Macdonald v Australian Wool Innovation Ltd

the events leading up to 27 august 2002 8 In April 2002, Bruce Powell, the New South Wales Regional Manager and Operations Manager of BIEC, telephoned Mr Macdonald. Mr Macdonald had not been expecting Mr Powell's call. Mr Powell told Mr Macdonald that he was shortly going to be visiting Melbourne, and asked whether he could look over Amcor's research facilities. Mr Macdonald told Mr Powell that he was welcome to do so. Subsequently, he gave Mr Powell a tour of the facilities. 9 Mr Powell's immediate superior at BIEC was its Chief Executive Officer, Maree McCaskill. Mr Macdonald knew Ms McCaskill well from his involvement with the Board of BIEC. As it happened, Ms McCaskill was also, at that time, Chairman of AWI. 10 About a week after Mr Powell's visit to Amcor, Ms McCaskill telephoned Mr Macdonald. She seems to have been wearing her AWI hat at the time. She told him that Mr Powell had suggested that she contact him in order to find out whether Amcor "did any work with fibre". Mr Macdonald had no idea, but told her that he would make inquiries. 11 Mr Macdonald then approached Mr Allan, who was in charge of fibre technology at Amcor R&T. Mr Allan confirmed that technology existed for measuring and assessing fibres that might be applicable to fibres generally. Mr Macdonald telephoned Ms McCaskill and told her that Amcor was "aware of fibre measuring technologies". She asked whether she could bring AWI's Managing Director, Colin Dorber, to Amcor to discuss this matter with Mr Macdonald and with Mr Allan. He agreed. 12 In early May 2002, a meeting took place at Amcor's R&T Division in Melbourne. Apart from Mr Dorber, other representatives of AWI present included Dr Paul Swan, its Program Manager of Sustainable Fibre Product Systems, Mal Thomson, its Operations Manager, and Dr Nathan Ly, its Program Manager. According to Mr Macdonald, the purpose of the meeting was to discuss whether Amcor could provide AWI with a proposal regarding the use of a bale material for wool that was cheaper than the plastic then used, and that would not contaminate the product. Mr Macdonald and Mr Allan agreed that they would develop a proposal to address that issue. 13 In late May 2002, the applicants, together with another Amcor employee, Joe Mercuri, prepared a proposal on behalf of Amcor regarding substitute bale material. In early June 2002, they attended at the offices of AWI in Sydney to discuss that proposal. Both Mr Dorber and Ms McCaskill were present at the meeting. 14 According to Mr Macdonald, Mr Dorber expressed enthusiasm for the bale proposal. He said words to the following effect: "This is exactly what we want. Why didn't we wake up earlier to the fact we needed to look outside the wool industry for fibre technology developments? You guys have obviously done a lot of research into fibre measurement." 15 Mr Dorber then raised an entirely new matter. He said: "AWI are really interested in developing a technology for measuring wool fibre characteristics on the farm. We'd want some form of robust hand held device. It'd need to be low cost, at about the $2,000 mark." 16 After the meeting had concluded, both applicants had an opportunity to discuss the matter while waiting at the Qantas Club Lounge at Sydney Airport. Mr Macdonald then telephoned Ms McCaskill to ask whether AWI would consider pursuing "the measurement side" with the applicants, "independently of Amcor". This was the first intimation that the applicants might be prepared to leave Amcor in order to undertake research on behalf of AWI. According to Mr Macdonald, they considered that Amcor would not be interested in pursuing technology development relating to wool fibre measurement, which was entirely outside the scope of its normal operations. Mr Macdonald said that Ms McCaskill indicated that AWI would be interested in such an arrangement. Thereafter, the applicants proceeded to prepare a detailed proposal. 17 In their proposal, the applicants identified at least three possible technologies that might be developed for use by AWI. These were: · an on-farm measurement tool to permit the measurement and assessment of wool by technology before it left the farm; · a logistics management system using electronic scanners and data encapsulation to allow the wool clip to be monitored directly; and · packaging material and process technology including the possible use of waste products. 18 On 28 June 2002, the applicants sent their initial proposal to Ms McCaskill. In that document, Mr Macdonald spelt out in clear terms that he and Mr Allan were long-term employees of Amcor who stood to lose out appreciably by walking away from their positions voluntarily. Accordingly, reward or equity in some form would be a "cornerstone" in any commercial negotiation. 19 The initial proposal was followed, on 7 July 2002, by a more detailed, formal proposal, addressed to Mr Dorber. By this stage, the concept had been refined and tailored to meet the requirements of AWI's standard concept proposal document. The 7 July 2002 proposal set out in detail the three key projects, this time described in the following terms: "· On-farm measurement (development of a low-cost unit to measure key quality attributes) · Pack Opportunities (i.e. practicable alternatives to synthetic Hessian) · Supply logistics (development of practicable 2-D data coding system to enable global traceability and stock control)" 20 The applicants went on to say: "After due consideration, we are each seeking a three-year x 1 contract at an annual rate of $250,000 inclusive. This figure does not include GST and out-of-pocket expenses directly related to AWI activities such as interstate travel. We would be interested in discussion on any incentive or equity program that was linked to successful outcomes." 21 The applicants said that they envisaged leasing office space somewhere in close proximity to Monash University and CSIRO in order to accommodate the research project. However, they made it clear that they did not contemplate the establishment of a separate research and development laboratory. Rather, laboratory facilities would be leased from other sources. It is noteworthy that they concluded with the following observation: "Provided that you are satisfied with our proposal, we are willing to take up these roles after the required one month's notice to our present employer." 22 The accompanying "AWI Concept Proposal" spoke of the development of an on-farm measuring system with a cost to the woolgrower of approximately $2,000, the development of lower cost alternatives to wool bale packs, and the development of a logistics management system through global traceability technology. The project was to be completed within three years. Each detailed proposal was headed with the logo "Imaginate", a name which the applicants themselves had devised. 23 On 19 July 2002, AWI acknowledged receipt of the proposal. AWI said that Mr Dorber would carry out an assessment and that he would respond shortly. 24 On 25 July 2002, Mr Macdonald emailed Mr Dorber, saying: "… We both understand the necessity for due process to be followed and the working up of a detailed business case in support of funding allocation. However, if you are satisfied with our proposal in principle - and wish to proceed - we are both prepared to formally advise of our resignation now if you are prepared to provide a letter of intent…" (emphasis added) 25 The same day, Mr Dorber responded to Mr Macdonald by email, cautioning against applying too much pressure. He said: "Dear Ian Do not push too hard. I am working flat out on this one. I will try and communicate with you by PM Friday (as I promised Maree). Too much push can only be negative. I am not making decisions other than for AWI shareholders. Thus far however, it looks great and the Board is comfortable with the direction I am going. Just hang in a little longer. Col" 26 On 31 July 2002, Mr Dorber emailed Mr Macdonald: "Dear Ian, Thank you for the comprehensive proposal concerning the key issues of OFFM, Pack Opportunities and Supply Logistics. I have formally advised the AWI Board that I am investigating the setting up of an RDI cell, located in Victoria at the Monash University consisting of a group of 3-5 expert providers and operating as an AWI owned entity. The Board has noted in principle the action being taken. It will now be necessary to develop up a formal Board Minute and seek approval at the Board meeting of 16 September 2002, for the establishment of the entity. Between now and then a small AWI team (myself, Phillip Lee, Chief Financial Officer, or Nathan Ly and Dr Paul Swan) will work with you and your team to get the necessary structures, funding model and program objectives in place. I look forward to the implementation of this initiative. I will be in contact with you early next week to set up a formal meeting. I propose at that meeting that an MOU between us be signed, that will allow you and your colleagues to make the necessary decisions to allow you to commence this process. Kind regards Col Dorber Managing Director." (emphasis added) 27 On 2 August 2002, Dr Swan, who was AWI's most highly qualified scientific expert in the field, prepared a briefing note to Mr Dorber in which he considered the Imaginate proposal. His conclusion was: "Overall, I am very impressed, and feel that we should get into detailed negotiation with them, and think seriously about what additional resources they may require to facilitate their efforts." (emphasis added) 28 On 6 August 2002, there was an internal meeting at AWI to discuss the Imaginate proposal. That day, Mr Dorber sent the following letter to the applicants: "Dear Colleagues Re: Establishment of Imaginate Pty Ltd I am pleased to inform you that the Board of Australian Wool Innovation Limited has given in principle approval for the establishment of an AWI owned entity to provide leading edge research and development innovation for the Australian wool industry. It is intended that this entity will be known as "Imaginate Pty Ltd" and that it will be a wholly owned subsidiary of AWI Limited. AWI also proposes that equity in the company will be provided to each of you proportionate to the skills and/or intellectual product and patents you bring to the business. As Managing Director of AWI, I have had a review conducted of the three definitive projects proposed by Messrs Allan and Macdonald and the further initiative proposed by Dr Viviane Buzzi. I have given in principle approval to each of those initiatives and intend that they be conducted under the "Imaginate" banner. It is now necessary to proceed to seek formal AWI Board approval for the establishment of "Imaginate Pty Ltd". In order that the Board proposal can be finalised and that the logistics concerning establishment and commencement of work can be agreed, I have appointed an AWI management team to progress this issue. … AWI proposes that the solicitors to "Imaginate Pty Ltd" will be Allens Arthur Robinson and that the auditors will be PricewaterhouseCoopers. Both these companies have been involved extensively with AWI in setting up subsidiary businesses and will be able to fast track this matter for us. I look forward to finalising this matter and achieving major change to the Australian wool industry through the conduct and study of the research development, innovation and logistical supply chain review. Yours sincerely, [signed] COL DORBER Managing Director" (emphasis added) 29 It should be noted that Mr Dorber's reference to Dr Buzzi's role in the proposed project came to nothing in the end, as she ultimately declined to become involved. 30 Attached to Mr Dorber's letter was a signing page on which the recipients were asked to "sign a copy of this letter and confirm your willingness to be part of this proposal". (The applicants and Mr Mercuri all eventually signed the letter on 14 August 2002.) 31 The day after the letter was written, on 7 August 2002, Mr Allan gave notice to Amcor that he was leaving the company. 32 Shortly thereafter, Mr Macdonald had a health scare when he fainted while on board an aircraft. This resulted in him being admitted to hospital for tests. On 16 August 2002, he sent an email to John Crawford, Group General Manager, Human Resources at Amcor, in which he wrote: "John, Just a note to say 'thank you' for your time last Tuesday. I appreciated the opportunity to speak frankly about some personal concerns and likely intentions regarding my future. … I am completing the in-depth medical examination at Epworth Hospital next Tuesday which will provide some solid basis for determining future movement. Particularly in view of your empathetic and understanding stance and preparedness to consider supporting such a redundancy package, I would like to make it quite clear that I have no intention of attributing blame or responsibility to Amcor for what appears to be stress or other health problems and do not intend any pursuit of legal action against the Company. The factors that are adversely affecting quality of life emanate mainly from personal factors and not from Amcor as an entity…" 33 On 20 August 2002, Mr Thomson and Bob Quirk, a consultant to AWI, met with the applicants in Melbourne. Two days later, Mr Quirk wrote a memorandum addressed to Mr Dorber, Dr Swan, Dr Ly, and Philip Lee, AWI's Financial Controller. The memorandum was copied to Mr Thomson and to Deborah McEwan, Mr Dorber's Personal Assistant. In the memorandum, Mr Quirk stated that at the meeting two days earlier, he and Mr Thomson had confirmed that: "…it was our intention to have the AWI Board formally consider the establishment of this new RDI cell at its next meeting on 16 September, which would require the relevant Board paper to be completed by 6 September". 34 Mr Quirk noted that one of the key points raised at the meeting was that: "…both Joe [Mercuri] and Russell [Allan] would be available in two to three weeks and Ian [Macdonald] would be immediately available if the AWI Board gives the green light on 16 September [2002]".

The events of 27 August 2002 35 As previously indicated, the applicants claim that they entered into a concluded agreement with AWI on 27 August 2002, subject only to formal ratification by the Board. That ratification occurred on 16 September 2002. AWI denies that any concluded agreement was ever reached, and contends that all that happened on 27 August 2002 was that agreement was reached on some issues, but not others. It says that the matter never moved beyond the realm of negotiation. 36 The evidence concerning the details of what took place on that day is obviously of critical importance. 37 At 9.00 am, an internal AWI meeting was held, attended by Mr Dorber, Mr Thomson, Dr Swan, Mr Lee, Dr Ly, Mr Quirk and Ms McEwan. At that meeting, the Imaginate proposal was fully canvassed, giving the participants an opportunity to raise issues that required further clarification. A consensus was reached on the structure and objectives of Imaginate in preparation for a meeting later that morning with the applicants. 38 Shortly thereafter, the applicants and Mr Mercuri joined the AWI representatives. Also in attendance at this second meeting was Anne Robinson, a solicitor acting for AWI. The Imaginate proposal was discussed, and issues relating to structure, funding, objectives, salaries, and location were canvassed. 39 The applicants say that it was during the course of this second meeting that agreement was reached on all essential matters, giving rise to the contract that they claim AWI later repudiated. Although recollections differ on some matters of detail, there is a surprising level of consensus as to what occurred. 40 According to Mr Macdonald, Mr Dorber began by saying: "All right, we've just had a meeting and we can't see that you can justify salaries of $250,000. It's over the top. We need you to reconsider." 41 There was then a short break while the applicants and Mr Mercuri left the meeting to consider what stance they should take. Mr Macdonald and Mr Allan agreed between themselves that they would accept a salary of $220,000 per annum, while Mr Mercuri would receive $150,000. They discussed various arguments that could be advanced to support those proposed salaries. For example, the applicants could point to their base salaries at Amcor of $100,000 per annum. In addition, they were paid car allowances of $20,000 each. There were also their superannuation entitlements, their annual bonuses of fifteen per cent, their receipt of hospital benefits and likely salary increases that were in the pipeline. Mr Macdonald told Mr Allan that they should emphasise the loss of their long tenure with Amcor as a factor of particular importance. 42 When they returned to the meeting, Mr Macdonald began to explain what he and Mr Allan stood to lose by leaving Amcor. Mr Dorber interrupted and simply asked how much they wanted. Mr Macdonald replied, "$220,000 minimum." According to Mr Macdonald, Mr Dorber banged his hand on the table and said, "Done." 43 Mr Macdonald said that Mr Dorber then indicated that the applicants would be given a three-year contract to make Imaginate self-funding. AWI would provide $5.25 million over the three years, so that the applicants would have a budget of $1.75 million per annum. Mr Macdonald would be Managing Director and Chief Executive Officer. Mr Allan would be Chief Scientific Officer. The applicants would receive eighteen per cent equity in the entity "immediately", growing to thirty per cent after three years if they successfully developed two technologies. Mr Macdonald then asked Mr Dorber when he wanted them to start. Mr Dorber replied, "As soon as possible." 44 According to Mr Macdonald, Mr Dorber then went on to say that he wanted both Mr Macdonald and Mr Allan to serve on the Board of Imaginate. He indicated that a Board of six members would be appropriate. He nominated an independent chairman, and suggested that Mr Quirk and Dr Swan both be on the Board as well. Mr Macdonald said that he and Mr Allan both agreed. 45 Mr Macdonald said that Mr Dorber then asked him where Imaginate's head office should be located. Mr Macdonald replied, "Somewhere close to the researchers. We can hunt for one in Melbourne." Mr Dorber agreed, and then suggested that Imaginate should have its own solicitors. According to Mr Macdonald, Mr Dorber nominated a Melbourne firm, Ponte Earle Harrick. Mr Dorber then said, "We'll shake on that then" and shook hands with each of the applicants and with Mr Mercuri. Finally, he told Ms Robinson to set out in writing what had been agreed at the meeting. Mr Macdonald asked Mr Dorber when they were to start, and he said, "Straight away." 46 Mr Allan's recollection of the meeting of 27 August 2002 was essentially the same as that of Mr Macdonald. 47 Mr Dorber's recollection of the meeting broadly accords with that of the applicants. He agreed, generally, in his evidence in-chief, that they discussed matters such as the three-year term in which Imaginate was to become self-funding, the $5.25 million that AWI would provide over that period, the equity that the applicants would be given, and their readiness to commence work. 48 However, Mr Dorber did not agree that the first matter raised was the question of the applicants' salaries. Nor did he agree that it was, in substance, the only issue discussed. He said that the meeting was the first time he had laid out the "mechanism" by which Imaginate would operate. 49 In addition, Mr Dorber denied having used some of the precise words attributed to him. In particular, he said that he had never stated, "You've got a three-year contract to make Imaginate self-funding" or "That'll be the term of the contracts" (emphasis added). Rather, he had said words to the effect of "You'll have three years to make Imaginate self funding." Mr Dorber said that he was well aware during the course of the meeting on 27 August 2002 that he was not in a position to make any binding commitment to the applicants. He had been conscious throughout of the importance of not signifying to the applicants that their discussions at that meeting gave rise to any formal agreement. 50 Mr Dorber also had a different recollection to that of Mr Macdonald regarding the discussion that took place about the composition of the Board of Imaginate. He maintained that he had not said that he wanted both Mr Macdonald and Mr Allan on the Board. That was because Mr Macdonald had already made it clear that Mr Allan did not wish to be a director. Mr Dorber also denied having said that he would arrange for Ponte Earle Harrick to act as Imaginate's solicitors. Indeed, he said that prior to reading Mr Macdonald's affidavit, he had never heard of Ponte Earle Harrick. 51 Finally, Mr Dorber denied having told the applicants that they should begin work "straight away". He reiterated that at no stage had he said that they would have "a fixed three-year contract". He could not have said that because he was aware that AWI would not enter into any contract without the inclusion of what he termed "a kill switch". In other words, he said that it was AWI's practice to include in any project agreement a clause allowing it to terminate the project if key milestones were not reached. He said that he also expected that, in due course, the applicants would negotiate employment contracts with the Board of Imaginate. He regarded the terms of their employment as being essentially a matter for that entity, rather than AWI. 52 Ms Robinson, who gave evidence on behalf of AWI, agreed that the issues identified by the applicants were indeed discussed at the meeting. However, she disputed their recollection that Mr Dorber had agreed to a "three-year contract" to make Imaginate self-funding. She thought that he might have said, "You will have three years to make Imaginate self funding." However, the word "contract" was not used during the discussion. 53 Ms Robinson agreed with Mr Dorber that he had not told the applicants that they should start work "straight away". To the best of her recollection, he had simply said, "Start as soon as you can". She had no recollection of Mr Dorber saying, "We will shake on that then." She also said that the applicants' recollection of the order in which issues were discussed was incorrect. 54 Ms Robinson agreed with Mr Dorber that nothing had been said about Ponte Earle Harrick doing Imaginate's legal work. Indeed, she said that her own firm, Judd Robinson, was the only legal firm mentioned by name as "doing the legals with outsourcing where necessary". She said that Mr Dorber had indicated that AWI would fund the project to the tune of $1.75 million of capped income per annum for three years, but that this would be subject to budgetary constraints. AWI would review the funding in the last quarter of the third year with a view to Imaginate becoming self-funding by the fourth year. She added that Mr Dorber had said that the project would be located at Mount Waverley, near Invetech, an unrelated entity that had its own research laboratory. It was only then that Mr Dorber had observed that the $250,000 salaries were "over the top". She could not recall the applicants having said anything about leaving Amcor. 55 Ms Robinson made handwritten notes during the course of the meeting. They were tendered in evidence. They are somewhat cryptic, but in general, seem to support her recollection of events. Following the meeting, the handwritten notes were typed up. Under a heading, "Response from Macdonald and Allan" the typed version reads: "They agreed in principle with proposal, but remuneration should be increased to $220,000 (grossed up package) for each of them, taking into account risk sharing. Equity would be shared between the 3 of them as they determine amongst themselves." It is of some significance to note that the words "in principle", which appear in the typed version, do not appear in the original handwritten notes. 56 The question that must ultimately be determined is whether the agreement reached during the course of this meeting gave rise to a legally binding contract once the Board of AWI ratified the Imaginate proposal on 16 September 2002. Before turning to that question, it is important to consider the events that occurred after 27 August 2002.

