Federal Court of Australia

Watts v Chopsonion Pty Ltd (Controllers Appointed) [2026] FCAFC 99

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The cross-appeal be dismissed.

3.    The orders of the primary judge of 7 May 2025 be set aside and in lieu thereof it be ordered that the applicants’ claims against the respondents be dismissed.

4.    The orders of the primary judge of 16 June 2025 be set aside.

5.    The respondents pay the appellants’ costs of:

(a)    the proceedings at first instance; and

(b)    the appeal,

to be taxed or as agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

CHARLESWORTH AND JACKSON JJ:

1    We have had the considerable benefit of reading the reasons of Derrington J in draft. In what follows, we adopt the defined terms in his Honour’s reasons.

2    We agree with Derrington J, generally for the reasons that his Honour gives in respect of the appeal on liability, that the primary judge was incorrect to conclude that the appellants engaged in misleading or deceptive conduct, that they were involved in contravening conduct on the part of Ms and Mr Sharpe including breach of their directors’ duties, that they deceived the respondents, or that they knowingly assisted in a dishonest and fraudulent design.

3    As Derrington J has observed, the findings of the primary judge were based in part on his Honour’s impressions of the witnesses in the course of their oral testimony. However, the credit findings were also informed by an erroneous assessment of the objective facts, so warranting appellate intervention.

4    Ground 1 of the appeal should be upheld.

5    It is important to appreciate the many difficulties that confronted the primary judge, given the unsatisfactory manner in which the parties approached the case at first instance. Derrington J refers to the disorganised way in which the parties presented the evidence and the numerous ways in which they failed to confront the real issues in the proceeding. The lack of assistance the primary judge received at trial is a major contributing factor to the outcome of this appeal.

6    We also agree with Derrington J, for the reasons his Honour gives, that the appellants would have established the ‘second error’ concerning causation, had the pleaded contraventions been proven. Ground 2 of the appeal should be upheld to that extent.

7    However, we respectfully differ from Derrington J in respect of the ‘first error’ as to causation for two reasons.

8    First, we do not accept the appellants’ submission that the primary judge ought to have found that, in a counterfactual scenario in which the appellants did not lend their assistance, Ms Sharpe would still have effectuated a fraud on the respondents. The occasion to consider a counterfactual of that kind would only arise if it were first found that Ms Sharpe did indeed garner the assistance of the appellants to effectuate the Design in the manner pleaded, or a like manner. That is, only that finding (contrary to this Court’s actual conclusion on ground 1) would require the Court to compare the actual consequences with the outcome had the appellants’ assistance not been forthcoming.

9    If the starting point is that Ms Sharpe did obtain Mr Watts’s help, we would be reluctant to conclude that she could and would have misled the respondents without that help. Any finding that Ms Sharpe did in fact draw on the assistance of Mr Watts would readily support an inference that she was either unwilling or unable to effectuate her design without him. In our view, there would be insufficient evidence to displace that inference, if the analysis were to commence with the proposition that Mr Watts had indeed contributed to the contravening conduct.

10    If we are wrong about that, we would still respectfully differ from Derrington J in respect of the first error as to causation. The reason for that is complementary to the reason just given because it proceeds on the contrary assumption that the appellants were involved in Ms Sharpe’s dishonest scheme. It does not require their involvement to be excised for the counterfactual to be posited. But on that different assumption, the correct counterfactual is also different: it is that the principal wrongdoing is assumed not to have occurred.

11    The point is best explained by focussing first on the allegations that the appellants were ‘involved’ in misleading or deceptive conduct of Ms Sharpe within the meaning of s 2 of the Australian Consumer Law (ACL). To be involved in that sense, it is enough to be ‘in any way, directly or indirectly, knowingly concerned in the contravention’: para (c) of the definition in s 2.

12    On the assumption that Ms Sharpe did obtain Mr Watts’s assistance with her dishonest plan, and on the further assumptions that the assistance took the form of the July 2014 Chains Invoice, the Open Letter and the Deposit Email, and that these documents were misleading, it would follow that Mr Watts and WMM performed multiple acts that contributed to Ms Sharpe’s breaches of s 18 of the ACL: see e.g Leighton Contractors Pty Ltd v Construction, Forestry, Mining and Energy Union [2006] WASC 144 at [25] (Le Miere J). Since Mr Watts knew the true position in relation to the transaction, on these assumptions the appellants were knowingly concerned (at least) in Ms Sharpe’s contraventions.

13    In considering causation here, it must be appreciated that the appellants would thereby be liable for loss or damage that the lenders suffered because of the conduct of Ms Sharpe: see ACL s 236(1). In that scenario, therefore, the analysis is focussed, not on the causal effect of Mr Watts’s involvement, but on the effect of Ms Sharpe’s misleading or deceptive conduct. It follows that the correct counterfactual is not one in which the appellants provided no assistance. It is one in which Ms Sharpe did not engage in the conduct. Disregarding the ‘second error’ for the moment, on this counterfactual, loss was caused by the misleading or deceptive conduct in which Ms Sharpe did engage. As parties who were knowingly concerned in that conduct, the appellants would be liable for that loss. No more need be proved.

14    The relationship between causation of loss and involvement in breaches of statutory directors’ duties under the Corporations Act 2011 (Cth) is less straightforward. There, involvement is effectively deemed to be a contravention: see s 181(2) and s 182(2). So it might be thought that it can act as a cause independently of the principal contravention. Nevertheless, the outcome is probably the same; as Finn, Stone and Perram JJ observed in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [646], the liability of an accessory under s 1317H does not arise from its contraventions of s 181 and s 182, but from the contraventions of the officer of the company. The drafting device in s 181(2) and s 182(2) by which involvement is deemed to be a contravention does not change that.

15    In short, if the conduct of Ms Sharpe did cause the lenders to suffer loss (contrary to this Court’s findings on the second error), and if the appellants were involved in that (contrary to this Court’s conclusions under ground 1), then it is difficult to see how the appellants could avoid liability for that loss as accessories to Ms Sharpe’s contraventions.

16    The cross appeal ought to be dismissed for the reasons given by Derrington J.

Associate:

Dated:    30 July 2026

REASONS FOR JUDGMENT

DERRINGTON J:

INTRODUCTION

17    These appeals are from two decisions concerning alleged misrepresentations said to have induced certain persons, referred to as “the Lenders”, to provide a loan facility to Chopsonion Pty Ltd (Chopsonion). The central figure in the relevant controversy was Ms Wendy Sharpe who, though bankrupt at the time, acted as the company’s director. It seems undoubted that she engaged in the making of fraudulent representations, including by the falsification of documents, to induce the Lenders to finance Chopsonion’s purchase of certain abattoir plant and machinery from Watts Meat Machinery Pty Ltd (WMM). That plant and machinery is referred to as the “Chains”.

18    The Lenders alleged that the appellants – WMM and its sole director, Mr Keith Watts – were “involved” in the conduct of Ms Sharpe and her husband, Mr James Sharpe, and were party to their conspiracy to defraud the Lenders, rendering them derivatively liable for the Lenders’ resulting loss. Allegations are also made that Mr Watts and WMM were directly liable for the alleged losses as a result of their making of certain misrepresentations as part of the alleged fraudulent design.

19    In broad terms, Ms Sharpe and Chopsonion sought to acquire the Chains in New Zealand, arrange their dismantling, packing and transport to Australia, and on-sell them to a third party, FG Agri Pty Ltd (FG Agri). The overall transaction was expected to yield Chopsonion a substantial profit of around $900,000. To fund the acquisition, Chopsonion obtained short-term finance from the Lenders in the amount of $1,175,000 at a monthly interest rate of 4.5% for three months. Although the Chains were acquired and transported to Australia, the proposed on-sale did not proceed, and Chopsonion consequently defaulted on its loan. While the Lenders have, to date, been able to recover an amount equal to the principal sum advanced, at first instance they sought to recover the full amount said to be owing under the facility which they provided, including a substantial amount of default interest.

20    As Chopsonion and Mr and Ms Sharpe were found to be insolvent, the Lenders pursued others alleged to have been involved in the transaction, including Mr Watts and WMM. In related proceedings, they pursued those who had provided what was said to be a disingenuous valuation of the Chains, being Mr Roland Smith and his company, Rolton Ltd (Rolton), on which they claimed to have relied when providing the loan to Chopsonion. They also claimed against a firm of accountants who had produced financial statements relating to Chopsonion which allegedly overstated its financial capacity. Those proceedings were compromised or otherwise dismissed and are not the subject of any appeal.

21    The general thrust of the case against Mr Watts and WMM was that they provided invoices or quotes that overstated the price of the Chains and, after receiving payment, remitted the excess funds to Chopsonion or related entities. It was alleged that this misrepresentation made in the invoice induced the Lenders to advance the loan and thereby caused their loss.

22    Two issues arise on the appeal. The first concerns the veracity of the primary judge’s findings that Mr Watts and/or WMM had misled the Lenders, or were involved in the dishonest conduct of Ms Sharpe. That is an intensely factual question, and its answer necessitates a consideration of the substantial evidence presented to the primary judge during the 14 days of hearing. The second is whether any such conduct caused the Lenders’ loss, and more particularly, whether the Lenders would have entered into the loan transaction absent the alleged misrepresentations by Mr Watts and WMM.

23    Before turning to these issues, it is necessary to observe that the case at trial appeared to have been conducted at an unfortunately high level of generality. This is evident, for example, in the description of that which constituted the Chains. The equipment acquired by WMM from Silver Fern Farms Pty Ltd (Silver Fern Farms) for on-sale to Chopsonion did not constitute two complete “Chains”. Rather, one set was complete, while the other lacked some important components. Although the case was often framed as involving the sale of “two Chains” from WMM to Chopsonion, the reality is that WMM sold additional equipment so that Chopsonion could offer two complete Chains to FG Agri.

24    This is but one of several examples where there was a distinct lack of factual precision. Indeed, the following recitation of the evidence reveals that the case proceeded without any apparent careful analysis of the facts or the transactions involved.

25    Finally, it is also appropriate to note at this early stage that the case advanced was that Ms Sharpe, together with others including Mr Watts and WMM, engaged in a scheme to obtain funding which was more than necessary for the purchase of the Chains so that some amounts could be inappropriately siphoned off to Chopsonion and related companies. However, considered as a whole, the evidence indicates that Ms Sharpe had identified what she believed to be an excellent profit-making opportunity for Chopsonion in the buying and selling of the Chains. In this respect, FG Agri appears to have been a genuine arm’s length purchaser capable of paying a good price for the Chains. Though there may have been some intent by Ms Sharpe to divert funds in the carrying out of the transaction, it is difficult to conclude that this was the sole or even a primary object of her dealings.

Background

26    The appellants seek to overturn certain fundamental factual findings relating to their alleged responsibility for the Lenders’ losses. For reasons that will become apparent, that involves an evaluation of the primary judge’s findings as to Mr Watts’ credit and, in turn, a close examination of the evidence underpinning those findings. As the veracity of Mr Watts’ evidence was a central issue at trial, it is necessary to undertake a detailed examination of a large portion of the material adduced by the parties at trial.

27    The following outline of the background facts provides merely a general overview of the circumstances surrounding the transactions. They are developed more fully subsequently when dealing with the respective parties’ contentions. They are also explained and contextualised in the discussion of the primary judge’s reasons.

28    As the second proceedings against Mr Smith and Rolton were dismissed and no appeal was pursued, it is only necessary to briefly refer to the facts underlying that claim. That said, they have some not unimportant relevance to the second ground of appeal.

Dramatis personae

29    There are a number of different persons and entities involved in this matter and it is appropriate to identify them at this initial stage.

30    Mr Watts is the director and controller of WMM. WMM entered into an arrangement to acquire the Chains from Silver Fern Farms, located in Oringi, New Zealand, and then entered into the agreement to sell them to Chopsonion.

31    Chopsonion was relevantly subject to the control of Mr and Ms Sharpe. Though in the period from 8 August 2011 to 17 October 2016, Mr Sharpe was its sole de jure director and secretary, it is undoubted that Ms Sharpe, who was its previous director and an undischarged bankrupt, continued to exercise directorial control in relation to the transactions in issue. It was she who, on behalf of Chopsonion, entered into the agreement to acquire the Chains from WMM, and who also entered into the agreement on its behalf to sell them to FG Agri.

32    Jechbo Pty Ltd (Jechbo) and Annomac Pty Ltd (Annomac) were other companies controlled by Mr and Ms Sharpe during the relevant period. Jechbo, together with Mr Sharpe in his personal capacity, were co-borrowers with Chopsonion of the finance provided by the Lenders.

33    The respondents to the appeal consist mostly of persons who were involved in the lending of some $1.1 million to Chopsonion, being “the Lenders”. They were MEG Investments Pty Ltd, Mr John Charlton Rowley, Red Dog No. 1 Pty Ltd, Mr Richard Willson, Mrs Leigh Willson and R.J.C. Willson Nominees Pty Ltd.

34    The Lenders entered into the agreement to provide finance to Chopsonion through a loan arranger, Private Funds Management Pty Ltd (Private Funds Management), of which Ms Annette How was the sole director.

35    Rolton is a New Zealand company, the sole director of which is Mr Smith.

36    Silver Fern Farms operated an abattoir at Dannevirke in New Zealand, referred to as, “the Oringi Plant”. It was the original vendor of the (partially complete) Chains and sold them to WMM.

37    FG Agri is a company located in Australia which entered into the agreement with Chopsonion to purchase the Chains on their importation into Australia.

Silver Fern Farms’ disposal of abattoir machinery

38    In 2012, Silver Ferns Farms sold its Oringi abattoir, as a result of which it sought to dispose of the plant and machinery for which it had no remaining use. That was the plant and machinery which was used to move carcases around the factory environment and to process it.

39    Mr Watts was engaged by Silver Fern Farms to sell the Chains and, in 2013, Mr Smith of Rolton Ltd, was hired by Silver Fern Farms to deal with Mr Watts on its behalf in relation to the sale.

40    In 2013, it seems that WMM agreed to acquire the Chains itself. Although the terms of that agreement were somewhat vague, they included a term that prohibited them from being re-sold in New Zealand, and a further term that they could not be dismantled and removed until the purchase price had been paid. The agreement also provided that the purchase price would be payable in instalments and that WMM would pay the sum of NZD $3,843.75 per month in rental charges until the Chains were removed. There was little evidence of this sale agreement, and it appeared to be something of a loose arrangement.

Chopsonion seeks finance to acquire the Chains

41    From around 2013, Ms Sharpe regularly expressed interest to Mr Watts in acquiring the Chains. When she did so, WMM would issue a quote to Ms Sharpe/Chopsonion which was in the form of an invoice. Ultimately, Ms Sharpe did not proceed with the proposed purchases, and the quotes were cancelled.

42    From about July 2014, Ms Sharpe, on behalf of Chopsonion, sought funding for the purchase of the Chains as well as the cost of dismantling, packing, and transporting them to Australia.

43    After she failed to obtain finance from other funders, from about early November 2014, she commenced negotiations with Ms How of Private Funds Management.

44    The Lenders’ case was that, from mid-2014, WMM provided a number of documents to Ms Sharpe for the purpose of assisting Chopsonion to obtain funding. Those which were in fact provided is a matter of debate, though the Lenders assert they included the following:

(a)    An invoice/quote on WMM letterhead numbered 1148 and dated 24 June 2014, which purported to reflect the sale of the Chains to Chopsonion at a price of $850,000. It is referred to herein as “Invoice 1148”;

(b)    A second invoice/quote numbered 1148 which included the words “24/06/14, update 21/07/14” (referred to in these proceedings as the “July 2014 Chains Invoice”). It indicated that an amount of $90,000.00 had been paid by way of deposit, and that the sum of $760,000 remained owing;

(c)    An “Open Letter” allegedly authored by Mr Watts, the contents of which will be referred to below; and

(d)    An email purportedly from Mr Watts to Ms Sharpe sent on 24 October 2014 (the Deposit Email), confirming that on 21 July 2014, a deposit of $90,000 had been received by WMM in respect of the Chains.

45    As is discussed later in these reasons, an important issue before the primary judge was whether the July 2014 Chains Invoice, the Open Letter, and the Deposit Email were prepared by Mr Watts or WMM on the one hand or, on the other, forged by Ms Sharpe.

46    In any event, the Lenders’ case was that Ms Sharpe provided the identified documents to Ms How on about 5 November 2014 in support of Chopsonion’s application for finance. That said, they were only some of the numerous documents provided to the Lenders.

Information provided by Mr Smith of Rolton

47    On 27 November 2014, Mr Smith of Rolton sent to Ms Sharpe, via Mr Watts, a document dated 26 November 2014 which was referred to as an “Assessment of Value” in respect of the Chains. It is called the “Rolton Valuation” and it assessed the replacement cost of a single Chain at between $1.1 million to $1.3 million. It is appropriate to note that this document was, as the primary judge found, not a valuation. Rather, it was an estimate of the cost of replacing the Chains were they to be damaged, for the purposes of insuring the Chains for their transportation to Australia.

48    It was partly in relation to this document that the separate proceedings were commenced by the Lenders against Rolton and Mr Smith. There, it was alleged that the document was, in fact, a valuation and was misleading and deceptive, and that the Lenders had relied upon its estimate of the Chains’ value for the purpose of lending $1.1 million to Chopsonion. Undoubtedly, the Lenders’ belief, derived from the Rolton Valuation, had a substantial influence on their decision to lend about half of the perceived value of the Chains to finance their purchase and importation. Indeed, some of the Lenders deposed to as much in their affidavits. This too is particularly relevant to the second issue on the appeal, being whether any alleged misrepresentation by Mr Watts or WMM caused the Lenders to enter into the transaction.

49    As it was, the claim against Rolton and Mr Smith floundered on the primary judge’s finding that the document in question was not a valuation. There was also no evidence in the proceedings to the effect that the replacement cost of the Chains was not as identified by Mr Smith.

Ms Sharpe provides further misleading information to Private Funds Management

50    Again, for the purpose of inducing Private Funds Management to facilitate the provision of finance to Chopsonion, between 16 and 21 January 2024, Ms Sharpe provided Ms How with further documentation. That included copies of documents which Ms Sharpe had previously provided to an invoice lender, “The Invoice Market”, for the purposes of raising finance on the invoice which Chopsonion had issued to FG Agri in respect of the on-sale.

51    Another document provided to Private Funds Management and then to the Lenders, was a modified version of the Rolton Valuation (referred to as the “Modified Rolton Valuation”) which purported to ascribe a total market value to each of the two Chains in the range of $1.1 million to $1.3 million. There is doubt about the authenticity of this document, and it is likely that the modifications were made by Ms Sharpe. Though it did not appear that the amendments radically changed the substance of the assessment of the replacement cost, they did enhance the Lenders’ objective assessment of the Chains’ value.

52    Subsequently, sufficient interest was obtained by Private Funds Management from a number of individuals (comprising the Lenders) to meet Chopsonion’s funding requirements.

Loan from the Lenders to Chopsonion

53    On 20 January 2015, Private Funds Management offered a loan of $1,175,000 to Chopsonion, the associated company, Jechbo, and Mr Sharpe, for the purposes of funding the acquisition of the Chains and their removal from New Zealand. That facility was to be for three months, at which point it was to be repaid. Again, it is to be noted that, in the course of the trial and the appeal, the parties failed to keep in mind that the loan was made to all three borrowers, whom were jointly and severally liable to repay it. Rather, they appeared to assume that Chopsonion was the only borrower. This becomes particularly relevant in relation to WMM’s alleged dispersal of loan funds. In substance it is alleged, in part, that WMM was involved in a breach of Mr and Ms Sharpe’s duties to Chopsonion by paying some of those funds to Jechbo, even though, as a borrower, the latter was obviously entitled to them.

54    On 21 January 2015, Mr Sharpe accepted the offer on behalf of himself, Chopsonion and Jechbo.

55    That same day, a Mortgage Management Agreement was entered into between Private Funds Management (defined as the “Mortgage Manager”), the Lenders (defined as the “Mortgagee”), Chopsonion in its own right and in its capacity as trustee for the Collarenebri Trust, Mr Sharpe, and Jechbo in its own right and as trustee for the Jechbo Trust (defined as the “Borrowers”).

56    Further, and at around the same time, additional security agreements were entered into with each of Chopsonion and Jechbo to secure repayment of the loans. They are referred to herein as the “General Security Agreements”. It suffices to observe that those arrangements were, prima facie, substantial, and this also becomes relevant to the second issue in the appeal.

57    The security taken included a guarantee from Ms Sharpe. Ms How was aware at the time that Ms Sharpe was a bankrupt, but considered that it was not necessary to disclose this fact to her clients, the Lenders, because she did not regard it as relevant.

The provision of the loan and default

58    The finance facility was provided by the Lenders and it was drawn down. Chopsonion acquired the Chains from WMM as well as the additional equipment to make up two complete Chains.

59    FG Agri did not complete the purchase of the Chains from Chopsonion, resulting in the latter’s inability to repay the Lenders on time or at all.

60    It was not suggested that the sale of the Chains by Chopsonion to FG Agri was other than a bona fide, arm’s length transaction or that the agreed price was other than at the market value. Indeed, subsequent litigation against FG Agri resulted in it paying $1.1 million for one of the Chains.

The primary judge’s reasons

61    The primary judge was confronted with a plethora of alternative claims arising from Chopsonion’s obtaining the loan and subsequent default. It is apparent that the Lenders regarded it as being pointless to pursue Chopsonion, which was bereft of funds, and nor was it useful to pursue Mr and Ms Sharpe, both of whom were bankrupts. Hence, by themselves and, through the appointment of controllers, by Chopsonion, they targeted Mr Watts and WMM in one proceeding, and Rolton, Mr Smith and a firm of accountants in the other.

62    Chopsonion’s claims against Mr Watts and WMM were mostly derivative in that it was alleged that they were involved or knowingly concerned in breaches by Mr and Ms Sharpe of their obligations to Chopsonion either pursuant to ss 181 and 182 of the Corporations Act 2001 (Cth) (Corporations Act), or breaches of their fiduciary obligations. Otherwise, the Lenders claimed that they had engaged in misleading or deceptive conduct in breach of the Australian Consumer Law (ACL), or were involved in similar conduct by Mr and Ms Sharpe. The Lenders also alleged deceit against Mr Watts and WMM.

63    In general terms, the primary judge concluded that the claims were made out.

The primary judge’s observations as to witnesses

64    Given the nature of the grounds of appeal and, in particular, that this Court is asked to overturn the primary judge’s conclusions as to the veracity of the evidence of certain witnesses, it is obligatory to assay his Honour’s findings and reasoning in some detail: Lee v Lee (2019) 266 CLR 129, 148 – 149 [55] (Lee v Lee).

65    At an initial stage, his Honour made generalised findings as to the character of the witnesses before him. In doing so he emphasised (PJ [48]) that their testimony must be assessed by reference to “contemporaneous records, objective facts and to the extent they are ascertainable, whatever motives the parties’ witnesses may have”.

66    Ultimately, he reached favourable views of the evidence given by or on behalf of the Lenders, though he noted, specifically in relation to some (PJ [55], [58]), that their ability to give evidence was hampered by the fact that they were attempting to recall events which had occurred some eight years prior. Though positively characterising the credibility of the applicant’s witnesses, that was not done by reference to specific parts of their evidence, but rather by conclusory observations.

67    Whilst his Honour was generally complimentary of the applicants’ witnesses in both proceedings, in the Rolton proceedings he generally accepted the evidence of the respondent, Mr Smith, and, on that basis, dismissed the action. On the other hand, he expressed an unfavourable view of Mr Watts. In reaching that conclusion, though he specifically referred to Mr Watts’ poor medical condition and the fact that he was required to give his evidence remotely from his home, he did not specifically identify that he also suffered from the consequences of the time which had elapsed between the events in question and the occasion on which he was giving evidence. That was, perhaps, a little unusual given that during the course of his evidence Mr Watts regularly claimed an inability to recall the specifics of certain transactions. In any event, his Honour indicated (PJ [73]) that he had reservations about Mr Watts’ credibility, and that he was evasive or took positions which were not credible. Again, those observations were conclusory and specific instances which supported those observations were not identified in that part of the reasons. These findings are of particular importance to this appeal, in the context of his Honour’s later finding that, despite his strenuous denials, Mr Watts authored certain misleading documents which were used in Ms Sharpe’s dishonest dealings.

The primary judge’s review of the facts

68    The primary judge then reviewed in detail the underlying facts, and made findings in relation to the contentious issues. As these underpin the grounds of appeal, it is necessary and appropriate to refer to them with some specificity.

69    In identifying the nature of WMM’s business, the primary judge acknowledged that it operated on a relatively small scale, with Mr Watts and his wife, Mrs Watts, being the primary persons involved. Importantly, it was noticed that Mr Watts’ usual practice was to use documents in the form of invoices as quotations, as well as for invoices in the strict sense. That is, quotes by WMM, being offers for the sale of machinery, were contained in the form of an invoice, and that appeared to be the case even though the quotes included the words, “Tax Invoice”, immediately above the description of the goods offered for sale. Though this seemed to have been the accepted practice, it was not clear when or if the offer or quote became an invoice on acceptance by a purchaser. Largely, such invoices or quotes were prepared by Mrs Watts who also worked in WMM’s business.

70    His Honour noted that, from about 2012, Mr Watts had unsuccessfully attempted to sell the Chains on behalf of Silver Fern Farms. The agreement by WMM to purchase the Chains itself occurred on or around 1 July 2013, though its nature was not entirely clear. Whilst WMM paid a deposit and was to make further payments of NZD$35,000 commencing on 25 October 2013, followed by a final payment of NZD$25,000 on 25 March 2014, for the most part those subsequent payments were not made. Nevertheless, Silver Fern Farms and WMM had appeared to have agreed upon a term that the latter would pay rent of NZD$3,843.75 per month for the holding of the Chains at the Oringi abattoir and, in that respect, WMM received several invoices for the rent commencing from August 2013. When the Chains were ultimately not on-sold in 2013, it appears that the agreement between WMM and Silver Fern Farms was altered somewhat, though it is difficult to identify precisely when payment of further rental was required.

71    The primary judge relied upon WMM’s difficulty in selling the Chains and the accumulation of outstanding rent, as giving rise to both a level of frustration in Mr Watts and a pressing urgency in securing a sale. This, apparently, was regarded as part of his motivation for dishonestly assisting Ms Sharpe in securing a loan for Chopsonion to purchase them.

72    His Honour also dealt with the relationship between Mr Watts and Ms Sharpe. He concluded that it was a business one in which, from time to time, Ms Sharpe indicated a desire to acquire a variety of pieces of abattoir machinery from WMM. In the period from 2012 to 2015, those indications generated a not insignificant number of quotes issued to her or Chopsonion, though on many occasions, they were cancelled when the sale did not proceed.

73    His Honour then addressed a number of invoices/quotes from WMM to Chopsonion in relation to the Chains. The first was dated 22 May 2013 which identified a price for the Chains, ex-New Zealand, at $480,000 plus $48,000 for GST. It was subsequently cancelled and the notation, “Cancelled 28/06/2013”, was written on it. This was illustrative of Ms Sharpe’s practice of seeking quotes for the purchase of machinery, only to subsequently abandon her interest. It is, however, necessary to note that the total price of $528,000 was the price (including GST) for the Chains in the Oringi abattoir at which WMM was willing to sell. It did not include any cost for their being dismantled, packed or shipped to Australia. That fact became significant subsequently, though not addressed by the parties in any substantial way.

74    On 1 July 2013, WMM sent two further quotes to Chopsonion. They are “invoice” numbers 1058 and 1059. Invoice 1058 was for a total of $330,000 including GST and invoice 1059 was for $198,000 including GST. They appeared to represent the respective Chains (divided into separate invoices) and together they total $528,000. These were noted as being cancelled on 3 August 2013.

75    The primary judge recorded that, in early 2014, Mr Watts was becoming frustrated at Ms Sharpe’s repeated indications of an intention to acquire the Chains, but subsequent abandonment of the idea. Further, WMM had, by 12 May 2014, only made two payments to Silver Fern Farms in respect of its rent obligations, and had received letters in relation to the outstanding amounts.

Invoice 1147 and the involvement of Mr Keane

76    This case, unusually, involves a person whose identity – or, indeed, existence – remains somewhat unresolved. He was referred to by Ms Sharpe as being, “Mr Warwick Keane”, whom she said was assisting Chopsonion to arrange finance for the purchase of the Chains.

77    On 24 June 2014, WMM issued an invoice or quote numbered 1147 (Invoice 1147) to “Chops Onion/Jecheo [sic]/Annomac”, in the sum of $300,000, which appeared to be in relation to one of the Chains.

78    The primary judge rejected Mr Watts’ evidence that this invoice was “never finished” and not given to Ms Sharpe (PJ [131]). His Honour considered Mr Watts to have given that evidence in an evasive manner. However, on its face, the invoice is substantially different from previous invoices that appear in the evidence, in that it did not deal with the GST liability on the sale. It also does not deal with the payment terms or obligations, nor contain the complete address of Chopsonion, as do many others. Nevertheless, his Honour found that it was forwarded to Ms Sharpe by WMM on 24 June 2014 (PJ [133]).

79    Despite that finding, it was not immediately clear why Mr Watts would be untruthful about Invoice 1147, as nothing turned on whether he had sent it to Ms Sharpe.

Invoice 1148

80    Invoice 1148 is important. It appears that on 24 June 2014, Ms Sharpe asked Mr Watts for an invoice or quote in relation to the Chains, to give to Mr Keane so that he could commence soliciting finance through his contacts. Mr Watts said that he had prepared one that included a rough estimate of the costs of dismantling and packing the Chains, and that he gave it to the person he understood was Mr Keane at an abattoir at Inglewood, Queensland on 25 June 2014.

81    That document identified a total price for the Chains from Oringi at $850,000, which included GST. The writing on it indicates that it related to two chains, one complete and one about 90% complete. The evidence before the primary judge showed that certain machinery, namely a “Bleed chain with low voltage stimulation” and a “Shoulder puller”, were not included with the equipment, but were needed to make the second Chain complete.

82    The primary judge found (PJ [142]) that Invoice 1148 was prepared by Mrs Watts, though her evidence about that was unclear and uncertain. In the course of her testimony, she was unable to explain the difference between the price for the Chains on Invoice 1148, and that which was shown on previous invoices, being $528,000. That should not be seen as a criticism, as she had little involvement in the inter-party dealings and it is not suggested that she had any authority over the contents of the invoice.

83    The primary judge did not accept Mr Watts’ evidence about Invoice 1148 and his discussions with Mr Keane. Mr Watts claimed that he met Ms Sharpe and a male person at Inglewood on 25 June 2014, at which time he gave the invoice to that male person who had been introduced to him by Ms Sharpe as being Mr Keane. That was rejected primarily due to the contents of an email, allegedly subsequently sent by Mr Keane, which stated, in part, that he had not yet met Mr Watts. The primary judge found that Mr Watts prepared Invoice 1148 on 24 June 2014 and gave it to Ms Sharpe the following day at the Inglewood abattoir (PJ [149]). That seemed to be slightly inconsistent with his earlier finding (PJ [142]) that Mrs Watts prepared the invoice on instructions from Mr Watts. Nevertheless, his Honour found that Mr Watts only gave a hard copy of Invoice 1148 to Ms Sharpe. That finding was thought to be important in relation to other invoices which were in a similar form to Invoice 1148, which Mr Watts claimed had been forged by Ms Sharpe. It seems that his Honour was of the view that Ms Sharpe would only have been able to modify Invoice 1148 if she had received an electronic copy of it by email. The basis for that conclusion is not self-evident and it appears that Ms Sharpe had received electronic copies of several invoices from WMM, and there is no apparent reason why a modified version of Invoice 1148 could not have been prepared using those.

84    Mr Watts said in his evidence that Invoice 1148 was also “not complete” because it was subject to getting a firm quotation for the removal of the Chains. That is, it was intended to include a rough estimate of the cost of dismantling the Chains and putting them into a condition for transport to Australia. There is, however, nothing explicit on Invoice 1148 which suggested that it was to include such costs and Mr Watts acknowledged that WMM did not provide removal or transport services. For that reason, his Honour held (PJ [151]) that Mr Watts’ evidence, that Invoice 1148 was not complete, was “demonstrably wrong”.

85    The primary judge also rejected Mr Watts’ evidence in relation to Invoice 1148 because, despite his claim that he would have to send a “correct invoice” following confirmation that funding had been acquired, no such invoice was sent. Indeed, so his Honour found, Mr Watts, after being informed that funding had been obtained, subsequently sent an email to Mr Keane seeking an update on the payment of Invoice 1148.

86    The primary judge also noted that Mr Watts had accepted in cross-examination that his agreement with Ms Sharpe/Chopsonion in relation to the Chains had not altered from the two invoices sent in 2013, being invoices 1058 and 1059, and that he was prepared to and intended to sell them for $528,000, inclusive of GST. Necessarily, that was at odds with the price stated in Invoice 1148.

The July 2014 Chains Invoice

87    The July 2014 Chains Invoice is important in these proceedings. It appeared to be an updated version of Invoice 1148, in that it is in a somewhat similar form, though with modifications and additional information. It is also numbered “1148”. At the top of the itemised table appearing on the document reference is made to the two Chains being ex-New Zealand, with one complete and one about 90% complete. Thereafter, are added the words, “balance of matching Millers Equipment now available in Australia included, held at Scone NSW depot, 2 x complete small stock chains”. Though the wording is clumsy, it appears to indicate that the goods which are the subject of the invoice/quote represented two complete Chains, with the formerly incomplete chain being made whole by the addition of the further specified equipment.

88    The document also indicates that although the price was $850,000, a deposit of $90,000 had been paid, such that the balance was $760,000. It was, however, common ground that no such deposit had been paid. An additional variation from the original Invoice 1148 is the inclusion of the words, “update 21/07/2014”, and the order number has the words, “Jim Sharpe”, added.

89    Mr and Mrs Watts denied that the July 2014 Chains Invoice had been prepared by either of them. Mr Watts asserted that it was a forgery produced by Ms Sharpe.

90    The primary judge, however, rejected Mrs Watts’ denial that she had prepared it. His first reason (PJ [161]) was the absence of any suggestion that Mr Watts had sent Invoice 1148 to Ms Sharpe electronically. He specifically found that it had been handed to her in hard copy such that Ms Sharpe did not have a document that could have been easily changed. That may be so, but there is not a great deal of difference between Invoice 1148 and Invoice 1147 (which had been sent electronically). It is possible that the latter could have been easily altered to a version of the former. Indeed, they are both dated the same date. Moreover, the invoices are relatively simple computer generated documents, and it is obvious that their replication would not require skills above those of an average person familiar with word processing programs.

91    His Honour’s second reason for disbelieving Mrs Watts related to a number of subsequent factors, although their connection with her evidence is not particularly clear. It appears that he relied (PJ [162]ff) upon the subsequent dealings, which centred around the amount of $760,000 becoming payable to WMM, as supporting the conclusion that WMM had produced the document. That included an email purportedly from Mr Keane dated 23 July 2014, which stated that he had secured funding for the purchase of the equipment noted in Invoice 1148, along with other equipment. The import of this letter was enhanced by Mr Watts’ reply on 30 August 2014, asking Mr Keane for an update as to the progress of the funding.

92    Further, it appears that Mr Watts received an email from Mr Smith of Rolton on about 25 September 2014, inquiring as to the progress of funding for Chopsonion. The email also indicated that, if the funds were not forthcoming, Silver Fern Farms had instructed that the goods were to be put back on the market. Mr Watts followed up on this with an email to Mr Keane. The latter responded on 28 September 2014, by an email with the subject line reading “Settlement of Invoice No 1148 to Chopsonion Pty Ltd”, in which it was confirmed that funding had been obtained. The email attached a letter purportedly from a financier referred to as “NCS” to Mr Keane and Ms Sharpe, dated 26 September 2014 allegedly approving finance for the purchase of the Chains by Chopsonion (the “NCS Letter”). The NCS Letter confirmed that the first payment in the drawdown would be of $760,000 to be paid to WMM. It was important to his Honour that this figure corresponded to the balance identified as owing in the July 2014 Chains Invoice, as was the fact that Mr Watts also did not query this email despite its indication that an amount in excess of the originally agreed purchase price for the Chains would be paid to WMM.

93    His Honour further relied upon what he considered to be Mr Watts’ attempts to justify the figure of $760,000 referred to in the NCS Letter, not by reference to the removal costs or the deposit, but by reference to other machinery to be sold to Chopsonion in addition to the Chains, being the Yarrawonga beef chain, the shoulder puller and other equipment. This, his Honour found, was not consistent with Mr Watts’ evidence that Invoice 1148 was a “budget estimate” to give Mr Keane a rough estimate of the cost of removing the Chains.

94    His Honour also observed (PJ [168]) that Mr Watts’s initial evidence that he did not query the sum of $760,000 referred to in the NCS letter was not consistently maintained during cross-examination. After being questioned on day nine of the trial as to why he did not query the reference to $760,000, on the following day, Mr Watts claimed that he recalled the existence of a telephone conversation with Ms Sharpe in which he had done so. His Honour considered that to be a “recent invention”, and that was necessarily detrimental to Mr Watts’ credit.

The admission by Mr Watts to Ms How

95    A significant obstacle encountered by Mr Watts at trial was evidence from Ms How to the effect that he made express admissions to her as to his involvement in Ms Sharpe’s fraudulent activity. Ms How claimed that, on 23 September 2016, she had a conversation with him during which he told her that Ms Sharpe had asked him to inflate the original invoice price of the Chains from $490,000 to $760,000, state that a deposit for $90,000 had been paid in relation to them when it had not been, and then “kick back moneys” to her when the larger amount was received. Ms How claims that she recorded the details of that conversation in an email to Mr Watts some three days later. It was sent to Mr Watts’ Bigpond email address which he claimed that he did not use at that time, which he said explains why he did not respond to it.

96    The primary judge observed (PJ [172]) that Mr Watts falsely denied reading the email at around the time that it was sent, as his Bigpond email address was operative at that time. He also rejected the respondents’ other submissions as to why Ms How’s evidence should be rejected. Ultimately, he found that Ms How’s evidence should be accepted, because she “was an impressive witness whose evidence was both truthful and reliable” (PJ [180]).

Conclusions about Invoice 1148 and the July 2014 Claims Invoice

97    Following his consideration of the foregoing matters, his Honour concluded (PJ [184]) that the July 2014 Chains Invoice had been prepared by Mrs Watts on Mr Watts’ instructions so that it could be provided to Mr Keane, and that was done prior to 26 September 2014. He did not accept Mr Watts’ explanation that the price of $760,000 was to take account of the additional equipment that was to be sold to Chopsonion and the rent payable in relation to the Chains. Additionally, he found that Mr Watts did not query the amount of $760,000 in the NCS Letter, because that was the amount that was stated in the July 2014 Chains Invoice. He concluded (PJ [187]) that Mr Watts knew that Mr Keane was using the July 2014 Chains Invoice in his dealings with financiers to represent that it was for the purchase of the Chains at a price of $760,000, after allowing for a deposit of $90,000. His Honour further held that Mr Watts knew that that was not the case, that no deposit had been paid, and that the only price he sought for the Chains was $480,000 plus GST. Although Mr Watts said that he would have provided a “corrected invoice” at the same time, his Honour found that was obviously not so in the circumstances and, indeed, at no time did he do so.

98    There was an apparent conflation of Invoice 1148 and the July 2014 Chains Invoice in those reasons. It appears that his Honour did not differentiate between the two.

The Deposit Email

99    There appears in the material a paper copy of an email which purports to have been sent by WMM from the email address of “wattsmm@bigpond.com”. It is dated and timed 24 October 2014 at 1:38pm. The recipient is identified as “Wendy Kellas-Sharpe” and the subject line has the word “invoice” in it. The text of the purported email is:

Wendy

We have received Deposit of $90,000 For invoice Number 001148 for Chains at Oringi New Zealand Paid on 21-07-14

With Thanks

Keith

100    The email signature indicates that it was sent by Mr Watts in his capacity as Managing Director of WMM.

101    In the proceedings this document was referred to as, the “Deposit Email”, and it will continue to be referred to as such.

102    Mr Watts denied that he sent the Deposit Email, though the primary judge rejected that for several reasons (PJ [193]). The first was his reservations as to Mr Watts’ credibility in relation to several matters. The second was that, as early as September 2014, Mr Watts was aware that at least one lender was acting upon the July 2014 Chains Invoice that disclosed the amount payable for the Chains was $760,000, being $850,000 less a $90,000 deposit, but he did not query it. Third, as his Honour subsequently found, Mr Watts was not surprised when he received payment of $760,000 into his account in January 2015, being the same amount stated in the July 2014 Chains Invoice. Fourth, his Honour relied upon Ms How’s evidence that Mr Watts had said to her that Ms Sharpe had asked him to state that a deposit of $90,000 had been paid. Though the respondents relied upon a number of pieces of correspondence as indicating that Mr Watts was unaware that the July 2014 Chains Invoice had been created by Ms Sharpe, and therefore could not have produced the Deposit Email, the primary judge said that he had read that correspondence and determined that they did not support the submission made. The reasons as to why the correspondence did not support the denial were not articulated.

The Open Letter

103    There was also a document in the evidence referred to as the “Open Letter”. It is a letter with the purported letterhead of WMM, dated 16 October 2014, and appears to be under the hand of Mr Watts, who is described as “Managing Director”. It extols the qualities of the two small stock Chains from Oringi and, importantly, states:

… The chains meet all requirements necessary for production when installed in an Australian facility. The replacement cost for these chain [sic] to be built in New Zealand and imported to Australia would be in the vicinity of approximately $4,500,000.00 each, plus packaging and shipping costs, the lead time for production would be a minimum of 9 to 12 months.

104    Despite Mr Watts’ denial that he had created or prepared this document, that too was rejected by the primary judge. His Honour concluded that the letter must be considered in circumstances where WMM had entered into a contract to purchase the Chains, was incurring monthly rental costs, and the funding with an earlier potential funder (NCS) had not proceeded. His Honour also noted that the letter was very specific, both with respect to the Chains themselves and the knowledge of the New Zealand meat industry and, therefore, must have been written by someone with extensive knowledge of that and of abattoir processing plants. On that basis, he found that Mr Watts prepared the letter and did so for the purposes of providing it to Ms Sharpe so that she could provide it to potential funders.

105    It is noted that it was not suggested, and nor did his Honour find, that anything in the letter was untrue.

The Rolton Valuation

106    In late 2014, Mr Watts asked Mr Smith to prepare an assessment of the value of the Chains. Mr Smith agreed, and on 27 November 2014 he sent to Ms Sharpe, care of Mr Watts, the document which is referred to as, the “Rolton Valuation”. It assessed the value of a single Chain at $1.1 to $1.3 million, and stated that the identified amount covers:

… the actual chain, its de-installation, pre-delivery servicing and modifications and the delivery to wharf side Australia. The chain is to be generally prepared for re-installation into local Australian conditions.

The pre-preparation covers the kit setting process and possible pre-modifications for ease of removal and as above its final re-installation.

107    By its terms, the document indicates that it provides guidance as to the value of one of the Chains from the Oringi abattoir. The primary judge accepted that, in the Rolton Valuation, Mr Smith provided a genuine assessment of what he believed would need to be expended if a Chain was lost and had to be replaced. In this sense the “valuation” was appropriate for insurance purposes, particularly as it included the cost of de-installing the Chain in New Zealand, packaging it for the purposes of delivery, modifying it and delivering it to wharves in Australia. As it was, insurance was subsequently affected by Chopsonion in respect of physical loss or damage of the Chains in transit to Australia in the sum of $8.5 million.

108    The primary judge accepted that Mr Watts had spoken with Mr Smith about the preparation of such a valuation for shipping and insurance purposes, and that Mr Smith had prepared his opinion accordingly. He further found that, whilst Mr Smith did not prepare it for provision to potential funders, he knew that it would be provided to third party funders who might rely upon it. It is to be remembered that this valuation was, in part, the subject of the claim by Chopsonion and the Lenders against Rolton and Mr Smith. Nevertheless, his Honour found that the Rolton Valuation was Mr Smith’s genuine opinion as to the replacement value of a single Oringi Chain landed in Australia (PJ [226]). Though Mr Smith was cross-examined as to his starting price for the Chains when forming an opinion as to the cost of replacing them, he identified, and the primary judge accepted, that he should not use the price at which the Chains were acquired by WMM because that was a “fire sale” price as opposed to a market value.

109    The primary judge also rejected the suggestion that, pursuant to a plan formulated by Mr Watts, Mr Smith had prepared the valuation so that he might get a “kickback” when funding was provided.

110    It is important that his Honour noted that the applicants did not produce any valuation evidence in an attempt to gainsay Mr Smith’s opinion of the value of one of the Chains, and his Honour rejected the proposition that Mr Smith was receiving payment for the purposes of preparing an artificially high valuation which would assist in securing funds. This has significant ramifications in relation to the issue of causation and is discussed later in these reasons.

111    It is also relevant to the claim against Mr Watts and WMM for being knowingly concerned in Ms Sharpe’s breach of fiduciary duty to Chopsonion. As pleaded, an integral part of that claim was Mr Watts inducing Mr Smith to produce a false valuation to use to influence potential funders. These allegations included a claim that Mr Watts paid Mr Smith a form of bribe. Though the primary judge found that these events did not occur, he appears to have found that the dishonest design as pleaded was made out. The two findings are irreconcilable.

The Modified Rolton Valuation

112    A similar document appeared in the material. It was a slightly modified version of the Rolton Valuation and was referred to as, “the Modified Rolton Valuation”. It bore the same date as the original document and was addressed only to Chopsonion (Attention: Wendy Sharpe). The modifications were limited and did not substantially alter its substance, with the most relevant indicating that the current market value was “Aust$1.1 to $1.3m each chain”. His Honour considered that nothing turned on that. Mr Smith denied preparing the Modified Rolton Valuation and the applicants did not contest otherwise (PJ [245]). It follows that the document had been manipulated by someone, and it was not suggested that it was Mr Watts. Inferentially, the modifications were done by Ms Sharpe for the purpose of emphasising that the value of the Chains together was in excess of $2.2 million.

The Sharpes, Private Funds Management and Ms How

113    The primary judge then addressed the operations of Private Funds Management and the manner in which it arranged loans between lenders and borrowers (PJ [245]ff). He identified the antecedent relationship between Ms How and Ms Sharpe, and noted that prior to 5 November 2014, Ms Sharpe contacted Ms How to tell her that she was seeking funding to purchase and import the Chains and that she had already sold them in Australia. Following a request for further information, by an email dated 5 November 2014, Ms Sharpe sent Ms How a bundle of documents which included:

(a)    the July 2014 Chains Invoice;

(b)    the Open Letter;

(c)    the Deposit Email; and

(d)    photographs of the Chains and processing line.

114    Also included was a spreadsheet showing that the total amount of finance sought at the time was $1,414,212. That spreadsheet identified an on-sale price of $2.2 million (including GST) to FG Agri, and the cost of purchasing the two Chains from Oringi as being $850,000 less a deposit of $90,000 which had purportedly been paid. It further indicated that, based on the amount of financing sought, the loan to value ratio was 64%.

115    In relation to that spreadsheet, his Honour noted that the sale price of $2.2 million was derived from an invoice from Chopsonion to FG Agri dated 16 October 2014, which had also been provided to Ms How on 5 November 2014. Importantly, he concluded (PJ [263] – [272]) that it was appropriate to reject the applicants’ submissions that the dealings between Chopsonion and FG Agri did not reflect a genuine arm’s length transaction. He found that there was no evidence to support that it was anything but that. This is also an important factor in relation to the causation issue, because there can be no relevant dispute that the two complete Chains to be sold to FG Agri were worth the agreed contract price and that, had FG Agri not defaulted on the purchase, Chopsonion would have repaid the Lenders and made a substantial profit on their sale.

116    On 23 December 2014, Ms Sharpe sent further documents to Ms How in support of Chopsonion’s funding application. They included a further copy of the invoice to FG Agri, an email from Chopsonion’s accountants confirming the holding of a $100,000 deposit paid by FG Agri, and a drawing setting out the proposed layout of the Chains.

117    At around that time, Ms Sharpe told Ms How that she had sought invoice funding against Chopsonion’s invoice to FG Agri (PJ [273]) and that, in view of potential delays and the risk of missing the opportunity to purchase the Chains, her financial requirements were in the nature of interim funding, pending receipt of that invoice funding.

118    On 2 January 2015, Ms Sharpe sent an update to Ms How regarding the approval she had sought from FIFO Capital for invoice funding. She indicated that she was then seeking short term finance through Private Funds Management to cover the costs of acquiring the Chains, their dismantling, packing and transport to Australia, following which the loan would be refinanced through that invoice funding (PJ [274]).

119    Subsequently, Ms Sharpe sought invoice funding from an alternative funder, The Invoice Market, and on 15 January 2015, she sent to Ms How an email attaching a letter of approval from that company to Chopsonion approving funding of $1.43 million against the sale of the Chains to FG Agri for $2.2 million. That funding was subject to, amongst other things, the Chains arriving in Australia and being accepted by FG Agri.

120    In or around mid-January 2015, Ms Sharpe visited Private Funds Management’s office in Adelaide where she delivered a bundle of documents comprising those which she had given to The Invoice Market for the purposes of the invoice funding application. It contained some of the documents previously provided to Ms How, and included a further version of the spreadsheet identifying the costs of acquisition and transfer to Australia in the sum of $1,281,103. A further revised spreadsheet was provided by Ms Sharpe on 16 January 2015, this time showing costs of $1,133,680 (PJ [280]). In all the costings provided, the price for the Chains was identified as $850,000 with a balance of $760,000 owing after the payment of a deposit.

121    As his Honour noted (PJ [282]), Ms Sharpe did not disclose to Ms How that WMM had agreed to purchase the Chains for NZD$200,000, that Chopsonion had agreed to purchase the Chains at least as early as May 2013 for an amount of $528,000 including GST, or that it had also agreed to purchase from WMM additional abattoir equipment for $189,200. That latter fact was evidenced by another invoice issued by WMM to Chopsonion, numbered 1085, which identified the goods to be sold as the “Equipment at Yarrawonga”, being the place from which Chopsonion ultimately acquired the necessary additional equipment. It would appear that this invoice was not a formal invoice, but rather a quote. It also appears that the transaction in question had been abandoned, but there is no notation to indicate it has been “cancelled”, as appears on others.

122    In relation to the dealings between Ms Sharpe and Private Funds Management, his Honour concluded (PJ [284]) that, though Mr Watts was not specifically aware of the funding being sought by Chopsonion, he was aware that Invoice 1148, the July 2014 Chains Invoice, the Deposit Email, and the Open Letter would be used for the purpose of attempting to secure such finance. It is to be noted that there was no evidence that Invoice 1148 was ever shown to any potential funder.

Reliance on the misleading documents

123    An important contest before the primary judge was that of the Lenders’ reliance on the alleged misrepresentations or false statements, and it remains in issue on this appeal. The reason for its heightened level of contentiousness is because it is obvious that, even without the allegedly inflated price for the Chains in the sale between WMM and Chopsonion, the transaction had numerous positive aspects to it which would have rendered it very attractive to potential lenders. They included the fact that Chopsonion would be securing a profit of approximately $900,000 on the on-sale of the goods to FG Agri, the existence of invoice funding to replace the borrowing, the high rates of interest to be earned by any funder, the short duration of the intended loan, the existence of real property securities, the existence of other securities, and the strong financial position of Chopsonion which had been verified by accountants. Further, leaving aside anything represented by Mr Watts or WMM, there was substantial material which supported the value of the machinery sold and this provided an additional avenue to recover the loan in the event of a default.

124    Ms How gave evidence as to the factors on which she relied when considering the loan application from Chopsonion (PJ [285]). They included that a $90,000 deposit had been paid against the Chains, that the purchase price of the Chains was consistent with the Modified Rolton Valuation, and WMM’s Open Letter. She also considered that Chopsonion had sufficient financial standing to service the loan if required. Somewhat surprisingly, Ms How claimed that the sale to FG Agri was not “particularly significant” because it was not the primary source of repayment to the proposed lenders (PJ [287]). That appeared to be because, as she acknowledged, the invoice funding arrangement with The Invoice Market was intended to produce the funds to repay the Lenders.

125    On 16 January 2015, Ms How approached those who became the Lenders in relation to their interest in providing short term funding to Chopsonion and provided them with the bundle of documents which Ms Sharpe had given to The Invoice Market (PJ [288]). Mr Rowley, who became one of the Lenders, required his own funding in order to take advantage of the investment opportunity, and Ms How approached other individuals to lend funds to Mr Rowley totalling $735,000.

126    On 19 January 2015, Ms How sent an email to Mr Anderson of FG Agri seeking confirmation that FG Agri would purchase the Chains for $2 million plus GST and, on 20 January 2015, Mr Anderson of FG Agri confirmed that to be the case (PJ [290]).

127    On 20 January 2015, Ms How caused a funding offer to be made to Chopsonion, Jechbo and Mr Sharpe in the sum of $1,175,000 at an interest rate of 4.5% per month, reducing to 3% per month for prompt payment, for a three-month term. The loan also made provision for the granting of mortgages over certain real properties and the entering into of certain General Security Agreements.

128    It seems that prior to 21 January 2015, Ms How and Ms Sharpe agreed that the funding would be in a form of a facility that would be drawn down against the presentation of invoices, though it is not immediately clear when that occurred.

129    The Lenders agreed to provide the money required, and on 21 January 2015 Mr Sharpe accepted the funding offer for himself, and as director of Chopsonion and Jechbo (PJ [296]).

Events following the acceptance of the funding offer

130    The primary judge then considered the events which followed the acceptance of the funding offer, though noting that they were also contentious.

131    He accepted (PJ [300]) Mr Watts’ assertion that prior to 22 January 2015, Ms Sharpe had told him that she had obtained funding and that she requested an invoice be sent to Chopsonion for the Chains as well as additional abattoir machinery and for the rent due for the storage at Oringi. Whilst accepting that may have been the case, despite the seemingly contradictory finding that Mr Watts had sent the July 2014 Chains Invoice, his Honour found that it nevertheless established the falsity of the latter. Nothing seemed to have been made by his Honour of the fact that these events corroborated Mr Watts’ constant assertion that once funding was available, he would provide accurate invoices for the goods sold to Chopsonion.

132    However, his Honour accepted that the price of $760,000 in the July 2014 Chains Invoice included the “undisclosed” costs of the additional plant and equipment and the rent which WMM had been paying in New Zealand. This seems to indicate an acceptance that Chopsonion had agreed to pay for those additional matters as part of the overall transaction.

133    Though Ms How had requested further invoices in respect of costs to be incurred in bringing the Chains to Australia, because she had the July 2014 Chains Invoice, on 22 January 2015 she caused Private Funds Management to send $760,000 to WMM’s account. It was deposited via the Commonwealth Bank of Australia at 2:52pm on that day.

134    In his Honour’s reasons (at PJ [304]ff) an issue arises as to Mr Watts’ credit in relation to his claim that he was surprised and confused at the receipt of $760,000 in the WMM bank account. Mr Watts had said that this was because the purchase invoices for the Chains from Oringi, the additional equipment and the rent, totalled $685,707.98, such that there was an overpayment of $74,292.02. He went on to say that he had a telephone conversation with Ms Sharpe in which he indicated that more money had been received than was due. Mr Watts further said that Ms Sharpe asked him to remit the money to her, but he replied that he would require invoices so that he had a record. He said that Ms Sharpe replied that she would do so, but that she needed him to send $20,000 through first because that money was to be used immediately.

135    The primary judge (PJ [305]) rejected Mr Watts’ evidence that he was surprised and confused about the receipt of $760,000, and found that his evidence of the conversation with Ms Sharp, on 22 January 2015, was a reconstruction. In particular, he relied on the fact that the receipt of $760,000 reflected the July 2014 Chains Invoice which had been used for the purposes of obtaining funding. Further he relied on the fact that, at 12:10pm on 22 January 2015 (being before the funds were received), Ms Sharpe sent an email to Mr Watts asking him to send $20,000 by way of cash transfer to Chopsonion’s bank account. It stated, inter alia:

Can it be a cash transfer – I have to do some further things with cash for David on Friday 23 Jan

We can sort out the rest next week when we can all take a breath !!

136    His Honour identified that this email had been sent prior to the $760,000 being received into WMM’s account. He regarded this as being inconsistent with Mr Watts’ claimed conversation with Ms Sharpe following the receipt of the funds, during the course of which he asked for an invoice to be sent for the $20,000 Ms Sharpe had requested. Mr Watts had deposed that WMM received the $760,000 before he read the email sent by Ms Sharpe on 22 January 2015, though that was not believed.

137    It appears that the $20,000 was paid to Chopsonion on 23 January 2015, even though an invoice for that amount was not sent by Ms Sharpe until 29 January 2015. That invoice was attached to an email which provided as follows:

Hi to both

Please let me know if the below is your understanding of the transaction:

Payment for chains            760,000.00 (no GST)

Invoices now paid:

01204            528,000
01207            29,007.98
01206            46,200
01205            82,500

Invoice amount        20,000

                    705707.98

Balance                $54,292.02 (am guessing is in your account)

Have attached an Invoice for your records

Talk soon

Wendy

138    His Honour found (PJ [310]), and it is not disputed, that the invoice to which Ms Sharpe refers is one with the number 15031 issued by Chopsonion to WMM for $20,000.

139    His Honour concluded that he did not accept that Mr Watts spoke to Ms Sharpe after the $760,000 had been deposited into WMM’s account, nor that he did not read Ms Sharpe’s email, sent 22 January 2015, until after the money had been deposited. He found that Ms Sharpe’s email of 22 January 2015, was sent in response to Mr Watts’ request for an invoice for $20,000. However, it is unclear why Mr Watts would ask for such an invoice in advance given that there was no evidence that he was aware that any monies were to be received into WMM’s account that day. Nevertheless, his Honour found that Mr Watts and Ms Sharpe knew, prior to the receipt of funds, that a payment in that amount was to be received (PJ [312]).

140    His Honour also found, although it was not contested, that Chopsonion did not provide any services to WMM in relation to the transaction involving the Chains in the sum of $20,000 as invoice 15031 suggested. He concluded that Mr Watts was pretending that the $20,000 payment was payable under the invoice which he knew had no foundation.

141    He further found (PJ [316]) that Mr Watts was well aware that the $760,000 had been paid into WMM’s account as the balance payable on the July 2014 Chains Invoice, and that there was no other plausible explanation for it.

142    This also gave his Honour comfort in accepting that Mr Watts was a person who would participate in a transaction he knew to be false, so as to encourage the financing of the purchase of the Chains by a funder to the extent of $760,000. That did not alter as a consequence of WMM having issued invoice 1204 for the Chains on 22 January 2015 in the sum of $528,000, but, so his Honour found, that only implicated him in the arrangement to secure funding for the purchase of the Chains at a higher value (PJ [318]).

143    On 22 January 2015, Mr Watts also caused WMM to issue invoice numbers 1205, 1206 and 1207, for the additional abattoir machinery and the rent payable in respect of the use of space at the Oringi abattoir. It appears that he applied the funds in his account to those invoices and the primary judge observed that he did not question the source of the money (PJ [319]).

144    Subsequently, WMM received two further invoices. The first was invoice number 889 dated 31 January 2015 from Jechbo for the sum of $30,000. The asserted supply was stated as being, “Report and consultation for Chains ex NZ”. The second invoice was invoice number 25 from Annomac, also dated 31 January 2015, which indicated that the services supplied were, “To consult in relation to design/drawings of small stock chain for abattoir purposes. Inclusive of travel costs”. It was in the sum of $24,292.02 including GST. The total of those invoices was $54,292.02, which was the balance remaining from the $760,000 received by WMM.

145    Mr Watts made those payments, though he did agree that neither Annomac nor Jechbo provided to WMM the services recorded in the invoices. In his evidence, he denied that these invoices were false business records, though that was rejected by the primary judge, who also found that it demonstrated Mr Watts’ knowledge and complicity in the conduct of Chopsonion and the Sharpes in obtaining funding on the basis of the false July 2014 Chains Invoice.

146    His Honour considered it relevant (PJ [326]) that Ms Sharpe did not send to Ms How a copy of WMM’s invoice number 1204 for the Chains in the sum of $528,000, nor its invoice numbers 1205, 1206 and 1207 for the additional machinery. Nor did Ms Sharpe send to Ms How the invoices from Annomac and Jechbo. It is apparent that Ms How proceeded on the basis of the July 2014 Chains Invoice alone.

The Design

147    An aspect of this appeal concerns the nature and the scope of the alleged fraudulent and dishonest Design said to have been engaged in by Ms Sharpe, which lies at the heart of the claims of fraud and breach of fiduciary duty. It also undergirds the respondents’ asserted breaches of statutory duties. This aspect of the claim, advanced by Chopsonion against Mr Watts and WMM, laid the foundation for recovery of its liability to the Lenders under the loan agreement, including the liability to pay the accumulated default interest which exceeded $5 million.

148    At paragraph 328 of his reasons, the primary judge states:

A central feature of a number of the causes of action pleaded by the applicants against Mr Watts in his own right and for and on behalf of WMM is a fraudulent and dishonest Design.

149    His Honour then seemingly uses the word “Design” to identify the arrangement which Ms Sharpe, Mr Watts and WMM put into effect, though it is unfortunate that the pleading lacked any precision as to what it constituted. The Chapeau to paragraph 12 of the second further amended statement of claim asserted that:

In the formulation and implementation of the funding of the Chains and the Removal costs as pleaded in paragraphs [3] to [10] herein, James Sharpe, Wendy Sharpe and Watts (in his own right and for and on behalf of WMM) engaged in a fraudulent and dishonest design (“the Design”) the purpose of which was to: …

150    The primary judge (at PJ [330]) set out in his reasons the substance of paragraph 12 which identified that the purpose of the alleged fraudulent and dishonest Design was to:

12.1    Provide a significant financial benefit to WMM, which would, if the Design were implemented:

12.1.1    receive a substantially higher price upon sale of the Chains to Chopsonion ($580,000) [sic $528,000] than the price which WMM had agreed to pay for the Chains in October 2013, being a price of $200,000 payable to Silver Fern Farms Group (“Silver Fern”);

12.1.2    receive payment for additional plant and equipment being sold or transferred to Chopsonion …;

12.1.3    receive funding to meet WMM’s liability to pay rent to Silver Fern with respect to storage of the Chains, together with the balance of the purchase price owing to Silver Fern with respect to WMM’s purchase of the Chains;

12.2    Provide significant financial benefits to James Sharpe and/or Wendy Sharpe, through companies associated with them, (being Chopsonion, Annomac Pty Ltd and Jechbo Pty Ltd), through use of the Funding to:

12.2.1    fund the purchase of additional plant and equipment from WMM for Wendy Sharpe and James Sharpe or to or for their benefit … without the Lenders knowing that the Funding was to be applied for that purpose;

12.2.2    fund the payment of commissions from WMM to or for the benefit of James Sharpe and/or Wendy Sharpe without the Lenders knowing that the Funding was to be applied for that purpose.

151    His Honour then identified that the facts raised in support of the allegations of the effectuation of the Design are set out in paragraph 13 of the second further amended statement of claim.

152    On any view, the pleading of the alleged Design is problematic. It is articulated merely as comprising the facts which had hitherto been alleged, and one is left to hypothesise as to what its relevant nature and scope might have been. Indeed, there is a lack of specification as to which duty owed to Chopsonion was that of which the dishonest Design allegedly facilitated a breach, and in which the accessories allegedly participated. In paragraph 15 of the pleading, the argument is made that the pursuit of the dishonest Design was the alleged breach of fiduciary duty. Most relevantly appears the allegation that Mr and Ms Sharpe breached their duty by facilitating payments to themselves or associated companies by way of commissions, or to WMM by way of payment for goods sold.

153    One difficulty with the identified Design is the absence of any temporal identification of its formation. The chapeau to paragraph 12 of the second further amended statement of claim referred to the matters alleged in paragraphs 3 to 10 of the pleading, which include references to events taking place in July 2014. Therefore, it must be assumed that the Design was then in existence despite there being no finding (nor pleading) as to any meeting of minds about it. Moreover, the pleaded Design significantly included the procurement of the Rolton Valuation and the Modified Rolton Valuation for submission to possible lenders, though the primary judge concluded that there was no substance in those serious allegations.

154    In any event, an essential element of the Design as alleged is the existence of an agreement between Mr and Ms Sharpe and Chopsonion on the one hand, and Mr Watts and WMM on the other. In summary, that agreement was to the effect that:

(a)    any funding received by Chopsonion would be used by it to purchase other plant and equipment from WMM in addition to the Chains, and to fund payment by WMM of commissions to Mr Sharpe and/or Ms Sharpe and/or entities associated with them;

(b)    Mr Sharpe, Ms Sharpe and/or Chopsonion would seek funding from potential lenders representing that Chopsonion had agreed to purchase the Chains from WMM for $850,000; and

(c)    Chopsonion, and not WMM, would bear the removal costs of the Chains from New Zealand as well as the rent payable for storage.

155    As the primary judge then noted, the subsequent pleaded steps in the alleged Design were the provision of the July 2014 Chains Invoice, the Deposit Email, and the Open Letter to Ms How. It was then said that Mr Watts caused the Modified Rolton Valuation, which had no reasonable basis, to be provided to Ms Sharpe. To this it was added that the information in the July 2014 Chains Invoice and the Deposit Email were false, and that the information in the Open Letter was also false because it inferred that the value of the Chains was in the order of $9 million, when the value was between NZD$200,000 and AUD$528,000.

156    As an aside, the Court was not taken to any direct evidence to suggest the existence of any agreement to carry out the alleged Design as alleged by the applicants. Nor was there any express finding by the primary judge that such an agreement was reached. Certainly, there was no mention in the evidence that Mr Watts was aware that any person or entity other than Chopsonion would receive the benefit of the alleged inflated price for the goods. Though it was suggested in vague terms that Ms Sharpe would be the beneficiary of the so-called “kick-back”, she did not receive any of it. On the contrary, the first $20,000 of the “excess funds” were paid to Chopsonion itself. The occasion on which any other agreement arose that other entities would receive any part of the excess funds was not identified. Nor was there any identification of any agreement for Mr Watts to secure Mr Smith’s dishonest involvement in the production of inflated valuations.

157    Nevertheless, there seems to be an implicit finding that Mr Watts was aware of Ms Sharpe’s activities and intentions arising from his being asked to provide an inflated invoice and other documents. All this may account for the findings by the primary judge on this issue. Relevantly, they appear as follows:

334    However, on the basis of my factual findings, I find that in the formulation and implementation of the Design to obtain funding for the Chains, Mr Sharpe, Ms Sharpe, Mr Watts (in his own right and for and on behalf of WMM) engaged in a fraudulent and dishonest Design the purpose of which was to provide a significant financial benefit to WMM if the Design was implemented:

(a)    For WMM to receive payment for additional plant and equipment being sold or transferred to Chopsonion (being the Yarrawonga Beef Floor, the Shoulder and Final Puller Machinery and the Breaking Down Saw); and

(b)    For WMM to receive funding to meet its liability to pay rent to SFF.

335    As to Mr and Ms Sharpe, on the basis of my factual findings, I find that the purpose of the Design was to provide a significant financial benefit to Mr and/or Ms Sharpe through Chopsonion, Annomac and Jechbo to:

(a)    Fund the purchase of the Yarrawonga Beef Floor, the Shoulder and Final Puller Machinery and the Breaking Down Saw without the Lenders knowing the funding was to be applied for that purpose; and

(b)    Fund the payment of commissions from WMM to Chopsonion, Annomac and Jechbo without the Lenders knowing the funding was to be applied for that purpose.

158    These findings were an adoption of the allegations in the pleading and are remarkable for the implicit conclusion that the securing of benefits to Chopsonion was a breach of duty to it because it apparently also secured benefits to its shareholders.

159    It is also apt to observe that it is difficult to conceive of a fraudulent breach of a duty to Chopsonion which involves securing funds so that it may pay an appropriate price for goods sold to it by WMM. As the evidence emerged, there is no suggestion that the Chains or other equipment were not worth the amount actually paid (whether with or without the additional rental liability), and nor was it suggested that Chopsonion acquired the additional equipment at an excessive price. Though it may be that WMM received payment for the goods, that is merely the consequence of Chopsonion acquiring them so that it could engage in a profitable on-sale.

160    It might also be noticed that, in the context of an alleged breach of fiduciary duty, it is difficult see how Mr and Ms Sharpe might engage in a dishonest Design that would have provided Chopsonion, as the entity to which the fiduciary duty was owed, the valuable opportunity to recover a substantial profit. Similarly, if the alleged scheme was for the purpose of inflating the price of goods that were to be acquired from WMM so that additional financial benefits would flow to Chopsonion, a breach of any equitable duty to that company is not self-evident. No doubt, it might constitute a misleading of any potential lender, but that is quite distinct from breaching a duty to Chopsonion.

161    Returning to the primary judge’s reasons, his Honour subsequently identified that Ms Sharpe dispersed the balance of the funding she received from the Lenders in bringing the Chains to Australia and identified the subsequent default on the loan by Chopsonion.

162    He also recorded that Ms How commenced proceedings in the District Court of South Australia against Chopsonion, Jechbo and Mr Sharpe to recover the amount of the funding. Default judgment was entered against those defendants on 14 June 2016 for approximately $2.475 million. As it was, no monies were recovered from those entities from those proceedings.

163    He then noted, and appeared to accept, (PJ [345]) Ms How’s claim that it was around the time of the District Court proceedings when she first became aware that Ms Sharpe was an undischarged bankrupt and had been since 3 December 2014. As will be seen, that was a generous finding in favour of Ms How, a person whom his Honour found to be a reliable witness. From her evidence, it is apparent that she was aware of Ms Sharpe’s bankruptcy before the loan was entered into. She chose not to tell the prospective lenders because she did not believe it to be relevant that a person who was offering a personal guarantee of a loan was insolvent.

164    Separately, the Lenders also threatened to bring a claim against FG Agri in respect of their losses, though that was settled by the latter purchasing one of the Chains for $1.1 million. Those monies were received by Private Funds Management and dispersed amongst the Lenders.

165    His Honour then identified the evidence surrounding the realisation of properties which were the subject of securities though, again, no monies were realised from the sale of any of them.

Knowledge

166    Before the primary judge an issue was raised as to the extent of Mr Watts’ knowledge of Ms Sharpe’s conduct. Though his Honour rejected the proposition that Mr Watts was unaware that Ms Sharpe and Chopsonion were pursuing funding for the purpose of acquiring the Chains, he did not make further findings that Mr Watts knew how the monies received from the Lenders would be utilised or, if he did, then when that knowledge was acquired. His Honour found:

368    It is for the reasons I have set out in the course of my factual findings, that I do not accept that Mr Watts was unaware that Chopsonion and specifically, Ms Sharpe, was pursuing funding for the Chains. It may well be that Mr Watts did not know Ms Sharpe had approached PFM, but I entertain no doubt he knew Ms Sharpe was pursuing funding. It was for that reason that he provided the deposit email to Ms Sharpe confirming receipt of the $90,000 deposit, the July 2014 Chains Invoice, and the Open Letter. I find that Mr Watts was aware that Ms Sharpe was seeking funding for the Chains and acted to assist her in that process by providing the documents to which I have referred and did so in the knowledge invoice no. 1148, the July 2014 Chains Invoice, and the deposit email were all false.

Reliance by Lenders

167    His Honour then dealt with the issue of that which motivated the Lenders’ decision to invest in the loan to Chopsonion. This question is discussed subsequently in the context of the second ground of appeal, but for present purposes it is appropriate to note the following:

(a)    Mr Willson, one of the Lenders, claimed that he relied on the fact that Ms How referred the opportunity to him. He deposed that it would have been important to him that there was an exit strategy for repaying the loan in the short term, that the value of the assets was supported by the Modified Rolton Valuation, and that there were resources available to Chopsonion to fund contingencies. In relation to the value of the Chains, he was mostly interested in the Modified Rolton Valuation and that the lending was $1.175 million against $2.2 million which represented a loan to value ratio of approximately 50%.

(b)    Another of the Lenders, Mr Cannan, was greatly influenced by the existence of a clear exit strategy, the approval of invoice funding, the purchase of the Chains by FG Agri, the Modified Rolton Valuation, and the purchase of the Chains from WMM. His evidence as to how he perceived that the Chains had a particular value was unclear.

(c)    Mr Rowley, a former legal practitioner, claimed to have relied on all of the information. He thought it was a good investment because the Modified Rolton Valuation indicated there was a lot of equity in the Chains and that Chopsonion was in a strong financial position such that it could meet its commitments, regardless of whether the Chains were sold.

The primary judge’s conclusions

168    Following his Honour’s assaying of the facts, he addressed the issues which had been raised. Some of those are irrelevant to the appeal and need only be mentioned in passing.

169    The first of such issues was an estoppel argument. The primary judge concluded that against Mr Watts and WMM and there is no need to consider it further.

The claims by Chopsonion

170    His Honour then noted that Chopsonion’s claims (PJ [418]ff) were to the effect that Mr and Ms Sharpe had breached their fiduciary duties to it and breached their statutory duties pursuant to ss 79, 181 and 182 of the Corporations Act, and that Mr Watts and WMM were knowingly involved in the Sharpes’ fraudulent Design which effected the breach of those duties.

171    An initial question in relation to this issue, was whether Ms Sharpe was a shadow director or officer of Chopsonion. It is, however, abundantly clear that she was, and his Honour determined accordingly (PJ [432]). There is no appeal against that conclusion.

Breach of s 181 by Mr and Ms Sharpe

172    In relation to the alleged breach of the obligation under s 181 of the Corporations Act that directors act in good faith and for a proper purpose, his Honour identified the nature of the transaction which was sought to be engaged in. Whilst noting that there was no subjective evidence from the Sharpes as to their intentions, his Honour held (at PJ [446]):

… there is, in any event, no basis available from the documentary evidence to support an inference that incurring funding for the purposes of purchasing the additional equipment, paying the Oringi rental and paying false consultancy claims was done in the best interests of Chopsonion.

173    It might be immediately noted that those observations appear to invert the issue. The question was not whether there was evidence of whether Mr and Ms Sharpe acted in the best interests of the company. Rather, the question was whether the evidence established that she failed to act in good faith and in the interests of the company.

174    Despite the overall transaction being one which would have returned a profit of some $900,000 to Chopsonion, his Honour concluded that the fundamental problem was that the funding of $1.175 million was obtained through Private Funds Management using false documentation. He further found that there was no indication that Chopsonion should pay Mr Watts and WMM for past rental incurred in respect of the Chains and concluded that (PJ [447]):

On any view, Mr and Ms Sharpe cannot be seen as exercising their powers and discharging their duties as directors in good faith and in the best interests of Chopsonion.

175    He also observed (at PJ [448]):

Objectively, there was no commercial justification for obtaining a loan of $1.171m.

176    It is, with great respect, difficult to understand either of those conclusions. In relation to the latter, had the transaction proceeded, it would have returned a substantial profit to Chopsonion. Even if some $54,000 had been improperly paid away to related companies, it is difficult to see how the overall transaction would not have been in Chopsonion’s interests. As has been indicated earlier, the Chains were valuable, even if there was a limited market for them, and the agreement to sell to FG Agri was a bona fide arm’s length one. There was also no suggestion that FG Agri was not a substantial company and capable of purchasing the Chains at the agreed price. In addition, there was no conclusion that the transaction between WMM and Chopsonion was inappropriate. In relation to that, a number of points can be made. Firstly, there was no evidence that the price at which the equipment was sold by WMM was other than at market value. That remains so even if it included paying the rental which WMM owed. Second, Chopsonion needed the additional equipment, which was the subject of the additional invoices, so as to be in a position to fulfill its obligation to sell two complete Chains to FG Agri and there is no evidence that it could have fulfilled its obligations otherwise.

177    In relation to the conclusion that the dispersal of loan funds to entities other than Chopsonion constituted a breach of duty, additional concerns arise. Whilst, in some circumstances, the dispersal to related companies of funds borrowed by Chopsonion might be said not to be directly in its best interests, it is difficult to see how the genuine attempt to derive a substantial profit from the buying and selling of the Chains was not. On the evidence before the Court, the overall transaction was ineluctably in the promotion of Chopsonion’s interests and, if the dispersal of some funds to related entities was part of the price of that transaction, it is difficult to see how such payments were in breach of any statutory or fiduciary obligation. More importantly though, there was no evidence whatsoever to suggest that the payments were not authorised by Chopsonion or made in the course of its business. It may be that, by those payments, Chopsonion discharged liabilities owed by it to those other entities or, alternatively, it acquired valuable consideration for them. In this respect, the allegation in the second further amended statement of claim (at paragraph 15.2.4) that Chopsonion obtained no benefit or otherwise suffered detriment by reason of the payments, was simply not established. Neither Chopsonion nor the Lenders called Mr or Ms Sharpe to give evidence establishing the absence of any benefit or the suffering of detriment and those are not matters which arise inferentially from the established facts.

178    His Honour further identified (PJ [450]) the crux of his concern that both Jechbo and Annomac received money out of the funds provided by Private Funds Management on the basis of false invoices. In relation to this, it is apt to remember that Jechbo was also a borrower of the funds and liable to repay the full amount. That being so, it is difficult to see how remitting some funds to an entity that was co-ordinately liable to repay them was not in the interests of Chopsonion. Again, there was no evidence as to the relationships between the related corporate entities which might have supported a conclusion that the payments to Jechbo and Annomac were not in Chopsonion’s interests. The invoices on which they were paid related to work done for the purposes of getting the transaction completed and there is no doubt that much time, effort and cost was expended in achieving that. How the cost and benefit of doing so was spread between the companies controlled by the Sharpes might properly be regarded as a matter for them.

179    Nonetheless, based on the mentioned reasoning, the primary judge regarded s 181 as having been breached by Chopsonion obtaining funding through Private Funds Management using documents they knew to be false. Again, the foundation for such a conclusion is elusive.

Breach of s 182 by Mr and Ms Sharpe

180    For similar reasons, his Honour found that Mr and Ms Sharpe used their position as directors and officers of Chopsonion improperly so as to gain an advantage for themselves, in their capacities as shareholders of Chopsonion, Annomac and Jechbo. His Honour further found that they caused detriment to Chopsonion by exposing it to a liability for funding in excess of that which was required, using documents they knew to be false. However, in the absence of any evidence from any director of Chopsonion, that conclusion is also difficult. Even if it is assumed that the diversion of $54,000 to Annomac and Jechbo could be said to constitute a misuse by Mr and Ms Sharpe of their position as directors, it does not follow that the entry into the loan agreement by Chopsonion to enable it to purchase the Chains, bring them to Australia, and then sell them at a substantial profit, was also a breach of that duty. Moreover, even if acquiring more funding than necessary was a breach, that was not something that resulted in or led to the losses that were sustained.

181    Overall, on this issue, even if the relevant facts were assumed in favour of Chopsonion, the best that could be said in relation to the claim under s 182 was that a benefit of $24,292.02 was received by Annomac to which it was presumably not entitled. That is trivial in the scheme of the claim.

182    Despite the foregoing serious reservations as to the breach of duty claims, the primary judge’s conclusions were not the subject of any direct challenge on appeal.

The involvement of Watts and WMM in the breaches of statutory duty

183    His Honour then turned to the question of whether Mr Watts and WMM were involved in any of the breaches of statutory duty (PJ [456]ff). In that respect, he referred to the observations of White J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181, 255 [398], who observed that, for a person to be knowingly concerned in a statutory contravention, they must have been an intentional participant with knowledge of the “essential elements constituting the contravention”.

184    In relation to this, his Honour found that the essential elements constituting the contravention of s 181 comprised of engaging in the “Design” as he had found it to be (PJ [459]), though as identified above, the scope of the Design was far from clear. Whilst his Honour set out the pleaded purposes which the Design was intended to achieve, he did not identify the actual dishonest design itself nor the extent to which it had been established. Had he done so, he might have noted the serious allegations in paragraphs 10A, 10B, 10C and 10D of the second further amended statement of claim which were included as part of the alleged Design but not established by the evidence.

185    His Honour then (PJ [460]) referred to the application for funding based on false documents, including the false July 2014 Chains Invoice and the Deposit Email, and that these formed part of the execution of the Design. Therefore, he found that Mr Watts was an intentional participant in the attempt by Ms Sharpe to obtain funding for Chopsonion and had actual knowledge of it. He then concluded that Mr Watts and WMM were involved in the breaches of statutory duty within the meaning of s 79 of the Corporations Act.

Fiduciary duties owed to Chopsonion and their breach

186    The primary judge then turned to the existence or otherwise of fiduciary duties and the allegation of their breach. He identified (PJ [467]) the alleged fiduciary duties, though they could be rephrased to accord with the accepted proscriptive obligations of directors to companies. He then found, without explanation, that by engaging in and executing the Design, Mr and Ms Sharpe breached their fiduciary duties to Chopsonion and did so dishonestly and fraudulently. He said (PJ [472]):

In view of the factual findings I have made, I find that Mr and Ms Sharpe by engaging in and executing the Design breached their fiduciary duties to Chopsonion and did so dishonestly and fraudulently.

187    The difficulties associated with the formulation of the Design and the other difficulties associated with this have been referred to above. That said, it is noted that there was no ground of appeal that sought to directly undermine his Honour’s conclusions on this issue. There is no criticism in that observation given the nature and scope of the proceedings and the issues which arose, but it does raise concerns as to the manner in which the appeal might be determined, particularly the second ground of appeal. On the other hand, the grounds of appeal do seek to overturn essential findings of fact which, if successful, would necessarily render the findings in relation to all causes of action unsustainable.

Knowing assistance in a breach of fiduciary duty

188    Addressing the question of whether Mr Watts and WMM knowingly assisted Mr and Ms Sharpe in breaching their fiduciary duties, his Honour immediately noted that they would be liable only if it is established that Mr Watts had possessed the requisite degree of knowledge. In that context, reference was made to the observations of Gageler J in Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1, 31 [71]. There, his Honour had identified that “knowing participation” included knowingly assisting in the execution of a dishonest and fraudulent design on the part of the fiduciary to engage in conduct that is in breach of fiduciary duty. In that respect, the participant must have knowledge of the circumstances which would indicate the fact of dishonesty on the part of the fiduciary to an honest and reasonable person.

189    The primary judge then identified that he had found that the Design involved Mr and Ms Sharpe in dishonestly and fraudulently breaching their fiduciary duties. He then found (PJ [484]) that Mr Watts knew that Ms Sharpe was actively seeking funding for the Chains and that he had provided Invoice 1148 and the July 2014 Chains Invoice to her which he knew had been provided to at least one funder. He was also found to have provided the Deposit Email to Ms Sharpe. His Honour further found that Mr Watts’ professed confusion and surprise at WMM receiving $760,000 on 22 January 2015 strained credulity, and he was aware that WMM had received payment on the basis of the July 2014 Chains Invoice which provided additional payments to it. Some were for additional machinery and the past Oringi rent. Others were for the payments to Chopsonion, Annomac and Jechbo pursuant to the false invoices.

190    For those reasons it was held that Mr Watts and WMM knowingly assisted Mr and Ms Sharpe’s breaches of their fiduciary duties owed to Chopsonion.

191    It is unfortunate that, before the primary judge, Chopsonion did not identify the specific fiduciary duty or duties which were allegedly breached, or the manner in which that occurred. Had that occurred, the difficulties with eking a cause of action out of the facts might have become apparent. It can readily be observed that the alleged fraudulent breaches of fiduciary duty identified by the primary judge concern the asserted diversion of loan funds received for purchasing the Chains to entities other than Chopsonion. As has been observed above, this presumes that there was no valid reason for the payment of funds to Annomac and Jechbo. In the case of the latter, that is more than difficult given it was a co-borrower of the funds. Otherwise, the making of the payments may have discharged antecedent debts owed by Chopsonion to those companies, or created a loan between them, or been part of some other transaction. The invoices to WMM aside, there was simply no evidence suggesting that the payments were legitimate or not.

192    Nevertheless, the primary judge considered that they represented some breach of duty and it can only be assumed that he believed that the funds should have been received by Chopsonion alone.

Did Mr Watts and WMM engage in conduct contrary to s 18 of the ACL?

193    The next issue addressed concerned the causes of action advanced by the Lenders relying on alleged contraventions of s 18 of the ACL. In that respect, the primary judge found that the contraventions had occurred. Specifically, Invoice 1148, the July 2014 Chains Invoice and the Deposit Email were held to have been false, particularly as to the purchase price and the receipt of the alleged deposit. However, his Honour found that the Open Letter was not false because it did not purport to value the Chains, but merely identified the replacement costs of them in Australia.

194    His Honour found that the July 2014 Chains Invoice and the Deposit Email, taken together and in context, conveyed the representation that the transaction by which Chopsonion was purchasing the Chains was a genuine one, with a purchase price of $850,000 against which a deposit of $90,000 had been paid. This, he found, was conduct which was misleading or deceptive (PJ [510]).

Causation and reliance

195    On the question of causation, it was submitted to the primary judge that the Lenders did not relevantly rely upon anything done by Mr Watts or WMM, because there existed so many other factors supporting their decision to advance the loan that they would have proceeded in any event, even if the misrepresentation about the cost of the Chains had not been made. Some factors in favour of the making of the loan were that the Lenders were fully aware of Chopsonion’s financial position and believed that it would support the repayment of the loan, that Chopsonion was a regular and existing client of Private Funds Management, that no enquiries were made as to the status of or circumstances surrounding previous loans Private Funds Management had arranged for Chopsonion, and that Chopsonion had an apparent cashflow position which was able to service the loan facility for three months of interest. It was further submitted that the Lenders relied heavily on the exit strategy for their loan, being the sale of the Chains to FG Agri or, alternatively, the invoice funding agreement with The Invoice Market, either of which would provide sufficient funds for repayment of the loan.

196    The primary judge recorded that it was submitted that none of the individual Lenders relied, in the relevant sense, on the fact that the Chains would be purchased by Chopsonion at any particular price. However, he rejected that submission on the basis that it had not been pleaded that, had the Lenders known the true price, they would have proceeded with the transaction. His concern was that documentation provided by Mr Watts and WMM as part of the overall conduct comprising the Design was false.

197    Reference was also made by Mr Watts and WMM to the fact that, in the Heads of Agreement between the Lenders, FG Agri, and Mr Anderson, which resolved the threatened litigation against FG Agri, it was said that the Lenders had relied upon the sale of the Chains from Chopsonion to FG Agri. In response to this, his Honour noted (PJ [522]) that the causation requirement under s 236 of the ACL was satisfied if the contravention was “a” cause of the loss, in the sense that it materially contributed to it, and that it was not necessary for the contravening conduct to be the sole cause of loss: I & L v HTW Valuers (2002) 210 CLR 109, 121 – 122 [33]. He then held (PJ [524]) that the funding proposal was put to the Lenders on the basis of, amongst other things, the July 2014 Chains Invoice and that Chopsonion had paid a deposit of $90,000.

198    He further found (PJ [528]) that, when considering whether to advance the loan process by inviting potential funders to participate, Ms How relied on the information provided to her by Ms Sharpe, which included the July 2014 Chains Invoice and the Deposit Email and was thereby misled. He also found that the Lenders relied upon the same information and were also misled.

199    His Honour further concluded that it was self-evident that, if Ms How had known the true position – namely that the purchase price for the Chains was in fact $528,000 (incl GST) and that no deposit had been paid – she would not have put the loan to the Lenders (PJ [530]). He made the broad conclusion (PJ [531]):

Further, I entertain no doubt that had the true position been disclosed, then faced with the knowledge of a false invoice and a false representation of the payment of a deposit against that invoice as part of the overall conduct, no party would engage in the transaction.

200    In this way, he concluded that both Ms How and the Lenders relied on both the July 2014 Chains Invoice and the Deposit Email when entering into the loan agreement. This issue is the subject of much contention on the appeal, with the appellants asserting that the primary judge applied the incorrect test in his assessment of causation.

201    Further, his Honour found that the fundamental point was that both Ms How and the Lenders had proceeded on the basis that the transaction by which Chopsonion was to acquire the Chains was one in which the purchase price was $850,000, against which a deposit of $90,000 had been paid. He said (PJ [532]):

There were other factors which were clearly relevant to the decision taken by Ms How to put the proposal to the Lenders and the decision by the Lenders to engage in the transaction. That is not the point. I entertain no doubt that Ms How and the Lenders proceeded on the basis that there was a genuine transaction as reflected in the July 2014 Chains Invoice and the deposit email when in fact that was not the case

202    With respect, that may well have been the case, though it does not answer the question of whether Ms How and the Lenders would have proceeded had the alleged misrepresentation not been made.

203    In those circumstances, his Honour found that causation had been established.

Whether Chopsonion was misled

204    As an adjunct to the above, his Honour also concluded that Chopsonion was misled by the misleading or deceptive conduct of Mr Watts and WMM because the directors, Mr and Ms Sharpe, were acting “totally in fraud” of Chopsonion, such that their knowledge was not to be attributed to the company.

205    As an aside, it ought to be noted there is little analysis of this issue. That is unfortunate because, here, the transaction which Ms Sharpe advanced was one by which, had it proceeded to fruition, Chopsonion would have recovered a substantial profit and it is, perhaps, a little difficult to see that her conduct was “totally in fraud” of the company when she gave it that opportunity. That is even more relevant where there was no suggestion that the sale to FG Agri was not a genuine, arms-length transaction, that the price for the two complete Chains to be sold was not at market value, or that FG Agri was not capable of performing the agreement. In addition, and as mentioned, there is no evidence to suggest that the payment of money to Annomac and Jechbo from the funds received by WMM was not for the benefit of Chopsonion or otherwise in breach of its rights.

Mr and Ms Sharpe’s conduct contrary to s 18 of the ACL

206    His Honour further found that the conduct of Mr and Ms Sharpe, in procuring funding on the basis of the documentation they knew to be false, contravened s 18.

Mr Watts and WMM’s involvement in the contravening conduct of Mr and Ms Sharpe

207    His Honour also concluded that Mr Watts and WMM, by their conduct, were involved in the contravention by Mr and Ms Sharpe of s 18 of the ACL. Again, the findings are at a high level of generality, and their focus is on the provision of the allegedly false documents to Ms Sharpe so that they could be used to allow Chopsonion to secure the loan to allow it to acquire the Chains.

Deceit

208    The Lenders also made a claim against Mr Watts and WMM in deceit. The primary judge found that this was made out by the provision of the July 2014 Chains Invoice and the Deposit Email, which jointly represented that the purchase price for the two Chains was $850,000, of which a deposit of $90,000 had been paid. In relation to this cause of action, the primary judge concluded that reliance had occurred on the basis that, had the Lenders been aware of the falsity of the July 2014 Chains Invoice and the Deposit Email, they would not have provided the funds. That, however, is not the correct test when assessing causation.

The Rolton proceedings

209    Separate proceedings were brought against Rolton and Mr Smith in relation to the Rolton Valuation and the Modified Rolton Valuation. Those claims were dismissed on the basis that the value stated in the Rolton Valuation was an opinion honestly held by Mr Smith. Moreover, his Honour found that the document was not false because it merely identified the value of replacement Chains in Australia and it had not been shown to be otherwise false. He also concluded that he was not satisfied that Mr Smith and Rolton had prepared the Modified Rolton Valuation or provided it to Ms Sharpe or Chopsonion.

210    In all those circumstances, the proceedings against Rolton and Mr Smith were dismissed.

Loss and damage

211    His Honour then addressed the issue of the loss and damage suffered by the applicants.

212    In that respect, he noted that the Lenders advanced a total of $1,175,000 to Chopsonion, and that there was no dispute as to the contributions from the respective Lenders. It was also not disputed that $1.1 million was recovered from FG Agri, which, after payment of various costs, resulted in $991,733.49 being distributed proportionately to the Lenders.

213    His Honour held that the amount so recovered was to be deducted from the principal of the amounts advanced, leaving a total amount of $177,307.66 owing on the loan, excluding interest.

214    He went on to consider the special position of Mr Rowley (PJ [678]ff), who had borrowed his contribution of $735,000 to the funds loaned to Chopsonion, and concluded that Mr Rowley was entitled to recover the costs of doing so.

Other losses claimed by the Lenders

215    His Honour also dealt with the claims by the Lenders for recovery of the receiver’s fees and legal costs, mortgage management fees and legal fees. There is no need to detail his Honour’s dealing with those matters, suffice to say that they were allowed in differing respects.

Other loss claimed by Chopsonion

216    A significant issue with which his Honour dealt was the several heads of loss suffered by Chopsonion. In particular, it had sought recovery of losses equal to the liabilities which it had incurred as a result of entering into the loan agreement and which, by the time of the hearing, totalled slightly in excess of $7 million. Necessarily, that amount was substantially made up of accrued penalty interest. The extent of such losses available to Chopsonion became the subject of the primary judge’s second decision.

217    In dealing with the orders for damages that were sought, his Honour accepted the applicants’ submission that the losses suffered by Chopsonion and the Lenders respectively were the same for each cause of action. That proposition is difficult in circumstances where some causes of action relate to damages for misrepresentation, and others relate to equitable compensation.

218    Nevertheless, in relation to the claims by the Lenders, damages were assessed on a reliance-based approach and the amount awarded was $456,799.82.

219    In relation to the breaches of the statutory duties and knowing assistance, the amount allowed was $652,898.81, plus interest. This was on the basis that the damages arising from those causes of action were, in the first instance, calculated by reference to the liabilities incurred by Chopsonion in entering into the loan agreement.

Interest judgment

220    In his first set of reasons, the primary judge reserved the question of the amount of interest payable in relation to the successful claims against Mr Watts and WMM. The parties were invited to make additional submissions in that regard, and his Honour delivered a second set of reasons, “the Interest Judgment”.

221    Although the Interest Judgment traverses several issues, only one is directly challenged by Chopsonion’s cross-appeal. It concerns the extent of the Lenders’ entitlement to interest under the agreement with Chopsonion, where the essential issue was whether the Lenders had applied the $991,733.49 received from the sale of one Chain to FG Agri to the reduction of the principal owing under the loan. If so, that would have significantly reduced the amount of the outstanding debt on which interest was payable. In turn, that would have reduced the liability of Mr Watts and WMM to Chopsonion.

222    In this regard, his Honour set out the relevant terms of the general security agreement between Chopsonion and the Lenders (PJ [42] and [43]), and rejected the submission that the Lenders had chosen to apply the money recovered from FG Agri towards the arrears of interest and not towards the reduction of the principal debt. He also relied on Ms How’s evidence that payments received from FG Agri were disbursed, “… by proportionate distribution of surplus funds of the lenders having regard to their investment in the funding”. He then held:

47    Further, in the applicants’ closing submissions, they identify in Appendix B, losses suffered by the Lenders. In [9.2] of those submissions, the applicants set out how the sum of $991,770.49 was distributed to the Lenders and identify at [9.3] the amounts of unrecovered principal after allowing for a proportionate payment from the money received from FG Agri, together with interest on the unrecovered principal.

48    That approach is inconsistent with the applicants’ contention that the Lenders chose to apply the recoveries from FG Agri towards arrears of interest and not towards reduction of the principal.

223    As a consequence (at PJ [49]), his Honour seemed to find that the amount recovered was applied against the principal as opposed to the outstanding interest.

The appeal on liability

224    The first ground of appeal is:

1.    The primary judge:

(a)    erred in finding that the Appellants created and provided Ms Sharpe with the 2014 Chains Invoice, the deposit email, and the Open Letter, and were engaged in the Design;

(b)    consequent upon (a), erred in finding that the Appellants were involved in breaches by Mr and Mrs Sharpe of sections 181 and 182 of the Corporations Act and s 18 of the ACL, knowingly assisted them in a breach of fiduciary duties owed to Chopsonion, engaged in conduct in contravention of s 18 of the ACL, and were liable to the Lenders in deceit.

225    As has been indicated in the foregoing discussion of the primary judge’s reasons, there are several difficulties in his analysis of the liability of Mr Watts and WMM, though a question remains as to whether they are sufficient to require a different outcome.

Issues surrounding the fact-finding obligation

The demeanour of witnesses

226    The findings in relation to that which Mr Watts did or did not do were partially affected by the primary judge’s conclusions as to his credibility. In that respect, his Honour had the advantage of observing Mr Watts whilst he gave evidence, and thereby was able to evaluate the manner in which he gave it, his forthrightness, his responsiveness, and his demeanour. These are all matters which cannot be easily considered on appeal, save to the extent that they might emerge from the transcript.

227    His Honour observed (PJ [45]) that reliance on the demeanour of a witness required a cautious approach and that, to the extent possible, conclusions should be reached on the basis of coherence with contemporary materials, objectively established facts and the apparent logic of a witness’s narrative: Fox v Percy (2003) 214 CLR 118, 128 – 129 [30] – [31]. A little later his Honour said (PJ [48]):

It is in that context that the oral and written testimony of all the witnesses must be assessed by reference to contemporaneous records, objective facts and to the extent they are ascertainable, whatever motives the parties’ witnesses may have.

228    Whilst that may, on first blush, seem to reduce the difficulty of reviewing the primary judge’s credibility findings, in the course of his reasons, his Honour occasionally referred to the manner in which certain witnesses, including Mr Watts, gave their evidence. In those circumstances, additional weight must be accorded to his conclusions and findings. In this respect, in Turner v Richards [2025] NSWCA 83 at [66], Payne JA (with whom Leeming and Adamson JJA agreed) noted:

In Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55], Bell, Gageler, Nettle and Edelman JJ made clear that a court of appeal is bound to conduct a “real review” of the evidence given at first instance and of the judge’s reasons for judgment to determine whether the trial judge has erred in fact or law. Appellate restraint is, however, warranted in relation to a trial judge’s findings of fact unless those findings are “glaringly improbable” or “contrary to compelling inferences” if those factual findings “are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence” (emphasis added)… This principle of restraint applies to findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts.

229    The principles relevant to the application of judicial restraint on appeals were also summarised in Wang v Hur [2024] QCA 126 at [24] as follows:

[24]    The relevant passages from those authorities were recently examined at length in this Court in Sutton v Hunter. To summarise further, but retaining the language used by the High Court authorities referred to in the previous paragraph:

(a)    On an appeal by way of rehearing, it is for the appellant to satisfy the appellate court that the order that is the subject of appeal is the result of some legal, factual or discretionary error.

(b)    On such an appeal, the appellate court is bound to conduct a “real review” of the evidence given at first instance and of the judge’s reasons for judgment to determine whether it should be so satisfied.

(c)    If the appellate court concludes that the judge has erred in fact, it is required to make its own findings of fact and to formulate its own reasoning based on those findings.

(d)    When determining whether a judge has erred in fact, in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge.

(e)    However, in determining whether the judge has erred in fact, an appellate court is required to exercise restraint when invited to interfere with a primary judge’s findings of fact, at least where those findings are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. Such appellate restraint applies not merely to findings of primary facts but also applies to findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts.

(f)    In such cases, a finding of fact is not to be set aside because an appellate court thinks that the probabilities of the case are against – even strongly against – that finding of fact. The finding must stand unless it can be shown that the trial judge “has failed to use or has palpably misused [his or her] advantage” or has acted on evidence which was “inconsistent with facts incontrovertibly established by the evidence”, or which was “glaringly improbable”, or which was “contrary to compelling inferences.”

230    As will be seen below, in this case some of the relevant findings derive from a compendious analysis of objective facts and the manner in which Mr Watts gave his evidence. In a number of respects, the primary judge’s analysis of objective facts has miscarried and, because he relied upon these as a foundation for his findings as to Mr Watts’ credit, the latter became difficult to sustain.

231    However, it should also be observed that a reading of the transcript of Mr Watts’ cross-examination reveals that he was not a particularly good witness. Indeed, he was a poor witness. Putting aside the long period of time between the events in question and his giving of evidence, his age and ill-health, as well as the fact that he gave his testimony remotely, his approach whilst under oath was somewhat cavalier and arrogant. He sought to forcefully advance what he believed to have been the case, rather than what he actually recalled. He responded to questions put to him in cross-examination in an over-confident manner and, when confronted with contradictory evidence, often needed to retreat to assertions of uncertainty and reference that which appeared in his affidavit. Worse still, despite his poor recollection of the events, it would seem that his overconfidence led to him not familiarising himself with the contents of his affidavits or their attachments prior to the hearing. This led to him being unable to temporally order in his thoughts matters that were important to the case.

232    Despite all of that, he was not necessarily a person who had engaged in the dishonest conduct alleged.

The seriousness of the allegations

233    Any review of the primary judge’s findings in relation to Mr Watts’ evidence and his credibility must be approached in the context of the gravity of the issues in question. It has long been accepted that allegations of fraud are serious and that, before such findings are made, a court should have a sufficient degree of satisfaction of the existence of the matters alleged. The principles were stated in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170, 170 – 171 as follows:

The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary “where so serious a matter as fraud is to be found”. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct. As Dixon J commented in Briginshaw v Briginshaw:

“The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved …”

There are, however, circumstances in which generalisations about the need for clear and cogent evidence to prove matters of the gravity of fraud or crime are, even when understood as not directed to the standard of proof, likely to be unhelpful and even misleading. In our view, it was so in the present case.

(Footnotes omitted).

234    The comments in Neat Holdings are of some antiquity now, and those in Briginshaw v Briginshaw (1938) 60 CLR 336 even greater. Nevertheless, they have not been overturned and should be applied though together with the operationally more flexible s 140(2) of the Evidence Act 1995 (Cth), which is probably a better analytical tool in this case.

The rule in Browne v Dunn

235    In the course of the appeal an issue arose as to whether some of the submissions made offended the rule in Browne v Dunn (1893) 6 R 67. That was particularly so in relation to certain matters which were not put to Mr Watts, but subsequently relied upon for the purpose of alleging that he engaged in fraudulent conduct. There is no need to dwell on the intricacies of that rule as they are well known, though it is worth noting the modern statement of the rule as was articulated by Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169, 216 – 218, in the following terms:

The rule in Browne v Dunn is a rule of fairness which requires a party or a witness to be put on notice that a statement made by the witness may be used against the party or a witness or to be put on notice that an adverse inference may be drawn against the witness or an adverse comment made about the witness in order that the witness may respond to the issue and give an explanation …

The significance of the rule is that it requires notice to be given of a proposed attack on a witness or on the witness’ evidence where that attack is not otherwise apparent to the witness. The rule does not require that there be put to the witness every point upon which his or her evidence might be used against him or her or against the party who calls the witness. This is demonstrable from the judgments in Browne v Dunn …

It is apparent from the judgment of Lord Herschell that notice of the relevant attack need not necessarily occur in cross-examination so long as it is otherwise clear that it will be made …

The rule does not apply, in the sense that it is not transgressed, where the witness is on notice that his version is challenged or that an inference may be drawn against him and such notice may be found in the pleadings, in an opening or in the manner in which a case is conducted …

236    It might be accepted that, in circumstances such as the present where each party’s evidence is first advanced by affidavit, there is less need to challenge witnesses on every pertinent aspect of their testimony: Players Pty Ltd (in Liq) (Recs Apptd) v Clone Pty Ltd [2015] SASC 133 [105]. However, when the object of cross-examination is to support a submission that a person has engaged in fraudulent or deliberately dishonest conduct, the dictates of fairness require that the matters on which the party making the submission intends to rely, are fairly put to the person who stands accused.

The adequacy of the findings

237    In this case, a central complaint by Mr Watts is that the primary judge was presented with his detailed affidavit evidence in which he explained why it was that he did not, nor would have, prepared false documents to assist Ms Sharpe and that evidence was not addressed in any significant way in his Honour’s reasons for judgment. In this respect, it is important to observe that the obligation to give reasons is a vital incident of the judicial process, albeit not a universal one: Public Service Board of New South Wales v Osmond (1986) 159 CLR 656, 667: and a failure to explain the basis of a crucial finding may involve a breach of the principle that justice must not only be done, but be seen to be done: Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, 281; Mifsud v Campbell (1991) 21 NSWLR 725, 728 (Mifsud v Campbell). In the latter case, Samuels JA (with whom Clarke JA and Hope A-JA agreed) observed:

Similarly, in my opinion, it is an incident of judicial duty for the judge to consider all the evidence in the case. It is plainly unnecessary for a judge to refer to all the evidence led in the proceedings or to indicate which of it is accepted or rejected. The extent of the duty to record the evidence given and the findings made depend, as the duty to give reasons does, upon the circumstances of the individual case.

Accordingly, a failure to refer to some of the evidence does not necessarily, whenever it occurs, indicate that the judge has failed to discharge the duty which rests upon him or her. However, for a judge to ignore evidence critical to an issue in a case and contrary to an assertion of fact made by one party and accepted by the judge — as the defendant’s denial of having consumed alcohol — may promote a sense of grievance in the adversary and create a litigant who is not only “disappointed” but “disturbed” — to use the words which appear in the New Zealand case of Connell v Auckland City Council [1977] 1 NZLR 630 at 634. It tends to deny both the fact and the appearance of justice having been done. If it does, as in my opinion is the case here, then it will have worked a miscarriage of justice and have produced a mis-trial and resulted in what I would take to be an error of law which is reviewable on appeal. Whether it is an error of law or an error of fact, it seems to me a failure by the judge to do what the nature of the office requires.

Insufficient regard paid to the context

238    Another substantial criticism of the primary judge’s reasons is that he failed to pay sufficient attention to the context in which the actions of Mr Watts occurred. Whilst this is dealt with below, it is necessary to observe that the case at first instance was factually intense and involved substantial documentation as well as much oral testimony taken over many days. That being so, his Honour was required to contend with an enormous amount of information and very lengthy submissions from both sides. As the observations in Mifsud v Campbell above make clear, the judge is not required to refer to every piece of evidence adduced in the trial, nor explicitly address every submission made. Rather, the obligation is to consider the evidence and make findings on the issues between the parties. In modern litigation, which is generally more fact intensive that it once was, it would be impossible for trial judges to be required to comment on every document or line of testimony presented.

239    That said, where some fact or occurrence is proffered as exculpatory of a party, and particularly in answer to a serious allegation, the Court is bound to fairly address it as part of the decisional process. Where that which is relied upon for exculpatory purposes is the context in which the alleged actions occurred, it must be regarded in the same way as any other piece of evidence and addressed according to the above standards. As will be seen, that did not sufficiently occur in this case.

The need to overturn some essential findings in this case

240    As the following discussion reveals, it is necessary in the circumstances of this case to depart from the primary judge’s findings in relation to a number of essential issues. In broad terms, that arises from an admixture of reasons, including that his Honour’s conclusions were often based upon a misunderstanding of the objective evidence. That error, which may have arisen from the somewhat disorganised manner in which the proceedings were conducted before him, led him to perceive inconsistency between certain objective and established facts on the one hand, and, on the other, Mr Watts’ testimony, when such inconsistency did not exist. That necessarily impacted upon his Honour’s assessment of Mr Watts’ credit. When, however, the evidence is appropriately collated so as to provide an accurate analytical context in which to assess the essential issues, the primary judge’s findings become inconsistent with certain incontrovertible inferences, and this warrants a departure from them, despite their partial reliance on Mr Watts’ demeanour in the witness box: Fox v Percy (2003) 214 CLR 118, 128 – 129 [28] – [31]; Lee v Lee 148 – 149 [55]. A necessary concomitant of the overturning of some of the primary judge’s findings in relation to the subject matter of Mr Watts’ evidence, is that correlative findings in relation to Ms How, who gave evidence contrary to Mr Watts, are unsupportable.

241    It is also to be kept steadily in mind that the allegations against Mr Watts were of the most serious nature and, separately to the above, they are not supportable by reference to the standard of proof required to be met in respect of them. That arises most poignantly from the omission to weigh the claims against Mr Watts in the context of the totality of the evidence.

False documents prepared by Ms Sharpe

242    One significant contextual matter of which it was submitted the primary judge paid insufficient attention was Ms Sharpe’s conduct and her propensity to make false statements in documents and, indeed, to falsify documents. There is, with respect, substantial force in that criticism. In the primary judge’s reasons, there is little in the way of any express acknowledgement that Ms Sharpe was the main perpetrator of the dishonest conduct, or that it was she and her companies that directly and substantially benefited from it. It was Ms Sharpe and Chopsonion that constituted the fulcrum around which the transaction and the associated conduct was centred and, at least on the applicants’ case, they were the ones who received the unwarranted gains. They also stood to profit substantially from the overall transaction they had put in place, being one which included the on-sale of the Chains to FG Agri. Conversely, neither Mr nor Mrs Watts were alleged to have gained personally from the dishonest conduct, and the only real benefit to WMM was the sale of equipment to Chopsonion at prices that were not suggested to be uncommercial. When considered objectively, it was Ms Sharpe and Chopsonion who would have been highly motivated to engage in the falsification of documents as opposed to Mr Watts and WMM.

243    In this regard, the appellants justifiably submit that the primary judge failed to consider that possibility and, in turn, the likelihood that Mr Watts and WMM were merely victims of Ms Sharpe falsehoods, as opposed to participants in her fraud. This may have happened because Ms Sharpe’s was neither a party to nor a witness in the proceedings, with the result being that the centrality of her conduct to the events in dispute was inadvertently minimised in the primary judge’s consideration.

The Modified Rolton Valuation

244    Of especial relevance in this respect is the Modified Rolton Valuation, which all parties appeared to accept had been falsely and surreptitiously prepared by Ms Sharpe. The original Rolton Valuation was authored by Mr Smith on 26 November 2014, in which he assessed the replacement cost of one of the Chains as being between $1.1 million and $1.3 million. The modified version of that document included an introductory paragraph which promoted the reputation of the author as having the ability to assess the value of abattoir chains. It also included an alteration which amended the words, “Total Aust$1.1 to 1.3m”, to, “Total Current Market Aust$1.1 to 1.3m each chain”. It was possibly this latter manipulation of the document that was of most significance as, in the course of his evidence, Mr Smith asserted that his work was not a valuation as such, but merely the identification of the value of a replacement chain. The alteration, therefore, modified the import of the document to one purporting to value the Chains themselves. Conversely, the alteration indicating that the value given was for each chain did not matter greatly, as that is what Mr Smith had originally intended. Nevertheless, the alterations were directed to increasing the force of the document as supporting the Chains’ market value. So much is evidenced by the fact that it was given to Private Funds Management and relied upon by Ms How and the Lenders in agreeing to finance the transaction. As is known, the Lenders and Chopsonion unsuccessfully asserted that it was used deliberately to dishonestly procure the making of the loan.

245    The primary judge accepted that the Modified Rolton Valuation was not prepared by either Mr Smith or Mr Watts. Although it was submitted on behalf of Mr Watts that the only realistic possibility was that it had been prepared by Ms Sharpe, his Honour made no finding to that effect. However, on the evidence before the Court it can be safely concluded that she had done so and had propounded it as having been prepared by Mr Rolton for the purpose of attempting to induce potential financiers to advance funds to Chopsonion.

246    In the context of the allegations made in the proceedings, the primary judge’s omission to reach that important conclusion is not insignificant. The appellants’ case was that Mr Watts did not prepare certain documents which were used by Ms Sharpe to attempt to deceive potential financiers. Therefore, a conclusion that Ms Sharpe was a person who had falsified one or some documents for that same purpose is particularly important. That she had done so raised the strong possibility that she may also have falsified other documents. Necessarily, her conduct in altering the Rolton Valuation was a significant piece of evidence which the appellants were entitled to have taken into account in the evaluative process of the serious allegations against Mr Watts, and the omission to do so constituted an error.

The EVS Valuation

247    A similar conclusion must be reached in relation to the document referred to as the “EVS Valuation”, dated 15 July 2013. That document was not directly relevant to the issues between the parties, but its importance to Mr Watts’ credit arose during the hearing. It purported to be a valuation of a business referred to as the, “Collarenebri Goat Abattoir”, being a facility operated by Chopsonion, and it was purportedly prepared by a business called “Expert Valuation Services”. It had been given by Ms Sharpe to Ms How in around July 2013 to support an application for a different loan for Chopsonion. The valuation indicated that it had relied upon a valuation of the abattoir’s plant and equipment prepared by Mr Watts, and it annexed a copy of the same. However, Mr Watts gave evidence that he did not prepare the valuation and identified the numerous ways in which it did not conform to the methodologies or practices which he used. He identified it as being a “complete forgery”.

248    In the course of cross-examination on the document, Mr Watts repeated that assertion, even though it appeared that his signature had somehow been affixed to the document. He identified that Ms Sharpe must have forged the document, and he was not challenged on that assertion. Indeed, from the transcript it appears that his denial was accepted by the applicants. Moreover, the applicants did not submit to the primary judge that Mr Watts prepared the valuation, while it was positively submitted on behalf of Mr Watts that he did not do so. Again, the circumstances would tend to suggest that the whole of the EVS Valuation, or at least the valuation of plant and machinery, was a forgery prepared by Ms Sharpe for the benefit of Chopsonion’s business.

249    The existence of the EVS Valuation was not addressed by the primary judge, and no finding was made as to who produced it, nor in respect of the submissions made in relation to it.

250    Necessarily, concerns similar to those arising from the absence of any consideration of the authorship of the Modified Rolton Valuation, also arise in relation to the EVS Valuation. Certainly, this document is potentially more relevant to the issue in question, in that it evidences that Ms Sharpe was prepared to falsify documents in Mr Watts’ name, including by affixing of his signature to them and then providing them to Ms How to induce the giving of a loan.

251    This also raises the point that, if Mr Watts was really a person who was prepared to assist Ms Sharpe by producing false documents, there would have been no need for her to forge them in his name. She could have simply procured him to prepare an inflated valuation. The evidence that she acted alone to produce the document undermines the suggestion that she and Mr Watts were effectively engaged in some other conspiracy to defraud persons who might advance funds to Chopsonion.

252    Again, this was a significant, relevant contextual circumstance that the appellants were entitled to have addressed in relation to the allegation that Mr Watts was involved in Ms Sharpe’s misconduct. The trial judge’s omission to address it in relation to the issues which went to Mr Watts’ credibility was a further significant error.

The spreadsheets

253    Another series of documents prepared by Ms Sharpe and which contained false information were the spreadsheets which were given to potential funders, including Private Funds Management. They included statements that the price of the Chains being sourced from New Zealand was $850,000 and that a deposit of $90,000 had been paid. It was accepted by the appellants that this information was false to some extent. In particular, Chopsonion had not paid any deposit at all. Nevertheless, Ms Sharpe repeated the false statements on each of the several occasions on which she provided updated versions of the spreadsheet to the potential funders.

254    There was no suggestion that Mr Watts was involved in the preparation of the spreadsheets. They were Ms Sharpe’s documents and they fortified the conclusion that she was prepared to make false representations to the Lenders and Private Funds Management.

255    This also is an important contextual matter that required consideration when determining whether Mr Watts produced the other documents containing the same misrepresentation.

Conclusion as to the omission to address the impact of Ms Sharpe’s false documents and statements

256    In circumstances where a serious allegation of misconduct was made against Mr Watts that he had prepared false documents, and part of his refutation was that another person was responsible, he was entitled to have that submission and the supporting evidence considered. Had that occurred, there exists more than a real possibility that his Honour’s conclusions about Mr Watts’ conduct may have been different.

The documents which the primary judge found were prepared by Mr Watts

257    The appellants further contend that the primary judge erred in finding that Mr Watts or WMM authored the other documents which Ms Sharpe supplied to Private Funds Management and the Lenders to induce them to finance Chopsonion’s purchase of the Chains.

The Open Letter

258    As identified previously, his Honour rejected Mr Watts’ denial that he had created or prepared the Open Letter of 16 October 2014, which, amongst other things, purported to provide a value of one of the chains at $4,500,000.00. In doing so, he primarily relied on Mr Watts’ perceived need to find a buyer for the Chains and that the content of the letter indicated that it was authored by a person who was knowledgeable of the New Zealand meat industry. That said, the primary judge did not find that the information in the Open Letter was false (PJ [336]), as the applicants had alleged. That latter point is not inconsiderable given that the letter stands as evidence of the Chains each having the identified value, and the applicants pleaded that they relied on it in determining to enter into the loan agreement with Chopsonion. This has particular importance in relation to the causation issue.

259    Nevertheless, Mr Watts’ credit was detrimentally affected by the primary judge’s rejection of his denial that he had prepared the letter. For reference, the text of that document read as follows:

TO WHOM IT MAY CONCERN

Watts Meat Machinery has been involved in the abattoir and meat processing business for 25 years both in New Zealand and Australia.

Mr Keith Watts has been involved in both the building and demolishing of many plants in both New Zealand and Australia. There have been several restructures in the New Zealand abattoir industry with multiple owned plants upgrading and consolidating their production facilities. Keith Watts has sold into Australia 4 fully working small stock chains in the last 2 years, which are currently installed and meeting all Australian requirements for operation.

In the most recent years in Australia, the surge of abattoirs upgrading and re-opening has taken the best second hand equipment out of the marketplace, both in New Zealand and Australia and the availability of second hand fully operational equipment is becoming scarce.

Abattoirs are now being converted from the conventional chain to an inverted chain which is automated

The small stock fully automated inverted chain from New Zealand for Jim Sharpe, Chopsonion Pty Ltd, is the last available of its kind. This was operating as a full export plant and Halal approved. The capacity of the chains when in full operation was 8 per minute, capable of processing lambs, mutton, bobby calves and goats. We are unlikely to see a chain of this quality and nature for many years.

The 2 small stock chains are of the highest quality, built by Millers of New Zealand comprising of top grade quality stainless steel to meet the Quality Assurance Standards required for an export facility in New Zealand. The chains meet all requirements necessary for production when installed in an Australian facility. The replacement cost for these chain to be built in New Zealand and imported to Australia would be in the vicinity of approximately $4,500,000 each, plus packaging and shipping costs, the lead time for production would be a minimum of 9 to 12 months.

Should you require further information, plans or photographs, please do not hesitate to contact me.

260    Mr Watts’ denial that he authored the Open Letter was set out in his affidavit, where he provided several exculpatory answers to the allegation that he had prepared it. In particular, he emphasised that he had no need to write such a letter given that, as of its date of 16 October 2014, he was still advertising the Chains for sale on his website. In relation to the document itself, he noted that the letterhead used was not that of WMM, and it had never used the address which appeared there. That assertion was easily capable of being checked and verified, even by reference to the discovery in the proceedings. Similarly, Mr Watts asserted that the Open Letter misstated the time that he had been in the meat and abattoir business, which is not something that he would understate if he were to write such an opinion. He also deposed that he would not write letters of that nature given his standing in the industry, and he was not in the habit of referring to himself in the third person. In addition, the letter misstated that he was involved in building and demolishing abattoirs. In this latter respect, he noted that he would not have provided a statement that everyone in the industry knew was incorrect. Nor was he involved in the restructuring or consolidation of abattoirs as the letter incorrectly stated. Similarly, the reference to the number of chains sold by him in the previous two years was incorrect and, he said, any person involved in the meat machinery industry would have been able to identify that statement as being false. Further, he identified that the statement in the Open Letter as to the existence and prevalence of inverted chains was untrue, and one which he would not have made. He also denied that the Chains were “fully automated” mechanisms, as was stated in the letter, and he said that it would have taken about 90 workers to operate them, such that he would not have described them in that way. He added that he was not in a position to comment on the output of the Chains as the letter did, and it was not possible to determine that outside of identified parameters. Moreover, he would not have been in a position to value the Chains or replacement chains, and would have obtained the opinion of Mr Smith if that was required. Mr Watts further points out that there were inconsistencies in the signature which purported to be his, and that the footer was not one which he or WMM had used.

261    It is noted that, in the course of the appeal, there was no attempt by the respondents to gainsay the above exculpatory assertions.

262    These numerous substantive exculpatory matters provided a compelling rebuttal of the allegation of Mr Watts’ authorship of the Open Letter. They were far from trivial and, particularly so, given the specific allegation was that it had been prepared to assist Ms Sharpe to perpetrate a fraud on potential financiers. In his reasons, the primary judge noted in passing (PJ [200]) that Mr Watts had “identified a number of reasons why he contends he did not prepare the Open Letter”, though he did not address any of them. Rather, he dismissed Mr Watts’ extensive explanation by reference to certain contextual matters. Though in some circumstances that approach may be acceptable, it was not in this case. The applicants alleged that Mr Watts had prepared the Open Letter, that the statements made in it were knowingly false (2FASOC 13.9), and represented that the Chains were worth $9 million (2FASOC 21.1.1(c)), which was misleading or deceptive. These were serious allegations to which Mr Watts and WMM had made very specific responses, many of which were based on objective facts which the applicants should have been able to disprove if they were wrong. The inaccuracies in the letterhead being one instance. This rebuttal went to the heart of the allegations against Mr Watts and WMM, and they were entitled to have them assayed prior to any conclusion being reached.

263    Of particular importance in this regard is the existence of unexplained errors in the Open Letter. If, as was the applicants’ case, Mr Watts was part of a plan to mislead potential financiers, there is no reason why he would have included in the Open Letter obvious and demonstratable errors. For example, there would be no reason for him to use an address from which WMM had not traded. That would only serve to make the letter appear inauthentic, whereas the postulated purpose should have operated to produce the opposite result.

264    In those circumstances, and particularly in the absence of any rebuttal of them, it should be accepted that Mr Watts gave an appropriate explanation of the document and his denial of authorship should have been accepted.

265    With great respect to the primary judge and despite the large volume of material, the inevitable consequence of the omission to address Mr Watts’ substantive responses renders his Honour’s conclusions on this topic deficient and they cannot stand. On the contrary, the untested and unanswered explanations provided by Mr Watts should be accepted, leading to the conclusion that the Open Letter was yet another document fraudulently produced by Ms Sharpe. In the circumstances of this case, it is unlikely that it was produced by anyone else.

266    That conclusion is fortified when one considers the above findings as to Ms Sharpe’s propensity to falsify documents, including those purportedly under the hand of Mr Watts. In the light of the conclusion that Ms Sharpe falsely prepared the Modified Rolton Valuation and the EVS Valuation, including the part of the latter allegedly authored by Mr Watts, it is a very small step to conclude that she similarly prepared the Open Letter.

267    It necessarily follows that the Open Letter can be grouped with the Modified Rolton Valuation and the EVS Valuation as being falsified documents prepared by Ms Sharpe. That conclusion is, necessarily, part of the context in which the allegation that it was Mr Watts and not Ms Sharpe who produced other inaccurate documents should have been considered, yet it was not.

The July 2014 Chains Invoice

Correlation with the reasoning in relation to Invoice 1148

268    It is appropriate to now turn to the authorship of the July 2014 Chains Invoice, which is a major point of contention in these proceedings. Before doing so, however, it is appropriate to observe that any consideration of this document needs to take place in the light of the primary judge’s conclusions with respect to Invoice 1148 and the circumstances of its preparation. Importantly, he rejected Mr Watts’ explanation for that invoice’s creation and determined that it was prepared for the improper purpose of assisting Ms Sharpe. That, no doubt, coloured his perception of the subsequent July 2014 Chains Invoice. For present purposes, it is sufficient to say that there are several weaknesses in the primary judge’s conclusions about the production of Invoice 1148. In essence, he rejected Mr Watts’ sworn testimony in which he denied having produced it for the alleged improper purpose, despite there being no evidence which countered his assertions about the conversations that he had with Ms Sharpe concerning its creation. On the contrary, he relied upon Mr Watts’ subsequent conduct as being consistent with his having prepared it for the ascribed purpose, and he applied similar contextual reasoning in relation to the July 2014 Chains Invoice.

269    Similarly, there are two broad justifications for setting aside the primary judge’s conclusion in relation to the July 2014 Chains Invoice. Firstly, there are those errors which relate to the contemporaneous circumstances of its appearing in the possession of Ms Sharpe and Chopsonion, including that its form strongly indicates that it was not produced by WMM or Mr Watts. Second, is the conclusion drawn from broad contextual evidence surrounding the appearance in correspondence of the figure of $760,000, the deposit of that amount into WMM’s account in January 2014, and Mr Watts’ response to those matters. When Mr Watts’ subsequent conduct is considered in the context of the dealings between the parties, his lack of responsiveness to promises or suggestions that Chopsonion had secured finance to acquire the Chains can be properly understood.

270    Whilst the difficulties with the primary judge’s contextual reasoning apply equally to his conclusions in relation to both the July 2014 Chains Invoice and Invoice 1148, it is first appropriate to address the contemporaneous objective evidence before the Court in relation to July 2014 Chains Invoice.

The form of the July 2014 Chains Invoice

271    There are several matters relating to the form of the July 2014 Chains Invoice on which Mr Watts relied before the primary judge as demonstrating that he did not produce it. Firstly, in his affidavit, Mr Watts referred to the fact that the invoice had on it a stamp reading, “Posted”, which he said he would not have used as he would not have posted an invoice. He was not challenged on that issue, and it was not dealt with by the primary judge. The absence of any challenge was unusual, as this too was an assertion capable of being tested by reference to the discovery of other invoices/quotes. Mr Watts steadfastly maintained this position in the course of his evidence, and he was entitled to have it taken into consideration in relation to the finding that he had been untruthful. It is also significant given the finding that the invoice had been handed to Ms Sharpe and not posted to her by him. It follows that the inclusion of the stamp on the document is supportive of his denial.

272    Second, Mr Watts also claimed that the reference in the invoice to a deposit of $90,000 having been received could not have been added by him, as no such amount had been received by WMM. Whilst that may be so, that was the point of the falsification and Mr Watts’ denial that he would not have put it there if he had not received the money, did not advance the issue one way or the other.

273    On appeal, the appellants sought to advance a number of new arguments which identified discrepancies between invoices undoubtedly prepared by WMM and the July 2014 Chains Invoice. These submissions were not put to the primary judge, though that does not necessarily preclude their being advanced on appeal. They are, rather, submissions on the nature of the evidence which was received, and which Counsel for Mr Watts and WMM would have been entitled to make at the end of the hearing, even though they were not the subject of specific comment from Mr Watts. As the document was propounded by the applicants and one which the respondents denied producing, there is nothing that would have inhibited the respondents from identifying the differences between that document and those which WMM had admitted producing in the ordinary course of its business. As will become clear, these differences support the appellants’ position that the document was produced by Ms Sharpe.

274    One significant difference is that on the July 2014 Chains Invoice, the words and numbers at the top of the document, comprising the invoice number, the date and the order number, are all justified to the right of the page. It appears as follows:

Invoice Number: 01148

Date: 24/06/14, update 21/07/2014.

Order Number: Wendy / Jim Sharpe

275    That formatting does not appear in any of the invoices which were admittedly produced by WMM. For example, the text in Invoice 1147, at the top right of the page, is aligned by reference to the colon between the description and the text, as follows:

276    This same formatting appears in invoices 1148, 774b, 1045, 1058, 1059, 1079, 1085 and 1204. It is noteworthy that, generally, this kind of formatting requires the use of a table in Microsoft Word. That aside, no good reason was advanced as to why such a discrepancy should appear in this contentious document. Though it is true that Mr Watts did not assert that WMM never produced invoices/quotes in this manner, that is somewhat self-evident given that none of the other invoices/quotes of WMM had the same formatting. The significance of this should not be understated. If it is assumed that Mr Watts was motivated to prepare a false invoice on WMM letterhead that misstated the true price of the goods being sold, there is no immediately ascertainable reason why he would alter the formatting for the purposes of producing the false document. On the contrary, it would be logical for him to make it appear as authentic as possible. Conversely, a person seeking to imitate a WMM invoice/quote might mistakenly use the right-side justification when attempting to produce their own version of the document.

277    That aside, the July 2014 Chains Invoice otherwise has the general appearance of a WMM invoice in that its main feature is a table with two columns: a wide column on the left which contains a description of the items of equipment, and a small one to the right in which the corresponding prices are inserted. However, as was submitted for Mr Watts and WMM, it would appear that the right hand column on the July 2014 Chains Invoice is smaller and positioned differently from all other similar columns of the WMM invoices evidenced in the proceedings (referred to above). These other WMM invoices all had the right hand column in the same position. It was not disputed that this differential existed.

278    Again, there would be no reason for Mr Watts to alter the usual form of invoice/quote for the purposes of producing a false one on which Ms Sharpe could rely. Quite the opposite. Conversely, such a departure from the standard WMM invoice might arise when a third party sought to imitate one. This too was a significant matter supporting Mr Watts’ denial that he had prepared the July 2014 Chains Invoice.

279    A further difference is the positioning of the word, “import”, where it appears in relation to the line marked, “GST”. In Invoice 1148 there exists a not insubstantial space between the two words, whereas in the July 2014 Chains Invoice, the spacing is much more limited. Similar comments as made above apply to this alteration.

280    Further, the spacing between the foot of the table and the end of the page on the July 2014 Chains Invoice is much smaller than appears in Invoice 1148. That difference cannot be explained by reference to the number of rows in the respective tables, as this is the same in both invoices. Though there is extra writing in the first row of the table in the July 2014 Chains Invoice, that also does not explain the difference in question. Rather, the discrepancy appears to be because the rows of the table on the July 2014 Chains Invoice have larger vertical spacing than the other invoices. Yet again, the existence of this peculiarity in the July 2014 Chains Invoice supports Mr Watts’ denial that it was produced by WMM.

281    A further issue arising in relation to the form of the July 2014 Chains Invoice concerns the writing at the top of the table on the document, describing the totality of the goods sold. On Invoice 1148 the description given is:

Small stock abattoir kill floor Ex. NZ – Two Chains – One Complete and one about 90% Complete

282    It is accepted that this was the description given by WMM to the Chains. That description is then changed for the purposes of the July 2014 Chains Invoice which reads:

Small stock abattoir kill floor Ex. NZ - Two Chains - One Complete and one about 90% Complete, balance of matching Millers Equipment now available in Australia included, held at Scone NSW depot, 2 x complete small stock chains.

283    Subsequently, on 22 January 2015, when WMM sent the final invoices to Chopsonion, the description on the main sale invoice was identical to that appearing on Invoice 1148.

284    It is relevant that one of the final invoices, being Invoice 1204, is also identical to Invoice 1148, save that the price information is different. That is, the invoice number, date and order number are not justified to the right, the columns of the table are the usual size and location, and the spacing at the foot of the page is the same. If, therefore, WMM did produce the July 2014 Chains Invoice, it would follow that after producing Invoice 1148, it altered the format of its invoices in a number of respects to produce the former, only to later revert to the original formatting when producing the final invoice (Invoice 1204). It is difficult to think of a reason as to why that would occur.

285    In addition, on the assumption that WMM did prepare the July 2014 Chains Invoice, it inexplicably altered the description of the goods supplied under it when producing the later invoices in January 2015. In the July 2014 Chains Invoice, the additional equipment was described in vague terms being:

… balance of matching Millers Equipment now available in Australia included, held at Scone NSW depot, 2 x complete small stock chains.

286    Later, in the invoices issued in January 2015, the goods were respectively described as:

Millers Shoulder & Final Puller

Ex Scone NSW

AEW 900 Breaking Down Saw

and:

Yarrawonga Beef Floor etc.

287    In the absence of any reason as to why WMM would alter the descriptions of the goods sold as between the several invoices, these differences reinforce the previously mentioned indicators that the July 2014 Chains Invoice was not prepared by WMM.

The delivery of the July 2014 Chains Invoice

288    A significant issue arose in the primary judge’s reasons (PJ [184] – [185]) as to how the July 2014 Chains Invoice came to be in the possession of Chopsonion. Despite Chopsonion being apparently in possession of its business records, there was no evidence of any letter attached to the invoice – which purported to have been posted – nor any record of some additional meeting between Ms Sharpe and Mr Watts in which he could have handed it to her. Moreover, Chopsonion did not appear to have a digital copy of the invoice, and there was no mention of it in any correspondence.

289    In the context of a serious allegation that a document was produced by Mr Watts/WMM and provided to Chopsonion/Ms Sharpe for use in a fraud, which is denied, one might expect some compelling evidence to show that it occurred. As it was, the applicants advanced none. This has some parallels with the Open Letter and the Modified Rolton Valuation, in that there was no objective evidence showing how or when they were received by Ms Sharpe from Mr Watts and, further, there is no mention of them in the correspondence between the parties.

290    The primary judge was not able to determine how the July 2014 Chains Invoice was received by Ms Sharpe (PJ [195]) and merely said that it was provided to her prior to 26 September 2014. Unfortunately, there was no clear explication or identification of the circumstantial matters on which he relied to make that finding, though it must be assumed that they included his conclusions as to the provision of other false documents. In the circumstances of the above converse determinations about those matters, that is an insufficient basis on which to found the conclusion.

291    In the context of the known events, it is far more likely that the July 2014 Chains Invoice was prepared by someone other than Mr or Mrs Watts. As it was propounded to the Lenders by Ms Sharpe, a known falsifier of documents, suspicion must heavily fall upon her. The evidence sufficiently establishes that she had prepared the false EVS Valuation annexure in around July 2013, the Open Letter on 16 October 2014 and the Modified Rolton Valuation in November 2014. Given her propensity to fabricate documents, and particularly those which purport to be under the hand of Mr Watts, it is far from a stretch of the imagination to conclude that, on the balance of probabilities, she was also responsible for the preparation of the July 2014 Chains Invoice.

A conclusion from the objective contemporaneous evidence

292    Overall, therefore, any analysis of the objective evidence relating to the July 2014 Chains Invoice points strongly against it having been produced by Mr or Mrs Watts or WMM. Indeed, the evidence indicates that it was yet another of the several documents falsified by Ms Sharpe.

The reasoning by reference to subsequent events

293    It is now appropriate to address more closely the primary judge’s reasoning for finding that Mrs Watts prepared the July 2014 Chains Invoice on Mr Watts’ instructions and, in particular, his conclusions that Mr Watts’ subsequent conduct revealed that he was responsible for its production.

294    The core of his Honour’s reasons on this topic concerns the events following an email received by Mr Watts from Mr Keane on 23 July 2014, which stated that funding had been secured and payment of Invoice 1148 was forthcoming. His Honour placed emphasis on the fact that Mr Watts later followed up with Mr Keane as to the status of the funding, but at no point raised the issue that WMM was yet to provide a final invoice. His Honour also referred to the NCS Letter of 26 September 2014, and held that the reference to $760,000 therein must have been a reference to the July 2014 Chains Invoice because it provided for that amount to be paid.

295    He further found that Mr Watts gave inconsistent evidence about the amount of $760,000 referred to in the NCS Letter. In particular, he concluded that Mr Watts did not refer to the excess (being the amount above the actual cost of the Chains) as being a deposit nor by reference to removal and transport costs, but by reference to the cost of additional machinery being the beef chain from Yarrawonga, a shoulder puller and other pieces of equipment. This was said to be inconsistent with Mr Watts’ earlier explanation for Invoice 1148, being that the difference between the invoice price of $850,000 and the actual price of the Chains was a budget estimate of the cost of removing the chains and preparing them for transport (PJ [167]).

296    However, as to this latter point, at no point had Mr Watts suggested that the difference between the amount of $760,000 and the actual price was due to a deposit having been paid. The matter of a deposit arose from the July 2014 Chains Invoice of which Mr Watts claimed he was not aware, it being, so he said, a document prepared by Ms Sharpe. Nor was it Mr Watts’ evidence that the difference related to removal or transport costs. Those issues had been identified by him as relating to Invoice 1148, in which the price quoted of $850,000 was said to include a budget estimate of such costs as well as the cost of the Chains at $528,000. Indeed, it must be remembered that Mr Watts was not intended to be paid those removal and transport costs, and merely included in Invoice 1148 an estimate of what those costs might be. That matter is quite distinct from the amount of $760,000 referred to in the NCS Letter and the email from Mr Keane. As such, it would appear that his Honour had mistakenly believed that Mr Watts had provided inconsistent explanations about the price of $760,000 referred to in the NCS Letter, whereas that was not the case.

297    As to the difference between the amount of $760,000 and the price of the Chains at $528,000, Mr Watts’ evidence was generally that this accounted for the additional equipment which was to be sold to Chopsonion so that it would have two complete abattoir chains. That additional equipment included what was known as a beef chain, which was then located at Yarrawonga and had been quoted at $82,500, and a shoulder puller together with a “breaking down saw”, quoted at a price of $46,200. There was also an additional amount of $29,007 which Chopsonion had agreed to pay in relation to the storage costs of the chains in Oringi. Though those amounts, together with the cost of the Chains, tally less than $760,000 by some $74,000, it did not seem to be in dispute that, in order for Chopsonion to be able to supply two complete Chains to FG Agri, it needed to acquire more equipment from WMM than the two Chains from Oringi, and that additional equipment accounted for a significant part of the difference between the price for those chains and the amount of $760,000.

298    In concluding that Mr Watts prepared the July 2014 Chains Invoice, the primary judge was especially concerned that Mr Watts did not query the amount of $760,000 when it was indicated that it was going to be paid to WMM. It is important to set out the relevant finding (PJ [168]):

Third, I find that Mr Watts never queried the sum of $760,000. Although whilst under cross-examination and having been cross-examined on invoice no. 1148 and the July 2014 Chains Invoice the previous day (day 9), while still under cross-examination the following day (day 10), Mr Watts said that he telephoned Ms Sharpe after he received the NCS letter and asked her about the total of $760,000. He said Ms Sharpe’s answer to him was that she had to pay an agent for getting the loan and for purchasing of the plant. I have no hesitation in rejecting that evidence. Not only do I consider it to be a recent invention, that evidence is yet another version of what comprised the sum of $760,000.

299    Those findings were the subject of much criticism by the appellants.

300    The primary judge’s concern that the explanation was “yet another version” misstated Mr Watts’ evidence as has been dealt with above.

301    It is to be remembered that, as of May 2023 when he was being cross-examined, Mr Watts was around 70 years old, and had suffered some years of ill-health, having been admitted to hospital in 2020 with a serious heart condition and suffering poor health ever since. Indeed, his health was of such a diminished state that he was unable to travel to South Australia for the trial, and was required to give his evidence remotely.

302    The finding of “recent invention” was also criticised. Though it is true that Mr Watts did indicate on the second day of his cross-examination (being day 10 of the trial), that he recalled a conversation with Ms Sharpe that he had not been able to recall the previous day, the evidence which Mr Watts had given under cross-examination on day 9 was far from definitive. In fact, a perusal of the transcript shows that his evidence was confused, contradictory and, in many ways, speculative. It was clear that he had a poor recollection of the events, and the answers which he was able to give were general rather than specific. The transcript also reveals that he responded to questions about one transaction by reference to previously discussed ones. That occurred particularly in relation to the issue of the amount of $760,000, where the questioning of Mr Watts seamlessly transitioned from the $760,000 referred to in the NCS Letter of 26 September 2014, to the subsequent receipt of that amount on 22 January 2015. In his answers in relation to these issues, he frequently stated that he was unable to recall the exact facts and indicated that the information was contained in his affidavit. This occurred especially during the cross-examination on the 9th day of trial. He also gave his responses to questions by stating that something “would have” occurred, indicating that he was speculating about how things might have happened, rather than asserting that he was actually able to recall them. From time to time he also made statements such as, “If that’s in my affidavit, that’s correct” even when the matter being discussed was not in his affidavit.

303    The general vagueness of his evidence is, perhaps, not surprising given the events had occurred some eight years earlier. It was also acknowledged by the primary judge that for some of the time when Mr Watts was being cross-examined about the precise figures of the transactions, he did not have the relevant documents in front of him. Further, the transcript reveals that he was experiencing some pronounced ill health and occasionally required a break in the proceedings.

304    It is undoubted that Mr Watts contradicted himself in the course of his evidence, and that was particularly acute in relation to the issue of the timing of the loss of or interference with his Bigpond email account. For instance, he was quick to assert that he had not seen an email which was sent in August 2014, because he had lost access to that account, but was then confronted with an email he had sent from that account the following day, such that he had to acknowledge that he must still have had access to it. The primary judge regarded this with suspicion, which was not unjustified.

305    Nevertheless, a close reading of the transcript also reveals that difficulties were encountered by reason of Mr Watts giving his evidence remotely. There are numerous occasions where the interlocutors are speaking over each other, and at other times speaking at cross purposes. That has resulted in attempting to follow the proceedings by reading the transcript more problematic than it might otherwise have been. Though it is undoubted that the use of audio-visual platforms can be useful for some hearings, the circumstances of this case demonstrate the difficulties, if not the inappropriateness, of attempting to conduct extended and detailed cross-examination via that means.

306    These observations are exemplified by the cross-examination in relation to the twin issues mentioned above, being the notification in the NCS Letter that WMM was to receive $760,000, and the subsequent receipt of that amount by WMM from Private Funds Management in January 2015 and it is appropriate to consider that in detail as an exemplar of the difficulties that were encountered.

307    Mr Watts was initially cross-examined about the former and his response to the statement in the NCS Letter that WMM was to receive $760,000 on settlement, being an amount which was in excess of the $528,000 payable in respect of the Chains. As has been mentioned, he asserted that the amount of $760,000 represented the cost of machinery to be acquired by Chopsonion, being the Chains as well as additional equipment. At the time he was unable to recall precisely what the additional equipment was and referred to his affidavit as being a source from which that information might be obtained. His answer was supported by the uncontested fact that Chopsonion had, in fact, sought to acquire additional equipment from WMM in order to make up two complete Chains which it proposed to sell to FG Agri. It is also supported by the apparent fact that Chopsonion had also agreed to pay some of the rental owing to Silver Fern Farms as part of the purchase price of the Chains.

308    The line of questioning then transitioned to whether he was surprised about the receipt of $760,000 into WMM’s account in January 2015. Though an objection was made to the conflation of the two transactions which were four months apart, it is apparent that Mr Watts, if not the primary judge, became confused as to the occasion in respect of which the questions were being asked. That appears in the following exchange in the cross-examination:

We will come to those invoices, Mr Watts, rest assured. The – what I’m suggesting to you is that when you received the exchange with Ms – with NCS as forwarded by Mr Keane, you did not understand that to be a reference to any combination of invoices that you had issued or were planning to issue to Chopsonion?---The amount of money that Chopsonion owed us at that particular time was that – for that amount.

HIS HONOUR: Well, when you say, “that particular time”, Mr Watts, are you talking about 22 January 2015?---Yes, your Honour.

Thank you.

309    Clearly, Mr Watts was confused about the timing in this regard. The NCS Letter was received in September 2014, and it was in reference to that point in time that Mr Watts had given evidence that Ms Sharpe had ordered goods worth $760,000. His agreement with the primary judge’s indication of 22 January 2015 as being the date of which he was speaking was contrary to that.

310    The cross-examination of Mr Watts then proceeded to the events which occurred after that amount of money was received into the WMM account. In his affidavit, Mr Watts stated that he was confused about its receipt because it was in excess of the amount that was then owing. The following was put to him:

MR ROBERTS: When you received $760,000 from Private Funds Management in January 2015, I suggest to you that you were confused?---We were very confused, sir.

And the reason you were confused is because you say that all you were owed by Chopsonion and other Sharpe entities was $685,707.98, including all of the other invoices that you’ve described?---Plus GST. Yes. The GST onto that, it comes to 760.

Mr Watts, if that came to 760, you would not - - -?--- .....

- - - relevantly described what you received as an overpayment, would you?---I can’t remember the exact facts. I can’t remember.

311    Following that exchange, Mr Watts was taken back to the NCS Letter, received in September 2014, and asked to explain why he was not surprised by the reference to the amount of $760,000 therein. His response, albeit indicating uncertainty, was that he recalled that amount as reflecting the total price of the goods that Chopsonion was then going to acquire from WMM. He said further that there has been various invoices issued by WMM to Chopsonion in respect of a range of additional equipment which the latter had indicated a desire to purchase. However, he also said that he did not have the relevant documents in front of him and was unable to precisely identify that which comprised the $760,000 amount at the relevant time. The other invoices to which Mr Watts referred were called for during the trial, but were not produced. That gives rise to two possible inferences: firstly, that they do not exist; or second, that they were no longer available given the time that had passed since the events and WMM’s obviously poor record keeping. The latter is the preferable inference because, firstly, it was Mr Watts’ consistent evidence that Ms Sharpe regularly requested the production of invoices/quotes for various pieces of meat processing machinery, only to subsequently abandon the purchase. It follows that, at any given time, there might be several such invoices/quotes issued, even if they were ultimately “cancelled” or otherwise abandoned. Second, as the July 2014 Chains Invoice shows, Chopsonion needed to acquire additional equipment in order to make up two complete Chains to sell to FG Agri. Therefore, Mr Watts’ evidence in cross-examination partially explained the discrepancy relating to the amount of $760,000.

312    Mr Watts was then questioned why he believed that the parties were proceeding on the basis of Invoice 1148. His response was to the effect that the invoice would be altered or rectified once the relevant parties had inspected the Chains in New Zealand and a quotation had been given by Mr Peter Wharehinga of PW Engineering for the cost of dismantling and packing the Chains. At that point in his answers, Mr Watts was clearly referring to Invoice 1148, which had a price of $850,000, as opposed to the July 2014 Chains Invoice, which referred to the amount outstanding as being $760,000. This only served to create more confusion and it should be kept in mind that the July 2014 Chains Invoice and Invoice 1148 each displayed the same invoice number.

313    On the tenth day of the trial, Mr Watts volunteered that he recalled that, following the receipt of the NCS Letter and the indication that WMM would receive $760,000, he telephoned Ms Sharpe and had a conversation with her about the fact that the amount to be received was more than the total of the invoices for the goods to be acquired. He recalled that Ms Sharpe indicated that the extra money was for commissions which she had to pay to the person who had organised the loans. That particular conversation had not been described in any of Mr Watts’ affidavits, however, in his affidavit of 8 November 2022, he detailed having had a similar conversation with Ms Sharpe some months later, following the receipt into WMM’s account of the amount of $760,000. He stated:

151.     I was also confused when I received the Payment as the Purchase Invoices totalled the amount of $685,707.98. Consequently, PFM had overpaid for the Purchase Invoices by the amount of $74,292.02 (“Overpayment”).

152. On receipt of the Payment, I noted that the Overpayment had been received and made contact with Wendy via phone to ask why we’d been given too much cash. Wendy and I then had a conversation to the following effect

Me:    “Wendy, we’ve received the money for the Oringi Chains and there’s more than we invoiced for. What’s the go?”

Wendy:    “Oh yeah, the people that helped us sort out the finance get a commission, so they sent us the commission as part of the loan too.”

…

314    It is immediately apparent that the conversation recited in Mr Watts’ affidavit was substantially the same as that which he recalled in his oral evidence, albeit in the latter respect by reference to the receipt of the NCS Letter. It is not probable that Mr Watts and Ms Sharpe would have had the same conversation within a four month period on the same topic. If the conversation occurred when the NCS Letter was received, there would have been no need for them to revisit it when the money was deposited into WMM’s account.

315    In those circumstances, there were a number of possible reasons why Mr Watts might have said in his oral evidence that he had the conversation with Ms Sharpe in September 2014, rather than in January 2015. The first may have been that he was mistaken as to the date on which the conversation occurred. Indeed, as has been mentioned, it is apparent that Mr Watts did not carefully review his affidavit evidence prior to the trial, rendering an error of this nature not unlikely. Second, it may have been that his affidavit was incorrect in that, when he prepared it, he misremembered that the conversation had happened in January 2015, rather than in September of the previous year. A third possibility is that he was deliberately giving false evidence and engaging in a recent invention as the primary judge concluded. There may be other possibilities given the confused state of the evidence as it came out.

316    Of those possibilities, either of the first two are the more likely, with the first being the most probable. Mr Watts gave direct evidence in his affidavit of having had a telephone conversation with Ms Sharpe about why WMM had received $760,000, and it is far more understandable that he would mistake the occasion on which the conversation occurred rather than invent its occurrence. Moreover, it would be an unusual fabrication to state that the conversation had occurred in September 2014, in circumstances where he had deposed to it having occurred sometime later. Overall, it is more likely that he recalled having a conversation with Ms Sharpe about the circumstances in which WMM was to receive $760,000, but was mistaken or unsure as to when it occurred.

317    On any view, the manner in which Mr Watts gave his evidence in relation to this issue would not be inaptly described as “jumbled”. It may not have been as bad as the transcript suggests but, even allowing for that, it was far from clear. The reasons for this have been discussed above, though chief amongst them must surely be the effluxion of time. Though Mr Watts was not a good witness for many reasons, it is extremely difficult to draw from his evidence any attempt at dissembling in relation to his responses on this issue. Though his evidence was wrong in parts, and possibly wrong in relation to the alleged conversation with Ms Sharpe in September 2014 following the receipt of the NCS Letter, the conclusion that he was deliberately falsifying his evidence is difficult to accept.

318    A finding that a person has engaged in “recent invention” in the course of their evidence is a serious finding, though not one that should not be made when warranted. Here, it is more than likely that the primary judge’s conclusion was influenced by his prior findings that Mr Watts had falsified certain documents. When the force of that is removed, the evidence for the finding of recent invention does not reach that which is required by s 140(2) of the Evidence Act or the decision in Briginshaw v Briginshaw.

319    The appellants also submit that the primary judge’s reasons do not properly reflect Mr Watts’ evidence that he was unsure about (a) that which made up the $760,000 figure, or (b) when he had a conversation with Ms Sharpe in relation to that amount. There is some substance to that criticism. The primary judge merely assumed that those two aspects of Mr Watts’ evidence were mutually exclusive, and on that basis assumed that he must have mendaciously changed his evidence during cross-examination. However, the issue was more nuanced. Mr Watts consistently asserted in his evidence that he was uncertain about that which precisely comprised the sum of $760,000, both when he received the NCS Letter and when the amount was deposited into WMM’s bank account. However, it was also consistently said by him that Chopsonion sought to acquire, and in fact acquired, additional equipment from WMM in order to make up two complete Chains. The effect of this is that there are two areas of uncertainty: firstly, the precise goods which were included in the $760,000, and second, the difference between the total cost of the goods sold and $760,000. It was the latter point with which the conversation between Mr Watts and Ms Sharpe was concerned, because, taking into account the respective costs of the Chains and the additional equipment, there remained a discrepancy which Mr Watts raised with Ms Sharpe. Contrary to the primary judge’s reasons, Mr Watts’ evidence on that point (leaving aside his error as to when the conversation occurred) was in no way contradictory of his earlier evidence that he could not recall precisely the equipment which Chopsonion had sought to acquire in addition to the Chains.

320    It can be accepted that the primary judge’s reasons do not deal with this precise issue, even though it was put in the written submissions that Mr Watts’ evidence provided an explanation for the receipt by WMM of $760,000, which was in excess of that which was owing to it. That is important, given Mr Watts’ response to the receipt of the NCS Letter was a significant matter on which the primary judge relied in concluding that he was part of Ms Sharpe’s fraudulent conduct.

321    In such a light, it is not improbable that Mr Watts remained surprised in January 2015, when the amount of $760,000 appeared in WMM’s bank account. He had been told by Ms Sharpe in September 2014 that there would be some clarity around the amount payable, yet no such clarification had occurred.

322    It should also be kept in mind that part of the context in which the facts are to be considered was Mr Watts’ repeated assertions to the effect that he was cynical about whether Ms Sharpe would actually secure funding and purchase the Chains. Indeed, his evidence was that he was “fed up” with Ms Sharpe by this stage. It is not doubted that the NCS Letter was intended to mollify Mr Watts about the progress of the sale, and yet again it included an indication of an imminent payment. This issue, along with other contextual matters, are considered further in the following section.

The contextual circumstances

323    The primary judge’s adverse conclusions about Mr Watts were heavily influenced by the inferences which he drew from the manner in which Mr Watts interacted with Ms Sharpe and Mr Keane generally and, more specifically, in relation to the NCS Letter and the receipt of $760,000 into WMM’s bank account. Such matters led his Honour to conclude that Mr Watts was part of Ms Sharpe’s dishonest design, and that he had produced Invoice 1148 and the July 2014 Chains Invoice to assist in that design.

324    The appellants’ submissions that those inferences were incorrectly drawn should be accepted, however, the explanation for why that is so requires a careful consideration of the circumstances relied upon by his Honour. In that discussion, it is appropriate to address why the inferences were incorrectly drawn in relation to both Invoice 1148 and the July 2014 Chains Invoice.

WMM’s business operations

325    Whilst it is appropriate to consider the manner in which Mr Watts responded or failed to respond to letters or correspondence sent to him or WMM, any analysis should not be done on the assumption that WMM operated its business in a manner consistent with many other businesses. That was the erroneous approach adopted by the primary judge who reasoned, from Mr Watts’ omission to respond to assertions or statements in several pieces of correspondence, that he agreed with them or he was comfortable that they accorded with his understanding of the circumstances. However, such a conclusion rests upon the assumption that, in the ordinary course, it would have been Mr Watts’ practice to express his disagreement. That was not the case and the evidence, taken as a whole, tends to show that he was not predisposed to respond to much of the correspondence he and WMM received, even in circumstances where others might have done so. Indeed, even when he did respond or send an inquiring email, it was of a minimal nature.

326    Much of Mr Watts’ attitude to correspondence was explicable by the fact that WMM was a very small business operation, essentially conducted by him, with some assistance from his wife. As he said in his evidence, he was often travelling for work purposes, and he generally turned his mind to emails when he returned home. Though it may be that the business was involved in selling some expensive machinery from time to time, it is apparent that its administration was small in scale and lacked any great sophistication. That latter comment is not made by way of criticism, but merely objectively identifies the way in which WMM was conducted. So much is apparent from WMM’s lack of any substantial computer systems and the manner in which it utilised generic email platforms which changed during the time when the relevant events occurred.

327    That lack of business finesse is also apparent from the unusual manner in which WMM attended to its contractual bargaining by making offers to potential customers through issuing so-called “invoices” which were, in fact, quotations. It is far from clear what the status of the quote was, or how or when it changed to represent an agreement for sale. Mr Watts seemed to suggest that a quote would transmogrify into an invoice at some time, but that if the purchaser did not secure the necessary funds to purchase the goods, the invoice/quote was “cancelled”. Indeed, it appears that the process adopted by WMM was that, if the agreement did not proceed, the deposit or any amount paid by the purchaser would be refunded. From this it seems that no actual agreement to sell existed until a purchaser actually paid for the goods. Though to a lawyer, such a process is difficult to understand and generates uncertainty, it seems that it worked sufficiently in a relatively small industry where, no doubt, the maintenance of personal relationships is important.

The prevarication by Ms Sharpe

328    Another factor which explains Mr Watts’ casualness towards the correspondence and events relating to the possibility of Chopsonion acquiring the Chains was the history of the dealings with Ms Sharpe, which was marked by constant prevarications and false starts. There was no doubt that over an extended period of time Ms Sharpe had requested the provision of numerous quotes/invoices in relation to the Chains and other equipment, but subsequently cancelled them when she determined not to proceed. That commenced in around late 2012, such that by mid-2014, Mr Watts held a justifiable suspicion as to the likelihood of any purchase in which Ms Sharpe indicated an interest. Indeed, such had been the dealings between Mr Watts and the Sharpes that by January 2014 Mr Watts doubted that Chopsonion would or could buy the Chains. Therefore, by mid-2014, Mr Watts harboured those doubts even more and this explains to some extent his level of indifference to suggestions that a sale would be imminent.

329    To the above can be added that, as the course of correspondence considered below shows, Ms Sharpe’s pattern of behaviour continued and, following June 2014, there were a number of assertions by her, or Mr Keane on her behalf, that finance had been acquired or was impending, only for it not to materialise. Given this history, from any objective point of view, it would have been foolhardy to pay too much attention to Ms Sharpe’s machinations until she actually had proof that she was able to complete the transaction.

330    All of these uncontentious factors provide the necessary context when ascribing effect to the omission of Mr Watts to respond to assertions made in the latter half of 2014 that finance was almost secured or that a sale was imminent.

Mr Keane’s email of 23 July 2014

331    It is appropriate to start with Mr Keane’s email of 23 July 2014, which was sent about a month after Mr Watts had provided Invoice 1148 and, if the date on it is to be believed, shortly after the July 2014 Chains Invoice was issued. Both parties relied upon this email as advancing their respective cases, and it was also relied upon by the primary judge as indicating an awareness by Mr Watts that WMM would receive the full amount identified on Invoice 1148. That was said to reveal his dishonesty in asserting that Invoice 1148 included rough budget estimates for the cost of dismantling and packing the Chains.

332    One difficulty here is that, though “Invoice 1148” and the “July 2014 Chains Invoice” are ascribed those nomenclatures for the purposes of the proceedings, for any person who was in possession of either of them at the time, they were each identifiable as an invoice with the number “1148” on it. That being so, there is some difficulty in confirming which was being referred to in the communications. For instance, Mr Keane’s email is headed, “Settlement of Invoice 1148 to Chopsonion”, though it is not clear to which version of the invoice reference was being made. Certainly, Mr Watts was cross-examined on the assumption that the invoice to which the parties were referring was Invoice 1148, which indicated that an amount of $850,000 was payable, even though the July 2014 Chains Invoice, identifying a remainder price of $760,000, had apparently been produced by that time. On the other hand, Mr Watts had asserted that he was not aware of that latter invoice.

333    Mr Keane’s email states, in the first paragraph, that he had “secured the funding for the purchase of equipment noted in Invoice 1148 along with the entire negotiation with the Sharpes”. That wording supports Mr Watts’ assertion that there existed an intention to sell to Chopsonion both the Chains acquired from Oringi, as well as other meat processing equipment or that some other matters were features of the negotiation. Again, there was no evidence produced which contradicted his evidence as to those matters. Mr Keane’s email proceeds to state:

Our funder, NCS, have now confirmed approval of the application in as full and final settlement to Watts Meat Machinery Pty Ltd. As per your invoice the funds will be deposited to your NAB banking account.

334    The expression “confirmed approval of the application in as full and final settlement to Watts Meat Machinery Pty Ltd”, is difficult to understand, but presumably, it was intended to convey that WMM would be paid for the equipment. On the other hand, the payment was said to be subject to what was a major qualification in that the email stated, “your payment of your invoice 1148 can be paid on confirmation of the amount required for the packaging and shipment to Australia”. This suggests that Mr Keane was representing that he had secured some form of “in principle” agreement to fund, though there had been no quotes obtained as to the actual cost of dismantling and packing the Chains. On the basis of the established facts, the only indication of those amounts appeared, so Mr Watts said, in Invoice 1148. The putative lender’s indication that the invoice will be paid when those costs are “confirmed”, tends to indicate that it had received some provisional costing and that those costs were part of WMM’s quote.

335    Again, it is appropriate to observe that the applicants in the proceedings did not call either Mr Keane or Ms Sharpe to give evidence of what they understood as being included in any invoice from WMM.

The email of 30 August 2014

336    It should also be kept steadily in mind that Mr Watts’ claim that Invoice 1148 was preliminary, and that the sale was subject to Ms Sharpe visiting New Zealand and inspecting the Chains and obtaining an assessment of the cost of dismantling, packing and transporting them, was consistent with the objective facts. Amongst other things, it is common ground that, in around 24 July 2014, Mr Wharehinga of PW Engineering was asked by Ms Sharpe to provide a “proforma invoice” identifying the costs of dismantling and packing the Chains, and that Mr Watts was aware of that. Then, on 17 August 2014, Ms Sharpe sent an email to Mr Watts informing him that she was still dealing with persons in New Zealand about the removal of the Chains and shipping, and awaiting final details and requirements to present to the financiers. This largely confirmed the provisional nature of any funding arrangements that were then said to be in place.

337    It was in this context that Ms Sharpe sent an email to Mr Watts on 30 August 2014 in which she indicated that the funding process was nearing completion after which drawdowns would occur. This too was relied upon heavily by his Honour, who observed that, despite that notification, Mr Watts did not provide any further invoice identifying the price of the Chains by themselves. In that email, Ms Sharpe asserted that she had received a quote from PW Engineering which had been accepted and that a quote for shipping had also been accepted. She added that funding for the purchase was in the process of being finalised and a suggestion was made that some payment to WMM would occur in the following week.

338    That appeared to prompt the sending of an email by Mr Watts to Mr Keane that same day, seeking an update on the funding position. The subject heading of the email was, “Re Settlement of Invoice No 1148 to Chopsonion Pty Ltd”. In the course of cross-examination much was sought to be made of that, it being inferentially suggested that Mr Watts had placed that topic in the subject heading and that it was he who was seeking the settlement. That was misleading because it appears that Mr Watts’ email’s subject heading was merely a replication of that which appeared in Mr Keane’s previous email of 23 July 2014. In other words, the subject heading was maintained in a “reply” or “forward” of previous emails, and part of an email chain as Mr Watts had deposed to in his affidavit. Nevertheless, the primary judge apparently accepted the insinuation that it was Mr Watts who had inserted that subject heading (PJ [164]).

339    The text of the email itself was bland. It read as follows:

Warwick

How is everything going with this, I have been told that Peters and the freight cost are all in. Just wanting to know the time line now for process

Thank you

340    The reference to “Peters” was apparently to the assessment of costs by Mr Wharehinga of PW Engineering and “freight costs” was a reference to the cost of shipping to Australia.

341    In the course of cross-examination it was put to Mr Watts that his inquiry of Mr Keane following the receipt of Ms Sharpe’s email made no mention of his issuing new invoices in relation to the equipment, which carried with it the suggestion that he expected that WMM would be paid on Invoice 1148. In his responses he suggested that Ms Sharpe would have arranged for the issuing of new invoices when the time came, or that there were other invoices on which Ms Sharpe might rely. That latter position was problematic because in the records of WMM, the earlier quotes in relation to the Chains were marked as “cancelled”.

342    The primary judge accepted the thrust of the cross-examination and concluded that instances such as this – being where Mr Watts sought updates but did not mention that he was to provide any additional quotes/invoices for the Chains – revealed that he expected to be paid on an invoice which had already been sent (PJ [156]). Necessarily, that meant that his Honour did not accept Mr Watts’ explanations about the purpose of Invoice 1148.

343    However, that conclusion was misplaced. In the first instance, his Honour had wrongly accepted that Mr Watts had inserted the subject heading when it is abundantly clear that he had not. Moreover, there is nothing in his email to Mr Keane to suggest that WMM was to be paid any particular amount. Leaving aside the subject heading, there was nothing in Mr Watts’ email to suggest that WMM should be paid the amount of $850,000 or $760,000. It is not irrelevant that at no time did Mr Watts identify that WMM should receive either of these amounts.

344    It is also not irrelevant in the context of this matter that the email tended to contradict that which had been sent on 23 July 2014 by Mr Keane who claimed he had secured funding. Conversely, Ms Sharpe’s email of around 30 August 2014, indicated that though Mr Keane was guiding the process, the application for funding had been submitted and there was yet to be a “sign-off” on it. Further, that first email said that WMM would be paid on confirmation of costs by Mr Wharehinga, while the second indicated further impediments to the flow of funds, even after that confirmation had been received.

345    At this juncture, it is appropriate to identify that there was no evidence that PW Engineering had provided a costing for the dismantling, removal and packing of the Chains as at 30 August 2014. The evidence in the proceedings actually shows that no inspection occurred until October that year, and a quote for the work was not given until the 16th of that month. Ms Sharpe’s statement to the contrary appears to be a misrepresentation. To that end, it bears emphasis that if Mr Watts was part of some fraudulent scheme with Ms Sharpe, one can only wonder why she would make such a misrepresentation, and apparently string him along with false hope that funding would be forthcoming. One might also speculate why it was that Mr Keane did not respond by indicating that the costings had not been obtained.

346    It remains true that Mr Watts made no mention in his email that the invoice referenced in the subject heading was not one on which it was intended to affect a sale. Nor did he make any mention of having to prepare any further invoice so as to identify the accurate price for the Chains. Then again, the history of dealings with Ms Sharpe would suggest that he would have been wasting his time in doing so.

Ms Sharpe’s email of 23 September 2014

347    No finance was secured shortly after 30 August 2014, and on 23 September 2014, Ms Sharpe sent a further email to Mr Watts in which she purported to provide an update as to the “amended timing for the settlement of the equipment”. It indicated that the balance of the required information had been provided to the lender and amendments to documents had been made. She also advised that she expected that the “funds would be distributed within 48 hours”, though noted that “as there is security involved this may take just a little longer”.

348    Again, Ms Sharpe’s prognostication as to the provision of finance was erroneous and no funds were then forthcoming which was consistent with her prior conduct. It was also consistent with Mr Watts’ pessimistic view as to whether Ms Sharpe would ever complete the transaction.

Email from Mr Smith of 25 September 2014

349    On 25 September 2014, Mr Smith of Rolton sent an email to Mr Watts, in which he registered concerns that the latest commitment to pay for the Chains had not occurred. It was noted that the patience of Silver Fern Farms in relation to the proposed sale was diminishing, and the email sought a firm timetable for the transaction. It was noted that:

If this cannot be provided directions from SFF are that any further commitments in this direction should be withdrawn and the plant be put back on the market.

350    That statement is somewhat difficult to understand in the scheme of the arrangements then in place, as it appears that Silver Fern Farms still regarded itself as the owner of the goods and somehow in control of them. By Mr Smith’s statements it asserted the ability to direct that the Chains be sold elsewhere if the on-sale to Chopsonion did not proceed and this seems inconsistent with the applicants’ case that WMM had purchased them in about June 2013. Yet again, the lack of precision in the inter-party dealings is apparent.

Mr Keane’s email of 28 September 2014

351    No doubt prompted by the email from Mr Smith, Mr Watts sent a further email to Mr Keane on 28 September 2014, seeking an update on how the matter was progressing. Again, the context of this is important. As Mr Watts repeatedly asserted, he had been constantly frustrated by Chopsonion’s many false starts in relation to its purchase of the Chains. As of 28 September 2014, Mr Keane and Ms Sharpe had previously indicated on several occasions that the funding would be forthcoming, only for none to appear. This followed the long history of dealings between Mr Watts and WMM on the one hand, and Ms Sharpe and Chopsonion on the other in relation to the Chains, which had caused Mr Watts to doubt their intention or ability to purchase them.

352    Mr Keane’s email response to Mr Watts on 28 September 2014, was a further occasion on which it was asserted that funding would be forthcoming. It too appears to contradict earlier emails from him and Ms Sharpe as to the propinquity of payment from some alleged financier. That aside, it importantly refers to a forthcoming trip to New Zealand to inspect the Chains, which was consistent with Mr Watts’ understanding of what was to occur before the transaction could complete.

353    Mr Watts’ evidence as to why he did not respond to Mr Keane’s email and, particularly, the statement in it that he and Mr Keane had not previously met, was consistent with the evidence of his frustrations which arose from dealing with Ms Sharpe. He said:

If Mr Keane was saying to you, “We’ve never met,” and you were thinking, “Hold on. We’ve met three months ago on the property at Inglewood,” wouldn’t you have said so?---To be honest, everything was going on with Wendy. I wouldn’t have taken – I – I wouldn’t have taken much notice of it, to be honest, sir. Things were just going on and on and on and, as you know, further down the track, nothing happened.

354    In the context identified above, that was both a rational and realistic response. It was not suggested that Mr Watts’ evidence that he did not have confidence that Ms Sharpe or Chopsonion had the intention or ability to finalise the transaction was not true. If that was his frame of mind, there is no reason to think that he would not have been somewhat indifferent to the now repetitive suggestion that funds would be forthcoming, or indeed any tangential errors in emails from Mr Keane.

The NCS Letter

355    The same comments can be made in relation to the NCS Letter, which was attached to Mr Keane’s email. It stated that the sum of $1.13 million in funding was available for the purchase, packing and shipping of the Chains from Oringi to New Zealand, and that the relevant documents were being prepared. It also states that the first payment of the drawdown would be directed to WMM in the amount of $760,000, which was allegedly in the “process system” for payment. In the context of the then existing documentation, that could be taken to be a reference to the amount specified in the July 2014 Chains Invoice.

356    Indeed, that was how the primary judge regarded it and he relied upon Mr Watts’ failure to reject the proposition that WMM would receive $760,000 as supporting the conclusion that he was part of Ms Sharpe’s scheme to defraud potential financiers. His findings in relation to that issue have been discussed above.

357    However, that approach fails to have regard to the critical context that, by this time, there had been a number of emails from Mr Keane and Ms Sharpe indicating that funding was all but obtained and that payment for the Chains would be forthcoming, but it had not materialised. On any view, there must have been a great deal of suspicion by Mr Watts that Chopsonion was not a serious buyer. Even prior to July 2014, Mr Watts had become frustrated with Ms Sharpe and Chopsonion’s indications of an intention to proceed with acquiring the Chains, only for nothing to happen. It would seem to follow that, as at September 2014, he was, and was entitled to be, dubious as to whether anything would eventuate. His insouciance in response to Mr Keane’s email and the NCS Letter, was not remarkable but, on the contrary, understandable. Indeed, he was right to be because, as it was, no such funding ever materialised from Mr Keane or NCS.

358    Mr Watts was cross-examined at length in relation to the content of the NCS Letter and, in particular, in relation to the statement that the first drawdown of funds would be of $760,000 to WMM. The reality of his position was that he was not then able to accurately recall why that was so, though was able to recall that the sale involved more than the Chains. He said:

And it’s the letter on the back of that page at page 43. And what I suggest, Mr Watts, is that when you were being told you were going to be paid $760,000, you didn’t think that was referable to either the genuine Chopsonion Oringi invoices or the sum of that and any other invoices that you were issuing to Ms Sharpe. What do you say to that?---That amount was the total amount, including GST, for the gear that Wendy bought off me. I am sure but I’m not positive because I would have to look at – look at the affidavit and look at the receipts. And you have got all those – a copy of those invoices there with the beef hide puller. All the beef – you’ve got all those invoices to add that up. And if you add GST on to it, it will come to that total.

Well, what I suggest - - -?---And I can’t – I don’t know what it is.

What I suggest, Mr Watts, again apologies. What I suggest is that when you add all those up, you come to the number that you described at paragraph 151 of R30, which is $685,707.98, not $760,000?---Could you please add GST on to that? Could you please add GST on to that?

Mr Watts, if you thought that the 6 – if you thought that the sum of the invoices inclusive of GST was $760,000, then I suggest you wouldn’t have been handing back to Ms Sharpe what you termed an overpayment of $74,292.02?---I need to double check. And you’ve got all the paperwork there to rectify – to see the pricing on the gear that she did buy. I haven’t got it in front of me. So – no, if that figure was including the overpayment, well yes, you need to check that. I haven’t got it.

359    Mr Watts was somewhat correct in his response. In relation to the equipment that was to be sold to Chopsonion, he identified the Chains at a cost of $480,000 (plus GST) and further costs for other equipment being shoulder pulling equipment (which had been the subject of invoice no. 1206) and machinery from Yarrawonga (which was the subject of invoice no. 1085 dated 29 October 2013 and later invoice no. 1205 dated 22 January 2015), as well as other equipment, though he indicated uncertainty about the totality of the sale. He had also given evidence that Chopsonion had agreed to pay for some of the rent owing to Silver Fern Farms as part of the purchase price. Whilst he could have been more prepared for the purpose of giving his evidence than he was, his inability to recall in May 2023 that which was the subject of particular agreements with Chopsonion in early 2015, was not especially unusual, particularly in the light of the fluidity of the circumstances. There was also repeated evidence from him that he had encountered difficulties in recovering the records from that time due to computer malfunctions.

360    In relation to his lack of response, Mr Watts also reasserted his view that Invoice 1148 was preliminary only, and that it remained subject to the parties inspecting the equipment in New Zealand, and, for that reason, he was not overly concerned about the reference to the price. As mentioned, the relevant parties, being Mr Watts and Mr and Ms Sharpe, did eventually travel to New Zealand and the Oringi abattoir, and inspected the Chains in October 2014. That occurred simultaneously with an inspection by Mr Wharehinga, who then provided a quote as to the cost of removal and packing of the chains on 16 October 2014. From Mr Watts’ perspective, there was no real chance of finalisation of any finance prior to then. That is reinforced by an email from Mr Sharpe to Mr Watts of 14 October 2014, following the inspection, indicating that the finance would then be finalised.

361    Overall, in the context of this matter, as Mr Watts perceived that funding would not be finalised until after the inspection of the Chains in New Zealand and, particularly, after the provision of costing from PW Engineering, his response to the indication of the provision of finance in the NCS Letter was wholly unremarkable. It should not have been taken as an acceptance that WMM would be paid that amount.

The alleged change of position by Mr Watts in relation to the NCS Letter

362    In relation to Mr Watts’ reaction to the receipt of the NCS Letter, the primary judge relied upon his lack of expression of surprise to Ms Sharpe as justifying the conclusion that he was involved in her scheme. His Honour relied upon his findings in this regard as supporting his conclusion in relation to the July 2014 Chains Invoice, however, as is discussed below in relation to Invoice 1148, the preferable view is to the contrary.

Events in January 2015

363    The primary judge also had regard to the events of January 2015 – when Private Funds Management transferred $760,000 to WMM’s account – as supporting the conclusion that Mr Watts prepared the July 2014 Chains Invoice and produced Invoice 1148 for the purpose of inducing lenders to provide finance. The difficulty is that it is possible to view Mr Watts’ conduct in a different light, and the primary judge’s view was necessarily coloured by his findings about Mr Watts’ conduct otherwise which, as has been demonstrated above, cannot be sustained.

364    It is not irrelevant that in January 2015, following Chopsonion securing funding, Ms Sharpe sought separate invoices for the Chains, the shoulder pulling equipment and the beef floor. She also sought an invoice for the rental payable at Oringi. That evidence appeared from Mr Watts’ affidavit where he identifies that he then issued invoices in respect of that equipment and rent. The first was one was Invoice 1204 in respect of the Chains which were sourced from New Zealand. That was for “Two chains – One complete and one about 90% complete” with the price being $480,000 together with GST of $48,000, making a total of $528,000. That is corroborative of Mr Watts’ narrative that, at all times, he intended to sell them for that price. It is also consistent with his assertion that he would issue an “appropriate invoice” for the Chains following the trip to New Zealand and once the finance was available, as indeed happened. It also tends to undermine the allegations of him being involved in fraudulent conduct, as there is no logical reason why, if Mr Watts was involved in Ms Sharpe’s dishonest conduct, he would issue an invoice in the correct amount. Necessarily, if discovered, that document would expose the fraud.

365    At the same time, Mr Watts issued Invoice 1205 for the beef floor which had a price of $82,500 (including GST), invoice 1206 for the sum of $46,200 (including GST) in relation to a shoulder puller, and invoice 1207 in respect of the rental payments in relation to the Oringi abattoir in an amount of $29,007.98 (including GST). Again, if the payments were to be kept secret, it is unusual that he would evidence them by producing invoices. Moreover, the issuing of the invoices was explained to the solicitors for the applicants on 21 October 2016 in an email from Mr Watts. Ms How said in her affidavit that she was “shocked” by this, however there was no letter or email response suggesting that to be the case. Then again, by this stage the parties had consulted lawyers and threats had been made. It was common ground that by this time proceedings had been commenced, and default judgment obtained, against Chopsonion and the Sharpes.

366    Those invoices sent in January 2015 totalled approximately $74,000 less than the sum of $760,000, and are, again, confirmatory of Mr Watts’ assertion that his dealings with Ms Sharpe concerned the sale of the Chains and additional equipment. The invoice in relation to the rent was confirmatory of his affidavit evidence that an agreement had been in place that Chopsonion would assume responsibility for payment of the rental liability for holding the Chains at the Oringi abattoir.

367    The primary judge concluded that the sending of the invoices on 22 January 2015, evidenced the fraud contained in Invoice 1148 or the July 2014 Chains Invoice. Whilst it is true that the new invoices revealed the amounts for which the equipment was actually sold, they could only be taken to evidence fraud if Mr Watts’ explanation for Invoice 1148 and his denial of the July 2014 Chains Invoice was not believed. Otherwise, they were consistent with the arrangements which he had asserted.

368    Rather than the conclusions reached by the trial judge, the production of invoices by WMM in January 2015 tends to negate the existence of a fraudulent plan. If the intent was to cause Ms Sharpe or others to receive payments which would not be detected, creating a paper trail for them did not advance it. Conversely, were there substance to the allegations against WMM, it could simply have relied upon the July 2014 Chains Invoice for the receipt of payment, and transferred the funds to Ms Sharpe or to whomsoever she directed without drawing attention to it by issuing further invoices.

The receipt of $760,000 of funds into the WMM account

369    In his affidavit, Mr Watts claimed that he was surprised by the receipt by WMM of the sum of $760,000 from Private Funds Management. He said that, at that time, he was not aware that Ms Sharpe had secured funding and he was confused because WMM had been overpaid by about $74,000. He further said that he contacted Ms Sharpe and advised her that WMM had received more than was required for the equipment sold and, in his affidavit, he set out the terms of a conversation which he said he had with Ms Sharpe. He deposed that she advised him that some of those funds were for the purposes of paying commissions to those who assisted Chopsonion in obtaining the funding. He also indicated that he required invoices before he would be prepared to pay out the funds. As it transpired, the first such invoice received by him was one from Chopsonion for services in relation to the purchase of the Chains. The other invoices were sent by Annomac and Jechbo as previously identified.

370    In relation to those latter invoices, Mr Watts set out in his affidavit his dealings with Mr and Ms Sharpe and their companies from about 2012. He details how, over a period of time, WMM had sent a number of invoices/quotes to each of Chopsonion, Jechbo and Annomac. Each company appeared to be part of the Sharpes’ business group and so the receipt of invoices in 2015 in relation to the completion of the transaction would not necessarily have appeared improbable, and it was not suggested that Mr Watts was aware of how the Sharpes’ operated their business as between their several companies. There was also no evidence that Jechbo and Annomac did not provide advisory or other services to Chopsonion pursuant to an agreement for which they were entitled to charge a fee. Indeed, it could not be doubted that putting the transaction together necessitated expenditure of a significant amount of time and money.

371    The making of the payment on those invoices had evidential value. In support of the applicants’ case, it was said that they indicated that Mr Watts was willing to pay out amounts which he had received from the Lenders on invoices which he knew were not for work done for WMM, even though they suggested otherwise. Conversely, it is difficult to know why those invoices were created and sent if Mr Watts and Ms Sharpe had colluded to secure greater amounts than were necessary from the Lenders. As between them, there was no reason to create a veneer of authenticity about the payments and none was proffered. No obvious reason was advanced as to why the alleged co-conspirators would document the “kick backs”.

372    Nevertheless, prima facie, the effect of making payments on those invoices which recorded transactions purportedly for WMM which did not occur, did not bode well for Mr Watts. His evidence was to the effect that he wanted a record of those to whom the money was paid and, whilst that may be accepted, it does not follow that the invoice needed to be for fictitious work performed. He could have recorded the payments to Chopsonion or other entities as being distribution of the excess amount and required receipts from those entities for it. The payment out on invoices which contain possibly fictitious entries, somewhat supports the conclusion that he was somehow engaged in Ms Sharpe’s dishonest enterprise, at least to the extent of repaying to her companies any excess money received.

373    Conversely, however, any apparent deception created by these invoices was of minimal effect. WMM could have remitted all of the excess of $74,000 to Chopsonion, following which Jechbo and Annomac could have invoiced it for their claimed expenses. As a matter of fact, the notation on the invoices, such as consulting in relation to designs and drawings and preparing a report and consulting, appear to be services directed to Chopsonion’s venture. They were, self-evidently, not for work performed by WMM. That is consistent with Mr Watts’ assertion in his affidavit that Ms Sharpe claimed that the payments were for commissions payable by Chopsonion in relation to the acquiring of the loan. Though it might not be best business practice to pay Chopsonion’s creditors at its direction rather than remit the money for it to pay its debts, it is not self-evident that paying them directly bespeaks of dishonesty. That is especially so given the absence of any evidence that these companies were not entitled to the payments.

374    Regardless, the primary judge concluded that Mr Watts was not surprised by the receipt of $760,000 into his account and that his statements about having a conversation with Ms Sharpe about it constituted a “reconstruction”. The reason given was that WMM had issued the July 2014 Chains Invoice to Chopsonion for $760,000 six months’ earlier for the purposes of assisting Ms Sharpe obtain funding. It follows that, to a large extent, the primary judge relied upon his conclusion that Mr Watts has prepared or caused to be prepared the July 2014 Chains Invoice as supporting his conclusion that the conversation did not occur. The previous conclusion as to the origin of the July 2014 Chains Invoice removes any foundation for that finding.

375    Overall then, Mr Watts’ conduct from the end of July 2014 to January 2015 was entirely consistent with him not being involved in Ms Sharpe’s dishonesty. In the light of the history of the dealings between him and Ms Sharpe, his minimal responses to assertions that finance was nigh were both understandable and natural. Contrary to the inferences drawn by the primary judge, any inquiry by Mr Watts of the completion of the transaction was prompted by external forces and there is nothing to suggest that he sought payment for more than the price which Ms Sharpe had agreed to pay for them. His conduct did not bespeak of knowing participation in Ms Sharpe’s dishonest pursuits.

The admissions to Ms How

376    Necessarily, one of the most significant difficulties for Mr Watts and WMM was the evidence from Ms How as to the admissions alleged to have been made by him, and the confirmatory email which followed, to which there was no response. This was heavily relied upon by the primary judge in reaching his conclusion that Mr Watts had participated in Ms Sharpe’s behaviour and, in particular, that he prepared or caused to be prepared both Invoice 1148 and the July 2014 Chians Invoice for a dishonest purpose. That was not surprising as, on its face, Ms How’s evidence points towards such an involvement.

377    To reiterate for convenience, Ms How gave evidence (which appeared at paragraph [65] of her affidavit) that on 23 September 2016, she had a conversation with Mr Watts which included:

(a)    Mr Watts telling her that Ms Sharpe had requested that he inflate the original invoice price for the Chains from an amount of $490,000 to the amount of $760,000, and state that a deposit for $90,000 had been paid for their purchase; and

(b)    Mr Watts further saying that Ms Sharpe had requested that he return the excess money (by way of a “kick back”) to her;

378    Ms How sent a purported confirmatory email a few days later, on 26 September 2016, which contained the following:

Keith,

Thanks for the chat on Friday

Here are the problems.

You advised me that Wendy asked you to change the original invoice price ($490,000.00) and provide us with an invoice with an inflated amount.

You in fact changed your invoice to indicate to us that she was paying $76,000.00 [sic] for both chains which is some 360K more for the chains than she actually was. The Invoice also indicated that a 90K deposit was paid, which it was not.

You also indicated that once we paid you the $760,00.00 [sic] that you in turn kicked back the over payment to Wendy.

Keith, this presents some serious problems with first one coming to mind, Fraud!

Again I am extremely upset that you chose to lie to me purely because Wendy asked you to do so.

Your actions were a direct result in us advancing funds to associated companies of Wendy’s which will result in the private investors and myself losing considerable amount of money [sic].

I suggest that you now do everything in your power to assist us with the sale of the chains and the security properties.

Again, I cannot express how disappointed I am in you and your firm.

Also on another note I have sell these chain, do you have the contact details for David that already made the offer?

379    In response to this evidence, Mr Watts denied that the conversation occurred. He did not assert in his affidavit or in his oral evidence that a similar conversation had occurred, or that words were exchanged which might have been misinterpreted by Ms How. He simply denied it occurred. In the course of cross-examination all that was put to Ms How was that the conversation had not occurred, but she denied that proposition.

380    Despite the primary judge’s findings about Ms How, there was much room to criticise the state of her evidence. Firstly, she appeared to acknowledge in cross-examination that in October 2016 – that is, after the alleged conversation and email exchange – she did not know whether it was Mr Watts or Ms Sharpe who was involved in the alleged fraud, but that litigation was going to be commenced to find out who. She said that she and the Lenders merely “suspected” that Mr Watts had been involved because “he had so much to gain”, by virtue of his ownership of the Chains. That suggests that the conversation as relayed in her affidavit had not occurred or, at the very least, that it did not occur in the manner stated. Second, the allegation that Mr Watts had said that the original invoice price was $490,000 is doubtful given that none of the invoices refer to that price. Though the latter point might be explicable as an honest mistake, some question as to the reliability of Ms How’s evidence might nonetheless arise.

381    On appeal, Counsel for Mr Watts sought to advance a case that some conversation may have occurred, but that it was in different terms and that Ms How is likely to have misunderstood that which had been said to her. That is, she may have misconstrued Mr Watts’ explanation to her that he provided an invoice with an amount included in it for the dismantling and packing of the Chains. It was not in contest that WMM had provided an invoice at a higher amount, being Invoice 1148, and that Mr Watts’ explanation for it was that it included the estimated dismantling and packing costs. Prima facie, it is conceivable that Ms How misconstrued what she was being told and put it into her own words.

382    It is true that there exists significant inconsistency between what Ms How recalls was said to her by Mr Watts in the conversation which she set out in her affidavit and that referred to in the email. In the former, it was alleged that he said that Ms Sharpe had asked him to overstate the price and then “kick back” the excess amount. In the latter, it was simply asserted that that was what in fact happened.

383    Ms How also asserted that Mr Watts told her that he paid the excess funds to Ms Sharpe and that she had referred to that as a “kick back”. That emotive language might not have been unexpected from her in circumstances where her clients had possibly suffered damage. However, the only logical reading of the email sent to Mr Watts is that the amount “kicked back” to Ms Sharpe was $360,000. That, of course, is clearly wrong. On the facts as they are known to be, only an amount of about $74,000 was paid out by WMM. That is a not insignificant error in the email and, given that it is greatly inconsistent with the facts as they were known by Mr Watts, it is not something that he is likely to have said.

384    At this point it is worth identifying the incongruence between Ms How’s evidence in the above respect and the known facts. On her version of events, Mr Watts admitted to providing a kick back of some $360,000 in circumstances where:

(a)    that would understate the price at which he in fact sold the Chains;

(b)    it would negate the fact that WMM had also sold additional equipment to Chopsonion at a price of approximately $128,000; and

(c)    it would also negate the fact that Chopsonion had agreed, as part of the transaction, to pay an amount for the outstanding rent at the Oringi abattoir.

385    No justification was offered as to why Mr Watts would admit to dishonesty in circumstances where he had valid commercial justification for the payments WMM had received. Indeed, it is not improbable that he would.

386    Ms How’s assertions are also contrary to the established evidence. She says that Ms Sharpe asked Mr Watts to “provide us” (being Private Funds Management) with the inflated invoice. Nowhere was it suggested that Mr Watts was asked to do that. The issuing of Invoice 1148 and the July 2014 Chains Invoice occurred months before Ms How was approached for finance in relation to the Chains. Indeed, there was no suggestion that Mr Watts was ever aware that Ms How’s firm had agreed to assist with funding until the funds were received, and that is not a minor issue given the content of Ms How’s evidence. It follows that this significant, central statement in the letter was erroneous in an important respect and, importantly, was wrong insofar as Mr Watts’ understanding of the facts was concerned. Similarly, the suggestion that Mr Watts chose to “lie” to Ms How has no support in the facts for the same reasons.

387    Another curiosity is that, on Ms How’s evidence, it would appear that Mr Watts confessed the existence of the fraud to her, despite being aware that solicitors had been engaged to seek to recover the Lenders’ losses and had already completed proceedings against other persons. Indeed, at the time he was involved in attempting to reduce the damage by selling the Chains. That he would make such an admission in those circumstances was highly unlikely.

388    Whilst the matters pointed to by the appellants might strongly support a submission that Ms How misunderstood her conversation with Mr Watts, it is not one that can be advanced on this appeal. In the first instance, Mr Watts did not suggest in his evidence that he had a conversation with Ms How, the terms of which might have been misconstrued by her. More significantly, that possibility was not put to Ms How at trial. Had it been suggested, she may have been able to respond to the effect that she had some particular reason for remembering what Mr Watts had said. For instance, she may have said that she specifically remembered Mr Watts using some particular phrase. She may also have been able to provide some contextual reason as to why she specifically recalled that which was said, such as where the conversation took place and who else may have been in close proximity.

389    In short, the point now sought to be raised on appeal, despite its obvious merit, should not and cannot be considered. It is well established that new issues should not be raised on appeal: Coulton v Holcombe (1986) 162 CLR 1 at 7 – 8 (Coulton); Tredders Investments Pty Ltd v Channel 9 South Australia Pty Ltd [2024] FCAFC 164 [14] – [19] (Tredders Investments v Channel SA). The relevant principles are set out in detail in relation to the second ground of appeal. For present purposes, it suffices to observe that, as was said in Coulton, the test is one of fairness and, if it is the case that had the issue been raised in the court below and evidence could have been given which, by any possibility, could have prevented the point from proceeding, the point cannot be advanced on appeal. Though it has been said that the principle in Coulton that a new point cannot be taken on appeal is not absolute: Tredders Investments v Channel SA [18]; Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317, 365 – 366 [151]: any exceptions as may be tend to arise when the new point is confined to a question of law or an issue which could not have been affected by any further evidence at the trial: Bird v DP (2024) 98 ALJR 1349, 1360 – 1361 [39].

390    It might also be added that the point now sought to be raised seeks to impugn Ms How’s credit in a different way. It attempts to suggest that her evidence about the words which passed in the conversation is inaccurate, albeit through her failure to properly recall what was said. As that was not put to her, the attempt to raise it now is inconsistent with the rule in Browne v Dunn. The scope of that rule was referred to in Allied Pastoral Holdings P/L v Commissioner of Taxation [1983] 1 NSWLR 1, 16 as follows:

It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the cross-examiner’s intention to rely upon such matter, it is necessary to put to an opponent’s witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn. That rule of practice follows from what I have always believed to be rules of conduct which are essential to fair play at the trial and which are generally regarded as being established by the decision of the House of Lords in Browne v Dunn (1894) 6 R 67.

391    Here, there was no suggestion in the pleadings, the affidavits, or other evidence that Ms How’s testimony was intended to be challenged on the basis that she had misunderstood or misinterpreted what had been said. Indeed, the respondents did not give evidence of any conversation which Ms How might have mistakenly heard as giving rise to the statements in her evidence.

392    It follows that the Court cannot consider the submissions advanced on appeal on behalf of the appellants that Ms How misunderstood the words spoken. That conclusion remains despite the strong submissions advanced which support a finding that the conversation possibly did not occur as Ms How alleged.

Ms How’s evidence must be given limited weight

393    However, it does not follow that the significant difficulties with Ms How’s evidence, as they have been discussed, are not relevant to the appellants’ case that no such conversation occurred. Leaving aside whether it might be that Ms How misheard what was said to her, the inconsistency of her evidence with the known facts and the consequential improbability of her testimony substantially reduce the weight that should be accorded to it. Indeed, in light of the above analysis, it is necessary to discount her evidence in relation to the matters on which the primary judge relied.

394    That said, it is also relevant that Mr Watts did not respond to Ms How’s email of 26 September 2016 which could be regarded as a tacit admission. However, in circumstances where (a) the assertions as to what Mr Watts had said were unlikely, (b) Ms How and the Lenders had already engaged solicitors, and (c) threats had been made against Mr Watts, it is not self-evident that Mr Watts should have responded. He was not a lawyer and was not represented at the time as was Ms How, and he is unlikely to have perceived what might be made of any failure to respond. Moreover, as has been mentioned, the evidence also showed that Mr Watts was not a particularly conscientious correspondent over email. One suspects that, unlike lawyers, ordinary people going about their day-to-day business do not feel the need to respond or react to every piece of communication, even inflammatory ones. That is more likely to occur in the context of small enterprises such as husband and wife operations like WMM. In all the circumstances, little can be derived from his failure to respond.

395    The primary judge found that Ms How was “an impressive witness who gave her evidence in a clear and cogent fashion, answered questions directly, and made appropriate concessions” (PJ [62]). Whilst that may be so, it is now well established that even the most confident and articulate witness may not be the most truthful and that the manner in which evidence is given does not necessarily correlate with accuracy.

396    His Honour also found that Ms How was “a truthful and reliable witness”, however, given the previous discussion, it is no longer appropriate to describe her evidence as being reliable, given that it was contrary to the objective facts. It cannot be safely relied upon.

Conclusion as to the July 2014 Chains Invoice

397    The conclusion that Mr Watts produced, or caused to be produced, the July 2014 Chains Invoice should not stand. In the first instance, the form of the invoice differs substantially from that of other WMM invoices which were issued prior to and after it. The differences were not explained and their existence evidences that the document was not produced by WMM. Further, the primary judge’s conclusion omitted to take into account the context of the case which includes Ms Sharpe’s repeated falsification of several documents, including those which purported to emanate from WMM. His Honour also concluded, without foundation, that Ms Sharpe could not have produced the document without an electronic version of Invoice 1148, but there was no foundation for that finding. He further conflated Mr Watts’ evidence about the receipt of $760,000 into WMM’s account and his explanations for the reference to that amount in the NCS Letter, and reached the conclusion of recent invention from uncertain evidence.

398    Though the primary judge placed reliance on the inferences drawn from Mr Watts’ conduct in the period from July 2014 to January 2015, that too was misplaced. When considered, Mr Watts’ conduct did not reflect any acceptance of Ms Sharpe’s dishonest scheme. On the contrary, it was largely in keeping with his justifiable suspicion that she and Chopsonion would not be able to complete the transaction, a suspicion which necessarily increased in the second half of 2014 as several statements were made about the immediate prospect of settlement, only for nothing to materialise. Though Mr Watts might have been lacking care as to the manner in which he dealt with funds that were deposited into WMM’s account, it would seem more likely that he was beguiled by Ms Sharpe into acting that way as opposed to being part of her scheme.

399    With great respect, the only open conclusion with regard to the July 2014 Chains Invoice is that it was another document that was falsified by Ms Sharpe.

400    This conclusion does not, however, absolve Mr Watts of all blame in relation to his evidence. As mentioned, he exhibited a somewhat cavalier approach when responding to questions in cross-examination. He was prepared to attempt to guess at answers which might advance his case and put them forward as his knowledge, rather than admit an inability to recall. There is also no doubt that he adopted a combative stance whilst being cross-examined and, whilst that maybe understandable given the nature of the allegations made against him, it rendered his evidence somewhat problematic. It may be that he truly believed the allegations against him were risible or, perhaps, ludicrous, but that provides no justification for the way he approached the giving of his evidence. Nevertheless, whatever difficulties arose, they were insufficient to support the findings made.

The Deposit Email

401    The Deposit Email, which his Honour found to have been sent by Mr Watts, was heavily relied upon by the primary judge as evidencing Mr Watts’ proclivity to produce false documents to assist Ms Sharpe in raising funding so that the Chains might be acquired. However, that finding needs to be reassessed in the context of the conclusion that the evidence establishes that it was Ms Sharpe who had falsified the other documents including, in particular, the July 2014 Chains Invoice.

402    Though Mr Watts denied producing the Deposit Email, the primary judge concluded that he did so and sent it to Ms Sharpe to further the false statement that the Chains were sold by WMM to Chopsonion for the price of $850,000, and that Chopsonion had paid an amount of $90,000. In the context of his Honour’s previous finding that Mr Watts had produced the July 2014 Chains Invoice, that conclusion was understandable. The latter would be compatible with the former, in that they both evidenced the payment of a $90,000 deposit. However, in the light of the foregoing conclusion that Mr Watts did not produce the July 2014 Chains Invoice, the support for the conclusion that he produced the Deposit Email evaporates.

403    Apart from the previous difficulties referred to above, here the Deposit Email is inconsistent with the documents which Mr Watts acknowledged were sent to Ms Sharpe and Chopsonion. Over an extended period, WMM had consistently indicated that the price at which it intended to sell the Chains was $480,000 plus GST. A quote of 17 September 2012 evidenced an offer to a third party at that same price, though it is apparent that this sale did not proceed. A not dissimilar quote existed in relation to a proposed sale of the Chains to Chopsonion on 22 May 2013, being invoice 1045. It identified a total price as being $528,000, though that was for the Chains in situ in New Zealand, such that the purchaser would be required to remove them and transport then to Australia. The evidence indicates that this quote was cancelled on 28 June 2013. Yet again, a sale was attempted on 1 July 2013, when WMM issued two quotes (being invoices 1058 and 1059) which were for the sums of $330,000 and $198,000 respectively, being a total price of $528,000. Those quotes were cancelled on 3 August 2013. In addition, in January 2015, and shortly after the amount of $760,000 had been paid to WMM’s account, the further invoice (Invoice 1204) was issued to Chopsonion in the amount of $528,000 for the Chains, and other invoices were issued for the additional equipment sold as well as for the rental payable in respect of the storage of the equipment at the Oringi abattoir.

404    Apart from the fact that the Deposit Email is inconsistent with those contemporaneous documents, it would also be curious, if Mr Watts was party to a plan to falsify the price of the goods, that he would send invoices at the original price both prior to and following the alleged fraud. It is entirely incongruous for a person in the position alleged to prepare and send invoices reflecting the real transaction. No intelligible reason appears as to why he would do something that might expose the alleged deceptive arrangements.

405    Despite that, the primary judge relied upon his conclusions as to Mr Watts’ credibility as supporting his determination that he prepared and sent the Deposit Email. In the light of the above discussion that factor must be of far less significance. Further, given that it has been concluded that it was Ms Sharpe who had produced the other impugned documents, it might readily be assumed that she did the same thing in relation to the Deposit Email. That is especially so because that email relates to the July 2014 Chains Invoice and, given the above conclusion that it was not prepared by Mr Watts who would not have known about it, it can be readily inferred that the email was also fabricated by Ms Sharpe.

406    Again, it is worth noticing that despite Mr Watts’ denial that he prepared and sent the Deposit Email to Ms Sharpe, the applicants refrained from adducing evidence of how it was delivered. As the document produced at trial was a paper copy of an alleged email, presumably there existed a computer from where the electronic data could be recovered. However, no attempt to produce the relevant data was made and, like the other documents alleged to have been produced by Mr Watts and WMM, it seems that its possession by Chopsonion and Ms Sharpe was regarded as being sufficient evidence of its delivery by Mr Watts. In the circumstances of this case, that presumption is not available.

407    His Honour also relied upon the fact that Mr Watts had received the NCS Letter in September 2014, and did not query the amount of $760,000 referred to therein. The context of Mr Watts’ receipt of that letter has been discussed above, though if one proceeded on the basis that his non-response amounted to a tacit acceptance, that would be some support that Mr Watts was aware of the July 2014 Chains Invoice and, therefore, that he might have prepared the Deposit Email. However, when considered objectively, Mr Watts’ initial explanation as to why he did not query the indication that WMM would be paid $760,000 in the near future was the most probable. It was to be the effect that he did not believe that payment for the Chains was imminent given that it was contingent upon the finalisation of the costs to dismantle and pack them, as well as their inspection in New Zealand. As events occurred, that is precisely what happened. Ms Sharpe was not able to finalise funding until those matters had been attended to and so much had been made clear by the previous email from Mr Keane of 23 July 2014. In those circumstances, it did not bother Mr Watts to be told that WMM would be paid on Invoice 1148 because, in his mind, he would issue a new quote/invoice once the relevant costs were identified. Mr Watts also gave evidence of his scepticism that Chopsonion would obtain the finance given the history of Ms Sharpe repeatedly indicating an intention to buy the Chains but not proceeding. Even the trial judge acknowledged this. As it was, his cynicism was justified given that NCS’s involvement in the funding of the purchase subsequently vanished and without explanation.

408    In these circumstances, and in the light of the conclusion that Mr Watts did not falsify the July 2014 Chains Invoice, the allegedly consequential conclusion that he prepared the Deposit Email is not supportable.

Invoice 1148

409    Invoice 1148 assumed significance in this case, which is slightly unusual given that there is no evidence that it was given to the Lenders nor to any other potential funder. Nevertheless, it was relied upon by the trial judge as severely undermining Mr Watts’ credit because he concluded that it was produced by Mr Watts, or at his direction, to assist Ms Sharpe in her dishonest design. As was the case with the July 2014 Chains Invoice, his Honour reached that conclusion by relying on subsequent events in relation to the negotiations with potential funders and Mr Watts’ involvement in them. In particular, he relied upon Mr Watts’ inquiries as to how the funding was progressing and his omissions to indicate that the true price of the Chains was only $528,000. As has been identified above, the primary judge erred in concluding that Mr Watts’ subsequent conduct established that he had produced the July 2014 Chains Invoice and, for the same reasons, he erred in relying on it to conclude that Invoice 1148 was prepared to assist Ms Sharpe in an improper purpose.

The preparation of Invoice 1148

410    Invoice 1148, which is dated 24 June 2014, was admittedly prepared by Mr Watts or on his instructions and was said by him to be, in part, a quote to sell the identified equipment to Chopsonion.

411    Some importance attaches to the equipment to be sold under that quote or invoice. The table on it indicates the offer was in relation to:

Small stock abattoir kill floor Ex. NZ – Two Chains – One Complete and one about 90% Complete

412    The constituent items are listed out and a composite price of $850,000 inclusive of GST is ascribed.

413    Mr Watts’ evidence was that he had been asked by Ms Sharpe to prepare a quote for the Chains which included an estimate of the cost of removing them – being, bringing them to the ground and disassembling them – and packing them, but not the cost of their transportation to Australia. He said that the identified amount of $850,000 was a rough estimate of that total cost, given that he believed the cost of dismantling the Chains and getting them out of the building would be about equivalent to the cost of the Chains themselves. He added that Ms Sharpe had indicated to him that she would obtain quotes for the dismantling of the Chains and their packaging and, when that occurred, he could firm up the price for the Chains themselves and issue a new invoice. In commercial parlance, the identified price was for the Chains “ex the Oringi abattoir”, being their cost at the door of the factory as opposed to “as is where is” or “in situ”. In this sense, the expression used on Invoice 1148 that the sale was “Ex NZ”, may have been technically accurate even if the goods were not being made available at a port of discharge.

414    Mr Watts was criticised at first instance in relation to his explanation of the price of $850,000 because there was nothing on the invoice to suggest that it included those additional costs or that the costs were subject to verification. There is some force in that, though Mr Watts maintained this position and asserted that the quote was subject to obtaining verification of the removal costs from PW Engineering. He added that there was no need to explain that to either Ms Sharpe or Mr Keane who were both aware of what the invoice/quote represented and the applicants called no evidence to gainsay that claim.

415    In relation to the issuing of Invoice 1148, Mr Watts also said that, as the cost for the dismantling of the equipment was not ascertained shortly thereafter, no “proper” invoice – being one which was solely for the cost of the Chains – was prepared. That latter point has some credence to it given that Invoice 1148 was prepared in late June 2014, and inspection of the Chains in New Zealand did not take place until October 2014.

416    Mr Watts gave further evidence to the effect that, at a meeting at Inglewood on 25 June 2014, he indicated that the Chains could not be accommodated in Chopsonion’s abattoir there, with the consequence that he understood that the proposed sale contemplated by Invoice 1148 ended at that point.

Mr Watts’ statement of what is included in Invoice 1148 is supported

417    Part of the Lenders’ case was that they were misled into believing that the cost of the Chains alone was $850,000 by reason of both Invoice 1148 as well as the July 2014 Chains Invoice and that Mr Watts and WMM were responsible for that misrepresentation. That, however, is problematic. In the proceedings there was substantial evidence that a significant cost component of the importation of the Chains from New Zealand, was their dismantling and packaging for transportation. There was no doubting Mr Watts’ claim that, ultimately, WMM sold the Chains in situ, such that Chopsonion was obliged to arrange and bear the cost of dismantling them, packaging them and transporting them to Australia. There was also no evidence that, as at June and July 2014, Chopsonion had obtained any assessment of those additional costs. On the assumption, as was the case put against Mr Watts/WMM, that Chopsonion was then seeking finance to purchase the Chains and remove and transport them to Australia, some indication of the cost of doing so was required. Mr Watts had deposed in his affidavit of 8 November 2022 that the purpose of Invoice 1148 was to provide a rough budget estimate of those costs and neither Chopsonion nor the Lenders adduced any evidence that the former was otherwise possessed of what those costs were. Certainly, Counsel for Chopsonion did not confront Mr Watts with any during his cross-examination. It follows that, in the absence of any other evidence of the estimated cost of dismantling and packing, Invoice 1148 appears to reflect that which was asserted by Mr Watts.

418    In this respect, it is relevant that Chopsonion did not call its former director, Mr Sharpe, to rebut Mr Watts’ evidence as to the basis on which he provided Invoice 1148.

419    To a degree, Mr Watts’ evidence in the above respect was also supported by Mr Keane’s email of 23 July 2014, where he stated, in relation to the funding which he was then pursuing:

Jim and/or Wendy will be required to immediately contact Peter Williams [sic] in NZ to ascertain his requirements to satisfy the equipment be dismantled, packed and shipped to Australia to a suitable location for allocation to various sites.

NCS have requested that we provide an accurate cost from Peter and the associated cost of Freight to Australia as the complete package of the approval.

The reference to “Peter Williams” was presumably intended to be a reference to Mr Wharehinga of PW Engineering.

420    That email supports the view that, as at its date, no firm costings for, inter alia, removal and packing had been obtained. Further, it suggests that funding had been secured, and this carries with it some indication of those costs must have been provided. If that were so, on the evidence, the only source of these costs comes from Invoice 1148.

The meeting with Mr Keane

421    A curiosity in this case is the involvement of Mr Keane. Mr Watts claimed that he had been introduced to such a person by Ms Sharpe as being someone who was assisting her/Chopsonion in obtaining finance. He said that the introduction occurred at a meeting which took place at Inglewood on 25 June 2014, being the day after he prepared Invoice 1148.

422    However, the email from Mr Keane to Mr Watts dated 28 September 2014 included a statement that, as at that time, the two had not met. On this evidence the primary judge determined that Mr Watts was being untruthful when he claimed that he had met Mr Keane on 25 June 2014. When confronted with this in the course of cross-examination, Mr Watts claimed that at Inglewood Ms Sharpe had introduced a person to him as Mr Warwick Keane and, if it was not Mr Keane, he did not know who the person was. He said that he did not bother to reply to Mr Keane’s email in September which stated that they had not met as he had a lot to deal with at that time.

423    Though the primary judge regarded Mr Watts’ assertion that he had met Mr Keane at Inglewood as untruthful, it is not apparent why Mr Watts would lie about it. It did not appear to be in doubt that he attended Inglewood on 25 June 2014 to inspect an abattoir so as to ascertain its suitability to receive one of the Chains from Oringi. Whether he spoke to Mr Keane was inconsequential in the context of the issues in the litigation.

424    It may be that Mr Keane had forgotten the meeting or otherwise misspoke. In any event, he was not called as a witness to rebut Mr Watts’ evidence. In such circumstances, there was no particular foundation for believing the unsworn statement of Mr Keane over that of Mr Watts.

Mr Watts’ belief as to the use to be made of Invoice 1148

425    Mr Watts denied that he believed that Invoice 1148 would be given to Mr Keane to assist him in obtaining funding. That was rejected by the primary judge and, the evidence tends to support his Honour’s conclusion. Mr Watts was aware that the person referred to as “Mr Keane” was attempting to secure finance for Chopsonion to purchase the Chains. That being so, it would be passing strange if he were not to receive it for the purposes of showing to potential funders the actual cost of the intended acquisition. Mr Watts’ persistent denials in this respect were, quite possibly, disingenuous. A reading of the transcript tends to reveal his awareness of some potential damage to his case of acknowledging the same, and his efforts to avoid that result did him no credit. His refusal to accept the natural inference from the established facts was more concerning given his apparent acknowledgment of the intended purpose of the invoice in his affidavit. There he said that when Ms Sharpe asked him for the quote she said:

Yeah, Just need to know a rough guide of the total amount we need so he [Mr Keane] can source it [finance] with his contacts.

426    In relation to the statement in Mr Keane’s email of 23 July 2014 that funding was secured for the purchase of the equipment in Invoice 1148, Mr Watts denied that meant that WMM would be paid on Invoice 1148. He said that it would be paid on the earlier invoice which he had provided to Ms Sharpe for the price of $480,000 plus GST. Though the email seems to suggest that Invoice 1148 would be paid, it also states that the progress of the transaction was dependent upon “Peter Williams” providing accurate costs of dismantling, packing and shipping. Mr Watts asserted that always remained his understanding and he added that, despite what was said in the email, there was never any prospect of WMM being paid the amount referred to in the invoice, because new invoices would be issued, Though there are also difficulties with that given what was said in the email, it was borne out by events in that, WMM was not paid $850,000 by NCS or, indeed, any money by that entity. In fact, the loan did not eventuate despite Mr Watts and Ms Sharpe travelling to New Zealand to inspect the Chains with Mr Wharehinga in October 2014. Indeed, even after PW Engineering provided its costs estimate for removing, dismantling and packing the Chains on 16 October 2014, no payment materialised. Even following those events, WMM did not make any demands to be paid $850,000.

427    A difficulty also arises as to what was meant by Mr Watts when he denied that he would be paid on Invoice 1148. In his evidence and in the course of cross-examination, he maintained his position that he prepared Invoice 1148 as a rough budget estimate capturing the cost of the Chains as well as the dismantling and packing. He was cross-examined on the basis that so much was true:

Do you agree the reason you were being asked to prepare invoice 1148 was because it was the bloke that was going to turn up at Inglewood the next day, that wanted the understanding of the shipping and removal costs?---The budget was to work out the rough estimate of the abattoirs and the removal cost.

I’m sorry. I think I’ve added “shipping”. I didn’t mean to be suggesting a change from that. You understood, I suggest, that it was the bloke that would be turning up at Inglewood the next day that was wanting the articulation of the removal costs.

Please – sorry, please let me finish, Mr Watts. I will start again. When she said:

Can you do me up a proforma invoice? I’ve got another bloke coming to Inglewood tomorrow –

the document that you prepared in conformity with her request was an invoice at tab 14? [Invoice 1148]---No. It’s not an invoice. It’s as per in my affidavit. It was a budget estimate for the chain and the removal of the chain, and that had to be finalised down the track when we had the inspection.

Was it your state of mind, when you received this email, that, “There’s an issue here because people are acting on my rough estimate that’s not a genuine invoice”?---It was never going to happen until we went to New Zealand. Warrick had jacked up the trip to go to New Zealand to have a look at the chains and to get it – to get a firm price.

428    Despite the above, and that it was neither put to Mr Watts nor suggested to him that he did not produce Invoice 1148 as a budget estimate as he claimed, the primary judge rejected his evidence in that respect (PJ [151] – [153]). That rejection of Mr Watts’ evidence is even more concerning given that the applicants’ case before the primary judge was that Mr Watts did indeed prepare Invoice 1148 as including a budget estimate for the cost of removing the Chains from the Oringi premises: see paragraph 21C.2.3 of the second further amended statement of claim.

429    The difficulty is that the primary judge took the email of 23 July 2014 as indicating that WMM would be paid on Invoice 1148 in an amount of $850,000 and that the only items of sale were the Chains, there being no mention of the cost of dismantling them. On that basis, he regarded Mr Watts’ lack of response to the email as an indication that he believed that WMM would be paid the full amount stated in the invoice for the sale of the Chains, thereby putting the lie to his evidence.

430    For the reasons that have been identified above, that conclusion is not supported by the evidence. In particular, Mr Watts’ lack of response was no indication of his expectation that WMM would be paid $850,000. On the contrary, the material supports Mr Watts’ assertion that Invoice 1148 was a preliminary quote which included the cost of dismantling the Chains and packing them for transportation to Australia.

Conclusion as to Invoice 1148

431    The necessary conclusion is that the primary judge’s finding that Mr Watts produced Invoice 1148 to assist Ms Sharpe in her dishonest pursuit cannot stand. The evidence establishes that it was intended to serve the purpose that Mr Watts asserted, being to provide a rough estimate of the cost of the Chains as dismantled and packed for shipping. That information was obviously necessary to allow Chopsonion to secure funding as at June 2014, at which time there was no other information of those costs available. The terms of the invoice as being “Ex NZ” tend to support that.

432    Contrary to the primary judges’ findings, when the evidence of Mr Watts’ subsequent conduct is considered, it is not probable that Invoice 1148 was created for the alleged improper purpose. There was nothing unusual about Mr Watts seeking updates on the attempt to secure funding when prompted to do so by the circumstances, and the history between him and Ms Sharpe more than explained his general inattention to assertions that payment was imminent. That attitude was both understandable and prescient. Though it can be acknowledged that he was not a good witness in his own cause, his explanations were generally congruent with the circumstances in which he found himself and the general lack of sophistication with which his business operated. Though he may have been induced in January 2015 to disperse funds at Ms Sharpe’s/Chopsonion’s direction and could be criticised for being careless in the circumstances, that does not support the conclusion that in June 2014 he entered into a dishonest arrangement with Chopsonion and Ms Sharpe to defraud persons who might be approached for funding. It also appears that the primary judge erred in placing weight on the evidence of Ms How in reaching the conclusion that he did. When analysed in the context of the known and accepted facts, that evidence was shown to contain many errors and was unreliable.

433    It follows that the primary judge’s finding in relation to Invoice 1148 cannot stand either. That further undermines his Honour’s conclusions in relation to the Open Letter, the July 2014 Chains Invoice and the Deposit Email.

The findings that should be made

434    Apart from concluding that the primary judge’s finding cannot stand, it is appropriate to record that the evidence sufficiently establishes that Mr Watts was also the victim of Ms Sharpe’s misleading conduct. It should be accepted that in late June 2014, Ms Sharpe did request a quote for the Chains inclusive of the cost of dismantling and packing them. That such a price was required is congruent with the known facts as have been identified. Thereafter, the correspondence indicates that Mr Watts was deceived into thinking that a sale would complete through a series of statements that finance would be forthcoming. In that regard, one of the many curious features of this case is the unexplained disappearance of NCS and Mr Keane. At one point in time, Mr Keane was about to arrange for finance to be provided for Ms Sharpe’s venture, and the next moment Ms Sharpe was negotiating with Ms How. The absence of an explanation, even in the correspondence, is unusual, and that is especially so in circumstances where Mr Watts was alleged to be part of a dishonest design. Surely, if that were the case the co-conspirators would discuss, even as an aside, the progress of the alleged plan. Similarly, Mr Watts was not aware of Private Funds Management until January 2015 and, again, it is remarkable that there is not one mention of it or the progress of the application in any correspondence between Ms Sharpe and Mr Watts. That too is inconsistent with the narrative propounded by the applicants.

435    It is apparent that after Mr Watts provided Ms Sharpe with Invoice 1148, it was she who falsely produced a number of documents in an attempt to induce potential lenders to provide finance. They included the July 2014 Chains Invoice, the Deposit Email and the Open Letter amongst others. In this regard, it is also relevant that in the correspondence between the alleged co-conspirators there is no mention of any request that they be produced by Mr Watts, no evidence or mention that they were sent to Ms Sharpe, and no mention of them in the correspondence at all thereafter. That all weighs heavily in support of Mr Watts’ evidence that he did not produce them and that finding should be made. Far from being a participant in the dishonest conduct, he was unaware of it and was another casualty of it.

Conclusion as to Ground 1 of the appeal

436    The appellants are entitled to succeed in relation to Ground 1 of the appeal. Neither Mr Watts nor WMM produced the documents as alleged by the Lenders and Chopsonion. On the contrary, it is sufficiently apparent that they were produced by Ms Sharpe. That removes the foundation for the assertion that the appellants were part of Ms Sharpe’s dishonest design, were involved in any of Ms Sharpe’s breaches of duty to Chopsonion, or any of her dishonest or misleading conduct. It also removes the substratum of the allegation that they, themselves, were involved in any misleading conduct by participating in the alleged dishonest design. Indeed, on the facts as found by the primary judge, there was no basis for giving judgment on that latter claim in any event. The alleged “Design” included the essential involvement of Rolton in the production of allegedly false valuations with alleged “kick backs” to Mr Smith. None of this part of the “Design” as alleged was established and no alternative case of some different Design was articulated. As a consequence of that, in lieu of the orders made by the trial judge, the claims against the appellants should be dismissed.

THE APPEAL ON CAUSATION

437    As a result of the above determination, it is not strictly necessary to address the second ground of appeal. The findings made in relation to the first ground mean that there is no basis for concluding that Mr Watts or WMM caused any of the losses in respect of which damage was claimed.

438    However, as the second ground was fully argued, it is appropriate to give it due consideration, though only generally on the assumption that the primary judge’s findings as to the authorship of the impugned documents stand.

439    This second ground concerns the issue of factual causation and asserts that:

[t]he primary judge erred in finding that the Respondents had established their causation case. The primary judge did not adopt the correct approach to the assessment of causation and, consequentially, did not consider relevant evidence and make correct findings of fact.

440    In part, this aspect of the appeal raises issues as to the purpose, utility and appropriate formulation of counterfactuals in the assessment of causation. Other issues include the relationship between the various common law and statutory tests for causation, and, in the circumstances of this case, the extent to which an appellant can raise points not made at trial.

441    For the reasons which follow, the appellants should also succeed on Ground 2 of the appeal. In short, the primary judge erred in concluding that the applicants at trial had established their “no transaction” causation case in respect of their several claims. His Honour’s reasoning was infected, at a fundamental level, by his adoption of a counterfactual scenario which was inappropriate for the inquiry he was required to undertake. He ought to have considered what Ms How and the Lenders would have done had the impugned conduct of Mr Watts, WMM, and Mr and Ms Sharpe not occurred. Rather, he sought to answer the irrelevant or erroneous question of what they would have done had they known of the attempted deception. That error had the consequence that he did not find, as he ought to have, that the applicants had failed to discharge their onus of proving that the losses incurred by the Lenders and Chopsonion were caused by the impugned conduct. This appears to have been a consequence of the applicants’ failure to adduce sufficient evidence to establish, to the requisite standard, that no loan would have been advanced had the impugned conduct not occurred, such that the losses would have been avoided. Indeed, a thorough consideration of the available evidence indicates that it is substantially more probable that, absent the alleged conduct of Ms Sharpe, Mr Watts and WMM, the Lenders would have financed Chopsonion’s purchase of the Chains in any event.

The primary judge’s decision

442    In general terms, the primary judge found that a causal connection had been established, between the impugned conduct of Mr Watts, WMM and Mr and Ms Sharpe, for each cause of action on the one hand and, on the other, the losses suffered by the Lenders and Chopsonion.

443    In relation to the quantum of the loss, he found that the Lenders’ primary loss was the remaining amount owing on the loan, being $177,307.66, plus interest. They were also permitted to recover receiver’s fees and legal costs ($220,698.31), mortgage management fees payable to Private Funds Management ($1,617,975), and legal fees ($167,664.71). So too was Mr Rowley, who obtained finance for his investment in the loan to Chopsonion, permitted to recover the principal and interest owed by him to his lenders, in the amount of $880,360. As for Chopsonion, it was found that it had incurred a liability of $7,063,697.30, comprising the principal amount advanced by the Lenders ($1,175,000), unpaid interest and mortgage management fees ($5,471,900, though this was subject to his Honour’s separate reasons on interests, the “Interest Judgment”), receivers’ costs and legal fees ($220,698.31), storage charges ($173,766.98), and legal fees ($22,232.01).

444    For present purposes, it can be assumed that as a result of the entry into the loan transaction, the Lenders and Chopsonion suffered losses to the extent described. That transaction, his Honour found, was caused by the impugned conduct of Mr Watts, WMM and Mr and Ms Sharpe. As such, it followed that the Lenders’ losses consequent upon their entry into the transaction were caused by the misleading or deceptive conduct of Mr Watts and WMM, the misleading or deceptive conduct of Ms Sharpe (in which Mr Watts and WMM were involved), and the deceit by Mr Watts and WMM. Similarly, Chopsonion’s losses were caused by the breaches by Mr and Ms Sharpe of their duties under ss 181(2) and 182(2) of the Corporations Act (in which Mr Watts and WMM were involved), the breaches by Mr and Ms Sharpe of their fiduciary duties (of which Mr Watts and WMM were knowing assistants), the misleading or deceptive conduct by Mr Watts and WMM, and the misleading or deceptive conduct of Mr and Ms Sharpe (in which Mr Watts and WMM were involved).

445    His Honour accepted that a causal connection between conduct and loss had been established on the basis that the conduct had caused the Lenders to provide finance to Chopsonion. His reasons for this finding have been described in detail above (see supra [167], [195] – [203]) and need not be reproduced, but can be distilled into the following core propositions:

(1)    Both Ms How and the Lenders necessarily relied on the July 2014 Chains Invoice and the Deposit Email (which, in the primary judge’s view, were both authored by or on the instruction of Mr Watts) when deciding whether to provide finance to Chopsonion;

(2)    Ms How would not have put the funding proposal to the Lenders but for the fact she had understood that the purchase price for the Chains was as set out in the July 2014 Chains Invoice, such that the balance of $760,000 was payable on a purchase price of $850,000;

(3)    If Ms How had known that, contrary to the July 2014 Chains Invoice and Deposit Email, the purchase price for the Chains was in fact $528,000, and no deposit had been paid, she would not have considered approaching the Lenders to provide funding to Chopsonion;

(4)    If the true position had been disclosed, then faced with the knowledge of a false invoice and a false representation of the payment of a deposit against that invoice, no party would have engaged in the transaction; and

(5)    Though there were other factors which were clearly relevant to the decision to advance funds, the fundamental point was that Ms How and the Lenders proceeded on the basis that there was a “genuine transaction” as reflected in the July 2014 Chains Invoice and the Deposit Email.

The appellants’ submissions

446    The appellants’ primary contention is that the trial judge’s reasoning adopted an incorrect counterfactual, by inquiring as to what Ms How and the Lenders would have done had they been informed of the falsity of what had been represented to them. Instead, so the submission went, he ought to have conducted his causal analysis by reference to a hypothetical scenario in which none of the impugned conduct of Mr Watts or WMM occurred at all. Importantly, that is a scenario in which neither the July 2014 Chains Invoice, nor the Deposit Email, were produced. That submission is advanced by reference to the decision of the New South Wales Court of Appeal in Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341 (Abigroup), which is referred to later in these reasons.

447    The appellants further submit that the counterfactual cannot simply excise the impugned conduct, but must also posit the provision of truthful information in its place. On that footing, they contend that the relevant counterfactual is one in which Ms How and the Lenders were provided with documentation that truthfully and accurately described the full nature and extent of the transactions involving the Chains, such that they could not have been misled as to those matters. That is to say that Ms How and the Lenders would have known that (a) Chopsonion was to purchase the Chains from WMM for $528,000 including GST, (b) additional equipment, specifically the beef floor (for $82,500) and shoulder puller with a breaking down saw (for $46,200), would also be purchased from WMM such that Chopsonion would acquire two complete Chains, (c) and Chopsonion would reimburse WMM for its costs incurred as a result of storing the Chains in Oringi, in the amount of $29,007. They would also have known that Chopsonion, Annomac and Jechbo were receiving commissions in relation to work to be done in getting the transaction in place.

448    The appellants say that two errors emerged as a consequence of the primary judge’s failure to apply the correct counterfactual:

(a)    First, that he failed to consider that, even if Mr Watts was not involved – and thus did not produce the July 2014 Chains Invoice and Deposit Email – it was likely that Ms How and the Lenders would still have been misled by Ms Sharpe, and therefore would have provided finance to Chopsonion in any event (which they called the “First Error”); and

(b)    Secondly, and in any event, the primary judge failed to consider that if Ms How and the Lenders were provided with invoices which contained true and accurate information as to the nature of the transaction, they would still have proceeded with the loan (which they called the “Second Error”).

449    On the basis of either, they submit that the losses sustained by the Lenders and Chopsonion were not causally connected to the impugned conduct of Mr Watts and WMM, because the loan transaction would have proceeded in any event.

The First Error

450    The core argument advanced in relation to the First Error is that the evidence adduced at trial supported the conclusion that, even if Mr Watts did not cause the production of the July 2014 Chains Invoice and Deposit Email, it was more likely than not that those documents (or similar documents to the same effect) would have been fraudulently produced by Ms Sharpe. That being so, it was open to the primary judge to find that it was more likely than not that Ms How and the Lenders would still have been misled into providing finance to Chopsonion, and thus suffered the same loss, even absent the involvement of Mr Watts.

451    The appellants rely on the following factual propositions to advance that submission:

(1)    On the applicants’ pleaded case at trial, Ms Sharpe:

(a)    had acted dishonestly in pursuing the Design; and

(b)    was a beneficiary of the Design.

(2)    It was accepted that she had previously fraudulently altered documents (for example, the Modified Rolton Valuation).

(3)    It was accepted that Mr Watts had sent or provided his form of invoice to her on various occasions, including electronically.

(4)    There was no evidence that she required access to any sophisticated and unobtainable means of altering an invoice originally prepared by Mr Watts.

(5)    She had herself generated documents that recorded the transaction with WMM in the same way as it was recorded in the July 2014 Chains Invoice, that is, that the total purchase price was $850,000 and the amount payable was $760,000 (for example, in the various spreadsheets that she provided to Ms How).

452    On the appellants’ submission, those facts demonstrated that it was more likely than not that Ms Sharpe would have fabricated the July 2014 Chains Invoice and/or the Deposit Email (or similar documents to the same effect) in order to mislead Ms How and the Lenders into providing finance to Chopsonion, even if Mr Watts had not acted as alleged. As such, they submit that the Lenders’ and Chopsonion’s respective losses could not have been incurred by reason of the conduct of Mr Watts and WMM, meaning causation cannot be established.

The Second Error

453    In the alternative, the appellants submit that the applicants at trial adduced insufficient evidence to discharge their onus of proving that, if no party (including Mr and Ms Sharpe) had engaged in any of the impugned conduct, the Lenders would not have provided a loan to Chopsonion.

454    This submission is advanced on two bases: firstly, that the primary judge should have given appropriate weight to the objective attractiveness of the loan to Ms How and the Lenders, and second, that the evidence of Ms How and the Lenders as to the matters upon which they relied in considering the loan proposal indicates that they would likely have agreed to the loan in any event. This is because, in a hypothetical scenario in which they were fully informed, they would have relied upon those matters to the same extent and participated in the loan.

455    This submission necessitates consideration of the evidence of Ms How and the Lenders, though the appellants’ submissions focussed primarily on the former. They asserted that her evidence was to the effect that:

(a)    if she had known that Mr Watts had purchased the Chains from Silver Ferns Farm for $187,000 and was selling them to Chopsonion for $528,000, she would never have recommended the loan to the Lenders, due to her concerns about the value of the chains on realisation under forced sale conditions, and would have known that the Rolton Valuation was not reliable or reasonably based;

(b)    if she had known that the entities related to Ms Sharpe would receive payment of some of the $760,000 advanced, she would have been alerted to the fact that the sale was not a “genuine sale” for a price of $850,000, and thus she would not have referred the loan;

(c)    the position was the same in relation to the additional storage costs paid for the benefit of WMM and/or Mr Watts; and

(d)    she would not have referred the loan to the Lenders if she had known that the statement that a $90,000 deposit had been paid was untrue.

456    The appellants submitted that this evidence addressed the wrong counterfactual – namely, what Ms How would have done had the falsity of the representations been revealed – and that the primary judge erred in relying upon it.

457    By way of a secondary or alternative submission the appellants assert that, to the extent Ms How gave counterfactual evidence about what she would have done if she had been informed of the true price of the Chains, that evidence was qualified. For example, she said that if she had been told that WMM was selling the Chains to Chopsonion for $528,000, after purchasing them for $187,000, she would not have referred the loan due to concerns about their true value. This meant that her evidence was not directed to a relevant counterfactual but drew upon the existence of an additional fact, namely, that she knew of the price at which WMM purchased the Chains. They say that, as a result, she did not give evidence as to what she would have done had she only been informed that the price of the Chains was $528,000, and thus causation was not established by her evidence.

458    They further submit that Ms How’s oral evidence demonstrated that the critical consideration when deciding whether to approve the loan was whether the security held would be sufficient to enable repayment, being a matter unrelated to the impugned conduct. In this respect, they submit that the primary judge failed to recognise and address this apparent inconsistency with Ms How’s earlier affidavit evidence, and instead wrongly described her as an “impressive” and “reliable” witness.

The respondents’ submissions

459    In seeking to uphold the primary judge’s decision, the respondents submit that his Honour was correct to find that the Lenders would not have advanced any funds to Chopsonion had they been aware of the deception that was being perpetrated.

Alleged abandonment of arguments

460    Before turning to the substantive issues, the respondents raised what they described as a procedural difficulty with the appellants’ submissions. They contended that, because the appellants had confined their argument to matters arising under s 236 of the ACL, they must be taken to have abandoned their challenge to the primary judge’s findings on causation vis-à-vis the remaining causes of action. That was said to be a reasonable inference, given the principles relevant to equitable causation and causation under s 1317H of the Corporations Act differ from those applicable to s 236 of the ACL and the tort of deceit.

461    That submission is dealt with below.

The relevant counterfactual

462    That aside, they submit that the appellants’ proposed counterfactual mischaracterises the case they advanced at trial, which proceeded on the basis that the impugned conduct had numerous elements, including representations that the relevant documents comprised genuine business records, reflective of a genuine transaction.

463    They submit further that Abigroup stands for a different proposition, being that wrongful conduct cannot be excised from the causal analysis, as doing so would be contrary to the remedial purpose of s 236 of the ACL. They also contend that the appellants’ counterfactual invites the Court to engage in irrelevant speculation about what Ms How and the Lenders might have done had some different representation been made. They contend that the proper approach is that, where fraudulent documents are presented as opposed to those which are the product of an innocent mistake, the counterfactual should proceed on the assumption that the true position – namely, the falsity of the documents – would have been revealed.

464    They also submit that the appellants’ submissions vis-à-vis the First Error and Second Error should not be accepted because (a) they require leave to be raised on appeal and (b) are contrary to the objective facts as identified by the primary judge.

The First Error

465    In relation to the First Error, their initial position is that the likelihood of Ms Sharpe engaging in misleading conduct, absent the involvement of Mr Watts, formed no part of the appellants’ defence at trial and cannot be raised on appeal. They assert further that the objective facts demonstrate with certainty that Ms Sharpe would not have conducted the fraudulent design without the assistance of Mr Watts. In particular, they rely on the facts that:

(a)    Ms Sharpe asked for Mr Watts’ assistance when asking for Invoice 1148 and the July 2014 Chains Invoice;

(b)    the July 2014 Chains Invoice and Deposit Email were produced by or at the direction of Mr Watts;

(c)    Ms Sharpe needed, and actually received, Mr Watts’ co-operation to consummate the fraud by paying the surplus funds back to Chopsonion, Annomac and Jechbo. Without the involvement of Mr Watts, there was a risk for Ms Sharpe that the fraud would have been exposed or frustrated upon the overpayment to WMM; and

(d)    there was no evidence that Ms Sharpe had ever authored a fabricated document.

466    The respondents say that this demonstrates that it would not have been possible for Ms Sharpe to perpetrate the fraudulent design on her own, because Mr Watts’ involvement was a critical component of the design and Ms Sharpe relied heavily upon his assistance. As such, they contend that there is no basis to conclude that Ms Sharpe would have misled Ms How and the Lenders in the absence of Mr Watts, and thus the First Error must be rejected.

The Second Error

467    As to the Second Error, they contend that the appellants’ submission, properly construed, posits that an alternative transaction would have been entered into by the Lenders in the absence of the impugned conduct. Specifically, they say that in the appellants’ proposed counterfactual, the Lenders would have been provided with an invoice that accurately described the details of the transaction – that is, identified the price of the Chains as $528,000. Had that occurred, the respondents say that, since it was common ground that Lenders only advanced funds pursuant to invoices presented, it was self-evident that they would not have advanced $760,000 to Chopsonion. Rather, on the respondents’ submission, if the Lenders provided any finance, it would have been in the amount of $528,000, which is a different transaction to the one actually entered into by the Lenders. This, they argue, is an “alternative transaction” case – by which the appellants assert that the Lenders would have entered into a different transaction and suffered loss – which may not be advanced in this Court because it was not pleaded at trial.

468    In addition, they submit that an “alternative transaction” case is contrary to accepted principle. They say that an assessment of causation in this case must only involve consideration of whether the Lenders would nonetheless have entered into the same transaction had the true position been disclosed. In this, they call in aid the decision of the Full Court in Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373 (Wyzenbeek), for the proposition that it is not open to a defendant to argue that a plaintiff would have entered an alternative transaction and suffered the same loss. Rather, according to the decision in Wyzenbeek, it is only open to a plaintiff to demonstrate that they suffered loss by not entering into a more profitable arrangement when they had an opportunity to do so. On this basis it was submitted that it is irrelevant whether the Lenders might or might not have provided finance to Chopsonion on different terms. It is instead, sufficient to say, simply, that the Lenders would not have agreed to advance $1,175,000, nor actually advanced $760,000, towards an invoice for $528,000.

469    As such, they seek to uphold the primary judge’s decision that the Lenders and Chopsonion were entitled to recover all of the losses they incurred as a result of the former advancing funds to the latter, since those losses were causally connected to the impugned conduct of the appellants.

Consideration

Scope of the challenge

470    The respondents’ submission that the appellants had confined the appeal to causation under s 236 of the ACL received little attention outside of the parties’ written submissions. However, it is appropriate to make some brief remarks about why it was misguided.

471    Firstly, and fundamentally, the generality with which grounds of appeal are expressed makes clear that the challenge is to the primary judge’s findings on causation in their totality.

472    Second, it is pellucid that the appellants’ submissions concentrated upon the application of s 236 of the ACL because (a) it was in that context that the primary judge outlined his substantive causal analysis, and (b) a singular causation case was put by the applicants at trial. It was, therefore, reasonable for them to advance a corresponding singular causation case on which to found its submissions on appeal.

473    Third, no error inheres in that approach in the circumstances of this case, as there is no meaningful or material distinction between the causal inquiries under s 236 of the ACL (“because of”) and s 1317H of the Corporations Act (“resulted from”): see Trilogy Funds Management Ltd v Sullivan (No 2) (2015) 111 ACSR 1, 320 [660] (Trilogy Funds Management). That observation may equally be extended to the formulations of causal inquiry required by most other common law and statutory causes of action, since legislative formulations such as “caused by”, “by reason of”, “because of” or “as a result of”, simply telescope “what to the common law would be issues of causation, remoteness and measure of damages”: Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (No 2) (1987) 16 FCR 410, 419.

474    Although different principles apply to claims for equitable compensation – where the ‘but for’ test is generally sufficient and normative limitations drawn from the common law do not constrain the inquiry (see Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1, 37 – 38 [88] – [91]) – the appellants should not be taken to have abandoned that issue merely because their submissions were directed to the higher causal threshold applicable at common law. Further, the real issue was one of factual causation in the sense of whether the impugned conduct actually altered the course of events as they occurred.

475    It follows that the respondents were incorrect to suggest that this ground of appeal is confined to their claims under the ACL. It is difficult to believe that they thought otherwise.

476    It is necessary to observe that there is more than a little hypocrisy in the respondents seeking to corral the debate about causation within certain confined limits. Though their pleaded claim is delinquent in many respects, it is most egregious in the manner in which it deals with causation and damages. In relation to the statutory causes of action and claim for breach of fiduciary duties, the second further amended statement of claim merely asserts that “[i]n consequence of” those matters certain damage was incurred ([19]) and a similar approach was taken to the knowing assistance claim ([20]), the misleading or deceptive conduct claim and related knowing assistance claim ([21]), and the deceit claim ([21AG]). None of that came close to a proper pleading of causation: Eggerth v EPI International Pty Ltd [2017] FCA 1547 [13], citing Chesterman J in Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd [2004] QSC 457 [15]. It would appear that a consequence of the vagueness of the pleading was the diffuse and general manner in which the causation issue was advanced at first instance, without any real attempt being made to identify and articulate the several differences arising as between the causes of action.

The First Error

Can the First Error be argued on appeal?

477    Before turning to the substance of the First Error, it is necessary to consider whether it was raised before the primary judge, or whether leave is required for it to be advanced on appeal and, if necessary, whether such leave ought to be granted. This requires close consideration of the arguments sought to be advanced.

478    It is well established that a party on appeal is, save for exceptional circumstances, bound by the arguments advanced before the primary judge. In this regard, one might recall the oft-cited remarks of Gibbs CJ, Wilson, Brennan and Dawson JJ in Coulton at 7:

It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main area for the settlement of disputes would move from the court at first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.

479    Similarly, as the High Court observed in Metwally v University of Wollongong (No 2) (1985) 59 ALJR 481 at 483:

It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case has been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.

480    To determine whether a party is raising a new point on appeal, it is necessary to consider the actual conduct of the proceedings: Water Board v Moustakas (1988) 180 CLR 491, 497; Whisprun Pty Ltd v Dixon (2003) 77 ALJR 1598, 1608 [52] (Whisprun). The pleadings and particulars are often decisive, but not necessarily so: Whisprun 1608 [52].

481    Notwithstanding the general rule, this Court has the power to allow a party to advance new submissions on appeal: VAAC v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 129 FCR 168, 176 [23], citing H v Minister for Immigration and Multicultural Affairs (2000) 63 ALD 43, 44 – 45 [6]. However, the power is only exercised if it is expedient in the interests of justice to do so: VUAX v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 238 FCR 588, 598 [46] (VUAX). That assessment requires consideration of certain factors relevant to the case, including, for example, whether there was an explanation offered for the failure to raise the point at first instance, whether any prejudice would be occasioned by the granting of leave, and whether the new point holds merit: DBWG v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2024) 301 FCR 344, 351 – 352 [23] – [24]. Of those factors, the merit of the proposed submission is generally thought to be most significant, though the Court should be cautious to avoid embarking upon a full consideration of the submission: VUAX 598 – 599 [48]; Tohi v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2021) 285 FCR 187, 222 [111] – [112].

482    By the First Error, the appellants seek to establish that the primary judge erred by failing to consider a particular supervening hypothesis which they themselves did not expressly raise. That counterfactual was to the effect that, in the absence of Mr Watts’ falsification of documents, Ms Sharpe would have engaged in that conduct in any event.

483    Prima facie, this might be regarded as a paradigmatic example of the kind of submission which, having not been made at first instance, requires leave to be advanced on appeal. In the usual case, defendants should not be permitted to refrain from positively raising a significant matter in their defence at trial, only to later contend on appeal that the primary judge erred by failing to consider it. Here, if – as the appellants now submit – the likelihood of Ms Sharpe misleading Ms How and the Lenders in any event was a substantial basis upon which causation might have been negated, one would reasonably expect that such a matter would have been fully advanced below.

484    Without labouring the point, it is worth noting that the respondents aptly invoked the remarks of Gageler and Edelman JJ in Berry v CCL Secure Pty Ltd (2020) 271 CLR 151 at 190 [72], (Berry), where their Honours observed:

A plaintiff should be expected to plead all material facts on which the plaintiff relies to constitute the statutory cause of action, including any counterfactual on which that plaintiff relies to establish the requisite causal link between identified loss or damage and identified misleading or deceptive conduct. In the same way, a defendant resisting the statutory action should be expected to plead any different counterfactual on which that party might rely to deny the causal link. Unless and to the extent that the parties choose to depart from the pleadings in the way they go on to conduct the trial, choice between the competing pleaded counterfactuals on the balance of probabilities should then exhaust the fact-finding that is required to be undertaken by the court on the issue of causation. (emphasis added)

485    Though their Honours’ reasons should not be taken as expounding any general rule (see DSHE Holdings Ltd v Potts (2022) 163 ACSR 23, 88 [313]), it can be accepted that the fact-finding task undertaken by the trial judge is greatly assisted by a defendant pleading and properly advancing any supervening hypothesis which they might seek to erect against a finding that their conduct caused the plaintiff’s loss. Doing so affords the plaintiff an opportunity to adduce evidence to meet and negate such a hypothesis. By contrast, where such a hypothesis is only clearly raised for the first time on appeal, that opportunity is denied and the plaintiff may suffer serious prejudice.

486    It then falls to be considered whether leave ought to be granted. This requires consideration of, inter alia, the reasons offered for the delay, any prejudice that might be occasioned by the granting of leave, and the merits of the proposed submission. As to the first, the appellants have not offered any substantive reasons as to why they did not raise below the obvious point of whether Ms Sharpe would have misled the Lenders in any event, though it is worth noting that they were represented by different Counsel on appeal.

487    As to the existence of any prejudice, the appellants submit that the issues now sought to be agitated by the proposed submission were matters that the respondents were required to address. In other words, the likelihood of Ms Sharpe misleading the Lenders in any event was something which the respondents were required to address when seeking to prove, on the balance of probabilities, that the Lenders would not have provided finance to Chopsonion had the impugned conduct not occurred. In this regard, they directed attention to the applicants’ submission at trial to the effect that it was not open to the primary judge to find that Ms Sharpe could or would have created fraudulent records to the same effect had Mr Watts not been involved. That, they submit with some justification, shows that the issue of Ms Sharpe’s dishonest conduct being the driving force of the misrepresentations was, in fact, in contest before the primary judge in relation to the causation issue.

488    It does appear from the respondents’ written submissions below that they regarded themselves as being required to establish what would have happened had the impugned conduct of Mr Watts and WMM not occurred at all. In that context, they sought to establish that Ms Sharpe would not have made the misrepresentation in any event. So much appears from paragraph 267 of their written submissions which, in part, read:

267.    If the true position had been disclosed to How, the $1,175,000 loan transaction, funded by the Lenders, would not have proceeded:

267.1.    with respect to WMM/Watts, if Watts had refused to provide the inflated invoice to Wendy, leaving her instead with a genuine invoice for $480,000, the transaction would not have proceeded. It cannot be assumed or found that Wendy or James Sharpe would have falsified any genuine invoice from WMM. If that was their intention, there would have been no reason to ask Watts to provide the inflated invoice: they already had invoices which they could have doctored;

…

489    In a case where it was undoubted that the main protagonist in the dishonest conduct was Ms Sharpe, and it was she who had the direct dealings with Ms How and, indeed, made the misrepresentations in question by proffering the documents to her, it is not surprising that the respondents felt compelled to attempt to dispel the suggestion that she would have produced the false documents in any event. After all, she had made the same alleged misrepresentations in the balance sheets she gave to Ms How.

490    The circumstances of this case are far from those where the defendant is alleged to have made the misrepresentation directly to a particular person. There, if an issue was to be raised that if the named defendant had not misled that person someone else would have, it might rightly be thought that it be raised by the defendant. However, here:

(a)    Ms Sharpe was the obvious instigator and primary perpetrator of the alleged dishonest conduct;

(b)    it is clear that she had all the dealings with Ms How;

(c)    leaving aside the findings made in relation to Ground 1, she obviously falsified documents which she gave to Ms How (being the Modified Rolton Valuation); and

(d)    she propounded that false information in her own documents to Ms How.

It was also a central tenet of the appellants’ case at trial that they had not prepared those documents, which carried with it the implicit concomitant allegation that Ms Sharpe did. In the circumstances where the applicants were required to establish what would have happened if the impugned conduct had not occurred, it seems axiomatic that they would seek to show that Ms Sharpe would not have made the same representations in any event. All this, perhaps, provides the rationale for the respondents’ submission to the primary judge as referred to above. Indeed, the impetus for the making of the submission is even more apparent when it is considered that the real causal question in relation to the misrepresentation claim made directly against Mr Watts and WWM, is what would the Lenders have done had Mr Watts/WMM not engaged in the misleading conduct by providing to Ms Sharpe the July 2014 Chains Invoice and the Deposit Email.

491    In any event, it can be said that there did exist at trial a live issue as to whether, if the alleged conduct of Mr Watts and WMM had not occurred, Ms Sharpe would have produced false documents of some description to mislead the Lenders into providing the loan. That remains the case even though it was not expressly raised in the pleadings. Given the respondents expressly exhorted the trial judge not to find that if WMM and Mr Watts had not made the representations, Ms Sharpe would have done so, it is difficult to see either that the issue was not alive, or that the respondents would be prejudiced by its consideration now.

492    For these reasons, the respondents suffer no prejudice by the granting of leave to advance the argument on appeal. Leave is therefore given.

Would Ms Sharpe have made the misrepresentations?

493    On the evidence as has been discussed, it can be legitimately concluded that, had Mr Watts and WMM not engaged in the impugned conduct, Ms Sharpe would have acted to a similar effect. That conclusion is largely based on the findings made with respect to Ground 1 of the appeal that Ms Sharpe did falsify the July 2014 Chains Invoice, the Open Letter and the Deposit Email. That discussion includes reference to the falsification by her of other documents, as well as the making of misleading statements in the spreadsheets. Though this necessarily involves a prognostication of what is likely to have happened in hypothesised circumstances, the nature and extent of Ms Sharpe’s dishonest behaviour renders it fairly clear what would have occurred. True it is that the precise way in which she would have carried out her scheme cannot be known, however given the findings made in relation to the first ground of appeal, it can be concluded that she would have probably falsified WMM documents in the form of quotes/invoices and supporting emails.

494    It follows that it was not established that, had the alleged conduct of the appellants not occurred, the Lenders would not have entered into the loan transaction with Chopsonion and the losses would have been suffered in any event. Alternatively, the appellants did establish that no loss flowed from their alleged conduct.

495    Though the respondents submit that if the issue were alive at first instance the trial might have been conducted differently, little weight can be given to that, largely because it is apparent that the respondents did regard it as an issue in the proceedings and made submissions about it. Further, it was not suggested that they would have called Ms Sharpe, which is not surprising. In the circumstances, evidence from her had the potential to cause significant damage to their case.

496    It is correct, as the respondents rightly identified, that there may have been a degree of risk in Ms Sharpe executing the alleged fraud on her own. As the primary judge accepted, a component of the “Design” was the assumption that Mr Watts, through WMM, would cause the excess funds obtained from the Lenders to be transferred back to Chopsonion, as well as to Annomac and Jechbo. That was the process by which Mr and Ms Sharpe were said to have acquired their ill-gotten gains. Accordingly, even if Ms Sharpe were to have misled Ms How and the Lenders into advancing the funds by falsifying documents herself, the success of the design remained somewhat predicated on Mr Watts’ cooperation. However, that was not necessarily so and, on the basis of the findings in relation to Ground 1, it is not difficult to identify how Ms Sharpe would have been able to manipulate the transfer of money to Chopsonion and others in the absence of involving Mr Watts in her dishonesty. That being by manipulating Mr Watts to act in the manner in which he said he did.

497    It follows that the appellants are entitled to succeed on this First Error.

The Second Error

Can the Second Error be argued on appeal?

498    No leave is required to advance the submissions in support of the Second Error as, properly understood, they raise nothing new.

499    At trial, the appellants pleaded that:

the Lenders and/or Private Funds Management Pty Ltd advanced money to Chopsonion without conducting their own due diligence and did not solely advance the money relying on the documents identified as the “WMM Email” [being a reference to the Deposit Email], the “Open Letter”, or any invoice issued by the Watts Parties including the “21 July 2014 Chains Invoice”.

500    In their final address, they submitted that:

The Applicants contention that this is a “no transaction” case must be rejected… The Applicants were clearly influenced by other matters and motives... The assertion that this case is one framed as a “no transaction case” must be viewed as nothing more than a self-serving submission which must be given very little weight.

501    Those “other matters and motives” were said to include the agreement between Chopsonion and FG Agri and the existence of invoice financing approvals which had been granted by The Invoice Market and possibly by FIFO Capital.

502    In this way, the appellants’ defence was that the Lenders would nonetheless have financed Chopsonion’s acquisition of the Chains because they placed significant, if not sole, reliance on the fact that there were several avenues by which they could be repaid.

503    The appellants now contend that the primary judge ought to have rejected the “no transaction” case because the Lenders would still have financed the entirety of the transaction – not merely the purchase of the Chains – even in the absence of the impugned conduct. This is said to follow from the fact that Ms How and the Lenders considered the loan to be a profitable opportunity, and one from which they could exit easily if required. That submission is substantially advanced by reference to the evidence of Ms How.

504    There is no reason why that submission should not be permitted to be advanced on appeal. The respondents’ attempt to characterise it as a new “alternative transaction” case should be rejected. It is not the appellants’ submission that the Lenders would, in the absence of the impugned conduct, have advanced only the amount of funds necessary to acquire the Chains themselves. That might, but not necessarily, be characterised as a different transaction. Rather, their submission is that the Lenders would nonetheless have financed the entire transaction: that is, for Chopsonion to purchase the Chains and the additional equipment from WMM, and reimburse WMM for its costs incurred by storing the Chains in Oringi. It would also include the payment of commissions to Chopsonion, Annomac and Jechbo. That is the same or essentially the same transaction into which the Lenders entered.

505    The difference between the parties’ submissions on this point appear to emanate from their opposing positions on the appropriate counterfactual to be applied. While that question is considered later in these reasons, for present purposes it is sufficient that the appellants are entitled to advance their submissions in this respect on appeal, because it is, at worst, a relatively minor reformulation of that which was advanced at trial and within the scope of that articulated in the pleadings. Leave is not required to argue the point.

The appropriate counterfactual

506    Turning to the substantive issues raised by this ground of appeal, the first task is to address the counterfactual adopted by primary judge, which the appellants contend was misplaced. In doing so, it is appropriate to first make some general observations about the application of counterfactuals in causal analysis.

507    Though causation is inherently a factual inquiry, and as such there is no single immutable test for causation (Abigroup 353 [54]), from the myriad cases on this topic (particularly in relation to s 236 of the ACL) some general principles have emerged which guide the factual analysis. As a starting point, it is accepted that the common law concept of causation recognises that conduct that contravenes a legal norm may be causally connected with the loss or damage suffered by a plaintiff, even if other factors may also have contributed to that loss or damage: Henville v Walker (2001) 206 CLR 459, 490 [97] (Henville). It is sufficient for a plaintiff to establish that the wrongdoer’s conduct was a cause, provided there is an unbroken causal chain between the conduct and the loss suffered: Henville 469 [14]; I & L Securities v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, 121 – 122 [33] (I & L Securities); Hunt & Hunt Lawyers (a firm) v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613, 635 [45] (Hunt & Hunt). The relevant factual inquiry, then, is whether the particular contravention materially contributed to the loss: Hunt & Hunt 635 [45]; Henville 480 [60]; I & L Securities 128 [56], 130 [62]. A material contribution has been held to mean that the relevant wrongful conduct played some part in contributing to the loss: Gould v Vaggelas (1984) 157 CLR 215, 236; Hunt v Hunt 635 [45].

508    A corollary of those general principles is that the causal chain will not necessarily be broken by the plaintiff’s own conduct, and it is sufficient if the defendant’s conduct was an indirect cause of the plaintiff’s loss. So much emerges from the reasons of Brennan J in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 356 – 357, where his Honour observed:

When conduct done in contravention of s 52 of the Act [now s 18 of the ACL] consists in the making of false representations inducing a person to act or to refrain from acting, the relevant loss or damage may flow from that person’s own act or omission and only indirectly from the other person’s contravening conduct. In such a case, the person’s own act or omission is a link – not a break – in the chain of causation which stretches from the contravening conduct to the loss thus produced... The existence of a compensable loss and the amount of compensation is ascertained by inquiring whether and by how much that person is worse off as a result of acting or refraining from acting on the inducement of false representations by the other person.

509    That a plaintiff’s own conduct is a link, and not a break, in the causal chain is the very reason for applying a counterfactual. By hypothesising a counterfactual scenario, the plaintiff demonstrates their loss or damage as a result of acting or refraining to act on the faith of the defendant’s conduct, by reference to what they would have done had the conduct not occurred. Though, in a statutory context, it is important that such a hypothesis is not considered and applied rigidly without regard to the terms or objects of the relevant Act: Henville 489 [96]. In that context, “causality must be determined in light of the subject, scope and objects of the Act”: Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568, 582 [42]. However, it must equally be kept in mind that the ACL (and its predecessor) creates rights to damages for misleading or deceptive conduct that is causative of loss. Conduct which has a neutral impact on a person’s position is not within the scope of s 236 of the ACL. For this reason, it is necessary for a claimant to establish that the position that they would have been in had the contravening conduct not occurred, is better than the one which resulted from reliance on the conduct. Necessarily, that involves postulating a relevant counterfactual.

510    Over time, the counterfactual scenarios posited by plaintiffs have been divided into two categories: “no transaction” and “alternative transaction” (also known as “different transaction”) cases. The distinction was discussed by the Full Court in Wyzenbeek at 396 [89]:

It is always open to a person who claims under s 82 of the TPA [now s 236 of the ACL] to have suffered loss or damage by a misleading representation made in contravention of s 52 to allege that, if aware of the true position, he, she or it would have either entered into a different transaction or not entered into any transaction at all. In a “no transaction” case the claimant asserts that he, she or it would not have entered into the transaction and, so, should be granted relief on the basis of being restored to the position that would have existed if there had not been any transaction. In a “different transaction” case, the claimant asserts that he, she or it would have acted differently, had the true position been revealed, and hypothesises on a factual scenario of what would have occurred on which basis the claimant seeks relief. Thus in a “different transaction” case, the claimant is not seeking to be restored to his, her or its original position, but to a hypothetical one based on the postulated difference.

511    The plaintiff bears the onus of proving causation, and therefore, their “no transaction” or “alternative transaction” case. However, a plaintiff who has advanced a “no transaction” case is not required to prove whether or not they would have entered into some other transaction: Wyzenbeek 397 – 398 [93]. Relatedly, the Full Court in Wyzenbeek also held that it is not open to a defendant of a claim under the ACL to assert that the plaintiff would have, had the impugned conduct not occurred, entered into an alternative transaction and thereby suffered the same or similar loss: Wyzenbeek 397 [90]. The Court considered that such an inquiry is irrelevant to the question of determining whether the defendant’s conduct was a cause of the plaintiff’s loss: Wyzenbeek 397 – 398 [93] – [94]. The result of that decision is that “alternative transaction” cases may only be advanced by plaintiffs to prove the existence of loss, but not by defendants seeking to negate loss. The fallacy in that reasoning was exposed by Applegarth J in Davis v Perry O’Brien Engineering Pty Ltd [2023] QSC 243 at [241] – [245], where his Honour referred to the earlier decision of the Queensland Court of Appeal in Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495. In that latter case, the Court of Appeal was concerned to identify a principle which would ensure that a plaintiff only recovers the actual loss suffered as a result of the wrongdoer’s conduct, as opposed to one that provides a plaintiff with a windfall which relieves them from their own folly. By way of example, suppose the plaintiff is determined to purchase a boat and has reached the position where he will acquire either boat A or boat B. By a misrepresentation, he purchases boat A, as opposed to boat B. Why would a cause of action, designed to put a plaintiff back into the position he would have been had the representation not been made, result in an award of damages which put him in the same position as if he had not bought a boat at all? Why, when the facts are known, would the Court ignore that which is obvious and pretend that the plaintiff would not have entered into the alternative transaction being the acquisition of boat B? Certainly, there can be no justification for that if the plaintiff is able to assert additional loss by reason of having foregone an alternative transaction as a consequence of acting on the misrepresentation. No explanation for this asymmetry appears in the reasons in Wyzenbeek. Moreover, the asymmetry leads to the curious result that where it is established that a plaintiff would have entered into a different transaction if the relevant misrepresentation had not been made, it is relevant if it increases the assessment of damages, but irrelevant if it establishes a reduction of the loss. Unusual, to say the least. Nevertheless, this is not an issue which requires final determination in this case.

512    As the foregoing discussion might perhaps suggest, despite the utility of counterfactuals in the assessment of causation, there is a risk that they can detract from the real question undergirding causal analysis, namely, whether the plaintiff’s loss was caused by the defendant’s wrongful conduct. That risk tends to materialise when parties seek to establish counterfactuals which are unnecessarily complex or, conversely, underdeveloped and which ultimately tend to mislead and confuse. It is necessary, therefore, that counterfactuals are formulated in a simple and logical, yet precise, manner, and are appropriate to further the objectives for which they are advanced. That is, demonstrating the plaintiff’s loss by reference to what they would have done had the defendant’s conduct not occurred.

513    The importance of formulating precise and appropriate counterfactuals was considered in Abigroup, to which both parties referred. There, the appellant contractor tendered for a construction contract on the faith of the respondent authority’s representations that certain building plans did not exist. As it transpired, those plans did exist and the appellant claimed that, had it been aware of them, it would not have submitted the tender and, in turn, would not have entered the contract. The assessment of that claim required the Court to formulate an appropriate counterfactual upon which to base the causal analysis. To that end, the respondents argued that the relevant counterfactual was one in which the tender documents were silent as to the existence of the plans, such that no misrepresentation had occurred. On that counterfactual, the respondents submitted, the appellants would nonetheless have entered into the contract.

514    Beazley JA, with whom Ipp and Tobias JJA agreed, rejected that submission, and in doing so observed as follows (at 354 [58] – [59]):

[58]    In this case, the respondent made a misleading negative representation upon which the appellant relied in entering into the contract… [T]he question for determination is whether the appellant suffered loss by the respondent’s contravening conduct. That question is not answered in this case by the application of a “but for” test: viz, what would the appellant have done “but for” the representation. That test would involve excising the contravening conduct in a way which in this case I consider to be impermissible.

[59]    Rather, what has to be done is to ascertain what would have occurred for the respondent not to have engaged in conduct which was misleading. In my opinion, that would require that the existence of the plan be disclosed. This can be tested, in my opinion, by contrasting that response with the response argued for by the respondent — namely, saying nothing about the plan. In the latter case, a number of possibilities emerge, including that the appellant might have had a claim for non-disclosure, or there being no statement about plans in the tender document, might have insisted upon undertaking its own investigations. But the Court does not need to, not should it engage in, speculation as to the possibilities: see generally Downs v Chappell [1997] 1 WLR 426 at 441; [1996] All ER 344 at 359, where Hobhouse LJ said that it was:

“In general, irrelevant to inquire what the representee would have done if some different representation had been made to him or what other transactions he might have entered into if he had not entered into the transaction in question. Such matters are irrelevant speculations (see, for example, United Finance Co v Addison & Co Ltd [1937] 1 All ER 425 at 429).”

As there was a plan, and as it contained material information, its existence should have been disclosed to the appellant…

515    Importantly, as her Honour identified, the correct approach when undertaking a counterfactual analysis is to identify what would have occurred for the respondent not to have engaged in misleading conduct. In other words, it will not be sufficient in some cases to simply assume that, had the impugned representation not been made, nothing would have been said between the parties on the topic the subject of the misrepresentation. In Abigroup, it was appropriate for that “blank space” in the parties’ negotiations to be supplanted with a positive representation as to the truth of the relevant matter. This approach is sound as it prevents the use of counterfactuals in a manner which obscures the underlying question of causation.

516    That aside, the elementary point underpinning her Honour’s reasons in Abigroup is that the relevant counterfactual is one in which the impugned misleading or other conduct did not occur. With respect, that illuminates the error in the counterfactual adopted by the primary judge in this case. It will be recalled that his Honour articulated his counterfactual as follows (at [531]):

Further, I entertain no doubt that had the true position been disclosed, then faced with the knowledge of a false invoice and a false representation of the payment of a deposit against that invoice as part of the overall conduct, no party would engage in the transaction.

517    Critically, in that scenario, the impugned conduct would still have occurred: the July 2014 Chains Invoice and Deposit Email would still have been falsely generated and provided to Ms How and the Lenders for the purpose of, as the primary judge found, inducing them into providing finance. That approach, to the extent that it fails to consider what would have occurred had the impugned conduct not taken place, is inconsistent with the accepted approach to counterfactual analysis, as illustrated by Abigroup.

518    As the appellants correctly submit, the primary judge should have instead formulated the counterfactual by reference to what would have occurred had positive representations been made – in place of those actually made – which explained the transactions involving the Chains in their entirety. That is, where the appellants had provided Ms How and the Lenders with true and complete invoices for the Chains themselves, the additional equipment, the commissions, and the storage costs.

519    As has been mentioned, the respondents relied upon Abigroup for the submission that to accept the appellants’ counterfactual would be to impermissibly excise the wrongful conduct from the analysis. They contended that, consistent with the accepted principle that causation must be assessed in light of the subject, scope and objects of the relevant statute (see supra [509]), it would be inconsistent with the remedial purpose of s 236 of the ACL to formulate a counterfactual that simply assumes away the impugned conduct. Moreover, they argued that, in accordance with the reasons of Beazley JA (extracted above, supra [514]), it is irrelevant to inquire into what Ms How and the Lenders would have done had some other positive representation been made. It follows, on their submission, that the primary judge was correct to formulate the counterfactual not on the basis that the misleading conduct did not occur, but that the falsity of the representations was revealed.

520    That submission should be rejected for three reasons.

521    Firstly, as has been discussed, the purpose of a counterfactual is for the plaintiff to establish that they suffered loss by acting or refraining to act on the faith of the defendant’s conduct. It is used to show what the plaintiff would have done had the misrepresentation not occurred, which, by way of comparison with what actually occurred, demonstrates the causal connection between the loss and the defendant’s conduct. It would be wholly incongruent with that purpose to apply a counterfactual in which the impugned conduct nonetheless occurred. It is irrelevant what the plaintiff would have done in some other hypothetical scenario in which the misrepresentation was still made but then revealed. That would be an example of a counterfactual that is prone to obscure and over-complicate the simple question of whether the defendant’s conduct caused the plaintiff’s loss.

522    Second, the respondents’ submission proceeds on a misunderstanding of that which was said in Abigroup. As extracted above (supra [514]), Beazley JA did not propound any principle of general application that, owing to the remedial purpose of the ACL, the relevant misleading conduct cannot be excised for the purposes of causal analysis. Rather, her Honour’s reasons bore more nuance: one cannot simply excise the conduct by assuming in its place that nothing occurred (as was contended for by the respondents in that case), but rather, the court should determine, by reference to the circumstances of the case, what would have occurred for the respondent not to have engaged in misleading conduct. As her Honour observed, to take the former approach would require impermissible speculation about what might have occurred. Here, as occurred in Abigroup, the impugned conduct must be replaced by a positive representation to the contrary: that is, for the appellants to have not misrepresented the nature of the transaction to Ms How and the Lenders, they would have had to provide accurate documentation which described the transaction in its entirety.

523    Third, but no less importantly, to accept the respondents’ submissions would be to effectively negate the need for any causal analysis in cases involving deliberate misrepresentation. So much is clear from the primary judge’s reasons: “faced with the knowledge of a false invoice and a false representation of the payment of a deposit … no party would engage in the transaction”. Though that conclusion is logical, it is difficult to comprehend a situation in which a plaintiff, having been informed that they had been misled, would wish to transact with the person who attempted to mislead them. That is so even where they entered into the transaction for reasons entirely unrelated to what had been misrepresented, for it is the knowledge of the misrepresentation itself which would likely cause the plaintiff to take the transaction no further.

524    In the result, the primary judge’s counterfactual was an inappropriate mechanism by which to ascertain whether the respondents’ losses were caused by the appellants’ conduct. The correct counterfactual is that propounded by the appellants: where Ms How and the Lenders were presented with documentation, such as invoices, which completely and truthfully described the transactions involving the Chains in their entirety.

525    The immediate consequence of the foregoing discussion is that the appeal on this second ground should also be allowed. By reason of the application of the wrong test, the finding that the alleged misrepresentations were causative of any loss cannot stand. There was also no Notice of Contention relied on by the respondents, suggesting that if the correct test were applied, causation would be established and the judgment could be sustained on that alternative basis. That, perhaps, is unsurprising given that the questioning of witnesses was framed around only the incorrect test.

Applying the correct counterfactual, would the loan still have proceeded?

526    Despite the foregoing, it is not inappropriate to address the issue of whether, had the correct test been applied, it could be positively found that the Lenders would have entered into the loan transaction in any event. This assessment, of course, needs to be undertaken by reference to the evidence as it was, which was only somewhat directed to the specific issue in question.

527    On this issue, there are two important matters. Firstly, that the applicants at first instance bore the onus of proving, on the balance of probabilities, that the Lenders would not have advanced funds to Chopsonion (see supra [510]). Second, the analysis of whether the applicants discharged that onus must be done by reference to the correct counterfactual, as is identified above.

528    It should also be noted that the primary judge appeared to accept the applicants’ submission that causation was established through the evidence of Ms How to the effect that she would not have referred the loan to the Lenders: see PJ [533]. Though that approach, by itself, produced no error, given his Honour found that Ms How would not have referred the loan to the Lenders had the impugned conduct not occurred, the more correct approach would have been to separate the causal inquiry into two questions: first, whether Ms How would have referred the potential lending opportunity to the Lenders, and second, if she did so, whether the Lenders would have agreed to advance the funds. That approach is adopted here.

529    For the reasons that follow, the primary judge should have concluded that on the balance of probabilities, the Lenders would have entered into the arrangement to finance Chopsonion’s acquisition of the Chains in the context of the correct hypothetical.

530    At this point it is appropriate to reiterate that, when viewed as a whole, Ms Sharpe’s conduct was directed to ensuring that Chopsonion could exploit the business opportunity of acquiring the Chains, importing them and then selling them for a profit of around $900,000. That provided the motivation for her falsification of several documents, including the Modified Rolton Valuation and the obtaining of false financial statements, such as were central to the proceedings against Rolton and Mr Smith. At best, the alleged “kick backs” to be received from WMM were incidental to that dominant purpose.

531    It should also be remembered that the finance provided by the Lenders was not merely for the purchase of the Chains. It was for the purposes of financing their acquisition as well as all of the costs associated with their dismantling, packing and transportation to Australia. The many constituent elements involved were set out and detailed in Ms Sharpe’s spreadsheets. They included packing costs, freight costs, insurance, container costs and many more. In substance, the financing sought was for the entire venture and not merely the Chains’ purchase.

Would Ms How have referred the potential lending opportunity to the Lenders?

532    In that context, the first task is to consider whether Ms How would have referred the opportunity to finance Chopsonion’s venture to the Lenders. This requires consideration of her evidence of the matters upon which she claimed to have relied when deciding whether to refer the loan.

533    Relevantly, she said in her affidavit that the following matters were “determinative” in her decision:

(a)    the financial capacity of Chopsonion, as demonstrated by certain documents prepared by the company’s external accountants;

(b)    that the Chains were to be purchased for $850,000;

(c)    that the $850,000 purchase price formed the basis of the Rolton Valuation and costings prepared by Ms Sharpe, from which Ms How determined that the Chains could be realised for an amount sufficient to recover the principal sum advanced in the event of a default by Chopsonion;

(d)    the Open Letter, which gave her “comfort” as to the value of the Chains (even if on a replacement basis) as well as the “unique opportunity” available to Chopsonion; and

(e)    that Chopsonion had, as reflected in the Deposit Email, demonstrated its commitment to purchase the Chains.

534    She further said in her affidavit that the fact that FG Agri had agreed to purchase the Chains from Chopsonion for $2.2 million was “not of as much significance” to her decision, because it was not the primary source of repayment for the Lenders. Rather, the Lenders were to be repaid from the funds made available through invoice funding arrangements.

535    From the outset, it can be accepted without controversy that Ms How relied heavily upon what had been represented to her as the value of the Chains. It was important to her that they were of sufficient value such that, in the event of a default, they could be sold to recover the sums advanced. Indeed, so much is axiomatic for any lender. Ms How accepted in cross-examination that this constituted one of three exit strategies available to the Lenders, the other two being the proposed sale to FG Agri and the invoice funding arrangements with The Invoice Market. Specifically, she testified that, although the sale to FG Agri was, of itself, insufficient to justify the provision of funds (notwithstanding that FG Agri had paid a deposit), the invoice funding arrangements with The Invoice Market operated as a “backstop”, as did the Modified Rolton Valuation insofar as it demonstrated the market value of the Chains. She described these three exit strategies as “three pieces to the puzzle”.

536    That evidence, however, appears to contradict the assertion in her affidavit that the proposed sale to FG Agri was not a significant matter to her decision. While the FG Agri sale may not have been determinative, or the primary source of repayment for the Lenders, Ms How’s oral evidence demonstrates that it nonetheless formed an important part of the overall assessment informing her decision to refer the loan. That conclusion is reinforced by contemporaneous documentary evidence. Specifically, on 19 January 2015, she wrote to FG Agri seeking confirmation that it intended to purchase the Chains for $2 million plus GST. This significantly buttresses the inference that the proposed on-sale was a matter to which she attached not insubstantial weight. In those circumstances, it can be accepted that the FG Agri sale was a significant matter relied upon by Ms How and the contrary assertion in her affidavit was not credible.

537    Two further issues arise with Ms How’s evidence. The first is the assertion in her affidavit that Chopsonion’s financial capacity was “determinative’ in her decision. There is likely to be some force in that and the evidence shows that she and the Lenders received a copy of a number of financial statements for Chopsonion in around early January 2015 which had been prepared by the firm, Mulherin Schier. The documents included drafts of a Profit and Loss Statement for the financial year ended 30 June 2014, a projected Profit and Loss Statement for the year ended 30 June 2015, and a Statement of Assets and Liabilities for the financial year ended 30 June 2014. The Profit and Loss statement for 2014 showed a net income of $179,006 and the projected net income for 2015 was $810,500. The Statement of Assets and Liabilities showed net assets of $2,417,000. There is no doubt that Ms How relied heavily upon these for assuring herself that Chopsonion had the capacity to repay the loan in the event that the sale to FG Agri did not occur.

538    The weight of the financial statements to Ms How’s decision to refer the loan opportunity to the Lenders and for them to provide finance should not be understated. They were obviously significant and that is reflected in the fact that, following Chopsonion’s default and inability to repay its debt, the Lenders pursued litigation against Mulherin Schier for damages. Although the pleadings of the claims are not in the Appeal Book, the Lenders’ opening submissions to the trial judge reveal that the actions were for misleading or deceptive conduct and negligence. The gravamen of the Lenders’ action seems to be that the financial statements misrepresented Chopsonion’s position and that Mulherin Schier had merely relied on what they had been told by Ms Sharpe when preparing them. It was apparently alleged that they failed to make their own investigations or to include an appropriate disclaimer. Necessarily, the respondents must have claimed that they had relied upon those financial documents when entering into the loan transaction.

539    In the primary judge’s reasons there is very little reference to the involvement of Mulherin Schier, though it was acknowledged that Ms How considered the material received from that firm, being one which she had dealt with previously. His Honour also noted that the financial information indicated that Chopsonion could afford to service the proposed loan if that were required. It seems that, because the primary judge applied the incorrect test for causation, he did not, in any significant way, address what would have been the substantial weight of the financial information in the evaluation of the correct counterfactual. Nor did he identify the way in which it was alleged to have been inaccurate. On any view, financial information from accountants vouching for the ability of the potential borrower to service the proposed loan, must have provided a great deal of comfort to Ms How and the Lenders when determining whether to lend.

540    It may be because Ms How believed Chopsonion was in a healthy financial state that she was not particularly concerned by the fact that, at the time of considering the proposed loan, she knew that (a) Ms Sharpe was an undischarged bankrupt, and (b) another company associated with Ms Sharpe, “Goldiway”, had previously defaulted on a loan facilitated by Private Funds Management. She accepted that she did not inform the Lenders of either matter, notwithstanding that Ms Sharpe was to act as a guarantor of the proposed loan. In the course of being cross-examined on this point, she was unable to provide any explanation for not disclosing Goldiway’s prior default, beyond indicating that she may have forgotten about it. As to her knowledge of Ms Sharpe’s status as an undischarged bankrupt, the following exchange took place:

Q:    Ms How, you didn’t tell any of the lenders in the proposed Chopsonion transaction that the principal or the person with whom you were dealing on behalf of Chopsonion was an undischarged bankrupt, did you?

A:    No.

Q:     No. Why not?

A:    Relevance. She’s not a borrower in any way, shape or form.

Q:    I see. Isn’t she a guarantor?

A:     But she’s not the borrower, as such. I mean, guarantor is just an additional person that you’ve got to the loan.

Q:    Do you say that in all seriousness, Ms How, that telling borrowers [sic] that somebody is a guarantor of a loan and not telling them that the person is an undischarged bankrupt is not something that’s relevant?

A:     At the time, I obviously didn’t think so.

Q:    I see?

A:    Like, today, I still don’t think so, with the style of lending that we do. It wouldn’t be unheard of.

541    That evidence is, prima facie, troubling. It would seem irrational to suggest that a guarantor of a loan is simply an “additional person” on a loan agreement. However, it may also be indicative (at least on a reading of the transcript) of haste on Ms How’s part in referring the loan to the Lenders. Ultimately, it is more probable than not that Ms How’s insouciance in relation to Ms Sharpe’s guarantee was caused by the fact that the loan proposal provided an excellent opportunity for the Lenders given the perceived value of the Chains, the amount of the loan, the high interest rate, the apparent assured sale or refinancing, and Chopsonion’s seemingly strong financial position.

542    That leads to a second issue with Ms How’s evidence, being one which concerns the commercial context in which she assessed the proposed loan. That context included a combination of factors which rendered the transaction, viewed as a whole, an attractive commercial opportunity.

543    At the time she was considering whether to refer the loan, Ms How knew that:

(a)    FG Agri had agreed to purchase two complete Chains from Chopsonion for $2.2 million, and had paid a $100,000 deposit;

(b)    Chopsonion had been approved for invoice funding, provided by The Invoice Market;

(c)    the amount sought by Chopsonion from the Lenders was slightly over $1 million, on a short-term basis, to be repaid either from the invoice funding or the sale to FG Agri, whichever came first;

(d)    the Chains were of sufficient value such that the principal sum advanced could be recovered upon sale, even if the transaction with FG Agri did not proceed; and

(e)    the interest payable on the loan was 4.5% per month or 3% if paid promptly being an annual rate of between 36% and 54%. Assuming no default, the Lenders would receive $82,500 at the end of three months.

544    These facts alone demonstrated that the proposed loan was an attractive investment for the Lenders, and that both they and Chopsonion stood to gain substantially from it were it to proceed: Chopsonion was to sell the Chains at a significantly greater price than the total cost of acquiring and importing them, and the Lenders were to receive a high rate of interest on the sum advanced given the short-term nature of the loan. The attractiveness of the opportunity was also enhanced by the existence of three alternative exit strategies, which had the effect of minimising their risk. Moreover, the proposed loan also presented a commercial opportunity for Ms How, in that Private Funds Management was to earn commissions – and, as it transpired, fees – in connection with the transaction.

545    Again, such matters as have been enumerated might, on one view, provide a rationale as to why Ms How did not raise Ms Sharpe’s bankruptcy, as well as the Goldiway default, when referring the loan to the Lenders. Those potentially negative issues might have seemed trivial in the context of the excellent opportunity which had been presented. Understandably, she hastened to ensure that such an opportunity – in her words, a “unique opportunity” – was seized upon.

546    The only conclusion that can be reached is that, in reality, there were two primary factors which influenced Ms How’s decision to refer the proposed loan to the Lenders. The first was that all parties involved stood to gain substantially from the transactions. The second was the existence of three very viable exit strategies available to the Lenders, being the FG Agri sale, the invoice funding arrangements, and the value of the Chains themselves.

547    Having made those observations, it then falls to be determined what Ms How would have done had she been fully and properly informed about the nature of the transaction. To that end, she gave the following evidence:

(a)    had she known that the Chains had been purchased by WMM from Silver Fern Farms for around $187,000, and then sold to Chopsonion for $528,000, she would never have recommended the loan to the Lenders as she would have been concerned about the value of the Chains on realisation under forced sale conditions;

(b)    had she known that:

(i)    entities related to Ms Sharpe were receiving payments, commissions or remittances from the payment to WMM of $760,000; and

(ii)    WMM would be reimbursed for its storage costs,

such knowledge would have alerted her to the fact that the transaction was not a genuine sale of equipment for a purchase price of $850,000; and

(c)    the Open Letter and Deposit Email were important considerations in her decision to refer the request for finance to the Lenders, and she would not have referred the request for finance to the Lenders had she known that the information in those documents was untrue.

548    Two issues with that counterfactual evidence can be identified from the outset, both of which were referred to by the appellants. Firstly, item (a) provides that Ms How would not have referred Chopsonion’s request for finance to the Lenders had she known that the purchase price of the Chains was $528,000, and WMM had acquired the Chains from Silver Fern Farms for $187,000. This adds an irrelevant fact to the counterfactual analysis, and it follows that this aspect of Ms How’s evidence does not directly address what she would have done had she, simply, been adequately informed of the nature and extent of the transactions involving the sale of Chains by WMM. Second, item (c) addresses what Ms How would have done had she been informed of the falsity of the documents provided to her which, as has been identified in these reasons (see supra [516] – [524]), is an irrelevant hypothetical scenario upon which to base the causal inquiry.

549    That leaves item (b), which, for the reasons that follow, is insufficient to establish, on the balance of probabilities, that Ms How would not have referred the loan to the Lenders.

550    In the relevant counterfactual, if the information provided to Ms How as to the nature and extent of the proposed transaction had excluded the impugned misrepresentations, she would have been aware of the following facts when deciding whether to refer the loan:

(a)    Chopsonion was seeking finance in an amount slightly over $1 million;

(b)    Chopsonion intended to purchase the Chains (being, one full Chain and one partially complete Chain) from WMM for $528,000 and to fund their dismantling, packing and transportation to Australia;

(c)    FG Agri had agreed to purchase two complete Chains from Chopsonion for $2 million (plus GST), of which it had paid a $100,000 deposit;

(d)    Chopsonion intended to acquire additional equipment from WMM such that it could supply two complete Chains to FG Agri, being a beef floor for $82,500 and a shoulder puller with breaking down saw for $46,200;

(e)    WMM would be reimbursed by Chopsonion for its costs incurred as a result of storing the Chains in Oringi, in the amount of $29,007;

(f)    Jechbo, Annomac and Chopsonion would be paid, out of the loaned funds, commissions for services provided by Ms Sharpe in procuring the transaction, in the amount of $74,292.02;

(g)    Chopsonion had been approved for invoice funding, provided by The Invoice Market;

(h)    the proposed loan was on a short-term basis, to be repaid either from the invoice funding or the sale to FG Agri, whichever came first;

(i)    the Chains were of substantial value and easily sufficient such that the funds advanced by the Lenders could be recovered upon sale, even if the transaction with FG Agri did not proceed;

(j)    Chopsonion was in a financial position to repay the loan, even if the proposed on-sale to FG Agri did not proceed;

(k)    a range of securities over Chopsonion and real property owned by related entities would be provided; and

(l)    the loan was for a short term at substantially high interest rates such that a return of $82,500 would be obtained.

551    Critically, the two principal factors upon which it has been established that Ms How relied would still exist in this scenario. First, there is no change to the sum to be advanced by the Lenders, nor the amount to be paid by Chopsonion in relation to the acquisition of the Chains, and thus the proposed loan would have been equally attractive. Secondly, the three exit strategies would still be available for the Lenders: they could be repaid either on the sale of the Chains to FG Agri, or on Chopsonion receiving the invoice funding from The Invoice Market, and failing that, upon sale of the Chains to some other party. Otherwise, the proposed borrower had the financial ability to repay the loan.

552    It is relevant to point out, in this regard, that his Honour did not find that the Modified Rolton Valuation comprised part of the wrongful conduct of Mr and Ms Sharpe, nor that of Mr Watts, and there was no finding that the value of the Chains was misrepresented. Accordingly, for the purposes of this analysis it can be taken that Ms How would have been provided with the Modified Rolton Valuation which reflected a not inaccurate view of the Chains’ replacement value. In her affidavit she asserts that she considered the Rolton Valuation relevant to the decision to enter into the loan transaction. Specifically, at paragraphs 51 (c) and (d) of her affidavit of 17 September 2022 she stated:

(c)    That the Chains had been purchased for $850,000 (GST Inc) and the purchase price formed the basis for the costings prepared by Wendy Sharpe (including the November Costing Schedule) and, as I had understood, the Rolton Valuation. I had to consider what might happen on default of the loan and the value of the Chains in the event they were required to be realised. The Rolton Valuation impressed upon me that the Chains would be realised for an amount sufficient to recover the amount advanced under the proposed loan.

(d)    As to the Rolton Valuation specifically, I appreciated that the Chains were specialist equipment, and this was the only valuation available to me upon which I could rely having regard to the timing for funding. I took comfort from the expertise of Rolton, and Smith, described in the Rolton Valuation. He was an expert and said he had some involvement with Chopsonion (as stated in the Rolton Valuation) and had inspected the Chains personally. A value of $1.1 million to $1.3 million for each of the Chains meant that the sale of one of the chains would cover the Funding in the event of default.

553    This renders it abundantly clear that the third exit strategy, namely, the sale of the Chains to some other buyer, would still have been available to Ms How on her consideration of the proposed loan in this counterfactual.

554    The presence of the factors just described gives rise to a very real probability that Ms How would have referred the loan to the Lenders in this scenario. As such, there does not appear to be any strong reason why, notwithstanding the presence of those factors, Ms How would nonetheless have raised an objection to commissions being paid to Chopsonion, Annomac or Jechbo, or WMM being reimbursed for its storage costs. The paying of commissions for doing work for securing funding is not unusual, and nor is the fact that a vendor includes in the price of goods sold some component for their storage. There was no suggestion to the contrary.

555    It should not be forgotten that another important contextual matter is that Ms Sharpe, through her companies or husband, was a repeat customer for Ms How. Though not addressed by the primary judge, it is relevant that Ms Sharpe and Ms How had been in regular email and telephone contact since December 2012, after the latter had arranged some finance for the former through Private Funds Management. In early 2013, Ms How organised a further facility for Chopsonion which was secured against an abattoir owned by it and, in September of that year, she facilitated a further loan to Chopsonion in the amount of $214,000. In around September 2014, Ms How, through her firm, also facilitated a loan to Jechbo and Chopsonion in an amount of $480,000. It follows that, as at November 2014, when the loan in relation to the Chains was being negotiated, Ms How was dealing with a person for whom she had arranged a number of loans and with whom she was having regular communication. It can naturally be assumed that she would be more flexible for such a person as opposed to someone with whom she had no previous dealings.

556    The ineluctable fact is that, even if the “real” facts of the transaction were known, the proposed loan to Chopsonion would have remained a valuable commercial opportunity from which Chopsonion, the Lenders and Ms How all stood to gain a substantial benefit. That was a significant matter which, together with the existence of several alternative exit strategies, caused Ms How to refer the opportunity to the Lenders. So much is clear from her failure to communicate certain matters about the transaction – which would otherwise have been crucial considerations – to them. In those circumstances, and assuming Ms How was provided with invoices for each amount to be paid, there does not appear to be any reason why she would have refused to refer the loans to the Lenders because of payments which were relatively minor in the context of the overall transaction.

557    In the circumstances of this case, Ms How’s mere assertion that she would have objected to the payments is insufficient to overcome the contrary objective evidence which indicates that she considered the loan to be an attractive proposition. On the balance of probabilities, the suggestion that she would not have referred the proposed loan to the Lenders on the basis of any objection to certain companies receiving payments, should be rejected. This finding is made keeping carefully in mind the restraints referred to in Warren v Coombes (1979) 142 CLR 531.

558    In the result, applying the correct counterfactual, it is more likely than not that Ms How would have referred the proposed loan to the Lenders even if she was fully informed of the nature and extent of the transaction. At the least, the respondents did not establish that she would not have done so.

Would the Lenders still have decided to invest?

559    The remaining question is whether, had the impugned conduct not occurred, the Lenders would have proceeded with the loan referred to them by Ms How. This necessitates addressing the evidence given by each individual Lender, mirroring the approach taken to the evidence of Ms How.

560    Turning first to the evidence of Mr Willson, who was the conduit between Ms How and his wife, Mrs Willson, R.J.C Willson Nominees Pty Ltd, and Red Dog No. 1 Pty Ltd. He said that Ms How gave him the material which Chopsonion had submitted as part of an invoice finance application to The Invoice Market. That included, relevantly, the July 2014 Chains Invoice, the Deposit Email, the Open Letter, the Modified Rolton Valuation, the invoice from Chopsonion to FG Agri, the costing schedules, and the quote from PW Engineering for removal and transport costs. Mr Willson said that, although he reviewed the material carefully, and took some time doing so, he assumed that Ms How had done the same and would not have referred the opportunity to him unless she felt confident in the strength of the deal and prospects of recovery.

561    In his affidavit, he identified the three factors that were most important to his decision to invest: firstly, that there was a plausible exit strategy, being a means of Chopsonion repaying the loan in the short term; second, that the value of the assets was supported by third-party verification or comparative sales data, to inform a realistic loan-to-value ratio; and third, that there were resources available to the borrower to fund contingencies in the event of a delay in some aspect of the transaction.

562    In relation to the first, he said that he was comfortable with the available exit strategies, because Ms How had told him that The Invoice Market had approved invoice funding in respect of the sale to FG Agri. He also felt comfortable that FG Agri were genuine purchasers. As to the second, he considered that the value of the Chains, as supported by the Modified Rolton Valuation, ensured a sufficient loan-to-value ratio: he could comfortably lend $1.175 million against $2.2 million at a loan-to-value ratio of around 50%. On the third, he was comfortable with Chopsonion’s financial position, having regard to the financial reports prepared by Mulherin Schier.

563    With respect to the documents provided to him, Mr Willson said that he “wasn’t particularly interested” in the Open Letter, which he considered “relevant but no where near determinative”. He said that value of the Chains expressed in the Open Letter ($9 million) was difficult to reconcile with the July 2014 Chains Invoice. In any event, he said he was far more interested in the Modified Rolton Valuation, which he understood to be an assessment of the value of a single Chain. He used the value expressed in it, being $2.2 million for both Chains, to calculate the loan-to-value ratio of 50%. This gave him comfort that there was a sufficient “buffer” between the amount advanced and the value of the Chains in the event of a default.

564    Mr Willson’s evidence in the above respect was that of a reasonable and prudent person seeking to lend money on short term finance. His considerations were those that went to the essential determinative issue of the security of the loan and the manner of repayment.

565    However, he also gave evidence as to what he would have done had the circumstances been different. He said that he would not have committed to the funding had he relevantly known that:

(a)    The Chains were being sold to Chopsonion for $528,000, in circumstances where WMM only paid NZD $200,000 for them;

(b)    Chopsonion was to acquire additional equipment from WMM for a purchase price of $192,000;

(c)    the July 2014 Chains Invoice was not a legitimate invoice, in circumstances where the true purchase price was $528,000;

(d)    Chopsonion had not paid a deposit, despite it being communicated that a deposit had in fact been paid;

(e)    the surplus loaned funds were to be used:

(i)    by WMM to discharge liabilities for storage costs in New Zealand;

(ii)    by Ms Sharpe to purchase additional equipment; and

(iii)    by WMM to pay commissions to Ms Sharpe or entities related to her; and

(f)    the Modified Rolton Valuation and Open Letter contained statements as to the value of the Chains that were made without any reasonable basis.

566    Immediately, items (a), (c), (d) and (f) can be disregarded on the basis that they raise irrelevant considerations for the same reasons that were given in respect of Ms How’s evidence (see supra [548]).

567    As to the remaining assertions, what is clear from his evidence is that he, quite reasonably, placed significant weight on the financial viability of the transaction when deciding whether to invest. To that end, had he been provided with documentation and information which fully and accurately described the nature and extent of the transactions involving the Chains, and thus been aware of the matters listed at supra [552], there does not appear to be any obvious reason why he would not have nonetheless considered the proposed loan to be a valuable opportunity. His financial analysis of the transaction would have been the same: Chopsonion was acquiring the Chains from WMM for $528,000, plus the additional equipment and other agreed payments, totalling $760,000, being the sum to be advanced against Chains which were valued at $2.2 million. Critically, the loan-to-value ratio – upon which he relied so heavily – would not alter. The same can also be said for the exit strategies, since none of the FG Agri sale, the invoice funding arrangement and Modified Rolton Valuation comprised part of the conduct alleged to have been unlawful.

568    Additionally, there does not appear to be any logical reason why Mr Willson would not have proceeded with the loan had he known that Chopsonion was acquiring additional equipment from WMM. That was something of which he should reasonably have been aware, based on the documents provided to him. Notably, the July 2014 Chains Invoice stated in the first row that the Chains being sold to Chopsonion were “[o]ne complete and one about 90% complete”, and that the balance of the equipment was being held at the depot in Scone, NSW. If he considered the documents as he claimed he had, he would have noticed that the equipment being purchased comprised more than the Chains sourced from Oringi in New Zealand. In any case, there is no reason why knowledge of that fact would have precluded his investment. Chopsonion had agreed to sell two complete Chains to FG Agri. That sale, being one of the exit strategies which he considered to be important to his investment decision, could not have proceeded unless the necessary additional equipment was acquired.

569    As to Mr Willson’s assertion that he would not have proceeded with the investment had he known that certain commissions were to be paid to entities related to Ms Sharpe, the same observations that were made in respect of that assertion by Ms How apply (see supra [554]).

570    Ultimately, it is likely that even if Mr Willson had been fully informed of the details of the transaction, he still would have considered the loan to be an attractive investment, with several alternative viable exit strategies. Having been referred the loan by Ms How, a person that he knew and trusted, there is no sound basis to conclude that he would not have proceeded with it.

571    As such, the applicants at trial failed to establish, on the balance of probabilities, that Mr Willson and the other Willson parties would not have proceeded with the loan absent the impugned conduct.

572    Mr Cannan, who was the director of MEG Investments Pty Ltd, was given the same documents as Mr Willson and, like the latter, assumed that they had been reviewed by Ms How. The core of his evidence as to the matters upon which he relied in deciding whether to invest is summarised in his affidavit:

On its face the loan stacked up. We had a clear exist [sic] strategy from the proposed loan which had been explained to me by [Ms How], namely approval of invoice funding on the purchase of the Chains in Australia by FGA Agri Limited [sic]… As there was a clear exit strategy from the proposed loan, it was important for me to understand how the Chains had been valued and form a view about the financial position [of] Chopsonion. [Ms How] advised me that the Chains had been valued by Rolton Limited … and I saw that they had been purchased from [WMM]. I had heard of WMM through my dealings in the meat processing industry but had never done business with them.

573    Like Mr Willson, an important question for him was whether the Chains had sufficient value such that any funds advanced would be recoverable in the event of default. To that end, he stated in his affidavit as follows:

Forming a view as to the value of the Chains was a little more complicated. While I saw the [Open Letter] which stated a “replacement value” for the Chains at $9,000,000, I did not take this to mean a “market value” for the Chains, albeit I did think that Watts considered there to be substantial upside on the purchase by Chopsonion (noting he was, however, the Vendor)… As to the [Modified] Rolton Valuation, I interpreted it that Rolton [c]onsidered the combined value of the Chains (as in two chains) was $2.2 million to $2.6 million… I broke the [Modified] Rolton Valuation down by using the costing schedule … and [the July 2014 Chains Invoice]… The fact that the Chains comprised two (2) chains seemed to me to be where the value was in the Chains (otherwise we were being asked to fund 100% of the value of the Asset which in my experience would be unusual). That one of the Chains had a minimum stated value of $1.1 million seemed consistent with FGA agreeing to pay $2.2 million…

574    Mr Cannan also gave evidence seeking to set up an adverse counterfactual to the effect that he would not have proceeded with the loan had he known, relevantly, that:

(a)    Chopsonion was actually acquiring the Chains from WMM for $528,000;

(b)    WMM had acquired the Chains for NZD $200,000;

(c)    Chopsonion had committed to purchase additional equipment from WMM for $198,000;

(d)    Chopsonion had not paid any deposit for the Chains despite representations which were made to the contrary;

(e)    Chopsonion intended to pay WMM for its storage costs, as well as pay commissions to entities related to Ms Sharpe in the amount of $74,292.02;

(f)    there was no reasonable basis for the valuation of the Chains in the Open Letter or the Modified Rolton Valuation; and

(g)    the Modified Rolton Valuation had been prepared knowing it would be provided to funders to be relied upon by them in circumstances where Mr Smith knew that the Chains had been sold to WMM for just NZD $200,000 some twelve months earlier.

575    These matters raise the same issues as arose in relation to Mr Willson’s evidence. The same observations made in respect of that evidence apply here (see supra [566] – [571]). For the reasons there given, the primary judge should have found that the applicants at trial had failed to prove, on the balance of probabilities, that Mr Cannan would not have proceeded with the loan in the absence of the impugned conduct.

576    Finally, attention must be turned to the evidence of Mr Rowley, who invested in the loan in his personal capacity. Mr Rowley’s affidavit evidence differed to that of Messrs Willson and Cannan, in that it did not identify the specific matters upon which he relied when deciding to invest in the loan, though he made the generic statement that he relied on everything. Generally, he merely recounted his conversations with Ms How. It is, therefore, difficult to draw any certain conclusions as to which matters influenced his decision. Notwithstanding, it is appropriate to make the following observations about his evidence.

577    He was provided with the same documents as Messrs Willson and Cannan. He said his attention was particularly drawn by Ms How to the July 2014 Chains Invoice, the costing schedule provided by Ms How, and the Deposit Email. He recalled noticing that the July 2014 Chains Invoice referred to two chains, and a deposit of $90,000 having been paid.

578    He also recalled having a conversation with Ms How about the value of the Chains:

We discussed their purchase price of $850,000 and that WMM had assessed their replacement value at $9,000,000. [Ms How] told me that it was likely that this statement had been made for insurance purposes and took me to a letter from AON to Wendy Sharpe dated 3 November 2014, quoting insurance for the Chains for a replacement value of $8,500,000… She told me that she understood Watts to be an export [sic] in this area… I was concerned that if the Chains were priced at $850,000 and it would cost around $1.2 million to get the Chains to Australia there was no margin for error. [Ms How] advised me that the Chains had been valued at $1.1 million to $1.3 million for each chain and took me to [the Modified Rolton Valuation]. I took from the [Modified] Rolton Valuation that the value of the Chains was $2.2 million to $2.6 million.

579    It is apparent that Mr Rowley was mistaken about the figures with which he was provided. At no place was it stated the cost of bringing the Chains to Australia was $1.2 million. To the contrary, that was the cost of the Chains together with the packaging and transportation costs. This rather suggests that his evaluation of the underlying transaction was somewhat cursory.

580    Mr Rowley also recalled that Ms How told him that repayment of the loan was not wholly reliant on FG Agri purchasing the Chains, because the funding was only sought on an interim basis in advance of Chopsonion receiving invoice funding from The Invoice Market. Ms How also told him that, though some security would be taken for the loan, it would rank behind other mortgages and thus would not be a strong option for recovery. However, Ms How assured him that the value of the Chains was a sufficient exit strategy.

581    It follows that, like the other Lenders, Mr Rowley was concerned primarily with ensuring that the value of the Chains was sufficient such that the loan could be repaid even if the sale to FG Agri, and the associated invoice funding, did not eventuate.

582    Mr Rowley also gave some counterfactual evidence in his affidavit. He said that the following matters would have been important to him to know at the time of his decision to invest:

(a)    no deposit had been paid by Chopsonion for the purchase of the Chains;

(b)    the agreement was for Chopsonion to purchase the Chains for $528,000, not $850,000;

(c)    WMM had purchased the chains for NZD $200,000, and thus there was no proper basis for it to value the Chains at $9 million and likewise with respect to the Modified Rolton Valuation;

(d)    the agreement also included Chopsonion purchasing additional equipment from WMM in the amount of $198,000; and

(e)    entities related to Ms Sharpe received commissions of $74,292.02 from the funding.

583    More importantly, however, Mr Rowley’s affidavit contained the following assertion:

All of these things would have been important to me to know at the time. I understand from these documents that the transaction I was being asked to fund, which I understood was on the sale and purchase of the Chains for $850,000, was not a genuine transaction, and that the supporting valuations and financial information did not reflect the true position. There is no way that I would have made the investment, including taking the Rowley Loan, if I had been in the remotest bit concerned that this was not a genuine transaction.

(Emphasis added).

584    That is, Mr Rowley gave counterfactual evidence about what he would have done had the falsity of what had been provided to him been revealed. For the reasons previously given, it is inappropriate to approach the question in this way. He did not otherwise give evidence as to what he would have done had he been fully informed about the nature and extent of the transaction from the outset. For that reason, the applicants at trial failed to adduce sufficient evidence to demonstrate that, on the balance of probabilities, he would not have otherwise proceeded with the loan had the misleading conduct not occurred.

Conclusion as to the counterfactual

585    In the result, recognising that the applicants bore the onus of proving these matters at trial, the primary judge should have found that they had failed to discharge it. They did not adduce sufficient relevant evidence demonstrating, on the balance of probabilities, that each Lender would not have proceeded with the loan. So too did they fail to establish that Ms How would not have referred the loan to them, even in the absence of the impugned conduct. On the contrary, the preferable finding is that the Lenders would have entered into the loan in any event.

Application to each cause of action

586    For completeness, it is appropriate to now apply the findings just made to each cause of action advanced by the applicants at trial.

The claims by the Lenders

587    The Lenders advanced three claims against Mr Watts and WMM: firstly, that they engaged in misleading or deceptive conduct in contravention of s 18 of the ACL; second, that they were involved in the misleading and deceptive conduct of Mr and Ms Sharpe; and third, that they committed the tort of deceit.

588    As to both claims of misleading or deceptive conduct, the Lenders’ losses (identified at supra [443]) are recoverable only to the extent that they arise “because of” the conduct of Mr Watts and WMM. For the reasons given, the primary judge should have found that the Lenders failed to discharge their onus in relation to causation. Therefore, they did not establish that their losses could have been avoided in the absence of that conduct. Consequently, they failed to prove that their losses arose “because of” that conduct and thus ought not be recoverable.

589    As to the claim in deceit, for the reasons given, the Lenders failed to prove that their losses were incurred “but for” the deceit of Mr Watts and, through him, WMM: see Berry 170 – 171 [31]. The losses are therefore not recoverable in deceit.

The claims by Chopsonion

590    Chopsonion made the following claims against Mr Watts and WMM: first, that they were involved in the breach by Mr and Ms Sharpe of their statutory duties under the Corporations Act; secondly, that they were knowing assistants in a dishonest and fraudulent design on the part of Mr and Ms Sharpe as directors of Chopsonion; thirdly, that they engaged in misleading or deceptive conduct contrary to s 18 of the ACL; and fourthly, that they were involved in the misleading or deceptive conduct of Mr and Ms Sharpe. The latter two causes of action have been addressed in the previous section.

591    As to the involvement in the Sharpes’ breaches of statutory duties under the Corporations Act, s 1317H provides that loss is recoverable if it “resulted from” the contravention of the Act. As already explained, there is no meaningful distinction between the tests “resulted from” under that provision and “because of” under s 236 of the ACL: Trilogy Funds Management 320 [660]. In this case, the alleged participation by Mr Watts and WMM was intricately bound up in their engaging in misleading conduct so as to cause the Lenders to provide funding to Chopsonion. For the reasons given, there was no operative causative effect arising from their conduct and, that being so, their alleged involvement in any alleged breach of duty was inutile and inconsequential. For those reasons, the claim of knowing participation cannot succeed.

592    There is no need to say anything further about the lack of probability of the alleged conduct of Mr Watts and WMM in assisting Chopsonion in a transaction that had very real prospects of returning a substantial profit, amounting to a participation in any breach of statutory or fiduciary duty to that company. That has been addressed above and, as has been noted, there was no direct appeal against the conclusion to the contrary.

593    Nevertheless, a slightly different approach is required when considering Chopsonion’s claim against Mr Watts and WMM in relation to the breach of fiduciary duty claim. Some of the difficulty encountered arises from the manner in which the claim was pleaded, the deficiencies in which have been referred to previously. Other issues arise from the manner in which this cause of action was dealt with by the primary judge, and that too has been discussed.

594    In paragraph 12 of the second further amended statement of claim, it was alleged that in formulating and implementing the funding of the Chains and removal costs as pleaded in paragraphs 3 to 10, the parties engaged in a fraudulent and dishonest design. One immediate difficulty with this is that there was no prior articulation of the alleged “formulation” of any plan to fund the Chains and removal costs. Indeed, there is nothing in the reasons of the primary judge which identifies when the alleged formulation occurred, as between whom it occurred, or how it occurred. Nor is there any finding about the alleged meeting of minds about it.

595    The second significant difficulty is that the alleged design involved a conspiratorial-like plan which covered a range of issues. Specifically, it included Mr Watts allegedly engaging Rolton to prepare the Rolton Valuation and the Modified Rolton Valuation for the purposes of deceiving potential lenders as to the value of the Chains. As the primary judge found, the Rolton Valuation did not misstate the Chains’ values and neither Mr Watts nor Mr Smith was involved in the production of the Modified Rolton Valuation. These matters necessarily demolished the very serious, although unsupportable, allegations of dishonesty in relation to the production of the valuations as are contained in paragraphs 10A to 10D of the pleading. Nevertheless, they were, as the amended pleading indicates, a central part of the alleged dishonest design. It is apparent that the drafter obviously recognised that the misrepresentation of the value of the Chains at a price higher than they were, was a substantial factor in persuading potential lenders to finance the Chains’ purchase by Chopsonion. As it was, the primary judge found that there was no misrepresentation of the price.

596    A third difficulty arises in relation to the Open Letter which was also alleged to have been part of the design. Although the primary judge found that this was authored by Mr Watts, he did not find that its contents misstated the replacement value of the Chains. That finding was entirely correct given the absence of any evidence contradicting that which was stated. This also removed a further important element of the respondents’ alleged fraudulent design.

597    A fourth difficulty which arises from the pleading is the absence of any appropriate allegation about any pre-existing intention as to the outcome of the alleged design. Though the pleading assumes the existence of some prior formulation of a plan, in paragraph 12 it is then asserted that the implementation of the funding process had a number of purposes. That tends to disguise the serious allegations that these intentions existed when the plan was formulated but there was no supporting evidence of those matters. Though in paragraph 13.1.2 of the second further amended statement of claim an allegation is made that Ms Sharpe and Mr Watts reached an agreement, no corresponding finding was made by the primary judge.

598    Despite these issues, including the failure of a central plank of the alleged design – being the involvement of Rolton and Mr Smith – the respondents seemed to infer that some other “design” might be discerned from those facts that were established and, so it appears, judgment be given on that basis. Accepting that it is appropriate to do that, the alleged “participation” of Mr Watts and WMM was to cause any potential lender to fund Chopsonion at a particular level by the making of the alleged misrepresentations. As has been discussed, even if it is assumed that the representations were made, they had no operative causal effect with the consequence that there was no relevant participation in the alleged design.

599    It may have been that a different case of participation in the breach of some fiduciary duty could have been advanced, though that did not occur, and it also would have encountered similar causation difficulties.

600    In the result, the claim for damages for participating in a breach of fiduciary duty also fails at the level of factual causation.

Conclusion

601    The primary judge should have found that the applicants had failed to establish, on the balance of probabilities, their “no transaction” case for the purposes of causation. The evidence did not support a finding that Ms How and the Lenders would not have proceeded with the loan in the event that the impugned conduct of Mr Watts and WMM had not occurred. Fundamentally, this error emanated from the primary judge’s adoption of the incorrect counterfactual which the respondents had advanced. Had he applied the correct one, the deficiencies in the applicants’ case would have become clear. Those deficiencies lay in the commercial attractiveness of the loan to Ms How and the Lenders, particularly given the existence of multiple exit strategies. In the end, this case should serve as an illustration of how the misapplication of a counterfactual can obscure and distort the proper assessment of causation.

602    The second ground of appeal should also be allowed.

cross-appeal

Introduction

603    Chopsonion filed a cross-appeal in relation to the assessment of its damages. Specifically, it relates to the trial judge’s assessment of its liability to the Lenders pursuant to the loan transaction. In that context, his Honour concluded that the net recoveries of approximately $1 million from FG Agri were applied by the Lenders to the principal outstanding under the loan to Chopsonion. That, according to the primary judge, had the consequence that the interest payable on the loan accrued upon a much smaller sum than would have been the case had the recoveries been applied to outstanding interest.

604    Given the conclusions in relation to the appeal, it is not necessary to reach any final determination with respect of the substance of the cross-appeal. Indeed, in light of the orders made in relation to the appeal it is appropriate to dismiss it.

605    Nevertheless, as the point was fully argued it is not inappropriate to make some observations.

The issue

606    Within the plethora of claims made by the applicants before the trial judge, Chopsonion, by its external controllers, advanced several causes of action against Mr Watts and WMM. In its written submissions to this Court, it asserted that, however the conduct of Mr Watts and WMM is characterised, it was their wrongdoing that caused it to enter into the loan agreement and incur the payment obligations which it would not otherwise have done. Despite the lack of clarity in the pleading, it is possible to assume that, based on some cause of action advanced by Chopsonion, its damages included the liabilities which arose as a result of entering into the loan agreement. That included its obligation to pay interest on the outstanding principal at either 4.5% per month or 3% per month.

607    As has been mentioned earlier, the Lenders had threatened proceedings against FG Agri and its representative, Mr David Anderson, but those claims were settled and between 27 October 2017 and 28 February 2018, the Lenders recovered $1,100,000 from those parties.

608    At trial, Chopsonion claimed that, in the calculation of its liability to the Lenders, the amounts received from FG Agri should be applied against its accrued liability for interest on the loan. At the time of the recoveries, the accrued interest exceeded $1.1 million and the submission advanced was that all of the recoveries should be applied against that. On that basis, even after the date of the recoveries, interest should continue to accrue on the whole of the outstanding principal of $1,175,000. It might be immediately recognised that it is somewhat unusual for a borrower to make this submission, which necessarily has the effect of increasing its own liability, though it seems apparent that the company’s controllers were acting at the behest of the Lenders in this respect.

609    The primary judge determined that the amounts recovered should be treated as having been applied to the principal amount owing by Chopsonion to the Lenders, with the consequence being that, after the date of receiving the recoveries interest under the loan accrued on the reduced amount.

610    Before the primary judge there did not appear to be any dispute that the Lenders had a discretion under the security documents as to how to apply any recoveries as between principal and interest. It was also not in dispute that, in the absence of anything else, the Lenders may determine how they applied the recoveries, either at the time of payment or at any time thereafter.

611    When considering how the Lenders appropriated the recoveries, the primary judge, at [47] of the Interest Judgment, identified that in the applicants’ closing submissions they set out how the sum of $991,770.49 was distributed amongst the Lenders. That was by the proportionate distribution of the surplus funds having regard to the individual Lenders’ interests in the funding. So much was apparent in [9.2] of Appendix B of the applicants’ closing submissions at trial.

612    Further, at [9.3] of Appendix B, calculations were provided in respect of each of the individual Lenders. They show the respective amounts advanced and the subsequent receipts from the recoveries. Importantly, the amounts received are represented as being deducted from the principal with a figure then calculated for each Lender, as being the “Net Loss of Principal”. It is by reference to that amount that each of the applicants calculate the amount of interest claimed. The primary judge identified that this was inconsistent with the contention that the Lenders chose to apply the recoveries towards arrears of interest.

The relevant contractual provisions

613    For the purposes of considering Chopsonion’s submissions, it is appropriate to set out some of the terms of the relevant security agreement.

614    Clause 13.1(d) provides:

13.1 Application by Secured Party

To the extent permitted by law, money received towards satisfaction of the Secured Money is to be applied in the following order:

(a)    …

(d)    towards satisfaction of the balance of the Secured Money in the manner and order in which the Secured Party, in its discretion, determines; …

615    Further, cl 13.2 provides:

13.2 Principal and Interest

Without limiting in any way the Secured Party’s discretion under clause 13.1 (d), the Secured Party may apply any money received towards satisfaction of the Secured Money:

(a)    towards satisfaction of any debt of the Grantor or the Debtor or of the Grantor and the Debtor in the proportions the Secured Party thinks fit; and

(b)    towards payment of principal or interest or principal and interest in the proportions and otherwise in the manner and of the order the Secured Party thinks fit,

and the Secured Party may so apply that money and determine those proportions either at the time of payment of the money or at any time after payment.

616    It was not in dispute that under the general security agreement entered into between Chopsonion and the Lenders that the latter were entitled to apply any money received towards the satisfaction of the “Secured Money”. That expression was comprehensively defined to include the sum of the principal advanced and any outstanding interest.

617    The principles at common law are to the same effect. In relation to the appropriation of receipts by creditors, the general position is as articulated in Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 370 – 371, where Latham CJ observed:

The debtor has the right when he makes a payment to appropriate the money to any of the debts owing to his creditor as he pleases, and, if the creditor takes the money, he is bound to recognize this appropriation. If the debtor does not make any appropriation when he makes the payment, the creditor is then entitled to make an appropriation, and he may do this at any time up to “the very last moment”.

618    That principle was more recently identified as remaining applicable in Volonakis v Erceg [2019] NSWSC 1875 [270].

The proportionate distribution issue

619    The first basis on which the primary judge determined that the Lenders applied the recoveries to the outstanding principal can be dealt with briefly. There was nothing in the proportionate distribution of the recoveries to the individual Lenders which operated as the application of those amounts towards principal as opposed to interest. It was simply the proportional division of the amounts received. It is not clear how the primary judge concluded from that proportionate distribution how the Lenders might be said to have apportioned the recoveries to the outstanding principal. It was not explained.

The calculations in Appendix B

620    However, the primary judge was correct to conclude that, by the application of the recoveries against the outstanding principal in Appendix B of the written submissions, the Lenders evidenced their choice to reduce that indebtedness. In relation to each individual Lender, the amount of the recovery is deducted from the principal to produce a figure called “Net Loss of Principal”. It is difficult to think of a less clear application of the amounts received despite some errors in calculation.

621    Chopsonion asserts that this clear application of funds should be ignored. That proposition was advanced on the basis that the claim made by the Lenders against Mr Watts and WMM was for misleading and deceptive conduct causing them to enter into the loan agreement, which they would not have done had the misrepresentations not been made. They say that, in the calculation of damages for such a “no transaction” case, there was no scope to apply the recoveries against the outstanding interest. So the argument goes, because they were not claiming interest under the loan agreement or security documents, but only discretionary interest payable under the Federal Court of Australia Act 1976 (Cth), there was no scope to apply the recoveries otherwise than as against the principal loss.

622    That should be rejected. True it is that the Lenders could have applied any money received by them against a general figure of loss caused by Mr Watts and WMM. They could have identified a figure representing their actual losses and an amount of claimed interest and applied the recoveries against that or either element. However, they did not. In relation to their own accounts, they were desirous of applying it towards a reduction of their capital loss by reducing the amount of outstanding principal. Either under the loan agreements or at common law, they were able to make the application but, having done so, they were bound by it.

The Appendix C calculations

623    Chopsonion further submits that the calculation of the loss suffered by it as a result of entering into the loan agreement as set out in Appendix C of their closing submissions, shows that it applied the amount of the recoveries against outstanding interest. There, the submissions identified an accumulating amount of indebtedness in or around December 2017 and January 2018, and, from it, a value equal to the recoveries is deducted. So it is said, this indicates an application of the recoveries towards the outstanding interest.

624    There are difficulties with Chopsonion’s submissions in the above respect. First, the calculations appearing in Appendix C of the written submissions are not made by the Lenders. They are made by Chopsonion, as they fall under the heading “Losses Suffered by Chopsonion”. Therefore, the calculations are assertions as against the appellants that Chopsonion suffered the losses claimed, including the obligation to pay substantial interest. Such calculations do not represent appropriation of receipts by the Lenders nor any accounting by them. Appendix C does not appear to advance any assertion by the Lenders that they appropriated the receipts to interest as opposed to principal and, as such, they are irrelevant to the issue under consideration.

625    The second difficulty is that there is nothing in Appendix C which involves any appropriation of the monies received by way of recoveries to either principal or interest. What has occurred in the calculations is the application of the recoveries to the totality of the amount of principal and interest as at the time each amount of the recoveries was received. There is no indication either way as to how the funds were to be treated.

626    It follows that the primary judge’s factual finding that, by reason of the calculations in Appendix B, there was an appropriation against the principal indebtedness by the Lenders was correct.

Grounds 1(b) and 1(c)

627    By Grounds 1(b) and 1(c) of the Cross-Appeal, it is suggested that there was no express appropriation of the amount received by way of recoveries and it should therefore be treated as having been applied to interest in priority to principal: Falk v Haugh (1935) 53 CLR 163, 173. These grounds fail in limine because in this case there was an actual appropriation by the creditors, as has been identified.

Conclusion on Cross-Appeal

628    It follows that, were it necessary to decide the Cross-Appeal on its merits, it would be dismissed. As it is, it is appropriate to dismiss the Cross-Appeal because it is not necessary to decide the questions raised.

ORDERS

629    Given the foregoing, I am of the opinion that the appropriate orders on appeal should be as follows:

(1)    The appeal be allowed.

(2)    The cross-appeal be dismissed.

(3)    The orders of the primary judge of 7 May 2025 be set aside and in lieu thereof it be ordered that the applicants’ claims against the respondents be dismissed.

(4)    The orders of the primary judge of 16 June 2025 be set aside.

(5)    The respondents pay the appellants’ costs of:

(a)    the proceedings at first instance; and

(b)    the appeal,

to be taxed or as agreed.

Associate:

Dated:    30 July 2026

SCHEDULE OF PARTIES