Rakic v Johns Lyng Insurance Building Solutions

134 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Goldman Sachs JBWere Services Pty Ltd v Nikolich [2007] FCAFC 120 Gould v Vaggelas (1984) 157 CLR 215 Hatt v Magro (2007) 34 WAR 256 Holz v Lane [2005] WASCA 40 Jones v Dunkel (1959) 101 CLR 298 Jones v Schiffmann (1971) 124 CLR 303 Keays v J P Morgan Administrative Services Australia Limited [2011] FCA 358 Keays v JP Morgan Administrative Services Australia Ltd (2012) 224 IR 406 La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd (2011) 190 FCR 299 Malec v J C Hutton Proprietary Limited (1990) 169 CLR 638 Maritime Union of Australia v Fair Work Ombudsman [2015] FCAFC 120 Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 Moss v Lowe Hunt & Partners Pty Ltd [2010] FCA 1181 Murphy v Westpac Banking Corporation [2014] FCA 1104 Norris v Blake (No 2) (1997) 41 NSWLR 49 North East Equity Pty Ltd v Proud Nominees Pty Ltd (2010) 269 ALR 262 North East Equity Pty Ltd v Proud Nominees Pty Ltd (2012) 285 ALR 217 O'Neill v Medical Benefits Fund of Australia Ltd (2002) 122 FCR 455 Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) ¶46-179 Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338 Rosebanner Pty Ltd v EnergyAustralia (2009) 223 FLR 406 RT & YE Falls Investments Pty Ltd v the State of New South Wales [2001] NSWSC 1027 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 SPAR Licensing Pty Ltd v MIS Qld Pty Ltd (2014) 314 ALR 35 SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (No 2) (2012) 298 ALR 69 Sykes v Reserve Bank of Australia (1998) 88 FCR 511 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 Walker v Salomon Smith Barney Securities Pty Ltd (2003) 140 IR 433 Westpac Banking Corporation v Wittenberg [2016] FCAFC 33 Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (2012) 301 ALR 1

Date of hearing: 15, 16, 17, and 18 September 2015

National Practice Area: Employment and Industrial Relations

Solicitor for the Applicant: McDonald Murholme, Barristers and Solicitors

Solicitor for the Respondent: Kliger Partners, Lawyers

AND: JOHNS LYNG INSURANCE BUILDING SOLUTIONS (VICTORIA) PTY LTD AS TRUSTEE FOR THE JOHNS LYNG INSURANCE BUILDING SOLUTIONS (VICTORIA) UNIT TRUST Respondent

JUDGE: BROMBERG J DATE OF ORDER: 27 April 2016

1. On or before 11 May 2016, the Applicant file and serve: (a) any written submissions concerning costs and interest; and (b) a minute of proposed orders for the disposition of the application.
2. On or before 18 May 2016, the Respondent file and serve: (a) any written submissions concerning costs and interest; and (b) a minute of proposed orders for the disposition of the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BROMBERG J: 1 Insurance building is a subset of the insurance industry. When insured property is damaged and a claim made on the insurer, the insurer might arrange to have the property repaired and draw upon the insurance builder market. It would seek quotes from insurance builders for the repair of the property. Persons employed by insurance builders would visit the property and prepare estimates for the repair. Quotes or tenders, based on estimates, would be given to the insurer. The insurer would accept one such quote, whereupon the relevant insurance builder would either repair the property or engage subcontractors to do so. The amount by which the quote exceeds the actual cost to the insurance builder of repairing the property is its gross profit on the engagement. 2 The respondent (Johns Lyng) is a proprietary limited company and the trustee of a unit trust. It is an insurance builder. The applicant (Ms Rakic) has been employed in the insurance industry since 1988. Between around 8 April 2013 and 24 February 2014, Ms Rakic was employed by Johns Lyng as a General Manager. Ms Rakic alleges that, through its conduct between 20 March 2013 and 3 April 2013 (that is, in the course of discussions concerning her potential employment by Johns Lyng), it made certain representations to her concerning its profitability. This was of interest to her because the terms on which she was offered employment included that her remuneration would be partly by way of a percentage of net profit. 3 The representations, so it was alleged, were misleading or deceptive within the meaning of cll 18 and 31 of the Australian Consumer Law forming Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL). Relying on the representations, Ms Rakic says, she left her job at Pattersons Insurerbuild Pty Ltd (Pattersons) and accepted employment with Johns Lyng. Ms Rakic alleges that, had she not relied upon the representations, she would have continued in her employment at Pattersons, or she would have become employed elsewhere on terms that were as remunerative as her terms at Pattersons, or more so. She seeks compensation under cl 236 of the ACL. I will call that the ACL claim. 4 Ms Rakic seeks relief in two other forms. The first arises out her contractual entitlement to "2.5% of the Insurance Building Solutions (Victoria) Pty Ltd net profit," in respect of the 2012/13 financial year (FY13). Ms Rakic's employment with Johns Lyng commenced fairly late in FY13, but she claims that she is entitled to 2.5 per cent of the net profit for the entire year. Johns Lyng contends that she has no entitlement. Its case was that the clause has the effect that Ms Rakic was entitled to 2.5 per cent of net profit made during her employment, and that during that period Johns Lyng made a loss. I will call this the Debt claim. 5 The final issue arises from Johns Lyng having paid $20,343.63 in lease payments, during the term of Ms Rakic's employment, under a novated lease in respect of Ms Rakic's vehicle. In March 2014, Johns Lyng demanded of Ms Rakic that she pay to it that sum. Ms Rakic declined to do so. She alleges that it was an oral term of her contract of employment with Johns Lyng that it would assume responsibility for payments for the lease of her vehicle. Ms Rakic seeks a declaration that she does not owe Johns Lyng any sum in respect of the novated lease arrangement. This is the Lease issue. 6 For reasons that follow, I have decided that the ACL claim is established, and that Ms Rakic has suffered $333,422 of compensable loss or damage. I have decided the Debt claim in Ms Rakic's favour and found that Johns Lyng is indebted to Ms Rakic in the amount of $16,529, and I have decided the Lease issue against Ms Rakic.

The ACL claim 7 Clauses 18 and 31 of the ACL provide as follows: 18 Misleading or deceptive conduct (1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in Part 3‑1 (which is about unfair practices) limits by implication subsection (1). Note: For rules relating to representations as to the country of origin of goods, see Part 5‑3. 31 Misleading conduct relating to employment A person must not, in relation to employment that is to be, or may be, offered by the person or by another person, engage in conduct that is liable to mislead persons seeking the employment as to: (a) the availability, nature, terms or conditions of the employment; or (b) any other matter relating to the employment. Note: A pecuniary penalty may be imposed for a contravention of this section. 8 Clause 236 provides as follows: 236 Actions for damages (1) If: (a) a person (the claimant) suffers loss or damage because of the conduct of another person; and (b) the conduct contravened a provision of Chapter 2 or 3; the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention. (2) An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued. 9 Ms Rakic relied upon representations as constituting the "conduct" for the purposes of cll 18, 31 and 236. The representations made by Johns Lyng were said to be as follows: (a) As at mid to late March 2013, [Johns Lyng] was a highly profitable business. (b) [Johns Lyng's] profits and sales in the 2013 financial year were likely to meet or exceed its profits and sales in the 2011 and 2012 financial years. (c) It was probable that after late March 2013, for at least the next 12 months, [Johns Lyng] would remain as profitable as it had been in the previous 2 years. (d) As at mid to late March 2013 there was no reason of which [Johns Lyng] was aware for [Johns Lyng] not to meet its sales and profitability budgets and forecasts for the 2012 [sic] financial year. I assume that the reference to the 2012 financial year in (d) was intended to be to FY13. In oral submissions, Ms Rakic confirmed that representation (a) was not pressed. 10 The ACL claim raises these questions: (1) Were any of the representations made, and made in trade and commerce? (2) If yes to (1), was Johns Lyng's conduct, including the making of any such representations, misleading or deceptive? (3) If yes to (1) and (2), did Ms Rakic suffer any loss or damage because of Johns Lyng's conduct? (4) If yes to (1), (2), and (3), what quantum of loss and damage did Ms Rakic suffer because of Johns Lyng's conduct?

Were the representations made? 11 Ms Rakic relied on three events as establishing the making of the representations: a conversation that she had with Mr Scott Didier (a director of Johns Lyng) on 20 March 2013, an email that she received from Mr David Cameron (another director of Johns Lyng) on 21 March 2013, and a failure by Johns Lyng to inform Ms Rakic prior to mid-April 2013 of any deterioration in sales and profits. There was an evidential contest as to the conversation with Mr Didier, but not as to the other two events: the email speaks for itself and, though Johns Lyng denied (under cover of an objection) that it did not inform Ms Rakic of any deterioration in sales and profits, there was nothing in evidence to contradict the proposition that it did not do anything to correct Ms Rakic's misapprehensions - if any - prior to mid-April 2013. 12 Before Ms Rakic's employment with Pattersons, she was employed by QBE. As at September 2012, when she left for Pattersons, she was QBE's National Claims Manager. In her capacity as National Claims Manager, she had interactions with representatives of the various insurance builders on QBE's "panel" of such builders. That included Mr Stuart Patterson of Pattersons, whom she had known for around eight years. It included Ms Christie Lutze of Johns Lyng, whom Ms Rakic had known since around 2005, and with whom she had become friendly. 13 In August 2012, Ms Rakic was still at QBE but was in discussions with Pattersons concerning employment with Pattersons. In late August 2012, an in-principle agreement was reached and later that month Ms Rakic executed a contract of employment. In October 2012 Ms Rakic commenced employment with Pattersons. Around five months later, in March 2013, Ms Rakic spoke on the telephone with Ms Lutze. There are minor evidential disputes concerning the circumstances of that conversation, including whether it was followed by a lunch, but those are not necessary to resolve. It is uncontroversial that, thereafter, Ms Lutze arranged for Mr Didier to contact Ms Rakic. On 20 March 2013 at around 3:00 pm, Ms Rakic met with Mr Didier at Brunetti café in Carlton, Victoria and they had a conversation of around one hour (Brunetti meeting).

The conversation with Mr Didier 14 According to Ms Rakic, Mr Didier told her that her base salary would be $115,000, plus standard superannuation. He told her that she would receive 2.5 per cent profit share. Ms Rakic gave evidence that she and Mr Didier discussed that Johns Lyng's offer was around $100,000 less remunerative in terms of base salary than her Pattersons salary. He said that the "profit share would make up the difference for the gap." He spoke about equity and directorship, and said that five per cent equity would be offered to her after six months of employment. She had not been exposed to equity before, and did not understand how that would work. Mr Didier said that, once she started with Johns Lyng, she could get assistance from Mr John McPhee, the chief financial officer. Mr Didier said that the equity and profit share system was "quite a successful model," which had been in place for a number of years and had been very successful for him. 15 In cross-examination, Ms Rakic said that Mr Didier started the conversation by speaking about Johns Lyng's insurance builders business and said that it was one of the bigger companies within the Johns Lyng group of companies. He "talked about how successful it [had] been." She denied that Mr Didier made reference to the profits of Johns Lyng, in the following exchange: MR McKENNEY: All right. And indeed, Mr Didier made reference to the profits of the insurance builders at the meeting, didn't he? MS RAKIC: No. MR McKENNEY: And, in fact, he made reference to the company being in profit? MS RAKIC: He made mention that the company was very successful. MR McKENNEY: All right. You see, Ms Rakic, as I understand it the claim that you've made in this court, you've indicated in your statement of claim that you were told that insurance builders had made a profit, as I understand it? MS RAKIC: No. I was told that insurance builders was a successful company. MR McKENNEY: …You say he talked about success of the company ..... profits ..... company at the time you accept, don't you, that it was in profit at the time he spoke to you? MS RAKIC: I wasn't aware if the company was in profit. I was aware that Scott said that the company was very successful. 16 Ms Rakic similarly said, later, that "we never discussed about the company making a profit or not. We only discussed that the company was successful." It was put to her that Mr Didier had not said that profit share would make up the "gap" between her Pattersons salary and the salary offered by Johns Lyng. Ms Rakic answered as follows: He said - when I said to him that I was concerned about the hundred thousand dollar difference in salary, he said to me that the - that that gap would be made up with the profit share. There followed questions concerning whether Ms Rakic understood that receiving money pursuant to a profit share entitlement required that a profit actually be made. This continued for around three pages of transcript, the length of the exchange was caused by two separate but similar issues being addressed, one of which Ms Rakic substantially accepted and the other of which she rejected. 17 Ms Rakic accepted was that she knew that receipt of monies pursuant to a profit share arrangement required there to be profits. That is an obvious proposition, which Ms Rakic must reasonably have accepted. I think that she did, in the following exchange: MS RAKIC: There needs to be a profit. Is that what you're saying? MR McKENNEY: Yes. That's all I'm - - -? MS RAKIC: Yes. Yes. MR McKENNEY: That's all contingent on there being a profit? MS RAKIC: Yes. 18 Earlier and later, Ms Rakic was somewhat obstinate in refusing to accept similarly-worded propositions. The below is an example: MR McKENNEY: And as far as a profit share is concerned, you would understand that would depend upon the profit continuing? MS RAKIC: Well, it was dependent on the profit share. MR McKENNEY: Yes. But in terms of - in terms of any share of a profit, obviously was contingent upon there being a profit? MS RAKIC: Well, as Scott explained it to me, the 2.5 per cent is part of profit share. … So when I said to him there's a - pardon me - there's a hundred thousand dollar difference, when he said to me the gap would be up by the profit share, I assumed that the profit share would be the equivalent or - and/or near the hundred thousand dollar gap. 19 So far as Ms Rakic sought, thereby, to suggest that she understood that she had received a guarantee, or that she thought profit could not ever fall, I would not accept that evidence. But, as I explain below, neither of those propositions was essential to Ms Rakic's case. 20 I turn to Mr Didier's evidence. Mr Didier agreed that he met with Ms Rakic on 20 March 2013, and said that his purpose was to see if she would like to join Johns Lyng, in the role of co-General Manager. Mr Didier accepted that Johns Lyng had been having difficulties with the insurer Suncorp for the best part of six months. He accepted that the relationship with Suncorp was not in the healthiest position, but said that it was not in dire straits. He accepted that, on Suncorp's panel of insurance builders, Johns Lyng was ranked seventeenth out of seventeen - the "worst of the worst position". He was aware that the board of Johns Lyng had been told that Johns Lyng was likely to be "delisted" by Suncorp (the consequence of which was that it would not get further work from Suncorp unless re-listed). However, Mr Didier characterised that as a "process that … can go on for three and six months" and said that "you've got to remove yourself from 17th position, which we did." 21 Mr Didier accepted that he knew, at the time of meeting Ms Rakic, that she had been working with Pattersons for around six months. He knew that Ms Rakic had caused the Suncorp rating for Pattersons to move from the middle of the table to a position near the top - the first one or two. He knew that, for a company the size of Pattersons, that would translate into around a 25 per cent increase in revenue. He accepted that part of the reason he wanted to hire Ms Rakic was so that she would do for Johns Lyng what she had done for Pattersons. 22 In that context, and importantly, Mr Didier agreed that he wanted to induce Ms Rakic to come to work for Johns Lyng. He agreed that he saw the 20 March meeting as involving the setting out of terms that were going to induce her to come over. He baulked at the suggestion that he knew that the terms he offered were going to have to be substantially the same as Ms Rakic's Pattersons terms or better. He allowed instead that he could "only put forward what … we can do." He said, "I didn't know what [Ms Rakic's] salary was at Pattersons. I can only put forward our structure and what we do," and that he was hoping it would be appealing to her. 23 Mr Didier said that he and Ms Rakic had discussed salary and that the content of the discussion was what the "TFR" - Total Fixed Remuneration - would be: MR DIDIER: I said that it was a TFR, which is total fixed remuneration. … It's a lump sum and you can package it however you like, but the TFR is what we use to budget as a cost to the business. … MR McKENNEY: And what did you say about profit share? MR DIDIER: I explained our structure on how profit share works and how profit share - we look at - - - HIS HONOUR: Can you tell me what you actually said? MR DIDIER: So it would start with a TFR and a profit share; that would be the arrangement. MR McKENNEY: Did you discuss the arrangement in any detail with her? MR DIDIER: I discussed the structure of how we structure up incoming potential partners. MR McKENNEY: Right. And are you able to tell the court what you said about that matter? MR DIDIER: Yes. I explained - and it's a generic explanation that we explain to all incoming partners - that we have a - you become an employee of your business and you also become a potential partner in your business. And how we introduce potential partners is you come in first as a - on a profit share, [we] work together for a period of six months, and after that six month period we review it, and if everyone is getting along well and it's a good healthy relationship, we then move the person from profit share into a partnership. MR McKENNEY: Did you discuss the issue of the profit of Insurance Builders with Ms Rakic? MR DIDIER: I discussed the history of Insurance Builders, how it had been a good business and probably the foundation business of our company. MR McKENNEY: Right. Did you say anything specific about profits? MR DIDIER: Not dollar-wise, no. … MR McKENNEY: Did you discuss or - did you discuss with Ms Rakic, either through you raising the matter or her raising the matter, about the gap in the salary she was earning at Pattersons as opposed to what you would propose at Johns Lyng? MR DIDIER: No. Not in dollars. I explained the structure … of how our partnerships work and how people - you become an employee and a business owner. MR McKENNEY: Did you make any reference to the applicant being out of pocket? MR DIDIER: No. MR McKENNEY: Did she - you don't - did you say any words to that effect at all? MR DIDIER: No. I wasn't - I can't be specific on dollars. … I can only explain the structure, and that's what I do. 24 Mr Didier said that he would have described the Insurance Builders business as the "jewel in the crown," the "founding business," and as a "strong and respected business for many years." In cross-examination, Mr Didier agreed that he offered Ms Rakic a base salary of $115,000. His evidence was that the figure offered was inclusive of superannuation: "… I explained the TFR. … inclusive of superannuation, inclusive of everything. You can take - your TFR is your lump sum and the cost of the business, inclusive of everything. That's how I explained it." He said that, when an offer was put to Ms Rakic around a week later, the TFR had been increased by $15,000 to $130,000. 25 Mr Didier accepted that Ms Rakic had said the Johns Lyng offer was a lot less than what she was currently on, in terms of base salary, and accepted that she may have mentioned that it was $100,000 less. The next answer was important and will be set out in full: MR IRVING: And what was going to make up the gap between what she was getting and what the - what you were offering was going to be the profit share, effectively, wasn't it? MR DIDIER: I explained our structure and how that could be potentially - correct. Mr Didier accepted that he knew Johns Lyng's then-current profit. He had been at a board meeting three weeks before in which projections were put forward about where profit was going to end up. However, he denied having been at "GO" meetings (the nature of which I will shortly explain), and also denied calculating or explaining to Ms Rakic that if she received a 2.5 per cent profit share it would amount to around $100,000. The evidence continued: MR IRVING: Okay. Without breaking down the sums as to what the 2.5 per cent of X is, you did explain to her that the profit - the net profit she was going to get was going to make up the gap that she was going to lose as a result of - - -? MR DIDIER: No. I said it - I said it could. If your business is profitable, this could be what you achieve. 26 Mr Didier accepted that the Johns Lyng business had been very successful for the past few years and that he had told Ms Rakic that. He accepted that it had been profitable - indeed, very profitable - for the past few years, and that he had told Ms Rakic that.

The email from Mr Cameron 27 Ms Rakic's evidence was that, at the time of her meeting with Mr Didier, she did not really understand how profit share or equity worked. She said that after the Brunetti meeting she spoke with Mr Cameron and said, "If I could have something to at least try and turn my head around it, I really - I don't - I'm just not understanding the concept of what was being put forward. And 100K difference in salary is far too much for me to not understand what I'm getting into." 28 Mr McPhee, Johns Lyng's chief financial officer, accepted that he had been asked by Mr Cameron to prepare an email containing information as to the profit of Johns Lyng's insurance builders business. Mr McPhee suspected, from looking at the email, that Mr Cameron had asked him to give the "figures for the last three years and to note what dividend someone that held a 2.5 per cent share would achieve in that year or would have achieved in that year … ." Mr McPhee sent such an email to Mr Cameron on 21 March 2013 at 1:23 pm. Mr Cameron forwarded the email to Ms Rakic at 1:26 pm on the same day, saying (relevantly), "[t]hese are the actual figures from our CFO." The content of the forwarded email, excluding formal parts, was as follows (21 March email): FY11 Sales $35.9million Profit $2.967 2.5% = $74175 FY12 Sales $35.7million Profit $3.672 2.5% = $91800 FY13 forecast Sales $35.8million Profit $4.270 2.5% = $106750

Discussion 29 The representations, as pressed, were these: (1) Johns Lyng's profits and sales in FY13 were likely to meet or exceed its profits and sales in FY11 and FY12; and (2) It was probable that, after March 2013, for at least the next 12 months, Johns Lyng would remain as profitable as it had been in the previous two years; and (3) As at mid-to-late March 2013 there was no reason, of which Johns Lyng was aware, for Johns Lyng not to meet its sales and profitability budgets and forecasts for FY13. 30 What conduct conveys is a question of fact to be determined having regard to all of the contextual circumstances in which something was said or done: Global One Mobile Entertainment Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 134 at [108] (Greenwood, Logan and Yates JJ).

Representation 1 31 I find that representation (1) was made. Mr Didier accepted that he told Ms Rakic that Johns Lyng had been very profitable for the past few years. The 21 March email showed substantial profits in FY11 and FY12, and forecasted even greater profit for FY13 - around 116 per cent of the FY12 profit. The forecasted figure for sales is nearly identical to the actual figure for the previous two years, and the forecasted figure for profit is substantially greater than the previous two years. The forecast was given nearly three-quarters of the way through the financial year, and had been prepared by Johns Lyng's CFO. It was forwarded to Ms Rakic by a director of Johns Lyng who referred to the figures as the "actual figures." Nothing in what Mr Didier said to Ms Rakic, on his own evidence, was inconsistent with the 21 March email. To the contrary, Mr Didier had said that the insurance building business was the "jewel in the crown," and that it had been very successful and very profitable. 32 I accept that the email contained a forecast and not a guarantee or warranty, and therefore that it was attended by some doubt. But an important contextual consideration is that the email was sent three-quarters of the way through the financial year. Had it been sent on 1 July 2012 I would be far slower to find that the pleaded representation was conveyed. A forecast at that time would have been understood as being attended with significant doubt. It may not go as high as conveying that it was likely that the forecast would be met. 33 Here, however, three quarters of the financial year had passed. Predictions as to financial performance three months into the future are far more likely to be accurate than those made twelve months into the future. Any reasonable representee would understand that unexpected events might intervene, but with most of the financial year in the past I consider that a forecast would convey that the stipulated outcome was likely. 34 Also relevant is that both Ms Rakic and Johns Lyng knew, when the 21 March email was sent, that Ms Rakic was seeking reassurance concerning the difference between her remuneration at Pattersons and what was offered by Johns Lyng. A forecast of profit, in that circumstance, accompanied by a figure equalling 2.5 per cent of that profit, being the percentage offered to Ms Rakic, would reasonably be understood as intended to provide such reassurance. If the email did not convey the FY13 prediction as being a likelihood, it would not have been of any real reassurance to Ms Rakic. There would have been little point in sending it. 35 Ms Rakic pleaded particular statements said to have been made by Mr Didier in the course of the Brunetti meeting. It seems to me that Mr Didier's own evidence, to which I have referred above, and leaving aside the contested statements, is sufficient to establish that representation (1) was made. Contested statements included (1) that if Ms Rakic accepted the position with Johns Lyng she would not be out of pocket, (2) that after six months of employment with Johns Lyng she would be offered 5 per cent equity in Johns Lyng, (3) that the equity system had been very successful for a number of years, and (4) that directors of Johns Lyng received significant dividends. Ms Rakic's evidence did not support the latter two statements, and I do not find that they were made. The second statement is supported by Mr Didier's evidence and Ms Rakic's and I would find that it was made. 36 Probably the most-significant contest was as to whether Mr Didier told Ms Rakic she would not be "out of pocket". Ms Rakic's evidence was that when she mentioned to Mr Didier the difference in salary, he "said to [her] that the - that that gap would be made up with the profit share." Mr Didier denied saying anything about Ms Rakic not being "out of pocket" but accepted in cross examination (in the passage set out under [25]) that he told Ms Rakic that profit share would potentially make up the gap between her salary at Pattersons and the Johns Lyng offer. 37 It is not necessary to resolve that dispute. Representation (1) was made by the combination of what Mr Didier uncontroversially did say in combination with the 21 March email. Even if, as Mr Didier said, he said only words to the effect of "the gap between your Pattersons salary and what Johns Lyng is offering could potentially be made up by your profit share," I think a reasonable person would understand that, in the light of the subsequent 21 March email and statements concerning Johns Lyng's profitability, as conveying a likelihood of Johns Lyng maintaining profitability over at least the period covered by the forecast. 38 I am satisfied that Johns Lyng's conduct conveyed the pleaded representation, and I so find.

Representation 3 39 With greater hesitation, I find that representation (3) was conveyed by Johns Lyng's conduct, but not precisely as pleaded. There was no evidence that words to the effect of representation (3) were said. However, representations can be made by implication, including in the archetypal case whereby "[a] statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or by implication) that the maker of the statement had a particular state of mind when the statement was made and, commonly at least, that there was basis for that state of mind": Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88 (Bowen CJ, Lockhart and Fitzgerald JJ). 40 An express representation, "X is likely," ordinarily would carry with it the implied representation, "I believe that X is likely." That is in substance not dissimilar to a representation to the effect, "I do not know of any facts that cause me to believe that X is otherwise than likely": if the representor did know of facts that led him or her to believe that X was otherwise than likely, it would no longer be correct to say that he or she believed that X was likely. 41 Three matters require notice in respect of representation (3). The first is that it is expressed in terms of there being "no reason … for Johns Lyng not to meet etc." That might be read as alleging not a statement of belief in the likelihood of a future event, but instead of belief as to the certainty of that event. I would not accept that Johns Lyng's conduct conveyed that meaning. Equally, I do not think that Ms Rakic intended that meaning. More likely is that Ms Rakic intended to plead something like an implied negative of representation (1): "As at mid-to-late March 2013 there was no reason, of which Johns Lyng was aware, why it was otherwise than likely that Johns Lyng would meet its sales and profitability budgets and forecasts for FY13." 42 The second is that, unlike the other pleaded representations, pleaded representation (3) refers to budgets in addition to forecasts. There is nothing in the evidence to suggest that anything was said to Ms Rakic about budgets, or that she had any idea what the budgets were. I do not accept that any representation concerning budgets was made. 43 The third is that is that representation (3) relates purely to Johns Lyng's state of mind as at the time of making the representation, rather than (as in the case of the other two representations) whether there were reasonable grounds for the representation. Assuming the representation was made, the issue would be whether Johns Lyng had subjective knowledge of matters that it knew (again subjectively) made it unlikely that its sales and profit forecasts for FY13 would be met. 44 This issue again turns mainly on the content of the 21 March email, though Mr Didier's statements in the Brunetti meeting are relevant. For the same reasons as given above at [32]-[33], it is important that the 21 March email was sent with only three months remaining in the financial year. A reasonable representee would understand that unexpected events might intervene in the final months, but with most of the financial year in the past, a forecast would convey that the representor had a positive belief in the likelihood of the predicted result. Here, representation (3) was conveyed by the making of positive statements as to FY13 sales and profit forecasts in the 21 March email, in combination with Mr Didier's statements as to the success of the Johns Lyng business and the lack of any qualification as to the accuracy of the FY13 forecasts (beyond, of course, the qualification that they were forecasts and not guarantees or warranties). 45 By Mr Didier's own evidence, he was by the Brunetti meeting hoping to induce Ms Rakic to take up employment with Johns Lyng, and he knew that a potential sticking-point was that Johns Lyng was offering less by way of salary. Ms Rakic had told Mr Didier that she was concerned about the gap between salaries. He said, I consider with a view to reassuring Ms Rakic or assuaging her concerns, "If your business is profitable, this could be what you achieve." He praised the profitability and solidity of the business. She thereafter received an email from another director, Mr Cameron, containing a forecast that that the business would, in fact, be profitable. 46 It is natural, in those circumstances, for a person in Ms Rakic's position to take Johns Lyng to be conveying that it is not aware of any matters that would render the forecasted result as otherwise than likely. It would be unusual for a person who makes a prediction without qualification to be understood as having grounds for believing the contrary to be true or likely. 47 I am persuaded that representation (3) was made.

Representation 2 48 In two ways, representation (2) was the crux of Ms Rakic's case. First, and simply, it was her focus in terms of evidence and submissions. Second, because of the way I have decided the issues, it assumes critical importance. I hold below that representations (1) and (2) were misleading, but that representation (3) was not. If representation (1) was the only representation that I found was made, I doubt that I would have held that Ms Rakic relied upon that representation in leaving her Pattersons job and taking up employment with Johns Lyng. I think I would have been unpersuaded by a submission that Ms Rakic left Pattersons on the basis of a representation extending only a few months into the future (as representation (1) did). Representation (2) extended twelve months forward, and, if made and if misleading or deceptive, would constitute a much firmer platform for a submission that Ms Rakic did rely upon the representations made to her in leaving her Pattersons job and taking up employment with Johns Lyng. 49 I find that representation (2) was conveyed. Ms Rakic was given a forecast that covered the next three months and that showed an increase of profits as compared with FY11 and FY12. As I have found, that implied that Johns Lyng had no reason to believe that it was otherwise than likely that its forecast would be met. Mr Didier described Johns Lyng as the "foundation business of [the] company," the "jewel in the crown business," the "founding business," and a "very strong and respected business for many years." He told Ms Rakic that Johns Lyng had been very successful and profitable for the past few years. 50 The context of those statements included, as Mr Didier agreed, that the purpose of the meeting was to induce Ms Rakic to come over to Johns Lyng. Ms Rakic would have understood that to have been Mr Didier's purpose, as would a reasonable person in the circumstances. While I would accept that Mr Didier's pitch may have involved inducements beyond remunerative ones (perhaps concerning corporate culture, or more-fulfilling work, etc.), the Brunetti conversation was concerned to a substantial degree with remuneration. Mr Didier accepted that Ms Rakic raised the issue of the large difference between her Pattersons salary and what Johns Lyng was offering in terms of salary. The issue of profit share was discussed. An email followed in which figures for a 2.5 per cent share of profit - being the percentage offered to Ms Rakic - were provided for the previous two years and were forecasted for FY13. What is more, the email showed a strongly-positive trend in profits: from $2.967 million in FY11, to $3.672 million in FY12, to a forecast of $4.270 million in FY13. 51 A reasonable person would have understood, and it appears that Johns Lyng did in fact understand, that Ms Rakic was concerned to ensure that she would not be worse off (or at least not substantially worse off) if she were to accept employment with Johns Lyng. It would have been abundantly clear that Ms Rakic was concerned with the issue of whether employment with Johns Lyng would be more or less remunerative than employment with Pattersons. I think it was also apparent that, unless Ms Rakic was given some comfort, Johns Lyng's attempt to induce her to take up employment was likely to be ineffective. 52 In that context, statements extolling the virtues of the business and magnifying its solidity and strength, its profits and success, cannot have been understood by a reasonable person otherwise than as suggesting that those conditions were likely to continue into the foreseeable future. Else, why would Mr Didier say them? Why would Ms Rakic care? The effect of those statements would, of course, have been underpinned and strengthened by the email showing (amongst other things) a strong positive trend in profits and a forecast of the continuance of that trend. 53 I accept that Mr Didier did not guarantee, and would not have been understood to have guaranteed, the future success of the business. I also accept that Ms Rakic was not an unsophisticated representee. Quite the reverse: her professional success entails that she must have had significant commercial aptitude. She would have known that success cannot be guaranteed. However, she (and any reasonable person) would also have known that predictions can be and often are made as to the future prospects of a business, and would have assumed that Johns Lyng's directors and CFO were in a good position to make such predictions. 54 I accept that Johns Lyng's conduct (through Mr Didier's statements and the 21 March email) did convey a prediction that it was likely that the profits Johns Lyng had recorded in FY11 and FY12 would continue for the reasonably foreseeable future. I accept that the "reasonably foreseeable future" extended twelve months from the relevant conduct in March 2013, and thus that representation (2) was made.

The issue of non-disclosure 55 In closing submissions, Counsel for Johns Lyng took me to cases standing broadly for the principle that in arm's-length negotiations parties are not under a duty of disclosure. I think that he did so labouring under a misapprehension as to how Ms Rakic advanced her case. The authorities to which I was referred would have been relevant if Ms Rakic had advanced silence or non-disclosure as being misleading in its own right. In truth, however, she advanced silence as an element of conduct said collectively to have constituted a representation. The following passage from Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 at [5] (French CJ and Kiefel J) exposes the difference (emphasis added): The cause of action for contravention of statutory prohibitions against conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive has become a staple of civil litigation in Australian courts at all levels. Its frequent invocation, in cases to which it is applicable, reflects its simplicity relative to the torts of negligence, deceit and passing off. Its pleading, however, requires consideration of the words of the relevant statute and their judicial exposition since the cause of action first entered Australian law in 1974. It requires a clear identification of the conduct said to be misleading or deceptive. Where silence or non-disclosure is relied upon, the pleading should identify whether it is alleged of itself to be, in the circumstances of the case, misleading or deceptive conduct or whether it is an element of conduct, including other acts or omissions, said to be misleading or deceptive. 56 This case is pleaded such that what is said to be misleading is not silence, but conduct being the making of representations (see [12]-[15] of Ms Rakic's amended statement of claim). Silence is pleaded not as being itself misleading but as a fact going to establishing that positive representations were made (see [6(c)] and [11]). It seems to me that, by [6(c)], Ms Rakic pleads nothing more than that there was no qualification or correction of anything conveyed by the making of statements by Mr Didier (orally) and by Mr Cameron (by email). The lack of subsequent qualification or correction is a circumstance to be taken into account in assessing whether the representations pleaded at [11] were made. I have found that they were made, by the statements of Mr Didier and in the 21 March email, in context. The fact of silence thereafter does not either strengthen or weaken the allegation that the representations were made.

Were the representations in trade and commerce? 57 Johns Lyng denied that any of its conduct was in trade or commerce. Though, it made no submissions in relation to that issue and it seems to me that the point was not really in contest. Johns Lyng further denied the allegation that its conduct was in relation to employment to be offered to Ms Rakic (which seems to go to cl 31 of the ACL). Johns Lyng particularised the latter denial as follows: The meeting of 20 March 2013 between [Mr Didier] and [Ms Rakic] was exploratory in nature to ascertain the possibility of [Ms Rakic] working for [Johns Lyng] and whether this suited [Johns Lyng] and [Ms Rakic]. It did not involve a detailed discussion of [Johns Lyng's] financials. The contact between [Mr Didier] and [Ms Rakic] had been arranged through [Ms Lutze], who at all material times was the Group Director, Business Development for New South Wales for [Johns Lyng]. 58 As to the trade or commerce point, in closing submissions counsel for Ms Rakic referred me to Walker v Salomon Smith Barney Securities Pty Ltd (2003) 140 IR 433. Therein, Kenny J summarised (from [174]-[185]) the authorities dealing with whether conduct in relation to employment was in trade or commerce. At [185], after consideration of the authorities, her Honour concluded that misleading or deceptive conduct in the course of negotiations for employment may support a cause of action under s 52 of the Trade Practices Act 1974 (Cth). I am not aware of any reason why the same principle would not apply to cl 18 of the ACL. 59 As to the "conduct in relation to employment" point, Johns Lyng's particulars are not supported by the evidence. Mr Didier accepted that his purpose was to induce Ms Rakic to accept a job with Johns Lyng. He had a specific reason to do so, namely, Johns Lyng's travails with Suncorp. The purpose of the meeting was the setting out of terms that Mr Didier hoped would induce Ms Rakic to accept employment. There was discussion of those terms. An offer was put. An email followed the next day providing further information relevant to the offer. A letter was sent two days later "confirming [Johns Lyng's] offer" (emphasis added). I hold below that the representations induced Ms Rakic into the employment. I find that the meeting between Ms Rakic and Mr Didier was part of the course of negotiation of a contract of employment, and was in relation to employment that was to be, or may have been, offered by Johns Lyng. 60 After judgment was reserved, a Full Court of this Court delivered judgment in Westpac Banking Corporation v Wittenberg [2016] FCAFC 33. Wittenberg concerned claims arising out of the termination of employment and redundancies following the merger of two banks. One of the claims was that certain representations made to extant employees were misleading or deceptive within the meaning of s 52 of the Trade Practices Act 1974 (Cth). The primary judge accepted the bank's submission that no loss had been suffered by the relevant employees (Murphy v Westpac Banking Corporation [2014] FCA 1104 at [899] (Griffiths J). His Honour also held that s 52 did not provide a cause of action because the representations, made as they were to extant employees, were not in trade or commerce (at [903]-[905]). 61 On appeal Buchanan J agreed with the primary judge's conclusions that the employees had failed to prove loss (Wittenberg at [197]) and that s 52 did not, on those facts, provide a cause of action (at [196]). After noting that it was not necessary to do so, his Honour further expressed a view that "s 53B of the TP Act did all the work that was necessary with respect to pre-employment negotiations and … the more limited view of the reach of s 52 was the correct one" (at [195]). McKerracher J relevantly agreed with Buchanan J. White J preferred not to consider the question whether "an employer's statements made to a prospective employee in relation to contemplated employment, or to an existing employee with a view to retaining the services of that employee," may be in trade or commerce. His Honour observed (at [347]): I would not wish presently to preclude the possibility that an employer's statements of those kinds may be characterised differently from statements made by an employer in the context of an existing employment relationship concerning the place, manner or circumstances of an employee's work, which are generally thought not to have a commercial character. It may also be that misleading or deceptive statements to prospective or existing employees about future employment are analogous to misleading or deceptive statements to prospective or existing suppliers or goods or services about future supply arrangements. Conduct of the latter kind is commonly regarded as having a trading or commercial character. 62 With respect to the obiter views expressed in Wittenberg, it seems to me that I should follow the judgment of Kenny J in Walker. Her Honour's holding that representations in pre-employment negotiations were capable of sustaining a s 52 action is directly on point and forms part of the ratio of the case. I echo the reservations of White J in Wittenberg. 63 If, on the other hand, cl 18 does not apply to pre-employment negotiations, then there is authority for the proposition that the deeming effect of cl 4 operates for cl 31 as well as for cl 18: Keays v J P Morgan Administrative Services Australia Limited [2011] FCA 358 at [79] (Buchanan J). His Honour's approach was not disturbed on appeal (Keays v JP Morgan Administrative Services Australia Ltd (2012) 224 IR 406 (Gray, North and Besanko JJ)). And, in Holz v Lane [2005] WASCA 40, it was accepted by the parties that a comparable deeming provision in the state law (Fair Trading Act 1987 (WA) s 9) applied to the equivalent of cl 31 (s 14 of the Western Australian law), and Murray J (with whom Templeman and Miller JJ agreed) said at [12] that the parties were right to accept the application of s 9 to s 14. It follows that, if I were to hold that reasonable grounds were lacking for the making of representations (1) and (2), then those representations would by force of cl 4 have been "liable to mislead" for the purposes of cl 31, which does not have a "trade or commerce" limitation. 64 In short, if pre-employment negotiations are in "trade or commerce", then any representations made by Johns Lyng in such negotiations (as were the subject representations), and made without reasonable grounds, contravene cl 18 (by force of cl 4). Or, if representations were made in relation to employment that was to be, or may have been, offered by Johns Lyng (as were the subject representations), then any representations made without reasonable grounds contravene cl 31 (again by force of cl 4). Representations (1) and (2), if made without reasonable grounds, would contravene cl 18, cl 31, or both. The same liability to damages would arise in either case.

Were the representations misleading or deceptive? 65 The following is an extract from principles set out in Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682 at [10] (Gordon J) (citations removed): 1. A contravention of s 52(1) of the TPA is established by "conduct" which is misleading or deceptive or likely to mislead or deceive. The "conduct", in the circumstances, must lead, or be capable of leading, a person into error and the error or misconception must result from "conduct" of the corporation and not from other circumstances for which the corporation is not responsible. "Conduct" is likely to mislead or deceive if there is a "real or not remote chance or possibility regardless of whether it is less or more than fifty per cent". 2. Section 52(1) is concerned with the effect or likely effect of "conduct" upon the minds of that person or those persons in relation to whom the question of whether the "conduct" is or is likely to be misleading or deceptive falls to be tested. The test is objective and the Court must determine the question for itself. Section 52 is not designed for the benefit of persons who fail, in the circumstances of the case, to take reasonable care of their own interests. Moreover, it would be wrong to select particular words or acts which although misleading in isolation do not have that character when viewed in context. 3. "Conduct" can, of course, include making a statement which is misleading or deceptive or likely to mislead or deceive. … 5. Precisely the same principles control the operation of s 52(1) to statements involving the state of mind of the maker when the statement was made (e.g. promises, predictions and opinions). A statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or impliedly) that the maker of the statement had a particular state of mind when the statement was made and, commonly, that there was a basis for that state of mind. 6. A statement of opinion will not be misleading or deceptive or likely to mislead or deceive merely because it turns out to be incorrect, misinforms or is likely to do so. An incorrect opinion does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any or any adequate foundation. An expression of an opinion which is identifiable as an expression of opinion conveys no more than that the opinion is held and perhaps that there is a basis for the opinion. If that is so, an expression of opinion however erroneous misrepresents nothing. 7. However, an opinion may convey that there is a basis for it, that it is honestly held and when it is expressed as the opinion of an expert, that it is honestly held upon rational grounds involving an application of the relevant expertise. If the evidence shows that the opinion was not held or that it lacked any or any adequate foundation, particularly if the opinion was expressed as an expert, a statement of opinion may contravene s 52 of the TPA. That statement was recently quoted with approval in Australian Competition & Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114 at [179] (Gilmour, McKerracher and Gleeson JJ). 66 Johns Lyng made three representations. First, that its profits and sales in FY13 were likely to meet or exceed FY11 and FY12 profits and sales. Ms Rakic said that this representation was misleading or deceptive or likely to mislead or deceive (which I will refer to compendiously as "misleading") in that Johns Lyng knew that its profits and sales in FY13 were not, in fact, likely to meet or exceed FY11 and FY12 profits and sales, because Johns Lyng did not have reasonable grounds for the representation, or both. 67 Second, that it was probable that, after March 2013 and for at least the next twelve months, Johns Lyng would remain as profitable as it had been in the previous two years. Ms Rakic said that this representation was misleading in that Johns Lyng knew that it would not remain as profitable as it had been, because it did not have reasonable grounds for the representation, or both. 68 Third, that, as at mid-to-late March 2013 there was no reason, of which Johns Lyng was aware, for Johns Lyng not to meet its sales and profitability forecasts for FY13. Ms Rakic said that this representation was misleading in that Johns Lyng knew that "there were reasons for [Johns Lyng] not to meet its sales and profitability … forecasts for [FY13]," because it did not have reasonable grounds for the representation, or both. 69 In each case, the pleadings dealing with how representations were misleading go beyond the way in which the representations are themselves pleaded. The first and second representations concerned the likelihood of the occurrence of a future event. Ms Rakic did not plead that the predictive representations implied further representations as to contemporaneous belief in the predictions. Accordingly, in relation to representations (1) and (2), a presence or absence of contemporaneous belief is irrelevant. The only question in relation to representations (1) or (2) is whether there were reasonable grounds for their making within the meaning of cl 4(2) of the ACL. 70 Conversely, as I noted above, representation (3) raises only the state of Johns Lyng's mind at the time of making the representation. It does not raise any issue concerning reasonable grounds. The allegation that the representation was misleading or deceptive because Johns Lyng lacked reasonable grounds for it goes beyond the scope of the representation, and the issue of reasonable grounds is, in relation to this representation, irrelevant. 71 Pleading issues of this kind have been discussed in, for example, Aussie Home Security Pty Ltd v Sales Systems Australia Pty Ltd [1999] FCA 1458 at [19] (Katz J), Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) ¶46-179 at 54,431-2 (Goldberg J), and Hatt v Magro (2007) 34 WAR 256 at [33] (Steytler P, with whom Wheeler and Pullin JJA agreed). 72 Summarising, in relation to representations (1) and (2), the issue is whether there were reasonable grounds for the representations. In relation to representation (3), the issue is whether Johns Lyng was aware of matters that it knew made it otherwise than likely that it would meet its FY13 forecasts.

Representation 1 - reasonable grounds 73 Section 4 of the ACL is as follows: 4 Misleading representations with respect to future matters (1) If: (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of this Schedule, to be misleading. (2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by: (a) a party to the proceeding; or (b) any other person; the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary. (3) To avoid doubt, subsection (2) does not: (a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or (b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation. (4) Subsection (1) does not limit by implication the meaning of a reference in this Schedule to: (a) a misleading representation; or (b) a representation that is misleading in a material particular; or (c) conduct that is misleading or is likely or liable to mislead; and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation. 74 The effect of subsection (2) is to cast an evidential burden on the respondent to adduce evidence of reasonable grounds for making the representation, failing which the deeming effect is engaged. Once evidence is adduced by a respondent in discharge of the evidential burden, the applicant must satisfy the dispositive burden of showing that the respondent did not have reasonable grounds for making the representation: North East Equity Pty Ltd v Proud Nominees Pty Ltd (2010) 269 ALR 262 at [35] (Sundberg, Siopis and Greenwood JJ); North East Equity Pty Ltd v Proud Nominees Pty Ltd (2012) 285 ALR 217 at [30] (Mansfield, Greenwood and Barker JJ); see also Bonham v Iluka Resources Ltd (2015) 107 ACSR 75 at [88] (Kerr J), SPAR Licensing Pty Ltd v MIS Qld Pty Ltd (2014) 314 ALR 35 at [72]-[74] (Foster J), and Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (2012) 301 ALR 1 at [954] (Rares J). 75 Heerey J analysed the issue thus in Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513 (see also Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 at [189] per Gleeson JA, with whom Ward and Emmett JJA agreed): If there was a representation as to a future matter, s 51A requires the representor to show: • some facts or circumstances • existing at the time of the representation • on which the representor in fact relied • which are objectively reasonable and • which support the representation made. 76 Johns Lyng's denial of a lack of reasonable grounds provided the following particular: The reasonable grounds referred to above are John McPhee's reliance on the Go Meeting material prepared for the 20 February 2013 Go Meeting by managers of the Respondent and the spreadsheet headed Sales/Profit Forecast FY13, January 2013, prepared by John McPhee in February 2013. It is necessary to divert into the question of whose knowledge is relevant, and whose grounds need be reasonable.

Whose grounds need be reasonable? 77 In some of its submissions, Johns Lyng's submissions proceeded effectively in these terms: Mr Didier did not make any representations at the Brunetti meeting; such representations as made were made by the 21 March email; the content of that email was prepared by Mr McPhee; it was reasonable for Mr Cameron to accept information that came from Mr McPhee, Johns Lyng's CFO; Mr McPhee took the information in his email from forecasts that had been prepared by Johns Lyng's forecasters, in consultation with Mr McPhee; it was reasonable for Mr McPhee to take his information from the forecasts; therefore there were reasonable grounds for the statements in the 21 March email. 78 This assumes that the question is whether Mr McPhee or Mr Cameron had reasonable grounds for making any representations that they made. That seems to me to involve a misunderstanding of Ms Rakic's case. The only respondent to the action is Johns Lyng. The pleading is that Johns Lyng made representations, and that those representations were made by Johns Lyng's conduct - conduct that was necessarily through its human agents, but was nevertheless Johns Lyng's conduct. It was not alleged, for example, that Mr Didier had made representations at the Brunetti meeting; it was alleged that Johns Lyng had made representations including by the statements made by Mr Didier at the Brunetti meeting. 79 For the purposes of cl 18(1) of the ACL, the "person" who is alleged to have engaged in misleading or deceptive conduct is Johns Lyng. For cl 4, the "person" who made a representation with respect to a future matter is Johns Lyng. If Johns Lyng did not have reasonable grounds for making the representation, it is taken to be misleading. The relevant question is whether Johns Lyng had reasonable grounds for making the representations that it made. 80 The matter of personal as against corporate knowledge has arisen on a few occasions in decided cases. The clearest example is in RT & YE Falls Investments Pty Ltd v the State of New South Wales [2001] NSWSC 1027 at [115]-[117] per Palmer J: [115] Because of my finding in the previous paragraph, Dr Salmon's representations on behalf of NSWAg are to be taken as misleading or likely to mislead unless NSWAg discharges its onus of establishing that it had reasonable grounds for making the representations: s.41(2) FTA. [116] Clearly enough, Dr Salmon himself had reasonable grounds for making the representations as at 28 August. The evidence is uncontradicted that he made those representations honestly and on the basis of what he had been told by his superior, Mr Roe. Mr Roe was the person properly authorised to convey to Dr Salmon the Department's attitude to the Plaintiff's proposal. [117] But Dr Salmon was not NSWAg. He made the representations on behalf of NSWAg, as NSWAg concedes. He was its mouthpiece as far as the Plaintiff was concerned. NSWAg was, in law, making the representations and it must show that it, not Dr Salmon, had reasonable grounds for the representations which Dr Salmon made. 81 It was assumed by both parties, I think, or in any event was not in issue, that corporate knowledge not available to the natural person through whom a corporation acts can provide reasonable grounds for a representation: c.f. Rosebanner Pty Ltd v EnergyAustralia (2009) 223 FLR 406 at [435] (Ward J); Doppstadt at [191]-[192] (Gleeson JA, with whom Ward and Emmett JJA agreed); Cummings v Lewis (1993) 41 FCR 559 at 566 (Sheppard and Neave JJ). 82 I reject Johns Lyng's submission that it escapes liability if it shows that Mr Cameron acted reasonably in passing on information that he had been given by his CFO, or that Mr McPhee acted reasonably in drawing information from the forecasts. The question is whether there was an objectively reasonable basis for the subject matter of the representations: whether there were facts within Johns Lyng's knowledge that were objectively reasonable and supported the prediction that profits in FY13 would meet or exceed those in FY11 and FY12 and the prediction that Johns Lyng would remain for the next twelve months as profitable as it had been for the previous two years. Ultimately, counsel for Johns Lyng seemed to accept that proposition.

Johns Lyng's case as to reasonable grounds 83 The figures conveyed to Ms Rakic by the 21 March email came from various sources. The figures for profits for FY11 and FY12 came from what Mr McPhee referred to as the "management report profit and loss" statements (P&Ls). The P&L for the month ending 30 June 2011 contained year-to-date figures in various categories, including profits and sales. The year-to-date figure for sales was just over $35.8 million. The figure Mr McPhee gave for sales in the 21 March email was $35.9 million, but it was not suggested that anything turns on that difference. The figure for net income was $2,966,934, or $2.967 million, aligning with the 21 March email. Year-to-date figures for sales and profit in the month ending 30 June 2012 were $35.7 million and $3.672 million respectively, aligning with the 21 March email. 84 Taking the comparable figures from the 30 June 2013 P&L, sales were $32,752,956 and profit was $2,875,112. Clearly, the prediction that profit and sales for FY13 would meet or exceed FY11 and FY12 figures was not borne out. Sales were around 91 per cent of the forecast of $35.8 million, and profits around 67.3 per cent of the estimate of $4.27 million. 85 Mr McPhee said he took the FY13 forecast figures from "GO meeting" reports. GO (group operational) meetings were monthly management meetings of each of the companies in the Johns Lyng group. Johns Lyng insurance builders was one such company. Mr McPhee's evidence as to his involvement in GO meetings included the following: So we go through a process of what we call accounting close off in accordance with our calendar. Once we've closed off accounts for a particular month, my staff prepare these along with some other financial reports that we give to the managers of each of our individual companies. They include the profit and loss statement, the balance sheet and some other cash management tools that we give them. And they are given to the managers of each of the business units prior to our monthly management meeting by email from either myself or my financial controller. … In terms of preparation of material, I think at this point in time I was probably preparing these, either myself or my financial controller, Rob. So I would be involved in the preparation of all of the numbers on this, which includes reviewing every project that we have on at the time and making sure that these are accurate and make sense and then distributing them to the managers. At the GO meetings, I sit and we have about - at this stage we had about 30 companies in the group. We would have the meetings over a two, two and a half day period. And I would sit in each of the meetings with each of the businesses while they presented their monthly report to management. 86 In GO meeting reports were figures identified as forecasts. Mr McPhee's evidence was that those forecasts were prepared by "business unit managers." As at around February 2013, the relevant business unit managers were Ms Kelly Allen, Mr Glenn Edbrooke and Mr Andy Pereira. The forecasts were predominantly prepared by Ms Allen. She was then the "general manager of insurance builders Victoria." She had been in that position for around one year prior. She was not called to give evidence. Mr McPhee's evidence as to how forecasts were prepared, as a matter of general practice, was as follows: The - the managers - we've got a number of methods for helping them with their forecast. The starting point is to look at what level of work they have, because everything pretty much hinges off the sales levels. So managers will go through, look at the work in hand, indication of insurance builders - which is predominantly larger jobs. They will look at the schedule of what they expect to be doing on those jobs over the next six, seven months. Kelly [Allen] used to schedule out what work she had, try and put it into the months when that work would - would be done, and she would schedule out her expectation of what new work we might win, which would give us a - a 12-month forecast of sales, and then we would apply - as a general rule, somewhere around eight, nine, 10 per cent of that sales level is the profit to be made in individual months unless we knew of an extraordinary event such as - twice a year, we have two three-pay-period months where overheads are higher, so we will forecast a little bit lower. 87 Mr McPhee's evidence was that Ms Allen took preparation of forecasts seriously, and that she spent a "fair amount of time" with him making sure that he thought she was "on the right track." He said that that process entailed the following: We would discuss what we - a lot of jobs, when we win them, they don't start straight away. They - they sit waiting for permits, plans, documents being signed. We would discuss what we thought was the lead time on projects at that point in time. Size of the project dictates how quickly it would be [built], so we would try and come up with a rule of thumb for how long jobs would take and what would - how long into the future we would schedule them out. So we would spend a fair amount of time trying to get our sales forecasts correct. 88 The forecasts in GO meeting reports were tabular. They gave actual monthly results for sales and net profit, as available at the dates of GO meetings. They forecasted figures for months remaining in the financial year (including the month of the relevant GO meeting). So, in the case of the February 2013 GO meeting, from which Mr McPhee took the figures for the 21 March email, actual figures for sales and net profit were available to January 2013; forecasted figures were included for February-June 2013. The sum of the actual figures and forecasts for sales was $35.822 million; the sum of actual figures and forecasts for profits was $4.330 million. The figure for profit in the 21 March email was $4.270 million, but nothing was said to turn on that difference. Mr McPhee had no involvement in the preparation of the $4.270 million figure. 89 Johns Lyng relied upon a number of matters that it said demonstrated reasonable grounds, but which do not, in my opinion, advance its case. I will quickly address those matters before moving on to what I perceive to be the heart of Johns Lyng's case. 90 Johns Lyng submitted that it did in fact make a profit in FY13, albeit not one as substantial as that forecasted. That cannot assist, because the representations were to the effect that profits would be greater than in FY11 and in FY12, not merely that some profit would be made. 91 Johns Lyng relied upon board meeting minutes dated 7 May 2013 wherein Mr McPhee is recorded as saying that "[t]he end of year forecast should be pretty right". Mr McPhee said in evidence that, as at 7 May, that statement would have been based on actual figures to March 2013 and forecasted figures for April-June 2013. His basis was, he imagined, that he had "spent some time with the managers reviewing the forecast that was presented, and [he] had confidence that they had sufficient work and sufficient control to meet that forecast." But Mr McPhee's view in May 2013 as to whether end-of-year forecasts would be correct can be of no assistance in determining whether, in March 2013, reasonable grounds existed for the making of the impugned representations. 92 Johns Lyng relied upon Mr McPhee having said that he had no reason to question the February 2013 GO meeting forecasts, as they were "fairly representative" of where the company had been over a long period, back to around 2008. This does not go beyond saying that the company had been historically profitable, which I accept is relevant, and which I discuss below. 93 Putting those matters aside, I think that there were three main limbs to Johns Lyng's case: (1) First, that Johns Lyng had historically been a profitable company. Johns Lyng had made profits in previous years that were comparable to that forecasted for FY13. Fifty-eight of the previous sixty months had been profitable months. The months July 2012-January 2013 were profitable months. As at the time of the sending of the 21 March email, net profit was (on a year-to-date basis) ahead of the budget and sales were not substantially behind budget. (2) The second limb is that actual sales for FY13 were 91 per cent of those forecasted in the 21 March email. That, it was said, demonstrated that the diminishment in profit as against the 21 March forecast must have had a cause other than diminished sales, which, it was argued, was against Ms Rakic's case that foreseeable diminished sales were the cause of Johns Lyng's financial woes. (3) Third, and relatedly, Johns Lyng submitted that the true cause of Johns Lyng's diminished net profit was unforeseen, and unforeseeable, expenditure. In particular, Johns Lyng relied upon the following matters: (a) margin write-backs of around $174,000 and defect rectification costs of $80,000 in July 2013, as evidenced by an email dated 17 August 2013 from Mr McPhee to Ms Allen. Mr McPhee's evidence was that the margin write-backs and defect rectification costs were consequences of defective work. He explained that a margin write-back occurred where it became apparent that profit on a job would be less than earlier estimated; That, it was said, had the further consequence that Johns Lyng's reputation was diminished and it was given fewer opportunities to price work (b) the same email wherein it was stated that the average mark-up of jobs during the month of July 2013 was 26 per cent, which was lower than the budgeted figure of 33 per cent. This was a consequence of a number of larger jobs, including one involving a church, the tender for which had been won on a 15 per cent margin; Relatedly, Mr McPhee said that there had been insufficient control of supervisors, with the consequence that contracts were let for too much money without due regard to budget. (c) board meeting minutes dated 26 June 2013 that recorded $80,000 in defect rectification costs in respect of the month of May 2013, and referred to "4 or 5 of the largest jobs … recording very low markups", which Mr McPhee said was a reference to the church roof job referred to above, and other jobs. 94 The argument was also put that a three-pay-period month in June 2013 was unforeseen. I reject the submission. It would be an inept forecaster who failed to foresee the number of pay periods falling in a month. In any event, Mr McPhee's evidence, quoted above at [86], is directly against the proposition that the number of paydays in a month was lost on Johns Lyng's forecasters. 95 A similar argument was put concerning the paying of $108,000 in bonuses in March 2013. While Mr McPhee referred to that sum having been paid, I do not think he advanced it as something that was unforeseen in general, only that the manager of Johns Lyng would not have known in advance that bonuses that were to be paid would be paid all at once, and all in March 2013. He said, "I allowed to pay some profit share bonuses of $108,000 in that month that clearly was for the whole year. And I probably didn't tell the managers that I was going to do it in that month." Later, he said, "that should have been spread evenly amongst the months prior." It seems to me that Mr McPhee was not saying anything more than that, while it was known that an expense for profit share bonuses would be incurred, it was not known that it would be incurred all at once and all in March 2013. The fact that it was incurred in that way does not affect the reasonableness of grounds for any predictions concerning sales and profits at the end of the financial year. 96 Moving to Johns Lyng's substantive argument, I accept that past performance can provide a reasonable basis for predicting future performance. All else being equal, that Johns Lyng had been profitable in the months and years preceding March 2013 tends in favour of a conclusion that reasonable grounds existed for predicting future profitability. However, as I explain below at [124] and subsequently, past profitability creates (in my view) a prima facie basis for predicting future profitability and can be displaced by other considerations. And it does not provide a basis for inferring, as I was asked to do, that earlier forecasting must have been accurate. Here, as I will come to explain, the diminished figures in regard to the winning of new work displace the prima facie effect of past profitability. 97 That leaves Johns Lyng's submission that the decline in profits was caused not by a decrease in sales but instead by unforeseeable expenditure. The lynchpin is that FY13 sales were 91 per cent of those forecasted by Mr McPhee. Ms Rakic said that the figure of 91 per cent was a "red herring." She said that whereas sales forecasts had been amended throughout FY13 to take account of actual results, profit forecasts had not and the failure to so adjust the profit forecast was unreasonable. 98 The GO meeting report for August 2012 - the earliest available, and showing actual figures for July 2012 and forecasted figures for the balance of FY13 - gives $39.9 million as the figure for forecast sales. It gives $4.403 million as the forecast for profit. The February 2012 GO meeting report, from which the 21 March email drew its forecast figures, recorded $35.822 million for forecasted sales, and $4.330 million for forecasted profit. Whereas forecasted sales had diminished by around $4 million, forecasted profits had diminished by only around $73,000.

Ms Rakic's case as to reasonable grounds 99 Ms Rakic's case was that a significant decline in sales and profits from earlier-forecasted figures was likely and foreseeable. She said, accordingly, that there were not reasonable grounds for making such predictive representations as were made. 100 It is necessary to say something more about Johns Lyng's revenue stream. Estimators employed by Johns Lyng tendered for work. The event of a tender or bid being accepted was variously called in evidence an "estimator sale," an "estimator win," or a "win." I will call the event of an estimator's tender being accepted a Win. After a Win, a work-in-progress file was given to a "supervisor," being the "onsite person that builds the job." Work commenced on the job, money was spent, and invoices were raised and issued. The event of an invoice being raised was variously called in evidence a "sale" or an "actual sale." In some of the GO meeting reports it appears that it was referred to also as a "Supervisor Sale". I will refer to the event of an invoice being issued as a Sale. At any given time there was work that had been won but was yet to be done, and so had not yet become a Sale. This is Work in Hand. Money paid to contractors engaged by Johns Lyng in respect of a job was treated in Johns Lyng's P&Ls as project purchases, which was a component (along with any difference between opening and closing work in progress (WIP)) of cost of goods sold. Sales less cost of goods sold was gross profit. The percentage when gross profit was divided into project purchases was mark-up or margin. 101 To illustrate, assume (in a month) Wins of $1.5 million, Sales of $1 million, project purchases of $750,000, and nil WIP movement. Cost of goods sold is $750,000. Gross profit is $250,000. Mark-up is 33 per cent. Work in Hand increases by $500,000. Whatever remains of gross profit after subtraction of expenses (e.g., wages, marketing) and addition of indirect revenue is net profit. 102 There is, of course, a relationship between movements in Wins, Sales, and Work in Hand. The evidence of Mr Cameron and Mr McPhee, consistently with what is revealed in GO meeting reports, was that there was a delay between a Win in relation to particular work and that work translating into a Sale. Mr Cameron accepted the following as a rule of thumb, by reference to the GO meeting report for 22 March 2013: in the first month following a Win, around 17.5 per cent of the value of that Win translates into Sale value; in the second month around 38 per cent translates into Sales; in the third month 28 per cent; in the fourth month the remaining 16.5 per cent. Thus, by the end of the fourth month after a Win, the total value of that Win would, as a rule of thumb, have translated into Sales. 103 Mr McPhee's evidence was slightly but not substantially different. He said that there would be a lag between a Win and the first Sales relating to that Win, because "you don't get a job and start it immediately". He rejected that the loss or foregoing of a Win would result in a diminishment in Sales of 15 per cent of the value of the lost Win in the same month. However, he accepted that by the end of the second month Sales would diminish by about 50 per cent of the value of the lost Win. I accept, as a rule of thumb, that Wins translate into Sales over a period of around four months, that it is in the second and third months after a Win that most of the value of the Win translates into Sales, and therefore that if Wins decreased, a decrease in the value of Sales would not (all else being equal) substantially manifest for at least two to three months thereafter. 104 Work in Hand is related. If Wins diminish, it is possible to perform more Work in Hand so that Sales do not diminish. Mr McPhee accepted that this would be an unsustainable strategy in the longer term, in that Work in Hand would run out. If Work in Hand is diminished, it follows that the time over which a Win diminishment would translate into lower Sales is delayed or lengthened. 105 Altogether, the relationships were set out as follows by Mr McPhee in cross-examination: MR IRVING: … And increasing estimator sales is going to lead to, in the medium term, the next two to three months, to increasing actual sales? MR McPHEE: It should do. It might not be as quickly as that, but it should do. Yes. MR IRVING: Okay. And, similarly, declining estimator sales will lead to declining actual sales? MR McPHEE: It's an indicator of a drop in sales coming. Yes. MR IRVING: Yes. It's an indicator, sort of, a predictor, or a sign of what's going to happen in about three months' time? MR McPHEE: In normal circumstances, it is, but it depends on what other works are in the pipeline; whether there's negotiated works or works of other sorts that estimators are not involved in. MR IRVING: And when there's a shortfall of estimator sales work compared to what you have budgeted for, that can be made up in the short term by doing other of your work in hand? MR McPHEE: Hopefully. Yes. MR IRVING: And that's one of the reasons why it's good to have about ..... dollars' worth work in hand, because even if there's a drop in relation to estimator sales, you have still got work to do? MR McPHEE: Correct. MR IRVING: And that's one of the reasons why declining work in hand is an indicator of possible problems a few months down the track? MR McPHEE: Absolutely. Yes. 106 The gravamen of this, Ms Rakic says, is that Wins were significantly below targets in the months preceding February and March 2013. Therefore, it was inevitable that Sales would drop off precipitously a few months thereafter. Mr McPhee was taken through the relevant documentation in cross-examination. 107 The August 2012 GO meeting report records that Sales for July were $3.28 million as against $3.25 budgeted. Wins were at $1.89 million against a "KPI" - which Mr McPhee accepted was a "target" - of $3.42 million. The September 2012 GO meeting report showed that August 2012 Sales were again ahead of budget: $3.49 million in Sales as against $3.25 million budgeted. However, Wins were at $2.18 million as against a KPI of $3.42 million. The October 2012 GO meeting report shows Sales at $3.36 million ahead of a budget of $3.35 million. Wins were again substantially below target: $1.53 million in Wins as against a KPI of $3.26 million. The November 2012 GO meeting report was similar: Sales, at $3.49 million, were ahead of the budget of $3.4 million; Wins were at $2.46 million as against the KPI of $3.12 million. There were two GO meetings in December 2012: one on 14 December 2012 to address November 2012 figures, and one on 23 December 2012 to report on December 2012 figures. (I note, parenthetically, that the GO meeting report containing the figures for December 2012, being Exhibit A19, unhelpfully bears the date 23 December 2013 on its cover). The November 2012 figures were as follows: Sales of $3.76 million over a budget of $3.4 million; Wins at $2.66 million as against a KPI of $3.125 million. The December 2012 figures were as follows: Sales of $2.546 million against a budget of $3.4 million; Wins of $1.85 million as against a KPI of $3.125 million. Finally, the February 2013 GO meeting report, which was the last report prepared prior to the making of representations, showed Sales of $2.293 million as against a budget of $3.050 million, and Wins of $1.22 million as against the KPI of $3.125 million. The collective effect of the foregoing is best expressed in tabular form: SALES WINS Actual Budget Diff. Actual Budget Diff Jul-12 3,284,000 3,250,000 34,000 1,892,164 3,420,000 (-1,527,836) Aug-12 3,490,000 3,250,000 240,000 2,184,407 3,420,000 (-1,235,593) Sep-12 3,359,000 3,350,000 9,000 1,527,679 3,260,000 (-1,732,321) Oct-12 3,486,000 3,400,000 86,000 2,456,184 3,115,000 (-658,816) Nov-12 3,764,000 3,400,000 364,000 2,664,001 3,125,000 (-460,999) Dec-12 2,546,000 3,400,000 (-854,000) 1,849,044 3,125,000 (-1,275,956) Jan-13 2,293,000 3,050,000 (-757,000) 1,215,670 3,125,000 (-1,909,330) TOTAL 22,222,000 23,100,000 (-878,000) 13,789,149 22,590,000 (-8,800,851)

108 As at the sending of the 21 March email, the most-recently-available figures showed year-to-date Sales as being below budget by around $900,000, and year-to-date profits as being above budget by around $250,000. However, the collective shortfall of Wins below KPIs for the months July 2012 to January 2013 was around $8.8 million. And it is relevant that Sales had been above budget until November 2012, subsequent to which there were shortfalls of around $850,000 and $750,000 in December 2012 and January 2013, and that profit had been above budget until November 2012, subsequent to which there were shortfalls of $90,000 and $80,000 in December 2012 and January 2013. (Based on P&L figures rather than GO meeting figures - the two being different for reasons unknown - the profit shortfall in January 2013 was $69,000 rather than $80,000). Thus, FY13 commenced with five months of good Sales and profit performance, but substantial Win deficits. The next seven months, until the end of FY13, show Sales and profit figures that are all below budget, in many cases well below budget. In the final month of FY13 a net loss is recorded rather than a profit. This is amid conditions of continuing Win shortfalls, amounting (over the course of the financial year) to around $12 million. 109 Counsel for Ms Rakic described this drop in Sales and profits subsequent to March 2013 as the "chickens [coming] home to roost," that is, as being predictably subsequent to and caused by the drop in Wins There is force in that submission. Mr McPhee, when taken in cross-examination to the issue of performance as against KPIs, sought in two ways to diminish the importance of the figures for actual Wins as against targets. First, he emphasised that they were KPIs or targets and assiduously resisted their characterisation as "budgets." Second, he suggested that the relationship between declining Wins as recorded in the "Estimator KPIs" spreadsheets and declining Sales was not as direct as Ms Rakic suggested, because there were various other categories of Win that were not included in the Estimator KPI figures. For example, "[t]here were other people working within the business who aren't on here that also brought in work, such as David Cameron, who would negotiate Manage Cost-Plus works on top of these," and "[t]he other thing that's not included on this is the accelerated claims team, which were doing the smaller Suncorp works." 110 The first point seems to me to be somewhat semantic. For one thing, only the GO meeting reports for August and September 2012 bore, on the relevant page, the title "Estimator KPI's [sic]". From October 2012, the same spreadsheet was entitled "Estimator Budgets." Further, whether they were called KPIs, budgets, or targets, doubtless Johns Lyng did not set them in a vacuum. In the context of the uncontested and obvious relationship between Wins and profitability, I have no hesitation in inferring that the KPIs were set with a view to achieving budgets for Sales and profit. Significant Win underperformance would affect Sales and the bottom line. Mr Cameron's evidence supports that conclusion. When asked about Win shortfalls by reference to the July 2013 GO meeting report, he observed that year-to-date figures in the GO meeting reports were of limited usefulness and referred to the P&Ls, where he identified that the budget for Sales was $39.9 million. It was put to him that Sales and Wins were two different things, to which his response was, "Well, they're two different things. … One is what has been invoiced … [a]nd one is what has been the estimators [won]. But from a budget perspective, they should flow because you work backwards from your budget." 111 The second point - that certain Wins were not taken into account in the Estimator Budget spreadsheets - is the subject of apparently contradictory evidence from Mr Cameron. Mr Cameron said this, by reference to the GO meeting report of July 2013: MR McKENNEY: All right. And is that because, Mr Cameron, what's in the profit and loss statements - I mean, it's not - they're not necessarily just estimator sales. There are other types of sales? MR CAMERON: That falls into other. So if you look at that month you're referring to in C[B]618, that 473. 112 The reference to "473" is to a figure shown in line marked "Other" in the Estimator Budgets spreadsheet. For clarity, such spreadsheets included (relevantly) columns and rows like the following (data taken from the July 2013 GO meeting report): NAME BUDGET ACTUAL VARIANCE Adam Chilcott $150,000 $145,123 -$4,877 Gary Mackinnon $365,000 $257,461 -$107,539 Glenn Edbrooke $720,000 $230,757 -$489,243 Justin Heykoop $525,000 $86,733 -$438,267 Livio Nigro $365,000 $204,368 -$160,632 Matt Trewin $365,000 $203,918 -$161,082 Wayne Dobbs $150,000 $31,986 -$118,014 Other $473,948 TOTAL $2,640,000 $1,634,294 -$1,005,706

113 The figure of around $473,000, to which Mr Cameron referred, was added to estimators' Wins, and was included in the total for comparison against the budget. Mr McPhee was not challenged on his evidence, nor Mr Cameron on his. I have no way of knowing whether the sums to which Mr McPhee referred were the same as those indicated by Mr Cameron. More importantly, I have no evidence of the value of any Wins that Mr McPhee says were not brought to account in the Estimator Budgets spreadsheets. Further, the point remains that, as Mr Cameron acknowledged, as at 22 March 2013 Wins were around $9 million dollars below the figure for Wins at the same point in the previous financial year. It is safe to infer, it seems to me, that in the previous month Wins were also substantially below the same point in the previous financial year. Unless any amounts not taken into account were sufficient to offset that difference - and it was not suggested that they were - Wins in FY13 were substantially worse than the same point in FY12, which goes to Ms Rakic's point: it is unreasonable to predict Sales in FY13 commensurate with those in FY12 when Wins in FY13 are substantially below those in FY12. 114 Before moving on, it appropriate to interpose two points. The first is proleptic. It might be said by way of objection to my statement that Win shortfalls were more than $8.8 million by March and more than $12 million by the end of FY13 that the March 2013 report shows a year-to-date shortfall of only $5.46 million and that the July 2013 report shows year-to-date shortfall of only $4.47 million. There are at least two reasons why those figures should not be adopted. First, as Mr Cameron proffered in re-examination, each GO meeting report only includes monthly and year-to-date figures for estimators that remained in Johns Lyng's employment as at the time of the report. If an estimator had left the employ of Johns Lyng, his or her figures (and thus his or her shortfall or surplus, if any) would not be included in subsequent year-to-date GO meeting reports. Second, there are addition errors or other adjustments between months that render the year-to-date figures unreliable. To take the simplest example, Mr Nigro's KPI in July 2012 was $375,000 and his year-to-date KPI was given as $375,000; his monthly KPI in August 2012 was again $375,000 and his year-to-date KPI given as $750,000; however, his monthly KPI in September 2012 was $180,000, but his year-to-date KPI was recorded as $540,000 rather than as $930,000 (the true sum of the monthly KPIs to that point). If there is a reason for this, I do not know what it is. I have approached the calculation of Win shortfalls on the basis that it is more reliable to add monthly shortfalls than to use year-to-date figures. 115 The second point relates to Work in Hand. By February 2013, Wins were under KPI by around $8.8 million. Yet Sales were only around $900,000 below budget and had, until December 2012 and January 2013, been above budget. What is the reason for Win diminishment failing to translate into Sales? Part of the explanation is likely the delay between a movement in Wins and its manifestation in Sales. The balance or something like it should, for the coherency of Ms Rakic's submission, be found in a diminishment in Work in Hand. 116 The GO meeting report for March 2013 shows Work in Hand as at July 2012 at $11.2 million and closing Work in Hand as at February 2013 at $10.6 million. But, as came out in the cross-examination of Mr McPhee, the latter figure was wrong: MR McPHEE: … There's an add error on there by whoever prepared that slide, because we had an opening work in hand of 9.8 million. We brought in estimated sales of 2.1, so that would give us 11.9 million of work in hand and we've invoiced 3.5 which would take us back to eight point something. MR IRVING: So that figure is wrong? MR McPHEE: So whoever has prepared that slide has prepared it wrong, yes. MR IRVING: Okay. And for the next month - - -? MR McPHEE: So the opening work in hand for - yes - there's an issue with there. It can't have been 14. It must have been lower. MR IRVING: Okay. So - - -? MR McPHEE: So there's definitely an add error on this one. … MR IRVING: And these - but what it does record - whether or not the starting figures were wrong, it does indicate this though, doesn't it, that in the six months prior to February 2013 - in the six months - the work in hand had decreased by about $4 million? MR McPHEE: While achieving our sales budget, yes. 117 The same error appeared in the previous month's table. Calculating the Work in Hand position as at the end of January 2013 in the way described by Mr McPhee, based on the figures shown in the February 2013 GO meeting report, yields that Work in Hand was $5.16 million. That is $6 million lower than what it was at the beginning of the financial year. 118 I doubt that the Work in Hand worksheets are reliable. There is the matter of the apparent calculation errors. Moreover, the entries in the "Estimator Sales" (i.e., Wins) column mostly do not align with the entries in the "Estimator Budgets" elsewhere in the report and in earlier reports, and in some cases are not even close. It seems to me that the Work in Hand spreadsheets are unreliable either because they contain errors in data entry and calculation, or because they show some process of calculation that is not immediately apparent and is not the process Mr McPhee described in cross-examination. In either case, I do not place great weight on it, other than as indicating (and no more than that) that Work in Hand was in decline in the first half of FY13. That is consistent with a statement in a Chief Operational Officer's (COO's) report dated January 2013 that Work in Hand was at $11 million whereas 3 months previously it had been $15 million. 119 Finally Ms Rakic relied upon documents showing that, at the time of making representations to her, Johns Lyng had reason to suspect that it would be removed from Suncorp's panel of insurance builders. That, she alleged, would have had a significant deleterious effect on Johns Lyng's revenue and profit. In the Board Meeting Minutes of 31 October 2012, the CFO and COO report records the following: Suncorp is a little disappointing. We are 15th out of 17. SD [Mr Didier] advised all Managers need to build relationships with Suncorp etc. … Board meeting minutes dated 27 February 2013 included the following: Insurance • Good month profit wise. • LB noted it is most likely we will get taken off the Suncorp panel. Our Suncorp job average was 2100 and is now down to 1700. MakeSafe will lose half their workload, Regional will have 20/25% impact and Insurance Builders will be hit hard. • Due to cash flow under pressure at the moment, should we think twice about the possible acquisitions? • Look at the reason why we are 17th on the list. With our skills why are we down? • SD and LB to speak further about the Sub-Contractor portal. • Add Suncorp to the Agenda next month. 120 Ms Lutze accepted that the loss of the Suncorp stream of income would hit Johns Lyng hard. Both Ms Lutze and Mr McPhee accepted that Suncorp work made up around 40 per cent of Johns Lyng's work at that time. Ms Lutze accepted that Johns Lyng's being at risk of removal from Suncorp's panel was a "serious problem." Mr McPhee agreed that it appeared likely in around February 2013 that Johns Lyng would be removed from Suncorp's panel, but said that "we weren't," and that "[t]here was a point in time when it appeared likely but it didn't happen." He said, "the effect of losing Suncorp would have been tragic, but it wouldn't have been noticed for at least a three-month period when we don't get any more new work." Mr Didier also accepted that Johns Lyng was in the "worst of the worst position[s]" on Suncorp's panel rankings, but said that Johns Lyng was not in "dire straits," and that the process of delisting could go on for three or six months so that it was necessary, in the meantime, to remove oneself from seventeenth position. 121 Counsel for Johns Lyng sought to draw from Mr Cameron in cross-examination that the recruitment of Ms Rakic would improve Johns Lyng's standing with Suncorp, a proposition that he accepted. Mr Cameron agreed that, while there might be a range of factors that might lead to improvements in the business, Ms Rakic was important "to try [to] achieve an improvement." He said that there was "certainly a hole in the Suncorp account," and that it was known that Ms Rakic had been successful with "fixing problems." He was asked whether he had not told Ms Rakic "about the state of the business" because he thought that any problems could be fixed, to which he responded as follows: If you look at the work that's coming in - so the Suncorp panel works is the stuff that comes in. Basically it's automatic. … So you just go ahead and do it. If you look at the sales of those works, it's a small chunk of the bigger picture. So albeit you don't want to - Suncorp are a large beast but the work that you get off them from the panel perspective isn't as big. It's not as big as in dollar value. He was asked whether Ms Rakic's employment would potentially improve the Suncorp position and answered that it did. The two answers latterly mentioned were not really responsive.

Were there reasonable grounds? 122 The oral evidence was not especially useful in resolving whether there were reasonable grounds for making the predictive representations. Mr Cameron forwarded the 21 March email three minutes after receiving it from Mr McPhee, and his evidence was that he did not look at the figures in depth and did not raise any query with Mr McPhee. It seems to me that he did not give the figures much thought, if any, at that time. And, although Mr McPhee had involvement in the preparation of the forecasts that ended up in GO meeting reports, he did not himself prepare the forecasts. His evidence was that he viewed them as the managers' responsibility, and did not know what factors were taken into account by the forecaster or the extent to which they were taken into account. 123 Far more useful is the contemporaneous documentary evidence. Representations were made to Ms Rakic beginning in March 2013. Mr McPhee's evidence was that he relied upon January 2013 figures (as disclosed in the February 2013 GO meeting report) in drawing the 21 March email. Accordingly, I rely mainly on the evidence of Johns Lyng's financial performance up to and including January 2013, as disclosed in Johns Lyng's documents. 124 It is true that Johns Lyng had historically been a profitable business. Between July 2008 and January 2013 it had recorded 55 consecutive profitable months. As at January 2013 it was ahead of its profit budget for FY13 by around $250,000 and behind its sales budget for FY13 but only by around $900,000. I accept that past performance of a business is a basis for predicting future performance. It is, however, only a prima facie basis. Any reasonable valuer of a business would examine whether conditions that led to previous profitable results continued in existence as at the date of valuing and were likely to continue into the future. For example, it would not be reasonable for a widget manufacturer to blithely rely on past performance as predictive of future performance if it knew that the cost of widget raw material had just tripled. 125 Relevant in that connection is that, although Johns Lyng had been historically profitable, February 2013 was, when it occurred, its third-worst profit result since July 2009, and its worst result in around the last two years. While the month's final result may not yet have been available as at 20 and 21 March 2009, I think that by that time it would have been well known to Johns Lyng that February 2013 had been a very bad month, profit-wise, even if the exact result was not known. I do not consider that such a profit result could reasonably be unheedingly passed over in relying upon past performance. 126 Mr McPhee accepted, as he must reasonably have done, that forecasts in the February 2013 GO meeting report as to Sales and profitability were badly wrong. The forecast was for $13.6 million in Sales between February 2013 and the end of FY13 and the reality was $10.5 million; it was for $1.6 million in profits over the same period and the reality was a profit of around $170,000. All of the months February-June 2013 were substantially below budget in terms of Sales and profit; in June 2013 Johns Lyng made a monthly net loss of around $150,000. Ms Rakic says that this was foreseeable and should reasonably have been foreseen. She referred to Johns Lyng's Wins having been around $8.8 million behind KPI by January 2013. Its Work in Hand was diminishing. It is obvious, and was accepted by Mr McPhee, that declining Wins is an indicator of declining Sales, and that declining Work in Hand was an indicator of possible problems a few months down the track. 127 In my view, any reasonable prediction must have taken those matters into account. A hurdle facing Ms Rakic, however, is that arguably they were taken into account in forecasting, or at least in part. The forecast for the year commenced at Sales of $39.9 million. By the February 2013 report, that forecast had been revised down to $35.822 million, and Sales for the year ended up at 91 per cent of the forecast. Profit, on the other hand, was 67.3 per cent of that forecasted to Ms Rakic. 128 What explains that Sales were fairly close to the forecast in the February 2013 GO meeting report, whereas profits were not? The answer seems to be that the forecaster revised down the Sales forecast (possibly to account for diminishing Wins), but no commensurate downgrading occurred in relation to profits. The Sales and profit budgets for FY13 were, as at the beginning of FY13, $39.9 million and $4.341 million respectively. In February 2013 the Sales forecast was revised downwards by $4.1 million or around 10 per cent, to $35.8 million. However, the profit forecast dropped by only around $10,000 or a quarter of one percent, to $4.33 million. Or if the August 2012 forecasts (of $39.9 million in Sales and $4.403 million in profit) are used as the starting point, the revision in Sales was again down by $4.1 million or 10 per cent, and the revision of profit was around $70,000 or 1.7 per cent. A prediction of no real decrease in profits in circumstances of a prediction of substantial revenue diminishment could only be reasonably grounded, as it seems to me, if there was some basis for saying either that gross profit would be greater, in percentage terms, than forecasted, or that expenses after gross profit would be lesser, in absolute terms, than forecasted. Either view could be based on performance to January 2013 being better than forecasted, or there being some reason for thinking that performance after January 2013 would be better than forecasted. 129 As at January 2013, expenses were not substantially less than budgeted at the beginning of FY13: they were over budget by around $80,000. Cost of goods sold was around $1.2 million below the budget, but in percentage terms was quite close to budget (around 74.48 per cent actual as against around 76.85 per cent budgeted). Thus, the percentage of gross profit (25.5 per cent) was in excess of but quite close to the budget (23.15 per cent). In my view, nothing in the figures for the first seven months of the financial year suggests either that cost of goods sold would be substantially less in percentage terms than forecasted, or that expenses after gross profit would be substantially less in absolute terms than forecasted. I was not told of any basis for thinking that gross profit or expense performance would significantly improve after January 2013. 130 Any reasonable forecaster must have taken into account that revenue in FY13 was likely to be millions of dollars less than forecasted. That followed from Wins being millions of dollars under target. I have no basis for thinking that any reasonable forecaster would have done otherwise than revise profit down accordingly, having no reason for thinking either that decreased revenue would be offset by decreased cost of goods sold or decreased expenses. No such downward revision occurred. 131 The difficulty for Ms Rakic is that the material to hand as at January 2013 might not have provided a reasonable basis for a profit prediction of $4.27 million, but might have provided a basis for a prediction of (say) $3.7 million, in which case representation (1) might have been made with reasonable basis. Wins were down $8.8 million, but Wins could be absorbed by Work in Hand. So, diminished Wins of $8.8 million would not necessarily lead a forecaster to predict diminished Sales of $8.8 million. Let it be assumed that Johns Lyng's revision of the Sales forecast to $35.8 million was precisely to take account of diminished Wins. No commensurate revision of profit occurred, but let us consider what might have been reasonable if it had. A reasonable forecaster might have been justified in applying to the revised Sales figure either the budgeted percentage for cost of goods sold (76.85 per cent) or the figure that had been recorded to that time (74.48 per cent), yielding revised gross profit of somewhere between $8.3 million and $9.1 million. The reasonable forecaster might then have been justified in deducting the forecasted expenses of $5.2 million, or a slightly greater sum (say $5.4 million) based on how expenses had tracked in the first seven months of FY13. 132 Adopting a cost-of-goods percentage consistent with the first seven months of the year (74.48 per cent), gross profit on sales of $35.8 million would have been $9.136 million. Even if the higher expenses figure of $5.4 million comes out of that sum, net profit would be $3.74 million. That exceeds FY11 and FY12. On this hypothetical, a prediction that net profit would exceed FY11 and FY12 net profit, based on sales of $35.8 million, may well have had reasonable grounds. On the other hand, applying cost of goods sold of 76.85 per cent - the percentage budgeted for at the beginning of the year - has the consequence that the forecast would be significantly below the FY12 net profit, again whether $5.2 million or $5.4 million is adopted for expenses. 133 I am persuaded that reasonable grounds were lacking. By January 2013, Sales had been revised down to $35.8 million. If cost of goods sold continued as it had been tracking (i.e., better than budget) and expenses came in at or around budget, net profit would be greater than FY12 (albeit not by very much, and noting that it would be very much less than the forecast of $4.33 million). However, a minor increase in the cost of goods sold (e.g., from 74.48 to 75.25 per cent), all else remaining equal, would diminish net profit to below FY12. A cost of goods sold percentage of 75.25 per cent would still have been less than the budgeted-for amount of 76.85 per cent, so recognition that cost of goods sold might increase would not necessarily involve predicting that they would exceed budget. Was it reasonable for Johns Lyng to assume that cost of goods sold would remain as low as it had during the first seven months of the year? Could it reasonably exclude that there would be a marginal increase in cost of goods sold, even to something still better than budget? I think not. In circumstances where, on Johns Lyng's own Sales prediction, a marginal increase in cost of goods sold would have reduced net profit below FY12 figures, significant doubt attended any predictive representation that net profit would be greater in FY13 than in FY12 and FY11. 134 Further, a moderate further deterioration in the Sales position below the revised figure of $35.8 million would have the consequence that, even if cost of goods sold remained as low as in the first seven months of FY13, FY12 net profit would not be bettered. If FY13 sales were lower than $34,764,890 then, even assuming a cost of goods sold percentage of 74.48 per cent and expenses of $5.2 million, net profit would be lower than FY12. Was it reasonable for Johns Lyng to predict that only $4.1 million of the $8.8 million Win shortfall would translate into diminished Sales? Could Johns Lyng reasonably rule out that, instead, $5.2 million or some greater sum would translate into diminished Sales? I think not. Johns Lyng had just had seven months in a row of below-target Wins, in some cases very substantially below target. Its Sales forecasts contemplated that Sales would be substantially below budget in February, March, April and May 2013, but predicted a return to budgeted Sales by the end of the financial year. Any substantial rebound in Sales would have required a rebound in Wins, the further depletion of Work in Hand being (as best I can discern) not a realistic solution beyond the immediate term. I was not taken to any evidence that suggested, on an objectively reasonable basis, that Wins were likely to rebound in the months after January 2013. That has the consequence that significant doubt attended the predictive representation that net profit would be greater in FY13 than it had been in FY12 and FY11. 135 Mr McPhee pointed to matters that were within Johns Lyng's corporate knowledge in early 2013 and bear upon the question of whether there were reasonable grounds for forecasts. I have set these out above at point (3) of [93] above. All except the point in (3)(c) relate to FY14 rather than FY13. They therefore cannot have had the effect contended for in relation to FY13, namely of being (rather than diminished revenue) the cause of deterioration in net profit. The defect rectification costs in (3)(c) amount to $80,000. That does not come close to explaining why profit in the last months of the year was $170,000 rather than the forecasted $1.6 million. I had no evidence as to whether the low mark-up jobs were unanticipated, nor as to the value of any profit diminishment attributable to any such lower mark-up. It will be necessary to deal with the matters in (3)(a) and (b) in relation to representation (2), but it suffices here to say that I am not persuaded that any of the matters referenced in point (3) of [93] could have had any material and unforeseeable or unforeseen effect on FY13 net profit. 136 It is the case, however, that without referring to particular amounts Mr McPhee referred to greater-than-usual rectification costs in a series of months later in FY13. Accepting even that the rectification costs were "horrendous," as Mr McPhee described them, unless there was something to show that the possibility of such costs was not taken into account in budgeting, I would be slow to accept that they were unforeseeable. While cost of goods sold did increase in percentage terms between the year-to-date positions as at January 2013 and as at June 2013, the increase was to a figure still below the position forecasted at the beginning of the year, of 76.85 per cent. In the P&Ls, the figure budgeted for cost of goods sold was in every month precisely 76.85 per cent of the Sales budget. My inference, absent evidence to the contrary, is that Johns Lyng set its cost of goods sold budget as a long-run average over the course of a year rather than month-to-month. I would also infer that budgets set at the beginning of a year would have taken into account the possibility of defect rectification costs. 137 Unless extraordinary, I would find it difficult to accept that defect rectification costs affected cost of goods sold (and therefore gross profit) in a way that had not been foreseen in the budgeting process. The fact of below-budget rectification costs in the first seven months of the year would not render above-budget rectification costs, bringing yearly costs up towards the budget, unforeseeable. 138 Gross profit was, by year end, substantially under the budget in absolute terms. In the simplest terms, there are two possible explanations: diminished revenue, or a greater percentage of revenue going toward goods sold. We know, with the benefit of hindsight, that the actual year end position for cost of goods sold was better than that forecasted at the beginning of the year. Mr McPhee's explanation for lower gross profit does not seem to me align with the actual facts. The better explanation is diminished revenue. That was foreseeable as at early 2013 and should have been taken into account in any reasonable forecast. 139 Not only was financial distress foreseeable as a consequence of diminished Wins, there is evidence that it was foreseen. There is, of course, the downgrading of the Sales forecast by $4.1 million in the February 2013 GO meeting report. Further, in the Board Meeting Minutes of 31 October 2012, the CFO and COO report included the following: Results are exceptional. Estimator wins are down though. After Christmas without winning work there will be a lot of pressure on. The COO's report for October 2012 contained the following: Forecasting slide showing sales downturn Nov - Feb with main issue appearing to be win rate (conversion rate) currently $2million behind same time last year. The COO's report for November 2012 said this: Forecasting slide showing downturn in sales continuing Dec - Feb with main issue appearing to be win rate (conversion rate) currently $1million behind budget to year end. The COO's report for January 2013 contained the following: Current work in hand at $11 million, 3 months ago was at $15 million (calculation carried out and to support budget $16million work in hand average required) … Forecasting slide showing downturn in sales continuing Jan-Feb with main issue appearing to be win rate (conversion rate) currently $2million behind budget to year end an additional negative movement of additional $1million from previous month. The COO's report for February 2013 contained this: Sales below budget, GP below budget but above on %, OH below budget but above on % and NP below budget and but above on %. … Current work in hand at $11.5 million, down by $800k from previous month … . … Forecasting slide showing downturn in sales continuing Feb-May with main issue appearing to be win rate (conversion rate) not opportunities available, currently $4.1million behind budget to year end an additional negative movement of additional $2million from previous month. Board meeting minutes dated 27 February 2013 included the following: Insurance • Good month profit wise. … • Due to cash flow under pressure at the moment, should we think twice about the possible acquisitions? … • Estimators do not follow their quotes up. If they are not following their quotes up why not put on someone for 70k to follow up. If, as it appears, the potential for Win shortfalls to affect Sales was foreseen, it is a short step to conclude that profits might also be detrimentally affected, and by more than the negligible downward revision of year-end profit forecasts in the February 2013 GO meeting report. 140 The penultimate point is the Suncorp issue. Ms Rakic invites me to conclude that this was a ground for pessimism in forecasts. Johns Lyng submitted that forecasts could reasonably remain optimistic because it was proposed to hire Ms Rakic who would improve Johns Lyng's standing. Johns Lyng's witnesses downplayed the significance of Johns Lyng being ranked at the bottom of Johns Lyng's panel. The effect of their evidence was that it was possible to remove oneself from last position and that Johns Lyng would have done so before it was taken off the panel. I do not think there is sufficient evidence for me to form a view as to the likelihood of Johns Lyng being removed from Suncorp's panel. Equally, I do not think that the potential for Ms Rakic to have been hired could have played a role in the preparation of forecasts in the February 2013 GO meeting report, as a job was not offered to her for around another month thereafter. It suffices to say that the potential for a very substantial further diminishment in revenue ought to have given Johns Lyng reason to err on the side of caution in its forecasts. 141 Finally, Mr McPhee raised an issue concerning the moving, after Ms Rakic started at Johns Lyng, of all Suncorp jobs up to $15,000 in value from "Express Builders" - which I take to be another entity - into the insurance builders business. He initially said that the work was "in the vicinity of $3 million a year" but then shortly thereafter said that it was "up to half a million a month", which would be $6 million per year. That point was not clarified in re-examination. Also not clarified was the date upon which this occurred, and whether its future occurrence could have been or was known to the forecaster as at February 2013, so that it could have formed a basis for more-optimistic Sales forecasts into the end of the financial year. I think the highest that the evidence rose in relation to those matters was the following: MR IRVING: The prospect of [wins] being so far above KPI for each and every one of the remaining months was remote to say the best? MR McPHEE: No. I disagree for the same reason I said before, that I don't know exactly what month the Suncorp work was moved from Express Builders to Insurance Builders and given the amount of that, it may have been taken into account. I don't know. I didn't prepare this and I don't know what underlying logic was used to prepare it. The Board Meeting Minutes for 7 May 2013 contain the following note: Insurance have taken all Suncorp work off Regional now. The reference is to "Regional," rather than "Express Builders." I do not know whether this is the same occurrence as that to which Mr McPhee referred. I do not know whether, if it is, that event occurring in around May 2013 was known or knowable in March 2013. I have no basis for finding that it was known or knowable at that time, and therefore I do not so find. While I accept that the possibility of $3 million or $6 million in Sales moving into Insurance Builders would have improved both Sales and Profit, I do not find that this was something that could have been taken into account in March 2013 so as to reasonably ground Johns Lyng's predictive representations. 142 For all of the foregoing reasons, I find that representation (1) was made without reasonable grounds. Objectively, there was very good reason to believe that the FY11 and FY12 figures would not be surpassed. The matters advanced as objectively-reasonable facts or circumstances existing as at March 2013 do not go much beyond reliance upon past profits. That does not suffice, in my view, to establish reasonable grounds. It fails to take account of the very real risk, indeed the likelihood, of substantially diminished revenues and profits, resulting from a $8.8 million shortfall in Wins in the first seven months of the financial year. A prediction that profits and Sales would surpass FY12 figures necessarily relied either upon predicting that cost of goods sold would stay as low as it had been, that less than $5.2 million of the Win shortfall would translate into lost Sales, or some combination of the two things. None of the evidence suggested to me a reasonable basis for either such prediction, nor a reasonable basis for the overarching prediction as to profit and Sales, especially where Johns Lyng's Suncorp difficulties should have resulted in the forecaster resolving doubt in favour of caution. 143 The finding I have made in the previous paragraph has the consequence that, per s 4(1) of the ACL, representation (1) is taken to be misleading and thus contravenes one or other or both of cll 18 and 31 of the ACL.

Representation 2 - reasonable grounds 144 This representation was that, for the next 12 months, Johns Lyng would remain as profitable as it had been in the previous two years. I have already found that there was no reasonable basis for a prediction of that kind for the period up to 30 June 2013. The question is whether there were reasonable grounds for predicting better than FY12-level profitability over twelve months after March 2013 where those grounds did not exist in relation to the first three months of that period. 145 Based on the financial information before me, it seems to me that Johns Lyng had undergone fairly substantial change in its manner of deriving profit over the years prior to FY13. In FY09, cost of goods sold was 86.68 per cent of Sales. Gross profit, at around $4.85 million, was substantially lower than ultimately was the result in FY13 ($8.11 million). However, in FY09 expenses were only $1.85 million whereas in FY13 they were $5.47 million. Between FY09 and FY12, cost of goods sold as a percentage of Sales dropped from 86.68 per cent to 78.58 per cent. Gross profit grew from $4.85 million to $7.65 million, at the same time as expenses grew from $1.85 million to $4.27 million. In a word, there was a trend in favour of higher margins and higher expenditure. That trend resulted, in FY12, in the most profitable of any year for which I have information, both in absolute terms and as a percentage of Sales. 146 FY13 was forecast as a continuation of this trend. If the FY13 budgets had been delivered, it would have been the year with the lowest percentage of cost of goods sold, highest margins, highest gross profit (in absolute and percentage terms), highest expenses (in absolute and percentage terms), and highest net profit (in absolute terms and as a percentage of sales). In the event, many of these measures were delivered. FY13 did have lowest percentage of cost of goods sold, highest margins, highest gross profit (in absolute and percentage terms), and highest expenses (in absolute and percentage terms). What undermined fulfilment of the highest-profit forecast was low revenue. FY13 had the second-lowest revenue in the period FY09-FY13, when the forecast was that it would have the highest. 147 The reason I set out this out is that the model of deriving profit had developed over a period of years. As at February 2013, it was being undermined by low Wins. In order for a representation concerning profitability into FY14 to have reasonable grounds, it appears to me that Johns Lyng would have to have had reasonable grounds for predicting that Win shortfalls would reverse. Other ways of restoring historic levels of profitability included diminishing expenses or further decreasing cost of goods sold. But I would find it difficult to accept that the possibility of taking either of those steps in response to a revenue problem would have given Johns Lyng reasonable grounds for predicting FY12-level profitability over the medium term. It seems to me that those matters are systemic and could not be changed quickly, as they had not come to their FY12 positions quickly. Rather, Johns Lyng's apparent basis for thinking that profitability could be restored was that Wins could be turned around. I think that is effectively what Mr McPhee expressed in this evidence (emphasis supplied): MR IRVING: Yes. And what's happening is that is being recorded in January is that the - there is a continuing downturn projected for sales first; yes? MR McPHEE: Mm. MR IRVING: Second, the reason for that was - the main reason was the failure to meet estimator sales targets; yes? MR McPHEE: One of the reasons was the failure to meet estimator sales, yes. MR IRVING: And it was the main issue, wasn't it? MR McPHEE: Well, I can't tell that from looking at this. I don't know if there was other reasons stopping us getting negotiated work that we would normally have. MR IRVING: You thought there might be other reasons? MR McPHEE: There may have been. MR IRVING: Okay? MR McPHEE: I don't know. MR IRVING: All right. Could I take you to exhibit A42: Forecasting - foot of the page: Forecasting slide showing downturn continuing February to May with main issue being win rate conversion rate. Not opportunities available. Currently 4.1 million behind budget to year end, and additional negative movement of additional two million from the previous month. MR McPHEE: Correct. But the important comment there is "not opportunities available". That means that we still had enough work to price. We were just not being successful at that point in time in winning it as well as what we expect to be. MR IRVING: Yes? MR McPHEE: We would hope that if we can turn around our conversion rate, that that would fix itself fairly promptly. Because we've got opportunities coming in the door to win work. We're just not landing it. MR IRVING: Fail to meet target in - by this stage, fail to meet targets in July, August, September, October, November, December, January, and all of them significant but for one you noted? MR McPHEE: Mm. MR IRVING: And you knew at that point that the business was in trouble unless there was a turnaround, didn't you? MR McPHEE: I don't know that we knew it was in trouble. We knew that we obviously had not had as good a time in winning work as what we would have normally had. But the history of this business suggests that it turns around very quickly if our estimators win work. 148 Mr McPhee's point was that, if Wins turned around, so too would profitability. However, I am not aware of any real reason to believe that Wins would turn around. I do not doubt that Johns Lyng proposed to take steps with that end in mind. I would probably be prepared to accept that there was a fair chance that one or more of those steps might be successful and that the business would, in due course, return to its previous levels of profitability. But the representation to Ms Rakic was of continued profitability, at better than FY12 levels, over the foreseeable future, and I cannot accept that there were reasonable grounds for that prediction in the absence of something slightly more concrete than a hope that Wins would turn around. 149 That conclusion is strengthened by two contextual matters. First, Mr McPhee's assessment (with which I agree) was that the managers of the business did not appear really to have realised, as at around February 2013, that the business was distressed. If a problem had not been identified, it is difficult to accept that steps would have been taken in the near future with a view to rectifying it. Second, even if I was prepared to find a reasonable basis existed for an eventual return to FY12-level profitability, there is no basis for saying that the consequences of an $8.8 million dollar Win shortfall could have been rectified and offset within the twelve-month period after March 2013, even if the problem had been identified as at that date. 150 Johns Lyng advanced two matters in relation specifically to FY14 that require separate mention. The first is the matters contained in items (3)(a) and (3)(b), listed under [93] above. Johns Lyng relies upon margin write-backs of $174,000, defect rectification costs of $80,000 and related reputational damage, and lower average mark-up than the budget. The second is really a re-iteration of the point made in relation to FY13 concerning the moving of Express Builders' Suncorp work to Insurance Builders, to which the answer is the same. 151 The point of the first matter is that, while Mr McPhee acknowledged (and Johns Lyng appears to acknowledge) that the forecast for July 2013 was badly wrong, it was said to be badly wrong due to matters that could not have been foreseen as at March 2013 when representations were made. 152 Johns Lyng's submission identifies matters that post-date the making of representations, which it says were unforeseeable, and puts that it was those matters that were the true cause of diminished profitability. Another way of putting the submission, it seems to me, would have been to say that, had it not been for the identified matters occurring in July 2013, the prediction would have been made good. That it would have been made good tends to indicate, the submission continues, that the representation was made on reasonable grounds. But, in the event, I would reject Johns Lyng's submission on the facts. 153 Documents concerning July 2013 are inconsistent with one another. The P&L for that month records one set of figures; the GO meeting report for August 2013 (giving figures for July 2013) another. The GO meeting report contains contradictory figures even from one page to the next: page 643 contains one set of results, and page 644 another. Relevantly, page 643 gives a net loss for the month of $321,477, page 644 shows a net loss of $325,000, and the P&L gives a net loss of $276,530. I would have no real basis for relying on any one of these figures to the exclusion of the others. 154 However, whichever set of figures is relied upon, Johns Lyng made a substantial net loss in the month. If margin write-backs of $174,000 and defect rectification costs of $80,000 were added back to the net loss figures, Johns Lyng would still have made a loss, either of around $22,500 or around $70,000 depending on which net loss figures are used. As for lower-margin jobs, as I have said above, that strikes me as eminently foreseeable. Margin budgets do not appear to have been set month-to-month: they appear to have been set in advance of a financial year and presumably in cognisance that some jobs would have higher margins than others. Further, in the particular case of the St Ignatius Church roof, which was the job to which Mr McPhee believed he was referring in his email, it is apparent from the 14 December 2012 GO meeting report that that job was won well in advance of representations being made to Ms Rakic. Page 393 of that report states, in the context of the financial goal "Achieve financial turnover of $39,900,000," as follows (emphasis added): We are still above our YTD budget by $263,261. We are forecasting the next 2 months below budget and know that Sales are crucial, however, we have recently won St Ignatius ($1.9M) and [it's] looking very positive with the 2 factories (approx. $1m). … 155 It seems to me likely that this is the same job to which Mr McPhee referred in his August 2013 email, in which case the lower margin on that job should have been foreseen and taken into account in any forecasting. As for any other "larger jobs", to which Mr McPhee referred in his email, in the absence of evidence as to what they were, and when they were won, I am not in a position to find that low margins associated therewith were unforeseen or unforeseeable. That undermines Johns Lyng's submission that a prediction of profitability could have been made on reasonable grounds because the real reasons for the non-fulfilment of the prediction were unforeseen events or circumstances. 156 I consider that in the light of very poor Win performance in the seven months to January 2013, there were not reasonable grounds for predicting that, for the twelve months from March 2013, Johns Lyng would remain as profitable as it had been in FY11 and FY12. There were very good reasons for thinking the contrary. Many of the reasons I gave in relation to representation (1) are again applicable. I find that there were not reasonable grounds for representation (2). By operation of s 4(2) of the ACL, it is taken to be misleading and thus contravenes one or other or both of cll 18 and 31 of the ACL.

Representation 3 157 Representation (3), as I have said above at [43], raises whether Johns Lyng was aware of reasons that it knew made it otherwise than likely that it would meet FY13 forecasts. 158 In my view, Ms Rakic has not proved this aspect of her case. There was very little evidence capable of establishing that Johns Lyng did not have a genuine belief in its forecasts. Ms Allen, the forecaster, was not called. It was not put to Ms Lutze or Mr Didier that they lacked a belief in the forecasts. When put to Mr McPhee, it was vigorously rejected. Only Mr Cameron's evidence was arguably supportive. He was asked, "what was your expectation about where profits were going to move to from February 2013, knowing … what you did in February 2013 about those matters?" to which he answered, "Well, it's not going to look very good if you've had month after month after month of not achieving budget … ." He was asked, "[w]hat was your expectation about whether or not [the forecasts] were going to be met and how realistic those forecasting figures were?" He answered, "You would have to be pretty lucky." There was, later, this exchange: MR IRVING: And I want to ask you: in light of your evidence about estimator sales and declining profit and management restructures etcetera what, in your view, is the likelihood of being able to get anywhere near the figure of forecasted profit of $4.2 million by the end of the financial year of 2013? MR CAMERON: I don't recall looking - I certainly didn't look at these figures in the email in the depth that we've gone through all of the figures over the last, you know, four hours or whatever. But yes, it's not going to happen. MR IRVING: It's not going to happen as in the profits - the forecast targets are not going to be met? MR CAMERON: It's not - well, it's just not going to be achievable to have better years than we did the last two with the volume of work that we had. And given that we weren't getting the opportunities that we were getting back at that time. MR IRVING: And - - -? MR CAMERON: And no storm. MR IRVING: And no storm. And in - not better years than the previous year. It ended up being a worse year than financial year 2011. Was that your expectation in February, that that's where the profit was going to end up? MR CAMERON: Yes. Well, there wasn't enough work there. MR IRVING: Knowing what you did about the decline in estimator sales, knowing what you did about the decline in profit, knowing that you did - that there wasn't enough work to even get to the 2011 financial year profit, why didn't you tell Ms Rakic about the change in the respondent's position? MR CAMERON: I wanted her to come over. 159 The last two questions are phrased as relating to Mr Cameron's state of mind in February 2013. His answers appear to contemplate that he knew, as at that date, that FY13 would be a worse year than FY11 in terms of profit and that he deliberately concealed that from Ms Rakic because he wanted her to come to Johns Lyng. However, I would not accept that his evidence was really to that effect. 160 The tense of the questions switches during the questioning, which confused Mr Cameron's evidence. In the first question, he was asked "what, in your view, is the likelihood" of making the forecasts (emphasis added). He was not asked, "what was your view, in February 2013," as to the likelihood of making the forecasts. It is apparent from Mr Cameron's answer, and from the time on the forwarding email being only three minutes after it was sent from Johns Lyng to Mr Cameron, that Mr Cameron did not, prior to forwarding Mr McPhee's email to Ms Rakic, look at the financial documentation to which he was taken in evidence. Rather, on the basis of having looked at that documentation in the course of his time in the witness box, he formed a view, with the benefit of hindsight, that it was unlikely as at February 2013 that the forecasts for FY13 would be met. I cannot see how he could himself have been of that view in February 2013 having not gone through the financial documentation and having done little more than forward Mr McPhee's email to Ms Rakic. I think Mr Cameron's last two answers are the result of confusion: I think that he viewed the penultimate question as asking for an assessment with the benefit of hindsight; I think he was confused by the number of propositions rolled up in the last question and answered with respect to some only or answered hypothetically. 161 A conclusion to that effect is supported by context. Mr Cameron accepted that he had been on long service leave from 29 October 2012 and while there was some issue as to whether he was back on 19 March 2013 or, instead, before the February 2013 GO meeting he accepted he was not performing his routine duties. Mr Cameron said in the above extract that he did not look at the figures in the email in the same depth as in the course of his evidence. In cross-examination, he similarly said, "I can't sit here and say I checked those figures before I forwarded to [Ms Rakic]." He said that he did not raise any issues with Mr McPhee as to the accuracy of the forecasts. He said further, "In reality, I would have looked at that - if I read it or whether I just sent it on, I don't know. … Had I read it, I would have looked at it and gone, 'What does five per cent mean? What does two and a half per cent mean?' That was what was critical." Those answers, which I accept, do not comfortably stand together with a finding that Mr Cameron knew or suspected that Johns Lyng would not meet its forecasts and hid that from Ms Rakic. Further, Mr Cameron was a director of Johns Lyng and had a financial interest in it. In those circumstances, I would find it very difficult to accept that Mr Cameron was, in February 2013, of the view that forecasted figures in internal documents were unlikely to be met but that he did not take any step to rectify them. 162 For those reasons, I consider that Mr Cameron's evidence discloses only that, with hindsight, he viewed the February 2013 forecasts as having been unlikely to be met. I do not find that he held that view at or about the time of sending the 21 March email to Ms Rakic. 163 Even if I accepted that Mr Cameron did, in March 2013, disbelieve the forecasts, I would need to further accept that his disbelief constituted or mirrored Johns Lyng's corporate mind. It is not necessary to deal with this issue, but had it arisen, Ms Rakic would have faced significant difficulty. It would be difficult, in my view, for the views of single director to be attributed to the corporation in circumstances where Johns Lyng's internal documentation contained the same figures as were given to Ms Rakic and there was no evidence that any disbelief in those figures was more widespread. Further, there was documentary evidence that in May 2013 Mr McPhee believed that the end-of-year forecasts should be "pretty right". 164 The evidence does not satisfy me that Johns Lyng knew it was otherwise than likely that it would meet its FY13 forecasts. That is not to say that there were reasonable grounds for the forecasts. It is also not to say that any persons who held a positive belief as to the likelihood of the FY13 profit forecast being met had a reasonable basis. However, it does have the consequence that representation (3) was not misleading or deceptive.

Final remarks 165 Before moving on it is important that I say some things about the way in which I have conducted the above analysis. As mentioned above, the forecaster (Ms Allen) was not called. No explanation was given for her absence. This may have been an appropriate case in which to draw an inference that Ms Allen's evidence would not have assisted Johns Lyng (c.f. Jones v Dunkel (1959) 101 CLR 298) but I was not asked to draw that inference and I do not draw it. However, her absence means that I do not know what matters did, in fact, underpin the forecasts that were given to Ms Rakic. I do not know whether they took into account diminished Wins or diminishing Sales. I do not know whether the Suncorp situation was taken into account. I do not know whether any weight was given to expenses having been slightly above budget in the first seven months of the year, or to cost of goods sold having been below budget. I do not know whether the year-end forecasts were based upon an anticipated turnaround in Wins or Sales, and if so whether there was any reason for predicting such a turnaround. 166 What little I do know about Ms Allen's forecasting is against Johns Lyng. The evidence is clear that certain aspects of the forecasts she prepared in February 2013 were badly wrong. So, too, were earlier and later forecasts (e.g., January and March 2013) badly wrong. I have outlined above also that there were quite a few inconsistencies and errors in the GO meeting reports prepared by Ms Allen and perhaps by others. Further, as Ms Rakic submitted in closing, the forecasts varied quite widely (if not wildly). The 23 December 2012 GO meeting report contained a Sales forecast of $38.1 million. In February 2013 the forecast was revised down to $35.8 million. But in March 2013, the forecast was revised back up to $39.5 million. In January and February 2013, Wins had been below budget by $1.9 million and $1.8 million respectively, and by the end of February 2013 the combined Win shortfall for the year was more than $10 million. The rationale for a $4 million upward revision in projected Sales between February and March 2013 is not apparent, especially after a substantial downward revision into February 2013. Incidentally, in April 2013 the Sales forecast was again down to $34.6 million. These matters do not instil faith in the forecasts' accuracy. 167 Similar, in the Work in Hand table in February 2013, forecast Wins for the balance of the year were more than $4 million (and up to $4.65 million) per month. That is in circumstances where the best result to date in that year had been $2.7 million, and the KPIs for the balance of the year were no higher than $3.125 million. That table also contained what appear to be forecasts for Sales, which did not align with the figures given on the immediately-previous page for the same metric over the same months. The comparable table in the next month (March 2013) shows drastically-altered Win forecasts, of only $2 million for March and April, $2.5 million for May, and $3.2 million for June. 168 Perhaps there is some explanation for the poor forecasting, for the apparent discrepancies, and for the marked alterations in forecasts from month to month. Johns Lyng did not, however, advance any such explanation. In the absence of an explanation, I am left in some doubt as to Ms Allen's competence as a forecaster. The evidence concerning Ms Allen included that she had been a manager at Johns Lyng for only around 12 months prior to the making of the representations. Her earlier roles included that she was personal assistant to Mr Cameron and then a minute-taker for the Johns Lyng board. I must confess that these roles do not seem to me to be likely to have prepared Ms Allen to engage in the fairly complex task of forecasting financial metrics. It is possible that she had some other training, or showed especial aptitude, but again I do not know. 169 Johns Lyng submitted in its written reply as follows: David Cameron sent the email with the representation as to the FY13 forecast in March 2013 to the Applicant. This post-dates the forecast figures made in February Go Meeting Report. The alleged misrepresentation was made in March 2013 by the company not in February 2013 by the individual(s) who participated in the preparation of the Go Meeting report. So much may be accepted (and indeed was not really in contest). The point, however, is that Mr Cameron's email was a forward of Mr McPhee's earlier email, and Mr McPhee's evidence was that he took his figures from the February 2013 GO meeting report. I accept that Johns Lyng could have approached the reasonable grounds issue otherwise than by producing the forecaster, but its attempts to do so were unpersuasive. 170 That brings me to the second and final observation concerning my approach to the evidence. Above, I engage in fairly-detailed analysis of Johns Lyng's financials with a view to seeing whether there were reasonable grounds - for example, in lower-than-forecasted cost of goods sold - for the representations made to Ms Rakic. Those were not matters in respect of which Johns Lyng assisted me with submissions. Indeed, they were not matters in respect of which Johns Lyng really advanced a pleaded case. 171 In terms of pleaded reasonable grounds, Johns Lyng relied only upon "John McPhee's reliance on the Go Meeting material prepared for the 20 February 2013 Go Meeting by managers of the Respondent and the spreadsheet headed Sales/Profit Forecast FY13, January 2013, prepared by John McPhee in February 2013." As I have outlined above, and as I think Johns Lyng ultimately accepted, Johns Lyng cannot establish that it had reasonable grounds for a representation by proving only that Mr McPhee acted reasonably in relying upon internally-prepared documents. Such an approach leaves open the question whether those internally-prepared documents were themselves reasonably grounded. This particular was effectively abandoned, as it seems to me (or in any event it has no merit), and Johns Lyng's case turned to relying upon past profitability. (I should add that, although the spreadsheet prepared in February 2013 was identified by Johns Lyng during the course of Ms Rakic's opening, Mr McPhee was not taken to the document in his evidence. The document was not tendered nor mentioned in Johns Lyng's submissions. Even if it had been tendered, I do not think it would have advanced Johns Lyng's case in any way). 172 Johns Lyng's submissions as to the state of its finances in February and March 2013 did not advance much beyond saying that it had, to that date, been a very profitable business. For reasons I have given above, that does not take Johns Lyng very far. The approach I have adopted has been to peruse the financial information in evidence with a view to identifying a reasonable basis. That was, with respect, generous to Johns Lyng. It did not undertake such an analysis itself, nor (beyond reference to past profitability) did it make any submissions concerning what the financial information disclosed. I think I have taken Johns Lyng's case at the highest it could have been put, even though it was not in fact put in that way. In a few cases, I have given Johns Lyng the benefit of the doubt. For example, while I was not persuaded that Johns Lyng had a reasonable basis for thinking that cost of goods sold would remain as low as 74.48 per cent, I did not proceed on the basis that it would rise, by year-end, to the budgeted percentage of 76.85 per cent. It is possible, for example, that cost of goods sold always rises toward the end of the financial year, and that a budget of 76.85 per cent was a reasonable forecast based on a percentage of 74.48 per cent through January 2013. In that case, there would have been essentially no prospect whatever of making FY12-level profits. 173 The essence of the foregoing is that, if I had decided the case only on the grounds expressly put forward by Johns Lyng, I would have been far quicker in saying that reasonable grounds were lacking for representations (1) and (2).

Was any loss or damage suffered by Ms Rakic because of Johns Lyng's conduct? 174 I here discuss the question of reliance. For reasons that follow, I find that Ms Rakic did rely upon Johns Lyng's conduct and that it caused her to enter into a contract of employment with Johns Lyng. Ms Rakic contended that, relying upon the representations, she accepted employment with Johns Lyng rather than staying in employment with Pattersons. It is put thus as a particular to [17] of Ms Rakic's Amended Statement of Claim, which Johns Lyng denied: If the Applicant had not relied on the conduct, for the period April 2013 to April 2018 she would have continued in employment with Pattersons, or with another employer (a successor employer) earning the same or more remuneration than she was receiving at Pattersons. … 175 As mentioned above, Mr Didier acknowledged that the purpose of his meeting with Ms Rakic was to induce her to work for Johns Lyng. He acknowledged that part of his purpose was to set out the terms that were going to induce her to come over. Mr Cameron also said that he wanted Ms Rakic to come to Johns Lyng. Ms Lutze spoke of recruiting Ms Rakic because of her skill set with Suncorp. Mr Cameron agreed with the proposition that the recruitment of Ms Rakic was "important from [his] perspective to try and achieve an improvement in the business." 176 Johns Lyng wanted to induce Ms Rakic to leave her employment with Pattersons and take to up employment with Johns Lyng. It was motivated, at least in part, by the significant commercial consideration of the risk of being removed from the Suncorp panel. Its actions designed to induce Ms Rakic to join Johns Lyng included a meeting between Ms Rakic and Johns Lyng's CEO, wherein he set out terms on which she would be employed, which terms he hoped would be appealing to her. Ms Rakic, not surprisingly, was concerned to establish how remunerative the position would be. Predictions were made to her concerning the likely future profitability of Johns Lyng, which (because of the terms of her employment) affected her likely future remuneration. I have no hesitation in finding that Johns Lyng intended Ms Rakic to act upon its representations - that, after all, is the nature of an inducement. 177 Ms Rakic's evidence on reliance was, however, somewhat sparse. It was as follows: MR IRVING: Yes. If you were aware at the time you were offered employment by the respondent about that decline in sales, how would that have influenced your decision to resign from Pattersons and go and work for the respondent? HIS HONOUR: Perhaps the question could be put with a little more detail. Decline in sales in what period? MR IRVING: The decline in sales from November through to March 2013? MS RAKIC: If I was provided this information and I could see the downward trend - well, the losses were there - there would be nothing to consider. MR IRVING: What do you mean there would be nothing? MS RAKIC: Well, there would be nothing for me to consider in relation to considering employment. This looks to me like there's losses so why would I go to a potential employer that looked like they were making these kinds of losses? MR IRVING: Could I take you to page 6. Sorry, to page 8 numbered up the top-right in MFI7. It's again a document prepared by you and it records the net profit. And the 401 figure relates to December 2012. The 235 figure relates to January 2013 and the 89 figure relates to February 2013. Could I ask you if you had known about the decline in profits between December and February 2013 at the time you were made the offer, how would that have influenced your decision whether or not to go over to work for the respondent? MS RAKIC: It would influence my decision to not go work for the potential employer. MR IRVING: Okay. And similarly, could I take you to page 2 of that bundle. And that records in the data prepared by you the estimator sales as against the budget? MS RAKIC: Sorry, my pages aren't numbered so I'm just - - - MR IRVING: Sorry, up the top - it's the second page of the bundle and it's headed Estimator Sales Budget Source GO Reports? MS RAKIC: Yes. MR IRVING: And it has in it a faint green line which indicates the budget pressed made sales. A red line which indicates the extent to which estimators actually made sales. And the purple line at the foot, the chart at the foot is a record of by how much the estimators had exceeded or not met budget. If you had known in - at the time the offer of employment was made to you about the failure of estimators to meet budget over the previous three months by that sort of margin, how would that have influenced your decision whether or not to go and work with the respondent? MS RAKIC: It would have influenced my decision to not consider employment was - - - 178 I am not sure that Ms Rakic was asked the right questions. It was not alleged that Johns Lyng was under a duty of disclosure, so that Ms Rakic had an expectation of being put in a position of perfect knowledge in relation to Johns Lyng's financial affairs. The question is not what Ms Rakic would have done had she been in a position of perfect knowledge, but what she would have done had she not been misled by Johns Lyng's conduct, or more accurately, what (if anything) the misleading representations caused her to do. I do not consider Ms Rakic's answers to be of great assistance in resolving that issue. 179 Ms Rakic was returned to the issue at the very end of examination in chief. She was reminded of having described uncertainty as to how a profit share would work, and was asked what reliance she placed upon the 21 March email. Her answer was as follows: I - I relied heavily on the document. Because I was nervous and not very comfortable about dropping the hundred thousand dollars in - in my base salary, the - the - the data gave - or the information helped me to try and understand what position I would be in financially knowing that the two and a half per cent is - is basically going to make up for the shortfall in - in the gap in the salary and that the five per cent is basically the icing on the cake, that's going to be over in - in addition to the salary that I'm at Pattersons so the data that - the information that I relied on David's email very much gave me a level of comfort that it was a much better offer financially for me. I would accept that evidence, which goes a long way to establishing reliance upon the 21 March email and therefore upon the representations said to have been made by conduct including the sending of that email. 180 Beyond that, in the circumstances of this case there is a fair inference that Ms Rakic relied upon Johns Lyng's conduct. Johns Lyng objected to counterfactual questions on the basis that they were hypothetical. Presumably the objection was therefore on the basis of irrelevance. I allowed the questions: evidence of that kind is admissible, but may be of little weight: Barnes v Forty Two International Pty Ltd (2014) 316 ALR 408 at [184] (Beach J, with whom Siopis and Flick JJ agreed). The corollary is that direct evidence of reliance is not necessary, and its absence does not necessarily preclude a finding of reliance: Barnes at [184], citing Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471 at 483 (Beaumont, Foster and Hill JJ). "[W]here a representation is made in terms apt to create a particular mental impression in the representee, and is intended to do so, it may properly be inferred that it has had that effect": Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at [55] (French CJ, Crennan, Bell and Keane JJ). Further, if a material representation is made which is calculated to induce the representee to enter into a contract, and that person in fact enters into the contract, there arises a fair inference that the person was induced to do so by the representation: Gould v Vaggelas (1984) 157 CLR 215 at 236 (Wilson J). 181 Misleading or deceptive conduct need not be the sole inducement. In SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (No 2) (2012) 298 ALR 69, Griffiths J summarised the authorities - in my respectful view, accurately - thus (at [210]) (emphasis in original, parallel citations removed): … it is well-established that, in this context, for the cross-claimants to recover damages or compensation under either s 82 or s 87 of the TP Act, they need only establish that the relevant representations were a cause of their consequential loss or damage, and not necessarily the only cause of such loss or damage. Accordingly, a representation need not be the sole inducement for the representee to enter into a contract, as long as it plays some part (even if it only be a minor part) in contributing to the formation of the contract (see Gould v Vaggelas (1985) 157 CLR 215 at 236 … per Wilson J; Henville v Walker (2001) 206 CLR 459 … at [14] per Gleeson CJ, at [59]-[61] per Gaudron J, at [106]-[109] per McHugh J and [163] per Hayne J; Sanguine Technology Pty Ltd v Abacus Calculators (WA) Pty Ltd [2010] FCA 279 at [215]-[216] per Lander J and De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) (2011) 200 FCR 253 … at [55]-[59] (De Bortoli) per Stone J (an appeal against her Honour's decision was dismissed: see De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2012] FCAFC 28)). It is well-established that in addressing the issue of causation, a "common sense" approach is to be taken and the question of causation needs to be answered in the context of the particular legal framework in which it arises: see, for example, March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 … . 182 It is relevant that Johns Lyng conceded (rightly, in my view) the following: MR McKENNEY: I'm not going to be as bold as to say, your Honour, that the conversation that transpired between Mr Didier and the applicant obviously didn't influence the decision-making of the applicant, your Honour. I'm not going to be as bold as to say that. HIS HONOUR: Well, it's not just the decision - it's not just the conversation. It's also the forecast I think. MR McKENNEY: And that as well, your Honour, yes. I accept that. HIS HONOUR: So you accept that those representations were relied upon by the applicant? MR McKENNEY: That - well, I would put it in these terms, your Honour. I mean, perhaps it amounts to the same thing but, no doubt, influenced the decision of the applicant to take up employment, yes. I'm not going to be - as I say, I'm not going to be as bold as to say that, given the - given the circumstances - - - 183 That seems almost to amount to a concession of reliance. However, in closing submissions, Johns Lyng submitted that Ms Rakic had taken up the position with Johns Lyng not because of any representations, but because she was unhappy at Pattersons. It relied upon the evidence of Ms Lutze and Mr Didier. In reply submissions, provided after the hearing, Johns Lyng expanded upon that position and submitted as follows: The Applicant flew down from Queensland at her own expense to see Scott Didier and accepted an offer of employment within a couple of days (Exhibit A4). There is not just evidence of real unhappiness and discontentment on the part of the Applicant but this impacted on the doing of her job. [references to evidence here followed] The above reveals a preparedness on the part of the Applicant to eschew any security concerns because she was in a rush and, in the Respondent's submissions [sic], the maximum period she would have remained employed at Pattersons was six months, but probably a significantly lesser period in light of the tenor of this evidence from two witnesses of the Respondent. 184 It seems to me that even if I accepted that Ms Rakic took up employment with Johns Lyng mainly because of her unhappiness at Pattersons (and I will discuss that below in dealing with quantum), that would not suffice to negative reliance. Only if it was established that Ms Rakic's unhappiness was such that the admitted inducement could not be said to have played even a "minor part" in her decision to take up employment with Johns Lyng would reliance be negatived. In my view, the evidence does not come close to establishing that. 185 The point was vigorously pursued in Ms Rakic's cross-examination that she knew that the prospect of receiving an amount of money pursuant to a 2.5 per cent share of profits was dependent upon Johns Lyng actually making a profit. As I said above, perhaps the reason for Ms Rakic's air of obstinacy was that Ms Rakic perceived that the cross-examination was in aid of an eventual submission that she did not actually rely upon profit predictions because she well knew that her profit share could be worth nothing, or a submission that no representation concerning profit was conveyed because she knew profit could not be promised and could be nil. 186 Submissions to that effect were ultimately put. Both fail to grapple with the real substance of Ms Rakic's case. Of course any company might be struck by disaster. But a statement that a company is very profitable and is the jewel in a crown, combined with one that the company forecasts a profit of $4.270 million in a financial year, given three months from the end of the financial year, conveys a prediction that that will be the profit: it does not convey a prediction that either $4.270 million, or nil, or some number in between, will be the profit. I have dealt with this above in assessing whether the representations were made. I do not view the status of the representations as predictions rather than guarantees as necessarily gainsaying reliance. True it is that if a prediction was expressed in highly-qualified terms that would be a factor weighing against (but not precluding) a finding of reliance. The subject predictions, though, were not highly qualified. 187 Another submission was made to the effect that Mr Didier did not guarantee that the gap between Ms Rakic's base salary at Pattersons and her proposed base salary at Johns Lyng would be made up of profit share. Even if that were accepted, Ms Rakic's case did not depend on establishing that he had so guaranteed. As I have said, the representations she pleaded were as to likelihoods. There is nothing unusual about a person acting on the basis of a likelihood rather than a certainty. 188 It was put to Ms Rakic that she knew there was the potential that the gap between her Pattersons and Johns Lyng salaries might not be made up by profit share. She disagreed, saying that she knew that the gap was $100,000 and that the her profit share "had to have been $100,000 or more because the gap - that's what the gap was with the salary." One view is that Ms Rakic intended to convey that Mr Didier had guaranteed that the profit share would make up the gap. I referred to this issue above, at [36]-[37]. As I said there, it is not necessary to resolve whether a statement to that effect was made by Mr Didier, because that statement was pleaded not as a stand-alone representation but as in aid of the predictive representations, which I have found were made without the need to resolve the "gap" or "out of pocket" issue. 189 I am prepared to accept that Ms Rakic desired to leave Pattersons at the time of her courtship by Johns Lyng (more on that will be said below), but I would not accept that she was so anxious to leave Pattersons she would have accepted any offer of employment. Rather, the nature of the representations made by Johns Lyng - and in particular the representation predicting FY12-level profits for the next twelve months - gave Ms Rakic a level of comfort as to her future remuneration such that she was induced to accept the offer of employment. 190 The terms of Ms Rakic's employment at Pattersons included that she was to be paid $230,000 per annum, plus superannuation, plus various other entitlements including a motor vehicle. Johns Lyng's offer, through Mr Didier at the Brunetti meeting, was $115,000 inclusive of superannuation (though that was later increased to $130,000), plus (as Ms Rakic thought) a motor vehicle, plus 2.5 per cent of Johns Lyng's profit. Putting aside profit share, Johns Lyng's offer was less than half as remunerative as Ms Rakic's then-current terms. The next day, she received the 21 March email showing that 2.5 per cent of the predicted FY13 profit was over $100,000. 191 It verges on implausible to suggest that, where Ms Rakic was being offered half of her then-current base salary plus profit, representations as to the level of profit predicted would have had no or no substantial effect on Ms Rakic deciding whether to accept the offer. I do not think it can seriously be suggested that Ms Rakic's decision-making process in relation to Johns Lyng's offer of employment would have been materially unaltered if, for example, she was given a completely different profit prediction. Rather, I consider that the representations had a substantial effect. 192 I find that Ms Rakic relied upon Johns Lyng's representations.

What quantum of loss or damage did Ms Rakic suffer because of Johns Lyng's conduct? 193 I set out and respectfully adopt the following summary, by Tate, Santamaria and Kyrou JJA, in Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338 at [540], of the principles relevant to assessment loss or damage (citations omitted): (1) A plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage it has suffered in consequence of its altering its position under the inducement of the misrepresentations made by the defendant; (2) Under s 82(1) of the TPA, as under the common law, a plaintiff can only recover compensation for actual loss or damage incurred, as distinct from potential or likely damage; (3) In determining whether a plaintiff has suffered loss or damage under s 82(1), it is usually necessary to compare the position that the plaintiff is in having been misled, with the position it would have been in but for the misrepresentation; by undertaking this comparison a court can determine whether the plaintiff is worse off as a result of relying upon the misrepresentation made by a defendant; (4) Section 82 requires identification of a causal link between loss or damage and conduct done in contravention of the Act; the question of causation is relative to the purpose of s 82, applied to the circumstances of a particular case; (5) Determining the question of causation will often involve considering how much worse off the plaintiff is as a result of entering into the transaction which the representation induced it to enter than it would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from its reliance on the representation, at least if the loss is foreseeable; (6) Analysing the question of causation only by reference to what is, in essence, a 'but for' test has been found wanting in other contexts and it should not be treated as an exclusive test of causation under s 82 of the TPA either; especially where there is more than one cause of the loss; (7) It is relevant to ask what the plaintiff would have done had it not relied on the representation; (8) … there are cases where if the contravening conduct had not occurred which misled the plaintiff, the plaintiff would not have embarked upon the project or transaction at all (the 'no transaction cases'), and there are cases where if the plaintiff had not been misled it would still have embarked upon the project or transaction, but would have done so by entering into an alternative arrangement with the same party or a different party ('alternative transaction cases'); (9) A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to it than the course in fact adopted; (10) A court should not engage in speculation about multiple possibilities of past hypotheticals to which no specific evidence was directed; (11) Once the causal connection is established, there is nothing in s 82 of the TPA which suggests that the amount that may be recovered under that section should be limited by drawing some analogy with the law of contract, tort or equitable remedies; (12) If the defendant's breach has 'materially contributed' to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage; (13) In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional. 194 Counsel for Johns Lyng referred to O'Neill v Medical Benefits Fund of Australia Ltd (2002) 122 FCR 455 and in particular to the following passage at [29] (per Carr, Moore and Marshall JJ): One way that loss could be quantified would be to ascertain the difference (if any) between the salary he would have been earning in employment with National Mutual and the income he then received in the position with MBF and in the employment he entered or might enter after being made redundant by MBF. The damages would be the difference over the period it was likely Mr O'Neill would have stayed in employment with National Mutual. 195 As their Honours set out at the beginning of [29], "[t]here ultimately appeared to be no issue that the Federal Magistrate might assess damages in [that] way." Their Honours were not establishing a principle that the calculation of damages necessarily ceases when the claimant would have left employment with his or her former employer. Rather, their Honours in O'Neill were setting out a method of calculating damages on the facts of that case. The authorities summarised in the Protec list above, and in particular (3), (5), and (7), will very often require or result in precisely that method. 196 Where, however, had an applicant not acted on a representation, jobs of a certain remuneration would have been open to that person whereas, in the actual event, those jobs are foreclosed to the person - for example, because the employment into which the person was induced diminished his or her future employability - there is no principled reason for ending the comparison of the factual and the hypothetical counterfactual as at the date at which the person would have left the job that the person was in at the time of the impugned conduct. 197 If the same jobs would have been available to Ms Rakic on leaving Pattersons as are now, in fact, available to her, then the damages analysis would rightly end at the time at which Ms Rakic would have left Pattersons. On the other hand, if more-remunerative employment would have been available to Ms Rakic when she left Pattersons than is now available to her, then I ought to take into account the difference between what was likely to have been her remuneration and what is now likely to be her remuneration. 198 This, then, is the question: what would Ms Rakic have done had she not been induced to action by Johns Lyng's representations? Within that question there is a subsidiary question: are Ms Rakic's job prospects now any different to what they would have been had she continued at Pattersons for a period of time? 199 Ms Rakic's answer to the overarching question is that she would have been at Pattersons or in equally-remunerative employment. Her answer to the second question is evidently "yes." Her Amended Particulars of Loss dated 11 September 2015 allege that "The length of time it is likely to take for the Applicant to earn $275,500 per annum or more [is] 7 years from the date of the resignation from Pattersons." Johns Lyng's answer to the overarching question is that Ms Rakic would have left employment with Pattersons within six months of her actual date of resignation. It submits that the damages calculation ends there.

Whether Ms Rakic was dissatisfied at Pattersons 200 In arguing that Ms Rakic would have left Pattersons only six months after she actually did, Johns Lyng points to the evidence of Ms Lutze and Mr Didier. Ms Lutze's evidence included that Ms Rakic was unhappy at Pattersons. Ms Lutze said that Ms Rakic discussed with her that Ms Rakic was "caught between" Mr Stuart Patterson, the CEO of Pattersons, and his wife Mrs Nicole Patterson, the office manager, "and didn't like it very much." Ms Lutze's evidence was then as follows: So I wanted to improve the performance of Johns Lyng Group with this particular client, and Svett had a skillset that she had proven that she was able to do that, and so I was like, "Well, we're actually - we need to do something about this client. You've got this skillset. I think now would be a good time for you to speak to Scott [Didier]." She told Mr Didier, "Svett's ready now. I think that you guys should talk." 201 Ms Lutze was challenged on her evidence concerning what Ms Rakic had told her about Pattersons. Ms Lutze did not depart from her evidence in chief. She said that "[Ms Rakic] was communicating that they had a terrible culture and that she was unhappy there" (albeit that Ms Rakic may not have used the words "terrible culture") and that Ms Rakic indicated that she was "in duress" between the husband and the wife and that was inhibiting her ability to enjoy her job and to carry out the role she had been employed to do. Ms Lutze did not accept that Ms Rakic was only "having a bit of a snipe" at Mrs Patterson. While Ms Lutze did not recall specific words, she rejected that she had only a "general feeling" that Ms Rakic was unhappy and said that Ms Rakic had "clearly communicated … that she was caught between the husband and wife." 202 Mr Didier gave similar evidence. He said that at the Brunetti meeting, Ms Rakic said that she did not like it at Pattersons, and that Mr and Mrs Patterson were too controlling. Ms Rakic explained (he said) that she was not happy there, that the Pattersons did not allow her to do her job properly, and that they had "dinner party board meetings," from which she was excluded. In cross-examination, it was put to Mr Didier that Ms Rakic had said that Mr and Mrs Patterson conducted board meetings around the dinner table, which Mr Didier accepted, but that she had not given any other examples of her relationship with her then-current employer. Mr Didier rejected that proposition: he said that she spoke of being unhappy there, of not liking the environment, and of not particularly liking Mrs Patterson. He said that "[i]t was spoken about a lot." 203 Ms Rakic's evidence included that Pattersons was very happy with her performance, which was not really in dispute. She said that "Stuart and Nicole were delighted with the result [that Pattersons had been moved to number 2 on the Suncorp rankings] and we had a morning tea for the staff and Stuart acknowledged the hard work that had been undertaken to get to those results. So it was a very - exciting times for us." Ms Rakic said that she had been at Pattersons only six months and the "short period was a good period. We did very, very well." She had had conversations with Mr Patterson concerning her taking over Mrs Patterson's responsibilities over the next two to three years. 204 In cross-examination, it was put to Ms Rakic that she expressed discontent to Ms Lutze concerning Pattersons. Her response was as follows: MS RAKIC: Unhappy? I wasn't unhappy. We were going through a really great time at Pattersons. We were doing very well with Suncorp. It was probably the - the account that everybody had a lot of pressure on to do very well in and it was - it was going good. I was - it was challenging, I - I have to say. I mean, it was - I was new to the role. I was new to the company. It was different dynamics. It was a smaller team. I was adjusting to that but I was coping very well. HIS HONOUR: The question was, did you express any unhappiness to Ms Lutze? MS RAKIC: No. Well, no, as in, no, I'm not - no, I'm not happy there, no. She gave similar evidence later, accepting that it was "challenging for [her]" and "different," that there were "different dynamics, husband and wife team," that she was "going through a learning curve, a very steep learning curve," but re-iterated that she "wasn't unhappy." Ms Rakic said that she was interstate when Mr Didier contacted her, and that he offered to pay for her travel to Melbourne to meet with him but that she declined and said that "if [he] wanted to catch up, [she] would be paying [her] own air fare to see him." Ms Rakic denied expressing dissatisfaction with Pattersons to Mr Didier. She denied saying to Mr Didier anything about "dinner table board meetings," but said that she had made that comment to Ms Lutze over their earlier lunch: It was a comment made in jest about Stewart and Nicole having dinner meetings at the dinner table rather than at a boardroom meeting. It's a small business. They discuss business at the dinner table. It was a comment made in jest. I'm not, obviously, proud about that comment and - yes, it was made in jest. It was made over a conversation at lunch with my friend. 205 Unchallenged evidence supports the finding, which I make, that Ms Rakic's time at Pattersons was professionally successful. Unless Ms Rakic had some reason for wanting to leave Pattersons it is difficult to see why she would accept a job that was substantially less remunerative, in terms of base salary, only six months after commencing with Pattersons. 206 As I explain below at [241]-[243] below, Ms Rakic's Pattersons package was worth $274,646, including $23,946 in motor vehicle lease payments. Such a remunerative position was rare: Ms Rakic's evidence was that there were only around twelve positions in Victoria, of comparable seniority and expertise, paying a package of somewhere between $200,000 and $275,000. Johns Lyng's initial offer was $115,000 inclusive of superannuation, plus (she thought) a vehicle. Assuming that the vehicle was of comparable worth, the value of the Johns Lyng package was $138,946. The letter of offer sent to her on 23 March, contemplated an increase of salary (including superannuation) to $130,000, so that the package total, including vehicle, would have been $153,946. The 21 March email stated that a 2.5 per cent share of the forecasted profit for FY13 was $106,750. On that forecast, the total annual value of the package offered by Johns Lyng was $260,696. Allowing that a difference of around $14,000 may not have been seen by Ms Rakic as being particularly substantial, it remains that Ms Rakic left a guaranteed $274,646 for a guaranteed $153,946 (and a predicted $260,969) on the basis of predictions that extended no further than twelve months from March 2013. 207 Counsel for Ms Rakic pointed me to the possibility of Ms Rakic receiving 5 per cent equity six months after commencing, which (he said) would have increased her remuneration to around $350,000, on then-current profit predictions. Ms Rakic's evidence was that she took that into account. She described the potential for five per cent equity as being the "icing on the cake" or similar. She gave her rationale on a few occasions, but the below is representative: … Because I was nervous and not very comfortable about dropping the hundred thousand dollars in - in my base salary, the - the - the data gave - or the information helped me to try and understand what position I would be in financially knowing that the two and a half per cent is - is basically going to make up for the shortfall in - in the gap in the salary and that the five per cent is basically the icing on the cake, that's going to be over in - in addition to the salary that I'm at Pattersons so the data that - the information that I relied on David's email very much gave me a level of comfort that it was a much better offer financially for me. 208 It was put to Ms Rakic in cross-examination that she had factored in the discussion about five per cent equity into her decision to take up employment, which she accepted. Ms Rakic was, however, challenged on her evidence concerning equity in Johns Lyng. I have mentioned above questioning concerning the contingency and uncertainty of profit. Specifically relevant to the five per cent equity issue was the following: MR McKENNEY: But you would [know] that in that process there's an element of risk on your part? MS RAKIC: The risk has to be reduced. I'm the primary breadwinner in my family. MR McKENNEY: Yes, yes? MS RAKIC: I can't afford to not have an income coming in and I can't afford to go backwards. So for me to go to another employer and be worse off there's no - that's not risk for me. My - I was quite okay at Pattersons financially. The risk was really not a risk for me. MR McKENNEY: Well, it is a risk, isn't it? When you say you can potentially earn something and this gave you a level of comfort, but it's not - it's - you had a guaranteed salary at Pattersons of $230,000? MS RAKIC: I did. MR McKENNEY: The situation is entirely different, isn't it? MS RAKIC: Well, the base salary was $230,000. The fact that Scott said $115,000 as a base and that the gap for the profit share would have - was basically $100,000 dollars difference. So the gap had to be shortened. So for me to consider your - the employment and the icing on the cake is the five per cent equity. Now, the five per cent equity in my eyes had to have been greater than the [2.5] profit share or $106,000 odd. That was basically how I determined or tried to reduce the risk of going across. 209 Ms Rakic's evidence was, to some extent, internally contradictory. In seeking to demonstrate that accepting the Johns Lyng package made financial sense, Ms Rakic's evidence was that the possibility of equity entered into her consideration. Conversely, in deflecting the propositions that profit share and equity were inherently uncertain, Ms Rakic minimised her understanding of equity. She said that she did not understand how equity in a company worked. Her submission was that she thought she had been guaranteed a profit share of $106,000, plus a further $106,000 in the event that she took 5 per cent equity. It was further put that "where an employee or any recipient of information doesn't know about this important part of the package, they're going to at least seek some assurance about the parts that they do know about. Namely, 'I know what a base salary is, I know what the car is and what it's worth. I will lock in those and I will clarify the others later.'" Counsel for Ms Rakic accepted that these submissions inhered relative ignorance in respect of matters financial. 210 I do not accept that Ms Rakic was a financial naïf. She was commercially experienced. I do not doubt that she understood the meaning of profit, and that it could decline. As I have set out above at [177], her evidence on reliance was that if she had known about the decline in estimator sales or Wins she would not have accepted employment with Johns Lyng. That inheres that she was aware of the link between sales and profit and between declining sales and declining profit, and I would not accept that Ms Rakic thought sales could never decline. Elsewhere in her evidence, Ms Rakic sought to impress upon me, and I accept, that stability was important to her, that the risk of moving to Johns Lyng had to be reduced, and that she could not afford to go backwards. I cannot accept that a person in that position would "lock in" base salary and figure out later how a profit share worked. I think that Ms Rakic had a much better understanding of net profit and equity than parts of her evidence sought to convey, and that she was comfortable to take up employment on the basis of that understanding. 211 My view that Ms Rakic was not unsophisticated in financial matters is fortified by the email chain that is Exhibit R3. Having been given the name of an accountant by Mr McPhee, Ms Rakic said, "Can you let me know what the buy in figure will be … ." Mr McPhee advised her that it was likely to be around $250,000. Ms Rakic's response included the following (errata and formatting as in original): … $250K, is really high !!!! … The way we are travelling - this won't be paid off for atleast 3-4 years .. … 2011 and 2012 I would assume would be bumped up by the 2 CATS…. ?? Not sure how this figure is made up of ….. Could I please trouble you for a breakdown. That is not the response of a person who does not understand equity. 212 Taking all the evidence together, my opinion is that Ms Rakic understood that the package offered her by Johns Lyng involved more risk and the potential of more reward. The reward - any excess over her then-current remuneration at Pattersons - came in the form of the prospect of receiving five per cent equity after a period of time. Any such reward had to be considered in light of the risk that the offer of equity would not be made, the risk that profits would diminish, and the reality that it would be necessary to offset any buy-in figure. If Johns Lyng was ultimately to be more remunerative than Pattersons, that prospect was not without risk and would in any event be some time delayed. In my opinion, Ms Rakic knew that. That suggests that her motivation for leaving Pattersons was, at least in part, other than financial. 213 Ms Rakic did not give any other reason for leaving Pattersons (e.g., that the work at Johns Lyng would be better or more interesting). Two witnesses - Ms Lutze and Mr Didier - attested to Ms Rakic expressing dissatisfaction with her conditions at Pattersons. Ms Rakic accepted that she made the "dinner table board meetings" remark to Ms Lutze. She denied that she had made that remark also to Mr Didier, but Mr Didier gave evidence of her having said a comparable phrase - "dinner party board meetings" - in examination in chief, and Ms Rakic's counsel put to Mr Didier in cross-examination that Ms Rakic had used the phrase, "board meetings … around the dinner table," which Mr Didier accepted. I accept Mr Didier's evidence on this question: it is unlikely that Mr Didier would have a recollection of a phrase very similar to the one Ms Rakic admitted that she said to Ms Lutze unless it had also been said to him. It was not put to Mr Didier that he was mistaken in his recollection that a phrase of that kind was used, only that the phrase actually used was slightly different than he said in the course of examination in chief. Similarly, it is unlikely that both Ms Lutze and Mr Didier would separately recount Ms Rakic discussing difficulties with the management style at Pattersons and with Mrs Patterson unless she had in fact said words to that effect. 214 Even if the "dinner table" remark and other complaints as made to Ms Lutze can be passed off as venting as between friends, the same cannot be said of repeating them to Mr Didier. I accept that, beyond that comment, Ms Rakic expressed dissatisfaction with the working environment at Pattersons, and more specifically that she expressed dissatisfaction with the management structure and the style of decision-making. I find that she expressed that a friction existed as between she and Mrs Patterson. Finally, I find that her comments to Ms Lutze and to Mr Didier reflected her state of mind at the time of making them. 215 However, the evidence did not rise nearly as high as establishing that Ms Rakic was sufficiently disenchanted that she would have left Pattersons for any money. It does not seem to me likely that Ms Rakic would have expressed her dissatisfaction more highly than as explaining her motivation for treating with Johns Lyng as to the possibility of employment. I accept Ms Rakic's submission that it would not make sense for a person in her position to express desperation to leave her current employment, or to vehemently disparage her current employers.

Whether Ms Rakic's job prospects were damaged by her time at Johns Lyng 216 Ms Rakic gave evidence of the scarcity of other Victorian jobs of comparable remuneration to Pattersons. But there was no evidence that such jobs would be more difficult for Ms Rakic to procure having worked for Johns Lyng than would have been the case had she continued at Pattersons. Ms Rakic's evidence as to employment prospects in the counterfactual focussed on demonstrating that she would have remained at Pattersons for years after March 2013. In submissions, Johns Lyng approached the damages issue by reference to how long Ms Rakic would have stayed at Pattersons but for Johns Lyng's conduct, and did not submit that damages ought to continue to accumulate thereafter. 217 In so far as Ms Rakic's particulars are predicated on the assumption that Ms Rakic would have earned more in a job subsequent to Pattersons than she could earn in a job subsequent to Johns Lyng, I reject the assumption as being unsupported by evidence. I accept, however, that Ms Rakic's position with respect to jobs subsequent to Johns Lyng was disadvantageous for at least this reason. Ms Rakic was made redundant by Johns Lyng. It was important, in that context, that she secure employment fairly quickly. She did that, with "The Innovation Group," where she remained for around fifteen months after which she was again made redundant. At Pattersons, her employment not being at risk, Ms Rakic would have been able to find replacement employment more or less in her own time and without financial pressure. That is to be taken into account in the assessment of damages.

Quantum 218 As Menzies J said in Jones v Schiffmann (1971) 124 CLR 303 at 308, the assessment of damages sometimes, of necessity, involves guess work rather than estimation. This is such a case. It involves consideration of what might have happened after March 2013 in hypothetical circumstances and with imperfect information. Ms Rakic sought to alleviate the difficulty of the task by suggesting that damages could be assessed by weighting possibilities. 219 In Malec v J C Hutton Proprietary Limited (1990) 169 CLR 638 at 643, Deane, Gaudron, and McHugh JJ, said as follows (footnotes omitted): 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. See Mallett v. McMonagle; Davies v. Taylor; McIntosh v. Williams. 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. 220 Malec was followed in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332. Therein, Mason CJ, Dawson, Toohey and Gaudron JJ said as follows at 355 (emphasis added): Notwithstanding the observations of this Court in Norwest, we consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s. 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognized in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind. 221 The Malec dictum can lead, and has led, to mathematical approaches to calculating the value of hypotheticals: see, e.g., La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd (2011) 190 FCR 299 at [97]-[102] per Finkelstein J, with whose formulae Jacobson and Besanko JJ agreed. Recently, La Trobe was referenced with apparent approval by a Full Court of this Court in the context of a compensation order for damage or loss suffered by natural persons as a result of contravention by a union of the Workplace Relations Act 1996 (Cth) and the Fair Work Act 2009 (Cth): Maritime Union of Australia v Fair Work Ombudsman [2015] FCAFC 120 at [127] (Allsop CJ, Mansfield and Siopis JJ). 222 But La Trobe involved only a calculation of the value of one lost opportunity ("LO"), which Finkelstein J said was the product of the probability of its realisation ("P") and its value ("V"), V in turn being the product of M and (1 - C), M being the maximum value of the opportunity and C accounting for any contingencies. Ms Rakic's matter involves more hypotheticals: it was put in particulars, for example, that there was a 30 per cent chance of her receiving remuneration of $150,000 per annum from 1 January 2016, a 35 per cent chance of remuneration of $165,000 per annum from 1 November 2015, and a 35 per cent chance of remuneration of $180,000 per annum from 1 November 2015. If (as I hold below) Ms Rakic would have left employment with Pattersons due to dissatisfaction, the possibilities multiply as to Ms Rakic leaving at particular times and to employment of particular values. This results in a proliferation of hypotheticals that hinders rather than hones the assessment. 223 A "weighted average" approach was adopted in Blake v Norris (Hulme J, NSWSC, 5 December 1995, unreported). The plaintiff was a tort victim with a promising film career. Damages were assessed on the basis that there were varying percentages of chance that he would be a Hollywood superstar, or have considerable success, or have moderate success, or have only an Australian career. The approach involved appendices of mathematical calculations. It was argued on appeal that the approach was wrong in principle. Clarke JA said as follows (Norris v Blake (No 2) (1997) 41 NSWLR 49 at 72): In my opinion such an approach may be appropriate in a case where the possibilities are limited, such as occurs where the question is whether the plaintiff would suffer a later complication from his or her injury, but it suffers from a lack of available information where the possibilities are indeterminate and there is no rational basis for restricting the alternative possibilities to the small number necessary for carrying out a weighted average exercise 224 On the basis that the case before the Court was more akin to the latter kind of case, his Honour said this, at 73: The proper approach is to assess what it was most likely he would earn during the rest of his working life and adjust this for contingencies including the possibility that he might have done far better. 225 In Commonwealth of Australia v Ryan [2002] NSWCA 372 at [72], after referring to the approach to hypotheticals required by Malec, Hodgson JA said as follows: Where there is a wide spectrum of possibilities … the best approach is often that supported in [Norris] at 73; namely, to take the figure applicable to the most likely alternative (if there are many alternatives, even this may have a probability considerably lower than 0.5), and then adjust it upwards or downwards according to one's assessment of the chances and figures associated with more favourable and less favourable alternatives. 226 In Moss v Lowe Hunt & Partners Pty Ltd [2010] FCA 1181, a case to which Ms Rakic referred, Katzmann J adopted a Norris approach (at [146]) to one of the matters in issue in the damages assessment. 227 I think the same approach is appropriate here. The "weighted average" approach, while having the appearance of mathematical precision, can lead instead to imprecision and inaccuracy for the reasons given by Clarke JA in Norris at 69-71. The better approach is to make a finding as to the most-likely outcome in the counterfactual hypothetical, and then to adjust it to account for other possibilities. 228 The matters that require findings are these. First, but for Johns Lyng's conduct, when and for what remuneration would Ms Rakic have left employment with Pattersons? Second, what is likely to be Ms Rakic's remuneration after the date of hearing? 229 Dealing with the second matter first, Ms Rakic's evidence was that she was pursuing inquiries in relation to three jobs. The first two were with the same employer and entailed remuneration packages of around $195,000 (job 1) and of around $180,000 (job 2). Ms Rakic thought there was a "strong possibility" of working for that employer. She said that there was a "very good chance" she would be offered the third position, which had a remuneration package of around $200,000 (job 3). The questions were put to her in terms of whether she was likely to secure one or other of those jobs before around November 2015. Ms Rakic said that if none of jobs 1-3 were offered to her, she would lower her sights to remuneration packages of around $150,000. She thought there was around a 90 per cent chance that, if she did so, she would have a job before 1 January 2016. 230 The first matter turns in part on Ms Rakic's dissatisfaction at Pattersons. In that connection, I find as follows. Ms Rakic was dissatisfied at Pattersons, but not so dissatisfied that she would have left for a job that was substantially less remunerative. Ms Rakic struck me as quite robust. I do not think that her dissatisfaction was something she was unable to tolerate, or even unwilling to tolerate as long as her remuneration was acceptable. The evidence is that, not only was the remuneration acceptable, there were very few other jobs available to someone of Ms Rakic's skill and experience of comparable remuneration. On the other hand, I find that if a job did become available that was within Ms Rakic's range of acceptable remuneration, she would have left Pattersons rather than stay. That is consistent with Ms Rakic having in fact left to accept the Johns Lyng job, which I infer she saw as being adequately remunerative, at least (and with some risk) over the term of the predictive representations that were made to her - that is, until around March 2014. 231 When I pressed Ms Rakic's counsel as to what findings were appropriate were I to find (as I have) that Ms Rakic was dissatisfied at Pattersons, he proceeded on the reasonable assumption that Ms Rakic would have been prepared to accept less by way of remuneration as time went on. Ms Rakic's submission was primarily that she would have remained at Pattersons for a number of years. Further, as she was in a "position of power and strength," she would have "hung out longer than an ordinary employee would have who was seeking to jump ship. … She was in no rush." Ultimately, and very much in the alternative, Ms Rakic submitted that she would have stayed with Pattersons for around a year after she grew dissatisfied looking for a remuneration package of around $210-220,000. Thereafter, she would look for a package of around $200,000 for around six months, and then $180,000 for a further six months. In fairness to counsel for Ms Rakic, his submissions as to the time periods following which Ms Rakic would have left Pattersons, and the salaries for which she would have left, were intended to deal with the hypothetical that I found that Ms Rakic was sufficiently dissatisfied at Pattersons as to significantly compromise her salary, not with a finding that she was just dissatisfied in some measure. 232 In that connection, a few matters are of moment. Ms Rakic was her mother's primary carer and met her lifestyle expenses. Her husband earned far less than she. Ms Rakic's job at Pattersons was very remunerative. On her uncontroverted evidence, she had secured one of around a dozen commensurately-remunerative jobs, for a person of her experience and background, in the Victorian insurance building industry. What is more (and I say this without intending any disrespect), it was a highly-remunerative job for a person of Ms Rakic's education and employment background. In 1988, with no post-VCE qualifications, she commenced at QBE as a filing clerk. Twenty-odd years later, she was its National Claims Manager. She left for a job at Pattersons which was, as I have said, highly remunerative and which entailed substantial responsibility. That was, and Ms Rakic would have known that it was, an impressive story of success, but it was also a rare one. 233 In those circumstances, it is my opinion that Ms Rakic would not have lightly left Pattersons for a less-remunerative job. As I posited to Ms Rakic's counsel and as he agreed, Ms Rakic was on a good wicket. 234 In my opinion the most-likely scenario, had Ms Rakic not taken up employment with Johns Lyng, is that she would have looked for a job that was of roughly equivalent remuneration to her Pattersons package for quite some time. I accept that Ms Rakic was dissatisfied at Pattersons, but not that she was so dissatisfied that she would have left for a job paying very significantly less than her current position. The position at Johns Lyng, if profit predictions had held up, would have been comparable in remunerative terms to her Pattersons position. While there was risk associated with the taking of a profit share, I accept that the risk was offset in Ms Rakic's mind by Johns Lyng's representation that profits would continue at FY12 levels for the next twelve months and her knowledge that, within the reasonably-foreseeable future, there was a fair chance that she would take up five per cent equity, so that her remuneration would in fact be greater than at Pattersons. 235 If a job of comparable remuneration to Pattersons was offered to Ms Rakic, I think she would have taken it. But it seems to me unlikely that such a job would have been offered, mainly because the evidence was that there were very few such positions. If such jobs were readily available, I think that Ms Rakic would likely have found one between having been made redundant by Johns Lyng and the date of the hearing, whereas in the event she had not. I think it is more likely that, after around 24 months of looking for a comparably-remunerative job, Ms Rakic would have started looking for a job that offered a package of around $220,000 in definite remuneration (i.e., no profit share). I think that such a job would have been significantly easier to secure. After all, Ms Rakic's evidence at hearing was that she had very strong prospects of securing a job worth around $200,000 within the next six weeks. It seems to me that within six months or so Ms Rakic could have secured a job worth around $220,000. 236 It follows that I consider the most-likely outcome is that Ms Rakic would have worked for Pattersons for around 2.5 years and then left for a job worth around $220,000. I think it is most likely that she would have continued to work in that job or in a comparatively-remunerative job to the present day. 237 I turn now to the other question, namely, what is the most-likely outcome in respect of Ms Rakic's post-hearing job prospects. Ms Rakic's evidence included that there was a "strong possibility" of receiving a job offer involving remuneration of $195,000 or another of $180,000, and a "very good chance" of being offered a third position involving remuneration of $200,000, in every case by 1 November 2015. Here I think that the most-likely outcome is that Ms Rakic would receive a job offer of around $190,000 by 1 November 2015 (post-hearing employment). I think it is more likely than not that Ms Rakic will continue looking for jobs that are closer in remuneration to what she received at Pattersons. Relevantly, it seems to me that it is likely that Ms Rakic would or could secure a job with a remuneration package of $220,000 or more within around another year after gaining post-hearing employment. 238 In order to determine damages, I should subtract from what I consider to be the most-likely scenario absent Johns Lyng's conduct (the counterfactual) the amount actually earned by Ms Rakic plus the amount likely to be earned post-hearing (the post-hearing hypothetical). Summarising what is said above, the counterfactual is that Ms Rakic would have remained in employment with Pattersons for 2.5 years, following which she would have left for a job worth around $220,000 and would have remained in a job of approximately that remuneration to the present day and continuing. The post-hearing hypothetical is that Ms Rakic is likely to have procured a job worth around $190,000 by 1 November 2015, and that she is likely to find a job worth around $220,000 by around 1 November 2016. 239 In terms of contingencies, there seem to me really to be two broad categories of contingency: (1) I have found that the most-likely scenario is that Ms Rakic would have left Pattersons after around 30 months for a job paying around $220,000. It is possible that she would have found a job paying an amount comparable to Patterson's either within that 30-month period, or after. Or, it is possible that over time her dissatisfaction with Pattersons would have waned, including because of any diminishment in Mrs Patterson's involvement in the business. Alternatively, it is possible that Ms Rakic would have lost her job with Pattersons for other reasons (including, say, redundancy), in which case, she may have had to take a less-remunerative job in the immediate term, as she did having been made redundant by Johns Lyng. In the former case, her remuneration in the counterfactual would be higher than what I have found is the most-likely scenario; in the latter case, lower. I cannot say that any one is more likely than the other: I think that they balance out. I think no adjustment is necessary for these contingencies. (2) I have found that the most-likely scenario is that Ms Rakic obtained a job worth around $190,000 by 1 November 2015, and will obtain one worth around $220,000 by around 1 November 2016. It is possible that she found a more-remunerative job by 1 November 2015, or that the second job will be secured earlier, will be more remunerative, or both. On the other hand, it is possible that Ms Rakic did not find a job worth $190,000 until after 1 November 2015, or that the job she did find was less-remunerative (or both). Or, it is possible that she is unable to find a job worth $220,000 by 1 November 2016, or at all. Again, no one of these contingencies seems to me to be more likely than the others: I think that they balance out. I think that no adjustment is necessary for them. 240 Ultimately, then, I think that no adjustment is necessary to the award of damages to deal with contingencies. I note, for completeness, that Johns Lyng did not submit that any adjustment was necessary.

Calculating the value of the counterfactual 241 I was told in opening that Ms Rakic's contract with Pattersons was varied to deal with the lease of the vehicle, and that the total value of the package was $274,640. I was told that the documentary evidence dealing with that variation would be tendered through Ms Rakic. Ultimately, two chains of emails were tendered through Ms Rakic (Exhibits A34 and A35). Exhibit A34 shed no light on the value of the novated lease. Exhibit A35 included an email from Ms Deane of ORIX to Ms Rakic and said that as she was leaving QBE she had three options in relation to her lease: to terminate it and pay out it, to continue to make payments herself on a finance-only basis (of $541.32 per fortnight), or to transfer the novation to a new employer. Ms Rakic said in evidence that option 3 was selected. Option 3 did not contain any information as to the monthly payment. The lease was not before me. 242 Ms Deane's email referred, in the context of option 1, to there being $3,991.04 outstanding in relation to September and October 2012. If that is annualised, the payments made over a year total $23,946. The other components of Ms Rakic's package were salary of $230,000 and superannuation of $20,700, totalling $250,700. Added to the novation payments, the value of the package would be $274,646, which is more or less the figure that Ms Rakic put to me. In the context of Ms Rakic's other evidence that the package was worth "about $270,000," and of no dispute from Johns Lyng that that was the value of the package, I will proceed on the basis that the package was worth $274,646. 243 On the counterfactual I have set out above, Ms Rakic would have earned $274,646 per annum for two and one-half years (to 7 October 2015) - being $686,615 - followed by $220,000 per annum from 8 October 2015 to 1 November 2016 - being $235,671. In total, that is $922,286.

Calculating quantum of loss or damage 244 Subtracted therefrom must be the total of what Ms Rakic actually earned between April 2013 and 15 September 2015, and the post-hearing hypothetical. Ms Rakic particularised these amounts in her particulars dated 11 September 2015. There was discussion at various points in the hearing of whether the particularised amounts were accurate or not. I requested of the parties that if there was any calculation issue between them I be given a note. I received no such note. And, I was told from the bar table by counsel for Ms Rakic that the parties were about $500 apart and that there was no issue as to "actual payments made." Counsel for Johns Lyng did not gainsay those propositions. I therefore take it to be not in issue that Ms Rakic was paid $136,291 by Johns Lyng, that she was paid $266,387 by her subsequent employer (Innovation Group) and that she earned no income between 30 July 2015 and the date of trial. 245 I find below that Ms Rakic's contract did not include a term that Johns Lyng was to pay the cost of her novated lease. Ms Rakic submitted that in the event I held against her on the Lease issue the amount demanded by Johns Lyng ought to be deducted, so that the total paid by Johns Lyng would instead be treated as being $115,948. I confess to some disquiet in doing so. All I have found in order to decide to not make the declaration Ms Rakic seeks in respect of the Lease issue is that it was not a term of the contract entered into on or about 8 April 2013 that Johns Lyng would pay for her novated lease. I have not considered other ways in which Ms Rakic might seek to resist an action by Johns Lyng to recover the sum it paid out under the novated lease. However, as there was no objection from Johns Lyng to this approach to calculation of damages, I will adopt it. 246 I also find below that Johns Lyng is indebted to Ms Rakic in the amount of $16,529 pursuant to the net profit clause of her contract of employment. In order to avoid double compensation, that must be subtracted from what would otherwise be Ms Rakic's loss or damage. 247 It follows that the total amount that was earned by Ms Rakic to 30 June 2016 is $115,948 plus $266,387 equalling $382,335. On the post-hearing hypothetical, she will earn $190,000 from 1 November 2015 to 31 October 2016, whereupon she will commence to earn the same as in the counterfactual ($220,000). Thereafter, any loss or damage that Ms Rakic suffers would not, so far as I can see, be caused by Johns Lyng's conduct. The sum, then, of what Ms Rakic earned and what she is likely to earn to 1 November 2016 is $572,335. Adding to this the amount of Johns Lyng's indebtedness to Ms Rakic in respect of the Debt claim yields $588,864. 248 Ms Rakic's loss or damage is therefore $922,286 minus $588,864, or $333,422. As I have said above, I do not consider that any adjustment to this sum is necessary in order to take account of contingencies.

The Debt claim 249 Although Johns Lyng did not meet its profit forecasts in FY13, it did make a profit of around $2.875 million. The issue in the Debt claim is whether, pursuant to Item 5 in Schedule 1 of Ms Rakic's employment contract, she is entitled to 2.5 per cent of that sum (as she alleges), or whether instead she is entitled to nil (as Johns Lyng alleges). This is purely an issue of contractual construction. The clause in question provides thus: Remuneration Salary The Company will pay the Employee a salary as set out at Item 5 in Schedule 1. Item 5 in Schedule 1 is as follows: Item 5. Total Fixed Remuneration (TFR) • $130,000.00 per annum paid Fortnightly • 2.5% of the Insurance Building Solutions (Victoria) Pty Ltd net profit 250 The principles of interpretation are not in dispute. The following statement of the Court in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at [40] summarises all of the principles that are necessary for the resolution of this issue (and was followed in the specific context of an employment contract in Goldman Sachs JBWere Services Pty Ltd v Nikolich [2007] FCAFC 120 at [23] (Black CJ)): It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. 251 Both parties proceeded as though the reference in Item 5 Sch 1 to the net profit of "Insurance Building Solutions (Victoria) Pty Ltd" was to be treated as referring to the net income of the unit trust of which that proprietary limited company was trustee. 252 It is relevant that the clause providing for an entitlement to profit appears in the part of the contract dealing with "Remuneration" and "Salary". I discussed the meaning of the word "remuneration" in Australian Education Union v State of Victoria (Department of Education and Early Childhood Development) [2015] FCA 1196, and said, at [36], as follows: Remuneration is the reward paid or provided in return for the performance of a service or for work done. The ordinary meaning of "remuneration" is pay for services rendered: Chalmers v The Commonwealth of Australia (1946) 73 CLR 19 at 37 (Williams J). That connotes a connection between the payment or benefit received and the provision of work or services: Settlement Agents Supervisory Board v L J Hooker Settlements Pty Ltd [2009] WASCA 89 at [22] (Martin CJ, with whom Pullin JA and Newnes AJA agreed). As Blackburn J observed in the Queen on the prosecution of J. B. Saunders v The Postmaster General [1876] 1 QBD 658 at 663, "… I think the word 'remuneration' is a wider term and means a quid pro quo. If a man gives his services, whatever consideration he gets for giving his services seems to me a remuneration for them." A comparable understanding has been applied in Australia: May v Lilyvale Hotel Pty Limited [1995] IRCA 628 at 9-12 (Wilcox CJ). In Rofin Australia Pty Ltd v Newton (1997) 78 IR 78 at 81, a Full Bench of the Australian Industrial Relations Commission defined remuneration as: … the reward payable by an employer to an employee for the work done by that employee in the course of his or her employment with that employer. It is a term that is confined neither to cash payments nor, necessarily, to payments actually made to the employee. It would include non-pecuniary benefits and payments made on behalf of and at the direction of the employee to another person out of moneys otherwise due to that employee as salary or wages. 253 The burden of the foregoing is that remuneration is given in exchange for work. Ordinarily, the amount of remuneration would increase with the amount of work. One would not expect to be paid a year's salary if one worked only for three months, and one would not expect to be paid for twelve hours of work if one had worked only for three hours. In that context, the interpretation that, by way of remuneration, a person would be paid 2.5 per cent of a yearly net profit even if the person only worked for the last three months or the last day of the year, is not natural. I accept that it would be possible for parties to agree that, in exchange for a person's service in a financial year, irrespective of the length of that service that person should be entitled to a year's worth of net profit, but that would be out of keeping with the ordinary proportional relationship of work with reward and is not an obvious reading. In my opinion, the natural meaning of the words "salary" and "remuneration," forming part of the context of the clause, suggest that a proportional relationship between work and profit share was intended. 254 Counsel for Ms Rakic put that the clause had the effect that if Ms Rakic was in employment at the end of the financial year, or when profit was declared, she was entitled to 2.5 per cent of the yearly profit. That yields what appears to be an absurdity, namely that Ms Rakic could have executed the contract on 29 June, worked for a day, and taken a full year's worth of a net profit share. Counsel for Ms Rakic sought to avoid the absurdity by submitting that these facts were distinguishable: Ms Rakic did not sign the contract on 29 June, she signed it in April, and while Johns Lyng was generous in giving a year's net profit for three months' work, that was not as generous (or absurd) as giving a year's net profit for a day's work. 255 That submission does not avoid corollary absurdities. Ms Rakic's interpretation has the consequence that she could be terminated on 29 June and have no entitlement to net profit for that financial year notwithstanding having worked all of it except a day. And if the answer to that is that, if one actually does work for a period of time, then the entitlement arises notwithstanding not being in employment on 30 June itself, then that admits of a proportional approach, inconsistently with Ms Rakic's main submission. 256 I do not think that any reasonable person would ascribe that meaning to the subject clause. The lack of specific reference to the net profit entitlement being calculated on a pro rata basis does not alter my view: it is inherent in the nature of an entitlement to salary and remuneration that it accrues pro rata. It is true, as counsel for Ms Rakic submitted, that other entitlements such as annual leave were specifically stated to accrue pro rata, whereas the net profit clause contained no such express stipulation. Neither, though, did the clause appearing immediately above, stating that salary was $130,000 per annum paid fortnightly, but I do not think any submission could seriously be put that a yearly entitlement accrued on the first day of the year, to be thereafter paid fortnightly irrespective of whether Ms Rakic remained an employee. The absurdity of the result of an immediate-accrual argument, and the context of the net profit clause, convince me that a reasonable person would understand from the language in which the parties expressed their agreement that they intended a proportional relationship between net profit entitlement and work. 257 I raised in argument with both counsel whether - assuming the entitlement to 2.5 per cent profit is proportional to time worked - an entitlement to a percentage of profit arises in relation to any net income or profit earned in the period actually worked (actual pro rata), or whether instead it is worked out as a simple fraction of the annual net profit, the fraction being the equivalent to the fraction of the year worked by Ms Rakic (fractional pro rata). Johns Lyng argued for the former. No party argued for the latter, and even though counsel for Ms Rakic described a fractional pro rata clause as being "perfectly sensible, rational, and fair," Ms Rakic expressly disowned the argument that it was the right interpretation. Johns Lyng said that the actual pro rata interpretation should be preferred to the fractional pro rata interpretation because "that's the period she has worked for us, when she started to earn remuneration and, presumably, gets access to a potential net profit … ." 258 I reject Johns Lyng's submission. While I consider that Johns Lyng's actual pro rata approach is far more likely than Ms Rakic's approach to have been the parties' intent, I am persuaded that the parties intended that a fractional pro rata approach apply. A reference to "net profit" would, in my opinion, ordinarily be understood as referring to net profit over the course of an accounting year. For one thing, while interim accounts are often prepared, and were by Johns Lyng, a company's definitive accounts are its year-end accounts. Certain expenses or income may be brought to account only at the end of an accounting year. If Ms Rakic worked for a full financial year, I do not think there would be any issue that her entitlement would, under the subject clause, be calculated by reference to the year-end accounts rather than by reference to the sum of the monthly P&Ls that Johns Lyng prepared. 259 Starting from the proposition that "net profit" means, effectively, "annual net profit", or "net profit over the accounting period," an approach that requires analysis of profit in particular months is unpersuasive. It would require that the parties intended "net profit" to refer to "annual net profit" in the case of an employee that works for an entire accounting period, but "monthly net profit during the months of the employee's employment" in the case of an employee that works for part only of an accounting period. By analogy Johns Lyng's submission would appear to contemplate that if an employee left six weeks into the year it would be necessary to ascertain the net profit attributable to the first month of the financial year and also to the first fortnight of the next month (or, in different factual circumstances, the first week, or the first few days). That would be an unwieldy clause. 260 Mr Didier's evidence was that the 2.5 per cent net profit entitlement was a "pre-partnership" or "probation" period, prior to its recipient taking equity in Johns Lyng. While an entitlement to net profit is not, of course, the same thing as holding units in a unit trust, it seems to me that Johns Lyng viewed a net profit share as being an interim step toward taking equity. A person who has equity in an enterprise when a profit dividend is declared is ordinarily entitled to participate. Ordinarily, it would not be relevant whether a shareholder (for example) had held his or her shares for a week or a month. Ms Rakic's position was not the same as a holder of equity, and so I would not directly analogise her position with that of an equity-holder. However, a net profit entitlement has at least the flavour of a dividend. I would not accept, for reasons given above, that Ms Rakic was entitled to participate in the full year's profit even though she was there only for part of it. But I would accept that she was entitled to participate in that proportion of the full year's profit that was commensurate with her length of service. 261 FY13 was a profitable year; FY14 was not. Ms Rakic worked at Johns Lyng from 8 April 2013 to (and after) the end of FY13. She worked at Johns Lyng for two months and 23 days, or 23 per cent, of FY13. In my judgment, she was entitled to 2.5 per cent of 23 per cent of the FY13 profit. That profit was $2,874,537. Ms Rakic's entitlement is therefore $16,529. 262 As I have said, that sum must be deducted from Ms Rakic's damages under cl 236 of the ACL so as to avoid double compensation.

The Lease issue 263 Ms Rakic pleaded that it was a term of her contract of employment with Johns Lyng that it would assume responsibility for payments under the novated lease agreement for her vehicle. The particulars given in relation to that term were that it was oral and that it was agreed in a conversation between Ms Rakic and Mr McPhee at Johns Lyng's premises. A date was not specifically particularised, but paragraph 8 of the pleading pleads that the entire agreement (including the alleged lease payment term) was entered into on or about 8 April 2013. 264 Johns Lyng denied the existence of the term and said that it was agreed that payments under the novated lease agreement would be deducted from the salary package defined in Schedule 1 of Ms Rakic's employment agreement. The relevant clause is set out under [249] above, and Johns Lyng in particular relies upon the phrase "Total Fixed Remuneration" as indicating that the cost to it of Ms Rakic's employment would not be more than the amounts therein set out. 265 A number of facts were not in dispute: Ms Rakic's contract contained no reference to a vehicle; amounts were not deducted from her wages in respect of a vehicle during her employment by Johns Lyng; she was contacted by ORIX (the lessor) providing "follow-up lease options" (an email that she forwarded to Mr McPhee); Mr McPhee executed a novation agreement; after Ms Rakic's employment ended Johns Lyng sent her a letter of demand requiring her to pay the amount paid by Johns Lyng to ORIX; Ms Rakic declined to pay. 266 The controversial aspects of Ms Rakic's case were whether Mr Didier said in the Brunetti meeting that he was "going to … take care of the car payments," and whether she raised the issue with Mr McPhee, who gave her certain assurances. The allegation concerning Mr Didier was not in Ms Rakic's pleadings, but no objection was made to this departure from the pleaded case and Johns Lyng met it with evidence of Mr Didier.

Relevant principles 267 I refer again to the principles of interpretation I set out above at [250]. The allegation by Ms Rakic must be that the alleged lease term was an actual term of an employment agreement between she and Johns Lyng, which agreement was partly oral and partly in writing. In particular, I note that no allegation was made of a promissory or equitable estoppel, or of a collateral contract. There was no suggestion that a wholly-written contract was made and later varied. 268 The following is relevant from the decision of the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2005) 218 CLR 471 at [36] (Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ) (citations omitted): The conclusion that the respondents are bound by the written loan agreements may leave open the possibility that an earlier consensus reached by the parties was in each case a collateral agreement (made in consideration of the parties later executing the written agreement), but that has never been the respondents' case. In another case it may leave open the possibility that the contract is partly oral and partly in writing. But that cannot be so here. The oral limited recourse terms alleged by the respondents contradict the terms of the written loan agreement. If there was an earlier, oral, consensus, it was discharged and the parties' agreement recorded in the writing they executed. 269 I take the following to be an accurate statement of how it is determined whether a contract is wholly in writing, or partly oral and partly in writing, from Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at [90] (Campbell JA, with whom Allsop P and Basten JA agreed) (citations omitted): (1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties. (2) It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing. Conversely, it is open to a party to prove that the parties have orally agreed that a document should contain the whole of the terms agreed between them. (3) The parol evidence rule applies only to contracts that are wholly in writing, and thus has no scope to operate until it has first been ascertained that the contract is wholly in writing. (4) Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact. (5) In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are. If it is possible to make a finding about what were the words the parties said to each other, the meaning of those words is ascertained in light of the surrounding circumstances. If it is not possible to make a finding about the particular words that were used (as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the surrounding circumstances can be looked at to find what in substance the parties agreed. (6) A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where there is a contract wholly in writing and an oral collateral contract.

The evidence 270 The starting point is the written contract. It contains no reference to a novated lease. As I have set out above at [249], it provides for Johns Lyng to pay Ms Rakic a particular salary, set out in the schedule, called "Total Fixed Remuneration." On its face, the contract appears to be complete. That provides a basis for inferring that it contains the whole of the express contractual terms binding the parties (point (1) of Masterton). 271 Consistently with Masterton, to avoid the parol evidence rule Ms Rakic would have to show that, contrary to the inference drawn on the basis of the face of the written contract, her agreement with Johns Lyng was not wholly in writing. She sought to establish that by evidence of conversations she had with Mr Didier and Mr McPhee. 272 Ms Rakic's evidence was that she mentioned her car to Mr Didier in the Brunetti meeting, that he asked whether she had a vehicle, that she replied that she did and that Pattersons were paying for the novated lease, and that Mr Didier said that he would take care of it. In cross-examination it was put to Ms Rakic that instead Mr Didier said that she could package up any arrangement that she wanted within the context of a "total fixed remuneration." Ms Rakic did not accept that: she re-iterated her evidence in chief and said that he "spoke about basically taking care of it." Later it was again put to her that Mr Didier said that she could "package up any arrangements [she wants] as long as it's within the TFR," which Ms Rakic again rejected. 273 Mr Didier denied that there was any discussion of a novated lease at the Brunetti meeting, and denied being aware that Ms Rakic was receiving a car at Pattersons. He said, "[w]e didn't discuss the car, because I don't do that. I say, 'That's your TFR', and then I say, 'You can package it up any way you like', and I refer people to HR to package up their TFR however they like. I don't get involved in that." He agreed that he would, however, have mentioned cars in the conversation - "I would have used an example that you could have three cars if you want or you can have five cars if you want, as long as it's inside your TFR." I will return to this evidential contest later. 274 Ms Rakic described a meeting with Mr McPhee in these terms: So when - on my first day I was with Mr Mudd and we were going through the contract. And I said to him, "Who do I need to take the paperwork to get signed for ORIX once it arrives?" He said, "You will need to take that to John and he's upstairs. Once Claire takes you around the building, you can go and meet him. She can show you where your car park is. So that will happen throughout the day." I think it was just before lunch we went up to see Mr McPhee. And I asked John throughout the conversation, "Hello, how are you? Welcome aboard." And I asked him about the novated lease and the paperwork and who I should direct it to. And he told me to direct it to himself 275 Noteworthy in that is that Mr McPhee is not described as having said anything more than that paperwork should be directed to him. That point was pursued in cross-examination. It was put to Ms Rakic that she had not met with Mr McPhee on her first day of employment, which she rejected. Her evidence was that she and Mr McPhee had a "meet and greet" and that she asked him about documents for a novated lease. She recalled a Ms McMillan of Johns Lyng being present at the time. It was put to Ms Rakic that Mr McPhee never promised to pay car lease payments over and above TFR, to which she responded by saying that "Mr McPhee said that he would take care of it once the documentation was submitted to him." The proposition was put again and Ms Rakic accepted it: MR McKENNEY: He never promised - Mr McPhee never promised to pay your car lease payments over and above your total fixed remuneration, did he? MS RAKIC: Mr McPhee said that he would take care of it once the documentation was submitted to him. MR McKENNEY: Yes. But my question is he never said to you that the payments on the car lease would be paid over and above your total fixed remuneration? MS RAKIC: Not - well, no, he didn't say that to me. No. He just told me to direct the documents to him when they arrived. 276 In light of that concession, it is not necessary that I go to Mr McPhee's evidence in any detail. A statement that Ms Rakic should direct lease documentation to Mr McPhee when it arrived could not give rise to the pleaded lease term. But, I should mention that Mr McPhee adamantly denied meeting Ms Rakic on her first day, attested to a clear recollection of not meeting her for three weeks after she commenced, denied having any conversation concerning novated leases, and said that he had only received an email from Ms Rakic asking what the process was for setting up a novated lease. Mr McPhee also gave evidence as to Johns Lyng's practice in dealing with novated leases: The practice is that people were given a TFR which stands for total fixed remuneration and they're able to take that in a more tax effective means if they choose to and many people go and get a novated lease so if you're on 100,000 [a] year and your novated lease is costing 15, you're paid 85 in salary and 15 in car payments. 277 Johns Lyng pointed to a letter to Ms Rakic dated 23 March 2013 "confirming [Johns Lyng's] offer" for Ms Rakic to join Johns Lyng, signed by her on the same day. That letter contained this passage: Your remuneration has been set at a TFR (Total Fixed Remuneration) of $130,000.00pa. Your TFR is inclusive of the legislated Super Guarantee (SG) may be structured to include a car allowance at your request. 278 For completeness, I note that on 13 May 2013 Mr McPhee (for Johns Lyng Group Pty Ltd) and Ms Rakic signed a Novation Agreement having the consequence that Johns Lyng Group Pty Ltd became liable to make payments in respect of Ms Rakic's vehicle.

Discussion 279 A few matters can be set to the side as being no more than equivocal. The first is that, in May 2013, Johns Lyng Group Pty Ltd executed a Novation Agreement. Entrance into a novation agreement would have been necessary whether the agreement was for $130,000 inclusive of vehicle or $130,000 exclusive of vehicle. Its existence does not make either interpretation more likely, assuming for the sake of the argument that it is admissible as evidence (c.f., Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at [35] (Gummow, Hayne and Kiefel JJ)). 280 In a similar category is the evidence of and concerning Mr McPhee. That evidence does not rise higher than that Mr McPhee invited Ms Rakic to forward novation documents to him. Ms Rakic agreed that he had made no promises concerning payment over and above TFR. That is consistent either with Johns Lyng having an obligation to meet Ms Rakic's lease payments in addition to her salary, or having the ability to deduct payments from her salary. It would not create a contractual term where one did not previously exist. 281 Ms Rakic's case thus rises or falls on the conversation with Mr Didier. That conversation pre-dated the written contract of employment. The problem for Ms Rakic is that, if Mr Didier did convey that Johns Lyng would pay Ms Rakic's salary and cover her novated lease payments, the contract ultimately entered into is inconsistent therewith. I accept Johns Lyng's submission that the meaning of "Total Fixed Remuneration" is that Johns Lyng has those remuneration obligations, and no others. The term for which Ms Rakic militates is inconsistent with the written contract and the latter discharges the former (Equuscorp at [36]). 282 For me to accept that an oral term came about as a consequence of Mr Didier's statements, I would have to accept one of three things: first, that the term was offered to Ms Rakic on that date and accepted by her when the contract was formed on or around 8 April 2013; second, the term was agreed in-principle on that date and then agreed in a binding fashion on around 8 April 2013; third, the term was agreed in a binding fashion on 20 March 2013 and not superseded by the parties' entrance into a written contract in April 2013. 283 None of those can be accepted. The first and second seem to me to be irreconcilable with the failure to include a term to that effect, along with other terms of the offer or in-principle agreement, in the written contract. They are also inconsistent with the written confirmation of offer dated 23 March 2013 which contains the passage quoted above at [277]. Counsel for Ms Rakic argued that the quoted passage was a nonsense and had no meaning. While I accept that the sentence is infelicitously drafted, insertion of the word "and" after the abbreviation ("SG") gives the sentence meaning and avoids having to ignore the words "may be structured to include … ." The meaning of the sentence is fairly plain, notwithstanding the syntactic error, and it is contrary to Ms Rakic's argument. The third cannot be accepted because that would involve two contracts and Ms Rakic did not plead two contracts. 284 I therefore find that the contract entered into by Ms Rakic on or about 8 April 2013 did not include a term to the effect that Johns Lyng would pay for Ms Rakic's vehicle. I decline to make the declaration sought.

Conclusions 285 I have found that the ACL claim is established, and that Ms Rakic has suffered $333,422 of compensable loss or damage. I would order that Johns Lyng pay Ms Rakic damages in that sum pursuant to s 236 of the ACL. I have found that Johns Lyng is indebted to Ms Rakic in the sum of $16,529 by reason of the net profit clause of her contract of employment, and I would make the declaration that Ms Rakic seeks in that connection. However, I have found against Ms Rakic in relation to the Lease issue.. 286 Ms Rakic also seeks interest and costs. I will receive submissions as to interest and costs before making any order in that connection. That should be done by way of the exchange of short written submissions. I will order that Ms Rakic file any submissions within 14 days after the date of this judgment. I will order that Johns Lyng file any submissions in reply within 7 days thereafter. I expect that any submissions concerning costs take account of Ms Rakic having succeeded on two of her claims but failed on one. Submissions should also take into account that the claims in respect of which Ms Rakic succeeded were, collectively, by far the most significant claims and occupied the lion's share of the litigation. The parties should also prepare proposed minutes of orders giving effect to these reasons and lodge them at the same time as their submissions. 287 If the parties are able to come to agreement as to appropriate orders, consent orders may be proposed. I certify that the preceding two hundred and eighty-seven (287) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg.