Fonterra Brands (Australia) Pty Ltd v Viropoulos

Objections to the expert report of Mr Turner 9 The respondents' overarching objection to the expert report of Mr Turner, as originally foreshadowed at a directions hearing on 25 August 2015, was on the basis of the late service of the report. As I have said, under directions made by the Court, the expert report was due to be filed and served by 19 June 2014 or, if in reply, by 20 May 2015. It appears that the only part of Mr Turner's report that replies in terms to the report of Mr Gammel filed for the respondents is section 2.7, where Mr Turner broadly agrees with Mr Gammel. 10 The applicant submitted that Mr Turner's report was critical. 11 So that each party could know the status of the expert report before the commencement of the trial, I indicated at the directions hearing on 25 August 2015 that I would endeavour to give my rulings as soon as possible. Section 192A of the Evidence Act 1995 (Cth) contemplates such a procedure. In making my rulings, I apply the provisions of the Evidence Act. 12 The simplest way of dealing with the objections, in the time available, is to adopt the respondents' schedule, noting, where appropriate, the paragraphs of the expert report which the applicant no longer presses. 13 Pursuant to the Court's directions made on 25 August 2015, the respondents' objections were filed on 28 August and the applicant's response on 1 September 2015. 14 Mr Turner is a partner in the BDO Business Recovery & Insolvency team in the Melbourne office. He has over 20 years' experience in corporate recovery and personal insolvency matters. He said that he was approached by the applicant's solicitor to consent to act as liquidator approximately 12 months after the commencement of the liquidation and he replaced the previous liquidator at a meeting held on 13 May 2011. The applicant funded the liquidator to carry out an investigation of the company affairs which included public examinations of Mr Viropoulos and various professional advisors. The examinations were carried out during 2012. In April 2015, Mr Turner was approached by the applicant's solicitor to provide a quotation to prepare an expert report in regard to specific matters relevant to the affairs of Falcon. Mr Turner subsequently entered into an engagement agreement with the applicant's solicitor to prepare an expert report. He annexed to his report a copy of a letter of instructions dated 14 April 2015. 15 In light of that history, in dealing with the respondents' claim of prejudice from the late service of the report I do not place any weight on the 18 June 2014 email indicating the expected evidence of Mr Turner to which I have referred at [2] above. 16 In my opinion, a cause of the present evidentiary difficulties stems from some of the questions asked of Mr Turner, those questions being attached to the 14 April 2015 letter of instructions to Mr Turner. I set out those questions at [18] below. 17 Another potential difficulty, in my opinion, is the question of Mr Turner's status as an independent expert. He has been the liquidator, funded by the present applicant, of the company the present applicant alleges was the vehicle by which the respondents made the pleaded representations. I shall proceed on the basis that Mr Turner's apparent lack of independence, in the relevant sense, goes to weight: Ananda Marga Pracaraka Samgha Ltd v Tomar (No 4) [2012] FCA 385; (2012) 202 FCR 564 at [35]. The fact that he was the liquidator of Falcon may also explain the shorthand way in which he states his opinions. 18 Those questions were as follows: Assets Sale Agreement 15 October 2009 1. What, in your opinion, was the purpose or purposes of the Asset Sale Agreement of 15 October 2009 and what was the effect on the assets and business of Falcon? 2. What, in your opinion, was the purpose and what was the effect on the assets and value of Falcon of setting the consideration at forced liquidation value rather than Going Concern value assuming the assets continued to be used in the same business operated by another entity (Nick's Food Pty Ltd/Bettamilk Pty Ltd) controlled by Viropoulos? Asset Sale Agreement 6 January 2010 3. What, in your opinion, was the purpose or purposes and what was the effect on the assets and business of Falcon of the Asset Sale Agreement of 6 January 2010? 4. What, in your opinion, were the trade debtors as at 6 January 2010? 