Eastlings Pty Ltd v Calidu Import Export Pty Ltd [2021] NSWSC 316 | Case summary

Eastlings Pty Ltd v Calidu Import Export Pty Ltd [2021] NSWSC 316 | Case summary | Zoe

[2]

Judgment

HER HONOUR: In this matter, the plaintiff, Eastlings Pty Ltd (Eastlings), seeks damages as against the first defendant, Calidu Import Export Pty Ltd (Calidu Import Export), and its two directors, Joseph (known as Joe) Merlo and his wife, Grace Merlo (the second and third defendants, respectively), for alleged breach of contract (the Breach of Covenant claims). Additionally, Eastlings seeks damages from Joe, Grace and the fourth defendant, another company with which Joe and Grace are associated, Calidu Pty Ltd (Calidu), for alleged misleading or deceptive conduct (the Misleading or Deceptive Conduct claims). Calidu was formerly known as J&J Wholesale Distributors Pty Ltd (J&J Wholesale Distributors). Both sets of claims arise out of the sale to Eastlings of a liquor wholesale business formerly operated by Joe and Grace through Calidu (the Business) in which they had engaged in parallel importing of alcohol (primarily beer) over a number of years.
In essence, the Misleading or Deceptive Conduct claims arise out of a number of representations (and, significantly, an alleged omission) allegedly made by the second to fourth defendants when they marketed the Business for sale to Eastlings. The Breach of Covenant claims arise out of post-sale conduct on the part of the first to third defendants that is alleged to amount to a breach of a deed of restraint entered into by each of them on completion of the sale of the Business to Eastlings (the Restraint Deed). The actual conduct the subject of the Breach of Covenant claims is not broadly in dispute. What is in dispute is whether, on the proper construction of the Restraint Deed, that conduct was in fact in breach of the restraint and, second, whether one of Eastlings' directors (Mr Angus Hamilton), consented to at least part of that conduct (namely, the importation of what has been referred to as the cheap Spanish wine).
The matter was first listed for hearing to commence on 20 July 2020. However, on that occasion Eastlings sought leave to file two further affidavits of its principal witnesses (its directors, Graham Thomas Hamilton and his son, Angus James Hamilton) sworn 19 July 2020, which responded to an affidavit which had only been served by the defendants in June 2020 but which had been sworn much earlier, on 29 January 2020 (that being an affidavit of a deponent who is outside the jurisdiction, Mr Song Hock Kee, who is also known as Johnny Song). Mr Song, as will be seen, is a central figure in Eastlings' allegation of illegal importation of alcohol by Calidu, Joe and Grace. Leave to rely on the July 2020 affidavits was opposed by the defendants, on the basis that the evidence therein had been obtained unlawfully, in that it was evidence of the commission by Eastlings of illegal acts in breach of the Customs Act 1901 (Cth) (see s 138 of the Evidence Act 1995 (NSW)). Eastlings sought to rely on that evidence for the purpose of establishing that illegal conduct of the kind here alleged against the second to fourth defendants (the importation of undeclared liquor on which no excise was paid) could feasibly have occurred.
After argument on that issue (on 20 and 21 July 2020), I gave leave for the affidavits to be filed (though not admitting all of the evidence in those affidavits) and vacated the hearing dates to permit the defendants an opportunity to respond to that evidence. The hearing did not, therefore, finally commence in earnest until mid-September 2020. My reasons for the admission of that affidavit evidence (and a brief account of the background to the dispute) were the subject of my first judgment in this matter (Eastlings Pty Ltd v Calidu Import Export Pty Ltd [2020] NSWSC 1041).

[4]

Parallel importing

From approximately 1995, Joe (who was formerly a fruiterer - back in the 1980s, a fact seemingly relied upon by Eastlings to show his knowledge of what might be described as "loss leader" retail practices or "specials" to incentivise customers) had carried on a wholesale liquor business. His evidence is that, from about 2004, he engaged in the parallel importing of liquor products, primarily beer (T 150.50) (although, relevantly, the evidence disclosed that from time to time in the relevant period Calidu also imported some wine, spirits and mineral water).
I interpose here to note that parallel importing is the business of importing products into Australia without the permission of the intellectual property owner (see Angus' affidavit sworn 30 April 2015 at [4]); i.e., outside the formal manufacturer distribution channels. Where there is parallel importing of alcohol, there are (among other things) applicable package labelling requirements (relevant here to note because the evidence is that at least some of the package labelling while Joe conducted the Business was carried out by one or more of his Singapore supplier(s) including Johnny Song's company Windemac Pte Ltd (Windemac)).
Joe was primarily responsible for dealing with the overseas suppliers and local customers of the Business (and, indeed, his relationship with overseas suppliers and with local purchasers - and hence the personal goodwill associated with Joe in respect of the Business - was a feature of the evidence in this matter). Grace, on the other hand, was primarily responsible for the administrative side of the Business (with the assistance of their daughter, Amanda, the company's bookkeeper, John Conroy, and the company's accountant, Geoff Power).
Grace's evidence (T 209-210) was that she oversaw the accounts and had access to MYOB but that she did not input data into MYOB (Grace said that her daughter, Amanda, did most of the input data in relation to invoices issued to customs and that Mr Conroy also had a role in inputting data to MYOB). Grace prepared some invoices but said that it was mainly Amanda who was in charge of invoicing.

[8]

Due Diligence

Eastlings then conducted a due diligence process confirming the information set out in the Information Memorandum by reference to the records of the business. Eastlings' accountant, Mr Bartlett, with the assistance of an employee, Mr Balatti, reviewed the financial information provided in the course of due diligence. The due diligence process was conducted at the office of Calidu's accounting firm, Prime Partners (of which Geoff Power was a principal).
Mr Bartlett inspected sales, purchases, wages and general ledgers for the period from 1 July 2011 to 31 December 2012, bank statements for 2011 and 2012, sales summaries for the period from 1 July 2009 to 30 June 2012, stock valuation reports, lists of bank deposits, receivables and payables.
Following that due diligence, Mr Bartlett provided a report in which he concluded that his review did not disclose any material errors in the financial information made available to him (Ex F at 45). Graham's evidence was that Mr Bartlett did find that there was a discrepancy in that there was more money banked than recorded as sales but Graham's evidence was that Angus raised this with Grace and she explained that that had to do with the timing of their payment for stock through their overseas account "so they'd banked more than they'd sold" (see at T 130.35; and see his affidavit sworn 7 December 2018 at [38]). In cross-examination, Grace agreed that in the due diligence there was found to be a difference of $114,437 between the recorded BAS sales and financial statement sales (T 261). Grace cannot recall how it was that the due diligence items were explained but believes that to answer those questions she would have needed to speak to Mr Conroy and Mr Power and to the best of her knowledge the queries were answered (see T 261).
As part of the due diligence process, Angus spent about two weeks with Joe prior to the sale, observing his conduct of the Business and meeting at least one of the customers (Mr Giuseppe Calipari, who gave evidence in the proceeding).
Angus also travelled to Singapore with Joe in that period and met with one of the Business' suppliers (Johnny Song) (at T 83.45-50; T 131.40-45). Angus' observation as to how Joe conducted the Business was that Joe operated his business largely verbally (see T 31.31, for example). This accords with the evidence of both Joe (T 145) and Grace. For example, see at T 212, where Grace: (i) agreed that Joe's computer skills are less than poor and that from time to time he would get her or their daughter to type out emails; and (ii) said that she did not see Joe making written records of sales, that "[g]enerally Joe verbalised what was in his head" and that he was not in the "practice of writing things down". Further, see Joe's evidence that he had no involvement in the office, that he was often or mostly "on the road", that he memorised everything and that he had all the relevant pricing and stock information in his head (T 165, 166, 201).
As to the warehouse activities, Joe's evidence was that he did not unpack stock; rather, he said that the staff would unpack and palletise the stock (T 160-161). Joe's evidence (presumably as to when he was not "on the road") was that he "lived in that warehouse, my desk was in the warehouse, amongst all [his] stock, [he] had memorised every line, how many pallets [he] had, [he] didn't sit in an office looking at graphs like some people, [his] desk was in the warehouse, so [he] had memorised everything within you know pretty close to what [he] had" (T 165.5-10).
Angus' observation of Joe's business practice being one that was largely conducted verbally is also consistent with Grace (and their daughter, Amanda) largely performing the administrative roles in the Business.
However, it seems to have been clearly understood that Joe was in charge of the supply and sales chains in respect of the Business. Grace said (at T 211.5-15) that it was mainly Joe who monitored the profitability of business; and that Joe was in charge of setting the price for sale and the price at which product was acquired. There was evidence of weekly reconciliation meetings to reconcile stock movements or costings (see T 211).

[15]

Alleged conversations with Nenard Miravic - June 2013-early 2014

Angus has deposed in his affidavit sworn 27 April 2008 to a number of conversations he had with Mr Nenard (Nick) Miravic (see [40]-[43]), who worked in the Business both before and after the sale. Angus' evidence is that Nick returned to Serbia in July 2016 and that he does not have any way to contact him. A hearsay notice pursuant to s 67 of the Evidence Act was served in relation to this evidence.
In essence, Angus says that, in around late 2013 or early 2014, Nick told him that Joe "brought in" alcohol "off the books"; that "containers labelled as beer would come in that had cases of Jack Daniels whiskey or Mumm Champagne in the middle of them"; that the "extra stock" was stored in a place in the back of the warehouse indicated by Nick; and that, for certain customers, he would sell some stock "on the books" and some stock "off the books" for cash to lower the price"; and that this helped "move the stock quick" (Angus' affidavit sworn 27 April 2008 at [42]). Angus has also deposed that Nick told him that there was an occasion when Joe had a container of beer arrive in which there was "extra stock" and that customs arrived to watch the stock unloaded but that "Joe just got us to keep forklifts and pallets moving everywhere so as they never realised what was happening under their noses"; that Joe would bring in "pallets and pallets of champagne from Malaysia and Singapore that he wouldn't declare"; and that, before customs began to "crack down" Joe even managed to get whole containers of spirits marketed as beer but filled with Jack Daniels whiskey delivered (at [43]).
Joe adamantly denies any such conduct. Joe's evidence was that Nick's role was to make up the loads, palletise the stock, shrink wrap the stock and load the van, and then to deliver loads to the smaller customers (see T 145.10-20). He said that Nick was a hard worker but added that Nick could not read or write well (T 145.30). It did not appear that there was any animosity on Joe's part towards Nick; nor did Joe appear in cross-examination to be particularly defensive about Nick's role in the warehouse.

[16]

August 2013 - Graham's trip to Singapore

In his affidavit affirmed 30 April 2018, Graham deposes that he travelled to Singapore in August 2013 to meet with Johnny Song (see at [10]); the purpose of the visit being to discuss the prices of liquor products that the Business was purchasing and to see if he could negotiate a lower price ([11]).
Graham deposes to a conversation he had with Johnny Song at Mr Song's bonded warehouse in Singapore in which he says Johnny Song told him that he (Mr Song) could not supply the stock any cheaper than he was already; that Joe's overheads were lower than his competitors; that he (as I understand it, Graham) could look at reducing the costs of some products to help maintain turnover in Johnny Song's business and increase Eastlings' sales ([18]); and that he (Johnny Song) could do the labelling cheaper than Eastlings could in Australia ([19]). Graham says that Johnny Song also suggested mixed container loads of different products ([19]).
Graham's evidence (at [25]) is that, on the third day of his trip, while Johnny Song was driving him back to the airport, there was a conversation in which Johnny Song said to him words to the effect that "Joe had a system to minimise his costs" and that: Joe used the excuse of cheaper labelling through Singapore as the reason a high proportion of his purchases were being shipped from here. The real reason was Joe regularly asked me to load extra cartons of beer, spirits and champagne in containers labelled as beer only, so the extra cartons would not show up on the shipping documents. Joe and I referred to this stock as "Corona Extra", and whenever we spoke about it Joe called me on a different mobile number I have that is not in my name.
Graham also deposes that Johnny Song told him that he would load "Corona Extra" into most containers going to J&J Wholesale Distributors (now known as Calidu) ([25]).
Graham's evidence is that Johnny Song also told him that he and Joe agreed to keep the quantities of "non-declared" stock at no more than 10% of a full container; that sometimes when Joe had a large number of containers in one shipment he would ask for lot of "Corona Extra" to be loaded (usually when the ports were very busy around Christmas); and that Johnny Song agreed with Joe that if Australian Customs ever found extra non-declared cartons, he (Johnny Song) would simply write a letter saying that there was a mistake at his warehouse in Singapore and that the staff had incorrectly loaded the wrong cartons (at [26]). (I interpose here to note that there is a letter in evidence to very similar effect, albeit in the reverse context, written by Joe in December 2014 to another Singaporean supplier, Mr Lim of Botillion Enterprise, that conveys a very similar message - see below - which lends some credence to Graham's account of the conversation with Johnny Song.) Graham has further deposed (at [26]) that Johnny Song said: That's how Joe kept his margins high and had a lot of turnover. Joe told me he could offer his customers fully declared stock at good margins, but the overall average cost was less because Joe sold the non-declared stock at cheaper prices for cash.
Graham has deposed (at [28]) that, after he returned to Sydney, he decided that Eastlings should cease using Mr Song as a supplier and diversify its supplier sources over time when new suppliers could be found. (As it transpired, however, it is clear from the evidence that Eastlings in fact did continue to have dealings with Johnny Song - see below; a discrepancy to which Graham was taken in cross-examination.)

[18]

March 2014 dinner at Spanish restaurant in Glebe

In March 2014, during a visit to Sydney by one of Calidu's suppliers (Pedro Vidal of 99 Overseas Solutions), Angus, Joe and two others (Pedro Vidal and Joseph Bavaro - each of whom gave evidence in the proceeding) had dinner together at a Spanish restaurant in Glebe. There is a dispute as to what transpired at this dinner.
Eastlings says that an arrangement was struck between Joe and Angus over two meetings (one being at this dinner at Glebe in March 2014) that Joe, through Mr Vidal, would assist Angus (or Eastlings) to import Spanish wine for Eastlings to sell to its customers. There was, however, no reference to any such arrangement in the affidavits first sworn in support of the Breach of Covenant claims. Rather, in his 30 April 2015 affidavit, Angus deposed that, at the March 2014 meeting, Joe showed him some wines. Angus deposed that following that meeting he called Joe twice over the following couple of months asking when the wine would be arriving to which Joe responded "I haven't heard yet. I will let you know" (at [30]-[31]).
Angus' evidence in cross-examination was that, at the March 2014 dinner in Glebe, there was discussion about some cheap wine that Pedro Vidal was considering supplying from Spain and Portugal (T 99). Angus says that no agreement was made at the dinner but that Joe offered to help import the wine on Eastlings' behalf (T 100.10-20). Angus further said in cross-examination that Pedro Vidal "most likely" provided samples to Joe and that Joe showed them to him but that Joe refused to leave them with him (T 100.50-101.15).
Joe's evidence, to the contrary, is that there was discussion at the dinner as to the importation of Spanish wine and that Angus did not object to it. Joe's position is that Angus gave his permission to the importation at the dinner with Pedro Vidal and Joseph Bavaro (T 188.45-50). He says that he mentioned it to Angus both before and after the importation and that he dropped off samples to Angus (T 189). (Joe denies that he told Angus he would help bring the wine in for Eastlings (T 190). Joe was adamant that Angus agreed that he (Joe) should bring the wine in (T 187.50); and he says that he thought Angus was communicating with Pedro Vidal at the time (T 189.30; 190.15-20) (apparently suggesting that Angus would have been aware of the importation through these communications).
I set out in due course the accounts given by the other attendees (Pedro Vidal and Joseph Bavaro) at this dinner as to what was said about the importation of the Spanish wine. It is relevant here, for the purposes of the chronology, simply to note that this meeting occurred some two months before Joe imported the first two containers of the Spanish wine about which complaint is here made (in about June/July 2014), that wine being delivered in early August 2014, and about one month before the liquor licensing advice (the Soubris Advice) was obtained by Joe from Mr Soubris.
(Pausing here, on whichever version of the March 2014 dinner conversation be correct, it is at least clear that, from March 2014, Angus was aware of the proposed importation by Joe of cheap Spanish wine from Pedro Vidal in Portugal.)

[20]

May 2014 email re Spanish wines

On 14 May 2014, Angus sent an email to Pedro Vidal, among other things enquiring as to the estimated time of arrival of the wines that "Joe was organising" (see Pedro's affidavit affirmed 3 November 2016 at Annexure A): Pedro How are things going with the Koppervieck and the Cintra Long Necks? Also do you have an ETA of when the wines Joe was organising will be arriving?
Angus' evidence as to the 14 May 2014 email that he sent to Pedro Vidal asking for the estimated arrival time of the wines Joe was organising is that he understood that Joe was going to import the wine on his behalf (T 101.15-19). Angus's evidence is that Joe told him that this would enable him to get business back from Chambers Cellars (which had apparently ceased ordering from Calidu almost immediately after the sale) (Angus' affidavit sworn 30 April 2015 at [27]). As adverted to above, there was no reference in Angus' 30 April 2015 affidavit to any conversation with Pedro Vidal about an agreement or arrangement with Joe for him to import wines on Eastlings' behalf (see at [24]-[27]).
Pausing here, the 14 May 2014 email is certainly consistent with Angus having an understanding at that stage of an arrangement whereby Joe would arrange the importation of the Spanish wines from Pedro Vidal on Eastlings' behalf (or that the wines so imported would be acquired by Eastlings from Joe), since otherwise it makes little sense for Angus to be enquiring as to the likely time of arrival of the wines unless that was by way of some general query (and that seems unlikely since there is no evidence of personal communications between the two that were unconnected to the Business at around this time). However, that does not establish the terms of any such arrangement. That said, Eastlings' complaint in this proceeding, as I understand it, is not that Joe (or, more precisely, Calidu Import Export) imported the wines at all but that he did so and then on-sold them to customers of Calidu Import Export (see T 562-563) - this being alleged to be a breach of the Restraint Deed. I deal with this in due course.
Taken in cross-examination to the email of 14 May 2014 between Angus and Pedro Vidal, Joe maintained his denial that he was assisting Angus to organise wines for him (T 193-195). Joe's position is that it would make no sense for him to do so as Angus was already in communication with Pedro Vidal and could have arranged this himself, i.e., he did not need Joe's assistance.

[23]

Alleged conversations with Johnny Song about "Corona Extra" in August/October 2014

Graham has deposed to a telephone conversation with Johnny Song in about August 2014, in which he says that he told Johnny that "we're interested in getting some of that "Corona Extra" you told me about" (Graham's affidavit sworn 19 July 2020 at [4]) and that Johnny Song said that he would speak to Angus and make some arrangements.
Graham has deposed that he spoke to Johnny Song about "Corona Extra" on a further occasion in about late August 2014 or September 2014 (at [6]) and that Johnny Song said words to the effect that, if Windemac arranged the "Corona Extra", he (Johnny Song) would have to be paid for his involvement; and also that he (Johnny Song) would give a good price to "get started".
Graham has deposed that he personally made payments to Windemac in Singapore through telegraphic transfers using the National Australia Bank (on 29 September 2014 in the sum of AU $4,000; on 7 October 2014 in the sum of SGP 4,254; and on 11 November 2014 in the sum of SGP 2,581.76) (at [8]). His recollection is that the payments were both for Johnny Song facilitating the shipment of "Corona Extra" and for the discounted stock. Graham also recalls Johnny Song saying that he did not want the payment to be processed through Eastlings' usual payment procedure and that Joe had made similar payments, never in the same amount, using family and friends through Western Union and by cash in Singapore (at [10]). (Eastlings relies on the fact that payments were made in these miscellaneous amounts by Graham, rather than through Eastlings' normal payment methods as corroborative of Graham's evidence of his conversation with Johnny Song. Graham further recalls Johnny Song saying in about October 2014 that Christmas was a good time to do this as the port was very busy ([13]).
In cross-examination, Graham confirmed that there were two or three conversations with Johnny Song in relation to the "Corona Extra". He said he asked Johnny Song to do for Eastlings "exactly what he had done for Joe" (T 113). Graham accepted that he had no discussion with Johnny Song as to how the importation was to be organised and that he left this to Johnny Song and Angus to organise. Indeed, Graham accepted in cross-examination that, in relation to the later letter of voluntary disclosure, which referred to a request for five consignments, he had no idea how many consignments there would be (see T 121).

[24]

Prapas/Mr Liquor - short term loan - 27 August 2014

In Angus' affidavit sworn on 12 July 2016 (at [40], [32], [34]), at which time the proceeding related solely to the Breach of Covenant claims, reference is made to various monetary payments between Calidu Import Export and the trading entity known as Mr Liquor (who Joe accepted was a very significant customer of Calidu - see Joe's evidence at T 201). Mr Prapas was the owner of the business associated with Mr Liquor and a friend of Joe and Grace.
The case theory of Eastlings, at least as I understand it, at the time this evidence was included in the plaintiffs' affidavits, was that these transactions were evidence of a broader business of importation of alcohol than the limited number of transactions about which the Breach of Covenant claims now concern. However, no such claim is now pressed. Therefore, the only relevance of these transactions (and the documentation of them as alleged short term loans) now goes to issues to credit.
The first of these transactions about which there is evidence was a payment of $200,000 by cheque drawn on 27 August 2014 by Calidu Import Export payable to Mr Liquor (Ex C at 46). In evidence there was a document, on the letterhead of Calidu, that purported to record a short term loan agreement between Calidu (not Calidu Import Export) and Mr Prapas (not the entity, Mr Liquor) (see Joe's affidavit sworn 3 November 2016 at Annexure A) in respect of a loan in the sum of $200,000 repayable in 60 days with 10% interest (T 202).
Joe and Grace were cross-examined as to this transaction. Grace denied that the payment was to facilitate the importation of alcohol; her evidence was that it was on account of a short term loan (T 254). Grace also denied that she drafted that document after receiving Angus' 12 July 2016 affidavit in the proceeding (T 255.10). Grace accepted that the cheque was made out to Mr Liquor whereas the money was repaid by Mr Prapas. Grace said that Mr Prapas was a friend; that he asked for a loan for building his home; and that "we" (she and Joe as I understand her evidence) could help him (T 255; 257). Joe, for his part, did not agree that it was a lot of interest for a short term loan nor did he agree that this was done to validate large sums of money being transferred - see T 203.
There was another alleged short term loan of $400,000 repayable, within 5 months at an interest rate of 6%. A second cheque in the sum of $400,000 was drawn on 23 February 2015 by Calidu Import Export payable to Mr Liquor (Ex C at 49; T 258). As above, the loan document, however, was on letterhead of Calidu. Grace accepted that the cheque was paid from a different entity to that which was named in the short term loan agreement (and that the cheque was made payable to a different entity than named in the loan agreement). Grace again denied that this was payment for the importation of alcohol (T 259). Her evidence was that Calidu gave the money as a loan to Mr Prapas; and that there was no other payment. Joe again denied that this loan was fabricated to hide the fact that he was continuing to import beer and spirits after the sale (see T 203-204).

[25]

September 2014 email from Pedro Vidal to Joe re wine sales

Meanwhile, on 9 September 2014, Pedro Vidal sent an email to Joe (at Grace's email address, which is not surprising since the evidence is that Joe was not particularly computer literate and did not send emails himself), (see Pedro's affidavit affirmed 3 November 2016 at Annexure B): Dear Joe, How are you? I just spoke with Gus about beers and he asked if I knew about wine status! I said that you just received the container and for sure you will contact him! By the way any news about your wine sales of Baron de Capel and Tio de la Bota? Any ideas for Gran Vega?
Again, that Angus was apparently asking Pedro Vidal for information as to the "wine status" is consistent with Angus having the understanding that the importation of Spanish wines from Pedro Vidal was for Eastlings' business purposes. However, again, it does not say anything as to the terms of any such arrangement.
In Joe's affidavit sworn 25 May 2015 (at [24]) he deposes to a conversation with Angus to the following effect; which in terms is consistent with Angus understand that the importation was for Joe's purposes not for Eastlings. Angus: How are the wines going? Joe: Hopefully they're on their way. Angus: Have you any idea how much it will cost you all up? Joe: Not at the moment mate.
Joe has deposed (at [25]) to there being no further conversation with Angus about the wines. In his oral evidence, Joe at first said that, once the container landed, he had a conversation with Angus, but then he corrected that to say that there was no conversation; and that he just dropped off some samples or took some samples to Angus (T 196-197). (Angus denies that any samples were left with him but he agrees that he was probably shown some samples.)
Joe says that when he imported the wine from Pedro Vidal in June/July 2014 he understood that the importation of wine was something Calidu had done (in a small way) prior to the sale (T 187) but he maintained that it was not something substantially similar to the Business. Further, Joe's evidence was that Mr Parisi (the solicitor who drafted the Restraint Deed) said he could import wine and that the importation of wine did not breach the deed (Joe said that this was something said around the time - see T 187.45-50 which I understood to mean at around the time of entry into the Restraint Deed).

[27]

Alleged importation of undeclared product by Eastlings - November 2014-January 2015

Graham has deposed in his 19 July 2020 affidavit that Eastlings received five shipments between November 2014 and January 2015 from Johnny Song (or Windemac) which contained a total of 1,000 extra (non-disclosed) cartons of beer ([12]). He has deposed (at [15]) that, after the fifth shipment, he said to Angus that they now knew it was possible to import undisclosed items. Graham's explanation as to why he did not just import one container to establish the feasibility of such illegal importation is that Johnny Song would probably have raised a query - see T 121).
Angus has similarly deposed that five shipments arrived from Windemac with "Corona Extra" from between December 2014 and January 2015 (Angus' affidavit sworn 19 July 2020 at [7]). Annexed to Angus' affidavit sworn 19 July 2020 are copies of the bills of lading for four of the five shipments and the Paul's Customs & Forwarding Solutions Pty Ltd (Paul's Customs) tax disbursement invoice for the fifth of those shipments (there being no bill of lading for the fifth shipment).
Pausing here, it should be noted that there was no disclosure of this conduct in the affidavits initially sworn by Angus and Graham in the proceeding (it will be recalled that when the proceeding commenced in May 2015 it concerned only the alleged breach of the Restraint Deed - see below). The first evidence going to any allegation of illegal activity carried out between Joe and Johnny Song was in the April 2018 affidavits filed in the proceeding (and even then there was nothing in those affidavits to suggest that Eastlings had engaged in similar conduct). It is difficult to avoid the conclusion that (if the illegal importation in fact occurred) Eastlings was keeping this evidence "up its sleeve" so to speak, perhaps with the hope that it might not ultimately be necessary to disclose any such illegal conduct on its part. Indeed, that would also perhaps explain why there was only limited documentation apparently kept of the transactions (thought this is mere supposition on my part).