subsequent events 57 On 28 August 2002, the applicants sent an email to Ms Robinson, and copied to Mr Dorber, to which they attached a note seeking clarification of details discussed at the meeting in Sydney on the previous day. In that note, they wrote, inter alia: "Could you please, as [a] matter of some urgency, respond to these areas of concern so that we can judge the implications and impact of the directions that Col is pursuing with Imaginate over the next three years - and beyond. … 2. Financial Control We assume that Imaginate will generate and control financial records and report[s] and meet the requirements of the articles of association as deemed by the Imaginate board. … Imaginate pays individuals or companies that supply services (including the three equity partners). … 8. Contractual Obligations Could you please forward to us the expected obligations of each party in the case where either party wishes to end the contractual relationship. It is our understanding that upon approval at the forthcoming board meeting, the three principals of Imaginate will have a firm three year contract at the agreed remuneration levels." 58 On 29 August 2002, Mr Dorber forwarded the above email and note to Ms McCaskill. In his cover email to Ms McCaskill, Mr Dorber wrote: "Dear Maree As you can see, pushing the envelope is always interesting. We can satisfactorily address all these issues, and they will be addressed in the September Board paper. I think Ian [Macdonald] and Russell [Allan] got a big shock when I told them I expected them to share some of the risk (30%) in return for taking 30% equity. They didn't like that, nor did they enjoy seeing me lop $30K off each of their salary packages. (They wanted $250K each), we set the gross value of their packages at $200K [sic]. For info only. Col" 59 On 5 September 2002, Mr Macdonald sent a second email to Mr Crawford at Amcor regarding his health and a redundancy package. He wrote: "John, Thanks again for the opportunity of meeting with you a couple of weeks ago. As I indicated, I am looking to determine whether the Company would support my request for a redundancy package. I am seeking this on the basis that I am suffering symptoms of stress (borne out by recent consultation at Epworth Hospital as part of the health check program and also the opinion of the counsellor, Gavin Sharp, at Resolutions …). I am concerned that the stress appears to be having negative physical effects as evidenced by my passing out during work hours and the regularity of headaches…" 60 On 6 September 2002, Mr Quirk distributed an AWI Board Memorandum, finalised by Mr Dorber, in which it was recommended that the Board approve the Imaginate proposal. On the same day, Mr Allan actually left Amcor. 61 On 10 September 2002, Mr Macdonald sent a third email to Mr Crawford, regarding his redundancy. He wrote: "John, As I mentioned to you, I have been undergoing an extensive health check at Epworth Hospital. Yesterday they conducted a final interview and discussed the results. Whilst the only serious physical elements were a high cholesterol level and a ferritin problem it was apparent - at least to them - that I am into a burn-out phase and need to change my priorities in life. I also took a day last week to consider my situation and must advise that I would like to take up the option of redundancy as we discussed. Such redundancy would be genuine and clear-cut in that I would not be replaced. …I have been advised that there is no longer any need for the business development role (due to guaranteed, fixed income) and consequently there is no replacement needed…" 62 On 12 September 2002, Mr Dorber emailed the applicants in response to their email and attached note of 28 August 2002. In relation to point eight of their attached note regarding contractual obligations, set out at [57] above, Mr Dorber wrote: "8. Employment contracts of Imaginate staff will be contracts between them and the Board of Imaginate. Provisions for noting the contractual relationship between the entities, AWI Limited and Imaginate will be provided in the draft shareholder agreement shortly. In all these matters you should continue to provide the principles of enthusiasm and commitment thus far as shown and AWI in good faith will ensure that all matters that are able to be reasonably address[ed] will be properly addressed in the share agreement." 63 On 16 September 2002, the Board of AWI met and approved each of the recommendations in Mr Dorber's memorandum to it of 6 September 2002. The voting was unanimous, with only Ms McCaskill abstaining by reason of her close professional relationship with Mr Macdonald. However, she did speak in favour of the project. 64 Ms McCaskill made handwritten annotations on her copy of the Board meeting's agenda. That document was tendered without objection. Next to item "8.3 Establishment of Imaginate Pty Ltd", she had written, "approved 3 yrs contract". In addition, the formal minutes of the meeting stated, in relation to item 8.3, that "the Board resolved to proceed with this initiative". 65 According to Mr Macdonald, Ms McCaskill telephoned him later that evening to tell him that the Board had "approved your contracts and the Imaginate project". Also, either on the evening of 16 September 2002, or on the following morning, Mr Dorber telephoned him and said: "The Board has agreed to the proposal and has agreed to your employment unanimously. It only took them five minutes. How long will it take you to finish up your employment at Amcor?" 66 Mr Macdonald told the Court that he had replied, "I think I can get clear by the end of the month." Mr Dorber responded, "You will start on 1 October then." On 17 September 2002, Mr Macdonald gave Amcor notice that he would be leaving the company. 67 On 18 September 2002, in a memorandum to Mr Quirk, Mr Dorber wrote: "At the Board meeting held 16 September 2002 the Board unanimously resolved to accept [the Imaginate proposal]". 68 On 27 September 2002, Mr Macdonald left the employ of Amcor. On the same day, Mr Quirk telephoned Ms Robinson, asking her to prepare a corporate structure document, a constitution, and a shareholders' agreement for Imaginate. 69 On 1 October 2002, the applicants began working on the Imaginate project, although of course the entity had not yet been incorporated. The following day, Mr Macdonald and Mr Dorber met at AWI in Sydney to discuss the progress that had been made in establishing Imaginate. At that meeting, Mr Dorber undertook to provide Mr Macdonald with what was described as "a Letter of Comfort" regarding the preliminary funding from AWI for Imaginate. The letter was addressed to Mr Macdonald as "Managing Director (designate) of Imaginate Pty Ltd (establishment pending)". In the letter, Mr Macdonald was authorised to undertake a series of steps including the following: "1. Commence the employment of yourself and Mr Russell Allan with effect from 1 October 2002 in accordance with the terms agreed between us. It is agreed that AWI will exercise its right to call upon the Imaginate Board upon establishment to ratify this decision. 2. Incur costs in relation to incidental costs concerning your employment and the location of suitable premises. For this purpose, AWI will provide you with a cash advance limit of $1000.00 on the understanding it will be accounted for in the normal manner. 3. Proceed to identify suitable premises in Melbourne, Victoria and have AWI (in the event that Imaginate Pty Ltd is not established in time) enter into any subsequent lease arrangements on behalf of Imaginate Pty Ltd. … 4. Recruit staff as necessary… 5. … A copy of this letter signed by you will constitute a formal agreement between us as to the terms set out herein. For the record, I confirm that the decisions contained herein are within my delegation pursuant to the decision of the AWI Board to agree to the establishment and funding of Imaginate Pty Ltd…" (emphasis added) 70 Mr Macdonald signed the Letter of Comfort that day. The following day, on 3 October 2002, he sent Mr Dorber an email setting out the applicants' estimated time frames for delivery against key milestones. He said that so far as he was concerned, the project was "up and running".

reappraisal of imaginate project 71 Some time in the last week of September 2002, Dr Swan hired a new employee, George Waldthausen, to take up the position of Project Manager (Logistics and Fibre Specification) with AWI. Mr Waldthausen had a commerce degree, and had been involved in various ways with the wool industry for about twenty years. 72 On 10 October 2002, in circumstances that were the subject of considerable controversy at trial, Mr Waldthausen sent Dr Swan an email regarding the Imaginate project. Mr Dorber, among others, was copied in to the email. It is fair to say that Mr Waldthausen's views were damning of both Imaginate and the applicants. His concluding comments illustrate his general attitude: "- They [the applicants] seem allied (or part of) Amcor, the packaging company. How much of this proposal is aimed at using an Amcor packaging solution for wool bales? This may be the only reason that they want to get involved.

• It is unclear how much wool expertise or technology they are offering (possibly none). Some of their suggestions are clearly incorrect or demonstrate a lack of understanding of the wool industry.
• AWI has ongoing projects that already cover every area of their proposal.
• Their timeframe seems very optimistic.
• We should meet with them and identify what they can really contribute - it certainly does not seem to be $$ or expertise. If they can contribute, then they should be brought into the appropriate current AWI project…" 73 Neither Mr Macdonald nor Mr Allan had any idea that Mr Waldthausen had become involved in the Imaginate project. Indeed, they did not know of his existence. 74 On 15 October 2002, Mr Macdonald met with Ms Robinson in Sydney. Among the matters that they discussed were the role that Mr Mercuri would have in Imaginate, and Mr Macdonald's desire to see the shareholders' agreement, employment contracts and incorporation documentation finalised. 75 On 16 October 2002, premises at 241 Blackburn Road, Mt Waverley, in Melbourne, were leased. 76 On 18 October 2002, Dr Swan sent a memorandum to Mr Dorber, with a copy to Mr Waldthausen. In that memorandum, Dr Swan appeared to endorse at least some of the reservations that Mr Waldthausen had previously expressed. He wrote that following a complete review of the Imaginate file, he and Mr Waldthausen now had concerns about the proposal. In summary, the key concerns were: · the proposal was largely a duplication, at substantial expense of research already undertaken by AWI; · the costs of conducting research using Imaginate, as distinct from other providers, would be excessive; · there was little known about a Queensland micrometer that would be a key threat to the hand-held device proposed; · the fact that the Imaginate team would need to subcontract out much of the metrology work needed to deliver a hand-held device; · doubts about the core expertise of the applicants, which was in packaging, being applicable to the tasks at hand; and · a belief that the time frames were "exceptionally ambitious". 77 Dr Swan wrote that he was "abundantly aware" that his initial advice to Mr Dorber, on 2 August 2002, had been "generally supportive" of the Imaginate proposal. He pointed out that even then he had raised some specific concerns. However, he had now completed a "basic competitor analysis", and was therefore "better aware of the costs associated with the business structure proposed". He suggested to Mr Dorber that AWI should not publicly commit to Imaginate at that stage, but should await the outcome of the AWI Annual General Meeting scheduled for November 2002. 78 Dr Swan went on to say "assuming that" the applicants had left Amcor, he recommended that AWI should explore with that company the option of having them "consult back for the time being". He also recommended that the applicants start on pack material as their primary focus, and undertake a much more detailed business model for uptake of the on-farm fibre-measuring device. 79 On 21 October 2002, Ms Robinson, who was entirely unaware that Dr Swan had changed his view of Imaginate, emailed the following to Janelle O'Reilly, a solicitor at Allens Arthur Robinson: "…I confirm that we have been instructed by AWI to proceed to incorporate a Pty Limited company for the purpose of establishing a research facility in Melbourne… AWI has agreed to contract with Imaginate for three projects over the next three years for a total outlay of $5.25m, and I will draft these contracts so we can sign up all the agreements at the same time. Could you proceed to draft the necessary Shareholders' Agreement, Constitution and Employment Contracts for the three named executives asap - I am meeting with Ian Macdonald on Wednesday and would like to have a draft to start looking at if at all possible. The urgency is that Messrs. Macdonald and Allan are very keen to lock this deal in prior to 31 October…" 80 On 22 October 2002, Allens Arthur Robinson sent Mr Dorber a retainer letter. The following day, Ms O'Reilly emailed Ms Robinson a draft shareholders' agreement and a draft key services contract. On the same day, the applicants met with Ms Robinson. They discussed a number of legal issues, such as the company's business name, intellectual property rights and confidentiality, taxation, and services contracts. She also advised the applicants to seek independent legal advice. 81 Also on 23 October 2002, Dr Swan met with Mr Dorber to discuss the recommendations contained in Dr Swan's earlier memorandum of 18 October 2002. Later that day, Dr Swan sent Mr Dorber a memorandum summarising their discussions. In that memorandum, Dr Swan noted that Mr Dorber had accepted his advice that "Imaginate [was] to be explicitly integrated into an overall AWI Logistics and Fibre Specification RDI effort". To enable such a development, Dr Swan requested that: "Notwithstanding the process of start up of Imaginate, which must continue as planned, Ian Macdonald and team consult fully and frankly with SPFS Program, and be advised by you that Imaginate is to be fitted into a strategic and operational framework devised by SPFS." 82 On or about 25 October 2002, the applicants, still totally unaware of what was happening at AWI, instructed Philip Earle of Ponte Earle Harrick to act on their behalf. 83 On 27 October 2002, Mr Earle forwarded to Mr Allan an email from Ms O'Reilly to which was attached a draft of the 6 September 2002 AWI Board Memorandum. Mr Earle also forwarded to Mr Allan an email from her in which she indicated that she still had "some issues to go through with my client" and that, as a consequence, there would be a slight delay in sending Mr Earle a draft of the shareholders' agreement. 84 On 28 October 2002, Mr Allan emailed Ms Robinson regarding the importance of finalising matters before the Board meeting (he was mistaken in that regard - the reference should have been to the Annual General Meeting). The same day, Ms O'Reilly sent an email directly to the applicants stating that "the first step to getting things underway" was incorporating the company, and agreeing on the form of the shareholders' agreement and key services contracts. 85 It appears, therefore, that throughout October 2002, the applicants were engaged in preliminary work on the Imaginate project, having by then already severed their ties with Amcor. They plainly believed that they had entered into a binding agreement with AWI, and acted accordingly. Unbeknownst to them, things had taken a different turn at AWI based upon Dr Swan's revised opinion of the project. Trouble was looming.

