- Armagas Ltd v Mundogas SA

5 - Varma v Varma [2010] NSWSC 786 - Watson v Foxman (1995) 49 NSWLR 315 Texts Cited: - F M B Reynolds and W Bowstead, Bowstead and Reynolds on Agency (16th Ed 1996, Sweet & Maxwell) Category: Principal judgment Parties: Gestion Pty Ltd (Plaintiff) Kit Digital Australia Pty Ltd (in liq) (First Defendant) Stephen Graham Longley, Marcus William Ayres and Nicholas John Martin in their capacities as former joint and several administrators of and joint and several liquidators of Kit Digital Australia Pty Ltd (in liq) (Second Defendants) Representation: Counsel: A F Fernon (Plaintiff) D L Cook (Defendants) Solicitors: Yates Beaggi Lawyers (Plaintiff) Norton Rose Fulbright (Defendants) File Number(s): 2013/149867

Judgment 1The Plaintiff, Gestion Pty Ltd ("Gestion"), carries on a business providing professional consulting services. The First Defendant, Kit Digital Australia Pty Ltd (in liq), carried on a similar business, was previously known as Hyro Australia Pty Ltd and was acquired by an American software and technology company, Kit Digital Incorporated, in September 2012. It was placed in voluntary administration in December 2012 and, on resolution of its creditors that it be wound up, transitioned to liquidation in February 2013. I will generally refer to that entity as "Kit" in this judgment, although it will also be referred to in some conversations and correspondence quoted below as "Hyro". 2Gestion seeks leave to proceed against Kit and seeks, by way of substantive relief, a declaration that Kit holds a sum of $181,445 on trust for Gestion and an order that Kit pay that amount to it. In the alternative, against the contingency that Kit no longer held the funds on trust for Gestion, Gestion also sought a declaration that the liquidators of Kit were liable for breach of trust or alternatively were knowingly concerned with a breach of trust and an order that they were liable to Gestion for that amount. That order was not pressed by Gestion in final submissions. 3Gestion contends that, on or about 10 December 2010, it and Kit entered into a partly oral and partly implied agreement for the provision of professional services ("Pass Through Agreement") to Telstra Corporation Ltd ("Telstra") during a conversation or conversations between its director and principal, Mr Michael Conomos, and a consultant to Kit, Ms Angela Potter. By its Points of Claim dated 18 February 2014, Gestion identifies the express oral terms of the Pass Through Agreement as that: "(a) Gestion would source work from Telstra; (b) Kit would enter into a contract with Telstra in relation to the performance of the work sourced by Gestion ("Telstra Contract"); (c) Kit would enter into the Telstra Contract as agent for Gestion; (d) Gestion would manage and perform all the works that were the subject of the Telstra contract; (e) Gestion would issue Kit [Digital] with an invoice from time to time in respect of works Gestion carried out under the Telstra contract (the "Gestion Invoice"); (f) Following the issuing of the Gestion Invoice, Kit would issue Telstra with an invoice in respect of the services that were the subject of the Gestion Invoice (the "Kit Invoice"); (g) The Kit Invoice would be issued for the value of the Gestion Invoice plus 5.00%; (h) The additional sum of 5.00% was the pass through fee ("the "Pass Through Fee") to be paid to and retained by Kit; (i) Upon receipt by Kit from Telstra of the payment for the Kit Invoice: (i) the Pass Through Fee would be deducted and retained by Kit; (ii) the balance of the payment would be paid to Gestion in payment of the Gestion Invoice; and (iii) the Telstra payment could not be used by Kit for any purpose other than for the requirements of sub-paragraphs (i) and (ii) above." 4Gestion further contends, in its Points of Claim, that: "It was an express oral term or alternatively implied term or alternatively part oral and part implied term that each of the Telstra payments received by Kit, less the value of the Pass Through Fee, would be retained by Kit on trust for Gestion, pending payment to Gestion (the "Trust"). PARTICULARS Insofar as it was implied, the trust obligations arise by reason of the express oral terms that Kit could not use the Telstra payment for any purpose other than paying the amount, less the Pass Through Fee, to Gestion in payment of the Gestion Invoice. Insofar as it was oral, sub-paragraph 10(i) above is repeated and relied upon." As Kit and the liquidators point out, Gestion put its case on the basis of an express agreement and an implied term derived from it and did not advance any case for an implied intention outside of that agreement. 5It is common ground that, between February 2011 and December 2012, Gestion provided services to Telstra and invoiced the costs of those services to Kit, which invoiced those services to Telstra with a 5% mark-up (or pass through fee) and Telstra paid those invoices. After monies were received from Telstra, Kit generally paid a corresponding amount less its 5% mark-up to Gestion. However, Kit received two payments from Telstra after the appointment of administrators in respect of amounts invoiced by Gestion of $10,950 (exclusive of GST) and $154,000 (exclusive of GST) which had previously been invoiced by Kit to Telstra with its 5% mark-up, and the administrators did not remit the corresponding amounts less Kit's mark-up to Gestion. 6It appears to be common ground that Kit's failure to remit those amounts to Gestion would be a breach of contract for which Gestion would be entitled to prove for damages in Kit's liquidation. However, Gestion contends that the failure to remit the payments made by Telstra to it, less the 5% mark-up, was a breach of trust and the amount received by Kit less its mark-up is held on trust by Kit for the benefit of Gestion. (As I noted above, allegations of breach of trust against the liquidators personally were not pressed.) It will readily be apparent that the commercial significance of Gestion's claim is that, if it is successful in establishing a trust, it may be entitled to priority over other creditors of Kit. That, of course, may depend upon whether Kit was party to other corresponding arrangements with other providers, which, if Gestion succeeds, might also be able to establish that any monies due to them were held on trust for them on a similar basis to Gestion's claim, a possibility noted by the liquidators but not further addressed by the evidence. Evidentiary issues 7I have had regard, in assessing the evidence, to the fact that witnesses were giving evidence (and in the case of Mr Conomos, a director of Gestion, setting out lengthy conversations in direct speech) of discussions in late 2010 and 2011. It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness's motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34]; Craig v Silverbrook [2013] NSWSC 1687 at [141]; State of New South Wales v Hunt [2014] NSWCA 47 at [56]. 8Credit issues arose in this case in respect of two key witnesses. Gestion relies on the affidavit of its director, Mr Conomos, sworn 2 April 2013 and his affidavit in reply dated 10 June 2014. As Kit and the liquidators point out, Mr Conomos was not particularly forthcoming in his first affidavit as to several matters, including the discussion in a conversation on 10 December 2010 (to which I will refer below) of a draft subcontract (later acknowledged in Mr Conomos' evidence in reply (Conomos 10.6.2014 [25])) or the subsequent correspondence concerning that draft contract (Ex P2, 2/1007, 1020, 1025 - 1026). I have not accepted aspects of Mr Conomos' evidence, where that evidence seemed to me to be in the nature of reconstruction and did not seem to me to be consistent with the objective probabilities. 9Gestion also relies on the affidavit of two former employees of Kit, Ms Kerry Armstrong (nee Fisher) sworn 27 November 2013 and Ms Kyriaki McLennan dated 28 November 2013. I will refer to their evidence in outlining the relevant discussions and correspondence below. There was no issue as to their credit, although they were not party to the conversation said to have given rise to the relevant agreement and their knowledge and understanding of the relevant arrangements was largely derived from what Ms Potter and Mr Conomos had told them and from the day-to-day administration of the arrangements. 10Kit and its liquidator rely on the affidavit of a former consultant to Kit, Ms Potter, dated 7 May 2014. Ms Potter's evidence was that she was a consultant to Kit from March 2010 until January 2012, and was working as the head of a new division established to provide professional consultants to Kit's clients and, in June 2010, was appointed as an account director for Telstra, for which Kit was a preferred supplier. Gestion made submissions adverse to Ms Potter's credit, which I will address in respect of particular matters below. Ms Potter was not a particularly precise witness and may well have been mistaken as to the timing of conversations with Mr Conomos in the first quarter of 2013. Ms Potter's lack of precision about the dates and sequence of those communications under cross-examination may have been partly a response to aggressive cross-examination, or it may have reflected that fact that she was not used to being required to make statements in precise terms and to detailed questioning as to those statements. The position was not assisted by the fact that Ms Potter, it seemed to me as a matter of temperament rather than by any lack of cooperation, often did not wait for questions to be completed before answering them. It also seemed to me that Ms Potter also had genuine difficulty in adopting the form of logic by which a recognition of one matter may require a recognition of a consequential matter, although again I did not form any impression that her difficulty in reasoning in that fashion or her evidence generally involved any dishonesty or attempt to mislead the Court. 