Fonterra Brands (Australia) Pty Ltd v Viropoulos

Federal Court of Australia|2015-09-29|Before: Robertson J

Introduction 1 The applicant Fonterra Brands (Australia) Pty Ltd (Fonterra) claims $1,172,128.60 plus interest for goods, being dairy products, sold and delivered. The applicant claims that the purchaser of the goods, Falcon GT Pty Ltd (Falcon), now in liquidation, at the time the goods were sold and delivered never intended to pay for them and that Mr Nicholas Viropoulos, the controller of Falcon and the first respondent, at the time the goods were sold and delivered "never intended that Falcon pay". Senior counsel for Fonterra put the case as one overall strategy conceived in September or October 2009 to transfer assets out of Falcon to a related entity controlled by Mr Viropoulos to avoid paying creditors, in particular Fonterra. Senior counsel accepted that this was a claim of fraud and that the same fraudulent intention applied to all of the purchases indistinguishably. 2 Fonterra supplied dairy products to Falcon from about 2006 to early January 2010. There was no written distribution agreement between Fonterra and Falcon, although there were negotiations to that end. Falcon was a distributor of dairy products to retailers. These proceedings concern dairy products supplied by Fonterra to Falcon between specific dates in the period from September 2009 to January 2010. Schedule A to the Amended Statement of Claim particularises the claim by reference to invoices dated between 3 September 2009 and 15 January 2010 (the Purchased Products). 3 It was common ground that the dairy products were sold and delivered by Fonterra to Falcon and that Falcon has not paid Fonterra for them. 4 Falcon was incorporated in 2001. In 2003 Falcon changed its name to First Choice Dairy Pty Ltd (First Choice). In January 2009 Falcon changed its name back to Falcon. In these reasons I refer to the company, whether trading in that name or as First Choice, as Falcon. Falcon is in liquidation. It is not, and does not need to be, a party to these proceedings: see Matheson Engineers Pty Ltd v El Raghy (1992) 37 FCR 6 at 9 per French J. 5 The first respondent, Mr Viropoulos, was a director of Falcon. 6 The second respondent, FCD Holdings Pty Ltd (FCD), was incorporated in September 2008. 7 A company called Bettamilk Pty Ltd (Bettamilk) was also involved. It was incorporated in January 2009. It was later called Leche NSW Pty Ltd. On 27 January 2009, Bettamilk opened a bank account with St George which is referred to below as the group facility. Bettamilk is now in liquidation. 8 It was common ground that Mr Viropoulos controlled Falcon, FCD, and Bettamilk. 9 Fonterra claims that Falcon engaged in misleading or deceptive conduct or conduct likely to mislead or deceive contrary to s 52 of the Trade Practices Act 1974 (Cth) and/or s 42 of the Fair Trading Act 1987 (NSW). 10 Fonterra alleges that Mr Viropoulos was liable for Falcon's conduct and that FCD was also liable for that conduct and was the beneficiary of the conduct, acquiring the assets of Falcon and the proceeds of sale of the dairy products supplied by Fonterra to Falcon between the dates in September 2009 to January 2010. Fonterra claimed that Mr Viropoulos came within the accessorial liability provisions of s 75B(1)(a) and (c) of the Trade Practices Act or was caught by s 42 of the Fair Trading Act and FCD also came within the accessorial liability provisions.

The representations 11 Fonterra pleads that Falcon, by implication, "represented to Fonterra and further encouraged Fonterra to believe and acquiesced in Fonterra believing that": (i) Falcon would, as it had in the past, pay for the Purchased Products; and/or (ii) Falcon had and would have the capacity to pay for the Purchased Products; and (iii) Falcon had reasonable grounds for making the representations in (i) and (ii). (the representations) 12 Fonterra pleads that the representations were untrue in that: (a) Falcon did not pay for the Purchased Products; (b) Falcon never intended to pay for the Purchased Products; (c) Falcon lost its capacity to pay for the Purchased Products by reason that on 15 October 2009 Falcon had sold all its plant and equipment to FCD pursuant to the First Asset Sale Agreement and on or about January 2010 Falcon had sold to FCD its goodwill, stock and debtors pursuant to the Second Asset Sale Agreement; (d) Falcon did not have reasonable grounds for making the Representations. 13 Fonterra pleads that Falcon never intended to pay for the Purchased Products in light of 11 considerations as follows: (i) Fonterra had withdrawn any offer of a five year distribution agreement; (ii) in or about August 2009 Mr Viropoulos and/or Falcon retained the firm of O'Maras Valuers & Auctioneers (O'Maras) to value the plant and equipment of Falcon; (iii) O'Maras inspected the plant and equipment on 3 September 2009; (iv) O'Maras produced a valuation report of Falcon's plant and equipment effective 22 September 2009, dated 25 September 2009; (v) on 15 October 2009 Falcon had sold all its plant and equipment to FCD pursuant to the First Asset Sale Agreement; (vi) in late 2009 an alternative supplier of dairy products, namely Warrnambool Cheese and Butter, was sourced by Mr Viropoulos and/or Falcon to replace Fonterra; (vii) from about 27 June 2009 receipts from the sale of milk by Falcon were banked into the account of Bettamilk (which changed its name to Leche NSW Pty Ltd) as well as Falcon and as from December 2009/January 2010 into the account of Bettamilk; (viii) on or about 6 January 2010 Falcon sold to FCD its goodwill, stock and debtors pursuant to the Second Asset Sale Agreement; (ix) at all material times from at least 15 October 2009 Falcon was insolvent; (x) on 20 January 2010 it was resolved that Falcon be placed into voluntary administration pursuant to s 436A of the Corporations Act 2001 (Cth); and (xi) on 5 May 2010 it was resolved that Falcon be wound up pursuant to s 439C of the Corporations Act. 14 These claims must be assessed from the perspective of how matters stood in the period September 2009 to January 2010, rather than assuming, merely from hindsight, that all of these matters were known or intended throughout that period.

The evidence 15 As senior counsel for Fonterra accepted, to a large extent Fonterra's claim stands or falls by reference to the evidence of Mr Viropoulos who swore an affidavit and was cross-examined for over a day in the course of the hearing. 16 Mr Viropoulos gave evidence that Falcon commenced trading in January 2002 and on behalf of Falcon he executed and submitted a credit application in about August 2006 with a company subsequently acquired by Fonterra. Fonterra supplied dairy products under the brand name Riverina Fresh. 17 As noted above, in January 2009 First Choice changed its name back to Falcon. At about that time another company, First Choice Dairy Food Service Pty Ltd, was incorporated. This was the company through which all of Mr Viropoulos' businesses, except Falcon, purchased goods and transferred them to other entities that distributed the goods. Mr Viropoulos said, and I accept, he did not use this company to purchase for Falcon because it already had arrangements in place for purchasing with Fonterra. Also about that time Bettamilk was incorporated through which, Mr Viropoulos said, if a supply/distributor agreement could be reached with Franklins supermarkets, the Franklins goods would be distributed. 18 In or around January 2007 Mr Viropoulos signed an application for a commercial trade account which he returned to Fonterra. Mr Viropoulos attached to the document a handwritten note stating that he would not provide a personal guarantee until certain events had occurred. The document did not specify a credit limit. I refer to this document again at [64] below.

