Cook v Alto Prestige Pty Limited

Cook v Alto Prestige Pty Limited - [2010] NSWSC 92 - NSWSC 2009 case summary — Zoe

[14]

The difference between what we get from Esanda in offset/commission and what we pay the introducers is then split between us on the one hand and A&G on the other on a 50/50 basis. Later when we commenced sale and hire back business, that is where we arrange finance over an unencumbered vehicle already owned by the customer, we decided to contribute a portion of our commission to a fund held by the dealer to build up a provision in case we strike a bad title on a car which may cost the dealership due to its obligations with Esanda under the dealership agreement. We make good incomes from this business and want to protect the dealer so this can continue. So now after introducers are paid we set aside an amount to go into the provision. The amount we work on at the moment is $20.00 per car on all sale and hire back deals. This has the effect of both sides contributing to the fund because the pot is split in half after the provision comes out. 8 The plaintiff's evidence was that Mr Blakeway advised Mr Stubbs that the provision that was set aside was referred to as "the load", and said: By agreement between us the load is used to reimburse the dealer if a bad title is found. The dealer covers the business expenses such as office, phones, desks, cars and so on from his side. 9 At the conclusion of this meeting Mr Stubbs advised the plaintiff and Mr Blakeway that he would speak to Mr Altomonte about what had been discussed and arrange a further meeting with them. 10 Mr Blakeway claimed in his first affidavit that Mr Penman was also present at this meeting, albeit that he did not attribute any conversation to Mr Penman. However, he clarified this in a later affidavit in which he said that it was only Mr Stubbs with whom he and the plaintiff met at this meeting. Mr Blakeway's affidavit evidence was not as detailed as the affidavit evidence of the plaintiff, however he claimed that at this meeting he said: We have a contingency fund which we call a load account to which both parties contribute a certain amount from their earnings, $20 per sale and hire back deal, to cover bad titles on those deals. The idea is to protect the dealer when it issues the invoice for the vehicle. The risk factor in sale and hire back transactions where an owner of an existing car uses it as security for a loan is the dealer giving an invoice to Esanda to pass clear title. The dealer takes the risk. The load is to protect the dealer. We are very careful in checking sale and hire back transactions before proceeding with them. We have not had any problems so far with bad title and expect our share of the fund will be refunded to us when the amount in the fund exceeds the dealer's exposure. We expect a high percentage of the commission because we are giving you the opportunity to make a significant profit just for giving us access to Esanda and providing some infrastructure. We bring all our skill, contacts, finance business, ideas and business systems with us. 29 December 1993 Meeting 11 On 29 December 1993 there was a meeting between the plaintiff and Mr Blakeway, Mr Stubbs and Mr Penman. The plaintiff's affidavit evidence was that Mr Blakeway showed Mr Stubbs and Mr Penman some documents from A&G's operations on a confidential basis, and said: You can see what the income from Esanda to A&G is per month and you can also see the amount paid to introducers leaving a gross profit. Our contribution to the load is $20 per sale and hire back vehicle deducted from gross profit, then a 50% payment to ourselves and the remainder to the dealer. The dealer covers operating expenses which have been running at around 20% of the gross profit from his share. You can see the sort of profits A&G are making out of the business with very little outlay or effort from them. You will understand it is highly confidential for us to show you our A&G dealer Esanda commission plan. We know we are on one of the best plans in the country with Esanda. If we were to move to Altos we would need to ensure that we were on at least as good a plan, and if you are not, we can help you negotiate one which will obviously be a benefit to Altos.

[18]

Plaintiff: We did not give personal warranties at A&G and would not be prepared to do that here either. Once you see our checklists and procedures for sale and hire back you will see how careful we are and that should be sufficient. We will get you copies of them so you can see how thorough we are with it. Also, we initially set up the load for sale and hire backs so that we would have a 'buffer' to handle a bad title. The dealer takes the risk in invoicing the vehicle and as I said we sold the concept of sale and hire backs to A&G by offering to have some of our commission put aside to cover the dealer in the event of a bad title. We are very serious about the longevity and ongoing success of this business and are prepared to use our money to back our judgment, so would envisage doing that same thing with you. 13 The plaintiff claimed that Mr Penman asked if they were part owners of the business and that Mr Blakeway advised that they were not, but it was something they would want to look into with Alto. The conversation included the operational requirements of the business after which Mr Stubbs advised that he thought he had enough to take back to Mr Altomonte and would come back to the plaintiff and Mr Blakeway soon. 14 Mr Blakeway's affidavit evidence of this meeting was that Mr Stubbs said he was concerned about Alto's liability for sale and hire back deals and asked for an explanation. Mr Blakeway claimed that the following conversation then took place: Plaintiff: When we do a sale and hire back deal the dealer issues an invoice for the car or other asset to Esanda. This guarantees the title to Esanda and puts the risk on the dealer if there is a bad title. We have a comprehensive checklist and are very careful with our procedures on these deals. As well as that we have a contingency fund built in to our business model. An amount of $20 per sale and hire back transaction is put into a fund to cover bad titles. This is contributed equally by us and the dealer. The idea of the fund is to reimburse the dealer for any loss it suffers on lease and hire back deals. The idea is to let the fund accumulate to a point where we are comfortable that it has enough in it to cover the risks we are trying to guard against. Ultimately any unused money in the fund goes back to the contributors. Esanda already know we have this fund and like the idea. Mr Penman: That sounds like a good idea. I had that type of thing in mind myself. We are concerned about these sale and hire back deals where Altos issue the invoice. Naturally I will have to speak to George about this in more detail. Mr Stubbs: I have not heard of that idea before but I like it. George will have to approve it of course. 15 Mr Blakeway's affidavit evidence was that at the meeting with Mr Stubbs and Mr Penman he made the following statements: We accept it is appropriate for us to contribute to the load fund to protect the dealer on sale and hire back deals if we are going to do them. We think it is worth it because there is a lot of that type of business around. We are very diligent in our efforts to write clean business so it does not have to be used and we have an asset down the track rather than having to pay it out to the dealer over a bad title or to Esanda. From the commission received from Esanda we pay our introducers. The amount to go into the load fund is then paid and one half of the balance goes to Tony and I. You retain the balance remaining and from this you pay the operating expenses of the business. After expenses A&G were running around 35% of the gross commission after payment to introducers. 16 Mr Blakeway also claimed in his affidavit that Mr Stubbs responded: It gives us comfort to know that you are prepared to put in some hurt money so that we are not carrying the whole risk on this. The risk factor really concerns us. 17 Mr Penman's affidavit evidence was that the plaintiff and Mr Blakeway "explained the nature of their business proposal" at this meeting. Mr Penman said he could not recall the precise words used during the meeting and that his recollection was that either Mr Blakeway or the plaintiff said: We currently run a wholesale finance brokerage through Titan Ford at Brookvale, a dealership owned by Automotive and General. We are not getting the support we need to run this business and believe it is not achieving its full potential. The business works by processing applications for goods (essentially vehicles) financed from customers of the dealership, or introduced by ourselves or third-party brokers. These deals are put to Esanda through their Motor Dealers division, utilising the finance facilities made available to Titan Ford by Esanda.

[19]

The business has grown rapidly since we started it up at Brookvale. The commissions and fees paid by Esanda are shared between our wholesale brokerage business and the third-party broker according to a scale of commissions we have developed and agreed with each of these brokers. After the third-party brokers are paid the balance of commissions is split 50/50 with Titan Ford as the Dealer. We meet all other payments related to the business apart from premises and phone and facsimile facilities. One aspect of the business which is growing rapidly is sale and lease/hire back of vehicles and equipment. We have identified a relatively untapped market of people who want to use unencumbered vehicles and other equipment as security for finance. We need the dealer involved so that it can warrant a clear title on the vehicle to the finance company Esanda. In this case it is Esanda who we understand is the major finance company for the Alto Group. 18 Mr Penman made no mention of the load account in this part of his affidavit. He said that he recalled that the plaintiff and Mr Blakeway brought documents to the meeting but could not recall exactly what they were. In respect of the conversations deposed to by the plaintiff and Mr Blakeway, Mr Penman said that he could not recall the exact words that were spoken; that it was unclear to him whether the plaintiff and Mr Blakeway had some equity in the business; and that it was also unclear to him whether the proposal was for them to be part owners with Alto. In respect of the plaintiff's claim that Mr Blakeway had described their "contribution" to the load as $20 per sale and hire back vehicle deducted from gross profit, Mr Penman's affidavit evidence was: I do not recall Mr Blakeway using those words. I do recall him saying something about there being a risk provision which was described as a "retention" of $20 per sale and hire back vehicle transaction in the Titan Ford business and I noted that the provision was confined to that kind of transaction rather than all finance broker transactions undertaken by the business at Titan Ford. 19 Mr Penman also recalled that there was discussion about the time lag between when introducing brokers were required to be paid commission and when Esanda paid commission. He also accepted that the conversation that the plaintiff attributed to him and the plaintiff's replies (at paragraph 12 above) occurred, however he suggested that it was more likely that he used the word "guarantees" rather than "warranties". Mr Penman recalled that he asked whether the plaintiff and Mr Blakeway had any cash "to put up to cover initial risk and start up" and that the plaintiff responded that they did not. Mr Penman claimed in his affidavit that he understood from what Mr Blakeway said that they were looking into some form of ownership and that what was being proposed was a business venture with Alto rather than an employee/contractor relationship. 20 Mr Penman claimed that he did not recall any words to the effect that the plaintiff and Mr Blakeway's "share of the fund" would be "refunded" to them "when the amount in the fund exceeds the dealer's exposure". He did recall that there was conversation to the effect that there were no problems experienced with title. Mr Penman was cross-examined about these claims as follows (tr 206-207): Q. … You wouldn't deny, would you, that the statement that Mr Blakeway asserts was said on this occasion, was in fact said, would you? A. Well no, I don't categorically deny it but I don't recall.

[30]

Meeting 6 January 1994 26 On about 6 January 1994 a further meeting took place between the plaintiff, Mr Blakeway, Mr Stubbs and Mr Penman. Mr Stubbs advised that he had made enquiries with Esanda who had given a "good indication" that Alto would be able to obtain the same Esanda plan that the plaintiff and Mr Blakeway had at A&G. It is not in issue that Mr Penman informed the plaintiff and Mr Blakeway that he had been looking into the invoicing of vehicles and still needed to do more research on that aspect of the proposal due to possible stamp duty implications. Nor is it in issue that Mr Penman said that they needed to consider what to do in the event of fraudulent misrepresentation because Alto could be liable under the Dealer Agreement and even if it were not, they wanted to keep Esanda happy. He said that Alto needed "insurance" against all the business coming in from the introducers not being "good clean business" and observed that he knew nothing about most of the introducers and had no control over what they did with no come back against them. The plaintiff claimed in his affidavit that Mr Penman then said: I feel the amount being contributed into the load account as you call it may not be enough to cover a loss. It will take a long time to build to a satisfactory level and we are exposed from day one. 27 Mr Penman denied that he said this and claimed that what he said was as follows: The provision being set aside is not enough to cover potential losses. It may need to be taken over a wider range of transactions to get it up to a satisfactory level. We are exposed from day one. 28 The plaintiff informed Mr Penman that at A&G each deal was looked at carefully for credit quality; that the vehicle was inspected; that registration papers were obtained; that there was an indemnity letter signed by the customer; and that a statutory declaration as to proof of ownership was signed by the customer. The plaintiff also advised Mr Penman that the introducers were screened to ensure that they only provided good quality business. The plaintiff claimed that Mr Penman said that Mr Altomonte was worried about liability and the maintenance of good relationships with Esanda and was still of the view that he would like to see personal warranties. Mr Penman accepted that he said words to this effect but once again suggested that he would have used the word "guarantees" rather than "warranties". The plaintiff and Mr Blakeway advised that they were not prepared to give personal warranties and the plaintiff claimed that he then said: Remember that we contribute part of our commission into the load to cover the dealer for bad titles on sale and hireback. We have never had a bad title and Esanda think highly of us. You can call Esanda later for a reference as a condition of proceeding… 29 Mr Penman reiterated that Mr Altomonte was worried about Alto being "covered" and asked how the plaintiff and Mr Blakeway could make sure that Alto was covered. The plaintiff claimed that Mr Blakeway then showed Mr Penman copies of A&G journal entries for November and December 1993 showing "the provision being appropriated by the dealer", and that Mr Blakeway said: You can see we have built up quite a sum in the load account. At the first meeting I had with Jim Stubbs I mentioned we were unhappy with Autos for a number of reasons. One of the reasons we want to leave Autos is that the new dealer principal is trying to make a lot of changes to our business but does not know what he is doing. We created the load as a safety precaution and he has now taken it and appropriated it elsewhere within the dealership accounts. Half of this is our money which has been withheld from our commission. We are entitled to the money withheld if it wasn't used. There was $18,360.00 in the load account. You can now see first hand why we want to move away from them. 30 Mr Penman said that he did not recall Mr Blakeway saying these words, however in cross-examination he gave the following evidence (tr 168): Q. Do you recall discussions with Mr Blakeway and/or Mr Cook in which they indicated they had difficulties with respect to Titan Ford? A. Yes, I do. Q. What did they tell you about those difficulties? A. The concern they expressed was their operating situation, their accommodation, the way the dealership was being run, the level of referrals and the, some money they said was owing to them which hadn't been paid. Q. And has been taken, isn't that what they made clear and they were dissatisfied with what had occurred? A. They certainly expressed dissatisfaction, I can't recall whether they said it was taken from them. Q. They showed you these journal entries, didn't they? A. I don't recall them but I don't dispute it. At that meeting most of the notes and the detail was being considered by Jim Stubbs. But I don't dispute that they may well have been tendered at that meeting. Q. But the understanding you got was they were dissatisfied because there was a money problem? A. Yes and an operational problem. 31 The plaintiff claimed that after further discussion Mr Blakeway said: We are not prepared to give personal warranties, but what if we were to contribute more commission and make the load $25 for every car deal not just sale and hire backs. The load could then be used not only to cover the dealer on bad titles but also to cover Esanda for any fraudulent misrepresentation. The load would grow to a higher level quicker to cover potential risks. Both parties have to agree when it is to be used and how much is to be used to cover bad title or to maintain relationships with Esanda in the event of bad debt or fraudulent misrepresentation. I don't know how much we would need in it, but we could keep contributing until we reached a level that we are both happy with. 32 Mr Penman's affidavit evidence was that he recalled a general discussion about increasing the amount to $25 per vehicle, not just sale and hire backs, but that he could not recall Mr Blakeway saying anything about both parties having to agree when the provision was to be used. In cross-examination Mr Penman said that he could not deny that Mr Blakeway had said this, but that he could not recall him saying it (tr 211). 33 The plaintiff claimed that Mr Penman then laughed and said, "I would personally like to see half a million dollars in it". Mr Penman agreed in his affidavit evidence that he did say that he would personally like to see half a million dollars in the load but denied that he laughed or made light of the matter. The plaintiff claimed that Mr Penman then said: No, seriously we will just have to see as we go. Once we have reached a level we are all happy with we could put the contributions on hold and restart them as need be to maintain a level. Or if the fund becomes self perpetuating we could make periodic refunds back to the contributors. We would want to hold the fund though. 34 Mr Penman denied that he said the words "No, seriously". He also denied that he said the words "or if the fund becomes self perpetuating we could make period refunds back to the contributors". However, he gave affidavit evidence that he said: We would own the fund because we will own the business and we will be bearing the risk which will increase as the level and volume increases if the business develops. 35 Mr Blakeway then said: We don't have a problem with waiting to see how much we should have in the fund or with you managing the fund. You can manage the money as long as there are proper records and we agree on any payment out of the fund. As you know one of the reasons we are leaving A&G is because they knocked off our money. Obviously we don't want that to happen again. You will have to keep proper records if you manage the money. We would expect to see it in the management accounts.