[34]

Voluntary disclosure by Eastlings to Australian Border Force

Graham has deposed that in around late November 2019 or early December 2019 Eastlings engaged a solicitor at VoxLaw Solicitors (VoxLaw) (see Graham's affidavit sworn 20 July 2020 at [15]). Graham has deposed that by this time he believed his obligations pursuant to s 316 of the Crimes Act were enlivened (see [15]) and that he could not see a way that he could make disclosure of Eastlings' actions without explaining his concerns in relation to the potentially unlawful conduct in which he believed Joe, Grace and Calidu had engaged (see at [16]). He also gave evidence in cross-examination in effect that he had waited to see the defendants' response to those allegations.
By letter dated 16 December 2019, on behalf of Eastlings, VoxLaw disclosed to the Voluntary Disclosure Unit of Australian Border Force a short payment of duty across five Full Import Declarations (Graham's affidavit sworn 20 July 2020, Annexure A). Following email communication from the Senior Border Force Officer (Mr Ian Moodie), by letter dated 31 January 2020 VoxLaw made voluntary disclosure on behalf of Eastlings of underpayments of customs duty and GST as a result of additional goods being placed in shipping containers while not declared on the shipping documents and subsequently not declared across five separate Full Import Declarations (Graham's affidavit sworn 19 July 2020, Annexure B). The letter identified the shipments and calculated the duty payable at $13,665.38 plus GST of $1,366.54.
The disclosure letter made reference to various matters, including: (i) that Johnny Song had been charged with what were referred to as unrelated but similar criminal offences (to which he had pleaded guilty): (ii) that Mr Song had been sentenced to a total fine of SGP $3,984,000 on 10 March 2016; and (iii) the allegation that Calidu Import Export had imported and exported certain goods "in clear breach of the restraint deed".
As at the date of the hearing, Angus confirmed that the Australian Border Force had not taken any steps to impose duty on Eastlings for the five shipments the subject of the disclosure.

[35]

Particular discrepancies in relation to shipments from Windemac

It is useful at this point to note two of the discrepancies about which there was no little time spent in the course of the evidence from various witnesses.
First, a shipment from Windemac in Singapore (see Ex G), where the N10 form and tax invoice from Paul's Customs recorded that the shipment contained 3,597 packages but the invoice dated 5 September 2012 from Windemac recorded only 3,447 cartons (a discrepancy of 150 packages between what was invoiced by Windemac and what arrived as per the customs N10 document). Joe's evidence was that he would have paid duty on 3,597 packages (the experts disagree with this - see below). The suggestion put to Joe was that this was intended for him not to pay duty on 150 cases and that a mistake occurred. Joe did not accept that. He maintained that he would have paid duty on 150 cases (T 181) i.e., the amount that actually arrived.
Second, another shipment from Windemac (see Ex H) where there was a discrepancy as between 1,400 and 1,500 cases. Calidu sent a single container load through to Griffith (invoice 133) containing 1,500 packages (of Becks beer) whereas the packing list recorded 1,400. Calidu charged 21 Century Beverages for 1,500 cases but the packing list noted 1,400. Joe's evidence was that this was a typographical error and he said "I remember this distinctively" (T 183.15). Joe was adamant that whatever was on bill of lading was what he ordered; that while it was all "in his head"; the independent record of what he sold was the invoice (T 183.30-40). Similarly, Grace's evidence was that this was a typographical error (at T 270). The suggestion for Eastlings is that the shipment contained 1,500 and was understated on the packing list.
It was pointed out that if there were only 1,400 cases in the container then (i.e., 1,400 x the product price of 10.8 = 15,120), Calidu had significantly overcharged 21 Century Beverages (cf 1,500 x 10.8 = 16,200). Grace denied that the invoiced amount was paid by the purchaser and that the extra amount was paid in cash.

[37]

Misleading or deceptive conduct

First, Eastlings alleges (see [9]-[48], [56]-[70] of the amended statement of claim) that Joe, Grace and Calidu engaged in misleading or deceptive conduct in breach of s 18 of the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law by the making of a number of misleading or deceptive representations defined as the Turnover Representation, the PEBITDA Representation, the Profit Representation, the Endorsement Representation, and the Negotiation Representation (see above) and by the Undeclared Units Omission (see below).
The Undeclared Units Omission (see [44] of the amended statement of claim) is defined as the omission to inform Eastlings during the negotiations for the sale of the business of the importation and sale by Calidu of what are defined as: the 2011 Undeclared Units and 2011 Undeclared Weights (see at [11], [13]); the 2012 Undeclared Units and 2012 Undeclared Weights (see at [21], [23]); the 2013 Undeclared Units and 2013 Undeclared Weights (see at [31], [33]).
Relevantly, it is alleged that the Undeclared Units and/or Undeclared Weights were sold by the Business to its customers at a significantly lower price than other products as an inducement to those clients to purchase the Business' other alcohol products at full price (see at [16], [26], [36]); that the customers of the Business paid for the Undeclared Units and/or Undeclared Weights in cash (see [17], [27], [37]); and that the sale of the Undeclared Units and/or Undeclared Weights was not recorded in the financial records of the Business ([18], [28], [38]).
It is alleged that, by reason of the conduct pleaded at [9]-[38]: (i) the Turnover, PEBITDA and Profit Representations did not accurately reflect the turnover, PEBITDA and profit of the Business; (ii) the Endorsement Representation was misleading at the time it was made; and (iii) that Joe, Grace and Calidu knew those matters and knew that the Negotiation Representations were misleading at the time they were made (see [56]-[61]). It is further alleged that Joe, Grace and Calidu knew or ought to have known that the Undeclared Units Omission would mislead Eastlings as to the matters pleaded at [57]-[61] and further as to the legality of the Business operations ([62]).
It is alleged that each of the Representations and the Undeclared Omission was misleading or deceptive, or likely to mislead or deceive, giving rise to the contraventions of the Australian Consumer Law (see [63]-[65]) and, further or in the alternative, that Joe and Grace have accessorial liability for the contravention by Calidu (see [65A]).
Eastlings alleges that it relied on the Representations when deciding to purchase the Business ([66]); that, as a matter of fact, as at the sale the true value of the Business was $1,696,104 ([67] as orally amended in the course submissions) and that, had Eastlings become aware at any time up to completion of the sale of the facts of which it was not informed by reason of the Undeclared Omission or of the true state of the Business, it would not have purchased the Business or dealt with Joe, Grace and Calidu at all ([68]). (In other words, this is pleaded in effect a "no transaction" case).
The loss and damage alleged to have been suffered as a result of the alleged misleading or deceptive conduct is particularised at [69] to include the primary purchase price, damage to goodwill and loss of income.

[40]

Defence filed 7 September 2017

As to the misleading or deceptive conduct claims, relevantly, there is an admission that certain of the alleged representations were contained in the Information Memorandum or by reference to the financial records as defined in Eastlings' answers to particulars dated 29 August 2017 (see at [41]; [42]) (but not the PEBITDA Representations); a denial that Joe and Grace were the owners of the Business; a denial that any representations were made by Joe and Grace (see at [43]); a denial of the existence of the alleged Undeclared Units and Undeclared Weights (at [44]); and, broadly, a denial of most of the other allegations that found the claims.
As to the Breach of the Restraint Deed, the defendants deny that the Business was involved in the export of liquor from Australia and deny that the importation of wine into Australia was part of the Business or substantially similar to the Business prior to 24 May 2013 (75-(b) of the defence). The defendants admit that Calidu Import Export imported wine into Australia on or about June/July 2014 (though denying the amounts alleged ([52]); deny that Iron Mark Whiskey was exported, though they say the product Ironmask Whiskey was exported, and otherwise admit the allegations at [53]; and admit the export and import alleged at [54]-[55].
Relevantly, the defendants say that first the importation of wine into Australia by Calidu Import Export (in or about June/July 2014 and again in 2015) was expressly permitted by Eastlings (through Angus) in or about March 2014 (75 of the defence). Second, the defendants say, further or in the alternative, that Angus represented to them that Eastlings consented to or did not oppose the importation of wine by Joe and/or Grace or an entity associated with them, that the defendants relied to their detriment on that representation in importing the said wine and subsequently, Eastlings is estopped from denying the permission given to the importation of such wine (see 75-(h) of the defence). The particulars to 75 and (d) of the defence refer to a conversation at the March 2014 dinner in this regard (see above). The defence also pleads, by reference to the alleged representation, a waiver of any prohibition under the Restraint Deed in relation to the importation of wine (see 75) and that Eastlings varied the Restraint Deed to permit the importation of the said wine (see 75).
The defendants adamantly deny any involvement in illegal activity of the kind that is here alleged.

[41]

Ruling as to Soubris Advice

Before turning to the evidence of the lay witnesses, it is convenient first to deal with the objection to the admission of what I refer to as the Soubris Advice (that being a letter of advice dated 4 April 2014 from Mr Soubris of Soubris & Associates).
In terms of the chronology set out above, it is relevant to note that the Soubris Advice was obtained in April 2014, just after the 28 March 2014 meeting at the Spanish restaurant in Glebe at which the importation of cheap Spanish wine was discussed and only some two to three months before the importation of that wine by Joe in August 2014 (pursuant to shipping documents dated June/July 2014). Eastlings says that in that importation, Joe used the same methodology that he had indicated to Mr Soubris, as set out in the background of the Soubris Advice; and that, therefore, the document is relevant. It is accepted that, on its face, the Soubris Advice is privileged but Eastlings says that that privilege has been waived for the following reasons: first, that the issue as to whether the conduct of a wine import business was, or would be, substantially similar to that conducted by Eastlings is an issue that arises on the pleadings; and, second, by way of a knowing involuntary disclosure pursuant to s 122(3) of the Evidence Act.
As noted above, Eastlings received the Soubris Advice when it was sent to the old J&J Wholesale Distributors email address (see Angus' explanation at [33] of his affidavit sworn 30 April 2015). The advice was addressed to Joe, as director of "J&J Wholesale Distributors", and sent by hard copy to a residential address but (as indicated above) it was also sent by email to the company's old email address and to the attention there of Grace (as Mr Soubris confirmed in his oral evidence). The letter referred to a "catch up" with Grace and Joe on 1 April 2014. It is not clear precisely who was Mr Soubris' client (i.e., the company and/or one or both of its directors) but nothing ultimately turns on this. Eastlings seeks to rely on the Soubris Advice (as part of the relevant factual matrix) to show that Joe and Grace were seeking advice in relation to the establishment of a new business
The defendants say that there has been no waiver of privilege because the letter of advice was inadvertently sent to the old email address (i.e. that this was inadvertent disclosure). However, insofar as this was said to raise the principles discussed by the High Court decision in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 303 ALR 199; [2013] HCA 46, Eastlings points to the emphasis there placed (at [49]) on the need for a prompt request for recovery of the document that had been inadvertently discovered; i.e., that courts will normally only permit an error to be corrected if a party acts promptly. Eastlings points out that the defendants have known about Eastlings being in possession of the Soubris Advice since at least as early as the service of Angus' 30 April 2015 affidavit; that they have responded to that evidence; and that there is no evidence of any attempt to have the Soubris Advice retracted or returned (see Mr Soubris' evidence in this regard). It is said that a delay of over five years to raise this issue is too long; and that privilege has been waived and/or lost by consent. It is therefore submitted that the document, and the oral evidence relating to it, should be admitted.
Further, Eastlings maintains that the principles of issue waiver here apply; reliance being placed on the fact that advice was being sought for the establishment of a new business. In particular, reference is made to the allegations contained in the pleading (at [51]-[55]), and denied by the defendants, that Joe and Grace engaged in business substantially similar in the premises to the Business. It is submitted for Eastlings that the denial of breach of that covenant puts in issue the relevant facts and circumstances such as the establishment of a new business and the steps that were being undertaken in that regard. Insofar as one of the covenants was the holding of a liquor licence having substantially the same attributes and benefits as the liquor licence held by the Business, it is said that this was precisely what was being sought from Mr Soubris (see cl 2(c) of the Restraint Deed; T 547). There is, however, no dispute as to the fact that Calidu Import Export was incorporated when it was and that it acquired a liquor licence as it did.
The defendants argue that there was no pleading as to the receipt of advice in relation to this issue (nor any denial thereof); and that the denial that there had been a breach of the relevant covenant in the Restraint Deed did not put in issue anything in relation to any legal advice sought or obtained in that regard.
The applicable authorities in relation to implied waiver were considered by the Court of Appeal in GR Capital Group Pty Ltd v Xinfeng Australia International Investment Pty Ltd [2020] NSWCA 266 at [21]-[51] per Macfarlan JA (with whom McCallum JA and Simpson AJA agreed) (GR Capital Group). The test is one of inconsistency between the privilege holder's conduct and its maintenance of privilege (not one of general fairness or relevance to an issue in the proceeding) (see GR Capital Group at [57]; Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 at [29] per Gleeson CJ, Gaudron, Gummow and Callinan JJ; Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 at [39] per Gzell J (with whom Bryson JA and Windeyer J agreed)). In GR Capital Group, at [57], Macfarlan JA drew from the authorities, inter alia, the propositions that: 57. … (4) The determination of whether there has been an express or implied assertion about the contents of privileged communications giving rise to a relevant inconsistency is an evaluative decision to be made after consideration of the whole of the circumstances of the case. No hard and fast rules can be formulated. Those circumstances will include the degree of relevance of any advice to the issues in the proceedings, the centrality of the relevant issues in the proceedings and the likelihood of advice having been given, informed, as the High Court said in Mann v Carnell , by considerations of fairness. (5) Having considered all those circumstances, the court must decide whether it would be inconsistent with the privilege holder's conduct for it to maintain privilege. The line between relevance to an issue and inconsistency in this context may be very fine and therefore one on which views might well differ.
In the present case, the defendants have not directly put in issue their state of mind as to any legal advice they sought at or around the time of incorporation of Calidu Import Export. As to whether the substance of communications in which that advice was sought or provided has been provided, in Joe's affidavit sworn 26 October 2015 at [6], he refers to his earlier affidavit sworn 20 May 2015 (at [4]) in which he says that he acknowledges and documents the importation of three containers of wine "carried out only after we obtained legal advice that such an importation was not in breach of the restraints which limited our ability to engage in activities 'substantially similar' to that of the business sold, which was the sale of beer". (Paragraph 4 of the earlier affidavit acknowledges the importation of the said wine but it does not refer to any legal advice obtained in that regard.)
On one view it might have been thought that Joe's 26 October 2015 affidavit contained a disclosure of the substance of that legal advice insofar as it refers to legal advice "that such an importation [i.e., the three containers of wine] was not in breach of the restraints which limited our ability to engage in activities 'substantially similar' to that of the business sold, which was the sale of beer". However, in the course of oral evidence, it became clear that Joe was likely to be there speaking about advice from Mr Parisi (at or about the time of the Restraint Deed) about the content of the Restraint Deed and specifically about the restraint covenant in question (see, for example, T 187). That advice must have been oral (since there was no written advice produced in answer to the call). Mr Parisi did not recall invoicing for such an advice but did recall that he had advised on the restraint.
The sending of the Soubris Advice to an old "J&J" email address was clearly an inadvertent disclosure on the part of Mr Soubris. True it is, that the defendants did not seek to have that advice returned or the email retracted once it became apparent that Eastlings was in possession of the letter. However, what seems to me to be more relevant is the question whether anything has been put in issue that is inconsistent with maintenance of the claim for privilege.
The fact that the defendants deny that their conduct is in breach of the Restraint Deed does not in my opinion put in issue such advice as Joe and Grace may have sought and obtained at the time (not least because the question is what was done; not what they might have contemplated at one stage doing or what they might have been advised to do or not to do; and there is no state of mind in issue as to the conduct said to have been in breach of the Restraint Deed). Nor is such a denial in my opinion inconsistent with the maintenance of privilege over the content of any such advice (or instructions given at the time the advice was sought).
The fact that the defendants may have sought advice as to the operation of a new business or as to how they might intend to conduct any such new business in the future to my mind says nothing about whether or not the incorporation of Calidu Import Export and its obtaining of a liquor licence to permit the importation of liquor, or indeed, the subsequent importation or exportation of liquor through or by that company, amounts to conduct in breach of the Restraint Deed. (Indeed, on one view, as Eastlings accepts, seeking advice as to whether a particular business operation would contravene the restraint covenant in the Restraint Deed would be a responsible course for a party bound by such a restraint to adopt. However, Eastlings says that this was not the advice sought from or provided by Mr Soubris.) Furthermore, whether any advice that was given was correct (or whether the instructions were sufficiently comprehensive to enable the giving of a considered advice) or, indeed, whether that advice was followed, is not to the point.
The fact of incorporation of Calidu Import Export and its application for a liquor licence (and, for that matter, its subsequent conduct in importing cheap Spanish wine or exporting other alcoholic products) are not matters in dispute. What is in issue is as to whether this amounts to engaging in a business with substantially similar attributes to the Business (within the meaning of the restraint covenant in the Restraint Deed) and whether there was consent thereto (or Eastlings is otherwise estopped from raising the claims that it now makes at least in relation to the importation of wine).
On balance, I have concluded that there has not been a disclosure of the substance of the Soubris Advice (since I consider that Joe's affidavit most likely refers to the Parisi advice which specifically related to the Restraint Deed) and that there has been no issue waiver in respect of the Soubris Advice for the reasons set out above. Therefore, I reject the tender of the Soubris Advice (and the evidence given on the voir dire in relation to that advice). Ultimately, however, nothing turns on this ruling because even had I admitted that advice it would not have assisted me in reaching the conclusion I have on the issues raised for determination in respect of the Breach of Covenant claims (as to which see below.)

[44]

Graham Hamilton

Eastlings says that Graham gave his evidence in a forthright manner. As to the arrangement that Graham said he made with Johnny Song to test whether illegal stock could be imported, it is said that Graham's evidence was unequivocal and that, as a matter of logic, there is no cogent explanation for the transfers to Windemac made in multiple currencies by Graham (who was not otherwise involved in the day to day conduct of the Business) attending the local NAB in Byron Bay and transferring cash. It is submitted that there is no reason why Graham, a former solicitor and person of good repute in the community, would risk criminal prosecution by undertaking the actions, and then voluntarily disclosing that action after the close of evidence (being a time when disclosure ordinarily would not have formed part of the evidence of this case).
Insofar as it was suggested that the disclosure to the Australian Border Force was manufactured in order to assist in these proceedings, Eastlings says that this does not withstand scrutiny when considered in light of the chronology because, until the manifestation (in June 2020) of the "late-served" evidence of Mr Song's 29 January 2020 affidavit, the existence or otherwise of the 31 January 2020 disclosure would not have been known. It is submitted that it occurred in parallel with the proceeding until such time as Mr Song's evidence that he had never engaged in the illegal importation of alcohol was served late prior to the scheduled start of the hearing.
It is noted that Graham gave evidence as to why Eastlings had not called former customers of the Business to give evidence in the proceeding, namely that: in order to provide that evidence those persons would have to be volunteering to provide evidence of their participation in acquiring stock "off the books" in breach of applicable tax law including GST provisions; and it would hurt the Business of Eastlings, which was already struggling post sale given the fact that it could no longer be propped up by the importation of undeclared stock (and it is said that this explanation is obvious).
The defendants, to the contrary, say that Graham's explanation as to why he waited from 2015 to 2019 before disclosing the alleged illegal importation is not believable and should be rejected. It is noted that, while affirming in cross-examination that during 2013-2015, Eastlings placed significant importance on corporate governance and compliance with Australian Customs laws (T 123.8-25), Eastlings did not disclose the alleged illegal importation until 2019. Graham's explanation for this was that "the allegations that we made and disclosed to Border Force are very serious, if Merlo through his experts, could've come up with some explanation, which was plausible, I could've been in more trouble making allegations against him, so I waited for the evidence to close" (at T 126.14).
The defendants complain that Eastlings made such very serious allegations against Calidu, Joe and Grace when it commenced these proceedings in 2017; that Graham made very serious allegations of conversations by Mr Soubris and Joe of undisclosed cash from the business in his initial affidavit of 11 July 2016 (Graham's affidavit affirmed 11 July 2016 at [6]-[7]); and that, in his affidavit of 30 April 2018, Graham made the very same allegation concerning the illegal importation which he had earlier professed to wanting to avoid making. It is noted that in his 30 April 2018 affidavit, Graham gave evidence to the effect that he wanted nothing to do with Mr Song after his alleged conversation in Singapore and it is submitted that if the allegations of smuggling were correct, then that evidence was clearly incorrect and/or misleading.
As to the alleged conversation between Graham and Mr Song on Graham's first visit to Singapore (which is denied by Mr Song); the defendants ask, rhetorically, why someone involved in smuggling would disclose to someone else he had not previously met details of illegal conduct with a third person (i.e., Grace and Joe) and put both his future business at risk and be exposed to the risk of criminal sanction. The defendants say that it makes no sense and should be rejected. (By the same token, however, to my mind the voluntary disclosure also makes little or no sense, if it was not true.)
I found Graham to be a direct and credible witness. His evidence rang true on a number of matters, including the way in which he responded to cross-examination as to his account of the conversations with Mr Soubris (about which he says he will go to his grave knowing) and with Mr Song. I accept that Graham has given truthful evidence of his recollection of the relevant conversations (albeit that his recollection may have been unconsciously informed by his apparently long-standing suspicions as to the illegal conduct of Joe and Johnny Song).

[45]

Joe Merlo

Eastlings submits that Joe was evasive in cross-examination, saying that he gave prolix answers to very simple questions; and saying that Joe consistently attempted to evade answering questions directly.
Eastlings points to Joe's evidence that he was responsible for all of the ordering and selling within the Business and that he did so from his head (without himself creating any records). Eastlings submits that this evidence should not be accepted (arguing that such a practice would not conform with industry standard and would leave no room for independent assessment or checking). Somewhat inconsistently with that submission, Eastlings also argues that this system of operation was one that allowed Joe to hide his wrongdoing (and protected any of his activities with Johnny Song from close scrutiny) because any question relating to ordering or importation could only be tested against Joe's memory.
Pausing here, I accept that the system of ordering stock, as explained by Joe, was one that would make it difficult for there to be any internal audit of stock arriving in the warehouse, since it would rely upon Joe's memory as to what he had ordered and since his evidence was that he did not review packing lists or deliveries to the warehouse and did not enter any data into the company's MYOB records (see T 147).
Joe agreed that there was no way anyone in office would know what he had sold or what he had purchased unless he told them and that he did not check shipping documents when containers came in to ensure the delivery was accurate (T 165.45). However, somewhat inconsistently with this, Joe disagreed that the only way anyone could know whether there was an error in the packages would be to check with him (T 166).
Joe accepted that he negotiated landing price with suppliers (say for J&E Winery with James and Eddie Tan) and that Mr Conroy only knew what was on the packing slip when he received the shipping documents but he said that Mr Conroy would always consult him in relation to costing and "run it past" him (T 158-159). (For her part, Grace gave evidence that if there had been extra stock in containers then it would have been drawn to her attention - but again that could only have been by reference to the packing list or shipping documents since there was no record of orders as such.) I accept that it would be difficult to see, on Joe's evidence, how his staff would reliably know whether any stock arriving was consistent with the order that had been placed by Joe.
However, the efficiency or otherwise of Joe's business practices (i.e., whether they were susceptible of independent, or even for that matter internal, audit) is not here the issue (and the suggestion that Joe's method of operation was a devious way of avoiding scrutiny - see T 549 - or facilitated the alleged illegal importation rather begs the question as to whether any illegal importation occurred at all).
More to the point to my mind is that, for Eastlings' allegations of illegal importation to be correct, this would require, at the very least, complicity of others in the warehouse (not just in Singapore but also in Sydney) because on that hypothesis it would have to have been evident when the containers in question were unpacked that there was stock in the containers that was either additional to that described in the packing lists or was wrongly described in the packing lists. Other than the conversation attributed by Angus to Nick, there was nothing to support the theory that others in the warehouse knew of or were complicit in the importation of undeclared products. I note that the expert evidence of the logistics and transport consultants made clear that container seals would only be broken in the presence of the client or ultimate consignee but that there would not necessarily be a customs officer present at that time. Nevertheless, if Joe did not supervise the unpacking of the containers (as he says), then it follows that someone at the warehouse (when checking the container loads as against the packing lists must have become aware of extra stock if indeed there had been extra stock in the containers on a regular basis) and, other than the conversation attributed to Nick which I cannot here test, there is no evidence that anyone else in the warehouse was involved in any such non-disclosure.
Eastlings also points to Joe's evidence as to the short term loans purportedly from Calidu Import Export to Mr Liquor (or Mr Prapas) as casting doubt on Joe's credibility. This relates to the two purported short term loans referred to earlier: a loan, said to be made on or about 27 August 2014, in the amount of $200,000 at a 10% interest rate for the term of 60 days (i.e., with an annualised interest rate of 60%); and a subsequent loan, said to be made very shortly after the first was repaid, in the amount of $400,000, at a 6% interest rate for a term of five months. As already noted, the loan documentation itself is inconsistent with Joe's explanation of the transactions (the documentation being drafted as a loan from a different entity and to a different entity).
Eastlings points out that, in cross-examination, Joe did not accept that the respective loans involved payment of a large amount of interest (a contention it says is absurd); and submits that an adverse inference should be drawn from the fact that Mr Prapas was not called to give evidence (despite him being available to be called).
Eastlings submits that both loans are inherently suspicious; and that it should be inferred that Mr Prapas was not called to give evidence because this was a reconstruction designed to suggest that the movement of money was for a personal reason as opposed to a business reason (T 549-550). Eastlings contends that one reason for this money to have moved in and out would be that Mr Prapas was now involved in importation on behalf of Calidu Import Export (though it is conceded that this cannot be proved in the absence of Mr Prapas being called to give evidence).
The defendants, to the contrary, say that the existence of the short-term loans does not substantiate any wrongdoing and that there was no call for them to adduce evidence from Mr Prapas to respond to matters raised as part of Eastlings' case theory until cross-examination (i.e., that being when it was first suggested that these transactions were to hide smuggling) (see at T 573).
As to this issue, there is no doubt but that the annualised interest rates for these so-called loans seem much higher than standard interest rates, although of course it is not unheard of for there to be what might be said to be astronomical interest rates for short term loans in particular circumstances (see, for example, the Court of Appeal decision in Wu v Ling [2016] NSWCA 322). Perhaps more difficult to explain is why it would have been thought necessary to have the first loan repaid, only for it to be followed almost immediately by another loan (rather than simply extending or varying the first loan) but that is little more than speculation on my part.
I accept (as I discuss in the context of Grace's evidence) that the short term loan documentation bears some hallmarks of having been created after the event (insofar as there is inconsistency, for example, in the identification of the purported lender and borrower when compared with the cheques that were drawn); and I quite understand the basis for Eastlings' suspicion that these transactions were not genuine loan transactions (but were a reconstruction). However, I do not accept that a Jones v Dunkel inference (so-called after Jones v Dunkel (1959) 101 CLR 298) should here be drawn. This is because it is not apparent to me that Mr Prapas' evidence as to the purported loan transactions would be relevant to the particular issues here for determination (as opposed to its relevance to Joe's credit) and, in any event, even if such an inference were to be drawn it would not permit any conclusion as to what was the actual purpose of the transaction. The inference that Eastlings sought to be drawn was that Joe's explanation of the transaction was incorrect. I do not consider that such an inference should be drawn and I do not consider that this aspect of Joe's evidence takes the matter any further.
As to Joe's credibility as a witness, I did not form the impression that Joe was evasive in the witness box; nor did I consider him to be avoiding answering questions directly. Rather, I consider that his manner in answering questions was more likely to be attributable to his personality. My observation was that he was prone to be loquacious. It is perfectly plausible that he was not interested in the administrative side of the business but left that to others. I have no doubt that he was someone who interacted well personally with his clients (indeed that was evident from the customers who gave evidence in the proceeding, a number of whom either became Joe's friend or had social interactions with him outside of their business dealings - which seems the real explanation for Mr Calipari's "cheese and chalk" comparison between Joe and Angus). Without any disrespect to him, Joe presented very much as a down to earth small businessman; not as a sophisticated businessman. I can quite accept, for example, Joe's evidence that he did not read the Restraint Deed, but that Mr Parisi explained it to him (T 185). (Although Eastlings points to the lack of any record of or invoice in respect of Mr Parisi's advice as to the Restraint Deed, Mr Parisi himself confirmed that he had given such advice - and I accept that it is likely that he did, since he had drafted the deed and one would expect a solicitor to give at least broad advice as to the contents of a document his or her client was executing in his or her presence.)
Joe was prone to making broad brush statements or assertions rather than paying particular attention to the details. This can be seen, for example, in his evidence as to the importation of wine prior to the sale. This commenced with Joe's insistence that the business primarily dealt with beer (see T 152); that in 2000-2003 it was exclusively beers "and a little wine" and that it only very rarely included Mumm champagne "once or twice"; but, when taken to the invoices that showed numerous occasions of other products being imported (see T 167 for example), this was followed by an acceptance that other products had been imported (albeit with adamant assertions that the amount of wine was very small in the scheme of things) (see T 186). However, I did not form the view that Joe was dishonest in his evidence; rather I considered that he had a tendency to gloss over the details. (Similarly, Grace's evidence was that prior to the sale the Business had from time to time imported wine on "at least one occasion" (see T 246. This seems at best to have been an understatement but one that I did not consider to be deliberately dishonest.)
Relevantly, Joe was adamant that he had not been involved in illegal importation (T 178-179); and he denied the suggestion that he was involved in "off the books" cash transactions. Though he accepted that there could have been some sales for cash, he said that he did not handle cash (see, for example, T 200-201). While I accept as credible Graham's recollection of the conversations with Joe as to cash in the business, I consider that it is possible that this was an example of grandiosity on Joe's part rather than some kind of confession as to improper or illegal business operations on his part. Indeed, it seems to me inherently implausible that someone in Joe's position (selling a business that, on Eastlings' contention, had engaged in or was propped up by an illegal smuggling operation) would have boasted of such conduct to a prospective purchaser he barely knew; which leads me to conclude that what Graham understood from the relevant conversations was not necessarily what Joe was intending to convey.
Furthermore, in terms of the pricing and costing of products, Joe's evidence to the effect that he imported mainly on a "CIF" or "CNF" or "C&F" basis (the acronyms unfortunately varying) (where cost of freight is borne by the exporter - see T 149-150) and that, consequently, all he was interested in was achieving landed unit cost and he did not really care what it cost the exporter "to land and sticker it" (T 149-150; T 174- 175) rang true; and was consistent with the description of the experts as to such matters (see below).
Joe said that he did not review packing lists and bills of lading when alcohol was received in the warehouse; that the count was conveyed to him; and that Mr Conroy did the costing. I consider that evidence to be plausible given his lack of involvement in administrative functions. I note that the evidence was that Mr Conroy is alive but very ill (T 155.5) (indeed in re-examination, over objection by Eastlings, Grace said that Mr Conroy was undergoing chemotherapy) and, understandably, no Jones v Dunkel submission was made in relation to Mr Conroy.
I do not find Joe to be a dishonest witness, although as noted I consider it likely that (not being focused on details) he had a tendency to generalise or gloss over matters; and I exercise a large degree of caution in accepting at face value his recollection of disputed conversations or events.

[46]

Grace Merlo

Eastlings submits that the evidence of Grace was particularly poor. It is noted that Grace was the person in charge of supervising the bookkeeper (Mr Conroy) and undertaking all other financial controls of the Business. (Indeed, Joe's evidence was that there would be a reconciliation every Monday morning with Grace and Mr Conroy.)
In relation to Grace's evidence, Eastlings points to two matters: her evidence as to the whereabouts of the MYOB records of Calidu and the destruction of the computer where those records were contained purportedly in 2014; and her evidence as to the short term loans to Mr Prapas.
As to the first, Grace's affidavit evidence (see her affidavit sworn 22 July 2019) was that the MYOB records referable to the J&J Wholesale Distributors' business had been stored on a computer that had been disposed of in a council clean up in 2014; that as at the date of the disposal of the computer, she could no longer access the MYOB records of J&J Wholesale Distributors; and that there was no back-up of those records. Eastlings says that Grace knew the importance of those records in answering a criticism made by Mr Goodyer of Dr Fargher's analysis in the proceeding and points out that Grace's discovery obligations had been explained to her by her solicitor (see Ex L).
It is submitted by Eastlings that Grace's version of events, as disclosed in her affidavit of 22 July 2019 (to which she adhered at least initially in cross-examination) was untrue for the following reasons.
First, that on Grace's evidence, what had occurred after the Business was sold was that the MYOB account name on the file was changed to the new business name and the Business continued to be conducted (and hence, it is said that the MYOB account would still have existed as part of the operation of the renamed business and the destruction of one computer would not explain the loss or otherwise of the MYOB data). It is said that Grace's explanation that the historical data became "not retrievable" and that there was then a partial recovery was contrived (and it is noted that this is an explanation which had never been provided before) (T 220).
Second, that in her affidavit sworn 4 November 2016, Grace had included a photograph of the MYOB system (being a transaction from May 2013 within the MYOB account that on her account had been "changed"). It is said that, therefore, it is apparent that, as at 2016, Grace had been able for her own purposes to access the MYOB and look at an historical transaction supposedly from a time before the destruction of the computer. Eastlings submits that Grace's explanation as to the MYOB accounts is thus internally inconsistent.
Third, Eastlings points to the evidence of Mr Conroy's invoices, which record that Mr Conroy continued to back up the MYOB data after the sale of the Business, and after the purported destruction of the computer, even after the commencement of the proceeding. In particular, Mr Conroy's contemporaneous invoices record: the setting up of an MYOB account for Calidu Import Export on 10 December 2013; back up of the MYOB for Calidu Import Export on 10 December 2013, 19 March 2014, 9 April 2014, 11 June 2014, 22 June 2014, 30 July 2014, 19 August 2014, 23 September 2014, 20 October 2014, 25 November 2014, 9 February 2015 (being after the alleged destruction date of the computer), 24 February 2015, 24 April 2015, 11 May 2015 (being after the commencement of the proceedings) and 24 June 2015; back up of the MYOB for Calidu on 19 March 2014, 11 June 2014, 22 June 2014 (including burning the backup onto a DVD for Mr Power), 19 August 2014, 23 September 2014, 20 October 2014, 25 November 2014, 9 February 2015 (being after the alleged destruction date of the computer) and 24 June 2015 (being after the commencement of the proceedings); the provision of the backup on DVD to Mr Power on 22 June 2014; and the printing of various sales (item) analysis reports as required by "the solicitor" on 11 May 2015.
Eastlings submits that in cross-examination, when confronted with this evidence, Grace was demonstrably shaken; noting that she was variously "unable to answer", "unable to explain", and "could not answer"; and it is submitted that Grace had been caught in her own mistruth (see T 226-227).
It is noted that when Grace was re-examined, Grace's explanation was that she understood that financial records only meant tax returns. It is submitted that this was also incorrect, not only because Grace had previously stated in her affidavit that financial documents included tax returns "and any associated financial statements", but also because the documents that had ultimately been discovered were much broader than simply those documents in any event.
Eastlings submits that it is clear that the MYOB records exist and that they should have been discovered in electronic form. It is submitted that it can be inferred that the evidence was deliberately withheld and that it would not have assisted the defendants' case to produce it; and, in particular, that it can be inferred that the answer to Mr Goodyer's attack on Dr Fargher as to sales records (which it is said could not be answered on the failure to produce the MYOB in electronic form) would not have assisted the defendants. (Pausing here, insofar as complaint is made that the electronic MYOB file was not produced, there was (albeit at the heel of the hunt) a very belated production of an electronic file but I accept that it was not by then practicable for Eastlings to review and test it.)
As to the second of those matters, Eastlings notes that Grace accepted that she was the author of at least the first short-term loan document (and it is said that, by implication, Grace accepted she was the author of the second); and that Grace also accepted that she was the person who signed the cheques from Calidu Import Export to Mr Liquor.
Eastlings points out that the loan documents purported to be from Calidu to Mr Prapas personally. It is said that they were advanced as an explanation of money being moved from Calidu Import Export to Mr Liquor but that they did no such thing; and that Grace feigned confusion in this regard and gave a new explanation for the purpose of the loans that had not earlier been proffered. (Pausing here, I consider that this could easily be an example of Joe's inattention to detail since it is likely that Joe gave the relevant instructions in relation to the documented loans.)
Eastlings says that any explanation provided by Grace was implausible; and that the documents had either been fabricated in order to provide a convenient reason for the ongoing trading activity being conducted by the defendants after the sale of the Business, or related to something entirely different (though it is not suggested what that other thing might be).
Eastlings submits that reliance on Grace's evidence is therefore unsafe; that she fabricated evidence about material issues in the trial; and that her evidence should not be accepted. It is submitted that it is clear from Grace's evidence that, if it were that illegal activity was being undertaken, then it had been arranged by Joe and that Grace was intimately involved in obscuring Joe's conduct and assisting him in that conduct.
My observation of Grace was that she was a quiet and very nervous witness. Grace became visibly distressed during the course of the cross-examination as to the MYOB records and discovery issues (T 230). However, I considered her confusion in relation to those issues (and her protestations as to computer illiteracy) to be genuine in that regard. I consider her distress to be attributable to her concern that she had somehow done the wrong thing in relation to the discovery process; but I accept as genuine (though mistaken) her belief that she had done what she was required to do in relation to the production of records. Indeed, the very fact that Grace had created over the weekend adjournment a new USB stick with documents in answer to the call made in court demonstrated both Grace's lack of understanding as to what was being sought and her genuineness in attempting to respond to the call.
The relevant chronology of events on this issue ultimately seemed to be that Grace said the computer crashed in about 2014; it was disposed of in a Council cleanup (there being no cause to keep it) (T 221); and she was not clear when steps were taken to access it but she thought that a USB was put into the computer (and that is the screenshot that was taken and later put into her affidavit) (T 222). (I note that a call was made for the USB but that what was later produced was not that particular USB that had been created earlier but, as adverted to above, a different USB that had been made over the weekend adjournment of the hearing). (There was no application for Grace to be further cross-examined after production of the USB that had been created over the weekend containing financial information in the 2010/2011 years and an electronic file. It was not a USB previously in existence and I was told - see T 472; T478 - that it stored some 750 Gigabytes of information.)
Grace's evidence as to what happened to the records of the Business included a statement of her belief that a back-up of the hard drive had not been kept (Grace's affidavit sworn 22 July 2019 at [17]-[18]); and her evidence at T 219 that Mr Conroy did not keep back-ups. That belief was clearly incorrect, having regard to Mr Conroy's invoices.
I consider it troubling that the electronic record of the MYOB records was not produced in the course of discovery, and that it is clear that the evidence that there was no back-up of the MYOB records cannot be correct (since Mr Conroy was consistently invoicing his clients for such back-ups being made). However, I do not accept that the evidence establishes that Grace deliberately withheld the MYOB records nor do I accept that she gave untruthful (as opposed to mistaken) evidence about those matters. Rather, I accept Grace's explanation that she did not understand that electronic records had to be produced and that she believed she was complying with the orders for discovery by printing documents off the computer and producing hard copies. In those circumstances, while I accept it placed Eastlings in a different position forensically, I draw no Jones v Dunkel inference from the absence of a complete file of the MYOB records (cf, for example, cases where there has been a deliberate destruction of evidence - see the authorities referred to in Mirus v Gage [2017] NSWSC 1046 and Sun v He (No 2) [2020] NSWSC 1298, for example).
Moreover, as to the submission that it can be inferred that the MYOB records would not have assisted Eastlings in responding to Mr Goodyer's challenge to Dr Fargher's analysis, it is not necessary to draw any such inference since I consider that Mr Goodyer's challenge to the statistical integrity of Dr Fargher's analysis is broadly made good in any event.
As to the vexed issue of the short term loans, I have already indicated that I consider that the documentation in relation to those loans is problematic. For whatever reason they were prepared, I accept that it was likely to have been at Joe's direction. However, I do not accept that it should be concluded that these were fabricated for the purpose of concealing an ongoing trading activity or for some other unidentified purpose.
Finally, insofar as it is submitted that Grace should not be accepted as a witness of truth, I disagree. I considered that Grace was attempting to answer the questions put to her honestly and to the best of her ability. She was careful to make sure she understood what she was being asked (such as when she asked early in her cross-examination what was meant by the question whether she had "issued" invoices) and her explanation of her role in the company was consistent with Joe's evidence (and the logic of events). I consider that Grace's confusion and distress was explicable by reference to the stress of the witness box and the fact that she was being asked about matters going to her understanding both of computers (about which her disclaimer of knowledge of terminology seemed to me to be genuine) and of legal issues (such as the discovery obligations - see her answer at T 479), about which she has no qualifications.

[48]

Angela Valore - Valore Cellars

Ms Angela Valore made an affidavit in this proceeding (variously described as sworn and affirmed) on 28 October 2016. She was cross-examined initially over audio-visual link but ultimately over the telephone (due to technical difficulties with the link at Ms Valore's end) and some of her evidence was (to say the least) unclear. Ms Valore was a quite voluble witness.
In her affidavit, Ms Valore deposed that she and her husband are the directors and shareholders of Ultimax Corporation Pty Ltd, which conducts a business of the sale of alcohol products and operates five retail outlets (see at [3]-[7]) and that she also conducts two similar retail outlets in her personal name (at [8]) (Valore Cellars). Ms Valore deposed that she has the responsibility for the management of the respective outlets, including the ordering of stock and the accounts of the businesses (see at [9]).
Ms Valore deposed that, prior to 2004, alcohol was purchased from various suppliers depending on which suppliers were offering the best terms ([14]); that from 2004, she began dealing with Joe ([15]) but also continued to buy from other suppliers and that she bought from Calidu (then J&J) "when the prices they offered were the best" ([18]); and that, after the sale, she contacted Angus on a number of occasions between May 2013 and early 2015 to ask him for prices on stock that she needed ([23]) but that after early 2015 she no longer had any contact with Angus ([27]).
Ms Valore has deposed to there being some occasions when she says she asked Angus for better prices but he was unable to give her a better price with the result that she purchased that stock from other suppliers ([24]); other occasions when she said Angus was unable to provide the stock in the quantities requested and they had to purchase elsewhere ([25]); and to occasions when she says she asked for a better price on the basis that she wanted to buy entire container loads but Angus could either not supply that quantity or did not provide any pricing ([26]). No detail was provided as to any of those occasions; nor was there any documentary evidence to support those assertions. In her oral evidence, Ms Valore simply reiterated that many times she asked for a price and Angus did not do it and said that she could get a better price from somebody else; that Angus could not give her the quantity or the prices she needed; and that she did not do a lot of business with Eastlings (T 278-279).
Ms Valore made clear (and this emerged in both her affidavit and oral evidence) that the most important factor to her (in her dealings with wholesalers such as Joe or Eastlings) was price (although she added that sometimes extended credit was also a factor) (T 282).
Ms Valore acquired one of the containers of Spanish wine that Joe imported from Pedro Vidal in August 2014. In her affidavit evidence (at [30]) she recalls that Joe telephoned her a few days before the wine was delivered on 15 August 2014 and that he said he had a container of cheap wine that he needed to get rid of and asked her to take it off his hands for $28 a dozen. Ms Valore has deposed that this was the only transaction since May 2013 that has taken place with Joe. In oral evidence she confirmed her affidavit evidence as to Joe asking her if she could take the container of wine at a cheap price and that she did so (T 283).
Ms Valore confirmed that in September 2014 Valore Cellars commenced importing beer from Botillion Enterprises in Singapore (see at [32]) but she says that she was introduced to Botilliion "by its representative Johnny Song", to whom she had spoken "as far back as 2006" and whom she had met but with whom she had not previously done business. Ms Valore deposed that there had been no business dealings by herself with either Mr Ron Lim (who she is aware is related to Mr Song) or Botillion Enterprise and Johnny Song, that have also involved Calidu and Joe, so far as she is aware.
In her affidavit, Ms Valore denied that she had close ties with Joe though she said they did speak socially to each other by telephone on a "semi-regular" basis and that he also stopped in to say hello from time to time (at [30]). Cross-examined as to whether she had helped Joe to buy a boat (that being Joe's explanation for certain funds having been transferred to Ms Valore's account), Ms Valore could not recall doing so but volunteered that if Joe asked her for money she would probably give it to him or "to borrow to him" (T 285) (which rather suggests that there was at least a close enough business or personal relationship for her to be prepared to enter into some such a loan arrangement without, apparently, any hesitation).
Eastlings submits (and I accept) that Ms Valore's evidence was at times difficult to comprehend (which may at least in part have been to do with technological difficulties). It is noted that, after also conceding that price was the most important thing, she could not remember assisting Joe with the purchase of his two boats from the USA.
Ms Valore's evidence conveyed to me the very clear impression that, in her business dealings with suppliers, she was focused on achieving the best deal in terms of price and/or terms of credit. (Angus' evidence, which I considered credible, made it clear that he found her a difficult customer with whom to deal and he certainly did not appear to be troubled by her ceasing to do business with Eastlings.)
Overall, I consider Ms Valore's evidence to be unreliable as to the accuracy of her recollection of events, but not dishonest.

[49]

Joseph Bavaro - Victoria Cellars

Mr Bavaro is the sales manager of a business (trading as Victoria Cellars) which is a retailer of alcohol. He affirmed an affidavit in the proceeding on 20 October 2018. He and his wife are the directors and shareholders of the company (Victoria Cellars Pty Ltd). Mr Bavaro has known Joe professionally and socially over a number of years (see his affidavit at [4]) and, prior to May 2013, he purchased beer from Joe for the purpose of retail (at [5]). Mr Bavaro has never been involved in the importation of alcohol. In November 2013, Mr Bavaro closed his retail shops and since then has operated an online business selling only wines (premium wine sales business with a mainly wealthy Asian clientele - see T 290). Since May 2013, neither he nor his company has done any business with Joe, Grace or any person or company on their behalf (see his affidavit at [17]).
Eastlings emphasises that, while Mr Bavaro (and Mr James) gave evidence that his interaction with the Business dropped off significantly after its sale, he had changed his business into an online model and began principally offering wine. It is said to be unsurprising that the business of Mr Bavaro and Mr James with Eastlings reduced, given that was not its primary offering.
Mr Bavaro's evidence principally goes to his account of the dinner at Glebe in March 2014 (see from [11] and at T 291), which was attended by Joe, Angus and Mr Vidal. Mr Bavaro has deposed that during the dinner Mr Vidal said that he had some good quality Spanish wine available for import and that it was reasonably priced ([12]); that he advised that he had no interest in importing wines and had not previously carried out any importation ([13]) and that Angus said "Let me get my teeth around the beers, I have enough on my plate at the moment with that. I'll leave the wine up to you guys" ([14]) and that Joe said "Let's see how we go" ([15]). Mr Bavaro has deposed that he heard no more about the wine importation ([16]).
In cross-examination, Mr Bavaro speculated that Joe had wanted his advice about the quality of wines from Spain (T 291). More relevantly, he said that this was a general conversation; and that he was not sure about who was to be importing or who was to be distributing (and he agreed that this was not clear to him on the evening) (T 291-292).
It was clear from Mr Bavaro's oral evidence that he did not pay much attention to the discussion about cheap Spanish wines at the dinner in Glebe (unsurprisingly, perhaps, since by then his online business was focused on premium quality wines). I accept that his recollection in October 2016 as to what was said at the dinner in March 2014 would no doubt have been better (or at least more fresh) than it was as at September 2020 when he was cross-examined about it. However, what was clear from his cross-examination was that Mr Bavaro now does not have any clear recollection as to what was being discussed in relation to the importation of the Spanish wine. Even on the account given in his 2016 affidavit, there was not a clear arrangement reached at the dinner as to what was to occur. Therefore, his evidence does not take matters very far (since Angus accepts that there was a discussion about wine importation that evening and on all accounts knew that there was a proposal for Joe to import the wine).

[50]

Peter James - Village Cellar Stores

Mr James affirmed his affidavit in the proceeding on 15 October 2015. Mr James described himself as an accountant. In cross-examination, he clarified that although he has qualifications as an accountant he has never practised as such and would, rather, describe himself as a business owner (T 295). At one stage prior to May 2013, he owned a number of retail liquor stores (trading as Village Cellar stores in Balmain, Concord and Thirroul) but he did not own all three at the one time. Since 2013 he has operated an online liquor business (mainly wine but with some imported beer and spirits).
In his affidavit, Mr James deposes that he has remained close friends with Joe and Grace but that since May 2013 he has not purchased any alcohol from Joe and Grace or any company of theirs nor has he been approached by them to do so ([5]-[7]).
Mr James, in his affidavit, deposes that after the sale of the Business he continued making purchases through Eastlings (in oral evidence he said that he started acquiring stock from Eastlings pretty much as soon as it took over) but that he was required to pay for goods in advance before picking up any stock and that this was a practice he had never seen in his 25 or so years of trade in the liquor industry ([8]). In cross-examination he explained that, when he started to trade with Eastlings it was initially COD, whereas he used to be able to get at least 30 days' credit from Joe and Grace (T 294), but that now he was on 14 days' credit although that he did not buy a lot. It was suggested to him that he had been put on a cash on delivery (COD) basis because at that stage he had not signed a credit application but he did not know if that was the case (T 295.5).
Mr James' evidence was to the effect that his predominant focus was getting the cheapest price so as to be able to maintain the biggest profit margin but that he also took into account what extended terms of credit might be available from suppliers.
His evidence again does not take matters very far. At most, it suggests that differences in credit arrangements with customers may have been a factor in a change in turnover of the Business after it was acquired by Eastlings but it seems to me that this is largely speculative. I draw nothing from this.

[52]

Anthony Soubris

Mr Soubris, solicitor, swore an affidavit in the proceeding on 28 October 2016 in which he confirmed that he acted for Calidu on the transfer of its Producer Wholesale Liquor Licence as part of the sale by Calidu of its business undertaking to Eastlings ([4]) and that Mr Parisi had acted as the solicitor on the sale of the business. He did not recall any meeting with Graham whether at the business premises or otherwise.
Mr Soubris denied the words attributed to him by Graham in his 11 July 2016 affidavit at [6] and strenuously denied having made the comment attributed to him by Graham at [7] of that affidavit. Mr Soubris deposed (at [6]) that he had no knowledge of the income generated by the Business, the manner in which payments were made or the business practices of the defendants as regards payments and income.
In cross-examination, Mr Soubris again denied the conversation attributed to him by Graham (T 316). He clearly took umbrage at the suggestion that he had made any such statement (as to cash dealings in respect of the business) and explained that he considered that to have made such a statement would be a breach of client privilege or confidentiality.
Mr Soubris also gave evidence on the voir dire as to his meeting with Joe and Grace concerning liquor licensing advice (the subject of the Soubris Advice). I do not here explore that evidence any further than to note that Mr Soubris confirmed that the Soubris Advice was sent by email to Grace with no other details on the coversheet and that a hard copy was sent by post; and that he confirmed that there had been no request at any time since then for him to retract that email. Mr Soubris did, however, point to the disclaimer at the end of the letter (T 313).
Pausing here, there is a direct conflict in the recollections of Graham and Mr Soubris as to the conversation in which Graham is adamant that Mr Soubris told him that he would do well with the Business and that there was a lot of cash in it. I accept that Graham genuinely recalls such a statement (not least because of his evident shock that a solicitor would make such a statement, which he considered amounted to condoning undisclosed revenue or income). Equally, I accept that Mr Soubris denies having made such a statement (and his complaint that such a comment impugns his honesty, integrity and professional standing suggests that he too would regard such a statement, had it been said, as going to undisclosed revenue or income).
As to Mr Soubris' assertion that he had no knowledge of the matters set out at [6] of his affidavit, it is difficult to test that without knowing the extent of Mr Soubris' dealings with Joe during the period leading up to the sale and any information that may have been provided to Mr Soubris by Mr Parisi in the context of the sale.
As to Mr Soubris' concern that any such statement would be a breach of his obligations of confidentiality or otherwise to his client, that is also difficult to test in the absence of a more complete understanding of the instructions that Mr Soubris received in relation to the transaction. Moreover, a statement that there was plenty of cash in the business might on one view be little more than an observation that the business was profitable (which one would think was an issue about which the financial records of the business would have more weight and these had already been made available as part of the due diligence process).
Suffice it for present purposes to say that I accept it would be extraordinary for a solicitor to commend to a prospective purchaser a business practice that involved undeclared income that was in breach of tax or other such obligations (cash dealings per se do not seem to be the issue; rather, it is whether the income was properly disclosed; i.e., whether the transactions were "off the books" - and the alleged comment does no more than hint at that). On the evidence before me - which essentially is one person's word against the other - I cannot be confident that such a statement was made or, if made, was intended to convey the imputation that Graham clearly believes it carried. Nor does anything turn on this for the purposes of the issues to be determined in the proceeding. Whether or not Mr Soubris expressed a view as to the business practices of Joe or his company does not establish what those business practices were.

[55]

Josephine Lia

Ms Lia is a director and shareholder of Truckspeed, a company which has operated in the freight cartage business in and around Sydney and New South Wales since 1986; and which provided freight cartage services from wharves on behalf of J&J Wholesale Distributors (now known as Calidu) from approximately 2005 to 2013 and for Eastlings from 2013 to about January or February 2016. Ms Lia swore an affidavit in the proceeding on 2 July 2020. Ms Lia was cross-examined as to her evidence that certain of the company records had been damaged and were unable to be produced. Ms Lia said that she had produced what could be found on the computer.
In her affidavit, Ms Lia has deposed (at [5]) that Truckspeed delivered 20 foot containers from the wharves to the J&J Wholesale Distributors' premises (i.e., Calidu's premises) at Kingsgrove practically every week but that the number of containers delivered each week varied (usually between 2 to 10 containers a week). In oral evidence, Ms Lia explained that Joe could not take 40 footer containers on his premises; and gave cogent reasons as to the need for a sideloader when delivering containers to the premises. In that regard, Ms Lia explained the method by which Truckspeed delivered containers to Calidu (see at [6]-[7]), which included the use of a sideloader (a trailer fitted with a crane), and that the premises were "tight and narrow for deliveries", necessitating a particular selection of trucks and drivers.
Ms Lia confirmed in her oral evidence that, from about mid-2012, weigh-in motion devices had been installed at Port Botany (and annexed to her affidavit was a copy of a flyer issued by Paul's Customs to customers in relation to the weight limitations) (see T 328-329). Ms Lia also annexed to her affidavit a communication by email from Paul's Customs to the J&J Wholesale Distributors' email address (copied to Truckspeed) as to four 40 foot containers imported by Eastlings in December 2014, which were said to be overweight (see at T 325 Ms Lia's explanation in relation to weight limits).
Eastlings notes that Ms Lia confirmed that the weigh bridge records, which could have been used to confirm that the containers were overweight for the stock that they contained, had been destroyed but says that otherwise her evidence was tangential. I agree.
That said, I make clear that I found Ms Lia to be a credible witness and I accept her explanation as to the destruction of records. In particular, her explanation as to the fading of old-fashioned facsimile transmission documents accords with my general experience of such old-fashioned documents.

[56]

Johnny Song

Mr Song made two affidavits in the proceeding - the first, affirmed on 29 January 2020 (which was not served on Eastlings' solicitors until June 2020 - and which then led to the further evidence of the Hamiltons of July 2020) and the second, affirmed on 3 September 2020.
In his first affidavit, Mr Song responded to Graham's 30 April 2018 affidavit. Mr Song deposed that he was formerly the director of Windemac Pte Ltd (Windemac) which was registered in and traded from Singapore and which was wound up some time in 2015. Mr Song was the sole director and owner of Windemac ([5]). He has deposed that he was not an owner of J&E Winery, though he knew of its existence ([6]).
Mr Song has deposed that, as a director of Windemac, he was directly involved in the day to day receipt of orders from Joe on behalf of J&J Wholesale Distributors and in arranging the stocking and shipping of the containers ([7]). He estimated that between 2010 and 2013, Windemac shipped about 25-30 20 foot containers each month to J&J Wholesale Distributors. He deposed that Windemac supplied various types of beer to J&J Wholesale Distributors. He made no reference to other alcohol products being supplied by Windemac to J&J Wholesale Distributors.
Mr Song deposed in his affidavit that all beers exported from Windemac at that time (August 2013) were labelled by Windemac and that all stock placed in the containers shipped to Joe were declared and approved ([13]).
Mr Song denied the conversations set out in [25]-[26] of Graham's 30 April 2018 affidavit (those being the conversations in which Graham says Mr Song explained the process for placing extra alcohol in shipping containers - the "Corona Extra"). He deposed that his business dealings with Graham were on the same basis as his business dealings with Joe ([20]).
In his first affidavit, Mr Song referred to a case against him in Singapore ([18]) which he deposed was to do with the non-payment of GST and liquor duty applicable in Singapore and not in Australia ([19]).
In his second affidavit, Mr Song stated that he no longer had any of Windemac's digital or paper records ([4]-[5]). Mr Song deposed that, after the sale of the Business in 2013, he did have regular conversations with Angus and Graham about ordering stock and that most of these were with Angus ([7]). Mr Song accepted that Graham went to Singapore once and that they met on that occasion ([8]). Mr Song denied ever having heard the term "Corona Extra" used as a code for undeclared stock ([9]). He stated that there were no improper charges or payments between Windemac and Eastings and that all payments made by Eastlings to Windemac during the period of their association were purely for the supply of alcohol products including logistic and warehousing charges ([13]). Mr Song further denied that Joe ever made any cash payments to him ([15]). He denied that the five shipments (the subject of the Hamiltons' disclosure) contained any beer not disclosed on the bills of lading or the Singapore documents relating to those shipments ([17]). He states that he has no knowledge of Australian Border Force procedures and practices and that Graham's allegations are a fabrication ([23]-[24]).
In oral evidence, over audio-visual link from Singapore, Mr Song confirmed that he does not currently operate in the import/export industry (T 331). He said that he was sentenced for failure to pay excise and for non-payment of GST and liquor duty on stock from Singapore to Malaysia. Mr Song explained that he had exported the wrong quantity on a container and then said that it was supposed to be a particular brand of beer instead of another (T 331-332). He said that there were a number of different charges against him because a lot of discrepancies were found (T 332).
In his oral evidence, Mr Song confirmed that Windemac was his company; and said that J&E Winery was the company of one of his business associates and that it was using his warehouse to re-export items (T 333) and that he had no control over J&E Winery (T 339). Mr Song said that Botillion Enterprise was another customer of his (T 333).
Mr Song explained that his was a bonded warehouse and that it was not open to the public; and said that it was only for use for his business (T 333). He said that he provided no logistics services there (T 336); that he was only supported to use the property on his own account; and that he provided no warehousing services; again, that the warehouse for his own use (T 334.5). (This, of course, is inconsistent with the invoices that he had rendered to Eastlings for what were described as warehousing/logistics services and he accepted this later in cross-examination.) Mr Song suggested that the logistics charges occurred when stock was ordered and could not be fulfilled (i.e., where stock was ordered but for some reason not able to be shipped at the time and was then stored in his warehouse, as I understand his evidence) (see T 344).
Mr Song said that he would receive purchase orders (that Joe would send an order or give him a call) and that his staff would do the "stuffing" of the container (T 336). He agreed that it was in his interests to ensure the containers were as full as possible (T 339).
In his oral evidence, Mr Song adamantly denied the suggestion that he had the relevant conversation with Graham to which Graham deposed or that there had been any smuggling of "Corona Extra" (T 341).
Eastlings submits that Mr Song's evidence was confusing and contradictory. It is noted that initially he admitted that he had misdescribed the brand of the beer within shipments but denied that there was even the possibility that stock could leave Singapore without being appropriately documented. It is said that his evidence is not only incongruent with the fact of him being charged and convicted for excise offences but also the fact that he had engaged in such activity with Eastlings.
It is submitted by Eastlings that Mr Song was an evasive witness; and at times flippant. It is said that Mr Song should not be accepted when he denies the conduct confessed (against their interest and their right to protection under the Evidence Act) by both Angus and Graham. It is said that, even more than his demeanour, that position was highlighted by his nonsensical answers as to what the warehousing and logistics charges related. It is noted that, after first conceding that he did not offer warehousing and logistics services his evidence was then that the invoices (Ex 2) were legitimate explanations of the very services he denied offering; and that he then also gave evidence that on occasion he would not fill containers before shipping despite the fact that if he was providing warehousing, he must have had ample stock. It is thus submitted that Mr Song's evidence that he did not involve himself in illegal import activity with Joe cannot be believed.
The defendants accept that Mr Song has a criminal record for avoidance of the Singaporean equivalent of GST. It is said that Mr Song pleaded guilty to the offence and was fined; that he was open and forthcoming about that offence in his evidence and under cross-examination; his evidence is that he only went to jail because he could not pay the fine; and that the offence primarily related to one event only (though I add here that there was apparently a number or charges based on numerous discrepancies). It is said that Mr Song otherwise gave his evidence openly and willingly; and submitted himself to cross-examination from Singapore when he had no obligation to at all. It is submitted that Mr Song gave evidence to counter the serious allegations made against him from another country when he has no ongoing commercial or other relationship with Joe. It is thus submitted that Mr Song was a believable witness. I disagree. I found Mr Song's evidence contradictory (particularly in relation to the invoices that had been reduced for warehouse and logistics services) and not compelling. I can draw little, if anything, from Mr Song's demeanour. However, I found his evidence overall to be implausible when considering the inherent logic of the case and having regard to the ordinary human experience. Leaving aside the possibility that what Eastlings described as flippant was simply Mr Song's usual manner, the difficulty I have with his evidence is that it was inherently contradictory. I accept that Mr Song submitted himself to cross-examination when there was no apparent obligation to do so (he not being under compulsion) and I consider his criminal record to be irrelevant (other than it demonstrates that the activity within a bonded warehouse might still permit an illegal operation) but I treat his denials as no more than assertions.

[57]

Pedro Vidal

Mr Pedro Vidal, the managing director of 99 Overseas Solutions LDA in Portugal, has sworn two affidavits in this proceeding, the first on 26 October 2016 and the second on 28 March 2019. He was cross-examined via audio-visual link from Portugal.
In his first affidavit, Mr Vidal deposed to meeting with Angus in March 2014 ([7]). Although in his affidavit he places 2014 as the time when Joe was organising the sale of his business this is clearly incorrect as the sale occurred in May 2013. Nevertheless, there is no dispute as to the fact that Mr Vidal attended a dinner with Joe, Angus and Joseph Bavaro at a Spanish restaurant in Glebe on 28 March 2014.
As to the March 2014 dinner, Mr Vidal deposed that at that meeting he had said that there was too much wine in Spain at the moment and he could get good wine for low prices and that Angus said "I am focused on the beer business. That is my core business. Let Joe buy the wine if he wants to" and that Joe said "Send me some samples and we will go from there" (at [11]).
In cross-examination, Mr Vidal said that Angus never showed any interest in the wines and that Angus made it very clear to him that he wanted to focus on the beer business (T 362-363). At T 363, Mr Vidal said that he had met Angus once at the airport, then the day before the dinner and at the dinner.
In his first affidavit, responding to Angus' account of the conversation at the dinner, Mr Vidal said that they had never talked about Joe bringing in wine for Gus ([18]) and he said that if Angus wished to import the wine he was supplying then he could have done so directly from Mr Vidal without involving Joe. As to the 14 May 2014 email (see above at [56]), Mr Vidal deposed that he received the email but he did not answer because it did not make sense to him. As to the September 2014 conversation to which Angus deposed (in which he said Mr Vidal said "Hasn't he told you about that" - i.e., the container arriving), Mr Vidal said he had no recollection of saying this ([21]). He said that he thought Angus was asking him because he wanted to buy some wine from Joe (see at [21]) and that Angus never raised any concerns with him about his supply of wine to Joe.
In cross-examination, Mr Vidal recalled that there was a discussion at the dinner to the effect that Joe would take his own risk bringing in the wine and that Angus (or Hamilton) would then buy the wine from Joe (see at T 363-364). He maintained that it did not make sense that Joe would get involved in the process of importing beer and wine on Angus' behalf (check T 364) and said that Angus knew about the wine that was being imported "because we told him" (T 366). Mr Vidal considered that Angus made his position very clear, saying that Joe could import the wines and he would buy it from Joe (T 366).
As to Mr Vidal's evidence, there was some inconsistency between his first affidavit and his evidence in cross-examination as to whether there was any arrangement at the dinner that Angus would buy the Spanish wines that Joe was contemplating importing from Mr Vidal. However, Mr Vidal was adamant that Angus had indicated that he wished to focus on the beer business and that Joe could import the wines if he wanted to do so. That is quite plausible and not inconsistent with the later emails (albeit that those emails do indicate that Angus understood that, once the wine was imported by Joe, he would at least have the opportunity of acquiring it from Joe).
What is not clear is that the arrangement that was contemplated in 2014 (and which led to the two containers of wine that arrived in August 2014) was one that was to continue in the future in relation to any further importation of Spanish wine (as occurred in April 2015). I deal with this in due course.
In his second affidavit, Mr Vidal deposed that he mainly sold beer to Joe and Grace (he being the exclusive agent for two breweries in Portugal, which brewed Cintra beer and Martens Pils beer, respectively, though the beer sales were not restricted to those brands for which he was the sole distribution agent) but that he also sold water to them (see [6]-[9]).
Mr Vidal explained in his second affidavit that once there was an established relationship with the two breweries referred to above those breweries labelled product with the name and details of J&J Wholesale Distributors ([10]); that he organised transport of the purchased label from the Font Salem breweries (Cintra beer) direct to Joe and Grace ([11]), organising the shipping, export and labelling and making sure that the items sent matched the weights and quantities on the bills of lading, and trying to be as accurate as possible in relation to items such as weights ([13]). He has deposed that Joe and Grace were not involved in the loading of the containers (which is hardly surprising since that would have occurred in Portugal) or how they were filled ([14]). Mr Vidal has deposed that the contents of the containers depended on what was purchased and what was available and that "short supplies" were added to the next container shipments ([14]).
Mr Vidal has deposed that all loadings had legal documents and were controlled by Portuguese customs (for the Font Salem brewery) or Belgium customs (for the Martens brewery) ([15]). He has deposed that the new owners of the Business bought less and less from him until they stopped buying altogether ([18]).
In his second affidavit, Mr Vidal also deposed to a telephone conversation with Joe at one time as to weighbridges being put in at the ports in Sydney and that future shipments would need to meet Australian regulations and weight limits (see at [16]), evidence he confirmed in his oral evidence (although still with little specificity). Mr Vidal said that he arranged for Martens (beer from Belgium) container loads then to be 200 cartons less than before (from 2,300 cartons to 2,100 cartons) and for Cintra (beer from Portugal) loads also to be reduced ([16]). He has deposed that the same arrangements continued when Eastlings took over and he organised shipments to Eastlings (see at [17]).
Eastlings says that the basis for Mr Vidal's suggestion that the arrangement between Angus and Joe would not have occurred was that it made no sense to him. It is noted that Mr Vidal was not aware of the loss of Chambers Cellars as a client. Eastlings says that Mr Vidal therefore did not understand the nuance of the arrangement between Joe and Angus, or the reasons for why Angus was asking Mr Vidal as to when the wine would be delivered to Australia.
I accept that Mr Vidal was doing his best to recall what was said in the conversation that took place in March 2014 but I consider it in substance to be general and it does not to my mind establish one way or another whether there was any agreement or arrangement of the kind now contended for by Eastlings between Angus and Joe for the wine to be imported on Angus' behalf.

[59]

Dr Fargher's 2018 Report

As noted in the chronology of events set out earlier, the Paul's Customs subpoena documents were provided by Eastlings in 2017 to a forensic accountant, Dr Ian Fargher, for review. Dr Fargher has experience within the liquor industry from his time as an Assistant Commissioner of Taxation with the Australian Taxation Office (ATO) (there being in charge of the ATO's response to the cash economy). He does not have direct involvement in the parallel liquor market itself. He has been involved in managing and supervising compliance activity in his capacity as a forensic accountant.
Dr Fargher undertook a forensic analysis of the Paul's Customs subpoena documents which covered the period from 25 November 2011 to 22 May 2013 (i.e., 18 months prior to the sale of the Business). Dr Fargher compared those documents to records held by Eastlings after the sale. (I note in due course the criticism made by Mr Goodyer as to the limitations of the datasets used by Dr Fargher.) Dr Fargher also had reference to the original shipping documents and Australian Customs entry forms ("N10" forms for home consumption) for particular contained loads. (At T 376.35-377.1, Dr Fargher accepted that the N10 information is derived from the relevant shipping documents.)
To analyse the above documents, Dr Fargher applied what he described as a "scientific" approach "using the principle of triangulation, where calculations are reviewed from several angles to provide greater surety of conclusions rather than relying on just one calculation", in order to determine whether shipments received during the relevant period contained spare capacity that could be used for undeclared alcohol products (which he referred to as "undeclared capacity") (Expert Report dated 30 April 2018 of Dr Ian Fargher (Dr Fargher's 2018 Report) at [4.3]).
The three "angles" reviewed were: a Volume Comparison - a comparison by weight and volume of the actual container imported by Calidu and a benchmark capacity of a container (at [8.4]-[8.10]); a Payload Comparison - a comparison between the container contents of Calidu and the container contents of the same product imported by Eastlings ([8.12]-[8.16]); and a Declared Weight Comparison - a comparison of the declared weight of Calidu's container and the benchmark weight of the declared product in the container ([8.17]-[8.27]).
Dr Fargher's report proceeded on the assumption (see [4.2]; [4.4]-[4.9]) that ordinary business practice would be to import fully loaded (or fully packed) containers into Australia (rather than having spare capacity) in order to maximise their capacity and to minimise the cost of transport over each unit of product; such that "undeclared capacity" would be revealed where the declared contents of the container were: less than the calculated capacity of the container; inconsistent with the weight of the container compared to the weight of the declared product; and less than the same amount of declared product in a full container. (Such an assumption is not made good in the present case, where there is evidence that with at least one supplier, Pedro Vidall, a request was made by Calidu to reduce container loads.)
Dr Fargher's report identified anomalies in relation to importation documents and a variation in packing standards. Dr Fargher reviewed each set of documents for 232 shipments (being 552 containers) over the period. Of those shipments, the majority originated from J&E Winery and Windemac.
Dr Fargher concluded that, when compared by volume (which he noted could only be done for 135 shipments), a significant number of shipments from J&E and Windemac were "under loaded". He reached a similar conclusion when the comparison was conducted by reference to declared weight (the declared weight analysis being performed for both single product shipments and mixed product shipments).
Dr Fargher reported that there was a significant packing anomaly between Calidu's importations and Eastlings' importations. Dr Fargher states that these inconsistencies indicate that the packing process may have been comprised by, for example, containing undisclosed capacity or undisclosed packages (which I treat as no more than supposition on his party).
Dr Fargher's opinion (which he describes as a conservative opinion) was that an estimated 16,488 packages were not declared by Calidu in the period. Depending on what type of alcohol was imported and not declared, it was estimated that the economic benefit to Calidu could have been as low as avoiding $288,000 in excise and GST to as high as avoiding $1.4 million in excise and GST. (There was much objection taken by the defendants to the concept of "undeclared" capacity. I proceed on the basis that what Dr Fargher was assessing was whether there was spare capacity in the containers for there to have been additional produce over and above that disclosed on the shipping documents.)
Eastlings relies on Dr Fargher's conclusion to contend that Calidu's financial performance figures were clearly artificial as they were only sustainable by the utilisation of undeclared product; and that Calidu's margins were, therefore, not sustainable. Eastlings contends that turnover, PEBITDA and profit as recorded in Calidu's books were incorrect; and that Joe and Grace knew, or ought to have known, of those matters. As noted above, it is said that, had any of that been known to Eastlings, it would not have purchased the business. Eastlings says that because the conduct was "off the books", the true extent of undeclared product is unknown.

[60]

Mr Goodyer's 2019 Report

Mr Goodyer provided his expert report on 10 April 2019 (Mr Goodyer's 2019 Report). He was instructed to review Dr Fargher's report. Broadly, he was instructed to provide details as to the accuracy and transparency of the tables as they appeared in Dr Fargher's first report, the extent he agreed or disagreed with inferential anomalies, the extent he agreed or disagreed with the ultimate findings in Dr Fargher's report with regard to the appropriate methodology, whether there was "under‑declared" capacity and, if so, what was the extent of it and where did it come from; and the accuracy of the comparison of the pre‑May 2013 shipments with the post‑May 2013 shipments from the same suppliers.
In summary, he concluded that: (i) the triangulation method is inappropriate as it requires three accurate data points and Dr Fargher used erroneous or incomplete data; (ii) the weight and volume comparisons are based on erroneous or incomplete data; (iii) the packing comparison is based on an unreliable data source; (iv) according to the Expert Report of David Jones dated 12 March 2019 (Jones' Report), the assumption that the normal business practice is to fully pack containers ignores the road network operation restrictions; (v) the assumption and relying on the assumption that product packaging does not vary between loads is unjustifiable as, according to Jones' Report, Calidu under loaded containers due to short supply, only ordering what was necessary, economic supply and sales considerations; (vi) the benchmarks used by Dr Fargher were based on unreliable sources and inconsistent with industry practice; (vii) the comparison of pre-May 2013 shipments and post-May 2013 shipments is insufficiently detailed; (viii) excess capacity is not evidence of undisclosed goods and if excess capacity is relevant, importation documents alone are in inadequate evidence of the capacity of the containers; and (ix) Dr Fargher's tables are based on erroneous or incomplete data and are, therefore, inaccurate.

[61]

Cross-examination - capacity of containers

Dr Fargher's understanding of the capacity of containers was the subject of cross-examination. Dr Fargher explained that his understanding was informed by the inspection of a 20 foot container (considering layout, packing, opening and closing of the container) and internet searches (T 377:40-50) He worked on the assumption that the useable packing capacity of a container was about 30 cubic metres (T 379.30). He regarded this assumption as conservative as internet searches showed that a capacity of 33 and 34 cubic metres was achievable. However, he quite fairly, accepted that, on a particular shipment, there might be less capacity (29 cubic metres or less) and that a benchmark figure would not necessarily reflect the container capacity of a particular shipment (T 383.40-50-384.9, 393.17).
At T 384, Dr Fargher was cross-examined about Appendix F (his analysis of Eastlings' shipments). Dr Fargher did not know how representative a sample of shipments these were; he worked from shipping documents provided to him by Angus (I note that the database of Eastlings containers was about a tenth of the number of containers analysed for Calidu - see T 385-386).
Dr Fargher expressed the opinion (based broadly on his internet research) that packaging full loads was "pretty standard" to lock in the product so that it did not move (T 387.45). (I note that other experts referred to the use of dunnage (most likely airbags, cardboard and other packaging materials as timber raises a quarantine risk) in under-loaded containers to ensure product does not move - T 498-499. Further, I note that Joe's evidence was that he would always ask for a full container load (FCL) but that sometimes he would not get what he wanted depending on the availability of stock for that container (T 164).)
Dr Fargher accepted that the number of cartons would change depending on factors such as the size of container, whether any additional space was not filled, or whether the container was packed in a different manner (T 387). Taken to one of the Eastlings' shipments (of Stella Artois beer), Dr Fargher accepted that there was a differential of around 100 cartons of product as between some of the shipments but was emphatic that it was not being suggested that this differential meant that Eastlings was engaging in illegal importation (T 388).
Dr Fargher was shown shipping documents relating to imports by Eastlings of Heineken containing between 1,240 and 1,242 cartons in a particular container. He agreed that he was not provided with any Heineken shipments by Eastlings with that quantity when he did his analysis (T 392.13-17). He accepted that, had he had access to shipments from Eastlings showing Heineken shipments where the amount of containers was 100 less that other shipments, his analysis would change and in particular, it would result in a greater spread of standard deviation (T 392. 20-30). Dr Fargher accepted that it could indicate that the container as ordered by Eastlings was not full or would show a further variation in the capacity of a particular container but that he could not say which of those two possibilities it was.

[62]

Cross-examination - weights and measures

The weights and measures used by Dr Fargher in his calculations were the subject of extensive cross-examination. First, Dr Fargher accepted that there were changes to various weights and measures in his calculations as between his 2018 Report and his Expert Report dated 18 November 2019 (Ex M) (Dr Fargher's 2019 Report). The explanation for that was unclear (see T 398-399). Dr Fargher said he was sure the initial weighing was correct but accepted that it was possible that particular products might not have standard weights because they were produced from different locations or they were packaged differently. So, for example, he had disregarded Asahi beer weights because there was a 2.9kg difference in the weights as between the reports (and he accepted that this apparently indicated that between August of 2017 and November 2019 a substantial change had happened to the packaging of one of the products that he was assessing).
Second, Dr Fargher accepted that the weights used in some of his calculations in Appendix J of his 2018 Report, which details his Declared Weight Comparison, did not align with his table of known weights (table 5 - 2018 Report at [8.5]). For example, he had used for Heineken beer 13.1 as the known product weight in Appendix J by comparison with the 13.5 recorded in table 5 (this similarly occurred for Stella Artois and Becks beers). Dr Fargher confirmed that it should have been the same as the table weight and that the calculations would need to be redone - but he noted, with respect to Heineken, that it was a 2.9% error (see T 433), apparently suggesting that this was de minimis.
Third, Dr Fargher confirmed that part of his assumption in respect of the weights and packages recorded in table 5 was that those weights and measures were the weights and measures that were utilised by the people who had prepared the shipping documents in 2011 to 2013; and he accepted that he had no way of confirming whether they had indeed used those weights and measures in 2011 to 2013 (T 400.15-20). Dr Fargher referred to instructions that he had received from Angus (in response to a query by Dr Fargher) to the effect that there had been no relevant packaging changes in relation to particular products but he confirmed that he was not in a position to test that (T 400).
Fourth, Dr Fargher also accepted that, for his Declared Weight Comparison (Appendix J of his 2018 Report), he had made an assessment of the shipping documents (N10 form) based upon the weights and measures included in table 5 of his Report; that based on those assessments he had compared his calculations against what was recorded on the documents; and that he had identified differentials by reference to which he concluded that there was capacity for, or a potential for, additional stock to be included (T 403).
Dr Fargher was taken to a particular shipment (one collected on 30 October 2012 and arriving on 19 November 2012 - with a declaration ACAAA3JTC) in order to explain his process of analysis of the shipments in general. Dr Fargher explained that the N10 form in relation to that shipment recorded the gross weight of 30,576 kg. Dr Fargher divided that gross weight by the number of containers (in that case there were two containers with 1,880 packages). He divided the gross weight by 1,880 to arrive at a weight per package of 16.26 kilos. By reference to the table of weights for Corona beer (that being the single product in this shipment) it is said that this would be 14.65 kilos per package (or on Joe's estimate 14.8). Hence Dr Fargher's conclusion that there was far more weight on those containers than was explained by the product there recorded.
I note that Mr Goodyer's difficulty with that proposition is that he says it assumes that the gross weight on the N10 form (30,576) is calculated utilising a weight that accords with the same weights in Mr Fargher's table 5. As I understand it, that difficulty arises because of the uncertainty as to how the gross weight of the container as recorded on the shipping documents was measured in the first place; in circumstances where there is no weighbridge certificate (simply an estimate or a calculation on the shipper's end that is recorded in the shipping documents). To the extent that that weight was drawn from the bill of lading, the difficulty to which Mr Goodyer drew attention was that until 2016 there was no requirement for that to be verified by weighbridge certificate or the like. Hence, it was said by Mr Goodyer that the assumption underpinning this part of Dr Fargher's analysis could not be tested (see T 410-411).
The proposition was put to Dr Fargher in cross-examination that his calculations were based on the assumption that the weights recorded in the shipping documents were calculated using the same product weights in his table 5 (which, of course, raises a temporal difficulty) (see T 403, T 407-408). The defendants' position is that there was an assumption underscoring the accuracy of the variance (namely that whoever had prepared the shipping documents had used that particular weight). Dr Fargher maintained that his assumption "would be that they recorded it based on the shipping documents and their assessment" and that reliance could be placed on this (T 403.20, 411.30). Further, he accepted that, in order to translate the differential into the number of cartons it represents, he divided the weights from his table back in (T 404) and that this was how he formed his assessment of how many extra cartons had potentially not been declared.
Pausing here, this issue seemed to me to go no further than to amount to the proposition that, if the calculation of additional capacity is based on an assumption as to the weight of the product, then there would be a different result if there was a different assumption as to the weight of the product in question. Dr Fargher accepted that this was the case (T 408).
Ultimately, after this debate, what seemed to me to be abundantly clear was that the exercise that Dr Fargher was carrying out purported to do no more than provide an arithmetical calculation as to spare capacity (which would need to be adjusted depending on the assumptions used in that calculation).

[63]

Cross-examination - J&E Winery and Windemac

Dr Fargher confirmed that his analysis had revealed, in a large number of cases, that the weights recorded were in excess of the calculated weight (multiplying the cases per container by the weight for that product in his table). He said that the discernible pattern in that regard occurred in relation to two main suppliers (J&E Winery and Windemac) (T 411.40) and said that if there was broad inaccuracy in the gross weight he would have expected that it would have been far more uniform in terms of its effect across a range of suppliers.
Mr Goodyer rejected the proposition that a discernible pattern of that kind (across the dataset with a statistical anomaly with respect to only two suppliers) confirmed that in all of the cases other than those two suppliers the N10 assumption (i.e., the assumption that it correctly recorded gross weight) was correct. Mr Goodyer again emphasised that the method used to record the gross weight figure on the N10 forms was unknown. He commented that the fact that there was a pattern of anomalies in relation to two particular suppliers might be indicative of a number of issues relating to that particular supplier (such as whether the supplier was using a table of weights that was grossly inflated or in some other form) (see T 411.50-412.35, 413.45). As Mr Goodyer went on to say at T 416.45-50: WITNESS GOODYER: …So what I'm saying is that when you have a dataset pulled from disparate sources and you don't know how each of them are providing a particular piece of data you're relying upon, the reliability of the entire dataset is compromised and your strategic - sorry, not strategic, your, your analysis of those, those piece of data are going to be skewed in whichever way the, the, the particular sources collect their data.
However, Mr Goodyer accepted that if the weight was actually higher than what is recorded and the volume of packages in that container allowed for additional packages to be put into the container, then there would be capacity for additional packages (T 414.15). Asked whether that was not precisely the conclusion that Dr Fargher reached when he did the Payload Declaration Comparison in his first report, Mr Goodyer's response was to the effect that he understood how Dr Fargher had reached his particular calculation (i.e. by adopting assumptions) but he did not agree with the weight assumptions (as their provenance was unknown and untested) and, therefore, did not agree with the outcome of those calculations (T 414). Ultimately, Mr Goodyer agreed that Dr Fargher's analysis showed "outliers" in a dataset with regard to J&E Winery and Windemac, but said that the reason for the anomalies was unknown (T 417.1-5). Asked in effect whether, if that were the case, one would expect that these particular outliers would be outliers all the time (rather than 67% (for Windemac) or 80% of the time (for J&E Winery)), Mr Goodyer's response was that (at T 417.10):WITNESS GOODYER: No, because I still don't know how they're collecting the data or how they're doing it. We don't know ‑ for instance, there may be different responsible officers within an organisation that are, are providing this data onto a sheet of paper or whatever it might be, so therefore if you have one person who is particularly competent and several others that aren't, one person is going to give you better data than others, but we don't know where the data is coming from, and, and who's providing it and how they're doing it. O'NEILL: That answer relies upon an assumption that there is an internal inconsistency within the supplier, is that correct? WITNESS GOODYER: No, it's saying I don't know. I don't know why there would be a number of, of containers that appear to be anomalous across an ‑ in this particular dataset, and we, we have no information that allows us to understand that. At least I have not been provided anything that would allow me to understand that.
Dr Fargher accepted in this regard that the background material to the N10 form simply describes the entries and does not provide detail as to how the entries were derived (T 417). He made clear that his analysis relied upon the accuracy of the data input into a formal government form. He pointed out that, for roughly 30% of the time, the documents of J&E Winery and Windemac showed no excess capacity; and said that the amount of variance was also not consistent (i.e., that there would be some variance to weights related to 10-30 or so packages and other variance relating to some 130-140 packages) (T 417.45).
Dr Fargher gave evidence that the gross weight recorded on the shipping documents and on the N10 forms did not include the weight of the container, saying that the definition of gross weight is the weight of the product. He, therefore, assumed that the weight recorded as the gross weight on the bills of lading did not include the container. He said that if the weight of the container was included then the figures "would go off the scale" and there would be a lot of other anomalies (T 419). However, as was apparent from some of the documents to which Dr Fargher was then taken there were examples of bills of lading where it appeared that the gross weight recorded included both the containers and the cargo within them or where it was not clear (see T 420-422). The suggestion was put to Dr Fargher that there was a possibility that one or more of the persons who completed the shipping information in relation to a bill of lading incorporated their view of a container weight in respect of the gross weight that was recorded (T 421). Dr Fargher responded that, to do so, was not in accordance with the N10 form and therefore would depend on the capacity of whoever had filled out the relevant forms (as to which he could not comment) (T 421.25). (The defendants suggest this was possibly the explanation for the six shipments where there were very high variances, in the order of several thousands of kilos; i.e., that the container had been included as part of the gross weight.)

[65]

Cross-examination - packing consistency assumption

As to the assumption in relation to packing consistency, Dr Fargher said that this went to the question of variance. He said that, with his compliance background, he looked for "red flags" - one of which was the variance between one situation to another. Dr Fargher said that he looked at the standard deviation of packing of loads over similar products between what happened before and after Eastlings and he found that the packing standard deviation after Eastlings had acquired the business was considerably less than the standard deviation during the period of the Pauls' Customs invoices. He regarded this as an "indication of concern" (see T 425.10-25).
Mr Goodyer's response to that, was that, for statistical analysis and consideration of the standard deviation, it was critical that the comparison be of similar data sets and sample size. Mr Goodyer said that, insofar as Dr Fargher's calculations of standard deviation for some of the data sets consisted of three data points, this was insufficient; and that Dr Fargher was comparing data sets of different sizes (and with the Eastlings' data set having been selected for him rather than looking at an entire data set over a period of time). Complaint was made that there was uncertainty as to the completeness of the Eastlings data set and that what should have been compared was a data set over a similar length of time. Mr Goodyer noted that there were some documents (Ex 4) that showed that there were anomalies in the Eastlings' imports also but that they were not a part of the data set provided to Dr Fargher.
Mr Goodyer's opinion was that statistical analysis against two data sets would only give useable information if there were full data sets for each; noting that there was only a full data set for one (the Calidu set) and so the comparison was between some 500 or so importations and some 68. Mr Goodyer said that the statistical analysis of those datasets did not permit any conclusions to be drawn (only observations) (T 425.30-50).
Further, Mr Goodyer did not accept the proposition that, as a matter of statistical analysis, the smaller data set would have a greater variance than the bigger data set, because he said it was not clear how the data was selected. Pressed on this, he said (at T 426.25-50): WITNESS GOODYER: …So when we start to look at data, if we were to get all data from one particular source, analyse it statistically over a long period of time and at a number of data points, that analysis would be probably of greater value than multiple data sources over a short period because then we're trying to compare it to a single source or a sample that we don't know what else has occurred during that period. So we're getting a sample pulled from a large data set that we don't know about and comparing it to disparate sources of similar data.
Dr Fargher considered that this overcomplicated what had been done which he said was basically a standard deviation of a range of container fills (427.10-15). Dr Fargher accepted that the Eastlings' data set was smaller and over a shorter period but he did not accept the suggestion that the data set was hand selected; and he considered it to be indicative (426.1-5). Dr Fargher said that if there was a methodological difference between how the weights were recorded with the two outlier suppliers, then one would expect to see that difference reflected both before and after Eastlings acquired the business (not just during Calidu's ownership); and he said that the consistency of packing was much "tighter" after Eastlings took over the business than it was in the numbers that he had from before that time. In response to this, Mr Goodyer said (at T 427.50-428.4): WITNESS GOODYER: There's a chance that I may actually agree, however, I would need both full data sets to do my own analysis. At this point in time we only have a partial data set to compare and it's just not sufficient for me to draw a conclusion on the basis of 540 records against 68 where we don't know how they were selected, whether it was subjective, random or otherwise.

[66]

Cross-examination - Dr Fargher's Payload Comparison

Questioned as to Appendix F (the information about the Eastlings' shipments for volume comparison annexed to Dr Fargher's 2018 Report), Dr Fargher confirmed that: (i) he did not there identify who the suppliers were for those shipments; (ii) that they were the shipments that were relied upon for his standard deviation assessment (in table 11); and (iii) the shipments relied upon for the Payload Comparison were included in Appendix H (at p 56). In preparing Appendix H, Dr Fargher identified particular shipments with particular container numbers; the supplier identified in relation to the particular shipment concerned the supplier of the shipment to the defendants (except in the case of shipments which Dr Fargher understood had been arranged or ordered by the defendants and then just redirected when they arrived in Australia); he identified the number of containers for each shipment and the product contained within each shipment. He understood that these were all single load shipments (i.e., only one type of product was shown as being within the container). Dr Fargher identified the total packages divided by the number of containers to obtain the packages per container and then used the Eastlings per container amounts as part of his Payload Comparison. Those figures identified there were the consequence of what Dr Fargher assessed in Appendix F.
Dr Fargher then calculated an average per container (for example for Corona, based an average of 19 containers he calculated 1,076 units of Corona per container. For the following beers, the average was based on; Stella Artois, seven containers; Heineken, 11 containers; Becks, four containers; Coronita, three containers; Nastro, 14 containers; Peroni, ten containers; Poretti five; Budweiser, two and the rest of them are based on one container. As noted above, Dr Fargher accepted that the Eastlings data set was smaller than the Calidu one but he did not accept that 68 containers was a very limited data set. Dr Fargher accepted that, in relation to any particular product, the most containers on which he had drawn his average figure was for Corona. Again, he did not accept that the extent of the sample size undermined the reliability of the Payload Comparison (Appendix H).
Mr Goodyer, again, by reference to the smaller dataset considered that a specific conclusion could not be drawn as to whether the averages of those particular 68 containers were representative of the average across all Eastlings' transactions.

[68]

Shipment number 3

First, Dr Fargher was taken to shipment 3 (Preston's 2019 Report, Annexure A at p 57), a shipment of two containers containing 2,956 cartons of Becks beer with a declared weight of 41,851 kilos. Mr Preston applied Dr Fargher's 13.5 figure for the weight of a Becks carton to the number of cartons (see table 5) and said that in fact the weight only equates to 39,906 kilos (a difference of 1,945 kgs). Mr Preston said that this represented the potential for another 144 cartons of Becks beer within that container. Dr Fargher accepted that, Mr Preston appeared to be adopting the same methodology that Dr Fargher did in relation to his weight comparison.
Mr Preston noted that the bill of lading records the container's volume at 40 cubic metres whereas the measurements of the cartons indicate 65.404 cubic metres. Dr Fargher accepted that the volume calculations on the 2,956 cartons of Becks beer would give a total volume of 65.404 cubic metres; i.e., 32.7 cubic metres of stock in each of the two containers. Dr Fargher accepted that 32.7 cubic metres of stock in each container would, on his analysis, be a "very full" container and that, on those figures, there would be no capacity within those two containers to fit an additional 144 cartons of Becks beer. However, Dr Fargher resisted the proposition that, on those figures, the analysis relying upon the weight calculations and the assessment of how many additional cartons of Becks beer could not be correct. Rather, he said that "[o]n the basis that we know that containers can go above 30 cubic metres then, you know, it, it, it may be extended further in those containers but, according to my benchmarks, it's over the, over the benchmarks that I used" (T 437.30).
Asked whether, based on that analysis, it was unreliable to rely on the difference between the declared weight and the calculated weight to determine the potential for additional stock in a particular container, Dr Fargher said (at T 438.10-15): WITNESS FARGHER: I, I, I - you've got one, one example as opposed to 232 shipments. The, the analysis of the calculated weight is, is logical and stands up. The - you're, you're back to the recorded weight issue. You've got one example where the recorded weight doesn't seem to afford (as said) with the volume calculation.

[69]

Shipment number 4

Next, Dr Fargher was taken to shipment 4, which was one container of Peroni Red beer with a declared weight of 19,176kgs containing 1,410 cartons. Mr Preston applied Dr Fargher's assumed weight for Peroni Red beer of 12.7 (as per table 5) to come up with a weight calculation of 17,907kgs. This constitutes a difference of 1,269 kilos or an additional 99 cartons of Peroni Red beer to what was declared. Mr Preston noted that the bill of lading recorded the container volume at 15 cubic metres but on his assessment, using the volumes that Dr Fargher had determined, the volume of the cargo amounted to 30 cubic metres.
Asked whether, using Dr Fargher's assumption of 30 cubic metres, it was not possible to include an additional 99 cartons of Peroni Red in a particular container, Dr Fargher said (at T439.5-10): WITNESS FARGHER: …. We've used 30 cubic metres as a conservative estimate across all containers, the 552 containers. So, but we know that the latitude is at least 33 to 34 cubic metres and, on this example, that would bring you to 32 cubic metres. So it, it is possible.
Dr Fargher gave a similar response when taken to a similar discrepancy in relation to shipments 9 and 31, noting that "looking at single examples are not out of order of that expectation" (see T 442.5-10).
Dr Fargher accepted the recording on the bills of lading of 15 cubic metres in shipment 3 was "obviously wrong" and 40 cubic metres in shipment 4 appeared to be incorrect (T 440). Asked whether that raised any doubt about the accuracy of the information contained on the bills of lading in relation to measures, he said: WITNESS FARGHER: That, that cubic metres is, is different to the weight. I would have thought that the weight recorded would have to be relatively accurate because it's the weight that is of concern to shippers and so on, you know, as to what they've got as their total container load, so I thought that would have been fairly important. That's a ‑ that general expectation.
Again, Dr Fargher accepted that there were 2016 regulations brought in for the purposes of verifying weights of container loads but said that was not the area of expertise of a forensic accountant. He agreed that his previous comment about the importance of weights being correct was also outside his area of expertise, saying that he was not proffering an opinion other than the relative importance that he would place on those two numbers (T 440).

[75]

Expert Evidence of Mr John Preston, Mr David Jones and Mr Charles Gallagher

Mr John Preston is the managing director of a road transport company (Alliance Transport Pty Ltd), a company which oversees and manages the delivery of 20 foot and 40 foot containers to importers and exporters on a daily basis. Mr Preston is not involved in the inspection of the contents of containers or unpacking them (although his drivers are) (T 491). Mr Preston formerly been a licensed customs broker and sea freight manager for some time, in which capacity he had experience in clearing bills of lading, paying freight and port charges, collecting documents from importers and exporters and overseeing customs clearance attached to the importation of goods into Sydney (see Mr Preston's 2019 Report at [1]-[2]).
Mr Preston was instructed to review the expert reports of Mr Jones and Mr Gallagher, and the Joe's affidavit affirmed 4 September 2019 affidavit of Joe; and to opine of various matters (see at [2.1]) as well as to provide an outline of procedures for the importation of goods from international locations. A fundamental assumption he adopted was that shipping containers are packed to the full capacity allowed by the cubic measurement, stating that it provides economic benefits for the importer by maximising the payloads or utilising the full capacity; which then minimizes the individual import cost per carton or unit ([3.2]).
Mr Charles Gallagher provided an expert report dated 18 October 2019 (Ex 8 (Gallagher's Report)). He is a licensed customs broker currently employed by FEDEX air express company (at [1.1]).Mr Gallagher was asked to provide his opinion as to whether bills of lading and other documents associated with the importation of goods, in particular alcohol, into Australia prior to May 2013 are likely accurately to record the weight of the goods the subject of that importation. His conclusion was that the weights in some sea container shipments would not be accurate as declared by the shipper prior to May 2013 (see at [6.1]). This was on the basis that until 1 July 2016, industry practice for many years was that the onus was on shippers to supply correct weight information on shipping documents and that industry accidents had led to the SOLAS (Safety of Life at Sea) Convention being brought into being which made compliance by shippers mandatory and led to other legislative requirements being implemented (see at [6.3]).
Mr David Jones is a managing consultant in the area of logistics. He provided an expert report dated 12 March 2019 (Jones' Report). He was asked to consider Dr Fargher's report and to opine on various matters. He concluded that there was no evidence of the road network operating restrictions being taken into account in Dr Fargher's Report (at [1.7]). His calculations based on the anticipated volumes in Dr Fargher's report were that the containers, if loaded as Dr Fargher has calculated, would frequently have been overweight and not compliant with those restrictions. He concluded that Dr Fargher's calculations, estimates and theories as to what could be transported at full utilisation are inconsistent with the operating requirements ([1.9]). Mr Jones believes Calidu and Truckspeed reduced their payload to maintain compliance with road regulation and chain of responsibility legislation.

[77]

Cost of importing multiple containers

Mr Gallagher stated that there are additional handling costs for the importer where there is more than one container (port service charges, transport charges, and the like) and possible storage charges if all containers could not be unloaded at the time. Mr Preston agreed with Mr Gallagher and added that the only other cost would be the detention costs if the importer did not unpack the container and the additional costs now of returning empty containers (T 540).
Mr Gallagher accepted that in his experience of the parallel import liquor market importers will try to minimise how many containers they use to minimise their costs (T 541.30). He said that it depended on the contract of sale. He said that if the importer was buying the goods on a free on board (FOB) basis, the importer would be responsible for the freight and insurance of the goods from the port of export to the importer's place and the importer would then endeavour to minimise their costs. In these circumstances, importers try to minimise the number of containers. He said that his clients, who shipped mixed containers of all sorts of goods, whether it be alcohol or others, if they were paying a freight they would have very little air inside the container (T 541).
Mr Gallagher noted, by contrast, that if the importer was purchasing the goods on a costs and freight (CNF or CFR) or a cost insurance and freight (CIF) basis, that cost is borne by the shipper; so that the importer would be getting a carton price or unit price, at a set figure. He said in those circumstances the importer would not be worried about how many containers were used. (Mr Preston did not comment on this as he has no experience in the parallel market.)
Mr Jones added that, in light of the CNF operation where the exporter pays for the sea freight and the importer pays for what they call terminal handling charges and transport out to the yard, he considered that the cost per container from Botany to Calidu's premises would be somewhere in the order of about $300 and that transport handling costs would be probably around about $140-150, so that there would be a figure of roughly $450. Mr Jones said that bringing in a container from Singapore would cost the exporter about $2,000 and the importer about $400, and he considered that it was in both sides' interests to maximise the use of the container's space (even though the exporter had the biggest cost differential to bear) (T 542).

[78]

Stacking containers

Insofar as Mr Preston (at [5.7] of his Report) referred to the standard practice of fully packing containers and his fundament assumption (at [3.2]) that shipping containers are packed to full capacity, Mr Preston accepted that (as above) in relation to at least parallel import markets he did not know what the standard practice was in relation to stacking of containers (though he did say that of the companies he had dealt with over many years, his experience was that the companies filled the container to its full capacity) (T 495.10). He agreed that one of the reasons for that practice was to ensure that the import costs are spread over as many cartons as possible. He was aware that the business of Calidu (i.e., J&J Wholesaler Distributors) purchased its product from suppliers overseas largely on a CNF basis; i.e., that the cost of freight is built into the per carton price set by the supplier. He said that sometimes the value of the goods plus freight might be itemised on the commercial invoice and then as a customs broker the freight would be taken off for customs purposes.
Mr Preston confirmed that there were major issues with load restraint and the regulations and rules. He said that under the Load Restraint Guide and other legislation the goods must be secure in the container and when they are evenly packed, such as beer, goods are fully packed in the containers (because otherwise they "slide around, fall over and when the individuals open the container doors, the cartons can fall on the individual") (T 498). He said that, from an occupation health and safety point of view, containers are always fully packed. He said that there are ways to secure the product if the containers are not fully laden, namely by putting airbags in, cardboard bags or other packaging materials around it (referred to as dunnage), but that to minimise the risk of quarantine no one would put timber in containers.
Mr Jones confirmed that dunnage is used by the exporter in under-loaded containers to secure the cargo (T 498.40-50). He noted that, additionally, the weight distribution in the containers needs to be spread out across the container to even the weights, so that the container is not front heavy or back heavy.
Mr Preston accepted Mr Jones' assessment that in relation to the sideloaders used by Truckspeed to transport the J&J containers in 2012/2013, there was a 42 and a half tonne limit attached to that vehicle imposed by regulations (unless application was made for a concessional mass limit or higher mass limit) (T 500).
Mr Preston accepted that the road transport limitations needed to be considered in assessing the ability of containers to be fully loaded. He also agreed, in his joint report with Mr Jones, that in relation to a container there is a weight limit of approximately 22 tonnes (i.e., the gross weight of the load); so that the cargo within the load would have a limitation of approximately slightly under 20 tonnes (T 500.25-40). Mr Preston was aware that as between Truckspeed and the Business, there was a request that the container load (i.e., the cargo load), be limited to 18 tonnes.
Mr Jones stated that in the course of preparing his evidence he spoke to both directors of Truckspeed who advised him that they requested Calidu to limit the net truckload in the container to 18 tonnes and that he had used that as part of his calculations for the assessments (Jones' Report at [7.52]).
When asked about the potential for damage to containers to limit their capacity, Mr Preston said that normally when the company picked up a container for export purposes it would be checked and if it was dented the company would request a new container with no indentations or damage to it. If containers are damaged the company would make a damage report at the terminal (T 502.5-25).At [4] of Mr Preston's Report, he sets out the importation process from the time an order is made to the packing of that product, the shipping of that product and the completion of various documents in relation to that product. At [4.3] he states: The cartons that are packed into a shipping container must be verified by one of two methods. (a) weighing the packed container via a Public Weighbridge or calibrated scales. (b) weighing all packages and cargo items, including the mass of pallets, dunnage and other securing material to be packed in the container and adding the tare mass of the container to the sum of the single masses, using a certified method approved by the competent authority of the state to which packing of the container was completed.
Although Mr Preston said that the need to record weights correctly on the documentation had been in place since 1994, he accepted that the requirement to verify this only came into force in 2016; and he understood that prior to 1 July 2016 there had been a significant worldwide issue with the incorrect recording of weights on shipping documents (which had led to the SOLAS Marine Order 42) (see T 504).
Mr Preston was not aware whether Windemac in Singapore ever utilised scales when it was preparing shipping documents, nor whether any of Calidu's suppliers utilised scales for the purposes of measuring the weight of stock; or how they arrived at the figures recorded on their documents (T 505).
Mr Preston agreed that the weights recorded on Customs documents, like the N10 forms, had been obtained from the shipping documents that were prepared on behalf of the exporter (T 505.40-45).
Mr Preston accepted that bills of lading record a weight under the title "Gross Weight"; and sometimes bills of lading refer to gross weight cargo and tare weight of container; and other times just gross weight. He accepted that where it is just recorded as "gross weight" on a bill of lading, gross weight could be a reference to both the container and its content (T 506.11-16). He agreed there was a possibility the person who completed the bill of lading may have included the weight of the container and the cargo and "that's why the documents have got to be checked between the packing list to the bill of lading to confirm what is the actual weight" (T 506).