11The Court may also have regard to subsequent dealings between the parties to determine the questions whether an oral or implied agreement of the kind for which Gestion contends existed, and what were its terms, as distinct from questions of constructions in respect of such an agreement: Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [143]; Hightime Investments Pty Ltd v Adamus Resources Ltd [2012] WASC 295 at [98]-[99]; Fazio v Fazio [2012] WASCA 72 at [193] (applying this principle in respect of an inferred agreement); JR Consulting & Drafting Pty Ltd v Cummings [2014] NSWSC 1252 at [167]. To adopt the language of Edelman J in Hightime Investments above, it would indeed be peculiar if the Court could not look to whether the subsequent statements and actions of Gestion, Mr Conomos and Kit were consistent with the agreement said to have been formed in December 2010 in order to determine whether Mr Conomos' evidence as to that matter should be accepted. I will refer below to correspondence in the period after the conversation that is said to have given rise to that agreement. 12Gestion also relies on a Jones v Dunkel inference said to arise from the liquidators' and Kit's failure to call evidence from various persons who were previously officers and employees of Kit, including Mr Stephens, Mr Place, Ms Dixon, Mr Hodda, Mr Doonon and Mr Votsaris. That principle has effect that, where a party would be expected to, but does not, call a witness who could give evidence on a relevant matter, and the failure to call that evidence is unexplained, an inference may in appropriate circumstances be drawn that the uncalled evidence would not have assisted the party's case: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at [63]-[64] per Heydon, Crennan and Bell JJ; MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 at [53] per Macfarlan JA (with whom Ward and Gleeson JJA agreed). It does not seem to me that such an inference should be drawn in this case. First, as Kit's liquidators submit, liquidators and companies in liquidation may well have real difficulty in obtaining cooperation from former employees, many of whom will have unsatisfied entitlements. Second, the liquidators of an insolvent company could hardly be expected to call some six witnesses, in addition to Ms Potter, at least one of whom had previously worked outside Australia, to seek to defend a claim for less than $200,000, where the costs of doing so would have been borne to a greater or lesser extent by Kit's creditors. The discussions on which Gestion relies to establish the trust and subsequent correspondence 13As I noted above, Gestion contends that, on or about 10 December 2010, it and Kit entered into a partly oral and partly implied agreement for the provisional of professional services to Telstra during a conversation or conversations between its director and principal, Mr Conomos, and a consultant to Kit, Ms Potter. 14In his first affidavit, sworn 2 April 2013, Mr Conomos sets out the terms of his conversation with Ms Potter in early December 2010 as follows: [Conomos] "Angela, the agent that I currently use on the Telstra Professional Services Panel to 'pass through' the work Gestion has won at Telstra looks like it's going to be brought [sic] out by a larger multinational and thus will no longer be on the Telstra Panel. Would Hyro be interested in acting as Gestion's agent for the work that Gestion wins at Telstra for the same fixed fee of 5% added to Gestion Invoices being the same fee basis that Gestion has with its current agent. [Potter] Yes, we don't have a big presence in Sydney so that would be a good strategic move for us. I will take your offer to our Directors. [Conomos] That's great. As per our agreement with our current Agent Gestion approaches the Telstra hiring managers and agrees the scope and price for the work Gestion wins. Gestion will perform the work, assume all responsibility for all the project deliverables and provide the entire resource team. This is a 'pass through' arrangement where Gestion owns and operates the project known as a 'SOW' [being a "statement of work"]. Should there be any issues with the client, Gestion will address them with the client directly. As Gestion is not on the Telstra Panel, Gestion will ask the Telstra hiring manager to send the SOW paperwork to Hyro as the paperwork must be completed by a Telstra Panel Member, of which Gestion is not. For this 'pass through' agreement Gestion will agree that Hyro will add 5% to the Gestion invoices in charging Telstra for the work. As this work is performed on a fixed price basis dependent on reaching milestones, this pre-determined fee will be presented in a table prior to the commencement of each SOW. As Gestion reaches each milestone, we will invoice Hyro and Hyro will invoice Telstra on our instruction once Gestion confirm [sic] we have completed the corresponding milestone. Once Telstra pay [sic] Hyro for that milestone's corresponding invoice, Hyro will pay Gestion for the corresponding milestone invoice on the same day as the Telstra payment to Hyro. Once Hyro receives the funds from Telstra, those funds must be used to pay Gestion. Hyro is not to use those funds for any other purpose. Can you please take this offer to your Directors and let me know as I expect new opportunities with Telstra to present themselves shortly." [Potter] Yes. That arrangement would work for us. This is a win-win. Gestion takes on all the risk. We only pay Gestion when Telstra pay us and we gain some presence in the Sydney market through Gestion. This is great for us as well. I will take it to our directors for approval." (Conomos 2.4.2013 [29]) 15It seems to me that Mr Conomos' account of this conversation has a somewhat artificial character about it, although Mr Conomos was not prepared to accept, in cross-examination, that his account of that conversation had that character (T29 - 31). The lengthy speech attributed to Mr Conomos seems to me to be inconsistent with the manner of ordinary business conversations. Notwithstanding Mr Conomos' evidence that the terms of his initial conversation with Ms Potter (and subsequent conversations with other Kit employees to which he refers) included a requirement that monies paid by Telstra to Kit be used only for the purposes of payment to Gestion, he appears to have made no subsequent attempt to document that requirement, request Kit to establish a separate account to receive such monies, or determine whether Kit was in some other way segregating that money so that it was in fact only used for that purpose. I will refer to several matters which do not support Mr Conomos' account of this conversation below. 16Ms Potter gave evidence in response to Mr Conomos' account of his initial conversation with her which she recollected was in late November 2010 (Potter 7.5.2014 [11]-[13]). She denies that Mr Conomos used the word "agent" in that conversation to describe the proposed relationship between Kit and Gestion and her evidence is that she has no recollection of Mr Conomos referring to the precise terms of invoicing or saying that the funds received by Kit from Telstra must be used to pay Gestion and not for any other purpose. She also recalls having said, in that conversation, that: "I do see the benefits as for Hyro as it would appear to Telstra that Hyro are delivering more statement of works but as I said I would have to take the proposal to management." 17By his affidavit in reply dated 10 June 2014, Mr Conomos accepted that his initial conversation with Ms Potter occurred in late November 2010 and agreed that some of the additional matters referred to by Ms Potter were discussed, while otherwise maintaining the account of that conversation set out in his first affidavit. Mr Conomos denied several other aspects of Ms Potter's account of the conversation. Mr Conomos maintained that he had a clear recollection of using the word "agent" to describe Kit's relationship with Gestion under the pass through arrangement and gave evidence that he considered Kit to be Gestion's agent under that arrangement. He also claimed to have a clear recollection of telling Ms Potter that Kit was not to use the funds received for Telstra for any purpose other than paying Gestion, other than for the 5% fee (Conomos 10.6.2014 [17]). 18Ms Potter's dating of this conversation, and her account of its subject matter, is supported by a contemporaneous email dated 29 November 2010 which he sent to her superior, Mr Hodda, which provided some background information about Mr Conomos and then explained the proposed transaction as follows: "[Mr Conomos] does a pass-through into Telstra through Hyro on a fixed price. He is responsible for all deliverables and is happy to have this stated in the master agreement as well as all insurances and payroll and payroll tax. This is something he already does through other prof[essional] services companies. The max we can make is $50 per day (over the year $11,000 per resource potential $165K) but we don't have to do anything for it. He pays his resources and all insurance. He wants to on-board someone straight away, however, I do have concerns. The only way we can do this is if we state in the SOW [statement of works] that he and his company are responsible for all deliverables. I have said that I will put the proposal to Hyro. My concerns are deliverables and scope going outside of the due date. Also we wouldn't pay him until we get paid. Not sure how he would react to that. To protect mine and Hyro's reputation I have said that I cannot make the decision and ultimately it is management's decision. What are your thoughts?" (Ex P2, 2/1001) This email was substantially less detailed than the account which Mr Conomos gives of the initial conversation with Ms Potter and seems to me to reflect a much more plausible account of the matters likely to have been discussed in that conversation. This email also indicates that Ms Potter had not in fact accepted Mr Conomos' proposal at that point and had referred the matter to Kit's management for their consideration. 19Ms Potter's evidence (Potter 7.5.2014 [15]) is that she then met with Kit's management in early December 2010, outlined Mr Conomos' proposal to Kit's management and was instructed it could be documented by a subcontractors agreement and that Kit would not pay Gestion until Telstra paid it and the funds cleared, so that payment terms would be at least seven days after Kit received cleared funds from Telstra. 