Global Risk Alliance Group Services Pty Ltd v Harmer - [2024] NSWSC 79 - NSWSC 2023 case summary — Zoe

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Global Risk Alliance Group Services Pty Ltd v Harmer

[2024] NSWSC 79

Supreme Court of NSW|2023-10-27|Before: Nixon J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2023-10-27

Before

Nixon J

Source

Original judgment source is linked above.

Judgment (84 paragraphs)

[1]

Public Service Act 1999 (Cth) Commonwealth Procurement Rules 13 June 2023 (Cth) cl9.12, 6.6 Uniform Civil Procedure Rules 2005 (NSW) r 6.23 Cases Cited: Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; [2003] NSWCA 131 AMP Services Ltd v Manning [2006] FCA 256 Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88 Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58 Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294 Armstrong v Strain [1951] 1 TLR 856 Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) (2005) 147 FCR 235; [2005] FCA 1357 Australian Competition and Consumer Commission (ACCC) v IMB Group Pty Ltd [2003] FCAFC 17 Australian Executor Trustees (SA) Ltd v Kerr [2021] NSWCA 5; (2021) 151 ACSR 204 Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd (No 4) (2008) 170 FCR 9 Australian Rail, Tram and Bus Industry Union v Railtrain Pty Ltd [2019] FCA 1740 Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; [2002] NSWSC 171 Australian Securities and Investments Commission v King (2020) 270 CLR 1; [2020] HCA 4 Averkin v Insurance Australia Ltd [2016] NSWCA 122 Bahr v Nicolay [No 2] (1988) 164 CLR 604; [1988] HCA 16 Bakerland Pty Ltd v Coleridge [2002] NSWCA 30 Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11 Barnes v Addy (1874) LR 9 Ch App 244 Bartlett v Australia & New Zealand Banking Group Ltd (2016) 92 NSWLR 639 Bellevarde Constructions Pty Ltd v L'Officina by Vincenzo Australia Pty Ltd [2022] NSWCA 246 Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24 Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66; [1933] HCA 8 Break Fast Investments Pty Ltd v Rigby Cooke Lawyers (A Firm) [2022] VSCA 118 Breen v Williams (Medical Records Access case) (1996) 186 CLR 71; [1996] HCA 57 Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 Central Coast Council v Norcross Pictorial Calendars Pty Ltd (2021) 391 ALR 157; [2021] NSWCA 75 Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32 Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421; [2016] FCAFC 186 Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 Concut Pty Ltd v Worrell (2000) 176 ALR 693; [2000] HCA 64 Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) v Personnel Contracting Pty Ltd (2022) 275 CLR 165; [2022] HCA 1 Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 Di Liristi v Matautia Developments Pty Ltd [2021] NSWCA 328 DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165 Fair Work Ombudsman v South Jin Pty Ltd [2015] FCA 1456 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 Fink v Fink (1946) 74 CLR 127; [1946] HCA 54 Giorgianni v The Queen (1985) 156 CLR 473; [1985] HCA 29 GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296; [2012] FCAFC 6 Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 Hendricks v El-Dik (No 2) [2015] ACTSC 351 Hobart International Airport Pty Ltd v Clarence City Council; Australia Pacific Airports (Launceston) Pty Ltd v Northern Midlands Council [2022] HCA 5 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64 Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26; [1993] HCA 27 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd; Walker Corp Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 Krakowski v Eurolynx Properties Pty Ltd (1995) 183 CLR 563; [1995] HCA 68 Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 2) [2012] FCA 512 Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 3) [2013] FCA 1059 Lewis v Nortex Pty Ltd (in liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 1083 Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248 Ling v Pang [2023] NSWCA 112 Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 Maguire v Makaronis (1997) 188 CLR 449 Malik v Bank of Credit and Commercial International SA (in liq) [1998] AC 20 Manildra Laboratories v Campbell [2009] NSWSC 987 Mizzi v Reliance Financial Services Pty Ltd and Ors [2007] NSWSC 37 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66 New Zealand Netherlands Society "Oranje" Inc v Kuys [1973] 1 WLR 1126 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Paino v Paino [2008] NSWCA 276 Parker, In the matter of Purcom No 34 Pty Limited (In Liq) (No 2) [2010] FCA 624 Pereira v Director of Public Prosecutions (1988) 82 ALR 217 Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in liq) v Battaglia & Ors [2018] NSWCA 67 Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31 Pittmore Pty Ltd v Chan; Chan v Tan (2020) 104 NSWLR 62; [2020] NSWCA 344 Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324 Re Coomber; Coomber v Coomber [1911] 1 Ch 723 Rickard Constructions v Rickard Hails Moretti and Ors [2004] NSWSC 984 Salmon v Albarran [2023] NSWSC 1238 Sargent v ASL Developments Ltd; Turnbull v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40 Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 Shafron v Australian Securities and Investments Commission (ASIC) (2012) 247 CLR 465; [2012] HCA 18 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; [1931] HCA 21 State of NSW v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133 Steadfast ICT Security Pty Ltd v Peak (No 2) [2021] ACTSC 319 Tallerman and Company Pty Ltd v Nathan's Merchandise (Victoria) Proprietary Ltd (1957) 98 CLR 93; [1957] HCA 10 Tanaka v Tokyo Network Computing Pty Ltd [2003] NSWSC 1114 The Insurance Commissioner v Joyce (1948) 77 CLR 39; [1948] HCA 17 Thomas v State of New South Wales (2008) 74 NSWLR 34; [2008] NSWCA 316 Tokyo Network Computing Pty Ltd v Tanaka [2004] NSWCA 263 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 Tozer Kemsley & Millbourn (Australasia) Pty Ltd v Collier's Interstate Transport Service Ltd (1956) 94 CLR 384; [1956] HCA 6 Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31 Walsh v Walgett Shire Council [2014] NSWSC 812 Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18 Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 Westpac Banking Corporation v Wittenberg [2016] FCAFC 33 X v Commonwealth (1999) 200 CLR 177; [1999] HCA 63 Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 Texts Cited: J D Heydon, Heydon on Contract (2019, Thomson Reuters) Category: Principal judgment Parties: Global Risk Alliance Group Services Pty Ltd (First Plaintiff) Aerosafe Risk Management Pty Ltd (Second Plaintiff) Andrew John Harmer (First Defendant) Craig John Binks (Second Defendant) Scott William Dillon (Third Defendant) SME Gateway Pty Ltd (Fifth Defendant) Representation: Counsel: I Neil SC and J Gatland (First and Second Plaintiffs) S McIntosh (First Defendant) D Barnett and B Haines (Third Defendant) N Bender SC and R Jameson (Fifth Defendant)

[3]

JUDGMENT

In these proceedings, the Plaintiffs allege, in essence, that three former employees (the First to Third Defendants) breached their contractual, fiduciary and statutory duties by taking steps in order to divert two valuable contracts with the Royal Australian Navy from the Second Plaintiff to a competitor (the Fourth Defendant), which tendered for that work as subcontractor to the Fifth Defendant.
The First and Second Plaintiffs are members of a group of companies known as the Global Risk Alliance Group (the GRA Group).
The First Plaintiff, Global Risk Alliance Group Services Pty Ltd (GRAGS), was incorporated in 2008. Its sole business is to employ staff and to engage contractors who work for the other members of the GRA Group. Ms Kimberley Turner, who is the principal and founder of the GRA Group, is the sole director of GRAGS.
The Second Plaintiff, Aerosafe Risk Management Pty Ltd (Aerosafe), was incorporated in 2000. It is the principal operating entity of the GRA Group, and its business is to provide consulting services, including in relation to safety and risk management. In the relevant period, its clients included the Department of Defence and the Royal Australian Navy (the Navy). Ms Turner is the sole director of Aerosafe.
Each of the First to Third Defendants was employed to work in the GRA Group. There is an issue in the proceedings as to whether each was employed by GRAGS or by Aerosafe.
The First Defendant, Andrew Harmer, was initially employed as Vice President Defence, commencing in early July 2014. In around September 2015, he was demoted to the position of Senior Risk Advisor and his salary was reduced. He remained in that position until he gave notice of his resignation on 25 June 2016, which was stated to be effective 22 July 2016.
The Second Defendant, Craig Binks, was employed as a Safety Advisor from 15 January 2015. He gave notice of his resignation on 14 June 2016, stating that he would leave on 30 June 2016.
The Third Defendant, Scott Dillon, was employed as Chief Commercial Officer on 20 July 2015. He subsequently also worked as Chief Operating Officer and was given additional responsibilities in early 2016 when Ms Turner took an extended leave of absence. He gave notice of his resignation on 10 May 2016, nominating his last day to be 24 June 2016.
In the first half of 2016, each of Mr Harmer, Mr Binks and Mr Dillon was performing work in relation to various contracts which Aerosafe held with the Navy. The most significant of these contracts, in terms of the matters in issue in these proceedings, were as follows: 1. two contracts with the Maritime Services Bureau (MSB) to provide risk and safety consulting services in the 2015/2016 financial year (the 2015 Contracts). Those contracts gave the Commonwealth the option to extend the arrangements three times, each for a further 12-month period; and 2. a contract to conduct a safety management system implementation assessment for the Patrol Boats Group in Darwin (PBGRP), which was performed in February and March 2016.
Mr Harmer acted as the Project Manager for the 2015 Contracts from December 2015 until the start of February 2016, when he undertook the work for the PBGRP; Mr Dillon took over as project manager for the 2015 Contracts from February 2016 until June 2016; and Mr Binks was "embedded" at the MSB, working on the 2015 Contracts throughout the period to 30 June 2016.
The 2015 Contracts had been offered to Aerosafe on a "sole source" basis. As explained below, this meant that those contracts were offered to a single member of the relevant Defence Panel, Aerosafe, without any competitive tender being conducted. In around March 2016, the MSB decided that it would not exercise an option to roll over the 2015 Contracts and would not offer Aerosafe a contract for work for the 2016/2017 financial year (the 2016 Contract) on a sole source basis, but would instead proceed by way of a competitive tender. A central issue in the proceedings is whether the Defendants' conduct caused the MSB to take that course.
The 2016 Contract was offered to several members of a panel known as the Capability Acquisition and Sustainment Support Services (CAS-SS) Panel, including Aerosafe and the Fifth Defendant, SME Gateway Pty Limited (SME Gateway).
SME Gateway's business involves offering "membership" to other companies, which are not on Defence panels, and providing those companies the opportunity to perform Defence work. Essentially, SME Gateway, as a Panel member, tenders for the relevant work and nominates a member company as the subcontractor which will perform the work. In return for this service, SME Gateway receives a membership fee and a percentage of the contract price from the relevant member.
In the case of the tender for the 2016 Contract, SME Gateway nominated the Fourth Defendant, MD & SD Pty Limited, as its subcontractor. I will refer to this company by the business name under which it traded, "WIBIH". Mr Dillon and his wife, Michelle Dillon, were the shareholders and directors of WIBIH.
WIBIH no longer exists. It was placed into liquidation on 24 June 2019, six months after the commencement of these proceedings, and was subsequently deregistered.
WIBIH became a member of SME Gateway in June 2016. Mr Dillon, Mr Harmer and Mr Binks were employed by WIBIH and were identified as key personnel in the tender by SME Gateway / WIBIH for the 2016 Contract. There is a dispute in the proceedings regarding when each of them commenced undertaking work for WIBIH, but as outlined in section A below, it is clear that each was performing at least some work on behalf of WIBIH while still employed by Aerosafe.
As matters transpired, the 2016 Contract was not awarded to either Aerosafe or to SME Gateway / WIBIH, but to another company which tendered for the work, namely, Nova Defence Pty Ltd (Nova).
Although SME Gateway / WIBIH were not awarded the 2016 Contract, they were successful in securing a contract with the PBGRP, which WIBIH performed in July and August 2016. This contract was awarded in response to a tender which was issued to SME Gateway / WIBIH on a sole source basis in early June 2016.
The work which WIBIH undertook for the PBGRP in July and August 2016 followed on from other work which Aerosafe had performed for the PBGRP in February and March 2016. However, Aerosafe was unaware that a request to tender for this follow-on work was issued to SME Gateway / WIBIH in early June 2016. Each of Mr Dillon, Mr Harmer and Mr Binks was named as a primary team member in the response by SME Gateway / WIBIH to this request for tender, which was submitted at a time when each was still employed by Aerosafe.
In these proceedings, the Plaintiffs allege that Mr Harmer, Mr Binks and Mr Dillon breached their contracts of employment, their statutory duties as an officer or employee under the Corporations Act 2001 (Cth) and their fiduciary duties by, in effect, taking steps to divert the MSB work and the PBGRP work from Aerosafe to WIBIH. Further, the Plaintiffs allege that SME Gateway knowingly assisted in the breach of their fiduciary obligations and was knowingly involved in the contravention of their statutory duties.
The Plaintiffs do not seek an account of profits. Instead, the Plaintiffs seek equitable compensation, claiming that, but for the Defendants' breaches, Aerosafe would have been awarded the 2016 Contract with the MSB (which was in fact awarded to Nova) and the contract for the follow-on engagement with the PBGRP (which was in fact awarded to SME Gateway/WIBIH). The Plaintiffs had indicated, in opening submissions, that they brought an alternative claim for loss of the opportunity to be awarded this work, but confirmed in closing address that no such claim was pursued by them.
The Plaintiffs called a number of witnesses, including Ms Turner and the Chief Financial Officer of the GRA Group, Mr Morton. There was no substantial challenge in closing addresses on behalf of the Defendants to the credit of Ms Turner or any of the other witnesses called by the Plaintiffs.
Each of Mr Harmer, Mr Binks and Mr Dillon elected not to give evidence in their defence of the proceedings. Following this election, the Plaintiffs tendered various parts of their respective affidavits as admissions against, in each case, the particular deponent.
SME Gateway called each of the two senior officers who had met with Mr Dillon and Mr Harmer in March 2016 to discuss WIBIH's prospective membership. Mr Ashman, who was employed as the Marketing and Business Development Executive of SME Gateway at the relevant time, gave unchallenged evidence that he had no recollection of this meeting. Mr Madden, who is the General Manager of SME Gateway, provided an account of the matters discussed at this meeting and his dealings with WIBIH. A central issue in the proceedings is whether, at the time of this meeting, SME Gateway was (through Mr Ashman and Mr Madden) aware that Mr Dillon and Mr Harmer were employees of Aerosafe.
In addition, there were competing expert reports, dealing with the quantification of the Plaintiffs' claim. However, the points of dispute were limited and the expert evidence consequently occupied only limited time at the hearing.
The remainder of this Judgment is structured as follows: 1. Section A provides a detailed chronology of relevant events, dealing primarily with matters which emerge from the extensive documentary tender, or aspects of the affidavit evidence which were not in dispute; 2. Section B provides my reasons for rejecting the Defendants' tender of certain representations by MSB personnel that were obtained in the course of a subsequent internal Defence investigation; 3. Section C deals with the issue of the identity of the employer, and the terms of the employment agreements on which the Plaintiffs rely; 4. Section D considers whether each of Mr Harmer, Mr Binks and Mr Dillon owed to the Plaintiffs the statutory and fiduciary duties which they are alleged to have breached; 5. Section E addresses the breaches pleaded against Mr Harmer, Mr Binks and Mr Dillon in relation to the MSB work; 6. Section F addresses the breaches pleaded against Mr Harmer, Mr Binks and Mr Dillon in relation to the PBGRP engagement; 7. Section G deals with the claims against SME Gateway for accessorial liability; 8. Section H considers the issue of causation in respect of the loss of the MSB contract and the PBGRP engagement; 9. Section I deals with quantum; and 10. Section J deals with various miscellaneous claims, including the Plaintiffs' claim for damages against Mr Harmer for breach of his notice period and Mr Harmer's cross-claim for unpaid salary and bonuses.

[5]

Applicable regime for procurement

By way of background to the events which give rise to these proceedings, and in order to explain some of the terminology used in the evidence, it is necessary to outline briefly a number of the salient features of the regime governing Defence procurement in the relevant period, as applicable to the MSB and the PBGRP. In this regard, the Plaintiffs provided an overview of the procurement regime with their opening written submissions. The paragraphs which follow are a brief summary of some aspects of that overview.
The Navy has two principal commands, namely, Navy Headquarters and Fleet Command. Within Fleet Command sits the MSB, which was established in 2012. The MSB is located at Garden Island near the HMAS Kuttabul base in Sydney.
From 2013, and during the relevant period, the principal legislation regulating procurement by Commonwealth entities was the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act).
The Minister for Finance has issued Commonwealth Procurement Rules (CPRs) under s 105B(1) of the PGPA Act. The CPRs as at July 2014 were in evidence at the hearing. This version of the CPRs remained in force until the end of February 2017.
One of the forms of procurement for which the CPRs provide is procurement from an existing standing offer: CPRs cl 9.12. A standing offer is defined in the CPRs as "An arrangement setting out the terms and conditions, including a basis for pricing, under which a supplier agrees to supply specified goods and services to a relevant entity for a specified period." Procurement from an existing standing offer was the relevant procurement method in this case.
From around May 2012, Aerosafe was a contractor on the Defence Materiel Organisation Service Support (DMOSS) Panel. The DMOSS Panel was administered on behalf of the Department of Defence by the Defence Materiel Organisation, which was principally responsible for procurement within the Department. In order to become a member of the DMOSS Panel, Aerosafe applied as part of an open tender process and entered a deed of standing offer.
The Defence Procurement Policy Manual published in October 2014 provided that: "Where a standing offer arrangement or panel arrangement exists that meets the procurement requirement, the standing offer must be used, unless there is a valid reason for not doing so".
In July 2015, the Defence Materiel Organisation was disbanded and replaced by the Capability Acquisition and Sustainment Group. This led to the establishment of a new panel known as the Capability Services and Support (CAS-SS) Panel. Aerosafe was appointed to the CAS-SS Panel on about 20 July 2015. On 30 September 2015, Aerosafe entered into a Deed of Standing Offer in respect of the CAS-SS Panel.
Clause 4 of the CAS-SS Panel Deed of Standing Offer provides that contracts with the Department of Defence may be commenced by the Commonwealth submitting a Request for Quotation and Tasking Statement (RFQTS).
One of the types of procurement referred to in the CPRs is an "open tender", which involves the government entity publishing an open "approach to market" and inviting submissions. An "approach to market" is defined in the CPRs as "any notice inviting potential suppliers to participate in a procurement which may include a request for tender, request for quote, request for expression of interest, request for application for inclusion on a multi-use list, request for information or request for proposal." An RFQTS is an "approach to market".
An "open tender" does not, despite the terminology, connote that there has been a competitive tender. The Defence Procurement Policy Manual provided that: "When seeking quotes from a standing offer panel, the Procurement officer must consider the number of panellists to be approached for a quote to support the Section 23 Commitment Approval delegate's value for money judgment, taking into account the business rules of the panel and the costs and administrative burden to both Defence and the panellists of running a further competitive process from within the panel. There is no mandatory requirement under the CPRs to seek competitive (or any specific number of) quotes when acquiring goods and/or services under any panel arrangement. The number of quotes sought should be sufficient to ensure Defence achieves value for money."
Where an RFQTS is issued to only one member of the CAS-SS Panel, it is described as issued on a "sole source" basis.
As appears from the chronology below, the procurement documents generally address, in terms, the objective of "value for money" and, where an RFQTS is issued on a sole source basis, explain the reasons for doing so by reference to this objective. The value for money assessment is not intended to have the effect that the tenderer offering the cheapest price will be awarded a contract. The Defence Procurement Policy Manual requires that such an assessment takes into consideration various matters including open competition, efficiency, ethics and accountability, and an assessment of risk.
Clause 4.1.2 of the CAS-SS Panel Deed of Standing Offer provides that a panel member's quotation in response to an RFQTS constitutes an offer. Clause 4.1.4 provides that the issue by the Commonwealth of an "Official Order" constitutes an acceptance of that offer.
Accordingly, a contract between a panel contractor and the Commonwealth usually comprises the Deed of Standing Offer, the RFQTS, the quotation and the Official Order, as well as any other documents specified in those materials. For example, the Official Order for the PBGRP contract that was awarded to SME Gateway (to be performed by WIBIH) contains the following statement: "The conditions in the Capability Acquisition and Sustainment Support Services (CASSS) Panel Deed of Standing Offer, the Commonwealth's RFQTS, the subsequent response accepted and referenced in this Official Order, together with any documents expressly referred to in this Official Order, constitute a Contract between the Commonwealth and the Contractor."
Section 23 of the PGPA Act provides as follows: 23 Power in relation to arrangements and commitments (1) The accountable authority of a non-corporate Commonwealth entity may, on behalf of the Commonwealth: (a) enter into arrangements relating to the affairs of the entity; and (b) vary and administer those arrangements. (2) An arrangement includes a contract, agreement, deed or understanding. (3) The accountable authority of a non-corporate Commonwealth entity may, on behalf of the Commonwealth, approve a commitment of relevant money for which the accountable authority is responsible.
The Defence Procurement Policy Manual notes that the approval for the commitment of money under s 23 of the PGPA Act "is generally exercised in the final stages of procurement (once all key components of the proposed arrangement are known) and must be exercised before the arrangement that commits the relevant money is entered into by the entity". The document setting out the approval under s 23(3) of the PGPA Act is described as a "Section 23 Commitment Approval".
Because of the late stage at which the Section 23 Commitment Approval is given, the Defence Procurement Policy Manual sets out a framework for a form of pre-approval to be undertaken before an RFQTS is issued, called an "Endorsement to Proceed". The Manual states that: "In view of the deferred timing for the exercise of the Section 23 Commitment Approval delegation, the Procurement Approval and Commitment Framework includes a new mandatory governance requirement (termed an 'Endorsement to Proceed') that must be obtained for certain categories of Defence and DMO procurements. An 'Endorsement to Proceed' must be obtained for the following categories of procurements before any request documentation (eg an RFT [request for tender] or RFP [request for proposal]) is released to the market: … in Defence, for all Non Materiel Procurements (NMP) [procurements for services, not goods] with an estimated value at or above $200,000, including offers under standing offers."
The key contracts at issue in these proceedings were subject to such a process, whereby an Endorsement to Proceed was prepared before the RFQTS was issued, and a Section 23 Commitment Approval was signed off before an Official Order accepting the offer was issued. The Endorsement to Proceed and the Section 23 Commitment Approval are critical documents for understanding the factors which were taken into account in deciding to proceed with a particular form of tender and in deciding to award the contract to a particular Panel member.
A template Navy "Business Case" document, with a page headed "Procurement Process Guidance", was emailed by Commander Britton to Mr Dillon and Mr Harmer in March 2016. This "Guidance" document identified that the steps leading up to entry into a contract, and the indicative timing were as follows: the preparation of a Business Case (10 days); confirmation of the funding situation (3 days); drafting an Endorsement to Proceed (4 days); drafting RFQTS documentation (3 days); obtaining authorisation for the Endorsement to Proceed (5-10 days); preparing an Evaluation Plan (5 days); approach to market (10 days); conducting evaluation (5 days); conducting negotiations, if required (1-3 days); drafting Section 23 Commitment Approval (5 days); obtaining Section 23 Commitment Approval (5 days); and entering into contract (1 day). This "guidance" document noted that a minimum of approximately 2-3 months, and possibly 4-6 months, should be allowed "for the whole procurement process depending on complexity and issues". The document also noted that the approval for each of the Endorsement to Proceed and the Section 23 Commitment Approval was to be obtained from the "Delegate through DNCB [Director, Navy Contracting Bureau]".

[6]

Aerosafe's Relationship with the MSB in period to June 2014

In around 2011, Fleet Command completed two significant reviews of the Navy's capability, operational and regulatory environment, safety management systems, technical compliance and responsibility, referred to as the "Rizzo Review" and the "Fleet Regulatory Review". The Navy established a Fleet Regulatory Review Implementation Team in order to implement the recommendations of the Fleet Regulatory Review and align them with the implementation of the recommendations of the Rizzo Review.
Dr Lawrence Stubbs, a Commander in the Navy, was the Project Manager of the Implementation Team from 2011 until he left the Navy in 2014. He was involved in staffing the Fleet Regulatory Review Implementation Team, including engaging external contractors.
The tender for this work was awarded to the engineering consultancy firm, Beca, which engaged Aerosafe as its subcontractor. According to Dr Stubbs, a major element of Aerosafe's contracted work was supporting the development of the MSB. In June 2012, Aerosafe prepared a report for Fleet Command which detailed the methodology and organisational design of the proposed MSB. Aerosafe's report on the organisational design of the MSB defined the roles, function, strategic outputs, location and structure of the MSB.
The MSB was established in July 2012. Shaun Carmichael served as the Deputy Director of the MSB from the time of its establishment and throughout the relevant period. The Director of the MSB was at all times an officer in the Navy. The identity of the officers in the relevant period is addressed below.
From July 2012, Aerosafe continued to perform work, as subcontractor to Beca, in relation to the Fleet Regulatory Review Implementation Project.
In October 2013, following a competitive tender in which the Navy had sought quotes from three contractors, Aerosafe was awarded a contract to provide safety and risk management services to the MSB pursuant to RFQTS 10083 (the 2013 Contract). The Department of Defence document recording the approval for the provision of these services stated, by way of background, that the resources necessary to implement in full the functionality of the MSB had not yet been established, and that there was "an immediate requirement to augment the existing organic capacity of the MSB by sourcing safety support directly from appropriate service providers". The Tender Evaluation Bureau "assessed that Aerosafe have significant experience in Safety Management Systems and a high level of exposure to the contemporary safety and risk management environment within Fleet Command"; that "Aerosafe appears to have the capacity to undertake the tasks as detailed in the RFQTS with a low level of risk to schedule"; that "Aerosafe provided reasonable rates for services"; and that "Aerosafe's offer represented the best value for money with the least amount of risk … largely based upon Aerosafe's advantage in recent experience with Fleet Command".

[7]

Employment of Mr Harmer

In early 2014, Ms Turner decided to recruit an executive, who would be based in Canberra, to lead the development of the Defence Business Unit within Aerosafe. She first met Mr Harmer around this time, when she was introduced to him at a social occasion. He had just finished a project in hazardous chemical reform, working as Director of Safety for the Defence Materiel Organisation. In May and June 2014, Ms Turner had a number of discussions with Mr Harmer to ascertain whether he would be suitable for the role of heading up the Defence Business Unit.
On 10 June 2014, Ms Turner sent Mr Harmer a letter offering him employment as Vice President Defence for Aerosafe. Mr Harmer countersigned this letter on 14 June 2014. The letter described the position being offered as "a potential executive leadership position with Aerosafe Risk Management". The letter stated that there was an "expectation that the Executive in this role would be responsible for not only the delivery of the client projects, they would also have accountability for the achievement of commercial outcomes, sales, business development, growth, governance and oversight for appropriate compliance functions and business unit profitability".
The letter also stated that: "Given the investment in the role and the high level of connectivity with clients and in industry, this position is subject to a 6 month notice period unless otherwise negotiated".
Ms Turner specifically discussed this notice period with Mr Harmer prior to his accepting the offer, stating: "Your role will [have] a high level of visibility with clients and potential clients, you will be the face of Aerosafe for many of them. That is why, if you decide to leave, I will require you to give six months' notice."
On 1 July 2014, Mr Harmer commenced his employment. At that time, he was given a Company Employment Agreement & Job Description and an Employee Confidentiality Agreement, each of which he signed. He was also given a document described as the "10 Point Plan - Vice President Defence". The significance of these documents is discussed below, when dealing with Mr Harmer's employment contract and the duties owed by him. The 10 Point Plan included the following objectives, upon which the Plaintiffs placed particular reliance in these proceedings: "… 3. EXISTING AND PAST CLIENTS: Achieve sustained and enhanced commercial outcomes from past and existing Defence Clients - building strong relationships. 4. DEFENCE TRAINING: Aggressively grow the company's defence training business both in Canberra and nationally. … 7. CONSULTANCY PLACEMENTS: Actively seek out and secure Aerosafe market presence for onsite consultancy placements. 8. DEFENCE PANELS: Secure Aerosafe's position on Defence panels to facilitate planned growth. … 10. COMMERCIAL GROWTH: Achieve the agreed commercial outcomes for the Defence business unit, positioning this portfolio to expand and integrate the company's Global Supply Chain and Overseas Defence activities."

[8]

Further work with the MSB from July 2014 to June 2015

The 2013 Contract ended on 30 June 2014. This contract did not include an option to extend the term of Aerosafe's engagement.
On 17 July 2014 the Navy obtained an Endorsement to Proceed to issue RFQTS 11736, for the provision of services to the MSB in the 2014/2015 financial year of a similar type to those which had been provided by Aerosafe under the 2013 Contract.
Whereas the RFQTS which led to the 2013 Contract was submitted to three contractors, RFQTS 11736 was offered to Aerosafe on a sole source basis. Aerosafe was subsequently awarded the contract arising from RFQTS 11736 (the 2014 Contract). The Section 23 Commitment Approval in respect of the 2014 Contract gave the following explanation for the decision to proceed in this manner: "The [2013 Contract] with Aerosafe was established through a competitive approach to DMOSS Panel members, and by placing a new order with Aerosafe, Navy can capitalise on the works completed by Aerosafe in FY 2013/14, and the significant experience gained by Aerosafe in developing and delivery to the Navy Standards. Further, with the work associated with the new order being so similar/identical, and with Aerosafe having been selected from such a recent competitive approach to DMOSS panel members, Navy is confident that Aerosafe will continue to provide a value for money solution."
The Section 23 Commitment Approval recorded the view that "Aerosafe's proven ability to deliver and the continuity that would be gained from Aerosafe is extremely important in achieving the safety outcomes across the Fleet and contributed significantly to Navy's pursuit of a value for money solution." That is, the perception of value for money in respect of Aerosafe's offer for the 2014 Contract was tied to Aerosafe's prior experience in respect of the MSB and the continuity offered by re-engaging Aerosafe to perform similar services for the MSB in the coming financial year.
The Section 23 Commitment Approval also recorded the view that the MSB was currently manned at 60% of its full operating capability and that the MSB would require the services of an external contractor to provide support services for the equivalent of seven safety professionals for a period of up to four years. It further acknowledged that "funding for augmentation is not available to fully resource the MSB through externally sourced support services".
RFQTS 11736 recorded that: "Current funding allows the Commonwealth to guarantee a commitment to the contract until 30 June 2015." It added: "The Commonwealth reserves the right to exercise up to three (3) 12 month extension options. Where an extension is required the Commonwealth will seek confirmation of deliverables and pricing prior to the expiry of the existing contract."
Mr Harmer stated, in parts of his affidavit which were tendered by the Plaintiffs, that the 2014 Contract was one which he had "successfully obtained" for Aerosafe; and that from August 2014 to January 2015, most of his time was spent servicing this contract with the MSB in Sydney. He estimated that this occupied around 50% of his time in that period.
In a monthly report which Mr Harmer prepared for the Aerosafe Defence Services (ADS) business unit in October 2014, he identified one of the "Key strategic opportunities" for Aerosafe at that time as follows: "ADS has embedded staff inside MSB and are working hard on the new contract [the 2014 Contract]. Of note is the opportunity to really build growth inside MSB as the year progresses. DMSB [the Director of the MSB] will change in 2 months and there is an opportunity to build on the ADS profile with the incoming Captain, and influence the leadership within MSB to be totally dependent on ADS this year, next year, and into the future".
Mr Harmer's monthly report also stated that: "During the coming month, ADS will progress the deliverables for its contract with MSB to conduct Fleet command and safety management consultancy services. ADS need to make this contract 'roll on' past June 30, 2015 into FY 15/16 and its potential final value is yet to be determined."
As foreshadowed in Mr Harmer's October 2014 report, a new Director of the MSB, Captain Smallhorn, was appointed in January 2015. In his monthly report for the ADS business unit for January 2015, Mr Harmer reported on his work in cultivating the relationship with the MSB and its new Director: "The Aerosafe Project Director, VPD [Vice-President Defence, Mr Harmer] held a significant on-site presence to assist in the transition of both new ADS staff members and new Director MSB, CAPT Chris Smallhorn. VPD has continued to communicate Aerosafe's availability to further support MSB during the transition of CAPT Smallhorn. It is to be noted that CAPT Smallhorn has already indicated that he wants to retender Aerosafe's current contract on June 30. With a strong presence of on-site staff [at MSB], ADS is finding exposure to key business opportunities and communicating these internally. …"
One of the "new ADS staff members" referred to in Mr Harmer's January 2015 report was Mr Binks.

[10]

Mr Harmer pursues, on behalf of Aerosafe, membership of SME Gateway

In his monthly report for the Defence Business Unit for November 2014, Mr Harmer identified an opportunity for Aerosafe to pursue a relationship with SME Gateway, so as to gain access to additional Government panels: "The ADS Business Unit is currently looking into participation on SME Gateway, a single entity that supplies Small and Medium Enterprises exposure to Industry and Government. Through their inclusion on Government panel arrangements, Aerosafe, should it choose to participate, will be provided the opportunity to tender for involvement in Government projects as a consortium. Due to the current difficulties of accessing current Government panels, ADS considers that this an effective alternate solution to obtaining business and exposure…."
In around late November 2014 or early December 2014, Matthew Le, who worked in the ADS unit, placed an online enquiry with SME Gateway. A representative of SME Gateway, Dee Davids, responded to this enquiry on 4 December 2014, inviting Mr Le to come to their offices "for a face to face meeting to better understand SME Gateway's value proposition for Aerosafe Risk Management to join its membership". Ms Davids noted that SME Gateway provided "contracting infrastructure" so as to enable small to medium enterprises to engage with the end customer, but that business development remained each member company's own responsibility. Ms Davids continued (emphasis in original): "We encourage you to initiate Business Development with your target customers to create continued opportunities for your own progress. If expecting the release of a RFQTS as a result of your BD [Business Development], we encourage you to inform us of the details as soon as possible so that we can isolate that particular RFQTS from being circulated amongst other members."
Ms Davids' email noted that the one-off membership fee was $3,850 (GST inclusive) and that SME Gateway also charged a management fee, being 8% of revenue, in respect of contracts entered by SME Gateway.
Mr Madden and Mr Ashman confirmed that this email accurately reflected how SME Gateway operated in 2015 and 2016.
Mr Le forwarded this email to Mr Harmer on 4 December 2014 and sought his approval to meet with Ms Davids. Mr Harmer responded on the same day: "Go for it noting if we were to pay we need a near guarantee of getting work".
Mr Le subsequently attended a meeting with Ms Davids on 11 December 2014.
On 13 December 2014, Mr Le prepared a Briefing Note, which was reviewed by Mr Harmer, regarding Aerosafe's potential membership with SME Gateway. The note was stated to be for "Executive approval". The Briefing Note recorded Mr Le's meeting with Ms Davids and referred to a membership application form which had been provided to Aerosafe. The Briefing Note indicated that SME Gateway's CEO, Roehl Oringo, was willing to meet with Aerosafe's CEO (Ms Turner) and Vice President Defence (Mr Harmer) in early 2015 in order to discuss any enquiries. The Briefing Note concluded as follows: "It is requested that the Executive Team: Review and complete the application form at Attachment A; Provide approval for the expenditure of $3,850 (GST inclusive) for membership; Advise of interest to meet with Roehl Oringo, SME Gateway CEO and confirm availability."
In an email sent to Ms Turner on 15 April 2015, Mr Harmer reported that on the previous day he had attended "a long overdue meeting with a senior manager at SME". The senior manager concerned was Mr Ashman.
Mr Ashman had no recollection of this meeting. In parts of Mr Harmer's affidavit that were tendered by the Plaintiffs (against Mr Harmer only), Mr Harmer described the meeting as "fairly introductory in nature", including discussion about Aerosafe's basic structure and that of SME Gateway.
In his email to Ms Turner following this meeting, Mr Harmer reported that SME Gateway's involvement on the current DMO Support Services panel arrangement covers 94 of 98 service categories, whereas Aerosafe covers 11. Mr Harmer concluded his email with a comment which suggests he appreciated that the question of any relationship with SME Gateway was ultimately a strategic issue for Ms Turner herself: "Hope this email and attachment is not career limiting, as stated I know you have a plan!"
According to parts of Mr Harmer's affidavit which were tendered by the Plaintiffs, there was a discussion about SME Gateway membership at the next Aerosafe team meeting, which was a "few days" after the meeting with Mr Ashman. He expressed the view that "joining SME Gateway will exponentially increase the chances of us winning more work with Defence". Ms Turner responded that Aerosafe was already a member of one panel and that, although she would talk to Mr Morton, she did "not want to spend money becoming a member of SME Gateway".
On 15 May 2015, Mr Harmer sent an email to Mr Le advising that Ms Turner had "signed off" on SME Gateway membership for Aerosafe. There is no other evidence that Ms Turner had actually done so, and this statement appears at odds with the terms of the conversation recorded in the previous paragraph of this judgment.
On the same day, Mr Le sent Mr Ashman an email, copied to Ms Davids and Mr Harmer, which attached Aerosafe's application for membership of SME Gateway. The completed "Qualification Questionnaire", which was signed by Mr Harmer, gave the company's contact details and listed two persons under the heading "Management", namely, Ms Turner (identified as CEO) and Mr Harmer (identified as Vice President Defence). A profile of each was attached.
Mr Ashman gave evidence that he had no recollection of seeing this completed questionnaire. He said that these completed documents were kept in SME Gateway's records as hard copy files.
On 29 May 2015, Nicolas Shaw, who was an employee at SME Gateway providing administrative support, sent an email to Mr Le, copied to Mr Harmer and Ms Davids. Mr Shaw stated that SME Gateway had "completed its due diligence process with regards to your membership application" and invited Aerosafe to complete the membership process by signing a membership agreement and paying the required membership fees. Mr Ashman gave evidence that the due diligence process involved reviewing the completed Qualification Questionnaire, ensuring all information had been provided, checking ABNs and checking insurance policies were in place.
At around this point, Ms Turner sought to put an end to any further dealings with SME Gateway. She deposed that two members of the Executive Leadership Team (Mr Morton and Ms Clarke) considered the proposals for membership of SME Gateway which had been put forward from November 2014 to around May 2015, and did not support or approve the recommendation. She gave evidence of a meeting with Mr Harmer in late May 2015, where Mr Harmer indicated that the membership application was ready, if she wished to proceed. She responded that "[SME Gateway] has nothing to offer Aerosafe"; that Aerosafe was already on government panels; and that Aerosafe did "not need to spend money on a partnership or 'membership' with SME Gateway". She concluded this meeting with a clear directive on the issue: "It is not to be progressed."
It may be that this conversation, which Ms Turner recalls occurred in around late May, in fact only occurred after 16 June 2015, when Mr Harmer sent an email to Mr Morton noting that Aerosafe had signed the membership agreement and that SME Gateway required payment of the membership fee before it countersigned. If so, this would explain why the conversation with Ms Turner occurred and why the payment was not made.
Mr Shaw of SME Gateway sent a follow up email to Mr Le on 6 July 2015, noting that the payment had not been made and adding: "There is no pressure, I just wanted to make sure you hadn't sent through the fee and that it had got lost along the way". Mr Ashman was not copied on this email and Mr Madden said it had not been discussed with him. There is no evidence of any further communication from SME Gateway to Aerosafe after this date.

[11]

Mr Dillon joins Aerosafe

At around the start of June 2015, Ms Turner asked Mr Dillon whether he would be interested "in coming to work for Aerosafe as part of our growing leadership team" in the role of Chief Commercial Officer, explaining that she needed someone "who is experienced in business development, tenders and commercial strategy". Ms Turner had known Mr Dillon since the late 1990s, when they had undertaken training as Army Reserve Officers together. They had become good friends and she looked up to and respected him, describing him as a "business mentor over the years".
On 4 June 2015, Ms Turner sent an email to Mr Dillon, in which she said that she would "love for you to consider coming on board in an exec role in Sydney focusing on cultivation and expansion in the defence and defence industry sectors". She noted in this email that the "most significant opportunity as discussed is our work with the [Navy] and the associated Maritime Services Division [the MSB]".
In June 2015, Mr Adams, who was the Chief Operating Officer (COO) at Aerosafe, left the business.
On 3 July 2015, Ms Turner sent Mr Dillon a written offer of employment "for the position of Senior Executive with Aerosafe Risk Management". The letter indicated that Mr Dillon would commence by filling the COO position on an interim basis, taking responsibility for Business Operations and Corporate Services. The letter described the COO role as "a critical part of the Company's ELT [Executive Leadership Team] accountable for execution and delivery of business operations around the globe". The letter also stated that: "Given the investment in the role and the high level of connectivity with clients and in industry, this position is subject to a 3-month notice period unless otherwise negotiated."
Mr Dillon signed an employment agreement with GRAGS on 3 July 2015. Shortly afterwards, on 7 July 2015, Mr Dillon signed an Employee Confidentiality Agreement with Aerosafe.
On 7 July 2015, Ms Turner sent Mr Dillon an email, with the subject "Welcome to Aerosafe!", which commenced: "I just wanted to let you know how excited I am … with you joining our Executive team!" She stated that she looked forward to working with him "to really secure some key commercial outcomes for the company", adding: "We have a fantastic opportunity to leverage off the company's 18 years of background, past client work, industry standing and positioning to springboard into this new phase of growth". Ms Turner concluded that "on both a personal and professional level", she was "really looking forward to the future and achieving some great results with you!"

[12]

2015 Contracts

As noted above, the 2014 Contract gave the Commonwealth the right to exercise up to three 12-month extension options. However, instead of proceeding in that manner, the Navy issued a new RFQTS (numbered 13146) for the provision of similar services to the MSB in the 2015/2016 financial year. As with the RFQTS which led to the 2014 Contract, RFQTS 13146 was issued to Aerosafe on a sole source basis.
The Tender Evaluation Report for RFQTS 13146, dated 22 June 2015 and signed by Mr Leach, stated as follows: "Aerosafe provided a highly detailed tender document which included responses to each of the RFTS requirements. The tender highlighted Aerosafe's recent experience in providing support to the [Fleet Regulatory Review Implementation Team] and MSB and included reference to a significant number of reports completed by Aerosafe in support of Fleet Command as a demonstration of their ability to undertake work in the required fields. The tender was assessed against the criteria as follows: a. Experience. It was assessed that Aerosafe have significant experience in Safety Management Systems and a high level of exposure to the contemporary safety and risk management environment within Fleet Command. b. Capacity. Aerosafe appear to have the capacity to undertake the tasks as detailed in the RFQTS with a low level of risk to schedule. c. Rates and Flexibility. It was assessed that Aerosafe provided reasonable rates for services, based on DMOSS rates. MSB did conduct negotiations with Aerosafe and removed from the expected deliverables a number of elements where the quoted price was above MSB expectations."
The Section 23 Commitment Approval for this contract approved the expenditure of $924,000 (GST inclusive) for the provision by Aerosafe of services to the MSB in the 2015/2016 financial year. This document noted that, because it was not known when or if the MSB's shortage of human resources, which had led to the need to engage an external contractor, would be resolved, Aerosafe would "be requested to provide a quotation for a period of up to four years (ie quote on 4 of 12 monthly lots)", adding: "The intent will be to engage each lot in series on an annual basis at Navy's discretion." It was noted that, where required, separate Endorsements to Proceed and Section 23 Commitment Approvals would be raised to support each twelve-monthly procurement lot.
The Section 23 Commitment Approval stated that: "By structuring the procurement for a period of up to four years with an initial contract period of 12 months and three 12 month extension options (to be exercised at the Commonwealth's discretion), Navy will have flexibility to accommodate possible future changes in circumstances e.g. an increase in Naval resources may allow Navy to action some or all of their requirements in-house."
The Section 23 Commitment Approval also noted that, if any of the subsequent 12-month options was exercised, then their costs would be approximately the same as for the 2015/2016 financial year, that is, around $924,000 (GST inclusive) per annum.
Two further points should be noted about the Section 23 Commitment Approval in respect of this contract. First, in setting out the reasons for engaging Aerosafe, this document highlighted the prior experience of Aerosafe staff in working with the MSB and the continuity provided by obtaining services from Aerosafe over the coming financial year: "Due to a continued shortage of additional human resources the MSB wish to engage Aerosafe under a new contract for FY 15/16, but under the same terms and conditions of the previous contract/order arrangements, which are, deliverables from functional areas/requirements as listed above at subparagraphs 5a to j. This strategy will allow the MSB to capitalise on the work completed by Aerosafe in 2014/15FY, and the significant experience gained by Aerosafe in developing and delivering to the Navy Standards. Engaging Aerosafe again will also provide the MSB the continuity it needs to continue to progress selected tasks within Aerosafe's skills set, with a reduced burden upon already stretched APS and ADF staff with regard to contractor administration and oversight. With the MSB only manned to 60%, Aerosafe staff that understand the business of the MSB and can work autonomously with minimal APS/ADF involvement will allow key MSB staff to focus upon Governance and priorities."
Secondly, the Section 23 Commitment Approval explained that the conclusion that Aerosafe offered "value for money" was based, in part, on the fact that there had been a recent competitive tender: "A FY 13-14 contract with Aerosafe was established through a competitive approach to DMOSS panel members… [W]ith the work associated with the new order being so similar/identical, and with Aerosafe having been selected from such a recent competitive approach to DMOSS panel members, Navy is confident that Aerosafe will continue to provide a value for money solution."
Another significant factor in the determination that Aerosafe represented value for money was Aerosafe's prior experience. The Section 23 Commitment Approval noted that: "Aerosafe's proven ability to deliver and the continuity that would be gained from Aerosafe is extremely important in achieving the safety outcomes across the Fleet and contributed significantly to Navy's pursuit of a value for money solution. For example: the placing of the order with Aerosafe will provide further savings, as it provides the Commonwealth with the following: a. potential reduced costs of delivery by capitalising on the knowledge and expertise gained in the development phases; b. mitigation of the considerable risk of loss of corporate knowledge and business continuity; c. Aerosafe staff understands the business of the MSB and can work autonomously with minimal APS/ADF involvement [which] will allow key MSB staff to focus upon governance and priorities; and d. faster and better informed progress towards improved safety management."
In his monthly report for the ADS business unit for May and June 2015, Mr Harmer identified that his focus was on obtaining new work for Aerosafe, and also ensuring that Aerosafe secure the "4 years of potential follow on support provided by the new contract terms" with the MSB. The report relevantly stated as follows: "ADS's primary focus for the month of July will consist of cultivating new and existing business activities with Industry and the ADO, and provide additional SME support to Defence when sole source opportunities are created, or RFQTS are received. This drive in Q1 FY15/16 will both enable the cultivation of opportunities for ADS consultancy work streams, and drive revenue for the business unit. These activities will also enhance Aerosafe's exposure to the Defence and Aviation industries. ADS will continue to progress the MSB project with a strong focus on identifying further business opportunities and ensuring that ADS achieve the 4 years of potential follow on support provided by the new contract terms. On-site staff will cultivate opportunities to broaden the scope of Aerosafe's contract with DMSB CAPT Chris Smallhorn, Shaun Carmichael when he returns from leave mid-August, and CAPT Simon Reay-Atkinson and Rod Leach who are acting on Shaun's responsibilities in his absence. ADS will cultivate Busops to provide further SMS support to DMO's MSB."
The terms of this report indicate that Mr Harmer understood that the presence of Aerosafe staff onsite at the MSB headquarters would likely give rise to valuable commercial opportunities for Aerosafe to provide other services and support to the MSB, and that it was his responsibility to cultivate and pursue such opportunities for Aerosafe's benefit.
After Aerosafe was awarded the contract in respect of RFQTS 13146, it was offered another contract with the MSB for the 2015/2016 financial year on a sole source basis (RFQTS 13643). The Section 23 Commitment Approval for this second engagement, which was signed on 18 November 2015, approved the expenditure of up to $450,000 (GST inclusive) "for provision of additional specialised resources to support the conduct of Safety Functions within the Maritime Safety Bureau (MSB) with Aerosafe Risk Management". This document further noted that it was expected that the need for these services would continue for another three years after June 2016: "This procurement allows provision for two persons to provide specialist support services for eight months with three 12 month options in the eventuality that Australian Defence Force (ADF) or Australian Public Service (APS) positions are not created arises. It is currently assessed as more likely, that the decision will be that contracted specialist support will be a permanent means of resourcing the delivery of Fleet Safety Assurance."
Again, the main rationale for engaging Aerosafe to provide the services under RFQTS 13643 was the desirability of continuity in the services being provided to the MSB: "Aerosafe have been providing such specialised high level Safety Management System support services to the MSB since Oct 2013 … Engaging Aerosafe to continue to supply such services would also provide the MSB the continuity it needs to continue to progress selected tasks within Aerosafe's skills set … With the MSB only manned to 60%, Aerosafe staff that understand the business of the MSB can work autonomously with minimal APS/ADF involvement will allow key MSB staff to focus upon governance and priorities."
The Section 23 Commitment Approval also noted that "the MSB has been very satisfied with Aerosafe's performance" and that "a change in supplier would introduce a real and significant risk of incompatible services being provided". Once again, the continuity offered by engaging Aerosafe was identified as an important aspect of the value for money offered by Aerosafe: "Aerosafe's proven ability to deliver and the continuity that would be gained from Aerosafe is extremely important in achieving the safety outcomes across the Fleet and contributed significantly to Navy's pursuit of a value for money solution."
On 23 November 2015, Mr Carmichael sent an email to Mr Dillon advising that Aerosafe had been awarded a contract against RFQTS 13643.
The two contracts under which Aerosafe was engaged to provide services for the MSB in the 2015/2016 financial year, in respect of RFQTS 13146 and RFQTS 13643, are together referred to as the "2015 Contracts".