[79]

Mr Preston's Annexures

Mr Gallagher was not instructed to undertake an analysis of each of the shipments that were detailed in Mr Preston's Report. Neither, initially, was Mr Jones, who said he had no access to Mr Preston's affidavit until the day after the expert conclave (T 502). However, after that Mr Jones had reviewed some of the examples in Mr Preston's Report to find out whether there were any patterns forming in some of the data that could either support or disclaim, one way or the other what was going on with the import or export operation.
Mr Jones said that he conducted a data analysis of the first 100 shipments in Annexure A and came up with a series of findings that related to a number of containers that he says were technically overloaded including quite a few that were above the 18 tonne restriction that Calidu was operating with Truckspeed and some that were overloaded well beyond the road transport allowance even at the 22 tonne level (T 503).
Annexure A to Preston's Report was introduced above at [295]. In Annexure A to his report, Mr Preston analysed the various shipments identified by Dr Fargher. Mr Preston confirmed that he had looked at a number of cartons of a particular product alone to each shipment and had applied the weight that Dr Fargher analysed in his Report; he had not done his own independent analysis of the weight. He said that he had done his own volume calculations but had used Dr Fargher's volume calculations as to particular carton sizes.
Mr Preston accepted that the declared weight he applied was the weight as recorded on the shipping document; but he had no idea whether that declared weight was right or wrong (T 509.1-10). He also accepted that he had no idea whether his calculation of the weight of 2,956 cartons of Becks beer reflected the actual weight of the delivery made in 2011.
The issue was raised in cross-examination that Mr Preston was not asked to determine the volume of a container but to adopt the analysis of Dr Fargher (see 510). However, Mr Preston gave evidence that in his experience, the internal dimensions of a container might vary slightly and there was only one commodity that had ever gone to 38 cubic metres but that everybody in the industry roughly fit 33 cubic metres into a 20 foot container (cf, I note, Dr Fargher's more conservative benchmark of 30 cubic metres) (T 510-511, 512.25). Mr Preston accepted that, depending on how evenly the container was packed within that 33 cubic metres, there may be space to the top and space to the side that could not be filled (perhaps amounting to 2-3 cubic metres) (T 511-512). His evidence was that cartons are "virtually jammed to the side of the containers" (T 512.45).
Mr Jones accepted that 33.2 cubic metres or 33 cubic metres is the standard average (T 513.10-20). However, as to a 38 cubic metre model, Mr Jones noted that there is something called a high cube container in operation around the world but said that they were not widely used. Mr Jones was of the opinion that packing containers, boxes and cartons of varying sizes to achieve an absolute maximum 33 cubic metres of space was unrealistic, even if the boxes were uniform. He says that calculations which suggest that the container can be filled entirely (floor to floor to ceiling) are not always achievable due to the carton sizes and that generally, there will be some airspace (T 513-514). Ultimately, he says "using finites and maximums is a little bit tricky. It's somewhat distorting the numbers" (T 514.7-15).
In Annexure A, Mr Preston calculated the volume of particular shipments by reference to the measurements of the cartons and the number of cartons imported and compared this to the volume recorded on the bills of lading (see T 516). When taken to shipments 3 and 4 in Annexure A, Mr Preston agreed that the discrepancies between the cubic metres recorded in the bills of lading and the cubic metres he calculated indicated that the bills of lading for those shipments were incorrect (T 516.14).
Mr Preston estimated (according to the declared weight and the weight he calculated with reference to Dr Fargher's table 5) shipment 3 could have fit approximately 144 more cartons of Becks (see Preston's Report at p 57). Mr Preston agreed that (there being a finite amount of space within a container), if the number of cartons disclosed as being in the container on the shipping documents came to the volume that he had calculated, it would not be possible within that particular container to fit, say, approximately 144 extra cartons of Becks beer (T 517.5). He came to the same conclusion when questioned on shipment 12 (see T 519) (i.e. that if his calculated volume was correct, then the capacity for extra beer to fit in the container (revealed by comparing the declared weight with the calculated) was not possible.
Annexure C is a subset of Annexure A (T 517.20; Preston's Report at p 125). Annexure C represents a series of shipments that Mr Preston identified where the declared weight on the documents was less than the weight he had calculated. So, for example, shipment number 90's declared weight is 49,900 kilos, and Mr Preston's calculation of the measured weight is 51,053 kilos. Mr Preston draws from this that the shipment's weight was incorrectly declared; and that if he had been the customs broker looking at that, he would be asking questions about the weight variance(T 518). He did not draw from that a conclusion that there was potential for additional stock to be within the container (especially since, for shipment number 90, he did not have the relevant information for the cubic capacity).
As to shipment number 36, Dr Preston's calculation of the capacity by analysing the volumes of cartons (1,500) resulted in 30.525 cubic metres.
In relation to shipment 36, Mr Jones said that taking the 1,500 cartons at 16.2 kilograms (Dr Fargher's table 5), there would be 24.3 net tonnes in that container, and with the weight of the container itself it would be up to around about 27 tonnes. He said that "[y]ou are very much overloaded on the swinglifter (i.e., the transport vehicles) by probably about 5 tonne. That container is pretty chockablock. It's very much overweight" (T 520.25-30). Mr Jones said that, if one looked at the compliance weights (including the 22 tonne limit), the container (using the calculated weight) was at least 5 tonnes over the road limit and so it could not have had any additional stock in it (T 520). Mr Preston further said that if the value or the weight were taken as being correct, then the container could not be transported with a sideloader by Truckspeed; would have required a semi-trailer or a B-Double; and Truckspeed indicated that it always used the sideloader to do deliveries from the wharf (T 521).
As to Mr Preston's calculations in relation to shipment number 58, a shipment of six 20 foot containers containing Corona, Heineken, Kirin, Stella Beer and Mumm Champagne, Mr Preston identified 320 cartons of Kirin beer with an unknown weight factor (it was not included in Dr Fargher's table 5) and then calculated the weight of the shipment at 83,418.7 kilos (not including the Kirin). Therefore, it is said that the approximation of how many other cartons of another product of beer could be in the container load based on the weight differential calculation does not take into account the 320 cartons of Kirin. Mr Preston agreed that his calculations needed to be adjusted to make an allowance for the content and weight of the Kirin beer (at T 523). This was similarly the case with shipment number 58 (referred to in Mr Preston's Annexure E at p 131) (see T 526.1-10).
As to shipment 55, it was revealed in cross-examination when Mr Preston was taken to the invoice detailing the shipment that it included both Leffe Blonde and Leffe Dark beer. However, Mr Preston's weight calculation for the container applied the weight of Leffe blonde beer for all of the Leffe beer (based on the information he had at the time which detailed only "Leffe" beer) (at T 524).
Mr Preston was taken to his Annexure E titled "Shipment Records with Major Anomalies" and in particular, his analysis of shipment 26. Mr Preston's analysis of the importation documents indicated that one container held 1,400 cartons of Becks beer, with a calculated weight of 18.9kgs versus a declared weight of 19.6kgs per carton. Mr Preston analysed the volume of those 1,400 cartons as being 30.976 cubic metres compared to the declared volume of 15 cubic metres (Mr Preston's Report at p 130).
Mr Preston analysed the potential for there to be 52 more cartons of Becks beer in that container than what was declared (based on the weight difference). He agreed, however, that if the volume of the cargo that has been declared is as he calculated (30.976 cubic metres), then 52 more cartons of Becks beer could not fit in that container (T 524).
He further noted that while the bill of lading recorded 1,400 cartons, the invoice in relation to this container to 21st Century Beverages stated 1,500 cartons were sold. Mr Preston agreed that it would follow that there was no space within that container to fit another 100 cartons of Becks beer, based on volume. Mr Preston agreed that the same conclusion applied in relation to shipment reference 31.
Mr Preston was taken to shipment number 74 which he first recorded as 7,549 cartons of Corona, Stella Artois and Heineken and later recorded as Corona, Stella Artois and Hoegaarden. Mr Preston's calculation continued on the basis that it was Corona, Stella Artois and Heineken (not Hoegaarden) (Preston's Report at p 132). However, Mr Preston was unable to say, without reference to the documents, whether Heineken or Hoegaarden is the correct reference and what should have been applied in the calculation (T 526.25).
In Annexure E, Mr Preston identified 3,597 cartons of Becks beer with a declared weight of 58,559 for shipment number 160. Reference is made to the invoice that declares 3,447 cartons. Mr Preston stated that this revealed an under‑declaration (to the Australian Border Force) of 150 packages (T 527.5).
Mr Preston was taken to Exhibit H, relevantly, the packing list and invoice issued by Windemac for 3,447 cartons (see at p 126-133); the Pauls Customs documents (a worksheet, a tax disbursement invoice and a tax invoice); the N10 form; and a "draft" bill of lading. Mr Preston said the N10 form and "all the other details" is what is provided to the Australian Border Force for the purposes of calculating excise (T 528.40). While Mr Preston accepted that the N10 form referred to the total number of packages at 3,597, he did not accept that excise had been assessed on the basis of there being 3,597 packages because the invoice and packing list says 3,447 (T 531.35).
What was raised for discussion at this point was the basis on which excise was calculated, having regard to the fact that the customs declaration was for 3,597 packages.
Mr Preston's evidence was that the commercial invoice was for 3,447 cartons with a value stated at $37,572.30. He said that that was the value of the consignment and that the value of the other 150 packages should have been added to it (T 533-534). In essence, he says that "the correct cartons have been declared for the shipment but the commercial reality here it's not declared" (T 534.5). Mr Preston's evidence was that the relevant duty and excise taxes are paid in accordance with the value of the consignment and so had the consignment included the 150 packages, the excise would have been higher.
Mr Gallagher confirmed that the commercial invoice is used in an N10 valuation, so that the value on the N10 will be what is on the invoice and not relating to the number of packages. He said that the number of packages would have been input as per the bill of lading, but that the actual value and the calculated value would be from the commercial invoice. He noted that excise and taxes are taken from the litre of alcohol content (depending on the type of alcohol) and also a percentage of the value of the goods; on top of which there is GST as well (T 532.30).
As to the alternative explanation (that the figure of 3,597 was incorrect), Mr Preston says that this cannot be the case because the bill of lading (the shipping document) recorded 3,597. He nevertheless accepted that he is not aware of any other invoice in relation to this shipment.
Mr Preston agreed that the only way in which there could not have been an under-declaration for this shipment would be if the payment for the extra 150 cartons was for zero dollars (T 534). As to that proposition, Mr Gallagher, expressed the view that there would still be duty and taxes applicable even if there was a zero dollar invoice because everything has a customs' value.

[81]

Breaking the container's seal and cross-checking

Mr Preston confirmed that normally it was the ultimate consignee or the importer who would break a container's seal and cross check the contents of the cartons when it came out. He also said that a transport company was not allowed to break the container seal, unless in the presence of a customs officer or a quarantine officer. He said that under the load restraint guide, transport operators must now check the load before departing on New South Wales roads but that his transport company does not have the authority from any importer to break the container seal. So, he said that in 99% of cases, his drivers would drive direct and deliver the container to the client's premises, whether that be the importer or the ultimate consignee, or a third party warehouse, and either the client would break the container seal or the transport company would break it in their view with bolt cutters. He said that the transport company is not involved in checking the contents of the container as against the packing slip. Rather, the transport company was concerned about the container itself (that the four walls are secure, the seal is correct when we check it out of the wharf, and that any visible damage to the outside of the container is notified to the authorities) (T 538).
Mr Gallagher added that, with the containers coming off the wharf, transport companies he had used always checked the seal before leaving the wharf to confirm that it was not broken because the driver then took responsibility of the contents of the container to delivery point (and if the seal had broken and the driver did not verify it and something was missing, that driver would be held responsible for possible theft). Also it was noted that the transport company would check the status of the container for any visible outside damage (for insurance purposes). Mr Gallagher confirmed that the transport companies always check that the seal is not broken when they leave the port as it is their responsibility if something is missing (538.50-539.5).
Mr Gallagher said that it was not always the case that a customs officer or official was present when the seal was broken at the importer or consignee's premises. He said that if the container was clear to be delivered with no restrictions, quarantine or customs, there would be no reason for customs to be there; although customs would perform random checks, most of that would be done beforehand. He noted, however, that if it was entered for warehousing (Nature 20 Declaration), then it would be moved to a bonded custom controlled area, and the seal would be broken by the relevant employee and the contents verified as against the Customs entry (T 539).

[82]

Mr Tony Samuel and Mr Stephen Groves (Joint Report Ex O) - Valuation of Business

An analysis of the value of the business as at the Completion Date (24 May 2013) was prepared by a forensic valuer and accountant, Mr Tony Samuel, who was instructed by Eastlings to provide an opinion on the true value of the Business as at the completion date, having regard to the actual cash flows from then until 30 June 2014. Mr Samuel provided two reports: Expert Report dated 6 December 2018 (Samuel's 2018 Report); Second Expert Report dated 29 May 2019 (Samuel's 2019 Report).
Mr Samuel concluded that: the true value of the Business at 22 May 2013 was approximately $1.7 million (comprised of: actual cash flows up to 30 June 2014 of $216,399; market value of stock as at that date ($1,479,705) and attributing no value to the goodwill of the business at that date) (see his 2018 Report at [19]). Mr Samuel's calculated the total costs incurred in acquiring the Business at $4,760,932 (comprised of: purchase price of 2.5 million; value of stock acquired at 1,108,401; additional borrowings since acquisition at 917,916 and interest and borrowing costs of 234,615) (2018 Report at [20]). Hence, he calculates the loss suffered by Eastlings is $3,064,828 (2018 Report at [21]). It is noted that Mr Samuel's analysis looked at the performance of the business immediately post acquisition.
Relevantly, Mr Samuel was instructed to proceed on the basis of the definition of True Value set out in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 (HTW Valuers) at [36]-[40], namely that it is the "'real value' or 'fair value' or 'fair or real value' or 'intrinsic' value or 'true value' or actual value' or what the asset was 'truly worth' or 'really worth' or 'what would have been a fair price to be paid … in the circumstances … at the time of the purchase'", and is to be ascertained in the light of the events which afterwards happened to the extent that these events inform the true value as at the relevant date. (In his 2019 Report, Mr Samuel points out that the definition of "true value" is a legal matter on which it is not within his expertise to comment - see at [17].)
Using Mr Samuel's methodology (referable to PEBITDA), Eastlings thus says that the true value of the business (inclusive of stock) as at 22 May 2013 was $1,696,104. It is submitted that this affirms that the financial indicators as to turnover, PEBITDA and profit in the Information Memorandum were misleading.
Mr Stephen Groves was instructed by the defendants and produced an expert report dated 11 April 2019 (Expert Report of Stephen Groves dated 11 April 2019 (Groves' Report)). Mr Groves disagreed with certain assumptions that Mr Samuel was instructed to make: (i) the definition of True Value; (ii) that the period between 24 May 2013 and 30 June 2014 provides the best indication of the Business acquired by Eastlings; and (iii) that, as at 1 July 2014, the directors of Eastlings expected the Business to continue making losses after accounting for finance costs. Mr Groves concluded that the fair market value of the Business as at the completion date was $3.6 million based on the actual transaction price.
In his 2019 Report, Mr Samuel considered Groves' Report. Mr Samuels stated that nothing in that Report caused him to change the conclusion in his 2018 Report. Mr Samuel made clear that he agreed with Mr Groves as to the definition of market value/fair value but said that a key component of that definition is that the parties are acting knowledgeably (at [12]). Mr Samuel's position is that if the allegations of misrepresentation (as to turnover, PEBITDA and profit) and as to the alleged omission to disclose the importation and sale of undeclared units are correct, then the transaction was not conducted by the parties acting knowledgeably and, therefore, the definition of fair market value cannot be satisfied and that approach cannot be relied upon to determine the fair market value of the Business as at the date of the transaction.
Mr Samuel agreed with Mr Groves that a value based on market value or fair market value would only have regard to what is known at the date of valuation. However, he disagreed with Mr Groves that regard can only be had to historical financial results. Mr Samuel says that value is a forward looking concept and that under a fair market value assessment, a valuer needs to assess risk by considering both historical events and likely future events (see 24). Mr Samuel says that historical financial performance certainly would not be an indication of future performance if it is assumed that the representations made during the relevant historical period were misleading in light of the alleged undeclared units; and that any valuation based on misrepresentations as to historical turnover, PEBITDA and profit will be unreliable (2019 Report at 22).

[83]

Concurrent evidence

The effect of the Joint Report (Ex O) is that, if the assumption in relation to the true value there described is correct, then both experts reached the same valuation figure (i.e. $1.7 million) (see Joint Report at p 5). Mr Samuel pointed out that both experts have reached the same conclusions as to the methodology for determining market value. His caveat was that he had not considered whether the parties were, in fact, knowledgeable and not anxious (T 458.20).
Mr Samuel accepted that he considered the operation of the business post sale up to 30 June 2014 for the purposes of determining the true value of the business that had up to 24 May 2014 been operated by the Merlo family. He did not accept that the effect of this was to utilise the performance of the Hamilton family in trading as J&J Wholesalers to determine the true value of the business of J & J Wholesalers when it was traded by the Merlo family. Mr Samuel's opinion was that (at T 459.40-45): WITNESS SAMUEL: … Determining the true value of the business acquired, the value is a function of ‑ ultimately of what the acquirers intend to do with it as at the date of acquisition. It's about the future cashflows, not the historical cashflows, and although those historical cashflows will inform your expectations of the future, clearly when you're acquiring a business you anticipate that there will be new management.
Mr Samuel said that if the business being acquired was an owner managed business (as this was), then one would anticipate new management (as opposed to acquisition of a large business where one would assume that management would remain in place.
Mr Samuel accepted that in his 2018 Report he identified the need to distinguish between possible causes of the decline in the value of the business and whether those causes are inherent or independent, extrinsic, supervening, or accidental (T 459.10-15; Samuel's 2018 Report at [40]).
At [41], Mr Samuel said that in his opinion the best indicator of the cashflows attributable to the business is the actual cashflows derived from their use and that any cashflows determined to be caused by independent, extrinsic, supervening, or accidental events can then be excluded.
On this basis, Mr Samuel identified the need to exclude some income caused by moneys received from shares because they were unrelated to the business that was acquired (i.e. independent, extrinsic, supervening or accidental). He said that: WITNESS SAMUEL: … investments in other entities which generate dividends simply were not acquired as part of the acquisition, so they're entirely irrelevant to the consideration of the true value of the business that was acquired, therefore any income from those investments that appeared after the date of acquisition need to be excluded.
Mr Samuel's referred to massive foreign exchange loss as another example of an extrinsic loss which would need to be excluded (T 461.35-40). Mr Samuel accepted that there had been a fall in the exchange rates for the Euro and the US dollar between 2012-late 2013 (T 465.15). When questioned whether Mr Samuel considered the movements between the Australian dollar and the US dollar during the year (given the Business was importing and trading in US dollars), he said that he had not, but that "we can see from the financial statements the exchange gains and losses that they recorded, and they were, they were not material" (T 463.28). Mr Groves said that he had also not looked at the exchange rates (T 465.45).
Further, Mr Samuel agreed that if costs of products have increased (due to exchange rates), then to determine if that had affected the overall profitability of the company, one would have to explore the extent to which any cost increase is recouped by price increases (T 464.30-35). He also said it would be necessary to look at the financial statements to determine if there were in fact any material exchange, gains and losses (which he had done), and there were not. He also considered it would be relevant to review if any hedging had been undertaken (T 465.25).
Mr Samuel was asked to consider whether a decision by management to increase the prices of its product to its customers could be considered an independent or extrinsic cause. He said (at T 466.5-15): WITNESS SAMUEL: Well that's a good question and is partly a legal one, I think. This question is in any event, I think, poisoned with a bridge, or legal and value issues as to what extrinsic means. So when you buy any business, management will have to make decisions about pricing, so that's - is that intrinsic or extrinsic? I'm not sure how to answer that because there is I think a legal aspect to that. But I'm not sure I'd accept wholesale, but a management decision on pricing is extrinsic to the business and therefore something that should be excluded in true value terms.
Mr Samuel emphasised that his instruction was that the business he was assessing was reflected in the results up to 30 June 2014. Mr Samuel did not accept that a factor to take into account as one of the extrinsic changes is the change of management in the business. He considered that if one was buying an owner managed business, that has built into it an expectation that the management is going to change (unlike a large business). He understood that the Business had no contracts with its customers and so business was negotiated on a shipments by shipment basis but said, when asked if a change in management would therefore need to be taken into account (at T 467.45): WITNESS SAMUEL: No, I think we have to be careful with that… Firstly they've paid two and a half million dollars for goodwill. Now that assumes that a lot of those benefits, and a lot of those issues are relating to how a business operates, do transfer from the previous business to the new business
Mr Samuel further rejected the proposition that it was necessary to take into account, in assessing reductions in the cash flow of the business, that it no longer had the benefit of Joe's role in the Business. Mr Samuel said that the acquisition had been based on a multiple of a particular reference in the profit and loss account and that was how they've determined what the goodwill figure is. He said that the implication of that is that this was the value that can be delivered by the business. He said that the value was in the profit and loss account, by the business; that one would not be paying goodwill for the individual because clearly the individual services were not being acquired. So he said that the starting assumption would be that the cash flows generated would be those cash flows from running the business.
Mr Groves' view was that the typical approach in the market for businesses when there is an owner-operator is to assess personal goodwill as a risk factor; and that risk factor is normally incorporated into the assessment of a business, so in that sense when a multiple is applied (in this case the PEBITDA), normally the PEBITDA multiple they use will be reflective of that risk being personal goodwill. Mr Samuel agreed with that, and said that what both experts were saying was that the multiple reflects the fact that personal goodwill is not being acquired (T 468-469).
As to the impact of other changes made in the operation of a business, such as changes to product lines of the business, Mr Samuel again noted that he was instructed that the business they ran in the relevant 14 month period, was the best indicator of the business acquired, so that he said it was not an inquiry he needed to make. He agreed that if there was a significant change in products (say, buying a liquor business and then starting to trade in flowers) then that would be something to review and assess for the purposes of assessing the impact it had on cash flow of the business; but he did not consider that a change between different products (say from beer to add spirits and ciders) would be something of that kind (T 469). He said that would still be dealing with liquor and with a similar customer base.
Mr Groves, on the other hand, considered that a change in product line would absolutely change the nature of the business and the risk profile of the business. He said that there would be different margins, different risk profile, potentially different customers (but he had not assessed that matter on its own). He simply said that from that general point of view, it is something that he thought would have an impact.
Asked whether his opinion would change if there was a consistency in relation to the core products that are being offered (say, beer, and then the an addition of other product lines), Mr Groves considered that if there were additional products added that could have a different impact (say a liquor business that was simply selling beer changed and started to sell wine) that would be relevant but that it would need to be considered in conjunction with other factors (such as the pricing metrics used in the business) "as in did the business continue to offer beer at the same price as it did historically for that matter and, and, and how competitive the business was with its wine prices and how that could work in attracting new customers, for example, amongst other things" (at T 470). He considered that it was an opinion about margin and volume.
Mr Samuel's comment on that was that there were two different issues that had been raised - one about a product mix (to which he had been responding) and one about an extension or adding something. Mr Samuel said that if one was adding to the existing business then one would expect revenue to go up and not down; whereas if one were changing the product mix, that might have an impact on whether revenue went up or down. Mr Groves considered that a fair comment. He had not performed that analysis for the 12 months after acquisition (T 471).

[84]

Misleading and Deceptive Conduct Claims

As already noted above, Eastlings alleges that: (i) Joe, Grace and Calidu were involved in conduct which resulted in stock being imported into Australia without excise being paid for it; (ii) that "undeclared" stock was sold in cash to incentivise customers of the Business to acquire other, less competitive, but "on the books" stock from it; (iii) the sale of the Business proceeded upon representations contained in the Information Memorandum, which omitted to disclose that conduct and misrepresented the true trade position of the Business (including, most relevantly, PEBITDA); (iv) the Information Memorandum was a document relied upon by Eastlings in making its decision to acquire the Business; (v) upon the acquisition of the Business (and by reason of the cessation of the conduct referred to above) the profitability of the Business almost instantly and sharply declined; and (vi) that the true value of the Business was $1,696,104 (such that Eastlings lost $1,912,297.10 upon its acquisition by reason of the misleading or deceptive conduct of Joe, Grace and Calidu.
It is submitted by Eastlings that the alleged pre-sale conduct is proven by inference but that it is also arithmetically and statistically apparent from Dr Fargher's forensic analysis of the shipping activity of the Business in the 18 month period preceding the sale.
It is submitted that the conversations Angus says he had with Nick can safely be assumed to have occurred. It is said that, bearing in mind that Angus conceded that he was relatively inexperienced in running a parallel import wholesale business, the conversation with Nick in around late 2013 or early 2014 forms part of the background to how it is that Eastlings became aware of the illegal activity that had been undertaken prior to the purchase of the Business. It is submitted that there is no other compelling reason for the case to have been brought and maintained. It is further submitted that were it not for the "sleuth work" of Angus (and to a lesser extent Graham), the Business would have continued to spiral further and further into trouble with no explanation.
Emphasis is placed on the fact that, almost immediately after the purchase of the Business, it began to underperform by comparison to the Information Memorandum and previous figures (reference being made to the figures referred to above for the 12 months of 1 July 2013 to 30 June 2014).
It is said that although the cross-examination focused on Angus' inexperience, in a material sense, at least for the first year very little changed (or could change) in the way the Business was operated from the previous year. It is said that the fact that the Business spiralled instantly indicates that there was something immediately absent from the business model. It is submitted that, given that the driving reason that former clients used the Business was for cheap prices, the reason was obvious: that the prices after the sale were too dear because they were not artificially inflated by cheap stock obtained without the payment of excise.
Eastlings points to Mr Samuel's oral evidence to the effect that the Business was valued on its worth without Joe. It is submitted that it should have been able to sustain that value (and it is noted that Joe conceded that was his intention) but it did not. It is said that the figures show a narrowing of the margin by Angus in order to compete; yet there remained a consistent falling away of sales. It is said that the reality is that, without the incentive of cheap (undeclared) stock, the Business was uncompetitive.
Eastlings says that it can safely be concluded that Mr Song and Joe coordinated the illegal importation of stock into Australia. It is said that Mr Song had informed Graham of this matter, which is how Graham became able to participate in it. It is submitted that the alternative proposition is that the whole importation after sale is a fiction, which makes little to no sense in the circumstances of the lay evidence.
As to the expert evidence, Eastlings submits that Dr Fargher's analysis is multi-dimensional. It is said that Dr Fargher's credentials were not challenged and that he brought a unique blend of compliance, forensic analysis and practical valuation experience to his task. Eastlings accepts that there were minor arithmetical errors, but it is said that those errors did not dislodge the fundamental premise of each aspect of the report.
Eastlings emphasises that the majority of the anomalies identified by Dr Fargher originated from J&E Winery and Windemac (which were both effectively run from Mr Song's warehouse in Singapore).
It is said that Mr Goodyer, when pressed, accepted that the payload declaration methodology was available; and accepted there were specific anomalies with respect to J&E Winery and Windemac. It is submitted that even within their own deliveries there were anomalies with both Windemac and J&E Winery shipments and that these anomalies were unable to be explained by Mr Goodyer. Eastlings submits that the explanation for the anomalies is the importation of undeclared stock and that this can in any event be inferred from the lay evidence.
It is said that Dr Fargher was also able to reveal a significant packing anomaly in that shipments brought in by Calidu during the period were more likely to contain an inconsistent number of packages of product when compared to those shipped to Eastlings. Criticism is made that Mr Goodyer's analysis was limited to critique since he was not appraised of the documents to undertake the underlying calculations.
Eastlings emphasises that Mr Preston arrives at a similar result when he performs similar tasks independently of Dr Fargher. It is submitted that something else was in a significant number of the containers imported by Windemac and J&E Winery; and that, given that both entities shipped from the same warehouse operated by Mr Song (a bonded warehouse), that extra stock must have been alcohol. It is said that, logically, it must have been sold; and, in accordance with what both Graham and Angus had been told, it was sold for cash to incentivise other purchases.
Eastlings says that Grace was also intimately involved in the production of financial records for the purposes of producing the representations in the Information Memorandum. It is said that Grace clearly understood the numbers that were going into the Information Memorandum; and attests that they are correct and factual. It is said that those records did not reveal the undisclosed activity; and that they were misleading.
It is said (and I accept) that, had the conduct or practice been disclosed, Eastlings would not have bought the Business (that conduct being illegal); and that this omission alone is sufficient to ground Eastlings' claim for relief. Eastlings seeks damages in the sum of the purchase price it paid less the "true value" of the Business (as calculated by Mr Samuel) plus interest.
Eastlings submits that it is entitled to recover compensation as assessed in accordance with the approach explained in HTW Valuers on a "no transaction basis" i.e., that, but for the wrongdoing of the Joe, Grace and Calidu, the sale of the Business would not have occurred.
Reference is made to the consideration by the Full Court of the Federal Court of the authorities in respect of causation and compensation for misleading and deceptive conduct cases in Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 373 ALR 79; [2019 FCAFC 167 at [67] (in that case, under the Trade Practices Act 1974 (Cth)). It is submitted that: the statutory remedy is broad, such that care must be taken before seeking to apply the rule in Potts v Miller (1940) 64 CLR 282. It is submitted that in cases where deceit is involved in the acquisition of land, chattels, businesses or shares an inflexible approach is not universal or rigid and "provided that there was some evidence of damage, in the field of assessing damages for fraud, 'as in other fields, a tribunal of fact must do the best it can in assessing damages'" (HTW Valuers at [47] quoting Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23 at 26; see also Wyzenbeek at [71]). Eastlings says that the relevant question is whether the contravention was a cause of (in the sense that it materially contributed to) the loss. It is said that where there is a "no transaction" case and the purchaser may have discovered (sometime after being aware of the true position) that what was bought was not what had been asserted, and where restitution in integrum is not possible, then a monetary sum should be calculated as damages so as to put the purchaser in a position in which it would have been had the transaction not occurred.
Eastlings says that it is clear from Angus' evidence that the Business has been significantly modified in order to attempt to restore it to profitability but that Eastlings has suffered loss in that it paid in excess of what the Business was worth as at the date of the transaction (relying on Mr Samuel's expert evidence).
Reference is made to Berry v CCL Secure Pty Ltd (2020) 381 ALR 427; [2020] HCA 27 for the proposition that, while the claimant bears the legal burden of establishing the amount of its loss or damage, the nature and circumstances of a wrongdoer's conduct may support an inference or presumption that shifts the evidentiary burden. It is submitted that, here, having established the true value of the Business, given their involvement in serious wrongdoing, the burden shifted to the defendants to substitute an alternate way of calculating loss and that their expert, Mr Groves, did not do so.
As to the calculation of loss, Eastlings submits that the agreed position of the experts as to "true value" should be accepted; i.e., that the true value of the Business (inclusive of stock) as at May 2013 was $1,696,104. Given that Eastlings paid $3,608,401.10 in total for the Business, it claims to be entitled to $1,912,297.10 in damages plus interest from 23 May 2013.
The alternative claim as against both Joe and Grace is that they have accessorial liability on the basis that they were involved in Calidu's contravention of the Australian Consumer Law.
As to whether Joe and Grace knew of the "essential matters'' that constituted Calidu's breach of the Australian Consumer Law, it is said that, given their knowing (personal) involvement in the activities of the Business, they must have known that their representations were false or misleading. It is submitted that Joe and Grace knew that the conduct of Calidu might lead Eastlings to assume a state of affairs which was not the true state of affairs (which Eastlings says was the case); that the true state of affairs was not capable of discovery by due diligence; and that Eastlings assumed that the Information Memorandum was accurate and that the Business was not undertaking illegal importation of undeclared stock. Accordingly, it is said that both Joe and Grace are accessories to Calidu's breach.

[85]

Breach of Covenant Claims

As to the Breach of Covenant Claims, it is contended that Joe and Grace breached the Restraint Deed on three occasions by the importation and sale of wine and on two further occasions by the exportation and sale of wine; and that that activity produced a profit of $67,594.49, which Eastlings says represents its loss consequent upon the breach. In closing submissions, it was accepted that there could be no complaint about the importation (as such), in circumstances where Eastlings' case was that the importation was done on its behalf (T 562.42); rather, Eastlings' complaint is as to the on-sale of the wines to customers of Calidu Import Export (i.e., not for Eastlings' benefit).
It is noted that the defendants admit the importation (of wines in August 2014 and in April 2015 and two instances of exportation by Calidu Import Export during a time when Calidu, Joe and Grace were bound by the Restraint Deed.
As to the Breach of Covenant Claims, Eastlings submits that the establishment of a new business (Calidu Import Export) which from time to time imported champagne amounts to a breach of the restraint covenant. It is submitted that the importation of wine was a business that was substantially similar to the Business. Eastlings points to the definition of Business in the Restraint Deed (see above) and says that the focus of the restraint was the sale of liquor, not its importation or exportation. It is said that that construction makes sense because the covenant is aimed at protecting business custom.
As to the exports of wine and spirits to Botillion Enterprise, it is said that both wine and spirits had previously been sold by the Business and therefore that activity was substantially similar to that of the Business.
In the absence of a formal account, it is submitted that Joe and Grace are liable to Eastlings for $67,594.49 plus interest, noting that the last date on which any known activity in breach was undertaken was 23 April 2015 (being the sale of the second importation of wine from Mr Vidal).
Eastlings submits that the arrangement between Joe and Angus, struck over two meetings (one being the dinner at Glebe in March 2014), was that Joe, through Mr Vidal, would assist Eastlings to import Spanish wine for Eastlings to sell to its customers, noting that Angus explained in his affidavit evidence that Joe suggested this as a way to help offset the loss of business from losing Chambers Cellars as a customer.
Eastlings argues that Joe's version of events should not be accepted. In this regard, it points to the fact that Mr Parisi had no record of or invoice in respect of the advice said to have been provided by Mr Parisi in relation to the Restraint Deed. Eastlings also points to the contemporaneous email communications (in May and September 2014) which it says indicate that Angus was keen to understand when the stock had arrived. It is said that (despite what is said in Joe's affidavit sworn 26 October 2015 at [10(b)]) by the time that the product was imported, Joe did not communicate with Angus in respect of the importation but, rather, sold it directly on to customers from the Port Botany. Reference is also made to Grace's evidence in cross-examination which, it is said, suggests that Joe had informed Grace that the importation was to be taken by Angus but that because Angus had not gotten back to Joe, he decided to sell it (see T 248.20).
Eastlings says that it should not be accepted that Joe was given express permission to undertake the importation independent of Angus and Eastlings, particularly in light of the fact that importation occurred on two separate occasions and that the issue was not addressed with Angus either time. Eastlings also points to the fact that the Restraint Deed required any such approval to be in writing.
Further, Eastlings says that forensic investigation has revealed: (i) documents relating to the exportation of wine and whisky in August 2014, November 2014, March 2015 and April 2015; (ii) repeated deposits from former clients of the Business from June 2013 to September 2013; (iii) the production of one document by a former client of the Business (Valore Cellars) evidencing only one instance of sale activity despite the fact that banking documents reveal a number of banking transactions; and (iv) a significant amount of phone and text messages from phones operated by the defendants to approximately 20 suppliers and customers of Eastlings during the restraint period of the Restraint Deed. Eastlings also points, in this context, to what it says are inexplicable movements of money to a former client associated with Mr Prapas (who traded as Mr Liquor), which are said by the defendants to be short term personal loans but which Eastlings submits are not consistent with this. (No claim is, however, made as to those dealings.)
Apart from the issues raised by Eastlings as to the credit of Joe and Grace in relation to those transactions, Eastlings did not ultimately press for an enquiry to be taken as to the profits obtained through business carried on in breach of the Restraint Deed.
Eastlings contends that Joe and Grace believed there was no paper trail of their wrongdoing because of the absence of purchase orders and customer orders and submits that it can be inferred that the MYOB records would not assisted them and nor would evidence from Mr Prapas or Mr Conroy have assisted them.

[86]

Misleading or Deceptive Conduct Claims

The defendants emphasise the seriousness of the allegations that have been made (amounting to allegations of criminal conduct by Joe, Grace and Calidu in illegally smuggling into Australia various cartons of alcohol) and the standard of proof thereby required (see Briginshaw v Briginshaw (1938) 60 CLR 336 (Briginshaw) at 362) (as to which I say more in due course).
The defendants argue that each and every element of the claim must be established to the Briginshaw standard, including not only the illegal importation of alcohol to the extent asserted in the amended statement of claim but also that such illegally imported alcohol was sold to customers for cash (i.e. "off the books") and that such customers would not have acquired the on-book sales as recorded on the financial records of the business, but for the off-book cash sales. (It is said, see below, that there is no evidence to support those last two elements of the claims.) It is further said that it is an essential element of the alleged claim that the alleged illegal importation of liquor varied the turnover, PEBITDA and profit figures of the Business to an extent that it made the figures disclosed in the Information Memorandum misleading or deceptive.
As to the illegal importation allegations, the defendants say that these are based on a circumstantial case promoted by Eastlings' experts (in particular, Dr Fargher). The defendants say that the circumstantial case relies first, on the accuracy of documents (including bills of lading, packing lists, packing declarations and invoices) none of which was generated by Calidu; and second, on assumptions as to weight measurements and on the fundamental assumption that Calidu would not import a container unless it was "completely full". It is noted that, in his analysis, Dr Fargher has not analysed banking, receivables and supplier payment records; and has not relied upon any identifiable undisclosed stock or cash sale.
The defendants emphasise that no evidence is led in relation to the claim that the stock was sold for cash or as to the incentivisation effect of this, noting that Graham accepted that he gave instructions to Dr Fargher not to communicate with any customers for the purposes of preparing his Report; and Graham's evidence that: "You're not going to get a customer to put their hand up to say they bought cash stock and sold it for cash" (at T 135.50-136.30).
The defendants say that on the basis that no evidence is led to support these elements of the claim it should be dismissed. The defendants argue that in the absence of evidence of cash sales, or incentivisation of customers, there is no basis for a finding that any illegal importation undermined the turnover or profit figures. By way of what might be said to be a somewhat extreme example, it is postulated that the defendants might have engaged in smuggling but simply kept the benefit of that for themselves "off the books" such that it did not affect the legitimate turnover of the Business (see at T 566).
As to the allegation of illegal importing, and the disputed evidence to the effect that Eastlings had itself engaged in the illegal importation of beer through Windemac, the defendants emphasise that in its voluntary disclosure to the Australian Border Force, Eastlings' lawyers noted that "there is no documentary evidence to support the fact that the additional goods were included in the shipping documents" (Graham's affidavit sworn 20 July 2020, Annexure B). Further, the defendants point out that, although the allegation of illegal importation is said to have occurred through various suppliers from around the world, the only evidence led in respect of a specific supplier is that of Johnny Song, who emphatically denied any involvement in such conduct (Johnny Song's affidavit affirmed 29 January 2020; Johnny Song's affidavit affirmed 3 September 2020; T 337.50; T 340.28-341.25).
Insofar as Eastlings asserts that J&E Winery is also part of Mr Song's business, it is said that this is mere assertion. It is noted that Mr Song denies the relationship (T 333.14-19). Q. You had some involvement with J & E Winery, that's correct isn't it? A. J & E Winery happen to be one of my business associate, was using my warehouse to re-export the item that they want to sell. Q. So alcohol that came out of J & E Winery came out of your warehouse, correct? A. Sometime yes, sometime they buy and put in my warehouse to re-export.
The defendants say that J&E Winery either bought stock from Mr Song's warehouse or used the warehouse to place its own stock that it acquired; and point out that Joe's evidence is that he dealt with James and Eddie Tan, not Mr Song, when ordering stock from J&E Winery (see at T 158.1-21).
It is also noted that no suggestion was put to Pedro Vidal to the effect that he was involved in illegal importation and that Joe emphatically denied involvement in illegally smuggling alcohol into Australia (T 205.35-207.33).
Insofar as Eastlings relies on the expert evidence of Dr Fargher and Mr Preston, the defendants point out that neither has been involved in the parallel importation of liquor; and that Mr Preston's clients in the alcohol industry are large multi-national manufacturers of beer. It is said that both Dr Fargher and Mr Preston's Reports and conclusions involve a number of assumptions, namely that: importers will always or usually, ensure that containers are completely filled (the Full Container Assumption); the weights and volumes of product imported in 2011-2013 by Calidu accord with the weights and volumes measured by Dr Fargher in 2017 (see Dr Fargher's table 5 in his 2018 Report at [8.5]) (the Weights and Volumes Assumption); the 20 foot containers that were shipped have a useable capacity of 30 cubic metres (the Capacity Assumption); the weights and volumes of product recorded on shipping documents were recorded accurately (the Accuracy Assumption); and the "gross weight" recorded on shipping documents represents the gross weight of the cargo only (the Gross Weight Assumption).
The defendants say that none of those assumptions has been established.
As to the Full Container Assumption (see Dr Fargher's 2018 Report at [6.2]-[6.3]; Mr Preston's Report at [3.2]); the defendants say that, given that the Business' pre-sale supply shipments were primarily priced on a CNF basis, the economic basis for the assumption (i.e., that it was to amortise the cost of importing the stock) does not exist (see Joe's affidavit affirmed 4 September 2019 at [9]).
It is noted that Angus accepted that Eastlings' purchases were primarily on a CNF or a CIF basis (T 70.10-12) and that Mr Song's price remained the same no matter what quantity of stock was acquired (T 70.20); that other suppliers operated on the same basis (T 70.22-26).
Further, the defendants say that the evidence disclosed that there are a number of relevant factors in determining the amount stock to be ordered. It is noted that Angus accepted that Eastlings imported containers that were less than full (T 36.30); and that he was unable to identify the extent of the time that containers were less than full. The defendants point to Exhibit 4 which included examples of potentially less than full container loads imported by Eastlings during August 2014-January 2015. Reliance is also placed on Exhibit 3 (containing the alleged illegal imports by Eastlings) and the aide memoire for that Exhibit as showing that, even with the alleged extra stock, the shipments were potentially still less than full. It is thus said that Eastlings' own conduct establishes that the Full Container Assumption is not established.
The defendants note that, although Dr Fargher in his written and oral evidence has referred to the arithmetical possibility that additional stock could be included in shipments beyond 30 cubic metres, no analysis is done of the practicality of loading a container to that level. The defendants say that, assuming Dr Fargher's arithmetical possibility is a practical probability, then Exhibit 9 (as explained by MFI 6) discloses other shipments by Eastlings with container loads of less than the full container load (in addition to the alleged 5 illegal importations) (referring to the shipments in Ex 9 at Tabs 1, 2, 4, 5, 9, 10, 12, 14, 17, 22, 23, 31, 33, 34, 35, 39, 40, 43)
The defendants point to a number of reasons for less than full 20 foot containers to be imported, including: the breaking up of 40 foot container loads (T 36.41; T 177.19-21); financial restrictions (T 68.16, 40-44); limited demand (T 68.45-50); existing sufficiency of stock (T 69.7-10); supplier issues (T 50.28-51.23; T 55.18-56.2) (noting that evidence was required of business of suppliers and their own supply chains to understand supplier issues that arise from time to time); the extent of "specials" and the level of stock available at a particular price (T 51.43-52.29); the availability of stock from suppliers (Joe's affidavit sworn 10 April 2019 at [45]-[46]; Mr Song at T 338.47-339.2), including the availability of "stickered stock" (Mr Song at T 340.36-40); and transport limitations (referring to Jones' Report; Mr Vidal's evidence at T 359.29-360.6; the 15 March 2012 email from Grace to suppliers, Ex K p 9; T 51.31-52.18).
It is noted by the defendants that Mr Preston does not dispute the existence of such limitations, particularly in respect of the Truckspeed vehicles used by Calidu to transport containers to Joe's warehouse (those limitations imposing an 18-tonne limit on the stock to be imported); and it is noted that Pedro Vidal imposed a 2100 Martins limit on all stock sent to Calidu.
It is said that, for shipments of these products to be less than 18 tonnes per container, "something less" than 30 cubic metres of such cargo was required. Reference is made to Angus' evidence that when orders are made it is necessary to consider: supply requirements; the availability of supply to the export shipper; road regulations; shipping schedules; the availability of finance or cashflow to pay for the stock; the cost of duty; and that these factors can dictate how much a particular container will ultimately contain (at T 54.30-55.12). It is noted that Angus accepted that different products had different packaging or "capacities" (T 55.5).
As to the Weights and Volumes Assumption (see Dr Fargher's 2018 Report, Table 5), the defendants say that it includes an assumption that these calculated weights and volumes were used in 2011-2013 and that there were no changes. The defendants point out that product changes did, however, occur (noting that the Asahi bottle changed sometime between August 2017 and November 2019 with a reduction of 2.9kgs (Dr Fargher's 2019 Report, Table 1) and that Joe recalls Cintra and Heineken bottles changing during his period of selling them). It is noted that glass specifications may also change. Complaint is made that no attempt has been made to determine if the products sold in 2011-2013 are the same as those measured by Dr Fargher.
The defendants also say that any reliance by Dr Fargher on what Angus advised as to packaging involves an assumption as to his expertise or knowledge of beer packaging that is unsupported by the evidence (noting that Angus was not involved in the industry at the relevant time).
It is noted that Dr Fargher also gave evidence that, depending on where products were manufactured or supplied, different weights can apply. Reference is made to the weights disclosed in the photographs annexed to Joe's affidavit sworn 4 September 2019; Ex 1 pp 2-16) as differing from the weights utilised by Dr Fargher. The defendants say that Exhibit 9 establishes that in 43 shipments between August 2014 and January 2015, none of the declared weights matched the weight calculations arising from the use of Dr Fargher's weights and measures.
As to the Capacity Assumption, the defendants submit that unused space will always be required in a container (whether at the top or on the side of the container), depending on the dimensions of the cartons. Reference is made to the fact that a container holding 1071 cartons of Corona beer imported from Diversificadora would amount (using Dr Fargher's calculations) to 28.91 cubic metres; and that Dr Fargher acknowledged that such capacity measurements are approximate only (Dr Fargher's 2018 Report at [7.12]). Further, it is said that containers could be damaged, with sides buckled, preventing full capacity to be used (although I add here that the only evidence as to damaged containers seemed to suggest that if damage occurred (in transit, say), then the container would not be used again - I do not recall any evidence to suggest that containers were packed at a time when the containers were damaged).
The defendants say that at best the evidence establishes that, in normal circumstances, the useable capacity of a container approximates 29-30 cubic metres; and, therefore, that the Container Capacity Assumption is only not established (to that extent).
As to the Accuracy Assumption (Dr Fargher's 2018 Report, Appendix J); the defendants say that this is contrary to the evidence. It is noted that, as Mr Gallagher deposes, the statutory need for the verification of weights on shipping documents was imposed by the SOLAS Marine Order 42 in 2016 (Ex 8 at [5.2]). The defendants accept that, prior to that date, the existing Hague-Visby Rules imposed the obligation on the exporter to record the data but point out that Mr Gallagher deposes to many instances where weights on bills of lading were not accurate (Ex 8 at [5.12]).
Reference is also made to Joe's affidavit evidence as to his observations that scales were not used when cartons were being packed in the Netherlands, Singapore and Malaysia. It is said that various of the shipping documents (see Ex 1 at pp 36, 38, 44, 57, 69) record the worldwide problem with the miscalculation of weights on shipping documents, which resulted in the verification requirements for weight assessment and involved the installation of weighing machines at the port to measure trucks leaving the port.
Complaint is made that no evidence has been led by Eastlings as to the processes involved in quantifying weights and volumes. It is noted that Mr Song identified that a shipping company organised the documents (T 336.6) and that neither Mr Vidal nor Mr Song was cross-examined as to the processes by which the weights of shipping containers were placed on documents.
The defendants say that Annexure A to Mr Preston's Report, which analyses the volumes and weights recorded on the shipping documents, shows the inaccuracy of the recorded volumes. Further, having regard to the volume calculations undertaken using the Fargher measures, the defendants emphasise that Dr Fargher's weights could not be accurate as the assessed additional cartons could not (or would be most unlikely to) fit into the container in question (see the shipping reference nos. 3, 4, 9, 15, 12, 15, 19, 25, 28, 36, 34, 51, 56, 65, 75, 81, 87, 89, 107, 112, 125, 199, 208, 231,232, 234).
The defendants say that, (referring to Mr Goodyer's oral evidence), it is mere speculation as to the basis on which particular shippers recorded weights or from whence that information came. It is said that the fact that Windemac and J&E Winery's shipping records disclosed a high level of alleged anomalies invites mere speculation as to the reason for this (and it is again noted that the evidence is that the two suppliers are not related). The defendants say that alleged smuggling is not the only possible explanation; such as, for example, that there might be poor or inadequate management of the shipping processes (pointing, in this regard, to Mr Song's conviction which it is suggested appears to have largely arisen from poor management - see T 332.38).
As to the Gross Weight Assumption, the defendants point to various of the bills of lading and/or shipping documents that are in evidence with references variously to "Gross Weight", "Gross Weight Cargo" and "Weight". It is said that the natural meaning of Gross Weight clearly includes the container. The defendants say that, whether it was used in that manner in any or some of the bills of lading is not known but that it is a possible, meaning that may account for some of the larger anomalies identified by Dr Fargher.
The defendants thus contend that Eastlings has not satisfied its onus of establishing that Calidu illegally imported alcohol, either to the level alleged in the amended statement of claim or at all (and that the various assumptions relied upon by Dr Fargher have not been established).
The defendants say that it is significant that Calidu, Joe and Grace had no involvement in respect of the preparation of the relevant shipping documents or calculation of weight on the shipping documents (not being involved in arranging the shipping, the shipping documents, assessing the weights or volumes, packing the containers or determining how the cargo ordered was to be shipped or placed in containers). It is said that, by negotiating the price on a CNF basis, the question of how the cargo was shipped was irrelevant to the defendants.
The defendants say that the risks associated with illegal importation are significant and obvious (and were accepted by the Hamiltons - see at T 60.19-61.22; T 119.44-121.1). It is noted that the consequence of being caught are substantial, including the loss of livelihood, fines and penalties. It is said that the plaintiffs have not identified any benefit for the defendants in accepting such a risk. (Pausing here, as I understand it at least part of the benefit that has been identified by Eastlings is that of incentivising customers in order to achieve increased turnover with higher profits but I accept that much of this is said to be a matter of inference.)
A Notice to Produce issued by Calidu to Eastlings (at 1) sought all documents, including receipts, recording payments made in respect of the 5 shipments of stock and including the "Extra Stock". The defendants submit that no document was produced; and that the only reference made in the response to the request for particulars was to the NAB account payments. In particular, the defendants point out that no Commonwealth Bank of Australia (CBA) records for payments of the invoices (Ex 2) were produced (and nor was Ex 6 produced in answer to the Notice to Produce).
The defendants dispute the alleged undeclared stock imported by Eastlings. They note that the alleged extra stock, for which it is said that a payment of $10,440 was made, involved 650 cartons of Corona, 150 cartons of Heineken and 100 cartons of Becks, (see Graham's affidavit sworn 19 July 2020, Annexure B). They argue that, at the prices that Windemac was selling stock at the time (Corona for approximately A$26.5 - see Ex 3, Invoice for Shipment 1, p 27), Heineken A$19.6 - see Ex 3, Shipment 2 p 22 and Becks for A$16.3, this would amount to a total of approximately $21,500 and hence the total cost allegedly paid was less than half the usual price (which included an alleged facilitation fee to Mr Song) and at the same time, Mr Song's margins per carton were approximately $1 (T 56.25).
The defendants say that it is not apparent how or why Mr Song could arrange the alleged smuggling for such a price (and that it could only result in substantial losses to him). Further, the defendants point to Mr Song's evidence that all shipments of liquor from his bonded warehouse are subject to records in the Singapore customs (T 340.32-341.11) (though I interpose to note that this does not take into account Mr Song's earlier convictions for similar offences).
The defendants say that the warehouse records of Eastlings (T 81.2; Ex 7) do not disclose any undisclosed smuggled stock as being recorded as removed from the containers; and that there is no record at all to show the existence of additional stock. It is said that Graham gave further evidence for the first time under cross-examination about other conversations with Mr Song concerning the alleged illegal importation (see T 121).
The defendants contend that, given the price paid for the business, the risks associated with smuggling, and that Mr Song had allegedly already told them the modus operandi when he first met Graham, the evidence that the five shipments were entered into (with undeclared stock) should not be believed; rather, it is said that the reporting to the Australian Border Force was a mere attempt to bolster Eastlings' evidence about smuggling to support its case. The defendants also say that Eastlings appears to have suffered no detriment by making the voluntary disclosure (T 36.1-7).
The defendants further maintain that the comparison by Dr Fargher of Eastlings' containers and Calidu's containers is flawed. It is said that the limited data set relied upon for Eastlings' imports does not disclose the dates nor the suppliers for the shipments (Dr Fargher's 2018 Report at p 46, Annexure F). It is noted that the Eastlings' containers the subject of the data set considered by Dr Fargher approximated one-tenth of the containers considered in respect of Calidu and was even more limited in respect of particular brands of beer. The defendants say that issues such as standard deviation analysis are thereby likely to be skewed. It is noted that Dr Fargher was not provided with information of shipments in Exhibit 4 which disclosed shipments with low levels of Heineken from two suppliers and it is said that Dr Fargher's analysis in Appendix J (the Declared Weight Comparison) is hindered by his use of incorrect weight figures. The defendants further say that Dr Fargher's analysis of specific inaccuracies in transactions cannot be assessed due to his use of incorrect shipping references (at p 23).
Finally, the defendants say that the evidence does not establish causation associated with "mere smuggling". They say (assuming (but denying) smuggling were to be established) that without any evidence of the effect of smuggling on the Business, or establishing that it was provided to clients and that clients were incentivised to buy stock at prices that they would not otherwise have paid, then no causal link is established. It is said that, with reference to inferences that may arise from smuggling, it is just as possible that the benefit of the smuggled stock was retained by the Business as it was for that benefit to have been passed on to clients. Accordingly, it is said that there is no discernible connection between the alleged conduct and the financial figures contained in the Information Memorandum provided to Eastlings prior to sale.
The defendants say that the decrease in trade after the sale could be associated with many causes: a worsening A$/US$ and A$/Euro exchange rate (noting that no assessment of the effect of that change has been undertaken, although it was acknowledged by Angus as impacting the business - see T 92); seasonality with Eastlings commencing its trade at the onset of winter (noting that Joe's evidence is that such matters can impact on sales by up to 60% - see Joe's affidavit sworn 10 April 2019 at [24]); price rises imposed by Eastlings, which it is suggested deterred customers like Angela Valore; absence of customer service by comparison with Joe (noting that Mr Calipari described the difference between Joe and Eastlings, at least at the beginning, as "cheese and chalk" (T 299.38)); Mr Calipari's evidence that the business he gave to Joe was now being given to other suppliers rather than Eastlings; the loss of Joe's goodwill and knowledge generally for the business and negotiating with customers and suppliers; and product changes and the change of focus of the Business.
It is said that Joe had his own unique and personal means of doing business, utilising skills obtained after a lifetime of business and 9 years in the parallel importation market. The defendants note that the sale provided the business goodwill but not the personal goodwill of Joe. It is said that the business goodwill constituted introduction to the customers and suppliers and existing relationships but that such relationships were not supported by contracts and, therefore, the Business was inherently volatile. It is said that, given the Hamiltons' lack of knowledge of the Business and lack of experience in the parallel import market and in the wholesale alcohol market generally, what they did with and how they utilised such contacts will have a significant impact on their business and its financial performance. The defendants point out that Angus had a very different method of negotiating with suppliers, saying that he relied primarily on email communications (Angus' affidavit sworn 27 April 2018 at [10]-[13]) whereas Joe relied heavily on personal contact with suppliers and customers. It is said that the owner of the business was no longer the primary negotiator with customers; rather, that Jeff Ward (who it is said had no experience in the parallel import market) was now the primary salesperson of the Business.
As to the valuation of loss, while Eastlings relies on HTW Valuers, the defendants say that it has not established that the principle there set out applies. It is said that factors such as interest rate changes were likely to attack performance, meaning that the assessment undertaken by the experts has failed to take into account such matters (and that the valuation process does not assess "apples with apples").
Complaint is further made that no attempt has been made to determine the effect of the alleged customer incentivisation caused by the smuggling; rather, it is said that the approach taken assumes that each of the above matters had no impact on the trade.

