Plaintiff v Defendant

Dawes & Vary Riordan Pty Ltd Solicitors (Shepparton)

1 These proceedings relate to claims made by the Plaintiffs, which includes Henry Jones Food Pty Ltd (HJF), against the Defendants (SPC or the SPC Entities) for alleged breaches of warranty and misleading or deceptive conduct in relation to the purchase of business assets from the SPC Entities in late 2019. The claims arise out of alleged inaccuracies in two spreadsheets provided by the SPC Entities to the Plaintiffs in the course of the Plaintiffs' due diligence with respect to the purchase of these assets.

2 These spreadsheets are 'RCT‑POsummary.xlsx'[1] (the RCT‑POsummary or the PO Summary), which contain information regarding raw material spent by year, and 'LIZZIE Profit and Loss Statement 2017 2018 2019 27.8.19.xlsx' (the 27 August Lizzie),[2] which contain information regarding the profitability of the business, including metrics such as costs of goods sold (COGS) and earnings before interest and tax (EBIT).

3 The essence of the Plaintiffs' case is allegations that the profitability of the IXL and Taylor's businesses (expressed as EBIT) was artificially high and that they believed the information available to be 'hard numbers'. COGS is relevant to the extent that it impacts on the calculation of EBIT.

4 In the context of such a case, the Plaintiffs' claims are based on allegations that:

(a) the spreadsheets in the due diligence process omitted significant business expenses such as costs for particular raw materials and personnel costs, and thereby breached a contractual warranty that those materials were prepared in good faith and with reasonable care for the purpose of informing prospective buyers about the business and its assets; and

(b) similarly, by omitting those costs for raw materials and personnel costs, the spreadsheets provided by SPC in the due diligence process substantially understated the business' raw material costs and COGS, and overstated the business' EBIT, and were therefore misleading or deceptive.

5 In March 2018, SPC Ardmona Operations Limited (owned by Coca‑Cola Amatil)[3] issued an information memorandum (the Project Nectar IM) regarding the potential sale of the brands 'Henry Jones IXL' (a manufacturer of jam and spreads) and 'Taylor's' (a manufacturer of sauces), and the company's 77,880m² manufacturing facility at Kyabram, Victoria (the Kyabram Business or the Business).[4]

6 On 18 June 2018, the Second Plaintiff, the Holstein Milk Company (Australia) Pty Ltd, made a non‑binding offer to SPC Ardmona to purchase either (1) IXL, Taylor's and the Kyabram facility and land for $10.5 million, or (2) just the Kyabram facility and land for $4 million.[5] The transaction did not proceed.

7 On 13 February 2019, Holstein Milk purchased the farm property at 705 and 707 Echuca Road, Ardmona for the purposes of establishing a milk processing facility to process milk, including for export to Malaysia.[6] Works began on the Ardmona site, and by the time of the Plaintiffs' purchase of the Kyabram Business the Second Plaintiff had spent over $500,000 developing the Ardmona property.[7]

8 On 28 June 2019, SPC and related entities purchased the Kyabram Business from SPC Ardmona.[8] The purchase was a carve‑out transaction from the larger SPC Ardmona business. Prior to that time, the Kyabram Business had operated as a division of SPC Ardmona with the result that there were no separable management accounts for the Kyabram Business recording the financial performance which, for example, would provide a discrete profit and loss analysis.[9]

9 Shortly after the end of June 2019, in early July 2019, Mr Allan Findlay, the Chief Operating Officer of each of the Defendants, called Mr Adam Pretty of Holstein Milk to say that SPC had acquired the Business and asked if Holstein Milk was still interested in purchasing it.[10]

10 On 31 July 2019, Holstein Milk and the SPC Entities signed a Non‑Binding Terms Sheet setting out the terms on which the parties agreed to enter into a sale and purchase of the Business.[11] In cross‑examination, Mr Tuan Ee Loi and Mr Pretty both agreed that this offer was made on the basis of the financial information provided in the Project Nectar IM.[12] The fruit prep line which was part of the Kyabram Business was excluded as an asset being sold.[13]

11 On 1 August 2019, Holstein Milk engaged KPMG Financial Advisory Services (Australia) Pty Ltd to perform financial due diligence on the IXL and Taylor's brands and the Kyabram manufacturing facility.[14] KPMG prepared the Project Nectar IM.[15] On 7 August 2019, KPMG issued a formal engagement letter to Holstein Milk.[16] Mr Stefan Erikson, an associate director of KPMG, was tasked with conducting the due diligence under the supervision of KPMG partner, Mr James Hindle. Mr Erikson also supervised others, in this respect, and Mr Allan Findlay was principally responsible for providing information and responses to queries raised during the course of the due diligence process.

12 On 15 August 2019, Mr Erikson sent Mr Pretty an email attaching a 'discussion pack' in relation to the Kyabram Business. The data was based on the data in the 'data room', as well as a current request for information (RFI) list.[17] The discussion pack referred to the financial performance of the Business, and included the following graph regarding IXL and Taylor's sales:[18]

Mr Pretty,[19] Mr Loi[20] and Mr Seh Khai Ng (Mr Khai)[21] agreed in their evidence that they were aware that SPC's sales were declining.

13 On 14 August 2019, Mr Pretty replied to Mr Erikson in relation to the discussion pack, including by stating that he had his 'own analysis on Sales trends typically in FY17 with net sales and product margin % FY17 to 18'.[22] Mr Pretty's evidence was that he was not the author of this email but sent it on instructions from the Malaysian entity under his own name. He did understand, however, that sales were in decline as at 2019.[23] Nevertheless, he was still interested in purchasing the Business because he thought he could turn it around, even though he had no prior experience in running a jam factory.[24]

14 On 19 August 2019, Mr Erikson met with Mr Findlay and Mr Mark Douwe (Head of Supply Chain Finance; Acting CFO of the SPC Entities) to discuss the information provided in the data room, including to discuss the document 'LIZZIE Profit and Loss Statement 2017 2018 2019 (RFI 5.13b.14) 19.8.19' (19 August Lizzie P&L)[25] and the methodology of how certain costs were derived.[26]

15 The 19 August Lizzie P&L indicated, among other things, that the EBIT for 2018 was negative (‑$245,000), and that for the seven months to July 2019, the EBIT was in profit only to the extent of $64,000. Mr Erikson of KPMG describes the position as shown in the 19 August Lizzie P&L as indicating that the Business was only roughly breaking even and indicated that, on a standalone basis, the Business may be losing money.[27]

16 On 20 August 2019, Mr Erikson emailed Mr Findlay requesting 'follow ups' from the 19 August meeting including a 'breakdown of COGS', 'breakdown of Kyabram operating costs' and a 'schedule of key raw material spend by product (incl. price & volume)'.[28] Mr Findlay replied by email on the same day,[29] attaching two spreadsheets, one relating to COGS breakdown,[30] and the second, the POsummary,[31] relating to raw material spend per year. The first spreadsheet - 'Sales Plan F1907 for IXL Taylors products COGS by element.xlsx' - lists the costs associated with the manufacture of each product manufactured in the Business attributing an amount for materials, labour, energy and the like in detail. The POsummary is a large Excel spreadsheet that lists a very large number of raw consumable materials and identifies whether those materials were or were not used by the IXL and Taylor's businesses in each of the 2017, 2018 and 2019 years, and a year to date summary. This document provides the 'raw material spend by year' referred to by Mr Findlay and seeks to identify those materials purchased by SPC which were used in the Business, as opposed to some other part of the SPC activities. Columns F and G of this spreadsheet nominally allocated 'YES' or 'NO' to whether those materials were consumed by IXL or Taylor's.

17 After receipt of these documents, on 20 August 2019, Mr Erikson requested that Mr Findlay provide a breakdown of COGS for each year 'at a total level as opposed to by individual SKU [as was shown in the COGS by element document F1907]'.[32] 'SKU' is a reference to the particular products sold by the Business. On the same day, Mr Erikson emailed Mr Jason Bennett, a director of SPC, stating that he was trying to understand how the figures in the first P&L reconciled with the figures in the Project Nectar IM prepared as part of the previous sale process. He also said that while he was close to reconciling Net Sales Values, he was 'still well out at COGS'.[33] Mr Bennett responded, by email dated 21 August 2019, to Mr Erikson as follows:[34]

As you are aware, we were not part of the company back in 2018 and the CFO who compiled the inforation [sic] from that period is no longer with the business.

You would recall from that IM that the information contained and its basis of preparation was that '... the Buisness [sic] is a division of SPC, there are no separable or relevant audited account available.'

I will work with them today to see what we can find in relation to the original source data used from the previous IM so that we are able to provide a similar baseline for you.

18 On 20 August 2019, Mr Erikson emailed Mr Khai (copied to Mr Pretty, Mr Hindle and others) noting that the 19 August Lizzie P&L showed the Kyabram Business 'roughly breaking even' but that if the Business were to be considered on a standalone basis, 'the extra costs would indicate the Kyabram business is losing money.'[35] This email also identifies that standard costings (i.e. not actual costings) are being used in at least the fixed overhead adjustment for FY2018. Despite being provided with these apparent figures in the 19 August Lizzie P&L which showed that the Business was unprofitable or barely profitable, the Plaintiffs did not at any point attempt to adjust the $8,000,000 purchase price to reflect this,[36] let alone abandon the transaction. At this point, in the context of these communications between the parties and in light of their having been provided with the various documents to which reference has been made on 20 August 2019, the Defendants contend that this indicates that the Plaintiffs were not interested in the Kyabram Business itself, being the jam and sauce production facilities; rather, it is said that they wanted the Kyabram land at 85 McCormack Road, Kyabram (the Land). This is, however, not conceded by the Plaintiffs.

19 Reference has already been made to Mr Erikson's request, in his 20 August 2019 email to Mr Findlay, for the provision of a breakdown of COGS for each year. More particularly, Mr Erikson observed in his email of 21 August 2019 that the COGS breakdown had 'raised some questions around the amount of labour that has been assigned to the COGS and whether the P&L we are seeing for the Kyabram Business has enough labour captured in there for the FTEs [(full time equivalent)] transitioning as part of the Transaction.'[37] On 21 August 2019, Mr Erikson emailed Mr Findlay and others observing that he could not see fudge products or Kellogg's products in the sales data already provided. As set out previously, Mr Bennett had already responded, on 20 August 2019, that he would work to see what he could find in relation to the original course data for the Project Nectar IM, having noted that there are no separable or relevant audited accounts available for the Business as a separate entity.

20 On 22 August 2019, Mr Khai emailed Mr Erikson (copied to Mr Pretty, Mr Hindle and others) asking 'could you reconcile the P&L statements gap between Project Lizzie and Project Nectar? We are concern about the profits which is lower than anticipated.'[38] On 26 August 2019, Mr Erikson sent an email to Mr Bennett and Mr Findlay summarising the outstanding information relevant to the due diligence.[39] Omitting formal parts, this email was in the following terms:

Conscious I have sent a few follow‑up emails last week and appreciate you are chasing up people internally and have a few other things on your plate, but thought it worthwhile to summarise our key outstandings and issues to date so we can collectively work out the best way forward to close out our DD.

Key outstanding information

1. Bridging between P&L provided for Kyabram site and numbers in the Nectar IM

2. Updated sales and margin info incl. fudge & Kellogg's

3. Historical data for the fruit prep line so we can determine a probable margin during the ~12 month TSA period (noting there is discussion to potential stretch this)

4. Breakdown of COGS for FY17, FY18 and YTD Jul‑19

5. Breakdown of Kyabram facility operating costs for FY17, FY18 and YTD Jul‑19

6. List of recent customer wins and losses

7. Capex and FAR

8. Overview of key trading terms and actual payments cycle (for working capital planning)

Items 4 and 5 in particular are quite important to us as we are having trouble reconciling the information provided to date and getting a clear picture of the cost base to run the Kyabram site. The employee information provided indicates an approximate personnel cost of $2.3 million (incl. on‑costs) for 30 people at the Kyabram site, given total COGS in FY18 was $5.7 million (excl. FOH allocation) and materials were $4.0 million per RCT‑POSUmmary file sent on 20/08/2019, below outlines our reconciliation hole - noting we have not allocated any of the spend in file RCT‑POSummary to the FOH amount of $1.76 million based on the nature of the spend in that file appearing to be variable in nature.

21 On 27 August 2019, Mr Findlay emailed Mr Erikson responding to the various matters raised in the 26 August 2019 email set out in the immediately preceding paragraph. Mr Findlay also attached (among other documents) a revised version of an earlier 19 August Lizzie P&L and the 27 August Lizzie.[40] The Defendants contend that this is a key email in the case because, in this email, Mr Findlay advised Mr Erikson (of KPMG) of numerous factors affecting the reliability of data provided to the Plaintiffs and the figures in the 27 August Lizzie. It is observed that Mr Findlay used the word 'estimate' four times in this email and it is said that points 5(a)-(c) make clear that sales and administration costs, the allocation methodology and revised allocation dollars in the 27 August Lizzie were based on estimates. Moreover, point 8 provided six further caveats on the data - including that the '[m]aterial costs assumptions are based on a best estimate ... [t]here will be some variation between COGS actual and materials allocations' (emphasis added).

22 On the same day, Mr Erikson forwarded Mr Findlay's email of 26 August 2019 and the 27 August Lizzie to Mr Pretty and Mr Khai.[41] In that email, Mr Erikson stated that the 27 August Lizzie 'shows a YTD July‑19 EBIT figure of $1,448k ($2.5m on an annualised basis)' but that this was subject to numerous caveats, including that 'Management have been unable (or unwilling) to provide a breakdown of the costs to run the Kyabram site, therefore the P&L provided is based on allocations and assumes that standard costing is accurate' (emphasis added). Also, on the same day, Mr Findlay emailed Mr Erikson about a change in the allocation of 'Bins & Pallet Control' costs in the 27 August Lizzie. Mr Findlay advised Mr Erikson that SPC had amended the allocation of costs from the 19 August Lizzie P&L from a percentage allocation based on volume to a 'simple discount which is broadly in line with Bins and Pallets'. Mr Findlay asked Mr Erikson to 'please note that this is not actual costs but a best guess with a conservative approach'.[42]

23 The Plaintiffs say that the 27 August Lizzie shows far more robust profits for the Business for each of the three years disclosed in which information is provided. Important changes are said to be that gross profits went up by over $1 million for each year; promotional expenses stayed the same; consequently, net sales revenue went up by over $1 million each year; and the total expenses went down significantly for each year. Moreover, it is said that the COGS reported for the three years was:

(a) in 2017: $14 million;

(b) in 2018: $7.4 million; and

(c) in year to date (YTD) 2019: $3.3 million.

24 As to the 27 August 2019 explanatory email accompanying the 27 August Lizzie, the Plaintiffs say that it responds to the various requests made by KPMG in its 26 August 2019 email. As to point 1, regarding the difference between the first P&L and the Project Nectar IM, it is said that:

(a) SPC Management cannot verify the numbers in the Project Nectar IM: this implied that it could verify the other numbers put forward; and

(b) SPC Management could confirm that the information currently provided (presumably in the new Lizzie P&L) was based on management accounts (subject to certain 'assumptions'): this suggested that the actual data from the management accounts has been adjusted in certain ways to reflect those 'assumptions'.

(a) the new Lizzie P&L included the IXL fudge data and the Kellogg's data (these were not substantial amounts); and

(b) the first P&L included fixed manufacturing overheads and other expenses using a percentage allocation: this seems to suggest that they had been multiplying the whole company expenses by a single percentage figure to allocate a share of expenses to Kyabram, but now they had done 'a more detailed analysis by line item'.

In relation to point four (the requested Breakdown of COGS for the financial year (FY) 2017, FY2018 and YTD July 2019), the 27 August 2019 email said that SPC's management had provided 2019 COGS and recommends a simple percentage split to derive COGS for 2017 and 2018. This implies, the Plaintiffs submit, that SPC had provided a result for 2019 derived from figures specifically referable to Kyabram for 2019, and recommended that for 2017 and 2018 (for which inferentially they could not provide such specific figures) the correct figure be approximated by applying a percentage derived from the proportion that in 2019 Kyabram stood to the whole company.

25 Further, it is said by the Plaintiffs that this explanatory email addresses the reconciliation difficulty identified by Mr Erikson in the COGS breakdown table stating that 'SPC management cannot reconcile materials and employee costs to COGS per P&L' but goes on to provide some possible explanations for the figures being different, namely:

(a) the material costs were best estimates of which brand consumed what, whenever the material was consumed by various products;

(b) the employee costs relate to all products manufactured, and the current production assumptions exclude certain parts of the business;

(c) the materials consumed in a given year may be different to the quantity of materials purchased in that same year;

(d) manufacturing overheads are 'released' in line with sales and not when the purchase costs are incurred;

(e) purchase price variances are 'released' in line with sales and not when purchase costs are incurred; and

(f) employee on‑costs are accrued annually but 'released' when taken.

26 With respect to the 27 August Lizzie, the Plaintiffs submit that it indicates that the Business was apparently turning a healthy profit, representing over 20% of sales. Moreover, it is said that the 27 August 2019 email response did not suggest that the figures were simply a guess, but rather that the apparent inconsistencies between the Lizzie P&Ls and other data were probably only apparent. It is suggested, the Plaintiffs say, that there are explanations for those inconsistencies that did not undermine the accuracy of the profitability represented. This is, nevertheless, a contentious proposition which, in summary, the Defendants say ignores the context in which these communications were taking place and the previous and subsequent caveats and warnings in the communications between the Plaintiffs, the Defendants and KPMG in the due diligence process. Consistently with this context and the ongoing nature of the process, on 28 August 2019, Mr Pretty emailed Mr Erikson (copying Mr Khai) asking Mr Erikson to confirm that in the 27 August Lizzie the COGS were not doubled up in the original costs and that the COGS include the fudge and Kellogg's costs. Mr Khai then emailed Mr Erikson following this email asking him to also look into SPC's costs calculation 'to check how frequent [sic] SPC update their standard costing ... We need to ensure all actual costs have been adjusted in the P&L provided.'[43]

27 On 30 August 2019, Mr Erikson emailed to Mr Khai and Mr Pretty a draft version of the KPMG final due diligence report.[44] The draft version of the report included, at page 12, the 'comment/recommendations' that 'we recommend that you seek the appropriate warranties around the financial information provided as part of the Transaction Documents'. This email also refers to a telephone conversation between Mr Erikson and Mr Pretty that morning in relation to KPMG reviewing the report. The version of KPMG's warranty recommendation in the draft report is significantly vaguer and less detailed than the version contained in the final KPMG report. The final KPMG report recommended that Holstein Milk require the sellers to warrant 'that the financial information provided "fairly presents and does not materially misstate the financial performance of the Kyabram business".'[45] No such warranty was included in the Business Purchase Agreement.[46]

28 On 3 September 2019, KPMG produced its final due diligence report (KPMG Report).[47] The Report provided an overview of the profit and loss shown for the Business.[48] The summary notes that the P&L (i.e. the Lizzie P&L) indicates a 2019 YTD profit of $1.4 million but that the 'indirect costs' (i.e. costs other than materials and labour) were unlikely to accurately reflect the costs that the Second Plaintiff would incur as a stand‑alone business after the sale. KPMG provided a breakdown of the COGS, noting that materials formed the highest proportion of those costs, and then employee costs. Four elements of COGS were identified:

(a) raw materials;

(b) manufacturing employees;

(c) fixed overheads allocation; and

(d) variable overheads.

29 KPMG identified raw materials in 2018 as $4 million and employee costs in that year of $2.2 million. The total costs for 2018 were $7.4 million, so the reported costs left $1.1 million to cover all of the variable and fixed overheads of the Kyabram site. KPMG left it to the Second Plaintiff to satisfy itself that that $1.1 million figure would be sufficient. KPMG provided an analysis of the COGS reported. It was noted that this was based on the 'standard cost data' and KPMG had not been given a breakdown of direct labour and overhead costs.

30 The Defendants in their closing submissions drew attention to, what are said to be, numerous express disclaimers as to the accuracy of the financial information disclosed by SPC. More particularly, the following points are made:[49]

1. The KPMG Report included numerous express disclaimers as to the accuracy of the financial information disclosed by the SPC through the due diligence process relating to the Business, and that these issues largely arose from the fact that when the Kyabram Business operated as division of SPC, accounts had not been kept which treated it as a discrete entity. These include:
   1. that KPMG 'could not complete the following aspects of our work due to information limitations: ... ‑ Kyabram operating cost base analysis (management note this information is not available).' [CB 2/1552]
   2. that '[a]t the date of this Report being finalised, the following information had not been received from SPC management: - Fixed Asset Register (FAR) for the Kyabram site; - Overview of payment cycle to allow for working capital planning post‑Transaction; - Breakdown of COGS allocation for Kellogg's SKUs; We do not consider any of the above information would materially change the findings contained in this Report.' [CB 2/1552]
   3. concerning the profit and loss overview of the Business, '[w]hilst the Kyabram P&L provided by management indicates a YTD Jul‑19 EBITDA of $1.4 million, the indirect costs included are SPC allocations and unlikely to be reflective of the standall costs post‑Separation ...' [CB 2/1555]
   4. the use of amber and red lights to describe the integrity / confidence of financial information concerning COGS and Indirect Costs respectively [CB 2/1557]
   5. that '[g]iven the Kyabram business currently operates as a division of SPC, there are no separable management accounts that provide discrete P&L of the business to be acquired'; [CB 2/1557].
   6. that '[g]iven the various sources of data driving the Kyabram P&L, we highlight the potential for there to be errors in the financial information and allocation of Group costs to the Kyabram business.' [CB 2/1557].
   7. under the heading Key Findings and the issue 'Quality of financial information', the observation that 'there is currently no financial reporting for the Kyabram site, and therefore the Kyabram P&L represents a carve‑out of the SPC business. The information provided throughout the due diligence process has been subject to iteration and largely inconsistent, requiring a level of effort to understand how it fits into the broader Kyabram financials and the Transaction Perimeter. We understand that this is a reflection of the Vendor not being prepared for the process, however it raises questions around the accuracy of the information received, which, by nature, is unable to be reconciled to audited information.' [CB 2/1558].
   8. that '[t]he MFG Pro system does not allow SPC management to generate a standalone P&L for the Kyabram site, therefore we have been unable to determine if the P&L provided by management appropriately reflects the costs of operating the site.' [CB 2/1559]
   9. the comment that '[w]e note that the allocation of fixed production overheads by SPC management as part of their costing methodology is subjective and unable to be verified.' [CB 2/1559]
   10. the comment that '[w]e have not been provided with a breakdown of direct labour and factory overhead costs incurred at Kyabram during the Historical Period, therefore we have sought to present an indicative allocation of those components we have been able to reconstruct from standard cost data provided. Consequently, there is a risk that standard costs misstate the costs to operate the Kyabram site.' [CB 2/1579].
   11. referring to variance in the COGS summary present, that '[o]ur analysis implies YTD Jul‑19 COGS are understated but we expect this is more driven by the timing of fruit purchases distorting the implied COGS allocations for the YTD period.' [CB 2/1579].

31 Arising out of disclaimers of this nature, the Defendants made further submissions and observations:[50]

1. Pausing here, it is plain that these findings, which are strewn throughout the KPMG Report, would put any reasonable prospective purchaser on notice as to the inability to rely on any financial data or conclusions presented in the report with any confidence. In fact, there is no other reasonable way to read the KPMG Report. As they make clear, there were fundamental issues with the financial data due to the fact the Business had been 'carved out' of the larger SPC business, so that financial records relating only the Kyabram business were simply not available.
2. In his evidence, Mr Erikson said that if he had received a seller due diligence report with the containing the statement that '[g]iven the various sources of data driving the Kyabram P&L, we highlight the potential for there to b errors in the financial information and allocation of Group costs to the Kyabram business' (CB1557), it would raise 'alarm bells' (T369:29‑370:8). Mr Erikson also said that he had 'never seen a sell‑side report that says that' (T370:5‑6).
3. Mr Ross' evidence was also that, referring to the statements referencing difficulties with the financial information, 'In my experience in having reviewed many transactions, and due diligence reports, I don't think I've ever seen a due diligence report that has that kind of content in it' (T455:7-‍11). Mr Ross was not challenged on this point in cross‑examination.
4. Indeed, Mr Piastra even agreed that KPMG's warning as to iterative and inconsistent information at CB1558 provided a very strong warning to any reasonable reader of the report that the entirety of the information which had been supplied was simply unreliable (T459:6-‍456:28).

These are significant matters which, I accept, go to the context of the business purchase transaction into which the parties were seeking to undertake. Moreover, they are not matters which, as indicated in these reasons, the Plaintiffs either challenged or had regard to, particularly in terms of the context of the business purchase.

32 In the context of the background and factual matters which have been considered, attention is now directed to the extent to which the Plaintiffs relied on the representations which they allege to be contained in the documents to which reference has been made. The Plaintiffs observe that they paid $8 million to acquire the Business with its associated intellectual property, plant and equipment and inventory, the Land and attendant water rights. As a term of that acquisition, they undertook future obligations in respect of the existing staff of the Business. The Plaintiffs say that each of their key decision makers gave evidence that they would not have entered into the transaction had the Business not been profitable, or had it only been making profit in the order of $400,000 to $600,000 per annum; but this reference to key decision makers does not reflect the evidence as to who were the actual decision makers.[51] Mr Pretty gave evidence that:[52]

Did you have a view as to the profitability of the Kyabram business?‑‑‑Yes, Your Honour. I had a view that the business was making a profit. Um, if I may extend on that, as I said before, I have limited experience in financials and the reporting. Yep, that's it for me. Where did you derive your view that the company was in fact making a profit?‑‑‑Your Honour, from the KPMG report. And if the bottom line profitability was not there, if the business was making no money at all, would you have been prepared to proceed with the transaction?

‑‑‑No, Your Honour.

And if the profitability shown with the allocations as you described, without them being reversed, was in the order of 400,000 to 600,000, would you have been prepared to proceed with the transaction?‑‑‑No, Your Honour.

Could you explain to His Honour why not?‑‑‑Your Honour, so we wouldn't proceed with the allocation reversed back in, as the profit would be slightly - would be a slight margin. So the question all about the whole report and the allocations couldn't be, we consider that they're not quite accurate, so that could have swung either way into a loss‑making process.

Mr Pretty also said that if Mr Loi had expressed concern about the profitability of the company, 'it would have had a large influence on my decision to proceed because I was relying on himself and his team to ... make the final decision.'[53]

33 On the other hand, the Defendants submit that Mr Pretty's evidence, acknowledging his limited experience in financials, was that he did not understand what comprised indirect costs when reading the KPMG Report, and that he ignored indirect costs because it was not in his domain.[54] Mr Pretty said he was aware the KPMG Report had expressed significant concerns about the reliability of the management information used in the due diligence process, that some of the information was unreliable, and that unreliable information would significantly affect the bottom line in terms of profitability.[55] Most importantly, it is said that Mr Pretty's evidence was that, although the KPMG Report showed a tentative profitability of $2.25 million, the real profitability of the Business may have been $800,000 to $1 million less due to the allocation of overheads, and not being as profitable as the Project Nectar IM indicated. Notwithstanding that uncertainty, Mr Pretty decided to proceed with the transaction without attempting to negotiate any reduction in purchase price.[56]

34 Of particular significance in the present context was the evidence of Mr Tuan Ee Loi, a director of both the First Plaintiff and the Second Plaintiff. Mr Loi was one of the co‑founders of Holstein Milk and is currently the group's managing director and responsible for business development, strategic planning and overall operations. The Plaintiffs paid particular attention to Mr Loi's evidence in their submissions and relied upon a number of specific aspects of that evidence, which it is helpful to set out in full:[57]

1. Mr Loi gave evidence that he had regard to the profitability in the KPMG report (at T,189.9). He was asked and answered:

Did you have regard to any of the profit margins that were disclosed by that report and discussed?

‑‑‑Yeah, basically, based on the numbers that was presented, um we were, we wasn't very concerned, it still show a very consistent, ah, profit margin in terms of the, ah, GP, gross profit and more importantly, you know, the numbers are still very positive so we think that, you know, although it's not a big business, ah, to us although - I think I'm of the view that it's kind of a bit of distraction to the team to maintain this business but because Debbie wanted the land, we wanted the site, we felt that, you know, if you can be a stand‑alone, you know, business, you can continue as usual and we are not losing money and in the light that, you know, there are so many workers are still working down there so we felt that, you know, we just - it can be sustainable just to let them run on their own, so basically on that basis that, you know, we go to accept that kind of financial, um, information that was presented to us, yeah.

1. He gave evidence that he looked at the risks and understood that:

...

the IXL jam business is not - it's not an independent company rather that the division account of SPC which I know that, right, so therefore, some of those financial, um, numbers that have been presented, um, may subject to some inaccuracy and things like that which I felt that, you know, that is kind of acceptable because you don't have independent company running it, you know, separately, right. So, however, I am taking great comfort because it is operated out of a different site ‑ ‑ ‑ (T189.28‑190.8)

...

I'm taking comfort because it's operating out of a different site, in other words, whatever the workers is there, whatever costs is there, you know, any ingredient that should be - they all can be accounted accurately, so notwithstanding I think any of this acquisition, we always - there will be a tolerance in terms of some accuracy but again, you know, what kind of quantum do you - can you accept? 5 per cent? 30 per cent? 50 per cent kind of variation, on those numbers being stated, so I think I take that in a good state, in a sense that, you know, being a big company, right, different site, so even, you know, KPMG cannot assure me to be 100 per cent accurate, I'm taking comfort because, you know, we are - we are ‑ we are doing a deal in Australia, not a third world, yeah. (T191.22‑192.5)

1. He understood that there are some of the cost allocations that may not be sufficient for HJF to meet that cost of the business: T193.4‑6. But he did not have too much concern since he understood the costs had been allocated by SPC management and 'I take that in a good faith, yeah:' T193.9‑13.

2. He said to Adam in relation to the report:

With regards to the IXL business, I told him that based on this report and then since that it is not bleeding - we ‑ EBIT positive, not a great business but I think it can be self‑sustainable and we can go on to own it, you know, and business as usual, just one section that, you know, leave them alone and then they can take care of themselves while we focus to develop our dairy business and grow the site to suit us, right. T194.31‑195.8; see also T195.9‑15.

1. Mr Loi was asked at T204.8:

Can I ask you what your attitude would have been to the transaction if you had been of the belief or you had been told that the business was in fact not making any profit at all?‑‑‑If I had known that, I would not consider the site, right? Ah, we already bought our - our, ah, site although can be lengthy to build our own, I would not go ahead to buy this - to inherit this headache and all the problems that comes subsequent to that, yeah.

And if you'd been told that it was making a profit at the level of maybe $400 to $600,000 a year, what would be your attitude towards acquiring the business and the site? ‑‑‑Yeah, if the business has such a low margin, right, you know, if it's not worthwhile doing and we can't even, ah, continue to inherit all those liabilities, I will not consider at all, yeah.

...

1. Mr Loi was cross‑examined about his reliance at T217.10‑26. The following exchange occurred:

What I'm suggesting to you is that you understand the business was less profitable than you say you believed it was. It was always open. It would've been open to you to renegotiate the terms of the deal to reduce it, for example, from 8 million to 6 million, for example? ‑‑‑Yeah. If I know, if I know the ingredient has to be misstated by 2 million, that you know, the numbers have vanished so much, I will not even consider to buy it, let alone renegotiate.

Can you focus on my question? Because if you don't, we'll be here tomorrow, all right. If you understood, to use your words, that the EBITDA was $400 to $600,000 assumed, and you wanted the land, you would've taken steps to renegotiate the deal, wouldn't you?‑‑‑That's not the case. That's not the case. If, if, if the business is that bad, why, why would I want to buy it? That's it, full stop, right.

35 The cross‑examination of Mr Loi, however, painted a somewhat different picture, as submitted by the Defendants:[58]

1. In cross‑examination which did him no credit, Mr Loi seemed singularly unaware of the contents of the KPMG Report, giving evidence was that:
   1. First, that prior to entering into the agreement, no one had ever told him in writing or in any other form that the information that SPC had provided throughout the due diligence process had changed and was largely inconsistent. Mr Loi reiterated this multiple times:

‑ 'Now, did anyone prior to you entering into the agreement, were you ever told by anyone in writing, or in a telephone call, or in a WhatsApp message, or in any form, that the information which SPC had provided throughout the due diligence process had changed and was largely inconsistent. Did anyone ever tell you that? ‑‑‑ No. No, I think they ‑ they are ‑ ‑ ‑

No ‑ ‑ ‑?‑‑‑No, no, no, no, no, they ‑ ‑ ‑

Did anyone ever tell you that, yes or no?‑‑‑No. No. Yeah.' (T212:7‑15)

‑ 'Did anyone tell you in any form prior to entering into the agreement with SPC that the information which SPC provided throughout the due diligence process had changed Henry Jones Food Pty Ltd and was largely inconsistent. Had you been told that or not?‑‑‑No.' (T212:27‑213:2)

‑ 'Had you been told that the information provided throughout the due diligence process has changed?‑‑‑No.

Is largely inconsistent, but there was no information as to the extent of the inconsistency, would you have proceeded with the transaction?‑‑‑No.' (T213:26‑30).

This had, in fact, been disclosed in the KPMG Report at CB1558.

1. Second, that if he had been told the information provided through the due diligence process had changed and was largely inconsistent, but he was told nothing more as to the scale of the uncertainty, he would not have proceeded with the transaction (T213:26‑214:8);

'Had you been told that the information provided throughout the due diligence process has changed?‑‑‑No.

Is largely inconsistent, but there was no information as to the extent of the inconsistency, would you have proceeded with the transaction?‑‑‑No.

All right?‑‑‑The answer is no, all right.

All right?‑‑‑Okay.

Had you been told that there was questions surrounding the accuracy of the information which SPC had supplied during the due diligence process?‑‑‑Yes.

And nothing more, would you have proceeded with the transaction?‑‑‑Yes. No, no, no, no, no, no. No. No. Until they can conclude the ‑ the ‑ the ‑ due diligence the answer is no, okay.'

Again, this fact had been disclosed in the KPMG Report at CB1558.

1. Third, that if KPMG had told him that it was unable to determine if the profit and loss in the 27 August Lizzie P&L reflected the cost of operating the site, he would not have proceeded with the transaction:

'If you were told that, for example, let's say KPMG telephoned you and told you that it's unable to determine if the profit and loss reflected in the 27 August Lizzie reflects the cost of operating the site, would you have proceeded with the transaction?‑‑‑No. If KPMG couldn't, I would say no.' (214:9‑14)

This fact had been disclosed in the KPMG Report at CB1556‑7.

1. When Mr Loi was confronted with the fact that all three of these statements were in the KPMG Report, his answers became evasive and non‑responsive: T214:15‑216:21.
2. The clear inference to be drawn is that Mr Loi did not read the KPMG Report. He could therefore not have relied upon it. If he did read it, then he was evidently not concerned about it because he was more interested in acquiring the land at the Kyabram site for the purposes of developing the milk processing plant.

36 Concluding on the Plaintiffs' witnesses with respect to reliance at this stage, the Plaintiffs submit that whilst their witnesses were vigorously cross‑examined as to their reliance, they maintained that:

(a) they had not read the KPMG Report as giving a general warning about the reliability of all of the information provided by SPC;

(b) they had understood that there was a serious issue about the allocation of indirect costs relating to the establishment of the Business on a standalone basis; and

(c) they were satisfied that the Business was making a profit at the level shown in the P&L.

37 Moreover, with respect to the KPMG Report, the Plaintiffs say that KPMG provided a breakdown of the COGS, noting that materials were the highest and then employee costs. There were four elements to COGS, as indicated previously.[59]

Then it is said that KPMG identified raw materials in 2018 as $4 million and employee costs in that year of $2.2 million. The total costs for 2018 were $7.4 million, so the reported costs left $1.1 million to cover all of the variable and fixed overheads of the Kyabram site. KPMG seem to have basically expressed themselves as unable to comment on that allowance, and suggested Holstein Milk needed to satisfy itself that that figure would be sufficient. These amounts were allocated by SPC management and were 'subjective'.

38 More particularly, the Plaintiffs say that KPMG did an analysis of the COGS as reported.[60] They noted that this was based on the standard cost data and had not been given a breakdown of direct labour and overhead costs. KPMG had broken down the materials costs and had concluded that the largest input for production was fruit and dry goods. They note that the expenditure on raw materials for 2019 YTD ($1.9 million) will not reconcile fully to the amount for such materials in COGS in the second P&L. They explain this by saying that this is due to timing issues. That is consistent with the position taken by SPC management. Their calculations are, the Plaintiffs submit, incorrect, and KPMG misled, because the cost of materials that they are using is the figure that omits the bulk sugar and the sugar bags. Moreover, KPMG analyse the employee costs associated with the Kyabram Business.[61] There were planned to be 30 employees staying at Kyabram. Their costs were believed by KPMG to be captured in COGS as reported in the P&L under the SPC methodology.[62] Including on‑costs, the 2019 full year labour cost was reported as $2.3 million ($1,342,000 YTD).

39 Having regard to these matters, the Plaintiffs contend that the general impression gathered from the KPMG Report was that:

(a) the P&L figures could not be confirmed against audited results;

(b) the sales figures appeared correct;

(c) the costs for materials could not be fully reconciled to purchases, but there were possible timing reasons for that;

(d) management were confident in the accuracy of SPC's standard costing model;

(e) the labour costs were actual and therefore correct; and

(f) the fixed overheads were a questionable (indeed doubtful) allocation made by SPC management.

40 In my view, these submissions on the part of the Plaintiffs do not advance their case having regard to the caveats and warnings which clearly appear in the KPMG Report. It is helpful to have regard to some of those specifics now; but reference should also be made to the evidence of Mr Erikson, Mr Ross and Mr Piastra to which reference has been made[63] as to the significance of these matters. More particularly, this position is illustrated and demonstrated by reference to some of the numerous express disclaimers regarding the standalone costs to run the Kyabram Business and recommendations post‑acquisition, including:[64]

1. As noted, the indirect costs are based on an allocation of SPC Group costs. The figures presented in this Report do not include any assessment of the standalone costs required to run the business (CB1557)
2. We recommend an analysis of the standalone costs to operate the Kyabram business is performed to determine the actual profitability of the business outside of SPC ownership (CB1562).
3. We have identified a number of dependencies on SPC for centralised services (e.g. procurement, back‑office) that will need to be considered post‑acquisition. We recommend these are reflected in the final TSA schedule agreed by both parties and your evaluation of the operating model for the business going forward ... (CB1564).
4. The Buyer will need to negotiate their own fruit supply from Day 1 (aside from noted fruits adjacent). The Buyer will need to determine whether they will take a similar approach to bulk‑buying majority of requirement for the year [CB1564].
5. No fruit supply agreements will transfer to the Buyer as part of the Transaction (CB1564).
6. Kyabram will need to enter into new agreements with flavour houses and 3rd party service providers to develop new products going forward [CB1565].
7. The P&L overview for the Kyabram site does not include any admin or back‑office staff in COGS, with the indirect costs below product margin based on a cost allocation from SPC (CB1566).
8. The indirect costs presented adjacent should not be considered reflective of the costs to run the business on a standalone basis and you should undertake a process to determine an appropriate standalone cost base (CB1581).

Moreover, as the Defendants observe, there was no evidence that the Plaintiffs adopted any of KPMG's recommendations after they acquired the Business.

41 A critical aspect of the Plaintiffs' case is the claim of reliance upon the alleged misrepresentations on the part of the Defendants. Assuming for present purposes that there was a misrepresentation on the part of the Defendants properly characterised as misleading or deceptive conduct, the question arises whether the actual decision maker or decision makers within the corporate structure, which included the Plaintiffs, knew of or had any regard to the alleged misleading or deceptive conduct. On the basis of the matters and evidence referred to in the Defendants' submissions,[65] I am of the opinion that the Plaintiffs have failed to establish that the actual decision makers with respect to the purchase of the Business had any regard to, or in any way relied upon, the material alleged by the Plaintiffs to amount to misleading or deceptive conduct. I turn now to specific matters in this context.

42 On 4 September 2019, Mr Khai circulated the KPMG Report to several board members of Holstein Milk Company SDN BHD (Holstein Malaysia) - the 'Malaysian Headquarters.'[66] On 13 September 2019, a Board Memorandum in relation to the potential purchase was circulated to the Holstein Malaysia board.[67] The Non‑Binding Term Sheet and the KPMG Report were included as appendices to this memorandum. The Board Memorandum is, in my view, significant because it outlines the wide scope of Holstein Malaysia's 'Phase 1' investments with the express intention of establishing a significant Australian milk processing facility. Purchasing the Kyabram Business for $8 million was just part of Holstien Malaysia's much larger investment plan of which the total value was $27,470,000.[68] It was this investment plan which was the subject of the Board Memorandum, and the decision to purchase the Business must be viewed in this context.

43 Mr Pretty's evidence was that, by the date of trial, the Plaintiffs had spent approximately $20 million developing the land at the Kyabram site.[69] Mr Khai's evidence was that the building works on the site to establish the milk processing facility occurred between March and October 2020.[70] The Board Memorandum also outlined[71] Holstein Malaysia's forecasts for the future performance of the Kyabram Business. From an EBIT of $2,247,000 in FY2018, the EBIT in FY2021 was expected to rise to $4,189,000 (that is, almost double), i.e. within three financial years.[72] Mr Pretty's evidence was that the Board Memorandum was entirely prepared by those situated in Malaysia for reasons only known to them.[73]

44 On 17 September 2019, Mr Loi circulated an email to the board of Holstein Malaysia responding to questions regarding the prospective Kyabram acquisition which had been raised by Justin Mahmud Hashim.[74] In this email, Mr Loi notes that 'Adam & I felt strongly we can manage within the $500k budget as standalone business for Kyabram notwithstanding KPMG opinion that stated otherwise'; asking Mr Khai to 'please share our projections that we prepared for ANZ with our board members. I believe we can achieve $2.5 to $3m EBITDA going forward' and that 'Adam already gave me his undertakings that 'he will make Henry Jones IXL Great again, just like Donald Trump promised to make America Great again!!'. The Defendants submit that the Court should infer (although Mr Pretty did not accept it in cross‑examination)[75] that this reflected Mr Pretty's understanding, and by extension the understanding of Mr Loi and the Holstein Malaysia board, that to make the business great again necessarily implied that the Business was not doing well at that point.

45 On 2 October 2019, a meeting of the board of directors of Holstein Malaysia was held. The board unanimously voted to proceed with the proposed investment in Kyabram.[76] Mr Loi's evidence was that the board was required to approve of the purchase, including representatives of Al Khazanah (a Malaysian sovereign wealth fund) and Dymon Asia (a Singaporean sovereign wealth fund).[77] No other director who attended the board meeting has given evidence as to what they relied on or whether they read the KPMG Report. The decision to purchase the Business must be viewed in the proper context. As outlined in the Board Memorandum, it was not that the Plaintiffs decided to purchase the Kyabram Business as an isolated act or an isolated transaction. Rather, the decision was made to purchase the Business as part of a much larger investment scheme to establish a major milk manufacturing plant for a business totally unrelated to that of IXL or Taylor's. Holstein Malaysia was not purchasing the Kyabram Business for $8 million as an end in itself - the Business Purchase Agreement was simply the first step to acquire the 'site of the Target' for a much larger $27,470,000 expenditure which the board approved on 2 October 2019.

46 Mr Loi also gave evidence that, to the extent Holstein Milk was aware that the data provided by SPC was inaccurate, it took this into account in deciding to pay $8 million for the Land and the Business.[78] That is, it was priced in.

47 On 21 October 2019, SPC issued a disclosure letter to Holstein Milk.[79] On 22 October 2019, the parties entered into the Business Purchase Agreement (BPA) for the sale and purchase of the Business for the amount of $8 million.[80] On 9 December 2019, Michael Bent of Michael J. Bent Auctioneers Pty Ltd prepared a valuation of the plant and equipment assets of the Business, concluding their fair market value to be $1,755,555.[81] SPC accepts this valuation. On 17 December 2019, the parties completed the BPA. On the same day, SPC entered into a Transitional Services Agreement (TSA) with the First Plaintiff for SPC to continue to provide various services in relation to the Business for a transition period of three months. The TSA was implemented while the Plaintiffs set up their business operations, including their business operations ERP system, in the period immediately following completion. In March 2020, Holstein Milk commenced construction of its milk processing plant, which was completed in October 2020.[82] The TSA concluded on 23 April 2020.[83]

48 In around May or June 2020, Hayley Yong of Holstein Milk prepared financial data, which Mr Khai reviewed, on the apparent performance of the First Plaintiff from the date of completion.[84] This data apparently showed that the First Plaintiff had a negative net profit of ‑$195,520.26 from 17 December 2019 to 31 March 2020. However, in cross‑examination Mr Khai agreed that many of the costs listed in this report were additional costs to SPC's ordinary costs which the Plaintiffs had decided to incur and which, when offset, resulted in the Plaintiffs being approximately $283,000 in profit from completion to 31 March 2020, or around $800,000 in profit when annualised.[85]

(a) $50,643.76 for 'depreciation' (which was not accounted for in the 27 August Lizzie);[86]

(b) $39,196.52 for 'factory fees', being a consultant hired to review factory and quality processes;[87]

(c) $6,353.24 for 'subscription fees';[88]

(d) $334,208.82 for 'professional fees', being a project director,[89] at least part of which was an allocation of additional funds not spent by SPC;[90]

(e) $47,992.56 for 'professional fees', being a sales and marketing consultant;[91] and

(f) $51,197.69 for 'finance costs', being the cost of finance for the purchase price of the BPA.[92]

50 Following the preparation of this data, Mr Khai apparently provided his three‑month results to Goulburn Murray Audit Services, which prepared a report based on that data.[93] Mr Khai was not referred to this document in his evidence. SPC objected to the possible production of this document on the basis that the evidence is opinion, hearsay, based on data which itself has not been established by the Plaintiffs (because the underlying source data has not been tendered) and under s 135 of the Evidence Act 2008 as SPC has not had the opportunity to cross‑examine Mr Adam Purtrill. It was added by the Defendants that, for the avoidance of doubt, SPC does not tender the document.

51 On 4 September 2020, the Plaintiffs issued SPC a letter purporting to provide notice of alleged breached of warranty under the BPA (Notice Letter).[94] SPC responded by letter on 10 November 2020.[95]

52 In around August 2023, David McKenzie of Opteon prepared a valuation report of the Kyabram Land and water rights as at 22 October 2019 (Opteon Report).[96] Mr McKenzie valued the Kyabram Land at $3,250,000 and the water rights at $842,400. These valuations are accepted by SPC.

53 Concluding, the Plaintiffs contend that they were entitled to rely on the material provided by SPC in the due diligence process and that it was prepared in good faith and with reasonable care.[97] It does not, however, necessarily follow that the material was accurate, as the KPMG Report indicates very clearly.

54 It is common ground that the Seller Warranties contained in the BPA are significant not only for the alleged breach, but also to contextualise the nature of the representations made by the Defendants in the course of the due diligence and sale process. As the Plaintiffs emphasise, a breach of a Seller Warranty entitles the Plaintiffs to indemnity and compensation for any loss suffered or incurred by them in connection with the breach, or arising from the facts, matters or circumstances that make a breach of the Seller Warranty untrue in accordance with cl 15.3 of the BPA.[98] The Plaintiffs rely on Seller Warranty 4(a).[99]

55 The Dictionary contained in the BPA defines the 'Seller Warranties' as meaning the warranties set out in Schedule 2 of the BPA.[100] These include warranties as to the 'Disclosure Material',[101] which means 'the written information relating to the Business and the Business Assets provided to the Buyer prior to the date of this agreement, limited to the Data Room, the Property Agreement and Vendor Statement, and the Disclosure Letter.' Relevantly, the 'data room' means 'the materials listed in the Data Room Index, as well the written questions submitted by, and written answers given to, the Buyer or their Representatives during its due diligence exercise.'[102] 'Representatives' has the meaning given to it in cl 5.3,[103] being 'a reasonable number of persons authorised by the Buyers'. As the Disclosure Material is defined to include the written information in the data room, the information contained in the correspondence to which reference has been made constitutes Disclosure Material for the purpose of the Seller Warranties.

56 The Plaintiffs rely on Item 4(a) of the Seller Warranties (Seller Warranty 4(a)) which provides as follows:

4 Information

(a) The Disclosure Material was prepared in good faith and with reasonable care for the purpose of informing prospective buyers of the Business and the Business Assets about the Business and the Business Assets.

57 Seller Warranty 4(a) is not, as the Defendants contend, properly construed, as a warranty as to the accuracy of information. Seller Warranty 4(a) is a warranty as to how the Disclosure Material was prepared (Defendants' emphasis but as to which I endorse and agree), warranting that the Disclosure Material was 'prepared in good faith and with reasonable care' for the purpose of informing prospective buyers. There is not, as the Defendants observe, otherwise any warranty in the BPA as to the accuracy of the information provided for due diligence. Moreover, as the Defendants submit, Seller Warranty 4(a) must also be read and understood in the factual matrix of the BPA and the sale as a whole - that is, in circumstances where both parties were fully aware that the Business was a carve‑out of the larger SPC business which had only recently been purchased by the Defendants, and for which there were no then current or historical separate management accounts. In other words, as indicated previously, the context of the business purchase transaction.

58 Clause 15 of the BPA contains further warranties in relation to the Seller Warranties provided by SPC. Clause 15.1 provides that the SPC Entities warrant that 'that each of the Seller Warranties is true, accurate and not misleading in any material respect as at the date of this agreement and at Completion' unless the Seller Warranty is expressly given at a particular time, in which case the Seller Warranty is true, accurate and not misleading in any material respect at that time. However, this warranty of accuracy in cl 15 does not relate to the accuracy of financial data provided in the due diligence process - rather, as I accept, it relates to the accuracy of the Seller Warranties themselves (that is to say, it is a warranty that the promise in Seller Warranty 4(a), that the Disclosure Material was prepared in good faith and with reasonable care, is accurate).

59 Clause 15.3 provides, generally, a right of indemnity to the Buyer from the Seller for loss suffered in connection with a breach of a Seller Warranty or arising from the facts, matters or circumstances that make a Seller Warranty untrue, except to the extent the liability is limited or qualified under cl 15. The limitation of liability referred to in cl 15.3 is outlined in cls 15.4 and 15.5. Clause 15.4 provides that the Seller Warranties are given subject to and are qualified by, and the liability of the Sellers in respect of any breach of any Seller Warranty will be reduced or extinguished (as the case may be) to the extent that, the breach arises in connection with - relevantly - 'any matters or information which has been disclosed in the Disclosure Material' (cl 15.4(b)) and 'anything within the actual knowledge of the Buyer Deal Team [i.e. Adam Pretty and Loi Tuan Ee] as a the date of the agreement' (cl 15.4(c)).[104]

60 The Defendants make reference to the Plaintiffs' allegation in relation to Seller Warranty 4(a) as being significant for the Plaintiffs' misleading or deceptive conduct claim.[105] One of the ways that Seller Warranty 4(a) is alleged to have been breached[106] is that the Defendants did not 'adequately review' the accuracy of the information contained in the RCT-POsummary or the 27 August Lizzie after being told by KPMG[107] of potential errors and that they were having difficulties in reconciling the information provided. The Defendants contend that this allegation amounts to the Plaintiffs themselves alleging that their agent, KPMG, had informed the Defendants that the Disclosure Material was unreliable and contained errors and nothing was done to correct it. This, it is said, is squarely at odds with any allegation that the Plaintiffs could possibly have been misled by those same materials or believed that they were 'hard numbers'. On the other hand, the Plaintiffs contend that it follows from 'gross errors' in the RCT-POsummary that there was a breach of Seller Warranty 4(a).[108] Unexplained errors of this magnitude in answers to questions of importance raise, it is said, an irresistible inference of negligence. This, it is said, is particularly so given there is no evidence adduced by the Defendants as to the preparation of that document. For the reasons which follow, this is not, in my view, any answer to the point made by the Defendants as to the Plaintiffs' allegation.[109] Consequently, the Plaintiffs' breach of warranty claim must fail.

61 As the Plaintiffs submit, in determining whether there has been a contravention of s 18 of the Australian Consumer Law (ACL), which is contained in sch 2 of the Competition and Consumer Act 2010, it is necessary to consider whether, in light of all relevant circumstances constituted by the acts, omissions, statements or silence, there has been conduct which is likely to be misleading or deceptive.[110] This is clearly common ground in the present proceeding.

62 Moreover, as the Defendants observe, there are four steps in determining whether a person has breached s 18 of the ACL:[111]

(a) First, identifying with precision the 'conduct' said to contravene s 18(1). This requires asking: 'what is the alleged conduct?' and 'does the evidence establish that the person engaged in the conduct?'.

(b) Second, considering whether the conduct was conduct 'in trade or commerce'.

(c) Third, considering what meaning the conduct conveyed to its intended audience. Where the pleaded conduct is said to amount to a representation, it is necessary to determine whether the alleged representation is established by the evidence.

(d) Fourth, determining whether the conduct, in light of the meaning the conduct conveyed, meets the statutory description of 'misleading or deceptive or ... likely to mislead or deceive', that is, whether it has the tendency to lead into error.

The third and fourth steps require the court to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons. That context includes the immediate context which is, relevantly, all the words in the document or other communications and the manner in which those words are conveyed - not just a word or phrase in isolation - in the broader context of the relevant surrounding facts and circumstances.[112]

63 Thawley J in Inruse provided a helpful summary of current authorities with respect to the need to interpret conduct in the light of all relevant circumstances:[113]

[128] Where an applicant contends that the impugned conduct conveys a representation, one cannot only analyse the separate effect of isolated parts of the conduct said to give rise to the representation without analysing whether the representation was conveyed by the whole of the conduct assessed in context: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; 149 CLR 191 at 199; Butcher v Lachlan Elder RealtyPty Ltd [2004] HCA 60; 218 CLR 592 at [39] (Gleeson CJ, Hayne and Heydon JJ); Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 at [52].

[129] Examining only isolated parts of the conduct 'invites error': Butcher at [109] (McHugh J); approved in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [102]. McHugh J stated (footnotes omitted):

The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52[114] has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.

[130] It follows that it would be wrong only to analyse particular words and phrases in the Guide and FAQs in isolation. Not only must those documents be read as a whole, they must be read with each other and against the broader context of the relevant surrounding facts and circumstances. [Defendants' emphasis]

64 Moreover, in Campbell v Backoffice Investments Pty Ltd, French CJ said:[115]

If the conduct is said to consist of a statement made orally or in writing, the first question to be asked is what kind of statement was made. Was it a statement of historic or present fact made on the basis that its truth was known to its maker? Was it a statement of opinion? That is to say was it a statement of 'judgment or belief of something as probable, though not certain or established'? The term 'estimate' itself, used as a verb, means the 'act of valuing or appraising' or an 'approximate judgement of the number, quantity, position, etc, of something'.

The same point was emphasised by Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd:[116]

It would be wrong to select some words or act, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. It is obvious that where the conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words. The same is true of acts.

65 The extent to which the conduct of the alleged representee is significant again, depends on all the circumstances. The extent to which such a person might have made further enquiries was considered by the Full Federal Court in Elanor Funds Management Ltd v Alceon Group Pty Ltd.[117] In that case, Bromwich and Thawley JJ said:[118]

It is no answer to conclude that, if further inquiries had been made, [the plaintiff] might have discovered that the position was otherwise.

As Lockhart J stated in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) [1988] FCA 40; (1988) 39 FCR 546 at 558, to which [the plaintiff] referred:

It is no answer to say that Collins Marrickville should have made its own inquiries and that, if it had done so, it would have found out the true position: see Redgrave v Hurd [1881] UKLawRpCh 251; (1881) 20 Ch D 1 per Jessel MR at 14 and 17; per Baggallay LJ at 23, in the context of the equitable right to rescind for innocent misrepresentation. It is true that Mr Collins recognised the importance of verifying the material given to him by Mr Le May about the seating capacity of the restaurant and that, had his solicitor done what he should have done, the true position would have emerged and the sale probably would not have proceeded. But these circumstances did not negate the duty to disclose which the circumstances otherwise imposed.

The same point was made by McHugh J in Butcher at [111], to which [the plaintiff] also referred:

Conduct is misleading or deceptive if it induces or is capable of inducing error. A corporation does not avoid liability for breach of s 52 because a person who has been the subject of misleading or deceptive conduct could have discovered the misleading or deceptive conduct by proper inquiries. Conduct that objectively leads one into error is misleading.

66 This is, of course, an aspect of the question whether, even if reliance could be established, it would be regarded as reasonable reliance. In this case, the Defendants contend that even if there had been reliance by the Plaintiffs it could not be considered as reasonable reliance. In this respect, reference is made to the decision of the High Court in Australian Competition and Consumer Commission v TPG Internet Pty Ltd where the plurality (French CJ, Crennan, Bell, and Keane JJ) said:[119]

Conduct is misleading or deceptive, or likely to mislead or deceive, if it has a tendency to lead into error. That is to say there must be a sufficient causal link between the conduct and error on the part of persons exposed to it. It is in that sense that it can be said that the prohibitions in ss 52 and 18 were not enacted for the benefit of people who failed to take reasonable care of their own interests.

Similarly, in Argy v Blunts & Land Cove Real Estate Pty Ltd, Hill J said:[120]

A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant ...

Moreover, as the Defendants observe, in Wormald v Maradaca Pty Ltd,[121] the New South Wales Court of Appeal (Bell P, Bathurst CJ and Payne JA agreeing) considered a misleading or deceptive conduct case where the respondent had made the decision to proceed with the purchase of a business in circumstances where this was 'consistent with a bullish attitude to risk that [the director of the respondent] had exhibited throughout'. Ultimately, the Court held that '[a]ny loss that was sustained was sustained, as a matter of common sense causation, not by any misleading or deceptive conduct, but by a calculated risk undertaken by an experienced commercial participant.'[122]

67 At the outset it should be observed that, in considering the application of the legal principles with respect to misleading or deceptive conduct, the nature and context of the transaction between the parties must be kept in mind. As indicated previously, the sale and purchase of the Kyabram Business was a transaction between two sophisticated commercial parties. More particularly, it should be kept in mind that it was common ground between the parties that, as separate accounts were not kept for the Kyabram operations of SPC, it was necessary to construct separate accounts for the Business on the basis of the financial information which SPC held for various other businesses it conducted, including this particular business. Moreover, to assist in this process, the Plaintiffs engaged KPMG to act for them and to work with the data which was provided in the 'data room' by SPC. There is no evidence of any bad faith or negligence on the part of SPC in the provision of documents or materials to the data room and neither is there evidence of, what might be described as, any wilful or negligent withholding of the documents or materials requested of it by KPMG.

68 As is clear from the evidence in these proceedings, various assumptions had to be made in estimating additional costs which would flow from the Kyabram Business being conducted as a standalone business rather than being an integral part of SPC's broader business operations. Indeed, the nature of the warranties provided in the BPA which might, not unkindly, be described as only good faith and best endeavours provisions reflect this position.[123] Additionally, as indicated previously, the KPMG Report, which was the result of its acting for the Plaintiffs in this due diligence process with SPC, is replete with caveats and reservations. Also, of particular significance in my view, is the evidence of Mr Erikson of KPMG, who was significantly responsible for the KPMG Report, highlighting that the potential for errors in the financial information and allocation of group costs would raise 'alarm bells' and that he had 'never seen a sell‑side report that says that'.[124] Similar views were expressed by the party experts, Mr Ross and Mr Piastra, the latter being the expert engaged by the Plaintiffs.[125] Against this background, attention is now directed to particular aspects of the application of the legal principles with respect to misleading or deceptive conduct.

69 The Plaintiffs allege that the information provided by the Defendants in the two key documents was false and misleading in that:[126]

(a) the RCT-POsummary substantially understated the Business' raw material costs by omitting the cost of bulk sugars and other items used by the Business; and

(b) the Lizzie P&L substantially understated the COGS and consequently overstated its EBIT in each of 2018 and YTD 2019. One can confidently conclude that it used the standard model in F1907 which was also inaccurate, and therefore understated the Business' labour cost, as part of the COGS.

Moreover, it is submitted that the amounts by which those two documents understated the costs of manufacture were broadly similar so that when one combined the apparent cost of materials from the RCT-POsummary and the labour costs shown for the site, the COGS was comparable with the COGS shown in the Lizzie P&L. It is said that the documents appeared to corroborate each other but that each was misleading for different reasons.

70 The Plaintiffs contend that failure to include sugar in the list of the raw material spend by the Business is said to be entirely unexplained and that its omission from the RCT‑POsummary is 'frankly staggering'.[127] Moreover, it is submitted that the errors in this document do not result from the 'wrong box' being ticked in respect of a single item in a single year but, rather, relate to multiple items over multiple years. No sugar bags or bulk sugar is attributed to the operations of IXL or Taylor's, notwithstanding that they use very large quantities of sugar indeed. Indeed, it is observed that the total spend on bulk sugar manufactures and the sugar bags listed in the RCT‑POsummary together totalled approximately $2.3 million in 2018 and approximately $1.1 million in YTD 2019. It is said that experienced management must have known these items were used in the Kyabram Business.

71 It is submitted that it is not to the point to ask why the Plaintiffs or their advisers did not pick up on the absence of sugar from the RCT-POsummary. It is said that the most likely explanation is that they were not looking for it and the missing ingredients represent a few line items in a long spreadsheet which refers to a large number of different kinds of fruit and sugar products, in respect of which the Plaintiffs had no guide to what should be included. Despite seeking to establish in cross‑examination that there were other documents present in the data room which evidenced the consumption of sugar by the Business, the Plaintiffs' witnesses gave evidence that they had not seen them. KPMG was not asked about them. Only one document showing sugar has been produced, and it is a flow diagram for manufacturing a type of jam. To the extent they appear as part of the Schedule 12 documents, they are contained in a zip file in a folder in item number 130 which is not part of the 'Financials' folder of the due diligence documents. In those circumstances, it is said that it is not surprising that the Plaintiffs were not aware of them.

72 More particularly, the Plaintiffs referred to Mr Khai's evidence which was that he was not able to work out the significance of the missing sugar and other items in the COGS for the Business until he was provided with the recipe lists for the products manufactured by the Business on 16 December 2019.[128] It is said that there was no opportunity to analyse that document before settlement, and the inconsistency with the other documents was not identified.

73 Reference is made by the Plaintiffs in this context to the Full Federal Court decision in Elanor Funds Management, to which reference has previously been made,[129] for the proposition that it is 'no answer to conclude that, if further enquiries had been made, [the plaintiff] might have discovered that the position was otherwise'.[130] This, in my view, entirely overlooks the particular circumstances of the transaction in which the parties were engaged. The difficulties with which the due diligence process had to contend are referred to in various parts of these reasons and are clearly the very reason why the Plaintiffs engaged KPMG to carry out a detailed due diligence process on their behalf before entering into the purchase of the Business. In this context, to suggest that the approach referred to Elanor Funds Management is apposite or applicable, is, in my view, not correct.

74 Similar considerations arise, in my view, with respect to the submissions made by the Plaintiffs with respect to any overstatement of EBIT in the Lizzie P&L. The gravamen of the Plaintiffs' submissions in this respect[131] are set out in their submissions as follows:[132]

Mr Piastra has calculated the figures allocated to material costs, and direct labour cost under the SPC standard costing model.[133] The function of the standard costing model has been developed in the evidence of Mr Erikson[134] and the experts and Khai.[135] Whilst it may be described as an 'estimate' it is a close estimate not a wild guess. Otherwise, it would be an expensive form of uselessness. On behalf of the plaintiffs, Khai sought assurance that the defendants' standard costing model was reliable and obtained it.[136] Erikson's evidence confirmed that he would have received that assurance from either Findlay or a document in the data room.[137]

75 The Plaintiffs sought to strengthen their position by reference to the performance of the Business on 17 December 2019 to 23 April 2020 where the IXL and Taylor's businesses at Kyabram was conducted by the original SPC management and staff under a TSA.[138] On the basis of the financial data for this period, Mr Khai carried out an analysis of the financials during this period in or around May 2020. He prepared a P&L statement for the period up to 31 March 2020 and determined that it showed that a loss was made for the period.[139] These figures were audited as part of the group's financial statements and were accepted as accurate by Mr Piastra.[140] A critical question which is raised by this proposition is whether the operation of the Business during this transitional period was materially the same or critically different from the manner in which that part of the SPC business was conducted at Kyabram prior to this transitional period.

76 Mr Pretty gave evidence as to the operation of the Business after its acquisition by the Plaintiffs during the TSA.[141] The following exchanges occurred:

And did you or your staff direct the making of any changes during that period of the transitional agreement to the way the business was operated?‑‑‑No, Your Honour.

During that period, did you have any knowledge or understanding of the way in which the business was trading now that your company had acquired it during the transition period?‑‑‑No, Your Honour.

When did you first become aware as best you can recall of the way in which the business was trading under your company?‑‑‑Your Honour, that was approximately one month in our hands operating, so would be month 5 of the business.

HIS HONOUR: So this is after SPC were running it?

‑‑‑Correct, Your Honour.

About a month after?‑‑‑Yes.

77 Mr Pretty said it was two to three months after the conclusion of the TSA before it was thought that some of the 'numbers' were inaccurate.[142] In relation to the changes made to the Business as a result of the investigations showing the Business was not trading as expected, Mr Pretty gave the following evidence:[143]

Did you take any steps to change the way the business was operating as a result of these investigations?‑‑‑Your Honour, not immediately.

At any stage did you change the way the business was operating as a result of these investigations?‑‑‑Yes, Your Honour, the steps we'd taken were to - to increase sales, um and put on a sales team exist - a - a larger sales team to increase sales.

And were there any other steps beyond the increasing the sales team that you took to try and increase the level of sales?‑‑‑Sorry, Your Honour, again?

You told His Honour you put on the new sales team, were there any other steps you took to attempt to increase sales?

‑‑‑Not that I can recall, Your Honour.

And to the best of your knowledge, was the attempt to increase the sales successful or unsuccessful?‑‑‑Your Honour, unsuccessful.

Did you take any other steps to attempt to improve the performance of the company in relation to aspects other than sales?‑‑‑Yes, Your Honour.

Can you tell His Honour what other steps were taken?

‑‑‑The other steps, Your Honour, were - taken was in um manufacturing improvements, um day to day operation, overhead costing allocations, um that were unsuccessful as well.

Can you give His Honour perhaps more detail about what manufacturing improvements were attempted?

‑‑‑The manufacturing improvements, Your Honour, were wastage (indistinct) on products, um, improving on, um, buying, um, sourcing products, um as the TSA supplied a um purchasing manager, we then supply their own purchasing manager going after the TSA, that, ah, we thought we could ah improve on the um with using the buying power as a group to improve on the margins.

And was that successful?‑‑‑No, Your Honour.

...

How long did you spend attempting to improve the performance of the business, was it a couple of months, or a longer period, a year, just as best you can recollect now, can you tell His Honour how long you attempted to do so?‑‑‑Your Honour, approximately a year. So approximately one year?‑‑‑Yes.

And during that time, what was your understanding of the profitability of the jam and sauces business?

‑‑‑Your Honour, the profitability was a negative number; a loss making.

Did the company ultimately make a decision about what to do with the loss making business?‑‑‑Yes, Your Honour.

Can you tell His Honour what that decision was?‑‑‑The decision was to, um, shut the business and fulfil the obligations of the redundancies and employer obligations.

78 In relation to the basis for the decision to close down the jam line at Kyabram, Mr Pretty's evidence was as follows:[144]

And during that time, what was your understanding of the profitability of the jam and sauces business?

‑‑‑Your Honour, the profitability was a negative number; a loss making.

Did the company ultimately make a decision about what to do with the loss making business?‑‑‑Yes, Your Honour.

Can you tell His Honour what that decision was?‑‑‑The decision was to, um, shut the business and fulfil the obligations of the redundancies and employer obligations.

And did that relate to the whole of the business?

‑‑‑Sorry, again, Your Honour?

Did that decision relate to the whole of the business?

‑‑‑No, Your Honour. So they related to the majority of the business which was the jam making of the business. We retained the sauce and marinades.

And are you able to explain to His Honour what the basis for that decision was to close down one and keep the other?

‑‑‑The basis, Your Honour, the basis of the decision was we understood as the jam making part of the business as, um, losing the majority of the money. At best, we can retain some employees with the sauce and marinade being that, ah, it was the biggest employee for the town and the obligation for the local community to keep as many employees as possible, ah, on the books so we retained the Taylor's and marinade sauce, um, being that that business was showing a slight margin or breaking even.

HIS HONOUR: Which was the bigger business?‑‑‑The jam business.

79 The Plaintiffs contend that it is legitimate to have regard to the trading performance of a business after a sale for the purposes of showing that the represented earlier trading history was false or inaccurate.[145] That is, it is said, if nothing else appears, the new trading history can establish that the reported trading history was false. Moreover, it is said that the cases cited with approval in Kizbeau Pty Ltd v WG & B Pty Ltd[146] establish that the record of takings or performance of the Business after sale is admissible as evidence to show that the prior representation was false. It is, however, conceded that it is not determinative of the issue, but is admissible for the purpose of showing such falsity, even where it is not possible to adduce evidence of what the prior takings or earnings actually were. Clearly, the evidence carries much more weight if no changes to the operations were made than it would if significant changes were made. It is at this juncture that the parties part ways on the basis that the implicit proposition in the Plaintiffs' submissions in this respect that a comparison in the operation of the Business prior to and after the commencement of operations in the hands of the Plaintiffs might have comparable relevant circumstances. In other words, the Defendants contend that significant changes were made in the operation of the Business which made any proposition based on Kizbeau untenable. Also, apart from significant changes made by the Plaintiffs to the cost structure of the Business, there were changed market conditions and the loss of two important supply contracts; namely with Woolworths and Kellogg's.[147]

80 On the basis of its submissions, the Plaintiffs contend that the Court should accept the IXL and Taylor's businesses was not making profits of the sort represented by the Lizzie P&L for the periods claimed. The reason for this understatement was said to be due to two factors. When KPMG came to analyse the IXL/Taylor's figures for the purposes of checking their reliability,[148] they received assurance from SPC management about the reliability of their standard costing model, used with sales figures to generate the COGS. It is submitted that, without more, there is 'good reason' to think that the standard costing model that was put forward significantly understated the labour required to produce the goods, therefore understating the COGS. Seemingly detracting from its own submissions, the Plaintiffs say that KPMG tested the COGS by adding the correct labour figures (derived from a separate file), to the cost of materials derived from RCT-POsummary (which were understated by an amount equivalent to the labour shortfall in the standard costing model). The KPMG due diligence[149] took the COGS recorded in the Lizzie P&L and deducted from it:

(a) the cost of the materials supposedly used by IXL and Taylor's from the RCT‑POsummary; and

(b) the cost of wages derived from the wages spreadsheet as modified in discussion with Mr Findlay,

to arrive at a figure for those parts of COGS (i.e. labour and materials) that left another $1.1 million to meet the rest of the costs. On this basis, it is contended that had the true materials cost been included, these labour and materials costs would have been greater than the cost shown in the P&L amount for COGS and so the major problem with the P&L would have been discovered.

81 The Defendants, on the other hand, reject any suggestion that there was any misleading or deceptive conduct on the part of their part. More particularly, it is emphasised that the information provided throughout the due diligence process was 'best estimates'[150] or a 'best guess'[151] of the Defendants, due to the difficulty in reconciling costs for the Kyabram Business separate from the SPC business as a whole. They emphasise that the Plaintiffs were aware of this fact and that it is said that the representations were never pitched higher than this. It is contended that there was no representation that the financial data was perfectly accurate and that all parties were aware that they were making the best estimate based on what was available. It is also emphasised that there is a fundamental problem with the Plaintiffs' claim that any error in the information provided is, de facto, alleged to rise to the level of misleading or deceptive conduct. Moreover, the Defendants add that the Plaintiffs have not attempted to prove that the financial information provided was not 'best estimates' or a 'best guess'; which is, as submitted, where the evidence now stands; a position which, in my view, is incorrect.

82 In this vein, but more particularly with respect to the RCT‑POsummary, the Defendants submit; and, again, in my view correctly:[152]

1. there is no evidence connecting any alleged error in the POsummary to any subsequent calculations of the Kyabram Business' profit or loss. In a sense, any errors in the attribution of raw material costs in this document was quarantined. Understated costs in a single document, on their own, cannot be misleading - they must be understood in the context of other costs and revenue of the business. The costs only become relevant insofar as they affect any calculations of profit or loss.
2. The Plaintiffs have not demonstrated that the figures in POsummary spreadsheet infected any calculations relied upon to enter into the BPA, let alone the COGS and EBIT calculations in the 27 August Lizzie.
3. Rather, the evidence suggests that the POsummary was not used to calculate the 27 Lizzie document. On 26 August 2019, Mr Erikson identified a 'reconciliation hole' of $660,000 for FY18 and $280,000 for YTD 2019 when providing an indicative breakdown of the end value COGs figure [CB1499].

1. In response to Mr Erikson's email of 27 August 2019, an email to Mr Erikson dated on 27 August 2019 (CB1501) Mr Findlay provides a 'COGS breakdown' that shows that if the material costs in the POsummary were combined with the SPC's advised labour costs of around $2.3m. Mr Findlay confirms that 'Material costs assumptions are based on a best estimate (where materials are consumed by IXL, Taylors, Kellogg's, Fruit Prep and SPC branded products). There will be some variation between COGS actual and materials allocations'.
2. The Plaintiffs' own expert evidence is that POsummary was not used as an input for COGS, and therefore the EBIT, in the 27 August Lizzie. This is because Question 1 posed to Mr Piastra in Piastra 1 asked that he attempt to calculate the raw material costs component of the COGS in the 27 August Lizzie. If the POsummary had been used by SPC to prepare the 27 August Lizzie, it would be expected that the raw material costs component of the 27 August Lizzie would reflect the alleged raw material costs in the POsummary. Mr Piastra's instructions do not relate to, or rely upon, the POsummary to achieve his calculation in relation to the raw material cost in the Lizzie COGS - rather, Mr Piastra relies upon two other spreadsheets, Attachment 21 and Attachment 27 to arrive at what he says is the $5.6m material cost component of Lizzie: Piastra 1 and 3.4.1 and 4.2.2(d) (CB295, 299).
3. SPC accepts that the POsummary figures are referenced in the KPMG Report at CB1579 (see 'Raw materials' and 'total raw material spend'). However, crucially, the figures appear as an 'indicative allocation' of material expenses within a separate COGS number. The POsummary figures were not used to calculate a COGS or EBIT value. The end value was already known. Rather, the POsummary figures are only used by KPMG to breakdown the total figure into what it thought may have comprised that end value COGS number (that is because the COGS figure from the 27 August Lizzie did not provide a breakdown of its constituent expenses, such as material costs or labour). KPMG used the POsummary only to estimate and provide an indicative allocation of the raw material costs component in the end value COGS figure. KPMG then proceed to allocate other operating costs for the Kyabram site. KPMG were not able to fill the 'reconciliation gap'[153] leaving an unallocated variance of $609,000 [CB1579]. The unallocated amount of $609,000 could have been allocated to any other indicative sub‑element in the breakdown, including raw materials such as sugar.
4. It is therefore not clear on what basis the Plaintiffs say they were misled by the POsummary. Any errors in the document did not infect the end value of any COGS or ultimately EBIT calculations relating to the Kyabram Business. There is no evidence Mr Pretty or Mr Loi were aware of the POsummary document. Mr Khai's evidence is that he only first became aware of it in around May 2020 (CB2037; T339:4‑10).
5. Further, it would have been obvious to any reasonable person contemplating the purchase of a jam factory that significant quantities of sugar would have been required. Mr Erikson agreed with this (T372:13‑17). Oddly, Mr Khai's sworn evidence was that he did not realise that sugar was an ingredient in jam at all, let alone a substantial ingredient (T288:22‑24). The Court would be concerned by the Plaintiffs' conduct in relying upon such a person to manage its due diligence for the potential acquisition of a jam factory.
6. The POsummary must be viewed in the context of all the data available in the dataroom. The claim that the POsummary is misleading also does not accord with the fact that other materials in the dataroom disclosed SPC's use of sugar. The KPMG dataroom also contained the following information:

   1. Exhibit 1, being a Jam Flow Chart which was contained in the KPMG dataroom which illustrated processes followed in the 'Jam Room' at Kyabram. On page 3, for the 'Main Flow', one of the two inputs into the 'Pre‑mix' is Bulk Sugar Supply.

   2. Page 1 of the Jam Flow Chart, in relation to the process for the 'Pulp Preparation Area', shows the ingredient 'Raspberry block frozen' being added at step 1.2.

   3. Exhibit 2, being 'Material Specification' documents for two ingredients - STRAWB CONC 65B JCE and RASPBERRY BLOCKFROZEN - which were alleged not to have been omitted as materials in the POsummary. One of these ingredients, RASPBERRY BLOCKFROZEN was a material specification for the ingredient in the Jam Flow Chart in (ii). Khai agreed with this in evidence (T337:3‑11).

   4. A letter from Sugar Australia, a novation deed with Sugar Australia and a contract with Sugar Australia (Items 161, 169 and 177 at CB458 and 159).

To illustrate that the Plaintiffs' did not taken reasonable care, Mr Khai's evidence was that, prior to the trial, he had not seen any of these documents (T287:5‑9; 335:4‑5, 23‑26).

1. The need for and relevance of sugar for the Kyabram Business was also expressly mentioned in the KPMG Report at CB1559, 1560, 1561, 1564, 1565, 1573, and 1579.
2. The BPA referred to a shared contract with Sugar Australia at CB445.
3. There is also no alternative candidate ingredient in the POsummary which could reasonably be understood to refer to large quantities of sugar, or which would lead to confusion as to whether sugar was accounted for in the spreadsheet. The other sugar ingredients under 'Syrup Batch Materials' all entailed minor or negligible costs in comparison.

83 Again, the Defendants reject any suggestion that the 27 August Lizzie ever purported to be more than a 'best estimate'. More particularly, the Defendants submitted:[154]

1. The document was never pitched any higher than a 'best estimate' of the Kyabram Business' profit and loss: CB1515.
2. The KPMG Report was clear that the 'breakdown of COGS [in the 27 August Lizzie] by component has been based on standard costing': CB1557. Standard costs are estimates: (Ross, T437:25‑26). They cannot be used to arrive at actual costs: Ross 2.2.2(e)(iii); CB961; T437:15‑24. Mr Khai accepted that standard costings of the indirect costs in the 27 August Lizzie were not actual costs but were based on an 'estimation' of the costs: (T291:10‑31).
3. Mr Piastra agreed that the 27 August Lizzie did not show the actual P&L of the Kyabram Business: (T450:9‑16).
4. Mr Khai accepted that, due to the matters raised in Mr Findlay's 27 August 2019 email (CB1501 and 1515) in relation to indirect costs, he could not tell whether the figures in the 27 August Lizzie had a variation of $500,000 to the actual amounts: T297:30‑298:17; 307:17‑24.
5. The Plaintiffs were advised that the figures provided in the 27 August Lizzie were able to be verified by KPMG: CB 1557, 1558.
6. It was unable to be reconciled with other information in the dataroom, including the POsummary (Ross 1, 4.2.26‑4.2.27, CB973); and
7. In any event, the Plaintiffs have not established the 27 August Lizzie to be inaccurate.

Moreover, in my view, these submissions in the immediately preceding three paragraphs correctly state the position with respect to the various matters identified which raise issues and matters which, in my view, have not been contradicted or challenged in any meaningful way by the Plaintiffs.

84 The Plaintiffs also made submissions alleging a failure to correct or revise so called 'misleading documents'.[155] In my view, the issues raised in this respect are addressed in the Defendants' submissions with respect to the PO Summary and the 27 August Lizzie.[156] Moreover, they serve to reinforce the nature of the ongoing due diligence process spearheaded by Mr Erikson of KPMG and do not go any further than highlighting the difficulties that were being experienced in the due diligence process in working through the financials of SPC to produce a 'best estimate' of the financial position of the business conducted by SPC at Kyabram. Also, there is a real difficulty in the Plaintiffs' approach in this case which seeks to characterise particular documents as being misleading or deceptive and thereby, or additionally, ignoring the context of the transaction the parties were undertaking and the clear and commonly recognised difficulties in producing accurate financial information. Context in the present circumstances is clearly critical with respect to allegations of misleading or deceptive conduct. The Plaintiffs' case is not enhanced or supported by ignoring context and, particularly, not by submissions on their part, express or implicit, that because a particular document is, or may be, wrong that ipso facto it is therefore misleading or deceptive.[157] Neither do sweeping submissions that, as there is nothing to suggest that the Defendants' management did not know how the Business was then operating, it must follow that absent clear warnings with respect to information provided - including with respect to the, so called, standard costs model - that there was, in effect, a misrepresentation of accuracy. Again this ignores context entirely, not to mention the perceived need to engage KPMG for an extensive and detailed due diligence process. Similarly, it does not follow that because a document or documents are 'wrong', that it or they were negligently or incompetently prepared; that is, to use the language of Seller Warranty 4(a), not prepared 'in good faith and with reasonable care'. Moreover, general assertions to this effect on the part of the Plaintiffs do not, without more, amount to proofs in this respect - noting, in particular, that the 27 August Lizzie has never been proved to be incorrect.[158]

85 As indicated in the preceding material, the Plaintiffs' case in terms of the misleading or deceptive conduct claim is founded on reliance in the various aspects to which reference is made in its submissions. The Defendants, on the other hand, contend that the matters relied upon in this respect by the Plaintiffs do not establish reliance or, indeed, that to the extent there was reliance, that reliance was reasonable. The extent to which any reliance may have been reasonable or unreasonable is addressed further in these reasons. But, for the moment, attention is directed to whether or not there was any relevant reliance. It is clear that in order to recover damages for misleading or deceptive conduct, it is necessary for such a claimant to establish that loss is being suffered 'because of' or 'by' that conduct.[159] Thus, it is necessary for there to be a causal connection between the alleged contravening conduct and the applicants' loss.[160] More particularly, where a person claims to have been induced by a misrepresentation to enter into a transaction, as is the case here, 'the courts have required reliance by or on behalf of the plaintiff on the misrepresentation as being essential to the proof of causation'.[161]

86 In terms of authorities, the Plaintiffs highlighted the following:[162]

1. In a proper case, reliance by a representee may be inferred.[163] Such a conclusion may be reached where the representation is of a kind likely to provide that inducement and such that "common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract."[164]
2. In Henville v Walker,[165] McHugh J observed as follows in the context of a claim for breach of Section 52 of the Trade Practices Act 1974 (Cth) (now s 18 of the ACL) and a claim for damages pursuant to Section 82 of the same legislation (now s 236 of the ACL):[166]

The common law concept of causation recognises that conduct that infringes a legal norm may be causally connected with the sustaining of loss or damage even though other facts may have contributed to the loss or damage. Every event is the product of a number of conditions that have combined to produce the event. Some philosophers draw a distinction between a condition that is necessary only and a cause that is both necessary and sufficient to produce the event. The common law has avoided the technical controversies inherent in the logic of causation. Unlike science and philosophy, the common law is not concerned to discover universal connections between phenomena so as to enable predictions to be made. The common law concept of causation looks backward because its function is to determine whether a person should be held responsible for some past act or omission. Out of the many conditions that combine to produce loss or damage to a person, the common law is concerned with determining whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of damage ...

1. His Honour observed further:[167]

If the defendant's breach has 'materially contributed' to the loss or damage suffered, it will be regarded as a cause of the loss or damage despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.

1. The issue was revisited by the High Court in I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd.[168] There, Gaudron, Gummow and Hayne JJ observed:

There may be many acts or omissions that could be said to have contributed to the happening of an event. As has often been mentioned in learned articles on the subject of causation, the decision of a tortfeasor's great-great grandmother to have children can be identified as one factual cause for an event which is the subject of litigation. To search for the single cause of an event is, therefore, to pursue an illusion. And, much more often than not, to speak of the 'effective cause' or the 'proximate cause' (or to use some similar expression) is to hide important assumptions that are made, or conclusions that are reached, about the attribution of responsibility for particular kinds of act or omission. That is why it is necessary to understand the purpose for making some inquiry about causation. Only when the purpose of the inquiry is known is it possible to identify and articulate how and why some circumstances are extracted 'out of the whole complex of antecedent conditions of an event' and identified by the law as a cause of it.

Proof of loss requires a comparison to be made between the present position of the plaintiffs and the position in which it would have been but for the contravening conduct: Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at [42].

87 Unsurprisingly, courts are cautious in accepting mere assertions of reliance as essentially self‑serving and will usually attempt to assess that prospect by reference to objective criteria. This will be so particularly where the misrepresentation is not necessarily likely to be recalled as having had a strong impact.[169] In Munchies Management Pty Ltd v Belperio,[170] the Full Federal Court cited with approval the following excerpt from Pavich Pty Ltd v Bobra Nominees Pty Ltd where French J said:[171]

The primacy of the causation principle in s 82 would seem to exclude reliance upon such concepts as mitigation or contributory negligence, unless it can be shown that the applicant's own carelessness or disregard for his or her interest is the cause of all or some part of the claimed loss.

Moreover, as McHugh J noted in Henville v Walker:[172]

There may, of course, be cases where the injured person's failure to take care is such that it can be characterised as the sole cause of the loss or damage suffered. In that event, there will be no causal connection between the breach of the Act and the 'loss or damage' to which s 82 refers.

88 The Plaintiffs made detailed submissions with respect to reliance, which are helpfully set out in full:[173]

1. In reliance on the representations contained in these documents, the plaintiffs paid $8 million to acquire the Business with its associated intellectual property, plant and equipment and inventory, the Land and attendant water rights. As a term of that acquisition, it undertook future obligations in respect of the existing staff of the Business.
2. Each of the key decision makers of the plaintiffs gave evidence that they would not have entered into the transaction had the Business not been profitable, or had only been making in the order of $400‑$600,000 per annum.
3. Mr Pretty gave evidence at T110.3 that:

Did you have a view as to the profitability of the Kyabram business?---Yes, Your Honour. I had a view that the business was making a profit. Um, if I may extend on that, as I said before, I have limited experience in financials and the reporting. Yep, that's it for me. Where did you derive your view that the company was in fact making a profit?---Your Honour, from the KPMG report. And if the bottom line profitability was not there, if the business was making no money at all, would you have been prepared to proceed with the transaction?

---No, Your Honour.

And if the profitability shown with the allocations as you described, without them being reversed, was in the order of 400,000 to 600,000, would you have been prepared to proceed with the transaction?---No, Your Honour.

Could you explain to His Honour why not?---Your Honour, so we wouldn't proceed with the allocation reversed back in, as the profit would be slightly - would be a slight margin. So the question all about the whole report and the allocations couldn't be, we consider that they're not quite accurate, so that could have swung either way into a loss-making process.

1. Mr Pretty, further said that if Mr Loi had expressed concern about the profitability of the company, "it would have had a large influence on my decision to proceed because I was relying on himself and his team to um make the final decision."

2. Mr Loi gave evidence that he had regard to the profitability in the KPMG report (at T,189.9). He was asked and answered:

Did you have regard to any of the profit margins that were disclosed by that report and discussed?

---Yeah, basically, based on the numbers that was presented, um we were, we wasn't very concerned, it still show a very consistent, ah, profit margin in terms of the, ah, GP, gross profit and more importantly, you know, the numbers are still very positive so we think that, you know, although it's not a big business, ah, to us although - I think I'm of the view that it's kind of a bit of distraction to the team to maintain this business but because Debbie wanted the land, we wanted the site, we felt that, you know, if you can be a stand-alone, you know, business, you can continue as usual and we are not losing money and in the light that, you know, there are so many workers are still working down there so we felt that, you know, we just - it can be sustainable just to let them run on their own, so basically on that basis that, you know, we go to accept that kind of financial, um, information that was presented to us, yeah.

1. He gave evidence that he looked at the risks and understood that:

"the IXL jam business is not - it's not an independent company rather that the division account of SPC which I know that, right, so therefore, some of those financial, um, numbers that have been presented, um, may subject to some inaccuracy and things like that which I felt that, you know, that is kind of acceptable because you don't have independent company running it, you know, separately, right. So, however, I am taking great comfort because it is operated out of a different site - - - (T189.28-190.8)

...

I'm taking comfort because it's operating out of a different site, in other words, whatever the workers is there, whatever costs is there, you know, any ingredient that should be - they all can be accounted accurately, so notwithstanding I think any of this acquisition, we always - there will be a tolerance in terms of some accuracy but again, you know, what kind of quantum do you - can you accept? 5 per cent? 30 per cent? 50 per cent kind of variation, on those numbers being stated, so I think I take that in a good state, in a sense that, you know, being a big company, right, different site, so even, you know, KPMG cannot assure me to be 100 per cent accurate, I'm taking comfort because, you know, we are - we are - we are doing a deal in Australia, not a third world, yeah. (T191.22-192.5)

1. He understood that there are some of the cost allocations that may not be sufficient for HJF to meet that cost of the business: T193.4-6. But he did not have too much concern since he understood the costs had been allocated by SPC management and "I take that in a good faith, yeah:" T193.9-13.

72. He said to Adam in relation to the report:

With regards to the IXL business, I told him that based on this report and then since that it is not bleeding - we - EBIT positive, not a great business but I think it can be self-sustainable and we can go on to own it, you know, and business as usual, just one section that, you know, leave them alone and then they can take care of themselves while we focus to develop our dairy business and grow the site to suit us, right. T194.31‑195.8; see also T195.9‑15.

Can I ask you what your attitude would have been to the transaction if you had been of the belief or you had been told that the business was in fact not making any profit at all?---If I had known that, I would not consider the site, right? Ah, we already bought our - our, ah, site although can be lengthy to build our own, I would not go ahead to buy this - to inherit this headache and all the problems that comes subsequent to that, yeah.

And if you'd been told that it was making a profit at the level of maybe $400 to $600,000 a year, what would be your attitude towards acquiring the business and the site? ---Yeah, if the business has such a low margin, right, you know, if it's not worthwhile doing and we can't even, ah, continue to inherit all those liabilities, I will not consider at all, yeah.

...

1. Mr Loi was cross-examined about his reliance at T217.10-26. The following exchange occurred:

What I'm suggesting to you is that you understand the business was less profitable than you say you believed it was. It was always open. It would've been open to you to renegotiate the terms of the deal to reduce it, for example, from 8 million to 6 million, for example? ---Yeah. If I know, if I know the ingredient has to be misstated by 2 million, that you know, the numbers have vanished so much, I will not even consider to buy it, let alone renegotiate.

Can you focus on my question? Because if you don't, we'll be here tomorrow, all right. If you understood, to use your words, that the EBITDA was $400 to $600,000 assumed, and you wanted the land, you would've taken steps to renegotiate the deal, wouldn't you?---That's not the case. That's not the case. If, if, if the business is that bad, why, why would I want to buy it? That's it, full stop, right.

89 In terms of the reliance claim in the present proceeding, the Defendants submit that it has the following issues:[174]

(a) All the evidence suggests to the fact that the Plaintiffs were not entering into the BPA because they were interested in running the IXL or Taylor's business: they wanted the land.

(b) The directors of Holstein Milk at the time were Mr Pretty and Mr Loi.

(c) Mr Pretty's evidence was that he was not familiar with the contents of the KPMG Report and that the decision to enter into the BPA was made by the Malaysian Headquarter: (T144:19‑22). To the extent that Mr Pretty relied upon the financial data contained in the KPMG Report, his evidence was that he had accepted that the profitability of the Business might have been $800,000 to $1m less (T157:11‑27).

(d) Mr Loi's evidence indicated, at the very least, almost no familiarity with the contents of the KPMG Report (see extracts above at paragraph 38), at the date of entering into the BPA and at the date of trial.

(e) Mr Loi's evidence as to his motivations on deciding to buy the Business was, frankly, very revealing:

my discussion with Adam [Pretty] is very important relate to the site, so I told Adam that, you know, 'Make sure that, you know, since we are acquiring this asset together with the business', and although we don't like the business but we have to buy the business together, so make sure the site is 100 per cent suitable because I don't want to have any glitches that we, you know, that we cannot set up the dairy processing plan [sic] due to the proximities or whatever regulation compliance, that was the no. 1 thing I asked Adam to make sure that he cleared for me. With regards to IXL business, I told him that based on this report and then since that it is not bleeding - we - EBIT positive, not a great business but I think it can be self‑sustainable and we can go on to own it, you know, and business as usual, just one section that, you know, leave them alone and then they can take care of themselves while we focus to develop our dairy business and grow the site to suit us, right. (T194‑195:8)

(f) The Court would accept that, to whatever extent Mr Loi was motivated to purchase IXL and Taylor's, it was only as a necessary cost associated with acquiring the land. The land had value to the Plaintiffs because it had a 'trade waste facility, utilities, power and gas' (Hickey T403:17‑24) and necessary approvals to allow the development of the milk processing plant to proceed quickly (Pretty T89:3‑11; Hickey T403:17‑26). In fact the plaintiffs were able to commence construction of its dairy processing plant in March 2020 (Khai T324:12‑14), before the transitional period had expired (CB2035). Mr Hickey's evidence was that the various approvals and facilities at the Kyabram site sped up the development of Holstein Milk's milk facility by around 6 months (T404:5) (although the Court may infer a longer period). The Court would also accept that Mr Loi was content to purchase the IXL and Taylor's lines on the basis that they were 'self‑sustainable' and 'not bleeding', ie so that it 'we can leave them alone and they can continue to function and look after themselves': T195:16‑27. Mr Loi did not express any desire to invest or improve the IXL or Taylor's business but rather for it to be 'self‑sustainable' and for it to 'look after themselves'.

(g) The Plaintiffs' case stacks inference on inference. There is no clear evidence from any director or decision maker for the Plaintiffs explaining (1) that they read the report, (2) the views they formed from reading the report, (3) how those views influence their decision to enter into the transaction in circumstances where they would not have done so otherwise.

(h) Further, the alleged misrepresentations were not made directly by SPC to the Plaintiffs. They were filtered at two stages, first through the KPMG Report and second through the Board Memorandum and the content of that document. To the extent the Holstein Malaysia Board relied upon the predictions as to the business' performance in Board Memorandum - which were Holstein Malaysia's own internal and unrealistic predictions, including that EBIT would almost double (from 2.247m to 4.189m) within three years (CB1598) - this was not a representation made by SPC. As outlined below, there is no information as to what the directors of Holstein Malaysia relied upon, or to the extent that the performance predictions in the Board Memorandum were replied upon in establishing the business. The many warnings as to the unreliability of data contained in the KPMG Report were not reproduced in the Board Memorandum.

(i) The only member of the Holstein Malaysia board who gave evidence is Mr Loi. Mr Loi cannot give evidence on behalf of the state of mind of the other six directors of Holstein Malaysia. Insofar as Mr Loi asserts that there was a 'discussion' of the KPMG Report at that meeting, or that other directors KPMG Report was relied upon because it was attached to the Board Memorandum (T223:19‑224:3)), this is inconsistent with the minutes of that meeting (CB1607) and the Court would not accept his evidence.

(j) Mr Loi's evidence was that, to the extent he was aware of any warnings in the KPMG Report, he disregarded those warnings because he thought that, while the Kyabram Business was not an independent company, it was an operation at a separate site (T189:29‑30 - 190:28) and by implication, that costs should be easily attributable to it. This was not a representation made to Mr Loi by anyone. Nor was it alleged to be. Rather, it seems to have been an assumption which sprang from his own mind - an assumption which was expressly contradicted by the KPMG Report.

(k) There is also no evidence as to what was relied on by any other directors of Holstein Malaysia in making the decision to purchase the Kyabram Business. Although it was Holstein Milk which entered into the BPA, the decision to do so was made by Holstein Malaysia at a board meeting on 2 October 2019: (Loi, T202:14‑24, 203:11‑13). Holstein Malaysia is a not a party to the proceeding. The directors of Holstein Malaysia who voted for the purchase at that meeting were Mr Loi, Amran Hafiz Bin Affifudin, Loi Tuan Kin, Tan Chow Yin, Azmi Bin Zainal, Ganesh Humar, and Justin Mahmud Hashim.[175] The Plaintiffs have led no evidence as to what matters were relied upon by any of these directors in making the decision to enter the BPA. The minutes of the 2 October 2019 meeting are also silent on the matter.[176] Insofar as Mr Loi asserted orally that the KPMG Report was discussed, or that it should be considered as having been 'discussed' solely because it was attached to the Board Memorandum, this is inconsistent with the contemporaneous minutes (at CB1607) and the Court would not accept this evidence: T223:9‑224:6.

(l) Because evidence of the state of mind of the other Holstein Malaysia directors would be expected to be led, would elucidate a fact in issue, and its absence is unexplained, the Court would draw an inference consistent with the principles in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 that the evidence of those directors would not have assisted the Plaintiffs in establishing reliance. The Court would also more readily draw the negative inference, informed by the surrounding evidence, that the other directors did not rely upon the alleged representations.

90 The Defendants contend, in these circumstances, that even if the Plaintiffs were hypothetically successful in establishing that the SPC Entities had breached s 18 of the ACL, the Plaintiffs have led insufficient evidence to be able to establish sufficient causation that any alleged harm arose 'because of' or 'by' that breach to give rise to damages under s 236 of the ACL. Moreover, it is contended that the same issue of causation arises, mutatis mutandis, for the Plaintiffs' alleged breaches of the Seller Warranty, which is addressed in the reasons which follow.

91 In my opinion, the evidence, particularly the matters highlighted in the Defendants' submissions with respect to issues raised in the Plaintiffs' reliance claim, more than strongly support these submissions by the Defendants. Again, it must be kept in mind that these issues arise in the course of a significant business purchase transaction between highly competent and experienced commercial parties and with the aid of a highly competent and experienced firm, KPMG, engaged by the Plaintiffs to work through the financial information in the SPC Business to obtain as accurate a picture as possible of the financial position of the IXL and Taylor's businesses and their operations at Kyabram. As indicated previously, the KPMG Report was replete with caveats and warnings which, on the evidence of the party experts and, indeed, Mr Erikson of KPMG significantly leading the team which produced the KPMG Report, were wholly unusual and would put a potential purchaser on notice that the financial information with respect to the Business was unreliable.[177]

92 The Plaintiffs do in their submissions seek to downplay the effect of warnings, an issue which is addressed in terms of the reasonableness of any reliance.[178]

93 The Defendants submit that even if any reliance could be established on the part of the Plaintiffs, it would not have been reasonable reliance. In support of this position reference is made to the decision of the High Court in Australian Competition and Consumer Commission v TPG Internet Pty Ltd,[179] and in the decisions in Argy v Blunts & Land Cove Real Estate Pty Ltd[180] and Wormald v Maradaca Pty Ltd,[181] particularly the passages as set out previously.[182]

94 In this context, the Defendants emphasise that the sale and purchase of the Kyabram Business was a transaction between two sophisticated commercial parties. At the time of entering into the BPA, the Plaintiffs were aware, or at least put on notice by the KPMG Report and SPC's disclosures,[183] of the potential unreliability of the financial data of the SPC. This was an inherent property of the Kyabram Business being a 'carve‑out' of the wider SPC business. Data such as material costs assumptions were based on 'best estimates',[184] but these were just that - estimates. The Plaintiffs were aware of this fact. They were aware that SPC had purchased the Kyabram Business only four months prior, and that no accounts of profit and loss, or COGS, were kept by SPC concerning the Kyabram Business. This had been raised in correspondence and was highlighted in the KPMG Report, which the Plaintiffs had themselves commissioned. There was clear concern expressed by the Plaintiffs themselves at the time that the financial information they were seeing could not be reconciled with other information (for example, that the information provided did not reconcile with the Project Nectar IM).[185] Further, the Defendants stress that, as illustrated by communications to which reference has been made, the Plaintiffs were not passive but were active participants in the framing, refinement, and inclusion and exclusion of data provided by SPC. This was an ongoing process in which the Plaintiffs actively participated between around 14 to 28 August 2019. Even after being provided with the 27 August Lizzie, representatives from the Plaintiffs were seeking confirmation as to the data it contained or if there were any further tweaks to be made.[186]

95 The Plaintiffs have, as I have indicated, addressed the effect of warnings in their submissions.[187] In so doing they addressed the general position that, whilst it is possible that certain words standing alone might be likely to mislead, they may when viewed in their context not be capable of misleading.[188] So the alleged conduct must be viewed as a whole, taking into account such circumstances as might qualify its character.[189] It is also said that the circumstances may involve the characteristics of the representor and the representee and what they knew of each other. On this basis it is submitted that a disclaimer or qualification must be taken into account when assessing the conduct as a whole.[190] It is said though that if the primary effect of the document is misleading and inferentially intended to be so, the disclaimer would need to erase the misleading effect of the document.[191] Such a disclaimer would need to be eye‑catching and very explicitly directed to the misleading element.[192] Whilst I do not have any issues with respect to the general statements of the law, and by reference to the authorities cited, I am of the view, as indicated in the preceding reasons, that this approach is of no assistance to the Plaintiffs in this case. Rather, these general propositions support the view that the submissions and the bases of those submissions as put by the Defendants. More particularly, as I sought to emphasise in the preceding discussion with respect to reliance, the BPA was entered into by the Plaintiffs as a result of an extensive and detailed due diligence process conducted on their behalf by KPMG and in disregard of the clear warnings contained in the KPMG Report.

96 The Plaintiffs seek to support their position by citing what is, in the context of an extensive due diligence process, three instances where it is said that there were clear warnings offered in respect of some information[193] and other aspects of the financial information not the subject of clear warnings.[194] The Plaintiffs then make reference to KPMG warnings as to aspects of the financial information provided by the Defendants[195] but they do not, however, refer to the overall warning by KPMG to the unreliability of financial information and to the evidence of other experts and Mr Erikson of KPMG leading the process.[196] On any view, the warning of financial unreliability in the context of the due diligence process and the transaction as a whole could only be regarded as a very bright amber light which one would pass at one's peril and, in any event, then exercising the greatest degree of caution. Moreover, having regard to these matters and the context of the business purchase transaction, as discussed in these reasons, it is, in my view, no answer to say that any reliance by the Plaintiffs was reasonable on the basis of the Defendants' Seller Warranty 4(a), which is in general and limited terms warranting no more than the material provided as part of due diligence was prepared in good faith and that, as far as the Defendants were aware, the material was accurate in all respects and not misleading.[197] Indeed there was, as indicated in these reasons, no evidence to the contrary.

97 As the further submissions on this issue by the Plaintiffs indicate, they did decide to pass the bright amber light choosing to take on the risks themselves. This is, in my view, clear from the following:[198]

1. Although there were numerous warnings about unreliability, the focus of the uncertainty was those overheads which had to be apportioned between the parts of the business upon separation. Holstein made a commercial decision about the risks inherent in that uncertainty. What Holstein remained misled about, as had KPMG, was the unreliability of the COGS, which seriously understated the cost of producing the goods sold, and thereby the profit that might be generated.
2. As to these warnings, the plaintiffs' witnesses gave evidence that they had considered the warnings given in the context of the kind of information to which the warnings related. Mr Pretty gave evidence that his principal focus was on the allocation costs as estimated by SPC management. He said:

(a) he read the KPMG report when he received it and focused on the reallocation of the separation of the two businesses, the allocation of the overheads, and there was a large reduction in the overheads which he recalled was approximately $800,000 or $1million: T103.16‑104.2.

(b) he formed the view that the business was profitable taking out those allocations, and that even if he had to reinstate those allocations, the business would still be profitable. There was a comment to the side that the selling business was confident that the allocations were correct, so I took comfort with it: T104.7‑14.

Did you have any conversation with Mr Loi about what you would do if the allocations as to overheads were not correct?‑‑‑Yes, Your Honour.

Can you tell His Honour, as best you can remember what you said, what did you say to Mr Loi about that?

‑‑‑Your Honour, the conversation was if I couldn't manage the allocations at worst, they're documented as being what they are, and if they are reinstated, we still make a margin.

HIS HONOUR: Sorry, what do you mean by if they are reinstated?‑‑‑Your Honour, so the allocations were taken out for the separation of the business.

Yes?‑‑‑If they're reinstated, they're indicated in there of 800 to $1m. If they're reinstated back at the bottom line as a cost, the margin was still - there is still a margin within the business.

1. Mr Loi gave evidence that:

He had regard to the central panel of CB1555 in KPMG's report in relation to overhead cost allocations. He said: Yeah, yeah. Yeah we do, yeah we do, that ‑ that was the budget it cost us about half a million ah the central cost will be ‑ will be the ah we will need to manage that. That one I understand, yeah. T198.28‑31.

1. At T218.29, it was put to Mr Loi:

whatever figures SPC gave you, which I think you finally accepted you were told was unreliable. ‑‑‑And not to that extent. Not to that extent. Not to that extent.

98 As is also clear from the evidence to which reference has been made previously, Mr Pretty had no relevant financial expertise or experience and, in any event, he was not the final decision maker; the decision to proceed with the BPA or not was a matter for the management board in Malaysia. The evidence as has been considered in detail previously and the references to that evidence by the Defendants support the submissions put by the Defendants, that the Plaintiffs were primarily concerned to obtain the Kyabram site and that if they did not lose too much money or, better still, if they could make ends meet with the businesses being purchased from SPC, then that was satisfactory or even a bonus. It is the case that the process of acquiring the Kyabram Land through the purchase of the Business did ultimately involve the Plaintiffs in liability for redundancy and other payments to staff no longer required for the conduct of the Business. But highlighting this factor as negating the proposition that the real object on the part of the Plaintiffs was the land acquisition does not take matters very far in the absence of a broader context. The latter is, in this respect, the value of the Land and water rights at relevant times and having regard to the very substantial further investment made in the Kyabram Land by the Plaintiffs; an investment in the order of $20 million.[199] The Plaintiffs contend that there is no basis for any suggestion that the real motivation and concern was the purchase of the Kyabram Land but, considering their lack of regard for clear general warnings and caveats flowing from their due diligence process (particularly in the hands of KPMG)[200] and other matters considered, I find their contentions in this respect entirely unconvincing.[201]

99 For these reasons, I am of the view that if there was any reliance by the Plaintiffs, which for the preceding reasons I do not accept,[202] any such reliance would, in all the circumstances, have been quite unreasonable.

100 Before leaving the issue of the reasonableness of any reliance on the part of the Plaintiffs, reference should be made to their submissions on the effect of warnings.[203] At the outset in their submissions, reference is made to Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd[204] for the proposition that 'it is possible that certain words standing alone might be likely to mislead, but when viewed in their context they are not capable of misleading'.[205] To this proposition is added that 'the alleged conduct must be viewed as a whole, taking into account such circumstances as might qualify its character'.[206] As to disclaimers, the Plaintiffs submit:[207]

1. It is true that a disclaimer or qualification must be taken into account when assessing the conduct as a whole.[208] If the primary effect of the document is misleading and inferentially intended to be so (such as a computer rendered picture of an off-the-plan apartment that bears no relationship to what is to be built) the disclaimer would need to erase the misleading effect of the document.[209] Such a disclaimer would need to be eye-catching and very explicitly directed at the misleading element.[210]

Having laid this groundwork, the Plaintiffs focus more specifically on the position in these proceedings and submit that:[211]

1. While parts of the information provided by SPC was said to have derived from management's estimates, that was not true of other parts. Accordingly, careful attention must be paid to the particular information, or kinds of information that was the subject of warnings offered by SPC management. There were clear warnings offered in respect of some information, for example:

(a) CB1501 - breakdown of sales and admin costs, allocation methodology is expressed to be management's "best estimate of actual costs incurred."

(b) CB1501 - "Management cannot reconcile materials and employee costs to [the COGS calculation KPMG had prepared that differed from the Lizzie P&L] based on [the six reasons provided]." None suggests a material variance.

(c) CB1509 - management has applied discounts to spend category items which are "broadly in line with actual requirements" for bins and pallets. These requirements (e.g. how many bins are used at the Kyabram site as opposed to at Shepperton) are known to management. This is expressed to not be "actual costs" but to be "a best guess with a conservative approach".

The Plaintiffs then make reference to other warnings as to financial and other information,[212] but then seek to downplay its significance:[213]

1. Although there were numerous warnings about unreliability, the focus of the uncertainty was those overheads which had to be apportioned between the parts of the business upon separation. Holstein made a commercial decision about the risks inherent in that uncertainty. What Holstein remained misled about, as had KPMG, was the unreliability of the COGS, which seriously understated the cost of producing the goods sold, and thereby the profit that might be generated.
2. As to these warnings, the plaintiffs' witnesses gave evidence that they had considered the warnings given in the context of the kind of information to which the warnings related. Mr Pretty gave evidence that his principal focus was on the allocation costs as estimated by SPC management. He said:

(a) he read the KPMG report when he received it and focused on the reallocation of the separation of the two businesses, the allocation of the overheads, and there was a large reduction in the overheads which he recalled was approximately $800,000 or $1million: T103.16‑104.2.

(b) he formed the view that the business was profitable taking out those allocations, and that even if he had to reinstate those allocations, the business would still be profitable. There was a comment to the side that the selling business was confident that the allocations were correct, so I took comfort with it: T104.7‑14.

Did you have any conversation with Mr Loi about what you would do if the allocations as to overheads were not correct?---Yes, Your Honour.

Can you tell His Honour, as best you can remember what you said, what did you say to Mr Loi about that?

---Your Honour, the conversation was if I couldn't manage the allocations at worst, they're documented as being what they are, and if they are reinstated, we still make a margin.

HIS HONOUR: Sorry, what do you mean by if they are reinstated?---Your Honour, so the allocations were taken out for the separation of the business.

Yes?---If they're reinstated, they're indicated in there of 800 to $1m. If they're reinstated back at the bottom line as a cost, the margin was still - there is still a margin within the business.

He had regard to the central panel of CB1555 in KPMG's report in relation to overhead cost allocations. He said: Yeah, yeah. Yeah we do, yeah we do, that - that was the budget it cost us about half a million ah the central cost will be - will be the ah we will need to manage that. That one I understand, yeah. T198.28‑31.

whatever figures SPC gave you, which I think you finally accepted you were told was unreliable. ---And not to that extent. Not to that extent. Not to that extent.

In my view, there are two bases for rejecting these submissions with respect to the effect of warnings, matters which have already been addressed in these reasons. The first is that context is all important, indeed as the Plaintiffs contend. As discussed, there is the overall context of the nature of the transaction as it was embarked upon by sophisticated commercial parties who understood the difficulties in assembling financial information of the Business separately from the overall business of SPC and hence the engagement of KPMG by the Plaintiffs to assist in this task and to advise them accordingly. Consequently, it takes the Plaintiffs' case nowhere now to focus on particular documents, and warnings or lack of warnings; especially having regard to the content and overall warning contained in the KPMG Report. The second is that there is no evidence that the actual decision makers on the part of the Plaintiffs considered any of the material the Plaintiffs now rely upon in support of their claims.

101 Expert reports have been filed in the proceeding by Mr Nicolas Piastra of FTI Consulting, who is engaged by the Plaintiffs, and Mr Andrew Ross of Korda Mentha, who is engaged by the Defendants (together, the 'Experts'). Mr Piastra has prepared two reports, filed 20 May 2022 (First Piastra Report) and 30 August 2023 (Second Piastra Report). Mr Ross also prepared two responsive reports, filed 28 February 2023 (First Ross Report) and 24 July 2024 (Second Ross Report).

102 In the First Piastra Report, Mr Piastra was asked to:

(a) value the raw material and labour cost components of the COGS contained in the 27 August Lizzie for 2018 and the YTD 2019 (Questions 1 and 2); and

(b) in the event that the labour cost component of the COGS, set out in the P&L, did not reflect the whole of the direct employee costs for the businesses (assuming approximately 30 employees were required in 2018 and the year to date in 2019) how, if at all, should the COGS and EBIT, as recorded in the profit and loss statement, be amended for each of 2018 and YTD 2019 to properly reflect the direct employee costs for the Business (Question 3); and

(c) calculate the Businesses trading profit or losses in each of:

(i) 17 December 2019 to 31 March 2020;

(ii) 1 April 2020 to 31 March 2021; and

(iii) 1 April 2021 to 30 September 2021

103 In the Second Piastra Report, Mr Piastra was asked to provide a valuation of the business and associated intellectual property as at 22 October 2019, assuming that his opinion as to the adjustments to the COGS and EBIT set out in the First Piastra Report are correct (Question 5).

104 Mr Piastra and Mr Ross, on 14 February 2025, filed a joint expert report (Joint Expert Report) addressing areas of agreement, disagreement and the basis for their opinion in reference to Questions 1 to 5 above.

105 Mr Piastra was asked to make, and independently made, a number of factual assumptions as part of the instructions he received in preparing his reports.[214] His instructions were summarised in the Joint Expert Report as follows:[215]

(a) The Proceeding relates to the sale by the Defendants of real estate, intellectual property, water entitlements and a fruit manufacturing business operated from Kyabram in Victoria (the Business) to the Plaintiffs. The Business involved the IXL and Taylor brands manufacturing lines. [NP1, 3.2.1]

(b) Prior to the sale, the Defendants made various pieces of financial information available via a data room, which was accessed by the Plaintiffs to enable them to undertake due diligence of the Business. The Plaintiffs instructed KPMG to advise them in relation to this due diligence. As part of this due diligence, the Defendants provided, inter alia, two documents:

(i) a document entitled "185.2 LIZZIE Profit & Loss Statement 2017 2018 20" (LIZZIE Profit & Loss Statement); and

(ii) a further document entitled "RCT POsummary" that purported to set out the raw material costs for the products manufactured by the Business.

(c) The Plaintiffs allege that the information provided by the Defendants in each of these documents was false or misleading, in that the LIZZIE Profit & Loss Statement substantially understated the Business' labour cost and in that the RCT POsummary substantially understated the Business' raw material costs.

Mr Ross accepted, for the purposes of the Joint Expert Report, that this summary of Mr Piastra's instructions was not contentious.[216]

106 The experts agreed on the following matters:[217]

• none of the documents provided to them appeared to contain actual profit and loss statements for the Business for the period prior to its acquisition;
• the 27 August Lizzie did not identify the raw materials and labour components of the COGS amounts it records;
• the COGS values presented in 27 August Lizzie appeared to be based on the standard, as opposed to actual, costs of the products sold;
• it is unknown if the person who prepared the 27 August Lizzie undertook the same exercise as Mr Piastra to arrive at the COGS, or if they had regard to additional documents;[218]
• in relation to Mr Piastra's response to Question 4, discounting of the cash flows upon which his calculations rely is not necessary as those cash flows are (under the assumptions Mr Piastra adopts) known and certain;
• realisation costs are a relevant component in the assessment of liquidation values, however neither expert has sought to quantify such costs. The experts agree that if Mr Piastra included realisation costs in response to Question 4, his calculations of assessed loss would have been higher;
• in the absence of any other information, and noting it is outside Mr Piastra's expertise to quantify such costs, Mr Piastra adopted the hypothetical redundancy costs he was instructed to adopt. HJF's balance sheet as at 30 September 2021 includes a provision for redundancy as a liability (of $1,594,172). The experts agree that there is insufficient information provided to them to confirm whether this liability was paid by HJF after 30 September 2021. To the extent that this liability was never paid, the experts agree that Mr Piastra's loss estimates in Question 4 need to be reduced;
• an appropriate methodology to derive the value of the Business as at the acquisition date is a capitalisation of future maintainable earnings approach (the CFME Method). The experts disagree as to the inputs to be used in applying the CFME Method in this proceeding;
• valuing a business using the CFME Method involves, first, assessing the maintainable earnings the business is expected to achieve over the long term and, second, the selection of an earnings multiple which reflects the risks attached to the expected future earnings and any expected growth in future earnings;
• when applying the CFME Method, the relevant multiple should be consistent with the earnings estimate to which it is applied;
• two otherwise identical businesses will have different EBIT multiples where there is significant uncertainty as to the reliability of available financial information in relation to the results of one such business and little or no uncertainty as to the reliability of available financial information in relation to the results of the other (in this example, the former will have a lower EBIT multiple and hence lower value than the latter); and
• when valuing the Business, it is not relevant whether the Business owned the Land and water shares. In conducting a valuation of the Business, a notional rent for the use of the Land and water shares should be deducted from the assessed maintainable earnings of the Business if and only if those assets were and would be used to produce the operating cash flows of a business and are valued separately to the business being valued.

107 The matters not agreed by the Experts were summarised:[219]

(i) whether Mr Piastra answered Questions 1 and 2;

(ii) what Mr Piastra did to derive his estimates of the values of the raw materials and wages components of COGS for 2018 and YTD 2019; and

(iii) adjusted EBIT (i.e. the EBIT that, in Mr Piastra's opinion, should have been disclosed in the 27 August Lizzie);

(i) calculating loss based on assumptions that an entity would have ceased trading at dates on which it did not cease trading;

(ii) the extent to which post‑acquisition cash flows arising from the acquired Land and water shares and changes in their realisation values should be taken into account;

(iii) the relevance, if any, of a comparison between the adjusted pre‑acquisition and unadjusted post‑acquisition results of the Business;

(iv) the price paid for the acquisition of the HJF Business; and

(v) the realisation values of intangible assets; and

(i) various matters relating to Mr Piastra's assessment of an implied earnings multiple; and

(ii) various matters relating to Mr Piastra's cross‑check approach to deriving an EBIT multiple.

Question 1-3 - Analysis of COGS and EBIT disclosed in the 27 August Lizzie

Whether Mr Piastra answered Questions 1 and 2

108 Answering Questions 1 and 2 required Mr Piastra to identify the integers for 'raw material cost' and 'labour cost' in the 27 August Lizzie for 2018 and YTD 2019. He does neither. The experts agree that the 27 August Lizzie does not identify these components of the total COGS amounts. Instead, Mr Piastra, consistent with his instructions, calculated these components of COGS using the specific amounts listed in particular documents mentioned in his instructions.[220]

109 The experts agree that the 27 August Lizzie does not identify the components of COGS, rather it presents the total COGS amounts per year.[221] Mr Piastra instead analysed other documents provided to him to attempt to recalculate the total COGS amounts attributable to the products sold in each year, consistently with his instructions (including regarding how to interpret these documents).[222] To the extent that these calculations produced a total COGS that equalled the COGS shown in the 27 August Lizzie, Mr Piastra is confident that he has identified the components for raw material costs and labour costs as they contribute to the total COGS outlined in the 27 August Lizzie.[223] Nevertheless, in cross‑examination, he conceded that the 'other' costs he had also calculated (being the difference of the raw materials and labour costs components subtracted from the total COGS) was premised on the unproven assumption that these 'other' costs did not relate to labour or raw materials.[224]

110 Mr Piastra's calculations resulted in a total COGS that reconciled to YTD 2019 but not 2018.[225] The reasons for this inability to reconcile 2018 are explained by Mr Piastra below.[226] Mr Piastra identified the potential impact on any conclusions drawn from the 2018 values, as explained below.[227]

111 Mr Ross' disagreement appears to arise from his interpretation of Mr Piastra's instructions, which Mr Ross seems to interpret as requiring Mr Piastra to identify the components of COGS shown in the 27 August Lizzie. Mr Piastra has interpreted Questions 1 and 2 as requiring him to consider the total COGS shown in the 27 August Lizzie and then assess the value of raw material costs and labour costs included in those total amounts.[228]

112 In cross‑examination, Mr Piastra stated that he did not believe it was 'quite the case' that he was given specific, detailed instructions as to how to go about answering Questions 1 and 2.[229] He also disagreed that he was 'asked to adopt specific assumptions in order to ascertain the answer to Questions 1 and 2'.[230]

What Mr Piastra did to derive his estimates of the values of the raw materials and wages components of COGS for 2018 and YTD 2019

113 In calculating the values of the raw materials and wages components, Mr Piastra was provided with detailed instructions and assumptions that guided his calculation of the relevant COGS components for 2018 and YTD 2019, including as to how the documents he was provided with should be interpreted.[231] Mr Piastra then attempted a reconciliation between the total COGS component derived from the instructed approach with the total COGS amount stated in the 27 August Lizzie. The amounts reconciled in YTD 2019 but resulted in a variance of $195,148 (or $154,926 taking into account products sold during 2018 but not during YTD 2019) in 2018.[232]

114 The total calculated COGS and COGS per the 27 August Lizzie in YTD 2019 were $3,954,541. In 2018, the total calculated COGS was $8,387,971 and the COGS per the 27 August Lizzie was $8,583,119.[233]

115 Two issues arose related to Mr Piastra's approach. First, the significance (or otherwise) of the variance between the total calculated COGS components and the total COGS reported in the 27 August Lizzie and the extent to which it supports or undermines the conclusions drawn from Mr Piastra's analysis.[234] Secondly, the reasonableness of relying on the documents used by Mr Piastra in his analysis in circumstances where Mr Ross asserts other documents provided to the Experts contain contradictory information.[235]

116 Mr Ross also provides general criticism of Mr Piastra's approach to Questions 1-‍3. Relevantly, Mr Ross observes:

(a) what Mr Piastra was asked to do in Questions 1-‍3 required him to look behind the 27 August Lizzie insofar as it does not record values for the raw material and labour costs components of COGS;[236]

(b) Mr Piastra did not rely on his own expertise as an accountant in order to calculate the values mentioned in (a) above. Instead, he was given specific instructions as to the documents, or parts thereof, to rely on, the assumptions he was required to adopt in relation to those documents' accuracy, the interpretation of those documents, and what steps he should take to utilise those documents in arriving at the estimates for the raw materials and labour costs components of COGS in 2018 and YTD 2019;[237]

(c) having calculated estimates of raw materials and labour costs components of COGS, Mr Piastra then deducted these amounts from the total COGS in order to be able to reconcile (or nearly reconcile) the COGS by inclusion of an 'other' costs component. Mr Piastra was not asked to calculate this 'other' costs component, nor did his instructions suggest it existed, and nor, having identified it, did he actually analyse this value (i.e. identify its component parts) which, in Mr Ross' opinion, likely contains some labour costs.[238] Mr Ross particularly pointed to the fixed overheads tab of the 27 August Lizzie as a source for, at least in 2018, some labour costs not included in Mr Piastra's calculation;[239]

(d) on the basis that the instructed methodology and assumptions resulted in a reconciliation between the total COGS amount for YTD 2019 with that recorded in the 27 August Lizzie for YTD 2019, Mr Piastra appears to have concluded that:[240]

(i) the process he adopted was the same as that used to arrive at the total COGS in the 27 August Lizzie;

(ii) the amount he calculated for each component of COGS using that process must be the same amounts for those (otherwise unrecorded) components of the total COGS in the 27 August Lizzie;

(iii) the same process must have been used for 2018;

(iv) despite being instructed to adopt a different labour costs component of COGS in responding to Question 3 to that he arrived at in Question 2, his approach to calculating the components of the COGS nevertheless represents the most reasonable, appropriate, and reliable way of responding to Questions 1 and 2. Embedded in this conclusion is the implication that the value for labour costs is incorrect but that raw material and 'other' costs components are, without further explanation, reliable. In Mr Ross' opinion, it is a 'strange conclusion' that it is appropriate to rely on this document in relation to some parts but not in relation to others;[241]

(e) Mr Piastra has no reasonable basis for concluding any of the amounts he estimates for any of the three components of the COGS he has assessed, in either 2018 or YTD 2019, is an amount actually adopted in arriving at the amounts presented for the COGS in the relevant periods in the 27 August Lizzie;[242] and

(f) it follows that if Mr Piastra substitutes a different amount for any component of the COGS in either period, he cannot know the amount by which the COGS should be adjusted nor whether the resulting amount is accurate.[243]

117 Mr Ross agrees with Mr Piastra that the 2018 COGS amounts in the 27 August Lizzie are likely based on the standard costs in 2019.[244] Nevertheless, in Mr Ross' opinion, neither he nor Mr Piastra knows what impact that probability has had on the amount recorded for COGS in 2018. It follows that neither he nor Mr Piastra know the extent to which that issue explains the variance, if indeed at all. Mr Ross was of the view that the 1.8% could be significant, but neither Expert could ultimately say in what way or to what extent.[245] Mr Ross stressed the variance ultimately arrived at by Mr Piastra, $195,148 (or $154,926 taking into account products sold during 2018 but not during YTD 2019), was after the fixed overheads value in 2018 had been deducted.[246]

118 Mr Ross views Mr Piastra's suggestion that the variance can be explained by reference to use of the 2019 carton weights in the 2018 calculations in a similar way, asserting that Mr Piastra simply does not provide any assessment of the impact of this alleged cause of the variance and thus that Mr Piastra cannot know how it explains the variance, if at all.[247] The reason for the variance is entirely speculative in the circumstances.[248] It may be because Mr Piastra's calculations were inaccurate, or because the COGS amounts in the 27 August Lizzie were inaccurate. In either of these cases, it is not possible to know which of the three components of the total COGS the variance relates or if it reflects offsetting differences in more than one component of the total COGS.[249]

119 Mr Piastra does not consider the 2018 variance is material enough to suggest his analysis is unreasonable or unreliable. He notes the variance of $154,926 (i.e. the variance which takes into account products sold in 2018 but not YTD 2019) represents 1.8% of the total COGS contained in the 27 August Lizzie.[250] The fact that it exists in 2018 but not YTD 2019 indicates to Mr Piastra that the methodology he was instructed to adopt in order to calculate the COGS components in both years was 'appropriate and reasonable' but that the assumptions and inputs used to calculate the COGS components in 2018 may be flawed.[251]

120 Mr Piastra opines that, in the absence of further information, the variance arises for two reasons. First, Mr Piastra's reliance of the 'Copy of Item Check list - Kyabram COGS summary', and specifically the 'Data List(Oct19)' tab,[252] which appears to contain the standard costs for YTD 2019. Both Experts appear to agree that applying YTD 2019 standard costs to derive the actual COGS components for 2018 is likely to result in unexplained differences.[253] Second, because the 27 August Lizzie did not make any allocation for fixed overhead costs in 2018 as part of the total COGS for that year, Mr Piastra was instructed to apply the 2019 weights per carton to calculate the COGS components in 2018.[254] Given the analysis reconciles COGS for YTD 2019 and the variance is both immaterial and can be explained, Mr Piastra's opinion remains that his calculations of the components for raw material and labour costs is the most reasonable, appropriate, and reliable means of responding to Questions 1 and 2.[255] Mr Piastra points out that Mr Ross has not provided an alternative set of methodologies, assumptions, and inputs that calculates that various components of the COGS amounts for 2018 and YTD 2019 in the 27 August Lizzie.[256]

121 In response to specific comments made by Mr Ross in the Joint Expert Report, Mr Piastra states:

(a) he was not instructed to assess the accuracy of any values contained in the 27 August Lizzie and, in any event, the Experts agree that document appears to be based on standard costs of products sold. It is therefore not clear how Mr Ross defines 'accuracy' in this context;

(b) the approach in calculating the raw materials, labour, and 'other' costs of the total COGS utilised the same data. Mr Ross incorrectly describes Mr Piastra's approach to calculating the 'other' component. The approach used was to multiply the number of cartons of each product sold in 2018 and YTD 2019 by the raw materials and labour costs per carton in those periods, and subtracting these amounts from the total costs to result in 'other' costs.[257] Mr Piastra specifically denies:[258]

(i) that his calculation of the 'other' costs component of COGS simply involved deducting the assessed raw material and labour costs components from the total COGS as set out in the 27 August Lizzie;

(ii) that his calculation of the 'other' costs component of COGS was reliant on the assumption that the total COGS was correct; and

(iii) that he is unaware of what costs are contained in his calculation of the 'other' costs component of COGS;

(c) he did not express an opinion as to the process that had been used to arrive at the total COGS figure in the 27 August Lizzie, and nor was he instructed to do so;

(d) it is irrelevant that the 27 August Lizzie provided no disclosure as to the existence of the 'other' costs component of COGS and, in any event, it does not disclose the existence of raw materials or labour costs components of COGS; and

(e) the reconciliation achieved in respect of YTD 2019 between the total COGS components to the total COGS in the 27 August Lizzie provides a reasonable basis to conclude that these amounts relate to the total COGS in the 27 August Lizzie.

Reliance on documents when there is contradictory information

122 The experts disagreed on the reasonableness of relying on the documents adopted by Mr Piastra, consistently with his instructions, in his analysis, to the exclusion of other documents provided to them.[259]

123 Mr Ross does not suggest that the amounts as set out in the KPMG Report should be adopted in estimating the components of COGS in the 27 August Lizzie.[260] Similarly, in the various examples of conflicting information identified in the First Ross Report, Mr Ross does not suggest Mr Piastra should have preferred any particular number appearing in the identified document to that actually adopted by Mr Piastra.[261] Mr Ross highlights these differences to make the simple point, made previously by KPMG in its due diligence report, that there is not reliable information on which to calculate the components of COGS.[262] Mr Ross also reiterates his concern that Mr Piastra's instructions required him to adopt some figures from certain documents as accurate, but which require him to ignore other amounts in the same documents which he is instructed are incorrect.[263]

124 More generally, speaking of the KPMG Report, Mr Ross makes the point that KPMG was of the opinion that the 27 August Lizzie might not be reliable.[264] He went on to observe:[265]

So in my experience, Your Honour, um that is a big red flag when the person doing due diligence says they are unable to determine if the [profit and loss statement] provided appropriately reflects the costs and then recommends getting a warranty in relation to the reliability of information.

125 In response to Mr Piastra's conclusion (quoted below),[266] Mr Ross refers to his instructions which did not require him to identify any other reasonable sources of raw materials and direct labour costs.[267] With reference to:

(a) SPC's statement at the time of the sale that it could not 'reconcile materials and employee costs to COGS' in the 27 August Lizzie; and

(b) KPMG's conclusion that the SPC accounting system did not allow management to generate a standalone profit and loss statement for the Kyabram site, and that, accordingly, KPMG was unable to determine if the 27 August Lizzie accurately reflects the costs of operating the site,[268]

Mr Ross notes that he has seen no documents which contradict these views or suggest it is possible to reach a specific view as to the reliability (or not) of the amounts listed for COGS in the 27 August Lizzie.[269] At its highest, Mr Ross opines, Mr Piastra's analysis:[270]

establishes only that his instructions produce COGS and EBIT amounts which reconcile (in one year) to [the 27 August Lizzie]. They do not establish that this document was presented as definitively recording the COGS or EBIT for the Kyabram site, especially in the context of all other indications of uncertainty in relation to those amounts in the documents both experts have now considered.

126 Mr Piastra is of the view that there is no information provided to him which contradicts the assumptions he was asked to adopt or the conclusions drawn from his analysis that has not already been addressed.[271] Mr Ross' main example of 'contradictory information' is the difference between the raw material costs in 2018 adopted by KPMG in its due diligence report and the value reported in the 27 August Lizzie (being $4,019,000 and $5,611,000, respectively).[272] Mr Piastra disagrees that the KPMG Report can be used as a source for the raw material values in either 2018 or YTD 2019. Doing so would result in a variance for the total calculated COGS components and the COGS reported in the 27 August Lizzie for YTD 2019. Because no such variance exists in the respective figures under Mr Piastra's methodology and using the assumptions he was instructed to adopt, he concludes that the methodology and assumptions are 'appropriate and reasonable'.[273] Moreover, the value of the raw materials in the KPMG Report reconciles to the RCT-POsummary document which, on the Plaintiffs' case, understated the raw material costs and appears to exclude raw materials used to create each product.[274]

127 None of the other documents Mr Ross refers to contain contradictory information that could have been adopted by Mr Piastra in his responses to Questions 1 and 2.[275] In addition to documents Mr Piastra says the Experts were not provided with,[276] Mr Piastra observes that Mr Ross appears to be looking at earlier versions of documents in at least some of his examples of supposedly contradictory information.[277] Nor did the instructions Mr Piastra was provided limit his analysis to 'limited information sources'; rather, Questions 1 and 2 did not limit his analysis to any one or subset of the documents provided and otherwise available, and the assumptions he was instructed to adopt provided him with the ability to interpret the documents provided to him.[278]

128 Critically, Mr Piastra concludes:[279]

On the basis that Mr Piastra's total calculated COGS components reconcile to the COGS reported in the LIZZIE Profit & Loss Statement for YTD2019, and that neither Expert has identified any other reasonable sources of direct labour and raw material values in the documents provided, in Mr Piastra's opinion the instructed assumptions provided to Mr Piastra are reasonable, and Mr Piastra's responses to Questions 1 and 2 are reasonable and represent the 'best available' conclusion given the information available.

129 In accordance with his instructions to assume approximately 30 employees were required to produce the gross sales recorded in the 27 August Lizzie, at a direct cost of $2,194,000 per annum in 2018 and YTD 2019,[280] Mr Piastra adjusted the labour costs component of COGS assessed from Question 2 to $2,194,000 for 2018 and $1,279,833 for YTD 2019 (being seven months pro‑rata) and recalculated the EBIT for the same periods.[281] Utilising this methodology, the adjusted EBIT figures Mr Piastra produced were $637,371 for 2018 and $455,487 for YTD 2019.[282] This represented a decrease of $1,609,686 and $922,540 for 2018 and YTD 2019 compared to the unadjusted EBIT.[283] The experts disagree as to the reliability of the information and the reasonableness of the assumptions adopted by Mr Piastra in calculating the alleged understatement in COGS and resulting adjustment to EBIT.[284]

130 Mr Piastra has interpreted this question as not requiring him to express any opinion which required accounting expertise. Rather, all it required him to do was to substitute $2,194,000 per annum (or its equivalent on a pro‑rata basis for YTD 2019) for the amount of labour cost calculated by Mr Piastra in Question 2, and then recalculate COGS and EBIT without changing the other elements of those calculations.[285]

131 In adopting this approach, Mr Piastra's conclusions were based on various unstated assumptions, including that:[286]

(a) the amounts derived for raw materials and 'other' costs in both 2018 and YTD 2019, in Question 2, were appropriate but that the amount derived for labour costs was not appropriate. In this respect:

(i) the existence of a variance in Mr Piastra's 2018 calculations must mean that at least one of the amounts he adopts for the integers of COGS in that year is incorrect;

(ii) the approach Mr Piastra takes by including the same variance when calculating his adjusted COGS and EBIT amounts for 2018 assumes that the entirety of the variance relates to his estimates of raw material or 'other costs'. This assumption is not identified by Mr Piastra and, consequently, no basis for it is provided. If any part of the variance relates to labour costs, Mr Piastra's approach to deriving adjusted COGS must overstate COGS and understate EBIT; and

(iii) an error in Mr Piastra's estimates of either raw material or 'other' costs in YTD 2019 means that the adjusted COGS and adjusted EBIT for that period is unreliable, despite there being no variance;

(b) the amount he is instructed to adopt for labour costs is appropriate to record in both 2018 and YTD 2019 (pro‑rated), being $2,194,000, is appropriate. However, Mr Piastra does not actually express such an opinion; rather, he states that it is higher than his calculation. It would be 'remarkable' to find that labour costs for a business like the Business remained unchanged across the period 2018 and YTD 2019;

(c) the amount Mr Piastra is instructed to adopt for labour costs was the actual labour cost for the Business in 2018 and YTD 2019. Mr Ross states that under generally accepted accounting principles, only the portion of labour costs that are related to the products actually sold during the period should be included in COGS. Any other labour costs are excluded from the calculation of EBIT.[287] The appropriate amount of labour costs to be included within COGS in any given period is likely to be different to the total actual labour costs incurred in the same period because not all products sold are likely to have been produced in that period nor are all products made likely to have been actually sold in that period.[288] In the absence of an opinion by Mr Piastra of, or a basis for, its reasonableness, it is not clear whether this assumption is in fact reasonable. To the contrary, the fact that there was some $2,160,000 in inventory upon acquisition of the Business suggests that including the instructed amount in the COGS is incorrect;[289] and

(d) notwithstanding Mr Piastra's adjusted calculations imply significant error in the recording of labour costs in 2018 and YTD 2019, all other amounts of revenue or expense recorded are accurate. In this respect:

(i) both SPC and KPMG recognised the extent to which the reported outcomes of the Business could be viewed as reliable;

(ii) some labour costs may have been included elsewhere in the calculation of COGS and/or EBIT in the 27 August Lizzie. Without understanding the purpose for which each document Mr Piastra considered was prepared, and the source and nature of the information upon which they rely, no conclusions can be drawn on the reliability of the documents;[290] and

(iii) the method by which Mr Piastra derived his estimate of 'other' costs relied on an assumption that his estimate of total COGS was correct and involved no further analysis of the components of the 'other' amount.

132 Additionally, Mr Piastra's opinion as to adjusted EBIT depends inherently on the (instructed) amount adopted for labour costs. It must follow that this opinion rests entirely on the assumption that his instructions are reasonable.

133 The analysis conducted to provide an opinion on adjusted EBIT is consistent with the conclusions reached in response to Questions 1 and 2, and the instruction to assume a total direct labour cost of $2,194,000 per annum.[291] Mr Ross has failed to provide a reasonable alternative calculation of the components of the COGS reported in the 27 August Lizzie and is therefore unable to provide an opinion on an adjusted EBIT.[292]

Question 4 - Trading profit or loss post‑acquisition

134 Mr Piastra was asked to calculate the Business' trading profits or losses taking into account the realisation value of the Business if it ceased trading on each of 31 March 2020; 31 March 2021; and 30 September 2021.[293] Mr Piastra approached this question on the basis that the Business ceased trading on each of the specified dates. In doing so, Mr Piastra considered the initial cash outlay for the Business, being the portion of the acquisition price attributable to the assets and liabilities (i.e. the purchase price), the profits and losses incurred from the date of acquisition to each of the specified dates, and the net realisation value as at each of the specified dates the Business hypothetically ceased trading.[294] Mr Piastra was instructed to adopt an adjustment for redundancy costs.[295] Mr Piastra's opinion, that at each of the specified dates the Business was making a loss, is summarised in the table below:[296]

Ultimately, Mr Ross' opinion is that Mr Piastra's interpretation of the question cannot be considered accurate, as the assessment of loss is not a reliable outcome. Mr Ross expressed five reasons outlining how his opinion differs with respect to the approach taken by Mr Piastra.

135 First, Mr Ross says it is incorrect to calculate loss based on the assumption that the Business ceased trading on dates which it did not.[297] The Experts agree that as at the first two specified dates (31 March 2020 and 31 March 2021) the Business had not ceased trading.[298] Mr Ross opines that Mr Piastra cannot form an opinion on a factual premise which is false.[299] Mr Ross disagrees with the approach taken by Mr Piastra as it is not clear why it is appropriate to rely on estimates of realisation outcomes (for both asset values and realisation costs), as opposed to actual outcomes.[300] A significant issue throughout the evidence of both Mr Piastra and Mr Ross, and within the Joint Expert Report, is the reliance on several assumptions by Mr Piastra included in his instructions.[301] Mr Ross opines that having direct access to further information and records would have avoided the need to rely on such assumptions.[302] Mr Ross points to an example in support of this opinion: that the balance sheet as at 30 September 2021 includes a liability entry for redundancy costs in the amount of $1,594,172.[303] Mr Ross states there was insufficient information provided to each of the experts to confirm whether this redundancy cost was paid by HJF after 30 September 2021.[304]

Post‑acquisition cash flows from the Land and water rights

136 Second, the Experts disagree on the extent to which post‑acquisition cash flows arising from the Land and water rights, and changes in their realisation values, should be accounted for in the assessment of the cash inflow and outflow from the date the Business was acquired.[305] As discussed above, Mr Piastra calculated the profit and loss on the basis the Business ceased trading on the specified dates.[306] It is noted the freehold property and water rights were acquired by Holstein Milk and Mr Piastra was instructed to value the profit or loss of HJF, and not Holstein Milk.[307] Further, Mr Ross opines that Mr Piastra was not actually instructed to consider post‑acquisition cash flows arising from the Land and water rights, or changes in their realisation values, noting that they are not recorded in the business management accounts provided to Mr Piastra.[308] Despite this, Mr Ross identifies that Mr Piastra failed to include any cash flow to the Plaintiffs resulting from the acquisition of the Land and/or water rights, including any increase in the value of those assets since they were acquired.[309] In contrast, Mr Ross was instructed to assume that SPC would not have agreed to sell the Land and/or water rights to the Plaintiffs without also selling the Business.[310] Mr Ross highlights that Mr Piastra, in the Second Piastra Report, was asked to 'review... and provide an expert critique' not limited to Mr Ross' opinion, and gives evidence that Mr Piastra did not address Mr Ross' criticism of the treatment of the cash flows and values of the Land and water rights.[311] Rather, Mr Piastra considers that the material differences between the experts relate to Questions 1 to 3 and one aspect of Question 4.[312] Mr Ross opines that Mr Piastra, in response to Question 4, has effectively referenced the loss outcomes of a 'no transaction case'.[313] Mr Ross' opinion is that if the transaction which occurred did not occur, it is not clear how it could be appropriate to exclude from a calculation of any loss arising from such an approach the cash flows (received or incurred) as a result of the acquisition of the Land and water rights and any change in the value of those assets.[314] Mr Ross' evidence is that it is irrelevant whether, in different circumstances, the parties to the transaction might have agreed to a different transaction involving a different combination of assets.[315] Mr Ross highlights that assessing loss in a 'no transaction' case requires a consideration of the outcome of the actual transaction, not some alternative transaction.[316] It is for this reason that Mr Ross opines it is irrelevant whether Mr Piastra was instructed that SPC would not have agreed to sell the Land and/or water rights to the Plaintiffs without also selling the Business, as the transaction that did occur incorporated all three assets.[317] Mr Ross' opinion is that any gain or loss experienced by the Plaintiffs as a result of the transaction needs to address all components of the transaction.[318]

137 For these reasons, Mr Ross' opinion is that all of Mr Piastra's calculations of the loss, in response to Question 4, are incomplete as they do not incorporate all aspects of the transaction which actually occurred.[319] It is important to note here that Mr Ross was not provided with any sufficient information as to the value of the Land and water rights, or any use of those assets, to enable him to identify the extent of any benefit or detriment of the Plaintiffs resulting from the acquisition of these assets.[320] Whereas Mr Piastra was provided with instructions as to the value of the Land.[321] Mr Ross, however, highlights that neither of the Experts were provided with any information on cash flow derived or incurred in relation to the Land and water rights, and highlights he was not instructed to value the Land or water rights.[322]

Relevance of comparison between adjusted pre‑acquisition and unadjusted post‑acquisition results

138 Third, the experts disagree regarding the relevance of the post‑acquisition profit or loss of the Business which was significantly worse than Mr Piastra's adjusted pre‑acquisition calculations.[323] Mr Piastra reports that between 17 December 2019 and 30 September 2021 (post‑acquisition), the Business reported substantial (and increasing) average monthly trading losses and operating cash flows.[324] In comparison, Mr Piastra's adjusted calculations show the adjusted average monthly EBITs for the Business in 2018 and YTD 2019 were positive (and increasing). Mr Piastra in oral evidence indicated that losses flowing from key contracts lost by Holstein Milk were included in his calculations.[325] Mr Ross opines that Mr Piastra has interpreted Question 4 as requiring him to derive the Plaintiffs' alleged loss under a 'no transaction' claim, and wrongly and implicitly assumes the entirety of the amounts he calculates across all periods were losses caused by the Plaintiffs' reliance on the alleged misrepresentations.[326] Mr Ross is of the opinion that, despite this, Mr Piastra also identifies the Business was producing profits (expressed as EBIT) in 2018 and YTD 2019.[327] Moreover, when converted to average monthly profits, Mr Piastra's estimates of the Business' pre‑acquisition profits in those years showed an upward trend that:[328]

(a) for the 12 months to December 2018, on Mr Piastra's calculations, the Business was producing average monthly EBITs of around $53,000; and

(b) in the seven months to July 2019, on Mr Piastra's calculations, the Business was producing average monthly EBITs of around $65,000.

139 Mr Ross identifies that Mr Piastra's calculations of the Business' post‑acquisition results reflect an entirely different outcome, where:[329]

(a) in the first three and a half months after its acquisition (i.e. 17 December 2019 to 31 March 2020), the Business apparently produced average monthly cash losses of around $40,000;

(b) in the year that followed (i.e. April 2020 to March 2021), the Business apparently produced average monthly cash losses of around $300,000; and

(c) in the six months to 30 September 2021, the Business apparently produced average monthly cash losses of around $546,000.

140 Mr Ross opines that by treating all of the Business' reported post‑acquisition losses as arising from the alleged misrepresentations, Mr Piastra has not considered or sought to explain the apparent change in the Business' success after its acquisition.[330] In Mr Ross' opinion, taking into account the timing of the acquisition, there is a significant prospect that the reported results of the Business post‑acquisition were negatively impacted by at least one extraneous event: the COVID‑19 pandemic.[331] Mr Piastra disagrees that this was likely to have any significant impact on earnings.[332]

141 Mr Ross also observes that Mr Piastra's approach to quantifying loss, in response to Question 4, does not address the question of mitigation: the longer the Business operated, the greater the loss made.[333] Mr Ross emphasises that given those outcomes were occurring, on Mr Piastra's calculations, had the Plaintiff ceased trading earlier, its losses would have been lower (even after taking into account changes in asset realisation outcomes).[334]

142 It should be noted that Mr Piastra was not instructed to compare the pre‑acquisition profits with the post‑acquisition profits.[335]

Price paid for the acquisition of the Business

143 Fourth, the Experts disagree on whether the price paid for the Business (i.e. the initial outlay) should be adopted in the assessment of the post‑acquisition profit/loss.[336] Mr Piastra was provided with a purchase price allocation journal entry for the acquisition of the Business, showing the price paid in the amount of $5.15 million.[337] Mr Piastra's calculation of the price paid for the Business is based upon:[338]

(a) a letter from the Plaintiffs' solicitors to FTI Consulting dated 20 April 2022;

(b) the total purchase price was $8 million;

(c) the freehold property and water rights were purchased by Holstein Milk;

(d) the freehold property being subject to the 'fair value allocation' exercise, which increased the value from $1.54 million to $1.8 million;[339]

(e) the water rights remaining valued at $1.05 million; and

(f) adopting the values after the 'fair value allocation', deducting $1.8 million and $1.05 million from the total purchase price of $8 million, totalling $5.15 million.[340]

In contrast, Mr Ross' opinion is that the total value attributed to the Business according to cl 3.4 of the BPA (being $5.41 million) could have been adopted. Whereas Mr Piastra's calculation is based upon the Land being revalued to fair value which results in an increase of $260,000.[341] Mr Piastra opines that by increasing the price paid from $5.15 million to $5.41 million, it has the effect of increasing the calculated loss, in response to Question 4, by $260,000.

144 Further, Mr Piastra was instructed to consider only the profit or loss incurred by the Business, and not Holstein Milk who acquired the freehold property and the water rights.[342] In Mr Piastra's view, it would have been incorrect to respond to Question 4 by reference to the profit or loss (including the initial cash outlay) generated by Holstein Milk.[343] Despite this, Mr Piastra's oral evidence was that although his instructions did not allow him to include the value of the Land and water rights, he considers the value of the Land and water rights should have been included in his calculations.[344]

145 Mr Ross, in contrast, has not expressed an opinion on the price actually paid for the Business because:[345]

(a) On the information provided to the Experts, the transaction was for a bundle of assets which the parties agreed on a single purchase price of $8 million. It was one transaction.

(b) The values which are attributed to individual assets in sale agreements do not always reflect the market values of those assets if those assets had been sold separately. A variety of considerations (including taxation outcomes) impact the values ascribed to individual assets in circumstances such as this.

(c) The purchase price allocation process used by Mr Piastra is a process which is typically finalised some time after the completion of an acquisition. Its purpose is to ensure appropriate market values are attributed to tangible assets and identifiable intangible assets, before then assessing whether the price paid for an entire business implies the existence of other intangible assets (i.e. goodwill). This last step requires a comparison of the total purchase price ($8 million) to the sum of the market values attributed to tangible and identifiable intangible assets (apparently, $2.85 million). Mr Ross' opinion is that, under Australian accounting principles, if this comparison produces a positive amount, that amount should initially be described as the value of the residual intangible asset. Any such goodwill value should then be subject to an assessment for impairment. Nothing in this process addresses the amount that a purchaser set out to pay or understood they were paying for an individual component of a multi‑asset sale transaction. Rather, the only aspect of the buyer's intent or awareness that is relevant is:

(i) the total price actually paid for the bundle of assets by the purchaser ($8 million); and

(ii) the composition of the assets actually acquired.

(d) The only information Mr Piastra was provided in relation to the purchase price allocation process and outcomes is a journal entry posted in HJF's general ledger on or about 28 February 2020. Mr Ross, however, has not been provided with any documents which record the basis for the amounts recorded in that journal entry, nor any documents which record the fair value attributed to the Land and water rights.

(e) As acknowledged by Mr Piastra in the Second Piastra Report (through the creation of alternative scenarios), other values have been proposed for the Land and water rights which, if reasonable, mean that the purchase price allocation journal relied upon by Mr Piastra must be wrong.

146 It is because of these factors that, in Mr Ross' opinion, reliance on the amount attributed to the Business in the purchase price allocation process provides no basis for assessing the price paid for the Business.[346] Rather, in the circumstances of this case, where the sale was for three assets at one total price, any attempt to assess the loss, if any, suffered by the purchasers on a 'no transaction' basis must, in Mr Ross' opinion, incorporate all aspects of the actual transaction.[347]

147 Mr Ross is of the overall opinion that since the individual values for each of the assets cannot be known with certainty, any calculation of the alleged loss must address all assets acquired.[348] Mr Ross opines that, other than referencing his instructions, Mr Piastra offers no basis for excluding consideration of the outcomes from acquiring (and ownership of) the Land and water rights.[349]

148 Fifth, the experts disagree on the extent to which intangible assets should be included in the 'liquidation values' of assets adopted in response to Question 4.[350]

149 Mr Piastra's opinion is that no realisable value should be attributed to the 'intangible assets' at each of the specified dates.[351] Whereas Mr Ross refers to the BPA attributing a value of $750,000 to the intellectual property, which includes trademarks, websites know‑how and copyright.[352] In Mr Piastra's opinion, the market value of such identifiable intellectual properly can only have a realisable value (or market value) if there exists a buyer that can generate positive incremental profits from these assets.[353] Mr Ross has not identified such a buyer, and Mr Piastra's position is that his analysis shows that the Plaintiffs were not able to generate a profit up to each of the specified dates from these assets.[354] In Mr Piastra's opinion, there is insufficient evidence of a realisable value for the intangible assets.[355]

150 Further, Mr Ross refers to a 'fair value allocation' which 'allocated $1.572 million to this asset'.[356] As noted by Mr Ross, the value of the intellectual property appears to have been classified as goodwill.[357] Mr Piastra's opinion is that, under accounting principles, goodwill is an intangible asset that is used to account for a difference between the price paid and the fair value of identifiable operating assets and liabilities.[358] In Mr Piastra's opinion, goodwill is therefore an asset that is recognised for accounting purposes only, and therefore not an asset that is capable of being sold in a liquidation scenario.[359] Mr Piastra's opinion is therefore that no realisable value should be attributed to the 'intangible assets' at each of the specified dates.[360]

151 Mr Ross' interpretation of Question 4 is that a calculation of HJF's 'profit or losses taking into account the realisation value of HJF if HJF ceased trading' on three alternative dates is required.[361] Mr Ross highlights that no instruction was provided to assume that, at any of those dates, HJF would be placed into administration, its assets sold piecemeal, and the cash derived therefrom used to settle outstanding liabilities.[362] However, this is the approach Mr Piastra adopted, producing a 'liquidation value' rather than a 'going concern value'.[363] Mr Ross opines that a consequence of this approach is there was no attempt to identify whether the Business had any identifiable intangible assets and attributing no value to any of the intellectual property of the Business on the basis that it was 'goodwill' and therefore not an asset capable of being sold in a liquidation scenario.[364]

152 Mr Ross does not know whether the Business had any identifiable intangible assets at any of the dates which Mr Piastra calculates loss.[365] Mr Ross highlights that the purchase price journal entry upon which Mr Piastra places reliance to establish that the purchase price of the Business was $5.15 million records these assets with a value of $1,546,067, describing them simply as 'business intellectual property' with no further information provided as to its composition.[366] Mr Ross also does not know whether, had the Business been placed on the market at any of those dates, it would have attracted a purchase offer higher than the amounts Mr Piastra estimates for his net realisation values.[367] However, Mr Ross opines that, in contrast to Mr Piastra's opinion, had the Business had no goodwill at any of the dates he considered, the Plaintiffs apparently continued to operate the Business until at least the third of those dates (30 September 2021).[368] In Mr Ross' opinion, if the Plaintiffs anticipated the increasingly negative outcomes presented by Mr Piastra, they would have needed to consider whether continuing to operate the Business would lead to allegations of trading while insolvent.[369]

153 Mr Ross finally identifies that Mr Piastra makes reference to Mr Ross not identifying a buyer that could generate positive incremental profits from the assets of the Business.[370] Mr Ross' position is that this is not a task he sought or was instructed to undertake.[371] Mr Ross highlights it was Mr Piastra who was instructed to prepare calculations in response to Question 4, who elected to adopt a 'liquidation value' rather than a 'going concern' approach or an approach which sought a buyer for some or all of the Business.[372]

Question 5 - Valuation of the business and intellectual property

154 Mr Piastra was instructed to provide an opinion on the value of the Business and Business intellectual property as at 22 October 2019, assuming the adjustments to the COGS and EBIT in Questions 1-3 are correct, and his opinion on whether the multiple that he calculated using the Defendants' EBIT is appropriate to use in the context of the acquisition of a business of this kind in the food manufacturing industry. Mr Piastra adopted a 'fair value' basis to estimate the value of the Business and Business intellectual property; he was not instructed to assess the 'true value' of the Business, nor to assess the loss, nor to compare his opinion on the value against the price paid.

155 Mr Piastra adopted the CFME Method to assess the fair value of the business, which involves an assessment of:

(a) the future maintainable earnings; and

(b) an appropriate earnings multiple.

156 Mr Piastra adopted the adjusted EBIT for 2018 and YTD 2019 to assess the future maintainable earnings by applying adjustments for the purpose of the CFME Method including notional rent for the use of the Land and water shares. He undertook a cross‑checking exercise to recalculate the earnings multiple using a 'first principles' approach and concluded that, based on this analysis, the implied earnings multiple he derived is appropriate. Mr Piastra's response to Question 5 is summarised in the following table:[373]

157 Mr Ross disagrees with Mr Piastra's approach for his earnings and multiple analysis on the basis that whether the price paid for the acquisition of the Business can be reliably estimated, an adjustment to include notional rent in deriving the future maintainable earnings of the Business is necessary, whether the reported results for the Business represents future maintainable earnings, and if it is appropriate to apply the implied earnings multiple derived by Mr Piastra to the reported earnings of the Business.

158 Mr Ross also disagrees with Mr Piastra's approach in respect to the cross‑check of the applied earnings multiple on the basis of whether the methodology adopted by Mr Piastra is an accepted valuation methodology; how income tax, capital expenditure, and depreciation were treated in determining the EBIT multiple; identification and application of appropriate risk premia for factors like 'key customer risk' and 'uncertainty in overheads' in deriving the Weighted Average Cost of Capital (WACC); the determination of an appropriate growth rate for calculating earnings multiples using Mr Piastra's cross‑check approach; and what a comparison between market‑based multiples and the multiples derived through Mr Piastra's approach suggest about the reliability of that cross‑check.

Assessment of implied earnings multiple: Price paid for the acquisition of the Business

159 The key disagreement revolves around whether the price paid for the Business can be accurately determined, with Mr Ross emphasising the uncertainty and variability of the potential values and implied earnings multiples.[374]

160 The Experts disagree on the reliability of estimating the portion of the agreed $8 million price paid by the Plaintiffs for the assets acquired (the Business, Business intellectual property, the Land, and water shares) to determine the implied earnings multiple for the Business. The Land and water shares were acquired by Holstein Milk and the remaining assets and liabilities of $5.150 million were acquired by HJF.[375]

161 The total purchase price was $8 million. Mr Piastra, based on his instructions, allocated $5.15 million to the Business and Business intellectual property. He was provided with the Opteon Report for the valuation of the Land and water shares and was instructed to consider whether the report has any impact on his value of the Business where he adopted two alternative sources to evaluate the price of the Business and its intellectual property as follows.[376]

162 He adopted two alternative scenarios based on the price paid for the Business and the Business intellectual property:

(1) Scenario 1: Based on the Knight Frank Report (which was issued before the acquisition date of 22 October 2019), adopting the value of the Land of $1.8 million, and $1.05 million for the value of the water rights, it is implied the price paid for the Business and intellectual property is $5.15 million.[377]

(2) Scenario 2: Based on the Opteon Report (which was issued after the acquisition date of 22 October 2019), adopting the value of the Land of $3.25 million and $842,400 for the value of the water rights, it is implied the price paid for the Business and intellectual property is $3,907,600.[378]

163 Based on the above, Mr Piastra calculated the price paid for the Business and Business intellectual property by subtracting the value of the Land and the water shares under each of the scenarios, from the initial total purchase price of $8,000,000. Mr Piastra suggests that both scenarios offer reasonable bases for estimating the price paid for the Business.[379]

164 Mr Ross critiques Mr Piastra's approach, suggesting that the price paid for the Business cannot be determined with certainty, undermining the reliability of the analysis. He opines that Mr Piastra's approach fails on the basis that it will not be possible to determine if the Plaintiffs have suffered any loss since one of the two components of the necessary comparison between price paid and true value cannot be determined.[380]

165 Mr Ross suggests that if market values for the Land or water shares differ from Mr Piastra's assumptions, the implied price paid for the Business could range from $3.7 million to $5,357,600, rather than the values provided in Mr Piastra's scenarios.[381]

166 Mr Ross argues that the implied EBIT multiples could vary significantly (from 1.5 to 3.7 times) depending on the assumptions made, making Mr Piastra's approach artificial and unreliable. That approach seeks to reach conclusions as to the Plaintiffs' loss not by reference to the total amount of $8 million paid by the Plaintiffs, but rather by addressing only one component of that sale where the amount paid for that component cannot be assessed with any degree of certainty.[382]

Assessment of implied earnings multiple: Adjustment for notional rent

167 The Experts disagree on the adjustment for notional rent when assessing the future maintainable earnings (FME) of the Business in relation to the Land and water shares, which they both classified as 'surplus assets'. Both Experts treated these assets as 'surplus assets'. However, they differ on how treating these assets as surplus should affect Mr Piastra's calculations of the Business' value.[383]

168 To calculate the FME, Mr Piastra has reduced the unadjusted EBIT as reported in the 27 August Lizzie in each period to include an allowance for notional rent. In his view, it is not necessary for the Business to own the Land or the water rights, but they may still be used by the Business, subject to pay for the use of the assets. Consequently, for business valuation purposes, it is typical to separate these tangible assets, and apply a notional market rent for their use. Mr Piastra adjusts the notional rent based on two scenarios:[384]

(a) Scenario 1: Relying on the Knight Frank Report, he applies a notional rent of $255,560 per annum as 'net annual income'.

(b) Scenario 2: Relying on the Opteon Report, he applies a higher notional rent of $475,000 per annum as 'net annual income'.

169 In addition to the Land, Mr Piastra opines that notional rent should also be applied to the water shares. For both scenarios, he calculates the notional rent for the water shares at $157,039 per annum for 2019 and $105,613 per annum for 2018, based on market prices published by RuralCo.[385]

170 Mr Ross' view is that the disagreement centres on the interpretation of the term 'surplus asset'. According to Mr Ross, if a business uses assets for which it incurs no cost, but a hypothetical purchaser would need to incur such costs, it is appropriate to include an allowance for market rent in the valuation. In his view, the relevant assets are integral to the operation of the Business and should not be considered 'surplus'. Alternatively, if the Land and water shares are not necessary for the Business' operations, they should be treated as surplus, with no impact on it. Mr Ross also opines that if only part of an asset is required for the Business' operations, notional rent should only apply to that portion, while the remaining part of the asset should be valued separately.

(a) Were the Land and water rights necessary for the conduct of the Business (and, if only partially necessary, what portion of those assets was necessary)?

(b) If they were necessary for the conduct of the Business, what would be an appropriate market rent?

In Mr Ross' opinion, Mr Piastra has addressed the wrong question. Mr Ross opines that the entity which owns the relevant asset does not determine whether it is a surplus asset. Rather, whether an asset is a surplus asset depends on whether it is required for the conduct of the business being valued.

Whether the reported results for the Business (as adjusted by Mr Piastra) represent FME

172 Both Experts agree on Mr Piastra's approach of deriving fair value on the CFME Method; they agree that this is a generally accepted valuation approach and an approach which is used to value the Business. The Experts also agree on two necessary components when adopting the CFME Method:

(a) an assessment of the 'maintainable earnings' the Business is expected to achieve over the long term; and

(b) the selection of an earnings 'multiple', which reflects the risks attached to expected future earnings and any expected growth in future earnings.

173 Mr Piastra, for the purposes of the Second Piastra Report, adopted the EBIT amounts recorded for the Business in the Lizzie P&L to derive his implied EBIT multiples. He adjusted the EBIT amounts after addressing Questions 1 to 3 and included an allowance for notional rent to estimate the fair value. However, the Experts disagree on Mr Piastra's approach regarding the reliability of his estimates for the FME of the Business.[386]

174 Mr Piastra relied on the 2018 and YTD 2019 EBIT from the Lizzie P&L. This was in line with his instruction to disregard financial data from 2017 and focus on later years. He was also directed to assume that the Plaintiffs used the EBIT figures in assessing the price of $5.15 million they were willing to pay for the Business and its intellectual property and complete the transaction on the basis of the EBIT as reflected in the 27 August Lizzie and the KPMG Report. Mr Piastra reviewed the KPMG Report and concluded that it did not propose any one‑off events or significant normalisation adjustments to the 2018 and YTD 2019 earnings.[387] He interpreted this as an indication that the Plaintiffs did not make any such adjustments when valuing the Business.[388] Furthermore, he deducted a notional rent from the Business earnings, assuming that the buyer would have to pay rent for the freehold property and water shares, on the assumption the purchaser would need to pay rent to use the assets if it was owned by a separate entity and where the assets are separately valued.[389] Mr Piastra is of the view that the steps undertaken by him did include an assessment of FME, taking into account the availability (and lack thereof) of a forecast, his instruction that the Plaintiffs relied upon the Lizzie P&L and the KPMG Report, and considered what normalisation adjustments may be required based on the information provided.[390]

175 Mr Ross opines that the methodology used in the Second Piastra Report is incorrect.[391] While Mr Piastra refers to the amounts in his business valuation as 'future maintainable earnings,' Mr Ross contends that these figures merely reflect the actual EBIT numbers from the 27 August Lizzie or the same figures adjusted by Mr Piastra for notional rent and his responses to Questions 1 to 3. Mr Ross also refers to section 3 of the First Piastra Report where he provided detail in relation to the steps taken in the valuation process and Mr Ross opines that Mr Piastra simply relied on reported results or the outcomes of applying his adjustments to those results, rather than taking any steps to derive FME.[392]

176 Furthermore, Mr Ross opined that, in deriving FME for his assessment of true value, it was not Mr Piastra's role to determine whether the Plaintiffs made any 'normalisation adjustments when valuing the Business and its IP' in determining the purchase price. Mr Piastra was specifically instructed that the Plaintiffs did not apply a multiple of EBIT for the price they were willing to pay for the Business and its assets. Therefore, Mr Piastra did not conduct normalisation adjustments but rather focused on analysing the Business' FME. However, Mr Piastra did not complete this step, instead relying on historical results from 2018 and YTD 2019, without verifying whether they reflected future maintainable earnings. Mr Ross highlighted this as a significant omission. Additionally, the Defendants did not provide any warranty regarding the Business' future EBIT, which made it even more crucial for Mr Piastra to evaluate future earnings thoroughly. Although the KPMG Report raised concerns about the reliability of historical data, these concerns were not adequately addressed in Mr Piastra's analysis. As a result, Mr Ross concluded that Mr Piastra's valuation approach using the CFME Method lacked a reasonable basis.[393]

Assessment of implied earnings multiple: Reasonableness of Mr Piastra's assessed implied earnings multiple

177 Both Experts disagree as to whether it is appropriate to apply the implied earnings multiple derived by Mr Piastra to the reported earnings of the Business to derive an assessment of fair value.[394] Specifically:

(a) The relevance of Mr Piastra's instruction that, while the Plaintiffs did not apply a multiple to the EBIT to determine the purchase price, they were willing to pay $5.15 million to acquire the Business and its intellectual property based on the EBIT shown in the 27 August Lizzie and KPMG Report.[395]

(b) The relevance of the disclosures to the Plaintiffs, including in the KPMG Report, regarding the potential unreliability of the Business' results as disclosed in the 27 August Lizzie, by the Defendants.[396]

(c) Whether the implied earnings multiples indicate that the Plaintiffs considered this uncertainty regarding the reliability of the 27 August Lizzie when determining the purchase price for the Business.[397]

178 Mr Piastra's opines that the implied earnings multiple adopted in response to Question 5 is appropriate based on this assignment of the EBIT in section 3.6 of the Second Piastra Report. Mr Piastra acknowledges Mr Ross' opinion but maintains that it does not affect his opinion in the Second Piastra Report or the Joint Expert Report. Mr Piastra indicated that he relied on instructions that the Plaintiffs considered the relationship between the price and earnings, which he views as reasonable. Mr Piastra believes these instructions are sufficient to explain how the Plaintiffs determined the price paid for the Business. Mr Piastra agrees with Mr Ross that his approach assumes the price paid reflects an implied EBIT multiple, which would remain the same even if different EBIT values were provided.[398]

179 The Experts agree that there are a number of relevant disclosures made to the Plaintiffs in the KPMG Report as to the reliability of COGS and EBIT amounts in the 27 August Lizzie. They agree the KPMG Report considers a number of risks that impact the future earnings of the Business which are as follows:

(a) the inability to generate a standalone P&L for the Kyabram site, raising concerns about cost accuracy;[399]

(b) separation risk and possible discrepancies in YTD 2019 EBITDA;[400]

(c) declining net sales;[401]

(d) potential errors in financial information and group cost allocation, recommending mitigation via a Seller's Warranty;[402]

(e) post‑separation dis‑synergy risk due to loss of bargaining power;[403] and

(f) key customer concentration risk.[404]

180 Further, Mr Piastra asserts that the EBIT multiple implied by the price paid for the Business, based on the earnings relied upon by the Plaintiffs, already accounts for all relevant risks, including those disclosed and any additional risks identified. He maintains that this EBIT multiple is reliable for assessing the Business' FME. Conversely, Mr Ross contends that no reasonable purchaser, having received the relevant disclosures, would have considered the EBIT figures in the 27 August Lizzie as reliable indicators of the actual EBIT for the periods in question.[405] He argues that it would be inappropriate to suggest, as Mr Piastra does, that the purchase price and reported EBIT amounts could produce a reliable implied EBIT multiple unless the multiple had already factored in the risks highlighted by the disclosures. Despite Mr Ross' comments, Mr Piastra's opinion remains unchanged.[406]

181 Mr Piastra concluded that the implied earnings multiple was appropriate for a business in the food manufacturing industry, given its trading history and industry standards, as detailed in the KPMG Report. However, he acknowledged that he was not provided with specific information to quantify how each of the risks identified by KPMG, including the risk of materially misstated financial performance, were incorporated into the implied multiple. KPMG suggested addressing this risk through a Seller's Warranty. However, Mr Ross disagreed with Mr Piastra's conclusion, arguing that the implied multiple should have been increased to reflect the uncertainty in the financial information provided. Mr Ross' opinion is that the multiple was based on uncertain data and should have been adjusted upwards to determine the true value of the Business.[407]

182 Mr Piastra disagrees with Mr Ross' assessment of the 6.2 times EBIT multiple, opining that Mr Ross did not provide sufficient explanation for how this figure was calculated. Specifically:

(a) Mr Piastra identifies three main issues with Mr Ross' approach:

(i) Mr Ross applied a Free Cash Flow to the Firm (FCFF) multiple to EBIT, which Mr Piastra disagrees with;

(ii) Mr Ross excluded a risk premium related to the uncertainty of the Kyabram Business' overhead costs as a standalone entity, which was highlighted in the KPMG Report. Mr Piastra believes this oversight leads to an overstatement of the earnings multiple; and

(iii) Mr Ross added a positive growth rate, despite the Kyabram Business showing negative growth in net sales revenue for 2017, 2018, and YTD 2019. Although there was some positive growth in EBIT for 2018 to YTD 2019, Mr Piastra considers the future growth prospects uncertain, as flagged in the KPMG Report, and thus, adding a growth rate leads to an overstatement of the earnings multiple.

(b) Mr Piastra disagrees with Mr Ross' assertion that the lower implied earnings multiple of between 2.1 and 2.7 times is unjustifiably low.

(c) Finally, Mr Piastra challenges Mr Ross' statement that neither the buyer nor the seller relied on reported EBIT when determining the sale price. Mr Piastra argues that this is inconsistent with his instructions, which assume that the Plaintiffs paid $5.15 million based on EBIT figures reflected in the relevant financial documents, including the 27 August Lizzie and the KPMG Report.

183 Mr Piastra was instructed to assume whilst the Plaintiffs did not apply a multiple to the EBIT to determine the purchase price, they were prepared to pay the sum of $5.15 million to acquire the Business and its intellectual property and complete the transaction on the basis of the EBIT as reflected in the Lizzie P&L for the years 2017 to 2019 and the KPMG Report. Mr Ross opines that he does not know the basis of this instruction. However, his opinion is that if the Plaintiffs arrived at a price to pay for the Business without applying an EBIT multiple to the EBIT reported in the Lizzie P&L, the approach adopted by Mr Piastra cannot, except by coincidence, arrive at true value. This is because Mr Ross' view is that Mr Piastra's approach implicitly assumes that the price paid for the Business reflects an implied EBIT multiple which would have remained unchanged had the Plaintiffs been provided with different EBIT values such that true value can be determined by applying the same multiple to a different (adjusted) EBIT amount.[408]

184 In Mr Ross' opinion, Mr Piastra's approach suggests that the market value of a business, identical to the one in question but with accurate EBIT figures as reported in the 27 August Lizzie (i.e. the 'Alternative Business'), would be $5.15 million. However, if the Plaintiffs did not derive this $5.15 million figure based on the EBIT amounts in the 27 August Lizzie, it is impossible to determine the market value of the alternative business unless one of the following is done:[409]

(a) an independent valuation of the alternative business is conducted under the same assumptions and results in the same value; or

(b) the market value of the alternative business is assessed using a different method, but still leads to the same value.

185 Mr Ross opines that Mr Piastra did not follow either of the approaches mentioned. Mr Ross is of the view that without understanding how the Plaintiffs arrived at their assumed price for the Business, Mr Piastra's method for deriving an EBIT multiple begins with an unfounded implicit assumption that $5.15 million represents the market value of the alternative business. He then assumes that a multiple based on this assumption accurately reflects all the risks associated with such a business.[410]

186 In regard to the relevance of disclosures made to the Plaintiffs including in the KPMG Report as to the reliability of COGS and EBIT amounts in the Lizzie P&L, Mr Piastra listed a number of risks affecting the future earnings of the Business, which he claims were identified in the KPMG Report. However, since Mr Piastra's calculation of an implied multiple is based on the EBIT amounts from the 27 August Lizzie (which reflect past earnings, not future earnings), he did not adjust these amounts to account for potential changes in future earnings. Mr Ross states that it is unclear why he referred to these future risks. Mr Ross opines that if Mr Piastra had identified likely future changes that would affect the Business' performance, the proper approach would have been to adjust his estimate of maintainable earnings. Instead, Mr Piastra attempted to account for these risks by including 'risk premia', which lacks a proper basis for estimation. In this regard, Mr Ross disagrees with Mr Piastra's list of 'risks', stating that it does not fully address the disclosures made to the Plaintiffs regarding the reliability of the COGS and EBIT figures in the 27 August Lizzie. Based on the information provided to Mr Ross and reviewed by Mr Piastra, Mr Ross highlights several key disclosures that Mr Piastra did not discuss in the Joint Expert Report:[411]

(a) SPC indicated at the time of the sale that it could not reconcile materials and employee costs with COGS in the P&L;

(b) none of the documents in the data room, including those relied upon by Mr Piastra, provided a breakdown of total COGS for the Business into key components such as raw materials, labour, and other costs;

(c) before the transaction, the Defendants described the raw materials figure in the 27 August Lizzie as a 'best estimate'; and

(d) additional statements in the KPMG Report further questioned the reliability of the financial information provided.

187 Mr Ross' opinion is that no reasonable purchaser after receiving the disclosed information would have considered the EBIT amounts in the 27 August Lizzie as reliable estimates of the Business' actual earnings for the relevant periods. Nor would they have assumed those figures could serve as a basis for assessing the Business' FME. Consequently, in Mr Ross' opinion, it is inappropriate for Mr Piastra to suggest that using the (assumed) purchase price and those reported EBIT figures would yield a reliable implied EBIT multiple. The only way this approach could be considered reliable is if the implied multiple already accounted for the risks highlighted in the disclosures, which Mr Piastra does not adequately address.[412]

188 Mr Ross also disagrees with Mr Piastra's focus on whether his adjusted EBITs can be accurately described as 'derisked' and says this misses the critical issue. Mr Ross argues that no reasonable purchaser would have appreciated that disclosures of the nature indicated the existence of considerable uncertainty and risk in respect of the financial information of the Business. Mr Ross refers to the following statements in the Second Ross Report:[413]

(a) Mr Ross argues that based on the assessment of a derisked WACC comparable market multiple was around 6.2 times which demonstrates that Mr Piastra's 'first principles' approach to assessing the reasonableness of his implied multiples is flawed as Mr Piastra's implied multiples in the range of 2.0 to 2.7 times are lower than an appropriate multiple for a business whose reported historical EBITs could reasonably be expected to be maintainable in the future.

(b) Mr Ross also opines that Mr Piastra has misinterpreted the significance of arriving at such low implied EBIT multiples from his analysis of the price paid, noting those implied multiples would have been lower still had Mr Piastra not made his notional rent adjustments.

(c) Given the relevant market, EBIT multiple for businesses experiencing 'normal' risks are significantly higher than Mr Piastra's derived implied EBIT multiples; based on this approach, it was wrong to assume that a buyer would offer and a seller accept a price which would significantly have undervalued the Business.

(d) Mr Ross opines that it is evident that neither the buyer nor the seller placed reliance on the reported EBITs when determining the price paid. Instead, both parties factored in the risks identified in the KPMG Report.

(e) Accordingly, Mr Piastra's approach, which applies implied multiples to adjusted EBITs in calculating the true value, results in a double‑counting of these risks. Had the buyer relied on the historical EBITs as accurate, they would have arrived at a significantly higher price, applying a market EBIT multiple to those reported outcomes, which Mr Piastra acknowledges was not the case.

(f) Therefore, the amounts Mr Piastra attributed to the price paid cannot be reconciled with the assumption that the buyer relied on the reported EBITs as maintainable. Rather, once it is accepted that both the buyer and seller acknowledged the uncertainties surrounding the reliability of those figures and factored them into the price paid, the logic of the transaction becomes clear.

189 Mr Ross' opinion is that the price the Plaintiffs paid for the Business reflects the disclosed uncertainty in reported EBIT. Mr Ross is of the opinion that Mr Piastra's failure to increase his derived implied multiple when deriving true value to reflect the (implied) removal of some of this uncertainty by way of his (instructed) adjustment must understate true value.

190 Mr Ross disagrees with the appropriateness of adopting an EBIT multiple of 6.2 times in relation to the Business and highlights:

(a) EBITDA multiples for comparable entities in the range of 5.1 to 6.1 times, highlighting that it is appropriate to assume at least some depreciation and amortisation expenses over the long term.

(b) He agrees with Mr Piastra that the appropriate multiples to adopt are EBIT multiples and concludes that by arriving at lower EBIT multiples than the market comparables, Mr Piastra's approach does not produce reliable EBIT multiples.

(c) Mr Piastra discusses the relevance of considering growth when determining an appropriate EBIT multiple for the Business, emphasising that growth can significantly impact valuation. However, Mr Ross identifies a contradiction in Mr Piastra's earlier opinion that the Business had no growth. In contrast, Mr Ross points out that Mr Piastra's own calculations shows the Business experienced positive growth in its average monthly profit in the YTD 2019, undermining the claim of no growth.

Mr Piastra's 'cross‑check' approach to deriving an EBIT multiple: Whether this approach is a recognised approach

191 Mr Piastra was instructed to determine whether the EBIT multiple he calculated using the Defendants' EBIT was appropriate for the acquisition of a business in the food manufacturing industry. He analysed publicly available data on similar companies and transactions in the industry and found that:[414]

(a) Companies similar to the Business traded at approximately 14 times forward EBIT or 16 times historical EBIT, considering a 30% control premium.

(b) Transactions involving similar companies traded at about 11 times EBITDA, although data on implied earnings multiples was limited.

192 Mr Piastra's opinion is that the market multiples data was unreliable due to the significantly larger size of the companies in the available data. As a result, he recommended using a 'first principles' approach to estimate the EBIT multiple, given the lack of reliable comparable data.[415]

193 Mr Piastra adopted a 'first principles' approach to derive an EBIT multiple from a discount rate. This approach is based on the relationship between discounted cash flow models and valuations based on the capitalisation of future earnings, which, under consistent assumptions (for example, stable expected future growth in earnings), should yield equivalent values. Mr Piastra viewed the 'first principles' approach as valid for assessing an EBIT multiple based on an assessed discount rate. However, he emphasised that this approach was used as a cross‑check to assess the reasonableness of the implied earnings multiples. It was not applied as the primary method for determining either the implied earnings multiple or the fair value of the business in question.[416]

194 Mr Piastra's opinion is that use of the 'first principles' approach to ensure that his valuations and assessments of EBIT multiples were consistent with industry standards and economic principles, as outlined in Professor Aswath Damodaran's analysis.[417]

195 Mr Ross does not recognise the approach described by Mr Piastra as a 'first principles' approach which is accepted as a means by which reliable EBIT multiples can be derived for use in the valuation of shared businesses. Mr Ross is aware of Professor Damodaran's principle in which Mr Piastra relied on, however, he noted that Professor Damodaran's views are not universally accepted, and the document Mr Piastra places reliance on did not appear to fully support the 'first principles' approach, as described by Mr Piastra. Mr Ross pointed out that Professor Damodaran's focus was primarily on the risks of relying solely on market multiples, and the term 'first principles' did not appear in the paper. Furthermore, Professor Damodaran's analysis was intended to understand variables that cause multiples to vary across firms in the same sector, which Mr Ross argued was not reflected in Mr Piastra's use of the approach.[418]

196 While Mr Ross agreed in principle that there is a theoretical relationship between discount rates and earnings multiples, he emphasised that this understanding is not novel. He concurred with the notion that firms with higher risk should trade at lower EBIT multiples, while those with lower risk and more reliable financial information would command higher multiples. Mr Ross also highlighted the importance of market‑based valuation methods, as reflected in International Valuation Standards, which emphasise that price information from an active market is the strongest evidence of value. Mr Ross concluded that the multiples derived from Mr Piastra's 'first principles' approach were inconsistent with both observed market multiples and those cited by Mr Ross, and therefore could not be relied upon for assessing the fair value of the Business. He emphasised that Professor Damodaran's paper did not support the widespread acceptance of Mr Piastra's approach within the valuation community.[419]

Mr Piastra's 'cross‑check' approach to deriving an EBIT multiple: Treatment of income tax and capital expenditure

197 Mr Piastra, in his calculation for EBIT multiples using his 'cross‑check' approach, applied an income tax rate of 30% which was sourced from the Business' post‑acquisition financial statements, which indicated that the applicable Australian tax rate was 30%.[420] Mr Piastra assumed that it was appropriate to adjust his calculation of FCFF by deducting an allowance of capital expenditure while making no allowance for depreciation. However, Mr Ross points out that for the FY2020, Australian companies with an aggregated turnover of less than $50 million had a tax rate of 27.5%, which contrasted with the 30% rate adopted by Mr Piastra.[421]

198 Furthermore, since Mr Piastra was deriving an EBIT multiple to apply to the long‑term valuation of the Business, Mr Ross opines that the appropriate tax rate should have reflected the rate applicable over the majority of the Business' expected life. By October 2019, it was already known that companies with an aggregated turnover of less than $50 million would have a tax rate of 25% from FY2022 onwards.[422]

199 Mr Ross concluded that 25% would have been the appropriate tax rate to adopt for deriving FCFF. Had Mr Piastra used this rate, his EBIT/FCFF ratio would have been 1.42, not 1.53, and the EBIT multiple would have been 3.09 (rounded to 3.1 times), instead of 2.8 times.[423]

Treatment of depreciation and capital expenditure

200 In estimating the FCFF for the Business, Mr Piastra began with EBIT, added back depreciation which is a non‑cash adjustment, and deducted capital expenditure. The adjustment to EBIT was based on the depreciation recorded in the EBIT adopted, which was recorded as $1.8 million. The source of these values was 2018 and YTD 2019 from the Lizzie P&L, adjusted for the notional rent. The EBIT disclosed in the Lizzie P&L include $nil depreciation which was confirmed in the KPMG Report. For capital expenditure, Mr Piastra relied on the KPMG Report, which indicated $85,000 per year was spent on capital expenditure in 2016 and 2017, and a significantly higher amount ($187,000) was spent in 2015 and very little (under $7,000) for the 2018 and YTD 2019. In the absence of more recent data, Mr Piastra assumed that $85,000 per year would be required by the Business for capital expenditure as at the valuation date.[424]

201 Mr Piastra disagrees with Mr Ross' view that depreciation must equal capital expenditure (and therefore should have offset to $nil). Mr Piastra's opinion is that depreciation rarely equals capital expenditure, and the formula recognises this. Given the low capital expenditure adopted by Mr Piastra ($85,000 on EBIT of $1,800,000), Mr Piastra considered it appropriate to adopt inputs into the formula based on the documents provided, rather than assume an offset between depreciation and capital expenditure. Mr Piastra maintained his opinion on the FCFF calculation accordingly.[425]

202 Mr Ross disagrees with Mr Piastra's treatment of capital expenditure and depreciation as an EBIT/FCFF ratio.[426] Mr Ross' says Mr Piastra has not made any assessment of whether the amount he adopts is 'maintainable' and where the wrong rate of corporate tax is applied.[427] Mr Ross opines that Mr Piastra's approach leads to the untenable conclusion that the Business is assumed to be in perpetual capital expenditure while never recording any depreciation.[428] In Mr Ross' view, it is more common when using a CFME approach to valuation to assume that depreciation and capital expenditure will offset each other over the long term.[429] Had Mr Piastra adopted this approach, his EBIT/FCFF ratio would have been 1.33, not 1.53, and his EBIT multiple would have been 3.3, not 2.8 times.[430] Mr Ross has prepared a table containing adjustments to Mr Piastra's 'first principles' EBIT calculations:[431]

203 The amended table shows that the EBIT multiples derived after correcting Mr Piastra's EBIT/FCFF, ratio calculations range from 3.3 times to 9.4 times. All of these multiples are higher than those adopted by Mr Piastra as the appropriate multiple when deriving true value. In Mr Ross' opinion, these amended calculations suggest that the appropriate EBIT multiple to apply to a business like the Business would be no less than 4.7 times. Mr Ross further refers to data on EBITDA transaction multiples for businesses with revenue of less than $20 million. According to this data, the average EBITDA multiple for these businesses in 2019 was 5.1 times, with a historical average of 6.1 times. Since this data is derived directly from market transactions, rather than from the unproven and highly judgmental approach employed by Mr Piastra, Mr Ross prefers this market data. Additionally, Mr Ross highlights that, in general, EBIT multiples are higher than EBITDA multiples due to depreciation and amortisation expenses, which makes the EBIT multiples from the reference data likely to exceed 5.1 times (and likely higher than 6.1 times). Mr Ross' opinion is that this further demonstrates the unreliability of Mr Piastra's 'first principles' approach, especially as applied in this case.[432]

Mr Piastra's 'cross‑check' approach to deriving an EBIT multiple: Assumed growth rate

204 Mr Ross disagrees with Mr Piastra's calculation of EBIT multiples derived using his 'first principles' where Mr Piastra assumes that expected long‑term growth was zero (0%) in the assumed future maintainable earnings on the basis of that:[433]

(a) the Business' average monthly net sales revenue decreased over the periods from 2017 to 2018, and from 2018 to YTD 2019, as reflected in the 27 August Lizzie. Despite the decline in net sales revenue, Mr Piastra agrees with Mr Ross that the average monthly EBIT increased from 2018 to YTD 2019, according to the Lizzie P&L; and

(b) there was uncertainty about the future growth in revenue and earnings of the Business as at 22 October 2019, with external factors, such as Coles and Woolworths moving the shelf location of products sold, contributing to this uncertainty.

205 In Mr Piastra's opinion, based on the factors outlined, there is insufficient justification to adopt a growth rate above 0%.[434] Mr Piastra did not assume a long‑term growth rate below 0%, and therefore Mr Ross' criticism of the application of the CFME Method does not affect Mr Piastra's conclusions and opinions in response to Question 5.[435] However, Mr Piastra disagrees with Mr Ross, noting that Mr Ross' reliance on the long-term expected inflation rate fails to take into account the specific circumstances of the case, including KPMG's observations of declining sales and a general downward trend in the condiments market.[436] Based on these considerations, Mr Piastra maintains that a 0% long‑term growth rate is appropriate for assessing the market multiple as of the Valuation Date.[437]

206 The unadjusted and adjusted EBIT amounts reported in the 27 August Lizzie as recorded by Mr Piastra were as follows:

207 Mr Ross contends that to the extent that it addresses the years 2018 and 2019 only, it suggests that the table supports Mr Piastra's statement that the EBITDA of the Business decreased over the period of 2017 to 2018 and again from 2018 to 2019 (as referenced in paragraph 7.8.3(a) of this Joint Expert Report, including both unadjusted and adjusted EBIT). However, Mr Ross' opinion is that this conclusion would be inappropriate, as it results from comparing a 12‑month period (2018) with a seven‑month period (YTD 2019), which is not a fair or accurate basis for comparison.[438]

208 Mr Ross opines that, to the extent it addresses only 2018 and YTD 2019, a cursory reading of this table suggests that it supports Mr Piastra's statement that the EBITDA was decreasing over the period from 2017 to 2018 and then from 2018 to YTD 2019. Mr Ross highlights, however, that that would be an inappropriate conclusion, as it would result in comparing the results for a 12‑month period (2018) with the results for a seven‑month period (YTD 2019).

209 The table below presents the same results, converted to average monthly amounts:

In Mr Ross' opinion, when the amounts are treated on a like‑for‑like basis (and adopting Mr Piastra's instruction to disregard the 2017 reported results), both adjusted and unadjusted EBIT amounts increased significantly in YTD 2019. Mr Ross references Mr Piastra's reliance on declining growth indicators. He opines that if there were indicators of declining growth, as Mr Piastra suggests, it would have been inappropriate to use the CFME Method to value the Business. Mr Ross suggests that the CFME Method is only suitable where the profit of the Business is expected to either remain flat or increase over time. If there is an expectation that profits will decline, whether temporarily or over the long term, it would necessitate a shift to the Discounted Cash Flow approach instead.[439]

210 Furthermore, Mr Ross contends that if a purchaser of the Business held the opinion that the profits of the Business were likely to decline, whether temporarily or over the long term, it would have been inappropriate for them to adopt the CFME approach to arrive at a purchase price for the Business. As stated in the Joint Expert Report (and in the First and Second Ross Reports), Mr Piastra was instructed that the Plaintiffs did not use the CFME approach. This would have been an appropriate decision if a reasonable expectation existed that profits would fall in the future. Mr Ross also disagrees with Mr Piastra's approach to calculating the WACC. Mr Ross argues that Mr Piastra should have used a long‑term growth rate of 2.5%, which aligns with the midpoint of the Reserve Bank's inflation target. If Mr Piastra had applied this growth rate and a suitable EBIT/FCFF ratio, he would have arrived at an EBIT multiple of 3.7 times, which is significantly higher than the multiples Mr Piastra deemed appropriate. This difference would undermine the continued use of the CFME Method.[440]

Mr Piastra's 'cross‑check' approach to deriving an EBIT multiple: Risk premium for the uncertainty in overheads

211 Mr Piastra explained the inclusion of an additional risk premium in his WACC estimation which is designated by the Greek letter 'α', accounted for specific company and customer risks in his 'first principles' approach to deriving an EBIT multiple. The total premium was 19.34% and was broken down as follows:

(a) a 5% premium, subjectively assessed by Mr Piastra, relating to 'key customers';

(b) a 5% premium, subjectively assessed by Mr Piastra, for the risk that the Plaintiffs would not be able to achieve the reductions in costs which were included in the 27 August Lizzie; and

(c) a 9.34% premium, derived by reference to US studies of size premia, to account for the fact that the Business was smaller than the entities referenced in Mr Piastra's calculation of 'Beta' (another component of WACC).

212 In mathematical terms, the higher the premia included in a calculation of WACC the lower will be the result of EBIT multiple derived using Mr Piastra's 'first principle' approach. However, the inclusion of a specific percentage premium does not always reflect the magnitude of the impact on the value of the Business of that premium (for example, a 5% premium does not reduce value by 5%).

213 The Experts disagree on the appropriate total additional risk premium to include in the WACC calculation. Both Experts agree that the 9.34% premium for size was reasonably used by Mr Piastra, however, Mr Ross concluded that the other two components were not appropriate.

214 Mr Piastra adopted a risk premium of 19.34% when assessing an appropriate market multiple for the Business. Mr Piastra included a 5% customer risk premium to account for the Business' historical reliance on two key customers, Woolworths and Coles. This premium reflects the risk that the Business might not be able to maintain its relationships with these major customers or recover sales lost through the Coles channel.

215 Mr Piastra adopted the beta assumption in estimating his WACC (discount rate) which was based on a single comparable company (Maggie Beer Holdings Limited). Mr Piastra assumed that the risks faced by the Business were incremental to the risk faced by Maggie Beer Holdings. In circumstances where the Business' key customers were shifting IXL's products to a less favourable shelf position which risks further worsening the relationship between the Business and the customer. Accordingly, Mr Piastra maintains his position that a 5% risk premium is appropriate.

216 The risk premium of 19.34% included an incremental risk premium of 5% to reflect the Business' historical relance on two key customers, Woolworths and Coles. The business revenues are negatively impacted by the decision of Woolworth and Coles after they decided to change the position of the product on their shelf. For this reason Mr Piastra adopted an incremental alpha of 5%.

217 Mr Piastra recommends that the Business requires sales relationship capabilities to manage the Coles and Woolworths sales channels and suggests the Business hire or outsource an agency to manage this, which was previously covered in the TSA.

218 The issue of overhead risk and the associated risk premium related to the Plaintiffs' potential increased overhead expenses. The 27 August Lizzie had projected certain reductions or exclusions in overhead costs. However, there was a concern that if these reductions/exclusions were not realised, the Plaintiffs might face additional overhead expenses.

219 The risk premium of 19.34% included a 5% incremental risk premium to reflect the uncertainty regarding the overhead costs. The 27 August Lizzie, which accounted for overhead reductions, introduced a risk that if the Business could not achieve these reductions, the Plaintiffs would incur higher overhead expenses. Mr Piastra disagreed with Mr Ross' view that the uncertainty in overheads directly affected the EBIT projections. According to Mr Piastra, Mr Ross was conflating two distinct risks:

(a) the risk that the financial records provided by the seller were incorrect, due to HJF's accounting being integrated with SPC's, making it hard to separate records accurately; and

(b) the risk that, as a standalone business, the buyer might have to spend more on overheads than what the seller had disclosed.

220 Despite the differences in interpretation, Mr Piastra maintained that the overall risk premium of 19.34%, considering key customer risk, overhead risk, and business size, was reasonable and appropriate.

221 Mr Ross' opinion differs from Mr Piastra's adoption of the two relevant components of the total additional risk premium. Mr Ross noted that Mr Piastra calculated the WACC by applying an additional risk premium of 19.34%, which includes 5% for key customer risks, 5% for uncertainty in overheads, and 9.34% for a size premium. Regarding these adjustments:

(a) In Mr Ross' opinion, this risk applies to any food retailer distributing through supermarkets in Australia, given the near oligopolistic nature of the market. As market multiples likely already account for this risk, Mr Ross finds the 5% adjustment subjective and lacking an objective basis, deeming it unnecessary.

(b) Mr Ross notes that this adjustment, intended to address potential inaccuracies in EBIT, creates an inconsistency when applying an implied multiple to adjusted EBIT. Since the uncertainty is already considered in the multiple, adding a separate 5% adjustment is redundant. Mr Ross criticises the figure as subjective and unsupported by scientific evidence, also viewing it as unnecessary.

222 Mr Ross' opinion on Mr Piastra's discussion regarding his selection of beta and the necessity of a 5% premium for customer relationship risk is as follows:

(a) It is not usual valuation practice to derive a beta based on just one entity, as this assumes that its risks and growth expectations are identical to those of the entity being valued. Instead, valuers typically use data from a range of comparable entities. Mr Ross highlights that the risks involved are similar to those mentioned by Professor Damodaran when discussing the 'misuse' of market multiples, which Mr Piastra relies on in his analysis.

(b) Mr Piastra's reliance on a single entity for the basis of his beta input assumes that Maggie Beer Holdings is not a sufficiently comparable company to rely on its beta without making additional (arbitrary) adjustment for perceived differences in key customer risk. Since Mr Piastra considers Maggie Beer Holdings an unreliable comparison due to these perceived differences, it is unclear to Mr Ross why Mr Piastra relies on its market metrics or how he determines the premium needed to address only the key customer risk.

(c) Although Mr Ross is unable to disclose specific details in the Joint Expert Report, in 2024 Mr Ross confirms that he was engaged by a legal representative for Maggie Beer Holding regarding a shareholder dispute. Mr Ross agrees with Mr Piastra that the risks and growth prospects of Maggie Beer Holding differ significantly from those of the Business in question, citing factors such as key customer risks and differences in business models. In Mr Ross' opinion, these fundamental differences make it highly unlikely that Maggie Beer Holding's risks and growth prospects would align with the Business. Since Mr Piastra does not explain how his risk premia account for these differences, Mr Ross believes the entire basis of Mr Piastra's 'cross check' approach is flawed.

223 Mr Ross rejects Mr Piastra's view that he was confused by two different risks when responding to the issues raised in paragraph 7.9.8 of the Joint Expert Report. Mr Ross' view is that, in relying on the EBIT figures recorded in the 27 August Lizzie to derive an implied EBIT multiple for calculating true value, the EBIT amount adopted by Mr Piastra included both the alleged misstatements in the COGS referenced in his reports and estimates of the potential reduction in other operating expenses under a new owner of the Business. In Mr Ross' opinion, the risks associated with inaccuracies in the EBIT figures in the 27 August Lizzie, both generally and in relation to specific matters addressed by Mr Piastra, were thoroughly disclosed to the Plaintiffs by both the Defendants and KPMG in the KPMG Report. Additionally, Mr Ross considers it self‑evident that there were risks associated with the estimates of potential cost savings. In Mr Ross' view, these risks were factored into the $8 million the Plaintiffs paid for all the assets, which would include any amount attributable to the Business. Furthermore, in Mr Ross' view, the approach adopted by Mr Piastra to this issue rests on an implicit assumption that the price paid by the Plaintiffs for the assets they acquired did not reflect both uncertainties and that, as a result, that price can be used to derive an EBIT multiple for later use in establishing true value.

(a) The 'first principles' approach adopted by Mr Piastra has no substantial basis in generally accepted valuation theory or practice.

(b) Mr Piastra erred on application of the 'first principles' approach which involved the adoption of the wrong tax rate and reliance for his beta measure on a single comparable company and unsubstantial allowance for risk premia which are unnecessary because the risk to which he refers are inherent in most of the food manufacturer's businesses. The Plaintiff was informed of the risks before purchasing the Business and their decision on purchase price.

(c) Based on these considerations, Mr Piastra's 'first principles' approach do not provide support for the implied multiple that Mr Piastra derived by direct reference to the sale price of the Business and the amounts recorded for EBIT in the 27 August Lizzie, except to the extent that both those outcomes and those implied multiples likely reflect the same risks which the Plaintiffs were aware of these factors when they made their decision on price and purchase of the Business.

225 Though it is strictly unnecessary to decide, I would have found the Plaintiffs have failed to establish, let alone quantify, loss and damage. Relief under s 236 of the ACL requires proof both of the fact a plaintiff has suffered loss and a quantification of that loss,[441] and critically that the loss sustained arises 'because of' the conduct of the person whose conduct constitutes a contravention.[442] The Plaintiffs point to the fact that they are not required to establish the whole of their loss or damage is referable to the contravening conduct; rather, if loss or damage is found, it is for the Defendants to establish what component of that loss or damage is referable to some act or event other than their contravening conduct and not for the Plaintiffs to establish the precise components referable to that conduct.[443]

226 The Defendants suggest the Plaintiffs have sought to characterise their case as a 'no transaction case'.[444] The Defendants submitted that it was a distraction to regard it as such. In their submission, and as I have found above,[445] the Plaintiffs were interested in the Business because of the Land that would be sold as part of the Business.

227 The parties appear to be in agreement that the relevant measure of damages in this case, being one where alleged misleading or deceptive conduct has induced a person to buy a business, would be that outlined in Kizbeau.[446] Relevantly, the Court there observed:[447]

In an action for damages for deceit for inducing a person to enter a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s 52 [Trade Practices Act 1974 (Cth)] the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date. A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement. Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose. Thus, the takings of a business subsequent to purchase are generally admissible, not only to prove that a representation concerning the takings was false but also to prove the true value of the business as at the date of purchase. Even when some difference exists between the conditions under which the business was conducted before and after purchase, evidence of subsequent takings may be admissible, "subject to due allowance being made for any differences in relevant conditions". But if it is established that the decline in takings has been caused by business ineptitude or unexpected competition, evidence of subsequent takings is not admissible to prove the value of the business as at that date, events such as ineptitude and unexpected competition being regarded as supervening events.

228 This approach, as submitted by the Plaintiffs,[448] is a guide,[449] and the Court's approach should be flexible and best adapted to give a claimant an amount that will most fairly compensate for the wrong suffered.[450] The Defendants point also to an alternative approach; being the 'left in the purchaser's hands' approach which measures loss by reference to the difference between the purchase price and the value of a business as at the date of trial.[451]

• the Court must value the Business at the time of acquisition and can, and should, take account of the financial experience after acquisition;[452]
• Mr Piastra has set out the losses derived from the management accounts (which represent the best evidence of the value of the Business prior to acquisition)[453] as follows:[454]

• there has been no material changes to the way the Business was conducted prior to the IXL line being discontinued;[455]
• the best evidence as to how the plant and equipment should be valued is provided by the attempts of Mr Hickey to sell that plant or equipment, an undertaking which has realised a total of $296,458;[456]
• the best estimate of loss is that the Plaintiffs paid $8 million to acquire assets, the true value of which is $6,848,858 - a loss of $1,151,142. To this figure, $50,000 ought be added representing the sum paid to the selling agent for the IXL business;[457]
• Mr Piastra's alternative approach to calculating the value of the Business is one which substitutes an actual (or close to actual) figure for the direct labour costs and otherwise assumes that the balance of the costs as set out in the 27 August Lizzie are accurate;[458]
• this alternate approach assumes the correctness of the 27 August Lizzie, which the parties agree may not be, and most likely is not, correct.[459] Adopting the Opteon valuation, Mr Piastra opines that the value of the Business as at the date of acquisition is in the range of $201,414 to $454,590 (without including the asset value of the Land and water rights);[460]
• the Defendants have not established that trading losses suffered after acquisition were referable to a supervening cause. Mr Piastra has calculated these losses as follows: to 31 March 2020 - $139,800; to 31 March 2021 - $3,729,667; to 30 September 2021 - $7,004,950;[461] and
• the third period (to 30 September 2021) is the most appropriate period for the assessment of consequential loss in circumstances where no material change to the Business was made prior to July 2021 and in which the change that was instituted, being the discontinuing of the IXL jam line, commenced and finished in August and September 2021.[462]

230 The Defendants submit there is 'no evidence in this case as to what the Plaintiffs allege to be the true value of the company at the date of purchase, nor any evidence of its value as at the date of trial. The same is true of the Land and the water rights.'[463] Specifically, the Defendants submit:

• the Plaintiffs claim damages amounting to $8,206,092 calculated in the following manner:[464]

• the valuation assigned to assets under the BPA is irrelevant to the assessment of damages;[465]
• the valuation of the Land and water rights is as at 22 October 2019, the date on which the BPA was signed. There is no evidence of the value of these assets at the date of completion or at the date of trial;[466]
• the valuation of the intellectual property is as at 20 December 2024;[467]
• the commission on the sale of the intellectual property is at best a consequential loss and unrelated to either value of the Business as at the date of acquisition or the date of trial;[468]
• the consequential loss claim suffers from a fundamental issue in that the Plaintiffs are operating at least some of the Business, profitably, up to the date of trial. Therefore, any profits or benefits accrued after the Plaintiffs' preferred date, 21 September 2021, must be offset by those claimed losses. There is no evidence about this;[469]
• there is no evidence as to the value of the Business as at the date of trial;[470]
• Messrs Pretty, Loi, and Khai were all aware at the time of purchasing the Business that the sales of IXL and Taylor's lines were decreasing;[471]
• the Plaintiffs' evidence is that at the time of completion, both the IXL and Taylor's lines were profitable;[472]
• the Plaintiffs' evidence does not address standalone costs incurred by the Business after completion. There is simply no evidence as to what these costs were;[473]
• KPMG advised that the Plaintiffs would require a production planner, post‑separation, at a cost of $100,000. This cannot be attributed to SPC;[474]
• the Plaintiffs incurred additional costs of engaging SPC under the TSA;[475]
• the Plaintiffs have led no evidence as to the date or scale of the losses suffered due to losing two major customers after the Plaintiffs' acquisition of the Business. In any event, Mr Pretty accepted that this was an inherent risk of doing business,[476] and these losses cannot be said to be caused because of SPC's conduct;[477]
• the Plaintiffs' evidence does not address the impact of COVID on the Business. Mr Ross' view was that COVID did not increase sales because sales dropped around the time of COVID;[478]
• the Plaintiffs' evidence established that the loss of the Kellogg's line led directly to redundancies. The Plaintiffs have not led evidence about when this occurred or the associated expenses;[479]
• Mr Pretty gave evidence that the market for jam generally had declined due to competition,[480] and that the reasons for discontinuing the IXL line included a declining market due to intense competition from overseas importers and other local competition, in addition to the low margin of IXL products.[481] These losses cannot be attributed to the Defendants;
• the COGS greatly increased post‑acquisition. The Plaintiffs have not explained why this occurred. The Court should not attribute this increase in the COGS to the Defendants without a solid evidentiary basis;[482]
• after completion, the Plaintiffs employed a maintenance engineer who had not been employed by SPC;[483]
• the Plaintiffs have not led any evidence providing details of any margin or profits derived from production of jam under a contracting arrangement with Aussie Growers, after ceasing the IXL jam line;[484] and
• there is no evidence as to any losses incurred by the misallocated sugar entries in the PO Summary, specifically what the Plaintiffs actually spent on sugar or how it should have been allocated between IXL and Taylor's and the balance of the SPC business.[485]

231 In the event the Plaintiffs establish their ACL claim, the Defendants submit that s 137B of the Competition Consumer Act 2010 should offset any award of damages for contributory negligence.[486] For the preceding reasons, any issue of contributory negligence is not a live issue and not one addressed in any detail. Nevertheless, as these reasons indicate, I am of the view that the Plaintiffs did effectively ignore the very clear and significant overarching warning in the KPMG Report as to the unreliability of the financial information[487] and, somewhat cavalierly it seems, passed a bright yellow warning light.

232 Mr Piastra has faithfully adopted and applied his instructions in answering Questions 1-‍5. The problem with his evidence, ultimately, lies in his instructions. The various criticisms made by Mr Ross, outlined above, cast sufficient doubt on the assumptions and methodology adopted, and conclusions reached, by Mr Piastra that I am unable to accept his evidence on the balance of probabilities. I agree with Mr Ross that there is not reliable information on which to calculate the components of COGS. Mr Ross puts it best when he notes that Mr Piastra's instructions establish only that COGS and EBIT amounts can reconcile, in 2019, to the 27 August Lizzie. It would be a quantum leap to then assume the 27 August Lizzie definitively records the COGS or EBIT in the relevant years, for the Kyabram site.

233 It seems, to some extent, the Plaintiffs acknowledged that Mr Piastra's approach in Questions 1-‍3 was problematic given that they highlighted, as a difficulty with the approach, the fact that the parties were 'in heated agreement that the balance of the costs set out in [the 27 August Lizzie] may not and most likely do not reflect the actual costs of the Business.' This difficulty necessarily impacts the reliability of Mr Piastra's answers to Question 5, given it asks him to provide an opinion on the value of the Business and its intellectual property using the adjusted EBIT he had calculated in Question 3 which he was instructed to assume is correct. Similar issues infect Mr Piastra's approach to Question 4. I agree with Mr Ross that access to further information and records would have negated the need to rely on various assumptions made by Mr Piastra, and also, more crucially, that Mr Piastra's calculations of loss are incomplete as they do not incorporate all aspects of the transaction which actually occurred (relying, instead, on an instructed alternative transaction). More generally, I accept the reasons given by Mr Ross as to why Mr Piastra's assessment of loss in respect of Question 4 is not reliable.

234 As is clear, the Court is required to determine if there is a sufficient nexus between the misleading or deceptive conduct and the loss suffered.[488] The misleading or deceptive conduct must have materially contributed to the claimant's loss and damage; it need not be the sole or even dominant cause.[489]

235 However, as indicated in the preceding reasons,[490] the Plaintiffs have not established reliance, or any reasonable reliance; a crucial element in their claim. Consequently, considerations of causation between the alleged misleading or deceptive conduct, or alleged breach of warranty, and the loss claimed do not arise.

236 For the preceding reasons, there will be orders in favour of the Defendants dismissing the Plaintiffs' claims.

237 I reserve the question of costs and will hear the parties further on this issue in the absence of agreement.

THE HOLSTEIN MILK COMPANY (AUSTRALIA) PTY LTD (ACN 622 076 715)

SHEPPARTON PARTNERS COLLECTIVE KP PTY LTD (ACN 633 532 608)

SHEPPARTON PARTNERS COLLECTIVE OPERATIONS PTY LTD (ACN 633 532 162)

SHEPPARTON PARTNERS COLLECTIVE IP PTY LTD (ACN 633 532 135)

[3] Disclosure letter dated 21 October 2019, CB1610.

[4] Project Nectar Information Memorandum, CB1308.

[6] Proposed Farm Investment by Holstein Milk, CB1351, 1353; Board Approval Memo dated 13 February 2019, CB1363.

[49] Defendants' Closing Submissions (21 February 2025), [33].

[50] Defendants' Closing Submissions (21 February 2025), [34]-[37].

[51] See below, [40]-[45] and [98].

[56] T157:6-27; and see above, [31] and also below, [40]-[44] and [97].

[57] Plaintiffs' Outline of Closing Submissions (21 February 2025), [69]-[73], [75].

[58] Defendants' Closing Submissions (21 February 2025), [38]-[40].

[59] See above, [28].

[60] CB1579 (referring to the KPMG Report, 33).

[61] CB 1580 (referring to the KPMG Report, 34).

[63] See above, [31].

[64] Defendants' Closing Submissions (21 February 2025), [43].

[65] Defendants' Closing Submissions (21 February 2025), particularly [45]-[65].

[85] In fact, for the 14 weeks from 17 December 2019 to 31 March 2020, the annualised value is above $1 million; T319:9-27.

[89] The project director was identified as Mancel Hickey, who fulfilled three roles as CEO of Henry Jones Foods, CEO of Goulburn Valley Creamery and CEO of St David Dairy, T352:5-10. The plaintiffs have not disclosed how his fee was allocated across his three different roles.

[97] Plaintiffs' Outline of Closing Submissions (21 February 2025), [80]-[86].

[105] See Amended Statement of Claim, [25] which pleads and particularises as follows:

By reason of the matters alleged at paragraphs 15-17 and 20 above, the Defendants breached that warranty by:

(a) failing to exercise reasonable care and skill in preparing the spreadsheet titled 'RCT - PO summary' such that omitted a significant expense of the Business' manufacturing process, namely sugar;

(b) failing to exercise reasonable care in preparing the profit and loss such that it omitted a significant expense of the Business' manufacturing process, namely personnel costs;

(c) failing, refusing or neglecting to review or adequately review the accuracy of the information contained in either the RCT - PO summary spreadsheet or the profit and loss, notwithstanding they were made aware of the difficulties KPMG were having in reconciling the information there provided.

The Defendants were made aware of potential errors in the accounts by emails sent by Mr Erikson to Mr Allen on 21 August 2019 and 26 August 2019, copies of which are in the possession of the Plaintiffs' solicitors and may be inspected by appointment.

[106] See Amended Statement of Claim, [25(c)].

[108] See Plaintiffs' Outline of Closing Submissions (21 February 2025), [89]-[91].

[109] See Amended Statement of Claim, [25].

[110] Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, [14] (Miller). See also Skinner v Redmond Family Holdings Pty Ltd [2017] NSWCA 329; (2017) 123 ACSR 593, [85] (Gleeson JA) (Macfarlan JA and Barrett AJA agreeing).

[111] See Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8; (2023) 277 CLR 186 (Self Care); Inruse Pty Limited as trustee for the 224 Hinxman Trust v Equity Lenders Pty Ltd [2024] FCA 1434 (Inruse), [126].

[114] A reference to s 52 of the Trade Practices Act 1974 (Cth), the predecessor of s 18 drafted in the same terms.

[115] (2009) 238 CLR 304, 321 [32] (Defendants' emphasis).

[116] [1982] HCA 44; (1982) 149 CLR 191, 199 (Defendants' emphasis).

[117] [2024] FCAFC 121.

[118] Elanor Funds Management Ltd v Alceon Group Pty Ltd [2024] FCAFC 121, [158]-[159].

[119] [2013] HCA 54; (2013) 250 CLR 640, 651 [39].

[120] [1990] FCA 57; (1990) 94 ALR 719, [91].

[121] [2020] NSWCA 289.

[122] [2020] NSWCA 289, [151].

[123] See above, [56].

[124] See above, [31].

[125] See above, [31].

[126] See Plaintiffs' Outline of Closing Submissions (21 February 2025), [21]-[22].

[127] Plaintiffs' Outline of Closing Submissions (21 February 2025), [23].

[128] CB1900, 1901, Attachments 31-33; T281.8-18; T282.5-12.

[129] See above, [65].

[130] [2024] FCAFC 121, [158].

[131] Plaintiffs' Outline of Closing Submissions (21 February 2025), [28]-[32].

[132] Plaintiffs' Outline of Closing Submissions (21 February 2025), [30].

[137] Transcript 366 line 6-12, 367 lines 8, 13.

[140] See the Expert Report of Mr Nicolas Piastra filed 19 May 2022 at 5.3.1-5.3.7, CB306-308.

[145] Relying on Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, 291.

[146] [1995] HCA 4; (1995) 184 CLR 281.

[147] See Defendant's Closing Submissions (21 February 2025), [152].; Oral closing submissions, T652; and below, [225]-[228] with respect to quantum issues.

[152] Defendants' Closing Submissions (21 February 2025), [116].

[154] Defendants' Closing Submissions (21 February 2025), [117].

[155] Plaintiffs' Outline of Closing Submissions (21 February 2025), [44]-[49].

[157] See, for example, T558; cf the Defendants' submissions in this respect; and, for example, at T609.

[158] See Defendants' closing submissions, T609-10; and see above, [81].

[159] Competition and Consumer Act 2010 Sch 2 (ACL), s 236(1).

[160] Janssen‑Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526, 532 (Lockhart J).

[161] Digi‑Tech (Australia) Ltd v Brand [2004] NSWCA 58, [159] (the Court).

[162] Plaintiffs' Outline of Closing Submissions (21 February 2025), [61]-[64].

[163] In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; 101 ACSR 233, [112], citing Shears v Chisholm [1994] VicRp 75; [1994] 2 VR 535, 648; [1994] VicRp 75; (1994) 9 ACSR 691 per JD Phillips J; Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357; (1999) 43 IPR 545, [11] per Wilcox J, and [45] per Kiefel J.

[164] Gould v Vaggelas (1985) 157 CLR 215, 236, cited recently with approval in Addenbrooke Pty Ltd v Duncan (No 2) [2017] FCAFC 76; (2017) 121 ACSR 406, [262].

[165] (2001) 2006 CLR 459.

[168] (2002) 210 CLR 109.

[169] Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357; (1999) ANZ Conv R 246, [50] (Kiefel J).

[170] [1988] FCA 413; (1988) 58 FCR 274.

[171] [1988] FCA 245, [22].

[172] [2001] HCA 52; (2001) 206 CLR 459, 504-5 [138].

[173] Plaintiffs' Outline of Closing Submissions (21 February 2025), [65]-[73], [75].

[174] Defendants' Closing Submissions (21 February 2025), [122].

[177] See above, [31].

[178] See Plaintiffs' Outline of Closing Submissions (21 February 2025), [50]-[59].

[179] [2013] HCA 54; (2013) 250 CLR 640, 651, 652, [39].

[180] [1990] FCA 57; (1990) 94 ALR 719.

[181] [2020] NSWCA 289.

[187] Plaintiffs' Outline of Closing Submissions (21 February 2025), [50]-[59].

[188] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191.

[189] Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592.

[190] Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, [25].

[191] Australian Competition and Consumer Commission v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd [2019] FCA 676; (2019) 371 ALR 396 (Bromwich J), [33(1)].

[192] National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369, [55]; Ripani v Century Legend Pty Ltd [2022] FCA 242, [75].

[193] Defendants' Closing Submissions (21 February 2025), [52].

[194] Defendants' Closing Submissions (21 February 2025), [53].

[195] Defendants' Closing Submissions (21 February 2025), [54].

[196] See above, [31].

[197] Plaintiffs' Outline of Closing Submissions (21 February 2025), [82]; and see also [80]-[86].

[198] Plaintiffs' Outline of Closing Submissions (21 February 2025), [55]-[59].

[199] See above, [43].

[200] See above, [31].

[201] Plaintiffs' Outline of Closing Submissions (21 February 2025), [80]-[86], particularly.

[202] And see, particularly, [45] as to the lack of evidence of any knowledge or reliance by the actual decision makers, the Board of Directors of Holstein Malaysia, on the material and other matters claimed to amount to misleading or deceptive conduct.

[203] Plaintiffs' Outline of Closing Submissions (21 February 2025), [50]-[59].

[204] [1982] HCA 44; (1982) 149 CLR 191.

[205] Plaintiffs' Outline of Closing Submissions (21 February 2025), [50].

[206] Plaintiffs' Outline of Closing Submissions (21 February 2025), [50]; referring to Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592.

[207] Plaintiffs' Outline of Closing Submissions (21 February 2025), [51].

[208] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304, [25].

[209] Australian Competition and Consumer Commission v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd [2019] FCA 676; 371 ALR 396 per Bromwich J, [33(1)].

[210] National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; 49 ACSR 369, [55]; Ripani v Century Legend Pty Ltd [2022] FCA 242, [75].

[211] Plaintiffs' Outline of Closing Submissions (21 February 2025), [52].

[212] Plaintiffs' Outline of Closing Submissions (21 February 2025), [53]-[54].

[213] Plaintiffs' Outline of Closing Submissions (21 February 2025), [55]-[59].

[244] Mr Ross explained that standard costing was an estimate of costs made at the start of the year but was not something used for financial reporting purposes. Additionally, the standard costing model would, if being conducted appropriately, differ from year to year. He agreed that different outcomes would occur using different estimated standard costs models for different years. See T437:15-439:17.

[246] T453:1-12; Mr Piastra agreeing at T453:13-15.

[249] Joint Expert Report, 24; First Ross Report, 19.

[253] First Ross Report, 17; Joint Expert Report, 16-17.

[254] Joint Expert Report, 17; First Piastra Report, 13.

[263] Joint Expert Report, 25; First Ross Report.

[286] See generally Joint Expert Report, 28-30.

[322] Joint Expert Report, 36; T487:9-10, 13-14.

[331] Joint Expert Report, 37; T502:11-14; T503:6-13.

[332] Joint Expert Report, 36; T505:3-9.

[336] Joint Expert Report, 38; T486.6-8.

[337] Joint Expert Report, 38; T508:22-25.

[441] Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd [2019] VSCA 136, [67]-[68].

[442] Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd [2019] VSCA 136, [67]-[68]; ACL s 236(a).

[443] Henville, 482-3 [67]-[70], 506-7 [146]-[148] (McHugh J); 509-10 [160]-[167] (Hayne J); 507 [152] (Gummow J agreeing with McHugh and Hayne JJ).

[444] Defendants' Closing Submissions (21 February 2025), [135]-[136].

[446] [1995] HCA 4; (1995) 184 CLR 281.

[447] Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, 291 (Brennan, Deane, Dawson, Gaudron and McHugh JJ).

[448] Plaintiffs' Outline of Closing Submissions (21 February 2025), [101]-[102].

[449] HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640, 667-8 [65] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ).

[450] Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, [3912] (Elliott J).

[451] HTW Valuers, 666-8 [63]-[65] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ).

[452] Plaintiffs' Closing Submissions (21 February 2025), [106].

[453] Plaintiffs' Closing Submissions (21 February 2025), [112].

[455] Plaintiffs' Outline of Closing Submissions (21 February 2025), [110].

[456] Plaintiffs' Outline of Closing Submissions (21 February 2025), [113].

[457] Plaintiffs' Outline of Closing Submissions (21 February 2025), [115].

[458] Plaintiffs' Outline of Closing Submissions (21 February 2025), [116].

[459] Plaintiffs' Outline of Closing Submissions (21 February 2025), [117].

[460] Plaintiffs' Closing Submissions (21 February 2025), [118].

[461] Plaintiffs' Outline of Closing Submissions (21 February 2025), [121]-[124].

[462] Plaintiffs' Outline of Closing Submissions (21 February 2025), [125]-[126].

[463] Defendants' Closing Submissions (21 February 2025), [141].

[464] Defendants' Closing Submissions (21 February 2025), [147].

[465] Defendants' Closing Submissions (21 February 2025), [148].

[466] Defendants' Closing Submissions (21 February 2025), [149(a)-(b)].

[467] Defendants' Closing Submissions (21 February 2025), [149(c)].

[468] Defendants' Closing Submissions (21 February 2025), [149(d)].

[469] Defendants' Closing Submissions (21 February 2025), [150], [152(p)].

[470] Defendants' Closing Submissions (21 February 2025), [152(b)].

[471] Defendants' Closing Submissions (21 February 2025), [152(c)].

[472] Defendants' Closing Submissions (21 February 2025), [152(d)].

[473] Defendants' Closing Submissions (21 February 2025), [152(e)].

[474] Defendants' Closing Submissions (21 February 2025), [152(f)].

[475] Defendants' Closing Submissions (21 February 2025), [152(g)].

[477] Defendants' Closing Submissions (21 February 2025), [152(h)].

[478] Defendants' Closing Submissions (21 February 2025), [152(i)].

[479] Defendants' Closing Submissions (21 February 2025), [152(j)].

[480] Defendants' Closing Submissions (21 February 2025), [52(j)]; citing T159:4-20.

[482] Defendants' Closing Submissions (21 February 2025), [152(l)].

[483] Defendants' Closing Submissions (21 February 2025), [152(n)].

[484] Defendants' Closing Submissions (21 February 2025), [152(o)].

[485] Defendants' Closing Submissions (21 February 2025), [152(q)].

[486] Defendants' Closing Submissions (21 February 2025), [153].

[487] See above, [31].

[488] Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 525 (Mason CJ, Dawson, Gaudron and McHugh JJ).

[489] Henville, 493 [106] (McHugh J).

[490] See above, particularly [41] and [89]-[91].