Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd - [2022] NSWSC 144

Supreme Court

New South Wales

Summary available
Amendment notes

Medium Neutral Citation: Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2022] NSWSC 144
Hearing dates: 19 – 21 and 26 – 29 April 2021
Date of orders: 23 February 2022
Decision date: 23 February 2022
Jurisdiction: Equity
Before: Ward CJ in Eq
Decision:
1. Dismiss the plaintiff’s claim with costs.

Catchwords:
EQUITY — Trusts and trustees — Express trusts — Where no declaration of trust — Whether benefit of contract pr plaintiff’s alleged interest therein held on trust — Whether defendant acquired interest in contract subject to any interest of the plaintiff therein or “subject to the equities”
EQUITY — Fiduciary duties — Partners and joint venturers — Where plaintiff negotiating with a third party company to enter into a joint venture agreement — Where business of that company purchased by defendant prior to conclusion of formal joint venture or partnership agreement — Where undertaking by defendant to “honour the intent of previous discussions” — Whether sufficient to give rise to fiduciary duties and breached when defendant obtained for itself benefit of contract in respect of which “joint” tender for installation of patient entertainment systems had been lodged
CONTRACTS — Formation — Whether binding contractual undertaking to “honour the intent of previous discussions” —Whether agreement to agree, or agreement to negotiate — Whether undertaking breached
ESTOPPEL — Proprietary estoppel — Promissory estoppel — Conventional estoppel — Whether defendant estopped from resiling from undertaking

Legislation Cited:
Civil Procedure Act 2005 (NSW), s 100
Conveyancing Act 1919 (NSW), s 12

Cases Cited:
ADM v FDGK [2018] NSWSC 442
Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495
Ammon v Consolidated Minerals Ltd (No 3) [2007] WASC 232
Antov v Bokan [2018] NSWSC 1474
Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12
Austin v Hornby [2011] NSWSC 1059
Bahr v Nicolay (No 2) (1988) 164 CLR 604; [1988] HCA 16
Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11
Barnes v Addy (1874) LR 9 Ch App 244
Barnes v Forty Two International Pty Ltd (2014) 316 ALR 408; [2014] FCAFC 152
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
Berry v CCL Secure Pty Ltd (2020) 381 ALR 427; [2020] HCA 27
Biala Pty Ltd v Mallina Holdings Limited (No 4) (1994) 13 WAR 11
Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61
Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778
Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26
Calverley v Green (1984) 155 CLR 242; [1984] HCA 81
Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371; [1974] SCR 592
Canny Gabriel Castle Jackson Advertising Pty Limited v Volume Sales (Finance) Pty Limited (1974) 131 CLR 321; [1974] HCA 22
Carter v Brine [2015] SASC 204
Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56
Cockell v Taylor (1852) 15 Beav. 103; (1852) 51 ER 475
Commissioner of State Revenue (Vic) v Snowy Hydro Limited (2012) 43 VR 109; [2012] VSCA 145
Concrete Pty Limited v Parramatta Design and Developments Pty Ltd (2006) 229 CLR 577; [2006] HCA 55
Disctronics Ltd v Edmonds [2002] VSC 454
Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd [2007] NSWCA 7
Edmonds v Donovan (2005) 12 VR 513; [2005] VSCA 27
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55
Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd (1988) 2 Qd R 1
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190
Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569; [2006] FCAFC 44
Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490; [1916] HCA 81
Hadid v Lenfest Communications Inc [1999] FCA 1798
Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54
Hungry Jack’s v Burger King [1999] NSWSC 1029
In the matter of Tresdar Pty Ltd [2019] NSWSC 179
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206
Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2020] FCA 1018
John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1; [2010] HCA 19
Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Kizbeau Pty Ltd v WG & B Pty Ltd (1995)184 CLR 281; [1995] HCA 4
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61
Korda v Australian Executor Trustees (SA) Limited (2015) 255 CLR 62; [2015] HCA 6
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23
Management Service Australia Pty Ltd v PM Works Pty Ltd [2017] NSWSC 1743
Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72
McCrohon v Harith [2010] NSWCA 67
Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52
Moore v Aubusson [2020] NSWSC 1466
Moratic Pty Ltd v Gordon [2007] NSWSC 5
Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110
News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410; [1996] FCA 870
Nguyen v Phan (No 2) [2015] VSC 634
Pavan v Ratnam (1996) 23 ACSR 214
Payne v Parker (1976) 1 NSWLR 191
Phipps v Boardman [1967] 2 AC 46
Redman v Permanent Trustee Co of NSW Ltd (1916) 22 CLR 84; [1916] HCA 47
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Reitano v Reitano [2012] NSWSC 1127
Rydledar Pty Ltd t/as Volume Plus v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65
Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7) [2019] QSC 241
Scammell (G) & Nephew Ltd v Ouston [1941] AC 251
Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47
Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19
Sinclair, Scott & Co v Naughton (1929) 43 CLR 310; [1929] HCA 34
Southern British National Trust Ltd v Pither (1937) 57 CLR 89
Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd [2004] QSC 457
Swiss Bank Corporation v Lloyds Bank Ltd [1979] Ch 548
TMA Australia Pty Ltd v Indect Electronics & Distribution GmbH [2015] NSWCA 343
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44
Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278; [2006] HCA 6
United Dominions Corporation Limited v Brian Pty Limited (1985) 157 CLR 1; [1985] HCA 49
Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; [1968] HCA 8
Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; [2007] NSWCA 75
Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18
Zugic v Vesuvius Australia Pty Ltd [2020] NSWSC 106

Texts Cited:
Heydon and Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths)
Young, Croft and Smith, On Equity (2009, Thomson Reuters)
Seddon and Bigwood, Cheshire and Fifoot Law of Contract (11th Australian edition, 2017, LexisNexis)

Category: Principal judgment
Parties: Stellar Vision Operations Pty Ltd (Plaintiff)
Hills Health Solutions Pty Ltd (Defendant)
Representation:
Counsel:
C Bova SC with J Burnett (Plaintiff)
R Newlinds SC with T Epstein (Defendant)
Solicitors:
Corrs Chambers Westgarth (Plaintiff)
King & Wood Mallesons (Defendant)

File Number(s): 2016/00284725
Publication restriction: Nil

Judgment

HER HONOUR: This matter involves a dispute arising out of arrangements entered into in 2013-2014 for the supply of “patient entertainment systems” (or PESs) to the Western Sydney Local Health District (WSLHD) following a tender process conducted by WSLHD.
In essence, the complaint by the plaintiff, Stellar Vision Operations Pty Ltd (Stellar Vision), is that the defendant, Hills Health Solutions Pty Ltd (Hills Health Solutions), wrongly appropriated for itself (to the exclusion of Stellar Vision) the benefit of a contract entered into with WSLHD in December 2014 for the supply of those PESs (the WSLHD Contract) following that tender process. In that regard, Stellar Vision contends that it tendered jointly (albeit that the response was solely in the name of the named tenderer, Questek Australia Pty Ltd (Questek)) with Questek for the supply of the PESs to WSLHD; that in February 2014, the joint tender was successful; that in April 2014 Hills Health Solutions acquired Questek’s assets and, prior to so doing, acknowledged and agreed that it would split the profits of the WSLHD project with Stellar Vision; and that Hills Health Solutions has not done so.
Stellar Vision alleges in summary that, in the circumstances, a 50% interest in the benefit of the WSLHD Contract was held on trust for it by Hills Health Solutions; that Hills Health Solutions has breached fiduciary duties and contractual obligations owed to Stellar Vision; and that various estoppels (proprietary estoppel, promissory estoppel and conventional estoppel) arise in its favour, such that Hills Health Solutions is liable to it for the relief here sought (which includes damages and equitable compensation).
Hills Health Solutions denies each of the alternative claims brought against it. However, in the event that it is held that there was a contract between the parties, Hills Health Solutions contends that Stellar Vision repudiated that contract on the basis that Stellar Vision was not ready, willing and able to perform the contract in December 2014; and Hills Health Solutions says that thereafter, by its conduct, Hills Health Solutions validly terminated any such contract.
Further, if liability is established, there is a significant dispute between the parties as to the methodology to be used in the calculation of the alleged loss and the quantum of damages.
Stellar Vision claims a 50% interest in the value of the WSLHD Contract (that being a 10 year contract with a 5 year optional extension). Hills Health Solutions says that Stellar Vision’s expert (Mr Eversgerd) has been instructed to value the contract on the basis of a broad range of hypothetical assumptions that reflect how Stellar Vision claims the WSLHD Contract would have performed, had Stellar Vision been involved in its management. Complaint is made by Hills Health Solutions (which I address in due course) that the counterfactuals upon which Stellar Vision’s expert has formed his opinion as to the value of the WSLHD Contract are unpleaded and have no factual foundation in the terms of the alleged contract (or in the admissible lay evidence adduced by Stellar Vision). Further, Hills Health Solutions says that, insofar as the true measure of a plaintiff’s loss (for breach of contract) is the loss of the value of the alleged contract at the time of the breach, the actual opinion of both parties at that time (recorded in contemporaneous business records) was that the value was in the order of $1,322,166; and hence it is submitted that Stellar Vision’s loss (assuming liability is established) is no more than 50% of that amount.

Background

Relevant entities

Stellar Vision

Stellar Vision is associated with the Stellar group of companies, which group specialises in in-flight entertainment. Stellar Vision is not a wholly-owned subsidiary of Stellar Group Pty Ltd (Stellar Group) but has some common directors and shareholders. Stellar Vision was established in July 2012 with the intention of providing a product similar to an in-flight entertainment system for “fly-in-fly-out” workers in the mining industry.
During 2013, Stellar Vision commenced the development of applications for entertainment systems outside of the mining industry, including, relevantly, in hospitals (where PESs are installed both for the use of patients and to provide access to medical records and health education resources). In the period from 2013-2014, Stellar Vision was in the business of supplying software and content for PESs.
Stellar Vision’s PES is designed to operate with a terminal with a pre-loaded operating system, known as “thick client architecture” (rather than “to boot” from a server and load an operating system from the server), which as I understand it (and as explained by Stellar Vision’s Chief Technical Officer, Dr Abul Rahman) means in practical terms that the terminals using Stellar Vision’s PES require sufficient storage capacity to load the operating system and applications. (This is of some relevance when considering the allegations of repudiation which I address in due course.)
The relevant personnel at Stellar Vision at the relevant times were: Mr Brendan McCarthy, the Chief Executive Officer of Stellar Vision; Mr Peter McLaughlin, the Chief Executive Officer of the Stellar group; Mr Rob Lynch, the Chairman of the Stellar group; Dr Abul Rahman (referred to above). Also, Mr Bryan Curtin was engaged as a consultant to the Stellar group in around October 2013; was a director of Stellar Group from September 2014 to March 2016, and was a director of Stellar Vision from December 2015.

Questek

Questek, on the other hand, specialised in providing nurse call systems and, at the relevant time, had installed a nurse call customer base in a number of hospitals. Questek was owned by Brighton Technology Group Pty Ltd (Brighton Technology Group), a company owned by Mr Darren Brighton. Questek formed part of a group of companies that also included Brighton Technologies Pty Ltd (Brighton Technologies), and Questek Infotainment Pty Limited (Questek Infotainment).
As at October 2013, Questek was in the business of developing and implementing PESs for hospitals.
The relevant personnel at Questek at relevant times were: Mr Darren Brighton (referred to above); Mr Daniel Rhodes, the General Manager of Questek; Mr Daniel Linderman, the Technical Sales Manager of Questek at the relevant time (who subsequently became Operations and Sales Manager for Hills Health Solutions – see below).
In around April 2014, Hills Health Solutions, as Buyer, entered into a Business Purchase Agreement for the purchase of assets from Brighton Technologies, Questek and Questek Infotainment (the sale completing on the same day). After completion of the Business Purchase Agreement, Mr Linderman commenced employment with Hills Health Solutions.

