Premier Protection Agency (Aust) Pty Ltd v Australian Securities Investments Commission

[2022] NSWSC 374

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Premier Protection Agency (Aust) Pty Ltd v Australian Securities Investments Commission [2022] NSWSC 374

Hearing dates:

25 May 2021, 7, 8, 9, 10 & 11 June 2021

Date of orders:

1 April 2022

Decision date:

01 April 2022

Jurisdiction:

Equity

Before:

Slattery J

Decision:

The plaintiff’s claim is dismissed. Cross claim for misleading and deceptive conduct made out and parties to provide short minutes of order. Plaintiff ordered to pay the defendant’s costs of the proceedings. Liberty to apply granted for 14 days should either party seek a special costs order.

Catchwords:

CONTRACT - economic duress – unconscionable conduct – the plaintiff supplies security vetting services to the defendant pursuant to a contract – plaintiff alleges the defendant’s officers forced the plaintiff to accept the termination of the contract by threatening conduct that was unconscionable and that amounted to economic duress – defendant denies its officers engaging in the conduct alleged – whether the defendant’s officers engaged in conduct alleged – whether the conduct was unconscionable or amounted to economic duress – what consequences flow from a finding that the defendant’s officers engaged in unconscionable conduct amounting to economic duress. HELD: – the defendant’s officers did not engage either in unconscionable conduct or conduct amounting to economic duress.

CONSUMER LAW – Misleading or deceptive conduct – reliance – where the plaintiff claims economic duress and the defendant cross-claims for misleading and deceptive conduct – whether the cross defendant engaged in misleading and deceptive conduct - the cross-defendant fails to disclose Australian Tax Office debts of an associated entity to the cross-claimant – whether the cross defendant misrepresented the reasons for a company restructure – the cross-claimant enters negotiations with the cross-defendant – whether the cross claimant relied upon the cross defendants’ misleading and deceptive conduct – whether any relief should be given in light of the dismissal of the plaintiff/cross-defendant’s claim.

Legislation Cited:

Australian Consumer Law, s 237

Financial Management and Accountability Act 1997, s 44

Superannuation Guarantee (Administration) Act 1992

Cases Cited:

Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) NSWLR 40

Macquarie Bank Ltd v Sixty Fourth ThronePty Ltd (1998) 3 VR 133

Category:

Principal judgment

Parties:

Plaintiff: Premier Protection Agency (Aust) Pty Ltd
Defendant: Australian Securities and Investments Commission

Representation:

Counsel:
Plaintiff: R. Marshall SC; D. Aquilina
Defendant: A. Mitchelmore SC; E. Ball

Solicitors:
Plaintiff: Longton Legal
Defendant: Ashurst

File Number(s):

2018/379558

Publication restriction:

No

Judgment

1. Public sector employees of the Commonwealth of Australia and service providers to the Commonwealth are vetted for security clearances appropriate to their work for the Commonwealth and its agencies. Security clearance vetting services (“security vetting services") include the scrutiny of the finances, family members, relationship history, travel history, and any personal, business, corporate and trust associations of a person under scrutiny.

2. In 2016 pursuant to several written contracts the plaintiff/cross-defendant, Premier Protection Agency (Aust) Pty Ltd (“New Premier”), were providing security vetting services to various Commonwealth Government departments and agencies, including the defendant/cross claimant, the Australian Securities and Investments Commission (“ASIC”).

3. The central question in these proceedings, raised in New Premier’s Second Further Amended Statement of Claim is whether during a telephone conference call in November 2016 officers of ASIC engaged in unconscionable conduct, or conduct amounting to economic duress, which forced New Premier’s officers to accept the termination of New Premier’s contracts with ASIC. New Premier claims that it has suffered loss and damage as a result of such unconscionable conduct and economic duress, namely the profits it would have made from the unexpired portion of its contracts.

4. New Premier contends, and ASIC denies, that such conduct occurred. In these reasons the Court concludes that the impugned conduct did not occur. Rather the Court finds that in the tense circumstances of the November 2016 conference call the officers of New Premier, somewhat understandably given the imperfect nature of the medium, misinterpreted what was being communicated to them. The ASIC officers’ communications to New Premier’s officers comprised neither unconscionable conduct nor economic duress.

5. In a defensive strategy, ASIC brings a Further Amended Statement of Cross Claim, alleging that New Premier misled it and thereby induced it to enter the very same contracts, which New Premier says were wrongfully terminated by ASIC’s conduct. ASIC does not claim damages on its cross claim but merely claims relief by way of rescission of the contracts for New Premier’s misleading and deceptive conduct. The Court’s findings on New Premier’s principal claim means that it is not necessary for the court to grant relief upon ASIC’s cross claim. These reasons include some findings and analysis in relation to the cross claim.

6. Further background is useful. New Premier was incorporated on 15 January 2013. Its principal, Mr Robert Martorano and his staff, had provided security vetting services to Commonwealth agencies for many years before January 2013 through a different corporate vehicle, Premier Protection Agency Pty Limited (referred to for convenience in these proceedings as “Old Premier”).

7. Early in its business development Old Premier had provided security services to hotels, clubs and for events. It later ventured into government contracts to provide security services and then into personnel security vetting services. Mr Martorano was a director of Old Premier from the date of its incorporation on 9 May 1997 through until 17 January 2013, when he transferred his shares to a friend and business associate, Mr Steven Davies, for a consideration of $30. Mr Martorano has been the sole director and secretary of New Premier since 15 January 2013.

8. Two days after New Premier’s incorporation, it acquired Old Premier’s business. Just over a year later, on 7 February 2014, Old Premier’s members resolved to place it into voluntary liquidation.

9. From 2002 until 24 November 2016, ASIC had been Old Premier’s, and then New Premier’s second largest client. But in late October 2016, the Australian Federal Police (“AFP”) notified ASIC that it was investigating individuals associated with Old Premier and New Premier for their possible connections with outlaw motorcycle gangs, frauds against the Commonwealth, phoenix activity and tax evasion. Once the AFP had executed search warrants in connection with this investigation, ASIC sought to terminate the four then active contracts between New Premier and ASIC by mutual agreement. At 11am on 24 November 2016 the telephone conference call took place between representatives of ASIC and New Premier. By 1.28pm that day New Premier had emailed its signed agreement to terminate the active contracts (“the termination agreement”).

10. New Premier contends that it signed the termination agreement under economic duress. It alleges that during the conference call ASIC officers threatened that, were New Premier not to sign the termination agreement: (1) New Premier would be “black marked” from all federal government work; and (2) ASIC would pursue New Premier for ASIC’s costs of finding a replacement security vetting services provider.

11. By its Second Further Amended Statement of Claim filed 1 June 2021, New Premier seeks declarations and $312,469.81 in damages plus interest. The following declarations are sought: (i) that New Premier’s signed agreement to the termination agreement is not binding as it was procured by duress; (ii) the termination agreement is void ab initio; (iii) the contracts were wrongfully terminated; and (iv) the wrongful terminations of the contracts amounted to a repudiation of the contracts, entitling New Premier to now terminate them.

12. In its Amended Defence filed 30 April 2020, ASIC denies making any threats or engaging in any wrongdoing. And it argues it was otherwise entitled to terminate the contracts under express termination for convenience clauses, clause 28.1 in each of the contracts.

13. In its Further Amended Statement of Cross-Claim, ASIC also argues that New Premier engaged in misleading and deceptive conduct before entering into a contractual relationship with ASIC. It seeks orders under Australian Consumer Law, s 237, alleging that New Premier is in fact a phoenix corporation and failed to disclose to it that Old Premier had significant liabilities to the Australian Tax Office (“ATO”). New Premier in turn says that ASIC could have accessed its own records to find out information about and determine the status of Old Premier.

14. These proceedings were heard over five days commencing 7 June 2021, after a pre-trial directions hearing on 25 May 2021. Mr R. Marshall SC appeared with D. Aquilina of counsel for the plaintiff. Ms A. Mitchelmore SC appeared with E. Ball of counsel for the defendant.

15. This judgment will first set out its findings on issues of witness credibility. It will then set out a narrative of the relevant history. This narrative represents the Court’s findings on the matters covered, except to the extent that the context indicates that only the parties’ allegations are being recorded. For reasons of economy this narrative does not always include reference to versions of the facts that have been rejected.

Witness Credibility

16. Robert Martorano. Mr Martorano was the principal director of Old Premier and then New Premier. Mr Martorano was a circumspect witness, who would not acknowledge his authorship of letters and documents that it is objectively probable that he wrote or signed. His credibility was further impaired when he either denied or professed an inability to say whether he had signed documents that he had most probably signed. Several times there was no credible explanation as to anyone else having signed the documents in question and his denials were in the face of the strong probabilities.

17. Mr Martorano disclaimed knowledge of many of Old Premier’s dealings with the ATO, such as putting in Business Activity Statements (“BAS”) on its behalf. At one point he implausibly blamed his accountant for misleading him or for fraudulently signing his signature on documents that he did not acknowledge were his.

18. His answers were frequently vague, and at times he professed poor recollection of the detail of events. But some of the detail that he could not apparently recall included his involvement in dealing with significant amounts of money that it should be expected he should have been able to recall.

19. He nevertheless had a reasonable recollection of aspects of the critical conference call of 24 November 2016. But these reasons find aspects of that recollection were somewhat distorted by his approach to the meeting and how he perceived what was said to him. The Court generally approached his evidence with caution.

20. Steven Davies. Mr Davies is a former member of the AFP, who formed Old Premier with Mr Martorano in the late 1990s. He took a transfer of old Premier’s shares from Mr Martorano run in January 2013 and joined new Premier as an employee in February 2014. He was principally responsible for preparing tenders on behalf of New Premier. Whether tenders he prepared were misleading was an issue in the proceedings. Mr Davies was a poor witness. Like Mr Martorano, he could not confirm or deny that signatures written above his name on tenders and other documents were his signature. He at times hedged his answers, apparently conscious that he may need an escape route in case future questions placed him in a difficult position.

21. Garry Fenton. Mr Fenton is a Senior Business Analyst at Corporate Scorecard Pty Ltd (“Corporate Scorecard”), the company engaged by ASIC to assess companies, including New Premier, during the tender process for security vetting services contracts. Mr Fenton was an excellent witness. He answered questions directly and with the clear objective of assisting the Court. He made concessions when his memory of events was incomplete, but he gave reliable evidence on the matters he could recall and about his general practice in assessing companies tendering to provide services to ASIC. His evidence is accepted.

22. Carlos Iglesias. Between December 2008 and January 2019 Mr Iglesias was the Chief of Operations for ASIC. Before this role he held other executive roles at ASIC since 1994. Between January 2019 and December 2019, he was Executive Director of Operations. He retired from ASIC on 31 March 2020. He was responsible for overseeing ASIC procurement processes, including ASIC’s contracts with service providers such as New Premier.

23. Mr Iglesias was ASIC’s principal representative during the contested conference call on 24 November 2016. Mr Iglesias was a good witness. His memory of the critical conversation on 24 November 2016 was imperfect. But he candidly acknowledged the limits of his memory, and he was careful to keep his evidence within the guide rails of what he could remember. This gave the Court confidence in his reliability as a witness. He answered questions honestly and did not distort his answers to favour his version of events, a version which was generally consistent with the objective contemporaneous materials.

24. Mr Iglesias was firm in denying that he made certain statements attributed to him by New Premier during the 24 November 2016 conference call. His rejection that he made these various statements is credible and based upon memory of what he did not say. He could remember that he did not make the controversial “black mark” statement Mr Martorano attributed to him. His evidence is mostly accepted.

25. Brett James. Commander James is an AFP officer who since August 2016 has overseen Operation Spearfelt, an operation which included investigating New Premier and liaising with ASIC in October and November 2016. He gained credibility by conceding what he could not recall. But his recollection was at times vague. For example, he was required to correct his answers over some reasonably significant details, such as whether an individual had been convicted. His evidence is mostly accepted.

26. Rashpal Hartmann. Ms Hartmann is a Commission Counsel at ASIC. She was present during the 24 November 2016 conference call. Before that call she drafted the script proposed to be used by Mr Iglesias in speaking to Mr Mortorano. The script itself tends to show the thoroughness of her approach to her work. As the conference call unfolded, she made a detailed file note of the conversation between the active speaking participants, noting the variation between her script and what was said. At the hearing she explained her handwritten annotations to the script. Ms Hartmann was a highly credible witness, whose evidence Court wholly accepts.

Old Premier, New Premier and ASIC – 1997 to 2018

The Foundation and Development of Old Premier – 1997 to 2012

27. The AFP offered Mr Davies a redundancy package in November 1997. For about eight years before that he had worked in the AFP’s Australian Protection Service, which had provided security services. Drawing upon this expertise Mr Davies and a friend of his, Mr Carl Bachner, decided to start a security business to provide services to the Whitlam Sport and Leisure Centre in Liverpool. In May 1997 they incorporated a vehicle through which they intended to conduct this new business, MagTek Security & Investigations Pty Ltd. During 1997 and 1998 Mr Martorano and Mr Davies became directors of the company together with other associates, Mr Carl Bachner, Mr Anthony Arena, Mr Anthony Harris and Mr Robert Harvey. The company changed its name to Premier Protection Agency Pty Ltd on 30 April 1998.

28. Old Premier carried on business providing security and personnel vetting services to its customers who carried on business in a variety of industries including, as Mr Martorano described them, “pubs, clubs and events” before later providing services to public sector agencies. Old Premier first began providing services to ASIC in 1998, supervising cleaners and other contractors at ASIC’s premises. These services included, for example, supervising and escorting removalists, when ASIC relocated from King Street, Sydney to No. 1 Martin Place Sydney in 1999. Old Premier’s work was supervised by Mr Wayne Brilley, then the head of ASIC’s Risk Management Unit.

29. But some of Old Premier’s business contacts from these early times became the subject of later investigation. During 1999 or 2000, Old Premier subcontracted some of its regular ASIC relocation work to a business known as “7 Star Security”. Mr Martorano met Mr Mahmoud Daher (also known as Michael Daher), when he did casual work for Old Premier through 7 Star Security during ASIC’s relocation to No. 1 Martin Place Sydney. Between 2001 and July 2006, Mr Daher worked casually for Old Premier until he gained employment directly with ASIC.

30. Between 2002 and 2010, ASIC contracted Old Premier as one of the private security firms providing to ASIC security vetting services for potential employees and providing security guards at ASIC sites. By July 2010, Old Premier had won a contract with the Australian Government Security Vetting Agency (AGSVA) to provide vetting services for the Department of Defence. As Mr Martorano put it in his written evidence, by the end of the year, Old Premier had:

“two or three vetting employees doing mini-baseline clearances for ASIC personnel on ASIC’s premises; At the same time [Old Premier] had about five of its own assessing officers in [Old Premier’s] offices doing vetting for AGSVA. [Old Premier] also performed security work for private enterprises such as providing security guards for pubs”.

31. But in 2009, Old Premier began to engage in conduct which would later be investigated. That year it stopped submitting its BAS forms and stopped making PAYG tax payments and payments on its superannuation guarantee obligations to the ATO. The Court does not have to examine why this conduct commenced, but it undoubtedly did.

32. In 2012, Mr Martorano says that he had a conversation with Mr Davies to the following effect:

Mr Martorano: “I’m going to eventually end all the work I do with pubs, clubs and function centres and concentrate purely on corporate and government work including on a national basis."

Mr Davies:   "Well, there's still money to be made in pubs and clubs. I could still do it."

Mr Martorano: "Well, you could take over PPA, I'll start something new and do the corporate and government and you can do pubs, clubs and events and become an accredited [Registered Training Organisation (RTO)] through PPA."

Mr Davies:    "That's a great idea. I'll take over PPA. We can refer work to each other."

33. The Court does not accept that such a conversation occurred between Mr Davies and Mr Martorano at this time. Mr Martorano may perhaps have been partially motivated to exit Old Premier, leave the pubs and clubs work behind and concentrate on government contracts. But what followed does not readily fit such a simple motive. A better explanation is that Mr Montanaro was seeking to distance himself from Old Premier’s problems. Old Premier was already substantially in default to the ATO in its tax and superannuation reporting and payment obligations. Mr Martorano decided to shed himself of Old Premier’s looming tax problems by mid to late 2012.

34. On 30 November 2012, the ATO wrote to Old Premier notifying the company that a garnishee notice had been issued to a Westpac Bank account for $53,661.32 to execute in respect of money Old Premier owed to the ATO. The amounts outstanding to the ATO were, and grew to be, far greater than this sum. At the date of Old Premier’s liquidation on 7 February 2014, the running balance account deficit debt in respect of the BAS amounts was $764,700.90 and the unpaid superannuation guarantee charges up to that time were $296,932.57. Together with penalties the total amount due on account of these liabilities to the ATO well exceeded $1 million. On both parties’ version of their subsequent dealings, at no time did New Premier notify ASIC that Old Premier had substantial ATO liabilities.

The Incorporation of New Premier – January 2013

35. New Premier was incorporated on 15 January 2013. Mr Martorano became its sole shareholder and director. As earlier indicated pursuant to a written agreement dated 23 January 2013 (“the Old Premier share transfer”), Mr Martorano transferred his 30 ordinary shares in Old Premier to Mr Davies for $30. The written agreement backdated the settlement date to 17 January 2013, the date Mr Martorano says he ceased to be both a director, secretary, and shareholder of Old Premier. But after 17 January 2013 he continued to lodge paperwork on Old Premier’s behalf. In his written evidence, Mr Martorano explained his involvement with old Premier, “I also continued for a few months to help Steven Davies with PPA’s [Old Premier’s] work”.

36. At the time of the Old Premier share transfer, Old Premier’s tax returns were not up to date. The return for year ending 30 June 2012 (FY 12) had not been filed. In the past this work had been undertaken on Old Premier’s behalf by its longstanding accountants, who had access to the company’s bank accounts and general financial affairs. But Old Premier’s defaults were wider. Its BAS statements had not been filed since the beginning of FY10. And it had not met its superannuation guarantee (SG) obligations since the beginning of FY10. The ATO had calculated Pay-As-You-Go (PAYG) amounts commencing at the beginning of FY10 which had apparently not been paid, namely $45,048 for FY10, $81,823 for FY11, $126,825 for FY12 and $115,595 for FY13.

37. Mr Martorano gave another more complex account of these events in August 2015, when replying to questions from the liquidator of Old Premier. In this later account Mr Martonaro said that whilst no written agreement was made between himself and Mr Davies, the two friends made an oral agreement at the time that New Premier would purchase Old Premier’s business for $185,000. Mr Martorano says that New Premier paid this amount to Old Premier by means of 29 funds transfers to Old Premier between 17 June 2013 and 14 October 2013.

38. As will be seen Mr Martonaro abandoned this account at the trial. It is discussed later in these reasons but for one observation which is made now. A sale transaction for $185,000 as described does not appear to be commercial from Mr Montonaro’s perspective and appears to be unduly generous to Mr Davies. It would mean that between January and October 2013 Mr Mantonaro’s traded away control of Old Premier’s goodwill and potential earnings from “pubs clubs and function centres” for $30, through the January 2013 Old Premier share transfer. But over the next 10 months he claims would then have paid Old Premier $185,000 for the acquisition of the very same business. This hardly seems like an arm’s length transaction from his perspective.

39. The inference that the sale of Old Premier’s undertaking and business was uncommercial is further supported by Old Premier and New Premier using the same office premises in Moorebank, which were owned by Martorco Investments Pty Ltd (“Martorco”). No written lease existed between either Old Premier and Martorco, or New Premier and Martorco. Apparently, each company paid “rent, expenses and building outgoings” to Martorco. The precise relationship between the principals of Old Premier and New Premier and Mr Martonaro is unclear.

40. Old Premier was placed in liquidation early in 2014 in a creditors voluntary winding up. Mr Adam Shepard of Farnsworth Shepard was appointed as liquidator. Soon afterwards Mr Davies declared bankruptcy and became an employee of New Premier. Documents Mr Martonaro lodged in the liquidation reflect on the sale of Old Premier to Mr Davies. During the liquidation a questionnaire addressed to the company’s former directors and officers was completed in relation to Old Premier’s financial affairs. Mr Martonaro’s signature appears on this document. An extract of that questionnaire follows:

“70. When did you first become aware of the company’s financial difficulties?

[Answer]   Before I sold the company

71. What caused you to realise this? What did you do as a result?

[Answer]    ATO liability, sold the company.”

41. Mr Martonaro signed this document. The answer accurately reflects, and is an admission of, Mr Martonaro’s consciousness that Old Premier was in financial difficulties due to its ATO liabilities before the January 2013 Old Premier share sale to Mr Davies.

42. Mr Martonaro had an ambiguous continuing association with Old Premier after the January 2013 share sale. The company register for Old Premier indicated that he had ceased to be a director with an “effective date” of 17 January 2013, although this was in a document lodged with ASIC on 19 December 2013, some seven weeks before Old Premier was placed in liquidation. But Mr Martonaro was lodging other forms with ASIC as a director of Old Premier as late as 23 July 2013, further indicating that the share sale to Mr Davies was not a commercial arm’s length transaction. It is difficult to disagree with the preliminary opinion of the liquidator of Old Premier that the purpose of the January 2013 Old Premier share sale was to defeat that company’s creditors and to benefit New Premier. No evidence has emerged in these proceedings that really contradicts the liquidator’s preliminary view.

New Premier Begins to Replace Old Premier – May to November 2013

43. By May 2013, New Premier had prepared to launch its business case to government. It had obtained its Master Licence Certificate, under the Security Industry Act 1997 (Cth), taken out professional indemnity insurance, and probably public liability insurance, although Mr Martorano cannot locate the paperwork or recall who underwrote this policy. New Premier had also obtained access to CrimTrac, the nationwide criminal database of the Australian Criminal Intelligence Commission (“ACIC”). This allowed New Premier’s nominated authorised personnel to check criminal records and undertake security vetting.

44. Mr Martorano says that in about early May 2013 he had discussions with personnel at ASIC’s Sydney offices about transferring Old Premier’s contracts to his new company, New Premier. The Court is not persuaded that these alleged conversations took place exactly in the form in which Mr Martorano deposes. None of these individuals were called as witnesses during the hearing and no subpoenas were issued for them to appear to give evidence. But objective contemporaneous evidence indicates that conversations of this general type must have occurred with these individuals. By the end of July 2013 ASIC employees had begun to correspond with Mr Martonaro, care of New Premier, and were facilitating the renewal of Old Premier’s ASIC contracts to New Premier. Such an outcome is unlikely unless conversations of this type had occurred. But whatever the exact form of these conversations, the individual ASIC employees and officers with whom they were held had no appreciation at the time that Old Premier was in financial or compliance difficulties with the ATO.

45. Mr Martorano deposed to the following recollections of these alleged conversations, which were admitted into evidence only as to Mr Martorano’s recollection of what was said, rather than as evidence of the truth of any underlying facts stated by any participant.

46. Mr Martorano says he first had the following conversation with Mr Brilley in Mr Brilley’s office in early May 2013:

Mr Martorano: "I've started a new company called Premier Protection (Aust) Pty Ltd because I just want to focus on government and corporate client nationally, I don't want to be involved in pubs, clubs and events anymore. What do I need to do to transfer the contracts from Premier to the new company?"

Mr Brilley:   "You need to speak to Aaron Piltz to make the changes and he can novate the contracts over to your new company. You should also let Zanni Divola know."

47. Mr Martorano says he had the following exchange with Ms Zanni Divola, Security Adviser, Security Infrastructure and Security Services at ASIC and Elizabeth Youkhanna, who were managing Old Premier’s vetting staff at ASIC:

Mr Mortarano:   "Hi Zanno, I've just spoken to Wayne, I have a new company called Premier Protection Agency (Aust) Pty Ltd that's only going to do the government and corporate contracts nationally. Steven Davies is going to be running the old Premier. What details do I need to give you to move the vetting work over to my new company?"

Zanni Divola:    "Just send me the new company details and bank account and we'll put it in the system."

48. Mr Piltz was managing Old Premier’s security contract with ASIC in May 2013. Mr Martorano says he had a telephone conversation with Mr Piltz to the following effect in that same month:

Mr Martorano:   "Hi Aaron, I'm calling to let you know I've started another company called Premier Protection (Aust) Pty Ltd. I've started it for the purpose of taking the business nationally and solely focussing on government and corporate clients. Steven Davies is taking over Premier which will be doing other types of security services. What do I need to do for my new company to take over the work from Premier at ASIC?"

Aaron Piltz:   "Is there going to be a staff change and is there going to be a change in price?"

Mr Martorano:   "No change in staff and no change in price."

Aaron Piltz:   "Okay, just send me the new company details, insurances, master licences and the bank account details of your new company so that I can change things and start paying the right company."

Mr Martorano:   “Is there anything else I need to do?"

Aaron Piltz:   “As long as you give me the information, I will take care of it on our end. My main concern is to get from you the new information as soon as possible so your new company is in the system ready to process its invoices."

49. Mr Martorano says that he sent the information Mr Pilitz requested of him via email. Mr Martonaro was unable to produce any emails prior to August 2015, when he says his email service provider lost all Old Premier’s old emails. He says that Old Premier’s security contract and personnel vetting contracts held at that time were updated to be in New Premier’s name. ASIC paid New Premier’s invoices from 13 May 2013. It is not in dispute, and the Court accepts, that ASIC started to pay and contact New Premier, rather than Old Premier.

50. The Court accepts that Mr Martorano explained to Mr Brilley, Ms Divola and Mr Piliz that he had started a new company, New Premier, which would take over the contracts Old Premier held with ASIC. He must have since ASIC concedes that it started to pay and to contact New Premier instead of Old Premier from around 13 May 2013. Perhaps the contract was officially novated and the parties were unable to locate the paperwork. But the more likely analysis is suggested by Mr Martorano’s evidence of his conversations with Mr Brilley, Ms Divola and Mr Piltz, ASIC’s contact details and bank details for Old Premier were merely updated to reflect the change to New Premier, with higher up ASIC management being unaware of the change.

51. Mr Martorano was somewhat naive in his business operations. He engaged with ASIC in the same way he would a small business client. He had his primary contacts on the ground at ASIC, such as Mr Brilley and Mr Pilitz, with whom he had day-to-day contact and had built rapport over several years. To him, to tell Mr Brilley or Mr Pilitz information was to give ASIC that information.

52. Mr Martorano claims he had conversations to similar effect with other government agencies. In July 2013, Mr Martorano says he had a conversation to the following effect with Ashleigh Connors at CrimTrac to the following effect:

Mr Martorano:   "Hi Ashleigh, I have CrimTrac access under PPA and I'm calling to let you know I've started a new company Called Premier Protection Agency (Aust) Pty Ltd and I want to know how I can have the CrimTrac contract moved over from the old company to Premier?"

Ashleigh:   "Send me your new company details and I can novate the contract. This won't be a problem as it's happened with other companies before."

Mr Martorano:   "Steve Davies also has CrimTrac access under the old company who will be still doing police checks for my new company. Can we still use our current access in the meantime?"

Ashleigh:   "Yes, no problem."

53. Several emails between Mr Martorano and CrimTrac personnel concerning the new “company details” for Premier are in evidence covering the period July to November 2013. In response to a query from a CrimTrac Agency accreditation officer on 5 November 2013, Mr Martonaro explained that the reason for the change was that “the old company is no longer doing and (sic) government or vetting related services. It will continue to perform various security guarding services.” Once again, Mr Martonaro’s correspondence with CrimTrac does not disclose that Old Premier had any current financial or compliance difficulty with the ATO.

54. All security contracts made with ASIC prior to New Premier’s incorporation in 2013 were made with Old Premier. The detail of those contracts is otherwise not material to the issues in contest in these proceedings. But the various contracts made with New Premier from late 2013 are examined below.

55. Mr Martorano’s conversations with ASIC personnel convinced ASIC personnel to correspond with New Premier. On 1 August 2013 ASIC wrote a letter to New Premier (rather than Old Premier the true contracting party) for Mr Martorano’s attention, seeking to vary the existing security contract in a minor respect. Mr Martorano signed this agreement and dated it the same day.

56. On 14 August 2013, ASIC sent another letter addressed to New Premier for Mr Martorano’s attention. This letter noted (mistaking the identity of the original contracting party with ASIC) that the security contract between ASIC and New Premier was due to expire on 1 September 2013 and stated, “…ASIC would like to exercise the first option in this Contract for a further period of one year and continue with the services for the Provision of Security Services Sydney until the 31 August 2013.” On 15 August 2013 Mr Martorano signed and dated this document, accepting the extension of the existing agreement for one year.

ASIC Requests a Tender for Personnel Services – October 2013 to May 2014

57. In October 2013, ASIC issued a Request for Tender sub-titled, “Panel Arrangement - Provision of Temporary Personnel for ASIC's Risk and Security Services”. It was a Request for Tender for two services. The first was “Tender for Service 1 – Pre-Engagement Assessments & Personnel Security Services”. The second was “Tender for Service 2 – General Security Administrative Services”.

58. On 15 November 2013, New Premier tendered for both services. Mr Davies prepared New Premier’s tender except for costings, which was handled by Mr Martorano. When the tender was complete, on 15 November Mr Davies uploaded it to the AusTender website.

59. At the hearing, New Premier’s tender for these services was referred to as “the personnel tender” and will be referred to in the same way in these reasons. In the personnel tender, New Premier made several representations in respect of its relationship with Old Premier. The accuracy of these representations was important. The personnel tender, paragraph 9.3 noted:

“[t]he tenderer notes that giving false or misleading or deceptive information is a serious offence and confirms that all information in its tender is true and correct in every material respect”.

60. Under the heading “Capability”, question 3(c) of the personnel tender asked for “information demonstrating its understanding of the required services”. New Premier provided the following response, abbreviating its name to “PPA”:

“PPA is the current provider of such services to ASIC which gives us a clear understanding of the need to ensure that prospective employees have a certain level of integrity to have access to certain areas and documentation. PPA has been involved with Security Vetting at the highest level for over 13 years and provided such services to ASIC since 2003 to 2010 then AGSVA took over Nationally. PPA has provided security services at ASIC for the last 13 or so years and has developed a sound working relationship. We have in the past for ASIC provided support personnel to provide a range of administrative services in support of the Risk Management Unit whether that be just basic data entry, research or providing support for projects. This has enabled us to understand the workplace culture and the specific requirements of Management. We have had an ongoing unblemished 15-year relationship with ASIC where we have continually evolved to cater for the needs of the Client. Important to note are the small ad-hoc tasks not noted in any deed that we have been flexible enough as an organisation to carry out for ASIC.”

61. In this response, New Premier conflates its service history to ASIC wholly with that of Old Premier.

62. Then under the heading “Capacity”, question 3(h) of the personnel tender asked for “information on how long it has been in business”. New Premier provided the following response:

“Premier Protection Agency (Aust) Pty Limited in conjunction with it’s (sic) sister Company, Premier Protection Agency P/L has been operating for 16 years. (Since 1997)”

63. This answer was apt to give the impression Old Premier and New Premier had operated together for many years and were continuing to do so. At the hearing Mr Mortorano acknowledged the personnel tender was an important document but he said, “I didn’t read the document word-for-word, no”. He ultimately blamed Mr Davies for any inaccuracies in the document, as “he [Mr Davies] did 90% of the tender, I did only [the] costings”. When pressed whether he should have read the document more carefully Mr Mortorano said “…I’ve never had an issue with the documents previously, so I had complete faith in Steve’s ability…”.

64. As earlier indicated Old Premier went into liquidation on 7 February 2014. On 18 February 2014, the ATO wrote to Mr Davies, copying in the liquidator Farnsworth Shepard, notifying Mr Davies that an audit for compliance was being conducted in relation to PAYG withholding and, superannuation guarantee payments for the period 1 July 2009 to 30 June 2013 and fringe benefit taxes for the period 1 April 2012 to 31 March 2013.

65. Old Premier had continued not to meet its obligations to the ATO. On 24 February 2014, the ATO issued a balance of account statement to Old Premier that itemised the penalties (and interest) associated with Old Premier’s failure to lodge activity statements on time for the period from 7 February 2011 to 24 February 2014. The amount outstanding was $754,797.90. And on 6 March 2014, the ATO issued a Superannuation Account Statement to Old Premier indicating $522,416.07 in superannuation guarantees was owing for the period 18 February 2014 to 27 February 2014.

66. As might be expected, internal ASIC processes required an assessment of New Premier’s personnel tender. On 18 March 2014, ASIC’s internal procurement evaluation team produced for the consideration of Mr Iglesias a “Procurement Recommendation Report & Approval to Enter into Contract in Accordance with Section 44 of the FMA Act – Complex Recruitment” in relation New Premier’s November 2013 personnel tender. The procurement evaluation team did not include Mr Iglesias but the report was submitted to him for approval. The procurement evaluation team comprised, Ms Zanni Divola, and Mr Tony Haddad. The recommendation went through several personnel before reaching Mr Iglesias for final decision. He was not an evaluator but considered the evaluations of those below him.

67. The procurement recommendation report found, among other things, the following concerning New Premier:

“6.8 Premier Protection Agency (Aust) Pty Limited met all requirements for Services 1 and Services 2. They had the capability, capacity and provided value for money except for one rate that ASIC would not be utilising as this rate related to security clearance assessments as undertaken by AGSVA. In particular, they are able to prove security cleared staff who have experience in conducting security assessments to the level required by ASIC.

…

6.11 …Premier Protection Agency (Aust) Pty Ltd met both the capability and capacity criteria for the range of services required. …Premier Protection Agency (Aust) Pty Ltd propose to deliver the services using their own experienced staff.

…

6.12. In relation to pricing, the rate for an Assessment Officer to provide Services 1 was … $60.50 per hour for Premier Protection. The difference in rate is that Premier Protection offered staff with more experience and knowledge of the security clearance process.

…

6.13 Checks were undertaken on ASIC's registers and no significant risks were identified.

6.14 The evaluation team undertook a basic financial assessment of the shortlisted tenderers which included an analysis of the services that are paid for on invoice i.e. arrears, thus there are limited financial implications for ASIC if a provider should default in any way.” (emphasis added).

68. A handwritten addendum to the report dated 25 March 2014 says:

“…Premier staff that would be sufficient to ASIC have existing AGSVA clearances. [signature] 25.3.14”

69. The language of this assessment emphasises that New Premier presented a lack of significant risk, including financial risks for ASIC. As might be expected financial stability and reputational integrity were considerations in this assessment.

The Personnel Deed – May 2014

70. Mr Iglesias signed this assessment of New Premier’s personnel tender on 4 April 2014, in his capacity as ASIC’s Chief of Operations approving a recommendation to sign deeds of standing offer with New Premier. The approval section of the assessment itself indicates that by Mr Iglesias indicating his approval of the recommendation that he was satisfied that the procurement was undertaken in compliance with ASIC’s procurement policy and procedures and that it met the requirements of the Financial Management and Accountability Act 1997, s 44 to promote the efficient, effective, economical, and ethical use of Commonwealth resources. Mr Iglesias signed the document on this basis and with this belief on behalf of ASIC. The Court is satisfied Mr Iglesias relied upon information supplied by New Premier in the personnel tender, the information from which had been evaluated for presentation to him before he approved the decision to proceed to execution of a binding agreement on behalf of ASIC in respect of the personnel tender.

71. On 1 May 2014, ASIC and New Premier executed a Deed of Standing Offer in respect of the personnel tender (“the personnel deed”). The structure of the personnel deed was as follows. It is recorded that when the parties signed an order for the services to be provided under the personnel deed that the contractor, New Premier, would provide those services on the terms and conditions of the personnel deed. The personnel deed covered a wide range of terms and obligations, including its duration (clauses 3 and 5), the general obligations of the contractor (clause 4), that it operated as a standing offer (clause 5), contractor warranties including in relation to subcontracting and fair work principles (clause 8), safety (clause 9), payment (clause 10) and other incidental matters.

72. The personnel deed also provided for termination for convenience (clause 28.1) and for default (clause 28.2). Clause 28.1 featured in the parties’ contest and relevantly states:

“28.1 Termination for convenience

(a) ASIC may, at any time, by written notice, terminate this Deed or a Contract or reduce the scope of the Services under a Contract, including for a machinery of government change.

(b) If this Deed or a Contract is terminated under this clause 28.1(a), ASIC is liable only for:

(i) payments under clause 10 for Services rendered in accordance with the Contract before the effective date of termination; and

(ii) reasonable costs actually incurred by the Contractor and directly attributable to the termination.

(c) If the scope of the Services is reduced, ASIC's liability to pay the Charges or to provide ASIC Material abates in accordance with the reduction in the Services.

(d) ASIC is not liable to pay compensation under clause 28.1(b)(ii) for an amount which would, in addition to any amounts paid or due, or becoming due, to the Contractor under a Contract, exceed the total Charges payable under the relevant Contract.

(e) The Contractor is not entitled to compensation for loss of prospective profits.”

73. Clause 28.2 allows ASIC to terminate the personnel deed “effective immediately” by the giving of written notice to the contractor in respect of breaches of material provisions of the personnel deed that are not capable of remedy, or provisions of the deed that are capable of remedy but are not remedied.

74. Similar clauses existed in the later deed executed between ASIC and New Premier.

The Security Tender and Security Deed – April to July 2014

75. On 30 April 2014, ASIC issued via AusTender a “Request for tender – Security Services for ASIC’s Sites” for the provision of 24-hour guard patrol and monitoring services to ASIC sites and related services.

76. In response to this request for tender, New Premier submitted a tender on 25 May 2014 (“the security tender”), which included New Premier’s recent financial statements. Again, Mr Davies prepared the security tender except for the costings, which Mr Martorano handled. Mr Davies says, and the Court accepts, that he gave a draft of the tender to Mr Martonaro to review and make any necessary changes. He does not recall if Mr Martorano made any alterations. Later Mr Davies showed Mr Martonaro where to sign the security tender and witnessed Mr Martonaro’s signature on the document. Mr Davies scanned the document and uploaded it to the AusTender website on or around 25 May 2014. The security tender was submitted by New Premier under Mr Martonaro’s authority.

77. Several questions and answers in New Premier’s security tender are relevant to ASIC’s claim for misleading and deceptive conduct. Under the heading “Attachment 5 – Capacity”, at (h) ASIC asked for “Information on how long it has been in business”. New Premier stated in response:

“Was a Registered business in 1995 and became incorporated in 1997, because of business re-structure the current entity Premier Protection Agency (Aust) was incorporated in January 2013 as a National Company and the Deed was novated. We have been contracted to ASIC for the last 15 years.”

78. The word “restructure” is a bland description of the recent history of Old Premier. It gives the impression of planned continuity and stability, in which a business that had commenced in 1995 using one corporate vehicle had expanded sufficiently to become a national business, needing a new corporate vehicle to accommodate its expansion. The reality was different. By May 2014 Old Premier had been in liquidation for three months, with the ATO making very substantial financial and regulatory compliance claims against it.

79. On 26 May 2014, the ATO wrote to Mr Shepard to indicate the total amount owing by Old Premier to the ATO was $1,286,532.87. A Formal Proof of Debt or Claim form was attached to the letter itemising the amounts claimed to be owing by Old Premier as: $2,200 in income tax for the year ended 30 June 2003; $764,700.90 in RBA deficit debts for the deficit debt owing in respect of BAS amounts as at 7 February 2014; $296,932.57 in superannuation guarantee charges for the period 1 July 2009 to 30 June 2013; and $222,699.40 in penalties imposed under the Superannuation Guarantee (Administration) Act 1992 for the period from 1 July 2009 to 30 June 2013.

80. New Premier did not notify ASIC of these developments. Unaware that Old Premier had either entered liquidation or owed $1,286,532.87 to the ATO, in accordance with common practice ASIC outsourced the initial review of New Premier’s security tender, to a private assessor Corporate Scorecard, to assist ASIC’s tender evaluation. Mr Fenton at Corporate Scorecard was tasked with the review of New Premier’s application, which required New Premier to complete an additional questionnaire. Mr Fenton sent the questionnaire to Mr Martorano on 27 June 2014 and requested its completion “by close of business on Tuesday 1^st July 2014”. On 2 July 2014 at 5.01pm, Mr Martorano replied, attaching the completed questionnaire, “sorry Gary, my accountant was cutting it fine”. It can be inferred that Mr Martorano was apologising for it being late by one day but the email at least indicates that Mr Martonaro was closely managing New Premier’s response to the questionnaire.

81. Question 1 of the Corporate Scorecard questionnaire invited New Premier to outline the “History of the business, including the year when operations commenced and any changes in corporate structure, acquisitions, disposals, etc”. New Premier’s response was as follows:

“PPA [Old Premier] started as a Business in 1997 then became incorporated in 1998, initially we started services at a local Leisure Centre then in late 1998 had an opportunity to provide services for ASIC in Sydney. Our focus was to provide a boutique Security Agency that provided top end service at a competitive rate for Corporate industry which included Government. In 2013 as we expanded into pre-employment screening and vetting a decision was made to sell off a portion of our lower end private business and form Premier Protection Agency (Aust) Pty Limited [New Premier] solely to focus on our Government Security needs and Pre-Employment Screening/Vetting.”

82. Question 9 of the questionnaire invited New Premier to identify “Names of associated entities (if applicable)”. New Premier responded “N/A”. This was the time and the opportunity to identify Old Premier’s corporate history and then liquidation status.

83. Question 16 asked for “[d]etails of major current contracts”. New Premier responded “ASIC (Security Services, National Monitoring Centre Sydney) Commencement Date: 2010 (re-tender process current) Value: $793,000 Est.3 years +1 +1. ASIC (Administration/Risk Management Support) Commencement May 2014. Value: $180,000 est. 3 years but reviewed every 12 months due to requirement”. New Premier also detailed other government contracts. The earliest of these contracts were conducted with the name of Old Premier. Thus, New Premier is claiming to benefit from Old Premier’s contracting history but without disclosing the disadvantages of its corporate and regulatory compliance history. This pattern of taking the benefit of association with Old Premier whilst avoiding the burden of that association is repeated in answers to subsequent questions in the security tender.

84. Question 17 requested “[d]etails of major completed contracts”. New Premier responded by referring to time periods for which Old Premier had contracts with ASIC:

“ASIC (Security Services) 1998-2003 Value: Est $ 100,000

ASIC (Security Services) 2003-2007 Value Est $220,000

ASIC (Security Services) 2007-2010 Value Est: $350,000

ASIC (Vetting services) 2002-2010 Value Est: $300,000”

85. Question 18 requested “[f]ull financial statements” for the financial years ended 30 June 2013, 2012 and 2011. It was noted that this “must relate to Premier Protection Agency (Aust) Pty Ltd as this is the tendering entity”. New Premier responded “Premier Protection Agency was incorporated on 15/1/2013. Full financials for the years ended 30 June 2013 and 30 June 2014 are attached”.

86. Mr Fenton reviewed New Premier’s answers to the questionnaire and the accompanying financial statements it provided. Mr Fenton reported to ASIC on 3 July 14. Corporate Scorecard applied a methodology by assessing tender risk on a numerical scale based on the tenderers’ responses to the questions posed in the questionnaire. Mr Fenton gave New Premier a rating of 4.93 out of 10, which was described as “Satisfactory” on a scale from “Highly Vulnerable” to “Very Strong” and qualified as a “pass” on the “pass/fail” assessment. Mr Fenton’s report notes as a “Key Point” in his reasoning to give New Premier a pass, the history of the business given in the security tender. That history included statements that the business had been operating since 1997 and the decision in January 2013 to expand the business into pre-employment screening and vetting and to sell off a portion of the lower end private business to allow New Premier to focus on government business.

87. But when reporting on 3 July 2014 Mr Fenton discussed in a covering email the possibility of security (in the form of a bank guarantee) being provided to ASIC for New Premier’s performance of its contractual obligations to ASIC. But Mr Fenton left a decision about that issue to ASIC:

“Ultimately it is up to the client as to whether this should be included. I know that the company past the assessment, however based on the 30 June 2014 accounts, it does not have significant asset backing and the annualised value of the contract is almost half its annual revenue.”

88. ASIC’s internal procurement team then assessed New Premier’s tender, using Mr Fenton’s report. And in early July, they spoke to Mr Martorano notifying him that New Premier had been shortlisted for the security tender.

89. In a 7 July 2014 document entitled “Approval to Enter into Contract Under s 23 of the PGPA Act – Complex Procurement” (“the procurement report”), a procurement evaluation panel recommended that ASIC enter contract negotiations with New Premier. The total estimated value of such a contract was $6,441,460.09. The procurement report relevantly stated:

“7.10 Considering Premier achieved the highest technical scores with the lowest tendered price, it was agreed that probity checking and financial assessment to be undertaken for Premier and its nominated sub-contractors. The Evaluation Team also agreed that reference check on Premier was not necessary as ASIC has been using their services since 1998 and ASIC was best placed to assess and evaluate their services”.

90. Compared to New Premier’s financial assessment rating of 4.93 out of 10, its proposed sub-contractors held ratings of “Strong” (7.91 out of 10), “Sound” (7 out of 10) and “Very Strong” (9.16 out of 10).

91. The procurement report further dealt with the history that had been provided on behalf of new Premier and Mr Fenton’s recommendation that additional security be obtained, stating:

“7.13 In January 2013, Premier expanded into pre-employment screening and vetting, a decision was made to sell off a portion of the lower and private business and form Premier Protection Agency (Aust) Pty Limited solely to focus on Government Security needs and Pre-Employment Screening/Vetting. The above assessment was only based only [on] this two year period. The potential value of this procurement represented 46% of Premier’s 2013/2014 sales revenue ($2,175,875).

7.14 Although the financial assessment recommendation suggested additional security to be obtained, it is considered unnecessary for the following reasons:

* Premier has a long standing relationship with ASIC since 1998 and has not experienced any liquidity issues over this time.

* This contract is for the provision of security services where security services can be easily replaced by other market operators if the Contractor is under financial stress during the contract period.

* The services are paid weekly upon services delivery providing a regular cash flow.

* Any additional security suggested such as proposed Bank Guarantee will only increase the services costs to ASIC impacting on our budget position.

7.15 The Evaluation Team unanimously agreed Premier’s tender represented the best value for money and therefore direct contract negotiation to reduce services/costs is recommended.”

92. The procurement report had the following handwritten recommendation above the signature of the Senior Manager, Security Services Mr Brilley:

“9.1.2 to enter into the contract subject to the renegotiated cost falling within the budget for this service over the life of the contract”.

93. Thus, the position reached was that security tender could be approved provided its cost was negotiated down within ASIC’s existing budget for these services. That recommendation went forward and was signed as approved by ASIC senior management, including Mr Iglesias and its chairman Mr Greg Medcraft on 11 July 2014.

94. On or about 17 July 2014, Mr Martorano attended a meeting at ASIC’s offices where the yearly increase in the New Premier cost estimates was negotiated down from 5% to 3%. ASIC and Mr Martorano further negotiated the particulars of the contract in late July to bring them within ASIC’s budget for the services. The consensus thereby achieved resulted in the resubmission of the proposal for ASIC senior management approval for execution of a final agreement and for certification that the funding was available. This approval is given by ASIC’s CFO, Emily Hodson on 7 August 2014, its COO, Mr Iglesias on 8 August 2014 and its chairman Mr Greg Medcraft on 11 August 2014.

95. On both New Premier’s and ASIC’s accounts, at no time during the security tender process were Old Premier’s liabilities to the ATO raised, nor was the fact that Old Premier was by then in liquidation.

The Security Deed – August 2014

96. At the conclusion of the security tender process, in August 2014, ASIC entered two contracts with New Premier for the provision of security services. These contracts were the principal security contract on 14 August 2014 (“the security deed”) and a supplemental contract made later that month. The terms of this supplemental contract are not of separate significance for these proceedings.

97. The structure and terms and conditions of the security deed generally mirrored those of the personnel deed. Clause 28.1 of the security deed was in the same terms as clause 28.1 of the personnel deed.

Performance of the Security and Personnel Contracts – 2014 to 2016

98. ASIC placed orders under the personnel deed and the security deed of August 2014 to September 2016 and these were signed on behalf of ASIC and New Premier. These orders underpin New Premier’s damages claim. Four were placed in August 2014 under the security deed with the start date of 1 September 2014 and provided for a three-year term. Another was signed under the personnel deed in September 2016 with a start date of 14 September 2016 for a term of 212 business days. Work under all these orders was terminated on 24 November 2016.

99. In September 2016 New Premier and ASIC entered a supplemental contract to the personnel contract. This brought the total number of contracts between the parties to four.

100. New Premier continued to provide services to ASIC under both the personnel deed and the security deed and the supplementary contracts throughout the rest of 2014, 2015 and 2016 until the disputed telephone conference call of 24 November 2016.

Mr Shepard Investigates Old Premier - Mid 2015

101. But following his investigations, by mid-2015 the liquidator of Old Premier, Mr Shepard, formed the view that by taking over the business conducted by Old Premier in the manner that it did, New Premier may have engaged in phoenix activity. On 23 June 2015, Mr Shepard emailed Mr Martorano pursuing this contention in the following terms:

“As you are aware, I was appointed Liquidator of the Company on 7 February 2014.

It is my understanding that the Company's e-mail domain and website, premierpa.com.au, is currently being used by you for the purposes of conducting business in the company, Premier Protection Agency (Aust) Pty Limited ("PPA (Aust)"). An Australian Securities and Investments Commission ("ASIC") search revealed that you became a director of PPA (Aust) on 15 January 2013. I note this was shortly prior to your cessation date as director of the Company on 17 January 2013. I further note there was transfer of the Company's shares from you to Mr Steven William Davies which was effected on 17 January 2013. A contract regarding the transfer of shares indicated that $30 was paid in consideration.

Mr Davies advised in his director's Questionnaire that the Company's business ceased to trade in June 2013. However, the Company's management accounts do not contain any recorded transactions for the financial year ending 30 June 2013, despite the fact that you were a registered director up to 17 January 2013.

Based on the information available, it appears the Company's business is trading via PPA (Aust). Please provide copies of all documentation evidencing the transfer of the Company's business, including details of any valuations obtained and whether consideration was paid for the transfer of the Company's business. This documentation should be provided within seven (7) days from the date of this letter.

This demand is made pursuant to Section S30A of the Corporations Act 2001.

Should you have any queries in relation to the matter, please contact me.

Yours faithfully,

PREMIER PROTECTION AGENCY PTY LIMITED

(In Liquidation)”

102. Mr Martonaro responded on 12 August 2015 denying that New Premier had been engaging in phoenix activity. He advanced the idea, since abandoned, that New Premier had paid $185,000 in the second half of 2013 for the acquisition of the business from Old Premier. Mr Martorano’s response was as follows:

“Adam,

I refer to your recent correspondence.

I am running a business via the company Premier Protection Agency (Aust) Pty Limited.

The business was purchased from Premier Protection Agency Pty Limited. I have been trusted friends with Steven Davies for many years. Therefore, we were of the view that a written agreement was not necessary. As a result, the agreement to purchase the business was an oral agreement between myself and Mr Davies. Whilst an oral agreement may not be the best form of a business sale agreement, as mentioned above, Mr. Davies and I have been friends for many years.

The agreement was for the purchase of vehicles, the business, website, and phone numbers. The agreed purchase price was $185,000.00. This amount was paid by my company Premier Protection Agency (Aust) Pty Limited to Premier Protection Agency Pty Limited in the following instalments.

Date     Amount

17/06/2013   $15,000.00

18/06/2013   $3,000.00

24/06/2013   $5,700.00

25/06/2013   17,000.00

27/06/2013   $5,000.00

28/06/2013   $700.00

2/07/2013   $30,000.00

8/07/2013   $10,000.00

9/07/2013   $10,000.00

15/07/2013   $8,000.00

16/07/2013   $5,000.00

16/07/2013   $7,000.00

17/07/2013   $7,000.00

19/07/2013   $5,000.00

22/07/2013   $5,000.00

23/07/2013   $10,000.00

26/07/2013   $1,000.00

1/07/2013   $1,000.00

5/08/2013   $2,000.00

8/08/2013   $8,000.00

14/08/2013   $2,500.00

19/08/2013   $2,000.00

26/08/2013   $3,000.00

4/09/2013   $7,000.00

4/09/2013   $5,000.00

9/09/2013   $1,500.00

12/09/2013   $1,000.00

23/09/2013   $2,000.00

14/10/2013   $3,000.00

If you have any questions in relation to the above, please don't hesitate to contact me.

Kind regards,

Robert Martorano”

103. The liquidator could not find evidence that these payments had been made by New Premier to Old Premier, nor has such evidence been adduced in these proceedings. In final closing submissions counsel for Mr Martonaro described Mr Martonaro’s 12 August 2015 letter as “mysterious”. This characterisation is consistent with Mr Martonaro’s own evidence, which generally disagreed with the contents of the letter and denied paying $185,000 to Old Premier for the business. Mr Martonaro said “the site and phone numbers and things [some vehicles] were purchased” but when faced with the letter he said, “I’m not sure what all these [instalment] amounts are”. The amounts in the letter add up to less than $185,000. Old Premier’s bank statements are in evidence showing it receiving such amounts but there is no clear evidence that they came from New Premier. The payments would, for example, be equally consistent with Mr Martonaro repaying a debt to Old Premier. The confusion over this sale transaction is itself a further basis to infer Mr Martonaro’s dealings with Mr Davies over Old Premier were not arm’s-length transactions and worked to the disadvantage of Old Premier’s creditors.

104. The letter of 12 August 2015 points to other problems that may have existed for Mr Martonaro. Although the Court is troubled by Mr Martonaro’s lack of recollection about documents that bear his signature, such matters are not decisive in relation to his credibility. This is because Mr Martonaro claimed that he had been the victim of fraud and forgery by his second accountant Mr Le Rocca, who it is said was convicted of offences of dishonesty pursuant to operation Spearfelt. And it is possible that this is the explanation for some of the mysterious documents said to emanate from Mr Martonaro. But two things must be said by way of balance on this issue. First, no clear motive for a third person to forge documents like these letters was demonstrated during the proceedings. Second, Mr Martonaro’s tendency to blame his accountant and others for the tax position of Old Premier does not absolve him from personal responsibility for its affairs.

Mr Iglesias is Alerted to Issues with New Premier – October 2016

105. In 2016 Mr Daher, who had worked in various capacities for Old Premier between 1999 and 2006, was working as a Security Adviser, Security Assessments and Mitigation and Radiation Safety Officer in ASIC’s RSS Team. Mr Iglesias was first informed by officers within ASIC that the AFP was investigating Mr Daher for involvement in suspected criminal activity.

106. On 6 October 2016, Mr Iglesias was briefed by members of ASIC’s Criminal Intelligence Unit. They informed him that the AFP had briefed them that Old Premier had gone into liquidation in February 2014 with a debt to the ATO and it was being investigated for among other things suspicion of engaging in phoenix activities.

107. Until that time Mr Iglesias was wholly unaware that in February 2014 Old Premier was a company with an excess of liabilities over assets in the sum of approximately $1.4 million, including a substantial debt owed to the ATO. In a long and detailed file note of this briefing Mr Iglesias made a marginal note against the entry recording that Old Premier had gone into liquidation in February 2014 owing a tax debt of $700,000, “not disclosed?” and “our due diligence?” Both these marginal notes tend to confirm Mr Iglesias’s evidence that he was at that time unaware of these facts and therefore wanted them investigated. A combination of Old Premier’s past association with Mr Daher and New Premier’s failure to disclose Old Premier’s liquidation set Mr Iglesias on a chain of enquiries to review all New Premier’s contracts with ASIC and the identity of the employees New Premier was providing to ASIC and its other sources of revenue.

108. By 10 October 2016, Mr Iglesias had begun to examine ASIC’s options for terminating ASIC’s contractual relationship with New Premier “in the immediate term” and the possibility of ASIC engaging alternative security services. He also communicated with the AGSVA to coordinate both agencies’ approach to dealing with New Premier. At a meeting on the same day of ASIC personnel at which Mr Iglesias was present, the subject of whether AGSVA might be terminating new Premier “for convenience” was considered.

The AFP Contact ASIC about Operation Spearfelt – October 2016

109. On 18 October 2016, the AFP notified ASIC that individuals associated with Old Premier were being investigated as part of “Operation Spearfelt”, an operation investigating suspected money laundering from the sale of illegally imported cigarettes. On that day Commander James wrote the following email to Mr Mark Geddes at ASIC which outlined the nature of the operation:

“Warren and Mark,

At this stage we are getting ready to go to overt action within the next 2 days. I am preparing a Ministerial Brief and media holding lines which I will share with you once I have clearance but to give you some info for briefing please see below.

AFP Operation SPEARFELT commenced in August 2016, [redacted material] Mahmoud DAHER (DAHER).

Financial analysis and investigations by Op. SPEARFELT indicate that [redacted material] purchasing legitimate cigarettes at supermarkets in Victoria, by DAHER's associate, [redacted material] and is part of a suspected money laundering scheme from the sale of illegally imported cigarettes.

[redacted material]

Investigations have confirmed that [redacted material] are associates.

A review by Op. SPEARFELT regarding the entities that DAHER has accessed in the above mentioned databases has revealed that:

- On 7 April 2016, DAHER accessed ASCOT and searched the entities 'Shawki Amer', 'Shawki Mirna' and 'SM Tobacco Pty Ltd'. On SM Tobacco Pty Ltd's ASCertain profile, DAHER was able to view that the company had not been placed on any compliance based alerts, including the absence of any adverse intelligence recordings; and

- Between 19 January 2015 and 4 April 2016, DAHER accessed ACID/ALEIN and viewed ACIC holdings on his home address, his sister’s address, his own address, his brother’s name, [redacted material]

Investigations further identified that the ASIC Security and Risk Team, including BRILLEY and DAHER, have a long-standing relationship with a company identified as Premier Protection Agency (Aust) Pty Ltd (PPA). PPA (Aust) are currently under contract with ASIC to provide guarding services for all ASIC Australian offices and personnel vetting services for new employees. Additionally since 2010, PPA have been contracted to the Australian Government Security and Vetting Agency (AGSVA) to conduct security and vetting clearance services on Commonwealth agencies that AGSVA services. To date PPA have conducted approximately 7000 security clearances up to Negative Vetting 1 level for Commonwealth Agencies.

Investigations have identified that key staff in PPA have links to members and/or former members of Outlaw Motorcycle Gangs (OMCG) and may be engaged in committing fraud to further their business interests. Investigations have identified that PPA appear to have liquidated and 'phoenixed' their company in 2014 after failing to pay a considerable debt to the Australian Tax Office (ATO) yet continued to maintain their business relationships with ASIC and AGSVA without disclosing these facts to either agency.

Enquiries by Op. Spearfelt are currently ongoing in relation to the activities of PPA and its employees and this part of the investigation will NOT be exposed during this overt phase.

It is planned to arrest and charge DAHER and [redacted] At this stage we will be charging DAHER with 9 offences of causing unauthorised access to restricted data contrary to sub-section 478.1(1) of the Criminal Code (Cth) and one charge of money laundering contrary to section 400.9 of the Criminal Code (Cth). [Redacted] will be charged with section 400.9 of the Criminal Code (Cth).

I ask that this information be kept to the members who have been previously briefed in Canberra on the matter and your Senior Executive.

Det. Superintendent Brett James”

110. This information raised significant security concerns for Mr Iglesias as to whether ASIC could continue to engage New Premier as a security contractor. But it should be emphasised at this point that this Court is not deciding whether the allegations recorded in Detective Superintendent James’s letter were true or not. Mr Martonaro, Mr Davies and New Premier deny the allegations of criminal conduct and so far as the Court is aware they have not been tested in any criminal trial.

111. But for Mr Iglesias the security concerns raised by the information were real. He explained the reasons for this in his affidavit evidence, which the Court accepts:

“I recall that from the time I was notified of the AFP's investigations in early October, I was concerned that ASIC could not continue indefinitely to engage Premier Australia as its security contractor. In my view , ASIC , as a corporate regulator, could not be engaging with a corporation that was being investigated by the AFP for suspected criminal conduct particularly because staff at Premier Australia (including Mr Martorano) had access to ASIC's premises and therefore potentially to sensitive information held on access premises (including access to ACID/ALEIN) and the risk that, if those suspicions were justified, that information might be misused or accessed for unauthorised purposes. I was also concerned that ASIC, as a corporate regulator, could not be engaging with a corporation connected with suspected corporate misconduct such as phoenixing and the failure to pay tax debts.”

112. ACID is a reference to Australia’s Criminal Intelligence Database, a national database recording criminal convictions and charges. And ALEIN is a reference to Australia’s Law Enforcement and Intelligence Network, a database used by the AFP and state police to record intelligence regarding suspected an actual criminal activity.

113. The Court accepts Mr Iglesias was very concerned at this time about the continuing security and reputational risk of ASIC employing New Premier. His expression of all those concerns is accepted as genuine. Although he only mentioned it under cross-examination, reputational risk appeared to be a coordinate concern. Were the allegations proven to be true and publicised, ASIC’s due diligence standards would appear to have failed by allowing individuals who may have engaged in criminal conduct to work within its own security vetting system.

114. At this point the narrative digresses to a counterfactual that the Court has been asked to consider relevant to ASIC’s cross claim for misleading and deceptive conduct. Mr Iglesias says, and the Court accepts, that had he been informed about Old Premier’s liquidation in February 2014, and the extent of its liabilities and debts owed to the ATO that he would not have recommended that ASIC enter the security deed. The Court accepts that he regarded it is quite inappropriate for ASIC to contract with an entity: which had a common director and offered the same services as another entity which had gone into liquidation owing the Commonwealth a substantial sum; and which was suspected of being involved in phoenix activity. Contrary to New Premier’s contention, the Court does not accept that Mr Iglesias was aware of Old Premier’s liquidation in February 2014 when he approved ASIC to go forward with executing the security deed.

115. Returning to the narrative, on 20 October 2016, Mr Daher was arrested by the AFP. Despite the arrest the AFP still wanted ASIC to hold off talking with New Premier about terminating its contracts until after search warrants had been executed in relation to Mr Martonaro and Mr Davies. Detective Superintendent Brett James, Acting Commander Operations, Eastern Command of the AFP communicated this to Mr Mark Geddes, the Agency Intelligence Coordinator within ASIC’s Criminal Intelligence Unit.

ASIC Considers Its Options – late October 2016

116. ASIC’s own internal inquiries into and deliberations about New Premier soon gained momentum. On 24 October 2016, Mr Iglesias attended an ASIC meeting to consider what was described as a “PPA [New Premier] Options Paper” in the event of the termination of the contractual relationship between New Premier and ASIC. Four options were set out in the options paper. They were in short: employing current New Premier personnel (option 1); approaching the market with a request for tender based on reasons of extreme urgency (option 2); engaging the two present New Premier contractors to consider pre-engagement assessment vetting activities (option 3); and ASIC approaches AGSVA contractors to provide pre-engagement assessment vetting activities and to train more internal staff to undertake those activities (option 4).

117. The meeting adopted options 1 and 3 and rejected options 2 and 4. These options address one of Mr Iglesias’s principal concerns about the potential for ASIC’s sites being unguarded and ASIC’s assets harmed upon a termination of New Premier’s contract. This outcome was reflected in the following form of “Recommendation”:

“Recommendation

1. That the Commission,

1.1. agree the implementation of the options 1 and 3 in the event of the termination of the contractual relationships with Premier Protection Agency (Aust) Pty Ltd (ABN 64 161944163) ("PPA"), and

1.2. note the potential costs for ASIC.”

118. In more detail, “Option 1” as adopted had two components, showing a different approach depending on the location of the provision of services. Option 1 stated:

“This is because outside of Sydney PPA subcontracts to other agencies for guarding services.

“In Sydney we would employ current PPA personnel - the guards and the staff managing the National Monitoring Centre. This could be way of engaging with them directly (either as a contractor or staff member) or through a third-party agency.

In our other sites we would approach the current PPA subcontractors to continue to provide our security services directly to ASIC.”

119. The advantages of option one was dated to be continuity of existing service staff with appropriate security clearances with “minimal ramp up”.

120. In more detail, “Option 3” was for ASIC to “engage the two New Premier contractors (directly on short-term contracts or via an agency) to continue the pre-engagement assessment activities”. The potential benefits of option three was dated in the options paper to be continuity of existing service staff with appropriate security clearances and familiarity with ASIC systems and minimal ramp up.

ASIC Prepares to Meet New Premier and the AFP Warrants – mid-November 2016

121. But ASIC waited before pursuing these options. By mid-November ASIC had decided it needed to replace New Premier with new security and personnel providers. But it had decided not to proceed this course until the AFP had executed search warrants in relation to Mr Martonaro and Mr Davies. AGSVA terminated its contract with New Premier on 18 November, when Mr Martonaro was holidaying in Thailand. The next day, Mr Iglesias was notified by Ms Alice Manchester (an officer of AGSVA) that “Premier Protection is blaming ASIC for causing AGSVA to terminate their work orders.”

122. ASIC were still seeking information about Mr Daher from New Premier. On 21 November, Ms Divola emailed Mr Martorano and Mr Davies for information about Mr Daher’s employment history with Old Premier. Mr Davies was apparently open in responding with information. He emailed back the same day information, the correctness of was not tested in the proceedings:

“Hi Zan

Mahmoud Daher if you remember was around and employed by another security firm who were under paying him when we did the King St Move. He was only 21 at the time and we offered him a role on the 11/9/1999 where he, if I remember, did some afternoon Concierge and Cleaning supervision duties. He initially was Casual but moved to F/T employment when he applied and was accepted to work for ASIC in September 2006. Which we were unaware of until he told us he had accepted a position within ASIC.

He held a Security Licence back then that included Police checks and was obviously security cleared by ASIC. As you now the only relationship we have with him then is that he is employed within the Risk Management team. To my knowledge none of my Team have had a social relationship with him or spoke to him out of work, he was just another Guard at the time.

Hope this information helps, feel free to ask further questions if needed.

Regards

Steven Davies

General Manager

Premier Protection”

123. The same day, Detective Superintendent James informed Mr Iglesias, Ms Hartmann, and Mr Geddes that the AFP intended to execute warrants on Mr Martonaro by “next Wednesday”, 23 November. So, Mr Iglesias called Mr Martorano, who was still in Thailand, to arrange a telephone conference call on 24 November. The Court accepts Mr Martonaro’s evidence that he had the following conversation with Mr Martonaro, his account of which substantially coincides with Mr Iglesias’s own handwritten note of the exchange:

Mr Iglesias:   “Hi Robert, this is Carlos Iglesias from ASIC.”

Mr Martorano:   “Hi Carlos, how can I help?”

Mr Iglesias:   “I want to discuss Premier’s contracts.”

Mr Martorano:   “Sure.”

Mr Iglesias:   “Can we have a telephone call about them this Thursday at 11am?”

Mr Martorano:   “I’m more than happy to come and meet with you to discuss them.”

148. Mr Davies recollects, and the Court accepts, that “[a]fter that phone call with Carlos and Rashpal, Robert appeared to me to be stressed and worried”. This was true. But Mr Martonaro was stressed before the phone call as well, because of the unsettling events of the execution of the search warrants previous day.

149. Mr Davies also recollects Mr Martorano saying, “[t]hey're going to send me a document to sign and I don't have enough time to get a lawyer to look at it. They are putting me under huge pressure to sign it. I don't want my company to be in the bad books with the government agencies, I will lose so much work.” It is likely that Mr Martonaro felt considerable commercial pressure to sign the document that was to be sent to him. It was a difficult commercial decision for him. The pressure was created by the time limited nature of the opportunity for agreement that Mr Iglesias and Ms Hartmann were offering him. The legal question is not whether he was under pressure but whether the pressure was unconscionable or relevantly illegitimate as constituting economic duress.

150. ASIC’s Version. On ASIC’s account, at 9am on the day of the conference call, Mr Iglesias and Ms Hartmann drafted a three-page script for Mr Iglesias to read to Mr Martorano during the call. Mr Iglesias and Ms Hartmann each had a printed copy of the final version of this typed script, entitled “Amended Script” and they each made handwritten notes on their respective copies during the conference call. Both these annotated copies of the script are in evidence, though Mr Iglesias’ copy is missing the third page. The third page reads less like a script and more like a list in bulleted form. It is entitled “[e]xamples if (sic) conduct that evidences phoenix activity”.

151. Ms Hartmann’s copy includes the third page and after the title there is a handwritten note “not referred to”. Ms Hartmann’s copy of the script has more annotations than Mr Iglesias’, who on both parties’ accounts was the principal speaker on behalf of ASIC. She was therefore in a better position to make notes on New Premier’s replies to the script, or where Mr Iglesias deviated from the script. The Court is satisfied that Ms Hartmann’s script is the most accurately available contemporaneous record of the conversation that occurred on 24 November. The methodology that Mr Iglesias and Ms Hartmann adopted in creating this script and then noting departures from it gives an inherent reliability to the product. Importantly as will be seen, Ms Hartmann’s version does not anywhere refer to the black mark threat, another reason why the Court infers, apart from Mr Iglesias’s and Ms Hartmann’s credibility that the threat was not made and the words “black mark” not mentioned.

152. The typed script with Ms Hartmann’s handwritten annotations are in square brackets and in bold, marking where deviations to the script occurred during the phone call appears below:

“Amended Script                 [24.11.2016]         

Robert as I mentioned on Monday, I am calling because certain matters have recently come to ASIC's attention which are extremely serious. ASIC has been informed that the AFP has a criminal investigation into the circumstances in which the assets and business of Premier Protection Agency were transferred to Premier Protection [(R) yes] Agency (Aust) Pty Ltd (PPA Australia). I understand there are also concerns about the information provided to ASIC when PPA Australia tendered for ASIC's national security contract in 2014.

As the corporate regulator and as a Commonwealth Government agency ASIC cannot engage the services of a contractor which is the subject of a criminal investigation particularly where the arrangements with ASIC form part of the [AFP] investigation.

So, ASIC has no option now but to end the current security and vetting arrangements with PPA Australia from today.

As a consequence ASIC has been forced to make alternative security arrangements at [quite some] considerable cost and [some] disruption.

However, on a without prejudice basis ASIC is prepared to give you the opportunity to enter into an agreement to mutually agree to end the contracts and for ASIC and PPA Australia to provide a mutual release from any claims. [Now] We think this is in the best interests of PPA Australia and ASIC, both in the current circumstances and going forward. It would reflect better on PPA Australia [+ have a position for the future] if ASIC does not terminate the contracts for default.

[Quick question: warrant: - we are confident, they are incorrect – this has all come about on ASIC –this is all about MD]

At the end of this phone call I will email you a letter of mutual release to sign and return to me by 2.00pm today.

If I do not receive it by 2.00pm today then in the circumstances ASIC is left with little option but to terminate the contracts by notice for default, effective today.

If ASIC terminates the contracts for default we may pursue PPA Australia for the additional costs we will incur in replacing the provision of the services currently provided under contract by PPA Australia.

[If he agrees and asks questions about the PPA staff we can advise we will he speaking with them and that another contractor will consider offering them employment].

[Page 2]

PAUSE: If he disagrees then we continue as-follows:

Robert, whilst I cannot discuss the AFP investigation with you I can say that the criminal investigation is serious and there are grounds for the investigation. ASIC is also aware that the AFP has executed search warrants.

On the basis of the information that has come to light ASIC cannot see a way to continue these contracts with PPA Australia:

*There is clear evidence to suggest that you have engaged in illegal phoenix activity

* It appears you have diverted the revenue and business of Premier Protection Agency to the newly created PPA Australia and then allowed Premier to go into insolvency

* You left Premier with a $1.2m debt to the Commonwealth Government. According to the information provided to ASIC, Premier has not filed Income Tax Returns since 2004, it has failed to lodge and pay BAS and Super for a number of years.

* As part of the tender for the new national security contract you provided ASIC with [potential] false and misleading information when you tendered for the contract. You stated PPA Australia was incorporated because Premier's business had been restructured. You attempted to conceal that Premier was put into liquidation because it had a large ATO debt. [that was not made]

* I understand your AGSVA security clearance, the clearances of a number of your staff, have now been withdrawn

* That being the case you no longer meet a fundamental requirement to be able to provide ASIC with security services

In light of the seriousness of the misconduct and the ATO debt, it is untenable for ASIC to continue with the contracts with PPA Australia.

Given the circumstances we would prefer to have a cooperative and mutual termination of the contracts. But if that can't be achieved we will terminate for default and if we do that we have an obligation as a Commonwealth Government agency to look into pursuing PPA Australia for the cost of having to make alternative security arrangements and the cost of disruption to our business.

Examples if (sic) conduct that evidences phoenix activity [not referred to]

(a) It appears from May 2013, you started sending invoices to ASIC from Premier Australia when there was no legal basis for doing so. As you know,

[Page 3]

ASIC's contract was with Premier and not Premier Australia a company you set up in January 2013.

(b) In August 2013, Premier Australia exercised an option in the security contract between ASIC and Premier. ASIC did not consent to an assignment of its contract to Premier Australia and so only Premier was entitled to exercise this option.

(c)

(d) On 2 February 2014 Premier was put into Creditor Voluntary Liquidation in February owing the ATO the sum of$1.2m for

(e) In May 2014, you submitted a tender document on behalf of New PPA for National Security Contract. You acknowledged that providing false/misleading information was a serious offence (paragraph 9.3) yet you fail to advise in response to question 3(f) (Attachment" The following statement was made about Premier and New Premier" was a registered business in 1995 and became incorporated in 1997 because of business restructure the current entity Premier Protection Agency (Aust) was incorporated in January 2013 as a National Company and the Deed was novated. We have been contracted to ASIC for the last 15 years"

(f) You failed to inform ASIC that Premier was in insolvent liquidation. You knew this was material information and you tried to conceal this.

(g) Financial Statements were submitted to evidence Premier Australia's financial credibility. It is doubtful the information provided is true. [fn] 1 2

[Fn] 1 At the time this statement was made Premier was in liquidation and to date CLO has not located any documentation that evidences that ASIC agreed to the assignment of its contract with Premier to New Premier.

[Fn] 2 This document is of concern for a number of reasons including ASIC the biggest source of revenue was not in a contractual relationship with New Premier in the relevant period and by comparison the other financial statement provided for the previous year (presumably Premier's) shows receipts of $1,313,520.65 for the full year”

154. Ms Hartmann also “ticked” the second, third, fourth and sixth paragraphs as the conversation progressed. And she underlined words as Mr Iglesias progressed through the script. When Ms Hartmann gave evidence, she clarified that: the “(R)” represented the initial of her first name to indicate she was amending the script; the square brackets “indicates that was said”; where she inserted “[quite some]” this was what was spoken rather than “considerable”; that the notes marked “[Quick question…]” related to words spoken by Mr Martorano or Mr Davies; and that where she underlined or circled words “I think it was - it was said, definitely. And I think I wouldn’t [have] circled it because I thought that was important, I think it was just my thinking.”

155. On Mr Iglesias’s copy of the script there are only three handwritten amendments. First, in the top left corner of the page it is written “Thursday 24 NOV 9.00am”. Second, close to those words, on the first line of the first page, there is a handwritten dash from the word “Robert” to the words, “I have Rashpal Hartmann with me from our C.L.O”. Third, in the top right-hand corner of the script, New Premier’s phone number is scrawled and below it the names “Robert Martorano and Steve Davies”.

156. After the conference call, Ms Hartmann also prepared a file note. The Court accepts that she did this, she explained, to consolidate her annotated copy of the script and handwritten notes that she believes she would have made as a matter of practice. Her post-conference file note appears below:

“File Note of telephone conversation on 24/11/2016 between

ASIC: Carlos Iglesias (Cl); Rashpal Hartmann (RH)

PPA: Robert Martorano (RM); Steve Davies (SD)

Time: 11.00am Cl called PPA- [number redacted]

RM- Robert Speaking

CI: Hello this is Carlos, how are you?

RM: I have had better days. Carlos I have Steve Davies here with me.

CI: Rashpal Hartmann who is Commission Counsel is here with me

RH: Hello Robert and Steve

CI: Robert as I mentioned on Monday, I am calling because certain matters have recently come to ASIC's attention which are extremely serious.

ASIC has been informed that the AFP has a criminal investigation into the circumstances in which the assets and business of old Premier were transferred to Premier Protection Agency (Aust) Pty Ltd (PPA Australia).

RM: yes

CI: I understand there are also concerns about the information provided to ASIC when PPA Australia tendered for ASIC's national security contract in 2014.

As the corporate regulator and as a Commonwealth agency ASIC cannot engage the services of a contractor which is the subject of a criminal investigation, particularly where the arrangements with ASIC form part of the AFP investigation.

So, ASIC has no option but to end the current security and vetting arrangements with PPA Australia from today.

As a consequence ASIC has been forced to make alternative security arrangements at some cost and some disruption.

However, on a without prejudice ASIC is prepared to give you the opportunity to enter into an agreement to mutually agree to end the contracts and for ASIC and PPA Australia to provide a mutual release from any claims. We think this is in the best interests of PPA Australia and ASIC, both in the current circumstances and going forward. It would reflect better on PPA Australia and preserve the position for the future if ASIC does not terminate the contracts for default.

RM: We are confident they are incorrect. This has all come about because of an ASIC employee. This is all about Michael Daher.

These accusations are mind blowing. We did not want that element. We structured our business so that we acted for the corporate sector and the government. We could have taken other kind of work but we kept away from it.

SD: Quick question what happens if all of this turns out to be wrong

RH: We don't know what the outcome of the investigation will be. The AFP have a criminal investigation. We just have to let the process run its course. While the investigation is ongoing we cannot engage PPA

RM: Fair enough I understand

Cl: This is not about the Michael Daher investigation. On the basis of the information that has come to light ASIC cannot see a way to continue these contracts with PPA Australia:

* There is clear evidence to suggest that you have engaged in illegal phoenix activity

* It appears you have diverted the revenue and business of old Premier to the newly created PPA Australia and then allowed Premier to go into insolvency

* You left Premier with a $1.2m debt to the Commonwealth Government. According to the information provided to ASIC, Old Premier has not filed Income Tax Returns since 2004, it has failed to pay BAS and Super for a number of years.

As part of the tender for the new national security contract you provided ASIC with false and misleading information when you tendered for the contract. You stated PPA Australia was incorporated because Premier's business had been restructured. You attempted to conceal that old Premier was put into liquidation because it had a large ATO debt.

* I understand your AGSVA security clearance, the clearances of a number of your staff, have now been withdrawn

* That being the case you no longer meet a fundamental requirement to be able to provide ASIC with security services

In light of the seriousness of the misconduct and the ATO debt, it is untenable for ASIC to continue with the contracts with PPA Australia.

At the end of this phone call I will email you a letter of mutual release to sign and return to me by 2.00pm today.

If I do not receive it by 2.00pm today then ASIC is left with little option but to terminate the contracts by Notice for default, effective today.”

157. The Court accepts this file note as accurate. It does not refer to the black mark threat. The replacement costs threat will be dealt with separately below. Mr Iglesias’s and Ms Hartmann’s affidavit and oral evidence remain consistent with their file notes.

158. Several other matters in addition to those already mentioned, point to Mr Iglesias’s and Ms Hartmann’s versions either being more reliable than Mr Martonaro’s or Mr Davies’s versions, or not suffering from the defects alleged against them.

159. First, the ASIC file notes followed a script and were contemporaneous. Mr Davies did not make any file notes and Mr Martonaro’s first file note was made over a day later. Neither of them knew what was coming on the phone call.

160. Second, ASIC was criticised for not organising a tape-recording of the phone call. But to tape the call legally would have required ASIC to warn the New Premier parties that the call was being taped; a course that would have undermined the delicate level of trust that the call was trying to engender.

161. The Court concludes that the black mark threat did not occur. So how did Mr Martonaro come to believe that it did? He did not just invent the idea. The Court does not conclude that he was a dishonest witness. Rather he misinterpreted something which was said to him. It is not unknown for persons attending very stressful meetings to come away from them with different impressions of what was said.

162. In the Court’s view that is what happened here. The part of Ms Hartmann’s post conference call file note commencing with the words “however, on a without prejudice [basis] ASIC is prepared to give you the opportunity” down to “if ASIC does not terminate the contracts for default” contains the clear implication of preserving New Premier’s reputation free of the taint of default. That could readily have been interpreted by Mr Martonaro as taking action to avoid a “black mark” against New Premier’s name. Mr Iglesias chose his words with some tact but “[i]t would reflect better on PPA Australia and preserve the position for the future if ASIC does not terminate the contracts for default” (emphasis added) do imply keeping open the possibility of future work with the Commonwealth. But this was the reality. Default would have made future Commonwealth work for New Premier much more difficult.

163. The alleged replacement costs threat may also be shortly considered. As an alleged threat it too probably arose from a misunderstanding by Mr Martonaro of what was being said in the circumstances of heightened emotion and nervousness at this meeting. Ms Hartmann’s post conference call note confirms that Mr Iglesias said that “ASIC has been forced to make alternative security arrangements at some cost and some disruption”. This was echoed later by Mr Iglesias who said, in accordance with the script that, “if ASIC terminates the contract for default, we may pursue PPA Australia for the additional costs we will incur in replacing the provision of the services currently provided under contract by PPA Australia”. The content of this is very close to what New Premier calls the replacement costs threat. It is not in contest that this was said. But ASIC characterises this statement as nothing more than it pointing out to New Premier the possible legal consequences of default, if ASIC were to go down that path. The Court does not disagree with that characterisation. It was not a threat. Rather it was the kind of statement that is frequently made in commercial negotiations: one party pointing out to the other the legal consequences of what will follow if a settlement does not occur.

The Termination Letter

164. At 12.22pm, the foreshadowed letter was emailed to New Premier (“the termination letter”), requiring New Premier to agree to the terms by 2.00pm that day. The covering email stated the following:

“Dear Robert,

I refer to our telephone conversation this morning and I appreciate your understanding that in the circumstances ASIC has to act immediately.

As discussed, I attach the letter of mutual release for you to sign and return to me by 2.00pm.

I note your comments regarding the PPA staff. I am not aware of your contractual arrangements with your staff but ASIC will not be directly employing any PPA staff.

I understand that ASIC's new contractor may give some of the security staff the opportunity to work for the contractor. In the circumstances it may be in the best interests of the PPA security staff to work with the new contractor even if this is only a short term measure.

I encourage you to work co-operatively with ASIC to achieve a smooth transition to the new contractor in this very difficult situation.

Regards,

Carlos”

165. The opening words of this letter are expressed in positive and diplomatic language. They add to the improbability of inferring that a hostile meeting had just occurred. Indeed Mr Iglesias thought that the meeting went better than he thought it would.

165. The contents of the attached termination letter are set out below:

“Dear Sir

Premier Protection Agency (Aust) Pty Ltd (PPA) Proposed release from contractual arrangements

1. I refer to our telephone conversation earlier today and to the following contractual arrangements between ASIC and PPA:

a. Deed of Standing Offer for the Provision of Security Services for ASIC's Sites made on 14 August 2014 ('Security Contract'); and

b. Deed of Standing Offer for the Provision of Temporary Personnel for ASIC's Risk and Security Services made on 1 May 2014 ('Staff Contract'), (together, 'the Contracts').

2. ASIC has become aware of certain matters associated with PP A and the conduct of its related entities and personnel which, by virtue of PP A being a provider of certain services to ASIC under the Contracts, may have detrimental consequences for ASIC's reputation.

3. Further to our discussion, ASIC proposes that the parties agree to termination of the Contracts on the following basis and that the parties be mutually released from certain obligations under the Contracts on the following terms, with effect on and from the date of the parties' execution of this letter.

a. Pursuant to clause 31.2 of the Security Contract, the parties agree to add a new clause 28.2B to the Security Contract to read 'This Deed may be terminated with immediate effect by written agreement of the parties'.

b. Pursuant to clause 31.2 of the Staff Contract, the parties agree to add a new clause 28.2B to the Staff Contract to read 'This Deed may be terminated with immediate effect by written agreement of the parties'.

c. Pursuant to clause 28.2B of the Security Contract, the parties agree to terminate the Security Contract, and any contracts or orders made pursuant to it, with effect from the date of this letter.

d. Pursuant to clause 28.2B of the Staff Contract, the parties agree to terminate the Staff Contract, and any contracts or orders made pursuant to it, with effect from the date of this letter.

4. PPA agrees that, upon termination of the Deeds in accordance with paragraphs 3.c and 3.d above, PPA will have no further claims against ASIC in relation to the Deeds and termination of the Deeds, including in respect of employee or contractor costs associated with such termination.

5. In accordance with clause 28.3 of each of the Contracts, PP A will stop work under the Contracts with effect from the date of execution of this letter and will immediately return to ASIC all ASIC Material, Deed and Contract Material and ASIC Confidential Information in PPA's possession, custody or control.

6. This letter is confidential and neither party may disclose it, or any information in it or in respect of it, other than:

a. for the purpose of seeking legal advice about or enforcing this release;

b. where disclosure is by ASIC to the Minister;

c. where disclosure is by ASIC in response to a request by a House or a Committee of the Parliament of the Commonwealth; or

d. where disclosure is otherwise required by law.

7. To accept the terms of this release, please return a duly executed and dated copy of this letter to me at [email address redacted] by 2.00pm today. If the executed release has not been received by ASIC by that time, this letter and the arrangements contemplated in it will be withdrawn.

Yours faithfully

[Signature]

Carlos Iglesias

Australian Securities and Investments Commission

Acknowledgement

I, Robert Martorano, for and on behalf of Premier Protection Agency (Aust) Pty Ltd ABN 64 161 944 163, agree to the terms of the above letter.

Signed,

[space for signature]

Date:”

167. Mr Martorano described in his written evidence feeling “stressed and helpless. I worried about the black mark threat made by Carlos. I thought I had no choice but to sign and return the letter to Carlos.” The Court accepts that he felt pressured and stressed. But Mr Martonaro is a resourceful intelligent person who the Court does not accept at any stage felt “helpless”. He was a man well capable of consulting lawyers if he needed legal advice. He is the kind of person who could decide whether or not to take legal advice depending on what he perceived to be in his own best interests.

168. At 1.28pm, Mr Martorano replied to Mr Iglesias’s email attaching a signed copy of the termination letter. The “Acknowledgement” slip was signed by Mr Martorano and dated “24/11/2016”. The contents of Mr Martorano’s covering email to Mr Iglesias are copied below:

“Dear Carlos

Attached is the signed letter you requested.

Premier Protection Agency (Aust) is releasing all staff at ASIC of our contractual arrangement therefore allowing them the opportunity to take up any possible employment by the new provider.

We would also like to take this opportunity to thank ASIC up to this point for maintaining a great working relationship for many years.

Robert Martorano

Managing Director”

169. The concluding words of this email are puzzling, if Mr Martonaro’s version is to be accepted. They are responsive to Mr Iglesias’s diplomatic opening to his earlier email and reflect an acceptance of the idea of the relationship on a positive note rather than with the scar of default. They are not the words of begrudging or truculent acceptance of a forced outcome. These few words from Mr Martonaro are in fact the most objectively verifiable contemporaneous statements from him from which the Court can undertake its analysis.

170. Shortly thereafter, Mr Martorano spoke to Ms Divola on the phone. He told her about the 11am conference call and he says that Ms Divola said:

“ASIC have hired MSS in place of Premier. Your security staff have been offered work with MSS so they can continue with ASIC….”

171. Mr Martorano claims Ms Divola said to him that she was “disgusted” with how he had been treated and that she and another person had been threatened too. But she did not give evidence and the Court does not accept that this was said.

172. On 7 August 2017, Mr Martorano wrote to Mr Greg Medcraft, the then Chairman of ASIC. But it is not necessary to detail this letter or any of the subsequent correspondence between the parties in these reasons.

New Premier’s Claimed Loss and Damage

173. Mr Martorano estimates that New Premier lost profits of $312,469.81 from the making of the termination agreement. He has estimated the expected revenue from the unexpired term of the orders then operative under the security deed (and the personnel deed less the costs of delivering those services), to derive the profit margin claimed on each. The Court accepts the reasonableness of Mr Martonaro’s estimates of these revenues and costs, which were not challenged and need not be broken down any further, as the Court has not been required to assess the damages New Premier claims.

Analysis of New Premier’s Claim and ASIC’s Cross-Claim

New Premier’s Claim

174. New Premier sues ASIC for damages of $312,469.81 for its alleged breach of the following written period contracts, set out below:

1. One set of four contracts for Security Services (guards), three expiring 31 August 2017, and the other on 1 September 2017;

2. One Personnel/Vetting contract expiring 20 July 2017.

175. New Premier claims it accepted the repudiation and termination of these contracts on 24 November 2016, and it now sues for the financial loss of not being able to complete these contracts to their designated expiration dates. While it concedes that clause 28.1 grants ASIC a right to terminate the contracts for convenience, New Premier argues that ASIC cannot rely on this clause in circumstances where ASIC threatened New Premier.

176. It is conceded by New Premier that to make out its claim for contractual damages, the Court must find that the words alleged to constitute the replacement costs threat and/or the black mark threat were not only made, but that one, or both, constitutes an unlawful threat or unconscionable conduct arising to economic duress by illegitimate pressure: Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) NSWLR 40.

177. ASIC denies wrongful repudiation of the contracts and argues that it could have otherwise terminated the contracts for convenience under clause 28.1. And it contends that New Premier’s claims do not sound in substantial damages.

178. The threats alleged to have been spoken by Mr Iglesias are pleaded in paragraph 15[d] of New Premier’s Second Further Amended Statement of Claim:

“15. In the Telephone Conversation Mr Iglesias:

…

d. said if Premier did not agree to so end the contractual relationship then ASIC would:

i. pursue Premier for the costs of a replacement security provider (the Replacement Costs Threat); and

ii. have Mr Iglesias put a "black mark" on Premier' s business to prevent it entering into any contract with the Commonwealth of Australia (the Black Mark Threat),and together the Threats.”

179. The Court has set out each participant’s version of the conference call in full earlier in these reasons. The Court accepts Mr Iglesias’s and Ms Hartmann’s version of the conference call. The Court has already made favourable credit findings about both these witnesses, and their evidence was wholly accepted.

180. The black mark threat was not made. The replacement costs threat was not a threat but a legitimate statement of ASIC’s contractual rights in the event of exercising the default provisions of the personnel deed and security deed. There was no duress.

181. And as to unconscionable conduct, Mr Martonaro and his company, New Premier were not in a position of special disadvantage for several reasons. First, it is accepted that the response time was very tight, only 1.5 hours. But Mr Martonaro was well capable of accessing legal advice within that time.

182. Second, ASIC had greater economic power in the circumstances but it did not misuse that power by making illegitimate threats beyond its contractual rights.

183. Third, it is suggested in New Premier’s case that no consideration was offered by ASIC for the termination or the migration of staff/contractors from New Premier to a new contractor. But had ASIC terminated for default, New Premier had no right to claim legally for payment of such consideration.

184. Fourth, it is said that ASIC knew the terms of the personnel and security deeds favoured ASIC. But the terms of the deeds are not unusual in a commercial context.

185. Fifth, New Premier contends that it had to agree to something that was contrary to its legitimate interests because ASIC took advantage of its weakness. But curiously the approach that ASIC took promoted New Premier’s better interests because it avoided a finding of default.

186. ASIC and New Premier agreed to terminate the personnel and security deeds and existing work orders based on the document that passed between them shortly before 2.00 pm on 24 November 2016. Their mutual releases provide adequate consideration for the termination. It is not necessary in the circumstances to consider any of the other damages and termination arguments based on clause 28.1 of the personnel and security deeds.

187. New Premier’s claim should be dismissed with costs.

ASIC’s Cross-Claim

188. ASIC took the position that its Further Amended Statement of Cross-Claim was purely defensive. No damages were sought by way of relief on this cross-claim. In light of the Court’s findings on New Premier’s claim it is not necessary for the Court to consider the ASIC cross-claim in any detail or to grant relief. But the Court has made sufficient findings of fact including reliance that some observations can be made about the cross-claim. Should ASIC request the making of declarations in relation to the cross-claim, a suitable form of declaration should be provided for the Court’s consideration.

189. The following limited observations can be made. By its Further Amended Statement of Cross Claim ASIC seeks orders under Australian Consumer Law, s 237 for each of the personnel deed and security deed and other consequential contracts to be rescinded based on this New Premier engaging in misleading and deceptive conduct during the tender processes.

190. The factual narrative above justifies the Court’s conclusion that ASIC’s contentions of misleading and deceptive conduct should be accepted. The Court concludes that during the tender process New Premier promoted itself as being the “sister company” of, or a “business restructure” of Old Premier and could rely upon Old Premier’s longevity and historical business record. But at the same time, it failed to disclose to ASIC that Old Premier: had entered into liquidation pursuant to a creditor’s voluntary winding up application; had not lodged its BAS, PAYG tax amounts or employees’ superannuation obligations since 2009; and was the subject of a claim for $1.2 million owed in penalties and interest to the Commonwealth Federal Government. Although Old Premier was in liquidation only at the time of the filing of the security deed in 2014, the non-compliance with BAS, superannuation guarantee and income tax obligations was well-established before the signing of the personnel deed. Were relief to be pressed both deeds could be rescinded.

191. New Premier’s defences to this cross-claim fail. It challenges ASIC’s reliance on its nondisclosure. It says that ASIC had knowledge from its own records of Old Premier’s liquidation. But in assessing ASIC’s knowledge it is not permissible to aggregate the knowledge of its officers and agents to whom disclosures were made, where each is individually unaware of the picture: Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd (1998) 3 VR 133. And none of ASICs own records nor junior or senior officers had information about the extent of Old Premier’s defaults to the ATO. The principal decision-makers, particularly Mr Iglesias wholly relied upon the impression that Mr Martonaro’s conduct gave them of Old Premier and New Premier having a sound financial and compliance history.

Conclusion

192. For these reasons the Court makes the following orders and directions:

1. the plaintiff’s claim is dismissed;

2. the cross claimant has liberty for 14 days to provide short minutes of order providing for any declaration that it seeks to have made on the cross-claim;

3. the Plaintiff is ordered to pay the defendant’s costs of the proceedings; and

4. Grant liberty to apply for 14 days should either party seek a special costs order.

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Amendments

01 April 2022 - 192 (2) space added between "have" and "made"

28 August 2024 - Catchwords restored as restricted status has been lifted.

Decision last updated: 28 August 2024