[87]

Breach of Covenant Claims

As to the restraint of trade claims, the defendants say that the main focus of the definition of "the Business" in the Deed of Restraint ("a liquor wholesale business at the date of this Deed conducted at the Leasehold Premises with the benefit of a "Liquor Licence"") is the business conducted at the Leasehold Premises, then trading as J&J Wholesale Distributors. The defendants say that "substantial" relevantly means ample or considerable in amount in terms of size and quantity; and that "similar" means having a likeness or resemblance, in a general way.
The defendants point out that Eastlings did not engage in the export of any alcohol (T 106.8). Accordingly, it is submitted that the export of two containers of alcohol (which were not beer) has no connection to the Business (that being a beer importation business albeit with some other products, including Mumm Champagne and sparkling water, that it is said were acquired "in a relatively minor sense"). The defendants say that the importation of three containers of "entry" level Spanish wine was the only product imported and that Eastlings has led no evidence that it (or the Business as owned by the Merlos) engaged in the importation of such a product. It is said that importing a relatively small amount of Mumm Champagne is not the same or similar business as, or substantially similar to, importing three containers of "entry level" Spanish wine.
It is said that Eastlings has led no evidence of the market or customers to show that such products are sold to the same identified market. The defendants note that the evidence of Mr Vidal (T 362.38) was that there were various price points in the market and say that the Spanish wine sold was "entry level" (whereas that Mumm Champagne is not an "entry level" product). Therefore, it is said that such importation is neither similar nor substantially similar to a beer importation business or the Business.
In any event, it is said that the importation of wine by Calidu Import Export was agreed to by Angus. It is said that Mr Vidal (at T 362.48; T 363.27-47; T 364.7-12; T 366.28-367.15; T 368.14-20) was clear in his evidence that Angus did not wish to partake in the importation of wine (and preferred to focus on beers); and that it was suggested that Angus might acquire the wines from Joe, but it was Joe who was to incur the risk of importing the product.
The defendants say that the assertion that Joe was acquiring the stock on behalf of Eastlings makes no sense. It is said that Eastlings did not require Joe to import the stock; rather, Eastlings had an existing relationship with Mr Vidal. It is noted that Eastlings leads no evidence of the terms of this alleged relationship, such as price or when and how payments were to be made, or when and how the stock was to be provided.
The defendants say that, despite knowing of the arrival of the wine in about August/September 2014, Eastlings made no attempt to recover that stock according to the alleged relationship or arrangement; rather, it sent a solicitor's letter on 21 April 2015, which made no reference to any alleged arrangement to acquire the wine on Eastlings' behalf (Ex 1 at p 80). Further, it is noted that in respect of the wine importation, Angus' original affidavit sworn on 30 April 2015 makes no reference to an alleged arrangement or discussions with Mr Vidal made at a dinner party. The defendants say that the evidence of Joe is consistent with this position; namely, that he delivered samples to Eastlings but heard nothing more (Joe's affidavit sworn 20 May 2015 at [19]-[20]).

[88]

Misleading or deceptive conduct claims

The primary focus of the proceeding ultimately was the claim for damages for alleged misleading or deceptive conduct and so I propose to address this first. It is predicated on the allegation that Joe (through Calidu) engaged in the practice of the illegal importation of liquor (and that Grace knew or was a part of that conduct); which meant that the Representations made prior to the sale of the Business were misleading or deceptive (to their knowledge). It is accepted by Eastlings that the allegation of illegal conduct is a serious allegation and that it must be proved having regard to the Briginshaw principles referred to above and s 140 of the Evidence Act, which require an actual persuasion having regard not only to the seriousness of the allegation but to the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding.
As the defendants point out, such allegations cannot be established by inexact proofs, indefinite testimony or indirect inferences; the defendants citing s 140(2) of the Evidence Act and Heydon, Cross on Evidence (7th Australian ed, 2004, LexisNexis Butterworths) at [9050]; and referring to Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 for the proposition that inferences must do more than give rise to conflicting inferences of equal degrees of probability such that the choice between them is a mere matter of conjecture (referring to what was said by Lord Robson in Richard Evans & Co Ltd v Astley [1911] AC 674 at 687).
The defendants say that the evidence of Angus in relation to the alleged illegal importation was limited to annexing relevant bills of lading; and that the evidence of Graham was limited to two to three conversations. It is noted that no evidence was given of conversations or arrangements made between Angus and Mr Song, although it is alleged such conversations occurred; and that no evidence is given of how arrangements were made for the five shipments or how the price was determined.
Further, it is said that the evidence given in respect of payments made was contradictory. Graham gave evidence of three payments between 29 September and 11 November 2014 for the five shipments. It is noted that the payments were made prior to any shipment occurring or any extra stock being apparently identified; that the payments made totalled $10,440 and that all the payments were made from an NAB account in Graham's name to Windemac; and that, subsequently, Angus gave evidence (it is noted that this was for the first time under cross-examination), that payments were made from the CBA in respect of invoices for warehousing and logistics (Ex 2; Ex 6; T 45-46; T 78-80). The defendants point out that the issue of payments had been the subject of communications between the parties following the issue of a Notice to Produce (see Angus' evidence at T 80.4-20). Part of the difficulty in relation to the evidence of payments to Singapore said to be for the "Corona Extra" stock is that the response given by Eastlings to a request for particulars in this regard was that the payments for the "Corona Extra" stock were made out of Graham's NAB account (T 79) and there was no reference to any payments made out of a CBA account whereas Angus' evidence now seems to be that the payment for the first invoice was from the CBA account (see on 6 November 2014).
As to the alleged illegal importation by Eastlings, Angus accepted that he had been advised he could be liable for additional duties of approximately $15,000 (T 35). He said that he had not yet been the subject of any additional duties and that, since 2020 there had been no further communications with the Australian Border Force (T 36). Angus was adamant in his denial that the disclosure was false as a means to bolster the case; and was adamant that Johnny Song was involved in the smuggling operation (T 36). Angus accepted that engaging in four further shipments of "Corona Extra" stock after the first increased the risk that Eastlings would be caught; and he accepted that there could have been serious consequences of the conduct in which he says Eastlings engaged (T 60). However, he did not accept that it made no sense to risk its liquor licence by engaging in illegal activity (see T 60-61).
As to the warehousing and logistics invoices provided by Johnny Song (Ex 2), Angus' evidence was that these were to do with the extra stock (T 78). That is consistent with Mr Song's evidence in cross-examination that he did not provide warehousing or logistics services and that the warehouse was for his own use (T 334.1-5). However, Mr Song later appeared to resile from this evidence (T 343.1-10; T 344-345).
Angus' evidence was that, at the time, he did identify the customers who received "extra stock" when the Business was operated by Joe (T 72.40-45). He accepted that the legal representatives had been given instructions not to make enquiries of customers in this regard (T 72).
Angus agreed that there was no reference in the stock lists or inventory lists to any additional stock in the containers the subject of the five shipments in question by comparison with the level of stock recorded in the bills of lading for the five shipments (see Ex 7; T 81-82).
Eastlings says that the fact that there is documentary evidence to support the transfer of money from Graham directly to Windemac, in different currencies, over a period of time, provides contemporaneous support for Graham's evidence. The plaintiffs say that the invoicing in Exhibit 2 (invoices of Windemac to Eastlings in amounts that did not match the transfers) was a fiction in any event - "a complete manufacture in order to cover up the cash transfers and the transfers for legitimate transfers which were in concert with the cash transfers for the stock" (see T 554).
I am not satisfied to the requisite standard of persuasion that it has been established that Joe (with Grace's knowledge and/or assistance) engaged in such conduct. I quite understand the suspicion that the Hamiltons harbour as to that conduct, not least because I accept their evidence that they established for themselves that there was a way to import extra stock without declaring it to customs for duty and excise purposes, by engaging in such conduct with the assistance of Johnny Song. While I accept that the documentary evidence of the particular shipments through which Eastlings illegally imported undeclared product is not complete (and indeed there was conflicting information provided as to the accounts through which payments for those goods were made), I consider that it would be extraordinary for the Hamiltons to expose themselves to criminal liability simply to "bolster" their case by disclosing such conduct to the Australian Border Force (even though that disclosure came under a regime by which it might be expected that their liability might be limited to the imposition of additional duties). I accept that the Hamiltons engaged in that conduct for the purpose of testing their suspicion (based on what they understood from Nick and from Johnny Song himself) that such illegal importation was possible (misguided as I consider it was to have done so and as the VoxLaw letter seems to acknowledge).
The letter of voluntary disclosure of illegal importation made to the Australian Border Force was inaccurate to some extent. For example, Angus accepted that the letter stated that there was no documentary evidence to support the fact that understated stock had been imported whereas, at least by the time of Angus' July 2020 affidavit, he had located a number of bills of lading and another record from Paul's Customs (see T 33); and Graham accepted that he had not requested any particular number of shipments to be made in his conversations with Johnny Song. Further, the letter might well be criticised for including seemingly pejorative information not strictly relevant to the disclosure (such as the alleged breach of the restraint covenant and Johnny Song's conviction for other offences). However, I do not regard these issues as detracting from the substance of the disclosure of illegal importation.
Angus accepted in cross-examination that there was no evidence in his affidavits of conversations with Johnny Song as to the importation of the undeclared stock nor of receipt of it; and no evidence of receipts to customers in relation to the stock. That seems inconsistent with an intent at the outset to use this evidence to bolster the plaintiffs' case (since surely if that had been the case records of this kind would have been kept). It seems to me more likely that Angus and Graham were hoping that matters would not get to the point where use of the evidence and disclosure of wrongdoing became necessary, though this is speculation on my part.
I accept that both Angus and Graham were aware that there could be liability for additional duties and were aware of the seriousness of that which was being disclosed and I consider that it would be extraordinary for them to have gone to the lengths of (falsely) disclosing a criminal offence simply to "bolster" a claim of the kind here made. I accept that the disclosure was genuine.
The difficulty I have is that I am not satisfied, on the basis of the statistical analyses that have been carried out by Dr Fargher and Mr Preston, that in fact such conduct did occur under the ownership of Joe and Grace (whether at all or on a sufficiently regular basis to render the alleged representations and omission misleading). I accept that there were anomalies shown in particular shipments (such as the 1,500 v 1,400 shipment (No 26) and the 3,597 v 3,447 shipment (No 160) - see above). In particular, I note that the experts appear to agree that, in relation to shipment number 160, excise could not have been paid on some 150 cartons or packages of product (since that product was not disclosed in the commercial invoice used to calculate the excise). I also accept that, statistically, the anomalies in the amount and weight of product in the shipments from Windemac (and J&E Winery) were more prevalent than anomalies in other suppliers' shipments.
However, I am troubled by the inconsistency between the conclusions reached in relation to weight and those reached in relation to volume by Dr Fargher and Mr Preston, respectively. I am also concerned that much of the statistical analysis turns on an acceptance that the gross weight recorded in the shipping documents was correctly recorded at the Singapore end of the import/export transactions; and there is simply insufficient evidence for me to conclude that that was the case. While I did not find Mr Song's denials particularly credible (and, indeed, the assertion that the placement of extra cartons could not occur because his was a bonded warehouse seems to me to be belied by the fact that such conduct, or conduct akin to it, has apparently taken place in the past, since Mr Song pleaded guilty to such conduct), the possibility of human error in the weighing or recording of the product cannot be discounted. It is relevant that, prior to 2016, there was apparently a worldwide concern with the misrecording of container weights (which the experts accept was something that was the subject of the 2016 SOLAS Marine Order 42). The fact that Windemac staff may have been able to weigh products correctly 30% of the time does not lead me to conclude that there was deliberate illegal conduct the remaining 70% of the time. Nor does the fact that the "outliers" were the two Singapore companies assist me in this regard, without knowing more of the way in which product was weighed and loaded in the warehouses in Singapore.
Mr Preston, for example, did not correlate his weight calculations with his volume calculations and he made it clear that he was simply carrying out an arithmetical exercise based on assumptions as to the weight and volume of the products. The response to my concern in this regard was that Eastlings made clear that reliance was placed on Mr Preston's Report more for the proposition that, as a former customs officer and now compliance officer, his calculations would give rise to a concern and would ring alarm bells. However, I am not convinced that one can say that, simply because some of the statistical analysis does not make sense or gives rise to some concern, it should be concluded that the explanation was that there was illegal activity.
In response to the issues raised in the course of debate as to the volume and weight calculations, Counsel for Eastlings placed weight on the analysis of payload deviation. Eastlings argued that if other suppliers were able consistently to achieve, say, 1,071 cartons of Corona per container but Windemac's container loads of Corona varied from, say, 940 to 1,080; and if the variance from the mean was some 12% or 13% for Windemac and J&E Winery (compared to 2% or 3% for other suppliers), then this indicated that those two suppliers were engaged by Joe and Grace in the conduct which allowed for the illegal importation of undeclared stock (see at T 556). Eastlings' position in this regard was that Dr Fargher's analysis was persuasive because his analysis looked at declared payload against a known pattern across a data set which enabled Dr Fargher to conclude that there was something else in the containers when they entered Australia than what was disclosed on the N10 document.
Reference was made to the summary in Dr Fargher's 2019 Report at [43]: (a) If a container has a stated weight of X and stated product of Y packages then the container weight should agree with the aggregate weight of the packages (x times Y) where x is the known weight of each package. The hypothesis is that, if the aggregated weight is less than the stated (documented weight), then there must be something else in the container adding to the weight. (b) If it is feasible to fit X number of packages into a container and this has been verified by both volume capacity analysis and by verifying that other containers have actually been documented as containing that number of similar packages, then, under the maximum load capacity assumption there is room in the container for further product. (c) If Calidu and Eastlings are conducting the same type of importations, from the same or similar sources, then the load variations should be consistent for the same type of imports. If the loads show an unexplained variance then something different must be happening to the loads.
It was made clear that Eastlings was unable to know what extra stock was placed in the containers - rather, that it simply takes the position that there was stock that was not disclosed on the N10 form and hence stock on which excise was not paid (T 559.15).
Ultimately, however, I accept Mr Goodyer's criticisms of the statistical analysis that was carried out. In particular, I accept that the disparity in the data sets between the Calidu imports and the Eastlings imports impacted on the results. I do not suggest that there was a selective approach adopted in the provision of shipping records for review. Nevertheless, I cannot rely on the completeness or reliability of the data set that has been examined. Moreover, the analysis by Mr Preston of the additional cartons that he has calculated could have been placed in containers simply does not accord with reality in a number of instances - and he quite fairly accepted this in the course of his cross-examination. It seems to me that this is a perfect example of the aphorism as to "lies, damned lies and statistics". Even adopting a 33 cubic metre capacity for the containers in question (which seems to be the outer limit other than for the, conceded to be anomalous, 38 cubic metre example), I place weight on the caution expressed by the logistics consultants (Mr Jones and Mr Gallagher) that this must be placed in context, including that there may be anomalies as to the way in which containers are packed; and I simply do not accept that one can safely assume that every minute centimetre of space could have been utilised (as the arithmetical calculations appear to assume).
There is also no evidence as to amounts having been paid in cash for the products imported by Calidu; and no evidence (for understandable reasons) of customers being incentivised to buy more (or more expensive) product by reason of lower prices for "off the books" product. The only witness to whom the issue of "specials" was directly put, Mr Calipari, denied outright that he ever paid for "specials" in cash (T 301).
Ultimately, Eastlings' case rests on the evidence of the conversations to which Angus and Graham have deposed (with Nick and with Johnny Song) from which they say they discovered what was happening and the criticism made by them as to the evidence of Joe and Grace (and Johnny Song).
In that regard, I accept that Angus and Graham have honestly given their best recollection of the relevant conversations; and that the fact that they took such extraordinary steps to verify the information that they were given corroborates their evidence as to those conversations (since otherwise the steps they took seem to me not to accord with common sense). Further, I accept that there are matters of concern in relation to some of the evidence (such as the documents purporting to record short term loans at astronomical annualised interest rates but with the incorrect entities there named; and the uncorroborated evidence by Joe of the payments to Ms Valore or her company said to be for the purchase of boats that she does not recall); and I have already concluded that little credence can be placed on Johnny Song's denials of the conduct that Angus and Graham have confessed to engaging in; but I cannot conclude from that (to the requisite degree of satisfaction and bearing in mind the seriousness of the allegation) that Joe, through Calidu, was engaged in illegal importation of alcohol. Nor is there sufficient evidence to persuade me that Joe, through Calidu, had a practice of engaging in "off-the books" cash transactions.
Therefore, I do not accept that the misleading or deceptive conduct allegations have been made good. Had I been persuaded that Joe, through Calidu, had engaged in the practice of illegal importation then I would have been prepared to infer that this was done to prop up the turnover of the company and that it had the effect of artificially inflating profits (since there would be no reason otherwise for such conduct). In those circumstances, and notwithstanding that there was no evidence from customers as to the incentivisation aspects of the case theory put forward (the second and third of the pleaded elements to which the defendants refer and which they say have not been proved), then I would have concluded that the misleading or deceptive conduct was established as against them. However, I would still have been left with sufficient doubt as to Grace's involvement in, or knowledge of, any such activity as to dismiss the claim for misleading or deceptive conduct against her (or for accessorial liability in respect of Joe and Calidu's misleading or deceptive conduct).
As to the question of reliance and causation, I accept Angus' evidence as to reliance. It is said for Eastlings (and I accept) that Angus was not tested in respect of his evidence that, had he known that the Business was undertaking illegal activity prior to its purchase, he would not have purchased it (and hence, it is submitted, that it can safely be assumed that this is the case).
Had liability been established, I would have concluded that this was a "no transaction" case. True it is, that there may have been other causes for the downturn of the Business, (although it seems inherently unlikely that they would have manifested themselves so quickly) such as the increase in prices to some customers in 2013, the fact that much of the business revolved around the personal goodwill associated with Joe, and issues as to changes in credit terms. Nevertheless, for the reasons given by Mr Samuel, I would have accepted his expert evidence as to the true value of the Business. Thus, in those circumstances, I would have concluded that the loss claimed by Eastlings was established.
As it is, however, and notwithstanding that I understand that there is room for suspicion as to the shipments imported from Windemac and J&E Winery and the conduct of the importation of alcohol from those suppliers, I am not persuaded to the requisite degree of satisfaction that illegal importation of alcohol occurred when the business was owned by Grace and Joe (or that, if any did occur, it was on a sufficiently required basis to affect the accuracy of the figures in the financial statements relied upon); and hence I find against Eastlings on the misleading or deceptive conduct claims.

[89]

Breach of Covenant Claims

As to the Breach of Covenant Claims, read in isolation I would not have construed the restraint covenant as precluding the exportation of liquor, on the basis that there is no suggestion that the exportation of liquor was part of the business carried on by Calidu prior to the sale. As noted above, Calidu was restrained from carrying on or being concerned in, and Joe and Grace were restrained from being involved directly or indirectly as, inter alia, a shareholder or director in, any business "substantially similar" to the Business the subject of the sale for three years within New South Wales and Queensland (see cll 2(a) and (b) of the Restraint Deed).
In Butt v Long (1953) 88 CLR 476 at 487, Dixon CJ observed that "an agreement in restraint of trade, like every other agreement, is to be construed with reference to its subject matter and descriptive words may be restricted in their operation by reference to the circumstances in which the parties contract". In circumstances where there is ambiguity, restraint of trade clauses are narrowly construed (Way v Bishop [1928] Ch 647 at 660; Re Kissane (1977) 15 ALR 683 at 687-688; Butt v Long (1953) 88 CLR 476; [1953] HCA 76 at 487). In Way v Bishop at 660, Russell LJ was of the opinion that a clause in restraint of trade should not "be unduly stretched so as to be generous to the person in whose favour the covenant is entered into. It is a clause which should be looked at, if anything, narrowly". I do not consider it could have been the parties' intention for the Restraint Deed to encompass the exportation of liquor as "any business substantially similar to the Business" when there is no evidence the Business ever exported liquor prior to the sale (and so it was not part of the Business' operation). See also the relevant principles applicable to the construction of commercial contracts as considered in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 630; [2014] HCA 7; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37.
The argument for Eastlings is that what was being protected by the covenant (relevantly in this context) was the custom of the Business (i.e., as I understand it, the loyalty of its customers) and Eastlings noted that Botillion Enterprise (to whom the alcohol was exported) was also a supplier. However, there is no basis in my opinion for assuming that the export by Calidu Import Export of alcohol to a supplier of the Business would impact upon the business relationship as between the Business and that supplier in its capacity as a supplier of alcohol to the Business. Thus, I would not conclude that the exportation of alcohol is substantially the same business as the importation of alcohol, although obviously they concern the same product.
However, one must also take into account the express acknowledgement contained in cl 2(c) of the Restraint Deed, namely that "any business holding a liquor licence having substantially the same attributes and benefits as the Liquor Licence and involving the same or substantially the same stock in trade used in the operation of the Business constitutes a business substantially similar to the Business". The evidence establishes that Calidu Import Export held a liquor licence at the relevant times and that its licence had substantially the same attributes as the Liquor Licence. The goods the subject of the exportation (and, for that matter, importation) were goods the same or substantially the same as the stock in trade used in the operation of the Business (namely, alcohol).
On a literal reading of cl 2(c), the parties have in my opinion acknowledged that conduct of the kind engaged in by Calidu Import Export amounts to the carrying on or conduct of a business substantially similar to that of the Business and hence is conduct that gives rise to a breach by Joe and Grace (they having been restrained from being involved directly or indirectly as, inter alia, a shareholder or director of such a business). It was open to the parties in exercise of their freedom of contract, in effect to define the term "business substantially similar to the Business" in a particular way so as to bring the exportation of wines or spirits as a practical matter within the operation of the restraint; and I consider that they have done so. I see no reason not to hold the parties to their agreement in that regard.
Therefore, I have concluded that the two instances of exportation of wines (though not on their face the conduct of a substantially similar business to the Business) do constitute a breach of the Restraint Deed.
As to the importation of the Spanish wine, it is not necessary to rely on the acknowledgment to reach the same conclusion (i.e., that it falls within the restraint). The evidence made clear that, before the sale, the Business imported a variety of alcohol and other products (albeit primarily beer) and that the products imported were in different price brackets (compare San Pellegrino mineral water to Mumm Champagne or the various kinds of spirits that were imported from time to time). The fact that in the period from 2013 to 2014 Eastlings did not import wine (see Angus' evidence at T 99) is not to my mind to the point.
I do not accept that the fact that the amounts of wine imported might have been minor in the scheme of things detracts from the fact that it was part of Calidu's business to import and on-sell such products through its Product Wholesaler Licence. That is precisely what the importation of the Spanish wine was. Nor do I consider that the fact that it was "entry level" Spanish wine (rather than premium wine, such as the Mumm Champagne) means that it does not fall within the restraint. That seems to me to be too fine a distinction. To my mind, the fact that Calidu had from time to time imported wine from overseas means that the importation of the Spanish wine (cheap or "entry level" as it may have been) falls within the restraint as being conduct substantially similar to that carried on by the Business prior to the sale.
I do not accept that a breach of the Restraint Deed has been established by reference solely to the importation of the containers of wine in August 2014. This is because, on Angus' evidence, he understood that Joe was proposing to import that product and he conveyed as much to Joe. I accept that Angus understood (albeit that there may have been a misunderstanding as between he and Joe in that regard) that Joe would then sell the product to him and that it was intended by Angus at least to be an additional product for sale by Eastlings. I am not satisfied that there is sufficient evidence of a contractual agreement to that effect (and the complaint here made is not as to breach of that arrangement as such); rather, the complaint here made is as to the on-sale of that wine itself amounting to a breach of the Restraint Deed. I have concluded that there was a breach of the Restraint Deed by reason of the on-sale of the imported product. That is because I am satisfied that there was no consent by Eastlings to the on-sale to others of wines that Angus thought (mistakenly or otherwise) were being imported on Eastlings' behalf.
Further, I consider that there was a breach in relation to the third container of wine which was imported in March/April 2015. No consent was sought for that importation (even leaving aside the requirement that under the Restraint Deed any consent was to be in writing) and I am not persuaded that Joe could rely on the conversation back in March 2014 as amounting to consent to all future importations of wine.
As to the loss sustained by reason of those breaches, I accept that it may be measured by the profits that Calidu Import Export appears to have made from the sales in question, those being the sales the opportunity for which was lost by the Business.

Eastlings Pty Ltd v Calidu Import Export Pty Ltd

At a glance

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Judgment (92 paragraphs)

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Cases Cited (27)

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