Dialog Pty Ltd v Addease Pty Ltd

Federal Court of Australia|2003-11-26|Before: Cooper J

WHERE MADE: BRISBANE (VIA VIDEO LINK TO MELBOURNE)

ON THE APPLICANT'S CLAIM THE COURT ORDERS THAT: 1. The claim against the respondents be dismissed and judgment be entered in favour of the respondents. 2. The applicant pay the respondents their costs of and incidental to the claim, including reserved costs if any, to be taxed if not agreed. ON THE CROSS-CLAIM THE COURT DECLARES THAT: 3. The cross-respondent is indebted to the first cross-claimant in the sum of $279 816.36 in respect of the claims made in paras 22, 23 and 26 of the Cross-claim. 4. The cross-respondent is entitled to set off against such indebtedness credits due to it by the first cross-claimant in the sum of $98 813.35. 5. The first cross-claimant is entitled to payment of commission by the cross-respondent under cl 2 of the Commission Agreement of 22 December 1999. 6. The second cross-claimant is presently entitled to be paid the sum of $300 000 under a Contract of Employment of 22 December 1999 between the second cross-claimant and the cross-respondent and is entitled to payment of a further sum of $150 000 under the said Contract of Employment which further sum falls due for payment to the second cross-respondent on 1 December 2003. ON THE CROSS-CLAIM THE COURT ORDERS THAT: 7. Judgment be entered in favour of the first cross-claimant against the cross-respondent in the sum of $181 003.01 being the balance due in favour of the first cross-claimant after set off of credits due. 8. All necessary enquiries and accounts be taken by the Queensland District Registrar as to the commission due under cl 2 of the Commission Agreement of 22 December 1999 in respect of licence and maintenance fees as defined by cl 1(d) at the rates provided in cl 1(b) of that agreement; and that upon the striking of such an account, judgment be entered in favour the first cross-claimant against the cross-respondent in such amount as is found due and owing. 9. Judgment be entered in favour of the second cross-claimant in an amount of $300 000 as money due and owing under the Contract of Employment of 22 December 1999 between the second cross-claimant and the cross-respondent. 10. In default of payment on 1 December 2003 of the sum of $150 000 then falling due and owing by the cross-respondent to the second cross-claimant, judgment be entered in favour of the second cross-claimant against the cross-respondent in the sum of $150 000, proof of such default being made by affidavit of the second cross-claimant's solicitor. 11. The cross-respondent pay the first and second cross-claimants costs of and incidental to the cross-claim, including reserved costs if any, to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

background to proceedings and pleadings 1 On 22 December 1999, the applicant Dialog Pty Ltd ('Dialog') entered into two written agreements with the first respondent Addease Pty Ltd ('Addease'). The first was a Business Sale Agreement whereby Dialog purchased the business (as specified in the Business Sale Agreement) of Addease. The second was a Commission Agreement to pay Addease commissions on sales of licences and maintenance agreements of intellectual property known as AXiOM HR and TemPak products. 2 On 22 December 1999, Dialog as employer, entered into a Contract of Employment with the second respondent, George Mihailides ('Mihailides') as employee. 3 On 16 November 2001, Dialog filed an Application and Statement of Claim alleging conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) ('the TPA') against both respondents. Dialog sought damages pursuant to s 52 of the TPA. It also sought orders pursuant to s 87 of the TPA, seeking to avoid, or have rendered unenforceable, the Commission Agreement and the Contract of Employment. By an amendment during the trial of the proceedings, Dialog also sought a declaration that the employment of Mihailides had been validly terminated by Dialog and that it was not thereafter indebted to him under the Contract of Employment. 4 By its Second Further Amended Statement of Claim dated 10 December 2002 ('the Final Statement of Claim'), Dialog alleged: '6. Between in or about August 1999 and December 1999 and prior to entering into the Business Sale Agreement, the Commission Agreement and the Contract of Employment, the Applicant sought information from the First and Second Respondents concerning the financial state of the Business, the First Respondent's expectations of revenue forecasts and profit projections and the respective stages of development of the Products, in respect of which the Second Respondent (for and on behalf of himself and the First Respondent) provided information and documents to the Applicant including documents being "Basis of Valuation", "AXIOM Valuation for Dialog mk2.xls" on 11 November 1999 and a further 8 page document by way of financial projections on 12 November 1999. 7. Prior to the Applicant entering into the Business Sale Agreement, the Commission Agreement and the Contract of Employment, the Second Respondent (for and on behalf of himself and the First Respondent) represented to the Applicant as follows: (a) that gross revenue from licence and maintenance fees for the first year of operation would be of the order of $870,936.00 increasing thereafter in year 2 to $1,029,937.00 and increasing thereafter in year 3 to $1,204,837.00; (b) alternatively, that the Business would receive gross revenue by way of maintenance fees from Major Projects of the order of $220,937.00 in the first year of operation increasing thereafter; (c) alternatively, maintenance fees from Major Projects equalled $117,812.00 from and at commencement and would increase in the first year of operation by of the order of $75,000.00; (d) further, that gross revenue generated from Product sales to the Corporation HR market alone would be of the order $115,000.00 for the first year of operation increasing thereafter; (e) further, that net profit excluding interest, drawings and tax generated by the Business would be of the order of $440,269.45 within the first year of operation increasing thereafter; (f) Further, that revenue forecasts were extremely conservative; (g) further, that the development of Axiom HR and Axiom Payroll software products were largely complete and the Axiom HR software stable; (h) further, that the First Respondent's existing clients were committed to its products and a significant number were ready to upgrade to and implement the Axiom Payroll software in the short term; (i) alternatively, (implied from (a) to (f) (inclusive above) that the Business was worth the $550,000.00 (comprising some $469,400.00 for goodwill) price paid pursuant to the Business Sale Agreement. Particulars The representations in (a), (b), (c), (d), (e) and (f) were made orally by the Second Respondent to Mr Key and Mr Doessel of the Applicant by telephone on 12 November 1999 and at the Applicant's Melbourne office on or about 1 and 2 December 1999 and by written projections as to sales revenue and profit in terms of a document headed "Basis of Valuation" together with a document "AXIOM Valuation for Dialog mk2.xls" supplied to the Applicant by the Second Respondent by email on 11 November 1999 and confirmed in terms of a further 8 page document by way of financial projections supplied to the Applicant by the Second Respondent by email on 12 November 1999. The representations in (g) and (h) were made orally by the First and Second Respondent to Mr Key and Mr Doessel of the Applicant by telephone on 12 November 1999 and by the First Respondent (by one Brian Maunder) and the Second Respondent to Mr Key and Mr Doessel of the Applicant at the First Respondent's Melbourne office on or about 1 and 2 December 1999 and in terms of documents headed "proposed Strategy for Replacement of Tempak Only Clients" and "Current Assignments - Addease Pty Ltd" supplied to the Applicant by the First and Second Respondents on or about 1 and 2 December 1999. The representation in (i) is to be implied from (a) to (f) inclusive. 8. In reliance upon the truth of the representations referred to in paragraph 7 above and each of them and induced thereby, the Applicant (by its officers or agents): (a) purchased the Business and executed the Business Sale Agreement; (b) executed a Lease of the premises dated 1 August 2000; (c) employed staff utilized by the Second Respondent in the Business prior to 1 December 1999; (d) executed the Commission Agreement in favour of the First Respondent; (e) entered into the Contract of Employment with the Second Respondent and paid a salary and other benefits as pleaded in paragraph 4 above. 9. But for the representations referred to in paragraph 7 herein, the Applicant would not have entered into any of the transactions referred to in paragraph 8 above. 10. The representations referred to in paragraph 7 herein were misleading, deceptive or likely to mislead or deceive in trade or commerce in breach of s.52 of the TPA. Particulars (a) gross revenue for the first year ended 30 November 2000 was $329,480.00 being 62% below the projected $870,937.00; (b) gross revenue for the second year ended 30 November 2001 was $241,724.00 being more than 76% below the projected $1,029,937.00; (c) gross revenue by way of Maintenance Fees for Major Projects for the first year ended 30 November 2000 was $107,825.00 being of the order of 51% below the projected $220,937.00, and in the alternative, o[f] the order of 44% below the projected $192,812.00 (being the sum of $117,812.00 and $75,000.000; (d) the Business did not and was incapable of achieving a net profit before interest, drawings and tax anywhere near the sum of $440,269.45 in the first year of operation or at all; (e) the Business ran at a loss from the date of purchase despite efficient operation; (f) gross revenue from Product sales to the Corporate HR market was and remains nil; (g) sales revenue forecasts were grossly overstated; (h) insofar as the representations in 7(a) to (f) inclusive were as to "future matters" within the meaning of s.51A of the TPA, the First and Second Respondents had no reasonable basis for the making thereof; (i) the Business having run at a loss is unsaleable and worth substantially less than the $500,000.00 paid and not worth anything more than the residual value of the plant and equipment.' (Original emphasis) 5 The case against Mihailides in respect of the representation was that he was a person concerned in, or party to, Addease's contravention within the meaning of s 75B of the TPA. 6 In respect of the termination of Mihailides' employment, the second Final Statement of Claim pleaded: '4. By further agreement made on or about 22 December 1999 (effective from 1 December 1999) between the Applicant and the Second Respondent ("Contract of Employment"), the Applicant agreed to employ the Second Respondent: (a) to continue as Manager of the Business; (b) for a term commencing on 1 December 1999 and continuing until 30 November 2004; (c) at a salary of $150,000.00 per annum including superannuation; (d) with a minimum of twenty (20) days paid annual leave; (e) sick leave entitlement of up to sixty-five (65) consecutive days in any twelve (12) month period. Particulars Contract of Employment between the Applicant and the Second Respondent made in Brisbane on or about 22 December 1999. 5. Pursuant to the Contract of Employment, the Second Respondent commenced as Manager of the Business on 1 December 1999 and continues to be employed by the Applicant. ... 13. Further or in the alternative: (a) The Contract of Employment referred to in paragraph 4 herein, provided: (i) (by clause 3(1)) the second Respondent agreed that during the continuance of his employment he shall devote the whole of his time, attention and ability to his duties as an employee ... and shall endeavour to promote, develop and extend the business of Dialog to the best of his ability; (ii) (by clause 4(1)(ii)) that the employment of the Second Respondent could be terminated forthwith without any notice or payment in lieu of notice, if at any time during the employee's employment hereunder, the employee: a. is guilty of any serious misconduct; (iii) (by clause 3(c)) where the Second Respondent's employment is terminated for reasons under clause 4(a)(ii), then the Applicant is not obliged to make any of the payments referred to in clause 3(c), 3(d) or 3(e); (b) By reason of the Business Sale Agreement referred to in paragraph 2(a) herein: (i) (by clauses 1.1, 2.1 and Schedule 1) the Applicant on and from 1 December 2002 was the owner and proprietor of the whole of the "Business" including the "Assets" and including the "Intellectual Property" and "IP rights" as defined therein including the AXiOM HR Software and AXiOM source code licence software; (c) on 14 June 2000, the First Respondent: (i) did receive the sum of $80,473.50 in respect of the sale of AXiOM HR Software, alternatively AXiOM source code licence software to Business Trends Pte Ltd. Particulars 14.06.00 Addease General Ledger Journal disclosing receipt of $80,473.50; 14.06.00 Addease ANZ Bank Statement page 478 credit $80,473.50; (d) the Second Respondent failed to cause the First Respondent to account to Dialog for that sum pursuant to the Business Sale Agreement; (e) The facts referred to in paragraph (d) immediately above constituted on the part of the Second Respondent: (i) a breach of the Contract of Employment as at 14.06.00 and thereafter; (ii) "serious misconduct" within the meaning of clause 4(a)(ii) of the Contract of Employment; (f) By reason of the matters pleaded in paragraph 13 hereof: (i) the Applicant has suffered loss and damage; (ii) the Applicant is not liable to the Second Respondent in respect of the $450,000 claimed by the Second Respondent in the Crossclaim as alleged or at all; (g) The Applicant seeks a declaration that its termination of the Second Respondent's employment was valid and according to law.' (Original emphasis) 7 By their Defence and Cross-claim, Addease and Mihailides pleaded: '6. As to paragraph 6 of the statement of claim, the respondents say: (a) in August 1999 the applicant purchased a company, Intrinsic Solutions Pty Ltd, having prior to the purchase conducted a due diligence inquiry of Intrinsic; (b) prior to such purchase (as the applicant knew from its due diligence inquiry) and thereafter the first respondent provided software and other services for performance of Intrinsic's obligation sunder contracts with various labour hire or human resources companies for monetary reward (hereinafter the labour hire projects); (c) after the applicant's purchase of Intrinsic it took over and performed the said labour hire contracts including accepting provision of the software and other services required by it to so perform from the first respondent and on-charging clients of Intrinsic for the provision of the first respondent's software, associated services and annual maintenance services; (d) at or about the time of purchase the applicant promised Intrinsic that it would pay Intrinsic's debts to creditors including the first respondent (the first respondent being a beneficiary of such a promise and thereby capable of enforcing such a promise by action in its own name); (e) subsequent to the purchase of Intrinsic, the applicant requested a meeting with the first respondent in Melbourne to which it sent its officers Mr Ian Gordon, Mr Ian Nolan and Mr Graeme Darley to review the labour hire projects (such that it knew the state of each such project, and seek such information about each project as they required); (f) subsequent to (d), the said Gordon requested the first respondent allow the applicant to send a representative to conduct a technical review of the computer software known as AXiOM used in the labor hire projects; (g) on 25 September 1999 the applicant dispatched a Mr Gary Young to conduct such a technical review (such that thereafter it knew the technical parameters of the software as compared to other comparable software); (h) subsequent to the technical review conducted by Mr Young, Mr Hills-Johns, of the applicant, (who had previously been the controller of Intrinsic and who was, in that position, aware of the sale and prospect of sale of the first respondent's computer software and services) attended upon the second respondent at his office in Melbourne to discuss distribution arrangements for the first respondent's software programs for the applicant; (i) subsequent to (g), on 3 November 1999, Gordon of the applicant asked the second respondent if the first respondent was interested in selling the AXiOM software to the applicant and what price the first respondent wished for such a sale (in substitution for the then existing arrangement between applicant and first respondent whereby the applicant paid the first respondent to provide software licences and maintenance services to its customers); (j) on 11 November 1999 the second respondent, by the first respondent, sent by e-mail to Mr A Key of the applicant, an offer to sell the software licensing and maintenance service outlining two alternative purchase options for the applicant to consider. The documents e-mailed were entitled " OPTIONS FOR AKEY.DOC" and "AXiOM VALUATION FOR DIALOG MK2.XLS" (the second containing the first respondent's calculation supporting its asking price); (k) on 11 November 1999 the applicant, by its officer Key, indicated the applicant would agree on option 2 as set out in the said document but wanted to modify the commission structure there sought so that a sliding scale applied rather than the fixed scale offered. (l) on 12 November 1999 the first respondent by the second respondent sent a further offer to purchase to the applicant by its controller Doessel in accordance with Keys' advice referred to in (k) above. The document e-mailed was entitled "AXiOM VALUATION FOR DIALOG MK2.XLS"; (m) on 12 November 1999 the applicant's officer Doessel e-mailed a "heads of agreement" which "heads of agreement" was executed by the first respondent on 24 November 1999; (n) draft contracts in terms of that referred to at subparagraphs 2(a) - (c) above were sent by the applicant's officer Doessel to the second respondent on 26 and 27 November 1999 generally in accordance with the heads of agreement; (o) on 29 November 1999 the applicant announced (but this was not in fact the case) that it had purchased the first respondent's business notwithstanding the contracts had not then been executed; (p) the documents containing the two offers to sell are those referred to at paragraph 3(b)(i) - (iii) of the particulars delivered of paragraph 6 of the statement of claim. 7. As to the facts alleged at paragraph 7, the respondents say: (a) that neither represented by the sending of the e-mails or otherwise the gross revenue from licence and maintenance fees subsequent to a proposed purchase but rather represented the first respondent's method of calculation of the asking price for sale of the first respondent's computer software business to the applicant and the terms upon which such a sale would be considered on the basis of the expectation of income receivable by them in following years; (b) the offers to purchase were sent to the applicant which was: (i) a company well experienced in the sale of computer software; (ii) itself engage din selling the software under licence from the first respondent; (iii) familiar with the operation of the first respondent's business (which was largely a business of supplying software and services to or on behalf of the applicant) by reason of the facts above pleaded; (iv) had as its officer Hills-Johns the former managing director of Intrinsic who was well acquainted with the sales history of the first respondent's software and Young who was well acquainted with the technical performance of the software; (v) in the position (by purchase of Intrinsic) of being required to perform the labour hire projects without having an enforceable right to obtain (or obtain at a fixed price) the services of the second respondent or its software (absent which the labour hire projects could not be performed); (vi) knew that the business of Intrinsic had failed because it could not pay the first respondent for the software and services provided to Intrinsic's clients. (c) the document entitled "Options for Akey.doc" (being one of the documents particularised by the applicant as giving rise to the representations alleged) provided expressly: (i) for two options for purchase: A. Option 1 · $750,000 cash · $150,000 salary per annum (i.e. over 5 years) · Incentive paid at 15% over and above 50% of the projected revenue line. B. Option 2 · $500,000 cash · $150,000 salary (i.e. over 5 years) · Incentive paid at 20% over and above 50% of a projected revenue line. (The revenue line in each case being $870,937 - 50% being $435,468.50.) (ii) provision for assignment of the benefit of existing contracts under which maintenance services were provided; (d) the document entitled "AXiOM Valuation for Dialog Mk2.xls" (being the second of the documents particularised as giving rise to the representations) provided expressly (as were the true facts): (i) there were 7 major project clients which it was expected would (or had been invoiced) $789,999.50 in licence and maintenance fees including $693,750 in major project licence fees and $96,249.50 in major project maintenance fees (which as the applicant knew included the 4 major projects Intrinsic (and subsequently it) was then performing); (ii) that major project clients were forecast for the next year to be $500,000 and maintenance fees $75,000 (a reduction in the then present level of income); (iii) that minor project clients had present maintenance fees of $35,000 but no licence fees; (iv) that minor project revenue was budgeted at $115,000 (licence and maintenance in the next year); (v) should a revenue line of $870,937 be achieved there would be a met negative cash flow to the applicant as purchaser in the year after purchase of $525,023.83 (and therefore a net negative cash flow at base line revenue of $960,472.33 under option 1) and a net negative cash flow of $383,890.95 to the applicant in year 1 (and therefore a net negative cash flow at base line revenue of $819,359.45 under option 2); (e) the first respondent, by the second respondent, told the applicant by Key that: (i) the year 2 - 5 sales figures contained in the said documents were calculated by application of a fixed percentage increase year on year; (ii) the licence fees of minor sales were calculated on 4 sales at $25,000 each, and Key agreed that those forecasts were reasonable; (f) the document entitled "AXiOM Valuation for Dialog Mk2.x/s" similarly projected cash flows based on a revised option 2 as there set out but with the same base line revenue; (g) in preparing the documents aforesaid the first respondent, by the second respondent, relied upon the fact that: (i) the first respondent had entered into a further contract for AXiOM in early December 1999 (classified as a minor contract) for $50,000 for licencing of the AXiOM software; (ii) the first respondent expected to shortly sell such software to Macquarie Bank (classified as a major contract);' (iii) there were other prospective sales in the market; (iv) the AXiOM software was an improvement on comparative existing software and had been well received in the market; (v) the applicant was an apparently proficient marketer of computer software with offices (or projected offices) in Townsville, Brisbane, Darwin, Gold Coast, Sydney, Canberra and Melbourne; (vi) the applicant apparently had the necessary capital and experience to continue to develop and market the software and provide services to the existing clients of Intrinsic and the first respondent; (h) further, the applicant knew at the time it received the documents and thereafter that: (i) the second respondent professed no qualifications as a valuer either of a business or of intellectual property; (ii) that the business of the first respondent was speculative in that it depended upon the exploitation of innovative software in a competitive market place largely in conjunction with the applicant's own business in that regard; (iii) that the projected growth rate of such a business could not be accurately assessed but to the extent it could be assessed it could be assessed by the applicant without assistance from the respondents; (iv) that the figures for sale of licences of software and for maintenance were based upon the projected supply of software in "year 1" which was itself a projection from current figures; (i) the applicant provided in the business sale agreement drawn by it (cl 14.4) that all representations in relation to the subject matter of the agreement were merged in and superceded by the agreement; that agreement (by clauses 10.1 and 10.3) specifically providing an indemnity of a maximum sum of $400,000 for breach of a warranty as to financial forecasts (such as the applicant now pleads) but only where such a claim was notified on or before 30 June 2001 (no such claim having been made or notified by such date); (j) in the premises: (i) no such representations as pleaded in 7(1) - (e) were made; and (ii) to the extent representations were made (as set out above) concerning the financial performance and expectations of the first respondent; A. same were true in fact insofar as same represented the current receipt or expected receipt of expected further receipt of income; and B. based upon reasonable grounds insofar as it may be found (which is denied) that same were representations as to future matters; (iii) in any event, the representations pleaded were not relied upon by the applicant in deciding to purchase or to purchase at the price contracted the applicant relying upon their own assessment of the requirements of the business being purchased and their rights under the business sale agreement proposed by and executed by them in respect of that purchase; (iv) absent purchase of the first respondent's business, the applicant would have been required in performance of the labour hire projects to expend the amount of the purchase price or more in obtaining the services and software of the first and second respondents; (k) the representations pleaded at subparagraphs (f) - (h) were not made.' (Original emphasis) 8 Addease and Mihailides denied the allegations in pars 8 and 9, and took objection to par 10. In respect of the allegation of serious misconduct, they pleaded: '12A As to the facts alleged at paragraph 13 of the statement of claim, the respondents say: (a) Subject to reference to the full terms of clause 3(a) of the Employment Agreement they admit part (a)(i). (b) Subject to reference to the full terms of clause 4(a)(ii) of the Employment Agreement they admit part (a)(ii). (c) Subject to reference to the full terms of clause 4(a)(ii) of the Employment Agreement they admit part (a)(ii). (d) Subject to reference to the full terms of clauses 1.1, 2.1 & schedule 1 of the Business Sale Agreement they admit part (b). (e) Except that they admit that the first respondent received the sum of $80,437.50 ("the joint venture payment") from Way2work Pte Ltd on 14/6/00 in consideration of its assignment of its title, rights & interests in the way2work joint venture, the respondents deny part (c). Particulars The Assignment is in writing dated 22/4/00. (f) They deny part (d) and say that the first respondent was entitled to the joint venture payment pursuant to clause 4(d) of the Business Sale Agreement. (g) They deny each of the allegations in part (e). (h) They deny each of the allegations in part (f) and say the allegation in part (ii) is embarrassing because serious misconduct does not disentitle the second respondent to the payments due under paragraph 3(c) of the Employment Agreement. (i) They deny the applicant is entitled to the declaration sought in part (g).' 9 Addease and Mihailides denied that any loss was caused to Dialog by conduct on their part, and pleaded that if Dialog suffered any loss, it was caused by the conduct of Dialog as pleaded in par 12 of their defence and cross-claim. 10 By their Cross-claim, Addease claimed: (a) commission payments payable under cl 2 of the Commission Agreement in respect of licence and maintenance fees as defined by cl 1(d) of the Commission Agreement at the rates provided for in cl 1(b) of that Agreement: pars 15 and 16; (b) debts due by Intrinsic Solutions Pty Ltd ('Intrinsic') to Addease payable by Dialog under an agreement with Intrinsic in the sum of $23,111: pars 17 to 21 inclusive; (c) the cost of software and services provided to Dialog commencing in October 1999 for its use after its acquisition of the business of Intrinsic in the sum of $43,420.45: par 22; (d) fees in the sum of $249,375 payable for software, associated services, and annual maintenance services, provided in respect of labour hire contracts taken over by Dialog upon its acquisition of the business of Intrinsic: pars 23 and 24; (e) under a Reimbursement Agreement between Addease and Dialog, the sum of $26,931.91 paid by Addease on behalf of Dialog: pars 25 to 28 inclusive; and (f) the sum of $10,000 being the price of a Text Retrieval and OCR Server, the property of Addease, received by Intrinsic and not accounted for to Addease. 11 By cross-claim, Mihailides claimed: (a) $450,000 payable under the Contract of Employment: pars 29 and 30 inclusive; and (b) $2,250 for a Test File Server provided by Mihailides to Dialog in May 2000: pars 31 and 32. 12 Dialog, by its Amended Reply and Defence to Cross-claim, pleaded an entitlement under cl 8.9 and cl 9.3 of the Business Sale Agreement to set off the sum of $19,791.87, and $50,000 against any sums payable as alleged in pars 16 and 17 of the cross-claim. Dialog otherwise denied the allegations in pars 18 to 20 inclusive, pleaded that it was not liable for the debts of Intrinsic by reason of the matters pleaded in these proceedings, denied the allegations in pars 23 and 24 (and alleged that no necessary notice under cl 8.3 of the Business Sale Agreement to retain ownership of the debts claimed under pars 22 and 23), and, denied the allegations in pars 25 to 29 inclusive and pars 31 to 37 inclusive of the Cross claim.

the evidence and findings 13 Both parties handed up numerous objections to evidence in respect of the affidavits which were intended to be tendered and stand as evidence-in-chief of the various witnesses. In February 2002, Dialog forwarded further objections to evidence with its final written submissions. I have based my decision on the oral evidence of the witnesses, the documents tendered into evidence on the trial, and any assessment of the credibility of the evidence given by the principal witnesses. Where I have relied upon the affidavit evidence appears in the reasons, and such evidence was, in my view, admissible. I do not intend to deal specifically with each of the objections seriatim. 14 Addease commenced business in 1989. It is the corporate vehicle by which Mihailides carried on business as an information technology software developer. Addease designed a speciality product for use in the labour recruitment industry. It was called TemPak. The program enabled recruitment agencies to match up candidates to job vacancies (front office functionality) and pay temporary staff for which the client was invoiced (back office functionality). Addease sold a significant number of TemPak licences and maintenance contracts to agencies within the recruitment industry. 15 In 1996 Addease commenced to develop a new product in a Microsoft Windows environment, which was directed towards larger operators within the labour recruitment industry. The product was called AXiOM and was to include a number of programs. Initially Addease produced AXiOM Win 32, which provided a front office functionality only. AXiOM Win 32 was trialled in the North Sydney office of Alectus Personnel and, in March 1998, Alectus Personnel entered into an agreement with Addease for the supply of AXiOM Win 32 for use in its offices around Australia. 16 In 1998, Mihailides was approached by Barry Keown, a salesman employed by Intrinsic. At that time, Intrinsic was negotiating to sell Skilled Engineering Ltd ('Skilled Engineering'), a general ledger/financial management software program called Infinium. Keown put a proposal to Mihailides for the development for Skilled Engineering of an integrated system which included Infinium and a payroll system called Opus One as the back office systems, and AXiOM Win 32 as the front office system ('the integrated suite'). Ultimately, it was agreed between Neill Hills-Johnes, the Managing Director of Intrinsic, and Mihailides on behalf of Addease, that a proposal for the integrated suite would be put to Skilled Engineering. Under that proposal, Intrinsic would supply to Skilled Engineering as the contractor with it, the integrated suite and would be responsible for implementation of the suite and the provision thereafter of annual maintenance; Addease would act as subcontractor to Intrinsic in respect of the supply of the AXiOM Win 32 program. 17 On 27 August 1998, Intrinsic signed an agreement with Skilled Engineering to supply to it the integrated suite. 18 Subsequently, Intrinsic sold the integrated suite to other recruitment companies. On 11 September 1998, Intrinsic and Speakman Stillwell Pty Ltd ('Speakman Stillwell') signed an agreement for the supply of the integrated suite. On 17 March 1999, Intrinsic signed an agreement with Westaff to provide the suite. Intrinsic also contracted to supply the suite to The Ready Group in June 1999. These four contracts are referred to in these reasons as the 'Labour Hire Contracts'. 19 In August 1999, Dialog acquired the business of Intrinsic as at 1 July 1999. The business acquired included the benefit of the Labour Hire Contracts. Dialog also employed a number of persons previously employed by Intrinsic. These included Hills-Johnes, the Managing Director of Intrinsic. 20 At the time Dialog acquired the business of Intrinsic, the implementation of the integrated suite as required by the Labour Hire Contracts had been substantially delayed. Further, there existed no contractual arrangements between Intrinsic and Addease for the supply to Intrinsic of AXiOM Win 32 ported to an Oracle database to enable Intrinsic to make future sales of the integrated suite. 21 In September 1999, Ian Gordon, a manager employed by Dialog, contacted Mihailides and asked that he provide a technical presentation of the payroll module that Addease was developing to a representative of Dialog. The presentation was made to Gary Young on 25 September 1999. Young was an IT consultant with Business and General Computer Systems Pty Ltd. Young prepared his written report on 27 September 1999. 22 The report of Young, so far as presently relevant, stated: '1.1 PURPOSE OF THIS DOCUMENT This document is a review of the current system and how it integrates with other applications. It was reviewed on the basis of its suitability as a standard payroll and/or the possibility of a more comprehensive payroll forming part of the Recruitment Placement front end. The investigation of the system was based on a demonstration and overview of the systems by George Mihailides (Managing Director of Addease Pty Ltd) on 25th September 1999. ... 1.4 OVERVIEW The payroll section of Axiom HR forms part of the billing/costing section of the recruitment placing software catering for temporary staff. I.e. This software is ONLY really applicable for this simplistic payroll situation of temporary staff being paid at the rate applicable to the job being performed. The system revolves around the recording of clients, staff availability and their attributes. The approach taken seems very good, in that the system has been written within HTML pages using Cold Fusion Server to link between the DB Server and the User. I.e. LAN, WAN, WEB. CFQuery has been used to access the Database. The whole demonstration was run from Internet Explorer V4. This allows the ability for users to enter the timesheets/job requests over the Web and update one common database. This would appear to be very attractive to multiple branch employment agencies. The payroll is more of a by-product of the recruitment placement requirements, rather than a serious payroll. ... 2. CURRENT SITUATION 2.1 INTRODUCTION The system is still being developed and there appears to be several areas that are yet to be written. George Mihailides implied that the productivity of his people had vastly improved within this new development environment. This, of course could be due to the more simplistic design to some of the software. I.e. Lack of integration within back office applications, such as costing, general ledger, creditors etc. The payroll section could not easily be removed from the package without major changes to the concept. The system would appear to cater for the functions of this particular environment. I.e. Payment of temporary staff with no real entitlements, such as Leave entitlements, multiple deductions, multiple superannuation funds etc. ... 2.1.2 Current Development Schedule The schedule provided by Addease for the current system is as follows: • Tidy Up - October 30 Creation of EFT File for transfer to bank Basic Reporting Remittance advice slip Invoice format • Time Sheet Work Flow - November 30 • Leave Module - November 30 • Year End Processing (Group Certificates) - December 30 • Advanced Reporting Module This is to include reporting by job i.e. gross margin of each placement. • Selection of back end system Period end journal creation. I.e. Link to a Ledger system • Monthly EFT group Tax Submission NB The last 3 options have no scheduled dates. There were no reports shown during the demonstration and were promised this week. I am not convinced that they are all available at this stage. 2.2 PROBLEMS WITH THE SYSTEM 2.2.1 System Design The system has been designed for a specific market and when complete, may be quite suitable for the functions it has to perform, but cannot be used for any other pay functions. One major drawback would appear to be, that a large Employment Agency could not pay it's own permanent employees with this payroll system. The design has been kept quite simply and very specific for the requirements of a temporary staff within the recruitment placement market. (Payroll tax has been catered for within the system based on a percentage of the invoices raised rather than the actual pay remitted to the employees.) This is the Victorian requirement for the industry apparently. The system allows for only one method of superannuation calculation based on the Superannuation Guarantee, as defined by the Government, for temporary employees. I.e. There is no employee deductions catered for and no other method of Employer contribution other than a percentage of the actual pay. There is no real allowance for multiple deductions for employees as this is normally not required for temporary staff. There are still a few minor errors within the system with the pay calculations. The leave calculations being implemented are based on an individual users requirements. I.e. This would not be flexible enough to cater for multiple users/awards. The basic leave method will generate a fixed accrual each pay period and allow for a payment to be entered up to the hours/days accrued. 2.2.2 Integration The recruitment placement and invoice generation is dependent on the details being held for all temporary staff, hence the two requirements are closely linked, but other than that there is no other integration. There is no Costing / Ledger / Creditors etc. Nor did there seem to be any link between the front end and any other systems. The system has not been set up to extract/import details from other systems. I would imagine that there would be a need to flow each job request through to a costing system so that all costs could be recorded against that job (or at least some broad category of jobs). There would be no other costs that could apply other that [sic] the actual labour costs. The transfer of Group Tax via EFT should be handled within the Creditors as there are likely to be other details that have to be transmitted.' (Original emphasis) 23 As indicated in his report, Young did not see the module under development as a serious payroll, but rather 'a by-product of the recruitment placement requirements'. 24 Importantly, it is clear from Young's report that the system Young saw being developed was not one which would be suitable as a replacement for Opus One, which provided the payroll functions (part of the back office functionality) in the integrated suite. The simplistic design of the system which Addease was developing had no integration with back office applications. The design problems and limitations of the system under development are, and were, self-evident from the terms of s 2.2 of Young's report set out above. 25 The report of Young is also important as it links the development schedule to the particular system which he saw under development which was a simplistic system with limited functionality for a particular environment. The report acknowledges that not all modules of the system awaiting development were then scheduled. That is, that the schedule he saw was incomplete.Any utility Young saw in the system lay in its possible use as a front end to a standard accounting package eg Navision (including payroll) provided it was integrated into such a system. Navision was an accounting package marketed by Dialog. 26 On 30 September 1999, Young attended a demonstration of the Opus One payroll system. He prepared a written report on 2 October 1999. That report, so far as is relevant, stated: '1.1 PURPOSE OF THIS DOCUMENT This document is a review of the current payroll system and how it integrates with other applications. It was reviewed on the basis of its suitability as a standard payroll forming part of the total package for the Labour Hire package. Ie. An integration of Axiom HR front end, interfaced to Opus Payroll and Infinium NT Accounting package. ... 1.3 OVERVIEW The investigation of the system was at a level that could not guarantee that the system performed all the functions displayed. Ie. There was no check that the data entered generated the correct results throughout the system. Nor does it take into account the ownership or costs of future development/modifications to the individual modules within the proposed package. Ie. It may be more beneficial in the long term to have overall control of all the systems being proposed. The payroll system Opus 1 was converted from a payroll designed for New Zealand to cater for Australian conditions. According to the documentation provided, all of the conversions have been achieved except for the calculation of Long Service Leave entitlements. This functionality does not seem to be fully specified at this stage but based on Steve's comments I would suggest that they take a simpler approach than envisaged so that the majority of clients would be satisfied. This would then allow that stage to be completed. The major conversions required to cater for the conversion have already been implemented. Ie. • Australian Taxation Calculations. • Group Certificate Preparation and production of file for Electronic Transfer. (I did not enquire if this has been approved by the ATO at this stage. This MUST be done to [sic] for a Payroll package) • Same applies for electronic transfer of the Employment Declarations. • Allowance for employer superannuation contributions based no actual earnings. Ie. Superannuation Guarantee Contributions. • Leave entitlements. There is a very general specification for Long Service Leave to be implemented that should possibly be simplified. I am also not sure if "annual leave" and "leave loading" is handled with all the possibilities at this stage. There are some awards that may not be handled correctly with the current set up. • Payment of employees via EFT, as based on the Australian Payments Clearing Association. • Payment of PAYE tax to the ATO via electronic transfer. My only concern with this section is that it is handled by the actual Payroll system rather than a transfer to the Accounts Payable system to allow the payment to be processed with other payments. NB There may be more than one payroll linked to the payment to the ATO. Ie Should only be one or two transfers per week depending on the days when the employees are paid. The system is running in Australia and should be capable of handling a normal payroll situation so the only issues appear to be the ability to handle this particular industry's requirements with the integrated packages proposed. Ie. Labour Hire.' (Original emphasis) 27 After dealing with the current situation, noting that the interface between AXiOM and Opus One to generate the base details for the employee and time sheet details was still at the beta test stage, and setting out the current development schedule of Opus One for a standard payroll, Young dealt with what he considered were problems with the system. In part, he said: '2.2.2. Integration The interface between Axiom and Opus is a little cumbersome and probably should be more automated. Ie. Currently, the Axiom system exports a file (nominated by the user) and then Opus imports the file (again nominating the file name to be imported). One area of concern with this interface is the lack of control over the Axiom system. Ie. All development within Axiom is performed by Addease staff and any changes required to the interface cannot be easily changed without agreement by this company. They will be promoting their own solution to other clients, specifically their own payroll, which may be awkward in some situations. Although, their solution for payroll is far too simplistic to be used by any reasonably [sic] size company. The transfer from the Opus payroll to the Job Management and General ledger is performed with one option and is satisfactory as a procedure. I feel that there should be another interface between the deductions generated and the actual payment of these accounts. Ie. Rather than allow for the payment of the group tax within the payroll (generation of file for transfer of funds via EFT), this should have been transferred to the Accounts Payable system, together with all other deductions generated by the payroll system. The actual payment of these accounts can then be performed by the Accounts Payable system by either cheque or electronic funds depending on the creditors status. This must currently be handled by manual entry of the details into the Accounts Payable system.' (Original emphasis) 28 Young delivered the second report to Alan Key, the Managing Director of Dialog, but did not discuss the contents of the report with him at that time. Nevertheless, the real interest in Dialog acquiring control over all the systems in the integrated suite, and in particular, control of the AXiOM system for the reasons outlined by Young, was self-evident from a reading of the report. 29 On 11 October 1999, Hills-Johnes sent an e-mail to Key headed 'Sept Billings & Outlook to December'. The e-mail stated that the '90 day forecast attached ignored backlog software revenues for Labour Hire Companies'. The Outlook, so far as is relevant to sales of the integrated suite, provided: ' Oct Nov Dec 2000 Services Julia Ross Labour hire 125 125 Bensons Labour hire 75 75 Forstaff Labour hire 100 100' The figures were stated in multiples of $1,000. 30 On 12 October 1999, Mihailides had a meeting in Melbourne with Gordon and other employees of Dialog to discuss the Labour Hire Contracts. 31 On 25 October 1999, Hills-Johnes and Key met with Mihailides in Melbourne to discuss distribution models for the future distribution of the AXiOM Win 32 programs developed by Addease. 32 On 29 October 1999, Hills-Johnes e-mailed to Key a proposed business structure for Dialog. It is not possible on the evidence to find when the model was first conceived and whether it was responsive to the discussions with Mihailides on 25 October 1999. The e-mail stated: 'Alan, Attached is the proposed structure, together with people & responsibilities. The structure accomodates [sic] immediate needs and looks to the midground, say 12 months out. Some people will assume temporary roles until suitable replacements are found or current developments/implementations are completed. I have gone for 4 groups, FM/MM; HR/Payroll/AM; Services & Labour Hire. To maintain the AS/400 focus, I have allocated reps within each group to be platform-specific. This ends ups [sic] with 6 reps as follows: Steve Hague Infinium FM-NT to Business Services TBA Navision TBA Infinium AS/400 FM Ross Infinium AS/400 HR & Hardware TBA HR-NT & Opus Elvis Labour Hire (Infinium FM-NT, Opus & Axiom) The product groups will be credited [sic] with maintenance revenues, product sales, product implementations & product related [sic] services. Reps will get credit for all product sales, and maintenance & implementation services to new clients only. The Services Group will focus on existing customers and new customers for services, with the exception of production-related modifications, which will be retained within the product groups. There are several items that "end up without a home". Examples include central support, internal systems, contract management, software procurement, release level control and distribution. This is particularly relevant with customers who have purchased both Infinium FM/MM and HR/PY, examples being Star City, APN, Sky City. In these cases ordering and control via Infinium crosses two product groups. To facilitate the transition, and to get Fiona (Finance & Admin Mgr) up to speed, I have allocated Dave Rapley to retain his current role for the [sic] next 3 months, and then move into A/c Management in Services. I would like to finalise this by the end of next week, please review and can we discuss on Tuesday?' 33 The groups were: FM/MM: Financial Management and Materials Management HR/Payroll/AM: Human Resources and Payroll Services Services Labour Hire 34 It was the intention of Hills-Johnes that the Labour Hire group would be a separate selling unit under his management which dealt with the Infinium, Opus One and AXiOM product or products. 35 On 3 November 1999, Gordon met with Mihailides in Melbourne to ascertain whether or not Mihailides was interested in Addease selling its business to Dialog. 36 Gordon was the General Manager, Business Development, of Dialog. He was responsible for, among other things, considering acquisitions to expand the business of Dialog beyond Queensland. He gave the following evidence, which I accept, as to the expansion policy of Dialog and his being instructed by Key to contact Addease: 'And when you started with Dialog, where did Dialog have offices in Australia?--- I think it only had an office in Brisbane and it may have had a smaller one up north Queensland somewhere. And during - were you involved in the acquisition of a Dialog office in Canberra? --- It wasn't an acquisition in Canberra. It was a set-up after we won a major job. I see. So you established a new office there? --- Yes. And during your time did you move into Sydney? --- During my time there, yes, I was indirectly involved in the acquisition of the Sydney office, very much on the periphery. Was the acquisition of the Sydney office by set-up or by acquisition of Intrinsic? --- By acquisition. Of Intrinsic? --- Of Intrinsic. And so the purpose of buying Intrinsic, apart from buying the business, was so that Dialog would have a presence in Sydney? --- Correct. And was it on a policy of expanding into the capital cities around Australia? --- More and more of the clients that Dialog had were - had their offices across Australia, Brisbane being very much a branch office city. We needed - Dialog needed to have presence in those other capital cities where the head offices were. It's where the decision making was and where a lot of their IT services were centred. And so it was 1999 when they made the decision to acquire Intrinsic? --- I believe so. And then later on that year were you instructed by Mr Key to make inquiry about the prospect of acquiring a presence in Melbourne? --- I was. And what possible - was that - did Mr Key suggest to you the possibility of setting up from scratch in Melbourne? --- There were already a number of people based in Melbourne that were part of the Intrinsic organisation. They had serviced offices in Melbourne and the idea was to expand on that but also develop a particular relationship with one major client down there as a starting point. At the time Intrinsic was involved with Addease and that's how the arrangement came to be that we went to have a look at Addease. And did Mr Key suggest to you that you have a look at Addease? --- Yes. And was the principal purpose for that to - for the purpose of establishing a place as a Melbourne office for Dialog? --- Two considerations: that was one of them; the other consideration was developing the product that Addease had into the labour hire suite, to develop that and make that into a major market segment that would be able to be sold by Dialog. Did Mr Key tell you about this labour hire suite, as you described it? ---- I was aware of it through the acquisition of Intrinsic; what they were doing and what market segments they were looking at. And we had discussed that as a policy matter, I guess, or strategy - developing a strategy to not only go into other locations, but into other market segments. And did you understand that the suite, which was being offered for sale by Intrinsic, now Dialog, had a component part which was supplied by Addease?--- Yes. And did Mr Key suggest to you that you have discussions about the possible acquisition of Addease?--- I was asked to go and sound out Addease to see whether they may be interested in either in forming a closer relationship which could either become an acquisition, or a much closer partnership relationship. And for that purpose did you travel to Melbourne and meet with Mr Mihailides?--- I did.' 37 He also gave the following evidence of his negotiations in Melbourne, which I also accept: 'MR RIORDAN: In terms of your negotiation, you would have had in yourself an expectation that Mr Mihailides would have been expecting or may well have been expecting that some approach would be made about formalising this arrangement?--- At the time that I talked to Addease I was not aware there was no formal arrangement in place between any of the parties. You weren't aware of no formal arrangement?--- Absolutely. That would have sent off a warning bell to me very early. Yes. In any event, your job was to find out whether or not there was a prospect of acquiring this business at a reasonable price and make some assessment of money one was talking about. That was your purpose?--- Correct. And you had a discussion with Mr Mihailides about that?--- Yes, and the other side of that is whether it was worthwhile acquiring. Yes. And as a result of that, did you eventually get to the stage where Mr Mihailides was indicating that he might be prepared to consider an offer for the business?--- I did. And did you suggest to him if it was to go forward what might need to occur?--- I did. What did you suggest to him that should occur?--- What I - and perhaps tell me if I'm going off the beam here but in looking to acquire the business we had to look at what was there now, what products and services the organisation had and also what vision it had for the future. So the organisation clearly had a base of clients and in my discussions with Addease, with Mr Mihailides, none of the financial components were discussed. It wasn't my forte. It wasn't something that I was going to look at. We needed to make sure that - however, having said that, we need to make sure that the business was viable and sustainable and we needed to understand what George's vision was for the future because his was a market niche that was here and where Dialog was looking to go was there plus over here. And what I was trying to establish was whether the direction and the vision that Mr Mihailides had was in tune with what Dialog was thinking about. Ultimately, did you form a view about whether the vision that Mr Mihailides had was in tune with what Dialog wanted?--- I did. I thought that the vision that Dialog had and George's were different but not incompatible and I believed that some of the ideas that Mr Mihailides had were good and could be incorporated and indeed form part - a major part of what Dialog could do, going forward. Is it fair to say that an important part of what you're assessing in these discussions is whether Mr Mihailides has got something to offer Dialog as an individual, apart from the business?--- That's part of it, yes. And in this discussion, did you get to know more about the business?- I got to know more about the business and the various components of it, including Mr Mihailides and his team. How long did you spend in these discussions with Mr Mihailides?--- My recollection is there were either two or perhaps three sessions, the first one being at Addease's office, the second one being in my hotel, and I think the third one also took place in the hotel. The first one was very much understanding where the business was, where it was going to, understanding Mr Mihailides and what his vision was. That also included a whiteboard session about where we saw Dialog, where we saw Addease going. I think it would be fair to say that Mr Mihailides and I were able to cut to the chase reasonably quickly about where the companies were sitting. And did he give you some financial information about the company?--- No. Didn't get - - -?--- I asked him to prepare that. You asked him to prepare that?--- I did. And by getting down to the issue reasonably quickly, you were talking about whether or not there was going to be a sale of the business of Dialog?---We may have skirted around those words, but we all understood where we were going to. And it was you who suggested that he should get together some figures about actual figures and also some projections into the future in accordance with his vision and provide those to Mr Key?--- I made it clear that Dialog was looking to acquire or was always looking to acquire viable businesses that - on their own feet could stand up and be part of the organisation, and that the vision when that was incorporated into that business by means of capital or resources to make some of that vision occur, was that that organisation still had to be viable and still had to be financially secure. Now, that's putting a framework in place that says, "We're clearly - we're not going to buy a dud". That's putting everybody on notice that says, "We will have a vision, but I don't have it so fanciful that it's unsustainable for the future, and don't try and put something on the table now that's not sustainable right now". Now that's a standard process - - - And so the sustainability assessed by your actual performance figures at the moment?--- By a combination of things. Obviously, the financial components of it which was not, as I've said, not my - not something that I was looking at. Yes?---Really I was there to judge where I believed the viability of the business was from a business perspective not from a financial perspective, and whether I believe that Mr Mihailides had the right customer mix, the right way of going about business more than the intimate detail of the business, about whether he was the right - that was the right kind of business to bring into Dialog. In any event, you asked him to provide figures together with projections to Mr Key. Did you take it further?---Mainly projections about where he was going. ...' 38 Gordon reported back to Key. He gave the following evidence, which I accept also: 'And did you report back, after that discussion, to Mr Key about - - - ?--- I gave him my impressions, yes. And what did you report to Mr Key about the - well, first, about Mr Mihailides himself?--- I believe I would have told Alan that I thought that Mr Mihailides had a vision that I believed could be incorporated into Dialog's portfolio. Some of those things may have gone into the Labour Hire suite, some of those things were off to the side. I would have told him that I believed that the business was a fairly typical small business, that, on the surface anyway, appeared to be, not hand-to-mouth, but it was - you know, it wasn't an effluent-looking business and that the people that were involved, although I didn't get to know them intimately, were probably not people that, from what I could see, and this was very visual, you know, were not probably the type of people that Dialog might have employed from day one. However, there was something there that we could probably utilise, but it had a price. Did you have a recommendation to Mr Key as to whether or not you thought he should proceed with further negotiations?--- I thought it was worthwhile proceeding, yes. And you expressed that to Mr Key?---I did. And you weren't later involved in, you didn't see it, the projection that Mr Mihailides came up with as a result of your request?---No, I did not. And you didn't consult with Mr Key about whether or not, for the negotiations for the actual purchase?---No, the negotiations that Mr Key had with Mr Mihailides happened pretty quickly. I was either overseas or somewhere else at the time when it happened, and we had acquired, effectively acquired the business, or in the process of acquiring the business when I came back into it.' 39 I reject the evidence of Key where it is inconsistent with that of Gordon. Gordon no longer works for Dialog; he has no interest in the outcome of the litigation. For reasons that I will give later, I have formed the strong view that Key has no real recollection of the relevant events, and that the version of events which he now gives are reconstructions whereby he seeks to downplay his interest in acquiring the business of Addease in late 1999. 40 Mihailides, in his affidavit, gave the following evidence of his contact with Gordon: '240 Within a few days of the October 25, 1999 meeting having taken place, I was contacted by Mr. Ian Gordon, General Manager of Dialog. He requested a meeting with me to which I agreed. The meeting occurred in his hotel room at the Hyatt Hotel in Melbourne on November 3, 1999. Mr Gordon said that Dialog was interested in acquiring, in his words "AXiOM", and wanted to know whether or not I would be interested in selling it. 241 I told him that if the price was right, I would sell. I told him that I thought the right figure was somewhere between $500,000.00 and $1 million. 242 During my meeting with Mr. Gordon of November 3, 1999, he advised me that the structure of the sale of AXiOM would need to consist of three components. (a) The first was a cash component for an amount which had to be agreed upon. (b) The second was an employment agreement between Dialog and I. Mr. Gordon said that Dialog would not be interested in AXiOM without also having secured my expertise as the architect of AXiOM. (c) The third was a commission agreement in which I would receive a percentage of future AXiOM revenue. 243 Mr. Gordon said that I would need to negotiate all three components with Mr. Alan Key, the Managing Director of Dialog, and that I should put something in writing to him. 244 Following this meeting, I did two things: (a) I commenced to prepare the material as suggested by Mr Gordon and sent it through to Mr Key. ...' 41 There was little cross-examination of Mihailides of his meeting with Gordon. It was: 'Mr Mihailides, can I take you to your briefing with Mr Gordon of 3 November. Do you recall that?---Yes, I do. During that meeting, Mr Gordon told you that Addease had to demonstrate that it had a stand-alone, sustainable business?---I don't actually recall him saying those words. With a business model to ensure sustainable growth in the future?---I don't recall him saying those words. Did he tell you that you would need to produce actual figures for Addease demonstrating current and sustainable profitability of the business?---Your Honour, he asked me to produce figures - in the words he used, what I'd done with the business and which I took to mean the sales history of Axiom.' I accept the evidence of Mihailides as to his meeting with Gordon. The differences in recollection are not material. 42 Gordon spoke at the meeting of 3 November in terms of 'visions'. Dialog was looking to acquire viable businesses that could stand on their own feet and be incorporated in the business of Dialog. Those businesses were to have a 'vision' which capital and resources supplied by Dialog would bring to fruition. But those businesses also had to have a vision which was sustainable both in the present and in the future. The projections which Gordon asked for were where Mihailides was (that is, as Mihailides said in cross-examination, what he had done with the business) and where he thought he was going in the conduct of the business of Addease. That is, what was the present and future 'vision' Mihailides had for the operation of the Addease business. Gordon did not instruct Mihailides to prepare figures as to future profitability of the business in the event that it was acquired and operated by Dialog. 43 I find that Mihailides understood that he was to prepare financial projections of his vision of the Addease business, if it continued to be operated as he then was operating it, to support a sale price for the business of between $500,000 and $1 million as part of an offer to sell which included a cash component, an employment component and a commission on future AXiOM sales revenue components. I find that based on that understanding, Mihailides commenced to prepare material for Key shortly after the meeting with Gordon. 44 Mihailides gave the following evidence as to the dealings between himself and Key prior to a telephone conversation involving Mihailides, Key and Lucas Doessel, Manager Corporate Services of Dialog, on 12 November 1999: '253 Following my meeting with Mr Gordon on 3 November, I started preparation of financial material to send through to Mr Key. The first thing that I sent through to Mr Key read as follows: "Valuation Calculation Licence Fees - Major $693,000 Licence Fees - Minor $100,000 Total Licence Fees $793000 Annual Maintenance $115950 Total Revenue $911950 Support Costs $150000 R&D Costs $150000 Admin Overhead (15%) $137792.50 Total Costs $423565 Multiplier 5 10 Valuation 2441625 4563650 254 I sent this through to Mr Key in early November. Having received it, Mr. Key called me and told me that this was not the way a valuation would be done and he told me that a valuation should be based on a multiple of a profit based figure. In substance, I said that I didn't have the information to determine a profit figure in respect of AXiOM, but as best I could, I would extract and present to him the information that related to the AXiOM business. 255 Following this initial attempt, I produced a number of spreadsheets and emailed them to Mr Key and Dialog's financial controller, Lucas Doessol, [sic] and we discussed them. Between 4 November 1999 and 11 November 1999, we had 3 or 4 discussions during which we discussed the spreadsheets and other matters relating to the deal. Ultimately, a spreadsheet almost satisfactory to Mr Key was sent to him on 11 November 1999. I discuss this further below. 256 During the conversations between 3 and 11 November 1999, I explained the spreadsheets. Amongst other things I explained: (a) how each of the licence and maintenance fees for the major projects (including the existing labour hire projects) and minor projects had been calculated; (b) that the historical licence fees shown on the spreadsheets reflected the value of the purchase orders placed with the First Respondent and contracts between the First Respondent and its customers during the previous 12 to 14 months; (c) that the projected licence fees for major projects of $500,000 was based on a reduction of a major project sales of the previous year; (d) that the minor sales were calculated on the basis of 4 sales of $25,000 each; (e) that sales in years 2-5 were calculated by fixed increases of 10% year on year; and (f) that I had prepared the forecasts on the basis that Addease would continue to run the business as I did not know what Dialog would do with it after they assumed control. 257 Mr Key told me that he thought that the sales forecasts and the 10% per annum forecast increase contained in the spreadsheets were reasonable. He said that, if anything, he thought that the sales forecasts were conservative and said words to the effect "surely we can do better". 258 During these negotiations, I requested Mr. Key pay Addease for the outstanding licence fees and 1st year's annual maintenance due to Addease in respect of the Labour Hire projects. I went so far to say that I wouldn't sell AXiOM Win32 unless he agreed. Mr. Key did agree, but requested that Dialog not have to forward the amounts due until Dialog had received the corresponding income from Labor Hire customers. I agreed to this condition. 259 During these negotiations we also discussed the position of AXiOM Payroll and the fact that I would make an allowance of $50,000 to Dialog on the Andersen Contracting project to allow them to finish this module. I deal with this further below. 260 We also discussed my salary and conditions of employment at this time. I told Mr Key that I wanted a salary of $150,000 a year. 261 As noted above, by November 11 1999 Mr Key was almost happy with the spreadsheet that I had faxed him.' 45 As to the creation of documents forwarded to Key on 11 November 1999, Mihailides said in his affidavit filed on 22 January 2002: '27 I assembled the details of Addease's sales over the previous twelve months or so. I prepared a spreadsheet containing this information and set out alternative valuations of the AXiOM product. I provided an updated version of the spreadsheet to Mr Key on 11 November 1999 by email, along with a document that outlined two alternative purchase options for him to consider. True copies of these documents are now produced and shown to me marked "GMM-4" and "GMM-5". After Mr Key received these documents we had a discussion. Mr Key said that he could agree to "option 2", but that he wanted to modify the commission structure. In my proposed "option 2" the commission rate was fixed for five years. Mr Key said that he wanted a sliding scale to apply. I updated the spreadsheet to take account of this and emailed it to Lucas Doessell [sic], who was Dialog's financial controller, on 12 November 1999. A true copy of the updated spreadsheet is now produced and shown to me and marked "GMM-6".' (Original emphasis) 46 Mihailides also gave evidence that during this period he told Key that another party had expressed an interest in acquiring AXiOM, and that he would not pursue negotiations with that party unless the negotiations with Dialog failed. Mihailides was not cross-examined on this evidence. 47 Key was cross-examined about a document bearing a file name 'Axiom Valuation for Dialog Mark 2' dated 11 November 1991. His evidence was: 'These were projections that were prepared at the request of Mr Gordon; were you aware of that?---Yes. And in accordance with Mr Gordon's request, Mr Mihailides has prepared them and forwarded them on to you; is that correct?---Yes. Sorry, yes. And these documents you understood what the documents - what the figures were?---Yes, it was a forecast for Axiom sales. If I take these sheet by sheet, the one that's headed up Sheet 1 on the copy you have there, it's MS EXCEL document Axiom Valuation for Dialog Mark 2 dated 11/11/91 sheet 1?---Mm. Do you see that in the handwriting above?---Yes, I do. If I could ask you: did you understand what that document represented?---Yes. At the time I did, yes. Do you understand what it is now, as you look at it?---Broadly, yes. Yes. And that - did you understand it the first table there is a table of licence fees which had been contracted for, contracts for licence fees in the 1998/1999 year; is that correct?---Yes, yes. And the first four of those are the labour hire contracts that were done in association with Intrinsic; correct?---Yes, yes. And it set out licence fees, the first year maintenance that was payable, the amount that had been invoiced and not paid of those contracts, the amounts that had been invoiced to be paid and then a balance for your - at the end?---Right. Does that refresh your memory?---Yes. And that's what - you'd had some discussions with Mr Mihailides leading up to the provision of this on 11 November - on the telephone?---Yes. A number of discussions?---I can't remember the number of discussions, yes. But do you remember that there was a number?---There would have been at least one, "How are you going", that sort of thing, but I can't remember that there was constant discussions, yes. Certainly a telephone conversation when you did the deal on 12 November wasn't the first conversation you had with Mr Mihailides, was it?---No. No, we had previous conversations, yes. Yes. And in fact you'd told him that some of the earlier figures he'd given you weren't really what you were looking for and made suggestions as to the sorts of further information he might want to give you?---No, I have no recollection of that, no. I was wanting forecasts from him; that was my recollection of what the business was going to deliver. And he gave you some figures and you'd said, "Well, they're not really what I'm after"?---No. This is the first spreadsheet that I can recollect seeing. Is that right?---Yes. And are you confident about that?---It's the first spreadsheet I paid any attention to, that's as far as I can remember at this stage, yes. All right. Now, on the services analysis below that, that was an estimate, was it not, of services that it was thought may be able to be achieved from those customers on top of the fees, the licence fees and maintenance; is that so?---Yes. And that was the sort of information that you required, wasn't it?---What I really required was a forecast of what the business was going to do. This was - this was supplementary - supplementary details. What I was really after was the forecast of what the business was going to do. Right. The best place - - - ?---But I guess this was supporting - - -

- -to start - - -?--- - - -material, yes. And the best place to start is by telling you what it has done, isn't it?---Yes. So it is essential?---Well, it is an ingredient, yes. All right. And then the next page was various chattels; is that so?---Yes. And the following page were the annual maintenance for the major projects?---Yes. And also annual maintenance for minor projects? Correct?---Yes. Did you understand by this point in time that, apart from the Axiom product going into the integrated suite, he was selling the Axiom product to other smaller customers?---Yes. Yes, I did, yes. And did you understand that he had been selling a product to smaller customers prior to the Axiom product?---Yes. Where did you learn- - -?---So prior to the Axiom product. At prior to the development of the Axiom product he had been selling the product to minor customers? Do you understand that?---Yes. Yes. And who had told you that?---I believe George had told me that, in a fair bit of detail when I met with him in late October. And so at that point in time he would mention all these sorts of - this sort of information to you?---Yes. Yes.' 48 Key, in an affidavit filed on 13 November 2002, made no reference to any prior dealing with Mihailides in respect of spreadsheets or projections prior to receipt of a document by e-mail on 11 November 1999, which he forwarded to Doessel for his consideration. In his affidavit, Key deposed that on 12 November 1999 he had discussions with Doessel following which they telephoned Mihailides and asked him to prepare a fresh forecast based on a sliding scale of commission percentages over the projected five year period. Key deposed that Mihailides later e-mailed at 10.04 am the revised forecast with the changed percentages. 49 The documents exhibited to Mihailides' affidavit of 22 January 2002 reveal that the unamended version of the document was sent by e-mail to Key at 3.22 am on 11 November 1999, and that this e-mail was forwarded to Doessel at 2.27 pm on 11 November 1999 with a covering request to read and discuss the document with Key. Mihailides sent the amended figures which Key requested to Doessel at 9.45 am on 12 November 1999. Doessel, in his affidavit, only refers to one telephone discussion with Mihailides in which Mihailides stated that the amended figures had been sent earlier in the day to Doessel's office e-mail address. Doessel had not attended his office prior to the telephone discussion which occurred in the office of Key on 12 November 1999. At Doessel's request, Mihailides sent a further copy of the amended figures to Key's e-mail address for use in the telephone conference. Doessel confirmed that when he returned to his office, the earlier e-mail sent to him by Mihailides was waiting for him. 50 The subject heading on the covering letter e-mailed by Mihailides at 3.22 am on 11 November 1999 was 'latest calcs' and the body of the same stated: 'Alan I have attached an updated spreadsheet with the valuation calculations. I have also attached a summary document with a couple of options. I suspect option 2 is going to be more in line with your thinking. I haven't yet completed a thorough check of the numbers in the spreadsheet ... I'll do this while I'm flying back tomorrow. Speak to you on Friday. Rgds ... George BTW ... the revenue line indicated as target 2 is only there as a "what if". It includes a projection for sales into the corporate HR market and in fairness to you, we will need to make provision for reasonable costs to develop and market the product (ie. its not appropriate for me to expect to receive incentive on that product without considering the entry costs). Having said that, I believe the revenue projection for this product is extremely conservative - year 1 estimate is 100k, we'll practically get that out of the first sale.' 51 The contemporary documents satisfy me that there were substantial negotiations between Key and Mihailides prior to the receipt by Key of the documents which he forwarded to Doessel on the afternoon of 11 November 1999. I accept as substantially correct the evidence of Mihailides as to what occurred between 3 November 1999 and 11 November 1999 when he sent his latest calculations with covering letter by e-mail to Key. I also accept that Key told Mihailides on 11 November 1999 to re-work the calculations using a sliding scale of commissions which Mihailides subsequently did do, and forwarded the same to Doessel. 52 It follows that I reject Key's version as to how the recalculated commission came to be included in the documentation discussed on 12 November 1999. I am satisfied that there had been previous spreadsheets supplied by Mihailides to Key and discussed with Key. I do not accept the evidence of Key that he did not concern himself with the contents of any spreadsheet produced prior to the one he obtained on 11 November 1999. I find that Key had indicated to Mihailides the basics of an agreement which would be acceptable to him, which included an employment component of $150,000 per annum, a commission component, and the payment of licence and maintenance fees to Addease in respect of the Labour Hire Contracts before the e-mail of 11 November 1999 was sent to him by Mihailides. I also find that Key told Mihailides that he could agree to Option 2 but wanted the commission structure modified. 53 During the time Key was having discussions with Mihailides concerning the preparation of the terms of an offer of sale of the business with supporting calculations, Key was having discussions with Hills-Johnes concerning Hills-Johnes' business structure proposal. On 8 November 1999, Key sent Hills-Johnes an e-mail which read: 'Neill Following our discussions: Six business units reporting to yourself. Each business unit would be managed by a Business Unit Manager who would primarily have a marketing sales focus (75% sales and 25% service, administration). As such, there would be no requirement for a second sales person in the business units until sales were at a level that demanded additional resource. Neil H-J would range over all business units with a strong sales focus. In addition, Neill would be actively involved in the Services group to build our presence in this core activity. The business unit managers and budgets: Navision Position Vacant $1.00m Peter Bryan as the lead technical resource AS400 Infinium Position Vacant $1.00 m Is Steve or Ross up to this Payroll, HR Steve $0.75 m Can Steve make a fist of this Labour Hire Elvis, George $2.00 m Services Position Vacant $2.00 m Is there anyone that can do this job, Before we put Ross here I would like to see his resume and interview him. This is a key position. Maintenance existing sites $1.00 m Graham Darley reports through to me as Victorian Branch Manager - I do not believe he is adding value in supporting current clients - I don't believe he is focussed on selling the current range of product. If I have it right, he joined the company after the sales at Skilled and Westaff were made. He is effectively a location manager. He may be able to develop into a Services Account Manager. In what roles can we use Steve Richards, David Rapley and Jim Stillwell. Administration Group As per your required structure Navision Group Core Product: Navision Strategy: This is now our only NT product, aggressively sell by all normal means Functions: Product sales, product related services (inc maintenance and support) Resources: Sales staff, lead technical staff AS400 Group Lead Product: Infinium AS400 solution. Other Product: As released by Infinium, IBM also have an AS400 BI tool that is selling well, as I understand it (may be an alternative to Cognos tools that could provide us with some IBM profile and support) Strategy: Aggressively target the AS400 installed base with an AS400 focussed and experienced sales team Functions: Product sales, product related services (inc maintenance and support) Resources: Sales staff, lead technical staff Payroll, HR Group Lead Product: OPUS, Navision Payroll Strategy: Highly focussed sales team agressively [sic] promoting Payroll solutions (what's our differentiator?, what market niche are we going to address, etc?) Functions: Product sales, product related services (inc maintenance and support) Resources: Sales staff, lead technical staff Labour Hire Group Lead Product: Vr 1 - AXIOM, OPUS, Infinium NT, Vr 2 - as developed Strategy: Low end - internet product (ASP) - strike agreement with Addeeae [sic] to market Medium end - Axiom simple product - strike agreement with Addease to market, package product, distribute and sell through advertising, seminars, web etc High end - Core product as above, Finalise Addease agreement, get out and sell it! Functions: product sales, product related services (Inc maintenance and support) Resources: sales staff, lead technical staff Services Group Core Product: Provision of a wide range of services - people and projects Strategy: 1. Capitalise on relationships with existing clients to provide a wide range of technology services. 2. Promote our strong capability in groupware (lotus notes) and BI (cognos) to deliver focussed services to new clients 3. AS400 (in sync with point 1 above) Functions: Account management Resources: Account manager with market sales focus' 54 The 'George' referred to in the above is Mihailides and the 'Elvis' is Elvis Jusic, a former employee of Intrinsic who was employed as a salesman and who had been re-employed by Dialog when it acquired Intrinsic's business. The budget for the Labour Hire Business Unit was to be $2 million. 55 The evidence of Hills-Johnes in respect of the proposals contained in Key's e-mail of 8 November 1999, was that it was proposed that Mihailides and Jusic were to be business unit managers of the labour hire unit, with a budget of $2,000,000. He also agreed that what was contained in the document was what was being proposed at that point in time. 56 Key admitted in cross-examination that he had had discussions with Hills-Johnes leading up to his e-mailed proposal. He also agreed that, as part of those discussions, the potential of the Labour Hire business was discussed. The proposals, he acknowledged, provided that each of the six business units would be managed by a business unit manager. 57 In respect of the management of the Labour Hire business, Key gave the following evidence: 'And then Labour Hire has got both Elvis - is that Elvis Jusic?---Mm. And George is George Mihailides?--- I presume, yes. As the business unit managers?--- No, no, no. Not George. He wasn't on board. I do remember my comment there. The issue with Elvis in that role, because it is a marketing-led group, I saw that Elvis had a lot of experience in - I thought he was a good salesman. He was good cold-calling capability. He had some good payroll knowledge - he knew how to sell those - and payroll is an important part of the whole Labour Hire thing, but I remember talking to Neill about the fact that I didn't think he knew the Labour Hire industry well, and if we were going to sell the Axiom product, then we would need to team him with George. So that was what that was about. So it envisaged that George Mihailides would become part of the Dialog organisation?--- No, no. At that stage, it envisaged that if we were going to sell the Axiom product, and the Axiom product was going to be a differentiator in the market, then we needed to have George selling with Elvis via George's organisation, actively selling, to support our activity in that market place. I'll put it to you that you didn't make it clear in this e-mail. Did you make that clear in discussions with Mr Hills-Johnes or otherwise?--- Yes. Yes, because I do remember my concerns with Elvis. Good salesman, bit young, but - and good payroll knowledge but no knowledge of the labour hire - particularly of the labour hire industry, but very quick on the up-take.' 58 In respect of the budget allocation of $2 million, Key said: '$2 million budget you gave to that area?--- Just a guess, yes. A guess based on what?--- A guess based on that's what I'd like to see, for services and for product. You had discussion with Mr Hills-Johnes about these matters, hadn't you?--- Elementary discussions, yes. You were able by those elementary discussions to distinguish between the relevant budgets for the different areas?--- Yes, yes. And you formed a view about what you considered to be reasonable budgets for each of the business units. Is that right?--- Well, he said that those things were possibly doable, and I said, "Possibly doable," but it would depend on what's out in the market place and depend on the mix between services and product and a large proportion of that would be services. And so to a large extent you say that those figures were based on what Mr Hills-Johnes told you about the different business units?--- Mm. What was achievable?--- Mm. Is that correct?--- I believe so, yes. And you trusted Mr Hills-Johnes as to his estimates in these matters? --- Mm. Sorry, I'll get you to say yes again, if you wouldn't mind?--- Sorry, yes. At that point in time, I'll put it to you, that you were proposing that there would have to be some agreement with Addease about what role Addease would play with Dialog in the sale of the labour hire integrated suite?---Yes, there was. I mean, as I understood it, Neil already had an agreement, an oral agreement, to sell the product, and he took a small margin on that; a 20 per cent margin or thereabouts, and that George was happy to have him continue to sell because there had been some success. But you wanted to finalise the agreement, didn't you?--- No, I didn't - it was not a burning issue for me to finalise an agreement. I mean, I wasn't out there saying, "Let's finalise an agreement."' 59 Key was then taken to his statement as to future strategy in respect of this business unit, and the following evidence was given by him: 'Do you see "Lead Product, Axiom, Opus and Infinium"?---Yes. Do you see that?---Yes. Do you see "Strategy, Low End, Medium End and High End"?---Yes, strike agreement. Yes, well - - - Strike agreement?--- Yes. But - strike an agreement. But, yes, I mean, it wasn't a burning - it wasn't sort of a burning - - - Medium end was also strike agreement?---Mm. And the high end was finalise Addease agreement, get out and sell it?--- Mm. Would you like to review what your evidence has been today about that question?--- Well, I guess that says we were, but, I mean, as I say to you it just wasn't a burning issue because I knew that we wanted to sell it, and George was happy to sell it, so that's- - - George could have changed his mind at any time, couldn't he?--- Distribution agreements can be cancelled at 30 days notice. What counts are sales and commitment.' 60 I do not accept Key's explanation of this document. At the time the document was prepared and sent to Hills-Johnes, Key was involved in direct negotiations with Mihailides in respect of a possible acquisition of the business of Addease. No-one was then discussing an arrangement involving third party distribution of Addease's AXiOM product range. Key and Mihailides were discussing the employment of Mihailides as an employee of Dialog and the acquisition of the intellectual property in respect of each of the products produced by Addease which were referred to in the strategy. The acquisition of Mihailides and control of the intellectual property of Addease were essential elements of that strategy. 61 The document also confirms, in my view, that Key had at that date accepted the advice of Hills-Johnes that there be a Labour Hire Business Unit, the lead product of which would be the integrated suite of AXiOM, Opus One and Infinium programs. I am satisfied Key accepted the advice of Hills-Johnes that the potential market and prospects in the pipeline would support a budget of $2 million. 62 On 9 November 1999, Roy James, a manager employed by Dialog to oversee the implementation of the Labour Hire Contracts, sent Key a spreadsheet as to resource estimates for the Labour Hire Contracts. In a covering e-mail, he said: 'Alan, The attached spreadsheet has been prepared based on current knowledge and is likely to vary. There are a few caveats on the data at this stage.

I have included a small allowance for support and development of the integrated product but this may need to be increased.
A small number of activities do not have resources assigned to them yet.
The demand on the Opus development resources is somewhat higher than expected.
Infinium resources are in high demand in November and December. This will need levelling and would push demand into January. This is probably not acceptable to our clients.
These resources are only catering for the current labour hire clients. Does not include any demand for pre-sales work.
The Westaff plan is very basic at this stage, although the amount of work on this project will decrease at the end of November. Westaff will be primarily resourced by Iain Nolan, Peter McGraw, and Kevin Griggs and some Addease. At this stage Peter is not being stretched and he will be directed to Skilled as the work on Westaff abates.
Despite what the chart shows, my gut feel is that the actual demand is substantially higher.
The Ready Group plan is still in draft and has to be reconciled with my earlier estimates.' 63 I am satisfied that by 11 November 1999, Key was obtaining advice from Gordon, Hills-Johnes, Young and James as to the future potential market for the integrated suite, the extent of the work outstanding to finish development of the suite, the importance of the AXiOM Win 32 program to the future marketing of the integrated suite, the importance of obtaining control over the AXiOM system, and the unsuitability of the AXiOM payroll system for integration in that suite in lieu of the Opus One program. He was also receiving advice that the AXiOM payroll system being developed by Addease was simplistic, suitable only for a particular environment, incomplete, and requiring completion of developmental tasks, which at that time had no scheduled completion dates. 64 I am further satisfied that Key was making his decisions based on that advice. 65 On 11 November 1999, Key received by e-mail from Mihailides two documents as attachments to that e-mail sent at 3.22 am. The first attachment was the file 'Options for AKey.doc' ('the Options Document'). The second attachment was the file 'AXiOM Valuation for Dialog mk2.xls' ('the Valuation Document'). 66 The documents tendered into evidence as Exhibit 15 were photocopies of a printout of the attachments to that e-mail. The printout of the Valuation Document was generated on 27 November 2001. The documents copied have had handwritten additions made to them. Those additions were made by Doessel. The evidence is silent as to whether the headings at the foot of what are marked as sheets 1, 4 and 5 were part of the original documents or created when the documents were generated on 27 November 2001. Exhibit 4, which is a photocopy of the e-mail of 12 November 2001 sending the revised calculations to Doessel, was generated on 15 November 2001, and also shows the same headings at the foot of the three pages. The Valuation Document is reproduced as an attachment to these reasons. 67 The Options Document provided: 'Basis of valuation Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Revenue 870,937.00 1,029,937.00 1,204,837.00 1,397,227.00 1,608,856.00 6,111,794.00 Costs 430,640.55 514,490.55 612,725.55 727,984.05 863,408.40 3,149,249.10 Nett 440,296.45 515,446.45 592,111.45 669,242.95 745,447.60 2,962,544.90