[47]

39 Mr Penman said that Mr Altomonte was "happy with the overall concept" but that he had an issue with business ownership and felt that due to the dealer arrangement with Esanda he did not want to have joint ownership. Mr Blakeway advised Mr Penman that this was not a "huge stumbling block" and that so long as their potential income was sufficient he and the plaintiff could live with not having equity in the business. The plaintiff advised Mr Penman that he agreed with Mr Blakeway on the "equity issue". 40 Mr Blakeway's affidavit evidence of this meeting included the claim that Mr Stubbs said that Mr Altomonte wanted both Mr Blakeway and the plaintiff to give "personal warranties as well as make the contingency payment". Mr Penman recalled a similar conversation but believed that what was said was that Mr Altomonte wanted them to give personal warranties as well as "building a contingency" rather than "make the contingency payment". However, in cross-examination he accepted that this was a belief rather than a recollection (tr 217). Mr Blakeway's affidavit included the claim that he said: We don't know how much would need to be in the fund. We have not had any problems at all at Autos but we are happy to see how it goes and decide later how much should be in the fund and when to cease contributing or start reimbursing money. We are happy as long as our money is working for us. 41 Mr Penman denied that Mr Blakeway said this, but accepted that a conversation as claimed by Mr Blakeway in his affidavit to the following effect took place: Mr Stubbs: I'm much happier now there will be a contingency payment for every car deal. I like the business concept but I was worried about our exposure on sale and hire backs. Mr Blakeway: Well we are going from $20 per sale and hire back to $25 for all car deals. This will make a huge difference to the time it takes to build a decent fund. If you are happy with $25 per car deal so are we. We have not had to resort to the fund to date so based on our experience we don't think there will be any claims. Mr Stubbs: We've got to the point where I am comfortable with the whole thing. I'm prepared to take it to George to try and get his approval. Mr Penman: We will have to work on him. He's very conservative. But if Altos is covered and we can protect Esanda it will certainly help convince him. 42 Mr Penman was cross-examined on his earlier referred to affidavit evidence that so far as he could recall the concept of any provision being shared with or paid to the plaintiff or Mr Blakeway was "never discussed at any meeting" at which he was present as follows. Mr Penman was cross-examined about this claim as follows (tr 208): Q. Mr Blakeway asserts that he said "We have an asset down the track rather than having to pay it out to the dealer over a bad title or to Esanda". You say you don't recall him saying that. It is possible it was said but you just simply have no recollection, having regard to the passage of time? A. No. That's not correct. My recollection is that at that early meeting, as I have said, it was proposed that they would own the business and the question of any payment out would have been to Alto Ford, not back to Mr Blakeway and Mr Cook, if they had owned the business.

[73]

Q. It does not say that that Alto Ford owned it, does it? A. No, it doesn't. Meeting 21 January 1994 47 There was a further meeting between the plaintiff, Mr Blakeway and Mr Penman on 21 January 1994. Mr Penman informed the plaintiff and Mr Blakeway that Mr Altomonte liked what he had heard so far and would like to take the matter further. Mr Blakeway and the plaintiff handed Mr Penman some documents utilised in the operation of the A&G business and after discussion about the checklists and the procedures in relation to sale and hire back transactions, Mr Penman identified as "risky" the transactions in which the customer was paid the settlement of proceeds prior to Esanda paying the dealer. The plaintiff said that he could assure Mr Penman there was no risk and that the only factor was the timing and not the issue of being paid. The plaintiff also said that he would be prepared to guarantee that aspect of the operation of the business to Mr Penman. Mr Penman advised Mr Blakeway and the plaintiff that he would have to take "all of this" to Mr Altomonte for his approval. 48 The plaintiff's affidavit evidence was that Mr Blakeway referred to the letter dated 18 January 1994 and advised Mr Penman that Mr Stubbs had informed them that it was "just a preliminary outline of what has been discussed and that something more formal would be drawn up later". The plaintiff also claimed that Mr Penman responded that he had "taken that on board". In his affidavit evidence, Mr Penman denied that this conversation occurred. Although Mr Penman agreed in cross-examination that it was difficult to "recall precisely" what was said so long ago, he claimed to have "surprisingly a reasonable recollection of the order of events and what was discussed" (tr 167). 49 It is extraordinarily difficult for a witness to recollect events and discussions 14 years earlier without the assistance of a file note and sometimes even with the assistance of a file note. One of the tests of the accuracy of Mr Penman's memory related to a file note that he prepared of the meeting of 21 January 1994. That was a comprehensive and rather lengthy file note. It deals with some documents that had been provided by the plaintiff and Mr Blakeway at the meeting, and then moves on to the difficulties where vehicles were re-invoiced by the brokerage division to Esanda. Thereafter it refers to "certain practical matters" mentioned by the plaintiff contained in sub-paragraphs (a) to (h). The file note concludes with a reference to conversations that Mr Penman subsequently had with Bob Connolly (of Alto) and Rick De Nardi (of Esanda). Sub-paragraph (h) of the file note is in the following terms: Annexed hereto is a flowchart setting out the paperflow as I understand it of the "re-invoiced" transactions. Private problems would not arise in the loan and consumer mortgage situation but would in the lease and CHP situations. ????????????? satisfactory protection could be taken out in the situations where a sale/leasebacks were considered, however again Esanda's policy is to have all such matters approved via Parramatta office rather than the branch office direct. If the volume of current sales/leasebacks were to continue, then there would be a consideration of the impact of not complying with a direction from Esanda as to how matters are to be considered and completed.

[75]

Both AC & DB indicated there was no going back on acceptance once the deal had been ????????????? out and proceeded to sign the letter which I think they regard as a "pre finalisation of contract" letter. John Hughes in Perth seemed to be relatively happy with the move of the business proposed in judging by initial indications that there may be a move ????????????? apparently given to him by DB. 50 Mr Penman gave affidavit evidence as to what he thought had been left out in the three places where the question marks appear in this file note. He was not sure what, if anything, had been omitted from the file note where the first set of question marks appear. He said he thought the sentence made sense "aside from the question marks". He said that he believed that the missing words where the second set of question marks appeared were "approved and sent". He said he believed that the words "of responsibility" were the words that should be inserted in place of the last set of question marks. 51 His affidavit evidence in respect of sub-paragraph (h) was as follows: That paragraph of my note was I believe after refreshing my memory from the note, directed at a conversation at the meeting which was concerned with the notion that once a finance transaction had been worked out with the customer and approved by Esanda, then Alto would be committed to it even if all the paperwork for the particular deal had not been wholly completed. I do not believe it was concerned with the signing or acceptance by Cook and Blakeway of Alto's letter of 18 January 1994 which I had drafted and which had gone out to them under Stubbs' signature for consideration and acceptance. 52 Mr Penman was cross-examined about this evidence. When it was suggested to him that the last paragraph of sub-paragraph (h) related to the Letter, and that what the plaintiff and Mr Blakeway were saying was that there was no going back once they left Titan Ford, he said (tr 178): No, you can suggest it, but it is not correct. The lady who typed my hand writing - my dictated notes - may not have made it a separate paragraph, but it was simply one more step in the exposure and assessment of liabilities and once the central broker, in this case Amfin, had said; we have approved it, it's okay as far as Esanda is concerned, what they were saying to us was; that you could not back out of that deal, even if individual paperwork, such as hire purchase lease arrangements, et cetera, et cetera, were not signed properly in relation to that vehicle, ie, that was the time when the financier, and in some cases the dealer who had to guarantee to the financier, were on the hook. It is talking about individual deals handled by the brokerage. It's got nothing to do with their contract. 53 Mr Penman rejected the suggestion that the missing word in the second set of question marks was "fleshed", giving a meaning of "fleshed out" (tr 185). In this regard Mr Turner referred to Mr Penman's use of that very expression in his cross-examination when referring to the negotiations in late December 1993 being "fleshed out further" (tr 230). In any event, Mr Penman gave the following evidence in cross-examination (tr 187): Q. The words "and proceeded to sign the letter", the connotation to be read from that comment is that Blakeway and Cook signed the letter, isn't that right? A. If they were operating the wholesale brokerage, yes, one of them or Graham Jennens or one of their other brokers would have signed that approval for the individual transaction, correct.

[100]

Mr Altomonte: We are happy with what we have agreed upon. You can make the arrangements with Jim to get started. We will review what to do with the contingency fund after we have had some experience with your business. 63 Mr Penman's recollection of the conversation at this meeting included a recollection that Mr Altomonte said something about his concern about risk exposure to Esanda but that he did not recall him suggesting a departure from the $25 per vehicle provision. Mr Penman denied that Mr Blakeway said any words to the effect that it was "money we will get back sooner or later anyway". He also denied that the plaintiff said that he would prefer it to end up in his pocket than be paid out on a bad title or to Esanda. He accepted that the plaintiff said "how much provision do you think will be needed" and that Mr Altomonte responded that it would be at least half a million dollars. He also accepted that Mr Altomonte said he wanted to see how the business went and revisit it from time to time "because the greater the business the more funding and exposure we will face". Mr Penman denied that Mr Blakeway said any words to the effect of wanting to "get this back one day rather than pay it out to Esanda or over a bad title". 64 Mr Penman's affidavit included the following (paragraph 73 (d)): I do recall Mr Blakeway accepting the proposition of $25 per deal being allocated to the provision. 65 The apparent inconsistency between Mr Penman's recollection in his affidavit that at this meeting Mr Blakeway accepted "the proposition of $25 per deal being allocated to the provision" and the earlier statement in his affidavit that he did not recall Mr Altomonte suggesting a departure from the $25 per vehicle provision was the subject of cross-examination. That cross-examination was as follows (tr 220-224): Q. But one of the matters discussed and negotiated at the meeting was that the $25 per vehicle be increased to all pieces of equipment, that is all deals, not just vehicles? A. That could well be the case. That is not my memory, but that could have been mentioned.