The repudiation of the alleged contract 86 The applicants say that they entered into a concluded agreement with AWI by, at the latest, 16 September 2002. They say that AWI repudiated that contract either on 29 October 2002, or alternatively several days later. Accordingly, they claim that AWI ought to be liable to them in damages. 87 On 29 October 2002, Mr Macdonald received a telephone call from Mr Waldthausen. Mr Macdonald had never met Mr Waldthausen and, as previously indicated, did not know anything about him. According to Mr Macdonald, Mr Waldthausen introduced himself as an employee of AWI, and said that he was as acting under instructions from Dr Swan. He told Mr Macdonald that there were going to be changes in relation to the operation of Imaginate. Mr Macdonald recalled him saying that Imaginate was not going to be an independent company any more, and that in future the applicants would answer to Dr Swan. 88 Mr Waldthausen had a different recollection of the conversation, a matter to which I shall return. 89 Following the telephone conversation, at 10.55 am, Mr Waldthausen emailed Mr Dorber setting out his recollection of what had been said. Dr Swan and Ms Robinson were copied into the email. Mr Waldthausen said, in the email, that he had spoken to Mr Macdonald and communicated the following "as tactfully as possible": "· Imaginate projects are to be integrated into an overall L&FS RDI effort, via a strategic plan developed by SPFS. · Agreements cannot be signed this week. · GW is to be the main point of AWI contact (already agreed with Paul Swan/Bob Quirk). · Joe Mercuri is to be deferred." 90 Mr Waldthausen went on to say that Mr Macdonald was "not happy". Mr Macdonald had told him that these arrangements were contrary to his understanding of the deal. Mr Macdonald had also told him that he and Mr Allan had already carried out one month's work on the various projects and would like to be paid, that they had employed Mr Mercuri as their accountant on a one year contract at $150,000 per annum, that they had found premises for the project, that they still intended to employ Dr Buzzi in due course, and that they were seeking an urgent meeting with AWI. 91 In the meantime, Mr Macdonald, by now in a state of some confusion, telephoned Mr Dorber. He was not available. Mr Macdonald left a message for Mr Dorber to call him. He then telephoned Ms McCaskill, asking what had happened to the Imaginate project. He told her that someone named Waldthausen had just telephoned him to say that there would be changes. She replied that she knew nothing about the matter. She said that she would call Mr Dorber, and get back to Mr Macdonald. 92 Later that day, at lunchtime, Mr Dorber telephoned Mr Macdonald, and told him that there were problems. According to Mr Macdonald, Mr Dorber said that he had been given a "due diligence" report on Imaginate, prepared by Dr Swan, which "raised a raft of issues which mean I can't go ahead with Imaginate". Mr Dorber then seemed to read from a document over the telephone, setting out specific issues that had been identified as problematic. He asked Mr Macdonald to call him back on his mobile phone at 4.00pm later that day. 93 At 4.00pm, Mr Macdonald telephoned Mr Dorber on his mobile phone. According to Mr Macdonald, Mr Dorber confirmed that the "due diligence" report prevented him from proceeding with the Imaginate project. He said that the applicants had two alternatives. They could work on the project directly for AWI, on a contract basis, but that this would not be the "full research program". Alternatively, AWI might be prepared to pay the applicants "something, but don't get excited about the amount". 94 On 4 November 2002, Ms Robinson formally instructed Ms O'Reilly "not to proceed with the registration of Imaginate Pty Ltd". According to Ms Robinson, it was Mr Waldthausen who had told her that AWI had made that decision. It should be noted that Mr Waldthausen denied having given Ms Robinson any such intimation. He also denied having given Ms Robinson instructions not to proceed with the incorporation of the proposed entity. 95 The applicants say that if the contract was not repudiated on 29 October 2002, it most definitely was on 4 November 2002. 96 It should be noted that on 6 and 7 November 2002, the applicants lodged a claim with AWI for expenses of $1,207.90 incurred. They had received an advance of $1,000.00 from Mr Dorber on 3 October 2002, in cash. The balance of the claim for expenses was later paid in full. 97 On 21 and 22 November 2002, the applicants took up Mr Dorber's suggestion and submitted further research proposals to AWI. However, these were evaluated and eventually rejected.

the applicants' claims as pleaded 98 On 16 April 2003, the applicants filed their respective applications in this Court. By their pleadings, they allege that they each entered into a contract with AWI, whether on 27 August 2002, or at the latest on 16 September 2002. They claim that the contract was repudiated, and that they are entitled to damages as a result. That included damages for breach of contract, and in particular, damages for lost opportunity in relation to its possible renewal, and the equity that the applicants would have been given in Imaginate had the project proceeded as agreed. 99 Alternatively, the applicants claim that various misrepresentations were made to them, of a promissory kind, and that they were induced thereby to act to their detriment. Accordingly, they claim that AWI engaged in misleading or deceptive conduct, contrary to s 52 of the Act. 100 As a further alternative, the applicants claim that AWI, by reneging upon the promises made, engaged in unconscionable conduct, contrary to s 51AC of the Act. 101 Plainly, the measure of damages available to the applicants will depend upon which, if any, of these alternative claims can be established. The quantum of damages will be greatest if the applicants can make good their claim in contract.

The respondent's defences 102 In substance, AWI denies that it entered into any legally enforceable contract with either applicant, in the terms alleged. It says: · that there was no such contract because agreement was never reached on all essential terms; · alternatively, if agreement was reached on all essential terms, it was still uncertain and illusory; · alternatively, as a matter of construction, the parties did not intend to be bound unless and until a formal shareholders' agreement and employment contracts were put in place, and executed, which did not occur. 103 Broadly speaking, AWI contends that the conduct of the parties should be viewed as manifesting an intention that, ultimately, they would enter into a legally binding agreement. However, that did not eventuate. Neither the meeting of 27 August 2002, nor the AWI Board approval on 16 September 2002 amounted to, or constituted, any such agreement. These were merely necessary steps along the way. 104 On this scenario, the applicants took a calculated risk by leaving their employ with Amcor before they had secured any contractual entitlements from AWI. Indeed, AWI submitted that the reason the applicants took that risk was that they were dissatisfied with certain changes that were occurring at Amcor and, in Mr Macdonald's case, some health issues that were of concern to him. Accordingly, AWI was entirely free to withdraw from any arrangements that were contemplated right up until the moment they became legally binding. Mr Dorber, acting upon the revised opinion of Dr Swan, did just that. 105 It was submitted that if, contrary to AWI's primary position, there was a binding agreement as alleged, it was subject to a series of important qualifications. For example, the employment contracts could be terminated upon reasonable notice. So too could the entire Imaginate project, if it did not meet key milestones. Accordingly, any damages payable for breach of contract would be significantly reduced. 106 As previously indicated, the claim for damages for lost opportunity had two limbs. The first related to the chance that the contract would have been renewed at the end of the three-year term. The second related to the profits that might have been generated, and the value of the equity (eighteen per cent rising to thirty per cent) that the applicants would have received had the Imaginate project been implemented. 107 In relation to the first limb, AWI's case was that there was little chance that the contract would have been renewed. It was contended that there was no real prospect that any of the proposed Imaginate projects would have been commercially viable. Moreover, the change in the composition of the AWI Board that took place in November 2002 meant that AWI's entire approach to this type of research changed dramatically, and rendered this aspect of the claim worthless. 108 In relation to the second limb, AWI's case was simply that the chances of the Imaginate projects generating any profits were remote. 109 Finally, in relation to the claims under the Act, AWI noted that the case as pleaded was essentially promissory in nature, and not based upon any representations of fact. Accordingly, the question was whether there were reasonable grounds for making those representations, at least at the time they were made. That question could only be answered one way, namely that there were. 110 In any event, AWI submitted that if the applicants failed on their contract claim, but succeeded on their alternative s 52 claim, they would only be entitled to damages based upon their actual losses sustained, and not damages of the far higher order sought under the contract claim. 111 As for the unconscionability claim under s 51AC, AWI submitted that none of the necessary features of "special disadvantage" were present. It contended that this aspect of the applicants' case was hopeless and should be summarily rejected.

findings regarding witnesses 112 It is unusual, in a case of this nature, for the parties to be in such broad agreement as to what occurred, both before and after the critical events. Of course, many of the documents speak for themselves, and there are relatively few issues of credibility to be resolved. Nonetheless, there are some conversations that are in dispute, and it is desirable to set out in some detail the evidence of the key witnesses in so far as it bears upon the question of liability. It is worth noting that both sides cross-examined to good effect, extracting important concessions. 113 The critical witnesses regarding the issue of liability in contract were Mr Macdonald, and Mr Allan for the applicants, and Mr Dorber and Ms Robinson for AWI. Dr Swan's evidence was important, but went largely to the question of measure of damages. None of the parties chose to call Ms McCaskill, but in the context of the present case, that was of little real significance.

Mr Macdonald 114 Mr Macdonald was a forthright witness. Subject to one qualification, to which I shall return in a moment, he struck me as being both truthful and accurate. His account of the events that led up to and including the meeting of 27 August 2002, and thereafter, was supported by the contemporaneous documentation. In general, I am prepared to accept his version of events. 115 The one matter of concern relates to Mr Macdonald's claim for a redundancy payment from Amcor. I appreciate that he had been with that company for more than thirty years. I have no doubt that he felt that he was entitled, in some sense, to what might be described as a "golden handshake". Certainly, the prevailing culture in many companies seems to be that such payments are routinely made to departing managers, irrespective of the quality of their performance. 116 Nonetheless, I am quite satisfied, on the basis of Mr Macdonald's evidence, that Amcor had not made him redundant. Moreover, there was no health issue that prevented him from continuing in its employ. His dealings with Mr Crawford were, in my view, disingenuous. In procuring a substantial payment from Amcor to which he was not legally entitled, he acted improperly. I take his conduct in that regard into account in assessing his credibility.

Mr Allan 117 Mr Allan was an impressive witness. There were no black marks against his name. He seemed to me to be a competent scientist, not given to overstatement. His expertise in fibre measurement came through clearly, and was not seriously challenged. The question whether that expertise could readily be translated into the area of wool fibre measurement was, of course, another matter. I have no hesitation in accepting Mr Allan's evidence in relation to the matters leading up to, including and after, the meeting of 27 August 2002.

