VH-BWC departed from runway 17R and at 500 ft turned right to intercept the 195-degree track to King Island. The pilot elected to maintain an altitude of 700 ft until clear of the downwind leg of the runway 17R circuit and of any possible light aircraft traffic along the coast. Crossing the coast at 700 ft, VH-SGE passed in front of BWC from left to right approximately 200 metres distant and 100 ft higher than VH-BWC. The crew of BWC had not been given traffic advice on SGE and had not heard any inbound call from the aircraft. SGE was joining downwind for runway 17R.
The pilot of SGE said that he was unaware of BWC until he saw the aircraft when it was about 400 ft away. At the time of sighting, he said that he was at 1,000 ft and the other aircraft was about 200 ft lower and appeared to be climbing. Although close, there was no need for avoiding action as it was obvious BWC would pass behind SGE.
Recorded communications showed that the pilot of SGE made a standard inbound call at Carrum and then called again joining downwind. The pilot of BWC reported ready for take-off 25 seconds after SGE's inbound call so was most probably still on ground frequency at the time of that call and therefore did not monitor the call. The aerodrome controller did not pass traffic to BWC on SGE. Timings of calls recorded on tape would suggest there was a potential traffic conflict. The frequency was not busy during the period immediately leading up to the incident. The pilot of SGE did not recall hearing BWC reporting ready and being cleared for take-off.