The 'group facility' 19 As to the bank account referred to by the parties as the group facility, Mr Viropoulos said that in late January 2009 he opened an account with St George in the name of Bettamilk which he intended to use for the business of distributing Franklins products. However, he said, he had trouble banking cheques into the Falcon account because some of the customers were still making cheques payable to First Choice which was no longer recorded on the account. He arranged with the bank for the name on the group facility to be changed so the cheques made out to Falcon, First Choice and Bettamilk could be banked into the group facility. From July 2009 Falcon commenced using the group facility for the payments it received from its customers. I accept this evidence. 20 It was put to Mr Viropoulos in cross-examination that in the middle of 2009 he set up the Bettamilk account so that he could put all of the receipts of Falcon and Bettamilk and any other business into the group facility. Mr Viropoulos said that the Bettamilk account was set up for the banking of receipts under a new agreement he had entered into with Franklins supermarkets. He agreed that at some point the receipts from the sale of milk were put into that group account and that that meant that when Falcon had to pay its creditors, money had to be transferred from the group facility to Falcon to pay its creditors. He agreed that money would be transferred from the group facility as and when needed by Falcon. In those circumstances, Mr Viropoulos agreed, the money did not go to a Falcon account but went to the group account. He disagreed, however, that Falcon lost direct control of the receipts from the sale of the milk because it was a group banking facility and multiple entities within the group used the facility as a depository for monies coming in. I find that Falcon did not lose direct control of the receipts because Mr Viropoulos controlled both Bettamilk and Falcon. 21 Mr Viropoulos agreed that from July 2009, Falcon's receipts were banked into the group facility. He disagreed that that coincided with the difficulties he was having with Fonterra and said that he was negotiating a distribution agreement with Fonterra at that time and in the end there were two sticking points. I accept this evidence. 22 Mr Viropoulos agreed that Bettamilk ended up owing Falcon over $600,000 and that was a calculation of accounts over a six-month period. 23 Mr Viropoulos agreed that payments by Falcon's customers to Falcon for goods the subject of invoices, which included invoices for November and December 2009 and part of January 2010, were paid into the group facility and were never paid to Falcon.

The distribution agreement 24 Mr Viropoulos gave evidence of discussions about a draft distribution agreement from Fonterra. Those negotiations were continuing as at late June 2009. 25 Mr Viropoulos referred to a threat by Fonterra to cut off Falcon's milk supply conveyed by an email of 1 June 2009. He deposed that if he did not take a particular step, Fonterra would cut off Falcon's milk supply "as had been threatened by Alec Waugh in his email of 1 June 2009". 26 The cross-examination of Mr Viropoulos began with an issue as to whether Mr Viropoulos had received a draft letter concerning termination of the distribution agreement from Mr Alec Waugh of Fonterra attached to an email dated 1 June 2009. I find that Mr Viropoulos did receive that letter, as he ultimately accepted. After some hesitation, I find this issue should be put to one side in my assessment of Mr Viropoulos' credibility. If Mr Viropoulos had been taken in cross-examination to paragraph 143 of his affidavit, the substance of which I have set out at [25] above, the difficulty would have been avoided. At the same time in the trial, there was also an issue as to the correct copy of the letter of termination of the Falcon distributorship agreement of 25 September 2009. Mr Viropoulos was taken to a copy of the termination letter in the tender bundle and denied that that was the same letter as he referred to in paragraph 169 of his affidavit. This evidence proved to be correct once the original letter, signed by Mr Todd Wilson, was produced. 27 I accept that Falcon by Mr Viropoulos, and Fonterra had many disagreements in 2009 concerning, at least, which customers could be serviced and which customers could not be serviced by Falcon and about whether or not there would be a formal distributorship agreement. Mr Viropoulos gave evidence that, in his view, Fonterra's conduct helped ruin the business of Falcon. Mr Viropoulos agreed that his differences with Fonterra went back over 2008 and 2009.

The valuation by O'Maras 28 Mr Viropoulos said that in early September 2009 he instructed Mr Tim O'Mara of O'Maras to prepare a valuation of the vehicles and other physical assets owned by Falcon for the purpose of the sale of Falcon's vehicles and other physical assets to another entity. He decided at that time that FCD would be the company to hold the physical assets. I accept this evidence. On or about 11 January 2010 Falcon and FCD executed the asset sale agreement. FCD borrowed money from Macquarie Leasing for the purchase. FCD Holdings paid $218,231 to the financiers of the plant and equipment, most of which were identified in the valuation report prepared by O'Maras. Falcon received the remaining $57,539 into the Falcon account.

The termination letter 29 On or about 25 September 2009 Falcon received a letter from Fonterra stating that it would cease to supply it with milk as of 25 March 2010. 30 Mr Viropoulos said that in about October 2009 he was negotiating with Warrnambool Cheese and Butter Factory Co Ltd (Warrnambool) (which distributed Sungold milk), Parmalat Pty Ltd (which distributed Pura milk) and Procal (which distributed Procal milk) for a supply or distribution agreement for milk and dairy products. He said he had started approaching suppliers other than Fonterra before the 25 September 2009 termination letter but he became more serious about it after the letter. I accept this evidence. On 4 January 2010, Falcon entered into a supply agreement with Warrnambool for the supply of milk and dairy products. 31 Mr Viropoulos agreed that the letter of 25 September 2009 from Fonterra, the termination letter, would cause financial difficulties moving forward and that in a 2012 examination in the Supreme Court of New South Wales he had said that at that point "we knew the company was in dire straits based on what was occurring at the time behind the scenes". He also agreed that it was in September/October 2009 that he decided to sell the plant and equipment of Falcon to FCD. In re-examination he said that by "dire straits" he was referring to the 25 September 2009 letter which terminated his milk supply. 32 He denied he was exploring options to preserve the business of Falcon in September and October 2009 and said he was exploring options on how to negotiate with Fonterra to get them to change their mind about terminating the distributorship. I accept this evidence. 33 Mr Viropoulos, I find, first looked at an alternative milk supplier in about July 2007 and re-engaged in the process in 2008 and 2009. 34 He denied that in 2009 he was putting in place a strategy which involved a change of milk supplier and the sale of the assets of Falcon and the sale of the business of Falcon. He accepted that ultimately one of his companies got a new milk supplier, and that Falcon sold its assets, the vehicles, plant and equipment, and also sold its business. However, Mr Viropoulos denied that by October 2009 he was intending that the milk supplier be changed and denied that in October 2009 he intended that Falcon would sell its business. I accept this evidence. He agreed that in October 2009 he intended that Falcon sell its plant and equipment: see [28] above and [44] below.

The period from September 2009 to January 2010 35 Mr Viropoulos said that in the period from 25 September 2009 until Falcon ceased ordering milk and dairy products from Fonterra in early January 2010 he intended that Falcon would pay for all of the orders it made to Fonterra. I accept this evidence. He referred to signing cheques to Fonterra on 10 September 2009 in the amount of $537,505.46; on 19 October 2009 in the amount of $523,373.60; and on 19 November 2009 in the amount of $474,185.78. He then referred to the relevant employee, Mr Vitankumar Bhavsar, the accounts manager of Falcon until it went into liquidation, who was in charge of preparing the paperwork for payments to Fonterra, going on leave between 24 November 2009 and 6 January 2010 to get married in India, and to a period in or around late November 2009 for three to four weeks when he, Mr Viropoulos, was absorbed by domestic difficulties. 36 He referred to Fonterra saying that Falcon was behind in paying Fonterra by about $600,000 and that Fonterra would cut off Falcon's supply if nothing was paid. He instructed another employee on or about 23 December 2009 to transfer $240,000 to Fonterra. On around 31 December 2009 he instructed that employee to transfer a further $80,000 to Fonterra. 37 Between Christmas and 31 December 2009 Mr Viropoulos said that there were hundreds of customers who had not paid their accounts to Falcon, in a total amount of about $1 million. His state of mind was that he was concerned about recovering money from some of his customers and his assessment of some of them was that they would take any opportunity available to them not to pay. I accept this evidence. 38 In early January 2010, Mr Viropoulos told his accountant that he was concerned that he would not be able to pay all his suppliers on time. He told one of his employees that the company was having some cash flow problems and to make sure that he did not order any stock until he was told otherwise. I find that in early January 2010 Mr Viropoulos was concerned that Falcon would not be able to pay all its suppliers on time. 39 After Falcon had stopped ordering milk and dairy products from Fonterra in early January 2010 Mr Viropoulos again contacted the company's accountant. A draft agreement for the sale by Falcon of its goodwill, stock and debtors in consideration for the payment of $217,500 was drawn up. The purchase price was broken down into three components, goodwill, stock and debtors. He said the amount he attributed to Falcon's debtors, $166,000, was the amount he thought would be recovered from the customers/debtors of Falcon taking into account that Falcon had lost customers at the end of 2009, in his understanding, because of Fonterra's actions in the marketplace; his knowledge of the customers; and the difficulties Falcon was having recovering debts. Falcon received the amount of the purchase price, $217,500, under this agreement on 15 January 2010. 40 After a meeting on or about 20 January 2010 with insolvency practitioners, Mr Viropoulos said he appointed an administrator, Mr Grahame Hill, to Falcon. In May 2010 Mr Hill was appointed as liquidator of Falcon. 41 In 2010 it was calculated that the amount owed by Bettamilk to Falcon was at least $600,000. Bettamilk did not have the money to pay that debt so it was put into administration and subsequently liquidation.

The first asset sale agreement 42 As to the first asset sale agreement, it was put to Mr Viropoulos in cross-examination that the value put into that agreement for the plant and equipment was slightly above what O'Maras had put the value on a forced liquidation value basis. Mr Viropoulos said it was twenty percent above. The twenty percent figure was chosen, Mr Viropoulos said, because it was not a forced liquidation sale and he thought it was reasonable to suggest the twenty percent increase. He took the option of the cheaper of the two values offered because he thought it was a smart commercial decision. 43 As to what he meant by "smart commercial decision", Mr Viropoulos agreed that Falcon was getting less than the fair market value in continued use for the plant and equipment and he agreed that, when the plant and equipment was paid for, it continued to be used in the business and there was a commercial arrangement between FCD and Falcon or Bettamilk with respect to the use of the vehicles or the plant and equipment. Mr Viropoulos said that all of Falcon's plant and equipment was sold under the asset sale agreement. He disagreed that the value at which the plant and equipment was sold was at undervalue from the point of view of Falcon and that he was not having regard to the best interests of Falcon. He said he saw the valuation from O'Maras and he thought it was very generous in some of the pricing. He thought he could achieve a better price in the open market than the O'Maras market value and the auction price plus twenty percent was more like what it would have been if he had gone out in the open market and sourced that equipment second-hand. He said that that was how he derived his number. Mr Viropoulos also agreed that Falcon getting less than the fair market value in continued use would reduce the amount available to Falcon or to Falcon's creditors, but said that at the time this all happened all of Falcon's creditors were being paid without a problem so it was not an imposition on anybody. See further [70] below. 44 Mr Viropoulos was asked whether what he intended in 2009 was that the sale of Falcon's assets was to coincide with the sale of the business. Mr Viropoulos answered that they were completely irrelevant to each other. Mr Viropoulos also denied that he intended that the transfer of the assets was to coincide with the switch of suppliers of milk. I accept this evidence. 45 I accept that the purpose of the first asset sale agreement was, as Mr Viropoulos said, to streamline the administration of the companies and the way the vehicles and insurances were run. It meant better market prices for insurances for a transport fleet and easy administration in terms of the account keeping. 46 The evidence as to when FCD started using the equipment was left unclear. Mr Viropoulos said that at the time he believed it was 15 October 2009 but on reading court documents he discovered it actually occurred on 11 January 2010. 47 Mr Viropoulos was asked about payments made by Falcon to Fonterra in December 2009, being two payments of $40,000, one payment of $240,000 and a fourth payment of $80,000. He accepted that these were not the usual monthly payments. Mr Viropoulos was asked whether the only reason the payments were made in December 2009 by Falcon to Fonterra was so that Fonterra would not cut off the supply. He said that was not the only reason and in re-examination he said the other reason was because the money was due to Fonterra. I accept this evidence. 48 He said he did not cause Falcon to pay any more money to Fonterra in January 2010 after he spoke to his accountant about the state of the company, Falcon, at that point in time. By usual monthly payments, Mr Viropoulos said in re-examination, he meant a remittance advice for all invoices that were due and payable for the assigned period: the invoices were collated by his account staff and provided to him to reconcile against the remittance advice that was printed; he would then approve the payment, sign a cheque and have the staff post a cheque in the mail to Fonterra for the entire amount. That practice was not followed in December 2009, he said, because Mr Bhavsar was on holidays in India getting married and because he, Mr Viropoulos, was missing from work for about three or four weeks due to a critical personal issue. I accept this evidence. 49 Mr Viropoulos denied that he never intended to pay for the orders placed to Fonterra in November and December 2009 and up to 2 January 2010. I accept this evidence. He also denied that the payments to Fonterra in December 2009 were made to facilitate arrangements being made for Warrnambool to become the supplier, which occurred on 4 January 2010. I accept this evidence: there does not appear to have been any difficulty in finding another supplier. He agreed that no further orders were placed with Fonterra by Falcon after 2 January 2010.

Second asset sale agreement 50 Turning to the second asset sale agreement, Mr Viropoulos said that the agreement mistakenly stated that FCD was the purchaser but Bettamilk was really the purchaser. He agreed that the purpose of the agreement was to sell the goodwill, stock and debtors to Bettamilk and that would mean that Falcon would no longer have a business. He disagreed that the second asset sale agreement was part of a strategy decided upon in October 2009. I accept this evidence. He agreed that the purchase price was $217,500 and the debtors were $166,000. He said that he arrived at the figure of $166,000 as the level of debt he thought he could collect, taking into account changing milk supply or supplier and some of the conduct of Fonterra to the customer base. 51 As to what he thought Fonterra had done to the customer base, Mr Viropoulos said in re-examination that Fonterra, along with other distributors in the Sydney market, approached customers of Falcon and told the customers some things about Falcon's ensuing stop of milk supply by Fonterra. Fonterra offered the same product that Falcon was supplying but at a discounted price to the price that Falcon was offering. Mr Viropoulos was concerned that if he lost the customers he lost the practical means to recover Falcon's debts from them. 52 As to how he arrived at the figure of $166,000, Mr Viropoulos said he went through the debtors list and, as I have said at [39] above, made a call as to who he thought would pay and who he thought would not pay. He agreed that the amount attributed to debtors in the agreement was a gross understatement of the debtors for Falcon as at the date of the agreement. Mr Viropoulos did not agree that in putting the debtors at $166,000 in the second asset sale agreement he simply ignored his obligations to Falcon and he did not agree that he wanted to get back at Fonterra for pulling the distribution agreement in September 2009. Mr Viropoulos gave the following evidence in cross-examination: Well, how did you calculate the 166?---I knew the customer base very well. I knew some of the discussions that we had leading up to this point in time, in terms of defending ourselves about some of the things Fonterra and the other distributors were saying, and I made a call as to who I thought would pay and who I thought would not pay. And then how did you calculate the 166 thousand?---With a paper and a pen, going through the debtors list. And you don't have that piece of paper any longer?---No. 53 I accept Mr Viropoulos' evidence that the purpose of the second asset sale agreement dated January 2010 was consequent on his decision that Falcon could not pay its debts as and when they fell due. I also find that Mr Viropoulos wanted the business to continue as a food and milk distributor and the business was bought by one of Mr Viropoulos' companies. 54 In re-examination Mr Viropoulos said that the level of debt, see [50] above, was a reference to debtors: because of the change of milk supply a lot of the customers would stop being Falcon's customers because a lot of them were loyal to the Riverina Fresh brand, whereas Bettamilk was bringing an unknown milk brand into the market, and the customers could source Riverina Fresh milk from alternative Fonterra distributors at a discounted price. Warrnambool's brand, Sungold Milk, had not previously been marketed in New South Wales. Mr Viropoulos had, therefore, no practical way of enforcing collection from the customers and they continued sourcing milk without Falcon. It was very difficult from a financial and practical perspective to pursue the debtors. I accept that Mr Viropoulos thought that the change of milk supply would mean that it would be very difficult to pursue the debtors. 55 Mr Viropoulos agreed that no payments were made by Falcon to Fonterra after 31 December 2009. He agreed that some of the collections that went into the group account in January and February 2010 were from Falcon sales in November and December and he agreed or appeared to agree that Bettamilk got the benefit of those collections He disagreed that the debtors were sold at a gross undervalue and that he intended that to be so. He agreed that there were no payments to Falcon from deposits into the group facility as from January 2010 so that Falcon did not receive the benefit of any of the deposits into the group facility as from January 2010. 56 Mr Viropoulos accepted that total sales, including of Fonterra's product, "did not miss a beat".

Consideration of Fonterra's case that the respondents had a strategy or scheme never to pay Fonterra 57 I next analyse the integers of the strategy or scheme on which Fonterra relies. Fonterra's case is circumstantial; Fonterra submits that from the eleven considerations set out below and which more or less reflect those set out at [13] above, it is to be inferred that Falcon never intended to pay Fonterra. In analysing Fonterra's case I rely first on Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at 141. This was an insurance case involving damage by fire to a house where the insurer refused indemnity, the insured sued and the insurer presented its defence of arson first. Tadgell JA, with whom Winneke P and Phillips JA agreed, said: [T]o assess the evidence in a case like this by reference to various individually-pleaded particulars, as though running through items on a check list, is apt to mislead. The evidence is to be evaluated as a whole in order fairly to consider whether the party bearing the onus of proof has established what is ultimately sought to be proved. The object of the exercise of evaluation is to discover whether the evidence paints a picture reflecting real life, rather than to place a tick or a cross against paragraph after paragraph of torpid pleading. A true picture is to be derived from an accumulation of detail. The overall effect of the detailed picture can sometimes be best appreciated by standing back and viewing it from a distance, making an informed, considered, qualitative appreciation of the whole. The overall effect of the detail is not necessarily the same as the sum total of the individual details: cf Hall (Inspector of Taxes) v Lorrimer; Shepherd v R. In a civil case like this, where there is no direct evidence of a fact that a party bearing the onus of proof seeks to prove, "it is not possible to attain entire satisfaction as to the true state of affairs": Girlock (Sales) Pty Ltd v Hurrell. In such a case, however, the law does not require proof to the "entire satisfaction" of the tribunal of fact. A definition of the sufficiency of circumstantial evidence in a civil case to support proof by inference from the directly proved facts was given by the High Court in the unreported case of Bradshaw v McEwans Pty Ltd in a passage since repeatedly adopted: e.g. Luxton v Vines; Holloway v McFeeters; Jones v Dunkel; Girlock's case. The relevant passage in Bradshaw's case is this: Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture: see per Lord Robson, Richard Evans & Co Ltd v Astley. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise … (Citations omitted.) 58 Thus the evidence has to be evaluated as a whole. 59 I note that Bradshaw v McEwans Pty Ltd has now been reported: (1951) 217 ALR 1. It was a Compensation to Relatives Act case where the appellant claimed damages by reason of the death of her husband, which she alleged was caused by the negligent driving of the respondent company's motor vehicle. The plaintiff's case depended largely upon circumstantial evidence, for example, as to whether the defendant's van was upon the road unlighted when it was dark or becoming dark. It was not a fraud case. 60 In Warner v Hung; Re Bellpac Pty Ltd (recs and mgrs apptd) (in liq) [2011] FCA 1123; (2011) 297 ALR 56, Emmett J said at [48]: Under s 140(2) of the Evidence Act 1995 (Cth), the court must, in deciding whether it is satisfied that a case has been proved to the requisite standard, take into account: • the nature of the cause of action or defence; • the nature of the subject matter of the proceeding; and • the gravity of the matters alleged. When proof of any fact is required, the court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2; [1938] ALR 334 at 342. 61 I should therefore take into account also what was said in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361-2 or, more correctly, s 140 of the Evidence Act 1995 (Cth) which provides that in a civil proceeding one of the matters the court is to take into account in deciding whether it is satisfied that a party's case has been proved on the balance of probabilities is the gravity of the matters alleged.

First element of Fonterra's case - falling out between Fonterra and Mr Viropoulos/Falcon 62 Turning to the first element of Fonterra's circumstantial case that Falcon never intended to pay and "Viropoulos never intended that Falcon pay", this was said to be because of a falling out between Fonterra and Mr Viropoulos/Falcon. Reliance was placed on the email of 1 June 2009, with its attached draft letter, to the effect that Fonterra was "fed up" with Falcon and Mr Viropoulos. But none of Fonterra's witnesses gave any context to this email. In light of the fact that negotiations for a distribution agreement between Fonterra and Falcon continued thereafter, I would not infer any more than that an email was sent in those terms as part of and for the purposes of those negotiations. 63 Reliance was also placed by Fonterra, by reference to a transcript of an examination of Mr Viropoulos before a Deputy Registrar of the Supreme Court of New South Wales, on advice by the then solicitor for Falcon as follows: The only way to really teach them a lesson is to source your product elsewhere. Hit every geographical market inside and outside the former territories in which you operate under the Fonterra banner. However, it was not put to Mr Viropoulos that he adopted this advice or that it reflected his state of mind. Furthermore, large quantities of dairy products continued to be supplied by Fonterra to Falcon and to be paid for by Falcon thereafter. There is a lack of temporal fit between the negotiation about the distribution agreement and the claim that Falcon never intended to pay by reference to an invoice dated as early as 3 September 2009. It is significant that the termination letter was given on 25 September 2009, some weeks after the beginning of the period on which Fonterra relies. I shall return below to the terms of the termination letter but observe here that discussions between the parties to the prospective distribution agreement did not end on that date.

Second element of Fonterra's case - Bettamilk group account 64 The second element of Fonterra's circumstantial case concerned the Bettamilk group account. It was submitted by Fonterra that the effect of the group facility was that Falcon lost control of receipts from customers and received money from the group facility as and when required to meet bills. This was said to be because Bettamilk was the controlling entity not Falcon. I place no weight on this factor. It seems to me to be contrary to the evidence adduced by Fonterra that Mr Viropoulos controlled both Falcon and Bettamilk. I find that Falcon did not lose control of the money received from its customers. I do not regard as material the provision in Falcon's application of around January 2007 to Fonterra for a commercial trade account, referred to at [18] above, which provided that Falcon, where it was paid in respect of the goods sold and delivered to a third party, it "must, as [Fonterra]'s fiduciary, keep any such proceeds in a separate account and account to [Fonterra] in respect of those proceeds".

Third element of Fonterra's case - engagement of O'Maras 65 The third element of Fonterra's circumstantial case was the engagement of O'Maras for an appraisal of the plant and equipment, office furniture and equipment and motor vehicles of Falcon. The intended purpose of the report as there stated was "[t]o assist in considering the financial affairs and circumstances of the subject entity". The appraisal was on the basis of fair market value in continued use and forced liquidation value. The conclusion as to the value of the items was as at the effective date, 22 September 2009. Of itself, this element of Fonterra's circumstantial case seems to go nowhere. I do not see how obtaining a third party valuation forms a part of the strategy for which Fonterra contended. If anything, in my opinion, obtaining the third party valuation would count against that strategy. I have accepted the evidence of Mr Viropoulos as to the purpose of the engagement of O'Maras: see [28] above and see also [45] above and [71] below as to the purpose of the first asset sale agreement.

Fourth element of Fonterra's case - Fonterra's termination letter of 25 September 2009 66 The fourth element of Fonterra's circumstantial case was the termination letter dated 25 September 2009. The timing of this letter does not fit temporally with Fonterra's case that Falcon never intended to pay for the Purchased Products considered as a whole, commencing with the products the subject of the invoice dated 3 September 2009. 67 The letter referred to the offer of a five-year fixed term distribution agreement to distribute Fonterra products within a designated area; stated that as a consequence of the business review process and Falcon's lack of co-operation, Fonterra had decided to withdraw its offer to enter into a five-year distribution agreement, the withdrawal effective immediately; referred to the conduct of Falcon in dealing with precluded customers; and stated that Fonterra "hereby gives [Falcon] notice that the Fonterra Group is terminating its current distribution arrangements with [Falcon]. The current distribution arrangements will be terminated effective from the date that is six months after the date of this letter, being 25 March 2010". The letter stated that Fonterra would continue to supply Falcon with Fonterra products and would continue to work with Falcon on a day-to-day basis to facilitate the sale and distribution of Fonterra products up to 25 March 2010. The letter also said that Fonterra would provide Falcon with reasonable assistance to enable Falcon to transition its supply of dairy products from another dairy processor. 68 I accept that after the 25 September 2009 termination letter the procedures, that is, the payment of the Fonterra debts, continued precisely as they had beforehand. The October debt was paid in full on 19 October 2009 as it ordinarily would be, as was the payment made on 19 November 2009. Again, there is a lack of temporal fit insofar as it could not be said that the letter of 25 September 2009 led to any immediate planned effect to defraud Fonterra of its entitlements to be paid. 69 I accept that the letter had an effect on Mr Viropoulos' state of mind and he referred to the termination letter as something which would cause financial difficulties going forward and that he acted to save the business, but I am not persuaded that this meant more than that as at the date of the letter Mr Viropoulos stepped up his search for an alternative supplier. In any event, I do not accept Fonterra's submission that saving the business and preserving the business was the equivalent, so far as Mr Viropoulos was concerned, of ignoring the creditors. I also accept that Falcon followed its usual ordering and payment procedures after the 25 September 2009 letter: Falcon paid $523,373.60 on or about 19 October 2009 for the August 2009 invoices and $474,185.78 on 19 November 2009 for the September 2009 invoices.

Fifth element of Fonterra's case - first asset sale agreement dated 15 October 2009 70 The fifth element of Fonterra's circumstantial case was the first asset sale agreement. The vendor was Falcon and the purchaser was FCD. The purchase price for the assets, which were listed in schedule 1 to the agreement, was $275,770 inclusive of GST. The balance to pay was $57,539 after leases in the amount of $218,231 were paid out. The leases were to be paid out on or before 1 January 2010 and the balance was to be paid on or before 1 April 2010 (the completion date). By clause 8 the risk in the assets passed from the vendor Falcon to the purchaser FCD if FCD had received possession of the assets. It was common ground that the written agreement was backdated. I find that in October 2009 Mr Viropoulos intended that Falcon sell its plant and equipment, as he accepted in cross-examination. I find that the plant and equipment was sold at twenty percent above the forced liquidation sale basis in the O'Maras valuation. I also find that Mr Viropoulos chose that figure of twenty percent and that the plant and equipment the subject of the agreement, which was all of Falcon's plant and equipment, continued to be used in the business. I find that Mr Viropoulos in October 2009 derived the figure of twenty percent on the basis that he thought that a purchaser could achieve a better price in the open market than the O'Maras market value and that the forced liquidation sale basis plus twenty percent better reflected the price in the open market for second hand plant and equipment: see [43] above. Fonterra submitted that "This was total disregard to Falcon and its creditors." I do not accept this submission. It is true that Mr Viropoulos described the sale of the plant and equipment of Falcon at twenty percent above forced liquidation sale value as it was, in his thinking in September/October 2009, a smart commercial decision, but he also said that he thought it was very fair. Looked at without the benefit of hindsight, there was no suggestion that as at October 2009 Falcon was not able to pay its debts as and when they fell due. 71 I have accepted at [45] above Mr Viropoulos' evidence that the purpose of the first asset sale agreement was to streamline the administration of the companies and the way the vehicles and insurances were run and it would mean better market prices for insurances for a transport fleet and easy administration in terms of the account keeping. 72 It also seems to me, and I find, that the relative net amounts in issue in relation to the sale of the plant and equipment make it less likely that this sale agreement was part of the strategy for which Fonterra contends and more likely to be an inter-company reorganisation by Mr Viropoulos for the purpose of obtaining commercial benefits from rationalising the ownership of the plant and equipment. Under the agreement the balance to pay was, as I said, $57,539 in circumstances where the monthly payments to Fonterra alone for dairy products were of the order of $400,000-$500,000. FCD borrowed money to pay $218,231 to the financiers of the plant and equipment and the financiers were paid out in January 2010.

Sixth element of Fonterra's case - December 2009 or Christmas 2009 collections by Falcon 73 The sixth element of Fonterra's circumstantial case related to December collections from the debtors of Falcon, the retail outlets. Fonterra submitted that it should not be accepted that December 2009 collections, or for that matter collections around Christmas 2009, were difficult. Fonterra submitted in this respect that the December 2009 collections paid into the group facility were $929,669.41 and that these were the largest collections in any of the six months July to December 2009 and larger than the January and February 2010 deposits into the group facility. Further, Fonterra submitted, the collections in January and February 2010 of $762,740.32 and $583,246.43, totalling $1,328,401.05, showed there was no difficulty in the December 2009 collections. 74 The context was Mr Viropoulos' position that $166,000 was his estimate of what could be collected by Falcon from its debtors at the time of the asset sale agreement. That was the figure in the second asset sale agreement as to what, in early January, Mr Viropoulos thought could be collected. 75 A difficulty with this element of Fonterra's case is that Mr Dennis Turner, the expert called by Fonterra, was unable to determine which of the deposits in the group facility related to collection of Falcon's debtors as distinct from other related entity collections that may have also been banked into the same group account. Accordingly, Mr Turner wrote, he was unable to form an opinion on the shortfall other than noting that the maximum potential shortfall to Falcon was $407,717.27 for the period 1 July 2009 to 31 December 2009. Mr Viropoulos did not accept that the monies paid into the group account through 2009 and January/February 2010 were in the main from the sales by Falcon of products obtained from Fonterra. He said they were sales that Bettamilk would have made with Franklins products and sales that Bettamilk would have made with Warrnambool products as at 4 January 2010, by way of example. Mr Viropoulos accepted that the sales of products obtained from Franklins was smaller than the sales of products obtained from Fonterra and that there were receipts into the group facility in January and February 2010 for sales of milk made by Falcon in November and December 2009. I do not accept as established that what was banked into the group facility in January and February 2010 were, in the main, amounts from the sales by Falcon in November and December 2009 of products acquired from Fonterra. 76 I find that it was always difficult for Falcon to collect money from customers and even more difficult just before Christmas. Mr Simon Kappatos, an employee of Falcon until it went into liquidation, gave evidence to this effect. He was not required for cross-examination. Mr Viropoulos gave evidence to this effect and it was challenged only indirectly by reference to the closing balance for debtors in the group facility. What was not challenged was Mr Viropoulos' evidence that between Christmas and 31 December 2009 he went to the office and looked at the debtors ledger in the system and saw that there were hundreds of customers, a total of over 400, who had not paid their accounts in a total amount of $1 million. He said he immediately began ringing customers of Falcon on the debtors ledger who had outstanding accounts. He rang about 25 of the customers and spoke to about six of them before he gave up. He was concerned about recovering money from such customers. His assessment of some of his customers was that they would take any opportunity available to them not to pay. I accept this evidence. 77 Also unchallenged was the evidence of Mr Bhavsar that when he returned to work on or about 7 January 2010 after his overseas holiday to get married he saw that his desk was piled up with paperwork. Neither did Fonterra challenge Mr Viropoulos' account that while Mr Bhavsar was away, Mr Viropoulos intended that he and the bookkeeper would prepare the remittance advices for payments to Fonterra but because of an unexpected and extreme domestic problem he, Mr Viropoulos, had very little to do with Falcon in the month preceding Christmas 2009. 78 A further unchallenged contemporary event was that in early January 2010, on or about 9 January, the premises at Wolli Creek from which Falcon operated its business was broken into and computers stolen. As a result of losing those items, Falcon no longer had records of which customers owed it money and how much they owed. Falcon's MYOB system had gone, as had its access to reports including the debtors ledger.

Seventh element of Fonterra's case - second asset sale agreement dated 6 January 2010 79 The seventh element of Fonterra's circumstantial case was the second asset sale agreement. Fonterra submitted that the Court should infer that this agreement was part of the overall strategy conceived in September/October 2009 to transfer all of Falcon's assets to a related entity controlled by Mr Viropoulos to avoid paying Falcon's creditors, including Fonterra. Fonterra submitted that the amount attributed to debtors in the second asset sale agreement was a gross understatement of the debtors. Fonterra submitted that Mr Viropoulos should not be believed either in relation to the time at which the decision to sell the assets was made or as to the level of debt he thought he could collect as supporting the figure of $166,000 for debtors. Fonterra submitted the effect of the second asset sale agreement was to remove the balance of the assets to FCD/Bettamilk but to leave the creditors with an empty shell. 80 Mr Viropoulos denied that he intended to make the agreement for the sale of the debtors in October 2009. I accept Mr Viropoulos' evidence that he first contemplated selling the business of Falcon, including the debtors, to Bettamilk on or about 7 or 8 January 2010 after a discussion with his accountant, Mr Bruzzano as to how to move forward. I distinguish between the financial difficulties which Mr Viropoulos apprehended in late September 2009 from the termination letter sent by Fonterra, which he referred to as "dire straits", and the circumstances which obtained in late December 2009 and early January 2010. I accept Mr Viropoulos' evidence that the second asset sale agreement was not part of a strategy decided upon in October 2009. 81 In my opinion, Fonterra's factual case must include that Mr Viropoulos did not think that there was the potential for Falcon to be trading while insolvent. It was this reason that Mr Viropoulos gave for Falcon not paying any more money to Fonterra in January 2010. Fonterra submitted that Mr Viropoulos should not be believed but I see no reason to accept the submission having seen Mr Viropoulos give oral evidence before me for over a day. In hindsight and with reference to the December-February collections, it may be seen that Falcon's position was better than Mr Viropoulos had apprehended and I have taken that into account in accepting that Mr Viropoulos thought there was the potential for Falcon to be trading while insolvent. 82 It is not necessary to go further. 83 The remaining issue was the related question of Falcon's debtors being sold for $166,000. I have set out at [52] above Mr Viropoulos' explanation as to how he arrived at that figure. 84 There is no doubt, as Mr Viropoulos accepted, that the $166,000 attributed to debtors in the second asset sale agreement was a gross understatement of Falcon's debtors as at the date of the agreement but it is a different question whether the $166,000 was an undervalue. Fonterra submitted, based on the analysis of Mr Turner, that the worth of Falcon's debtors was in the range of $248,077 to $783.785.04. I find, as submitted by Fonterra, that the figure of $166,000 has no documentary support. But, as I have indicated, I do not find it necessary to decide whether $166,000 was Mr Viropoulos' estimate of what could be collected at the time of the second asset sale agreement. This is not a case brought in the Court's insolvency jurisdiction. I note Mr Viropoulos' denial that in putting the debtors at $166,000 he simply ignored his obligations to Falcon or that he wanted to get back at Fonterra for pulling the distribution agreement in 2009. Mr Viropoulos denied that the debtors were sold at a gross undervalue and that he intended that to be so. As I have said, it is not necessary for me to resolve this issue as I have found that the second asset sale agreement was not part of a strategy decided upon in October 2009 and I have also found that Mr Viropoulos thought in January 2010 that there was the potential for Falcon to be trading while insolvent. 85 I also find, as Mr Viropoulos accepted, that no payments were made by Falcon to Fonterra after 31 December 2009, that Falcon did not receive the benefit of any of the deposits for the group facility from January 2010, and that some of the collections that went into the group account in January and February 2010 were from Falcon sales in November and December 2009 and Bettamilk got the benefit of those collections. I also find that as at 31 December 2009, sales were continuing to increase through 2009 and that total sales "did not miss a beat". 86 However, to succeed on its claim of misleading or deceptive conduct as it was run at trial, Fonterra needed to establish that what occurred in January 2010 was intended by Falcon and Mr Viropoulos or either of them at the time of all of the sales by Fonterra to Falcon which were not paid for. I have found that this was not the case.

Eighth element of Fonterra's case - appointment to Falcon of an administrator on 20 January 2010 87 The eighth element of Fonterra's case was the appointment of an administrator. That this occurred was uncontroversial. Fonterra submitted that there was no need to appoint an administrator and put the company in liquidation. From a pleading perspective this contention is odd given that Fonterra pleaded as one of the particulars of Falcon never intending to pay for the purchased products that at all material times, and from at least 15 October 2009, Falcon was insolvent: see [13(ix)] above. In any event, this contention turns on whether or not Mr Viropoulos' explanation should or should not be believed and for the reasons that I have set out at [ 80-81] above, I accept Mr Viropoulos' explanation. In my opinion, the submission on behalf of Fonterra that the conclusion should be reached that absent a second asset sale agreement there was no need to put Falcon into administration, is not relevant and is liable to distract from Fonterra's pleaded case of Falcon never intending to pay and Mr Viropoulos never intending that Falcon pay at the time of purchase of each of the purchased products.

Ninth element of Fonterra's case - liquidator appointed to Falcon on 5 May 2010 88 The ninth and final element of Fonterra's case was the liquidation of Falcon. That this occurred was also uncontroversial. The appointment of a liquidator was submitted by Fonterra to be the ultimate step in an effort to defeat paying Fonterra. As with the appointment of the administrator, this again turns on a finding of the overall strategy of Falcon never intending to pay and Mr Viropoulos never intending that Falcon pay at the time of purchase of each of the purchased products. I have found that that intention has not been made out.

