutchison be permanently restrained from accessing, downloading, transferring, interfering with, disclosing, disseminating, altering, removing, deleting, copying, using, or commercially exploiting the Property other than in his role as a director and for the purposes of the Company. While I have made a corresponding order above, no basis for making it arises from these claims. Mr Wellington also seeks orders (ASOC [86(b)-(c)], Relief [17(b)-(c)]) that Mr Hutchison transfer the Property to the Company and requiring him to restore the Property to the condition that it was in as at 12 April 2022. No basis for making those two orders arises from the misleading and deceptive conduct claims and the latter of them was rightly not pressed in closing submissions.
Eighteenth, Mr Wellington seeks, pursuant to s 236 of the ACL, an order (ASOC [87], Relief [18]) that Mr Hutchison pay damages to him and nineteenth, he seeks an order (ASOC [88], Relief [19]) under s 237 of the ACL that Mr Hutchison pay damages to him and the receivers of the Company. No basis has been established for ordering that Mr Hutchison repay the amounts lent by Mr Wellington to the Company or the costs of appointment of the receiver that he claims and the evidence led by Mr Wellington does not establish any other basis on which damages could be quantified.
Mr Wellington also seeks (ASOC [89], Relief [20]) costs, including costs on an indemnity basis. Plainly, the proceedings have led to a mixed result, and I will hear the parties in this regard, if they cannot reach agreement as to costs.
Mr Wellington has not established his claim for interest (ASOC [90]; Relief [21]) where he has not established a claim for a monetary recovery to which interest could apply.