Neville's Bus Service Pty Ltd v Pitcher Partners Consulting Pty Ltd

Sub-area: Commercial Contracts, Banking, Finance and Insurance

Counsel for the Applicant: Mr ATS Dawson SC and Mr ARR Vincent

Counsel for the Respondents: Mr L Glick QC, Mr AJ Bailey and Mr J Davaris

BETWEEN: NEVILLE'S BUS SERVICE PTY LTD Applicant

AND: PITCHER PARTNERS CONSULTING PTY LTD First Respondent

JUDGE: O'CALLAGHAN J DATE OF ORDER: 21 DECEMBER 2018

1. The applicant file and serve no later than midday today a note with a calculation as to the sum in respect of which judgment is to be entered against the respondents in relation to its claim for damages in deceit in the sum of $5,485,416, which, subject to any such adjustment, is allowed.
2. The parties file and serve submissions on the questions of costs and interest by 21 January 2019.
3. The matter be listed for further hearing on a date to be fixed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

The parties 1 The Calabro family has owned and operated bus companies in New South Wales since the early 1950s. The applicant, Neville's Bus Service Pty Ltd, which trades as "Busabout" (NBS or the applicant), together with a number of other companies owned and controlled by Mr Giuseppe (Joe) Calabro and his brother Mr Antonio (Tony) Calabro, has operated bus services since the early 1990s. Those companies currently employ over 200 staff and operate about 180 buses on scheduled route and school services in New South Wales. Since the early 1990s, the two brothers have divided their responsibilities. Mr Joe Calabro is responsible for the day-to-day operations of the business. Mr Tony Calabro takes care of the bus workshop and the mechanical side of things. 2 There are three respondents to the application in which NBS seeks, among other things, an award of damages arising out of conduct which it says was fraudulent, in breach of contract, negligent and in breach of provisions of the Australian Consumer Law at Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the ACL). The first respondent is Pitcher Partners Consulting Pty Ltd. The second respondent is described as "[t]he persons identified in Schedule 1" of the amended statement of claim dated 3 April 2018 (the ASOC), trading as the partnership known as "Pitcher Partners". The third respondent is Mr Ian Stewart. Mr Stewart was at all relevant times until mid-2014 an Executive Director of the first respondent and a partner of the second respondent. In mid-2014 he commenced working for first and second respondents as a consultant. 3 There was an understandable tendency of the parties during the time when the relevant events the subject of this proceeding occurred, and during the trial, to refer to "Pitcher Partners" without distinguishing between the consulting and the accounting "arms" (the first and second respondents respectively). For reasons which I will explain later, I find that the second respondent is liable for the relevant acts and omissions of the first respondent, but it is important, because of the controversy about that question, to bear in mind the separate legal identity of the first and second respondents.

A simple amortisation error 4 The trial of this proceeding occupied 13 days. NBS was represented by Mr ATS Dawson SC and Mr ARR Vincent of counsel. Each of the respondents was represented by Mr L Glick QC, Mr AJ Bailey and Mr J Davaris of counsel. The court book comprised 12 volumes, although by the end of the hearing the parties had agreed on a "filleted" court book of 5 volumes. Mr Stewart was cross-examined by Mr Dawson for almost 3 days. 5 The trial would not have occurred had Mr Stewart (or an employee under his supervision) not made what he now concedes was a simple amortisation error in figures about so-called "transfer-in buses" that he inputted into a bus tender bid. During the course of cross-examination, Mr Stewart agreed that it was an error which, in hindsight, "leapt off the page" and that if a simple Quality Assurance Review (QA review), something he described as the firm's "practice" which "should have been done" had in fact been done, the amortisation error would have been detected before the bid was submitted. 6 It is helpful to describe the amortisation error at this point. 7 In early 2012, NBS received notification that Transport for New South Wales (TfNSW) proposed to carry out an open tender for the provision of bus public transport services in regions in metropolitan Sydney. A successful tenderer for a region previously operated by another bus operator is, by the terms of the contract that the new operator enters into with TfNSW, required to take over and fulfil the lease commitments with respect to any buses held by the incumbent bus operator in that region. These buses are known as "transfer-in buses". Under such a contract, TfNSW in effect covers the full amount of the finance costs that an operator will incur for those buses to be used in any given region that are up to 15 years old. As a result, the cost to the new operator of the transfer-in buses must be included in the tender figures as a capital cost. 8 Because the amount of what is called the "Vehicle Termination Payment" - and not the original purchase price of the buses - was incorrectly entered into the accounting tool used to calculate the cost of buses for the purpose of the tender the tool spread the (lesser) Vehicle Termination Payment cost across a 15 year term, rather than the original purchase cost. The result of the error was that there was a failure to amortise properly the cost of the transfer-in buses over the life of the region 15 contract (the amortisation error or the error). As counsel for NBS put it in their written closing submissions, the error can be expressed in two ways: First, because the VTP (Vehicle Termination Payment) amount was incorrectly entered in Pitcher Partners' Tool 2 to calculate the cost of buses for the purpose of the tender, whereas the original purchase price of the buses ought to have been entered - with the result that Tool 2 spread the (lesser) VTP cost across 15 years rather than the original purchase cost. Alternatively, if the VTP was to be used, Pitcher Partners admit that the cost should have been spread across the 9 year period of the Region 15 Contract (or a shorter period taking into account the age of the relevant buses)… Both Mr Stewart, and his assistant Mr Pfirter, agreed that the error is properly so characterised. 9 Because the error was contained in the tender documents, the tender which TfNSW accepted significantly understated the available funding from the government for the transfer-in buses for the region 15 tender. As a consequence, the costs incurred by NBS in performance of the region 15 contract were, and remain, significantly higher than the costs incorporated in the tender bid and upon which the region 15 contract price was agreed. 10 The tender bid and the modelling work used computer programs. The "electronic" exhibits tendered at trial included all relevant computer generated documents. Hard copy paper versions of those exhibits were also tendered, where possible. Ultimately, it is unnecessary to explore in detail how the error arose or how it appears, or is reflected in, those documents, electronic or otherwise, because the nature and cause of the error was ultimately not a disputed question. By the end of the trial, there was little dispute about most of the relevant facts. The amortisation error was revealed as a startlingly simple, yet critical, mistake that the respondents (belatedly) conceded was the product of negligence, in breach of contract, and in contravention of s 18 of the ACL. What was disputed was the point in time at which the respondents became aware of the amortisation error and whether they fraudulently concealed it from the applicant.

The main questions to be resolved 11 The main questions necessary to resolve are: (1) Did Mr Stewart act dishonestly, including by fraudulently concealing the error? (2) Did NBS prove that the actions or omissions of the respondents caused their pleaded losses? (3) Is the second respondent also liable? 12 The parties also made detailed submissions about the Professional Standards Scheme established by the Professional Standards Act 2003 (Vic) and the Professional Standards Act 2003 (NSW) (the Professional Standards Schemes) and in particular whether, absent proof of fraud, the schemes operate to limit liability in the circumstances of this case to $1m. The parties agreed that it would be unnecessary to consider these submissions if the court were to find that Mr Stewart's conduct was dishonest as NBS alleged. 13 The question of dishonesty is relevant not only because of the Professional Standards Schemes cap point, but because if NBS succeeds in its claim in deceit, it is entitled to recover damages which include the whole loss directly flowing from the fraud: see, e.g., South Australia v Johnson (1982) 42 ALR 161, 170 (per Gibbs CJ, Mason, Murphy, Wilson and Brennan JJ). 14 In order to understand how the amortisation error arose, and its significance for the applicant's claim for damages against the respondents in excess of $5m, it is necessary to understand relevant aspects of the tender process used by TfNSW to allocate bus regions to private bus owners.

Transport for New South Wales and the applicant's tender for regions 2 and 15 15 In 2004-2005, TfNSW made changes to the operation of the bus transportation system in New South Wales following a number of recommendations made by the Hon Barrie Unsworth as part of a ministerial review into bus services in New South Wales. Those changes involved, among other things, changes effected by the Passenger Transport Amendment (Bus Reform) Act 2004 (NSW) and dividing metropolitan Sydney into 15 regions, most of which were (and are) operated by private bus companies such as NBS. (Of the 15 regions, only four are currently operated by the State Transit Authority, the government operator). Those changes also involved changing the way in which TfNSW paid private bus companies for the provision of bus transportation services, from a "fare based" payment to a "per kilometre based" payment. That, in turn, meant that when the time came for private operators to tender for the right to provide bus services in a particular region under the new system, they were required to calculate the profit component of any bid in a way that was fundamentally different to the previous system, and generally to compile tenders differently. 16 In early 2012, NBS received notification that TfNSW proposed to carry out an open tender for regions in metropolitan Sydney, including regions 2, 4, 5 and 15. 17 NBS was then the incumbent operator of region 2 and, through another Calabro company, the Calabro brothers also had some involvement in providing services in two other regions. 18 Mr Joe Calabro thought that region 2 was, from the applicant's point of view, the most attractive option because it was the majority incumbent operator of that region. That meant that it would not need to incur significant additional capital expenses or overheads if it won the tender for the whole of region 2. He also thought that region 15 was attractive, especially if it was successful in its bid for region 2, because its proximity to that region meant that, by amalgamating bus depots and some services, overheads and expenses could be reduced and profits increased. 19 NBS had retained the respondents to provide accounting advice, financial forecasting, and other modelling services for bus contracts since at least 2003. Mr Stewart had extensive knowledge of the bus industry, including in New South Wales. He has had over 35 years of experience working with various parties involved in the bus industry in New South Wales and Victoria. His work in this field has included assisting bus operators in tendering and negotiation processes with government, including tender pricing, advising prospective bidders on the acquisition of bus operated businesses, and advising targets of offers to purchase bus businesses. Mr Stewart was, and the Calabro brothers regarded him as, one of the best qualified advisors in the bus industry. 20 In 2005, Calabro family companies, including NBS, also engaged Pitcher Partners to provide accounting, bookkeeping, auditing and taxation advisory services, including the preparation of annual financial statements. 21 Throughout the period from about 2003 to 2014, NBS did not employ a financial officer or accountant. It relied entirely upon the services provided by the first and second respondents to provide it with financial, accounting and related services. 22 The Calabro brothers decided that NBS should tender for regions 2 and 15 and appointed the first respondent to assist it in the preparation of the two tenders.

NBS engages first respondent to assist with the tender

Terms of the agreement between NBS and the first respondent 23 NBS and the first respondent entered into separate "Business Consulting Client Service Agreements" in respect of each of the two proposed tenders, both dated 19 March 2013. Relevantly, the agreements (which the ASOC defined as "the Agreement" and which the respondents call the "tender agreement") provided as follows: We thank you for the opportunity to assist you during this important phase in the future of your company. Pitcher Partners Business Consulting ("PPC") values the relationship we develop with our clients and we look forward to working with you again. This engagement letter outlines our client service promise as well as the basis upon which we will work together. We refer to various discussions that you have had with us and confirm that this letter, together with the standard terms and conditions attached, form the basis of our engagement and illustrate our understanding of the assignment. Scope and Objectives We consider the scope and objectives of our engagement is to advise NBS with various matters related to the submission of its tender response for Metropolitan Bus Services. Where we refer to 'you' we refer to work that may be undertaken with NBS and/or its advisers. This will include the following tasks: • Analyse the request for tender and proposed contract form and provide advice on commercial aspects including risk. • Based upon information provided by NBS and a toolkit of costing models that have been developed by PPC, undertake the costing of services including base level costing of bus our costs, kilometre costs, overheads, and depot and fleet costs. This will include analysis of historic trends, predictive costing analysis for costs such as fuel, maintenance, and bus capital as examples. • Advise you in relation to the likely financial outcomes of a successful bid including forward forecasts of profitability and cash flows utilising analysis tools developed by PPC. This will enable scenario analysis to be conducted at varying levels of margin or variations to other key assumptions. • Apply our industry experience and benchmark information to guide decision making. • Advise in relation to bid strategy. • Advise in relation to the commercial matters to be considered with the proposed contracts. • Assist with preparation of the bid documentation. • Any other related matters as requested by you. Upon receipt of the signed copy of this Agreement, we will provide you with some data gathering tools in the form of Excel spreadsheets and work closely with you to assist in populating the data. It is a fundamental term of this Agreement that PPC is the holder of copyright over all tools and materials used in this process and that NBS has a limited licence to use them for the purposes outlined in this letter and for no other purpose. Under no circumstances can the tools or materials be provided to any party external to NBS. Engagement team and professional fees This engagement will be performed under the direction of Ian Stewart (Executive Director) with work to be performed by Mark Burton (Client Director), Emilio Pfirter (Manager) and other staff as required at our discretion. Pitcher Partners Consulting fees for this engagement are based upon the degree of responsibility and skill involved and the time necessarily occupied on the assignment, plus the separate reimbursement of our outlays. The standard hourly rates, as listed below, will be applied to the hours worked by the staff necessarily involved in the process. ….. (Italics added.) 24 NBS also retained other consultants to assist with "non-price" components of the tenders, including regulatory compliance, quality assurance, training proficiency and service quality. This reflects the fact that, in order to win the tender, the tenderer was required to meet a multitude of evaluation criteria that did not relate to the price of the bid. The evaluation criteria included: (1) Operator performance. The tenderer was required to evidence its experience in operating scheduled public transportation in a major city through detailing its background, submitting performance assessments and providing references; (2) Technical Ability. The tenderer was required to evidence their skills in properly scheduling contract bus services. This was done by providing, among other things: details of their systems and personnel; examples of scheduling and on-time running of services; examples of block scheduling; resource estimates; and processes and systems used; (3) Contract Bus Services. The tenderer was required to evidence its compliance with, and improvements on, timetables and dedicated school services timetables. (4) Fleet Age. This required the tenderer to demonstrate its ability to ensure the average bus age is kept below the maximum average age and that the tenderer always has a sufficient number of buses to service the region. It did this through submitting fleet ages, bus replacement plans (including method, source and timing) and bus replacement prices; (5) Vehicle Passenger Features. The tenderer was required to set out features such as seating and standing capacity; (6) Safety. This required the tenderer to explain the processes it proposed to offer to ensure passenger and staff safety. This included provision of details regarding: staff training and instruction; driver's daily journal; route-targeted risk management; driver monitoring; drug and alcohol testing; vehicle safety; vehicle maintenance; safe driving; depot safety; conflict management; incident management and response; and work, health and safety consulting; (7) Customer Travel Experience. This required the tenderer to offer competitive innovation and improvements to customers' experiences, with respect to criteria such as comfort, customer service training, marketing, community engagement, social media, initiatives for passengers with special needs and technology; and (8) Other ad hoc information, including with respect to proposed critical transition milestones and other special offers from the tenderer. 25 Part of the first respondent's role involved the preparation of financial statements and making a series of different calculations. Among other things, in order to complete the tenders it was necessary to input into the "data gathering tools" referred to in the retainer agreement data and other information regarding the NBS business and the regions for which it was submitting tenders, including bus fleets, fuel costs, wages and other expenses and overheads. 26 NBS provided some data to the first respondent and all the relevant data was contained in an online database, administered by TfNSW, called the "Data Room". That data included region specific information about costs, routes, fleet and patronage, data based on the performance of an operator for a region, as well as copies of documents and agreements relating to the operation of the regions, including copies of the leases for the buses used by each regional operator. NBS and Pitcher Partners were granted access to the data room in March 2013. 27 Mr Stewart swore that his role as the leader of the team at the first respondent was to review the work produced by his team, which included Mr Emilio Pfirter and Mr Lucas Schirato, and "to take instructions from the client, to provide the benefit of my experience when jointly analysing the bid and the bid pricing, and to ensure that the work performed by the team working with me was performed accurately and in accordance with the client's instructions". He also swore that his role was "to ensure that the resulting work product - the bid pricing model and its results (i.e. the bidding price) - was accurate and complete".

Tool 2 28 Part of the services offered by the first respondent included a financial "tool" which it had created and developed to assist in putting together tenders for government bus contracts. Known as "Tool 2", it was designed to calculate the capital cost of the transfer-in buses to be included in a bid. The tool did not use or calculate the actual cost of the transfer-in buses by reference to the leases which were to be in place at the time of the commencement of a new contract, because tenderers do not then know: (1) the total monthly lease costs being paid by the incumbent bus operator for each such bus; or (2) the interest rate or term of the incumbent bus operators finance arrangements in respect of those buses. Nor, ordinarily, would a tenderer be sure of what its own terms of finance would be in respect of the buses once transferred from the incumbent operator to it. As a result, when formulating the tender bid for region 15, neither the first respondent nor the applicant knew what the applicant's actual monthly costs would be in respect of the transfer-in buses once the contract commenced. 29 Tool 2 was designed to ensure that, whatever the actual cost of the transfer-in buses might be, the tender bid would be calculated on the basis that NBS would be able to access the maximum amount of TfNSW funding available in respect of each transfer-in bus. 30 Part of the tool involved in-putting a "Vehicle Termination Payment" or "VTP" (also sometimes called a "transfer-in value"). A VTP is the amount that is paid by an incoming bus operator to an outgoing operator in respect of each bus in the fleet. It is a sum calculated by TfNSW as part of the tender process. 31 Counsel for NBS devoted considerable time in opening submissions to explaining the way in which Tool 2 operated and how the error consequentially affected the many figures generated by Tool 2. Given that the fact of the error is not disputed, it is unnecessary to repeat or set out in any detail the inner workings of Tool 2. It is sufficient to note that it was a means of calculating costs for the purpose of the tender that relied on accurate data input. 32 Many of the documents, including the accounting figures in the tender bid and the modelling, were prepared (and tendered into evidence) in electronic form. Many of them are difficult to reproduce and interpret in paper form. But as I said earlier, in the end, there is no dispute about the nature and cause of the error, so it is not necessary to burden these reasons with a detailed explanation of that evidence.

May 2013: bids submitted - region 15 a winning bid 33 NBS submitted its tender for region 15 in late May 2013. The tender incorporated the bid pricing prepared by the first respondent, and thus also contained the amortisation error. 34 On 24 May 2013 Mr Joe Calabro sent an email to Mr Stewart saying: "good afternoon gents … All lodged. Now the long wait. Also, Tony & myself would like to thank you all for your contribution". A few minutes later Mr Stewart responded with an email saying: "Good to hear Joe. I assume you lodged both???" 35 In his witness statement, Mr Stewart said that he did not receive a reply to that email but that he recalled "a conversation with Joe shortly after this date [24 May 2013], in which the following exchange was said to have occurred: IS: Joe we did not have time to complete a QA [Quality Assurance] review on the Region 15 pricing models. Do you want us to do one now? JC: No, I don't want you to do any more work for now." 36 Mr Stewart went on to explain in his witness statement that if he had completed a QA review of the region 15 pricing models at this time, he believed that he would have noticed the error in Tool 2 and would have "immediately spoken" to Joe about it, including with respect to "whether other pricing components could be reduced to make up the difference". 37 There was some dispute during oral submissions as to whether a QA review, or other cash flow analysis, was within the scope of the retainer. But it clearly was. Mr Pfirter, for example, swore that with respect to a cash flow model prepared for Westpac in February 2014, "[t]his type of cash flow analysis would normally have been prepared as part of the bid pricing work as an added layer of review of that work." 38 In the witness box, Mr Stewart sought to correct the time at which he said that the conversation with Mr Joe Calabro (recorded at [35] above) took place, by deleting from his witness statement the words "after this date" (being 24 May 2013) and inserting instead the words "on or about 23 May 2013". 39 The timing of the call might have been a critical matter because, if Mr Calabro had declined an offer from Mr Stewart to complete a QA review before the tender had been submitted, then it may have added some strength to the idea that the failure to complete such a review (or the fact that the error was contained in the bid) was in some way the responsibility of NBS. 40 Unsurprisingly, Mr Stewart was cross-examined about his last-minute change of mind as to when he said the exchange about the QA review occurred, as follows: And your evidence this morning … you corrected or asked that paragraph 141 be corrected - Yes. - to bring the date of the conversation you set out there in paragraph 141 from after 24 May 2013 to before 24 May 2013, that is, on or about 23 May 2013? Yes. And you say you've had a look at the APS time-recording system? Yes. What does that entry say? Something to the extent of "discussion with Joe Calabro". It records a conversation we had. No. And you're speculating, aren't you, Mr Stewart, about the content of that conversation and its timing? I had issue upon reading my affidavit last week with the words - the word "after" at that time. During this week I had cause to go through some of the more detailed affidavit material that was there and I noticed that there was that entry and thought that that was the most likely date, if I have to put a date on it, that was the most likely date of that conversation. And you recognise, don't you, Mr Stewart, that there's not much point having that conversation with Mr Calabro after the bid is lodged, is there? That was not my intent, no. … Come on, Mr Stewart, you knew that the timing of that conversation was crucial, didn't you? No, I don't believe so. Well, "23 May" means if you had a conversation to that effect then that before Mr Calabro put the bid in you had warned him about, as you say, the numbers in the region 15 pricing models. That was not my intention. I was merely trying to be more precise in my evidence. … You know, don't you, that it's very significant as to whether or not you had a conversation like that before or after the submission of the region 15 bid? I know that now. You knew it at the time you corrected or purported to correct it this morning, didn't you? No, I did not. … The truth is, isn't it, Mr Stewart, you never had these conversations with Mr Calabro about a quality assurance review at all, did you? I did. You've made it up to make it look like he has been the one to instruct you not to conduct a review that would have revealed the error; correct? No. … What you're saying to his Honour in your defence of this … is that he should not take a negative view of Pitcher Partners not having done a review of the numbers which would have revealed the error because Mr Joe Calabro instructed you not to do it? Yes, that's what I'm saying. 41 To the extent that it matters, I do not accept Mr Stewart's evidence that this conversation, assuming that it occurred at all, occurred before the tender bid was filed. 42 On 2 June 2013 the first respondent issued a tax invoice to NBS in the amount of $193,472 in respect of the bid pricing work done for regions 2 and 15. That invoice was promptly paid. 43 In early August 2013 NBS was awarded the tender for region 15, but not for region 2. The bid for region 2 did not contain the amortisation error. 44 In his witness statement, Mr Stewart recalls that at around "late July or early August 2013" Mr Joe Calabro told him in a telephone conversation that the region 15 bid had been successful. Mr Stewart recalls the conversation proceeding in the following manner: IS: Now that you've won Region 15, we should do a detailed QA review of the bid price numbers. We haven't done one. To check if there are any gremlins. JC: No thanks, I'm very comfortable with the numbers.