Mr Dorber 118 In one sense, the most important witness in relation to the claim for breach of contract was Mr Dorber. His background, for someone in the position of Managing Director of AWI, was unusual. From 1971 to 1985, he was a member of the New South Wales police force, having achieved the rank of Senior Constable. He was subsequently appointed Executive Director of the New South Wales Forest Products Association Limited, and was employed by that organisation for twelve years. He had also been elected Secretary/Treasurer of the Timber Trade Industrial Association from 1989 until 2001. During that time, he had been responsible for staffing matters and industrial relations. He had no scientific training, and it would seem no tertiary qualifications, but plainly had high-level management skills. 119 Mr Dorber was appointed Managing Director of AWI in January 2001, and remained in that position for almost two years, until December 2002. He obviously found it to be a difficult working environment. Mr Dorber was keen on technology and development. However, many woolgrowers resisted change, and wanted to follow traditional practices. The clash of cultures finally came to a head in November 2002, when the existing Board was removed at the Annual General Meeting. It was replaced by a new Board consisting of representatives of bodies like the National Farmers Federation, who were unhappy with the way in which AWI had been run. 120 Mr Dorber was strongly resentful when his employment at AWI was terminated. He was, at one time, the subject of a Senate Committee investigation. Serious allegations regarding his financial probity were made, though he complained that those allegations were never put directly to him. They arose out of the employment of his son and daughter at AWI. Each had worked for about a year before being terminated in November 2002. Mr Dorber had authorised termination payments for them totalling $130,000. His son was twenty-two years of age at the time, and his daughter just eighteen. 121 Mr Dorber said that these allegations had been fully investigated, and that he had been cleared. He claimed that the payments had been made upon advice. Nonetheless, they had been given wide publicity through the media as part of what Mr Dorber described as "a political campaign" against both him and the previous Board. Clearly, he had every reason to feel bitter about his treatment. He would hardly be expected to go out of his way to support the current Board. Although he was apparently a willing witness for AWI, I would not regard him as being "within its camp". 122 Mr Dorber accepted that he had been responsible for the Imaginate proposal. The code applied to that proposal was "MD71", indicating that it was a "Managing Director file". Ultimate responsibility lay with the Board of AWI as his particular delegation was limited to approving projects to a value of $2 million, and Imaginate far exceeded this. 123 Mr Dorber said that he regarded an on-farm fibre measurement device as potentially being an important advancement for the wool industry in Australia. He had been keen to progress the proposal. On 2 August 2002, he asked Dr Swan to provide a scientific evaluation, and he had considered Dr Swan's report to be extremely positive. Mr Dorber had also sought informal advice from people outside the company. He said: "There were two classes of advice. The scientists and the technical experts to whom I spoke all believed that the adoption of technology and the direction generally outlined to them appeared to be long overdue, and then there were woolgrowers who were a little less enthusiastic because they felt that they had seen technology attempts come and go, and many dollars had gone into a bottomless pit. So that was really the view. But the people who ought to know in terms of technology and science were very supportive." 124 Mr Dorber also spoke to other members of the AWI Board at this time. They gave him "preliminary in-principle approval" to continue discussions regarding this proposal. 125 Mr Dorber said that the letter that he had sent to the applicants, Dr Buzzi and Mr Mercuri on 6 August 2002 had been prepared by him in consultation with an internal staff lawyer employed by AWI. The transcript of his evidence records the following: "This letter of 6 August, as you've already agreed, was that memorandum of understanding?---Yes. So this letter you sent with the intention that these men would act upon it to "commence this process", didn't you?---Yes. I suggest to you that the very first step in these men "commencing this process" was that they would have to give notice to leave their employment at Amcor? ---I think that's a reasonable inference, yes. Thank you. You expected that that's what they would do when they got and signed this letter, didn't you?---No, actually I didn't. Did you not turn your mind to it?---I had turned my mind to it, yes. You accept now that it's a reasonable inference to draw?---Yes. It doesn't surprise you that at least one them did in fact give notice to Amcor immediately on receiving this letter and signing it?---I'm not aware of that. You weren't aware of it?---No. You don't suggest that that was an unreasonable thing for that man to do, do you, from the answers you've just given his Honour?---I wouldn't have done it. Now could you answer my question? You don't suggest it was an unreasonable thing to do, do you?---Not by whichever one of the two it was, no." 126 Mr Dorber was asked whether, at the time this letter was written, he was confident that the Board would approve the proposal. He said: "At that point in time I had absolutely no doubt that it would be approved." 127 He went on to say, in answer to a question from me, that he gave the applicants "every encouragement" to believe that the Board's approval would be a "formality", as indeed it ultimately was. 128 Mr Dorber said that he had always considered the idea of a hand-held device that could measure wool fibre to represent a very significant milestone for the wool industry, particularly if it could be marketed for about $2,000. He believed that woolgrowers would have bought such a device in significant numbers. He recognised that the mindset of the buyers would have to be changed in order to achieve that objective. In his own words: "There's a passionate desire worldwide in the wool industry that they must be able to feel, see and almost smell the product. It's one of the things I learnt very quickly was that change was something that was very long term, and that the end users were very, very determined to ensure that they maintained control from the point of acquiring the wool. They're absolutely fixated on this 1000-year old history of actually touching and visually inspecting the product. MR GUNST: We're agreed, I think, that if this culture of touching and feeling could be overcome, the method that I've just described here would have great advantages for woolgrowers?---Absolutely. There'd be a lot of brokers who'd be out of a job, but the woolgrowers themselves would be the beneficiaries, wouldn't they?---I've always thought that's why I don't have a job there now." 129 Mr Dorber's evidence regarding the meeting with the applicants on 27 August 2002 was particularly illuminating. Referring to the handwritten notes of that meeting prepared by Ms Robinson, he said: "The meeting was agreed that this project should go ahead in the manner set out here on page 2?---Yes, absolutely. It was agreed that the proposed structure of the company would have a set out of model articles?---Yes. There was nothing unusual about the company that you proposed, it just had to have a model standard set of articles of association?---I actually tabled a set. It was then agreed who the board would be, and the members' names are set out?---Yes, it was agreed at that time. There were some discussions that took place later in the day, but that was agreed at that time. It was agreed that the company would be called Imaginate Pty Ltd; it was agreed in 2.4 that Ian McDonald would be the chief executive officer, Russell Allan would be the senior research scientist, there would be two PhD students to act as assistants, and so on?---Yes. All of those things were proposed by you and agreed by your project team and recorded in these minutes when they were prepared?---Yes, and my proposals arose from the work that the project team had done, amongst other things. Over the page, on page 3, it was agreed in this meeting that 18 per cent equity would be offered, increasing to 30 per cent at the end of three years, subject to two successfully commercialised technologies, and it was up to Messrs Macdonald and Russell - Russell Allan, presumably you mean there. Is that right? You say it will be up to Messrs Macdonald and Russell?---Well, I didn't prepare these minutes, but yes, I'm sure that's what it was intended to say. So where the minutes say it would be up to Messrs Macdonald and Russell as to how the equity is split, you mean what was agreed was that it was up to the applicants in these cases - Macdonald and Allan - as to how that equity would be split?---Yes. You then provide a recap to this meeting of the original proposal for funding, and it was agreed by your project team that it would be recommended to the AWI board that funding of $1.75 million per annum for three years, with a full review halfway through year three would be provided to this new AWI subsidiary?---Yes. It was agreed that the company would look at a shared location in Mt Waverley?---Yes. Now, that's your meeting at 9 o'clock on this day, for about half an hour or so?---Yes. You then have a break, as you've said, for a document to be written out that you use in the meeting that was scheduled to take place later in the morning with Messrs Macdonald and Allan?---This document. I see, thank you. So you had this document, these minutes of meeting, at the time Mr Macdonald and Mr Allan came in at about 10.30?---I did. Ms Robinson has given evidence to his Honour already, and she says that the total of the meeting, which she says started about mid-morning with Macdonald and Allan, went for about half an hour in a discussion, then there was a break where they went downstairs to talk amongst themselves for about half an hour, and then the meeting reconvened for about 15 minutes, she said. Would that accord with your recollection?---Yes." 130 Under cross-examination, Mr Dorber agreed that it was always understood that the Imaginate project would involve the creation of an AWI subsidiary. It was never contemplated that the various research projects would be farmed out to some external research team. There was no mention of Amcor in the minutes of the meeting of 27 August 2002. By that stage, it was clear that Amcor's R&T department would have no direct role to play in the project. 131 With regard to the discussion regarding salaries, Mr Dorber's evidence was as follows: "MR GUNST: It would be fair to say that you put to these men in a firm tone the 250,000 that they were asking for was too much or over the top or not on? ---I spoke courteously and firmly to them. I didn't see it as the number one major crisis issue of the whole project. I was in no doubt what the outcome would be. HIS HONOUR: What does that mean?---Well, I knew that the project was so important to them and us that the question of 10, 20, 30 thousand dollars here or there was unlikely to be the key issue, particularly when I had included a comment to the effect that of course the final package would be a matter for the Imaginate board. I had always made clear that once the company was established AWI would make a formal submission to its new board, knowing that we would be the majority of that new board. That formal submission would then become the basis of Imaginate's activities and would include, amongst other things, our opinion about how much of the total funds we were advancing would be set aside for salaries and wages. In your mind when the figure of $220,000 was proffered as an alternative to 250,000 were you committed to recommending to the Imaginate board that that figure be accepted?---If they had come back and said something else I wouldn't have died in the ditch over it. But they just came back and accepted it. So it was your intent at that time to have AWI representatives on the Imaginate board approve a $220,000 package figure?---Definitely." 132 It is important to note that, so far as Mr Dorber was concerned, there was no problem with the three-year contract component of what the applicants had been seeking in their letter of 7 July 2002. Imaginate was always a three-year project. Mr Dorber continued: "What was agreed between you on this day was that they would come and work for this new AWI subsidiary for three years at a salary of $220,000 per year? ---Subject to the management and control of the Imaginate board. And subject of course to approval of this by the board of AWI at its next meeting?---Yes. Subject to the approval of the AWI board, you regarded AWI as bound by an agreement to that effect on that day, didn't you?---Yes. Had I remained there I would not have resiled from those arrangements. I certainly saw them as me speaking, subject to board approval, with the authority of the board. We know for a fact that the AWI board did approve this project, as you've told his Honour yesterday?---Yes. Unanimously with one abstention of the chairwoman because she knew Mr Macdonald personally?---Yes. After they had asked two questions. That was something you'd - that is, the AWI board's approval was something that you had been confident of from a much earlier stage, as you told his Honour yesterday?---Yes. It's right to say, isn't it, Mr Dorber, that once you had reached agreement with these men on 27 August 2002 and once the AWI board had approved what had been agreed on 27 August, that there was a verbal agreement between the parties which was conclusive in your view?---Conclusive as to the matters raised, yes. That there would be a subsidiary set up?---Yes. Called Imaginate Pty Ltd if that name could be had?---Yes. But otherwise, nonetheless a subsidiary set up?---Yes. In which AWI would own 82 per cent and these two men would own 18 per cent between them?---Yes. And that AWI would invest $1.75 million per year for three years into that company?---Subject to the mid-term full review, yes. Thank you, and that these two men would be employed by that company for that three-year period at $220,000 per year each?---Subject to the continuing approval of the Imaginate board, yes." 133 Mr Dorber continued: "MR GUNST: Mr Dorber, just to be specific about this, it was your view after the 27 August, of 2002, meeting and that once what had been agreed in that meeting had been approved by the AWI board, that there was an agreement between AWI and Mr Macdonald and Mr Allan, which was concluded? ---Subject to all the necessary legal steps, yes. Was there any mention in the meeting of legal documentation?---I had brought with me the constitution and shareholder agreement for an AWI subsidiary called Shear Express Pty Ltd, and I had made it clear that Allens and Robinson - I think they were called - were to be appointed and they would work to bring about a similar constitution and shareholder agreement for Imaginate. I'd alluded to it previously, but I made it very clear on that day that that was the model that we were using. So far as Mr Macdonald and Mr Allan were concerned, after 27 August 2002, so far as their three-year employment at 220,000 a year was concerned, you were no longer in a negotiation phase, were you?---No. You'd reached agreement with them about that on the day, subject only to the approval of the AWI board?---And the Imaginate board, yes. Well, let me put this to you. I suggest to you that it is your view that there was a verbal agreement in place which was conclusive at this time?---To the extent that I have the authority to make it, yes. And subject to the approval of the AWI, you did have authority to make it, did you not?---I did. You also had the view that if you had remained in charge - that is, if you had remained as managing director - this project would have continued?---Yes. Indeed, you've said as much to the applicant's solicitor in this case, on Friday 7 May of this year, haven't you?---I don't recall the date, but I know he asked me that question when he indicated I was to be subpoenaed. Do you remember ringing the applicant's solicitor, Mr Fernandino Zito on the afternoon of Friday 7 May 2004?---I can't recall who rang who. I recall - I don't know how many times we'd spoken. The first time I spoke, I think was on a weekend, I thought. But I certainly remember a conversation with him. I'll put to you two telephone conversations separated by five or ten minutes on the Friday afternoon, 7 May 2004. Does that sound right?---Yes. I suggest to you that in that conversation Mr Zito - who is sitting here - asked you about whether there was a contract in place and you said, "Yes, of course I am" - in relation to a question, whether you are referring to verbal or written contracts - "Yes, of course I am, because as far as I'm concerned there was a verbal agreement which was conclusive." Do you recall saying that to Mr Zito on the afternoon of Friday 7 May 2004?---I do. And that was true, when you said it. That was your belief?---It was stating the truth. Mr Zito also tells me that Mr Dorber also said that if you were asked, "Had you remained in charge, would the project have continued?" you would have answered, "Yes."?---Yes. I've told anyone who has asked me that question repeatedly that answer. Thank you. What you've said, so far as these men and their three-year employment at 220,000 per annum was concerned, there was a concluded deal on 27 August 2002, subject only to the approval of the AWI board and subject to the Imaginate board so agreeing?---Yes. And that as AWI was, and would always be, the majority owner of Imaginate, that that permission - the permission of the Imaginate board - would have been forthcoming?---Yes. You've said that if, for example, these men had come forward and said, "Well, we'd like a car", there might have been some mutually agreed variation to their salary package?---It would never have been discussed with me. I'd made it clear that once Imaginate was established, Imaginate ran its business." 134 With regard to the email sent by Mr Allan to Ms Robinson on 28 August 2002, and Mr Dorber's email to Ms McCaskill the following day, Mr Dorber said: "If you go back to your email to your chairman, where you say, "Pushing the envelope is always interesting," you then say, "We can satisfactorily address all these issues." Now, those issues must, I suggest, be a reference to the issues that Allan and Macdonald have raised in their letter?---You're right, I think that's reasonable, yes. So it's fair to say, isn't it, that ‑ ‑ ‑?---I've hit the forward button, made a comment and sent it on. I think that's what it's fair to say. It would be fair to say that all of the issues in that three-page letter from Macdonald and Allan were issues that you, as you told your chairman, could satisfactorily address?---Yes. They were details to be addressed?---Yes. Can I take you to the last page of this email, please? This is the last part of the Macdonald and Allan letter to you. Do you see paragraph 8?---Yes. Contractual Obligations is the heading?---Yes. Do you see on the second line there's a sentence - the last sentence - that reads, "It is our understanding that upon approval at the forthcoming board meeting, the three principals of Imaginate will have a firm three-year contract at the agreed remuneration levels"?---Yes. That was the view they expressed in this letter?---Yes. And that was your view?---Yes. The agreed remuneration levels for Mr Macdonald and Mr Allan were 220,000 a year for three years?---Yes." 135 It can be seen that Mr Dorber repeatedly acknowledged that, as far as he was concerned, AWI had reached a concluded agreement with the applicants on 27 August 2002 as to how Imaginate would be structured and operated. There was "no doubt" in his mind that it had been agreed with the applicants that they would be paid $220,000 per annum for three years. He had conveyed that fact to the Board of AWI, and it was the truth. He attended the Board meeting on 16 September 2002, and participated in its decision to adopt each of the recommendations put before it regarding this project. 136 Mr Dorber acknowledged that he had telephoned Mr Macdonald the following morning. His evidence regarding that conversation was as follows: "You told him the project was approved?---Yes. And that in essence, you wanted him and Mr Allan to get on with it as soon as possible?---Yes. There was no impediment to them starting employment?---I told them to speak to Ms Robinson about all of the legal issues, but certainly, as far as I was concerned, both in my mind and in reality, all systems were go." 137 Mr Dorber generally accepted Mr Macdonald's account of their conversation. His evidence was as follows: "Just pardon me for a moment. When you rang Mr Macdonald on the morning of 17 September 2002, do you recall exactly what you said to him?---No. He's given evidence to his Honour that you said, "The board has agreed to the proposal and has agreed to your employment unanimously. It only took them five minutes. How long will it take you to finish up your employment at Amcor"?---I think that sounds pretty consistent. I don't remember asking him when he was going to finish with Amcor, because that really was of little concern to me; the decision had been taken. But I certainly told him it had been dealt with, and I know I told him it had taken over five minutes. He then goes in his evidence - this is paragraph 35 of the Macdonald affidavit, your Honour. He says that he replied to you, "I think I can get clear by the end of the month," and he says that you then said, "You will start on 1 October then." Do you remember saying that or words to that effect?---I think words to that effect, to the best of my knowledge." 138 With regard to the Letter of Comfort that he prepared on 2 October 2002, Mr Dorber said: "This is a two-page letter signed by yourself dated 2 October 2002?---Yes. This is the letter that Mr Macdonald's evidence, that you've sad you agree with says he asked you to prepare on that day and which you did prepare and give to him?---Yes. It's addressed to "Mr I. Macdonald, managing director designate, Imaginate Pty Ltd establishment pending", and that was the position at that stage?---Yes. The solicitors by 2 October had not in fact arranged for the incorporation of Imaginate Pty Ltd, to the best of your knowledge?---No. If we look at the end of the - if you look at the second page of the letter, the last paragraph, you say, "For the record I confirm that the decisions contained herein are within my delegation pursuant to the decision of the AWI board to agree to the establishment and funding of Imaginate Pty Ltd"?---Yes. That's what you've said in this letter. That was true, wasn't it?---Yes. At the immediately preceding paragraph you say, "A copy of this letter signed by you will constitute a formal agreement between us as to the terms set out herein"?---Yes. Mr Macdonald did in fact sign this document and date it on that day, did he not?---Yes. That was your view at that time as well?---Yes." 139 The transcript records the following further evidence regarding that letter: "HIS HONOUR: What did you understand by the expression "letter of comfort" at that time?---I understood that I was guaranteeing that whatever was written in that letter of comfort was to be honoured by the company notwithstanding any pitfalls that might emerge. So whatever is recorded in a letter - I had issued perhaps a dozen of them in my time - those aspects identified in the letter would be honoured. That's how I interpreted it and that's how I wrote it. MR GUNST: In the first paragraph here, second paragraph I should say, what you authorised Mr Macdonald to do was - and you set out five numbered paragraphs?---Yes. The first of those was to commence the employment of himself and Mr Russell Allen "with effect from 1 October 2002 in accordance with the terms agreed between us"?---Yes. Just so there's no doubt about it, "the terms agreed between us", as you say, were for those two men to be employed at 220,000 per annum for three years? ---Subject to the decision of the Imaginate board, that was the intention, yes. Yes, and the decision of the Imaginate board being controlled, at least as to the majority shareholding, by AWI, that was a mere formality, was it not?---Yes, except that I couldn't say what might happen from day one of the Imaginate board being established in terms of the relationship between them and that board. Who knows what might occur? But so far as AWI was concerned, you were authorising the commencement of that three years at 220,000 per year commencing on 1 October 2002?---I was. You wrote this letter expecting that AWI would honour that commitment as you've expressed it here?---Yes." 140 When asked how Mr Waldthausen had become involved in the Imaginate project, Mr Dorber made it plain that he was at a loss. He said that he had not recruited Mr Waldthausen, and knew nothing about him apart from the fact, which he discovered later, that he had a degree in commerce. He recalled seeing an email from Mr Waldthausen dated 10 October 2002, addressed to Dr Swan, regarding Imaginate but said that Mr Waldthausen had never been part of the Imaginate team. Project Managers such as Dr Swan were authorised to recruit persons to approved positions, but this was the first contact Mr Dorber had ever had with Mr Waldthausen. In relation to Mr Waldthausen's email, Mr Dorber had this to say: "To your knowledge, this man, Waldthausen, had no ability or skill whatsoever to make a judgment about the alleged technical doubtfulness of this project, did he?---Yes. I was appalled to receive this." 141 Mr Dorber said that he had noted Mr Waldthausen's view that the applicants were in some way still associated with Amcor, and the implicit assumption "that there was some sort of Amcor conspiracy to muscle in to the wool industry". His comment, in response, was that "the timing [of the email] having regard to the AGM and the politics, it was dynamite". He continued: "HIS HONOUR: What do you mean by that?---Well, to have worked so hard and with such detail, a whole team. To have gone as far ahead as we had gone, and to have this literally appear from nowhere by a person with absolutely no role whatsoever, I mean, I was stunned. MR GUNST: And a person with no knowledge or ability to express these bizarre conclusions, I suggest?---Well, as I now understand it. But I didn't know at the time what his skills were. All right. I'll tell you this: Mr Waldthausen has sworn an affidavit in which he says he holds a bachelor of commerce degree, and that's his only tertiary qualification?---In fairness to him, that makes him better qualified than I am. I don't hold one, but not relevant to this, clearly. But you didn't make technical judgments did you?---Never. You relied on experts?---Yes." 142 In a passage that rings particularly true, Mr Dorber described his feelings upon receiving Dr Swan's memorandum dated 18 October 2002: "It's addressed to you, to "Col", is that right?---Yes. At the outset, Dr Swan says he's had a detailed read of the complete Imaginate file?---Yes. Did you understand him to mean that in all his previous involvement in the project team he perhaps hadn't read the complete Imaginate file?---No, I knew he's always read it all. I knew what Dr Swan was doing and what he was up to. Yes, what was he up to?---Well, we had a very tense discussion when he brought this memo into me. I expressed considerable anger at his behaviour. He was trying to undermine your position as managing director, wasn't he? ---No, I don't think he was after me. I think he'd sniffed the political wind. I don't think he was worried any more about me, I think he was looking to other matters, into the future. I hasten to say, I'm only supposing that in my own mind. What are you supposing in your own mind? What were those other matters that he was after, in your view?---Well, if you understood the politics of the wool industry and the incredible angst that existed. Comments like, "How could an Englishman, a trade union official, an ex-policeman with no qualifications, run our organisation?" Evidence from the second day of my appointment that a clique within the industry wanted me gone before I even got to the front door. Objections generally to the whole government decision to remove research, development and innovation from its comfortable government quango-style existence. Dr Swan, being a very confident, very skilled - I recruited him personally ‑ ‑ ‑" 143 Mr Dorber's evidence continued: "MR GUNST: I'll put the question in a different way, your Honour, in the way that I've identified. Mr Dorber, you read this memorandum of 18 October?---I did. It made you very angry, as you've already said?---Yes. Dr Swan purported to raise a number of financial difficulties or complaints about the Imaginate proposal in this memo, didn't he?---Yes, he was sitting with me as I read it. But they are financial details, principally; financial details of financial purported difficulties, aren't they?---Yes. The funding about the budget?---Yes. In the first paragraph on the first page, he says, after reading the file - he does say, "I am abundantly aware of the fact that my previous advice - August 5 - was generally supportive of the proposals listed," and indeed, it had been, hadn't it?---Absolutely. Well, "supportive" would understate it by a fair margin, actually, wouldn't it? I took you to his memo; in fact, I think it was 2 August not the 5th, as he says? ---The written word of the first memo would suggest that he endorsed the projects. Wholeheartedly?---Wholeheartedly. He thought it was a great idea?---He did. When he analysed it from a technical scientific perspective, at your request, in early August 2002?---He did. Nowhere here in this memo, I suggest, was he saying that that technical scientific analysis was flawed in any way?---No." 144 Finally, Mr Dorber was asked about the evidence of Ms Robinson regarding the decision by AWI not to proceed with the registration of Imaginate. She said that it was she who instructed Ms O'Reilly in effect to terminate the project. Mr Dorber's evidence continued: "Ms Robinson then went on to say that the source of her information from the client - that is, from AWI - was this George Waldthausen?---I'm astounded. Well, you've already answered my question earlier. Waldthausen was never on the board of AWI?---No. And there was not, between 16 September, when the board approved this proposal, and 4 November, any further board meeting of the AWI board?---No. There had been no repudiation or overturning of the board memorandum approving the Imaginate proposal of 16 September?---No. Waldthausen had no authority at all to instruct these solicitors "not to proceed with the registration of Imaginate Pty Ltd", did he?---None whatsoever. Yes, you can return that exhibit to his Honour's associate, please. Mr Dorber, do you know why Waldthausen apparently gave that instruction to solicitors, to stop proceeding with the registration of Imaginate?---No. He had no authority from you to do that?---No. Indeed, so far as you were concerned, the project was go; the agreement had been reached?---Well, I think by 4 November, it was pretty common knowledge that Col's regime was nearly over, so I suppose whatever I thought that day was a bit immaterial, but I had not given any instruction of any kind to do anything about this. Nor, to the best of your knowledge, had any other AWI board member given Waldthausen permission or authority to torpedo this project?---Well, on 4 November they were different board members. You can't speak for all of them then. Is that what you're saying?---I wouldn't want to speak for any of them. HIS HONOUR: You were still the managing director on that day?---I was. And remained managing director until when? MR GUNST: December you said?---Yes, about 12 December, your Honour. HIS HONOUR: Did anyone else within AWI have the authority to terminate the project?---No. MR GUNST: It was fundamental to the going forward of this project that a company be incorporated?---Yes. As a subsidiary of AWI?---Yes. It was to be called Imaginate. The name doesn't matter perhaps but it was a fundamental part that there be a proprietary limited company established and that the research be conducted by that company?---In my mind, yes. There's no doubt about that, is there? It was the foundation of the proposal to the board that the board had approved?---That's right. An instruction to the solicitors to cease the incorporation of that company struck at the very heart of this project?---It did. Killed it stone dead?---It did." 145 Mr Dorber's concluding remarks, in cross-examination, are particularly noteworthy: "You knew that both Mr Macdonald and Mr Allan had ceased their employment with Amcor by 1 October 2002, didn't you?---I did. You had that meeting on 2 October with Mr Macdonald in which you signed that letter of 2 October?---Yes. Authorising him to commence employment on 1 October?---Yes. You knew, from what you were told, that they had both left their employment with Amcor and had in fact started work the previous day, 1 October?---Yes. As far as you're aware, this decision if such it be by Waldthausen to kill this project, in so instructing the solicitors took no account of the fact that these men had left their secure, decades-long employment, did it?---I can't say what was in his mind but ‑ ‑ ‑ Well, let me ask you this ‑ ‑ ‑?---That is the first time I'd even seen evidence that that decision was taken, when you just showed me the exhibit. Now, let me ask you this, Mr Dorber. One couldn't, in all conscience, kill a project like this after these men had left their secure, long-term employment? ---No. You agree with that, don't you?---Absolutely. Completely unconscientious, that conduct, isn't it?---Absolutely appalling." 146 Mr Dorber was plainly aghast at the way in which the applicants had been treated. He considered that they had entered into a binding contract with AWI, which had been specifically approved by its Board. When he learned that Dr Swan had changed his view about the project's viability, he had felt compelled to put it under Dr Swan's direct control. Nonetheless, he was plainly uncomfortable about having to make that decision, and recognised that it was a complete departure from what had been agreed on 27 August 2002. According to Mr Dorber, for reasons that were never apparent, Mr Waldthausen ultimately took it upon himself to go further and ensure that the entire project was "killed stone dead". Certainly, Mr Dorber did not authorise Ms Robinson to instruct Ms O'Reilly to terminate the project. 147 In my view, Mr Dorber was a most impressive witness. His evidence was both truthful and accurate. What he said made perfectly good sense, and was entirely supported by all of the contemporary documentation.

Ms Robinson 148 That takes me to Ms Robinson. There is little that I wish to say. Her evidence regarding what took place at the meeting of 27 August 2002 was, in my view, truthful and accurate. So too was her account of what transpired thereafter.

Dr Swan 149 Dr Swan presented as something of an enigma. He had been appointed Project Manager at AWI in August 2001 with responsibility for specific projects. Shortly thereafter, he was promoted to Program Manager. He had previously been employed by CSIRO, having completed a doctorate in wool science, with particular emphasis upon the development of a measurement for fibre curvature. He had also undertaken a postdoctoral fellowship, focussing upon the measurement of the style or arrangement of fibres on the back of sheep, and the "physics of the human perception of handle [sic] of fabrics and wool". In 1996, he left CSIRO and set up his own business, coordinating a national education program for woolgrowers regarding the attributes of fibre. 150 Dr Swan was confronted with the considerable difficulty of having to explain why he had changed his mind so suddenly and dramatically about the merits of the Imaginate project. I regret to say that his explanation was entirely unconvincing. He implied, without saying so clearly, that his initial report to Mr Dorber had been prepared in haste, without the opportunity for proper reflection and analysis. Indeed, he said that he had considered the proposal for a total of no more than three hours before giving it the thumbs up. 151 A second reason that he proffered was that he had laboured throughout under the misconception that the project was to be conducted under the general auspices of Amcor. It was only in October 2002, shortly before he wrote his damning indictment, that he discovered that Imaginate was a stand-alone operation which would not have available to it Amcor's research and development facilities. That made all the difference to his assessment of the project's viability. 152 I reject Dr Swan's second reason for having re-evaluated the project. In my view, his evidence on this point almost defies credulity. The documents provided to him at the time that he prepared his initial appraisal made it perfectly clear, even on a cursory reading, that Imaginate had nothing whatever to do with Amcor. There was no suggestion in any of those documents that Amcor was to be involved in a joint venture with AWI, or that its laboratory facilities were to be made available for the research that was to be undertaken. 153 Dr Swan attended the internal AWI meeting on 6 August 2002. It is difficult to see how anyone who was present could possibly have been left with the impression that the applicants intended to continue working for Amcor, while implementing the Imaginate project. The tenor of the discussion at that meeting related specifically to the creation of an research and development cell, based in Melbourne, under the auspices of AWI. It was made perfectly clear that Imaginate would be a wholly owned subsidiary of AWI. It is inconceivable that such a structure would have been created while the applicants, whose project Imaginate was, continued as full-time Amcor employees. 154 Dr Swan explained that although he attended the meeting of 6 August 2002, the implications of what was being discussed did not "resonate" with him. It did not "jell" with him that Imaginate was going to be a completely separate entity, with no access to the Amcor facilities. In his evidence in-chief, he said that he did not discover that Imaginate was not an Amcor project until the critical meeting on 27 August 2002. Curiously, he said nothing whatever during that meeting regarding any doubts that he might then have had about the viability of the project, having learned for the first time that it was completely different from the project that he had previously appraised. His explanation was as follows: "Did you at that time say, "Hey, look, all of my assumptions about this project have been based on the idea this is an Amcor project. I'd have very big doubts about this project if it's not Amcor." Did you tell the meeting that?---No, we were presented with a draft budget from Phillip Lee. There was discussion of the structure and so on. After the meeting it became more apparent, when I had time to reflect on exactly what was going to occur and once I'd had a detailed look at the budget. I'm sorry, what became apparent?---That the structure would be conducted completely out of Amcor. So you didn't even realise at that meeting that it was going to be - that Amcor had no role to play?---There was no - when I looked at the detail of the finance papers that were presented by Phillip Lee, there was no facilities that were - for the conduct of research. That's when it became apparent to me." 155 Once again, it seems inconceivable to me that anyone who attended that meeting could have been left with any doubts about the nature of the Imaginate project. During the meeting, the corporate structure of Imaginate was discussed in some detail. It was made plain that Mr Macdonald would be the Chief Executive Officer, and Mr Allan the Chief Scientist. There was not the slightest suggestion that Imaginate was to be an Amcor project. Nor was there the slightest suggestion that Amcor would have any involvement whatever. The only matter of substance debated that day concerned the salaries to be paid to the applicants. That alone should have made it clear that this was not a case of Amcor employees undertaking significant research for AWI. 156 In addition, one of the matters raised at the meeting on 27 August 2002 concerned the applicants' equity in the project. It is difficult to see why Amcor would have allowed two of its senior employees to work full-time on a project for AWI, with substantial equity in that project. Dr Swan was no mere theoretical scientist - he was a Program Manager, accustomed to commercial decision-making. His explanation that he did not give these matters a lot of thought at the time because he was "focussed on the science" simply does not ring true. 157 Under cross-examination, Dr Swan did a remarkable about face. He said that the penny did not drop regarding Amcor not being a party to the project until October 2002, while on a business trip to Victoria with Mr Waldthausen. He said that it was only at that stage that he had the complete file, and the time to sit and reflect upon what was being proposed. He claimed that prior to that time, he had not been entirely clear about whether Amcor was to be involved in the research. In summary, this variant of his position was as follows: "Prior to 10 October it was not clear to me that Amcor was not involved is what I'd say very - when I had visited Amcor's facilities way back in May I took the majority of my staff at that point to visit the Amcor facilities at the request of the managing director. On that basis I had formed a view that Amcor and its facilities would be involved and that view did not change. I was not crystal clear that they were not intending to be involved until October, about 10 October." 158 Dr Swan said that one of the main reasons why he changed his attitude to the project in October 2002 was his sudden discovery that it would not be carried out using Amcor's facilities. Had it not been for that explanation, he would have been hard pressed to explain why he had initially given such enthusiastic support to the proposal, and then suddenly changed his mind. Having regard to the totality of the evidence, it seems to me to be beyond belief that he did not know that Amcor had no involvement with Imaginate until he reviewed the file in October 2002. 159 It is troubling that there should be such a stark inconsistency between Dr Swan's evidence in-chief and what he said in cross-examination regarding when it was that he first became aware that Imaginate was not affiliated with Amcor. His explanation was that he must have been mistaken when he swore his affidavit. In my view, that explanation as to how he could be so fundamentally wrong about such a vital issue was unconvincing. His evidence left me in something of a quandary. I think that there may well be an entirely different explanation for his sudden change of attitude towards Imaginate. It relates to Mr Waldthausen, and his involvement in that project. 160 That is not to say that I reject Dr Swan's evidence in its entirety. He candidly admitted that he had been a party to the decision not to proceed with the Imaginate proposal as originally planned, though he denied having been a party to the decision to terminate the project. He accepted that Mr Waldthausen had no authority whatever to give instructions to Ms Robinson to desist from registering the entity unless so instructed by Mr Dorber. He had no recollection of Mr Dorber giving any such instruction. 161 Importantly, Dr Swan acknowledged that he had been "highly impressed" with Mr Allan's capabilities. He accepted that Mr Allan's experience far outweighed his own, and that it was "very impressive". In summary, Dr Swan's position regarding Mr Allan was as follows: "And when he says he believes he could do it, you'd be inclined to agree with him that he could?---I've come across a lot of people in my time in this role that claimed to be able to achieve certain things in a certain timeline and I've also learnt that it pays to be a little bit cautious. So I would say I was exercising some caution here. On paper his qualifications looked outstanding. The facilities, when I went to visit them, I was hugely impressed - hugely impressed with what they had. HIS HONOUR: I understand from your evidence then what you're saying is that you were cautious about their predictions, in particular Mr Allan's predictions, but you don't rule out the possibility of what Mr Allan says he might have been able to do?---No, I don't rule out the possibility, no. I have some concerns in relation to timeline to have a commercial instrument, and I have some technical queries in my mind about the ability to measure commercially and in a robust manner things like the modulus of fibres on the back of the sheep, like an on-farm sense. That would be a fair challenge and if - obviously not insurmountable, but there's a far element of risk in my opinion. MR STUCKEY: You are aware though, aren't you, that Mr Allan's history up until leaving Amcor was entirely within the commercial field?---Very much so, and that was one of the points I noted. I noted that Amcor had all the benefits of a CSIRO lab for this facility but it was commercial. But I'm not aware that his experience was to do with sheep or wool. Is that what it boils down to really, the basis of your and Mr Waldthausen's concern, that neither of these men are wool men?---That's - right from the outset I've recognised - and I can't speak for George - right from the outset I've recognised that I felt that Russell in particular would benefit from working with people or being given exposure to people who had more wool metrology expertise than he did, just in terms of the inherent variations of the material. It sounded like he had some great ideas but, to me, I wanted to make sure he was aware of, in developing his proposals, of how difficult the material this is to work with and how inherently variable it is. And you never spoke to them at any stage after you started your review in October, did you?---No. And you've got absolutely no idea about what they knew or didn't know about wool fibres?---Certainly I wouldn't know what information, knowledge they'd picked in the couple of months that had passed since I visited them in May of 2002 at the time. They didn't profess much knowledge of the wool fibre but they certainly had a lot of knowledge - or certainly Russell did - of basic measurement of material. They had all the pedigree and the qualifications to do that and, in that facility they had, all the infrastructure to do it. You could point them at whatever fibre, I would have thought. You didn't make any inquiries of them at the time of doing your review as to what their current state of knowledge was in relation to ‑ ‑ ‑?---No, I didn't."

Mr Waldthausen 162 Mr Waldthausen is currently a Program Manager in the Logistics and Fibre Specification area at AWI, having held that position since 1 February 2004. He was previously a Project Manager in that division, reporting to Dr Swan. He commenced employment with AWI in the last week of September 2002. Prior to joining AWI, he had worked in the wool industry for approximately twenty years, including about three to four years in wool trading, working for a wool export organisation. He had extensive dealings with all sectors of the wool industry, including brokers, buyers and exporters. 163 Mr Waldthausen said that he had a Bachelor of Commerce degree. That was his only tertiary qualification. He had no scientific background or training. He had never worked as a scientist in any laboratory or for any industry. He had never been involved with the research department of any major enterprise with a laboratory equivalent to that of a dedicated CSIRO laboratory. Nor had he been the Chief Financial Officer for any company other than his own private company. He had no qualifications in accountancy. 164 Mr Waldthausen said that his initial role as Project Manager was to assess and comment on project and concept proposals. He spent the first few weeks of his employment familiarising himself with company procedures and current proposals in his area. 165 Under cross-examination, Mr Waldthausen acknowledged that he had previously worked for the Australian Wool Testing Authority, the monopoly wool tester in Australia at present. He denied that his views regarding the Imaginate project had been influenced by a concern that the Authority's monopoly might be threatened by the adoption by woolgrowers of a hand-held on-farm fibre measurement device of the type proposed. Indeed, he said that it was "just supposition" that such a device would impinge upon the Authority's monopoly. 166 Mr Waldthausen said that he first learned of the existence of Imaginate on 10 October 2002 when Mr Dorber approached him. Prior to that date, he was unaware of the fact that AWI was contemplating establishing a dedicated research and development cell in Melbourne. He had never heard of, or met, either applicant. Apart from the one telephone conversation that he had had with Mr Macdonald on 29 October 2002, he had never spoken to either of them. 167 Mr Waldthausen's evidence was that Mr Dorber instructed him on 10 October 2002 to familiarise himself with, and give an opinion on, the Imaginate proposal. I interpolate that Mr Dorber expressly denied having given Mr Waldthausen any such instruction. 168 According to Mr Waldthausen, within a day or so, he had read the Imaginate file, and learned that the AWI Board had approved the project on 16 September 2002. He acknowledged that he had met Ms Robinson at some stage in the two weeks following, and that they had had discussions regarding the contract process. He said that he had had no input into those discussions, which were conducted solely to enable him to familiarise himself with the status of the project. He specifically denied having given any instructions to Ms Robinson. It will be recalled that this conflicted directly with her evidence. 169 Mr Waldthausen also disagreed with certain aspects of Dr Swan's evidence. Dr Swan said that by late October, Mr Waldthausen was the AWI officer effectively in control of the Imaginate project. Mr Waldthausen strongly denied that this had been the case. He claimed that Dr Swan and he had simply offered some suggestions to Mr Dorber about who should be responsible for coordinating Imaginate. Mr Dorber had accepted their advice, and instructed Mr Waldthausen to convey Mr Dorber's decision to Mr Macdonald. 170 The fact that Mr Waldthausen's version of events differed so starkly from the accounts given by Mr Dorber, Ms Robinson and Dr Swan gives rise to concern about how much weight can be accorded to his evidence. However, that is not sufficient, of itself, to conclude that he was not a truthful or accurate witness. Honest witnesses may differ in their recollection of important events. 171 Mr Waldthausen's evidence is, however, deeply troubling for other reasons. Under cross-examination, he often seemed to me to be evasive. For example, when asked whether he had told Ms Robinson that he had taken over management of the Imaginate project, his reply was, "Not in those exact words." When pressed, he conceded that this was the "effect" of what he had said. 172 It is useful to set out one or two examples of Mr Waldthausen's cross-examination. "Now, Ms Robinson has given evidence that she was the person who told Ms O'Reilly not to proceed with the registration of Imaginate Pty Ltd. I just ask you to accept that that's the evidence that Ms Robinson has given to the court, for the moment. Do you follow me so far?---I follow you. Ms Robinson has also said that the person from AWI who told her that "the client has decided not to proceed with the registration of Imaginate Pty Ltd" was you?---I do not recall saying that. You don't deny saying it?---I deny saying it. Ms Robinson, what, she had a rush of blood to the head and decided to torpedo a project that had been approved by the board of AWI on her own initiative, did she?---I do not recall saying that. I did not give instructions not to proceed with Imaginate. Well, who did, to your knowledge?---I have no idea. So Ms Robinson who was called to give evidence on behalf of the respondent, she's just wrong about that, is she?---I have no idea. Well, she says you gave this instruction, Mr Waldthausen?---I did not give any instruction not to proceed with the registration of Imaginate. I had no further involvement after 29 October. That was the phone call to Mr Macdonald?---Yes. When you told him Imaginate wasn't going ahead?---I did not say that. You told him there wasn't going to be a company and any such research would be managed in-house by AWI, didn't you?---That's not what I said. Well, we'll come back to that conversation in a little while. In any event, you say that Ms Robinson is wrong, do you, when she says that you were the person who told her that AWI wasn't proceeding with the registration of Imaginate?---That's correct. Can you identify anybody else within AWI who might conceivably have given Ms Robinson that instruction?---I do not know. You were the project manager for the Imaginate project at the end of October and the start of November 2002, weren't you?---No. It was Mr Dorber, was it?---Mr Dorber was managing the project. Apart from Mr Dorber, the managing director, you were the only other employee of AWI who was managing this project in October and November 2002, weren't you?---No, I was not managing the project. I thought you'd agreed with me that you had said as much to Ms Robinson? ---No, I When I read you her evidence a little while ago?---I was asked to review the project. I was asked to familiarise myself with the status of the project. I was not managing it." 173 Another example is as follows: "So as far as you can tell his Honour on your oath, whoever told the solicitors not to proceed with the registration of Imaginate, the identity of that person is unknown to you?---That's correct. It's a mystery as far as you're concerned?---That's correct. Even though you might have told Ms Robinson that you were the project manager. Is that right?---The main point of contact, yes. And there's nobody else that you can point to that might have given such an instruction to Ms Robinson?---There's other people that might have done so. Dr Swan, for example?---I do not know, Mr Dorber possibly. Let's just assume that they both say that they didn't do it, and let's just assume that Ms Robinson says you did, is there anybody else you can point to that might have told the lawyers not to proceed with the registration of this company?---I've got no idea. I can't recollect talking to Ms Robinson about this. Just answer my question, please. Is there anybody apart from you that you can point to that might have told the lawyer to stop working on the Imaginate company registration?---I don't know who that would be. You can't identify any such person, can you?---No. As far as you're concerned, a mystery person rang Anne Robinson and said, "Stop the Imaginate project"?---That's right, I do not recollect that conversation with Ms Robinson. At what stage did you become aware that the registration of Imaginate had been stopped?---Not until I had seen these affidavits. I had no further involvement with Imaginate after 29 October. When you say affidavits, that's the affidavit that you swore in this proceeding in May of this year­?---That's correct. So it wasn't until about May of this year that you knew that the Imaginate project hadn't gone ahead?---No, I had heard in general terms from internal staff ‑ ‑ ‑ Well, that's what I asked you, Mr Waldthausen. I asked you when you first heard that the Imaginate company project hadn't gone ahead, your answer was, "When I saw these affidavits," which you've said you understood to be about May of this year. When was it that you first heard that this project had been stopped by someone?---I don't recall the exact time, it would have been several months possibly after the end November or end of October, I can't recall the exact date. Several months?---It could have been several months. Sometime early in the year 2003. Is that what you're telling his Honour? ---Yes, sometime in that period - and I am unclear on the exact date - I heard through verbal conversations internal to AWI that Imaginate was not going to proceed. It was sometime in the period November to February or March of the following year, but I don't recall the exact date of that." 174 According to Mr Waldthausen, Imaginate was "still a goer" when he rang Mr Macdonald on 29 October 2002. He claimed that he had had no further involvement with the project after that date. That is a proposition that defies credulity. He claimed to have heard "on the grapevine", months later, that the project had been terminated, and could offer no explanation as to how Ms Robinson came to believe that she was required to stop Ms O'Reilly from registering the entity. Mr Dorber was adamant that he did not give any such instruction. So too was Dr Swan. Ms Robinson said it came directly from Mr Waldthausen. In my view, it is highly likely that she was correct. 175 It would be distinctly peculiar, to say the least, if Mr Waldthausen, the man who had assumed such a significant role in the re-evaluation of the Imaginate project in October 2002, and who was dealing with Ms Robinson in relation to that matter, simply "turned his mind to other things" the moment he ended his telephone conversation with Mr Macdonald. On that scenario, some mystery person had come in and killed off the project, taking Mr Waldthausen out of the loop. More than that, according to Mr Waldthausen, he then took no interest in the project until some months later, when he heard rumours that it had been terminated. 176 When it was put to Mr Waldthausen that this was "a very curious thing" - if his evidence was truthful - his response was telling. He said, "No, not at all." Later, when it was put to him that it would be strange that Mr Dorber should tell him to telephone Mr Macdonald, and inform him that he (Mr Waldthausen) would in future be the main point of contact, and then immediately thereafter relieve him of responsibility, Mr Waldthausen could only say that he had no idea why Mr Dorber had acted in that way. In my view, the short answer is that he did not. 177 There are other features of Mr Waldthausen's evidence that cause me concern. For example, at one point, he said that AWI was no longer interested in developing hand-held measuring devices for on-farm fibre management. When confronted with the evidence of Dr Swan that the development of such devices remained an area of great continuing interest to AWI, Mr Waldthausen retreated. He said: "No, he's correct. It's an area of interest. It's not a high priority area for research." 178 Mr Waldthausen was asked directly whether he was aware, at the time he rang Mr Macdonald, that an agreement had been reached between AWI and the applicants. He said that he knew that the parties had been "in a contracting process", but that he was aware that no contracts had been signed. He later said that he was aware that agreement "in principle" had been reached, but claimed that he did not know whether that agreement had any legal status. 179 In summary, I found Mr Waldthausen to be a singularly unimpressive witness. I would not act upon his evidence without the support of others, or some form of corroboration. Where his evidence conflicts with the evidence of Mr Dorber, Ms Robinson or Dr Swan, I would unhesitatingly act upon their evidence in preference to his.

The relevant principles 180 As previously indicated, there is a substantial measure of agreement among the parties as to the sequence of events that occurred throughout August and September 2002. The applicants submit that the evidence establishes that a concluded agreement was reached when the AWI Board approved the Imaginate project on 16 September 2002. The respondent submits that no such agreement was ever reached. As will be seen, the principles of law that govern this issue are not in dispute. It is rather their application to the facts, as established, that is in question. 181 In order to determine whether a contract has been concluded in the course of negotiations, it is necessary to consider the negotiations as a whole. There must be an intention by both parties, continuing up to the date of the supposed contract, to make a contract. At the date of the supposed contract, the parties must have been of one mind on all of the terms that they then regarded as being required in order that a contract should come into existence (the essential terms). In this context, the word "essential" has been described as ambiguous. See generally Pagnan SpA v Feed Products Limited [1987] 2 Lloyd's Rep 601 at 619 per Lloyd LJ. 182 It is clearly established that there cannot be a concluded agreement unless the parties are "of one mind" on all essential terms. The test for determining whether a term is "essential" is objective. One way of answering that question is to ask whether the contract would be "commercially viable" without such a term. In relation to the agreement of further, non-essential, terms, the question to be asked is: did the parties intend that the agreement would not become binding until there was agreement on the further terms, or did they intend to be bound forthwith, even if there were terms still to be agreed. In addition, there ought to be some indication that there has been an offer, and an acceptance of that offer, though many commercial dealings do not lend themselves to such an orthodox analysis. See generally, H G Beale (ed.), Chitty on Contracts, 29th ed., 2004, chapter 2. 183 In determining whether the parties have reached a legally binding agreement, it is necessary to determine what is sometimes described as their objective intention. The legal rights and obligations of the parties turn upon what their words and conduct would reasonably be understood to convey, and not upon their actual beliefs or intentions: Storer v Manchester City Council [1974] 1 WLR 1403 at 1408; Manatee Towing Co v Oceanbulk Maritime SA (The Bay Ridge) [1999] 2 Lloyd's Rep 227 at 240-1; Pacific Carriers Limited v BNP Paribas (2004) 208 ALR 213 at [22]; and Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 211 ALR 101 at [34]. The objective approach is said to lead to a greater degree of certainty in contractual dealings and in their assessment by courts. A party who on reasonable grounds supposes that he or she has entered into a contract with another cannot be defeated by a claim by the other that, despite appearances, he or she did not actually intend to enter into a contract. 184 The intention of the parties is to be ascertained by what a reasonable person would have understood their statements and conduct to mean. This requires consideration, not only of any relevant documents, but also of the surrounding circumstances known to the parties, and the purpose and object of their dealings. 185 In a related context, Lord Wilberforce said in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-6: "In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating." 186 This passage was cited with approval by Mason J (as his Honour then was) in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350, and again, more recently, by the High Court in Pacific Carriers Limited v BNP Paribas. See also Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 334 and 337. 187 Where parties carry on lengthy negotiations, it may be difficult to say exactly when an offer has been made and accepted. The editors of Chitty suggest that courts will be particularly anxious to hold that such negotiations have resulted in a contract where the performance that was the subject matter of the negotiations has actually been rendered. 188 The parties may have reached agreement on vital matters of principle, but left important points unsettled so that their agreement is incomplete. For example, in Harvey v Pratt [1965] 1 WLR 1025, it was held that no contract existed where an agreement for a lease failed to specify the date on which the term was to commence. An agreement is also incomplete if it expressly provides that is "subject to" the resolution of specified points. There is no contract in such a case until either those points are resolved, or the parties agree that they no longer need be resolved. 189 On the other hand, an agreement may be complete although it is not worked out in meticulous detail. Thus, an agreement for the sale of goods may be complete as soon as the parties have agreed to buy and sell, where the remaining details can be determined by the standard of reasonableness or by law. Even failure to agree the price is not necessarily fatal in such a case. 190 The effect of a term that an agreement is to be embodied in a formal written document depends largely upon its purpose. One possibility is that the agreement is regarded by the parties as incomplete, or as not intended to be legally binding, until the terms of the formal document are agreed and the document is duly executed. A second possibility is that such a document is intended only to be a record of an already complete and binding agreement. A third possibility is that the main agreement lacks contractual force because no formal document has been created, but nevertheless a separate preliminary or collateral contract exists, at an earlier stage, as when one party begins to render services requested by the other.

Was there a legally binding contract? - The parties' contentions 191 The applicants claim that agreement had been reached on all relevant issues on 27 August 2002, subject only to approval by the Board of AWI. They note that the Board gave its approval on 16 September 2002, and accordingly contend that, on that date, a binding contract came into existence. 192 AWI denies that such a contract came into existence. It claims that the parties had failed to reach agreement on all essential terms as at 16 September 2002. Further, or alternatively, it alleges that insofar as any agreement may have been reached on 16 September 2002, it was still "subject to documentation". 193 The applicants submitted the question whether or not a concluded agreement had been reached, as alleged, should be resolved in accordance with the well-established principles laid down by the High Court in Masters v Cameron (1954) 91 CLR 353. In a joint judgment, Dixon CJ, McTiernan and Kitto JJ said at 360-3: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common… Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own… The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document…or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed … The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape… Nor is any formula, such as "subject to contract", so intractable as always and necessarily to produce that result… This being the natural meaning of "subject to contract", "subject to the preparation of a formal contract", and expressions of similar import, it has been recognized throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract…" 194 The applicants submitted that the agreement arrived at in the present case fell into the first of these three categories. In support of that submission, they pointed to the evidence of Mr Macdonald that agreement was reached at the meeting of 27 August 2002 in the terms outlined in his affidavit. They noted that it had not been put to him that no such agreement had been reached, or that anyone speaking on behalf of AWI had said anything that disavowed a contractual intent. 195 The applicants submitted that Ms Robinson's evidence was entirely supportive of their case. She had acknowledged that she could not say that either applicant had ever qualified their assent by using the phrase "in principle", or words to that effect. She agreed that no one had said that there would be no concluded agreement until documents were executed. The only matter that remained to be resolved was the approval of the Board of AWI, which Mr Dorber correctly regarded as a formality. 196 The applicants relied heavily upon the evidence of Mr Dorber. They submitted that although the question whether a concluded agreement had been reached had to be determined objectively, it was significant that the Managing Director of AWI, who had the authority to negotiate such an agreement, believed that he had entered into a legally binding contract. 197 If there were any doubt about the relevance or admissibility of Mr Dorber's state of mind, or that of the applicants, the short answer is that this evidence was received largely without objection. In any event, it would certainly be relevant when considering the applicants' alternative claim under s 52 of the Act. 198 The applicants submitted that the documentary evidence was, without exception, to the effect that a concluded agreement had been reached. They referred, for example, to exhibit nine, Ms McCaskill's handwritten note on the agenda for the Board Meeting of AWI on in which she wrote, "approved 3 yrs contract" next to item 8.3, "Establishment of Imaginate Pty Ltd". They also referred to Mr Dorber's memorandum of 18 September 2002, to his Letter of Comfort dated 2 October 2002, and to Ms Robinson's email of 21 October 2002. They pointed out that there was no document that even suggested that agreement had not been reached, or that the agreement made was in any way conditional upon anything apart from Board approval. 199 AWI submitted that the evidence should be viewed in a different light. It submitted that the applicants were well aware that written agreements would have to be prepared and executed. Mr Macdonald had previously been involved in negotiating contracts at Amcor, some of which were prepared by solicitors. At the time of receiving Mr Dorber's letter of 6 August 2002, he was aware that AWI proposed to have Allens Arthur Robinson involved for the purpose of setting up whatever structures might be required for the conduct of the business. He also understood that there would have to be a formal agreement reached between himself, Mr Allan and AWI. He was well aware that the precise details of the project would need to be documented, and agreed through lawyers. 200 AWI submitted that among the matters that would have to be resolved before there could be a concluded agreement, were the equity to be held by the applicants, the funding arrangements, and the financial and commercial autonomy of Imaginate. Separate employment contracts would also have to be drafted. It noted that Mr Dorber had made it clear to the applicants on 27 August 2002 that Allens Arthur Robinson would prepare a constitution and shareholders' agreement for Imaginate, similar to the constitution and shareholders' agreement that had been used for an earlier initiative undertaken by AWI. 201 AWI relied heavily upon the email sent by the applicants to Ms Robinson on 28 August 2002, the day after the critical meeting. It submitted that the email identified a series of matters upon which agreement had not been concluded on the previous day, and which the applicants regarded as significant. It was important to note that on 12 September 2002, Mr Dorber responded to that email, saying inter alia, that there would be an appropriate provision in the shareholders' agreement relating to intellectual property valuation and the "contractual relationship between the entities, AWI Limited and Imaginate". Mr Dorber had also stressed that the issue of employment contracts was a matter for the Board of Imaginate, and not AWI. AWI submitted that it was plain, from these comments, that agreement had not been reached on all essential matters. Indeed, even as late as 23 October 2002, there were ongoing discussions between the applicants and Ms Robinson regarding the matters to be included in the shareholders' agreement, the need for service contracts, and the fact that the applicants would have to obtain their own legal advice. 202 Among the various matters that it claimed had not been finally resolved at the meeting of 27 August 2002, AWI identified the following: · the location of Imaginate's premises; · whether or not there would be an association with Invetech; · financial control of Imaginate; · the start up funding that would be available; · the mechanics of the funding; · the definition of "commercialisation"; · the valuation of intellectual property; · Imaginate's level of commercial independence; · whether or not GST was included in the figures discussed at the 27 August 2002 meeting; · Imaginate's equity structure; · whether or not the applicants were to be employees of Imaginate or contractors; · if the applicants were to be contractors, whether this would be as individuals or as companies that they nominated; and · various essential terms of the employment contracts including matters such as termination, confidential information, and post employment restraints. 203 AWI submitted that it was clear that agreement had not been reached upon a number of essential terms during the course of the meeting on 27 August 2002. Moreover, it submitted that an inference should be drawn that the parties did not intend to enter into contractual relations until formal agreements were drawn up and executed. It contended that the very fact that a Letter of Comfort had been drawn on 2 October 2002 demonstrated that the parties did not regard themselves as contractually bound by anything said or done prior to that time. 204 AWI submitted, in the alternative, that if an agreement of some sort had been concluded on or about 16 September 2002, the terms of that agreement were so uncertain as to preclude the applicants from seeking to enforce it. It submitted that whether or not a contract existed as from that date should be determined by ascertaining whether the parties intended a concluded bargain at that time, as distinct from holding a common intention that they would subsequently enter into contractual relations. 205 AWI referred to the following observations of Gleeson CJ, when his Honour was Chief Justice of New South Wales in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548: "It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain…That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that the parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention." (emphasis added) 206 AWI emphasised that the question whether the parties intended to enter into a binding contract was to be tested objectively, by reference to what a reasonable observer would have concluded. It submitted that the Court could have regard to correspondence between the parties, and their conduct when viewed as a whole. The Court might also have regard to factors such as the customary method of concluding a contract, and whether an informal exchange or arrangement would give rise to a contract in accord with the expectations of the parties in relation to a contract of the type alleged. In other words, AWI submitted, the Court should have regard to the commercial context in which the dispute had arisen. Generally, the greater the amount of money at stake, the less likely it would be that a court would conclude that an informal arrangement was sufficient to give rise to a contract: Sinclair, Scott and Co Ltd v Naughton (1929) 43 CLR 310 at 316-7 and 332; and Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 ("Toyota v Ken Morgan") at 131. 207 AWI next submitted that the fact that the parties might have committed resources did not necessarily mean that they had entered into a concluded agreement: Seven Cable Television Pty Ltd v Telstra Corporation Ltd (2000) 171 ALR 89. 208 For reasons that were not altogether clear, AWI submitted that there might be a fourth limb to the principles laid down in Masters v Cameron. It submitted that the parties might intend to be bound immediately by the terms that had been agreed, while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms. AWI referred to Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628 in support of this possibility. So far as I could tell, however, it did not contend that the present case fell within any such fourth limb. 209 In summary, AWI submitted that the evidence disclosed that no concluded agreement had been reached by the time that it was decided not to proceed with the project. It noted that Imaginate involved the expenditure of a large amount of money over a three-year period. It submitted that it would have been obvious to anyone present at the meeting of 27 August 2002 that there was to be no legally binding contract until formal agreements had been drawn up and executed. The fact that the parties had reached agreement in relation to a number of important issues did not mean that they had reached agreement on all essential matters. Similarly, the fact that the parties expected that the remaining matters would be resolved, and that the venture would proceed, was in no way determinative. AWI submitted that the case fell squarely within the third limb of Masters v Cameron. Accordingly, there was no concluded contract as at 16 September 2002. 210 I should add that counsel for AWI, in his final address, submitted that the resolution of the AWI Board on 16 September 2002 was merely an "expression of corporate intent". He submitted that the resolution was a necessary precursor to further negotiation, but did not give rise to a concluded agreement. That belated submission was barely pressed, and was not supported in any way by the evidence. Counsel for the applicants described it as "fanciful". I agree. I do not propose to say anything further about it.

Was there a legally binding contract? - Conclusion 211 I consider that the applicants have established, on the balance of probabilities, that a concluded agreement was reached when the AWI Board approved the Imaginate proposal on 16 September 2002. The terms of that agreement were as alleged by the applicants in their pleadings. The essential elements of the contract were all agreed at the meeting on 27 August 2002, subject to several minor matters having to be clarified, and some outstanding details to be resolved. The one critical condition that had to be met was AWI Board approval. That approval was unequivocally given on 16 September 2002. 212 I have given careful consideration to the list of matters that AWI claimed had not been resolved at the meeting on 27 August 2002. I must say that the list seems somewhat forced. A number of the matters listed overlap. For the most part, they relate to matters of detail, and could not conceivably be regarded as essential elements of any contract. 213 I accept that not all the "i"s were dotted, nor all the "t"s crossed. However, the critical elements were all agreed. Those that were not expressly agreed would readily be the subject of implication. In addition, there was agreement upon many matters of detail, far beyond what would be required to give rise to a binding contract. It was agreed that Imaginate would be established as a stand-alone research facility, and as a subsidiary of AWI. Funding for Imaginate in the sum of $5.25 million over three years was agreed. The roles allocated to each applicant were agreed. So too were their salaries, and the equity that they would receive in the new company. 214 It is true that the applicants raised a number of questions with Ms Robinson in their email of 28 August 2002. I have given careful consideration to that document. It seems to me that most of the matters raised involved questions of detail, and not matters of any real substance. There were no potential "deal breakers" in the list of questions provided. Rather, the applicants appeared to be seeking clarification of matters that had already been agreed the previous day. 215 Some of the matters raised seemed only to have been agitated out of an abundance of caution. Others such as the question regarding GST simply displayed ignorance on the part of the applicants. It would be quite wrong, in my view, to treat requests for clarification of this type as negating the existence of an agreement. Any reasonable bystander, with knowledge of what had previously passed between the parties, and who attended the meeting on 27 August 2002, would surely have concluded that, subject to the approval of the AWI Board, agreement on all essential matters had been reached. 216 It is significant that there was no evidence that any person suggested, during the meeting on 27 August 2002, that the parties would not be legally bound until a formal agreement had been drawn up and signed. No conventional expression understood as having that meaning, such as "subject to contract", was ever used. Moreover, there was no evidence that agreements of this type are not generally regarded as binding until formal contracts have been drafted and executed. 217 In short, I am satisfied that this case falls squarely within the first limb of Masters v Cameron. In my view, the parties reached finality in arranging all the terms of their bargain on 27 August 2002. Subject only to approval by the AWI Board, which was expected to be - and was - a formality, they intended immediately thereafter to be bound to the performance of those terms, albeit that those terms would certainly be stated in a fuller or more precise form. 218 If I am wrong about this, the arrangements between the parties certainly fall within the second limb of Masters v Cameron. There was complete agreement upon all essential terms of their bargain. They intended no departure from or addition to that which their agreed terms expressed or implied, but nevertheless made performance of one or more of those terms conditional upon the execution of a formal document. 219 In either event, as Masters v Cameron establishes, a legally binding contract came into existence at the moment that the AWI Board approved the Imaginate proposal. Neither Mr Dorber nor, it would seem, Ms McCaskill, had any doubt about that fact. They were correct in arriving at their conclusion. 220 I am not persuaded by AWI's alternative submission that the terms of any contract reached between it and the applicants were too uncertain to be capable of enforcement. AWI agreed that the salary package for each applicant was to be $220,000 per annum. The fact that no separate component had been calculated to cover the provision of a vehicle, or other non-salary benefits, was in my view of no real consequence. That was something that could be worked out in discussions between the applicants and the Imaginate Board. If there were any dispute about the matter, it could easily have been resolved, if necessary by a court. 221 The contracts were to run for three years. The applicants and Mr Mercuri were offered an initial eighteen per cent equity in Imaginate. The fact that the applicants and Mr Mercuri would have to sort out among themselves what proportion of that eighteen per cent was allocated to each was, again, of no real consequence so far as AWI was concerned. The fact that the eighteen per cent might increase to thirty per cent after three years, subject to two technologies having being successfully developed ("commercialised"), as set out at par 5.1 of the AWI Board memorandum of 6 September 2002, was again a matter that did not render the agreement uncertain. Down the track, there might be considerable room for argument about whether "successful commercialisation" had been achieved. However, that would be true of many contracts that courts readily accept as enforceable. It goes without saying that the fact that the parties have entered into a contract, particularly one which is to run for three years, does not mean that they must be able to state with precision exactly how every contingency that might arise will be resolved. When it comes to construing language that is inherently open textured, the quest for "certainty" can be illusory. 222 I accept that for a contract to be binding, it must be sufficiently certain, that is it must be both clear and complete at least in the essentials: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 ("Upper Hunter County")at 436-7 per Barwick CJ. If a contract is not sufficiently certain, it is void unless the uncertain part can be severed. In N C Seddon and M P Ellinghaus, Cheshire and Fifoot's Law of Contract, 8th Australian ed., 2002, the learned authors say that it is clear from the cases that a contract is affected by uncertainty only if its essential terms are uncertain or lacking. As Menzies J observed in Thorby v Goldberg (1964) 112 CLR 597 at 607, a term will only be "uncertain", and thereby fail to meet the requirements of a valid contract, if it is: "…so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention." 223 J D Phillips J accepted the same formulation in Toyota v Ken Morgan at 200-201. The passage cited seems to have originated from the speech of Lord Wright in G Scammell and Nephew Ltd v H C and J G Ouston [1941] AC 251 ("Scammell") at 268 in which his Lordship explained why a particular clause in an agreement to the effect that part of the price would be "on hire purchase terms" was so vague that it could not give rise to an enforceable contract. His Lordship went on to say at 268: "The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found. But I think that it is found in this case. My reason for so thinking is not only based on the actual vagueness and unintelligibility of the words used, but is confirmed by the startling diversity of explanations, tendered by those who think there was a bargain, of what the bargain was." 224 A moment's reflection will illustrate that the contract that was void for uncertainty in Scammell was very different from the contract pleaded in the present case. There was nothing vague or unintelligible about the deal that was struck on 27 August 2002. Nor was there any diversity among the parties as to the nature of the bargain reached on that day. Indeed, as previously noted, the one surprising feature of this case is the level of consensus among those who participated in the discussions on that date as to the nature of the bargain reached. 225 There are many cases in which agreements that are much less certain than the present have been upheld. For example, in Ipex Software Services Pty Ltd v Hosking [2000] VSCA 239, an agreement to acquire "5% equity in a group of eight companies" was held to be enforceable. Eames JA, with whom Batt JA agreed, concluded that the trial judge had correctly found that there had been an intention to enter a binding agreement. He added, at [56]: "Where there is such an intention between parties to an agreement the court will, if possible, give effect to that intention by overcoming difficulties said to arise from uncertainty or incompleteness. Where businesspeople have reached agreement between themselves the courts should be slow to conclude that the words they have used, "considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act". The mere fact that the person seeking to enforce the agreement may have been improvident in the terms in which he permitted the agreement to be couched, and that the form of words adopted may allow the other party a latitude of choice as to the manner in which the stipulation will be carried into effect does not render the agreement void. Nor does the fact that there may be more than one interpretation of what was meant render the agreement void for uncertainty; so long as the relevant term is capable of being assigned a meaning then the meaning is that which the court so assigns it. The task of the court is to ascertain the intention of the parties and in so doing "no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements"." (footnotes omitted) 226 Even Callaway JA, who dissented, accepted that an agreement in the form "I shall pay $50,000 for a 5% interest in your business, leaving it to you how the 5% interest is structured" could be enforced notwithstanding the latitude it gave the vendor. The deal reached on 27 August 2002 was obviously far more detailed and precise than his Honour's example. 227 The cases on certainty reveal a tension between two competing principles. The courts are reluctant to strike down bargains that individuals have made in good faith. On the other hand, the parties themselves must determine their rights and obligations, and it is not for the Court to write their agreements for them. The authors of Cheshire and Fifoot suggest at [6.3] that courts, at least in modern times, do their utmost to resolve this dilemma in favour of upholding bargains, particularly when the parties have acted on the basis of the agreement: Upper Hunter County at 436-7 per Barwick CJ, and York Air Conditioning and Refrigeration (A/sia.) Pty Ltd v The Commonwealth (1949) 80 CLR 11 at 53 per Latham CJ. 228 In my view, the Court should strive to protect the expectations of the applicants, and of Mr Dorber and Ms McCaskill, all of whom believed, on reasonable grounds, that a binding agreement had been concluded on 16 September 2002. I agree, with respect, with the analysis of the relevant legal principles given by Allsop J (with whom Drummond and Mansfield JJ agreed) in Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 at 525: "…a number of authorities discuss the need not to constrict one's thinking in the formation of contract to mechanical notions of offer and acceptance. Contracts often, and perhaps generally do, arise in that way. They can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting i's and crossing t's or where they think they have done so… Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation. In such circumstances, even in the absence of clear offer and acceptance, and even without being able (as one can here) to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract… The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract." 229 It follows that on 16 September 2002, a binding contract, on the terms pleaded, came into effect. That contract was not void for uncertainty.

Did AWI repudiate the contract? 230 The applicants submitted that AWI repudiated the contract on 29 October 2002 when Mr Waldthausen telephoned Mr Macdonald to tell him that the Imaginate project would no longer be a stand alone initiative. Alternatively, AWI repudiated the contract on 4 November 2002 when Mr Waldthausen conveyed to Ms Robinson that work upon the incorporation of Imaginate should cease. 231 AWI submitted that Mr Waldthausen's conversation with Mr Macdonald on 29 October 2002 did not amount to a repudiation of the contract. All that Mr Waldthausen said was that it would not be possible to sign agreements that week because they had not yet been prepared, and Mr Dorber would not have time to sign them before the Annual General Meeting. Mr Waldthausen also told Mr Macdonald that he would be the point of contact for Imaginate, and that the various projects would "be coordinated under an overall strategy for logistics and fibre specification as well as being coordinated with similar projects under way". This was nothing more than a relatively minor variation in the way in which the contract would be implemented. 232 AWI noted that Mr Dorber subsequently spoke to Mr Macdonald, and told him that Dr Swan had raised a raft of issues upon which the project management committee would report. Later that same day, Mr Dorber told Mr Macdonald that the "due diligence" prevented AWI from proceeding with the projects, and offered the applicants the possibility of working on them on a contract basis, though for much less than had previously been discussed. AWI characterised Mr Dorber's statement as nothing more than an intimation that AWI no longer wished to proceed with the Imaginate venture "in precisely the form that had previously been discussed", but falling well short of a breach of contract, or act of repudiation. Presumably, on that analysis, it was the applicants who "spat the dummy", and walked away from the agreement, thereby terminating the contract themselves. 233 If I have correctly understood AWI's contentions on this issue, they are without substance. A breach of contract occurs when a party to a contract fails to perform a contractual obligation. Alternatively, an anticipatory breach of contract can arise prior to the time for performance by the promisor. A party repudiates a contract when it discloses an absence of readiness or willingness to perform contractual obligations sufficiently serious to give the promisee a right to terminate. Repudiation can be express or implied. 234 Whatever may have been the position when Mr Waldthausen spoke to Mr Macdonald, it was certainly clear by the time that Mr Dorber spoke to him later that day that from AWI's perspective, the Imaginate project as conceived and agreed had been terminated. It was absolutely fundamental to the agreement that Imaginate be a stand-alone initiative. The change to the arrangement that Mr Dorber foreshadowed represented a serious departure from the agreement, and gave the applicants the right to terminate. It was an act of repudiation by AWI. Once the applicants accepted that repudiation, they became entitled to sue for damages for breach of contract. 235 If I am wrong about the effect of Mr Dorber's conversation with Mr Macdonald, I am satisfied that Mr Waldthausen's instruction to Ms Robinson to stop work on the incorporation of Imaginate amounted to a repudiation of the contract. The fact that Mr Waldthausen had no authority to give that instruction is of no consequence. He certainly had ostensible authority, in accordance with ordinary principles of agency.

The measure of damages 236 The principles that govern damages for breach of contract are well established. Such damages are awarded to protect the expectation interest of the innocent party. The general rule is that damages are awarded to put the applicant in the same position as if the contract had been performed: The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. Damages for loss of bargain are assessed by reference to the difference between the market value of the contract (or its subject matter) at the time of contract, and the price (or monetary equivalent) expressed in the contract. Where an applicant's termination is based on repudiation, or breach of an essential term, it will be presumed that he or she is entitled to recover damages for loss of bargain: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245. 237 Where a contract is repudiated, an applicant is entitled to an award of damages that, so far as money can, places him in the same position as if the contract had been performed. The applicant is entitled to damages fixed by reference to what would reasonably have been in the contemplation of the parties as the probable result of the breach of the agreement. 238 The loss suffered must arise naturally from the breach, or else it must be such as may reasonably be supposed to have been in the contemplation of the parties at the time they entered into the contract as the probable result of it being breached: Hadley v Baxendale (1854) 9 Ex 341, 156 ER 145. Damages will not be recoverable if they are too remote: Hungerfords v Walker (1989) 171 CLR 125; The Commonwealth v Amann Aviation at 92 and 99; Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 368; and Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603. 239 Damages are awarded to an applicant as compensation for the amount that he or she would have earned pursuant to a contract had the respondent not breached the contract. Damages for loss of profits are simply one aspect of the principle that a person who has sustained loss by reason of a breach of contract is entitled to be placed in the same position, as far as possible, as if the contract had been performed: The Commonwealth v Amann Aviation. The burden of proof rests upon the applicant to prove, on the balance of probabilities, the profit that would have been earned had the respondent performed the contract rather than breached it. 240 An applicant can recover for what is described as the "loss of a chance", namely the loss of the opportunity to obtain benefits that would have resulted from the respondent's performance. For example, damages have been assessed on this basis where the defendant's breach deprived the plaintiff of the chance of competing in a contest, and winning a prize: Chaplin v Hicks [1911] 2 KB 786. 241 In the present case, the applicants claim that the parties contemplated a long-term arrangement involving a three-year contract at a minimum. That necessitated their departure from Amcor, giving up secure and long-term employment. They say that the Imaginate project would certainly have gone ahead but for the unwarranted and inappropriate intervention of Dr Swan, acting at the behest of Mr Waldthausen. They claim loss of income for the three-year term of the contract. They also claim damages for loss of the chance that the contract would have been renewed, and for the loss of the chance that their shareholding in Imaginate would have generated profit. They accept that the amount of damages awarded for lost opportunity must depend upon the likelihood that Imaginate would have been successful. 242 More specifically, the applicants claim the sum of $660,000, being three years at $220,000 per annum. From that sum, there would be deducted any money earned that would not otherwise have been earned in the period from 1 November 2002 until 31 May 2004, several days before the commencement of the trial. In Mr Macdonald's case, that figure came to $186,430 together with a further $39,248 as money expected to be earned for consulting work with Amcor earned from 1 June 2004 to 1 October 2004. In addition, there would be deducted a further $75,548, being the balance of fifteen months' consulting, but at a rate thirty per cent less than the rate previously earned. The figures are set out as follows in the applicants' submissions regarding loss and damage: "Lost Wages pursuant to the contract of employment: 3 yrs x $220,000 = $660,000 less moneys earned which would not otherwise have been earned 1/11/02-31/5/04 = $186,430 less moneys expected to be earned from 1/6/04 for 4 months with Amcor 186,430/19 = $9,812 pcm $9,812 x 4 = $39,248 balance of 15 months at 30% less $6,868 x 11 = $ 75,548" That made a total of $358,774 for lost wages. To that figure, Mr Macdonald would add the value of his lost superannuation, being nine per cent of $660,000 or $59,400. 243 The figures for Mr Allan were as follows: "Lost Wages pursuant to the contract of employment: 3 yrs x $220,000 =$660,000 less moneys earned which would not otherwise have been earned 1/11/02-31/5/04: =$105,558 less moneys expected to be earned 1/6/04-1/10/05: 105,558/19 = $5,555.70 pcm $5,555.70 x 15 =$83,335" That made a total of $471,107 for lost wages. To that figure, Mr Allan would add the value of his lost superannuation, being nine per cent of $660,000 or $59,400. 244 The applicants' claim for damages for the lost opportunity to renew the contract after the expiration of three years is of course far more problematic. They submitted that I should find that there was a sixty per cent chance of their entering into a further three-year contract with AWI, and so award sixty per cent of the value of the existing contract, namely $215,264 in the case of Mr Macdonald, and $282,664 in the case of Mr Allan. 245 I reject this submission. I think it highly unlikely that AWI would have renewed these contracts at the end of the three-year term. Having regard to the change in composition of the Board that took place in November 2002, and the very different approach to research and development espoused by the group that assumed control of AWI thereafter, the prospects of renewal of any of the Imaginate projects were slim. I also have regard to that part of Dr Swan's evidence concerning the technical difficulties that the applicants would have had to overcome in order to produce a commercially viable product. The Imaginate project was a high-risk venture with a relatively small chance of success. I think it unlikely that it would have gone beyond the three years contemplated. 246 Nonetheless, the authorities make it clear that an applicant is entitled to recover damages for a lost chance provided that it can be causally linked to a breach of contract. Recovery extends to the loss of a chance that was not promised but would nevertheless have been created by performance of the contract provided only that the loss was foreseeable as a result of the breach. Damages are assessed by reference to the prospect of success. Damages have been recognised as available for loss of a chance of renewing a contract: Commonwealth v Amman Aviation at 92, 94 and 102. 247 In Cheshire and Fifoot, the learned authors suggest at [23.15] that it is not necessary to establish that the chance would probably have been realised. It has been suggested that a one per cent chance may give rise to an entitlement to compensation: Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 at 643 per Deane, Gaudron and McHugh JJ. The idea that a one per cent chance would be other than "speculative" might strike some as odd, but that seems to have been the view of the High Court in Malec. See also Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349, L'Huillier v State of Victoria [1996] 2 VR 465 at 485, and Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 in which a ten per cent chance was held to be compensable. 248 If the chance is so low as to be regarded as speculative, say less than one per cent, the Court will disregard it in assessing damages. However, any chance that is not so nebulous as to fall within that description should be taken into account. 249 According to Cheshire and Fifoot, while percentage figures are commonly used, it is not essential for a court to express a percentage of possibility, or probability, in calculating the amount of an award. The Court is entitled to take a global approach and to award a lump sum: Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 505-7; and Glenmount Investments Pty Ltd v O'Loughlin (2000) 79 SASR 185 at 284. 250 Having concluded that there was a realistic chance, albeit a slender one, that these contracts would have been renewed, and being satisfied that the breach relied on caused the loss of that chance, I consider that it would be just to award the applicants damages for that loss of chance. If I were forced to express the chance of renewal in percentage terms, I would fix upon a figure of approximately ten per cent. However, I prefer to take a global approach, and to award each applicant a lump sum. Doing the best that I can, I fix an amount of $40,000 for each applicant for this component of their respective claims. 251 The final limb of each claim in relation to breach of contract is based upon the lost chance of profiting from the value of the equity in Imaginate. Here, it must be recalled that it was a term of the contract that the applicants would receive a minimum of eighteen per cent of the profits to be derived by Imaginate, rising to a maximum of thirty per cent in the event that certain performance indicators were met. 252 Based upon these figures, the applicants submitted that for each of them, their losses could be calculated as follows: "Lost value of minimum 18% to maximum 30% equity in Imaginate Pty Ltd: Expected price of OFFM measuring device $2,000 20,000 growers in Australia Potential market in Australia 2000 x 20,000 = $40,000,000 Assume 50% market penetration = $20,000,000 gross sales Assume 10% profit margin = $2,000,000 Expected software licence fee $1,000 Assume 50% market penetration = $10,000,000 gross sales Assume 50% profit margin = $5,000,000 Access to internet site for wool sales @ $10 per bale 3 million bales sold annually from Australia Potential revenue $30,000,000 per annum Assume 50% profit margin = $15,000,000 Profit in 1st year: $22,000,000 Profit in 2nd year: say $7,500,000 Retained earnings say $27.5 million Value of 18% shareholdings = $4,950,000 Value of 30% shareholdings = $8,250,000 Discounted for contingency say 30%: 18% $3,465,000 30% $5,775,000" 253 AWI submitted that this aspect of the applicants' claim should be summarily rejected. In the first place, the figures upon which the potential profit for each component of the project had been calculated were illusory. There was no independent evidence to support any of them. In addition, the projects were high risk, and should not be discounted by a mere thirty per cent for contingency, but rather by a figure approaching one hundred per cent. That was because the chance that Imaginate would have derived any profits whatsoever was negligible. AWI's calculation of the damages to be awarded to the applicants if the claim for breach of contract succeeded was $353,496 less $105,350 for Mr Macdonald, making a total of $248,146, and $293,228 for Mr Allan. 254 In my view, there was a chance that one or more of the Imaginate projects would have generated profits. Had it done so, within a three-year period, the applicants' equity in Imaginate might have been worth something. However, they bore the onus of establishing the value of the lost opportunity. Their evidence on that issue was tenuous, and far and away the weakest aspect of their case. 255 That does not relieve me of the task of fixing a value upon the lost opportunity provided it was occasioned by the breach, and not wholly speculative. I think that the applicants' claim in relation to lost profits was largely "blue sky". It was worth something, but nowhere near the amount sought. Based upon the evidence as a whole, I think justice will be done if each applicant receives an amount of $50,000 to compensate for this component of his claim. 256 It should be noted that AWI submitted that any amount awarded to the applicants should be reduced because neither had taken reasonable steps to mitigate his loss. I reject that submission. In my view, both Mr Macdonald and Mr Allan took reasonable steps to find suitable alternative employment but regrettably were unable to do so. 257 It should also be noted that AWI submitted that any claim for loss of salary should be limited by reference to an implied notice period for termination, since loss in relation to any greater period of time was too remote, and not in the contemplation of the parties at the time of entry into the contract. In that regard, my attention was drawn to the draft key services contract that was prepared for AWI by Allens Arthur Robinson on 23 October 2002. Clause 14 of that draft contract contained various termination provisions, including a term that, after the first month, either party could terminate at any time by giving six months' notice in writing. AWI submitted, in the alternative, that even if there were no evidence regarding such a term, termination on reasonable notice would be an implied term. 258 AWI also submitted that any damages recoverable for breach of contract should be reduced because of the possibility that other contingencies might occur, including projects not achieving applicable performance milestones when reviewed. Alternatively, there was a chance that the review of Imaginate scheduled for the middle of the third year would be unfavourable, leading to the use of the "kill switch" to terminate the project. There were also other theoretical possibilities, such as Mr Macdonald's employment being terminated because of his ill health. 259 I reject each of these submissions. In my view, AWI's reliance upon a "reasonable period" of notice for termination was misconceived. The applicants are not suing any employer for wrongful dismissal. Imaginate was never incorporated. The "reasonable period" principle seems to me to have no application to their claim in contract against AWI. In addition, although a similar clause was inserted into the draft contract, no such term was ever discussed or agreed. It cannot be implied because to do so would be inconsistent with the express terms of the three-year contract: Ikin v The Danish Club 'Dannebrog' Inc [2001] VSCA 123. 260 It follows that Mr Macdonald is entitled to damages in the sum of $358,774, to which should be added $59,400 for superannuation. In addition, he is entitled to damages in the sum of $40,000 for the loss of a chance to have his contract renewed, and $50,000 for the loss of a chance to earn profit through the shareholding that he was to be given in Imaginate. That makes a total of $508,174. 261 From that figure, there should be deducted a sum of $105,350, which Mr Macdonald received from Amcor by way of a redundancy or retrenchment payment. He negotiated that payment on two bases. One was that he had become ill and could no longer continue in his employment. The second was that in any event the role that he had been fulfilling at Amcor had become redundant by reason of structural changes in that company. He was not entitled to that sum, or indeed any redundancy or retrenchment payment. He left Amcor, in his own words, "because of an opportunity". He would not have benefited from that payment had he not contracted with AWI to develop the Imaginate project. Accordingly, Mr Macdonald is entitled to $402,824 as damages for breach of contract. 262 In Mr Allan's case, he is entitled to damages in the sum of $471,107, to which should be added $59,400 for superannuation. In addition, he is entitled to damages in the sum of $40,000 for the loss of a chance to have his contract renewed, and $50,000 for the loss of a chance to earn profit through the shareholding that he was to be given in Imaginate. In his case, there was no redundancy payment, and therefore no amount to be deducted from his award of damages. Accordingly, Mr Allan is entitled to $620,507 as damages for breach of contract.

The alternative claims 263 Having regard to my conclusion that the applicants have established their claims against AWI in relation to breach of contract, and bearing in mind that the alternative claims under ss 52 and 51AC of the Act would result in lesser damages, it might be thought to be unnecessary to deal with those alternative claims. 264 Nonetheless, each party put forward detailed submissions on the s 52 claim, and shorter but still helpful submissions regarding unconscionability. In the circumstances, I think it appropriate to set out briefly my conclusions in relation to those claims. 265 Section 52 relevantly provides: "(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 266 Section 51AC relevantly provides: "(1) A corporation must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable." 267 Section 51A is an evidentiary provision that applies in relation to claims of misleading or deceptive conduct. It does not, of itself, create a cause of action, nor does it define a norm of conduct. What it does, in a practical sense, in cases where it applies, is to cast the onus of proof upon the respondent corporation that has made a representation about a future matter to show that in making that representation it had reasonable grounds for doing so. The section relevantly provides: "(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation." 268 Turning to the facts of the present case, the applicants submitted that they had relied upon Mr Dorber's representations that the project would go ahead, and were induced by those representations to leave their secure long-term employment. Mr Dorber agreed, under cross-examination, that he intended that, and that it was reasonable for, the applicants to have left their employment as early as 6 August 2002, relying upon his letter of that date. 269 In relation to their claims of unconscionability, the applicants submitted that the "special disadvantage" required for a finding of that nature could be constitutional (age, mental or physical illness) or situational: Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at 318, and Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 ("ACCC v Berbatis") at [9]-[10]. They submitted that their special disadvantage at the time of the unconscionable conduct was situational, that is by reason of their having left, or being in the process of leaving, Amcor (to AWI's knowledge, and indeed at its urging). 270 With regard to the remedies available under the Act, the applicants submitted that the object of awarding damages under ss 82 and 87 was to place an applicant in the position that he or she would have been but for the respondent's contraventions of the Act: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526. In the case of each applicant, it was submitted that the lost income and benefits from his position at Amcor, together with five per cent annual increases on base salary and consequential increases in superannuation and bonuses, ought to be the subject of compensation. 271 AWI submitted that the applicants had failed to establish that it had engaged in misleading or deceptive conduct. It noted that the representations pleaded as giving rise to breaches of s 52 were set out in almost identical terms to the terms of the agreement pleaded by the applicants. Importantly, the matters set out in the pleaded representations were not set out in Mr Dorber's letter of 6 August 2002. Despite this, the applicants had pleaded that the representations, in so far as they were in writing, were contained in that letter. 272 So far as Mr Allan was concerned, it was submitted that he could not have relied upon any of the alleged representations since he gave notice to Amcor on or about 6 August 2002. That was well before either the 27 August 2002 meeting, or any communication by Mr Dorber to Mr Macdonald that the AWI Board had given its approval. In any event, it was submitted that both applicants were keen to leave Amcor because of the structural changes that it was undergoing and, in Mr Macdonald's case, because of his ill health. 273 AWI submitted that if the applicants did rely on any representations as alleged, such reliance was not based on reasonable grounds. The applicants were well aware that written agreements were to be prepared. They knew that several important matters had not been agreed at the meeting on 27 August 2002. They acted foolishly in severing their ties with Amcor before they had an ironclad agreement in place with AWI. 274 With regard to damages, AWI submitted that compensation for breach of s 52 was for reliance loss only. In the present case, AWI submitted that Mr Macdonald's correct measure of damages would be $160,066 less the $105,350 that he had wrongfully obtained from Amcor, making a total of $54,716. In Mr Allan's case, the suggested figure was $99,798. 275 AWI submitted that there was nothing to suggest that it had acted in any way unconscionably in its dealings with the applicants. In particular, it submitted that it had not taken unconscientious advantage of the applicants' disabling condition or circumstances, or their special disadvantage. It relied upon the well understood equitable doctrine that formed the basis for Pt IVA of the Act whereby unconscionability was said to involve a party who suffers from special disability, or is placed in some special situation of disadvantage, and an "unconscionable" taking advantage of that disability or disadvantage by another: Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 and 474; and Louth v Diprose (1992) 175 CLR 621 at 637. Importantly, the doctrine did not apply simply because one party had made a poor bargain. See generally ACCC v Berbatis at [5]-[16] per Gleeson CJ. 276 In my view, the applicants' claim that AWI engaged in misleading or deceptive conduct and thereby induced them to act to their detriment has not been made out. The representations pleaded are all essentially promissory in nature. That means that AWI has the onus of proof, in accordance with s 51A. In Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179, Goldberg J said at 54,432 that the section threw the evidentiary burden, but not the legal burden, upon the respondent. In practical terms, that means that AWI will be deemed not to have had reasonable grounds for making the representations that it did unless it adduces evidence to show that it had reasonable grounds for doing so. 277 I am satisfied that all of the representations pleaded were made. However, in my view, AWI has adduced sufficient evidence to show that, at the time those representations were made, it had reasonable grounds for believing that they were true. Mr Dorber was an enthusiastic proponent of the Imaginate project from its inception in August 2002 until late October, when he received Dr Swan's memorandum. The idea that the project might nit go ahead was the furthest thing from his mind. No one could have anticipated Mr Waldthausen's intrusion into the process, or that Dr Swan would so radically alter his view about Imaginate's viability. Nor could anyone have foreseen, when the representations were made, that the entire Board of AWI would shortly be removed, and replaced by one that would be far less receptive to a project of the type proposed by the applicants. 278 It must be noted that all of the representations relied upon were made in August and September 2002. Nothing changed until Mr Waldthausen came on the scene. By then, the applicants had left Amcor, and the damage was done. It follows that to the extent that the applicants relied upon a claim under s 52, they failed to make good that claim. 279 The applicants also failed to make good their other alternative claim under s 51AC. There was nothing to suggest that they laboured under any special disability, or were placed in some special situation of disadvantage. They were both intelligent and experienced men, professional and highly educated, perfectly well able to look after their own interests. In hindsight, they acted with perhaps less prudence than they might have done. That is a far cry from making good a claim of unconscionability. 280 It goes without saying that Mr Dorber's opinion that AWI had acted unconscionably towards the applicants by failing to discharge its obligations under the contract has no particular legal significance. Any promise that is deliberately broken could easily be characterised as "unconscionable". That is not the sense in which the term is used in s 51AC. 281 It follows that had the applicants relied solely upon their claim of unconscionability, they would have failed.

orders 282 Each applicant has claimed interest on any judgment that might be made in his favour. The amount in question will have to be calculated. In addition, there may be an issue in relation to costs. I therefore propose to defer making final orders in this proceeding until the parties have had a chance to consider my reasons for judgment. I will simply direct that the parties provide draft orders to give effect to these reasons for judgment, and file written submissions on the question of costs. Should the parties wish to be heard on either of these issues, there will be liberty to apply. I certify that the preceding two hundred and eighty-two (282) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Counsel for the Applicants: Mr C. Gunst QC with Mr S.W. Stuckey

Solicitors for the Applicants: Soccio and Zito until 18 January 2005 Ferdinand Zito & Associates from 18 January 2005

Counsel for the Respondent: Mr C.C. Macaulay SC with Mr S.H. Parmenter

Date of Hearing: 7, 8, 9, 10 and 11 June 2004 and 6, 7 and 8 September 2004