NPV at 8% $2,318,883.97 Option 1: · $750,000.00 cash · Salary $150,000 / annum. · No incentive to be received below 50% of revenue line. Incentive paid at the rate of 15% for licence fee and maintenance revenues over and above this baseline. This will mean that: · If the revenue line detailed above is achieved, Dialog will nett $667,945. GM will receive a further $357,587 in incentives. · If the revenues identified by target 1 are achieved, Dialog will nett $1,924,938. GM will receive a further $579,409 in incentives. · If the revenues identified by targe 2 are achieved, Dialog will nett $3,401,013.86. GM will receive a further $1,260,584. Option 2 · $500,000.00 cash. · Salary $150,000 / annum. · Incentive paid at the rate of 20% of all licence fee and maintenance revenues. This will mean that: · If the revenue line detailed above is achieved, Dialog will nett $303,448. GM will receive a further $598,906 in incentives. · If the revenues identified by target 1 are achieved, Dialog will nett $1,486,500. GM will receive a further $1,249,329 in incentives. · If the revenues identified by target 2 are achieved, Dialog will nett $3,212,300. GM will receive a further $1,680,779. Note that all amounts have been discounted for inflation and represent dollars in today's terms. In both options: · GM will assign all pending benefits to be derived from the services of the current labor hire contracts without claim. [These, I find, were the expected supplementary services to be provided by Addease in addition to supply of the AXiOM Win 32 program ported to an Oracle database and first year maintenance services.] · Should Dialog terminate GM's employment agreement the full value of the salary component is to be paid out however, future incentives will be forgiven. · Intellectual property rights will be assigned upon receipt of initial cash component and signing of employment agreement.' (Original emphasis) 68 Doessel, on the evening of 11 November 1999, after receiving a copy of the e-mail from Mihailides to Key with the attachments, prepared some handwritten questions to be put to Mihailides in respect of the documents. When the telephone conference took place on 12 November 1999 with Doessel and Key in Key's office in Brisbane and Mihailides in Melbourne, Doessel had before him the written questions. He has recorded on his list of questions notes of Mihailides' comments. 69 The final question in Doessel's notes was: 'Valuation only reasonable if believe sales forecasts - 10% increase per year - which one?' Against this question he has written: 'BASELINE ACHIEVABLE LACKS CORPORATE SO TARGET 1 OK TARGET 2 IS POSSIBLE BUT 1999. AMBITIOUS' Target 1 was $900,000, based on a base line estimate of $870,937. Target 2 was $1,043,812. It also was based on the same baseline estimate. The figures appear on the fifth sheet of the Valuation Document. 70 Doessel admitted that the licence fees shown against each of the named clients in the Major Projects section on Sheet 1 of Exhibit 15 were correct, save for that shown against Business Trends in respect of which he had no knowledge. He also admitted that numbers shown in respect of first year maintenance were correct as at 11 November 1999 with respect to the invoices rendered or to be rendered, and with respect to the state of payments against those invoices in respect of the Labour Hire Contracts. 71 Doessel always understood that the licence fees and maintenance fees in relation to Sheet 1 of Exhibit 15 were sales contracted and not income received. Indeed, that is obvious from a reading of the document. Also, Doessel always understood that the projections were based on the sales contracted in respect of the major projects in the current year and the annual maintenance contracts in respect of the major projects. 72 Doessel knew that the projections were not based on any other way of operating the business other than what Addease was doing at that time, that the administration and marketing provision and salaries used in the projections were modest and reflective of what was outlaid in the conduct of the business of Addease at that time. 73 Doessel gave the following evidence under cross-examination which I accept as correct. It reveals the information which was available to Dialog and the thinking of Doessel which caused him to advise Key that the proposal sounded 'okay': 'Yes. Not after you had hung up but before the earlier conversation, before he actually said that, "All right, well, we will proceed to heads of agreement on this basis". Did he seek your opinion as to what he should do?---I think - I think the way he did it - I recall that during the conversation he made - he made some eyes at me as to, you know, "What do you think, Lucas"? And I - and I think my answer was, "Well, it sounds okay". But I don't recall any formal - like we didn't hang up - from my recollection we didn't hang up from this conversation and Alan say, "I want to talk to Lucas and I'll get back to you, George". I think Alan had started to formulate - George had satisfactorily promoted a lot of the questions we had. He had started - he had been very confident about the volume of sales he could achieve and indeed the logic was that- - - Well, what did he actually say? You say that, that he said that they were achievable. That's what he actually said, isn't it?---He said that they were more than achievable; that the base line was conservative and that the Target 1 was possible. But the only basis that you were aware of him saying at that stage was on the past performance that he'd done?---Yes. Yes. Which was correct, wasn't it?---Yes. The first figures were accurate?---Well, as far as I took - I took them to be correct. I didn't - as I say I didn't have knowledge of some of them. No, but you now know them to be correct?---Yes. And the prospects that he had on the go at the time?---Yes. Did he mention to you the prospects in the course of that conversation?---I think he did mention some prospects. And do you remember who they were?---I think I could guess who they were now but I think if you ask me truly do I recall them I would say not. Yes. But the fact of the matter is, is that at that point in time the critical feature was whether or not new sales would be made in the upcoming period and that's what the assessment was being made of?---Yes. And whether or not they could be made at a similar, albeit slightly lower rate than what they had been made by him in the previous 12 or 14 month period?---Yes, although that's true but new sales were important but also existing maintenance was also important because that's really - in a business that exists the maintenance represents your bread and butter and it goes a long way towards paying for your overheads and - so it was still important as well. Certainly, but you didn't ask him about maintenance?---Didn't have to because he'd already given us the information in relation to maintenance. Yes. And those figures were accurate?---I couldn't determine at the time. No, but you now know them to be accurate?---Correct. And the note that you made, the valuation is reasonable, if you believe the sales forecasts, is what - - -?---Yes. The note you made. Now, my question is simply this - is that at this point in time, you are simply accepting what he estimates on the basis of the information which he's given you as to his past performance and his comment saying that he had prospects, continuing prospects, in the pipeline?---Yes. And if the figures were true as they turned out to be, and he did have continuing prospects in the pipeline, there is no reason to suggest that his estimates at the time were unreasonable?---No. Now, at the time, as you are suggesting you may well be recalling now from subsequent behaviour, but there were a number of prospects that were in the pipeline, were there not?---I believe so, yes. If I mention the names of Julia Ross and For Staff and Challenge Recruitment, Integrated Workforce. Do those names - did you ultimately become aware that they were prospects in the pipeline at the time?---Certainly Julia Ross. I'm not really sure about the others. The others?---You know that's - - - And obviously Macquarie, you're aware?---It's not really a financial thing, prospects. It's more operational and sales so there were people who - and George was responsible also for promoting all those prospects. So it would be fair to say, what you relied upon in that conversation with Mr Mihailides, in terms of the sales was that he had performed as he represented he performed and that he had prospects in the pipeline as he said that he had?---Yes. Now, in terms of the projections, did you - go back a step - Mr Hills-Johnes was the man who had been engaged with Mr Mihailides for about a bit over 12 months at that point in time on this joint venture with the Labour Hire projects?---Yes. And you understood that this was involved new and developing products on both Intrinsic's side and on Addease's side?---Yes. Did you consult with Mr Hills-Johnes as to whether or not Addease did have these projects in the pipeline?---At what point in time? Up until this point of time. If I could limit the question up until when Mr Key has at least reached a consensus?---I did not - although I do believe that one of Neill Hills-Johnes' responsibilities was to provide that sort of information to Alan - - - Mr Key?--- - - - on a regular basis. Yes. And in terms of deciding whether or not to proceed, was that a factor that you considered to be relevant? Was that principally this business was underpinned by its ability to continue to make sales on line with Intrinsic?---Not necessarily, no. Addease had managed to make sales, substantial sales, by itself and it had done Andersens and Alectus by itself and so it was a combination. We were at the time - when we had our conversation on the phone, if anything, we felt that with Dialog's extra marketing support and expanding our sales effort that George's forecasts should be able to exceeded with Dialog's extra ability, but that was the feeling between all three of us when we had that conversation. Because Dialog has greater facilities and it can - and greater support, greater capacity?---Correct. And that was a significant feature in deciding to acquire this business?---It was - it was one of the features but not the most critical. No. But another absolutely critical feature is that Intrinsic in this Labour Hire market was depended upon having the Axiom software for its front end?---That's correct. And as far as you know, well, there was no agreement which bound Addease to provide that software in any continuing projects?---At the time of this conversation, I didn't know whether there was or there wasn't. But you now know that's the case?---I do now know. I think at the time I assumed that there would be some sort of written contract between them. Well, it's not putting too fine a point on it to say that if to undertake a serious sales effort in the Labour Hire area, it would be essential to come to some arrangement with Addease for the provision of Axiom?---Correct. In some way, shape or form. Yes. And there is no doubt, is there, that it was that need that was leading to the inquiries being made as to whether or not Addease wanted to sell the Axiom business?---It was that in combination with who Addease's other clients were to expand the market. Well, when you say the other clients. When the approach was made, you're only aware of the Labour Hire clients which you had in common with Intrinsic?---Oh, no. We were aware of the Axiom potential into the corporate market by virtue of being involved with the Macquarie stuff. We were aware that George was doing a large installation for Andersens which was - in terms of the market was a very prestigious appointment. Any other customers that you were aware of?---Not me, personally, I don't think, I would imagine. But others in our organisation were aware of the Alectus one and perhaps some others, but I think I was only aware of Andersens probably. All right. So then after that conversation, you prepared Head of Agreement?---That's correct. And you sent them down to Mr Mihailides?---Yes. Correct?---Yes' (Emphasis added) 74 Doessel recorded in his notes three dot points. Against the first dot point he wrote 'Clients moving TEMPAK to AXIOM'. Against the second dot point he wrote 'AXIOM installations now at LH [labour hire] coys', and finally against the third dot point he wrote 'HAS WRITTEN AXIOM PAYROLL - Could replace OPUS? Needs more work. Ready 2000'. 75 In his telephone conversation on 12 November 1999, Mihailides did state that the sales projections included in the documents were achievable, that the base line ($870,937) was conservative and that Target 1 ($900,000) was possible. I find that at the time he made that statement, he honestly believed that it was true. 76 Doessel acknowledged that the 'Basis of Valuation' document was a variety of asking prices being put for the sale of the business on a 'what if' basis, having regard to different cash asking prices with differing levels of incentive income with respect to different levels of sales targets. Sheets 6 and 7 of Exhibit 15 and the covering e-mail from Mihailides on 11 November 1999 are constructed and stated to be on that basis. Exhibit 6, the workings of Doessel, are also examples of the cost to Dialog of the two options put by Addease calculated on a 'what if?' basis. 77 The discussion of the AXiOM payroll on 12 November 1999 was unrelated to the integrated suite. Although Mihailides stated that the AXiOM payroll under development may be suitable as a substitute for the Opus One payroll in the integrated suite, Doessel and Key knew that this was not the case, having previously obtained the advice from Young that it was unsuitable. Such relevance as the AXiOM payroll had in November 1999, was with respect to upgrading existing clients of Addease who then used the TemPak software to a new AXiOM product which included a payroll. In November 1999, the future availability of the AXiOM payroll software was a secondary consideration to Dialog. 78 I am satisfied that Mihailides stated that the AXiOM payroll was incomplete, that it needed more work, and that it would be ready in early 2000. I do not accept that he referred to any specific date or month in the new year by which it would be complete. Doessel did not record in his notes any date or month; Key says that no specific month was mentioned. Independently of what Mihailides stated, Doessel and Key knew from Young's report on the AXiOM payroll system which Addease was then developing that there was a schedule setting out milestones of work which remained to be done until the end of December 1999 and that additional works were envisaged which were not scheduled. Further, Key knew from Young's report that the payroll section of the system could not easily be removed from the package without major changes to the concept then being developed by Addease. 79 Key and Doessel travelled to Melbourne and met Mihailides at the office of Addease on 1 and 2 December 1999. On 1 December 1999, a letter of that date from Corrs Chambers Westgarth ('the Corrs letter'), solicitors for Addease, was discussed. During discussions of item 7 of the Corrs letter, Doessel asked to be provided with copies of the contracts between Alectus Personnel, Andersen Contracting and Addease. Additionally, Doessel and Key were advised that Bowmans Recruiting had a hardware problem that resulted in their network hanging, and Doessel made a note to that effect on the Corrs letter. 80 Key and Doessel were provided with a document headed 'Proposed strategy for replacement of Tempak only clients'. Doessel and Key assert that Brian Maunder, a consultant employed by Addease, in the absence of Mihailides went through the document line by line making comments in relation to each of the clients named in the list. Maunder denies having done this, stating that he left Key, Doessel and Mihailides in Mihailides' office and he is unaware of what discussion, if any, took place between Mihailides, Key and Doessel in relation to this document. Doessel, nonetheless, swears that Mihailides returned and he was taken through the document re-covering those parts allegedly dealt with by Maunder. In cross-examination, Doessel was taken through the list of clients and Mihailides' version of what he said in relation to each client was put to Doessel. That version is set out in detail at pars 66 to 104 inclusive of Exhibit 71. There was no significant disagreement between the two as to what had been said. Doessel concluded his evidence in respect of the list in the following way: 'And so of those customers, some 34, only 12 of them had been included in the projections that had been provided for future income?---Mm. And he mentioned to you that quite a number of them were not prospects for future sales?---That's correct and I crossed those out. For one reason or another?---Yes. And they're the ones you crossed out. Others were prospects - - -?---Yes.

- -of greater or lesser degree?---Mm. It would be fair to say, wouldn't it, without recalling specifically all the conversations, that the information you got in respect of the customers was as full as you could have wanted?---Yes, it was pretty good. We were certainly comforted by the - what the appearance was to us was that- - - Well, try not "us", if you wouldn't mind?---Yes. Okay. Yes. The appearance was to me that with a little bit of effort these customers could all be provided with either the Axiom or the Pay-Roll product within a fairly short space of time and that quite a large amount of invoicing would result. Except of course he'd candidly admitted to that quite a large percentage of his clients weren't real prospects and needed to be crossed off?---Well, the ones that I crossed off were not potential. Quite a large percentage of his client base?---Yes, but all the little ones. Sort of one man shops and such. And also he had not, except in respect of 12 of the 34, bothered to mention or include them as being part of the projections?---We never spoke about the projections at all in relation to when we went through this thing. There was no attempt to correlate these customers with the projections. This was - as far as I was concerned - this was the updated version of the current status of the customers and this represented the potential for customers that would have been as part of the projections. But nothing he said to you in the course of these discussions turned out to be untrue?---What turned out to be untrue was that the pay-roll was deliverable by February. Well, in terms of these discussions nothing that he told you about the customer status of any of the customers was untrue?---Yes, in terms of what they were willing to purchase by way of Axiom or Pay-Roll I think was relatively consistent over the next few months, yes.' 81 At the meeting on 1 December 1999, Mihailides advised Key and Doessel that the AXiOM payroll module had not been completed but it had been installed with one of the clients, United Recruitment. He also told them at the meeting that United Recruitment had uncovered a number of problems, that Addease was in the process of correcting those problems as they arose, and that Addease would reinstall an updated payroll module at United Recruitment for further testing in the new year. Mihailides also stated that the time required to correct the errors would depend upon the demands of the major clients who had a priority for resources. Key agreed that the tenor of the conversation was that Mihailides expected to provide United Recruitment with an updated version of the payroll module early in the new year. He also agreed that Mihailides told him that there were some reports still required along with end of year processing such as group certificates, in order to complete the payroll module. 82 Key was cross-examined as to each of the clients listed in the document entitled 'Proposed strategy for replacement of Tempak only clients'. Again there were no significant differences as to what he was told by Mihailides. Key concluded his evidence as follows: 'Now - so generally it is fair to say, isn't it, that during the course of this meeting Mr Mihailides was very up front with you and gave you good insight to the minor customers which he had had?---Yes, I can't say that he was not up front, no. I didn't - yes. And you have got no complaint with the explanations he gave to you as to those customers?---The only issue that I have got is that I mean the discussion about the small ones was just left at that, they were small, troublesome and not of interest to Dialog. And there was no suggestion that people, I was left with no suggestion or feeling that people were contemplating leaving the product or leaving the Addease organisation as a consequence of the unavailability of the Payroll. In fact, I got the feeling that there was a lot of good opportunity to upgrade from Tempak to Axiom HR and when the Payroll was complete, and that was imminent, then we would go to - a lot of those would head towards the Payroll product as well. Did you ask him why of the 34 customers that were on the list that you were looking at he had only included 12 of them in terms of the figures that he had sent to you on the spreadsheet. Is that a question that you asked him?---No, no, it's not, no. Now, after these discussions on these two days you requested to make an announcement to the staff at Addease of the impending acquisition?---Yes, we had a meeting to talk to them about what we were doing, and what the opportunities may be should the sale complete. And, in fact, you had come prepared with Dialog employment contracts?---To show our seriousness, yes. Yes. And you interviewed each of the staff?---That was part of the due diligence process, yes. What we wanted to get to the point was if it proceeded we didn't want the staff to have any surprises. And having bought the business or committed to buy the business if the contracts finished or completed, the staff saying, well no, I don't like that employment agreement, because that would have been an impediment because they had the knowledge of the product. But it also shows that at that point in time you were very serious about doing this deal, weren't you?---I was serious about doing the due diligence. And, you know, if everything stacked up we would, of course, want to complete the contract.' Well, in terms of the due diligence all you did was you went through the discussions with Mr Mihailides about the current status of each of the clients?---Yes.' 83 Irrespective of what, if anything, of substance Maunder said to Doessel and Key at the time the document entitled 'Proposed strategy for replacement of Tempak only clients' was supplied to them, the true situation was clearly put to them by Mihailides with respect to the status of each client on the list. In respect of what was said in relation to each of those clients, I accept the evidence of Mihailides to the extent that there remains any inconsistency between the versions given by him and Key and Doessel. 84 On 2 December 1999, Doessel and Key were provided with a document, being a print out from a Primavera project management program. The four page document headed 'Current Assignments' dealt with the period 23 September to 12 November 1999. The Primavera program was an internal management program utilised by Addease. The entries in the document indicate the assignments to various members of staff. The tables show work of various employees across a range of activities, including upgrades of AXiOM programs to some existing named clients, development work in relation to the integrated suite (identified as the Oracle version), and work done in relation to the AXiOM HR payroll module. The document also showed a substantial amount of unallocated AXiOM implementation work. This work involved upgrading existing AXiOM programs to the AXiOM 1.5 program. The document made no provision for changing any existing client from the TemPak program to an AXiOM HR program. 85 The Primavera print out also showed that commencement of the installation of the AXiOM HR payroll with United Recruitment occurred in late September 1999 and that the work in relation to it was being done by an employee, M Raskine. 86 Doessel noted on his copy of the document, that there were one or two more clients awaiting the delivery of the payroll module in addition to the four listed under the heading Payroll Implementation. Doessel gave the following evidence in respect of the Primavera document: 'Yes. Now, the other document I think you said that you looked at was the document that's been referred to as the Primavera document which is at 130 - sorry, 1330 to 1333?---Yes. And I think you said you got some consolation from that because on page 1332 there was mention about upgrades - various upgrades not allocated?---Yes. You didn't have any discussion about those upgrades, did you?---Not individually, no, because I think if we'd talked about them individually I would have made some form of note so- - - Those upgrades were all just system upgrades for which no charge is made to the customers. Were you not aware of that?---A charge is made if as a result - my assumption at the time would be a charge would be made for services that might result from the implementation of an upgrade but the upgrade per se is not a chargeable item because so long as the client is paying maintenance they're entitled to upgrades. Yes. So it was - those upgrades would have just been part of the normal maintenance provision with respect to all those customers?---Yes. Probably no great reason for assurance or lack of assurance one way or the other?---The primary comfort we got was that those customers who are prepared to upgrade are also customers that are going to continue with your business, so it gave us comfort in as much as what George had told us in relation to the status of the customers was consistent with his underlying project management, so the information we were being provided with was consistent and telling the same story. In terms of the - as you've given evidence - and all accurate as it turned out. That's so, isn't it?---What was accurate? Those aspects about the customers?---Reasonably accurate, yes. And the only ..... you say is that at that point in time, or, rather, in February the Pay-Roll module wasn't complete?---That's correct. And Mr Mihailides, as you know, will say that he did not tell you it would be completed in February?---I'm aware he will say that. And the - what the state was as at November Dialog had a very good idea because they'd arranged for Mr Young to have a look at this package before these negotiations started, didn't they?---That's absolutely incorrect. Mr Young's brief in terms of reviewing the Pay-Roll product was merely to find out whether the anticipated structure and features of that product would be suitable for inclusion in the integrated product for the major labour hire companies. And he spent less than a day because I think he flew in and flew out having a look at the product and speaking to George about what its features were. His conclusion was that the product was suitable for small range labour hire companies, but was definitely not suitable for larger ones that had very high levels of employees and the need for the most absolute - the biggest features of a pay-roll product in it. And it's fair to say, isn't it, that how much time the pay-roll product would take to develop to a stage where it was marketable - they will be installed throughout all of these customers - is dependent upon the amount of resources applied to it?---Absolutely.' (Emphasis added) 87 On this evidence I find that the statements made as to the status of the customers of Addease, at the time they were made on 1 and 2 December 1999, were correct and that the contents of the Primavera document provided on 2 December 1999 was reasonably accurate and correct. 88 On 29 November 1999, prior to going to Melbourne, Key had announced to the staff of Dialog that Dialog was to acquire the business of Addease. In Melbourne on 2 December 1999, Key and Doessel interviewed the staff of Addease relating to future employment with Dialog. They then had Dialog standard employment agreements with them. 89 The final Business Sale Agreement was prepared for execution after 2 December 1999. It was executed by Addease on 22 December 1999 and by Key and Robert William Tisdall on behalf of Dialog, on 5 January 2000. The agreement was the product of the negotiations which had taken place between 3 November and 2 December 1999. The parties to this agreement had had the benefit of legal advice in respect of its final form. 90 At or about the time of concluding the agreement, Dialog issued a media release headed 'Dialog enters ASP market with Addease'. It included a highlighted side heading which stated '"The labour hire/recruitment market is highly competitive and growing at an average minimum of 25 percent per annum" - Alan Key Managing Director Dialog Information Technology.' 91 The body of the press statement, so far as presently relevant, stated: 'Dialog Information Technology, one of Australia's largest IT service providers, has joined forces with Addease Pty Ltd to target the booming labour hire/recruitment market. The move creates the only IT service provider in Australia capable of offering a one-stop-shop to the labour hire/recruitment industry. Addease is the creator of AXiOM, Australia's most sophisticated labour hire and recruitment market solution. AXiOM addresses the needs of hourly rate-based organisations needing to log and monitor resumes and interviews. The solution is fully integrated from its time sheet entry and labour/hire recruitment user interface, through to payroll and back-end financial reporting. It is the only labour hire/recruitment solution to offer web-enablement and features a unique business rules-based design. Dialog Information Technology provides a broad base of IT and business analysis skills throughout Australia. The company's 500 plus consultants will provide the critical mass necessary to enhance the range of services available to existing AXiOM users including business analysis, business process re-engineering, software implementation and nation-wide support. Last year, AXiOM won the lion's share of tenders in the labour hire/recruitment market, including Alectus Recruitment, Arthur Andersen Consulting, the Ready Group, Speakman Stillwell, Skilled Engineering and Westaff. According to Dialog's Managing Director, Mr Alan Key: "The labour hire/recruitment market is highly competitive and growing at an average minimum of 25 per cent per annum. "This partnership will give organisations of all sizes the opportunity to gain a real competitive edge through the use of a fully integrated IT solution that automates many of the time consuming labour intensive tasks associated with the industry. "Dialog believes AXiOM is a truly world-class application. Our goal is to further enhance the solution and expand its availability to new markets, including overseas. We're already seeing a rise in the level of interest for the Web-enabled version of AXiOM, which enables organisations to run their own recruitment and human resource management efforts online." Dialog will also make AXiOM available as a web-based hosting service to companies seeking to "rent" the system on a fee per transaction basis. ...' (Original emphasis) 92 When cross-examined as to the press release, Key gave the following evidence: 'MR RIORDAN: And in fact at this point in time you said that the labour hire recruitment market was highly competitive and growing at an average minimum of 25 per cent per annum. You said that, didn't you?---Well, you're reading from something, so I presumably did. I had a lot of - - - I'll ask you whether you remember it. I'll give you the opportunity to see it first, but first I'd like to know - - -?---I don't remember.

conclusion on claim 136 Dialog has failed to make out any of the causes of action relied upon by it to obtain the relief sought in the within proceedings. Its claim will be dismissed with judgment for Addease and Mihailides on the claim. Costs, including reserved costs, should follow the event and be paid by Dialog.

cross-claims 137 The cross-claims of Addease in pars 17 to 21 inclusive, 22 to 24 inclusive, and 33 to 37 inclusive of the Final Defence and Cross-claim, arise out of the dealings of Addease with Intrinsic and later Dialog in respect of the Labour Hire Contracts. It is important to set out the history of that relationship for the purpose of determining the entitlement of Addease to the monies claimed. 138 On 27 August 1998, Intrinsic entered into the first Labour Hire Contract with Skilled Engineering for the supply of an integrated suite. Addease was named as a 'Key Subcontractor'. Under the Labour Hire Contract, Intrinsic was obliged to supply 150 user licences for the AXiOM Front Office Suite. Intrinsic supplied a purchase order to Addease for 150 user licences for 'AXiOM Recruitment System' at a unit cost of $1,500. The total value of the purchase order was for $225,000. Hills-Johnes gave evidence that it was an obligation of Addease, under its subcontract with Intrinsic, to design and supply a rate table/award interpreter for integration in the suite. That evidence was wrong, and I reject it. As appears from a letter from Intrinsic to Skilled Engineering dated 2 July 1998 which formed part of the written contract made between Intrinsic and Skilled Engineering, Intrinsic itself was to design the rate table and it was to be coded by Hexagon Oracle consultants under the control of Intrinsic. 139 The letter contained the following statement: '3. Who is responsible for it working as required? As we proposed in our original proposal, Intrinsic Solutions Pty Ltd as the Systems Integrator to Skilled Engineering. Intrinsic Solutions are partnering with a leading Oracle "mentor" - Hexagon Systems. They are referenceable [sic] for the work they have undertaken. The quality of their work can be assessed to an extent from the paper they have written from our brief to them - it also should strongly indicate the level of our understanding of the integration issues. NOTE - McDonald's Australia - Order received the 7/2/94, went live 4/7/04 - with 6500 payees LIVE. This included all Australianisation [sic] - please reference this statement. 4. What is your contingency plan if you strike major problems and are not able to meet the date for first live operation detailed in Appendix 2? (ie 11 January 1999). The contingency plan will be that as the Systems Integrator, Intrinsic Solutions Pty Ltd will make the deadline, and will contract to deliver to this date. We will be using the consulting services of Hexagon/Oracle to assist with the conceptual design of the "exchange and looking" facility of AXiOM to and from Opus One.' (Original emphasis) 140 Hills-Johnes agreed in cross-examination that Hexagon Oracle did not produce the rates table and was replaced by another organisation, Logical Solutions, to provide the Oracle integration module, but not the rates table. He further agreed that in late 1998, after a discussion with Mihailides, it was agreed that Addease would undertake the responsibility thereafter to design and supply the rates table. This work, I find, was not part of the original work agreed to be undertaken by Addease which was subject to the purchaser order. 141 It was agreed between Hills-Johnes and Mihailides that all revenue from annual maintenance received by Intrinsic from Skilled Engineering in respect of the AXiOM software would be paid by Intrinsic to Addease at the rate of fifteen per cent of the AXiOM licence fees. 142 On 14 September 1998, Intrinsic entered into a contract in writing with Speakman Stillwell to supply an integrated suite. Intrinsic placed a purchase order with Addease for thirty user licences for the 'AXiOM Recruitment System' at a unit price of $1,250. The total value of the purchase order was for $37,500. 143 On 18 March 1999, Intrinsic entered into a contract in writing with Westaff (Australia) Pty Limited ('Westaff') to supply an integrated suite. The written agreement required that Intrinsic supply sixty user licences for 'AXiOM Recruitment System' software for a total price of $75,000. Intrinsic placed a purchaser order with Addease for sixty user licences at $1,250 each, and for annual maintenance at fifteen per cent per annum for the period 1 July 1999 to 30 June 2000. The total value of the purchase order was for $86,250. 144 On 30 June 1999, Intrinsic entered into a written contract with Labour Ready Pty Limited ('Labour Ready') to supply it with an integrated suite. That contract required that Intrinsic supply to Labour Ready eighty user licences for 'AXiOM Recruitment System' software and a single server licence for the AXiOM OCR/Text Retrieval software. Intrinsic placed a purchase order for eighty user licences for 'AXiOM Recruitment System' at a unit price of $1,250 and for one user licence for a webserver at a unit price of $8,000. The total value of the purchaser order was $108,000. 145 In mid-1999, Hills-Johnes on behalf of Intrinsic, entered into discussions with Dialog in respect of the business of Intrinsic. Dialog acquired certain assets and liabilities of Intrinsic as at 1 July 1999. The terms of the acquisition are contained in a written Business Sale Agreement dated 22 August 1999. The 'business' sold by Intrinsic to Dialog was defined under the Business Sale Agreement and included the assets, as defined, as at the purchase date. The purchase date provided for in the Business Sale Agreement was 1 July 1999. 146 An 'asset' was defined as 'each of the assets of the business on and acquired since the purchase date as detailed in Schedule 7 and 8 and includes the rights of the vendor under the contracts and the goodwill of the business'. 147 As to the assignment of the contracts in the business, the Business Sale Agreement provided: '9.1 Assignments of contracts On completion the vendor: (a) assigns to the purchaser; and (b) if required by the purchaser by notice to the vendor before completion, must ensure the novation to the purchaser of, each of the contracts and the rights of the vendor under each of the contracts. 9.2 Purchaser's indemnity The purchaser must indemnify the vendor against each loss or claim against the vendor arising from or in connection with any breach or non-performance after completion by the purchaser of any provision of any contract assigned or novated [sic] under cl 9.1.' 148 The Business Sale Agreement provided in cl 8.1 and cl 8.2, as follows: '8.1 The assets and liabilities shown at Schedules 7 and 8 and quantified at the purchase date represent the assets and liabilities that the purchaser is solely responsible for and must receive, pay, satisfy and discharge in proper time and will indemnify the vendor in relation to any loss or claim in relation to those assets and liabilities; 8.2 All assets and liabilities of the business existing at the purchase date not shown in Sch 8 are solely the responsibility of the vendor and must be received, paid, satisfied and discharged in proper time and the vendor must indemnify the purchaser in relation to any loss or claim in relation to those assets and liabilities.' 149 Schedule 7 to the Business Sale Agreement disclosed as Intrinsic assets, trade debtors of $631,087 which included $101,085 as accounts receivable from Westaff. The liabilities in Schedule 7 made no provision for Trade Accounts Payable, but included an item 'Royalties accrued - AXiOM - $107000'. 150 Schedule 8 was headed 'VALUE OF COMPONENT PARTS OF BUSINESS'. The assets set out in the schedule included trade debtors in the sum of $896,893, which included as trade debtors of less than thirty days standing: Labour Ready ($196,158), Skilled Engineering ($39,882.40), Speaking Stillman ($29,982.16) and Westaff ($64,592.30). In the liabilities section of Schedule 8, trade accounts payable were shown at $720,262. Those accounts are specified in Schedule 8.3. No sum is disclosed in Schedule 8.3 as being due and payable to Addease. No provision was made for a liability under the heading 'Royalties Accrued - AXiOM' A liability in an amount of $595,000 was shown in respect of prepaid maintenance as particularised in Schedule 8.5. Schedule 8.5 lists Speakman Stillwell and Westaff as having paid for maintenance which was due for renewal on 30 March 2000 and 23 May 2000 respectively, which had been invoiced out and paid in the sums of $6,125 and $40,691 respectively. 151 Hills-Johnes gave evidence, and I find that, from 1 August 1999 all revenues under the Labour Hire Contracts which Intrinsic had entered into as set out above to supply the integrated suite, were invoiced out on Dialog letterhead. 152 After acquiring the business of Intrinsic, Dialog took over from Intrinsic the performance of the four Labour Hire Contracts. The supervision of the contracts was originally given to Ian Gordon and Iain Nolan, who were employees of Dialog, together with employees who were formerly employees of Intrinsic. On 12 October 1999, Gordon, Nolan and Graham Darley met with Mihailides at Addease's office in Melbourne to discuss the four labour hire contracts. 153 I accept the evidence of Mihailides that at that meeting he discussed what, in his opinion, were the most significant problems with the contracts and the status of the integration of the modules which was overdue. Mihailides asked what the reporting structure was to be in the future in relation to undertaking the work necessary to complete the labour hire contracts. He was given a reporting structure. On 15 October 1999, Mihailides wrote to Gordon confirming his understanding as to the reporting structure concerning the Skilled Engineering and Westaff contracts. The letter referred to the future scheduling of work and expressed concerns that the integration issues remained to be resolved. The letter also included details of amounts still to be invoiced for the four labour hire contracts. Addease continued to work to provide the AXiOM module of the integrated suite in order to allow Dialog to complete the four labour hire contracts and continued to render invoices to Dialog. 154 At all material times after acquiring the business of Intrinsic and itself undertaking the performance of the four labour hire contracts, Dialog knew that Addease was undertaking work in respect of each of the Labour Hire Contracts, and was reporting to officers of Dialog in respect of that work in accordance with the discussions of 12 October 1999. 155 Hills-Johnes had discussed with Key the provision of software to Dialog by Addease in relation to the four labour hire contracts and the possible supply of AXiOM software for the future expansion of the Labour Hire Business Unit in Dialog. This was the reason for the meeting of Hills-Johnes, Key and Mihailides in Melbourne on 25 October 1999. Roy James, in his report to Key of 9 November 1999, set out in par 62 above, records that the resourcing of the Westaff plan included some resources from Addease. Key and Doessel were aware at the latest by 11 November 1999 from the Valuation Document forwarded to them by Mihailides on that date, that Addease claimed to have outstanding, and yet to be invoiced by it to Dialog, the following amounts in relation to the Labour Hire Contracts: Labour Ready $ 65,000 Skilled Engineering $111,250 Westaff $ 48,750 Speakman Stillwell $ 24,375 156 Dialog allowed Addease to continue to undertake the work in the knowledge that Addease was looking to Dialog to pay for the work, and had, since 1 October 1999, in fact rendered invoices to Dialog for the work without protest from Dialog as to its liability to pay the same. Dialog, with the knowledge it had as to the circumstances in which Addease was doing the work to satisfy the obligations it had undertaken to Intrinsic, and also to allow the Labour Hire Contracts to be completed by Dialog, took the benefit of the work. 157 On 8 November 1999, Addease obtained acceptance from Speakman Stillwell of the production version of AXiOM HR 1.5.418 and received a request from Speakman Stillwell that the program be used to update its existing Production and Training Databases subject to an issue relating to a work history problem. On 19 November 1999, Addease obtained an acceptance and a like request from Skilled Engineering in relation to the same software. On 25 November 1999, Westaff contacted Dialog, advising that it had completed testing and requested that the system be turned on 'to run live with the system in its current status including AXiOM, Infinium and Opus'. 158 Prior to 30 November 1999, Labour Ready had signed for transfer from test to production. 159 On 19 November 1999, Doessel produced a draft 'Heads of Agreement'. It included the following: '• Dialog shall forward to Addease Pty Ltd the work in progress licence fees identified in the table below within 7 days of it [sic] them being receipted: Labour Ready 65,000.00 Skilled Engineering 111,250.00 Westaff 48,750.00 Speakman Stillwell 24,375.00 Andersen Contracting 15,370.00 Alectus Personnel 50,312.50 Total 316,057.50 • In consideration of work required to complete the installation of product at Anderson Consulting, Addease will pay Dialog $50,000 from the work in progress licence fees shown above.' (Original emphasis) 160 On 9 December 1999, Addease sent to Dialog the following invoices dated 30 November 1999: No 100561 Labour Ready Contract For balance of 80 user licence fees $50,000.00 First year maintenance $15,000.00 $65,000.00 No 100562 Skilled Engineering Contract 75% of 150 user licence fees $58,125.00 75% of first year maintenance from 19/11/99 $25,312.50 $83,437.50 No 100563 Westaff Contract Balance licence fees for 60 users $37,500.00 First year maintenance from 25/11/99 $11,250.00 $48,750.00 No 100564 Speakman Contract Balance of licence fees for 30 users $18,750.00 First year maintenance from 8/11/99 $5,625.00 $24,375.00 161 The invoices were accompanied by the following letter: '9 December 1999 Mr N Hills-Johnes Dialog Pty Ltd Fax 0296807555 1138 Brookhollow Ave Baulkham Hills NSW 2135 Dear Neill AXiOM HR LICENCE & MAINTENANCE FEES Attached are the following invoices: 30/11/99 100561 $65,000.00 30/11/99 100562 $83,437.50 30/11/99 100563 $48,750.00 30/11/99 100564 $24,375.00 30/11/99 100565 $25,000.00 We hold sign offs by the Labour Hire Clients for AXiOM, with the exception of Labour Ready, where the sign off has not been provided to Addease. We do not appear to have received a sign off for the latest upgrade for Westaff, despite the very clear understanding and advice to the project team that the upgrade was not to proceed into production without formal sign off by Westaff. The sign offs clearly indicate that we are not responsible for the delay in the completion of these projects. We have delivered a product to the clients which has been significantly upgraded from the Demonstration Version 1.4.380M. A copy of the document Changes in AXiOM HR is enclosed for your information. We note that you have already been paid for the AXiOM part of the Westaff project. We request your immediate payment of all these invoices, together with other outstanding invoices as at 30 November 1999. A copy Statement is enclosed for your information. Yours sincerely ADDEASE PTY LTD Brian Maunder Cc Lucas Doessel' 162 The Corrs letter dated 1 December 1999, which was discussed by Doessel, Key and Mihailides in Melbourne sought confirmation of Dialog that there was agreement with respect to the issues stated in the letter. It said: '1. Dialog will purchase Addease's business and certain assets constituting mainly software and certain customer contracts but excluding cash and receivables. ... 3. The agreement will be effective from 1 December 1999. ... 6. Dialog will assume responsibility for all accrued employee entitlements. 7. The net of tax amount of the accrued employee entitlements (that is 64% of the amount of the assumed liabilities) may be deducted from amounts payable by Dialog to Addease in respect of fees already earned on contracts it has in place with Labour Ready, Skilled Engineer, Westaff, Speakman Stillwell, Anderson Contracting and Alectus Personnel (being an amount of $316,057.50). The net of tax amount of the accrued employee entitlements and an amount of $50,000 (regarding the Anderson Contracting contract) may be deducted from those moneys owing to Addease, after paying all other moneys outstanding to Addease.' (Emphasis added) 163 The Business Sale Agreement provided, in cl 1.1: '1.1 ... "Asset" means each of the assets of the business on the effective date including the plant, the intellectual property, the rights of the vendor under the contracts, licence agreements and the goodwill of the business but excluding: (a) the vendor's debts; (b) the vendor's cash and debtors; and (c) the excluded plant. "Business" means the vendor's business of the development, sale, distribution and servicing of software products including the assets and certain customer contracts, licence agreements and maintenance agreements; ... "Vendor's debt" means each notified debt (as defined in cl 8.3);' 164 Clause 8 of the Business Sale Agreement provided: '8. Pre-completion creditors Subject to cl8.8, the vendor is solely responsible for and must pay, satisfy and discharge in the proper time all debts and liabilities in respect of the business incurred before the effective date (except any incurred by the purchaser) and must indemnify the purchaser in relation to any loss or claim in relation to those debts and liabilities. 8.2 Post-completion creditors The purchaser is solely responsible to all creditors of the business for debts and liabilities incurred in respect of the business either after the effective date or at any time by the purchaser and must indemnify the vendor in relation to any loss or claim in relation to those debts and liabilities. 8.3 Notification of pre-completion debts At completion, the vendor may give a notice concerning the debts owed to the business at the effective date ("debt notice") which, in respect of each debt specified ("notified debt"), must set out: (a) the name and address of the debtor; (b) the amount payable; and (c) the date the notified debt becomes payable. 8.4 Collection of debts Each notified debt remains the property of the vendor and the vendor will use its best endeavours to collect the notified debt. The purchaser will account for and pay a notified debt received by the purchaser to the vendor within 7 days of the receipt of the notified debt. 8.5 Limitation on purchaser's obligation Nothing in cl 8.4 requires the purchaser to institute or continue any action or proceedings in any court in relation to any notified debt. 8.6 Period and extent of collection Until the full amount of a notified debt has been paid to the vendor, no amount received by the purchaser from the relevant debtor is to be applied by the purchaser to reduce a debt of that debtor to the purchaser except that to the extent that the relevant debtor disputes the notified debt or fails to pay within 45 business days of its due date, the notified debt is treated as having been paid to the vendor but only if the purchaser has given notice to the vendor setting out particulars concerning that dispute or failure to pay. 8.7 Payment of post completion liabilities by the vendor Where the vendor has before the effective date paid any amount of outgoings or expenses in connection with the business which relates to a period after the effective date and has given notice specifying those payments to the purchaser before completion, the purchaser must pay the vendor that amount at completion to the extent that it relates to the period after the effective date. 8.8 Allowance of effective date liabilities Where the purchaser accepts liability in respect of an outgoing or expense in connection with the business for a period before the effective date and the vendor has not paid that outgoing or expense, the vendor must at completion either: (a) pay to the purchaser the amount of that liability; or (b) allow the amount of that liability to the purchaser against the purchaser price. 8.9 Allowance for pre completion maintenance and licence income In relation to software maintenance income paid in advance by clients, at the effective date the prepaid portion of maintenance so paid by clients for the period after 30 November 1999 with the exception of those clients listed in Schedule 7 must be effectively paid by the vendor to the purchaser at completion by allowing the amount of that prepaid maintenance liability to be deducted from the purchase price.' (Original emphasis) 165 Schedule 7 of the Business Sale Agreement provided: 'SCHEDULE 7 (Clause 8.9) MAINTENANCE & LICENCE INCOME PREPAID 1. The prepaid maintenance and licence fees received by the vendor for the following clients remains the liability of the vendor and no adjustment to the purchase consideration is applicable. Labor[sic] Ready 65,000.00 Skilled Engineering 111,250.00 Westaff 48,750.00 Speakman Stillwell 24,375.00 Andersen Contracting 16,370.00 Alectus Personnel 50,312.50' (Original emphasis) 166 Clause 9.3 of the Business Sale Agreement provided: '9.3 Security deposits and payments on account Where before the effective date the vendor has received any deposits or amounts either: (a) as security deposits in respect of a person's obligation under a contract or licence agreement which has not been fulfilled on or before completion; or (b) on account fro any person in respect of any obligation to the vendor under a contract or licence agreement which has not been fulfilled on or before the effective date, those deposits and amounts must be transferred by the vendor to the purchaser at completion and the vendor will have no further right to or in respect of any of the deposits and amounts after completion. In particular, the vendor estimates that an amount of $50,000 received from Andersen Contracting relates to works outstanding at the effective date. $50,000 will be deducted by the Purchaser for [sic] from monies owing to the Vendor resulting from the Purchaser collecting the Vendor's debtors.' (Original emphasis) 167 By letter dated 10 May 2000, Doessel on behalf of Dialog, wrote to Mihailides. The letter, so far as presently relevant, said: 'Dear George We anticipated paying the second tranche of consideration on 31 May 2000 pursuant to the Business Sale Agreement. It is opportune to ensure that any remaining outstanding terms or information are supplied before that time. Described below and in the attachments to this letter are the outstanding items we understand to need attention. Business Sale Agreement ... 5. Would you please prepare a schedule of maintenance prepaid by clients at 1 December 1999. As indicated in Cl 8.9 the maintenance payable by clients listed in Schedule 7 does not form part of this adjustment to the purchase price. We would however appreciate the information for these clients. A spreadsheet has been prepared by us to assist in this regard and is attached. ... We will address the issue of the outstanding Addease invoices separately today or tomorrow. ...' (Original emphasis) 168 The schedule attached to the letter is Exhibit 77. It records invoices received for services, licence fees and maintenance from 10 September 1998 until 5 March 2000. The Addease invoices are identified by number. The schedule shows that of the sums claimed in pars 17 to 21 of the cross-claim, invoices 100394, 100395 (as to half), 100398 and 100449 were outstanding and had been approved as payable. These invoices totalled $14,600. 169 The spreadsheet also records the position with respect to invoices 100561 to 100564 inclusive. It stated in respect of invoice 100561 that Labour Ready had been invoiced for $50,000 on account of licence fees but had not then paid and had not then been invoiced for $15,000 in respect of maintenance. It recorded in respect of invoice number 100562 that the licence fee of $58,125 was not yet due from Skilled Engineering, but that the client had paid $25,313 for maintenance. It recorded in respect of invoice 100563 that the licence fee of $37,500 was not due but that maintenance in the sum of $11,250 had been approved. It recorded in respect of invoice number 100564 that the licence fee of $18,750 and the maintenance of $5,625 was not then due. 170 On 18 December 2000, Doessel sent an e-mail to Mihailides, which stated: 'Dear George Here is an account position as discussed with Alan. I have included all the major commissionable sales but have yet to reconcile this to the ledger to pick up the smaller ones. I will do that this week. I am also updating the four labour hire clients as to where they have paid licences to as well. I still have some clearances required with Sydney. In regards the commissionable maintenance there is sometimes not enough info on the invoice to determine whether it is for Axiom product only and so I am following that up too. You will see my comments re those. If you have any questions please give me a call. Hopefully I will have another more up to date version in a couple of days. Regards, ...' 