Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd [2025] FCA 4 | Case summary

Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd [2025] FCA 4 | Case summary | Zoe

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ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 Adler v Australian Securities & Investments Commission (2003) 179 FLR 1; [2003] NSWCA 131 Ancient Order of Foresters in Victoria Friendly Society Limited v Lift Plan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43 Andrews v ANZ [2012] HCA 30; (2012) 247 CLR 205 Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328; (2016) 93 NSWLR 231 Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 342 Baden Delavaux v Societe General [1993] 1 WLR 509 Barnes v Addy (1874) LR 9 Ch App 244 Beach Petroleum NL v Johnson [1993] FCA 283; (1993) 43 FCR 1; (1993) 115 ALR 411 Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) [2008] WASC 239 Berry v CCL Secure Pty Ltd [2020] HCA 27 Bilta (UK) Ltd (in liquidation) v Nazir [2015] UKSC 23; [2015] 2 All ER 1083 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; (2011) 81 NSWLR 47 Campbell v Backoffıce Investments Pty Ltd (2009) 238 CLR 304; 257 ALR 610; 73 ACSR 1; [2009] HCA 25 Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45 Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626 Commonwealth v Cornwell [2007] HCA 16; (2007) 229 CLR 519 Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 Director, Office of the Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2013] FCAFC 8 Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79 Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358; [2008] VSCA 26 at [109] Farah Constructions v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Fox v Percy [2003] HCA 22; 21 CLR 118 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 167 Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 Grove v Flavel (1986) 43 SASR 410 Cases cited: Harriton v Stephens (2006) 226 CLR 52; [2006] HCA 15 Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 Hill v Rose [1990] VR 129 Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125 at 147 I & L v HTW Valuers [2002] HCA 41; (2002) 210 CLR 109 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 9 Kellas-Sharpe v PSAL (2013) 2 Qd R 233; [2012] QCA 371 Keller v LED Technologies Pty Ltd [2010] FCAFC 55; (2010) 185 FCR 449 Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205 Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31 Morley v ASIC [2010] NSWCA 331; (2010) 81 ACSR 285 Paciocco v Australia & New Zealand Banking Group Ltd [2016] HCA 28; (2016) 258 CLR 525 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 PT Thiess Contractors Indonesia v PT Arutmin Indonesia [2015] QSC 123 R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656 San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340; [1986] HCA 68 Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8; 408 ALR 195 Shaddock v Parramatta (1981) 150 CLR 225; [1981] HCA 59 Shafron v ASIC (2012) 247 CLR 465; [2012] HCA 18 Taco Co of Australia Inc v Tacobell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 United Petroleum Australia v Herbert Smith Freehills [2018] VSC 347 Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123; 297 ALR 56 Watson v Foxman (1995) 49 NSWLR 315

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THE COURT ORDERS THAT:

The Court will hear the parties as to the form of orders sought consequent upon the Court's reasons. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT OVERVIEW [1] CAUSES OF ACTION [32] ISSUES [37] WITNESSES [40] Applicants' witnesses [51] Richard Walter Cumming Willson [52] Jeffrey John Cannan [56] John Charlton Rowley [59] Annette Joy How (née Conn) [60] Nicholas David Cooper [63] Michael James Hodge [64] Respondents' witnesses [65] Roland John Smith [66] Noelene Joyce Smith [68] Keith Douglas Watts [70] Nancy Watts [75] FACTUAL NARRATIVE [77] WMM's business [81] WMM's email accounts [85] WMM invoices and quotes [89] Rolton's business [92] The Chains [97] The Sharpes [118] Invoices nos. 1045, 1058 and 1059 [122] Invoice no. 1147 [128] Invoice no. 1148 [134] The July 2014 Chains invoice [157] The admission by Mr Watts to Ms How [170] The $90,000 deposit email [193] The Open Letter [198] The Rolton valuation [203] The Modified Rolton valuation [244] The Sharpes, PFM and Ms How [247] Funding the Loan to Chopsonion [285] Funding the Rowley Investment [297] Events following the acceptance of the Funding Offer [299] The Design [328] Subsequent attempts to recover the Funding [343] FG Agri Claim and Settlement [353] Sale of the properties and status of the remaining plant equipment [356] The Rowley Loan [363] Knowledge [367] No transaction [371] The Lenders' decisions to invest [372] Mr Willson [372] Mr Cannan [376] Mr Rowley [380] PLEADED CASE/CAUSES OF ACTION - WATTS PROCEEDINGS [383] Issue 1 - Are the applicants estopped from bringing the Watts proceedings? [383] Estoppel [384] THE CLAIMS BY CHOPSONION [418] Breach of statutory and fiduciary duties [418] Issue 2 - Was Ms Sharpe a shadow director/officer of Chopsonion? [420] Statutory provisions and principles [425] Issue 3 - Did Mr and/or Ms Sharpe breach their statutory duties to Chopsonion pursuant to ss 181 and 182 of the Corporations Act [434] Sections 181(1) and 182(1) - Statutory provisions and legal principles [434] Section 181 [441] Section 182 [453] Issue 4 - If so, was Mr Watts, and through him WMM, involved in the breach of statutory duties by Mr and Ms Sharpe within the meaning of s 79 of the Corporations Act?: 2FASoC [17]-[19] [456] Section 181(1) [459] Section 182(1) [462] Issue 5 - Did Mr and/or Ms Sharpe owe fiduciary duties to Chopsonion and if so, did they breach those duties?: 2FASoC [15] and [16] [466] Issue 6 - If so, did WMM through Mr Watts knowingly assist in the breach of fiduciary duties?: 2FASoC [20] [473] Issue 7 - Did Mr Watts, and through him WMM, engage in conduct contrary to s 18 of the ACL?: 2FASoC [21] [486] The pleaded conduct [492] What was the conduct? [493] Trade and commerce [504] What meaning did that conduct convey? [505] Was the conduct misleading or deceptive or likely to mislead or deceive? [508] Causation and reliance [511] Lenders [514] Chopsonion [535] Issue 8 - Did Mr Sharpe and/or Ms Sharpe engage in conduct contrary to s 18 of the ACL?: 2FASoC [21.2] [547] Issue 9 - Was Mr Watts, and through him WMM, involved in the contravening conduct of Mr Sharpe and/or Ms Sharpe within the meaning of s 2 of the ACL?: 2FASoC [21.2] [548] Issue 10 - Involvement by Mr Watts and through him WMM in misleading and deceptive conduct by Rolton [555] Issue 11 - Extension of time for bringing proceedings under the ACL [558] Issue 12 - Deceit: 2FASoC [21A] [572] Issue 13 - Extension of time for bringing a claim in deceit [583] PLEADED CASE/CAUSES OF ACTION - ROLTON PROCEEDINGS [589] Issue 14 - Did Rolton owe a duty of care to the Lenders, and if so what was the scope of that duty? [604] Issue 15 - Did Rolton through Mr Smith breach its duty of care? [614] Issue 16 - In preparing the Rolton valuation, did Rolton engage in conduct contrary to s 18 of the ACL? [630] Claim by the Lenders [633] Issue 17 - Was Mr Smith involved in Rolton's contravention of s 18 of the Act? [640] Claim by Chopsonion [641] Issue 18 - Extension of time for bringing proceedings under the ACL [643] Issue 19 - Did Rolton through Mr Smith commit the Tort of deceit? [646] LOSS AND DAMAGE [650] Watts proceedings - respondents' submissions on loss generally [652] Heads of loss suffered by the Lenders [671] Principal [671] Funds advanced by Mr Rowley [678] Interest on principal and pre-judgment interest [685] Heads of loss - joint and several losses - Lenders [689] Penalty [690] Principles [692] Loan agreement [697] Management Fee [710] Receiver's fees and legal costs - $220,698.31 [718] Mortgage Management fees - $1,617,975 [733] Legal fees $167,664.71 (excluding litigation costs) [745] Heads of loss suffered by Chopsonion [749] Principal - $1.175m [751] Unpaid interest and Management Fee under the Loan Agreement - $5,471,900 [752] Receivers' costs and legal fees - $220,698.31 [756] Storage charges - $173,766.98 [760] Legal fees - $22,332.01 [765] Credit for Additional Equipment [770] Summary [774] THE ASSESSMENT OF LOSS BY REFERENCE TO EACH CAUSE OF ACTION - LENDERS [776] Misleading and deceptive conduct against WMM and Mr Watts [777] Involvement in the misleading and deceptive conduct of Mr and Ms Sharpe [784] Deceit [787] THE ASSESSMENT OF LOSS BY REFERENCE TO EACH CAUSE OF ACTION - CHOPSONION [790] The Involvement of WMM and Mr Watts in the breach by Mr and Ms Sharpe of their statutory duties - s1317H of the Corporations Act [791] Knowing assistance in a dishonest and fraudulent design by Chopsonion's Directors [795] Misleading and deceptive conduct against WMM and Mr Watts [798] Involvement in the misleading and deceptive conduct of Mr and Ms Sharpe [800] CONCLUSION [802]

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OVERVIEW 1 These proceedings involve two related actions, both of which concern the sale of two small animal abattoir chains (Chains). 2 In the first action, SAD 109 of 2020, Chopsonion Pty Ltd ACN 142 890 971 (Controllers appointed) brought proceedings against the first respondent, Watts Meat Machinery Pty Ltd (WMM), and the second respondent, its sole Director and one of two shareholders, Keith Douglas Watts (Watts proceedings). The remaining shareholder in WMM is Mr Watts' wife, Nancy Joy Watts (Ms Watts). 3 In the second action, SAD 76 of 2022, MEG Investments Pty Ltd, John Charlton Rowley, Red Dog No. 1 Pty Ltd, Richard Willson, Leigh Willson (Ms Willson) and R.J.C. Willson Nominees Pty Ltd (collectively the Lenders) brought proceedings against the first respondent, Rolton Ltd NZBN 942 903 805 4464, the second respondent, Roland John Smith, who is its sole Director, and the third respondent Mulga Corporation Pty Ltd ACN 144 810 435 as trustee for The Mulherin Family Trust (Rolton proceedings). 4 Prior to trial, the applicants in each matter were granted leave to file an amended originating application joining Chopsonion as an applicant in the Rolton proceedings and the Lenders as applicants in the Watts proceedings. 5 The two matters proceeded to trial together, with evidence in one being evidence in the other. 6 At the commencement of the hearing, the action between the applicants and the third respondent in the Rolton proceedings, Mulga, was stayed until further order. On 20 January 2023, the applicants filed a notice of discontinuance against Mulga. 7 On 30 October 2015, Jason Walter Bettles and Nicholas David Cooper were appointed Receiver/Managers of Chopsonion. Mr Bettles' appointment ceased on 22 August 2017 and Mr Cooper continued as Receiver/Manager of Chopsonion until 20 October 2021. 8 As from 20 October 2016, Chopsonion has been under the control of Mr Willson pursuant to an undated General Security Agreement (GSA) entered into on or about 21 January 2015 between Chopsonion in its own right and as trustee for the Collarenebri Trust as grantor and the Lenders. 9 Ms Wendy Kellas-Sharpe was the sole Director and secretary of Chopsonion between 31 March 2010 and 8 August 2011. Ms Sharpe's husband, James Trevor Sharpe, was the sole Director and Secretary of Chopsonion between 8 August 2011 and 17 October 2016. 10 As at 2012, Silver Fern Farms (SFF) operated an abattoir at Dannevirke in New Zealand (Oringi Plant). In 2012, SFF sold the Oringi Plant to an energy company as a result of which SFF had to dispose of abattoir equipment. It asked Mr Watts/WMM to sell the Chains for it, however the Chains could not be sold to any entity in New Zealand. 11 Mr Watts/WMM could not find a buyer for the Chains and in early 2013, Rolton was engaged by SFF to deal directly with WMM and Mr Watts in relation to the sale of the Chains. 12 In June 2013, WMM agreed to purchase the Chains (one which was complete and the other 90% complete) from SFF for NZ$200,000. There were terms of the contract for sale that the Chains could not be resold or otherwise used in New Zealand and that the Chains could not be dismantled and removed until the purchase price had been paid. 13 At the time WMM agreed to purchase the Chains, it did not have a buyer. The purchase price was payable in instalments and WMM agreed to pay SFF NZ$3,843.75 per month in rental charges pending removal of the Chains. 14 Commencing from in or about July 2014, Ms Sharpe, on behalf of Chopsonion, sought funding for Chopsonion to buy the Chains and for the cost of dismantling the Chains, removing them and transporting them to Australia (Removal costs). 15 From on or about November 2014 to January 2015, Ms Sharpe, on behalf of Chopsonion and Mr Sharpe as Chopsonion's Director, sought and applied for funding (Funding) from Private Funds Management Pty Ltd (PFM). 16 The Funding sought was for Chopsonion to purchase the two Chains from WMM, as well as for the Removal costs. 17 In order to assist Chopsonion in obtaining the Funding, WMM provided a number of documents to Ms Sharpe. These documents comprised WMM invoice no. 1148 in the sum of $850,000; a version of invoice no. 1148 with the words "24/06/14, updated 21/07/14" (July 2014 Chains invoice) in the sum of $760,000; an "Open Letter" authored by Mr Watts; and an email from Mr Watts to Ms Sharpe sent 24 October 2014 (deposit email) confirming that on 21 July 2014 a deposit of $90,000 had been received by WMM against the July 2014 Chains invoice for the sale of the Chains from WMM to Chopsonion. 18 On 5 November 2014 and following, Ms Sharpe provided a number of documents, including the documents provided to Ms Sharpe by WMM, to the sole Director and Secretary of PFM, Ms Annette How (née Conn). Those documents included: the July 2014 Chains invoice, the Open Letter and the deposit email. Also included was an invoice from Chopsonion to FG Agri Pty Ltd for the sale of the Chains for AUD$2.2m and a spreadsheet prepared by Ms Sharpe, which indicated a balance of $760,000 owing to WMM on the July 2014 Chains invoice together with other sums resulting in an "Amount required to borrow" in the sum of $1,414,212. 19 There are issues as to the authenticity of the July 2014 Chains invoice and the deposit email. 20 The documents were provided by Mr Watts, and through him WMM, to Chopsonion with the knowledge and intention that they would be provided by Ms Sharpe on behalf of Chopsonion to potential funders of the purchase of the Chains, and the Removal costs. 21 By email sent 27 November 2014, Mr Smith provided an "assessment of value" for the Chains, dated 26 November 2014, to Ms Sharpe via Mr Watts (Rolton valuation) which assessed the value of a single Chain at between $1.1m to $1.3m. 22 Between 16 and 21 January 2014, Ms Sharpe provided a bundle of documents to PFM. Those documents were documents provided in support of an application to an invoice funder named "The Invoice Market". The application to TIM was for the purposes of obtaining invoice funding for the Chains and Removal costs. 23 One of the documents within the TIM bundle was an amended valuation purportedly prepared by Rolton giving a total market value of each Chain as $1.1m - $1.3m (Modified Rolton valuation). 24 There is an issue as to the authenticity of the Modified Rolton valuation. 25 Another document within the TIM bundle was an invoice from Chopsonion to FG Agri for the purchase of two Chains for $2.2m. 26 Shortly thereafter, PFM provided the TIM documents to the Lenders for the purpose of them considering whether to provide funds, through PFM, to Chopsonion. 27 On 20 January 2015, PFM offered, and Mr Sharpe accepted on behalf of himself, Chopsonion and Jechbo Pty Ltd, an offer of finance in the sum of $1,175,000 (Loan) for purchase of the Chains and the Removal costs. The term of the Loan was for 3 months at which point the Loan had to be repaid. 28 On 21 January 2015, via PFM, a Mortgage Management Agreement was entered into between PFM (defined as the "Mortgage Manager"); the Lenders (defined as the "Mortgagee"); Chopsonion in its own right and in its capacity as trustee for the Collarenebri Trust; Mr Sharpe; and Jechbo in its own right and as trustee for the Jechbo Trust (defined as the "borrowers"). The Mortgage Management Agreement was consequent upon the funding offer being accepted. 29 As collateral security, General Security Agreements referenced at [8] were entered into between Chopsonion and the Lenders and between Jechbo and the Lenders respectively. The GSAs are undated, but there is no issue they were entered into on or about 21 January 2015. 30 The invoice funding from TIM did not eventuate, nor did the sale to FG Agri such that Chopsonion defaulted on the Loan. 31 The Lenders have recovered some of their investment but they allege they have suffered ongoing losses.

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CAUSES OF ACTION 32 In the Watts proceedings as against Mr Watts and WMM, Chopsonion plead the following causes of action: (a) On the basis of breaches by Mr and Ms Sharpe of their statutory duties owed to Chopsonion pursuant to ss 181 and 182 of the Corporations Act 2001 (Cth), involvement of Mr Watts, and through him WMM, within the meaning of s 79 of the Corporations Act; (b) On the basis of breaches by Mr and Ms Sharpe of fiduciary duties they each owed to Chopsonion, knowing assistance by Mr Watts, and through him WMM, in those breaches; (c) Misleading and deceptive conduct or conduct likely to mislead and deceive contrary to s 18 of the Australian Consumer Law set out in Schedule 2 to the Competition and Consumer Act 2010 (Cth); (d) Involvement within the meaning of s 2 of the ACL in the misleading and deceptive conduct of Mr and Ms Sharpe contrary to s 18 of the ACL; and (e) Involvement with the meaning of s 2 of the ACL in the misleading and deceptive conduct of Rolton contrary to s 18 of the ACL. 33 In the Watts proceedings, as against WMM and Mr Watts, the Lenders plead the following causes of actions: (a) Misleading and deceptive conduct; (b) Involvement in the misleading and deceptive conduct of Mr and Ms Sharpe; (c) Involvement in the misleading and deceptive conduct of Rolton; and (d) Deceit. 34 In the Rolton proceedings, as against Rolton and Mr Smith, Chopsonion pleads: (a) In providing the Rolton valuation and/or the Modified Rolton valuation, Rolton has engaged in conduct which was misleading and deceptive; and (b) As against Mr Smith, involvement in Rolton's misleading and deceptive conduct within the meaning of s 2 of the ACL. 35 In the Rolton proceedings, as against Rolton and Mr Smith, the Lenders plead the following causes of actions: (a) Negligence; (b) Misleading and deceptive conduct; and (c) Deceit. 36 In each case where the applicants claim for either misleading and deceptive conduct or in deceit, insofar as is required, the applicants claim an extension of time within which to bring proceedings under the ACL pursuant to s 48 of the Limitation of Actions Act 1936 (SA).

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ISSUES 37 The following liability issues arise as against WMM and Mr Watts in the Watts proceedings: (i) Are the applicants estopped from bringing the Watts proceedings? (ii) Was Ms Sharpe a director and/or officer of Chopsonion within the meaning of s 9AC(1)(b) and/or s 9AD(1)(b) of the Corporations Act? (iii) Did Mr and/or Ms Sharpe breach their statutory duties to Chopsonion? (iv) If so, was Mr Watts, and through him WMM, involved in the breach of those statutory duties within the meaning of s 79 of the Corporations Act? (v) Did Mr and/or Ms Sharpe owe fiduciary duties to Chopsonion, and if so, did they breach them? (vi) If so, was Mr Watts, and through him WMM, knowingly involved in the breach of those fiduciary duties? (vii) Did Mr Watts, and through him WMM, engage in conduct contrary to s 18 of the ACL? (viii) Did Mr Sharpe and/or Ms Sharpe engage in conduct contrary to s 18 of the ACL? (ix) Was Mr Watts, and through him WMM, involved in the contravening conduct of Mr Sharpe and/or Ms Sharpe within the meaning of s 2 of the ACL? (x) Was Mr Watts, and through him WMM, involved within the meaning of s 2 of the ACL in conduct by Rolton contrary to s 18 of the ACL? and (xi) Are the Lenders entitled to an extension of time within which to bring a claim under s 18 of the ACL? (xii) Did Mr Watts, and through him WMM, commit the Tort of deceit? and (xiii) Are the Lenders entitled to an extension of time within which to bring a claim in deceit? 38 The following liability issues arise as against Rolton and Mr Smith in the Rolton proceedings: (xiv) Did Rolton owe a duty of care to the Lenders, and if so what was the scope of that duty? (xv) If so, did Mr Smith, and through him, Rolton breach that duty of care? (xvi) Did Rolton engage in conduct contrary to s 18 of the ACL? (xvii) Was Mr Smith involved within the meaning of s 2 of the ACL in conduct by Rolton contrary to s 18 of the ACL? (xviii) Are the applicants entitled to an extension of time within which to bring claims under s 18 of the ACL and in deceit? and (xix) Did Rolton, through Mr Smith, commit the Tort of deceit? 39 It is for the reasons that follow, that: (a) In the Watts proceedings: (i) Chopsonion has made out its causes of action against Mr Watts and WMM for involvement in breach of statutory duties by Mr and Ms Sharpe and for knowing assistance in breach of fiduciary duties by Mr and Ms Sharpe; (ii) The applicants have made out their cause of action against Mr Watts and WMM for conduct in contravention of s 18 of the ACL; (iii) The Lenders have made out their cause of action against Mr Watts and WMM for involvement in the conduct of Mr and Ms Sharpe in contravention of s 18 of the ACL; (iv) The Lenders have made out their cause of action against Mr Watts and WMM in deceit; and (v) The applicants have failed to make out their cause of action against Mr Watts and WMM for being involved in conduct by Rolton contrary to s 18 of the ACL; (b) In the Rolton proceedings, the applicants have failed to make out any of the pleaded causes of action such that the proceedings are dismissed.

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WITNESSES 40 The applicants make various submissions as to the credibility of the respondents' witnesses. They submit that Mr Watts' evidence should be treated with caution and in some respects it should be found that his evidence was given dishonestly. 41 They submit that Ms Watts' evidence should not be viewed as reflecting her honest and independent recollection. 42 They submit that Mr Smith's evidence should be treated with caution. 43 Ms Smith was not cross-examined. 44 The respondents submit that Ms How's evidence in relation to a conversation she had with Mr Watts on 23 September 2016, and which Ms How confirmed in an email sent 26 September 2016, was not credible and should not be accepted. 45 To the extent the submissions made by both parties in relation to credibility rely upon the demeanour of the various witnesses, that requires a cautious approach. As far as possible, conclusions should be reached on the basis of contemporary materials, objectively established facts, and the apparent logic of events: Fox v Percy [2003] HCA 22; 21 CLR 118 at [30]-[31]. 46 The events which occurred in this matter were some eight to nine years old at the time of trial. Not only that, Mr Smith was aged in his late 70s and Mr Watts was suffering, and had suffered for some time, from ill health. 47 In Watson v Foxman (1995) 49 NSWLR 315, 319 McLelland CJ in Eq observed: … human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. 48 It is in that context that the oral and written testimony of all the witnesses must be assessed by reference to contemporaneous records, objective facts and to the extent they are ascertainable, whatever motives the parties' witnesses may have. 49 In Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123; 297 ALR 56, at [48] Emmett J said: Under s 140(2) of the Evidence Act 1995 (Cth) (the Evidence Act), the Court must, in deciding whether it is satisfied that a case has been proved to the requisite standard, take into account:

the nature of the cause of action or defence;
the nature of the subject matter of the proceeding; and
the gravity of the matters alleged. When proof of any fac is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2). 50 This matter raises serious issues against Mr Watts, Ms Watts, Mr Sharpe, Ms Sharpe and Mr Smith. It is for those reasons that I make any findings of fact involving adverse findings against Mr Watts, Ms Watts, Mr Sharpe, Ms Sharpe and Mr Smith keeping in mind the principles in Briginshaw [1938] HCA 34.

