Octet Finance Pty Ltd v Macgregor

1. [1]

   The plaintiff, Octet Finance Pty Ltd (Octet), is a financial services company. In 2019, it granted an unsecured credit facility to Mrs Mac’s Pty Ltd (Mrs Mac’s), a pie manufacturer, to assist it with payment of its trade creditors. I will refer to this facility as the Octet Facility.

The case in broad outline

1. [2]

   The Octet Facility was a revolving facility which, practically speaking, allowed Mrs Mac’s to extend its terms of trade with creditors. From 22 December 2021, the facility operated as follows. From time to time, Mrs Mac’s would utilise the Octet Facility to pay its trade creditors, giving rise to an obligation to pay a corresponding amount plus a 2.8% fee to Octet 90 days later. Mrs Mac’s was required to make regular payments to Octet by direct debit in respect of drawings made 90 days earlier, as and when they became payable. For much of 2022, the Octet Facility was almost fully drawn to its limit of $4,000,000.

2. [3]

   The Octet Facility was critical to the ability of Mrs Mac’s to maintain liquidity. Its large customers, such as Coles and Woolworths, generally paid suppliers every 45 to 70 days, whereas Mrs Mac’s had to pay many of its own major suppliers every 14 days.

3. [4]

   From no later than the second half of 2021, Mrs Mac’s was in financial distress. By early 2022, it was apparent to the directors that further investment was required in order to avoid insolvency. The directors therefore set about a process of soliciting a new investor. They deliberately undertook this process in such a way as to give them the protection of the safe harbour provisions in s 588GA of the Corporations Act 2001 (Cth), such as by engaging suitably qualified financial and legal advisers and by developing a plan of action to ensure that the company and its creditors received an outcome that was better than what could be expected in a liquidation.

4. [5]

   In the end, Mrs Mac’s entered into a transaction with a company associated with United Petroleum Pty Ltd, the owner of the Pie Face business (the Pie Face transaction). As the parties did, I will generally refer to United Petroleum Pty Ltd as ‘Pie Face’, although I recognise that the actual purchaser was a newly incorporated subsidiary (Aus Pie Co Pty Ltd). Under the Pie Face transaction, the purchaser acquired almost all of Mrs Mac’s business assets and took on a large number of its employees. However, it did not assume all of its liabilities.

5. [6]

   Westpac was the major secured creditor of Mrs Mac’s. Westpac held first-ranking security over all of its business assets and receivables. Westpac’s debt was paid in full out of the proceeds of the Pie Face transaction, together with some of the receivables paid to Mrs Mac’s following the sale, over which Westpac also held a security interest.

6. [7]

   The position of many unsecured creditors was not so fortunate. Mrs Mac’s was placed into liquidation immediately after the Pie Face transaction was completed. Octet was left to prove in the liquidation, along with certain other creditors whose liabilities were not assumed by Pie Face. To date, Octet has received no return from the winding up.

7. [8]

   Octet now seeks to recover the outstanding balance of the Octet Facility, together with interest, from the CFO and company secretary of Mrs Mac’s, Mr Markwart, and from each of the directors of Mrs Mac’s. Octet alleges that at key times during 2022, Mr Markwart led Octet to believe that Mrs Mac’s was merely pursuing a ‘recapitalisation’ that would put an end to the company’s financial difficulties and which would ensure that the outstanding balance on the Octet Facility was paid in full. It says that this was, at best, a half-truth, because Mrs Mac’s was at the same time also soliciting a potential asset sale transaction that could potentially see the company liquidated and which could leave unsecured creditors unpaid, which is what eventually occurred.

8. [9]

   Octet particularly relies on what it says were explicit assurances given to it by Mr Markwart in the wake of an article that appeared in the Australian Financial Review on 28 July 2022 (the AFR article) about the company’s attempts to ‘recapitalise’.

9. [10]

   Octet also alleges that when, in September 2022, the sale of assets to Pie Face became the most likely outcome, Mr Markwart and the directors remained silent about this important change in circumstances, despite the fact that it meant an almost certain liquidation and despite Mr Markwart’s earlier assurances about a ‘recapitalisation’.

10. [11]

    Octet contends that each of the defendants thereby engaged in misleading or deceptive conduct contrary to s 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) – The Australian Consumer Law (ACL). It also alleges that the defendants engaged in unconscionable conduct contrary to s 21 of the ACL.

11. [12]

    Although the defendants put the plaintiff to proof of all elements of its claim, two significant areas of dispute should be noted at the outset.

12. [13]

    The first concerns the liability of the directors, none of whom engaged in any direct communication with Octet at all during the relevant period. All of the communications on which Octet claims to have relied were with Mr Markwart. A significant aspect of Octet’s case is that in communicating with Octet, Mr Markwart was acting as agent for the directors in their personal capacities, or that he was authorised to so act by the directors in their personal capacities. This conclusion is said to follow from the fact that the directors were seeking to implement a plan or course of action that would cloak them with the protections of s 588GA. But for those protections, they would potentially have been exposed to personal liability for insolvent trading. Octet contends that managing unsecured creditors was an aspect of the directors’ course of conduct in maintaining the protection of s 588GA and that they appointed Mr Markwart as their agent to do so. Thus, Octet contends that the representations which Mr Markwart made to it about the company’s proposed restructuring were made by him as agent for the directors in their personal capacities.

13. [14]

    The second matter concerns Octet’s alleged loss. Because the Octet Facility was a revolving facility that was generally drawn up to about its limit throughout 2022, the amount due to Octet was roughly the same both before and after the alleged misleading or deceptive conduct took place. If the defendants are correct in their contention that Mrs Mac’s would have become insolvent almost immediately if Octet stopped the facility, Octet would have been owed roughly the same amount irrespective of when it stopped providing credit under the facility. If that is so, it could not be said that the company’s alleged misconduct caused Octet’s loss.

14. [15]

    However, Octet disputes that this would have been the outcome. It contends that if it had been made aware of the true position, it would immediately have put a stop to the facility but then negotiated an outcome whereby it was paid in full. Although it put the point in various ways, the gist of Octet’s case was that the Pie Face transaction was so advantageous to Westpac that the bank would have been prepared to enter into some kind of arrangement with Octet and Mrs Mac’s to ensure that Octet was paid in full, including for amounts not yet payable, rather than risk the company becoming insolvent and losing the Pie Face transaction.

The facts in more detail

1. [16]

   Octet’s case must be approached with an appreciation of the overall sequence of events that occurred during 2021 and 2022, particularly as it relates to the worsening liquidity position of Mrs Mac’s and its pursuit of a new investor. As to these matters, there was extensive evidence but relatively little dispute. The main areas of factual dispute concerned the related questions of who among the defendants knew what, and when they knew it. I will return to these questions after first setting out the background facts and after describing Octet’s contentions in more detail.

2. [17]

   Mrs Mac’s was based in Perth. It was a manufacturer and supplier throughout Australia of meat pies and other pastry goods. The business had been owned by the Macgregor family for over 60 years and had strong brand recognition throughout the country. The shareholders of Mrs Mac’s were Ms Katrina Macgregor and Mr Robert Macgregor as well as an entity controlled by them (Zeroth Pty Ltd as trustee for the Macgregor Family Trust). The Macgregors were also non-executive directors of Mrs Mac’s. They are the first and second defendants.

3. [18]

   There were two other non-executive directors at the relevant time. They were Mr Timothy Hantke and Ms Nicki Anderson, who are the third and fourth defendants. The chairman of the board was Mr Luciano (Lui) Pangiarella. He is the fifth defendant.

4. [19]

   The CEO was Mr Jonathon Moss, who was also the managing director. He was the sixth defendant.

5. [20]

   The CFO was Mr Markwart, the seventh defendant.

6. [21]

   Mr Markwart and Mr Moss were both relatively new to the company. Mr Moss was appointed as the CEO in February 2021 and was only appointed as a director on 1 May 2022. Mr Markwart was not a director and was brought on as the CFO and company secretary in October 2020.

7. [22]

   The Octet Facility was known within Octet as a ‘Supply Chain Accelerate Facility’, or simply as an ‘Accelerate’ or ‘Acceler8’ facility. It was first provided to Mrs Mac’s in 2019. By the end of 2022, the facility was governed by a letter of offer dated 21 December 2021 and a set of terms and conditions known as the ‘Supply Chain Accelerate Facility Rules’ (the Accelerate Rules).

8. [23]

   In addition to supplying credit, the Octet Facility provided access to the ‘Octet platform’, which was an online service that allowed creditors and debtors to communicate and to make arrangements for the payment of transactions occurring during the ordinary course of their trading. The Accelerate Rules contained the following description of the facility and the platform:

9. [24]

   Part B of the Accelerate Rules was entitled ‘Payment to the Seller’. It provided that sellers and buyers could use the Octet platform to negotiate and enter into sale contracts. Where that occurred, certain details of the sale contract were required to be recorded in the Octet platform.

10. [25]

    The seller could at that point claim payment, provided all payment conditions were satisfied. This was the ‘claimed amount’. Next, the buyer (Mrs Mac’s, for example) could do one of two things. It could either authorise payment of the claimed amount by digitally signing a payment authority, or else decline to authorise it.

11. [26]

    Once payment of a claimed amount was authorised, the amount could be paid in one of the four ways specified in clause 6. The first method, which was set out in clause 6.2 and which was the method invariably used by Octet in 2022, was that Octet would pay the claimed amount in full. Where this method was selected, Octet would assume the buyer’s obligation to pay the claimed amount to the seller. However, as the Accelerate Rules made clear:

12. [27]

    When this payment method was used, the rules provided:

13. [28]

    In the case of Mrs Mac’s during the relevant period, the reference to the ‘facility offer’ was to the 21 December 2021 letter of offer. This letter specified that the payment period was 90 days. The ‘Acceler8 Percentage’ was 2.80% plus GST.

14. [29]

    Clause 6.7 provided for an overdue interest rate as follows:

15. [30]

    The Octet Facility was unsecured. It contained no cashflow or other financial covenants by the buyer. There were no events of default. The terms did not specify any consequences for a party in breach.

16. [31]

    Clause 9.1 provided that Octet could ‘end, suspend or restrict [Mrs Mac’s] use of the Octet platform at any time without giving [Mrs Mac’s] notice’.

17. [32]

    Clause 12.2 provided that either party could end the facility by giving 60 days’ notice. If that were to occur, amounts would continue to become payable in accordance with clause 6, namely only after 90 days. There was (ironically, given the name of the facility) no ability for Octet to accelerate the time at which amounts that were due became payable, even if it formed the view that Mrs Mac’s was in breach of the Accelerate Rules.

18. [33]

    The only terms relating to the provision of information by Mrs Mac’s were to be found in the 21 December 2021 letter of offer, which stated:

19. [34]

    Neither the letter of offer nor the Accelerate Rules specified a maximum amount of credit under the facility. The limit was a matter taken up in correspondence between the parties from time to time. For the whole of the period relevant to this dispute, the limit was $4,000,000.

20. [35]

    The evidence shows that Octet did not consider that amounts owed to it by a buyer through the use of an Accelerate facility were loans for the purposes of the buyer’s accounts. Consequently, at least in Octet’s view, a buyer’s obligation to Octet need not be recorded in its accounts as ‘debt’. It took the view that amounts could be recorded as trade payables. The facility was therefore one that might potentially have advantages for the way a buyer’s accounts were presented. However, I note that Mrs Mac’s recorded payment of the ‘Acceler8 Percentage’ as an interest expense and that it did not treat debtors as having been paid until it had, in turn, repaid Octet. I have not found it necessary to determine whether Octet was right about this issue, nor whether it was entitled to treat the supplies it made under the facility as taxable supplies for GST purposes, which is what it did.

21. [36]

    Mrs Mac’s suffered trading losses for each of the years ending 30 June 2020 and 2021. Its overall 2021 loss was not as significant as for the previous year, but management accounts and cash projections showed a persistent and worsening position for the 2022 year.

22. [37]

    Several factors contributed to its difficulties. The COVID-19 pandemic significantly affected pie sales at petrol stations and football games, which were major distribution channels for the business. The pandemic also had other impacts. Mrs Mac’s had recently implemented a costly capital investment program which had been interrupted and delayed by COVID-19 travel restrictions. Mrs Mac’s had borrowed heavily from Westpac to implement the project. The COVID-19 delays and interruptions led to cost overruns of about $8 million. Commodity prices also rose significantly during the pandemic, especially meat prices.

23. [38]

    In late 2021, Mrs Mac’s obtained an SME Recovery Loan from Westpac with a limit of $3 million.

24. [39]

    By the end of 2021, Mrs Mac’s was struggling to meet its financing costs. It had also breached financial covenants in its Westpac facility agreements in both June and December 2021.

25. [40]

    The falling revenues, increased supplier costs and increased financing expenses dramatically affected the company’s liquidity position. In early 2022, the shareholder directors (the first and second defendants) provided financial assistance to Mrs Mac’s in the form of rent deferral on the premises occupied by the company. They were however reluctant to provide any other form of financial support, such as by contributing additional capital.

26. [41]

    In February 2022, Westpac advised Mr Markwart that the bank was transferring the management of the customer relationship to the Credit Restructuring Unit.

27. [42]

    The directors were alert to the possibility that the company may become insolvent during the 2022 calendar year. On 18 and 19 February 2022, Mr Markwart sent emails to the directors enclosing information concerning the safe harbour provisions of the Corporations Act, however the minutes of the next board meeting, which took place on 23 February, make no mention of this issue. An information pack provided to the directors ahead of that meeting noted that ‘on a YTD basis we have consumed $4.392m ($3.7m ignoring debt inflows and repayments) which has been funded by extending creditors, using Octet and reducing debtors’.

28. [43]

    At the beginning of March, Mrs Mac’s was informed by its trade credit insurer that it proposed to withdraw trade credit cover on 23 March 2022. This appears to have been in direct consequence of the company’s worsening financial position.

29. [44]

    During April 2022, Mrs Mac’s engaged Mr George Georges of KPMG to assist with a proposed restructuring of the Westpac debt facility and to provide other refinancing advice. At around this time, Westpac prepared a credit approval summary which noted, inter alia, the following matters:

    1. (1)

       ‘[Mrs Mac’s] is highly leveraged and has tight liquidity, therefore the need for extensive covenant reporting and monitoring remains essential.’

    2. (2)

       ‘Mrs Mac’s failed to meet its financial covenants in the past …’

    3. (3)

       ‘Quality of reporting has been good, but forecasts have been bullish / overstated in the past …’

    4. (4)

       ‘Shareholders have expressed their support however contributing equity is questionable. The shareholders have engaged KPMG as advisor. Capital strategy will be raised again at the next meeting.’

    5. (5)

       ‘[T]he CFO noted that the Ampol contract has been lost …’

    6. (6)

       ‘The CFO recognises that debt levels are high, working capital has been squeezed and there is “no buffer” in the business to absorb further adversity.’

30. [45]

    The reference to the Ampol contract was to the fact that Ampol, a key customer, decided not to continue to stock Mrs Mac’s pies exclusively at around this time.

31. [46]

    By May 2022, it was clear to Mr Markwart and the directors that the company would face serious liquidity issues by November 2022. Mr Moss, who had been appointed a director from 1 May 2022, prepared a report for the purposes of the upcoming 4 May 2022 board meeting which stated that ‘cashflow management is being very carefully managed’. A ‘cash update’ dated 2 May 2022, prepared by Mr Markwart for the same board meeting, contained the following:

32. [47]

    The report continued that ‘our cash position is deteriorating and the flexibility to manage through the tight period is eroding quickly’. One of the slides prepared by Mr Markwart demonstrated that liquidity was likely to become critical in November.

33. [48]

    Mr Georges presented to the board at the 4 May meeting. He advised that the initial scope of KPMG’s engagement would need to be expanded. At this same meeting, the board noted that ‘short term liquidity was being managed by negotiating individual terms as required’. They also noted:

34. [49]

    There was a further board meeting on 11 May. The minutes record that one of the things discussed was that the business was pursuing a ‘capital restructure’ with the assistance of KPMG and that this had been communicated to Westpac. Also at this meeting, Mr Moss and Mr Markwart reported on their discussions with Westpac, in which they had presented the company’s March quarter operations summary. That material showed that Mrs Mac’s was again in breach of loan covenants.

35. [50]

    Under the heading ‘Procedural Matters’, the minutes included the following:

36. [51]

    Although not explicitly described as such in the minutes, this was a reference to the board obtaining advice in relation to the safe harbour provisions from Mr Johnson of HWL Ebsworth solicitors.

37. [52]

    Also at this meeting, there was agreement that ‘a clear and authentic communication plan was essential to ensure the right message was being received’. Mr Moss agreed to prepare a written communications strategy for the board’s consideration. In the week following the 11 May board meeting, Mr Moss circulated a draft ‘communication email’ with an attachment. The attached draft document was headed ‘Capital Structure Review’ and was intended to instil confidence in those to whom it might be sent. It described the difficulties faced by the business and its strategic business plan. Under the heading ‘Investing Behind the Plan’, the document continued:

38. [53]

    Mr Pangiarella said in cross-examination that this document was approved by the board.

39. [54]

    In late May 2022, the board also engaged a separate team within KPMG to advise the directors in relation to the safe harbour provisions. KPMG sent two engagement letters on 27 May 2022. One concerned the proposed restructuring. The first sentence of that letter was as follows:

40. [55]

    The second letter was specifically concerned with the provision of safe harbour advice in connection with the company’s ‘restructuring initiatives’.

41. [56]

    In order to obtain safe harbour advice, it was necessary for the directors to instruct HWL Ebsworth as to their proposed plan or course of action. They did so by way of a document prepared, in the first instance, by advisers but to which both Mr Pangiarella and Mr Markwart contributed in some way. The proposed course of action was in turn reproduced in the preliminary HWL Ebsworth advice dated 30 May 2022. Under the heading ‘Transaction’, the plan included:

42. [57]

    Under the heading ‘Cash corrective actions – general/summary’ the plan included:

43. [58]

    Under the heading ‘Operational – short term’, the plan included:

44. [59]

    Under the heading ‘Unsecured creditors’, the plan included:

45. [60]

    On 1 June 2022, Mr Markwart and other senior staff were offered retention bonuses. The offer letter included the following direction concerning confidentiality:

46. [61]

    Mr Pangiarella said that the matter of confidentiality in relation to the proposed restructuring was openly discussed at board meetings throughout May and June 2022. Mr Pangiarella was challenged on this proposition, but I accept his evidence. There is no doubt that the directors placed a significant premium on confidentiality throughout the entire course of Project Gateway. It makes sense that they would have done so.