5. What, in your opinion, was the purpose and what was the effect of setting trade debtors at $166,000 in the Asset Sale Agreement? Report to Creditors 6. What is your opinion on the Reports to Creditors of 18 February 2010 Sections 1, 3, 4.2, 4.3, 4.7.1 and 4.7.2; Report to Creditors of 27 April 2010 Sections 2.3, 2.4, 2.8, 3, 4, 5.1 and 5.2; and Report to Creditors of 28 April 2011 Section 4? Report of Todd Gammel 7. Do you agree or disagree, and if so, why, with the opinion of Todd Gammel of HLB Mann Judd of 10 March 2015? Non Payment of the Purchased Products 8. What, in your opinion, was the reason or reasons Falcon failed to pay Fonterra for the Purchased Products, that is, goods supplied from 3 September 2009 to 15 January 2010 totalling $1,255,971.71? 9. In your opinion, did Falcon lose the capacity to pay for milk purchased from Fonterra and if so, how and when? (See Report to Creditors 28 April 2011, Section 4) Insolvency 10. What is your opinion on the discrepancy between adjusted debtors referred to in Section 2.4 and in adjusted financial statements in Section 4 at p 10 of the Report to Creditors of 27 April 2010, and the sale price of debtors of $166,000 in the Asset Sale Agreement of 6 January 2010 and the amount owed by Leche NSW Pty Ltd (formerly Bettamilk Pty Ltd) (in liq) to Falcon referred to in the Report to Creditors of 28 April 2011 at Section 4? 11. In your opinion, did or could the failure of Leche NSW Pty Ltd (formerly Bettamilk Pty Ltd) (in liq) to pay from the pool account monies owing to Falcon, create insolvency? 12. In your opinion, were there any shortfalls in accounting for monies from Falcon sales collected by Bettamilk Pty Ltd or paid to the pooled account and not remitted to or on behalf of Falcon? 13. In your opinion, did Falcon have deficiencies in working capital and net assets for the years ending 30 June 2007, 30 June 2008, 30 June 2009, and as at 20 January 2010? 14. In your opinion, was Falcon insolvent at any and what time in 2009 or 2010, and if so, what was the cause or causes? Voluntary Administration 15. What, in your opinion were the reason or reasons and motive or motives for placing Falcon in voluntary administration? Books and Records 16. What, in your opinion, was the state of the books and records of Falcon and whether or not proper books and records were in fact kept by Falcon? Sales 17. What, in your opinion, were the sales of Falcon for the periods to: a) 30 June 2008; b) 30 June 2009; c) July 2009 to January 2010? Phoenix Scheme 18. What, in your opinion, is a "Phoenix Scheme"? 19. In your opinion, was there any "Phoenix activity" in the Asset Sale Agreements or other activity such as the pooled Bettamilk Pty Ltd account and placing Falcon in voluntary administration? 20. In your opinion, which entity ultimately acquired or assumed and operated the Falcon assets and business? Design, Purpose and Effect 21. In your opinion, given: a) the Asset Sale Agreements of 15 October 2009 and 6 January 2010 and the prices attributed to the assets, including debtors, therein; b) the discrepancy in debtors and debtors not transferred; c) non-payment to Falcon from the pooled accounts of Bettamilk Pty Ltd (see Report to Creditors 8 April 2011 Section 4); and d) placing Falcon in voluntary administration; what was the design, purpose and effect of the above and, in particular, was it to avoid paying Fonterra? 19 I note that some of those questions asked Mr Turner what his opinion was as to the purpose or purposes of various transactions such as the asset sales agreement of 15 October 2009 and the asset sales agreement of 6 January 2010, and ended with asking Mr Turner what in his opinion was a "phoenix scheme", whether in his opinion there was any phoenix activity and whether in his opinion, given various matters, what was the design, purpose and effect of the above transactions. So far as I am aware, the expression "phoenix scheme" is not used in the pleadings, although it is used in the applicant's opening submissions filed on 28 August 2015. 20 Before coming to the detail, I should note that I do not accept the applicant's submission that a general statement, such as that included in paragraph 1.3.4. of Mr Turner's report, that "The opinions contained in this report are those of my own and are based wholly or substantially on the knowledge set out under section 1.3.1 of this report", which section merely lists Mr Turner's expertise and qualifications at a very general and abstract level, satisfies the requirements of s 79 of the Evidence Act as explained in Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588. It is to be recalled that at [36], the plurality cited with approval HG v The Queen, [1999] HCA 2; (1999) 197 CLR 414 at [39], where Gleeson CJ pointed out that, "[b]y directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience, [s 79] requires that the opinion is presented in a form which makes it possible to answer that question". See also Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 at [85]. 