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The Chains 97 SFF had been seeking to sell the Chains since at least 2012. 98 The Chains are what is known as "inverted chains" which allows for a more efficient method of dressing a carcass. 99 In or about late 2011, or early 2012, SFF negotiated the sale of the Oringi Plant to Trust Power, an electricity company. 100 Since SFF was selling the Oringi Plant, SFF had to dispose of its meat processing equipment, including the Chains. 101 In 2012, Mr Ray Jenkins, SFF's Group Engineer, approached Mr Watts and inquired whether Mr Watts had any clients in Australia who had an interest in acquiring the Chains. 102 Mr Watts attempted to find a buyer for the Chains in Australia for SFF and from late 2012 negotiated with a limited number of potential buyers in Australia. 103 SFF had initially wanted to sell the Chains for a least NZD$1m, however as time went on and the need for SFF to sell the Chains became more pressing, it reduced the price significantly. 104 Mr Watts' asking price for the Chains was $480,000 plus GST (i.e. $528,000), but if somebody had offered less, he would have taken it. 105 On 17 September 2012, WMM issued invoice no. 00774b to Southern Cross Meats Processing for the purchase of the Chains. The price of the Chains was $510,000 inclusive of GST, however this invoice reflects a number of adjustments. 106 The sale to Southern Cross Meats Processing did not proceed following which WMM, with the consent of SFF, advertised the Chains for sale in Australia. 107 Rolton, and consequently Mr Smith, was engaged by Mr Jenkins on behalf of SFF in early 2013 for the purpose of assisting and advising Mr Watts on the disposal of the Chains for which Mr Smith was to be paid an hourly rate plus expenses. 108 Mr Smith and Mr Watts were well-known to each other over a number of decades and are friends. Mr Smith was aware of the difficulties that WMM was having in selling the Chains. 109 Mr Watts could not find a buyer for the Chains prior to the Oringi Plant being completely decommissioned and sold. 110 In June 2013, WMM agreed to purchase the Chains from SFF for NZD$200,000. 111 The arrangement between SFF and Mr Smith was that WMM would be invoiced for the Chains by Rolton as SFF's agent and on 1 July 2013, Rolton issued an invoice to WMM for NZD$200,000. 112 The terms upon which WMM purchased the Chains (reflected in an unsigned letter of intent dated 10 October 2013) included payment of a $10,000 deposit, which had been paid by WMM on 12 September 2013. The deposit had been paid by WMM to secure its exclusivity and the payment of the balance of the purchase price was to be by way of five equal payments of NZD$35,000 commencing on 25 October 2013 with a final payment of NZD$25,000 by 25 March 2014. There were further terms that the Chains were to remain at the Origini Plant until full payment, and that WMM would be responsible for covering SFF's rental costs levied by Trust Power for the ongoing storage of the Chains. The Chains could not be resold in New Zealand. 113 Trust Power invoiced SFF for rent for holding the Chains at NZD$3,843.75 per month. Those charges were then on charged to WMM. WMM received a number of invoices for rent commencing from August 2013. 114 On 4 October 2013, WMM issued invoice no. 01079 to Newman Wholesalers Pty Ltd for the purchase of the Chains at a price of $460,000 (excl GST). Although a first payment of $76,666.67 was noted on the invoice as being received on 23 October 2013, the sale did not go ahead and the payment of $76,666.67 was refunded by WMM. 115 On 5 November 2013, SFF issued an invoice to Rolton for the sum of NZD$40,250 for the first instalment due by WMM for acquisition of the Chains. The invoice charged NZD$35,000 for the first instalment for the Chains, plus an additional $5,250 for GST (totalling NZD$40,250). WMM paid a further sum of NZD$25,000, with credit being given for the NZD$10,000 deposit. 116 When the sale to Newman Wholesalers Pty Ltd did not proceed, Mr Watts agreed with Mr Jenkins that WMM did not have to make the monthly payments of $35,000 and that the (by then) $35,000 he had paid would be treated as a further deposit to secure the Chains. 117 Subsequently, SFF issued an invoice to WMM on 28 September 2014 for the sum of NZD$165,000. The invoice confirmed the purchase price for the Chains in the sum of NZD$200,000 and acknowledged payment of NZD$35,000 received from WMM (leaving a balance owing of NZD$165,000).

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The Sharpes 118 Mr Watts met Mr and Ms Sharpe in or about 2012 in relation to abattoir chains generally. Mr and Ms Sharpe hoped to realise what Ms Sharpe described to Mr Watts as their 'paddock to plate' dream and become active in the meat processing industry. From about that time, Mr Watts sold a number of items to the Sharpes with the invoices issued to one of three companies, Annomac Pty Ltd (of whom Mr Sharpe was sole Director and shareholder), Chopsonion and Jechbo. 119 Between 2012 and 2015, on numerous occasions Ms Sharpe requested WMM to procure pricing for various pieces of abattoir machinery, including the Chains, as well as other meat processing machinery from other sellers. 120 In the course of Mr Watts' overall dealings with Ms Sharpe, WMM issued a number of invoices to Chopsonion which were "cancelled". On each of these invoices there is a typed notation "cancelled" followed by the date: (a) Invoice no. 1044, dated 22 May 2013, to Chopsonion, directed to "Wendy" for the purchase of a refrigeration plant, cancelled on 28 June 2013; (b) Invoice no. 1058, dated 1 July 2013, to Chopsonion, West Wyalong, NSW, directed to "Wendy" for the purchase of a single small stock abattoir kill floor, in the sum of $330,000 (incl GST), cancelled on 3 August 2013. This invoice is for one of the two Chains; (c) Invoice no. 1059, dated 1 July 2013, to Chopsonion, Collarenebri, NSW, directed to "Wendy", for the purchase of a single small stock abattoir kill floor, in the sum of $198,000 (incl GST) to be taken to Collarenebri, also cancelled on 3 August 2013. This invoice is for the other Chain; and (d) Invoice no. 1060, dated 1 July 2013, to Chopsonion, Inglewood, Qld, directed to "Wendy", for the purchase of a refrigeration plant, cancelled on 3 August 2013. 121 Some invoices have no notation that they were cancelled. Invoice no. 1085, dated 29 October 2013, to Chopsonion, Leeville, NSW, directed to "Wendy" for the purchase of a beef chain and other equipment at Yarrawonga for $189,200 inclusive of GST, and invoice no. 1088 dated 10 November 2013 to Annomac for the purchase of a mutton processing chain at Mataura, in the South Island of New Zealand for $680,000 (no GST).

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Invoice no. 1148 134 On 24 June 2014, during Mr Watts' conversation with Ms Sharpe, she asked him for an invoice for both of the Chains to "give to - to Mr Keane so he could start finding finance" and "so he can source it with his contacts". 135 Mr Watts caused WMM invoice no. 1148 to be prepared later that day for a total sum of $850,000 (incl GST) for the Chains, not $528,000 (incl GST). There is no reference to anything other than the Chains themselves on invoice no. 1148 and it notes that one Chain is 90% complete. It seems the incomplete Chain required a "Bleed chain with low voltage stimulation" and also an overhaul of a "shoulder puller". 136 Invoice no. 1148 and the July 2014 Chains invoice play a central part in the applicants' case. 137 Ms Watts gave evidence, which I accept, that she prepared all the invoices for WMM. 138 Ms Watts was shown invoice no. 1148 in cross-examination. She was unsure whether she prepared invoice no. 1148 and speculated she did not prepare it. However, she accepted she could have. Ms Watts' caution was based on two things: (a) "We" did not normally put "GST import inclusive" on invoices; and (b) It would not have had the lines on it under each item. 139 As to the first matter, Ms Watts said she would normally put "N/A" if no GST was to be applied, but accepted she could not remember. Under those circumstances, I attribute no weight to Ms Watts' caution. 140 As to the second matter, invoice nos. 1058 and 1059, both of which were dated 1 July 2013, but cancelled on 3 August 2013, some 12 months before invoice no. 1148, are in the same lined format. Further, Ms Watts could not remember if she was aware in June 2014 of the preparation of invoice no. 1148. 141 Still further, Ms Watts was cautious to the point of being evasive in relation to invoice no. 1148. 142 It is for these reasons I find Ms Watts prepared invoice no. 1148 on instructions from Mr Watts. 143 Ms Watts also denied she knew at the time about invoice no. 1148 and the price of $850,000 (incl GST), although she accepted she would have seen it at some stage. 144 When asked about the price on invoice no. 1148 of $850,000 (incl GST), Ms Watts volunteered that the price could have had "shipping or insurance or whatever" added as opposed to an original price for both Chains of $480,000 (plus GST) or $528,000 (incl GST): T 891.6-11. 145 In giving that evidence, Ms Watts was reconstructing the explanation as to the price on the invoice in a way which suited Mr Watts/WMM's case. Ultimately, Ms Watts could not explain the difference between the price on invoice no. 1148 and the Chains' ultimate sale price of $528,000 (incl GST). 146 Mr Watts' evidence in relation to both invoice no. 1148 and the July 2014 Chains invoice was very unsatisfactory and I do not accept it for the reasons which follow. 147 First, Mr Watts deposed that he met with Ms Sharpe and Mr Keane at Inglewood the following day, i.e. 25 June 2014, a matter he confirmed in cross-examination. I do not accept that Mr Watts met Mr Keane at Inglewood on 25 June 2014. That is because on 28 September 2014, Mr Keane sent an email to Mr Watts in which he said, in part: I would like to let you know that I am looking forward to meeting with you, Wendy and Jim speak very highly of you and although I haven't had the opportunity as yet to meet with you I am sure that once we get over this first part of the exercise the rest will flow. 148 I return to this email later in these reasons. 149 Second, Mr Watts said in cross-examination that he "might have" given invoice no. 1148 to Ms Sharpe the next day: T 732.11-12. Although Mr Watts was unsure, hence the use of the word "might", I find that he did so, given that he prepared the invoice following a request by Ms Sharpe and that he was due to meet her at the Inglewood Abattoir the next day. I also find that Mr Watts gave only a hard copy of invoice no. 1148 to Ms Sharpe at Inglewood on 25 June 2014. 150 Third, Mr Watts said under cross-examination that invoice no. 1148 was not complete because it was subject to getting a firm quotation for the removal and transport of the Chains. Nonetheless, he accepted that the only thing he was going to do was to sell the Chains to Chopsonion and was not going to provide any of the removal or transport costs because "he doesn't do that": T 724.28-34. 151 In circumstances where he was never going to provide any of the removal or transport costs, his evidence that invoice no. 1148 was not complete because it was subject to getting a firm quotation for the removal and transport of the Chains, is demonstrably wrong and I do not accept it. 152 Fourth, Mr Watts accepted in cross-examination that his deal had not changed from the two 2013 invoices, being invoice nos. 1058 and 1059, which had been cancelled on 3 August 2013 and which together totalled $528,000 (incl GST) for the Chains. 153 Fifth, although Mr Watts described invoice no. 1148 as being a "budget estimate" to give Mr Keane an idea of what he was going to be up for when obtaining funding from the Lenders, that is not true and I do not accept that evidence for the reasons I have set out above. 154 Sixth, Mr Watts received an email from Mr Keane dated 23 July 2014, which he forwarded to Mr Smith on 24 July 2014. In that email Mr Keane informed Mr Watts that he had: … on behalf of Chopsonion Pty Ltd and Jim Sharpe, secured the funding for the purchase of equipment noted in Invoice 1148 along with the entire negotiation with the Sharpes. As you are aware this has been a lengthy process under extenuating circumstances. Our funder, NCS, have now confirmed approval of the application in as full and final settlement to Watts Meat Machinery Pty Ltd. 155 Mr Watts gave evidence that he would need to send a "correct invoice" when the funder wanted one. Nonetheless, Mr Watts did not contact Mr Keane nor Ms Sharpe to advise one or the other that invoice no. 1148 was a "budget estimate" and not the "correct invoice". 156 Seventh, by 30 August 2014, Mr Watts understood that engineering and freight costs had been finalised because he sent an email to Mr Keane seeking an update on payment of invoice no. 1148 yet did not say he would re-issue the invoice in any way.

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The July 2014 Chains invoice 157 On or about 21 July 2014, the July 2014 Chains invoice, which is an updated version of invoice no. 1148 was created. It is substantially the same to the original invoice no. 1148, but with an added reference to a deposit of $90,000 having being received leaving a "balance owing" of $760,000. It is common ground between the parties that no such deposit had been paid. 158 There are various other changes in the July 2014 Chains invoice, one of which is the inclusion of the words in the date "update 21/7/14" and the order number has the words "Jim Sharpe" added. Another difference is the inclusion of the words in the preamble to the invoice "balance of matching Millers Equipment now available in Australia included, held at Scone NSW depot, 2 x complete small stock chains". 159 Mr Watts denied that the July 2014 Chains invoice was prepared by him or Ms Watts. Ms Watts denied she prepared the July 2014 Chains invoice because she would not have written on the invoice that it was an update, nor would she have made a reference to a deposit of $90,000 and a balance owing of $760,000. She maintains her denial notwithstanding she also said she could not remember. 160 I do not accept that Ms Watts did not prepare the July 2014 Chains invoice for the following reasons: 161 First, there is no suggestion that Mr Watts sent invoice no. 1148 to Ms Sharpe electronically. On the contrary, I have found that he gave that invoice to her at Inglewood on 25 June 2014. 162 Second, Mr Watts had received an email from Mr Keane sent 23 July 2014 in which Mr Keane informed Mr Watts that on behalf of Chopsonion and "Jim Sharpe" he had "secured the funding for the purchase of equipment noted in invoice 1148 along with entire negotiation with the Sharpes". On 30 August 2014, Mr Watts sent an email to Mr Keane asking for an update. 163 Mr Watts was told by Mr Smith on 25 September 2014 that SFF were concerned about continuing delays and that unless there was some documentation from Ms Sharpe's funder and a timetable for payment by 31 September 2014 (sic 30), his directions from SFF were that any further commitment from SFF would be withdrawn and the plant would be put back on the market. Mr Watts followed up with Mr Keane by email sent on 28 September 2014. 164 On 28 September 2014, Mr Watts received an email in reply from Mr Keane (headed "Re: FW: Settlement of Invoice No 1148 to Chopsonion Pty Ltd") to Mr Watts' emails sent 30 August 2014 and 28 September 2014. Mr Keane's email attached a letter from the company called NCS confirming that funding had been approved and that the first payment would be made to WMM in the amount of $760,000. 165 The attached letter is in the following terms, is written on NCS letterhead, and signed by a Mr Richard McCaughty. The footer to the letter contains an address and telephone number for NCS: Warwick Keane 26th September, 2014 Jim Sharpe For collection Re: Funding Approval for Purchase, Pack and Ship of Abattoir Chains from New Zealand This letter serves to verify that funding is approved in the amount of $1 130,000.00 for the purchase, removal and pack, and shipping of the Abattoir Chains from a location, Oringi, New Zealand. As at today, our company is processing the final documentation requirements for the payment procedure and drawdown. I confirm that the first payment in the drawdown is directed to Watts Meat Machinery Pty Ltd in the amount of $760,000.00. This payment is in our process system for payment currently. I have been advised that Mr Warwick Keane will be collecting the cheque payment for the above company, along with the project drawdown schedule. 166 The letter reflected the July 2014 Chains invoice because it referred to the sum of $760,000 which allowed for the deduction of a $90,000 deposit. 167 Mr Watts read the NCS letter. In cross-examination he attempted to justify the sum of $760,000, not by reference to a deposit, which he denied, nor by reference to removal and transport costs, but by reference to other machinery in addition to the Chains. He identified that additional machinery as being the Yarrawonga Beef Chain (the subject of invoice no. 1085 dated 29 October 2013 and later invoice no. 1205 dated 22 January 2015), a shoulder puller (the subject of invoice no. 1206), and other items of machinery which he said was in his affidavit. However, that is inconsistent with his earlier evidence that invoice no. 1148 comprised the price for the Chains and a "budget estimate" for removal and transport. 168 Third, I find that Mr Watts never queried the sum of $760,000. Although whilst under cross-examination and having been cross-examined on invoice no. 1148 and the July 2014 Chains Invoice the previous day (day 9), while still under cross-examination the following day (day 10), Mr Watts said that he telephoned Ms Sharpe after he received the NCS letter and asked her about the total of $760,000. He said Ms Sharpe's answer to him was that she had to pay an agent for getting the loan and for purchasing of the plant. I have no hesitation in rejecting that evidence. Not only do I consider it to be a recent invention, that evidence is yet another version of what comprised the sum of $760,000. 169 Finally, Mr Watts gave evidence that in mid to late 2013 he was told by Ms Sharpe that she was able to edit WMM's pdf invoices in order to fix a mistake. That may or may not be right but to the extent Mr Watts relies upon that conversation as a basis to support his contention that the July 2014 Chains invoice was prepared by Ms Sharpe and not him, or Ms Watts, I do not accept it.

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The admission by Mr Watts to Ms How 170 Fourth, on 23 September 2016, Ms How spoke to Mr Watts about the sale of the Chains. Ms How deposed: Exhibit A10 at [65] On 23 September 2016, I spoke with Watts. To the best of my recollection, I was speaking to him at the time to reinvigorate conversations with him as to the sale of the Chains. In that conversation, he advised me that Wendy Sharpe had asked him to inflate the original invoice price for the Chains from an amount $490,000 to the amount of $760,000, state that a deposit for $90,000 had been paid for the purchase of the Chains when it hadn't been paid and then kick back moneys to her. I recorded the details of my conversation with him in an email communication dated 26 September 2016. I was very shocked. I had assumed that all of the information provided to me by all parties was true and correct and accurate." 171 The email to which Ms How refers was sent on 26 September 2016. It reads as follows: Keith, Thanks for the chat on Friday Here are the problems. You advised me that Wendy asked you to change the original invoice price ($490,000.00) and provide us with an invoice with an inflated amount. You in fact changed your invoice to indicate to us that she was paying $76,000.00 for both chains which is some 360K more for the chains than she actually was. The Invoice also indicated that a 90K deposit was paid, which it was not. You also indicated that once we paid you the $760,00.00 that you in turn kicked back the over payment to Wendy. Keith, this presents some serious problems with first one coming to mind, Fraud! Again I am extremely upset that you chose to lie to me purely because Wendy asked you to do so. Your actions were a direct result in us advancing funds to associated companies of Wendy's which will result in the private investors and myself losing considerable amount of money (sic). I suggest that you now do everything in your power to assist us with the sale of the chains and the security properties. Again, I cannot express how disappointed I am in you and your firm. Also on another note I have to sell these chain, do you have the contact details for David that already made the offer? 172 Mr Watts denied reading the email at the time it was sent on the basis that WMM's BigPond email was no longer working. That is not so. The BigPond email address was operative at that time but was no longer Mr Watts' primary email address. 173 The respondents submit that the Court should not accept Ms How's evidence on the basis that Mr Watts issued invoice no. 1148 to someone else in circumstances which are proper and explicable, and where the invoice was not inflated. 174 Further, the respondents submit that as a result of a website re-brand and system overhaul, Mr Watts ceased use of his BigPond email address in or about May 2016 and advised customers and other parties that his new email address of info@wattsmeatmachinery.com.au should be used in future correspondence. 175 Still further, the respondents suggest that Ms How attempted to construct a narrative in September 2016 for the benefit of a draft statement of claim shortly to be issued to Mr Watts. 176 Finally, the respondents take issue with the fact that the applicants did not lead any evidence from Ms Sharpe to shed light on this issue. They invite the Court to draw an inference that evidence from Ms Sharpe would not have assisted the applicants on this issue: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 9. 177 As to the Jones v Dunkel point, as a general proposition, an adverse inference may be drawn when one would reasonably expect a party to call a person or when such a person is likely to be able to provide admissible evidence regarding some fact in issue: Jones v Dunkel at 321-322 and one would have expected that party rather than another party to call the person: Director, Office of the Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2013] FCAFC 8 at [100] (Besanko and Perram JJ). 178 Properly stated, the common law rule is that an adverse inference may (not must) be drawn from the failure of a party to adduce particular evidence, where such evidence would have reasonably been expected. 179 I am not prepared to draw that inference for a number of reasons: (a) There is no evidence as to the availability of Ms Sharpe to give evidence; (b) I would not reasonably expect the applicants to call Ms Sharpe; and (c) It was open to the respondents to call Ms Sharpe, if available. 180 I have no hesitation in rejecting the respondents' submissions. As I have noted, Ms How was an impressive witness whose evidence was both truthful and reliable. 181 I do not accept Mr Watts' evidence that he did not read Ms How's email. On 9 October 2016, he responded to another email he also received at the BigPond email address on 26 September 2016, the day Ms How sent her email. Further, there were not many emails in the BigPond account at the time (maybe one or two). 182 The applicants submits that the Court should find Mr Watts made the admissions referred to by Ms How because: (a) It is implausible that Ms How fabricated a conversation between her and Mr Watts and then put it in an email to Mr Watts; (b) Ms How's oral evidence was credible; (c) Ms How's email was sent three days after the conversation, when it was still vivid in her recollection; and (d) Mr Watts did not send an email in reply disagreeing with its contents. 183 I accept those submissions and I find accordingly. 184 I find that the July 2014 Chains invoice was prepared by Ms Watts on behalf of WMM on Mr Watts' instructions and provided by Mr Watts to Ms Sharpe for providing to Mr Keane. 185 That said, I am unable to find how and when WMM provided the July 2014 Chains invoice to Ms Sharpe, other than to find it was provided prior to 26 September 2014 for the reasons I have set out above. 186 It is also for these reasons that I do not accept Mr Watts' explanation for the sum of $760,000 as being due to additional machinery and rent and I find that Mr Watts did not query the sum of $760,000 because he well knew it was the subject of the July 2014 Chains invoice. 187 I find that Mr Watts knew that Mr Keane was proceeding on the basis of the July 2014 Chains invoice in relation to his dealings with the financers, and that Mr Keane underlined that the July 2014 Chains invoice was for the purchase of the Chains at a price of $760,000 after allowing for a deposit of $90,000. That was so despite Mr Watts' knowledge that was not the case in the sense that no deposit had been paid and that Mr Watts only wanted a price of $480,000 plus GST, i.e. $528,000. 188 Further, I do not accept that Mr Watts intended to send a "correct invoice" at any stage. As far as Mr Watts was concerned, the funder was going to pay on the July 2014 Chains invoice. It is inconceivable that Mr Watts would have allowed the matter to progress if his intention all along was to substitute the July 2014 Chains invoice with a "correct" invoice. 189 On the issue of knowledge, there is no doubt that Mr Watts knew that invoice no. 1148 and/or the July 2014 Chains invoice was going to be provided to potential funders for the purpose of raising finance so that Chopsonion could purchase the Chains and I find accordingly. 190 Having read Mr Keane's email of 28 September 2014 and the NCS letter, Mr Watts called Mr Jenkins of SFF by no later than 9.04am on the morning of 29 September 2014 and told him that payment for the Chains and the outstanding storage costs had been released. SFF invoiced WMM direct, rather than through Rolton. 191 On or about 14 October 2014, Mr Sharpe told Mr Watts by email (which Mr Watts forwarded to Mr Smith) that Mr Keane would be finalising the payment of the Chains with the funder "today". There was no suggestion of the true position regarding the July 2014 Chains invoice being corrected. 192 However, for reasons which are not explained, funding from Mr Keane/NCS did not materialise.

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The $90,000 deposit email 193 On 24 October 2014, Mr Watts sent the deposit email to Ms Sharpe in which he confirmed with Ms Sharpe that WMM had received a deposit of $90,000 for the Chains on 21 July 2014. Mr Watts denies that he sent this email, however I do not accept that evidence and find Mr Watts either prepared, or caused to be prepared, the email because: (a) Given my significant reservations as to Mr Watts' credibility on matters which have the potential to impact on his liability and the liability of WMM, Mr Watts' claim that he did not author the email cannot be accepted; (b) Mr Watts knew from as early as September 2014 that at least one lender, NCS, was acting upon the July 2014 Chains invoice that disclosed an amount payable on the Chains of $760,000 (i.e. $850,000 less the $90,000 deposit) but did not query it; (c) As I discuss later in these reasons, Mr Watts was not surprised when he received payment of $760,000 in January 2015, the amount referred to in the July 2014 Chains invoice; and (d) He admitted to Ms How that Ms Sharpe had asked him to state that a deposit of $90,000 had been paid when that was not the case. 194 The respondents refer to a series of emails and submit that NCS had been provided with the July 2014 Chains invoice by Mr Keane or Ms Sharpe which had made false reference to a $90,000 deposit, thus totalling $760,000 and that Mr Watts did not know that the invoice had been altered or provided in any form to NCS. They refer to the following: (a) On 24 July 2014, Ms Sharpe emailed Mr Peter Wharehinga of P&W Engineering (copied to Mr Watts) requesting a pro forma invoice; (b) On 17 August 2014, Ms Sharpe emailed Mr Watts giving an update; (c) On 30 August 2014, Ms Sharpe emailed Mr Watts giving an update; (d) On 30 August 2014, Mr Watts emailed Mr Keane for an update; (e) On 23 September 2014, Ms Sharpe emailed Mr Watts giving an update; (f) On 28 September 2014, Mr Watts emailed Mr Keane for an update; (g) On 28 September 2014, Mr Keane emailed Mr Watts giving an update on finance with the Lender he was organising; and (h) The email from Mr Keane sent 28 September 2014 which attached the letter from NCS dated 26 September 2014 to which I have referred. 195 I have considered all that correspondence. It does not support the submission by the respondents. 196 The respondents also submit that Mr Watts' evidence about the NCS letter in the sum of $760,000 was both convincing and unshaken. They also referred to Mr Watts' oral evidence that he contacted Ms Sharpe after he received the NCS letter. It is for the reasons I have set out that I do not accept that submission. 197 It seems NCS did not end up funding the purchase of the Chains. There is no evidence as to why that was the case.

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The Rolton valuation 203 In late November 2014, Mr Watts asked Mr Smith to prepare an assessment of the value of the Chains. In cross-examination, Mr Smith refused to accept that his assessment of value was "a valuation". Whatever its status, it is an informal document, clearly is not a comprehensive valuation and sets out a limited basis for the valuation. In any event, the reluctance by Mr Smith to agree that the document is a "valuation" appears to be based in Mr Smith's mind on the fact that he is not a registered valuer. 204 On 27 November 2014, Mr Smith sent an email to Ms Sharpe, care of Mr Watts, containing the Rolton valuation. The Rolton valuation assessed the value of a single Chain at $1.1m - $1.3m and stated in part that the assessment of value covered: … the actual chain, its de-installation, pre-delivery servicing and modifications and the delivery to wharf side Australia. The chain is to be generally prepared for re-installation into local Australian conditions. The preparation covers the kit setting process and possible pre-modifications for ease of removal and as above its final re-installation. 205 The Rolton valuation was addressed to Chopsonion, "attention Wendy Jellars-Sharpe" (sic) and referred to a request from Mr Watts for "guidance of the Chain value based on types of equipment sold into Australia, general condition of the Oringi Chain, and use of quality contractor for pre re-installation process". 206 There is an issue between the parties as to the purpose of the Rolton valuation. 207 Mr Watts gave evidence that he spoke with Ms Sharpe on or before 26 November 2014 about the need for transit insurance and that he would inquire of Mr Smith if he could prepare a valuation for the Chains for the purposes of shipping. 208 Subsequently, Mr Watts spoke with Mr Smith on 26 November 2014 in which Mr Smith agreed to prepare a valuation of the Chains which he contended was for insurance purposes. 209 As to what he meant by "insurance purposes", Mr Smith said in cross-examination that he wrote the Rolton valuation as a genuine assessment of what he believed a Chain would be worth if it was lost. I accept that evidence and I consider that Mr Smith prepared a valuation for the purposes of a payout by an insurer. It is in that sense that Mr Smith prepared a valuation for the replacement of one of the actual Chains. That explains why the Rolton valuation is directed not simply to the actual Chain itself, but also the costs associated with its "de-installation, pre-delivery servicing and modifications and delivery to wharf side Australia". 210 As to his understanding that it was for insurance purposes, on 22 October 2014 Mr Smith had contacted Ms Watts by email reporting that he had spoken to the regional manager for AON New Zealand Limited, Ms Jill Gwynne, who had advised that Ms Sharpe should take out a defined value cover for the Chain which provides cover for an undefined removal date and that once the Chain is in containers, Ms Sharpe could contact Ms Gwynne to wind up the cover and rebate the unused months. Mr Smith continued that should Ms Sharpe require any further guidance, she should telephone Mr Smith. 211 Mr Smith denied he was assisting Ms Sharpe and insisted he was assisting Mr Watts. In context, that is a distinction without a difference and his offer to speak with Ms Sharpe clearly indicates his preparedness to assist her. 212 Subsequently, Ms Gwynne contacted Ms Sharpe on 6 November 2014 by email in which she advised, "Signed slip from your Insurer confirming cover in place a note in the interests of your lender.". Ms Gwynne forwarded a copy of her email sent to Ms Sharpe to Mr Smith the same day. 213 The insurance placing slip is dated 5 November 2014 and issued under the common seal of the insurer. It notes the insured as, "Chopsonion Pty Ltd/or subsidiary companies and other parties for their respective rights and interests" and the interested party as, "Trustee for NCS Unit Trust". The sum insured was (I assume NZD) $8.5m and the period of insurance was from 7 November 2014 to 7 February 2015 with the policy covering physical loss or damage. The extensions to the policy include architects and surveyor's fees, professional fees, demolition costs and expediting costs, which is consistent with the basis upon which Mr Smith assessed later as the value of a single Chain. 214 Although there is no reference to the Rolton valuation being for insurance purposes, references to items not forming part of the Chain but to work done on the Chain as part of its dismantling indicates to me that what is being assessed in the Rolton valuation is the cost of one Chain plus the cost of removing it, preparing it for transport and transporting it to Australia. As to the value placed by Mr Smith on a single Chain, he confirmed that it was a replacement cost based on a second-hand Chain. 215 Mr Smith denied that the Rolton valuation had been prepared for funders. 216 I accept that Mr Watts spoke to Mr Smith about preparing a valuation of the Chains for the purposes of shipping and that Mr Smith prepared the Rolton valuation for what he considered was insurance purposes, and not for the provision to potential funders. However, Mr Smith knew that Ms Sharpe was seeking to obtain funding for Chopsonion from third-party funders for the purpose of purchasing the Chains from WMM, and that the Rolton valuation was required for insurance purposes. Indeed, the AON placement slip identified the trustee for the NCS Unit Trust as an interested party. 217 Further, Mr Smith was experienced in the disposal of meat processing equipment and it must have occurred to him that any funder would require a valuation at the very least to support any policy of insurance. I find that Mr Smith prepared the Rolton valuation well knowing and intending that the Rolton valuation would be provided to third-party funders who he knew or ought to have known would rely on his assessment of value for one Chain. 218 Mr Smith was cross-examined on the basis upon which he prepared the Rolton valuation. 219 On 29 September 2015, which is after the events leading up to the provision of funds for the purchase of the Chains, Mr Smith sent an email to Ms Sharpe in which he identified the general principle when setting "evaluation point stages is to use a three-part system": (a) Actual purchase cost as base; (b) All installation and setup costs (+100% on base); and (c) Fully operational plant (+100% on stage 2). 220 It was suggested to him that he had not used the actual purchase price as the starting basis in preparing the Rolton valuation. Mr Smith agreed he had not used the actual purchase price, but said that it was not possible to do that in the circumstances of this matter because the Chains were being sold at what he described as a "fire sale" price. I accept that evidence. 221 A large component of the cross-examination of Mr Smith was directed at how he arrived at the value of the Chain in the Rolton valuation. Mr Smith explained the process he adopted was estimating the replacement value using a second-hand chain such that the figure was an amount that would have satisfactorily compensated the owner of the Chain if it was lost. Rather than using information from the removal contractor, Mr Smith was at pains to repeat that he performed an independent assessment, but he was unable to provide the specifics of the exact figures he used. He reiterated that it would not have been possible or at least highly unlikely for the Chains to be replaced by acquiring a second-hand chain at the same price as the "fire sale" purchase price. I accept that evidence. 222 There is no issue that Mr Smith prepared the Rolton valuation as a favour to Mr Watts. 223 It was suggested to Mr Smith in cross-examination that he and Mr Watts discussed a figure he should place as a value of a single Chain prior to Mr Smith preparing the Rolton valuation. Mr Smith denied that proposition initially but ultimately accepted that the figure he adopted in the Rolton valuation was consistent with a general figure he discussed with Mr Watts prior to the preparation of the Rolton valuation but that most of the input in arriving at the figure was from Mr Smith. 224 The applicants submit that the "favour" Mr Smith did for Mr Watts in preparing the Rolton valuation was to come up with a figure that was going to suit Mr Watts' interests. 225 I do not accept the applicants' submission that that "favour" was to come up with a figure that was going to suit Mr Watts' interests in getting funding for the Chains. 226 No valuation evidence was called by the applicants to gainsay Mr Smith's opinion and I am satisfied that the Rolton valuation was Mr Smith's genuine opinion as to the value of a single Oringi Chain. Further, anyone reading the Rolton valuation would understand it to be prepared on a limited basis and valued a single Chain. 227 On 13 February 2015, Rolton provided its invoice no. 1733 to WMM, dated 13 February 2015, for $10,000 for "Consultancy fees as arranged". The invoice was paid by WMM to a personal Australian bank account in the names of Mr and Ms Smith (rather than the Rolton New Zealand bank account) on 17 February 2015. 228 Mr Smith was cross-examined at length about the payment of a $10,000 commission he received on 17 February 2015 after PFM paid $760,000 into WMM's bank account. It was suggested by the applicants that the payment of $10,000 was a "kick back" from Mr Watts for having provided him with the Rolton valuation, which the applicants submit, Mr Smith knew had no foundation. 229 A number of versions of Rolton's invoice no. 1733 were in evidence. The version at p 96 of annexure RJS-3 to the second Smith affidavit has handwriting on it "Sockburn Boning Room". Mr Smith did not recognise that handwriting and said it did not relate to the "Sockburn Boning Room" but to the "Sockburn beef house". It seems this version of invoice no. 1733, which also appears at p 106 of the same annexure, had been provided to Mr Smith by Mr Smith's solicitors. Mr Smith recanted on that evidence later. 230 Another version was tendered as Exhibit A17. That version is the same as the versions at pp 96 and 106 of the second Smith affidavit. 231 Ms Watts said that the handwriting "Sockburn Boning Room" was placed on invoice no. 1733 by her as a reminder to ask Mr Watts what the invoice was for. I have difficulty in accepting that evidence because there was no need for her to identify a specific project if Ms Watts wanted to know what the invoice was for. 232 Yet, another version of invoice no. 1733 is at p 105 of the same annexure but does not have the words "Sockburn Boning Room". It has handwriting recording that it was paid on 17 February 2015. Ms Smith deposed to the handwriting recording that the invoice was paid as hers. Exhibit A22 is a further version of invoice no. 1733 but with handwriting "Sockburn Project". Mr Smith said in cross-examination that the writing looked like Ms Smith's handwriting. 233 Ms Smith (who was not cross-examined) deposed in her affidavit that the description of the work as "consultancy fees as agreed" on invoice no. 1733 was typed because she had been told by Mr Smith that he "… had come to an agreement with Keith Watts of WMM for a 'commission payment' to be made to Rolton by WMM for services Rolton performed for WMM for the recent sale of meat machinery. I was told the sum was AUD$10,000.00." 234 Mr Smith identified the invoice as relating to the Sockburn Boning Room which had been completed in 2012. Mr Smith said he worked with Mr Watts in relation to this plant which was ultimately sold to people named Campbell and that it was not uncommon for an invoice to be rendered when being told there was money to pay it. 235 As opposed to the Sockburn Boning Room, there was also the Sockburn Beef Floor, which was a project undertaken later in 2015 in which Rolton and WMM were involved. 236 On the basis of the timing of the payment, the nature of the payment (i.e. a commission), the fact that the only "recent sale of meat machinery" was the Chains and the absence of any contractual obligation on the part of WMM to pay Rolton $10,000, the applicants contend for a finding that payment of Rolton's invoice no. 1733 was made in connection with WMM's sale of the Chains to Chopsonion, specifically as a payment to Rolton for providing the Rolton valuation in terms which suited Mr Watts' purposes. 237 The applicants contend further that there is no other reasonable or credible explanation for the payment asserting that the payment was not a commission relating to the sale of the Sockburn Beef Floor because Mr Smith was engaged by another party, not WMM, and that WMM did not find a buyer for the Sockburn Beef Floor until well after February 2015. 238 The applicants contend still further that: (a) The payment to Rolton did not only relate to the sale of the Chains to Chopsonion, but was also a payment to Rolton for it, through Mr Smith having prepared an artificially high valuation that would assist in securing funds for Chopsonion; (b) Mr Smith assessed the value of the Chains as a favour to Mr Watts; (c) In particular, Mr Smith prepared a report for Chopsonion, not Mr Watts; (d) The $10,000 payment was made in connection with WMM, not Chopsonion; (e) Mr Smith provided unpersuasive evidence that the transaction related to the Sockburn Boning Room, a transaction from 2012; (f) The inference also arises from the irregularities in the Rolton valuation and Mr Smith's preparation of it; and (g) There is no more persuasive explanation for the making of the payment. 239 I do not accept those contentions. Upon receiving payment from PFM for the Chains, WMM was in a cash position to pay Rolton for the work done by Mr Smith on the Sockburn Boning Room. 240 I consider Mr Smith's evidence that he thought the payment was for the Sockburn Beef Floor was an error on his part given that the Sockburn Beef Floor transaction did not occur until later in 2015. 241 Further, Mr Smith's evidence, although uncertain, was that the handwriting was that of Ms Smith. 242 Mr Smith maintained that he received payment of commission for assisting Mr Watts in acquiring various pieces of abattoir equipment, in particular the Sockburn Boning Room, that commenced in about 2012. He also maintained that the Chains formed no part of the commission. I accept that evidence. 243 In particular, I do not accept that Mr Smith received a "kick back" for preparing the Rolton valuation. Whereas there is a coincidence in WMM receiving payment from PFM and payment of a commission of $10,000 to Rolton, that is explained by WMM being placed in funds and being able to make payment to Rolton for the acquisition of the Sockburn Boning Room.

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The Sharpes, PFM and Ms How 247 Loans managed by PFM are usually made to corporate entities requiring short-term funding on an urgent or interim basis pending refinancing or sale of assets. Loans are not managed under the National Credit Code, such that they are unregulated. Ms How does not use formal criteria to assess lending capacity and a borrower's ability to repay. 248 Following receipt of a loan enquiry, it was Ms How's practice to review information provided in support of the potential loan to consider whether she would either reject it or refer it to her network of lenders, and if so whom. 249 In Ms How's experience, often potential borrowers will provide existing valuations of real estate being offered as security for a loan. Ms How will either facilitate an assignment of those valuations or obtain funds from the potential borrowers or their representatives to commission new valuations. 250 Once valuations are obtained, Ms How then provides a copy of the valuation to the potential lender(s) along with other documentation that has been provided to her by the potential borrower. 251 If the loan proceeds, Ms How ensures that she has executed copies of the letter of offer to the potential borrower and a commitment from a lender, following which she will instruct solicitors to prepare the relevant loan and security documentation. 252 Once satisfied the documentation is in order, Ms How disburses the loan in accordance with the directions of the borrower under a disbursal authority. 253 PFM monitors and collects payments from the borrowers and pays the net interest payments to the relevant lender or lenders, for which it charges a management fee. 254 The management fee is prescribed under the relevant letter of offer and Mortgage Management Agreement. The borrower pays the Mortgage Management Fee but if not paid, it is recoverable from the mortgagee under an indemnity in the Mortgage Management Agreement. 255 If a loan goes into default, the Mortgage Management Agreement provides that PFM is also entitled to charge a Loan Attendance Fee. In the case of the Loan to Chopsonion, the Loan Attendance Fee was an amount of $250 per hour recoverable from the mortgagee. 256 In the event enforcement action is required, PFM take action such as taking possession of and selling real property or other property of borrowers or mortgagors. In some cases, PFM appoints receivers. 257 Ms Sharpe was known to Ms How because Ms How had some involvement with Ms Sharpe and Mr Watts on other projects. Ms How and Ms Sharpe would talk occasionally about what Ms Sharpe was doing. 258 Prior to 5 November 2014, Ms Sharpe contacted Ms How and told Ms How that she was seeking funding for the Chains and that she had already sold the Chains in Australia. 259 In order to assist in funding the Chains, Ms How requested that Ms Sharpe provide her with information in respect of the Chains that she could then pass on to the Lenders. 260 By email dated 5 November 2014, Ms Sharpe sent Ms How a bundle of documents including, amongst other documents, the July 2014 Chains invoice, the Open Letter, the deposit email, photographs of the Chains and processing line. She also included a spreadsheet showing the total amount sought at that time of $1,414.212. The spreadsheet identified an on-sale price of $2.2m (incl GST) to FG Agri and identified the cost of two complete Chains as being $850,000, less a deposit of $90,000 (as per the July 2014 Chains invoice). 261 As I have noted, the figure of $2.2m comes from an invoice from Chopsonion dated 16 October 2014 to FG Agri marked to the attention of David Anderson for the "Supply, remove, pack and ship of 2 x small stock chains ex Oringi NZ", a copy of which was also provided by Ms Sharpe to Ms How on 5 November 2014. 262 In the material provided to Ms How by Ms Sharpe on 5 November 2014 was an invoice from Chopsonion to FG Agri dated 16 October 2014 for the sale of the Chains in the sum of $2.2m. 263 The applicants submit that the dealings with FG Agri provide no evidence of the value of the Chains. They submit that Chopsonion's dealings with FG Agri did not reflect any genuine arms-length transaction. 264 I do not accept that submission and there is no evidence to support it. 265 The applicants also submit that the payment of the deposit by Mr Anderson personally rather than FG Agri was such that the Chopsonion-FG Agri arrangement was tainted by dishonesty on the part of Mr Anderson. 266 There is no evidence to support that submission either. Further, there is no basis upon which it is open to the Court to infer that is the case. The references to the payment of the deposit and the subsequent withdrawal of portions of the deposit by Mr Anderson from Mulherin Schier's account do not provide a basis for dishonesty. 267 I accept that Mr Anderson confirmed to Ms How by email on 20 January 2015 that FG Agri had paid a deposit of $100,000 in late 2014. That statement was correct, however on 1 December 2014 Mr Anderson had requested by email to Mulherin Schier that $50,000 of that deposit be paid to Jechbo that day. 268 As I have noted, Jechbo was a company of which Mr Sharpe was the sole Director and shareholder. There is no evidence as to why $50,000 was paid to Jechbo or how it came about. Certainly, FG Agri was entitled to assert that it had paid a deposit of $100,000. 269 Subsequently, the Lenders issued proceedings against FG Agri which were settled by a payment of $1.1m from FG Agri to PFM. That was a commercial decision for the Lenders and PFM. 270 The fact that part of the deposit had been paid to Jechbo was something that Mr Anderson should have told Ms How but it does not mean that the dealings between Chopsonion and FG Agri were tainted with dishonesty 271 Further and in any event, there is nothing to suggest that the dealings between Chopsonion and FG Agri were anything other than at arms-length. 272 On 23 December 2014, Ms Sharpe sent Ms How further documents to support Chopsonion's application for funding. Those documents comprised: (a) A further copy of the invoice from Chopsonion to FG Agri dated 16 October 2014; (b) An email from Mr Darren Schipp, Practice Manager at Accountants Mulherin Schier, confirming that Mulherin Schier was holding $100,000 on behalf of Mr Anderson of FG Agri in relation to abattoir equipment; and (c) A drawing setting out a proposed layout for the Chains. 273 At about this time, Ms Sharpe told Ms How that she had sought invoice funding against the Chopsonion invoice to FG Agri, but that in view of potential delays and missing the opportunity to purchase the Chains, she may need interim funding until the invoice funding was available. 274 On 2 January 2015, Ms Sharpe sent Ms How updates regarding conditional approval by FIFO Capital for invoice funding. Ms Sharpe proposed that funding would be obtained through PFM to cover the cost of acquiring the Chains, their dismantling, packing and transport to Australia, at which time the Chains would be refinanced through invoice funding provided by FIFO. FIFO did not proceed with the invoice funding, however there is no evidence as to why that was so. 275 On 9 January 2015, Ms Sharpe sent an email to Ms How with revised costings for the purchase of the Chains in the sum of $1,286,722: A1 1/36/232-233. 276 On 13 January 2015, Mr Sharpe applied to TIM in the name of Chopsonion for invoice funding in the sum of $1.4m. 277 On 15 January 2015, Ms Sharpe forwarded to Ms How an email from TIM to Ms Sharpe dated 13 January 2015, which enclosed an approval letter from TIM to Chopsonion approving funding of $1.43m against the sale of the Chains by Chopsonion to FG Agri for $2.2m. 278 Between 16 January and 21 January 2015, Ms Sharpe visited the office of PFM in Adelaide and left a bundle of documents comprising the TIM Application with PFM's employee, Ms Corrinne Gray, who provided them to Ms How. Ms Gray is now deceased. 279 The TIM bundle contained a number of documents including: Chopsonion's application to it for invoice funding signed by Mr Sharpe and witnessed by Ms Sharpe; a spreadsheet identifying the amount required as $1,281,10 plus the associated cost of borrowings; the July 2014 Chains invoice; the deposit email; the Open Letter; and the Modified Rolton valuation dated 26 November 2014. 280 A further revised costing was provided by Ms Sharpe to Ms How on 16 January 2015, this time in the sum of $1,133,680. 281 Each of the revised costing provided by Ms Sharpe to Ms How on 9 and 16 January 2015 referred to a price for the Chains of $850,000 with a balance owing of $760,000 after allowing for a deposit of $90,000, "(as per Inv 1148)". 282 At no time did Ms Sharp disclose to Ms How that: (a) WMM had agreed to purchase the Chains from SFF for an amount of NZD$200,000 as early as August 2013 and that WMM had ongoing weekly liability to SFF for storage; (b) Chopsonion had agreed to purchase the Chains at least as early as May 2013 for an amount of $528,000 (incl GST); and (c) Chopsonion had agreed to purchase additional abattoir equipment located in Yarrawonga, Victoria from WMM, the subject of WMM invoice no. 1085 dated 29 October 2013, for an amount of $189,200 (incl GST) (Yarrawonga Beef Floor). 283 Mr Watts said that he (and thus WMM) was not aware of Ms Sharpe's dealings with PFM. 284 Whereas it may be that Mr Watts was not aware of PFM specifically, clearly he was aware that funding was being sought by Chopsonion, through Ms Sharpe, for the purposes of buying the Chains. It was in that context of seeking funding that Mr Watts had provided invoice no. 1148 to Ms Sharpe on 24 June 2014 and subsequently the July 2014 Chains invoice, the deposit email, and the Open Letter.

