New South Wales Supreme Court CITATION : Cook v Alto Prestige Pty Limited [2010] NSWSC 92 HEARING DATE(S) : 16, 17, 18, 19 and 20 November 2009 JUDGMENT DATE : 31 March 2010 JUDGMENT OF : Bergin CJ in Eq DECISION : Plaintiff entitled to declarations and an order for payment of $457,063. CATCHWORDS : CONTRACT - whether the parties agreed to an express or implied term in respect of a fund to which each party contributed that it be redistributed if the business closed - TRUSTS - whether fund created for specific purpose - whether purpose failed - whether resulting trust Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Bryson v Bryant & Anor (1992) 29 NSWLR 188 CASES CITED : Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Gibert v Gonard (1884) 54 LJ Ch 439 In re Goldcorp Exchange Ltd [1995] 1 AC 74 Public Curator of Queensland v The Union Trustee Company of Australia Ltd (1922) 31 CLR 66 Twinsectra Ltd v Yardley [2002] 2 AC 164 TEXTS CITED : Robert Chambers, Resulting Trusts, (1997), Oxford University Press The Quistclose Trust: Critical Essays, (2004), Hart Publishing, Oxford and Portland Anthony Martin Cook (Plaintiff) PARTIES : Alto Prestige Pty Limited (First Defendant) George Altomonte (Second Defendant) FILE NUMBER(S) : SC 5487/2007 COUNSEL : GL Turner (Plaintiff) JRJ Lockhart SC (First and Second Defendants) SOLICITORS : Sorensen & Brown (Plaintiff) Freehills (First and Second Defendants) - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BERGIN CJ in Eq 31 MARCH 2010 5487/2007 ANTHONY MARTIN COOK v ALTO PRESTIGE PTY LIMITED & ORS JUDGMENT 1 The plaintiff, Anthony Martin Cook, claims that the first defendant, Alto Prestige Pty Limited (Alto), and the second defendant, George Altomonte in his capacity as trustee of the Alto Administrative Trust (the Trust), are liable to him for unpaid commissions due in respect of finance brokered by him in a wholesale finance brokering business operated by him for the defendants. The third to eleventh defendants were the individual and corporate in-house brokers of the finance brokering business, each of whom filed a submitting appearance and took no part in the proceedings thereafter. In those circumstances I will refer to Alto and the Trust as the defendants. The defendants deny they are liable to the plaintiff for such commissions. 2 The matter was heard on 16 to 20 November 2009 when Mr GL Turner, of counsel, appeared for the plaintiff and Mr JRJ Lockhart SC appeared for the defendants. Supplementary submissions in writing were filed by the plaintiff on 4 and 11 December 2009 and by the defendants on 9 December 2009. The Facts 3 Many of the events and conversations relevant to the outcome of these proceedings took place sixteen years ago. The difficulties for the parties and witnesses in trying to recollect with accuracy what was said so many years ago are exacerbated by an absence of contemporaneous documents in respect of many of the conversations relied upon by the plaintiff to establish his case. This is further complicated by the fact that the person who played a major role in the negotiations on the defendants' behalf, James Stubbs, died in 2005. 4 In 1993 the plaintiff was working for Automotive & General Financial (A&G), a finance broking business (the business) owned by a group of companies that operated a number of large motor dealer franchises. The business was operated from one of those franchises, Titan Ford at Brookvale. For various reasons, the plaintiff and David Blakeway, who had established the business at Titan Ford and recruited the plaintiff, decided to try to transfer the business to another motor dealer and to that end decided to approach Alto. 5 Mr Altomonte is and was at all material times a director of Alto and is Chairman of the Alto Group of Companies, which includes Alto and the Trust. From 11 December 1990 until his death in 2005, Mr Stubbs was the General Manager-Finance and later Group Finance Director of Alto. Philip Penman was the in-house counsel for the Alto Group in 1993, 1994 and part of 1995. November/Early December 1993 Meeting 6 Mr Blakeway had a preliminary meeting with Mr Stubbs in late November/early December 1993 at which he discussed the proposal to transfer the business to Alto (the proposal). Pre-Christmas 1993 Meeting 7 Just prior to Christmas 1993 the plaintiff and Mr Blakeway met with Mr Stubbs to discuss the proposal. The plaintiff's affidavit evidence was that at this meeting Mr Blakeway described the business as a "stand alone" wholesale brokering business which utilised the Dealer Floor Plan that Titan Ford had with Esanda Finance Corporation Limited (Esanda) and that he and the plaintiff sourced finance business mainly from finance brokers to whom they paid a commission. The plaintiff also claimed that Mr Blakeway said: The amount we pay the introducers is an amount we have carefully worked out over time to give them enough incentive to place business with us but have enough left for A&G to make the business worthwhile and profitable. … The difference between what we get from Esanda in offset/commission and what we pay the introducers is then split between us on the one hand and A&G on the other on a 50/50 basis. Later when we commenced sale and hire back business, that is where we arrange finance over an unencumbered vehicle already owned by the customer, we decided to contribute a portion of our commission to a fund held by the dealer to build up a provision in case we strike a bad title on a car which may cost the dealership due to its obligations with Esanda under the dealership agreement. We make good incomes from this business and want to protect the dealer so this can continue. So now after introducers are paid we set aside an amount to go into the provision. The amount we work on at the moment is $20.00 per car on all sale and hire back deals. This has the effect of both sides contributing to the fund because the pot is split in half after the provision comes out. 8 The plaintiff's evidence was that Mr Blakeway advised Mr Stubbs that the provision that was set aside was referred to as "the load", and said: By agreement between us the load is used to reimburse the dealer if a bad title is found. The dealer covers the business expenses such as office, phones, desks, cars and so on from his side. 9 At the conclusion of this meeting Mr Stubbs advised the plaintiff and Mr Blakeway that he would speak to Mr Altomonte about what had been discussed and arrange a further meeting with them. 10 Mr Blakeway claimed in his first affidavit that Mr Penman was also present at this meeting, albeit that he did not attribute any conversation to Mr Penman. However, he clarified this in a later affidavit in which he said that it was only Mr Stubbs with whom he and the plaintiff met at this meeting. Mr Blakeway's affidavit evidence was not as detailed as the affidavit evidence of the plaintiff, however he claimed that at this meeting he said: We have a contingency fund which we call a load account to which both parties contribute a certain amount from their earnings, $20 per sale and hire back deal, to cover bad titles on those deals. The idea is to protect the dealer when it issues the invoice for the vehicle. The risk factor in sale and hire back transactions where an owner of an existing car uses it as security for a loan is the dealer giving an invoice to Esanda to pass clear title. The dealer takes the risk. The load is to protect the dealer. We are very careful in checking sale and hire back transactions before proceeding with them. We have not had any problems so far with bad title and expect our share of the fund will be refunded to us when the amount in the fund exceeds the dealer's exposure. We expect a high percentage of the commission because we are giving you the opportunity to make a significant profit just for giving us access to Esanda and providing some infrastructure. We bring all our skill, contacts, finance business, ideas and business systems with us. 29 December 1993 Meeting 11 On 29 December 1993 there was a meeting between the plaintiff and Mr Blakeway, Mr Stubbs and Mr Penman. The plaintiff's affidavit evidence was that Mr Blakeway showed Mr Stubbs and Mr Penman some documents from A&G's operations on a confidential basis, and said: You can see what the income from Esanda to A&G is per month and you can also see the amount paid to introducers leaving a gross profit. Our contribution to the load is $20 per sale and hire back vehicle deducted from gross profit, then a 50% payment to ourselves and the remainder to the dealer. The dealer covers operating expenses which have been running at around 20% of the gross profit from his share. You can see the sort of profits A&G are making out of the business with very little outlay or effort from them. You will understand it is highly confidential for us to show you our A&G dealer Esanda commission plan. We know we are on one of the best plans in the country with Esanda. If we were to move to Altos we would need to ensure that we were on at least as good a plan, and if you are not, we can help you negotiate one which will obviously be a benefit to Altos. It is also highly confidential for you to know that our offset at A&G is worth 4.5% of the amount financed. If we are to start with you it is essential that we are on the same package as we are at A&G to make the deal work but we first need to establish if all parties want to proceed. 12 Mr Stubbs asked whether the plaintiff and Mr Blakeway were willing to give "some sort of guarantee that you can achieve the volumes you have shown us". Mr Blakeway advised Mr Stubbs that guarantees would not be given and also advised that Alto would have to provide a "float" of approximately $100,000 to $150,000 to accommodate the difference in timing of payment to the introducers and the receipt of payments from Esanda to Alto. According to the plaintiff, Mr Stubbs advised that there would be no difficulty in accommodating the float if the parties were to proceed with the proposal. The plaintiff claimed that the following conversation then took place: Mr Penman: I would like to know more about what risks and liabilities we might face if we were to take on this business. You say you have a provision set aside of $20.00 per sale and hire back vehicle. What exactly is this and is the provision you set aside enough to cover the risks of bad title to the dealer? What about fraudulent misrepresentation or other things that might cause liability to Esanda? Plaintiff: Some time ago we recognised that there was a lot of good business around doing sale and hire backs on customers' cars. How this works is that we arrange finance for a customer who owns an unencumbered car. They apply to us for finance with Esanda and use their car as security to raise cash. We invoice Esanda using the dealer invoice for the purposes of guaranteeing title to Esanda under the arrangement we have with them at A&G. Therefore if a bad title is found the liability lies with the dealer not Esanda. When we recognised the opportunity to do this, we offered to put some of our money aside to protect the dealer in the event of a bad title. The dealer thought our contribution towards his welfare was a good sign and thought highly of this and knew our ability, so was prepared to give it a go. It just grew from there. We have systems and checklists in place to ensure that we are not hit with a bad title. We have never had a bad title yet touch wood. Also, without Esanda we would not have a business. We personally screen our deals before sending them to Esanda so they only receive good quality business. We have told Esanda that we started a provision in conjunction with the dealer to handle a bad title if one should arise, and they have told us that they were impressed with that. Our credibility with Esanda is very important to us. Mr Penman: I would like to have a look at these checklists and systems as I would want to be sure that Altos is sufficiently covered. George might also want to seek personal warranties from you both. Plaintiff: We did not give personal warranties at A&G and would not be prepared to do that here either. Once you see our checklists and procedures for sale and hire back you will see how careful we are and that should be sufficient. We will get you copies of them so you can see how thorough we are with it. Also, we initially set up the load for sale and hire backs so that we would have a 'buffer' to handle a bad title. The dealer takes the risk in invoicing the vehicle and as I said we sold the concept of sale and hire backs to A&G by offering to have some of our commission put aside to cover the dealer in the event of a bad title. We are very serious about the longevity and ongoing success of this business and are prepared to use our money to back our judgment, so would envisage doing that same thing with you. 13 The plaintiff claimed that Mr Penman asked if they were part owners of the business and that Mr Blakeway advised that they were not, but it was something they would want to look into with Alto. The conversation included the operational requirements of the business after which Mr Stubbs advised that he thought he had enough to take back to Mr Altomonte and would come back to the plaintiff and Mr Blakeway soon. 14 Mr Blakeway's affidavit evidence of this meeting was that Mr Stubbs said he was concerned about Alto's liability for sale and hire back deals and asked for an explanation. Mr Blakeway claimed that the following conversation then took place: Plaintiff: When we do a sale and hire back deal the dealer issues an invoice for the car or other asset to Esanda. This guarantees the title to Esanda and puts the risk on the dealer if there is a bad title. We have a comprehensive checklist and are very careful with our procedures on these deals. As well as that we have a contingency fund built in to our business model. An amount of $20 per sale and hire back transaction is put into a fund to cover bad titles. This is contributed equally by us and the dealer. The idea of the fund is to reimburse the dealer for any loss it suffers on lease and hire back deals. The idea is to let the fund accumulate to a point where we are comfortable that it has enough in it to cover the risks we are trying to guard against. Ultimately any unused money in the fund goes back to the contributors. Esanda already know we have this fund and like the idea. Mr Penman: That sounds like a good idea. I had that type of thing in mind myself. We are concerned about these sale and hire back deals where Altos issue the invoice. Naturally I will have to speak to George about this in more detail. Mr Stubbs: I have not heard of that idea before but I like it. George will have to approve it of course. 15 Mr Blakeway's affidavit evidence was that at the meeting with Mr Stubbs and Mr Penman he made the following statements: We accept it is appropriate for us to contribute to the load fund to protect the dealer on sale and hire back deals if we are going to do them. We think it is worth it because there is a lot of that type of business around. We are very diligent in our efforts to write clean business so it does not have to be used and we have an asset down the track rather than having to pay it out to the dealer over a bad title or to Esanda. From the commission received from Esanda we pay our introducers. The amount to go into the load fund is then paid and one half of the balance goes to Tony and I. You retain the balance remaining and from this you pay the operating expenses of the business. After expenses A&G were running around 35% of the gross commission after payment to introducers. 16 Mr Blakeway also claimed in his affidavit that Mr Stubbs responded: It gives us comfort to know that you are prepared to put in some hurt money so that we are not carrying the whole risk on this. The risk factor really concerns us. 17 Mr Penman's affidavit evidence was that the plaintiff and Mr Blakeway "explained the nature of their business proposal" at this meeting. Mr Penman said he could not recall the precise words used during the meeting and that his recollection was that either Mr Blakeway or the plaintiff said: We currently run a wholesale finance brokerage through Titan Ford at Brookvale, a dealership owned by Automotive and General. We are not getting the support we need to run this business and believe it is not achieving its full potential. The business works by processing applications for goods (essentially vehicles) financed from customers of the dealership, or introduced by ourselves or third-party brokers. These deals are put to Esanda through their Motor Dealers division, utilising the finance facilities made available to Titan Ford by Esanda. The business has grown rapidly since we started it up at Brookvale. The commissions and fees paid by Esanda are shared between our wholesale brokerage business and the third-party broker according to a scale of commissions we have developed and agreed with each of these brokers. After the third-party brokers are paid the balance of commissions is split 50/50 with Titan Ford as the Dealer. We meet all other payments related to the business apart from premises and phone and facsimile facilities. One aspect of the business which is growing rapidly is sale and lease/hire back of vehicles and equipment. We have identified a relatively untapped market of people who want to use unencumbered vehicles and other equipment as security for finance. We need the dealer involved so that it can warrant a clear title on the vehicle to the finance company Esanda. In this case it is Esanda who we understand is the major finance company for the Alto Group. 18 Mr Penman made no mention of the load account in this part of his affidavit. He said that he recalled that the plaintiff and Mr Blakeway brought documents to the meeting but could not recall exactly what they were. In respect of the conversations deposed to by the plaintiff and Mr Blakeway, Mr Penman said that he could not recall the exact words that were spoken; that it was unclear to him whether the plaintiff and Mr Blakeway had some equity in the business; and that it was also unclear to him whether the proposal was for them to be part owners with Alto. In respect of the plaintiff's claim that Mr Blakeway had described their "contribution" to the load as $20 per sale and hire back vehicle deducted from gross profit, Mr Penman's affidavit evidence was: I do not recall Mr Blakeway using those words. I do recall him saying something about there being a risk provision which was described as a "retention" of $20 per sale and hire back vehicle transaction in the Titan Ford business and I noted that the provision was confined to that kind of transaction rather than all finance broker transactions undertaken by the business at Titan Ford. 19 Mr Penman also recalled that there was discussion about the time lag between when introducing brokers were required to be paid commission and when Esanda paid commission. He also accepted that the conversation that the plaintiff attributed to him and the plaintiff's replies (at paragraph 12 above) occurred, however he suggested that it was more likely that he used the word "guarantees" rather than "warranties". Mr Penman recalled that he asked whether the plaintiff and Mr Blakeway had any cash "to put up to cover initial risk and start up" and that the plaintiff responded that they did not. Mr Penman claimed in his affidavit that he understood from what Mr Blakeway said that they were looking into some form of ownership and that what was being proposed was a business venture with Alto rather than an employee/contractor relationship. 20 Mr Penman claimed that he did not recall any words to the effect that the plaintiff and Mr Blakeway's "share of the fund" would be "refunded" to them "when the amount in the fund exceeds the dealer's exposure". He did recall that there was conversation to the effect that there were no problems experienced with title. Mr Penman was cross-examined about these claims as follows (tr 206-207): Q. … You wouldn't deny, would you, that the statement that Mr Blakeway asserts was said on this occasion, was in fact said, would you? A. Well no, I don't categorically deny it but I don't recall. Q. So, it is possible, having regard to the passage of time, that it was said. You just simply don't recall it? A. No. What I do recall is he said they hadn't experienced problems with bad title. Q. Dealing with the second part, "and expect our share of the fund will be refunded", you don't at the moment recall that, nor did you recall it at the time you did the statement? A. No. Q. But the possibility is, as you have not denied it in your statement, that it was said. You have just simply forgotten it with the passage of time? A. H'm. Well, it may well be so, because at that time Mr Blakeway and Mr Cook were pursuing the line that they would own business. 21 Mr Penman's affidavit evidence was that he did not recall anything said by either the plaintiff or Mr Blakeway to the effect that "ultimately any unused money in the fund goes back to the contributors". However he claimed that he recalled that he said the following words: Creating a provision is a good idea because we would be concerned about the risks of these transactions, not just sale and hire back deals. Of course I will need to talk to George about these risks and how to deal with them. 22 Mr Penman was cross-examined about his lack of recall that the words "ultimately any unused money in the fund goes back to the contributors" were said by the plaintiff or Mr Blakeway at this meeting as follows (tr 207): Q. You would agree with me that it is possible that it was said and you have simply forgotten it, having regard to the passage of time? A. I recall use of the word "contributors". Q. Yes, but dealing with my proposition, it is possible that it was said and you have just simply forgotten it? A. It's possible. 23 The fact that Mr Penman recalled the use of the word "contributors" was not pursued further in cross-examination, however it was Mr Blakeway's evidence that the plaintiff had said that "unused money" in the fund would go back to the "contributors". Mr Penman claimed he did not recall Mr Blakeway "ever saying" words to the effect that "we have an asset down the track rather than having to pay it out to the dealer over a bad title or to Esanda". His affidavit evidence included the following: So far as I recall, the concept of any provision being shared with or paid to Messrs Blakeway or Cook was never discussed at any meeting at which I was present. 2 January 1994 Letter 24 In the early part of January 1994 there were a number of telephone calls between both Mr Blakeway and the plaintiff and Mr Stubbs and Mr Penman discussing various matters in relation to the proposal. On 2 January 1994 the plaintiff and Mr Blakeway signed a letter to Mr Stubbs headed "Finance Brokerage" setting out the facilities that were needed to commence the business, including the following: For the "transfer" to proceed, it is vital that Esanda will be forthcoming with commission plans equal to what we currently enjoy and we will assist in negotiations if you so request. 25 The letter advised that the plaintiff and Mr Blakeway saw no need to provide guarantees outside "proper conduct". After referring to what they saw as the potential to greatly expand the business, the letter concluded: In addition to stand alone profits of the brokerage, we see the flow-on benefits to your business to include a dramatic improvement in current Esanda plan, resulting in reduced costs to your Esanda dealerships and facilitating extra writing through F&I Departments. Mutual marketing of existing Alto and Brokerage client bases to the benefit of both businesses is yet another example. Enclosed are current commission structures to brokers/introducers and our in-house pay structures. Jim, we enjoy a most privileged relationship with the Automotive Holdings Group, and although we have problems with dislocation from "Head Office" and constant change of management, it is a relationship that can continue indefinitely. However, we see many opportunities as outlined above in transferring to your group, a transfer that would be absolute and final once both parties reach agreement. Meeting 6 January 1994 26 On about 6 January 1994 a further meeting took place between the plaintiff, Mr Blakeway, Mr Stubbs and Mr Penman. Mr Stubbs advised that he had made enquiries with Esanda who had given a "good indication" that Alto would be able to obtain the same Esanda plan that the plaintiff and Mr Blakeway had at A&G. It is not in issue that Mr Penman informed the plaintiff and Mr Blakeway that he had been looking into the invoicing of vehicles and still needed to do more research on that aspect of the proposal due to possible stamp duty implications. Nor is it in issue that Mr Penman said that they needed to consider what to do in the event of fraudulent misrepresentation because Alto could be liable under the Dealer Agreement and even if it were not, they wanted to keep Esanda happy. He said that Alto needed "insurance" against all the business coming in from the introducers not being "good clean business" and observed that he knew nothing about most of the introducers and had no control over what they did with no come back against them. The plaintiff claimed in his affidavit that Mr Penman then said: I feel the amount being contributed into the load account as you call it may not be enough to cover a loss. It will take a long time to build to a satisfactory level and we are exposed from day one. 27 Mr Penman denied that he said this and claimed that what he said was as follows: The provision being set aside is not enough to cover potential losses. It may need to be taken over a wider range of transactions to get it up to a satisfactory level. We are exposed from day one. 28 The plaintiff informed Mr Penman that at A&G each deal was looked at carefully for credit quality; that the vehicle was inspected; that registration papers were obtained; that there was an indemnity letter signed by the customer; and that a statutory declaration as to proof of ownership was signed by the customer. The plaintiff also advised Mr Penman that the introducers were screened to ensure that they only provided good quality business. The plaintiff claimed that Mr Penman said that Mr Altomonte was worried about liability and the maintenance of good relationships with Esanda and was still of the view that he would like to see personal warranties. Mr Penman accepted that he said words to this effect but once again suggested that he would have used the word "guarantees" rather than "warranties". The plaintiff and Mr Blakeway advised that they were not prepared to give personal warranties and the plaintiff claimed that he then said: Remember that we contribute part of our commission into the load to cover the dealer for bad titles on sale and hireback. We have never had a bad title and Esanda think highly of us. You can call Esanda later for a reference as a condition of proceeding… 29 Mr Penman reiterated that Mr Altomonte was worried about Alto being "covered" and asked how the plaintiff and Mr Blakeway could make sure that Alto was covered. The plaintiff claimed that Mr Blakeway then showed Mr Penman copies of A&G journal entries for November and December 1993 showing "the provision being appropriated by the dealer", and that Mr Blakeway said: You can see we have built up quite a sum in the load account. At the first meeting I had with Jim Stubbs I mentioned we were unhappy with Autos for a number of reasons. One of the reasons we want to leave Autos is that the new dealer principal is trying to make a lot of changes to our business but does not know what he is doing. We created the load as a safety precaution and he has now taken it and appropriated it elsewhere within the dealership accounts. Half of this is our money which has been withheld from our commission. We are entitled to the money withheld if it wasn't used. There was $18,360.00 in the load account. You can now see first hand why we want to move away from them. 30 Mr Penman said that he did not recall Mr Blakeway saying these words, however in cross-examination he gave the following evidence (tr 168): Q. Do you recall discussions with Mr Blakeway and/or Mr Cook in which they indicated they had difficulties with respect to Titan Ford? A. Yes, I do. Q. What did they tell you about those difficulties? A. The concern they expressed was their operating situation, their accommodation, the way the dealership was being run, the level of referrals and the, some money they said was owing to them which hadn't been paid. Q. And has been taken, isn't that what they made clear and they were dissatisfied with what had occurred? A. They certainly expressed dissatisfaction, I can't recall whether they said it was taken from them. Q. They showed you these journal entries, didn't they? A. I don't recall them but I don't dispute it. At that meeting most of the notes and the detail was being considered by Jim Stubbs. But I don't dispute that they may well have been tendered at that meeting. Q. But the understanding you got was they were dissatisfied because there was a money problem? A. Yes and an operational problem. 31 The plaintiff claimed that after further discussion Mr Blakeway said: We are not prepared to give personal warranties, but what if we were to contribute more commission and make the load $25 for every car deal not just sale and hire backs. The load could then be used not only to cover the dealer on bad titles but also to cover Esanda for any fraudulent misrepresentation. The load would grow to a higher level quicker to cover potential risks. Both parties have to agree when it is to be used and how much is to be used to cover bad title or to maintain relationships with Esanda in the event of bad debt or fraudulent misrepresentation. I don't know how much we would need in it, but we could keep contributing until we reached a level that we are both happy with. 32 Mr Penman's affidavit evidence was that he recalled a general discussion about increasing the amount to $25 per vehicle, not just sale and hire backs, but that he could not recall Mr Blakeway saying anything about both parties having to agree when the provision was to be used. In cross-examination Mr Penman said that he could not deny that Mr Blakeway had said this, but that he could not recall him saying it (tr 211). 33 The plaintiff claimed that Mr Penman then laughed and said, "I would personally like to see half a million dollars in it". Mr Penman agreed in his affidavit evidence that he did say that he would personally like to see half a million dollars in the load but denied that he laughed or made light of the matter. The plaintiff claimed that Mr Penman then said: No, seriously we will just have to see as we go. Once we have reached a level we are all happy with we could put the contributions on hold and restart them as need be to maintain a level. Or if the fund becomes self perpetuating we could make periodic refunds back to the contributors. We would want to hold the fund though. 34 Mr Penman denied that he said the words "No, seriously". He also denied that he said the words "or if the fund becomes self perpetuating we could make period refunds back to the contributors". However, he gave affidavit evidence that he said: We would own the fund because we will own the business and we will be bearing the risk which will increase as the level and volume increases if the business develops. 35 Mr Blakeway then said: We don't have a problem with waiting to see how much we should have in the fund or with you managing the fund. You can manage the money as long as there are proper records and we agree on any payment out of the fund. As you know one of the reasons we are leaving A&G is because they knocked off our money. Obviously we don't want that to happen again. You will have to keep proper records if you manage the money. We would expect to see it in the management accounts. 36 Mr Penman claimed that he did not recall Mr Blakeway saying these specific words, however he accepted in cross-examination that it is possible that Mr Blakeway said these words (tr 214). In his affidavit evidence Mr Penman recalled Mr Blakeway saying, "we should keep proper records of the provision and reflect it in the management accounts". 37 Mr Penman was cross-examined about the keeping of records and the management accounts as follows (tr 214 – 215): Q. See, what you do recall is a reference to keeping proper records of the provision as reflected in the management accounts? A. I do. Q. The reason for keeping proper records of the provision so far as Blakeway and Cook were concerned was so that they could see what was happening with money they were contributing? A. That was one benefit. Q. And that was a benefit because they would know how much was in the fund from their point of view and their interest in it? A. Correct. The other benefit is it showed the number of transactions readily. Q. When I say "their interest in it", I want to put it to you more precisely. They had an actual interest in this sum of money that was going into the fund; would you agree with that? A. At that stage, no, I don't agree with that. Q. Well, the reason for showing them records and keeping them informed would be because they had an interest in the fund, wouldn't it? A. Yes, but that interest was purely to reflect easily the number of transactions that the division had done, because of the mix and match with commissions and the different rates applying to different deals. The actual financial records and other expenses entitlements to outside brokers varied, in the simple division of this fund, by $25, which gave a very ready reference to the number of transactions involved. Q. Yes, but there would be no need to tell them other than the number of deals they had done and the total income that came in, isn't that right, so they would know what they were entitled to, having regard to the commission structures they had seen? A. Also an idea of what funds were available to meet the exposure in the various areas of risk that we had identified. Q. You see, they were not exposed, so there was no need for them to have that information, was there? A. No. I guess not. Q. It was only in Alto's interest to have that information, wasn't it? It wasn't in Cook's interest or Blakeway's interest. Do you agree with that? A. I don't disagree with it. Q. And the reason the information was to be provided to them was because they had an interest in the fund? A. That's not the recollection I have. It was to nominate easily, to delineate, the number of transactions done and to reflect the increased need for capital, but I don't disagree with what you are saying. Q. The reason that information was to be provided was, in fact, transparency as to what was happening with money they were contributing, so that they would not be concerned about it, wasn't it? A. Well, they were not contributing it. It was treated as an expense in the business. Q. But that is not what you provided in the letter of 18 January 1994, is it? A. No, but the whole reason for that clause in that letter was to overcome the inability or the reluctance of Mr Cook and Mr Blakeway to provide either cash or security to back up various claims that they had made and their inability, or reluctance rather, to provide guarantees. Q. If they gave a guarantee or a warranty or something, there would be no need to call on that and make them liable financially, if there was not a contingency that required it? A. Correct. Q. The same with the provision fund; isn't that right? A. No. Except as to the capital requirement, I guess that is correct. Q. If they gave a warranty or a guarantee, they would have their personal assets on the line? A. Yes. Q. A bit like this provision fund? A. Yes. Q. Isn't that right? A. Yes. 38 The plaintiff claimed that he informed Mr Penman that he was pretty confident in their ability to screen out problem business and to him it was like "a forced saving" and that "we should have a nest egg for the future". Mr Penman accepted that the plaintiff did say that he and Mr Blakeway were pretty confident in their ability to screen out problem business, but denied that the plaintiff said anything to the effect of "forced saving" or a "nest egg". 39 Mr Penman said that Mr Altomonte was "happy with the overall concept" but that he had an issue with business ownership and felt that due to the dealer arrangement with Esanda he did not want to have joint ownership. Mr Blakeway advised Mr Penman that this was not a "huge stumbling block" and that so long as their potential income was sufficient he and the plaintiff could live with not having equity in the business. The plaintiff advised Mr Penman that he agreed with Mr Blakeway on the "equity issue". 40 Mr Blakeway's affidavit evidence of this meeting included the claim that Mr Stubbs said that Mr Altomonte wanted both Mr Blakeway and the plaintiff to give "personal warranties as well as make the contingency payment". Mr Penman recalled a similar conversation but believed that what was said was that Mr Altomonte wanted them to give personal warranties as well as "building a contingency" rather than "make the contingency payment". However, in cross-examination he accepted that this was a belief rather than a recollection (tr 217). Mr Blakeway's affidavit included the claim that he said: We don't know how much would need to be in the fund. We have not had any problems at all at Autos but we are happy to see how it goes and decide later how much should be in the fund and when to cease contributing or start reimbursing money. We are happy as long as our money is working for us. 41 Mr Penman denied that Mr Blakeway said this, but accepted that a conversation as claimed by Mr Blakeway in his affidavit to the following effect took place: Mr Stubbs: I'm much happier now there will be a contingency payment for every car deal. I like the business concept but I was worried about our exposure on sale and hire backs. Mr Blakeway: Well we are going from $20 per sale and hire back to $25 for all car deals. This will make a huge difference to the time it takes to build a decent fund. If you are happy with $25 per car deal so are we. We have not had to resort to the fund to date so based on our experience we don't think there will be any claims. Mr Stubbs: We've got to the point where I am comfortable with the whole thing. I'm prepared to take it to George to try and get his approval. Mr Penman: We will have to work on him. He's very conservative. But if Altos is covered and we can protect Esanda it will certainly help convince him. 42 Mr Penman was cross-examined on his earlier referred to affidavit evidence that so far as he could recall the concept of any provision being shared with or paid to the plaintiff or Mr Blakeway was "never discussed at any meeting" at which he was present as follows. Mr Penman was cross-examined about this claim as follows (tr 208): Q. Mr Blakeway asserts that he said "We have an asset down the track rather than having to pay it out to the dealer over a bad title or to Esanda". You say you don't recall him saying that. It is possible it was said but you just simply have no recollection, having regard to the passage of time? A. No. That's not correct. My recollection is that at that early meeting, as I have said, it was proposed that they would own the business and the question of any payment out would have been to Alto Ford, not back to Mr Blakeway and Mr Cook, if they had owned the business. Q. Just let me understand that. Are you now saying that it may have been said, that the position changed in the negotiations later? A. It certainly did. Q. Are you saying that it was, in fact, said, or you have no recollection, as per paragraph 30? A. What I'm saying is the original proposal put to Jim Stubbs and the Alto group was that the business would be owned, in effect, by Mr Blakeway and Mr Cook and that was the basis on which the initial discussions that I attended proceeded, but that, on subsequent analysis and examination, proved not to be feasible, or practical, once the extent of the risks and the exposure and the capital required was known. Q. Going back to paragraph 30, though, you say there you don't recall it being said. Would you agree with me now it may have been said but you just simply don't recall it? A. No, I don't recall him saying that. Q. Would you agree that it may have been said. You simply don't recall it because of the passage of time? A. It may have been the case but certainly I don't recall it. Something as significant as that I think I would have remembered, or noted. However, all things are possible, I guess. Letter 18 January 1994 43 Mr Penman prepared a letter in draft form for Mr Stubbs and Mr Altomonte and after discussion with them finalised it in a form addressed to the plaintiff and Mr Blakeway dated 18 January 1994 (the Letter). The plaintiff's recollection was that in the middle of January 1994 Mr Stubbs gave him the Letter and described it as confirming what they had talked about so far, and something he could "take back" to Mr Altomonte. The plaintiff claimed that Mr Stubbs said that he would have a formal contract prepared once Mr Altomonte had given the "final OK". The Letter was in the following terms: Re: Finance Broking Arrangements. I refer to our recent discussions, and note your desire to become more involved with retail broking operations. Accordingly, I have set out below the basis upon which this Company would be prepared to undertake such operations in conjunction with you: 1. Location and Offices: 1st Floor, Corner of Fullers Road and Pacific Highway, Chatswood. Office Accommodation to be as inspected by you, but to include re-carpeting, airconditioning, and furniture fit-out to provide one meeting room and accommodation for 6 personnel. Ancillary services are to include 6 telephone extensions, three facsimile transmission lines, 4 Car Spaces, and one land-line link to our present Floor Plan Financiers, Esanda Limited. In addition you will require assistance with accounting and administration procedures, and 3 vehicles are to be provided to a similar standard to that already identified to us by you. 2. Commencement: 30 days after basic terms of the operations have been agreed by you with this company. Set-up and administration would be as a separate department or division of the company's Dealership business. 3. Remuneration: Compensation to you, your staff and external brokers is to be on terms no less favourable than those current arrangements described by you to me, and intended to form the basis of signed Schedules to be annexed to a copy of this letter (signed by yourselves as incorporating the agreed basic terms of the arrangements) for so long as the division achieves not less than 85% of its business budget as is referred to in Clause 5 below. Return to this company to be not less than 35% of the gross profits of the business of the division, ie 35% of that amount of profit of the division remaining after deducting all commission, offset benefits and other payments properly payable by the division to "external brokers", ie. brokers and introducers, who operate primarily outside the broking division business. Remuneration arrangements shall remain in force until varied by agreement, but in any event such arrangements shall be reviewed by yourselves and this company at regular 12 month intervals. 4. Actual operating expenses: These (including rental and nominal advertising costs) are not to exceed present levels of the operations as disclosed by you to this Company ie. approx. $21,000-00 per month , or approximately 20% of the gross profit of the operations of the division. Additional expenditure or advertising outlays are to be incurred by the division, only after joint agreement by yourselves with Mr. Altomonte or myself from this company. Any mutually agreed increase in the actual operating expenses of the division (including additional advertising or administrative costs) are to be paid equally on a 50/50 basis by yourselves and this company. 5. Contract arrangements and budgetting: Budgets for the division are to be prepared as soon as practicable based on your indications to this company (approximately $100,000-00 per month gross profits of the division), and thereafter reviewed on a quarterly basis. Contracts will be entered into with you either in a form similar to your existing arrangements, or in the form of the Company's standard employment and contractual documents with appropriate amendments as soon as practicable after the basic terms of the arrangements are agreed upon and signed off by yourselves. 6. Spotters Fees will be paid/ and or credited to the division on the basis of $100-00 per vehicle plus 20% of the relevant salesman's gross margin, as and from a date to be agreed with yourselves and the various Sales Managers in the Group. In certain exceptional circumstances, this basis may be altered by specific prior agreement with yourselves. 7. A contingency reserve of $25-00 per vehicle is to be created and maintained by the Company in order to minimise loss, and provide a "buffer" fund to protect against any liability to any finance institution or other person whether as a linked Credit Provider or otherwise. In addition, you would be required to provide a full warranty to the Company in respect of any transactions successfully introduced to a finance company by your operations that were invoiced by you on this Company's invoice to the Financier without the prior approval or either myself or another Senior Manager of the Company nominated in writing to you by the Company. 8. Systems and operational procedures are to be introduced by you to the division as soon as practicable, and agreed by Mr. Altomonte or myself. I note you are currently preparing a summary form of such procedures. 9. Finance Company – Floor Plan arrangements: We note your agreement to assist us in the negotiation of an enhanced offer to the Group (if necessary), in order to maximise the benefits available to this Dealership from the relevant Company. 10. Expansion and Consolidation of Business: After an initial setlling [sic] in period, we would endeavour to increase the range and scope of business activities with a view to enhancing the profits of the division and the various sales departments within the Alto Group of Companies. If the arrangements outlined above are acceptable to you, please sign the copy of this letter provided for that purpose and return it to me. I look forward to the the [sic] opportunity of working with you in the very near future. 44 When it was suggested to Mr Penman in cross-examination that the Letter was prepared for the purposes of seeing what the plaintiff and Mr Blakeway were prepared to do and for the purposes of showing it to Mr Altomonte, he said that it "represented the final negotiations entered into" by Mr Stubbs, the plaintiff and Mr Blakeway (tr 168). When it was suggested to him that there were subsequent negotiations, Mr Penman said that there were discussions about "location and operations" (tr 168). However, he said that he would not dispute that at the meeting of 3 February 1994 (referred to later in this judgment) there was agreement that changed the provision of $25 per vehicle to $25 for all deals (tr 169). 45 Mr Penman agreed that the expression "contingency reserve" in clause 7 of the Letter is often used by accountants and gave the following evidence in cross-examination (tr 173-174): Q. You understand, don't you, that from an accounting point of view that if the reserve is not needed, then the money in the fund is allocated back to profit, isn't it? A. No, I don't understand that from an accounting point of view, but I don't argue with it. Q. If it is a sum of money taken from profit, shown and treated as an item not to come to profit, and if it is no longer needed, surely it would be taken to profit? A. That may well be the case, but that was not the purpose of this fund. Q. If it was intended to be an expense of the business activities, you would have said that, wouldn't you, in this document? A. I or Mr Stubbs may have. Q. But in drafting the document, you were careful, were you not, to introduce concepts that you thought were important so far as the protection of the Alto interests? A. Yes, and it was also designed to reflect Mr Stubbs' requirements. … Q. If it was to be treated as an expense of the business, it would have been appropriate, would it not, to include a reference to it in clause 3, or clause 4? A. It could have been dealt with there, yes. Q. But you haven't dealt with it there? A. It has not been dealt with at all. 46 Mr Penman was also cross-examined about the Letter as follows (tr 209): Q. The effect of the arrangement would be, as you would characterise it, that money would be taken out of a stream of income that would otherwise be payable to them. Wasn't that the concept, as you understood it? A. Either to them or to the dealer or to whoever was entitled to the commission, yes. Q. Your letter simply doesn't deal with that concept, does it, when you drafted it, as to who would own it and who would be entitled to it? A. Which letter are you referring to? Q. The letter of 18 January? A. No, it doesn't say that anyone other than Alto Ford would have the ownership of it. Q. It does not say that that Alto Ford owned it, does it? A. No, it doesn't. Meeting 21 January 1994 47 There was a further meeting between the plaintiff, Mr Blakeway and Mr Penman on 21 January 1994. Mr Penman informed the plaintiff and Mr Blakeway that Mr Altomonte liked what he had heard so far and would like to take the matter further. Mr Blakeway and the plaintiff handed Mr Penman some documents utilised in the operation of the A&G business and after discussion about the checklists and the procedures in relation to sale and hire back transactions, Mr Penman identified as "risky" the transactions in which the customer was paid the settlement of proceeds prior to Esanda paying the dealer. The plaintiff said that he could assure Mr Penman there was no risk and that the only factor was the timing and not the issue of being paid. The plaintiff also said that he would be prepared to guarantee that aspect of the operation of the business to Mr Penman. Mr Penman advised Mr Blakeway and the plaintiff that he would have to take "all of this" to Mr Altomonte for his approval. 48 The plaintiff's affidavit evidence was that Mr Blakeway referred to the letter dated 18 January 1994 and advised Mr Penman that Mr Stubbs had informed them that it was "just a preliminary outline of what has been discussed and that something more formal would be drawn up later". The plaintiff also claimed that Mr Penman responded that he had "taken that on board". In his affidavit evidence, Mr Penman denied that this conversation occurred. Although Mr Penman agreed in cross-examination that it was difficult to "recall precisely" what was said so long ago, he claimed to have "surprisingly a reasonable recollection of the order of events and what was discussed" (tr 167). 49 It is extraordinarily difficult for a witness to recollect events and discussions 14 years earlier without the assistance of a file note and sometimes even with the assistance of a file note. One of the tests of the accuracy of Mr Penman's memory related to a file note that he prepared of the meeting of 21 January 1994. That was a comprehensive and rather lengthy file note. It deals with some documents that had been provided by the plaintiff and Mr Blakeway at the meeting, and then moves on to the difficulties where vehicles were re-invoiced by the brokerage division to Esanda. Thereafter it refers to "certain practical matters" mentioned by the plaintiff contained in sub-paragraphs (a) to (h). The file note concludes with a reference to conversations that Mr Penman subsequently had with Bob Connolly (of Alto) and Rick De Nardi (of Esanda). Sub-paragraph (h) of the file note is in the following terms: Annexed hereto is a flowchart setting out the paperflow as I understand it of the "re-invoiced" transactions. Private problems would not arise in the loan and consumer mortgage situation but would in the lease and CHP situations. ????????????? satisfactory protection could be taken out in the situations where a sale/leasebacks were considered, however again Esanda's policy is to have all such matters approved via Parramatta office rather than the branch office direct. If the volume of current sales/leasebacks were to continue, then there would be a consideration of the impact of not complying with a direction from Esanda as to how matters are to be considered and completed. It seems that the existing F & I person attached to the dealership had caused some high level of potential exposure because of mis-description of vehicles and this needed to be closely watched in the procedure as there was no scope for vehicles being inspected other than in reliance upon other dealers and where appropriate country inspectors (who are well known and trusted by AC & DB) or the wholesale valuers involved in the different parts of the Alto Group. Both AC & DB indicated there was no going back on acceptance once the deal had been ????????????? out and proceeded to sign the letter which I think they regard as a "pre finalisation of contract" letter. John Hughes in Perth seemed to be relatively happy with the move of the business proposed in judging by initial indications that there may be a move ????????????? apparently given to him by DB. 50 Mr Penman gave affidavit evidence as to what he thought had been left out in the three places where the question marks appear in this file note. He was not sure what, if anything, had been omitted from the file note where the first set of question marks appear. He said he thought the sentence made sense "aside from the question marks". He said that he believed that the missing words where the second set of question marks appeared were "approved and sent". He said he believed that the words "of responsibility" were the words that should be inserted in place of the last set of question marks. 51 His affidavit evidence in respect of sub-paragraph (h) was as follows: That paragraph of my note was I believe after refreshing my memory from the note, directed at a conversation at the meeting which was concerned with the notion that once a finance transaction had been worked out with the customer and approved by Esanda, then Alto would be committed to it even if all the paperwork for the particular deal had not been wholly completed. I do not believe it was concerned with the signing or acceptance by Cook and Blakeway of Alto's letter of 18 January 1994 which I had drafted and which had gone out to them under Stubbs' signature for consideration and acceptance. 52 Mr Penman was cross-examined about this evidence. When it was suggested to him that the last paragraph of sub-paragraph (h) related to the Letter, and that what the plaintiff and Mr Blakeway were saying was that there was no going back once they left Titan Ford, he said (tr 178): No, you can suggest it, but it is not correct. The lady who typed my hand writing - my dictated notes - may not have made it a separate paragraph, but it was simply one more step in the exposure and assessment of liabilities and once the central broker, in this case Amfin, had said; we have approved it, it's okay as far as Esanda is concerned, what they were saying to us was; that you could not back out of that deal, even if individual paperwork, such as hire purchase lease arrangements, et cetera, et cetera, were not signed properly in relation to that vehicle, ie, that was the time when the financier, and in some cases the dealer who had to guarantee to the financier, were on the hook. It is talking about individual deals handled by the brokerage. It's got nothing to do with their contract. 53 Mr Penman rejected the suggestion that the missing word in the second set of question marks was "fleshed", giving a meaning of "fleshed out" (tr 185). In this regard Mr Turner referred to Mr Penman's use of that very expression in his cross-examination when referring to the negotiations in late December 1993 being "fleshed out further" (tr 230). In any event, Mr Penman gave the following evidence in cross-examination (tr 187): Q. The words "and proceeded to sign the letter", the connotation to be read from that comment is that Blakeway and Cook signed the letter, isn't that right? A. If they were operating the wholesale brokerage, yes, one of them or Graham Jennens or one of their other brokers would have signed that approval for the individual transaction, correct. Q. I suggest to you that is a reference to the letter of 18 January which you had drafted and which was signed in your presence and handed to you with the observation that is referred to in that paragraph that I have taken you to? A. Mr Turner, you have suggested that to me on a number of occasions and I can only say that is incorrect. Q. I suggest you are mistaken about your recollection of this matter? A. I don't think I am. 54 If Mr Penman is correct as to what was omitted from the file note where the second set of question marks appear, then the first sentence of the last paragraph of sub-paragraph (h) would read: Both AC & DB indicated there was no going back on acceptance once the deal had been approved and sent out and proceeded to sign the letter which I think they regard as a "pre finalisation of contract" letter. 55 Mr Penman's theory may have been more plausible if the words "and proceeded to sign the letter" were not included in the sentence. I am satisfied that Mr Penman is mistaken in respect of the last paragraph of sub-paragraph (h) of the file note. When the last paragraph of sub-paragraph (h) is read in context, particularly with the reference immediately thereafter to Mr Hughes being relatively happy with the move of the business, I am satisfied that this paragraph is dealing with a topic quite separate from the matters referred to in the first two paragraphs of sub-paragraph (h). This paragraph deals with the plaintiff and Mr Blakeway signing the Letter and indicating that once the deal had been finalised, or as Mr Turner put it, "fleshed out", there would be "no going back". I am satisfied that, although differently worded, this was a reiteration by Mr Blakeway and/or the plaintiff of the observation they had made in their letter of 2 January 1994, that the transfer would be "absolute and final" once both parties reached agreement. 56 I am satisfied that, although Mr Penman denied that Mr Blakeway had informed him that Mr Stubbs had advised the plaintiff and himself that the Letter was "just a preliminary outline of what has been discussed and that something more formal would be drawn up later", the conversation did occur in those terms. The plaintiff and Mr Blakeway signed the last page of the Letter under the statement: "We agree to the terms of the arrangements set out above in this copy letter". Mr Blakeway wrote the words "subject to confirmation of working guidelines and precise definition of costs". File Note 27 January 1994 57 Mr Penman made a file note dated 27 January 1994 in which he recorded the reminder to discuss with Mr Blakeway the necessary systems required, including full accounting details for "the amount of retained commission for the new brokerage division". 58 In cross-examination Mr Penman was asked whether the reference to the "retained commission for the new brokerage division" in the file note was a reference to "the provision fund or reserve or buffer" (tr 204). He said he was not sure but it "could have been" (tr 204). He then gave the following evidence (tr 205): Q. There was no other retained commission contemplated pursuant to the arrangements with Blakeway and Cook other than the retained commission buffer fund or whatever it might be called offer, reserve contemplated by your letter of 18 January? A. Not that I'm aware of apart from some final adjustments of commission that happened from time to time from Esanda depending on how particular transaction eventuated, whether it was, whatever the final rate of the transaction was. Q. But this note is prepared at a time when the business hasn't even commenced? A. Uh-huh. Q. The matter that you have just referred to was not the subject of discussion, was it? A. No, only in relation to comments that were made about the way Esanda operated. Q. What I want to suggest to you that it did in fact relate to the provision fund that we have been speaking about today? A. It may well have. Q. And in fact the reference to retained commission highlights that point for us? A. It may have referred to that. Q. Conceptually retention of money earnings were it not expressed as an extension or charge means it is ultimately payable if otherwise needed for the purpose of the retention, doesn't it, in your own experience? A. It can mean that but that's not what it meant in this instance. Meeting 28 January 1994 59 The plaintiff gave evidence of a further meeting on 28 January 1994 with Mr Blakeway and Mr Stubbs. There was discussion about the operational side of the business, record keeping including the online Esanda system and the location of the business at Chatswood. There is no controversy about the discussions at this meeting. File Note 31 January 1994 60 Mr Penman made a file note dated 31 January 1994 headed "Mortgage Brokers" in which he noted that he had discussed the "above", meaning the mortgage brokers, with Mr Stubbs at some length and that "we agreed that they should continue". The note included the following: He said that he would give some consideration to the anticipated requirement that George Altomonte may want some further provision set aside for potential losses or misrepresentations at the hands of the agents. Meeting – Early February 1994 61 In early February 1994 a meeting took place between the plaintiff, Mr Blakeway, Mr Stubbs, Mr Penman and for part of the meeting, Mr Altomonte. Although there is some uncertainty as to the date of this meeting I am satisfied that it occurred on 3 February 1994. The plaintiff gave evidence that the following conversation took place: Mr Altomonte: We're committed to going ahead with the deal too, but there is just one thing I want to sort out, before I commit capital. This is the liability aspect of the business. I am concerned for ourselves and Esanda. I like the idea of $25 for every car deal going into the provision but we cannot be too careful. How would you feel if we made it $25 for every deal, which will include plant and equipment not just cars. Hopefully we won't have a problem at all but we need to get money into the fund quickly in case we have a problem early on. Mr Blakeway: I think we could live with that. It's money we will get back sooner or later anyway. What do you think Tony? Plaintiff: Yes, I would be happy to contribute $25 for every deal. I'm happy for you to look after the load for us. I am so confident of the way we run the business that we will never have to use it. I would prefer it to end up in my pocket than paid out on a bad title or to Esanda. How much do you think we should build this up to before we stop contributing? Mr Altomonte: I don't know yet. I would like to see it grow to half a million dollars, but we will just have to see how the business goes and revisit this to see how we are going from time to time. Plaintiff: It is within our interest to protect Altos and Esanda because both parties are the key to us earning our incomes. Mr Blakeway: I see the increased contribution as more incentive for us to write clean business. We want to get this back one day rather than pay it out to Esanda or over a bad title. Mr Altomonte: Well allright then. We've got a deal now. You can sort out the operational details with Jim. Do you have any ideas for a business name? Plaintiff: No we had not thought too much about that as we wanted to see if we were going to start here first. Mr Altomonte: What about the name Amfin? It's an old company I had called American Finance that I no longer use. Mr Blakeway: The particular business name is not important to us Amfin is fine. Mr Altomonte: All right then. That's agreed. You can make the final arrangements with Jim to get started. 62 Mr Blakeway's affidavit evidence in relation to this meeting was that a conversation to the following effect took place: Mr Altomonte: I like the business model but I am worried about our exposure for bad titles or bad debts. I want the contingency fund to be $25 for all deals, not just the motor vehicle ones. Mr Blakeway: That would have a significant effect on our incomes. How much do you think we would need in the fund before we stop contributing or start giving refunds. Mr Altomonte: (laughing) Oh well I don't know. I suppose about $200,000. We will review this when we see how the business goes. Mr Blakeway: I am prepared to contribute $25 for every deal I do to the contingency fund as long as the money is managed properly. We would like to see the load clearly shown in the accounts so both sides can keep account of it. We think it will build up quickly and there are unlikely to be many claims. I am not prepared to go any higher than that. If you are not happy we will go elsewhere. Mr Altomonte: We are happy with what we have agreed upon. You can make the arrangements with Jim to get started. We will review what to do with the contingency fund after we have had some experience with your business. 63 Mr Penman's recollection of the conversation at this meeting included a recollection that Mr Altomonte said something about his concern about risk exposure to Esanda but that he did not recall him suggesting a departure from the $25 per vehicle provision. Mr Penman denied that Mr Blakeway said any words to the effect that it was "money we will get back sooner or later anyway". He also denied that the plaintiff said that he would prefer it to end up in his pocket than be paid out on a bad title or to Esanda. He accepted that the plaintiff said "how much provision do you think will be needed" and that Mr Altomonte responded that it would be at least half a million dollars. He also accepted that Mr Altomonte said he wanted to see how the business went and revisit it from time to time "because the greater the business the more funding and exposure we will face". Mr Penman denied that Mr Blakeway said any words to the effect of wanting to "get this back one day rather than pay it out to Esanda or over a bad title". 64 Mr Penman's affidavit included the following (paragraph 73 (d)): I do recall Mr Blakeway accepting the proposition of $25 per deal being allocated to the provision. 65 The apparent inconsistency between Mr Penman's recollection in his affidavit that at this meeting Mr Blakeway accepted "the proposition of $25 per deal being allocated to the provision" and the earlier statement in his affidavit that he did not recall Mr Altomonte suggesting a departure from the $25 per vehicle provision was the subject of cross-examination. That cross-examination was as follows (tr 220-224): Q. But one of the matters discussed and negotiated at the meeting was that the $25 per vehicle be increased to all pieces of equipment, that is all deals, not just vehicles? A. That could well be the case. That is not my memory, but that could have been mentioned. Q. Don't you say in your statement 73 (d) that you recall Mr Blakeway accepting the proposition of $25 per deal – if you look at the third line, rather than the quote? A. Yes. Q. Now, that indicates a recollection, doesn't it, that in fact that subject matter was discussed at the meeting on 3 February? A. Well, my recollection is it was $25 to apply to all transactions, but as I understand what you are saying, is that that was extended to matters other than vehicles. At that time I was not contemplating anything other than deals that related to motor vehicles, being the subject of the business, but they had certainly alluded to the fact, or mentioned it, that they would be looking at other types of transactions. Q. Your letter refers to vehicles only? A. Yes. Q. What I am suggesting to you is that Mr Altomonte raised that as part of the discussions at this meeting? A. I don't recall that. He may well have done. Q. But certainly if Mr Blakeway has accepted a proposition for $25 a deal, not just motor vehicles, that suggests that somebody on the Alto side raised it? A. Yes, or a matter of just referring to the transactions as individual deals. Q. I suggest to you that Mr Altomonte raised it with a view to increasing the provision? A. Well, I have no recollection of that. The primary exposure was in relation to vehicles. Q. In what context do you recall Mr Blakeway accepting a proposition of $25 per deal as opposed to vehicles? What is your recollection of that part of the meeting? A. My recollection is that deals and vehicles refer to the same types of transactions at that stage. From my recollection, I can't recall things other than motor vehicle transactions being actually put in train. It may have happened, but I don't recall it. Q. When you say happened, you mean it may have been discussed at the meeting, but you have no recall? A. No, it may have actually happened, but the greater part of it – as far as I was aware, all of the work they did was with motor vehicles when they first started with Alto Ford. Q. Did you not learn from the discussions concerning Titan Ford earlier on, that there were other pieces of equipment, on the plan (sic) and the like, beyond motor vehicles? A. Certainly that was alluded to by Mr Cook and Mr Blakeway as to what they wanted to do. Q. And that information was passed on to Mr Altomonte? A. Yes, by myself or Mr Stubbs, I am not sure. Q. Were you aware right, from the beginning, that $25, and later $50, was included in the provision concept for every deal. A. I don't recall the increase of the amount to $50. My only knowledge from that is from reading the statements. … Q. But you don't recall Mr Altomonte actually raising a desire, on his part, to change the arrangement from $25 per vehicle to $25 for any type of deal, is that what you tell us? A. No, not specifically. I don't recall that. … Q. But you do recall, according to paragraph 73, Mr Blakeway accepting a proposition of $25 per deal being allocated to the provision? A. Yes. Q. Who proposed that there be $25 per deal at this meeting? A. I don't recall who initiated that discussion. My recollection is that it was a continuation of the earlier proposal that the $25 apply to all transactions, but in the context that I understood it, to relate to motor vehicle transactions. … HER HONOUR Q. Let me try to understand this, because it is a long time ago and I have to find the facts. Mr Penman, you say this word "deals" in this paragraph I should read as meaning motor vehicles? A. That's right. Q. Can I ask you then; why that would be so when you already had that matter in your letter of 18 January which he had signed. A. Well, I am not being precise with the language, your Honour, but that is as I understand this as per deal. I didn't think it extended the range of transactions likely to be undertaken by the Amfin brokerage group in the early stages. Q. But it would be incongruous for him to accept something that he had already accepted, surely? A. Yes, I see that on the words. But, I mean, in my mind it was only dealing with motor vehicle transactions. But I do admit that the prospect of financing other things had been alluded to and suggested. TURNER Q. Have you any recollection of the content of this meeting in February, that the $25 was raised at all? A. No. Q. Well, what do you say the context was to which the $25 referred to in paragraph 73(d) was mentioned? A. It was in the context of what sort of provisioning would be necessary to cover capital and risk exposures, ie, to limit it to – sale lease back was too restrictive. It had to apply to all deals. 66 Mr Altomonte's affidavit evidence in relation to this meeting was that he welcomed the plaintiff and Mr Blakeway to the Alto Group and suggested the name Amfin for the business. He did not recall the detail of anything else that was said at the meeting but denied that there was anything said about either the plaintiff or Mr Blakeway "having any share in, or getting back, any of the contingency reserve which was to be created by Alto to protect it from the exposure it was taking on". He also claimed "I do not recall discussing the reserve at all". 67 In cross-examination Mr Altomonte said he did not believe that Mr Blakeway provided a short explanation about the business at his request (tr 248). He denied that he said that he wanted the $25 provision to change from vehicles to every transaction (tr 249). When asked to explain how the arrangement changed from vehicles to every transaction, he suggested it could have been done by Mr Stubbs or Mr Penman (tr 249). Mr Altomonte denied a number of times in his cross-examination that there was any discussion at that meeting that the $25 would be changed from every vehicle to every deal (tr 251-252; 258). 68 Mr Altomonte's evidence in cross-examination in relation to the discussion at the 3 February 1994 meeting about the level of the provision included the following (tr 253-257): Q. There was discussion, wasn't there, at the meeting about how much this provision would have to grow to, wasn't there. A. Yes, there was. … Q. Well, didn't Mr Cook raise with you the question of how much you thought it would have to grow to before contributing stopped? A. No. … Q. You have said in your statement you don't recall anything else specifically said at the meeting other than discussion about the name of the business. Does that not mean that you have not set out in the text of your affidavit other things that must have taken place, isn't that right? A. Well, I said earlier, I was concerned about the provision and I probably would have raised it that at the meeting. Q. And there would have been discussion and observations about the provision, wouldn't there, from both sides? A. There could have been. … Q. You would have been concerned to ensure that the amount of the provision was sufficient to protect you in the event of a problem occurring? A. Yes. Q. And it is likely that figures were discussed as to the size of what the provision would have to grow to? A. Particularly early in the piece, yes. Q. Because you didn't really know what was going to happen with this business, whether it would be a small business on the side, or it would become a real earner for you – you had no idea at that stage, really? A. No. … Q. Come back to the meeting of 3 February. You said to them that you wanted to see it grow to half a million dollars, didn't you? A. The reserve or the provision? Q. The provision? A. I could have said that. Q. But you don't have a recollection, as you sit there today, do you? A. I definitely wanted the provision to be there. Q. But talking about the monetary amount; are you telling the court that you have a recollection that that amount was discussed or not? A. It could have been discussed. Q. But you have no recollection at the time as to whether it was discussed, is that right? A. No, I would say it was discussed. Q. I asked you do you have a positive recollection that it was discussed or do you not have a recollection, but you simply have a recollection it may have been discussed? A. No, it was discussed. Q. Are you telling me you have recollection of it? A. Yes. 69 Mr Altomonte was reminded that in his statement he had said that he did not recall discussing the "reserve" at all at the meeting of 3 February 1994. He accepted that his expression "the reserve" was interchangeable with the expression the "provision" and gave the following further evidence in cross-examination (tr 260): Q. So, what is your recollection now about the discussion, if any, concerning the provision? What do you say was said? A. I say that I would have been concerned -- Q. Could you put it into the first person what you said concerning the provision? A. My recollection is that I would have said -- Q. Could you to answer my question, but tell us what you actually recall saying about the provision, not what you would have said, but what you actually recall. A. I can't recall the exact words. … Q. …Would you agree that your recollection of the meeting, as you sit there today, is not very good? A. No, I don't believe so. Q. But you have not been able to recall the exact words, have you, of what you said about the provision when I asked you a moment ago? A. It's pretty difficult to remember the exact words, that long ago. Q. Well, bearing in mind that it is that long ago, it is possible that the conversations reflected in paragraph 52 took place, and because of the passage of time you have simply forgotten about it? A. No, that's not right. 1 March 1994 70 The business commenced operation on 1 March 1994 trading under the name Amfin Financial Services (Amfin) registered by Alto's predecessor, Alto Ford Pty Limited (Alto Ford) at offices owned by Alto Ford at Chatswood. Some months after the commencement of the business the plaintiff received a proposed draft agreement including Conditions of Service applicable to his duties as a "finance broker" with an effective date of 1 September 1994. The draft agreement made no mention of the proposed $25 per deal being paid into the load fund. The plaintiff took legal advice and did not execute this document. Bad Debt 71 In mid 1994 a bad debt arose from finance transactions originating from Alto to Esanda. This was due to bad deals introduced by two in-house brokers who were supervised by Mr Blakeway and whose employment was subsequently terminated. At that time representatives from Esanda expressed concern about the quality of the business coming from those two brokers and advised that the business was of a substandard nature. One deal in particular was suspected of being fraudulent and Esanda claimed it would suffer losses and requested a "contribution" towards those losses. As a result of that request Mr Blakeway and the plaintiff had a meeting with Mr Stubbs and informed him of Esanda's request for a financial contribution. Mr Stubbs subsequently advised the plaintiff that he had "fixed" the problem. When asked whether Mr Stubbs used "the load", he responded "Let's just say Esanda is happy and there is nothing more to be concerned about over this issue. We can get on with writing good new business". Contributions increased - 1 September 1994 72 Later in 1994 Mr Stubbs informed the plaintiff and Mr Blakeway that Alto was worried about the relationship with Esanda and that it was necessary that the fund be built more quickly. Mr Stubbs advised that Alto wanted to increase both parties' contribution to the fund from $25 per deal to $50 per deal and enquired whether they objected to this proposal. The plaintiff said: We don't have much choice do we Jim? We have only been here a few months and this has happened. If that is what we have got to do to keep you happy then I agree to the increase to $50.00. This is a one off. We don't think this sort of thing will happen again. Fifty bucks a deal is a lot but it is not so bad if I know I am going to get it back back down the track. 73 Mr Blakeway informed Mr Stubbs that he agreed with the plaintiff but that he wanted the amount reviewed when the fund built up because he did not want to contribute $50 indefinitely. 74 From 1 September 1994 the provision for the load became $50 per deal. Thereafter there were periodic bad debt problems and Mr Blakeway and the plaintiff generally handled those issues with Esanda directly. Although the plaintiff raised the prospect of money being paid from the load for these bad debts, Mr Stubbs expressed the view that if money were to be paid, Esanda would expect it to occur all the time. These small amounts were not paid out of the load account. Change of employer 75 On 30 June 1998 Alto advised the plaintiff that all staff throughout the Alto Group, including the plaintiff, would be employed by an administrative trust, rather than by Alto. By letter of that date the plaintiff was advised that his employer had been changed to the "Alto Administrative Trust", with no adverse impact on any of his entitlements. Seeking a distribution 76 By the end of the 1997/1998 financial year the load (the Load Account) exceeded $500,000. There were a number of meetings with Mr Stubbs, at one of which the plaintiff said: It is about time we worked out a distribution from the load account and reviewed the level of our contributions. The money in the fund has accumulated to over half a million dollars and it is simply not being used for its intended purpose. We have not had a bad title on sale and hireback. Since you are not paying any money from the fund to Esanda we want you to start refunding us. Some contracts that we have written have already expired because they have been paid out or reached the end of the term. There is no liability left on these accounts so the contributions for these should be refunded to us. We are happy enough to leave sufficient in the fund to cover bad debts but only if you are going to use the fund for this purpose. Also, we think it an appropriate time to reduce the fund back to $25.00 per deal seeing there has been no recourse to the fund. 77 Mr Stubbs advised the plaintiff that he would need to take the matter up with Mr Altomonte and that he would get back to him. 78 On 17 July 1998 Mr Stubbs wrote a memorandum to Mr Altomonte entitled "Amfin provision for losses". That memorandum referred to the fact that there had been "provisioning at $50 per deal" since the commencement of the business and to date there had not been any losses written off against the provision. Mr Stubbs noted that there were several "policy payments" made to Esanda in 1994/1995 of approximately $30,000 for expenses. The memorandum also referred to the balance of the "provision" as at 30 June 1998 as $699,925 and included the following: I was asked by the Auditors last year as to what our policy is and I postponed discussion on the subject. Given that most contracts run 36-48 months and that any potential loss diminishes over time as the customer acquires equity in the goods I believe it is appropriate to cap the provision at 3 years, adjusted for any write offs arising in the relevant year. If we do it on a rolling basis this would mean taking up to profit in 1997/98 $99,275 and in 1998/99, $119,350. I have been quizzed by Tony/David/Graham re the provision and the fact that it has impacted on their commissions and has not been needed. They believe that they are entitled to a share of it, and at face value they would get 50% of it in commission. They have also suggested reducing the provision to $25 per deal, but I have said no. To overcome their issues I would propose putting 25% of any writebacks into a pool to be used for promotional purposes such as an Amfin Conference or similar event. For the year ended 30/6/98 this amount is $25,000. I have endeavoured to maintain a more than reasonable provision, ensure that the brokers are motivated to avoid bad business (which I am sure they are) and to be seen to be equitable. Can I proceed? Letter – 4 August 1998 79 On 4 August 1998 the plaintiff, Mr Blakeway and Graham Jennens, another broker working in the business, jointly wrote to Mr Stubbs in the following terms: You may recall, when we first started with Alto's, $25 from every deal was to be allocated for provision against future losses. Our previous association with Titan Ford allowed for $20, but the pluses with Alto Group made that worthwhile. Unfortunately shortly after we started, the Lewis Factor bit hard, and it was decreed that load would be doubled to $50 without discussion. David rang you and said the brokers are pretty upset about it but we understand we are new on the block, and don't have much choice. It was then he raised the possibility of a review after a period unspecified, but logical to review. There is now in excess of $700,000 in the account, of which we have contributed a significant amount by way of earned commission withheld. The writers wish to make a formal submission for immediate dialogue to arrange a fair distribution. We suggest a proportionate split as per current commission schedule after agreeing on how much should be held as a constant. As this fund is growing by $150,000 plus every six months, payment of this could be made at six monthly intervals in arrears to prevent the account dropping below the agreed amount. This request is made in good faith and our commitment to maintain the current volume of income to the Alto Group is strong. Obviously it is causing us concern and we look forward to amicable resolution in the nearest future. 80 On 14 August 1998 Mr Altomonte signed Mr Stubbs' memorandum of 17 July 1998 as "approved". Also on 14 August 1998 Mr Stubbs wrote to Alto's accounting staff, with a copy to Mr Altomonte, advising that he had discussed an appropriate provisioning policy with Mr Altomonte and also advised as follows: Given that most contracts run 36-48 months and that any potential loss diminishes over time as the customer acquires equity in the goods it is appropriate to cap the provision at 3 years, adjusted for any write-offs arising in the relevant year, and to maintain the provision on a rolling basis. Therefore for the 1997/98 year please write back to profit an amount of $99,275. Attached is a schedule as to how the provision has accumulated. Starting July 1998 please write back the July 1995 provision of $9,150 and roll forward on a monthly basis. This should be shown as a separate line in the Amfin Management Accounts so that we can differentiate the current provision from the previous year's writeback. 81 In another meeting, the date of which is not clear, between Mr Blakeway, the plaintiff, Mr Stubbs and Mr Altomonte the plaintiff claimed that the following was said: Mr Blakeway: We want to come to an arrangement whereby we maintain a level in the fund account but periodically release excess funds to the contributing brokers. Mr Altomonte: We can not be too careful. One large deal could fall over and wipe out the fund in one hit. I have been around long enough to know that one large deal going bad could cost us a million dollars. I wont agree to release any money from the load fund yet. 82 Mr Blakeway's affidavit evidence was that at this meeting he said to Mr Altomonte that "we have not been using the load so we would like to see something back from it". Mr Blakeway claimed that Mr Altomonte said "at this stage I don't want to change anything. We cannot be too careful". Mr Altomonte denied that such a meeting took place with him (tr 273). 83 Mr Altomonte was cross-examined about the plaintiff, Mr Blakeway and Mr Jennen's letter of 4 August 1998 (which was at page 103 of Exhibit A) and gave the following evidence (tr 266): Q. Could I take you to page 103. If I understand your evidence correctly you say this was never brought to your attention by Mr Stubbs, is that right, that being the letter of 4 August 1998 addressed to Mr Stubbs from Blakeway, Cook and Jennens? A. Not brought to my attention, no. Q. Was the content of it, at least the substantive content, discussed with you by Mr Stubbs at about that time? A. Can I just read that? Q. Of course, yes? A. Yes, okay. Q. Are you saying that the substantive content of it, that is that Blakeway, Cook and Jennens were seeking some sort of discussions concerning the provision fund and what had been contributed and what was to happen in the future was never raised by Mr Stubbs with you? A. No. Q. At no time, is this your position, did he ever raise with you that they were seeking some adjustments of the arrangement? A. No. Q. Are you saying to us that it was never raised either orally or in writing? A. That's correct, no. Q. Had it been raised at any time with you by Mr Stubbs prior to the date of this letter? A. No. Q. Never? A. Never. 84 Mr Altomonte was shown the memorandum from Mr Stubbs dated 17 July 1998 and his approval thereof on 14 August 1998 (at page 102 of Exhibit A). He gave the following evidence (tr 269-275): Q. You gave evidence before that Mr Stubbs never raised with you any adjustment or issue concerning the provision of the sort that I mentioned earlier, you indicated that he never did. I suggest to you that in fact he did raise these matters with you? A. He did at this letter, yeah. Q. He has clearly raised it before? A. He didn't raise it, he is actually making a recommendation. Q. But he raised with you the fact he had been quizzed concerning the provision? A. Yeah. Q. And that is true, isn't it? A. That's what he says. Q. So your evidence earlier that it had never been raised with you by Mr Stubbs that Mr Cook or Mr Blakeway or either of them or both of them had never raised it with Mr Stubbs and raised it, and he with you, was untrue, isn't that correct. A. Well, definitely been raised in 1998. Q. But you didn't have a recollection at the time I was questioning you earlier today about this being raised with you by Mr Stubbs, did you? A. You are talking about now or then? Q. Now? A. I do now. Q. As a result of seeing this memo, isn't that right? A. Uh-huh. Q. But you didn't have it earlier today when I was questioning, isn't that right? A. You asked me whether I remembered that memo earlier today. Q. I didn't ask you that, I asked you earlier today whether you had a recollection of Mr Stubbs raising with you the fact that Mr Cook, amongst others, or on his own had raised some issues concerning the provision with him and it had been raised with you and you didn't have any recollection of that earlier today when I quizzed you on it, isn't that right? A. If you say so. … Q. Certainly you became aware, did you, that Cook and Blakeway were concerned about the amount that was going into the fund, the level of the fund, isn't that right? A. No. Q. You became aware, as a result of that, from Mr Stubbs' memo? A. Yes. Q. So, the reality is there was information imparted to you about Cook and Blakeway's concern? A. Well, according to that memo, yes. Q. Are you saying to me that you have no recollection of that matter raised with you until I drew your attention to this memo at page 102? A. I was aware of that memo. Q. But as to the particular paragraph I directed you to concerning Stubbs being quizzed by Blakeway, Cook and Jennens? A. No. Q. You are not aware of that? A. No. Q. You had no recall of it, is that what you are saying? A. I don't believe I was told anything. Q. But, you were told of their concerns by this memo, weren't you, in 1998? A. Well, it's a difference when you are saying "told" and when you are saying a memo about. That memo I received and I read it and I approved his recommendation. … Q. Between 17 July and 14 August, 1998, he discussed with you the matters raised in the memo at 102, didn't he? A. Oh, I can't remember. Q. He raised with you the fact that he had been quizzed by Cook, Blakeway and Jennens concerning the provision and that they were complaining about it, isn't that right? A. Well, he says that in the memo. Q. But he had a conversation with you between 17 July and 14 August 1998? A. I don't remember that. Q. But it is highly likely, having regard to the content of the memo at 104, isn't it? A. Well, that's what he says. Mr Blakeway resigns – 30 June 1999 85 On 30 June 1999 Mr Blakeway, most of the in-house brokers and some support staff left Amfin and moved to another motor dealership. The departure of Mr Blakeway and the other staff had a significant adverse affect on the Amfin business. The plaintiff immediately set about rebuilding the business but his earnings dropped. Problems 86 From 2001 onwards an unacceptable proportion of deals arranged by Mr Jennens were going into default and causing problems with Esanda. Although there were a number of attempts by the plaintiff to have Mr Stubbs agree to utilise the Load Account to pay Esanda, Mr Stubbs refused such approach. Justification for "provision" 87 In October 2003 the accountants for Alto wrote to Mr Stubbs advising that an item holding up Alto's accounts was "the bad title provision". After drawing attention to the new AASB Standard for "general provisions" the accountants requested Mr Stubbs to provide a memorandum substantiating the maintenance of the provision. On 22 October 2003 Mr Stubbs wrote to the accountants in terms that included the following: There is a provision made each month of $50 per finance contract settled, and the balance as at 30 June 2003 represents 3 years provision. The provision is therefore based on a rolling 3 year period. Esanda has recently doubled the clawback period from three to six months. In the year ended 30 June 2003 this cost Amfin $35k. A provision of $50k to cover potential clawbacks would not be unreasonable. … Whilst our experience in the past has not resulted in needing to utilise any more than $30k of the provision there has been a marked change in the attitude of the finance companies towards absorbing losses where there has been a hint of fraud which would entitle them to recover from the broker/introducer. Needless to say we have controls in place to minimise our risk, but fraud does happen and we do have a potential exposure. For the above reasons I believe it is prudent to maintain a provision in the order of the balance as at 30 June 2003 to cover outstanding clawbacks, a large single transaction fraud, or a multiple contract fraud. Termination 88 By March 2004 no moneys had been paid to Esanda for the bad debt relating to one claim in the amount of $63,036.97. At this stage the plaintiff met with a representative of Esanda who advised him that if these moneys that Esanda had been claiming from Alto were not paid by the end of July 2004, Esanda was going to cease dealing with the business. Mr Jennens employment was terminated at the end of June 2004 and subsequently Mr Stubbs advised the plaintiff that he had been reviewing the situation and that he was prepared to offer Esanda $50,000. The plaintiff advised Mr Stubbs that there was "no way" that Esanda would accept that amount because it was nowhere near enough. The plaintiff advised Mr Stubbs that unless a realistic offer was made to Esanda it would cease dealing with the business. 89 At 4.00pm on 29 July 2004 the plaintiff was asked to attend a meeting with Mr Stubbs and Mr Altomonte. The following conversation took place: Mr Altomonte: I've just spoken to the State Manager of Esanda. They want $1.3 million dollars. Tony they don't want your business. I am not going to pay that amount. They are holding a gun to my head. Plaintiff: We have got to pay Esanda. That's what we have the fund for. If we don't pay them we will be closed down. I have contributed to the fund for over 10 years now and the purpose of the fund is to cover the situation we are in now. I know there is enough in the fund to cover their claim. If we don't everybody working in Amfin will be out of a job. 90 At the end of July 2004 Esanda stopped dealing with Amfin and the Alto Group and it shut down the computer link between the two businesses. This meant that Amfin could no longer do business with Esanda and the plaintiff and other Amfin staff were terminated. 91 On 17 August 2004 the plaintiff wrote to Mr Stubbs advising that he had obtained legal advice that his reasonable compensation would include: Account to me for the commissions I contributed to the "load" account. This was $50.00 per settled finance transaction. My estimation is that the contribution from my settled finance transactions alone, not including the other brokers that worked for the company, is greater than $500,000.00 over a period of 10 years. The amount contributed by me, once ascertained should be used to calculate commission that I have foregone by contributing to the load account. Using my estimation above of $500,000.00 contributed, I calculate that I am owed a minimum of $125,000.00 ($50.00 per deal x 50% x 50% x number of deals settled over 10 years). 92 The relationship between the parties soured and in 2005 the plaintiff brought proceedings in the Chief Industrial Magistrates Court against Mr Altomonte as the Trustee of the Alto Administrative Trust seeking amounts to which he claimed to be entitled for Annual Leave and Long Service Leave. The plaintiff was successful in those proceedings and costs were awarded against the defendant. There was no claim made in those proceedings in respect of the Load Account. Assignment 93 On 7 November 2008 Mr Blakeway's company, Danmow Pty Limited (Danmow), as first assignor, and Mr Blakeway as second assignor entered into a Deed of Assignment (the Deed) with the plaintiff, as assignee. The "Background" section of the Deed referred to the contributions made by Danmow and the plaintiff to the Load Account and included the following: D. The first assignor has agreed to assign all its right title and interest to the moneys it contributed to the provision fund and the right to recover and retain those funds to the assignee on terms set out below. E. The second assignor has agreed to assign any right title and interest he may have to any moneys he contributed to the provision fund and the right to recover and retain those funds to the assignee on the terms set out below. 94 The Deed included the following: Assignment 2. The first assignor and the second assignor each hereby assign all their respective right, title and interest in any funds contributed by either of them to the provision fund to the assignee absolutely. 3. (a) Each assignor has full power to assign his and its right, title and interest to the funds in the provision fund to the assignee; (b) The assignment of each assignor's right, title and interest in the provision fund is taken by the assignee (and its successors and assigns) free and clear of any mortgages, pledges, liens, charges or other encumbrances or claims or absolute or defeasible interests of any other person; and (c) Each assignor must do all acts and things, including without limitation the execution of such documents, as may be reasonably required by the assignee to give effect to this assignment to assign to the assignee such rights as the assignors have concerning the funds each contributed to the provision fund. 95 By Deed dated 6 August 2009 Danmow and Mr Blakeway assigned all their right, title and interest in the contributions made to the Load Account by the internal brokers and on behalf of the internal brokers. Plaintiff's claims 96 The plaintiff's case at trial, as pleaded in the Second Further Amended Statement of Claim filed in Court on 17 November 2009, is that in late January/early February 1994 Alto agreed to employ the plaintiff and Mr Blakeway and/or Danmow, and that such agreement included a term that after payment of certain expenses an amount of $12.50 (later $25 and later still $50) per financing deal would be retained from the plaintiff's and Mr Blakeway's/Danmow's respective shares of the income of the business and the same amount from Alto's respective share of the business that would otherwise be due to the parties and set aside in a fund (the Load Account) on account of any need to make a payment in respect of the contingencies "and would otherwise be repayable after closure of the business and in the event that the monies were not required for contingencies". 97 The plaintiff's alternative claim is that the agreement entered into in late January/early February 1994 included a term that the plaintiff and Mr Blakeway/Danmow would be employed on the basis that: (1) after deduction of external brokers' expenses they would receive 50% of the income of the business (although in the case of the plaintiff on a sliding scale); (2) that a contingency reserve of $25 (and later $50) per deal was to be created or maintained by Alto to provide a buffer to protect against the specified contingencies; and (3) in the event that Alto retained any income in the reserve that was otherwise payable to the plaintiff and Mr Blakeway/Danmow as part of the fund for contingencies, it was to be paid to the plaintiff and Mr Blakeway/Danmow after closure of the business and in the event that the moneys were not required for the specified contingencies. 98 The plaintiff seeks declarations that the amounts deducted by the defendants from commissions otherwise payable to the plaintiff in respect of the finance lease deals introduced by the plaintiff to Esanda are held on resulting trust for the plaintiff. The plaintiff also seeks other similar declarations in relation to the Load Account being held on resulting trust for himself, Mr Blakeway and/or Danmow. Mr Blakeway executed Deeds of Assignment in favour of the plaintiff and declarations are sought as to the validity of those assignments. There is also a claim for an order for the defendants to account to the plaintiff in respect of the Load Account. 99 There were a number of other claims made by the plaintiff. The first was that he was entitled to the return of the contributions to the Load Account on the basis that there was a total failure of consideration. This was not developed in final address. There was also a claim that the contributions to the Load Account constituted a loan which was repayable when the business came to an end. This was not developed in final address. There was also a claim of moneys had and received which was not developed in final address. Contract Claim 100 The plaintiff contends that the agreement was partly oral, as negotiated in late 1993 and early 1994 and partly in writing, being the Letter. The defendants contend that all negotiations prior to the signing of the Letter concerning the "provision" were subsumed into the Letter. It was also contended that there were no subsequent effective amendments to the operation of paragraph 7 of the Letter. The Letter 101 I will deal firstly with the defendants' contention that the Letter constitutes the whole contract between the parties, so far as the Load Account is concerned. 102 Paragraph 2 of the Letter refers to the commencement date as a time "after basic terms of the operations have been agreed" between the parties. It was therefore necessary for the parties to reach further agreement prior to the contract being finalised. 103 Paragraph 3 of the Letter referred to "Remuneration" in terms of compensation that was to be "no less favourable than those current arrangements described by you to me, and intended to form the basis of signed Schedules to be annexed to a copy of this letter". The detail of that remuneration and compensation had to completed and schedules had to be agreed and signed. 104 Paragraph 5 of the Letter provided that contracts would be entered into, either in a form "similar" to the plaintiff's existing arrangements, or in the form of the defendant's standard employment and contractual documents "with appropriate amendments". It was therefore necessary for the parties to reach further agreement as to whether the contract would be in a form "similar" to that which the plaintiff had with his existing employer, Titan Ford, or in the form of Alto's standard employment contract. The timing of that process was "as soon as practicable after the basic terms of the arrangements" were agreed between the parties. The reference to the "basic terms" in paragraph 5 of the Letter seems to me to be a reference back to that expression in paragraph 2 of the Letter. 105 Paragraph 7 of the Letter refers to "$25 per vehicle" as the basis upon which the "contingency reserve" (the Load Account) was to be "created and maintained". There is no issue that half of the amount of $25 per vehicle ($12.50) was to be contributed to the Load Account by the plaintiff and the other half by the defendant. That is not reflected in the Letter. There is also no issue that the amount of $25 per vehicle was changed to $25 per deal. That is not reflected in the Letter. These matters alone satisfy me that the Letter was not the whole contract between the parties as it related to the Load Account. I have also concluded that the last paragraph of sub-paragraph (h) of Mr Penman's file note of the meeting of 21 January 1994 was a reference to the plaintiff and Mr Blakeway signing the Letter. I am satisfied from the entry in that paragraph that Mr Penman understood that the plaintiff and Mr Blakeway did not intend that the Letter was the final contract between them and the defendant, but rather they intended it to be a "pre-finalisation of contract". 106 I am satisfied that the Letter does not constitute the contract between the parties. It is part of the contractual arrangements between the parties but it is not the whole contract. The repayment term 107 There is no issue that the amount of $25 (and later $50) per deal from the plaintiff's (and/or Mr Blakeway's/Danmow's) and Alto's income on those deals was "retained" and credited to the Load Account. I have referred to the Load Account as a convenient description of the arrangement between the parties. However in paragraph 7 of the Letter the expressions "contingency reserve" and "buffer fund" were used. Although Mr Lockhart submitted that it was unclear what liabilities or obligations the Load Account was to be used for, I am satisfied that the parties intended that the Load Account was to be available for payment in respect of the contingencies with possible bad title and/or fraud. The real issue in both the main claim and the alternative claim in contract is whether the agreement included a term that the Load Account was to be repayable to the contributors to the Load Account after closure of the business and in the event that the moneys were not required for contingencies (the repayment term). 108 The plaintiff relied upon the various conversations referred to earlier in this judgment in support of his claim that the parties agreed to the repayment term. Those conversations did not include any discussion about what would happen to the Load Account if the business ceased to operate. That is a difficulty for the plaintiff in the way that he has pleaded his case. There were conversations about the difficulties the plaintiff and Mr Blakeway were experiencing at Titan Ford and their reasons for wishing to leave that company. Mr Penman accepted in his cross-examination that he understood from those conversations that one of the reasons the plaintiff and Mr Blakeway were leaving Titan Ford was that "some money they said was owing to them which hadn't been paid" (tr 168). Although Mr Penman was not able to recollect whether they said that the money "was taken from them" he remembered that they "certainly expressed their dissatisfaction" (tr 168). I am satisfied that Mr Blakeway informed Mr Stubbs and Mr Penman that one of the reasons that he and the plaintiff wanted to leave Titan Ford was because the "load" had been appropriated elsewhere by that company. 109 Although Mr Penman had given affidavit evidence that he did not recall either the plaintiff or Mr Blakeway saying that they expected that their share of the fund would be refunded, he accepted that "it may well be so" that such a conversation may well have occurred, at least at the meetings on 29 December 1993, because at that time the plaintiff and Mr Blakeway "were pursuing the line that they would own the business" (tr 206-207). Mr Penman recalled Mr Blakeway using the word "contributors", however he did not have a recollection as to the context or the detail of the conversation in which that expression was used. I am satisfied that it is more probable than not that Mr Blakeway used the term "contributors" in the context in which he claimed he used it; that is, when he said to Mr Penman that he and the plaintiff regarded themselves as being entitled to the moneys in the "load" and that any moneys in the "load" that were not used would go back to the "contributors". However I accept that at the time that this proposal was raised in the meeting on 29 December 1993 and the further discussion in relation to it at the meeting on 6 January 1994, it was intended, although not finally decided, that the plaintiff and Mr Blakeway would have some equity in the business. There is no issue that this intention was abandoned at the meeting on 6 January 1994 when Mr Penman informed the plaintiff and Mr Blakeway that Mr Altomonte did not want to have joint ownership. 110 Mr Penman accepted that at the meeting on 6 January 1994 he did say that he would personally like to see half a million dollars in the Load Account. The plaintiff claimed that Mr Penman had said that if the fund became self-perpetuating, periodical refunds could be made "back to the contributors". The plaintiff also claimed that Mr Penman said, "we would want to hold the fund". Mr Penman denied saying anything about periodical refunds back to the "contributors". He claimed that he said that Alto would "own the fund" because "we will own the business and we will be bearing a risk which would increase as the level and volume increases if the business develops". 111 The plaintiff claimed that he referred to the Load Account as being a "forced saving" or a "nest egg". Mr Penman denied that the plaintiff used these expressions and also denied that Mr Blakeway referred to the Load Account as an "asset down the track". Even if these expressions were used by the plaintiff it does not mean that the repayment term was agreed between the parties. Neither the plaintiff nor Mr Blakeway gave evidence that when they made these statements there was any response in which the defendant could be taken to have agreed to such statements. Indeed at the stage at which the plaintiff and Mr Blakeway claimed they made these statements the parties were acutely aware that it was necessary to build the Load Account to a satisfactory level to meet the Esanda contingencies. Whether there was ever to be a "nest egg" would depend upon whether the Esanda contingencies materialised. 112 Although Mr Penman made a detailed file note of the meeting of 21 January 1994, there is no similarly detailed file note of the meeting of 6 January 1994. The plaintiff claims that it is more probable than not that, notwithstanding Mr Penman's denials, the version of the conversation for which he contends and Mr Blakeway contends, is correct. The plaintiff submitted that the determination of the conflict between the competing versions of these conversations is assisted by Mr Penman's acceptance that management accounts in relation to the Load Account were to be provided to the plaintiff and Mr Blakeway. It was submitted that if, as the defendants claim, the plaintiff and Mr Blakeway had no entitlement to the moneys in the Load Account, there was no need to provide them with management accounts. 113 There is no issue that it was agreed that: the defendants would keep proper records in relation to the Load Account; the Load Account would be reflected in the management accounts; and the plaintiff and Mr Blakeway would be provided with, or provided access to, those records and management accounts. Mr Penman accepted in cross-examination that one of the benefits of keeping such "proper records" of the Load Account was so that the plaintiff and Mr Blakeway "could see what was happening with money they were contributing" (tr 214). He also accepted that the plaintiff and Mr Blakeway had an "interest" in the fund, however he suggested that such interest was "purely to reflect easily the number of transactions" that had been done (tr 214). 114 In cross-examination Mr Penman claimed that the plaintiff and Mr Blakeway "were not contributing" because the Load Account was treated as "an expense in the business" (tr 215). When challenged in relation to this statement by reference to the fact that it was not how it was described in the Letter, Mr Penman claimed that the relevant paragraph in the Letter was to "overcome the inability or the reluctance" of the plaintiff and Mr Blakeway to provide guarantees (tr 215). He accepted that if they had been willing to provide guarantees, their personal assets would have been "on the line" and that the Load Account was also "on the line" (tr 215). 115 I do not accept Mr Penman's evidence in his cross-examination (at tr 214-215) that the "interest" the plaintiff and Mr Blakeway had in having access to the proper records and management accounts in relation to the Load Account was "purely" to easily identify the number of transactions that had been completed. There was no evidence that such accounts were used for this purpose and there was no evidence that the plaintiff and/or Mr Blakeway had any difficulty in identifying the number of transactions that had been completed by the business without access to such records. 116 I am satisfied that the request for the keeping of proper records and the reflection of the Load Account in the management accounts occurred at the time when the plaintiff and Mr Blakeway agreed to abandon their intention to have equity in the business. I am not satisfied that the abandonment of the plaintiff's/Mr Blakeway's intention in this regard meant that they no longer claimed to have any financial interest in the Load Account. 117 The plaintiff submitted that if the parties' mutual intention was that he and/or Mr Blakeway had no financial interest in the Load Account, there was no need to keep them informed of the level of the Load Account or to provide records to them in relation to its management. Mr Penman suggested in his cross-examination that one of the reasons the plaintiff and Mr Blakeway would need to have access to the proper records and management accounts was to give them "an idea of what funds were available to meet the exposure in the various areas of risk" that had been identified (tr 214). Mr Turner challenged Mr Penman in relation to this claim with the suggestion that the plaintiff and Mr Blakeway were not exposed to the risks (because it had been agreed that Alto would own the business and therefore be exposed to the risks) and accordingly there was no need to give them access to the records or management accounts. Mr Penman had to agree with that suggestion, although he couched it cautiously as not disagreeing with it (tr 215). 118 I am satisfied that the reason the defendant agreed that proper records would be kept and that management accounts were to be provided to the plaintiff and Mr Blakeway was because the defendant accepted that the plaintiff and Mr Blakeway had a financial interest in the Load Account to the extent of the contributions they made to it, not merely an operational/administrative interest to identify the number of transactions completed by the business. 119 The file note made by Mr Penman on 27 January 1994 referred to "the amount of retained commission". Mr Penman was reticent to agree in cross-examination that this part of the file note and the use of the expression "retained" was a reference to the Load Account (tr 205). After Mr Penman gave evidence that he was not sure that it referred to the Load Account but that it "could have", Mr Turner challenged him by suggesting that there were no other retained commissions contemplated between the parties. Mr Penman agreed that he was not aware of any but then claimed that there may be some "final adjustments of commission that happened from time to time from Esanda depending on how a particular transaction eventuated, whether it was, whatever the final rate of the transaction was" (tr 205). Mr Turner reminded Mr Penman that the file note was prepared at a time when the business had not commenced operation and suggested that there was no discussion about final adjustments of commission to which he had just referred. Mr Penman responded, "No, only in relation to comments that were made about the way Esanda operated" (tr 205). When pressed further by Mr Turner to agree that the reference in the file note to "retained" commissions related to the Load Account, Mr Penman said that "it may well have" (tr 205). He resisted the suggestion made by Mr Turner that the concept of retention meant that if the moneys were not needed for the purpose for which they were "retained", they would be released to the party otherwise entitled to them (tr 205). Notwithstanding Mr Penman's reticence, I have no doubt that the reference to the "retained" commissions in this file note was a reference to the proposed Load Account. 120 The plaintiff also relied upon the evidence in relation to the meeting of 3 February 1994 in support of his contention that the repayment term was agreed between the parties. The plaintiff relied upon his own statement at that meeting that he would prefer the Load Account moneys to end up in his pocket rather than being paid out to Esanda. The plaintiff claimed that at this meeting Mr Blakeway referred to the money in the Load Account as "money we will get back sooner or later". Mr Blakeway's affidavit evidence did not include a claim that he said to Mr Altomonte at this meeting that the money in the Load Account would go back to the plaintiff and himself sooner or later. Rather, his affidavit evidence was that Mr Altomonte wanted to see how the business went and to "review what to do" with the Load Account after the parties had some experience with the business. 121 Mr Blakeway was cross-examined in relation to the letter written to Mr Stubbs by himself, the plaintiff and Mr Jennens on 4 August 1998, as follows (tr 124): Q. At the time you wrote this letter you didn't believe you did have an entitlement to moneys in the fund, did you? A. Not correct, I did believe it. Q. You did believe it? A. Mm. Q. Why didn't you say so in the letter? A. I thought I did, "earned commission withheld", to me that means that's my money, that is what was meant. Q. At the time of writing this letter did you have a view that there were amounts owed to you by reference to amounts contributed to the load fund? A. Yes. Q. Did you have any view as to how those amounts might be calculated? A. Yes. Q. What was your view? A. By the actual dollars I had actually contributed out of my own pocket. Q. Did you give consideration to the possibility that Alto may face claims in the future in respect of deals to which had you contributed [sic], as you say? A. Yes. Q. And on giving that matter consideration did you form the view that you were entitled to all of the moneys that you had hitherto contributed to the fund? A. No. Q. What was your view as to how one would work out what you considered to be your entitlement to a refund? A. My view went back to our original negotiations, that this business had never existed on the planet earth before and therefore we would have to, I am not very good with words, what means suck it and see in the future and both Altomonte, who was President at the time, and Stubbs said well, we are not in the business of being ridiculous, we want you to be happy because you are and then you will make us happy. So it was by negotiation, painful negotiations. 122 Mr Lockhart challenged Mr Blakeway as to why, when he left the business in 1999, he did not write a letter of demand to Alto seeking payment of the amounts that he had contributed to the Load Account. This challenge was obviously to support a submission that at the time Mr Blakeway resigned from the business, he did not believe he was entitled to any amounts in the Load Account. Mr Blakeway explained that he did not write the letter of demand at that time and waited until 2004 to do so. He said that he was sure that if he had written a letter at that time, the defendants would have rejected any claim on the basis that all of his contracts were not "up yet" (tr 125). Mr Blakeway gave evidence that the longest finance contracts that were written were for five years, and that in five years from the date of his resignation anything that he had written would have been paid in full or any problem in relation to them would have arisen (tr 125). 123 The fact that Mr Blakeway did not make a demand for any amounts in the Load Account at the time of his resignation is not a matter that weighs in the balance against the repayment term having been agreed as alleged. Mr Blakeway's evidence in relation to the anticipated rejection of any claim on the basis that the contracts were not "up yet" is consistent with the parties' intention that the Load Account was created and maintained to protect Alto from the Esanda contingencies. It was not possible to know whether there would be any moneys in the Load Account to which Mr Blakeway might stake a claim until the time frame within which the Esanda contingencies might arise had expired. 124 Mr Lockhart cross-examined Mr Blakeway in relation to the position of the internal brokers and whether Mr Blakeway had discussed the Load Account with those brokers. Mr Blakeway gave the following evidence (tr 131): Q. Did you say to any of these internal brokers, prior to beginning the business, anything concerning any entitlement to refund of any surplus in the load? A. General descriptions such as; down the track. Q. What did you say? A. To be negotiated at a future date, words to that effect; the same as my own situation. 125 This evidence suggested that Mr Blakeway's position was that rather than the repayment term being agreed in late January/early February 1994, the parties agreed to negotiate at a "future date" what was to happen with the Load Account. Mr Blakeway reiterated this position a little later in his cross-examination as follows (tr 139-140): Q. You attended a meeting in January 1994 with Mr Stubbs and Mr Penman? A. Yes. Q. Where did that meeting occur? A. Alto head office at Gordon. Q. At that meeting do you recall whether there was any discussion about the load? A. Yes. Q. Did you say anything at that meeting about the load to the best of your recollection? A. To the best of my recollection I made non specific, I made specific reference to fact that [sic] we couldn't be specific and got agreement on it. Q. When you say you made reference to the fact you could not be specific, what are you referring to? A. I'm referring to my way of business that you probably disapprove of, I am rambling now, the same as I deal with Cook. It had never been done before, if we made specific arrangements, I used words to this effect, if we made specific arrangements now one of us runs a big risk of getting shot in the foot because I don't know how big this is going to go and how much is involved and what risks there are going to be but we will find out down the track and we need to negotiate as it goes along, and they both agreed with that. 126 Mr Blakeway's evidence in cross-examination was that an agreement had been reached that the parties would wait and see what happened with the business and then "negotiate as it goes along". 127 Mr Altomonte agreed in cross-examination that there was discussion at the meeting on 3 February 1994 about the level to which the Load Account would have to grow (tr 253). However, Mr Altomonte denied that the plaintiff raised the question of how much Mr Altomonte thought it would have to grow to before "contributing stopped" (tr 254). He accepted in cross-examination that he was concerned to ensure that the amount of the Load Account was sufficient to protect Alto against the Esanda contingencies. He also gave evidence that "particularly early in the piece" figures were discussed as to the level of the Load Account (tr 256). 128 It is clear that the amount of the Load Account was discussed at the meeting of 3 February 1994. It is also clear that this discussion was in the context of questions being asked by the plaintiff and/or Mr Blakeway about the level of the Load Account. I am satisfied that on 3 February 1994 Mr Altomonte agreed that the Load Account should be reviewed after seeing how the business developed. 129 Mr Blakeway's evidence supports the defendants' case that the repayment term was not agreed in late January or early February 1994. There were a number of aspects to the Load Account that were not the subject of any express statements at that time. There was discussion about the level of the Load Account and there was discussion about the prospect of the Load Account reaching a level when the parties would give further consideration as to what might happen to it. However there was no agreement reached as to what would happen if the Load Account grew to a certain level without any payments having being made to protect Alto against the Esanda contingencies. There was certainly no evidence of any statement in respect of what would happen to the Load Account if the business closed. 130 The post-contractual conduct between the parties may be considered for the limited purpose of deciding whether an agreement was entered into late January/early February 1994: Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153, at [25] per Heydon JA (as his Honour then was). 131 There is no mention of the repayment term in any of the written communications after February 1994 and in particular in the letter from the plaintiff, Mr Blakeway and Mr Jennens to Mr Stubbs dated 4 August 1998. What that letter sought was an "immediate dialogue to arrange a fair distribution" with the suggestion that there should be a "proportionate split as per current commission schedule after agreeing on how much should be held as a constant". It is reasonable to expect that if the plaintiff and Mr Blakeway believed they had an agreement with either of the defendants that the "unused" moneys in the Load Account were to be returned to them "when the business closed", there would have been some reference back to that agreement in that letter. The proposal that there should be agreement as to how much should be held "as a constant" with the further proposal that there could be payments every six months is consistent with Mr Blakeway's evidence that the agreement reached in January/February 1994 was that the parties would review the Load Account after they had the opportunity to see how the business developed. 132 The plaintiff also claimed that the repayment term should be implied. The defendants submitted that the repayment term should not be implied because it does not satisfy the tests applicable to such a term. It was certainly not so obvious that it went without saying and it was not necessary to give business efficacy to the contract between the parties: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283. The parties intended to review the Load Account after seeing how the business developed. In late January/early February and February 1994, the parties did not address what was to happen if the business closed and there was a surplus in the Load Account. 133 The case pleaded in contract is that the repayment term was agreed in late January/early February 1994. I am not satisfied that the plaintiff has established that the repayment term was agreed between the parties or that it should be implied. Resulting Trust 134 The defendants submitted that the plaintiff's resulting trust claim fails if the parties did not reach the agreement "as alleged". In this regard the defendants relied on what Kirby P said in Bryson v Bryant & Anor (1992) 29 NSWLR 188 at 198 that it was necessary for the parties to have a common intention in relation to the trust. However, the fact that the plaintiff has not proved that the contract between the parties included the repayment term does not mean that the resulting trust claim falls with that failure. 135 It is quite clear that the parties intended to create the Load Account to protect Alto and the Trust against claims by Esanda in respect of the Esanda contingencies. Although the plaintiff and Mr Blakeway were confident in February 1994 that they would not encounter circumstances where the Esanda contingencies would arise, the parties were clearly concerned that Alto should be protected in case they did arise. 136 An issue to be decided on this aspect of the plaintiff's claim is whether the parties intended that the Load Account would be at the free disposal of Alto: In re Goldcorp Exchange Ltd [1995] 1 AC 74, at 100 per Lord Mustill; or whether such freedom was necessarily excluded by reason of the parties' intention that the Load Account was to be used exclusively for payment of the Esanda contingencies: Twinsectra Ltd v Yardley [2002] 2 AC 164, at 185 per Lord Millett. One matter relevant to the decision on this issue is whether the parties agreed that Alto would "own" the Load Account or "hold" the Load Account. The former concept carries with it a prima facie freedom for Alto to use the Load Account for any purpose, whereas the latter concept carries with it a prima facie exclusion of such freedom. The defendants contended for the former position and the plaintiff for the latter. 137 In support of their contention the defendants relied on Mr Penman's evidence of the discussion at the meeting on 6 January 1994. There is no issue that at this meeting Mr Penman said that he would like to see $500,000 in the Load Account, nor is there any issue that there was discussion about the level to which the Load Account would build. The plaintiff claimed that Mr Penman also said: … we will just have to see as we go. Once we have reached a level we are all happy with we could put the contributions on hold and restart them as need be to maintain a level. Or if the fund becomes self perpetuating we could make periodic refunds back to the contributors. We would want to hold the fund though. 138 In his affidavit evidence, Mr Penman did not deny that he said "once we have reached a level we are all happy with we could put the contributions on hold and restart them as need be to maintain a level". Nor did he expressly deny that he said that Alto would "hold" the Load Account. However he denied saying "if the fund becomes self perpetuating we could make period refunds back to the contributors" and claimed that what he said was: We would own the fund because we will own the business and we will be bearing the risk which will increase as the level and volume increases if the business develops. 139 Mr Turner cross-examined Mr Penman in relation to the claim that Alto would "own the fund". Mr Penman gave the following evidence in cross-examination (tr 213): Q. In any event, I put it to you that you did not say "We would own the fund because we will own the business"? A. Well, that's not my recollection. Q. I suggest that what you did say was something to the effect, either on this or separate occasions, "We will hold the fund". Would you agree with that being said? A. "We" being Alto would hold the funds, yes. Q. Yes, hold the funds? A. Yes. Q. And on this or another occasion "We own the business"; would you agree? A. It could have been said as two separate sentences, yes. Q. But rather than the concept of owning the fund; in fact the concept was holding the fund? A. That's not my recollection. 140 The defendants' claim that Alto would "own" the Load Account needs to be assessed in light of the terms of the Letter and Mr Penman's concession that the defendant agreed it would keep proper records, reflect the Load Account in the management accounts, and give the plaintiff and Mr Blakeway access to these records and accounts. The Letter does not record that Alto would "own" the Load Account. Rather it records that the Load Account would be "created and maintained" by Alto. Mr Penman was a very experienced corporate lawyer. By January 1994, he had spent over twenty years in private practice and a further three years as a corporate executive in which his work was predominantly legal and financial (tr 154). If the parties had agreed at the meeting on 6 January 1994 that Alto was to "own" the Load Account, then it is reasonable to expect that Mr Penman would have included such an expression in the Letter rather than the expression "create and maintain". The expression "create and maintain" in the context in which it appears in the Letter conveys the meaning that Alto would set up the Load Account and keep it in existence or preserve it. It does not mean that Alto would own it. The expression "create and maintain" is consistent with the plaintiff's claim that what was said at the meeting on 6 January 1994 was that Alto would "hold" the Load Account. 141 I have already dealt with Mr Penman's cross-examination in relation to the keeping of records and the management accounts and I have concluded that the reason that Alto agreed to keep the records and management accounts and provide them to the plaintiff and Mr Blakeway was because the defendant accepted that the plaintiff and Mr Blakeway had a financial interest in the Load Account. 142 I am satisfied that at the meeting on 6 January 1994 Mr Penman said that Alto would "hold" the Load Account rather than "own" it. I am satisfied that the parties intended that Alto would "hold" the Load Account for the specific and exclusive purpose of providing protection to Alto against claims for the Esanda contingencies. 143 Part of the defendants' submissions amounts to a claim that they are entitled to keep the Load Account, irrespective of whether the Esanda contingencies materalised. If the parties intended that the defendants would be entitled to keep the Load Account irrespective of any need to pay Esanda, then there would have been no need to provide the plaintiff and Mr Blakeway/Danmow with the records and/or the management accounts. 144 In his memorandum dated 17 July 1998 Mr Stubbs advised Mr Altomonte that because most finance contracts ran for 36-48 months, it was appropriate to cap the Load Account at three years, adjusted for any write-offs arising in the relevant year. In my view this advice recognised that there were surplus funds in the Load Account beyond that which would be needed to pay for the Esanda contingencies. This adjustment to the Load Account, by the writeback to profit of amounts surplus to the needs to meet the Esanda contingencies, was a unilateral dealing with the Load Account and without notice to or the agreement of the plaintiff and/or Mr Blakeway. However, Mr Stubbs' memorandum referred to the belief held by the plaintiff, Mr Blakeway, and Mr Jennens that they had an entitlement to a share of the Load Account. The memorandum does not record any statement to the effect that their belief was unwarranted or unreasonable. Rather Mr Stubbs proposed putting 25% of writebacks into a "pool" to be used for promotional purposes for the business and suggested that he wanted to be seen "to be equitable". Mr Altomonte approved this proposal and I assume that this payment was made, there being no evidence to the contrary. If it had been intended that the defendants would own the Load Account and be free to use it or any surplus funds within it for any purpose and without recourse to the plaintiff and Mr Blakeway/Danmow, there was no need to be seen to be equitable or to provide 25% of the surplus to the benefit of the plaintiff and Mr Blakeway. 145 I am satisfied that Alto was not free to dispose of the Load Account in any way it desired. Such freedom was necessarily excluded by reason of the parties' intention that the Load Account be used exclusively for payment of the Esanda contingencies. 146 I am also satisfied that the parties agreed that the Load Account would be reviewed after they had the opportunity to see how the business developed and to see whether it was necessary to use the Load Account for the Esanda contingencies. I am satisfied that they intended to review the Load Account for the purpose of working out the level at which it should be "maintained". This carried with it the need to work out what was to happen to the surplus funds, if any, over the level at which the parties agreed to maintain the Load Account. 147 The defendants also claimed that there was no payment made by the plaintiff, or Mr Blakeway/Danmow, of any of their moneys to Alto. It was submitted that the "contingency reserve" referred to in the Letter was "merely an integer in the formula of calculating" what the plaintiff and Mr Blakeway/Danmow would be paid and was not part of their earnings. It was submitted that there was an arrangement in relation to the amount of remuneration to be received by the plaintiff, calculated by reference to a commission rate based upon the gross brokerage of the business, less certain amounts, including an agreed amount per vehicle or per deal. It was submitted that even on the plaintiff's case, it was never the money of the plaintiff or Mr Blakeway/Danmow and therefore no trust arose. I disagree with this characterisation. Commissions that were payable to the plaintiff and Mr Blakeway/Danmow were withheld or retained because the plaintiff and Mr Blakeway/Danmow had agreed to contribute those amounts due to them into the Load Account. 148 The defendants submitted that no fund was ever created and thus an essential term of a trust was not established: Public Curator of Queensland v The Union Trustee Company of Australia Ltd (1922) 31 CLR 66 at 74-75. This submission was based on the proposition that because the plaintiff did not pay any money into a separate bank account, no trust property or fund was ever established. Careful records were kept as to the amount of the Load Account and careful records were kept as to the amount of writebacks to profit once the decision was made to cap the Load Account at three years. Whilst the establishment of a separate account may be an indicator of the existence of a trust the fact that a separate physical account was not established in the circumstances of this case does not mean that there is no trust property. 149 The defendants also submitted that there was no certainty of terms as to the use to which the Load Account would be put and when it was to be redistributed. I disagree with the first part of this submission. As I have said above, the parties' intentions in this regard were quite clear. However I am satisfied that at that time the Load Account was created, there was no certainty as to the terms on which it might be redistributed. However, this does not mean that the plaintiff's resulting trust claim fails. 150 The business came to an end in July 2004. The Load Account has not been used by Alto to meet any Esanda contingencies. 151 In Twinsectra Ltd v Yardley, Lord Millett referred to Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 and the arrangements that, since that case, are commonly referred to as a Quistclose trust. Both of those cases involved a loan from one party to another for a specific purpose rather than equal contributions into a fund for a specific purpose. Notwithstanding this distinguishing feature, Lord Millett's statements in Twinsectra Ltd v Yardley are apt to the circumstances of this case. After referring to the explanation of North J in Gibert v Gonard (1884) 54 LJ Ch 439 at 440 that a recipient of a payment for a particular purpose has a duty and a legal obligation to apply such money for such purpose, Lord Millett said at 186: The duty is not contractual but fiduciary. It may exist despite the absence of any contract at all between the parties, as in Rose v Rose (1986) 7 NSWLR 679; and it binds third parties as in the Quistclose case itself. The duty is fiduciary in character because a person who makes money available on terms that it is to be used for a particular purpose only and not for any other purpose thereby places his trust and confidence in the recipient to ensure that it is properly applied. This is a classic situation in which a fiduciary relationship arises, and since it arises in respect of a specific fund it gives rise to a trust. 152 The handing down of Twinsectra Ltd v Yardley persuaded a number of essayists to take a closer look at the Quistclose trust at a small conference in All Souls College, Oxford in late 2002. The papers delivered at that conference constitute the book The Quistclose Trust: Critical Essays edited by William Swadling and published by Hart Publishing Oxford and Portland, Oregon, in 2004. The Foreword to that book was written by Lord Millett on 27 October 2003 which included the following: The so-called Quistclose trust probably represents the single most important application of equitable principles in commercial life … The nature of the trust and the location of the beneficial interest remain elusive and continue to be debated by distinguished academic lawyers. They demand to know whether the Quistclose trust is a form of express, implied, constructive or resulting trust. If the mere author of a foreword may venture to intrude in a private dispute (at the risk of exposing himself to derisive comment from all sides), I would say that it may be any of them, depending on the facts of the particular case and the boundaries between these various forms of trust, on which not everyone is agreed. From a commercial point of view, however, the trust is simply a mechanism by which one person may allow the use of his money by another for a stated purpose without losing his right to the money more than necessary to achieve the purpose. 153 In Twinsectra Ltd v Yardley Lord Millett referred to Robert Chambers' book Resulting Trusts published in 1997: at 189, [91]. Mr Chambers contributed to The Quistclose Trust: Critical Essays with a chapter entitled "Restrictions on the Use of Money" which included the following at 114: There are three situations in which B will hold the money on resulting trust for A . First, if B receives the money on express trust for C (or a specific purpose) and some of that money remains after the trust fails or is fully performed, then normally the surplus will be held on resulting trust for A . Secondly, if B holds the money on resulting trust for A from the outset, that trust will continue regardless of B 's willingness or ability to use the money to pay C or for the specific purpose. Thirdly, if B holds the money subject only to A 's right to restrain B 's misuse of the money and B becomes unwilling or unable to use the money as agreed, the remainder will be held on resulting trust for A . All three of these situations are similar in two important respects. First, A wants B to use the money only for a specific purpose and no other. If the money cannot (or will not) be used for that purpose, B is not allowed to keep the money to use for any other purpose, but must return it to A . Secondly, B never gets unrestricted beneficial ownership of the money. From the moment of receipt to the time at which it must be repaid to A, B is never free to spend the money for any purpose whatsoever. These two factors are important because they show both that B was unjustly enriched at A 's expense and that the resulting trust is the appropriate method of effecting restitution of that unjust enrichment. 154 In the present case Alto received the plaintiff's proportion of the Load Account to be held on trust for the express purpose of paying the Esanda contingencies. If that purpose failed the resulting trust arose in which Alto held the Load Account on trust for the contributors. If that purpose failed, that is if the moneys cannot or will not be used for the purpose, then they should be returned to the contributors. Has the Purpose Failed? 155 The defendants submitted that the purpose will not fail until a point in time is reached when Esanda is no longer able to make any claim upon Alto in respect of the Esanda contingencies. Esanda terminated its arrangements with Alto on 31 July 2004. The defendants submitted that it remains open to Esanda to bring any claim it may have for losses occasioned to it arising out of any breaches of the agreement between Alto and Esanda. In this regard the defendants submitted that Alto remains exposed to claims to Esanda for at least a period of six years from the termination of the arrangement between Esanda and Alto on 31 July 2004. The defendants submitted that the plaintiff's claim for a return of any surplus is premature by reason of the possible exposure of Alto to loss and liabilities. 156 This submission suggested that the Load Account should be available to Alto to cover any losses that may be incurred by way of liabilities to Esanda arising out of any breaches of the agreement between Alto and Esanda. That is not the purpose for which the Load Account was created. It is to meet the Esanda contingencies. 157 The evidence establishes that most contracts or deals transacted by the business ran for 36 to 48 months. Mr Stubbs advised Mr Altomonte in his memorandum on 17 July 1998 that any "potential loss diminishes over time as the customer acquires equity in the goods". Mr Stubbs also advised Mr Altomonte that it was appropriate "to cap the provision at three years". It is now almost six years since the business closed, and if one adopts Mr Stubbs' advice to Mr Altomonte, with which Mr Altomonte agreed, the exposure of Alto to loss from any of the contracts transacted by the business was three years or at the most four years from the date of the last contract written by the business. I am not satisfied that the plaintiff's claim is premature. The defendants have called no evidence to establish that they are exposed to any risk of the Esanda contingencies. Although there was communication between the defendants and Esanda in relation to alleged fraudulent claims of $1,500,000, Esanda compensated itself for what it apparently thought was an appropriate amount by withholding $91,773.17 from Alto's commissions in July 2004. 158 I am satisfied that the purpose of the Load Account has failed. Internal Brokers 159 The plaintiff gave evidence in his affidavit of 24 July 2009 of his conversations with Mr Stubbs in relation to the employment of the internal brokers. These conversations occurred in 1996 when the business had developed to a point that it could accommodate the employment of internal brokers. The plaintiff informed Mr Stubbs that he proposed to charge the brokers $50 per deal for the Load Account. Mr Stubbs said that it sounded good to him. There were a number of internal brokers employed in the business. They were Alex Dobson, Martin Edwards, John Easter, Anthony Pellegrino, Sandi Brown and Steve Edwards. 160 The plaintiff's affidavit evidence of his conversations with Mr Dobson included a claim that he informed Mr Dobson that if he accepted employment with the business he would be charged $50 per deal for the Load Account. Mr Dobson informed the plaintiff that it was "a lot" and asked if he would get it back. The plaintiff advised Mr Dobson that he would not get it back. The plaintiff informed Mr Stubbs of Mr Dobson's reluctance to pay $50 per deal and proposed that Mr Dobson be charged $25 per deal and that the defendant, Mr Blakeway and the plaintiff contribute the balance equally. Mr Stubbs agreed to this proposal. During Mr Dobson's employment, $25 per deal was deducted from his commissions and held by the defendant as part of the Load Account, and $12.50 per deal was contributed by Mr Blakeway (through Danmow) and the plaintiff by way of deduction from their commission. Similarly $12.50 was contributed by the defendant per deal. This continued until Mr Dobson left his employment with the business at the end of June 1999. 161 The plaintiff claimed that he informed Martin Edwards that a deduction of $50 per deal on his total commissions was set aside in the Load Account and if he joined the business he would be required to contribute $25 per deal and that the other $25 would be "covered". The plaintiff claimed that he also informed Mr Edwards that if he agreed to that arrangement he would not have any claim on the money in the Load Account. Mr Edwards agreed to this proposal. Mr Stubbs subsequently agreed to the arrangements struck between the plaintiff and Mr Edwards. 162 The plaintiff gave evidence that the same arrangement that was made with Mr Dobson in relation to the contributions to the Load Account was also made with Mr Pellegrino, Miss Brown and Mr Steve Edwards. 163 Mr Blakeway gave evidence that in his negotiations with Mr Pellegrino, Miss Brown and Mr Steve Edwards, he advised them that each would be required to contribute $25 per deal to the Load Account and that the business would contribute the other $25. He advised each of them that they would have no entitlement to a refund of any surplus. 164 The plaintiff was cross-examined about his discussions with the internal brokers and gave evidence that the general discussion was that with every deal they introduced $50 would be deducted. His evidence included (tr 75): We described what the load was for, for bad titles and various things, and for them to think about that. In the case of Steve Edwards, as in fact with the case of all of them, they said that $50 is too much; we don't like that, do we get it back? 165 The plaintiff gave the following further evidence in cross-examination (tr 76): Q Did you inform Mr Dobson that if the load was not used, then you and Mr Blakeway would be receiving some part of it back? A. Yes, we explained to Mr Dobson that the load was something we set up with Altos; it was our own money; if you are contributing to this, and we think you have a brilliant opportunity to work here, you can contribute $50 to the load, but you don't get it back. Q. Did you explain to him that there may be circumstances where you and/or Mr Blakeway may get it back? A. Yes, I can't remember the exact words, but I did explain to the brokers that it was a half and half thing; Altos have it and it is protection for the business. Q. So you explained to Mr Dobson that it was a half and half thing, but did you explain to Mr Dobson that there may be a possibility in the future that in the event that it is not used, or not totally used, that you and Mr Blakeway would be getting back part of the load? A. Yes, I don't recall exactly the words, but it was explained and it was understood. Q. Do you have any recollection as to what Mr Dobson's reaction to that was? A. Mr Dobson's reaction was that he didn't like contributing $50; if I don't get it back, it was too much to be contributing. Q. Did Mr Dobson say anything to you in response to you informing him that a contribution to the load by him might be refunded to you? A. Yes, I mentioned that already. Yes, if the load is not used, we would get it back, yes. Q. So you did explain that to Mr Dobson, did you? A. Yes. 166 The plaintiff was asked why he did not refer to this aspect of the explanation to Mr Dobson in his affidavit. His answer was that he did not know but rejected the suggestion that it was because he did not say it to Mr Dobson (tr 77). 167 Mr Blakeway was cross-examined about his conversations with the internal brokers. His evidence in relation to the discussion with Mr Pellegrino, Ms Brown and Mr Steve Edwards included the following (tr 129-133): Q. What did you say to Mr Pellegrino about the load, if anything. A. The same thing; for fraud, either by him or his introducers. Q. Did you describe to him what the load was? A. Yes. Q. What did you say in that respect? A. An on-going fund built up to protect for unforeseen events, such as one of your introducers committing fraud. Q. Was there anything else you can recall you said to Mr Pellegrino about the load fund? A. I believe, yes, I said, "There's a share in it further down the track, so there's an incentive to keep your book clean". Q. You said, did you, to Mr Pellegrino that there is a share in the load fund for him down the track? A. Yes. Q. Did you elaborate on that to Mr Pellegrino? A. I was not able to. Q. So the answer is; no, you did not? A. No, I did not. Q. Did you explain to him how that share, down the track, might come about? A. No. … Q. What did you say to Sandi Brown about the load, if anything? A. I don't recall. … Q. What about Steve Edwards, did you speak to him about the load? A. Yes. Q. What did you say to Mr Steve Edwards about the load? A. It was $25 and, "you don't see any of it"? Q. "You don't see any of it?" A. Yes. Q. So you told Mr Steve Edwards something different to what you told Mr Pellegrino? A. Yes. Q. Why was that? A. He joined us much later and by that stage all the other brokers were on the same deal. Q. Same as what? A. They had objected to the $50 very strongly, so we said we will make it $25, "but you will never see any of it". … Q. You see, you say in paragraph 16 that you spoke to each of Mr Pellegrino, Sandi Brown and Steve Edwards and told them the same thing; that being that they have no entitlement to any refund of any surplus, do you see that in paragraph 16? A. Yes. Q. That does not accord with what you have just told the Court, do you agree? A. Yes. Q. Do you not agree that what you have told this court today, is that when you spoke to Mr Pellegrino about the load, you said to him that he may share in it down the track, or words to that effect? A. Not at that conversation. At an earlier conversation, yes, when I first introduced the $50 load concept to him. … Q. You intended, by paragraph 16, did you not, to convey to the reader of the statement, that the totality of the conversation concerning the load at this point in time with each of those brokers was as set out in paragraph 16, was it not? A. … I intended it to be the final arrangement that we settled on. We had many, many conversations, actually, over several years, when I tried to get him to come and join our business. Q. Did you say to any of these internal brokers, prior to beginning the business, anything concerning any entitlement to refund of any surplus in the load? A. General descriptions such as; down the track. Q. What did you say? A. To be negotiated at a future date, words to that effect; the same as my own situation. Q. By that do you mean that during the conversations with the internal brokers, that you indicated to them at a point down the track they might be able to share in a surplus from the load? A. Yes. Q. I am trying to understand how you reconcile that with what you say in paragraph 16, in which you indicate that you said to the brokers that they had no entitlement to any surplus. A. Paragraph 16 is the final conversation. My problem is I haven't documented every single conversation I ever had with them. … Q. You never informed any internal brokers, did you, that you considered that you and Mr Cook might have an interest in a refund of any surplus arising from the internal brokers' deals, did you? A. No. Q. And that is because at the time your understanding was that you and Mr Cook would not have any interest in any surplus in the load, correct? A. No. Q. Why didn't you tell the internal brokers about it then? A. It sounds like I'm being smart, but they didn't need to know. Q. Didn't you think that was an important consideration for them? A. No. Q. So, on your evidence, at one point in time you had informed the potential internal brokers that they might share in any surplus down the track, but that at a later time you told them that they would not be sharing in any surplus down the track, but you didn't think it was important to tell them that you would be sharing in a surplus down the track, referable to their contributions in the load? A. Yes. 168 Neither party called evidence from any of the internal brokers. I am satisfied that each of the internal brokers came to an arrangement that a term of their employment contract required them to provide $25 per deal into the Load Account on the basis that it would not be returned to them in the future. I am not satisfied that each agreed to the plaintiff and/or Mr Blakeway/Danmow receiving their contribution, should the money not be required to meet the Esanda contingencies. This is so notwithstanding the plaintiff's evidence of his conversation with Mr Dobson. I am satisfied that the plaintiff is entitled to the return of the relevant amounts in relation to his contributions, that of Mr Blakeway/Danmow and the contributions made by him and Mr Blakeway/Danmow on behalf of the internal brokers, but not the contributions made by the internal brokers themselves. Quantification 169 The plaintiff claimed that his entitlement to repayment of his contributions to the Load Account should be calculated by reference to his 50% commission rate. The defendants submitted that the plaintiff's commission was not determined by the number of deals the plaintiff procured but rather by the commission paid to each of the plaintiff, Mr Blakeway/Danmow and Mr Jennens, calculated by Alto applying the agreed commission scale to one third of a combined income of the business, with the result that they each received the same amount of commission each month. The plaintiff submitted that the evidence does not support a finding that there was such a sharing arrangement. 170 In paragraphs 8 and 9 of the plaintiff's statement dated 6 November 2009 the plaintiff referred to a conversation between himself, Mr Blakeway and Mr Stubbs in which they informed Mr Stubbs that the plaintiff, Mr Blakeway and Mr Jennens had a personal arrangement whereby they were sharing their monthly entitlements to commission, notwithstanding the arrangement with Alto. They asked Mr Stubbs to calculate the amounts due to each of them and then average the commission and split it equally between them. The plaintiff submitted that this amounted to a direction to pay and did not change the nature of the arrangements between the plaintiff and/or Mr Blakeway and Alto. After Mr Blakeway resigned from Alto the plaintiff informed Mr Stubbs that he and Mr Jennens would have a personal arrangement and requested Mr Stubbs to pay the commission to him and Mr Jennens equally. The plaintiff submitted that this also amounted to a direction to pay and did not change the arrangements between the plaintiff and Alto or Mr Jennens and Alto. 171 The plaintiff also gave unchallenged evidence that the management accounts that were provided to him by Alto always showed separate figures for each of the separate broker's log books, including what he described as "load deductions for each logbook and the equal split of commission between" himself, Mr Blakeway and Mr Jennens. 172 The validity of Mr Blakeway's/Danmow's assignment of their rights and entitlements in respect of the contributions to the Load Account were not challenged. Rather the defendants confined the challenge to the assignment to a suggestion that Mr Blakeway had an interest in supporting the plaintiff's claims because he expected to obtain a financial benefit if the plaintiff is successful in achieving an award of damages in this case. 173 The parties each prepared helpful schedules reflecting their differing approaches. The defendants' schedule is based on the inclusion of a sharing arrangement outlined above. I am not satisfied it is appropriate to calculate the plaintiff's entitlement pursuant to such arrangement. Accordingly the schedule prepared by the plaintiff will be the basis upon which the plaintiff's entitlement will be calculated. However, it is necessary to decide the defendants' set off claims. Set Off 174 Alto claims an entitlement to set off an amount of $91,773.17. Esanda informed Alto that it had a number of "claims" against the business and estimated that it had suffered losses in excess of $1,500,000 "in relation to fraudulent transactions introduced by the business." This can be reasonably characterised as an Esanda contingency. The amount of $91,773.17 represents Alto's commission entitlement for the month of July 2004 that Esanda withheld in response to Alto's refusal to contribute to Esanda's claim in respect of a loss allegedly suffered by Esanda. 175 The plaintiff submitted that this amount does not fall within paragraph 7 of the Letter and/or the specific purpose of the Load Account for protecting Alto against the Esanda contingencies. I disagree. Esanda took its own course by withholding the $91,773.17, which it apparently regarded as appropriate compensation in the circumstances. I am satisfied that the defendants should be allowed a set off for this amount. 176 Alto also makes a claim that it is entitled to set off an amount of $405,445 for predeterminations. A predetermination is the reversal by Esanda of income due to Alto because the financial contract with the third party is terminated prior to the end of its term. When this occurred Esanda either "clawed back" or withheld commissions from Alto in respect of those contracts. The plaintiff submitted that this process does not fall within the terms of paragraph 7 of the Letter and the purpose for which the Load Account was established. As I have concluded, the Load Account was established for the protection of Alto against the Esanda contingencies being bad title and/or fraud. Predeterminations do not fall within that category. I am satisfied that Alto is not entitled to a set off of this amount. 177 Alto also claims that it is entitled to set off an amount of $30,000. This was an amount referred to by Mr Stubbs as having been paid as "policy payments". It is true that the Load Account was not used for the purpose of that payment, however it is conceded by the plaintiff that the payment of that amount was within the purpose of the Load Account. Although Mr Turner formally submitted that Alto had waived its rights in respect of that amount, he did not develop the argument. I am not satisfied that Alto waived its rights in respect of any entitlement in the quantification exercise. I am satisfied that Alto is entitled to set off the amount of $30,000. 178 The parties produced calculations in respect of three options: (1) an entitlement to the contributions made by the plaintiff and Mr Blakeway; (2) an entitlement to the contributions made by the plaintiff, Mr Blakeway and their contributions on behalf of the internal brokers; and (3) an entitlement to the contributions by the plaintiff, Mr Blakeway, their contributions on behalf of the internal brokers and the contributions by the internal brokers. The plaintiff is entitled to an award based on the calculations in option 2 of the plaintiff's calculations. Taking into account the set off for the withheld commissions of $91,773 and the payment of $30,000 that figure is $457,063. Conclusion 179 The plaintiff is entitled to the declarations sought in paragraphs 1, 1A, 1B, and 1C of the Second Further Amended Statement of Claim. The plaintiff is entitled to declarations in respect of the contributions they made to the Load Account on behalf of the internal brokers, but not in respect of the internal brokers' contributions. The plaintiff is entitled to a declaration that Mr Blakeway/Danmow has assigned to the plaintiff their right title and interest in respect of their contributions on behalf of the internal brokers. The plaintiff is entitled to an order that the defendants pay the amount of $457,063 to him. 180 The parties are to bring in Short Minutes of Order reflecting this outcome. The parties are to agree on a costs order by no later than 14 April 2010. If the parties are unable to agree on an order for interest and costs, I will hear argument when the matter is listed for the filing of the Short Minutes of Order at 9.30 am on 15 April 2010. ****************************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.