NBS asks Mr Stewart to confirm the accuracy of the dollar figures in the tender bid 45 Shortly after that, TfNSW sent to Mr Joe Calabro a revised draft of the region 15 contract. In that email, TfNSW told Mr Calabro to "[d]ouble-check that dollar figures for buses in the annexures to Schedule 3 [to the agreement] (especially in Annexure D and E) are assigned to the correct annexure (D or E) and are/will be consistent with a list of Existing Buses that has yet to be completed in Schedule 8 Annexure 2…" The dollar figures in those annexures included the figures that were affected by the amortisation error. 46 Mr Calabro immediately forwarded that request to Mr Stewart asking him, among other things, to check the figures, as TfNSW had requested. 47 In his response to that request, although Mr Stewart did not specifically mention the figures referred to in the email from TfNSW, he did confirm his advice that the documents were now in order, albeit that a number of other matters (irrelevant here) needed to be attended to. He thereby, obviously enough, confirmed the accuracy of the pricing in the tender bid. 48 NBS says, and it cannot be doubted, that this was another occasion upon which the respondents could have completed the work which should have been completed in May 2013, including by the conducting of a QA review, in which case the amortisation error would have been identified and the bid corrected accordingly.

August 2013: execution of the region 15 contract 49 On 26 August 2013 NBS executed an agreement with TfNSW called the Sydney Metropolitan Bus Service Contract (the region 15 contract) on terms and conditions that codified the costings, margins and/or financial information contained in the region 15 tender.

Relevant terms of the region 15 contract 50 NBS was to commence the provision of bus services on 1 June 2014, comprising a 5 year term plus 4 years if granted under clause 3.3 of the region 15 contract. Clause 3.2 provides: "The Term commences on the Services Commencement Date and continues for a period of five years, unless extended under Clause 3.3(a) or 3.3(b) or earlier terminated in accordance with Clause 30". Clause 3.3(c) provides: "Nothing in this Clause 3.3 shall be construed as affording the Operator a right or expectation of renewal or extension of this contract. The Operator will have no Claim, and no Claim by the Operator will be justiciable, in connection with a failure by TFNSW to extend the Term, or for any Loss arising in connection with any potential Extension Period or Discretionary Extension Period". 51 Other important provisions in the region 15 contract are: (1) Clause 22.1(g)(i): Accreditation and Compliance with Laws and Standards: During the first month after the Services Commencement Date and every 12 months thereafter, the Operator must certify in writing to TfNSW compliance with the following legislative and regulatory requirements: (i) Disability Discrimination Act 1992 (Cth); (ii) Anti-Discrimination Act 1977 (NSW); (iii) Environmental legislation, including but not limited to the Protection of the Environment Operations Act 1997 (NSW); and (iv) Industrial Relations Act 1996 (NSW). (2) Clause 5.1 Bus Services: The Operator must provide the Bus Services (i) on the Bus Routes; (ii) in accordance with the Timetables and the relevant provisions of the Services Schedule; and (iii) in a manner that effectively and efficiently carries out the Contract Service Levels, from the Services Commencement Date and for the duration of the Term. (3) Clause 5.5 Expression of Support: The Operator acknowledges and supports, and agrees to perform the Contract Bus Services so as to fulfil, TfNSW's aims communicated to the Operator or made publicly known in relation to the Strategic Transport Corridors and the Bus Routes which, among other things, are: (a) the provision of modern high standard network of Bus services that will satisfy demand for passenger bus transport along the Bus Routes; (b) the achievement of a service strategy that facilitates integration of: (i) services along the Bus Routes with those along a Strategic Transport Corridor; (ii) Fares and ticketing; and (iii) the strategic route network in Sydney generally; (c) the incremental upgrading of the infrastructure and Bus services along the Strategic Transport Corridors; and (d) full integration of passenger information to deliver a seamless service across metropolitan Sydney. (4) Clause 6.2 Timetables: (a) If, at any time during the Term, the Operator believes it can deliver the Bus Services more efficiently and effectively, the Operator must immediately submit a revised timetable for approval by TfNSW, by notice to TfNSW via the BSAR system. (5) Clause 10.1 Key Performance Indicators: (a) TfNSW will measure the Operator's performance against the Key Performance Indicators set out in the KPI Schedule. (b) The Operator must comply with its obligations relating to the measurement and reporting of Key Performance Indicators and the remedy of breaches of the Key Performance Indicators, as set out in the KPI Schedule. (c) Other than an Excused Performance Incident for which KPI Relief is granted, an Operator's failure to comply with a Class 1 Key Performance Indicator (set out in the KPI Schedule) is a Non-Compliance Event. (6) Clause 13.1 Contract Buses: (a) The Operator must perform the Contract Bus Services using Contract Buses. (b) The Operator must only use the Contract Buses for purposes other than the Contract Bus Services when not required for the performance of the Contract Bus Services, and must prioritise newer Contract Buses over older Contract Buses for the performance of the Contract Bus Services (wherever practicable). (c) A Contract Bus must not be exchanged or interchanged with a Bus used for the performance of other Service Contracts, without the prior written approval of TfNSW. (d) The Operator must ensure that all Contract Buses comply with the standards in the Contract Buses and Contract Depots Schedule, in addition to any other requirements imposed in any other Transaction Documents. (7) Clause 13.2 Replacement of Buses: (a) The Operator must replace any Bus which: (i) reaches it maximum age, as set out in paragraph 3 of the Contract Buses and Contract Depots Schedule; or (ii) is irretrievably lost, stolen, destroyed or damaged beyond economic repair during the Term, with a Replacement Contract Bus, unless TfNSW agrees otherwise in writing with the Operator. (b) Any Bus that has been replaced in accordance with Clause 13.2(a) shall be deemed to no longer be a Contract Bus and the Operator may dispose of the Bus and retain all sale and/or insurance proceeds from the sale. (c) The Operator must provide TfNSW with notice when a Bus is replaced in accordance with Clause 13.2(a) (and at least 21 days' prior notice if the Operator intends to dispose of a the Bus), to allow TfNSW to remove any New Systems and Equipment or Existing Systems and Equipment, in accordance with Clause 12.2(g). (8) Clause 22.1 Accreditation and Compliance with Laws and Standards: (a) The Operator warrants that it will hold, for the duration of the Term, all Authorisations required to operate the Contract Bus Services in accordance with, and to perform its obligations under, this Contract. (b) In operating the Contract Bus Services, and in performing its obligations under this Contract the Operator must: (i) comply at all times with all Authorisations required to be held by the Operator under Clause 22.1(a); and (ii) procure that with respect to Driver Authorities required to be held by Drivers under Clause 22.1(a), the Driver will comply at all times with such Driver Authorities required to be held by the Driver. (c) The Operator acknowledges that nothing in this Contract restricts or otherwise affects TfNSW's unfettered discretion to use its statutory powers, including its statutory powers relating to Accreditation under the PT Act. The Operator must immediately notify the TfNSW Representative of any circumstance which may affect the Operator's Accreditation. (d) If the Operator is a corporation, there must be at all times a designated manager or director of the Operator in accordance with section 7 of the PT Act. (e) Without limitation to any other provision of this Contract, the Operator must comply with all applicable Laws and all quality and safety plans from time to time applicable to the Contract Bus Services. (f) Without limiting any other approvals or permissions required for the provision of the Contract Bus Services, the Operator must operate the Contract Bus Services only upon: (i) Roads and Road-Related Areas that have been approved by the appropriate Road Authority for use by Bus traffic; or (ii) if the Contract Bus Services are to be provided on private property, with the permission of the owner of the private property. (g) During the first month after the Services Commencement Date and every 12 months thereafter, the Operator must certify in writing to TfNSW compliance with the following legislative and regulatory requirements: (i) Disability Discrimination Act 1992 (Cth); (ii) Anti-Discrimination Act 1977 (NSW); (iii) Environmental legislation, including but not limited to the Protection of the Environment Operations Act 1997 (NSW); and (iv) Industrial Relations Act 1996 (NSW).

Critical Transition Milestones 52 The terms of the region 15 contract included that NBS must before 1 June 2014 acquire any transfer-in bus and do all things necessary to complete any transfer, novation, acquisition of or dealing with relevant buses in connection with the bus services to be provided by NBS. Those obligations were referred to as "Critical Transition Milestones", non-compliance with which permitted TfNSW to terminate the region 15 contract. 53 The Critical Transition Milestones were listed at clause 3.1(b) as follows: During the Transition Period, the Operator must: (i) comply with and meet the Transition Milestones contained in Schedule 9, by the date specified for their completion; (ii) acquire any Transfer in Contract Bus in accordance with the terms of any Preceding Bus Services Contract; (iii) acquire all other Contract Buses for the purposes of performing the Contract Bus Services; (iv) do all other things necessary to complete any transfer, novation, acquisition of or dealing with Contract Buses or potential Contract Buses in connection with the Contract Bus Services; and (v) make offers of employment to employees of any Preceding Operator, in accordance with the terms of any Preceding Bus Services Contract …

Late February 2014 - early March 2014: novating the bus leases 54 In February 2014, NBS met with representatives of Westpac to discuss the process of novating the leases for the transfer-in buses for region 15 from "Busways" (the then incumbent operator of region 15) to NBS.

3 way cash flow modelling 55 The bank required a cash flow analysis for region 15 in order to consider whether to agree to provide funding. NBS was not able or qualified to prepare such a cash flow analysis, so it engaged the first respondent to prepare a 3 way cash flow model, so called because it integrates a cash flow statement, a profit and loss statement and a balance sheet. 56 NBS again entered into a written agreement with the first respondent for the provision of financial modelling and the relevant services needed to prepare it. The ASOC calls this agreement "the Second Agreement". The respondents call it the "modelling agreement". It was executed by NBS on 19 February 2014 and relevantly provided as follows: Thank you for the opportunity to submit this client service agreement to assist you with financial modelling, forecasting and consulting services. Pitcher Partners Business Consulting Group ('BCG') values the relationship we develop with our clients and we look forward to working with you. We are committed to delivering excellent client service every day and this letter outlines our client service promise as well as the basis upon which we will work together. Background [NBS] is seeking assistance with the preparation of forecasts to obtain authority understanding of their cash flows as they enter their Region 15 bus NSW contracts. The forecast will be derived from the financial statements for NBS with adjustments made to reflect the number of forecast assumptions about the trading income and expenses. Our Understanding of Your Needs The business requires support in the preparation of forecasts that will enable management to forecast the financial statements for NBS. These forecast financial statements will include the profit and loss, balance sheet and cash flows. Developing the forecast The forecast financial statements will be based upon the categorisation of your existing financial statements. More specifically in relation to the development of the forecast; We will model the impact from the following revenue categories: • Income and cash flows associated with the new South Wales bus contracts for Region 15; • Other income will be consolidated into a single income category with a standard assumption around the timing of cash flows. The forecast will be developed to reflect the profit and loss and cash flow impact from: • Direct Costs: These will be grouped into Bus Hour and Distance Variable costs to the extent that they are captured in your current profit and loss. • Salary and Wages (including on-costs): To the extent that they are not included in Direct Costs will be grouped as an indirect cost. • Other expenses: These will be grouped into high level categories, i.e. depot related costs, administration costs. • Tax expense: This will be calculated as an effective rate, i.e. at 30% of net profit before tax. The following asset and liability accounts will be modelled to reflect the impact on the cash flow, the related asset and liability accounts and the profit and loss accounts: • Cash, including overdraft • Trade debtors • Trade creditors • Prepayments • Fixed Assets and associated depreciating expense at a fixed asset category level • Business Loan • Equipment finance • Loan accounts • GST. The scope of our engagement and the Services to be provided to you will involve the preparation of a four year integrated three way model for the commencement of your Region 15 NSW bus contract. • Monthly forecast profit and loss, balance sheet and cash flows for FY 2015, FY 2016, FY 2017 & FY 2018. • Annual financial year summaries for FY 2015, FY 2016, FY 2017 & FY 2018 Key Financial Assumptions Summary As part of your application we will prepare a key financial assumptions summary that details at a high level the financial assumptions that relate to the base and alternative forecasts and a summary of the business context that will provide the background and commentary for the basis of the forecast position. Timeframe As discussed with you, we will be working towards a timeframe for completion by early March 2014. Assumptions and Limitations We have made the following key assumptions in detailing our understanding of your requirements and the proposed fees that are detailed below: 1. Financial data and assumptions that are required to populate the financial model will be provided by management. 2. We have assumed that our deliverable will be the output of the financial model together with an assumptions document that sets out the basis upon which the key items in the model have been forecast. 3. We have not made any allowance for a review or audit of the financial and operating information that is required to support the forecasts. 4. We have assumed that we will have sufficient access to relevant personnel, financial and other records, including historical financial statements and related information and reconciliations, existing budgets or forecasts and other matters relevant to our staff being able to deliver the services considered above. Your Client Service Team The following is the team who will be working with you. They have been chosen because of their experience in the preparation of financial models. … Ian Stewart, Executive Director…Ian will be the Partner in Charge of this engagement. Emilio Pfirter, Manager… Lucas Schirato, Assistant Manager… Other members of Pitcher Partners Consulting team may be used where it is cost effective to do so. Communication In delivering our Client Service Agreement with you, we promise to: • Listen to what you want, clarify your expectations, and define your needs. We will work together with you to understand what it is that your business needs. • Think about solutions and adding value. We will plan the execution of your project to ensure it is completed in the most effective way. • Talk about progress so that there are no surprises. We will communicate with you throughout the progress of this engagement and engage you in any feedback you may wish to provide. • Deliver quality outputs on time, and on budget. We will complete all deliverables as outlined in this proposal within expected timeframes and cost estimates. Fees Our fee levels are carefully considered to allow for high levels of Partner and senior staff involvement and are determined on the basis of the time spent by the staff members concerned, costed at their respective hourly rates. Our fees for the provision of service will be in the order of $15,000 (GST exclusive). … Should you have any queries in relation to the above, please do not hesitate to contact me. Yours sincerely Ian Stewart Executive Director Enc: Pitcher Partners Terms and Conditions 57 The final page of the modelling agreement acknowledged that its "understanding of this engagement is consistent with the above scope and objectives in this engagement letter, and the attached standard terms and conditions." The attached terms and conditions included the following: These terms apply to your engagement of Pitcher Partners Consulting Pty Ltd and our associated companies and entities ("PP" [the second respondent], "PPCON" or "we" or "our" or "us") for the Services undertaken for you and/or your client and associated parties ("Client" or "you"). These terms continue to apply for all Services for which we are, or may, in the future, be engaged, unless otherwise agreed in writing or otherwise required by law. These terms and our letter of engagement form the entire agreement between us relating to the Services…

3 way modelling: Versions 1-12 58 On the same day that NBS executed the modelling agreement (19 February 2014), Mr Schirato wrote to Mr Joe Calabro telling him that he was "[w]orking on the [modelling] numbers as we speak". 59 On 24 February 2014 two versions of the modelling, versions 2 and 3, were produced. In the course of cross-examination, Mr Joe Calabro said that if Mr Stewart had then advised him of the amortisation error, he would not necessarily have tried to "get out of" the region 15 contract. Mr Calabro said that he would instead have "approach[ed] government and got their view on it first" and he "wouldn't just take it for granted they would say no." As Mr Calabro said in cross-examination, an additional $660,000 per year on the transfer-in buses capital costs in the region 15 contract would have resulted in an overall price "definitely a way - a long way under" the incumbent operator's then current contract price. Mr Calabro also testified that, if the government had said they were not interested in negotiations about it, "we would walk away…ending the contract". 60 At 4:56pm on 24 February 2014, during the course of performing, or assisting with the performing of the modelling services, Mr Pfirter wrote to Mr Joe Calabro and asked him these questions: 1. The new transfer in buses, how are you going to finance the $16m odd for the buses coming from Busways? 180 months and 5% should be right? (180 being same period used for cash inflow purposes therefore I want to be consistent and interest rate based on other clients in Melbourne who I understand are getting 5.9% or something at the moment) 2. The $2m odd being the Equity value on the busway buses, how are you going to be paying that? Financed I guess or any other arrangements? 61 By early the next morning, 25 February 2014, version 4 of the modelling had been produced. 62 Before turning to the correspondence about the various versions of the 3 way model that followed, it is important to keep in mind the critical changes that were incorporated into the modelling between versions 4 and 6. Between versions 4 and 5, the assumed interest rate was changed and the assumed term was reduced from 15 years to 9 years, to reflect the term of the region 15 contract. By version 6 the actual lease repayments that were in fact to be made were incorporated into the modelling using a "goal seeking" function. It was, as will become apparent, by these simple changes to the figures inserted in the appropriate columns of the modelling documents that the amortisation error was revealed. 63 On 25 February 2014 Mr Pfirter wrote to Mr Joe Calabro in these terms: "Joe Just to refresh your mind I thought about [re sending] you the email sent to you last year when we got region 15. The numbers in the 3 way will be option D which is what you won". It is therefore obvious that Mr Pfirter started the modelling work using the costings contained in the tender bid. 64 Later that day, Mr Joe Calabro wrote an email to Mr Pfirter in which he informed him that he had spoken to Westpac that day regarding the transfer-in buses, and that he had told the bank that NBS would have some cash flow analysis for them shortly, something Mr Calabro said the bank was "keen" to see. 65 The next day Mr Pfirter wrote to Mr Joe Calabro and told him that they could not access the TfNSW data room so they would not "be able to take payments for transfer in Busways buses from there". The email continued: I have calculated all payments for you in the 3 way model anyway, we can discuss if you want after I get the model back from Ian's review. 66 The "Ian" referred to was Mr Ian Stewart. 67 That evening Mr Joe Calabro replied to Mr Pfirter's email telling him that he had found the information about the transfer-in buses in the data room, quipping "[n]ot very good looking. Just went into data room now and presto". Mr Calabro attached to his email the information that he had extracted from the data room entitled "Contract 15 - Vehicle Termination Payment (planned valuation date: 1 June 2014)". The document that Mr Calabro attached was explained (by TfNSW) in these terms: The table below sets out TfNSW's calculations of the transfer cost (that is, the price to be paid by any Successor Operator) to acquire the buses listed in the table and to assume the lease payment obligations for these buses. 68 On 26 February 2014, Mr Pfirter wrote an email to Mr Joe Calabro in which he said, among other things: : "[m]odel is coming great, just waiting for Ian [Stewart] to help me accesing (sic) the data room to see exact payment for transfer in buses …" 69 On 26 February 2014 Mr Stewart emailed Mr Pfirter, telling him that he "seem[ed] to have lost that cut down 3 way that you sent me. Can you please re-send it?" 70 The next morning, Mr Pfirter emailed Mr Stewart telling him that he would send a first draft to Mr Stewart that afternoon after he had clarified a couple of questions with Mr Joe Calabro. It is therefore again tolerably clear that Mr Stewart continued to be involved in the continuing iterations of the modelling. 71 At 9:04am on 27 February 2014 Mr Pfirter sent an email to Mr Joe Calabro in which he said among other things as follows: "I need to ask you couple (sic) of questions over the phone (provably (sic) 20 minutes) before I pass the model for Ian's review". At this point in the chronology of the development of the different versions of the model version 4 had been completed, but version 5 had not. 72 At 9:40am on 4 March 2014, Mr Pfirter emailed Mr Joe Calabro telling him that he would "put the model for Ian's review tomorrow" and that he would like to ask him a couple of questions over the phone. 73 The last edition of version 6 of the 3 way model was produced at 11:00am on 4 March 2014. It is common ground at the hearing that versions 5 and 6 of the model revealed the amortisation error and that the effect of the error was obvious. Version 4, which still reflected the figures in the tender bid, and which therefore used the payments to be received from the government to fund the cost of the transfer-in buses as a substitute for the actual lease payments to be made by NBS, calculated total monthly repayments for the transfer-in buses of $161,734. Version 6, which contained a varied interest rate, the correct lease term of 9 years (not 15 years) and a cash outflow figure calculated by reference to the actual lease repayments that were to be made to Westpac, calculated the same monthly repayments at $238,681. 74 On 10 March 2014, having received an email from Westpac asking if there was any update on the forecasts for region 15, Mr Joe Calabro emailed Mr Pfirter a copy of the email from Westpac about the transfer-in buses asking, "[h]ow are the cash flow forecasts going [?]". 75 At 9:18am on 11 March 2014, Mr Pfirter emailed Mr Joe Calabro in these terms: "Only thing I still need to incorporate is the cash movements … $900k (what you're going to be paid and what you have to pay) which I have to discuss with Ian how to account for it … For (sic) the rest is finished, I'll send a DRAFT for Ian today for review. Surely he will want to catch up with me tomorrow to discuss". It was common ground that this email was sent between the creation of versions 6 and 7 of the 3 way modelling, and that the reference to the "$900k" was a reference to the Vehicle Termination Payments required to be paid by NBS to Busways for region 15. 76 Version 7 of the 3 way modelling was completed on 11 March 2014. Version 8 of the 3 way modelling was completed on the morning of 12 March 2014. Version 10 of the 3 way modelling was completed shortly thereafter. 77 On 12 March 2014 Mr Pfirter emailed Mr Joe Calabro with a "couple of queries for the cash flow model". In that email Mr Pfirter told Mr Calabro that Ian had gone through the first review with him, and had come to him with a couple of questions (that are, for present purposes, irrelevant). 78 By 5:37pm on 12 March 2014, version 11 of the 3 way model had been prepared. On that day Mr Pfirter wrote to Mr Stewart attaching an electronic copy of version 11, telling Mr Stewart that from their discussion, he, Mr Pfirter, had done a number of things to the model, which he described in 4 dot points. The nature of those changes is irrelevant for present purposes. 79 Another draft of version 11 was produced at 11:26am on 13 March 2014. 80 At 3:06pm on 13 March 2014 Mr Stewart sent to Mr Pfirter, for his consideration, version 12 of the 3 way cash flow model. 81 At 10:43am on 14 March 2014 Mr Pfirter sent an email to Mr Stewart attaching the final version of version 12 of the modelling. Among other things, Mr Pfirter told Mr Stewart that "all months are cash positive".

