Liquidated spaceport start-up to cough up $2m to ex-CEO

A contractual dispute between Equatorial Launch Australia and its former chief executive has gone in favour of the latter, resulting in a payout of more than $2.3 million.

The Federal Court of Australia has ordered Equatorial Launch Australia (ELA) to fulfil former chief executive Carley Scott’s contract after finding the company breached its employment agreement.

According to Justice Craig Dowling, all 49 issues for determination “related to Scott’s entitlements under a Commitment Amount Contract made between her and ELA and under her employment contract”.

Scott sued for unpaid entitlements and alleged unlawful dismissal and discriminatory behaviour, and ELA claimed Scott made unauthorised changes to her employment agreement.

After working as CEO in a contractor capacity, Scott agreed to a Commitment Amount Contract (CAC) worth $5 million with ELA founder Scott Wallis in October 2019, and then an employment contract for the CEO position in November of that year.

The staggered commitment entitlements under the CAC were to be reduced by the $250,000 a year salary. The parties disagreed whether the employment contract included the terms and conditions in the CAC, or any variation, as well as other entitlements in the employment contract.

In addition to the five-year payment time frame, provided that, if the engagement ceased after 30 April 2021 or prior to 1 May 2023, the full amount would be payable should funding hurdles be met, and the payment would not place ELA into insolvency.

The CAC also dictated payment mechanisms, with a cessation of engagement in the first three years seeing Scott entitled to a pro-rata payment of $1 million per year, less any payments made under the employment contract or other bonus.

Should her engagement cease in the last two years of the period, the full amount would be payable, provided it did not place the company into insolvency, the CAC set out.

A third condition stipulated that, after the commitment period had ended, Scott may require payment of the notes; and fourth, the CAC dictated what would occur if there was a sale of the business.

The day before the CAC was executed, Wallis sent Scott a comment that included his underlining of the applicable dates, and the provision that $70 million of funding (equity and/ or loans) has been secured and that, should the provisions not be met, Scott would receive “a pro-rata payment (cash and/ or shares) of $1 million per year less any payments be made under an employment contract or other bonus”.

Scott alleged that further conversations occurred when Wallis suggested ELA did not have a strong commitment to the funding hurdles. Following that, they agreed to remove the funding hurdles and backdate Scott’s contract to 27 September 2019.

Scott claimed to hold an understanding that the funding hurdles would be removed.

When financial discussions within ELA progressed in early to mid-2021 due to documentary updates related to investor interests, it is alleged that Wallis and Scott spoke via video conference to make changes to the funding hurdles, with Scott sending what she believed was the approved varied CAC (VCAC) to seek confirmation from Wallis and create a record of the agreement.

The parties also disagreed whether Scott and ELA agreed to replace entitlements under the VCAC with a restructured employee share ownership plan (ESOP), with new ELA board chair Michael Jones giving evidence that its establishment would make ELA a more attractive investment by removing Scott’s contingent liability.

Scott allegedly expressed her interest in the ESOP to restructure her VCAC entitlements into something more tax-effective, with discussions between Scott and DLK Advisory occurring to establish an accurate reflection of existing entitlements.

Scott allegedly sent an email on 1 September 2021 to an advisory specialist, in which she said: “I will be keen to retain the existing right and see that any subsequent contract and negotiation and setting of new targets is undertaken separately” for the purpose of disallowing a walkback and establishing her position.

However, ELA claimed that Scott “represented” to the company that she wished to replace the VCAC with the ESOP, and was therefore “estopped from resiling from her representation or promise”.

Further, a disagreement emerged concerning a 795,000 share allocation, with Scott claiming she did not find the share allocation accurate, nor did she feel the calculation was performed by ELA accountants. Jones denied that the conversation of such substance occurred, claiming he did not know where the figure came from, but that it was to be used from 8 September 2021.

He further claimed that he did not understand that the figure would compensate Scott for future benefits in another agreement, but did not give evidence for the preparation of another agreement.

Scott claimed to be “exceptionally frustrated” on receipt of an email from Jones, in which he stated the initial share under the ESOP would be 795,000 and that the tax benefit would “far outweigh” the reduction from 1.1 million shares. Further conversation allegedly saw Jones claim “the horse [had] bolted” on checking the figure.

Further, Jones claimed Scott said words to the effect of “I think this is a good thing for the company to do and I support it. In relation to my own terms and … the deal that is being put here, I believe that that is fair.”

Scott received a further email from Jones with a new employment contract and a document cancelling Scott’s “previous share/ option/ employment arrangements” as well as an “Official ESOP Share offer letter for your 795,000 to be issued under ESOP”.

Scott did not accept.

Despite follow-up emails, Scott asserted that the employment contract did not provide like-for-like benefits with her existing VCAC.

A final disagreement emerged as to whether the entitlement was constrained by the condition that it must not place ELA into insolvency.

Scott filed a lawsuit against ELA in October 2022 following an initial application to the Fair Work Commission (FWC) regarding a complaint of alleged bullying against Jones. She also claimed she was demoted when Jones came in.

Regarding the contractual dispute, ELA’s defence attempted to establish that Scott fabricated evidence and documentation. However, Justice Dowling found Scott’s evidence to be “careful, credible, and truthful”, adding: “I accept Ms Scott’s evidence about this variation.”

Further, Justice Dowling accepted that while there were detailed discussions about an ESOP, “I do not accept that those conversations were concluded such that a ‘tacit agreement’ was reached between Ms Scott and ELA by which Ms Scott agreed to replace all entitlements to be conferred under the VCAC with participation in the ESOP.”

Justice Dowling said: “I also do not accept that Ms Scott’s conduct is sufficient to found an estoppel claim.”

“The estoppel claim therefore fails at that threshold.”

Despite ELA claiming the VCAC was made ineffective as it was not supported by any fresh consideration, nor conferred any additional benefit on ELA, Justice Dowling said: “ELA received a ‘practical benefit’ in the form of satisfaction that Ms Scott would be continuing at ELA in circumstances where the investment sought to be obtained was no longer realistic.”

“ELA received this in exchange for its removal of the funding hurdles. The VCAC is therefore not invalidated for lack of consideration.”

In this way, it was concluded that ELA breached its VCAC, with Justice Dowling determining Scott was entitled to a final payment of $2,367,430.25.

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