171 The spreadsheet attached to that e-mail forms part of Exhibit 26. It records the position with respect to the invoices 100561 to 100564 inclusive in relation to licence fees and maintenance payments. The information in relation to licence fees remains the same as it was in Exhibit 77. In relation to the claims for maintenance in the invoices, there appears the following note: 'Note 1 In discussion with ADK regarding maintenance on the 4 labour hire contracts he was surprised that they were in respect of the period since Dialog's ownership. These amounts were highlighted in your pre-contractual work papers and transcribed into the contract. The dates of maintenance were not shown at the time. Our understanding at the time of agreeing to them being to Addease's benefit was that they related to maintenance delivered by Addease mostly for the period before 1 December 1999. It seems illogical to pay Addease for maintenance expenses incurred by Dialog and had that been apparent at contract time we would have argued such. This issue can be discussed with ADK as part of our further negotiations.' 172 The spreadsheet also includes draft calculations as to Commission Entitlement and records that Commission in the sum of $4,943.75 was paid or payable against some paid invoices and that the other invoices were not then paid. 173 In respect of the claims in par 22 of the cross-claim, invoices 100491, 100600, 100601, 100602 and 100612 totalling $3,509.45 are recorded in Exhibit 26 as 'approved' and recorded as 'outstanding invoices owing to Addease'. 174 The claim in respect of 'Intrinsic Invoices' under pars 17 to 21 of the cross-claim, are only pressed in the sum of $14,600, being the amount approved for payment in accordance with Exhibit 77. The basis of the claim is that Dialog agreed to pay Intrinsic's creditors, and that at 1 August 1999, Addease was a creditor of Intrinsic to the extent of $14,600. Addease contends that it is the beneficiary of the promise to pay and entitled to enforce it against Dialog: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; Pitman v Pantzer (2001) 115 FCR 361 at 374. This is the same basis upon which Addease claims in pars 33 to 37 of the cross-claim to be paid $10,000, the sale price of an AXiOM text retrieval and OCR server supplied to Labour Ready by Intrinsic on 30 June 1999, which server was then the property of Addease. 175 The evidence relied upon by Addease to make out the existence of such a promise is that of Mihailides, and his evidence relies upon a statement of Hills-Johnes to him after the sale of the business to Dialog. The statement of Hills-Johnes to Mihailides which I find that he made, was incorrect insofar as it related to the debts due to Addease other than for accrued licence fees for the AXiOM software to the extent of $107,000. The effect of cl 8.2 of the Dialog/Intrinsic Business Sale Agreement was that the debts, the subject of pars 17 to 21 and pars 33 to 37, remained the liability of Intrinsic and, if recoverable, it is from Intrinsic and not Dialog that recovery must be sought. As no other basis is pleaded as entitling recovery of these claims, they must fail. 176 The claim of Addease in par 23 of the cross-claim is in respect of the user licence fees and maintenance fees specified in the paragraph. It alleges that it provided the software and maintenance services in the circumstances pleaded in par 6(b), (c) and (d) of its Final Defence and Cross-claim. Those sub-paragraphs allege that: (i) to the knowledge of Dialog, Addease had provided software and other services for performance of Intrinsic's obligations under the Labour Hire Contract for reward; (ii) Dialog took over and performed the Labour Hire Contracts and accepted provision of the software and other services required by it to perform the Labour Hire Contracts from Addease, and on-charged the parties to the Labour Hire Contracts for the provision of Addease's software, associated services and annual maintenance services; and (iii) Dialog promised Intrinsic that it would pay Intrinsic's debts to creditors, including Addease. 177 These circumstances, Addease contends, gives rise to an obligation in Dialog to pay the licence and annual maintenance fees agreed to be paid by Intrinsic under its contracts with Addease to provide the same. 178 Dialog denies any liability to pay these amounts on a number of grounds. It contends that: (a) if there was a liability to pay, then it was a liability of Intrinsic for which it was not liable; (b) if it was a liability of Intrinsic, it had not been notified under cl 8.3 of the Business Sale Agreement and the debt owed by Intrinsic thereby became an asset of the business which passed to Dialog under the Business Sale Agreement; and (c) Addease, at 1 December 1999, had not provided the software or maintenance services contracted for and thus had no right to payment for the same, or alternatively remained liable under the terms of the Business Sale Agreement to provide the software and perform the maintenance services, in order to obtain a right to payment, which it failed to do. 179 The agreement made between Intrinsic and Addease in 1998 was that Addease would supply to Intrinsic 150 AXiOM Win 32 licences, as demonstrated to Skilled Engineering at a price of $1,500, each operating on an Oracle database. It was also agreed that Addease would supply the first year's maintenance in respect of such licences at a cost of fifteen per cent of the licence fee. Finally, it was agreed that Addease would provide services to Skilled Engineering which included training, supplementary support, physical installation of the software, general consulting, custom reports and enhancements/modifications to the software which were to be invoiced to and paid for by Intrinsic. The supplementary services were to be charged out at the rate of $150 per hour unless a fixed rate for any particular services was agreed. It was also agreed that if a payment was received by Intrinsic from Skilled Engineering which included a component for licence fees, service fees, or maintenance fees relating to the AXiOM software, Intrinsic would advise Addease of receipt of the payment and would remit it to Addease. 180 Save for differing numbers of user licences and the reduction of the unit price to $1,200, the same terms were agreed between Intrinsic and Addease in respect of the latter Labour Hire Contracts. 181 The front office software to be supplied in each case was the AXiOM Win 32 software ported to an Oracle database. 182 I find that Addease delivered the AXiOM Win 32 software ported to an Oracle database in late August 1999, after the acquisition of Intrinsic's business by Dialog. I find that the software was installed and accepted by Speakman Stillwell on 8 November 1999, and by Westaff on 25 November 1999. Each of those labour hire companies went on to maintenance for one year from the date of acceptance. The AXiOM Win 32 software ported to an Oracle database was also delivered to Labour Ready prior to September 1999. Installation and testing of the entire integrated suite proceeded during September 1999 and thereafter. The integrated system, including the AXiOM component went on to the first year maintenance on 19 June 2000. 183 I am satisfied that the Addease AXiOM Win 32 software ported to an Oracle database as delivered was within itself a stable product. I am satisfied that upon delivery, Addease became entitled to receive the balance of the user licence fees for the AXiOM software which were then outstanding. Those amounts were: Skilled Engineering $77,500 (from a total of $225,000) Speakman Stillwell $18,750 (from a total of $37,500) Westaff $37,500 (from a total of $75,000) Labour Ready $50,000 (from a total of $98,100) The payments made by Intrinsic and Dialog to Addease upon account of user licence fees up to and including 30 November 1999 were remitted from and paid because of payments received by them from the labour hire clients, which payments included a component relating to the AXiOM software user licence. 184 I am satisfied that on 30 November 1999, Addease was entitled to payment of maintenance fees in advance for one year's maintenance of the AXiOM component of the integrated suite at Speakman Stillwell and Westaff. On 19 June 2000, Dialog invoiced Labour Ready for maintenance for the integrated suite which included a charge of $26,000 on account of maintenance for the AXiOM software. 185 Dialog received the following sums on the dates indicated for maintenance relating to the AXiOM software: Westaff Paid 14/12/99 $11,250 Skilled Engineering Paid 14/4/00 $60,000 Labour Ready Paid 18/8/00 $26,000 Speakman Stillwell Paid 15/5/00 $ 3,500 186 On 25 June 2000, by invoice 00100636, Addease invoiced Dialog for $19,375, being the balance of user licence fees claimed in respect of Skilled Engineering. Similarly, it invoiced Dialog for $8,347.50 being the balance of the first year maintenance payable by Skilled Engineering in respect of the AXiOM software supplied. These accounts were rendered in consequence of an agreement between Mihailides and Skilled Engineering entered into in November 1999 that Skilled Engineering would put Dialog in funds to an amount of seventy-five per cent of the licence user fees and first year maintenance fees consequent upon the acceptance by Skilled Engineering of the AXiOM software on 19 November 1999. That agreement is reflected in invoice 100562 dated 30 November 1999 from Addease to Dialog for $83,437. It is also reflected in a Dialog invoice number A9911069 dated 30 November 1999 to Skilled Engineering for 'Progress claim as agreed with G Hargrave' for $84,375. 187 By the hearing of the trial, Dialog had received payments on account of AXiOM user licences and first year maintenance, which equalled or exceeded the sums claimed in invoices particularised in par 23 of the cross-claim totalling $249,375. 188 I am satisfied, and find, that Key agreed with Mihailides that Dialog would pay Addease licence fees and first year maintenance in respect of the labour hire companies as follows: Labour Ready $ 65,000 Skilled Engineering $112,250 Westaff $ 48,750 Speakman Stillwell $ 24,375 189 This agreement, I find, was not conditioned upon Addease performing all or any of the relevant maintenance work. 190 The existence of this agreement is evidenced by the inclusion of the provision in respect of the payment of them in the Heads of Agreement dated 24 November 1999, the Corrs letter of 1 December 1999, and Note 1 to the spreadsheet accompanying the e-mail of 18 December 2000 (Exhibit 26). These materials are admissible and relevant to prove the existence of a contract and the terms of it: Australian Energy Ltd v Lennard Oil NL [1986] 2 QdR 216 at 235 - 237. They are the sums claimed as outstanding to Addease for licence fees and maintenance under the Labour Hire Contracts in the Valuation Document provided on 11 November 1999 as is acknowledged in the spreadsheet. 191 For its part, Addease agreed that those sums were to be paid when funds in respect of them were received by Dialog, as was the arrangement with Intrinsic, and as is provided for in the Heads of Agreement. 192 If I am wrong in my view that the evidence establishes an express agreement to pay then I am satisfied that the circumstances in which Addease provided services to Dialog after its acquisition of the business of Intrinsic, created a liability in Dialog to pay the sums agreed as outstanding user licence fee and the first year's maintenance to which Addease was then entitled, and that the liability was to be discharged from any monies received by Dialog in respect of those items. These circumstances are set out below. 193 Dialog, by its conduct, represented to Addease that it had taken over performance of the Labour Hire Contracts as the successors to the business of Intrinsic, and that it wished Addease to continue to provide the user licences of the AXiOM software, the supplementary services, and the first year's maintenance which it had agreed to supply to Intrinsic in order to enable it to satisfy its obligations under the Labour Hire Contracts. Dialog knew that Addease had not, prior to 1 August 1999, provided its services or the AXiOM software gratuitously, and did not intend after that date to provide either its services or the AXiOM software gratuitously. Such conduct constituted an implied promise to pay to Addease the balance outstanding for AXiOM software user licence fees and first year maintenance, and for such further services as Addease provided to enable Dialog to perform the Labour Hire Contract. That promise was impliedly accepted by the conduct of Addease in supplying further services to Dialog for its benefit in performing the Labour Hire Contracts. The liability of Dialog to pay arises out of this implied contract. 194 If I am wrong in my view that the obligation to pay arises out of an implied contract, then it is one imposed by law from the circumstances. Dialog, by its conduct, gave rise to an expectation on the part of Addease that if it continued to work and deliver the AXiOM Win 32 software ported to an Oracle database and otherwise provide services to enable Dialog to perform the Labour Hire Contracts, it would be paid for such software and services on the basis agreed by Intrinsic. Dialog encouraged the expectation by itself continuing to perform the Labour Hire Contracts and by requesting Addease to deliver and install the AXiOM Win 32 software ported to an Oracle database, which Addease did. Dialog further encouraged Addease to provide services for the benefit of the Labour Hire Contracts by promising, as I find Key did, to pay the sums pleaded in par 23 of the cross-claim to the extent that Dialog received monies from the labour hire clients in payment of Addease invoicing, by receiving the invoicing from Addease without objection, and by itself thereafter invoicing the labour hire clients in respect of the subject matter of the Addease invoices. 195 Addease, I find, provided the software in late August 1999 and thereafter performed the further services requested. Dialog, I find, took the benefit of the AXiOM software supplied and the further services supplied in order to enable it to receive the payments from the labour hire companies, which it has received. Dialog created an equity of expectation as to its future conduct, which it encouraged Addease to act upon to its detriment, which it did. Addease is entitled to relief either by way of having the expectation fulfilled, or by way of restitution: see Riches v Hogben [1985] 2 QdR 292 at 300 - 301 (and the cases cited there); affirmed on appeal (1986) 1 QdR 315; Giumelli v Giumelli (1999) 196 CLR 101 at [34] - [36]. 196 The alternative basis for the imposition of the liability lies in the concept of unjust enrichment, which recognises an obligation on a party to make fair and just restitution for a benefit derived at the expense of another party: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 255; 256 - 257; Trident General Insurance Co Ltd v NcNiece Bros Pty Ltd at 145 - 146, 174 - 176; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 375, 389, 401. 197 Dialog was not relieved of the obligation to pay to Addease the sums specified in par 23 of the cross-claim by the terms of the Business Sale Agreement. 198 The obligation of Dialog to pay was a personal liability of Dialog. The obligation fell to be satisfied by Dialog when it received monies in the specified amount from Labour Ready, Skilled Engineering, Westaff or Speakman Stillwell in payment of Addease invoicing. These companies were not debtors of Addease. The debtors of Addease which are referred to in the Heads of Agreement, are Andersen Contracting in the sum of $16,370 and Alectus Personnel in the sum of $50,312.50. 199 The definition of 'asset' in cl 1.1 of the Business Sale Agreement excluded vendor's cash as well as debtor's, and, vendor's debts, as defined. A 'vendor's debt' is defined in cl 1.1 as one notified under cl 8.3 of the Business Sale Agreement. A 'notified debt' is a debt owing to the business which is to be dealt with in accordance with cll 8.4, 8.5 and 8.6. As a matter of construction, notified debts do not include debts owed by the purchaser, they are limited to third party debts which are due to the vendor, but do not become payable until a future date after completion and which come into the hands of the vendor by receipt from the third party debtor at a time after completion. 200 Nor do I accept the construction contended for by Dialog that cl 8 of the Business Sale Agreement has the effect of depriving the vendor of any interest in a vendor's debt, other than one which is notified, if the debt is not notified at completion. Such a conclusion that a vendor would be denied the benefit of its property (a debt) if it was paid to the purchaser simply because it was not notified, would require clear words evidencing such an intent. Those words do not exist. Clause 8.3 is permissive. It imposes an obligation on the purchaser to account within seven days of receipt of a notified debt. As cl 8.4 provides, each notified debt remains the property of the vendor. Further cl 9.3 provides that the right of Dialog to receive a benefit of $50,000 towards work outstanding is to be satisfied by deduction from monies owing to Addease resulting from Dialog collecting Addease's debtors. It was never intended that Dialog would be limited in its right to the deduction to monies received by the receipt of nominated debts in accordance with cl 8.4. 201 Dialog also contended that cl 8.9 and Schedule 7 of the Business Sale Agreement entitled Dialog to refuse to pay a sum equal to the first year's maintenance unless Addease had itself wholly performed the maintenance services, which was not what occurred. 202 Clause 8.9 deals with maintenance income paid in advance by clients of the business being purchased to the vendor prior to completion where the maintenance period extends beyond the date of completion. The clause excludes the clients listed in Schedule 7. The labour hire clients of Dialog are named in Schedule 7, together with Andersen Contracting and Alectus Personnel. Addease had not then received, nor did it ever receive, prepaid maintenance fees from the labour hire clients of Dialog. Nor had the sums of $16,370 and $50,312.50 been paid by Andersen Contracting and Alectus Personnel respectively to Addease. No occasion for the possible adjustment of the purchase consideration arose. 203 Dialog submitted that the reference to prepaid liability remaining a liability of the vendor meant that Addease was obliged to perform the maintenance works before it was entitled to be paid. I do not agree. Prepayment of any maintenance fee, whether to the vendor or the purchaser, makes the payer a creditor of the payee and the credit forms a liability in the accounts of the payee until the service is provided, and the recipient of the payment remains liable to repay the money in whole or pro rata if the maintenance is cancelled or not provided. That is the effect of cl 8.9 and Schedule 7. 204 Clause 8.9 and Schedule 7 of the Business Sale Agreement do not relieve Dialog from its obligation, whether one arising under a contract or imposed by law, to pay to Addease in addition to the balance due for the user licence fees in respect of the AXiOM software, an amount equal to the first year's maintenance in respect of each such user licence. It was never the intention of either Dialog or Addease that Addease would, after 1 December 1999, provide any maintenance services in respect of the Labour Hire Contracts. That was to be done by Dialog and to that extent Addease received a benefit. The note to the reconciliation spreadsheet Exhibit 26 stands as an admission of such a common intention and agreement. 205 Addease is entitled to recover the sum of $249,375 as claimed under par 23 of the cross-claim. 206 The Commission Agreement provided that Dialog would pay commission to Addease based on licence and maintenance revenue as defined in cl 1(d) of that agreement at the rates provided in cl (b). The right to payment of such commission only arose for so long as Mihailides remained employed by Dialog. I find that during the time Mihailides was an employee of Dialog, Dialog received licence and maintenance revenue as defined by cl 1(d) and that Addease became entitled to payment of commission at the rates specified in cl 1(b). Further, I find that Dialog has failed to account to Addease for such income or to pay the same in accordance with cl 6.2 of the Commission Agreement. 207 I find that Addease is entitled to an inquiry and an account as to what is due to it by Dialog as commission. 208 I now turn to the cross-claim of Mihailides. 209 The Contract of Employment relevantly provided: '3(c) If the Employee's employment is terminated by Dialog for reasons other than those detailed in Cl 4(a)(ii) or terminated by mutual agreement between the Employee and Dialog, then Dialog will pay the Employee or his estate, $150,000 (including superannuation if applicable) per year until 30 November 2004. This payment shall be paid annually in advance on the next business day after 1 December each year until 1 December 2003. Such payments shall be secured by bank guarantee. ... 4. DIALOG and the Employee agree that: (a) Subject to any statutory law in force in the State in which the Employee is employed - (i) the employee's employment hereunder may be terminated by either of the parties hereto giving to the other of them at any time written notice of intention to terminate this Agreement and upon the expiry of the period of time set out in paragraph 3 of Schedule A from the date of the service of the written notice the Employee's employment hereunder shall terminate, (ii) the Employee's employment hereunder may be terminated by DIALOG forthwith without any notice or payment in lieu of notice if at any time during the Employee's employment hereunder the employee - 1. is guilty of any serious misconduct, 2. disobeys any lawful orders or directions of DIALOG, with respect to its objectives or duties under this Agreement 3. breaches or fails to observe any of the terms and conditions contained in this Agreement.' (Original emphasis) 210 I find that Mihailides' contract of employment was not terminated for a reason detailed in cl 4(a)(ii) or by mutual agreement between him and Dialog. 211 I find that Mihailides' employment was terminated by Dialog on 22 November 2001 by constructive dismissal. In terms of cl 3(c), Mihailides became entitled to payment of $150,000 on 1 December 2001, $150,000 on 1 December 2002, and will become entitled to $150,000 on 1 December 2003. It follows that he is entitled to judgment now in the sum of $300,000 and a declaration that he will be entitled to a further sum of $150,000, payment of all such sums secured by the bank guarantee specified in cl 3(a). 212 As to the claim by Mihailides for the sum of $2,250 for the supply by him of a Test File Server to Dialog in or about May 2000 claimed in par 31 of the cross-claim, I have not been able to find any evidence in Mihailides' affidavit, Exhibit 70, to support this claim. Accordingly, I am not satisfied that Dialog is liable to Mihailides in this amount. 213 Addease admits that Dialog is entitled to set-off against monies due by it to Addease the sum of $21,l300.85 in respect of credit notes numbers 100611, 100628 and 100623 issued in June 2000 concerning annual leave accruals, prepaid maintenance and post office box rental. Addease also admits that Dialog is entitled to a credit of $27,512.50 in respect of BSA-Workforce on Tap. Further, Dialog is entitled to set-off against the monies recoverable by Addease for outstanding user licence fees and maintenance under the Labour Hire Contracts, the sum of $50,000 in respect of the credit to be granted for further development work required under the Addease contract with Andersen Consulting. 214 Addease is entitled to declarations as to the liability of Dialog to pay to it the sum of $279,816.36 (being $3,509.45 under par 22, $249,375 under par 23, and $26,931.91 under par 26 of the cross-claim), subject to the right of Dialog to set-off against that sum credits due of $98,813.35. 215 Addease will be entitled to enter judgment for the sum of $181,003.01 forthwith and for such other sum as is found due for commission under the Commission Agreement on the taking of enquiries and accounts by the District Registrar. 216 Costs on the cross-claim should follow the event and be paid by Dialog.

Counsel for the Applicant/Cross-respondent: J Douglas QC, with IA Erskine Solicitor for the Applicant/Cross-respondent: Gateway Lawyers

Counsel for the Respondents/Cross-claimants: P Riordan Solicitor for the Respondents/Cross-claimants: Corrs Chambers Westgarth

Dates of Hearing: Brisbane 2, 3, 4, 5, and 6 December 2002 Melbourne 9, 10, 11 and 12 December 2002

Applicant's Further Written Submissions: 20 February 2003

Date of Judgment: 26 November 2003

Trade Practices Act 1974(Cth)s 52, s

At a glance

Court

Decision date

Before

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Judgment (12 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (7)

Cited By (5)