Amortisation error concealed in final version of 3 way model 82 Later that morning Mr Pfirter emailed a copy of version 12 of the 3 way model to Mr Joe Calabro. Mr Potter, the expert accountant called by NBS, gave unchallenged evidence that the amortisation error was concealed because of an irregular treatment of depreciation, which had the effect of incorrectly and significantly inflating profitability during the 2015-2018 financial years. The significantly higher actual lease repayments contained in the final version (from version 6 onwards) thus appeared to have no effect on the "bottom line" profitability predicted by the modelling. As Mr Potter explained: Principal paid on 'transfer-in' buses: P & L v cash flow 6.14 The table below compares the depreciation expense reported in the P&L of each version of the Cash Flow Model for the 56 'transfer-in' buses as compared to the principal repayments reported in the cash flow statement of each version of the Cash Flow Model: Table 43: FY15 'transfer-in' buses depreciation expense v principal repaid Version ($) FYI Depreciation expense ( P & L) FY15 principal repayment (cash flow) Difference v0.02 765,648 625,587 (140,061) v0.03 765,648 707,351 (58,296) v0.04 765,648 790,900 25,253 v0.05 765,648 1,430,441 664,793 v0.06 765,648 1,395,924 630,277 v0.07 765,648 1,395,924 630,277 v0.08 765,648 1,395,924 630,277 v1.00 765,648 1,395,924 630,277 v1.01 765,648 1,395,924 630,277 v1.02 765,648 1,395,924 630,277

Source: Appendix 8, Cash Flow Model principal, interest and depreciation comparison analysis, "Summary" worksheet. Note: for ease of comparison, I have limited my comments to the FY15 P&L statement/ cash flow statement for each version of the Cash Flow Model. I have reviewed the FY16 to FY18 periods in detail at Appendix 7 and Appendix 8 of this report and confirm that my comments in relation to FY15 also apply to FY16 and FY18. 6.15 I refer to Table 43 and note the following: 6.15.1 The depreciation expense relating to these 56 'transfer-in' buses receded in the P&L of the Cash Flow Model has remained consistent between version v0.02 to v1.02; notwithstanding 6.15.2 The principal amount payable relating to these 56 'transfer-in' buses has approximately doubled between v0.04 and v0.05. 6.16 The effect of the matters addressed at paragraph 6.15 is that the increase in principal repayments recorded in the cash flow statement of the Cash Flow Model from v0.05 has now "flowed through into the P & L (thereby maintaining the profit margins reported in the P&L). 83 Returning now to the factual narrative, a little later in the morning of 14 March 2014, Mr Pfirter emailed Mr Stewart telling him that he had called Mr Joe Calabro and explained all the main things about 3 way modelling. Mr Pfirter reported to Mr Stewart that Mr Calabro would look at it in detail over the weekend and submit it to the bank early the next week and that Mr Calabro sounded "very pleased with it and our quick response today". The email finished by saying "[t]hanks for all your help Ian". 84 On 2 April 2014 the first respondent sent to NBS an invoice for professional services rendered with respect to the modelling agreement for $20,900. The memorandum of fees that accompanied the invoice was relevantly in these terms: Preparation of a four year integrated three way model for the commencement of your Region 15 NSW bus contract, including: • … • Calculation of finance repayments for your transfer-in buses and new fleet; • Monthly forecast profit and loss, balance sheet and cash flows for FY 2015, FY 2016, FY 2017 and FY 2018; and • … 85 On about 4 May 2014 the second respondent sent a statement of account in respect of the 2 April 2014 invoice from the first respondent. 86 The account was paid on 19 May 2014. 87 These exchanges, and events which subsequently occurred, have led NBS to contend that by the time versions 4, 5 and 6 of the cash flow models were produced in late February/early March 2014, Mr Stewart became aware of the amortisation error, but that he dishonestly concealed the error from NBS, with the result that NBS entered into novated leases with Westpac in respect of the novated leases and "committed to millions of dollars of unfunded repayments, in readiness to commence operating region 15 on 1 June 2014". NBS contends that Mr Stewart's conduct constitutes fraud for which the first and second respondents are also both responsible. 88 NBS also pleads in its ASOC that, on 17 February 2014, the first respondent represented to the applicant, among other things, that its initial representations were correct. An email from Mr Pfirter to Mr Joe Calabro dated 17 February 2014 stated: Hi Joe Attached the Tool 2 for Region 15 I'd like to give you a call later to clarify something around the buses we will be taking into the three way model - cash flow projection. I'll give you a call a bit later Cheers Emilio 89 In any event, the cash flow analysis provided by Pitcher Partners in March 2014 for Westpac's purposes concealed the amortisation error and it was not disputed that the leases were duly novated to NBS on that basis. 90 NBS commenced operations in region 15 on 1 June 2014 in accordance with the region 15 contract, and it continues to do so.

April 2014 - NBS discovers discrepancies 91 In April 2014, NBS employed for the first time an in-house accountant, Mr Nishan Joseph. Mr Joseph was employed as the NBS general manager, responsible, among other things, for managing the process of novating the bus leases from Busaways to NBS, and for implementing new systems more efficiently to structure the NBS business in the lead up to the commencement of the region 15 contract. 92 In August 2014, after NBS had commenced performing the bus services under the region 15 contract, Mr Joseph decided to review NBS's bus lease obligations and cash flow, including, among many other bus leases in the Calabro group of companies, the leases in respect of the transfer-in buses for region 15. Mr Joseph started the review by comparing the lease payments made by NBS to Westpac in relation to the transfer-in buses with payments that NBS sought from TfNSW to cover the cost of those buses. Understandably enough, Mr Joseph expected the latter to cover the former. But he discovered a $71,000 monthly shortfall. Immediately, that is on 20 August 2014, he contacted Mr Pfirter, asking for an explanation of the discrepancy, in these terms: "Hi Emilio: I've been looking at the bid values for buses, given that we have started to pay the relevant leases. I noticed a discrepancy between what we are actually paying for the leases on the transferred buses, compared with what's there in the bid. Bid: Table 1C = $1851k/annum (i.e., $2007k less 156K for four buses purchased outright by Busways) = $154K/month Actual lease payment per month = $222k (payment to Westpac for the novated leases) I've been trying to see what could be the reason for the discrepancy. Am I missing something? I've also had a chat with Joe to see if he can recollect… Can you please enlighten once you've had a look at your workings. Appreciate your time on this. Thanks and regards Nishan 93 The next morning, at 9:47am, Mr Pfirter sent an email to Mr Joseph, copied to Mr Joe Calabro, by way of reply to Mr Joseph's email the day before, although the email did not actually address the substance of Mr Joseph's question. 94 The same day Mr Pfirter had a telephone conversation with Mr Joseph in which they agreed that the issue was something that they would need to bring to Mr Stewart's attention. 95 At 11:28am on 21 August 2014, Mr Pfirter wrote an email to Mr Stewart in these terms: Hi Ian How are you. I just left a message on your mobile. I think we have an issue with Fleet regarding Region 15 (Joe Calabro) Appreciated if you could give me a call to discuss (sic). Cheers 96 Mr Stewart was on vacation in far North Queensland. He was on a boat and out of email contact at the time the email was sent. When the boat returned to shore that afternoon, Mr Stewart checked his emails. He also asserted in cross-examination that he had listened to the voice message on his mobile referred to in Mr Pfirter's email. Records obtained by the solicitors for the respondents after Mr Stewart made that statement in the witness box, I was told, showed that the voicemail message was 50 seconds long. (It was not possible to retrieve the message). In oral evidence, Mr Stewart stated that he did not have a clear recollection of exactly what was said in the voicemail, but, in cross-examination, suggested that he became aware of the "possibility of an error" through the voicemail message. No such assertion was made in his witness statement or in his evidence in chief. 97 At 4:38pm Mr Stewart sent an email to Messrs Burton, Schonberg and Pfirter, as follows: A couple of thoughts: 1. The subsequent work on a 3 way needs to be looked at. I recall having Emilio reconcile the profit and I think cash per that to the bid. 2. The price was set targeting a particular rate per klm. It was certainly influenced by cost data but Joe was chasing a price. 3. Do we have signed off assumptions documents? If so what do they say about bus capital? 4. Joe needed some additional fleet outside his own resources. Was he able to get that at a satisfactory price? Did he transfer older fleet from Region 2 across that had a low value? Do we need to assess the whole bus capital amount and not just this bit? Thanks. Back in Melbourne on the weekend. Ian 98 About an hour later, Mr Burton replied to Mr Stewart's email (copied to Mr Schonberg and Mr Pfirter) as follows: Thanks, Ian. We are on it. In the first instance we'll send: The trail-Fleet tool, Bid document, data room documents regarding transfer fleet, later 3 way model. [Mr Pfirter] is getting that together now and will send it off tonight. I will pull out the formal trail - engagement letter, T & C, Assumptions documents, lodgement authority and then look at your additional thoughts below. Mark 99 About an hour after that, at 6:24pm on 21 August 2014, Mr Pfirter emailed to Messrs Stewart, Schonberg and Burton as follows: Ian Please find attached the following documents Tender analysis Option D (option chose (sic) for submission) Tender Analysis Option d v2.0 (including cash flow analysis in a tab called "P&L and cash" Tool 2 Option D Transfer in contract buses- Monthly lease payments Transfer in contract buses - Price In very simple terms, I think we are short by some $660k per year for Capital, partially compensated by revenue coming from an advertising contract worth $250k a year and savings identified by Joe while doing the cash flow of around [$]50k a year. Appreciated [sic] if we can chat in the morning to discuss Thanks Emilio 100 At 6:46pm on 21 August 2014 Mr Burton emailed Messrs Stewart, Schonberg and Pfirter as follows: Dear All Attached are: • Our formal engagement letter, signed by client; • Key Financial Assumptions (not signed by client). Relevant references to fleet are at 4.1 on page 10 and in the tender analysis on page 23. Note after a search of emails we have not located a signed copy. For the avoidance of doubt, the item "Tender Analysis - Option dv2.0" included in [Mr Pfirter's] email is a document created by him today. "Tender Analysis - Option D" is the original document upon which the bid was based. We'll move on to Ian's other thoughts now. (Emphasis added.) 101 Mr Stewart did not include this email in his witness statement, an omission which, for reasons that become clear, must have been deliberate. 102 At 7:55pm on 21 August 2014 Mr Burton wrote an email to Mr Stewart, copied to Mr Schonberg and Mr Pfirter, which was a response to Mr Stuart's email sent at 4:38pm that day, as follows: Hello Ian 1. I've had a look at the 3 way. It reconciles to the bid down to the EBITDA line only. Below that, the 3 way has the correct fleet outflows for all buses unlike the Bid which did not. 1(a) there had to be some good news: Bear in mind that the 3 way does not show a possible win if he transferred buses from his other operations instead of buying 14 new ones on 1/7/14. The opening average age leaves capacity for him to do this; it was only 8.69yrs. Further, the 3 way overstates the cash outflow for transfer in buses by 17k/month. 2. Yes, that sounds like Joe. In fact I can recall in 1 of the other regions (3?) that he said a target of $3.50 was appropriate. 3. Already distribute. No signed record in [Mr Pfirter's] emails or on file but we will try to access Lucas' emails through IT tomorrow in case it went only to him (he sent it to the client). 4. We do not know what Jo[e] [Calabro] actually did. The bid included 14 new buses at $414k marked as TBA. Knowing Jo[e], it is likely I think that he would have transferred some across from [region] 2 and made a further saving. Regards Mark 103 On 25 August 2014, Mr Pfirter wrote an email to Mr Stewart, copied to Mr Burton and Mr Schonberg attaching the 3 way model. The email continued as follows: Also, below I calculated the impact of the error in the transferor in buses payments on a per kilometre basis (around $0.10): Monthly ACTUAL payment to Westpac for Transfer-in vehicles: $222k Payment calculated in the BID for Transfer in vehicles: $167k Difference: $55K Number of Kiometres (sic) in the Bid: 6,019,599 Impact per kilometre $0.10 Cheers 104 At 11:21am on 22 August 2014 Mr Pfirter wrote an email to Mr Stewart, copied to Mr Schonberg and Mr Burton, with the subject line "Region 15 - I think I found something good". The email continued: Ian, Stephen I think I found something positive that might help close the gap even a bit further. If you remember the fleet was made up of: • Transfer in buses • 14 new buses (starting 01/07/2014) • Replacement buses (coming at a later stage in the contract) • Own buses. For these last ones, we have included in Tool 2 (and therefore in the bid) notional amount of Finance for them (in order not to be 'free' to government), however, Joe had told me those buses were fully paid already… 105 Mr Burton, in an email that he sent immediately in response regarded the email about "closing the gap" as "excellent" news. 106 On 25 August 2014 Mr Pfirter sent an email to Mr Stewart and copied to Mr Schonberg telling them that he had over the weekend put together "a list of 'positive things' about region 15 which might 'open up any discussions with Joe [Calabro]'". The list was entitled "Positives related to Region 15" and provided as follows: • 3 way model includes a healthy bottom line Net profit after tax a. Year 1 4.3% b. Year 2 5.6% c. Year 3 6.0% d. Year 4 6.3% Contract profitability ramps up towards end of contract hence net profit should continue ramping up in the following years. • Cash as per 3 way also ramps up well as follow: a. FY End Year 1 $1.75m b. FY End Year 2 $1.09m (decrease is mainly result of pmt Def Tax Liability on Dec 15 by $1.3m) c. FY End Year 3 $1.74m d. FY End Year 4 $2.31m Contract profitability ramps up towards end of contract hence no cash issues should be expected in the following years. • We have included in the bid $1.6m across all years of the contract regarding capital payments for buses which were fully financed at the start of the contract. This was a 'cost' in the bid but not actual cost for the operator. • A healthy Depot Rent of $1.05m per year for the length of the contract was included in the bid. The construction of the new depot + land shouldn't cost Joe $9.5m to build ($1.5m x 9 years). • Management Wages of $600k per annum for the length of the contract were incorporated into the bid. This is $300 per year for each Joe and his brother. This represents approximately $5.4m in total for the term of the contract. • On top of the Contract price, the operator signed a contract for advertising for the length of the contract for an amount of $250k per year. • The bid included extra $40 per year given a 'double up' of counting depreciation for other assets twice (under OH Costs first and then separately under depreciation again). Impact for the total length of the contract is $360k. • We have incorporated in the model 14 brand new buses to be brought into the fleet on the 01/07/2014. If these buses were transferred from another of Joe's operations (Region 2 or Wagga Wagga) that unlocks more cash. Client advised likely they would instead use his own buses hence cash outflow overstated. • For the existing transfer in buses (56 in total out of which 4 are self-funded) re-financing could be investigated to achieve better rate and terms. • Four bid options were presented with different fleet structures and the lowest (cheapest) one was chosen given the operator was chasing a bottom line 'all in' price rather than anything else. The options (all in cost + cap + margin) were as following: a. Option A 4.16 per km b. Option B 4.13 per km c. Option C 4.12 per km d. Option D 4.06 per km 107 Mr Stewart had returned to Melbourne by Monday, 25 August 2014. By this stage he had become a consultant and was working from home. Around midday he sent an email to Messrs Pfirter, Schonberg and Burton, responding to Mr Pfirter's "I think I found something good" email as follows: Good morning I have now had a chance to look at this properly - impossible on an iPad. My conclusion is that yes, there is a problem with the capital component of the bid but the cash flow analysis correctly identified the outgoing necessary so no-one was in any misunderstanding as to what the cash outcome of the bid was going to be. Given that we were chasing a price and crosschecking that to cash outcomes I doubt that any different bid price would have been submitted. In some respects having the funds outside capital is better because it is subject to indexation. Emilio's work below was also understood at the time from recollection. The 3 ways shows the contract to be profitable and cash flow positive. What could have been done better at the time was understanding the difference in the cash inputs for transfer in buses versus the outputs. Looks obvious in hindsight but again I would say that I doubt the bid price would have changed much. The other hollow log here is depot rent. The rent in the bid and the 3 way is an internal charge. Let me know if you want me to do anything more. Ian 108 Before resuming the recitation of the chronology of the internal correspondence that ensued upon receipt of Mr Joseph's email, it is convenient to make two observations about Mr Stewart's email of 25 August 2014 in which he says that he has "now had a chance to look at this properly". First, Mr Stewart's assertion that the "cash flow analysis correctly identified the outgoing necessary" was, as he must then have known, false, because the impact of the error had been pointed out twice to him already (see, for example, paragraphs [99] and [103] above). Secondly, the references in the email to NBS "chasing a price" was a recurring refrain that continued to be used from that point onwards as a way of seeking to deflect responsibility, on the basis that, as Mr Stewart put it, he "doubt[ed] that any different bid price would have been submitted". 109 Mr Burton then responded to the other recipients of Mr Stewart's email and said: "I have spoken to Ian and he will call Joe today just to make sure Joe remembers the context of the price bid and to ensure that there is no ongoing issue". 110 During the course of the afternoon Mr Stewart had a telephone compensation with Mr Joe Calabro. Having done so he emailed Mr Schonberg, Mr Burton and Mr Pfirter in these terms: I have spoken to Joe. He started the conversation not a happy man but has mellowed as it went on. He wants to see the detail of what I am saying so I will send him the models and we will talk through them probably tomorrow. 111 Later that same afternoon (on 25 August 2014) Mr Stewart sent an email to Mr Pfirter, which attached Mr Pfirter's email sent on 21 August 2014 at 6:24pm (see paragraph [99] above), asking Mr Pfirter: "[w]hen we did the scenarios for Joe when he was pricing the bid, what did you use to forecast cash outcomes?" 112 About 20 minutes later, Mr Pfirter responded as follows: Ian I'm afraid scenarios were based on EBIT numbers rather than cash flow. Also, the tab called 'PL & Cash Flow' in the 'Tender Analysis - Option D' was not complete. That's strange because we usually check that with you and the client on the final meeting but in this case, don't know why it was not done. Said that, I did it last Friday in the document called 'Tender Analysis - Option Dv.2.0' with actual outflows to Westpac and the replacement fleet (including the $1.6m for the fully paid own fleet) and still shows very positive Cash. …. If I'm not clear fell [sic] free to call me Ian, I'm on my desk now. 113 Not long thereafter, at 5:32pm on 25 August 2014, Mr Stewart wrote an email to Mr Joe Calabro, attaching electronic versions of 3 documents, a "Comparison Option A to D.XLSX", a "Tender Analysis - Option Dv.2.0.xlsx", and a "NBS - PP Std Bus 3 Way Model 1.02.xlsm". For reasons that I will explain, a fundamental premise of the email was dishonest, something that Mr Stewart was compelled, albeit reluctantly, to accept in the course of his cross-examination. The email was in these terms: Hi Joe As discussed today here are the models of the [region 15] bid and the subsequent 3 way that was done for the bank. The first model to look at is the Comparison Option A to D. You will recall that in deciding which option to go with, we targeted a level of savings to Government. Total bus capital in that model was just under $3m in total. If you open the bid model (Tender Analysis - Option D) and go to the bid pricing tab you will see that the capital amount for transfer in buses is $2,007,172 which was based on a 15 year funding life as per the statement of assumptions. If you then go to the P&L and CF tab you will see that [Mr Pfirter] has inserted the cash outgoing for those vehicles at $2,666,583. My recollection of our meetings was that we went back and forth between estimated return, cash and savings to Government outputs in order to set the price. With the higher level of commitment, this still generated positive cash flow of $500k in the first year increasing to $900k plus once stamp duty had been paid and a higher margin on operating costs kicked in. This was after expensing $1m in depot rent and $600k in management wages shown in the Comparison model as return. In other words, while the bid amount includes a lesser amount of bus capital based on a 15 year funding, the actual cash forecast to come out of the contract looks reasonable because we flexed margin and operating costs to get to the target price. In the 3way (sic), there is an allowance for $3.5m of debt servicing in total per annum which I think reflects the higher commitment. Cash flow was shown to be tight but that had a lot to do with tax payments arising on the sale of the Region 2 fleet - we estimated $1.3 million. Have a look at it and give me a call … when you are ready. Ian 114 Mr Joe Barbaro replied by email a little over an hour later, saying that he would "look at it over next (sic) couple of days, and compare with Region 2 submission, to see which costs we loaded as per your discussion." 115 Senior counsel for NBS submitted that I should conclude that it was the "purest dishonesty" for Mr Stewart to represent to Mr Joe Calabro and NBS, as he did, that the document entitled "Tender Analysis - Option Dv.2.0.xlsx" had been prepared at the time, and for the purposes of, the tender bid, and that the bid pricing tab contained a capital amount for transfer in buses of $2,007,172 based on a 15 year funding life. This could not have been a mere slip, because Mr Stewart had, just a matter of hours earlier, been told by Mr Burton that that document had in fact been prepared that day. Ultimately, Mr Stewart agreed that the email was dishonest. It is necessary to set out at some length Mr Dawson's cross-examination of Mr Stewart about the email. It is a lengthy extract because, as with a lot of Mr Stewart's evidence about critical matters, he was reluctant to answer questions directly and to concede the obvious: Well, the message you were conveying to him was there's no legitimate complaint that [NBS] could raise as a result of the $660,000 shortfall; correct? Yes. Right. And you were demonstrating that to him, in part, by sending him the documents from the time? Yes. Now, you then explain the documents. The first model to look at is the Comparison Option A to D? Yes. Continuing: You will recall that in deciding which option to go with, we targeted a level of savings to government. Total bus capital in that model was just under 3 million in total. You're saying to him there, aren't you, consistently with what you had said on the phone to him, "We were targeting savings to government, which explains why the number wouldn't have changed, even if the numbers in the cashflow were more - were closer to the numbers in the bid"? That's correct. Right. And you then go on to say in the next paragraph: If you open the bid model - and this is the Tender Analysis Option D document? Yes. Continuing: …and go to the Bid Pricing tab, you will see that the capital amount for transferring busses is just over $2 million, which was based on a 15-year funding life as per the statement of assumptions. Do you see that? Yes. Now, by that stage, you knew, didn't you, that the wrong number had been put into Tool 2? Yes. You didn't tell him that, did you? I thought he understood that. You didn't tell him that, did you? No. In fact, what you're saying is we priced the revenue for the transfer-in buses in accordance with the assumptions we gave you? Yes. You agreed with me yesterday that that assumption in relation to fleet for the Region 15 contract, to the extent that it suggested that the VTP should be provided for over 15 years, was a wrong assumption? That's correct. And yet what you're telling Mr Calabro is there's nothing to see here because the way we treated revenue in respect of the transfer-in buses in the bid was entirely consistent with the assumptions we gave you at the time? Yes. That was terribly misleading, wasn't it, Mr Stewart? Yes. Yes. You then said - if you then go to the P&L and CF tab, you will see that Emilio has inserted the cash outgoing for those vehicles at 2.66 million? Yes. That was grossly dishonest of you to say that, wasn't it? I don't understand why. Really, Mr Stewart? Would you like a moment. Take all the time you need? I'm sorry, I don't see it. Is that an honest answer? Yes, it is. That was the very calculation that had not been completed in 2013, wasn't it? That's correct. And yet you are telling Mr Calabro what you knew to be untrue which is that Emilio had completed that tab? I disagree that he - in my email I use the language "has inserted", and what that meant was that it was done subsequently. Where do you say that, Mr Stewart? I don't say that, but that was my intent. You attached to this document version 2 of the tender analysis option D, didn't you? Yes. Yes. And you can see that if you turn the page - for the benefit of his Honour and our learned friends - the second last line on that page confirms the attachment as being option D version 2? Yes. And you knew when you sent this email to Mr Calabro, didn't you, Mr Stewart, that that was the updated document prepared in August 2014? Yes, I did. And you didn't send Mr Calabro the original of the tender analysis option D document, did you? No. And what you were representing to him was that Mr Pfirter had done the document and completed it at the time, that is, in May 2013? No, I deny that. Come on, Mr Stewart, you know, don't you, that this email was grossly dishonest? I disagree. Are you seriously saying that that sentence conveys to a person reading it that Mr Pfirter has only just updated it now? That was my intention in the use of those words, yes. You go on to say: My recollection of our meetings was that we went back and forth between estimated return, cash and savings, to government outputs in order to set the price. With the high level of commitment, this still generated a positive cashflow of half a million in the first year, increasing to 900 once stamp duty had been paid and a higher margin on operating costs kicked in. This was after expensing depot rent and management wages shown in the comparison model as return. And then you say: In other words, while the bid amount includes a lesser amount of bus capital based on a 15-year funding, the actual cash forecast to come out of the contract looked reasonable because we flexed margin and operating costs to get to the target price. In that final sentence, you're suggesting a deliberate flexing of "margin and operating costs to get to the target price"; correct? Yes. You're suggesting that the bid including a lesser amount of capital was known at the time? Yes. And that was untrue, wasn't it? No, sorry, I apologise. The reference to "lesser amount of bus capital" was - and the latter part of that where I say "while the bid amount did include a lesser amount of bus capital", I was pointing to the fact that the actual cash forecast and so on looked reasonable. And what you're referring to there is the actual cash forecast that you had drawn Mr Calabro's attention to in the second sentence. If you then go to the P&L and cashflow tab, you will see that Emilio has inserted the cash outgoing for those vehicles at 2.6 million? Yes. That's inconsistent, I agree. No, Mr Stewart, it's entirely consistent, isn't it? Those two sentences relate to each other, don't they? No, that was not my intention in describing the work. What you're saying to Mr Calabro is, go back, Joe. Go back and look at the documents from the time. You will see that, yes, the capital funding in the bid was $2 million. That was based on an assumption we gave you which you knew about ? Yes. … and the cashflow forecast we did at the time, in the P&L and CF tab, actually included the actual amount of the buses which was higher? Yes. And you're saying to him, so everyone knew this is what we were doing, this is how we did the numbers deliberately at the time; correct? In knowledge, yes. Pardon? In knowledge of information, is what I'm saying. Yes. Yes. And that was untrue, wasn't it? So far as the cash reference is concerned, yes, I agree. And you were trying to mislead Mr Calabro by giving him the updated document without telling him that it wasn't a document that was in existence at the time, weren't you? No, that was not my intent. Mr Stewart, please, what explanation do you have for sending Mr Calabro the version 2 of option D in the tender analysis without sending him the original version and without drawing to his attention that that was a document that had been completed just days before by Mr Pfirter? My recollection of the cash side of things was poor. Was what? Poor. You mean dishonest? No, it was poor at the time. You gave evidence yesterday, Mr Stewart, at page 355 of the transcript, line 29, that you admitted to Mr Calabro that there was an error in the calculations? I think I was referencing the meeting that we had. Well, you don't admit it here, do you? No. In fact, you do the opposite, don't you? Agree. Right. I'm going to give you another chance, Mr Stewart, to come clean with respect to you. You, by including Mr Pfirter's updated document in the email to Mr Calabro, behind tab 23, were attempting to mislead him about the work that had been done at the time? I would not describe it as misleading; I was trying to give him assurance that it was still okay. But it was false assurance, wasn't it? It would appear so, yes. And you knew that at the time, didn't you? No. Mr Stewart, you had been told by Mr Pfirter, one hour and 30 minutes before you sent this email to Mr Calabro, in the email behind tab 22, that the option D version 2 document was something that Mr Pfirter had prepared last Friday - that is, on 22 August 2014 - with the actual cashflows on the back of him telling you that it hadn't been done at the time. You were told that an hour and a half before you sent your email to Mr Calabro; correct? It would appear so, yes. Well, it would appear so. You were, weren't you? Yes. And that was in response to a direct inquiry from you? Yes. And, indeed, you had known from Mr Pfirter's email to you behind tab 7 that the option D version 2 document was a new document, as you agreed earlier; correct? Yes. You also had that specifically clarified if it needed it by Mr Burton in the email [sent at 6:46pm on 21 August 2014 above] where he says for the avoidance of doubt, the version 2 document is a document created by him today? Yes. You said to me earlier that you agreed that that reflected your understanding of the document at the time? Yes. And that is the document you end up sending to Mr Calabro to give him assurances, you describe it, that everything was okay? Yes. You accept, don't you, that you were deliberately misleading Mr Calabro about the extent of the work that had been done in May 2013? Not deliberately. You accept you misled him? Yes. You accept you misled him grossly? I accept that he has been misled, yes. As a direct result of your email and its contents and the documents attached to it? Yes. And you don't say to him, do you, in that email, "We didn't do the work at the time, Joe, as the original version of the document shows. Remember, I raised that with you and you instructed me not to do that work, but we've updated the document to show what we would have done at the time if you hadn't given me those instructions to change our retainer and it shows the difference"? I didn't say that, no. No, nothing like it, did you? No. And isn't that exactly what you would have said to him if you had really had that conversation with him about not conducting the quality assurance review? I don't agree because it was not something that was in my mind at the time. Now, Mr Stewart… you will see that the email you get back from Mr Calabro at 6.41 that evening [see [114] above] - namely, an hour and nine minutes or so later - Mr Calabro thanks you for the information and the documents and says he will have a look at it over the next couple of days and compare it with the region 2 submission to see which costs will be loaded as per your discussion. You see that? Yes, I do. …. And Mr Calabro records, doesn't he, a conversation between you and him in which you said, "Don't you remember, Joe, we loaded up a whole lot of costs in the region 15 contract. There's fat in there."? Yes. And Mr Calabro is saying to you, "Well, if that's what you say, Ian, I will go and have a look at it." Correct? Yes, he is. And you weren't surprised, were you, that he trusted what you had said to him about that? No. And, indeed, you wanted him to accept what you were telling him about region 15, didn't you? Yes. And you wanted him to accept that there was no problem notwithstanding that you knew about the error; correct? Correct. You wanted the problem to go away, didn't you? Yes. And you didn't want it to be an issue for the firm, did you? No. And you didn't want it to be an issue for you personally, did you? No. And what you wanted to do was to make the client accept that there was no reason for them to complain; correct? Yes. But you knew at this time, didn't you, that there was a very good reason for them to complain? Not that they were unaware of the issue. I beg your pardon? What I'm trying to say is that this was something which, again, I felt there was no consequence of. But when you say no - I'm sorry, I didn't mean to cut you off? As we have discussed, I felt, yes, there is an error, but at the time I believe that there was not a consequence, a significant consequence of it. By that you mean, don't you, that savings had been made elsewhere? That's right. But you accept, don't you, that absent the error those savings would have represented more profit to [NBS] in operating the region 15 contract? Had they won the contract, yes. Well, they had by now. They were running it, weren't they? They had won it, yes. And they were running the contract. They were running the routes, weren't they? Yes. (Emphasis added.) 116 Later in the day, Mr Dawson returned to the topic of the email, cross-examining Mr Stewart as follows: And that was the document you sent to Mr Calabro at 5.32 on Monday, 25 August. That is, the email behind tab 23? Yes. And with the benefit of the lunch hour, Mr Stewart, you, I take it, have thought about that email, haven't you? Yes. And you've reflected on it, haven't you? Yes. And you accept, don't you, that you were attempting to mislead Mr Calabro about the work that had been done in May 2013? I think that that email was poorly drafted and is misleading, yes. But it was - being totally honest about it now, Mr Stewart, it was deliberate, wasn't it? No. I don't think I had any deliberate intent in doing that. As you say, I have reflected on it, and I can see that it is misleading. Yes, I agree with that. But what I'm suggesting to you is that you were trying to get Mr Calabro to believe that all the numbers have been properly put together at the time to make the problem go away. That's what you were doing, isn't it? Yes, I was attempting to explain our position. Yes, that's right. HIS HONOUR: I'm not sure that really is responsive, Mr Stewart. MR DAWSON: No? I'm sorry. Mr Stewart, let me be plain with you. I'm really giving you the opportunity, having had the lunch hour to reflect on this, to admit what I'm putting to you, which is that when you go back to that email and look at it now, and having had the opportunity to reflect, you accept, don't you, that regrettable though it may be, you were trying to mislead Mr Calabro? I'm not sure about the deliberate intent to do so. I acknowledge that there are elements of that that was - that are misleading. That absolutely is the case. I don't believe that I was deliberate in my attempt to mislead him. Yes, at the time I wrote it, I don't think that was in my mind. You were certainly deliberately not telling him the whole story. You would agree with that, wouldn't you? Yes. Yes. And doesn't that mean that you were deliberately trying to mislead him, at least in some way? In part, yes, I agree with that. And, Mr Stewart, is this a fair summary of what has happened here: that in February/March of 2014 you discovered the error with the bid? I deny that. And you had two choices. One was to put the numbers together in a way that didn't reveal the error and to keep it from Mr Calabro and his brother. The other was to be upfront about it then and there and try to deal with it as best you could? Absolutely. And you chose the first option instead of the second - that is, not to disclose it and to hope that it was never uncovered, instead of choosing to disclose it and trying to do something about it. And when Mr Joseph discovered it in August of 2014 you felt trapped and couldn't tell the truth because you knew it would reveal that you must have found the error earlier than August 2014. And as a result, you've had to lie ever since to cover up the reality that you found the error in February/March of 2014. Is that really what's happening here? No, it is not. I deny that. (Emphasis added.) 117 On 25 August 2014 at 6:27pm Mr Joseph wrote an email to Mr Joe Calabro as follows: Hi Joe I managed to do some work based on some of the Pitcher stuff you had sent me yesterday. Please have a look and we can discuss. On first glance at this I cannot justify what Ian is saying - provided the data I have used is right. … Regards Nishan 118 Mr Stewart met with Mr Joe Calabro on 27 August 2014. He made some notes before the meeting, which were, in essence, talking points of things that Mr Stewart intended to say and did say to Mr Calabro at that meeting. He then also made some notes of what occurred at the meeting. The pre-meeting notes were as follows: Region 15 thoughts Known each other a very long time What can we do to help? Yes it looks like an error but does it have a consequence? Reality is the total contract price wouldn't have differed much Possibly better off because elements are subject to indexation Cash outflow was known at the time - no-one queried the difference Contract should stand in its own $1.4m margin or $4.5m EBITDA What else has not gone to expectation? 119 The notes that Mr Stewart made recording a summary of discussions at the meeting were as follows: Emilio has spilled his guts Reality is they still have a profitable contract - not as profitable as they would like Nishan no help - adding fuel to the fire Legal action not mentioned at all Joe going to talk to his brother Indicated further cost cuts possible Spend on depot about $10m total Denies chasing a price Denies awareness of outgoing - not an accountant - convenient Tried hard to keep displeasure but left on amicable terms, dropped off at the airport 120 Counsel for NBS cross-examined Mr Stewart on these notes as follows: No. Now, after the meeting you made some notes on your phone on your way back to Melbourne. Is that right? Yes. And you record, first of all, that "Emilio has spilled his guts"? Yes. That's a criticism of Mr Pfirter, isn't it, for being what you thought was too open with [NBS]? Yes. Too open? Not - not open. I think the reference was more to the fact that he had accepted full responsibility for the error, whereas at that time I did not know how it had happened and whether it had a consequence. But you did know how it had happened, Mr Stewart, because you had instructed Mr Pfirter the day before to redo Tool 2? No, I - I think the - the way it actually happened was - it only really became an awareness of mine about a year ago, as we discussed yesterday, in that the true error I believe was through incorrectly inputting into the purchase cost column values that were not appropriate for that purpose. And I think that is the actual error and how it happened. At this point in time, I did not know how it happened and nor - well, I don't know whether - I can't speak for Emilio. … You knew very well what the financial impact of that error was. Correct? Yes. And you knew that it was a Tool 2 problem. Correct? Yes. And whatever the precise nature - even if one accepts what you say about not knowing exactly how it had happened or what had happened - you knew, didn't you, that it was a data entry issue at the hands of someone at Pitcher Partners? I agree with it up until the last few words because I - I agree that it's a data entry error, but at that point in time I didn't know whose error it was, who made the error. I - But you knew it somebody at Pitcher Partners, didn't you? No, I did not at that time. Who did you think it might be? Mr Calabro? Well, as our practice was to provide Tool 2 to the client to actually complete their data entry, there was that possibility, yes. But if Mr Pfirter was taking responsibility for it, Mr Stewart, that would have been enough, wouldn't it, to tell you that he had entered the data? It didn't tell me that at the time. Did you ask him? No. And that's because you knew that it was him who had entered the data from your discussions with him in February/March 2014. Correct? No, we didn't have conversations about this particular issue as I had left the firm. Should his Honour take your explanation at 229 of your affidavit as to why you recorded, "Emilio has spilled his guts" as inaccurate, Mr Stewart, because, again, you are saying that you did not think that the error, if made, was an error of consequence? I think I would reword that to say "if made by us" if I could make - Well, you've just introduced an entirely new concept into your evidence, haven't you? The possibility that someone from [NBS] populated Tool 2 with the wrong numbers, such that the responsibility for the error could be laid at [NBS]'s door more than at Pitcher Partners door? Or shared. It's entirely new as a theory of how the error occurred, isn't it, Mr Stewart? When you say it's new - Well, where is it in your affidavit? Where do you say in your affidavit there's a 30 possibility that - and I was also conscious of this, that [NBS] populated the tool? I make reference in my affidavit to a model that was sourced from [NBS] which had the fleet details in it, however, I made no allegation in relation to it. No, you didn't, did you, because you know it's not true, don't you? At the time. I have since understood that the data was entered directly from that spreadsheet that had its source from [NBS] into Tool 2 by Pitcher Partners staff that I had become aware of more recently. Right. And you became aware of that at the time that you did your affidavit. Correct? Yes. Right. So that is why you don't suggest in your affidavit that [NBS] entered the data into Tool 2. Correct? Sorry. I withdraw that earlier affirmative comment. That is information that came to me after I had signed my affidavit. I apologise, your Honour. … Well, leaving that matter to one side, Mr Stewart, the reference, "Emilio has spilled his guts" is a pretty nasty way of describing Emilio and his interactions with a client, isn't it? I regret the use of those words, yes. But you agree with my characterisation, don't you? Yes, I do. Emilio, by doing that, was making it very hard for you to put the fire out, as it were? Yes. The next line is "The reality is that they still have a profitable contract, not as profitable as they would like." That recorded, didn't it, what you had told them? Namely, "Look, you're still making a profit, just not as much as you wanted to." Correct? Yes. You then say: "Nishan no help. Adding fuel to the fire." Yes. That again is a pretty unfair way, isn't it, to describe Mr Joseph doing his job as general manager, trying to work out why the company had a cashflow problem? I was not intending to be disparaging of him. Well, you're criticising him there, aren't you, saying, "Well, he's not helping resolve the situation." Correct? Yes. And what you meant by that he wasn't buying what you were telling him. Correct? He was not prepared to countenance broader issues other than the simple error, yes. What you mean by that is he didn't see you saying to him, "Look, you've got profit and you can make savings elsewhere and, in fact, you've had a windfall in the advertising contract. Stop complaining about the overall impact on this contract because you're still doing pretty well." You're complaining that he wasn't accepting that line. Correct? Yes. And you were frustrated by the fact that he was saying, "But what has that got to do with it? We're still $660,000 short of where we thought we would be"? Yes. 121 On 26 August 2014 Mr Stewart wrote to Mr Pfirter as follows: Can you please re do the fleet module for [region] 15 and work out the correct capital funding figure for the transfer in buses. That is, the funding life should be a maximum of 15 years. Can I have that ASAP please? Ian 122 On 26 August 2014 Mr Pfirter wrote an email to Mr Stewart as follows: Hi Ian I hope this is what we need. I saved this document as "Tool 2 - Option Dv2.0" in order not to modify the original. Existing Fleet Tab: Previously calculation for transfer in buses was done with one hundred and eighty months in rows AT to BA (4th alternative funding NVTP). This NVTP columns (sic) were intended to be for new vehicles or existing vehicles but never transfer in. Now the transfer in are in column AK to AS (3rd alternative of funding-PMT market value) and all relevant columns have been highlighted in orange. You'll see that I populated the following: • Market value = Transfer in price • Residual = 0% (This might not be the actual arrangement with Westpac) • Period = This was always the issue. Now rather than 180 months I took the remaining life (180 minus whatever term is already behind) • Interest Rate: is the one defined for the purpose of this model 6.75% (this might differ from the one arranged with Westpac) Fleet Summary Tab: You can see here column O now with the 'remaining'. Rather than the full 180 months and the monthly payment in column S (total of $219k for the transfer in vehicles). Any difference with the actual payment to Westpac might being (sic) cause by different interest rates or balloon payment etc but surely NOT because a different (sic) in the remaining term of the finance. Table 1C Moving now to table 1C (Transfer in Buses) you will see highlighted column G for a total payment of $2.6m a year rather than $2m. Comparison for payments (sic) 9 years of the contract: Total Payment Tool 2 Option D-Original $17.7m Total Payment Tool 2 Option D-V .2 .0 $23.1m Total as per Westpac $22.7m I hope this helps, otherwise just let me know or call me. Cheers. (Emphasis added.) 123 Mr Stewart replied to Mr Pfirter's email within a matter of minutes as follows: Ok thanks. I was hoping that it might have produced a lower number but it seems that busways did a good job of matching revenue and outgoings. 124 I will return later in these reasons to the question of what Mr Stewart knew, and when he knew it, but it is useful here to record what counsel for NBS submitted in closing submissions (and which for reasons I later explain I accept) was the significance of Mr Pfirter's email: Now, your Honour, that's the end of it. Mr Stewart, his head out of February, March 2014 time period, he's dealing with August 2014 and he has let his guard down or perhaps just given up, I don't know. But what he does is to admit not just in one question but in two that that's what they were talking about in February, March. Which means they discussed version 4 and version 5. Mr Stewart realised that 180 months was being used instead of nine years and that was creating an issue with the cash flow and that, on his evidence, if he had done that, he would have understood that there was a cash flow and a revenue problem and the error would have been leaping off the page. So there just - it is an extraordinary set of evidence, your Honour, because it leaves it really in no doubt that Mr Stewart, out of his own mouth, was across these documents in February, March. That's why he had the conversation. That's why he has this exchange with Mr Stewart about, "This was always the issue" - with Mr Pfirter, I should say, "This was always the issue." He had been - he was - he went through it all and he understood exactly what the problem was. Mr Pfirter didn't see the significance but Mr Stewart did. And there can't be any doubt about the fact that he did because that's why I was so careful to get out of him in cross-examination, "If you had had the conversations I'm putting to you, Mr Stewart, you would have seen the error, wouldn't you?" 125 The same email provides another useful explanation of the amortisation error. In it, Mr Pfirter steps Mr Stewart through the relevant tabs of the two electronic "tool" documents. The first sum of $17.7m is the amount of money that Tool 2 calculated in March 2014 as being the amount of money available from the government to finance the transfer-in buses. The figure of $23.1m revealed in Tool 2 Option D-V2 .0, which, as I have explained above, was prepared in the preceding days by Mr Pfirter, is the funding in fact available from the government. The "Total as per Westpac" of $22.7m is the actual cost to NBS of the finance it obtained from Westpac. In other words, Mr Pfirter confirmed with Mr Stewart that there was a discrepancy in excess of $600,000 per year. 126 It was put to Mr Stewart in cross-examination, and I accept, that when Mr Pfirter said to Mr Stewart in that email "Period = This was always the issue. Now rather than 180 months I took the remaining life (180 minus whatever term is already behind)" Mr Pfirter could only have been referring to previous discussions that he had had with Mr Stewart about the amortisation error and that he was referring in particular to conversations that he had had with Mr Stewart at the time that versions 4 and 5 of the modelling had been carried out in late February/early March 2014. 127 Mr Dawson cross-examined Mr Stewart about this email as follows: …The reference: "I saved this document as Tool 2, option D, version 2 in order not to modify the original" is Mr Pfirter taking the same approach to the Tool 2 document as he had to the tender analysis document, that is, he's creating a new version now and calling it version 2? Yes. And then he tells you various things about the tabs in the Excel spreadsheet - that is, the Tool 2 Excel spreadsheet - tabs with which we're now familiar having looked at them on the screen several times in these proceedings; namely, Existing Fleet tab; correct? Yes. And, over the page, Fleet Summary tab; correct? Yes. And then table 1(c). You see that? Yes. And then he has done a comparison at the end of the email for payments over nine years of the contract and he says that under the original version of Tool 2 the payments totalled 17.7 million? Yes. That is the money being sought from the government by way of revenue, yes? Yes. And then the total payment, Tool 2, option D, version 2 - ie, the tool populated correctly - showed that what should have been claimed from government was 23.1 million. You see that? Yes. And then he says: "Total as per Westpac, 22.7 million." You see that? Yes. In other words, that's the actual cost of the finance over the contract? That's right. And what he's doing is demonstrating what was done and what should have been done in revenue claimed from the government and presenting the Westpac figure so that each of those figures could be contrasted to the actual finance costs of the 52 transfer-in buses from Busways? Yes. And you can see that if it had been done correctly at the time, there would have been, as you anticipated there should be, a discrepancy between the revenue from the government in respect of those buses and the actual costs of financing those buses? Correct. And the revenue in figure is higher than the actual cost of those buses over the life of the contract. Can you see that? Yes. And that accords with the evidence you gave when I was asking you some questions about it at the outset of your cross-examination, namely, that because the revenue in figure includes both the vehicle transfer payment, as well as the net present value of future lease payments, one would expect it to be slightly higher than the actual leasing costs which is only a portion of the vehicle termination payment? Yes. That's correct, isn't it? Yes. So going through the email, Mr Pfirter says to you under Existing Fleet tab "Previously, calculation for transfer-in buses was done with 180 months in rows AT to BA, fourth alternative funding NVTP."NVTP stands for what? New vehicle termination payment. Thank you. And he says: "This column - or these columns - were intended to be for new vehicles or existing vehicles, but never transfer-in." That's a pretty clear statement of the error in Tool 2 as it was populated in May 2013, isn't it? Yes, it is his view, yes. Pardon? It is his view, yes. Well, when you say, "It is his view," he's acknowledging in this email, isn't he, that the previous calculation was done for transfer-in buses but treating them as new buses? Yes. In other words, using the VTP not the original purchase price in Tool 2? Yes. Well, that's where I do have a difference of view. HIS HONOUR: The question was, "Is it a clear statement"? It is a clear statement, yes. MR DAWSON: Right. And you say you have a different view? Yes. Would you like to explain that? My view is that the model was built in such a way that you could use it for transferring vehicles if you knew or had a proxy for the original purchase cost. Sorry? You could use the VTP as a proxy for the original purchase cost? You could use the model - because what Emilio is saying here is that this NVTP columns were intended to be for new vehicles or existing vehicles, but never transfer-in. That is what I am taking issue with. I don't agree with - with that comment. Are you saying that you can manipulate Tool 2 so that it can deal with using the VTP and still produce the correct number? Well, you only need to - you don't need to manipulate it. You only need to enter into the purchase cost column either the - the actual purchase cost of the bus or a proxy for it, and the - and the model works perfectly well. But are you talking about what you did when you redid Tool 2 for the purpose of your affidavit where you used 420,000 for each bus? That's correct. Right. In other words, you and Mr Pfirter aren't really disagreeing here, are you? He's saying that the Tool 2 spreadsheet depended upon putting in the original purchase cost of the bus? I don't think he's - that's what he's saying. I think - I think what he is saying in that second sentence is these columns were intended to be for new vehicles or existing vehicles, but never transfer-in. I see. And what you are- ? That's what I'm taking issue with. What you're saying is you can use Tool 2 for new vehicles, existing vehicles and transfer-in vehicles because the tool has the flexibility to calculate the correct funding figure for each of those categories of bus? That is correct. And you say that because if you put in the original purchase price, the tool is also populated with how old the bus is, for example? Yes. … and that will ensure that the tool produces the number that the operator is entitled to get from the government over the life of a contract because the tool will calculate, by reference to the original purchase price of the contract, what revenue over 15 years is available from government? That's correct. Right. Now, he then says: "Now, the transfer-in are column AK to AS, a third alternative of funding payment, market value, and all relevant columns have been highlighted in orange. You will see that I have populated the following." So he's taking you through, isn't he, the existing fleet tab and what changes he has made? Yes. And you understood that when you were reading this at the time? Yes. He says market value he has put in as the transfer-in price? Yes. And residual, zero. This might not be the actual arrangement with Westpac, he notes? Yes. In other words, the leases might have a residual of 10 or 20 per cent or something, not zero. Correct? Yes. And then he says "period". That's a reference to the period of 180 months that was in Tool 2. Correct? Yes. And he says: "This was always the issue."? Yes. See that? Yes. And you understood that what Mr Pfirter was saying to you was, "Remember this was the problem we identified in February and March of 2014"? Yes. And what he's saying is, "Remember that's what prompted the change between version 4 and version 5 when we adjusted the 180 months in the 3-way cashflow back to nine years"? Yes. And he says: "Now, rather than 180 months, I took the remaining life, 180 minus whatever term is already behind." See that? Yes. And at the time you read that, what you understood Mr Pfirter had done was to manipulate Tool 2 in the way that I was discussing with you yesterday, that is, instead of changing the purchase cost column to the original purchase price, you leave the VTP in there, but you adjust the period? Yes. That is, adjust it to the period of the contract? Yes. And he notes that it's 180 months minus whatever term is already behind and that's how you achieve the remaining life of that bus using the VTP? Yes. And that ensures that if the bus is not going to reach 15 years by the end of the contract, you've nonetheless got the full funding from the government in the nine years that you're operating it. Correct? Yes, that's right. And it would also ensure that if the bus does reach 15 years by the end of - in the time that you're running a contract, you've got the remaining money available from the government in respect of that bus for the remainder of its 15-year life? So I - I think we're in agreement, yes. Yes. I may have put that clumsily. What I'm saying is if you adjust the term as Mr Pfirter is doing there and the bus reaches 15 years, in the nine years that [NBS] is operating the contract - let's say the bus is 10 years old and there are five years left - adjusting Tool 2 in this way ensures that you get the full amount of funding that is available over those five years from the government? Yes, that's right. 128 On 26 August 2014 Mr Stewart emailed Mr Schonberg, Mr Burton and Mr Pfirter informing them that he was going to meet Mr Joe Calabro and Mr Joseph the next afternoon in Sydney and that he would let them know "how we go". Mr Schonberg wished Mr Stewart "good luck" in his reply of the same day. 129 Mr Joseph prepared a file note of that meeting. It reads as follows: • Ian was well aware of the matter to be discussed, and did mention that Emilo Pfirter had contacted him in this regard • The matter was recapped by Joe and Nishan • It was mentioned that while previously on the phone Ian had said that the under-costing on fleet was made up by adding the difference on to some other costs, this was not the case (we checked and found no such padding in the other expense categories), which he did not concur with or emphasise again. • He did immediately mention that the objective at the time had been to go low on the Region 15 tender bid, • To which Joe said, "yes, while that is the case, we did not intend to go below cost on any item; neither was it brought to our attention that that would be the case" • Also Joe mentioned "why would we go so hard on region 15 and not do the same on region 2, which is the region we really wanted …" • Ian also did mention that he should have drilled in further on the funding model and the capital payments, • But that he was rushed for time, given that there was only roughly 2 weeks to do the region 15 tender, and he couldn't go into too much detail • Joe voiced his concern that he would not have agreed to a margins such as what we are looking at now, with such a drop in the capital return on the buses • But Ian always kept going back to the subject that there was a positive cash flow in the model, with at least $1million per year over time, • To which Joe countered that even $1 million return on a total investment of $25 million is very poor; • And that they would not do business at such a low return, preferring may be to put the money in the bank to earn a similar margin at little risk • To which Ian really had no answer to give, other than to reiterate that "well, there is cash flow …" • Further he did not have a resolute and supporting out the full reasoning behind the actions to under-cost the fleet • In the journey back to the car park, Ian mentioned that Emilio is very distraught on this matter 130 On 29 August 2014 Mr Pfirter sent Mr Stewart an email asking him how the meeting had gone with Mr Calabro and Mr Joseph. Mr Stewart replied: "Well it was never going to be good and it wasn't. Nothing to do from here". 131 On 3 September 2014 Mr Pfirter confirmed with Mr Stewart that the total fees invoiced by Pitcher Partners for the region 15 work were $41,793, net of GST. 132 On 10 September 2014 Mr Pfirter wrote to Mr Stewart as follows: Hi Ian, I don't know where we landed in terms of relationship with Joe [Calabro]. I haven't had any contact since the incident. Is it ok for me to [forward] him the Tool 2 (Option D)? (I want to be sure I am not doing the wrong thing by doing so) Cheers Emilio 133 Mr Stewart responded the same day telling Mr Pfirter that he thought it was "best that you make no further contact without [Mr Schonberg's] approval - at least until things settle down. I know you mean well but there are times when communication needs to be controlled". 134 Mr Pfirter responded to Mr Stewart email, telling him that he "totally agree[d]", adding "[w]hat … Should I do though [?] I cannot not answer Nishan. You want (sic) I follow this up with Stephen then?" 135 On 21 October 2014 Mr Pfirter wrote to Mr Schonberg asking him whether NBS should be billed for the cost of Mr Stewart "travelling to Sydney to fix the problem caused by our mistake in these guys (sic) capital cost calculation". The email continued: Ian asked me not to get in contact or communicate with them until the situation is less sensitive in order to avoid any possible further actions from them. I imagine if we send an invoice for $4.7k they won't be happy plus, we have invoiced these guys in the vicinity of $200k … for the job we did last year for both of his regions. Happy to ask Ian if he wants to invoice it but from my point of view it's quite sensitive client to do so and prefer to write it off. What are your thoughts? 136 Mr Schonberg responded later the same day in these terms: "This is a no-brainer - no way will we charge them so please write off in full".

Efforts by respondents to deflect blame to NBS 137 As is apparent from these various exchanges and from the record of the meeting that was held in Sydney between Messrs Stewart, Joseph and Calabro, from the very first time that Mr Joseph raised the capital shortfall question, Mr Stewart, in particular, made attempts to persuade NBS that no real harm was done, or that fault lay with NBS, because: (1) the region 15 contract was still operating at a profit; (2) Pitcher Partners had spent 6 to 8 weeks working on the region to bid pricing but only 2 weeks on the region 15 bid pricing; (3) Pitcher Partners had applied a "buffer" to other projected costs; (4) NBS declined an offer that Pitcher Partners carry out a QA review; and (5) NBS had insisted on aggressively pricing the tender bid. 138 Many of these lines of "defence" were echoed in the witness statements filed on behalf of the respondents and, to a lesser extent, in the respondents' defences, although by the time of closing submissions they were not relied on, and I take them to have been abandoned. That is hardly surprising, because the first and second lines of defence were irrelevant. The third, fourth and fifth were simply untrue.

NBS is "still making a profit": irrelevant 139 I should, however, deal with the notion that was bandied about by Pitcher Partners, including at the trial of this proceeding, that NBS has not suffered, and does not continue to suffer, a recoverable loss in respect of the amortisation error because it is "still making a profit" running the buses in region 15. A number of times during the course of his opening submissions and during the course of the hearing, senior counsel for the respondents made reference to this notion. In their supplementary written closing submissions, counsel made clear that their submission is that because NBS is "still making a profit" it has not suffered recoverable loss. The relevant submission in that regard was as follows: 2.4 [T]he respondents submit that, however framed (or reframed), NBS' claims for loss and damage are all reflexes of the following core elements: NBS has made a profit by reason of the Region 15 Contract; however, Had the alleged misconduct on the part of the Respondent's (sic) (or any of them) not occurred, NBS would have made a bigger profit; ... 2.8 NBS accepts that it is making a profit on the Region 15 Contract. That is, the expenses incurred in respect of the Region 15 Contract are being recouped together with a profit margin. NBS is not suffering any loss by performing the Region 15 Contract. 140 I do not accept that submission. As Simon Brown LJ said in Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] QB 488, 500 (Sedley LJ agreeing at 513): … there is no absolute rule requiring the person deceived to prove that the actual transaction into which he was induced to enter was itself loss-making. (Indeed that concept itself is an uncertain one: is a business which survives only by dint of the proprietor limiting himself to subsistence wages loss-making or profitable?) It will sometimes be possible, as it was here, to prove instead that a different and more favourable transaction (either with the defendant or with some third party) would have been entered into but for the fraud, and to measure and recover the plaintiff's loss on that basis. 141 See also Eggers, Deceit: The Lie of the Law, (Informa Law, London, 2009) at 8.16 ("… the representee may be adversely affected by the misrepresentation by having entered into the transaction on less advantageous terms than would have been the case, either with the defendant or third party, had no representation been made ('successful-transaction method')". 142 Counsel for the respondents asserted in their written closing submissions that I should accept Mr Stewart's evidence, as provided in his witness statement, that he did not know about the amortisation error until August 2014. However, by the time of oral closing submissions, counsel for the respondents had little to say about whether Mr Stewart dishonestly concealed from NBS the existence of the amortisation error from February/March 2014 onwards, which is hardly surprising because the evidence that he did (which I consider in detail below) is overwhelming. 143 The respondents did not acknowledge the existence of the amortisation error until April this year, when an amended defence was filed. That admission was, it may readily be inferred, a consequence of the very late discovery earlier this year by the respondents of a number of emails from Mr Stewart's personal email account (which are included in the recitation of the many email exchanges above) which proved the error in the starkest of terms. The obstinate refusal even to confront and admit the fact of the error is something which, in light of that correspondence, and the obviousness of the error, reflects no credit on any of them.

How NBS puts its case 144 NBS says that it is entitled to an award of damages on its principal claim in the sum of $5,485,416; or on the claim for the opportunity loss of being able to engage in alternative ventures, $3,352,150, to be adjusted to reflect the date of the judgment. 145 In their closing written submissions, counsel for NBS summarised the substance of the primary case (which the respondents dubbed a "new case", but without objecting to it) as follows: The true position is that [NBS], having won the bid for and entered into the Region 15 Contract in August 2013, was induced by Pitcher Partners' representations in March 2014 to enter into novated leases with Westpac in respect of the transfer-in buses. It did so in reliance on Pitcher Partners' representations and, in doing so, altered its position to its detriment. The detriment is that it assumed a finance obligation having been misled by Pitcher Partners into believing that it had adequate funding in the Region 15 Contract for those financial obligations. … As Pitcher Partners now admits, by reason of [the amortisation error], and contrary to Pitcher Partners' representations, the transfer-in buses were significantly under-funded in the Region 15 Contract. When [NBS] committed to finance obligations in respect of the transfer-in buses, the consequence was, as Pitcher Partners themselves later calculated … "an annual effect" of $660,000. That is, [NBS] did not have funding for, and was therefore liable to meet from its own resources, an additional $660,000 in finance costs in each of the 9 years of the region 15 contract in respect of the transfer-in buses. As that calculation recognised, [NBS] was, at that point, locked into both the region 15 contract and the Westpac leases with that shortfall. That is [NBS's] loss. 146 NBS contends that it was not "locked in" to the region 15 contract until the bus leases were novated, and that once the Critical Transition Milestone within the meaning of the region 15 contract (see [52]-[53] supra) was reached, it was committed to providing the bus services starting on 1 June 2014. NBS contends that it is at that point that it altered its position to its detriment, and suffered a loss as a direct consequence, calculated by Mr Michael Potter, an expert accountant, as a loss in the sum of $5.485m. 147 Mr Potter's expertise and his evidence about the calculation of loss of profits were not challenged. The respondents instead ran their defences on the question of damages on the basis that NBS had not discharged its burden of proof on the question of causation, not quantum. 148 Mr Potter summarised his calculation of the summary of loss of profits at paragraph 2.10 of his report in Table 1. That table, and the explanation for it, is as follows: 2.10 I set out below my assessment of loss under each of the loss of profit scenarios: Table: 1 Summary of loss (Loss of profits) Description ($) Alternative useful life Alternative purchase price Past Loss (post tax) 1,765,940 1,679,091 Pre-judgment interest on Past Loss 190,047 178,322 Net present value of Future Loss (post tax) 1,883,804 1,777,933 Loss before tax 'gross up' 3,839,791 3,635,346 Tax gross up amount 1,645,625 1,558,006 Total loss 5,485,416 5,193,352

Source: Appendix 12, Loss of Profit Scenario Calculations, "Loss calculation" worksheets. 2.11 The calculations summarised at Table 1 have been derived based on making amendments to the useful life and purchase price assumptions embedded within the Pitcher Partners Tool 2 Model in order to estimate the 'correct' annual cost of the transfer-in buses (that is, had the 'correct' annual costs been included in the Tender Model). 2.12 The methodology and assumptions I have applied in calculating the aforementioned amounts is addressed in detail at paragraphs 4.14 to 4.29 of this report. 2.13 If any of the assumptions/amendments I have made to the Tool 2 Model were later found to inappropriate, then my calculations of loss would require amendment. 2.14 Furthermore, I note that a third possible loss of profit calculation exists which in effect disregards the Tool 2 Model and instead adopts the actual lease payments, as those payments appear in: 2.14.1 The Westpac Payment Schedules; 2.14.2 The CBA Payment Schedules; and 2.14.3 The schedule of monthly lease charges contained in the document attached at Annexure 16 of this report. 2.15 The lease payments summarised in the documents addressed immediately above contain lump-sum balloon payments that Busabout would have been required to make in various amounts commencing from October 2019 each year. 2.16 Based on the information made available to date, I am unable to determine whether or not TfNSW would have been required to compensate Busabout for these additional balloon payments in the months in which they were required to be made, but for the Amortisation Error. It is possible that an adjusted amount would have been calculated. Should further information become available suggesting that: 2.16.1 In calculating the annual cost of the 'transfer-in' busses, Pitcher Partners should have disregarded The Tool 2 Model and instead adopted the actual monthly lease payment amounts as disclosed in the documents addressed at paragraph 2.14; and 2.16.2 TfNSW would have compensated Busabout for the cost of balloon payments or other adjusted amounts in the months they were scheduled to occur, but for the Amortisation Error, then my calculations of Busabout's loss of profit as set out in this report would require amendment. Loss of Opportunity Scenario Limitations 2.17 My calculations of Busabout's Loss of Opportunity are based on a significant number of assumptions that I have been instructed to make and assumptions that have been necessary to develop on the basis of historical trading to date in order to forecast trading to the end of the Region 15 Contract in 30 June 2023, which I address in detail section 5 of my report. Many of these assumptions related to forecasting future cash flows subsequent to the date of this report, an exercise that is inherently subjective. Should any of the assumptions adopted in this section 5 of my report be found to be inappropriate then my calculations of Busabout's loss of opportunity may require amendment. (Footnotes omitted.) 149 NBS says that the respondents fraudulently concealed the amortisation error, engaged in fraudulent misrepresentation and are liable in deceit for the loss that is the direct result of the deceit ($5.485m). 150 NBS in the alternative makes loss of opportunity claims. 151 NBS's pleaded case was as follows: 17. Had the First Respondent performed the Agreement, or not otherwise breached the Agreement, such that, inter alia, the capital value of a "Transfer in Contract Bus" was correctly calculated by the First Respondent, then the Applicant would not have submitted the Region 15 Tender but would have submitted a tender at an increased contract price incorporating the correct capital value of each bus that was a "Transfer in Contract Bus" and incorporating a profit margin that would have been acceptable to the Applicant namely about 6-8% (Increased Region 15 Tender). 18. Had the Increased Region 15 Tender been successful then the Applicant would have made a profit on the Region 15 Contract of about 6-8%. 19. Had the Increased Region 15 Tender not been successful, then the Applicant would have utilised the funds expended in performance of the Region 15 Contract to invest in other investments with a higher rate of return for the applicant than the Region 15 Contract and/or otherwise at a profit of not less than about 6-8%. 20. Had the First Respondent performed the Second Agreement, or not otherwise breach the Second Agreement, such that the Applicant had been made aware of the incorrect amortisation that had been applied by the First Respondent in the performance of the tasks and services and/or otherwise had the Applicant been informed of the correct capital value of a "Transfer in Contract Bus" in the region 15 tender in the Applicant: (a) would have sought to vary the Region 15 Contract prior to the commencement of the bus services on 1 June 2014 so as to increase the contract price so that it would have made a profit on the Region 15 Contract of about 6-8%; (b) alternatively: (i) may not have fulfilled the conditions precedent prior to 1 June 2014; (ii) otherwise sought to have Transport for NSW terminate the Region 15 Contract prior to commencement of the 1 June 2014 [contract] pursuant to clauses 3.1(c) and/or 4.2 (a); and/or (iii) otherwise sought to rescind the Region 15 Contract. 21. Had the Region 15 Contract been at an end then the applicant would have utilised the funds expended in performance of the Region 15 Contract to invest in other investments with a higher rate of return for the Applicant than the Region 15 Contract and/or otherwise at a profit of no less than about 6-8%. 152 The written closing submissions filed on behalf of NBS put its claims for damages for loss of opportunity in two alternative ways. Somewhat confusingly, the written submissions then went on to refer to four "opportunities", which adopted definitions crafted by counsel for the respondents, namely: the Increased Bid Opportunity; the Correction Opportunity; the Renegotiate or Terminate Opportunity; and the Invest Elsewhere Opportunity. 153 The written submissions then go on to make it clear that NBS in fact seeks to make three claims, as follows: a. If [NBS] had become aware of the error in the period up to the lodgement of the tender (or if the contravening conduct had not occurred at that time), [NBS] would have lodged a revised tender including the additional $660,000 per year funding for the transfer-in-buses which would have succeeded; b. If [NBS] had become aware of the error in the period following the lodgement of the tender but prior to commencement of the Region 15 Contract, [NBS] would have attempted to negotiate with TfNSW to amend the Region 15 Contract so that it provided for funding for the transfer-in buses, undiminished by the Amortisation Error (that is to obtain the additional $660,000 per year funding for the transfer-in-buses); c. If [NBS] was unable to negotiate with TfNSW to amend the Region 15 Contract to obtain the additional $660,000 per year funding for the transfer-in-buses then [NBS] would not have commenced bus services under the Region 15 Contract and would have failed to meet critical milestones under that contract so that it would not have had to commence bus services under the contract. In those circumstances [NBS] would have utilised the funds available to it which were expended in execution of the Region 15 Contract in alternative investments, namely in residential and commercial property in south western Sydney, as they have done in the past, in which case [NBS]'s loss has been assessed at $3,352,150. 154 NBS says that the second respondent is liable because it was for practical purposes indistinguishable from the first respondent and that Mr Stewart "fulfilled a blended position" of acting on behalf of the first and second respondents. 155 NBS also alleges that the respondents owed it certain fiduciary duties.

Admissions 156 The first and third respondents now concede that they incorrectly calculated the capital cost of the 52 transfer-in buses for region 15 and included that incorrect calculation in the region 15 tender. That concession, as I have observed, was made in the months leading up to the commencement of the trial. They concede that in doing so they were in breach of the terms of the tender and modelling agreements, that they were negligent, and that they acted in breach of s 18 of the ACL. In their closing submissions, the concessions made by the first respondent were as follows: • It breached the tender agreement. • As a result of such breach it is liable to compensate NBS on the basis of placing NBS in the position it would have been in had the tender agreement been properly performed. • It breached the modelling agreement. • As a result of such breach it is liable to compensate NBS on the basis of placing NBS in the position it would have been in had the modelling agreement been properly performed. • It breached its duty of care (negligence) owed to NBS as a result of the tender agreement. As a result of such breach is liable to compensate NBS on the basis of placing NBS in the position it would have been in had there been no negligence in the performance of the tender agreement. • It breached its duty of care (negligence) owed to NBS as a result of the modelling agreement. • As a result of such breach it is liable to compensate NBS on the basis of placing NBS in the position it would have been in had there been no negligence in the performance of the modelling agreement. • The performance by it of the tender agreement resulted in it breaching section 18 of the ACL. • As a result of such breach it is liable to compensate NBS on the basis of placing NBS in the position it would have been in had there been [no] breach of section 18 of the ACL. • The performance by it of the modelling agreement resulted in it breaching section 18 of the ACL. • As a result of such breach it is liable to compensate NBS on the basis of placing NBS in the position it would have been in had there been [no] breach of section 18 of the ACL. 157 The respondents accepted that the evidence established that NBS would have submitted an increased bid of approximately $660,000 per annum for region 15 had it been correctly advised as to the financing costs of the transfer-in buses. That is an admission for the purposes of the claim summarised in [153(a)] above. The respondents also accepted that the evidence established that after (hypothetically) discovering the error as part of the modelling agreement, NBS would have approached TfNSW together with Mr Stewart to seek to persuade TfNSW to amend the region 15 contract by revising the price upwards by approximately $660,000 per annum. That is an admission for the purposes of the claim summarised in [153(b)] above.

Denials 158 All respondents deny the allegations of fraud or dishonesty. 159 The respondents' principal defence is that, however NBS casts its case, it has not established an entitlement to anything more than nominal damages. That defence is founded on the proposition of law that the damages that NBS claims are to be assessed only by reference to a loss of a chance. They say that, however the causes of action are formulated, NBS has not proved its case to the requisite standard. 160 The respondents submit that no matter how the loss of profit claim by NBS is formulated, each formulation rests upon the assumption that, had the correct expenses been included in the original bid, then the increased bid price would have been accepted by TfNSW. And had NBS approached TfNSW after entry into the region 15 contract, that TfNSW would have accepted a revision. 161 As noted earlier, the respondents did not seek to challenge the evidence about the quantum of the damages amounts relied upon by NBS in the expert report of Mr Michael Potter. The respondents' case was that NBS had not proved its case on the question of causation and that the court never gets to the point of assessing those damages. Further, the respondents contend that because the region 15 contract between TFNSW and NBS has an initial term of 5 years only, with no automatic right of renewal, any term over which loss and damage is to be calculated should be 5 years and not 9 years. 162 In the alternative, the respondents say that if that submission is wrong, and NBS is entitled to substantial damages, and assuming that there was no fraud or dishonesty on Mr Stewart's part, then the applicant's entitlement to damages is limited by the terms of the Professional Standard Schemes to approximately $1m. That in turn involves questions about the proper interpretation and meaning of the relevant provisions of the legislation, about which the parties disagreed. It was common ground that if it is found that Mr Stewart was dishonest or fraudulent as alleged, then the Professional Standards Schemes have no application and need not be considered in these reasons. 163 The second respondent contends that they had no contractual relationship with NBS and that they were not relevantly involved in or liable for any pleaded cause of action. 164 The respondents also deny that they owed any fiduciary duties to NBS.

Was Mr Stewart dishonest? 165 I turn now to the first critical question - did Mr Stewart act dishonestly? 166 NBS submits that Mr Stewart well knew, by late February or early March 2014 when versions 4, 5 and 6 of the cash flow model were produced, and never told NBS, that: (1) the figures in the tender bid contained the amortisation error; and (2) the 3 way modelling carried out pursuant to the modelling agreement repeated the error. 167 NBS submits that, as a result, as Mr Stewart must have known it would, NBS entered into the Westpac lease novation agreements ignorant of what Mr Stewart knew to be the fact - namely, that NBS would incur significantly higher actual costs (around $660,000 per annum) in respect of the transfer-in buses and that the transfer-in buses were not therefore fully funded, and that by entering into the novated leases with Westpac in respect of the transfer-in buses it was committed to over $6m of unfunded repayments. 168 Although all versions of the modelling after and including version 6 included the correct figures for the purchase prices of the buses, and the actual amounts payable to Westpac, and so on, the amortisation error was still "concealed" in the modelling, and from NBS, by an irregular treatment of depreciation, which had the effect of inflating profitability during the relevant financial years [see [82] supra]. 169 NBS says that Mr Stewart lied about not knowing of the amortisation error in late February/early March 2014 and lied about his attempts to conceal the existence of the error from NBS, including in the witness box at the trial of this proceeding. 170 To find that a witness has been dishonest, including that he or she has given dishonest evidence on oath, it need scarcely be said, is something that courts do not lightly do: see, by way of example only, Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170, 171; [1992] HCA 66, cited with approval in Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 579. In this case it is clear from, among other things, the objective contemporaneous facts, that Mr Stewart, despite his denials, must have seen versions 4, 5 and 6 of the 3 way modelling in Tool 2 which revealed the amortisation error in stark terms. This, in turn, means that he must have been aware of the amortisation error in late February/early March 2014. He then continued to conceal his knowledge of the error from that point on. In my view, that regrettable conclusion of dishonesty must follow for these reasons. 171 First, Mr Stewart's assistant, Mr Pfirter, agreed in cross-examination that Mr Stewart must have seen versions 4, 5 and 6 of the 3 way modelling. He was cross-examined about his email of 26 February 2014 in which he had said to Mr Joe Calabro "I have calculated all payments for you in the 3 way model anyway, we can discuss if you want after I get the model back from Ian's review". In the face of that email, Mr Pfirter, whom I accept as a witness of truth, was asked: "does that suggest to you that, contrary to your memory, that in fact you were involving Mr Stewart a little bit more than you recall in the earlier versions of the cash flow model [?] Bearing in mind that we are at this stage between versions 4 and 5?" Mr Pfirter replied: "Well, yes, it appears that he did something in versions 4 and 5". 172 Secondly, Mr Stewart's own evidence, in his affidavit at [167], was that in late February 2014 or early March 2104 (during the time of the preparation of versions 4, 5 and 6 of the cash flow model) he had a conversation with Mr Pfirter in which he told him that he should use the applicant's actual monthly lease payments, if available, in respect of the transfer-in buses as the cash outflow figures for these line items in the model, because he expected "to see a difference in what the actual lease payments were when compared to the inflow of cash in respect of the transfer-in buses". 173 Paragraph [167] of Mr Stewart's witness statement in full is as follows: I recall saying to [Mr Pfirter] at some point in late February or early March 2014, during the period of production of the model, that he should use NBS's actual monthly lease payments, if available, in respect of the transfer-in buses as the cash outflow figures for these line items in the model. I said this because I would have expected to see a difference in what the actual lease payments were when compared to the inflow of cash in respect of the transfer-in buses. This was due to my understanding that the usual finance period for bus operators was 10 years as compared to the 15 year period allowed for in TfNSW's pricing formula, which had been utilised in the bid pricing. As a result, I expected a lease payment cash outflow higher than what was actually built into the cash flows (or revenues) for the same buses. 174 And although Mr Stewart did not say so, perhaps because he did not realise it when he prepared his witness statement, the actual monthly lease figures were in fact entered in version 6 of the modelling, which was prepared by Mr Pfirter in late February/early March 2014. It follows that he must have seen versions 4, 5 and 6 of the cash flow model in late February/early March 2014. To have had that conversation with Mr Pfirter later on, about versions 11 and 12, and not about versions 4, 5 and 6, as Mr Stewart endeavoured to insist, would make no sense because those versions did contain the actual monthly lease payments. No occasion could thus have arisen for him to have told Mr Pfirter to use those figures instead. 175 Ultimately, Mr Stewart, who frequently avoided giving responsive answers to simple enough questions about matters he knew were important, was forced to admit that he must have seen versions 4, 5 and 6 of the cash flow model in late February/early March 2014. 176 Mr Dawson asked Mr Stewart about Mr Pfirter's "[t]his was always the issue" email of 26 August 2014 (see [122] above), as follows: So he's taking you through, isn't he, the existing fleet tab and what changes he has made? Yes. And you understood that when you were reading this at the time? Yes. He says market value he has put in as the transfer-in price? Yes. And residual, zero. This might not be the actual arrangement with Westpac, he notes? Yes. In other words, the leases might have a residual of 10 or 20 per cent or something, not zero. Correct? Yes. And then he says "period". That's a reference to the period of 180 months that was in Tool 2. Correct? Yes. And he says: "This was always the issue?" Yes. See that? Yes. And you understood that what Mr Pfirter was saying to you was, "Remember this was the problem we identified in February and March of 2014"? Yes. And what he's saying is, "Remember that's what prompted the change between version 4 and version 5 when we adjusted the 180 months in the 3-way cashflow back to nine years"? Yes. (Emphasis added.) 177 Thirdly, when in August 2014 Mr Pfirter told Mr Stewart that there was "a problem" with the figures in the tender bid, Mr Stewart needed, and was given, no explanation of the nature of the problem before he was able to send, almost immediately, a detailed response to Mr Pfirter. In their closing written submissions, counsel for NBS submitted that Mr Stewart was unable credibly to explain how he could possibly have drafted his email of 20 August 2014 which "sets out a detailed four pronged response to the allegation of an error in the bid in circumstances where the error had apparently not been explained to [him] other than by reference to there being an 'issue'". The four "prongs", it will be recalled, were: 1. The subsequent work on a 3 way needs to be looked at. I recall having Emilio reconcile the profit and I think cash per that to the bid. 2. The price was set targeting a particular rate per klm. It was certainly influenced by cost data but Joe was chasing a price. 3. Do we have signed off assumptions documents? If so what do they say about bus capital? 4. Joe needed some additional fleet outside his own resources. Was he able to get that at a satisfactory price? Did he transfer older fleet from Region 2 across that had a low value? Do we need to assess the whole bus capital amount and not just this bit? 178 Doubtless recognising this difficulty, in the witness box Mr Stewart, not having mentioned the point at all in his detailed witness statement, sought to seize upon the fact that the email from Mr Pfirter to which he was responding referred to a voicemail message, and that it was the contents of that message which had permitted him to make the four pronged response. Counsel for NBS described this as "a desperate but unsuccessful attempt to avoid the inevitable conclusion that his prior knowledge of the error meant that he knew exactly what the 'issue' was as soon as he saw Mr Pfirter's email." I agree. In my view, given that Mr Stewart did not mention the voicemail message in his witness statement and given that he could not say what the voicemail said, I am reluctantly led to conclude Mr Stewart's evidence given in the witness box in that regard was untruthful. (Counsel for the respondents volunteered to attempt to obtain a record of the voicemail message after Mr Stewart made his claim about it in the witness box, but that proved to be impossible). I should also add that the respondents accepted that there was no other occasion between late February/early March 2014 and 20 August 2014 on which Mr Stewart could have gleaned any information enabling him to make the four pronged response. 179 Fourthly, as I have explained, (see [115] above) Mr Stewart, in August 2014, on his own (admittedly reluctant) admission, dishonestly misled Mr Joe Calabro into thinking that a spreadsheet entitled "Tender Analysis - Option D", which was attached to an email communication and which did not contain the amortisation error, were the figures that had been submitted in the tender bid - when in fact, as Mr Stewart well knew, the document had been prepared a day or two earlier as part of his colleagues' endeavours to determine the reason for the "shortfall" to which Mr Joseph had recently drawn to their attention. That demonstrates a "consciousness of guilt" and is another reason to conclude that Mr Stewart knew about the error and misled Mr Calabro about the provenance and the date of creation of "Tender Analysis - Option D" because, had he revealed the true position, the amortisation error would presumably have been revealed. That conduct illustrates the continuing nature of Mr Stewart's dishonesty. It is also telling that Mr Stewart chose (one can only assume deliberately) not to include in his otherwise exhaustive account of the relevant correspondence the email in which Mr Burton had stressed to him that "the item "Tender Analysis - Option dv2.0" had only recently been created (see [100] supra). 180 Mr Stewart's evidence was also, in a number of other respects, incredible. For example, he claimed during his cross-examination that the first retainer letter (called the tender agreement in these reasons) had been varied to absolve him of the need to carry out a QA review, something he had earlier agreed was the firm's practice, and which should have been done, and which had it in fact been done, would have resulted in the amortisation error being detected before the bid was submitted. 181 The following exchanges between Mr Stewart and counsel for NBS are again illustrative of the evasive way in which he gave much of his evidence. They establish, in my view, that the assertion Mr Stewart makes that the retainer letter had been varied as he suggested (an allegation that was not pleaded, was unsupported by any documentary evidence and was raised for the first time during his cross-examination) was something else that he made up in the witness box: And according to your evidence yesterday, a quality assurance review was something of importance to you; correct? That is correct. And you knew it hadn't been done? True. You, therefore, had an opportunity before [NBS] signed the contract to conduct that quality assurance review, didn't you? Yes. Now, you say at paragraph 148 that you raised with Mr Calabro the need to do a detailed QA review of the bid price numbers now that he had won Region 15, didn't you? Yes. And in that paragraph, you say you wanted to check whether or not there were any gremlins; correct? Correct. You did not say to Mr Calabro, did you, "When we prepared the Region 15 contract" - I withdraw that - "the Region 15 bid, we didn't do a proper review of the numbers to see whether or not there was an error in the bid pricing." You didn't say that, did you? No. And you didn't say to him anything like what you said in evidence yesterday about the fact that the tools might be terrific, but sometimes they fail, did you? No, I did not. And you didn't say to him because of that experience that you had had with the operation of the Pitcher Partners tools it was absolutely crucial that the QA be done? I did not. And you didn't say to him, "Listen, Joe, it's actually part of the deal. When you engage Pitcher Partners, it's something we do as part of the service we offer and we just haven't done it for you." You didn't say that, did you? Not in those words. But nothing you said to him, according to your assertions in paragraph 148, Mr Stewart, would have put him on notice, so far as you were concerned, of the true concern that you held about the integrity of the numbers; correct? I was actually - shared his view that I was comfortable with the numbers at the time, and so I didn't insist that it be done. Well, how do you reconcile that statement, Mr Stewart, with the evidence that you gave yesterday about the importance of conducting a quality assurance review on every job? That is our practice and it should have been done. I don't resile from that. You recognise there's a tension between those two positions, though, don't you? I do. And the tension is resolved, is it not, by the truth, which is you never had these conversations with Mr Calabro, did you? That is not true. But you accept, don't you that at no stage, even on your version of those conversations, did you say anything to Mr Calabro which would have conveyed to him the importance of a quality assurance review? You accept that, don't you? I believe that I had conveyed that importance in earlier discussions that we had with our - when we had the figures up on the screen. And I think the fact that I brought it up again, I believe, would have - should have conveyed that to him. You didn't even tell him what it was, though, did you, Mr Stewart? You called it a QA? Again, I say that as a result of our earlier meetings and things where I had raised this issue I believe he would have understood what I meant by it. Now, when he emailed you - that is, Mr Calabro - on 19 August 2013, some three or four weeks after the conversation you say you had paragraph 142, where you raise this QA review, according to your evidence, did you not understand from his email that he had changed his mind? No, I did not. Did you not entertain that as a possibility? No, I did not. You understood his email to be nothing more than a request for you to conduct a proofreading task of the numbers in the contract as against the numbers in the bid; is that right? Yes. You didn't say to him, "Listen, Joe, are you asking us just to do literally a proofreading task or are you asking us to do the full review of the numbers now that you've won the contract and are about to sign up to those numbers"? You didn't say that to him? No, I did not. No. Why did you think he was asking you to check the numbers if he was comfortable with them, according to your evidence, just three or four weeks before? I don't - he was asking - well, my - my interpretation of the task to be done was based upon the email that had been forwarded by him, which came from Transport for New South Wales, and I interpreted the task as - as you describe, one where we were required to check the figures in the schedules and schedule 3. But his comfort with the numbers, so far as you understood it, Mr Stewart, was, wasn't it, he was comfortable with the numbers that he had provided to you to put into the model? I think this is a different matter because this is actually checking the schedules attached to the contract. I understood that he wanted us to do that. Please answer my question. The comfort that you say Mr Calabro expressed in the numbers was in respect of the numbers he had provided to you. In other words, he was saying, "I'm comfortable with the numbers that I have given Pitcher Partners to do the bid calculations with"; correct? I don't understand the question. I'm sorry. Can you repeat it? Well, there are different sets of numbers that go into the bid pricing - the bid costing, aren't there? Yes. Numbers that you get from [NBS], that is, the raw data of what it costs to run the buses in respect of fuel, repairs, maintenance, etcetera; correct? Yes. There are numbers about wages and other things like that, aren't there? Yes. And all of that comes from the operator to Pitcher Partners, doesn't it? Yes. And then Pitcher Partner takes those numbers and runs its own tools and complex financial models to produce numbers for a bid; correct? Yes. And one of the tools used is tool 2, which Pitcher Partners uses to determine the revenue for an operator in respect of transfer-in buses; correct? Correct. And they are numbers that Pitcher Partners generates, aren't they? Yes. They're not numbers that the operator generates, are they? No. And so when Mr Calabro said he was comfortable with the numbers, according to your affidavit, he could only have been expressing comfort with the numbers that [NBS] had provided to Pitcher Partners; correct? I don't necessarily agree with that, no. The only comfort he could have in the Pitcher Partners calculations was because he trusted you to get it right; correct? That - I can't speculate as to what was in his mind. But, Mr Stewart, you are saying on the basis of Mr Calabro saying, "I'm comfortable with the numbers," there was a variation to the retainer as between Pitcher Partners and [NBS], aren't you? Yes. You made no file note of either of these conversations; correct? I did not. You sent no internal communication at Pitcher Partners to record a change in the agreement; correct? Other than my staff did no further work in relation to the region 15 assignment and - Would you mind attending to my question, Mr Stewart. You sent no email internally at Pitcher Partners? No, I didn't. …recording what you say is a change in the agreement with [NBS], did you? No, I did not. No. You didn't send any email back to [NBS] confirming the change in the agreement, did you? No, I did not. And that's because it never happened; correct? I don't agree with that. Whatever comfort Mr Calabro expressed to you, on your version, Mr Stewart, I say - I put it to you again: the only comfort he could have in the numbers as a whole was if he assumed that Pitcher Partners had done the job set out in the retainer; correct? I agree with that. Thank you. And that job had not been done, had it? There was an error. But the job hadn't been done as set out in the retainer letter, in addition to the error; correct? Yes. Correct. Thank you. And if you were not comfortable with the numbers, Mr Stewart, you accept, don't you, you had an obligation to tell Mr Calabro that in terms? Yes. 182 In his witness statement at [151], Mr Stewart also said that he "did not understand, from Joe's email, that he wanted me to do anything more than check that the figures in Schedule 3 matched the figures sent by NBS as part of its tender submissions bid". During the passage of cross-examination quoted above, Mr Stewart said, along similar lines, that he interpreted the request from NBS that he "double-check that [the] dollar figures for buses in the annexures to Schedule 3 (especially Annexure D and E) are assigned to the correct annexure and are/will be consistent with the list of existing buses" as requiring nothing more than a "proofreading" of the numbers in the contract and that, as a result, the amortisation error was not detected at that point. 183 I do not accept as truthful Mr Stewart's explanation that he interpreted the request from NBS referred to above as involving nothing other than a "proofreading" exercise. It defies common sense, and flies in the face of the promises made in the tender agreement, to accept that a provider of professional accounting services such as Mr Stewart would regard a request by a client to double check figures that were self-evidently fundamental to the viability of the tender as involving a merely clerical function.

Mr Pfirter and Mr Schonberg 184 Counsel for NBS made no criticism of any of the evidence given by Mr Pfirter. There was no need to do so, in any event, because nothing that Mr Pfirter said was harmful to the case put by NBS, and indeed in some critical respects was helpful to it. In my view, Mr Pfirter at all times did his best to tell the truth not only in his dealings with NBS but in this proceeding, and I unhesitatingly accept him as a witness of truth. 185 Counsel for NBS contended that I should make adverse credit findings in respect of the evidence given by Mr Schonberg. I decline to do so because, although Mr Schonberg's evidence may been seen to have been somewhat defensive, I am unable to form a view adverse to his credit. In the end, and in any event, I do not regard his evidence as having much relevance to the ultimate issues in dispute.

Cause of action in deceit 186 In Magill v Magill (2006) 226 CLR 551, 587-588 at [114] the High Court summarised the elements of the cause of action in deceit as follows: The modern tort of deceit will be established where a plaintiff can show five elements: first, that the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage which was caused by reliance on the false representation. Generally, the elements of the tort have been found to exist in cases which concern pecuniary loss flowing from a false inducement and the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation. (Citations omitted.) 187 In light of the factual findings made above, and in particular at [170], the first four elements of the cause of action in deceit relied on in this case are made out. The respondents did not seek to contend otherwise. 188 The critical question remains as to whether NBS has proved that the deceit caused a loss, and if so the amount of that loss. 189 The respondents contend that the applicant's submission about its principal claim for loss of profits (that it failed to receive reimbursement for the transfer-in buses under the Westpac leases), cannot be separated from the lost opportunity claims because entry into the leases cannot be separated from the region 15 contract. The respondents say that entry into the Westpac leases was simply a "subset integer" of the region 15 contract and that NBS cannot avoid having to prove, to the requisite standard (that is, on the balance of probabilities) that it would have been successful in its increased bid being accepted or in having the region 15 contract successfully renegotiated. The respondents say accordingly that there can be no loss of profit unless NBS can establish, on the balance of probabilities that TfNSW would have accepted a revision to the region 15 contract. Put another way, the respondents contend that whilst the claim made by NBS for "loss of profit" may be expressed as constituting a separate and distinct head of loss and damage (separate and distinct that is from a loss of opportunity claim), NBS must nevertheless establish the relevant loss of the relevant opportunity on the balance of probabilities to quantify the claimed loss of profit. 190 For the reasons that follow, the respondents' submissions in that regard, at least in so far as they relate to the applicant's claim in deceit, miss the point.

Causation in deceit 191 In Clark v Urquhart [1930] AC 28, 67-68, Lord Atkin said: I find it difficult to suppose that there is any difference in the measure of damages in an action of deceit depending upon the nature of the transaction into which the plaintiff is fraudulently induced to enter. Whether he buys shares or buys sugar, whether he subscribes for shares, or agrees to enter into a partnership, or in any other way alters his position to his detriment, in principle, the measure of damages should be the same and whether estimated by Julie or a judge. I should have thought it would be based on the actual damage directly flowing from the fraudulent inducement. 192 To the list of transactions into which a plaintiff may be fraudulently induced to enter there may surely be added a transaction of the type that occurred in this case, that is to say a transaction whereby the plaintiff suffered loss as a direct result of being fraudulently induced to commit itself to the terms of a tender bid. 193 As Gibbs CJ said in Gould v Vaggelas (1985) 157 CLR 215, 220-221 (Gould): In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant … In other words, the general principle is that the plaintiff is to be put, so far as possible, in the position he would have been in if he had not acted on the fraudulent inducement… (Internal quotations and citations omitted.) 194 Gould was a case in which the plaintiffs were found at trial to have been induced, on behalf of the company to be formed and controlled by them, by fraudulent misrepresentations to purchase a tourist resort. In such a case, it is well established that in an action of deceit, the measure of damages usually applicable is the difference between the real value of the property at the time of the purchase and what the plaintiff paid for it: Gould, per Gibbs CJ at 220. 195 Obviously, that is not the only loss recoverable in an action for deceit. As Gibbs CJ explained in Gould at 223: When the victim of the deceit is not the purchaser under a contract of sale, it is obvious that the usual measure of damages, which involves a comparison between price paid and value received, cannot be applied … In a case such as the present, where the plaintiffs were not purchasers, the measure of damages is the sum which represents the loss which the plaintiffs have suffered because they altered their position in reliance on the fraudulent misrepresentation … There is a passage in the judgment of Lord Denning M.R. in Doyle v. Olby (Ironmongers) Ltd. which was cited with apparent approval by this Court in State of South Australia v. Johnson (1982) 42 ALR, at p.170, which appears to suggest that in an action for damages for deceit the defendant is liable for all the actual damages directly flowing from the fraud whether they were foreseeable or not. Lord Denning M.R. said, at [1969] 2 QB p.167: "The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement. ... All such damages can be recovered: and it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen." In the same case Winn L.J. said, at p.168, that the damage "must have flowed directly from the fraud"; he did not say that the damages must be foreseeable but the example which he gave at p.169 suggests that he was speaking of damage which was foreseeable. In a recent case in which damages for fraudulent misrepresentation were assessed, Archer v. Brown (1984) 3 W.L.R. 350, Peter Pain J. appears to have thought that the foreseeability test had to be applied: see at p.362. It is unnecessary for present purposes to consider whether damages for deceit can be recovered even if they were not reasonably foreseeable, and I would leave open that important question. In the present case, any damage that directly flowed from the misrepresentations of Vaggelas was foreseeable. 196 It has since been decided by the High Court that the concept of reasonable foreseeability in actions for deceit is irrelevant: see Palmer Bruyn & Parker Pty Ltd v Parsons (2001) 208 CLR 388, at [13] and [63]-[80] per Gummow J. That was a case about injurious falsehood, but the decision applies to all intentional torts, including deceit: Palmer Bruyn & Parker Pty Ltd v Parsons (2001) 208 CLR 388 at [76], citing Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 at 167 where the expression used by Lord Denning MR was "damages directly flowing"; Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 264-265 per Lord Browne-Wilkinson, 282, 285 per Lord Steyn. 197 The passages from Smith New Court Securities Ltd v Citibank NA [1997] AC 254 cited by Gummow J include this passage from the speech of Lord Browne-Wilkinson at 264-265: Doyle v. Olby (Ironmongers) Ltd. establishes four points. First, that the measure of damages where a contract has been induced by fraudulent misrepresentation is reparation for all the actual damage directly flowing from (i.e. caused by) entering into the transaction. Second, that in assessing such damages it is not an inflexible rule that the plaintiff must bring into account the value as at the transaction date of the asset acquired: although the point is not adverted to in the judgments, the basis on which the damages were computed shows that there can be circumstances in which it is proper to require a defendant only to bring into account the actual proceeds of the asset provided that he has acted reasonably in retaining it. Third, damages for deceit are not limited to those which were reasonably foreseeable. Fourth, the damages recoverable can include consequential loss suffered by reason of having acquired the asset. In my judgment Doyle v. Olby (Ironmongers) Ltd. was rightly decided on all these points. 198 Lord Steyn also said at [1997] AC 254, 279-280: That brings me to the question of policy whether there is a justification for differentiating between the extent of liability for civil wrongs depending on where in the sliding scale from strict liability to intentional wrongdoing the particular civil wrong fits in. It may be said that logical symmetry and a policy of not punishing intentional wrongdoers by civil remedies favour a uniform rule. On the other hand, it is a rational and defensible strategy to impose wider liability on an intentional wrongdoer. As Hart and Honoré, Causation in the Law, 2nd ed. (1985), p. 304 observed, an innocent plaintiff may, not without reason, call on a morally reprehensible defendant to pay the whole of the loss he caused. The exclusion of heads of loss in the law of negligence, which reflects considerations of legal policy, does not necessarily avail the intentional wrongdoer. Such a policy of imposing more stringent remedies on an intentional wrongdoer serves two purposes. First it serves a deterrent purpose in discouraging fraud. Counsel for Citibank argued that the sole purpose of the law of tort generally, and the tort of deceit in particular, should be to compensate the victims of civil wrongs. That is far too narrow a view. Professor Glanville Williams identified four possible purposes of an action for damages in tort: appeasement, justice, deterrence and compensation: see "The Aims of the Law of Tort" (1951) 4 C.L.P. 137. He concluded, at p. 172: Where possible the law seems to like to ride two or three horses at once; but occasionally a situation occurs where one must be selected. The tendency is then to choose the deterrent purpose for tort of intention, the compensatory purpose for other torts. And in the battle against fraud civil remedies can play a useful and beneficial role. Secondly, as between the fraudster and the innocent party, moral considerations militate in favour of requiring the fraudster to bear the risk of misfortunes directly caused by his fraud. I make no apology for referring to moral considerations. The law and morality are inextricably interwoven. To a large extent the law is simply formulated and declared morality. And, as Oliver Wendell Holmes, The Common Law (ed. M. De W. Howe), p. 106, observed, the very notion of deceit with its overtones of wickedness is drawn from the moral world. 199 In my view, the actual damage flowing from the deceit in this case is the $5.485m sum claimed for the reasons submitted by NBS. That is, having won the bid and entered into the region 15 contract in August 2013, NBS was induced by the representations in March 2014 to enter into novated leases with Westpac in respect of the transfer-in buses. It did so in reliance on those representations and, in doing so, altered its position to its detriment because it assumed a financial obligation that it would not have assumed had the respondents told it the simple truth, known to them but not NBS, that the transfer-in buses were underfunded by $660,000 per annum. As a result, NBS did not have funding for, and was therefore liable to meet from its own resources, an additional $660,000 in finance costs in each of the 9 years of the region 15 contract in respect of the transfer-in buses. NBS was, at that point, as Mr Dawson put it, "locked into both the region 15 contract and the Westpac leases with that shortfall. That is [NBS's] loss". In my view, in the circumstances, the loss that flows from being so locked in, flowing as it does directly from the deceit, estimated by Mr Potter in his unchallenged evidence to be $5,485,416, is recoverable in full, subject to a judgment date adjustment. 200 The respondents' contention that the loss claimed by NBS cannot be separated from the lost opportunity claims because entry into the leases cannot be separated from the region 15 contract does not, in my view, address the different measure of damages that applies in cases of deceit. To say, as the respondents do, that entry into the Westpac leases was a "subset integer" of the region 15 contract and that NBS cannot avoid having to prove, and did not prove, on the balance of probabilities that it would have been successful in its increased bid being accepted or in having the region 15 contract successfully renegotiated is not to the point, because the submission does not address the measure of damages applicable in cases, like this one, of deceit.

Nine year term? 201 I must also deal at this point with the respondents' contention that because the region 15 contract between TFNSW and NBS has an initial term of 5 years only, with no automatic right of renewal, any term over which loss and damage is to be calculated should be 5 years and not 9 years. See [50] above. 202 I cannot accept that submission. The unchallenged assumption from the beginning of the relationship between NBS, the first respondent and Mr Stewart was that the contract tendered for was anticipated to run for 9 years. The tender bid was premised on a 9 year term, as was every piece of modelling performed by Mr Stewart and his colleagues. 203 In those circumstances and when: (1) there is no evidence to suggest that the contract which NBS is "locked in" to will not run the term that TfNSW's own tender assumptions anticipate (a 9 year term); (2) no witness called by NBS was asked a single question about the matter in cross-examination; and (3) the loss is the financial consequence of bus lease novations that were premised on a 9 year term, then the calculation of the direct loss must properly relate to a 9 year term, not some other term. (Cf Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388, 413 at [66]: "The appellants suffered loss because the continuing financial obligations they undertook when they took the lease proved to be larger than they had been led to believe"). 204 It follows that NBS is entitled to judgment on the principal claim in the sum of $5,485,416, relevantly adjusted according to the date of judgment.

Is the second respondent also liable? 205 NBS's pleaded case against the second respondent is that the first respondent was agent for the second respondent. 206 NBS submitted in closing submissions that there was never at any material time any relevant distinction to be drawn between the first and second respondents. It says that Mr Stewart fulfilled what it referred to as "a blended position" of acting on behalf of both the first and second respondents. Counsel's closing (supplementary) submissions in this regard were as follows: 206. It is perhaps likely, in light of the evidence, that Pitcher Partners will seek to maintain that the position of [the second respondent] [which it called "PP"] may be distinguished from the first respondent [which it called "PPCON"]. Nonetheless, against the possibility that that submission is advanced, [NBS'] position may be briefly stated. 207. The respondents have chosen to adopt a complex corporate and quasi-corporate structure for their professional activities. It includes at least the first respondent (PPCON), the second respondent (an accounting practice operated as a Victorian partnership - Pitcher Partners) and a company called Pitcher Partners Advisers Pty Ltd, which apparently provides treasury functions to the whole group. 208. In reality there is no relevant distinction between PPCON and PP in these proceedings, as Mr Stewart fulfilled a blended position of acting on behalf of both PPCON and PP at all material times. That is how Mr Stewart and Pitcher Partners marketed the role and in fact how it operated, in that Mr Stewart was a partner of PP with supervision of the Business Consulting Group that existed within PPCON. Indeed Paul Toner, a partner in PP was authorised by PPCON to make an affidavit in these proceedings on behalf of PPCON as well as PP, and there has been no change to these arrangements under Mr Schonberg, the current partner in charge of the bus specialisation group. 207 NBS relied on this exchange between Mr Dawson and Mr Stewart in cross-examination: I'm going to show you a document from the Pitcher Partners website as at - I will just get the date for you - April 2013. And we have, I think, a couple of copies. I will hand one to the witness and one to your Honour and one to our learned friends. You recognise this as the profile of you on the Pitcher Partners People Hub in about April 2013 through to about February 2014? I don't recognise the document, but I don't doubt its authenticity. Thank you. And you see on it, don't you, that your position is listed as "partner/executive director - business consulting"? Yes. In other words, you fulfilled a blended position as it were? Yes. And that's how you marketed yourself? Yes. And that reflected the reality, didn't it, that you were a partner of Pitcher Partners with supervision of the Business Consulting Group? Correct. And within that practice was Pitcher Partners Consulting; correct? Yes 208 The written submissions continued: 209. Further, the respondents in their engagement documents [which are standard terms attached to the tender and modelling agreements] provided to [NBS] are careful to ensure that the engagement, including any protection available to any of them under those documents, extends to all entities within their group. Examples include: (1) The definition in the preamble of the party retained as "Pitcher Partners Consulting Pty Ltd and our associated companies and entities, "PP", "PCON", or "we" or "our" or "us". In context it appears clear that "PP" is a reference to Pitcher Partners, the second respondent, and that "PCON" is a reference to the first respondent. (2) Clause 6.2 permits the Pitcher Partners group to share NBS's confidential information internally as it sees fit. (3) Clause 12.10 anticipates that Pitcher Partners' (the second respondent) staff will work at NBS's premises; (4) Clause 13 provides that [NBS] is not to poach staff of Pitcher Partners (the second respondent), PCON, or their respective associated "companies, trusts, partnerships"; (5) Clause 13.2(b) asks [NBS] to acknowledge that the respondents collectively would have declined to provide services to [NBS] had it not agreed to grant that protection to the second respondent. 210. Next there is the acknowledged fact that it was the second respondent, Pitcher Partners, which demanded payment from [NBS] for the services provided under the retainer. This is not surprising in the context that the second respondent (PP) in fact charged [NBS] for "pooled costs" which costs include PP's "internal time costs associated with developing standardised excel costing and bid spreadsheets (or 'tools') … such that each client to whom the excel spreadsheet had application would be charged a portion of those pooled costs", [citing the affidavit of Mr Schonberg dated May 2018 at [17]-[18]]. 209 The "demand for payment" referred to is a reference to a statement of account sent by the second respondent to NBS dated 4 May 2014. The statement bears the heading "Pitcher Partners", with the ABN 27 975 255 196. That is the second respondent. The website address is given as "www.pitcher.com.au" and "accounts@pitcher.com.au". The bank account given into which funds were asked to be transferred was given as 083-004 5164-*****. The payment by cheque option gave the address as "Pitcher Partners, GPO Box 5193, Melbourne VIC 3001". That statement of account from the second respondent followed a tax invoice that had been sent by the first respondent dated 2 April 2014. It is headed "Pitcher Partners - Pitcher Partners Consulting Pty Ltd", with the ABN 40 584 064 318. The website address is given as "www.pitcher.com.au" and "accounts@pitcher.com.au". And the bank account and mailing address details are relevantly identical. In both the statement of account and the invoice it is stated: "Pitcher Partners is an association of independent firms". 210 The written submissions continued: 211. It is also apparent that PP (the second respondent): a. supervised the business consulting group within the first respondent (PPCON): b. sought payment of outstanding fees owed by [NBS]; c. charged fees for use of the tools: d. authorised fees to be written off; and e. knew of the Amortisation Error and failed to notify [NBS] of this error. 212. Further it is clear from the email correspondence that the work itself has been carried out by representatives of each of the first and second respondents in their capacity as representatives of those different entities as (for example): a. The third respondent, Mr Stewart, interchangeably used the following signature panels on emails: (i) From the second respondent: "Ian Stewart | Consultant Pitcher Partners" (ii) From the first respondent: "Ian Stewart Executive Director Pitcher Partners Consulting Pty Ltd" b. The third respondent also used his own personal email address - ian@ianstewart.com.au. 211 The written submissions conclude by saying that "[t]he second respondent, by purporting to procure the benefit of the various protections in the retainer agreement and by demanding payment from [NBS] and/or by performance of the work the subject of the agreement with the first respondent has brought itself within the reach of the [NBS'] claim". I assume that to be a submission that the first respondent was the agent of the second respondent, which is the pleaded case. 212 The respondents contend to the contrary. The submission was also made mainly in writing and is as follows: 2.2 The claims made against the Partnership which rest on a relationship of agency between the Partnership and PPC must fail. The contract for both engagements is the key document and the key fact that establishes and regulates the relationship between NBS (the client) and those performing the work for NBS (PPC). 2.3 The standard terms and conditions provided with the letters of engagement for the two engagements (referred to as the 'Terms of Engagement') provide protection to parties other than the contracting party, being PPC's "associated companies". However, the following is noted in respect of the two agreements entered into between NBS and PPC: (a) The letters of engagement are on PPC letterhead, were prepared by PPC and signed by Ian Stewart in his capacity as an Executive Director of PPC and not in his capacity as a partner of the Partnership. (b) It is PPC, in the first paragraph of the letters of engagement, which "values the relationship we develop with our clients". (c) References to "we" and "us" in the letters of engagement are references solely to PPC. (d) There is no reference to the Partnership in the letters of engagement. (e) The "Engagement Team" referred to in the letters of engagement is Ian Stewart, referred to as the "Executive Director", Mark Burton, referred to as the "Client Director", and Emilio Pfirter, Referred to as the "Manager". Indeed, at page 320 of the Court Book, the letter of engagement states: "This engagement will be performed under the direction of Ian Stewart (Executive Director) with work to be performed by Mark Burton (Client Director), Emilio Pfirter (Manager) and other staff as required at our discretion". These are references to staff in their capacities as staff of PPC. (f) The next paragraph of the engagement letter states: "Pitcher Partners Consulting fees for this engagement are based upon the degree of responsibility and skill involved and the time necessary and occupied on the assignment, plus the separate reimbursement of outlays". The reference to "Pitcher Partners Consulting" is a reference to PPC and thus the fees of PPC. (g) Indeed, the invoices prepared and sent to NBS in respect of the work carried out by PPC for both engagements were invoices issued by PPC to NBS. These invoices bear the letterhead of PPC. (h) It is only in the standard form "Terms of Engagement" attached to the letters of engagement that references to entities other than PPC appear. The Terms of Engagement state in their preamble: "These terms apply to your engagement of Pitcher Partners Consulting Pty Ltd and our associated companies and entities ("Pitcher Partners", "PPCON" or "we" or "our" or "us")..." (i) There has been no evidence led in this case that any entity other than PPC was engaged by NBS as a contracting party to perform the bid pricing work in 2013 or the cash flow modelling work in 2014. (j) NBS relies on clause 6.2 of the 19 March 2013 engagement letter (Terms of Engagement) as "permit[ting] the Pitcher Partners Group to share the Applicant's confidential information informally as it sees fit". Clause 6.2 of the Terms of Engagement reads as follows: "We may disclose information to any other Pitcher Partners entity or use it for internal quality reviews". (k) The reference to "any other" is suggestive of the fact that the relevant agreements are between NBS and PPC. (l) Nowhere is it suggested in the evidence that the contract NBS held was with any entity other than PPC. (m) Neither clause 12.10 of the Terms of Engagement, which refers to "PP staff ... working at your premises" in the context of occupational health and safety; nor clause 13, which refers to non-solicitation of "PP staff" (as relied on by NBS in its written submissions) are determinative of the identity of the party contracting with NBS being any entity other than PPC. Nor is clause 13.2(b). (n) The fact that third party entities associated with the contracting party are sought to be protected by PPC's standard terms and conditions is not determinative of identifying any entity other than PPC as a contracting party. Indeed, the first paragraph of the Terms of Engagement states: "These terms apply to your engagement of Pitcher Partners Consulting Pty Ltd and our associated companies and entities ...". It is clear, on this basis that the relevant agreement was between NBS and PPC. (o) A contracting party is entitled to seek to protect associated entities within the terms of an agreement without the agreement bringing the associated entities in as contracting parties. An example of this is restraint of trade clauses, where a company may seek to protect itself and its associated entities. This does not mean that those associated entities are contracting parties or have been dragged into the agreement. (p) Where party A makes an agreement with party B and that agreement confers a benefit on another person (C), only A and B (but not C) are regarded by Australian law as parties to the contract.7 Under the doctrine of privity of contract, the parties to a contract are the only persons entitled to enforce the contract and capable of being legally bound by it.8 Accordingly, liabilities arising from the contract between A and B cannot be imposed upon third party C who is not a party to the contract. (Citations omitted.) 213 During oral closing submissions, counsel for the respondents made the point that "if your Honour were to reject my submission that … [the first respondent] alone … is responsible, and to say no, it's so jumbled up that who knows what and … find that Mr Stewart and Mr Pfirter perhaps were also acting on behalf of [the second respondent], it's an agency attribution for responsibility not that the partnership itself … misconducted itself. If your Honour sees the distinction I draw". But NBS did not put its case against the second respondent other than on the basis that it was vicariously liable for Mr Stewart's dishonesty because it was the first respondent's principal. It was not suggested that the partners of the second respondent were implicated in his conduct, or knew about it - just that they are liable for it. 214 In my view, the evidence is clear that the first respondent is to be regarded as the agent of the second respondent (it could be the other way around, but it hardly matters). The respondents' submissions, are, with respect, founded on an artificial and unrealistically narrow construction of the terms of engagement, and fail to come to grips with the reality that the second respondent so conducted itself as to enable the first respondent to hold themselves out to be their agents for the purpose of the provision of the services the subject of the tender and 3 way modelling agreements: Cf International Paper Co v Spicer (1906) 4 CLR 739 at 747 per Griffith CJ (Barton J agreeing). 215 Relevant acts of holding out include the facts that: (1) the second respondent sent the statement of account asking that the amount invoiced the previous month by the first respondent be paid into the identical bank account identified in the first respondent's earlier invoice, or that any cheque be sent to the identical PO Box; (2) the second respondent charged fees for use of the tools and authorised fees to be written off; (3) Ian Stewart sent email correspondence to NBS, signed: "Ian Stewart | Consultant Pitcher Partners". 216 The third of those facts fits squarely within the kind of representation of authority described by the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [38] as "[a] kind of representation that often arises in business dealings … which flows from equipping an officer of a company with a certain title, status and facilities." But the other two facts are equally relevant representations of authority for the purposes of agency. 217 But, in any event, a better objective characterisation of all the evidence to which NBS points is that the first and second respondents, from and including the terms of the tender agreement and the modelling agreement, both purported to provide and take responsibility for the services the subject of the agreements. Both are accordingly liable.

Lost opportunity claims 218 During closing submissions, senior counsel on both sides read extensively from a number of the leading cases in Australia directed to the question of causation and loss of opportunity, often, if I may say so with great respect to both of them, without focusing with sufficient precision on the cause of action to which the cases and statements of principle relied on were directed. 219 At the heart of the dispute between them was whether the cases establish that it is necessary for a plaintiff to prove the relevant hypothetical "on the balance of probabilities". But as Basten JA explained in Mal Owen Consulting Pty Ltd v Ashcroft [2018] NSWCA 135, the nature of the proof necessary in a case where damages are sought for a loss of an opportunity will depend on the cause of action relied upon. 220 As Basten JA explained, "[t]he term "loss of opportunity" is commonly used in claims for damages where the nature or extent of the harm suffered is uncertain. However, to the extent the term suggests a unitary concept, it can be misleading; it covers a range of circumstances and does not provide a simple concept to resolve the various circumstances in which it is invoked." His Honour continued at [12]-[13]: (a) general law principles According to general law principles, there are two critical distinctions to be drawn in formulating the recoverable loss, namely (a) between that which is recoverable for breach of contract and that which is recoverable in tort, and (b) between injury to commercial interests and personal injury. Where there is the loss of an opportunity to obtain a commercial advantage, the harm suffered will be constituted by that loss of opportunity. Further, where the claim is in contract, the actual occurrence of the harm is not an essential element of the cause of action and, unlike a claim in tort, is not part of the damage which must be proved on the balance of probabilities in order to complete the cause of action. … … [I]n Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, the plaintiff incurred expenditure on the basis of a repudiated contract where its prospects of making a substantial profit rested on its prospect of securing a renewal of the contract (at p 74). In discussing the assessment of such a loss of a chance, Deane J stated (at 118): If, for example, what the plaintiff has lost by reason of the defendant's repudiation or breach of contract is a less than 50 per cent but nonetheless real and valuable chance of winning some contest or prize, of being the successful tenderer for some commercial undertaking or of deriving some other advantage, in circumstances where a court can decide that a proportionate figure precisely or approximately reflects the chance of success but can do no more than speculate about whether, but for the defendant's wrongful act, the plaintiff would have actually won the contest, prize or tender or derived the advantage, it would affront justice for the court to hold that the plaintiff was entitled to no compensation at all for the lost chance of competing or striving or for the wasted expenditure which was incurred in obtaining or performing the contract. 221 After quoting from the joint reasons of Mason CJ and Dawson, Toohey and Gaudron JJ, and from the judgments of Deane J and Brennan J in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 (a claim for damages under s 82 of the Trade Practices Act 1974 (Cth)), to the effect that where a plaintiff seeks damages only for breach of a contractual promise to afford the plaintiff an opportunity to acquire a benefit are in a different category from cases under s 82 and cases in tort where damages are the gist of the cause of action, Basten JA quoted first from the judgment of Gummow ACJ and then from the judgment of Kiefel J in Tabet v Gett (2010) 240 CLR 537: 17. That reasoning [in Sellars] was affirmed in Tabet v Gett, a case approving the refusal of this Court to allow damages for the loss of a chance of a better outcome in relation to a claim for personal injury resulting from medical negligence. In addressing the issue of principle, Gummow ACJ stated: [47] It should be said immediately that the principles dealing with recovery of damages for breach of contract offer no appropriate analogy. The action for breach of contract lies upon the occurrence of breach, but that in negligence lies only if and when damage is sustained. This has significance for the application of limitation statutes. But it has the further and relevant importance identified by Brennan J in Sellars ...This is that in a negligence action, unlike an action in contract, the existence and causation of compensable loss cannot be established by reference to breach of an antecedent promise to afford an opportunity. Kiefel J (with whom Hayne and Bell JJ and Crennan J agreed) adopted a similar view: [123] It was recognised in Sellars v Adelaide Petroleum NL that a loss of the opportunity to obtain a commercial advantage or benefit is loss or damage for the purposes of s 82(1) of the Trade Practices Act 1974 (Cth), where the cause of action arose under s 52(1) of that Act. Previous decisions allowing for recovery had been based in contract, where the breach of the promise to provide the chance itself gave rise to the loss of that chance. But as Brennan J said, in cases under s 82(1), 'as in cases of tort where damage is the gist of the action, a lost opportunity may or may not constitute compensable loss or damage' and it must be proved in some other way. [124] What cases in contract, such as The Commonwealth v Amann Aviation Pty Ltd and Sellars v Adelaide Petroleum NL, have in common is that the commercial interest lost may readily be seen to be of value itself. The same cannot be said of a chance of a better medical outcome or a person's interest in it. Lord Hoffmann observed in Gregg v Scott that most cases where there has been recovery for loss of a chance have involved financial loss, where the chance itself can be regarded as an item of property. And in Sellars v Adelaide Petroleum NL Brennan J observed that, '[a]s a matter of common experience, opportunities to acquire commercial benefits are frequently valuable in themselves'. So long as an opportunity provides a substantial and not merely a speculative prospect of acquiring a benefit, it can be regarded as of value and therefore loss or damage." (Footnotes omitted.) 222 Finally, Basten JA referred to the decision of the High Court in Badenach v Calvert (2016) 257 CLR 440, noting, correctly in my view, that there is nothing inconsistent with the line of authority he had been dealing with, because Badenach v Calvert (2016) 257 CLR 440 involved a claim in negligence, not contract, and that there was no reference in it to claims for breach of a contract to provide a commercial opportunity. Accordingly, loss was an essential element of the cause of action in that case, as it was in Tabet v Gett (2010) 240 CLR 537. 223 Having reviewed the cases, Basten JA concluded at [19]: Once it is accepted that a claim lies for breach of a contract promising a commercial opportunity, the calculation of loss must be undertaken by an assessment of possibilities, in the manner recognised in Malec v J C Hutton Pty Ltd (1990) 169 CLR 638. 224 The relevant passage from Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 is at 642-643: When liability has been established and a common law court has to assess damages, its approach to events that allegedly would have occurred, but cannot now occur, or that allegedly might occur, is different from its approach to events which allegedly have occurred. A common law court determines on the balance of probabilities whether an event has occurred. If the probability of the event having occurred is greater than it not having occurred, the occurrence of the event is treated as certain; if the probability of it having occurred is less than it not having occurred, it is treated as not having occurred. Hence, in respect of events which have or have not occurred, damages are assessed on an all or nothing approach. But in the case of an event which it is alleged would or would not have occurred, or might or might not yet occur, the approach of the court is different. The future may be predicted and the hypothetical may be conjectured. But questions as to the future or hypothetical effect of physical injury or degeneration are not commonly susceptible of scientific demonstration or proof. If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high - 99.9 per cent - or very low - 0.1 per cent. But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability. The adjustment may increase or decrease the amount of damages otherwise to be awarded … The approach is the same whether it is alleged that the event would have occurred before or might occur after the assessment of damages takes place. 225 In my view, Basten JA in Mal Owen Consulting Pty Ltd v Ashcroft [2018] NSWCA 135 correctly summarises the general law principles in relation to claims for damages for lost opportunity in cases brought in tort, contract or under the ACL. To the extent to which the reasons of Macfarlan JA (dissenting) suggest otherwise, I respectfully disagree. 226 In this case, however, I have found that the applicant has succeeded in its claim in deceit. If I am wrong about the assessment of damages on its principal case, the relevant question that then arises is whether the applicant's claims for damages for lost opportunities relied on were relevantly caused by the respondents' deceit. 227 My researches have discovered only one case in which damages have been awarded for loss of a chance in deceit. 228 In 4 Eng Ltd v Harper [2008] EWHC 915 (Ch); [2008] 3 WLR 892 (4 Eng), 905C, David Richards J (as his Lordship then was) held that "[i]f the loss of the chance is damage directly caused by the defendants' deceit, it is as much within the scope of damages for deceit as payments or liabilities in fact made or incurred by the claimant or as damages for the loss of profits in a hypothetical alternative business …". He continued that: "[i]t does not seem to me to be an objection that the loss is assessed as a loss of chance, not as a loss established on the balance of probabilities … It is true that it does not previously appear to have been decided that damages for loss of a chance are recoverable for deceit, but there is in my judgment no objection in principle. If damages for loss of a chance are recoverable in negligence, why should they not also be recoverable in deceit?" 229 The decision in 4 Eng has not been considered in Australia but the proposition set out in the immediately preceding paragraph, it seems to me, must be correct. In any event, I proceed on the basis that it is.

The Increased Bid Opportunity 230 NBS says that if it had become aware of the amortisation error in the period up to the lodgment of the tender, it would have lodged a revised tender including the additional $660,000 per year funding over the 9 years of the region 15 contract for the transfer-in buses. 231 The respondents submit, on the other hand, that NBS bore the onus of establishing, on the balance of probabilities, that the loss of its opportunity to obtain the region 15 contract at the higher bid price was not hypothetical or speculative and that NBS was required to prove, and had not proved, that had it submitted the increased bid for region 15 then it was more likely than not that the increased bid would have been accepted. 232 The respondents further submitted that evidence of the hypothetical - that is whether TfNSW would or would not have accepted the increased price proposal - was "readily attainable". The respondents submitted that TfNSW could have been called or subpoenaed for evidence as to the following things: • whether TfNSW had any history of renegotiating bus service contracts at the request of operators; • TfNSW's willingness to renegotiate the region 15 contract; • the viability (financial or otherwise) of TfNSW renegotiating the region 15 contract; • whether TfNSW would prefer, for example for the sake of cost effectiveness, to choose a different operator to operate region 15 instead of renegotiating with NBS; any other information, consideration or methodology that would influence its decision as to whether to renegotiate or not. 233 The respondents also submitted that evidence could have been led of other instances of NBS or Mr Joe Calabro successfully renegotiating the contract with TfNSW or other government bodies after entry into a bus services contract. It was also said that other tenderers could have been called to give evidence of instances of successfully renegotiating a contract with TfNSW. 234 In my view, it was not necessary for NBS to call such evidence and, in any event, it seems to me to be unrealistic to expect that a government agency such as TfNSW would volunteer evidence of the type the respondents insist was necessary. It also seems to me the height of unreality to suggest that it was up to NBS or any of its rivals to adduce evidence of previous successful attempts to renegotiate contracts with TfNSW. 235 For the reasons set out above (at [191]-[200]), in my view, the test propounded by the respondents is, in circumstances such as this, where the lost opportunity was caused by deceit, not the applicable test. (Nor is it the applicable test, as Basten JA explained in Mal Owen Consulting Pty Ltd v Ashcroft [2018] NSWCA 135, in contract cases). The correct test in an action brought in deceit is whether the lost opportunity was a direct cause of the deceit. In the case of the Increased Bid Opportunity, the deceit that I have found to have occurred did not occur until after the bid was accepted. It follows that damages in deceit are not recoverable in respect of it. 236 If it should later become relevant, I should express my view about the claim NBS makes in breach of contract in respect of the Increased Bid Opportunity. In my view, NBS has established, on the balance of probabilities, that if it had become aware of the amortisation error in the period up to the lodgment of the tender, it would have lodged a revised tender including the additional $660,000 per year funding over the 9 years of the region 15 contract for the transfer-in buses and that such a bid would have succeeded. I would make that finding for the following reasons. 237 First, an additional $660,000 per year on the transfer-in buses capital costs in the region 15 contract would have resulted in an overall price, as Mr Joe Calabro said in the course of his cross-examination "definitely a way - a long way under" the incumbent operator's then current contract price. 238 Secondly, adding the extra $660,000 per year would have represented more than a 5% discount on the then incumbent operator' contract price, which Mr Stewart swore was the discount that he had been told by his government sources with the discount required to be competitive. 239 Thirdly, it is evident from the fact that NBS was the successful tenderer that it must necessarily have satisfied all the other components of the requirements which had to be met in order to be awarded the bid, including regulatory compliance, experience, service quality and so on (see [24] above). 240 Fourthly, the extra $660,000 per year represented in the order of about 2.5% of the overall cost of the region 15 contract and should be regarded in the scheme of things as insignificant. 241 Doing the best that I can I would have estimated the probability of the posed hypothetical occurring at 70%.

The Correction Opportunity 242 NBS says, in the alternative, had it become aware of the error in the period following the lodgment of the tender, but prior to commencement of the region 15 contract, NBS would have attempted to renegotiate with TfNSW to amend the region 15 contract so that it provided for funding for the transfer-in buses over the 9 years of the region 15 contract, undiminished by the amortisation error. 243 In my view, were it necessary to decide the point, I would find that NBS has established this claim on the balance of probabilities. It does so for the same reasons as the previous claim but, in my view, NBS is correct to say that there was an additional reason why this outcome would have occurred, namely because as at March 2014, NBS was due to commence operating bus services in region 15 in a little over two months. NBS says, and I agree, that would have placed TfNSW in an awkward negotiating position, making it more likely that it would have acceded to the request to accept the revised tender, and conversely most improbable that it would have reverted to the services of the incumbent operator in circumstances where the revised bid was still less than the price at which the incumbent operator currently provided the bus services. 244 I would estimate the probability of that occurring, doing the best that I can, to estimate the chances of the posed hypothetical, at 75%. In my view, that loss of chance would be recoverable in deceit and in contract, at least.

The Invest Elsewhere Opportunity 245 It is also unnecessary for me to consider this claim, given the view that I have taken about the principal claim. 246 The Invest Elsewhere Opportunity claim was put on the basis that if NBS had been unable to negotiate with TfNSW to amend the region 15 contract to obtain the additional $660,000 per year funding for the transfer-in buses over the 9 years of the region 15 contract then NBS would not have commenced bus services under the region 15 contract and would have failed to meet critical milestones under that contract so that it would not have had to commence bus services under the contract - in which case NBS would have used the funds available in alternative investments in residential and commercial property, in which case NBS's loss is alleged to be $3,352.150. 247 If it becomes important, for whatever reason, to make findings in respect of this claim I would not have allowed it, for the following reasons. 248 The respondents submit, and I agree, that NBS cannot as a matter of law advance "an inconsistent counterfactual", being the alternative case that if it had been unsuccessful in having it increased bid accepted or it was unsuccessful in persuading TfNSW to increase the existing region 15 contract by the full amount, then it would have engaged in property development. The respondents say that this opportunity claim cannot be pleaded as a matter of law as an alternative claim. It submits that NBS has conducted its case on the basis that it would have lodged an increased bid had the error not been made, and that it would have approached TfNSW to revise the region 15 contract price upwards had the error been discovered. It says that it is the probability and possibility of these two hypothetical counterfactuals being established is something that NBS must prove. It says that, as a matter of principle, if the evidence justified such a finding, NBS cannot then advance a contrary hypothesis that, were it unsuccessful in either event, it would have proceeded to purchase property and then seek to have the value of that opportunity assessed. The respondents further say, in any event, and more fundamentally, that NBS has failed to establish on the balance of probabilities that it would have adopted the "invest elsewhere" opportunity, including because of the inherent unlikelihood that a bus company would invest the whole of its paid up capital, plus borrowed money, into real estate for the purposes of investment, when it had not done so before. 249 The respondents submit that NBS is in the business of conducting a bus business, and that the only evidence on the question of investing in land was that adduced by Mr Joe Calabro. Mr Tony Calabro gave no evidence whether he would have agreed in effect that the whole of the net equity of NBS should invested in land, or whether he would have agreed to investing the whole of that equity in residential or industrial or vacant land, let alone in what proportion, and over what period of time and on what terms. 250 Critically, the respondents contend that the evidence adduced by NBS does not satisfy the threshold test on the balance of probabilities. 251 Mr Joe Calabro's evidence was that his practice was to use available funds to either reinvest into one of the Calabro Group of Companies, purchase a new bus transportation business and/or invest in parcels of land. It was not Mr Joe Calabro's practice to invest in the share market or in "non-bus" businesses. On the contrary, his evidence was that if NBS did not succeed in its increased tender price for Region 15 then it would have used the available funds to either purchase a regional bus business, if available, or otherwise parcels of land. His evidence was that if no suitable bus business had been available to purchase, then the vast majority of available funds would have been spent on "parcels of land for investment to be held for capital growth and/or long-term development". 252 The respondents submit, and I agree, that the evidence adduced to support the assertion that NBS would have purchased land for investment is inadequate. The following facts were not disputed by NBS: (1) NBS does not own and never has owned any property that is rented commercially; (2) all land (other than two exceptions) purchased by Mr Joe Calabro and/or NBS has been related to his bus businesses, either as land that was "part and parcel" of bus business assets acquired or land used for the purposes of the bus business, such as depot land and staff accommodation; (3) there is no evidence of any history of Mr Joe Calabro, or Mr Tony Calabro, or NBS purchasing residential or industrial property for investment purposes; and (4) Mr Tony Calabro gave no evidence about whether, in his capacity as a director and shareholder of NBS, he would have engaged in property development on such a scale (approximately $15 million). 253 In those circumstances, it seems to me that there is insufficient evidence to make good the proposition that NBS would have made any investment in land of such a scale in the posited hypothetical circumstances. 254 For those reasons, were it necessary to decide the claim, I would not have allowed it.

Non-provision of services 255 There was another pleaded point that it is probably desirable to express a view about. It concerns the applicant's complaint that the respondents dishonestly charged it for critical services that they knew had not been provided. The point was argued in the context of whether the Professional Standards Schemes may be invoked at all in this case. 256 It is, as I have said earlier, common ground that the Professional Standards Schemes do not apply to limit liability "for damages arising from any of the following … (c) a breach of trust; (d) fraud or dishonesty". 257 NBS contends that the respondents breached the tender agreement because they did not perform the promised services, and, in particular, did not perform a QA review that Mr Stewart conceded, had it been performed, would without more have disclosed the amortisation error. NBS contends that its claim for breach of the tender agreement "arises from dishonesty" within the meaning of the Professional Standards Schemes with the result that the limitation on liability ($1m) provided for by that legislation has no application to the claim for damages for that breach. 258 In their written closing submissions, counsel for NBS put the case in these terms: The damages claim for the breach of contract claim is clearly one that arises from dishonesty. Pitcher Partners promised to perform services. Pitcher Partners did not perform those services. Pitcher Partners knew that they had not in fact performed the majority of the work described in the retainer letter but despite this knowledge Pitcher Partners still did not inform [NBS] of this failure and did not inform [NBS] about the truth of the extent of the work that had not been done including the lack of forecasting of profitability and the lack of forecasting of cash flow. Instead Pitcher Partners invoiced [NBS] for performance of all services in an amount commensurate with the performance of all services described in the retainer letter… Such conduct is clearly dishonest and as such the claim for breach of contract can only be described as one arising out of dishonesty so that the Professional Standards limitations do not apply. 259 In its defence, the first respondent admits that it "did not provide or purport to provide" any of the services described in 6 of the ASOC (set out in the immediately preceding paragraph) or the services described in the emphasised part of the letter at [23] above (collectively, the services not provided). Although its pleaded case was that it did not provide those services because NBS never asked it to, that defence (unsurprisingly, given the clear terms of the tender agreement) was not emphasised. 260 Although the pleading does not expressly refer to it, because the relevant evidence emerged in cross-examination of Mr Stewart, a critical part of the services that should have been provided as part of the services promised by the tender agreement (and later the 3 way modelling agreement), but was not provided, was a QA review. 261 NBS alleges that the first respondent's admission in respect of the services not provided founds an allegation of a continuing fraud, sounding in damages, from prior to the submission of the tender, as follows: (1) at no time did the first respondent tell NBS of its failure to provide the services not provided; (2) the first respondent rendered an invoice for performance of the tender agreement, without telling NBS that it had not provided those services; (3) had the first respondent provided those services, or one or more of them, then the amortisation error would have been discovered and corrected prior to the submission of the region 15 tender. 262 The particulars of that dishonesty are as follows: (1) the first respondent knew or ought to have known that it had promised to perform the services not provided by the terms of the tender agreement; (2) the first respondent knew or ought to have known that it was obliged to tell NBS of its failure to provide those services, or any one or more of them, being conduct in breach of the tender agreement; (3) the failure to provide the services, or any one or more of them, and the failure to inform NBS of that failure was dishonest. 263 For the same reasons, NBS alleges that because the first respondent knew that it had not provided the services not provided, each of the other pleaded representations, the "First Representations" (about the tender agreement), the "Confirmation Representations" (arising from NBS' request of Mr Stewart and others to double check the relevant figures) and the "Second Representations" (with respect to the 3 way modelling agreement) were also, therefore, knowingly or recklessly false. 264 Accordingly, NBS says that there is no limitation on its claims for damages in tort, for breach of contract or in contravention of the ACL. 265 Had it been necessary to decide the point, I would accept that submission for the reasons advanced by NBS.

Fiduciary duties 266 This issue was not dealt with in oral closing submissions. The parties were apparently content to rely on their written closing submissions about it. 267 I do not accept that the respondents owed any fiduciary duties to NBS. 268 NBS claims that each of the respondents owed it the following fiduciary duties (see ASOC at [42], [86] and [93]): (1) to act with good faith and in the best interests of NBS; (2) to ensure that they did not act for NBS in circumstances where there was a likelihood that their interests may conflict with it; (3) to ensure that they placed the interests of NBS before their own interest in circumstances where a conflict of interest arose; (4) to otherwise faithfully and diligently: (a) carry out their obligations under the terms of the tender agreement and the modelling agreement; (b) provide NBS with the services, tasks, forecasting services and the forecasting task sought (as defined) and; (c) not improperly to use their position to cause damage to NBS. 269 In their written closing submissions, counsel for the respondents correctly submitted that the "critical feature" of a fiduciary relationship is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. 270 As Mason J (as he then was) explained in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (Hospital Products) at [67]-[70]: … As the courts have declined to define the concept, preferring instead to develop the law in a case by case approach, we have to distill the essence or the characteristics of the relationship from the illustrations which the judicial decisions provide. In so doing we must recognize that the categories of fiduciary relationships are not closed. The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations … viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of" and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal. It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed … Thus a mere sub-contractor is not a fiduciary. Although his work may be described loosely as work which is to be carried out in the interests of the head contractor, the sub-contractor cannot in any meaningful sense be said to exercise a power or discretion which places the head contractor in a position of vulnerability. That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. (Citations and references omitted.) 271 As the Court explained in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at [86]-[92]: The parties accepted that the relevant principles regarding the existence of a fiduciary relationship which does not fall within an established category, and the incidents of such a relationship, are those stated by Mason J in [Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41]. This is so notwithstanding that Mason J was in dissent … … Justice Lehane, writing extra-judicially [Lehane, "Fiduciaries in a Commercial Context", in Finn (ed), Essays in Equity, (1985) 95 at 100], made two points relevant to the present question. The first point is that phrases such as "for or on behalf of" (and "in the interests of") another person must be understood in a reasonably strict sense, lest the criterion they formulate become circular. No doubt undertaking to act in this way is inherent in the position of trustee administering a trust, director participating in the control and management of a company, partner acting in the conduct of the partnership business and employee acting in the course of the business of the employer, for example. Further, such an undertaking may be found in the facts of a particular case … But, as Justice Lehane asked…: [W]hen is a contractual stipulation inserted for the benefit of one party (even if offered by the other party) an undertaking to act for or on behalf of that party and therefore to act, in relation to the contract, solely in the interests of that party? When does an offer to enter into a contract proposed by one party as a deal which will benefit the other (as well as himself) become such an undertaking by the former to the latter? That leads to Justice Lehane's second point. This is that the reason why commercial transactions falling outside the accepted traditional categories of fiduciary relationship often do not give rise to fiduciary duties is not that they are "commercial" in nature, but that they do not meet the criteria for characterisation as fiduciary in nature … … The terms of the contract include not only those expressed, but those implied, particularly those implied pursuant to the principles in Codelfa Construction Pty Ltd v State Rail Authority of NSW. (Footnotes and citations omitted.) 272 The nature of the relationship between a professional adviser and its client, including whether the adviser owes any fiduciary duties to the client, depends on the particular facts and circumstances: see Pavan v Ratnam (1996) 23 ACSR 214 at 224-225, where the New South Wales Court of Appeal it held that a fiduciary relationship did not exist between a tax accountant and his client where the accountant advised the client, for the purpose of reducing his tax liability, to invest in property which the accountant proposed to develop. 273 In this case, as the respondents submitted, the first respondent was engaged by NBS to assist first with the tender process and then to prepare a 3 way cash flow model. Neither the tender agreement nor the modelling agreement contain an undertaking or other agreement that any of the respondents would act for or on behalf of, or in the interests of, NBS in the exercise of any particular power or discretion that would affect the interests of NBS, in the sense that the cases require. The agreements were quite clear in the nature of the undertaking. For example, the tender agreement stated, among other things, that "we consider the scope and objectives of our engagement is to advise NBS with various matters related to the submission of its tender response …" The modelling agreement provided that NBS "is seeking assistance with the preparation of forecasts to obtain a more foreign understanding of the cash flows … The business requires support in the preparation of forecasts that will enable management to forecast the financial statements for NBS". 274 In my view, the respondents correctly submit that the parties' obligations to one another in respect of the engagements were exhaustively contained in the terms of the relevant agreements, and neither of the agreements contained the "critical feature" Mason J referred to in Hospital Products, viz an undertaking or agreement that any of the respondents would act for or in behalf of or in the interests of NBS in the exercise of a power or discretion which would affect the interests of NBS in a legal or practical sense. Again, as the respondents submitted, to superimpose a fiduciary relationship in these circumstances would be contrary to the terms of both the transfer agreement and the modelling agreement. 275 Further, and in any event, the particular pleaded fiduciary duties (to act with good faith and in the best interests of NBS, to ensure that they did not act for NBS in circumstances where there was a likelihood that their interests may conflict with it and so on (see [268] above)) are not accepted as fiduciary duties because they are impermissibly "prescriptive". As the plurality explained in Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at [74]: …In Breen v Williams [(1996) 186 CLR 71], the point was made, by way of contrast to what is said in some of the Canadian judgments, that fiduciary obligations are proscriptive rather than prescriptive in nature; there is not imposed upon fiduciaries a quasi-tortious duty to act solely in the best interests of their principals. In Breen v Williams, Gaudron and McHugh JJ said [at 113]: In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed. 276 For those reasons, I do not accept the contention of NBS that any of the respondents owed to it any of the fiduciary duties pleaded.

Exemplary damages 277 NBS sought exemplary damages in respect of the action in deceit and the negligence claims. In my view, this is not a case in which there is a need to "punish" Mr Stewart in the sense in which that word is used in the cases (See, eg, Lamb v Cotogno (1987) 164 CLR 1; Gray v Motor Accident Commission (1998) 196 CLR 1). And the first and second respondents themselves, qua partnerships, were not dishonest. The partners are, rather, liable for Mr Stewart's deceit. 278 In those circumstances, I decline to make an award of exemplary damages in this case.

Professional Standards Schemes 279 The parties agreed that if I were to make, as I have, findings of dishonesty in respect of Mr Stewart's conduct, it is unnecessary for me to consider the detailed and very helpful submissions made by the parties in respect of whether the Professional Standards Schemes impose relevant caps on the quantum of damages recoverable. Accordingly, consistently with the agreement of the parties, I do not deal with those submissions.

Disposition 280 For the reasons given above, NBS is entitled to judgment against the respondents on its principal claim brought in deceit in the sum of $5,485,416. That sum is to be adjusted to reflect the date of judgment. In those circumstances, I will direct NBS to file and serve a note with the calculation as to the precise sum in respect of which judgment is to be entered. 281 I will also list the matter for further hearing on any consequential orders to be made, including as to costs and interest. I certify that the preceding two hundred and eighty-one (281) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan.