Royal Guardian Mortgage Management Pty Limited v Nguyen

Judgment Introduction 1On 29 April 2010 the plaintiff, Royal Guardian Mortgage Management Pty Limited (RGMM) sued the defendants Ms Nguyen and Mr Stolyar (sometimes named and otherwise, for convenience, referred to as the defendants) for breach of contract and breach of the Corporations Act 2001 arising out of their employment in the business of RGMM, Ms Nguyen as general manager and Mr Stolyar as senior manager. (At all relevant times, the defendants were married.) The defendants cross-claimed against RGMM, alleging breaches of their employment agreements with RGMM. 2RGMM processed loan applications received in large part (the proportion is somewhat controversial) through mortgage brokers or introducers, such as lawyers or accountants, (usually referred to in this judgment simply as brokers), passing them on when certain prerequisites had been satisfied to funders (also called lenders), which made the advances in due course to complying borrowers. When a loan was settled, RGMM was paid an "upfront" (immediate) and then a "trail" (continuing) commission, a part of which was passed on to the broker on an agreed basis. The defendants set up their own broking business, at first using their company, Bethian Pty Ltd and then under a business name, Dibelle Finance, owned by a friend, ultimately using a company, Dibelle Financial Services Pty Limited, of which the sole shareholder and director was Mr Stolyar's mother (both entities are referred to as "Dibelle" except where it is necessary to distinguish between them). Dibelle passed on applications from individual borrowers to RGMM and, when the loans were settled, was paid the same commissions as the other brokers who had made successful applications. RGMM claimed that the loan applications referred by Dibelle should simply have come directly to RGMM as part of the employment obligations of the defendants, in which event RGMM would have kept for itself the commissions paid to Dibelle. It sued for the repayment of these commissions. The defendants contend, for their part, that RGMM was fully aware of their connection with Dibelle and the commissions were lawfully claimed. 3The cross claim alleges that RGMM did not pay their bonuses and profit share as provided in their employment agreements. RGMM contends that the bonuses were indeed paid and that, having regard to the breaches by the defendants of their employment contracts, no profit share is payable. It is agreed that, during the relevant time, RGMM paid to a company, Bethian Enterprises Pty Ltd, which was owned by the defendants, amounts more or less equivalent to the bonuses owed. The defendants' case is that these payments were due under a management agreement and were not the bonuses payable under the employment agreement, whilst RGMM maintains that the payments were the defendants' bonuses paid to Bethian at their direction. Background 4Mr Anthony Tomazin is a business man with over two decades of experience in the finance and mortgage industry. In 1998 he established Royal Guardian Mortgage Corporation Pty Limited (RGMC) which, as he said, "is in the business of originating and managing loans which are secured by mortgage". In the argot of finance, an originator is not an originator as that term might be understood in ordinary English, but is a business which passes on to a funder, with which it has accreditation, applications for loans that, in its view, comply with the funder's prerequisites and is paid commission for so doing. In this case, the term "mortgage manager" was also used in this sense. (The distinction is unimportant and I have usually just used the term "originator".) When the loan is settled the funder pays an upfront commission and a trail to the originator, which passes on some of the commission to the broker who initiated the process by preparing or assisting in the preparation of the loan application on behalf of the borrower. (The term "borrower" denotes the individual seeking the loan.) The interest rate ultimately charged to the borrower would also contain a margin paid to the originator. Broadly speaking, the greater the value of the loans referred by an originator (called the "book") the lower the wholesale cost of the loan might be and consequently the higher the margin able to be placed on the final rate by the manager. An example given in the evidence by Ms Nguyen was a delivery rate of 5 per cent with a margin at 0.5 per cent, thus a final rate to the borrower of 5.5 per cent. In general, the larger the "book" of loans brought to the funder by the originator, the greater the margin. One advantage of the margin - aside from the increased profit - is that it enables the originator (whose badge is, as it were, attached to the loans) to offer a more or less reduced interest rate to the borrower and, hence, compete more effectively for business. On occasions a funder would have a "sale" in which a significant margin would be offered should an originator reach a specified target in a particular period. Thus, there is a substantial financial inducement for increasing the size of the book, quite apart from the commission. 5RGMM was registered on 31 October 2000 as an originator of loans almost entirely from brokers or introducers as distinct from the borrowers directly. Its directors at the relevant time were Mr Tomazin (who held 51 shares), Mr Pusic (24 shares) and Mr Pondelak (24 shares). At no time was there a legal link between RGMC and RGMM: they were wholly independent legal entities. At first, RGMM operated exclusively through RGMC, which had the accreditations with the funders, but later on it was itself accredited with several funders. Mr Tomazin said that RGMC was both a retailer (dealing directly with borrowers) and a wholesaler (dealing with brokers), whilst RGMM was a wholesaler. The defendants did not agree that RGMC dealt with brokers, at least after RGMM came into the picture. Mr Stolyar said that RGMC dealt only with direct clients, that is to say without the intervention of a broker. The RGMC sales person would meet the clients and offer them the various products available from the funders. On the other hand, RGMM did not expect its employees to attract potential individual customers but rather to process loans which were referred by brokers. Mr Tomazin agreed that Ms Nguyen was responsible for bringing in new broker business in (semble, to RGMM). Mr Stolyar said that he met with Mr Tomazin for the first time in early May 2001, Ms Nguyen also being present. Mr Tomazin told him that his conditions of employment would be the same as for Ms Nguyen in that, if he brought in any mortgage loans, he would be paid the same commissions and trails as any other introducer. Mr Stolyar understood that direct clients who, for example, walked into RGMM's offices on the street would be referred to RGMC and it was not possible for an employee to refer loans directly to RGMM, as it was the wholesale arm of the business. The differing business models used by these companies provides a significant context in which the relationship between RGMM and the defendants played out and is essential to understanding the character of the defendants' employment as well as some crucial events. 6RGMC advertised widely to the public, inviting applications for loans and employed sales persons for the purpose of obtaining business from as many sources as possible. As Mr Tomazin said, by 2002 RGMC was accredited with some of the largest non-bank funders in Australia, RGMM working (as he put it) "under the RGMC ... accreditations". In 2002 RGMM also obtained accreditation with what appears to be a major funder, AFIG Wholesale Limited, and somewhat later with Macquarie Bank, these on the basis, inter alia, that Mr Tomazin provided financial guarantees. Although Mr Tomazin described RGMC as "the parent company" this was not in the sense that it owned or had any interest in the shares of RGMM. There was no legal relationship between the two companies, although they were, in effect, owned and controlled by Mr Tomazin. In respect of both companies, Mr Tomazin was for all practical purposes the controlling mind. Mr Tomazin says, and there is no reason not to accept, that what he described as the "Royal Guardian group" (which included a number of other companies that operated in the finance industry not presently relevant) was originating loans with a total value exceeding $100 million a month. 7The general business model was that RGMC was responsible for RGMM's business, accounting, loan management and some office functions but not "underwriting" (by which is meant organizing a valuation, arranging mortgage insurance, assessing risk and ensuring the funder's prerequisites were satisfied) its loans, which was undertaken by Ms Nguyen and Mr Stolyar. Mr Tomazin and Mr Stariha (as to whom see below) said, in substance, that the costs attributable to the business of each company, paid by RGMC, were charged by RGMC to the companies according to their business volumes. (An issue arose during the trial as to the way in which this was done, with which I deal in due course.) Once settlement of a loan occurred, RGMC would receive the upfront commission payment from the funder and, in due course, trail commissions. In respect of a settled loan processed by RGMM, it would invoice RGMC for the upfront commission and pass on to the broker the broker's share of the commission. RGMM would also normally pay trail to the broker - again, on receipt of the funds from RGMC - unless the loan was in arrears or there was some other agreement with the broker. 8On 19 August 2005 Royal Mortgage Management Pty Ltd (RMM) was registered. Ms Nguyen was a director between 19 August 2005 and 9 March 2006 and the holder of 25 of 99 shares, the balance being held by Mr Tomazin. She was also employed by that company for a period. Accreditation agreements 9It was the usual, perhaps invariable, practice for companies such a RGMC to enter into accreditation agreements with brokers or introducers who referred borrowers. This was also the case with RGMM. According to Ms Nguyen, the accreditation process at RGMM involved at least the following steps: the broker or introducer would provide company details, business name, directors and other formal information; RGMM would undertake an ASIC or business name search to confirm these details; which would be inserted into a pro forma agreement that was always used. The broker would normally come into the office to sign the agreements and would usually be introduced to Mr Tomazin. With some exceptions, Ms Nguyen would generally sign the agreements on behalf of RGMM. Ms Nguyen tendered two agreements with brokers with whom she had a close business and personal relationship. These agreements, dated 2 and 15 May 2001 were entered into respectively by South Western Financial Services and Jentrev Enterprises Pty Limited and executed on behalf of RGMM by Ms Nguyen and Mr Tomazin. I note, because it is later relevant, that each contains a clause that "the introducer is adequately insured with a reputable insurer against all risks which a prudent person carrying on the business of the Introducer would insure against". 10Ms Nguyen said that, at the same time the accreditation agreement was signed, it was usual for the broker to sign a separate agreement in relation to Recipient Created Tax Invoices (RCTI's), which allowed RGMM to create an invoice on behalf of the broker for the commissions payable to the broker. A number of these agreements were tendered but none with Bethian or Dibelle, although many RCTI's relating to both were undoubtedly created (of which a number were tendered). Ms Nguyen said that the documents relevant to the payment of a commission were placed on the broker's file, which would contain the accreditation agreement and the Recipient Created Tax Invoice Agreement (RCTIA). Accordingly, when a payment was being processed it would be immediately apparent if an accreditation agreement had not been entered into and an RCTI could not be paid without an RCTIA. No referral (as I understand it) would have been accepted from a broker who had not been accredited. The nature of RGMM's business 11Mr Tomazin agreed that RGMM was set up as the wholesale division of the Royal Guardian group, dealing almost exclusively with brokers in terms of getting business, though there were a few direct clients. He agreed that "it was not set up to deal with people coming in off the street" meaning, obviously, individual would-be borrowers not referred by a broker. Mr Stariha, the general manager of RGMC, who joined the company in January 2001 said that, as at 2001 and 2002, RGMM "was a broker division of the R[oyal] G[uardian] group, and its "predominant purpose was to bring in broker business". RGMC's website which is used to market services to the public, states, "In March 2001 a wholesale division was established to deal with financial planners and accountants, with this wholesale program later expanded to deal with brokers and introducers who showed potential for higher growth". By the way, this supports Ms Nguyen's evidence (which was not at all events controverted) that RGMM had not begun to trade when she took up her employment with it. 12This issue is important, since it not only provides the context in which interpretation of the various employment arrangements said to have been made between the parties occurred but also as to the issues surrounding the payments, allegedly under accreditation agreements, to Bethian and Dibelle. RGMM employs the defendants 13Ms Nguyen had met Mr Tomazin in late 1992 when she went to work as a secretary for his firm, Anthony Tomazin Financial Services, initially for an eight week period and then permanently. She was just 18 years of age and had just completed her HSC. She learned to prepare applications for home and business loans. After four months Ms Nguyen left the firm to undertake study for a degree in economics, majoring in accounting and finance. In July 1993, whilst studying part-time, she went back to work for Mr Tomazin in another of his businesses, providing sales support to sales consultants. Four of those consultants left to start their own business (South Western Financial Services (SWFS), which appears again as the narrative unfolds) and Ms Nguyen joined them as secretary and office manager. About three years later she went as an underwriter (promoted to senior underwriter) successively to two large mortgage insurance companies, eventually in mid 1999 accepting a position as credit manager for Mortgageport, an originator, where her duties were largely those of an underwriter and then managing its broking referral business. At the time of Mr Tomazin's approach, Ms Nguyen said she was paid by Mortgageport a base salary of $75,000 and a bonus of 0.25 per cent of the total of the company's settled loans over $2 million in any given month. 14In November 2000, Ms Nguyen met Mr Tomazin at a mortgage industry function. At his suggestion, Ms Nguyen went to see him a few days later at his office, where she was introduced to Mr Pusic and Mr Pondelak, his business partners (mostly referred to as, simply, "the partners". Mr Tomazin asked Ms Nguyen to come and work for RGMM, which he had set up to deal only with brokers. They discussed the opportunity that Ms Nguyen would have to earn more money using the brokers she had met whilst working for Mortgageport. RGMC would only deal (he said, according to Ms Nguyen) with direct clients and would be the originator for RGMM's loans. He told her that RGMM would not deal with any new direct clients. He asked Ms Nguyen to set up a "broker referral system" for RGMM. He said she would be paid a salary comparable to what she was getting at Mortgageport and a commission on any loans she brought in. At this time, according to her, Mr Tomazin said he was not interested in making money from RGMM: the object was to increase the overall volume of the business and get a lower delivery rate. He said that the partners would have no involvement in RGMM except to source brokers who want to be accredited to it. Mr Tomazin agreed that he spoke to Ms Nguyen in his office at this time and, implicitly, that it was about employing her. He denied saying the things attributed to him but did not purport to relate the entire conversation, although he recalled Ms Nguyen saying that she needed to be careful because she had a 90 day hiatus clause in her contract with Mortgageport, saying she could still work for him but "it will just have to be on the quiet". It seems to me virtually certain that the subject of the nature of Ms Nguyen's proposed employment would have been broached and some indication given of her remuneration. Mr Tomazin's bare denial of Ms Nguyen's account is unpersuasive. 15Ms Nguyen deposes to a further meeting on or about 18 December 2000 in which she told Mr Tomazin that she would only consider moving from Mortgageport to Royal Guardian if her total remuneration package was significantly better than she was currently earning and this would need to include profit share and commission on any loans that she brought in. According to Ms Nguyen, Mr Tomazin offered - "I will pay you the same [as the Mortgageport] base salary, but I will pay you a bonus of 0.25 per cent for all loans if you settle over $2 million per month and profit share at a later date once you have proven yourself. I will also pay you a generous commission on all the loans you directly refer and settle. RGMC is the company that is directly accredited to the funders and I'm the sole shareholder of RGMC, so all loans written by RGMM belong to RGMC anyway. My aim with RGMM, as a wholesale company, is to increase the overall business volume so I can get a lower delivery rate from the funders. This way RGMC will be more profitable." Mr Tomazin disputes Ms Nguyen's account of this conversation. He said there was no discussion of RGMM at the meeting. He said that the proposal was that Ms Nguyen would be working for RGMC bringing in new broker business. However, he did not dispute Ms Nguyen's account of the proposed remuneration package. On 18 December 2000, an offer was made to Ms Nguyen by Mr Tomazin of employment in "a senior management position within our firm" on the letterhead of RGMC, a fact that provides some support for Mr Tomazin's evidence as to employing Ms Nguyen in RGMC rather than RGMM. The qualification "some" arises from the fact that Mr Tomazin regarded all the companies as part of what he called the "Royal Guardian group", of which RGMC was the principal. Since RGMM had been incorporated in the previous October to operate as "the wholesale division" of the group (see the next paragraph below) and Ms Nguyen was employed as the general manager in March 2001, it is most unlikely that RGMM was not mentioned in the context of her recruitment. Accordingly, I do not accept Mr Tomazin's evidence on this point. 16The remuneration offered in the letter was $75,000 a year plus superannuation and "a generous commission structure for any directly referred successful applicants". The offer did not cover a number of important, indeed, crucial issues: the actual employer; the actual position; the nature of the job; the "commission structure"; possibly, payment of a bonus; and the commencement date. Although the connexion between the commission and the direct referral of applicants suggests it applied to borrowers who were not referred by brokers, Ms Nguyen said she understood the offer in this respect to mean that for any direct loans that she settled which were referred through her own broking company she would be paid an upfront commission and trail like any other broker. Otherwise, as I understand her, the offer would not have bettered her remuneration package with Mortgageport. That it was important to her that the move would improve her position is, I think, a given. In the result, as will be seen, the employment contract did not refer to payment of a commission, but to a bonus, and did not refer to direct referrals. 17Mr Tomazin deposed that the employment details were agreed and Ms Nguyen started work with RGMC in early 2001. Ms Nguyen said that she did not resign from Mortgageport until February 2001 and commenced work for RGMM around 12 March 2001. It seems to me that this was, in fact, her first employment with Mr Tomazin, as was implied in her first affidavit, and that Mr Tomazin is mistaken. The next relevant document is a curious one. It is dated 29 May 2001 on RGMC letterhead, addressed "to whom it may concern" and "is to confirm that... [RGMC] has employed Beth Nguyen since 12 March 2001 as General Manager for the wholesale division ... [RGMM]", setting out salary and an unparticularised "generous monthly commission structure" (emphasis added). The last paragraph is an invitation to contact Mr Tomazin "should you need any further clarification regarding the above". The suggestion that Ms Nguyen was RGMC's employee is misleading, as is the implication that RGMM was owned by RGMC. (This might simply have been a reflection of Mr Tomazin's view of the business, rather than the legal, structure of the relationship between the companies and I draw no adverse conclusion about it.) As I have mentioned, RGMM actually had no legal connection with RGMC but, considering the business as a whole without regard to the technical legal elements, this letter suggests strongly that (noting use of the definite article) RGMC's wholesale business was being undertaken by RGMM, it therefore dealing with the retail business, namely loans sought by individuals without the interposition of a broker or referrer. However this may be, it is inescapable that there were discussions before this time between Ms Nguyen and Mr Tomazin about the nature of the businesses, in particular that of RGMM, and their relationship and the nature of the work that he was hiring Ms Nguyen to do. This is not, in terms, denied by Mr Tomazin except so far as the conversation involving his offer of employment is concerned. I do not accept the correctness of his evidence in this regard. The extent to which RGMC had or continued its broker referral business is unclear but I am satisfied that it did not pass on any of that business to RGMM. 18The first employment agreement between Ms Nguyen and RGMM is dated 12 March 2001. RGMM is called "Royal Mortgage Management Pty Limited" but it is agreed that this is a mistake and the employer was RGMM. Ms Nguyen was appointed General Manager "to conduct mortgage lending". Her duties were as follows - "Duties and accountability 4.1 The Executive's duties include, but not limited to: 4.1.1 work normally conducted by a General underwriter; 4.1.2 work normally conducted by a relationship manager; 4.1.3 any office work which the Company may reasonably ask the Executive to do, even though it does not fit with the normal duties of her position. 4.2 The Executive shall report to and be accountable to the Director of the Company. 4.3 In performing her duties the Executive must: 4.3.1 serve the Company faithfully and diligently and exercise all due care; 4.3.2 act in the best interests of the Company at all times; 4.3.3 refrain from acting or giving the appearance of acting contrary to the interests of the Company; 4.3.4 use her best endeavours to protect and promote the Company's good name and reputation; and 4.3.5 perform her duties to the best of her ability." Ms Nguyen's remuneration was $75,000 per annum plus the following - "6.3 The Executive shall be paid a bonus if she brings her own portfolio (clientele) to the Company and the total sum of settled loans from such portfolio in a calendar month is not less than one million dollars ($1,000,000.00), The bonus for that month shall be 0.25% of the sum of settled loans and shall be payable after settlement." The contract also provided - "16. This agreement constitutes the entire agreement between the Company and the Executive in relation to the Executive's employment with the Company and any representations made or agreements arrived at in relation to the performance by the other party of its respective rights an obligations under this agreement shall, except tot the extend they appear in this agreement, be deemed for all purposes not to have been made or arrived at." 19It will be seen that this contract does not describe the business except that it was Ms Nguyen's duty to conduct "mortgage lending". Ms Nguyen accepted that her role was, as she said, to "get the operation off the ground including organising sales, credit, settlement and administration" (but those sales were to brokers not borrowers). As is obvious, these functions were not specified in the contract: the task of an underwriter was, in substance, to ensure that loan applications complied with the funder's criteria and the relevant documents were forwarded on to the funder; as I understand it, the duties of a "relationship manager" relate to the maintenance of positive communications with brokers, including assisting them to fulfil their responsibilities in connexion with the loan applications, designed to encourage compliance with the funders' requirements and, no doubt, increase RGMM's attractiveness as an originator. That these duties (and "office work" that might be requested) are described inclusively is of little significance to my mind. The other unspecified duties could be no more than those inherent in the role of General Manager itself or ancillary to the specified duties. Mr Tomazin said in his second affidavit that Ms Nguyen was "not responsible for any post-settlement work at RGMM... [which] was taken care of by a separate group of employees employed by RGMC". Although this was largely, it was not entirely, correct. 20Something was sought to be made by Mr Young SC for RGMM of the conditions upon which a bonus was to be paid. However, whatever is meant in clause 6.3 by bringing "her own portfolio (clientele) to the company", no obligation to seek out and bring business to the company is, to my mind, imposed as to quantity or, indeed at all although both parties appeared to have acted on the basis that this was, indeed, Ms Nguyen's primary task. This is not to gainsay that clause 6.3 determines what transactions attract liability to pay bonus, an issue that is dealt with below. Ms Nguyen accepts that, from the beginning, Mr Tomazin made it clear that her main role was to increase overall business volume to obtain a lower funding cost and an adequate volume to satisfy the funders. Indeed, she says (and it is not disputed) that Mr Tomazin repeated this consideration on the day she started work. But this is not found in her employment contract. It is important to note, furthermore, that the agreement nowhere refers to the role of RGMC or suggests that Ms Nguyen had any duties or responsibilities in relation to that company or the business of that company. 21Exhibited to Mr Tomazin's first affidavit is a document circulated in 2004 to Royal Guardian staff setting out the responsibilities of sales staff and brokers. This was, it appears, applicable to the whole of the relevant period. In light of the issues in the case concerning what was expected of Ms Nguyen and Mr Stolyar, it is useful as a description of what was not part of their duties. The work of sales staff was to conduct a loan interview, discuss loan options and determine the most suitable loan product for the customer. Brokers dealt with loan selection, document collection and variation, personally speaking to every applicant and advising the customer about the approval process, providing them with appropriate information and assisting with the preparation of the loan application; the broker also, having obtained all original documents supporting the loan application and checked their authenticity, signs, dates and notes on copies that the originals were sighted, completes the 100 point ID form and sends all copies of documents to the authorised officer with the loan application; completes all requests from credit staff regarding the application and maintains contact with the client until settlement. There were no sales staff or brokers employed by RGMM; this document was therefore directed to RGMC staff. It is, however, a fair indication of the tasks that brokers who referred business to RGMM were expected to have performed. There is nothing in the contract that implies a requirement that the defendants, in respect of loan applications, were obliged to perform these tasks or anything like them. It follows that, in undertaking - as they agree they later did - the work of a salesperson or of a broker in relation to loans ultimately processed by RGMM and settled, the defendants were acting outside their contractual obligations. Mr Tomazin himself described Ms Nguyen's responsibilities as including underwriting loans introduced by third parties, maintenance of RGMM's loan records, accreditation of brokers, training of brokers in Royal Guardian and funder policies, preparation of RCTI's, supervision of RGMM staff, introduction of new brokers and maintenance of existing broker relationships and everything necessary to be done prior to settlement of loans. Although this list is said to be inclusive, it appears to be exhaustive and, to my mind, certainly does not suggest she was expected to seek business from individual or direct borrowers or, in respect of any such borrowers, have performed the tasks that were expected of brokers. The crucial question is whether the defendants were entitled to refer such borrowers as they identified to Bethian in the first instance and later Dibelle, and charge RGMM in respect of that work, just as would another broker. 22It should also be noted that, whatever might have been Ms Nguyen's verbal stipulation about profit share, this agreement did not provide for it. 23Mr Stolyar had been involved, one way or another, in the finance business since 1989, eventually going to work for Mortgageport in February 2001 as National Lending Manager. In about April Ms Nguyen (with whom he had been in a relationship for several years) asked him to join RGMM. Sometime in early May 2001 he met with Mr Tomazin, Ms Nguyen also being present. At this meeting, he said, Mr Tomazin told him, in effect, that RGMC would "always deal with direct clients and RGMM will work only with mortgage brokers, accountants and other third party introducers". Mr Tomazin also told Mr Stolyar that Mr Pusic and Mr Pondelak (whom he had already met) were RGMC's best mortgage consultants, whom he had made directors of RGMM and minority shareholders. He said, however, that he and Ms Nguyen were to report directly to him and ignore directions or requests from them unless they came from him. He said their job was to bring direct business to RGMC and referred introduced business to RGMM. Mr Tomazin does not, as I understand his affidavits, deny this conversation. Mr Stolyar also claimed that Mr Tomazin told him that RGMM was a new company dealing exclusively with the wholesale side of the business, and would employ him as an underwriter, answerable to Mr Tomazin as Managing Director, with a salary of $75,000 plus superannuation and, as with Ms Nguyen, would be paid the same commissions and trails as any other introducer for mortgage loans he brought in. Mr Tomazin said that this conversation concerned the setting up of Bethian (when the defendants asked for their bonuses to be paid to that company, a matter dealt with in greater detail below) and denied saying anything about payment of commissions and trails like an introducer. 24On 14 May 2001 an employment agreement between Mr Stolyar and RGMM was entered into. He was appointed a senior manager, his duties including "work normally conducted by a senior manager" and a "relationship manager". Mr Tomazin said that he was just employed as an underwriter, the other work descriptions being adopted for the purposes of an application for credit. Nothing depends on this. The matter is determined by the contract. The point is that he was not employed either as a sales person or a broker. The other terms of the contract were identical to those applying to Ms Nguyen, including the salary and bonus. Administrative processes 25The following description is taken from Ms Nguyen's affidavit. When an application came into the office, a customer file would be opened in a manila folder and the name of the introducer and the purpose of the loan stated on it. The files were kept in order of the settlement report, usually by settlement date. Commissions would be paid to the brokers following settlement. This process generally included the following steps: the broker's details would be entered into RGMM's system, together with the commission payable, usually by one of the office assistants; each month, around the first week, the administration officer at RGMM would generate a settlement report for each broker showing the borrowers' names, the funder, the loan amount, the settlement date, interest rate and the total figure of settled loans for the particular month; a recipient created tax invoice (RCTI) would be created, usually by Ms Nguyen or one of the administration officers, which was addressed to the relevant broker; the settlement report and RCTI would then be given to RGMM's accountant (also RGMC's accountant) who would cross-check the funder's settlement report with the internal settlement report and the RCTI for the purpose of drawing a cheque in favour of the broker for the commission amount for that month; the unsigned cheque was returned to Ms Nguyen with the settlement report and RCTI for the relevant broker; the cheque was signed by two people, generally Ms Nguyen and either the accountant or Mr Tomazin; the file would be reviewed with Mr Tomazin when the cheque was signed (a number of examples of cheques signed by both Ms Nguyen and Mr Tomazin for commissions paid to Dibelle were exhibited); and the RCTI with the cheque and settlement report would be sent to the broker. 26According to Ms Nguyen, during the period from April 2001 to about May 2006, it was Mr Tomazin's practice to check the settled files before he authorised the payments of commissions from RGMC to RGMM. She said Mr Tomazin would often come into her office and review the files to check the loan amount, how the loan was structured, the introducer (ie. the broker) and the verification documents. He would pick up the customer files, skim through the documents and tick off the loan on the settlement report once he had cross-checked the settlement amount against the funder's settlement confirmation letter in the file. In his affidavit of 12 April 2013 Mr Tomazin said that, in relation to the accreditation of brokers, Ms Nguyen was required to conduct the necessary enquiries including confirmation of membership of the Mortgage Industries Association of Australia and satisfactory professional indemnity insurance cover. It was part of her responsibility to ensure that the executed accreditation agreement and evidence of current professional indemnity insurance was on file before accepting business from a broker. Otherwise, he agreed with her description of the process undertaken in relation to loan applications with RGMM "during the first few years" that she was employed by RGMM. However, he said it was not the process in later years. As I understand him, the changes were as follows. Firstly, although he checked every file for commission purposes, this was before RGMC had an accounting department and had only a part-time bookkeeper. He checked the commissions being claimed against the funder reports. He said that in 2002 he began to travel overseas frequently so the standard practice changed. In March 2003 RGMC employed its first full time accountant who took over the responsibilities of checking commissions to be paid and making the payments and, as the business grew, more accountants were employed. He agreed that RGMC provided accounting services to RGMM. Mr Tomazin said that, by 2003 (I assume when the accountant was employed) the standard practice was that Ms Nguyen would issue an invoice directly to the RGMC account staff who did not check the loan files. The RGMC account staff, Mr Tomazin said, only checked the commissions being claimed against the funder settlement and trail reports. He said that it would not have been feasible for either him or the account staff to check every settled file or even the majority of settled files each month because of the large volume of loans that were being written. He roughly estimated that, by December 2004, RGMM was writing approximately 100 loans a month. He said that this remained the standard practice until 2005 until he asked Mr Pusic and Mr Pondelak to help him with an audit of all current RGMM files. (I return to this matter in due course). In Ms Nguyen's affidavit of 6 May 2013, she responded to Mr Tomazin's assertions about this matter. She said that, whilst working at RGMM, she noted that the settlement figures and RCTI's were checked by the account staff but the physical files were checked by Mr Tomazin against the settlement reports when he was in the country. In this context it is important to note that the staff of RGMM and RGMC, together with Mr Tomazin and Mr Stariha, shared office space in their premises at Railway Parade, Burwood. Ms Nguyen gave (as an example) an RCTI of 12 May 2005 addressed to Ian Stolyar at Bethian Enterprises Pty Ltd, for which the settlement report (for April 2005) showed a total of 77 transactions through various funders, totalling over $27 million. One of those loans was to TJ and AL Worsley. Ms Nguyen said that Mr Tomazin asked her about the loan, observing that there was no confirmation of settlement in the file (as distinct from what was indicated on the settlement sheet) and told her to ensure that $70,000 was deducted from the month's settlement, "otherwise the Bethian management fee will be too much". Ms Nguyen said that she responded that settlement had probably been cancelled at the last minute and that she would amend the report and "reduce the management fee to Bethian", to which Mr Tomazin replied, "OK reduced the RCTI and I will give the OK to pay". The settlement sheet shows $70,000 is crossed out and the sum of $174.40 deducted from the Bethian payment. Mr Tomazin wrote "OK to pay" on the RCTI. In Mr Tomazin's third affidavit of 17 May 2013 made in response to the affidavit of Ms Nguyen of 6 May 2013 he made no reference to this matter or to the terms of the conversation, nor did he deny that he inspected the files, as Ms Nguyen described, when he was in Australia. She pointed also to an RCTI of 12 October 2004 addressed to Mr Stolyar at Bethian Enterprises Pty Limited on which RGMC's accountant at the time, Mojave Kannagara had noted "NB to be checked by Tony on his return 13/10/04". Ms Nguyen said that sometimes, in Mr Tomazin's absence, Daniel would check the files against the settlement reports and referred to an RCTI of 11 January 2005 addressed to Mr Stolyar at Bethian which is signed by him in the middle of the page. Although I think these RCTI's support Ms Nguyen's evidence that the account staff would check the settlement sheets against the invoices and that this may well have been done also by Mr Tomazin and Daniel this does not establish that the loan files were also checked. At the same time, it seems to be accepted by Mr Tomazin that the files were available to him to check at any time should he wish to do so, as also (as I apprehend) could be done by Mr Pusic and Mr Pondelak. Leaving questions of credit aside, I am unpersuaded by Mr Tomazin's statement of opinion about what the accountants did whilst he was away. 27Mr Tomazin's evidence was that, on the 15th of the month, "when the commission was due and payable, it was standard that [Ms Nguyen] created... tax invoices for her broker partners and for herself as well". Ms Nguyen said that the system, so far as the issue of an RCTI was concerned was - "... all that RCTI was done by my admin staff, but then it would be passed on to the accountant who would verify the totals and then the accountant would generate the cheque and then the cheque would come back for Tony's and my signature. That's how the whole process at Royal Guardian works. So the accountant's job was to make sure if you were pay on that RCTI, an agreement must exist. That's my understanding that you require that for GST purposes, but I don't know anything more than that." 28In effect, Ms Nguyen's evidence amounts to a denial that she had complete control of the relevant files or of the process of billing and payment such that she did or could conceal from Mr Tomazin or, for that matter Mr Pusic and Mr Pondelak the basis on which, initially, broker's commission was paid to Bethian and her and Mr Stolyar's connexion with that company. The same is also true of the commissions paid to Dibelle, with which I deal below. RGMM did not call any witness who was employed at the relevant time in respect of billing, payment or accounting procedures to support Mr Tomazin's account or contradict Ms Nguyen's. No explanation for this omission was given. The point is, not so much whether Mr Tomazin in fact checked the brokers' files at the relevant times (although I am satisfied that he did from time to time do so) but whether he had the opportunity to do so and, had he done so, he would have discovered whether, in particular accreditation agreements with Bethian and the Dibelle entities (an issue discussed below) had been executed. I am satisfied that, on this issue, Ms Nguyen's evidence is to be preferred. The accreditation of Bethian Enterprises Pty Ltd 29Bethian was incorporated on 23 May 2001, having as its directors and equal shareholders Ms Nguyen and Mr Stolyar. Ms Nguyen said that, although inquiries from individual borrowers were rare, in light of her responsibilities in managing the operational side of RGMM, including looking after the brokers and building up the business, she did not have the time to interview them and put the loan applications together. Accordingly, she would refer these persons to an accredited broker. This also would help her to reach her bonus target if the loan was ultimately settled. As I understand her, it was this situation that led her, in early May 2001, to take up with Mr Tomazin the accreditation of Bethian to RGMM, a meeting at which, she says, Mr Stolyar was also present. She said that she told Mr Tomazin she would like to formalise the commission arrangement with RGMM in accordance with the agreement of January 2001 and that she and Ian would like Bethian to start referring loans as an introducer. She stated that Mr Tomazin told her that she could accredit her own company as an introducer to RGMM for direct deals as long as it was not paid more than any other broker. He wanted every introducer, including Bethian, to execute an accreditation agreement. He suggested that the agreement which had been prepared for SWFS could be used and wanted the agreement to be executed before any commission was paid. Ms Nguyen said that she responded, "OK, lets execute the agreement for Bethian in the next day or so". 30Ms Nguyen said that, as far as she was concerned, if Mr Tomazin had not agreed to accredit Bethian as a broker to RGMM, she would not have continued her employment with RGMM, I take it because she was expecting to expand RGMM's business and felt that, if she did so by introducing (in addition to brokers) personal borrowers for whom she would need to perform the work undertaken by a broker, she should be entitled to the income which a broker would have obtained for undertaking the same work. Ms Nguyen said that, although she did not recall the exact date, the accreditation agreement between Bethian and RGMM was executed by her and Mr Stolyar on his behalf and Mr Tomazin on behalf of RGMM. (This agreement was distinct from a separate management agreement which, Ms Nguyen said, was later executed between Bethian and RGMM. I deal with the issues surrounding this agreement in due course.) She said that she herself saw Mr Tomazin sign the agreement and that Mr Stolyar was present also at the time. She said it was the practice to store original signed accreditation agreements in the broker files which were placed in a filing cabinet and that the agreement was placed in a Bethian broker folder which, she said, Mr Tomazin kept in his Campsie office. She said that she was also given a copy of this agreement and placed it in her drawer in her office at Campsie but that she did not now have a copy of it and did not know where it was. She said that, from late March to June 2006, Mr Tomazin, then overseas, frequently told her that he was going to come back in a week, which was then delayed by another week. She had made up her mind to leave the company and wanted to tell him in person but he delayed for two months and, when he finally returned, she formally resigned in person and gave him a couple of days' notice. She said in those last days she was busy telling the brokers that she was going, sorting out pending applications and leaving sufficient details with the staff in the office to enable the pending files to be finalised and she had given priority to these tasks. She said her departure was very rushed and she left a lot of her documents in a drawer in her office and forgot to take them with her. 31Mr Stolyar confirmed that Bethian was incorporated with the intention that it would act as a broker through which borrowers would be introduced to RGMM. He confirmed that Mr Tomazin told him that it was necessary that all introducers needed an accreditation agreement with RGMM as well as a RCTIA before commissions could be paid. Mr Stolyar added that Mr Tomazin told him that he had instructed Ms Nguyen that he (Mr Tomazin) was to co-sign all cheques and meet all the introducers with whom they (the defendants) had a personal relationship. Mr Stolyar said that about early June 2001 the accreditation agreement between Bethian and RGMM was executed and he witnessed Mr Tomazin doing so on behalf of RGMM. 32In substance, Mr Tomazin denied that there was a conversation about Bethian operating as an introducer for direct borrowers, as deposed to by Ms Nguyen. He agreed there was a conversation about this time concerning Bethian but this was simply a request by Ms Nguyen for payment to Bethian of the "override bonus payments" due to her and Mr Stolyar, although they wanted their salaries paid into their individual bank accounts. Mr Tomazin said that he was indifferent to the way in which the bonuses were paid and agreed to the payments being made to Bethian. The defendants denied making any such request. Mr Tomazin also denied that Bethian was broker or an introducer to RGMM and that there was ever an accreditation agreement between RGMM and Bethian. Moreover, Mr Tomazin claimed, it was a requirement that brokers take out professional indemnity (PI) insurance and provide evidence of its currency when making a claim for commission. The defendants conceded that Bethian (and Dibelle) did not have PI insurance. (I should mention for completeness that Mr Tomazin also said it was also a requirement that brokers be members of the Mortgage Industry Association. However, this was not a term of the accreditation agreements, the defendants gave no evidence and were not asked about it. I infer that, so far as they were concerned, this was not an issue.) 33Ms Nguyen agreed that it was standard that the accreditation agreements between RGMM and its brokers required PI insurance to be taken out but said that, at the time of the Dibelle accreditation agreement (and, it follows, earlier at the time of Bethian's), this was not a requirement. In her second affidavit Ms Nguyen said that it was never "compulsory" for a broker to have such insurance "before they were accredited to RGMM". In cross-examination she said that the requirement for PI insurance became standard probably around late 2005. In the affidavit she cited the example of a (named) broker accredited to RGMM who did not have cover and added that the broker files produced by RGMM pursuant to a Notice to Produce showed that only an accreditation agreement and a signed RCTIA was required for payments of commission to be made. No objection was taken to this mode of adducing this evidence. Since the files were readily available to RGMM if it wished to contradict Ms Nguyen's evidence on the point and no attempt to do so was made, it seems to me appropriate to accept her evidence of what the files showed as undisputed. (At this point I should mention Mr Tomazin's evidence that he did not check to see whether "all" brokers had an accreditation agreement and current insurance cover on file and that it would have been possible for Ms Nguyen to have permitted brokers to write loans to RGMM without this documentation. The administrative arrangements are discussed above. It is enough to say for the present that to some extent, Mr Tomazin's evidence is a non sequitur, since others had responsibilities in relation to processing payments and it is clear that he also would or could have inspected the files.) Mr Stolyar also agreed that Bethian had not taken out any PI insurance but testified that, at that time, no introducer had professional indemnity insurance. 34Although several accreditation agreements in existence in mid 2001 were produced, which required professional indemnity insurance to be taken out, they were not shown either to Ms Nguyen or Mr Stolyar and they were not cross-examined about them. There is a difference, at all events, between a formal contractual condition requiring PI to be taken out an insistence that the obligation be honoured. Furthermore, RGMM did not seek to tender any certificate of insurance or cover note from any of its accredited brokers at the material time. Although I accept that some of the records before 2002 and, perhaps, 2003 have not been able to be located, this does not amount to an explanation for omitting to produce the particular material in question, let alone some witness able to give evidence about the relevant procedures. 35The termination of Bethian's entitlement to commissions as a broker occurred, according to the defendants, in early 2003, having introduced 27 loans to RGMM between May 2001 and February 2003. It follows, as it seems to me, that Bethian charged a commission in respect of these transactions. That commission was paid on an RCTI which identified the loans settled during the previous month to which was attached the settlement report listing the loans and the broker ("member") who had referred the borrower. The list of completed transactions exhibited both to Ms Nguyen's and Mr Stolyar's affidavits show, in respect of loans for which Bethian is named as "member", one in August and one in November 2001, one in March, two in April, two in July, ten in August, one in September, one in October, one in November and two in December 2002, and two in January, one in February and one in March 2003. Since the procedure was for monthly accounts, this meant that RCTI's for Bethian commission's were processed in September and December 2001, April, May, August, September, November, and December 2002 and January, March and April of 2003. The information also needed to be retained for the payment of the trail in due course. That Bethian's claim to be a member was almost certainly not a secret seems obvious. I do not believe it was a secret from Mr Tomazin: he said that it was the company to which the defendants' bonuses were to be paid. It also received payments (also described in RGMM's accounts as "commissions") pursuant to what the defendants claimed was a management agreement, which Mr Tomazin denied ever existed. Other developments had intervened in the meantime and it is convenient to deal with them first, in an attempt to deal with the events chronologically as much as possible. The employment contract of 1 February 2002 36During the period from April 2001 to February 2002, RGMM settled $97 million worth of loans. Ms Nguyen said that, in January, Mr Tomazin raised with her the subject of variations to her and Mr Stolyar's employment contracts. She claimed that Mr Tomazin told her that he wished them to sign new contracts for a longer period and would increase their salaries linked to monthly settlements. Ms Nguyen agreed but raised the issue of her bonuses which, she said, had not yet been paid. She said that Mr Tomazin said he would "sort out the bonus I owe you once we execute the new employment agreement". (I deal below with the issue of whether bonuses were due and whether they were paid.) Except, I take it, in respect of the bonus, Mr Tomazin does not take issue with this account. 37On 1 February 2002 a further employment agreement was entered into between Ms Nguyen and RGMM. The earlier agreement was terminated as at 31 January 2002 and the new agreement came into effect on 1 February 2002. Ms Nguyen was reappointed as "general manager". The term was two years. The duties of Ms Nguyen were specified as - "Duties and accountability 4.1 The Executive's duties include, but not limited to: 4.1.1 work normally conducted by a senior underwriter; 4.1.2 work normally conducted by a relationship underwriter; 4.1.3 any office work which the Company may reasonably ask the Executive to do, even though it does not fit with the normal duties of his position. 4.2 The Executive shall report to and be accountable to the Director of the Company. 4.3 In performing her duties the Executive must: 4.3.1 serve the Company faithfully and diligently and exercise all due care; 4.3.2 act in the best interests of the Company at all times; 4.3.3 refrain from acting in conflict to the interests of the Company; 4.3.4 use her best endeavours to protect and promote the Company's good name and reputation; and 4.3.5 perform her duties to the best of her ability." It will be seen that her duties were specified as those normally conducted by a "senior underwriter", as distinct from a "general underwriter" (as earlier specified) whilst the additional duty of that of a "relationship manager" was changed to that of a "relationship underwriter". In the absence of any evidence about the significance, if any, of the change in these terms, I think the better view is that it was not intended to and did not effect any real change. The significant variation concerned remuneration, in which respect it was provided - "5.1 If the total sum of settled loans from portfolios brought in by the Executive in a quarter (either February - April, May - July, August - October, or November - January) is not less than ten million dollars ($10,000,000.00), the Executive shall be paid a salary on the basis of One Hundred Thousand dollars ($100,000,00) per annum. 5.2 If the total sum of settled loans from portfolios brought in by the Executive in a particular quarter (either February - April, May - July, August - October, or November - January) is less than ten million dollars ($10,000,000.00), the Executive shall be paid a salary on the basis of Seventy-five Thousand dollars ($75,000.00) per annum." The bonus provisions also changed both by increasing the triggering value of settlements and requiring GST to be added to the amount payable - "6.3 The Executive shall be paid a bonus if she brings her own portfolio (clientele) to the Company and the total sum of settled loans from such portfolio in a calendar month is not less than two million dollars ($2,000,000,00). The bonus for that month shall be 0.25% (plus GST) of the sum of settled loans and shall be payable after settlement." There is no evidence explaining the addition of GST to the bonus. Such a provision had not been included in the parallel clause 6.3 in the contract of 12 March 2001. Since the bonus is remuneration, no GST is payable, although, of course, income tax is. This is significant for reasons later discussed. It seems to me that the clause must be read as plus GST if any is payable. 38The requirement as to variations needing to be in writing was repeated. 39On the same date as the second Nguyen agreement Mr Stolyar entered into a new agreement. As before he was described as a "senior manager". His duties varied to the extent that they included work normally conducted by a "senior underwriter" as distinct from a "senior manager" and work normally conducted by a "relationship manager" was changed to work normally conducted by a "relationship underwriter". Given that it is common ground that the duties of an underwriter concern the assessment of an application to ensure its compliance with the funder's criteria, it seems at least clear that Mr Stolyar was still not expected to seek new business, let alone new business from the borrowers themselves. It is true that the duties were described as including work of the specified kind and were not limited to that work but I do not think there is any basis for construing the duties as comprehending any significantly different kind of work. The duration of the contract was two years from 1 February unless earlier terminated, with an option for Mr Stolyar to renew by a notice in writing given on or before 1 February 2004. Mr Stolyar's remuneration was specified as follows - "5.1 If the total sum of settled loans from portfolios brought in by the Executive in a quarter (either February - April, May - July, August - October, or November - January) is not less than ten million dollars ($10,000,000.00), the Executive shall be paid a salary on the basis of One Hundred Thousand dollars ($100,000,00) per annum, 5.2 If the total sum of settled loans from portfolios brought in by the Executive in a particular quarter (either February - April, Ma - July, August - October, or November - January) is less than ten million dollars ($10,000,000.00), the Executive shall be paid a salary on the basis of Seventy-five Thousand dollars ($75,000,00) per annum." The bonus provision was - "6.3 The Executive shall be paid a bonus if he brings his own portfolio (clientele) to the Company and the total sum of settled loans from such portfolio in a calendar month is not less than one million dollars ($2,000,000.00), The bonus for that month shall be 0.25% (and GST) of the sum of settled loans and shall be payable after settlement." (The addition of the GST amount is also made in this contract. There is controversy as to which of the words or the figures should be taken as the settlement target. I deal with this in due course.) 40The variation clause was repeated. The variations of 1 November 2002 and 17 March 2003 41According to Ms Nguyen, this variation arose out of a contretemps between the defendants and the partners concerning referrals to RGMM by SWFS, Ms Nguyen's earlier employer. She said that, shortly after she joined RGMM, she was called by the managing director of SWFS, Mr George Koovousis, who told her that he wanted to continue to refer loans to her having, as I understand it, referred loans to her when she was at Mortgageport. He said that he wanted to deal only with her and asked whether accreditation for SWFS could be arranged as soon as possible. Ms Nguyen said that a solicitor had been engaged to prepare the accreditation agreement and an appointment would be made to execute it. This was done on 2 May 2001, Mr Tomazin signing for RGMM, witnessed by Ms Nguyen and Mr Koovousis signing for SWFS. SWFS began referring loans to RGMM very shortly afterwards and became a very significant introducer, referring loans on its own behalf and from other sub-introducers the largest of which was VIP Financial Services (VIP). They accounted for a large proportion of the loans referred to RGMM. 42In July 2002, Ms Nguyen said, Mr Koovousis informed her that Mr Tomazin had arranged for some of his salesmen to approach VIP, adding - "What kind of business is Tony trying to run? I give most of my business to RGMM so why would he go behind my back and steal one of my top referrers. How can I trust RGMM with my business now?" Ms Nguyen said she would speak to Mr Tomazin. On about 23 July 2002 she took up the matter with him. According to her the following conversation occurred - "George is really upset with this VIP fiasco. He has faxed to me a list of the VIP loans for the last four months and it shows on average George was getting about $1 million in loans from VIP. He's now rethinking about whether to refer loans to RGMM as he thinks this is out of my control. I don't want RGMM to be linked to RGMC." 43In answer to a question from Mr Tomazin as to what she wanted, Ms Nguyen said - "RGMM needs to trade under a new name. I don't want the industry and market to mix us up. There must be a distinction between RGMM and RGMC." 44Mr Tomazin agreed that he and Ms Nguyen discussed the SWFS situation but not in the terms related by Ms Nguyen. He did not deny the approach to VIP nor give an account of what was discussed. He did not suggest some failure of recollection. His bare denial is unconvincing and does not lead me to doubt Ms Nguyen's account. 45Mr Stolyar's involvement was second hand in the sense he was told by Ms Nguyen of what of Mr Koovousis' complaint, though he dated it in early or mid 2002. He said they (the defendants) regarded this as a breach of the understanding they had with Mr Tomazin that RGMC was to operate in the retail area exclusively whilst the wholesale business was operated by RGMM. The consequence was that RGMC was competing with RGMM for loans which otherwise would have gone to RGMM. Mr Stolyar said that Mr Tomazin, being a director of both companies, had access to all the introducers brought to RGMM by him and Ms Nguyen and was in a position to offer them commission structures with which RGMM could not compete. In May or June 2001, Mr Tomazin had said to him words to the following effect - "The business has to run cash flow positive; to do that, I don't want you to pay more than 1 per cent to your brokers. We receive one per cent in up front commission from the funders. I pay 0.25 per cent of it out to you and 0.75 per cent to the broker." 46Accordingly, Mr Tomazin could approach RGMM's introducers and offer them a more attractive commission than that which had been imposed on RGMM by him. Indeed, according to Mr Stolyar, this is what he did with VIP. Furthermore, commission payments passed on by RGMM to the brokers were made by RGMC, which was therefore in a position to withhold them. Mr Stolyar said that because of these matters he gave verbal notice to Mr Tomazin in October 2002 of his intention to terminate the employment agreement. Mr Tomazin denied this occurred. 47Ms Nguyen said that she raised the matter again with Mr Tomazin in about October 2002, proposing that RGMM changed its name to Precise Mortgage Management Pty Limited and RGMM should trade from another office, preferably in the city. Mr Tomazin asked why. Ms Nguyen replied - "What happened with VIP endangered my relationship with South Western. I want to reassure my brokers that their source of business will be protected but more importantly I want to protect my source of business. If I can't stop RGMC from dealing with brokers, I want to make sure the market out there knows there is no association with RGMC to my operation. The source of business in this business model is my livelihood Tony. If you don't agree with this, I can't see how our working relationship can continue." 48Ms Nguyen said that Mr Tomazin agreed to her proposal as he did not want to lose her but wanted a new contract signed with her and Mr Stolyar. He said that, to make up for the VIP fiasco, he would offer, in addition to the 0.25 per cent bonus, a profit share arrangement and shareholding at a later date to tie her in. Ms Nguyen said that they should talk about the profit share arrangement and added that she wanted RGMM to obtain direct accreditation to Macquarie Bank. Mr Tomazin said, according to Ms Nguyen - "Look, last financial year RGMM made a profit of $210,000 so if RGMM can make a profit over this amount, I will give you 25 per cent share of RGMM's profits and if it makes you happy, I will arrange RGMM to be directly accredited to Macquarie." 49Mr Tomazin's first affidavit did not deal with this matter at all. He said in his second affidavit, whilst conceding they had a conversation about the subject matter, he did not agree with Ms Nguyen's account. He said that she complained that she and Mr Stolyar could not work with the partners and wanted to set up their own company called Precise Mortgage Management which should be in the city to access the larger accounting firms, running the company for Royal Guardian but with its own accreditations. Mr Tomazin said he told Ms Nguyen that he doubted a new company would get accreditations but her proposal was acceptable providing the shareholding remained the same as that of RGMM, so "I don't lose Daniel and Zoran". He said that Ms Nguyen agreed to this but wanted a new employment agreement with a pay rise and a share of the profits. 50Mr Stolyar does not refer to the proposed new arrangement, as I understand it because he did not have the conversation with Mr Tomazin. However, he said that, a day or so after he gave notice of his intention to resign, Mr Tomazin told him that, because of his reaction to what had happened, he had negotiated an arrangement with Ms Nguyen that RGMM will be separately accredited with the funders, the business would move to a new office and they would receive higher salaries. Mr Tomazin denied that this conversation occurred. 51Variations, dated 1 November 2002 and signed by Mr Tomazin, were made to the February 2002 employment agreements. Ms Nguyen's contract was varied by increasing her salary to $125,000 "effective 1 October 2002" provided settlements averaged $15 million per month together with a profit share of 25 per cent for any profits over $210,000 a year as from 1 July 2002, with a set off for losses against future profits. In Mr Stolyar's case, the only variation was an increase in his salary to match that of Ms Nguyen. Both variations also provided - "- RGMM to be changed to Precise Mortgage Management Pty Ltd. - RGMM/PMM will be separately accredited for all Macquarie Bank loans subject to Macquarie Bank approval. - RGMM / PMM will go under RGMC banner for all Origin loans. - Both parties undertake to execute a new employment contract will be executed in due course i.e once the lease agreement for the City office is finalised. The term of the new employment contract will be the same as the term of the lease for the proposed office, and the terms & conditions of the new employment contract shall incorporate the above conditions." 52Given the nature of the variations, it is obvious that there must have been discussions about the extent of the profit share and the target that triggered payment as well as the proposed future arrangements. Thus the document provides support for preferring Ms Nguyen's account of the preceding conversation over that of Mr Tomazin's. 53It has been submitted on behalf of the plaintiff that the November variations did not come into effect since there was no change of company name, no "new employment contract" was executed, nor was a city office leased, (although RGMM was accredited with Macquarie Bank). I do not agree. In terms, the salary and profit share stipulations are unconditional, whilst the last four matters were prospective and not expressed as preconditions. The agreement to execute a further contract did not imply that the variation would not take effect unless this were done. In any event, further executed agreements were entered into on 17 March 2003, which provided in identical terms as the earlier agreements for the variations to the defendants' salaries and Ms Nguyen's profit share but omitted the prospective clauses. 54Mr Tomazin did not refer in his first affidavit to the agreement of 1 November 2002 (though he executed it), saying of the 17 March 2003 agreement, in substance, that it was entered into following a request made about that time by Ms Nguyen that her contract be extended and her salary increased. In light of the November agreement, this cannot be right either as to date or subject matter although, of course, there must have been a discussion about increasing her salary. 55In the meantime, Ms Nguyen said that she asked Mr Tomazin in mid- December when he would pay the bonuses and profit share. She says that Mr Tomazin acknowledged his obligation to pay the bonuses and this would be done once a new office had been found and a new employment contract signed. She said he told her, "Just go on your holiday and enjoy yourself and we will sort it out when you come back". Mr Tomazin denied this conversation occurred. The calculation of bonuses 56(As stated above, one of the disputes in the case concerns whether payments agreed to have been made to Bethian, were payments of bonus or of a management fee. This issue is discussed below. The present discussion concerns the basis for calculation of bonuses, about which the parties also disagree.) 57The relevant clause (6.3) in the employment agreements is in the same terms for each of Ms Nguyen and Mr Stolyar. It is not easy to construe. The preconditions for payment of a bonus are twofold: first, the "executive" must bring his or her "own portfolio (clientele) to the Company"; and, secondly, "the total sum of settled loans from such portfolio in a calendar month is not less than one million dollars". Upon satisfaction of these requirements, the "bonus for that month shall be 0.25% of the sum of settled loans". According to Mr Tomazin, bonuses were paid on all loans, however the borrower came to the company although, according to him, they were only due with respect to borrowers introduced directly (ie not through a broker) by Mr Stolyar or Ms Nguyen, as distinct from "borrowers introduced by a broker or other introducer or referrer, a staff member or a business with which RGMM had already dealt or otherwise were part of the goodwill of RGMM". He said that, instead of restricting the bonus payments to these loans, he permitted payments to be made on the total value of settled loans, regardless of the source of the borrowers. He gave, as "an example" of an introducer (broker) not brought in by either Mr Stolyar or Ms Nguyen, Express Home Loans (Express) which, he said, he did not "have enough manpower, time and resources to manage, [and] I could give them to Beth [Nguyen] to handle and train and later she would receive the 0.25 per cent bonus on their loans despite the fact that neither Express Home Loans nor their borrowers were brought to RGMM by Beth [Nguyen] or Ian [Stolyar]". Ms Nguyen does not, in terms, dispute this evidence but says that Express was a very inexperienced broker which referred work to Mr Pusic but, after she trained and developed their brokering skills, settled many loans with RGMM and RMM. She says that, sometime in mid 2003, she told Mr Tomazin that she had been told by the directors of Express that Mr Pusic had tried to get their business referred to him but they refused, wanting to deal only with her and that Mr Tomazin confirmed that Mr Pusic had told him the same thing. Mr Tomazin did not take issue with this account. It seems to me that this minor controversy (if it is one) is relatively insignificant. It is well arguable that Express qualified as part of Ms Nguyen's clientele in light of this history. Ms Nguyen pointed out, that since RGMM had just commenced its business, as a practical matter all new business with some minor exceptions such as employees seeking loans, was indeed new clientele. The lack of any evidence from Mr Tomazin as to any brokers (with the possible exception of Express) which were earlier accredited to RGMC and transferred accreditation to RGMM confirms this position. In addition to Express, the only example of a client with whom RGMC had a relationship and later secured a loan through RGMM was one Mr Steven Webster who, Mr Tomazin said, was a panel lawyer for one of RGMC's lenders and also for RGMM itself and RGMC had been dealing with Mr Webster as a lawyer since 2001. Mr Tomazin noted that although Steven Webster was a "direct client" as he defined the term, the loan was recorded as having been written by Dibelle, which received commission and trail payments from the loan. Mr Stolyar agreed that Mr Tomazin introduced Mr Webster to him, but this was not related to any loan enquiry. He said that, in 2003, Mr Webster contacted him to ask for advice on personal financial matters in respect of which he needed finance. Mr Stolyar said that he arranged these loans through Dibelle and RGMM since, he said, RGMM did not deal with direct clients. Had he sent Mr Webster to RGMC, RGMM would not have benefited from the business. I think that Mr Webster's loans might fairly be regarded as "brought" to RGMM by Mr Stolyar. 58Ms Nguyen said that, although she agreed that it was theoretically possible for existing customers of RGMM to refinance loans or obtain a new loan whilst still a customer of RGMM, in practice this would almost never occur because the majority of RGMM loans were referred from introducers: they were referred to other brokers in the early period and later to Bethian and Dibelle. The schedule of settled loans to which I have referred shows that, except for eight occasions, an introducer is recorded. The exceptions show "staff" which is, according to Ms Nguyen, an indication that no introducer was involved and the loans were for staff members of RGMM. This is confirmed by a comparison with a list of employees disclosed by RGMM on discovery. Ms Nguyen denied that RGMM gave loans without an introducer being involved to existing borrowers or refinanced existing loans without an introducer except, perhaps, for some staff members who sought loans. It is the substance of her evidence that the brokers who brought loans to RGMM did so because of her contacts and marketing efforts. 59Mr Tomazin said that the reason for paying bonuses he was not obliged to pay was that he understood that Ms Nguyen and Mr Stolyar had been paid in that way by their previous employer and expected RGMM to do likewise and he "was prepared to make payments to meet those expectations because at the time RGMM was very concerned with increasing the volumes of loans to satisfy the volume requirements of the new funders we had signed up, and it was more practical and effective that way". As I understand him, therefore, the gratuitous bonuses were paid in order to encourage Ms Nguyen and Mr Stolyar to develop the business. This strikes me as unlikely. Firstly, Ms Nguyen and Mr Stolyar were prepared to come to work for RGMM on the conditions set out in the employment agreements and it is difficult to see a justification for thinking that they were not content with the arrangement to which they had agreed. At all events, since it is clear that Ms Nguyen was employed to develop RGMM's business and since that was, if not exclusively, overwhelmingly (as Mr Tomazin conceded) dealing with loans referred by brokers, it would be very surprising indeed if Ms Nguyen's bonuses were to be paid only on loans sought by individual borrowers, even more surprising when the trigger volume for that payment was $1 million a month. Moreover, it seems clear, as Ms Nguyen said, when she joined RGMM it had not started business and it was necessary for her to develop it. As mentioned, her experience with Mortgageport was with its broker business. On the basis that the loans falling within the description of "own portfolio (clientele)" comprehended brokers, except in relation to Mr Webster and Express, there was no evidence from RGMM as to borrowers or brokers who would not have qualified (with the possible exception of about half of Dibelle's borrowers whom, it was contended by RGMM - but rejected by me, as to which see below - were earlier clients of RGMM, not brought in the first place by the defendants). Ms Nguyen said that, in September 2001, Mr Tomazin came into her office and congratulated her for settling almost $10 million worth of loans in that month, saying "I am very impressed that it took you only five months to deliver the volume that you promised", a conversation which he has not denied. I think it adds some support for the defendants' case in respect of the source of the RGMM business, namely that it was not transferred from RGMC, a matter which Mr Tomazin would have been almost certain to have known if it had occurred on a significant scale. 60The monthly settlements have been listed in documents produced (as I understand it, by the defendants but not disputed by RGMM). If the payments made to Bethian matched the bonuses that would have been payable in accordance with those figures and, hence, on the meaning of clause 6.3 contended for by the defendants, then they were vastly more generous than Mr Tomazin's contended was justified. On his contention, virtually no bonus would have been payable in the result, leaving aside the clients who, according to the defendants, had been located by them and brought in via Dibelle. Mr Tomazin's contention as to what was meant by cl 6.3 is therefore very unlikely to have been the agreement. 61The differing interpretations placed on clause 6.3 by the defendants on the one hand and Mr Tomazin on the other are not, of themselves, material to its correct construction although their evidence as to what was meant by the technical terms it contains is receivable. Despite my doubts about the admissibility of the meanings attributed to the phrase "own portfolio (clientele") by the parties, no objection was taken to the evidence as explaining the language. Accepting that the phrase is ambiguous, evidence as to "objective framework of facts within which the contract came into existence" is admissible: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352 per Mason J. Here, the evidence is that RGMM was set up as a wholesale business dealing with brokers, Ms Nguyen's experience with the company from which she came was in that business, she was employed to commence and expand that business and her bonus entitlement arose only when settled loans exceeded $1 million a month. The conclusion is inevitable that the clause meant she was entitled to a bonus where the settled loans exceeded that sum, whether the borrower was brought by her or by a broker, providing she was responsible for attracting the application. 62I have mentioned above the registration on 19 August 2005 of RMM, of which Ms Nguyen was a shareholder and director. Quite what happened to her employment at this stage is somewhat uncertain. Ms Nguyen says that RGMM continued to trade but under RMM's name. A written agreement on 4 March 2006 (the surrounding circumstances are discussed below) contained an agreement by Ms Nguyen to transfer her shares to the partners for $110,000 and provided that she would "manage and control both RGMM and RMM portfolios in the interests of both companies" and would be entitled to 25 percent share in RMM's "(new book) profit". The payroll activity statement for RGMM contains a handwritten query whether Ms Nguyen left on 10 August 2005, and that for RMM contains a handwritten note that she commenced 14 September 2005. However, her PAYG Payment Summaries (detailed below) showed, in effect, her employment with RGMM terminated on 31 August 2005 and commenced with RMM on 1 September 2006. It seems to me that it is appropriate to rely on the PAYG summaries as reliable indicators of her employers at the specified dates. 63Mr Tomazin said that, when she was employed by RMM, Ms Nguyen was no longer entitled to what he called her "usual bonus ... that she was entitled to while she worked for RGMM" since she was entitled to the profits engendered by her 25 percent shareholding in RMM. It is surprising that there is nothing in writing produced by either party about this rather fundamental change, while the agreement of 4 March 2006 suggests, to my mind, the arrangements under the then current employment contracts remained in place, including clause 6.3 concerning bonus payments and profit share. However, Ms Nguyen did not take issue with Mr Tomazin's evidence about the termination of the bonus entitlement and agreed that it occurred, saying in cross-examination - "... but that arrangement continued on because when I started the new company, RMM, I continued to get the management fee. I did not get the bonus because I got shareholding, so after RMM started, I received my salary, I had shareholding and because I had shareholding, I was, I had to give up one of the .25s and I still maintained to receive my management fee. So it was always both." 64During argument Mr Young submitted that, as soon as Ms Nguyen stopped working for RGMM she was no longer entitled to bonuses so the payments from RMM to her were presumably payments in relation to the 25 per cent profit. However, she did not stop working for RGMM, although she was no longer employed by it. As the agreement of March 2006 provided, she continued to be responsible for managing RGMM and, for reasons given below, this reflected the continuing position from 1 September 2005. Moreover, monthly payments of profit strike me as most unlikely since it was most improbable that profit would be calculated monthly. The continued payment of amounts calculated at 0.25 percent of settled loans which were neither bonuses nor profit is a very significant matter, as will become clear. The Bethian management agreement 65In the context of this case, the primary importance of Bethian is that it received substantial payments from RGMM from 2003 onwards, RGMM claiming that these were bonuses paid under the defendants' employment contracts and the defendants that they were made pursuant to a separate agreement they called the Bethian management agreement. As a separate issue, of course, a decision one way or the other on this question has wider implications concerning the credit of Mr Tomazin on the one hand and the defendants on the other. 66The existence of a management agreement between RGMM and Bethian was first mentioned by Ms Nguyen in her first affidavit of 29 October 2012. In the context of the discussion about the (also controversial) Bethian accreditation agreement, she added (almost as an aside), "Bethian also had a separate mortgage management agreement with RGMM for which it received a management fee", without further elaboration. In Mr Tomazin's second affidavit (largely responding to Ms Nguyen's first affidavit) he denied not only the existence of any accreditation agreement with Bethian but also the existence of a management agreement between Bethian and RGMM. In her succeeding, second affidavit of 6 May 2013 Ms Nguyen, in the context of whether bonus payments had been made to her under her employment agreements (which she denied), said that the payments made to Bethian by RGMM and RMM were management fees and not bonuses. She gave the following account - "In or around February 2003, I had a conversation with Tomazin in words to the following effect: Me: Tony, I'm doing great work for you and helping you build up a book that has significant value, and I'm concerned I'm not getting properly compensated for it. Daniel and Zoran are shareholders of both RGMM and RMD. If you three decide to sell the book, I will not be rewarded for helping you build up the book. I want a 25% shareholding interest in RGMM. Tomazin: You are an important part of this business and I want to look after you, but I don't want to dilute my 51% shareholding in RGMM so I don't have control. Anyway, Daniel and Zoran won't allow me to do that. Me: Well, I want some kind of financial benefit from the RGMM book because I'll get nothing out of it should you, Daniel and Zoran decide to sell it. If you won't give me a shareholding interest, why don't you pay me an upfront management fee for the book instead? Tomazin: What do you propose? Me: RGMM gets a minimum monthly upfront fee of 1% from the funders for all net settlements. So, why don't you pay me a management fee of 0.25% of that monthly amount in lieu of a 25% shareholding in RGMM? Tomazin: Ok. That sounds fair enough. That way, everybody is satisfied. I still keep my controlling 51% shareholding in RGMM and Daniel and Zoran will keep their 24.5% each. Me: Great. I want this management fee to be paid to Bethian. Tomazin: Fine with me. (the Bethian Management Agreement)." 67The words "Bethian management agreement" in bold appear to have been used by the solicitor in the conventional way of drafting affidavits, as a short hand description of an event or thing to which it is intended to make later reference. As such, it would usually be read as meaning that the conversation was the agreement, as distinct from there being a document to this effect. However, Ms Nguyen said in cross-examination that there was such a document and she understood the word "agreement" to mean the document. In Mr Stolyar's second affidavit of 6 May 2013, he said in the course of denying bonuses were paid, "As far as I am aware, the payments to Bethian were for management services supplied by Bethian to RGMM". He did not refer to a management agreement, let alone one that had been documented. It is, I think, fair to observe that it would be rather strange if the defendants, having decided to invent the existence of the Bethian management agreement, did not (as with the allegedly invented accreditation agreements) invent also for the purposes of their case the existence of a document and the circumstances of its execution. 68The first unambiguous claim that a written management agreement was executed was made for the first time in cross-examination about the matter. Ms Nguyen testified there was a written agreement which was executed in April/ May 2003. In answer to the question why she had referred in her (first) affidavit to the written accreditation agreement between Bethian and RGMM and the fact of its execution but did not give such details for the management agreement, she said that she did not know at that stage that Bethian was part of the case but she thought that the accreditation agreement was. She said that she was concentrating on Dibelle (which, as will be seen, had - according to the defendants - in effect taken over Bethian's broker activities) and the allegation that she had not acted in the best interests of the company. This was a fair interpretation of the case then made by RGMM, which was suing only for a refund of the Dibelle payments. The defendants' cross-claim sued for payment of the allegedly unpaid bonuses. In its defence to the cross-claim RGMM simply denied any money was owing to the defendants under any of the agreements. In its Notice Disputing Facts, RGMM denied that it had not made any payments to the defendants under clause 6.3 of the employment contracts but did not suggest that the payments had been paid to Bethian at the direction of the defendants. On the other hand, as I have mentioned, Mr Tomazin denied that a management agreement existed, so that whether such a document in fact existed was clearly raised by the time of Ms Nguyen's second affidavit. Ms Nguyen said that the word "agreement" in her affidavit was meant to mean a document. She said that she related the conversation because she wanted to explain how the Bethian management agreement was negotiated. Ms Nguyen was asked by me - "Q. I know that Mr Young is going to put to me at the end of the case, well, the fact that you didn't [refer to a written document and describe its execution] is very strong evidence for inferring that it actually didn't exist because, if it existed, one would expect this information to be here [in the affidavit]. Do you see that that's what he's going to say? Now what is the answer to that? A. When I wrote points under the heading the Bethian management agreement, when I was reading it and trying to explain it to my lawyers, I was basically, I did not put there was an agreement but I was always thinking there was an agreement in place and that's why we call it the Bethian management agreement." 69She said that her lawyers asked her about where the agreement was and she said that she did not have a copy of it. Mr Young pointed out to her that, in the affidavit to which Ms Nguyen was in part responding, Mr Tomazin had said that she and Mr Stolyar had been paid bonuses of almost $3 million made to Bethian and that, when she was preparing her affidavit, it was "quite a crucial question" as to what these payments were for. Ms Nguyen agreed. He suggested to her that, if there had in fact been documentary evidence of the management agreement, she would have said so in her affidavit. Ms Nguyen responded - "A. There was documentary evidence. It's just I didn't put it in my affidavit. I didn't directly say there was ... a management agreement, but in all my affidavit I referred to it as if there was one. That could be an error on my behalf or my lack of detail but when I did the affidavit I was always referring to the Bethian management agreement because I know that there did exist one." Ms Nguyen said the agreement had been left with her other documents in a drawer in her office when she made her rushed exit in 2006. 70It was put to Ms Nguyen in cross-examination, in effect, that the so-called management said to be undertaken by Bethian was in fact part of her and Mr Stolyar's duties as employees of RGMM. Ms Nguyen's attitude was that it was a compromise instead of her obtaining the shareholding which he had asked for. She said, moreover, this was not payment for carrying out her duties as general manager of RGMM, which involved bringing the brokers into the business and the connected servicing for them. The management fee, in her opinion, was a reward for increasing the value of the book. 71Mr Stolyar, in answer to the proposition that Bethian never supplied any management services to RGMM, said that they were necessary for "managing the book", which meant managing the clients and the brokers. It was suggested to him that he and Ms Nguyen were or should have been doing these things under their employment agreement. Mr Stolyar pointed out that this was no part of his duty, which was as an underwriter. He said in effect that, although RGMC's staff was supposed to deal with RGMM's clients post-settlement they were not very good at it and, if the client had a problem, it would be necessary for one of Bethian's employees (namely Ms Nguyen or himself) to solve it. Managing the book involved making sure that it was of good quality and was profitable, such as keeping the arrears situation under review, making sure the arrears were extremely low so that, if a loan was in arrears "we would actually, beside RGMC collection department, we would also contact the borrowers ourselves". He said he was doing this himself. He was unable to think of any other example of work which was not already part of his and Ms Nguyen's duties under their employment agreements. Mr Stolyar said that the management fee was not calculated by reference to one loan but was designed to compensate Ms Nguyen for her not having any shareholding or interest in the RGMM book as it was growing. I think this is the substance of the defendants' evidence about this matter. Although they described some work which was not within their employment contracts as justifying the description of the agreement, its true point was, as Ms Nguyen said in her account of the negotiations which led to its creation, to give the defendants a payment representing a proportion of the book to whose value they were (in their eyes) making a substantial contribution. 72There are a number of objective matters that give significant support to the defendants' claim concerning the existence of the agreement. 73According to Ms Nguyen, there was a difference in the way in which the bonus and the management fees were calculated, which can be seen on the documents. In respect of the bonus, she was entitled to 0.25 per cent of all settled loans whereas, in respect of the management fee Bethian was entitled to 0.25 per cent of net settlements, there being "certain conditions, increases - for an example with certain funders where there was a cost I would have to be required to deduct that from the overall settlement". Indeed, such costs are shown as deducted from the Bethian RCTI's. As an example of additional difference, Mr McClintock SC for the defendants, points to the Bethian RCTI of 12 July 2005. The attached list of settlements (for June) shows "Total settlements" of $32,905,877, from which is deducted $141,900 for "MSL [semble MSB] increases < $80K", yielding what is described as "Nett [sic] Settlements" of $32,905,877. Similar calculations were also made for the Bethian payments for April, May and June 2005, in each of which is also a deduction for "MBL increase fees". The amount payable is calculated as 0.25 percent of the nett sum (usually) less an amount payable to the funder. By contrast, clause 6.3 of the employment contract provided that the bonus was payable on the "total sum of settled loans", which, it is submitted, did not include mere increases in the borrowed amount of loans already completed. The lists of loan settlements (which were not disputed) do not contain the advances listed in the settlement lists attached to the Bethian RCTI's. Mr McClintock submitted the reason was that cl 6.3 gave a bonus only in relation to new loans and not increases of the sum borrowed. Although there is some uncertainty, I think this submission is well founded and the term "settled loans" refers to loans which were complete transactions as distinct from increases. (There is no explanation for the exclusion of loan increases of less than $80,000 for MBL loans but I think - given the layout of the list - it is likely that upfront payments were not made by that funder in respect of such changes. At all events, this limited exclusion strikes me as inconsequential.) Although these documents cover a relatively limited period, I think it is reasonable to infer they reflect the procedures that applied throughout to the Bethian payments. 74Another relevant matter arises from the Bethian invoices themselves. As mentioned, GST was paid by RGMM on the amount claimed. If that sum represented bonuses, GST was not payable since GST is not payable on the defendants' remuneration of which, it is clear, the bonuses were a part. GST is, however, payable on charges for the provision of services. The payment of GST - an extra impost on RGMM but claimable as an input tax credit - supports the defendants' claim that the payments to Bethian were not their bonuses but, rather, payments (at least) pursuant to a different arrangement. The decision to pay GST cannot have been accidental. An RCTI should not have been issued without an agreement between Bethian and RGMM in accordance with the statutory regime (see Public Ruling GSTR 2000/10 made under Div 358 of Sch 1 to the Taxation Administration Act 1953 (Cth)), the responsibility for ensuring such an agreement was extant being that of the accountant issuing the invoice. It is not disputed that this accountant was employed by RGMC and, thus, not under Ms Nguyen's authority. (This is supported by the tendered RCTI's, as to which see below.) 75It is clear from the taxation returns of the defendants that they paid income tax on a cash basis, as is usual for employees. It is trite that a bonus paid in accordance with an employment contract such as those in this case is income in ordinary usage and is, accordingly, taxable in the hands of the recipient. Moreover, as remuneration, the employer must deduct PAYG tax. The invoices for the cheques paid to Bethian did not refer to or contain any such reduction. Furthermore, the taxation returns of the defendants, while disclosing their salaries, did not disclose any amounts paid by way of bonus. It follows that group certificates or PAYG payment summaries, which it is necessary to submit to the Australian Tax Office, did not refer to any such payments and also, as I think, that no group tax deductions were in fact made. One PAYG payment summary relating to Ms Nguyen for the period 1 July 2005 to 31 August 2005 was tendered. Under the heading "Gross payments" is shown $53620 (defined to exclude, inter alia, "other income"). Under that heading is shown nil. The tendered RCTIs show that, for July and August 2005, Bethian was paid over $160,000. The ensuing PAYG payment summary (showing RMM as the employer) for the period 1 September 2005 to 9 June 2006 shows the amounts, respectively, as $100,564 and nil, whilst payments during this period to Bethian totalled well in excess of $400,000. Mr Tomazin's evidence, as already noted, is that the bonuses payable to the defendants were paid to Bethian at their direction. However, they were no less part of their remuneration. If the direction as to payment amounted to an assignment of the entitlement to future bonuses (which was not contended for), the case might be otherwise but the evidence does not permit such a conclusion. Furthermore, so far as income tax is concerned, the Bethian invoices did not differentiate between the defendants, amalgamating the net settlements without distinction, although their bonus entitlements were based upon their separate activities, the responsible "salesperson" or "account manager" was identified in respect of the particular broker and equality is most unlikely. Of course, whether or not their relevant contributions were different, their remuneration was necessarily separate and their tax obligations individual. I note that RGMM's payroll activity statements for the years ended 30 June 2005 and 2006 show "wages" paid to the defendants of amounts plainly excluding bonuses. 76Accordingly, it is manifest that the Bethian payments were accounted for in a way that was consistent with the existence of a management agreement and inconsistent with the mere transfer of their bonus remuneration to Bethian. RGMM, as I understand Mr Young's submission on the point, concedes the first part of this argument but submits, in substance, that the pattern of tax payments is also consistent with RGMM's case. His contention is that there would be no utility in the defendants seeking to redirect their bonus payments to Bethian unless the tax treatment of the payments was also changed and therefore Ms Nguyen's request to pay the bonuses to Bethian (on Mr Tomazin's account) should be interpreted as a request, not that the residue after the deduction of PAYG tax be paid into Bethian's bank account but as a request that the payments would be treated for tax purposes as if they were payments due to Bethian for services rendered by Bethian to RGMM rather than payments due to the defendants personally as employees of RGMM, in short that they were to be treated as though paid under a service agreement to permit the defendants to avoid paying PAYG tax. I find this argument unconvincing. Considering the amounts involved and the importance of demonstrable rectitude in relation to arrangements that affect tax liability, in the absence of a service agreement the fiction would be dangerous, to say the least. Moreover, it could not coexist with the subsisting obligation of RGMM to pay bonuses to the defendants as provided by the employment contracts. Mr Tomazin in effect denies that Bethian rendered any services. There is no evidence that supports the existence of the posited arrangement except to the extent, as Mr Young submits, may be implied from Mr Tomazin's agreement to the bonus payments being made to Bethian because it made "no difference" to him. 77In fairness (neither party referred to this aspect), I should add the fact that the second employment contracts referred to the addition of GST to the payments of bonus, which is consistent with some expectation that GST might be payable. However, the contract refers to payment of bonus and GST to "the Executive", not to any service company. This does not suggest, to my mind that use of a service company was envisaged. The conversation with Mr Tomazin, on his account, referred to Bethian as an "investment" rather than a "service" company. There is no evidence that tax considerations motivated the defendants' desire to have their bonus payments made to Bethian; nor was such an explanation put to the defendants. Nor am I prepared to accept, without evidence, that the posited arrangement would (as an objective matter) have provided a taxation advantage to the defendants. There is also evidence that deducted from the payments made to Bethian were payments made to repay loans owed by the defendants, which suggests that the Bethian receipts were personal and not the company's. However, there is no evidence as to the manner in which this was done and no inference can be drawn from it. 78As will be seen, Ms Nguyen certainly had an input to some degree in the billing but the Bethian RCTIs which were tendered - for September 2004 to September 2005 - were signed and (inferentially) issued by Ms Mojave Kannangara, and, from May 2005, Mr Peter Chan, both employed by RGMC who also (as appears from the RCTIs) acted as RGMM's accountants (though not named in RGMM's payroll activity statements). This shows, to my mind, that the accounting and taxation treatment of the Bethian payments was ultimately determined within RGMC and not by either of the defendants. It is possible that the GST and PAYG decisions were made by mistake or oversight, perhaps merely reflecting the provision in clause 6.3 of the employment contract of 1 February 2002 for payment of GST but, as I have said, that provision must be read with the implicit qualification "if any". Given the importance of correct characterisation of payments for taxation purposes and the potential consequences of participating in what might appear to be a tax avoidance scheme, as well the employment of an internal accountant (by RGMC) and external accountants, the overwhelming likelihood is that the treatment of the payments to Bethian was the result of professional consideration based on information which was appropriately verified. The only evidence of an arrangement consistent with this position is that of the defendants concerning the existence of a management agreement between RGMM and Bethian. 79As explained by the plurality in Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; 243 CLR 361 (omitting references) - "[63] The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case ... The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. These principles have been extended from instances where a witness has not been called at all to instances where a witness has been called but not questioned on particular topics. Where counsel for a party has refrained from asking a witness whom that party has called particular questions on an issue, the court will be less likely to draw inferences favourable to that party from other evidence in relation to that issue." (See also Payne v Parker [1976] 1 NSWLR 191, per Glass JA at 200-202.) 80Applying this principle, the inferences that appear to arise from the accounting treatment of the Bethian payments are strengthened significantly by the unexplained failure of RGMM to call those of its accounting staff at the relevant time who were responsible for calculating and paying salary and bonuses and the amounts paid to Bethian as well as managing the collection of PAYG and preparing group certificates and PAYG payment summaries, or to tender relevant documents. It was submitted by Mr Young that no adverse inference should be drawn from the failure to produce documents concerning calculation of the defendants' remuneration or the way in which it was dealt with, given the late notice of the allegation as to the Bethian management agreement. It was argued that the obvious difficulty of locating or obtaining documents eight or more years old is a sufficient explanation. This is, of course, a possible explanation but, without evidence as to the record keeping systems in place at RGMM and, I think, RGMC, the way in which records were retained and attempts made to locate relevant documents, it is scarcely an adequate explanation. The question of non-payment of the bonuses was in issue from the time the defendant's statement of claim (superseded by the cross-claim) was filed in June 2011. Furthermore, a number of documents from the relevant period were in fact produced. Nor does the submission deal with the availability of present or past staff who would be expected to give relevant evidence about how the bonuses were treated and why. I note that, Mr Stariha, who had access to the books of both RGMC and RGMM, did not mention either in his affidavit or evidence the accounting records that might have supported the contention of RGMM as to the bonus payments. Not surprisingly, he was not cross-examined about the matter. 81Another matter to which Mr McClintock points to is the omission in any of the RCTI's under which Bethian was paid of any reference to bonus and the use in RGMM's own accounts for these payments as "commission". Why a decision was made to change the description of the payment in the books of the company from that of "bonus" when the latter was not only correct but the term used in the employment contracts is unexplained. It is reasonable to assume that this was deliberate rather than accidental, given the task was that undertaken by professional accountants. In the absence of any evidence from RGMM to the contrary, the inference that the term "bonus" was not used because the payments were not understood to be such is strengthened. It is true, as Mr Young submits, that the term "management fee" is also not used. Mr Tomazin said that he regarded the terms "commission" and "bonus" as interchangeable but he did not keep the books. Furthermore, the only other use of "commission" in the tendered material is in the accreditation agreements tendered by RGMM, where it is used to describe the percentage payments to brokers. It will be recalled that the defendants' claimed that, at the outset, commission was paid to Bethian for introducing clients to RGMM. If this were so (contrary to Mr Tomazin's evidence) the continuing use of the description "commission" is readily explained. 82For completeness, I should mention the profit and loss statements for RGMM for 2004, 2005 and 2006, which has a category "Commissions" under the general heading "Expenses". Five sub-categories are listed under "Commissions": "Partners"; "Directors"; "Bethian"; "Refund Dishonour Fees"; and "Miscellaneous Services Fees". The sums noted against the latter two sub-categories are inconsequential. For 2004, the amounts paid to Partners was $4,424,735, to Directors was $272,727 and to Bethian $1,193,990. The first sub-category are brokers, the second sub-category is obvious, but why Bethian's receipt should be listed in this way, as though unrelated to the defendants who were (according to Mr Tomazin) paid this amount in the course of their employment is unexplained. I do not draw any conclusion one way or the other from this approach, except that it confirms that, in all probability, the payments were not noted as bonuses in the primary records of the company. 83Thus the accounting material to which I have drawn attention appears to demonstrate that, not only is there nothing in the accounts of RGMM from which one would, or could, gather that the payments to Bethian were the bonuses payable to the defendants but, rather, they point in the opposite direction, namely that they were not bonuses. To this inference should be added the additional support provided by the rule in Jones v Dunkel (1959) 101 CLR 298. I have already mentioned that I do not accept Mr Tomazin's explanation for paying what he called bonuses more generously than he maintained was required by the employment contracts. One ready explanation for this approach is that the payments were, indeed, not made in accordance with clause 6.3 because they were not payments of bonus at all but payments of management fees as claimed by the defendants. 84It seems to me also to be significant that, after Ms Nguyen was employed by RMM, it issued invoices for and made payments to Bethian on the same basis as RGMM on net settlements in September, October, November, December 2005 and February, March, and April 2006. I accept Ms Nguyen's evidence, in effect, that payments were made throughout, thus also for January and May 2006. Accepting that what Mr Tomazin says about the termination of the bonus arrangements is correct, which is not disputed, the continuation of the payments to Bethian for a lengthy period thereafter - until Ms Nguyen's employment terminated - is persuasive evidence that those payments were not made in respect of bonuses. 85The tendered RCTI agreements specify the character of the services to be supplied - in each case stating that RGMM "will generate a tax invoice in ATO approved format, in relation to the margin and subsidy payments we make to you, for the supply of services in relation to loans originated under a Royal Guardian Mortgage Management Pty Limited program". Of course, such a supply of services would, according to Mr Tomazin and, for that matter, Ms Nguyen - not occur in the absence of an accreditation agreement. Accordingly, commencing with the issue of RCTIs to Bethian, one moves to the existence of an agreement in that respect which must specify the service in respect of which the invoice is to be issued. Again, it is reasonable to infer compliance with the legal requirements and, I think, that such compliance was the primary responsibility of the accounting staff, accordingly that there was indeed an executed RCTI agreement pursuant to which the accountants issued the invoices. The fact that no such agreement has been produced by RGMM and that there is no explanation forthcoming for the failure to do so or, if it were the case, for there being no agreement or as to the processes for issuing RCTIs to Bethian to my mind significantly strengthens the conclusion that the payments were not for bonuses but for management fees as claimed by the defendants. 86During cross-examination of Ms Nguyen, Mr Young put the proposition, (raised for the first time) that RGMM would have been unable to pay both bonuses and management fees in order to found the contention that Mr Tomazin would have been most unlikely to have agreed to an arrangement that had this consequence. That RGMM could not have paid these sums was not suggested in the affidavits or the evidence of Mr Stariha or Mr Tomazin. The profit and loss statements and balance sheets for RGMM were tendered covering the 2003 to 2006 tax years, showing a net operating loss for 2003 of $25,671 and profits before tax for subsequent years, respectively, of $68,815, $698,866 and $484,040. No financial records of RMM have been produced. 87The line of cross-examination of Ms Nguyen was as follows - "Q. You knew, didn't you, Madam, that brokers who provided borrowers to RGMM most of those were receiving something in the order of 0.8 percent of a loan amount by way of their own upfront fee? A. Yes. Q. So normally what RGMM would get would be an upfront fee of 1 percent from the funders? A. Yes. Q. And then it would have to pass on 0.8 percent of that to the brokers? A. Yes. Q. So it would then only have 0.2 percent of the upfront fee available, is that right? A. Yes. Q. It just wasn't possible, was it, Madam, for RGMM to have enough money, looking only at the upfront fees for the moment, to pay out of the upfront fees, in addition to the brokers' 0.8 percent, 0.25 percent as a bonus to you and a further 0.25 percent to Bethian; that wasn't possible? A. Not from the upfront. Q. In order to get the upfront fee of 1 percent RGMM had to sacrifice some of its trail commission, didn't it? A. Yes. Q. And a significant part of the trail commission that it received had to be used to pay salaries of not only yourself and Mr Stolyar, but the other staff employed by RGMM, isn't that right? A. Yes, but there was other income. Q. Well, there was a small amount of money available from costs in the form of an application fee to borrowers, isn't that right? A. Yes. Q. And some of that money was used to pay salaries, but that wasn't enough to pay the salaries, was it? A. From the application fees? Q. Yes. A. It depends. It depends on how many loans we do in the month, it depends on the type of loans we do in the month. Some months maybe not, but some months maybe. I don't - I was not in charge of the banking. But if we do, you know, a hundred applications a month, say maybe; if we do 40 applications, maybe not. I cannot say with certainty. Q. But frequently there was not enough money from application fees to pay salary and salary had to be taken out of the income stream of the trail commissions, isn't that right? A. I don't know, sir. Q. As General Manager of RGMM, wasn't that something that you were acquainted with from time to time? A. General Manager was more in the operational side of things. The financial side of things that was always handled by Tony. I was not in charge of banking in the fees, collecting the fees, all of that was done by my staff. So I wouldn't have even known how much we are banking or anything like that. Q. But Madam, it is the case, isn't it, that in February 2003, and indeed at any time in the course of your relationship with RGMM, it was just not financially possible for RGMM to pay you a bonus of 0.25 percent and a management fee to Bethian of 0.25 percent, plus all of its other financial obligations; that's the case, isn't it? A. No. ... Q. Apart from any interest one might get by paying the bonuses a few weeks after the loan was settled, RGMM would need to make up the 0.3 of a per cent difference between its up front and the up front that it was paying out in bonus management fees and brokers commission, it would need to make up that 0.3 of a per cent from trail commission, wouldn't it? A. Yes. Q. Because although there was these application fees, the application fees were either only barely enough or in some months not even enough to pay the salaries of staff members? A. Yes. Q. Out of the trail commission, typically, and the figures would vary from broker to broker, but typically there would be 25, sorry 0.25 per cent? HIS HONOUR: Do you mean that or do you meant 0.25? If the trail is say 0.4, would you really be paying over half of that to the broker? YOUNG: Yes. Q. You would be paying 0.25 of a per cent typically to the broker as the broker's share of the trail commission, isn't that right? A. 0.25 out of how much? Q. Of the trail commission? HIS HONOUR Q. He gets a share of the trail as well? A. Yes. Q. That is paid by you or by the funder? A. The funder pays to us and then we on pay it to the brokers. Q. Right, so what Mr Young is putting to you is that, shall we say you got 0.4 per cent trailer? A. Yes. Q. You would have to pay .25 per cent to the broker, which would leave you with .15 per cent of the trailer. That is what he is suggesting. Is that the way it works? A. That is the method, yes. However, the margins were not that tight. We would never pay the broker 0.25 if we were getting an overall margin of 0.4. I don't know, I can't remember but it would be just too tight. HIS HONOUR: She disagrees with the hypothesis but if your hypothesis is correct I think she accepts what you're saying; that is the way it works. YOUNG Q. I'm not suggesting it was 0.25 for every loan, sometimes it was less than 0.25 of a per cent and sometimes it was more than one would pay to the broker for a trail, is that right? A. I can't recall. This is going back a long time ago. I can't recall if we ever paid more than 0.25 to the brokers but that is just going on memory. Q. Imagine there is a loan where RGMM is getting 0.5 of a per cent in trail, and it has to pass on 0.25 of a per cent to the broker. For such a loan as that, RGMM would not be able to obtain in trail the, if it had a shortfall of 0.3 of a per cent on the up front commissions, it wouldn't have enough from the trail even if it used the entirety of its trail to try to make up the shortfall, it wouldn't have enough to pay that shortfall? A. No, no. I'm sorry, Mr Young, but I think you misunderstood. There is a difference between up front and a margin. It is totally different. The up front income is from the settlements. The trail income is on the book. So from about 2003 the book was quite a big sum. I can't remember exactly, but it would be approximately $400,000,000. So the trail income is on the whole book whereas the up front income is on the settlements of that particular month only. So if you are talking about cash -- HIS HONOUR Q. So in effect, then, I think you are saying, that in order to pay you 0.25 per cent and Bethian 0.25 per cent, in effect, that would not be coming from the particular loan but from the overall income from the entire book? A. Yes. Q. That would be the source of those funds? A. Yes, the cash flow of the business. Q. Right. So if you just looked at the loan it might seem they were making a loss on the loan? A. Yes. Q. But when you looked overall they were not A. Yes, it is very profitable. YOUNG Q. If you just look on a loan by loan basis, so lets just focus HIS HONOUR: She has accepted on a loan by loan basis it would be a loss or close to a loss. Q. If you looked at simply the loan and if you looked at the numbers on the assumption that the broker was getting a 0.25 -- A. It would be a loss Q. -- you would get a loss if the broker was getting 0.25 per cent and the trail was only 0.4 per cent, but if the broker was getting less than 0.25 per cent or the trail was greater than 0.4 per cent then you might well be either breaking even or making a profit? A. Umm Q. Well the number speak for themselves on that loan? A. When you look at on that loan, you are getting for example say the net trail to the company is 0.4, okay, let's say the net trail because from memory I think it was about 0.3 to -- Q. When you say "net trail", net of what? A. Net of the brokers. Q. Ah, all right. A. Forget at what the brokers get. If you look at the net cash flow position of the company, so you get 1 per cent up front which is a one off payment after the loan settles and then you get 0.3 trail income. I understand that in the first year, after the first year for that single loan is it is break even, but the second and the third and the fourth year the loan continues to earn 0.3 trail margin. Q. So you are saying that that 0.3 is after payment of the broker? A. Yes. Q. Net of the payment? A. Yes, your Honour, I'm just working on the net trail margin. HIS HONOUR: I think what she is saying, as I understand it, you ask more questions if you want more, if your maths are as you hypothesise, she agrees but says that is not really - she doesn't accept the hypothesis because she starts out by saying there was always or almost always a net trail payment of 0.3 per cent after payment of the broker. YOUNG Q. If there was a net trail of 0.3 per cent and, as you said a moment ago, assuming that all that had to be paid was the 0.8 to the broker, and a total of 0.5 to Bethian, your husband and yourself and that would be a break even after the end of the first year? A. Yes, if you are talking numbers, yes, after the first year. Q. But if RGMM had to pay money to RGMC for occupation of premises or for staff or other services, then it wouldn't even break even over that year on those numbers, would it? A. Not in the first year. Q. Also, some months it would need to draw on trail to make up the shortfall in wages that wasn't met from the application fees? A. I'm not aware. I can't answer that question, because I wasn't in charge of the banking or the finances. Q. You didn't think in early 2003, that RGMM could have borne the cost of a management fee to Bethian on top of a 0.25 per cent bonus to yourself and your husband, did you? A. What was that question? Q. You did not consider, did you, in early 2003, that RGMM could actually financially bear the cost of paying a bonus to you and your husband of 0.25 per cent, and a management fee to Bethian? A. Of course it had the resources because the book was quite big at that time. It was getting trail on the book. This might be going off but that arrangement continued on because when I started the new company, RMM, I continued to get the management fee, I did not get the bonus because I got shareholding, so after RMM started, I received my salary, I had shareholding and because I had shareholding, I was, I had to give up one of the .25s and I still maintained to receive my management fee. So it was always both. ... Q. Just returning to my question, in early 2003, you didn't think then, did you, that RGMM was able to pay 0.25 management fee to Bethian, .25 bonus, and actually be financially viable. Is that not the case? A. No, because if that was money, money would just go out for no reason, so if the trails income was going into the company and nothing was taken out, there would have been plenty of income to cover everything. Q. On your case, also, in early 2003, there needed to be a back payment of bonuses due and unpaid for almost two years on top of all of that? A. Yes, but like I said, with my figures that I worked out, when the book was at a certain size, it would have a very good level of trail income for the company to be profitable. The whole - and it is not just a profit, it is also the value of the book and that is what arose my request for shareholding, because I knew the book was worth something. Q. Do you agree that at least from 2003, that regular payments were made to Bethian based on 0.25 per cent of net settled loans? A. Well it was 25 per cent of the net up front HIS HONOUR Q. Not 25 per cent, 0.25 per cent? A. Ok. It is almost equivalent to 0.25. The arrangement was 25 per cent of the net up front income that the company would receive. So, it is just a coincidence that it is 1 per cent, 0.25 and 25 per cent but under the management agreement it was 25 per cent of the total up front the company will receive for that month so there were variations that I needed to adjust because the increases, sometimes we don't get the up front or sometimes there are costs associated, I had to deduct that, whereas my bonus was 0.25 per cent on all settlements. There was no variations. It was on everything. So there were two distinctive - and it is confusing because all I wanted was 25 per cent shareholding, so he said "okay, instead of 25 per cent shareholding, you will have 25 per cent of the net up front less variations", so it was two separate agreements. And after the 1 September 2005 I forego my bonus for my shareholding but I continued to receive management fees. So it was always both. YOUNG Q. In paragraph 18 of your second affidavit? A. 18? Q. Yes. You refer to a management fee of 0.25 per cent of net settlements rather than of 25 per cent of up front fees, don't you? A. Where is this? 18? Q. Paragraph 18, if you look at the third "me" bit: "RGMM gets minimum monthly up front fee of 1 per cent from the funders for all net settlements, so why don't you pay me a management fee of 0 .25 per cent?" HIS HONOUR: Don't read that quite so quickly. Could you repeat that? YOUNG Q. It says, madam: "RGMM gets a minimum up front fee of 1 per cent from the funders for all net settlements, so why don't you pay me a management fee of 0.25 per cent of that amount in lieu of a 25 per cent shareholding in RGMM." A. Which is the same as 25 per cent of the up front because the company was getting 1 per cent so 0.25 meaning 25 per cent. Q. The fact is, you say in this conversation that the fee was based on 0.25 per cent of the monthly amount, rather than being couched in terms of 25 per cent of up front payments? A. Yes, but I did mention that because the up front fee was 1 per cent, then I should get a management fee of 0.25 which in my mind is 25 per cent of the 1 per cent up front fee in lieu of my 25 per cent shareholding." 88There the matter rested, so far as Ms Nguyen was concerned. Needless to say, this evidence was insufficient to justify a submission that RGMM would have been unable to pay the defendants' alleged entitlements. That thesis depended on incompletely proved assumptions as to the measure of the up-front and trail commissions paid to the brokers, not to speak of the overall financial position of the company including, of course, its ability to borrow from, inter alia, RGMC. 89The issue was then raised in cross-examination of Mr Stolyar - "Q. So sir, is it your contention that RGMM was liable to pay an extra 25% of the 1% up front commission to Bethian, in addition to the bonuses that were due to your wife and yourself? A. Yes. Q. And even bearing in mind that it was necessary to pay a substantial commission of perhaps around .8% to brokers out of that 1% up front commission? A. Yes. Q. It just wouldn't have been possible to do that and still remain cash positive on the receipt of the up front commissions; that's right, isn't it? A. I would disagree with that. HIS HONOUR Q. I think you are really saying no more than the up front commissions could not pay 0.8% of the settlement fund to the brokers, 0.25% to you or Beth A. Mm hmm. Q. and 0.25% to Bethian, because of course that would mean that it was paying 1.8% of settlements, and it only received 1%? A. 1.3 you mean, your Honour? YOUNG: It is 1.3%. HIS HONOUR Q. 1.3%, yes, sorry, rather than the 1%. So must it not follow that it could not make all those payments out of up front settlement? A. I think there is a bit of confusion. Q. Let me put it in relation to each loan? A. Yeah, the management fee was never meant - from what I understood, the management fee was never meant to be paid on one loan. The management fee was designed to compensate Beth for her not having any shareholding on the interest in the RGMM book as it was growing. Q. No, no. I'm not talking about what it was meant to do. A. Okay. Q. I'm simply talking about the arithmetic. A. Yes. Q. If you took each loan -- A. Yes. Q. -- it is plain that 1.3% is greater than 1%? A. Yes, because you're also forgetting -- Q. No, no A. Yes. Q. That's obvious, is it not? A. Yes, it is, your Honour. Q. And Mr Young's question was directed only to the assumption that the commissions or bonuses mentioned were coming out of the 1% up front payment? That is what his question was. A. Yes. Q. And then the answer of course is "yes"? A. Yes. YOUNG Q. Sir, it was the policy of RGMM back in mid 2001 that all of the up front payments that RGMM was making had to be paid out of the 1% up front commission that RGMM was receiving, isn't that right? A. That was in 2001, yes. Q. And would you agree, sir, that in mid 2005 there was also the policy that the 1% commission that RGMM was receiving was not to be exceeded by up front payments that RGMM was making? A. No. Q. Sir, I'm going to show you a letter [sent by Mr Pusic and Mr Pondelak as directors of RGMM] which can be found at page 928 of court book C. (Shown). Is that a letter that you received on or around 1 June 2005? A. I believe so. Q. And you see in paragraph 1 of that letter A. Mm hmm. Q. It says, "Immediately no more than 1% of the loan amount is to be distributed to either brokers and yourself as commission"? A. Mm hmm. Q. (a): "If the broker receives 0.8% of the loan, then your up front fee can only be 0.2% maximum"? A. Mm hmm. Q. And (b): "If the broker or introducer is paid 0.7%, then you can only receive maximum 0.25% and 0.05% remains with the company". Do you see that? A. Yes. Q. Having seen that, wouldn't you agree that it was the policy of RGMM on 1 June 2005 that the 1% commission couldn't be exceeded in the up front payments that RGMM itself was paying out? A. No. ... Q. You say there was a conversation with Mr Tomazin in May or June of 2001 about the business having to run cash flow positive? A. Okay, yes. Q. Mr Tomazin in that conversation, you say, said "we" I assume you understood he was referring to Royal Guardian Mortgage Management as "we receive 1 percent"? A. Yes. Q. He said "We receive 1 percent upfront commission from the funders. I pay 0.25 percent out of it to you and 0.75 to the broker". That's what he told you in May, June 2001, is that right? A. Yes. Q. And, indeed, that remained the policy, as you understood it, of Royal Guardian Mortgage Management for the ensuing years; isn't that right? A. I believe so, yes. Q. That it was important that, whenever a loan settled, that all of the commissions - that all of the upfront commissions could be paid immediately out of the 1 percent, isn't that right? A. Yes. Q. And so one would not have to utilize the trail commission coming in to make up bonus or commission payments that were due at the time the loan settled, isn't that right? A. No, in May, June 2001 Royal Guardian Mortgage Management was not receiving much trail in the first place anyway. Q. Even when it started receiving trail, that remained the policy, didn't it, to run cash flow positive at the time that each loan was made? A. Later, as the trail book grew, we could potentially get more money out of it, because Mr Tomazin's focus was always on the volume. He didn't care about - I mean, initially he cared, but there was no money, there was no money going out, but then as the book grew he could pay more, if he wanted to, yes. Q. But you recall, don't you, the policy always being at all stages that the loans were to be cash flow positive, isn't that right? A. The book was, yes. The company, the company was to be cash flow positive. Q. Even in 2005 it was necessary for each loan that was settled to be cash flow positive in the sense that the commissions, bonuses and all moneys paid out of the 1 percent that Royal Guardian Mortgage Management was receiving, they couldn't be more than the 1 percent that Royal Guardian itself was receiving upfront? A. No, I disagree with that. ... Q. You knew in 2003, didn't you, that it just was not financially feasible for RGMM to pay 25 per cent of 1 per cent upfront to Bethian plus a .25 per cent bonus to you and your wife, plus all of the other payments to brokers and other expenses that RGMM had to make every month. You knew that, didn't you? A. No." (I should point out that the letter of Mr Pusic and Mr Pondelak was, in terms, said to be a variation of the existing employment agreements. It also implies that the one percent upfront was being exceeded by payments to the defendants and the brokers. The variation was not accepted by the defendants.) 90In re-examination, the subject was broached by Mr McClintock - "Q. Mr Stolyar, you were asked some questions by my learned friend, Mr Young, and indeed by his Honour as well, about the possibility of RGMM making a profit when it was paying out 0.8 percent to funders and 0.25 to a total, you said, of 1.3 percent [sic]; do you recall that line of questioning? A. Yes, yes. Q. What do you have to say about how RGMM or, indeed, any other company in the Royal Guardian Group, would benefit or would make a profit in those circumstances? A. I think the funders - how it worked was this: the more you settled with the funders, with RG, with the four funders, the different funders, the lower the delivery was - the delivery rate was to RGMC. See, it didn't only go to the new loans, it went on the whole book. The reason I know that is that when I joined in 2001 I joined RGMC, I refinanced my own loan with Interstar Securities. I got an interest rate at cost at that time, of what Interstar was charging Royal Guardian Mortgage Corporation. When I left, my interest rate was about 0.4 or 0.5 percent above the rate, the funding rate to RGMC. So what basically happened over that time, as RGMC provided more and more volume to Interstar, or to other funders, the cost of the whole book has gone down by about 40 points. So RGMC from making no money on my loan, in 2005 started making 40 points on my loan. If that makes sense. Q. I just want to understand this. You are saying that for more volume - is this a summary of what you have said - if I am in any respect wrong correct me. A. Yes. Q. The funders charged a lower rate in return for volume? A. Yes. Q. Was the lower rate applicable only to new loans or was it applicable to the whole book? A. To the whole book. Q. Well, does that explain what you have just said about your loan? A. Yes. Q. Even though it had been written, apparently, four years before? A. Yes. Q. Now just on that topic, is there anything you want to say about the specific percentages that were put to you other than what you have said in cross examination already? A. Yes. Also from my knowledge and from the emails I received from funders, sometimes a funder, someone like Origin or Macquarie Bank, would have like a special, say, look, if RGMC settles so much per month, you will get an extra, so instead of getting 1 percent you will get an extra 4 percent for no extra sacrifice. And Mr Tomazin obviously would come to us and say, you know, "Can you push Origin this month because I am getting more and more". But it never went to the RGMM. RGMM still received its one percent, so that extra bonuses, as you would call them, stayed with RGMC. This is what's my point. Mr Tomazin - I mean your Honour - is saying 1.3 or Mr Young was also saying how can RGMM promise to pay you 1.3 percent, you know, upfront when it was going to lose money. From Mr Tomazin's point of view it was making money. Because the more volume, it doesn't matter how much RGM paid us, overall the whole book is RGMC book was making a lot of money. So, for example, if the whole book, let's say $2 billion and the funding rate went down by just 0.1 percent, Mr Tomazin, without doing anything, pocketed $2 million straight to the bottom line, with no cost, with no extra costs. It was just pure profit. And that's what he was basically - I mean, he is a smart man, he is a smart businessman in that way. He didn't care. He just wanted to get volume, volume, volume and he didn't care what was happening. Just get me volume, get me quality, get me volume so I can get the lower delivery rate." 91This evidence, taken as a whole, does not establish that the financial position of RGMM was such as to make it financially imprudent for Mr Tomazin to agree to the alleged entitlements. So far as it went anywhere, it established the contrary. Furthermore, it made the important and, I think, significant point that, in this context, it was inappropriate to consider RGMM as a separate commercial entity, for all that it was legally independent. Mr Young referred in his final submissions to the profit and loss accounts of RGMM to demonstrate that, on those figures, the company would have incurred substantial losses if it were to pay the defendants their bonuses as well as the management fees. However, these accounts are problematical, not only because they do not take into account the commercial advantages for the Royal Guardian group to which Mr Stolyar referred but, as well, because substantial cash transfers said to pay for services supplied by RGMC were extracted. I deal in due course with these payments but, for the present, it is enough to say that I do not accept that agreeing to make the payments claimed by the defendants would, realistically considered, have been financially imprudent. The absence of any evidence from Mr Stariha and Mr Tomazin suggesting otherwise strengthens this conclusion. Since RGMM was a part of the so-called Royal Guardian group, it may be worth noting that, whilst RGMC suffered operating losses for 2002 and 2003 of, respectively, $83,848 and $1,123,196; in 2004 it made an operating profit (after tax) of $2,135,717; in 2005, $964, 227; and, in 2006, $1,599,025. Royal Mortgage Direct and Dibelle Finance 92The case made by RGMM against the defendants in respect of Dibelle is, in essence, a simple one. Dibelle, in its two manifestations, was set up by the defendants for the purpose of identifying would-be borrowers and referring their applications for loans to RGMM. When those loans were successful, Dibelle was paid, as with any other introducer, an upfront commission and, in due course, a trail. Over the relevant periods substantial payments were made to Dibelle. RGMM contends that Dibelle's true owners were the defendants and it was set up so that they could obtain commissions in respect of loans from borrowers who should have been referred directly to RGMM when they came to the defendants' notice pursuant to the obligations of the defendants as employees of RGMM, in which event the commission paid by RGMM to Dibelle would not have been paid. The defendants' case in reply is also simple: they say that Mr Tomazin was well aware of Dibelle and its acting as an introducer to RGMM, for which it was paid, in the same way as any other introducer. Indeed, they say that Dibelle was set up at the suggestion of Mr Tomazin himself. By way of further explanation, they say that the clients whose loan applications came to RGMM through Dibelle were identified and assisted by the defendants acting independently of their employment in their own time and would not otherwise have used RGMM. 93It is now necessary to backtrack somewhat to events that arose after the agreement of 1 November 2002. Ms Nguyen said that, some time about the middle of December 2002, Mr Tomazin came into her office. Mr Stolyar was also there. He informed them that the partners wished with Mr Tomazin to form another company to be called Royal Mortgage Direct (RMD) to deal with small introducers, that he knew the defendants would not be happy about this but, if he did not join them, the partners would proceed without him. Ms Nguyen protested that she could not have the directors of RGMM competing with her and RGMM and asked, "What happened to RGMM being the only wholesale company here?" and added, "I thought any brokers and introducers Daniel and Zoran bring in were supposed to go to RGMM". Mr Tomazin responded that there was nothing he could do as he did not want to lose their direct loans. Ms Nguyen said that she would not work under those conditions. Mr Stolyar's account is much to the same effect. He also protested about the competition and said, "Our contracts are now worthless and dead". Shortly after this conversation the defendants went on prearranged annual leave. Although Mr Tomazin did not deny Ms Nguyen's account, he did deny Mr Stolyar's, which was in substance, the same. This was not the subject of cross-examination. It seems to me that I should understand the effect of his evidence as a denial that the event occurred at all. Mr Tomazin said that the reason he understood the partners set up Royal Mortgage Direct was that the defendants were not servicing their brokers "unless they were paid a 0.25 percent bonus for doing so" although this was what they were paid to do. It may be that this is what Mr Tomazin was told but I do not think this should be taken as evidence of the truth of Mr Pusic's and Mr Pondelak's reasons. Firstly, whether the defendants were entitled to the bonus depended on the terms of their employment contracts. Moreover, Ms Nguyen denied that the brokers were not serviced. She mentioned, as an example, one of the brokers who had referred worked to Daniel but was very inexperienced. She said that she trained the firm and developed its brokering skills with the result that the broker settled a large number of loans with RGMM and later, RMM. She said that, in mid 2003, she discussed this broker with Mr Tomazin, telling him that the "directors had informed her that Daniel had tried to get them to refer business to him but they wished only to deal with me" and that Mr Tomazin confirmed that Mr Pondelak had told him the same thing. I accept Ms Nguyen's evidence. Even if the evidence as to non-assistance were admitted for a hearsay purpose, I would not prefer it to Ms Nguyen's. I should mention that there was no evidence that the partners actually referred brokers to RGMM whose borrowers sought any loans. Nor were the defendants cross-examined to suggest this occurred, as distinct from being understood to be part of the arrangement that would occur. 94When the defendants returned in about mid January 2003, Ms Nguyen and Mr Stolyar had a further meeting with Mr Tomazin. Each defendant gave a somewhat different account of what transpired. Ms Nguyen said that Mr Tomazin told them that new office space had been found in Burwood, and that she told him, in substance, she did not think the new arrangement with the partners would work and she would not stay and put up with it. She said that she brought in the business and had her own brokers and referrers, and could go anywhere or start her own origination company. She protested that she had spent the previous two years building up RGMM and its own directors wanted to copy her business model and compete with her and asked how could she deliver the business volume "when Daniel and Zoran can just take my introducers without consequences". She said that Mr Tomazin replied that he could not stop them and asked if she wanted to compete with them as well as her retail clients. She responded, "If they want to compete with us then we will compete with them." Mr Tomazin agreed, "as long as we keep it all within the Royal Guardian family and under RGMC accreditations". Mr Stolyar referred to this matter in his affidavit but did not relate the conversation quite as expressed in Ms Nguyen's account. He said that, during the meeting, Mr Tomazin told them about the new premises at Burwood which would enable Mortgage Direct to occupy one level and RGMC and RGMM the other. Mr Stolyar said that Mr Tomazin also said, "To make you happy, if they want to compete with you on the wholesale referral side of the business, I will allow you to go after the direct business". The defendants were not cross-examined on the differences, perhaps because their accounts were simply regarded as complementary. At all events, that is how I understand them. 95At about the time of the above conversation, a problem arose involving an apparent conflict of interest caused by Mr Stolyar's position as RGMM's credit manager. RGMM had submitted a loan application to Origin (one of RGMC's funders on behalf of a Mr Rogers, who wanted to refinance a loan he had originally taken out with Reserve Capital Mortgage Corporation Pty Limited, of which the defendants were shareholders and directors. Mr Stolyar had approved the loan under an authority he held from Origin. It appears that Origin had noted from the correspondence Mr Stolyar's link with Reserve. Mr Tomazin informed the defendants that Origin had called him about the Rogers loan, expressing concern about Mr Stolyar's conflict of interest in processing the loan when he was also a director of the lender whose loan was to be refinanced. 96As I understand it, it was soon after this, in late January 2003, that a further conversation occurred between the defendants and Mr Tomazin as to the use of Bethian as a broker to RGMM. On the understanding that they would be competing for retail business as discussed in December, Mr Stolyar suggested to Mr Tomazin that they would put the deals through Bethian. He said that Mr Tomazin's responded - "No, I prefer it not be done through Bethian. You need to do it through another company. I have been told by the funders that there needs to be segregation of duties from sale and credit. If you do it under Bethian, they'll find out that Bethian is you and you are underwriting the loan. They will see this as a conflict of interest and will not allow the loans to settle. I suggest that you create another entity owned by a family member or a friend, that you can refer the loans to and be paid commissions and trails for as long as this entity is not paid any more than any other introducer. You will have two roles: one of sales and one of credit. You will only be paid by RGMM for doing credit and the company will not pay you for doing sales as there would be a conflict. Your salary will be $125,000 per annum plus superannuation and it will not be conditional on any settlement targets." Ms Nguyen's account is basically the same, although she said that Mr Tomazin also said that the arrangement was between them and him and the partners were not to be informed of it since he wanted them to continue to give "their direct deals to RGMC rather than Royal Mortgage Direct". Again, she was not cross-examined on the difference between her's and Mr Stolyar's accounts. I do not think anything turns on this. 97For his part, Mr Tomazin, did not deny the conversation with Ms Nguyen when she protested about the creation of Royal Mortgage Direct and agreed that Ms Nguyen did not want the partners engaging in the same kind of business that she was running with RGMM and complained that this was a breach of the arrangement that she had previously had with him. Mr Tomazin also agreed that he wanted to keep peace in the company and that it was bad for business to have these people quarrelling. It was put to him that that arrangement to which Ms Nguyen deposed (to set up a broker to refer borrowers to RGMM) was the solution but he denied this "absolutely". He said that his response was to tell "her to concentrate her business ... there is plenty of work out there, there is plenty of brokers ... we have four major funders and that's why we are so successful as a group, and she should look at it from positive point of view". He said that he would put safeguards in the system so that, if her brokers contacted her, there would be direct lines to her division, to avoid clashes. Of course, this was not a solution at all. Accepting that he wanted to keep the peace, why not permit Ms Nguyen to compete with the partners for the borrowers whom they were gathering as clients of RGMC? He did not explain. I am minded to think this was because there was no reasonable explanation and he indeed made the proposal to which Ms Nguyen deposed. I found Mr Tomazin's evidence about this less than convincing. It is, by the way, some indirect support (but perhaps stronger for that) for the defendants' evidence that RGMM dealt almost entirely with brokers that Mr Tomazin referred only to competing for that business. 98It is worth noting at this point that, on either account, no part of the employment contracts or, indeed, the surrounding negotiations or discussions required direct clients to be referred to RGMC. Although it appears that Mr Stolyar thought that such clients should be so referred, I understand him to mean that RGMM was not set up to deal with them - that is to say, to do the work it would have been necessary for a broker to have done - whilst RGMC was able to undertake that work. RGMC was an entirely independent company, towards which the defendants had no responsibilities. If the defendants' characterisation of RGMM's business is accepted, it may well be true that, in seeking borrowers and referring them to RGMM through Dibelle, the defendants were competing with RGMC but this was not competing with RGMM. The point is that, one way or another, the extensive work done by a broker - from gathering in the client to making the loan application - was an essential part of the process of obtaining a loan, of which the work done by the underwriter and the on-referral to the funder (that is to say, the work for which the defendants were specifically contracted to undertake - with Ms Nguyen having the additional task of making connexions with brokers) were latter stages. This is made clear, in substance, by the terms of the employment contracts and the duty statement to which reference has already been made. 99Shortly after the discussions with Mr Tomazin, Ms Nguyen said she arranged with a long-standing friend of hers, Ms Denise Chahine (who had a hair salon) to set up a mortgage broker business, which used at first the business name, Dibelle Finance. She was told that Mr Stolyar wanted to use her shop premises to conduct interviews with potential clients; she would need to register the business name, open a bank account and sign an accreditation agreement; Ms Chahine was also to be responsible for the accounts and tax payments. In return, Ms Chahine would receive part of the commission paid by RGMM on the settled loans. Ms Chahine agreed and, on 31 March 2003, the business name was registered, the proprietor being Denise Chahine. A bank account in Dibelle's name was opened, with Ms Chahine and Mr Stolyar being the signatories. 100Ms Nguyen stated that in February 2003 she, Mr Stolyar, Ms Chahine and Mr Tomazin met (I think at RGMC's offices) where Ms Chahine was introduced to Mr Tomazin and an accreditation agreement signed by her on behalf of Dibelle Finance, Ms Nguyen as general manager of RGMM, Mr Tomazin as director on behalf of RGMM and Mr Stolyar as witness to the signatures. Ms Nguyen said that the accreditation agreement was placed in the Dibelle Finance file, which was taken by Mr Tomazin and kept in his office. Ms Chahine was given a copy of the accreditation agreement. Mr Stolyar's account is significantly different. He said that Ms Chahine filled out and signed the RGMM accreditation agreement with him as the witness and sent it to RGMM and that Ms Nguyen advised them later that Mr Tomazin had approved and signed it. He said that Ms Nguyen told him that she had told Mr Tomazin of the plan to use Denise, that he thought it was a good idea, but he wanted her and Mr Stolyar to interview all the borrowers and not to mention this to the partners. Neither Ms Nguyen nor Mr Stolyar were cross-examined on the differences in their accounts about the execution of the accreditation agreement, although this may be because RGMM's case was simply that no accreditation agreement was ever entered into. The differing accounts strongly suggests that the defendants had not put their heads together in dealing with this important issue. Mr Tomazin denied meeting Ms Chahine, signing an accreditation agreement and taking any file. If one hypothesises that the existence of an accreditation agreement between Dibelle and Mr Tomazin is a fabrication, that each would have decided to fabricate its execution in markedly different terms is, to say the least, surprising and to my mind most unlikely. It is not impossible that these differences are calculated, but that is not my impression. It was certainly not suggested. 101Ms Nguyen was cross-examined about the role of Ms Chahine. She said that it was not intended that she would be only the face of Dibelle Finance, although this was her main function. If anyone came to her for a loan she would simply tell them to go to one or other of the defendants. She agreed that she and Mr Stolyar were undertaking the business of Dibelle Finance in terms of collecting the applications or getting leads; in short, whatever Dibelle did as an introducer was done by the defendants. Ms Nguyen said that she knew how much was being paid to Dibelle but was not sure whether most of the income paid to Dibelle Finance came to her and Mr Stolyar. Ms Nguyen said that the money paid to Dibelle Finance was paid into the business bank account, the application for which was tendered and signed by Ms Chahine and Mr Stolyar. The bank statements commencing on 15 April 2003 through to 2 November 2004 were addressed to Dibelle care of Denise Chahine at her shop address. Ms Nguyen thought that, of all the moneys that were paid to Dibelle Finance, she and her husband received from $350,000 to $500,000, perhaps 30 per cent or 40 per cent and the balance stayed with Ms Chahine. However, the effect of Ms Nguyen's evidence is that this was guesswork on her part because she did not actually deal with the finances or the banking in relation to Dibelle. Apart from the $350,000 to $500,000 which she and her husband received she was not entirely sure what happened to the rest. Ms Nguyen says that she personally paid Ms Chahine about $5,000 a month in cash to help with her living costs and also for numerous trips to the Lebanon. Ms Nguyen said that she was not aware of Ms Chahine's finances but she helped her a lot with her finances for many years, indeed, for all her working life. She said - "I was involved in setting up the arrangement and I was involved with the clients that I brought in to Dibelle. It was very small percentage. The majority of the clients were Ian's clients and so, once the money is paid to Dibelle, I don't see - I mean I don't get involved in that. It was just between Ian and Denise." It appears, overall, RGMM paid Dibelle Finance about $1.4 million. Mr Stolyar said that Ms Nguyen had no active role in Dibelle. 102Ms Nguyen was cross-examined about the statement in the defence that "the defendants agreed that no financial benefits from payments made to introducers, including to Dibelle Finance and/or Dibelle as they were neither the proprietor nor directors nor shareholders of the company". She said that when she "wrote [I think she meant read] that paragraph, I interpreted it as direct - a direct benefit - because I was neither the owner or director or shareholder of the company that received the moneys. That was my interpretation". She said that this was language chosen by her solicitor from what she told him. She denied that, when she swore the defence, she wanted to pretend that none of the money that had gone to Dibelle Finance made its way to her or Mr Stolyar. 103Not surprisingly, Mr Stolyar was also cross-examined about the arrangements with Ms Chahine. He said that, essentially, she was providing a shop front and was going to look after the tax affairs of Dibelle Finance, paying the taxes and charges. He assumed that her accountant would be disclosing the income in her tax returns and that she was responsible for paying the assessments. She only introduced one or two loans, perhaps more, but it was not many. Meetings with the borrowers involved Mr Stolyar or Ms Nguyen, mostly Mr Stolyar. The cheques for the commission payable to Dibelle were banked by Mr Stolyar in the Dibelle Finance account. Mr Stolyar said that the arrangement was that for operating the account and doing the work she would receive $5,000 a month for herself and, if she introduced any loans, she would get 50 per cent of the income, by which I understand he meant the commission. He said that he thought that maybe 30 percent or 35 percent went to him and Ms Nguyen and the rest to Ms Chahine or other sub-introducers. He said that no books were kept about these transactions but the amounts paid went through the defendants' bank accounts. He was asked whether tax was paid on those amounts. Mr Stolyar said no because they were gifts and non-taxable loans from Dibelle Finance as Ms Chahine had already paid tax on those funds. He said that every month a small introducer or sub-introducer would be involved with one of the Dibelle Finance transactions. He was not able to estimate the proportion of the loans that was instigated in this way. 104The arrangements made with Ms Chahine (and for that matter, with Faina Stolyar, as to which see below) certainly smack of tax avoidance, but, whilst suspicious, I don't think the evidence permits me to draw this conclusion to the necessary degree of certainty. At all events, those arrangements are not directly significant, as I see it, to the issues in this case. There is no doubt that Dibelle was used. There is no doubt that it was set up, on Ms Nguyen's evidence, to enable them to increase their income from the RGMM business by obtaining the broker's commission payable to introducers of loans. The question, essentially, is whether Mr Tomazin was aware that Dibelle had been set up by and was an instrument of the defendants. 105I mentioned above the signed variation agreements of 17 March 2003. Mr Stolyar said that, before he signed his, Mr Tomazin said to him, "Stolyar, what do you think of my proposition [semble, to permit him and Ms Nguyen to use their own company to compete in the retail market], I think it's a good deal for both of you", to which he replied, "I'll agree as long as you keep your word and pay us for our work [but] if you stop paying then I'm out of here, so its up to you". Mr Tomazin denied this conversation occurred. The affidavit of Denise Chahine 106Ms Chahine swore an affidavit at the behest of RGMM's solicitors on 24 August 2011. At that time she was suffering from breast cancer, to which she eventually succumbed on 14 November 2011. The defendants objected to RGMM's tender under s 63 of the Evidence Act 1995 (NSW) of the affidavit on a number of grounds, essentially, that, under s 135 of the Act, "its probative value is substantially outweighed by the danger that the evidence might ... be unfairly prejudicial" to the defendants. The probative value of the hearsay statements was somewhat significant, although they did not go to matters of central importance in the case. The prejudice was, essentially, that the defendants were unable to cross-examine Ms Chahine on matters as to which they wished to contradict her. In respect of some matters Ms Chahine's account is incomplete. She said nothing, one way or another, about meeting Mr Tomazin or signing any accreditation agreement. It seems to me that the most important factors here are that the defendants were capable of giving direct evidence as to the matters to which Ms Chahine deposed that they dispute, that a judge will generally be assumed not to give evidence greater significance than it ought reasonably to bear and that the inability to test the evidence by way of cross-examination (which I accept is a significant prejudice) is a factor that should be taken into account when determining whether, on disputed points, the evidence of the defendants or the untested statements of Ms Chahine is the more persuasive: see, for example, Ordukaya v Hicks [2000] NSWCA 180 per Mason P at [8], Sheller JA, Meagher JA concurring at [35]-[40]. Accordingly, I admitted the affidavit into evidence. 107Ms Chahine said that she "used to be" good friends with the defendants, having known Ms Nguyen from school, but was no longer a friend of theirs. She recalled having a conversation with the defendants whilst at a restaurant in 2003 or 2004 in which the defendants asked to use her name for opening an account, saying, "You won't have to do anything". It may be that the word "company' was used but Ms Chahine was unsure. She said that, after that conversation, she started to get mail in the name of Dibelle Finance and passed it to one or other of the defendants on social occasions without discussing what they were. She said she did not carry on the business of Dibelle Finance, that she had never been a broker, written a loan or carried on business in the mortgage or finance industry. She denied ever receiving any money from Dibelle Finance or the defendants in respect of Dibelle Finance, although the defendants were generous "but only in the nature of a friendship". She added that she had never, to the best of her recollection, attended the offices of Andrew Court & Associates whose name she first heard when contacted by RGMM's solicitors and had not spoken about Mr Andrew Kotroulos or the firm with either of the defendants. 108It seems to be implicit that Ms Chahine had nothing to do with Dibelle Finance except as a deliverer of mail. However, its business name was registered in her name as proprietor and with her address. It seems to me most likely that she signed the required application. The application for the bank account was also signed by her in a number of places and, it appears to me, probably also contains details in her hand-writing. A number of the assertions made by Ms Chahine are refuted by documentary evidence. On 30 November 2004 a Dibelle Financial Services cheque for $55,000 was drawn in her favour. (As will be later seen, this was, according to the defendants, paid to her for the value of the Dibelle Book which had been taken over by the company.) It is most unlikely that this was a gift or that she would have thought it was unconnected with Dibelle. Ms Nguyen said that, about early 2003 Ms Chahine approached her for help with her tax returns. Ms Nguyen said that she referred her to her accountant, at the time at Andrew Court & Associates. It appears that the plaintiff has produced copies of Ms Chahine's tax returns for 2000 and 2001 (mistakenly dated by Ms Nguyen as 2001 and 2002) which show Andrew Court & Associates as having prepared them. The returns show financial details (including charitable donations) which, it is very probable, came from Ms Chahine and she signed the returns on the page which contained Andrew Court & Associates named as tax agents. Whether or not she attended Andrew Court & Associates is unknown but it strikes as me as very probable that she discussed her taxation affairs with at least Ms Nguyen who, in the circumstances, almost inevitably must have mentioned the name of her accountant, given that at least two of Ms Chahine's returns were prepared by him. (I should mention that correspondence between RGMM's solicitors and Ms Chahine was tendered on the voir dire as to admissibility of the affidavit. Since it has not been tendered in the trial, I have left it out of account.) 109Ms Nguyen has given evidence that, sometime in September 2011, she had a telephone conversation with Ms Chahine to the following effect - "Denise: 'Hi Beth. How are you going? When is your baby due?' Me: I am due in early October. This pregnancy and the legal case is stressing me out a bit. I just don't know when it will end. How is your treatment going? Denise: Treatment is going OK, I guess. Beth, I finally signed the affidavit that Bransgroves prepared for me. I don't want to get involved. Me: Well, I am sorry to hear that. Denise: Beth, I can't afford to have this law suit on my head. I am fighting for my life now and Georgia from Bransgroves promised to leave me alone if I give them what they want I am sorry. Me: Denise you do what you have to do." 110I accept this evidence. Given her difficult circumstances, it is easy to understand why Ms Chahine would wish to avoid the stress of being involved in this litigation. Her affidavit conveys the impression that she was concerned to minimise her involvement in Dibelle Finance's affairs and clearly did so concerning how the firm was set up and her receipt of money. Ms Chahine's involvement in the affairs of Dibelle was slight even on the evidence of the defendants. She does not state one way or another whether she executed an accreditation agreement but the thrust of the affidavit implies that she did not. Although it appears that she provided her 2000 and 2001 tax returns to the plaintiff (in circumstances which are not explained) she did not, it appears, provide her tax returns for the crucial years. Her denial that she received money from Dibelle is, of course, inconsistent with the evidence of the defendants, in particular Mr Stolyar's evidence concerning the inclusion of the Dibelle income in Ms Chahine's tax returns. I would infer that it was in Ms Chahine's interest, as she saw it, to deny involvement with Dibelle other than a formal one as the owner of the business name and recipient of mail addressed to the firm. The matters of particular relevance in Ms Chahine's affidavits are of marginal relevant since it is not disputed that Dibelle was set up for the purposes of augmenting the income of the defendants by way of commissions from settled loans for borrowers referred to RGMM through Dibelle. The defendants did not contend that Dibelle was, in any practical sense, independent of them and it was not in issue that Ms Chahine was the "face" of the business. The contradiction concerning income from the arrangement is, of course, capable of affecting the credit of the defendants as is the possible implication that no accreditation agreement was signed. Taking into account the contrary evidence to which I have referred, her interest in "giving ... [RGMM's solicitors] what they want" and the inability to test her evidence by cross-examination, I prefer the evidence of the defendants where it differs with the affidavit of Ms Chahine. Dibelle Financial Services Pty Limited 111About July or August 2004 Ms Nguyen said that Mr Stolyar had said to her that the arrangement with Ms Chahine had not been working out and he wanted his mother to buy her out. Ms Nguyen said she would speak with Mr Tomazin and that, sometime in the following month, she did so. She said the conversation was as follows - "Me: Tony, Denise wants to sell her Dibelle book to lan's mother. The only change will be the ownership of the book. Everything else will remain the same. Ian and I are still seeing all the Dibelle clients and putting the loans together. Tomazin: We will need to sign another accreditation agreement with lan's mum. She would need to provide us with the registration of her business name. Can you please arrange for her to come into our office to execute the new agreement? Me: lan's mum goes by her maiden name now. I'll pull together the documents with that name. Tomazin: Just make sure you prepare the agreement with the name that is registered for the company. Me: Yeah sure." 112Mr Stolyar said that he also had a conversation along the same lines with Mr Tomazin in about September 2004. 113Mr Tomazin denied these conversations took place. He asserted that in 2004 he was overseas for August, September and a good part of October, in September travelling around the Adriatic, northern Italy and Monte Carlo with his new partner while waiting for government authorities to issue licenses for his new bar in Slovenia. He said that this was a major event as it was an important part of the social life in Ljubljana and the celebration started in 3 October 2004, going on for two days and well covered in press and media. He said that he had left Australia in late July or early August but, since there were delays in license and building inspections, the opening did not happen until 3 October 2004 so that he was away for this entire period. Amongst the tendered material is an RCTI of 12 October 2004 addressed to Bethian which has a handwritten note "to be checked by Tony on his return 13/10/04". This tends to support Mr Tomazin's account as to his absence in September 2004 but also to establish that he was back in the office by at least 13 October 2004. Ms Nguyen, in response to Mr Tomazin's account of his overseas travel at this time said that she did not mean to imply (and certainly she did not assert) that the conversation with Mr Tomazin concerning sale of the Dibelle book to Faina was face to face. She says that she had many conversations with Mr Tomazin by telephone whilst he was overseas. Given the lapse of time, I do not think that Mr Stolyar's stipulation of September 2004 as the date of his conversation with Mr Tomazin is significant. He also said that he spoke with Mr Tomazin by telephone when the latter was abroad. 114According to the defendants, Mr Tomazin had already met Mr Stolyar's mother (for convenience and to avoid confusion, I refer to her by her first name, Faina). Ms Nguyen said that, about 6 December 2002, she told Mr Tomazin that she needed to apply for a loan with her mother-in-law who had agreed to provide part security for a loan to enable her and Mr Stolyar to buy an apartment. She said that she told Mr Tomazin, in answer to his inquiry, that her mother-in-law was recovering from her husband's recent death and receiving a widow's allowance; the security was her home. Ms Nguyen said that Mr Tomazin told her that, because a third party security was involved, he wanted to meet her to explain the risks, to which she agreed. Ms Nguyen said that, on or about 10 December 2002, she with Faina applied for a mortgage with RGMC secured against the latter's home. The loan application, she said, was signed in Mr Tomazin's office and she then left Mr Tomazin with Faina for a short meeting. She recollected that that Mr Tomazin called her back to photocopy some of Faina's documents, including her driver's licence and income confirmation. 115Faina also gave evidence. She said she had met Mr Tomazin, according to her account, about early December 2002 in the offices of RGMC in Beamish Street, Campsie. The meeting came about because, at the instance of the defendants, she had agreed (although she was, at first, reluctant to do so) to borrow $500,000 through RGMC to lend to them for the purchase of a property. She says that, when they discussed the loan, Ms Nguyen said to her she would need to meet Mr Tomazin to explain the terms of the mortgage and also to identify her, as they could not do it because of a conflict of interest. Shortly after, Mr Stolyar told her of an appointment with Mr Tomazin the following day. She needed to bring her driver's licence, copy of the deed and (her husband's) death certificate. She went to RGMC's offices in Beamish Street, Campsie, taken by her son. She says that when they arrived at the offices, Ms Nguyen introduced her to Mr Tomazin who then took her into his office where they had a conversation to the following effect - "Tomazin: I understand that you want to borrow $500,000 from us to help Beth and Ian to complete the purchase of their property. As you are not getting any benefit from this transaction, it is called a 'third party loan'. As such, I am required by our funders and mortgage insurers to explain to you the risks. So, the reason we are having this meeting is so I can explain to you some things about the loan, and to verify who you are. I understand you have agreed to put your apartment up as security? Me: That's right. Tomazin: Ok. In particular, I'm going to explain to you the risks of putting your apartment up as security. You have agreed to borrow the funds with Beth Nguyen. You should be aware that, if for some reason Beth is unable to repay the loan or meet its interest payments, then we will have no choice but to sell your property to recover our funds. Do you understand and agree to this? Me: Yes." Faina said she handed Mr Tomazin a copy of her certificate of title, her driver's license and a copy of her husband's death certificate. She recalled that Ms Nguyen made copies of these documents. 116In connexion with Dibelle, Faina said that, about September 2004 she had a conversation with Mr Stolyar to the following effect - "Ian: Mum, there is a good business opportunity for you and I think it will help you stay occupied and financially independent. You know Beth's friend Denise, the lady that runs the beautician store in Bondi, she wants to sell her Royal Guardian book. She receives approximately $14,000 per month in ongoing trail commission. She wants to sell that part of her business for $55,000. I think you should buy it. I will need to get our boss Tony Tomazin's approval.' Me: Ok, if you think this is a good idea, let's do it. What do I need to do, and where do I get the money to pay Denise? Ian: Once I get approval from Tomazin, you will need to register the company. I think we should keep the name of the company the same. So the company should be called Dibelle Financial Services Pty Ltd. We'll need to keep the name the same not only because I like it but also because the Funders already know Dibelle as an introducer and it will keep the continuation of the business. We will pay Denise once Dibelle receives its first commission cheque. You will first need to execute an agreement with Royal Guardian, in return he will keep on paying commissions to the company. Me: Ian, will this be safe? I don't want to lose everything in case something goes wrong. Ian: Don't worry, I will be looking after the quality of loans and the company is a separate legal entity, so Tomazin can only go after the assets of the company and not your personal ones." 117Dibelle Financial Services Pty Limited was registered on 21 October 2004, with Faina its sole director and shareholder. She said in her affidavit that she had told her son that she wanted to be known as Faina Lutsker, her maiden name. She said that she did this in the memory of her brother whom, she believed, looked after her and she wanted him to look after this business of hers. She denied in cross-examination that the reason that she used the name Lutsker was to disguise the connection between Dibelle and the defendants. Of course, since the company was formed with the express purpose of giving the appearance of independence, this would not be surprising but there is no evidence that Faina was aware of this issue. About the middle of October 2004, Faina said that her son told her that it was necessary to see Mr Tomazin to sign the introducer agreement and check on the company registration papers and identify her again. On the following day, she said, Mr Stolyar took her once more to meet Mr Tomazin, this time at the offices of RGMM in Burwood. She says that the following conversation occurred - "Tomazin: Hello again, nice to see you Mrs Stolyar. Me: I changed my name to Faina Lutsker. Tomazin: Oh, why? Me: I decided to go back to my maiden name. Tomazin: Ok. Mrs Lutsker, I understand that you want to buy the existing Dibelle loan book with Royal Guardian and continue to introduce loans to us. I also understand that Ian will be meeting most of the borrowers. I am very happy with this arrangement as there is currently a lot of ID fraud. However, I will still need you to sign the standard introducer accreditation agreement, which has been prepared by Beth for you, and I will need company registration forms plus your driver's licence. Me: Ok. Here is all the paper work." 118Faina says that she gave Mr Tomazin a copy of her driver's license, a copy of Dibelle's business name registration form (I think an error for the company's registration form) and Dibelle's bank account numbers and that Mr Tomazin gave her the accreditation agreement, which was signed then by him and Ms Nguyen on behalf of RGMM. Faina said that she signed on behalf of Dibelle, using her married name, since her signature had not changed. She said that Mr Stolyar witnessed her signature and that this was all done in each other's presence. She said she did not keep a copy of the agreement. 119Ms Nguyen said that she and Mr Tomazin had together prepared the accreditation agreement and that the meeting took place in her office at Burwood with Faina, Mr Tomazin, Mr Stolyar and her all present. Her account is much the same as that of Faina. Mr Stolyar said that he drove Faina to RGMC's offices in Burwood where he introduced Faina again to Mr Tomazin. He also said the accreditation agreement was signed, one way or another, by all present. His account is somewhat more brief than that of Faina and Ms Nguyen but nothing turns on this. Certainly there was no cross-examination on the point. 120In cross-examination Faina (whose English, although understandable, was somewhat idiosyncratic) said that neither her son nor Ms Nguyen helped her in any way in providing her instructions to the solicitors which were done in conference in their absence. Nor, when she was considering the draft (which necessitated a further meeting with the solicitors) did the defendants help her at that stage. Mr Young pointed out that the events had occurred almost 10 years before she made her affidavit. Faina agreed that she had some difficulties with recalling peoples' names that she had dealt with, although usually only with their surnames, but that she had no doubt about Mr Tomazin's name. She pointed out that Mr Tomazin's solicitors had subpoenaed her two to three years before the trial and threatened to sue her and Dibelle, and said she could not "forget this one because I got so many letters and so many subpoenas". She said that she was angry because it was for nothing, she assumed like this case. She insisted that she had not forgotten Mr Tomazin. It was put to her that it was quite possible that she had never met Mr Tomazin in 2002 but had met somebody else, to which she responded - "No, no because when I come to the bosses and Beth introduced us and told him "this is my mother in law" and 'Tomazin is our boss at Guardian'." 121Faina said that she had not actually been to Campsie before and that she was taken there by her son but that it was Ms Nguyen, her daughter in law, who introduced her. In respect of the conversation that she had with Mr Stolyar in about September 2004, she said that she had a clear recollection of the conversation. She had asked whether as at that time she had ever been in any business relating to mortgages and answered - "Just before I helped, because I was very depressed [after her brother's and her husband's deaths] and my son give me cards, his business cards and said, "Go out and speak with people". Because I am good with people and I knew our community and just to speak with people who may be somebody who needs some mortgages, like this one. And I done plenty job like this one." She said that started doing this from the beginning of 2002. It was therapeutic as it kept her busy. So far as her role was concerned, she would not be running the business but it was her job to just find potential borrowers. She said that when she found a potential client she gave them the telephone number of her son and suggested that they should contact him because "he is working in the Royal Guardian, he is in lending, he is very good in this business, call him and have a nice meeting, if he can help he can help you". It was her understanding that, although Ms Nguyen might have helped somewhat, it was to her son to whom she introduced people and she thought he did all the paperwork. Faina said, in effect, that many of the people whom she introduced were successful in obtaining loans and they would call her occasionally and thank her and compliment her son. She was sometimes informed about a loan being approved and sometimes not but she said that she got the information from the bank statement which showed how much was paid in commission. 122As with all the evidence of the defendants concerning discussions about Dibelle, Mr Tomazin denied any meeting occurred at which an accreditation agreement with Dibelle was executed as well as ever having met Faina. He asserted, also, that he was in Slovenia at the time. Given Mr Tomazin's earlier evidence that he had been waiting for the opening of his bar, which occurred on 3 October 2004 with celebrations going on for two days, and the RCTI to which I have referred as to his expected return on 14 October 2004 it seems probable, to say the least, that he was present in Sydney at least from that date. Faina says that the meeting occurred about the end of October 2004. This is consistent with her handing over the registration certificate, which would have been dated 21 October. The defendants said the meeting occurred about November. Mr Tomazin would have been available for this meeting, if it occurred. 123Mr Tomazin also flatly denies the conversation alleged by Ms Nguyen with him in early December 2002 concerning the proposed loan to her mother in law, Faina. He agreed that there was such a loan to Ms Nguyen and Faina, but said that it was processed and signed off by an RGMM employee named Jo [I think an error for Joy - mentioned in the employee lists] Donovan and that he had no involvement with it or with Faina. There is no evidence from Jo or Joy Donovan as to this matter, nor any explanation as to why he or she was not called, nor were documents (other than the loan application signed by Ms Nguyen and Faina) produced which showed who had dealt with the application. One might expect, perhaps, that documents dating from December 2002 might no longer be available but this explanation was not given. If Mr Tomazin had no connection whatever with the loan, the source of his information that Donovan was involved is not explained and appears, on the face of it, to contradict the unavailability of the documents. 124Mr Tomazin contended that he would not have agreed to any arrangement such as that which the defendants claimed applied to Dibelle because, he said, it would have placed his accreditation agreements as originator with the funders in jeopardy. He said that, in his experience, funders did not permit staff members of an originator to also be a broker because the originator does a great deal of the underwriting on a loan before the loan is sent to the funder. It would be very risky for a funder to allow the originator's employees to be a loan broker because the broker, who is the borrower's agent, could also be carrying out the underwriting for the funder, with a consequential conflict of interest. He said he would not permit any employee to be both a broker and an underwriter and jeopardise his relationship with a funder or any accreditation held by RGMC or RGMM. The defendants do not take issue with the negative attitude of funders to the potential conflict of interest. Their case is, as is clear from the conversations with Mr Tomazin about Dibelle which they say took place, that Dibelle was set up in a way which was designed to prevent the funders from discovering the problem. There is also evidence (set out above) that, for a significant time, commissions were paid to Bethian as a broker which were likely to have been known to Mr Tomazin because they were numerous and occurred mainly in 2002, at a stage when, it appears, he does not dispute that he was supervising commission payments to brokers. These cannot have been "transfers" of bonus payments because (whether Mr Tomazin noticed or not) they must have resulted in frequent and numerous double payments, a situation that would have been unlikely to escape the notice of staff responsible for paying the salary and bonuses to the defendants. There is no evidence from Mr Tomazin or adduced by RGMM that suggests that, given the nature of the processes within RGMM and the funders, those steps would have been ineffectual, although I accept that the effect of Mr Tomazin's evidence is that he believes the risk would have been real and one he would not have taken. Without additional information it is difficult to assess on Mr Tomazin's say so how realistic the risk would have been and thus sensibly to weigh it against the potential profit of permitting the defendants to proceed as they wished. He said that he had guaranteed performance of the agreements with the funders and thus placed his assets at risk in the event of a breach of a term. The agreement produced shows that the guarantee applies only to losses caused by a breach but the point is still legitimately made. Allied to it is the fact that Dibelle had no PI insurance. There is also, on RGMM's side of the scales, the point that permitting the defendants, as it were, to route applications from borrowers through Dibelle rather than dealing with them directly extracted from RGMM commission which it would otherwise have retained. This rather depends on whether those borrowers would have come to RGMM anyway. I discuss this aspect next, in dealing with the evidence of the defendants as to the way in which they operated Dibelle. 125According to Ms Nguyen, "Bethian's source of business was usually accountants, developers, Faina, and anyone else who could give us a lead for a new loan", such as developers who would refer would-be purchasers for finance. As I understand her evidence, this model was continued with Dibelle, Faina playing an increased role after she became directly involved. She said that occasionally she would interview prospective Dibelle clients in her office in Campsie and Burwood and Mr Tomazin would see this. Most of these interviews occurred after office hours. Ms Nguyen added that the Dibelle clients frequently came to the office after hours to sign the mortgage documents. AFIG required a Justice of the Peace to witness signatures and, on a number of occasions, Mr Tomazin did this. She claimed that Mr Tomazin "would usually say ... [he was] 'comfortable with the Dibelle arrangement as Ian and you are physically seeing the clients, so there is no chance of identification fraud'". In answer to this part of Ms Nguyen's affidavit, Mr Tomazin simply denied knowing what clients Ms Nguyen or Mr Stolyar might be seeing since their offices were on the other side of the building with a different corridor entrance and he was overseas "for most of that year", but the passage in question was general and not placed in a particular year, nor did Mr Tomazin say which was the year he meant. He did not deny witnessing the signatures or the conversation of commendation. However, he did not ever deny knowing of Dibelle, but only that it was owned by the defendants. As I see it, the importance of this evidence, if true, is that Ms Nguyen did not seek to conceal her connexion with Dibelle transactions. 126It was put to Ms Nguyen that Dibelle was competing with other brokers doing business with RGMM and that it was in Ms Nguyen's interest that a particular borrower would go through Dibelle rather than another broker. Ms Nguyen answered as follows - "Well, yes and no. In the early days when I would have a lead from a client of mine - in the early days ... I had no time to go and see the client because I was busy, like, setting up the office. I would refer some of these clients to my brokers because they've got the capacity, the manpower to do the loans for my client. So, you know, that was in the early days. But in the later days when Dibelle started, then obviously I would work late nights. And [by] late nights I mean a 12 o'clock finish was regular, because to go and see the client, most clients want you to see them after working hours. So on numerous occasions I would have to go and see the client at their home." Thus, the client came to Ms Nguyen, was referred to Dibelle, and Ms Nguyen or Mr Stolyar did the work that a broker would have done, preparing the application with the Dibelle hat on. Ms Nguyen said it was not correct that a client who did not come through a broker or through Dibelle could simply be signed up for a loan through RGMM so that a broker or Dibelle would not be paid a commission. She said every loan is different for various reasons. RGMM did not have the administrative capacity to deal with applications from direct borrowers. A would-be borrower would not simply ring her up, because the relationship with a borrower is with the broker and RGMM was just the wholesale arm only processing the loans. The borrower would not have RGMM's telephone number. There was no interaction with the client at all. Everything was done through the broker and then, once the loan settled, all enquiries go to RGMC which was the only name on all the statements. RGMC had a post-settlement department. Ms Nguyen said that it was not that she never got a call from a borrower but, where there was a post-settlement problem, the broker might ask Ms Nguyen to speak to the borrower to fix up the problem. She said, so far as she could recall, a borrower had never called her seeking a loan. 127In cross-examination, Ms Nguyen was taken to a number of transactions where Dibelle was stated to be the broker but where, on the face of it, it appeared that the borrower had earlier been introduced to RGMM by another broker. She said that this might happen for two reasons. The first possible scenario was that the client was originally the client of either her or Mr Stolyar and referred to the broker because they did not then have the capacity to put the loan application together. But, later on, when Dibelle started, "we decided we would put in the hours, do the late shifts, so-called, and if the client wants further finance, obviously we would then put it under the Dibelle hat". The other reason occurred after the loan had settled and a client sought a discharge figure. This showed that the client had already made an application to another borrower and decided to leave Royal Guardian, since they would not discharge the loan unless they had already obtained a loan from another borrower, such as a bank; sometimes the discharge request would come through to RGMC from the funder itself, once the loan had been approved. RGMC had a discharge officer and a retention department. Someone from the retention department would contact the borrower and ask what was going on and the reason for leaving Royal Guardian and so on. If the client persisted, the file would go to Ms Nguyen. She would contact the broker if one had been involved and suggest that the broker might call the client to see if it were possible to retain the loan with RGMM. In these cases, Ms Nguyen's experience was that that the broker would not be interested because the client had already gone through the (extensive) process of seeking alternative finance and obtaining finance and to "save" the client "is very hard". It was suggested that the client could only be saved if a better rate could be offered. Ms Nguyen explained - "A. Sometimes it's not about the rate. The rate is only one of many reasons why a client would stay with you. So in my mind, at that time the client was going to leave Royal Guardian, so in my mind at that time I had two options: I had to let the client go so the client's going to leave the Royal Guardian Group altogether; or so-called, like you said, put on my Dibelle hat and see if I can offer a client a better deal and try and keep the client. In my mind it was fair play. The client has gone through a lot of process at this stage, so in my mind it was fair play, it's an open market. So for some of these loans, your Honour, I would then ring the client and I remember sometimes you'd have to go and see them two or three times because they're very hesitant to even talk to you. They've done all the paperwork, they're already committed to the Commonwealth Bank and so forth. Then I would have to, under my Dibelle hat, your Honour, I would do everything I can to try and save these clients, you know, and from experience what I've learnt is this: it's no use offering a client a lower rate, they get the shits - sorry, they get upset - because they're saying, 'You wait for me to go through all this work -' Q. Why didn't you offer me -- A. Exactly. 'Why didn't you offer me that in the first place?' So from my experience, I learnt, your Honour, from experience, a sales technique, and that is I have to offer them a different product. I've got to show them something different because the Commonwealth Bank have already offered them a very good rate, I have to go out there and do something different, and that 'different' is, 'All right, at that time the product that the broker gave you was the most appropriate product, but since then we've got other funders who might have products that are best suitable for you.' So then I would then, you know, go and see them, fill out the application and sometimes, your Honour, they won't sign, but I had to be persistent because I know if I save them I've got them for life. And I would go to their house, sometimes in Mt Druitt, a lot of these cases are people living in the outer west and the drive to Mt Druitt was very scary at 9, 10 o'clock at night. I remember I was coming out of their house hoping my car was still there. So it took a lot out of me and I learnt over the years I have to show them a better product. That's the only way they would stay with me. So if I changed over to Dibelle, your Honour, in my mind, if I can save the client and I put it through Dibelle and I put it through Royal Guardian, Royal Guardian would still get the trail income. So I did everything I can to keep the client and, you know -- " It was suggested to Ms Nguyen that, rather than do this work through Dibelle she could simply have offered the other possible borrowing programs through RGMM. She answered - "... there was the third scenario of you just putting on your RGMM hat and signing these people up for a new loan without recording Dibelle Finance as the member. That was another possibility, wasn't it? A. Without recording? HIS HONOUR Q. No, instead of doing this, as it were, on behalf of Debelle [sic], replacing the broker in this case who was no longer interested, you could simply have said, 'RGMM will offer you other possible borrowing programmes.' That's what Mr Young - why didn't you think of that? Well, no doubt you did think of that? A. At that time, your Honour, I didn't think about that because I put on myself that instead of hiring sales consultants, your Honour, I would rather do it myself, do it properly and all this work was done outside - in my mind at that time - was outside the scope of my employment." 128Other clients who came directly to Ms Nguyen were usually friends or developers who, if they were interested in a loan, would be visited by either Mr Stolyar or Ms Nguyen "under our Dibelle hats". These persons were not the other borrowers who, she said, did not contact her or Mr Stolyar, they were friends who already had their telephone numbers. The first group of borrowers would ring the switchboard and it is most unlikely that they would ever ask for Ms Nguyen because they would not know who she was, they would never have had any contact with her. As far as they were concerned, according to Ms Nguyen, their contact would be with a broker then, after settlement, with RGMC. She said that from her recollection she and Mr Stolyar were finding a lot of new clients who had no previous broker relationships and that most of the transactions were of this kind. Ms Nguyen mentioned a number of these borrowers whose names she remembered and were on the list, giving examples of how they came to be referred. She also mentioned several who were induced to return to RGMM when they were unsatisfied with RGMC. Ms Nguyen explained that where there had been broker she would not speak to the client without speaking to the broker first - "Q. Because that's the broker's business? A. That's right. Everyone talks about who owns the client. In a wholesale mortgage market the lender does not own the client. The lender's got the client but ultimately the broker or the introducer owns the client. My model is very similar to the model say with Homeside and National Bank. If I was a broker and I want to refer a deal, I can't go to National. National would refer me to Homeside. And if that particular client wants another loan, NAB can't do it, Homeside can't do it or we'd go back to the broker, the broker's not there, then Homeside would recommend to another broker. That's the wholesale model. We're not out there to do direct deals because it's all on processing efficiency. If you start seeing direct clients then you've got to have a sales teams, BDMs and all of that." 129Ms Nguyen explained that, from her point of view, a "direct client" is where she "captured the client from my own sources and/or contacts". She said that such a client needed to be sold the RMGC brand and product. However, where a client was introduced by a broker, this did not have to be done. She said that, throughout her employment with RGMM, as best she could recall, enquiries from direct clients were rare. She said, because most of her time was taken up by managing the operation side of the business, including looking after the brokers and building the business up, she did not have the time to sit with direct clients and put the loan application together. She said that, when enquiries came directly from a potential client, she would refer the client to an accredited broker (as I understood her evidence, until Dibelle started to operate). She said that RGMM did not have the resources, nor was it set up to process direct client loan applications. By referring such enquiries to one of RGMM's brokers, the loan would ultimately end up with RGMM and benefit her because a settled loan would go towards the target she needed to reach to receive the bonus. On the other hand, if the direct client were referred to one of the sales consultants at RGMC, such as Mr Pusic or Mr Pondelak, RGMM would not benefit from the income generated from the enquiry if it developed into a settled loan and, of course, she would not receive any bonus. 130Mr Stolyar said that he was not concerned that his role with Dibelle would conflict with duties he owed to RGMM. He agreed that finding borrowers could take a lot of time. He said that occasionally he would assist new or inexperienced brokers by helping the borrowers to fill out the loan documentation. He said, for example, in 2003 he might need to do this perhaps once or twice a week. He said, in relation to Dibelle loans, he would also go out and meet the borrower and assist to fill out the paperwork, make sure the application was properly done, the relevant documentation was sent to him and a valuation fee collected. In the case of brokers, RGMM would organise the obtaining of a valuation. This was part of Mr Stolyar's work. Mr Stolyar was asked about the time he spent dealing with a borrower through Dibelle and a borrower coming in through a new broker that needed some assistance. He said - "A. No, no. I can tell you with a broker loan, I'd say be a maximum of about an hour, because I would assume, and I was right, that the borrowers already knew who Royal Guardian was. All I had to do so was explain what the procedures would be. A lot of people would have concerns if they had a loan, how would they withdraw the money or how would they deposit the money into the products. I'd explain that part of the thing. So it would take a maximum of an hour, I would be in and out sort of thing. Whereas with Dibelle borrowers, obviously they were brand new borrowers to Royal Guardian. I would spend at least two to three hours explaining to them and going through everything else and they would ask me a question, 'What's the difference between the Commonwealth Bank and Royal Guardian? Why come to Royal Guardian? Why not the Commonwealth Bank?' Q. What about Dibelle borrowers that weren't new to Royal Guardian that had some dealings with Royal Guardian before; they'd be a lot quicker, wouldn't they? A. Sometimes not. Sometimes they were upset with the Royal Guardian service so you'd have to re-educate them and tell them, 'No, no, no, it was just that character was with that funder. This other funder will be a little bit better.' It's a different kind of selling point than a brand new borrower. Q. So weren't you concerned back in 2003 that if you did work through Dibelle Finance that that would take time away from the activities you should have been doing under the employment agreement with RGMM? A. Not at all. Most of the - I'll say all of them, I mean, I can't - I won't say all of them, I'll say 95 per cent of the deals through Dibelle Finance were outside of normal working hours. They were usually done at nights. Q. What, are you suggesting that in those 95 per cent of cases you didn't spend any time during the hours that you would normally be in RGMM's premises dealing with these borrowers, is that right? A. Not from my normal time, which was from 9 to 5.30, no." 131Dealing with a borrower who had previously arranged a loan through Royal Guardian, Mr Stolyar said - "Well, in my experience the only time that the borrower would have had Royal Guardian experience were either they were already my client but they were introduced to one particular broker because we didn't have time or resources to look after them at the time, and then when Dibelle came in RGMM had more staff, they had more underwriters, they could take some of the load off me so I could spend more time on sales. They would come over to the Dibelle book. Another time is when the broker [semble, client] was leaving, was going to leave Royal Guardian altogether and the broker would have been given an opportunity to save that client, and if the broker came back and said, 'Look, I can't,' they had made up their mind they were going to X bank, or whatever it is, then in our mind it was or in my mind he was like a free agent." 132Mr Stolyar agreed on occasions a borrower might inform RGMC's staff that he or she wanted to discharge their loan or seek another lender. Such borrowers might end up being reintroduced to RGMM through Dibelle. If this happened, he would not know because he would not be involved. He understood, however, that the file would come to Ms Nguyen who would call the broker concerned and suggest that the broker might call the borrower. However, usually the broker would not wish to take the matter any further so Ms Nguyen would get in touch with the proposed borrower, try to see what the problem was and try to convince them to stay with Royal Guardian, by suggesting perhaps another funder or another form of loan. It was put to Mr Stolyar that it was in Ms Nguyen's financial interest for as many of the disgruntled borrowers as possible to be re-routed back to RGMM through Dibelle rather than the original or possibly another broker. Mr Stolyar said - "... No, because our brokers were our life blood. Our main earnings were coming from our brokers. If any of our brokers got upset with us, got the wind that we were trying to shaft them or trying to under-cut them or whatever way, they would just go somewhere else, we would have no jobs. The main job of RGMM was to look after the brokers. Dibelle was just a side issue, it sort of came out from the whole thing. The whole thing was always to look after the brokers. The brokers were number-one clients, they were referring clients to RGMM. Without that we have no jobs, we had no income, we have no profit share, we would have no Bethian management fees, we would have nothing." I thought this evidence was convincing. He said that it would not have been possible to take borrowers who might have been reintroduced through a broker and instead put them through Dibelle. 133The schedule which was prepared by Ms Nguyen detailing the loans settled over the relevant period, a significant proportion of which were negotiated through Dibelle, showed that a number of the borrowers who obtained loans through Dibelle had originally been introduced to RGMM through a broker other than Dibelle. She did not agree, however, as much as half of the cases fell into this category (the allegation in substance made in RGMM's statement of claim). RGMM tendered a table, extracted from Ms Nguyen's list, of the borrowers who took out multiple loans, the first (sometimes more) of which had been transacted through a broker other than Dibelle. However, by far the majority of the initial loans had been taken out in 2001, 2002 and early 2003, thus during the period when, as I understand the defendants' evidence, they were referring clients to brokers who then made the loan applications through RGMM, because RGMM, being a wholesaler, was not set up to undertake the broker's work of initiating and making the application. Quite when the defendants started acting as brokers was not clear but it was, as I understand it, some little time after the registration of Dibelle Finance. In respect of clients whose initial loans were made at and after that time, no evidence as to the actual circumstances was adduced and the chronology does not lead me to doubt the veracity of the defendants as to this matter. In a relatively small proportion of the cases, the submission notes that Dibelle was paid upfront and trail, just the upfront or just the trail where the broker on the application was not Dibelle. If a broker did not receive either upfront or trail commission to which it was entitled, it is very likely that some enquiry or complaint would have been made. There is no evidence that this occurred. If, as RGMM's case requires, the defendants attempted to conceal their connexion with Dibelle, a deliberate appropriation of commissions to which other brokers were entitled seems unlikely. There was no evidence explaining these entries and the defendants were not cross-examined about them. In the result, the entries extracted in RGMM's submission do not establish that the defendants deflected borrowers from other brokers to Dibelle who were not originally referred to those brokers effectively by one or other of them or, perhaps, Faina. 134Ms Nguyen said that on a number of occasions, when signing the commission cheques for Dibelle Finance, Mr Tomazin referred to the Dibelle arrangements and noted that it seemed to be doing well. Mr Tomazin denied this exchange. Discovery of Dibelle's ownership by the partners 135Mr Tomazin said that, in 2005, there was an increase in the number of loans settled by both RGMC and RGMM with arrears. An increase in the amount of loans in arrears would create difficulties for his business. He said that as a result of this increase, he decided to conduct an audit of RGMM files, in which he was assisted by Mr Pondelak and Mr Pusic. He said that the audit was conducted in his office and the three of them reviewed loan files. He noticed that there were a large number of loans that had been introduced by Dibelle and a further audit a few days later found no signed accreditation agreement between RGMM and Dibelle on file. He also noticed that, for each of the loans introduced by Dibelle, the loan application form was in what he recognised to be the handwriting of the defendants, the majority, to his recollection being Mr Stolyar's. It was at that point that Mr Pondelak and Mr Pusic expressed the realisation that Dibelle was, in effect, the defendants' company. Mr Tomazin said that, although they were angry, he tried to calm them down. RGMM had volume targets that needed to be achieved for it to remain profitable and the defendants were helping RGMM to achieve those targets. He said that he did not want to jeopardise the profitability of RGMM without any evidence that the defendants were actually doing something wrong. As well, as he was then spending a lot of time overseas, he did not want a rift to occur between members of his staff and his business partners. He said that, after the audit, he went overseas and, while he was away, he believed that the partners continued to look into the Dibelle entities, informing him that a search on one of them showed that Mr Stolyar's mother was its director. 136Mr Tomazin said that he returned to Australia to deal with the issue and, on his return, he confronted the defendants about Dibelle. He claimed that the following conversation occurred - "Me: 'Beth, who is Dibelle? Is it you and Ian?' Beth: 'No Tony, it's not me. I have nothing to do with it.' Me: 'Does Ian?' Beth: 'I think that Ian puts loans through Dibelle when there is a conflict of interest with clients so that we can still take the loan. But I promise Tony, I have nothing to do with it. I don't make any money from it, it's not me.' Me: 'Ian has to go.' Beth: 'I promise I don't have anything to do with it, I promise I will work hard and act in the best interests of the company.' Me: 'Ok, you can stay. But 1 think we will have to move you out of RGMM, Daniel and Zoran are really angry with you and Ian. They won't be happy with you staying in RGMM.' Beth: 'Ok'." 137Mr Tomazin said that he doubted whether Ms Nguyen was telling him the truth about having nothing to do with Dibelle but his business may have struggled to have reached their monthly budgets if he dismissed her and decided to move her into another entity Royal Mortgage Management (RMM), "where I could watch her more closely and where, if she caused any issues, those issues could be quarantined from the rest of the Royal Guardian Group". He said that, after this conversation with Ms Nguyen, Mr Stolyar's employment was formally terminated on 16 June 2005. It is a curious fact that there are two letters relating to this matter, both dated 16 June. One is signed by Mr Pusic and is a straightforward dismissal, alleging breach of the employment contract. The other, signed by Mr Stolyar, Mr Tomazin, Mr Pusic and Mr Pondelak stated Mr Stolyar's resignation and an agreement to introduce his residential mortgage deals "exclusively" to RGMM for the three months ending 16 September 2005, in return for waiver of clause 14.1 of the contract, in effect, preventing him from competing with RGMM for three months. It seems to me that the latter document is the relevant one. 138(I should mention that, in his affidavit, Mr Stolyar refers to the trail commissions owed to Dibelle after payment stopped in May 2005. This was irrelevant since Dibelle is not a party.) 139Mr Tomazin said he was aware that payments were being made to Dibelle but believed it was an independent broker referring loans in the usual course of its business. He said that had he known the defendants were involved in the running of Dibelle or had been writing loans through them rather than through RGMM he would not have authorised any payments to it. 140Ms Nguyen said that, early in June 2005, Mr Pondelak asked her whether she and Mr Stolyar were behind Dibelle, saying that he had gone through one of Dibelle's files and her handwriting was "everywhere". Ms Nguyen replied, "Daniel, I don't mean to be rude but Tony said I don't have to answer you. Can you please raise this issue with Tony?" Mr Stolyar said that, about 10 June 2005 (I think dating by a letter of that date addressed to him and Ms Nguyen) the partners spoke to him and Ms Nguyen about Dibelle (and another irrelevant subject) and told them they were suspended. On 10 June 2005 they wrote to the defendants, I take it as directors of RGMM, saying that issues had come to light, "which are of great concern" which "have resulted in both of you being suspended until the following information is supplied to our satisfaction..." The information required concerned the particulars of Dibelle Finance and Dibelle Financial Services Pty Limited. Clarification was sought also as to another matter, not requiring discussion. Shortly after receiving the letter, Ms Nguyen said she had the following conversation with Mr Pondelak and Mr Pusic - "Me: 'Tony has told me I am not required to answer to any of you as I only report to him. Please refer any of your concerns to Tony who will then refer them to me as needed'. Daniel: 'You and Ian are suspended until I sort this mess out. Do not mince my words. Tony is not in the country so as a director, I am now giving you instructions'." She says that she immediately called Mr Tomazin in Slovenia on his mobile and had a conversation in the following terms - "Me: 'I don't want to work like this anymore. As you are not here very often now so Daniel and Zoran think they can take over. I am already busy and stressed out with running this business; I don't have the time for this'. Tomazin: 'Ignore them, I am still the Managing Director, tell Ian to continue his work and you keep working on bringing the business in. I will sort out Daniel and Zoran'." (It will be recalled that, on 1 June 2005 the partners had written to the defendants giving specific directions as to the management of business and purporting to vary the contracts of employment, which they ignored.) Ms Nguyen continued to work with RGMM. Mr Tomazin agreed with Ms Nguyen's account of her conversation with him but said that he added the following - "Me: 'Beth, you can stay on at RGMM until I return from overseas on the condition that you assure me that you had nothing to do with Dibelle.' Beth: 'I promise Tony, Dibelle was Ian, not me. I promise I had nothing to do with it. It was a front company for Ian so that he could bring in big clients from the city and get paid commissions'." Mr Tomazin added that about this time he also spoke to the partners as follows - "Daniel: 'We don't want Ian or Beth to continue working here. She was involved in Dibelle.' Me: 'She has promised me that she wasn't involved in it. I want her to continue working there, at least until I come back and we can figure it all out. You have to leave her alone and let her work.' Daniel: 'Ok, but she's gone if she does anything else wrong'." Mr Tomazin said that the partners then took full control of RGMM and Ms Nguyen "was not allowed to get any benefit from it". (This is not only not what happened but nothing like it, as is demonstrated below.) Mr Tomazin said that his approach to the problem was to advise the partners to look into it and engage solicitors but to tread softly. He said, in effect, his principal concern was to protect the business and the reputation of the company. If its introducers, funders and mortgage insurers got know about any concealment or conflict of interest, that would have very serious consequences. He said that his policy was to contain the problem, resolve it, and punish the defendants "by taking the book off them and don't give them any more share of the profits". He said that he was "looking at the whole picture, not just the situation". This may be so, but the defendants never had an interest in the RGMM book and only Ms Nguyen had a share of the profits and, as will be seen, the arrangements for RMM gave Ms Nguyen, by virtue of her shareholding, a 25 percent interest in RMM's book and its profits. 141Ms Nguyen says that, on the same day as Mr Stolyar resigned (though Mr Tomazin said he was terminated) on 16 June 2005 she had the following conversation with Mr Tomazin - "Tomazin: 'Look Beth, tell Ian to continue working I will back pay -his pay when I come back, he can keep his office and the company car'. Me: 'Tony, I don't think I can work here anymore I don't want Daniel and Zoran to have the right to tell me what to do when you are not here'. Tomazin: 'Wait until I come back and I will register a new company called Royal Mortgage Management. You can transfer the business operations from RGMM I will not have Daniel and Zoran as directors or shareholders It will be just you and me and I will give you 25% shareholding if you stay with me'. Me: 'Daniel and Zoran will not be happy'. Tomazin: 'I don't care about them They have not done the right thing by me Since they started RMD, they have stopped giving their direct business to RGMC All their deals are going to RMD I just want to make sure you will be happy and stay with me'". Although Mr Tomazin denies this conversation took place, the letter of termination signed by Mr Pondelak was, I think, overtaken by the letter of resignation which refers to ongoing referral work and supports Ms Nguyen's evidence on this matter. It is also the fact that Mr Stolyar continued to refer loan applications to RGMM until May 2006. 142Mr Tomazin says that he had left Australia at the end of May 2005 to travel to Slovenia and that he returned sometime in August. When he did so, he said that he set up RMM, doing so for the following reasons: first he wished to separate Ms Nguyen from the partners; secondly, by making Ms Nguyen a director he thought she would be more accountable for her actions than she would be by simply being an employee. Instead of her usual bonus, Mr Tomazin said she was entitled to 25 per cent shareholding of RMM and, it followed, 25 per cent of the net profits. RMM was incorporated on 19 August 2005. Its two directors at that time were Mr Tomazin and Ms Nguyen, and of its 100 shares Mr Tomazin held 75 and Ms Nguyen 25. Ms Nguyen said that RGMM continued to trade but under the new company name "Royal Mortgage Management", RGMC paying RMM commissions and RMM on paying this commission to the brokers and salaries to staff. Mr Tomazin did not take issue with this description of the nature of the business. Nor did he take issue with the statement by Ms Nguyen that she and Mr Stolyar "continued to grow the business of RMM". All that appeared to have changed was that the partners were not involved and Dibelle stopped referring borrowers. (As I understand it, also, trail commission payments to Dibelle ceased, but nothing turns on this.) 143Ms Nguyen said her employment with RMM started on 1 September 2005. She said that the arrangement was that, when what she called "the transition" occurred, all her accrued benefits would transfer to RMM. She raised the issue, she said, with Mr Tomazin of bonuses, management fees and adjustment for profits. Ms Nguyen said that about late August 2005 she and Mr Tomazin had a conversation to the following effect - "Me - 'Tony, you have to finalise my profits and bonuses. You have dragged it out long enough. Remember you promised me that you will add back the excessive rent you have been charging RGMM so that you don't have to share the profits with Daniel and Zoran and any director's/management fees you have taken.' Tomazin - 'All your benefits with RGMM including all your accrued leave and the money I owe you for the bonuses and profit share will be carried over to RMM. I will pay your bonus and profits in full before the end of this year when I have adjusted the accounts. Since RMD started Daniel and Zoran have not given any new business to RGMC so I will not share the profits from RGMM with them as they have not honoured their obligation to me. I will add back the rent when I calculate your profit share but do not let them know about this. Also the director's fees will be included in the $210,000.' Me - 'What about my profit share from RGMM when the business rolls over to RMM?' Tomazin - 'As far as I am concerned this is the same company and business so you will be entitled to the profits from both RGMM and RMM. This is only fair as you have built up the RGMM book and I want to you to manage RGMM book and build a new book for RMM.'" 144This conversation was not contained in her filed affidavits. Ms Nguyen said it had been part of her draft affidavit but she had not noticed its omission from her final affidavit when she swore it. This was a mistake, it was always part of her case that this exchange had had occurred. The solicitor having carriage of the matter was called but was not able to shed any light on the process which resulted in the omission of that paragraph from the ultimate affidavit. He did say, however, that he followed his usual practice, when swearing an affidavit, to make sure that the witness understood the contents and was happy with them. Ms Nguyen denied that she asked her solicitors to remove it but does not know how it came to be removed. I am satisfied that the omission of this paragraph was a mistake. The affidavit was a lengthy one and I accept that Ms Nguyen may well not have noticed its omission in the course of reading the affidavit for the purpose of swearing to it. Furthermore, in the filed affidavit, the sentence ("On this promise Ian and I continued to bring in business to RMM") in the paragraph which would have followed the omitted paragraph made no sense without the latter passage. Indeed, it was rejected as inadmissible for that reason. In the circumstances, Mr Tomazin did not have an opportunity to respond to this evidence in his affidavit. Of greater significance was that Mr Tomazin was not called to refute it, when an application to do so could not have been refused. Ms Nguyen ends her employment with RMM 145The next significant event occurred on 4 March 2006 when Mr Tomazin invited the defendants to come to his house for dinner. Ms Nguyen said that a conversation occurred to the following effect - "Tomazin: 'I am under a bit of pressure in my personal life. Daniel and Zoran want to be part of RMM. If you sell them your shares, I will finalise all the money that RGMM and RMM owes you in bonuses and profit share'. Me: 'OK, they have to buy the shares for $110,000 and I want you to pay me all the money you owe me'. Tomazin: 'OK'." 146Ms Nguyen said, in cross-examination, "After Tony asked me to transfer the shares I knew he picked them [the partners] over me". At this point Ms Nguyen became teary. I have no doubt that this was a genuine expression of the way she felt at the time and, indeed, still felt about this decision of Mr Tomazin's. 147Mr Tomazin, as I understand his evidence, agreed that there was a meeting but did not recall whether Mr Stolyar was present. He disagreed with Ms Nguyen's account of the conversation, saying that it occurred to the following effect - "Me: 'Daniel and Zoran are upset that I have started RMM with you after what happened with Dibelle. They don't believe that you had nothing to do with Dibelle, plus they are upset that you brought Ian back on a part-time basis. RMM is ruining my relationship with Daniel and Zoran. I need them to stay with me and Royal Guardian. If you sell them your shares in RMM, they will stay with me.' Beth: 'I understand. I will sell them my shares for $110,000.' Me: 'Ok, I agree with that price. How about you stay on as general manager of RMM and RGMM on a fixed salary and override commission? I won't offer you any profit of RGMM income though.' Beth: 'OK.'" 148On 6 March 2006 Ms Nguyen and Mr Tomazin signed an agreement that transferred Ms Nguyen's 25 per cent shareholding in RMM in exchange for a payment of $110,000, and provided Ms Nguyen would continue to "manage and control both RGMM and RMM portfolios in the best interest of both companies" and would be entitled to "25% profit of RMM (new RMM book)". Although the documentation points to Ms Nguyen ceasing to be employed by RGMM on 1 September 2005, she was, by the express language of the agreement of 6 March 2006, still charged after that date with the responsibility of managing and controlling the RGMM portfolio. In my view, moreover, the agreement did not cancel or replace the prior employment agreement (as varied). It does not say so expressly and it should not be implied. There is no inconsistency between the agreements. This construction is reinforced by the omission from the second agreement of any provision, for example, for payment of salary (which was variable depending on the volume of business), for leave or superannuation. There seems to have been a hiatus between the registration of RMM and the execution of the second agreement. It seems to me to be most unlikely that, as it were, Ms Nguyen had been separated from RGMM in the way described by Mr Tomazin and then reintroduced under the terms of the 6 March 2006 variation. In my view, the document was entered into to provide for the transfer of the shares, give some certainty about Ms Nguyen's responsibilities in respect of RGMM and RMM and provide for profit share to replace her shareholder's entitlements. In short, I am satisfied that Ms Nguyen never relinquished her management and control of RGMM, despite what Mr Tomazin said had occurred. 149These circumstances provide considerable support for the evidence of Ms Nguyen of the arrangement made with Mr Tomazin in late August 2005, which she had accidentally omitted from her affidavit. Ms Nguyen's evidence, more particularly, that her share of the RGMM profits would continue is supported by the continuing operation of that clause in her agreement with RGMM, which was not affected by the 6 March 2006 agreement. Although Mr Tomazin's agreement, as claimed by Ms Nguyen, that he would add back the rent when her profit share was being calculated and include the directors' fees in the $210,000 target profit was not mentioned in the agreement, this was not surprising, since, on Ms Nguyen's account, it would have changed the arrangement from the point of view of the partners, though once the payments were made, it may well have been very difficult, if not impossible, to have concealed from them the basis of the calculations. It is not necessary to explore Mr Tomazin's approach to this issue. I accept there were issues between him and the partners. It is enough to say that any problem of concealment does not lead me to doubt the truthfulness of Ms Nguyen's evidence. I have already pointed out that it is, in substance, not denied by Mr Tomazin. 150It should be noted that the agreement of 6 March 2006 was signed by Mr Tomazin, without any designation of the capacity in which he did so. He was undoubtedly authorised to act for both RMM and RGMM. The agreement referred to the Ms Nguyen's responsibilities in respect of both companies. In my view, it is inescapable that Mr Tomazin signed the agreement on behalf of both. 151The 6 March 2006 agreement also entitled Ms Nguyen to receive 25 percent of the profit from RMM's "new book" which, as I understand it, comprised the total quantity of settled loans. On the face of it, this provision gave Ms Nguyen 25 percent of the excess of upfront and trail commissions after payment of their share to the brokers, instead of the dividend to which her shares would have entitled her. Whether this is the correct construction of this clause or she was entitled to 25 percent of the profits of RMM was not the subject of submissions and I make no determination about the matter. The point is that, either way, it seems that being required to give up Dibelle at this time may not have cost very much. 152The Dibelle trail commissions had come to an end in mid 2005 when the partners discovered the link between Dibelle and the defendants. The defendants' position was that Dibelle was entitled to those trail commissions and Ms Nguyen said that she went to Mr Tomazin and asked why they had been stopped. Mr Tomazin said, in substance, that, if any of the Dibelle loans went bad, he was not going to sue an old lady for the money, so he wanted to keep the trails reserved for future losses. Ms Nguyen told Mr Tomazin to speak to Mr Stolyar about it because it was his mother's company. She did not take matters any further with Mr Tomazin about the trail for this reason. She said that she was not receiving any part of the trail herself, so far as she knew. 153At all events, by the end of April 2006, Ms Nguyen decided to leave RMM because, according to her, she believed she was not going to be paid her bonuses and profit share. In June 2006 she said that she "formally resigned" from her position at RMM but did not keep a copy of this letter. Mr Tomazin, maintained that Ms Nguyen did not return to RMM after April 2006 and never formally resigned. However, as pointed out above, Ms Nguyen's PAYG summaries shows her employment commenced on 1 September 2005 ended on 9 June 2006. Contacts after departure 154Ms Nguyen went to Europe in June 2006 for three months. She said that Mr Tomazin called her almost weekly to ask her to return to work, to which she responded that he had not honoured his promises as to payment of bonuses or profit share. She said that Mr Tomazin agreed to pay these if she emailed him to confirm that she would be returning the business. She said that he told her, "The brokers have stopped giving us the business, they want reassurance that you will be back". Ms Nguyen said that she would talk to him when she returned in September 2006. Although Mr Tomazin agreed that he spoke to Ms Nguyen a few times while she was overseas, he said did not speak with her weekly and did not agree with her account of the conversations. He said that he had asked whether she was coming back to work and was told that she would talk to him when she returned. However this may be, Mr Tomazin agreed in cross-examination, that he continued to deal with Ms Nguyen on an amicable and friendly basis in 2006 and 2007. 155Ms Nguyen, Mr Stolyar and Mr Tomazin had dinner in February 2007 at Mr Tomazin's request, when the possibility of Ms Nguyen returning to work for RGMM was raised. Not surprisingly perhaps, the accounts by Ms Nguyen and Mr Tomazin of what transpired at that dinner do not altogether agree. Ms Nguyen's account is - "Tomazin: 'Come back and work for RGMM and I'll pay you the outstanding bonuses and share of the profits, including a share of the profits for the 2007 financial year'. Me: 'I want something in writing, and I want you to specify when my share of the profits and bonuses will be paid and I don't want Daniel or Zoran to be involved at all'. Tomazin: 'OK, you put down all the things you want in writing now, even if you just handwrite an agreement and I will sign right now to confirm I will pay you all the monies I owe for your bonuses and profit share I will make sure Daniel and Zoran are not involved anymore in RGMM and RMM'. Me: 'OK, I will just quickly write down what we discussed and we will both sign to confirm' Tomazin: 'Good, no problems'." Mr Tomazin, disagreeing with Ms Nguyen's account of the conversation, recalled the following - "Me: 'Would you consider coming back to work for me?" Beth: 'I don't know Tony, I don't want to work with Daniel or Zoran.' Me: 'That shouldn't be an issue as Daniel, Zoran and I are in the process of breaking up.' Beth: 'Ok Tony. Why don't we write down some points now and we can get a solicitor to turn it into a contract?'" Certainly, a so-called "preliminary agreement" was signed by each of them. It provided that Ms Nguyen was to have a salary of $150,000 plus superannuation together with 0.25 per cent plus GST for all securitised settlements; she was to "maintain full operational control"; all commissions were to be paid by the 15th of each month; as to profit share, in respect of the financial year ending 2007, Ms Nguyen would be entitled to 25 per cent, one half by 30 September 2007 with the other half to be paid by 31 December 2007; "all costs to be reasonable"; Mr Tomazin was to "take out only costs" and was to be sole director of RGMM and RMM. In respect of Mr Stolyar, he was to have 85 percent of income earned from non-securitised products and a half share with RGMM of (indecipherable) where a loan with an existing RGMM or RMM client is changed to a non-securitised product. This agreement was signed by Mr Tomazin and Ms Nguyen. For reasons which will be become evident, Mr Tomazin on the one hand and Ms Nguyen on the other rely on this document for conflicting purposes. It is important to note that this was a "preliminary" agreement: what form a final agreement might have taken is speculative. 156Mr Tomazin was cross-examined about the import of some of the language used in the 2007 draft agreement. He said that Ms Nguyen's "full operational control" was confined to writing new business and handling brokers but, after settlement, operational control would be taken over by the customer service department (I think of RGMC). This reflected the company structure, although it was not in the agreement. It was put to him that giving Ms Nguyen full operational control showed a high level of trust. He answered, "Trust as far as doing her job well, yes sir". He distinguished between the operational side of the business and what he described as the "accounting side". He agreed that his evidence amounts to this: despite the fact that he believed that Ms Nguyen was a thief and that she had stolen from him a substantial amount of money by what amounted to underhanded and deceitful practice, he was prepared to give her full operational control of RMM. I find this extremely difficult to accept. It was, after all, her connection with the brokers and her deflecting of business which was the essential character of the theft of which Mr Tomazin complained. Furthermore, according to him, she had placed his businesses in significant danger so far as the trust of the funders were concerned by exposing them to the risk of discovery of a deceptive conflict of interest. If this was as crucial a matter as Mr Tomazin claimed, the fact that he continued to employ Ms Nguyen as the senior manager of part of the Royal Guardian group would not have done much to assuage the catastrophic risk which he identified, even though he might have thought that the dubious conduct was in the past. After all, from the funder's point of view, the aim was to prevent Ms Nguyen or Mr Stolyar from connecting themselves in some commercially advantageous sense with one or more introducers who, on the face of it, would appear to be entirely independent. Furthermore, Ms Nguyen, according to Mr Tomazin, was stealing the clients and brokers from Royal Guardian when she recommenced her work with Mortgageport, which of itself raised significant questions about trustworthiness. 157On the other hand, Mr Young points to the most unlikely happenstance that, millions of dollars being owed in unpaid bonuses and Ms Nguyen having made its payment a condition of re-employment, this deal breaker is not mentioned in the draft terms. The issue of non-complaints about non-payment needs separate discussion, which is undertaken below. 158In February 2007 Ms Nguyen rejoined Mortgageport. The evidence does not say what role she played but that does not matter for present purposes. In February 2009, she said, Mr Tomazin called her and asked her to come back to work for him. She told him she did not think that was a good idea. The conversation continued - "Tomazin: 'Can you process RGMC loans I refer to you through Mortgageport, as all our funders have cut us off. Since you left, the mortgage insurance and the funders don't want to deal with us anymore. We now refer our loans to the major banks as brokers but they are giving us a lot of problems.' Me: 'Thanks, but no thanks Tony.'" Mr Tomazin, for his part, denies this conversation but agrees that he once contacted Ms Nguyen while she was Mortgageport because he was thinking about commencing proceedings against her and wanted to know if she still worked there. 159Mr Tomazin said that, in 2008, he asked Ms Colado, his collection manager, to look into the Dibelle matter by going through historical data, checking whether the Dibelle clients had previous experience with the Royal Guardian group. He said that, in early 2009 she had gathered that information. An objection was taken on hearsay grounds to which Mr Young responded that it was relied on not as to the truth but as the source of Mr Tomazin's "belief about this matter". The question was allowed on this basis and Mr Young elicited from Mr Tomazin that Ms Colado told him "there was over 50 per cent of Dibelle clients who already had previous loans with Royal Guardian Management's Group before [the Dibelle transactions]". He said that Ms Colado had given him a report, that he did not know where the report was but "that information data was used for the next steps of our proceedings". He said that he did not know whether it was still on a computer somewhere and he did not recall whether it was handwritten or a printout or how many pages it was. He recalled that there were over 200 transactions with the names on the report. He agreed that the document was a very important document but did not recall what happened to it. He said that he was not aware whether he gave it to his solicitors or not but "it was used for us [meaning Mr Stariha and himself] to decide the next step to take". Mr Tomazin repeatedly said that 50 per cent (or a similar proportion) of the Dibelle clients were former clients of the Royal Guardian group. I have already dealt with Ms Nguyen's evidence about this subject matter and the table of transactions extracted from her exhibit. 160Mr Tomazin had deposed that it was only after he got the report from Ms Colado that he realised the extent of the defendants "involvement in Dibelle and became aware of how much money had been stolen from RGMM", to explain the delay between 2005 and 2010 when proceedings were ultimately commenced. However, he had been aware since Dibelle started to be paid by RGMM that it was receiving substantial sums by way of commission and, by June 2005, well over $2 million and by that date (on his account) that Dibelle was, if not formally the defendants' company, operated by them. Ms Colado's report had nothing to disclose about either of these matters. Her report dealt only (as described by Mr Tomazin) with the proportion of loans taken out by borrowers who had an earlier connexion with RGMM. (Since, in fact, almost no borrowers were "direct" but were introduced by a broker, the connexion of those borrowers with RGMM was through another broker.) It was this information, Mr Tomazin said, that triggered his commencement of the action against the defendants. He agreed that his issue was not with the amount of the commission but "absolutely" with the fact that the clients had earlier done business with RGMM which caused him to commence proceedings. This seems to follow, at all events, from the fact that he did not commence proceedings in 2006. Mr Tomazin said, in effect, that the delay in requesting Ms Colado to undertake the research resulted from his having to deal first with financial issues and losses which arose, in part at least, from the global financial crisis. It was put to Mr Tomazin that he saw the Dibelle conduct as an opportunity to get some money back because of hard times. In substance, he denied this, saying that business was not less profitable but it was stressful because of issues arising out of the global financial crisis. He agreed that, although by 2005 he knew that a great deal of money made out of his business had been paid to Dibelle it had not occurred to him at that time whether he might ask the question that Ms Colado was asked three years later. He was asked - "Q. But was it [that the company was going through bad financial times] which led you to ask [Ms Colado] at that time? A. Well, that's when I had opportunity, when things have settled down, to explore, to look into - Dibelle was always on the backburner, was always there. Up to 2007 my aim wasn't to pursue it. In fact I was trying to bring them back into the company when I realised that it went into Mortgageport, back to the original employer, plus the fact they were churning and taking the clients away from Royal Guardian Management company and I had opportunity in 2008 to the possibility to assess what damage was done to that business which was taken out." 161As I understand Mr Tomazin, he believed RGMM's clients were being poached by the defendants, in particular, Ms Nguyen in favour of Mortgageport and this instigated his inquiry of Ms Colado and, ultimately, his action against the defendants. He said that the defendants were not employed as brokers to get borrowers in; if they wanted to do that, they should have left RGMM and gone into business independently. At the same time, however, he said that they should have brought the borrowers they located directly to RGMM. The effect of them doing this, of course, would have been that they would have been performing the brokers' work internally, work he had effectively agreed they were not employed to do. Mr McClintock asked him whether, if Ms Colado had told him that none of the Dibelle clients had a previous relationship with the group, he would not have sued, to which Mr Tomazin's answer was - "Well it - yes. Yes and no. It was a hard one. It would be less reason for me to proceed. [They were] still not entitled to get more than 0.25 per cent out of the agreement." I understand this to mean that the defendants were entitled to no more than the bonuses as provided in their employment contracts and could not properly obtain any income via Dibelle. Cross-examination continued - "Q. I just want to understand Mr Tomazin what the significance in your mind was the fact that 50% or more than 50% of Dibelle clients had a previous loan with the group. I don't understand - - A. I see. Q. What's the significance? A. Good will. Q. What do you mean by that? A. Good will, it's an asset, well it's a prime asset of any business and when the good will is taken away from you it's a loss because those clients if they were repackaged within normal circumstances they would be maximum able to pick up 0.25, another 0.25 and 0.75 plus trade so the bulk of that income would have stayed within the management group. MCCLINTOCK Q. Well, is what you are saying is that you didn't regard Ms Nguyen and Mr Stolyer as doing anything wrong if they introduced a client which had no previous relationship with the group or RGMM; is that what you are saying? A. No, it would have been good business, they would get 0.25 and the rest would stay with us. Q. So you are saying that you got no complaint about so much of the Dibelle loans as involved business that did not come from existing clients of the group, previous clients of the group; is that right? A. Oh. HIS HONOUR Q. To put it another way, if they were new clients, you happy for them to go through Dibelle? A. Yes, and no. It's not that simple. It's not that simple. Look, if there were new clients there was no need to go through Dibelle, they could have directly handled that. Q. That's not quite the question. There are more than one ways of dealing with the business. Correct me if I misunderstand your question, Mr McClintock? MCCLINTOCK: Your Honour has got it. HIS HONOUR Q. But what he is asking you, if they were new clients that came in, but happened to come in by Dibelle, you were happy with that, it was additional new business? A. Partially, yes, but not the way the structure was. The structure was-- Q. Because it was not as profitable for you that the business come through Dibelle as if it had come directly to - if the defendants had directed it directly to RGMM, is that the fly in the ointment, as it were? A. Well, that's correct, sir, yes. Another point was also the security aspect where - that Dibelle was introducer without any proper, proper set up, without any proper insurance protection cover or membership of Mortgage Industry Association." 162I am unable to understand why the question is not "that simple". Either the defendants were entitled to use Dibelle in relation to new clients or they were not. To my mind, the thrust of Mr Tomazin's explanations gives substantial, though unwitting, support to the defendants' account of the Dibelle arrangement, since the only real dispute appears to be, as it were, whether the clients brought in by Dibelle were genuine Dibelle clients or RGMM clients deflected to Dibelle. This became clearer in subsequent answers - "A. Of course, we are all in it [to make money]. But the point is they used the resources of the company, the people, the staff, the customer base [to profit themselves] ... That is the point of my legal proceedings. It's the goodwill, the customer base, referral base and existing clients which were some of them simply transferred from Royal Guardian Management across to Debelle. To me that is a no, no." After further questioning which suggested to him the illogicality of his position, he concluded - "A. Every client in Debelle for which they got commission, they were not entitled more than 0.25, anything above that. It doesn't matter whether it was direct client or existing client or new client, under the Employment Agreement they were entitled to get, it was a specific Employment Agreement entered with them on two, three occasions. They were getting a generous salary, company car, profit share of the business and 0.25 override on anything which settled in their section. So anything above that, it's a no, no." 163Mr Tomazin said, in further cross-examination, he became aware that Ms Nguyen had started work with Mortgageport, and added, "She was stealing the clients and brokers from me". He then withdrew that allegation and apologised for it, saying "I shouldn't have said it". However, whether he should have said it or not, I do not doubt that this is what he believed at the time and still believes. He claimed that Ms Nguyen took the company database with her, "which was company property, and she used that as a tool to get that information to contact the clients". He said, from 2007 onwards, the company received discharge requests for loans and, as I understand him, he deduced that Ms Nguyen was taking these clients. Mr Tomazin agreed that he did not write to Ms Nguyen to allege that she had taken confidential material and to ask her not to use it to take clients. 164Mr Tomazin said that, when Ms Nguyen originally came to his company from Mortgageport, he was aware that she was bringing clients from Mortgageport. Indeed, he said that that was the reason that he employed her. He was asked - "Q. So it was okay for her to steal from Mortgage Port but not from you; is that what it boils down to? A. Well, I didn't have any - her employment contract didn't have any restrictions. But I think Mortgage Port did in their restrictions. Q. So it was different because although she couldn't do it to Mortgage Port, she was able to do it to you because there were no restrictions in her employment contract? A. That's correct, yes. Q. So it is not true to say that she stole those clients from you because she was entitled to take them because there was no restriction in her contract of employment? A. Well, that's correct, but -- Q. You can't really have it both ways, Mr Tomazin. A. Of course. That's why I didn't-- Q. --take it any further? A. Take it any further, yes. Q. You just felt, and I am not being critical about this, you just felt she treated you as she shouldn't have? A. Well no-one wants to lose business." 165Mr Tomazin's account of his actions after the contretemps with the partners suggests that it was rather their strongly indignant responses to what they discovered about Dibelle which motivated the changed arrangements involving RMM than his attitude (somewhat muted, even on his account) to Ms Nguyen's actions, as deceptive as they were. The apparently incongruous desire to work out a modus vivendi that left Ms Nguyen practically in much the same situation (whilst pacifying the partners) can possibly be explained by the desire for profit but this justification might also explain why he agreed to the Dibelle arrangement in the first place. 166The overall picture suggested by these events is: Mr Tomazin was aware that the defendants were using Dibelle to refer borrowers to RGMM and encouraged this because he believed new borrowers would be brought to RGMM than otherwise would have been the case; he had wished to conceal this arrangement from the partners; when they discovered Dibelle's connexion with the defendants, he attempted to downplay it and made other arrangements with Ms Nguyen designed by their bluster to pacify the partners but, as a practical matter, continued the financial arrangements which had led to the significant increases in business and the RGMC book under her watch; but, when he discovered RGMM's clients and brokers were going to Mortgageport, he believed (as it were) shanghaied by Ms Nguyen using the clients' details gathered from RGMM, he had Ms Colado examine the source of Dibelle's clientele and concluded that half of those borrowers were poached from RGMM, which he had not thought the defendants would have done by their use of Dibelle; ("absolutely") it was this that made him decide to sue them; but when he realized that, because there was no provision in the employment contracts that prohibited Ms Nguyen's referral of her (or RGMM's) ex-clients to Mortgageport, the allegation that he was unaware of Dibelle's connexion with the defendants until told of it by the partners was an afterthought fabricated in the hope of obtaining the return of the Dibelle commissions. To my mind, this scenario integrates far more realistically the objective elements of Mr Tomazin's narrative than what I consider to be the rather confused and inaccurate account given by him for his actions. 167It will be recalled that Mr Tomazin said that he spoke to Ms Nguyen at Mortgageport because he was thinking about commencing proceedings against her and wanted to know if she was still working there. For this purpose, of course, it was not necessary to speak with her. Nevertheless he did speak to her, he said, telling her something along the lines of, "Look, I am just calling to catch up and see how you are". He said he asked her what was happening with the market and she told him that they were busy with Adelaide Bank and she worked part time there. Mr Tomazin was taken to the statement of claim which stated the defendants' address as that at which they were living when they were working at Royal Guardian. He said that he knew where they lived when they worked for him. It was put to him that finding out whether Ms Nguyen was working at Mortgageport would not in any way be relevant to the decision to commence proceedings to which he replied - "A. It would be relevant if you had trouble serving a summons, it's a great pleasure to serve in a place of employment, if you want to embarrass someone." After he was asked whether he had been heard correctly to say this he said - "A. Yeah, if they are avoiding service of summons. Obviously the next step is then to serve them at their place of employment." I asked - "Q. But you wouldn't need to have conversation to know that she was working there, you would simply have to call and when you were told that she was there, hang up. That would resolve the point? A. To me it was useful to find out where she works and what she does there and have a little chat with her." He suggested later that an additional reason for calling was that one of the Dibelle files had suffered a $110,000 loss, which the mortgage insurer refused to indemnify on the basis that employment had been fabricated. He said - "A. And I would have asked - I asked her if she would make any contribution towards that, and she obviously, she goes, 'Well you know I left enough - you've got enough income coming in to cover that loss'." He said that he did not mention this information in his affidavit because "the matter was in Court". He omitted also mentioning that he wanted to know her place of employment because "he might need to serve her with process". He said that he did not think this aspect was important. I found this explanation of the call unpersuasive. That Ms Nguyen worked at Mortgageport would have been easily discovered without speaking to her and I think it most unlikely that he was really interested in either catching up or having an inconsequential chat about how she was. I think it is far more likely that the conversation was as deposed to by Ms Nguyen. Income received by RGMC from RGMM 168Mr Stariha's cross-examination was largely confined to an explanation of the financial relationship between RGMM and RGMC, in particular, the invoices rendered from RGMC to RGMM as "rent". It became clear that this was not a reference to the occupation of any part of RGMC's property, although perhaps a small amount was applied to that element. Rather, the bulk of the amounts claimed were said to be the business running costs of the services provided by RGMC staff to RGMM. This would involve, as it were, the share ascribed to RGMM of the expenses of reception, account, client services and post-settlement client management staff. The proportion paid by each of the divisions, including RGMM, depended upon the size of their loan book, the number of settlements and the office space occupied as a percentage of the corresponding totals for RGMC. He said that Mr Tomazin, Mr Pusic and Mr Pondelak were responsible for deciding what service fees were to be charged and how they were to be recovered. 169The profit and loss statement of RGMC for the year ended 30 June 2003 shows as income, "rents received" the sum of $149,692 and for "services" $34,994. RGMM's profit and loss statement for the same period (extracted from the 2004 P & L) has no entry for rent but shows "service fees" of $423,677. There is no indication of the recipient. For the year ended 30 June 2004, RGMC's profit and loss statement shows "rents received" of $1,667,301 and "service fees" of $1096. The corresponding statement for RGMM shows "service fees" of $956,000 but no payments for rent. For the year ended 30 June 2005, RGMC's statement shows as income "rents received" $1,496,633 and no service fees. That of RGMM shows no rent expenses but $915,173 for "service fees". For the 2005 tax year, RGMC has "rents received" of $1,147,212 and "service fees" of $50, whilst RGMM accounts show payment "rent" of $553,933 and nothing for "service fees". Also tendered were RCTI's for each month from July to December 2004 from RGMC to RGMM totalling $463,405 including GST. Each invoice is stated to be for "rent". That for July 2004 has attached a so-called "tax invoice" for RMD and RGMM, specifying a number of "consumables" as a percentage of settlements, of the loans portfolios, "full cost consumables" and "outgoings" as a percentage of floor space. It will be seen from the evidence of Mr Stariha below that the attached list was used to explain the particular monthly invoice. However, the totals listed do not match the invoices for either July or August 2004, being somewhat (though not much) greater. RCTIs for August 2004 ("rent") and July 2005 ("rent & other consumables") were also tendered with breakdown lists, whose totals match the respective invoices. No other breakdown list has been provided. Although the breakdown lists which have been produced refer to the contributions of RMD, RGMM and in respect of one, RGFC (I think Royal Guardian Finance Corporation, operating in Melbourne), the only reference to RGMC is on that which is attached to the invoice of 1 August 2005 concerning the July payment. It details the percentage of file numbers and loan size relating to each of RGMC, RGMM, RGMM and RGFC, I take it of total file numbers and loan size. Whether this was accurate or not it is not possible to say. I accept that it is some evidence of what was done for that invoice. Given the reference to similar constituents in other invoices, I would accept that for them also the same method of calculating expenses was adopted. I am not prepared to accept, however, that Ms Nguyen was aware of the mode of calculation and that the breakdown lists were provided with the invoices she might have seen. It may well be that the same method was adopted in relation to all such payments made by RGMM but, in the absence of the documents, I am not prepared so to find, although the system described by Mr Stariha would have required it. Overall, however, the system described by Mr Stariha and exemplified in the breakdown lists that were produced appears on the face of it to be reasonable. I would not be prepared to conclude that, if actually adhered to, it was not reasonable. In the end, I accept Ms Nguyen's evidence that she suspected that the monthly payments for "rent" were not genuine but I am not satisfied that, indeed, they were not, if by "rent" is understood a contribution to the services provided by RGMC. It is right to infer, however, from the invoices that have been tendered, that all such invoices rendered by RGMC to RGMM were expressed to be for "rent". This is important, amongst other reasons, because of the conversation between Mr Tomazin and Ms Nguyen in late August 2005, set out above, concerning her profit share. 170Ms Nguyen agreed that most of the post-settlement contact with borrowers was done by RGMC staff. This was fairly limited, usually comprising dealing with variations of one kind or another, such as the substitution of securities and partial releases, though it appears that RGMM had an administrative employee who took care of some of this work. Ms Nguyen said that she was not aware that RGMM made payments to RGMC largely related to the work that RGMC's staff in relation to RGMM loans. She said that she was aware of payments for what she was told was "rent". She said that she had nothing to do with either the relevant bank transfers or the invoices but was aware each month these payments were made. She said that she asked Mr Tomazin about the payments and was told by Mr Tomazin, "It's rent and we'll reconcile it later". She said that she did not believe him; it was a matter that concerned her and she made numerous complaints to him. She said that, on one occasion, he asked her to sign a cheque (for a transfer) and she declined to do so but Mr Tomazin transferred the money nevertheless. She thought that most of the payments were done by electronic transfer in the bank accounts. This was not an issue in 2001 or 2002 but arose in 2003. She explained - "A. Well, this rental payment, like I said, your Honour, started in about 2003. I questioned it and his explanation to me was in the beginning from - when I started, Daniel and Zoran were sales consultants for RGMC. All their direct business, all their business went to RGMC. When RMD started, which is the company that Daniel and Zoran and Tony created after RGMM, from what Tony told me was that Daniel and Zoran were putting all their deals to RMD. Therefore not keeping their deal of the bargain because RMD was set up to deal with brokers similar to the RGMM model and that their direct deals were to remain with RGMC. And when RMD started, all of Daniel and Zoran's deals weren't going to RGMC. And he is saying, you know, the reason why he gave them shareholding of RGMM is so that they can continue to give their direct deals to RGMC. And because they weren't honouring that deal, then he did not believe they were entitled to any success from RGMM. But for me, he would reconcile it when we do the profit calculations. Q. So are you saying then that this amount of rental was a way of not paying the other two, but, so that you didn't need to worry about that because he would reconcile your share at a later point? A. Yes." 171She was cross-examined as to why this apparently important matter was omitted from her affidavit and explained that, at the time it was being prepared, she did not have any concern that moneys had been improperly paid by RGMM to RGMC under the cover of rent. This apparently conflicts with her evidence noted above that she was concerned and complained to Mr Tomazin about it. However, the difference was not the subject of questions. A substantial period of time had elapsed between the events in question and the time she swore her affidavit and, it may be that, when she did so, it was not of concern to her as she understood the issues in the case. As I see it, there was no basis for the description given in the RCTIs, that these payments were "rent". It is impossible to ascertain from the (incomplete) financial material that has been provided by RGMM, the true character of transfers from RGMM to RGMC, even assuming the accuracy of the calculations in the three breakdown lists that have been obtained. The crucial issue, of course, is not so much the costs of the outgoings which RGMM was required to defray, but the mode of assessment of RGMM's share. This has not been sought to be justified on any other basis than that it represented the proportion of various indicators (settlements, loans portfolios, floor space) attributed to RGMM. Moreover, I accept Ms Nguyen's evidence that Mr Tomazin told her he assessed the amounts payable as a way of denying the partners their profits. Whilst I accept that the amounts paid by RGMM as "rent" were in respect of the running expenses of RGMC, I am not willing to accept on the evidence presented that the proportion it paid in fact represented an appropriate share as distinct from an arbitrary sum set by Mr Tomazin for an ulterior purpose. The absence of written reference to non-payment of bonus 172A significant feature of the evidence that tells against the defendants' case that their bonuses were not paid (and that the payments to Bethian were independently owed under a separate agreement) is that, although a number of employment agreements and variations were executed over the period of employment, and a draft agreement in 2007, they do not mention outstanding bonuses although they were accruing at a very substantial rate, nor did they obtain any other written acknowledgment of the debt. 173Ms Nguyen said that, by about May 2001, when she thought she should be receiving a bonus payment (the total settled loans then amounting to $2,135,200), she spoke to Mr Tomazin about it, asking for her bonus as she had made her budget. He responded that "the company was just starting out, the costs at that time were unknown and so, when the commissions started to come in with the trails there would be money in the company for him to pay [you]". According to Ms Nguyen, she was told by Mr Tomazin, in effect, "once the trails came in and we have a got a safety net of cash reserve, then he will be more than happy to pay me my bonus." This particular conversation also was not in the affidavit however, in fairness, in her first affidavit of 29 October 2012 Ms Nguyen said - "Despite the requests I made of Tomazin, RGMM did not pay me the bonuses under my 2002 Employment Agreement or my share of the profits under the [1 November 2002 Variation Agreement]. [102]. Nevertheless, I stayed with RGMM on good faith and because I believed that RGMM would do the right thing and pay me what I was due under my... [agreements]." 174Ms Nguyen agreed that, by 1 February 2002, over $75 million worth of loans had been settled by RGMM, in respect of which she was entitled to a bonus of approximately $190,000. She was asked whether it was important that, when negotiating the new agreement of 1 February 2002, she should sort out with Mr Tomazin payment of the outstanding bonus such as either getting a payment or an acknowledgment in writing that the money was owing or entering into some kind of instalment plan for payment. Ms Nguyen said that she thought her "employment contract was going to protect me". It seems to me that this was not an altogether unreasonable approach. Since the employment contract provided for the payment of the bonuses on certain conditions and since there was a record of the settled loans over the relevant period, it is difficult to see how some additional piece of paper would add anything to her position. Ms Nguyen's approach was that she asked for her bonus and Mr Tomazin kept saying that he would pay and she trusted him. On reflection, she agreed that it was unwise to sign the second employment contract without making sure her bonus was paid but, she reiterated, she trusted Mr Tomazin. At the time, she was only 27 years of age and, although Mr Tomazin did not give his age, my assessment is that he was significantly older. Indeed, at a later stage in her cross-examination, when the subject matter of asking for her outstanding payments was raised, she said, in tears, that Mr Tomazin was a "father figure" for her. I thought that this was an unguarded moment and an uncalculated, heartfelt answer It was put to Ms Nguyen that, with the upfront payments being received by RGMM and the trails, she knew there was no shortage of money with which to pay bonuses. Ms Nguyen answered, and this was not sought to be contradicted, "Tony kept on taking money out". She said, "There was never any money in the accounts. Every time I looked into the accounts there was not enough money to pay for my bonuses". She had internet access to the accounts and could see how much money was in the company and had no control over the payments or transfers. She agreed that she knew that, if Mr Tomazin wanted them to be paid, RGMM had sufficient income to pay them. But she trusted him to pay her in due course. Another factor which Ms Nguyen took into account at this time was that she believed that she was building up a substantial business and she believed the money would come to her eventually. 175The business continued to grow (this being uncontested) so that between January and November 2002 some $166 million in loans was settled entailing a further $415,000 owing for bonus, the total then outstanding being something over $600,000. Ms Nguyen was asked - "Q. But if no bonuses were paid after a period of eighteen months, then surely any promises Mr Tomazin was saying: 'Oh, don't worry, I'll pay you later', they would, in your mind, be wearing a bit thin; isn't that right? A. No. Q. So you still, after eighteen months of non-payment of bonuses, you still thought: 'Oh, I just have to wait a bit longer and I'm sure that Mr Tomazin is going to pay me all my money', is that what you say? A. Yes. Yes, I trusted him. He was like a father to me." 176Ms Nguyen said that she didn't think about getting some additional written acknowledgement of the due bonus payments because, as I understood her evidence, she trusted that Mr Tomazin would fulfil his promise to pay. I accept her evidence that, although she was in charge of the operational side of RGMM's business, the financial side was always handled by Mr Tomazin. She was not in charge of banking or collecting application or valuation fees and the like. 177As is already clear, by 6 March 2006 the defendants had not, on their case, received any bonus but Ms Nguyen said she was still convinced in March 2006 (when the last of the variation agreements was made) that Mr Tomazin was going to pay the outstanding amount, despite the fact that no money had been paid and he had made a series of promises to pay which had not been honoured. Ms Nguyen said - "Because he, on numerous occasions, told me he will pay once he adjusts the figures and he was always going overseas for three months every two or three months so, you know, it was always one excuse after another." She reiterated that she believed her employment contract protected her. She said that, when she entered into the variations, she regarded them as looking ahead rather than dealing with the past. She said she believed in Mr Tomazin. She was cross-examined as to why she did not insist that the issue of the outstanding bonuses was mentioned in the letter of 6 March 2006. She said that she could have done so if she had thought of it then but she was concentrating on what the changes were going to be. She had not forgotten about the bonuses, which had amounted to some millions of dollars by that stage. She said - "I should have put it in writing. I mean, like I said, I drafted a letter based on, in my thinking, what the new changes were going to be. Like I said, if I had the commercial sense ten years ago that I have now, I would have used it as a bargaining tool to get what I wanted but, unfortunately, I trusted him." 178Ms Nguyen resigned her position at RMM on 9 June 2006. She said that by that time, although she hoped her bonuses were going to be paid, "you know after so many years, I kind of had a feeling he wasn't going to pay and that's the reason why I left". The non-payment of the bonuses was one of a number of reasons why she decided to leave at that time. She agreed that, although she believed in March that Mr Tomazin would honour his promises, by June she had changed her mind and believed she was not going to be paid. She was asked - "Q. What happened, if anything, between 1 March 2006 and the end of April 2006 that caused you to decide that you were not going to be paid your bonuses? A. After I transferred the shares, from what I recall at that time, after I transferred the shares in March 2006 everyone promised me everything, because they wanted me to transfer the shares. As soon as I transferred the shares, Tony went overseas and then Daniel and Zoran started getting involved in the business again, despite requests, you know, by myself to Tony for them to leave me alone. So March 2006 they started giving me instructions and from what I recall, money was then taken out from all directors and so forth. So my feeling at that time was that there was going to be a lot of internal fighting over the money and that, even if he wanted to pay me the bonuses, there wouldn't be any money in the account to pay me the bonuses. That's when Daniel and Zoran became directors of RMM and kept telling me that they have the right to tell me what to do because they are now directors of the company and I was just an employee." 179 Ms Nguyen was cross-examined about why she did not sue for her bonuses. In substance, the reason she gave was that she wanted to move on with her life, did not wish to subject herself to the stress of litigation and did not have the cash flow to fund it. She said that she "just did not want to have anything to do with Royal Guardian any more". 180In late February 2007, as I have mentioned, she was invited to dinner with Mr Tomazin as a result of which a draft agreement was entered into. Ms Nguyen gave evidence also about matters which were not the subject of the agreement - "There was discussion about profit sharing for both books. The whole idea at that time was Tony promised me Daniel and Zoran were going to leave and that I was to take over both the old book and the new book. And I was going to be entitled to profit share for both books. But one of the conditions that I put down was that Tony to take out only costs, like actual costs. When I wrote that letter was in actual costs, so then it is all fair, transparent and we both agreed on. So when I was writing this letter I knew that with Daniel and Zoran out I could manage both books and make it very profitable; very, very profitable, your Honour, because by this time a lot of lines were over five years old. So I knew in the next two or three years the profits was going to be huge because a lot of our books were getting the extra 0.25 per cent margin and that's what I concentrated on when I was writing this letter." 181It will be recalled that Ms Nguyen said that Mr Tomazin had suggested that she should put down what she wanted in writing including outstanding bonus and profit share. Yet, despite this invitation, the draft agreement does not mention the matter at all. Ms Nguyen said - "A. It could be - that could be my error. When I wrote this letter, you know, that could be just my rush writing 'profit share'. I should have mentioned bonus in there as well, but from my memory that was the conversation that we had. Like I said, when I wrote - we talked about a lot of things and when Tony asked me to put in writing, I put it in writing of what, when I wrote it, I thought. I mean, I was thinking more profit share and bonus. The wording two thousand financial year, that could be when it should be paid for the financial year 2007. Q. So it wasn't a case of you forgetting, when you wrote this document at page 247, that it was supposed to cover bonuses and profit share? A. Yes, that was what we discussed but what I wrote down obviously doesn't reflect that. Q. Do you say that you forgot? A. I didn't forget, I rushed. Look, this is - I required this is just before we were about to leave so it was a matter of put it down because he wanted some commitment from me that I was going to come back. So we discussed it over dinner and this was done just before we left." 182Because of the potential importance of this issue, I took Ms Nguyen though the conversation with Mr Tomazin as set out in her affidavit and then asked - "Q. Mr Young is saying look, if this was so important, and indeed, it is pretty well the most important thing that you refer to in the conversation in paragraph 155, why doesn't the agreement mention those things? A. From what I remember, that night, your Honour, when I wrote the letter I just wanted to get out of there. But Tony insisted 'put in writing, put in writing'. I rushed the letter because by the end of the dinner I kind of made up my mind. Because I was very hesitant. HIS HONOUR Q. Yes, I know, but you see he'd agree to sign it. You might have got him to sign a written acknowledgement of the past bonuses and profits. That would have been advantageous for you to have something in writing, yes? A. I should have, your Honour, but going from history, I didn't know he was going to keep her or not. Like I said, by the end of the dinner I'd already made up my mind that, you know, I wasn't going to go back. Q. This wasn't going to happen? A. No, no, your Honour. YOUNG Q. The fact is, isn't it, madam, that in this dinner conversation you never said to Mr Tomazin that there was outstanding bonuses or share of the profits, that's the case, isn't it? A. No, no, there was. Q. You didn't at that time think that any money was due to you as bonuses, isn't that right? A. No. Q. You didn't think any money was due to you as profit share, did you? A. No [meaning that she disagreed]." There the matter was left. 183Mr Stolyar said that when he executed the variation to his employment agreement in November 2002 he was assured by Ms Nguyen and also Mr Tomazin that the outstanding bonuses would be paid. He also believed that he was protected by the terms of his employment contract. He also did not take up with Mr Tomazin the outstanding bonuses in March 2003 when a further written variation to the employment contract was agreed. By August 2005 Mr Stolyar said that he knew the RGMM accounts and, in substance, if there was money in the account Mr Tomazin would withdraw it quickly so that there was no use suing RGMM because it never had any money or assets. He said that the book was mostly owned by RGMC. Mr Stolyar was cross-examined about Dibelle not suing RGMM for the trail that was stopped in mid 2005. He said that the reason was that his mother was the owner of Dibelle and that he did not want to put her through the stress of Mr Tomazin suing her for any losses and, secondly, RGMM, except for its commercial property which was 70 per cent geared at the time he believed, did not have any other assets. Its book and its trail it was getting was the property of RGMC. 184Mr Stolyar gave the following account of the meeting in February 2007 - "Tomazin: 'Nice to see you two. What I want is for you to come back as I can't find anyone to replace you and the business has dried up. What do you want Nguyen?' Beth: 'First I want you to pay me what you owe me all my share of the profits of RGMM for the last 4 years, and I will not come back if Zoran and Daniel are still involved with RGMM.' Tomazin 'O.K. I will get rid of Daniel and Zoran, I will pay you all the outstanding share of RGMM's profits including for the 2006/07 financial year. Write everything up now and we will execute the agreement.' Beth: 'Tony, just to be clear you have to pay us the profit share first before we can consider coming back.' Tomazin O.K. as it is going to be a large amount let me pay it in two instalments 50% of the amount by 30 September 2007 and the other 50% by 31 December 2007'." It will be seen that Mr Stolyar makes no reference to unpaid bonuses. In cross-examination, he confirmed that he did not recall any reference to unpaid bonuses. He said that he did not raise the question because he thought it would be a waste of time, indeed that the meeting was a waste of time. He believed that Mr Tomazin would not honour any promise he made. He said that the agreement was basically between Ms Nguyen and Mr Tomazin. He did not take it seriously. He said that he did not see the document before it was signed, he had no interest in it at all, and did not sign it. In my view, although certainly Mr Stolyar's evidence does not support Ms Nguyen's account of the conversation so far as unpaid bonuses are concerned, I do not conclude that Ms Nguyen's evidence should be rejected. Indeed, I accept that she was telling the truth about her recollection both because of my view of her as a witness and because Mr Stolyar's account does not, to my mind, contradict her, although I accept that he does not now recollect bonuses being mentioned. One would expect, given the large amount outstanding, that he would have raised it if it were indeed owing, but I accept his reason for not doing so. It does not strike me as unreasonable, given his attitude to Mr Tomazin for which, to my mind, there was a basis. It seems to me also that this evidence demonstrates that the defendants had not colluded in their accounts. As I have said elsewhere in a different context, it would be surprising if, having decided to fabricate their story as to Bethian and the non-payment of bonus, they would give such different accounts of such an important conversation. Consideration 185I have endeavoured to briefly state the contentions of the parties as to the crucial issues in the case when narrating the evidence. My ultimate conclusion is that, on those issues, I accept the defendants' evidence rather than that of Mr Tomazin and that tendered on behalf of RGMM. Overall, I formed the view that the defendants' account of their relationship with Mr Tomazin from its commencement to its conclusion made more sense and integrated the objective elements more coherently and persuasively than Mr Tomazin's. Although the evidence must be considered as a whole, several important aspects of the case were of particular importance. These were the circumstances surrounding the so-called Bethian management agreement and the Dibelle accreditation. 186At the risk of over over-simplification, the objective evidence of the accounting treatment of the payments to Bethian gives significant support to Ms Nguyen's account, supported to a limited extent by that of Mr Stolyar, whilst the way in which its existence was disclosed by Ms Nguyen invites scepticism. At the same time, the issue cannot be separated from that concerning the payment or non-payment of the bonuses since, if the bonuses were paid, the only mechanism for doing so was the management agreement. Here, the evidence of the defendants about their not having insisted on documentation of the outstanding bonus payments, especially that of Ms Nguyen in respect of the meeting of February 2007, invites scepticism. Furthermore, the failure of the defendants to produce any of the crucial documents: the Bethian accreditation agreement; the Bethian management agreement; and the Dibelle accreditation agreements, is fairly pointed to by Mr Young as strongly suggesting that they never existed. However, notwithstanding the strength of this argument, I have concluded that the explanations of the defendants - Ms Nguyen in particular - should be accepted. 187Reliance on demeanour has rightly been criticised (if I may respectfully say so) as, to a greater or lesser extent an unreliable indicator of truthfulness or otherwise, to say nothing of accuracy. However, demeanour might not, in a particular case, be a useless guide. Much depends on the particular witness, the nature of the evidence, the extent of cross-examination and the period for which the witness gave evidence. Criticisms that rely on simple questioning in test situations, with no historical background or factual environment in which the answers come to be evaluated, let alone a competent cross-examination, are no guide whatever to the reliability of a judgment of truthfulness or otherwise in the actual trial context. Nevertheless, commonsense itself suggests strongly that the judge must be very cautious before drawing conclusions as to honesty from mere appearance. 188Ms Nguyen's communication skills appeared to me to be adversely affected to a slight but significant degree by her less than easy command of English, which is not her first language; she was also less than completely articulate and had some problems with completely understanding some questions. I formed the impression from her evidence as a whole, with its occasional qualifications, hesitations and awkward descriptions, in short, its essentially uncalculated character, that she was attempting to tell the truth as best she recollected it. I should mention another feature of the evidence that suggested, to my mind, the truthfulness of Ms Nguyen and Mr Stolyar, namely the differing accounts they gave at a number of points of important conversations or interactions with Mr Tomazin (sufficiently set out in the above narrative) which strike me as unlikely if they put their heads together to fabricate their case. Though it is not impossible that this was deliberate or possibly just carelessless and not too much can be made of it, it forms a significant part of my assessment of the defendants' veracity. 189Mr Stolyar gave his evidence in a careful and measured way but without any observable calculation. His description, especially, of the nature of RGMM's business, his attitude to brokers and to Mr Tomazin, I found convincing in part because of the way he gave this evidence. 190As to Mr Tomazin, I formed no impression, one way or another, from his demeanour about his honesty as a witness. He gave the impression of being careful and measured in giving his evidence, which is entirely reasonable. However, because of findings I have made as to certain issues, I have concluded that he has not stated the truth about them. This conclusion has necessarily impinged upon the extent to which I am prepared to rely on his evidence as to other matters in issue. 191I should deal briefly with the matters described as adverse. In respect of the Ms Nguyen's explanation for not stating explicitly in her affidavit, when she came to dealing with the agreement, that it was in writing or describing the mode of its execution, I accept that she believed that it was implicit in describing it as an agreement. Lay people (indeed, lawyers) are not always able to be clear and complete about relating facts and assumptions or appreciate what an outsider might understand by a particular description or phrase. It was, of course, the duty of the solicitor to ensure clarity but that rather assumes that he or she was alert to the possibility of ambiguity. By and large, I think it is necessary to be cautious about drawing strong conclusions from the way in which a passage in an affidavit is expressed. Commonsense suggests, also, that, if she were minded to fabricate the existence of the management agreement, she would have paid some attention to its actual form though, of course, not everyone behaves logically. When she gave her evidence about this issue, I gained the impression that she was somewhat baffled about why her affidavit would be understood as otherwise than she explained it. So far as the existence of the Bethian management agreement is concerned, it is interesting that Mr Young's submission that the appropriate inference to be drawn from the payment of GST on the Bethian payments is that there was an informal agreement that bonuses should be paid as some sort of service fee to enable PAYG tax to be avoided, so that the issue then becomes, not so much whether a management or service agreement was made, but whether it was informal or executed and whether its receipts were a substitute for bonuses. 192Also adverse to acceptance of the defendants' case as to the management agreement is the fact that the written agreement was not produced. I accept Ms Nguyen's explanation that, on a hasty departure, she left her documents in her office and has not seen them since. Caution would have suggested that she should have secured all her records, including the agreements. However, there was no reason for her to think that she was going to be subjected to litigation for which proof of the existence of the documents might be called for or would herself be suing for damages and need to prove they existed. 193Mr Tomazin's denied not only that any executed agreement existed, but also that he ever had any conversation with the defendants about paying management fees or entering into any agreement for paying management fees. It would not be contrary to this evidence to find that an informal arrangement (not involving him) existed along the lines suggested by Mr Young effecting what Mr Tomazin said he had agreed to but he was not asked about this and it is, I think, rather more inconsistent than consistent with his evidence. However, largely for the reasons which I have already mentioned when dealing with the surrounding facts, I have concluded on the balance of probabilities that a management agreement providing for the payments described by Ms Nguyen was, in fact, entered into and that the payments made to Bethian were made under its terms as a fee distinct from the bonuses to which she and Mr Stolyar were entitled. I said "largely" because my conclusion has also been influenced by two considerations: firstly, the generally favourable view I formed of Ms Nguyen as a witness on the one hand and, on the other, the adverse view I formed of Mr Tomazin's honesty, in particular in connexion with the Dibelle accreditation issue, in light of which I am not prepared to accept the truthfulness of Mr Tomazin's evidence as to any matter of significance except where it is supported by independent evidence; and, secondly, the application of the principle in Jones v Dunkel arising from the unexplained failure, above described, of RGMM to adduce evidence which one would expect to be available if the case it propounded on this issue were the facts as Mr Tomazin asserts strengthens, to my mind, the inferences that otherwise are available favouring the defendants' case. However, I should add that, even if it were not for this second matter, I would have been satisfied that the questioned agreement existed and that Mr Tomazin had not told the truth about it. 194I now come to the Dibelle matter. Chronologically, the relevant evidence commences with the circumstances of the loan sought by Ms Nguyen and her mother-in-law in late 2002. Although, of course, this might have fastened on the objective fact that a loan application was indeed made, for which there is documentary evidence, adding Mr Tomazin's involvement as "mere corroborative detail intended to give artistic verisimilitude to an otherwise bald and unconvincing narrative", I am persuaded that the evidence of the defendants and Faina about meeting Mr Tomazin in connexion with the application is truthful. In particular, I formed a favourable impression of Faina as a witness of truth. The accounts of the three could not have coincided (although they were not identical) as they did unless, on the one hand, they had together fabricated them before their affidavits were drafted or, on the other, they were independently recounting their memories of the same event. I accept the evidence of Faina about her conferring alone with the solicitor who drew her affidavit and the lack of involvement of either of the defendants in that process. Faina's detailed evidence about being taken to the Campsie office, the introduction to Mr Tomazin and handing over the required documentation seemed to me the recounting of a recollection rather than telling a learned story. In short, I believe she was telling the truth. It will be recalled that Mr Tomazin was able to state who dealt with the loan application, yet no documentary or oral evidence was produced to support this evidence. I do not accept Mr Tomazin's evidence that he had never met Faina nor, as submitted (as a fall back position) by Mr Young, that he might have forgotten meeting her. She was a memorable individual, with a strong accent and a somewhat idiosyncratic mode of expression, the mother of a senior employee and the mother-in-law of the general manager of RGMM. Although whether the meeting in fact occurred in connexion with the 2002 loan application and concerns an issue that, of itself, is peripheral, nevertheless, I conclude that Mr Tomazin did not tell the truth about it and it is appropriate for me to bear this in mind when weighing his evidence concerning issues of more direct relevance. 195I have rehearsed in some detail the competing evidence about the nature of RGMM's business and my view about the matter, including the duties for which the defendants were employed. This does not need to be repeated here. The Dibelle arrangement grew out of or was largely instigated by the change in the arrangements within the Royal Guardian group brought about by the partners, which Mr Tomazin adopted. It may well be that the defendants might anyway have wished to enter the retail business. After all they had started to do so in a small way with Bethian. However, I accept their account that it was the fact that the partners commenced to compete with their broker business which led them to undertake the recruitment of individual borrowers at an increasing rate. There was obviously significant resentment with the attempts by the partners to attract the defendant's brokers, especially, as Mr Stolyar thought, by using their inside knowledge as directors of RGMM. Of course, someone needed to do the brokers' work, so that the borrowers either needed to be referred to other brokers who would then seek the loans through RGMM or the defendants had to do it. In the latter case, they would have been undertaking work for which, despite Mr Tomazin's evidence, it is clear they had not been employed and which would have required very much longer working hours. I do not need to consider whether, even if Mr Tomazin had not been informed of the defendants interest in Dibelle, it was proper for the defendants to have used Dibelle, given their terms of employment, since I am satisfied Mr Tomazin was at all times well aware not only that commissions were being paid to Dibelle but also that it was the defendants' vehicle for obtaining broker's commissions in respect of loans sought by individual borrowers. 196I propose first to deal with the evidence concerning the accreditation agreement claimed by the defendants to have been signed by Mr Tomazin (for RGMM) in respect of Dibelle Financial Services Pty Ltd. This involves the testimony, not only of the defendants but also of Faina. It is, of course, not in issue that she was indeed the sole shareholder and director of the company and that it referred many applicants to RGMM for which it received substantial commissions. The crucial question is whether Mr Tomazin was aware of the defendants' connexion with it. In this respect I am satisfied that he was so aware, indeed, that he executed the accreditation agreement as claimed by the defendants and Faina. As mentioned previously concerning her evidence relating to the 2002 mortgage application, I thought Faina was a truthful and reliable witness. I accept her evidence that she attended with the defendants when the accreditation agreement was executed and it was executed by Mr Tomazin. This is a matter about which she could not be mistaken. I do not accept that she fabricated her account with the defendants. It follows that I reject Mr Tomazin's account. 197It is, of course, true that the evidence must be considered as a whole and, as already mentioned, four significant parts of the evidence support Mr Tomazin's denial that Dibelle was accredited. The first (in no particular order) is that it would have been risky for his business in light of the conflict of interest that would arise because Dibelle would be the agent of the borrower and RGMM would be employing the defendants to assess the viability of the loan as the agent of the funder, an arrangement that the funders would find unacceptable. I have discussed the evidence about this issue above. In substance, it was not disputed by the defendants. The question is whether Mr Tomazin would have been inclined to take the risk in light of the precautions which, according to the defendants, he suggested and the potential commercial advantage it represented. The second matter is that Dibelle did not have PI insurance, though the defendants' evidence was that, at the time, this was not an actual requirement. The third issue is that no copy of any of the accreditation agreements (with Bethian, Dibelle Finance and Dibelle Financial Services Pty Ltd) has been produced. Loss of one agreement might be thought reasonably possible, but the loss of three (or four, if the Bethian management agreement is included) is so unlikely as to strongly indicate that they never existed. Against this, Ms Nguyen's evidence is that she left her papers behind when she left RGMM in rushed circumstances. The fourth matter is the lack of any attempt to obtain in writing at the time the various subsequent employment variations were entered into an acknowledgement of the amount of bonus due and some provision as to the mode of payment, the more so as the amount allegedly owed became very substantial. So far as this issue is concerned, I accept Ms Nguyen's evidence that Mr Tomazin was a father figure for her: her genuine (I accept) feelings of betrayal when, as she said, he chose Mr Pusic and Mr Pondelak over her was persuasive evidence that their relationship was not simply a business one. Furthermore, she was relatively young at the relevant time and, although no doubt an effective salesperson of RGMM's products, her naive relationship with Mr Tomazin made her vulnerable to his blandishments. I consider that Ms Nguyen was telling the truth when she said that thought she was protected by her employment agreement and trusted Mr Tomazin to pay her in due course. I accept Ms Nguyen's evidence about the cash state of the RGMM's accounts not permitting the payment of bonuses and that she believed Mr Tomazin's continuing excuses and prevarication, although she became suspicious about the genuineness of the payments for "rent". This latter matter is corroborated by the reference to transfers in the March 2007 draft agreement. When it came to the draft agreement of March 2007, I believe her evidence to the effect that, by the time it came to writing the draft, she had decided not to proceed and any agreement as to payment of past bonuses was irrelevant. I think that her understanding of legal or forensic utility was rudimentary. Lawyers instinctively try to obtain evidence likely to support a case but many ordinary people do not think defensively in that way. I do not think that Ms Nguyen had litigation in mind at the time of the meeting but had decided to move on. At all events, as an objective matter (as she said) she had the benefit of a written agreement providing for the payment of bonuses and (if she is telling the truth about Bethian) she might well have thought that it would be easy to prove that she had not been paid. Although, therefore, at first blush, the contention on behalf of RGMM that the absence of any mention of bonuses in the draft agreement, especially in light of the amount claimed to be outstanding, strongly suggests that no such debt existed, in all the circumstances, including my view of Ms Nguyen's demeanour, I accept Ms Nguyen's evidence about the matter. Mr Stolyar was not naïve and, I think, much less inclined to trust Mr Tomazin as time went on. However, he accepted Ms Nguyen's assurances that she had known Mr Tomazin for a long time and believed that the bonuses would be paid. He said he wanted to leave in about February 2002 because of Mr Tomazin's broken promises and the way RGMC was being run but he accepted Ms Nguyen's judgment about Mr Tomazin's trustworthiness and gave an instance of a conversation between them about it. I thought that Mr Stolyar was telling the truth about this matter and that, though rather more hard-headed than Ms Nguyen, he deferred to her judgment in this respect. I also accept Mr Stolyar's evidence as to his reason for not suing at a later point. 198It is also necessary to bear in mind Mr Tomazin's response to the discovery by the partners of the defendants' involvement in Dibelle. To my mind, the adjustments that he made for the purpose of continuing to employ Ms Nguyen and Mr Stolyar, despite the antagonism of the partners, are inconsistent with a genuine belief that he had been deceived by the defendants - in particular Ms Nguyen - about Dibelle, in such a way, moreover, that placed his vital business relationships with his funders at risk. Nor was his continuing attempt to employ the defendants, as witness the draft agreement of March 2007, consistent with such a view of their behaviour. 199The evidence concerning the administrative arrangements in the RGMC/RGMM combined office is set out above. I prefer Ms Nguyen's description of the process, although (except as to the extent of his personal involvement) Mr Tomazin does not take substantial issue with it at all events. It is not possible to be certain at this remove of the actual extent to which Mr Tomazin was present in the office and not travelling. But I am satisfied that he was present for significant periods throughout, though longer in 2001 and 2002. I do not accept that Ms Nguyen sought to conceal her connexion with Dibelle by, for example, keeping the relevant file away from staff who might need to check it when calculating commissions or preparing RCTIs. More to the point, I accept Ms Nguyen's evidence that the accreditation and RCTI agreements were kept with the file and thus that, in the normal course, the fact that there was no accreditation agreement (if that were the case) would have become known, at least to the staff. I accept that, implicit in her evidence, she did not endeavour to conceal the Dibelle file. Indeed, I am satisfied the absence of an accreditation agreement, if that were the fact, would almost certainly have become known to Mr Tomazin in the course of his management responsibilities, however episodic they may have been. 200Considering the evidence as a whole, including those matters pointing in the opposite direction, I am satisfied that the accreditation agreement between Dibelle Financial Services Pty Ltd was executed as the defendants and Faina assert. It follows that I reject the evidence of Mr Tomazin as to this matter. Bearing in mind the gravity of the conclusion, I am actually persuaded on the balance of probabilities (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170; (1992) 110 ALR 449 at [3] per Mason CJ, Brennan, Deane and Gaudron JJ) that Mr Tomazin's evidence as to the loan application and the accreditation agreement was dishonest. 201I now return to the question whether there had been an earlier accreditation agreement when, the defendants said, Ms Chahine was introduced to Mr Tomazin. I have set out above the relevant evidence on each side. I am satisfied that the evidence of the defendants on this matter should be accepted. This conclusion is fortified by, though it does not depend upon, my view of Mr Tomazin as a dishonest witness. 202Whether there was an accreditation agreement with Bethian is not directly relevant to the cases in the pleadings, though the conflicting evidence of the defendants on the one hand and Mr Tomazin on the other raises issues about credibility. It is not, in the circumstances necessary for me to express a concluded view about this matter but I am minded to accept the defendants' evidence rather than Mr Tomazin's as the more probably truthful. 203I should note, for completeness, that the defendants had pleaded mutual releases of liability. This was the subject of cross-examination in which the defendants referred to negotiations which, they understood, justified the allegation. However, in the end the evidence was to my mind inconsequential and I have not thought it useful to deal with it. Limitation Act defence 204RGMM pleaded a defence under the Limitation Act 1969 (NSW) in respect of the defendants' cross claim. It is unanswerable. It follows that, both in respect of bonuses due and profit share, if any, only those sums due on and from 29 April 2004 can be claimed. Loss of profits 205Ms Nguyen's employment agreement was varied on 1 November 2002 March 2003, in effect, to conditionally increase her salary and entitle her to "profit share for any profits over $210,000 per annum as from 1 July 2002" with a set off for losses against future profits. These clauses were repeated in a variation of 17 March 2003. Although this variation, as it happened, was not referred to in the Amended Cross-Claim, this is of no moment. The relevant terms are set out. No prejudice can be suffered by RGMM if the defendants are permitted to rely on the variation (which was exhibited to one of Mr Tomazin's affidavits). At all events, I have already found that the variation contained in the agreement of 1 November 2002 was effective. 206It is not disputed that no profit share was paid. The net profits of RGMM for 2004 would not, it is agreed, have fallen due until 30 June 2004. Ms Nguyen was employed by RMM from 1 September 2005 and ceased to be entitled to her bonuses from RGMM on loans settled after that date. It is submitted on behalf of RGMM that she was not entitled to any share of RGMM's profits after 1 September 2005, since the agreement of 6 March 2005 provided only for payment of a share of the profits from RMM's new book. As mentioned above, the fact that this agreement provided for a profit share in respect of RMM was not inconsistent with a continuation of the entitlement to a share of RGMM's profits. Indeed, given Ms Nguyen's continuing responsibility to manage and control RGMM, continuation of her profit share seems likely. The documentary evidence establishes on the probabilities that Ms Nguyen ended her employment with RMM on 9 June 2006. I think it follows that her responsibilities for and entitlement to a share of the profits of RGMM ended on that date. It is implicitly submitted by Mr Young that the result is that she lost her entitlement to any profits since, as I understand it, they could not be calculated until 30 June and were not payable until after that had been done. 207The crucial term is as follows - "The employee shall be entitled to profit share of 25% for any profits over $210,000 per annum as from 1 July 2002 [subject to set-off for losses]." In my view this clause should be construed as meaning that, if the employment ended before the end of the financial year, Ms Nguyen was entitled to a 25 percent share of the profit attributable to the period of employment provided that it exceeded the proportion of $210,000 attributable to that period. This construction would make sense also because the business was, broadly speaking, steady and exhibited little volatility. 208Ms Nguyen's case is that Mr Tomazin (authorised by RGMM) in substance agreed to vary the profits clause by calculating the profit, not by the standard method, namely income minus outgoings, but by deducting from the outgoings the amounts paid by way of "rent" to RGMC. Furthermore, the directors' fees would usually be an outgoing but, by agreeing that they were to be included in the trigger amount of $210,000, that figure would be more easily reached. This did not mean, however, that, if (when adding in the directors' fees) the $210,000 profit was reached, the relevant figure for calculation of the Ms Nguyen's should disregard the fees. The ultimate position would be that, if the company made a profit of $210,000 (disregarding director's fees), Ms Nguyen would be paid 25 percent of the profit after tax, disregarding the payment of "rent" to RGMC but counting all other conventional outgoings, including the directors' fees. 209It will be recalled that the employment contracts contained a clause providing variations which were not in writing signed by the parties were unenforceable. As the learned authors of Cheshire and Fifoot, Law of Contract (10th Australian ed, 2012, LexisNexis Butterworths) point out (at [4.32]) a clause which "stipulates a formal process for making changes ... can never be drafted in such a way as to prevent informal contract variation ... because the very clause governing contract changes may itself be changed (usually tacitly) by the conduct of the parties". For obvious reasons, on the assumption that Ms Nguyen's evidence about the conversation of late August is accepted, there was consideration for the oral amendments. Accordingly, Ms Nguyen's profit share is to be calculated on the basis of those amendments. 210So far as Mr Stolyar is concerned, he resigned on 16 June 2005 but, in a conversation with Ms Nguyen (set out in full above) Mr Tomazin told her to tell him "to continue working", in the context, for RGMM. As mentioned, Mr Tomazin denied this conversation. The spreadsheet of loans settled showing Mr Stolyar as "account manager" (meaning salesperson) lists the last loan application as dated 10 May 2006. I accept that Ms Nguyen's account of her conversation with Mr Tomazin on that date as truthful. However, what quite was meant by the exchange is not clear. The effect of Mr Stolyar's evidence is that, although he continued to refer loans he was not otherwise employed by RGMM. The written submissions of Mr McClintock referring to the claim of bonus settled to August 2005 is based, as I understand it, on the assumption that, after registration of RMM on 19 August 2005, Mr Stolyar's loan referrals were to RMM, rather than RGMM. Given the history to which I have referred and the objective facts, it seems to me that the inference that Mr Stolyar was entitled to payment in respect of the loans he continued to refer to RGMM is inescapable. (Payment for the referrals to RMM is not within the scope of this litigation.) The likely inference is that the basis for payment was that to which he had hitherto been entitled, namely 0.25 percent of those loans which settled. 211It will have been noted that Mr Stolyar's employment contract of 1 February 2002 provided in cl 6.3 for the payment of a monthly bonus if the settled claims for the month amounted to "one million dollars ($2,000,000)". Which of the two nominated amounts applies? It is submitted by Mr McClintock that I should apply the rule of thumb stated in Saunderson v Piper (1839) 5 Bing (NC) 425 by Tindal CJ that it was "the rule of the commercial writers that where a difference appears between words of bill, it is safer to attend to the words". This approach has been adopted many times, for which citations are unnecessary. Nevertheless, as submitted by Mr Young, where there are other indications of the parties' intentions, the evidence might justify departure from the rule of thumb. He points, in this regard, to the form of the document itself as compared to that of its predecessor. If I may say so, there is much in Mr Young's argument on this matter. However, it makes no difference, given the amount Mr Stolyar's settled loans over the relevant period, that is to say, from 29 April 2004 to 18 August 2005 well exceeded $2 million. Conclusion 212I deal first with Ms Nguyen's bonus entitlements. The value of settled loans for each of the months from 29 April 2004 to 31 August 2005 exceeded $2 million by a substantial margin, thus triggering the obligation to pay bonuses at 0.25 percent of the monthly total. It is therefore unnecessary to deal separately with each month but, because the bonus payable is a debt referable to the year in which it is incurred, the profit for that year must be adjusted accordingly. The total value of loans settled was, respectively, $54,688,325, $208,093,577 (deducting $340,000 for a staff loan) and $26,528,701. The bonus at 0.25 percent for each year is (all calculations disregard cents), respectively, $136,720, $520,233, and $66,321, a total of $723,274. 213In respect of Mr Stolyar, the value of settled loans for each of the months from April 2004 to August 2005 exceeded $2 million and his entitlement to bonus was therefore engaged. The total value of loans settled for from 29 April to 30 June 2004, 1 July to 30 June 2015 and 1 July 2006 to 18 August 2006 is, respectively, $39,211,150, $163,683,149 and $15,413,500. The respective bonuses are $98,027, $409,207 and $38,533, a total of $545,767. 214I now come to Ms Nguyen's profit share for the 2004, 2005 and 2006 tax years. The net profit after tax for 2004 was $54,583. Directors' fees were $272,727 and, as agreed, need to be added to the profit. The trigger sum of $210,00 was therefore reached. Adding back the "service fees" of $915,173 gives a total for the purpose of calculating Ms Nguyen's share of $969,756. Although, by virtue of the Limitation Act, the claim for unpaid bonus dates from 29 April, the unclaimed as well as the claimed bonus must be deducted to deduce the true profit. The settled loans totalled $281,839,780. The bonus due was therefore $704,599 which, when deducted from the total, gives a balance of $265,157. Ms Nguyen's 25 percent share is $66,289. As to 2005, net profit after tax was $486,843, obviously triggering Ms Nguyen's entitlement. Adding back "service fees" of $915,173 gives a total of $1,402,016. Deducting bonus yields a balance of $472,576 of which 25 percent is $118,114. In respect of the last period, ending 9 June 2006, the net profit to 30 June 2006 was $344,090. It is clear that the trigger point was reached, even disregarding directors' fees of $350,000. Adding back the "rent" of $553,933, gives the sum of $898,023. The proportion attributable to 344 days is 0.942 of the entire year, yielding $845,937. Deducting bonuses leaves a balance of $741,083, of which Ms Nguyen's 25 percent share is $185,270. Judgment 215In respect of the action by RGMM against the defendants, judgment for the defendants. In respect of the amended cross-claim, judgment for the cross-claimants as follows - (i) Ms Nguyen: $1,092,947 plus interest; (ii) Mr Stolyar: $545,767 plus interest. The parties are to calculate interest. I give leave to approach on three days notice in the event they are unable to agree. I will determine costs following further submissions.