[139]

Change of employer 75 On 30 June 1998 Alto advised the plaintiff that all staff throughout the Alto Group, including the plaintiff, would be employed by an administrative trust, rather than by Alto. By letter of that date the plaintiff was advised that his employer had been changed to the "Alto Administrative Trust", with no adverse impact on any of his entitlements. Seeking a distribution 76 By the end of the 1997/1998 financial year the load (the Load Account) exceeded $500,000. There were a number of meetings with Mr Stubbs, at one of which the plaintiff said: It is about time we worked out a distribution from the load account and reviewed the level of our contributions. The money in the fund has accumulated to over half a million dollars and it is simply not being used for its intended purpose. We have not had a bad title on sale and hireback. Since you are not paying any money from the fund to Esanda we want you to start refunding us. Some contracts that we have written have already expired because they have been paid out or reached the end of the term. There is no liability left on these accounts so the contributions for these should be refunded to us. We are happy enough to leave sufficient in the fund to cover bad debts but only if you are going to use the fund for this purpose. Also, we think it an appropriate time to reduce the fund back to $25.00 per deal seeing there has been no recourse to the fund. 77 Mr Stubbs advised the plaintiff that he would need to take the matter up with Mr Altomonte and that he would get back to him. 78 On 17 July 1998 Mr Stubbs wrote a memorandum to Mr Altomonte entitled "Amfin provision for losses". That memorandum referred to the fact that there had been "provisioning at $50 per deal" since the commencement of the business and to date there had not been any losses written off against the provision. Mr Stubbs noted that there were several "policy payments" made to Esanda in 1994/1995 of approximately $30,000 for expenses. The memorandum also referred to the balance of the "provision" as at 30 June 1998 as $699,925 and included the following: I was asked by the Auditors last year as to what our policy is and I postponed discussion on the subject.

[188]

Plaintiff: We have got to pay Esanda. That's what we have the fund for. If we don't pay them we will be closed down. I have contributed to the fund for over 10 years now and the purpose of the fund is to cover the situation we are in now. I know there is enough in the fund to cover their claim. If we don't everybody working in Amfin will be out of a job. 90 At the end of July 2004 Esanda stopped dealing with Amfin and the Alto Group and it shut down the computer link between the two businesses. This meant that Amfin could no longer do business with Esanda and the plaintiff and other Amfin staff were terminated. 91 On 17 August 2004 the plaintiff wrote to Mr Stubbs advising that he had obtained legal advice that his reasonable compensation would include: Account to me for the commissions I contributed to the "load" account. This was $50.00 per settled finance transaction. My estimation is that the contribution from my settled finance transactions alone, not including the other brokers that worked for the company, is greater than $500,000.00 over a period of 10 years. The amount contributed by me, once ascertained should be used to calculate commission that I have foregone by contributing to the load account. Using my estimation above of $500,000.00 contributed, I calculate that I am owed a minimum of $125,000.00 ($50.00 per deal x 50% x 50% x number of deals settled over 10 years). 92 The relationship between the parties soured and in 2005 the plaintiff brought proceedings in the Chief Industrial Magistrates Court against Mr Altomonte as the Trustee of the Alto Administrative Trust seeking amounts to which he claimed to be entitled for Annual Leave and Long Service Leave. The plaintiff was successful in those proceedings and costs were awarded against the defendant. There was no claim made in those proceedings in respect of the Load Account. Assignment 93 On 7 November 2008 Mr Blakeway's company, Danmow Pty Limited (Danmow), as first assignor, and Mr Blakeway as second assignor entered into a Deed of Assignment (the Deed) with the plaintiff, as assignee. The "Background" section of the Deed referred to the contributions made by Danmow and the plaintiff to the Load Account and included the following: D. The first assignor has agreed to assign all its right title and interest to the moneys it contributed to the provision fund and the right to recover and retain those funds to the assignee on terms set out below.

[193]

Plaintiff's claims 96 The plaintiff's case at trial, as pleaded in the Second Further Amended Statement of Claim filed in Court on 17 November 2009, is that in late January/early February 1994 Alto agreed to employ the plaintiff and Mr Blakeway and/or Danmow, and that such agreement included a term that after payment of certain expenses an amount of $12.50 (later $25 and later still $50) per financing deal would be retained from the plaintiff's and Mr Blakeway's/Danmow's respective shares of the income of the business and the same amount from Alto's respective share of the business that would otherwise be due to the parties and set aside in a fund (the Load Account) on account of any need to make a payment in respect of the contingencies "and would otherwise be repayable after closure of the business and in the event that the monies were not required for contingencies". 97 The plaintiff's alternative claim is that the agreement entered into in late January/early February 1994 included a term that the plaintiff and Mr Blakeway/Danmow would be employed on the basis that: (1) after deduction of external brokers' expenses they would receive 50% of the income of the business (although in the case of the plaintiff on a sliding scale); (2) that a contingency reserve of $25 (and later $50) per deal was to be created or maintained by Alto to provide a buffer to protect against the specified contingencies; and (3) in the event that Alto retained any income in the reserve that was otherwise payable to the plaintiff and Mr Blakeway/Danmow as part of the fund for contingencies, it was to be paid to the plaintiff and Mr Blakeway/Danmow after closure of the business and in the event that the moneys were not required for the specified contingencies. 98 The plaintiff seeks declarations that the amounts deducted by the defendants from commissions otherwise payable to the plaintiff in respect of the finance lease deals introduced by the plaintiff to Esanda are held on resulting trust for the plaintiff. The plaintiff also seeks other similar declarations in relation to the Load Account being held on resulting trust for himself, Mr Blakeway and/or Danmow. Mr Blakeway executed Deeds of Assignment in favour of the plaintiff and declarations are sought as to the validity of those assignments. There is also a claim for an order for the defendants to account to the plaintiff in respect of the Load Account. 99 There were a number of other claims made by the plaintiff. The first was that he was entitled to the return of the contributions to the Load Account on the basis that there was a total failure of consideration. This was not developed in final address. There was also a claim that the contributions to the Load Account constituted a loan which was repayable when the business came to an end. This was not developed in final address. There was also a claim of moneys had and received which was not developed in final address.

[195]

The Letter 101 I will deal firstly with the defendants' contention that the Letter constitutes the whole contract between the parties, so far as the Load Account is concerned. 102 Paragraph 2 of the Letter refers to the commencement date as a time "after basic terms of the operations have been agreed" between the parties. It was therefore necessary for the parties to reach further agreement prior to the contract being finalised. 103 Paragraph 3 of the Letter referred to "Remuneration" in terms of compensation that was to be "no less favourable than those current arrangements described by you to me, and intended to form the basis of signed Schedules to be annexed to a copy of this letter". The detail of that remuneration and compensation had to completed and schedules had to be agreed and signed. 104 Paragraph 5 of the Letter provided that contracts would be entered into, either in a form "similar" to the plaintiff's existing arrangements, or in the form of the defendant's standard employment and contractual documents "with appropriate amendments". It was therefore necessary for the parties to reach further agreement as to whether the contract would be in a form "similar" to that which the plaintiff had with his existing employer, Titan Ford, or in the form of Alto's standard employment contract. The timing of that process was "as soon as practicable after the basic terms of the arrangements" were agreed between the parties. The reference to the "basic terms" in paragraph 5 of the Letter seems to me to be a reference back to that expression in paragraph 2 of the Letter. 105 Paragraph 7 of the Letter refers to "$25 per vehicle" as the basis upon which the "contingency reserve" (the Load Account) was to be "created and maintained". There is no issue that half of the amount of $25 per vehicle ($12.50) was to be contributed to the Load Account by the plaintiff and the other half by the defendant. That is not reflected in the Letter. There is also no issue that the amount of $25 per vehicle was changed to $25 per deal. That is not reflected in the Letter. These matters alone satisfy me that the Letter was not the whole contract between the parties as it related to the Load Account. I have also concluded that the last paragraph of sub-paragraph (h) of Mr Penman's file note of the meeting of 21 January 1994 was a reference to the plaintiff and Mr Blakeway signing the Letter. I am satisfied from the entry in that paragraph that Mr Penman understood that the plaintiff and Mr Blakeway did not intend that the Letter was the final contract between them and the defendant, but rather they intended it to be a "pre-finalisation of contract". 106 I am satisfied that the Letter does not constitute the contract between the parties. It is part of the contractual arrangements between the parties but it is not the whole contract.

[196]

The repayment term 107 There is no issue that the amount of $25 (and later $50) per deal from the plaintiff's (and/or Mr Blakeway's/Danmow's) and Alto's income on those deals was "retained" and credited to the Load Account. I have referred to the Load Account as a convenient description of the arrangement between the parties. However in paragraph 7 of the Letter the expressions "contingency reserve" and "buffer fund" were used. Although Mr Lockhart submitted that it was unclear what liabilities or obligations the Load Account was to be used for, I am satisfied that the parties intended that the Load Account was to be available for payment in respect of the contingencies with possible bad title and/or fraud. The real issue in both the main claim and the alternative claim in contract is whether the agreement included a term that the Load Account was to be repayable to the contributors to the Load Account after closure of the business and in the event that the moneys were not required for contingencies (the repayment term). 108 The plaintiff relied upon the various conversations referred to earlier in this judgment in support of his claim that the parties agreed to the repayment term. Those conversations did not include any discussion about what would happen to the Load Account if the business ceased to operate. That is a difficulty for the plaintiff in the way that he has pleaded his case. There were conversations about the difficulties the plaintiff and Mr Blakeway were experiencing at Titan Ford and their reasons for wishing to leave that company. Mr Penman accepted in his cross-examination that he understood from those conversations that one of the reasons the plaintiff and Mr Blakeway were leaving Titan Ford was that "some money they said was owing to them which hadn't been paid" (tr 168). Although Mr Penman was not able to recollect whether they said that the money "was taken from them" he remembered that they "certainly expressed their dissatisfaction" (tr 168). I am satisfied that Mr Blakeway informed Mr Stubbs and Mr Penman that one of the reasons that he and the plaintiff wanted to leave Titan Ford was because the "load" had been appropriated elsewhere by that company. 109 Although Mr Penman had given affidavit evidence that he did not recall either the plaintiff or Mr Blakeway saying that they expected that their share of the fund would be refunded, he accepted that "it may well be so" that such a conversation may well have occurred, at least at the meetings on 29 December 1993, because at that time the plaintiff and Mr Blakeway "were pursuing the line that they would own the business" (tr 206-207). Mr Penman recalled Mr Blakeway using the word "contributors", however he did not have a recollection as to the context or the detail of the conversation in which that expression was used. I am satisfied that it is more probable than not that Mr Blakeway used the term "contributors" in the context in which he claimed he used it; that is, when he said to Mr Penman that he and the plaintiff regarded themselves as being entitled to the moneys in the "load" and that any moneys in the "load" that were not used would go back to the "contributors". However I accept that at the time that this proposal was raised in the meeting on 29 December 1993 and the further discussion in relation to it at the meeting on 6 January 1994, it was intended, although not finally decided, that the plaintiff and Mr Blakeway would have some equity in the business. There is no issue that this intention was abandoned at the meeting on 6 January 1994 when Mr Penman informed the plaintiff and Mr Blakeway that Mr Altomonte did not want to have joint ownership. 110 Mr Penman accepted that at the meeting on 6 January 1994 he did say that he would personally like to see half a million dollars in the Load Account. The plaintiff claimed that Mr Penman had said that if the fund became self-perpetuating, periodical refunds could be made "back to the contributors". The plaintiff also claimed that Mr Penman said, "we would want to hold the fund". Mr Penman denied saying anything about periodical refunds back to the "contributors". He claimed that he said that Alto would "own the fund" because "we will own the business and we will be bearing a risk which would increase as the level and volume increases if the business develops". 111 The plaintiff claimed that he referred to the Load Account as being a "forced saving" or a "nest egg". Mr Penman denied that the plaintiff used these expressions and also denied that Mr Blakeway referred to the Load Account as an "asset down the track". Even if these expressions were used by the plaintiff it does not mean that the repayment term was agreed between the parties. Neither the plaintiff nor Mr Blakeway gave evidence that when they made these statements there was any response in which the defendant could be taken to have agreed to such statements. Indeed at the stage at which the plaintiff and Mr Blakeway claimed they made these statements the parties were acutely aware that it was necessary to build the Load Account to a satisfactory level to meet the Esanda contingencies. Whether there was ever to be a "nest egg" would depend upon whether the Esanda contingencies materialised. 112 Although Mr Penman made a detailed file note of the meeting of 21 January 1994, there is no similarly detailed file note of the meeting of 6 January 1994. The plaintiff claims that it is more probable than not that, notwithstanding Mr Penman's denials, the version of the conversation for which he contends and Mr Blakeway contends, is correct. The plaintiff submitted that the determination of the conflict between the competing versions of these conversations is assisted by Mr Penman's acceptance that management accounts in relation to the Load Account were to be provided to the plaintiff and Mr Blakeway. It was submitted that if, as the defendants claim, the plaintiff and Mr Blakeway had no entitlement to the moneys in the Load Account, there was no need to provide them with management accounts. 113 There is no issue that it was agreed that: the defendants would keep proper records in relation to the Load Account; the Load Account would be reflected in the management accounts; and the plaintiff and Mr Blakeway would be provided with, or provided access to, those records and management accounts. Mr Penman accepted in cross-examination that one of the benefits of keeping such "proper records" of the Load Account was so that the plaintiff and Mr Blakeway "could see what was happening with money they were contributing" (tr 214). He also accepted that the plaintiff and Mr Blakeway had an "interest" in the fund, however he suggested that such interest was "purely to reflect easily the number of transactions" that had been done (tr 214). 114 In cross-examination Mr Penman claimed that the plaintiff and Mr Blakeway "were not contributing" because the Load Account was treated as "an expense in the business" (tr 215). When challenged in relation to this statement by reference to the fact that it was not how it was described in the Letter, Mr Penman claimed that the relevant paragraph in the Letter was to "overcome the inability or the reluctance" of the plaintiff and Mr Blakeway to provide guarantees (tr 215). He accepted that if they had been willing to provide guarantees, their personal assets would have been "on the line" and that the Load Account was also "on the line" (tr 215). 115 I do not accept Mr Penman's evidence in his cross-examination (at tr 214-215) that the "interest" the plaintiff and Mr Blakeway had in having access to the proper records and management accounts in relation to the Load Account was "purely" to easily identify the number of transactions that had been completed. There was no evidence that such accounts were used for this purpose and there was no evidence that the plaintiff and/or Mr Blakeway had any difficulty in identifying the number of transactions that had been completed by the business without access to such records. 116 I am satisfied that the request for the keeping of proper records and the reflection of the Load Account in the management accounts occurred at the time when the plaintiff and Mr Blakeway agreed to abandon their intention to have equity in the business. I am not satisfied that the abandonment of the plaintiff's/Mr Blakeway's intention in this regard meant that they no longer claimed to have any financial interest in the Load Account. 117 The plaintiff submitted that if the parties' mutual intention was that he and/or Mr Blakeway had no financial interest in the Load Account, there was no need to keep them informed of the level of the Load Account or to provide records to them in relation to its management. Mr Penman suggested in his cross-examination that one of the reasons the plaintiff and Mr Blakeway would need to have access to the proper records and management accounts was to give them "an idea of what funds were available to meet the exposure in the various areas of risk" that had been identified (tr 214). Mr Turner challenged Mr Penman in relation to this claim with the suggestion that the plaintiff and Mr Blakeway were not exposed to the risks (because it had been agreed that Alto would own the business and therefore be exposed to the risks) and accordingly there was no need to give them access to the records or management accounts. Mr Penman had to agree with that suggestion, although he couched it cautiously as not disagreeing with it (tr 215).

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118 I am satisfied that the reason the defendant agreed that proper records would be kept and that management accounts were to be provided to the plaintiff and Mr Blakeway was because the defendant accepted that the plaintiff and Mr Blakeway had a financial interest in the Load Account to the extent of the contributions they made to it, not merely an operational/administrative interest to identify the number of transactions completed by the business. 119 The file note made by Mr Penman on 27 January 1994 referred to "the amount of retained commission". Mr Penman was reticent to agree in cross-examination that this part of the file note and the use of the expression "retained" was a reference to the Load Account (tr 205). After Mr Penman gave evidence that he was not sure that it referred to the Load Account but that it "could have", Mr Turner challenged him by suggesting that there were no other retained commissions contemplated between the parties. Mr Penman agreed that he was not aware of any but then claimed that there may be some "final adjustments of commission that happened from time to time from Esanda depending on how a particular transaction eventuated, whether it was, whatever the final rate of the transaction was" (tr 205). Mr Turner reminded Mr Penman that the file note was prepared at a time when the business had not commenced operation and suggested that there was no discussion about final adjustments of commission to which he had just referred. Mr Penman responded, "No, only in relation to comments that were made about the way Esanda operated" (tr 205). When pressed further by Mr Turner to agree that the reference in the file note to "retained" commissions related to the Load Account, Mr Penman said that "it may well have" (tr 205). He resisted the suggestion made by Mr Turner that the concept of retention meant that if the moneys were not needed for the purpose for which they were "retained", they would be released to the party otherwise entitled to them (tr 205). Notwithstanding Mr Penman's reticence, I have no doubt that the reference to the "retained" commissions in this file note was a reference to the proposed Load Account. 120 The plaintiff also relied upon the evidence in relation to the meeting of 3 February 1994 in support of his contention that the repayment term was agreed between the parties. The plaintiff relied upon his own statement at that meeting that he would prefer the Load Account moneys to end up in his pocket rather than being paid out to Esanda. The plaintiff claimed that at this meeting Mr Blakeway referred to the money in the Load Account as "money we will get back sooner or later". Mr Blakeway's affidavit evidence did not include a claim that he said to Mr Altomonte at this meeting that the money in the Load Account would go back to the plaintiff and himself sooner or later. Rather, his affidavit evidence was that Mr Altomonte wanted to see how the business went and to "review what to do" with the Load Account after the parties had some experience with the business. 121 Mr Blakeway was cross-examined in relation to the letter written to Mr Stubbs by himself, the plaintiff and Mr Jennens on 4 August 1998, as follows (tr 124): Q. At the time you wrote this letter you didn't believe you did have an entitlement to moneys in the fund, did you? A. Not correct, I did believe it.

[204]

Q. What was your view as to how one would work out what you considered to be your entitlement to a refund? A. My view went back to our original negotiations, that this business had never existed on the planet earth before and therefore we would have to, I am not very good with words, what means suck it and see in the future and both Altomonte, who was President at the time, and Stubbs said well, we are not in the business of being ridiculous, we want you to be happy because you are and then you will make us happy. So it was by negotiation, painful negotiations. 122 Mr Lockhart challenged Mr Blakeway as to why, when he left the business in 1999, he did not write a letter of demand to Alto seeking payment of the amounts that he had contributed to the Load Account. This challenge was obviously to support a submission that at the time Mr Blakeway resigned from the business, he did not believe he was entitled to any amounts in the Load Account. Mr Blakeway explained that he did not write the letter of demand at that time and waited until 2004 to do so. He said that he was sure that if he had written a letter at that time, the defendants would have rejected any claim on the basis that all of his contracts were not "up yet" (tr 125). Mr Blakeway gave evidence that the longest finance contracts that were written were for five years, and that in five years from the date of his resignation anything that he had written would have been paid in full or any problem in relation to them would have arisen (tr 125). 123 The fact that Mr Blakeway did not make a demand for any amounts in the Load Account at the time of his resignation is not a matter that weighs in the balance against the repayment term having been agreed as alleged. Mr Blakeway's evidence in relation to the anticipated rejection of any claim on the basis that the contracts were not "up yet" is consistent with the parties' intention that the Load Account was created and maintained to protect Alto from the Esanda contingencies. It was not possible to know whether there would be any moneys in the Load Account to which Mr Blakeway might stake a claim until the time frame within which the Esanda contingencies might arise had expired. 124 Mr Lockhart cross-examined Mr Blakeway in relation to the position of the internal brokers and whether Mr Blakeway had discussed the Load Account with those brokers. Mr Blakeway gave the following evidence (tr 131): Q. Did you say to any of these internal brokers, prior to beginning the business, anything concerning any entitlement to refund of any surplus in the load? A. General descriptions such as; down the track.

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130 The post-contractual conduct between the parties may be considered for the limited purpose of deciding whether an agreement was entered into late January/early February 1994: Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153, at [25] per Heydon JA (as his Honour then was). 131 There is no mention of the repayment term in any of the written communications after February 1994 and in particular in the letter from the plaintiff, Mr Blakeway and Mr Jennens to Mr Stubbs dated 4 August 1998. What that letter sought was an "immediate dialogue to arrange a fair distribution" with the suggestion that there should be a "proportionate split as per current commission schedule after agreeing on how much should be held as a constant". It is reasonable to expect that if the plaintiff and Mr Blakeway believed they had an agreement with either of the defendants that the "unused" moneys in the Load Account were to be returned to them "when the business closed", there would have been some reference back to that agreement in that letter. The proposal that there should be agreement as to how much should be held "as a constant" with the further proposal that there could be payments every six months is consistent with Mr Blakeway's evidence that the agreement reached in January/February 1994 was that the parties would review the Load Account after they had the opportunity to see how the business developed. 132 The plaintiff also claimed that the repayment term should be implied. The defendants submitted that the repayment term should not be implied because it does not satisfy the tests applicable to such a term. It was certainly not so obvious that it went without saying and it was not necessary to give business efficacy to the contract between the parties: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283. The parties intended to review the Load Account after seeing how the business developed. In late January/early February and February 1994, the parties did not address what was to happen if the business closed and there was a surplus in the Load Account.

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Resulting Trust 134 The defendants submitted that the plaintiff's resulting trust claim fails if the parties did not reach the agreement "as alleged". In this regard the defendants relied on what Kirby P said in Bryson v Bryant & Anor (1992) 29 NSWLR 188 at 198 that it was necessary for the parties to have a common intention in relation to the trust. However, the fact that the plaintiff has not proved that the contract between the parties included the repayment term does not mean that the resulting trust claim falls with that failure. 135 It is quite clear that the parties intended to create the Load Account to protect Alto and the Trust against claims by Esanda in respect of the Esanda contingencies. Although the plaintiff and Mr Blakeway were confident in February 1994 that they would not encounter circumstances where the Esanda contingencies would arise, the parties were clearly concerned that Alto should be protected in case they did arise. 136 An issue to be decided on this aspect of the plaintiff's claim is whether the parties intended that the Load Account would be at the free disposal of Alto: In re Goldcorp Exchange Ltd [1995] 1 AC 74, at 100 per Lord Mustill; or whether such freedom was necessarily excluded by reason of the parties' intention that the Load Account was to be used exclusively for payment of the Esanda contingencies: Twinsectra Ltd v Yardley [2002] 2 AC 164, at 185 per Lord Millett. One matter relevant to the decision on this issue is whether the parties agreed that Alto would "own" the Load Account or "hold" the Load Account. The former concept carries with it a prima facie freedom for Alto to use the Load Account for any purpose, whereas the latter concept carries with it a prima facie exclusion of such freedom. The defendants contended for the former position and the plaintiff for the latter. 137 In support of their contention the defendants relied on Mr Penman's evidence of the discussion at the meeting on 6 January 1994. There is no issue that at this meeting Mr Penman said that he would like to see $500,000 in the Load Account, nor is there any issue that there was discussion about the level to which the Load Account would build. The plaintiff claimed that Mr Penman also said: … we will just have to see as we go. Once we have reached a level we are all happy with we could put the contributions on hold and restart them as need be to maintain a level. Or if the fund becomes self perpetuating we could make periodic refunds back to the contributors. We would want to hold the fund though.

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Q. But rather than the concept of owning the fund; in fact the concept was holding the fund? A. That's not my recollection. 140 The defendants' claim that Alto would "own" the Load Account needs to be assessed in light of the terms of the Letter and Mr Penman's concession that the defendant agreed it would keep proper records, reflect the Load Account in the management accounts, and give the plaintiff and Mr Blakeway access to these records and accounts. The Letter does not record that Alto would "own" the Load Account. Rather it records that the Load Account would be "created and maintained" by Alto. Mr Penman was a very experienced corporate lawyer. By January 1994, he had spent over twenty years in private practice and a further three years as a corporate executive in which his work was predominantly legal and financial (tr 154). If the parties had agreed at the meeting on 6 January 1994 that Alto was to "own" the Load Account, then it is reasonable to expect that Mr Penman would have included such an expression in the Letter rather than the expression "create and maintain". The expression "create and maintain" in the context in which it appears in the Letter conveys the meaning that Alto would set up the Load Account and keep it in existence or preserve it. It does not mean that Alto would own it. The expression "create and maintain" is consistent with the plaintiff's claim that what was said at the meeting on 6 January 1994 was that Alto would "hold" the Load Account. 141 I have already dealt with Mr Penman's cross-examination in relation to the keeping of records and the management accounts and I have concluded that the reason that Alto agreed to keep the records and management accounts and provide them to the plaintiff and Mr Blakeway was because the defendant accepted that the plaintiff and Mr Blakeway had a financial interest in the Load Account. 142 I am satisfied that at the meeting on 6 January 1994 Mr Penman said that Alto would "hold" the Load Account rather than "own" it. I am satisfied that the parties intended that Alto would "hold" the Load Account for the specific and exclusive purpose of providing protection to Alto against claims for the Esanda contingencies. 143 Part of the defendants' submissions amounts to a claim that they are entitled to keep the Load Account, irrespective of whether the Esanda contingencies materalised. If the parties intended that the defendants would be entitled to keep the Load Account irrespective of any need to pay Esanda, then there would have been no need to provide the plaintiff and Mr Blakeway/Danmow with the records and/or the management accounts. 144 In his memorandum dated 17 July 1998 Mr Stubbs advised Mr Altomonte that because most finance contracts ran for 36-48 months, it was appropriate to cap the Load Account at three years, adjusted for any write-offs arising in the relevant year. In my view this advice recognised that there were surplus funds in the Load Account beyond that which would be needed to pay for the Esanda contingencies. This adjustment to the Load Account, by the writeback to profit of amounts surplus to the needs to meet the Esanda contingencies, was a unilateral dealing with the Load Account and without notice to or the agreement of the plaintiff and/or Mr Blakeway. However, Mr Stubbs' memorandum referred to the belief held by the plaintiff, Mr Blakeway, and Mr Jennens that they had an entitlement to a share of the Load Account. The memorandum does not record any statement to the effect that their belief was unwarranted or unreasonable. Rather Mr Stubbs proposed putting 25% of writebacks into a "pool" to be used for promotional purposes for the business and suggested that he wanted to be seen "to be equitable". Mr Altomonte approved this proposal and I assume that this payment was made, there being no evidence to the contrary. If it had been intended that the defendants would own the Load Account and be free to use it or any surplus funds within it for any purpose and without recourse to the plaintiff and Mr Blakeway/Danmow, there was no need to be seen to be equitable or to provide 25% of the surplus to the benefit of the plaintiff and Mr Blakeway. 145 I am satisfied that Alto was not free to dispose of the Load Account in any way it desired. Such freedom was necessarily excluded by reason of the parties' intention that the Load Account be used exclusively for payment of the Esanda contingencies. 146 I am also satisfied that the parties agreed that the Load Account would be reviewed after they had the opportunity to see how the business developed and to see whether it was necessary to use the Load Account for the Esanda contingencies. I am satisfied that they intended to review the Load Account for the purpose of working out the level at which it should be "maintained". This carried with it the need to work out what was to happen to the surplus funds, if any, over the level at which the parties agreed to maintain the Load Account. 147 The defendants also claimed that there was no payment made by the plaintiff, or Mr Blakeway/Danmow, of any of their moneys to Alto. It was submitted that the "contingency reserve" referred to in the Letter was "merely an integer in the formula of calculating" what the plaintiff and Mr Blakeway/Danmow would be paid and was not part of their earnings. It was submitted that there was an arrangement in relation to the amount of remuneration to be received by the plaintiff, calculated by reference to a commission rate based upon the gross brokerage of the business, less certain amounts, including an agreed amount per vehicle or per deal. It was submitted that even on the plaintiff's case, it was never the money of the plaintiff or Mr Blakeway/Danmow and therefore no trust arose. I disagree with this characterisation. Commissions that were payable to the plaintiff and Mr Blakeway/Danmow were withheld or retained because the plaintiff and Mr Blakeway/Danmow had agreed to contribute those amounts due to them into the Load Account. 148 The defendants submitted that no fund was ever created and thus an essential term of a trust was not established: Public Curator of Queensland v The Union Trustee Company of Australia Ltd (1922) 31 CLR 66 at 74-75. This submission was based on the proposition that because the plaintiff did not pay any money into a separate bank account, no trust property or fund was ever established. Careful records were kept as to the amount of the Load Account and careful records were kept as to the amount of writebacks to profit once the decision was made to cap the Load Account at three years. Whilst the establishment of a separate account may be an indicator of the existence of a trust the fact that a separate physical account was not established in the circumstances of this case does not mean that there is no trust property. 149 The defendants also submitted that there was no certainty of terms as to the use to which the Load Account would be put and when it was to be redistributed. I disagree with the first part of this submission. As I have said above, the parties' intentions in this regard were quite clear. However I am satisfied that at that time the Load Account was created, there was no certainty as to the terms on which it might be redistributed. However, this does not mean that the plaintiff's resulting trust claim fails.

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151 In Twinsectra Ltd v Yardley, Lord Millett referred to Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 and the arrangements that, since that case, are commonly referred to as a Quistclose trust. Both of those cases involved a loan from one party to another for a specific purpose rather than equal contributions into a fund for a specific purpose. Notwithstanding this distinguishing feature, Lord Millett's statements in Twinsectra Ltd v Yardley are apt to the circumstances of this case. After referring to the explanation of North J in Gibert v Gonard (1884) 54 LJ Ch 439 at 440 that a recipient of a payment for a particular purpose has a duty and a legal obligation to apply such money for such purpose, Lord Millett said at 186: The duty is not contractual but fiduciary. It may exist despite the absence of any contract at all between the parties, as in Rose v Rose (1986) 7 NSWLR 679; and it binds third parties as in the Quistclose case itself. The duty is fiduciary in character because a person who makes money available on terms that it is to be used for a particular purpose only and not for any other purpose thereby places his trust and confidence in the recipient to ensure that it is properly applied. This is a classic situation in which a fiduciary relationship arises, and since it arises in respect of a specific fund it gives rise to a trust. 152 The handing down of Twinsectra Ltd v Yardley persuaded a number of essayists to take a closer look at the Quistclose trust at a small conference in All Souls College, Oxford in late 2002. The papers delivered at that conference constitute the book The Quistclose Trust: Critical Essays edited by William Swadling and published by Hart Publishing Oxford and Portland, Oregon, in 2004. The Foreword to that book was written by Lord Millett on 27 October 2003 which included the following: The so-called Quistclose trust probably represents the single most important application of equitable principles in commercial life … The nature of the trust and the location of the beneficial interest remain elusive and continue to be debated by distinguished academic lawyers. They demand to know whether the Quistclose trust is a form of express, implied, constructive or resulting trust. If the mere author of a foreword may venture to intrude in a private dispute (at the risk of exposing himself to derisive comment from all sides), I would say that it may be any of them, depending on the facts of the particular case and the boundaries between these various forms of trust, on which not everyone is agreed.

[225]

