Macdonald v Australian Wool Innovation Ltd

[2005] FCA 105

FEDERAL COURT OF AUSTRALIA

Macdonald v Australian Wool Innovation Ltd [2005] FCA 105

CONTRACT – applicants left secure employment after being offered opportunity to engage in research and development venture – respondent subsequently withdrew from arrangement – whether parties had reached concluded agreement – whether agreement reached on all essential terms – whether contract, if any, uncertain – whether contract, if any, repudiated – measure of damages

TRADE PRACTICES – misleading or deceptive conduct in trade or commerce –representations with respect to future matters – respondent corporation bears evidential onus of proof – whether at time representations made, respondent had reasonable grounds for making them – unconscionable conduct in business transactions – matters to be taken into account in determining whether conduct unconscionable – relevance of fact that applicants not under special disability or in position of special disadvantage

Trade Practices Act 1974 (Cth) ss 51AC, 51A, 52, 82 and 87

Pagnan SpA v Feed Products Limited [1987] 2 Lloyd’s Rep 601 at 619 referred to
Storer v Manchester City Council [1974] 1 WLR 1403 at 1408 referred to
Manatee Towing Co v Oceanbulk Maritime SA (The Bay Ridge) [1999] 2 Lloyd’s Rep 227 at 240-1 referred to
Pacific Carriers Limited v BNP Paribas (2004) 208 ALR 213 at [22] referred to
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 211 ALR 101 at [34] referred to
Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-6 discussed
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350 referred to
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 334 and 337 referred to
Harvey v Pratt [1965] 1 WLR 1025 discussed
Masters v Cameron (1954) 91 CLR 353 at 360-3 applied
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548 discussed
Sinclair, Scott and Co Ltd v Naughton (1929) 43 CLR 310 at 316-7 and 332 referred to
Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 131 discussed
Seven Cable Television Pty Ltd v Telstra Corporation Ltd (2000) 171 ALR 89 referred to
Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628 referred to
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436-7 referred to
Thorby v Goldberg (1964) 112 CLR 597 at 607 discussed
G Scammell and Nephew Ltd v H C and J G Ouston [1941] AC 251 at 268 discussed
Ipex Software Services Pty Ltd v Hosking [2000] VSCA 239 at [56] considered
York Air Conditioning and Refrigeration (A/sia.) Pty Ltd v The Commonwealth (1949) 80 CLR 11 at 53 referred to
Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 at 525 discussed
The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 92 and 99 applied
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 referred to
Hadley v Baxendale (1854) 9 Ex 341, 156 ER 145 referred to
Hungerfords v Walker (1989) 171 CLR 125 referred to
Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 368 referred to
Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603 referred to
Chaplin v Hicks [1911] 2 KB 786 discussed
Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 at 643 considered
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349 referred to
L’Huillier v State of Victoria [1996] 2 VR 465 at 485 referred to
Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 referred to
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 505-7 referred to
Glenmount Investments Pty Ltd v O’Loughlin (2000) 79 SASR 185 at 284 referred to
Ikin v The Danish Club ‘Dannebrog’ Inc [2001] VSCA 123 referred to
Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at 318 referred to
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [9]-[10] and [5]-[16] applied
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526 referred to
Blomley v Ryan (1956) 99 CLR 362 referred to
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 and 474 referred to
Louth v Diprose (1992) 175 CLR 621 at 637 referred to
Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179 at 54,432 considered

H G Beale (ed.), Chitty on Contracts, 29^th ed., London, Sweet & Maxwell, 2004
N C Seddon and M P Ellinghaus, Cheshire and Fifoot’s Law of Contract, 8^th Australian ed., Chatswood, NSW, LexisNexis Butterworths, 2002

IAN MAURICE MACDONALD v AUSTRALIAN WOOL INNOVATION LTD
(ACN 095 165 558)

V253 of 2003

RUSSELL ALLAN v AUSTRALIAN WOOL INNOVATION LTD (ACN 095 165 558)

V254 of 2003

WEINBERG J
18 FEBRUARY 2005
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V253 OF 2003

BETWEEN:	IAN MAURICE MACDONALD APPLICANT
AND:	AUSTRALIAN WOOL INNOVATION LTD (ACN 095 165 558) RESPONDENT
JUDGE:	WEINBERG J
DATE OF ORDER:	18 FEBRUARY 2005
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.On or before 11 March 2005, each party file and serve draft orders giving effect to these reasons for judgment.

2.On or before 11 March 2005, each party file and serve an outline of submissions regarding the matter of costs.

3.The parties be granted liberty to apply.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V254 OF 2003

BETWEEN:	RUSSELL ALLAN APPLICANT
AND:	AUSTRALIAN WOOL INNOVATION LTD (ACN 095 165 558) RESPONDENT
JUDGE:	WEINBERG J
DATE OF ORDER:	18 FEBRUARY 2005
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.On or before 11 March 2005, each party file and serve draft orders giving effect to these reasons for judgment.

2.On or before 11 March 2005, each party file and serve an outline of submissions regarding the matter of costs.

3.The parties be granted liberty to apply.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V253 OF 2003

BETWEEN:	IAN MAURICE MACDONALD APPLICANT
AND:	AUSTRALIAN WOOL INNOVATION LTD (ACN 095 165 558) RESPONDENT
V254 OF 2003
BETWEEN:	RUSSELL ALLAN APPLICANT
AND:	AUSTRALIAN WOOL INNOVATION LTD (ACN 095 165 558) RESPONDENT

JUDGE:	WEINBERG J
DATE:	18 FEBRUARY 2005
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. This case concerns the departure of two senior and long-serving employees from Amcor Ltd in 2002.  They claim that they left secure positions with that company because they were offered the opportunity to engage in a high-risk, but high-reward, venture with the respondent.  They say that they entered into an agreement to that effect which was binding and legally efficacious, and that the respondent repudiated that agreement.  They seek damages for breach of contract, or alternatively, for various breaches of the Trade Practices Act 1974 (Cth) (“the Act”).

2. The respondent denies having entered into any concluded agreement as alleged.  It claims that the applicants left their employ prematurely, and at their own risk.  It denies any liability for breach of contract, or any of the alternative claims made against it. 

   BACKGROUND TO THE APPLICATION

3. On 16 April 2003, Ian Macdonald and Russell Allan both filed applications in this Court claiming declaratory relief and damages for breach of contract, misleading and deceptive conduct, and unconscionable conduct, in relation to their dealings with Australian Wool Innovation Ltd (“AWI”), the respondent.  By consent, the proceedings were heard together, and evidence in each treated as evidence in the other. 

4. Mr Macdonald is fifty-seven years of age.  He has qualifications from RMIT in applied science and post-graduate management.  In 1971, he commenced employment in the research department of Amcor Australasia Pty Ltd, a subsidiary of Amcor Ltd (“Amcor”) (then known as Containers Ltd).  In 1976, he was appointed Product Manager of the General Line group at Amcor.  In 1980, he became Divisional Sales Manager.  In 1985, he became Commercial Manager of the Southern Region, and the following year, General Manager of Hoehn Systems, another Amcor business.  In 1994, he was appointed Product Manager of Amcor Beverage Cans.  In 1997, he took up the position of Metals Technology Manager of Amcor’s Research and Technology (“R&T”) Division, and was also appointed its Business Development Manager.  He represented Amcor on the Board of a body known as the Beverage Industry Environment Council (“BIEC”).  On 1 October 2002, after more than thirty years’ employment with Amcor, he left the company.  However, he has continued to serve as Amcor’s representative on the Board of BIEC.

5. Mr Allan is forty-eight years of age.  In 1975-76, he studied electrical engineering at Monash University.  He commenced employment with Amcor in 1977 as a Technical Assistant in its Research department.  From 1978 to 1982, he enrolled at Swinburne Institute of Technology for a diploma of chemical engineering.  From 1979 to 1986, he enrolled for the degree of Bachelor of Electrical Engineering at that same institution.  He satisfied the requirements for the degree of Master of Electrical Engineering from Victoria University of Technology, but was never awarded that degree because his thesis could not be put out for peer review on the basis that its contents were commercially sensitive.  Prior to his resignation from Amcor in 2002, he was employed as the Secondary Packaging Technology Manager in the R&T Division.  He was responsible for four divisions within the company, namely cartons, sacks, paper and corrugated products.  He was also responsible for dealing with an external customer, Paperlinx, for which Amcor provided research and development.  On 6 September 2002, after having been with the company for approximately twenty-five years, he left Amcor.

6. AWI’s position is both complex and somewhat unusual.  On 1 January 2001, pursuant to the Wool Services Privatisation Act 2000 (Cth), Australian Wool Services Limited (“AWS”) replaced the Australian Wool Research and Promotion Organisation, which had been operating since 1993. Two AWS subsidiaries, AWI and the Woolmark Company, were also established. On 30 April 2002, AWI separated from AWS to become a fully independent public company, limited by shares. Under this stage of the privatisation process, all “A” class AWS shares were cancelled in consideration for the issue of new fully paid voting shares in AWI. Those shares entitled holders to exercise voting rights in relation to AWI in proportion to the amount of Wool Levy paid. AWI also receives some funds directly from government.

7. AWI’s stated aim is to drive research, development and innovation that will increase the long-term profitability of Australian woolgrowers.  To that end, it initiates, commissions, and delivers research and development to Australian woolgrowers.  Its objects include building the demand for wool by creating market-oriented fashion concepts, developing new wool products, improving wool processing competitiveness against other fibres, and lowering average wool production costs. 

   THE EVENTS LEADING UP TO 27 AUGUST 2002

8. In April 2002, Bruce Powell, the New South Wales Regional Manager and Operations Manager of BIEC, telephoned Mr Macdonald.  Mr Macdonald had not been expecting Mr Powell’s call.  Mr Powell told Mr Macdonald that he was shortly going to be visiting Melbourne, and asked whether he could look over Amcor’s research facilities.  Mr Macdonald told Mr Powell that he was welcome to do so.  Subsequently, he gave Mr Powell a tour of the facilities.

9. Mr Powell’s immediate superior at BIEC was its Chief Executive Officer, Maree McCaskill.  Mr Macdonald knew Ms McCaskill well from his involvement with the Board of BIEC.  As it happened, Ms McCaskill was also, at that time, Chairman of AWI. 

10. About a week after Mr Powell’s visit to Amcor, Ms McCaskill telephoned Mr Macdonald.  She seems to have been wearing her AWI hat at the time.  She told him that Mr Powell had suggested that she contact him in order to find out whether Amcor “did any work with fibre”.  Mr Macdonald had no idea, but told her that he would make inquiries. 

11. Mr Macdonald then approached Mr Allan, who was in charge of fibre technology at Amcor R&T.  Mr Allan confirmed that technology existed for measuring and assessing fibres that might be applicable to fibres generally.  Mr Macdonald telephoned Ms McCaskill and told her that Amcor was “aware of fibre measuring technologies”.  She asked whether she could bring AWI’s Managing Director, Colin Dorber, to Amcor to discuss this matter with Mr Macdonald and with Mr Allan.  He agreed.

12. In early May 2002, a meeting took place at Amcor’s R&T Division in Melbourne.  Apart from Mr Dorber, other representatives of AWI present included Dr Paul Swan, its Program Manager of Sustainable Fibre Product Systems, Mal Thomson, its Operations Manager, and Dr Nathan Ly, its Program Manager.  According to Mr Macdonald, the purpose of the meeting was to discuss whether Amcor could provide AWI with a proposal regarding the use of a bale material for wool that was cheaper than the plastic then used, and that would not contaminate the product.  Mr Macdonald and Mr Allan agreed that they would develop a proposal to address that issue.

13. In late May 2002, the applicants, together with another Amcor employee, Joe Mercuri, prepared a proposal on behalf of Amcor regarding substitute bale material.  In early June 2002, they attended at the offices of AWI in Sydney to discuss that proposal.  Both Mr Dorber and Ms McCaskill were present at the meeting. 

14. According to Mr Macdonald, Mr Dorber expressed enthusiasm for the bale proposal.  He said words to the following effect:

    “This is exactly what we want.  Why didn’t we wake up earlier to the fact we needed to look outside the wool industry for fibre technology developments?  You guys have obviously done a lot of research into fibre measurement.”

15. Mr Dorber then raised an entirely new matter.  He said:

    “AWI are really interested in developing a technology for measuring wool fibre characteristics on the farm.  We’d want some form of robust hand held device.  It’d need to be low cost, at about the $2,000 mark.”

16. After the meeting had concluded, both applicants had an opportunity to discuss the matter while waiting at the Qantas Club Lounge at Sydney Airport.  Mr Macdonald then telephoned Ms McCaskill to ask whether AWI would consider pursuing “the measurement side” with the applicants, “independently of Amcor”.  This was the first intimation that the applicants might be prepared to leave Amcor in order to undertake research on behalf of AWI.  According to Mr Macdonald, they considered that Amcor would not be interested in pursuing technology development relating to wool fibre measurement, which was entirely outside the scope of its normal operations.  Mr Macdonald said that Ms McCaskill indicated that AWI would be interested in such an arrangement.  Thereafter, the applicants proceeded to prepare a detailed proposal. 

17. In their proposal, the applicants identified at least three possible technologies that might be developed for use by AWI.  These were:

    ·an on-farm measurement tool to permit the measurement and assessment of wool by technology before it left the farm;

    ·a logistics management system using electronic scanners and data encapsulation to allow the wool clip to be monitored directly; and

    ·packaging material and process technology including the possible use of waste products.

18. On 28 June 2002, the applicants sent their initial proposal to Ms McCaskill.  In that document, Mr Macdonald spelt out in clear terms that he and Mr Allan were long-term employees of Amcor who stood to lose out appreciably by walking away from their positions voluntarily.  Accordingly, reward or equity in some form would be a “cornerstone” in any commercial negotiation. 

19. The initial proposal was followed, on 7 July 2002, by a more detailed, formal proposal, addressed to Mr Dorber.  By this stage, the concept had been refined and tailored to meet the requirements of AWI’s standard concept proposal document.  The 7 July 2002 proposal set out in detail the three key projects, this time described in the following terms:

    “·       On-farm measurement (development of a low-cost unit to measure key quality attributes)

    ·Pack Opportunities (i.e. practicable alternatives to synthetic Hessian)

    ·Supply logistics (development of practicable 2-D data coding system to enable global traceability and stock control)”

20. The applicants went on to say:

    “After due consideration, we are each seeking a three-year x 1 contract at an annual rate of $250,000 inclusive.  This figure does not include GST and out-of-pocket expenses directly related to AWI activities such as interstate travel.

    We would be interested in discussion on any incentive or equity program that was linked to successful outcomes.”

21. The applicants said that they envisaged leasing office space somewhere in close proximity to Monash University and CSIRO in order to accommodate the research project.  However, they made it clear that they did not contemplate the establishment of a separate research and development laboratory.  Rather, laboratory facilities would be leased from other sources.  It is noteworthy that they concluded with the following observation:

    “Provided that you are satisfied with our proposal, we are willing to take up these roles after the required one month’s notice to our present employer.”

22. The accompanying “AWI Concept Proposal” spoke of the development of an on-farm measuring system with a cost to the woolgrower of approximately $2,000, the development of lower cost alternatives to wool bale packs, and the development of a logistics management system through global traceability technology.  The project was to be completed within three years.  Each detailed proposal was headed with the logo “Imaginate”, a name which the applicants themselves had devised.

23. On 19 July 2002, AWI acknowledged receipt of the proposal.  AWI said that Mr Dorber would carry out an assessment and that he would respond shortly. 

24. On 25 July 2002, Mr Macdonald emailed Mr Dorber, saying:

    “… We both understand the necessity for due process to be followed and the working up of a detailed business case in support of funding allocation.  However, if you are satisfied with our proposal in principle – and wish to proceed – we are both prepared to formally advise of our resignation now if you are prepared to provide a letter of intent…”  (emphasis added)

25. The same day, Mr Dorber responded to Mr Macdonald by email, cautioning against applying too much pressure.  He said:

    “Dear Ian

    Do not push too hard.  I am working flat out on this one.  I will try and communicate with you by PM Friday (as I promised Maree).

    Too much push can only be negative.  I am not making decisions other than for AWI shareholders.  Thus far however, it looks great and the Board is comfortable with the direction I am going.  Just hang in a little longer.

    Col”

26. On 31 July 2002, Mr Dorber emailed Mr Macdonald:

    “Dear Ian,

    Thank you for the comprehensive proposal concerning the key issues of OFFM, Pack Opportunities and Supply Logistics.  I have formally advised the AWI Board that I am investigating the setting up of an RDI cell, located in Victoria at the Monash University consisting of a group of 3-5 expert providers and operating as an AWI owned entity.

    The Board has noted in principle the action being taken.  It will now be necessary to develop up a formal Board Minute and seek approval at the Board meeting of 16 September 2002, for the establishment of the entity.

    Between now and then a small AWI team (myself, Phillip Lee, Chief Financial Officer, or Nathan Ly and Dr Paul Swan) will work with you and your team to get the necessary structures, funding model and program objectives in place.

    I look forward to the implementation of this initiative.  I will be in contact with you early next week to set up a formal meeting.  I propose at that meeting that an MOU between us be signed, that will allow you and your colleagues to make the necessary decisions to allow you to commence this process.

    Kind regards
    Col Dorber
    Managing Director.”  (emphasis added)

1. On 2 August 2002, Dr Swan, who was AWI’s most highly qualified scientific expert in the field, prepared a briefing note to Mr Dorber in which he considered the Imaginate proposal.  His conclusion was:

   “Overall, I am very impressed, and feel that we should get into detailed negotiation with them, and think seriously about what additional resources they may require to facilitate their efforts.”  (emphasis added)

2. On 6 August 2002, there was an internal meeting at AWI to discuss the Imaginate proposal.  That day, Mr Dorber sent the following letter to the applicants:

   “Dear Colleagues

   Re:     Establishment of Imaginate Pty Ltd

   I am pleased to inform you that the Board of Australian Wool Innovation Limited has given in principle approval for the establishment of an AWI owned entity to provide leading edge research and development innovation for the Australian wool industry.

   It is intended that this entity will be known as “Imaginate Pty Ltd” and that it will be a wholly owned subsidiary of AWI Limited.

   AWI also proposes that equity in the company will be provided to each of you proportionate to the skills and/or intellectual product and patents you bring to the business.

   As Managing Director of AWI, I have had a review conducted of the three definitive projects proposed by Messrs Allan and Macdonald and the further initiative proposed by Dr Viviane Buzzi.  I have given in principle approval to each of those initiatives and intend that they be conducted under the “Imaginate” banner.

   It is now necessary to proceed to seek formal AWI Board approval for the establishment of “Imaginate Pty Ltd”.  In order that the Board proposal can be finalised and that the logistics concerning establishment and commencement of work can be agreed, I have appointed an AWI management team to progress this issue.

   …

   AWI proposes that the solicitors to “Imaginate Pty Ltd” will be Allens Arthur Robinson and that the auditors will be PricewaterhouseCoopers.  Both these companies have been involved extensively with AWI in setting up subsidiary businesses and will be able to fast track this matter for us.

   I look forward to finalising this matter and achieving major change to the Australian wool industry through the conduct and study of the research development, innovation and logistical supply chain review.

   Yours sincerely,
   [signed]
   COL DORBER
   Managing Director”  (emphasis added)

3. It should be noted that Mr Dorber’s reference to Dr Buzzi’s role in the proposed project came to nothing in the end, as she ultimately declined to become involved.

4. Attached to Mr Dorber’s letter was a signing page on which the recipients were asked to “sign a copy of this letter and confirm your willingness to be part of this proposal”.  (The applicants and Mr Mercuri all eventually signed the letter on 14 August 2002.)

5. The day after the letter was written, on 7 August 2002, Mr Allan gave notice to Amcor that he was leaving the company.

6. Shortly thereafter, Mr Macdonald had a health scare when he fainted while on board an aircraft.  This resulted in him being admitted to hospital for tests.  On 16 August 2002, he sent an email to John Crawford, Group General Manager, Human Resources at Amcor, in which he wrote:

   “John,

   Just a note to say ‘thank you’ for your time last Tuesday.  I appreciated the opportunity to speak frankly about some personal concerns and likely intentions regarding my future.

   …

   I am completing the in-depth medical examination at Epworth Hospital next Tuesday which will provide some solid basis for determining future movement.

   Particularly in view of your empathetic and understanding stance and preparedness to consider supporting such a redundancy package, I would like to make it quite clear that I have no intention of attributing blame or responsibility to Amcor for what appears to be stress or other health problems and do not intend any pursuit of legal action against the Company.  The factors that are adversely affecting quality of life emanate mainly from personal factors and not from Amcor as an entity…”

7. On 20 August 2002, Mr Thomson and Bob Quirk, a consultant to AWI, met with the applicants in Melbourne.  Two days later, Mr Quirk wrote a memorandum addressed to Mr Dorber, Dr Swan, Dr Ly, and Philip Lee, AWI’s Financial Controller.  The memorandum was copied to Mr Thomson and to Deborah McEwan, Mr Dorber’s Personal Assistant.  In the memorandum, Mr Quirk stated that at the meeting two days earlier, he and Mr Thomson had confirmed that:

   “…it was our intention to have the AWI Board formally consider the establishment of this new RDI cell at its next meeting on 16 September, which would require the relevant Board paper to be completed by 6 September”. 

8. Mr Quirk noted that one of the key points raised at the meeting was that:

   “…both Joe [Mercuri] and Russell [Allan] would be available in two to three weeks and Ian [Macdonald] would be immediately available if the AWI Board gives the green light on 16 September [2002]”.

   THE EVENTS OF 27 AUGUST 2002

9. As previously indicated, the applicants claim that they entered into a concluded agreement with AWI on 27 August 2002, subject only to formal ratification by the Board.  That ratification occurred on 16 September 2002.  AWI denies that any concluded agreement was ever reached, and contends that all that happened on 27 August 2002 was that agreement was reached on some issues, but not others.  It says that the matter never moved beyond the realm of negotiation. 

10. The evidence concerning the details of what took place on that day is obviously of critical importance. 

11. At 9.00 am, an internal AWI meeting was held, attended by Mr Dorber, Mr Thomson, Dr Swan, Mr Lee, Dr Ly, Mr Quirk and Ms McEwan.  At that meeting, the Imaginate proposal was fully canvassed, giving the participants an opportunity to raise issues that required further clarification.  A consensus was reached on the structure and objectives of Imaginate in preparation for a meeting later that morning with the applicants.

12. Shortly thereafter, the applicants and Mr Mercuri joined the AWI representatives.  Also in attendance at this second meeting was Anne Robinson, a solicitor acting for AWI.  The Imaginate proposal was discussed, and issues relating to structure, funding, objectives, salaries, and location were canvassed. 

13. The applicants say that it was during the course of this second meeting that agreement was reached on all essential matters, giving rise to the contract that they claim AWI later repudiated.  Although recollections differ on some matters of detail, there is a surprising level of consensus as to what occurred. 

14. According to Mr Macdonald, Mr Dorber began by saying:

    “All right, we’ve just had a meeting and we can’t see that you can justify salaries of $250,000.  It’s over the top.  We need you to reconsider.”

15. There was then a short break while the applicants and Mr Mercuri left the meeting to consider what stance they should take.  Mr Macdonald and Mr Allan agreed between themselves that they would accept a salary of $220,000 per annum, while Mr Mercuri would receive $150,000.  They discussed various arguments that could be advanced to support those proposed salaries.  For example, the applicants could point to their base salaries at Amcor of $100,000 per annum.  In addition, they were paid car allowances of $20,000 each.  There were also their superannuation entitlements, their annual bonuses of fifteen per cent, their receipt of hospital benefits and likely salary increases that were in the pipeline.  Mr Macdonald told Mr Allan that they should emphasise the loss of their long tenure with Amcor as a factor of particular importance. 

16. When they returned to the meeting, Mr Macdonald began to explain what he and Mr Allan stood to lose by leaving Amcor.  Mr Dorber interrupted and simply asked how much they wanted.  Mr Macdonald replied, “$220,000 minimum.”  According to Mr Macdonald, Mr Dorber banged his hand on the table and said, “Done.” 

17. Mr Macdonald said that Mr Dorber then indicated that the applicants would be given a three-year contract to make Imaginate self-funding.  AWI would provide $5.25 million over the three years, so that the applicants would have a budget of $1.75 million per annum.  Mr Macdonald would be Managing Director and Chief Executive Officer.  Mr Allan would be Chief Scientific Officer.  The applicants would receive eighteen per cent equity in the entity “immediately”, growing to thirty per cent after three years if they successfully developed two technologies.  Mr Macdonald then asked Mr Dorber when he wanted them to start.  Mr Dorber replied, “As soon as possible.”

18. According to Mr Macdonald, Mr Dorber then went on to say that he wanted both Mr Macdonald and Mr Allan to serve on the Board of Imaginate.  He indicated that a Board of six members would be appropriate.  He nominated an independent chairman, and suggested that Mr Quirk and Dr Swan both be on the Board as well.  Mr Macdonald said that he and Mr Allan both agreed. 

19. Mr Macdonald said that Mr Dorber then asked him where Imaginate’s head office should be located.  Mr Macdonald replied, “Somewhere close to the researchers.  We can hunt for one in Melbourne.”  Mr Dorber agreed, and then suggested that Imaginate should have its own solicitors.  According to Mr Macdonald, Mr Dorber nominated a Melbourne firm, Ponte Earle Harrick.  Mr Dorber then said, “We’ll shake on that then” and shook hands with each of the applicants and with Mr Mercuri.  Finally, he told Ms Robinson to set out in writing what had been agreed at the meeting.  Mr Macdonald asked Mr Dorber when they were to start, and he said, “Straight away.”

20. Mr Allan’s recollection of the meeting of 27 August 2002 was essentially the same as that of Mr Macdonald. 

21. Mr Dorber’s recollection of the meeting broadly accords with that of the applicants.  He agreed, generally, in his evidence in-chief, that they discussed matters such as the three-year term in which Imaginate was to become self-funding, the $5.25 million that AWI would provide over that period, the equity that the applicants would be given, and their readiness to commence work. 

22. However, Mr Dorber did not agree that the first matter raised was the question of the applicants’ salaries.  Nor did he agree that it was, in substance, the only issue discussed.  He said that the meeting was the first time he had laid out the “mechanism” by which Imaginate would operate. 

23. In addition, Mr Dorber denied having used some of the precise words attributed to him.  In particular, he said that he had never stated, “You’ve got a three-year contract to make Imaginate self-funding” or “That’ll be the term of the contracts” (emphasis added).  Rather, he had said words to the effect of “You’ll have three years to make Imaginate self funding.”  Mr Dorber said that he was well aware during the course of the meeting on 27 August 2002 that he was not in a position to make any binding commitment to the applicants.  He had been conscious throughout of the importance of not signifying to the applicants that their discussions at that meeting gave rise to any formal agreement. 

24. Mr Dorber also had a different recollection to that of Mr Macdonald regarding the discussion that took place about the composition of the Board of Imaginate.  He maintained that he had not said that he wanted both Mr Macdonald and Mr Allan on the Board.  That was because Mr Macdonald had already made it clear that Mr Allan did not wish to be a director.  Mr Dorber also denied having said that he would arrange for Ponte Earle Harrick to act as Imaginate’s solicitors.  Indeed, he said that prior to reading Mr Macdonald’s affidavit, he had never heard of Ponte Earle Harrick.

25. Finally, Mr Dorber denied having told the applicants that they should begin work “straight away”.  He reiterated that at no stage had he said that they would have “a fixed three-year contract”.  He could not have said that because he was aware that AWI would not enter into any contract without the inclusion of what he termed “a kill switch”.  In other words, he said that it was AWI’s practice to include in any project agreement a clause allowing it to terminate the project if key milestones were not reached.  He said that he also expected that, in due course, the applicants would negotiate employment contracts with the Board of Imaginate.  He regarded the terms of their employment as being essentially a matter for that entity, rather than AWI. 

26. Ms Robinson, who gave evidence on behalf of AWI, agreed that the issues identified by the applicants were indeed discussed at the meeting.  However, she disputed their recollection that Mr Dorber had agreed to a “three-year contract” to make Imaginate self-funding.  She thought that he might have said, “You will have three years to make Imaginate self funding.”  However, the word “contract” was not used during the discussion. 

27. Ms Robinson agreed with Mr Dorber that he had not told the applicants that they should start work “straight away”.  To the best of her recollection, he had simply said, “Start as soon as you can”.  She had no recollection of Mr Dorber saying, “We will shake on that then.”  She also said that the applicants’ recollection of the order in which issues were discussed was incorrect. 

28. Ms Robinson agreed with Mr Dorber that nothing had been said about Ponte Earle Harrick doing Imaginate’s legal work.  Indeed, she said that her own firm, Judd Robinson, was the only legal firm mentioned by name as “doing the legals with outsourcing where necessary”.  She said that Mr Dorber had indicated that AWI would fund the project to the tune of $1.75 million of capped income per annum for three years, but that this would be subject to budgetary constraints.  AWI would review the funding in the last quarter of the third year with a view to Imaginate becoming self-funding by the fourth year.  She added that Mr Dorber had said that the project would be located at Mount Waverley, near Invetech, an unrelated entity that had its own research laboratory.  It was only then that Mr Dorber had observed that the $250,000 salaries were “over the top”.  She could not recall the applicants having said anything about leaving Amcor.

29. Ms Robinson made handwritten notes during the course of the meeting.  They were tendered in evidence.  They are somewhat cryptic, but in general, seem to support her recollection of events.  Following the meeting, the handwritten notes were typed up.  Under a heading, “Response from Macdonald and Allan” the typed version reads:

    “They agreed in principle with proposal, but remuneration should be increased to $220,000 (grossed up package) for each of them, taking into account risk sharing. 
    Equity would be shared between the 3 of them as they determine amongst themselves.”

    It is of some significance to note that the words “in principle”, which appear in the typed version, do not appear in the original handwritten notes. 

30. The question that must ultimately be determined is whether the agreement reached during the course of this meeting gave rise to a legally binding contract once the Board of AWI ratified the Imaginate proposal on 16 September 2002.  Before turning to that question, it is important to consider the events that occurred after 27 August 2002.

    SUBSEQUENT EVENTS

31. On 28 August 2002, the applicants sent an email to Ms Robinson, and copied to Mr Dorber, to which they attached a note seeking clarification of details discussed at the meeting in Sydney on the previous day.  In that note, they wrote, inter alia:

    “Could you please, as [a] matter of some urgency, respond to these areas of concern so that we can judge the implications and impact of the directions that Col is pursuing with Imaginate over the next three years – and beyond.
    …
    2. Financial Control
    We assume that Imaginate will generate and control financial records and report[s] and meet the requirements of the articles of association as deemed by the Imaginate board. 
    …
    Imaginate pays individuals or companies that supply services (including the three equity partners).
    …
    8. Contractual Obligations
    Could you please forward to us the expected obligations of each party in the case where either party wishes to end the contractual relationship.  It is our understanding that upon approval at the forthcoming board meeting, the three principals of Imaginate will have a firm three year contract at the agreed remuneration levels.”

32. On 29 August 2002, Mr Dorber forwarded the above email and note to Ms McCaskill.  In his cover email to Ms McCaskill, Mr Dorber wrote:

    “Dear Maree

    As you can see, pushing the envelope is always interesting.  We can satisfactorily address all these issues, and they will be addressed in the September Board paper.  I think Ian [Macdonald] and Russell [Allan] got a big shock when I told them I expected them to share some of the risk (30%) in return for taking 30% equity.  They didn’t like that, nor did they enjoy seeing me lop $30K off each of their salary packages.  (They wanted $250K each), we set the gross value of their packages at $200K [sic].

    For info only.

    Col”

33. On 5 September 2002, Mr Macdonald sent a second email to Mr Crawford at Amcor regarding his health and a redundancy package.  He wrote:

    “John,

    Thanks again for the opportunity of meeting with you a couple of weeks ago.  As I indicated, I am looking to determine whether the Company would support my request for a redundancy package.

    I am seeking this on the basis that I am suffering symptoms of stress (borne out by recent consultation at Epworth Hospital as part of the health check program and also the opinion of the counsellor, Gavin Sharp, at Resolutions …).  I am concerned that the stress appears to be having negative physical effects as evidenced by my passing out during work hours and the regularity of headaches…”

34. On 6 September 2002, Mr Quirk distributed an AWI Board Memorandum, finalised by Mr Dorber, in which it was recommended that the Board approve the Imaginate proposal.  On the same day, Mr Allan actually left Amcor. 

35. On 10 September 2002, Mr Macdonald sent a third email to Mr Crawford, regarding his redundancy.  He wrote:

    “John,

    As I mentioned to you, I have been undergoing an extensive health check at Epworth Hospital.  Yesterday they conducted a final interview and discussed the results.  Whilst the only serious physical elements were a high cholesterol level and a ferritin problem it was apparent – at least to them – that I am into a burn-out phase and need to change my priorities in life.

    I also took a day last week to consider my situation and must advise that I would like to take up the option of redundancy as we discussed.

    Such redundancy would be genuine and clear-cut in that I would not be replaced.

    …I have been advised that there is no longer any need for the business development role (due to guaranteed, fixed income) and consequently there is no replacement needed…”

36. On 12 September 2002, Mr Dorber emailed the applicants in response to their email and attached note of 28 August 2002. In relation to point eight of their attached note regarding contractual obligations, set out at [57] above, Mr Dorber wrote:

    “8. Employment contracts of Imaginate staff will be contracts between them and the Board of Imaginate.  Provisions for noting the contractual relationship between the entities, AWI Limited and Imaginate will be provided in the draft shareholder agreement shortly. 

    In all these matters you should continue to provide the principles of enthusiasm and commitment thus far as shown and AWI in good faith will ensure that all matters that are able to be reasonably address[ed] will be properly addressed in the share agreement.”

37. On 16 September 2002, the Board of AWI met and approved each of the recommendations in Mr Dorber’s memorandum to it of 6 September 2002.  The voting was unanimous, with only Ms McCaskill abstaining by reason of her close professional relationship with Mr Macdonald.  However, she did speak in favour of the project. 

38. Ms McCaskill made handwritten annotations on her copy of the Board meeting’s agenda.  That document was tendered without objection.  Next to item “8.3 Establishment of Imaginate Pty Ltd”, she had written, “approved 3 yrs contract”.  In addition, the formal minutes of the meeting stated, in relation to item 8.3, that “the Board resolved to proceed with this initiative”. 

1. According to Mr Macdonald, Ms McCaskill telephoned him later that evening to tell him that the Board had “approved your contracts and the Imaginate project”.  Also, either on the evening of 16 September 2002, or on the following morning, Mr Dorber telephoned him and said:

   “The Board has agreed to the proposal and has agreed to your employment unanimously.  It only took them five minutes.  How long will it take you to finish up your employment at Amcor?” 

2. Mr Macdonald told the Court that he had replied, “I think I can get clear by the end of the month.”  Mr Dorber responded, “You will start on 1 October then.”  On 17 September 2002, Mr Macdonald gave Amcor notice that he would be leaving the company.

3. On 18 September 2002, in a memorandum to Mr Quirk, Mr Dorber wrote:

   “At the Board meeting held 16 September 2002 the Board unanimously resolved to accept [the Imaginate proposal]”. 

4. On 27 September 2002, Mr Macdonald left the employ of Amcor.  On the same day, Mr Quirk telephoned Ms Robinson, asking her to prepare a corporate structure document, a constitution, and a shareholders’ agreement for Imaginate.

5. On 1 October 2002, the applicants began working on the Imaginate project, although of course the entity had not yet been incorporated.  The following day, Mr Macdonald and Mr Dorber met at AWI in Sydney to discuss the progress that had been made in establishing Imaginate.  At that meeting, Mr Dorber undertook to provide Mr Macdonald with what was described as “a Letter of Comfort” regarding the preliminary funding from AWI for Imaginate.  The letter was addressed to Mr Macdonald as “Managing Director (designate) of Imaginate Pty Ltd (establishment pending)”.  In the letter, Mr Macdonald was authorised to undertake a series of steps including the following:

   “1.Commence the employment of yourself and Mr Russell Allan with effect from 1 October 2002 in accordance with the terms agreed between us.  It is agreed that AWI will exercise its right to call upon the Imaginate Board upon establishment to ratify this decision.

   2.Incur costs in relation to incidental costs concerning your employment and the location of suitable premises.  For this purpose, AWI will provide you with a cash advance limit of $1000.00 on the understanding it will be accounted for in the normal manner.

   3.Proceed to identify suitable premises in Melbourne, Victoria and have AWI (in the event that Imaginate Pty Ltd is not established in time) enter into any subsequent lease arrangements on behalf of Imaginate Pty Ltd.

   …

   4.Recruit staff as necessary…

   5.…

   A copy of this letter signed by you will constitute a formal agreement between us as to the terms set out herein.

   For the record, I confirm that the decisions contained herein are within my delegation pursuant to the decision of the AWI Board to agree to the establishment and funding of Imaginate Pty Ltd…”(emphasis added)

6. Mr Macdonald signed the Letter of Comfort that day.  The following day, on 3 October 2002, he sent Mr Dorber an email setting out the applicants’ estimated time frames for delivery against key milestones.  He said that so far as he was concerned, the project was “up and running”.

   REAPPRAISAL OF IMAGINATE PROJECT

7. Some time in the last week of September 2002, Dr Swan hired a new employee, George Waldthausen, to take up the position of Project Manager (Logistics and Fibre Specification) with AWI.  Mr Waldthausen had a commerce degree, and had been involved in various ways with the wool industry for about twenty years. 

8. On 10 October 2002, in circumstances that were the subject of considerable controversy at trial, Mr Waldthausen sent Dr Swan an email regarding the Imaginate project.  Mr Dorber, among others, was copied in to the email.  It is fair to say that Mr Waldthausen’s views were damning of both Imaginate and the applicants.  His concluding comments illustrate his general attitude:

   “- They [the applicants] seem allied (or part of) Amcor, the packaging company.  How much of this proposal is aimed at using an Amcor packaging solution for wool bales?  This may be the only reason that they want to get involved.

   - It is unclear how much wool expertise or technology they are offering (possibly none).  Some of their suggestions are clearly incorrect or demonstrate a lack of understanding of the wool industry.

   - AWI has ongoing projects that already cover every area of their proposal.

   - Their timeframe seems very optimistic.

   - We should meet with them and identify what they can really contribute – it certainly does not seem to be $$ or expertise.  If they can contribute, then they should be brought into the appropriate current AWI project…”

9. Neither Mr Macdonald nor Mr Allan had any idea that Mr Waldthausen had become involved in the Imaginate project.  Indeed, they did not know of his existence. 

10. On 15 October 2002, Mr Macdonald met with Ms Robinson in Sydney.  Among the matters that they discussed were the role that Mr Mercuri would have in Imaginate, and Mr Macdonald’s desire to see the shareholders’ agreement, employment contracts and incorporation documentation finalised. 

11. On 16 October 2002, premises at 241 Blackburn Road, Mt Waverley, in Melbourne, were leased.

12. On 18 October 2002, Dr Swan sent a memorandum to Mr Dorber, with a copy to Mr Waldthausen.  In that memorandum, Dr Swan appeared to endorse at least some of the reservations that Mr Waldthausen had previously expressed.  He wrote that following a complete review of the Imaginate file, he and Mr Waldthausen now had concerns about the proposal.  In summary, the key concerns were:

    ·the proposal was largely a duplication, at substantial expense of research already undertaken by AWI;

    ·the costs of conducting research using Imaginate, as distinct from other providers, would be excessive;

    ·there was little known about a Queensland micrometer that would be a key threat to the hand-held device proposed;

    ·the fact that the Imaginate team would need to subcontract out much of the metrology work needed to deliver a hand-held device;

    ·doubts about the core expertise of the applicants, which was in packaging, being applicable to the tasks at hand; and

    ·a belief that the time frames were “exceptionally ambitious”.

13. Dr Swan wrote that he was “abundantly aware” that his initial advice to Mr Dorber, on 2 August 2002, had been “generally supportive” of the Imaginate proposal.  He pointed out that even then he had raised some specific concerns.  However, he had now completed a “basic competitor analysis”, and was therefore “better aware of the costs associated with the business structure proposed”.  He suggested to Mr Dorber that AWI should not publicly commit to Imaginate at that stage, but should await the outcome of the AWI Annual General Meeting scheduled for November 2002. 

14. Dr Swan went on to say “assuming that” the applicants had left Amcor, he recommended that AWI should explore with that company the option of having them “consult back for the time being”.  He also recommended that the applicants start on pack material as their primary focus, and undertake a much more detailed business model for uptake of the on-farm fibre-measuring device.

15. On 21 October 2002, Ms Robinson, who was entirely unaware that Dr Swan had changed his view of Imaginate, emailed the following to Janelle O’Reilly, a solicitor at Allens Arthur Robinson:

    “…I confirm that we have been instructed by AWI to proceed to incorporate a Pty Limited company for the purpose of establishing a research facility in Melbourne…

    AWI has agreed to contract with Imaginate for three projects over the next three years for a total outlay of $5.25m, and I will draft these contracts so we can sign up all the agreements at the same time.

    Could you proceed to draft the necessary Shareholders’ Agreement, Constitution and Employment Contracts for the three named executives asap – I am meeting with Ian Macdonald on Wednesday and would like to have a draft to start looking at if at all possible.  The urgency is that Messrs. Macdonald and Allan are very keen to lock this deal in prior to 31 October…”

16. On 22 October 2002, Allens Arthur Robinson sent Mr Dorber a retainer letter.  The following day, Ms O’Reilly emailed Ms Robinson a draft shareholders’ agreement and a draft key services contract.  On the same day, the applicants met with Ms Robinson.  They discussed a number of legal issues, such as the company’s business name, intellectual property rights and confidentiality, taxation, and services contracts.  She also advised the applicants to seek independent legal advice.

17. Also on 23 October 2002, Dr Swan met with Mr Dorber to discuss the recommendations contained in Dr Swan’s earlier memorandum of 18 October 2002.  Later that day, Dr Swan sent Mr Dorber a memorandum summarising their discussions.  In that memorandum, Dr Swan noted that Mr Dorber had accepted his advice that “Imaginate [was] to be explicitly integrated into an overall AWI Logistics and Fibre Specification RDI effort”.  To enable such a development, Dr Swan requested that:

    “Notwithstanding the process of start up of Imaginate, which must continue as planned, Ian Macdonald and team consult fully and frankly with SPFS Program, and be advised by you that Imaginate is to be fitted into a strategic and operational framework devised by SPFS.”

18. On or about 25 October 2002, the applicants, still totally unaware of what was happening at AWI, instructed Philip Earle of Ponte Earle Harrick to act on their behalf. 

19. On 27 October 2002, Mr Earle forwarded to Mr Allan an email from Ms O’Reilly to which was attached a draft of the 6 September 2002 AWI Board Memorandum.  Mr Earle also forwarded to Mr Allan an email from her in which she indicated that she still had “some issues to go through with my client” and that, as a consequence, there would be a slight delay in sending Mr Earle a draft of the shareholders’ agreement.

20. On 28 October 2002, Mr Allan emailed Ms Robinson regarding the importance of finalising matters before the Board meeting (he was mistaken in that regard – the reference should have been to the Annual General Meeting).  The same day, Ms O’Reilly sent an email directly to the applicants stating that “the first step to getting things underway” was incorporating the company, and agreeing on the form of the shareholders’ agreement and key services contracts.

21. It appears, therefore, that throughout October 2002, the applicants were engaged in preliminary work on the Imaginate project, having by then already severed their ties with Amcor.  They plainly believed that they had entered into a binding agreement with AWI, and acted accordingly.  Unbeknownst to them, things had taken a different turn at AWI based upon Dr Swan’s revised opinion of the project.  Trouble was looming.

    THE REPUDIATION OF THE ALLEGED CONTRACT

22. The applicants say that they entered into a concluded agreement with AWI by, at the latest, 16 September 2002.  They say that AWI repudiated that contract either on 29 October 2002, or alternatively several days later.  Accordingly, they claim that AWI ought to be liable to them in damages. 

23. On 29 October 2002, Mr Macdonald received a telephone call from Mr Waldthausen.  Mr Macdonald had never met Mr Waldthausen and, as previously indicated, did not know anything about him.  According to Mr Macdonald, Mr Waldthausen introduced himself as an employee of AWI, and said that he was as acting under instructions from Dr Swan.  He told Mr Macdonald that there were going to be changes in relation to the operation of Imaginate.  Mr Macdonald recalled him saying that Imaginate was not going to be an independent company any more, and that in future the applicants would answer to Dr Swan. 

24. Mr Waldthausen had a different recollection of the conversation, a matter to which I shall return.

25. Following the telephone conversation, at 10.55 am, Mr Waldthausen emailed Mr Dorber setting out his recollection of what had been said.  Dr Swan and Ms Robinson were copied into the email.  Mr Waldthausen said, in the email, that he had spoken to Mr Macdonald and communicated the following “as tactfully as possible”:

    “·       Imaginate projects are to be integrated into an overall L&FS RDI effort, via a strategic plan developed by SPFS.

    ·         Agreements cannot be signed this week.

    ·GW is to be the main point of AWI contact (already agreed with Paul Swan/Bob Quirk).

    ·Joe Mercuri is to be deferred.”

26. Mr Waldthausen went on to say that Mr Macdonald was “not happy”.  Mr Macdonald had told him that these arrangements were contrary to his understanding of the deal.  Mr Macdonald had also told him that he and Mr Allan had already carried out one month’s work on the various projects and would like to be paid, that they had employed Mr Mercuri as their accountant on a one year contract at $150,000 per annum, that they had found premises for the project, that they still intended to employ Dr Buzzi in due course, and that they were seeking an urgent meeting with AWI.

27. In the meantime, Mr Macdonald, by now in a state of some confusion, telephoned Mr Dorber.  He was not available.  Mr Macdonald left a message for Mr Dorber to call him.  He then telephoned Ms McCaskill, asking what had happened to the Imaginate project.  He told her that someone named Waldthausen had just telephoned him to say that there would be changes.  She replied that she knew nothing about the matter.  She said that she would call Mr Dorber, and get back to Mr Macdonald. 

28. Later that day, at lunchtime, Mr Dorber telephoned Mr Macdonald, and told him that there were problems.  According to Mr Macdonald, Mr Dorber said that he had been given a “due diligence” report on Imaginate, prepared by Dr Swan, which “raised a raft of issues which mean I can’t go ahead with Imaginate”.  Mr Dorber then seemed to read from a document over the telephone, setting out specific issues that had been identified as problematic.  He asked Mr Macdonald to call him back on his mobile phone at 4.00pm later that day.

29. At 4.00pm, Mr Macdonald telephoned Mr Dorber on his mobile phone.  According to Mr Macdonald, Mr Dorber confirmed that the “due diligence” report prevented him from proceeding with the Imaginate project.  He said that the applicants had two alternatives.  They could work on the project directly for AWI, on a contract basis, but that this would not be the “full research program”.  Alternatively, AWI might be prepared to pay the applicants “something, but don’t get excited about the amount”. 

30. On 4 November 2002, Ms Robinson formally instructed Ms O’Reilly “not to proceed with the registration of Imaginate Pty Ltd”.  According to Ms Robinson, it was Mr Waldthausen who had told her that AWI had made that decision.  It should be noted that Mr Waldthausen denied having given Ms Robinson any such intimation.  He also denied having given Ms Robinson instructions not to proceed with the incorporation of the proposed entity. 

31. The applicants say that if the contract was not repudiated on 29 October 2002, it most definitely was on 4 November 2002.

32. It should be noted that on 6 and 7 November 2002, the applicants lodged a claim with AWI for expenses of $1,207.90 incurred.  They had received an advance of $1,000.00 from Mr Dorber on 3 October 2002, in cash.  The balance of the claim for expenses was later paid in full. 

33. On 21 and 22 November 2002, the applicants took up Mr Dorber’s suggestion and submitted further research proposals to AWI.  However, these were evaluated and eventually rejected.

    THE APPLICANTS’ CLAIMS AS PLEADED

34. On 16 April 2003, the applicants filed their respective applications in this Court.  By their pleadings, they allege that they each entered into a contract with AWI, whether on 27 August 2002, or at the latest on 16 September 2002.  They claim that the contract was repudiated, and that they are entitled to damages as a result.  That included damages for breach of contract, and in particular, damages for lost opportunity in relation to its possible renewal, and the equity that the applicants would have been given in Imaginate had the project proceeded as agreed. 

35. Alternatively, the applicants claim that various misrepresentations were made to them, of a promissory kind, and that they were induced thereby to act to their detriment. Accordingly, they claim that AWI engaged in misleading or deceptive conduct, contrary to s 52 of the Act.

36. As a further alternative, the applicants claim that AWI, by reneging upon the promises made, engaged in unconscionable conduct, contrary to s 51AC of the Act.

37. Plainly, the measure of damages available to the applicants will depend upon which, if any, of these alternative claims can be established.  The quantum of damages will be greatest if the applicants can make good their claim in contract.

    THE RESPONDENT’S DEFENCES

38. In substance, AWI denies that it entered into any legally enforceable contract with either applicant, in the terms alleged.  It says:

    ·that there was no such contract because agreement was never reached on all essential terms;

    ·alternatively, if agreement was reached on all essential terms, it was still uncertain and illusory;

    ·alternatively, as a matter of construction, the parties did not intend to be bound unless and until a formal shareholders’ agreement and employment contracts were put in place, and executed, which did not occur. 

39. Broadly speaking, AWI contends that the conduct of the parties should be viewed as manifesting an intention that, ultimately, they would enter into a legally binding agreement.  However, that did not eventuate.  Neither the meeting of 27 August 2002, nor the AWI Board approval on 16 September 2002 amounted to, or constituted, any such agreement.  These were merely necessary steps along the way. 

40. On this scenario, the applicants took a calculated risk by leaving their employ with Amcor before they had secured any contractual entitlements from AWI.  Indeed, AWI submitted that the reason the applicants took that risk was that they were dissatisfied with certain changes that were occurring at Amcor and, in Mr Macdonald’s case, some health issues that were of concern to him.  Accordingly, AWI was entirely free to withdraw from any arrangements that were contemplated right up until the moment they became legally binding.  Mr Dorber, acting upon the revised opinion of Dr Swan, did just that. 

41. It was submitted that if, contrary to AWI’s primary position, there was a binding agreement as alleged, it was subject to a series of important qualifications.  For example, the employment contracts could be terminated upon reasonable notice.  So too could the entire Imaginate project, if it did not meet key milestones.  Accordingly, any damages payable for breach of contract would be significantly reduced. 

42. As previously indicated, the claim for damages for lost opportunity had two limbs.  The first related to the chance that the contract would have been renewed at the end of the three-year term.  The second related to the profits that might have been generated, and the value of the equity (eighteen per cent rising to thirty per cent) that the applicants would have received had the Imaginate project been implemented. 

43. In relation to the first limb, AWI’s case was that there was little chance that the contract would have been renewed.  It was contended that there was no real prospect that any of the proposed Imaginate projects would have been commercially viable.  Moreover, the change in the composition of the AWI Board that took place in November 2002 meant that AWI’s entire approach to this type of research changed dramatically, and rendered this aspect of the claim worthless. 

44. In relation to the second limb, AWI’s case was simply that the chances of the Imaginate projects generating any profits were remote. 

45. Finally, in relation to the claims under the Act, AWI noted that the case as pleaded was essentially promissory in nature, and not based upon any representations of fact. Accordingly, the question was whether there were reasonable grounds for making those representations, at least at the time they were made. That question could only be answered one way, namely that there were.

1. In any event, AWI submitted that if the applicants failed on their contract claim, but succeeded on their alternative s 52 claim, they would only be entitled to damages based upon their actual losses sustained, and not damages of the far higher order sought under the contract claim.

2. As for the unconscionability claim under s 51AC, AWI submitted that none of the necessary features of “special disadvantage” were present. It contended that this aspect of the applicants’ case was hopeless and should be summarily rejected.

   FINDINGS REGARDING WITNESSES

3. It is unusual, in a case of this nature, for the parties to be in such broad agreement as to what occurred, both before and after the critical events.  Of course, many of the documents speak for themselves, and there are relatively few issues of credibility to be resolved.  Nonetheless, there are some conversations that are in dispute, and it is desirable to set out in some detail the evidence of the key witnesses in so far as it bears upon the question of liability.  It is worth noting that both sides cross-examined to good effect, extracting important concessions. 

4. The critical witnesses regarding the issue of liability in contract were Mr Macdonald, and Mr Allan for the applicants, and Mr Dorber and Ms Robinson for AWI.  Dr Swan’s evidence was important, but went largely to the question of measure of damages.  None of the parties chose to call Ms McCaskill, but in the context of the present case, that was of little real significance. 

   Mr Macdonald

5. Mr Macdonald was a forthright witness.  Subject to one qualification, to which I shall return in a moment, he struck me as being both truthful and accurate.  His account of the events that led up to and including the meeting of 27 August 2002, and thereafter, was supported by the contemporaneous documentation.  In general, I am prepared to accept his version of events.

6. The one matter of concern relates to Mr Macdonald’s claim for a redundancy payment from Amcor.  I appreciate that he had been with that company for more than thirty years.  I have no doubt that he felt that he was entitled, in some sense, to what might be described as a “golden handshake”.  Certainly, the prevailing culture in many companies seems to be that such payments are routinely made to departing managers, irrespective of the quality of their performance. 

7. Nonetheless, I am quite satisfied, on the basis of Mr Macdonald’s evidence, that Amcor had not made him redundant.  Moreover, there was no health issue that prevented him from continuing in its employ.  His dealings with Mr Crawford were, in my view, disingenuous.  In procuring a substantial payment from Amcor to which he was not legally entitled, he acted improperly.  I take his conduct in that regard into account in assessing his credibility.

   Mr Allan

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

   Mr Dorber

9. In one sense, the most important witness in relation to the claim for breach of contract was Mr Dorber.  His background, for someone in the position of Managing Director of AWI, was unusual.  From 1971 to 1985, he was a member of the New South Wales police force, having achieved the rank of Senior Constable.  He was subsequently appointed Executive Director of the New South Wales Forest Products Association Limited, and was employed by that organisation for twelve years.  He had also been elected Secretary/Treasurer of the Timber Trade Industrial Association from 1989 until 2001.  During that time, he had been responsible for staffing matters and industrial relations.  He had no scientific training, and it would seem no tertiary qualifications, but plainly had high-level management skills. 

10. Mr Dorber was appointed Managing Director of AWI in January 2001, and remained in that position for almost two years, until December 2002.  He obviously found it to be a difficult working environment.  Mr Dorber was keen on technology and development.  However, many woolgrowers resisted change, and wanted to follow traditional practices.  The clash of cultures finally came to a head in November 2002, when the existing Board was removed at the Annual General Meeting.  It was replaced by a new Board consisting of representatives of bodies like the National Farmers Federation, who were unhappy with the way in which AWI had been run. 

11. Mr Dorber was strongly resentful when his employment at AWI was terminated.  He was, at one time, the subject of a Senate Committee investigation.  Serious allegations regarding his financial probity were made, though he complained that those allegations were never put directly to him.  They arose out of the employment of his son and daughter at AWI.  Each had worked for about a year before being terminated in November 2002.  Mr Dorber had authorised termination payments for them totalling $130,000.  His son was twenty-two years of age at the time, and his daughter just eighteen. 

12. Mr Dorber said that these allegations had been fully investigated, and that he had been cleared.  He claimed that the payments had been made upon advice.  Nonetheless, they had been given wide publicity through the media as part of what Mr Dorber described as “a political campaign” against both him and the previous Board.  Clearly, he had every reason to feel bitter about his treatment.  He would hardly be expected to go out of his way to support the current Board.  Although he was apparently a willing witness for AWI, I would not regard him as being “within its camp”. 

13. Mr Dorber accepted that he had been responsible for the Imaginate proposal.  The code applied to that proposal was “MD71”, indicating that it was a “Managing Director file”.  Ultimate responsibility lay with the Board of AWI as his particular delegation was limited to approving projects to a value of $2 million, and Imaginate far exceeded this. 