Consideration of Fonterra's overall case 89 Fonterra submitted that the reality was that the assets were transferred and the liabilities left behind, and at least one of the reasons for the only payments made in December 2009 was to keep up supply. Fonterra submitted that there was a clear and deliberate design over time not to pay Fonterra and that was exactly what happened. The deliberate design and purpose was not to pay. 90 The respondents submitted that there were a number of factors pointing away from or inconsistent with the plan or strategy alleged by Fonterra. The respondents pointed to, amongst other things, Mr Viropoulos' evidence that he intended that Falcon pay for the purchased products when they were ordered; that Falcon continued to make payments for the purchased products up to and including 31 December 2009 and notwithstanding the fact that no further demands have been made by Fonterra, Falcon made a further payment of $80,000 on 31 December 2009; and if Mr Viropoulos had no intention of paying for goods and was intending to defraud Fonterra of the maximum amount possible he could have continued to cause Falcon to order stock from Fonterra as long as he could, that is, until Fonterra stopped supply: there was no reason for Mr Viropoulos to have stopped the "defrauding" process on 2 January 2010. The respondent submitted that if the "plan" really existed there was no reason for Mr Viropoulos to have stopped orders to all suppliers. The respondents also referred to the second asset sale agreement not being drafted until 11 January 2010 and to Mr Viropoulos not obtaining a valuation of Falcon's debtors at the same time as he obtained a valuation for the plant and equipment in September 2009. I agree with these submissions. 91 The respondents also submitted that Falcon started using the group facility long before Fonterra gave notice on 25 September 2009 that it would be ceasing supply in six months' time; the funds in the group facility remained under the control of Mr Viropoulos which was inconsistent with an intention not to pay for the goods purchased by Falcon from Fonterra and the group facility was not a necessary or even a relevant step in any such plan. The respondent also submitted O'Maras was engaged in early September 2009 before Fonterra gave notice of termination of supply and there was a lack of haste in completing that transaction; even if Mr Viropoulos did make a premature and pessimistic assessment of the value of Falcon's debtors, that assessment occurred in January 2010 after all the orders the subject of the proceedings had been made and there was a critical temporal disconnect between the acts of 11 to 15 January 2010 and the ordering of the purchased products the subject of the invoices dated 3 September 2009 to early January 2010. I also agree with these submissions. 92 Ms Bonnie Miller, who was as at late 2009 credit team leader at Fonterra, swore an affidavit in the proceedings and was called by Fonterra. The list of payments annexed to Ms Miller's affidavit is also, in my opinion, inconsistent with the overall strategy for which Fonterra contends. That list of payments shows that on 10 September 2009 Falcon paid the July 2009 invoices in the amount of $537,505.46; on 19 October 2009 Falcon paid the August 2009 invoices in the amount of $523,373.60; on 19 November 2009 Fonterra paid the September 2009 invoices in the amount of $474,185.78; on 21 December 2009 Falcon made a payment in respect of the October 2009 invoices in the amount of $40,000; on 22 December 2009 Falcon made a second payment in respect of the October 2009 invoices in the amount of $40,000; on 23 December 2009 Falcon made a third payment in respect of the October 2009 invoices in the sum of $240,000; and on 31 December 2009 Falcon made a further payment in respect of the October 2009 invoices in the sum of $80,000. 93 Further, I find there was no outstanding demand for payment when the amount of $80,000 was paid on 31 December 2009 for the October invoices. In my opinion, this is inconsistent with the intention contended for by Fonterra in these proceedings that Falcon and Mr Viropoulos at the time the goods were sold and delivered never intended to pay for them. 94 I accept the evidence of Mr Viropoulos that one of the reasons the payments were made in December 2009 was to prevent Fonterra cutting off the supply of the dairy products but I also accept his evidence that another reason for Falcon making the payments was because the money was due to Fonterra. 95 In my opinion, Fonterra's submissions rely on hindsight and post hoc ergo propter hoc reasoning rather than looking at the contemporaneous events in light of the then objective surrounding circumstances. Furthermore, as senior counsel for Fonterra accepted, the "strategy" for which Fonterra contends largely stands or falls on whether or not Mr Viropoulos should be believed. Although I might have some doubts as to the events of early January 2010 from an insolvency perspective, I am not at all persuaded that the selling of Falcon's business to Bettamilk either at all or at an undervalue as to debtors, was intended at the time of the ordering of the Purchased Products the subject of the invoices dated 3 September 2009 to early January 2010 taken as a whole. 96 Fonterra made submissions as to misrepresentations by silence. Fonterra submitted that the silence was as to the use of the group account, the sale of the assets under the first asset sale agreement and the intention to transfer the business at a time to coincide with the new supplier. It was common ground, and I find, that none of these matters had been disclosed to Fonterra by Falcon or by Mr Viropoulos. As Fonterra put this submission, it seems to me to be dependent on the primary contention that the intention was not to pay for the dairy products, as part of the overall strategy, on each occasion that the goods were ordered. Fonterra submitted that part of the misrepresentation was that Falcon and/or Mr Viropoulos were not telling Fonterra at the time of each of the purchases of the milk products that, for example, Falcon intended to sell its business or sell its business at an undervalue in January 2010. There was a duty to disclose because the intention to sell at an undervalue was, on Fonterra's case, then present. Since I have found that the intention to sell Falcon's business or to sell it at an undervalue was not then present, Fonterra's case on misrepresentation by silence falls away. I should also state that I am not satisfied that Fonterra could reasonably have expected to be told of the use of the group account as, for the reasons I have already given at [64] above, that use did not have any relevant consequence. I use the terminology of "could reasonably have expected to be told" as it is the language used in Stora Enso Australia Pty Ltd v CPI Group Limited [2006] FCA 1685 at [136] and Fonterra relied on that judgment. 97 In its pleading, Fonterra contended that by making the orders, Falcon was representing that it had capacity to pay for the goods ordered and delivered or that it would have such capacity at the time for payment. I did not understand that contention to be pressed. 98 In any event, it runs into the difficulty referred to by Mason P in Concrete Constructions Group Ltd v Litevale Pty Ltd [2002] NSWSC 670; (2002) 170 FLR 290 at [152], [154]-[155], [165]-[169] and [173]: It is not the law that every contractual promise has a superimposed representation as to ability to perform, either as at the time of contract or some future date.… The circumstances in which contractual promises can be the basis for misleading and deceptive conduct by the combined operation of ss 52 and 51A of the Trade Practices Act has been explored in a small number of cases: see generally, Halsbury's Laws of Australia, "Consumer Protection" (at [100- 125]). Failure to keep a promise is not itself misleading or deceptive conduct. For one thing, the question whether s 52 has been contravened must be considered as at the time the conduct is engaged in, and not by reference to subsequent events. … Section 51A provides a method for considering whether a representation with respect to any future matter shall be taken to be misleading. Absence of reasonable grounds for making the representation will deem the representation to be misleading (subs (1)); and for that purpose, a corporation shall be deemed not to have reasonable grounds for making a representation unless it adduces evidence to the contrary (subs (2)). But this provision does not say in what circumstances a representation as to a future matter shall be implied for a contractual promise: Futuretronics [International Pty Ltd v Gadzhis [1992] 2 VR 217] (at 239). A fortiori, it does not import into every contractual promise an implied representation as to intent and capacity to perform; nor does it prove that any such implied representation was relied upon by the other contracting party. I readily accept that it will be comparatively easy to establish that a contracting party is implicitly representing a present intention to perform it according to its tenor. If the other party can establish causation and loss then damages should ensue, although there is usually little point in addressing such a claim because the law of contract will compensate the innocent party for the consequences of non-performance without even having to prove misleading intent from the inception. But when one turns to an alleged implicit representation as to capacity to perform things are not so simple, nor should they be. There are policy reasons for restraint. The law arms the parties to a contract with rights to damages and other forms of relief if breach occurs or is threatened. A complex set of common law, equitable and statutory rights are superimposed on the terms of the bargain chosen by the parties. That bargain may have the simplicity as a contract to sell a loaf of bread or the complexity of a building agreement such as the one in question in this case. Why should the parties be found or presumed to have intended more by what they expressly represented and understood? Of course, s 52 goes beyond intentionally misleading or deceptive conduct, but it does not follow that the innocent party understood or relied upon anything more than the express representations and the usually adequate consequences stemming from breach of them stemming from the law touching the mutually chosen regime, that is, contract. … I said earlier that there are policy reasons for restraint in inferring the making of or reliance upon a representation as to capacity to perform express contractual promises. Were it the law that every express contractual promise to pay money carried a present representation as to capacity to perform that thereby engaged s 51A, an entire corpus of law relating to insolvency and insolvent corporate trading could be sidestepped by rendering the agents involved in contractual negotiation and performance personally liable through the combined operation of s 52 and ss 51A and 82 of the Trade Practices Act. Corporations (and, more importantly, their officers) would, like the present defendants, be liable unless they proved that adequate provision was set aside at the outset to meet all liabilities capable of arising in the due performance of the contract. See also HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 at 649 [13] and McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230 at [138] per Allsop J. 99 Relevant to this point, Mr Turner, the expert called by Fonterra, and Mr Todd Gammel, the expert called by the respondents, agreed that there was a reasonable basis for Falcon to form the view that it was able to pay for the purchased products. Mr Gammel said that when Falcon made each of the orders for and took delivery of the purchased products, there was a reasonable basis for Falcon to form the view that it would be able to pay for the purchased products. He was not required for cross-examination. Mr Turner said it was difficult to form a view that the company could not pay for the purchased products during the period. 100 Further, in my opinion, it has not been established that Fonterra's loss was caused by the pleaded representation as to capacity to pay.

Jones v Dunkel argument 101 Fonterra also submitted that I should draw a Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 inference from the absence of evidence from each of Mr Peter Bryant, bank manager, Mr Frank Bruzzano, accountant, and Mr Michael Leonard, solicitor. Fonterra submitted that "[a]n adverse inference should be drawn for not calling these witnesses to give evidence about the group facility and the asset sale agreements to the effect that they would not have assisted the Viropoulos case". Mr Bryant could have given evidence about the group facility, Mr Leonard could have given evidence about the first and second asset sale agreements and Mr Bruzzano could also have given evidence about those agreements. 102 I decline to draw the suggested inferences. 103 As to Mr Bryant, a part of the conversation that Mr Viropoulos had with him relating to the setting up of the group facility was objected to on the grounds of hearsay and I admitted it only for a non-hearsay purpose. This occurred on the first day of the final hearing. But there does not seem to be any doubt, and it was not the subject of cross-examination of Mr Viropoulos, that the group facility was set up so that it began to be used from the start of July 2009 and that Mr Viropoulos arranged for the name on the group facility to be changed so that cheques made out to Falcon, First Choice Dairy and Bettamilk could be banked into the group facility and that the group facility was so used: I refer to paragraph 140 of the affidavit of Mr Viropoulos, which paragraph was not the subject of objection or cross-examination. As explained in Cross on Evidence (Heydon JD, Cross on Evidence (10th ed, LexisNexis Butterworths, 2015)), at pages 40-43 ([1215]), the rule in Jones v Dunkel only applies where a party is "required to explain or contradict" something. No inference can be drawn unless evidence is given of facts "requiring an answer": see Jones v Dunkel at 322. Further, the claimed missing witness must be one who would have elucidated a matter. 104 As to Mr Leonard, in relation to the first asset sale agreement, paragraph 165 of Mr Viropoulos' affidavit refers to his role and there was no controversy about that. It was common ground that it was in January 2010 that Mr Leonard gave Mr Viropoulos a draft asset sale agreement between Falcon and FCD. It also appears that Mr Leonard had some role in drafting the second asset sale agreement but his evidence as to that role was not controversial as paragraphs 202-203 of Mr Viropoulos' affidavit were not the subject of objection or cross-examination. 105 As to Mr Bruzzano, his evidence could have gone to a conversation in early January 2009, to which Mr Viropoulos deposed in his affidavit, subsequent to which Mr Viropoulos instructed Mr Leonard to prepare an agreement for the sale by Falcon of its physical assets to FCD. On the first day of the trial, on objection taken by Fonterra, I admitted part of the paragraph in Mr Viropoulos' affidavit setting out this conversation for a non-hearsay purpose. This leaves the position that Mr Viropoulos' state of mind was that he had been told by Falcon's accountant certain things, whether true or not, as to possible benefits of selling Falcon's vehicles to another entity and subsequently had the first asset sale agreement drawn up. It is not clear what Mr Bruzzano's evidence could have added, relevant to resolving an issue in the trial. 106 Mr Bruzzano's evidence could also have gone to a conversation on or about 2 January 2010, deposed to by Mr Viropoulos, when Mr Viropoulos spoke to him by telephone. Again, on the first day of the trial on objection taken by Fonterra, I admitted parts of the relevant paragraph of Mr Viropoulos' affidavit for a non-hearsay purpose. This leaves the position that Mr Viropoulos told Mr Andrew Alexopoulos, the night shift manager of Falcon, not to order any stock until Mr Viropoulos let him know otherwise, subsequent to a conversation with Falcon's accountant who had given him certain advice about incurring debts in the meantime. It is not clear what Mr Bruzzano's evidence could have added, relevant to resolving an issue in the trial since it was Mr Viropoulos' state of mind and the factual basis for it which were in controversy. 107 Lastly, Mr Bruzzano's evidence could have gone to a further conversation, also in January 2010, when Mr Viropoulos spoke to him about "having trouble collecting debts from some of [Falcon's] customers" in the period after Falcon had stopped ordering milk and dairy products from Fonterra. Again, on the first day of the trial, on objection taken by Fonterra, I admitted parts of the paragraph in Mr Viropoulos' affidavit setting out the conversation for a non-hearsay purpose. Subsequently to this conversation, the amount Mr Viropoulos attributed to debtors in the second asset sale agreement was $166,000. This was uncontroversial. He said he attributed that amount to Falcon's debtors as being the amount he thought would be recovered from the customers/debtors of Falcon. It is not clear what Mr Bruzzano's evidence could have added, relevant to resolving the issue in the trial, since, again, it was Mr Viropoulos' state of mind, whether that was in truth the basis on which he arrived at the figure of $166,000, and the factual basis for it which were in controversy.

Conclusion 108 In light of my findings, Fonterra's claims against Mr Viropoulos and FCD fail. 109 It is not necessary to assess damages. 110 The application should be dismissed. The parties asked to be heard in relation to costs and I therefore reserve costs. I certify that the preceding one hundred and ten (110) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson.

Trade Practices Act 1974(Cth)ss 52, 75B, 82

Fair Trading Act 1987(NSW)ss 42, 68

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