Has the Purpose Failed? 155 The defendants submitted that the purpose will not fail until a point in time is reached when Esanda is no longer able to make any claim upon Alto in respect of the Esanda contingencies. Esanda terminated its arrangements with Alto on 31 July 2004. The defendants submitted that it remains open to Esanda to bring any claim it may have for losses occasioned to it arising out of any breaches of the agreement between Alto and Esanda. In this regard the defendants submitted that Alto remains exposed to claims to Esanda for at least a period of six years from the termination of the arrangement between Esanda and Alto on 31 July 2004. The defendants submitted that the plaintiff's claim for a return of any surplus is premature by reason of the possible exposure of Alto to loss and liabilities. 156 This submission suggested that the Load Account should be available to Alto to cover any losses that may be incurred by way of liabilities to Esanda arising out of any breaches of the agreement between Alto and Esanda. That is not the purpose for which the Load Account was created. It is to meet the Esanda contingencies. 157 The evidence establishes that most contracts or deals transacted by the business ran for 36 to 48 months. Mr Stubbs advised Mr Altomonte in his memorandum on 17 July 1998 that any "potential loss diminishes over time as the customer acquires equity in the goods". Mr Stubbs also advised Mr Altomonte that it was appropriate "to cap the provision at three years". It is now almost six years since the business closed, and if one adopts Mr Stubbs' advice to Mr Altomonte, with which Mr Altomonte agreed, the exposure of Alto to loss from any of the contracts transacted by the business was three years or at the most four years from the date of the last contract written by the business. I am not satisfied that the plaintiff's claim is premature. The defendants have called no evidence to establish that they are exposed to any risk of the Esanda contingencies. Although there was communication between the defendants and Esanda in relation to alleged fraudulent claims of $1,500,000, Esanda compensated itself for what it apparently thought was an appropriate amount by withholding $91,773.17 from Alto's commissions in July 2004. 158 I am satisfied that the purpose of the Load Account has failed. Internal Brokers 159 The plaintiff gave evidence in his affidavit of 24 July 2009 of his conversations with Mr Stubbs in relation to the employment of the internal brokers. These conversations occurred in 1996 when the business had developed to a point that it could accommodate the employment of internal brokers. The plaintiff informed Mr Stubbs that he proposed to charge the brokers $50 per deal for the Load Account. Mr Stubbs said that it sounded good to him. There were a number of internal brokers employed in the business. They were Alex Dobson, Martin Edwards, John Easter, Anthony Pellegrino, Sandi Brown and Steve Edwards. 160 The plaintiff's affidavit evidence of his conversations with Mr Dobson included a claim that he informed Mr Dobson that if he accepted employment with the business he would be charged $50 per deal for the Load Account. Mr Dobson informed the plaintiff that it was "a lot" and asked if he would get it back. The plaintiff advised Mr Dobson that he would not get it back. The plaintiff informed Mr Stubbs of Mr Dobson's reluctance to pay $50 per deal and proposed that Mr Dobson be charged $25 per deal and that the defendant, Mr Blakeway and the plaintiff contribute the balance equally. Mr Stubbs agreed to this proposal. During Mr Dobson's employment, $25 per deal was deducted from his commissions and held by the defendant as part of the Load Account, and $12.50 per deal was contributed by Mr Blakeway (through Danmow) and the plaintiff by way of deduction from their commission. Similarly $12.50 was contributed by the defendant per deal. This continued until Mr Dobson left his employment with the business at the end of June 1999. 161 The plaintiff claimed that he informed Martin Edwards that a deduction of $50 per deal on his total commissions was set aside in the Load Account and if he joined the business he would be required to contribute $25 per deal and that the other $25 would be "covered". The plaintiff claimed that he also informed Mr Edwards that if he agreed to that arrangement he would not have any claim on the money in the Load Account. Mr Edwards agreed to this proposal. Mr Stubbs subsequently agreed to the arrangements struck between the plaintiff and Mr Edwards. 162 The plaintiff gave evidence that the same arrangement that was made with Mr Dobson in relation to the contributions to the Load Account was also made with Mr Pellegrino, Miss Brown and Mr Steve Edwards. 163 Mr Blakeway gave evidence that in his negotiations with Mr Pellegrino, Miss Brown and Mr Steve Edwards, he advised them that each would be required to contribute $25 per deal to the Load Account and that the business would contribute the other $25. He advised each of them that they would have no entitlement to a refund of any surplus. 164 The plaintiff was cross-examined about his discussions with the internal brokers and gave evidence that the general discussion was that with every deal they introduced $50 would be deducted. His evidence included (tr 75): We described what the load was for, for bad titles and various things, and for them to think about that. In the case of Steve Edwards, as in fact with the case of all of them, they said that $50 is too much; we don't like that, do we get it back? 165 The plaintiff gave the following further evidence in cross-examination (tr 76): Q Did you inform Mr Dobson that if the load was not used, then you and Mr Blakeway would be receiving some part of it back? A. Yes, we explained to Mr Dobson that the load was something we set up with Altos; it was our own money; if you are contributing to this, and we think you have a brilliant opportunity to work here, you can contribute $50 to the load, but you don't get it back.

[255]

168 Neither party called evidence from any of the internal brokers. I am satisfied that each of the internal brokers came to an arrangement that a term of their employment contract required them to provide $25 per deal into the Load Account on the basis that it would not be returned to them in the future. I am not satisfied that each agreed to the plaintiff and/or Mr Blakeway/Danmow receiving their contribution, should the money not be required to meet the Esanda contingencies. This is so notwithstanding the plaintiff's evidence of his conversation with Mr Dobson. I am satisfied that the plaintiff is entitled to the return of the relevant amounts in relation to his contributions, that of Mr Blakeway/Danmow and the contributions made by him and Mr Blakeway/Danmow on behalf of the internal brokers, but not the contributions made by the internal brokers themselves. Quantification 169 The plaintiff claimed that his entitlement to repayment of his contributions to the Load Account should be calculated by reference to his 50% commission rate. The defendants submitted that the plaintiff's commission was not determined by the number of deals the plaintiff procured but rather by the commission paid to each of the plaintiff, Mr Blakeway/Danmow and Mr Jennens, calculated by Alto applying the agreed commission scale to one third of a combined income of the business, with the result that they each received the same amount of commission each month. The plaintiff submitted that the evidence does not support a finding that there was such a sharing arrangement. 170 In paragraphs 8 and 9 of the plaintiff's statement dated 6 November 2009 the plaintiff referred to a conversation between himself, Mr Blakeway and Mr Stubbs in which they informed Mr Stubbs that the plaintiff, Mr Blakeway and Mr Jennens had a personal arrangement whereby they were sharing their monthly entitlements to commission, notwithstanding the arrangement with Alto. They asked Mr Stubbs to calculate the amounts due to each of them and then average the commission and split it equally between them. The plaintiff submitted that this amounted to a direction to pay and did not change the nature of the arrangements between the plaintiff and/or Mr Blakeway and Alto. After Mr Blakeway resigned from Alto the plaintiff informed Mr Stubbs that he and Mr Jennens would have a personal arrangement and requested Mr Stubbs to pay the commission to him and Mr Jennens equally. The plaintiff submitted that this also amounted to a direction to pay and did not change the arrangements between the plaintiff and Alto or Mr Jennens and Alto. 171 The plaintiff also gave unchallenged evidence that the management accounts that were provided to him by Alto always showed separate figures for each of the separate broker's log books, including what he described as "load deductions for each logbook and the equal split of commission between" himself, Mr Blakeway and Mr Jennens. 172 The validity of Mr Blakeway's/Danmow's assignment of their rights and entitlements in respect of the contributions to the Load Account were not challenged. Rather the defendants confined the challenge to the assignment to a suggestion that Mr Blakeway had an interest in supporting the plaintiff's claims because he expected to obtain a financial benefit if the plaintiff is successful in achieving an award of damages in this case. 173 The parties each prepared helpful schedules reflecting their differing approaches. The defendants' schedule is based on the inclusion of a sharing arrangement outlined above. I am not satisfied it is appropriate to calculate the plaintiff's entitlement pursuant to such arrangement. Accordingly the schedule prepared by the plaintiff will be the basis upon which the plaintiff's entitlement will be calculated. However, it is necessary to decide the defendants' set off claims. Set Off 174 Alto claims an entitlement to set off an amount of $91,773.17. Esanda informed Alto that it had a number of "claims" against the business and estimated that it had suffered losses in excess of $1,500,000 "in relation to fraudulent transactions introduced by the business." This can be reasonably characterised as an Esanda contingency. The amount of $91,773.17 represents Alto's commission entitlement for the month of July 2004 that Esanda withheld in response to Alto's refusal to contribute to Esanda's claim in respect of a loss allegedly suffered by Esanda. 175 The plaintiff submitted that this amount does not fall within paragraph 7 of the Letter and/or the specific purpose of the Load Account for protecting Alto against the Esanda contingencies. I disagree. Esanda took its own course by withholding the $91,773.17, which it apparently regarded as appropriate compensation in the circumstances. I am satisfied that the defendants should be allowed a set off for this amount. 176 Alto also makes a claim that it is entitled to set off an amount of $405,445 for predeterminations. A predetermination is the reversal by Esanda of income due to Alto because the financial contract with the third party is terminated prior to the end of its term. When this occurred Esanda either "clawed back" or withheld commissions from Alto in respect of those contracts. The plaintiff submitted that this process does not fall within the terms of paragraph 7 of the Letter and the purpose for which the Load Account was established. As I have concluded, the Load Account was established for the protection of Alto against the Esanda contingencies being bad title and/or fraud. Predeterminations do not fall within that category. I am satisfied that Alto is not entitled to a set off of this amount. 177 Alto also claims that it is entitled to set off an amount of $30,000. This was an amount referred to by Mr Stubbs as having been paid as "policy payments". It is true that the Load Account was not used for the purpose of that payment, however it is conceded by the plaintiff that the payment of that amount was within the purpose of the Load Account. Although Mr Turner formally submitted that Alto had waived its rights in respect of that amount, he did not develop the argument. I am not satisfied that Alto waived its rights in respect of any entitlement in the quantification exercise. I am satisfied that Alto is entitled to set off the amount of $30,000.

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Judgment (257 paragraphs)

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Cases Cited (7)

Cited By (2)