Hills Health Solutions

Hills Health Solutions is a wholly owned subsidiary of Hills Limited (Hills), an ASX-listed company. In the period from September 2013, Hills Health Solutions acquired various businesses in the healthcare industry, including the business of Merlon Health Communications and Hospital Television Rentals (HTR) in or around September or October 2013, and the business of Questek in April 2014.
The relevant personnel at Hills and Hills Health Solutions at the relevant times were: Mr Edward Pretty (known as Ted), the Chief Executive Officer of Hills; Mr David Starkey, who from September 2013 to October 2016 was the Divisional Commercial Finance Manager for Hills Health Solutions; Mr Mark White, the director of Mergers and Acquisitions at Hills during 2014; and Ms Peta Jurd (an employee of Hills from January 2013 to April 2015, who became the head of Hills Health Solutions). Also employed in the business as a consultant was Mr Janarthanan Rajasingam.
Mr White and Ms Jurd together conducted Hills Health Solutions’ due diligence in respect of Questek prior to the acquisition of its business by Hills Health Solutions.
As noted above, Mr Linderman became Operation and Sales Manager for Hills Health Solutions after it acquired Questek’s business in April 2014. He resigned in February 2015.

Chronology of Events

Initial discussions between Stellar Vision and Questek

In mid-February 2013, Mr McCarthy (as noted above, the Chief Executive Officer of Stellar Vision) was approached by Mr Linderman (then the Technical Sales Manager of the entity which owned Questek) as to the possibility of Stellar Vision and Questek working together to provide PESs to hospitals.
As noted above, at around that time, Questek specialised in providing “nurse call systems” for use in hospitals. In 2013, Questek won a tender for the new Brisbane Children’s Hospital (also known as Lady Cilento Children’s Hospital), (to which I will refer as QCH), which was operated by Queensland Children’s Health, for a combined nurse call system and PES. Questek did not have its own PES product. Mr Linderman requested Stellar Vision’s assistance in providing a working model of a PES for demonstration at QCH.
From April 2013, representatives of Stellar Vision and Questek commenced discussions regarding the possibility of a joint venture between Stellar Vision and Questek. In essence, what was contemplated was that Questek (which had the reputation and experience working on government contracts and hardware installation in hospitals) would provide the hardware and Stellar Vision would provide the content and software for the PES (at that stage, the relevant PES being that which was required for the work for the QCH tender).

Outline of Agreement dated 23 May 2013 (Outline of Agreement)

Following an initial meeting on 10 April 2013, representatives of Stellar Vision and Questek negotiated a form of agreement to govern the work being undertaken for QCH and the proposed ongoing relationship between Stellar Vision and Questek.
On 3 May 2013, Stellar Vision sent to Questek a document entitled “Draft Outline of Contract for Discussion”. On 6 May 2013, Questek provided a revised version of that document to Stellar Vision. The main issue in the negotiation appears to have been the extent to which Stellar Vision would be required to provide Questek with exclusive use of its software.
On 14 May 2013, representatives of Stellar Vision and representatives of Questek attended a meeting at which the terms of the draft agreement were discussed. The outcome of that discussion was that it was agreed that Stellar Vision would guarantee exclusivity for a period of one year from the date of the agreement.
On 23 May 2013, Stellar Vision and Questek executed a document entitled “Outline of Agreement” (the Outline of Agreement), which dealt with the services to be provided under the QCH project, as well as ongoing cooperation between the parties. (This is one of what Hills Health Solutions identifies as the two critical documents for the purposes of the present proceeding, the other being an Undertaking executed in March 2014 – see below.)
Relevantly, the Outline of Agreement included the following terms.
Under the heading “StellarVision’s Obligations” the following appeared:

StellarVision will provide:
•   Software for the server and Client terminals including all Client software to enable the functionality of specifications in Schedule B – Functionality Brief;
•   Unlimited use of the initial software for the life of the terminals;
•   Remote monitoring of the entertainment system;
•   Initial installation testing and ongoing support of the software for the Defect and Liability Period (DLP) of 2 years;
•   Onsite installation and commissioning of software as required until DLP expires;
•   Supply Questek with service faults via email to Questek support.

Under the heading “Questek’s Warranties” the following appeared:

Questek warrants that:
•   it has the capacity to support the warranties;
•   StellarVision will have continued remote access to the system subject to the Hospital Networks Security requirements;
•   it will not attempt to reverse engineer StellarVision’s software systems or processes;
•   it is StellarVision’s fiduciary with respect to the technical know-how and intellectual property which StellarVision is allowing Questec to use;
•   it will supply StellarVision with a SLA if the hospital takes up the opportunity;
otherwise all service after the 2 year DLP will be a chargeable item;

•   the system will, when used, not breach the intellectual property rights of any other party;
•   the system will not be used to commit a criminal offence;
•   the system will not be used to breach any defamation laws

By a clause titled “Scope of Agreement” the Outline of Agreement provided that it did not create a partnership.
The Outline of Agreement included a “Future Cooperation Clause”, which provided:

Between the signing of the agreement and 31 Dec 2013 both parties agree to enter into bona fide discussions to develop the concept of working exclusively with each other on a project-by-project joint venture arrangement for mutual benefit. This clause is not intended to create any legal obligation between the parties.

Pausing here, Hills Health Solutions accepts that the Outline of Agreement contemplated (as indeed it expressly provided for) bona fide discussions to be entered into and the possibility of further agreements but contends (and I agree) that the Outline of Agreement had no contractual force (other than as to the agreement to enter into bona fide discussions and in respect of the QCH project; a breach of neither of which is here suggested). Hills Health Solutions further maintains that the Outline of Agreement could not have created some equity in favour of Stellar Vision.
Stellar Vision nevertheless points to Mr McCarthy’s evidence that, as at the date on which the Outline of Agreement was signed, he understood that the Outline of Agreement would form the basis upon which Stellar Vision and Questek would conduct future tenders, in the form of co-operation and engaging in bona fide discussions. (Mr McCarthy’s understanding would not be relevant to whether there was a binding contract or its terms; at most it would be relevant to the estoppel claims.)

Stellar Vision demonstration at QCH – 11 June 2013

As noted above, Questek had been successful in winning a tender to provide PESs at QCH and had requested Stellar Vision’s assistance in providing a working model of a PES for demonstration at QCH. Between April and May 2013, representatives of Questek and representatives of Stellar Vision exchanged emails regarding the demonstration; and Mr McCarthy and Dr Rahman worked together to complete the work in time for the on-site demonstration in Brisbane.
On 11 June 2013, Mr McCarthy, Mr Linderman and Dr Rahman conducted an on-site demonstration of the Stellar Vision PES at QCH. It appears that the demonstration was successful in that, from then, Stellar Vision continued to work with Questek in respect of the QCH project.

Discussions as to joint tenders and joint venture proposal – June-September 2013

Between June 2013 and September 2013 (as contemplated by the Outline of Agreement), representatives of Stellar Vision and Questek engaged in discussions regarding other requests for tender and the possibility of entering into a joint venture.
On 13 June 2013, Mr Linderman sent to Mr McCarthy a request for tender for PES as part another project, of the Box Hill Hospital Redevelopment Project, for which Questek wanted to tender, with a covering email that included:

Please have a look at the requirements of the attached project can you please have a quick look at it as we are going for it and as discussed it’s a short time frame. Please also have a think about the best way to manage the project from the Questek/Stellar view as discussed the more risk the bigger the return. Now you have seen the QCH project that should give you a good idea of what’s required.

Mr McCarthy’s evidence (see his affidavit sworn 12 July 2017 at [31]) is that at around that time he had a conversation with Mr Linderman to the following effect:

Mr McCarthy: If we are actually putting in for a fresh tender here, without yet having a joint venture company in place, we have to make sure we brand all submissions with both Stellar and Questek logos. The bulk of the work will be done by you and me anyway. We just have to make sure the various hospitals know that.
Mr Linderman: Of course, mate, of course.

Pausing here, it is evident from the above exchange that, as at mid-June 2013, Stellar Vision (i.e., Mr McCarthy) did not consider there to be a joint venture (at least formally) in place between itself and Questek.
On 27 June 2013, there was a meeting between representatives of Stellar Vision and Questek at which the work required to submit joint tenders was discussed; each project being described as a “bucket”, with each party to contribute to that bucket.
On 6 July 2013, Mr McLaughlin sent an email to Mr Brighton, in which he set out the items that Stellar Vision would contribute to the “bucket”, Stellar Vision’s contribution there said to include: software, networks, headend streamers, media servers, data storage, “DRM”, content, project management, business development and maintenance. Mr McLaughlin there said:

…
As I said this is a starting point if Daniel [Linderman] could progress from your end and the [sic] both he and Brendan [McCarthy] work this up where we can agree on all the items that would be great.
We are currently evaluating a number of models for joint ventures that we have been involved with and once we have all the information we can progress.
I want to point out that it is our intent to try and work this through to a satisfactory conclusion for both parties. Also we want to keep it as simple as possible.
…

At around this time, it appears that Questek received a ‘buyout offer’ from Hills (with which at that stage it decided not to proceed) because, on 8 August 2013, Mr Linderman (of Questek) responded to Mr McLaughlin’s 6 July email, saying:

Sorry for the delay, as you know Darren [Brighton] was offered a buyout from Hills Holdings three weeks ago for Questek with an offer to [sic] good to refuse looking at. Halfway through due diligence Darren decided it was not going to be the best option for the company as a group at this time and he is now back on track and motivated more than ever. At the time we felt it was best to sit tight with the Infotainment deal with Stellar to save any confusion if a deal was to go ahead with Hills.
…
Questek / Stellar & Joint Venture “The Bucket”
“The bucket” – being a joint venture between Stellar Vision and Questek. Using the strong name of Questek in the healthcare market as the lead into the projects and the power of the Stellar Group coming into the game as one of the world’s largest inflight content providers. Uniting the two companies to take to the QCH project and now bring one of the largest PES backed ventures with a combined backing of over 150 employees worldwide and an annual turnover of over 100 million dollars combined. Both companies are Australian owned and operated from Sydney Australia.
…
After hearing many options I propose 2 only. Both options need Stellar and Questek to commit to each other under an agreement that they will not sell to any reseller or potential client in the described market. This includes Aged Care Facilities, Hospitals & Aged Care at Home. This would also need to include our overseas offices and Australian resellers within this market place [sic].
Options
1. We create a job by job deal where we ask for a quote from Stellar to supply its services and software as required. Questek quotes its installation and management costs. And both parties split the cost of all hardware for the project and split the profit from the product. (if either party over price [sic] then both parties don’t get the project and cannot go to competitors) Both parties can discuss each other’s pricing as required to ensure we all have the best opportunity to win the project.
2. A joint venture – Create a middle company “HOSCOM” this would use the services and market power of both parties and grow to the point where it could stand on its own. It would have access to all Stellar content / services and Questek services and pay a % for the services or a commission on the projects if Questek was the lead-in on the project. Both parties wold [sic] fill the bucket with their “Bucket attributes” (as supplied by Peter & Daniel – Below). Until the bucket could found [sic] itself and services could be funded from with the bucket. The bucket would share accountants till the point where it could fund its own internal personnel. Doing it as a joint venture would also allow both parties to be heavily involved in the sale to ensure we win the project and would ensure both parties have the same intentions. (to fill the bucket within money and keep as much in it at the end of the project)
…
[The email went on to identify the items that Questek would contribute to the “bucket”.]

Stellar Vision’s evidence is that, at this time, Stellar Vision was working on the basis that it would contribute the items listed in its “bucket” (as identified in the emails referred to above) in respect of the projects on which Stellar Vision and Questek were jointly working (at that stage, the Box Hill project, in respect of which Stellar Vision prepared the technical specifications for the tender response; and the QCH project, in respect of which Stellar Vision was converting the demonstration platform into a fully functioning production system).
Pausing here, it is evident that, as at August 2013, there was still no formal joint venture agreement in place; the two options then being put forward for consideration by Mr Linderman (then at Questek) being a “job by job” deal (where Stellar Vision would supply services and software “as required” and Questek would quote its installation and management costs; both the cost of hardware and the profits would be split; and there would be some form of restraint if the tender was not successful) and the creation of a joint venture “middle company” in which both parties would seemingly have an equal interest. Further, although Mr McLaughlin’s email had suggested that Stellar Vision’s contribution to the “bucket’ would include “project management” Mr Linderman’s response suggested that management would be provided by Questek.
During September 2013, Stellar Vision and Questek continued to discuss the nature of their proposed ongoing relationship. During this period, it appears that one proposal advanced was that Stellar Vision acquire an interest in Brighton Technology Group (Questek’s parent company) because, on 2 September 2013, Mr McLaughlin sent an email to Mr Brighton, stating that “[l]ast week you put an equity proposal on the table. We view this as a possible solution and would like to explore further”.
On 5 September 2013, Mr McLaughlin sent a further email to Mr Brighton, stating “[w]hen I return lets [sic] get together to nail out the path forward so we can undertake a JV or equity swap”. According to Mr McCarthy, these communications confirmed Stellar Vision’s desire to “move things forward with Questek”.
On 23 September 2013, Stellar Vision held a board meeting in which the status of negotiations with Questek was discussed. Mr McCarthy’s evidence refers to discussions at that board meeting about the most recent suggestion from Questek, namely that Stellar Vision purchase equity in Questek’s parent company.

WSLHD Request for Proposal – September 2013

On 25 September 2013 (by which time there had still been no agreement reached between Stellar Vision and Questek as to the form of any joint venture arrangement between them – an equity arrangement still being under discussion at least from Stellar Vision’s perspective), HealthShare NSW (an incorporated State Government body which I understand acts as the procurement arm of the NSW Department of Health) issued a Request for Proposal (RFP) for the provision or supply of a PES for WSLHD. An addendum to the RFP subsequently was issued on 18 October 2013. Mr Linderman forwarded both the RFP and the addendum to Mr McCarthy, at the time each was issued.

October 2013 communications in relation to proposed Questek/Stellar Vision joint venture

On 1 October 2013, a discussion took place between Mr McLaughlin and Mr Linderman, to which Mr Linderman made reference in an email sent on 2 October 2013 to Mr McLaughlin:

Thanks for the catch up yesterday, as discussed Darren [Brighton] has advised me that we will not be able to do an equity share in Questek at this stage.
Following on from that we would like to still look to a joint venture for Healthcare & Aged Care (StellaQuest) with the details discussed yesterday:
1.    Stellar Group to supply StellaQuest with software code/system based around the QCH supplied project to build off.
2.    Allow StellaQuest to operate in all countries that the parent companies operate in.
3.    Allow StellaQuest to build the code and system for the Aged and Healthcare & Home Care market.
4.    Stellar Group and Questek to supply Programming services as required according to StellaQuest requirements at lowest agreed rate.
5.    Questek to supply Marketing, Sales, Art Work, [sic] Installations and Project management services to StellaQuest at lowest agreed rate.
There are also other points you will need to add but this should be a good start.

On 9 October 2013, Mr McLaughlin (Stellar Vision) responded:

Thanks for your note. I wish to point out that our greater interest would be for Stellar Entertainment to acquire an equity stake in Questek. We believe this is the best option and have engaged someone to evaluate this as our preferred option [it seems that this was Mr Curtin who had been engaged as a consultant in or around October 2013]. Is this totally off the table?
As I see it, the sticking issue for a JV is around our IP. From our point of view this is not a negotiable item it stays with the company that owns it, and that is Starplex. StellarVision licenses any software from this company and we would only enter into an arrangement where the software is licensed.
We have tried since Sept 5 to move forward on your proposed equity position with no reply till your phone call of Oct 1. We feel as though we are going around in circles.
If any equity position is not on the table and based on our position that the IP for the software is not part of any JV deal, is there any point in pursing [sic] a JV relationship?
Our position at this stage is to quote purely as a supplier and if an equity position is on the table then let’s have a discussion.
[my emphasis]

By this stage, therefore, Stellar Vision is questioning whether there is any point in pursuing a joint venture (due to “the sticking issue” of its intellectual property; is pressing for an equity deal; and is proposing simply to “quote as a supplier” (presumably of its licensed software)).
Somewhat inconsistently with the position advanced in Mr McLaughlin’s email (that Stellar Vision’s position at that stage was to quote “purely as a supplier”, Mr McCarthy’s evidence is that on the same day (9 October 2013), he and Mr Linderman discussed the way in which Stellar Vision and Questek should respond to the RFP (in the absence of an incorporated joint venture vehicle or any written agreement other than the Outline of Agreement in terms that suggested that at least on Questek’s part what was contemplated was a joint venture). Mr McCarthy’s evidence is that he had a conversation with Mr Linderman which included words to the following effect:

Mr Linderman: You’ll note on the tender application forms that you can only submit a proposal under the banner of one party, right? Well, until such time as we have a joint venture company up and running, we should just list Questek as the nominee party for our joint venture because we have all the proper accreditations and experience with hospitals. All the procurement people know us so it will just be easier to smooth over any speed-bumps which crop up during the bidding process. We’ll brand everything with both Stellar Vision and Questek logos, we’ll obviously share the workload in drafting the response and you and I will attend the meetings and do the actual presentation to the procurement people. I’ll leave them in no doubt whenever I speak with them that this is a joint Stellar Vision and Questek bid and should be treated as such. We’ll just substitute the joint venture company in at a later date. For now, we just have to put Questek on the application form to give us the best chance. [Emphasis as per Stellar Vision’s submissions]
Mr McCarthy: Well, provided that everyone at the procurement end knows who we are, knows what we do and knows what our stake is in this bid, then that should be ok with us.

On 11 October 2013, Mr Brighton responded to Mr McLaughlin’s email, stating that “I’m unable to offer equity right now and would reconsider in 12 months time. Re moving forward, were [sic] happy to proceed with a simple Licensing agreement to sell our combined solution to the market as a Stellaquest brand for infotainment to our customer base. We would like to discuss some form of protection such as exclusivity for our markets…”. Again, this is not consistent with a contemplated joint venture; rather the discussion seems to have been as to a licensing agreement.

Position regarding the RFP

On 21 October 2013, Mr McLaughlin sent an email to Mr Brighton, in which he advised that Stellar Vision intended directly to tender for the WSLHD project:

As I said our preferred position was an equity stake. ….
The proposition below still requires a lot of detail and will take time to flesh out.
The most pressing thing at the moment is the NSW hospital tender.
Given we have not been able to agree on a path moving forward I need to inform you we will tender for this direct.
As I said previously I feel we have gone around in a circle as it is our intent to have an agreement. However what is table [sic] needs a lot more discussion as it not what we are looking for.
However happy to keep discussions going.

Mr McCarthy’s evidence is that he understood that, by taking this position, Stellar Vision would “put some pressure on Questek to move forward with a joint venture”. (Again, however, this makes clear that Stellar Vision did not understand there to be any formal joint venture in place at this stage insofar as it considered it was free to tender separately for the WSLHD project)
Mr Rhodes (of Questek) responded to this email on the same day, stating:

I have been working with both Darren Brighton and Daniel Linderman to build a “go to market” plan with the Stellar Entertainment solution (that we have installed into QCH), both nationally and Internationally.
It seems from your view, that the planned negotiations to work together for this market are failing, thus you perceive the best step forward is to quote installations into our agreed market yourselves. I ask that you honor [sic] our current agreement [presumably a reference to the Outline of Agreement which provided for bona fide discussions – see above] and work with me to conclude our negotiations within the next 7 days. …

The 21 October 2013 email from Mr Rhodes identified three options: an “exclusivity agreement”, a “joint venture” (using a new entity with a 50/50 share agreement); and an equity purchase (though, as noted above, Mr Brighton had previously made clear that an equity purchase was “off the table”).
There was some discussion internally within Stellar Vision as to how to respond to this proposal. On 22 October 2013, Mr Lynch (of Stellar Vision) wrote to Mr McCarthy, stating that “[m]y feeling is that we go it alone on this current tender…In the absence of a long term deal we thought it best wee [sic] do this one alone until we can conclude a deal , [sic] it could then be rolled into the deal if we are successful”. Mr Lynch subsequently wrote that “[o]ur best chance is to do a joint bid but [presciently as it turned out] not until we have a tight shareholders agreement in place”. Mr McCarthy responded that “I am working on the notion that the tender process [is] the beauty parade and if [we] get in front of them the more commercial discussions can be had. […] Agree joint bid higher probability”.

On 24 October 2013, Mr McLaughlin wrote to Mr Rhodes, responding to his email of 21 October 2013, stating:

Also can you confirm which of the three options, or if all three you have listed below are on the table. As mentioned our preference is to explore an equity position in Questek as offered by Darren.
From our point of view it does feel as though we are going back over some ground we have covered on the three options, we are encouraged that you agree the discussions need to be concluded in a defined time frame to enable both of us to make plans moving forward. I think the parties agree that a formal agreement and structure needs to be in place before tendering for contracts.
Our move to quote direct on the NSW hospital tender was a result of our frustration in [not] getting the right engagement on the subject of a formal agreement which we believe must be in place for both parties benefit. To show good faith and our desire to work with Questek, we will not respond directly to the current NSW hospital tender this week and will support Questek’s submission as principle. [sic]
…
In the meantime have asked Brendan [McCarthy] and his team to engage with Daniel Linderman, to give our full support to Questek’s tender submission by Friday.

Mr McCarthy then wrote to HealthShare NSW on 25 October 2013, advising that Stellar Vision would not be submitting a tender as principal.

Preparation of response to RFP

It is not disputed that Stellar Vision and Questek worked together in preparation of the response to the RFP. In particular, Mr McCarthy and Mr Linderman exchanged emails in respect of the RFP, and Mr Linderman was provided with shared access to the technical specifications document that Mr McCarthy and Dr Rahman were preparing in response to the RFP. Stellar Vision points to Dr Rahman’s evidence (in his affidavit sworn 10 July 2017 at [20]) that “there were no secrets between Stellar Vision and Mr Linderman” in the process of preparing the response to the WSLHD tender and that Stellar Vision and Questek “shared every bit of information”. That evidence was not the subject of any challenge (but is also not inconsistent with Stellar Vision simply taking the commercial risk that negotiations for a joint venture or other arrangement would not be concluded but wishing to be part of the “beauty parade”).

Response to RFP – October 2013

On 25 October 2013, the response to the RFP was submitted. It is not disputed that it was in Questek’s sole name (a sole tenderer being a requirement of the RFP). Stellar Vision says that it was primarily responsible for preparing the technical specifications forming part of the response; and that Questek was primarily responsible for the corporate and compliance parts of the response, and the executive summary.
The executive summary included in the response to RFP was provided on a letter bearing the logos of both Questek and Stellar Vision. Stellar Vision says that the text of the executive summary made it clear that the response to the RFP was a joint response from Stellar Vision and Questek, noting that there was extensive reference to both Questek and Stellar Vision, including reference to their “combined resources” and a description of the companies as a “truly unique partnership”, as follows:

Our submission combines the resources of two leading Australian companies from Healthcare and Entertainment.
Questek is an Australian owned company with over 30 years experience in providing healthcare communication solutions…
…
Stellar Entertainment (Stellar) is also an Australian owned company with over 30 year of [sic] experience in Entertainment content, systems, software and solutions. …
…
The combined resources offer a truly unique partnership, leaders in Australian healthcare and entertainment technology and solutions, developers not integrators of hardware and software, direct access to the largest Hollywood studios, entertainment programming, and knowhow and a shared focus to provide simple, cost effective solutions that deliver the best experience for you and your patients. The combined resources also mean the support of over 60 dedicated staff and over $60 million in revenue per year.

The response included reference to the resources, experience and turnover of both Questek and Stellar Vision; financial information concerning the Stellar group; references provided to the Stellar group by Virgin Australia, Garuda Indonesia and Malaysia Airlines; and a document entitled “StellarVision PES Packages”, which identified the available content and functions in respect of each identified package. The response also included images of PES terminals branded “StellarVision”.
The response did not include any references or financial statements in respect of Questek. Mr McCarthy’s evidence is that he included that material in respect of the Stellar Group in the response because he understood that was a requirement of submitting a compliant tender. (The relevance of this understanding is moot.)

November 2013 presentation

On 7 November 2013, Mr Linderman received an email inviting him to make a presentation in respect of the proposal. Mr McCarthy’s internal report following receipt of this notification was that “Questek as principle [sic] (and thus StellarVisionas [sic]) have been short listed [sic] and move to the next round of the WSLHD Tender”. Mr McCarthy and Mr Linderman worked together to prepare the presentation.
On 11 November 2013, Mr Linderman and Mr McCarthy attended the presentation at Westmead Hospital. Mr Linderman made the formal presentation and Mr McCarthy was involved in answering the questions that followed. Mr McCarthy’s evidence was that, during the presentation, Mr Linderman said words to the effect:

Questek and Stellar Vision are two companies with related and complementary strengths. While Questek, as you know, has over 30 years’ experience in nurse call, Stellar Vision brings over 30 years of experience in content and entertainment. In coming together to make this joint bid and combining our individual strengths, we are confident we provide to you a unique made-in-Australia offering.

The PowerPoint slides used at the presentation featured the Questek and Stellar Entertainment logos (giving each equal prominence); included a slide headed “benefits of using Stellar / Questek”; and included images of PESs labelled “StellarVision” and “Questek Australia”.

Hills’ due diligence regarding Questek – November 2013 to April 2014

From November 2013 until April 2014 (when Hills Health Solutions acquired Questek’s business), Hills conducted due diligence in respect of Questek and Stellar Vision. (Stellar Vision emphasises that this due diligence occurred in the context of Questek and Stellar Vision having submitted a “joint response” to the WSLHD tender, and in the context of Stellar Vision and Questek negotiating entry into a proposed formal joint venture agreement.)

Ongoing joint venture discussions

On 12 November 2013, Mr Curtin attended a meeting with representatives of Questek to discuss the options identified in Mr Rhodes’ 21 October 2013 email (see above). At that meeting, Mr Curtin identified that the Stellar group was likely to favour a joint venture. Mr Curtin’s understanding at the meeting was that Questek would consider that preference and would communicate its view to Mr Curtin.
On 19 November 2013, Mr Rhodes sent an email to Mr Curtin confirming Questek’s position, which provided:

Thank you again for your time last week to discuss the future of Stellar and Questek (BTG) moving forward.
After our discussions, Darren [Brighton] and I have agreed that the best way forward, with the best outcome for each company, is a Joint Venture.
Can you please start drafting what the JV would look like and the roles and responsibilities of each company?

By this stage, therefore, it seems that both parties had at least argued that the option best for each would be a joint venture but there was hardly an agreement as to how it was to be structured or the like.

Status of WSLHD tender in November 2013

On 25 November 2013, Mr Linderman sent an email to Mr McCarthy regarding the status of the WSLHD tender, referring to “Questek/Stellar”:

Re: WSLHD
I spoke to Margaret from WSLHD today,
The committee group have made their decision and have forward the details to the Head board to assess the “final decision” on who they wish to go with for the 1200 bed PES tender.
This is a good thing at this stage I believe the running will now be out of [sic] Healthvue and Questek/Stellar. All going well she will be back to us by the 15th December 2013.
Note: When I asked her how our tender was progressing she replied they had forward [sic] it on to the board.

Stellar Vision informed of Hills’ offer for Questek

On 27 November 2013, Mr Curtin attended a further meeting with representatives of Questek to discuss the joint venture. During this meeting, Mr Curtin confirmed that drafting of a joint venture agreement was underway; and Mr Rhodes communicated that Hills had made an offer for Questek, and that Questek and Hills were likely to reach an agreement.
Mr Curtin sent an email to Mr Lynch on 28 November 2013 advising that:

You may have heard that I met yesterday with Questek to discuss the terms of a Joint Venture. The discussion went well and we are in full agreement on the broad terms to be included in an agreement.
The important news is that Hills are in discussions to purchase Questek and Hills are aware and in agreement with the JV with Stellar which will be part of the purchase.
This should be of great benefit to StellarVision giving us a significantly stronger JV partner with prospects of more rapid market penetration given Hills [sic] customer base.
I will discuss drafting of the JV Agreement with Wade today.

Hills Health Solutions points out (and I accept) that at this stage there were still ongoing discussions about arrangements other than a joint venture; noting that on 28 November 2013, Mr McLaughlin wrote to Mr Lynch, advising that “I got a call from Darren Brighton today confirming what Bryan [Curtin] has said. He went on to ask if we were interested in an equity stake in his business. My reply was that since the initial proposal we have moved on as we thought it was off the table. However we are more than happy with the JV and our commitment there”.

Discussion regarding the documentation of joint venture agreement

On 2 December 2013, Mr Brighton sent an email to Mr Curtin stating:

Thanks for your time last week, I believe we have the foundations for a great business JV and would like to ask of you to provide a timetable for the process to get this JV agreement done ASAP, based on our current opportunities
My thoughts would be to make a simple one pager letter of intent to have a new JV agreement between Questek and Stella Group? and the following key points:-
Name of the new Venture to be agreed by both parties (Questel or TED – Television Entertainment Distribution, as an example of some names)
Shareholding to be equal between both investment
Initial investment of $250k per partner
Daniel Linderman and Brendan McCarthy to be paid equal base salary with commission structure based on set KPI
If you would like to get together to discuss the next step, I’m keen to get this agreement tied up ASAP, as to have a clear picture moving forward.

A “JV template” was sent by Stellar Vision’s lawyers on 3 December 2013 to Stellar Vision, and circulated to Questek.

Discussions as to the proposed deal between Hills and Questek

On 3 December 2013, Mr Brighton emailed Mr Curtin and Mr Rhodes, stating:

Can I suggest we kick off the JV for 3rd February as the planned settlement for hills is February, unless your [sic] happy to get it done and started for Jan 1st and my funds will go in February and I simply pay Daniels salary until 3rd February.
As soon as I get the agreement, I will pass to my lawyer for advice and hopefully we can get a heads of agreement signed prior and subject to legals being completed

Stellar Vision says that, by this time, it was apparent to it that Hills Health Solutions would be purchasing the assets of Questek.
On 24 December 2013, Mr McCarthy sent an email to Mr Curtin (and others):

Dan [Rhodes] is telling me that the Questek / Hills commercials have been agreed again and some due diligence for them to do on some technology on nurse call side and then he feels the deal will be signed.
Dan feels Darren [Brighton] received an extra $600-750k in his total price for the JV to be included in his deal. Previously Hills did not want to include any value for our JV and Darren advised he would do on his own and compete. Ted P [Pretty; CEO of Hills] came back to him and advised he does want the JV.
Darren is thus keen for an update on where our JV agreement is at ? Bryan/Peter could you please send Darren an update on where agreement is at.
[Emphasis as per Stellar Vision’s submissions]

Mr Curtin’s evidence is that, after receiving that email, he had a conversation with Mr Brighton during which they discussed the status of the joint venture agreement between Stellar Vision and Questek and Mr Brighton informed Mr Curtin that “[a]s Hills will be buying the communications assets, they will have input into the joint venture agreement”. The content of this conversation was recorded in an internal email sent on 24 December 2013 by Mr Curtin to Mr McCarthy, Mr McLaughlin and Mr Lynch:

I have spoken to Darren [Brighton] this morning. He confirmed he has now signed a Heads of Agreement with Hills with targeted finalisation date of 28 February 2014.
We had already agreed to move forward on the JV Agreement which I have yet to send [to] him. After a hiatus following advice that the Hills deals was [sic] off or deferred, I am now marking up the template for Wade to amend after his Christmas break.
Darren explained that Hills increased the price to include “the Communications assets” that Questek is including in the sale.
He advised that Hills will have input into the JV Agreement.
…

Emails between Mr Linderman and Mr McCarthy on 13 January 2014 indicated that Stellar Vision’s solicitor had delayed in sending through the joint venture document but that Stellar Vision was aware that Hills Health Solutions needed the draft agreement for its due diligence.

January 2014 preliminary meeting between Stellar Vision, Questek and Hills

On 21 January 2014, representatives of Stellar Vision, Questek and Hills attended a preliminary meeting, seemingly as part of Hills’ due diligence in respect of its acquisition of Questek. At this meeting, Ms Jurd seems to have requested a demonstration of Stellar Vision’s PES system (see below).

Draft “Shareholders Agreement”

On 23 January 2014, Mr Curtin sent a copy of a draft “Shareholders Agreement” to Mr Brighton (this apparently being what was then contemplated to be the joint venture agreement); and Ms Jurd was provided with a copy of this draft agreement around that time. Schedule 1 to the draft agreement set out the proposed respective obligations of Stellar Vision and Questek (subject to further negotiation):

1.   Stellar’s Obligations
1.1.   In order to facilitate the proper conduct of the Business, Stellar will do all things necessary to ensure that provides [sic] to the Company [i.e., the proposed joint venture company] the following:
(a)   A Licence in the form attached … for the use of the Proprietary Software for the operation of a Patient Entertainment System as per the specifications outlined …

1.2   In order to facilitate the proper conduct of the Business, Stellar will provide to the Company, the following:
(a)   Initial installation of the Proprietary Software.
(b)   Initial testing of the Proprietary Software and the PES as a functioning network.

2   Questek’s Obligations
In order to facilitate the proper conduct of the Business, Questek will provide to the Company the following:
(a)   A transfer of all Questek’s existing rights under the contract between Questek Australia Pty Ltd and the Queensland Children’s Hospital [insert specifics of contract ie: precise entities and execution dates].
(b)   [insert clause obligating Questek to refer all other potential contracts to the JV Company?]
(c)   Access to all Client premises as and when required for the initial installation and testing of the Proprietary Software and PES.
(d)   All relevant knowledge which may be required by the Company for the initial installation and test of the Proprietary Software and the PES in a hospital or aged care environment.

…

Draft confidentiality agreement

On 28 January 2014, Ms Jurd sent an email to Mr McCarthy in respect of the proposed demonstration that had been scheduled for 30 January 2014. That email, which attached a draft form of confidentiality agreement, stated:

Please find attached a mutual Confidentiality Agreement to cover both Hills and Stellar in relation to our discussions on Thursday. If you could execute before Thursday that would be great.
Mark White and I would like to chat with you, and whomever else you believe is relevant, before the larger group joins on Thursday. We would like to understand what Stellar is looking to achieve from the JV with Questek and, along with Hills [sic] objectives, ensure that the structure is the most appropriate for both parties going forward.
We are excited by what we heard last week and are looking forward to seeing the system live on Thursday.

Pausing here, it is clear from this that Ms Jurd did not understand that there was any binding agreement at that stage in relation to a joint venture between Stellar Vision and Questek since she is referring to ensuring that the “structure is the most appropriate for both parties going forward”. (This is relevant in light of the submissions made by Stellar Vision as to the knowledge gleaned by Hills Health Solutions from its due diligence.)
The confidentiality agreement was not in fact signed before the demonstration (although it was subsequently executed by Stellar Vision, on 31 January 2014, and by Hills). The “Approved Purpose” was defined in the confidentiality agreement as:

[T]o assist the [party receiving the confidential information] to assess the commercial feasibility of entering into a joint venture with respect to the provision of patient entertainment systems in the health and aged care industry sectors in Australia.

On 30 January 2014, prior to the meeting at which the demonstration was given, Mr Linderman emailed to Ms Jurd the Outline of Agreement, describing it as “the current agreement that Questek and Stellar are operating under”.
On 28 January 2014, Mr McCarthy wrote to Mr Curtin, stating that “[a]s expected they [presumably Hills] are looking at options other than a JV eg license [sic] agreement only or some other structure”. Mr Curtin responded, stating that “[i]t is not surprising that Hills are exploring an alternative structure. We anticipated Hills may want to eventually take all the direct relationship business with the hospitals and simply pay to licence the software. Questek took the view that we should pool our resources in a JV and not compete directly in the hospital market”. There is no suggestion in this internal email that Stellar Vision understood there to be some binding joint venture arrangement already in place with Questek; or that Hills might not be free to negotiate its own terms for any ongoing arrangement with Stellar Vision.

Demonstration on 30 January 2014

On 30 January 2014, at Stellar Vision’s offices in Glebe, Dr Rahman demonstrated to representatives of Hills and Questek including Ms Jurd and others the software that Stellar Vision had been developing to meet the WSLHD tender requirements. This included a full demonstration on an Android terminal. It is noted by Stellar Vision that no complaint was then made about any deficiencies with the demonstration.
Mr McCarthy’s evidence is that Mr Fiorini (of Hills Health Solutions) and Ms Jurd said words to the following effect at the demonstration:

Mr Fiorini: We previously reviewed Android players but we have found that they crash after a few minutes. It is quite impressive that you have been able to resolve this technical issue – this is the first one I have seen work.
Ms Jurd: Yes, I agree. I have seen a few platforms both here and overseas and your one is the most impressive.

During that meeting, Ms Jurd discussed the status of the joint venture negotiations between Questek and Stellar Vision; and the WSLHD Contract. Ms Jurd indicated that she had reviewed the draft joint venture agreement; that Hills could not agree to the proposed exclusivity provisions given Hills’ other businesses; and that Hills had a general policy against joint ventures.
Following the meeting, Mr White sent an email to Mr Curtin and Mr McCarthy:

Thanks Bryan and Brendan for your time today.
Peta and I will come back to you with suggested next steps re the workshop we mentioned to further discuss the market opportunity and potential GTM [go to market] options… ie JV, licencing [sic] etc

Tender request for information

On 3 February 2014, Ms Margaret Edwards Sutcliffe of HealthShare NSW sent an email to Mr Linderman raising a series of questions in respect of the WSLHD tender, including:

Installation timeframe if Questek / Stellar International were successful for this business would be three (3) months

Mr McCarthy and Mr Linderman discussed the response to that request for further information. (Stellar Vision points out that HealthShare was there referring to “Questek / Stellar”.)

February 2014 joint venture discussions

On 4 February 2014, Mr McCarthy sent Mr Linderman an email, asking:

Is it worth both you and I sitting down with Peta [Jurd] to talk through the JV, how it came about, how we have been operating over the past 6 months as we worked towards its formalisation, and what our aim and plans where for it once formalised ?

Mr Linderman responded to this the same day that:

I will ask her tomorrow. Tomorrow is not just based around stellar. Its more about the HTR business and what we are doing with it and we will discuss what they want out of stellar to ensure it fits in with there [sic] objectives. I will ensure you get the opportunity to talk with her prior to any direction being finalized [sic].

WSLHD tender awarded – 5 February 2014

On 5 February 2014, the WSLHD tender was awarded (in its terms, to Questek). On the same day, Hills Health Solutions was informed that the tender had been awarded.
On 5 February 2014, Mr McCarthy sent an email to Mr Lynch, Mr Curtin and Mr McLaughlin:

As discussed please see attached the Letter of Offer in relation to the Tender Submission the JV participated in. I have also attached the Executive Summary from the RFP Response.
This is a great result as it demonstrates the JVs [sic] ability and potential to compete with the biggest names in the industry. The timing in light of Hills discussions a positive as well
…
We have some serious work ahead of us. This is a super contract to have in hand.

Mr Curtin’s reference to the “JV” can only be to his understanding of the arrangements between Stellar Vision and Questek since it is abundantly clear that at that stage there was no joint venture agreement (formal or otherwise) with Hills Health Solutions. However, the joint venture arrangements had been finalised with Questek.
On 6 February 2014, Mr Linderman sent an email to Mr White, attaching a “workout doc” used during the tender process for the WSLHD tender. Hills Health Solutions notes that the attached spreadsheet made no reference to a profit share with Stellar Vision.
On 23 February 2014, Mr Lynch sent an email to Mr McLaughlin, stating that “[s]poke to Darren [Brighton] just now. He wanted to know how we felt about Western Sydney deal. I said we are just waiting on the sidelines to see what he does but we are relaxed either way, we can see the benefits of both options and are happy to fit in with his decision”. (This seemingly refers to the two options being whether Questek proceeded with the Hills’ buy-out or did not.)

Meetings in respect of the WSLHD project

On 26 February 2014, there was a meeting attended by representatives from NSW Health (Mr Noone and Mr Burnett), Mr McCarthy and Mr Linderman. Mr McCarthy’s evidence is that, during this meeting, the following exchange took place with Mr Noone (from WSLHD):

Mr McCarthy: As you know, our tender bid was a joint submission and we will need to change the tender entity from Questek to the joint venture entity when it is formed. How do we go about arranging to change their name on the contract for the tender?
Mr Noone: This isn’t usually a problem – we have done it in the past. Once you are ready, you will need to discuss this with HealthShare NSW as they look after the contract side of things.

Following this meeting, Mr McCarthy sent an email on 27 February 2014 to Mr Linderman stating that:

The feedback we received yesterday from our initial WSLHD meeting was that we should raise any contractual points, such as an entity change to the incorporated joint venture (no real change to what we are and have been doing just formalizing). They did not appear to have any real issue around an entity change.
The second main point on contract start date they also felt was reasonable. Again the earlier we flag the better as they suggested.
Bryan [McCarthy] and I will have an intense read of the deed/contract draft previously supplied and mark up any sections for our discussions.
We should get together to compare markups and communicate these back to Health Services.
The sense I got was we should be looking to get this back to Margaret before they issue contract from there [sic] end.

Mr Linderman’s response to Mr McCarthy the same day was that:

Yes it was a great meeting. I think this will begin the Rollin effect for a great future together.
At this stage I cannot ask to change the contract details without having any details to change it to. We are all keen to change it and move ahead with the JV but until hills [sic] are in or out we will need to sit tight.
I will have a chat with Darren [Brighton] and Daniel [Rhodes] tomorrow morning and see what our options are to action the JV based around even just the current projects at hand and tendered ones. Darren believes that hills [sic] will be more than happy to do the deal between Stellar / Questek-Hills as first planed [sic]. Again this will be cleared up over the next 2 weeks.
At this stage we should focus on the hardware and software delivery options to them and as Matthew mentioned they would be happy to transfer details on the contract at a latter [sic] date if required. We understand your concerns / frustrations to lockup the deal with WSLHD but after yesterday’s meeting I feel we have about 4 to 5 weeks of contract talk with WSLHD and in this time we can amend the documents to the JV details once finalized.

Thus, as at 27 February 2014, it was apparent that Mr Linderman’s understanding was that what would happen in relation to the WSLHD Contract (and the proposed joint venture) depended on Hills’ position (i.e., whether it was “in or out”).

Meeting 13 March 2014

On 13 March 2014, there was a meeting attended by Mr Linderman (still at Questek), Ms Jurd and Mr White (of Hills) and Mr Curtin (of Stellar Vision). Mr Curtin’s evidence is that during that meeting, there was a conversation to the following effect:

Mr White:   What makes you think you have an interest in the Western Sydney tender?
Mr Curtin:   Stellar Vision submitted the tender jointly with Questek under an agreement that the contract would be entered into by the joint venture. This was in compliance with the Outline of Agreement reached with Questek under which Stellar and Questek agreed to work together in a project-by-project joint venture arrangement. Stellar Vision in fact wrote the tender response based on Stellar Vision’s software, and the tender has Stellar Vision’s name all over it. Questek’s [sic] simply acted as a facilitator given its existing relationship with the client.
Ms Jurd:   Instead of a joint venture, we will put in a structure where Stellar Vision gets the same financial outcome. We are about to finalise the deal with Questek and are completing the final legal documents. As part of this we need you to sign this letter which I will give you in draft form to review and come back to us.

Stellar Vision says that, while Hills or Ms Jurd may have wished to put in place a structure other than a joint venture in which Stellar Vision obtained the same financial outcome, this was not a possible outcome (in the absence of agreement from Stellar Vision), in light of the relationship between the parties in respect of the WSLHD tender. That, however, appears to be predicated on Stellar Vision’s trust claims succeeding, since the Outline of Agreement did not contain a concluded agreement as to how Stellar Vision and Questek would work together on future projects. In any event it is noted that such statements pre-date the signing of the Undertaking (see below). More significantly, my view is to note that Stellar Vision is not suing on any representation by Hills that it would “put in a structuring” where Stellar Vision got the same financial outcome as a joint venture.
Hills Health Solutions says that the above conversation did no more than put Hills Health Solutions on notice of what it already knew, namely, that the WSLHD tender was understood by Stellar Vision to be a “joint tender” and, consistent with the documents that had been provided to Hills Health Solutions at that date, that Stellar Vision and Questek were working towards some form of agreement (which may or may not ultimately have been a “joint venture” of some sort). I agree. The draft letter provided at the meeting on 13 March 2014 (with amendments) was ultimately executed on 24 March 2014 (the Undertaking).

Draft 13 March 2014 letter

The 13 March 2014 letter provided to Stellar Vision at the meeting on that date took the form of a draft undertaking and in effect sought confirmation that Stellar Vision would continue to supply the software for the QCH contract on the same terms as contained in the Outline of Agreement, and any open purchase orders, tenders and/or requests for proposal jointly submitted by Questek and Stellar Vision. The letter, which underwent a number of iterations, in its first version sought the following consent and undertaking from Stellar Vision:

1) Consent to assignment
Stellar consents to the [assignment/novation] of the QCH Outline of Agreement dated 23 May 2013 between Stellar and Questek Australia to Hills with effect from completion of the Questek acquisition.
2) Undertaking in regards to future contracts
Stellar acknowledges that Questek Australia have jointly submitted Tenders and Pitches.
Stellar undertakes to Hills that if there is a successful Tender and/or Pitch, Stellar will supply to Hills the software for the Questek entertainment products which are the subject of that Tender and/or Pitch on the terms set out in the Tenders and Pitches or any additional terms which are necessary to reflect any final awarded contract arising from Tenders and Pitches.

In submissions, Hills Health Solutions points out (see T 347.9-10) that the consent sought to the assignment of the “QCH Outline of Agreement” was for the benefit of Hills Health Solutions in that it was seeking to ensure that when it acquired the Questek business it did so with the software provider (Stellar Vision) to continue on the same terms to provide the PES software.
Mr Curtin’s evidence is that he was concerned that the draft undertaking characterised Stellar Vision as the “software and content” supplier to Hills Health Solutions, rather than as a joint venture partner with Questek, and that the letter did not identify all the joint projects (Annexure A to the draft letter being blank). As such, Stellar Vision says that the draft undertaking letter is appropriately characterised as Ms Jurd’s attempt to create a different arrangement that did not involve any joint venture between Hills and Stellar Vision in respect of existing tenders (including the WSLHD tender) or more generally. It is said (consistent with Hills Health Solutions’ submissions) that it was directed to protecting Hills Health Solutions’ position to ensure the involvement of Stellar Vision in relation to, inter alia, the WSLHD project post-acquisition.
Pausing here, at the very least, the provision of a draft undertaking by Hills Health Solutions in relation to further contracts suggests that Hills Health Solutions did not understand that there was an already binding contract or other relationship between Stellar Vision and Questek in relation to those future contracts. Nor did Stellar Vision suggest this at the time (other than the reference to the Outline of Agreement – see the conversation on 13 March 2014 above).

Revisions to Draft Undertaking

Following the meeting on 13 March 2014, Mr Linderman sent an email to Ms Jurd, identifying all the projects that were joint Questek and Stellar Vision projects, and the status of those projects as follows:

The following are the projects as discussed:
- Queensland children’s hospital – Project under progress
- Western Area Health – Won
- Nepean Area Health – Tender in progress
- Caboolture Public Hospital – Won
- Northern Beaches – Tender in progress
- Perth children’s = Under discussion / awaiting Bart to arrange demo
- Able Tasman – Aged care potential demo site to release aged care platform
- Dubbo Base Hospital- Under discussion / awaiting meeting after NC installation
…
VCCC Melbourne

On or about 13 or 14 March 2014, Mr Curtin and Ms Jurd had a discussion during which Mr Curtin indicated that the draft 13 March undertaking did not adequately address the WSLHD tender (amongst other things). Mr Curtin’s evidence is that he and Ms Jurd had a conversation to the following effect:

Mr Curtin: There are still some things missing from the letter. The bids and tenders need to be added in, for example the Western Sydney tender and the Northern Beaches tender.
Ms Jurd: I will send you a revised letter shortly.

On 14 March 2014, Ms Jurd sent a revised version of the draft undertaking to Mr Curtin. The covering email stated:

Attached is a revised Undertaking document which has been updated following our meeting yesterday to better reflect [sic] Western Sydney.
Based on the information that Daniel [Linderman] has provided to us we are proposing that the following contracts would be included in the attachment.
- Queensland children’s hospital – Project under progress
- Western Area Health – won
- Nepean Area Health – Tender in progress
- Caboolture Public Hospital – Won
- Northern Beaches – Tender in progress
Would you be able to provide some feedback to us on Monday please so we can progress with the Questek transaction.
…

The revised draft undertaking contained the following additions in respect of the WSLHD tender (that were not included in the original draft):

…
In connection with the acquisition, Hills seeks confirmation from you that Stellar will continue to supply the software for the Questek patient entertainment system under:
…
(b) the tender for the Western Sydney Local Health District (“WSLHD”) on the terms set out in the WSLHD Request for Proposal or on any additional terms which are necessary to reflect and final awarded contract; …
…
With respect to WSLHD, Hills acknowledges that Stellar will seek to be named as a party in any final awarded contract relating to WSLHD. If WSLHD does not agree to Stellar being named as a party or if Stellar is not named as a party to the final awarded contract relating to WSLHD, Stellar undertakes to Hills that Stellar will continue to supply Hills the software for the Questek patient entertainment system that is the subject of such final awarded contract.
…
2) Undertaking in regards to WSLHD
Stellar acknowledges that Questek Australia has been selected as a preferred supplier of the WSLHD tender for patient entertainment systems. Stellar undertakes to Hills that if this tender is awarded to Hills, Stellar will supply to Hills the software for the Questek entertainment products which are the subject of that tender on the terms of the Request for Proposal or any additional terms which are necessary to reflect any final awarded contract.
…

It may be noted that this draft thus contemplates that Stellar Vision might not be named as a party to the final awarded WSLHD Contract. It does not refer to the contract being held for the benefit of, or on trust for, Stellar Vision in those circumstances; rather it contains an undertaking that in those circumstances Stellar Vision would supply to Hills the software on the terms of the RFP “or any additional terms which are necessary to reflect any final awarded contract”.
During the course of the negotiations in respect of the draft undertaking, on 18 March 2014, Mr Linderman sent Ms Jurd an email in respect of the arrangements between Questek and Stellar Vision, stating:

Attached is the bases [sic] that Darren [Brighton] and myself have been going on from prior discussions with Brendan McCarthy regarding the Western Sydney style projects and current tenders.
Our main projects being WSLHD & Nepean Blue Mountains are the main concern for Brendan, regarding all other projects they are still in the early to mid-stages of discussions and are not documented as official quotes or tenders that 100% involve them, I am still keen to have their involvement in the other projects that we are looking at but as discussed with you tonight I’m more than happy to develop from scratch if required.
My advice to the situation would be to create a basic document to offer WSLHD and the Nepean Projects to them at a 50/50 deal based around some of the details attached. And to also offer to reconvene within the next 4 to 6 weeks to finalize a deal that suits both parties for a long term relationship.
Please note this document is a record that I was working on prior to and after the Hills offer to purchase Questek as I had a feeling this may come up. I had sent it to Brendan to agree and to add details as required but they wanted to:-
“see what Hills comes back with”
…

Stellar Vision emphasises the difference in that email between the reference to the “main projects” (the WSLHD and Nepean projects) and all “other projects” that “are not documented as official quotes or tenders that 100% involve them [i.e., presumably, Stellar Vision]”, the suggestion there made by Mr Linderman being to document an offer of a 50/50 deal in relation to the WSLHD and Nepean projects and then to reconvene to finalise a deed “that suits both parties for a long term relationship”; (i.e., says Hills Health Solutions, to discuss the concept of an overarching long term joint venture – see T 392.1-4). Again, I note that there is no reference here to there being a binding agreement as to these arrangements at that stage (and that Mr Linderman’s perception was that Stellar Vision wanted to see what “Hills comes back with” which understanding is consistent with earlier internal Stellar Vision documents).
The 18 March 2014 email from Mr Linderman contained an attachment titled “Outline of Agreement” which documents, under the heading “Object of Agreement”, that Stellar Vision and Questek “agree to enter into any upcoming PES tenders or sales leads on a 50/50 split share agreement”. Under the heading “Conditions Precedent to Agreement” the Outline provides that “[b]oth parties will contribute 50% of all labour & material costs for each project” and further that “[a]ll software pricing will be built into any sale requiring software & revenue from the sale will be split 50/50 (based on the gross revenue from the software)”.
Stellar Vision says that the form of Draft Undertaking that Mr Curtin received on 18 March 2014 was still unacceptable to Stellar Vision because it did not acknowledge the terms of the joint venture between Questek and Stellar Vision. (Pausing here, there was at that stage no formal joint venture agreement as such that had been documented between Stellar Vision and Questek.) Therefore, Mr Curtin can only be referring to his understanding of the earlier discussions with Questek as had been contemplated by the Outline of Agreement.

Item 17 – Cost of Hardware

Mr Eversgerd was instructed to adopt a series of assumptions in relation to capital expenditure (CAPEX) (see third report [3.3.27]-[3.3.28]) and adopted the USD/AUD rate provided by the Reserve Bank at the date of service commencement for each hospital to derive a CAPEX cost per terminal in AUD for each hospital.
Mr Jackson adopted the actual historical CAPEX costs under the WSLHD Contract from commencement to 31 January 2021. For his forecasts, Mr Jackson adopted the assumptions in the September Model as to the cost of terminal replacement during the WSLHD Contract ($1,200 per terminal) and that there was a terminal replacement rate of approximately 10 per year for Auburn and Mr Druitt Hospitals, 20 per year for Blacktown and 30 per year for Westmead (see Mr Jackson’s second report at [17], [58]-[59]; joint report at 17-18, item 17).
Insofar as this item relates to the capital expenditure incurred by Hills Health Solutions to date, Stellar Vision says this item does not arise, as Stellar Vision accepts that the input used by Mr Jackson, in relying on Hills Health Solutions’ records of the capital expenditure actually incurred in the capital expenditure schedule, is the correct input to adopt.
However, in respect of the capital expenditure regarding the replacement of PES terminals in the future, it is noted that Mr Jackson has again adopted the assumptions in the September Model. Apart from the criticisms accepted by Mr Starkey of his cost estimates in the September Model, Stellar Vision says that Mr Starkey’s own affidavit accepts that his choice of figures for how many terminals required replacement was “more in the nature of guesswork than evidence-based estimate”, noting that he could not recall how he estimated the figures.
Further, Stellar Vision says that Mr Jackson’s calculation of Software Maintenance and Service Costs (at Item 15, is based on the Income Statements) already incorporates a line item for a cost called “Service Parts”. Stellar Vision says it would be double counting of expenses to include both Mr Starkey’s forecast replacement expenditure (as per the September Model) as part of the Item 17 Costs of Hardware and Mr Jackson’s inclusion of the Service Parts expense in Item 15 (Software Maintenance and Service Costs).
As to the counterfactuals as to costs of sales, it would appear that the only aspect of this Item 17 (the cost of hardware) that remains in issue is whether there is a double counting in relation to the component of spare parts (a matter that I am not able to assess on the material to which I was taken) or as to the basis on which the forecast cost for future replacement of terminals should be assessed. Hills Health Solutions’ submissions in relation to the issue of cost of hardware were largely directed to the rejection of the counterfactuals put forward in Mr Curtin’s second affidavit.

Hospital Commission

In addition, Stellar Vision notes that the experts have adopted a “flat rate” of hospital commission rather than a “progressive rate”. Stellar Vision says that there is no explanation by the experts for this and points out that under cl 6.1.4 of the WSLHD Contract, the Contractor is to pay the Principal (i.e., WSLHD) a Commission calculated on a monthly basis, by reference to Table 2.0 in Schedule 3. That table sets a progressive rate, where a higher rate of utilisation results in a higher percentage of revenue to be paid by the Contractor. Stellar Vision says that this has the effect that in a month of low utilisation by patients, there is a lower percentage, whereas if the same hospital in the following month has a higher utilisation rate, then the Contractor is to pay a higher percentage of the Commission payment.
The experts instead have adopted a “flat rate”, i.e., a single commission rate across the entire WSLHD Contract, rather than a rate that varies on a month to month basis. Stellar Vision notes that Hills Health Solutions’ internal documents recording its summary calculation of the commissions payable evidences a commission rate that varies from quarter to quarter, consistent with a progressive rate, rather than being a flat percentage rate.
It is noted that the experts accept that adopting progressive rates, as the WSLHD Contract contemplates (which Stellar Vision notes is the basis on which Hills Health Solutions has paid commission under the contract) ,would have the effect of lowering the expenses of the contract. It is submitted that the actual calculation of hospital commission costs under the WSLHD Contract should be done by way of a progressive rate.

Loss of Chance

Hills Health Solutions says that if the loss is valued on the basis of the valuations provided by the expert witnesses based upon the actual performance of the WSLHD Contract, as well as any counterfactual that is established on the evidence, then this is properly characterised as a loss of chance which will need to be discounted.
Stellar Vision accepts that it may be appropriate to apply a discount to take into account the chance of the counterfactuals described at items 1, 4 and 6, 9, and 11 and 15 not occurring (it is said that the remaining items, being factual Inputs, are not counterfactual assumptions that would potentially require any such discounting). Stellar Vision says that such a discount should not necessarily be applied in a uniform manner but, rather, assumption-by-assumption to reflect the determination of the relevant likelihood of each counterfactual assumption eventuating. It says that any discount to any given assumption should only apply to the amount that comprises the numerical difference between, on the one hand, how Stellar Vision’s loss would be valued if the counterfactual assumptions were adopted and, on the other hand, how Stellar Vision’s loss would be valued if the counterfactual assumption were not adopted.
Hills Health Solutions submits that, properly understood, the way Stellar Vision is putting its case is indeed for a loss of a chance, yet Stellar Vision assumes that the chance was 100% assured. It is submitted that a further discount of say 50% should be applied to take into account the chance of the counterfactuals not eventuating.

Discount rate

Stellar Vision points out that the appropriate discount rate to be adopted in the discounting cash flow model is not identified as an area of disagreement in the joint report. It is said that it is not necessary to have recourse to expert opinion as to the appropriate discount rate, where the evidence is that Mr Starkey, who prepared the September Model considered that 9% was an appropriate discount rate at the time and that it reflected Hills Health Solutions’ assessment of the weight of average costs of capital as at both August 2014 and July 2015. It is said that it is therefore unnecessary to consider expert opinion to determine an alternative discount rate, especially where the experts have not had the benefit of Mr Starkey’s evidence as to the reasoning behind the choice of a 9% discount rate.
Hills Health Solutions notes that the experts are agreed that a discount rate between 10-13% is reasonable in assessing loss (see the joint report at [18](k)). Thus, it is said that the higher valuation of loss provided by Mr Eversgerd (in the vicinity of $11-12 million) should be disregarded as it represents a “risk free” scenario with a 2.9% discount rate.
Alternatively, if Mr Starkey’s discount rate of 9% is not accepted, then Hills Health Solutions submits that 10% should be adopted as the appropriate discount rate, which reflects the choice of discount rate in the range agreed by the experts, which is the closest in number of Mr Starkey’s original choice of discount rate.
Taking a pragmatic approach, Hills Health Solutions submits that 11.5% (see T 436.14) is a reasonable discount rate to adopt (subject to the further discount to reflect the assessment of loss of chance).

Pre-Judgment Interest

Stellar Vision notes that the experts agree that neither expert has included court interest in their models. Stellar Vision contends that its loss should include pre-judgment interest under s 100 of the Civil Procedure Act 2005 (NSW) from when they were excluded from the WSLHD Contract, being December 2014.

Summary of Proposed Instructions to Expert

In summary, Stellar Vision submits that the following findings should be made for the purpose of informing directions necessary to finalise quantification of Stellar Vision’s claim: that Stellar Vision’s claim is to be quantified by reference to a discounted cash flow model with the features as agreed between the experts as set out at [18](a)-(d), (f)-(j), (l), (n)-(q) of the joint report, and with the following additional features: a discount rate of 10%; applying a progressive rate for hospital commission percentages in accordance with cl 6.1.4 of the WSLHD Contract; and calculation of pre-judgment court interest on Stellar Vision’s loss from December 2014; and that the inputs into the discount cash flow model should reflect the resolution set out in its submissions (which I do not here set out but have addressed in summary form below, in my determination as to quantum) to the areas of disagreement identified by the experts in the joint report.

Determination

Liability not having been established I will be brief as to the relief that would have been ordered had Stellar Vision succeeded in any of its claims. Other than the dispute as to whether the lost opportunity (i.e., the chance to participate in a joint venture in relation to the WSLHD Contract) should be assessed at the date of the relevant breach or with hindsight having regard to the actual performance of the contract, the principles do not appear to be in dispute. Rather, the dispute is as to the “inputs” into the financial models prepared by the respective experts when assessing the value of a 50% share in the WSLHD Contract.
Proceeding on the basis that Stellar Vision says in effect that the loss on any of the claims would be assessed as being the value of a 50% share in the economic benefit of the WSLHD Contract, and that all I was ultimately invited to do was to rule on the disputed “inputs”, I set out below the findings I would have made had the issue arisen for determination. However, I reiterate my conclusion that the exercise cannot be based on the counterfactual postulated by Stellar Vision that, had it participated in the management of the WSLHD Contract, the financial performance of the contract would have been enhanced: first, because I consider that the material facts on such a counterfactual should have been pleaded (and I do not accept that Hills Health Solutions has acquiesced in an expansion of the pleaded case in this regard) and, second, because (even apart from the fact that the Undertaking does not make clear that Stellar Vision would have been operating in a managerial role in the contract) it seems to me no more than speculation that Stellar Vision could have produced a better result.
Stellar Vision accepts the “Ex Post” discounting approach (used by Mr Jackson (see item 1)) and there is no dispute as to overall methodologies. Thus, had quantification been required I would have held that Stellar Vision’s claim was to be quantified by reference to a discounted cash flow model with the features as agreed between the experts as set out at [18](a)-(d), (f)-(j), (l), (n)-(q) of the joint report and, as to the remaining disputed “inputs” into the financial models (noting that it appears to be accepted that the following items are no longer in dispute: item 2, item 3 (in that it is answered by other items) items 11 and 12 (so far as they concern the scenario in relation to the schedule of Lincor licence fees), item 13, and items 15 and 17 (other than a claimed double counting of “service parts” and forecast future terminal replacement do not appear to arise)), I would have determined as follows.
First, that a discount rate of 11.5% should be adopted (that being the pragmatic solution proffered by Hills Health Solutions), noting the agreed range by the experts was between 10% and 13% and that the 9% rate adopted by Mr Eversgerd comes from the September Model (the use of which was much criticised by Stellar Vision on the basis that it was a rough estimate at the time and not agreed as such).
As to Item 1, I have already rejected reliance on the counterfactual postulated by Stellar Vision and in any event I am not satisfied that it has been established that the performance of the contract would have been different had Stellar Vision been involved in the management of the WSLHD Contract as it contends, noting that the Undertaking did not provide for Stellar Vision to have control of the WSLHD project or to be involved in its management as such.
For item 2, as now agreed between the parties I would have concluded that the model should adopt an Ex-Post discounting approach and calculate the value of Stellar Vision’s loss using actual cash flows prior to 31 January 2021, and the present value of future cashflows after this date discounted to 31 January 2021.
For item 4, apart from the difficulty with the counterfactual as posed, I do not accept that it has been established that no delay would have occurred during the Installation Period as defined within the WSLHD Contract had Stellar Vision been involved.
For item 5, I would accept that the appropriate scenario to be modelled would be a 15 year contract term (on the basis that it is not commercially likely that the contract would not have been extended given the compensation payment that would have been required if the contract was not extended – and hence any discount for this occurring would be small). As to whether Stellar Vision would or would not have the benefit of the existing hardware at the Mt Druitt hospital, that seems to me more problematic in that it does not seem to me that all the possible scenarios have necessarily been explored. In that regard, I note that Stellar Vision made much of the proposition that Hills Health Solutions was to provide the hardware. If so, and if the existing hardware remained in place, that would presumably be a contribution by Hills Health Solutions to the “joint venture” and in those circumstances it is not clear to me how if at all that might need to be accounted for in the overall scheme of things (which rather highlights the point made by Hills Health Solutions as to the impossibly vague terms of the alleged contract ).
As to item 6, on the basis that I do not accept Stellar Vision’s submissions on delay, then the historic number of beds should be the actual number recorded in the MURs up to January 2021 and thereafter (as both experts have modelled) the number of beds in the October 2020 variation to the WSLHD Contract.
For item 7, I would not accept that it can be assumed that the utilisation rate for private patients is 100% (and I do not accept the counterfactual based on the HL7 assumption). (In particular, I consider that there is force to the proposition that the manner in which the patient utilisation was monitored or recorded depended on input from the hospital and that Hills Health Solutions was not in a position to control that). Therefore, I consider that Mr Jackson’s approach should be adopted. As for item 8, I consider that the actual revenue should be used in the calculations to reflect what has in fact happened (and would adopt Mr Jackson’s approach in that regard).
For item 9, I would again accept the position adopted by Mr Jackson on the basis of the actual historical position rather than a figure that was the subject of a “positive response” but no actual commitment by the hospital.
For item 10, again I consider that the model should reflect the actual revenue amounts as recorded in MURs with costs as recorded in the Income Statements up to 31 January 2021 and projected forward as Mr Jackson has modelled.
For items 11 and 15, I have difficulty with the proposition that it can be assumed that Stellar Vision would have been in a position to charge software licence fees as it maintains (having regard to the terms of the Undertaking) and I would accept the approach of Mr Jackson in adopting actual historical maintenance and service costs. I am not in a position to comment on the allegation of double counting in relation to service parts (as noted earlier) but ultimately nothing turns on this.
Item 12 is now noted as not relevant and item 13 has been agreed.
For item 14, I accept Stellar Vision’s submissions. I am not satisfied that the payment to Mr Linderman under the Deed of Settlement, Release and Restraint is a cost of the WSLHD Contract (as opposed to a severance payment).
I have dealt with item 15 above.
For item 16, I have difficulty with the proposition that the September Model should be used for OPEX (even though it is the most contemporaneous document) as it was not ever finalised as far as I can see. I would be more inclined to adopt Mr Eversgerd’s analysis of the most recent financial information available to him.
For item 17, as adverted to above, I would adopt the actual historical CAPEX costs up to 31 January 2021 and then adopt the assumptions in the September Model as to the likely time of terminal replacements (since there does not appear to be anything else that can usefully be relied upon to forecast future terminal replacements) and I do not accept the counterfactual based on Stellar Vision’s performance in other hospitals.
As to the discount to be applied to the loss of a chance for particular inputs, I am by no means persuaded that I have the relevant information in order to be able to form a considered view as to how likely it is that any particular input would or would not be achieved. In those circumstances, where there is nothing to assist me to differentiate between “inputs”, I consider that a broad brush approach to what is ultimately an evaluative exercise seems to me to be warranted and I would be inclined to apply, say, a 20% discount as to the contingencies on which the various inputs depend.
In any event, in view of the conclusions reached as to liability, this issue does not arise.

Conclusion

In summary, while there was clearly an informal joint endeavour between Questek and Stellar Vision (which might well be termed a “joint venture”) there was no binding joint venture agreement between the two entities and I am not persuaded that their relationship gave rise to a trust or any beneficial interest on the part of Stellar Vision in whatever rights or interest Questek had (or expected to have) in the WSLHD project. I accept that as between itself and Stellar Vision, Questek could not have taken the exclusive benefit for itself of the joint WSLHD project (and it would likely have been unconscionable for it relevantly to do so) but no claim is here made against it (and any breach of fiduciary duty by it has been expressly disavowed).
I have found that there was no trust relationship (no objectively manifested intention to create a trust and no agreement to hold any rights obtained as a result of the tender on trust). The parties were still negotiating at all relevant times. There was an understanding that Stellar Vision would be involved and would share the benefit of any contract obtained as a result of the joint venture (in some fashion) but this was not a concluded agreement. It may well have been case that Questek would not have had all the benefit of the contract but this would said only in a claim against Questek.
At the time of the due diligence (and acquisition of Questek’s business) Hills Health Solutions was on notice that Questek and Stellar Vision were in negotiations for a proposed joint venture agreement (which had not been concluded) and had jointly prepared Questek’s tender response on the understanding that Stellar Vision would participate in that project and share the benefits of the project in some fashion (and perhaps as co-tenderer named on the contract) but the terms of this as between Questek and Stellar Vision were not finalised. As Stellar Vision emphasises, Hills Health Solutions knew from the due diligence that there was an understanding (or agreement) between Questek and Stellar Vision that, if they could not agree a joint venture agreement then Stellar Vision’s name would be put on the contract. Stellar Vision says that what Hills Health Solutions knew was that Questek accepted it did not have an entitlement to be on the contract in its own name (see T 342.11-18). The difficulty I have with this is the proposition that this in some way put Hills Health Solutions on notice that Stellar Vision had a “50% beneficial ‘undivided’ interest” in the WSLHD Contract. It seems to me that Hills Health Solutions’ understanding at the time is more accurately reflected by the statement made in the course of negotiations to the effect that it would ensure that Stellar Vision had the same financial outcome as the “joint venture” intent of the previous discussions. That is a very different concept from an undivided beneficial interest in the contract itself.

I do not accept that Hills Health Solutions was in a fiduciary relationship with Stellar Vision. They were commercial entities negotiating as to the basis on which they might engage in joint projects (be that project-by-project or by an overarching joint venture or other agreement). Hills Health Solutions certainly acknowledged and agreed, by the Undertaking, that it would honour the intent of the previous discussions in relation to WSLHD – the “specific” intent of those previous discussions being summarised in the five numbered points in the Undertaking. However, I am not persuaded that objectively there was an intention to constitute an immediately binding obligation for a 50/50 joint venture in relation to the WSLHD project. I consider that it was at most an agreement to negotiate terms for participation in that project along the lines set out in the five numbered points (which represented the intent of the previous discussions) (and that this is consistent with the parties’ understanding at the time and subsequent discussions).
Insofar as it is said that the Undertaking (whether a contract or not) is sufficient to impose a trust and to give rise to fiduciary duties (see closing submissions) I disagree. Absent contractual force it is simply an acknowledgment of there being a joint tender and a representation (and agreement in that context) of an intention to honour the intent of previous discussions. Indeed the very fact that Hills Health Solutions was seeking an undertaking from Stellar Vision (so that Hills Health Solutions could confidently proceed with the acquisition knowing it had the support of the proposed software provider referred to in the tender) seems to me inconsistent with there being some form of trust arrangement already on foot whereby Questek held the benefit of the tender (or yet to be awarded contract) on trust for itself and Stellar Vision.
Steller Vision, however, says that the Undertaking shows that the parties thought that there was a binding agreement between Stellar Vision and Questek in relation to WSLHD, whereby at least in relation to the WSLHD Contract it had a binding right to 50% of the profits (see, for example, T 41.25-28). I do not consider it goes that far.
I accept that the Undertaking must objectively have been seen as a document that would at least bind the parties’ conscience (since it was formally signed as an undertaking) and that the second paragraph (b) was framed in terms of an “acknowledgement and agreement”. However, it was in essence an agreement to agree – an agreement to honour the “intent” of the previous discussions (indicating in the five numbered points specifically what the intent of those discussions then comprised); which left unresolved the precise form of the parties’ relationship and how it was to operate from a practical perspective. That this is the case is reinforced by the difficulties identified by Hills Health Solutions the damages case.
Accordingly, the claim by Stellar Vision fails.

Orders

For the above reasons, I make the following order:

Dismiss the plaintiff’s claim with costs.

**********

Amendments

02 March 2022 - Amounts at [685] and [686] redacted

Decision last updated: 02 March 2022

Medium Neutral Citation:	Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2022] NSWSC 144
Hearing dates:	19 – 21 and 26 – 29 April 2021
Date of orders:	23 February 2022
Decision date:	23 February 2022
Jurisdiction:	Equity
Before:	Ward CJ in Eq
Decision:	1. Dismiss the plaintiff’s claim with costs.
Catchwords:	EQUITY — Trusts and trustees — Express trusts — Where no declaration of trust — Whether benefit of contract pr plaintiff’s alleged interest therein held on trust — Whether defendant acquired interest in contract subject to any interest of the plaintiff therein or “subject to the equities” EQUITY — Fiduciary duties — Partners and joint venturers — Where plaintiff negotiating with a third party company to enter into a joint venture agreement — Where business of that company purchased by defendant prior to conclusion of formal joint venture or partnership agreement — Where undertaking by defendant to “honour the intent of previous discussions” — Whether sufficient to give rise to fiduciary duties and breached when defendant obtained for itself benefit of contract in respect of which “joint” tender for installation of patient entertainment systems had been lodged CONTRACTS — Formation — Whether binding contractual undertaking to “honour the intent of previous discussions” —Whether agreement to agree, or agreement to negotiate — Whether undertaking breached ESTOPPEL — Proprietary estoppel — Promissory estoppel — Conventional estoppel — Whether defendant estopped from resiling from undertaking
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 100 Conveyancing Act 1919 (NSW), s 12
Cases Cited:	ADM v FDGK [2018] NSWSC 442 Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495 Ammon v Consolidated Minerals Ltd (No 3) [2007] WASC 232 Antov v Bokan [2018] NSWSC 1474 Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12 Austin v Hornby [2011] NSWSC 1059 Bahr v Nicolay (No 2) (1988) 164 CLR 604; [1988] HCA 16 Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11 Barnes v Addy (1874) LR 9 Ch App 244 Barnes v Forty Two International Pty Ltd (2014) 316 ALR 408; [2014] FCAFC 152 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Berry v CCL Secure Pty Ltd (2020) 381 ALR 427; [2020] HCA 27 Biala Pty Ltd v Mallina Holdings Limited (No 4) (1994) 13 WAR 11 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778 Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 Calverley v Green (1984) 155 CLR 242; [1984] HCA 81 Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371; [1974] SCR 592 Canny Gabriel Castle Jackson Advertising Pty Limited v Volume Sales (Finance) Pty Limited (1974) 131 CLR 321; [1974] HCA 22 Carter v Brine [2015] SASC 204 Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36 Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 Cockell v Taylor (1852) 15 Beav. 103; (1852) 51 ER 475 Commissioner of State Revenue (Vic) v Snowy Hydro Limited (2012) 43 VR 109; [2012] VSCA 145 Concrete Pty Limited v Parramatta Design and Developments Pty Ltd (2006) 229 CLR 577; [2006] HCA 55 Disctronics Ltd v Edmonds [2002] VSC 454 Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd [2007] NSWCA 7 Edmonds v Donovan (2005) 12 VR 513; [2005] VSCA 27 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55 Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd (1988) 2 Qd R 1 G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190 Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569; [2006] FCAFC 44 Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490; [1916] HCA 81 Hadid v Lenfest Communications Inc [1999] FCA 1798 Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 Hungry Jack’s v Burger King [1999] NSWSC 1029 In the matter of Tresdar Pty Ltd [2019] NSWSC 179 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2020] FCA 1018 John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1; [2010] HCA 19 Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 Kizbeau Pty Ltd v WG & B Pty Ltd (1995)184 CLR 281; [1995] HCA 4 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 Korda v Australian Executor Trustees (SA) Limited (2015) 255 CLR 62; [2015] HCA 6 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23 Management Service Australia Pty Ltd v PM Works Pty Ltd [2017] NSWSC 1743 Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 McCrohon v Harith [2010] NSWCA 67 Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52 Moore v Aubusson [2020] NSWSC 1466 Moratic Pty Ltd v Gordon [2007] NSWSC 5 Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110 News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410; [1996] FCA 870 Nguyen v Phan (No 2) [2015] VSC 634 Pavan v Ratnam (1996) 23 ACSR 214 Payne v Parker (1976) 1 NSWLR 191 Phipps v Boardman [1967] 2 AC 46 Redman v Permanent Trustee Co of NSW Ltd (1916) 22 CLR 84; [1916] HCA 47 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Reitano v Reitano [2012] NSWSC 1127 Rydledar Pty Ltd t/as Volume Plus v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7) [2019] QSC 241 Scammell (G) & Nephew Ltd v Ouston [1941] AC 251 Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47 Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 Sinclair, Scott & Co v Naughton (1929) 43 CLR 310; [1929] HCA 34 Southern British National Trust Ltd v Pither (1937) 57 CLR 89 Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd [2004] QSC 457 Swiss Bank Corporation v Lloyds Bank Ltd [1979] Ch 548 TMA Australia Pty Ltd v Indect Electronics & Distribution GmbH [2015] NSWCA 343 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44 Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278; [2006] HCA 6 United Dominions Corporation Limited v Brian Pty Limited (1985) 157 CLR 1; [1985] HCA 49 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; [1968] HCA 8 Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; [2007] NSWCA 75 Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18 Zugic v Vesuvius Australia Pty Ltd [2020] NSWSC 106
Texts Cited:	Heydon and Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) Young, Croft and Smith, On Equity (2009, Thomson Reuters) Seddon and Bigwood, Cheshire and Fifoot Law of Contract (11th Australian edition, 2017, LexisNexis)
Category:	Principal judgment
Parties:	Stellar Vision Operations Pty Ltd (Plaintiff) Hills Health Solutions Pty Ltd (Defendant)
Representation:	Counsel: C Bova SC with J Burnett (Plaintiff) R Newlinds SC with T Epstein (Defendant) Solicitors: Corrs Chambers Westgarth (Plaintiff) King & Wood Mallesons (Defendant)
File Number(s):	2016/00284725
Publication restriction:	Nil