[47]

Funding the Loan to Chopsonion 285 Having been supplied with information on 5 November 2014, 23 December 2014 and other documentation including the TIM bundle provided on or about 16 January 2015, Ms How considered that information and the following matters which she considered to be relevant to her decision as to whether a funding proposal should be put to PFM's group of Lenders: (a) Her prior dealings with Ms Sharpe over the previous two years had not raised any issues; (b) Chopsonion had paid the high interest rates on prior borrowings managed by PFM; (c) Chopsonion's financial information had been provided to Ms How. That information had been prepared by Mulherin Schier, an accountancy firm with whom she had dealt previously in the context of her prior dealings with PFM; (d) A $90,000 deposit had been paid against the July Chains 2014; (e) The costings and purchase price of the Chains were consistent with the Modified Rolton valuation; (f) Also consistent with the Modified Rolton valuation was the fact that FG Agri were willing to pay $2.2m for the Chains; (g) WMM's Open Letter gave the value of new Chains as being approximately $4.5m each plus packing and shipping costs. The Chains would need to be built in New Zealand and imported to Australia involving a minimum lead time for production of 9 to 12 months; and (h) She was to obtain security by way of mortgages (albeit not first ranking) over an abattoir at Inglewood owned by Jechbo as trustee of the Jechbo Trust and an abattoir at Collarenebri owned by Chopsonion as trustee for the Collarenebri Trust. 286 Further: (a) According to Mulherin Schier, Chopsonion could afford to service the Loan if required; (b) Given the purchase price of the Chains was $850,000, the value of the Chains as revealed in the Modified Rolton valuation was such that any amount realised upon sale of the Chains would be sufficient to recover the amount advanced under the proposed Loan; (c) Rolton and Mr Smith appeared to be experienced in valuations and therefore the Rolton valuation had credibility; and (d) The deposit email indicated that Chopsonion intended to purchase the Chains and the Open Letter confirmed the significant value of the Chains. 287 The sale to FG Agri was not particularly significant to Ms How because it was not the primary source of repayment to the proposed Lenders. That would come from the funds made available from TIM under the invoice funding arrangements with the proposed Lenders being repaid in two months. 288 On or about 16 January, Ms How approached Mr Cannan, Mr Willson and Mr Rowley about the potential for them to provide short term funding to Chopsonion and provided the TIM Application bundle to each of them. 289 Mr Rowley required funding in order to be able to take advantage of the investment opportunity, so Ms How approached other individuals to lend funds to Mr Rowley totalling $735,000. 290 On 19 January 2015, Ms How sent an email to Mr Anderson asking for confirmation that FG Agri intended to purchase the Chains under the FG Agri Invoice for $2m plus GST and that a deposit of $100,000 had been paid by FG Agri. On 20 January 2015, Mr Anderson confirmed those details: Ms How forwarded a copy of her email and Mr Anderson's response to Ms Sharpe on 20 January 2015. 291 On 20 January 2015, Ms How caused a Funding Offer to be made to Chopsonion, Jechbo and Mr Sharpe in the sum of $1,175,000 at 4.5% interest per month, reducing to 3.00% per month if paid on or before the due date each month, payable at discharge of the Loan. The term of the Loan was three months. 292 Under the terms of the Funding Offer, PFM was to be paid a management fee of 1.5% per month, reducing to 0.5% per month payable at discharge of the Loan. 293 Security for the Loan included the Chains, a registered second mortgage over the Inglewood Abattoir, a registered third mortgage over the Collarenebri Abattoir, as well as both Chopsonion and Jechbo entering into GSAs. 294 Prior to 21 January 2015, Ms How agreed orally with Ms Sharpe "that the Funding would be in the form of a facility that would be drawn down on presentation of invoices". 295 By 21 January 2015, Mr Willson, Mr Cannan and Mr Rowley had confirmed funds would be provided as per the Funding Offer with Mr Rowley providing $735,000, Mr Cannan through MEG $200,000 and Mr Willson $240,000 through a combination of him, Ms Willson, Red Dog and Willson Nominees. 296 Mr Sharpe accepted the Funding Offer for himself and as Director of Chopsonion and Jechbo on 21 January 2015.

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Events following the acceptance of the Funding Offer 299 The events of 22 January 2015 are contentious. 300 Mr Watts deposed that prior to 22 January 2015, he spoke with Ms Sharpe by telephone during which he was informed by Ms Sharpe that she had obtained funding for the Chains and requested an invoice be sent to Chopsonion for the Chains, as well as shoulder pulling equipment, the Yarrawonga Beef Floor, and the rent due for storage at Oringi. That may well be the case, however WMM had already provided the July 2014 Chains invoice, which I have found was provided by Mr Watts to Ms Sharpe in the knowledge that Ms Sharpe was seeking funding to purchase the Chains. In the circumstances, the request by Ms Sharpe for an invoice for the Chains simply strengthens the applicants' case that the July 2014 Chains invoice was not genuine and that the price for the Chains was $528,000 (incl GST). 301 So too the request by Ms Sharpe for invoices for shoulder pulling equipment, the Yarrawonga Beef Floor, and rent due and payable for storage of the Chains at Oringi strengthens the applicants' case that the July 2014 Chains invoice was not genuine and that it contained within the sum of $760,000 undisclosed amounts for the Yarrawonga Beef Floor, shoulder pulling equipment and Oringi rent. 302 On 21 January 2015, Ms Sharpe requested that Ms How pay the amount of $760,000 to WMM for settlement of the outstanding balance of the Chains invoice. 303 That same day, Ms How replied requesting further evidence of invoices to ensure there were sufficient funds and that the funding would result in the Chains arriving in Australia, however since Ms How had the July 2014 Chains invoice, on 22 January 2015 PFM sent $760,000 to WMM's account. The deposit was withdrawn from PFM's Bank, Commonwealth Bank of Australia, at 2.52pm that day. 304 Mr Watts deposed that he was surprised and confused when the sum of $760,000 appeared in WMM's bank account on 22 January 2015. He deposed at [151]-[152]: 151. I was also confused when I received the Payment as the Purchase Invoices totalled the amount of $685,707.98. Consequently, PFM had overpaid for the Purchase Invoices by the amount of $74,292.02 ("Overpayment"). 152. On receipt of the Payment, I noted that the Overpayment had been received and made contact with Wendy via phone to ask why we'd been given too much cash. Wendy and I then had a conversation to the following effect: Me: "Wendy, we've received the money for the Oringi Chains and there's more than we invoiced for. What's the go?" Wendy: "Oh yeah, the people that helped us sort out the finance get a commission, so they sent us the commission as part of the loan too." Me: "Righto mate, what do I need to do with it then?" Wendy: "Well I just need you to send it back to me and then I can forward it to these finance guys." Me: "Alright, but I need you to send through some invoices for it to Nancy so we've got a record of why the money is going to you." Wendy: "Sure, I'll organise it. I'll just get you to send $20,000 first though because that's got to be used straight away." Me: "Sure mate, once we get the invoice through Nancy will go to the bank and do it." 305 I do not accept Mr Watts was surprised and confused when WMM received $760,000 and consider his evidence to that effect in the conversation he had with Ms Sharpe on 22 January 2015 above to be a reconstruction. Mr Watts knew from Ms Sharpe that funding had been obtained prior to 22 January 2015 and that WMM had previously issued the July 2014 Chains invoice to Chopsonion for $760,000, ostensibly for the purchase of the Chains, after a credit for a $90,000 deposit. It was that invoice which had been provided by Mr Watts/WMM to Chopsonion through Ms Sharpe for the purposes of obtaining the funding. 306 The same day at 12:10pm, Ms Sharpe sent an email to Mr Watts asking him to send $20,000 by way of cash transfer to Chopsonion's bank account. The email was sent prior to Mr Watts/WMM's account receiving the funds from PFM. The email continued "we can sort out the rest next week when we can all take a breath". 307 However, Mr Watts deposed that he spoke with Ms Sharpe after the funds had been received into WMM's bank account and it was during the course of that conversation that he asked for an invoice to be sent for the $20,000 Ms Sharpe had requested during the course of the conversation. He deposed that WMM received the $760,000 before he read the email sent by Ms Sharpe on 22 January 2015. 308 Mr Watts said under cross-examination that Ms Watts did all the banking and that before any money was paid to Chopsonion, follow-up paperwork was needed. The payment of $20,000 to Chopsonion was made on 23 January 2015 but Chopsonion's invoice no. 15031 for that $20,000 was not sent by Ms Sharpe to WMM until 29 January 2015. 309 Invoice no. 15031 from Chopsonion for $20,000 is expressed as being "for services in relation to the sale/purchase of Oringi Chains". The covering email reads: Hi to both Please let me know if the below is your understanding of the transaction: Payment for chains 760,000.00 (no GST) Invoices now paid: 01204 528,000 01207 29,007.98 01206 46,200 01205 82,500 Invoice amount 20,000 705707.98 Balance $54,292.02 (am guessing is in your account) Have attached an invoice for your records Talk soon Wendy Ph 0433 213 548 310 I find that the attached invoice to which Ms Sharpe refers is invoice 15031 issued by Chopsonion to WMM for $20,000. 311 I do not accept that Mr Watts spoke to Ms Sharpe after the money had been deposited into WMM's account and that he did not read Ms Sharp's email sent 22 January 2015 until after the money had been deposited. The sum of $760,000 was transferred by PFM's bank, CBA, at 2:52pm on 22 January 2015, some two hours and forty minutes after Ms Sharpe sent the email at 12:10pm. It is Ms Sharpe's email which requests the $20,000. I find Ms Sharpe's email was sent in response to Mr Watts' request for an invoice for $20,000. That email is not an invoice, but I find Mr and Ms Watts acted on the basis of that email immediately because Ms Watts completed the paperwork for the $20,000 the same day before transferring it on 23 January 2015: A1 1/56B/478B. 312 It is for these reasons that I find that Mr Watts and Ms Sharpe knew prior to the receipt of funds that a payment of $760,000 was to be received in WMM's bank account on 22 January 2015. 313 As to Chopsonion's invoice no. 15031, Mr Watts agreed in cross-examination that Chopsonion never provided services to WMM in relation to the sale/purchase of the Chains. Nonetheless, WMM paid that $20,000 to Chopsonion on 23 January 2015 at 10:27am which is the date and time on WMM's bank records: A1 1/56B/478B. 314 Mr Watts denied that Chopsonion's invoice no. 15031 was a false record, saying that all he wanted was an invoice from Chopsonion to cover the funding because "it wasn't my money". In fact, Mr Watts/WMM did not receive an invoice until 29 January 2015: A1 1/61A/493A. Mr Watts also denied that he was pretending that the $20,000 payment was under an invoice which he knew had no foundation. 315 I do not accept Mr Watts' denial. He knew invoice no. 15031 was false because he agreed in cross-examination that Chopsonion had not provided the services described on the invoice. 316 I find that Mr Watts was well aware that $760,000 had been paid into WMM's account as the balance payable on the July 2014 Chains invoice. Indeed, there is no other plausible explanation. 317 Further, his attempt to give credibility to the payment of $20,000 by relying on an invoice from Chopsonion he knew to be false, indicates to me his preparedness to participate in a transaction he knew to be false which was the funding of the Chains by a funder to the extent of $760,000 on the basis of the July 2014 Chains invoice. 318 Mr Watts deposed that WMM issued invoice no. 1204 for the Chains on 22 January 2015 in the sum of $528,000 (incl GST). That is undoubtedly the case, however that merely confirms what I find to be the arrangement between WMM through Mr Watts, and Chopsonion through Ms Sharpe and Mr Sharpe, whereby funding would be obtained on the basis of the July 2014 Chains invoice, which was not genuine in the sense that WMM's actual price for the Chains was $528,000 (incl GST). 319 On 22 January 2015, Mr Watts also caused invoice nos. 1205, 1206 and 1207 to be issued by WMM for the Yarrawonga Beef Floor, shoulder pulling equipment and the due and payable Oringi rental respectively. Nonetheless, Mr Watts did not question where funds for the other equipment the subject of invoice nos. 1205 and 1206, and the rent the subject of invoice no. 1207 was coming from. Instead, he caused those invoices to be issued and applied the funds received into WMM's bank account on 22 January 2015 against those invoices from the balance remaining after the sum of $528,000 was applied to the purchase of the Chains. 320 Subsequently, WMM received two further invoices, one being invoice no. 889, dated 31 January 2015, from Jechbo for, "Report and consideration for Chains ex NZ" in the sum of $30,000 (incl GST) and the other from Annomac being invoice no. 25, also dated 31 January 2015, for, "To consult in relation to design/drawings of small stock chains for abattoir purposes. Inclusive of travel costs" in the sum of $24,292.02 (incl GST), giving a total of $54,292.02. 321 Those invoices followed the email from Ms Sharpe sent on 29 January 2015 which refer to a balance of $54,292.02 remaining from the $760,000. 322 Mr Watts agreed that the total of the Jechbo and Annomac invoices reflected the balance of the $760,000 remaining in WMM's account after payment of the earlier invoices to which I have referred. Payment of the invoices from Jechbo and Annomac was made by WMM on 2 February 2015. 323 Mr Watts agreed that Annomac did not consult to WMM, but as with invoice no. 15031 for $20,000, denied it was a false business record. He said that WMM received an invoice from Annomac with an ABN number and which included GST so WMM paid it. I do not accept Mr Watts' denial. I find that Mr Watts turned a blind eye to the fact that Annomac had performed no services for WMM, yet WMM paid Annomac from funds deposited in WMM's bank account which he characterised as an "overpayment". Mr Watts' attempt to legitimise the payments to, in this case Annomac, from the $760,000 paid into WMM's bank account by relying on a false invoice, not only fails, it demonstrates a knowledge and complicity in the conduct of Chopsonion/the Sharpes in obtaining funding on the basis of the false July 2014 Chains invoice. 324 So much so is consistent with Mr Watts' admission to Ms How in his telephone conversation with her on 23 September 2016 which was confirmed in an email from Ms How to Mr Watts/WMM on 26 September 2016. In that email, Ms How reiterated what Mr Watts had told her: … that Wendy asked him to change the original price ($490,000) and provide us with an invoice with an inflated amount. You in fact changed your invoice to indicate to us that she was paying $76,000 (sic $760,000) for both chains which is some 360K more for the chains that she actually was. The Invoice also indicated that a 90K deposit was paid, which it was not. You also indicated that once we paid you the $760,000 that you in turn kicked back the overpayment to Wendy. 325 There is no evidence that Jechbo provided any services to Mr Watts or WMM. I make the same finding in relation to invoice no. 889 from Jechbo. 326 Ms Sharpe did not send Ms How a copy of WMM's invoice no. 1204 for the Chains dated 22 January 2015 in the amount of $528,000, nor WMM's invoice nos. 1205, 1206 and 1207, nor the invoices from Annomac and Jechbo. Insofar as the payment to WMM was concerned, she had proceeded only on the basis of the July 2014 Chains invoice. 327 Accordingly, PFM had provided funding on an entirely erroneous basis, a central component of which was the July 2014 Chains invoice.

[50]

The Design 328 A central feature of a number of the causes of action pleaded by the applicants against Mr Watts in his own right and for and on behalf of WMM is a fraudulent and dishonest Design. 329 There is no doubt that as at in or about June 2014, Mr Watts was financially exposed to SFF and embarrassed at his inability to pay SFF. Not only did he owe SFF the balances of the purchase price, by the end of October 2014, WMM owed rent for the period from October 2013 to October 2014 in the sum of NZD$46,125. 330 The applicants plead the Design on the part of Mr Sharpe, Ms Sharpe and Mr Watts both in his own right and for and on behalf of WMM, the purpose of which was to: second further amended statement of claim (2FASoC) at [12]. 12.1 Provide a significant financial benefit to WMM, which would, if the Design were implemented: 12.1.1 Receive a substantially higher price upon sale of the Chains to Chopsonion ($580,000) [sic $528,000] than the price which WMM had agreed to pay for the Chains in October 2013, being a price of $200,000 payable to Silver Fern Farms Group ("Silver Fern"); 12.1.2 Receive payment for additional plant and equipment being sold or transferred to Chopsonion …; 12.1.3 Receive funding to meet WMM's liability to pay rent to Silver Fern with respect to storage of the Chains, together with the balance of the purchase price owing to Silver Fern with respect to WMM's purchase of the Chains; 12.2 Provide significant financial benefits to James Sharpe and/or Wendy Sharpe, through companies associated with them, (being Chopsonion, Annomac Pty Ltd and Jechbo Pty Ltd), through use of the Funding to: 12.2.1 Fund the purchase of additional plant and equipment from WMM for Wendy Sharpe and James Sharpe or to or for their benefit … without the Lenders knowing that the Funding was to be applied for that purpose; 12.2.2 Fund the payment of commissions from WMM to or for the benefit of James Sharpe and/or Wendy Sharpe without the Lenders knowing that the Funding was to be applied for that purpose. 331 At [13] of 2FASoC the applicants plead how the Design was effected by Mr Sharpe, Ms Sharpe and Mr Watts both in his own right and for and of behalf of WMM. 332 Paragraph 13 of the 2FASoC is a long pleading but in summary it alleges, in part: (a) WMM agreed to purchase the Chains for NZD$200,000 in June/July 2013; [13.1.1] (b) At that time, WMM had already agreed to on sell the Chains to Chopsonion for $528,000 (incl GST); [13.1.1] (c) Before issuing and providing invoice no. 1148 and the July 2014 Chains Invoice to Chopsonion, WMM had also reached agreement with Mr Sharpe, Ms Sharpe and/or Chopsonion that: (i) Any funding received by Chopsonion would be used by it to purchase other plant and equipment from WMM in addition to the Chains, funding payment by WMM of commissions to Mr Sharpe and/or Ms Sharpe and/or entities associated with them; (ii) Mr Sharpe, Ms Sharpe and/or Chopsonion would seek funding from potential lenders representing that Chopsonion have agreed to purchase the Chains from WMM for $850,000; and (iii) Chopsonion and not WMM would bear the removal costs of the Chains from New Zealand as well as the rent payable for storage; [13.1.2] (d) Ms Sharpe provided the July 2014 Chains invoice, the deposit email, and the Open Letter to Ms How on 5 November 2014; [13.1.2] (e) Mr Watts caused the Modified Rolton valuation to be provided to Ms Sharpe on or about 27 November 2014; [13.2.2] which had no reasonable basis; [13.2.2] (f) Ms Sharpe for and on behalf of Chopsonion procured funding for the purchase of the Chains through PFM; [13.3.2] (g) The information in the July 2014 Chains invoice and the deposit email were false; [13.7]-[13.8] (h) The information in the Open Letter was false because it inferred the value of the Chains was in the order of $9m when the value was between NZD$200,000 and AUD$528,000; [13.9] and (i) WMM and Chopsonion represented falsely that the July 2014 Chains invoice was a genuine business record and that Chopsonion and WMM actually intended to complete the sale and purchase of the Chains for $850,000 and apply the funding for that purpose: [13.9A]. 333 As to those allegations, I do not consider that WMM receiving a sum substantially higher than the purchase price of NZD$200,000 paid or to be paid by WMM to SFF for the Chains per se, formed part of the Design. WMM was at liberty to sell the Chains at whatever price it could obtain. 334 However, on the basis of my factual findings, I find that in the formulation and implementation of the Design to obtain funding for the Chains, Mr Sharpe, Ms Sharpe, Mr Watts (in his own right and for and on behalf of WMM) engaged in a fraudulent and dishonest Design the purpose of which was to provide a significant financial benefit to WMM if the Design was implemented: (a) For WMM to receive payment for additional plant and equipment being sold or transferred to Chopsonion (being the Yarrawonga Beef Floor, the Shoulder and Final Puller Machinery and the Breaking Down Saw); and (b) For WMM to receive funding to meet its liability to pay rent to SFF. 335 As to Mr and Ms Sharpe, on the basis of my factual findings, I find that the purpose of the Design was to provide a significant financial benefit to Mr and/or Ms Sharpe through Chopsonion, Annomac and Jechbo to: (a) Fund the purchase of the Yarrawonga Beef Floor, the Shoulder and Final Puller Machinery and the Breaking Down Saw without the Lenders knowing the funding was to be applied for that purpose; and (b) Fund the payment of commissions from WMM to Chopsonion, Annomac and Jechbo without the Lenders knowing the funding was to be applied for that purpose. 336 I have not accepted that the information in the Open Letter was false, however the information in the July 2014 Chains invoice and the deposit email was false. To that extent, the July 2014 Chains invoice was not a genuine business record and formed part of the Design. 337 During the period 30 January 2015 to 22 September 2015, Ms How disbursed the balance of the Funding. 338 The Chains arrived in Australia in or about May 2015. One Chain was shipped to Brisbane, while the other was transported to Sydney. 339 On 21 April 2015, the Funding had not been repaid and the Loan went into default. 340 Ms How deposes that she told Ms Sharpe that the Funding would be extended from April 2015 to when "the Chains arrived in Australia and the refinance by TIM or the sale to FG Agri occurred as contemplated by the original arrangements", albeit, at a higher interest rate. 341 The invoice funding from TIM did not eventuate. There is no evidence as to why it did not eventuate. 342 As a result of her growing concerns, in October 2015 Ms How arranged for Mr Cooper and Mr Bettles to be appointed Receivers and Managers of Chopsonion and Jechbo.

[51]

Subsequent attempts to recover the Funding 343 On 30 December 2015, Mr Watts sent an email to Ms Sharpe advising that there was a "millers final and shoulder puller" as well as "power packs". At the time, Ms How thought that these components were part of the July 2014 Chains invoice. She was not aware that, in reality, these were additional componentry that required sale in order to complete purchase of the Chains, and that these parts had been bought by Chopsonion in January 2015 using part of the $760,000. 344 Ms How commenced proceedings in the District Court of South Australia - No. 133 of 2016 - against Chopsonion, Jechbo and Mr Sharpe so that the Lenders could recover the Funding. 345 Default judgment was entered against Chopsonion, Jechbo and Mr Sharpe on 14 June 2016 for $2,475,054. At around this time, Ms How first became aware that Ms Sharpe was an undischarged bankrupt and had been so since 3 December 2014. 346 In July 2016, Ms How met with Ms Gray, Mr Cantone of the Receivers and Managers, and Mr Sharpe and Ms Sharpe to resolve any disputes. A Deed of Settlement was executed by Mr Sharpe and Ms Sharpe on 26 July 2016. However, this was never carried out as Mr Sharpe petitioned for his own bankruptcy on 17 October 2016. 347 On 12 October 2016, Mr Rowley of Charlton Rowley Lawyers sent an email to Mr Watts and WMM on behalf of the Lenders. That email enclosed a draft statement of claim seeking damages and compensation. 348 On 18 October 2016, Ms How sent Mr Watts an email requesting that he assist in the sale of the Chains, the Yarrawonga Beef Floor, the Collarenebri Abattoir and the Inglewood Abattoir in order to repay the Funding and avoid the commencement of litigation by the Lenders. 349 On 20 October 2016, Ms How's solicitor sent an email to Mr Watts, withdrawing the 12 October 2016 letter. 350 Also on 20 October 2016, the Lenders appointed controllers to Chopsonion. 351 On 21 October 2016, Mr Watts emailed Ms How's solicitors and advised the following: Under the drawdown figure from Chops Onion [of $760,000], there were other items purchased. Payment of $760,000 (inclusive of GST) receiver by WMM 22nd Jan 2015. lnv.1204 $528,000 Chains in NZ. /nv.1205 $82,500 Yarrawonga Beef floor. lnv.1206 $46,200 Millers Shoulder & Final Puller & AEW 900 Brea/(Down Saw. lnv.1207 $29,007.98 Rent for Oringi NZ - storage of the Chains until they were paid for & removed from site. Commission paid to Chops onion $20,000 cash 23rd January 2015 (we were told it was commission for the lender for arranging the finance). Bal of Commission paid to Chops Onion $54,292.02 ($760,000). There was also another invoice, separate to the above amount. lnv.1247 $22, 000 - Dip Tank which was paid for separately (0 7/08/1 5) and is at our yard in Scone. 352 Ms How deposes that this is the only information that Mr Watts sent to her and/or the Lenders regarding the acquisition of further equipment and the payment of commissions to Ms Sharpe. I accept that evidence.

[61]

Estoppel 384 By letter dated 12 October 2016, Charlton Rowley wrote to Mr Watts, and through him WMM, attaching a draft statement of claim on behalf of Chopsonion and the Lenders. 385 The letter reads: Claim against FG Agri Pty Ltd, Watts Meat Machinery Pty Ltd, Keith Watts and David Anderson We act for Red Dog #1 Pty Ltd, Mr Richard Willson, Ms Leigh Willson, RJC Nominees Pty Ltd, MEG Investments Pty Ltd, Mr John Rowley and Chopsonion Pty Ltd (Controllers Appointed). We are instructed to write to you as follows:

We enclose a draft statement of claim ("the Claim").
The Claim formulates certain causes of action against you.
It is the intention of our clients to issue the Claim.
Prior to issuing the Claim, our clients would welcome bona fide settlement discussions. We invite you to contact us for this purpose.
If you do not wish to engage in bona fide settlement discussions, please advise accordingly.
If we do not hear from you within 21 days, we will file the Claim.'
If you need any documentation referred to in the Claim please advise.
Should you require further clarification of any matter raised in this letter please do not hesitate to contact the writer. 386 In Mr Watts' first affidavit, Exhibit R28 at [21], Mr Watts deposed to a telephone call with Ms How in or about mid-October 2016 in which he contends Ms How said to him, in relation to his assistance in selling the Abattoirs at Inglewood and Collarenebri that: "If I do this for you, you will need to stop making all these claims for money from me. No more processes", and that Ms How replied: "Yes, of course. There will be no further action against you". 387 I find that telephone conversation occurred on 18 October 2016. 388 Ms How agreed in cross-examination that Mr Watts said to her during the conversation, "If I do this for you, you will need to stop making all these claims for money from me. No more processes", but denied that she replied, "Yes, of course. There will be no further action against you": T 276.5-10. 389 Ms How's denial is consistent with her evidence-in-chief given in her first affidavit. 390 Ms How accepted in cross-examination that she said to Mr Watts that "with your cooperation we will consider where we stand with you" and that "if you maximise the value of the assets and everything like that, there may be no need for litigation." She continued that at that time she had turned her mind to the question of whether there was a proper basis for litigation to be commenced against Mr Watts and that they (the Lenders, Charlton Rowley and Ms How) knew that there were two people, either Ms Sharpe or Mr Watts, who "had done some fraudulent activity. Which one it was, we weren't sure. But we were - definitely were going to start litigation to find out answers to it all": T 276.10-277.9. 391 Also on 18 October 2016, Ms How sent an email to Mr Watts at WMM's Bigpond email address in which she said, amongst other things: You advised that you have in your possession/control certain equipment owned by Chopsonion. Also some equipment is paid for but located in Yarrawonga in Victoria So we know where we are at, can you please give us a full list of that equipment and a copy of the original purchase order from Chopsonion. Can you keep in touch and if you sell any of that equipment, can you please remit the proceeds of sale to us in satisfaction of the amount outstanding under the charges (but we would be grateful if you advised us of any sales in advance of settlement). I chat to you every couple of days so I think I would know anyway. I have spoken to the Lenders who would consider entering into arrangements with you to avoid the need for litigation. I am happy to discuss this with you. It is in your interests to assist us maximise the value for these assets and we appreciate your cooperation to date. Now go, sell the Chains and all the equipment, don't forget about the Abattoirs and then we will all be happy again. 392 In the first Watts affidavit sworn 13 October 2020, Mr Watts deposes, in part, that he had a conversation with Mr Luke Rowley between 12 October 2016 and 20 October 2016, the exact contents of which he did not recall. He continues that Mr Luke Rowley sent him a follow-up email on or about 20 October 2016 "which confirmed our conversation". Part of that paragraph in Mr Watts' affidavit which purported to interpret Mr Rowley's email sent 20 October 2016 was not received into evidence. 393 Charlton Rowley's email sent 20 October 2016 to Mr Watts formally withdrew both its letter dated 12 October 2016 and the draft statement of claim. The text of that email is as follows: Keith, I refer to our earlier telephone conversation:
I confirm that we act for Richard Willson, Leigh Willson, John Rowley, MEG Investments Pty Ltd, Red Dog #1 Pty Ltd and RJC Willson Nominees Pty Ltd ("the Lenders").
The Lenders were granted a charge over all of the assets of Chopsonion Pty Ltd. A copy of that charge is enclosed. It is registered on the PPSR as No.201501220058745.
The Lenders have taken over control of all assets of Chopsonion Pty Ltd (save for the books and records of that company which are the subject of a Receivership).
I understand that you have certain plant and equipment belonging to Chopsonion in your possession or you know of its location. Can you please advise by return email the details of any equipment in your possession or control.
I confirm that you are authorised on behalf of the Lenders to list and sell any of that equipment and remit the sales proceeds to the Lenders (or the Lenders will invoice any purchaser directly - whatever suits). That equipment need not be listed as "for or on behalf of controllers" - it can just be listed for sale.
I further confirm that you may speak with the agent of the Lenders in relation to the listing and sale of these assets (Annette Conn).
Finally, Ms Conn is in control of two abattoirs which are for sale. One owned by Chopsonion Pty Ltd and the other by Jechbo Pty Ltd. Both of which you are familiar with. You may speak to her about the sale of those assets. If they are sold through you or with your assistance, I am sure you would be remunerated accordingly.
Finally, the Lenders withdraw the letter sent to you on 12 October 2016 and the accompanying draft claim. 394 Mr Watts and WMM submit that during a telephone conversation with Mr Watts, Ms How made representations to Mr Watts in which she indicated that if he, and through him WMM, assisted in the sale of the Chains, the additional abattoir equipment and the Abattoirs at Collarenebri and Inglewood, Chopsonion and the Lenders would withdraw the claims the subject of the draft statement of claim. 395 Mr Watts and WMM submit further that Mr Luke Rowley, on behalf of the Lenders, promised to withdraw the legal proceedings foreshadowed by Chopsonion and the Lenders if Mr Watts helped to sell the Chains and abattoirs owned by Chopsonion. They submit that in reliance on that promise, Mr Watts provided extensive assistance. They submit further that it was reasonable for Mr Watts to proceed with his assistance, secure in the knowledge that the threatened proceedings would not proceed and that the Lenders would not be suing him. 396 Still further, Mr Watts and WMM submit that Mr Luke Rowley was not called to give evidence; that Mr Watts' version of events should be believed; and that Mr Luke Rowley's email to Mr Watts sent 20 October 2016 confirmed, amongst other things, that Mr Watts would assist in the sale of plant, equipment and abattoirs owned by Chopsonion and controlled by the Lenders in exchange for which the Lenders withdrew their letter and draft statement of claim dated 12 October 2016. 397 Mr Watts and WMM continue by submitting that the applicants left it to Ms How to displace Mr Watts' account, but that is not the point because it is what Mr Luke Rowley said. They submit that the applicants, by way of the representations of Ms How and Mr Luke Rowley, made a reasonable and believable promise to Mr Watts that they would not proceed on any claims against him and would withdraw the threatened statement of claim if he helped them in selling the Chains as well as the two Abattoirs located at Collarenebri and Inglewood. 398 Mr Watts and WMM submit that in response to the representation, he proceeded to assist in selling the Chains and additional abattoir equipment. In particular, they refer to the fact that Mr Watts found and introduced to PFM and to Mr Rowley the subsequent purchaser of the Inglewood and Collarenebri Abattoirs, Mr Adam Farrell. 399 The applicants' submissions in relation to estoppel may be conveniently grouped into four central arguments. 400 First, the applicants submit that the respondents do not particularise what form of estoppel they plead. That may be so, but it is clear from the way that Mr Watts and WMM put their argument that they contend for promissory estoppel. There is nothing in this point. 401 Second, the applicants submit that the respondents have not established either that the alleged representation was made, or that, if it was, they relied upon it. In that context, they point to Ms How's denial that she said in response to Mr Watts' statement, "If I do this for you, you will need to stop making all these claims for money from me. No more processes", she said, "Yes, of course. There will be no further action against you": T 276.5-10. They also refer to Ms How's evidence in Exhibit R9 to which I have referred above which was to the effect that if Mr Watts maximised the value of the assets sold, there may be no need for litigation. 402 Mr Watts was cross-examined on his evidence about his alleged conversation with Ms How on 18 October 2016. When it was put to him that Ms How did not say there would be no further action against him, he responded to the effect that he had agreed that with Mr Luke Rowley, and that in his phone call with Ms How, she said exactly the same thing. Mr Watts said there was a witness, Mr Hart, to the telephone conversation. Mr Hart did not give evidence in this matter and his absence is unexplained: T 851.45-852.14. 403 It was also put to Mr Watts in cross-examination that there was never any promise of no further action and what was being discussed were possibilities of such a course. Mr Watts replied that Mr Luke Rowley had agreed "not to go down that track". He continued that "Luke agreed. Ms How was given confirmation back from the Lenders to see if they would look at not prosecuting me going down the track of this. I had a written letter from Luke saying he would not go down this track.": T 853.37-44. 404 I do not accept Mr Watts' evidence. On 23 September 2016, he had a conversation with Ms How in which he admitted that the July 2014 Chains invoice was a result of Ms Sharpe asking him to change the original invoice price so as to provide an invoice with an inflated amount; that no $90,000 deposit was paid; and that the overpayment was "kicked back" to Ms Sharpe. 405 Further, Ms Watts' evidence is contrary to the allegation in Mr Watts/WMM's amended defence which pleads at [25]-[29] that the basis of the estoppel plea was Ms How's representation. Under those circumstances, any decision by the Lenders not to call Mr Luke Rowley is entirely understandable. Further, the departure by Mr Watts/WMM from their pleaded case on a matter such as promissory estoppel when the terms of the representation, the person who made it, and the circumstances under which it was made, are critical, raises a significant doubt on whether the alleged representation was made at all, far less its terms. 406 I accept Ms How's denial that she agreed that no further action would be taken against Mr Watts if he assisted. Not only did Ms How not have that authority, it made no sense for her to give any such assurance in circumstances where the security had not been realised, and she had only found out within the last month or so that there had been what appeared to be a fraudulent transaction. 407 Further, it was in Mr Watts' interests to assist in realising the security. I am not satisfied that even in circumstances where a promise was made by Ms How, Mr Watts relied upon any such promise. Mr Watts was unable to say that he did rely upon it. 408 Third, the applicants submit that even if a representation was made, it was not made in the manner set out by the respondents. The applicants submit that what in fact occurred was that Mr Watts requested to be released from any claims, but no release was given as Ms How did not have instructions from the Lenders to do so. The applicants contend that the effect of Ms How's response was, if "[Mr] Watts maximised the value of the assets sold, there may be no need for litigation". They submit further that this is consistent with an email sent by Ms How to Mr Watts on the same day as the 18 October 2016 conversation. 409 I accept those submissions. 410 Fourth, the applicants submit that in any case, no claim of estoppel is made out in fact or law. 411 In Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, 404 Mason CJ and Wilson J described the principle as being that: … equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has "played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it: per Dixon J. in Grundt (68); see also Thompson (69). 412 Their Honours continued: at 406 that: … the doctrine of promissory estoppel indicates that the doctrine extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable. A failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required. 413 Assuming there was a failure to fulfil the promise not to bring proceedings, it is difficult to see how it is that Mr Watts changed his position to his detriment for a number of reasons. 414 First, WMM received commission on the sale of the Abattoirs. Had WMM through Mr Watts not assisted in the sale of the Abattoirs he would not have received that commission. 415 Second, the respondents contend the estoppel arises because of a promise which was relied upon, but Chopsonion and the Lenders have reneged on that promise. It is well-settled that a failure to fulfil the promise does not, of itself, amount to unconscionable conduct. 416 Third, assuming that Mr Watts changed his position from not being willing to assist in realising the Lender's security to assisting, mere reliance on an executory promise to refrain from bringing proceedings which resulted in Mr Watts assisting, is not sufficient. Further, there is nothing unconscionable in the Lenders proceeding with their claim against Mr Watts/WMM. 417 Accordingly, the respondents' submissions that the Lenders are estopped from bringing the proceedings fails.

[64]

Statutory provisions and principles 425 Pursuant to s 9AC(1) of the Corporations Act, a "director" means: Director of a company or other body means: (a) a person who: (i) is appointed to the position of a director; or (ii) is appointed to the position of an alternate director and is acting in that capacity; regardless of the name that is given to their position; and (b) unless the contrary intention appears, a person who is not validly appointed as a director if: (i) they act in the position of a director; or (ii) the directors of the company or body are accustomed to act in accordance with the person's instructions or wishes. 426 The applicable principles are not in dispute. As to whether a person "acts in a position of a director", in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6, the Full Court at [62]-[76] (Finn, Stone and Perram JJ) set out the relevant principles relating to the meaning of "de facto" director. At [69] of Grimaldi, the Full Court observed that in view of the definition of director, the strict distinction between a de facto director and shadow director cannot be maintained. 427 The principles expounded in Grimaldi were summarised by Barrett AJA in ACN 092 745 330 [2017] NSWSC 241 at [110]-[113]: (a) to be a de facto director, a person must be shown to have assumed or performed functions which only a de jure director or board can properly perform, or which are the sole responsibility of a director or board; (b) any comparison of what an alleged de facto director does, however, with the things that are done by duly appointed directors, must take into account the fact that what is to be done in the field of management of business and affairs by an individual director will vary from company to company, according to the particular company's circumstances; (c) the existence of active directors or a properly constituted and apparently functioning board does not preclude a finding that an alleged de facto director was a director; (d) whether the company has held the alleged de facto director out as a director will be a relevant, but not decisive, consideration; (e) the focus of the consideration is on the way the alleged de facto director operates within the particular corporate governance context, the degree of autonomy exercised, and the appearance (and reality) of authoritative operation as a primary level decision maker for the company; (f) it may be useful to direct attention to the following considerations: (i) whether the person has assumed responsibility to act as a director; (ii) the nature of the corporate governance structure and the position the person occupies within it; (iii) what the person actually did, as distinct from any job title; (iv) the cumulative effect of the activities relied on, with the whole of the circumstances being looked at "in the round"; (v) whether the company regarded the person as a director and held them out as such; (vi) whether third parties considered that the person was a director; and (vii) whether the person was consulted about or participated in directorial decisions. 428 In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; (2011) 81 NSWLR 47 at [228]-[232]; Young JA set out the principles relating to de facto or shadow directors: 228 First, not every person whose advice is in fact heeded as a general rule by the board is to be classed as a de facto or shadow director. 229 Secondly, if a person has a genuine interest of his or her or its own in giving advice to the board, such as a bank or mortgagee, the mere fact that the board will tend to take that advice to preserve it from the mortgagee's wrath will not make the mortgagee, etc a shadow director. 230 Thirdly, the vital factor is that the shadow director has the potentiality to control. The fact that he or she does not seek to control every facet of the company or the fact that from time to time the board disregards advice is of little moment. 231 Fourthly, Millett J's proposition (in Re Hydrodam (Corby) Ltd [1994] BCLC 180, 183) that the evidence must show "something more" than just being in a position of control must be shown. The whole of the facts of the case must be shown to see whether that power to control was put into practice. The emphasis that one must judge on the whole of facts and circumstances is made many times over in the leading cases, see for example, Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333 at 343-344 and Re Kaytech International plc [1999] 2 BCLC 351 at 423-424. 232 Fifthly, although there are problems with cases where the board of the company splits into a majority and minority faction, so long as the influence controls the real decision makers, the person providing the influence may be a shadow director. 429 The meaning of "officer" is defined in the Corporations Act relevantly as: 9AD Meaning of officer (1) An officer of a corporation (other than a CCIV) is: (a) a director or secretary of the corporation; or (b) a person: (i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (ii) who has the capacity to affect significantly the corporation's financial standing; or (iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation); or … 430 Whether a person fulfils the role as officer, including a de facto officer and shadow officer, is a question of fact: Morley v ASIC [2010] NSWCA 331; (2010) 81 ACSR 285 [888]-[893] (Spigelman CJ, Beazley JA, Giles JA); Shafron v ASIC (2012) 247 CLR 465; [2012] HCA 18. 431 As will become apparent from these reasons, Ms Sharpe's decisions had the capacity to, and did, affect substantial parts of Chopsonion's business. In particular, she participated in making financial decisions on behalf of Chopsonion and was the person who liaised with Mr Warwick Keane, a person responsible for negotiating funding arrangements for Chopsonion for the funder named NCS. Ms Sharpe negotiated with PFM in relation to the funding for the purchase of the Chains. 432 I am satisfied on the evidence to which I have referred and the findings I have made in the course of these reasons that although Ms Sharpe was not a validly appointed director of Chopsonion after she ceased being a Director on 8 August 2011, nonetheless she acted in the position of a director of Chopsonion within the meaning of s 9AC(1)(b)(i) and/or (ii) of the Corporations Act and as an officer of Chopsonion within the meaning of s 9AD(1)(b)(i)-(iii) inclusive. 433 Accordingly, Ms Sharpe acted in the position of a director and/or officer of Chopsonion at all times between 2013 and the end of 2015.

[66]

Sections 181(1) and 182(1) - Statutory provisions and legal principles 434 Section 181 of the Corporations Act provides, relevantly: 181 Good faith - civil obligations Good faith - directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. 435 In Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) [2008] WASC 239, Owen J reviewed the authorities and summarised the principles relating to s 181 in the following terms at [4619]:

The test whether directors acted bona fide in the interests of the company as a whole is largely (though by no means entirely) subjective. It is a factual question that focuses on the state of mind of the directors. The question is whether the directors (not the court) consider that the exercise of power is in the best interests of the company.
Similar principles apply in ascertaining the real purpose for which a power has been exercised.
It is the directors who make business decisions and courts have traditionally not pronounced on the commercial justification for those decisions. The courts do not substitute their own views about the commercial merits for the views of the directors on that subject.
Statements by the directors about their subjective intention or belief are relevant but not conclusive of the bona fides of the directors.
In ascertaining the state of mind of the directors the court is entitled to look at the surrounding circumstances and other materials that genuinely throw light upon the directors' state of mind so as to show whether they were honestly acting in discharge of their powers in the interests of the company and the real purpose primarily motivating their actions.
The directors must give real and actual consideration to the interests of the company. The degree of consideration that must be given will depend on the individual circumstances. But the consideration must be more than a mere token: it must actually occur.
The court can look objectively at the surrounding circumstances and at the impugned transaction or exercise of power. But it does so not for the purpose of deciding whether or not the (sic) there was commercial justification for the decision. Rather, the objective inquiry is done to assist the court in deciding whether to accept or discount the assertions that the directors make about their subjective intentions and beliefs.
In that event a court may intervene if the decision is such that no reasonable board of directors could think the decision to be in the interests of the company See also ASIC v Maxwell & Ors (2006) 59 ACSR 373; [2006] NSWSC 1052 at [106]. 436 Section 182 provides: 182 Use of position - civil obligations Use of position - directors, other officers and employees (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. 437 The principles relating to s 182 of the Corporations Act were summarised by Elliott J in United Petroleum Australia v Herbert Smith Freehills [2018] VSC 347 at [644]-[646]: 644 Section 182 requires a director not to have a proscribed purpose: to gain an advantage or to cause a detriment. It is not necessary that an advantage has in fact been gained by the director or other person or that detriment has in fact been caused to the corporation. Further, in ascertaining whether a director had 1 or other of the proscribed purposes in mind when she or he made use of her or his position, it is relevant to consider the particular duties and responsibilities of the director and her or his appreciation of the circumstances at the relevant time. 645 The test is whether the conduct would breach the standards of conduct that would be expected of a person in the director's position by a reasonable person with knowledge of the duties, powers and authority of her or his position as director, and of the circumstances of the case, including the commercial context. A director's appreciation of the relevant circumstances might be relevant to analysis of the propriety of the use the director made of her or his position in acting as she or he did. 646 In this court, it has been held that impropriety requires "behaviour [that] breached the norm of conduct thought necessary for the proper conduct of commercial life so that people will have confidence that the running of the marketplace is in safe hands". (Citations omitted) See also Maxwell at [100]. 438 The test of what constitutes "improper" conduct is objective: R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 at 514, 515 (Brennan, Deane, Toohey and Gaudron JJ) and must be determined by reference to the particular duties and responsibilities of the particular officer concerned: citing Grove v Flavel (1986) 43 SASR 410 at [420] (Jacobs J). 439 In Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626, 640 Dawson J said, "An objective standard must be applied in determining what amounts to impropriety". 440 Impropriety is said to arise if a person breaches the standards of conduct expected of a person in their position by reasonable persons with knowledge of the duties, powers and authority of that person's position, and in the circumstances of the case: Byrnes at pp 514-515.

[67]

Section 181 441 The first limb of s 181 raises the question of whether Mr and Ms Sharpe exercised their powers and discharged their duties as Directors and officers of Chopsonion in good faith in the best interests of Chopsonion. 442 In considering this issue, I keep firmly in mind that neither of the Sharpes gave evidence. 443 I have found that the true purchase price of the Chains was $528,000 (incl GST). Accepting that the balance of the money advanced over and above $760,000 (i.e. $415,000) was obtained for the purposes of removing and transporting the Chains to Australia, the issue focuses on funding obtained for the difference between $760,000 and $528,000 (i.e. $232,000). 444 That $232,000 was disbursed from WMM's bank account against WMM's invoices for the Yarrawonga Beef Floor (invoice no. 1205) - $82,500 (incl GST); a Millers Shoulder and Final Puller and a Breaking Down Saw (invoice no. 1206) - $46,200 (incl GST); and rent for storage of the Chains at Oringi between June 2014 and January 2015 (invoice no. 1207) - $29,007.98 (incl GST). 445 The balance of the $232,000, totalling $74,292.02, was paid from the money received by WMM from PFM to Chopsonion (invoice no. 15031) - $20,000 "For services in relation to the sale/purchase of Oringi Chains"; Annomac (invoice no. 25) - $24,292.02 "To consult in relation to design/drawings of small stock chain for abattoir purposes. Inclusive of travel costs"; and Jechbo (invoice no. 889) - $30,000 for "Report and consultation for chains ex NZ". 446 Each of WMM's invoices for abattoir equipment and the Oringi rental, as well as the false invoices from Chopsonion, Annomac and Jechbo for consultancy fees, were funded by the Lenders through PFM. There is of course, no subjective evidence from the Sharpes, and even assuming an inference could be drawn in circumstances where there were false invoices used, there is, in any event, no basis available from the documentary evidence to support an inference that incurring funding for the purposes of purchasing the additional equipment, paying the Oringi rental and paying false consultancy claims was done in the best interests of Chopsonion. 447 Mr and Ms Sharpe had the Modified Rolton valuation, Chopsonion had issued an invoice to FG Agri for $2.2m for the Chains and a deposit of $100,000 had been paid to accountants Mulherin Schier. However, when considered against the background of the surrounding circumstances, none of that detracts from the fundamental proposition that the Funding of $1,175,000 obtained through PFM was done using false documentation. Further, the rental component in Chopsonion's application for funding to PFM related to future rental payments over an upcoming 12 weeks, not past rental. On any view, Mr and Ms Sharpe cannot be seen as exercising their powers and discharging their duties as directors in good faith and in the best interests of Chopsonion. 448 Objectively, there was no commercial justification for obtaining a loan of $1.171m. 449 As to the Chopsonion invoice dated 22 January 2015 (sent 29 January 2015) and the invoices from Annomac and Jechbo dated 31 January 2015, as I have noted, those invoices falsely represented what was done by each of those entities. 450 Both Jechbo and Annomac had, during the relevant time, Mr Sharpe as the sole Director and shareholder. Both companies received money from WMM using the funds provided by PFM to WMM on the basis of invoices which were false and which Chopsonion was liable to repay. 451 As to the second limb of s 181, which imposes an obligation on a director or other officer of a corporation to exercise their powers and discharge their duties for a proper purpose, on any view, Mr and Ms Sharpe did not exercise their powers and discharge their duties in good faith and for a proper purpose by causing Chopsonion to obtain funding through PFM using documents they knew to be false. 452 I find that in contravention of s 181 of the Corporations Act, both Mr and Ms Sharpe breached their good-faith obligations and did not exercise their powers or discharge their duties for a proper purpose.

[69]

Issue 4 - If so, was Mr Watts, and through him WMM, involved in the breach of statutory duties by Mr and Ms Sharpe within the meaning of s 79 of the Corporations Act?: 2FASoC [17]-[19] 456 Sections 181(2) and 182(2) each provide: A person who is involved in a contravention of subsection (1) contravenes this subsection. 457 Section 79 of the Corporations Act relevantly provides: 79 Involvement in contraventions A person is involved in a contravention if, and only if, the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. 458 The relevant principles relating to s 79 were summarised by White J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 342 at [397]-[411]. At [398]-[400], his Honour observed: In order for a person to be knowingly concerned in a statutory contravention, that person must have been an intentional participant, with knowledge of the essential elements constituting the contravention: Yorke v Lucas (1985) 158 CLR 661 at 670. It is not, however, necessary that a person with knowledge of the essential elements making up the contravention also know that those elements do amount to a contravention: Yorke v Lucas at 667; Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2) [1999] FCA 1161; (1999) 95 FCR 302 at [186]; Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289; (2003) 135 FCR 1 at [8]- [13]. An accessory does not have to have appreciated that the conduct was unlawful: Giraffe World at [186]. Actual knowledge of the essential elements constituting the contravention is required. Imputed or constructive knowledge is insufficient: Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; (2012) 293 ALR 537 at [11]. Proof that a person had actual knowledge of each of the essential elements making up the contravention may be derived from direct evidence but more commonly will be a matter of inference from all the circumstances found to be proved. In some cases, actual knowledge can be inferred from the combination of a defendant's knowledge of suspicious circumstances and the decision by the defendant not to make inquiries to remove those suspicions. The High Court referred to knowledge in these circumstances in Pereira v Director of Public Prosecutions (Cth) (1988) 63 ALJR 1 at 3-4; 82 ALR 217 at 220: [A] combination of suspicious circumstances and failure to make inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter. In a case where a jury is invited to draw such an inference, a failure to make inquiry may sometimes, as a matter of lawyer's shorthand, be referred to as "wilful blindness". Where that expression is used, care should be taken to ensure that a jury is not distracted by it from a consideration of the matter in issue as a matter of fact to be proved beyond reasonable doubt.

[72]

Issue 5 - Did Mr and/or Ms Sharpe owe fiduciary duties to Chopsonion and if so, did they breach those duties?: 2FASoC [15] and [16] 466 As with the breach of statutory duties, I keep firmly in mind that neither of the Sharpes gave evidence. 467 Chopsonion alleges that Mr and Ms Sharpe owed fiduciary duties to Chopsonion: 2FASoC at [11.2] (a) To act in good faith and in the best interests of Chopsonion; (b) To account for any benefit or gain obtained or received by reason of or by use of their fiduciary position or of opportunity or knowledge resulting from it; and (c) Without informed consent, not to promote their personal interest by making or pursuing a gain or benefit in circumstances in which there was a conflict or a real or substantial possibility of a conflict between their personal interest and the interests of Chopsonion. 468 The director/officer-company relationship is a well-established fiduciary relationship: John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 and I find that both Mr and Ms Sharpe owed equitable fiduciary duties to Chopsonion. 469 The scope of those fiduciary duties are reflected to a great extent in ss 181-183 of the Corporations Act. 470 In Ancient Order of Foresters in Victoria Friendly Society Limited v Lift Plan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43, at [67]-[70], Gageler J summarised the principles as follows: 67. … the fiduciary duty that any other person in a fiduciary position has to any other person to whom the fiduciary duty is owed within the scope of the venture or undertaking in respect of which the person in the fiduciary position has undertaken or assumed a responsibility to act in the exclusive interests of that other person, is a duty of "absolute and disinterested loyalty". That duty of loyalty is imposed in equity by means of two overlapping "proscriptive obligations". Each proscriptive obligation, or "theme", is "descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies". 68. "The first", often referred to as the "conflict rule", "is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest." The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal. 69. "The second", often referred to as the "profit rule", "is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing [the fiduciary's] position for [the fiduciary's] personal advantage." The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self-interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal. 70. Consistently with the objective of imposing each obligation, in neither case does the benefit or gain to the fiduciary need to be at the expense of the principal, though it may be. And in neither case does the fiduciary need to act dishonestly or fraudulently, or otherwise than in good faith, though again the fiduciary may do so. Where a fiduciary does act dishonestly and fraudulently, however, the dishonest and fraudulent character of the breach of fiduciary duty is not without consequence for the intensity of the equitable remedies available against the defaulting fiduciary. More important for present purposes is that the dishonest and fraudulent character of the conduct of the fiduciary gives rise to the potential for similar remedies to be available in equity against another person who might knowingly participate in the fiduciary's breach. 471 There is no doubt that Mr and Ms Sharpe owed fiduciary duties to Chopsonion and I find those duties are as alleged by the applicants as I have set out above. 472 In view of the factual findings I have made, I find that Mr and Ms Sharpe by engaging in and executing the Design breached their fiduciary duties to Chopsonion and did so dishonestly and fraudulently.

[73]

Issue 6 - If so, did WMM through Mr Watts knowingly assist in the breach of fiduciary duties?: 2FASoC [20] 473 The principles concerning knowing assistance are well-established. 474 For Chopsonion to establish that Mr Watts/WMM knowingly assisted Mr and/or Ms Sharpe in breaching their fiduciary duties, in accordance with the second limb of Barnes v Addy (1874) LR 9 Ch App 244, the applicants must establish that Mr Watts/WMM possessed the requisite degree of knowledge. 475 The applicants must also establish that any breach of fiduciary duty by Mr and/or Ms Sharpe was dishonest and fraudulent. Mere breach of fiduciary duty by Mr and/or Ms Sharpe without dishonesty and fraud will not suffice: Farah Constructions v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [179]. 476 I have found Mr and Ms Sharpe engaged in the Design with Mr Watts and through him WMM. 477 In Farah Constructions the High Court considered the degree of knowledge required for knowing assistance. The High Court held at [174]-[177], that the first four categories of knowledge set out in Baden Delavaux v Societe General [1993] 1 WLR 509 at 575-576 and 582 are sufficient to answer the requirement of knowledge in the second limb of Barnes v Addy. Those four categories are: (1) Actual knowledge; (2) Wilfully shutting one's eyes to the obvious; (3) Wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; and (4) Knowledge of circumstances which would indicate the facts to an honest and reasonable man. 478 Significantly, the High Court in Farah Constructions rejected the fifth category of knowledge as found in Baden: "knowledge of circumstances that would put an honest and reasonable man on enquiry" on the basis that it was not endorsed in the earlier decision of the Court in Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373. 479 In Foresters, Gageler J set out a summary of the principles in relation to knowing assistance or knowing participation at [71]: Knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty is conduct which is regarded in equity as itself unconscionable and as attracting equitable remedies against the knowing participant of the same kind as those available against the errant fiduciary. Knowing participation in a dishonest and fraudulent breach of fiduciary duty includes knowingly assisting the fiduciary in the execution of a "dishonest and fraudulent design" on the part of the fiduciary to engage in the conduct that is in breach of fiduciary duty. The requisite element of dishonesty and fraud on the part of the fiduciary is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour. Correspondingly, the requisite element of knowledge on the part of the participant is met where the participant has knowledge of circumstances which would indicate the fact of the dishonesty on the part of the fiduciary to an honest and reasonable person. (Citations omitted) 480 Chopsonion must also establish that Mr Watts/WMM actually assisted Mr and/or Ms Sharpe in the dishonest and fraudulent breach of fiduciary duty. 481 As to the elements of knowing assistance, I have found that by the Design, Mr and Ms Sharpe breached their fiduciary duties to Chopsonion and that the breaches were both dishonest and fraudulent. 482 As to knowledge, I have found that Mr Watts knew that Ms Sharpe was actively seeking funding for the Chains, that he had provided invoice no. 1148 and the July 2014 Chains invoice to Ms Sharpe which he knew had been provided to at least one funder - NCS. Further, through Mr Watts, WMM provided the deposit email to Ms Sharpe. 483 Mr Watts professing to be confused and surprised at WMM receiving $760,000 on 22 January 2015 strains credulity and I have not accepted that evidence. 484 Aware that WMM had received payment on the basis of the July 2014 Chains invoice provided to Ms Sharpe, WMM through Mr Watts produced a series of invoices for the additional machinery and the past Oringi rent. Subsequently, WMM paid Chopsonion, Annomac and Jechbo pursuant to false invoices in the sense that Mr Watts denied that any of the services described in those invoices had been provided to WMM. Nonetheless, WMM paid them without question. 485 It is for these reasons that I find Mr Watts, and through him WMM, knowingly assisted in Mr and Ms Sharpe's breach of fiduciary duties owed to Chopsonion.

[74]

Issue 7 - Did Mr Watts, and through him WMM, engage in conduct contrary to s 18 of the ACL?: 2FASoC [21] 486 The applicants allege Mr Watts and WMM engaged in misleading and deceptive conduct contrary to s 18 of the Act. 487 Section 18 of the ACL provides: 18 Misleading or deceptive conduct (1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in Part 3‑1 (which is about unfair practices) limits by implication subsection (1). 488 The principles are well-established. 489 Conduct will only be misleading or deceptive if it induces or is capable of inducing error: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191. Whether particular conduct is misleading or deceptive is an objective test and a question of fact. The conduct must be "viewed as a whole and its notional effects, judged by reference to its context on the state of mind of the relevant person or class or persons": Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8; 408 ALR 195; Campbell v Backoffıce Investments Pty Ltd (2009) 238 CLR 304; 257 ALR 610; 73 ACSR 1; [2009] HCA 25 at [24]-[25]. See also Parkdale at 199. 490 In addition, the conduct cannot be categorised as misleading and deceptive unless the representee labours under some erroneous assumption: Taco Co of Australia Inc v Tacobell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177. Mere "confusion" or "wonderment" of the impugned conduct is not enough to amount to misleading and deceptive conduct: Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45. Further, the incorrectness of an opinion is not sufficient to establish misleading and deceptive conduct: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 167. 491 The applicable principles for determining whether there has been a breach of s 18 of the ACL was summarised in Self Care at [80]-[82] (Keifel CJ, Gageler, Gordon, Edelman and Gleeson JJ): [80] The principles are well established. Determining whether a person has breached s 18 of the ACL involves four steps: first, identifying with precision the "conduct" said to contravene s 18; second, considering whether the identified conduct was conduct "in trade or commerce"; third, considering what meaning that conduct conveyed; and fourth, determining whether that conduct in light of that meaning was "misleading or deceptive or … likely to mislead or deceive" [See Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1 at [89]. See also Australian Competition and Consumer Commission v Telstra Corporation Ltd (2007) 244 ALR 470; [2007] FCA 1904 at [14]-[15]; Reckitt Benckiser (Australia) Pty Ltd v Procter & Gamble Australia Pty Ltd [2015] FCA 753 at [35]]. [81] The first step requires asking: "what is the alleged conduct?" and "does the evidence establish that the person engaged in the conduct?" [Compare Google at [89]]. The third step considers what meaning that conduct conveyed to its intended audience [Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; 291 ALR 399; 91 ACSR 128; [2012] HCA 39 at [26]]. As in this case, where the pleaded conduct is said to amount to a representation, it is necessary to determine whether the alleged representation is established by the evidence [Telstra at [14], citing Campomar [Sociedad Limitada v Nike International Ltd (2002) 202 CLR 45] at [105], National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 61 IPR 420; 49 ACSR 369; ATPR ¶42-000 (National Exchange) at [18] and Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR ¶42-106; [2006] FCAFC 22 at [37]]. The fourth step is to ask whether the conduct in light of that meaning meets the statutory description of "misleading or deceptive or … likely to mislead or deceive"; that is, whether it has the tendency to lead into error [Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; 304 ALR 186; 96 ACSR 475; [2013] HCA 54 at [39]]. Each of those steps involves "quintessential question[s] of fact" [Australian Competition and Consumer Commission v Telstra Corporation Ltd (2004) 208 ALR 459; [2004] FCA 987 at [49]. See also Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; 212 ALR 357; [2004] HCA 60 at [109]]. [82] The third and fourth steps require the court to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons [See Campbell v Backoffıce Investments Pty Ltd (2009) 238 CLR 304; 257 ALR 610; 73 ACSR 1; [2009] HCA 25 at [24]-[25]. See also Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199; 42 ALR 1 at 7; 1A IPR 684 at 689 (Parkdale Custom Built Furniture); Ceampomar at [102]-[103]]. That context includes the immediate context - relevantly, all the words in the document or other communication and the manner in which those words are conveyed, not just a word or phrase in isolation - and the broader context of the relevant surrounding facts and circumstances [Parkdale Custom Built Furniture at CLR 199; ALR 7; IPR 689; Butcher at [39], [109]; Campbell at [25]-[26], [102]; TPG Internet at [51]-[52]]. It has been said that "[m]uch more often than not, the simpler the description of the conduct that is said to be misleading or deceptive or likely to be so, the easier it will be to focus upon whether that conduct has the requisite character" [Google at [92]]. That said, the description of the conduct alleged and identified at the first step should be sufficiently comprehensive to expose the complaint, because it is that conduct that will ultimately, as a whole, be determined to be or not to be misleading or deceptive.

[79]

Was the conduct misleading or deceptive or likely to mislead or deceive? 508 In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31, [14]-[15] (French CJ and Keifel J) the High Court emphasised that it is sufficient in light of all relevant circumstances that the defendant's conduct leads or is likely to lead into error: In determining whether there has been a contravention of s 52 of the Trade Practices Act, it is necessary to determine "whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive". The term "conduct" is to be understood according to its definition in s 4(2)(a) and (b) of the Trade Practices Act, which includes a reference to "refusing to do any act". That, in turn, includes a reference to "refraining (otherwise than inadvertently) from doing that act". For conduct to be misleading or deceptive it is not necessary that it convey express or implied representations. It suffices that it leads or is likely to lead into error. … (Citations omitted) 509 Their Honours continued at [20]: In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered. The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52. 510 By Mr Watts and WMM engaging in the Design, they engaged in conduct which was misleading and deceptive contrary to s 18. In particular, in providing false documentation as part of the Design, Mr Watts and WMM contravened s 18 in that the conduct was misleading or deceptive or likely to mislead or deceive.

[81]

Lenders 514 The respondents submit that no Lender relied in any way upon anything done by Mr Watts/WMM. They submit further that each of the Lenders were aware that Chopsonion was an existing client of PFM, none of the Lenders made enquiries as to the status or circumstances surrounding previous loans Chopsonion had arranged with PFM, and the financial position of Chopsonion was enough to support a cash flow position to service the loan facility for three months of interest not otherwise. 515 The respondents also point to the Lenders considering an exit strategy being the sale of the Chains to FG Agri and the invoice funding. 516 So much so may be accepted, but pointing to matters upon which the Lenders relied but which were not misleading or deceptive, does not obviate the need to consider those matters which were misleading and deceptive. 517 The respondents submit further that no Lender relied, in any sense, upon the fact that the Chains would be purchased by Chopsonion from WMM at any particular price. 518 That submission confuses the issue of price with the falsity of the invoices and I do not accept it. It is not to the point, and it is not pleaded, that had the Lenders known the true price, they would have proceeded with the transaction in any event. 519 The point is that documentation provided by Mr Watts, and through him WMM, as part of the overall conduct comprising the Design was false. 520 Next, the respondents point to the recitals to the Heads of Agreement between the Lenders, FG Agri and Mr Anderson by which FG Agri agreed to pay the Lenders $1.1m. Recital E provides: "The Lenders provided funding to (Chopsonion) for the purchase of the Chains … in reliance on the sale of the Chains from (Chopsonion) to (FG Agri)." 521 That is likely to have been the case but it is not fatal to the applicants' cause of action. 522 The requirement for the recovery of loss pursuant to s 236 is that the claimant must have suffered loss or damage "because" of the conduct of another person. It is sufficient for the contravention to be a cause of the loss in the sense that it materially contributed to that loss. It is not necessary for the contravening conduct to be the sole cause. That approach is consistent with the purpose of the statute which is to proscribe misleading and deceptive conduct: I & L v HTW Valuers [2002] HCA 41; (2002) 210 CLR 109, [33] (Gleeson CJ). 523 Further, it is not the case that damages can only be recovered if the applicants rely on the respondents' conduct and it is important not to allow reliance "… to obscure the need to identify contravening conduct … and a causal connection between that conduct and the loss and damage allegedly suffered": Campbell at [102] (Gummow, Hayne, Haydon and Kiefel JJ). There will be occasions where the question of reliance is critical to the issue of causation but it does not follow that in every case the absence of reliance on a particular piece of correspondence forming part of overall conduct will be fatal to a claim under s 18 and for consequent loss under s 236. 524 The Lenders submit that Ms How put the funding proposal to the Lenders on the basis of, amongst other things, the July 2014 Chains invoice. So too, the fact that Chopsonion had paid a deposit of $90,000 was a relevant consideration. 525 I accept that submission. 526 I find that when considering whether to advance the loan by sending it out to potential lenders, Ms How relied on the information provided to her by Ms Sharpe, which included the July 2014 Chains invoice as well as the deposit email, and was misled. 527 Since the July 2014 Chains invoice and the deposit email were contained within the documents provided to the Lenders by PFM in January 2015, I find that the Lenders relied on that same information in deciding whether to provide funds. They too, were misled. 528 The Lenders submit further that it is self-evident that Ms How would not have put the funding proposals to the Lenders unless she had understood that the purchase price for the Chains was as set out in the July 2014 Chains invoice and the balance of $760,000 was payable on a purchase price of $850,000. 529 I accept that submission and to that extent both Ms How and the Lenders relied on both the July 2014 Chains invoice and the deposit email as part of the overall transaction. 530 I find that if Ms How had known that contrary to the July 2014 Chains invoice, the purchase price for the Chains was in fact $528,000 (incl GST) and that no deposit had been paid, contrary to the representation in the deposit email, at the least Ms How would not have considered approaching the Lenders to provide funding to Chopsonion. 531 Further, I entertain no doubt that had the true position been disclosed, then faced with the knowledge of a false invoice and a false representation of the payment of a deposit against that invoice as part of the overall conduct, no party would engage in the transaction. 532 The fundamental point in this matter is that both Ms How and the Lenders proceeded on the basis that the transaction by which Chopsonion was going to purchase the Chains from WMM was genuine in the sense that the purchase price was $850,000 and that a deposit of $90,000 had been paid against the purchase price. There were other factors which were clearly relevant to the decision taken by Ms How to put the proposal to the Lenders and the decision by the Lenders to engage in the transaction. That is not the point. I entertain no doubt that Ms How and the Lenders proceeded on the basis that there was a genuine transaction as reflected in the July 2014 Chains invoice and the deposit email when in fact that was not the case. 533 The Lenders submit that causation with respect to both Chopsonion's entry into the Loan and the Lenders advancing Funds is sufficiently established for each claim through Ms How. 534 I accept that submission.

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Chopsonion 535 As to Chopsonion, the question arises as to whether Chopsonion could have been misled in circumstances where its directors and/or officers were armed with the knowledge that the July 2014 Chains invoice and the deposit email were false. 536 Chopsonion submits it does not matter that the directors/officers of Chopsonion can be taken to have known the true position and so were not misled by the conduct of the respondents. 537 In circumstances where an individual acts as the agent of a company, the agent's knowledge may be attributed to the company. That principle of knowledge of an agent being attributed to the knowledge of a company is the principal/agent principle. 538 The organic theory of attribution to a company is that the acts, knowledge and intentions of the individuals who form its directing mind and will are that of the company. 539 An exception to the knowledge of a person whether as agent or under the organic theory being attributed to the company is where the knowledge is an element of a fraud against the company: Grimaldi [282]-[286] (Finn, Stone and Perram JJ). 540 In Beach Petroleum NL v Johnson [1993] FCA 283; (1993) 43 FCR 1; (1993) 115 ALR 411, 574 von Doussa J observed that "if a company is to be imputed with the conduct and knowledge of a director, the director must be acting within the scope of his or her authority, that is within the scope of his or her actual or apparent authority". His Honour continued: Provided that the director is acting within the scope of his or her authority, in civil proceedings the state of mind of a director ordinarily will be attributed to the company where there is a duty on that directed to communicate his or her knowledge to the company. The exception to this rule is where the director is acting totally in fraud of the company, that is, where all the directors activities are directed against the interest of the company, and not partly for the benefit of the company. If the director is guilty of fraudulent conduct which is not totally in fraud of the corporation, and by design or result the fraud partly benefits the company, the knowledge of the director of the transaction will attributed to the company. 541 On the principal/agent theory, Mr Sharpe as a Director and officer of Chopsonion and Ms Sharpe as a de facto/shadow director and/or de facto/shadow officer, were both active participants in the impugned conduct, such that neither could be seen as acting within the scope of his or her actual or apparent authority. This is not a question of knowledge per se but of active participation, so the question may be answered on Law of Agency principles. On that basis, the knowledge and actions of Mr and Ms Sharpe are not attributable to Chopsonion. 542 On the organic theory, which is the "directing mind and will" basis, the knowledge of a company's directors are taken to be that of the company. Principles of Agency are not the basis of the organic theory. 543 It was in the context of Agency principles that von Doussa J made his observations in Beach Petroleum. So too, in Grimaldi, the Full Court was considering the question on the basis of the principal/agent theory. 544 Nonetheless, it seems to me that his Honour's observations as to the exception to the rule being where a director (and I add officer) is acting totally in fraud of the company are of equal application to the organic theory and the matter will depend in each case upon the context in which the question arises. 545 In Bilta (UK) Ltd (in liquidation) v Nazir [2015] UKSC 23; [2015] 2 All ER 1083, Lord Neuberger P said: at [7] Where a company has been the victim of wrong-doing by its directors, or of which its directors had notice, then the wrong-doing, or knowledge, of the directors cannot be attributed to the company as a defence to a claim brought against the directors by the company's liquidator, in the name of the company and/or on behalf of its creditors, for the loss suffered by the company as a result of the wrong-doing, even where the directors were the only directors and shareholders of the company, and even though the wrong-doing or knowledge of the directors may be attributed to the company in many other types of proceedings. 546 Whereas there are provisions such as ss 181 and 182 of the Corporations Act which allow for recovery of loss from directors who act in breach of their statutory duties, it seems to me that independent of that, fraud provides an exception to the attribution of knowledge whether under the Law of Agency principles or the "directing mind and will" (organic) theory.

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Issue 9 - Was Mr Watts, and through him WMM, involved in the contravening conduct of Mr Sharpe and/or Ms Sharpe within the meaning of s 2 of the ACL?: 2FASoC [21.2] 548 Section 2(1) of the ACL provides: involved: a person is involved , in a contravention of a provision of this Schedule [the ACL] or in conduct that constitutes such a contravention, if the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. 549 In order for a person to be "involved" within the meaning of s 2(1) of the ACL, it is necessary for the person to have actual knowledge of the essential facts constituting the contravention: Yorke. 550 Besanko J summarised the applicable principles in Keller v LED Technologies Pty Ltd [2010] FCAFC 55; (2010) 185 FCR 449 at [335]-[336]: For present purposes, knowledge may be considered to include wilful blindness. However, it does not include recklessness or negligence. In a case concerning representations, the essential elements of the contravention are the fact that the representation was made and that, in a case such as the present, it was misleading or deceptive, or likely to mislead or deceive (s 52) or was false (s 53(a) and (c)). To establish accessorial liability it must be established that the relevant person knew the representation was made and the facts which made it misleading or deceptive, or likely to mislead or deceive, or false. It need not be shown that the relevant person actually drew the conclusion that the representation was misleading or deceptive, or likely to mislead or deceive, or was false. 551 While his Honour was referring specifically to limb (c) of the definition of involvement (as it applied under s 75B of the Trade Practices Act 2010 (Cth)), these principles apply equally to the other limbs. 552 Mr Watts produced the July 2014 Chains invoice and the deposit email and provided them to Mr Sharpe and/or Ms Sharpe knowing that the documents would be used by Ms Sharpe in procuring funding for Chopsonion to purchase the Chains. 553 To that extent, Mr Watts knew the representations in the July 2014 Chains invoice and the deposit email were made and that the sum of $850,000 (incl GST) was false as was the fact of the deposit. 554 It is for those reasons that I find Mr Watts, and through him WMM, were involved in the contravention of s 18 by Mr and/or Ms Sharpe within the meaning of s 2 of the ACL.

[86]

Issue 11 - Extension of time for bringing proceedings under the ACL 558 WMM pleads that the Lenders are statute barred from raising any claims and are not entitled to any relief against WMM and/or Mr Watts in these proceedings insofar as they allege conduct on the part of WMM and/or Mr Watts in contravention of s 18 of the ACL. 559 The applicants claim, to the extent it is required, an extension of time in which to bring the cause of action for breach of s 18 of the ACL pursuant to s 48 of the Limitation Act. 560 Section 48 provides: 48 - General power to extend periods of limitation (1) Subject to this section, where an Act, regulation, rule or by-law prescribes or limits the time for - (a) instituting an action; or (b) doing any act, or taking any step in an action; or (c) doing any act or taking any step with a view to instituting an action, a court may extend the time so prescribed or limited to such an extent, and upon such terms (if any) as the justice of the case may require. (2) A court may exercise the powers conferred by this section in respect of any action that - (a) the court has jurisdiction to entertain; or (b) the court would, if the action were not out of time, have jurisdiction to entertain. (3) This section does not - (a) apply to criminal proceedings; or (b) empower a court to extend a limitation of time prescribed by this Act unless it is satisfied - (i) that facts material to the plaintiff's case were not ascertained by him until some point of time occurring within twelve months before the expiration of the period of limitation or occurring after the expiration of that period and that the action was instituted within twelve months after the ascertainment of those facts by the plaintiff; or (ii) that the plaintiff's failure to institute the action within the period of the limitation resulted from representations or conduct of the defendant, or a person whom the plaintiff reasonably believed to be acting on behalf of the defendant, and was reasonable in view of those representations or that conduct and any other relevant circumstances, and that in all the circumstances of the case it is just to grant the extension of time. (3a) A fact is not to be regarded as material to the plaintiff's case for the purposes of subsection (3)(b)(i) unless - (a) it forms an essential element of the plaintiff's cause of action; or (b) it would have major significance on an assessment of the plaintiff's loss. … (3b) In determining whether it is, in all the circumstances of a case, just to grant an extension of time, the court should have regard to - (a) the period of extension sought and, in particular, whether the passage of time has prejudiced a fair trial; and (b) the desirability of bringing litigation to an end within a reasonable period and thus promoting a more certain basis for the calculation of insurance premiums; and (c) the nature and extent of the plaintiff's loss and the conduct of the parties generally; and (d) any other relevant factor. (4) … (5) … (6) … 561 The respondents' written submissions on the point are pithily short and the oral submissions referred to the written submissions. 562 The applicants made no oral submissions on limitation. 563 The applicants' written submissions contend that it is not until a transaction generates loss that time begins to run: Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358; [2008] VSCA 26 at [109]; Commonwealth v Cornwell [2007] HCA 16; (2007) 229 CLR 519, [36]. 564 On that basis, the applicants submit time did not begin to run in relation to the ACL claims against WMM and/or Mr Watts, until the Lenders ascertained that they were not going to recover the full amount they were owed, through either a sale of the Chains by Chopsonion to FG Agri, or through realisation of security, or otherwise. They submit that it was not until at least late 2016 that the loss crystallised such that the ACL claims are within time. 565 I accept that submission such that the claims made under the ACL are within time. 566 If I am wrong in my view that the ACL claims are not time-barred, the applicants submit the ACL applies as a law of South Australia by virtue of s 14 of the Fair Trading Act 1985 (SA) such that the six year limitation period imposed by ss 236 and 237 of the ACL may be extended under s 48(1) of the Limitation Act. 567 The applicants submit that because the limitation period is imposed by ss 236 and 237 of the ACL and not under the Limitation Act, s 48(3) of the Limitation Act does not apply. On that basis, the applicants apply pursuant to s 48(1) of the Limitation Act such that it is not necessary for them to prove that they ascertained new material facts within a year of commencing proceedings, and the Court's power to extend time is confined only by the justice of the case. 568 I accept those submissions. 569 On the issue of any prejudice, the Lenders submit that their claims bring no prejudice to bear on Mr Watts and/or WMM, given that they were required to defend the claims brought by Chopsonion which arise out of the same facts. 570 I accept that submission. 571 In the circumstances, I am satisfied that the justice of the case is such that to the extent required, the Lenders are granted an extension of time within which to bring the proceedings under s 18 of the ACL pursuant to s 48(1) of the Limitation Act.

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Issue 12 - Deceit: 2FASoC [21A] 572 The Lenders claim against Mr Watts and WMM in deceit. 573 The five elements that need to be established by a plaintiff for the modern Tort of deceit were identified by the High Court in Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 at [114] (Gummow, Kirby and Crennan JJ), as follows: (1) The defendant made a false representation; (2) The defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; (3) The defendant made the representation with the intention that it be relied upon by the plaintiff; (4) The plaintiff acted in reliance on the false representation; and (5) The plaintiff suffered damage which was caused by reliance on the false representation. 574 The High Court stated that the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation. 575 The threshold for an action to succeed in deceit is higher than that pursuant to s 18 of the ACL. 576 The first element is a false representation. The July 2014 Chains invoice represented falsely a purchase price for the two Chains of $850,000 (incl GST) of which a deposit had been paid of $90,000. So too, the deposit email represented falsely that a deposit of $90,000 had been paid against the Chains. The first element is made out. 577 The second element is that Mr Watts, and through him WMM, made the representation with the knowledge that it was false or was reckless or careless as to whether the representation was false or not. Mr Watts, and through him WMM, knew the representation as to the purchase price and the payment of the deposit against that purchase price was false. The second element is made out. 578 The third element is that Mr Watts, and through him WMM, made the representation with the intention that it be relied upon by a funder. Mr Watts, and through him WMM, provided the July 2014 Chains invoice and the WMM deposit email to Mr and/or Ms Sharpe and through them to Chopsonion with the intention that those documents would be provided to potential funders. The third element is made out. 579 The fourth element is that the Lenders acted in reliance upon the false representations. The Lenders decided to provide funds on the basis of materials provided to them by PFM through Ms How. Those materials included the July 2014 Chains invoice and the deposit email. Had Ms How been made aware that the July 2014 Chains invoice was false and/or no deposit had been paid such that the deposit email was false, she would not have provided the funding proposal to the Lenders for consideration. So too, had the Lenders been aware of the falsity of the July 2014 Chains invoice and the deposit email, they would not have provided the Funds. 580 The fourth element is made about. 581 The fifth element is that the Lenders suffered damage which was caused by reliance on the false representation. I deal with the question of loss later in these reasons but I am satisfied that the Lenders suffered damage in the sense they suffered financial loss. The fifth element is made out. 582 It is for these reasons that I find that the Lenders have established their cause of action in deceit against Mr Watts and WMM.

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PLEADED CASE/CAUSES OF ACTION - ROLTON PROCEEDINGS 589 The pleaded case in relation to the Rolton valuation is extensive and the allegations are cross-referenced in a number of the causes of action. 590 In summary, the applicants allege at [3] of their third further amended statement of claim (3FASoC) that prior to 26 November 2014, Mr Watts commissioned Mr Smith for and on behalf of Rolton to value the Chains and to provide that valuation to Chopsonion in circumstances where Mr Smith knew: (a) The Chains and their history and knew of the sale of the Chains from SFF to WMM; (b) WMM had agreed to sell the Chains to Chopsonion; (c) The acquisition of the Chains by Chopsonion would be effected through external third-party funding arrangements; and (d) Chopsonion had accepted quotes for the removal of the Chains from Oringi and the shipping of the Chains to Australia. 591 Next, the applicants plead that the Rolton valuation represented: at 3FASoC [4] (a) That the value of the Chains was between $1.1m and $1.3m which included the cost of the Chains, their deinstallation in New Zealand, pre-delivery servicing and modifications, and delivery to Australia, wharf side (Valuation Representation); (b) That there were reasonable grounds for the Valuation Representation (Basis Representation); and (c) An implied representation that the opinions expressed in the Rolton valuation were honestly held (Honesty Representation). 592 Next, the applicants plead at 3FASoC [5.1] that the Rolton valuation was sought by Chopsonion through Mr Watts, for and on behalf of WMM, for the purpose of providing it to a class of persons, including the Lenders, in order to obtain funding for the purchase by Chopsonion of the Chains. 593 The applicants then plead at 3FASoC [5.1AA] that there was no reasonable basis for the Valuation Representation: (a) Based upon the evidence known to, or relied upon, by Rolton; (b) Having regard to the recent sales evidence and the likely costs of deinstallation and shipping; (c) In the absence of any reasonable basis for the difference between recent sales evidence and the assessment of a current market value at $1.1m - $1.3m per Chain; and (d) In circumstances where Rolton knew that WMM had been endeavouring to sell the Chains for an extended period, which had culminated in the sale of the Chains from WMM to Chopsonion for $528,000 (GST Inc). 594 Next, the applicants plead at 3FASoC [5.2] and [5.3A] that the Rolton valuation was provided to Chopsonion by Mr Smith, for and on behalf of Rolton, knowing and intending it would be provided to and/or relied upon by a class of persons, including the Lenders, for the purposes of obtaining funding for the purchase by Chopsonion of the Chains. 595 The applicants plead at 3FASoC [5. 3A] that the Modified Rolton valuation was prepared to make it clear that the figure of $1.1m - $1.3m was for each Chain. The applicants do not contend Mr Smith prepared the Modified Rolton valuation, but Mr Smith accepted that the value of two Chains was double the value of one Chain. 596 Next, the applicants plead at 3FASoC [5.5] that the Rolton valuation was false in a material particular or materially misleading in that the market value of the Chains as at 26 November 2014 was, excluding removal and shipping costs, in the order of between NZD$200,000 and AUD$528,000 (incl GST) and that utilising those figures there was no reasonable basis for an opinion that removal and shipping costs made up the balance. 597 As part of pleading that the Rolton valuation was false in a material particular or materially misleading, the applicants allege that the Rolton valuation failed to disclose that one of the Chains was 90% complete in that it was missing a shoulder puller, final puller and hydraulic power pack; that WMM had purchased the Chains for NZD$200,000; that the Chains were the subject of an agreement between WMM and Chopsonion for sale at $528,000 (incl GST); and that it failed to disclose the cost of removal of packing the Chains and the shipping costs. 598 The applicants plead next at 3FASoC [5.6] and [5.7] that the Rolton valuation was disseminated by Mr Smith and WMM through Mr Watts in circumstances where: (a) Rolton did not care whether it was true or false or contained statements or information that were untrue or false; and (b) Rolton knew or ought reasonably to have known that it was false or contained statements or information that were untrue or false in a material particular or materially misleading. 599 The applicants continue at 3FASoC [5.7] that the Modified Rolton valuation was disseminated by Chopsonion through Ms Sharpe to PFM for and on behalf of the Lenders in about January 2015: (a) Not caring whether it was true or false or contained statements or information that were true or false; and (b) Knowing or ought reasonably to have known that it was false or contained statements or information that were untrue or false in a material particular or materially misleading. 600 At 3FASoC [5.8] and [5.9], the applicants plead the Modified Rolton valuation was likely to induce (and did) induce Chopsonion to apply to the Lenders for finance and for the Lenders to make finance available (which they did). 601 The applicants then plead at 3FASoC [5.10] and [5.11] that WMM paid Mr Smith $10,000 for the provision of an artificially high valuation to facilitate the securing of finance by Chopsonion and thereby the completion of the sale of the Chains by WMM to Chopsonion. 602 The pleading continues at 3FASoC [5.11] that Rolton, through Mr Smith: (a) Knew that the Rolton valuation was false or contained statements or information that were untrue or false in a material particular or materially misleading; and (b) Accordingly, knew that the Rolton valuation was not a genuine statement of opinion as to the matters addressed in it. 603 As a consequence, the Lenders plead that it is to be inferred at 3FASoC [5.13] that: (a) Mr Smith provided an inflated valuation to help Chopsonion obtain funding to acquire the Chains thereby facilitating the completion of the sale of the Chains by WMM to Chopsonion; and (b) A payment of $10,000 to Mr Smith was made because he provided the Rolton valuation.

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Issue 14 - Did Rolton owe a duty of care to the Lenders, and if so what was the scope of that duty? 604 The Lenders claim against Mr Smith, and through him Rolton, in negligence. 605 For the purposes of this cause of action, it is necessary for the Lenders to establish the existence of a duty of care (and if so, its scope and content), a breach of that duty of care, as well as actual damage of injury and causation: Harriton v Stephens (2006) 226 CLR 52; [2006] HCA 15 at [218] (Crennan J with whom Gleeson CJ and Gummow and Heydon JJ agreed). 606 There is no issue that a duty to protect against pure economic loss may arise: Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180. McHugh J concluded that the question of whether a duty of care exists is to be determined by the presence of "salient features": foreseeability of loss; indeterminacy of liability; autonomy of the individual; vulnerability to risk; and the defendant's knowledge of the risk and its magnitude: at [198]-[201]. 607 In Perre Gleeson CJ said at 194 [10] that: In relation to the giving of advice or information, questions of reliance and actual foresight of the possibility of harm ... are closely related. Moreover, knowledge (actual, or that which a reasonable person would have), of an individual, or an ascertainable class of persons, who is or are reliant, and therefore vulnerable, is a significant factor in establishing a duty of care. 608 Further, a misstatement is sufficient to give rise to an action in negligence where that misstatement was made by way of response to a request for information or advice and the plaintiff committed themselves financially upon the basis that that information or advice was true: San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340; [1986] HCA 68; Shaddock v Parramatta (1981) 150 CLR 225; [1981] HCA 59. When considering a misstatement, vulnerability is the consequence of, not an additional criterion to, knowledge (actual or which a reasonable person would have) of reasonable reliance by an ascertainable class of persons on the information provided: ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 at [598]. 609 The Lenders allege that in preparing and providing the Rolton valuation, Rolton owed a duty of care to the Lenders to exercise all reasonable care, skill and diligence. 610 The Lenders submit that the Modified Rolton valuation was not substantively different from the Rolton valuation. It is very similar, but there is a material difference in the use of the words "Market Value" in the valuation of the Chains. I deal with that difference later. 611 Mr Smith is not a valuer but he has significant experience in the assessment of the value of abattoir equipment. On that basis, I consider the standard of care owed by Mr Smith, and through him Rolton, to be that of a person skilled in the valuation of abattoir equipment. 612 The Lenders submit that third-party funders were within the class of persons that Mr Smith, and through him Rolton, intended would act upon the Rolton valuation and that Rolton should be taken to have known that if persons within that class relied upon the document and it contained misstatements, they might suffer economic loss: San Sebastian at 354-358. 613 I accept that submission.

[91]

Issue 15 - Did Rolton through Mr Smith breach its duty of care? 614 The Lenders allege Rolton breached its duty of care to the Lenders by overstating the market value of the Chains at $1.1m - $1.3m for each Chain when in fact the total market value for both Chains was no more than between NZD$200,000 and AUD$528,000 (incl GST) plus the deinstallation costs, pre-delivery servicing of modifications, and delivery to Australia, wharf side. 615 The Lenders submit that the market value of a single Chain, by reference to recent sales evidence, was somewhere between NZD$100,000 (on the basis that WMM had bought two Chains from SFF for NZD$200,000) and AUD$240,000 (for one Chain) being the price offered by WMM. 616 The Lenders submit further that Mr Smith ignored the SFF sale price; did not ask Mr Watts what price he was selling the Chains for in Australia; did not have any regard to the marketplace being "very, very weak" at the time; and that second or third tier abattoir operations can purchase second-hand equipment at heavily discounted prices. 617 The Lenders submit further that Mr Watts did not deny that a market price of $1m to sell both Chains in mid-2014 (in Australia) was completely unrealistic and were not sellable at that price. 618 Finally, the Lenders submit that the Rolton valuation was not an honestly held opinion as it was prepared as a favour for Mr Watts; represented a figure Mr Smith and Mr Watts had come up with together before the report was prepared; was a wildly inflated value; and Mr Smith was paid $10,000 by WMM for the preparation of the Rolton valuation. 619 I do not accept those submissions for the following reasons. 620 First, it is clearly evident on its face that the Rolton valuation does not purport to be a comprehensive valuation and in particular, does not purport to give a market value. That said, I have accepted that third-party funders were within the class of persons that Mr Smith, and through him Rolton, intended would act upon the Rolton valuation and that Rolton should be taken to have known that if persons within that class relied upon the document and it contained misstatements, they might suffer economic loss. 621 Second, Ms How and the Lenders relied on the Modified Rolton valuation (which Mr Smith denies preparing) and not the Rolton valuation. As I have noted, the Rolton valuation did not express the assessment of value as being a market value, unlike the Modified Rolton valuation. 622 Third, the price at which WMM purchased the Chains reflected the need by SFF to dispose of the Chains given the purchase of the Oringi Plant by Trust Power. To that extent, the price paid by WMM was not an ordinary "market price" but in the words of Mr Smith a "fire sale". 623 Fourth, Chopsonion had a confirmed sale to FG Agri for two Chains at $2.2m (incl GST) against which a deposit of $100,000 had been paid. Of itself that indicates that the value of the Chains in Australia was in the order of $1m per Chain. 624 Fifth, although Mr Watts accepted that a market price of $1m to sell both Chains in mid-2014 was unrealistic and that the Chains were not sellable at that price, nonetheless FG Agri was prepared to pay $2.2m to buy the Chains. That is, there was empirical evidence to the contrary. 625 Sixth, to the extent Mr Smith did not take account of the marketplace being "very, very weak", that is because he was assessing a replacement value for what he considered was for insurance purposes, i.e. a payout from an insurer. That is not stated on the Rolton valuation but it is evident upon reading the document that the basis of the valuation was limited and very specific as to the matters upon which it was based. 626 Seventh, I accept that Mr Smith prepared the Rolton valuation as a favour for Mr Watts but nothing turns on that in circumstances where Mr Watts and Mr Smith had known each other for decades. The Lenders' contentions that the figure contained in the Rolton valuation was a figure Mr Smith and Mr Watts had come up with together before the report was prepared, insofar as it is a contention that the two conspired to arrive at a particular figure, was denied by Mr Smith notwithstanding the figure was consistent with those discussions. I have accepted Mr Smith's denial. 627 Eighth, I accept that Mr Smith's opinion expressed in the Rolton valuation was honestly held and based upon his experience after 40 years in the meat processing industry. On that point, no valuation evidence was called by the applicants to contradict the Rolton valuation. 628 Finally, I do not accept that Mr Smith was paid $10,000 for the preparation of the Rolton valuation. That payment was for the sale of other abattoir equipment on an unrelated transaction. 629 It is for these reasons I do not consider that Rolton breached its duty of care to the Lenders.

[93]

Claim by the Lenders 633 The Lenders claim against Rolton for engaging in conduct, contrary to s 18 of the ACL, proceeds on the basis of the provision of the Rolton valuation to Chopsonion by Rolton through Mr Watts: at 3FASoC [15]. 634 The Lenders plead at 3FASoC [15.1] the Rolton valuation conveyed the representations that: (a) The advice and opinions contained within it were based on reasonable grounds; (b) Was the product of reasonable care, skill and diligence; (c) Was within the range of latitude properly allowed to a valuer; (d) Was based on methodology which would be applied by a properly qualified valuer exercising all reasonable care, skill and diligence; (e) It was suitable to be relied upon by the Lenders in considering whether to fund the purchase by Chopsonion of the Chains; and (f) Repeat the Valuation Representation and the Basis Representation to which I have referred earlier. 635 It is on that basis that the Lenders allege that Rolton contravened s 18 of the ACL and that Mr Smith was involved in that conduct within the meaning of s 2 of the ACL. 636 I find the Rolton valuation was Mr Smith's opinion of the replacement value for a particular Chain, and that the opinion was honestly held. 637 I accept that Mr Smith held himself out as being qualified to express the opinion in the Rolton valuation and I accept that to Mr Smith's knowledge, any third-party funder would be relying on the Rolton valuation. However, whereas Chopsonion by Ms Sharpe received the Rolton valuation, the Lenders only received the Modified Rolton valuation. The Rolton valuation must be considered for what it was - the value of an actual Chain and the ancillary costs. As I have ruled, the document was quite clear on the basis of the value attributed to one Chain. 638 Insofar as the Lenders are concerned, I am not satisfied Mr Smith and Rolton prepared the Modified Rolton valuation and/or provided it to Ms Sharpe/Chopsonion. Further, the Modified Rolton valuation, although substantially the same in many respects, is materially different in another which is that it purports to give a market value. Mr Smith denied that was his document and I have accepted that evidence. 639 It is for these reasons, as well as the reasons I have set out in relation to the claim for breach of duty by Rolton, that Rolton did not contravene s 18 of the ACL.

[99]

Watts proceedings - respondents' submissions on loss generally 651 In the Watts proceedings, the applicants have succeeded in establishing their causes of action. 652 Prior to considering the loss recoverable for each cause of action upon which the applicants have succeeded, and the heads of loss, I deal with the respondents' submissions about the applicants' claim for loss generally. 653 First, after initially challenging the disbursement of the sum of $1.1m from the FG Agri settlement, the respondents now seem to accept that the funds have been accounted for, save for the sum of $5,819.85 for which no party can provide an explanation. That being the case, that amount should be deducted from the award of damages. 654 In any event, and contrary to the respondents' initial challenge to the disbursement of funds from the FG Agri settlement, there was evidence as to how those proceeds were disbursed. 655 In the second How affidavit, Ms How deposed at [88] how the receipts from the FG Agri settlement were disbursed and annexed at Annexure AJH-10 a schedule of those disbursements. She was not cross-examined on that point. 656 Mr Willson deposed to his share of the FG Agri settlement and the sale of secured properties; Mr Cannan deposed as to how much remained owing to MEG as well as MEG's liability to PFM; and Mr Rowley deposed that from the FG Agri settlement, he received $557,893.38 which was applied against his loan. 657 Second, the respondents submit, "However, it is well-known that there were other borrowers recorded in the loan agreement which also offered security" and that the security offered by the other borrowers was sold. Those securities included the Collarenebri Abattoir (Chopsonion), the property at Leeville (Mr Sharpe), and the Inglewood Abattoir (Jechbo). 658 The respondents submit that the applicants offered no proper explanation as to what happened with the proceeds of realising security and that the evidence led on the issue is unsupported by any reliable documents and are inadmissible in form. 659 The respondents submit further that PFM has received a total of $279,095.06 from the proceeds of the sale of the Leeville property which have not been accounted for. The respondents also submit that no accounting is given for the receipt of funds in respect of the Collarenebri and Inglewood Abattoirs towards any higher-ranking secured parties or to the Lenders. 660 I do not accept those submissions. In the second How affidavit, Ms How deposed at [89]-[91], as to the mortgagee sales of Leeville, Inglewood and Collarenebri and that there was a shortfall in each case. Ms How was not challenged on that evidence. 661 Further, documents received as a part of Exhibit A1 support Ms How's evidence. 662 It is for these reasons, and for the matters I have set out in my factual findings, that in relation to the realisation of security, the respondents' complaints about other security are without merit. 663 Third, the respondents submit that the applicants have not disclosed the sum of money they received in the settlement with Mulga in the Rolton proceedings. 664 The applicants submit that the respondents chose not to cross-examine any of the Lenders or Ms How about the settlement with Mulga and did not suggest to any of the applicants' witnesses that they received any payment which reduced their losses. 665 I accept that submission. Had the respondents wished to put forward a case that the applicants received payment from the Mulga settlement which reduced their losses, they should have done so during the course of the hearing. They did not do so and it is too late to raise it now. 666 Fourth, the respondents submit that the application of funds the subject of recoveries which are said to have been paid towards costs and expenses has not been proved by any admissible evidence. That is not correct. Annexure B to the applicants' written closing submissions sets out how the proceeds received from FG Agri was applied by reference to tendered documents. To the extent that money was received from the sale of property secured by mortgage, I have dealt with that point above. 667 Fifth, the respondents submit that no supporting documents support the losses claimed by each of the Lenders. That is not so, the documents are within Exhibit A1. 668 Sixth, the respondents submit that none of the Lenders have given evidence of them treating the debts alleged to be owed to them as continuing liabilities post an administrator being appointed over Chopsonion. The significance of the Lenders subjective views whilst, in any event, pursuing the losses in proceedings is not immediately clear and was not expanded upon in any way by the respondents. To the extent the submission that the Lenders have thereby not established any loss, I do not accept it. 669 Seventh, in relation to the sale of one Chain to FG Agri, the respondents submit Ms How's second affidavit shows remittances totalling $1m such that $100,000 is unaccounted for in the loan ledger and the interest calculation at p 832 of the affidavit is in error. 670 There is nothing in that point because in the applicants' loss submissions, the $100,000 is accounted for.

[107]

Principles 692 It is not the applicable principles which are in issue between the parties but the application of those principles. 693 Lord Dunedin's speech in Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79, at 86-87 set out "the principles governing the identification, proof and consequences of penalties in contractual stipulations", which "continues to express the law applicable in this country": Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656 at [11], [12]: 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage … 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach … 4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are: (a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach … (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid … (c) There is a presumption (but no more) that it is penalty when 'a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage.". 694 In Andrews v ANZ [2012] HCA 30; (2012) 247 CLR 205, French CJ, Gummow, Crennan, Kiefel and Bell JJ noted at [10]: In general terms, a stipulation prima facie imposes a penalty on a party ("the first party") if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. 695 In Paciocco v Australia & New Zealand Banking Group Ltd [2016] HCA 28; (2016) 258 CLR 525 Gageler J (as his Honour then was) observed: at [143] that Lord Dunedin's speech in Dunlop set out a distillation of principle rather than rules of law and that: at [127] the significance of Andrews, "… lies in its explanation of the conception of a penalty as a punishment for non-observance of a contractual stipulation, in its explanation of that conception of a penalty as a continuation of the conception which originated in equity, and in its endorsement of the description of the speech of Lord Dunedin in Dunlop as the "product of centuries of equity jurisprudence". 696 See also the discussion by McDougall J in Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328; (2016) 93 NSWLR 231 at [71]-[76].

[108]

Loan agreement 697 Insofar as the Loan Agreement is concerned, the applicants submit that the penalty doctrine does not apply to the interest provisions where a loan agreement provides for two rates of interest, one being a standard rate and the other a discounted rate, applying in the case of prompt payment: Kellas-Sharpe v PSAL (2013) 2 Qd R 233; [2012] QCA 371. 698 The respondents submit that the applicants' reference to Kellas-Sharpe is based on the observations of Campbell JA in Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205, 241 [162]. In that matter, his Honour observed that a "properly drafted" mortgage is one drafted so that the borrower agrees to pay a particular rate of interest but the lender agrees to accept a lower rate of interest provided it is paid on time. In those circumstances the provision is not one that states the consequences of a breach of contract such that the law of penalties does not apply to it. 699 Ultimately, the matter is one of construction of the Loan Agreement. The Funding Offer provided by PFM to Mr Sharpe dated 20 January 2015 named Chopsonion in its own right and as trustee for the Collarenebri Trust, Mr Sharpe himself, and Jechbo in its own right as trustee for the Jechbo Trust, as borrowers. The offer was accepted by Mr Sharpe on 21 January 2015 in his own right and also for Chopsonion and Jechbo. 700 The rate of interest terms is stated as being 4.5% per month reducing to 3.00% per month if paid on or before the due date each month, payable at discharge of the Loan. 701 Clause 8 of the special conditions to the Funding Offer provide that the borrower was to pay interest and the management fee monthly in advance to the PFM trust account on the first business day of each calendar month during the continuance of the Loan. 702 The words "payable at discharge of the loan" in the provision setting the interest rate is simply a provision which sets the time at which the monthly interest paid into PFM's trust account is to be paid out. 703 In that context, the Investor Proposals (received by PFM from the Lenders on or about 19 January 2015) provided that interest payments are to be made to the PFM trust account with repayment of the loan together with any interest by PFM to the funders (Lenders) at the conclusion of the term. 704 Under the terms of the Investor Proposals, interest was payable to the Lenders at 4.00% per month, 4.5% should the client pay late. When compared to the interest rate being charged to Chopsonion in the Loan Agreement (Funding offer), being 4.5% per month reducing to 3% per month if paid on or before the due date each month, it may be seen that the interest rate payable by Chopsonion in the event of late payment is the same in both cases, such that the interest rates payable in the event interest is paid late, cannot be said to be "in terrorem". 705 The Mortgage given by Chopsonion refers only to "secured money" which is defined relevantly in cl 12 as meaning: (a) all amounts that are or may become owing by you to the mortgagee under any agreement between you and the mortgagee now in the future, including all amounts that you owe the mortgagee under: (i) a loan agreement (ii) … 706 The respondents submit the terms of the Loan Agreement are not formulated as a "properly drafted" mortgage and are collateral and penal in nature. They refer to PT Thiess Contractors Indonesia v PT Arutmin Indonesia [2015] QSC 123, [153] in which Jackson J explained that there was a distinction between those matters where there is a retrospective increase in the interest rate and those involving a prospective increase from the date of default, the latter not being subject to "automatic avoidance". 707 I do not consider that the penalty doctrine applies to the Loan Agreement (Funding offer): Kowalczuk; Thiess. 708 Nonetheless, assuming the penalty doctrine applies to the Loan Agreement, I accept the applicants' submissions that there is nothing in the Loan Agreement in the nature of an "in terrorem" collateral stipulation. That is because on its face, the Loan Agreement sets an interest rate of 4.5% per month with the incentive of a lower percentage rate per month if the interest is paid on or before the due date for payment of interest. In the event interest is paid late, PFM is obliged to pay the investors interest on the funds advanced at the same rate. 709 Accordingly, I do not accept that the interest payable under the Loan Agreement in the event of late payment of interest is unenforceable as a penalty.

[109]

Management Fee 710 Under the Loan Agreement, the Management Fee is 1.5% per month reducing to 0.5% per month payable at discharge of the Loan. 711 The Mortgage Management Agreement is dated 21 January 2015 and is between PFM as Mortgage Manager and the Lenders who are defined collectively as the "Mortgagee". It sets out the terms of the agreement between the Lenders and PFM. 712 In their oral closing submissions, the respondents referred to their written submissions on the question of penalty. 713 The Management Fee is directed at the services being provided by the Mortgage Manager under cls 2.1, 2.2 and 2.5 of the Mortgage Management Agreement which provide: 2. … the powers of the Mortgage Manager shall include: 2.1 To receive and account for all interest and/or principal payments in respect of the Mortgage Loan and liaising with the Borrower, Mortgagor and Mortgagee in respect of these payments (irrespective of whether these payments are or have been made); 2.2 To pay to the Mortgagee on or before the 10th day of each month (or the next business day), the interest collected under the Mortgage Loan (to the extent that such interest is paid by the Borrower or Mortgage or to the Mortgage Manager or otherwise as provided for in this Agreement). Such payment must be made to any personal bank account nominated in writing by the Mortgage Manager to the Borrower for and on behalf of the Mortgagee; and 2.5 To execute any document for and on behalf of the Mortgagee as its agent which is necessary to facilitate the proper and diligent management of the Mortgage Loan or is otherwise in the interests of the Mortgagee to be executed including but not limited to any letter of offer, loan agreement, mortgage, contractual certificate, priority agreement or settlement agreement. 714 The applicants submit there is no "in terrorem" collateral stipulation but agreed contractual terms in the sense that the Management Fees is payable in any event. 715 The Management Fee reduces from 1.5% per month to 0.5%. No event is stipulated for that reduction but as with the interest rate, I assume it applies on timely payment. 716 As with the Loan Agreement, it does not appear to me that the Management Fee can be considered properly as an "in terrorem" payment and there is nothing that indicates the Management Fee is a payment to be made in circumstances that contravene the principles I have set out above. 717 Accordingly, I do not accept that the Management Fee payable under the Loan Agreement in the event of late payment of the Management Fee is unenforceable as a penalty.

[110]

Receiver's fees and legal costs - $220,698.31 718 The Lenders claim the Receivers' fees and legal costs. 719 Clause 10 of the GSA entered into between the Lenders and Chopsonion on or about 19 January 2015 provides for the Lenders to appoint a Receiver for Chopsonion. Chopsonion is responsible for the Receiver's remuneration. 720 Mr Cooper and Mr Bettles were appointed Receivers of Chopsonion on about 30 October 2015. 721 At the same time, the Lenders executed a Deed of Indemnity in respect of each of the Receivers, pursuant to cl 7, of which the Lenders agreed to pay the Receivers' remuneration and expenses for work carried out in respect of the Chopsonion Receivership on the basis of time spent and at the standard rates agreed between the Receivers and the Lenders from time-to-time. 722 Mr Cooper gave evidence as to the tasks he undertook as Receiver, the unpaid remuneration both for Chopsonion and for Jechbo, as well as a liability for legal fees for advice provided to the Receivers. 723 Exhibit A1 includes the work in progress records for the Receivers and their staff on the Chopsonion Receivership which totals $95,837.23. 724 At the same time as they were appointed Receivers of Chopsonion, Mr Cooper and Mr Bettles were appointed Receivers of Jechbo pursuant to a GSA entered into between the Lenders and Jechbo on or about 19 January 2015. The Jechbo GSA is in the same terms as the Chopsonion GSA. 725 As with Chopsonion, in relation to Jechbo, the Lenders also executed a Deed of Indemnity in respect of each of the Receivers, pursuant to cl 7, of which the Lenders agreed to pay the Receivers remuneration and expenses for work carried out in respect of the Jechbo Receivership on the basis of time spent and at the standard rates agreed between the Receivers and the Lenders from time-to-time. 726 Exhibit A1 includes the work in progress records for the Receivers and their staff on the Jechbo Receivership which totals $55,036.89. 727 The respondents submit that Mr Cooper was cross-examined on the issue of the invoices but was only able to confirm that he believed the invoices had been raised. 728 The Receivers' invoices for remuneration for work done on the Chopsonion and Jechbo Receiverships were tendered as part of Exhibit A1. 729 In addition to the invoices, the applicants rely on the work in progress records, the remuneration report by staff members, and a summary of work performed as at 18 August 2020 for both Chopsonion and Jechbo. Those business records confirm the amounts owing. 730 Further, the Receivers incurred legal fees from Charlton Rowley in the sum of $69,824.19 (incl GST) in connection with both the Jechbo and Chopsonion Receiverships. 731 Since Jechbo was one of the parties providing security for the Loan to Chopsonion, the appointment of Receivers to its property is a consequence of Chopsonion's default. 732 In view of the respective indemnity obligations, the Lenders are obliged to pay the Receivers their remuneration and expenses, including Charlton Rowley's legal fees associated with the Receivership of Chopsonion and Jechbo, in the sum of $220,698.31 and are entitled to that amount.

[111]

Mortgage Management fees - $1,617,975 733 The respondents submit the claim for the Mortgage Management Fee must be rejected because it is unsustainable on the terms of the Mortgage Management Agreement. They submit that the rights to the Mortgage Management Fee applied only for the term of the loan and do not operate in perpetuity. 734 The applicants submit that the Mortgage Management Fee has been incurred by reason of: a) The Loan Agreement terms which impose on Chopsonion a liability to pay PFM 1.5% per month of the total amount of the Loan the subject of the Loan Agreement, payable at discharge of the loan; and b) The terms of the Mortgage Management Agreement by which the Mortgage Management Fee: i) Is payable irrespective of whether interest payments are made under the Loan Agreement (cl 4); ii) The Lenders are liable to indemnify PFM for all costs, fees and charges arising out of the performance by it of its obligations under the Mortgage Management Agreement (cl 3); and iii) The Mortgage Management Fee was never paid by Chopsonion. 735 On that basis, the applicants contend that the liability for the Mortgage Management Fee pursuant to the indemnity given by the Lenders as at 15 September 2022, calculated on the basis of 92 months at 1.5% ($17,625), totals $1,617,975 (sic $1,621,500). 736 Clause 4 of the Mortgage Management Agreement provides that the Mortgage Management Fee only represents (PFM's) costs of performing the specific duties described in cls 2.1, 2.2 and 2.5 of the Agreement. Each of those provisions prescribe a particular power to PFM. 737 There is no provision in the Mortgage Management Agreement that provides an ongoing liability to pay the Mortgage Management Fee after the term of the Loan expires. Clause 4 provides that the tasks performed by PFM that relate to the Mortgage Management Fee do not include the cost of performing any function arising from a default of the Loan or the Mortgage or any other task to be undertaken by the PFM under the Agreement. Those costs are dealt with by cl 5. 738 Clause 5 provides that if the borrower falls into default under the Loan, PFM is entitled to charge a "Loan Attendance Fee" at the rate of $250 (incl GST) per hour for all work undertaken by it in discharge of its obligations under the Agreement. That fee is recoverable from Chopsonion and/or the Lenders. 739 It is apparent therefore that the Mortgage Management Fee is limited both in scope and in time. 740 Further, I note that special condition cl 8 to the Loan Agreement (Funding offer) provides: 8. The Borrower shall pay interest and the management fee monthly in advance to Private Funds Management Pty Ltd Trust Account. The Interest & Management Fee payments are due and payable on the first business day of each calendar month during the continuance of the loan. … 741 Nonetheless, cl 12 of the Mortgage Management Agreement provides that the "… Agreement shall apply notwithstanding anything to the contrary in the Letter of Offer (Funding offer) or the Mortgage documentation or any other agreement or arrangement whatsoever as between the Borrower or Mortgagor and the Mortgagee except an agreement executed by all of the parties hereto which is expressed to be supplemental hereto or in substitution hereof." [brackets provided]. 742 On that basis, I accept the respondents' submissions that there is no ongoing entitlement by PFM to a Mortgage Management Fee after the initial three-month term of the loan. 743 As I have noted, however pursuant to cl 5, PFM is entitled to charge a Loan Attendance Fee at the rate of $250 per hour for all work undertaken by it in discharge of its obligations under the Agreement. There is no evidence of the work done by PFM nor the hours charged for carrying out any work. 744 It follows that PFM has no entitlement to claim any Mortgage Management Fee after the three-month term, and the Lenders and/or Chopsonion have no entitlement to claim loss for the Mortgage Management fee other than for the three-month term of the loan, which totals 3 x $17,625 = $52,875.

Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd

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Judgment (132 paragraphs)

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