14. Mr Dorber said that he regarded an on-farm fibre measurement device as potentially being an important advancement for the wool industry in Australia.  He had been keen to progress the proposal.  On 2 August 2002, he asked Dr Swan to provide a scientific evaluation, and he had considered Dr Swan’s report to be extremely positive.  Mr Dorber had also sought informal advice from people outside the company.  He said:

    “There were two classes of advice.  The scientists and the technical experts to whom I spoke all believed that the adoption of technology and the direction generally outlined to them appeared to be long overdue, and then there were woolgrowers who were a little less enthusiastic because they felt that they had seen technology attempts come and go, and many dollars had gone into a bottomless pit.  So that was really the view.  But the people who ought to know in terms of technology and science were very supportive.”

15. Mr Dorber also spoke to other members of the AWI Board at this time.  They gave him “preliminary in-principle approval” to continue discussions regarding this proposal. 

16. Mr Dorber said that the letter that he had sent to the applicants, Dr Buzzi and Mr Mercuri on 6 August 2002 had been prepared by him in consultation with an internal staff lawyer employed by AWI.  The transcript of his evidence records the following:

    “This letter of 6 August, as you've already agreed, was that memorandum of understanding?---Yes. 

    So this letter you sent with the intention that these men would act upon it to "commence this process", didn't you?---Yes. 

    I suggest to you that the very first step in these men "commencing this process" was that they would have to give notice to leave their employment at Amcor?
    ---I think that's a reasonable inference, yes.

    Thank you.  You expected that that's what they would do when they got and signed this letter, didn't you?---No, actually I didn't.

    Did you not turn your mind to it?---I had turned my mind to it, yes. 

    You accept now that it's a reasonable inference to draw?---Yes. 

    It doesn't surprise you that at least one them did in fact give notice to Amcor immediately on receiving this letter and signing it?---I'm not aware of that. 

    You weren't aware of it?---No. 

    You don't suggest that that was an unreasonable thing for that man to do, do you, from the answers you've just given his Honour?---I wouldn't have done it.

    Now could you answer my question?  You don't suggest it was an unreasonable thing to do, do you?---Not by whichever one of the two it was, no.”

17. Mr Dorber was asked whether, at the time this letter was written, he was confident that the Board would approve the proposal.  He said:

    “At that point in time I had absolutely no doubt that it would be approved.”

18. He went on to say, in answer to a question from me, that he gave the applicants “every encouragement” to believe that the Board’s approval would be a “formality”, as indeed it ultimately was. 

19. Mr Dorber said that he had always considered the idea of a hand-held device that could measure wool fibre to represent a very significant milestone for the wool industry, particularly if it could be marketed for about $2,000.  He believed that woolgrowers would have bought such a device in significant numbers.  He recognised that the mindset of the buyers would have to be changed in order to achieve that objective.  In his own words:

    “There’s a passionate desire worldwide in the wool industry that they must be able to feel, see and almost smell the product.  It’s one of the things I learnt very quickly was that change was something that was very long term, and that the end users were very, very determined to ensure that they maintained control from the point of acquiring the wool.  They’re absolutely fixated on this 1000-year old history of actually touching and visually inspecting the product. 

    MR GUNST:   We’re agreed, I think, that if this culture of touching and feeling could be overcome, the method that I’ve just described here would have great advantages for woolgrowers?---Absolutely. 

    There’d be a lot of brokers who'd be out of a job, but the woolgrowers themselves would be the beneficiaries, wouldn’t they?---I’ve always thought that’s why I don't have a job there now.”

20. Mr Dorber’s evidence regarding the meeting with the applicants on 27 August 2002 was particularly illuminating.  Referring to the handwritten notes of that meeting prepared by Ms Robinson, he said:

    “The meeting was agreed that this project should go ahead in the manner set out here on page 2?---Yes, absolutely.

    It was agreed that the proposed structure of the company would have a set out of model articles?---Yes. 

    There was nothing unusual about the company that you proposed, it just had to have a model standard set of articles of association?---I actually tabled a set.

    It was then agreed who the board would be, and the members’ names are set out?---Yes, it was agreed at that time.  There were some discussions that took place later in the day, but that was agreed at that time.

    It was agreed that the company would be called Imaginate Pty Ltd; it was agreed in 2.4 that Ian McDonald would be the chief executive officer, Russell Allan would be the senior research scientist, there would be two PhD students to act as assistants, and so on?---Yes.  

    All of those things were proposed by you and agreed by your project team and recorded in these minutes when they were prepared?---Yes, and my proposals arose from the work that the project team had done, amongst other things.

    Over the page, on page 3, it was agreed in this meeting that 18 per cent equity would be offered, increasing to 30 per cent at the end of three years, subject to two successfully commercialised technologies, and it was up to Messrs Macdonald and Russell - Russell Allan, presumably you mean there.  Is that right?  You say it will be up to Messrs Macdonald and Russell?---Well, I didn’t prepare these minutes, but yes, I’m sure that’s what it was intended to say.

    So where the minutes say it would be up to Messrs Macdonald and Russell as to how the equity is split, you mean what was agreed was that it was up to the applicants in these cases - Macdonald and Allan - as to how that equity would be split?---Yes. 

    You then provide a recap to this meeting of the original proposal for funding, and it was agreed by your project team that it would be recommended to the AWI board that funding of $1.75 million per annum for three years, with a full review halfway through year three would be provided to this new AWI subsidiary?---Yes. 

    It was agreed that the company would look at a shared location in Mt Waverley?---Yes.

    Now, that’s your meeting at 9 o'clock on this day, for about half an hour or so?---Yes. 

    You then have a break, as you’ve said, for a document to be written out that you use in the meeting that was scheduled to take place later in the morning with Messrs Macdonald and Allan?---This document.

    I see, thank you.  So you had this document, these minutes of meeting, at the time Mr Macdonald and Mr Allan came in at about 10.30?---I did.

    Ms Robinson has given evidence to his Honour already, and she says that the total of the meeting, which she says started about mid-morning with Macdonald and Allan, went for about half an hour in a discussion, then there was a break where they went downstairs to talk amongst themselves for about half an hour, and then the meeting reconvened for about 15 minutes, she said.  Would that accord with your recollection?---Yes.” 

21. Under cross-examination, Mr Dorber agreed that it was always understood that the Imaginate project would involve the creation of an AWI subsidiary.  It was never contemplated that the various research projects would be farmed out to some external research team.  There was no mention of Amcor in the minutes of the meeting of 27 August 2002.  By that stage, it was clear that Amcor’s R&T department would have no direct role to play in the project. 

22. With regard to the discussion regarding salaries, Mr Dorber’s evidence was as follows:

    “MR GUNST:   It would be fair to say that you put to these men in a firm tone the 250,000 that they were asking for was too much or over the top or not on?
    ---I spoke courteously and firmly to them.  I didn’t see it as the number one major crisis issue of the whole project.  I was in no doubt what the outcome would be.

    HIS HONOUR:   What does that mean?---Well, I knew that the project was so important to them and us that the question of 10, 20, 30 thousand dollars here or there was unlikely to be the key issue, particularly when I had included a comment to the effect that of course the final package would be a matter for the Imaginate board.  I had always made clear that once the company was established AWI would make a formal submission to its new board, knowing that we would be the majority of that new board.  That formal submission would then become the basis of Imaginate’s activities and would include, amongst other things, our opinion about how much of the total funds we were advancing would be set aside for salaries and wages.

    In your mind when the figure of $220,000 was proffered as an alternative to 250,000 were you committed to recommending to the Imaginate board that that figure be accepted?---If they had come back and said something else I wouldn't have died in the ditch over it.  But they just came back and accepted it.

    So it was your intent at that time to have AWI representatives on the Imaginate board approve a $220,000 package figure?---Definitely.”

23. It is important to note that, so far as Mr Dorber was concerned, there was no problem with the three-year contract component of what the applicants had been seeking in their letter of 7 July 2002.  Imaginate was always a three-year project.  Mr Dorber continued:

    “What was agreed between you on this day was that they would come and work for this new AWI subsidiary for three years at a salary of $220,000 per year?
    ---Subject to the management and control of the Imaginate board.

    And subject of course to approval of this by the board of AWI at its next meeting?---Yes. 

    Subject to the approval of the AWI board, you regarded AWI as bound by an agreement to that effect on that day, didn’t you?---Yes.  Had I remained there I would not have resiled from those arrangements.  I certainly saw them as me speaking, subject to board approval, with the authority of the board.

    We know for a fact that the AWI board did approve this project, as you’ve told his Honour yesterday?---Yes. 

    Unanimously with one abstention of the chairwoman because she knew Mr Macdonald personally?---Yes.  After they had asked two questions.

    That was something you'd - that is, the AWI board’s approval was something that you had been confident of from a much earlier stage, as you told his Honour yesterday?---Yes. 

    It's right to say, isn't it, Mr Dorber, that once you had reached agreement with these men on 27 August 2002 and once the AWI board had approved what had been agreed on 27 August, that there was a verbal agreement between the parties which was conclusive in your view?---Conclusive as to the matters raised, yes.

    That there would be a subsidiary set up?---Yes. 

    Called Imaginate Pty Ltd if that name could be had?---Yes. 

    But otherwise, nonetheless a subsidiary set up?---Yes. 

    In which AWI would own 82 per cent and these two men would own 18 per cent between them?---Yes. 

    And that AWI would invest $1.75 million per year for three years into that company?---Subject to the mid-term full review, yes.

    Thank you, and that these two men would be employed by that company for that three-year period at $220,000 per year each?---Subject to the continuing approval of the Imaginate board, yes.”

24. Mr Dorber continued:

    “MR GUNST:   Mr Dorber, just to be specific about this, it was your view after the 27 August, of 2002, meeting and that once what had been agreed in that meeting had been approved by the AWI board, that there was an agreement between AWI and Mr Macdonald and Mr Allan, which was concluded?
    ---Subject to all the necessary legal steps, yes.

    Was there any mention in the meeting of legal documentation?---I had brought with me the constitution and shareholder agreement for an AWI subsidiary called Shear Express Pty Ltd, and I had made it clear that Allens and Robinson - I think they were called - were to be appointed and they would work to bring about a similar constitution and shareholder agreement for Imaginate.  I’d alluded to it previously, but I made it very clear on that day that that was the model that we were using. 

    So far as Mr Macdonald and Mr Allan were concerned, after 27 August 2002, so far as their three-year employment at 220,000 a year was concerned, you were no longer in a negotiation phase, were you?---No.

    You'd reached agreement with them about that on the day, subject only to the approval of the AWI board?---And the Imaginate board, yes. 

    Well, let me put this to you.  I suggest to you that it is your view that there was a verbal agreement in place which was conclusive at this time?---To the extent that I have the authority to make it, yes. 

    And subject to the approval of the AWI, you did have authority to make it, did you not?---I did. 

    You also had the view that if you had remained in charge - that is, if you had remained as managing director - this project would have continued?---Yes.

    Indeed, you’ve said as much to the applicant's solicitor in this case, on Friday 7 May of this year, haven’t you?---I don't recall the date, but I know he asked me that question when he indicated I was to be subpoenaed. 

    Do you remember ringing the applicant’s solicitor, Mr Fernandino Zito on the afternoon of Friday 7 May 2004?---I can't recall who rang who.  I recall - I don’t know how many times we’d spoken.  The first time I spoke, I think was on a weekend, I thought.  But I certainly remember a conversation with him. 

    I’ll put to you two telephone conversations separated by five or ten minutes on the Friday afternoon, 7 May 2004.  Does that sound right?---Yes. 

    I suggest to you that in that conversation Mr Zito - who is sitting here - asked you about whether there was a contract in place and you said, "Yes, of course I am” - in relation to a question, whether you are referring to verbal or written contracts - "Yes, of course I am, because as far as I'm concerned there was a verbal agreement which was conclusive.”  Do you recall saying that to Mr Zito on the afternoon of Friday 7 May 2004?---I do. 

    And that was true, when you said it.  That was your belief?---It was stating the truth. 

    Mr Zito also tells me that Mr Dorber also said that if you were asked, "Had you remained in charge, would the project have continued?” you would have answered, "Yes.”?---Yes.  I've told anyone who has asked me that question repeatedly that answer.

    Thank you.  What you’ve said, so far as these men and their three-year employment at 220,000 per annum was concerned, there was a concluded deal on 27 August 2002, subject only to the approval of the AWI board and subject to the Imaginate board so agreeing?---Yes.

    And that as AWI was, and would always be, the majority owner of Imaginate, that that permission - the permission of the Imaginate board - would have been forthcoming?---Yes. 

    You’ve said that if, for example, these men had come forward and said, "Well, we'd like a car”, there might have been some mutually agreed variation to their salary package?---It would never have been discussed with me.  I’d made it clear that once Imaginate was established, Imaginate ran its business.”

1. Whatever may have been the position when Mr Waldthausen spoke to Mr Macdonald, it was certainly clear by the time that Mr Dorber spoke to him later that day that from AWI’s perspective, the Imaginate project as conceived and agreed had been terminated.  It was absolutely fundamental to the agreement that Imaginate be a stand-alone initiative.  The change to the arrangement that Mr Dorber foreshadowed represented a serious departure from the agreement, and gave the applicants the right to terminate.  It was an act of repudiation by AWI.  Once the applicants accepted that repudiation, they became entitled to sue for damages for breach of contract. 

2. If I am wrong about the effect of Mr Dorber’s conversation with Mr Macdonald, I am satisfied that Mr Waldthausen’s instruction to Ms Robinson to stop work on the incorporation of Imaginate amounted to a repudiation of the contract.  The fact that Mr Waldthausen had no authority to give that instruction is of no consequence.  He certainly had ostensible authority, in accordance with ordinary principles of agency. 

   The measure of damages

3. The principles that govern damages for breach of contract are well established.  Such damages are awarded to protect the expectation interest of the innocent party.  The general rule is that damages are awarded to put the applicant in the same position as if the contract had been performed:  The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. Damages for loss of bargain are assessed by reference to the difference between the market value of the contract (or its subject matter) at the time of contract, and the price (or monetary equivalent) expressed in the contract. Where an applicant’s termination is based on repudiation, or breach of an essential term, it will be presumed that he or she is entitled to recover damages for loss of bargain: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245.

4. Where a contract is repudiated, an applicant is entitled to an award of damages that, so far as money can, places him in the same position as if the contract had been performed.  The applicant is entitled to damages fixed by reference to what would reasonably have been in the contemplation of the parties as the probable result of the breach of the agreement. 

5. The loss suffered must arise naturally from the breach, or else it must be such as may reasonably be supposed to have been in the contemplation of the parties at the time they entered into the contract as the probable result of it being breached:  Hadley v Baxendale (1854) 9 Ex 341, 156 ER 145. Damages will not be recoverable if they are too remote: Hungerfords v Walker (1989) 171 CLR 125; The Commonwealth v Amann Aviation at 92 and 99; Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 368; and Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603.

6. Damages are awarded to an applicant as compensation for the amount that he or she would have earned pursuant to a contract had the respondent not breached the contract.  Damages for loss of profits are simply one aspect of the principle that a person who has sustained loss by reason of a breach of contract is entitled to be placed in the same position, as far as possible, as if the contract had been performed:  The Commonwealth v Amann Aviation.  The burden of proof rests upon the applicant to prove, on the balance of probabilities, the profit that would have been earned had the respondent performed the contract rather than breached it. 

7. An applicant can recover for what is described as the “loss of a chance”, namely the loss of the opportunity to obtain benefits that would have resulted from the respondent’s performance.  For example, damages have been assessed on this basis where the defendant’s breach deprived the plaintiff of the chance of competing in a contest, and winning a prize:  Chaplin v Hicks [1911] 2 KB 786.

8. In the present case, the applicants claim that the parties contemplated a long-term arrangement involving a three-year contract at a minimum.  That necessitated their departure from Amcor, giving up secure and long-term employment.  They say that the Imaginate project would certainly have gone ahead but for the unwarranted and inappropriate intervention of Dr Swan, acting at the behest of Mr Waldthausen.  They claim loss of income for the three-year term of the contract.  They also claim damages for loss of the chance that the contract would have been renewed, and for the loss of the chance that their shareholding in Imaginate would have generated profit.  They accept that the amount of damages awarded for lost opportunity must depend upon the likelihood that Imaginate would have been successful. 

9. More specifically, the applicants claim the sum of $660,000, being three years at $220,000 per annum.  From that sum, there would be deducted any money earned that would not otherwise have been earned in the period from 1 November 2002 until 31 May 2004, several days before the commencement of the trial.  In Mr Macdonald’s case, that figure came to $186,430 together with a further $39,248 as money expected to be earned for consulting work with Amcor earned from 1 June 2004 to 1 October 2004.  In addition, there would be deducted a further $75,548, being the balance of fifteen months’ consulting, but at a rate thirty per cent less than the rate previously earned.  The figures are set out as follows in the applicants’ submissions regarding loss and damage:

   “Lost Wages pursuant to the contract of employment:
              3 yrs x $220,000  = $660,000
   less moneys earned which would not
   otherwise have been earned 1/11/02-31/5/04            = $186,430
   less moneys expected to be earned
   from 1/6/04 for 4 months with Amcor
              186,430/19 = $9,812 pcm
              $9,812 x 4  = $39,248
   balance of 15 months at 30% less
              $6,868 x 11  = $ 75,548”

   That made a total of $358,774 for lost wages.  To that figure, Mr Macdonald would add the value of his lost superannuation, being nine per cent of $660,000 or $59,400. 

10. The figures for Mr Allan were as follows:

    “Lost Wages pursuant to the contract of employment:
               3 yrs x $220,000  =$660,000
    less moneys earned which would not
    otherwise have been earned 1/11/02-31/5/04:  =$105,558
    less moneys expected to be earned
    1/6/04-1/10/05:
               105,558/19 = $5,555.70 pcm
               $5,555.70 x 15  =$83,335”

    That made a total of $471,107 for lost wages.  To that figure, Mr Allan would add the value of his lost superannuation, being nine per cent of $660,000 or $59,400. 

11. The applicants’ claim for damages for the lost opportunity to renew the contract after the expiration of three years is of course far more problematic.  They submitted that I should find that there was a sixty per cent chance of their entering into a further three-year contract with AWI, and so award sixty per cent of the value of the existing contract, namely $215,264 in the case of Mr Macdonald, and $282,664 in the case of Mr Allan. 

12. I reject this submission.  I think it highly unlikely that AWI would have renewed these contracts at the end of the three-year term.  Having regard to the change in composition of the Board that took place in November 2002, and the very different approach to research and development espoused by the group that assumed control of AWI thereafter, the prospects of renewal of any of the Imaginate projects were slim.  I also have regard to that part of Dr Swan’s evidence concerning the technical difficulties that the applicants would have had to overcome in order to produce a commercially viable product.  The Imaginate project was a high-risk venture with a relatively small chance of success.  I think it unlikely that it would have gone beyond the three years contemplated. 

13. Nonetheless, the authorities make it clear that an applicant is entitled to recover damages for a lost chance provided that it can be causally linked to a breach of contract.  Recovery extends to the loss of a chance that was not promised but would nevertheless have been created by performance of the contract provided only that the loss was foreseeable as a result of the breach.  Damages are assessed by reference to the prospect of success.  Damages have been recognised as available for loss of a chance of renewing a contract:  Commonwealth v Amman Aviation at 92, 94 and 102. 

14. In Cheshire and Fifoot, the learned authors suggest at [23.15] that it is not necessary to establish that the chance would probably have been realised.  It has been suggested that a one per cent chance may give rise to an entitlement to compensation:  Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 at 643 per Deane, Gaudron and McHugh JJ. The idea that a one per cent chance would be other than “speculative” might strike some as odd, but that seems to have been the view of the High Court in Malec.  See also Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349, L’Huillier v State of Victoria [1996] 2 VR 465 at 485, and Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 in which a ten per cent chance was held to be compensable.

15. If the chance is so low as to be regarded as speculative, say less than one per cent, the Court will disregard it in assessing damages.  However, any chance that is not so nebulous as to fall within that description should be taken into account. 

16. According to Cheshire and Fifoot, while percentage figures are commonly used, it is not essential for a court to express a percentage of possibility, or probability, in calculating the amount of an award.  The Court is entitled to take a global approach and to award a lump sum:  Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 505-7; and Glenmount Investments Pty Ltd v O’Loughlin (2000) 79 SASR 185 at 284.

17. Having concluded that there was a realistic chance, albeit a slender one, that these contracts would have been renewed, and being satisfied that the breach relied on caused the loss of that chance, I consider that it would be just to award the applicants damages for that loss of chance.  If I were forced to express the chance of renewal in percentage terms, I would fix upon a figure of approximately ten per cent.  However, I prefer to take a global approach, and to award each applicant a lump sum.  Doing the best that I can, I fix an amount of $40,000 for each applicant for this component of their respective claims. 

18. The final limb of each claim in relation to breach of contract is based upon the lost chance of profiting from the value of the equity in Imaginate.  Here, it must be recalled that it was a term of the contract that the applicants would receive a minimum of eighteen per cent of the profits to be derived by Imaginate, rising to a maximum of thirty per cent in the event that certain performance indicators were met. 

19. Based upon these figures, the applicants submitted that for each of them, their losses could be calculated as follows:

    “Lost value of minimum 18% to maximum 30% equity in Imaginate Pty Ltd:
               Expected price of OFFM measuring device $2,000
               20,000 growers in Australia
               Potential market in Australia 2000 x 20,000 = $40,000,000
               Assume 50% market penetration = $20,000,000 gross sales
               Assume 10% profit margin = $2,000,000

    Expected software licence fee $1,000
               Assume 50% market penetration = $10,000,000 gross sales
               Assume 50% profit margin = $5,000,000

    Access to internet site for wool sales @ $10 per bale
               3 million bales sold annually from Australia
               Potential revenue $30,000,000 per annum
               Assume 50% profit margin = $15,000,000

    Profit in 1^st year:  $22,000,000

    Profit in 2^nd year:  say $7,500,000
               Retained earnings say $27.5 million

    Value of 18% shareholdings = $4,950,000
    Value of 30% shareholdings = $8,250,000

    Discounted for contingency say 30%:

    18%  $3,465,000
    30%  $5,775,000”

20. AWI submitted that this aspect of the applicants’ claim should be summarily rejected.  In the first place, the figures upon which the potential profit for each component of the project had been calculated were illusory.  There was no independent evidence to support any of them.  In addition, the projects were high risk, and should not be discounted by a mere thirty per cent for contingency, but rather by a figure approaching one hundred per cent.  That was because the chance that Imaginate would have derived any profits whatsoever was negligible.  AWI’s calculation of the damages to be awarded to the applicants if the claim for breach of contract succeeded was $353,496 less $105,350 for Mr Macdonald, making a total of $248,146, and $293,228 for Mr Allan.

21. In my view, there was a chance that one or more of the Imaginate projects would have generated profits.  Had it done so, within a three-year period, the applicants’ equity in Imaginate might have been worth something.  However, they bore the onus of establishing the value of the lost opportunity.  Their evidence on that issue was tenuous, and far and away the weakest aspect of their case. 

22. That does not relieve me of the task of fixing a value upon the lost opportunity provided it was occasioned by the breach, and not wholly speculative.  I think that the applicants’ claim in relation to lost profits was largely “blue sky”.  It was worth something, but nowhere near the amount sought.  Based upon the evidence as a whole, I think justice will be done if each applicant receives an amount of $50,000 to compensate for this component of his claim. 

23. It should be noted that AWI submitted that any amount awarded to the applicants should be reduced because neither had taken reasonable steps to mitigate his loss.  I reject that submission.  In my view, both Mr Macdonald and Mr Allan took reasonable steps to find suitable alternative employment but regrettably were unable to do so. 

24. It should also be noted that AWI submitted that any claim for loss of salary should be limited by reference to an implied notice period for termination, since loss in relation to any greater period of time was too remote, and not in the contemplation of the parties at the time of entry into the contract.  In that regard, my attention was drawn to the draft key services contract that was prepared for AWI by Allens Arthur Robinson on 23 October 2002. Clause 14 of that draft contract contained various termination provisions, including a term that, after the first month, either party could terminate at any time by giving six months’ notice in writing.  AWI submitted, in the alternative, that even if there were no evidence regarding such a term, termination on reasonable notice would be an implied term. 

25. AWI also submitted that any damages recoverable for breach of contract should be reduced because of the possibility that other contingencies might occur, including projects not achieving applicable performance milestones when reviewed.  Alternatively, there was a chance that the review of Imaginate scheduled for the middle of the third year would be unfavourable, leading to the use of the “kill switch” to terminate the project.  There were also other theoretical possibilities, such as Mr Macdonald’s employment being terminated because of his ill health. 

26. I reject each of these submissions.  In my view, AWI’s reliance upon a “reasonable period” of notice for termination was misconceived.  The applicants are not suing any employer for wrongful dismissal.  Imaginate was never incorporated.  The “reasonable period” principle seems to me to have no application to their claim in contract against AWI.  In addition, although a similar clause was inserted into the draft contract, no such term was ever discussed or agreed.  It cannot be implied because to do so would be inconsistent with the express terms of the three-year contract:  Ikin v The Danish Club ‘Dannebrog’ Inc [2001] VSCA 123.

27. It follows that Mr Macdonald is entitled to damages in the sum of $358,774, to which should be added $59,400 for superannuation.  In addition, he is entitled to damages in the sum of $40,000 for the loss of a chance to have his contract renewed, and $50,000 for the loss of a chance to earn profit through the shareholding that he was to be given in Imaginate.  That makes a total of $508,174. 

28. From that figure, there should be deducted a sum of $105,350, which Mr Macdonald received from Amcor by way of a redundancy or retrenchment payment.  He negotiated that payment on two bases.  One was that he had become ill and could no longer continue in his employment.  The second was that in any event the role that he had been fulfilling at Amcor had become redundant by reason of structural changes in that company.  He was not entitled to that sum, or indeed any redundancy or retrenchment payment.  He left Amcor, in his own words, “because of an opportunity”.  He would not have benefited from that payment had he not contracted with AWI to develop the Imaginate project.  Accordingly, Mr Macdonald is entitled to $402,824 as damages for breach of contract.

29. In Mr Allan’s case, he is entitled to damages in the sum of $471,107, to which should be added $59,400 for superannuation.  In addition, he is entitled to damages in the sum of $40,000 for the loss of a chance to have his contract renewed, and $50,000 for the loss of a chance to earn profit through the shareholding that he was to be given in Imaginate.  In his case, there was no redundancy payment, and therefore no amount to be deducted from his award of damages.  Accordingly, Mr Allan is entitled to $620,507 as damages for breach of contract. 

    THE ALTERNATIVE CLAIMS

30. Having regard to my conclusion that the applicants have established their claims against AWI in relation to breach of contract, and bearing in mind that the alternative claims under ss 52 and 51AC of the Act would result in lesser damages, it might be thought to be unnecessary to deal with those alternative claims.

31. Nonetheless, each party put forward detailed submissions on the s 52 claim, and shorter but still helpful submissions regarding unconscionability. In the circumstances, I think it appropriate to set out briefly my conclusions in relation to those claims.

32. Section 52 relevantly provides:

    “(1)     A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

33. Section 51AC relevantly provides:

    “(1)     A corporation must not, in trade or commerce, in connection with:

    (a)the supply or possible supply of goods or services to a person

    (other than a listed public company); or

    (b)the acquisition or possible acquisition of goods or services

    from a person (other than a listed public company);

    engage in conduct that is, in all the circumstances, unconscionable.”

34. Section 51A is an evidentiary provision that applies in relation to claims of misleading or deceptive conduct. It does not, of itself, create a cause of action, nor does it define a norm of conduct. What it does, in a practical sense, in cases where it applies, is to cast the onus of proof upon the respondent corporation that has made a representation about a future matter to show that in making that representation it had reasonable grounds for doing so. The section relevantly provides:

    “(1)For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

    (2)For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.”

35. Turning to the facts of the present case, the applicants submitted that they had relied upon Mr Dorber’s representations that the project would go ahead, and were induced by those representations to leave their secure long-term employment.  Mr Dorber agreed, under cross-examination, that he intended that, and that it was reasonable for, the applicants to have left their employment as early as 6 August 2002, relying upon his letter of that date. 

1. In relation to their claims of unconscionability, the applicants submitted that the “special disadvantage” required for a finding of that nature could be constitutional (age, mental or physical illness) or situational:  Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at 318, and Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 (“ACCC v Berbatis”) at [9]-[10].  They submitted that their special disadvantage at the time of the unconscionable conduct was situational, that is by reason of their having left, or being in the process of leaving, Amcor (to AWI’s knowledge, and indeed at its urging). 

2. With regard to the remedies available under the Act, the applicants submitted that the object of awarding damages under ss 82 and 87 was to place an applicant in the position that he or she would have been but for the respondent’s contraventions of the Act: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526. In the case of each applicant, it was submitted that the lost income and benefits from his position at Amcor, together with five per cent annual increases on base salary and consequential increases in superannuation and bonuses, ought to be the subject of compensation.

3. AWI submitted that the applicants had failed to establish that it had engaged in misleading or deceptive conduct. It noted that the representations pleaded as giving rise to breaches of s 52 were set out in almost identical terms to the terms of the agreement pleaded by the applicants. Importantly, the matters set out in the pleaded representations were not set out in Mr Dorber’s letter of 6 August 2002. Despite this, the applicants had pleaded that the representations, in so far as they were in writing, were contained in that letter.

4. So far as Mr Allan was concerned, it was submitted that he could not have relied upon any of the alleged representations since he gave notice to Amcor on or about 6 August 2002.  That was well before either the 27 August 2002 meeting, or any communication by Mr Dorber to Mr Macdonald that the AWI Board had given its approval.  In any event, it was submitted that both applicants were keen to leave Amcor because of the structural changes that it was undergoing and, in Mr Macdonald’s case, because of his ill health. 

5. AWI submitted that if the applicants did rely on any representations as alleged, such reliance was not based on reasonable grounds.  The applicants were well aware that written agreements were to be prepared.  They knew that several important matters had not been agreed at the meeting on 27 August 2002.  They acted foolishly in severing their ties with Amcor before they had an ironclad agreement in place with AWI. 

6. With regard to damages, AWI submitted that compensation for breach of s 52 was for reliance loss only. In the present case, AWI submitted that Mr Macdonald’s correct measure of damages would be $160,066 less the $105,350 that he had wrongfully obtained from Amcor, making a total of $54,716. In Mr Allan’s case, the suggested figure was $99,798.

7. AWI submitted that there was nothing to suggest that it had acted in any way unconscionably in its dealings with the applicants. In particular, it submitted that it had not taken unconscientious advantage of the applicants’ disabling condition or circumstances, or their special disadvantage. It relied upon the well understood equitable doctrine that formed the basis for Pt IVA of the Act whereby unconscionability was said to involve a party who suffers from special disability, or is placed in some special situation of disadvantage, and an “unconscionable” taking advantage of that disability or disadvantage by another: Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 and 474; and Louth v Diprose (1992) 175 CLR 621 at 637. Importantly, the doctrine did not apply simply because one party had made a poor bargain. See generally ACCC v Berbatis at [5]-[16] per Gleeson CJ.

8. In my view, the applicants’ claim that AWI engaged in misleading or deceptive conduct and thereby induced them to act to their detriment has not been made out. The representations pleaded are all essentially promissory in nature. That means that AWI has the onus of proof, in accordance with s 51A. In Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179, Goldberg J said at 54,432 that the section threw the evidentiary burden, but not the legal burden, upon the respondent. In practical terms, that means that AWI will be deemed not to have had reasonable grounds for making the representations that it did unless it adduces evidence to show that it had reasonable grounds for doing so.

9. I am satisfied that all of the representations pleaded were made.  However, in my view, AWI has adduced sufficient evidence to show that, at the time those representations were made, it had reasonable grounds for believing that they were true.  Mr Dorber was an enthusiastic proponent of the Imaginate project from its inception in August 2002 until late October, when he received Dr Swan’s memorandum.  The idea that the project might nit go ahead was the furthest thing from his mind.  No one could have anticipated Mr Waldthausen’s intrusion into the process, or that Dr Swan would so radically alter his view about Imaginate’s viability.  Nor could anyone have foreseen, when the representations were made, that the entire Board of AWI would shortly be removed, and replaced by one that would be far less receptive to a project of the type proposed by the applicants. 

10. It must be noted that all of the representations relied upon were made in August and September 2002. Nothing changed until Mr Waldthausen came on the scene. By then, the applicants had left Amcor, and the damage was done. It follows that to the extent that the applicants relied upon a claim under s 52, they failed to make good that claim.

11. The applicants also failed to make good their other alternative claim under s 51AC. There was nothing to suggest that they laboured under any special disability, or were placed in some special situation of disadvantage. They were both intelligent and experienced men, professional and highly educated, perfectly well able to look after their own interests. In hindsight, they acted with perhaps less prudence than they might have done. That is a far cry from making good a claim of unconscionability.

12. It goes without saying that Mr Dorber’s opinion that AWI had acted unconscionably towards the applicants by failing to discharge its obligations under the contract has no particular legal significance. Any promise that is deliberately broken could easily be characterised as “unconscionable”. That is not the sense in which the term is used in s 51AC.

13. It follows that had the applicants relied solely upon their claim of unconscionability, they would have failed. 

    ORDERS

14. Each applicant has claimed interest on any judgment that might be made in his favour.  The amount in question will have to be calculated.  In addition, there may be an issue in relation to costs.  I therefore propose to defer making final orders in this proceeding until the parties have had a chance to consider my reasons for judgment.  I will simply direct that the parties provide draft orders to give effect to these reasons for judgment, and file written submissions on the question of costs.  Should the parties wish to be heard on either of these issues, there will be liberty to apply. 

I certify that the preceding two hundred and eighty-two (282) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Associate:

Dated:             18 February 2005

Counsel for the Applicants:	Mr C. Gunst QC with Mr S.W. Stuckey
Solicitors for the Applicants:	Soccio and Zito until 18 January 2005 Ferdinand Zito & Associates from 18 January 2005
Counsel for the Respondent:	Mr C.C. Macaulay SC with Mr S.H. Parmenter
Solicitors for the Respondent:	Deacons
Date of Hearing:	7, 8, 9, 10 and 11 June 2004 and 6, 7 and 8 September 2004
Date of Judgment:	18 February 2005