47. [62]

    The capital restructuring project was known as Project Gateway. From the point of view of Mrs Mac’s, it was led by the chairman, Mr Pangiarella. He was the primary point of contact between the board and its advisers, KPMG (including both teams) and HWL Ebsworth.

48. [63]

    KPMG was successful in finding interested investors. Mrs Mac’s signed confidentiality agreements with several potential investors in June and July. Each agreement was executed on behalf of Mrs Mac’s by Mr Markwart, who was also the company secretary. Clause 3 of the schedule to each confidentiality agreement provided as follows:

49. [64]

    The recitals, or background, to the confidentiality agreements stated:

50. [65]

    The expression ‘Confidential Information’ was broadly defined. It included, for example, ‘the fact that the parties are discussing or considering the Proposal (Including the substance of the discussions or negotiations)’. The ‘Proposal’ was defined in the schedule to mean ‘the proposed investment or acquisition of capital (debt or equity) in, or the assets of, Mrs Mac’s’.

51. [66]

    Mr Markwart and Mr Moss prepared a slide presentation to be provided by KPMG to potential investors. It noted that 2020 and 2021 earnings had been affected by COVID-19, high commodity prices, high levels of debt and the loss of a key customer. A prominent graphic illustrated the cash cliff over which the business was consequently predicted to fall in November 2022. No-one reviewing the document can have been left with any doubt that, come November and in the absence of some kind of capital restructuring, the company would not be able to pay its debts as and when they fell due.

52. [67]

    On 1 June 2022, Mr Hayden White of KPMG suggested to Mr Markwart that he should consider bringing Octet ‘into the tent’ because ‘we don’t want them to get wind of it from elsewhere’. This led to a discussion between Mr Markwart and Mr Thayer on 3 June. Neither Mr Markwart nor Mr Thayer could recall this discussion, but it is apparent from contemporaneous correspondence that they discussed the proposed restructure at least in a very general way.

53. [68]

    Mr Markwart was not privy to correspondence with or offers made by potential bidders. He was however in attendance at board meetings where Mr Moss provided very general ‘transaction updates’. For example, a board meeting held on 22 June 2022 included a transaction update from Mr Moss in these terms:

54. [69]

    The following day, Mr White of KPMG sent a draft report entitled ‘Safe Harbour Consideration Assessment’. Mr White was seeking confirmation of the factual accuracy of the draft. In describing the proposed restructuring plan, the draft report mentioned the management of cash in similar terms to what had been described in the action plan set out in the HWL Ebsworth advice. It noted, for example, that:

55. [70]

    It also noted:

56. [71]

    The draft KPMG report recognised the significance of the Octet Facility to the ability of Mrs Mac’s to pay critical suppliers and to manage its cashflow. One of the ‘key risks’ in the context of short-term cash flows was as follows:

57. [72]

    A final version of the KPMG report was circulated on 27 June. This report was copied to Mr Markwart and Westpac. An updated advice from HWL Ebsworth was provided to the directors on 28 June. The advice and report were intended to be read together.

58. [73]

    On 29 June, there was a meeting of the board which Mr Markwart attended. As with previous meetings, Mr Moss presented a transaction update that was recorded in the minutes as follows:

59. [74]

    Mr Markwart also presented a ‘Cash and Commitments Update’ and noted that there were no material changes from the update provided on 22 June.

60. [75]

    By around this time, Westpac saw the short-term outlook for Mrs Mac’s as ‘negative’. A Westpac credit approval summary dated 24 June noted that ‘existing debt levels are not sustainable based on current EBITDA’. It noted that the bank would enter into a deed of forbearance with Mrs Mac’s to allow it to proceed with its restructuring plan.

61. [76]

    Mr Markwart and Mr Thayer had a telephone discussion on 8 July. Mr Markwart does not remember much about this discussion. Mr Thayer recalls that Mr Markwart said certain things to him but does not recall anything which he said to Mr Markwart. Nor does he recall the context in which the call took place, or who called whom.

62. [77]

    According to Mr Thayer, Mr Markwart said words to the following effect:

    1. (1)

       ‘we have engaged KPMG to do a few things, including recapitalising our balance sheet’;

    2. (2)

       ‘the owners have put in significant capital to improve equipment and the next logical step is to seek an option to strengthen our balance sheet or someone coming in to inject funds’;

    3. (3)

       ‘the business just came through a period of significant capital expenditure upgrading all factory equipment and manufacturing lines’;

    4. (4)

       ‘the decision by the board to seek an investment partner is one to enable the business to reduce debt levels which was mostly incurred by the upgrading of the manufacturing lines which was necessary to do to remain market competitive and at optimum efficiency’;

    5. (5)

       ‘it is a board strategic investment decision to seek an equity partner to further strengthen the future and allow the [Macgregor] family to take some money off the table. It will be very competitive with a number of suitors vying for the business’; and

    6. (6)

       ‘this will make us more competitive on a national scale’.

63. [78]

    Mr Markwart specifically disputes that he would have said that the owners had ‘put in significant capital to improve equipment’, because they had not done so. The company had borrowed to improve equipment, which was a major cause of their financial difficulties. Mr Markwart also specifically disputes that he would have said that the restructure would allow the Macgregor family to ‘take some money off the table’, because that was no part of what was in contemplation. These specific denials have the ring of truth about them. They are as to things that, in my view, Mr Markwart is highly unlikely to have said. Despite the general uncertainty (from both witnesses) as to the context in which this discussion took place and the absence of any corroborating material, I accept that Mr Markwart said the things attributed to him by Mr Thayer, save for the two matters specifically denied by Mr Markwart.

64. [79]

    Towards the middle of July, Mr Markwart began to develop the idea of making a management buyout offer (MBO) for Mrs Mac’s. The concept was largely developed by him, with some input from Mr Moss.

65. [80]

    On 21 July, Mr Markwart and Mr Moss received an email from Mr Kealley of KPMG summarising and comparing offers as they stood at that time. The document showed that two parties had made offers, namely South Island Office and Bakery Investment Group. The South Island Office offer was described in this document as a ‘100% buyout’. The offer price was $15 million. The Bakery Investment Group offer was described as an ‘asset sale’, also at an offer price of $15 million.

66. [81]

    However, the Bakery Investment Group offer was also described in ways that seem to be more consistent with an acquisition of the company itself. The summary stated that ‘key senior management staff will remain with [Mrs Mac’s] for an agreed period’ and that one of the conditions of the offer was that ‘current salaries are in line with market levels’. The KPMG commentary included that Bakery Investment Group ‘intend to invest additional working capital to fund operations in the future ($5 million in line with Management forecast cash flow requirements for FY23)’. They also noted that the offeror was ‘[o]pen to exploring with Westpac in refinancing the Asset Finance Facility’.

67. [82]

    The two offers and the potential MBO were discussed at the 21 July board meeting, which was also attended by Mr Markwart. Mr Kealley provided a transaction update, which was recorded in the minutes as follows:

68. [83]

    This description of the Bakery Investment Group offer again suggests that it was an equity offer, not an offer to acquire assets. Mr Markwart said that he believed, based on the discussion about the offers at the board meeting, that the offers were both equity offers and that under both offers, Octet would be paid $4 million. I accept that evidence for the reasons explained at paragraph [251] below.

69. [84]

    By this time, Mrs Mac’s had been in breach of the financial covenants in its bank facilities for two consecutive quarters and was expected to breach them in the current quarter. The bank’s total exposure at this point was about $31.6 million and the two offers drummed up by KPMG by this time were for only $15 million. On 26 July, a senior account manager in Westpac determined that it was appropriate to raise a provision of $15 million.

70. [85]

    The same day, 26 July, Mr Markwart formally made the MBO offer, although it remained highly conditional at this early stage. This offer would have seen the bank incur a much smaller write-off than would have been required under the two alternative offers. It would also have seen Octet paid out in full during the course of the following two financial years. It was however necessary for Mr Markwart and Mr Moss to secure funding for the proposal. Even so, Mr Markwart would have been justified at this point in believing that the MBO offer was the most attractive offer on the table, including from the point of view of Westpac.

71. [86]

    On the evening of 28 July, the Australian Financial Review ran a story in its Street Talk column entitled ‘COVID-hit piemaker Mrs Mac’s seeks white knight, KPMG on board’. The first two paragraphs were as follows:

72. [87]

    The story included a KPMG graphic which illustrated that the company would report a significantly negative EBITDA margin for the 2022 year and that the position would not improve until well into the following financial year. The article continued:

73. [88]

    The AFR article was noticed by Octet’s head of client services, Mr Lingam, early the following morning, on 29 July. He immediately placed a stop on the Octet Facility. At 8:48AM (Sydney time) he sent an email to a number of senior personnel within Octet, including the managing director Mr Clive Isenberg, the ‘co-CEO’ Mr Brett Isenberg, Mr Thayer and Ms Eimear Cooper, who was the head of the Octet Credit Review team. The email informed them that he had placed the facility on stop ‘until further clarification re the sale/capital injection’. Without intending any disrespect to Mr Brett Isenberg, I will generally refer to Mr Clive Isenberg as Mr Isenberg. When it is necessary to refer to Mr Brett Isenberg, I will refer to him as such.

74. [89]

    A few minutes later, Mr Isenberg sent an email to Mr Thayer reminding him that the Octet Facility was an Accelerate facility with no personal guarantees. He said that the facility was on stop until Mr Thayer approached the CFO and obtained further details. He suggested a Microsoft Teams meeting later that morning.

75. [90]

    Even before speaking with Mr Markwart, Mr Thayer responded to Mr Isenberg with what may be described as a highly optimistic reaction to the AFR article. His email was sent at about 9:16AM (Sydney time). He said that there was ‘no reason’ to put them on stop and that ‘they are not having troubles in paying debt’. He recounted some of what Mr Markwart had told him about three or four weeks prior, which was when they had last spoken. He added: ‘please don’t read the article on Street Talk as the business in dire straits – as it’s not’. He said that putting them on stop was not necessary and that ‘nothing has changed since our last review’. This was a reference to the previous quarterly internal credit review which was completed on 22 June for the quarter ending 31 March 2022.

76. [91]

    Shortly thereafter, Mr Thayer emailed Mr Markwart asking for an update. He said that the ‘credit team have become a little nervous with the “emergency funding” nature of the article’. Mr Markwart responded within minutes to say that he would call later in the morning. He added that the credit team ‘should not be overly concerned’.

77. [92]

    It is appropriate at this point to note a submission about Mr Thayer made by the seventh defendant, Mr Markwart. He submitted that in much of his correspondence, Mr Thayer tended to place a markedly positive spin on the financial position facing Mrs Mac’s, to the point of somewhat misrepresenting what he had been told. There is real force in this submission. In many of his emails it is evident that Mr Thayer had a distinct tendency to oversell the company’s position when he was dealing with other members of the Octet team, including Mr Isenberg. His 9:16AM email to Mr Isenberg is a good example.

78. [93]

    By way of further example, Mr Thayer sent another email to Mr Isenberg and others at 9:30AM saying that Mr Markwart had already contacted him (whereas it was the other way around) and that Mr Markwart had told him to advise the credit team that there is nothing to be concerned about (which was an exaggeration). This tendency is a matter to be kept in mind in determining whether Mr Thayer’s contemporaneous correspondence is an altogether reliable record of his discussions with Mr Markwart.

79. [94]

    It is relevant to note Mr Brett Isenberg’s response to Mr Thayer’s 9:30AM email, which was far more clear-headed. He said:

80. [95]

    The reference to a ‘BTF’ was to a type of secured facility.

81. [96]

    Mr Markwart and Mr Thayer spoke later that morning. Mr Thayer then set down a summary of their discussion in an email, which he sent to Mr Markwart at 1:32PM with a copy to Mr Isenberg and Mr Brett Isenberg. Because so much turns on it, it is appropriate to set the body of the email out at length:

82. [97]

    By the time this email was sent, the foreshadowed Teams meeting had already occurred. The words in the email commencing ‘To extend on this’ reflected additional matters not discussed between Mr Thayer and Mr Markwart on their call. The list of required financial information had been suggested by Mr Isenberg. Mr Isenberg, who was copied in, responded to Mr Thayer to say that this was a ‘good email’. Although Mr Isenberg somewhat incredibly sought to distance himself from that remark during cross-examination (at least to the extent the email said that Octet would ‘almost assume as if the investment wasn’t coming onboard for the time being’) there is no doubt that he approved the email.

83. [98]

    By this point, the stop had been removed from the Octet Facility. The witnesses called by the plaintiff were all members of the Octet Credit Review team (essentially, the credit committee). Mr Isenberg said that he was merely ‘involved’ in the decision to remove the stop, and that it was a joint decision of many members of the committee. Mr Lingam and Ms Cooper said that it was, or that it was likely to have been, Mr Isenberg’s own decision. At the same time, Mr Isenberg said in his affidavit that he did not recall what was said at the Teams meeting in which the issue was discussed.

84. [99]

    Mr Markwart responded to Mr Thayer’s 1:32PM email to confirm that the summary of their discussion was accurate. He promised to attend to the information request as a matter of priority, which he did. He added that he did not foresee a circumstance in which Mrs Mac’s would not be in compliance with the terms of the Octet Facility.

85. [100]

    An aspect of Octet’s case is that Mr Markwart’s communications with Mr Thayer were part of a deliberate misinformation strategy devised by the board. I have already noted the communications strategy developed in May at paragraph [52] above. It is also relevant to note Mr Moss’s response to the AFR article in relation to this issue. In an email on the morning of 29 July he suggested to the entire Mrs Mac’s leadership group that ‘[i]f you want to talk further with your teams and widen this out to include customers and suppliers, can I suggest the following 4 bullet points’. He added that it was best to do so verbally rather than in writing. His four points were as follows:

86. [101]

    On 3 August, Mr Kealley forwarded an updated summary of bids showing further interested parties. The comments in relation to the Bakery Investment Group offer were somewhat revised from the previous summary. It was still referred to as an ‘asset sale’ but the summary continued to describe the transaction in a way that did not make this an altogether appropriate description. It also noted that the offer was on a ‘debt free’ basis.

87. [102]

    The first board meeting following the AFR article was held on 3 August. Mr Markwart presented the cash and commitment update. He noted that ‘the recent press had increased the level of creditor enquiry with full support remaining’. Mr Moss presented a transaction update. He noted that the timetable had slipped a little but that the AFR article had resulted in six new potential bidders emerging, three of whom were likely to participate further. Meanwhile, he said that South Island Office and Bakery Investment Group were in an advanced due diligence stage.

88. [103]

    The only defendants to give evidence were Mr Markwart and Mr Pangiarella. Both were asked about what, exactly, Mr Markwart told the board on 3 August 2022 about his communications with creditors. Mr Markwart’s evidence was that he did not recall being specific. Mr Pangiarella said that Octet had been mentioned. However, he did not accept that Mr Markwart had reported the substance of his conversation with Mr Thayer. He accepted only that Mr Markwart reported in general terms that there had been creditor calls and that he had dealt with them, which I note is consistent with the minutes.

89. [104]

    What Mr Pangiarella did accept in cross-examination was that to the extent Mr Markwart had spoken with creditors, he (that is, Mr Pangiarella) believed that Mr Markwart was likely to have communicated the messaging that the company directors had approved. I have set this out at paragraph [100].

90. [105]

    The following day, 4 August, Mr Markwart sent Mr Thayer a further email. It included the following:

91. [106]

    The presentation attached to this email was the KPMG presentation to which I referred above at paragraph [66]. That presentation made clear that the company had a real need for further funding from November 2022 and that current EBITDA was insufficient to cover debt servicing obligations.

92. [107]

    On 6 August, Mrs Mac’s entered into a confidentiality agreement with Pie Face. Mr Markwart executed this agreement on behalf of Mrs Mac’s. However, as with other potential bidders, he was not privy to any dealings between Pie Face and KPMG about a potential bid.

93. [108]

    By 9 August, KPMG had completed a ‘net asset realisation’ guidance on Mrs Mac’s, as requested by Westpac. This analysis showed that Westpac held about $29.2 million in secured debt, much of which would not be repaid in a liquidation scenario. It also showed that in all likely liquidation scenarios, unsecured creditors such as Octet would receive nothing.

94. [109]

    On 15 August, a Senior Account Manager at Westpac submitted a credit approval summary for review and approval. One of the items sought was ‘indicative provision of $15m to be raised’. This internal provision was against repayment of the Mrs Mac’s debt, as had been proposed on 26 July.

95. [110]

    Mr Markwart attended a Mrs Mac’s board meeting on 16 August. Mr Kealley presented a further Project Gateway update. He explained that each of the two bidders (South Island Office and Bakery Investment Group) considered that the Octet Facility was ‘debt’ and that it should therefore be paid in full prior to settlement. It was noted that HWL Ebsworth were close to finalising the drafting of a share sale agreement. There was no mention of them drafting an asset sale agreement.

96. [111]

    By the end of August, Mr Markwart and Mr Moss had secured the services of Octavian Group to advise and assist them with their MBO bid. On 31 August, Mr Rovira, a partner of Octavian Group, forwarded the management team’s conditional offer to ‘recapitalise Mrs Mac’s and acquire 100% of the equity’. The offer would have required Westpac to accept $17 million in full and final satisfaction of all security held, with its remaining indebtedness transferred to an incoming financier. The Octet Facility would be paid in full over two years. It would also have seen Mr Markwart forgo his retention bonus and contribute about $200,000 of his own cash into the Mrs Mac’s business.

97. [112]

    From this point (and possibly earlier), information concerning Project Gateway was quarantined from Mr Moss and Mr Markwart due to their conflict of interest. They did not participate in board meetings while Project Gateway was discussed after 31 August.

98. [113]

    On 1 September, Mr Markwart and Mr Thayer spoke again. Mr Markwart provided an update on the bidding process, which Mr Thayer again summarised in an email. Mr Markwart reported that they had closed the process and that there were three shortlisted bidders ‘all with an objective of recapitalising the business’. He said that the board had a meeting on the coming Saturday with a view to choosing the final bidder that weekend. He said that settlement was likely to be at the end of October.

99. [114]

    In an internal email that afternoon, Mr Thayer added:

100. [115]

     Mr Markwart did not dispute that he had said this.

101. [116]

     In fact, as at 1 September there were only two bidders, not three. South Island Office had pulled out of the process on 18 August but Mr Markwart had not been told due to his conflict of interest.

102. [117]

     On 2 September, Pie Face made what the parties referred to as the ‘in principle’ bid. A formal offer followed on 5 September (the Pie Face offer). Its proposal was to acquire the main business assets of Mrs Mac’s for consideration of up to $26.5 million, depending on some adjustments.