20Mr Conomos' evidence is that a further conversation then took place with Ms Potter on about 10 December 2010, as follows: [Potter] "Hi Mike. I have spoken with Hyro's Directors in relation to your agency proposal. They are happy to proceed on the terms we have discussed with one change only being that Hyro cannot process the Gestion payment on the same day as the Telstra payment is processed as it takes a day or two for the funds to clear. We will instead make the payment as soon as possible once cleared funds are received. The maximum turnaround time for payment would be 7 days. It is a good result for both parties as we do not have a big presence in Sydney. Gestion is to take full responsibility for the work and take care of any issues that arise. We will add 5% to your invoices when you instruct us when each milestone has been reached in invoicing Telstra. As soon as we are paid by Telstra we will pay you within one week for that related invoice." [Conomos] "That's perfect. That's the same as the arrangement I currently have with [third party] which has worked well." (Conomos 2.4.2013 [31]) Ms Potter accepts that she called Mr Conomos after her meeting with Kit's management but denies that she referred to Gestion's "agency proposal" and says that she instead referred to the "proposal" and indicated that Kit would send an agreement so that the proposal could move forward, which would need to be signed by the directors of Kit and Gestion before work could commence (Potter 7.5.2014 [16]-[17]). Mr Conomos' affidavit evidence in reply was that Ms Potter referred to the "agency proposal" and he had a clear recollection of referring to the relationship with Kit as one of "agency" in that conversation (Conomos 10.6.14 [24]). On balance, I prefer Ms Potter's evidence over Mr Conomos' evidence, which, as I noted above, seems to me to reflect at least a degree of reconstruction influenced by his knowledge of the case that Gestion seeks to establish. However, even if the term "agency" had been used, it would not have been determinative, both because that characterisation involves a question of law depending on the relevant facts, and because the scope of Kit's role was, I will note below, a narrow one and monies it received were not segregated from its own funds. 21Mr Conomos sent an email to Ms Potter on 14 December 2010 describing the proposed arrangement as follows: "Gestion proposes to perform a fixed price piece of work under the Hyro Professional Services Agreement with Telstra. The work will be performed by Gestion and Gestion will assume full responsibility for the entirety of the project deliverables and milestones. Gestion will provide the entire resource team and those resources are employees of Gestion Pty Ltd. Should there be any concern by the end-client [Telstra] with those resources, Gestion will address those concerns directly with the client. Hyro is to add 5% to any milestone payment Gestion has submitted in preparing the SOW as per the table below ... This is a pass through arrangement where Gestion owns and operates all resources under this agreement. Resources will be managed by Gestion to Hyro and Telstra standards, however all correspondence on this agreement and the terms are commercial in confidence." (Ex P2, 2/1002) This email records significant commercial terms of the arrangement but does not refer to any undertaking by Kit not to apply the payments made by Telstra to Kit for any other purpose than for payment to Gestion or to hold those payments in trust. Mr Conomos amended the schedule of milestone payments in that email by a subsequent email sent on the same date which is not material for present purposes. 22An agreement was not, in any event, formed in December 2010 because Ms Potter had no authority to reach that agreement. Ms Potter had referred to taking the matter for approval by Kit's directors in the conversations set out above and in fact did so. Ms Potter's evidence in cross-examination (T161, T169) was that she did not have authority to bind Kit in those conversations. Although Mr Conomos initially did not accept that he knew that Ms Potter did not have authority to bind Kit (T32), that seems to have been made clear by her indication that she would refer the proposal to Kit's management, and Mr Conomos ultimately accepted that she did not have the authority to make decisions or to accept his proposal without reference to others and that she would require the directors' approval for that proposal (T33). 23Discussions as to the proposed terms, involving Kit's management, continued and drafts of the agreement were being prepared into February 2011. On 4 January 2011, Ms Potter sent an email to Mr Conomos attaching a draft contractor agreement with Gestion. That contractor agreement had been amended to include provisions recording that: "The Contractor will deliver a Fixed Term Fixed Price Project Deliverable to Telstra Pty Ltd [sic] on behalf of the Company. The Project will be identified by the Project Name as detailed in the Project Schedule. The Contractor will provide the Project Deliverables as listed in the Project Schedule and must be fit for purpose and accepted by Telstra." (Ex P2, 2/1010) Other amendments had also been made, including in respect of provisions for fees and invoices. There was no provision in that draft agreement restricting Kit's use of monies paid by Telstra or requiring those monies be held on trust for Gestion. The draft agreement was inconsistent with the suggested agency arrangement since it provided that Gestion would be providing services on behalf of Kit, rather than the reverse, although Mr Conomos was not prepared to accept that proposition in cross-examination (T44 - 47, 50). 24Mr Conomos' evidence, in his affidavit in reply dated 10 June 2014, is that he did not consider that the draft contractor agreement reflected the terms that Ms Potter and he had agreed but he did not want to "rock the boat" by rejecting Kit's standard agreement straightaway; he did not engage lawyers to review the agreement; he did not have any lawyers retained and, as it was early January, he believed that most lawyers were on holiday (Conomos 10.6.2014 [29]). It seems to me that these multiple alternative explanations of Mr Conomos' not having taken issue with the structure of the agreement also have the character of retrospective reconstruction about them. As Kit and the liquidators point out, if a requirement that Kit use the monies it received from Telstra for no other purpose than to pay Kit was sufficiently important to Mr Conomos for him to raise it in his first preliminary conversation with Ms Potter, it is unlikely that he would not have pointed out that the terms of the proposed contract did not impose that requirement. I also do not accept Mr Conomos' evidence that he would not have raised that matter in order not to "rock the boat", if it were sufficiently important to be raised in a preliminary conversation with Ms Potter, where there is no suggestion that Kit would have been unduly sensitive to that matter having been raised. Mr Conomos' evidence was also that he believed that the pass through relationship was already operating "on the terms of the verbal discussion" with Ms Potter. I do not accept that evidence, since Ms Potter had previously made clear that she would pass the proposal to Kit's management, and at least by necessary implication, that she did not have authority to agree the terms of the relationship with Gestion on Kit's behalf. 25In an email dated 17 January 2011 between Mr Conomos and a representative of Telstra, the latter used the term "P[rofessional] S[ervices] agency" in reference to Kit (Ex P2, 2/1019). Mr Conomos relied on that email in his affidavit in reply as supporting the characterisation of the relationship between Gestion and Kit as one of agency. I do not understand the word "agency" to be used in its legal sense in that email, as distinct from referring to an entity providing professional services, in the same sense that a recruitment or employment firm might be referred to, in general usage, as a "recruitment agency" or an "employment agency". 26Mr Conomos sent a further email on 19 January 2011 to Ms Potter again referring to the terms of the proposed arrangement which also did not refer to a limitation on Kit's use of payments received or any trust arrangement (Ex P2, 2/1020). On 19 January 2011, Ms Potter followed up with Mr Conomos requesting the signed contract on the basis that Kit's senior management were chasing her in that regard (Ex P2, 2/1022). 27Mr Conomos responded with comments on the draft agreement on 20 January 2011, including commenting on the terms for payment as follows: "I am concerned about the timing of the invoices. I request Gestion invoices are submitted on advice from Hyro of remittance advice from Telstra and with payment terms of 7 days thereafter. Waiting for potentially a further 14 days is unreasonable - as you can appreciate I will be paying my team throughout the process for the work performed not on milestones. We need to recover costs as soon as possible after payment is forwarded to Hyro." (Ex P2, 2/1025) It is plain that Mr Conomos had undertaken a detailed and intelligent review of that draft agreement, which extended to matters such as whether the governing law would be New South Wales or Victoria where the work was being performed in New South Wales. In his affidavit in reply, Mr Conomos accepted that he responded with comments on the draft agreement following Ms Potter's email of 19 January, but claims that he did not understand many of the terms contained within that draft agreement, including the clauses relating to intellectual property. I also do not accept that evidence. It was plain from the terms of Mr Conomos' comments upon the draft agreement, and from his sophistication in cross-examination, that he had the capacity and experience to understand that draft agreement, which was not a particularly complex document. Mr Conomos also gives evidence of a conversation with Ms Potter in which he said that the contract did not represent the proposed arrangement, but did not, on his own account, suggest that it should record that Kit was Gestion's agent or impose any requirement that Kit hold funds received by it from Telstra on trust or treat those funds in any particular manner (Conomos 10.6.2014 [33]). 28The absence of comment upon the fact that the draft contract did not require Kit to set aside the monies paid by Telstra for payment to Gestion and not to use them for any other purpose is also inconsistent with Mr Conomos' evidence in cross-examination that term was "vital" and that he had recognised it was not reflected in that draft (T39). I do not accept Mr Conomos' evidence in cross-examination that he did not point out to Ms Potter that the draft contract did not reflect the suggested agency arrangement, or the requirement that Kit use the monies received from Telstra only for a particular purpose, because he was "just waiting for the right opportunity" to do so (T38). Again, it seems to me unlikely that, if those matters were sufficiently important to Mr Conomos to have been raised in his first conversation with Ms Potter, he would have deferred raising them at this point, or that he would have engaged with the detail of specific terms of the suggested draft contract while refraining from raising the matters in it which were most important to Gestion. The fact that they were not raised undermines Mr Conomos' evidence as to the importance he attributed to them. 29I also do not accept Mr Conomos' evidence in cross-examination that he was approaching the draft contract as applying only to the circumstances where Kit sent work to Gestion (T40); that evidence seemed to me to verge on the incredible, in circumstances where the draft contract would not then have applied to the primary engagement which Gestion had proposed, and there was then no particular reason to think that Kit would send substantial work to Gestion, although it did later subcontract to Gestion in respect of one matter for a third party. I also do not accept Mr Conomos' suggestions in cross-examination that the matter had either slipped his mind or that his comments were his "first cut" (T40). It does not seem to me that, even in a "first cut", Mr Conomos would have omitted comment upon a requirement that the monies received by Kit from Telstra only be used to pay Gestion if it had the importance which he now attributes to it. 30Ms Potter in turn prepared a further draft agreement which she sent to her superior, Mr Hodda, on 4 February 2011, but that further draft agreement does not appear to have then been sent on to Gestion. Kit and the liquidators contend that the services provided by Gestion from at least January 2012 were provided as a subcontractor to Kit, in the absence of further negotiations as to the terms of that draft agreement. Kit and the liquidators also rely on the fact that the amount received by Kit from Telstra was, so far as the evidence goes, not held by Kit separately from its other funds and was used in the ordinary course of its business. 31Mr Conomos referred, in his affidavit in reply dated 10 June 2014, to a conversation with Kit's then Chief Executive Officer, Mr Poiner, on 20 January 2012. That conversation is set out in detail in direct speech, with a description of the arrangement concerning Telstra with the effect that Kit's role "is only to administer paperwork and pay Gestion once Telstra pays them, using those Telstra moneys". Mr Conomos also refers to distinguishing another dealing between Gestion and Kit, in respect of work done for a company other than Telstra, in that conversation. 32Ms Armstrong's evidence is that Ms Potter advised her of the nature of the arrangement between Gestion and Kit, when Ms Potter was about to ceased her role with Kit, in January 2012, and Ms Armstrong was to assume Ms Potter's role, as follows: "Once Telstra has paid on the Hyro invoice, we retain the 5% pass-through fee and the balance of the money is to be immediately remitted to Gestion. The funds we receive from Telstra for works performed by Gestion, are not part of our own revenue in the ordinary sense. We need to hang onto the funds, except for our pass-through fee, and pay them to Gestion. They should not be used for anything else and should be paid to Gestion immediately. You need to be clear on that so that if senior management, Dale or Antony ask any questions, you can set them straight. They are aware of the arrangement but may need reminding about the importance of getting the Telstra monies to Gestion immediately upon receipt of those monies. It's just what the agreement with Gestion is." (Armstrong 27.11.2013 [8]) In her affidavit evidence, Ms Potter did not wholly accept Ms Armstrong's account of that conversation, although she agreed there was a discussion between her and Ms Armstrong in which she had advised Ms Armstrong that Kit needed to pay Gestion within 7 days of receiving cleared payment from Telstra, and accepted that the large part of Ms Armstrong's account of the conversation was broadly correct. On either account, that conversation recognises that the parties' arrangement contemplated prompt payment of Gestion after receipt of funds from Telstra. The fact that Kit should seek to retain funds to make that payment is consistent with practical good sense and does not seem to me to indicate that Kit was contracting with Telstra as Gestion's agent or was under any obligation not to use funds received from Telstra for any purpose other than payment to Gestion, as distinct from having good practical reason to keep funds on hand to make the payment. Ms Potter and other Kit employees recognised throughout their evidence that Gestion had a proper commercial interest in receiving the relevant payment, having done the work for Telstra and paid its own employees in respect of that work. However, the fact that Gestion had a proper interest of that kind is not sufficient to create a trust or cause it to have a proprietary interest in monies received from Telstra so as to rank ahead of Kit's other creditors. 33Mr Conomos gives evidence of a further conversation with Ms Fisher, after Ms Potter had ceased her role with Kit as follows: [Conomos]: "I just want to touch base with you in relation to the agency agreement between Hyro and Gestion that I negotiated through Angela Potter in or around December 2010 and which has been operating since February 2011." [Fisher]: "Yes, I am aware of the arrangement." [Conomos]: "Good. Well the purpose of my call is that whilst Angela [Potter] and I intended to reduce the terms of the agreement to writing, this never occurred. I have previously spoken with Angela Potter concerning a proposed agency agreement between Gestion and Hyro. Also, I want to run through the terms of the agreement to make sure both parties are still on the same page." [Fisher]: "OK, no problem. Angela [Potter] has also told me that she will perform a hand-over prior to leaving." [Conomos]: "Essentially, Gestion commenced using Hyro as its agent on or around February 2011 as Gestion is not on Telstra's Panel for professional services. For that arrangement, Hyro added 5% as Gestion instructed and Hyro issued the invoice to Telstra. At the commencement of each project/SOW, Gestion provides Hyro with a table showing what Gestion will charge Hyro and what Hyro is to charge Telstra. It is agreed between Gestion and Hyro that upon Hyro receiving payment from Telstra, Hyro is to pay approximately 95% of the monies received from Telstra to Gestion within 3 - 5 business days (maximum 7 days) [sic] so as to allow the funds to clear. It is fundamental to the agreement that the monies received by Telstra not be used by Hyro in the intervening period and are only to be used to pay Gestion. As a general practice, Koulla or Jing of your accounts department, ring me each Monday and advise if any invoice issued to Telstra was expected to be paid that week." [Fisher]: "Thanks Michael. That is my understanding of the agreement." [Conomos] "OK great. I would like to have the agreement reduced to writing Kerrie. Can you make the appropriate inquiries your end and let me know what I need to do, if anything, in order for this to okay [sic]." [Fisher]: "Of course Michael. I will be in contact." I accept that it is likely there was a conversation with Mr Conomos and Ms Fisher after Ms Potter left Kit, in which Mr Conomos may well have emphasised Gestion's wish to be paid within 3 to 5 business days of payment by Telstra to Kit, although Mr Conomos' account of it again seems to me to have a substantial element of reconstruction about it. Gestion does not contend that Ms Fisher had authority to reach any new agreement with it on Kit's behalf or that this conversation gave rise to any new agreement. 34Similarly, Ms Kyriaki McLennan also gave evidence, by her affidavit dated 28 November 2013, of Ms Potter having described the arrangement with Gestion to her as follows: "The arrangement Hyro has with Gestion is an important one for Hyro. Gestion is able to procure and undertake the work for Telstra utilising our preferred supplier status, and all we need to do is control the invoicing. We have agreed to charge 5% of the total amount to be billed to Telstra on top of the amount Gestion advises for the work they have completed. Gestion needs us in the equation as they are not able to provide the services directly to Telstra, as they are not preferred suppliers. Under the arrangement they will perform all the work associated with the engagement and we are simply to invoice, collect 5% of the total paid and pay the rest immediately onto Gestion within a few days of funds having cleared from Telstra into our account." (McLennan 28.11.2013 [6]) Ms Potter's affidavit evidence was that she said that Kit needed to pay Gestion within 7 days of receiving cleared payment from Telstra and she accepted that the remainder of Ms McLennan's evidence of the conversation is broadly correct. That conversation seems to accurately describe the way the arrangement worked in practice, but also did not indicate that Kit contracted with Telstra as Gestion's agent or that Gestion had any obligation not to use, or did not in fact use, the monies received from Telstra for any purpose other than payment to Gestion. Ms McLennan also gives evidence of others having referred to the importance of payment by Kit to Gestion within the week that the funds cleared. That is also consistent with the commercial structure of the arrangement but would be equally applicable to a "back-to-back" contractual arrangement or a trust, and does not assist in distinguishing the two possibilities. 35Mr Conomos gives evidence of a further conversation with Mr Stephens, who had replaced Ms Fisher, in May 2012 in which he again describes the arrangement as follows: [Conomos]: "Nick I understand you've taken over Kerry's role for now. As you know but to reiterate, Gestion wins all its work, performs all its work and invoices Hyro as each milestone is reached. You are then to add on your 5% and invoice Telstra. On receipt of those monies relating to that invoice from Telstra, Hyro is to pay Gestion immediately using those funds from Telstra. Those funds are not to be used for any other purpose and as agreed with your accounts department, that can take up to 3 - 5 business days to occur." (Conomos 2.4.2013 [42]) Consistent with the earlier conversations, Mr Conomos again claims to have had the foresight to make clear that the funds were not to be used for any other purpose, presumably against the contingency that Kit might later become insolvent and there might be a contest between Gestion and other unsecured creditors. Mr Conomos' evidence is that Mr Stevens' response that he was "fully aware of that arrangement" and "more than happy for it to run its course". Mr Conomos' evidence is that he followed up on a written agreement in that conversation and again with Mr Stevens in August 2012. Little turns on this conversation, because Gestion's case is that the relevant agreement was formed in December 2010 and this conversation does not take its terms further. 36Mr Conomos' evidence is that he again explained the agreement, also at some length, to Mr Tristran Place who had become Kit's Accounts Director in early September 2012. This account again seems to me to be inconsistent with the manner of ordinary conversation, even between business persons, with Mr Conomos again referring to the "agency agreement" that Gestion had in place with Kit "since around February 2011" (rather than December 2010, as Gestion now contends) and describing that arrangement as follows: "I just want to make sure you are clear on the terms of the agreement and you are happy for it to continue. The arrangement has always been as follows: Gestion sources and completes all works with Telstra. As Gestion is not on Telstra's Panel, it has paid a 5% fee to Hyro/Kit as a pass-through fee. So despite all works being completed by Gestion, Gestion instructs Kit to invoice Telstra at certain milestones. Gestion will direct Kit when and how to invoice Telstra by providing an invoice to Kit which is to be replicated by Kit and 5% added to [sic] total of the invoice. Kit then invoices Telstra. Upon payment by Telstra, Kit is to remit approximately 95% of any Telstra funds to Gestion, being payment of the Gestion Invoices. It has always been the case that Hyro has acknowledged that the monies paid by Telstra to it in respect of the works undertaken by Gestion are to be used only for the purpose of on-payment to Gestion. This was critical to the agreement. I just want to confirm that Kit is aware of the terms of the agreement and that you want the agreement to continue?" (Conomos 2.4.2013 [49]) 37Mr Conomos gives further evidence of a conversation with Ms Dixon, the Managing Director, Asia Pacific and a director of Kit in mid-October 2012 and of a meeting with her on or about 17 October 2012 and of a meeting with Mr Place on 17 October 2012. 38On 21 November 2012, Kit Digital Inc, the US parent company of Kit, announced a restatement of its prior period financial statements and a postponement of its third quarter 2012 results by reason of errors and irregularities identified in its historical finance statements. Mr Conomos also refers to subsequent conversations with Mr Place and Ms Dixon in November 2012 when those wider issues had arisen in respect of the parent company's accounting practices. 39On 26 November 2012, Mr Conomos sent an email to Ms Dixon which referred to the wider issues affecting Kit's US parent company and noted that Gestion had several large invoices due in the weeks ahead and observed that: "Obviously, I am seeking clarification that any payments released to Kit Digital from Telstra with the express purpose being for work performed by Gestion will be paid to Gestion. Being a pass-through arrangement only, I seek this confirmation that the matching/obligation principle will apply for monies received by Kit for the Telstra work completed by Gestion. Any monies received by Kit should be credited to Gestion within 3 days of Kit receiving the associated monies for Telstra and not be caught up/redirected given the problems associated with the larger Kit issues. I seek to confirm this in writing (given the below media statement) that Kit Digital will make the appropriate payments owed to Gestion on time and without interruption. As I am sure you can appreciate, Gestion has and continues to pay its employees on a weekly basis and carries out the work at Telstra shouldering the full risk of the work. Thus, any payments made to Kit Digital from Telstra and held without timely on-payment to Gestion, would cause serious hardship." (Ex P2, 2/1158) It is striking that this email does not assert the existence of the trust on which Gestion now relies or any earlier agreement that the monies received by Kit could only be used for the particular purpose of payment to Gestion, but instead urges Kit to take that approach by reference to its obvious commercial fairness in the relevant circumstances. 40On 26 November 2012, Mr Conomos also sent another email to Ms Dixon - although the time at which that email is sent is uncertain - which read as follows: "Thank you for your call and our open discussion today. As per the below and to clarify in writing can you please provide your assurance that the back-to-back arrangement that we have in place for the Telstra work will not be affected by the larger corporate issues that KITD are currently experiencing ie the monies received by KITD for the Telstra work being performed by Gestion will be passed onto Gestion without delay within the agreed 3 working days of the monies received by KITD and not used for any other purposes other than to pay Gestion for the associated work." (Ex P2, 2/1162) This email refers to a "back-to-back arrangement" which the arrangement between Gestion and Kit plainly was. It otherwise seeks Ms Dixon's confirmation that payments from Telstra will be passed to Gestion and refers to an "agreed" 3 day period for that to occur. It does not expressly refer to a trust or assert the existence of any agreement that monies received by Kit from Telstra could only be used for the purpose of payment of Gestion. That is particularly striking when, in the previous conversations with Kit employees of which Mr Conomos gives evidence, he claims to have been explicit as to the existence of such an agreement over a considerable period. It is also striking that, on an occasion when such an earlier agreement or such a trust would be of particular relevance, there is no reference to it in this email. Rather, this email seems to be framed as a request for an assurance, which was not given by Ms Dixon, that monies would be applied only for the purpose of paying Gestion, rather than an assertion that there was an existing agreement to that effect. 41Mr Conomos sent a further email to Ms Dixon on 30 November 2012 which read as follows: "Given the nature of our business relationship and the very tight cashflow that is involved in such an arrangement, I must make it clear that Gestion expects the arrangements with KITD to pass on the monies paid by Telstra for the work performed by Gestion to be paid on time, as per our agreed terms and not used for any other entity or persons. I have yet to receive an acknowledgement of this in writing. For Gestion, the matter is now urgent." (Ex P2, 2/1171) Mr Conomos here implicitly recognises that Kit had not given the assurance sought in his previous email. His reference to "our agreed terms" is expressly directed to the requirement for prompt payment, and the reference to "the funds not being used for any other party" is not expressly linked to such an earlier agreement. 42The Second Defendants were appointed voluntary administrators of Kit on 20 December 2012. On 24 December 2012, Mr Conomos sent an email to the then administrators of Kit contending that Gestion had performed works as principal for Telstra and that Kit acted only as "agent" in respect of those works and that: "Hyro has no claim to the whole value of the monies owed by Telstra and thus, it is the opinion of Gestion Pty Ltd that they do not seek the full payment from Telstra when they have no means to complete the obligatory payment to Gestion Pty Ltd within 5 days of receiving this payment." (Ex P2, 2/1181) Mr Conomos confirmed that Gestion had obtained legal advice in relation to the matter and proposed that Kit instruct Telstra to pay the remaining amounts due by it, less the 5% pass-through fee, to Gestion. 43At least by 28 December 2012, Mr Conomos was relying on the existence of an agency to support a claim for payment by Kit's then administrators (Ex P2, 2/1184). By his email dated 28 December 2012 to the administrators, Mr Conomos advised that "Kit also entered into a contract as agent for Gestion" and that: "Hyro agreed to act as Gestion's Agent for the commission of 5% in addition to all amounts charged to Telstra by Gestion for whatever invoices were required. The Agents commission was added to the fixed price Gestion invoiced and was sent to Telstra to form each milestone when a project is completed." Mr Conomos did not in that email refer to any requirement that the monies received by Kit from Telstra not be applied for any purpose other than payment to Gestion, although he sought to avoid that difficulty in cross-examination by suggesting that he had raised that matter in a telephone call with representatives of the administrator. 44Mr Conomos also sent an email to Ms Potter on 29 December 2012, after the appointment of administrators to Kit, and at a time that he was seeking to persuade the administrators to forward the funds received from Telstra to Gestion, in which he requested Ms Potter to: "... confirm in writing to the best of your knowledge the relationship between Gestion Pty Ltd and the then Hyro Australia Pty Ltd (now Kit Digital Australia Pty Ltd)." (Ex P2, 2/1186) 45Ms Potter responded on 3 January 2013 as follows: "In response to your request, the relationship and agreement that I, (as the former Telstra Account Director for Hyro), set up with Gestion was Hyro acted an Agent [sic] to Gestion. Hyro's previous CEO and COO are fully aware of this an [sic] can confirm. Gestion was the Principle [sic] who found all the work, responsible for all deliverables and resourced the projects with their own people. Gestion paid their own staff and all statatory [sic] employment costs. Hyro was not required to cover any of these costs. In return Hyro was awarded 5% return (pass-through fee) on revenue. The work carried out by Gestion at Telstra remained Gestions intelectural [sic] Property and Hyro have [sic] no claim." (Ex P2, 2/1187) 46Ms Potter referred in this email to the relationship between Kit and Gestion as one of "agency". It does not seem to me that significant weight can be put on that characterisation, quite apart from the dispute as to whether Mr Conomos had caused her to adopt it to which I will refer below. As Kit pointed out in closing submissions: "Ms Potter's understanding of the relationship is not determinative of that question. Regardless of what Ms Potter thought the legal consequences of the relationship were, the question has to be decided upon what the Court finds was said between Mr Conomos and Ms Potter, not what Ms Potter understood the effect of what was said to be." The proposition that Kit was Gestion's "agent" is, first, a conclusion of law to be derived from the relevant facts and Ms Potter's email does not identify the factual basis of that characterisation, or disclose the content of the suggested agency arrangement, that is, what it is suggested that Kit would do as Gestion's "agent", other than forward statements of work and invoices (including the 5% mark-up) in its name rather than Gestion's name. It seems to me that, by this time, the term "agency" was being used, whether by Ms Potter on her own initiative or on Mr Conomos' prompting, because it was understood to improve Gestion's claim to payment of the amounts it claimed against Kit. 47By letter dated 7 January 2013 (Ex P2, 2/1189) to Kit's administrators, Gestion's solicitors indicated that Gestion contended that it, as principal, engaged Kit as agent to contract with Telstra for the provision of services by Gestion to Telstra and: "That upon payments being received by Hyro as Agent from Telstra Hyro held on trust so much of those receipts that amount to 95% of the sum paid for and on behalf of Gestion (trust fund)." That letter also contended that the "trust fund" was at all times held separate and distinct to the property of Kit, was not mixed with Kit's property and was not applied to the general use or cashflow of Kit. Gestion did not seek to establish any of those matters in this hearing. 48Ms Potter's evidence (Potter 7.5.2014 [34]) is that, in March 2013, she received a further telephone call from Mr Conomos who requested her to re-clarify the agreement between Kit and Gestion and informed her that: Conomos: "My lawyers have advised me that to have a case we have to say that Hyro acted as agent for Gestion and all monies received from Telstra for Gestion work was not to be used to fund or to be distributed towards other Hyro work. We need to say that at no point did Hyro or Kit have any claim to the Telstra payments it received. Can you please add this to your email?" Ms Potter says that she responded: Potter: "OK, I will add this and send you another email." 49In his affidavit in reply, Mr Conomos acknowledged that he spoke to Ms Potter in March 2013, but denied saying the words which Ms Potter attributed to him as set out above. Mr Conomos also denied asking Ms Potter to use specific words in her email for making a request to the effect described in her affidavit (Conomos 10.6.2014 [44] - [46]). Mr Conomos also gave evidence of a conversation in which Ms Potter informed him that Kit was expecting Gestion to sue it and would then pay Gestion out, based on her conversations with a former executive of Kit. An expectation of that kind could well explain much of the manner in which Mr Conomos' evidence, and Ms Potter's emails setting out the nature of the relationship with Gestion, developed. 50Ms Potter then sent a further email to Mr Conomos on 20 March 2013 which repeated part of the content of her earlier email, added more detail as to the work undertaken by Gestion and also added that: "Hyro acted as an agent for Gestion, all monies received from Telstra for Gestion work was not to be used to fund or to be distributed towards any other Hyro work. All funds received from Telstra for Gestion work was to be redirected within 3 - 5 days back to Gestion. To support and again clarify, at no point in the 2 year relationship did Hyro and later Kit have any claim (other than the 5% agent fees) on the Telstra payments received by Hyro or later [Kit]." (Ex P2, 2/1202) In her affidavit evidence, Ms Potter indicated that she included those words because she was then frustrated with Kit; she felt Gestion was being treated the same way as she had been treated by Kit, which had not paid her commission owed to her as a contractor; and that the statements as to agency and use of the monies by Kit above were not the way the relationship and agreement between Kit and Gestion worked; and it was an error on her part to include them. 51Gestion submitted that Ms Potter's evidence that the statements in her email of 3 January 2013 (Ex P2, 2/1187) and her statement of 20 March 2013 (Ex P2, 2/1202) that Kit acted as agent for Gestion, funds received from Telstra for Gestion work were to be redirected within 3 - 5 days back to Gestion and Kit had no claim to Telstra's payments were incorrect was itself adverse to her credit. I accept that the making of incorrect statements, in an attempt to persuade the then administrators to meet Gestion's claims, is potentially adverse to Ms Potter's credit, although it is at least arguable that maintaining those incorrect statements on oath would have also been a serious matter. 52However, Gestion's attack on Ms Potter's credit in this respect seems to me to have the significant weakness that it never came to grips with the question why Ms Potter would choose to expose herself as previously having provided such incorrect information, other than for the reason she gives, namely, that she was prepared to assist Mr Conomos when she thought the matter would be resolved consensually, but was not prepared to maintain a false position on oath in these proceedings. No other reason was identified that would have caused Ms Potter to change her evidence and there is no apparent reason for her to seek to promote the liquidators' case in these proceedings. In particular, Gestion's submission that Ms Potter sought to change her evidence in order to "maintain the lie that she was lying in her 20 March 2013 email" begged the question why she would choose to invent and maintain a lie that her 20 March email was itself a lie, when that course would predictably cause her, and did cause her, nothing but difficulty in cross-examination, and it would have obviously been much simpler for her to adhere to the position she had advanced on 3 January 2013 and 20 March 2013. 53I do not accept Gestion's submission that Ms Potter was not telling the truth in giving her evidence as to these matters, although I accept that she was mistaken about the sequence of conversations with Mr Conomos in respect of her email of 3 January 2013 and 20 March 2013. As Kit and the liquidators accept, a conversation between Ms Potter and Mr Conomos must have taken place after 3 January 2013, resulting in her further email of 20 March 2013. The fact that Ms Potter's evidence in this respect was mistaken and to some extent internally inconsistent seems to me to indicate that simply that she was confused or mistaken in this regard, rather than that she was untruthful. In any event, I do not consider it necessary to reach a finding whether Mr Conomos had asked her to be untruthful in her 3 January and 20 March emails, given its serious character, where the matters in issue can be determined on other grounds. Whether Kit contracted with Telstra as Gestion's agent 54Gestion submits that an agency relationship will exist, inter alia, if authority is given to the agent to act on the principal's behalf and it refers to the observation of Jordan CJ in Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142 at 150 that whether authority has been given, under scope of that authority, are questions of fact to be determined by evidence. Gestion also refers to the observation of Finn J in South Sydney Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; (2000) 177 ALR 611 at [135] that a provision which characterises a relationship as an agency "must be given its proper weight in relation to the rest of their agreement". In International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644 at 652, applied by Allsop P (as his Honour then was) in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [171], the High Court observed that: "Agency is a word used in the law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties. But in the business world its significance is by no means thus restricted." In Tonto Home Loans above, Allsop P also referred at [155] to the definition of agency in Bowstead & Reynolds on Agency as having effect that: "Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly consents so to act or so acts." Allsop P also observed at [177] that: "Not every independent contractor performing a task for, or for the benefit of, a party will be an agent, and so identified as it, or as representing it, and its interests." 55Gestion submits that an agency relationship existed between it and Kit. Gestion summarises the terms of the relevant agency as follows: "The Court should find that following the discussions between Mr Conomos and Ms Potter, it was agreed that Hyro and Gestion would enter into an agency relationship whereby Gestion would be the principal and Hyro would be the agent and the terms of the agency would be: (a) Hyro would act at the direction of Gestion and enter the Statement of Work (SOW) on the portal that connected Hyro and Telstra; (b) Hyro would invoice Telstra for an amount directed by Gestion for such works, including a 5% fee. That direction was incorporated into the agreed milestone payments negotiated with Telstra and recorded in the SOW and also in the invoice that was issued by Gestion to Hyro. (c) Hyro received a 5% fee to be deducted from the Telstra payment. This 5% fee formed part of the price negotiated by Gestion with Telstra for the whole of the works and was not an add on to the price. (d) Upon receipt of the funds from Telstra, cleared into its account, the balance of the Telstra monies, less the 5% fee, would be paid by Hyro to Gestion within 7 days." That submission seems to me to amount, in substance, to the proposition that Kit would submit Gestion's statements of work in its name to Telstra and invoice Telstra in its name, with a mark-up, for work undertaken by Gestion, and would make payment to Gestion, less its mark-up, after it had been paid by Telstra. That arrangement could equally be characterised, not as agency, but as a contractual or non-contractual arrangement by which one party performed work in the name of another. 56In the present case, the relevant characterisations of the relationship as an agency occur in Mr Conomos' version of his conversations with various Kit employees and otherwise after issues as to Kit's solvency arose, including Ms Potter's retrospective characterisation of the relationship in her emails of 3 January 2013 and 20 March 2013. The financial records maintained by Gestion were inconsistent with the case which it now advances that Kit was its agent rather than its debtor. For example, it recorded sales to Kit as its customer, during the relevant period, rather than recording sales to Telstra as its customer by Kit as its agent (Ex P2, 2/1276 - 1290). The characterisation of the arrangement as one of agency is also inconsistent with both parties' knowledge that Telstra would only contract with its preferred suppliers, which Kit was and Gestion was not. It may not have been inconsistent with Telstra's requirements for a preferred supplier to subcontract to a third party, taking ultimate responsibility for the provision of the services as between Telstra and the preferred supplier. It would have been inconsistent with those requirements for Kit, as agent for Gestion, to contract in a way which gave rise to a direct contractual arrangement between Gestion and Telstra. Although the pleaded terms of the suggested agency contemplated that Kit would enter into a contract with Telstra as agent for Gestion, it in fact entered no further contract with Telstra other than its pre-existing contract to provide services as principal to Telstra, although it submitted statements of work under the terms of the existing contract. As Kit points out, the fact that it invoiced Telstra in its own name, rather than Gestion's name, or as the agent for Gestion, is inconsistent with the proposition that it contracted with Telstra in a representative capacity for Gestion. 57Gestion also submits, and Ms Potter accepted in evidence, that Gestion was to undertake essentially all of the work undertaken by Telstra, and that Kit had no role other than to, in effect, issue the statement of work to be undertaken to Telstra and issue an invoice to Telstra, to the value of the amount claimed by Gestion plus 5%. However, it does not seem to me that those matters support a conclusion that the relationship was one of agency and of trustee and beneficiary rather than one of debtor and creditor, subject to a term that Kit was not required to pay Gestion until placed in funds by Telstra. 58In the present case, it does not seem to me that Gestion conferred any authority on Kit to affect its legal or other relations with Telstra. To the contrary, any authority of Kit to act on Gestion's behalf was so narrow as to be insubstantial, being no more than permission to submits statement of work prepared by Gestion in Kit's name, in the expectation that Gestion would do the relevant work, and invoice Telstra for the work that had in fact been done by Gestion, creating a legal relationship between Kit and Telstra rather than between Gestion and Telstra. 59For these reasons, I am not satisfied that Gestion has established that Kit agreed to enter, or entered, any contract with Telstra as Gestion's agent. Whether a trust was otherwise established 60Even if it had been established that Kit had contracted with Telstra as Gestion's agent, the payments received would not necessarily be held on trust for Gestion. Conversely, Kit and the liquidators accept that a trust may arise, depending upon the intention of the parties, even if the relationship between Gestion and Kit is not that of principal and agent. The principles applicable to determining whether a trust was established appear to be common ground between the parties. 61In Henry v Hammond (1913) 2 KB 515 at 521, in a passage approved by Dixon J in Cohen v Cohen (1929) 42 CLR 91 at 101, Channell J referred to earlier authorities and observed that: "It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If on the other hand he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then, in my opinion, he is not a trustee ... but merely a debtor. All the authorities seem to me to be consistent with that statement of the law." That proposition was accepted in Walker v Corboy (1990) 19 NSWLR 382 and it was also approved in Georges (in his capacity as joint and several liquidator of Sonray Capital Markets Pty Ltd (in liq)) v Seaborn International Pty Ltd (as trustee for the Seaborn Family Trust) [2012] FCAFC 140; 206 FCR 408 at [41]. 62In Walker v Corboy above, Priestley JA observed (at 386) that, where there is no express agreement, whether a court will apply equitable rules will depend upon its understanding of the expectations of the parties implicit in their dealings with one another in the commercial milieu in which the particular dispute has arisen. His Honour also observed (at 387) that the parties there: "never dreamed that separate accounts would be kept at the agent's banks for each producer or that there was anything more than a creditor/debtor relationship between them. The full circumstances of the case seem to me to require the conclusion that there was no trust relationship between the parties, nor any equitable interest of the principals in the moneys held by the agent." Clarke JA there also referred (at 390) to the caution which should be exercised when deciding whether an intention to impose trust obligations should be inferred from the complex circumstances which often attend the commercial relationship of parties who have traded together for a long period of time and also pointed (at 392) to the significant disruption to the course of trading by the imposition of trust obligations. Meagher JA observed (at 395) that: "... An intention to create a trust is an essential element of a trust. If the parties expressly spell out that their arrangements do or do not involve a trust, a trust comes into existence or does not come into existence accordingly. When, as here, the parties have no expressed intention, it then becomes necessary to see, in all the circumstances of the case, what intention the law should impute to them." His Honour also referred (at 396) to the fact that there are numerous cases where an agent has been held not to be a trustee of proceeds of sale and held that the law would not impute to the parties any intention to create a trust in the relevant circumstances. His Honour pointed to several factors which tended against the finding of a trust, including the absence of any requirement that the agent should keep the proceeds of sale separate from its own general funds; an industry-wide practice of mixing of funds; and the general reluctance of the courts to extend the law of trusts into ordinary commercial transactions. 63The approach adopted in Walker v Corboy above, was followed in Walsh Bay Development Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415 at 423 per Beaumont and Sackville JJ, with whom Jenkinson J agreed, and that approach was also applied in Orica Ltd v Commissioner of Taxation [2010] FCA 197 at [76] - [77] and in Georges (in his capacity as joint and several liquidator of Sonray Capital Markets Pty Ltd (in liq)) v Seaborn International Pty Ltd (as trustee for the Seaborn Family Trust) above at [40]. 64Gestion submits, and I accept, that the parties' intention is to be determined by the language of what was said or otherwise communicated between them, the nature of the transaction and the circumstances surrounding the relationship: Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 503; 102 ALR 681; Compass Resources Ltd v Sherman [2010] WASC 41; (2010) 42 WAR 1 at [69]; Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135 at [48]; Craigcare Group Pty Ltd v Superkite Pty Ltd [2014] NSWSC 326 at [209]. In Salvo v New Tel Ltd [2005] NSWCA 281 at [33] - [34], Spigelman CJ observed that an intention to create an express trust can be inferred from the "full range of relevant circumstances, including the nature of the transaction and the construction of the words used". Spigelman CJ also cited a passage of Gummow J (as his Honour then was) in Re Australian Elizabethan Theatre Trust above, where his Honour observed (at 503) that: "The relevant intention is to be inferred from the language employed by the parties in question and to that end, the Court may look also to the nature of the transaction and the relevant circumstances attending the relationship between them. ... There is no need for particular caution in drawing the inference that a trust was intended." (citations omitted) 65In Craigcare Group above at [205], Hallen J referred to Compass Resources Ltd v Sherman above at [69] as authority that, in determining the relevant intention, the Court will have regard to the language employed by the parties, the nature of the transaction and the circumstances surrounding the relationship. In Commissioner of State Revenue (Vic) v Snowy Hydro Ltd [2012] VSCA 145 at [83], applied in Korda v Australian Executor Trustees (SA) Ltd [2014] VSCA 65 at [7], the Court of Appeal of the Supreme Court of Victoria observed that: "Courts will recognise the existence of a trust in a commercial setting, notwithstanding the absence of an express statement of intention to create a trust, when: 'it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended ... in divining intention from the language which the parties have employed the Courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention'. Regard may be had to 'what could fairly be inferred to be the interests and expectations of the two sides to the transaction in question'. Subjective intentions are irrelevant. With trusts as with contracts, the Court is concerned not with the 'the real intentions of the parties, but with the outward manifestation of those intentions'." (Citations omitted) 66As I noted above, by its Points of Claim, Gestion contends that it was an express, or alternatively implied, term of the oral agreement concluded between it (through Mr Conomos) and Kit (through Ms Potter) on or about 10 December 2010 that payments made by Telstra to Kit, less the pass-through fee of 5%, would be retained by Kit on trust for Gestion, pending payment to Gestion. Gestion also contends that it is to be implied from the express oral term that Kit could not use the payment from Telstra for any purpose other than paying the amount, less the pass-through fee, to Gestion. The second term is dependent on the terms of the initial conversation between Mr Conomos and Ms Potter, so far as it is said to be implied from the express oral terms of the arrangement. 67Gestion opened its case on the basis that the terms of its arrangement with Kit were agreed in conversations in December 2010 between Mr Conomos on behalf of Gestion and Ms Potter on behalf of Kit, in the terms set out in paragraphs 29 and 31 of Mr Conomos' affidavit sworn 2 April 2013, to which I have referred in paragraphs 14 and 20 above. The critical term of the suggested agreement, for present purposes, was that the funds received from Telstra would be used by Kit for no purpose other than to pay Gestion, less the 5% retained by it. At the risk of repetition of the observations I have made above, it does not seem to me that that case has been established. In summary, I have not accepted Mr Conomos' account of the relevant conversations above, which seems to me to have the characteristics of reconstruction and to be undermined by the absence of reference to such a term in subsequent written communications. I also do not accept that Ms Potter, who was a consultant to Kit and plainly aware of her lack of authority, and who had a business rather than a management role within Kit's business, agreed to any term proposed by Mr Conomos that funds received from Telstra would be used by Kit for no purpose other than to pay Gestion, less the 5% retained by it, where that term would plainly have significantly constrained Kit's ordinary activities. The proposition that Ms Potter accepted that term is essential to Gestion's case, because Gestion relies on the agreement said to have been formed in December 2010, and not on any other agreement formed at any other time, and because there is no suggestion that Mr Conomos had any conversation with anyone other than Ms Potter at that time. 68Although Mr Conomos refers to conversations with various other persons within Kit, including Ms Fisher in January 2012, in which he is said to have confirmed the terms of the relevant arrangement and she is said to have confirmed that the funds would not be used for any purpose other than to pay Gestion, the only relevance of these conversations is to the extent that they are said to corroborate the evidence of the earlier discussion between Mr Conomos and Mr Potter giving rise to the relevant agreement. As I noted above, Gestion did not plead, and confirmed in submissions that it did not advance, any contention that any agreement or trust arose from those later conversations. Subsequent conversations between Ms Potter and Ms McLennan (to which I referred in paragraph 35 above), Mr Stephens and Mr Conomos in May 2012 (to which I referred in paragraph 36 above) and between Mr Conomos and other officers of Kit fall within the same category. 69The cross-examination of Ms Potter and the evidence of Ms Armstrong and Ms McLennan in this respect did not clearly distinguish between, on the one hand, an intent on Kit's part not to pay Gestion until it was placed in funds by Telstra and on the other a suggestion that Kit would only use particular identifiable funds, distinct from other funds, to pay Gestion. Much of the evidence of Ms Potter, Ms Armstrong and Ms McLennan seemed to me to go no further than the propositions that, first, Kit would not pay Gestion until it was paid by Telstra and, second, each of Ms Potter, Ms Armstrong and Ms McLennan considered that Kit should, in fairness, pay Gestion as soon as possible after it had been paid by Telstra and not put its ability to do so at risk by not keeping sufficient funds to do so. 70Gestion points out that Ms Potter accepted that Kit would "on-pay" Gestion once paid by Telstra, from money received from Telstra to Gestion although she was not prepared to accept that Kit would not use the money from Telstra for any other purpose. It seems to me that Ms Potter's evidence in that respect reflected the substance of the commercial arrangement, which was that Kit had throughout made clear that it would not pay Gestion until it had been paid by Telstra; however, that would be a feature of many subcontracting relationships and it does not follow from that proposition that Kit would apply the particular monies received from Telstra to make such payments, still less that those monies could only be used for that particular purpose, although held in a mixed account, or were held in trust. Gestion also, understandably, relied on Ms Armstrong's evidence that Ms Potter informed her that the funds received from Telstra were to be used to pay Gestion. It does not seem to me that proposition significantly advances Gestion's case, where it assumes without establishing that the identity of such funds was maintained, even when they were included in a mixed account, so that the particular funds could be used for that particular purpose and it seeks to treat Ms Potter's wish that, in effect, Kit not dissipate the funds which it had received from Telstra as something more than a fair and sensible commercial expectation. 71Gestion also submits that the payment of the remainder of the Telstra funds to Gestion after they had cleared in Kit's account is consistent with the parties having intended that those funds be used to pay Gestion and be held on trust pending payment to Gestion. However, that proposition is equally consistent with those funds not being set aside for Gestion, in any identifiable sense, and not being held on trust pending payment to Gestion, but with Kit applying the monies received from Telstra to its own use and then remitting a lesser amount (after deduction of its 5% mark-up) to Gestion promptly after it had been placed in funds by Telstra to do so. To put it another way, the fact of payment to which Gestion refers is no more indicative of a trust than of a contractual arrangement under which a contractor pays its subcontractor promptly after payment by its client. 72In summary, it has not been established that Kit was bound to, or did, keep the payments received from Telstra separate. In the language of Henry v Hammond above, it seems to me that Kit was obliged to hand over an equivalent sum to that paid by Telstra, less its mark-up, after it was paid by Telstra. There is no suggestion that Kit agreed to create, or did create, a separate account to keep those funds separate from other funds, or otherwise distinguish those funds from its own funds. Even if Kit was (contrary to my view) contracting as Gestion's agent, the absence of separation of such funds does not support a finding that a trust was intended. Claim against the Second Defendants 73As I noted above, the Originating Process sought a declaration that the Second Defendants acted in breach of trust or were knowingly concerned with a breach of trust, but no allegation of knowledge sufficient to support such an allegation was made in the Points of Claim and it was not pressed in closing submissions. The Second Defendants contend that, if they did become a trustee, the Court should excuse them for any breach of trust under s 1318 of the Corporations Act 2001 (Cth). It is not necessary to address that matter, since I am not satisfied that any such trust was established. The claim against the Second Defendants must be dismissed. Relief 74I have held above that Gestion has not established the trust on which it relies to claim relief. Had it done so, a further difficulty would have arisen. Gestion submits that the amount owing by Kit to Gestion is the sum of $181,445; the liquidator still holds an equivalent amount which can be paid to Gestion should it be successful in its claim; and that those monies should be paid to Gestion as beneficiary of the trust on which they are held for it. However, had Gestion otherwise succeeded in its case, it would then have established that it had an equitable proprietary interest in the funds held by the liquidators, but not that it was the only person with such an interest. Had Gestion otherwise been successful, no order could have been made for payment of the relevant funds to it until the liquidators were given the opportunity to determine the existence of any competing claims - including by any other persons with similar pass through arrangements to that on which Gestion relied - with equal priority to Gestion's claim to the monies held by them. 75For these reasons, the proceedings must be dismissed. The Plaintiff must pay the Defendants' costs of the proceedings, as agreed or as assessed.