Global Risk Alliance Group Services Pty Ltd v Harmer

[2024] NSWSC 79

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Global Risk Alliance Group Services Pty Ltd v Harmer [2024] NSWSC 79

Hearing dates:

27 October 2023, 31 October 2023, 1-3 November 2023, 6-9 November 2023, 15-17 November 2023

Date of orders:

9 February 2024

Decision date:

09 February 2024

Jurisdiction:

Common Law

Before:

Nixon J

Decision:

The Court:

(1)   Grants leave to the Plaintiffs to rely on the Further Amended Statement of Claim, filed in Court on 17 November 2023.

(2)   Directs the parties to bring in short minutes of order, by 5pm on 1 March 2024, to give effect to these reasons for judgment, including orders that deal with interest and costs, insofar as those matters can be agreed.

(3)   Directs that, insofar as any aspect of the orders to give effect to the reasons for judgment cannot be agreed, the parties exchange, by 5pm on 1 March 2024, the orders which each party proposes and submissions (limited to 5 pages) on those orders, indicating whether, and if so why, an oral hearing is requested to deal with the matters in dispute.

Catchwords:

EMPLOYMENT AND INDUSTRIAL LAW – Whether first plaintiff entered into employment contracts with first to third defendants as agent for second plaintiff – Whether first plaintiff held promises in employment contracts on trust for second plaintiff – Whether employees owed an implied obligation of fidelity to their employer – Whether employees breached the terms of their employment contracts

EQUITY – Fiduciary duties – Whether defendant employees owed fiduciary duties to first and second plaintiffs – Whether any breach of fiduciary duty – Whether knowing assistance by fifth defendant in any breach of fiduciary duty

CORPORATIONS – Directors and officers – Whether first and third defendants were officers of the second plaintiff – Whether the defendants breached any duties owed as officers of the second plaintiff – Whether any involvement by fifth defendant in any such contravention

EQUITY – Equitable remedies – Equitable compensation – Causation – No claim for loss of opportunity – Whether plaintiffs established loss of contracts as a result of breach – Assessment of loss suffered as result of breach

DAMAGES – Whether any loss suffered as a result of breach of contractual provision regarding notice period – Nominal damages for breach of employment contracts by employees

EMPLOYMENT AND INDUSTRIAL LAW – Whether employer repudiated contract – Whether employee elected to affirm contract – Whether employee agreed to vary contract – Whether employer liable for damages for unpaid salary and unpaid bonuses

EVIDENCE – Defendants tendered statements obtained in course of internal investigation by Department of Defence concerning potential criminal offences – Whether representations fell within s 69(3) of the Evidence Act 1995 (NSW) – Whether evidence should be excluded pursuant to s 135 – Tender rejected

PRACTICE AND PROCEDURE – Leave to amend – Whether leave should be granted to amend pleading to align with case run at trial – Whether first defendant objected to case being run outside pleading or engaged with that case – Whether amendment expanded matters at issue in proceedings

Legislation Cited:

Competition and Consumer Act 2010 (Cth), s 44ZZRG

Corporations Act 2001 (Cth) ss 9, 9AD, 79, 182, 183, 1317E, 1317H(1)

Criminal Code Act 1995 (Cth), s 142.2

Defence Force Discipline Act1982 (Cth)

Evidence Act 1995 (NSW), ss 69(2), 69(3), 135, 140(2)

Public Governance, Performance and Accountability Act 2013 (Cth)

Public Service Act 1999 (Cth)

Commonwealth Procurement Rules 13 June 2023 (Cth) cl9.12, 6.6

Uniform Civil Procedure Rules 2005 (NSW) r 6.23

Cases Cited:

Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; [2003] NSWCA 131

AMP Services Ltd v Manning [2006] FCA 256

Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43

Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58

Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294

Armstrong v Strain [1951] 1 TLR 856

Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) (2005) 147 FCR 235; [2005] FCA 1357

Australian Competition and Consumer Commission (ACCC) v IMB Group Pty Ltd [2003] FCAFC 17

Australian Executor Trustees (SA) Ltd v Kerr [2021] NSWCA 5; (2021) 151 ACSR 204

Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd (No 4) (2008) 170 FCR 9

Australian Rail, Tram and Bus Industry Union v Railtrain Pty Ltd [2019] FCA 1740

Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; [2002] NSWSC 171

Australian Securities and Investments Commission v King (2020) 270 CLR 1; [2020] HCA 4

Averkin v Insurance Australia Ltd [2016] NSWCA 122

Bahr v Nicolay [No 2] (1988) 164 CLR 604; [1988] HCA 16

Bakerland Pty Ltd v Coleridge [2002] NSWCA 30

Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11

Barnes v Addy (1874) LR 9 Ch App 244

Bartlett v Australia & New Zealand Banking Group Ltd (2016) 92 NSWLR 639

Bellevarde Constructions Pty Ltd v L’Officina by Vincenzo Australia Pty Ltd [2022] NSWCA 246

Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24

Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66; [1933] HCA 8

Break Fast Investments Pty Ltd v Rigby Cooke Lawyers (A Firm) [2022] VSCA 118

Breen v Williams(Medical Records Access case) (1996) 186 CLR 71; [1996] HCA 57

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129

Central Coast Council v Norcross Pictorial Calendars Pty Ltd (2021) 391 ALR 157; [2021] NSWCA 75

Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35

Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32

Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421; [2016] FCAFC 186

Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54

Concut Pty Ltd v Worrell (2000) 176 ALR 693; [2000] HCA 64

Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) v Personnel Contracting Pty Ltd (2022) 275 CLR 165; [2022] HCA 1

Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172

Di Liristi v Matautia Developments Pty Ltd [2021] NSWCA 328

DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165

Fair Work Ombudsman v South Jin Pty Ltd [2015] FCA 1456

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22

Fink v Fink (1946) 74 CLR 127; [1946] HCA 54

Giorgianni v The Queen (1985) 156 CLR 473; [1985] HCA 29

GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113

Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490

Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143

Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296; [2012] FCAFC 6

Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266

Hendricks v El-Dik (No 2) [2015] ACTSC 351

Hobart International Airport Pty Ltd v Clarence City Council; Australia Pacific Airports (Launceston) Pty Ltd v Northern Midlands Council [2022] HCA 5

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26; [1993] HCA 27

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd; Walker Corp Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6

Krakowski v Eurolynx Properties Pty Ltd (1995) 183 CLR 563; [1995] HCA 68

Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 2) [2012] FCA 512

Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 3) [2013] FCA 1059

Lewis v Nortex Pty Ltd (in liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 1083

Leybourne v Permanent Custodians Ltd [2010] NSWCA 78

Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248

Ling v Pang [2023] NSWCA 112

Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133

Maguire v Makaronis (1997) 188 CLR 449

Malik v Bank of Credit and Commercial International SA (in liq) [1998] AC 20

Manildra Laboratories v Campbell [2009] NSWSC 987

Mizzi v Reliance Financial Services Pty Ltd and Ors [2007] NSWSC 37

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66

New Zealand Netherlands Society “Oranje” Inc v Kuys [1973] 1 WLR 1126

O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262

Paino v Paino [2008] NSWCA 276

Parker, In the matter of Purcom No 34 Pty Limited (In Liq) (No 2) [2010] FCA 624

Pereira v Director of Public Prosecutions (1988) 82 ALR 217

Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in liq) v Battaglia & Ors [2018] NSWCA 67

Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31

Pittmore Pty Ltd v Chan; Chan v Tan (2020) 104 NSWLR 62; [2020] NSWCA 344

Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324

Re Coomber; Coomber v Coomber [1911] 1 Ch 723

Rickard Constructions v Rickard Hails Moretti and Ors [2004] NSWSC 984

Salmon v Albarran [2023] NSWSC 1238

Sargent v ASL Developments Ltd; Turnbull v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40

Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275

Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29

Shafron v Australian Securities and Investments Commission (ASIC) (2012) 247 CLR 465; [2012] HCA 18

Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; [1931] HCA 21

State ofNSW v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133

Steadfast ICT Security Pty Ltd v Peak (No 2) [2021] ACTSC 319

Tallerman and Company Pty Ltd v Nathan’s Merchandise (Victoria) Proprietary Ltd (1957) 98 CLR 93; [1957] HCA 10

Tanaka v Tokyo Network Computing Pty Ltd [2003] NSWSC 1114

The Insurance Commissioner v Joyce (1948) 77 CLR 39; [1948] HCA 17

Thomas v State of New South Wales (2008) 74 NSWLR 34; [2008] NSWCA 316

Tokyo Network Computing Pty Ltd v Tanaka [2004] NSWCA 263

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Tozer Kemsley & Millbourn (Australasia) Pty Ltd v Collier’s Interstate Transport Service Ltd (1956) 94 CLR 384; [1956] HCA 6

Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31

Walsh v Walgett Shire Council [2014] NSWSC 812

Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18

Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157

Westpac Banking Corporation v Wittenberg [2016] FCAFC 33

X v Commonwealth (1999) 200 CLR 177; [1999] HCA 63

Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15

Texts Cited:

J D Heydon, Heydon on Contract (2019, Thomson Reuters)

Category:

Principal judgment

Parties:

Global Risk Alliance Group Services Pty Ltd (First Plaintiff)
Aerosafe Risk Management Pty Ltd (Second Plaintiff)
Andrew John Harmer (First Defendant)
Craig John Binks (Second Defendant)
Scott William Dillon (Third Defendant)
SME Gateway Pty Ltd (Fifth Defendant)

Representation:

Counsel:
I Neil SC and J Gatland (First and Second Plaintiffs)
S McIntosh (First Defendant)
D Barnett and B Haines (Third Defendant)
N Bender SC and R Jameson (Fifth Defendant)

Solicitors:
Jonathan Abbott & Associates (First and Second Plaintiffs)
BAL Lawyers (First Defendant)
Polczynski Robinson (Third Defendant)
Kanji & Co (Fifth Defendant)

File Number(s):

2018/390513

Publication restriction:

Nil

JUDGMENT

1. In these proceedings, the Plaintiffs allege, in essence, that three former employees (the First to Third Defendants) breached their contractual, fiduciary and statutory duties by taking steps in order to divert two valuable contracts with the Royal Australian Navy from the Second Plaintiff to a competitor (the Fourth Defendant), which tendered for that work as subcontractor to the Fifth Defendant.

2. The First and Second Plaintiffs are members of a group of companies known as the Global Risk Alliance Group (the GRA Group).

3. The First Plaintiff, Global Risk Alliance Group Services Pty Ltd (GRAGS), was incorporated in 2008. Its sole business is to employ staff and to engage contractors who work for the other members of the GRA Group. Ms Kimberley Turner, who is the principal and founder of the GRA Group, is the sole director of GRAGS.

4. The Second Plaintiff, Aerosafe Risk Management Pty Ltd (Aerosafe), was incorporated in 2000. It is the principal operating entity of the GRA Group, and its business is to provide consulting services, including in relation to safety and risk management. In the relevant period, its clients included the Department of Defence and the Royal Australian Navy (the Navy). Ms Turner is the sole director of Aerosafe.