103. [118]

     From Westpac’s point of view, the Pie Face offer was considerably more favourable than any other offer, including the MBO offer. It would see Westpac recoup the whole of its secured debt, because it would receive the whole of the proceeds of the asset sale and, as to the balance, Mrs Mac’s would be left with receivables over which Westpac also had security. However, it would leave relatively little for unsecured creditors.

104. [119]

     Unsurprisingly, the board also regarded the Pie Face offer as superior to the other offers. But it was not a foregone conclusion that the transaction would proceed. On 9 September, Mr Pangiarella informed Mr Moss that the MBO offer was now only a second preference, but that it should continue its application for funding in case the Pie Face offer fell through.

105. [120]

     The notion of the Pie Face offer falling through was something that was seriously discussed by the directors. Mr Pangiarella’s initial response to the offer, as communicated to the other board members, was that it was too vague and conditional to be acted upon. He identified a number of matters that could well stand in the way of settlement. He also reported that although Westpac regarded the Pie Face offer as superior, the bank remained encouraging of the MBO offer and would even be happy to reimburse Mr Markwart’s and Mr Moss’s financing application fee in order to keep their offer on foot as a fall-back option.

106. [121]

     The MBO offer was submitted on a conditional basis on 31 August. Shortly thereafter on 5 September, Mr Moss resigned as a director of Mrs Mac’s, though he stayed on as the CEO.

107. [122]

     On 7 September, Mr Thayer sought an update. Mr Markwart replied that the matter was still with the board, KPMG and the bank.

108. [123]

     On 19 September, Mr Thayer sought another update. Mr Markwart replied that there was a preferred bidder and another bidder ‘sitting in the wings’. The reference to a bidder sitting in the wings was to the MBO offer. It is uncontroversial that, by this point, Mr Markwart knew that the MBO offer was the second preference of both the board and Westpac. What is less clear is what, exactly, he knew about the preferred bid and when he knew it.

109. [124]

     Mr Markwart does not dispute that he knew the details of the Pie Face offer by 22 September. On that day, Mr Markwart and Mr Moss participated in a Teams meeting with Mr Pangiarella and Mr Kealley, who fully briefed them on the details of the Pie Face offer. The board and KPMG had by this point formed the view that it was not possible to manage the process, particularly information requests from Pie Face, without the assistance of the CFO, Mr Markwart. Following the Teams meeting, Mr Markwart and Mr Moss received an email from Mr Kealley of KPMG that included the following:

110. [125]

     It was immediately obvious to Mr Markwart and Mr Moss that the Pie Face offer was far superior to their own and that it would leave unsecured creditors largely unpaid. The same day, Mr Markwart sent an email to Mr Moss with an attached spreadsheet showing the likely outcomes of an asset sale at the Pie Face price. The language of his email makes clear that he was disappointed to learn that the Pie Face offer was in the terms that it was. I infer from this email that, prior to 22 September, Mr Markwart had only a suspicion of what the terms of the Pie Face offer were. I therefore accept his evidence that it was only on 22 September that he became aware of the full detail of the offer.

111. [126]

     Westpac’s attitude to the Pie Face offer was made very clear to the directors. As Mr Pangiarella told the directors in an email on 27 September:

112. [127]

     On the following day, 28 September, Mr Thayer sought another update. Mr Markwart said that Mrs Mac’s was ‘[t]rying to sign the Sale agreement tomorrow morning now – have been trying to finalise it for the last 2 days … we are very close’.

113. [128]

     On 30 September, Mrs Mac’s entered into an asset sale agreement (the Pie Face agreement) with the new company formed by Pie Face for the purpose of the acquisition. The agreement was co-signed by Mr Markwart as company secretary.

114. [129]

     At about this time, Mr Thayer acknowledged in internal correspondence that Mr Markwart was ‘under confidentiality’ and so was limited in what he could tell Octet about the transaction. In cross-examination, Mr Thayer accepted that he knew at this time that Mr Markwart could not tell him either good or bad news in relation to the Pie Face agreement.

115. [130]

     The Pie Face agreement contained a number of conditions precedent in clause 3.1, including that there be no material adverse effect prior to completion and that there be no winding up application, appointment of an administrator or appointment of a receiver prior to completion. Clause 5.1 required Mrs Mac’s to carry on the business in the ordinary course up until completion. Clause 5.2 required Mrs Mac’s not to make any material change to the operation of the business or ‘take any action or refrain from taking any action which will or may result in the appointment of a liquidator, receiver, manager, administrator or other Controller to the Seller or to any of the Business Assets’. Clause 15 and Schedule 2 contained warranties concerning enforcement action and legal proceedings.

116. [131]

     On 4 October, Mr Moss emailed the other directors and Mr Markwart with a proposed communication strategy concerning the Pie Face transaction. His email particularly dealt with sensitivities around the fact that the transaction involved some staff redundancies. The email included:

117. [132]

     Mr Thayer sent a further email to Mr Markwart seeking an update on 7 October. Mr Markwart did not respond. He said that he does not recall seeing this email and that he is unable to confirm that it was actually received. I accept that Mr Markwart does not recall this email, but I find that it was sent.

118. [133]

     For a brief period during October, the amount due to Octet under the Octet Facility was relatively low. On 12 October, it had a running balance of $2,839,995.11. However, Mrs Mac’s continued to use the facility to pay suppliers. By the end of the day on 20 October, the balance was back up to $3,901,826.36.

119. [134]

     On 13 October, Mr Moss advised Mr Markwart that his (Mr Markwart’s) position as CFO would become redundant on 31 October 2022. Mr Markwart understood that his position as company secretary would also end on that day.

120. [135]

     Mr Thayer sent a further email to Mr Markwart seeking an update on 18 October. Again, Mr Markwart did not respond. Again, he said that he does not recall seeing this email. I accept that Mr Markwart does not recall this email, but I find that it was sent.

121. [136]

     Mrs Mac’s continued to use the Octet Facility until 25 October. That was the last day on which the facility was used to meet supplier payments. The balance owing on that day was $3,999,817.94.

122. [137]

     Mr Thayer set a further email to Mr Markwart seeking an update on 26 October. Mr Markwart responded as follows:

123. [138]

     At the end of October, Westpac caused the direct debit authority on the Mrs Mac’s account to be suspended. This had the consequence that Octet did not receive amounts by direct debit as they became payable. The first direct debit to be dishonoured was on Monday, 31 October. The payment failure prompted immediate concern within Octet. For reasons that were not explained, Mr Thayer did not write to Mr Markwart about the dishonoured direct debit until Wednesday, 2 November. Mr Markwart responded to say he was looking into the matter, but Mr Thayer pressed him with his concerns about future payments. Mr Markwart responded as follows:

124. [139]

     Mr Thayer again pressed him with his concerns about upcoming payments, to which Mr Markwart responded:

125. [140]

     On 3 November, someone at Octet noticed that Mrs Mac’s had changed its name to its ACN number. Mr Thayer again wrote to Mr Markwart seeking information. Mr Markwart again did not respond. Mr Thayer sought information from Mr Hadfield, the financial controller at Mrs Mac’s, and asked when direct debits would be reinstated. Mr Hadfield said that they were still in negotiations with Westpac about the issue but that he expected it to be settled the following day.

126. [141]

     The Pie Face transaction was completed at around lunchtime on 4 November 2022. This was a later date than had been contemplated in the original agreement. The evidence shows that the process of completion was somewhat fraught. On the evening of 31 October, Pie Face had served a notice of termination of the Pie Face agreement on the basis that several conditions precedent had not been satisfied. This led both to delay and to some further negotiations between the parties.

127. [142]

     There was further inconclusive correspondence between Mr Thayer and Mr Markwart on 4, 7 and 8 November. By this point, Mr Markwart no longer worked at Mrs Mac’s. Two of these emails should be mentioned. The first is an email sent by Mr Markwart on 4 November, which was as follows:

128. [143]

     The second is an email from Mr Thayer on 8 November which included the following:

129. [144]

     Mrs Mac’s was placed into liquidation on 9 November 2022. To date, Octet has received no return from the winding up. It has however received approximately $900,000 from its insurer in respect of its loss on the Octet Facility.

130. [145]

     At the same time as the events described above, Octet was undertaking its own reviews of the credit-worthiness of Mrs Mac’s by reference to material provided to it by the company or from other sources.

131. [146]

     Like all of Octet’s trade finance clients, Mrs Mac’s was subject to quarterly ‘Periodic Credit Reviews’ to assess its credit risk levels. These reviews were conducted by the credit committee, of which Ms Cooper was the head and which included Mr Isenberg, Mr Lingam and Mr Young. The credit committee met weekly.

132. [147]

     As of 25 March 2022, Octet had in place a new credit policy (the March 2022 policy). Under that policy, Mrs Mac’s would not have qualified for an Accelerate facility. It would also have been required to provide more information than it was in fact required to provide under the Octet Facility. However, each of Mr Isenberg, Mr Young, and Ms Cooper took the view that this policy only applied to new facilities and that the credit committee was not obliged to assess the credit-worthiness of Mrs Mac’s by reference to the March 2022 policy. They did accept that the policy would ‘naturally’ be taken into account during periodic reviews, but they insisted that it would not be determinative.

133. [148]

     The credit review for Mrs Mac’s for the quarter ending 31 March 2022 was completed by Ms Cooper and presented to the credit committee team on 22 June. The minutes of that meeting recorded a deteriorating financial position, shown from the fact that the company’s sales and profits were declining, that it had received a business recovery loan of $3 million from Westpac and that it remained in arrears to the ATO. The minutes concluded with the following notes:

134. [149]

     Following Ms Cooper’s sign-off, Mrs Mac’s was approved to continue using the Octet Facility to the limit of $4 million. The fact that Mrs Mac’s was now well and truly afoul of the credit requirements contained in the March 2022 policy appears not to have affected the committee’s conclusions.

135. [150]

     The next periodic credit review took place after Octet caught wind of the AFR article. On 3 August 2022, Ms Cooper requested from Mr Markwart the standard documents and information required for the quarter ending 30 June.

136. [151]

     On 5 September, Ms Cooper emailed Mr Markwart and Mr Hadfield with some follow-up questions in relation to the credit review. These included the following enquiries:

137. [152]

     On 6 September, Mr Markwart responded to those questions as follows:

138. [153]

     Mr Hadfield also responded on the same day to provide an extract of the company’s creditor ledger.

139. [154]

     Based on the information that had been provided by Mrs Mac’s to date, and including the additional information provided in the Project Gateway presentation, Ms Cooper prepared the quarterly review and presented it to the credit committee on 7 September 2022. The minutes of this meeting indicated that Mrs Mac’s had disclosed the existence of Project Gateway to Octet. The project was described as a process of ‘seeking investment into’ and ‘recapitalisation of’ the business. The minutes recorded the following relevant aspects of Project Gateway that Octet had been informed about:

140. [155]

     The minutes concluded with the following evaluation:

141. [156]

     Mrs Mac’s continued to have access to the Octet Facility after the 7 September review. The credit committee’s position vis-à-vis Mrs Mac’s remained the same throughout the month of September. On 28 September, Ms Cooper and Mr Young signed off on the weekly review with the comment ‘Conditionally approved whilst awaiting sale process to complete’ which was visible on the Octet platform.

142. [157]

     On 3 November, Ms Cooper requested from Mr Markwart the standard credit review information for the quarter ending 30 September 2022. However, no response was ever received (other than an automatic response from Mr Markwart advising that he was no longer employed at Mrs Mac’s). On 9 November, Ms Cooper was informed that Mrs Mac’s had entered external administration.

The plaintiff’s pleaded claims

1. [158]

   It is against this general background that the plaintiff now seeks recovery from Mr Markwart and the directors of Mrs Mac’s.

2. [159]

   The misleading or deceptive conduct claims were divided into four, namely: two ‘positive’ representations said to be misleading or deceptive (set out in paragraphs [40] and [41] of the Amended Commercial List Statement (Commercial List Statement)); a misleading or deceptive failure to correct previous representations (paragraph [46]); and a so-called ‘pure silence’ case, namely that it was misleading or deceptive of the defendants not to disclose certain matters at all (paragraph [47]).

3. [160]

   Before describing those four claims, it is necessary to note some other aspects of the pleading. The expression ‘Directors’ in the Commercial List Statement does not include Mr Moss, and is used only to refer to the first to fifth defendants. This is important, because the first two ‘positive’ representations are alleged to have been made by the ‘Directors’ as principals through Mr Markwart pursuant to what is termed the ‘Markwart Agency’. The ‘Markwart Agency’ was alleged as follows:

4. [161]

   The agency was said to be either express or implied. The particulars of the matters from which it was said to be implied included such things as:

5. [162]

   The scope of the Markwart Agency was alleged to be as follows:

6. [163]

   The Commercial List Statement identified a large number of defined ‘Financial Issues’ confronting Mrs Mac’s at the relevant time. These included matters such as that: the company had breached the financial covenants in its senior bank facilities with Westpac; Westpac had agreed to continue to support the company on condition that it pursue an injection of $2.5 million from the first and second defendants (which did not eventuate); the shareholder directors had agreed to provide rent relief; the directors had obtained safe harbour advice; creditors were being actively managed and some creditors had agreed to altered payment terms; some creditors had threatened to stop supplying the company; the company had agreed to pay retention bonuses to senior staff including Mr Markwart and Mr Moss on successful completion of Project Gateway; the company had engaged both KPMG and HWL Ebsworth to assist with Project Gateway; and that one possibility being pursued in Project Gateway was an asset sale.

7. [164]

   The defendants’ failure to inform Octet about these Financial Issues figures in Octet’s pleaded claims in various ways, as described below.

8. [165]

   Octet alleges that Mrs Mac’s, Mr Markwart and the ‘Directors (through the conduct of Mr Markwart pursuant to the Markwart Agency)’ engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, and that Mr Markwart was involved in the company’s contravention:

9. [166]

   The emphasised part of that paragraph is the particular aspect of the conduct said to be misleading or deceptive. The first Representation, therefore, was an ‘assurance’ that the Octet Debt – $3,999,842.69, being the entire balance of the Octet Facility that had been drawn down by the end of 8 November – ‘would be paid in full’.

10. [167]

    Octet further alleges that Mr Markwart made, on behalf of Mrs Mac’s and with the authority and approval of the Directors pursuant to the Markwart Agency:

11. [168]

    As I discuss below, this allegation involves an assertion that there was some kind of ‘exchange’ of promises between the parties.

12. [169]

    Paragraph [46] of the Commercial List Statement contains a number of related contentions that are advanced in support of what the parties generally described as the ‘failure to correct’ case.

13. [170]

    First, Octet contends that it had a reasonable expectation that if certain statements referred to in the pleading or the Representations themselves were untrue, or became untrue, then that fact would be disclosed immediately by Mrs Mac’s ‘via Mr Markwart or another person on behalf of [Mrs Mac’s] including the Directors’. It is then alleged that the failure by Mrs Mac’s to disclose the Financial Issues and certain other matters was misleading or deceptive. Next, it is alleged that in circumstances where Mrs Mac’s, the Directors and Mr Markwart had knowledge of Octet’s belief that Mrs Mac’s was undergoing a recapitalisation or debt restructuring ‘and that the [Octet Facility] would be repaid by one of those entities or novated to [Pie Face]’ it was misleading or deceptive of Mrs Mac’s, Mr Markwart and the Directors to fail to correct Octet’s understanding.

14. [171]

    As with the Markwart Agency, the failure to correct case is pleaded against Mr Markwart and the ‘Directors’ as defined in the Commercial List Statement, which do not include Mr Moss.

15. [172]

    Mr Markwart is alleged to have been knowingly involved in the conduct of the company and the Directors in this respect.

16. [173]

    Finally, Octet contends that it had a reasonable expectation that:

17. [174]

    Octet further alleges that ‘in the premises of that reasonable expectation’, it was misleading or deceptive of Mrs Mac’s not to disclose the following matters to it:

    1. (1)

       Mrs Mac’s drew down on the Octet Facility up to the amount now owing.

    2. (2)

       During the period from 18 October 2022 to 25 October 2022, Mrs Mac’s utilised the Octet Facility at an amount 392% higher than its ordinary utilisation for a similar period.

    3. (3)

       The stock in trade formed part of the assets sold to Pie Face.

    4. (4)

       The existence of Mrs Mac’s as a going concern was fundamental to its ability to complete Project Gateway and that ‘the extension of financial accommodation throughout the [relevant period] by Octet was at least one of the means by which [Mrs Mac’s] was able to trade as a going concern’.

    5. (5)

       Mrs Mac’s resolved to enter into the Pie Face transaction prior to 30 September 2022 and actually entered into that transaction on that day.

    6. (6)

       Neither Mrs Mac’s nor the defendants informed Octet of the Financial Issues and certain other matters.

18. [175]

    Octet alleges that all of the defendants knew all of these matters.

19. [176]

    The loss that is alleged to have been suffered by reason of Octet’s reliance on the first and second Representations is that the Octet Debt was incurred.

20. [177]

    The same loss is alleged in the context of the failure to correct case and the pure silence case. As part of their failure to correct case, Octet alleges what it would have done and what Westpac (and others) ‘would have agreed to’ if the conduct had not been engaged in. Paragraphs [47(f)] and [47(fa)] of the Commercial List Statement are as follows.

21. [178]

    Although the pleading alleges that the first and second defendants would have repaid the Octet debt on behalf of Mrs Mac’s, this aspect of the claim was abandoned at the hearing.

22. [179]

    Relevantly identical contentions are made in the context of the pure silence case, as well as Octet’s two unconscionable conduct cases.

23. [180]

    Octet next pleads that the defendants engaged in unconscionable conduct contrary to s 21 of the ACL. This aspect of the claim was barely addressed in oral argument, but there is no doubt that Octet relies on these contentions in the alternative.

24. [181]

    The unconscionable conduct allegations are, broadly, based on two groups of matters that Mrs Mac’s knew and did not tell Octet about, namely matters prior to the execution of the Pie Face agreement (that is, prior to 30 September 2022), and matters following execution of the Pie Face agreement.

25. [182]

    Between 29 July 2022 and 30 September 2022, Octet pleads that Mrs Mac’s and the defendants knew or ought to have known of various matters including the Financial Issues and the very real possibility that Mrs Mac’s would undertake a sale of its assets. Octet alleges that Mrs Mac’s would have also known that, once a prospective asset sale was completed, there was a possibility that it would not be able to repay the outstanding amounts under the Octet Facility.

26. [183]

    Octet pleads that, from 30 September 2022, Mrs Mac’s and the defendants knew or ought to have known of various other matters which Octet called the ‘Post-Sale Unconscionability Matters’, including that an asset sale was taking place and that the funds received in consideration of that sale were unlikely to be sufficient to repay the outstanding amounts under the Octet Facility. In addition, they knew that Mrs Mac’s was likely to become insolvent and knew of the possibility of the company being put into liquidation.

27. [184]

    Octet contends that Mrs Mac’s knew of these matters and that it was therefore unconscionable for Mrs Mac’s to continue to utilise the Octet Facility without disclosing these matters to Octet. Octet contends that each of the defendants knew of the same matters and that they were each therefore involved in the company’s contraventions of s 21. Octet says its loss was the entire amount of the Octet Debt.

28. [185]

    Further and alternatively, Octet pleads that between 18 October and 25 October 2022, Mrs Mac’s drew down almost $1.5 million on the Octet Facility. It pleads that the drawdowns during this period were almost 400% higher than during an equivalent ‘Pre-Distress’ period.

29. [186]

    Apart from the fact that this contention concerns only a short period post-execution but pre-completion of the Pie Face agreement, and that the matters which Octet contends that Mrs Mac’s and the defendants knew were confined to simply the ‘Post-Sale Unconscionability Matters’, the second unconscionability case does not otherwise differ significantly from the first unconscionability case. The thrust of the second unconscionability case is that, if nothing else, it was unconscionable to draw down so heavily on the facility between 18 October and 25 October given what Mrs Mac’s knew by then about the prospect of it being repaid.

30. [187]

    As to both of its unconscionable conduct cases, Octet relies on the Westpac thesis set out above to allege that it would have secured repayment of the whole of the Octet Debt if the conduct had not been engaged in.

Misleading or deceptive conduct

1. [188]

   It is convenient to deal with the question of the Markwart Agency at the outset, because its existence is critical to the question of whether anyone other than Mr Markwart made the positive representations pleaded.

2. [189]

   Octet’s contentions as to the existence of the agency are reproduced at paragraphs [160]-[162] above.

3. [190]

   Agency, as a legal term, ‘connote[s] an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties’: International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644; [1958] HCA 16 at 652. The essence of an agency relationship is that the agent be in some way, however minor, authorised to act on behalf of the principal: NMFM Property Pty Ltd v Citibank Ltd (No 10) (2000) 107 FCR 270; [2000] FCA 1558 at [522] (Lindgren J).

4. [191]

   Agency arises only through the express or implied consent of both principal and agent: Field v Shoalhaven Transport Pty Ltd [1970] 3 NSWR 96 (‘Field’) at 103; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 29,699 at [177]. The principal must intend the agent to act for him or her and the agent must intend to accept their authority and act on it: Re Advance Bank Australia Ltd (No 2) (1997) 136 FLR 281 at 306-307 (Santow J) citing Field at 103.

5. [192]

   The parties need not use the language of agency for the law to infer an intention to create the relationship of principal and agent. An agency relationship may exist by reason of the principal’s acquiescence: Field at 103.

6. [193]

   The question of whether a person has authorised another to perform acts on their behalf is to be determined objectively, although it has been held that later words and conduct may bear upon the question: Fabry v Commissioner of Taxation [2001] FCA 1431; (2001) 48 ATR 130 at [23] (Merkel J) citing Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130 at 1137.

7. [194]

   In Bonnette v Woolworths Ltd (1937) 37 SR (NSW) 142 at 150, Jordan CJ said:

8. [195]

   The question of whether a person authorised another to act on their behalf may be answered by considering for whose benefit or in whose interest it was intended to be done, although this is not conclusive: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [70].

9. [196]

   There was no dispute about any of these principles.

10. [197]

    Octet contends that Mr Markwart was expressly appointed as agent for the directors, excluding Mr Moss, in their personal capacities during the 29 June 2022 board meeting (see paragraphs [73]-[74] above).

11. [198]

    The evidence does not support that contention. The minutes make no mention of it. Mr Markwart denied it. Mr Pangiarella, one of the supposed principals, denied it. It was not suggested to either of them in cross-examination that any express words had been used to create the agency. No other document supports the conclusion.

12. [199]

    The basis for Octet’s contention about the existence of an express agency agreement is that the 29 June board meeting was the occasion on which the directors considered the KPMG Safe Harbour Consideration Assessment: see paragraphs [69]-[72] above. An aspect of the advice contained in that document was that it would be necessary for the directors to do a range of things if they were to have the benefit of the safe harbour provisions and avoid personal liability for insolvent trading. One of those things was to ensure that Mrs Mac’s ‘continue to actively manage its short term liquidity’ (emphasis added). The report also stated that ‘Mrs Mac’s ability to continue to pursue its Restructuring Plan is reliant upon the continued management of available cash …’ (emphasis added). The advice also acknowledged that the Octet Facility was used to make critical supplier payments.

13. [200]

    Octet submitted that it was necessary for the directors to appoint Mr Markwart as their agent in order to give effect to this advice. It submitted that the appointment must, therefore, have occurred. However, as I discuss below in the context of the implied agency contention, this was just not so. To the extent the safe harbour advice touched on Mr Markwart’s functions at all, it was to explain the significance, in the context of s 588GA of the Corporations Act, of things he was already doing as an employee and which the company (not the directors personally) should, in the language of the report, ‘continue’ to do.

14. [201]

    It was not necessary for the directors to appoint an agent in order to have the benefit of the safe harbour provisions. The advice did not suggest otherwise. I do not accept that they did so.

15. [202]

    Octet’s implied agency case starts from an even more difficult position. In all of his dealings with Octet, Mr Markwart never purported to undertake any act on behalf of the directors in their personal capacities. Furthermore, when one considers the person or persons whose interests his communications served, it is difficult to escape the conclusion that it was Mrs Mac’s. It was not the defendants in their capacities as individuals.

16. [203]

    There is no doubt that the directors implemented their restructuring plan in a way that, as far as possible, did not expose them to potential personal liability for insolvent trading. There is also no doubt that, in doing so, they kept a close eye on the requirements of s 588GA of the Corporations Act and the advice they had received about it. But it does not follow that the steps taken to implement the plan, including the steps they took to ensure that Mrs Mac’s ‘continue[d] to actively manage its short term liquidity’, were for their own personal benefit. The starting point is that directors of a company have a duty to prevent insolvent trading. Section 588G(1) of the Corporations Act relevantly provides as follows:

17. [204]

    Section 588G(2) is a civil penalty provision. It imposes liability on a director if he or she fails to prevent the company from incurring a debt in the circumstances described in that subsection.

18. [205]

    However, s 588GA affords a ‘safe harbour’ from the operation of s 588G(2) and related provisions. The section relevantly provides as follows:

19. [206]

    Section 588GA is contained within Subdivision C of Division 3, Part 5.7B of the Corporations Act. That subdivision is entitled ‘Safe harbour from breach of duties’ and was inserted by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth). As paragraph [1.12] of the Explanatory Memorandum to that Act explained, by inserting Subdivision C the Government was:

20. [207]

    The broad object of the reform was described in paragraph [1.16] as follows:

21. [208]

    The statutory purposes described in this extrinsic material are readily identifiable from the terms of the legislation itself. Importantly, as the language of s 588GA makes clear, although the Subdivision provides a safe harbour for directors, it does so only to the extent that the directors pursue a better outcome for the company.

22. [209]

    It is therefore wrong to characterise a ‘course of action’ within the meaning of s 588GA(1)(a) as one that is necessarily pursued for the benefit of the directors. It is also wrong to characterise the matters in s 588GA(2) as matters undertaken for the benefit of the directors. A director obtains no relevant personal benefit merely by pursuing a ‘course of action’ to restructure a company, nor from taking the various steps identified in subs (2), such as properly informing himself or herself of the company’s financial position. That is because the alternative to doing those things is either not incurring the relevant debt (within the meaning of s 588G(1)) in the first place or else placing the company into external administration. The notion that Subdivision C supplies an incentive for directors to act in their own interests, or that it rewards them for doing so, is mistaken. To the extent directors enjoy any personal benefit from protection under the safe harbour provisions, they only do so indirectly as a result of taking steps to secure a benefit for the company.

23. [210]

    The defendants submitted that the steps taken by the directors of Mrs Mac’s in 2022 are an excellent example of how Subdivision C was intended to operate. I agree. I also note that there has been no suggestion by Octet that the directors ever strayed from the confines of the safe harbour in completing Project Gateway. As submitted by Mr O’Brien, who appeared with Mr Murphy for the fourth to sixth defendants:

24. [211]

    In fairness to the plaintiff, it did not put its submission about s 588GA in terms of it being either an ‘incentive’ or ‘reward’ for directors in their personal capacity. However, it is impossible to reconcile the submission that was made, namely that Mr Markwart was acting for the personal benefit of the directors by his work in implementing the restructuring plan, from the considerations referred to in paragraph [209] above. In my view, Octet’s reliance on the operation of the safe harbour provisions as a basis for implying the existence of the Markwart Agency is mistaken.

25. [212]

    The other matters on which Octet relied to show an implied agency were particularised as follows:

    1. (1)

       The fact that the directors had personally engaged KPMG and HWL Ebsworth to advise them in respect of the safe harbour provisions and that they had received advice about those matters.

    2. (2)

       The fact that the company’s short-term liquidity depended upon the continued management of available cash and retaining the benefit of the Octet Facility.

    3. (3)

       The fact that the directors did ensure that purchase orders were centralised to the finance team, led by Mr Markwart, and that they instructed him to deal with the company’s creditors.

    4. (4)

       The fact that the directors instructed Mr Markwart to report to them with information concerning the ongoing management of creditors and that he in fact did so.

26. [213]

    These matters, when taken together, do not support a conclusion that the directors in their personal capacities must have authorised Mr Markwart to act on their behalf.

27. [214]

    A major difficulty for the plaintiff is that the alleged Markwart Agency was to do things that were otherwise well within Mr Markwart’s existing functions as an employee, such as for him to continue to deal with creditors on behalf of the company, albeit in a particular way. The directors had no power to do any of these things themselves on behalf of the company other than as a board: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; [1990] HCA 32 at 205 (Dawson J). The directors had no power to authorise anyone, including Mr Markwart, to do the things within the scope of the Markwart Agency on their personal behalf.

28. [215]

    The question of whether representations are made by a director in their personal capacity, as opposed to their so-called ministerial capacity, may also be informed by an assessment of whether ‘the representee would reasonably regard the representation as being made by the director … as well as by the corporation’: Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88 (‘Anchorage’) at [359]; Australian Securities and Investments Commission v Narain (2008) 169 FCR 211; [2008] FCAFC 120 (‘Narain’). On this issue, Octet sought to analogise their case to the facts in Narain and Cleary v Australian Co-operative Foods [No 2] [1999] NSWSC 991 (‘Cleary’). In both cases, company directors had been found liable in their personal capacities for misleading or deceptive conduct engaged in by agents on their behalf. In my view, both cases are distinguishable.

29. [216]

    In Narain, a CEO (Mr Narain) was found to be personally liable for a misleading announcement sent on behalf of the company to the ASX. The Court’s finding that he was personally liable was based on the facts that Mr Narain himself assisted with authoring the impugned announcement and that he had himself instructed the company secretary to send it to the ASX. The directors of Mrs Mac’s, by contrast, never gave Mr Markwart any instruction about the content of his communications to Octet, nor did they tell him to communicate with Octet on any specific occasion.

30. [217]

    In Cleary, in the context of a scheme of arrangement, the chairman of a cooperative sent a letter to its members deprecating a counterproposal received by the board of directors. Austin J found that each of the directors had personally engaged in the conduct of making the representation in the letter through the chairman as their agent: at [55]-[57]. The evidence showed that the board had made unanimous resolutions authorising the chairman to provide the members with details of the board’s recommendations. In so doing, ‘[t]he directors must have realised that the materials that they then authorised the Chairman and the management team to prepare would attribute unanimous views to the board, and in that way would purport to express the individual views of each director’: at [55]. Quite differently here, the representations that Mr Markwart is said to have made pursuant to the Markwart Agency did not purport to express the opinions personally held by the directors.

31. [218]

    Finally, the matters said to be within the scope of the alleged agency are matters that Mr Markwart was already authorised by Mrs Mac’s to do in his role as CFO. They were, as pointed out, matters he was already doing as an employee. He was already closely managing cash, dealing with creditors and reporting to the board. Mr Markwart’s functions did not change in any way as a result of the safe harbour advice. These facts all tend to support the conclusion that the directors never authorised Mr Markwart to do or say anything as their representative in their personal capacities.

32. [219]

    In my view, the Markwart Agency as described in the Commercial List Statement did not come into being, either expressly or by implication. For completeness, the facts also do not support a finding that there was an agency relationship on any other terms between Mr Markwart and each of the directors in their personal capacities.

33. [220]

    Before addressing this question, it is helpful to recall the basic elements of Octet’s cause of action. In Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (2023) 277 CLR 186; [2023] HCA 8 at [80], Kiefel CJ, Gageler, Gordon, Edelman and Gleeson JJ said:

34. [221]

    It will therefore be necessary to identify the conduct which Mr Markwart is said to have engaged in so far as the making of the pleaded Representations is concerned. It will also be necessary to determine the meaning conveyed by Mr Markwart in his communications with Mr Thayer.

35. [222]

    The particular conduct on which Octet relies to support the allegation that the first Representation (ie, the Representation made in paragraph [40] of the Commercial List Statement and set out at paragraph [165] above) was as follows:

    1. (1)

       Mr Markwart’s email to Mr Thayer on 29 July 2022 in which he replied to Mr Thayer’s concerns by saying Octet should not be ‘overly concerned’ about the content of the AFR article: paragraph [91] above.

    2. (2)

       The email containing the content of the discussion between Mr Markwart and Mr Thayer that same day: paragraph [96] above.

    3. (3)

       Mr Markwart’s confirmation of the contents of Mr Thayer’s email that same day: paragraph [99] above.

    4. (4)

       Mr Markwart’s email to Mr Thayer on 4 August and the attached Project Gateway presentation: paragraphs [105]-[106] above.

    5. (5)

       Mr Markwart’s email to Ms Cooper on 6 September: paragraph [152] above.

    6. (6)

       Mr Thayer’s various requests for updates and Mr Markwart’s responses between 7 September 2022 and 18 October 2022: paragraphs [122]-[123], [127], [132] and [135] above. Octet here relies on things not said to support the contention that Mr Markwart made the first Representation. The things not said that are given as particulars of the making of the first Representation are:

    7. (7)

       Mr Markwart’s emails to Mr Thayer of 26 October 2022 and 4 November 2022: paragraphs [137] and [142] above.

    8. (8)

       Mr Markwart’s failures on 29 July, 4 August, 6 September, and between 7 September and 18 October, and on 26 October to draw Mr Thayer’s attention to the Financial Issues. Here again Octet relies on the fact that things were not said as an aspect of its case that the first Representation was made.

36. [223]

    Although I do so with some hesitation, I find that the first Representation was made.

37. [224]

    My hesitation concerns the strength of the assurance that Octet says it received from Mr Markwart. A prominent feature of the first pleaded Representation is that it involves an assurance that the Octet Debt would be paid in full, either by Mrs Mac’s, a subsidiary controlled by Mrs Mac’s, or Pie Face. The defendants argued that such strong assurances are not to be found in the evidence of what Mr Markwart communicated to Mr Thayer, either in July 2022 or at any other time. Nor did Mr Markwart ever suggest to Mr Thayer that the Octet Debt would be paid by anyone other than Mrs Mac’s. They pointed out that the whole context of their discussion was that Mrs Mac’s was seeking a new investor to help it escape from financial difficulties and that the outcome of the process was not assured. They submitted that someone in Octet’s position could not reasonably understand the situation to be otherwise. There is force in those arguments.

38. [225]

    However, the combined effect of the bullet-points in Mr Thayer’s 29 July 2022 email, particularly the final two, was that Octet should at least have a high degree of confidence that Mrs Mac’s would emerge from the recapitalisation exercise in sufficiently good financial health to ensure that the Octet Facility would be repaid. Mr Thayer must have appreciated that Mr Markwart could not be giving any kind of guarantee. But the email does nevertheless contain strong assurances about repayment and the recapitalisation that would make repayment possible. By way of reminder, the two final bullet-points were as follows:

39. [226]

    Provided it is understood as a representation that Octet was highly likely to be paid by Mrs Mac’s, as opposed to a guarantee that it would definitely be paid or that it would be paid by someone other than Mrs Mac’s, then I consider that the first Representation was made.

40. [227]

    Octet’s case is unclear on the question of when the first Representation was made and when it was repeated. Both in its pleadings and submissions it treated the Representation as having been made by 29 July 2022, but at the same time relied on conduct after that date to evidence the making of the Representation. I will proceed on the footing that Octet’s case is that the first Representation was made on 29 July 2022 and also repeated on the later occasions (such as 4 August, 6 September) referred to in paragraph [40] of the Commercial List Statement.

41. [228]

    The evidence supports a conclusion that the first Representation was repeated on 4 August in Mr Markwart’s email of that date: see paragraph [105] above. In that email, Mr Markwart assured Mr Thayer that the process outlined on 29 July remained in train and it is therefore appropriate to regard it as a repetition of the earlier Representation.

42. [229]

    The evidence does not however support a conclusion that the first Representation was repeated at any later point. The 6 September email to Ms Cooper was a response to an information request. It did not contain any promise as to repayment of the debt. Nor did it contain any assurance about the process described in the 29 July email.

43. [230]

    The correspondence that passed between Mr Markwart and Mr Thayer between 7 September and 18 October likewise contained no positive promise or assurance. Be that as it may, for reasons explained below, I do find that Mr Markwart’s failure after 22 September 2022 to correct the notion that the company would be recapitalising and that Octet could have high confidence of repayment was misleading or deceptive.

44. [231]

    Octet also relies on the 26 October email (paragraph [137] above). That email contained no positive promise or assurance that Octet would be paid. I will however return to this email in the context of Octet’s failure to correct case.

45. [232]

    The 4 November email (paragraph [142] above) is in a slightly different category. By this point the Westpac account had been frozen, which prompted this correspondence. The email contained the positive assurance that, on completion, Mrs Mac’s would ‘get control again and be able to correct you and others’. This was, in my view, a positive assurance of payment, but only as to ongoing compliance with the terms of the Octet Facility. That is, it was an assurance that Octet would continue to be paid routinely for amounts as they became due and payable after 90 days on a rolling basis. It was not a promise that the entirety of the debt would be paid in full.

46. [233]

    In summary, I find that the first Representation was made on 29 July and 4 August, but not later. I also find that it was limited to an assurance that Octet could be highly confident that Mrs Mac’s would be able to pay the debt in full after a recapitalisation.

47. [234]

    Because other defendants, apart from Mr Moss, were only alleged to have made the Representations by reason of the Markwart Agency, and because I have found that no such agency came into existence, I conclude that the first Representation was only made by Mr Markwart.

48. [235]

    The essential aspect of the second Representation is that there was an agreement or arrangement between the parties that Mrs Mac’s or Pie Face would ‘ensure’ that Octet was paid in full ‘in exchange for Octet’ agreeing to forbear from putting the facility on stop and from taking action to accelerate or enforce its entitlements under the facility. A key aspect of this representation was, therefore, that there was some quid pro quo: Octet would allow Mrs Mac’s to continue to use the facility while Mrs Mac’s ‘completed a debt restructuring, recapitalisation or other capital raising exercise’.

49. [236]

    In my view, no such bargain was ever struck and no communication of Mr Markwart could be understood as containing the promise of such a bargain. Nor did anything said by Mr Thayer amount to a promise to forbear from taking action in return for a promise that the debt would be paid.

50. [237]

    The second Representation is one that strikes me as quite unlikely to have been made in any event. The supposed ‘promise’ extracted from Mrs Mac’s, according to the second Representation, was a promise to pay what it owed. But Octet already had the benefit of a promise that Mrs Mac’s would pay what it owed per the Accelerate Rules. It is hard to see why a party in Octet’s position would make any concession at all if the only quid pro quo was that the outstanding debt would be paid. One can of course imagine that parties in the position of Mrs Mac’s and Octet in late July 2022 might have reached an agreement along the lines of the arrangement with Westpac, namely that Octet would continue to make the facility available provided that Mrs Mac’s promised to pursue a recapitalisation or take some other steps to ensure repayment. Such an arrangement would have made sense. But Octet does not say that the deal between Mr Thayer and Mr Markwart was along those lines.

51. [238]

    In my view, Mr Markwart did not make the second Representation.

52. [239]

    Having found that the first Representation was made, it is necessary to consider whether it was misleading or deceptive or likely to mislead or deceive.

53. [240]

    Conduct may be misleading or deceptive, or likely to mislead or deceive, if it ‘has a tendency to lead into error’: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 (‘TPG Internet’) at [39] (French CJ, Crennan, Bell and Keane JJ). The conduct must ‘convey a meaning which is inconsistent with the truth’: Karpik v Carnival plc [2023] FCA 1280 at [708] citing World Series Cricket Pty Ltd v Parish [1977] FCA 77; (1997) 16 ALR 181 at 200-201.

54. [241]

    Whether or not conduct is misleading or deceptive is a question of fact, to be resolved by a consideration of the whole of the impugned conduct in the circumstances in which it occurred: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 (‘Campbell v Backoffice’) at [102] citing McHugh J in Butcher v Lachlan Elder Realty (2004) 218 CLR 592; [2004] HCA 60 (‘Butcher’) at [109].

55. [242]

    It is not necessary to prove an intention to mislead: Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; [2013] HCA 1 at [9]. Persons acting ‘reasonably and honestly’ may still be found to have contravened the provisions: Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45; [2000] HCA 12 at [103] citing Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44 (‘Puxu’) at 197.

56. [243]

    It is also unnecessary to prove that the conduct actually deceived or misled anyone: Puxu at 198. It is sufficient to demonstrate that there is a ‘real or not remote chance or possibility’ that a person is likely to be misled or deceived: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82; [1984] FCA 180 (‘Global Sportsman’) at 87.

57. [244]

    Section 4 of the ACL provides that representations as to a ‘future matter’ may be misleading, unless the maker discharges their evidentiary onus of demonstrating that they had reasonable grounds for making the representation. This section has been held to be ‘concerned with predictions, promises, forecasts and other like statements which are directed to circumstances or events which may or may not happen in the future but which cannot be proven to be true or false at the time when they are made’: Australian Competition and Consumer Commission v Woolworths Group Ltd (2020) 281 FCR 108; [2020] FCAFC 162 at [121].

58. [245]

    A statement of belief as to a future position can be a ‘future matter’ under s 4 even if it involves the expression of a state of mind; whether an expressed belief relates to a future matter depends on the words used and the context in which they were said: Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) 62 IPR 184 at [99]-[102].

59. [246]

    As to whether the maker had reasonable grounds for making the representation, there will not be reasonable grounds for making a representation if, at the time of making it, the representor did not have facts sufficient to induce, in the mind of a reasonable person, a basis for making the representation: Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114 at [100]. The fact that the maker may honestly believe in a particular state of affairs does not necessarily mean that they hold reasonable grounds for that belief: Cummings v Lewis (1993) 41 FCR 559; [1993] FCA 149 at [20].

60. [247]

    Statements of opinion are not necessarily misleading or deceptive simply because the opinion turns out to be incorrect; this ‘does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any, or any adequate, foundation’: Global Sportsman at 88. As foreshadowed, an opinion usually carries with it an implied representation that there is a basis for it and that it is honestly held by the maker: Bateman v Slatyer [1987] FCA 58; (1987) 71 ALR 553 at 559. Accordingly, a person may engage in misleading or deceptive conduct if they express the opinion but do not actually hold it: Glorie v WA Chip & Pulp Co Pty Ltd [1981] FCA 224; (1981) 55 FLR 310 at 328. In particular circumstances, liability may also arise if the maker did not have a reasonable basis for the belief or opinion: Ireland v WG Riverview Pty Ltd (2019) 101 NSWLR 658; [2019] NSWCA 307 at [34].

61. [248]

    In respect of both representations as to future matters, and statements of opinion, the relevant time at which to assess whether the representations were misleading or deceptive is at the date of the representation: Bill Acceptance Corporation Ltd v GWA Ltd [1983] FCA 269; (1983) 78 FLR 171 at 178-179; Botany Bay City Council v Jazabas Pty Ltd [2001] NSWCA 94 at [83].

62. [249]

    The first Representation involved a statement about a future matter, namely that Mrs Mac’s would in the future be in a healthier financial position such as to give Octet a high degree of assurance that it would be paid.

63. [250]

    In my view, no part of what Mr Markwart represented to Octet by making the first Representation was misleading or deceptive. What he told Mr Thayer about Project Gateway on 29 July 2022 was true. To the extent he expressed opinions about what would happen in the future, he had a reasonable basis for doing so.

64. [251]

    At the time the first Representation was first made on 29 July 2022, the only offers to have emerged from Project Gateway were all offers which, if accepted, would see Octet paid in full. Although one of the offers was described by KPMG as an ‘asset sale’, Mr Markwart believed it to involve a recapitalisation of the company. I consider that this belief was reasonable. It was described by KPMG in a way that was consistent with it being a recapitalisation: see paragraphs [80]-[82] above. To the extent this offer was discussed at board meetings attended by Mr Markwart, it was described in a way that was consistent with it being an equity offer. It was also an offer under which Octet was to be paid in full.

65. [252]

    Mr Markwart was therefore justified in saying to Mr Thayer on 29 July 2022 that Octet should ‘not be overly concerned’ about what he had read in the AFR article. Certainly, Mr Markwart was himself not ‘overly concerned’ about the outlook for the company: he had by this stage put forward his own offer to acquire it on terms that would have seen Mrs Mac’s continue to trade and the Octet Facility fully paid out.

66. [253]

    He was therefore also justified in saying all of the things summarised in Mr Thayer’s email later that day, all of which were true at the time. His opinion that the exercise would see Mrs Mac’s ‘come out as a stronger enterprise with a cleaner balance sheet, reduced debt, better earnings …’ was an opinion that was reasonable for him to hold at the time. He did not mislead Octet in sharing his view about the company in these terms.

67. [254]

    Octet places heavy reliance on the fact that Mr Markwart did not mention the fact that in Mrs Mac’s engagement letters with both KPMG and HWL Ebsworth, Mrs Mac’s contemplated the possibility that Project Gateway might result in an asset sale. I will say more about this circumstance below in the context of the pure silence case and the failure to correct case. Here, however, Octet’s point is that the first Representation was false for reasons that include that Mrs Mac’s was in fact still open to considering an asset sale that, if it occurred, might leave unsecured creditors unpaid.

68. [255]

    The fact that Project Gateway was sufficiently broad to encompass the prospect of an asset sale is not a matter that falsifies the first Representation. That representation was in substance that Project Gateway was highly likely to lead to an outcome in which Octet was paid in full. As at 29 July and 4 August, Mr Markwart had a reasonable basis for expressing that opinion. His opinion was no less reasonable merely because there remained the possibility that an offer to acquire the Mrs Mac’s assets might emerge from the woodwork prior to acceptance of one of the then-current bids.

69. [256]

    I do not consider that the first Representation was misleading or deceptive or likely to mislead or deceive to the extent it was repeated by Mr Markwart on 4 August. This email was pithier but in the same vein as what Mr Thayer had been told on 29 July. On this occasion, he gave Mr Thayer more detail of the process, all of which was true and all of which only served to make his opinion more reasonable.

70. [257]

    Silence is a circumstance to be assessed like any other. It is a matter to be taken into account in determining whether there has been conduct that is misleading or deceptive or likely to mislead or deceive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; [1992] FCA 557 (‘Demagogue v Ramensky’) at 32 (Black CJ). However, as Gummow J (Black CJ and Cooper J agreeing) explained at 41, citing French J in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR(Digest) 53,193 at 53,195: ‘unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist’. As to this, see also Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31 (‘Miller’) at [18] (French CJ and Kiefel J).

71. [258]

    The notion of what is reasonable in a commercial context must be assessed in the light of what was said by Gleeson CJ in Lam v Ausintel Investments Pty Ltd (1989) 97 FLR 458 (‘Lam’) at 475, namely that:

72. [259]

    These same principles were stated in Miller at [20]-[22] and Wormald v Maradaca Pty Ltd [2020] NSWCA 289 (‘Wormald’) at [113] (Bell P, Bathurst CJ and Payne JA agreeing). As French CJ and Kiefel J put it in Miller, s 52 of the Trade Practices Act 1974 (Cth) (the predecessor to s 18 of the ACL) ‘does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence’: at [22].

73. [260]

    Wormald supplies a good example of how this principle may apply as between commercial parties. In that case, the majority shareholders of Broadreach Services Pty Ltd (BRS) failed to disclose to a company, Maradaca, certain information that would, if known, have affected the price the latter was willing to pay for the purchase of shares in BRS and whether it was willing to acquire those shares at all. Maradaca had previously been in negotiations to acquire the shares and, in the course of those negotiations, had done some due diligence on the company. The negotiations stalled when the shareholders of BRS decided to focus on a sale to Optus. When the Optus negotiations fell through, one of the majority shareholders called Ms Kaliviotis, who was the principal of Maradaca, to ask whether the latter was interested in reviving her bid. They had the discussion set out at [61] of the reasons. Critically, Mr Barrett did not disclose in that discussion or otherwise that BRS had entered into a term sheet and memorandum of understanding with Optus, a term of which was that BRS may become liable to pay Optus the sum of $236,000 plus GST.

74. [261]

    Ms Kaliviotis decided to cause Maradaca to acquire BRS. Optus demanded payment of $236,000 plus GST from BRS. Maradaca sued to recover loss caused by the shareholders’ failure to disclose the existence of this potential liability and certain other matters.

75. [262]

    After referring extensively to (among other authorities) Miller and to the passage in Lam set out at paragraph [258] above, Bell P (with whom Bathurst CJ and Payne JA agreed) found that Maradaca had not established that it had a reasonable expectation that it would be informed of matters that would otherwise have been discovered in due diligence. As his Honour said at [130], Ms Kaliviotis’s ‘refusal to allow or entertain further due diligence operated as a negativing of any expectation that may otherwise have existed, reasonable or otherwise’. It was, as his Honour said, ‘buyer-beware’, subject to the $200,000 that had been proffered by the seller ‘to deal with any problems’.

76. [263]

    In the course of his reasons, Bell P at [111] identified nine key propositions from Miller, the summary of which I gratefully adopt.

77. [264]

    In their own summary of the propositions to be derived from Miller and other authority in this area, Gilmour and White JJ in Addenbrooke Pty Ltd v Duncan (No 2) [2017] FCAFC 76 at [482] included the following:

78. [265]

    This observation encapsulates the way Octet puts its case. It argues that Mr Markwart led it to believe that Mrs Mac’s would be recapitalising in a way that was highly likely to see Octet repaid. It says that the statements that led to this belief were a half-truth or else were continuing in the sense that it was obvious that Octet would continue to rely on its belief about Project Gateway while the facility remained on foot. Octet says that it had no other way of knowing whether what it had been told about the process was true or false and that it was reasonable for it to expect that the defendants would inform them if, as happened, the prospect of a recapitalisation became remote. It submits that almost everything that had been said by Mr Markwart on 29 July had ‘become falsified by a change of circumstances’: With v O’Flanagan [1936] Ch 575 at 584.

79. [266]

    Octet refers to what was said, albeit in a different context, by Lord Blackburn in Brownlie v Campbell (1880) 5 App Cas 925 at 950:

80. [267]

    Much of the argument before me focused on the question of whether Octet had a reasonable expectation of being informed of the true position in circumstances where Mr Markwart was under explicit obligations of confidentiality that, on their face, prevented him from disclosing any detail about any of the bidders or the terms of their offers, including Pie Face. In this respect, Octet referred me to Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571 (‘Lee Gleeson’). In that case, a bank informed a builder that it was authorised on behalf of its customer, who was the owner of land on which the builder was doing construction work, to pay the builder for the construction work it was performing on the owner’s behalf. Circumstances changed and the bank’s instructions were countermanded. However, the bank did not inform the builder of this fact. Not knowing the true position, the builder continued to perform work for the owner believing that it would be paid by the bank on the owner’s behalf. This turned out to be mistaken and the builder was left unpaid. Brownie J held that the bank’s failure to correct the builder’s understanding was misleading or deceptive within the meaning of s 52 of the Trade Practices Act: at 581.

81. [268]

    One of the bank’s arguments was that it had no duty to inform the builder of the true position because it was bound by customer confidentiality not to disclose the state of the owner’s instructions. This argument was rejected: at 581-582. Having authorised the bank to inform the builder of its original instructions, Brownie J was of the view that the customer impliedly authorised the bank to advise the builder of those changed instructions: at 582.

82. [269]

    Lee Gleeson was cited with approval in Demagogue v Ramensky at 40.

83. [270]

    These principles do not admit of a straightforward answer to the question of whether the defendants’ silence was misleading or deceptive, or likely to mislead or deceive, in the particular circumstances of this case.

84. [271]

    The defendants stressed a number of matters of context against which the reasonableness of Octet’s alleged expectation is to be assessed. Above all, Mrs Mac’s and Octet were sophisticated, commercial parties. The terms that governed their legal relationship were comprehensively spelled out in the Accelerate Rules, from which Mrs Mac’s at no stage departed prior to Monday 31 October, after the Pie Face transaction had been entered into but while it was pending completion.

85. [272]

    Octet was an established financial services business. It was run by smart and experienced business-people who were attuned to their own interests. Octet had a highly developed ability to assess the credit-worthiness of its customers and had complex mechanisms in place to do so on a regular basis, as set out at paragraphs [145]-[157] above. This included processes for requesting and assessing information in relation to the financial position of its customers.

86. [273]

    The defendants also pointed to the fact that Mr Markwart was subject to obligations of confidentiality as an employee as well as explicit obligations not to disclose details of the Pie Face transaction: see paragraph [107] above. The fact that he was subject to these obligations was not a secret. Mr Thayer knew Mr Markwart was constrained in what he could tell him: see paragraph [114] above. Even apart from whether this fact was acknowledged at the time, the defendants submitted that any party in Octet’s position would appreciate that someone in Mr Markwart’s position was unable to disclose details of the bidding process.

87. [274]

    The defendants rely on the fact that in his 29 July email, Mr Thayer said:

88. [275]

    This, they submitted, was a clear indication that Octet had allowed the facility to remain in place because it was satisfied of the company’s credit-worthiness, not because it was prepared to place weight on anything Mr Markwart said about the recapitalisation.

89. [276]

    Although these are all circumstances which tend to suggest that a party in Octet’s position ought not have a reasonable expectation of being informed of a borrower’s changed financial circumstances, there are other circumstances that must be taken into account. Above all is the fact that on 29 July and again on 4 August, Mr Markwart made clear statements to Mr Thayer about the process being undertaken by Mrs Mac’s to find a new investor and that Octet could have a high degree of confidence that the process would result in Octet being paid. These statements were not made in a vacuum. They were made in circumstances where Octet had peremptorily stopped the facility pending the urgent receipt of further information from Mr Markwart. They were assurances given to Mr Thayer to persuade Octet to remove the stop from the facility.

90. [277]

    The nature of the information withheld from Octet must also be taken into account. It was information that Octet could not have obtained from any other source. It is true that the terms of the Octet facility did not entitle Octet to details of Project Gateway and that Mr Markwart was under no obligation to tell Octet anything about it. But the fact is that he did. That being so, Octet could only have had its understanding about Project Gateway corrected by Mrs Mac’s or someone acting on its behalf. This is not a situation where a commercial party has taken on a risk but failed to undertake due diligence appropriate to that risk: cf Wormald at [130] (Bell P, Bathurst CJ and Payne JA agreeing). Rather, it is a situation where specific assurances about a known risk turned out to be untrue.

91. [278]

    The defendants submitted that Mr Markwart’s obligations of confidentiality prevented him from correcting Octet’s understanding about the likelihood of a recapitalisation. There were however numerous occasions on which Mr Markwart communicated with Mr Thayer and other creditors such as MexEx and Borello Group about confidential matters despite these obligations. For example, as Octet pointed out, Mr Markwart acknowledged to KPMG on 3 June that he ‘advised [Mr Thayer] on a confidential basis’ that Mrs Mac’s was ‘looking to recapitalise’. Mr Markwart also provided Mr Thayer the KPMG presentation on a ‘strictly confidential basis’: see paragraph [105] above. Mr Markwart said that the KPMG presentation was provided to potentially interested parties that had signed confidentiality agreements, and accepted on cross-examination that Octet had not signed one. He said that he did not feel constrained by any obligation of confidence from providing such documents to Octet. Octet also points to Mr Markwart’s response to Mr Thayer’s 26 October email, which disclosed confidential terms such as the identity of the bidder, the underlying owners and the scheduled date of completion at that time.

92. [279]

    Octet also pointed out that Mr Markwart in any event accepted in cross-examination that he did not regard the particular form of the transaction (recapitalisation by a new investor vs asset sale to a third party) to be confidential.

93. [280]

    The defendants also submitted that by the time he was aware of the Pie Face transaction, Mr Markwart could not really have said anything to correct his earlier statements without imperilling the transaction. That may be so, but that is the point. To say that the Pie Face transaction would be imperilled by telling Octet of its existence is to recognise that knowledge of the transaction’s existence would have been highly material to Octet’s decision to keep the Octet Facility on foot. It is to recognise that Octet was likely to place another stop on the facility if Mr Markwart told Mr Thayer that the company was now considering the Pie Face transaction. This is a circumstance that tends to support the plaintiff’s case, not Mr Markwart’s.

94. [281]

    Finally, it is important not to lose sight of the statutory question, which is whether any of the defendants engaged in misleading or deceptive conduct or conduct that was likely to mislead or deceive. To use the language of TPG Internet, did Mr Markwart’s failure to correct Octet’s understanding about Project Gateway have ‘a tendency to lead into error’?

95. [282]

    In my view, it did. Having purposefully instilled a very particular impression in Mr Thayer’s mind about the progress and prospects of Project Gateway in achieving a recapitalisation of Mrs Mac’s, Mr Markwart’s failure to correct that impression when the facts changed so significantly did have a tendency to lead into error. Octet did in my view have a reasonable expectation that if Project Gateway were to take a serious swerve from its 29 July trajectory such as to result in an asset sale and the liquidation of Mrs Mac’s, then Mr Markwart would tell them. I consider that this reasonable expectation was as to Mrs Mac’s generally and as to Mr Markwart in particular.

96. [283]

    Mr Markwart said in cross-examination that, so far as he was concerned, Octet had ‘at best a casual interest’ in how Project Gateway was proceeding. He said that the 29 July email (see paragraph [96] above) meant that ‘they were not assessing our continued business on the basis of the transaction’. I do not accept that Mr Markwart seriously believed these things to be true in 2022. Nor do I accept that that is an accurate way to characterise Octet’s interest in having its understanding about Project Gateway corrected.

97. [284]

    However, Octet’s expectation was as to what Mrs Mac’s and Mr Markwart would do. In my view, the circumstances did not give rise to a reasonable expectation that the directors of Mrs Mac’s, including the non-executive directors, would personally disclose details of Project Gateway to individual creditors such as Octet. The position of the other directors in respect of the silence and failure to correct case is reminiscent of the position of Mr Bell, the Executive General Manager of Finance of Forge Group Ltd: Swiss Re International SE v Simpson [2018] NSWSC 233; (2018) 354 ALR 607. At [529], Hammerschlag J explained that Mr Bell did not engage in any misleading or deceptive conduct by silence because it was the company, not him, on which the expectation of disclosure lay:

98. [285]

    I reach the same conclusion here in respect of the first to sixth defendants as his Honour did in respect of Mr Bell.

99. [286]

    Octet’s case against the other defendants in relation to the conduct described in paragraphs [46] and [47] of its Commercial List Statement does not depend on the existence of the Markwart Agency. Here, Octet makes the more conventional allegation that the defendants were knowingly involved in the company’s silence. Having found that the company and Mr Markwart did engage in misleading or deceptive conduct by failing to correct Mr Markwart’s 29 July and 4 August representations and, having also found that the other defendants did not directly engage in that conduct, it is necessary to determine whether any of the defendants were involved in that conduct as accessories.

100. [287]

     Liability for being ‘involved’ in misleading or deceptive conduct is distinct from direct liability under s 18. Section 236(1) of the ACL provides that:

101. [288]

     The term ‘involved’ is defined for the purposes of the ACL in s 2 as follows:

102. [289]

     Paragraph (c) of the definition of ‘involvement’ involves a knowledge element and a conduct element.

103. [290]

     As to knowledge, actual knowledge is required prior to or at the time of the contravention: Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2) [2005] NSWSC 267; (2005) 53 ACSR 305 at [112]-[114]. More specifically, in Productivity Partners Pty Ltd (t/as Captain Cook College) v Australian Competition and Consumer Commission (2024) 281 CLR 338; [2024] HCA 27 at [358], Beech-Jones J provided further guidance on the knowledge required in the case of involvement in conduct consisting of non-disclosure:

104. [291]

     As a practical matter, Octet cannot succeed in showing that the directors were ‘knowingly involved’ in the company’s or Mr Markwart’s failure to correct Octet’s understanding of Project Gateway unless they can show that they were aware of the detail of Mr Markwart’s earlier dealings with Octet about Project Gateway. As to ‘detail’, I mean that it is not enough to show that the directors knew that Mr Markwart had spoken with Mr Thayer. The directors must have known enough to appreciate that Octet had a reasonable expectation of disclosure of the fact that Mrs Mac’s was no longer looking at a recapitalisation by way of new investment.

105. [292]

     The evidence that the defendants were aware of any of the detail of what transpired between Mr Markwart and Mr Thayer is thin. Octet relies on several matters to demonstrate that they did have such knowledge, but its case on this point ultimately comes down to inference.

106. [293]

     First, Octet points to the communication strategies approved by the directors in May (paragraph [52] above), July (paragraph [100] above) and October (paragraph [131] above). It seeks to cast these strategies as misinformation strategies, because they did not specifically mention the possibility that the restructuring process could result in an asset sale. I do not consider that that is an appropriate characterisation. The May strategy was relevantly to inform people that the company was engaged in a ‘wide-reaching process’ and that the process would ‘include working with our bank on the structure of our debt and reviewing options to bring on new shareholder investors’. The July strategy was to like effect. By the time the Pie Face transaction had been executed, the strategy amounted to nothing more than maintaining confidentiality until completion.

107. [294]

     Next, Octet submits that neither Mr Markwart nor Mr Pangiarella should be believed when they said that Mr Markwart had not informed the directors about the detail of his discussions and correspondence with Mr Thayer on 29 July. Coupled with this submission is the submission that the other defendants did not give evidence and so the Court should infer that the evidence they could have given on this question would not have assisted them: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 at 308, 312, 320-321.

108. [295]

     Mr Markwart was asked in cross-examination about what he had told the board at the 3 August 2022 meeting, which was the first meeting following the AFR article, the stop-credit and his discussion with Mr Thayer. The minutes of that meeting state that Mr Markwart provided a ‘cash update’ in the terms set out at paragraph [102] above. He agreed that this was a short summary of a longer discussion. However, he rejected the suggestion that he had provided the board with any detail of his discussions with Mr Thayer. It was not suggested to him that he had informed the board about the fact that Octet had placed a stop on the facility and then removed it following his discussion.

109. [296]

     Mr Pangiarella was also asked about this topic. He accepted that Octet had been discussed, but he did not agree that it had been discussed in any great detail. It was also not suggested to him that Mr Markwart (or anyone else) informed him that Octet had placed a stop on the facility and then removed it following Mr Markwart’s discussion with Mr Thayer.

110. [297]

     I do not accept Octet’s general attacks on the credit of these witnesses. I have already indicated one respect in which I do not accept Mr Markwart’s evidence (see paragraph [283] above). But that is not a reason to conclude that his evidence should be generally rejected. Nor was Mr Pangiarella’s evidence so unsatisfactory that I would simply disregard it in relation to this issue, which is what Octet asks me to do. The respects in which Octet submits that Mr Markwart and Mr Pangiarella’s evidence was generally unsatisfactory are not unlike the respects in which the defendants say Mr Isenberg’s evidence was unsatisfactory, namely that they refused to accept certain propositions put to them.

111. [298]

     The fact is that each of these witnesses had that same tendency. In no case was that tendency such as to cause me to doubt the general reliability of the witness’s evidence. I accept the evidence of Mr Pangiarella and Mr Markwart on this issue.

112. [299]

     Even taking account of the fact that none of the directors other than Mr Pangiarella gave evidence and the inference that their evidence would not have assisted them, I am still unable to infer that the directors were aware of the detail of Mr Markwart’s interactions with Mr Thayer on 29 July and 4 August such that the directors knew or ought to have known that Octet had an expectation that Mrs Mac’s would disclose that an asset sale was also being considered. The evidence simply does not support the drawing of such an inference. The failure of the directors other than Mr Pangiarella to give evidence does not change that position. The result is that the first to sixth defendants were not knowingly involved in Mr Markwart’s misleading or deceptive conduct.

Unconscionable conduct

1. [300]

   Sections 21 and 22 of the ACL are relevantly as follows:

2. [301]

   As Octet did, I will approach the application of these provisions with the benefit of the guidance provided by Rein J in APS Satellite Pty Ltd (formerly known as “SkyMesh Pty Ltd”) v Ipstar Australia Pty Ltd [2016] NSWSC 1898. At paragraphs [124]-[128], his Honour identified and summarised the applicable principles, including those to be derived from the decisions of both the Full Federal Court and the High Court in the Paciocco litigation (as to which, see Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50 at [259]-[306] (Allsop CJ, Besanko and Middleton JJ agreeing); Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28).

3. [302]

   The conclusions I have reached in the context of Octet’s misleading or deceptive conduct claims allow me to deal with this aspect of the case relatively briefly.

4. [303]

   To the extent the two unconscionability cases concern a failure to disclose information, they may be considered together. In that regard I do not consider that either Mrs Mac’s or Mr Markwart engaged in unconscionable conduct by failing to correct what had been communicated to Mr Thayer about Project Gateway between 29 July and 30 September when the Pie Face transaction was executed. That is, I do not consider that it was unconscionable for Mrs Mac’s or Mr Markwart not to have disclosed the matters set out at paragraphs [182]-[183] above. Nor do I consider that Mrs Mac’s or Mr Markwart engaged in unconscionable conduct by failing to correct Octet’s impression of what was happening in relation to Project Gateway between 18 and 25 October 2025 by disclosing the Post-Sale Unconscionability Matters (see paragraphs [185]-[186] above). As I have found, their failure did have a tendency to mislead Octet because of the immediate circumstances in which that information was imparted. However, the conscionability (or otherwise) of this failure must be assessed in the light of Project Gateway more broadly.

5. [304]

   In particular, Mrs Mac’s and all of the defendants had a strong and perfectly understandable incentive to maintain their obligations of confidentiality in the process leading up to the Pie Face transaction and its eventual completion lest it be derailed, including by individual creditors. Overall, that was a sensible course to take. It was not unreasonable (cf s 22(2)(i)). In fact, Octet’s case tends to confirm the wisdom of this approach. Octet’s case, after all, is that the defendants’ failure to inform it about the entire scope and potential of Project Gateway denied it the opportunity to hold Mrs Mac’s to ransom at the expense of the other unsecured creditors.

6. [305]

   The plaintiff’s submissions on the s 21 issue proceeded as though the defendants were faced with a simple choice between (a) informing Octet about Project Gateway and thus allowing it to avoid any loss and (b) keeping the details of Project Gateway confidential and thus allowing the Pie Face transaction to complete at the cost of Octet. In Octet’s telling, the defendants chose confidentiality because of their venal desire to avoid repaying Octet.

7. [306]

   I cannot accept that characterisation of the defendants’ silence. Their concern was not whether something could be achieved by silence at the expense of Octet; it was whether something could be achieved for the company and its creditors that was better than external administration. To this end, Mrs Mac’s, and Mr Markwart on behalf of it, were acting in their best commercial interests (which, ultimately, would coincide with the best interests of the creditors) by maintaining confidentiality. Given Octet’s status as a sophisticated commercial party with relatively even bargaining power vis-à-vis Mrs Mac’s (s 22(2)(a)), I do not consider this stance to have been unconscionable or even unreasonable, notwithstanding that it did eventually have a tendency to mislead.

8. [307]

   The s 21 case against the directors suffers from the additional difficulty that the directors did not know the circumstances in which Octet had been persuaded to continue the facility on 29 July 2022. Nor did they know just how much detail of Project Gateway was provided to Octet by Mr Markwart in his 4 August email. They did not know that, up until 30 September, Octet had been labouring under the understanding that what was being pursued was a recapitalisation and that it had reversed the stop-credit on the faith of this understanding. Even in the period following execution of the Pie Face agreement, the other directors did not know the details of Mr Markwart’s previous communications with Octet, nor the impression of Project Gateway that was engendered by those communications.

9. [308]

   So far as the second unconscionability case involves the proposition that it was unconscionable of Mrs Mac’s to utilise the Octet Facility between 18 and 25 October, I cannot accept it. Such headroom as existed in the facility at that time was the result of Mrs Mac’s paying down the facility in the immediately preceding period. The company was contractually entitled to draw on the facility to the extent it did. The drawings were overwhelmingly to meet recurring trading expenses which were exactly the kinds of expenses for which the facility had always been used. Given the fact that it was very much in the interests of the company and the creditors as a whole for the business to continue to trade until completion of the Pie Face transaction, there was nothing unconscionable about doing so with the benefit of the Octet Facility.

10. [309]

    The focus on the period between 18 and 25 October is quite artificial in any event. How, it might be asked, could Octet ever have secured an outcome in which it was only owed the outstanding balance of the facility as at 18 October? It could only have done so if Mrs Mac’s simply stopped trading at that point, which is something that was very much not in the interests of the company and its creditors. It is unreasonable to suppose that the directors would ever have allowed this to happen.

11. [310]

    In my view, the s 21 unconscionable conduct case is not made out.

Has Octet suffered any loss?

1. [311]

   Octet claims damages under s 236 of the ACL on the basis that it suffered ‘loss or damage because of’ the misleading or deceptive conduct of the defendants. To fulfill that causal criterion, the conduct need not be the sole cause of the plaintiff’s loss or damage: I and L Securities v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 at [33] (Gleeson CJ), [57]-[58] (Gaudron, Gummow and Hayne JJ). Misleading or deceptive conduct may be treated as having caused the plaintiff’s loss if it made some material contribution to it: Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 (‘Henville’) at [60]-[61] (Gaudron J), [109] (McHugh J), [163] (Hayne J). The conduct need only have ‘played… some part’ in the loss: Gould v Vaggelas (1984) 157 CLR 215; [1984] HCA 68 at 236 (Wilson J); see also Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 at [45] (French CJ, Hayne and Kiefel JJ).

2. [312]

   In Gould v Vaggelas at 236, Wilson J said in the context of the tort of deceit:

3. [313]

   These same principles have been held to apply in the context of statutory claims for misleading or deceptive conduct: see for example, Lin v Zheng [2023] NSWCA 174; (2023) 379 FLR 164 at [53] (Payne JA, Bell CJ and White JA agreeing).

4. [314]

   Octet submitted, and I agree, that the measure of damages in deceit is usually appropriate in circumstances where economic loss or damage is caused by misleading or deceptive conduct: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; [1986] HCA 3 at 6-7 and 14-15; see also Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69 (‘Marks’) at [41] (McHugh, Hayne and Callinan JJ) and Henville at [135] (McHugh J). Octet therefore submitted that the ‘damages recoverable is a sum representing the prejudice or disadvantage the plaintiff has suffered in consequence of altering his position under the inducement of the fraudulent misrepresentations made by the defendant’, citing Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55 at 526. That being so, ‘a comparison must be made between the position in which the party that allegedly has suffered loss or damage is and the position in which that party would have been but for the contravening conduct’: Marks at [42] (McHugh, Hayne and Callinan JJ).

5. [315]

   It is important in this context to distinguish between a ‘no transaction’ case, where the plaintiff alleges they would not have entered into a transaction at all had there been no contravention, and a ‘different transaction’ case, where the plaintiff alleges they would have entered into a different transaction. Octet’s case is the latter type. In Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAFC 167 at [89], the Court explained that in a ‘different transaction’ case:

6. [316]

   Given my findings, the time from which to assess Octet’s alleged loss is after 22 September. It was only then that Mr Markwart became fully aware of the details of the Pie Face transaction and so it was only after 22 September that his continuing silence and failure to correct his earlier stance was misleading or deceptive. On that date, Octet was owed $3,924,283.77.

7. [317]

   This position differed very little from the position as at 29 July 2022 when the first Representation was made. On that date, the Octet Facility was drawn down to $3,990,346.62. It also differed very little from the final position when Mrs Mac’s went into liquidation on 9 November. On that date, the Octet Facility had been drawn down to $3,999,842.69. The amount of the dishonoured direct debits following Westpac’s freeze on the Mrs Mac’s bank account is included in this final balance.

8. [318]

   As at each of these dates, the only amounts actually due and payable were those amounts drawn 90 days previously, together with related interest and fees. There was no suggestion that Mrs Mac’s was ever in default of its obligation to pay amounts of principal, interest and fees in accordance with the Accelerate Rules prior to completion of the Pie Face transaction.

9. [319]

   Octet’s case is that by 22 September, the Pie Face agreement was near execution stage and there was a powerful incentive for Westpac and Mrs Mac’s to find some way or other of either paying out Octet or else securing its indebtedness to ensure that the transaction completed. Before dealing with the ‘some way or other’ aspect of that argument, it is necessary to note some additional facts.

10. [320]

    By May 2022, the relationship between Westpac and Mrs Mac’s had been ‘shadowed’ by the Westpac Credit Restructuring Unit for some time. A draft credit approval summary sent internally from Ms Wiesenmayer to Ms Kampf in early June 2022 noted in the section titled ‘Update on recent developments’ that, on 11 May, KPMG informed Westpac that, in their opinion, an equity-led solution was required but that the shareholders were unable to contribute additional capital to the business. It was apparent that if attempts to find additional capital or sell the business were unsuccessful, then external administration would be the next step.

11. [321]

    The same draft credit approval summary showed that KPMG made an additional $1 million funding request to Westpac in order to fund transaction costs in connection with Project Gateway. It noted that Mrs Mac’s shareholders were unwilling to contribute these funds because they did not expect to receive any proceeds from a sale of the business. The summary also noted that if Westpac did not provide these funds, then KPMG would proceed with a non-distressed asset sale and the ‘alternative scenario will be a VA’. If that were to occur, the bank would be required to cover the costs of sale in any event. In the finalised credit approval summary, the bank decided to approve the funding request.

12. [322]

    All three offers on the table in early August required Westpac to suffer a sizeable loss on its facilities. On 9 August, Ms Jodie Kampf of Westpac wrote that a liquidation scenario ‘isn’t too unappealing’ compared with the ‘$15m’ bids that had been received. As referenced at paragraph [109] above, an August credit approval summary noted a potential shortfall of $15 million for which a provision was required to be raised. Despite this, Westpac elected to continue with the process.

13. [323]

    From some time in September 2022, it was apparent that Westpac would be paid in full if the Pie Face transaction eventuated and that unsecured creditors would likely receive about 35c in the dollar. Mr Pangiarella’s opinion, which seems reasonable given the other evidence about this matter, is that by 22 September he was starting to form the view that it was increasingly likely that the Pie Face transaction would complete. Around this time, Mr Pangiarella was told by Westpac that it was not prepared to forgive any of its debt if the Pie Face transaction completed. He communicated the same to other members of the board of Mrs Mac’s and KPMG on 27 September.

14. [324]

    Between September and November 2022, Westpac granted some indulgences or made concessions to facilitate the completion of the Pie Face transaction. It agreed to fund additional amounts to allow HWL Ebsworth and KPMG to be paid over and above estimated transaction costs. In an email dated 6 October 2022, Mr Doug Moore of Westpac wrote:

15. [325]

    This did not however affect Westpac’s overall exposure, because it was agreed that the additional drawings on this facility would ‘eat into what was approved for Management Retention bonuses’. I also infer that his reference to the ‘transaction occurring’ was to the proposed payments to the advisers, not the Pie Face transaction.

16. [326]

    Westpac also agreed to allow Mrs Mac’s to make certain payments out of the proceeds of sale. The three payments in that category were as follows:

    1. (1)

       A payment of $1,003,435.55 to Scott’s Refrigerated Transport (Scott’s). Scott’s was the sub-lessor to Mrs Mac’s of an off-site cold store which it used as a warehouse/distribution centre and where it stored products for sale. The cold store was a critical asset of the business and the assignment of the sub-lease to Pie Face was a condition precedent of the Pie Face transaction. Unsurprisingly, Scott’s refused to agree to the assignment without being paid in full for arrears of rent. On 27 October 2022, Mr Georges wrote to Westpac about this issue, asking that the bank consent to the payment, which consent was given. Mr Georges pointed out that:

    2. (2)

       A payment of $87,488.50 to remove an old, non-functioning oven from the premises occupied by Mrs Mac’s. It was a requirement of the Pie Face transaction that removal of the oven would be at the seller’s cost.

    3. (3)

       A payment of $225,000 plus GST to Saltmine Creative Pty Ltd (Saltmine). Saltmine was owed outstanding invoices in respect of artwork. It asserted that ownership of the intellectual property in the artwork did not pass to Mrs Mac’s until full payment of the invoices. If that position was correct, then the failure to pay Saltmine would impact Pie Face’s ability to market and sell Mrs Mac’s products. Mr Georges flagged this issue with Westpac on Mr Markwart’s instruction that ‘payment may need to go to these guys if this has the potential to blow things up’, that is, if Pie Face might seek to avoid completion.

17. [327]

    The plaintiff pointed to some other concessions also, including that Westpac agreed to enter into deeds of forbearance, that it deferred the commencement of the company’s yearly audit, that it entered into a variation deed with the company and that it accommodated some other fairly minor matters in the lead up to the completion of the Pie Face transaction.

18. [328]

    Westpac was understandably very pleased with the outcome of Project Gateway. The State General Manager of Business Banking congratulated the restructuring team on the outcome in these terms on 2 November:

19. [329]

    Octet’s thesis as to what would have happened if it had not been misled was particularised in the way described at paragraph [177] above. It submitted that the first thing it would have done would have been to place a stop on the facility, just as it had done on 29 July 2022. What was far less clear was what, precisely, it would have done next in order to secure repayment. Octet suggested various possibilities in both oral and written submissions.

20. [330]

    In opening written submissions, Octet submitted that it would have entered into a transaction whereby it was paid the outstanding balance of the Octet Facility as the ‘price’ for agreeing to continue the facility. It also submitted that the transaction would have involved a requirement that adequate security be provided to Octet. It did not specify how this would have occurred.

21. [331]

    In opening oral submissions, Octet submitted that there would have been a ‘range of scenarios’ that could have unfolded, but focussed attention on two possibilities. It submitted that either (a) Mrs Mac’s would have granted second-ranking security (with Westpac’s consent, which was required) to secure repayment of the Octet Facility, or (b) Westpac would have allowed Mrs Mac’s to pay Octet out of the sale proceeds and that Westpac would then have recouped a corresponding amount from receivables, which at that stage were forecast to be in excess of $4 million and over which Westpac held a security interest in any event.

22. [332]

    Octet’s closing written submissions put the matter as follows:

23. [333]

    In the course of closing oral submissions, senior counsel for Octet also submitted that the parties would have entered into a tripartite agreement whereby at least two things would have occurred. First, Westpac would agree to pay the Octet Debt in full. Secondly, Westpac’s loan to Mrs Mac’s would be increased by a corresponding amount, which Westpac would recoup from the receivables over which it held security. This submission came to be refined further in final reply submissions. Specifically, it was submitted that these same outcomes could have been achieved by way of two separate transactions: one between Westpac and Mrs Mac’s; the other between Westpac and Octet. Further and alternatively, it was submitted that Westpac could simply have paid Octet in full, with no recourse to Mrs Mac’s or its existing security at all.

24. [334]

    When its Commercial List Statement and its submissions are considered as a whole, the four possibilities for which Octet contended seem to be these:

    1. (1)

       First, Westpac may have paid Octet in full, with no recourse to Mrs Mac’s or its existing security.

    2. (2)

       Secondly, Westpac may have paid Octet in full, but in a way that allowed it to recoup a corresponding amount from Mrs Mac’s. This may have been pursuant to either a tripartite agreement or two bilateral agreements.

    3. (3)

       Thirdly, Mrs Mac’s may have granted security to Octet (with Westpac’s consent). The defendants noted that this was not pleaded.

    4. (4)

       Fourthly, the shareholders of Mrs Mac’s may have granted personal guarantees in relation to the amounts owed to Octet. However, as referenced above, the plaintiff eventually abandoned any reliance on this possibility.

25. [335]

    The defendants contended that Octet had not discharged its onus of proving that it would have been able to avoid its claimed loss if the impugned conduct had not taken place. They submitted that the various hypotheticals advanced by Octet involved such a degree of speculation that it was impossible to make a reliable prediction about what would have occurred if Octet had stopped the facility after 22 September (or at any other time). They said that Octet invited the Court to engage in conjecture rather than inference, citing Nguyen v Cosmopolitan Homes (NSW) Pty Ltd [2008] NSWCA 246 at [54] (McDougall J). They also submitted that Octet’s various theories as to how it would have been repaid were either highly unlikely or else involved the payment of a voidable preference. The defendants submitted that if Octet had stopped the facility after 22 September, then the most likely thing to have occurred was that the directors would have placed the company into voluntary administration straight away.

26. [336]

    In reply, Octet submitted that the question of whether it could have been repaid other than by way of a voidable preference was not an issue in dispute, because the defendants had not pleaded, as an alternative hypothesis, a transaction in which the repayment would have been a voidable preference. In this respect, it sought to rely on what was said in Berry v CCL Secure Pty Ltd (2020) 271 CLR 151; [2020] HCA 27 (‘Berry’) at [72] (Gageler and Edelman JJ).

27. [337]

    Octet also submitted that Mr Pangiarella’s evidence (to which I will refer below) combined with the failure of the other directors to give evidence meant that there was no sound basis to conclude that the directors would have caused Mrs Mac’s to be placed into external administration if Octet had stopped the facility after 22 September.

28. [338]

    Finally, although Octet said that it did not advance a case based on the loss of a chance to secure repayment of the facility, it sought to derive support from Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20 (‘Malec v JC Hutton’), particularly what was said at 643 by Deane, Gaudron and McHugh JJ (Brennan and Dawson JJ agreeing), about the assessment of damages in a case where the loss is measured against hypothetical events:

29. [339]

    Octet also sought to derive support from the facilitation principle: Cessnock City Council v 123 259 932 Pty Ltd (2024) 281 CLR 39; [2024] HCA 17 (‘Cessnock’). It submitted that it was relevantly in the same position as a claimant in a breach of contract case where there is uncertainty about the position it would have been in if the contract had been performed. In such cases, the law will facilitate the claimant’s proof of loss ‘by assuming (or inferring) in their favour that, had the contract been performed, then the plaintiff would have recovered the expenditure they reasonably incurred in anticipation of, or reliance on, the performance of the contract’: at [61] (Edelman, Steward, Gleeson and Beech-Jones JJ).

30. [340]

    In deference to the way the matter was argued, and in case I am wrong about whether any of the defendants engaged in misleading or deceptive conduct by making either of the Representations, I will separately determine whether Octet actually relied on any of the alleged misleading or deceptive conduct at all. It is appropriate to consider this question separately because ‘[w]here the conduct is the making of misrepresentations, reliance upon the misrepresentations will be a necessary element in establishing causation of loss by the conduct complained of’: Hoath v Connect Internet Services Pty Ltd [2006] NSWSC 158 at [109] (White J).

31. [341]

    The defendants submitted that Octet did not actually rely on any of the allegedly misleading or deceptive conduct by the defendants. They stressed that the far more significant consideration for Octet generally and for Mr Isenberg in particular was the availability of insurance coverage for the Octet Facility.

32. [342]

    Further, they pointed out that all of Octet’s decisions about granting access to facilities and keeping facilities on foot were made in the context of a well-established process of periodic reviews conducted by a team of qualified professionals, including Ms Cooper: paragraphs [145]-[157] above.

33. [343]

    The defendants especially emphasised that part of Mr Thayer’s email of 29 July set out at paragraph [274] above. This language was said to signal very clearly that Octet did not rely on the prospect of a recapitalisation in deciding to restore access to the facility on 29 July and that it would not have regard to the prospect of a recapitalisation in keeping the facility available in the future. Coupled with their submission about the reliance on insurance, the defendants’ position is that Octet did not rely to any material degree on what Mr Markwart said to Mr Thayer when it came to making key decisions about the facility.

34. [344]

    In this same connection, the defendants emphasise the 29 July email from Mr Brett Isenberg (see paragraph [94] above). This was said to support the proposition that Octet did not in fact take into account that Mrs Mac’s was proposing to recapitalise.

35. [345]

    Although there is merit in these submissions, I am unable to accept them. In my view, they read too much into the 29 July emails. By the time Mr Thayer’s summary email was sent, Mr Isenberg had already decided to restore access to the Octet Facility. Further and relatedly, I cannot accept that Mr Isenberg disregarded the prospect of a recapitalisation in deciding to restore access, whatever Mr Thayer’s later email says. Mr Isenberg said he had regard to this prospect and I see no reason not to accept his evidence on this point.

36. [346]

    Nor can I accept the defendants’ submission about the significance of insurance. I accept that Octet would not have been willing to keep the facility on foot in the absence of insurance, but that does not mean that it only made the facility available because it was able to insure it. I accept Mr Isenberg’s evidence in this respect.

37. [347]

    As to what Mr Thayer’s email actually meant by its reference to the recapitalisation and how the facility would be evaluated in the future, it is important to remember the relevant question here: was the conduct I have found to be misleading – being the later failure to correct the impression created by this email – causative of the claimed loss? Octet’s argument is that it was, because if it had known that the company had abandoned a ‘recapitalisation’ with a new investor in favour of selling all of its assets to Pie Face, then it would have put a stop on the facility. I do not read the email to suggest that this would not have happened, which is how the defendants seek to characterise it. Mr Thayer was not signalling that Octet intended to make the facility available even if it were to discover that Mrs Mac’s was instead planning to sell its assets and go into liquidation. Whatever Mr Thayer meant by his 29 July email, it was not that.

38. [348]

    Mr Brett Isenberg’s email does show that, so far as he was concerned, it was not prudent to make a decision about the facility based on what Octet had been told about the prospect of a recapitalisation. But that was not the view of Mr Isenberg or of the credit committee generally. The fact that Mr Brett Isenberg was not called as a witness does not take matters terribly far. There is a limit to what I can infer from his absence. It is unreal to suggest that, by reason of his absence, I should infer that he supported the removal of the stop on 29 July because, in his view, Mrs Mac’s was a credit-worthy customer to whom it was appropriate to make an unsecured Accelerate facility available. Such evidence as there is about his attitude directly contradicts this. Nor am I prepared to infer that he would have been indifferent to the news that instead of recapitalising, Mrs Mac’s was now proposing to sell its assets and then liquidate.

39. [349]

    The failure of Mr Brett Isenberg to give evidence is not a matter that helps me resolve the question of whether Octet relied on Mr Markwart’s conduct, either in removing the stop or in continuing to make the facility available after that date.

40. [350]

    In my view, Octet has demonstrated that it relied on the misleading or deceptive conduct.

41. [351]

    The more difficult question concerns what would have happened if the misleading or deceptive conduct had not been engaged in.

42. [352]

    I accept Mr Isenberg’s evidence that Octet would immediately have placed a stop on the facility if, after 22 September, he had become aware that Project Gateway was now likely to result in an asset sale and liquidation. That had been Octet’s reaction to learning about Project Gateway in the first place and it is reasonable to suppose that it would have taken the same action if it were to learn that Project Gateway was no longer likely to result in the contribution of capital from a new investor.

43. [353]

    I also accept Mr Isenberg’s evidence that Octet’s next steps would have been as follows:

    1. (1)

       Octet would have demanded immediate repayment of all amounts owing under the Octet Facility.

    2. (2)

       Octet would have accepted a proposal by Mrs Mac’s to pay the whole of the amount owing immediately or otherwise within seven days.

    3. (3)

       Mr Isenberg would have ‘considered’ a proposal which involved the provision of valuable security, including from the company’s shareholders and related entities, to secure the amounts then drawn under the Octet Facility.

    4. (4)

       If Mrs Mac’s did not respond to Octet’s demands in line with paragraphs (2) and (3) above, Mr Isenberg would have caused Octet to issue a statutory demand for the whole of the amount then drawn under the Octet Facility and ‘sought to continue to negotiate for repayment of the debt’.

44. [354]

    Some things can be said with relative certainty about what would have happened next. First, Mrs Mac’s would not and could not have met Mr Isenberg’s demand to repay the facility within seven days other than with the assistance of Westpac. It had no ability to do so. Secondly, the shareholders would not have provided guarantees or security to support the continuation of the Octet Facility. They had nothing to gain from doing so because they were already certain of receiving no return of their capital, whatever the outcome. Octet now accepts this to be the case. Thirdly, although I accept Mr Isenberg’s evidence that he would have caused such a demand to be issued, Octet’s statutory demand for payment of the whole of the facility amount would have been bound to be set aside except insofar as it claimed amounts then due and payable (see s 459E of the Corporations Act), which were relatively tiny compared to the total amount owing. Fourthly and most importantly, Mrs Mac’s would very rapidly have become insolvent. It did not have sufficient liquidity to continue to trade without the Octet Facility and it was already, as Mr Pangiarella said, on a very short leash with Westpac.

45. [355]

    What is less certain is how Westpac and the directors would have reacted to Mr Isenberg’s manoeuvres.

46. [356]

    So far as Westpac is concerned, there is no doubt that it regarded the Pie Face transaction as highly desirable. The amount Pie Face was willing to pay for the assets of Mrs Mac’s was such that Westpac was highly likely to be repaid in full. It is reasonable to suppose that Westpac would have been strongly motivated to ensure that Mrs Mac’s secured and then retained the benefit of the transaction with Pie Face, remembering of course that the Pie Face agreement would not yet have been signed (it was not signed until 30 September: paragraph [128]). However, it is unrealistic to suppose that Westpac would have pursued that objective at all costs. After all, Westpac was fully secured, including over all of the assets which Pie Face wanted to buy. It could always have appointed receivers to sell the assets to Pie Face, leaving Mrs Mac’s to deal with unsecured creditors such as Octet.

47. [357]

    Octet argues that Westpac would never have taken such a step because it would have given Pie Face an opportunity to back out of the transaction. It argues that Westpac would have gone to great lengths to avoid giving Pie Face that opportunity.

48. [358]

    These contentions as to what Westpac would have done must be assessed in the light of Mr Isenberg’s evidence, which I have accepted, as to what Octet and Mr Isenberg would already have caused to happen by this point: see paragraph [353] above. Those steps would already have given Pie Face the opportunity to back away. Westpac would, at that point, have had a choice as to whether it should now accede to the ransom demands of a junior unsecured creditor in the hope of enticing Pie Face to remain interested at the price already offered, or else enforce its securities and try to strike a new deal with Pie Face or some other investor without regard to the position of unsecured creditors.

49. [359]

    It is also important to recognise some other realities. As I have pointed out, once Octet stopped the facility, Mrs Mac’s would have been insolvent or very close to it. The whole basis of the safe harbour action plan developed by the directors and which had been the subject of the HWL Ebsworth advice would have fundamentally shifted, because that plan involved the company continuing to trade. Mr Pangiarella considered that it was necessary for Mrs Mac’s to continue to trade during Project Gateway because he believed that value for Mrs Mac’s could only be realised if it was sold as a going concern.

50. [360]

    Further safe harbour advice may, in due course, have given the directors comfort that they could still pursue a transaction with Pie Face notwithstanding these developments. But the matters to which I have referred make it difficult to say with any confidence that that is the path that both Westpac and the directors would have chosen once Mr Isenberg had, to use the vernacular, blown the whole thing up.

51. [361]

    Mr Pangiarella pointed out that the bank had made clear that it was not willing to provide any more funds. He rejected the suggestion that he would have ‘likely recommended’ that there be a three-way discussion about the way forward if Octet had stopped the facility after 22 September. Unsurprisingly, Mr Pangiarella preferred instead to explain his own likely reaction to losing the Octet Facility in terms of the safe harbour advice and the plan then being pursued. His evidence, which I accept, is that if Octet had stopped the facility at that point, then the board would have met and then:

52. [362]

    Octet submitted that this evidence fell short of demonstrating that Mr Pangiarella would have recommended that the company be placed into external administration at this point. It submitted that Mr Pangiarella’s evidence tended to support its case that there would have been a three-way discussion among Octet, Mrs Mac’s and Westpac.

53. [363]

    I do not think Mr Pangiarella’s evidence supports the conclusion Octet asks me to reach. The most that can be said (in Octet’s favour) on the basis of Mr Pangiarella’s evidence is that there was a possibility that the directors would have tried to have a three-way discussion involving Octet, Mrs Mac’s and Westpac. That may be so. But it falls a long way short of establishing that anything fruitful would have come of those discussions so far as Octet is concerned.

54. [364]

    The failure of the other directors to give evidence is a matter that bears on this question. It gives rise to an inference that their evidence would not have assisted them: Jones v Dunkel at 308, 312, 320-321. But even on the plaintiff’s own case it is inescapable that a very serious option available to the directors would have been to place the company into external administration. In fact, the whole rationale behind Octet’s case on this issue is that by stopping the facility, issuing a demand for all amounts owing and then seeking to be paid ahead of other unsecured creditors, the directors would be forced to negotiate in order to avoid insolvency. The inevitability of insolvency would, in fact, have been Octet’s only real bargaining chip.

55. [365]

    In my view, the most likely outcome of Mr Isenberg’s manoeuvres is that the directors would have put the company into external administration, no doubt after first speaking with Westpac. So far as Mr Pangiarella was concerned, he took the view at the time that any significant disruption by a creditor during Project Gateway would have resulted in the worst possible outcome, namely that Project Gateway would become unviable and that the directors would have no choice but to place the company into liquidation, leading to a total loss for unsecured creditors. This appears to me to have been a perfectly rational view.

56. [366]

    It is highly likely that this same attitude would have been shared by a majority, if not all, of the board. I accept that the directors would have attempted to salvage the situation. But even if they could have gotten comfortable with continuing to trade despite having no liquidity, I am not persuaded that Westpac would have been willing to supply the necessary funding – and take on the additional risk – contemplated in Octet’s hypothesis.

57. [367]

    Even if Mrs Mac’s did avoid external administration and if Octet, Westpac and Mrs Mac’s had negotiated a tripartite arrangement whereby Octet was paid in full or received security, any such arrangement would probably have involved the payment of an unfair preference to Octet within the meaning of s 588FA of the Corporations Act.

58. [368]

    The defendants were entitled to raise this issue as an aspect of their wider submission that the plaintiff has not demonstrated that it has suffered any loss. The passage in Berry at [72] on which Octet relies is concerned with those cases where a defendant wishes to contend for some hypothetical outcome other than the outcome for which the plaintiff contends. That is not this case. Here, the defendants’ point is that the plaintiff’s own alternative hypothesis is one in which any payment made to Octet would have been an unfair preference.

59. [369]

    A difficulty in addressing this issue is that the transaction which Octet says would have happened remains quite indistinct, even despite Octet’s numerous attempts to identify it. The closest the plaintiff came to actually specifying the arrangement was during closing submissions in reply, when it was submitted that there would have been two separate bilateral agreements and that this would have avoided any difficulty with s 588FA. Octet submitted that a bilateral transaction in which Westpac agreed to pay Octet in satisfaction of Octet’s claims against Mrs Mac’s would not contravene s 588FA provided that Westpac’s agreement with Mrs Mac’s to recoup that same amount was contained in a separate bilateral agreement. The submission was that this arrangement would not result in Mrs Mac’s and Octet being parties to a ‘transaction’ whereby Octet received something ‘from’ Mrs Mac’s within the meaning of s 588FA.

60. [370]

    I am unable to accept that submission. Section 588FA(1) of the Corporations Act is as follows:

61. [371]

    ‘Transaction’, in s 588FA of the Corporations Act, has the following meaning as defined by s 9:

62. [372]

    The expression ‘transaction’ has a wide meaning. In Australian Kitchen Industries Pty Ltd v Albarran [2004] NSWSC 1047 at [24], Barrett J explained:

63. [373]

    In Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd [1997] FCA 18; (1997) 147 ALR 281 (‘Re Emanuel’) referred to in the above passage, a company defaulted on loans to ‘ELFIC’, a secured financier that was part of the ‘EFG’ group. Following litigation, it entered into a Deed of Forbearance and Release. Under this deed, the company covenanted to transfer properties to nominees of the EFG group. One of the terms was that EFG would pay $332,313.54 at the direction of the company to Blacklaw & Shadforth Pty Ltd (Blacklaw), who was a creditor of the company. This payment was to be made pursuant to a direction given and an authority executed by the company.

64. [374]

    The Full Federal Court (O’Loughlin, Branson and Finn JJ) identified the relevant issue as follows at 282:

65. [375]

    The Court’s answer to that question was ‘yes’. Despite the fact that the company and Blacklaw were not parties to the deed whereby Blacklaw was paid the $332,313.54 in satisfaction of the company’s debt, the Full Federal Court found that the company and Blacklaw were, relevantly, parties to a ‘transaction’ within the meaning of the statutory definition. I especially note their Honours’ reasons at 288-289.

66. [376]

    In Hosking v Extend N Build Pty Ltd [2018] NSWCA 149; (2018) 357 ALR 795 (‘Hosking’) at [31], Bathurst CJ (Beazley P and Gleeson JA agreeing) described Re Emanuel as standing for two unsurprising propositions, namely:

67. [377]

    As the Court in Re Emanuel explained, a ‘transaction’ may be made up of a composite of transactions, only one of which the company is a party to.

68. [378]

    In the light of these authorities, the two bilateral agreements which Octet says would have been entered into among Westpac, Octet and Mrs Mac’s would have amounted to a ‘transaction’ whereby Mrs Mac’s made a payment to Octet within the meaning of s 588FA. The overall arrangement would be one whereby Mrs Mac’s obligations to Octet would be discharged in return for increasing its indebtedness to Westpac, who would then have an increased claim against the company. This would have the effect of ‘diminishing the assets of the company available to creditors’ and would have satisfied the requirement in s 588FA(1)(b) that a creditor receives ‘from’ the company more than they would otherwise receive in a winding up scenario: Cant v Mad Brothers Earthmoving Pty Ltd (2020) 63 VR 222; [2020] VSCA 198 at [120(c)-(e)] (Beach, McLeish and Hargrave JJA); see also In the matter of Pacific Plumbing Group Pty Limited (in liquidation) [2024] NSWSC 525 at [18]-[20] (Black J) and the authorities there cited.

69. [379]

    Likewise, any security granted by Mrs Mac’s to Octet after 22 September would have amounted to a preference as it would have conferred on Octet a benefit in addition to what it would have received in the winding up as an unsecured creditor: Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 at [49] (Black J).

70. [380]

    I am not persuaded that the misleading or deceptive conduct I have identified caused the loss which Octet claims. I am not persuaded that if Octet had stopped the facility after 22 September, it would be in any materially different position than it is in today. It is likely that its actions would have either tipped Mrs Mac’s into external administration immediately or else resulted in a payment or the grant of security that was an unfair preference.

71. [381]

    I have not found anything said in Cessnock to be of assistance in reaching these conclusions. That case does not supply a basis to infer that Westpac would have acted in any particular way. Nor is Octet assisted by what was said in Malec v JC Hutton at 643. That is because ‘[u]nless it can be predicated of an hypothesis in favour of causation of a loss that it is more probable than competing hypotheses denying causation, it cannot be said that the plaintiff has satisfied the court that the conduct of the defendant caused the loss’: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4 at 367-368 (Brennan J). That is to say, the principles in Malec v JC Hutton that allow the Court to have regard to the likelihood of hypothetical events occurring are relevant to the quantification of damages, and do not override the requirement that a plaintiff must prove causation of a loss on the balance of probabilities. In its Commercial List Statement, Octet contends that the defendants’ misleading or deceptive conduct caused a loss of the amount of the Octet Debt, being the balance of $3,999,842.69 as of 8 November. Octet denied that it was making any claim for a loss of chance or opportunity. I find that it has not established that its claimed loss was caused by the misleading or deceptive conduct.

72. [382]

    In my view, the only loss that can be attributed to misleading or deceptive conduct is the loss Octet suffered by reason of keeping the facility on foot until November instead of stopping it on 23 September, shortly after Mr Markwart discovered the detail of the Pie Face transaction. Had that occurred, the closing balance of the facility would have been $3,924,283.77 instead of $3,999,842.69. Its principal loss, in my view, is the difference between these two sums, being $75,558.92. Mrs Mac’s is entitled to recover only this amount, together with interest, subject to a consideration of the matters which follow.

Insurance recovery

1. [383]

   The evidence shows that Octet made a claim on its insurance in respect of the Octet Facility within about a day of the liquidation and that it ultimately recovered the sum of $899,858.42 in full and final settlement of that claim. However, the evidence did not disclose the precise terms of the policy pursuant to which this amount was recovered. In fact, the existence of a substantial insurance recovery seems not to have been mentioned in Octet’s pleaded case, its evidence or its submissions.

2. [384]

   The fourth to sixth defendants submitted that Octet’s failure to lead evidence as to the terms of the policy meant that it had failed to discharge its onus of proving its loss. It was submitted that the evidence did not allow me to know whether the loss it now seeks to recover is one for which it has already been fully indemnified.

3. [385]

   I do not accept that submission. Where a defendant seeks to show that the amount of the plaintiff’s loss has been reduced by actions taken by the plaintiff in mitigation, the onus of proof lies on the defendant: see Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1; [1991] FCA 592 (‘Monroe’) at 17 (Burchett J, O’Loughlin J agreeing) and the authorities there cited; Perpetual Trustee Company Ltd v Milanex Pty Ltd (in liquidation) [2011] NSWCA 367 (‘Milanex’) at [78]-[79] (Macfarlan JA, Campbell and Young JJA agreeing). Here, the issue of whether Octet’s insurance recovery should be taken into account in the assessment of damages did not form any part of any of the defendants’ Commercial List Responses and was first raised in closing written submissions by the fourth to sixth defendants. The evidence shows, at least, that the insurance recovery was by way of indemnity and that Octet’s insurer is entitled to be recouped its ‘percentage’ or ‘proportion’ of any amount recovered in these proceedings. However, no evidence was proffered by the defendants as to the terms of the underlying insurance policy that would allow me to determine the character and purpose of the insurance payment received. The issue is one which the defendants could have made the subject of pleadings, and on which they could have sought discovery and cross-examined. In the circumstances, I consider it is the defendants who have not discharged their onus of proof, and the plaintiff’s insurance recovery is not fatal to its claim.

4. [386]

   I note that benefits received from an ‘independent, collateral or disconnected transaction’ to the transaction causing loss are not generally brought into account in the assessment of damages in any event: Monroe at 11-12 (Beaumont J), 21-22 (Burchett J, O’Loughlin J agreeing). Proceeds of insurance or other analogous arrangements received by an injured party are commonly viewed as collateral: Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [188]-[190], [193] (Handley JA, Giles and Hodgson JJA agreeing); Milanex at [83]. However, in the absence of evidence (from the fourth to sixth defendants) as to why the recovery in the present case should be taken into account, it is unnecessary to consider this matter further.

Contributory negligence

1. [387]

   Section 137B of the Competition and Consumer Act provides for a reduction of damages in claims under s 18 of the ACL in certain circumstances as follows:

2. [388]

   The High Court in Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 59 ALJR 492 (‘Podrebersek’) explained the general principles of contributory negligence at common law at 494:

3. [389]

   In Valcorp Australia Pty Ltd v Angas Securities Ltd [2012] FCAFC 22 at [110] the Full Federal Court accepted that the principles in Podrebersek were applicable, though with some adjustment where necessary, to claims under the ACL which were apportionable under s 137B:

4. [390]

   The defendants made extensive submissions about the extent to which Octet was the architect of its own misfortune. These submissions were directed to Octet’s claimed loss, being the whole of the amount of the Octet Facility. Because I have rejected the submission that Octet’s failure to recover the whole of the facility amount was caused by the misleading or deceptive conduct, it is unnecessary to deal with the question of whether that loss should be reduced to reflect Octet’s own contribution to it.

5. [391]

   Had it been necessary to consider that question, I would have found that any damages should be reduced by 50%. Ms Cooper, Mr Thayer and Mr Isenberg all agreed that the Accelerate facility offered to Mrs Mac’s was designed for healthy businesses which, on any view, Mrs Mac’s was not. Had it applied for an Accelerate facility in mid-June 2022, Mrs Mac’s would not have been approved. The material that had already been provided to Octet by that date made this clear. Furthermore, although Octet had a clear policy in place in mid-2022 for deciding when to make a credit approval for a new Accelerate facility, that policy did not deal with the question that arose in the case of Mrs Mac’s, namely whether a facility should remain in place for a company that had previously received approval but which no longer met the lending criteria.

6. [392]

   The evidence of key Octet personnel was that a significant reason why the Octet Facility was kept in place in mid-2022 despite its obvious financial hardship was to do with the fact that the business and the wider economy had been adversely affected by the COVID-19 pandemic. That attitude is, in a sense, laudable. But it reflects the making of a conscious decision by Octet to take risks which it knew not to be in its own commercial interests at the time.

7. [393]

   If Octet had been able to show that its claimed loss really was the whole of the facility amount, I would therefore have found that that same loss was equally attributable to the fact that Octet had allowed itself to be in that position with a client like Mrs Mac’s in the first place.

8. [394]

   The same cannot, I think, be said about the far more limited loss I have found to be attributable to the misleading or deceptive conduct. I do not consider that Octet’s conduct after 23 September materially contributed to that loss. The loss which Octet suffered after that date – being the sum of $75,558.92 – was in my view entirely attributable to the fact that its understanding of Project Gateway was not corrected after 22 September.

Proportionate liability

1. [395]

   The parties also made submissions in relation to the application of the proportionate liability provisions in Part VIA of the Competition and Consumer Act. While this issue was not within the scope of the parties’ pleadings, I granted leave for the parties to make brief submissions in relation to it. No party opposed this course.

2. [396]

   Because Octet’s claim in respect of misleading or deceptive conduct is one for damages under s 236 of the ACL (caused by a contravention of s 18), it is an ‘apportionable claim’ for the purposes of that Part: s 87CB(1).

3. [397]

   Section 87CB and 87CD of that Part are as follows.

4. [398]

   In my view, Mrs Mac’s was a concurrent wrongdoer within the meaning of these provisions. The particular conduct that has attracted the application of the misleading or deceptive conduct provisions is Mr Markwart’s failure to correct the impression he had left in Mr Thayer’s mind about Project Gateway in his discussions and correspondence between 29 July 2022 and 4 August 2022. I have rejected Octet’s claim that the directors were also liable for this conduct as accessories, chiefly because I am not persuaded that any of them knew what had taken place between Mr Markwart and Mr Thayer.

5. [399]

   I have found, as Octet submitted I should, that Mr Markwart’s silence was also the company’s silence. It is for that reason that I have found that both Mr Markwart and Mrs Mac’s engaged in misleading or deceptive conduct or conduct that was likely to have that effect.

6. [400]

   A similar issue arises in cases of single director companies, such as Robinson v 470 St Kilda Road Pty Ltd (2018) 263 FCR 572; [2018] FCAFC 84 (‘Robinson’). In that case, McKerracher and Markovic JJ at [48] applied the reasoning of Mossop J in Dunn v Hanson Australasia Pty Ltd (2017) 12 ACTLR 138; [2017] ACTSC 169 at [61] where his Honour said:

7. [401]

   Octet relied on Robinson in submitting that Mrs Mac’s could not be a concurrent wrongdoer because Mr Markwart’s acts or omissions cannot be seen as distinct from the acts or omissions of the company. However, Octet’s case is not as straightforward as the case in Robinson. Here, the impugned conduct is the conduct of the company’s CFO in circumstances where he was not a director of the company.

8. [402]

   The Court of Appeal has recently noted the complexities that arise when the proportionate liability regime is applied to cases involving both a natural person and a corporate entity controlled by that natural person. In DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts [2022] NSWCA 165; (2022) 371 FLR 349 (‘Potts’) the Court said at [440]:

9. [403]

   In Taylor v Stav Investments Pty Ltd as trustee for the Stav Investments Family Trust [2023] NSWCA 204 at [120], Mitchelmore JA (Simpson and Basten AJJA agreeing) was of the view that the passage from Potts extracted above had cast some doubt on the reasoning in Robinson.

10. [404]

    In this case, the conduct which I have found to be misleading or deceptive consists of non-disclosure and silence. In its Commercial List Statement, Octet expressly alleges that it had a reasonable expectation of disclosure ‘by the Company [ie Mrs Mac’s], via Mr Markwart or another person on behalf of the company …’. That is, it was the failure of Mrs Mac’s, through any of its agents (of whom Mr Markwart was but one), to correct Octet’s understanding of Project Gateway.

11. [405]

    There are several matters that tend to support the conclusion that the silence and non-disclosure which I have found to be misleading or deceptive were also omissions of Mrs Mac’s. To the extent Mr Markwart communicated anything at all to Octet, he did so as an employee of the company. His silence was a product of that same circumstance. It was Mrs Mac's that entered into the confidentiality agreements with the bidders, the exclusivity deed with Pie Face which stated that negotiations were confidential, and the sale agreement with Pie Face which also contained confidentiality provisions. It was also Mrs Mac’s, through its directors, which issued instructions to its employees (including Mr Markwart) and directors which they were obliged to follow, including:

    1. (1)

       The 29 July instructions regarding the communication strategy in respect of the AFR article: paragraph [100] above.

    2. (2)

       The 4 October 2022 instructions regarding the communication strategy in respect of the sale agreement (in particular, that suppliers/customers would not be advised ‘until completion (or much closer to)’): paragraph [131] above.

12. [406]

    I therefore consider that Mrs Mac’s was a concurrent wrongdoer in relation to the misleading or deceptive conduct.

13. [407]

    The loss recoverable from Mr Markwart must be limited to ‘an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss’: s 87CD(1)(a). I consider a just amount to be 50% of the total loss. I reach that conclusion for the following reasons.

14. [408]

    First, I accept that Mr Markwart’s silence following 22 September was influenced by the policies put in place by Mrs Mac’s concerning confidentiality and by the terms of the confidentiality agreements Mrs Mac’s had entered into. Secondly, to the extent Mr Markwart was instrumental in the continuing use of the Octet Facility after 22 September, he was acting in what he considered to be the interests of the company and its creditors as a whole. He did so as the employed CFO and not in pursuit of any personal interest. Thirdly, and on the other hand, Mr Markwart must have known that if anyone was to correct Octet’s understanding, it would have to be him, either directly or by informing the directors so that they could cause the company to do so. It was he who knew the circumstances in which Octet had been persuaded to restart the facility in July and the impression of Project Gateway which had been engendered in Octet.

ORDERS

1. [409]

   The orders of the Court will therefore be as follows:

   1. (1)

      Judgment for the plaintiff against the seventh defendant in the sum of $37,779.46.

   2. (2)

      Dismiss the summons as against the first to sixth defendants.

   3. (3)

      Direct the parties to file and serve any evidence and short submissions on the question of interest and costs on or before 6 March 2026.

   4. (4)

      Direct the parties to file and serve short submissions in reply on the question of interest and costs on or before 13 March 2026.