National Equity Financial Services Pty Limited v The Home Loans Group Pty Limited

Alex Kay Pty Limited v General Motors Acceptance Corporation and Hartford Fire Insurance Company [1963] VR 458 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Concut Pty Ltd v Worrell (2000) 176 ALR 693 Delnorth Pty Ltd v State Bank of New South Wales (unreported, Supreme Court of New South Wales, 28 June 1995, Cohen J) CASES CITED : Gill v State Planning Authority (1979) 20 SASR 580 Gissing v Gissing [1971] AC 886 Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 Hudson Investment Group Limited v Australia Hardboard Limited & Ors [2005] NSWSC 716. Shepherd v Felt and Textiles of Australia Limited (1931) 45 CLR 359 Sydney Organising Committee for the Olympic Games v ZHU [2002] NSWCA 380 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245

PARTIES : National Equity Financial Services Pty Limited (Plaintiff) The Home Loans Group Pty Limited

COUNSEL : Mr Coles QC, Mr Newton (Plaintiff) Mr Foster SC, Mr Golledge (Defendant)

SOLICITORS : Heidtman & Co (Plaintiff) Gadens Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50106/05 National Equity Financial Services Pty Limited v The Home Loans Group Pty Limited JUDGMENT The proceedings 1 These proceedings concern the respective rights of the parties arising out of an Introducers Agreement ["the Agreement"] dated 18 December 2001 and entered into between National Equity Financial Services Pty Ltd ["National Equity" or "the Introducer"] and the Home Loans Group Pty Ltd ["THLD"]. 2 THLD carries on business as a loan aggregator. In the course of that business, THLD has commercial dealings:

i. with lenders [such as Westpac, NAB, ING, Citibank etc]; and

ii. with brokers [such as National Equity]. 3 Brokers, such as National Equity, have, as their clients, borrowers seeking finance provided by lenders. It is to the advantage of brokers that they are able to submit finance applications to lenders but, to do so, requires them, in the usual course, to be associated with or accredited by an aggregator such as THLD. 4 The Agreement provided for the appointment by THLD of National Equity to introduce loans to THLD's panel lenders for the term of the agreement. THLD agreed to administer National Equity's trailing commissions and upfront commissions in consideration of National Equity completing, processing and referring loan applications to THLD's panel lenders Parameters of the factual background 5 Between approximately 19 December 2001 and 12 August 2004 National Equity as Introducer completed, processed and referred loan applications to THLD's panel lenders under the Agreement and became entitled to "upfront commissions" and "trailing commissions" as defined in the Agreement.

6 During the period between approximately January 2002 to 4 August 2004, THLD paid National Equity upfront commissions and trailing commissions in respect of loans introduced to THLD by National Equity.

7 On 27 July 2004 by originating process filed by the Deputy Commissioner of Taxation against National Equity in the Supreme Court, the Deputy Commissioner applied under s459P of the Corporations Act 2001 for an order that National Equity be wound up under s459A of the Corporations Act 2001 and for an order that a liquidator be appointed.

8 On 4 August 2004 THLD ceased paying commissions to National Equity. THLD has not paid any commission or any amount to National Equity since 4 August 2004 and since then has retained all commissions received by it from its lenders in respect of loans introduced by THLD.

9 By letter from THLD addressed to Mr W Taglialegna as director of National Equity dated 12 August 2004, THLD gave notice of its termination of the Introducer's Agreement effective immediately. In doing so it relied, according to the terms of the notice, upon the filing of the winding up application against National Equity as being an event of default under the Lender Agreements with various lenders justifying termination of the Introducer Agreement. 10 Subsequently, THLD claimed to have identified other breaches of the Introducer Agreement. These were referred to in a further termination notice dated 6 December 2005. 11 THLD contends that in defending National Equity's claim, it is entitled to assert, and reply upon, breaches of contract not known to it and therefore not relied upon by it, in the termination notice originally sent. 12 THLD contends that although the promisee [in this case THLD] must at trial, be able to point to a legal right which justified the termination, it is not limited to those grounds relied upon by it at the time provided that a valid ground did in fact exist. It relies upon Shepherd v Felt and Textiles of Australia Limited (1931) 45 CLR 359 where Justice Dixon (as he then was) said the following:

"But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulation to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition whether he was aware of it or not when he himself failed or refused to perform the stipulation of the contract" [at pages 377-378] [see also the judgment of Justice Rich at pages 370-371; also Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; Concut Pty Ltd v Worrell (2000) 176 ALR 693- which was an employment case. See also SOCOG v ZHU [2002] NSWCA 380] 13 Hence THLD contends that it is entitled to rely upon any breaches of contract proven to have been in existence as at 12 August 2004, whether referred to in either notice. 14 As at 12 August 2004, the trail commissions generated on loans introduced by National Equity to THLD's panel lenders are claimed to have been between approximately $50,439.00 per month and $55,938.31 per month. 15 On 17 December 2004 National Equity paid the debt claimed by the Deputy Commissioner of Taxation in the amount of $130,871.19. On 17 December 2004 the application by the Deputy Commissioner of Taxation to wind up National Equity was dismissed.

Summary of National Equity's claim 16 National Equity claims upfront commissions in respect of loans introduced by National Equity and settled after 4 August 2004 and trail commissions on loans introduced by National Equity and settled before and after 4 August 2004. 17 National Equity contends that the evidence establishes that the quantum of trail commissions payable in respect of loans introduced by National Equity and settled before 4 August 2004 was between $50,439.00 per month and $55,938.31 per month. National Equity contends THLD has breached the Introducer's Agreement by failing to pay upfront and trail commissions since 4 August 2004.

Separate questions regime 18 A separate question regime is in place. The first tranche the subject of the hearing involved all questions otherwise than quantum. 19 Mr Foster SC conceded that if THLD lost on liability the Court would be justified in having a quantum hearing [transcript 39.9]. Hence it is unnecessary presently for findings to be made on quantum. The issues 20 Whether National Equity can establish any claim to damages will depend upon whether it establishes a breach, by THLD, of the Introducer Agreement. 21 It is inappropriate to repeat the record. However the essential issues at least included the following:

i. some limited issues of fact and issues of construction of the Introducer Agreement.

ii. subsidiary questions: (a) was National Equity in breach of the Introducer Agreement as at 12 August 2004?

(b) was THLD entitled to terminate the Introducer Agreement on that day?

(c) whether THLD is entitled to justify that termination on grounds other than that specified in the original termination notice.

(d) was THLD entitled, following that termination, to cease paying any commissions to National Equity, including commissions which were, at that date, unpaid?

(e) if, as a matter of construction, the Introducer Agreement did have that effect, is THLD unable to rely on clause 7.3 in this way, because it is unenforceable as a penalty? If so, is THLD nevertheless entitled to damages for breach of any provision of the Introducer Agreement by National Equity?

(f) is there any relevant estoppel or waiver which prevented THLD from relying on any breach of clause 5.2 of the Introducer Agreement?

(g) Whether National Equity is entitled to relief against forfeiture. 22 A question arises as to whether clause 3.8 does or does not incorporate provisions of the Lenders Agreement mutatis mutandis. The terms of the Introducer Agreement 23 The relevant provisions of the Introducer Agreement are:

1.1 Definitions In this Agreement and in any instrument created pursuant to or in accordance with it, unless the context otherwise indicates or requests:

" Applicant " means an application (including joint applicants) for finance;

" Application " means the Lender's document and supporting documentation completed and supplied by the Applicant when applying for a Loan;

" Introducer " means the Introducer, its principals, employees, officers and agents. ……….

……… " Lender " means a bank, building society, or any other financial institution to which an Application is submitted; … …. …. " THLG Panel Lender " means any bank, building society or financial institution that THLG deals with now and in the future.

2.1 THLG hereby appoints the Introducer for the term of this Agreement to Introducer loans to THLG Panel Lenders in accordance with and subject to the terms of this Agreement.

2.2 This Agreement shall commence on the Commencement Date and shall continue until terminated.

3.5 The Introducer shall, as and when requested by THLG, forthwith provide to THLG such reports as may reasonably be requested in respect of the Introducer's role as described in this Agreement.

3.8 The Introducer acknowledges that THLG has and will enter into Lender Agreement. In order for THLG to comply with the Lenders Agreement the Introducer and THLG agrees that the terms of the Lender Agreement will be deemed to be incorporated into this Agreement. If there is any inconsistency between the terms of this Agreement and the Lender Agreement, the terms of the Lender Agreement will prevail. …………………..

5.2 Any application for finance submitted by the Introducer to a THLG Panel Lender will be submitted via THLG and will note THLG identification number of all relevant documents, unless agreed otherwise by THLG in writing.

5.3 The Introducer and THLG agree that any commission or fee payable under this Agreement is subject to the continuing payment of said fee by a Lender. In the event of a Lender failing or refusing to pay all or any part of the commission due to THLG in respect of a Loan, the Introducer acknowledges and agrees that THLG shall not be liable to account to the Introducer for any more than the proportion otherwise due to the Introducer as specified herein of commission received by THLG in respect of that Loan.

5.4 The Introducer shall be responsible for keeping its own accounting records and for payment of all income and other taxes payable by the Introducer. 5.5 The Introducer shall be responsible for maintaining adequate accident and illness insurance and acknowledges that it is not an employee of THLG and is therefore not covered under any Workcover or like insurance of THLG.

6. COMMISSION …….. ……….

6.6 Fee Recourse THLG will, in the event of commission being paid and then withdrawn for any reason by a Lender, have the right to seek immediate reimbursement from the Introducer and/or withhold commissions otherwise payable to the Introducer until such withdrawn commissions are repaid in full to THLG.

7.1 Either of us may terminate this arrangement by 14 days notice in writing to the other at any time.

7.2 We may also terminate this arrangement immediately by notice in writing to you if you breach any of these terms and conditions in this Agreement.

7.3 Termination of this arrangement does not affect your continued entitlement to commission where that entitlement arose from a right or event which occurs prior to termination. However, if you fail to comply with any part or clause of this Agreement at the time that it is terminated and/or the Introducer is found to have made misleading, deceptive or untrue statements, or has been a party to fraudulent or misleading conduct, THLG will be entitled to cease paying all commissions at that time.

7.4 When the arrangement ends, all of your rights and authority under it end but the ending of our arrangement does not affect either of your or our rights or obligations which arose before it ends.

8.1 The Introducer warrants that it has professional indemnity insurance for not less than one million dollars in force and effect.

8.2 The Introducer upon request must produce evidence of such professional indemnity insurance by providing a certificate of currency from a reputable insurance company. Internal dictionary 24 As a matter of providing a convenient internal dictionary, I shall notionally divide the second sentence of clause 7.3 into 3 parts:

Part 1 - However, if you fail to comply with any part or clause of this Agreement at the time that it is terminated; [and/or]

Part 2 - the Introducer is found to have made misleading, deceptive or untrue statements, or has been a party to fraudulent or misleading conduct;

Part 3 - THLG will be entitled to cease paying all commissions at that time. The proper construction of the Introducer's Agreement 25 The usual principles of construction of a written Agreement apply. 26 The general test of objectivity in terms of construing a contract is pervasive in the law of contract. Two passages from speeches of Lord Diplock illustrate the point (as Gleeson CJ said in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549): · In Gissing v Gissing [1971] AC 886, his Lordship said:

"As in so many branches of English Law in which legal rights and obligations depend upon the intentions of the parties to a transaction, the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party's words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party." · In Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 502, his Lordship said: "In each of the instant appeals the dispute is as to what seller promised to the buyer by the words which he used in the contract itself and by his conduct in the course of the negotiations which led up to the contract. What he promised is determined by ascertaining what his words and his conduct would have led the buyer reasonably to believe that he was promising. That is what is meant in the English Law of contract by the common intention of the parties. The test is impersonal. It does not depend upon what the seller himself thought he was promising, if the words and conduct by which he communicated his intention to the seller would have led a reasonable man in the position of the buyer to a different belief as to the promise; nor does it depend upon the actual belief of the buyer himself as to what the seller's promise was, unless that belief would have been shared by a reasonable man in the position of the buyer. The result of the application of this test to the words themselves used in the contract is still "the construction of the contract"." 27 As Kirby P observed in Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 at 313-314:

"Whoever may be the parties to the agreement, it is the fundamental rule, that a Court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, Courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because Courts will infer that commercial parties would not themselves normally agree in such a way". cf Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Hudson Investment Group Limited v Australia Hardboard Limited & Ors [2005] NSWSC 716. 28 In resolving ambiguities, a reasonable construction is to be preferred as representing the presumed intention of the parties: see Alex Kay Pty Limited v General Motors Acceptance Corporation and Hartford Fire Insurance Company [1963] VR 458 at 463. Questions of construction 29 A number of questions of construction arise. The most critical concern the proper construction of clause 7.3 which of course requires to be determined in the light of the whole of that clause and in the light of the whole of the Agreement. Second sentence of clause 7.3 - Part 1 30 An issue concerns the construction of the first part of the second sentence of clause 7.3 insofar as reference is made to a failure to comply with any part or clause of the Agreement "at the time that it is terminated". 31 National Equity contends that the sentence is to be read literally. The plain meaning is said to be that the relevant breach [in order to allow THLD to be entitled to cease paying all commissions at that time], must be a breach at the time that there has been a failure to comply with any part or clause of the Agreement: the proposition is that the failure and the termination must be synchronous [ie events occurring at the same time]. 32 THLD contends that the relevant phrase means that National Equity is in breach at that time but extends to include anterior breaches which have never been remedied and are therefore regarded as extant breaches. The proposition is that the phrase suggests that termination is the result of a breach extant at the date of termination. 33 In my view THLD's above-described construction is correct. It is difficult to perceive of a breach which would occur at the moment of termination. The commonsense objective intent must have been to refer to unremedied breaches of contract which remained extant at the date of termination. The second sentence of clause 7.3 34 Parts 2 and 3 of the second sentence of clause 7.3 are certainly inelegantly expressed. There are difficulties in following the objective meaning. 35 Arguably the difficulties centrally arise because of the use of the words "and or" in the third line. 36 The central matter which separates the parties is whether the proper construction of the second sentence is:

i. as if the clause had been written thus: "Termination of this arrangement does not affect your continued entitlement to commission where that entitlement arose from a right or event which occurs prior to termination. However, if you fail to comply with any part or clause of this Agreement at the time that it is terminated and either the Introducer is found to have made misleading, deceptive or untrue statements, or has been a party to fraudulent or misleading conduct, THLG will be entitled to cease paying all commissions at that time" [National Equity's position] or

(a) with the word " However ", qualifying all that follows in the sentence;

(b) with the word " if ", qualifying all that follows, up to the comma after the word " conduct ";

(c) with the words " and or ", qualifying from " or the introducer " up to the comma after the word " conduct "; (d) reading the word " then " into the last line, vide: "then THLD will be entitled to cease paying all commissions at that time"

[THLD's position] 37 Effectively THLD contends for a construction covering the range of alternatives including a breach of contract occurring on its own, and/or one or more of the making of misleading, deceptive or untrue statements or having been a party to fraudulent or misleading conduct [using 'and/or' in my sentence, in the conventional way in which it is usually understood]. 38 National Equity on the other hand contends that the proper construction is for the several elements requiring to be satisfied together. Decision 39 In my view the National Equity's submissions are generally of substance.

i. the difficulty with the second sentence of clause 7.3 really arises because of the need for the Court to give content to use of the word "and"[which precedes the word "or"]

ii. the word "either" may for present purposes be regarded as a synonym for the word "or": the proposition is that "either" can also mean "or".

iii. clause 7.1 deals with the concept of termination without cause.

iv. clause 7.2 deals with the concept of termination for breach.

v. the common-law position in respect of either termination without cause or termination for breach is that parties are entitled to retain the benefits of rights accrued prior to termination [and as the first sentence of clause 7.3 makes clear, that position continues to be the case with respect to both clause 7.1 as well as clause 7.2].

vi. the first part of sentence 2 deals with the concept of breach of contract.

vii. the second part of sentence 2 deals with the making of statements which are misleading or deceptive or untrue

(a) contractual or (b) tortious or (c) statutory] 41 In the result the proper construction follows the following analysis: i. Unlike clause 7.2, clause 7.3 does fix a time within which a breach must occur and also specifies the conduct that National Equity must be found to have engaged in before THLD will be entitled to exercise any rights under clause 7.3.

ii. Clause 7.3 therefore contains several elements or conditions which must be satisfied before THLD will be entitled to cease paying commissions. The first element is that a party must have terminated the Introducer's Agreement. The second element is that there must be an extant unremedied breach by National Equity of any part or clause of the Introducer's Agreement at the point in time when the Introducer's Agreement is terminated. iii. The third element that must be satisfied (in addition there being an extant breach at the time the agreement is terminated) is either that National Equity must be found to have made misleading, deceptive or untrue statements or must be found to have been a party to fraudulent or misleading conduct. iv. Upon the proper construction of clause 7.3, National Equity does not expose itself to forfeiture of its commission entitlements for breach or multiple breaches of the Introducer's Agreement unless all of these elements are satisfied. Before THLD will acquire the right to cease paying commissions based on a breach, it must be demonstrated that an extant breach had not been remedied as at the time the Introducer's Agreement was terminated and National Equity must either be found to have made misleading and deceptive or untrue statements or to have been a party to fraudulent or misleading conduct. 42 It is common ground that there is no allegation by THLD that National Equity has made misleading, deceptive or untrue statements or has been a party to fraudulent or misleading conduct. Accordingly, even if the Court was to find that National Equity had on some past occasions breached the Introducer's Agreement, and that such breach remained extant at the date of termination, such breach or breaches alone would not be sufficient to entitle THLD to cease paying commissions to National Equity. 43 The Court here is dealing with a commercial document. In endeavouring to discern the parties' intent and construing the meaning of the words used, the Court will strive to give the document commercial, reasonable and rational operation. It would be a commercially unreasonable, capricious and unjust result to construe clause 7.3 as giving THLD the right to cease paying commissions based on any breach, whenever it occurred and however trivial. 44 Where a particular construction would achieve an unreasonable result the Court is cautious in inferring that this was the parties objectively discernable common intent. 45 As clause 7.3 has significant and drastically adverse repercussions for National Equity, it is to be construed as set out above against the proferens. The way forward 46 As I had understood the respective cases, the above findings without more, should lead to a holding for National Equity on liability. 47 Against the event that I may not have followed the position entirely correctly the parties will be given leave to address submissions on whether any other matters which separated the parties remain to be determined. 48 I do however intend to address two interrelated issues which were closely litigated:

i. the contention that the winding up application by the Deputy Commissioner of Taxation against National Equity constituted a breach of clause 5.4 of the Introducer Agreement and clause 7 of the lender agreement between THLD and Westpac dated 25 June 2000;

ii. the contentions that: (a) clause 7 was incorporated into the Introducer's Agreement by clause 3.8 of the Introducer's Agreement.

(b) by operation of clause 7 of the Introducer's Agreement, this alleged breach gave rise to THLD's right to terminate the Introducers Agreement and cease paying commissions. The provisions of the Lender Agreement between THLD and Westpac Banking Corporation Limited dated 25 June 2000.

49 THLD is defined as the "Broker" in the Westpac Agreement,

50 Clause 1 of the Westpac Agreement contains, so far as is relevant, the following definitions:

"Defaulting Party" means the party who commits an Event of Default;"

"Event of Default" means: "(a) and administrator, receiver, receiver and manager, liquidator or similar officer is appointed or an order is made for the administration, winding up or dissolution of the Broker or Westpac [my emphasis] or steps are taken towards this (for example, a resolution is passed or an application is made to a Court);"

51 It is clear that the only parties who may commit an "Event of Default" under the Westpac Agreement are THLD (the Broker) and Westpac. Dealing with the incorporation issue: clause 3.8 52 National Equity contends that the parties do not, merely by incorporating one contract into another, achieve an incorporation of all of the clauses from the one into the other. In short there is no principle which holds that incorporation of itself, effects a transmutation or effects a substitution or a fortiori operates mutatis mutandis. I accept the submission as of substance. 53 In Delnorth Pty Ltd v State Bank of New South Wales, unreported, Supreme Court of New South Wales, 28 June 1995, Cohen J had occasion to deal with the meaning of the words mutatis mutandis in a license agreement. The clause had provided that various parts of other particular clauses of the next agreement should also apply mutatis mutandis to the license on a particular basis. Cohen J referred to there being very little authority as to the extent of the meaning of the phrase mutatis mutandis. 54 His Honour drew attention to Jowitt's Dictionary of English Law which defined the phrase as "meaning with the necessary changes in place of detail". 55 His Honour also referred to Gill v State Planning Authority (1979) 20 SASR 580 where a statute relating to the vesting of land for the purpose of a particular undertaking had provided that sections of another statute "shall mutatis mutandis be applied to and in relation to the vesting of the land". It was held that the sections specified in the Act were not to be applied without qualification but were to undergo such variations of substance as were implied by the expression mutatis mutandis, which in the circumstances, meant with such modifications and adaptations necessary to ensure that they, jointly and severally, have effect for the purposes of the relevant Act. 56 Cohen J also drew attention to two United States authorities where it was held that the words 'mutatis mutandis' meant necessary changes in detail to conform to a single vital alteration or change. 57 In my view these authorities do provide assistance in the resolution of the current issue albeit that the words 'mutatis mutandis' do not actually appear in clause 3.8. The Court must look to objectively ascertain [from the words of the document being construed] what were clearly appropriate changes to be made to designated clauses to the extent necessary to ensure the necessary incorporation of provisions of the one contract into the other. This is how Cohen dealt with the matter in Delnorth. 58 However if the Court is unable to objectively ascertain from the words of the document being construed, what were the clearly appropriate changes intended by the incorporation wording, the proper approach is to treat with the matter as one would had there been meaningless or indecipherable language used in the original contract. On rare occasions the Court may be in a position to fill the gap because the intent of the parties is perfectly clear. On other occasions the doctrine of severance may be deployed. The law dealing with uncertain and incomplete contracts is reasonably well understood. 59 An important consideration for present purposes is that clause 3.8 specifically identifies the purpose of the incorporation provision. That purpose was in order for THLD to comply with the Lenders Agreements. In short the incorporation is in aid of THLD's own performance of its contractual obligations to sundry Lenders and not in aid of the performance, in this case, of National Equity. 60 THLD's central proposition was put as follows:

Clause 3.8 is a short hand way of replicating the contractual obligations imposed onto THLD by the lenders (under the Lender Agreements) into the Introducer Agreement between National Equity and THLD. It is a form of contractual shorthand writing. For it to perform that role it is necessary when transposing the terms from the Lender Agreements into the Introducer Agreement, to construe the references in the Lender Agreements to THLD (being, relevantly the introducer under those agreement) to be references to National Equity under the Introducer Agreement. 61 It is unnecessary for present purposes to go beyond rejecting that proposition. It is of some significance to note that in the scheme of things, bearing in mind the vast number of Lenders Agreements to which THLD is a party, the posited incorporation of all the terms of each such agreement into the Introducers Agreement would likely lead to internally conflicting provisions. 62 The finding is that clause 7 of the Westpac Agreement was not incorporated into the Introducer's Agreement. 63 Clause 7.2 of the Westpac Agreement provides as follows:

"7.2 If an Event of Default occurs, the party not in default may terminate this Agreement by notice to the Defaulting Party. Any such notice will be effective immediately on receipt by the Defaulting Party." 64 There is no similar provision in either the Introducer's Agreement or the Westpac Agreement concerning or affecting National Equity. Accordingly, the mere bringing of a winding up application against National Equity does not breach any provision of the Introducer's Agreement or the Westpac Agreement. However, arguably such a contractual provision might operate to prevent National Equity from bringing an application to wind up THLD, if it was otherwise entitled to do so.

65 For those reasons the application by the Deputy Commissioner of Taxation earlier referred to did not constitute a default by National Equity. The conflict of evidence as between the evidence given by Mr Taglialegna and Mr Christian 66 It is appropriate to deal with an important issue of fact separating the evidence given by Mr Taglialegna and that given by Mr Christian. The evidence given by Mr Taglialegna 67 The evidence given by Mr Taglialegna in his affidavit of 24 February 2006 included the following: 25. During the discussions I had with Mr Christian before I signed the Introducers Agreement, I had a discussion with Mr Christian, Mr Lowe and Mr Poy. During the conversation the following was said:

Mr Christian: "If you use us, you are not to use any other aggregators. It's either everything or nothing."

I said: "We have had a longstanding relationship with Domain and have only known you for a short time. Domain is an Adelaide Bank aggregator. We enjoy the benefit of them having their own approval limit and discretions on approvals. It gives us an advantage in the market place. I would find it very difficult to terminate our relationship with Domain in order to fulfil your requirement. We also have a good relationship with Fintrack who has the same panel lenders as you." 26. At this point the conversation concluded. Between that conversation and on or about 18 December 2001 I had a telephone conversation with Mr Christian. The substance of the conversation was as follows:

He said: "That's fine, I am happy if you continue to use Domain." The evidence given by Mr Christian 68 In his affidavit of 29 March 2006 Mr Christian deposed as follows:

In relation to paragraph 25 of Mr Taglialegna's affidavit of 24 February 2006, I do not recall and do not believe that Mr Taglialegna said words to the effect outlined in that paragraph.

In relation to paragraph 26 of Mr Taglialegna's affidavit I deny that we had the conversation outlined in that paragraph. Walter and I did not discuss the possibility of National Equity submitting loans with or through Domain, Fintrack or any other aggregators, mortgage managers or lenders at the same time as National Equity submitted loans through the defendant. Endeavouring to determine the factual issue 69 Each of these witnesses was strongly tested on their respective evidence. Each witness was forced during cross-examination to make a number of concessions suggesting difficulties of recollection of what precisely had occurred on a number of matters. 70 Mr Taglialegna accepted that there had been no mention in the Reply filed on 9 December 2005 of what he had later deposed to having been discussed between himself and Mr Christian on 17 or 18 December 2001. Nor was there mention of the conversation in the Amended Reply of 23 December 2000. Mr Taglialegna conceded that the first time that the conversation was mentioned in a Reply filed on behalf of his company was in the 24 March 2006 Second Amended Reply. Notwithstanding all of this, he would not accept that he had simply no recollection of that which is stated in paragraph 25 of his 24 February 2006 affidavit. His only explanation as to why it was as late as 24 February that this allegation first appeared in either an affidavit or in pleadings filed on behalf of his company, was that this had been a response to the allegation that his company had placed business through Domain. 71 Mr Taglialegna also gave the following evidence under cross-examination:

"Q. When you said to him what you say you said to him as recorded in paragraph 25, on that occasion when you were meeting with him, what did he say? What was his response? A. His response was that it was either all or nothing as far as introducing business. The conversation carried on with regards to Fintrack and, even though that's not there, I said, "We won't be using Fintrack, but we will not turn our back on Domaine. We've had a long established relationship with them, we enjoy the benefits that they bring to us", and at that point he agreed that he couldn't match what Domaine offered us as far as service levels go and approval. He got up and went away, left the agreement with us, rang back the next day and said, "Look, if you want to use Domaine, you can continue using those, I don't have a problem with it", or words to that effect…

Q. When you discussed it with him on the 17th you said a few moments ago that you indicated to him you would not use Fintrack? A. Correct.

Q. Have a look at your paragraph 25… Is that statement recorded there at all? A. No, I said that we also had a good relationship with Fintrack, who had the same lenders as him… The conversation went backwards and forwards where there was no commercial difference to us using The Home Loans Group or using Fintrack and Domaine, because that's what we were using before and there was no difference, other than a negotiated increase in commission, which we negotiated through the course of the event, and from that day on, after I had received his signed and accepted agreement, there was never an application that went to Fintrack again.

Q. But do you say when you spoke with him on the 17th you indicated to him that you would not use Fintrack? A. Correct.

Q. That is just not in this affidavit, is it? A. I appreciate that, no, it isn't.

Q. Is there some reason for that? A. No, I can't think of a reason why it is not there other than my actions can prove that we have never used Fintrack since and that would support what I've said on the day." [Transcript 63-64] 72 These answers suggest that Mr Taglialegna does not have a good recollection of what occurred. Arguably the passage of time has led him to believe that his version of the conversation is in fact correct. 73 Nor is the court unable to accept the evidence given by Mr Christian on the same issue as reliable. On a number of occasions his answers were that he did not recall or did not know what had happened or why. His cross examination included the following:

"Q. An important point, you now appreciate, I take it, Mr Christian, is that the meeting on 17 December did not result in your being able to walk away with a signed introducer's agreement in your possession, did it? A. No, sir.

Q. And there was a reason for that, wasn't there? A. No, sir. Sorry, I don't know.

Q. Well, the fact remains, as you well appreciated I suggest at the time, that Mr Taglialegua did not indicate at the meeting on the 17th, the meeting with you, that he was prepared to sign the document on that occasion? A. I don't recall that.

Q. You accept, don't you, that the meeting came to an end without the document having been signed? A. That's correct, yes.

Q. Do you recollect having a telephone conversation with Mr Taglialegua the following day? A. No, I do not.

Q. There is every reason to suppose you would have, isn't there? A. I'm sorry, why is that?

Q. Well, can I make this perhaps trite suggestion: You would have been anxious, not having received a signed copy of the introducer's agreement at the meeting on the 17th, to follow up the progress of the matter, wouldn't you? A. I don't know. The way that you've just put that, like I would do this - no, I don't remember having any conversations.

Q. Didn't you want these people to sign the introducer's agreement? A. Of course I did.

Q. And they hadn't after the meeting? A. No.

Q. Didn't you ring them up to ask them how they were getting along with their consideration? A. No.

Q. Wouldn't that have been a natural step in the ordinary course to take? A. Within 48 hours, yes, I wouldn't say within 24, no, you don't - not the next day. People need time.

Q. Well, let's suppose it was the day after, but at some time after the meeting wouldn't you expect that you in the ordinary course would have telephoned the people whom you hoped would sign your agreement? A. Yes.

Q. And you did so? A. Not with Mr Taglialegua, no.

Q. Who did you ring? A. I mainly dealt with Simon Pakpoy at National Equity Financial Services.

Q. There is nothing in your evidence that suggests you rang Mr Pakpoy, is there? A. No." [Transcript 86-87] 74 In his first affidavit Mr Christian had deposed that at the meeting of 18 December 2001 which ran for approximately 30 to 45 minutes, Mr Lowe and Mr Taglialegna had appeared to read through the entire draft Introducer's Agreement in front of him; that they had not requested any amendments to that draft and that they each signed the document at the meeting, [Mr Christian executing it on behalf of THLD and Mr Taglialegna executing it on behalf of National Equity]. However his later recollection was that he had not signed the document at that meeting. His corrected recollection had apparently been by reason of his having read Mr Taglialegna's affidavit [Transcript 84.13]. 75 In the result the Court has very little in the way of material which may be of assistance to resolve the factual question as to whether or not Mr Christian had said in the alleged subsequent telephone conversation [for which Mr Taglialegna contended], that he was happy if National Equity continued to use Domain. 76 The issue cannot be determined on the balance of probabilities. The issue cannot be determined in weighing the respective demeanour of Mr Taglialegna as against that of Mr Christian. 77 The onus of establishing that the telephone conversation took place in the terms contended for by Mr Taglialegna, was not discharged. Reserved Ruling 78 THLD sought to tender a loan application submitted by National Equity to Fintrack dated 20 December 2001 [MFI D1]. The tender was opposed. The submissions in relation to the tender are to be found at transcript 101.35-103.39. In my view the tender should be rejected on the ground that the probative value of the evidence is substantially outweighed by the danger that the evidence would or might be unfairly prejudicial to National Equity and/or would be misleading or confusing. As Mr Coles QC submitted the central proposition should in fairness have been, [but was not], put to Mr Taglialegna. The tender is rejected. Short minutes of order and the way forward 79 By reason of the principal finding it has been unnecessary for the Court to deal with a number of issues including: · the issue as to the sending of the lender agreements · penalty. 80 The parties will be given an opportunity to consider these reasons. The Court will grant leave to either party to address by way of any contention that, bearing in mind the central findings, the Court still requires to deal with any and if so what remaining issue.

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