5. Each of the First to Third Defendants was employed to work in the GRA Group. There is an issue in the proceedings as to whether each was employed by GRAGS or by Aerosafe.

6. The First Defendant, Andrew Harmer, was initially employed as Vice President Defence, commencing in early July 2014. In around September 2015, he was demoted to the position of Senior Risk Advisor and his salary was reduced. He remained in that position until he gave notice of his resignation on 25 June 2016, which was stated to be effective 22 July 2016.

7. The Second Defendant, Craig Binks, was employed as a Safety Advisor from 15 January 2015. He gave notice of his resignation on 14 June 2016, stating that he would leave on 30 June 2016.

8. The Third Defendant, Scott Dillon, was employed as Chief Commercial Officer on 20 July 2015. He subsequently also worked as Chief Operating Officer and was given additional responsibilities in early 2016 when Ms Turner took an extended leave of absence. He gave notice of his resignation on 10 May 2016, nominating his last day to be 24 June 2016.

9. In the first half of 2016, each of Mr Harmer, Mr Binks and Mr Dillon was performing work in relation to various contracts which Aerosafe held with the Navy. The most significant of these contracts, in terms of the matters in issue in these proceedings, were as follows:

1. two contracts with the Maritime Services Bureau (MSB) to provide risk and safety consulting services in the 2015/2016 financial year (the 2015 Contracts). Those contracts gave the Commonwealth the option to extend the arrangements three times, each for a further 12-month period; and

2. a contract to conduct a safety management system implementation assessment for the Patrol Boats Group in Darwin (PBGRP), which was performed in February and March 2016.

10. Mr Harmer acted as the Project Manager for the 2015 Contracts from December 2015 until the start of February 2016, when he undertook the work for the PBGRP; Mr Dillon took over as project manager for the 2015 Contracts from February 2016 until June 2016; and Mr Binks was “embedded” at the MSB, working on the 2015 Contracts throughout the period to 30 June 2016.

11. The 2015 Contracts had been offered to Aerosafe on a “sole source” basis. As explained below, this meant that those contracts were offered to a single member of the relevant Defence Panel, Aerosafe, without any competitive tender being conducted. In around March 2016, the MSB decided that it would not exercise an option to roll over the 2015 Contracts and would not offer Aerosafe a contract for work for the 2016/2017 financial year (the 2016 Contract) on a sole source basis, but would instead proceed by way of a competitive tender. A central issue in the proceedings is whether the Defendants’ conduct caused the MSB to take that course.

12. The 2016 Contract was offered to several members of a panel known as the Capability Acquisition and Sustainment Support Services (CAS-SS) Panel, including Aerosafe and the Fifth Defendant, SME Gateway Pty Limited (SME Gateway).

13. SME Gateway’s business involves offering “membership” to other companies, which are not on Defence panels, and providing those companies the opportunity to perform Defence work. Essentially, SME Gateway, as a Panel member, tenders for the relevant work and nominates a member company as the subcontractor which will perform the work. In return for this service, SME Gateway receives a membership fee and a percentage of the contract price from the relevant member.

14. In the case of the tender for the 2016 Contract, SME Gateway nominated the Fourth Defendant, MD & SD Pty Limited, as its subcontractor. I will refer to this company by the business name under which it traded, “WIBIH”. Mr Dillon and his wife, Michelle Dillon, were the shareholders and directors of WIBIH.

15. WIBIH no longer exists. It was placed into liquidation on 24 June 2019, six months after the commencement of these proceedings, and was subsequently deregistered.

16. WIBIH became a member of SME Gateway in June 2016. Mr Dillon, Mr Harmer and Mr Binks were employed by WIBIH and were identified as key personnel in the tender by SME Gateway / WIBIH for the 2016 Contract. There is a dispute in the proceedings regarding when each of them commenced undertaking work for WIBIH, but as outlined in section A below, it is clear that each was performing at least some work on behalf of WIBIH while still employed by Aerosafe.

17. As matters transpired, the 2016 Contract was not awarded to either Aerosafe or to SME Gateway / WIBIH, but to another company which tendered for the work, namely, Nova Defence Pty Ltd (Nova).

18. Although SME Gateway / WIBIH were not awarded the 2016 Contract, they were successful in securing a contract with the PBGRP, which WIBIH performed in July and August 2016. This contract was awarded in response to a tender which was issued to SME Gateway / WIBIH on a sole source basis in early June 2016.

19. The work which WIBIH undertook for the PBGRP in July and August 2016 followed on from other work which Aerosafe had performed for the PBGRP in February and March 2016. However, Aerosafe was unaware that a request to tender for this follow-on work was issued to SME Gateway / WIBIH in early June 2016. Each of Mr Dillon, Mr Harmer and Mr Binks was named as a primary team member in the response by SME Gateway / WIBIH to this request for tender, which was submitted at a time when each was still employed by Aerosafe.

20. In these proceedings, the Plaintiffs allege that Mr Harmer, Mr Binks and Mr Dillon breached their contracts of employment, their statutory duties as an officer or employee under the Corporations Act 2001 (Cth) and their fiduciary duties by, in effect, taking steps to divert the MSB work and the PBGRP work from Aerosafe to WIBIH. Further, the Plaintiffs allege that SME Gateway knowingly assisted in the breach of their fiduciary obligations and was knowingly involved in the contravention of their statutory duties.

21. The Plaintiffs do not seek an account of profits. Instead, the Plaintiffs seek equitable compensation, claiming that, but for the Defendants’ breaches, Aerosafe would have been awarded the 2016 Contract with the MSB (which was in fact awarded to Nova) and the contract for the follow-on engagement with the PBGRP (which was in fact awarded to SME Gateway/WIBIH). The Plaintiffs had indicated, in opening submissions, that they brought an alternative claim for loss of the opportunity to be awarded this work, but confirmed in closing address that no such claim was pursued by them.

22. The Plaintiffs called a number of witnesses, including Ms Turner and the Chief Financial Officer of the GRA Group, Mr Morton. There was no substantial challenge in closing addresses on behalf of the Defendants to the credit of Ms Turner or any of the other witnesses called by the Plaintiffs.

10. Each of Mr Harmer, Mr Binks and Mr Dillon elected not to give evidence in their defence of the proceedings. Following this election, the Plaintiffs tendered various parts of their respective affidavits as admissions against, in each case, the particular deponent.

11. SME Gateway called each of the two senior officers who had met with Mr Dillon and Mr Harmer in March 2016 to discuss WIBIH’s prospective membership. Mr Ashman, who was employed as the Marketing and Business Development Executive of SME Gateway at the relevant time, gave unchallenged evidence that he had no recollection of this meeting. Mr Madden, who is the General Manager of SME Gateway, provided an account of the matters discussed at this meeting and his dealings with WIBIH. A central issue in the proceedings is whether, at the time of this meeting, SME Gateway was (through Mr Ashman and Mr Madden) aware that Mr Dillon and Mr Harmer were employees of Aerosafe.

12. In addition, there were competing expert reports, dealing with the quantification of the Plaintiffs’ claim. However, the points of dispute were limited and the expert evidence consequently occupied only limited time at the hearing.

13. The remainder of this Judgment is structured as follows:

1. Section A provides a detailed chronology of relevant events, dealing primarily with matters which emerge from the extensive documentary tender, or aspects of the affidavit evidence which were not in dispute;

2. Section B provides my reasons for rejecting the Defendants’ tender of certain representations by MSB personnel that were obtained in the course of a subsequent internal Defence investigation;

3. Section C deals with the issue of the identity of the employer, and the terms of the employment agreements on which the Plaintiffs rely;

4. Section D considers whether each of Mr Harmer, Mr Binks and Mr Dillon owed to the Plaintiffs the statutory and fiduciary duties which they are alleged to have breached;

5. Section E addresses the breaches pleaded against Mr Harmer, Mr Binks and Mr Dillon in relation to the MSB work;

6. Section F addresses the breaches pleaded against Mr Harmer, Mr Binks and Mr Dillon in relation to the PBGRP engagement;

7. Section G deals with the claims against SME Gateway for accessorial liability;

8. Section H considers the issue of causation in respect of the loss of the MSB contract and the PBGRP engagement;

9. Section I deals with quantum; and

10. Section J deals with various miscellaneous claims, including the Plaintiffs’ claim for damages against Mr Harmer for breach of his notice period and Mr Harmer’s cross-claim for unpaid salary and bonuses.

A. FACTUAL BACKGROUND

Establishment of Aerosafe and related entities

27. Ms Turner began in working in the field of risk management with the Defence forces from the mid-1990s. She registered the business name Aerosafe Risk Management Consultants in 1997 and worked on a number of contracts from that time, including the development of an Aviation Risk Management program for the Royal Australian Air Force and the Navy’s Fleet Air Arm.

28. In August 2000, Ms Turner caused Aerosafe to be incorporated and it took over the business of Aerosafe Risk Management Consultants. Its sole shareholder is Global Risk Alliance Group Pty Ltd, which is also sole shareholder of GRAGS and owns other legal entities in the GRA Group in New Zealand and the United States. Aerosafe is the main operational entity of the GRA Group.

29. GRAGS operates as a service company to other companies within the GRA Group. All corporate overheads, including payment of leases, wages, insurance and corporate services, are administered by GRAGS for the GRA Group.

30. Ms Turner is and, always has been, the Chief Executive Officer (CEO) of the GRA Group.

31. In 2008, Ms Turner established an Executive Leadership Team comprising herself as CEO, Mr Morton as Chief Financial Officer, Noelene Clarke as Chief Risk Officer and Clive Adams as Chief Operating Officer. The Executive Leadership Team had executive responsibility for every member of the GRA Group, including Aerosafe. The members of this team remained unchanged until Mr Adams left the business in 2015.

Applicable regime for procurement

32. By way of background to the events which give rise to these proceedings, and in order to explain some of the terminology used in the evidence, it is necessary to outline briefly a number of the salient features of the regime governing Defence procurement in the relevant period, as applicable to the MSB and the PBGRP. In this regard, the Plaintiffs provided an overview of the procurement regime with their opening written submissions. The paragraphs which follow are a brief summary of some aspects of that overview.

33. The Navy has two principal commands, namely, Navy Headquarters and Fleet Command. Within Fleet Command sits the MSB, which was established in 2012. The MSB is located at Garden Island near the HMAS Kuttabul base in Sydney.

34. From 2013, and during the relevant period, the principal legislation regulating procurement by Commonwealth entities was the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act).

35. The Minister for Finance has issued Commonwealth Procurement Rules (CPRs) under s 105B(1) of the PGPA Act. The CPRs as at July 2014 were in evidence at the hearing. This version of the CPRs remained in force until the end of February 2017.

36. One of the forms of procurement for which the CPRs provide is procurement from an existing standing offer: CPRs cl 9.12. A standing offer is defined in the CPRs as “An arrangement setting out the terms and conditions, including a basis for pricing, under which a supplier agrees to supply specified goods and services to a relevant entity for a specified period.” Procurement from an existing standing offer was the relevant procurement method in this case.

37. From around May 2012, Aerosafe was a contractor on the Defence Materiel Organisation Service Support (DMOSS) Panel. The DMOSS Panel was administered on behalf of the Department of Defence by the Defence Materiel Organisation, which was principally responsible for procurement within the Department. In order to become a member of the DMOSS Panel, Aerosafe applied as part of an open tender process and entered a deed of standing offer.

38. The Defence Procurement Policy Manual published in October 2014 provided that: “Where a standing offer arrangement or panel arrangement exists that meets the procurement requirement, the standing offer must be used, unless there is a valid reason for not doing so”.

39. In July 2015, the Defence Materiel Organisation was disbanded and replaced by the Capability Acquisition and Sustainment Group. This led to the establishment of a new panel known as the Capability Services and Support (CAS-SS) Panel. Aerosafe was appointed to the CAS-SS Panel on about 20 July 2015. On 30 September 2015, Aerosafe entered into a Deed of Standing Offer in respect of the CAS-SS Panel.

40. Clause 4 of the CAS-SS Panel Deed of Standing Offer provides that contracts with the Department of Defence may be commenced by the Commonwealth submitting a Request for Quotation and Tasking Statement (RFQTS).

41. One of the types of procurement referred to in the CPRs is an “open tender”, which involves the government entity publishing an open “approach to market” and inviting submissions. An “approach to market” is defined in the CPRs as “any notice inviting potential suppliers to participate in a procurement which may include a request for tender, request for quote, request for expression of interest, request for application for inclusion on a multi-use list, request for information or request for proposal.” An RFQTS is an “approach to market”.

42. An “open tender” does not, despite the terminology, connote that there has been a competitive tender. The Defence Procurement Policy Manual provided that:

“When seeking quotes from a standing offer panel, the Procurement officer must consider the number of panellists to be approached for a quote to support the Section 23 Commitment Approval delegate’s value for money judgment, taking into account the business rules of the panel and the costs and administrative burden to both Defence and the panellists of running a further competitive process from within the panel. There is no mandatory requirement under the CPRs to seek competitive (or any specific number of) quotes when acquiring goods and/or services under any panel arrangement. The number of quotes sought should be sufficient to ensure Defence achieves value for money.”

43. Where an RFQTS is issued to only one member of the CAS-SS Panel, it is described as issued on a “sole source” basis.

44. As appears from the chronology below, the procurement documents generally address, in terms, the objective of “value for money” and, where an RFQTS is issued on a sole source basis, explain the reasons for doing so by reference to this objective. The value for money assessment is not intended to have the effect that the tenderer offering the cheapest price will be awarded a contract. The Defence Procurement Policy Manual requires that such an assessment takes into consideration various matters including open competition, efficiency, ethics and accountability, and an assessment of risk.

45. Clause 4.1.2 of the CAS-SS Panel Deed of Standing Offer provides that a panel member’s quotation in response to an RFQTS constitutes an offer. Clause 4.1.4 provides that the issue by the Commonwealth of an “Official Order” constitutes an acceptance of that offer.

46. Accordingly, a contract between a panel contractor and the Commonwealth usually comprises the Deed of Standing Offer, the RFQTS, the quotation and the Official Order, as well as any other documents specified in those materials. For example, the Official Order for the PBGRP contract that was awarded to SME Gateway (to be performed by WIBIH) contains the following statement:

“The conditions in the Capability Acquisition and Sustainment Support Services (CASSS) Panel Deed of Standing Offer, the Commonwealth’s RFQTS, the subsequent response accepted and referenced in this Official Order, together with any documents expressly referred to in this Official Order, constitute a Contract between the Commonwealth and the Contractor.”

47. Section 23 of the PGPA Act provides as follows:

23   Power in relation to arrangements and commitments

(1) The accountable authority of a non-corporate Commonwealth entity may, on behalf of the Commonwealth:

(a) enter into arrangements relating to the affairs of the entity; and

(b) vary and administer those arrangements.

(2) An arrangement includes a contract, agreement, deed or understanding.

(3) The accountable authority of a non-corporate Commonwealth entity may, on behalf of the Commonwealth, approve a commitment of relevant money for which the accountable authority is responsible.

48. The Defence Procurement Policy Manual notes that the approval for the commitment of money under s 23 of the PGPA Act “is generally exercised in the final stages of procurement (once all key components of the proposed arrangement are known) and must be exercised before the arrangement that commits the relevant money is entered into by the entity”. The document setting out the approval under s 23(3) of the PGPA Act is described as a “Section 23 Commitment Approval”.

49. Because of the late stage at which the Section 23 Commitment Approval is given, the Defence Procurement Policy Manual sets out a framework for a form of pre-approval to be undertaken before an RFQTS is issued, called an “Endorsement to Proceed”. The Manual states that:

“In view of the deferred timing for the exercise of the Section 23 Commitment Approval delegation, the Procurement Approval and Commitment Framework includes a new mandatory governance requirement (termed an ‘Endorsement to Proceed’) that must be obtained for certain categories of Defence and DMO procurements.

An ‘Endorsement to Proceed’ must be obtained for the following categories of procurements before any request documentation (eg an RFT [request for tender] or RFP [request for proposal]) is released to the market: … in Defence, for all Non Materiel Procurements (NMP) [procurements for services, not goods] with an estimated value at or above $200,000, including offers under standing offers.”

50. The key contracts at issue in these proceedings were subject to such a process, whereby an Endorsement to Proceed was prepared before the RFQTS was issued, and a Section 23 Commitment Approval was signed off before an Official Order accepting the offer was issued. The Endorsement to Proceed and the Section 23 Commitment Approval are critical documents for understanding the factors which were taken into account in deciding to proceed with a particular form of tender and in deciding to award the contract to a particular Panel member.

51. A template Navy “Business Case” document, with a page headed “Procurement Process Guidance”, was emailed by Commander Britton to Mr Dillon and Mr Harmer in March 2016. This “Guidance” document identified that the steps leading up to entry into a contract, and the indicative timing were as follows: the preparation of a Business Case (10 days); confirmation of the funding situation (3 days); drafting an Endorsement to Proceed (4 days); drafting RFQTS documentation (3 days); obtaining authorisation for the Endorsement to Proceed (5-10 days); preparing an Evaluation Plan (5 days); approach to market (10 days); conducting evaluation (5 days); conducting negotiations, if required (1-3 days); drafting Section 23 Commitment Approval (5 days); obtaining Section 23 Commitment Approval (5 days); and entering into contract (1 day). This “guidance” document noted that a minimum of approximately 2-3 months, and possibly 4-6 months, should be allowed “for the whole procurement process depending on complexity and issues”. The document also noted that the approval for each of the Endorsement to Proceed and the Section 23 Commitment Approval was to be obtained from the “Delegate through DNCB [Director, Navy Contracting Bureau]”.

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

52. In around 2011, Fleet Command completed two significant reviews of the Navy’s capability, operational and regulatory environment, safety management systems, technical compliance and responsibility, referred to as the “Rizzo Review” and the “Fleet Regulatory Review”. The Navy established a Fleet Regulatory Review Implementation Team in order to implement the recommendations of the Fleet Regulatory Review and align them with the implementation of the recommendations of the Rizzo Review.

53. Dr Lawrence Stubbs, a Commander in the Navy, was the Project Manager of the Implementation Team from 2011 until he left the Navy in 2014. He was involved in staffing the Fleet Regulatory Review Implementation Team, including engaging external contractors.

54. The tender for this work was awarded to the engineering consultancy firm, Beca, which engaged Aerosafe as its subcontractor. According to Dr Stubbs, a major element of Aerosafe’s contracted work was supporting the development of the MSB. In June 2012, Aerosafe prepared a report for Fleet Command which detailed the methodology and organisational design of the proposed MSB. Aerosafe’s report on the organisational design of the MSB defined the roles, function, strategic outputs, location and structure of the MSB.

55. The MSB was established in July 2012. Shaun Carmichael served as the Deputy Director of the MSB from the time of its establishment and throughout the relevant period. The Director of the MSB was at all times an officer in the Navy. The identity of the officers in the relevant period is addressed below.

56. From July 2012, Aerosafe continued to perform work, as subcontractor to Beca, in relation to the Fleet Regulatory Review Implementation Project.

57. In October 2013, following a competitive tender in which the Navy had sought quotes from three contractors, Aerosafe was awarded a contract to provide safety and risk management services to the MSB pursuant to RFQTS 10083 (the 2013 Contract). The Department of Defence document recording the approval for the provision of these services stated, by way of background, that the resources necessary to implement in full the functionality of the MSB had not yet been established, and that there was “an immediate requirement to augment the existing organic capacity of the MSB by sourcing safety support directly from appropriate service providers”. The Tender Evaluation Bureau “assessed that Aerosafe have significant experience in Safety Management Systems and a high level of exposure to the contemporary safety and risk management environment within Fleet Command”; that “Aerosafe appears to have the capacity to undertake the tasks as detailed in the RFQTS with a low level of risk to schedule”; that “Aerosafe provided reasonable rates for services”; and that “Aerosafe’s offer represented the best value for money with the least amount of risk … largely based upon Aerosafe’s advantage in recent experience with Fleet Command”.

Employment of Mr Harmer

58. In early 2014, Ms Turner decided to recruit an executive, who would be based in Canberra, to lead the development of the Defence Business Unit within Aerosafe. She first met Mr Harmer around this time, when she was introduced to him at a social occasion. He had just finished a project in hazardous chemical reform, working as Director of Safety for the Defence Materiel Organisation. In May and June 2014, Ms Turner had a number of discussions with Mr Harmer to ascertain whether he would be suitable for the role of heading up the Defence Business Unit.

59. On 10 June 2014, Ms Turner sent Mr Harmer a letter offering him employment as Vice President Defence for Aerosafe. Mr Harmer countersigned this letter on 14 June 2014. The letter described the position being offered as “a potential executive leadership position with Aerosafe Risk Management”. The letter stated that there was an “expectation that the Executive in this role would be responsible for not only the delivery of the client projects, they would also have accountability for the achievement of commercial outcomes, sales, business development, growth, governance and oversight for appropriate compliance functions and business unit profitability”.

60. The letter also stated that: “Given the investment in the role and the high level of connectivity with clients and in industry, this position is subject to a 6 month notice period unless otherwise negotiated”.

61. Ms Turner specifically discussed this notice period with Mr Harmer prior to his accepting the offer, stating: “Your role will [have] a high level of visibility with clients and potential clients, you will be the face of Aerosafe for many of them. That is why, if you decide to leave, I will require you to give six months’ notice.”

62. On 1 July 2014, Mr Harmer commenced his employment. At that time, he was given a Company Employment Agreement & Job Description and an Employee Confidentiality Agreement, each of which he signed. He was also given a document described as the “10 Point Plan – Vice President Defence”. The significance of these documents is discussed below, when dealing with Mr Harmer’s employment contract and the duties owed by him. The 10 Point Plan included the following objectives, upon which the Plaintiffs placed particular reliance in these proceedings:

“…

3. EXISTING AND PAST CLIENTS: Achieve sustained and enhanced commercial outcomes from past and existing Defence Clients – building strong relationships.

4. DEFENCE TRAINING: Aggressively grow the company’s defence training business both in Canberra and nationally.

…

7. CONSULTANCY PLACEMENTS: Actively seek out and secure Aerosafe market presence for onsite consultancy placements.

8. DEFENCE PANELS: Secure Aerosafe’s position on Defence panels to facilitate planned growth.

…

10. COMMERCIAL GROWTH: Achieve the agreed commercial outcomes for the Defence business unit, positioning this portfolio to expand and integrate the company’s Global Supply Chain and Overseas Defence activities.”

Further work with the MSB from July 2014 to June 2015

63. The 2013 Contract ended on 30 June 2014. This contract did not include an option to extend the term of Aerosafe’s engagement.

64. On 17 July 2014 the Navy obtained an Endorsement to Proceed to issue RFQTS 11736, for the provision of services to the MSB in the 2014/2015 financial year of a similar type to those which had been provided by Aerosafe under the 2013 Contract.

65. Whereas the RFQTS which led to the 2013 Contract was submitted to three contractors, RFQTS 11736 was offered to Aerosafe on a sole source basis. Aerosafe was subsequently awarded the contract arising from RFQTS 11736 (the 2014 Contract). The Section 23 Commitment Approval in respect of the 2014 Contract gave the following explanation for the decision to proceed in this manner:

“The [2013 Contract] with Aerosafe was established through a competitive approach to DMOSS Panel members, and by placing a new order with Aerosafe, Navy can capitalise on the works completed by Aerosafe in FY 2013/14, and the significant experience gained by Aerosafe in developing and delivery to the Navy Standards. Further, with the work associated with the new order being so similar/identical, and with Aerosafe having been selected from such a recent competitive approach to DMOSS panel members, Navy is confident that Aerosafe will continue to provide a value for money solution.”

66. The Section 23 Commitment Approval recorded the view that “Aerosafe’s proven ability to deliver and the continuity that would be gained from Aerosafe is extremely important in achieving the safety outcomes across the Fleet and contributed significantly to Navy’s pursuit of a value for money solution.” That is, the perception of value for money in respect of Aerosafe’s offer for the 2014 Contract was tied to Aerosafe’s prior experience in respect of the MSB and the continuity offered by re-engaging Aerosafe to perform similar services for the MSB in the coming financial year.

67. The Section 23 Commitment Approval also recorded the view that the MSB was currently manned at 60% of its full operating capability and that the MSB would require the services of an external contractor to provide support services for the equivalent of seven safety professionals for a period of up to four years. It further acknowledged that “funding for augmentation is not available to fully resource the MSB through externally sourced support services”.

68. RFQTS 11736 recorded that: “Current funding allows the Commonwealth to guarantee a commitment to the contract until 30 June 2015.” It added:

“The Commonwealth reserves the right to exercise up to three (3) 12 month extension options. Where an extension is required the Commonwealth will seek confirmation of deliverables and pricing prior to the expiry of the existing contract.”

69. Mr Harmer stated, in parts of his affidavit which were tendered by the Plaintiffs, that the 2014 Contract was one which he had “successfully obtained” for Aerosafe; and that from August 2014 to January 2015, most of his time was spent servicing this contract with the MSB in Sydney. He estimated that this occupied around 50% of his time in that period.

70. In a monthly report which Mr Harmer prepared for the Aerosafe Defence Services (ADS) business unit in October 2014, he identified one of the “Key strategic opportunities” for Aerosafe at that time as follows:

“ADS has embedded staff inside MSB and are working hard on the new contract [the 2014 Contract]. Of note is the opportunity to really build growth inside MSB as the year progresses. DMSB [the Director of the MSB] will change in 2 months and there is an opportunity to build on the ADS profile with the incoming Captain, and influence the leadership within MSB to be totally dependent on ADS this year, next year, and into the future”.

71. Mr Harmer’s monthly report also stated that:

“During the coming month, ADS will progress the deliverables for its contract with MSB to conduct Fleet command and safety management consultancy services. ADS need to make this contract ‘roll on’ past June 30, 2015 into FY 15/16 and its potential final value is yet to be determined.”

72. As foreshadowed in Mr Harmer’s October 2014 report, a new Director of the MSB, Captain Smallhorn, was appointed in January 2015. In his monthly report for the ADS business unit for January 2015, Mr Harmer reported on his work in cultivating the relationship with the MSB and its new Director:

“The Aerosafe Project Director, VPD [Vice-President Defence, Mr Harmer] held a significant on-site presence to assist in the transition of both new ADS staff members and new Director MSB, CAPT Chris Smallhorn. VPD has continued to communicate Aerosafe’s availability to further support MSB during the transition of CAPT Smallhorn. It is to be noted that CAPT Smallhorn has already indicated that he wants to retender Aerosafe’s current contract on June 30.

With a strong presence of on-site staff [at MSB], ADS is finding exposure to key business opportunities and communicating these internally. …”

73. One of the “new ADS staff members” referred to in Mr Harmer’s January 2015 report was Mr Binks.

Mr Binks commences with the GRA Group, working exclusively at the MSB

74. In around mid to late-2014, Ms Turner was introduced to Mr Binks by another contractor who had worked on a range of projects for Aerosafe.

75. On 10 November 2014, Aerosafe provided Mr Binks with a written offer of employment, signed by Mr Harmer, for the position of “Safety Advisor within Aerosafe Risk Management”. The position was described as “part of our staffing of our Aerosafe Defence business unit, reporting directly to Mr Andrew Harmer, Vice-President Defence”. The letter also noted that “we have you earmarked for a period of embedded placement with one of our Clients in Sydney”.

76. The client in question was the MSB. Mr Binks stated, in parts of his affidavit tendered by the Plaintiffs, that he was “engaged full-time” and “worked exclusively” on the MSB contract; and that he was part of the “embedded team” at the MSB, working “under time pressure to deliver Aerosafe’s most significant contract”. In performing this work, he was based at the MSB’s headquarters at Garden Island in Sydney.

77. Mr Binks commenced work on 15 January 2015. He signed an employment agreement on 19 January 2015.

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

78. In his monthly report for the Defence Business Unit for November 2014, Mr Harmer identified an opportunity for Aerosafe to pursue a relationship with SME Gateway, so as to gain access to additional Government panels:

“The ADS Business Unit is currently looking into participation on SME Gateway, a single entity that supplies Small and Medium Enterprises exposure to Industry and Government. Through their inclusion on Government panel arrangements, Aerosafe, should it choose to participate, will be provided the opportunity to tender for involvement in Government projects as a consortium. Due to the current difficulties of accessing current Government panels, ADS considers that this an effective alternate solution to obtaining business and exposure….”

79. In around late November 2014 or early December 2014, Matthew Le, who worked in the ADS unit, placed an online enquiry with SME Gateway. A representative of SME Gateway, Dee Davids, responded to this enquiry on 4 December 2014, inviting Mr Le to come to their offices “for a face to face meeting to better understand SME Gateway’s value proposition for Aerosafe Risk Management to join its membership”. Ms Davids noted that SME Gateway provided “contracting infrastructure” so as to enable small to medium enterprises to engage with the end customer, but that business development remained each member company’s own responsibility. Ms Davids continued (emphasis in original):

“We encourage you to initiate Business Development with your target customers to create continued opportunities for your own progress. If expecting the release of a RFQTS as a result of your BD [Business Development], we encourage you to inform us of the details as soon as possible so that we can isolate that particular RFQTS from being circulated amongst other members.”

80. Ms Davids’ email noted that the one-off membership fee was $3,850 (GST inclusive) and that SME Gateway also charged a management fee, being 8% of revenue, in respect of contracts entered by SME Gateway.

81. Mr Madden and Mr Ashman confirmed that this email accurately reflected how SME Gateway operated in 2015 and 2016.

82. Mr Le forwarded this email to Mr Harmer on 4 December 2014 and sought his approval to meet with Ms Davids. Mr Harmer responded on the same day: “Go for it noting if we were to pay we need a near guarantee of getting work”.

83. Mr Le subsequently attended a meeting with Ms Davids on 11 December 2014.

84. On 13 December 2014, Mr Le prepared a Briefing Note, which was reviewed by Mr Harmer, regarding Aerosafe’s potential membership with SME Gateway. The note was stated to be for “Executive approval”. The Briefing Note recorded Mr Le’s meeting with Ms Davids and referred to a membership application form which had been provided to Aerosafe. The Briefing Note indicated that SME Gateway’s CEO, Roehl Oringo, was willing to meet with Aerosafe’s CEO (Ms Turner) and Vice President Defence (Mr Harmer) in early 2015 in order to discuss any enquiries. The Briefing Note concluded as follows:

“It is requested that the Executive Team:

Review and complete the application form at Attachment A;

Provide approval for the expenditure of $3,850 (GST inclusive) for membership;

Advise of interest to meet with Roehl Oringo, SME Gateway CEO and confirm availability.”

85. In an email sent to Ms Turner on 15 April 2015, Mr Harmer reported that on the previous day he had attended “a long overdue meeting with a senior manager at SME”. The senior manager concerned was Mr Ashman.

86. Mr Ashman had no recollection of this meeting. In parts of Mr Harmer’s affidavit that were tendered by the Plaintiffs (against Mr Harmer only), Mr Harmer described the meeting as “fairly introductory in nature”, including discussion about Aerosafe’s basic structure and that of SME Gateway.

87. In his email to Ms Turner following this meeting, Mr Harmer reported that SME Gateway’s involvement on the current DMO Support Services panel arrangement covers 94 of 98 service categories, whereas Aerosafe covers 11. Mr Harmer concluded his email with a comment which suggests he appreciated that the question of any relationship with SME Gateway was ultimately a strategic issue for Ms Turner herself: “Hope this email and attachment is not career limiting, as stated I know you have a plan!”

88. According to parts of Mr Harmer’s affidavit which were tendered by the Plaintiffs, there was a discussion about SME Gateway membership at the next Aerosafe team meeting, which was a “few days” after the meeting with Mr Ashman. He expressed the view that “joining SME Gateway will exponentially increase the chances of us winning more work with Defence”. Ms Turner responded that Aerosafe was already a member of one panel and that, although she would talk to Mr Morton, she did “not want to spend money becoming a member of SME Gateway”.

89. On 15 May 2015, Mr Harmer sent an email to Mr Le advising that Ms Turner had “signed off” on SME Gateway membership for Aerosafe. There is no other evidence that Ms Turner had actually done so, and this statement appears at odds with the terms of the conversation recorded in the previous paragraph of this judgment.

90. On the same day, Mr Le sent Mr Ashman an email, copied to Ms Davids and Mr Harmer, which attached Aerosafe’s application for membership of SME Gateway. The completed “Qualification Questionnaire”, which was signed by Mr Harmer, gave the company’s contact details and listed two persons under the heading “Management”, namely, Ms Turner (identified as CEO) and Mr Harmer (identified as Vice President Defence). A profile of each was attached.

91. Mr Ashman gave evidence that he had no recollection of seeing this completed questionnaire. He said that these completed documents were kept in SME Gateway’s records as hard copy files.

92. On 29 May 2015, Nicolas Shaw, who was an employee at SME Gateway providing administrative support, sent an email to Mr Le, copied to Mr Harmer and Ms Davids. Mr Shaw stated that SME Gateway had “completed its due diligence process with regards to your membership application” and invited Aerosafe to complete the membership process by signing a membership agreement and paying the required membership fees. Mr Ashman gave evidence that the due diligence process involved reviewing the completed Qualification Questionnaire, ensuring all information had been provided, checking ABNs and checking insurance policies were in place.

93. At around this point, Ms Turner sought to put an end to any further dealings with SME Gateway. She deposed that two members of the Executive Leadership Team (Mr Morton and Ms Clarke) considered the proposals for membership of SME Gateway which had been put forward from November 2014 to around May 2015, and did not support or approve the recommendation. She gave evidence of a meeting with Mr Harmer in late May 2015, where Mr Harmer indicated that the membership application was ready, if she wished to proceed. She responded that “[SME Gateway] has nothing to offer Aerosafe”; that Aerosafe was already on government panels; and that Aerosafe did “not need to spend money on a partnership or ‘membership’ with SME Gateway”. She concluded this meeting with a clear directive on the issue: “It is not to be progressed.”

94. It may be that this conversation, which Ms Turner recalls occurred in around late May, in fact only occurred after 16 June 2015, when Mr Harmer sent an email to Mr Morton noting that Aerosafe had signed the membership agreement and that SME Gateway required payment of the membership fee before it countersigned. If so, this would explain why the conversation with Ms Turner occurred and why the payment was not made.

95. Mr Shaw of SME Gateway sent a follow up email to Mr Le on 6 July 2015, noting that the payment had not been made and adding: “There is no pressure, I just wanted to make sure you hadn’t sent through the fee and that it had got lost along the way”. Mr Ashman was not copied on this email and Mr Madden said it had not been discussed with him. There is no evidence of any further communication from SME Gateway to Aerosafe after this date.

Mr Dillon joins Aerosafe

96. At around the start of June 2015, Ms Turner asked Mr Dillon whether he would be interested “in coming to work for Aerosafe as part of our growing leadership team” in the role of Chief Commercial Officer, explaining that she needed someone “who is experienced in business development, tenders and commercial strategy”. Ms Turner had known Mr Dillon since the late 1990s, when they had undertaken training as Army Reserve Officers together. They had become good friends and she looked up to and respected him, describing him as a “business mentor over the years”.

97. On 4 June 2015, Ms Turner sent an email to Mr Dillon, in which she said that she would “love for you to consider coming on board in an exec role in Sydney focusing on cultivation and expansion in the defence and defence industry sectors”. She noted in this email that the “most significant opportunity as discussed is our work with the [Navy] and the associated Maritime Services Division [the MSB]”.

98. In June 2015, Mr Adams, who was the Chief Operating Officer (COO) at Aerosafe, left the business.

99. On 3 July 2015, Ms Turner sent Mr Dillon a written offer of employment “for the position of Senior Executive with Aerosafe Risk Management”. The letter indicated that Mr Dillon would commence by filling the COO position on an interim basis, taking responsibility for Business Operations and Corporate Services. The letter described the COO role as “a critical part of the Company’s ELT [Executive Leadership Team] accountable for execution and delivery of business operations around the globe”. The letter also stated that: “Given the investment in the role and the high level of connectivity with clients and in industry, this position is subject to a 3-month notice period unless otherwise negotiated.”

100. Mr Dillon signed an employment agreement with GRAGS on 3 July 2015. Shortly afterwards, on 7 July 2015, Mr Dillon signed an Employee Confidentiality Agreement with Aerosafe.

101. On 7 July 2015, Ms Turner sent Mr Dillon an email, with the subject “Welcome to Aerosafe!”, which commenced: “I just wanted to let you know how excited I am … with you joining our Executive team!” She stated that she looked forward to working with him “to really secure some key commercial outcomes for the company”, adding: “We have a fantastic opportunity to leverage off the company’s 18 years of background, past client work, industry standing and positioning to springboard into this new phase of growth”. Ms Turner concluded that “on both a personal and professional level”, she was “really looking forward to the future and achieving some great results with you!”

2015 Contracts

102. As noted above, the 2014 Contract gave the Commonwealth the right to exercise up to three 12-month extension options. However, instead of proceeding in that manner, the Navy issued a new RFQTS (numbered 13146) for the provision of similar services to the MSB in the 2015/2016 financial year. As with the RFQTS which led to the 2014 Contract, RFQTS 13146 was issued to Aerosafe on a sole source basis.

103. The Tender Evaluation Report for RFQTS 13146, dated 22 June 2015 and signed by Mr Leach, stated as follows:

“Aerosafe provided a highly detailed tender document which included responses to each of the RFTS requirements. The tender highlighted Aerosafe’s recent experience in providing support to the [Fleet Regulatory Review Implementation Team] and MSB and included reference to a significant number of reports completed by Aerosafe in support of Fleet Command as a demonstration of their ability to undertake work in the required fields. The tender was assessed against the criteria as follows:

a. Experience. It was assessed that Aerosafe have significant experience in Safety Management Systems and a high level of exposure to the contemporary safety and risk management environment within Fleet Command.

b. Capacity. Aerosafe appear to have the capacity to undertake the tasks as detailed in the RFQTS with a low level of risk to schedule.

c. Rates and Flexibility. It was assessed that Aerosafe provided reasonable rates for services, based on DMOSS rates. MSB did conduct negotiations with Aerosafe and removed from the expected deliverables a number of elements where the quoted price was above MSB expectations.”

104. The Section 23 Commitment Approval for this contract approved the expenditure of $924,000 (GST inclusive) for the provision by Aerosafe of services to the MSB in the 2015/2016 financial year. This document noted that, because it was not known when or if the MSB’s shortage of human resources, which had led to the need to engage an external contractor, would be resolved, Aerosafe would “be requested to provide a quotation for a period of up to four years (ie quote on 4 of 12 monthly lots)”, adding: “The intent will be to engage each lot in series on an annual basis at Navy’s discretion.” It was noted that, where required, separate Endorsements to Proceed and Section 23 Commitment Approvals would be raised to support each twelve-monthly procurement lot.

105. The Section 23 Commitment Approval stated that:

“By structuring the procurement for a period of up to four years with an initial contract period of 12 months and three 12 month extension options (to be exercised at the Commonwealth’s discretion), Navy will have flexibility to accommodate possible future changes in circumstances e.g. an increase in Naval resources may allow Navy to action some or all of their requirements in-house.”

106. The Section 23 Commitment Approval also noted that, if any of the subsequent 12-month options was exercised, then their costs would be approximately the same as for the 2015/2016 financial year, that is, around $924,000 (GST inclusive) per annum.

106. Two further points should be noted about the Section 23 Commitment Approval in respect of this contract. First, in setting out the reasons for engaging Aerosafe, this document highlighted the prior experience of Aerosafe staff in working with the MSB and the continuity provided by obtaining services from Aerosafe over the coming financial year:

“Due to a continued shortage of additional human resources the MSB wish to engage Aerosafe under a new contract for FY 15/16, but under the same terms and conditions of the previous contract/order arrangements, which are, deliverables from functional areas/requirements as listed above at subparagraphs 5a to j. This strategy will allow the MSB to capitalise on the work completed by Aerosafe in 2014/15FY, and the significant experience gained by Aerosafe in developing and delivering to the Navy Standards.

Engaging Aerosafe again will also provide the MSB the continuity it needs to continue to progress selected tasks within Aerosafe’s skills set, with a reduced burden upon already stretched APS and ADF staff with regard to contractor administration and oversight. With the MSB only manned to 60%, Aerosafe staff that understand the business of the MSB and can work autonomously with minimal APS/ADF involvement will allow key MSB staff to focus upon Governance and priorities.”

108. Secondly, the Section 23 Commitment Approval explained that the conclusion that Aerosafe offered “value for money” was based, in part, on the fact that there had been a recent competitive tender:

“A FY 13-14 contract with Aerosafe was established through a competitive approach to DMOSS panel members… [W]ith the work associated with the new order being so similar/identical, and with Aerosafe having been selected from such a recent competitive approach to DMOSS panel members, Navy is confident that Aerosafe will continue to provide a value for money solution.”

109. Another significant factor in the determination that Aerosafe represented value for money was Aerosafe’s prior experience. The Section 23 Commitment Approval noted that:

“Aerosafe’s proven ability to deliver and the continuity that would be gained from Aerosafe is extremely important in achieving the safety outcomes across the Fleet and contributed significantly to Navy’s pursuit of a value for money solution. For example: the placing of the order with Aerosafe will provide further savings, as it provides the Commonwealth with the following:

a. potential reduced costs of delivery by capitalising on the knowledge and expertise gained in the development phases;

b. mitigation of the considerable risk of loss of corporate knowledge and business continuity;

c. Aerosafe staff understands the business of the MSB and can work autonomously with minimal APS/ADF involvement [which] will allow key MSB staff to focus upon governance and priorities; and

d. faster and better informed progress towards improved safety management.”

110. In his monthly report for the ADS business unit for May and June 2015, Mr Harmer identified that his focus was on obtaining new work for Aerosafe, and also ensuring that Aerosafe secure the “4 years of potential follow on support provided by the new contract terms” with the MSB. The report relevantly stated as follows:

“ADS’s primary focus for the month of July will consist of cultivating new and existing business activities with Industry and the ADO, and provide additional SME support to Defence when sole source opportunities are created, or RFQTS are received. This drive in Q1 FY15/16 will both enable the cultivation of opportunities for ADS consultancy work streams, and drive revenue for the business unit. These activities will also enhance Aerosafe’s exposure to the Defence and Aviation industries.

ADS will continue to progress the MSB project with a strong focus on identifying further business opportunities and ensuring that ADS achieve the 4 years of potential follow on support provided by the new contract terms. On-site staff will cultivate opportunities to broaden the scope of Aerosafe’s contract with DMSB CAPT Chris Smallhorn, Shaun Carmichael when he returns from leave mid-August, and CAPT Simon Reay-Atkinson and Rod Leach who are acting on Shaun’s responsibilities in his absence. ADS will cultivate Busops to provide further SMS support to DMO’s MSB.”

111. The terms of this report indicate that Mr Harmer understood that the presence of Aerosafe staff onsite at the MSB headquarters would likely give rise to valuable commercial opportunities for Aerosafe to provide other services and support to the MSB, and that it was his responsibility to cultivate and pursue such opportunities for Aerosafe’s benefit.

112. After Aerosafe was awarded the contract in respect of RFQTS 13146, it was offered another contract with the MSB for the 2015/2016 financial year on a sole source basis (RFQTS 13643). The Section 23 Commitment Approval for this second engagement, which was signed on 18 November 2015, approved the expenditure of up to $450,000 (GST inclusive) “for provision of additional specialised resources to support the conduct of Safety Functions within the Maritime Safety Bureau (MSB) with Aerosafe Risk Management”. This document further noted that it was expected that the need for these services would continue for another three years after June 2016:

“This procurement allows provision for two persons to provide specialist support services for eight months with three 12 month options in the eventuality that Australian Defence Force (ADF) or Australian Public Service (APS) positions are not created arises. It is currently assessed as more likely, that the decision will be that contracted specialist support will be a permanent means of resourcing the delivery of Fleet Safety Assurance.”

113. Again, the main rationale for engaging Aerosafe to provide the services under RFQTS 13643 was the desirability of continuity in the services being provided to the MSB:

“Aerosafe have been providing such specialised high level Safety Management System support services to the MSB since Oct 2013 …

Engaging Aerosafe to continue to supply such services would also provide the MSB the continuity it needs to continue to progress selected tasks within Aerosafe’s skills set … With the MSB only manned to 60%, Aerosafe staff that understand the business of the MSB can work autonomously with minimal APS/ADF involvement will allow key MSB staff to focus upon governance and priorities.”

114. The Section 23 Commitment Approval also noted that “the MSB has been very satisfied with Aerosafe’s performance” and that “a change in supplier would introduce a real and significant risk of incompatible services being provided”. Once again, the continuity offered by engaging Aerosafe was identified as an important aspect of the value for money offered by Aerosafe:

“Aerosafe’s proven ability to deliver and the continuity that would be gained from Aerosafe is extremely important in achieving the safety outcomes across the Fleet and contributed significantly to Navy’s pursuit of a value for money solution.”

115. On 23 November 2015, Mr Carmichael sent an email to Mr Dillon advising that Aerosafe had been awarded a contract against RFQTS 13643.

116. The two contracts under which Aerosafe was engaged to provide services for the MSB in the 2015/2016 financial year, in respect of RFQTS 13146 and RFQTS 13643, are together referred to as the “2015 Contracts”.

Change in Mr Harmer’s role and salary

117. In September 2015, Ms Turner and Mr Dillon had a conversation about Mr Harmer’s performance and role. Mr Dillon expressed the view that Mr Harmer was not performing at the proper level for his role and was disconnected from his team, and recommended that Mr Harmer should be moved into a position that was less difficult and did not have contract responsibility. Ms Turner agreed that Mr Harmer might perform better at a lower level of responsibility and asked Mr Dillon, as COO, to “manage him closely”, stating: “I am very keen to retain him and do not want to move [him] on at all”.

118. Following this, Ms Turner had a conversation with Mr Harmer. She explained that, with changes in the company’s organisation, her vision for appointing a Vice President Defence had not worked out in the way envisaged and “with Scott [Dillon] in the COO and CCO role I am going to move you into a role with less commercial responsibility”. She told Mr Harmer that, as a result, his salary would reduce from $200,000 to $175,000, and he would be “focused on the delivery of project and client work rather than business development, contract management and sales work”. With this change, he would no longer be Vice President Defence, but his title would be changed to “Senior Risk Adviser”. She further noted that he would “still be at our employment grade Level 4 so there is no drop to your seniority on your project and client work”.

119. Mr Harmer protested, stating “I can’t take a reduction in salary”. He referred to his family’s financial commitments and asked how he could work to retain his remuneration package. Ms Turner responded: “You will have the opportunity to make up the salary shortfall through discretionary bonus and can easily have your annual salary be $200,000 or more.” As discussed below, there is an issue whether this conduct amounted to a repudiation of Mr Harmer’s employment contract and, if so, whether he elected to affirm the contract or instead retained the right to accept the repudiation and terminate the contract, as he subsequently purported to do in July 2016.

120. In September 2015, Mr Dillon had a discussion with Mr Harmer, which was subsequently reported to Ms Turner in an email of 2 November 2015. Mr Dillon recorded in his email that he made the following statements to Mr Harmer at this meeting:

“1) From your performance review meeting with CEO, the CEO advised that your role within Aerosafe will be … changed to Senior Consultant.

2) Based on this advi[c]e from the CEO I need [you to] complete the following tasks-:

a) Move from your current office location and locate yourself with the remainder of the Canberra consultant team.

b) Change your voicemail message and your email messages to reflect your change in role.

c) To be clear you are not a leader of the Canberra team but a team member.

…

The COO stated that the intent would be for Andrew to report to the COO as part of the new tasking of Andrew’s role at Aerosafe.”

121. Accordingly, from this time Mr Harmer reported to Mr Dillon. In addition, Ms Turner deposed that, after 2 November 2015, Mr Dillon “took over the commercial and contract oversight functions of the Vice President Defence role arising from the abolition of the position consequent on Mr Harmer’s change in role.”

122. The reduction to Mr Harmer’s salary took effect from 21 October 2015 onwards.

Mr Harmer passes on information regarding SME Gateway to Mr Dillon

123. On 26 October 2015, Mr Harmer sent an email to Mr Dillon, attaching Mr Le’s briefing note dated 13 December 2014 regarding the opportunity of partnering with SME Gateway (see paragraph 84 above).

124. In opening, it was suggested by the Plaintiffs that this may have been the commencement of a plan to take Aerosafe’s business with the MSB, for the benefit of WIBIH. In that regard, it should be noted that the only pleaded breaches of duty by Mr Dillon or Mr Harmer are alleged to have occurred in the period from January to June 2016. Further, it is unlikely that the briefing note was sent to Mr Dillon for any purpose other than for Aerosafe’s business, since the email from Mr Harmer was copied to Mr Morton, who had been involved in Aerosafe’s consideration of the SME Gateway proposal. It may be inferred that it was sent in response to a query from Mr Dillon arising from Mr Harmer’s monthly report for September and October 2015, which Mr Dillon likely read. In that report, Mr Harmer stated that he was “disappointed that the approved SME Gateway opportunity will now not be pursued”, adding “ARM [Aerosafe] will now not have access to target many more opportunities from many Government panels”.

Changes in Aerosafe personnel working on the MSB Contract

125. Aerosafe’s response to RFQTS 13146, which was submitted in June 2015 and which led to the first of the two 2015 Contracts, identified a list of “key permanent and supporting staff” who would work on the project. This list included Mr Clive Adams, who left Aerosafe on 30 June 2015; Mr Matt Le, who left Aerosafe on 25 August 2015; Mr Andrew Johnson, who left Aerosafe on 25 September 2015; and Ms Joanna Copeland, who left Aerosafe on 26 October 2015. It also included Mr Steven Graham, who left Aerosafe on 30 November 2015 (although there is no evidence, in his case, that he in fact did any work with the MSB).

126. The Plaintiffs submitted that it was unlikely that these departures were a matter of significant concern for the MSB. That was because the Section 23 Commitment Approval for the second of the 2015 Contracts, which was signed in late November 2015, referred in positive terms to the experience of Aerosafe staff and to the “continuity” afforded by engaging Aerosafe to provide further services to the MSB.

127. At the commencement of the performance of the 2015 Contracts, Mr Rich Christie was the Project Manager for Aerosafe. In a report of August 2015, Mr Harmer noted that:

“Project work against the MSB contract for ongoing risk and safety support occupies a very high percentage of Rich Christie and Craig Binks’ time. They are doing good work and were joined by VPD [Mr Harmer] and Joanna Copeland in the Data Analyst role in August.”

128. In his monthly report for the Defence Business Unit for September and October 2015, Mr Harmer reported as follows:

“PART 2: SUMMARY OF ACTIVITIES FOR THE PERIOD

ADS has progressed work on several tasking statements under the MSB Fleet Command Safety and Risk Management contract. Andrew Harmer, Rich Christie Project Manager, Safety Advisor Craig Binks and Data Analyst Joanna Copeland and Abhi Ganugapati, have held significant on-site and off-site presence and maintained a high focus on performing supplementary work to assist MSB. Rich, Craig and the Data Analyst’s position embedded into MSB is still widely supported as a critical enabler of MSB’s obligations to Fleet and is highly valued by the DMSB, CAPT Chris Smallhorn and CAPT Atkinson.

Rich Christie is working effectively in execution of ASTS012 – MSB Project Management with the majority of his time directly supporting DMSB. With many of Rich’s administrative duties being handed to new MSB staff in late September, Rich can now focus more importantly on implementation of the Fleet Safety Strategy 2015 – 2017. Rich will take some leave in October and be back filled by Andrew Harmer while absent. Craig Binks is performing various tasks under the ASTS013 – Assist with Implementation of ABR6303 Ed5 and assisting with safety advice to various Fleet safety initiatives with great expertise. Of note was Craig’s management of the October Fleet Safety Working Group.”

129. As he had done in earlier reports, Mr Harmer again noted the significant commercial opportunity for Aerosafe to obtain further work from the MSB, and his responsibility to “lock down” any such opportunity for the benefit of Aerosafe:

“ADS will continue to progress the MSB project with a strong focus on locking down the identified further business opportunities in Part 2 of this report, ensuring that ADS achieve the potential follow on support provided by the new contract terms”.

130. As recorded in Mr Harmer’s report, he acted during October 2015 as the Project Manager for the MSB work. A weekly report issued by him to the MSB on 23 October 2015 noted that he had been acting in that capacity for four weeks while Mr Christie was on leave and that Mr Christie would return to the Project Manager role on 27 October, following an internal handover from Mr Harmer on 26 October.

131. In November 2015, Captain Smallhorn, the Director of the MSB who had approved entry into the 2015 Contracts with Aerosafe, was promoted to the rank of Commodore. He was to be replaced by Captain Simon Atkinson on a temporary basis from early December 2015 until about February 2016, when Captain Timothy Standen was to take up the role.

132. On assuming his position at the MSB, Captain Atkinson sent an email to Ms Turner on 8 December 2015, copied to Commodore Smallhorn, Mr Dillon and Mr Carmichael. In this email, Captain Atkinson referred to the work that had been done by his predecessor, Commodore Smallhorn, “ably supported by your Aerosafe (core) Team of Mr Rich Christie, Mr Craig Binks and Ms Ye Wang”. Captain Atkinson added that he looked forward “to building a good working relationship with Scott [Dillon], Andrew [Harmer] and Don [Hampton] over the coming months”. Ms Yang and Mr Hampton were both members of the Aerosafe team working on the 2015 Contracts.

133. On 9 December 2015, Mr Harmer sent Ms Turner and Mr Dillon a note of a meeting held that morning, which they had attended with Commodore Smallhorn, Captain Atkinson and Mr Carmichael. The purpose of the meeting was “to conduct the monthly project check point meeting and provide a forum for a high level review of the contract performance”. According to Mr Harmer’s note, Commodore Smallhorn stated that he “was very happy with the status of contract performance”, and that “Aerosafe has enhanced the ability for MSB to deliver safety outcomes to Fleet” and “has provided valuable intellectual input across all management areas of MSB business”. He added that: “The flexibility that comes with a trusted contracting partner is valuable in delivering MSB’s obligations to Fleet”.

134. The note of this meeting also recorded that “Craig Binks has been very busy performing and coordinating many different safety tasks” and that the “MSB agreed that all tasking was going extremely well”.

135. One matter which was frankly disclosed to the MSB at this meeting concerned Mr Christie’s role as Project Manager:

“Aerosafe advised that Rich Christie is having ongoing medical, well-being and performance issues and that Aerosafe is working closely with Rich to ensure he receives help and treatment.

To ensure PM [Project Manager] support is maintained, Andrew Harmer will now work in the PM role for the next 7 business days. Mr Harmer affirmed that his knowledge of MSB is excellent due to his involvement in all aspects of the MSB contract over the last 18 months. A key benefit of having Mr Harmer involved is his knowledge of the 4 FFS pillars requiring implementation, and the system to track and achieve this that Mr Harmer has placed in the MSB RFQTS 13146 Project Management Plan (PMP).”

136. It should be noted that, as recorded in Mr Harmer’s own note, he had, as at December 2015, been involved “in all aspects of the MSB contract over the last 18 months” and had “excellent” knowledge of the MSB and its requirements.

137. As matters transpired, Mr Harmer remained in the Project Manager role longer than expected, through until early February 2016, with the majority of his time during this period being spent on work for the MSB.

Mr Dillon becomes acting CEO

138. As noted above, Mr Dillon had initially acted as the Chief Operating Officer (COO) of the GRA Group, following the departure of Mr Adams. Mr Dillon continued in the role of COO through August and September 2015. In early October 2015, Mr Graham took over the role of COO of the GRA Group, and Mr Dillon’s role changed to Chief Commercial Officer.

139. Mr Graham’s employment was, however, short-lived. At the end of November 2015, Ms Turner terminated his employment as COO, before the end of his probationary period.

140. Ms Turner deposed that in December 2015, shortly before she commenced her long service leave, the Executive Leadership Team – comprising Mr Morton, Ms Clarke, Mr Dillon and herself – met to consider the approach to the replacement of Mr Graham. At this meeting, Mr Dillon offered that he could take on both the COO and the CCO role. Ms Turner agreed this was a good idea, as it would streamline management while she was on long service leave. She pointed out to Mr Dillon that this would mean that “all staff other than [the] finance and corporate services team will report to you Scott”.

767. His Honour continued (at 646):

“The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other; thus for a lessor to continue to receive rent under a lease will be consistent only with his rights as lessor and inconsistent with the exercise of a right to determine the lease … However, less unequivocal conduct, only providing some evidence of an election, may suffice if coupled with actual knowledge of the right of election … There need be no expressed intention to elect, nor will an express disclaimer of such an intention be of any avail in preserving one right if in fact there be an exercise of another inconsistent right … For an election there need be no actual, subjective intention to elect … an election is the effect which the law attributes to conduct justifiable only if such an election had been made …”

768. In the same case, Mason J said (at 655):

“A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach — in each instance the alternative right to insist on performance creates a right of election.”

769. His Honour observed (at 658):

“If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon.”

770. Mere delay in exercising the right, absent the need to make the choice, does not amount to such an election at least where the delay does not operate to the prejudice of the other party: Sargent v ASL Developments Ltd at 642, 646, 655, 656 and 658; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 30 and 41; [1993] HCA 27.

771. Mr Harmer was aware by October 2015 of all of the facts that, on his own case, amounted to a repudiation of his employment contract and gave rise to a right to terminate: namely, the abolition of the position of Vice President Defence; his demotion from Executive level to the position of Senior Risk Adviser; and the notification from GRAGS that it intended to pay him, from October 2015 onwards, below the level of his contracted salary. In accordance with the principles in Sargent v ASL Developments, it does not matter whether or not he was aware that these matters amounted to a repudiation of his employment contract, or meant that he had a right to terminate that contract.

772. By reason of those matters, Mr Harmer faced, as at October 2015, an election between inconsistent rights, namely, to accept the repudiation and to terminate the employment contract, or to affirm it and insist on its performance.

773. Mr Harmer proceeded to affirm the contract by accepting the reduced salary from October 2015 onwards, in return for acting in his changed role, and by exercising rights under the employment contract. This included Mr Harmer requesting and receiving periods of paid leave in January 2016 and July 2016. For example, in early April 2016, his request for paid leave from 4 to 19 July 2016 was approved.

774. Mr Harmer submitted that he protested the unilateral reduction in his wage. In this regard, he pointed to evidence of a single statement made at the time when he was first notified of the proposed reduction, to the effect that: “I can’t take a reduction in salary”. However, in the same conversation, Mr Harmer asked how he could work to retain his remuneration package, and Ms Turner responded that he would “have the opportunity to make up the salary shortfall through discretionary bonus and can easily have your annual salary be $200,000 or more”. It may be inferred that this discussion led Mr Harmer to elect not to terminate his employment at that time.

775. For those reasons, I find that Mr Harmer elected to affirm his employment contract, and was not able (as he purported) to elect to accept any repudiation of the contract in July 2016 and terminate it at that time.

776. It follows that the notice period in the employment contract remained binding on Mr Harmer. However, because of his demotion from an “Executive” level position to the position of Senior Risk Advisor, his notice period was not six months but instead three months. Accordingly, Mr Harmer, having given notice of his intention to resign on 25 June 2016, was required to serve out a notice period which lasted until 25 September 2016.

777. The claim for damages for breach of Mr Harmer’s obligation to give notice is based on the cost of retaining an Extension Team member, Mr Jim Vince (who was based in the United Kingdom) to undertake a short-term placement to perform the role of Project Manager for the NTSwAA engagement. In particular, the Plaintiffs led evidence that in respect of work which he undertook from 4 July to 26 August 2016, Mr Vince issued invoices for $28,011.58 (including travel and other expenses), which have been paid in full.

778. However, as Mr Harmer pointed out, GRAGS had already agreed that Mr Harmer would be on leave for the two weeks from 4 July 2016. It therefore cannot claim that the cost of employing Mr Vince to cover for this period was due to Mr Harmer’s failure to serve out his notice period. When the amount charged for these days is deducted from the total charged by Mr Vince, the cost to Aerosafe of his providing services for the period from 15 July onwards comes down to some $22,219.18.

779. Mr Harmer also submitted, and I accept, that it was necessary to take into account that GRAGS did not pay any salary to Mr Harmer in the period when Mr Vince provided these services (from 15 July 2016 to 30 August 2016). This is a period of seven weeks. If Mr Harmer had worked this period at a salary of $175,000 per annum, GRAGS would have paid him some $23,557. It follows that the amount of the salary which GRAGS did not pay Mr Harmer in this seven-week period, by reason of Mr Harmer not coming to work from 15 July 2016 onwards, was greater than the amount which was paid to Mr Vince for replacing Mr Harmer on the NTSwAA project in the same period.

780. Accordingly, GRAGS has not established that any loss was suffered as a result of Mr Harmer’s breach of his notice obligation.

Mr Harmer’s cross claim

781. Mr Harmer brought a cross claim against the Plaintiffs seeking damages for their breach of the obligation to pay his contracted salary of $200,000 and the obligation to pay his profit share entitlement in respect of the performance of the Defence Business Unit.

782. This claim was brought against GRAGS, or alternatively Aerosafe, on the basis that one or the other was Mr Harmer’s employer. For reasons set out in Section C above, I have found that GRAGS was Mr Harmer’s employer and that GRAGS entered into the employment contract as principal rather than as agent. It follows that any claim for breach of that agreement can only be brought against GRAGS.

783. In their defence to this cross claim, the Plaintiffs pleaded that Mr Harmer agreed to vary his employment contract, such that, with the change in Mr Harmer’s role when he was moved to the position of Senior Risk Advisor, his base level remuneration package would be reduced from $200,000 to $175,000 per annum, and he would no longer be entitled to receive the payment of a profit share incentive.

784. In this regard, the Plaintiffs relied on the decision of the Full Court of the Federal Court in Westpac Banking Corporation v Wittenberg [2016] FCAFC 33 at [252]-[257]. In that passage, Buchanan J (with whom McKerracher and White JJ agreed) referred to the following comments of Taylor J in Tallerman and Company Pty Ltd v Nathan’s Merchandise (Victoria) Proprietary Ltd (1957) 98 CLR 93 at 144:

“It is firmly established by a long line of cases … that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.”

785. Buchanan J also noted that in Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at [23]-[24], Gleeson CJ, Gaudron, McHugh and Hayne JJ said that Taylor J’s observations accorded with principle and authority. Buchanan J observed (at [257]):

“The search, accordingly, in a case where it is said that a contract of employment has been replaced in an ongoing relationship of employment (or even that its terms have been varied), is for an imputed mutual intention that such a change in the contractual landscape has occurred.”

786. However, following this passage, upon which the Plaintiffs relied, Buchanan J made the following observations (at [262]):

“A suggestion of consensual variation raises different issues. The variation suggested must arise directly from the altered circumstances and respond to them in a way which can be objectively attributed and imputed to both parties. The test for implication of the term, or the implied abandonment of an existing term, leaving a void to be filled, is not supplied by the view of a court that the change would itself be reasonable. Unless it can be said that abandonment of a term represents a common intention it may not be assumed in my respectful view. A fortiori, the altered circumstances are consensual; so must be the contractual variation, if any.”

787. I have found that, when GRAGS determined to reduce Mr Harmer’s salary, Mr Harmer elected, by his conduct, to affirm his employment contract. However, that does not amount to a finding that Mr Harmer agreed to vary that contract. I do not consider that there is, on the evidence, a sufficient basis to impute such a common intention to the parties. GRAGS did not seek, or obtain, Mr Harmer’s consent to a change in his position and his reduction in his salary before determining to give effect to those matters. Mr Harmer protested the reduction in his salary. Although Mr Harmer, by affirming his employment contract, lost the right to terminate that agreement, he did not lose the right to sue for damages for breach of the obligation to pay his contracted salary.

788. Mr Harmer claimed the difference between his contracted salary ($200,000 per annum) and the salary which he was in fact paid ($175,000 per annum). This difference was claimed for the period from 21 October 2015, when the reduction in salary first took effect, until 14 July 2016, when Mr Harmer purported to terminate the contract and ceased employment. The amount of the shortfall for that period, which was approximately three-quarters of a year, was calculated as being $18,355. The Plaintiffs did not dispute this calculation. I find that Mr Harmer is entitled to that amount (plus interest) in respect of this aspect of his cross-claim.

789. The second element of Mr Harmer’s cross claim is a claim for his unpaid profit share entitlement in respect of each of the 2014/2015 and 2015/2016 financial years. Mr Harmer’s employment contract contained a term headed “Profit Share Performance Incentive”, which provided as follows:

“The profit share will be provided based on the performance of the Defence business unit under your direct oversight. It will be calculated based on the lesser of 5% of business unit profit or 1% of business unit turnover. Profit will be calculated incorporating all direct and indirect costs incurred in operating the business unit. This will include your base salary package (i.e. $200,000), together with an appropriate allocation of overhead for support provided from the Executive and Corporate Services Teams. Profit share will be paid annually in the form of salary, and will be inclusive of superannuation & tax. Payment will be made within 2 months following the end of the financial year.”

790. The noun phrase “the Defence business unit under your direct oversight” identifies the specific business unit in respect of which the clause operates. That is, I do not regard the words “under your direct oversight” as imposing a condition of continued “direct oversight” in order for the clause to have effect. In any case, Mr Harmer continued to have a degree of direct oversight for this unit even when his role changed. Ms Turner told Mr Harmer that she was removing his “sales role”, in order that he could be more “focused on the delivery of project and client work”, and that “there is no drop to your seniority on your project and client work”, with Mr Harmer continuing to be the “team lead” of Defence projects which had already been secured.

791. There is no evidence that the clause in Mr Harmer’s employment contract relating to his profit share entitlement was discussed with Mr Harmer by either Ms Turner or Mr Dillon when informing Mr Harmer of his demotion. While Ms Turner deposed that she told Mr Harmer that he would “have the opportunity to make up the salary shortfall through discretionary bonus”, I do not consider that the reference to a discretionary bonus amounted to a proposal to vary the contract so that the existing right to a profit share component of his remuneration, to be calculated in a specified manner, would be removed and replaced by a discretion on the part of GRAGS to award a bonus in such amount and in such circumstances as it might deem fit. Nor is there any basis to impute to Mr Harmer any intention to agree to such a variation. Accordingly, I reject the submission that any such variation occurred.

792. In terms of the calculation of the profit share entitlement, it was common ground that the profit share provision in Mr Harmer’s employment contract yielded, for the financial year ending 30 June 2016, a figure of $23,675.72 (calculated at 1% of turnover, this being lower than 5% of profit). This amount was payable, in accordance with the terms of the profit share clause, by the date two months following the end of the financial year, that is, by 31 August 2016. I find that Mr Harmer was entitled to this amount, plus interest.

793. As for the preceding financial year, ending 30 June 2015, the “financial analysis” of the “ADS Business Unit Profit & Loss” which was prepared by the CFO, Mr Morton, showed total revenue of $1,243,486 and total expenses of $1,400,191, producing a loss of $156,705. The only element of this analysis which was in dispute was the line item for “Management fee” in the expenses. This fee was in the amount of $696,376. It was common ground that, if the “Management fee” was excluded, then the profit share provision in Mr Harmer’s employment contract would yield a figure of $12,434.86 (calculated at 1% of turnover, this amount being less than 5% of profit). However, the Plaintiffs contended that this Management Fee should be included, with the result that the Defence Business Unit made a loss for the financial year, as shown in the financial analysis prepared by Mr Morton, and therefore no amount was payable under the profit share provision (since 5% of profit yielded a lesser figure than 1% of turnover).

794. As set out above, the profit share provision stipulated as follows: “Profit will be calculated incorporating all direct and indirect costs incurred in operating the business unit. This will include … an appropriate allocation of overhead for support provided from the Executive and Corporate Services Teams”. In this regard, Mr Morton gave evidence that the Management Fee represents “a charge relating to the performance of duties on behalf of the ADS Business Unit by employees who are not within the ADS Business Unit.” He added that it “was charged back to the business unit in the sense that it was attributable to the performance of the business unit. There was no intercompany charging that occurred.”

795. Mr Morton explained that the process of determining the Management Fee involved calculating the number of billable hours completed by staff members against Defence Business Unit projects, and applying an hourly charge against those hours which were billable.

796. For the first step, Mr Morton extracted records from Aerosafe’s time management system, in which each employee maintained records of the hours worked by him or her against particular projects. Those records were in evidence and there was no dispute about their accuracy. Those records showed the number of hours worked on Defence Business Unit projects by staff within that unit (9,599.22 hours); by Executive Staff, being Ms Turner, Ms Clarke and Mr Morton (1,123.25 hours); and by other staff outside that unit (2,521.75 hours). In each case, the total hours were split by employee, and were further split between billable and non-billable hours.

797. For the second step, Mr Morton used “the hourly rates that … formed part of our end-of-year adjustments that we complete for the group of companies.” Mr Morton gave the following evidence:

“MCINTOSH: Who determined those amounts?

MORTON: That was me.

MCINTOSH: What guidance did you receive in order to determine those amounts?

MORTON: None.

MCINTOSH: It’s fair to say that the amount of 696,376 was, in part, arbitrarily determined by you?

MORTON: In part, yes.”

798. Mr Harmer relied on this evidence to contend that the Management Fee should be disregarded altogether. However, the operation of the profit share clause requires some assessment of profit, in order for a determination to be made as whether or not 1% of turnover is less than 5% of profit; and the clause recognises that there will be an element of estimation in making an assessment of profit, because it is necessary for “all … indirect costs incurred in operating the business unit” to be taken into account when calculating profit, including “an appropriate allocation of overhead for support provided from the Executive and Corporate Services Teams”.

799. Although Mr Morton frankly acknowledged that there was an element of arbitrariness to the calculation of the management fee, counsel for Mr Harmer did not put a proposition that the fee was wholly arbitrary, and Mr Morton indicated that the figures used for hourly rates were taken from the figures used for the GRA Group’s end of year accounting. The fact that there is an (undefined) element of arbitrariness in the estimation of one aspect of indirect costs does not mean that profit should be disregarded altogether for the purposes of the profit share clause, particularly where the approach adopted to estimating this element of indirect cost was consistent with the approach adopted by the company in its end of year accounting.

800. The end of year accounts indicate that the management fee or service fee which GRAGS charged to other entities within the GRA Group was close in amount to GRAGS’s actual costs of employing staff for the GRA Group. In particular, in the 2014/2015 financial year, GRAGS received “Service Fee” income of $2,669,598.62, this comprising around 98% of its total income. As against that, GRAGS had total expenses of $2,660,572.63. That is, the service fee income received by GRAGS from other entities in the GRA Group represented 100.34% of its total expenses.

798. There was no criticism by Mr Harmer of any aspect of those accounts.

799. Given that the Management Fee in the Defence Business Unit P&L was calculated by multiplying the number of hours actually spent on projects for that Unit by GRAGS staff by the hourly staff rates that were used by the GRA Group in its end of year accounting, and given that the end of year accounts show that the service fee charged by GRAGS to other members of the GRA Group was almost equivalent to its actual costs of providing services to the GRA Group (including its actual costs of employing staff for all other members of the Group), I find that the Management Fee does represent a bona fide and reasonably based estimate of “an appropriate allocation of overhead for support provided from the Executive and Corporate Services Teams”.

800. As outlined above, when the Management Fee is taken into account, and the profit share clause is applied according to its terms, the effect is that no amount is payable pursuant to this clause for the financial year ending 30 June 2015.

801. For those reasons, I find, in respect of Mr Harmer’s cross-claim, an entitlement to:

1. $18,355 in respect of underpaid salary, plus interest; and

2. $23,675.27 in respect of the profit share clause, in respect of the financial year ending 30 June 2016, with interest running from 1 September 2016.

CONCLUSION

805. I will direct the parties to bring in short minutes of order to deal with the following matters.

806. In respect of each of Mr Harmer, Mr Binks and Mr Dillon, GRAGS has established its claim that each breached their respective employment contracts in the manner set out in Sections E and F above and also (for Mr Harmer) in the manner set out in Section J above. GRAGS is entitled to nominal damages of $100 against each of them.

807. In respect of each of Mr Dillon, Mr Harmer and Mr Binks, Aerosafe has established that each breached his fiduciary duties to Aerosafe in the manner set out in Sections E and F above. Aerosafe is entitled to equitable compensation in respect of the breaches concerning the PBGRP engagement.

808. In addition, Aerosafe has established that Mr Dillon breached his statutory duties as an officer of Aerosafe pursuant to sections 181 and 182 of the Corporations Act, in the manner set out in Sections E and F above. Aerosafe is entitled to compensation pursuant to s 1317H in respect of Mr Dillon’s breaches of his duties in respect of the PBGRP engagement.

809. Aerosafe is also entitled to damages for the breach by each of Mr Harmer and Mr Dillon of the terms of their respective Confidentiality Agreements, by their conduct in respect of the PBGRP engagement.

810. The equitable compensation, statutory compensation and damages to which Aerosafe is entitled in respect of the PBGRP engagement are all to be calculated on the basis of the profit lost by Aerosafe as a result of the loss of that engagement. This quantum of the compensation to be awarded should be calculated by reference to Mr Cairns’s assessment of indicative NPV value of the profit after tax lost by Aerosafe in respect of this engagement (that is, $119,120). Aerosafe is also entitled to pre-judgment interest.

811. Having regard to the terms of s 1317J of the Corporations Act, I do not consider that any declaration should be made in the breach of the statutory duties which I have found to be established. I will hear submissions from the parties in the event that there is a dispute about the utility, or the form, of any declaratory relief in respect of the other breaches which have been established.

812. The Plaintiffs have failed to establish their claims against SME Gateway, and orders will be made dismissing those claims.

813. Mr Harmer has established, on his cross-claim, an entitlement as against GRAGS to the sums of:

1. $18,355 in respect of underpaid salary, plus interest; and

2. $23,675.27 in respect of the profit share clause, in respect of the financial year ending 30 June 2016, with interest running from 1 September 2016.

814. The undertakings given, on a no admissions basis, by each of Mr Harmer, Mr Binks and Mr Dillon, in respect of documents downloaded or copied from the Plaintiffs’ systems around the time of their departure from the Aerosafe business, should be noted in the orders.

815. Subject to considering any submissions which the parties seek to advance, it is my view that, having regard to the findings I have made, costs should follow the event in respect of each cause of action. That is, the Plaintiffs are entitled to the costs of their claims against Mr Dillon, Mr Harmer and Mr Binks; SME Gateway is entitled to its costs of the proceedings; and Mr Harmer is entitled to the costs of his cross-claim. In the event that any of the parties seeks a different or other costs order, or in the event that the form of the orders to give effect to these reasons, including in respect of interest and costs, cannot be agreed, the parties will be given leave to serve submissions, attaching their proposed orders, and indicating whether, and if so why, an oral hearing is requested to deal with the outstanding matters.

ORDERS

816. Accordingly, I make the following orders. The Court:

1. Grants leave to the Plaintiffs to rely on the Further Amended Statement of Claim, filed in Court on 17 November 2023;

2. Directs the parties to bring in short minutes of order, by 5pm on 1 March 2024, to give effect to these reasons for judgment, including orders that deal with interest and costs, insofar as those matters can be agreed; and

3. Directs that, insofar as any aspect of the orders to give effect to the reasons for judgment cannot be agreed, the parties exchange, by 5pm on 1 March 2024, the orders which each party proposes and submissions (limited to 5 pages) on those orders, indicating whether, and if so why, an oral hearing is requested to deal with the matters in dispute.

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Amendments

09 February 2024 - Counsel details corrected