21 Also I do not regard as significant the three matters at the forefront of the applicant's submissions on this point, that is, that there was a difference between excluding reports in their entirety or in parts; that it was an answer to the problem that the deponent identifies facts and materials; or that, in the present case, there was a relatively confined area of examination. In my view, those matters do not either address the problem to which I have referred or are not a basis for distinguishing what the authorities to which I have referred say. 22 The respondents' objections to Mr Turner's report and my rulings are as follows: Paragraph objected to Portion objected to Ruling 2.1.1 Whole This paragraph states Mr Turner's opinion as to whether or not the relationship between Mr Viropoulos and Fonterra was declining over the period leading up to the sale of the business in January 2010. Mr Turner includes in a footnote a reference to the transcript of the public examination of Mr Viropoulos in June 2012. I reject this paragraph as insufficiently founded in Mr Turner's training, study or experience but also as, in effect, a submission founded on unstated primary facts. I would also refuse to admit it under s 135 of the Evidence Act. Under that section, the court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might, amongst other things, cause or result in undue waste of time. I regard the matters in this paragraph as matters of opinion rather than assumed facts, as referred to in Evans Deakin Pty Ltd v Sebel Furniture Ltd [2003] FCA 171 at [670] per Allsop J, or the opinion is undifferentiated from fact and suffers from that vice. 2.1.2 Whole This paragraph suffers from similar defects and I reject it for the same reasons as for paragraph 2.1.1. 2.1 3 First sentence This sentence suffers from similar defects and I reject it for the same reasons as for paragraph 2.1.1. 2.1.4 Second sentence This sentence contains Mr Turner's opinion as to when an asset sale agreement was executed. He includes in a footnote transcripts of the public examination of Mr Viropoulos in November 2012. I reject this sentence for the same reasons as for paragraph 2.1.1. 2.1.13 Whole In this paragraph Mr Turner states that the effect of the sale agreement was to facilitate the commencement of the removal of the business from Falcon to an associated entity. I reject this paragraph for the same reasons as for paragraph 2.1.1. 2.2.4 Whole This paragraph states Mr Turner's opinion, having regard to valuation definitions and on an assumption that the assets continued to be used as installed in a similar business operated by another entity, that the fair market valuation should have been used to measure the sale, especially considering the sale was not at arm's length. Mr Turner's expertise to give this opinion is not disclosed, neither is his reasoning. I reject the paragraph. I note the respondents' objection on the grounds of relevance but I am not presently persuaded that this material is irrelevant. 2.2.5 Whole This paragraph states Mr Turner's opinion that selling assets between associated parties at forced valuation did not achieve the best price because the business was ongoing and operating from the same location. In his opinion the business was, in effect, continuing on a going concern basis and the use of forced sales values in the sale was not in the best interest of the company or its creditors. I reject this paragraph for the same reasons as for paragraph 2.2.4. 2.2.6 Whole This paragraph states Mr Turner's opinion consequent upon his opinion that the relationship between Mr Viropoulos and Fonterra had declined. On that basis he states the further opinion that Mr Viropoulos removed the assets from Falcon at a value that minimised the assets available to the creditors, primarily Fonterra. I reject this paragraph for the same reasons as for paragraph 2.2.4. Similarly, I note the respondents' relevance objection but I am not presently persuaded that this material is irrelevant. 2.3.1 Whole In this paragraph, Mr Turner states his opinion that the assets subject to this asset sale agreement were sold to an associated entity and not at arm's length. I reject this paragraph for the same reasons as for paragraph 2.2.4. It is a summary or conclusory statement with undisclosed reasoning. 2.3.1 Last sentence This is a relevance objection. I am not presently persuaded that this material is irrelevant, but this sentence is dealt with in my overall ruling in relation to 2.3.1. 2.3.4 Whole This paragraph states Mr Turner's opinion of the purpose and effect of the sale agreement dated 6 January 2010. In my opinion, Mr Turner is not qualified to state the purpose of the sale agreement. Neither does he set out his reasoning. He gives his opinion that the effect of the sale agreement was that Falcon no longer had a business. Assuming that Mr Turner has the relevant expertise, the paragraph does not set out his reasoning. I reject this paragraph. 2.3.5 Whole This paragraph is in similar form to paragraph 2.2.6. I reject it for the same reasons. 2.5.2 Second sentence This sentence sets out Mr Turner's opinion that the debtors were transferred at a value less than their worth and refers to and sets out a summary table. Mr Turner does not set out his expertise to give this opinion. The applicant says that Mr Turner applies his specialised knowledge to the values in the O'Mara report and the books, records and other materials relating to debtors and his analysis of them. If this is so the reasoning is not set out. I reject this sentence. 2.5.2 Third sentence This sentence sets out Mr Turner's opinion that Mr Viropoulos removed the assets from Falcon at a value that minimised the assets available to the creditors of Falcon, primarily Fonterra. Mr Turner's expertise is not disclosed. Neither is his reasoning. I reject the sentence. I note the respondents' relevance objection but I am not persuaded that this material is irrelevant. Section 2.6 Whole except paragraphs 2.6.31-2.6.34. [However, NB the objection to paragraph 2.6.32] The applicant presses only 2.6.2, 2.6.3, 2.6.4; 2.6.23; 2.6.28 to 2.6.40 and 2.6.43 to 2.6.52 2.6.1 Not pressed by applicant 2.6.2-2.6.4 Whole These paragraphs restate and comment on, at a general level, a Report as to Affairs completed by Mr Viropoulos on 18 February 2010. I would reject these paragraphs. To the extent it is relevant, the Report will speak for itself. Further, I would refuse to admit Mr Turner's commentary under s 135 as time wasting. If the Report is relevant, the court can decide what the Report shows. Under that section, the court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might, amongst other things, cause or result in undue waste of time and it is in that sense that I use the expression time wasting. 2.6.5 Not pressed by applicant 2.6.6-2.6.8 Not pressed by applicant 2.6.8 Whole As above, not pressed by applicant 2.6.9-2.6.12 Not pressed by applicant 2.6.13-2.6.16 Not pressed by applicant 2.6.17-2.6.22 Whole Not pressed by applicant 2.6.23 Whole This paragraph concerns a report to creditors of 27 April 2010 and an estimate made by the Administrator as to a closing debtor balance as at 31 December 2009. The paragraph then contains a comment by Mr Turner as to the consistency of the estimate with Mr Turner's analysis in section 2.4. It is not clear to me what the relevance of this paragraph is. It has its origins in question 6 to Mr Turner which asks him no more than what his opinion is of the report. If admissible, the report to creditors will speak for itself. I also refuse to admit this paragraph under s 135. I reject this paragraph. 2.6.24 Not pressed by applicant 2.6.25-2.6.27 Not pressed by applicant 2.6.28-2.6.40 These paragraphs concern a report to creditors of 27 April 2010. These paragraphs state Mr Turner's opinion as to the reasons for the downfall of Falcon. In my opinion, his expertise to give this opinion is not established and neither is his reasoning. In any event they seem to me to be plainly irrelevant. They have their origins in question 6 to Mr Turner which asks him no more than what his opinion is of the report. If admissible, the report to creditors will speak for itself. I also refuse to admit these paragraphs under s 135. I reject these paragraphs. 2.6.32 Whole I have already rejected this paragraph in the immediately preceding ruling. Further, in my opinion, the cause of the downfall of Falcon is not relevant. Further, the basis for Mr Turner's opinion as to that cause is not disclosed. I reject the paragraph. 2.6.41-2.6.42 Not pressed by applicant 2.6.43-2.6.52 These paragraphs set out a number of apparent statements by Mr Hill, a number of statements by Mr Turner as to his conclusions from various documents referred to in the footnotes and then go on to set out a statement by Mr Turner that he is of a different opinion to Mr Hill as to what the director of Falcon would have been aware of. I would reject these paragraphs on the ground that the basis of the opinions by Mr Turner is not set out. I would also refuse to admit these paragraphs under s 135. If relevant, and I note the respondents' objection to the relevance of this material, the primary material may be tendered and the court can be taken to that material. I am not presently persuaded that these paragraphs are irrelevant. 2.6.46 Whole The respondents object to this paragraph as submission or argument. In my opinion, the paragraph must be rejected as the basis for the opinion (expressed as Mr Turner's belief) is not disclosed. The respondents also object to the relevance of the paragraph. I am not presently persuaded that the paragraph is irrelevant. 2.6.49 Whole I have already dealt with this objection in considering the respondents' objection to paragraphs 2.6.43 to 2.6.52. This is the paragraph that states that Mr Turner is of a different opinion to Mr Hill as to what the director of Falcon would have been aware of. I reject the paragraph. 2.6.50-52 Whole I have already dealt with this objection in considering the respondents' objection to paragraphs 2.6.43 to 2.6.52. The basis of the opinion is not disclosed. I reject the paragraphs. Section 2.8 Whole This section stems from question 8 which asked Mr Turner to give his opinion, as to the reason or reasons Falcon failed to pay Fonterra for the purchased products from 3 September 2009 to 15 January 2010. In my opinion this is not a proper matter for expert evidence. Alternatively, if it is a matter for expert evidence, the basis for the opinion is not disclosed. Further, if the subject matter is relevant to a question in the proceedings, In addition, I refuse to admit this section under s 135 as the matter is one for the court. I reject this section. 2.8.4 First sentence I have already dealt with this objection in considering the respondents' objection to section 2.8. I reject the sentence. 2.8.5 Whole I have already dealt with this objection in considering the respondents' objection to section 2.8. I reject the sentence. 2.9.1 Third and fourth sentences This section stems from question 9 which asked Mr Turner whether, in his opinion, Falcon lost the capacity to pay for milk purchased from Fonterra and if so, how and when. The respondents object to the relevance of the sentences. I do not presently understand how those sentences address the question which Mr Turner was asked. However, I would reject the sentences on the ground that the basis for the conclusions is not disclosed. 2.10.1-2.10.2 Whole The respondents object to these paragraphs on the basis that Mr Turner is not qualified to give the opinions and they are not relevant to the pleaded case. Mr Turner's first opinion relates back to section 2.4 of his report which deals with his opinion as to what the trade debtors were as at 6 January 2010. He then goes on to state his opinion in summary form, without disclosing the basis for it, that the sale price was clearly inadequate and under the real value of debtors. In the subsequent paragraph he states his opinion as to why "this" was done. In my view, the difficulty stems from the breadth of question 10 where Mr Turner was asked "What is your opinion on the discrepancy between adjusted debtors … and the sale price of debtors … and the amount owing by Leche NSW Pty Ltd … to Falcon". In my opinion, these paragraphs should be rejected on the ground that the basis for the opinions is not set out. The court may be taken to the primary material, including the primary material in section 2.4 which is not objected to. I would also exclude this material under s 135. I shall return to 2.10 at the end of these reasons when considering prejudice. 