VH-FCE departed Coffs Harbour for Williamtown at 1237 ESuT and was maintaining 10,000 ft with an estimate for Taree of 1307. VH-TQQ departed Sydney for Port Macquarie at 1231 and passed over Williamtown at 1252 while cruising at FL170 with estimates for Taree of 1307 and Port Macquarie 1314. Air traffic control (ATC) cleared VH-TQQ to leave the control area on descent and at 1305 VH-TQQ reported leaving FL170 and was instructed to contact Sydney on the area frequency. At 1306 VH-TQQ made an all stations call on area frequency and reported having left FL170 on descent to Port Macquarie. The flight service officer (FSO) notified VH-TQQ of the Area QNH and advised that there was no IFR traffic. At 1308 the FSO advised VH-TQQ that there was traffic at 10,000 ft and the crew replied they had just sighted VH-FCE while passing through that aircraft's level. During the subsequent investigation, the crew of VH-TQQ stated that they were descending at 1700 ft/min and were approximately 1 NM east of track. While conducting a normal lookout scan they sighted VH-FCE approximately 1 to 2 NM to their left and an estimated 2,000 ft to 3,000 ft below. As they could maintain visual contact they decided that no evasive action was needed. The captain stated that had he received traffic information on VH-FCE he would have levelled off above 10,000 ft until positive passing had been established. The crew of VH-FCE stated that they were on track and over Taree when they sighted VH-TQQ descending from approximately 1,000 ft above and 2 NM left of their aircraft. They confirmed that they heard VH-TQQ make the area transmission and were looking out for the aircraft but decided it was not necessary to respond to this transmission. They also decided that as they could see the aircraft no evasive action was necessary. The FSO's evaluation of the situation was influenced by the phraseology used by the Sector 2 controller who indicated to the FSO that VH-TQQ would call requesting traffic information on area frequency at top of descent. The FSO had sufficient information on hand to alert both aircraft. However, when VH-TQQ called at 1306 she calculated that the time of passing would occur at 1307 and that in this time period VH-TQQ would not have descended 7,000 ft. Based on this assessment the FSO chose not to pass traffic information to the two aircraft. CONCLUSION Significant Factors The following factors were considered relevant to the development of the incident. 1. The FSO incorrectly assessed a traffic conflict situation and did not pass traffic information to the crews of VH-TQQ and VH-FCE. 2. The co-ordination procedures used between ATC and FS contributed to the FSO's incorrect assessment. 3. The crew of VH-FCE had prior knowledge of the presence of VH-TQQ but decided not to respond to VH-TQQ's descent call. SAFETY ACTION As a result of the Bureau's investigation the Civil Aviation Authority, inter alia, reviewed the phraseologies used between Air Traffic Control and Flight Service in relation to aircraft proceeding into or out of controlled airspace.