[13]

Change in Mr Harmer's role and salary

In September 2015, Ms Turner and Mr Dillon had a conversation about Mr Harmer's performance and role. Mr Dillon expressed the view that Mr Harmer was not performing at the proper level for his role and was disconnected from his team, and recommended that Mr Harmer should be moved into a position that was less difficult and did not have contract responsibility. Ms Turner agreed that Mr Harmer might perform better at a lower level of responsibility and asked Mr Dillon, as COO, to "manage him closely", stating: "I am very keen to retain him and do not want to move [him] on at all".
Following this, Ms Turner had a conversation with Mr Harmer. She explained that, with changes in the company's organisation, her vision for appointing a Vice President Defence had not worked out in the way envisaged and "with Scott [Dillon] in the COO and CCO role I am going to move you into a role with less commercial responsibility". She told Mr Harmer that, as a result, his salary would reduce from $200,000 to $175,000, and he would be "focused on the delivery of project and client work rather than business development, contract management and sales work". With this change, he would no longer be Vice President Defence, but his title would be changed to "Senior Risk Adviser". She further noted that he would "still be at our employment grade Level 4 so there is no drop to your seniority on your project and client work".
Mr Harmer protested, stating "I can't take a reduction in salary". He referred to his family's financial commitments and asked how he could work to retain his remuneration package. Ms Turner responded: "You will have the opportunity to make up the salary shortfall through discretionary bonus and can easily have your annual salary be $200,000 or more." As discussed below, there is an issue whether this conduct amounted to a repudiation of Mr Harmer's employment contract and, if so, whether he elected to affirm the contract or instead retained the right to accept the repudiation and terminate the contract, as he subsequently purported to do in July 2016.
In September 2015, Mr Dillon had a discussion with Mr Harmer, which was subsequently reported to Ms Turner in an email of 2 November 2015. Mr Dillon recorded in his email that he made the following statements to Mr Harmer at this meeting: "1) From your performance review meeting with CEO, the CEO advised that your role within Aerosafe will be … changed to Senior Consultant. 2) Based on this advi[c]e from the CEO I need [you to] complete the following tasks-: a) Move from your current office location and locate yourself with the remainder of the Canberra consultant team. b) Change your voicemail message and your email messages to reflect your change in role. c) To be clear you are not a leader of the Canberra team but a team member. … The COO stated that the intent would be for Andrew to report to the COO as part of the new tasking of Andrew's role at Aerosafe."
Accordingly, from this time Mr Harmer reported to Mr Dillon. In addition, Ms Turner deposed that, after 2 November 2015, Mr Dillon "took over the commercial and contract oversight functions of the Vice President Defence role arising from the abolition of the position consequent on Mr Harmer's change in role."
The reduction to Mr Harmer's salary took effect from 21 October 2015 onwards.

[15]

Changes in Aerosafe personnel working on the MSB Contract

Aerosafe's response to RFQTS 13146, which was submitted in June 2015 and which led to the first of the two 2015 Contracts, identified a list of "key permanent and supporting staff" who would work on the project. This list included Mr Clive Adams, who left Aerosafe on 30 June 2015; Mr Matt Le, who left Aerosafe on 25 August 2015; Mr Andrew Johnson, who left Aerosafe on 25 September 2015; and Ms Joanna Copeland, who left Aerosafe on 26 October 2015. It also included Mr Steven Graham, who left Aerosafe on 30 November 2015 (although there is no evidence, in his case, that he in fact did any work with the MSB).
The Plaintiffs submitted that it was unlikely that these departures were a matter of significant concern for the MSB. That was because the Section 23 Commitment Approval for the second of the 2015 Contracts, which was signed in late November 2015, referred in positive terms to the experience of Aerosafe staff and to the "continuity" afforded by engaging Aerosafe to provide further services to the MSB.
At the commencement of the performance of the 2015 Contracts, Mr Rich Christie was the Project Manager for Aerosafe. In a report of August 2015, Mr Harmer noted that: "Project work against the MSB contract for ongoing risk and safety support occupies a very high percentage of Rich Christie and Craig Binks' time. They are doing good work and were joined by VPD [Mr Harmer] and Joanna Copeland in the Data Analyst role in August."
In his monthly report for the Defence Business Unit for September and October 2015, Mr Harmer reported as follows: "PART 2: SUMMARY OF ACTIVITIES FOR THE PERIOD ADS has progressed work on several tasking statements under the MSB Fleet Command Safety and Risk Management contract. Andrew Harmer, Rich Christie Project Manager, Safety Advisor Craig Binks and Data Analyst Joanna Copeland and Abhi Ganugapati, have held significant on-site and off-site presence and maintained a high focus on performing supplementary work to assist MSB. Rich, Craig and the Data Analyst's position embedded into MSB is still widely supported as a critical enabler of MSB's obligations to Fleet and is highly valued by the DMSB, CAPT Chris Smallhorn and CAPT Atkinson. Rich Christie is working effectively in execution of ASTS012 - MSB Project Management with the majority of his time directly supporting DMSB. With many of Rich's administrative duties being handed to new MSB staff in late September, Rich can now focus more importantly on implementation of the Fleet Safety Strategy 2015 - 2017. Rich will take some leave in October and be back filled by Andrew Harmer while absent. Craig Binks is performing various tasks under the ASTS013 - Assist with Implementation of ABR6303 Ed5 and assisting with safety advice to various Fleet safety initiatives with great expertise. Of note was Craig's management of the October Fleet Safety Working Group."
As he had done in earlier reports, Mr Harmer again noted the significant commercial opportunity for Aerosafe to obtain further work from the MSB, and his responsibility to "lock down" any such opportunity for the benefit of Aerosafe: "ADS will continue to progress the MSB project with a strong focus on locking down the identified further business opportunities in Part 2 of this report, ensuring that ADS achieve the potential follow on support provided by the new contract terms".
As recorded in Mr Harmer's report, he acted during October 2015 as the Project Manager for the MSB work. A weekly report issued by him to the MSB on 23 October 2015 noted that he had been acting in that capacity for four weeks while Mr Christie was on leave and that Mr Christie would return to the Project Manager role on 27 October, following an internal handover from Mr Harmer on 26 October.
In November 2015, Captain Smallhorn, the Director of the MSB who had approved entry into the 2015 Contracts with Aerosafe, was promoted to the rank of Commodore. He was to be replaced by Captain Simon Atkinson on a temporary basis from early December 2015 until about February 2016, when Captain Timothy Standen was to take up the role.
On assuming his position at the MSB, Captain Atkinson sent an email to Ms Turner on 8 December 2015, copied to Commodore Smallhorn, Mr Dillon and Mr Carmichael. In this email, Captain Atkinson referred to the work that had been done by his predecessor, Commodore Smallhorn, "ably supported by your Aerosafe (core) Team of Mr Rich Christie, Mr Craig Binks and Ms Ye Wang". Captain Atkinson added that he looked forward "to building a good working relationship with Scott [Dillon], Andrew [Harmer] and Don [Hampton] over the coming months". Ms Yang and Mr Hampton were both members of the Aerosafe team working on the 2015 Contracts.
On 9 December 2015, Mr Harmer sent Ms Turner and Mr Dillon a note of a meeting held that morning, which they had attended with Commodore Smallhorn, Captain Atkinson and Mr Carmichael. The purpose of the meeting was "to conduct the monthly project check point meeting and provide a forum for a high level review of the contract performance". According to Mr Harmer's note, Commodore Smallhorn stated that he "was very happy with the status of contract performance", and that "Aerosafe has enhanced the ability for MSB to deliver safety outcomes to Fleet" and "has provided valuable intellectual input across all management areas of MSB business". He added that: "The flexibility that comes with a trusted contracting partner is valuable in delivering MSB's obligations to Fleet".
The note of this meeting also recorded that "Craig Binks has been very busy performing and coordinating many different safety tasks" and that the "MSB agreed that all tasking was going extremely well".
One matter which was frankly disclosed to the MSB at this meeting concerned Mr Christie's role as Project Manager: "Aerosafe advised that Rich Christie is having ongoing medical, well-being and performance issues and that Aerosafe is working closely with Rich to ensure he receives help and treatment. To ensure PM [Project Manager] support is maintained, Andrew Harmer will now work in the PM role for the next 7 business days. Mr Harmer affirmed that his knowledge of MSB is excellent due to his involvement in all aspects of the MSB contract over the last 18 months. A key benefit of having Mr Harmer involved is his knowledge of the 4 FFS pillars requiring implementation, and the system to track and achieve this that Mr Harmer has placed in the MSB RFQTS 13146 Project Management Plan (PMP)."
It should be noted that, as recorded in Mr Harmer's own note, he had, as at December 2015, been involved "in all aspects of the MSB contract over the last 18 months" and had "excellent" knowledge of the MSB and its requirements.
As matters transpired, Mr Harmer remained in the Project Manager role longer than expected, through until early February 2016, with the majority of his time during this period being spent on work for the MSB.

[16]

Mr Dillon becomes acting CEO

As noted above, Mr Dillon had initially acted as the Chief Operating Officer (COO) of the GRA Group, following the departure of Mr Adams. Mr Dillon continued in the role of COO through August and September 2015. In early October 2015, Mr Graham took over the role of COO of the GRA Group, and Mr Dillon's role changed to Chief Commercial Officer.
Mr Graham's employment was, however, short-lived. At the end of November 2015, Ms Turner terminated his employment as COO, before the end of his probationary period.
Ms Turner deposed that in December 2015, shortly before she commenced her long service leave, the Executive Leadership Team - comprising Mr Morton, Ms Clarke, Mr Dillon and herself - met to consider the approach to the replacement of Mr Graham. At this meeting, Mr Dillon offered that he could take on both the COO and the CCO role. Ms Turner agreed this was a good idea, as it would streamline management while she was on long service leave. She pointed out to Mr Dillon that this would mean that "all staff other than [the] finance and corporate services team will report to you Scott".
Ms Turner further deposed that she and Mr Dillon had multiple conversations with the other Executive Leadership Team Members before she left for her long service leave. She emphasised to Mr Dillon in those conversations that there were "three things that are absolutely critical to the success of Aerosafe" while she was on leave: "I need you at all costs to make sure these things don't slip. If you can do these three things, the company will be in a strong spot. If these three things are unpicked, then the foundation of the company basically unravels."
One of these three "absolutely critical" things was the MSB engagement. Ms Turner told Mr Dillon that: "this is our bread and butter source of income, you need to secure the rollover at all costs". Ms Turner directed Mr Dillon to do "whatever you need to do to secure this 'rollover' in the coming months, that is your most important goal".
Ms Turner told Mr Dillon that another of the three "absolutely critical" things was to ensure that Mr Harmer feels "included and valued": "He is absolutely critical to the growth and success of the business because he knows the Defence contracting processes and has the contacts in broader defence because of his work as the head of safety for Defence Material Organisation". She also noted that Mr Harmer would report to Mr Dillon, as COO.
On 4 January 2016, Ms Turner sent an email to Aerosafe staff, informing them that in her absence, Mr Dillon would be in charge: "I will be commencing my leave on Monday 11th and look forward to handing over the oversight of the company to Scott as COO in my absence".
Ms Turner gave unchallenged evidence that: "When I appointed Mr Dillon to run Aerosafe while I was on leave, I trusted him completely. I had narrowed down his focus to the critical areas of our business and esteemed him as the corporate leader all staff were to work to and respond to. It was common knowledge that Mr Dillon was in charge in my absence."
Ms Cynthia Jakobi held the role of Executive Officer to the CEO at Aerosafe from August 2015 until January 2017 and was responsible for "advising and informing executive members of the CRO's directions and interfacing between the CEO and staff". She gave unchallenged evidence that: "Mr Dillon ran Aerosafe as the COO when Ms Turner went on long service leave at the end of December 2015", and that Mr Dillon became Ms Jakobi's "primary point of contact for contract related issues while Ms Turner was away". Further, Mr Morton, the CFO of Aerosafe, gave unchallenged evidence that Ms Turner stated on a number of occasions that "she wanted Mr Dillon to act on her behalf while she was away".
The first of the weekly meetings of the Executive Leadership Team which occurred after Ms Turner commenced her leave, namely, the meeting on 18 January 2016, was attended only by Mr Dillon and Mr Morton, with Mr Oates attending as secretary. The minutes noted that the "CEO [was expected], but not able to attend". Similarly, the minutes of the next of these meetings which was in evidence, namely, a meeting on 15 February 2016 was likewise attended only by Mr Dillon and Mr Morton, with Mr Oates acting as secretary.

[17]

The PBGRP Safety Management System Implementation Assessment

On 17 December 2015, Mr Binks sent an email to Mr Dillon in which he stated that the "PBGRP have made many promises but can't get their act together in Darwin, they state they need more procedures to run the boats". This may have been the genesis for the work subsequently done for the PBGRP by Aerosafe.
In January 2016, Mr Harmer continued to be Project Manager for the MSB work, based at Garden Island. The MSB continued to express satisfaction with the work done by Aerosafe in this period. On 16 January 2016, Captain Atkinson sent an email to Mr Dillon stating that his "team is doing a great job".
In around late January 2016, Captain Atkinson requested Aerosafe to provide support to the PBGRP. On 29 January 2016, he and Mr Dillon met to discuss the staffing allocation for this task. Captain Atkinson had requested that either Mr Christie or Mr Harmer be allocated to this task. On 3 February 2016, Mr Dillon wrote to Captain Atkinson confirming that Aerosafe was able to allocate Mr Harmer as the lead consultant for this task. He noted that, as Captain Atkinson was aware, Mr Christie had been removed from the MSB engagement in late 2015 due to medical and staff performance reasons. Mr Dillon added that: "As Mr Harmer has been holding the Project Managers role on the MSB contract, with the reallocation of him to this new tasking, I wish to advise that I will be allocated Aerosafe team member to backfill the Project Management role."
Mr Dillon commenced working as Project Manager for the MSB work from early February 2016.
It is important to note that Mr Harmer ceased to be Project Manager for the MSB engagement because the Director of the MSB, Captain Atkinson, wanted Mr Harmer to take on another specific task. In an email dated 3 February 2016, Captain Atkinson thanked Mr Harmer for taking on this role, commenting that it "requires a level of discretion and gravitas that I know you will bring to the table".
On 4 February 2016, Mr Carmichael sent Mr Dillon the signed Work Order for the PBGRP engagement. This work order had been prepared by Mr Dillon as COO. It recorded that Captain Atkinson, in his capacity as Director of the MSB, had requested the work on 29 January 2016, and that the title of the project was "Patrol Boat Group (PBGRP) Safety Management System Implementation Assessment". The project was to commence on 10 February 2016 and was to be led by Mr Harmer.
According to this Work Order, the "Context and Background" for the assignment was as follows: "PBGRP have identified shortfalls in the implementation of their Safety Management System (SMS) Plan. In order to support the implementation of the SMS Plan MSB and PBGRP require external support to assess the reasons why the SMS Plan implementation remains behind schedule and make considered recommendations that provide direction and bring efficiency to the implementation process."
The "deliverables" set out in the Work Order included an "SMS Advisory Report with recommendations for the PBGRP Commander to successfully implement the PBGRP SMS" and an "In person presentation by the Aerosafe Project Lead [Mr Harmer] with DMSB [the Director of the MSB] and PBGRP Commander to deliver the report". This presentation was scheduled to occur in the week of 4 March 2016. The Work Order also set out a number of "key dates", including that, from 15 to 24 February 2016, Mr Harmer would carry out an onsite consultation in Darwin and would "attend PB[GRP] Safe Board with new DMSB".
The "new DMSB" is a reference to an important change in personnel at the MSB in February 2016. Captain Atkinson ceased as Director on 28 February 2016, and was replaced on the following day in that role by Captain Standen, who had joined the MSB on 9 February 2016.
On 8 February 2016, Mr Harmer, as Project Manager for the MSB work, provided the weekly "work in progress" report to Mr Carmichael, for the week ending 5 February 2016. This report was copied to Captain Atkinson, Mr Dillon and Ms Turner. In the report, Mr Harmer noted that he was being replaced by Mr Dillon as "ARMSM" (this is, the Aerosafe Risk Management Senior Manager) on the MSB engagement, and stated as follows: "Scott brings considerable experience to the role having a thorough understanding of Defence as a 30 year veteran of the Army Reserve. Scott's service has also been compl[e]mented by a career as a senior executive managing national and international companies with expertise in program management and commercial management. As Aerosafe's COO Scott has oversight of the MSB contract and is well placed to provide valuable service to MSB to meet Fleet's safety obligations."
Mr Harmer also spoke warmly of his long and close association with the MSB, which he expected to continue through his work for the MSB on the PBGRP assignment: "Andrew Hamer has thoroughly enjoyed his recent time as PM [Project Manager] and values his 18 months working with MSB. Andrew is looking forward to his next MSB task reporting on the PBGRP's capability to meet CN's [Chief of Navy's] directive on implementation of ABR6303. This task will commence next week."
Finally, the report identified that, in the week starting 8 February 2016 (following Mr Harmer's departure), the Aerosafe staff who would be working on the MSB engagement were Mr Dillon, Mr Binks, Ms Wang, Mr Hampton and "Abhi Dasgupta". The last of these names appears to be an erroneous conflation of two different persons who held the role of Risk Advisor at Aerosafe, namely, Abhi Ganugapati and Arnab Dasgupta. Each of them was named as an Aerosafe team member at the "Contract Kick Off Meeting" with the MSB in relation to RFQTS 13643 which was held on 17 December 2015. However, the body of Mr Harmer's report for the week starting 8 February 2016 indicates that at this time it was in fact Mr Ganugapati who was working on the MSB engagement. Mr Dillon's first report as Project Manager, for the week starting 15 February 2016, provided a list of the Aerosafe staff who were rostered onto the MSB engagement in the week starting 15 February 2016. This list was the same as the list for the previous week, except that it now contained a reference to Abhi Ganugapati rather than "Abhi Dasgupta".
In parts of Mr Dillon's affidavit that were tendered by the Plaintiffs, he deposed that he worked "full time at MSB from 3 February 2016 until [his] resignation on 24 June 2016"; that his role as the MSB Project Manager "was to work directly for the MSB Director"; and that he "was responsible for managing the work of Craig Binks, Ye Wang, Don Hampton and Ab[h]i Ganugapati who were also all working at MSB".

[18]

Opportunities for future work with the MSB

There is in evidence an invitation that was sent by Mr Harmer on 10 February 2016, for a meeting at the office of the Director of the MSB on the following day. The invitation was sent to Captain Atkinson, Mr Carmichael and Mr Binks, and copied to Captain Standen and Mr Dillon. The subject is "PBGRP meeting", but one oddity is that it was not sent from Mr Harmer's Aerosafe email address, or to Mr Dillon's Aerosafe email address, but was instead sent from and to their respective Defence email addresses. Since none of the persons involved gave evidence, it is unknown what occurred at the meeting. However, it is of some significance, in light of events that followed, that these three particular members of the Aerosafe team - Mr Dillon, Mr Harmer and Mr Binks - appear to have been communicating in around February 2016 with the outgoing and incoming Directors of the MSB and the Deputy Director, at least regarding the PBGRP engagement.
At a weekly meeting of the Executive Leadership Team on 15 February 2016, which was attended by Mr Morton and Mr Dillon, Mr Dillon gave a report on the MSB engagement, which included the following items: "MSB … • COO [Mr Dillon] assisting [Captain] Simon Atkinson and new Commander Tim ?? [sic] with new business case preparations • High potential of more work from this (challenge will be finding resources that can be in Darwin for 6 months) • MSB occupying the majority of the COO's time (priorities are to drive more business, and roll existing contracts over/create new ones - for PM [Project Manager] and Craig Binks) • Further challenge being Clive Adams (from Henderson Consulting) onsite giving his pitch about how much better they could do these jobs. Fortunately, rolling over the contract is the 'path of least resistance' for Shaun [Carmichael] and therefore more attractive as our contract finishes the end of May and the work finishes in August"
The reference to "Commander Tim ??" is likely a reference to Captain Tim Standen who was the incoming Director of the MSB, replacing Captain Simon Atkinson towards the end of February 2016. It is apparent from this report in mid-February 2016 that after taking over as Project Manager at the MSB, Mr Dillon was spending most of his time on-site at the MSB and was working with both the outgoing and incoming Directors of the MSB in relation to "new business case preparations". Those preparations related, in part, to the follow-on work arising from Mr Harmer's current assignment with the PBGRP, as is apparent from the reference to the "high potential" for more work, which would require staff to be based "in Darwin for 6 months". However, those preparations likewise also related, in part, to the business case for the provision of services to the MSB in the coming financial year. That may be inferred from Mr Dillon's reference to his "priorities" at this time as including "rolling existing contracts over" and also from the fact that Mr Dillon, as discussed below, was working in March 2016 on the draft Statement of Work and business case for the provision of services to the MSB in the 2016/2017 financial year.
At this meeting of the Executive Leadership Team, Mr Dillon reported to Mr Morton that his priorities were to "drive more business" and, in particular, to create new contracts "for PM and Craig Binks". It is likely that the reference to "PM" is a reference to Mr Harmer, since he had, until very recently, been working as Project Manager (PM) on the MSB engagement and had only stepped aside in order to perform the PBGRP assignment. It is unlikely that it would be a reference to Mr Christie, who had ceased being Project Manager in early December 2015 and who left Aerosafe on 25 February 2016, only a week or so after Mr Dillon gave this report. It is also unlikely to be a reference to Mr Dillon, since in his report he refers to himself as "COO" rather than "PM".
Accordingly, Mr Dillon was, by his own report in mid-February 2016, aware that his key responsibilities as acting CEO, as COO and as Project Manager for the MSB engagement included to ensure that he secured for the benefit of Aerosafe the valuable commercial opportunity of further work with the MSB and the PBGRP, in particular utilising the services of Mr Harmer and Mr Binks. Mr Dillon told Mr Morton at this time that he was working closely with the outgoing and incoming Directors of the MSB in order to achieve this goal.
At the same meeting, Mr Dillon said to Mr Morton that a "challenge" for this plan was that Mr Adams was also "onsite" (that is, at the MSB) and was pitching "how much better they could do these jobs", with the plural "jobs" apparently referring to both the ongoing MSB work and the PBGRP assignment.
According to a report given by Mr Dillon to Ms Turner and Mr Morton at a later meeting of the Executive Leadership Team on 18 April 2016, Mr Adams, who was Henderson's CEO, was "working for Fleet, and subcontracting under BECA". As noted above, Aerosafe had originally performed work for the MSB in 2012 and 2013 as Beca's subcontractor. At that time, Mr Clive Adams was the COO of Aerosafe. Prior to his leaving Aerosafe in June 2015, Mr Adams had been named as one of the "Key Personnel" in the tender for the first of the 2015 Contracts. Mr Morton gave evidence that Mr Adams had performed nearly 1,000 hours of work for Aerosafe's Defence Business Unit.
Mr Dillon recognised, as set out in his report of 15 February 2016, that although Mr Adams was pitching for work with the MSB and the PBGRP, there was a benefit in incumbency. In particular, Mr Dillon was aware that the "path of least resistance" for Mr Carmichael and the MSB was to continue with the staff who had already been performing these roles. Those staff included the two persons who were specifically identified by Mr Dillon in his report, namely, Mr Binks, who by this time had been embedded at the MSB for over a year, and Mr Harmer, who had been specifically selected to carry out the initial PBGRP assignment.
Mr Adams also appears to have understood the value of being able to offer staff with experience at the MSB. Ms Turner became aware, by May 2016, that Mr Adams had been speaking with "many current and past staff members" of Aerosafe and trying to recruit them. When Nova successfully tendered for the 2016 Contract with the MSB, it put forward an entity called "VizionX Pty Ltd" as a subcontractor to be used in providing the services. The representatives of VizionX who would be performing the work were identified as including Mr Adams and Mr Don Hampton. It is likely that Mr Hampton was one of the "current" MSB staff whom Mr Adams had approached prior to May 2016. He was part of the Aerosafe team that was embedded at the MSB, in the period from October 2015 until he left the GRA Group at the end of June 2016. He was also one of the "key" personnel who was identified in Aerosafe's tender for the second of the 2015 Contracts and at the "kick off" meeting for that contract.

[19]

Mr Carmichael's email of 26 February 2016

On 23 February 2016, Mr Dillon attended a "HOD" (Heads of Department) meeting with Captain Atkinson, Mr Leach and Mr Carmichael. According to the minutes, Captain Atkinson's opening remarks included that the first of Aerosafe's 2015 Contracts would expire on 1 May 2016. One of the matters discussed at the meeting was "STAFFING - AEROSAFE contracts expire commencing May". The minutes also recorded that the "ARMSM" (the Aerosafe Senior Manager, Mr Dillon) was "scoping the ARMSM role to maintain the current administrative tasks and work up the next specific tasks to support FSS 2015-2017 implementation".
That is, Mr Dillon was, during the last week of February, meeting with the Director and the Deputy Directors of the MSB; was involved in discussions with them about the expiry of the 2015 Contracts; and was working up the scope of the role required to maintain the current services being performed by Aerosafe, as well as the "next specific tasks" required in the period through to 2017, in order to support the implementation of the FSS (Fleet Safety Strategy) recommendations.
On 25 February 2016, Mr Dillon was provided with a "Weekly Brief" for the MSB that was also sent to the outgoing and incoming Directors (Captain Atkinson and Captain Standen) and the two Deputy Directors (Mr Carmichael and Mr Leach). This document indicated that "Work in Progress" included, in respect of each of "Safety Oversight" and "Safety Assurance", "Developing Business Cases in support of RIZZO Implementation Plan".
On the following day, 26 February 2016, Mr Carmichael sent an email to Mr John Whitelaw (the Director of the Navy Contracting Bureau) that was copied to Captain Standen and to Mr Leach, headed "MSB Rizzo Contracting Options". In this email, Mr Carmichael sought advice on "the best contracting strategies to be employed for Rizzo support in 2016-17".
This email is central to the Plaintiffs' case and was the subject of close scrutiny in the submissions of all parties. Given its significance for the issues of both breach and causation, I have set out its text in full below: "John As discussed MSB is seeking some advi[c]e on the best contracting strategies to be employed for Rizzo support in 2016-17. MSB is currently in contract with Aerosafe Risk Management. We have let two contracts with this firm in 15-16. These contracts include options for three one year extensions. The contracts were arranged through the CASS-SS (DMOSS) panel. Aerosafe were selected 'sole source' (within the DMOSS panel arrangements) in 2014-15 and again in 2015-16. In the ETP [Endorsement to Proceed] MSB have indicated that the decision to 'sole source' was based on Aerosafe ongoing knowledge and experience of the tasks required by MSB. MSB also indicated in both ETP's a desire to go back to the market to 'test the market' in future years. MSB have some significant concerns about Aerosafe's ability to staff the tasks in the near future. We are experiencing significant Aerosafe staff turn over and hence the rationale for continuing to go back [to] Aerosafe is probably no longer valid. We expect to be allocated a similar amount of funding for 16-17 to perform the safety systems and education promotion tasks as in previous years. Aerosafe have provided MSB a number (three) of highly competent staff who we would like to retain due to their in depth knowledge of the undertaking. We seek your advice on the best option going forward. We have been approached by two risk and safety companies that are willing to employ our current Aerosafe staff (who have unofficially indicated their intention to separate from Aerosafe at contract close) and who have other safety skill sets. These companies are not members of the CASS_SS panel nor any other Defence panel. Would it be possible for MSB to seek an 'open tender' outside existing panel arrangements. Is this feasible and could we gain support to undertake the procurement actions (noting limited procurement competencies at MSB). Both companies have indicated there would be financial savings. Could we seek to directly employ the best performers from Aerosafe (if they were to separate from the company) through a direct labour hire arrangement? If either of the above options are unsuitable can we reject the future options with Aerosafe and go back to the CASS-SS panel. What actions should we take now to set this up? Your earliest advice is appreciated."
The Plaintiffs drew attention to the fact that the MSB had not previously expressed any dissatisfaction with Aerosafe's performance or any intention to look elsewhere for the services that Aerosafe had been providing to date. The Plaintiffs contended that this change in view was brought about by Mr Dillon, Mr Harmer and Mr Binks. In particular, the Plaintiffs contended that each of these three Aerosafe staff had "unofficially indicated their intention to separate from Aerosafe at contract close" (that is, when Aerosafe ceased providing services under the 2015 Contracts). Further, the Plaintiffs contended that the MSB had been told by WIBIH (being one of the "two risk and safety companies" mentioned, which was not a Panel member) that it was in a position to employ the three "highly competent staff" - namely, Mr Dillon, Mr Binks and Mr Harmer - whom the MSB wished to retain. For their part, the Defendants disputed that each of those inferences could be drawn from the email, when read in the context of the other evidence. I will address the arguments raised about this email in the course of dealing with breach and causation below.
On 26 February 2016, Mr Whitelaw forwarded Mr Carmichael's email to Andrew Douse, who was the Assistant Director of the Navy Contracting Bureau. Mr Whitelaw made the following comments when passing on this email: "Andrew, I don't know if the Panel has any conditions regarding contractor staff employment but I assume we can terminate the arrangement if necessary. I assume there is a justification of continuity if we specified the staff for a direct labour hire or through the competing companies. Obviously can go back to the Panel as no obligation to use options. It appears Defence has not done any approaching and thus has not operated in bad faith? Comments please."
Two points in particular should be noted. First, although one of the main rationales for offering the 2015 Contracts to Aerosafe on a sole source basis had been the "continuity" that Aerosafe offered, Mr Whitelaw appears to have been of the view, by late February 2016, that there would be a "justification of continuity" in engaging a competitor firm to provide the same services as Aerosafe had previously provided, in the event that the key Aerosafe staff who had been working on the MSB project left Aerosafe and were hired by that competitor. Secondly, although Mr Whitelaw raised a query about "bad faith", his concern was whether any such accusation could be levelled at Defence (rather than at the competitor firm in question) and in that regard, he appears to have been of the view that Defence could not be criticised if it "ha[d] not done any approaching" to the relevant Aerosafe staff or the competitor firm. That is, there appears to have been an understanding on Mr Whitelaw's part that if the opportunity to obtain the existing key Aerosafe staff through a competitor of Aerosafe was presented to Defence, without having been actively solicited by Defence, then Defence itself would not have "operated in bad faith".
On 1 March 2016, Mr Douse responded as follows to Mr Whitelaw: "John As discussed, this is how I understand the situation lies: 1. There are concerns about the current contract with Aerosafe. Action: This should be formally communicated (supported by examples, details and facts) to Aerosafe and them given the opportunity to rectify the situation in a reasonable timeframe. Depending on their response to this, the Commonwealth may consider termination of the current contract or allow it to expire IDC [in due course]. 2. The current contract has extension options. Action: We have no obligation to take up options. If contractor performance is unsatisfactory there would be no reason to consider this. 3. We may need a replacement contractor. Action: It is mandatory to use the CAS-SS (formerly DMOSS) panel where the skillsets exist on the panel. I recommend the panel manager be consulted as soon as possible about which companies may offer the skills required. These companies should be contacted to discuss availability of suitable resources without commitment. If suitably skilled resources can be demonstrated to not be available through the panel, then we may begin to consider an alternative procurement approach. 4. Engagement through labour hire companies. This is probably a very expensive option, given the hefty margins the labour hire companies charge, and not really suitable for anything other than short-term engagements. I hope this assists."
The email made clear that, if the MSB wanted to replace Aerosafe with another contractor, it was mandatory to go through the CAS-SS Panel, in circumstances where the relevant skillsets exist on the Panel.
On the same day, Mr Whitelaw forwarded Mr Douse's advice to Mr Carmichael, copied to Captain Standen and Mr Leach, directing them to "ignore any unsolicited proposals". On 2 March 2016, Mr Carmichael replied, stating that "we will do as advised" by Mr Douse. Mr Carmichael continued as follows: "My view is that we are not in a position to argue that Aerosafe have not met the contract requirements for the current contracts (expire Jun 16). My issue is that the ETPs [Endorsements to Proceed] for these contracts envisage us going back to test the market in the future. I think that we are at that point. In addition the basis for the decision to 'sole source' to Aerosafe was around continuity of service which recent (and anticipated) staff turn over has now called into question. My intention is to let the current contracts expire and not seek to exercise the options."
Mr Carmichael's acknowledgement that there was no basis to argue that Aerosafe had not met the requirements of the 2015 Contracts may explain why the MSB did not see the need, as Mr Douse had advised, to provide Aerosafe with a detailed explanation of concerns about its performance, together with an opportunity to rectify those matters.
Mr Carmichael's stated "intention … to let the current contracts expire" was subsequently put into effect. The MSB decided not to exercise the option to renew the 2015 Contracts, and not to issue a new contract to Aerosafe on a sole source basis, but instead went back to "test the market" via a competitive tender. A central issue in these proceedings is whether, but for the Defendants' alleged conduct, the MSB would have adopted that course. This is addressed in Section H below.

[20]

Presentation of report on the PBGRP engagement

On 11 March 2016, Mr Harmer and Mr Dillon gave a presentation in Canberra to Captain Standen regarding Aerosafe's report on the PBGRP Safety Management System Implementation Assessment. This report, which was prepared by Mr Harmer, made a "key strategic recommendation" that the PBGRP, with support from the MSB, establish an "integrated tiger team" for a period of six months, consisting of PBGRP staff and "a qualified, motivated and innovative industry partner", in order to "deliver the safety services and capability required".
The proposed six-month time frame for this work is significant. As noted above, Mr Dillon had told Mr Morton of an expectation on his part that the PBGRP assignment would lead to follow up work which would involve staff being required to be in Darwin for a period of 6 months. Mr Dillon had also spoken at the meeting with Mr Morton of his being focussed on obtaining further work for Mr Harmer and Mr Binks (see paragraphs 162-164 above). Mr Dillon must have been aware that a key strategy in securing the foreshadowed further engagement with the PBGRP would be to propose that Mr Harmer, who had already been working for several weeks onsite with the PBGRP in Darwin, was the person best placed to provide, through an "industry partner", the services outlined in Aerosafe's March 2016 report on the PBGRP assignment.
That report also recommended that "a business case be developed immediately to engage both the Navy People management area and provide a platform to engage a qualified industry partner". That is, there was an expectation on the part of Mr Harmer and Mr Dillon that, immediately following the presentation of this report, work would commence on a business case in respect of the recommended course of action. As addressed below, this in fact occurred, with work on the business case for the follow-up work identified in Aerosafe's report commencing within a week or so of the delivery of that report to the PBRGP.

[21]

Meeting with SME Gateway on 11 March 2016

On the same day as Mr Harmer and Mr Dillon presented Aerosafe's report on the PBGRP engagement to Captain Standen in Canberra, they met with Mr Ashman and Mr Madden at SME Gateway's office in the ACT.
Mr Ashman gave unchallenged evidence that he had no recollection of this meeting with Mr Dillon and Mr Harmer. Mr Madden deposed that, at this meeting, Mr Dillon introduced himself as "the CEO of WIBIH" and indicated that he had "a lead on a RFQTS that should be issued to SME Gateway soon and targeted to WIBIH". Mr Maddox further deposed that, prior to this meeting, he had never heard of WIBIH, and did not know who Mr Dillon and Mr Harmer were.
In Section G below, which deals with the accessorial claim against SME Gateway, I address various factual disputes regarding SME Gateway's knowledge at the time of this meeting.
The meeting between WIBIH and SME Gateway occurred only a short time after Mr Carmichael had been informed (on 1 March 2016) that it was mandatory for the MSB, if it wanted to replace Aerosafe, to seek the replacement services from a member of the CAS-SS Panel.
It is likely that Mr Dillon had told Mr Harmer prior to the meeting with SME Gateway that the purpose of the meeting was to enquire about WIBIH tendering for future work with either the MSB or the PBGRP via SME Gateway. On the day before this meeting, Mr Harmer sent, from his Aerosafe email address to his personal email address, various documents which he had obtained from SME Gateway when he had explored the opportunity of Aerosafe obtaining membership, including a copy of the Qualification Questionnaire and membership agreement.
There was no legitimate reason relating to the business of Aerosafe for Mr Harmer to take this step at that time. He was aware that Ms Turner had, in mid-2015, put an end to the proposal for Aerosafe to become a member of SME Gateway, and there is no evidence that the possibility of Aerosafe taking such a course was being discussed or even considered by any member of Aerosafe's management in March 2016. It must be inferred that Mr Harmer downloaded these documents from Aerosafe's records and sent them to his personal email address for the purpose of advancing the interests of Aerosafe's competitor, WIBIH.
On Friday 11 March 2016 at 4.35pm, Mr Madden sent an email to Mr Dillon and Mr Harmer, copied to Mr Ashman, referring to their meeting earlier that day. This email was sent to Mr Dillon's and Mr Harmer's personal email addresses, these being the contact details which they had supplied to SME Gateway.
Mr Madden's email explained the "accreditation process which all new members complete", involving the completion of a qualification questionnaire, followed by a membership agreement once the entity is accepted for membership. The text of the email explained SME Gateway's processes in terms which assumed no familiarity with them.
Mr Madden explained that the completion and return of the qualification questionnaire would allow SME Gateway "to verify not only your company registration, capability/skills and legal standing but also confirms aspects such as insurances, which are essential to undertake any Defence/Government project". Mr Madden also indicated that Mr Dillon and Mr Harmer should call "if we need to expedite things to accommodate an opportunity". As outlined below, Mr Dillon did not in fact get in contact with SME Gateway again, or provide a completed questionnaire, until late April.

[22]

Mr Dillon and Mr Harmer review MSB statement of work for next financial year

On 16 March 2016, shortly after meeting SME Gateway, Mr Dillon and Mr Harmer were sent "first drafts" of the Statement of Work and Business Case for the provision of services to the MSB in the 2016/2017 financial year.
These documents were sent to their Defence email addresses, and not their Aerosafe email addresses. They were attached to an email which Commander Britton had sent to, among others, Mr Carmichael and Captain Standen, and which he forwarded to Mr Dillon and Mr Harmer. Commander Britton's forwarding email read "Scott and Andrew, As discussed", indicating that there had been discussion with each of Mr Dillon and Mr Harmer about these documents before they were sent. It is likely, given the course of events which followed, that the discussion included a request for Mr Dillon and Mr Harmer to provide their input on these documents.
The attached Statement of Work "for inclusion in the RFT [request for tender]" noted that: 1. "Intentions are to enter into a contract arrangement with supplier/suppliers of services to provide capacity to conduct MSB functions and subordinate activities/tasks as described in Fleet Command's MSB concept documents"; and 2. "This Contract is for 3 years, from June 2016 to June 2019 with two successive one year extensions available at the sole discretion of the Commonwealth". That is, the Statement of Work was for a contract to provide services to the MSB at the conclusion of Aerosafe's 2015 Contracts.
The Statement of Work referred to various work streams, which were grouped under the headings: Project Management; Safety Management System; Safety Assurance System; Safety Communication Publishing House; and Management of OHSIR to Sentinel Project. The latter two streams were described as follows: "Publishing House - The contractor shall deliver a Communication Plan … that delivers a coherent Safety message across the fleet, including safety advice for specialist, safety practitioners. OHSIR to Sentinel - The contactor shall deliver a Plan and artefacts required to transition the Fleet fro[m] the OHSIR database to the Sentinel database. This Transition Plan … that delivers a coherent means to manage safety data across the fleet."
The template Business Case that was provided to Mr Dillon and Mr Harmer at this time included "Procurement Process Guidance", which identified that the time for the whole procurement process would take a minimum of two to three months (see paragraph 51 above). Accordingly, if a contractor was to be engaged to provide these services to the MSB from the beginning of July 2016, it was necessary for the process to be commenced by around March 2016, and Mr Dillon and Mr Harmer were involved at the commencement of that process.
Mr Dillon provided input on these draft documents. On 17 March 2016, Commander Britton sent an email to Mr Dillon at his Defence email address, and to Mr Carmichael, copied to Mr Turnbull and Captain Standen. In this email, Commander Britton thanked Mr Dillon "for your comments on the SOW and discussion with Graeme [Lieutenant Commander Graeme Turnbull] and I this am". He asked for input from Mr Dillon on a further draft of the document: "Please take this version of the SOW, red pen as we agreed". Given that each of Mr Dillon and Mr Hamer had been provided with the draft documents, it is likely that Mr Dillon's input into the drafts reflected the results of both his and Mr Harmer's review. As noted below, there is evidence of a similar process being adopted in respect of the draft statement of work for the PBGRP engagement, with Mr Harmer providing comments to Mr Dillon, and Mr Dillon then providing comments to the MSB.
In his email of 17 March 2016, Commander Britton asked Mr Carmichael to "take this version as amended by Scott [Dillon] … and pass to DNCB [Director, Navy Contracting Bureau, being Mr Whitelaw] as discussed as support for winning his Endorsement to Proceed". Commander Britton noted that the Statement of Work would be "embedded" in the RFQTS: "It will be on our critical path for RFT release and therefore needs earliest attention". Commander Britton added that "We need a signed ETP [Endorsement to Proceed] soonest", and asked that he be advised if this could not be obtained by the following Wednesday (23 March 2016).
Commander Britton's email of 17 March 2016 also attached a copy of the draft Endorsement to Proceed. It is likely that Mr Dillon read this document at the time he received it, given that it was (from both Aerosafe's and WIBIH's perspective) a document that provided valuable insight into the MSB's intentions regarding procurement of services in the next financial year. The draft Endorsement to Proceed stated that the Navy's intention was not to exercise the option to renew the Aerosafe contract, but instead to go to the CAS-SS Panel. The reason for this decision was stated to be the change in scope of tasks and, in particular, the introduction of the "Publishing House" and "OHSIR to Sentinel" work streams: "The (New name of old DMOSS panel) panel [ie the CAS-SS Panel] is assessed as suitable for this procurement and will be used. An extension to the existing Contracts [being the 2015 Contracts with Aerosafe] was considered, however; the scope change, most notably the additional tasks relating to: e. [sic] Safety Communication Publishing House. f. Management of OHSIR to Sentinel Project. Caused this option to be discounted."
Mr Dillon was aware, from this time, that the MSB had decided not to renew the 2015 Contracts and intended to put out a new contract for tender via the CAS-SS Panel, with an expanded scope of services. Mr Dillon was also privy to the statement in this draft Endorsement to Proceed of the estimated procurement value of this contract, being $1.125m.
Mr Dillon sent a further revised version of the Statement of Work to Commander Britton (copied to Captain Standen, Mr Turnbull and Mr Carmichael) on the afternoon of 17 March 2016, around two hours after Commander Britton had provided it to him for his review.
Neither Mr Dillon nor Mr Harmer recorded, in their Aerosafe timesheets, any time spent reviewing the Statement of Work on 16 and 17 March 2016.
On 18 March 2016, Mr Carmichael sent a revised draft of the Endorsement to Proceed to Mr Sid Ramsay of the Navy Contracting Bureau. Although there is no evidence that this particular version of the Endorsement to Proceed was sent to any of the Defendants, it is a significant document, as the reasoning set out in this draft version for the decision not to proceed by way of a "sole source" arrangement with Aerosafe (as the MSB had done in the past), remains substantially unchanged in the final version of the document. That reasoning is as follows (emphasis added): "1. Initial Market analysis The options are: (a) Open Tender, probably through the Capability Acquisition and Sustainment Support Services (CAS-SS) Panel, (b) Sole source, (c) CCP [Contract Change Procedure] action, to MSB 001 Safety Management, and MSB 002 Safety Assurance, and/or (d) A combination of a, b and c. 2. Aerosafe are currently contracted to deliver an integrated Safety Management System and Safety Assurance. However, this Procurement significantly increases the scope of activities and the emphasis has changed from developmental work to analysis and operational actions with Continuous Improvement to the Safety Management. CCP [Contract Change Procedure] action is discounted as a viable procurement option. 3. Continuity of skills and experience provided by those individuals delivering services to MSB is very important. However, DNCB [Director, Navy Contracting Bureau] advi[c]e is that this continuity does not introduce sufficient risks to justify 'sole source' procurement. The work is now not considered sufficiently specialised to warrant sole source action. 4. Capability Acquisition and Sustainment Support Services (CAS-SS) Panel is an approved low risk strategy."
That is, the MSB had formed the view that the change in the scope of the services meant that the work was no longer sufficiently specialised so as to justify procuring those services on a sole source basis.
The Business Case for the MSB contract which was to replace Aerosafe's 2015 Contracts was approved on 31 March 2016.

[23]

Draft statement of work for PBGRP engagement

At the same time as the Business Case for the next MSB contract was being developed with the assistance of Mr Dillon and Mr Harmer, documentation was also being prepared for the PBGRP engagement which was to follow on from the work that Aerosafe had performed in February and March 2016.
On Wednesday, 16 March 2016, only a few days after Mr Dillon and Mr Harmer had presented Aerosafe's report on the PBGRP engagement and had met with SME Gateway, Captain Standen sent an email with the subject "PBGRP Resourcing" to Mr Dillon and Mr Binks at their Defence email addresses, as well as to Mr Turnbull. It is plain from the text of the email that there had been discussions about the development of the PBGRP documentation some time before this email was sent. Captain Standen noted that he had been advised that the MSB should "not attempt to push the resourcing of the PBGRP through to its conclusion under our own steam", but nonetheless asked the addressees (including Mr Dillon and Mr Binks) to "keep on developing the business case and SoW [Statement of Work] for the task as we discussed".
Captain Standen's email attached a "SOW [statement of work] for inclusion in the RFT [request for tender] for Patrol Boat Group SMS [Safety Management System] Implementation and Safety Support". The proposed work outlined in this document was essentially the same as the work which Mr Harmer had recommended be undertaken in Aerosafe's report for the PBGRP, as is apparent from the adoption of language similar to that used in the report's main recommendation: "The intended approach to this task is to engage a qualified, motivated and innovative industry partner and established an Integrated Tiger Team (ITT) to provide additional skilled resourcing that is required to meet CN's [Chief of Navy's] deadline for OIP [Orders, Instructions and Publications] update and development as part of an integrated ABR63030 compliant SMS [Safety Management System]".
At this stage the contract was expected to be for one year, from April 2016 to April 2017, with two successive one-year extensions available at the sole discretion of the Commonwealth. The draft statement of work provided details of the scope of the proposed engagement and the deliverables.
Mr Harmer reviewed on the Business Case and the Statement of Work for the PBGRP engagement. On 18 March 2016, he sent an email to Mr Dillon stating: "Have finished PBGRP Bus case, will try to have SOW done on Monday"; and on 22 March 2016, he sent Mr Dillon a draft of each of those documents, asking him to "use this SOW and Business case as requested".
Mr Harmer did not record in his Aerosafe timesheets any time spent working on these documents during that period.
Similarly, Mr Dillon's weekly reports on the MSB engagement, which were copied to Ms Turner, did not refer to any of the meetings, discussions, emails or work in which he was involved in relation to the forthcoming MSB and PBGRP engagements. Mr Dillon's report for the week ending 18 March 2016 stated that Mr Dillon "undertook Project Management tasks on FSS implementation and MSB management support tasks working closely with SOS on task management"; and that "Andrew Harmer tasking with PBGP in Darwin is now complete". Identical statements appeared in his reports for the weeks ending 25 March 2016 and 1 April 2016.

[24]

Mr Dillon and Mr Binks contact Ms Sommerfeld

In March 2016, Mr Dillon was seeking to recruit staff to work for WIBIH in the expectation that WIBIH would shortly be awarded work with the Navy.
The Plaintiffs called Angela Sommerfeld to give evidence. Ms Sommerfeld deposed that in July 2015 she had been interviewed by each of Mr Dillon and Mr Binks for a job at Aerosafe. She was subsequently offered the job in around September 2015, but decided not to take it because she was pregnant with her first child at the time. Ms Sommerfeld's daughter was born in late November 2015, and she returned to full-time work in late February 2016.
In early March 2016, she received a telephone call from Mr Dillon. She had not provided her contact details to Mr Dillon, but only to Aerosafe. It must be inferred that he accessed Aerosafe's records in order to find her telephone number.
Mr Dillon told Ms Sommerfeld that "we have some more work on site with the Navy, it's risk work on a new project", and asked if she would be interested. Ms Sommerfeld indicated that it would depend on timing and conditions, and Mr Dillon told her that he would arrange for Mr Binks to get in contact.
The only challenge to this evidence from Mr Dillon's counsel was to Ms Sommerfeld's ability to recall that this discussion happened in early March 2016. On this point, Ms Sommerfeld's evidence was firm: "I had started back at work in … February 2016, and I knew it was very soon after that I received the phone call from Mr Dillon". It is plausible that Ms Sommerfeld would be able to have a clear recollection of such an approach being made at a time very shortly after she resumed work, and I accept her evidence.
Ms Sommerfeld also gave evidence that Mr Binks called her within a week of the call from Mr Dillon and called her regularly thereafter. Mr Binks did not challenge any aspect of this evidence. Ms Sommerfeld recalled that Mr Binks told her that "there is a tender that we are going to try and get", which would "be with a company called W.I.B.I.H." It necessarily follows that some time prior to this telephone call, Mr Binks had been recruited by Mr Dillon to work for WIBIH. Further, given the reference to the "tender that we are going to try and get", it is likely that Mr Binks had been told by Mr Dillon of WIBIH's plans to obtain work of the type that Aerosafe had been performing for the MSB and the PBGRP. The reference to "we" is likely to have been a reference to Mr Dillon, Mr Harmer and Mr Binks, each of whom was at this time taking steps to put WIBIH in a position to obtain such work (such as, in the case of Mr Dillon and Mr Harmer, meeting with SME Gateway and, in the case of Mr Binks, approaching Ms Sommerfeld).
Ms Sommerfeld agreed to meet Mr Binks in person for lunch at Woolloomooloo in around late April or early May 2016, recalling that this location was chosen because it was close to the base at Garden Island where Mr Binks was working. At this meeting, Mr Binks told her that Mr Dillon "is the money man, he's funding the operation". He also told her that: "We have been approached by a Commander in the Navy who is able to provide us with some inside information on a tender which is about to come out. W.I.B.I.H. is a start-up but we've got reliable work opportunities because we are working here on site every day and we have people assisting us from the inside."
Mr Binks did not challenge any aspect of this evidence. I find not only that those words were said by him, but also that they were an accurate statement of the position at this time. Mr Dillon and Mr Binks were working "on site every day" at the MSB headquarters, as key members of Aerosafe's team, and as a result they had "inside information" on the forthcoming tenders for the MSB and the PBGRP, which they intended to pursue for WIBIH's benefit.

[25]

Further contact between Mr Dillon and SME Gateway

On Saturday 9 April 2016, Mr Madden sent an email to Mr Dillon's personal email address, with the subject "SME Gateway Panels", stating: "Panel detail as promised". The attached document appears to identify each panel of which SME Gateway is a member, the insurance requirements for each panel, and contact details, together with the panel commencement and expiry date.
Immediately after receipt, Mr Dillon forwarded this email and attachment to Mr Harmer at his personal hotmail address. Mr Harmer responded: "All very interesting and much to work out strategically between us." This is likely a reference to Mr Harmer and Mr Dillon working out, strategically, how best to secure work for WIBIH. If their discussions in any way related to Aerosafe, there would be no need for them to be using their personal email addresses, and neither of them at any stage reported to anyone else at Aerosafe their contact with SME Gateway from March 2016 onwards. That is in contrast with the position in 2015, when Mr Harmer was providing regular reports to Aerosafe management on his dealings with SME Gateway on behalf of Aerosafe.
On 27 April 2016, Mr Dillon sent an email to Mr Madden from his personal email address, following up on a telephone discussion earlier in the day. Mr Dillon referred to a Statement of Work which was going to be issued by the MSB to conduct a Gangway Safety Assessment. The key deliverable was an analysis of gangway safety, and the engagement was expected to be for 25 days at a value of $58,000. Mr Dillon told Mr Madden that SME Gateway should expect to receive the Statement of Work within the next 24 hours. Mr Madden responded, on the same day, that he would "keep an eye out for it" and would let Mr Dillon know when it was received.
As matters transpired, no such Statement of Work was issued. However, its anticipated issue appears to have prompted WIBIH to lodge a completed qualification questionnaire and membership agreement on 28 April 2016. The qualification questionnaire was completed in the name of "WIBIH Pty Ltd". Each document was signed by Mr Dillon as CEO of WIBIH. On the same day, Mr Madden sent back a countersigned membership agreement and an invoice for the membership fees. He noted that he had "changed the title page of the Agreement to include your company name and ABN". The company name which Mr Madden inserted in the Membership Agreement was "WIBIH Pty Ltd".
There is no such corporate entity. Instead, as noted above, there was a corporate entity called MD & SD Pty Ltd, which traded under the business name "WIBIH". There was a factual contest about what Mr Madden ascertained when he followed SME Gateway's usual procedure of looking up the ABN supplied by Mr Dillon in order to verify the company's details. There was also extensive cross-examination of Mr Madden regarding the information supplied by Mr Dillon in the qualification questionnaire and whether such information did raise, or should have raised, any suspicions on Mr Madden's part. These issues are addressed in Section G below, in dealing with the accessorial claim against SME Gateway.
Mr Madden stated in his email of 28 April 2016 that, as soon as the membership fees were paid and Mr Dillon provided the Certificates of Currency for WIBIH's insurance policies, WIBIH would be a fully fledged member.

[26]

Ms Turner returns and Mr Dillon resigns

On 18 April 2016, there was a meeting of the Executive Leadership Team, comprising Ms Turner, Mr Morton and Mr Dillon, with Mr Oates attending as secretary. Ms Turner appears to have joined by telephone, as the minutes of this meeting record her stating that she would be back from the United States on the coming weekend (that is, 23-24 April). Mr Dillon reported on his work at the MSB and stated: "There is consistent high praise for the work that Aerosafe is conducting for MSB"; and "MSB work is going well - good feedback from MSB team". There was no reference to the work that Mr Dillon had done on the draft documents for an engagement to provide services to the MSB in the 2016/2017 financial year, which would replace Aerosafe's 2015 Contracts.
Mr Dillon also reported that Mr Adams was working for Fleet Command, subcontracting under BECA; that this was having "impacts at MSB"; and that the "Aerosafe messaging" was that "Aerosafe is more than Clive Adams". Mr Dillon did not report any other competitive threat to Aerosafe's business with the MSB. It must be inferred that he deliberately concealed from Ms Turner and Mr Morton the steps which he had been taking to ensure WIBIH was in a position to compete with Aerosafe.
Ms Turner deposed that one of her priorities on returning from leave was to sit down with Mr Dillon and have an "in-depth discussion and handover from him" as part of her "transition back into the leadership role". However, it was her impression that Mr Dillon was avoiding any such meeting, stating as follows: "Sorry Kimberley I really have no time to meet while you are here. The MSB project is really important and they have me in so many meetings and it is only me that can do it".
Ms Turner contacted Mr Dillon on at least four further occasions to arrange a handover meeting, without success. She was finally able to meet him when he turned up at Aerosafe's Canberra office unannounced. In order to extend the time available to talk to Mr Dillon, Ms Turner offered to drive him back to Sydney. Ms Turner's evidence of their conversation during this car trip was unchallenged.
During the course of this conversation, Mr Dillon told Ms Turner that he was "going to have to step away from my role with Aerosafe sometime soon", because he needed "to maximise my earning and position myself and Michelle for retirement". Ms Turner responded that it would be "a real shame" for Mr Dillon to go as "you are just finding your feet with the client", but added: "you know me, I will support you with what you want to do". Mr Dillon did not reveal that his plan was to compete with Aerosafe for the work from one of its main clients.
During this conversation, Mr Dillon also said the following in relation to the rollover of the 2015 Contracts: "I think the MSB may want to go out to tender for the next contract. I am still trying to get to the bottom of why and to convince them to activate our rollover."
In fact, Mr Dillon was aware that the MSB had decided not to rollover the contract, and he was planning for WIBIH to tender for, and obtain, that work.
Mr Dillon assured Ms Turner that there was no indication that the MSB was not happy with Aerosafe, stating "they love us and they especially like Craig [Binks]". He did not disclose that Mr Binks had, by this time, been recruited by Mr Dillon to work for WIBIH.
Ms Turner recounted that Mr Dillon asked her how much she thought the contract with the MSB was worth. When she told him that it was "in the $3M-$4M range", he responded: "That would be great and would be excellent for us". Ms Turner no doubt understood "us" to mean Aerosafe, though it is unlikely that this is what Mr Dillon had in mind, given his desire "to maximise" his own personal earnings, which would more readily be achieved by winning valuable contracts for WIBIH.
On 29 April 2016, Ms Turner sent Mr Dillon an email which set out some of the "key points" which had been discussed in their meeting on the previous day and which Mr Dillon was to pass on to the Aerosafe team. These included that "we've had a contract extension until the EOFY [end of financial year, 30 June 2016]"; and that "yourself [Mr Dillon], Craig [Binks] and Don [Hampton] will roll up [at the MSB headquarters] until the 30 June (or there abouts)". Ms Turner thanked Mr Dillon for his report on the MSB, stating: "Excellent to have insight into MSB and their next steps".
Mr Dillon responded shortly afterwards as follows: "A point of clarification I was not formally advised of MSB future contract plans as I am excluded from these discussions. Aerosafe current contract will expire 30 June 2016. There will be additional industry partner work required by MSB in the future year (once budgets are completed and approved) the scope of that work and time of that work is yet to be determined and Aerosafe will be advised via the CASSS panel."
Mr Dillon's "clarification" conceals more than it reveals. While it may be strictly correct that the scope of the work required by the MSB in the coming financial year was yet to be formally determined, and that Mr Dillon was excluded from discussions with the Delegate who would make any such determination, he was familiar with the detail of precisely what was being planned, having reviewed and edited the Statement of Work for inclusion in the RFQTS and having been provided with the draft Endorsement to Proceed.
On 29 April 2016, Ms Turner received an SMS from a Telstra payphone, which read: "IT APPEARS SCOT [Mr Dillon] IS PREPARING TO TAKE OVER MSB CONTRACT YOU DESERVE TO GET SHAFTED"
There was no suggestion that the message was sent by any of the Defendants, or by any witness called to give evidence. On the basis that it was sent by someone other than the Defendants, the contents of the message indicate that Mr Dillon, or those working with him such as Mr Harmer and Mr Binks, were making statements to others around this time about WIBIH's intention to take over the MSB contracts from Aerosafe.
Mr Dillon confirmed his resignation in an email sent to Ms Turner on 10 May 2016, stating as follows: "After much thought and deliberation over the last couple of days it is with great regret and sadness that I tender my resignation as the Chief Operating Officer, Chief Commercial Officer from Aerosafe Risk Management. My last day will be Friday 24th June 2016 I have thoroughly enjoyed my time at Aerosafe and in particular working closely with you. I will look back fondly on my overseas trips to North America and New Zealand in support of Aerosafe's business, the long hours of discussion around strategy and tactics trying to understand the dynamics of the Risk Management business. Unfortunately from a personal financial perspective I have gone backwards in my earnings and at this stage in my life I need to address this quickly to achieve my goals and dreams."
Ms Turner responded to Mr Dillon, requesting that they discuss his plans "as I'm not sure you realise the earning potential with your current role". Ms Turner stated that she was "not in a position to accept your resignation" and that she considered it important that they first have a conversation "with such a big decision as this." However, Ms Turner indicated that she would not stand in Mr Dillon's way if he wanted to leave: "If once we have talked, it looks like you can not achieve your goals - then of course happy to support your decision".
The support that Ms Turner offered Mr Dillon does not appear to have been reciprocated. There was unchallenged evidence from Mr Oates, who was a Senior Risk Advisor at Aerosafe, that at some stage in the period April to June 2016 he attended a telephone meeting with Mr Dillon, Mr Harmer and Mr Binks, in which Mr Dillon made openly disparaging comments about Ms Turner: "that bitch is all over the place and doesn't have a clue what is going on".

[27]

Further staff leave Aerosafe and Ms Turner meets with the MSB in May 2016

Two of the Aerosafe personnel who had been working full-time at the MSB headquarters left the business in May 2016. Abhi Ganugapati and Ye Wang finished employment on 16 and 25 May respectively.
Those resignations had likely been advised by late April 2016. Ms Turner's email of 29 April 2016 to Mr Dillon, recording the "key points" emerging from their discussion about the MSB, stated that "the client is aware and is comfortable with where the work effort of both Abhi and Ye's role is at".
In an email of 4 May 2016, Mr Carmichael reported to Captain Standen that, these "two level 2 assets" would no longer be available to meet MSB requirements, as they had resigned from Aerosafe. He also noted that the requirement for the work remains, but "MSB does not intend extending the contract beyond 30 Jun 2016".
Ms Turner arranged a meeting with Mr Carmichael at the MSB's headquarters at Garden Island. She deposed that she did so because, following the receipt of the anonymous text message referred to above, she had become concerned that Mr Dillon may not have been acting in Aerosafe's best interests. Ms Turner was keen "to ensure that what I considered to be Aerosafe's 'bread and butter' contract with MSB, being the 2015 Contracts, were secure and the expected rollover of the 2015 Contracts was not in jeopardy and would be activated".
Aerosafe's file note of this meeting was dated 6 May 2016. There was some cross-examination of Ms Turner as to whether the dating of the note was correct, and whether the meeting in fact occurred a week or so later. There is no need to resolve that issue, as little turns on the precise date.
The file note records that Ms Turner sought feedback on each of the individual Aerosafe team members and the quality of their work. Mr Carmichael stated that the role of Project Manager was "quite important to the MSB" and referred to the change in personnel in this role, stating that: "over the period of contract since last year the Project Management role had started with Andrew Harmer, then moved onto Richard Christie and then due to Richard's health concerns Andrew Harmer stepped back in up until Christmas. Scott Dillon then took over in the February-ish period". Mr Carmichael indicated that "Scott Dillon was doing well in that role", but "he wasn't sure if Andrew Harmer had the skill set to do the work". I do not read Mr Carmichael's statement as any expression of concern about Mr Harmer's skills generally, but only about whether Mr Harmer was the person who was best suited to the Project Manager role. That is supported by the fact that the MSB plainly valued Mr Harmer, having nominated him for the PBGRP engagement, and also by the fact that, according to the file note, Ms Turner's response to these comments focussed on Mr Harmer's training specifically in the area of project management.
Mr Carmichael singled out Mr Binks for praise, stating that he "was doing very well and his work was extremely valuable to the MSB", and going so far as to say that "we only really want Craig".
Ms Turner stated to Mr Carmichael that, given it was May, it would be helpful to have "confirmation of the MSB's intent to activate the Commonwealth's option to extend Aerosafe's contract". At the same time, she informed Mr Carmichael that Mr Dillon would be leaving Aerosafe at the end of the financial year (that is, at the end of June 2016), and the MSB project would see him up to his completion of his time at the company. Mr Carmichael responded that he "was already aware of Scott's resignation", and asked about Mr Binks's "stability". Ms Turner said that Mr Binks was "a key staff member, stable and was extremely important to the team", and that there was no indication he would be departing the company.
Ms Turner asked Mr Carmichael a number of times whether the MSB would be rolling over Aerosafe's engagement. Mr Carmichael did not respond with either a "yes" or "no", instead stating that "he was currently working on budget allocation and approvals and was waiting on Navy contracting for him to put things in place for next financial year".
Ms Turner also asked about the status of the PBGRP engagement, and was told by Mr Carmichael that he was "waiting on money from the Patrol Boat Group to be allocated to MSB so that work could go forward". He added that the work "was extremely important to be undertaken off the back of Aerosafe's SMS [Safety Management System] gap analysis". Ms Turner emphasised Aerosafe's credentials to perform this engagement, referring to the work that Mr Harmer and others had already done for the PBGRP.
Following this meeting, at which the importance of Mr Binks had been stressed by Mr Carmichael, Ms Turner had a discussion with Mr Binks about his role with Aerosafe. Mr Binks did not challenge any aspect of Ms Turner's evidence about this discussion. Ms Turner referred to the anticipated rollover of the MSB contract and told Mr Binks that she was confident that he "could lead this account", adding: "You have the confidence of the client and you really and understand and know the MSB safety work now." She asked if he would be interested in this more senior role, and he responded: "That sounds really good and is what I have been wanting". Mr Binks told her that he had been approached by Mr Adams who was "fishing around for work with the MSB" and had offered Mr Binks a position. Mr Binks did not refer to any discussions which he had had with WIBIH, let alone that, around the time of this discussion, he was acting for WIBIH in seeking to recruit Ms Sommerfeld for anticipated future work with the Navy.
At around the same time, Ms Turner had communications with Mr Harmer about his loyalty to Aerosafe. On 12 May 2016, Mr Harmer sent an email to Ms Turner, thanking her for her commendation on his ability and recent achievements, and asking for his salary to be reinstated to its previous level which would "make me feel very valued". In support of this request, he said that his "commitment" and "loyalty" had been "steadfast throughout the last 6-12 months". He told Ms Turner that he "look[ed] forward to the challenge of steering the [Naval Technical Seaworthiness Assurance Agency (NTSwAA)] project through the rest of FY15/16, FY16/17 and beyond". Given that this email was sent in a context where Mr Dillon had recently resigned, likely for the purpose of running WIBIH's business in competition with Aerosafe, and given that Mr Harmer had been involved in steps taken by Mr Dillon prior to this point in time in order to put WIBIH in a position to compete with Aerosafe for Defence work, it must be inferred that this statement of loyalty by Mr Harmer was calculated to mislead Ms Turner about his intentions at that time.
Ms Turner responded on the same day that she would reinstate Mr Harmer to his previous salary effective the first pay period in the next financial year and would give consideration to topping up his salary for the May/June period in the interim by a one-off discretionary bonus at the end of the financial year. Ms Turner thanked Mr Harmer for his comments about loyalty and said that she wanted to have staff who have the highest level of integrity, who are committed to be with Aerosafe for the long term and who "speak up if they have visibility of behaviour that is potentially damaging, undermining or destructive" to Aerosafe or its work.
Finally, it should be noted that with the departure of Abhi Ganugapati and Ye Wang, the only personnel of Aerosafe who were working on the MSB engagement until it concluded at the end of June 2016 were Mr Dillon, Mr Binks and Mr Hampton. By July 2016, all three of them had left the business.

[28]

Contract with the PBGRP is directed to SME Gateway / WIBIH

On 13 April 2016, Captain Standen sent an email to Captain Parker of the PBGRP, inquiring "regarding the proposed offer of assistance (by contractor) that I sent through a week or so ago and whether or not you are intending to take up the offer". This was likely a reference to a proposed offer of assistance by WIBIH. Aerosafe was not, at this time, offering to undertake any work for the PBGRP, and there is no evidence any other contractor was in discussions at this time with either the MSB or the PBGRP about work for the PBGRP.
On 19 May 2016, Mr Dillon sent to Captain Standen a Business Case and Statement of Work for the PBGRP engagement. These were the documents on which Mr Harmer and Mr Binks had worked in March 2016. Mr Dillon sent these documents from his Defence email address. He did not copy any Aerosafe personnel on the email, and did not inform Ms Turner that he had sent it. On the same day, Captain Standen forwarded these documents to Captain Parker of the PBGRP and advised as follows: "What I suggest is that you go straight to the CASSS panel; my contracted staff are accessible through SME Gateway on the CASSS panel, that way our contractors that you already are familiar with (Andrew Harmer) can then undertake the work and will slot in far more easily as they already have a very clear and detailed understanding of the nature of the task and the environment within which it will be executed."
When this email is read in the context of other evidence, it is likely that the "contracted staff" who were accessible via SME Gateway were Mr Dillon (who had sent the business case and statement of work to Captain Standen, which he then forwarded), Mr Binks (who had previously been provided with drafts of those documents for comment and who was, according to Mr Carmichael, the Aerosafe team member that the MSB "really wanted") and Mr Harmer (who is specifically mentioned in Captain Standen's email). Captain Standen had likely been informed by Mr Dillon that each of those three persons was accessible via WIBIH, which was or soon would be a member of SME Gateway. It is also likely, having regard to their past and subsequent communications with Mr Dillon about this PBGRP engagement and having regard to the steps that they had already taken on WIBIH's behalf, that each of Mr Harmer and Mr Binks was aware that Mr Dillon had pitched to Captain Standen for this work on behalf of WIBIH and had indicated that they would all be available to perform the PBRGP engagement as WIBIH employees.
The scope of the proposed PBGRP engagement was subsequently reduced. On 24 May 2016, Captain Standen sent Captain Parker and others an updated Business Case and revised Statement of Work, which "revised the project cost downwards significantly by removing a bunch of work that is not central to 6303 compliance". Captain Standen also noted that, although he had previously suggested that the MSB would run the contract, he thought it best if the contract was raised and managed by the PBGRP. At the same time as handing over control of the contract, Captain Standen made clear his views on the appropriate contractor, stating as follows: "I very strongly recommend you engage SME Gateway via the DMOSS panel as they have access to staff who have previously been engaged in the development of the PBGRP Implementation Assessment (report dated Mar 16 as provided to CAPT PB by DMSB) and who also have extensive knowledge in the ABR 6303 implementation task which will allow them to commence work within the shortest possible timeframe. This represent[s] a saving to CoA by reducing the time for contractors to become task-ready and fully informed of the context and background to the task requirements."
That is, it was Captain Standen's very strong recommendation that the PBGRP engage the staff who had previously performed the implementation assessment for the PBRGP while at Aerosafe (in particular, Mr Harmer) and that it do so by engaging SME Gateway who would have access to such staff via WIBIH.
On 27 May 2016, Mr Harmer sent an email to Lieutenant Commander Cooper which was copied to Mr Dillon and headed "Provisiion [sic] of support to PBGRP for SMS [Safety Management System] implementation", stating that he was trying to set up "a time to talk on this matter". Mr Dillon forwarded this email to Captain Standen on the same day. Although Lieutenant Commander Cooper replied to Mr Harmer that the issue which Mr Harmer sought to discuss had been "superseded by events", the emails show that each of Mr Harmer and Mr Dillon was aware of the forthcoming PBGRP contract, and that they were in communications with each other, as well as Naval officers, about this proposed engagement.
At all stages, WIBIH had the exclusive, inside-running on this project. On 1 June 2016, Captain Standen sent an email to Captain Harris of the PBGRP, stating that it "is MOST important" that "a company called SME Gateway" be selected for the PBGRP, and explaining that: "This will then enable the selection of the people who are already very familiar with the PBGRP environment and will include Andrew Harmer who has already done a lot of work up there earlier this year as you know". On the following day, 2 June 2016, Captain Standen sent an email to Captain Parker of the PBGRP and Commander Barton and Mr Ramsay of the Navy Contracting Bureau, stating: "it's absolutely imperative we get specific people for this task. To that end, I strongly recommend you go sole-source to SME GATEWAY via the panel. In this case, by going sole-source to SME GATEWAY they in turn will contract the organisation who employs Andrew Harmer and Craig Binks (who are the people we need due to the reasons set out below) through their parent employer (which for Andrew is no longer ARM [Aerosafe] and Craig finishes up soon with them as well)."
Significantly, Captain Standen was aware, well before Mr Harmer and Mr Binks tendered their resignations, that they would soon no longer be with Aerosafe and would instead be available via a different "parent employer", which could be accessed via SME Gateway.
The reasons for the sole source arrangement for the PBGRP engagement were identified by Captain Standen in his 2 June 2016 email as follows (emphasis in original): "this is an exceptionally important task for the PBGRP and they will need all our available support as a priority to get this through and the contractors on-site ASAP, hence the sole-source. Other underpinning facts for a sole-source decision include prior familiarity with the task and environment, detailed familiarity with both the task required by this contract) and PBGRP as well as the MSB systems of work and key people, ability to put the right people on task in a very rapid timeframe, the people we want are the same people who have previously undertaken a preparatory related task for the MSB within PBGRP earlier this year, the need for a very rapid response."
That is, because of the priority to get this engagement done, it was imperative that the contract go to the organisation which had the ability to put the right people on the job in a very rapid timeframe.

[29]

Mr Dillon, Mr Harmer and Mr Binks work on RFQTS 14839

On 8 June 2016, Mr Madden sent Mr Dillon an email attaching an RFQTS, and asking if this was "the one" that Mr Dillon had referred to, which had arrived today. He asked him to send "an email and the membership fee payment so we can treat it as a targeted tender". A targeted tender was one which SME Gateway would offer only to the member to whom it was directed, and not to any other member of SME Gateway. The attached document was RFQTS 14839, which was for "PBGRP SMS [Safety Management System] Implementation", to be conducted in Darwin. On the same day, Mr Dillon responded with an email which outlined the nature of the task to which the RFQTS related, along with the key deliverables, and which attached a document showing that WIBIH had paid SME Gateway's invoice.
On 9 June 2016 at 4.19pm, Mr Dillon forwarded RFQTS 14839 to Mr Binks and Mr Harmer, stating: "Formal quote request. I have left a message with SMEgateway regarding the rates as I don't agree with them."
It is apparent from the brief terms of Mr Dillon's email to Mr Harmer and Mr Binks that they already had familiarity with, and had discussed, the PBGRP engagement prior to the "formal" request for work being issued. Mr Harmer's response, sent shortly afterwards at 4.31pm, made clear that he had already been working on the RFQTS response for WIBIH well before Mr Dillon's email was sent: "I started at 0600 this morning and put in several hours developing RFQTS response content to assist Scott. I will keep going on it tonight so we are ahead of the game before the long weekend."
On the evening of 9 June 2016, at 10.33pm, Mr Harmer sent an email to Mr Dillon (from and to their respective personal email addresses), which "attached first 2 RFQTS 14839 supporting documents". He explained that he had drawn heavily on their experience with the Navy, as a result of their work at Aerosafe: "The documents detail our comprehensive knowledge of Navy and Defence and will stand up if anybody outside PBRGP looks at them". For example, the first supporting document referred to WIBIH's "[e]xtensive recent and historic experience supporting PBGRP safety management"; and the second stated that WIBIH staff "have an intimate knowledge of the PBGRP SMS", having authored, during 2016, the Safety Management System Implementation report "on behalf of PBGRP and MSB". That Mr Harmer clearly had in mind the work that Aerosafe had done when making these statements about WIBIH is underlined by the fact that he at one point mistakenly referred to the work that would be undertaken in preparing for the PBGRP engagement under RFQTS 14839, from 27 June 2016 onwards, as work that would be undertaken by the "Aerosafe team".
On 10 June 2016, Mr Harmer sent Mr Dillon "KPI's" for RFQTS 14839. He explained that he had "developed a very targeted set knowing the audience and contract status", adding that: "I do not feel they need a lot of extra information". That is, Mr Harmer was able to develop a response for WIBIH to the RFQTS using his knowledge of the audience and the proposed engagement, which was gained from his work as an Aerosafe team member. He added that he thought there should be "some sort of Bio's on the 3 of us", namely, Mr Dillon, Mr Harmer and Mr Binks.
The attached document contains no reference to Aerosafe but repeatedly refers to experience that the "WIBIH staff" (being Mr Dillon, Mr Harmer and Mr Binks) have gained over the period from 2014 to 2016. This was experience which they had gained by working as part of the Aerosafe team. For example: "WIBIH staff have demonstrated ability over the last 3 years to complete the review and update of Navy Fleet OIP work on time, while working inside Fleet to centrally manage Fleet's obligations to ABR 6303 Edition 5. … WIBIH staff have been the central MSB SME Safety support team to assist Fleet in the implementation of ABR 6303 Ed 5 within Fleet Command during the last 2 years. … The nominated existing PBGRP ADF [Australian Defence Force] / APS [Australian Public Service] team that WIBIH will work with are the same PBGRP staff that WHIB [WIBIH] staff have intermittently worked in and around over the last 2 years. …"
Mr Binks was involved to some extent in the preparation of the WIBIH response to RFQTS 14839, as a copy of the draft response document was found in his computer backup files at Aerosafe by Ms Jakobi, some months after his departure.

[30]

SME Gateway submit response to RFQTS 14839 and negotiate increased rates

As noted above at paragraph 272, when Mr Dillon received RFQTS 14839, he left a message with SME Gateway that he did not agree with the rates for the work. SME Gateway took up this issue on WIBIH's behalf.
On 14 June 2016, Mr Madden wrote to Commander Barton, stating that SME Gateway was intending to respond to RFQTS 14839, but had "an issue with our ceiling rates under the CAS-SS panel". He explained that: "The ceiling rates for the skillsets specified in the RFQTS are too low to propose any suitable resources available to us through one of our members, WIBIH (Scott Dillon)." Mr Madden sought prior approval to propose resources at a cost above the ceiling rate. Commander Barton gave that approval around an hour later.
On 15 June 2016, Mr Dillon sent a copy of the RFQTS response to each of Mr Harmer and Mr Binks. This email was sent from, and to, their respective personal email addresses.
On the same day, Mr Dillon sent this RFQTS response to Mr Madden. The response attached profiles of Mr Harmer and Mr Binks, and a description of the experience of WIBIH staff. None of this material referred to Aerosafe.
An employee of SME Gateway wrote back to Mr Dillon asking for a copy of his profile, for the completion of "resource declarations" for Mr Binks and Mr Harmer, and for confirmation regarding some matters. Mr Dillon provided the required information later that afternoon, including his own profile which also contained no reference to Aerosafe, stating instead that he held the position of "General Manager Account Executive Transport for NSW Feb 14 to present".
SME Gateway submitted the response to RFQTS 14839 on the evening of 15 June 2016. Essentially, SME Gateway added its logo to each page of the WIBIH response, and forwarded on the document which had been provided to it. There is an issue regarding whether (and, if so, to what extent) Mr Madden reviewed this tender response before it was submitted and in particular, whether he realised that there was anything suspicious about the document, especially when read in the light of the completed qualification questionnaire which WIBIH had provided around six weeks earlier. Those matters are addressed when dealing with the accessorial claim against SME Gateway in Section G below.
The tender response contained numerous references to WIBIH's past experience in working with the Navy. However, these appear to have all been references to the experience that Mr Dillon, Mr Harmer and Mr Binks had gained while working on the MSB and PBGRP engagements for Aerosafe. In the response, which does not mention Aerosafe, all of this experience is appropriated to WIBIH. For example, the tender response states the following in relation to "WIBIH's" experience with the MSB: "During Financial Year 2015-16, WIBIH staff have provided specialist services to support Maritime Safety Bureau's (MSB) achievement of an effective level of Business As Usual (BAU). This is evidenced through MSB's delivery of key products and services to its stakeholders. WIBIH's discrete tasking during this time comprised developments within: • ABR6303 Ed 5 implementation • Promulgation and delivery of SST HAZID and Risk Training • 'Lead and lag indicators' for safety data analysis."
Similarly, the response stated the following regarding "WIBIH's" experience in relation to the PBGRP: "WIHIB [WIBIH] staff has an intimate knowledge of the PBGRP SMS [Safety Management System]. During 2016 WIBIH safety staff authored the PBG GRP SMS Implementation Assessment Report on behalf of PBGRP and MSB. The report made key findings and recommendations after extensive analysis of PBGRP's approach to integrating an ABR6303 compliant SMS."
Mr Dillon was named as the CEO of WIBIH, Mr Binks as Head of Risk Management and Safety Office, and Mr Harmer as Head of Portfolio, Program and Project Office.
Significantly, although WIBIH's tender response emphasised the valuable experience of its staff in dealing with the MSB and the PBGRP, and attached a profile for each of Mr Dillon, Mr Harmer and Mr Binks, that material did not contain a single refence to the current (and most relevant) position that each of them held, being their positions at Aerosafe in the course of which they had gained the experience upon which reliance was placed. The MSB and the PBGRP were well aware of the connection between each of them and Aerosafe. It must be inferred that the purpose of deliberately omitting any reference to their current position with Aerosafe was so that this fact did not come to the attention of SME Gateway.
When the response to RFQTS 14839 was received, the Navy Contacting Bureau noticed a problem with the paperwork for the PBGRP engagement. The Endorsement to Proceed, which had been signed on 7 June 2016, had named Aerosafe as the intended contractor on a sole source basis, stating that Aerosafe "has a prior familiarity with the task and environment; detailed familiarity with both the task required (by this contract) and PBGRP as well as the MSB systems of work and key people; and the ability to put the right people on task in a very rapid timeframe". However, as noted above, the RFQTS had in fact been issued to SME Gateway on a sole source basis. The reference to Aerosafe in the Endorsement to Proceed was plainly an error, no doubt caused by the fact that the staff whom the Navy wanted to retain (via SME Gateway / WIBIH) were at the time working with Aerosafe. In an email of 21 June 2016, Commander Barton confirmed that the intention was to contract with these staff: "The purpose of this email is to advise that the three specialist staff recommended by MSB as being highly suited and appropriate for the PBGRP Safety Support/OIP task/contract (due to their recent experience and intimate understanding of PBGRP Safety requirements/issues) no longer work for Aerosafe and are now employed by WIBIH Pty Ltd, under sub-contract to SME Gateway Pty Ltd, a CAS-SS panel member. This was confirmed via phone call (21 Jun 16) to Mr Andrew Harmer, Head of Portfolio, Program and Project Office and Principal SME at WIBIH. The three specialist staff are: Mr Andrew Harmer Mr Craig Binks Mr Scott Dillon." As outlined below, although Commander Barton stated on 21 June 2016 that Mr Dillon, Mr Harmer and Mr Binks "no longer work for Aerosafe and are now employed by WIBIH", each in fact remained an employee of the GRA Group at the time this email was sent, and Mr Harmer had not yet even notified Ms Turner of his intention to resign.

[31]

Mr Binks, Mr Dillon and Mr Harmer finish working at Aerosafe

On 14 June 2016, just before the response to RFQTS 14839 was submitted, Mr Binks sent an email to Ms Turner, informing her of his resignation. He noted that he had "committed to completing the MSB contract to ensure consistency of Aerosafe staff", and said that: "With the completion of the current MSB contract at the end of June, I have decided to take up other employment options." He did not say with whom he had taken up such an option, merely stating that he had accepted "an offer to take a key leadership role in a safety and risk team".
In his email, Mr Binks stated that: "My employment with Aerosafe will cease on 30 June 2016, consistent with the MSB contract, this will ensure minimal impact to client and Aerosafe operations".
Ms Turner responded on the same day, asking Mr Binks if they could discuss his email prior to any communication about it to the client or staff (not being aware that the MSB was already well aware of his planned departure). Ms Turner stated that Aerosafe was "anticipating the opportunity to rebid the contract" and that "any instability of client confidence triggered by your departure would have a significant impact on our company".
Ms Turner gave unchallenged evidence that she spoke to Mr Binks on around the day after his email was sent, and told him that: "If you have already made up your mind, and I cannot convince you to stay, you are required to work out your three-month notice period, that means your last day will be 14 September 2016."
Mr Binks responded as follows: "I am not going to stay with Aerosafe beyond 1 July." He likely gave that response because he knew that there was a high likelihood that he would be working on the PBGRP engagement for WIBIH in July 2016. He would have been unable to do so if he had served out three-month notice period.
Mr Binks said to Ms Turner that he could not tell her where his new job would be "for reasons of confidentiality", but he assured her that the "job is not with MSB or Navy and is in a different sector entirely". That was a knowingly false statement.
As he had foreshadowed to Ms Turner, Mr Binks ceased working at Aerosafe on 1 July 2016.
Mr Dillon's last day at Aerosafe was 24 June 2016. On the evening of that day, Ms Turner sent him an email seeking to schedule a three to four hour session to finalise his employment as COO, proposing 8 July 2016, being shortly after he was to return from a holiday in Fiji. Mr Dillon responded on the following morning, stating that he had been ready to meet on 24 June, and refusing the request for the proposed handover meeting. He stated: "It was yourself that was unavailable so in your absence I completed a handover as per the exit interview check list with Craig Binks".
On 5 July 2016, Ms Turner sent an email to Mr Dillon, stating that it was not in accordance with Aerosafe's procedures for anyone, let alone a member of the Executive Leadership Team, "to self-administer their exit and your suggested approach is not practical and does not work for the company". She asked for Mr Dillon to call on her mobile to arrange a time to talk.
Ms Turner gave unchallenged evidence that there were some phone calls after this email, in which she asked Mr Dillon to come into the office and "to close out his handover for his position". However, Mr Dillon refused to do so, stating that "he was unavailable because he already had work commitments with NSW TAFE". Mr Dillon had, in fact, commenced full-time work on the PBGRP engagement by this time.
On Friday 24 June 2016, which was the last day that Mr Dillon attended Aerosafe's offices, he sent Mr Binks a formal letter of offer to join WIBIH as Head of Risk and Safety Office, and sent Mr Harmer a similar letter to join WIBIH as Head of Portfolio Office.
On the same day, Ms Turner received a call from Mr Harmer, who told her that he had decided to leave Aerosafe "to pursue other opportunities". He explained that he felt that the "work just does not suit me" and he was "going to do something totally different". Those were deliberately false statements. Mr Harmer was in fact intending to do almost precisely the same work with WIBIH.
In that conversation, Ms Turner referred to the six-month notice period in Mr Harmer's employment agreement, stating that "we have plenty of time to discuss this and can work together to map out a good transition plan for your exit". Mr Harmer responded that he wanted to leave "straight away". Ms Turner emphasised that he would need to fulfil his contracted commitment to work out his six months' notice, which would place his exit at around the end of the year, and that this was "non negotiable".
Despite Ms Turner's stipulation about the notice period, Mr Harmer sent Ms Turner a letter the following day, 25 June 2016, stating that he tendered his resignation "effective from Friday, July 22, 2016". Ms Turner wrote back on 27 June 2016, again stating that she could "only accept your resignation on the basis of you fulfilling your 6 month notice period, your last day being Friday 23rd December". In a response sent on 29 June 2016, Mr Harmer indicated that he would prefer to discuss this issue with Ms Turner and Mr Morton "upon my return from annual leave", which was scheduled for 4-19 July.
On 30 June 2016, the Plaintiffs' solicitors sent a letter to Mr Harmer. The letter stated that his purported notice of resignation was not in accordance with the terms of his contract with GRAGS, which required that he provide six months' notice. The letter further stated that he would be held to his obligations under the contract.
On 14 July 2016, Mr Harmer's solicitors sent a letter in response, stating, among other things, that GRAGS's failure to pay Mr Harmer his contracted salary was a serious and continuing breach of its obligations under the contract of employment, such that Mr Harmer was entitled to terminate the contract; and that he elected to do so, effective immediately.
Mr Harmer did not return to Aerosafe's offices.
Each of Mr Dillon, Mr Binks and Mr Harmer was, throughout July 2016, working full time on the PBGRP engagement for WIBIH. The commencement date stipulated in this contract was 4 July 2016. From then until the end of the month, there were some 20 business days and, according to an invoice issued by WIBIH, each of Mr Dillon, Mr Binks and Mr Harmer worked 19 days on the project in that month. Significantly, the 4th of July was a Monday and, as such, was the first business day after Friday, 1 July 2016, that being the last day on which Mr Harmer and Mr Binks attended Aerosafe's offices. It is likely that a powerful reason for their leaving in haste from Aerosafe, despite the notice periods stipulated in their respective employment agreements, was the necessity for them to be ready to undertake this work for WIBIH as soon as the project commenced.
At the time, Aerosafe knew nothing about the PBGRP engagement which WIBIH performed. It was not until around March 2017 that Mr Oates discovered that Aerosafe had not been offered the opportunity to tender for this work, and that another company had received the contract, but even then he was unable to ascertain the identity of that company.

[33]

Meeting between Ms Turner and the MSB

On 8 July 2016, Ms Turner met with Captain Standen and Mr Carmichael for a contract 'close-out' meeting, following the end of the term of the 2015 Contracts. This was the first time that Ms Turner had met Captain Standen in person. From February to June 2016, she had been relying on the reports given to her by Mr Dillon, who was located at the MSB's headquarters, about his dealings with the Director of the MSB.
Ms Turner prepared a note of this meeting. The note records that Ms Turner indicated that Aerosafe was disappointed that the Commonwealth had not exercised the option to extend the 2015 Contracts, but that Aerosafe would seek out an opportunity to respond to any future RFQTS for the provision of Safety Services to the MSB. The note also records that Ms Turner received the following response to her request for feedback on Aerosafe's performance: "Both CAPT Standen and Shaun Carmichael commented that they were extremely happy with Aerosafe and that they have always found the Aerosafe approach and Team to always be responsive, collaborative and delivering high level work. CAPT Standen made a comment that the 'expertise and passion' of the Aerosafe Team was evident in the work undertaken."
This praise for the "Aerosafe Team" must be read in a context where, by the time of this meeting, every member of the Aerosafe team who had worked on-site at the MSB's headquarters during the first six months of 2016 (namely, Mr Christie, Mr Harmer, Mr Dillon, Mr Binks, Mr Hampton, Ms Yang and Mr Ganugapati) had left Aerosafe.
Mr Carmichael expressed, as he had in his May 2016 meeting with Ms Turner, some concern regarding the turnover in the role of Project Manager: "Shaun also made a comment that although there was good quality of staff put in the role, over the course of the contract there had been three different Aerosafe members who had undertaken that position - Andrew Harmer, Richard Christie and Scott Dillon."
Nonetheless, each of Mr Carmichael and Captain Standen expressed satisfaction with Aerosafe's performance over the term of the 2015 Contracts: "Shaun Carmichael then mentioned that during his time in overseeing the contract that Aerosafe always placed high quality people and produced high quality products. He did mention that there had been a little bit of turbulence and a couple of issues, but they had been addressed through the natural course of interaction and project administration during Aerosafe's engagement. CAPT Standen commented that the products produced by the Aerosafe Team, both for those staff imbedded and the provision of additional services and support, were always of a high quality and that the working relationships of the Aerosafe Team and the company as a whole across Fleet and Navy was very encouraging and positive."
When Ms Turner asked what had happened in relation to the planned follow-up work for the PBGRP, which had been proposed in Aerosafe's report on the Safety Management System Implementation Assessment in March 2016, the following exchange occurred: "CAPT Standen then mentioned that the $630,000 Business Case had been put forward and was approved some time ago by Navy to be implemented. CAPT Standen then turned to Shaun and said 'whatever happened to that additional work Shaun?' Shaun then responded with words to the effect 'I don't know, that was ready to go, all it needed was the final signature'. Kimberley then raised that this was of concern to her and she was interested to know whether or not the Aerosafe Team Members had 'dropped the ball' on following up this important body of work, or whether or not it was an indication that this work was no longer required. Shaun then responded by saying that 'no, your team had been very good and responsive and he wasn't sure where that got to'."
In fact, Mr Carmichael knew "where that got to", and in particular knew that the PBGRP had by this time engaged Aerosafe's "very good and responsive" team members through a competitor company, WIBIH. He did not disclose those matters to Ms Turner. That is of some importance when it comes to submissions made by the Defendants regarding the interpretation of Mr Carmichael's email of 26 February 2016. In particular, the Defendants suggested that, if Mr Carmichael had been aware that Mr Dillon, while still employed as Aerosafe's Project Manager, was acting for a competitor and seeking to recruit Aerosafe staff in order to compete for work of the type performed by Aerosafe, this would have led Mr Carmichael to express concerns about Mr Dillon's conduct in his 26 February 2016 email. However, when Mr Carmichael was in fact aware of such conduct in respect of the PBGRP engagement, he concealed this fact from Aerosafe, and there is no evidence that he expressed, to any other MSB or Navy staff, any concerns about Mr Dillon's conduct.
Similarly, the following exchange at the 8 July 2016 meeting is important for the interpretation of Mr Carmichael's 26 February 2016 email, and in particular his reference to the highly competent Aerosafe staff whom the MSB wished to retain: "Kimberley then advised that Craig Binks and Scott Dillon no longer worked for Aerosafe. … Shaun then made a comment that that was a shame because Craig was very good and he said words to the effect of 'quite truthfully, Craig was really all we wanted on that Contract'. …"

[34]

Tender for 2016 Contract

The Endorsement to Proceed with the procurement of services for the MSB in the 2016/17 financial year was approved on 27 June 2016, when it was signed by Captain Standen and by Mr Ramsay of the Navy Contracting Bureau. This document noted that in the previous financial year, the MSB had focussed on the development of the Safety Management System and its sub-systems, one being Safety Assurance, and that these tasks had been the subject of the 2015 Contracts. However, as a result of a "matured understanding" of the Safety Management System, there had been "a significant change in scope", and that this had led the MSB to decide not to exercise the option of extending the 2015 Contracts for another twelve-month term, and instead deciding to "retest the market by requesting a number of quotes from the CAS-SS panel from a selection of suitable suppliers".
The Endorsement to Proceed noted that four business cases had been developed, these being the documents which were drafted with the assistance of Mr Dillon and Mr Harmer. These were summarised as follows: Fleet Safety Management Improvement; Fleet Safety Assurance Improvement; Safety Communication; and Management of OHSIR to Sentinel Project. The last two of these were described as key to the "scope change" which drove the decision not to extend Aerosafe's engagement: "The exercising of a contract extension option was considered, however; the scope change, most notably the additional tasks relating to: a. Safety Communication; and b. Management of OHSIR to Sentinel Project. This scope change caused this option to be discounted."
Similar reasoning was identified as underlying the decision to approach multiple panel members, rather than offering the engagement to Aerosafe on a sole source basis. The Endorsement to Proceed stated that: "A contractor [Aerosafe] is currently contracted to deliver an integrated Safety Management System and Safety Assurance. However, this procurement significantly increases the scope of activities and the emphasis has changed from developmental work to analysis and operational actions with Continuous Improvement to the Safety Management. CCP [Contract Change Procedure] action is discounted as a viable procurement option. Continuity of skills and experience provided by those individuals delivering services to MSB is very important. However, DP-N advice is that this continuity does not introduce sufficient risks to justify 'limited tender' procurement. The work is now not considered sufficiently specialised to warrant limited tender action."
In early August 2016, the Navy issued a tender request for the provision of services to the MSB. RFQTS 15168 was issued to four members of the CAS-SS Panel, three of which subsequently submitted a response, namely, Aerosafe, SME Gateway, and Nova Defence Pty Ltd (Nova). The contract offered was for the period of "a year from September 2016, with two successive one year extensions available at the sole discretion of the Commonwealth".
SME Gateway's quotation in response to RFQTS 15168, which was submitted on 26 August 2016, named "WIBIH Pty Ltd" as the subcontractor to be used in supplying the services. The staff identified included Mr Dillon, Mr Harmer, Mr Binks and Ms Sommerfeld. The response appropriated Aerosafe's experience as WIBIH's experience, stating, for example, as follows: 'WIBIH is a SMS [Safety Management System] and risk management subject matter expert with extensive experience inside Fleet and Navy. WIBIH staff have intimate knowledge and familiarity with the Navy SMS delivering valuable SMS elements for the MSB and the PBGRP inside the last 3 years. … WIBIH's understanding of the Navy SMS is augmented through its engagement with MSB to provide Fleet safety, risk and project management support during FY 2014-15, FY 2015/16 …"
WBIH's quotation for the proposed services, for the period through to June 2016, was $5,351,560.01.
In contrast, Aerosafe's quotation in response to RFQTS 15168 was $735,460 and the quotation of the successful tenderer, Nova, was $1,600,830.
Nova's response to RFQTS 15168 stated that it "proposed to utilise Mr Clive Adams in the role of Lead Consultant and Nova Project Manager to provide the specified skillsets and deliver the outcomes of this scope of work". Nova specifically referred to Mr Adams' experience while at Aerosafe: "Mr Adams is very familiar with MSB having been en[g]aged to support similar tasking while employed with Aerosafe Risk Management. Indeed Mr Adams was a key member of the MSB team during the establishment of the Bureau in 2012."
One of the consultants who was nominated to support Mr Adams was Mr Hampton, who had been a member of the Aerosafe team embedded at the MSB during the 2015/16 financial year, up until contract close on 30 June 2016. Each of Mr Adams and Mr Hampton was identified as associated with a company called VizionX Pty Ltd, which was named as Nova's subcontractor. Nova indicated, in response to a request for clarification on 12 September 2016, that Mr Adams was to be primarily responsible for Project Management and Fleet Safety Management System Improvement, as well as providing secondary support on Safety Communications, and Mr Hampton was to be primarily responsible for the "Safety Communications" stream of work, as well as providing secondary support on the "OHSIR to Sentinel Project".
The Section 23 Commitment Approval for this engagement, which was approved by Captain Standen and Mr Ramsay on 11 October 2016, explained the basis on which the Nova bid was selected: "The three remaining bids, Nova Defence Pty Ltd, Aerosafe Risk Pty Ltd, and SME Gateway were evaluated and ranked, (refer to Source Evaluation Report SER at Reference O), with Nova Defence Pty Ltd (Nova) being ranked as number 1 (preferred tenderer) as their bid proved strongest as Nova: a. presented a fully compliant tender, b. provided the best response in terms of technical worth (required quantity, in accordance with the specification contained in the RFQTS), c. showed particular strengths in Education and Communications aspect of the RFQTS which were superior to all other tenderers, d. provided a good schedule, and e. Aerosafe Risk Pty Ltd offered a small price advantage over Nova. However, a number of assumptions were needed to be made by the TEWG about Aerosafe's Bid and these assumptions may of or may not have proven to be correct. Thus this small cost advantage may not have been real, thus there appeared to be more risk in the Aerosafe costing for the RFQTS. Nova's bid in contrast provided the TEWG with more certainty around pricing of services."'
In assessing Aerosafe's proposal, the Navy increased the cost of Aerosafe's proposal to $1,550,000. On 27 October 2016, Mr Carmichael sought information from Mr Leach about the assessment of Aerosafe's offer, in preparation for a debrief meeting that had been requested by Aerosafe after the contract was awarded to Nova. In particular he stated as follows: "I don't intend to provide Aerosafe with a breakdown of how we came to assess their bid as being $1.550M but I need to know how this figure was arrived at".
Mr Leach's email of 31 October 2016 set out "to articulate the process and rationale behind the decisions made by the collective TEWG [Tender Evaluation Working Group]". Mr Leach explained that each quotation was assessed "across five key deliverables", being Project Management together with the four workstreams for the engagement. The following criteria were used across these deliverables: Aerosafe's ability to meet the deliverables; their understanding of tasks; their experience in delivering similar tasks (focussing on key personnel); the currency of their experience; and the proposed schedule.
Mr Leach acknowledged that Aerosafe's quotation "came in considerably less expensive … than the other two". However, he made two points. First, the TEWG "did not premise the decision on cost and value for money alone", and in particular focussed on "demonstrated and proven ability of nominated personnel in key areas of delivery". Secondly, Aerosafe's quotation was "somewhat complicated rendering the full cost of the services complicated and to a large extent, reliant on an estimation". The TEWG was "required to break apart each aspect of the Tender Submission and using its own discretion with assistance from section subject matter experts estimate each extra cost spread across the entire Tasking SOW [Statement of Work]". Mr Leach provided a breakdown of the additional costs across the various key areas of delivery, while acknowledging that the estimation of the total cost for each deliverable "required a level of subject matter expertise".
Mr Leach concluded as follows: "In summary, while the TEWG looked closely at the clear and not so clear cost associated with each company delivering successfully on all task items, a strong focus was on nominated personnel demonstrated and proven ability. The successful Tender has several personnel in key roles that had this demonstrated ability. … While Aerosafe had a strong Tender submission and obviously went to considerable effort in their submission aspects of experience, cost, demonstrated ability and previous lessons learned led the TEWG to the decision that Aerosafe were not the preferred tenderer."
Nova's contract with the MSB, which was awarded in October 2016 for the 2016/2017 financial year, was subsequently renewed through to 30 June 2018.

[36]

The Taylor Investigation and the Taylor Report

At the conclusion of the Taylor Investigation, Mr Taylor issued a report dated 31 July 2019 (the Taylor Report). This report was in evidence on the voir dire regarding the admissibility of the documents in question.
The stated purpose of the Taylor Report was "to document the findings of an investigation into the conduct of Defence staff involved in the evaluation and awarding of procurements RFQTS 15168 … and RFQTS 14839 … and whether Defence staff abused their positions in order to benefit others".
According to the Taylor Report, the background to the Taylor Investigation was that the Director of the MSB had submitted to the Fraud Control and Investigations Branch a record of two complaints made by Aerosafe. These complaints related to two MSB personnel, including Mr Carmichael, "who may have been biased against Aerosafe and unfairly influenced the outcomes of a tender process based on that bias."
The Taylor Report explained that, initially, an investigation was commenced into the "conduct related matters", which was undertaken by Ms Powell, an investigator contracted by the Directorate of Investigations & Recovery. When Ms Powell's investigation was under way, further information was discovered which led to the Taylor Investigation, with an expanded scope of enquiry. The Taylor Report stated that: "During the course of the investigation [by Ms Powell], further information indicated potential collusive bidding or abuse of public office activity. In particular, there were concerns around the procurement process for RFQTS 15168 (MSB - Sydney) and RFQTS 14839 (PBGRP - Darwin), with regards to MSB staff allegedly altering tender submissions, excluding competition and using Commercial In Confidence information to influence the awarding of the above procurements. The scope of the investigation was expanded within a new investigation plan that was approved on 11 May 2017."
The Taylor Investigation focused on the following allegations: "Allegation 1: Between February and July 2016, Mr Shaun Carmichael, CAPT Standen and other Defence staff inappropriately influenced the procurement process for RFQTS 14839 in order to influence the outcome of the tender. Allegation 2: Between March and October 2016, Mr Shaun Carmichael and others inappropriately influenced the tender evaluation process for RFQTS 15168 in order to influence the outcome of the tender. Allegation 3: In September 2016 Mr Shaun Carmichael abused his position by using information learnt from a tender submission to attempt to influence Ms Thomas, then an APS Defence employee, from commencing with Aerosafe. Allegation 4: Around 17 October 2016 Mr Stewart Elliott abused his position by using confidential information contained within a tender submission to attempt to influence Aerosafe employee Ms Thomas to seek employment with another contract provider."
The Taylor Report described the "Conduct of the Investigation" as follows: "The subsequent investigation involved the collection and analysis of documents provided by the complainant, a review of the original investigation undertaken by Ms Powell, and analysis of Defence records relating to procurements, personnel data and network and email records. Information was obtained from Defence members and employees through email correspondence and records of conversation. CASG - Commercial Policy and Practice and Navy Contracting Bureau provided independent reviews of the procurement documents. Australian Competition & Consumer Commission Enforcement Group was also consulted regarding potential offences against The Competition and Consumer Act 2010."
The Taylor Report specified that: "The relevant legislation considered in this matter is: The Criminal Code Act 1995 (Cth) Section 142.2 - Abuse of Public Office The Competition and Consumer Act 2010 Section 44 ZZRG Giving effect to a cartel provision (bid rigging)."
The Taylor Report identified the "witnesses who were approached for information during the investigation" as including Mr Carmichael, Captain Standen and Mr Leach. It was common ground that the documents at issue were documents which set out the responses given by those persons to Mr Taylor in respect of the allegations which he was investigating.
At the conclusion of the Taylor Investigation, Mr Taylor reported that no criminal offences had been identified, but made some adverse conduct findings in the Taylor Report and referred those matters to Navy personnel for consideration of any action required.

[37]

Onus

The Defendants contended that the onus lay on the Plaintiffs to establish that the documents in question fell within s 69(3), which was described as an "exception to the exception" in s 69(2). For this proposition, the Defendants relied on the decision of McDougall J in Rickard Constructions v Rickard Hails Moretti and Ors [2004] NSWSC 984 at [26]-[30], which was followed by Mossop AsJ in Hendricks v El-Dik & Anor (No 2) [2015] ACTSC 351 at [17]-[20]. However, in each case, it was found to be unnecessary to resolve the question of the application of s 69(3) by reference to which party bears the onus: see Rickard Constructions v Rickard Hails Moretti at [31]; and Hendricks v El-Dik at [20].
In Averkin v Insurance Australia Ltd [2016] NSWCA 122 at [7], Basten JA commented that the answer to the question as to the burden of proof in respect of s 69(3) "is not clear". His Honour observed (at [8]) that: "The standard approach is to say that the burden of proving an exception to a rule lies on the party relying on the exception. On one view, the exception to the hearsay rule was contained within subs 69(2) and (3), taken as defining the exception and its limits, and the burden was therefore on the insurer to prove that the documents were not merely within subs (2) but also were not excluded by subs (3). On another view, the general rule was relevantly identified as the business record exception contained in subs (2) (which the insurer could readily satisfy) and it was up to the appellant to demonstrate that the material was not admissible, because it fell within subs (3). The preferable construction should await another case."
Leeming JA (at [117]) noted that the litigation in Averkin v Insurance Australia had been conducted on the basis that the onus of demonstrating the carve-out in s 69(3) applied was borne by the party objecting to the tender of the material in question. His Honour added: "As Basten JA has observed, there may be scope to question that assumption and in acceding to the parties' approach, I do not wish to be taken as expressing an opinion on an issue which was not argued." McColl JA agreed with Leeming JA's reasons.
The reason that it was unnecessary to decide the issue of onus in Averkin v Insurance Australia was identified by Basten JA as follows (at [7]): "In some cases the application of this provision [s 69(3)] may turn upon questions of fact with the burden of proof lying on one party rather than the other. This is not such a case: the application of the section was to be inferred from the material before the Court. …"
Those observations apply with equal force to the present case. The Taylor Investigation was conducted by, and the representations in issue were made by, persons who were not associated with any of the parties to these proceedings. Accordingly, the burden of proof does not affect the outcome in this case. Either the material before the Court supports the application of the provision, or it does not. In those circumstances, and given the Court of Appeal's reservation in Averkin v Insurance Australia of the issue of the preferable construction of s 69(3), I do not express any view on that issue.

[38]

Construction of s 69(3)

In Averkin v Insurance Australia at [114], Leeming JA made the following observations about the rationale underlying s 69(3)(a) and (b): "In both paragraphs (a) and (b), the exception to the hearsay rule created by s 69(2) is unavailable because there is a link with litigation. It is well established that the underlying purpose of the carve-out in subsection (3) is a concern that the relaxation of the hearsay rule for business records might lead to the admission of self-serving documents. That rationale was given by Barrett J in Vitali v Stachnik [2001] NSWSC 303 at [12] and has been endorsed in numerous subsequent decisions, including in this Court in Thomas v State of New South Wales [2008] NSWCA 316; 74 NSWLR 34 at [25] (Campbell JA) and [88] (Gyles AJA, dissenting as to the application of the provision)."
As for s 69(3)(a), it "will at least ordinarily require an answer to the question why the representation was prepared or obtained": Averkin v Insurance Australia at [112] per Leeming JA. The reference to the "preparing" of the representation directs attention to the state of mind of the person who formulated or framed the terms in which the relevant representation was made (in this case, Mr Carmichael, Captain Standen and Mr Leach), while the reference to the "obtaining" of the representation directs attention to the state of mind of the person who sought the representation or procured it to be made (in this case, Mr Taylor): Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) (2005) 147 FCR 235; [2005] FCA 1357 at [25]-[26]; quoted with approval by Campbell JA in Thomas v State of New South Wales (2008) 74 NSWLR 34; [2008] NSWCA 316 at [25].
In considering the application of s 69(3)(a), the question in the present case is whether Mr Taylor obtained the relevant representations from Mr Carmichael, Captain Standen and Mr Leach "in contemplation of" an Australian proceeding, which extends to a criminal proceeding. If the representation was obtained in contemplation of a criminal proceeding, then s 69(3)(a) would be satisfied whether or not the proceeding eventuated: Averkin v Insurance Australia at [29].
Before it can be said that a representation was prepared or obtained "in contemplation of" a proceeding, it must be established that a proceeding was "likely" or "reasonably probable": Di Liristi v Matautia Developments Pty Ltd [2021] NSWCA 328 at [58] per Gleeson JA (Macfarlan and Brereton JJA agreeing).
The evidence on the voir dire does not allow me to conclude that Mr Taylor regarded the commencement of a criminal proceeding as likely or reasonably probable at any particular point in time. In those circumstances, I am not satisfied that the requirements of s 69(3)(a) are established.
However, s 69(3)(b) does not require any such assessment to have been reached. For the purposes of s 69(3)(b), the issue is whether the representation was "made in connection with an investigation relating or leading to a criminal proceeding". In Averkin v Insurance Australia at [113], Leeming JA observed that: "In contrast [to s 69(3)(a)], paragraph (b) turns on the circumstances in which the representation was made. No question of purpose arises; there must instead simply be a sufficient connection between the making of a representation and an investigation. True it is that the investigation must be one which relates to or leads to a criminal proceeding, and in that way paragraph (b) also looks to the future. It is in this way that there is a link between the representation and litigation."
It is plain that each of the representations in question was "made in connection with an investigation". The question is whether the Taylor Investigation was an investigation "relating or leading to a criminal proceeding". In Averkin v Insurance Australia at [115], Leeming JA noted that the criminal proceedings "need not be in existence at the time the representation is made, and indeed need never in fact commence", adding that: "I would readily accept the force of McDougall J's observation that many investigations do not in fact lead to a criminal proceeding, and that it would unduly confine the language of the carve-out to insist that criminal proceedings must in fact have been commenced: Walsh v Walgett Shire Council at [18] and [20]. A further reason for reaching that conclusion is that it would be a capricious result that the hearsay rule would not apply to a document at one point in time but would apply later (namely, if and when criminal proceedings were ultimately commenced)."
In the paragraphs of Walsh v Walgett Shire Council [2014] NSWSC 812 which were referred to with approval by Leeming JA, McDougall J expressed the view (at [18]) that where the representation is made in connection with an investigation "which is of a kind that, ordinarily, would relate or lead to a criminal proceeding", then s 69(3)(b) would apply. His Honour considered (at [18]) that such an interpretation seeks to give effect to the purpose embodied in the provision, namely, to prevent the introduction of material prepared in circumstances which might cause it to be self-serving (see [15]). His Honour added (at [20]) that: "Of course, there are many investigations that do not lead to a criminal proceeding; and, a fortiori, that do not in that sense relate to a criminal proceeding. But it seems to me that where an investigation is carried out to see whether there has been a contravention of a legislative provision, which contravention (if it occurred) would be attended by criminal consequences, the investigation is one that could be said, in the ordinary use of the English language, to be one at least relating to a criminal proceeding in relation to that contravention."
The evidence on the voir dire establishes that the Taylor Investigation was undertaken in order to determine whether there had been a contravention of a legislative provision. According to the Taylor Report, this investigation was commenced because, in the preceding conduct investigation that was carried out by Ms Powell, information came to light which "indicated potential collusive bidding or abuse of public office activity", in contravention of the Criminal Code Act 1995 (Cth), section 142.2 (Abuse of Public Office) and the Competition and Consumer Act 2010 (Cth), section 44ZZRG (Giving effect to a cartel provision (bid rigging)).
Further, the "potential" contraventions that were the subject of the Taylor Investigation were, in terms of the passage from Walsh v Walgett Shire Council quoted above, contraventions which (if they occurred) would be attended by criminal consequences. On that basis, and in accordance with the reasoning in Walsh v Walgett Shire Council (at [20]) which was approved in Averkin v Insurance Australia, I conclude that Mr Taylor's investigation was "one that could be said, in the ordinary use of the English language, to be one at least relating to a criminal proceeding in relation to that contravention", such that the requirements of s 69(3)(b) are satisfied.
The Defendants submitted that an investigation could only be an investigation "relating or leading to a criminal proceeding" if it was conducted by a body such as WorkCover (being the entity involved in Walsh v Walgett Shire Council), which had the power to commence a prosecution. However, there is nothing in the language of s 69(3)(b), which is framed in terms of investigations "relating or leading" to a prosecution, to limit the investigation to one conducted by such a body. As the Taylor Report indicates, the investigation which was conducted into the potential collusive bidding activity in issue "consulted" with the ACCC Enforcement Group "regarding potential offences against The Competition and Consumer Act 2010". In circumstances where Mr Taylor was liaising with the regulator regarding potential criminal activity, it is artificial to conclude that the investigation could not "relate" or "lead" to a criminal prosecution simply because the Fraud Control and Investigations Branch which was conducting the investigation did not have enforcement powers in respect of the relevant legislation.
In respect of one of the documents in question (namely, the document containing representations by Mr Carmichael), Mr Dillon relied on the terms of an email sent by Mr Taylor to Mr Carmichael on 30 November 2018, which was also before me on the voir dire. In this email, which was sent before Mr Carmichael provided his responses to various questions asked of him, Mr Taylor stated that: "I commenced an investigation into the probity around the above procurements in May 2017. Representatives from CAS-G [Capability Acquisition and Sustainment Group] and NCB [Navy Contracting Bureau] have conducted two independent reviews of the procurement material. Based on those reviews I am no longer considering potential offences against the Criminal Code Act or the Competition and Consumer Act 2010."
Given that the Taylor Report does not record any narrowing of the scope of the Taylor Investigation, I accept the Plaintiffs' submission that this email should be read as indicating that Mr Taylor was no longer considering potential offences against the specified legislation on the part of Mr Carmichael himself.
As noted above, the application of s 69(3)(b) does not, unlike s 69(3)(a), depend on the subjective purpose of either the person who is making the representation or the person who is obtaining it. Rather, it requires that there is a connection between the representation and an existing investigation, and that the investigation was one "relating or leading to a criminal proceeding" (in the sense explained by Walsh, and approved in Averkin v Insurance Australia). I have found that the Taylor Investigation met that description. Section 69(3)(b) does not require that the representation be made by a person who would be the accused in any criminal proceeding. There is nothing in the language of s 69(3)(b) to indicate that it applies differentially to representations made "in connection with an investigation" of the relevant type, depending on whether the maker of a particular representation was, or was not, apprehensive of a charge being laid: see Averkin v Insurance Australia at [20] per Basten JA.
In any case, it is plain from the terms of the email in question that Mr Carmichael's own conduct remained under scrutiny in the Taylor Investigation. It was explained to him that the Taylor Investigation was "also considering whether there have been breaches of the Commonwealth Procurement Rules and whether there have been potential conflicts of interests and bias in the evaluation and awarding of the above contracts"; and that if issues relating to a potential breach of the Australian Public Service code of conduct were detected, these might be reported for disciplinary action under the Public Service Act 1999 (Cth). Mr Carmichael was asked to respond to a series of allegations, including that he personally "used information within a tender submission … to potentially influence the outcome of a procurement process that was under evaluation".
Those matters establish, if it were relevant to s 69(3)(b), that Mr Carmichael continued to be under scrutiny such that there remained a potential for him personally to make self-serving statements. Further, those matters are relevant to the exercise of the discretion under s 135, which I address below.
For those reasons, I find that each of the documents in question fell within the terms of s 69(3)(b) of the Evidence Act, and therefore each was not admissible under the business records exception to the hearsay rule in s 69(2).

[39]

Section 135

The Plaintiffs argued, in the alternative, that the Court should refuse to admit the material in the exercise of the discretion under s 135 of the Evidence Act. That section provides as follows: "The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might: (a) be unfairly prejudicial to a party; or (b) be misleading or confusing; or (c) cause or result in undue waste of time."
If I had determined that the material in question fell outside the terms of s 69(3)(b), and was therefore admissible under s 69(2), I would have concluded that the probative value of the evidence is substantially outweighed by the danger that the evidence might be unfairly prejudicial to a party, and that the discretion is therefore enlivened, and should be exercised to exclude that evidence.
As noted above, the underlying purpose of the carve-out in s 69(3) is a concern that the relaxation of the hearsay rule for business records might lead to the admission of self-serving documents: Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in liq) & Anor v Battaglia & Ors [2018] NSWCA 67 at [69] per Gleeson JA (Leeming JA and Emmett AJA agreeing). The concern about self-serving documents is in turn a concern about their reliability, which was described by Basten JA in Averkin (at [18]) as the concept which underpins the exception in s 69(3). As Finn J noted in Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd (No 4) (2008) 170 FCR 9 at [8]: "It is well accepted that the hearsay rule contained in s 69(2) is founded on the 'rationale of reliability' of business records generally. The exception to that subsection is founded on a 'rationale of unreliability' of representations made in the circumstances envisaged by subs (3)."
In Lewis v Nortex Pty Ltd (in liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 1083 at [4], Hamilton J observed that, from the natural tendency of "even persons of good intent" to make self-serving statements in circumstances where their conduct is under investigation, springs the policy that "statements made in those circumstances ought be excluded from the ambit of s 69 which is, in general terms, generous towards the admission of statements contained in documents that meet the criteria of the section" (quoted with approval in Thomas v New South Wales at [89]).
As McDougall J recognised in Walsh v Walgett Shire Council at [22]-[23], those same considerations can inform the approach to the exercise of the discretion under s 135: "In any event, and returning (as I said I would do) to s 135, it seems to me that there are very strong discretionary reasons for refusing to admit the evidence. First, and foremost, the circumstances in which the document was prepared (namely, seeking information in relation to a possible contravention, amounting to a criminal offence, of the specified legislation) are such as to create a significant motive to give self-serving, if not actually incorrect, answers. More generally, having regard to the structure of the document (namely that it is not a narrative statement but a series of questions, obviously prepared on the basis of other material not in evidence, to which questions specific answers are required), there is a very real risk that the picture given by it is incomplete. It would be otherwise, perhaps, if Mr Taylor [being the person who gave the answers to those questions] had been asked to make a statement setting out in its entirety his recollection of the relevant events, and had then been asked to answer further questions. But that does not appear to be what has happened in this case. Thus, it seems to me, there are reasons to think that the evidence contained in the statement might not be a complete account of what Mr Taylor can say, and that to admit it, without his being called, might be both unfairly prejudicial to the council and, more generally, might mislead or confuse."
Those observations are pertinent to the material tendered by the Defendants arising from the Taylor Investigation. That investigation began when Ms Powell's investigation into the conduct of the relevant contracts uncovered "information [which] indicated potential collusive bidding or abuse of public office activity". According to the Taylor Report, the Taylor Investigation concerned not only those potential criminal offences, but also potential breaches of Commonwealth Procurement Rules, including CPR 6.6, which stipulates that "Officials undertaking procurement must act ethically throughout the procurement". As Mr Taylor informed Mr Carmichael, even where the question of any criminal offence under the Criminal Code Act or the Competition and Consumer Act was put to one side, there might be serious consequences for individuals concerned. In particular, Mr Taylor explained that, if any issues relating to a person's conduct emerged in the course of an investigation of "breaches of Commonwealth Procurement Rules and whether there have been potential conflicts of interests and bias in the evaluation and awarding of … contracts", then these could lead to consideration of disciplinary action under the Public Service Act or, for Australian Defence Force members, potential offences under the Defence Force Discipline Act 1982 (Cth), which could then be reported to the Service Police.
Those matters increase the likelihood that persons who were under investigation for their role in the relevant events would provide self-serving statements in response to the allegations levelled against them. For example, Mr Carmichael was asked to respond to allegations that he personally "used information within a tender submission … to potentially influence the outcome [of] a procurement process that was under evaluation" (allegation 1); that "MSB staff may have provided an unfair advantage to former Aerosafe contractors during the course of the evaluation and awarding of RFQTS 15168 and RFQTS 14839" (allegation 2); and that "MSB staff knowingly assisted the contractors working on the Gap Analysis to bid for RFQTS 14839 uncontested and contrary to the interests of their contracted employer Aerosafe" (allegation 3).
As was the case in Walsh v Walgett Shire Council, Mr Carmichael was not simply asked to give his account of events relevant to these allegations, but was instead asked a series of specific questions, including in relation to other material which is not in evidence. That, as McDougall J observed, gives rise to a very real risk that the picture given in response is incomplete. For example: 1. in relation to allegation 1, Mr Carmichael was referred to the content of an email from Ms Powell (which is not in evidence), and was asked a series of questions about various matters including the content of a conversation (which was presumably referred to in that email), including "what you believed you said", and "the reasons for saying what you said". The questions were framed in terms such as to increase the risk of obtaining, in response, conclusory and self-serving statements: for example, "Were you attempting to provide a disadvantage to Aerosafe's bid?"; 2. in relation to allegation 2, Mr Carmichael was asked a series of questions including in relation to a "draft word document" which he had prepared (which is not in evidence). This was described as "a draft document that was on your H drive that appears to be your initial thoughts about how to progress the matter". Again, a number of those questions were framed in terms so as to heighten the risk of conclusory and self-serving statements, such as "Was there an intention to contract back former Aerosafe contractors regardless of the tender process?" and "Were there any potential conflicts of interest either by yourself or to your knowledge any of the TEWG regarding potential bias for or against any persons or companies submitting tenders for R[F]QTS 15168?" In relation to the latter question, Mr Carmichael was asked for "any hindsight thoughts here"; and 3. in relation to allegation 3, Mr Taylor referred to a series of emails, and promised to provide other related email material if required. It is unknown whether other material was provided to Mr Carmichael for review before a response was given by him (and, if so, what that other material was). The request for a response to the allegation that MSB staff "knowingly assisted" Aerosafe employees to bid for RFQTS 14839 "uncontested and contrary to the interests of their contracted employer" is again framed in terms which increase the risk of self-serving statements regarding the extent of any knowledge that Mr Carmichael may have had regarding such matters.
In short, the representations in question were made several years after the events in issue; they were made in circumstances where serious allegations were levelled against the representor, including the potential for criminal proceedings or disciplinary action; they were made in response to specific questions, which in some cases expressly invited hindsight analysis and which were framed in terms that heightened the risk of unreliable and self-serving statements; and they were or may have been prepared by reference to other material that is not in evidence. Those matters not only indicate that the material is of limited probative value, but also give rise to a significant risk that the evidence might be unfairly prejudicial to the Plaintiffs, particularly where none of the makers of those representations is associated with any party to these proceedings and none is available for cross-examination.
Counsel for Mr Dillon submitted that there was material in Mr Carmichael's response to Mr Taylor which was relevant to the interpretation of Mr Carmichael's email of 26 February 2016, which is a key document in this case. It was said that it would be unfairly prejudicial to Mr Dillon not to allow his client to rely on this material. However, this submission was made in circumstances where I was not asked, including by Mr Dillon's counsel, to go to the material in question, and therefore to form a view about the extent of any such prejudice.
One situation where unfair prejudice can be occasioned is where the opposing party is unable to cross-examine a witness: Bakerland Pty Ltd v Coleridge [2002] NSWCA 30 at [55] per Giles JA (Heydon JA and Grove J agreeing). Whether or not this is so depends on the facts, including the nature of the evidence, the issue to which the evidence goes and other evidence going to that issue: Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 at [82] (Giles and Tobias JJA, and Sackville AJA).
In the present case, I consider there would be unfair prejudice in allowing the Defendants to rely on statements given by Mr Carmichael, in 2019, about the meaning of his email in February 2016, without Mr Carmichael being available for cross-examination. That is particularly so in circumstances where the later statements were made at a time when there were serious allegations about the probity of Mr Carmichael's conduct; and where the statements were given in response to questions formulated in reference to a draft document (not in evidence) which was said to have "potentially guided" the thinking in his email. In contrast, I do not consider that there is unfair prejudice to the Defendants in rejecting the evidence. If they considered that there were matters on which Mr Carmichael could provide clarification, which were sufficiently important to their defence, they could have called him in the ordinary course. Having decided not to take that course, the Defendants are in the same position as the Plaintiffs, that is, they are able to make submissions on the inferences that should be drawn, or alternatively should not be drawn from Mr Carmichael's email, when read in context of the contemporaneous documentary evidence.
For those reasons, if I had concluded that the material fell outside s 69(3), and was therefore admissible under s 69(2), I would have exercised the discretion under s 135 to refuse to admit the evidence.

[40]

C. CONTRACTUAL DUTIES

Each of Mr Harmer, Mr Binks and Mr Dillon signed a "Company Employment Agreement & Job Description" on, respectively, 7 July 2014, 19 January 2015 and 3 July 2015. Each of these documents identified the "Employing Entity" as follows: "Employing Entity: Global Risk Alliance Group Services Pty Ltd (GRAGS) Please note: GRAGS is part of the Global Risk Alliance Group of companies including Global Risk Alliance Pty Ltd, Aerosafe Risk Management Pty Ltd, Aviation Safety Network Pty Ltd, Aerosafe Risk Management Inc (USA) and Motiv8. The employment of all staff for these above listed entities are administered through GRAGS. This company is for internal use only and does not render services to clients. For US based staff, employing entity may be Aerosafe Risk Management Inc."
The Plaintiffs contended that GRAGS contracted with each of Mr Dillon, Mr Binks and Mr Harmer as agent for a disclosed principal, namely, Aerosafe, with the result that Aerosafe was in fact the employer and the true counterparty to each employment contract. The Plaintiffs contended, in the alternative, that Aerosafe is entitled to enforce the promises in each employment contract on the basis that those promises are held on trust for it by GRAGS.
The Plaintiffs acknowledged that this issue was critical to their claims for breach of the employment contracts. In particular, the Plaintiffs conceded that, if GRAGS was the employer of each of Mr Harmer, Mr Binks and Mr Dillon, and if GRAGS alone could sue for breach of their employment contracts, GRAGS would only be entitled to nominal damages, as it had not suffered any loss.
Mr Harmer raised a further issue in his defence, namely, that his employment contract had been repudiated by the unilateral decision, over his protest, not to pay his contracted salary from around October 2015 onwards, and that he subsequently accepted this repudiation and terminated the contract in July 2016. However, for reasons explained below, this did not affect the claims for breach of contract brought against him, other than the claim for breach of the provision dealing with his notice period.
Separately from the claim for breach of the employment contracts, Aerosafe advanced a claim against each of Mr Harmer and Mr Dillon for breach of the respective Confidentiality Agreements which they entered with Aerosafe. No such agreement was entered between Aerosafe and Mr Binks.

[41]

Leave to amend claim against Mr Harmer

Before dealing with these substantive arguments, it is necessary to address a pleading point. The Plaintiffs acknowledged in their closing address that the pleading in respect of Mr Harmer's contract of employment differed from the pleading in respect of Mr Binks's and Mr Dillon's respective contracts of employment.
Paragraph 12 of the Amended Statement of Claim pleaded that: "On about 7 July 2014, Mr Harmer entered into an employment agreement with [GRAGS] by which he was to be employed as Vice President of the [GRA] Group (Harmer Agreement)."
In contrast, paragraphs 31 and 44 of the Amended Statement of Claim pleaded, respectively, that: "On about 19 January 2015, Mr Binks entered into an employment agreement with [GRAGS] on behalf of it, Aerosafe and other corporations within the [GRA] Group (Binks Agreement). … On about 3 July 2015, Mr Dillon entered into an employment agreement with [GRAGS] on behalf of it, Aerosafe and other corporations within the [GRA] Group (Dillon Agreement)."
The particulars to the pleading of the Harmer Agreement were relevantly identical to those in respect of each of the Binks Agreement and the Dillon Agreement. In each case, one of the particulars given was that: "The other corporations within the [GRA] group were set out in Part 1 of the Company Employment Agreement and Job Description". This was a reference to the section of each contract, dealing with the "Employing Entity", which has been quoted in paragraph 383 above.
The Plaintiffs served written opening submissions in which they contended that GRAGS had entered into each of the three employment contracts as agent for a disclosed principal, Aerosafe, such that Aerosafe was the employer and true counterparty to each such contract; and alternatively, that GRAGS held the promises in each such contract on trust for Aerosafe. The Plaintiffs also opened orally on the same basis.
Counsel for Mr Harmer did not, either in opening written submissions or in opening oral address, respond by stating that this case was not open to the Plaintiffs on the Amended Statement of Claim. Instead, Mr Harmer's opening submissions engaged with the merits of the Plaintiffs' contentions. For example, counsel for Mr Harmer referred in opening address to the terms of his employment contract and stated (emphasis added): "we say that this document, particularly, is clear on its terms as to who the employment entity is. There is obviously a case that my friend is running, as I understand it, to say, in truth, the second plaintiff was the employment entity. We say, expressly, within this contract, the employment entity was the first plaintiff, and that is an important fact in determining whether or not the actual damages case can be proved."
Mr Harmer proceeded to meet the Plaintiffs' "case that …, in truth, the second plaintiff was the employment entity", including by his counsel asking questions of Ms Turner and Mr Morton in cross-examination which were directed to the issue of the employing entity. Counsel for Mr Harmer also made detailed closing written submissions on this issue, with reference to this cross-examination as well as to various documents, such as Mr Harmer's payslips and GRAGS's Payroll Activity ledger. Having taken those steps during the course of the hearing, counsel for Mr Harmer argued, in closing oral address, that the Plaintiffs were, by the terms of their pleading, foreclosed from running the argument that he had sought to meet, or from amending their pleading to bring it into line with the issue on which the parties had fought at trial.
In response, the Plaintiffs sought, in their closing address, leave to file a Further Amended Statement of Claim, which did no more than make the pleading in respect of Mr Harmer's employment contract consistent with their existing pleading in respect of Mr Dillon and Mr Binks (which has been set out in paragraph 390 above). Mr Harmer opposed that amendment. On the final day of the trial, I granted leave to file the Further Amended Statement of Claim, but made it clear that this was essentially for administrative purposes, and that I was reserving, and would deal in this judgment with, the question whether the Plaintiffs should be given leave to rely upon that amended form of pleading. In order to ensure that the pleadings were closed, in the event that I determined that the Plaintiffs should have leave to rely on the Further Amended Statement of Claim, I directed that Mr Harmer (who was the only defendant affected by the amendment) file any defence to that amended pleading, and he did so on 11 December 2023. In paragraph 12(da) of this amended defence, Mr Harmer "says that [GRAGS] was [his] employer at all times and denies that [GRAGS] entered into the contract on behalf of Aerosafe or other corporations within the [GRA] Group".
The function of pleadings is "to state with sufficient clarity the case that must be met", thereby serving "to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her": Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 per Mason CJ and Gaudron J. However, "pleadings are but a means to an end and not an end in themselves": Banque Commerciale v Akhil Holdings at 293 per Dawson J. It follows that a case may be decided on a basis different from that disclosed by the pleadings where the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities: Banque Commerciale v Akhil Holdings at 287 per Mason CJ and Gaudron J. Ordinarily, the question of whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted; and it may be that, in a clear case, "mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference": ibid.
In this regard, reference is frequently made to the following observations of Isaacs and Rich JJ in Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 at 517: "Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest."
Those observations are particularly pertinent here. Mr Harmer chose to meet the Plaintiffs on the issues of the identity of his employer and the ability of Aerosafe to sue for damages for breach of his employment contract. Those issues were "fairly fought out" at the hearing and, in those circumstances, it is not open to Mr Harmer "to hark back to the pleadings and treat them as governing the area of contest".
For those reasons, I have concluded that there is no need to grant the Plaintiffs leave to amend their pleading, as it is open to me to determine the case on the basis on which it was fought.
In any event, in case I am wrong in concluding that such leave is not required, I have determined that leave to rely on the amended pleading should be granted. Mr Harmer submitted that the Plaintiffs' delay in making this amendment was unexplained, that the Plaintiffs must be taken to have made a deliberate forensic choice not to remedy the problem with their pleading prior to the start of the trial, and that this provided a basis for refusing leave (referring to the decision of Mossop J in Steadfast ICT Security Pty Ltd v Peak (No 2) [2021] ACTSC 319 at [70]-[73]).
I do not draw such an inference. There was no apparent reason why the Plaintiffs would choose to adopt, in the one proceeding, an approach to the construction of Mr Harmer's employment contract which was different to the (relevantly) identical contracts of Mr Dillon and Mr Binks. Further, the similarity in the particulars given for each of the three contracts indicates an intention on the Plaintiffs' part for uniform treatment and, consistently with that, the Plaintiffs opened on the basis that all three employment contracts should be interpreted in the same way. The more likely explanation for the issue of amendment being raised by the Plaintiffs only in their closing address was that it was not until counsel for Mr Harmer, in his closing submissions, raised the pleading point that the Plaintiffs realised the discrepancy in the pleading of the three contracts and sought to remedy it by adopting an identical form of words in respect of Mr Harmer's contract as was already adopted in respect of those of Mr Binks and Mr Dillon.
Mr Harmer's position in respect of the amendment application also failed to take into account the terms of his own cross claim. By that claim, Mr Harmer seeks damages for breach of contract against his employer. That claim is brought against each of GRAGS and Aerosafe. Paragraph 9 of the Amended Statement of Cross-Claim pleads as follows: "On or about 7 July 2014, Mr Harmer entered into a contract with: a. the First Cross Defendant [GRAGS]; and further or in the alternative; b. the Second Cross Defendant [Aerosafe], (the First Contract)."
That is, Mr Harmer's own pleading put in issue whether GRAGS or Aerosafe was his employer and therefore put in issue whether GRAGS or Aerosafe was entitled to sue, and be sued, on the terms of his employment contract.
It follows that the Plaintiffs' proposed amendment did not expand the matters in issue in the proceedings. Further, as already noted, Mr Harmer had the opportunity to cross-examine witnesses and make detailed submissions in relation to the issue of the identity of his employer, by reference to the documentary tender, and therefore there was no prejudice by reason of any delay in making the amendment application.

[42]

Identity of employer

In Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) v Personnel Contracting Pty Ltd (2022) 275 CLR 165; [2022] HCA 1 at [59], Kiefel CJ, Keane and Edelman JJ observed that: "Where the parties have comprehensively committed the terms of their relationship to a written contract the validity of which is not in dispute, the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that contract. Where no party seeks to challenge the efficacy of the contract as the charter of the parties' rights and duties, on the basis that it is either a sham or otherwise ineffective under the general law or statute, there is no occasion to seek to determine the character of the parties' relationship by a wide-ranging review of the entire history of the parties' dealings."
In the present case, each party relied on the employment contracts which GRAGS entered with, respectively, Mr Harmer, Mr Binks and Mr Dillon. The characterisation of the relationship between each of those Defendants and either GRAGS or alternatively Aerosafe must proceed by reference to the rights and obligations of the parties under each of those employment contracts, which are in relevantly identical terms.
The Plaintiffs relied on the principle that where one party contracts with an agent for a disclosed principal, the contract is formed between the first party and the principal, and the agent 'drops out', citing J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [12.340] and referring also to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [79]. The Plaintiffs claimed that the language of the employment contracts expressly identified Aerosafe as principal, relying on the following statement in each (emphasis added): "GRAGS is part of the Global Risk Alliance Group of companies including Global Risk Alliance Pty Ltd, Aerosafe Risk Management Pty Ltd, Aviation Safety Network Pty Ltd, Aerosafe Risk Management Inc (USA) and Motiv8. The employment of all staff for these above listed entities are administered through GRAGS. This company is for internal use only and does not render services to clients. For US based staff, employing entity may be Aerosafe Risk Management Inc."
I do not consider that the statement in bold provides a sufficient basis for concluding that GRAGS contracted with each of Mr Harmer, Mr Binks and Mr Dillon as agent for Aerosafe, such that GRAGS 'drops out' and Aerosafe is the true counterparty to the contract.
First, the contract specifically identifies the employer in clear and unambiguous terms: "Employing Entity: Global Risk Alliance Group Services Pty Ltd (GRAGS)".
There are various other indications in the contract that this entity is the employer. In particular (emphasis added): 1. Part 4 of the contract, headed "Employment Agreement & Conditions", states that in order to "assist in outlining employment conditions, a number of areas have been expanded upon in this document so that both the staff member and the company itself have clear mutually understood expectations for employment and performance", and refers to "this process of agreement of conditions between staff and Global Risk Alliance"; 2. the clause headed "Probationary Period" refers to a "probation or trial period" that applies to all "staff who commence employment with Global Risk Alliance Group Services"; 3. the clause headed "Employment with Other Entities" provides that staff are not to be engaged with any trade, business or occupation "other than that with Global Risk Alliance"; 4. the clause headed "Travel and Allowances" provides that travel "with Global Risk Alliance" will be determined by project work, and both client and company requirements, and provides that "Global Risk Alliance will provide and pay for a suitable level of accommodation" and that the "use of mobile phones for work related purpose will be reimbursed by Global Risk Alliance"; 5. the clause headed "Confidentiality" provides that all "material developed or accessed while employed with Global Risk Alliance remains company property"; and 6. the clause headed "Resignation or Termination" provides that if "the employee demonstrates unsatisfactory performance, Global Risk Alliance may choose to terminate employment" on a specified period of notice.
These clauses which refer to rights given to, and obligations imposed upon, "Global Risk Alliance" or "Global Risk Alliance Group Services" are properly construed as references to Global Risk Alliance Group Services Pty Ltd (that is, GRAGS), being the entity identified as the Employing Entity. For example, the obligation of "Global Risk Alliance" to reimburse the employee for accommodation costs and mobile phone expenses must be understood as an obligation imposed on the particular entity, GRAGS, which executes the contract.
Secondly, the statement that the employment of all staff "for" the entities in the GRA Group is "administered through GRAGS" does not amount to a statement that GRAGS, as agent, is entering into the contract on behalf of Aerosafe, as principal. The language used in the employment contract describes an intragroup administrative arrangement whereby all employees (other than those based in the United States) are employed by a particular entity within the group, GRAGS, which then supplies the services of those employees to other entities in the group.
Thirdly, and consistently with that interpretation, GRAGS paid the salaries of all employees and received income in the form of the payment of management fees from other entities in the GRA Group for the services of those employees.
Fourthly, if the quoted passage were read in the manner for which the Plaintiffs contend, it would follow that GRAGS entered the contract "for" (that is, as agent on behalf of) Aerosafe (as disclosed principal), but also "for" (as agent on behalf of) each of the other identified group entities, namely, Global Risk Alliance Pty Ltd, Aviation Safety Network Pty Ltd, Aerosafe Risk Management Inc and Motiv8 Pty Ltd. The Plaintiffs did not advance any such contention and did not suggest that there could be multiple employers under one employment contract. At the same time the Plaintiffs did not explain why the passage of the employment contracts dealing with the "Employing Entity", which is quoted in paragraph 407 above, should be read as disclosing Aerosafe, but none of the other named entities in the GRA Group, as principal.
The Plaintiffs also referred to other documents signed by each of Mr Harmer, Mr Dillon and Mr Binks at around the time they commenced employment. In particular, each of them countersigned a letter of offer for a "position with Aerosafe", which was sent by Aerosafe, prior to entering into their respective employment contracts, and each of Mr Harmer and Mr Dillon also signed an "Employee Confidentiality Agreement" with Aerosafe.
The Plaintiffs did not contend that each letter of offer constituted the employment contract with the respective employee. Instead, the Plaintiffs contended that the employment contracts, read in the context of the corresponding letters of offer, should properly be interpreted as contracts which were entered into by GRAGS as agent for Aerosafe.
For the reasons set out above, I have concluded that the terms of each employment contract are inconsistent with this contention. I do not consider that the terms of the respective letters of offer alter that conclusion. Instead, the terms of each letter can be read consistently with the terms of each employment contract: that is, Aerosafe as the main operational entity in the GRA Group offers the candidate a position working for Aerosafe; and GRAGS, as the entity in the GRA Group which employs all persons who perform work for other members in the group, then enters into the employment agreement with the employee.
Nor do the terms of the Employee Confidentiality Agreements compel a different result. While the recitals to those agreements state that "Aerosafe Risk Management … has entered into an employment agreement" with Mr Harmer and Mr Dillon respectively, this statement must be interpreted in the light of the terms of their respective employment contracts, each of which indicates that the employing entity for all non-US based staff (such as Mr Harmer and Mr Dillon) is GRAGS, which then supplies the services of those employees to, inter alia, Aerosafe. Further, if Aerosafe were the principal under the employment contracts, then it is difficult to understand why there would have been a need for a separate confidentiality agreement between the employees and Aerosafe, since their employment contracts already contained broad obligations of confidentiality which they owed to the employer. The entry into the separate confidentiality agreement with Aerosafe is more readily explained by an intention to ensure that Aerosafe itself has the ability to enforce confidentiality obligations against the employee, and is therefore consistent with a conclusion that the parties objectively intended and understood that Aerosafe did not have the benefit of the confidentiality provisions in the employment contracts (because it was not the counterparty to those contracts).

[43]

Promises held on trust for Aerosafe?

In the alternative, the Plaintiffs submitted that, if GRAGS entered the employment contract as principal (as I have found), then GRAGS held all of the express and implied promises in the contract on trust for Aerosafe. The Plaintiffs further submitted that in those circumstances, either GRAGS, as trustee, could sue to recover damages assessed by reference to what the beneficiary, Aerosafe, has lost (citing J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [12.340]); or alternatively, Aerosafe, as beneficiary, can sue to enforce those promises (citing Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75 at [152] per Bathurst CJ (Macfarlan and Gleeson JJA agreeing)).
In the cited passage in Central Coast Council v Norcross, Bathurst CJ observed as follows: "It is well established in this country that in circumstances where a contract imposed an obligation on the promisor to confer a benefit on a third party, the promisee can seek an order that the promise be specifically performed (Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3 at 478 and 503 ; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44 (Trident) at 119-120). It is also well established that where the promisee is a trustee of a promise for a third party, the third party can sue on the contract indirectly in an action in which the promisee is joined as the defendant (Vandepitte v Preferred Accident Corporation of New York [1933] AC 70; Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43; [1956] HCA 8 at 67)."
Although Bathurst CJ referred to the third party suing on the contract "in an action in which the promisee is joined as the defendant", the Plaintiffs noted that the failure to join GRAGS as a defendant does not preclude Aerosafe from suing on the contract in circumstances where GRAGS is already a party to the proceedings and that, in any event, r 6.23 of the Uniform Civil Procedure Rules 2005 (NSW) would cure any such deficiency, citing Mizzi v Reliance Financial Services Pty Ltd and Ors [2007] NSWSC 37 at [81] per Brereton J.
I accept that the constitution of the proceedings is not a barrier to the submission being advanced by the Plaintiffs. However, the main difficulty with the submission is not procedural, but substantive. The Plaintiffs have not identified any term of the employment contract which imposed an obligation on the employee to confer a benefit on Aerosafe. In Bahr v Nicolay [No 2] (1988) 164 CLR 604 at 618-619, Mason CJ and Dawson J drew a distinction between a case where an obligation is imposed to confer a benefit on a third party, and other cases where a trust is sought to be imputed: "In the absence of the manifestation of a clear intention to create a trust, the courts have been reluctant to hold that a trust exists. Du Parcq LJ elegantly expressed the traditional attitude when he said: 'It is true that, by the use possibly of unguarded language, a person may create a trust, as Monsieur Jourdain talked prose, without knowing it, but unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention.' (Re Schebsman [1944] Ch 83 at 104.) … On the other hand Fullagar J stated a contrary view in Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43 at 67 : 'it is difficult to understand the reluctance which courts have sometimes shown to infer a trust in such cases.' His Honour was referring to contracts whereby a benefit is promised to a third party. We agree with his Honour's comment."
The principles relevant to the imputation of a trust in respect of a contractual promise were recently summarised by Gageler and Gleeson JJ in Hobart International Airport Pty Ltd v Clarence City Council; Australia Pacific Airports (Launceston) Pty Ltd v Northern Midlands Council [2022] HCA 5 at [59]: "In Wilson v Darling Island Stevedoring & Lighterage Co Ltd, in a passage to which attention was drawn in Bahr v Nicolay [No 2] and in Trident General, it was pointed out that a person not party to a contract for whose benefit a contractual obligation has been entered into can enforce the contractual obligation in equity, in a proceeding to which the contractual obligor and contractual obligee are joined, if an intention to hold the obligation on trust for the person can be imputed to the contractual obligee. Subsequently, in Korda v Australian Executor Trustees (SA) Ltd, it was explained that 'where parties to a contract have refrained from contractual use of the terminology of trust, an intention to create a trust will be imputed to them only if, and to the extent that, a trust is the legal mechanism which is appropriate to give legal effect to the relationship … between a party and a third party, as established or acknowledged by the express or implied terms of the contract'. The inquiry into whether a trust of the contractual obligation is the mechanism appropriate to give effect to the relationship between the contracting party and a third party established or acknowledged by the terms of the contract does not turn simply on whether the contractual obligation was entered into or operates for the benefit of the third party but on whether the relationship between the contractual obligee and the third party is such that the contractual obligee holds the custody and administration of the contractual obligation on behalf of the third party so as to be accountable to the third party for that custody and administration."
The Plaintiffs did not articulate in any detail, in terms of those principles, the basis on which a trust should be imputed in the circumstances of this case.
In particular, the Plaintiffs did not point to anything in the language of those contracts, other than the statement that the employment of staff "for" the entities in the group is administered by GRAGS, which was said to evidence an intention that any of the promises made by the employee were held on trust for Aerosafe. I do not consider that the preposition "for", read in context, establishes any such intention. This is, instead, a case where (to use the terminology adopted by Gageler J in Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 at [109]) the parties "have refrained from contractual use of the terminology of trust", with the result that "an intention to create a trust will be imputed to them only if, and to the extent that, a trust is the legal mechanism which is appropriate to give legal effect to the relationship … between a party and a third party, as established or acknowledged by the express or implied terms of the contract".
The relationship between the employee and Aerosafe which is, to use the language of the Hobart International Airport case, "established or acknowledged by the terms of the contract" is that Aerosafe is a member of the GRA Group (along with various other corporate entities) and the employment of staff for all of these entities is "administered through GRAGS", which is the "Employing Entity" for each of the employees. GRAGS is said to be "for internal use only and does not render services to clients". That is, GRAGS employs the individuals, and is obliged to pay their remuneration and other entitlements and makes their services available to other entities in the GRA Group, in return for a service fee. I do not consider that the imposition of a trust is necessary or appropriate to give legal effect to the relationship, outlined in the employment contract, between the employees of GRAGS and the various other entities in the GRA Group, including Aerosafe.

[44]

Conclusion - Ability to Sue on Employment Contracts

For those reasons, I find that GRAGS entered each employment contract as principal, not agent, and that only GRAGS can sue for breach of each such contract.
The Plaintiffs allege that each of Mr Harmer, Mr Binks and Mr Dillon breached the following terms of their respective employment contracts, by their conduct in relation to the MSB engagement and the PBGRP engagement.
The first is the clause headed "Employment with Other Entities" (the sole employment clause). In the employment contracts of each of Mr Harmer and Mr Dillon, this sole employment clause is in the following terms: "During the period of employment, staff are not to be engaged directly or indirectly, in any capacity with trade business or occupation other than that with Global Risk Alliance without the written consent of the CEO or as specified in the employees' letter of appointment. There is to be no conflict of interest with secondary employment (including voluntary association involvement)." The corresponding clause in Mr Binks's contract refers to "Global Risk Alliance Group Services" rather than "Global Risk Alliance". I consider this to be a distinction without a difference as I interpret each such phrase as a reference to GRAGS.
The second is the clause headed "Confidentiality" (the confidentiality clause). In the employment contracts of Mr Harmer and Mr Dillon, this confidentiality clause is in the following terms: "The employee will not reveal to any person or company any of the trade secrets. secret or confidential operations, processes or dealings or any information concerning Global Risk Alliance, its organisation, clients, business, finances, transactions, affairs or any of its subsidiaries which may come to the Employee's knowledge during the employment. The employee will also keep all confidential information entrusted to the employer with complete secrecy, except as authorised by Global Risk Alliance. In addition to this, details of the employee's remuneration are to be kept confidential and not disclosed to other employees, clients or industry. All material developed or accessed while employed with Global Risk Alliance remains company property and are not to be removed or taken from the company when employment cease or used for any other purpose during employment. More information on confidentiality, intellectual property and copyright requirements are outlines in the company policies and procedures." Again, the corresponding clause in Mr Binks's employment contract refers to "Global Risk Alliance Group Services" rather than "Global Risk Alliance".
The third is the clause headed "Resignation or Termination" (the notice period clause). In each employment contract, this clause includes, relevantly, the following text: "During employment, if the staff member wishes to resign from the company notice is required to be provided to assist the company in planning for a replacement. For administration staff one months notice is required, for Risk Advisors, Management staff and foreign sponsored placements, three months is required, for Executive Staff six month notice is required. For casual staff, a minimum of two weeks notice is required; however the company would appreciate a greater level of notice to facilitate human resource planning. If the employee demonstrates unsatisfactory performance, Global Risk Alliance may choose to terminate employment at one week's notice for administration staff, one month's notice for Risk Advisor, Management and Executive staff. Any termination will be made in accordance with NSW State industrial relations law. Reduction of leave notice period will be considered on a case by case basis and is at the discretion of the CEO."
Finally, the Plaintiffs allege that each of Mr Harmer, Mr Binks and Mr Dillon breached his implied obligation of fidelity and good faith to his employer, which carried with it an obligation not to divulge confidential information or to use it in a way that could be detrimental to the employer: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 370 per Rich J, at 372 per Starke J, and at 391 per Evatt J; X v Commonwealth (1999) 200 CLR 177; [1999] HCA 63 at [31] per Gleeson CJ; Del Casale & Ors v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 at [32] per Hodgson JA and at [76]-[77] per Campbell JA (McColl JA agreeing with both); and Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58 at [1855].
In Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 81-82, Dixon and McTiernan JJ said that: "Conduct which in respect of important matters is incompatible with the fulfilment of an employee's duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal … But the conduct of the employee must itself involve the incompatibility, conflict or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to future conduct arises."
In Del Casale v Artedomus at [32], Hodgson JA observed that: "The content of this duty will vary according to the position of the employee: generally, more senior employees, having access to more confidential information, will be subject to greater restraint than more junior employees".
Mr Dillon and Mr Binks did not dispute these principles, or the implication of such a term. However, Mr Harmer contended that the question of whether an implied term of good faith exists in the employment contract is an open issue (citing Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [107]), and that took the "formal position" that the Plaintiffs have not established the existence of such a term.
Mr Harmer's submission appeared to confuse the implied obligation of fidelity and good faith which is imposed on an employee, with the issue whether there is an implied term requiring an employer not to engage in conduct such as to destroy or seriously damage the relationship of trust and confidence between employer and employee, such as was implied by the House of Lords in Malik v Bank of Credit and Commercial International SA (in liq) [1998] AC 20 at 34 per Lord Nicholls of Birkenhead.
In Barker, the High Court recognised that the former term, being the term at issue in this case, is implied into employment contracts as a matter of law: "An employee has an implied duty of fidelity to the employer not to engage in conduct which 'impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee'." (at [30] per French CJ, Bell and Keane JJ)
Kiefel J explained the difference between this implied obligation and the term which was implied in Malik, as follows: "It is necessary in the first place to distinguish between an employee's duty of trust and confidence, which the law has for a long time implied in contracts of employment, and the term recognised in Malik. The former is not concerned with obligations on the part of an employer, but with obligations of fidelity on the part of an employee to his or her employer, breach of which may justify dismissal. The term of trust and confidence recognised in Malik, on the other hand, imposes obligations on an employer not to engage in 'trust-destroying conduct' which may sound in damages if breached." (at [63] per Kiefel J)
There is nothing in the employment contracts in this case which is inconsistent with the implication of an obligation of fidelity and good faith to the employer. Instead, the employment contracts make clear that employees "may be terminated immediately" for conduct which involves dishonesty, breach of confidentiality, or "[d]isloyal conduct or behaviour to the company".

[46]

Confidentiality Agreements

Each of Mr Harmer and Mr Dillon (but not Mr Binks) entered into a Confidentiality Agreement with Aerosafe.
Pursuant to those agreements, each of Mr Harmer and Mr Dillon agreed as follows: "I undertake to: (i) treat as confidential all internal operations, dealings, finances, transactions, affairs, services and products of [Aerosafe] which I have access and which is disclosed to me before or during the course of my employment; (ii) use the access to Aerosafe internal processes, procedures, services and products for the purpose of my employment and not disclose or allow unauthorised access to products or materials. (iii) take all necessary precautions to prevent unauthorised persons from gaining access to, or copying products or services of [Aerosafe]; (iv) immediately notify [Aerosafe] if [I am] aware of any breach of this Confidentiality Agreement or of any unauthorised person gaining access to Confidential Information; (v) keep as confidential all intellectual property and agree not to reproduce, modify, copy or sell any products which are derived from the concepts, materials, resources or related support/resources of [Aerosafe]; (vi) act as a professional member of the [Aerosafe] team, ensuring that all client interactions represent Aerosafe; (vii) return all [Aerosafe] property, includ[ing] items purchased or developed on [Aerosafe's] behalf at the termination of my employment."
Pursuant to cl 5, each of Mr Harmer and Mr Dillon acknowledged that breach of the Confidentiality Agreement may cause significant damage to Aerosafe. Pursuant to cl 6, each agreed that the obligations under the Confidentiality Agreement would continue indefinitely and would survive both the termination and expiration of employment or any other contractual relationship with Aerosafe.
Mr Dillon did not dispute that he was bound by the terms of this agreement. However, Mr Harmer contended that there was no consideration for his entry into the Confidentiality Agreement, and therefore it could not be enforced by Aerosafe against him. I reject this submission. As is commonly the case with confidentiality agreements, Mr Harmer's promise to keep Aerosafe's material confidential was sought, and given, in return for Aerosafe providing its confidential information to him. Clause 1(i) states that it is anticipated that such material will be "disclosed to me before or during the term of my employment". In that context, the opening words of the Confidentiality Agreement make clear that it is a condition of employment that the agreement be entered. That is, in order for Mr Harmer to be employed (by GRAGS), and in order for him to be provided with confidential information of Aerosafe both prior to and during the term of his employment, Mr Harmer was required to give the promises to Aerosafe which are set out in the Confidentiality Agreement. Having regard to those matters, the terms of the Confidentiality Agreement are enforceable by Aerosafe against Mr Harmer.

[48]

Principles

At trial, each of Mr Dillon, Mr Harmer and Mr Binks argued that he was not in a fiduciary relationship with Aerosafe, primarily by reference to the first instance decision in Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58. In particular, each contended, by reference to the passage at [1843]-[1845], that he was not given any power, discretion or latitude in his role, and therefore did not owe any fiduciary obligations as an employee.
After the hearing in this matter was concluded, the Court of Appeal handed down its judgment on the appeal in Anderson v Canaccord, overturning the decision at first instance: [2023] NSWCA 294. Relevantly, the Court of Appeal held (at [129]-[150]) that the relationship of employee and employer is an accepted category of fiduciary relationship, referring to binding High Court authority on this issue: see, in particular, Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 68 per Gibbs CJ, at 96 per Mason J, at 141 per Dawson J; Breen v Williams (1996) 186 CLR 71 at 92 per Dawson and Toohey JJ, at 107 per Gaudron and McHugh JJ; and John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [87].
For example, in Concut Pty Ltd v Worrell (2000) 176 ALR 693; [2000] HCA 64 at [17], Gleeson CJ, Gaudron and Gummow JJ said that: "the relationship between employee and employer is one of the accepted fiduciary relationships; their critical feature is that the fiduciary undertakes or agrees to act for or on behalf of, or in the interests of, another person in the exercise of a power or discretion that will affect the interests of that other person in a legal or practical sense. An illustration respecting employer and employee is provided by the decision of Kearney J in Timber Engineering Co Pty Ltd v Anderson. In that case, the defendant employees, in breach of their fiduciary duties, diverted the business and profits of their employer to themselves and to their companies; the equitable remedies awarded included an account of profits and a constructive trust as to the business of the employees' companies."
It follows that as a general proposition, and contrary to the Defendants' submissions, employees owe fiduciary obligations to their employers: Anderson v Canaccord [2023] NSWCA 294 at [126]. This is a distinct issue from the scope of the obligations owed, which is addressed below.
In the present case, I have found each of Mr Dillon, Mr Harmer and Mr Binks was an employee of GRAGS, and not of Aerosafe. However, courts have found that individuals employed by one entity within a corporate group may owe fiduciary duties to another entity within that group notwithstanding the lack of any employment contract with that other entity.
For example, in Manildra Laboratories v Campbell [2009] NSWSC 987 at [69], McDougall J observed that: "There may be cases where a person employed by one company in a group owes fiduciary obligations to another company within that group. For example, if a person is employed by company A to render services to company B, and is for all effective purposes, even if not in law, an employee of company B, it may be legitimate to find that the person owes fiduciary duties to company B." Similar views were expressed by Finkelstein J in AMP Services Ltd v Manning [2006] FCA 256 at [55], and by Tracey J in Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 3) [2013] FCA 1059 at [82].
McDougall J's observation in Manildra Laboratories is borne out by the decision of the Court of Appeal in Anderson v Canaccord. In that case, the relevant employees did not execute any employment contract with any member of the Ashington group of companies. Further, their salary was paid by an entity called Ashington Management, rather than by Ashington Capital, which was the trustee of the relevant unit trusts. However, the Court of Appeal held that the defendant employees were in a fiduciary relationship with each of those entities. That is because, as a matter of substance, each was treated as a senior employee within the group "and, in this respect, equity looks to the substance of the matter, rather than the form" (at [111], [119]). The Court of Appeal noted that each of the employees had Ashington business cards, an Ashington email address, a workstation at Ashington's offices, as well as laptops, mobile phones and corporate credit cards supplied by the Ashington group (at [112]). The Court observed that there was no rigid delineation within the subsidiaries of the Ashington group; that there never arose a question of the employees receiving directives from Ashington Management, as opposed to Ashington Capital; and that the reality was that instructions came principally from one person, who was the managing director and major shareholder of the Ashington companies (at [120]).
Similar points apply here. Each of Mr Dillon, Mr Harmer and Mr Binks received a letter of offer from Aerosafe, to be employed in a position with Aerosafe. Each signed an employment agreement with GRAGS, which noted that GRAGS was the entity within the GRA Group which employed the staff who worked in and for the other members of the GRA Group. Each was supplied with, and used for their employment, an "@aerosafe.com.au" email address, and each sent emails (and, in Mr Dillon's case, letter) which referred to their position at "Aerosafe Risk Management" and which provided contact details for Aerosafe as well as for each of them. Each was one of the "key personnel" identified by Aerosafe when tendering for the 2015 Contracts with the MSB, and each was a member of the term of staff which Aerosafe supplied to the MSB under the 2015 Contracts. There was no rigid delineation between subsidiaries in the GRA Group, and there was no question of any of these employees receiving a direction from GRAGS, as opposed to a direction from Aerosafe. Mr Dillon received directions from a single person, Ms Turner, who was CEO and sole director of the companies within the GRA Group, and in turn Mr Dillon gave directions to Mr Harmer and Mr Binks, who reported to him. Each of Mr Dillon and Mr Harmer entered into a Confidentiality Agreement with Aerosafe which required them to ensure that, in all their interactions with clients, they represented Aerosafe (cl 1(vi)). None of the Defendants advanced a contention to the effect that, if he did owe any fiduciary obligations, then such obligations were owed only to GRAGS, and not to Aerosafe.
Having regard to those matters, and looking to the substance of the matter rather than the form, I find that each of Mr Dillon, Mr Harmer and Mr Binks was in a fiduciary relationship with Aerosafe.
It is then necessary to consider the scope of the obligations owed by each to Aerosafe. In Anderson v Canaccord at [126], the Court of Appeal observed that a "powerful body of appellate authority supports the proposition that there are separate elements of existence and scope". As the Court noted (at [127]), a conclusion that certain defendants are "fiduciaries because they were employees … of itself signifies little, until the scope of their fiduciary obligations is assessed".
The "scope" of fiduciary obligations is distinct from the nature of fiduciary obligations. The nature of fiduciary obligations is "proscriptive … - not to obtain any authorised benefit from the relationship and not to be in a position of conflict": Breen v Williams at 113. In Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31, McHugh, Gummow, Hayne and Callinan JJ quoted (at [74]) this statement from Breen v Williams at 113, and commented as follows (at [78]): "In particular, the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is 'a conflict or a real or substantial possibility of a conflict' between personal interests of the fiduciary and those to whom the duty is owed."
As the Court of Appeal explained in Anderson v Canaccord at [152], the "scope" of fiduciary obligations refers to the scope, or subject matter, of the area within which the fiduciary is not free to act self-interestedly (citing Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 407 per Dixon J; [1929] HCA 24). The Court of Appeal referred with approval (at [158]) to the following passage in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [143] (Finn, Stone and Perram JJ): "The concept of 'duty' in the 'conflict of duty and interest' formula of the first of these is convenient shorthand. It refers simply to the function, the responsibility, the fiduciary has assumed or undertaken to perform for, or on behalf of, his or her beneficiary. What that function or responsibility is, is a question of fact. It may be narrow and circumscribed, as is often the case with specific agencies; it may be broad and general, as is characteristically the case with the functions of company directors; its scope may have been antecedently defined or determined; it may have been ordained by past practice; it may be left to the fiduciary's discretion to determine; and it may evolve over time as is commonly the case with partnerships."
The Court of Appeal in Anderson v Canaccord illustrated the concept of scope by reference at [162]-[164] to Fletcher Moulton LJ's "celebrated example of the errand boy" in Re Coomber; Coomber v Coomber [1911] 1 Ch 723 at 728. The Court explained that, while the errand boy is in a fiduciary relationship with his employer, the scope of his fiduciary obligation "would seem to be extremely narrow - to the particular conduct in delivering errands". The Court continued as follows: "If however the errand boy failed to deliver the message, and made a profit from it, then that would seem a prime candidate for a breach of the rule preventing unauthorised benefits from conduct within the scope of the errand boy's fiduciary obligations."
In Anderson v Canaccord, the Court of Appeal found that the scope of the employees' fiduciary obligations extended to the performance of a particular capital raising. They were required to act in the interests of the Ashington companies in respect of that capital raising, and were not permitted to act self-interestedly to remove the existing trustee and manager, in order for them to be replaced by entities in which the employees had an interest: at [127]. It was relevant that the employees in question were the exclusive point of contact with investors and other persons involved in the capital raising, and they were, in dealing with those persons, acting for and on behalf of the Ashington companies: at [168].
The Plaintiffs claim that each of Mr Dillon, Mr Harmer and Mr Binks breached his fiduciary duties in the period from January to June 2016. Accordingly, it is necessary to consider, with reference to that period, and by applying the principles outlined above, the scope or subject matter of the area within which each, as a fiduciary of Aerosafe, was not free to act self-interestedly (Anderson v Canaccord at [152]). In that period, as outlined in Section A above, each was dealing with the MSB (and, through the MSB, the PBGRP) on behalf of Aerosafe in relation to the provision of services to those entities. In respect of those dealings, each was required to act in the interests of Aerosafe and was not permitted to act self-interestedly to seek to secure future work with the MSB or the PBGRP for Aerosafe's competitor, WIBIH.

[49]

Mr Dillon

Throughout the period from January to June 2016, Mr Dillon was the Chief Operating Officer of the GRA Group, including its main operating entity, Aerosafe. In this role, all staff, other than the finance and corporate services team, reported to Mr Dillon (see paragraph 140 above).
In addition, in his capacity as COO, Mr Dillon was a member of the Executive Leadership Team. Some minutes of the meetings of the Executive Leadership Team which occurred during Ms Turner's absence recorded only Mr Dillon (as COO) and Mr Morton (as CFO) as attending, with Mr Oates acting as secretary. It appears, from those minutes, that at these meetings the items addressed by Mr Dillon dominated the discussion. For example, the minutes of the meeting on 18 January 2016 record that Mr Dillon reported on meetings regarding the commencement of an engagement in relation to the Naval Technical Seaworthiness Assurance Agency (NTSwAA); raised issues about staffing gaps; addressed account planning for New Zealand; reported on dealings with the MSB; identified the need for the refining of staff job descriptions and Key Performance Indicators (KPIs); and discussed various issues with staff, payments, and end of day and end of week reporting. Similarly, the minutes of the meeting of 15 February 2016, which was also attended only by Mr Dillon and Mr Morton, record that Mr Dillon stated that he had been assisting the Director of MSB with business case preparations, and that he had identified a "high potential of more work from this"; explained that his priorities were "to drive more business [for Aerosafe], and roll existing contracts [with MSB] over/create new ones", and that he had identified a challenge to the MSB relationship from Mr Adams; reported on various matters relating to staffing, such as the recruitment of a Sydney Office manager; and raised an issue about the scope of the responsibilities of Ms Noelene Clarke, who was the Chief Risk Officer for Aerosafe and another member of the Executive Leadership Team.
The scope of the matters addressed by Mr Dillon in those minutes reflects the fact that, from 1 January 2016 to around the end of April 2016, Mr Dillon was acting CEO of the group, including Aerosafe. Ms Turner effectively handed over her role to Mr Dillon and left him in charge of Aerosafe and its business while she was on extended leave during this period (see paragraphs 144-146 above).
Moreover, throughout the period from January to June 2016, Mr Dillon was also the Aerosafe Project Manager for the MSB engagement and, in that role, he was responsible for representing Aerosafe in dealings with its most significant client. For example, he was involved in negotiating the PBGRP engagement which Aerosafe performed in February 2016, and for attending HOD ("Heads of Department") meetings at the MSB, at which business cases for future work were discussed.
Ms Turner had stressed, at the time she first approached Mr Dillon about working at Aerosafe, that his executive role would have a focus on "cultivation and expansion [of the GRA Group's business] in the defence and defence industry sectors", and that the "most significant opportunity as discussed is our work with the [Navy] and the associated Maritime Services Division [the MSB]" (see paragraph 97 above).
Further, Mr Dillon had been informed by Ms Turner, before she went on long service leave, that one of his "absolutely critical" priorities in his role as Aerosafe Project Manager was to safeguard the MSB relationship and to ensure the rollover of Aerosafe's contract with the MSB (see paragraphs 141-142 above); and he understood, as stated to Mr Morton in February 2016, that his priorities in this role were to achieve this rollover and to secure further work with the MSB for Aerosafe (see paragraphs 162-165 above).
Ms Turner had also told Mr Dillon that another of his "absolutely critical" priorities while she was away on long service leave was to ensure that Mr Harmer remained a valued part of the Aerosafe team, because he was "absolutely critical to the growth and success of the business" (paragraph 143 above).
Mr Dillon submitted that it is too large a proposition to say that he was a fiduciary in all aspects and for all purposes, relying on the statement by Wilberforce LJ in New Zealand Netherlands Society "Oranje" Inc v Kuys [1973] 1 WLR 1126 at 1130, that a person "may be in a fiduciary position quoad a part of his activities and not quoad other parts: each transaction, or group of transactions, must be looked at". That is consistent with the observations made by the Court of Appeal in Anderson v Canaccord regarding the need to focus on the scope or subject matter of the area within which the fiduciary is not free to act self-interestedly.
Given the scope of Mr Dillon's role and responsibilities as Aerosafe's Project Manager for the MSB engagement in the period from February to June 2016, which included managing the relationship on behalf of Aerosafe with the MSB and the PBGRP, seeking to secure the extension of the MSB contract and future work for Aerosafe, dealing with the PBGRP in relation to the engagement undertaken by Aerosafe and future work resulting from that engagement, and retaining the services of Aerosafe's key employees on those engagements (and, in particular, Mr Harmer and Mr Binks), I find that the scope or subject matter of the area within which Mr Dillon was not free to act self-interestedly extended, relevantly, to his dealings with the MSB and the PBGRP regarding Aerosafe's existing engagements with them and regarding potential future engagements, and his dealings with Mr Harmer and Mr Binks regarding those matters.

[50]

Mr Harmer

Mr Harmer was, by the letter of offer sent to him on 10 June 2014, offered an "executive position" with Aerosafe in the role of Vice President Defence. However, by January 2016, he no longer held that role. Several months earlier, this role had been abolished and he had been demoted to the position of Senior Risk Advisor.
Ms Turner deposed that, at the time of this change in Mr Harmer's position, she told him that she was removing his "sales role" so that he could be more "focused on the delivery of project and client work". She also told him that "there is no drop to your seniority on your project and client work", with Mr Harmer continuing to be the "team lead" of Defence projects which had already been secured.
From late 2015 through to February 2016, Mr Harmer was acting as the Project Manager for the MSB engagement. In performing this role, he was located at the MSB headquarters at Garden Island in Sydney, running the Aerosafe team that was embedded there, and was responsible for dealing, on Aerosafe's behalf, with the leadership of the MSB. By the time Mr Harmer completed this task, he had had a long and close relationship with the MSB, noting in his final report that he had "thoroughly enjoyed his recent time as PM [Project Manager] and values his 18 months working with MSB".
At the start of February 2016, Mr Harmer left the role of Project Manager at the MSB to become the lead consultant on the PBGRP engagement. This role appears to have involved direct dealings between Mr Harmer and the Director of the MSB (Captain Atkinson) and the Commander of the PBGRP. In an email of 3 February 2016, Captain Atkinson thanked Mr Harmer for taking on this role, explaining that Mr Harmer would be the "Directed Telescope" for Captain Atkinson and the PBGRP Commander and that this was require "a level of discretion and gravitas that I know you will bring to the table". The terms of this email indicate that these senior officers were particularly reliant on Mr Harmer's assistance and input on the PBGRP engagement. Ms Turner deposes that the PBGRP engagement had the budget for only one staff member to travel to Darwin and that Mr Harmer was the person selected, since he was the senior point of contact with the client on this engagement. As a result, Mr Harmer performed a significant part of the work on this engagement at the PBGRP headquarters in Darwin, was as well as being the author and presenter of Aerosafe's report on the assignment.
In being the representative of Aerosafe who was responsible for leading, in turn, the MSB engagement and the PBGRP engagement, and who was the main point of contact between Aerosafe and its Defence clients in respect of each of those engagements, Mr Harmer was in a role where significant trust was placed in him by Aerosafe, such that Aerosafe was vulnerable if he chose to abuse his position.
Ms Turner gave evidence that Aerosafe "had undertaken [the PBGRP] assessment with the expectation that it would be subsequently tasked to carry out the work" which was identified in the PBGRP Safety Management System Implementation Assessment Report. Given Mr Harmer's role in the engagement and in framing the recommendations in that report for further work, and having regard to the relationship which Mr Harmer developed with the leadership of the PBGRP and the MSB in performing this engagement, any approach regarding further work was likely going to be made via Mr Harmer, or at least discussed with him by MSB or PBGRP personnel. Aerosafe placed trust and confidence in Mr Harmer that he would inform Aerosafe of any such opportunity for further work, and seek to pursue any such opportunity on Aerosafe's behalf. Aerosafe was vulnerable if he chose not to pass on such an opportunity to Aerosafe but instead divert it to a competitor.
Following the conclusion of the PBGRP Safety Management System Implementation Assessment, Mr Harmer spent most of his time working as the Project Manager for another major engagement which Aerosafe undertook for the Navy, the NTSwAA project.
While Mr Harmer ceased performing work, for Aerosafe in relation to either the MSB or the PBGRP after March 2016, it continued to be the case in April to June 2016 that Aerosafe was vulnerable to any misuse of the relationship and influence with the MSB and PBGRP that Mr Harmer had developed, or the confidential information he had obtained, in the course of those positions.
For those reasons, in the period from January to June 2016, the scope of subject matter of the area within which Mr Harmer was not free to act self-interestedly extended to any dealings with the MSB and the PBGRP regarding Aerosafe's existing engagements, or regarding any potential future work, with those entities.

[51]

Mr Binks

Mr Binks's employment contract specified his employment level to be "Management", and described his roles and responsibilities as follows: "• Execution and support of Safety Management System Implementations • Project administration, support and coordination of project boards • Delivery and completion of agreed milestones and discrete tasking within Projects • Coaching and support to staff and leadership groups • Provision of education/briefing sessions on Safety Management System Implementation Plans (content and milestones) to key personnel • Conduct of workshops • Development of Safety and Risk Templates as required • Alignment of Health and Environment elements within Class and Base Standing Orders • Provision of support to staff and leadership groups on an as needs basis for Safety Management System Implementation • Provision of support to Aerosafe's business needs as required."
His employment contract also referred to a 5 point plan, which was to be provided to Mr Binks within 30 days of his commencing employment. The elements of this plan included the following items: "03: TASK PERFORMANCE: Deliver high quality Safety Adviser services to clients. Ensure a high level of customer support and administrative process is provided to assist client's safety implementation activities. 04: COMMERCIAL SUPPORT: Engage with external stakeholders, undertake effective networking, increase Aerosafe brand awareness and provide subject matter expertise to assist relevant commercial activities in relation to meeting Industry and Governments demands."
That is, his role included to provide services to clients on Aerosafe's behalf, and to engage in effective networking with a view to increasing commercial opportunities for Aerosafe.
From the time that Mr Binks commenced employment in January 2015 until his departure in July 2016, he was a team member on the MSB Project, embedded at the MSB headquarters in Garden Island. He was one of Aerosafe's main representatives on the 2015 Contracts, working with the MSB on a daily basis over an extended period, in order to provide services to this important client on Aerosafe's behalf. In addition, as set out in Section A above, he had dealings with the MSB regarding the scope of future services to be provided to the PBGRP, reviewing a Statement of Work and Business Case for this engagement.
For those reasons, I find that, as with Mr Dillon and Mr Harmer, the scope of the area within which Mr Binks was not free to act self-interestedly extended, relevantly, to existing or potential future engagements with the MSB and the PBGRP for the provision of services to those entities.

[52]

Statutory Duties as Employees

Sections 182 and 183 of the Corporations Act provide as follows: S 182 Use of position - civil obligations Use of position - directors, other officers and employees (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Note: This subsection is a civil penalty provision (see section 1317E). (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E). S 183 Use of information - civil obligations Use of information - directors, other officers and employees (1) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Note 1: This duty continues after the person stops being an officer or employee of the corporation. Note 2: This subsection is a civil penalty provision (see section 1317E). (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E).
As stated in the notes to ss 182 and 183, each of those provisions is a corporation/scheme civil penalty provision. Section 1317H(1) of the Corporations Act provides as follows: A Court may order a person to compensate a corporation, registered scheme or notified foreign passport fund for damage suffered by the corporation, scheme or fund if: (a) the person has contravened a corporation/scheme civil penalty provision in relation to the corporation, scheme or fund; and (b) the damage resulted from the contravention. The order must specify the amount of the compensation. Note: An order may be made under this subsection whether or not a declaration of contravention has been made under section 1317E.
I have found that each of Mr Dillon, Mr Harmer and Mr Binks was an employee of GRAGS, not Aerosafe. Insofar as Aerosafe brings a claim under s 1317H(1) based on a contravention of any obligation which Mr Harmer, Mr Binks or Mr Dillon owed as an "employee" either under s 182 or s 183, Aerosafe's claim must fail because any such contravention would not be a contravention of a provision in relation to Aerosafe (since none of them was an employee of Aerosafe): AMP Services Ltd v Manning at [54] per Finkelstein J. Conversely, insofar as GRAGS brings a claim under s 1317H(1) based on any such contravention, GRAGS's claim must fail because, as the Plaintiffs concede, no "damage resulted" to GRAGS from the contravention, within the meaning of s 1317H(1)(b).
The Plaintiffs have alleged that SME Gateway was "involved" within the meaning of ss 182(2) and 183(2) in the contravention by each of Mr Harmer, Mr Binks and Mr Dillon of his duties as an "employee", and thereby itself contravened those subsections. Any such contravention of s 182(2) or s 183(2) would be a contravention of a corporation/scheme civil penalty provision. The reasoning set out in the previous paragraph would apply equally to any claim by either GRAGS or Aerosafe pursuant to s 1317H(1) for compensation in respect of any such contravention, and therefore any such claim must also fail.
Nonetheless, in case I am wrong on the identity of the employer, I have considered the issue whether any of Mr Harmer, Mr Binks or Mr Dillon breached their duties as "employees" of Aerosafe under s 182 or s 183 in Sections E and F below.

[53]

Statutory Duties as Officers

The Plaintiffs alleged that each of Mr Dillon and Mr Harmer (but not Mr Binks) was an "officer" of Aerosafe, within the meaning of s 9 of the Corporations Act, and as such owed to Aerosafe the duties set out in ss 180 to 183 of the Corporations Act. At all material times, section 9 of the Corporations Act defined an "officer" of a corporation as meaning various persons including, relevantly: (b) a person: (i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (ii) who has the capacity to affect significantly the corporation's financial standing; or (iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation); …
The only director of Aerosafe was Ms Turner. It was not suggested that she was accustomed to act in accordance with the instructions or wishes of Mr Dillon or Mr Harmer, within the meaning of subparagraph (b)(iii) of the definition of "officer". Instead, the claim that each of them was an officer was based on subparagraphs (b)(i) and (ii) of that definition.
In Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465; [2012] HCA 18 at [23]-[27], French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ made a number of observations regarding the definition of "officer" in s 9, and in particular, subparagraph (b)(i) of that definition, including that: 1. each of the three classes of persons described in paragraph (b) of the definition of "officer" is evidently different from (and a wider class than) the persons identified in the other paragraphs of the definition. Persons identified in the other paragraphs all hold a named office in or in relation to the company, whereas those identified in paragraph (b) do not. Those identified in paragraph (b) are identified by what they do (subparagraph (i)), what capacity they have (subparagraph (ii)) or what influence on the directors they have had and continue to have (subparagraph (iii)) (at [25]); 2. there being these differences between paragraph (b) of the definition and the other paragraphs (especially paragraph (a)), it is not to be supposed that persons falling within subparagraph (b)(i) must be in substantially the same position as directors (at [25]); 3. the inquiry required by subparagraph (b)(i) of the definition must be directed to what role the person in question plays in the corporation. It is not an inquiry that is confined to the role that the person played in relation to the particular issue in respect of which it is alleged that there was a breach of duty (at [23]); 4. subparagraph (b)(i) distinguishes between making decisions of a particular character and participating in making those decisions. The notion of "participation" directs attention to the role that a person has in the ultimate act of making a decision, even if that final act is undertaken by some other person or persons. The notion of participation in making decisions presents a question of fact and degree in which the significance to be given to the role played by the person in question must be assessed (at [26]); and 5. participation in any decision of a corporation does not make a person an "officer". Rather, the decisions in which the person participates must have the significance for the business of the corporation that the statute prescribes (that is, "decisions that affect the whole, or a substantial part, of the business of the corporation"). Whether a person participates in making decisions of a particular character requires examination of what contribution that person makes to the making of a decision (at [27]). So, on the facts of Shafron, a senior executive who shaped and developed a proposal through its successive variants for the directors, presented successive proposals to them, and promoted their adoption, was held (at [31]) to have "participated" in the decision to accept that proposal.
As for subparagraph (b)(ii) of the definition of "officer", the Full Court in Grimaldi v Chameleon Mining (No 2) at [73] observed that: "the subpara (b)(ii) requirement that a person has the capacity to affect significantly the corporation's financial standing refers to the character properly to be attributed to that person's capacity in the circumstances. It may arise from the extent of that person's participation in investment decisions or financial commitments made, from the dimensions of a decision or decisions, from the nature of that person's participation in the control and direction of the affairs of the corporation, etc: cf Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [74] (ASIC v Adler). The question again is one of fact."
In the passage of Australian Securities and Investments Commission v Adler and Ors (2002) 168 FLR 253; [2002] NSWSC 171 which was cited by the Full Court in Grimaldi, Santow J held (at [74]) that Mr Adler was an officer of HIHC within subparagraph (b)(ii) of the definition because "his involvement in matters pertaining to investment [of the corporation's funds] … gave that capacity" to affect significantly the corporation's financial standing, and "more broadly because of his participation in the control and direction of the affairs of the Group". In Australian Securities and Investments Commission v King (2020) 270 CLR 1; [2020] HCA 4 at [53]-[59], Kiefel CJ, Gageler and Keane JJ referred with evident approval to these paragraphs of Grimaldi v Chameleon Mining and ASIC v Adler. Their Honours concluded at [58] that: "The reasons in Grimaldi, when read as a whole, recognise that para (b) of the definition of 'officer' expands the coverage of the duties of officers of a corporation to include individuals who would not be officers of a corporation within the ordinary meaning of the term. Grimaldi is distinctly not supportive of the view that, as a matter of law, a person who satisfies either of the requirements of para (b)(i) or para (b)(ii) of the definition does so only if that person is acting in a recognised office within the corporation."
Having regard to the language of the definition of "officer", their Honours held (at [24]) that: "While para (a) of the definition captures individuals who hold a named office in a corporation for which the Act prescribes certain duties and functions, para (b) captures those who do not hold such an office. Paragraph (b) defines 'officer' by reference to the facts of the relationship between an individual and a corporation in relation to the affairs of the corporation. The contrasting language is a powerful textual indication that Parliament did not intend to confine the class of persons described in para (b), including sub-para (ii), by an unexpressed requirement that the relationship between an individual and a corporation be identified by reference to a recognised position with rights and duties attaching to it."
In ASIC v King at [88], Nettle and Gordon JJ commented that: "Paragraph (b) is thus 'essentially functional in character, its concern being with the stipulated quality of a person's actions or capacity and their effects'. Sub-paragraphs (i) and (ii) are 'concerned with identifying persons who are involved in management of the corporation' - that is, people 'involved in policy making and decisions that affect the whole or a substantial part of the business of the corporation'. And, of course, a person may, by their conduct, satisfy more than one of the categories of officer in para (b)(i)-(iii)."
Their Honours continued (at [91]-[92]) that: "determination of whether a person falls under para (b)(ii) of the definition of 'officer of a corporation' requires consideration of the role the person played in the management of the corporation. The inquiry is not limited to any particular issue or act which the person was involved in, and which is said to constitute a breach of duty. The text of para (b)(ii) is directed to those who have the capacity to affect significantly a corporation's financial standing: not just any capacity will suffice. Determining whether a person has such a capacity depends on identifying their role in relation to the corporation, what they did or did not do (whether on a particular occasion or over time) and the relationship between their actions or inaction and the financial standing of the corporation. The quality of a person's capacity or actions, and the effects of that capacity or those actions on the management of a corporation, are not necessarily uniform across corporations or corporate groups, or even uniform within a single corporation or group. The size of a corporation, the corporate structure, the management structure, and the identity and nature of the persons involved are likely to affect who is an officer of a corporation at any point in time. Circumstances may change over time, sometimes dramatically."
Mr Dillon placed particular reliance on the fact that Ms Turner was the founder, sole director and CEO of each of the companies in the GRA Group, including Aerosafe, and asserted that, ultimately, decision-making in relation to Aerosafe rested with her. For example, he referred to evidence of the CFO, Mr Morton, that "all decision-making and approvals reside with the CEO".
It may be accepted that Ms Turner was the only person within paragraph (a) of the definition of "officer". However, in accordance with the principles set out above, it should not be supposed that those who fall within paragraph (b) of the definition must be in the same position as directors, being those to whom the management and direction of the business of the company is usually given. Further, Mr Dillon's submission ignores the distinction between making and participating in decisions: a person may participate in decisions by making a contribution to them, even if all of the decisions in question are in fact ultimately made by another person.
Mr Dillon's "Roles & Responsibilities" were identified in his Employment Agreement as follows: "a. Commercial Growth - Company Executive responsible for aggressive commercial growth initially in the New Zealand and North American markets, and then in Australian based markets. b. Business Unit Execution: Provide oversight, leadership and management of the delivery of company projects and client contracts. c. Global Supply Program: Support the CEO with the expansion and commercial exploitation of the DMO Global Supply Chain Program. d. Executive Leadership Team (ELT): Contribute to the overall company strategy, growth and success via membership on the ELT."
Ms Turner deposed that the role of the Executive Leadership Team was principally to execute the business plan and the direction she provided to the organisation, and that this included securing new business, managing client accounts, managing the delivery of project operations, key hiring decisions and the ongoing review and improvement of the business's operations and performance.
Ms Turner also deposed that Mr Dillon was, as Chief Operating Officer, one of the "3Cs" (together with Ms Clarke as CRO and Mr Morton as CFO). The 3Cs were Ms Turner's only direct reports, with all other staff reporting to the 3Cs. Mr Morton explained that the 3Cs team "was involved in supporting Ms Turner in strategic decision making".
Ms Turner provided examples of Mr Dillon's participation, as COO, in decision-making that affected the company's operations. For example, Ms Turner gave unchallenged evidence that: 1. it was Mr Dillon who proposed to her, and she agreed, that Mr Harmer should be removed from his position as Vice President Defence. This in itself was a significant decision. Ms Turner indicated that she had decided to create the role of Vice President Defence in order "to reshape the leadership team to strengthen and grow" the Defence Business Unit; 2. it was Mr Dillon's decision, not Ms Turner's, to terminate Mr Johnston from the role of Vice President Aviation. Ms Turner explained that Mr Dillon had crafted the job description for this position and formed the view that Mr Johnston was not suitable for the role. This was, like the role of Vice President Defence, a role that Ms Turner had created as part of the strategy of reshaping the leadership team and growing the business; 3. it was Mr Dillon who proposed to Ms Turner, and she agreed, that he should take on the roles of both Chief Commercial Officer and Chief Operating Officer, as there were substantial overlaps between the two roles and it was more efficient for one person to have both functions. Ms Turner noted that this plan resulted in a reorganisation of reporting lines, with all staff (other than finance and corporate services) now reporting to Mr Dillon; and 4. it was Mr Dillon who proposed to Ms Turner, and she agreed, that he should take over the role of Project Manager at the MSB, given its importance for Aerosafe's business. Ms Turner told him that his "most important goal" in this role was to do "whatever you need to do to secure" the rollover of the MSB contract, describing this as "your number one priority". Mr Dillon understood this to be the case, as reflected in his following comments at the meeting of the Executive Leadership Team on 15 February 2016: "MSB occupying the majority of the COO's time (priorities are to drive more business, and roll existing contracts over/create new ones - for PM [Mr Harmer] and Craig Binks".
Further, Ms Turner gave unchallenged evidence that for a period of several months in early 2016, while she was on long service leave, she "left the day to day operation of Aerosafe to Mr Dillon and the other Executive Leadership Team members" and that she "trusted Mr Dillon completely and felt he was able to perform that role for a short period without input from me and with the continuing support of Ms Clarke and Mr Morton". That is, in this period, which is when much of the conduct in issue is alleged to have occurred, Mr Dillon was, as acting CEO, performing Ms Turner's role in relation to the GRA Group with minimal input from Ms Turner and with the support of the other members of the "3Cs", namely, the Chief Risk Officer and the Chief Financial Officer. As already noted above, Ms Turner informed staff in a broadcast email in early January 2016 that she was "handing over the oversight of the company to Scott as COO in my absence"; and Mr Morton gave unchallenged evidence that Ms Turner stated on a number of occasions that "she wanted Mr Dillon to act on her behalf while she was away" (see paragraphs 144-146 above)
Given those matters, I find that Mr Dillon was an officer of Aerosafe in the relevant period, from January 2016 to June 2016, as he made or participated in making decisions that affected the whole or a substantial part of the business of Aerosafe. Further, by his role in managing Aerosafe's engagement and relationship with its most important client, MSB, including being primarily responsible for the performance of the 2015 Contracts, for ensuring the extension of those contracts and for securing further work with the MSB, he had the capacity to affect significantly Aerosafe's financial standing.
As an officer of Aerosafe, Mr Dillon owed the duties in ss 182(1) and 183(1) of the Corporations Act, which have already been set out above, and also the duties in ss 180(1) and 181(1), which provide as follows: S 180 Care and diligence - civil obligation only Care and diligence - directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. Note: This subsection is a civil penalty provision (see section 1317E) … S 181 Good faith - civil obligations Good faith - directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. Note 1: This subsection is a civil penalty provision (see section s 1317E). Note 2: Section 187 deals with the situation of directors of wholly-owned subsidiaries.
In contrast, I do not consider that Mr Harmer was an officer of Aerosafe. After his removal as Vice President Defence, he was no longer part of the Executive Leadership Team.
The change in Mr Harmer's responsibilities following this change in role is illustrated by the fate of Mr Harmer's "10 point plan". In the letter of offer of June 2014, Aerosafe stated that Mr Harmer would be provided with "a 10 point plan outlining your roles and goals for the 2014-2015 financial year". In turn, his employment contract stated the following in respect of "Roles & Responsibilities": "Reference the following resources/documents: … VPD [Vice President Defence] 10 Point Plan". Further, it provided that the "priority and focus of the first three to six months of employment will be the '10 point plan' provided by the CEO during the induction".
The document in question was headed "10 Point Plan - Vice President Defence". That is, it was a document specifically tied to the position which was subsequently abolished in around September 2015. The elements of this plan were as follows: "01: ESTABLISH ENHANCED OVERSIGHT FOR DEFENCE ACTIVITIES: Consolidate the company's defence activities into a new VP level Executive Portfolio (including strategy/commercial/account/contract/staff/project management). 02: SALES PLAN: Develop and implement a targeted company sales plan for the Australian Defence market that delivers on the growth plan for the Defence portfolio. 03: EXISTING AND PAST CLIENTS: Achieve sustained and enhanced commercial outcomes from past and existing Defence Clients - building strong relationships. 04: DEFENCE TRAINING: Aggressively grow the company's defence training business both in Canberra and nationally. 05: HAZARD PROFILES: Aggressively grow the company's hazard profiling product line including IP protection both nationally and internationally. 06: CANBERRA PRESENCE: Visibly [sic] grow Aerosafe's Canberra presence and associated staffing base to 25-30 consultants within 2 years. 07: CONSULTANCY PLACEMENTS: Actively seek out and secure Aerosafe market presence for onsite consultancy placements. 08: DEFENCE PANELS: Secure Aerosafe's position on Defence panels to facilitate planned growth. 09: CRM SOFTWARE IMPLEMENTATION: Implement Client Relationship Management Software for the Defence business unit. 10: COMMERCIAL GROWTH: Achieve the agreed commercial outcomes for the Defence business unit, positioning this portfolio to expand and integrate the company's Global Supply Chain and Overseas Defence activities."
Point 1 was no longer applicable when the role of Vice President Defence was abolished. As for Points 2-10, Ms Turner confirmed in cross-examination that, following the change in Mr Harmer's position, responsibility for nearly all of these elements of the Plan was removed from Mr Harmer and was transferred to the Executive Leadership Team or other staff within the organisation. Although acting as Project Manager of the MSB engagement for a brief period, Mr Harmer reported to Mr Dillon in that role, and it was Mr Dillon who was given responsibility for securing Aerosafe's engagement and relationship with the MSB.
Having regard to those matters, I conclude that, in the period from January to June 2016, Mr Harmer did not make or participate in making decisions that affected the whole or a substantial part of the business of Aerosafe, and did not have the capacity to affect significantly Aerosafe's financial standing, and therefore was not an officer of Aerosafe.
In case I am wrong, I have considered in Sections E and F below whether Mr Harmer breached any of the statutory duties set out in ss 180 to 183 of the Corporations Act by his conduct in respect of the MSB and the PBGRP engagements (assuming, contrary to my findings, that he owed such duties to Aerosafe)

[54]

Election of Mr Harmer, Mr Binks and Mr Dillon not to give evidence

The Plaintiffs' case on breach largely depended on inferences to be drawn from particular documents, read in the light of the whole of the evidence. In considering the inferences available to be drawn, the Court may take account of the fact that each of Mr Harmer, Mr Binks and Mr Dillon elected not to give any evidence in defence of the claims made against them, in circumstances where the nature and extent of their conduct, and their motivations or any explanation for their conduct, were matters within their own knowledge. Accordingly, the Court is entitled to draw an inference against each of them that their evidence would not have assisted their case; and to draw, with greater confidence, inferences against them that are open on the evidence. As Kitto J put it in Jones v Dunkel (1959) 101 CLR 298 at 308: "any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence".
In Ling v Pang [2023] NSWCA 112 at [27], Kirk JA said (Leeming and Mitchelmore JJA agreeing) that: "What underlies the principle in Jones v Dunkel is that the failure to call the witness 'serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party': Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8; at 320-1 at 320-321 per Windeyer J; see also Fabre v Arenales (1992) 27 NSWLR 437 at 449 per Mahoney JA."
As Rich J observed in The Insurance Commissioner v Joyce (1948) 77 CLR 39 at 49, "when circumstances are proved indicating a conclusion and the only party who can give direct evidence of the matter prefers the well of the court to the witness box a court is entitled to be bold".
A Jones v Dunkel inference is not a substitute for evidence. If there is no evidence of a matter, the inference cannot fill the void: Bellevarde Constructions Pty Ltd v L'Officina by Vincenzo Australia Pty Ltd [2022] NSWCA 246 at [37] per Brereton JA (White JA and Simpson AJA agreeing). Nonetheless, while the silence of one party cannot "fill the place of actual evidence on an issue", it may "serve to resolve a doubt or an ambiguity, especially where the facts are peculiarly within the knowledge of the silent party": Tozer Kemsley & Millbourn (Australasia) Pty Ltd v Collier's Interstate Transport Service Ltd (1956) 94 CLR 384 at 403; [1956] HCA 6 per Fullagar J.
In considering whether the Plaintiffs' case has been established, it is necessary to have regard to the inferences available from the evidence as a whole, and not simply from individual pieces of evidence. In Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 at [90], Spigelman CJ observed that: "Proof on the balance of probabilities, indeed on the beyond reasonable doubt standard, may be established on the basis of circumstantial evidence. As Lord Cairns said in Belhaven and Stenton Peerage [1875] 1 AC 278 at 279: 'My Lords in dealing with circumstantial evidence, we have to consider the weight which is to be given to the united force of all the circumstances put together. You may have a ray of light so feeble that by itself it will do little to elucidate a dark corner. But on the other hand, you may have a number of rays, each of them insufficient, but all converging and brought to bear upon the same point, and, when united, producing a body of illumination which will clear away the darkness which you are endeavouring to dispel.'"
When it comes to considering whether, having regard to such inferences as arise on the evidence as a whole, the case against the Defendants has been established on the balance of probabilities, it is necessary to take into account the nature of the cause of action, the nature of the subject matter of the proceeding, and the gravity of the matters alleged: Evidence Act, s 140(2); Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 per Dixon J; [1938] HCA 34; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450 per Mason CJ, Brennan, Deane and Gaudron JJ; [1992] HCA 66.

[55]

Pleading

The Plaintiffs' pleading of breach in respect of the MSB engagement is as follows (Further Amended Statement of Claim, paragraph 71): "Between January 2016 and June 2016, and in breach of their respective duties to the Plaintiffs …, Mr Harmer, Mr Binks and Mr Dillon: a. having on 15 February 2016 assured the Plaintiffs that MSB was likely to roll over or extend the 2015 Contracts in favour of Aerosafe, told key personnel at the MSB on or before 26 February 2016 that the Plaintiffs were intending to change staff and staffing levels such that the Plaintiffs would not be capable of providing further services to the MSB; and b. told key personnel at the MSB that they (being Mr Dillon, Mr Harmer and Mr Binks) would soon be leaving the Plaintiffs; and c. told key personnel at the MSB that the Plaintiffs' business was beset with internal problems, staff dissatisfaction and staff losses, leadership tensions, capacity issues in the servicing of contracts, capacity and availability of key personnel; and d. told key personnel at the MSB that they (Mr Dillon, Mr Harmer and Mr Binks) would be available to undertake work similar in nature to work undertaken by the Plaintiffs pursuant to the 2015 Contracts and would be available to do so immediately on their leaving the Plaintiffs' employ; and e. accessed confidential information on staff selection and recruitment lists created by the Plaintiffs and used that information to source employees for WIBIH; and f. attempted, on behalf of WIBIH to recruit or employ employees of the Plaintiffs; g. from March 2016 took documents and other records of the Plaintiffs containing information confidential to the Plaintiffs including that identified respectively in Schedules A, B and C hereto. h. prior to and in April 2016, Mr Dillon assured the Plaintiffs that the roll-over of the 2015 Contracts was likely and he was working to ensure the roll-over of the 2015 Contracts whereas Mr Harmer, Mr Binks and Mr Dillon were in fact taking steps to have the MSB award contracts not to Aerosafe but to SME Gateway and WIBIH for work which would otherwise have been performed by Aerosafe under the 2015 Contracts and the rollovers to the 2015 Contracts."
The Plaintiffs did not press the pleading of breach in paragraph (c) above, and the pleading of breach in paragraph (g) is addressed by the undertakings that have been given by Mr Harmer, Mr Binks and Mr Dillon in respect of the confidential information said to have been downloaded by each of them (see Section J below).
The Plaintiffs accepted that they did not seek to make a case that Mr Harmer, Mr Binks and Mr Dillon engaged in a conspiracy or joint enterprise, and did not contend that any conduct on the part of one of them constituted conduct on the part of another. Accordingly, in order to establish breach of any particular defendant, it was necessary to establish that such defendant himself engaged in conduct which constituted a breach of his duty.

[56]

Mr Dillon

Mr Carmichael's email of 26 February 2016 is critical to the Plaintiffs' claim of breach. In particular, the Plaintiffs rely on the terms of this email in order to establish that Mr Dillon told personnel at the MSB that he, Mr Harmer and Mr Binks would be leaving the Plaintiffs, and would be available (through WIBIH), immediately after leaving the Plaintiffs, to provide services to the MSB similar to those provided by Aerosafe under the 2015 Contracts.
Although it is undoubtedly the case that the MSB was aware, by around May 2016 that Mr Dillon, Mr Harmer and Mr Binks would be available through WIBIH to perform work similar to that which they had undertaken as part of the Aerosafe team, the reason why it is important for the Plaintiffs to establish that these matters were conveyed to the MSB by around the end of February 2016 is that the MSB appears to have decided, by March 2016, not to exercise the option to extend the 2015 Contracts, and instead to put the next engagement out to a competitive tender. WIBIH was unsuccessful in that tender and the Plaintiffs accordingly have not sought any account of profits. Instead, the Plaintiffs have sought equitable compensation, on the basis that, but for the Defendants' conduct in breach of their duties, the 2015 Contracts would have been renewed or alternatively the contract to supply services to the MSB in the 2016/2017 financial year would have been awarded to Aerosafe. The Plaintiffs acknowledged that it was necessary for them to establish some conduct on the part of the Defendants, in breach of their duties, which caused or materially contributed to the MSB's decision not to renew Aerosafe's engagement and instead go to competitive tender. As Senior Counsel for the Plaintiffs put it: "It is an important part of our case in this regard that Mr Dillon set this decision in motion. We have to start with that." The Plaintiffs did not press a case that, if Mr Dillon did not set this decision "in motion" and instead only found out about the decision some time after the event and then failed to report this to Aerosafe, any such conduct was causative of loss.
Mr Dillon contended that the interpretation of Mr Carmichael's 26 February 2016 email was largely a matter of conjecture. In particular, he submitted that: 1. the three "highly competent staff" whom the MSB wanted to retain are unidentified and unidentifiable, given that there were some six Aerosafe staff who had spent significant time working at the MSB in the period up to February 2016 and who had not left Aerosafe as at the time of Mr Carmichael's email; 2. the two "risk and safety companies" who were willing to employ the Aerosafe staff are unidentified, and it is unlikely that WIBIH was one of them, as it could be expected that, if Mr Dillon had approached the MSB on behalf of WIBIH while working as Aerosafe Project Manager, Mr Carmichael would have expressed concerns about the probity of Mr Dillon's conduct; and 3. the form of the "unofficial indication" that staff were planning to leave Aerosafe is a matter of conjecture, and it may have been the case that Mr Carmichael, or some other MSB personnel, simply overheard some comments which were interpreted as revealing the intentions of the individuals concerned.
The problem with these submissions is that they seek to take statements in the email in isolation from each other and in isolation from the rest of the evidence.
The starting point is that Mr Carmichael states that he has been approached by two risk and safety companies which have indicated a willingness to take on current Aerosafe staff, and which were not panel members. There is evidence that two risk and safety businesses were in the first half of 2016 seeking to recruit Aerosafe staff who were, or had been, working at the MSB: namely, WIBIH (which in fact recruited Mr Harmer and Mr Binks) and Mr Adams's business, Henderson Consulting.
It is not known on the evidence whether the business referred to as Henderson Consulting is the same as VizionX Pty Ltd, which subsequently provided services to the MSB in the 2016/2017 financial year. VizionX was also associated with Mr Adams, and appears to have successfully recruited Mr Don Hampton, who had been a member of Aerosafe's team at the MSB in the 2015/2016 financial year. It is unknown when Mr Adams approached Mr Hampton about working for VizionX. However, given that Mr Hampton was working for Aerosafe up to the end of June 2016, and is named as a VizionX staff member immediately afterwards, and given that there is evidence that Mr Adams was seeking to recruit Aerosafe staff prior to June 2016, it is likely that Mr Hampton was approached by Mr Adams while Mr Hampton was still working for Aerosafe, and that this approach prompted his departure from Aerosafe.
WIBIH was not a panel member, and it may well be the case that Mr Adams's business was not a panel member, since Henderson Consulting performed work as subcontractor to Beca, and VizionX as subcontractor to Nova.
It is highly unlikely that, as Mr Dillon suggested in submissions, Mr Carmichael would have referred to "two" companies approaching MSB, if he had been approached only by one person (Mr Adams) who represented two entities (Henderson and VizionX, assuming they are distinct) and who proposed that he could bid for work through either vehicle.
Further, in April and May 2016, the MSB was dealing with WIBIH in relation to the PBGRP engagement, and was recommending that WIBIH be engaged to perform that engagement, on the basis that WIBIH would be employing certain current Aerosafe staff who had experience in working with the MSB and the PBGRP, namely, Mr Dillon, Mr Harmer and Mr Binks.
In those circumstances, it can readily be inferred, and it is more likely than not, that WIBIH was one of the entities which approached the MSB, expressing an intention to employ Aerosafe staff (and, in particular, Mr Dillon, Mr Harmer and Mr Binks) when Aerosafe's 2015 Contracts came to an end.
Mr Dillon's counsel accepted that: "If WIBIH is approaching anyone, it's Dillon who is approaching the Defence people. A company acts through its agents. It would be Dillon who is having the conversation".
As noted above, Mr Dillon argued that, if he had approached Mr Carmichael in February 2016, offering to perform work for the MSB using current Aerosafe staff, this would have raised probity concerns on Mr Carmichael's part, and the absence of expression of any such concern means that this is unlikely to have occurred. In fact, the addressee of Mr Carmichael's email, Mr Whitelaw, did immediately raise a question about whether the Navy would be acting in "bad faith", but appears to have understood that, so long as the Navy was not the party who made the approach, then such a question did not arise (at least on the Navy's part). Further, it is undoubtedly the case that the MSB was aware in the months which followed that Mr Dillon was, through WIBIH, offering to perform work for the Navy using current Aerosafe staff, and that no probity concern was expressed by anyone within the MSB. Instead, the MSB strongly encouraged the PBGRP to direct work to WIBIH in those circumstances. Further, when Mr Carmichael met Ms Turner in early July 2016, he did not see any need to disclose to her that, in the previous months, Mr Dillon, while being the Aerosafe's Project Manager on the MSB engagement, had pitched for, and successfully obtained, the PBGRP engagement for WIBIH on the basis that WIBIH would employ current Aerosafe staff. Instead, Mr Carmichael told Ms Turner that he did not know what was happening in relation to that engagement.
Counsel for Mr Dillon submitted that the "more natural" reading of Mr Carmichael's statement that the MSB had been "approached by two risk and safety companies that are willing to employ our current Aerosafe staff (who have unofficially indicated their intention to separate from Aerosafe at contract close)" was that the staff's intention was communicated by the company which approached the MSB, rather than by the staff themselves, and that this explained why it was an "unofficial" indication. In circumstances where I have found that it was likely that WIBIH, represented by Mr Dillon, was one of the two companies that approached the MSB, the effect of the reading advanced by Mr Dillon was that he himself advised the MSB that Aerosafe staff were intending to leave and that he was intending to employ them through WIBIH.
On the evidence, the only members of the Aerosafe team working at the MSB whom WIBIH, through Mr Dillon, sought to recruit are Mr Harmer and Mr Binks. That makes it likely that Mr Dillon told the MSB that Mr Harmer and Mr Binks were intending to leave Aerosafe at the conclusion of its contract with the MSB (scheduled for end May), and that both he and they would then be available for engagement through WIBIH.
Further, it is likely that, of the six current Aerosafe personnel who were working at the MSB in the period leading up to February 2016, it was Mr Dillon, Mr Harmer and Mr Binks whom the MSB regarded as the three "highly competent staff who we would like to retain due to their in depth knowledge of the undertaking". This conclusion is supported by the fact that the MSB did subsequently involve these three staff (and no other Aerosafe personnel) in drafting the business cases for the MSB engagement and the PBGRP engagement in March 2016; that the MSB did take steps from April to June 2016 to direct work, namely, the PBGRP engagement, to WIBIH on the basis that these three staff were available through WIBIH; and that there is no evidence of the MSB expressing any desire to direct future work to any other Aerosafe staff member in the period from February to June 2016.
There can be little doubt that Mr Dillon and Mr Binks were regarded as highly competent by the MSB. Although Mr Dillon had only been full-time at the MSB since the start of February 2016, his arrival coincided with the arrival of a new Director of the MSB, Captain Standen, and it is clear from their subsequent dealings that Captain Standen valued Mr Dillon's abilities. For example, he subsequently sought Mr Dillon's input and advice on the draft business cases for the new MSB and PBGRP engagements. As for Mr Binks, there are a number of statements in evidence from Mr Carmichael to the effect that Mr Binks was the member of the Aerosafe team whom the MSB most highly valued, and was the person whose services the MSB was most keen to retain.
Mr Harmer resisted the contention that the MSB regarded him as "highly competent", pointing to statements which expressed some dissatisfaction on the part of the MSB with his performance. In particular, he referred to evidence from Ms Turner that Captain Standen had said in mid-February 2016 (shortly before Mr Carmichael's email): "Andrew is not my preference of Aerosafe team members, I have more confidence in and would prefer Scott Dillon. Andrew's performance is not as good as I expected it would be given the experience you said he had."
Read in context, this was a statement solely about Mr Harmer's performance as acting Project Manager, in the context where Captain Standen was very keen for Mr Dillon to remain in that role. The relevant conversation opened with Captain Standen saying: "I would like Aerosafe to keep Scott [Dillon] at MSB and that he remain in the project management role here". Ms Turner initially resisted this suggestion, on the basis that Mr Harmer had greater experience with the MSB. Captain Standen's remarks do not convey any broader dissatisfaction with Mr Harmer's abilities, particularly since, shortly before this statement was made, the MSB specifically nominated Mr Harmer as a person whom they wanted to perform the PBGRP engagement. The Director of the MSB thanked Mr Harmer for taking on this role, commenting that it "requires a level of discretion and gravitas that I know you will bring to the table".
There is evidence of various other statements being made by the MSB in appreciation of Mr Harmer's work, both before and after Mr Carmichael's email of 26 February 2016. For example, in a report of the Defence Business Unit for August 2015, it was recorded that Mr Harmer "was given a BZ by CAPT Atkinson to DMSB [the Director of the MSB] for the quality of his work". A "BZ" is a Bravo Zulu, which is a naval signal for "well done". Similarly, in a report of the Defence Business Unit for September and October 2015, it was recorded that Mr Harmer had provided certain consultancy services and that this "body of work was well received by the MSB and its customers". Further, as at the time of Mr Carmichael's email, Mr Harmer had already been working on the PBGRP engagement for several weeks, and it is plain from subsequent emails between the MSB and the PBGRP that this work was highly valued. On 19 May 2016, Captain Standen advised the PBGRP that it should contract with WIBIH via SME Gateway, specifically because "that way our contractors that you already are familiar with (Andrew Harmer) can then undertake the work and will slot in far more easily as they already have a very clear and detailed understanding of the nature of the task and the environment within which it will be executed". On 1 June 2016, Captain Standen sent an email to Captain Harris of the PBGRP, stating that it "is MOST important" that "a company called SME Gateway" be selected for the PBGRP, explaining: "This will then enable the selection of the people who are already very familiar with the PBGRP environment and will include Andrew Harmer who has already done a lot of work up there earlier this year as you know". On 2 June 2016, Captain Standen sent a further email to Captain Parker of the PBGRP and Commander Barton and Mr Ramsay of the Navy Contracting Bureau, stating that it was "absolutely imperative we get specific people" for the PBGRP engagement, and in particular Mr Harmer and Mr Binks who were described as "the people we need". Finally, on 21 June 2016, Commander Barton named Mr Harmer, Mr Binks and Mr Dillon as "the three specialist staff recommended by MSB as being highly suited and appropriate for the PBGRP".
For those reasons, I find that: 1. Mr Dillon had, by late February 2016, approached the MSB on behalf of WIBIH and had informed MSB staff that he, Mr Harmer and Mr Binks were intending to leave Aerosafe at the end of its current engagement, and would then be available for similar work through WIBIH; and 2. Mr Dillon, Mr Binks and Mr Harmer are three highly competent Aerosafe staff referred to in Mr Carmichael's email, whose services the MSB wished to retain.
These inferences may be more confidently drawn in circumstances where Mr Dillon was uniquely placed to give evidence regarding what he did, or did not, say to Mr Carmichael, and chose not to do so, preferring "the well of the court to the witness box" (to adopt the language of Rich J in The Insurance Commissioner v Joyce at 49).
One further available inference, which would explain why the MSB received similar approaches by two different "risk and safety" companies at around the same time, both indicating a willingness to employ the key Aerosafe staff who were currently doing work for the MSB, is that the following sequence of events occurred. First, Mr Adams (whom Mr Dillon had identified as a competitive threat in February 2016) approached the MSB pitching for the services currently being performed by Aerosafe, and letting Aerosafe staff (including Mr Harmer and Mr Binks, with whom Mr Adams had worked at Aerosafe) know that he would be willing to employ them if he secured the work. Secondly, Mr Dillon was informed of Mr Adams's overtures, saw an opportunity to take a similar course to Mr Adams, discussed this with Mr Harmer and Mr Binks, and then indicated to the MSB that he could, through WIBIH, offer the same services as Mr Adams had offered through Henderson Consulting, with WIBIH having the advantage of being able to offer the lead member of the PBGRP engagement (Mr Harmer) and the Aerosafe staff member who was most valued by the MSB (Mr Binks). This would be consistent with the known facts that each of Mr Adams and Mr Dillon, through different companies, sought in early 2016 to perform services for MSB when Aerosafe's current contract expired; and that each of Mr Adams and Mr Dillon sought, in the early months of 2016, to secure current Aerosafe team members for their own company. It is not necessary, however, to reach any concluded view on the means by which Mr Dillon conceived of the plan to secure any future engagement with the MSB for WIBIH rather than Aerosafe, or the precise sequence of the approaches by Mr Adams and Mr Dillon.
As a result of Mr Dillon's approach to the MSB, and as set out in Mr Carmichael's email of 26 February 2016 and the chain of emails which followed, the MSB was interested in finding an arrangement, whereby Mr Dillon, Mr Harmer and Mr Binks would remain available to perform work for the MSB when Aerosafe's current engagement under the 2015 Contracts ended. This conclusion is further supported by the following matters. First, according to Mr Carmichael's email of 26 February 2016, the two "risk and safety companies" pitching for work with the MSB (which included WIBIH) had been arguing that "there would be financial savings" in the MSB seeking a tender for services "outside existing panel arrangements". However, when Mr Carmichael raised this with the Navy Contracting Bureau, he was told, at the start of March 2016, that it was mandatory for the MSB to seek services via the CAS-SS Panel. It is likely that Mr Carmichael (or someone else within the MSB) passed this information on to Mr Dillon as this would explain why, a short time after arguing for a tender outside panel arrangements, Mr Dillon approached SME Gateway on 11 March 2016 to discuss membership for WIBIH (and therefore access to the CAS-SS Panel), with Mr Dillon explaining that WIBIH had "a lead on a RFQTS that should be issued to SME Gateway soon and targeted to WIBIH". Secondly, in March 2016, Mr Dillon and Mr Binks were seeking to recruit Ms Sommerfeld to work at WIBIH on the basis that there was going to be some new risk and safety work on site, with Mr Binks later explaining that: "We have been approached by a Commander in the Navy who is able to provide us with some inside information on a tender which is about to come out. W.I.B.I.H. is a start-up but we've got reliable work opportunities because we are working here on site every day and we have people assisting us from the inside."
In addition, the factual findings in Section A establish the following matters. In February 2016, Mr Dillon informed Mr Morton that it was likely that the MSB would extend Aerosafe's contracts and that his personal priority was to ensure this occurred. However, in March 2016, while he was Aerosafe's Project Manager on the MSB engagement and its acting CEO, Mr Dillon worked, with Mr Harmer, on the business case for the provision of services to the MSB under a new arrangement from July 2016 onwards, and was aware that the MSB was planning not to extend the 2015 Contracts, but concealed those matters from Aerosafe. Further, during March to June 2016, Mr Dillon was, while COO of Aerosafe, taking steps to recruit staff for WIBIH, and to obtain membership with SME Gateway, in order to ensure that WIBIH was in a position to compete with Aerosafe to obtain the same work which Ms Turner had directed Mr Dillon to seek to secure for Aerosafe.
Having regard to the matters outlined above, I find that the Plaintiffs have established the following elements of their pleaded case against Mr Dillon, namely: 1. that Mr Dillon told key personnel at the MSB, by 26 February 2016, that he, Mr Harmer and Mr Binks would soon be leaving Aerosafe, and would be available, immediately upon their departure, to undertake (through WIBIH) work similar in nature to work undertaken by Aerosafe under the 2015 Contracts (Further Amended Statement of Claim, paragraphs 71(b) and (d)); 2. that Mr Dillon attempted, in the period January to June 2016, to recruit or employ, on behalf of WIBIH, employees of the Plaintiffs (namely, Mr Harmer and Mr Binks), and accessed Aerosafe's records to obtain Ms Sommerfeld's contact details in order to seek to recruit her for WIBIH (Further Amended Statement of Claim, paragraphs 71(e) and (f)); and 3. that Mr Dillon, while assuring the Plaintiffs that he was working to ensure the roll-over of the 2015 Contracts and that this was likely to occur, was taking steps from March 2016 onwards in order that WIBIH could seek to obtain (via SME Gateway) the work which Aerosafe would have performed if those contracts had been extended (Further Amended Statement of Claim, paragraph 71(h)).
Mr Dillon's conduct on behalf of WIBIH amounted to a breach of the express clause in his Employment Agreement with GRAGS that he was "not to be engaged directly or indirectly, in any capacity with trade business or occupation other than that with Global Risk Alliance without the written consent of the CEO or as specified in the employee's letter of employment". On the evidence, neither of these exceptions was engaged.
Mr Dillon's conduct also amounted to a breach of the obligation of fidelity and good faith which was implied into his employment contract with GRAGS. At the time of this conduct, Mr Dillon was COO of the GRA Group, acting CEO, a member of the Executive Leadership Team, and the Project Manager for the MSB engagement. Having regard to his seniority within the GRA Group, it was a breach of Mr Dillon's implied obligation of fidelity and good faith for him to set up and operate a business in competition with the GRA Group; to solicit, on behalf of WIBIH, a relationship with the GRA Group's major client, the MSB; to seek to divert valuable business opportunities with the MSB from Aerosafe to WIBIH; to recruit GRAGS employees to work for WIBIH in competition with Aerosafe; and to conceal these matters from the GRA Group, and instead to report that he was working to obtain the opportunity of further work with the MSB for Aerosafe's benefit.
The Defendants relied on the following statement by Besanko J in Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248 at [338]: "An employee may take certain preparatory steps towards new employment or a new business without breaching his or her duties to his or her existing employer. What may be done without breaching the duties of fidelity and good faith will depend very much on the particular circumstances of the case: Robb v Green [1895] 2 QB 1 per Hawkins J; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37; Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2007] FCA 1621; Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 2."
As McDougall J pointed out in Manildra Laboratories v Campbell at [82], it does not follow that it can never be a breach of contractual or fiduciary obligation to take steps, during the currency of employment, to set up a business that will, after the termination of employment, complete with the employer. His Honour observed that: "if this conclusion [of breach] is to be reached, it will be because some or all of the steps taken involve a breach of duty, not because, collectively they can be described as 'preparing to compete'."
In this regard, the relevant principles were helpfully summarised by Tracey J in Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 2) [2012] FCA 512 at [112]-[117], as follows: "Whilst it is permissible for some preparatory work to be undertaken outside normal business hours, fiduciary and contractual obligations can, and do, continue to bear on employees when they are not engaged in work for their employer. Such obligations cannot, routinely, be cast aside at the factory or office door. As Palmer J observed in Digital Pulse the 'obligations imposed by the duty are not coterminous with the employee's normal working hours.' The issue to be determined is whether particular activities, undertaken by the particular employees in relation to the establishment of a competitive business, could materially affect their employer's business interests. As his Honour said, the answer to this question involves matters of fact and degree. One activity which will normally be found to be in conflict with an employee's contractual and fiduciary obligations is approaching clients of the employer and attempting to have them become customers of the proposed new business. As Lord Greene MR said in Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 at 177 '[it] would be a curious result if … [an employee] could set himself during his spare time deliberately to injure the goodwill of his master's business by trying to get his customers to leave him.' See also: Wessex Dairies Ltd v Smith [1935] 2 KB 80 at 85; AMP Services Ltd v Manning [2006] FCA 256 at [60]; Deeson Heavy Haulage Pty Ltd v Cox (2009) 82 IPR 521 at [101]. It matters not whether it is the employee or the prospective customer who initiates the discussion in which the employee seeks to obtain the customer's business for the new enterprise: see Sanders v Parry [1967] 2 All ER 803 at 808-809; Dinte v Hales [2009] QSC 63 at [24]. A conflict will also arise if the employee seeks to persuade fellow employees to resign their employment and accept positions in the new business: see Warman International at 556, 566. To act in this way is to breach an employee's duty 'not to improperly use his position to cause detriment to his employer': see WA Fork Truck Distributors at [67]. If an employee who is taking preparatory steps with a view to setting up a competitive business fails to inform his or her employer about what he or she is doing and actively seeks to ensure that the employer does not become aware that the preparatory steps are being taken, it may reasonably be inferred that the employee is aware that what he or she is doing is antipathetic to the interests of the employer: see Able Tours v Mann (2009) 187 IR 1 at [185]-[186]. A breach of duty will also arise if the employee uses his or her employer's resources to assist in the establishment of a competitive business: Digital Pulse at 439 [127]-[128]."
In Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at 300, Pincus J observed that: "Whatever the extent of the employee's implied obligation to an employer, it cannot be consistent with them to try to persuade persons having valuable commercial connections with the employer to break those connections. The 'good faith and fidelity' mentioned in Robb v Green [1895] 2 QB 315 at 320, implicit in every contract of employment, required that in this matter, [the employees] attempt to preserve the employer's interest, not to destroy it for the benefit of a potential competitor".
In the present case, the steps taken by Mr Dillon, while a senior employee and officer of the GRA Group, included steps taken in order to advance the interests of a competitor, WIBIH (in which he had a personal financial interest), including by soliciting other employees to join WIBIH, and soliciting one of Aerosafe's main clients to obtain services from WIBIH.
Similarly, Mr Dillon's conduct breached the fiduciary obligation, which he owed to the Plaintiffs, not to promote his personal interests by pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests of the fiduciary and the interests of Aerosafe: Pilmer v Duke Group Limited (in liq) at [78].
In addition, by his conduct, Mr Dillon breached the duties that he owed: 1. as an officer of Aerosafe, pursuant to s 181 of the Corporations Act, by failing to exercise his powers and duties (in particular, as COO, acting CEO and Project Manager in respect of the MSB project) in good faith in the best interests of Aerosafe and for a proper purpose; and 2. as an officer of Aerosafe and an employee of GRAGS, pursuant to s 182 of the Corporations Act, by improperly using his position to seek to gain an advantage for himself or someone else (WIBIH) or to cause detriment to Aerosafe.

[57]

Mr Harmer

The steps taken by Mr Harmer between January and June 2016 in order to promote WIBIH's interests were not as extensive as those of Mr Dillon. There is no evidence, for example, that he sought to recruit any Aerosafe staff to work for WIBIH, nor is there a sufficient basis to infer any such conduct on his part. It is more likely that any approach to, for example, Mr Binks was made by Mr Dillon on behalf of WIBIH, rather than Mr Harmer.
Whether or not Mr Harmer personally told any MSB personnel in February 2016 that he was intending to leave Aerosafe at contract close and work for a rival, it is likely that he was aware that Mr Dillon intended to, and did, approach the MSB and communicate those matters. That is because a short time after Mr Carmichael's email of 26 February 2016, Mr Harmer was joining Mr Dillon in representing WIBIH at a meeting with SME Gateway. Prior to that meeting, Mr Harmer had gathered materials from Aerosafe's files relating to membership with SME Gateway. At the meeting, Mr Dillon stated that WIBIH had "a lead on a RFQTS that should be issued to SME Gateway soon and targeted to WIBIH".
Mr Harmer placed some reliance on the fact that the parts of his affidavit that were tendered as admissions by the Plaintiffs included a statement by him that: "The purpose of this meeting [with SME Gateway on 11 March 2016] was to show Mr Dillon how Aerosafe's membership of SME Gateway could increase ADSBU's [the Defence Business Unit's] business opportunities."
Mr Harmer argued that, because this evidence had been tendered by the Plaintiffs, it must be accepted that he attended the meeting with SME Gateway without any appreciation on his part that the purpose of the meeting (from Mr Dillon's perspective) was to discuss business opportunities for WIBIH. I do not accept that submission. This evidence of Mr Harmer's state of mind must be weighed against other available evidence, including the evidence of Mr Madden regarding what was discussed at this meeting, and in particular the absence of any reference to Aerosafe at that meeting; the fact that Mr Harmer provided his personal, and not his Aerosafe email address to SME Gateway; and the fact that this meeting was not reported to any person at Aerosafe either before or after the meeting (in contrast to the meeting which Mr Harmer attended on behalf of Aerosafe in 2015). Having regard to those matters, I find that Mr Harmer was aware that the meeting was arranged, and conducted, in order to advance the interests of WIBIH, rather than Aerosafe, and in particular with a view to allowing WIBIH to secure work from the MSB of the type that Aerosafe had been performing.
Having regard to those matters, Mr Harmer was, while an employee of GRAGS, assisting Mr Dillon to take steps to have contracts for future work with the MSB and the PBGRP awarded not to Aerosafe, but to SME Gateway / WIBIH. Given that is the case, it is likely that Mr Harmer had advance knowledge of, and supported, Mr Dillon's approach to the MSB on behalf of WIBIH, which included indicating that he and Mr Harmer would be available to perform work for the MSB through WIBIH. Mr Dillon must have understood that it would significantly increase WIBIH's chances of securing work from the MSB or the PBGRP if WIBIH could offer the services of Mr Harmer, who had worked closely with the leadership of both organisations. It was commercially sensible for Mr Dillon to ensure, and it is likely that he did ensure, that Mr Harmer would be willing to join WIBIH before he made any such approach to the MSB.
For those reasons, I find that the following elements of the Plaintiffs' claim are established: 1. that Mr Harmer communicated (through Mr Dillon) to key personnel at the MSB, by 26 February 2016, that he would soon be leaving Aerosafe, and would be available, immediately on leaving, to undertake (through WIBIH) work similar in nature to work undertaken by Aerosafe under the 2015 Contracts (Further Amended Statement of Claim, paragraphs 71(b) and (d)); and 2. that Mr Harmer took steps from March 2016 onwards, to have the MSB award contracts not to Aerosafe, but to SME Gateway / WIBIH for work which would otherwise have been performed by Aerosafe if the 2015 Contracts had been extended (Further Amended Statement of Claim, paragraph 71(h)).
For similar reasons outlined above in respect of Mr Dillon's conduct, Mr Harmer's conduct amounted to a breach of his obligations under his employment contract with GRAGS, and in particular a breach of the sole employment clause and the implied obligation of fidelity.
His conduct also amounted to a breach of his fiduciary obligations to the Plaintiffs, not to put himself in a position of conflict and not to pursue an unauthorised benefit for himself or another person.
Such conduct was also in breach of the obligation which he owed under s 182 of the Corporations Act as an employee of GRAGS (or as an employee and officer of Aerosafe if, contrary to my findings, he held any such position), as he improperly used his position with the GRA Group to seek to gain an advantage for WIBIH and to cause detriment to Aerosafe.

[58]

Mr Binks

In around early March 2016, Mr Binks contacted Ms Sommerfeld to discuss employment with WIBIH, after Mr Dillon's initial approach to her.
This provides a strong basis to infer that Mr Binks was aware, some time before approaching Ms Sommerfeld, of Mr Dillon's plans to offer, through WIBIH, to perform services of the type that Aerosafe was performing.
It can also be inferred that Mr Dillon likely spoke to Mr Binks before he indicated to the MSB that Mr Binks would, after leaving Aerosafe, be available through WIBIH to provide services to the MSB. Mr Binks was the member of the Aerosafe team who was particularly valued by the MSB, as made clear by Mr Carmichael's later comments to Ms Turner to the effect that Mr Binks was the main staff member that the MSB wanted to retain. Mr Dillon would likely have been aware that obtaining Mr Binks's agreement to work with WIBIH would significantly enhance WIBIH's offering to the MSB.
The likelihood is that Mr Binks had been approached by Mr Dillon in February 2016 to discuss working with WIBIH; had been informed by him that Mr Dillon was planning to tell the MSB that WIBIH could perform the work for the MSB that was currently being performed by Aerosafe, using persons currently employed by Aerosafe, including Mr Binks; and that Mr Binks indicated to Mr Dillon that he was willing to join him at WIBIH, and agreed with an approach being made to the MSB along the lines suggested.
Those inferences can be more confidently drawn in circumstances where Mr Binks chose not to give any evidence about when he first became aware of Mr Dillon's plans to offer work to the MSB through WIBIH; when he was first approached by Mr Dillon to work with WIBIH; or what discussions he had with Mr Dillon, or with MSB personnel, about those matters.
For those reasons, I find that the following elements of the Plaintiffs' claim are established, namely: 1. that Mr Binks communicated (through Mr Dillon) to key personnel at the MSB, by 26 February 2016, that he would soon be leaving Aerosafe, and would be available, immediately on leaving, to undertake (through WIBIH) work similar in nature to work undertaken by Aerosafe under the 2015 Contracts (Further Amended Statement of Claim, paragraphs 71(b) and (d)); and 2. that Mr Binks took steps from March 2016 onwards, to have the MSB award contracts not to Aerosafe, but to SME Gateway / WIBIH for work which would otherwise have been performed by Aerosafe if the 2015 Contracts had been extended (Further Amended Statement of Claim, paragraph 71(h)).
This conduct amounted to a breach of the terms of Mr Binks's employment contract with GRAGS, and in particular a breach of the sole employment clause and the implied obligation of fidelity and good faith; a breach of the fiduciary obligations that he owed to the Plaintiffs, not to put himself in a position of conflict and not to pursue an unauthorised benefit for himself or another person; and a breach of the obligation that he owed as an employee of GRAGS pursuant to s 182 of the Corporations Act (or as an employee of Aerosafe if, contrary to my findings, he held any such position).

[59]

Pleading

The Plaintiffs plead that: 1. on 11 March 2016, Mr Dillon and Mr Harmer, on behalf of Aerosafe, presented to Navy and Defence personnel the Safety Management System Implementation Assessment in relation to the PBGRP, and also met with SME Gateway for the purpose of seeking its assistance in obtaining contracts, for the benefit of SME Gateway and WIBIH, to undertake work for the MSB and the Navy which would otherwise enure to the benefit of Aerosafe (Further Amended Statement of Claim, paragraphs 75, 75A); 2. in March 2016, Mr Harmer and Mr Dillon, in the course of their duties as employees of the Plaintiffs, completed a business case and statement of work, on which the contract awarded under RFQTS 14839 was based, which contained information that was confidential to Aerosafe and its client, including the MSB's project costs of the implementation of the PBGRP assessment, the details of the person proposed for appointment to manage the contract, and the likely duration of the contract, and Mr Dillon sent a copy of this material to his personal email address, without the Plaintiffs' permission or knowledge (Further Amended Statement of Claim, paragraphs 75C, 76); 3. on 19 May 2016, Mr Dillon sent the business case and statement of work for the PBGRP engagement from his personal email address to Captain Standen, and did not do so for the benefit of the Plaintiffs (Further Amended Statement of Claim, paragraph 76A); and 4. Mr Harmer, Mr Binks and Mr Dillon caused, along with the MSB and the PBGRP, RFQTS 14839 to be sent directly and solely to SME Gateway (Further Amended Statement of Claim, paragraph 80).
The Plaintiffs plead each of Mr Harmer, Mr Binks and Mr Dillon breached their contractual, fiduciary and statutory duties by the following conduct, which was engaged in while they were still employed by the Plaintiffs and without the Plaintiffs' knowledge (Further Amended Statement of Claim, paragraph 81): 1. concealing from the Plaintiffs the existence of RFQTS 14839 (for the PBGRP engagement); 2. preparing a tender submission on behalf of, and for the benefit of, WIBIH and SME Gateway in response to RFQTS 14839; 3. in preparing this tender response, using the Plaintiffs' computer system and confidential material which belonged to the Plaintiffs, including copying significant amounts of text from reports and tender responses prepared by the Plaintiffs, and using knowledge of the indicative cost of the engagement, obtained while working for Aerosafe, to ensure that WIBIH's price was below the cost originally advised to the MSB; and 4. submitting a resource declaration in relation to SME Gateway's tender response to RFQTS 14839 which failed to disclose that each was currently an employee of GRAGS undertaking work for Aerosafe.
The Plaintiffs did not, in closing, articulate any submission about paragraph (d) above. It is difficult to see how a failure by Mr Dillon, Mr Harmer and Mr Binks to disclose in their resource declarations the fact of their employment by the GRA Group, which was already known by both the MSB and the PBGRP, would constitute a breach of duty to the Plaintiffs. It is, however, relevant to the issue of SME Gateway's knowledge, which is considered in Section G below.
As with the allegations of breach in respect of the MSB engagement, the Plaintiffs accepted that they had to establish conduct on behalf of Mr Dillon, Mr Harmer and Mr Binks, considered individually, in order to establish breach by each of them. That is, breach by any one of them could not be established by the collective conduct of all three of them, or by the attribution of conduct by one of them to any other. For that reason, I have considered the position of each individually below, although there is substantial overlap in the relevant facts.

[60]

Mr Dillon

Mr Dillon was aware, through his role as COO, acting CEO, and Project Manager of the MSB project, that Aerosafe's report to the PBGRP on the Safety Management System Implementation Assessment recommended that further work be undertaken in conjunction with an industry partner. He was also aware that this meant that there was an opportunity for follow up work with the PBGRP which Aerosafe, as an existing industry partner of the PBGRP which had already performed a related assessment, was well placed to obtain.
However, on the same day as Mr Dillon and Mr Harmer presented this report to the PBGRP and the MSB, each of them went immediately to SME Gateway where Mr Dillon stated that WIBIH had a lead on a new engagement with Defence.
Mr Dillon recruited Mr Harmer to work for WIBIH, likely because Mr Harmer's knowledge of and recent experience and relationship with the MSB and the PBGRP made him well placed to perform the follow-on assignment.
In March 2016, Mr Dillon and Mr Harmer reviewed the draft business case and statement of work for this further engagement with the PBGRP, which they obtained because of the roles that they performed with the MSB and the PBGRP as part of the Aerosafe team. It is likely that WIBIH was, in particular through Mr Dillon, actively pitching for the further PBGRP engagement arising from the Statement of Work and Business Case that he had received and reviewed in his role as Aerosafe Project Manager. On 13 April 2016, Captain Standen, in an email headed "Contractor Support SMS Implementation" asked Captain Parker of the PBGRP whether he had followed up on an "offer of assistance (by contractor) that I sent through a week or so ago". This likely indicates that by early April WIBIH had, through Mr Dillon, offered to perform the follow-up work on the Safety Management System Implementation Assessment for the PBGRP. Certainly, there can be no doubt that by May 2016, WIBIH had indicated to the MSB its willingness, capacity and availability to perform this work. In May 2016 Captain Standen advised the PBGRP that it should contract with WIBIH via SME Gateway, specifically because: "that way our contractors that you already are familiar with (Andrew Harmer) can then undertake the work and will slot in far more easily as they already have a very clear and detailed understanding of the nature of the task and the environment within which it will be executed".
In keeping with Captain Standen's email, RFTQTS 14839 was issued to SME Gateway / WIBIH on a sole source basis precisely because the MSB and the PBGRP had been informed that the experienced Aerosafe staff who had worked with the MSB and the PBGRP would now be available via SME Gateway / WIBIH. In circumstances where there is no evidence of any communication between SME Gateway and Captain Standen prior to this point in time, it can be inferred that Captain Standen was aware of WIBIH's intention to enter into an arrangement with, and to become available for work via, SME Gateway, as a result of Mr Dillon informing him that this was the case.
Mr Dillon, while continuing as COO and Project Manager for Aerosafe during June 2016, concealed from Aerosafe the release of RFQTS 14839 and the fact that he, Mr Harmer and Mr Binks all worked on a response to that RFQTS, which was submitted while each was still an employee of GRAGS.
WIBIH's response to RFQTS 14839 drew on Mr Dillon's and Mr Harmer's knowledge of the work that Aerosafe had conducted for the PBGRP. Mr Harmer acknowledged, in an email to Mr Dillon on 10 June 2016, the advantages which prior knowledge of these engagements gave WIBIH in preparing a tender response: "Please see attached PBGRP RFQTS 14839 KPI's as promised. I have developed a very targeted set knowing the audience and contract status, I do not feel they need a lot of extra information. I hope this gives you a fair bit of information to put together a punchy RFQTS response."
RFQTS 14839 referred to the fact that the PBGRP had "identified shortfalls in the progress of implementation of its ABR6303 compliant SMS", but did not otherwise refer to the work undertaken by Aerosafe regarding the implementation assessment, or the contents of Aerosafe's report delivered following this assessment, including its recommendations.
WIBIH drew on the knowledge it had of those matters, including through Mr Dillon and Mr Harmer, to prepare its tender response, stating: "WIHIB [WIBIH] staff has an intimate knowledge of the PBGRP SMS. During 2016 WIBIH staff authored the PBG GRP SMS Implementation Assessment Report on behalf of PBGRP and MSB. The report made key findings and recommendations after extensive analysis of PBGRP's approach to integrating an ABR6303 compliant SMS. The recommendations sought to immediately address the PBG GRP SMS Implementation Assessment Report findings and provide additional skilled resourcing to meet CN's deadline for OIP update and development as part of an integrated ABR6303 compliant SMS. The report's recommendations are now being realised by the release of RFQTS 14839 and the proposed team can tackle the issues contained in the findings of the report in order of priority and be governed by a rigorous schedule to support the reasons why the team was proposed. …"
Similarly, RFQTS 14839 referred to the need for the service provider to "review and update and/or develop OIP to comply with ABR6303 Navy Systems Manual Edition 5". In response, WIBIH referred to the templates that Aerosafe had developed in the course of its work with the MSB, these being materials with which each of Mr Dillon, Mr Harmer and Mr Binks was likely familiar: "WIBIH staff have also been instrumental in assisting Fleet in the Implementation of ABR 6303 Ed 5 within Fleet Command from 2014 to 2016. They have developed Class Standing Order templates in consultation with Force and Group safety leads then facilitated nationwide OIP workshops at bases across Australia … WIBIH personnel have additionally led the implementation of a standardisation in the SOP template and methodology across Fleet."
Having regard to those matters, the Plaintiffs have established that Mr Dillon, while still an employee of the GRA Group: 1. took steps which led the Navy to issue RFQTS 14839 to SME Gateway / WIBIH on a sole source basis, in particular by informing the MSB that he, Mr Harmer and Mr Binks would be available to perform this work for the PBGRP via SME Gateway / WIBIH; 2. concealed from the Plaintiffs the existence of RFQTS 14839; 3. prepared a tender submission on behalf of, and for the benefit of, WIBIH and SME Gateway in response to RFQTS 14839; and 4. in doing so, drew on knowledge that had been gained through Aerosafe's previous work for the PBGRP, including the analysis and recommendations contained in the assessment report delivered by Aerosafe in early March 2016.
This conduct was a breach of Mr Dillon's obligation under his employment contract with GRAGS not to engage in any other trade or business while an employee of GRAGS (the sole employment clause).
In addition, Mr Dillon breached: 1. the confidentiality clause in his employment contract with GRAGS, and in particular his obligation not to use material developed or accessed while employed for any purpose other than his employment; and 2. his obligations under the Confidentiality Agreement with Aerosafe, in particular his obligation to use Aerosafe's services and products only for the purpose of his employment.
Mr Dillon accepted that he concealed RFQTS 14839 from Aerosafe and worked on the tender response while still employed by the Aerosafe group. He also acknowledged that, if a fiduciary comes across an opportunity in the course of his role as a fiduciary which is then taken up for his or her own benefit, the fiduciary is required to account for profits made from the opportunity even if the principal would not, and even could not, have pursued it: citing Warman International Ltd v Dwyer (1995) 182 CLR 544 at 562-563; and Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [7]-[13] per Kiefel CJ, Keane and Edelman JJ.
However, Mr Dillon argued that this was not the case here. He pointed out that RFQTS 14839 was issued to SME Gateway on a sole source basis and submitted that he received it only because WIBIH was a member of SME Gateway. He contended that there was no conflict between his interests and those of the Plaintiffs at the point in time when RFQTS 14839 was issued, because it was issued to, and could only be acted upon, by SME Gateway (noting that this is what "sole source" means). That is, it was not possible for Aerosafe to tender for RFQTS 14839. On this basis, Mr Dillon argued that he did not, by his conduct, breach any fiduciary or statutory duties.
I do not accept this submission. It ignores the fact that RFQTS 14839 was issued to SME Gateway on a sole source basis precisely because of Mr Dillon's conduct in breach of his duties. He approached SME Gateway seeking membership because he had a "lead" on this engagement, having learned of it in his role as Aerosafe's COO, acting CEO and Project Manager at the MSB engagement, and he wanted to divert this opportunity to WIBIH via SME Gateway. The email sent back from Mr Madden the same day makes clear that Mr Dillon already anticipated, before meeting SME Gateway, that the tender would be targeted to WIBIH, and took steps to establish the relationship with SME Gateway for this purpose. Likewise, the only reason that RFQTS 14839 was then issued to SME Gateway on a sole source basis was that Mr Dillon had recruited Mr Harmer and Mr Binks to work for WIBIH, had made known to the MSB (and, through them, the PBGRP) that these key Aerosafe team members would be available to perform the PBGRP engagement through WIBIH (which in turn would be available through SME Gateway), and solicited for that work to be awarded to WIBIH via SME Gateway.
Having regard to those matters, I find that Mr Dillon's conduct breached the implied obligation of fidelity and good faith that he owed to his employer (GRAGS) and his fiduciary duties to both Aerosafe and GRAGS, as it involved soliciting Aerosafe's clients, the MSB and the PBGRP, to divert work to a different entity, in which Mr Dillon had a personal interest and concealing these matters from Aerosafe.
Similarly, Mr Dillon's conduct breached the duties that he owed: 1. as an officer of Aerosafe, pursuant to s 181(1) of the Corporations Act, by failing to exercise his powers and duties (as COO, acting CEO and Project Manager with MSB) in good faith in the best interests of Aerosafe and for a proper purpose; 2. as an officer of Aerosafe and an employee of GRAGS, pursuant to s 182(1) of the Corporations Act, by improperly using his position (as COO, acting CEO and Project Manager with the MSB) to seek to gain an advantage for WIBIH, and to cause damage to Aerosafe, by using knowledge gained and relationships developed through that role to divert work from Aerosafe to WIBIH; and 3. as an officer of Aerosafe and an employee of GRAGS, pursuant to s 183(1) of the Corporations Act, by improperly using information which he obtained as an officer or employee to seek to gain an advantage for someone else (WIBIH) and to cause damage to Aerosafe.

[61]

Mr Harmer

Mr Harmer engaged in conduct similar to Mr Dillon. He participated, immediately after presenting Aerosafe's report to the PBGRP, in a meeting with SME Gateway on behalf of WIBIH, at which Mr Dillon said that WIBIH had a "lead" on a further engagement. He was involved in reviewing the draft Statement of Work and business case for the further PBGRP engagement. He was involved in communications with the MSB and the PBGRP about the proposed further PBGRP engagement. He likely had advance knowledge of, and approved, Mr Dillon's informing the MSB (and via the MSB, the PBGRP) that Mr Harmer would be available for further work for the PBGRP via WIBIH. This inference may be more confidently drawn where Mr Harmer was uniquely placed to give evidence of his discussions with Mr Dillon, the MSB and the PBGRP, and chose not to do so.
Mr Harmer concealed the fact of the issue of RFQTS 14839 from Aerosafe. While still an employee of the GRA Group, he used his knowledge of the PBRGP assignment and of Aerosafe's report on that assignment, as well as his knowledge of work done by Aerosafe on the implementation of ABR 6303 and the development of operating procedures for that implementation, to draft the tender response.
For reasons similar to those set out with respect to Mr Dillon, I find that Mr Harmer, by this conduct in respect of the PBGRP engagement, breached: 1. his contractual obligations under his employment contract with GRAGS, including the sole employment clause, the confidentiality clause and his implied obligation of fidelity and good faith; 2. his contractual obligations under his Confidentiality Agreement with Aerosafe; 3. his fiduciary duties to the Plaintiffs, by acting in a position of conflict and by pursuing an unauthorised benefit for another person (WIBIH); and 4. the duties that he owed as an employee of GRAGS (and, as an employee and officer of Aerosafe, if contrary to my findings he was such) pursuant to s 182(1) and s 183(1), by improperly using his position, and by improperly using information which he obtained as an employee, to seek to gain an advantage for someone else (namely, WIBIH) and to cause detriment to Aerosafe.

[64]

Relevant principles

As regards the first limb of Barnes v Addy, no point was taken that liability under this limb for "knowing receipt" can arise only where the defaulting fiduciary is a trustee, and it is difficult to see why it should be so confined: Pittmore Pty Ltd v Chan; Chan v Tan (2020) 104 NSWLR 62; [2020] NSWCA 344 at [155] per Leeming JA (Bell P and Brereton JA agreeing), referring to the note of caution expressed in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [113]. In any case, in order to establish liability, it is necessary to identify some property that has been received by the accessory as a result of the fiduciary's breach. In the present case, the only "property" of the Plaintiffs which SME Gateway is pleaded to have received is "confidential information". This claim suffers from the fundamental difficulty that confidential information which is not a trade secret is not proprietary in character and cannot be the subject of a claim under the first limb of Barnes v Addy: see Farah Constructions v Say-Dee at [118]-[120]. The Plaintiffs have not identified, in their pleading or otherwise, any information received by SME Gateway which amounts to a trade secret, and this claim was not addressed in the Plaintiffs' closing submissions. It can be put to one side.
In order to succeed in their claim against SME Gateway under the second limb of Barnes v Addy, the Plaintiffs must establish that SME Gateway assisted Mr Dillon (or Mr Harmer or Mr Binks), in circumstances where SME Gateway had knowledge of a dishonest and fraudulent design on his part: Farah Constructions v Say-Dee at [160] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ. A dishonest and fraudulent design includes a dishonest and fraudulent breach of fiduciary duty: Farah Constructions v Say-Dee at [179]. Nothing falling short of dishonest conduct is sufficient to engage the second limb of Barnes v Addy: Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609, [2014] NSWCA 266 at [9] per Gleeson JA and at [125] per Leeming JA. "Dishonesty" amounts to a transgression of the ordinary standards of honest behaviour; it is not necessary to show that the defendant thought about what those standards were: ibid at [124].
I have found that Mr Dillon breached his fiduciary duties by his conduct in respect of the MSB engagement and the PBGRP engagement (see Sections E and F above). His conduct amounted to a transgression of the ordinary standards of honest behaviour. In essence, while COO and acting CEO of the Plaintiffs, he took steps with the aim of diverting future contracts with the MSB and the PBGRP (who were existing and valuable clients of Aerosafe) to his own company, WIBIH. In addition, while an employee and officer of the Plaintiffs, he recruited key staff who reported to him (Mr Harmer and Mr Binks), and asked them to undertake work for WIBIH. Further, he deliberately concealed from the Plaintiffs (and in particular, from Ms Turner, who had trusted him to run the business in her absence) the steps that he was taking to achieve in order to advance WIBIH's and thereby his own interests, to the detriment of Aerosafe.
As WIBIH was not a member of the CAS-SS Panel, Mr Dillon sought to put WIBIH in a position to tender for the MSB and PBGRP engagements via membership of SME Gateway. This required SME Gateway's acceptance of WIBIH's application for membership and required SME Gateway to submit, as a member of the CAS-SS Panel, tenders for work which named WIBIH as the party that would perform the work (which in fact occurred).
The critical issue, which is essential to establishing liability on the part of SME Gateway, is whether it took those steps with knowledge of Mr Dillon's dishonest breach of fiduciary duty. The requisite knowledge must be satisfied having regard to the seriousness of the finding of an allegation of knowing participation in a dishonest breach of fiduciary duty, in accordance with s 140 of the Evidence Act: Farah Constructions v Say-Dee at [170]; Anderson v Canaccord (NSWCA) at [209]-[210].
There are four categories of knowledge sufficient to impose liability on a third party (Farah Constructions v Say-Dee at [174]-[177]), namely: actual knowledge; wilfully shutting one's eyes to the obvious; wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make; and knowledge of circumstances that would indicate the facts to an honest and reasonable person.
Actual knowledge need not be established by direct evidence of a person's state of mind, but may be inferred. In particular, a combination of suspicious circumstances and the failure to make inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter: Pereira v Director of Public Prosecutions (1988) 82 ALR 217 at 220 (per Mason CJ, Deane, Dawson, Toohey and Gaudron JJ); Lifeplan Australia Friendly Society Ltd v Woff at [356] (not relevantly overturned on appeal); and Australian Rail, Tram and Bus Industry Union v Railtrain Pty Ltd [2019] FCA 1740 at [13] (per Flick J), citing the principles set out by White J in Fair Work Ombudsman v South Jin Pty Ltd [2015] FCA 1456 at [231].
The second category, wilful blindness, is treated as equivalent to actual knowledge; neither negligence nor recklessness is sufficient: Giorgianni v The Queen (1985) 156 CLR 473 at 488 per Gibbs CJ. The third category involves "such a calculated abstention from inquiry as would disentitle the third party to rely upon lack of actual knowledge of the trustee's or fiduciary's wrongdoing": Grimaldi v Chameleon Mining at [261]. The fourth category "is, in essence, an understandable, objective, default rule designed to prevent a third party setting up his or her own 'moral obtuseness' as the reason for not recognising an impropriety that would have been apparent to an ordinary person": ibid.
The Plaintiffs acknowledged, in closing address, that they had pleaded and particularised a case based solely on actual knowledge, and had "never particularised a knowledge case based on categories 2, 3 and 4". However, they submitted that there could be no prejudice to SME Gateway in allowing them to pursue such a case in closing submissions. SME Gateway contended that there would be serious prejudice in allowing such a course, pointing out that if, for example, it had been put on notice that the Plaintiffs would contend that SME Gateway had knowledge of particular circumstances that would indicate the facts to an honest and reasonable person, then it would have led evidence from Mr Madden and Mr Ashman relating to those specific circumstances. The Plaintiffs responded that each of Mr Madden and Mr Ashman had a chance to give their evidence in respect of the relevant circumstances when confronted with them in the course of their cross-examination. However, there is plainly a difference being a person having an opportunity in cross-examination to deal with the specific propositions raised with him or her, and a person having an opportunity to give a detailed response to such allegations in evidence in chief. In the latter case, the witness is able, with the benefit of access to any relevant business records, to give a considered explanation of their knowledge of, and response to, specific matters, which may include providing contextual evidence about their business practices. For that reason, I accept that there would be a denial of procedural fairness in allowing the Plaintiffs to pursue a knowledge case which they had not pleaded or particularised, and which SME Gateway had not had the opportunity to address by way of evidence led from its witnesses in chief.
Nonetheless, in case I am wrong in that view, I have considered below not only actual knowledge, but also the remaining categories of knowledge.
As for the allegation of involvement by SME Gateway in the contraventions of ss 180 to 184 of the Corporations Act, it is necessary in order to establish liability to show actual knowledge of all of the essential material factual ingredients of the contravention: Yorke v Lucas (1985) 158 CLR 661 at 668-670 per Mason ACJ, Wilson, Deane and Dawson JJ. It is, however, not necessary to establish knowledge that the facts constituted a contravention. "In other words, knowledge of the legal characterisation of the conduct as contravening conduct is not required": Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304 at [338]; [2023] NSWCA 88. In Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 at [135], the Full Court of the Federal Court observed that: "before any accessorial liability will arise, it is necessary to establish the subjective element of knowledge of each of the essential elements of the contravention. That knowledge may be constructive in the sense that it may be possible to show wilful blindness in relation to the elements of a contravention. However, absent a finding of wilful blindness, it is necessary to establish actual knowledge on the part of a person to whom it is sought to sheet home accessorial liability in respect of a contravention of Pt V."
Although knowledge may be inferred from the fact of exposure to the obvious, that does not obviate the need for actual knowledge of the essential facts constituting the contravention: Giorgianni v The Queen at 507-508 per Wilson, Deane and Dawson JJ.
Where, as here, the alleged accessory is a corporation, it is necessary to establish that the corporation had the requisite knowledge. That can generally be done by showing that a specific person or persons associated with the corporation, and with sufficient seniority within the corporation, had knowledge that can be imputed to the corporation: Krakowski v Eurolynx Properties Pty Ltd (1995) 183 CLR 563 at 582 per Brennan, Deane, Gaudron and McHugh JJ.
In the context of a claim for knowing assistance, "what matters is the states of minds of the persons who directly controlled the conduct which is said to have involved the giving of assistance": Anderson v Canaccord (NSWCA) at [247].
Here, the relevant persons were Mr Ashman and Mr Madden. They had the initial meeting with WIBIH, at which Mr Dillon informed them that WIBIH had a lead on an RFQTS which was going to be issued, and asked about membership with SME Gateway in order to allow for WIBIH to tender (through SME Gateway) for that work. Mr Ashman and Mr Madden were both senior members of management at SME Gateway and had the power at that point in time to terminate any further discussions with WIBIH about membership. Further, Mr Madden subsequently dealt with Mr Dillon in relation to SME Gateway's membership application, and in relation to the tender response to RFQTS 14839.
The Plaintiffs accepted that they had to establish knowledge of relevant matters on the part of Mr Ashman or Mr Madden. A more difficult issue is whether the knowledge of each could be aggregated in order to establish that the corporation itself had the requisite state of mind. In the joint judgment in Krakowski v Eurolynx at 582-583, Brennan, Deane, Gaudron and McHugh JJ observed that: "A division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them …"
In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133, the Victorian Court of Appeal rejected a submission, in reliance on the above passage, to the effect that certain facts known to various company servants and agents could be aggregated so as to give rise to a factual totality from which a dishonest intent, held by none of the individuals, might be inferred. As Tadgell JA observed at 145: "Neither that passage in Krakowski nor any other principle justifies the simple aggregation of the knowledge of a number of persons individually unaware of fraud, or facts which ought to disclose it, to create a notional person with a dishonest intent. The High Court in Krakowski was not purporting in the passage relied on to lay down any such principle but to authorise a consideration of the knowledge and circumstances of all relevant persons - including what may properly be inferred - in order to ascertain the mind of the corporation."
However, in Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 at [2183]-[2184], Drummond AJA (with whom Lee AJA agreed on this point at [1100]) read Krakowski as a case in which knowledge held by separate employees and agents of a company was aggregated to enable a finding that the company had a fraudulent state of mind not held by any individual employee, and understood that the basis for this decision was that the various persons involved "had responsibility to act for the company in different aspects of the one transaction".
In Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421; [2016] FCAFC 186, Edelman J expressed the view (at [149]) that Westpac v Bell Group was plainly wrong on this point for various reasons, including that the High Court did not aggregate the knowledge of the relevant individuals in Krakowski, but instead found that the lack of fraudulent knowledge on the part of the agent that made the false representation was not determinative in circumstances where two other agents of the corporation possessed the relevant knowledge that amounted to a fraudulent intention. The other members of the Court agreed with his Honour on this point (Allsop CJ at [31], [62], [65]; Besanko J at [78]). His Honour also noted (at [101]) that there was "scant support in England and Australia for a doctrine which permits attribution to a corporation of an aggregate of the knowledge of various different agents" (see also at [80] per Besanko J; and [67] per Allsop CJ).
I do not consider that the requisite knowledge of a defendant's dishonest breach of his fiduciary duties can be established, on the part of a corporation, by aggregating matters known to diverse employees or officers of the corporation where those matters were not in their totality known to any one person within that corporation, and where the matters known to any particular person were insufficient to establish such knowledge. As Devlin J observed in Armstrong v Strain [1951] 1 TLR 856 at 872, "you cannot add an innocent state of mind to an innocent state of mind and get as a result a dishonest state of mind". Similarly, I do not consider that where some matters are known to one person in a corporation, and other matters to another, and it is the whole of those matters which are said to constitute suspicious circumstances, it is sound to infer, from the corporation's failure to investigate the entire combination of suspicious circumstances (which was not known to any one person), that the corporation itself had actual knowledge of the true position. However, for the reasons outlined below, I do not need to express any firm view on this issue.

[65]

Accessorial Liability - Claims in respect of the MSB Engagement

The breaches of duty by Mr Dillon, Mr Harmer and Mr Binks in respect of the MSB engagement (addressed in Section E above) are pleaded at paragraph 71 of the Further Amended Statement of Claim. The only basis on which accessorial liability is pleaded in respect of those breaches is that SME Gateway: "(a) knowingly received from Mr Harmer, Mr Binks and Mr Dillon confidential information, being property of the Plaintiffs, and used such information for its own benefit; and (b) knowingly assisted Mr Harmer, Mr Binks and Mr Dillon in the breach of their duty not to use the confidential information of the Plaintiffs which they had obtained in the course of their employment with the Plaintiff." (Further Amended Statement of Claim, paragraph 112)
As already noted, the claim for knowing receipt was not advanced in closing submissions and may be put to one side.
The claim for knowing assistance is predicated upon SME Gateway having knowingly assisted Mr Dillon (or Mr Harmer or Mr Binks) in the breach of a duty not to use the Plaintiffs' confidential information. However, the Plaintiffs did not identify any confidential information of Aerosafe which was provided to SME Gateway by Mr Dillon.
Further, the breaches which I have found against Mr Dillon in respect of the MSB engagement do not involve any misuse of the Plaintiffs' confidential information. Instead, they essentially involve his soliciting the MSB on behalf of WIBIH for the work currently being performed by Aerosafe; his recruiting key Aerosafe team members (Mr Harmer and Mr Binks) to work for WIBIH; and his informing the MSB that those key Aerosafe team members would be available through a competitor company, WIBIH, to perform similar work for the MSB when Aerosafe's 2015 Contracts came to an end. In order to establish accessorial liability in respect of those breaches, it is necessary to establish actual knowledge on SME Gateway's part of the matters constituting those breaches. However, no such knowledge was pleaded and, in any case, no such knowledge has been established.
As is apparent from the sequence of events set out in Section A above, Mr Dillon had approached the MSB regarding WIBIH's availability to perform work for the MSB (and the future availability of current Aerosafe staff through WIBIH) by 26 February 2016, but did not meet SME Gateway for the first time until 11 March 2016. That meeting likely arose because WIBIH was not on the CAS-SS Panel, and Mr Carmichael had been directed (and had likely informed WIBIH) that it was mandatory to seek services via the Panel.
When Mr Dillon and Mr Harmer met SME Gateway, they did so on behalf of WIBIH, not Aerosafe. Mr Dillon introduced himself as CEO of WIBIH and did not refer to Aerosafe at all. He provided his personal email address and did not give any contact details that tied him to Aerosafe. Mr Dillon stated that WIBIH had a lead on a RFQTS which should be issued to SME Gateway soon and targeted to WIBIH. There is no evidence that he said anything about the MSB or the PBRGP, or anything that might indicate the client involved or the nature of the work. Instead, Mr Dillon stated that he would provide "more information on the RFQTS once WIBIH becomes a member of SME Gateway". It is not surprising that Mr Dillon was willing to provide only limited information to SME Gateway about his business plans and opportunities at this preliminary stage of discussions. As matters transpired, WIBIH did not take any steps to apply for membership until around the end of April 2016. There is no evidence that Mr Dillon provided further information about any potential engagement prior to that point in time.
The high point of the Plaintiffs' claim in respect of the 11 March 2016 meeting is that this meeting was attended by Mr Harmer and by Mr Ashman, and that Mr Ashman had met Mr Harmer almost a year earlier, in April 2015, when he and Mr Le came to SME Gateway's offices to discuss the prospect of Aerosafe becoming a member.
Mr Ashman gave unchallenged evidence that he did not have any recollection of meeting Mr Harmer on either occasion. He recalled that at some point in 2015 or 2016 he had met with representatives of Aerosafe, but did not recall their names. He explained that he dealt with around eight to ten enquiries per week by prospective members during this period, of which around one quarter were face to face. That would equate to some 100 face to face meetings over the course of the year that separated his two meetings with Mr Harmer. It is plausible that, in such circumstances, Mr Ashman would be unable to recall in March 2016 that a particular person (Mr Harmer) had attended an initial meeting on behalf of a different organisation almost one year earlier (in April 2015).
This conclusion is supported by two other matters.
First, Mr Ashman gave the following unchallenged evidence: "When I met with a prospective member, it was my practice to ask them to describe what they were currently working on, where they were working, their capabilities and why they wanted to join SME Gateway. If there were any red flags in their answers that pointed to a potential or actual conflict of interest, I would ask further questions to better understand the situation. If I were told that the prospective member (or its representatives) were currently performing defence contracting work for another organisation, that would be an immediate red flag that would cause me to investigate further and to reject the membership application unless my concerns could be resolved."
This evidence of practice is inherently probable. It would be expected that, when meeting someone to discuss membership, Mr Ashman would discuss where they were working, what they were working on and why they wanted to join SME Gateway. It is also likely that Mr Ashman and SME Gateway would be concerned if any potential conflict came to their attention, since SME Gateway was the party which entered into contracts with Defence (with its members being subcontractors) and therefore SME Gateway's business depended on maintaining its reputation with Defence. The fact that SME Gateway proceeded to deal with WIBIH in respect of membership, and in respect of proposed engagements with the PBGRP and the MSB, provides a basis to infer that SME Gateway, and in particular Mr Ashman, was not aware of any matters that would indicate there was any potential conflict of interest. Given those matters, it is likely that Mr Dillon and Mr Harmer were asked at the 11 March 2016 meeting where they were currently working and what they were working on, and provided no information to the SME Gateway to the effect that they were currently working as members of Aerostaff's team on engagements with the Navy.
Secondly, and consistently with such an inference, there is no reference to Aerosafe in any of the communications between Mr Dillon and SME Gateway which are in evidence. Mr Dillon only communicated with SME Gateway via his personal email address. The qualification questionnaire which was completed by Mr Dillon on behalf of WIBIH contained no references to any connection between Mr Dillon or any of WIBIH's staff and Aerosafe, despite the questionnaire containing various questions about expertise and experience working with Defence. This was a document that was submitted only to SME Gateway. The MSB and the PBGRP were well aware of the connection between Mr Dillon and Aerosafe. It must be inferred that the purpose of deliberately refraining from any mention of Aerosafe was in order to ensure that this connection did not come to SME Gateway's attention. That in turn supports a conclusion that no such connection was mentioned at the 11 March 2016 meeting, and that neither Mr Ashman nor Mr Madden was aware of any such connection.
WIBIH required that SME Gateway accept it as a member, in order for WIBIH to be able to tender for future work with the MSB as SME Gateway's subcontractor. Mr Dillon was likely aware that, if he had disclosed to SME Gateway that he was Aerosafe's Project Manager on an existing engagement with the MSB, that Mr Harmer was also from Aerosafe and had been the previous Project Manager at the MSB, and that Mr Dillon was soliciting the MSB to direct work to him and Mr Harmer via WIBIH, then SME Gateway would have (consistently with Mr Ashman's evidence) refused to work with WIBIH. This further supports the conclusion that no such disclosure in fact occurred.
The Plaintiffs contended that it was likely that Mr Harmer contacted Mr Ashman to arrange the 11 March meeting between WIBIH and SME Gateway, and it was "impossibly unnatural" to suppose that neither of them said anything about their prior contact one year earlier, or the circumstances of that prior contact. I do not accept this submission. The 11 March meeting may well have been organised by Mr Dillon rather than Mr Harmer, and with Mr Madden rather than Mr Ashman. Further, even if Mr Harmer had contacted Mr Ashman to arrange the meeting, it is unlikely, given that WIBIH was astute not to say anything in communications with SME Gateway which would indicate any existing connection to Aerosafe, that Mr Harmer informed Mr Ashman of any such connection before the meeting occurred.
Even if Mr Ashman had been aware, in March 2016, that Mr Harmer had attended a meeting on behalf of Aerosafe in April 2015, this would not be sufficient to establish knowledge on his part that Mr Harmer was, in March 2016, still associated with Aerosafe (or knowledge of circumstances such as would indicate to an honest and reasonable person that Mr Harmer was, in March 2016, dishonestly acting in breach of fiduciary duties that he owed to Aerosafe).
There was evidence of significant turnover in this industry. For example, by the end of June 2016, nearly every member of the Aerosafe team who had worked on the MSB engagement in 2015 or 2016 had left the business. There is nothing inherently suspicious about a person who had turned up at a meeting representing one company a year earlier, turning up at a meeting representing a different company, particularly where there is no indication of any ongoing connection with the first company. For this reason, even if I had considered that aggregation of knowledge was available in respect of material in the company's records indicating a prior association between Mr Harmer and Aerosafe in early 2015, I would not have regarded that material, when combined with the fact that in March 2016 Mr Harmer attended a meeting on behalf of WIBIH, as establishing the requisite knowledge such as to give rise to accessorial liability.
Finally, the Plaintiffs tendered an admission by Mr Harmer that, at the 11 March 2016 meeting, Mr Dillon referred to "ARM" (that is, Aerosafe). The Plaintiffs acknowledged that this could not be tendered against SME Gateway for a hearsay purpose without its consent, which was not given. However, the Plaintiffs said that it was tendered for a non-hearsay purpose: namely, to establish that such an allegation was made by Mr Harmer in his affidavit of 22 June 2020, but was not denied in Mr Madden's affidavit of 19 May 2022. I admitted this evidence against the SME Gateway, subject to a limitation under s 136 of the Evidence Act that the use of the evidence as against SME Gateway was limited to proof of the fact that the particular representations were made in an affidavit that was sworn by Mr Harmer on 22 June 2020, and not as evidence of the truth of anything stated in those paragraphs.
The Plaintiffs contended, in reliance on this material, that Mr Madden's failure to deny Mr Harmer's evidence that reference was made to Aerosafe at the 11 March 2016 meeting supported an inference that this in fact occurred. I do not draw any such inference, particularly having regard to the totality of Mr Madden's evidence. Shortly prior to Mr Harmer's affidavit of 22 June 2020, Mr Madden had affirmed an affidavit of 26 May 2020 in which Mr Madden gave a full account of his recollection of the meeting (in the course of which no reference to Aerosafe was made). In Mr Madden's second affidavit, which was affirmed after Mr Hamer's affidavit of 22 June 2020, Mr Madden referred to his earlier evidence of 19 May 2020 and confirmed that this was the extent of his recollection. Mr Madden was extensively cross-examined in relation to the 11 March meeting, and repeatedly denied that there was any reference to Aerosafe at this meeting. He was not confronted, in cross-examination, with the specific statement in Mr Harmer's 22 June 2020 affidavit. He was asked whether he was aware, at the time he affirmed his affidavit of 19 May 2022, that "there was a suggestion in these proceedings that during the meeting on 11 March 2016, Mr Dillon, Mr Harmer or both of them had mentioned Aerosafe", and responded that he could not recall whether he was told that or not. I found Mr Madden to be an honest witness, who answered the questions put to him directly, and made concessions where appropriate. His credit was not challenged to any substantial extent. I accept his evidence of the meeting, particularly in the light of the other matters I have identified above.
In their closing written submissions, the Plaintiffs "accept[ed] that SME Gateway can only be accessorily liable for loss that it caused and not for misconduct that completed prior to its participation". The Plaintiffs continued (emphasis added): "On the plaintiffs' case, at least some of the individual defendants' undermining conduct had occurred by 26 February 2016. While that conduct paved the way for the loss suffered by the plaintiffs, the scheme which caused the plaintiffs' loss was not completed until 11 March 2016. It was not until then that the individual defendants had secured what they required to take Aerosafe's business, namely, the participation of SME Gateway, a member of the contractor panel."
Given that the Plaintiffs allege that the scheme which caused their loss was completed by 11 March 2016, it is necessary for the Plaintiffs to establish that, as at 11 March 2016, SME Gateway had knowledge of Mr Dillon's dishonest breaches of duty in respect of the MSB engagement. Otherwise, the Plaintiffs' claim for accessorial liability in respect of those breaches must fail. The specific finding of actual knowledge for which the Plaintiffs contended in closing written submissions was as follows: "In the result, the finding for which the plaintiffs contend is that Mr Madden and Mr Ashman, and therefore SME Gateway, knew that: (a) Mr Dillon and Mr Harmer (if not Mr Binks) had acquired information about the valuable business opportunities in respect of which they were enlisting SME Gateway's assistance in the course, and for the purposes of, their work with Aerosafe; (b) they were opportunities of a kind that Aerosafe was interest[ed] in obtaining for itself; and (c) they were opportunities that Aerosafe was capable of securing for itself if not for the actions of the defendants."
For the reasons I have set out above, the evidence does not establish that SME Gateway had knowledge of those matters as at 11 March 2016.

[66]

Accessorial Liability - Claims in respect of the PBGRP Engagement

The breaches of duty by Mr Dillon, Mr Harmer and Mr Binks in respect of the PBGRP engagement are pleaded at paragraph 81 of the Further Amended Statement of Claim. The Plaintiffs' claim against SME Gateway for accessorial liability in respect of those breaches is founded on the following pleading of knowledge (Further Amended Statement of Claim, paragraph 82A): "From at least 11 March 2016 until SME Gateway was awarded the contract pursuant to RFQTS 14839, Mr Madden and Mr Ashman as officers of SME Gateway knew and therefore, SME Gateway knew that: a. Mr Harmer was an employee of the Plaintiffs; b. Mr Binks was an employee of the Plaintiffs; c. Mr Dillon was an employee of the Plaintiffs; d. WIBIH, Mr Harmer and Mr Dillon were expecting to respond to tenders from the MSB which were to be directed SME Gateway; e. knew or ought to have known that the basis of WIBIH, Mr Harmer and Mr Dillon's expectations concerning tenders from the MSB were based on information received in the course of their employment with the Plaintiffs about further work to be undertaken by Aerosafe and that information was confidential to the Plaintiffs; f. knew or ought to have known, by the standards of honest and reasonable persons, that it was being supplied by current employees of the Plaintiffs with confidential business information of a competitor, being Aerosafe."
The tender lodged by SME Gateway in response to RFQTS 14839 is alleged to have been lodged in circumstances where SME Gateway had knowledge of those matters.
It may be accepted that SME Gateway assisted Mr Dillon to secure the PBGRP engagement for WIBIH, in the sense that SME Gateway provided the means for WIBIH to respond to RFQTS 14839 (as subcontractor to SME Gateway, which was a member of the CAS-SS Panel). The critical question, therefore, is whether SME Gateway had, through Mr Ashman or Mr Madden, knowledge of the matters pleaded. In particular, it must be established that SME Gateway was aware: (a) that Mr Dillon, Mr Harmer and Mr Binks were employees of the Plaintiffs; (b) that the basis of Mr Dillon's expectation that a tender for work would be directed to WIBIH was information received in the course of employment with the Plaintiffs; and (c) that SME Gateway was being supplied by the Plaintiffs' current employees with Aerosafe's confidential business information.
I have already addressed the meeting of 11 March 2016, and SME Gateway's knowledge as at that date. Following this meeting, Mr Ashman ceased to have further contact with WIBIH or Mr Dillon or Mr Harmer. The key issue therefore is Mr Madden's knowledge, and in particular whether he became aware, from his dealings with WIBIH and Mr Dillon in the period from the 11 March 2016 meeting until the lodgement of the tender response to RFQTS 14839, of matters which establish actual knowledge on Mr Madden's part of Mr Dillon's dishonest breach of his fiduciary duties (or, if such a case were open, constitute knowledge within one of the other applicable categories, such as knowledge of circumstances that would indicate the facts to an honest and reasonable person).
First, the Plaintiffs point to the fact that: 1. on 27 April 2016, Mr Dillon emailed Mr Madden and informed him of a Statement of Work to conduct a Gangway Safety Assessment, which Mr Dillon expected was going to be issued by the MSB within the next 24 hours; and 2. on 28 April 2016, Mr Dillon sent Mr Madden a qualification questionnaire which was completed in the name of "WIBIH Pty Ltd" and was signed by Mr Dillon as CEO of WIBIH. On the same day, Mr Madden sent back a countersigned membership agreement, in which Mr Madden had inserted the name "WIBIH Pty Ltd".
No RFQTS was in fact issued for a Gangway Safety Assessment. However, the significance of these communications was said to be that, on the one hand, Mr Dillon's email indicated some knowledge which must have come from working with the Navy and, on the other, the completed qualification questionnaire indicted that WIBIH itself had not earned any revenue from working in the Defence market sector. In addition, the Plaintiffs contended that Mr Madden was aware that there was in fact no company named "WIBIH Pty Ltd".
SME Gateway tendered a copy of an ABN search that was carried out on 28 April 2016, which indicated that the business name "WIBIH" was owned by MD & SD Pty Ltd. Mr Madden acknowledged that this was the search which he likely performed in the period between receiving the completed questionnaire and sending back the membership agreement with the name "WIBIH Pty Ltd" inserted. It is therefore likely that Mr Madden was, at the time, aware of the matters shown in that ABN search. However, it does not appear that he attached any particular significance to the discrepancy between the corporate name shown in the ABN search (MD & SD Pty Ltd) and the corporate name used in the qualification questionnaire (WIBIH Pty Ltd), or that he had it in mind when dealing with WIBIH or Mr Dillon. If Mr Madden had been conscious of this discrepancy, and had regarded it as a significant matter, he would likely have amended the membership agreement between SME Gateway and WIBIH to refer to the correct corporate name, namely, MD & SD Pty Ltd. There was no rational reason why, in an agreement to which only SME Gateway and WIBIH were parties, and which was not disclosed to any other person, Mr Madden would have inserted a corporate name which he knew to be incorrect. The more likely explanation for his having inserted the name "WIBIH Pty Ltd" into that contract is that he was not conscious of the discrepancy, or confused the corporate name and the business name, and at any rate did not consider that, in circumstances where MD & SD Pty Ltd traded under the name "WIBIH", there was anything problematic or suspicious in referring to that entity as "WIBIH Pty Ltd".
In any event, the error in the corporate name is unrelated to any of the pleaded breaches of duty. Assuming the correct name (MD & SD Pty Ltd) was known to SME Gateway, that name did not reveal any connection between Mr Dillon and Aerosafe; and Mr Dillon's use of "WIBIH Pty Ltd" rather than "MD & SD Pty Ltd" was not a circumstance such as would alert Mr Madden to the fact that Mr Dillon was currently an employee of an entirely different organisation, which was a competitor of the "WIBIH" business.
As for the lack of any information in the completed questionnaire indicating an existing connection between WIBIH and the Defence industry, such as would explain how Mr Dillon was aware of the expected tender for the Gangway Safety Assessment, I do not consider that this would indicate to an honest and reasonable person that Mr Dillon's knowledge of the expected tender had been obtained by him in the course of his work for a competitor of WIBIH. The lack of any past connection between WIBIH and the Defence industry is equally consistent with WIBIH being a new company set up for the purpose of the forthcoming work, and with Mr Dillon (or the people whom he had recruited to work for WIBIH) having performed work for Defence in the past, as employees or contractors, and having ongoing contacts within Defence, or having relationships with persons who had such contacts.
Secondly, the Plaintiffs rely on the fact that SME Gateway subsequently received, on 15 June 2016, a tender response to RFQTS 14839, prepared by WIBIH, which referred to WIBIH's staff having, in the recent past, undertaken extensive work for the MSB and the PBGRP. It is submitted that Mr Madden, on receiving this tender response, must have become aware (or an honest and reasonable person with knowledge of those matters would have realised) that WIBIH's staff could not have obtained this experience as the result of any work which WIBIH had done with the Navy, since WIBIH had referred to no such experience in the qualification questionnaire submitted six weeks earlier; and instead, that WIBIH's staff likely obtained that experience while working, in the recent past, for a competitor company.
This submission proceeds on the basis that Mr Madden, when receiving the tender response, read it and was conscious of the discrepancy between what was stated in that document and what had been stated in the qualification questionnaire. Mr Madden agreed in cross-examination with propositions that there was a "good chance" that he reviewed the tender response ("Maybe … maybe not"), but said that SME Gateway essentially just "picked up and flicked on" the document: that is, SME Gateway added its logo to the document which WIBIH had prepared and forwarded it on. He rejected any suggestion that he was aware of any discrepancy between the tender response and the (earlier received) qualification questionnaire, at the time that he "picked up and flicked on" the former.
The Plaintiffs pointed out that SME Gateway had obligations under its Deed of Standing Offer with the CAS-SS Panel to ensure that services are "undertaken by personnel who … are suitably qualified, with appropriate skills and experience". The Plaintiffs contended that it is likely that, having regard to those obligations, SME Gateway (and in particular Mr Madden) was keen to understand precisely what experience WIBIH's staff had in dealing with Defence. However, Mr Madden gave evidence that he relied on the member's honesty when submitting tender responses; that he did not have the time or resources to conduct any detailed review of the information in tender responses before submitting them; and that he understood that both the Commonwealth and SME Gateway's members were content with that approach. I accept this evidence, on which Mr Madden was extensively cross-examined, and which is consistent with the course that was in fact adopted in SME Gateway's dealings with WIBIH and the PBGRP. It is also consistent with the Code of Conduct which was set out in a Schedule to the SME Gateway Membership Agreement, and which imposed obligations on members (such as WIBIH) to act honestly and truthfully at all times (cl 1(a)); to deal fairly and honestly in all business activities (cl 4); not to engage in practices that may be detrimental to SME Gateway, such as breaches of confidentiality (cl 5); and, in particular, to "represent themselves and the capabilities of their organisations truthfully and in good faith" (cl 6).
Mr Madden frankly accepted that SME Gateway's business model involved "taking at face value information provided to [SME Gateway] by would-be applicants for membership and members". He further acknowledged that SME Gateway did not take any steps specifically to check the accuracy of information provided by members, "except rely on adherence to the code of conduct which means that the members are honest and truthful at all times and the resource declarations, but otherwise there was no steps taken to make sure that they weren't lying or that it was inconsistent".
Having regard to those matters, I find that SME Gateway's general practice was not to scrutinise information provided by its members or to compare various pieces of information submitted at different times before submitting that information to the Commonwealth; that SME Gateway took this approach because it had limited resources and relied on the integrity of its members, leaving it to the Commonwealth to evaluate the information in the tenders for itself; and SME Gateway's acceptance of WIBIH as a member and its submission of the response to RFQTS 14839 did not involve any departure from this practice. There is accordingly no sufficient basis to conclude that Mr Madden on receiving the tender response became aware that WIBIH staff had significant recent experience in working with the Navy which had not been disclosed to SME Gateway in the qualification questionnaire, let alone to infer, from his failure to ask questions about the source of such recent experience, actual knowledge on his part that Mr Dillon (or Mr Harmer or Mr Binks) was acting in breach of duties owed to Aerosafe by taking steps to secure the PBGRP engagement for SME Gateway / WIBIH. That is particularly so in circumstances where, in all material provided to Mr Madden and SME Gateway, WIBIH was astute to ensure that there was no reference to any existing or prior connection between Aerosafe and any of Mr Dillon, Mr Harmer or Mr Binks.
For those reasons, the Plaintiffs have not established that SME Gateway had actual knowledge of the matters constituting the breach by Mr Dillon (or Mr Harmer or Mr Binks) of his fiduciary and statutory duties which I have found in relation to the PBGRP engagement. Nor, if such a case were open, have the Plaintiffs established that SME Gateway wilfully shut its eyes to the true position, or that SME Gateway wilfully or recklessly failed to make enquiries in respect of WIBIH's application for membership and its tender response, or that SME Gateway had knowledge of circumstances which would have indicated the true position to an honest and reasonable person.

[67]

H. CAUSATION

A number of preliminary points about the Plaintiffs' damages case should be noted before dealing with the specific issues that arise in respect of causation.
First, I have found that any obligations under the employment contracts were owed to, and enforceable by, GRAGS alone. GRAGS conceded that it did not suffer any loss by any breach of such obligations, other than its claim for breach by Mr Harmer of his notice period (addressed in Section J below). It follows that, in respect of each of the breaches of the employment contracts which has been established, GRAGS is entitled to recover only nominal damages. Similarly, by reason that damages are the gist of an action for compensation under s 1317H of the Corporations Act, GRAGS is not entitled to any remedy pursuant to that section in respect of any breach by Mr Dillon, Mr Harmer or Mr Binks of the obligations which each owed as an employee of GRAGS pursuant to s 182 or s 183 of the Corporations Act. Accordingly, the focus of this section of the judgment is on the issue whether Aerosafe has established loss from any breach of the fiduciary or statutory obligations owed to it, or the contractual obligations owed by Mr Dillon and Mr Harmer under their Confidentiality Agreements.
Secondly, the Plaintiffs have not pleaded any conspiracy or common enterprise against Mr Dillon, Mr Harmer and Mr Binks, but have instead pleaded a separate claim in respect of each of them, based on the conduct of each. It follows that it is necessary to consider, for each, whether any breach on his part caused any loss to Aerosafe. Nonetheless, because I have found that Mr Dillon owed, and breached, both fiduciary and statutory obligations as an officer of Aerosafe, and because I have found that Mr Dillon's conduct in breach of his obligations was more extensive than that of Mr Harmer and Mr Binks, it is convenient to examine issues of causation primarily by reference to his conduct.
Thirdly, the Plaintiffs elected not to seek any account of profits from the Defendants. That is not surprising given that SME Gateway / WIBIH did not succeed in obtaining the contract for the MSB engagement, and there is no evidence that any, or any significant, profit was made from the PBGRP engagement. Instead, the Plaintiffs chose to seek compensation based solely on the loss which Aerosafe claimed to have suffered by reason of the Defendants' conduct.
Fourthly, the Plaintiffs opened their case on the basis that Aerosafe was advancing, in respect of the 2015 Contracts, both a claim for damage suffered by reason of those contracts not being renewed (contending that, but for the Defendants' conduct, it would have secured the contract with the MSB for services from July 2016 onwards) and, in the alternative, a claim for the loss of the opportunity for Aerosafe to secure either a renewal of the 2015 Contracts, or a replacement contract with the MSB, for the provision of services in the 2016/2017 financial year and beyond. The Plaintiffs made clear, in opening address, that they did not run any loss of opportunity claim in respect of the PBGRP engagement. The Defendants, in their opening submissions, objected to any claim for loss of opportunity being advanced in respect of the MSB engagement, contending that no such claim was pleaded and the Plaintiffs had expressly elected, on the occasion of the claim being substantially amended in early 2022, not to pursue such a claim. In closing submissions, the Plaintiffs accepted that, as a result of forensic choices made at an earlier point in time, it was not open to them to pursue any claim for loss of opportunity.
Consequently, the issue of damages must be approached on the basis that, unless Aerosafe can establish that it is more likely than not that, but for the Defendants' conduct: 1. it would have secured the engagement to perform further work for the PBGRP (in respect of which SME Gateway / WIBIH was in fact engaged), and/or 2. it would have been engaged to perform services for the MSB from July 2016 onwards (in respect of which Nova was in fact engaged), either by renewal of the 2015 Contracts or by securing a replacement contract, then Aerosafe has not suffered any loss.

[68]

Causation - Relevant Principles

/Equitable compensation is a remedy available to the victim of a breach of fiduciary duty against both the fiduciary and any other person who knowingly participated in that breach and has thereby become subject to a personal liability as a "constructive trustee" by application of the principles derived from Barnes v Addy: Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 at 153 per McLelland AJA (Priestley and Meagher JJA agreeing).
I recently considered the relevant principles in Salmon v Albarran [2023] NSWSC 1238 at [405]-[412] and the following summary is drawn from that decision.
The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation: O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272 per Spigelman CJ (Priestley and Meagher JJA agreeing). In that case, Spigelman CJ quoted (at 273) with approval the following passage from the judgment of McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163 as representing the law in Australia: "In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, ie the plaintiff's lost opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which on a common sense view of causation, were caused by the breach."
There is "no equitable by-pass of the need to establish causation": Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [44].
In order to obtain equitable compensation for breach of a fiduciary duty, it is necessary for the plaintiff to establish "a sufficient connection (or 'causation') between breach of duty and … the loss sustained": Maguire v Makaronis (1997) 188 CLR 449 at 468 per Brennan CJ, Gaudron, McHugh and Gummow JJ. When assessing causation for the purposes of equitable compensation, the "true inquiry is whether the loss would have happened had there been no breach, not whether the loss was caused by or flowed from the breach": O'Halloran at 276-7 per Spigelman CJ (with whom Priestley and Meagher JJA agreed); Parker, In the matter of Purcom No 34 Pty Limited (In Liq) (No 2) [2010] FCA 624 at [23]-[24] per Gordon J; Anderson v Canaccord Genuity Financial Ltd at [2497] per Ward CJ in Eq.
In establishing a sufficient connection, the plaintiff need not show that the breach was the cause of the loss. It is enough that it was a cause of the loss: Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324 at [62] per Macfarlan JA (McColl JA agreeing). Thus, once a sufficient connection is found, causation is established irrespective of the identification of a separate and concurrent cause (provided that the loss would not have occurred if there had been no breach of duty): Anderson v Canaccord Genuity Financial at [2498] per Ward CJ in Eq.
It has been said that, in a case of breach of fiduciary duty, the Court is entitled not to speculate against the interest of the plaintiff, and that equity should strive to repair the breach of fiduciary duty lest the fiduciary in default could be exonerated too easily and the Courts be seen to wink at wrong-doing: GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers & Ors [2005] VSCA 113 at [71] per Warren CJ (Chernov JA and Dodds-Streeton AJA agreeing), quoting observations by Kirby J in Maguire v Makaronis at 492-493.
However, as the Victorian Court of Appeal (Kyrou, McLeish and Walker JJA) observed in Break Fast Investments Pty Ltd v Rigby Cooke Lawyers [2022] VSCA 118 at [87]-[88]: "the entitlement to not speculate against the plaintiff does not justify making assumptions of fact that are otherwise necessary to establish the sufficient 'but for' connection between the breach and loss" (their Honours approving as correct the statement to this effect by the primary judge, Macaulay J).
A claim under s 1317H is available against a person who has contravened a corporation / scheme civil penalty provision (s 1317H(1)(a)), including, relevantly, any of ss 181 to 183 of the Corporations Act. Any person who is involved in a contravention by an officer or employee of any of those provisions also contravenes that provision: see s 181(2), 182(2) and 183(2). It follows that a claim for compensation may be brought against both the defaulting officer or employee, and any person found to have accessorial liability for the contravention.
In order to establish a claim for compensation pursuant to s 1317H of the Corporations Act for breach of the statutory duties owed by Mr Dillon as an officer of Aerosafe pursuant to any of ss 180 to 183, Aerosafe must show that it has "suffered damage", and "the damage resulted from the contravention". While "damage" can include profits made by any person as a result of their contravention (s 1317H(2)), Aerosafe elected not to seek any such award.
The requirement in s 1371H(1) that the damage "resulted from" the contravention means that "only the damage which as a matter of fact was caused by the contravention can be the subject of an order for compensation": Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; [2003] NSWCA 131 at [709]. That raises an issue of factual causation: DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165 at [259].
In respect of claims for breach of contract, the general principle governing the award of compensatory damages in contract is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by the reason of the defendant's breach: Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 116 per Deane J. If loss is not established, a plaintiff is entitled only to nominal damages. As noted above, the Plaintiffs accepted that, if GRAGS alone was entitled to sue on the employment contracts, then (leaving aside the notice period claim against Mr Harmer) GRAGS had not suffered any loss by any of the pleaded breaches of those contracts.

[69]

The MSB Engagement

The Plaintiffs plead that, as a result of the breaches alleged in paragraph 71 of the Further Amended Statement of Claim (being the alleged conduct of Mr Dillon, Mr Harmer and Mr Binks in relation to the MSB engagement, addressed in Section E above) "the MSB did not extend the 2015 Contracts in favour of Aerosafe by a further 12 months or at all, and ceased to contract with Aerosafe entirely after 30 June 2016" (Further Amended Statement of Claim, paragraph 72). The Plaintiffs claim that, by reason of those matters, they are entitled to compensation assessed by reference to the value of the rollover of the 2015 Contracts for a further three years (Further Amended Statement of Claim, paragraph 73).
Further or in the alternative, the Plaintiffs plead that, as a result of the Defendants' breaches, "Aerosafe's tender response for RFQTS 15168 [being the tender for the MSB work from July 2016 onwards] was not successful" (Further Amended Statement of Claim, paragraph 88). The Plaintiffs claim that, by reason of those matters, they are entitled to compensation assessed by reference to the value of the contract arising from RFQTS 15168 for the 2016/2017 financial year, together with extensions of that contract for the following financial years (Further Amended Statement of Claim, paragraph 91).
The Defendants contend that, even if the pleaded breaches are found to have occurred, any such causation has not been established. In particular, they contend, by reference to the contemporaneous internal communications of the relevant officers of the MSB and the Navy, that the decision made not to rollover the 2015 Contracts was made by reason of matters unrelated to any information received by the MSB to the effect that Mr Dillon, Mr Harmer and Mr Binks would soon be leaving Aerosafe and would be available to perform services for the MSB via WIBIH. Similarly, the Defendants contend that the decision to award the contract arising under RFQTS 15168 to Nova was made based on an assessment that the offer by Nova was superior to that of either Aerosafe or WIBIH, and there is no reason to conclude that this assessment was affected by any conduct of Mr Dillon, Mr Harmer or Mr Binks in breach of their obligations to Aerosafe.
The parties did not call any officer of the MSB or any other Defence personnel involved in the relevant decisions. In those circumstances, it is necessary, first, to analyse the contemporaneous documents in order to identify those factors which were material to the decision not to renew the 2015 Contracts, and the decision to engage Nova rather than Aerosafe to provide services to the MSB in the 2016/2017 financial year; and secondly, to determine, by reference to those factors, whether it is more probable than not that, but for the Defendants' conduct in breach of their obligations, the MSB and Defence would instead have decided to renew the 2015 Contracts or otherwise would have decided to engage Aerosafe to provide services to the MSB in the 2016/2017 financial year.
An examination of those contemporaneous documents reveals that the decision not to renew the 2015 Contracts was made by around March 2016. The draft of the Endorsement to Proceed prepared by Mr Carmichael in mid-March 2016 set out reasons for the decision to proceed with a new contract, rather than a renewal of Aerosafe's engagements, in terms which remain relevantly unchanged in the final version of that document. Three key elements of the decision were as follows.
First, there had been a change of scope.
The draft Endorsement to Proceed in respect of the provision of services to the MSB in the 2016/2017 financial year, which was prepared by the MSB in mid-March 2016, noted that there were four streams of work required in the coming financial year, namely, Fleet Safety Management Improvement; Fleet Safety Assurance Improvement; Safety Communication Publishing House; and Management of OHSIR to Sentinel Project. The draft Endorsement to Proceed recognised that Aerosafe had, in the 2015/2016 financial year, been engaged to provide the first two streams of work. However, it noted that the scope of services to be provided in the 2016/2017 financial year was expanded by the addition of the second two streams of work. This change in scope was identified as the key factor in the decision not to exercise the option to renew the 2015 Contracts: "An extension to the existing Contracts was considered, however; the scope change, most notably the additional tasks relating to: a. Safety Communication. b. Management of OHSIR to Sentinel Project. Caused this option to be discounted."
Statements to identical effect appeared in the final version of the Endorsement to Proceed, which was signed in late June 2016.
The Plaintiffs contended that the additional two streams of work did not represent a substantive change to the scope of the services being provided to the MSB, as Aerosafe had already been performing work related to those two streams in the 2015/2016 financial year. However, the MSB personnel, preparing the Endorsement to Proceed in March 2016, were best placed to understand the scope of the services which had been provided to the MSB in the current financial year, and the extent to which the scope of the services outlined in the four Statements of Work (for the four proposed work streams) which the MSB developed for the 2016/2017 financial year differed from the scope of services provided to date. In any case, where the relevant Navy personnel plainly reached, at the time, a genuinely held view that there had been a substantial change in the scope of the services, it is this subjective view which is important, particularly when dealing with an issue of causation. The Plaintiffs did not advance any allegation that the views expressed in the Endorsement to Proceed were not genuinely held.
The draft Endorsement to Proceed of March 2016 also recorded that consideration had been given to proceeding by way of a Contract Change Procedure (that is, amending the scope of the 2015 Contracts at the same time as extending them), but that this had been discounted as a viable procurement option. The reasoning was as follows: "Aerosafe are currently contracted to deliver an integrated Safety Management System and Safety Assurance [that is, the first two of the four streams of work required in the next financial year]. However, this Procurement significantly increases the scope of activities and the emphasis has changed from developmental work to analysis and operational actions with Continuous Improvement to the Safety Management. CCP [Contract Change Procedure] action is discounted as a viable procurement option." Again, a statement to identical effect was included in the final version of the Endorsement to Proceed.
Secondly, the MSB wanted to go back to test the market for services in the 2016/2017 financial year. Mr Carmichael's email of 26 February 2016 stated as follows: "Aerosafe were selected 'sole source' (within the DMOSS panel arrangements) in 2014-15 and again in 2015-16. In the ETP MSB have indicated that the decision to 'sole source' was based on Aerosafe ongoing knowledge and experience of the tasks required by MSB. MSB also indicated in both ETP's a desire to go back to the market to 'test the market' in future years."
The Plaintiffs disputed the accuracy of Mr Carmichael's statement, arguing that there is nothing said in the Endorsements to Proceed in respect of the either the 2014 Contract or the 2015 Contracts to the effect that the MSB intended to test the market in future years. However, those documents did note that any extension was at the Commonwealth's discretion, and observed that: "By structuring the procurement for a period of up to four years with an initial contract period of 12 months and three 12 month extension options (to be exercised at the Commonwealth's discretion), Navy will have flexibility to accommodate possible future changes in circumstances…" A significant factor in the exercise of this discretion to extent would likely be whether or not the MSB considered it appropriate, given the lapse of time since entry into the contract or any other change in circumstances, to go back and test the market.
In any case, whether or not Mr Carmichael's statement about the contents of the earlier Endorsements to Proceed was correct, it is evidence of a subjective belief on the part of the MSB that it was desirable to test the market. The Plaintiffs did not advance any contention that this subjective belief was not genuinely held in early 2016.
Further, this subjective belief was objectively commercially sensible. As set out in Section A above (paragraphs 32-50), Defence procurement policy required, as might be expected, a focus on value for money. One factor in assessing value for money is whether there has been competition for price.
The 2014 Contract and the 2015 Contracts had been offered to Aerosafe on a sole source basis. The respective Section 23 Commitment Approvals for those contracts noted that the services to be provided to the MSB under those contracts were similar to those provided under the 2013 Contract, and that there had been a competitive tender for this earlier engagement. This, together with the experience that Aerosafe had gained to date, was an important factor in determining that, despite there being no competitive tender in respect of either the 2014 Contract or the 2015 Contracts, Aerosafe offered "value for money". For example, the Section 23 Commitment Approval for the 2014 Contract stated as follows: "The [2013 Contract] with Aerosafe was established through a competitive approach to DMOSS panel members, and by placing a new order with Aerosafe Navy can capitalise on the work completed by Aerosafe in FY 2013/14, and the significant experience gained by Aerosafe in developing and delivering to Navy Standards. Further, with the work associated with the new order being so similar/identical, and with Aerosafe having been selected from such a recent competitive approach to DMOSS panel members Navy is confident that Aerosafe will continue to provide a value for money solution."
A relevantly identical statement was made in the Section 23 Commitment Approval for the 2015 Contracts, with the only difference being that reference was made to Aerosafe's experience in both the 2013/2014 financial year and the 2014/2015 financial year.
That is, the fact that there had been "such a recent competitive approach to DMOSS panel members" for services of similar scope supported the decision to enter into a new contract, on a sole source basis, with the existing service provider, at a price in line with that which had been obtained as a result of the recent competitive process.
However, by the time that the 2016/2017 financial year was about to begin, the last competitive tender for services to the MSB had been some three years earlier. In addition, as noted above, the MSB was of the view that the scope of the services which it required for the coming financial year was significantly different from the scope of the services that it had procured from Aerosafe in the previous two financial years. It therefore could no longer be said that there had been a recent competitive tender for services of a similar scope.
The final version of the Endorsement to Proceed explained that the MSB's understanding of its requirements in respect of the development of the Safety Management System had "matured", that this led to a change in the scope of the services required, and that this change in turn led to the decision not to exercise the option to extend the 2015 Contracts and instead to go back to test the market by seeking quotes from various suppliers (including Aerosafe): "The MSB approach is to concurrently develop the SMS and its sub-systems. This approach has been ongoing for two years as evidenced at Reference B and Reference C for the Management System and at Reference D and Reference E for one sub-system being Safety Assurance. The SMS is now sufficiently mature to better enable sub-system to be applied from a 'top down' Management system perspective, rather than the previously held 'bottom up' view i.e. that the sub-system should be developed and then integrated. Based on this matured understanding which has resulted in a significant change in scope, the MSB will not exercise the available 12 [month extension] options … under RFQTS 13146 and … under RFQTS 13643 [being the 2015 Contracts] rather the MSB will retest the market by requesting a number of quotes from the CAS-SS panel from a selection of suitable suppliers (the current supplier [Aerosafe] will be included in the new approach to the market)."
Thirdly, although the MSB continued to place importance on "continuity" of services, this was by early 2016 no longer seen as a sufficient basis to justify sole source procurement, particularly in light of the other factors already identified.
The Section 23 Commitment Approval in respect of the first of the 2015 Contracts had stated as follows: "Aerosafe's proven ability to deliver and the continuity that would be gained from Aerosafe is extremely important in achieving the safety outcomes across the Fleet and contributed significantly to Navy's pursuit of a value for money solution. For example: the placing of the order with Aerosafe will provide further savings, as it provides the Commonwealth with the following: a. potential reduced costs of delivery by capitalising on the knowledge and expertise gained in the development phases; b. mitigation of the considerable risk of loss of corporate knowledge and business continuity; c. Aerosafe staff understands the business of the MSB and can work autonomously with minimal APS/ADF involvement will allow key MSB staff to focus upon governance and priorities; and d. faster and better informed progress towards improved safety management."
In contrast, the draft Endorsement to Proceed in respect of the 2016 Contract recorded that: "Continuity of skills and experience provided by those individuals delivering services to MSB is very important. However, DNCB [Director, Navy Contracting Bureau] advi[c]e is that this continuity does not introduce sufficient risks to justify 'sole source' procurement. The work is now not considered sufficiently specialised to warrant sole source action." A similar statement appeared in the final version of the Endorsement to Proceed.
In any event, by early 2016, the MSB was of the view that, by reason of past and anticipated staff turnover at Aerosafe, the "continuity of service" offered by Aerosafe had diminished. As Mr Carmichael stated in an email of 2 March 2016: "My view is that we are not in a position to argue that Aerosafe have not met the contract requirements for the current contracts (expire Jun 16). My issue is that the ETPs [Endorsement to Proceeds] for these contracts envisage us going back to test the market in the future. I think that we are at that point. In addition the basis for the decision to 'sole source' to Aerosafe was around continuity of service which recent (and anticipated) staff turn over has now called into question. My intention is to let the current contracts expire and not seek to exercise the options."
The Plaintiffs disputed the accuracy of Mr Carmichael's statement that there had been "recent … staff turnover" as at 2 March 2016. However, the Defendants pointed to evidence that there were fourteen persons identified as "key persons" in Aerosafe's tender for the first of the 2015 Contracts and that, by the start of March 2016, six of those persons had left Aerosafe: namely, Mr Adams, Mr Le, Mr Johnson, Ms Copeland, Mr Graham and Mr Christie. In addition, a seventh "key person" finished work at Aerosafe on 11 March 2016 (Kam Ho), and it is likely that notice of their resignation had been provided to Aerosafe and the MSB as at early March. That is, as at early March 2016, half of the Key Persons for the performance of the MSB engagement, identified in Aerosafe's tender response, had left the business. The departure of Mr Christie was likely seen as particularly significant by the MSB, as he had been the Project Manager for the first few months of Aerosafe's engagement for the 2015/2016 financial year, and dissatisfaction had been expressed by the MSB on a number of occasions about the changes in the Project Manager role.
This evidence provides an objective basis for the concern expressed in Mr Carmichael's email about the recent turnover in Aerosafe staff. However, the critical point, whether this concern was objectively based or not, is that it was subjectively held, and therefore must be taken into account in any assessment of what would have occurred in the counterfactual where the contravening conduct did not occur.
According to Mr Carmichael, it is both the "recent (and anticipated)" turnover in Aerosafe staff which calls into question the "continuity of service" that would be offered by extending Aerosafe's engagement. It is likely that the reference to "anticipated" turnover was a reference to the three "highly competent" staff referred to in Mr Carmichael's email, who were particularly valued by the MSB and who had "unofficially" indicated their intention to leave Aerosafe at the close of the 2015 Contracts.
That is, Mr Carmichael's view that the continuity of service offered by Aerosafe had been called in question was based, in part, upon Mr Dillon's indications that he, Mr Harmer and Mr Binks intended to leave Aerosafe and to work for a competitor, WIBIH.
Given those matters, the critical question for causation is as follows: if Mr Dillon had not, in breach of his duties, informed the MSB of those matters, is it more likely than not that the MSB would have decided to extend Aerosafe's engagement, either by rolling over the 2015 Contracts or by issuing a new RFQTS to Aerosafe for services on a sole source basis?
In light of the evidence set out above, I am not satisfied that, but for Mr Dillon's conduct in breach of his duties, the MSB would likely have renewed Aerosafe's engagement, without testing the market by way of a competitive tender. Although the concern about the level of staff turnover within Aerosafe would have been, to a significant extent, reduced if the MSB had not been informed that Mr Dillon, Mr Harmer and Mr Binks would soon be leaving Aerosafe, this would have had no impact on the other factors which were identified as underlying the decision to proceed by way of a competitive tender. In particular, in such a scenario, the MSB would likely have remained of the view that the scope of the engagement had significantly changed from the scope of the engagement under the 2015 Contracts, and that in those circumstances it was not appropriate to proceed by way of either a rollover of the existing contracts or a Contract Change Procedure. The MSB would also likely have remained of the view that, with the change in scope of services, the work was no longer sufficiently specialised to warrant sole source action and that therefore there was a lesser need for continuity of services than had been the case in the past. Further, the MSB would likely have remained of the view, that it was desirable to go back and "test the market" for these services, particularly in light of the need to focus on "value for money", the period of time that had elapsed since the last competitive tender, and the change in the scope of services.
For those reasons, I find that, even if there had been no breach of duty, it is likely that the MSB would have decided to proceed by way of a competitive tender for services in the 2016/2017 financial year which was issued to a number of members of the CAS-SS Panel (as in fact occurred, with the issue of RFQTS 15168 to Aerosafe and several other businesses, including SME Gateway / WIBIH and Nova).
The question then arises whether, but for Mr Dillon's conduct in breach of his duties, Aerosafe would have been awarded the contract with the MSB arising from RFQTS 15168.
The difficulty with any such contention is that the contract arising from RFQTS 15168 was in fact awarded to a third party, Nova, which was assessed by the relevant Defence personnel to have the superior bid. That assessment was reached following an analysis of the competing bids against various criteria by the Tender Evaluation Working Group (see paragraphs 328-332 above).
It may be accepted that Aerosafe's bid for the 2016 Contract would have been stronger if it had been able to include Mr Dillon, Mr Harmer and Mr Binks among the personnel who would be performing services for the MSB. However, the experience of staff was only one factor that was taken into account, and Nova was itself able to offer two personnel who had recent experience of providing services to the MSB while at Aerosafe, namely, Mr Adams and Mr Hampton. Further, as already noted above, continuity of service was seen as a less significant factor than had been the case for earlier engagements, as a result of a substantial change in the scope of services. In addition, a key concern of the Tender Evaluation Working Group was certainty of pricing, and Nova's bid was assessed as providing such certainty, while Aerosafe's pricing was regarded as complicated and predicated on various assumptions. That was a factor unrelated to the personnel offered by either entity.
In any case, it is unlikely that, absent any breach of duties by the Defendants, Aerosafe would have been in a position to name any of Mr Dillon, Mr Binks or Mr Harmer among its proposed personnel for the performance of services in the 2016/2017 financial year. That is because none of them breached their duties merely by resigning, and consequently it must be assumed in the counterfactual that each would have provided notice of their intention to leave Aerosafe when they in fact did. If it is assumed that each would have in this scenario, served out a period of three months' notice, that would mean that Mr Dillon left Aerosafe by 10 August 2016, Mr Binks left by 14 September 2016, and Mr Harmer left by 25 September 2016.
RFQTS 15168 called for tenders to be submitted by 26 August 2016, and required work to be commenced by 14 September 2016. Accordingly, by the time that the response to the RFQTS was submitted, Mr Dillon would have left Aerosafe; and by the time services were meant to commence, Mr Binks would have left, with Mr Harmer leaving shortly afterwards. It is unlikely that, in circumstances where all of those departure dates were known, Aerosafe would have included, in its response to RFQTS 15168, any of those staff among its proposed key personnel for performance of the engagement.
Having regard to those matters, I find that the Plaintiffs have not established that, but for the conduct by Mr Dillon (or Mr Harmer or Mr Binks) in breach of his obligations, either: 1. the 2015 Contracts would have been rolled over; or 2. an RFQTS for the provision of services to the MSB in the 2016/2017 financial year would have been issued to Aerosafe on a sole source basis; or 3. Aerosafe would have succeeded in obtaining the contract arising under RFQTS 15168, which was in fact awarded to Nova.

[70]

The PBGRP Engagement

RFQTS 14839 for the PBGRP engagement was issued to SME Gateway on a sole source basis. The reason why this was done was because the PBGRP had been informed that the particular staff whom the PBRGP wanted to retain, and who had recent experience with the PBGRP and the MSB (namely, Mr Harmer, Mr Binks and Mr Dillon) were available to perform the work through WIBIH, which was a member of SME Gateway.
On 24 May 2016, Captain Standen made clear his views on the appropriate contractor, in an email to Captain Parker of the PBRGP: "I very strongly recommend you engage SME Gateway via the DMOSS panel as they have access to staff who have previously been engaged in the development of the PBGRP Implementation Assessment (report dated Mar 16 as provided to CAPT PB by DMSB) and who also have extensive knowledge in the ABR 6303 implementation task which will allow them to commence work within the shortest possible timeframe. This represent[s] a saving to CoA by reducing the time for contractors to become task-ready and fully informed of the context and background to the task requirements."
Similarly, on 2 June 2016, Captain Standen sent an email to Captain Parker of the PBGRP and Commander Barton and Mr Ramsay of the Navy Contracting Bureau, stating as follows: "it's absolutely imperative we get specific people for this task. To that end, I strongly recommend you go sole-source to SME GATEWAY via the panel. In this case, by going sole-source to SME GATEWAY they in turn will contract the organisation who employs Andrew Harmer and Craig Binks (who are the people we need due to the reasons set out below) through their parent employer (which for Andrew is no longer ARM [Aerosafe] and Craig finishes up soon with them as well)."
RFQTS 14839 was issued on 8 June 2016, before either Mr Harmer or Mr Binks had given notice of his resignation to Aerosafe. If Mr Dillon, Mr Harmer and Mr Binks had not breached their duties, the MSB would not have been aware, prior to this RFQTS being issued, that Mr Harmer and Mr Binks would soon be leaving Aerosafe in order to work for a competitor, WIBIH.
In those circumstances, it is likely that RFQTS 14839 would have been issued to Aerosafe on a sole source basis. That is because the reasoning which led to this RFQTS being issued on a sole source basis was critically dependent on the entity through whom Mr Harmer and Mr Binks were available. As Captain Standen stated in his email to Captain Parker, Commander Barton and Mr Ramsay on 2 June 2016: "this is an exceptionally important task for the PBGRP and they will need all our available support as a priority to get this through and the contractors on-site ASAP, hence the sole-source. Other underpinning facts for a sole-source decision include prior familiarity with the task and environment, detailed familiarity with both the task required by this contract) and PBGRP as well as the MSB systems of work and key people, ability to put the right people on task in a very rapid timeframe, the people we want are the same people who have previously undertaken a preparatory related task for the MSB within PBGRP earlier this year, the need for a very rapid response."
RFQTS 14839 required a response by 15 June 2016, and specified that the work was to commence on 21 June 2016 and to be completed by 18 August 2016.
Mr Dillon submitted that the counterfactual should be constructed by reference to what occurred in the real world, altering only those things that would have changed as a result of the subtraction of Mr Dillon's conduct in breach of his duties, referring to Bartlett v Australia & New Zealand Banking Group Ltd (2016) 92 NSWLR 639 at [83] per Macfarlan JA and at [101] per Meagher JA. On this basis, Mr Dillon contended that, in the counterfactual, Aerosafe would not have been able to identify Mr Binks as someone who was able to do the work, because a response to RFQTS 14839 had to be submitted by 15 June 2016, and Mr Binks resigned on 14 June 2016, stating that his employment would cease on 30 June 2016. Mr Dillon submitted that, in this scenario, one possibility was that the PBGRP would have not accepted Aerosafe's response to RFQTS 14839, and would instead have made enquiries as to where Mr Binks would be working; that, by the time this played out, Mr Harmer might have also resigned (given that he notified Aerosafe on 25 June 2016 that he intended to leave on 22 July 2016); and that as a consequence a decision may have been made to run a competitive tender for this work.
There is a degree of unreality in this counterfactual. In particular, it ignores that the likely reason why Mr Binks and Mr Harmer left Aerosafe in haste in June 2016, despite their contractual notice periods, was that they needed to be at WIBIH by early July 2016 in order to perform the PBGRP engagement which had been issued to SME Gateway / WIBIH on a sole source basis.
If Mr Dillon had not solicited for the PBGRP engagement to be performed by SME Gateway / WIBIH, and had not successfully recruited Mr Harmer and Mr Binks to join WIBIH and to perform that engagement, it is likely that the RFQTS for that engagement would have been issued to Aerosafe on a sole source basis. In those circumstances, there would have been no imperative for Mr Binks and Mr Harmer to leave Aerosafe by early July 2016. It is likely that, in this scenario, Aerosafe's response to RFQTS 14839 would have been primarily prepared by Mr Harmer, since he had the greatest familiarity with the PBGRP engagement. It is therefore likely that this response would have been, in content, similar to that which Mr Harmer in fact prepared on behalf of WIBIH, particularly regarding the experience and expertise possessed by the staff who would be performing the work (Mr Harmer and Mr Binks) and their proposed approach to the engagement. Even if each of Mr Harmer and Mr Binks had given notice of his resignation when he in fact did so, the notice period for each of them extended well beyond 18 August 2016, which was the date by which the PBGRP engagement was to be completed (see Section J below).
It is also likely that this tender by Aerosafe would have been accepted. The Section 23 Commitment Approval for the PBGRP engagement placed particular importance on the "proposed methodology to be applied to completing the PBGRP task" and the "capability/background of its proposed subcontractor [WIBIH]", stating as follows: "The corporate knowledge of SME Gateway's sub-contracted staff, acquired through their previous work with PBGRP and DMSB, are expected to translate into direct savings in man hours required to complete the PBGRP task."
The corporate knowledge attributed to WIBIH was, in fact, corporate knowledge of Aerosafe, being possessed by persons who, as at the date of this document, were all Aerosafe team members.
The Section 23 Commitment Approval also recorded Navy's view that the procurement of services from SME Gateway / WIBIH was "low risk" because, among other things: "c. SME Gateway has detailed familiarity with the task required (by the Statement of Work) through prior work undertaken for DMSB/PBGRP and is familiar with PBGRP systems of work; d. SME Gateway can rapidly supply the right people required to achieve PBGRP SMS compliance with ABR 6303 Ed 5; e. the people being provided by SME Gateway are the same people who have previously undertaken work for DMSB/PBGRP earlier in 2016"
If Aerosafe had submitted a response to an RFQTS issued to it on a sole source basis in respect of the PBGRP engagements, the matters set out above would have been equally true of Aerosafe's tender. The detailed knowledge of the PBGRP's systems and of ABR 6303 Ed 5, which Mr Harmer and Mr Binks had obtained through their work as Aerosafe's employees, and the relationships which they had developed by working on site with PBGRP and MSB personnel, would, if advanced as matters in support of Aerosafe's rather than SME Gateway / WIBIH's tender for the work, likely have led to Aerosafe being awarded the PBGRP contract.

[72]

Issues arising on expert evidence

In relation to the issue of assessment, the parties tendered expert reports prepared by accountants who analysed financial information of Aerosafe relating to its revenue and costs for the contracts in question.
There were only two issues of substance separating these experts.
The first was whether Aerosafe would have had the capacity to perform not only the work that it in fact performed in the period from July 2016 to June 2019, but also to perform the work under the contracts which it claimed to have lost.
In short, the Defendant's expert, Mr Cairns, expressed the view that the majority of Aerosafe's staff were fully utilised in this period on contracts which Aerosafe in fact performed, such that Aerosafe could not show that it had, in this period, suffered any financial loss from the loss of these additional engagements (since there was no evidence that Aerosafe had the capacity to perform any additional work).
In response, the Plaintiffs' expert, Ms Thompson, referred to and relied on assumptions which she had been given, to the effect that Aerosafe had an established practice, which it would have followed, of bringing on additional staff, as contractors, if there was any issue with its capacity to service contracts. These additional staff were referred to within Aerosafe as the "Extension Team".
For reasons set out below, I do not need to resolve this first issue.
The second issue concerned the allocation of travel costs to particular projects. Ms Thompson referred to the evidence of Aerosafe's CFO, Mr Morton, that the Plaintiffs' books and records do not accurately allocate travel expenditure to designated project codes and, as such, she was not able to independently and reliably identify and calculate the travel costs specific to the 2015 Contracts. Ms Thompson adopted the travel costs identified by Mr Morton in his affidavit, but noted that she was not able to ascertain any specific methodology applied by Mr Morton for the calculation of those costs.
In those circumstances, the Defendants submitted, and I accept, that I should adopt the alternative methodology of Mr Cairns. This involves, for those travel costs which are shown as unallocated in Aerosafe's management accounts, allocating those costs to particular projects in proportion to the contribution of each project to total revenue.

[74]

Loss in respect of MSB engagement

I have found that the Defendants' conduct in breach of their obligations did not cause the loss of the contract to perform services for MSB from 1 July 2016 onwards. In case I have erred in reaching that conclusion, I have considered the assessment of the claim for loss in respect of this engagement.
In order to carry out this assessment, it is necessary to determine the period for which services would have been provided to the MSB and the price at which they would have been provided.
Both of those issues should be approached on the assumption that the Plaintiffs were able to establish that, but for the Defendants' conduct, the 2015 Contracts would have been extended. That is, the essence of the Plaintiffs' claim is that the Defendants' conduct prevented the rollover of those contracts or the issue of a replacement contract on a sole source basis. If the Plaintiffs fail to establish that was the case (as I have found), then I do not consider that it is likely that Aerosafe would have won a competitive tender for the services from July 2016, in circumstances where that tender was in fact awarded to a third party, Nova, which is not connected with the Defendants and which was assessed, on various grounds, to have a superior bid.
It follows that the price at which the services would have been provided in the 2016/2017 financial year would have been the rollover price under the 2015 Contracts.
As for the period of the engagement, if I had found that the Defendants' conduct caused the loss of the rollover of the 2015 Contracts for the 2016/2017 financial year, I would not have found that it caused the loss of the rollover of those contracts for any subsequent year. There is no sufficient basis to conclude, on the balance of probabilities, that in a scenario where the MSB had rolled over the 2015 Contracts, but all of the Aerosafe staff who had worked on those contracts in the first half of 2016 had, by around August 2016, left the employment of Aerosafe (as was in fact the case), the MSB would have decided, in mid-2017, to extend the engagement for another year. It is more likely that, in circumstances where there had been extensive turnover of staff (with the departure of not only Mr Dillon, Mr Harmer and Mr Binks, but also Mr Hampton, Mr Ganugapati and Ms Wang), and where there had not been any competitive tender for MSB services for, by that time, around four years, the MSB would have decided, particularly given the lack of continuity in Aerosafe staff and the need for regard to be had to "value for money", to conduct a competitive tender for the provision of services to the MSB from July 2017 onwards.
Accordingly, if I had found that the Defendants' conduct had caused the 2015 Contracts not to be rolled over, I would have assessed loss on the basis that those contracts were rolled over for only one additional year, at their existing price.
Mr Cairns points out that the value of contracts won by Aerosafe from 1 July 2016 onwards was $21.612m. However, only $1.307m of that work was won, and performed, in the 2016/2017 financial year. The remaining $20.305m was performed from 1 July 2017 onwards. Aerosafe's revenue in fact decreased in the 2016/2017 financial year, relative to the 2015/2016 financial year, but then substantially increased in the following two financial years.
Having regard to those matters, I consider that the issue identified by Mr Cairns as to whether Aerosafe had the capacity to perform both the work for the MSB and the new contracts which it in fact won in the period from July 2016 onwards, is an issue that arises predominantly in respect of the period from July 2017 onwards. It follows that this issue does not need to be determined, because I have determined that, if (contrary to my findings) the 2015 Contracts had been rolled over, they would likely have been rolled over only until the end of June 2017.
On the basis of: 1. the rollover of the 2015 Contracts for one year; and 2. the adoption of Mr Cairns's approach to the allocation of travel costs; I would have assessed, using the figures in Mr Cairns's report, the adjusted indicative NPV for the loss of the rollover of the 2015 Contracts to be $645,046 (before pre-judgment interest and gross-up of taxation). In addition, the Plaintiffs would have been entitled to the costs of preparing their response to RFQTS 15168 since, if a rollover had occurred, this RFTQS for replacement services to the MSB would not have been issued. The costs of preparing that tender response were $58,889.25.
However, for reasons I have given in Section H above, I have found that the Plaintiffs have not established causation in respect of the loss of the MSB contract, and therefore have not established an entitlement to any such amount.

[80]

Mr Harmer

Mr Harmer's employment contract specified that he was an "Executive" level employee, and provided that: "for Executive Staff six month notice is required". This six-month period was also stipulated in the letter of offer sent to Mr Harmer by Aerosafe, and was specifically highlighted by Ms Turner in discussions with Mr Harmer, before he accepted that offer.
However, Mr Harmer's employment contract also provided that, for "Risk Advisors" and "Management staff", a different notice period of "three months is required".
In response to the Plaintiffs' contention that, having given notice of his resignation on 25 June 2016, Mr Harmer was required to serve out a six-month notice period, he submitted: 1. first, that GRAGS had repudiated his contract by abolishing his position and paying him below his contracted salary, that this was a continuing breach from October 2015 to June 2016, and that he accepted this repudiation and terminated the contract effective 22 July 2016; and 2. secondly, and in the alternative, that if his employment contract was not repudiated, then his demotion from Vice President Defence to Senior Risk Adviser meant that he was no longer "Executive" level, but instead at the level of "Risk Advisor or Management staff" and was therefore only required to serve out a three month notice period.
Mr Harmer's contract stipulated that he would be employed in the position of "Vice President Defence" and would receive "Salary package of $200K per annum". There was no provision for this salary to be reduced based on a review of Mr Harmer's performance, or for this salary to be adjusted downwards in the event that Mr Harmer's position was abolished or changed.
Mr Harmer submitted that the unilateral reduction in wages and the abolition of the position of Vice President Defence was repudiatory conduct on the part of GRAGS. In this regard, Mr Harmer relied on Tokyo Network Computing Pty Ltd v Tanaka [2004] NSWCA 263 at [6] per Handley JA (with whom Mason P and Tobias JA agreed). His Honour there held that there was authority supporting the conclusion expressed by the primary judge (Bryson J), namely that, it is "elementary that the obligation of an employer to pay salary, and the whole salary, is fundamental to an employment agreement and goes to the root of the contract": Tanaka v Tokyo Network Computing Pty Ltd [2003] NSWSC 1114 at [24].
The Plaintiffs did not dispute this proposition. However, the Plaintiffs argued that Mr Harmer had, by his conduct, elected to affirm the contract following the change in his position and salary. They submitted that, insofar as this change amounted to a repudiation, it occurred in October 2015; that Mr Harmer chose to continue working in the new position for the new salary; and that, in late June 2016, some eight months later, it was simply too late for him to elect to "accept" the repudiation and terminate the contract.
Election at common law arises where there are inconsistent legal rights. It is "this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence": Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 641; [1974] HCA 40 (Stephen J, with whom McTiernan ACJ agreed).
In Sargent v ASL Developments at 642, Stephen J said: "For the doctrine [of election] to operate there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses … The nature of the knowledge which an elector must possess is a matter upon which the authorities are somewhat at variance. An elector must at least know of the facts which give rise to those legal rights, as between which an election must be made; without that knowledge the doctrine of election will not be available to make irrevocable his choice of one particular right … The extent of knowledge of relevant facts necessary for the doctrine of election to apply has been described as 'full knowledge of the material facts'."
His Honour continued (at 646): "The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other; thus for a lessor to continue to receive rent under a lease will be consistent only with his rights as lessor and inconsistent with the exercise of a right to determine the lease … However, less unequivocal conduct, only providing some evidence of an election, may suffice if coupled with actual knowledge of the right of election … There need be no expressed intention to elect, nor will an express disclaimer of such an intention be of any avail in preserving one right if in fact there be an exercise of another inconsistent right … For an election there need be no actual, subjective intention to elect … an election is the effect which the law attributes to conduct justifiable only if such an election had been made …"
In the same case, Mason J said (at 655): "A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performance creates a right of election."
His Honour observed (at 658): "If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon."
Mere delay in exercising the right, absent the need to make the choice, does not amount to such an election at least where the delay does not operate to the prejudice of the other party: Sargent v ASL Developments Ltd at 642, 646, 655, 656 and 658; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 30 and 41; [1993] HCA 27.
Mr Harmer was aware by October 2015 of all of the facts that, on his own case, amounted to a repudiation of his employment contract and gave rise to a right to terminate: namely, the abolition of the position of Vice President Defence; his demotion from Executive level to the position of Senior Risk Adviser; and the notification from GRAGS that it intended to pay him, from October 2015 onwards, below the level of his contracted salary. In accordance with the principles in Sargent v ASL Developments, it does not matter whether or not he was aware that these matters amounted to a repudiation of his employment contract, or meant that he had a right to terminate that contract.
By reason of those matters, Mr Harmer faced, as at October 2015, an election between inconsistent rights, namely, to accept the repudiation and to terminate the employment contract, or to affirm it and insist on its performance.
Mr Harmer proceeded to affirm the contract by accepting the reduced salary from October 2015 onwards, in return for acting in his changed role, and by exercising rights under the employment contract. This included Mr Harmer requesting and receiving periods of paid leave in January 2016 and July 2016. For example, in early April 2016, his request for paid leave from 4 to 19 July 2016 was approved.
Mr Harmer submitted that he protested the unilateral reduction in his wage. In this regard, he pointed to evidence of a single statement made at the time when he was first notified of the proposed reduction, to the effect that: "I can't take a reduction in salary". However, in the same conversation, Mr Harmer asked how he could work to retain his remuneration package, and Ms Turner responded that he would "have the opportunity to make up the salary shortfall through discretionary bonus and can easily have your annual salary be $200,000 or more". It may be inferred that this discussion led Mr Harmer to elect not to terminate his employment at that time.
For those reasons, I find that Mr Harmer elected to affirm his employment contract, and was not able (as he purported) to elect to accept any repudiation of the contract in July 2016 and terminate it at that time.
It follows that the notice period in the employment contract remained binding on Mr Harmer. However, because of his demotion from an "Executive" level position to the position of Senior Risk Advisor, his notice period was not six months but instead three months. Accordingly, Mr Harmer, having given notice of his intention to resign on 25 June 2016, was required to serve out a notice period which lasted until 25 September 2016.
The claim for damages for breach of Mr Harmer's obligation to give notice is based on the cost of retaining an Extension Team member, Mr Jim Vince (who was based in the United Kingdom) to undertake a short-term placement to perform the role of Project Manager for the NTSwAA engagement. In particular, the Plaintiffs led evidence that in respect of work which he undertook from 4 July to 26 August 2016, Mr Vince issued invoices for $28,011.58 (including travel and other expenses), which have been paid in full.
However, as Mr Harmer pointed out, GRAGS had already agreed that Mr Harmer would be on leave for the two weeks from 4 July 2016. It therefore cannot claim that the cost of employing Mr Vince to cover for this period was due to Mr Harmer's failure to serve out his notice period. When the amount charged for these days is deducted from the total charged by Mr Vince, the cost to Aerosafe of his providing services for the period from 15 July onwards comes down to some $22,219.18.
Mr Harmer also submitted, and I accept, that it was necessary to take into account that GRAGS did not pay any salary to Mr Harmer in the period when Mr Vince provided these services (from 15 July 2016 to 30 August 2016). This is a period of seven weeks. If Mr Harmer had worked this period at a salary of $175,000 per annum, GRAGS would have paid him some $23,557. It follows that the amount of the salary which GRAGS did not pay Mr Harmer in this seven-week period, by reason of Mr Harmer not coming to work from 15 July 2016 onwards, was greater than the amount which was paid to Mr Vince for replacing Mr Harmer on the NTSwAA project in the same period.
Accordingly, GRAGS has not established that any loss was suffered as a result of Mr Harmer's breach of his notice obligation.

[81]

Mr Harmer's cross claim

Mr Harmer brought a cross claim against the Plaintiffs seeking damages for their breach of the obligation to pay his contracted salary of $200,000 and the obligation to pay his profit share entitlement in respect of the performance of the Defence Business Unit.
This claim was brought against GRAGS, or alternatively Aerosafe, on the basis that one or the other was Mr Harmer's employer. For reasons set out in Section C above, I have found that GRAGS was Mr Harmer's employer and that GRAGS entered into the employment contract as principal rather than as agent. It follows that any claim for breach of that agreement can only be brought against GRAGS.
In their defence to this cross claim, the Plaintiffs pleaded that Mr Harmer agreed to vary his employment contract, such that, with the change in Mr Harmer's role when he was moved to the position of Senior Risk Advisor, his base level remuneration package would be reduced from $200,000 to $175,000 per annum, and he would no longer be entitled to receive the payment of a profit share incentive.
In this regard, the Plaintiffs relied on the decision of the Full Court of the Federal Court in Westpac Banking Corporation v Wittenberg [2016] FCAFC 33 at [252]-[257]. In that passage, Buchanan J (with whom McKerracher and White JJ agreed) referred to the following comments of Taylor J in Tallerman and Company Pty Ltd v Nathan's Merchandise (Victoria) Proprietary Ltd (1957) 98 CLR 93 at 144: "It is firmly established by a long line of cases … that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement."
Buchanan J also noted that in Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at [23]-[24], Gleeson CJ, Gaudron, McHugh and Hayne JJ said that Taylor J's observations accorded with principle and authority. Buchanan J observed (at [257]): "The search, accordingly, in a case where it is said that a contract of employment has been replaced in an ongoing relationship of employment (or even that its terms have been varied), is for an imputed mutual intention that such a change in the contractual landscape has occurred."
However, following this passage, upon which the Plaintiffs relied, Buchanan J made the following observations (at [262]): "A suggestion of consensual variation raises different issues. The variation suggested must arise directly from the altered circumstances and respond to them in a way which can be objectively attributed and imputed to both parties. The test for implication of the term, or the implied abandonment of an existing term, leaving a void to be filled, is not supplied by the view of a court that the change would itself be reasonable. Unless it can be said that abandonment of a term represents a common intention it may not be assumed in my respectful view. A fortiori, the altered circumstances are consensual; so must be the contractual variation, if any."
I have found that, when GRAGS determined to reduce Mr Harmer's salary, Mr Harmer elected, by his conduct, to affirm his employment contract. However, that does not amount to a finding that Mr Harmer agreed to vary that contract. I do not consider that there is, on the evidence, a sufficient basis to impute such a common intention to the parties. GRAGS did not seek, or obtain, Mr Harmer's consent to a change in his position and his reduction in his salary before determining to give effect to those matters. Mr Harmer protested the reduction in his salary. Although Mr Harmer, by affirming his employment contract, lost the right to terminate that agreement, he did not lose the right to sue for damages for breach of the obligation to pay his contracted salary.
Mr Harmer claimed the difference between his contracted salary ($200,000 per annum) and the salary which he was in fact paid ($175,000 per annum). This difference was claimed for the period from 21 October 2015, when the reduction in salary first took effect, until 14 July 2016, when Mr Harmer purported to terminate the contract and ceased employment. The amount of the shortfall for that period, which was approximately three-quarters of a year, was calculated as being $18,355. The Plaintiffs did not dispute this calculation. I find that Mr Harmer is entitled to that amount (plus interest) in respect of this aspect of his cross-claim.
The second element of Mr Harmer's cross claim is a claim for his unpaid profit share entitlement in respect of each of the 2014/2015 and 2015/2016 financial years. Mr Harmer's employment contract contained a term headed "Profit Share Performance Incentive", which provided as follows: "The profit share will be provided based on the performance of the Defence business unit under your direct oversight. It will be calculated based on the lesser of 5% of business unit profit or 1% of business unit turnover. Profit will be calculated incorporating all direct and indirect costs incurred in operating the business unit. This will include your base salary package (i.e. $200,000), together with an appropriate allocation of overhead for support provided from the Executive and Corporate Services Teams. Profit share will be paid annually in the form of salary, and will be inclusive of superannuation & tax. Payment will be made within 2 months following the end of the financial year."
The noun phrase "the Defence business unit under your direct oversight" identifies the specific business unit in respect of which the clause operates. That is, I do not regard the words "under your direct oversight" as imposing a condition of continued "direct oversight" in order for the clause to have effect. In any case, Mr Harmer continued to have a degree of direct oversight for this unit even when his role changed. Ms Turner told Mr Harmer that she was removing his "sales role", in order that he could be more "focused on the delivery of project and client work", and that "there is no drop to your seniority on your project and client work", with Mr Harmer continuing to be the "team lead" of Defence projects which had already been secured.
There is no evidence that the clause in Mr Harmer's employment contract relating to his profit share entitlement was discussed with Mr Harmer by either Ms Turner or Mr Dillon when informing Mr Harmer of his demotion. While Ms Turner deposed that she told Mr Harmer that he would "have the opportunity to make up the salary shortfall through discretionary bonus", I do not consider that the reference to a discretionary bonus amounted to a proposal to vary the contract so that the existing right to a profit share component of his remuneration, to be calculated in a specified manner, would be removed and replaced by a discretion on the part of GRAGS to award a bonus in such amount and in such circumstances as it might deem fit. Nor is there any basis to impute to Mr Harmer any intention to agree to such a variation. Accordingly, I reject the submission that any such variation occurred.
In terms of the calculation of the profit share entitlement, it was common ground that the profit share provision in Mr Harmer's employment contract yielded, for the financial year ending 30 June 2016, a figure of $23,675.72 (calculated at 1% of turnover, this being lower than 5% of profit). This amount was payable, in accordance with the terms of the profit share clause, by the date two months following the end of the financial year, that is, by 31 August 2016. I find that Mr Harmer was entitled to this amount, plus interest.
As for the preceding financial year, ending 30 June 2015, the "financial analysis" of the "ADS Business Unit Profit & Loss" which was prepared by the CFO, Mr Morton, showed total revenue of $1,243,486 and total expenses of $1,400,191, producing a loss of $156,705. The only element of this analysis which was in dispute was the line item for "Management fee" in the expenses. This fee was in the amount of $696,376. It was common ground that, if the "Management fee" was excluded, then the profit share provision in Mr Harmer's employment contract would yield a figure of $12,434.86 (calculated at 1% of turnover, this amount being less than 5% of profit). However, the Plaintiffs contended that this Management Fee should be included, with the result that the Defence Business Unit made a loss for the financial year, as shown in the financial analysis prepared by Mr Morton, and therefore no amount was payable under the profit share provision (since 5% of profit yielded a lesser figure than 1% of turnover).
As set out above, the profit share provision stipulated as follows: "Profit will be calculated incorporating all direct and indirect costs incurred in operating the business unit. This will include … an appropriate allocation of overhead for support provided from the Executive and Corporate Services Teams". In this regard, Mr Morton gave evidence that the Management Fee represents "a charge relating to the performance of duties on behalf of the ADS Business Unit by employees who are not within the ADS Business Unit." He added that it "was charged back to the business unit in the sense that it was attributable to the performance of the business unit. There was no intercompany charging that occurred."
Mr Morton explained that the process of determining the Management Fee involved calculating the number of billable hours completed by staff members against Defence Business Unit projects, and applying an hourly charge against those hours which were billable.
For the first step, Mr Morton extracted records from Aerosafe's time management system, in which each employee maintained records of the hours worked by him or her against particular projects. Those records were in evidence and there was no dispute about their accuracy. Those records showed the number of hours worked on Defence Business Unit projects by staff within that unit (9,599.22 hours); by Executive Staff, being Ms Turner, Ms Clarke and Mr Morton (1,123.25 hours); and by other staff outside that unit (2,521.75 hours). In each case, the total hours were split by employee, and were further split between billable and non-billable hours.
For the second step, Mr Morton used "the hourly rates that … formed part of our end-of-year adjustments that we complete for the group of companies." Mr Morton gave the following evidence: "MCINTOSH: Who determined those amounts? MORTON: That was me. MCINTOSH: What guidance did you receive in order to determine those amounts? MORTON: None. MCINTOSH: It's fair to say that the amount of 696,376 was, in part, arbitrarily determined by you? MORTON: In part, yes."
Mr Harmer relied on this evidence to contend that the Management Fee should be disregarded altogether. However, the operation of the profit share clause requires some assessment of profit, in order for a determination to be made as whether or not 1% of turnover is less than 5% of profit; and the clause recognises that there will be an element of estimation in making an assessment of profit, because it is necessary for "all … indirect costs incurred in operating the business unit" to be taken into account when calculating profit, including "an appropriate allocation of overhead for support provided from the Executive and Corporate Services Teams".
Although Mr Morton frankly acknowledged that there was an element of arbitrariness to the calculation of the management fee, counsel for Mr Harmer did not put a proposition that the fee was wholly arbitrary, and Mr Morton indicated that the figures used for hourly rates were taken from the figures used for the GRA Group's end of year accounting. The fact that there is an (undefined) element of arbitrariness in the estimation of one aspect of indirect costs does not mean that profit should be disregarded altogether for the purposes of the profit share clause, particularly where the approach adopted to estimating this element of indirect cost was consistent with the approach adopted by the company in its end of year accounting.
The end of year accounts indicate that the management fee or service fee which GRAGS charged to other entities within the GRA Group was close in amount to GRAGS's actual costs of employing staff for the GRA Group. In particular, in the 2014/2015 financial year, GRAGS received "Service Fee" income of $2,669,598.62, this comprising around 98% of its total income. As against that, GRAGS had total expenses of $2,660,572.63. That is, the service fee income received by GRAGS from other entities in the GRA Group represented 100.34% of its total expenses.
There was no criticism by Mr Harmer of any aspect of those accounts.
Given that the Management Fee in the Defence Business Unit P&L was calculated by multiplying the number of hours actually spent on projects for that Unit by GRAGS staff by the hourly staff rates that were used by the GRA Group in its end of year accounting, and given that the end of year accounts show that the service fee charged by GRAGS to other members of the GRA Group was almost equivalent to its actual costs of providing services to the GRA Group (including its actual costs of employing staff for all other members of the Group), I find that the Management Fee does represent a bona fide and reasonably based estimate of "an appropriate allocation of overhead for support provided from the Executive and Corporate Services Teams".
As outlined above, when the Management Fee is taken into account, and the profit share clause is applied according to its terms, the effect is that no amount is payable pursuant to this clause for the financial year ending 30 June 2015.
For those reasons, I find, in respect of Mr Harmer's cross-claim, an entitlement to: 1. $18,355 in respect of underpaid salary, plus interest; and 2. $23,675.27 in respect of the profit share clause, in respect of the financial year ending 30 June 2016, with interest running from 1 September 2016.

[82]

CONCLUSION

I will direct the parties to bring in short minutes of order to deal with the following matters.
In respect of each of Mr Harmer, Mr Binks and Mr Dillon, GRAGS has established its claim that each breached their respective employment contracts in the manner set out in Sections E and F above and also (for Mr Harmer) in the manner set out in Section J above. GRAGS is entitled to nominal damages of $100 against each of them.
In respect of each of Mr Dillon, Mr Harmer and Mr Binks, Aerosafe has established that each breached his fiduciary duties to Aerosafe in the manner set out in Sections E and F above. Aerosafe is entitled to equitable compensation in respect of the breaches concerning the PBGRP engagement.
In addition, Aerosafe has established that Mr Dillon breached his statutory duties as an officer of Aerosafe pursuant to sections 181 and 182 of the Corporations Act, in the manner set out in Sections E and F above. Aerosafe is entitled to compensation pursuant to s 1317H in respect of Mr Dillon's breaches of his duties in respect of the PBGRP engagement.
Aerosafe is also entitled to damages for the breach by each of Mr Harmer and Mr Dillon of the terms of their respective Confidentiality Agreements, by their conduct in respect of the PBGRP engagement.
The equitable compensation, statutory compensation and damages to which Aerosafe is entitled in respect of the PBGRP engagement are all to be calculated on the basis of the profit lost by Aerosafe as a result of the loss of that engagement. This quantum of the compensation to be awarded should be calculated by reference to Mr Cairns's assessment of indicative NPV value of the profit after tax lost by Aerosafe in respect of this engagement (that is, $119,120). Aerosafe is also entitled to pre-judgment interest.
Having regard to the terms of s 1317J of the Corporations Act, I do not consider that any declaration should be made in the breach of the statutory duties which I have found to be established. I will hear submissions from the parties in the event that there is a dispute about the utility, or the form, of any declaratory relief in respect of the other breaches which have been established.
The Plaintiffs have failed to establish their claims against SME Gateway, and orders will be made dismissing those claims.
Mr Harmer has established, on his cross-claim, an entitlement as against GRAGS to the sums of: 1. $18,355 in respect of underpaid salary, plus interest; and 2. $23,675.27 in respect of the profit share clause, in respect of the financial year ending 30 June 2016, with interest running from 1 September 2016.
The undertakings given, on a no admissions basis, by each of Mr Harmer, Mr Binks and Mr Dillon, in respect of documents downloaded or copied from the Plaintiffs' systems around the time of their departure from the Aerosafe business, should be noted in the orders.
Subject to considering any submissions which the parties seek to advance, it is my view that, having regard to the findings I have made, costs should follow the event in respect of each cause of action. That is, the Plaintiffs are entitled to the costs of their claims against Mr Dillon, Mr Harmer and Mr Binks; SME Gateway is entitled to its costs of the proceedings; and Mr Harmer is entitled to the costs of his cross-claim. In the event that any of the parties seeks a different or other costs order, or in the event that the form of the orders to give effect to these reasons, including in respect of interest and costs, cannot be agreed, the parties will be given leave to serve submissions, attaching their proposed orders, and indicating whether, and if so why, an oral hearing is requested to deal with the outstanding matters.

Global Risk Alliance Group Services Pty Ltd v Harmer

At a glance

Court

Decision date

Before

Source

Judgment (84 paragraphs)

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Legislation Cited (8)

Cases Cited (153)

Cited By (2)