2.11.1-2.11.2 Whole The respondents object to these paragraphs on the grounds of relevance. I am not persuaded that these paragraphs are irrelevant. However, the basis for Mr Turner's opinions is not disclosed. Further, the court may be taken to the primary material, if admissible. I would therefore, in addition, refuse to admit these paragraphs under s 135. Section 2.12 Whole This section is objected to on the grounds of relevance. I am not persuaded that this section is irrelevant. It sets out Mr Turner's opinion on the question, question 12, whether there were any shortfalls in accounting for monies as between Bettamilk Pty Ltd and Falcon. However, Mr Turner states in 2.12.4 that he is unable to form an opinion on the shortfall. I would be minded to admit this section but in light of Mr Turner's apparent conclusion, I would need to be persuaded of its relevance. I admit this section, subject to relevance. Section 2.13 Whole This section is objected to on the grounds of relevance. I am not persuaded that this section is irrelevant. It addresses question 13 as to Falcon's deficiencies in working capital and net assets for three financial years and as at 20 January 2010. Mr Turner sets out his calculations in appendices to his report. I admit this section, subject to relevance. Section 2.15 Whole The respondents object to this section on the grounds of relevance. It addresses question 15 asked of Mr Turner which asks for his opinion on the reason or reasons and motive or motives for placing Falcon in voluntary administration. The basis for his opinion is not disclosed. I also refuse to admit this material under s 135. I reject this section. 2.15.6 Whole I have already dealt with this paragraph in my immediately preceding ruling. I reject this paragraph. Section 2.16 Whole Not pressed by the applicant Section 2.18 Whole The respondents object to this section on the grounds of relevance. Mr Turner was asked for his opinion in question 18 as to what is a "Phoenix Scheme". In my opinion, this expression is not one used in the pleadings and if it had been it would have required substantial elucidation. Further, as a statement of conclusion, and one which is tendentious, its probative value is substantially outweighed by the danger that the evidence might cause or result in undue waste of time. I refuse to admit it under s 135. Section 2.19 Whole The respondents object to this section on the grounds of relevance. I would reject Mr Turner's opinion as to whether there was any "Phoenix activity" in part for the reasons I have already given in relation to the immediately preceding section, 2.18, but I would also reject this material as the basis for the opinion is not disclosed. Further, I would refuse to admit the evidence as it stands under s 135. To repeat what I have earlier indicated, the matters to which Mr Turner is here referring, if they are relevant, are matters from which, in due course, I will no doubt be invited to draw inferences and it seems to me to waste time in the relevant sense to be distracted or potentially distracted by Mr Turner's opinion on that matter without the basis for the opinion being disclosed. Even if the basis for the opinion was disclosed, I would apply s 135 to exclude the section. Section 2.20 Whole The respondents object to this section on the grounds of relevance. This section addresses question 20 asked of Mr Turner. I am not persuaded that the conclusion is irrelevant but the form in which it is expressed, that Bettamilk Pty Ltd may have received the benefit and noting that Mr Viropoulos was a Director, has the result that I refuse to admit this material under s 135. 2.20.1 Whole I have already dealt with this paragraph in my ruling on the immediately preceding section. I reject the paragraph. Section 2.21 Whole The respondents object to this section on the grounds of relevance. It addresses question 21 asked of Mr Turner. In my opinion, it is in an objectionable form as in effect it is a summary of all that has gone before. I would refuse to admit it under s 135. Sections 2.6, 2.10, 2.13, 2.16 and 2.18 The respondents in their written outline also object to these sections on the ground that they would be prejudiced by the late production of this material in that they would be unable to respond to it within the time available. Section 2.16 is no longer pressed by the applicant. Counsel for the respondents does not require me to deal with sections 2.6 and 2.13 on the basis of prejudice. Section 2.10 is said to be the centrally prejudicial material in Mr Turner's affidavit, and the objection is on the ground that it was served too late. On the face of it, as claimed, the respondents should not be required to respond to this section within the time available. As an additional ground for rejecting 2.10, I uphold the respondents' submission as to prejudice. There is no satisfactory evidence as to why the report of Mr Turner was as late as it was. I note that I do not base my opinion on the submission made by counsel for the respondents that the content of 2.10 is not pleaded in the amended statement of claim.

23 I reserve costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson.