Henry Jones Food Pty Ltd v Shepparton Partners Collective KP Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT SHEPPARTON

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2021 00939

HENRY JONES FOOD PTY LTD (ACN 636 288 474) (and another according to the attached schedule)	Plaintiff
v
SHEPPARTON PARTNERS COLLECTIVE KP PTY LTD (ACN 633 532 608) (and others according to the attached schedule)	Defendant

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JUDGE:	Croft J
WHERE HELD:	Shepparton
DATES OF HEARING:	17–21 February 2025
DATE OF JUDGMENT:	11 April 2025
CASE MAY BE CITED AS:	Henry Jones Food Pty Ltd v Shepparton Partners Collective KP Pty Ltd
MEDIUM NEUTRAL CITATION:	[2025] VSC 187

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CONSUMER LAW — Misleading or deceptive conduct — Where Plaintiffs allege documents produced during due diligence process prior to the sale of business were misleading or deceptive and breached warranties contained in the Business Purchase Agreement — Allegation that profitability of business was artificially high — Whether alleged representations relied upon — Whether actual decision makers relied upon the alleged representations — Significant warnings regarding accuracy of material relied upon — Reliance or any reasonable reliance not established — Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (2023) 277 CLR 186 — Inruse Pty Limited as trustee for the 224 Hinxman Trust v Equity Lenders Pty Ltd [2024] FCA 1434 — Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 — Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 — Elanor Funds Management Ltd v Alceon Group Pty Ltd [2024] FCAFC 121 — Argy v Blunts & Land Cove Real Estate Pty Ltd (1990) 94 ALR 719 — Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 — Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 — Henville v Walker (2001) 206 CLR 459 — Competition and Consumer Act 2010 sch 2, ss 18, 236.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S Stuckey KC and Mr N Elias	Dawes & Vary Riordan Pty Ltd Solicitors (Shepparton)
For the Defendants	Mr D Weinberger and Mr D Emmerig	Chedid Storey Legal (North Sydney)

HIS HONOUR:

Introduction

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.

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).
[1]CB, Attachment 19.
[2]CB, Attachment 25.

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.

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.

Background and factual matters
Prior to the KPMG Report

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]
[3]Disclosure letter dated 21 October 2019, CB1610.
[4]Project Nectar Information Memorandum, CB1308.

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.
[5]CB1347.

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]
[6]Proposed Farm Investment by Holstein Milk, CB1351, 1353; Board Approval Memo dated 13 February 2019, CB1363.
[7]T125:9–11.

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]
[8]CB2458.
[9]KPMG Report, CB1557.

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]T91:4–13.

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]CB1379.
[12]T131:10–31; T132:1; T207:22–26.
[13]CB1380.

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.
[14]CB1387–8.
[15]CB1310; T182:30–183:2.
[16]CB1402.

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.

[17]CB1430; Attachment 17.

[18]CB1428.

[19]T137:16–19.

[20]T208:31.

[21]T251:27–28.

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]
[22]CB1416.
[23]T137:3–19.
[24]T137:30–138:5.

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]
[25]CB, Attachment 7.
[26]CB1444, 1447, 1448.

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]
[27]CB1448.

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.
[28]CB1447.
[29]CB1450.
[30]CB, Attachment 18.
[31]CB, Attachment 19.

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.

[32]CB1453.

[33]CB1457.

[34]CB1458.

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.
[35]CB1448.
[36]T139:27–31.

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.
[37]CB1468.

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:
[38]CB1492.
[39]CB1499.

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.

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).
[40]CB1501, Attachment 94.

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]
[41]CB1515.
[42]CB1509 (Defendants’ emphasis).

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.

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’.

The assumptions were said to be:

(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.

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.

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]
[43]CB1523, 1529.

The KPMG Report

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]
[44]CB1539.
[45]CB1558.
[46]And see below, [54]–[60].

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:
[47]CB1539, 1547.
[48]CB1555.

(a) raw materials;

(b) manufacturing employees;

(c) fixed overheads allocation; and

(d) variable overheads.

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.

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

33.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:
a.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]
b.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]
c.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]
d.the use of amber and red lights to describe the integrity / confidence of financial information concerning COGS and Indirect Costs respectively [CB 2/1557]
e.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].
f.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].
g.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].
h.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]
i.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]
j.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].
k.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].

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

34.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.
35.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).
36.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.
37.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).
[50]Defendants’ Closing Submissions (21 February 2025), [34]–[37].

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.
Reliance
Prior to the purchase of the Business

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]

[51]See below, [40]–[45] and [98].

[52]T110:3–24.

[53]T111:11–13.

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]
[54]T140:18–24.
[55]T133:10–135:17.
[56]T157:6–27; and see above, [31] and also below, [40]–[44] and [97].

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

69.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.

70.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)

71.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.

73.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.

…
75.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.

The cross‑examination of Mr Loi, however, painted a somewhat different picture, as submitted by the Defendants:[58]
[58]Defendants’ Closing Submissions (21 February 2025), [38]–[40].

38.In cross‑examination which did him no credit, Mr Loi seemed singularly unaware of the contents of the KPMG Report, giving evidence was that:
a.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.
b.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.
c.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.

39.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.
40.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.

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.

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’.

[59]See above, [28].

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).
[60]CB1579 (referring to the KPMG Report, 33).
[61]CB 1580 (referring to the KPMG Report, 34).
[62]See the heading on CB1580.

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.

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]
[63]See above, [31].
[64]Defendants’ Closing Submissions (21 February 2025), [43].

a.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)
b.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).
c.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).
d.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].
e.No fruit supply agreements will transfer to the Buyer as part of the Transaction (CB1564).
f.Kyabram will need to enter into new agreements with flavour houses and 3rd party service providers to develop new products going forward [CB1565].
g.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).
h.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.
Purchase of the Business

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.
[65]Defendants’ Closing Submissions (21 February 2025), particularly [45]–[65].

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.
[66]T123:6–7.
[67]CB1594.
[68]CB1595.

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]
[69]T162:30–163:1.
[70]T324:11–15.
[71]CB1598.
[72]CB1598.
[73]T146:25–27.

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.
[74]CB2786.
[75]T152:3–10.

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.
[76]CB1601, 1607.
[77]T202:14–24; 203:11–19.

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.
[78]T224:16–20.

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]
[79]CB1609.
[80]CB2418.
[81]CB67–138.
[82]T324:12–15.
[83]CB1906, 2035.

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]
[84]CB1937.
[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.

These costs included:

(a) $50,643.76 for ‘depreciation’ (which was not accounted for in the 27 August Lizzie);[86]
[86]T311:24–29; CB1938.

(b) $39,196.52 for ‘factory fees’, being a consultant hired to review factory and quality processes;[87]
[87]T311:30–312:120; CB1938.

(c) $6,353.24 for ‘subscription fees’;[88]
[88]T313:5–14; CB1939.

(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]

[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.

[90]T313:13–315:28; CB1939.

[91]T315:29–317:9; CB1940.

[92]T317:26–31; CB1940.

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.
[93]CB2104.

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]
[94]CB2264.
[95]CB2297.

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.
[96]CB1009.

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

Seller Warranties

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]
[98]CB390.
[99]CB430.

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.
[100]CB2485.
[101]CB 2477.
[102]CB 2477.
[103]CB 2484.

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.

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.

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).

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]
[104]CB390.

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.
[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.
PARTICULARS
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)].
[107]CB1468, 1499.
[108]See Plaintiffs’ Outline of Closing Submissions (21 February 2025), [89]–[91].
[109]See Amended Statement of Claim, [25].

Misleading or deceptive conduct
Legal principles

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.
[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) 123 ACSR 593, [85] (Gleeson JA) (Macfarlan JA and Barrett AJA agreeing).

Moreover, as the Defendants observe, there are four steps in determining whether a person has breached s 18 of the ACL:[111]
[111]See Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (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].

(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]

[112]Self Care, 225–6 [85].

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]
[113]Inruse, [128]–[130].

[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]

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

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.

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

[116](1982) 149 CLR 191, 199 (Defendants’ emphasis).

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]
[117][2024] FCAFC 121.
[118]Elanor Funds Management Ltd v Alceon Group Pty Ltd [2024] FCAFC 121, [158]–[159].

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) 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) 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.

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 …

Piastra

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.

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.

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%.

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.

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.

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.

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.

Ross

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.

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.

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.

Mr Ross remains of the opinion that:

(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.

Quantum

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]
[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).

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.
[444]Defendants’ Closing Submissions (21 February 2025), [135]–[136].
[445]See above, [98].

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.

[446](1995) 184 CLR 281.

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

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]
[448]Plaintiffs’ Outline of Closing Submissions (21 February 2025), [101]–[102].
[449]HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (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).

Parties’ submissions

The Plaintiffs submit:

·the Court must value the Business at the time of acquisition and can, and should, take account of the financial experience after acquisition;[452]
[452]Plaintiffs’ Closing Submissions (21 February 2025), [106].
·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]
[453]Plaintiffs’ Closing Submissions (21 February 2025), [112].
[454]First Piastra Report, 25.

·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]

[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].

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

·the Plaintiffs claim damages amounting to $8,206,092 calculated in the following manner:[464]
[464]Defendants’ Closing Submissions (21 February 2025), [147].

·the valuation assigned to assets under the BPA is irrelevant to the assessment of damages;[465]
[465]Defendants’ Closing Submissions (21 February 2025), [148].
·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]
[466]Defendants’ Closing Submissions (21 February 2025), [149(a)–(b)].
·the valuation of the intellectual property is as at 20 December 2024;[467]
[467]Defendants’ Closing Submissions (21 February 2025), [149(c)].
·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]
[468]Defendants’ Closing Submissions (21 February 2025), [149(d)].
·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]
[469]Defendants’ Closing Submissions (21 February 2025), [150], [152(p)].
·there is no evidence as to the value of the Business as at the date of trial;[470]
[470]Defendants’ Closing Submissions (21 February 2025), [152(b)].
·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]
[471]Defendants’ Closing Submissions (21 February 2025), [152(c)].
·the Plaintiffs’ evidence is that at the time of completion, both the IXL and Taylor’s lines were profitable;[472]
[472]Defendants’ Closing Submissions (21 February 2025), [152(d)].
·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]
[473]Defendants’ Closing Submissions (21 February 2025), [152(e)].
·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]
[474]Defendants’ Closing Submissions (21 February 2025), [152(f)].
·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]

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

[476]T155:14–30.

[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.

[481]T159:6–20.

[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)].

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.
[486]Defendants’ Closing Submissions (21 February 2025), [153].
[487]See above, [31].

Conclusions on the expert evidence
Mr Ross’ evidence is preferred

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.

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.

Causation

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]
[488]Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525 (Mason CJ, Dawson, Gaudron and McHugh JJ).
[489]Henville, 493 [106] (McHugh J).

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

Conclusions and Orders

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

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

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SCHEDULE OF PARTIES

S ECI 2021 00939
BETWEEN:
HENRY JONES FOOD PTY LTD (ACN 636 288 474)	First Plaintiff
THE HOLSTEIN MILK COMPANY (AUSTRALIA) PTY LTD (ACN 622 076 715)	Second Plaintiff
‑ and ‑
SHEPPARTON PARTNERS COLLECTIVE KP PTY LTD (ACN 633 532 608)	First Defendant
SHEPPARTON PARTNERS COLLECTIVE OPERATIONS PTY LTD (ACN 633 532 162)	Second Defendant
SHEPPARTON PARTNERS COLLECTIVE IP PTY LTD (ACN 633 532 135)	Third Defendant

[2025] VSC 187

11 April 2025