Supreme Court New South Wales Medium Neutral Citation: Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) & ors [2011] NSWSC 1306 Hearing dates: 6-10, 14 June 2011 Decision date: 31 October 2011 Jurisdiction: Equity Division Before: Ward J Decision: Plaintiff entitled to trace into controlled moneys account to recover moneys impressed with a trust arising by reference to contractual obligation to hold and remit funds received after sale of business. First cross-claimant entitled to payment of moneys outstanding in respect of sale of business. Set-off as between respective amounts owing. Catchwords: EQUITY - TRUSTS - whether on proper construction of Sale of Business Agreement, moneys received into first defendant's trading account were impressed with an implied or resulting trust or otherwise held on constructive trust for the plaintiff - whether, if so, plaintiff entitled to trace into account in which moneys now held - whether second and third defendants liable for any shortfall in the retained moneys under the second limb of Barnes v Addy - HELD - implied or resulting trust arose on receipt of the moneys into the trading account and plaintiff able to trace into part of the funds held in the controlled moneys account - knowing assistance in dishonest breach of trust or fiduciary duty established - CONTRACT - whether breach by first defendant of warranties in Sale of Business Agreement - whether breach by plaintiff of obligation to conduct business after completion in ordinary and usual course - HELD - only breach of warranty established was in relation to preparation of company's accounts - no damages recoverable in respect of that breach as no reliance on the relevant warranty - having regard to meaning of "ordinary and usual course" of business no breach of contractual obligation by plaintiff in that regard - plaintiff entitled to set-off as against moneys owing by it to first defendant under Sale of Business Agreement the shortfall on its retained moneys claim after payment out of moneys held on trust for its benefit Legislation Cited: Commercial Agents and Private Enquiry Agents Act 2004 (NSW) Corporations Act 2001 (Cth) Partnership Act 1982 (NSW) Cases Cited: Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 114 ALR 355 Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd [2000] HCA 25; (2000) 202 CLR 588 Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406; (1996) 139 ALR 663 Baden Delvaux & Lecuit v Societe General pour Favoriser le Developpement [1983] BCLC 325 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Barnes v Addy (1874) LR 9 Ch App 244 Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59; (1998) 195 CLR 566 Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 Bishopsgate Investment Management Ltd (in liq) v Homan [1995] Ch 211 Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207; 1 All ER 155 Cook v Alto Prestige Pty Limited [2010] NSWSC 92 Countrywide Banking Corporation Ltd v Dean (1997) 8 NZCLC 261 Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371 Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318 Devaynes v Noble; Clayton's Case (1816) 1 Mer 572; 35 ER 781 Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (in liq) (1948) 76 CLR 463 Duncan Davis Pty Ltd v Hurstbridge Abattoirs [1995] 1 VR 279 Emwest Products Pty Ltd v Olifent (1996) 22 ACSR 202 FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102 Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129 Gardner v Dairy Industry Authority New South Wales (1977) 18 ALR 55; 52 ALJR 180 Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 Hanson v Radcliffe Urban District Council [1922] 2 Ch 490 Harkness v Partnership Pacific Ltd (1997) 41 NSWLR 204 Ibeneweka v Egbuna [1964] 1 WLR 219 Ingot and Ors v Macquarie and Ors [2004] NSWSC 1136 James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 Jones v Dunkel (1959) 101 CLR 298 Liquor National Wholesale Pty Limited v Redrock Co Pty Limited [2007] NSWSC 392 Lofts v MacDonald (1974) 3 ALR 404 Meyers v Casey [1913] HCA 50; (1913) 17 CLR 90 Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 National Commercial Banking Corporation of Australia v Batty [1986] HCA 31; (1986) 160 CLR 251 Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 6 ACSR 601 Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120 Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440; (1983) 1 ACLC 1091 Perkins v State Bank of South Australia (1993) 61 SASR 246 Power v Ekstein [2009] NSWSC 130 Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 102 ALR 681 Re Bradford Roofing Industries Pty Ltd (in liq) & Companies Act [1966] 1 NSWR 674 Re Cummins (t/a Nam Constructions); Ex parte Harris v ARC Engineering Pty Ltd (1985) 62 ALR 129 Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 Re Global Finance Group Pty Ltd [2002] WASC 63; (2002) 26 WAR 385 Re Goldcorp Exchange Ltd; Kensington v Liggett [1995] 1 AC 74; [1994] 2 All ER 806 Re Hallett's Estate; Knatchbull v Hallett; Cotterell v Hallett (1879) 13 Ch D 696; [1874-80] All ER Rep 793 Re Jonton Pty Ltd [1992] 2 Qd R 105; (1991) Q ConvR 54 - 392 Re Joscelyne; Allen's Plaster Products Pty Ltd v Prudential Assurance Co Ltd [1963] Tas SR 4 Re Judiciary and Navigation Acts (Advisory Opinions Case) (1921) 29 CLR 257 Re Oatway; Hertslet v Oatway [1903] 2 Ch 356 Re Sharpe; Ex parte Trustee of the Bankrupt's Property v Sharpe [1980] 1 WLR 219 Re Sabri; Ex parte Brien v Australian & New Zealand Banking Group Ltd (1996) 137 FLR 165 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 8 ACLR 422 Robertson v Grigg (1932) 47 CLR 257 Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 Scott v Scott (1963) 109 CLR 649 Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) [1986] 3 All ER 75 Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536 Taylor v White (1964) 110 CLR 129 Twinsectra Ltd v Yardley [2002] 2 AC 164 University of New South Wales v Moorhouse & Angus & Robertson (Publishers) Pty Ltd (1975) 133 CLR 1 West v Mead [2003] NSWSC 161; (2003) 13 BPR 24,431 Texts Cited: Halsbury's Laws of Australia (online edn) Heydon and Leeming, Jacobs' Law of Trusts in Australia (7th edn) Scott and Fratcher, The Law of Trusts (4th edn, Vol 1) Category: Principal judgment Parties: Australian Receivables Ltd (Plaintiff/First Cross-Defendant) NCO Australia Pty Ltd (Second Cross-Defendant) Tekitu Pty Ltd (First Defendant/First Cross-Claimant) Ross Edward Smith (Second Defendant/Second Cross-Claimant) Lynette Mary Smith (Third Defendant/Third Cross-Claimant) Representation: Counsel R J Brender with A Ahmad (Plaintiff/Cross-Defendants) N Cotman SC with Ms M Fisher (Defendants/Cross-Claimants) Solicitors Forbes Dowling Lawyers (Plaintiff/Cross-Defendants) Malcolm Johns and Company (Defendants/Cross-Claimants) File Number(s): 07/257468 Judgment 1HER HONOUR : These proceedings relate to disputes that have their genesis in the sale in 2007 by the first defendant (Tekitu) to the plaintiff (Australian Receivables) of what may broadly be described as a debt collection business (known as Statewide Mercantile Services) then carried on by Tekitu. Although the relevant contracts by which the assets and business were transferred (there being two separate contracts dealing with different aspects of the debt collection business) were entered into in January 2007, the effective date was specified in each as being 30 November 2006. The purchase price under the main contract was payable in successive tranches (the detail of which I will describe in due course). 2Disputes arose between the parties not long after completion as to the implementation of the arrangements in relation to the sale. Those disputes related, on the one hand, to the amount outstanding in respect of the second instalment of the purchase price due in April 2007 (including the precise quantum payable by Australian Receivables in respect of that instalment), claims by Tekitu in respect of business expenses said to have been incurred on behalf of Australian Receivables and, later, as to the quantum of the second earn-out payment due by Australian Receivables and, on the other hand, to the claim by Australian Receivables that moneys required to be remitted to it under the terms of the Sale of Business Agreement had been wrongly retained in Tekitu's bank accounts and that there had been breaches of various warranties given by Tekitu in the agreement. 3After correspondence during the course of 2007 in relation to various of the matters in dispute, Australian Receivables made demand in October 2007 for the retained moneys. In response to that demand, Tekitu's lawyers acknowledged that certain funds (described as 'set-off funds') were being held in a bank account to the credit of Tekitu (though it seems that some or all of the set-off funds to which the letter referred had already been transferred out of the Tekitu account and into an account of Tekitu's directors). Meanwhile, unbeknownst to Tekitu, Australian Receivables had adopted its own system of set-off by treating in its internal accounts various amounts claimed by Tekitu (that were not apparently disputed by Australian Receivables) as having been paid by way of "loan reconciliation". 4In due course the disputes between the parties led to the commencement of these proceedings and an application by Australian Receivables for interlocutory relief. On 1 November 2007, when the summons filed by Australian Receivables was first returnable, an undertaking was given by the defendants (on a without admissions basis and on the giving by Australian Receivables of the usual undertaking as to damages) for the immediate transfer of the sum of around $300,000 to their solicitors' trust account to be held pending further order of the Court. Undertakings were also given, on the same basis, in effect requiring the giving of notice by Tekitu before the expenditure of any money or entry by it into any transactions other than a transaction involving periodic payments not exceeding $5,000 in total and the giving of notice by Tekitu's directors and shareholders (the second and third defendants, Mr Ross Edward Smith and Mrs Lynette Mary Smith), as to any further encumbrance of or dealings with their residential property. An irrevocable direction was agreed to be given to the defendants' banker to the effect that, upon completion of the release of any guarantees provided by the defendants in respect of property leases covered by the parties' agreement, any amounts securing each guarantee were to be paid to the defendants' solicitors' trust account. 5The sum of $330,000 was paid into the defendants' solicitors' trust account (and then transferred to a controlled moneys account) on 6 November 2007 following the giving of the above undertakings. A further sum of $1,314 was subsequently paid into that controlled moneys account on 15 November 2007, as representing the balance of that portion of the retained moneys that had been withdrawn by Tekitu's directors from Tekitu's trading account in October 2007. 6The orders made in relation to the moneys held in the controlled moneys account were varied on 6 December 2007 to permit the payment (without admission) of $106,707 to Australian Receivables out of that account. Between then and August 2008, three further amounts were paid to Australian Receivables (namely, amounts of $15,774.00, $38,893.00 and $16,500.00), each representing moneys released by lessors in respect of rental guarantees given in relation to property formerly leased by Tekitu. (The first two of those amounts were paid out of the funds held in the controlled moneys account referable to the funds that had been withdrawn from the Tekitu trading account; the third came directly from the lessor in question. There is an issue, which I consider later, as to the characterisation of the first two such payments due to what was described as a timing "hiccup" with the payment of moneys in and out of the controlled moneys account.) 7In all, Australian Receivables has received (without admission) payments totalling $177,874.00 in four tranches during the period from 6 December 2007 to 25 August 2008. Australian Receivables claims a declaration that it is entitled to retain the moneys so paid to it. 8As at the date of the hearing there remained a sum of $224,607.72 held in the controlled money account. Australian Receivables contends that this sum is impressed with a trust in its favour. Tekitu denies this and contends that it represents no more than security for any adverse judgment in these proceedings (or in the alternative that any trust is limited to the sum presently retained in the account less $54,667 being the sum of the two payments (of $15,774 and $38,893) that were paid out of the account to Australian Receivables prior to receipt of released rent guarantee funds in the same amounts). The significance of the trust claim is that Tekitu is now under external administration. 9On 14 December 2007, the defendants filed a notice of motion in effect seeking to be discharged from the undertakings they had given. Australian Receivables filed an opposing notice of motion for the remaining sum held in the controlled moneys account to be released to it. A further notice of motion was filed in March 2008 for the release to Australian Receivables of moneys held by Tekitu in one or more B-pay accounts. 10The opposing interlocutory applications were heard by Brereton J in April 2008. In his Honour's reasons, reference was made to the explanation that had been given by the Smiths for the way in which the sum of $330,000 had been paid following the 1 November undertaking (namely, that this amount had been paid by them personally on the basis that the withdrawal from Tekitu's trading account in October 2007 had been a payment to them by Tekitu in reduction of their directors' loan accounts). His Honour considered that the correspondence between the parties and the terms of the undertaking made it plain that what had happened in substance was that the payment to the directors in reduction of their loan accounts (as at 1 November 2007 apparently not hitherto having been disclosed) was reversed and those funds were notionally, if not actually, restored to Tekitu whence they had come. His Honour was of the view that the intent of that payment was that the funds that Tekitu held (or had immediately prior to the payment to the Smiths held) should be paid into the solicitors' trust account. 11Brereton J made orders on 4 April 2008 restraining the defendants (until further order) from dealing with the fund held by their solicitor (pursuant to the undertaking that had been given by them on 1 November 2007) and restraining Tekitu, and the Smiths, respectively, from alienating or encumbering assets as identified in the orders (in the case of Tekitu, its assets to the extent that they exceed $200,000, and, in the case of the Smiths, any real property asset) without notice to Australian Receivables' solicitors of their intention to do so (such notice to be given in accordance with the orders then made by his Honour). 12The opposing claims now before me are: (a) a claim by Australian Receivables (to which I will refer as the retained moneys claim) for the payment to it of the moneys said to have been wrongly retained in the Tekitu trading account after completion of the Sale of Business Agreement (which Australian Receivables contends were moneys held by Tekitu on trust for it and for any shortfall in which it says the Smiths are personally liable on a second limb Barnes v Addy ((1874) LR 9 Ch App 244) claim); (As a result of the insolvency of Tekitu, the balance of the retained moneys claim is not pursued against it, except to the extent that it might offset any proven Tekitu cross-claim (though the balance (at least to the extent of $88,100) is pursued personally against the Smiths on the Barnes v Addy claim).) (b) a cross claim by Tekitu (which it also raises by way of set-off against the retained moneys claim) for moneys owing by Australian Receivables to it in respect of both the outstanding balance of the second instalment of the purchase price for the sale of the business which was due on 9 April 2007 (the quantum of which turns on the validity of the various adjustments contended for by Australian Receivables, which it says operate to reduce that amount to almost nil, and other adjustments claimed by Tekitu) and the second earn-out payment; as well as for damages for alleged breaches by Australian Receivables of the Sale of Business Agreement and of the service agreements entered into at the time of the sale for the provision of services by each of Mr and Mrs Smith to Australian Receivables; and (c) claims raised by Australian Receivables by way of defence to the Tekitu cross-claim for alleged breach of warranties by Tekitu under the Sale of Business Agreement in relation to the amount for which provision was made in respect of employees' long service leave entitlements in the financial accounts of the business and as to the alleged overdrawing of commission in respect of a particular client (IAG) account. 13Insofar as a claim was also made by Australian Receivables in its Further Amended Statement of Claim for relief in relation to moneys held in bank accounts referred to as the B-pay accounts (in respect of which it is said that Tekitu was liable to account but over which no proprietary interest is now claimed), this was ultimately pressed by Australian Receivables as part of its defence to Tekitu's set-off claims. The adjustment to be made in this regard was agreed by the parties as being $1,457.48 in favour of Australian Receivables of (rather than the $17,041 initially claimed), the balance being referable to the reimbursement to Tekitu of bank fees incurred in relation to the B-pay account. Hence, there is no issue remaining for determination in respect of the B-pay dispute. 14The principal breach of contract alleged by the Tekitu parties against Australian Receivables is that, in breach of clause 2.2 of the Sale of Business Agreement, Australian Receivables failed after completion to conduct the debt collection business in the usual course and instead conducted it in a way that materially prejudiced the basis for the calculation of the two earn-out payments to Tekitu for which provision was made in the contract as part of the overall purchase price. In submissions this allegation was based principally on the comparative diminution in the financial results of the Statewide Mercantile Services business after Australian Receivables took control of the business, although allegations are also made in the pleadings as to particular aspects of the conduct of the business by Australian Receivables said to be in breach of the clause and as to the alleged failure of Australian Receivables to take opportunities to expand the business (either existing at the time of sale or introduced by Mr Smith after the sale). Tekitu contends that, but for Australian Receivables' breach of clause 2.2, the earn-out amounts owing to Tekitu would have exceeded the earn-out amounts calculated on Australian Receivables' records. 15There has been what might be described as an ongoing refinement or reconciliation of the figures in dispute between the parties over the period from 2007 onwards. By the close of the hearing, there was a measure of agreement in relation to various of the claims (not only in relation to the B-pay claim referred to above). There was a concession by the defendants that there had been an overpayment of salaries to Mr and Mrs Smith of $5,656.92 for the period after Australian Receivables took control of the business and I was informed on 10 June 2011 that there had also been agreement reached as to the figure of $29,749.62 (included in the reconciliation schedule handed up on 6 June 2011 by Counsel for Australian Receivables (Mr Brender)) by way of adjustment referable to "SMS November debtors unpaid". 16The parties are now agreed as to the following adjustments in relation to the April 2007 purchase price instalment (as reflected in the Schedule to the Defence to the Further Amended Cross-Claim and adopting in general the descriptions used in that schedule): Instalment due on 9/4/07 $250,000.00 Less First Instalment Payment April 2007 (29,000.00) Less Second Instalment Payment July 2007 (73,583.11) Sub-total (balance owing to Tekitu) $147,416.89 Less agreed Cash Settlement Adjustment owed to Australian Receivables (33,925.39) Plus agreed Trade Creditors Payback 4,580.06 Less agreed December 2006 Loss in favour of Australian Receivables* (160,775.62) Plus adjustment agreed in respect of incorrect posting re December 2006 loss 26,187.62 Plus reimbursement to Tekitu re Payroll Salaries and Tax 94,609.55 Plus reimbursement to Tekitu for superannuation 43,878.39 Less SMS November Debtors unpaid (29,749.62) Revised sub-total (owing to Tekitu) $92,221.88 Less agreed set-offs for creditor payments (69,369.08) Less agreed adjustment for overpaid Smith salaries (5,656.92) Less agreed adjustment re Bpay claim (1,247.73) Further revised sub-total (owing to Tekitu) $15,948.15 (*There remains in dispute the adjustment to be made in respect of December debt portfolio commission/revenue from the acquired debt portfolio.) 17Where there remained a dispute was as to how much was to be allowed for what was described as the "commission adjustment for acquired debts" and for amounts in respect of software rental, consulting fees and business expenses claimed by Tekitu (as to which Australian Receivables admits a portion only of each of those claims) and whether any amount should be allowed for the Ricoh and Commander claims by Tekitu. 18The amount in dispute as to those items is as follows: [Commission Adjustment for Acquired Debts] : Tekitu claims that total revenue of $56,321 should have been included, requiring an adjustment in its favour of $33,912 since commission of approximately $22,000 has already been included in the calculations; Australian Receivables accepts only an adjustment of $5,512.56 in Tekitu's favour, thus the amount in dispute is $50,808.44 [Software Rental] : Tekitu claims $31,462.21 of which Australian Receivables accepts it owes $23,825.56, leaving in dispute $7,626.65 [Consulting Fees] : Tekitu claims $48,507.26 of which Australian Receivables accepts it owes $39,927.26, leaving $8,580.00 in dispute [Business Expenses] : $94,832.40 of which Australian Receivables agrees $89,998.30, leaving in dispute only $4,834.10 in respect of an outstanding legal invoice for advice in relation to property lease issues [Ricoh legal fees] : Tekitu's claim being $5,845 for legal costs in successfully defending a claim by Ricoh for unpaid rental payments [Commander] : for which no monetary amount is claimed, simply an indemnity 19There is thus a difference between the parties of around $70-75,000 in respect of the adjustments required to be made to the second purchase instalment payable to Tekitu. (As I understand it, the portion now accepted by Australian Receivables as owing in relation to the above disputed adjustments has been included in the schedule attached to the Defence to the Further Amended Statement of Cross-claim and it is only any additional amount that would need to be included if there is a determination in Tekitu's favour on any of those items.) 20As to the earn-out payments due under the Sale of Business Agreement, Australian Receivables admits that $122,117.28 is owing to Tekitu for the second earn-out payment. However, it raises a set-off claim by reference to the amounts it claims for alleged breach of warranties in relation to an alleged overdrawing of commission in respect of the IAG account ($119,548.98) and for increased long service leave provisioning (now put at $40,079.33). (Tekitu, which denies any breach of warranty, maintains that there is an adjustment to be made in its favour in respect of the second earn-out payment by reason of the damages it claims for the alleged breach by Australian Receivables of clause 2.2.) 21The Further Amended Statement of Cross Claim also sought relief in relation to matters relating to security deposits that had been placed by Tekitu with the National Australia Bank to support bank guarantees provided by the bank as security for property leases that later became the subject of the Sale of Business Agreement (see paras [72]-[80]). It was alleged that, in breach of Australian Receivables' obligations under clauses 8.1 and 8.7 of the Sale of Business Agreement, Australian Receivables had failed to effect the assignment of all the property leases and had failed to replace all of the security deposits (it being particularised that a sum of $23,501 was still on deposit with the bank). Of the $78,078.60 placed with the bank by way of security deposits, a total of $54,577.60 has since been released by the bank and paid without admission to Australian Receivables by Tekitu. 22Tekitu claimed to have suffered damage by being deprived of the benefit of the use of the $78,078.60 and the incurring of additional legal expenses and contended that the second cross-defendant (NCO) was liable to indemnify the cross-claimants in relation to the said breach (by reference to the guarantee given by it in clause 10.4 and indemnity in clause 10.5 of the Sale of Business Agreement). That cross-claim is denied. In particular, it is alleged by Australian Receivables that the Tekitu parties have themselves failed to use reasonable endeavours in relation to the assignment of the property leases and that they were in breach of undertakings given in respect of the release of the security deposits (and hence disentitled from bringing the claims in the abovementioned paragraphs of the cross-claim). 23During argument before me this aspect of the claim was not pressed and I do not understand it to remain in issue. Issues remaining for determination at close of hearing 24The issues remaining in dispute at the close of the hearing, and now requiring determination, can be summarised as set out below: (i) Australian Receivables' retained moneys claim (both against Tekitu and against Mr and Mrs Smith personally); (ii) Tekitu's cross-claim for the balance of the $250,000 purchase payment due on 9 April 2007, requiring a determination as to what adjustment is warranted in respect of the following matters: (a) what has been referred to as the December acquisition commission; (b) Tekitu's claims in respect of software rental; and (c) reimbursement of the claimed business expenses (in relation to Ricoh printers, Commander voice data systems, and legal fees referrable to the property leases). (iii) Claims as to breach of contract: (a) the alleged under-provisioning in the accounts by Tekitu for employee long service leave entitlements (said by Australian Receivables to be a breach by Tekitu of various warranties); (b) the alleged shortfall (or overdrawing by Tekitu of commission) from the IAG account (again, said by Australian Receivables to be in breach of various warranties); (c) Tekitu's claim in relation to the respective earn-out period payments (beyond the $122,117.28 conceded by Australian Receivables to be outstanding) namely, Tekitu's claim for damages for alleged breach by Australian Receivables of the obligation to carry on business as usual during the earn-out periods; and (d) Tekitu's claim for consultancy fees under the Smiths' service agreements. 25In summary, Australian Receivables contends that it is entitled to the whole of the moneys presently held in the controlled moneys account (without deduction), namely $224,607.72, and to retain the whole of the sums previously paid by the defendants on a without admission of liability basis. It also contends that any amount found to be owing to Tekitu as to the balance of the April 2007 purchase price instalment (once the various adjustments have been taken into account, including the agreed amount to reflect the overpayment of salaries to the Smiths of $5,656.92) is no more than $15,583.52 and that this sum (together with the second earn-out payment it concedes is payable) is to be set off against the amounts claimed by Australian Receivables for the IAG trust account shortfall ($119,548.98) and the increase in long service leave provisioning (of at least $40,079.33) such that no amount is now due to Tekitu. Summary 26For the reasons set out below, I am of the view that: (i) as to the first issue identified above: * Australian Receivables is able to trace into the moneys presently held in the controlled moneys account to recover the sum of $169,831.72 (that being the total amount held in the account of $224,607.72 less the amount of $54,667 earlier paid to it out of the account) on the basis that these are moneys that were impressed with a trust when held in the Tekitu trading account and for which it (and the directors of Tekitu) are liable to account; * that Australian Receivables is entitled to retain the sums previously paid to it (without admission) out of the controlled moneys account (those being $106,707, $15,774, $38,893 as trust moneys) and to retain by way of set-off the $16,500 paid to it out of funds directly from the lessor in respect of one of the released rent guarantee amounts; * that Australian Receivables may set-off the shortfall in respect of the retained moneys claim (i.e. $219,379.01, that being the agreed quantum of $567,084.73 less the $177,874 already paid and less the sum of $169,831.72 now to be paid out of the controlled moneys account) against the amounts for which it is liable to Tekitu in respect of the second purchase instalment and the second earn-out). * I find that the claim against Mr and Mrs Smith under the second limb of Barnes v Addy , as having knowingly assisted in a dishonest breach of trust by Tekitu, has been established and that they are liable to the extent of any shortfall in respect of the retained moneys after the above set-off (at least up to the amount of $88,100 withdrawn by them between April and October 2007) though the operation of the adjustments made to the amounts outstanding to Tekitu has the effect that there remains no such shortfall. (ii) in respect of the claimed adjustments to the balance of the $250,000 purchase payment due on 9 April 2007: (a) the full amount claimed by Tekitu (of $56,321) in respect of the December revenue from the pre-existing debt portfolio should be allowed (meaning that, after taking into account the amount of commission already included in Australian Receivables' calculations, an additional $33,912 should be included in the calculation of the 2007 purchase price instalment); (b) Australian Receivables is not liable for any of the disputed amounts claimed in respect of software rental and no adjustment should be made; (c) Australian Receivables is not liable in respect of the disputed business expenses (namely the claim Ricoh printers nor is it liable to indemnify Tekitu in respect of the Commander voice data systems claim, or the claim for reimbursement of the invoice in respect of legal fees of $4,834.10, and there should be no adjustment in this respect. On my calculation this brings the amount outstanding on the second purchase payment to $49,860.15 (being $15,948.15 plus the adjusted revenue in respect of the December purchased debt collections of $33,912). (iii) As to the claims for breach of contract: (a) I am satisfied that there was a breach of warranty in relation to the under-provisioning by Tekitu in its accounts for employee long service leave entitlements; however, I am not satisfied that Australian Receivables has established an entitlement to damages for the said breach of warranty as I find that Australian Receivables was on notice, through its business consultant, Mr Duncan, of the issue and that no reliance was in fact placed on the treatment in the accounts of the long service leave provisioning; (b) I am not satisfied that there has been a breach of warranty established in relation to the alleged shortfall (or overdrawing of commission) from the IAG account; (c) I am not satisfied that Tekitu has established its claim for damages for alleged breach of the contractual obligation by Australian Receivables to carry on business as usual during the earn-out periods; and (d) in respect of the disputed invoices for moneys payable under Mrs Smith's service agreement, I find that Australian Receivables is not liable. Thus the amount payable for the second earn-out remains at $122,117.28. 27When the amounts payable to Tekitu in (ii) and (iii) above (totalling $171,977.43) are offset against the balance of the retained moneys sum in (i), there is a shortfall owing to Australian Receivables of $47,382.52. That amount can be fully met out of the balance remaining in the controlled moneys account after the tracing exercise in (i) (i.e. the $54,667) which, when set off against the shortfall leaves a balance of $7,284.42 payable out of that account to Tekitu. 28I will direct the parties to prepare short minutes to take into account the above findings (having regard to the possibility that there may be a dispute as to the mathematical outworking of the above findings). Background Facts 29Prior to January 2007, Tekitu owned and operated a mercantile debt collection business (offering services including process service and the like) known as Statewide Mercantile Services. Mr and Mrs Smith, the directors and shareholders of Tekitu, worked in the Statewide Mercantile Services business, which had its principal office in Frenchs Forest but offices elsewhere, including in Melbourne and Brisbane. Mr Noel Wyett was the general manager of the business. The Smiths' son, Warwick, also worked in the business. 30Australian Receivables is a debt collection business established in 2005 by Mr Paul Cooney, its managing director. The majority shareholder is NCO Group Inc, a company based in America. As at 2006, Australian Receivables was largely based in Melbourne. Mr Cooney deposed to a long experience in the integration of debt collection businesses (largely, it would seem, by reference to his involvement in the integration of such businesses as part of another receivables collection business, the RMG group, though he also attested in the witness box to having 40 years' experience in the industry). Prior to the acquisition of the Statewide Mercantile Services business, Mr Cooney had been involved with Mr William Duncan (the business consultant who was later engaged both in relation to aspects of the due diligence in relation to the Tekitu acquisition and in the reconciliation of the accounts after the dispute with Tekitu arose) in the RMG Group. After the RMG Group went into administration (its failure having apparently been ascribed to difficulties with systems integration), Mr Cooney then acquired its debt collection business from its administrators to integrate with the Australian Receivables business established by Mr Cooney in 2005. 31The operation of the Statewide Mercantile business, in broad terms, involved the collection of debts (including administrative matters such as attending to the service of process) on behalf of Tekitu's clients. (Mr Duncan (as noted above, the business consultant employed by Australian Receivables since 27 August 2006 to advise in respect to accounting issues and projects), has deposed in his affidavit sworn 29 October 2007 that from his due diligence enquiries and participation in the negotiations for the sale of the Statewide Mercantile Services business, the principal clients of the business were Optus and Insurance Australia Limited (in respect to collection services) and HSBC Bank Australia Ltd and the Australian Taxation Office (in respect to process service) ([5]).) 32Tekitu was entitled to receive fees and/or commissions from clients for whom it provided debt collection services. For some of those clients, Tekitu's practice was that when debtors deposited moneys into Tekitu's bank accounts in payment of their debts, Tekitu deducted a commission therefrom and then accounted to the client (on a periodic basis) for the balance of the collected debt. (An example of this kind of arrangement was the IAG account, which was audited on a regular basis by the client as part of the contractual arrangements between IAG and Tekitu.) 33At the time of the sale of its debt collection business, Tekitu also had the rights to what were referred to as pre-existing debt purchase portfolios, having taken an assignment of those portfolios from St George Motor Finance Limited and the NSW Police Department Employees Credit Union, respectively, and it had also negotiated with Westpac for the proposed acquisition of an existing debt portfolio held by it. 34In relation to debt purchase portfolios held by Tekitu in its own right (where Tekitu had acquired from a client an existing debt portfolio), Tekitu retained the whole of the moneys collected in relation to those debts. (This is a distinction of some relevance when considering the different position taken by the parties as to the revenue which should be taken into account for the purpose of the purchase price adjustment to be made in connection with the second purchase price instalment.) 35Tekitu operated several trust and general accounts prior to and after completion of the Sale of Business Agreement. Mrs Smith, in her 8 November 2007 affidavit, identified the various bank accounts and deposed that funds collected from the debtors of creditor customers of Statewide Mercantile Services were not received into Tekitu's trading account (that being the account identified in paragraph 10(a) of her affidavit in respect of which the retained moneys claim is made). Mrs Smith deposed that the only amounts received into that Tekitu trading account were fees and commission paid by creditor customers. (Debt collections were, it seems, paid into one or other of the trust accounts operated by Tekitu.) Thus it was the Tekitu trading account into which the moneys the subject of the retained moneys claim were paid (although it seems to be accepted that other moneys, such as commission for debtors bought back under the Sale of Business Agreement and/or property guarantee funds could also have been received into that account). 36On 9/10 January 2007, Australian Receivables entered into a number of agreements with Tekitu, for the purchase by it (and a related company, NCO Financial Management Pty Ltd) of the whole of Tekitu's mercantile debt collection and process service business. This followed a period of discussion and negotiation (from around the middle of 2006 onwards) in relation to the proposed sale between the business consultant acting for Tekitu (Mr Alan Horn) and Mr Cooney (in which discussions Mr Duncan to some extent later became involved as Australian Receivables' business consultant). Mr Cooney confirmed that his principal source of information as to the company in the initial period was Mr Horn (T 122). 37At one stage in the discussions the proposal was for the payment of a fixed purchase price without reference to any earn-out period. That changed (according to Mr Cooney as a result of concerns as to the value of the business to be acquired), to include (as a component of the overall purchase price) the payment of sums dependent on the performance of the business during successive earn-out periods (a feature of the sale that Australian Receivables' US shareholder recognised might produce a disincentive in relation to the carriage of the business for some part of that period).) 38Although it seemed to be suggested in the course of submissions (by reference to the change in the structure of the deal) that what Australian Receivables had sought to do was to acquire a business worth some $5m for considerably less than that by minimising the earn-out payment component of the purchase price, I do not consider that such an inference can be drawn simply from the fact that during negotiations there was a change in the proposed structure of the purchase price payments from a fixed price arrangement to an arrangement for the purchase price to be referable in part to the performance of the business. 39There was a due diligence period leading up to the sale in which (whether diligently or otherwise, as the evidence has revealed) there was an opportunity for Australian Receivables to make enquiries as to the operation of the Tekitu business (including as to matters such as the basis on which provision was made for long service leave entitlements of its employees). 40Four separate agreements were entered into in January 2007: a Sale of Business Agreement, pursuant to which Tekitu sold the main assets of and business known as Statewide Mercantile Services; an Asset Sale Agreement, under which Tekitu sold to a company associated with Australian Receivables (NCO Financial Management Pty Ltd) its existing St George/Police Credit Union debt purchase portfolios to Australian Receivables (referred to as the "acquired debts"); and two separate service agreements under which Tekitu agreed to provide to Australian Receivables, for a period after completion, the debt recovery and management consultancy services of Mr Smith and the administrative services of Mrs Smith (the Ross Smith Service Agreement and the Lyn Smith Service Agreement, respectively). At around the same time NCO Financial Management separately acquired from Westpac the debt purchase portfolio that had been the subject of a proposed acquisition by Tekitu. 41The effective date for the sale of the Statewide Mercantile business and the debt purchase portfolios was agreed to be 30 November 2006. In effect, therefore, in the period from 1 December 2006 to 9 January 2007 (defined in the Sale of Business Agreement as the Interim Period), Tekitu ran the Statewide Mercantile business on behalf of Australian Receivables. 42There is a question as to the financial viability of the Statewide Mercantile business at the time of the sale. Australian Receivables contends (but I do not understand this to be accepted by the Smiths) that it was in dire straits at the time. There is also a dispute as to the motivation for Australian Receivables to acquire the business (on which, as I understand it, Tekitu relies on support for its contention that the business was not carried on in the normal course after its acquisition) - it being suggested to Mr Cooney, consistently with his own emails to the company's US shareholder that the purchase was to acquire leverage for the Australian Receivables' business (and, in particular, to enable it to run the GE client business that it had separately acquired). Mr Cooney denied this and sought to explain away the emails as him "selling a story" to the US shareholder. (In a not dissimilar fashion Mr Cooney seemed to downplay the role of due diligence as being part of obtaining US shareholder approval to negotiate for a purchase of the business, rather than as referable to any investigation or analysis as to the underlying value of the business or the price to be paid therefor.) To the extent that this suggests to me that Mr Cooney was prepared (at least vis a vis the US shareholder) to put a gloss on the facts to suit his business purposes in relation to this transaction, I accept that this warrants a note of caution in relation to the matters asserted by him in the negotiations with Tekitu. However, ultimately nothing turns on this. 43After the completion of the sale of the Statewide Mercantile business, some clients continued to pay money to bank accounts controlled by Tekitu (rather than into accounts operated by Australian Receivables). (It seems that no arrangements had been made for clients immediately to pay money to accounts operated by Australian Receivables for that purpose.) Mr Cooney deposed to an arrangement whereby the Tekitu staff transferred moneys received into the Tekitu accounts over the period up to September 2007. The payments received by Tekitu in this period seem to have been both by clients (for commission and/or fees) and from debtors (as part of the debt collection business in payment of their debts), as acknowledged in Mr Cooney's affidavit of 20 December 2010 [168]. 44Tekitu remitted $1,564,956.95 from the Tekitu trading account to Australian Receivables in the relevant period. However, it is not disputed that there was an amount retained in the Tekitu accounts that was received from clients and was referable to the business acquired by Australian Receivables (but not remitted). This amount is the basis of the retained moneys claim. Mr Brender submitted that the retained sum was built up gradually over the period from April to October 2007, although in Mr Cotman's submission the receipts forming part of the retained moneys claim were from July/August 2007 (on the basis that earlier amounts so received had been part of the $1.5m Australian Receivables accepts were remitted to it). 45Mrs Smith, in her affidavit sworn November 2007, deposed to amounts totalling $88,100 as having been drawn from the Tekitu trading account in the period from 17 April 2007 to 15 October 2007, which she said were moneys due to herself and her husband for loan moneys they had advanced to the company (there being an amount of $674,565 recorded as loans to the company in its financial statements for the year ending 30 June 2006). (Relevantly, Mr Brender confirmed (at T 391) that Australian Receivables was not pressing more than a claim for $88,100 against Mr and Mrs Smith personally - that being the amount they have admitted was withdrawn by them from the Tekitu account after 17 April 2007 although submitting that on Mr Duncan's enquiries much more had been withdrawn by the Smiths.) 46A letter of demand in relation to the retained moneys was sent on 19 October 2007 (Exhibit T, p 4) and on that same date Mrs Smith transferred the sum of $325,000 from the Tekitu trading account to a personal account operated by herself and her husband. Mrs Smith says that she did this with a view to transferring that money to an investment account. Mrs Smith did the same in relation to a sum of $40,000 on 24 October 2007. 47On 23 October 2007, Tekitu's lawyers acknowledged that Tekitu held "certain funds" in a bank account to the credit of Tekitu. (In the witness box Mrs Smith could not recall if the funds referred to in the letter included the $40,000 as well as the $325,000 but at least agreed that it did refer to the latter moneys, which by then had already been transferred to the Smiths' personal account.) 48Mrs Smith deposed that, following the orders made by the Court (by consent) on 1 November 2007, she arranged for the bank cheque which had by then been drawn in favour of the investment account to be handed to Tekitu's solicitors for receipt into their trust account. In that fashion, the sum of $330,000 was paid into the trust account on or about 6 November 2007. 49Mrs Smith accepted that on 6 December 2007 (when orders for the payment out to Australian Receivables of the sum of $106,707 were made), her legal representatives had explained to her the import of those orders but it seems that on the same day she emailed the bank asking it to close the BPay accounts held by Tekitu and deposit the money to Tekitu (conduct pointed to by Mr Brender as in breach of the orders). (In the witness box Mrs Smith said that she understood the undertaking given on 6 December 2007 to refer to all moneys except charges due to Tekitu.) After closing the BPay accounts on around 12 December 2007, a series of payments to Australian Receivables was made in respect of the moneys that had been held in the BPay account (the defendants withholding the amount disputed in relation to bank fees paid on the BPay accounts). 50Tekitu was placed into administration some time after the sale. Its affairs are now governed by a Deed of Company Arrangement, the terms of which were not put in evidence (on the basis that it was accepted by the parties they were not of relevance on the issues before me). As I understand it, Australian Receivables was not informed of the proposed Deed of Company Arrangement nor did it participate in any vote for such a deed. (Australian Receivables submits that it is the beneficial owner of the money in the controlled moneys account and thus not bound by the Deed of Company Arrangement in relation to its claim to that amount referring to s 444D(3) of the Corporations Act 2001 (Cth) which provides that a deed of company arrangement does not affect a right that an owner of property has in relation to that property unless the owner voted in favour of the resolution.) 51Leave has been given for Australian Receivables to proceed against Tekitu, while it is subject to external administration, but that leave is limited to the retained moneys claim and the defence to Tekitu's claimed set-off under its cross-claim. Relevant Provisions of the respective agreements * Sale of Business Agreement 52Clause 3 of the Sale of Business Agreement provided as follows: The Vendor sells to the Purchaser and the Purchaser purchases from the Vendor, the Assets and the Business, as well as the assumption of the Specified Liabilities, free of any Encumbrance 53The term "Assets" was defined in clause 1.1(3) as meaning: ...all the property and assets of the Vendor used in the Business at the close of business on the Completion Date but not the Excluded Assets including the items in (i)-(k) of the definition (relevantly (b) the Trade debtors (defined in turn as the amounts due to the Vendor in respect of the business from third parties as at the Effective Date set out in Schedule 2.2); (g) the "Software Systems, License [sic] and License [sic] Seats" (defined as "the Vendors interest in and to "DebtSmart" software as it exists on an as is where is basis, at the Effective Date and the Vendors interest in a license [sic] to "Mercantile Systems" software and permitted user seats thereto granted by such license [sic] and such other software used in the Business at Completion" [punctuation as per original]); (h) the benefit (subject to the burden) of the Property Leases as defined; and (j) the Clients of the Business subsisting at the close of business on the Effective Date, being the clients set out at Schedule 6.) 54The term "Excluded Assets" was defined in 1.1(18), relevantly, as: ...assets of the Vendor that will not be acquired by the Purchaser under this Agreement being - (a) the licence to the Mercantile Systems and DebtSmart Software Systems 55"Business" was defined in clause 1.1(4) as "the business of collection services, debt and claim recovery, process serving, skip tracing, repossessions, credit management and debt purchase services carried on by the Vendor at the Business Premises". 56As noted earlier, the Effective Date of the Sale of Business agreement was 30 November 2006; the Completion Date was 9 January 2007. The purchase price was payable in a number of components as specified in clause 5. Provided the Initial Part Payment described in clause 5.1 and completion had occurred under the Collateral Agreement (that being confusingly defined by reference to the clause in which Completion Date was defined but presumably being a reference to the Asset Sale Agreement having regard to the descriptions contained in the latter agreement), title to the Assets and the Business were to pass to Australian Receivables at completion and the Assets were at its risk as from the Completion Date. (Thus to the extent that Tekitu retained any of the Assts in its possession or control after completion, the beneficial interest in those Assets had clearly passed under the agreement to Australian Receivables.) 57Under clause 5, the components of the purchase price comprised the sum of $1.95m (payable pursuant to clause 6.4 in two tranches: first, as to $1.7m, on 9 January 2007 and, second, as to $250,000.00 "minus the adjustment referred to in clause 7", within 90 days (i.e. by 9 April 2007), (provided the vendor had performed all of its obligations under the agreement and had provided a discharge of charge form); together with any amounts payable pursuant to the First Earn-out and the Second Earn-out (those being payable by 31 July 2007 and 31 January 2008 respectively). 58The First Earn-out was defined in clause 1.1(19) as meaning 50% of the Net Revenues for the First Earn-out Period in excess of $5.6m. The Second Earn-out was defined in clause 1.1(35) as meaning 50% of the Net Revenues for the Second Earn-out Period in excess of $2.8m. The Earn-out periods were from 1 July 2006 to 30 June 2007 and then from 1 July 2007 to 31 December 2007, respectively. The First Earn-out Period therefore encompassed both a period when Tekitu was carrying on the business before the completion date of 9 January 2007 and a period after Australian Receivables had assumed control of the business on that date. 59The term "Net Revenues" was defined in clause 1.1(27) as meaning: The total income invoiced for the Business for the First Earn-out and the Second Earn-out Periods ("Total Income"), less the costs related to that income and being amounts paid or accrued for the same period, in relation to and including all local agent costs, repossession fees, legal fees including court fees, and search fees incurred and directly attributable to the total income, where the total income, means, all amounts invoiced to Clients for commissions, costs and process services, (the business services), and includes commission income on the collection of debts currently owned by the vendor being the Debt Purchase Portfolio set out in Schedule 7) at the rate of 42.5% of the amounts collected, plus commission on the collection of the Westpac debts acquired by NCO Financial Management Pty Ltd on the 7 December 2006 at the rate of 30% for the First Earn-out and the Second Earn-out Periods , plus commission on the collection of all new debt purchase accounts and Prospective Clients at rate to be agreed, where these subsequent transaction are introduced by Ross Smith, during the First Earn Out and the Second Earn out Periods. (my emphasis) 60Clause 2, headed "Earn-out Conditions and Purchasers Acknowledgements", provided: 2.1 The Purchaser acknowledges that it has completed its own due diligence of the Business and the accounting records of the Business prior to the Effective Date, to its own satisfaction and is purchasing the Business on an as is where is basis as inspected and based upon its own findings but with the Warranties provided for in clause 9. 2.2 From the Completion Date and until payment of the Second Earn-out, the Purchaser shall conduct the Business in the ordinary and usual course, and in a manner that will not materially prejudice payment to the Vendor of the First Earn out and the Second Earn out and shall: 1. take such action as is reasonably necessary to ensure that the clients of the Business at the Effective date are retained; 2. notify the Vendor prior to making any changes in respect of the General Manager of the Business, Noel Wyett; ...[and take the steps in the following sub-clauses non-sequentially numbered 3, 4, 9 and 10 in which sub-clauses the word "clients" was variously used both as a capitalised and non-capitalised term] 61Clause 7 provided for "Adjustments at Completion" in effect for the month of December 2006 (the "Interim Period" between the Effective Date and the Completion Date). Effectively, Australian Receivables was entitled to receive from Tekitu the net cash receipts (and was obliged to reimburse to Tekitu the net cash payments of the Business) for that period as provided under clause 7.1 and Tekitu was entitled to receive the benefit of accrued net profit during the Interim Period and was not to be liable or responsible for any accrued net loss of the Business in that period (clause 7.2). 62Clause 7.2(1) provided that Australian Receivables was entitled to the benefit of "the accrued net profit ("ANP") of the Business during the Interim Period" according to the formula in clause 7.2.1: ANP = AR-AE and where AR is the revenue of the Business accrued during the Interim Period (including cash sales) AE are expenses of the Business accrued during the Interim Period (including cash payments), but not for salaries or wages or other emoluments paid or payable to the Covenantors or directors of the Vendor 63Clause 7.3 provided that the adjustments for any net cash receipts or any net cash payments under clause 7.1 and for the reimbursement of any net loss under 7.2(2) were to be made on the completion date to the extent that the adjustments were available but when verified and audited by Australian Receivables were to be made against the payment owing under 6.4(2) (i.e. the $250,000 purchase price instalment) and, if greater than that amount, were to reduce successively the First Earn-out and Second Earn-out. 64As to the obligations of the parties on completion, clause 6, relevantly, provided that: 6.2 At Completion, and in addition to the undertakings of the Vendor to be completed on the Completion Date specified elsewhere in this Agreement the Vendor must deliver the Assets and the Business to the Purchaser by giving to the Purchaser possession of the Assets and handing to the Purchaser: ... (10) the right to the use of only the Mercantile Systems and DebtSmart Software Systems for 90 days following Completion without charge and thereafter at the option of the Purchaser [Australian Receivables] on a month to month basis at monthly charges of $693.44 and $1,527.34 inclusive of GST respectively with termination on 30 days' notice; 65Clause 9 provided for the giving of warranties by Tekitu and the Smiths (as Covenantors) in favour of Australian Receivables as set out in schedule 1. Relevantly, those warranties included that: 8. All material records of the Business have been in all material respects fully, properly and accurately kept and completed in accordance with proper accounting and business practices and all legal requirements, and will continue to be so kept and completed until the Completion Date, and there are at the date hereof and will on the Completion Date be no material inaccuracies or discrepancies of any kind contained or reflected in any of them other than as disclosed in writing to the Purchaser (if any) in the course of the Purchaser's due-diligence effected prior to the Completion Date and at the Completion Date they give and will give and reflect a true and fair view in all material respects of the financial, contractual and trading position of the Business. (my emphasis) 66Schedule 8 (which set out the components of assets and liabilities required to conduct and continue the Statewide Mercantile business of debt recovery and management) included in the "Specified Liabilities" the sum of $11,952 by way of provision for long service leave. 67Under clause 13.3, Australian Receivables assumed all long service leave and holiday pay obligations for employees who transferred to it. That clause affirmatively stated that "employee entitlements of all Employees (whether transferring or not) are as set out in schedule 9". Schedule 9 specified the holiday and long service leave entitlements as at 30 November 2006 (noting long service leave entitlements only for 2 employees in the Frenchs Forest office in the amount of $11,952). 68There was also a warranty in relation to the leased premises. Australian Receivables expressly acknowledged the disclosure (by Tekitu) of the expiration of the lease of its premises in Melbourne and that Australian Receivables made no objection or claim in relation thereto, as it was intending to relocate the Melbourne branch of the business to Australian Receivables' own premises in Melbourne. (This becomes relevant insofar as Tekitu later incurred costs (and Mrs Smith rendered invoices for her services) in relation to the steps taken to resolve a dispute with the landlord of the Melbourne premises (Tekitu having exercised an option for a renewed lease before the sale to Australian Receivables).) 69Clause 9.3 (of which Mr Cooney in the witness box said he was not aware) contained an acknowledgement by Australian Receivables that it "has conducted complete and satisfactory due-diligence in respect of the Business and the assets prior to entering into this Agreement that relate to the Vendor's operation of the Business" and acknowledged that the warranties and representations applied only in respect of events or matters that related to the operation of the Business up to the Completion Date. 70Clause 9.6 obliged Tekitu and the Smiths to take all such steps and provide all such information and documents with regard to the Business and Assets as Australian Receivables might reasonably require to enable it fully to investigate the accuracy of the warranties in that clause. Clause 9.7 also contained an indemnity in favour of Australian Receivables in respect of any loss arising from breach of any of the representations or warranties (but limited the liability of Tekitu and the Smiths in that regard to any breach which in aggregate exceeded the sum of the Purchase Price, the First Earn-out and the Second Earn-out). 71Clause 10.3 provided that: 10.3 The Purchaser indemnifies the Vendor against all Liabilities and the cost of all demands, actions and other proceedings against the Vendor by any person after Completion (including legal costs on a solicitor and own client basis) arising directly or indirectly in connection with the Assets and the Business purchased by the Purchaser but not relating to a cause of action against the Vendor arising before the Completion Date. 72Clause 12.1 obliged Australian Receivables to accept on completion an assignment of the Trade debtors (the definition of which I have referred to above). Clause 12.2 further required it to assign to Tekitu (and for Tekitu to accept the assignment back of), all Trade debtors not collected by 9 April 2007. In that event, the value of the reassigned Trade debts was to be the original value of trade debtors assigned to Australian Receivables (less any amount part paid) and such sum was to be deducted from the part payment of the purchase price by clause 6.4(2) on the first or second earn-outs. 73Relevantly, for the purposes of Australian Receivables' principal (retained moneys) claim, clause 17.5 provided as follows: At Completion: (1) The Vendor shall immediately account to the Purchaser at the Purchasers direction, for all client moneys received by the Vendor into the Vendors bank accounts and trust accounts after Completion and without deduction; (2) pay to the Purchaser all money of Clients held in the Vendor's bank accounts or trust account and thereafter remit daily (or as otherwise required by Purchaser), all payments received into the Vendor's bank accounts and trust accounts and to keep bank accounts and trust accounts open for a period of nine months following Completion and permit Purchaser to verify the bank account and trust account transaction for this 9 month period. 74There is no definition of "client moneys" or "money of Clients" (as those terms appear in clause 17.5). The capitalised term "Clients" is defined as "those clients of the Business at the Effective Date set out in Schedule 6". The Client List in Schedule 6 listed a number of clients as either Collection or Process clients (including clients such as Optus and HSCBC as well as Westpac and the Police Credit Union (NSW) Limited (though not St George Motor Finance)). 75The temporal sequence within clause 17.5(2) suggests that "all payments received" after the payment of "all money of Clients held in the Vendor's bank accounts" may have been intended to refer to all payments representing "money of Clients" after the initial payment out pursuant to sub-clause (2) but, as a practical matter, no moneys belonging to Clients and for which the business owner would have to account, i.e. remit, to clients were paid into the trading (or general) bank accounts. The term could also refer to all payment of either small 'c' client moneys of the kind referred to in sub-clause (1), assuming there is a distinction. Relevantly, however, it could also have extended to all moneys received from or on behalf of clients and to which the business owner was entitled (such as fees or commissions). I consider the proper construction of this clause in due course. * Asset Sale Agreement 76The Asset Sale Agreement (for the sale of the St George/Police Credit Union debt purchase portfolios) was also dated 9 January 2007. The purchaser under this agreement was NCO Financial Management Pty Ltd. Australian Receivables was a party to the agreement as guarantor. This agreement was expressed to be collateral to the Sale of Business Agreement (clause 1.3; clause 23). 77The purchase price, payable on 9 January 2007 and duly paid, was $550,000. Under clause 4, title to the portfolio passed at completion and was at the risk, and to the benefit, of NCO from the Effective Date. NCO was entitled to the proceeds of collection of debts from the portfolio as from 30 November 2006. * Service Agreements 78The service agreements were by letters dated 10 January 2007, to each of Mr Smith and Mrs Smith respectively. The agreement for Mr Smith's services was for an initial term of 12 months but terminable by Australian Receivables in six months "in the event that RS has not introduced a minimum accumulated value of $500,000 in acquisition cost of Debt Purchase Portfolios". Australian Receivables was to pay a monthly retainer fee of $3,000 per month payable monthly in arrears. (Mr Smith's service agreement was terminated by notice in July 2007 and it is not suggested that it was not open to Australian Receivables to terminate it at that stage.) 79The letter agreement in relation to Mrs Smith provided for her services to be retained not for a set period but, rather, "on a part time basis for a period of time to be determined by ARL and agreed by TPL". The letter provided for Mrs Smith to attend the Frenchs Forest offices (part time) and for Tekitu to be paid an hourly fee of $65 per hour with hours worked to be recorded in a daily time sheet, payable monthly in arrears (plus GST). Out of pocket expenses were to be charged "with the prior approval of ARL". It is not disputed that in about February 2007 Mr Cooney asked Mrs Smith to reduce her hours. In August 2007 the Frenchs Forest office was closed. (Mrs Smith accepts that her service agreement is now at an end.) Issues (i) Retained Moneys claim 80Australian Receivables' principal claim is that, in the period after completion on 9 January 2007 (through to 5 November 2007), Tekitu retained in the Tekitu trading account moneys received from clients of the Statewide Mercantile business (to which it was not entitled), which moneys it says Tekitu was obliged to remit to Australian Receivables in accordance with clause 17.5 of the Sale of Business Agreement. 81The payments were identified by Mr Duncan as largely being referrable to payments of commission and fees by Optus, HSBC, The Insolvency and Trustee Service and the ATO. Although Mr Cooney deposed to the transfer up to September 2007 of money both for clients and from debtors (para [168]), Mr Duncan has deposed (and it does not seem to have been disputed by the Smiths) that the "unremitted moneys are entirely payment for collection work and services performed by [Australian Receivables] since acquisition of the SMS Business" ([13] September 2009 affidavit); i.e. the retained moneys represented commission or fees payable in respect of the work carried out for various clients and did not represent collection of debts for which there would have been a liability to account to the relevant clients. 82The retained moneys have been variously quantified over the course of the dispute but are now pleaded in the Further Amended Statement of Claim to be $567,084.73 and there is no dispute as to that amount (T 323-324). Further, although Mr Duncan accepted in cross-examination that (presumably in the ordinary course) the general Tekitu trading account would have received moneys in relation to pre-December debts (T 44.32) and for the unwinding of guarantees and the like (T 44.49), it does not now seem to be disputed that the agreed sum ($567,084.73) represents the total of the moneys received into the Tekitu trading account that related to moneys payable to Australian Receivables (not Tekitu) but not remitted to it. (The manner by which that sum is calculated is that the total amount remitted by clients into the Tekitu Trading Account over the relevant period was $2,090,622.63, of which $1,564,956.95 in total was remitted to Australian Receivables, leaving a balance of $525,665.68, to which an additional remittance of $41,419.05 (received from Tru Energy on 2 February 2007 as evidenced by the invoice which is Exhibit U) is added to comprise the agreed sum of $567,084.73.) 83After these proceedings had been commenced, as outlined earlier, a total of $331,314.72 was paid into the controlled moneys account in November 2007: first, the sum of $330,000 was paid by way of a bank cheque drawn on funds held in the Smiths' personal account said, in effect to reverse the notional reduction of the Smiths' loan accounts as directors of Tekitu and then the sum of $1,314.72 in compliance with an order made on 15 November 2007). Australian Receivables maintains that the sum paid to the controlled moneys account represents part of the overall retained moneys that were held on trust for it by Tekitu. 84Insofar as the 15 November order called for payment into the solicitors' trust account of any remaining balance of the $365,000 transferred from the Tekitu trading account to the personal account, the fact that only $1,314.72 was paid into the account suggests an acceptance by the Smiths that the earlier sum of $330,000 paid into the controlled moneys account represented the funds initially drawn from the Tekitu trading account (since otherwise the amount to be paid in November 2007 would presumably have been much greater). 85The sums of $15,774 and then $38,893 (which were also paid into the controlled moneys account pursuant to the agreed interlocutory regime) represented the amount of rental guarantee funds released by the lessors of property occupied by Tekitu. Although those payments were ordered to be made into the solicitors' trust fund and then disbursed to Australian Receivables, it appears that what happened was that prior to receipt into the solicitors' trust account of the actual rental guarantee amounts released by lessors, moneys in the amount of the released rental guarantees were transferred from the controlled moneys account (thus being drawn out of the original $331,314.00 held in that account), there then being a replenishment of the funds held in the solicitors' account. Mr Brender submits that nothing turns on this timing 'hiccup' in relation to the payment of the last two amounts (which he submits was in breach of the court orders), the balance of the account remaining the same at the end of those deposits and transfers as it was before. I consider this in due course. 86It does not seem to be suggested that the payments representing the release of rental guarantee funds are of moneys to which Australian Receivables was entitled under the terms of the Sale of Business Agreement. As I understand it, these are amounts previously deposited by Tekitu as a rental bond or guarantee, to which it was to be entitled once the leases were assigned to Australian Receivables. (Hence it would seem that the payment of those funds into the controlled moneys account (or direct to Australian Receivables) account was, in effect, as security for any ultimate order that might be made on the claims made against Tekitu.) 87The retained moneys claim has been quantified at $567,084.73 less the sum of $106,707.00 released to Australian Receivables on 6 December 2007, leaving a balance of $460,377.73 of which only $224,607.72 remains in an identified account. It is submitted that the rest ($235,770.01) can be presumed to have been expended by one or more of the defendants (though the Smiths only acknowledge drawing down sums totalling $88,100 for their own benefit). 88The principal issue which arises on the retained moneys claim is whether or not the amount now held in the controlled moneys account is held on trust for Australian Receivables. This is of significance in that Australian Receivables contends that it is entitled to that sum in priority to the creditors of Tekitu. (If Australian Receivables has no more than a claim in debt or for damages for breach of a contractual obligation to remit those moneys then it would not have property in respect of that fund and, as an unsecured creditor, it would presumably be subject to the provisions of the Deed of Company Arrangement). 89Australian Receivables puts its claim that there is a trust in respect of those moneys on a variety of bases. First, Mr Brender submits that Tekitu retained the sum of $567,084.73 prior to November 2007 in circumstances in which clause 17.5 of the Sale of Business Agreement obliged Tekitu immediately to remit those amounts to Australian Receivables (and that the sum remaining in the controlled moneys account is a subset of those retained moneys). 90Australian Receivables contends that clause 17.5 of the Sale of Business Agreement gives rise to the creation of an express trust in respect of the retained moneys in the Tekitu account arising from the entry into the contract and receipt of the initial tranche of the purchase price, after which the beneficial interest in the Assets of the Business passed to Australian Receivables in accordance with the contract ([21] of the Further Amended Statement of Claim) or that those moneys are held on an implied, resulting or constructive trust ([22] of the Further Amended Statement of Claim). The resulting trust is said to have arisen in circumstances where the consideration for the business has been paid and the sums in question are Assets of the Business for which that consideration was paid. 91While Tekitu accepts that in principle a trust could arise if the cash received in the relevant Tekitu trading account was itself the subject of the sale, Mr Cotman submits that this cannot be the case where the timing of the receipts the subject of the retained moneys claim was after the completion of the sale (and, he submits, after August 2007). Thus, it is submitted that the cash in the accounts cannot be the subject of the sale itself. (In this regard, Mr Cotman submits that remittances into the account after August 2007 cannot have been referable to debtors "sold" under the contract because by then the option in clause 12.2 was exercised. Remittances before August 2007, it is said, can be presumed to have been paid out of the trading account as part of the $1.5m that Australian Receivables concedes it received, on the application of the so-called "rule" in Clayton's case (Devaynes v Noble; Clayton's Case (1816) 1 Mer 572; 35 ER 781).) Hence, Mr Cotman submits that a proprietary claim can only have arisen if arising out of an obligation to transfer the moneys to Australian Receivables. 92I accept that cash received into the Tekitu trading account from July/August 2007 does not fall readily within the definition of "Asset" under the agreement even though what was, in effect, being acquired was the right to continue to conduct the business then owned and conducted by Tekitu; in other words a potential income stream depending on matters such as whether existing clients continued to use the Statewide Mercantile services once those came to be offered by Australian Receivables. 93The primary claim of Australian Receivables is based, in essence, on the maxim that equity treats as done that which ought to be done. It is contended that all the money comprising the retained moneys was paid into Tekitu's account by clients in payment of an obligation owed to Australian Receivables (as the owner of the Statewide Mercantile Services business), by way of commissions or fees, and that it was the common intention of the parties that all such money would be remitted by Tekitu into Australian Receivables' bank accounts and trust accounts (and hence there was a common intention that all money received by Tekitu into this account after completion) belonged to Australian Receivables). 94Mr Cotman submits that clause 17.5 does not directly deal with the moneys received after August 2007. Further, Mr Cotman submits that the sums of $15,774 and $38,803 paid into the controlled moneys account were moneys acquired by Tekitu as a result of the release of bank guarantees, not representing client receipts, and could not be the subject of a constructive trust. 95Clause 17.5(1) in its terms requires that Tekitu immediately account for "all client moneys received by it" at the direction of Australian Receivables and do so "without deduction". Clause 17.5(2) then imposes an obligation on Tekitu to pay to Australian Receivables "all money of Clients" held in Tekitu's bank accounts or trust account and thereafter the daily remittal (unless otherwise required) of "all payments" received into Tekitu's bank accounts and trust accounts. 96The question arises as to the construction of those clauses by reference to what is meant by "client money" or "all money of Clients" and, specifically, the ambit of "all payments received" by Tekitu after completion for the purposes of clause 17.5. 97As noted above, there is no definition in the Sale of Business Agreement of the expression "client moneys" as found in clause 17.5(1) or of "money of Clients" in the opening words of clause 17.5(2), though the word Client is defined (as being the entities listed in schedule 6). The use of the capitalised term might suggest that "money of Clients" is intended as a reference only to money belonging to those particular clients. However, if so then that does not explain the need for Tekitu to account for "client moneys" (with use of the lower case) in 17.5(1). 98Mr Cotman submits that the reference to "client moneys" and "money of Clients" is a reference to money belonging to clients or money in which the client has an interest (not money paid by a client). That would seem to me to be the more natural reading of the latter term ("money of Clients") but not necessarily the former which could as readily refer to moneys paid by clients. Moreover, clause 17.5 refers to moneys in both the bank accounts and trust accounts. (Therefore it is not in its operation confined to the trust accounts in which only moneys held for clients were as a matter of practice retained. 99In any event, whether or not the immediate obligation was only to pay to Australian Receivables moneys belonging to clients, clause 17.5(2) goes on to require the daily remittal thereafter of all payments received into Tekitu's bank or trust accounts (i.e. after the initial account has been made of "client moneys" under clause 17.5(1) at completion under clause 17.5(2)) and after the immediate payment without deduction of "all money of Clients" held). 100Mr Cotman submits that the expression "all payments received" cannot mean all payments whatever the source or ownership of the money (because, if so, then the clause in its terms would oblige Tekitu to remit to Australian Receivables money that was its own money, with no provision in the agreement as to how there would be recourse by Tekitu or adjustment by Australian Receivables). However, if Mr Cotman's construction is correct, then there would be no contractual obligation on Tekitu under clause 17.5 (or otherwise) to remit to Australian Receivables moneys (mistakenly) paid by way of commission or fees into Tekitu's accounts after completion, even though clause 17.5 itself seemingly contemplates ongoing payments being made into the Tekitu bank accounts for up to nine months after completion. 101Had it been intended that the second part of clause 17.5(2) (i.e. the words commencing "and thereafter remit") refer only to money belonging to clients or in which clients retained an interest, then there is no reason for the clause not to have used the same terminology as had been used earlier in the clause (i.e. to have provided for the daily remittal thereafter of "all money of Clients"). Bearing in mind that the clause refers to both bank accounts and trust accounts, and that payments into the bank or trading account are unlikely to have been confined to moneys belonging to clients (even assuming the bank as opposed to the trust account included any money belong to clients, which is contrary to the evidence), and that it would have been open to Tekitu after completion of the sale to direct any payments referable solely to it to be paid into a separate account so as to avoid the difficulty to which Mr Cotman's submission refers, I see no basis not to construe clause 17.5 (2) as meaning precisely what it says. In other words, I consider that the clause should be construed as requiring the daily remittal to Australian Receivables of all payments received into the accounts (after the initial accounting to Australian Receivables of "Client" moneys provided for in the earlier part of the clause) (including any money paid by clients for commission or fees into the trading account, as well as any money paid by debtors into the trust account). To the extent that this might include moneys referable to Tekitu in its own right then it would seem to me that there would be an implied obligation on Australian Receivables to return any such amounts. 102Therefore, I do not accept that the construction of clause 17.5(2) is limited in the manner for which Tekitu contends. Further, I consider that the requirement immediately to account for all client moneys received after completion and to remit on a daily basis thereafter "all payments received" into Tekitu's accounts, imposes not simply a contractual obligation on Tekitu to pay money so received to Australian Receivables but vests in Australian Receivables a beneficial entitlement to moneys paid into the Tekitu trading account upon their receipt by Tekitu, equity treating as done that which ought to be done. 103Generally, whether a debt or trust is created in any particular case depends upon the intention of the parties. In Scott and Fratcher, The Law of Trusts (4th edn, Vol 1) at [12.2], the authors state the test as follows: The test is whether the parties intended that the person receiving the money should have the beneficial as well as legal interest in it. If he was intended to have the beneficial and legal interests, if he was intended to have the use of the money as his own and to be under a merely personal liability to pay money to the payor or third person a debt is created. If on the other hand, it was intended that the beneficial interest in the money should remain in the payor or should pass to a third person, a trust is created. (my emphasis) 104In Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991); 102 ALR 681, Gummow J said (at [693]): The question as to the existence of any express trust will always have to be answered by reference to intention ...The relevant intention is to be inferred from the language employed by the parties in question and to that end the court may look also to the nature of the transaction and the relevant circumstances attending the relationship between them: Walker v Corboy (1990) 19 NSWLR 382; Scott, The Law of Trusts , 4th ed, 1987, s 25.2. There is no need for particular caution in drawing the inference that a trust was intended: Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 618-19; 78 ALR 1. 105As to the alleged implied or resulting trust, Mr Brender notes that a resulting trust is not the product of the intention of the settlor to create a trust (and hence is not determined by reference to the intention of the entity paying money into the relevant bank account), "but is grounded in the response of equity to a case where the recipient has property in circumstances where the settlor never intended he or she should hold that property beneficially" (citing Re Goldcorp Exchange Ltd; Kensington v Liggett [1995] 1 AC 74; [1994] 2 All ER 806). Pausing there, insofar as the intent of the clients paying the money into Tekitu's trading account is concerned, the only relevant intention (it seems to me) is that it is paying a liability for fees or commission. What Tekitu (or the recipient) does with those moneys is not something to which a customer would necessarily have turned its mind. 106Mr Brender referred to Cook v Alto Prestige Pty Limited [2010] NSWSC 92, where Bergin CJ in Eq, in the context of the imposition of a resulting trust, considered at [136] the intention of the parties as to whether the moneys in question were intended to be at the free disposal of the recipient or whether such freedom was necessarily excluded by reason of the parties' intention that the moneys in the relevant account (in the hands of the recipient) were to be used exclusively for payment of certain contingencies. Her Honour noted that the fact that the contract between the parties in that case was not shown to have included a repayment term did not mean that the resulting trust claim failed [134]. 107Here I consider that it is clear from the terms of the agreement between Australian Receivables and Tekitu that the parties intended that all payments received into Tekitu's bank and trust accounts after it had initially accounted for client moneys in these accounts (which receipts the parties seem to have contemplated would be for the benefit of the entity by then owing the business, i.e. Australian Receivables) should be accounted for and remitted by Tekitu to Australian Receivables and, in the interim, held for the benefit of Australian Receivables. There is no suggestion that in the interim Tekitu was entitled to use the money its own (i.e. that it was entitled to the money received subject only to an obligation (at some time later to pay to Australian Receivables an equivalent amount of money). 108Therefore, I consider that, on receipt by Tekitu of moneys (from clients) into its trading account (at least where those moneys, were referable to the business acquired by Australian Receivables), those moneys were impressed with a trust in favour of Australian Receivables. 109Mr Brender also put forward as an alternative analysis the proposition that Tekitu held the money based on a common intention between it and the clients who paid that money into its accounts that Tekitu would apply the money for discharge of the debt owed by the client (Mr Brender submitting that this could only be done by payment to Australian Receivables) and hence subject to a Quistclose purpose trust. Mr Brender referred in this regard to Twinsectra Ltd v Yardley [2002] 2 AC 164 and Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, where moneys lent for a specific purpose were held by the recipient on trust to apply that money for that particular purpose, in effect submitting that in the present case the purpose of the payment of moneys to Tekitu's bank accounts was for it to pay to Australian Receivables commission or fees owed by clients for the performance of work by the business now owned by Australian Receivables. 110In the Australian Elizabethan Theatre Trust case, Gummow J noted that: But the essential reason why the insolvency law did not strike at the transaction in question in Quistclose was that the moneys represented by the cheque drawn by Quistclose in favour of Rolls Razor and banked in the special account of Rolls Razor never at any stage became the beneficial property of Rolls Razor. It acquired no more than what Dixon J called a dry legal interest: Commissioner for Stamp Duties (NSW) v Perpetual Trustee Co Ltd . On its part, Quistclose had both contractual right to repayment out of the general assets of Rolls Razor, as a general creditor, and the beneficial interest in a fund, whether by way of resulting trust or as the second limb of an express trust. 111Gummow J there also said that "the striking feature of the Quistclose litigation was that while previously it might have been thought that debt and trust were distinct and disparate norms, it was thereafter clear that in a given case the transaction under analysis might bear a dual character." 112Mr Brender also referred to Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371 at [379] where Gibbs CJ, considering whether moneys given by an investor for specific investment purposes constituted an constructive trust, had noted that "One consequence would be that the money, and any property acquired with it, would on the firm's bankruptcy, be withdrawn from the general body of creditors". 113In Twinsectra Ltd v Yardley 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. 114Reference was also made to Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207; [1985] 1 All ER 155, where Gibson J held (payment having been made by a debtor on terms that it be used solely to pay nominated creditors) that the company to whom payment was made did not acquire any beneficial interest in the payment and that the payment gave rise to a trust in favour of the third parties (which the plaintiff in that case had a right to enforce) and was therefore not available for distribution to the general body of creditors. There, Gibson J said: In my judgment, the principle in all these cases is that equity fastens on the conscience of the person who receives from another property transferred for a specific purpose only and not therefore for the recipient's own purposes, so that such person will not be permitted to treat the property at his own or to use it for other than specific purpose. 115The difficulty I see in the suggested application of these authorities to the present circumstances is that there is no evidence of the imposition of any condition by the client on the payment of the moneys in question (i.e. that they be used by Tekitu for any particular purpose). The inference that might certainly be drawn is that the clients understood that they were meeting an obligation owed by them in relation to the provision of debt collection services when they paid that money into the Tekitu trading account but whether they understood that was an obligation then owed to Tekitu or Australian Receivables is unclear and whether, in each case, the payment was for commission or fees is not clear. 116I am not satisfied that this is a case where a Quistclose trust can be said to have arisen by reference to the purpose for which a payment was made to the alleged trustee. 117Mr Brender next submits that the proprietary nature of Australian Receivables' claim may be analysed by way of constructive trust imposed (regardless of actual or presumed agreement or intention) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principles relying on Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 at [613], per Deane J at [614]). 118In Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137, the majority (Mason CJ, Wilson and Deane JJ) referred to the result reached by Deane J in Muschinski as an application of the general equitable principle which restores to a party contributions which he or she has made to a joint venture which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them referring to what Deane J said (at [620]) namely that a constructive trust may arise when an assertion of a legal right would be unconscionable: Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that that other party would so enjoy it. The content of the principle is that, in such a case, equity will not permit the other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable to do so .... 119It has been recognised that a constructive trust may be imposed in such circumstances in a commercial context. Thus, in Liquor National Wholesale Pty Limited v Redrock Co Pty Limited [2007] NSWSC 392 at [42], Brereton J (recognising that the principle explained by Deane J in Muschinski has potential application in commercial joint ventures) expressed the principle at [42] that "where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, equity will intervene where it is unconscionable to draw a line leaving assets and liabilities to be owned and borne according to where they may, prima facie, lie, to the intent that the parties recover what they have contributed to the failed joint venture". 120I note, however, that caution has been advocated in imposing a proprietary remedy of this kind, not least because of the priority it gives the beneficiary over unsecured creditors. In Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59; (1998) 195 CLR 566 at [585] the High Court said that: ... An equitable remedy which falls short of the imposition of a trust may assist in avoiding a result whereby the plaintiff gains a beneficial proprietary interest which gives an unfair priority over other equally deserving creditors of the defendant. 121In Jacobs' Law of Trusts in Australia (7 th edn), J D Heydon and M Leeming suggest that this gives no more predicability or consistency in result "than that which follows from the English decisions espousing the 'new model' constructive trust", noting that it remains unclear as to when and why the interposition of equity to prevent unconscientious reliance on legal rights in the Australian cases will give rise in equity to a proprietary (rather than a personal) right, and a proprietary right which is a constructive trust 'fashioned' by the court (para 1353). (See also the comments by Gummow J in the transcript of the special leave application in relation to Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129.) 122It does not seem to me that the present case readily falls within the concept of a joint relationship or endeavour (which has failed without attributable blame), in which expenditure is shared for the common benefit in the course of and for the purposes of which an asset is acquired, as considered in West v Mead (in the context of the pooling of contributions by parties to a de facto relationship) [2003] NSWSC 161; (2003) 13 BPR 24,431. Campbell J (as his Honour then was) there noted that the scope of the joint venture in which the parties were engaging may be of relevance and may change from time to time. 123However, in the present case, there was no "joint endeavour" as such; rather there was a sale of business as part of the implementation of which obligations arose on the part of both Tekitu and Australian Receivables to conduct the business in a certain manner with a view to the distribution of profits or bonus to the party acquiring the business from the effective date and with a view to calculating the quantum of the final instalments of the purchase price. 124I am not satisfied that a constructive trust has arisen or should be imposed on the Muschinski principle. 125Had I been so satisfied I would have needed to consider the requirement emphasised by the High Court in both Bathurst and in Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [113] that before a constructive trust is imposed the court should decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust. 126As a general statement of principle, a constructive trust will be treated as coming into existence at the time of the conduct which gives rise to the trust ( Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120; Re Sharpe; Ex parte Trustee of the Bankrupt's Property v Sharpe [1980] 1 WLR 219 per Browne-Williamson J at [225]; Giumelli per Gleeson CJ, McHugh, Gummow and Callinan JJ at [122]). In such a case, the doctrine of priorities would apply and, where the equities are equal, the beneficiary of the constructive trust would be entitled to priority over the holder of a later equitable interest or an unsecured creditor of the constructive trustee. 127This is of potential relevance in the present case where Tekitu is now under external administration and its creditors will be affected by the imposition of a constructive trust. It has been recognised that in circumstances where legitimate claims of third parties may be affected, it may be that in an appropriate case the constructive trust should be recognised by the court as operating only from the time of curial declaration. 128Deane J in Muschinski had considered (at 623) that "Lest the legitimate claims of third parties be adversely affected, the constructive trust should be imposed only from the date of publication of reasons for judgment of this Court." 129However, what is not clear is in what circumstances the presence of third party interests will cause the court either not to impose a constructive trust at all or only to impose a constructive trust shaped to commence from the time of judicial determination (as was done in Muschinski ) rather than at an earlier time. 130In his Honour's dissenting judgment in Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536, Gummow J, then sitting in the Full Federal Court, acknowledged (at 555) some of the concerns regarding the priority afforded to beneficiaries of constructive trusts against general creditors (or holders of later acquired interests), (though his Honour did not come to a definitive conclusion as to when third party interests will render it inappropriate to impose a constructive trust), noting that: Reference was made by Gibbs CJ (in Daly's case (supra) at 379) to the effect of the constructive trust in withdrawing assets from the general body of creditors; this generally will be so unless the beneficiary of that trust himself holds his rights for the benefit of a fund he administers, for example, on insolvency (as would be the position of the Official Receiver in the present case). However, in general the result may be seen, as the Chief Justice observed, as unjust to the general creditors of the constructive trustee unless there is given further explanation of the raison d'etre of the trust. 131Mr Brender pointed to the reference by his Honour (at pp 505-506) in the above case to the decision of Lord Templeman in Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) [1986] 3 All ER 75 at 76-7 where his Lordship, in dealing with the case of an insolvent bank which also had acted as a trustee and the priority given to beneficiaries over claims of customers of the bank, said: This priority is conferred because the customers and other unsecured creditors voluntarily accept the risk that the trustee bank might become insolvent and unable to discharge its obligations in full. On the other hand, the settlor of the trust and the beneficiaries interested under the trust never accept any risks involved in the possible insolvency of the trustee bank. On the contrary, the settlor could be certain that if the trusts were lawfully administered the trustee bank could never make use of trust money for its own purposes and would always be obliged to segregate trust money and trust property ... free from any risks involved in the possible insolvency of the trustee bank. 132While there is a need to have regard to the prejudice which might be done (by the imposition of a constructive trust) to the claims of third party creditors who could not have been aware of the circumstances giving rise to the constructive trust, there is a fairly clear (though not uncontradicted) line of authority from Re Jonton Pty Ltd [1992] 2 Qd R 105; (1991) Q ConvR 54 - 392 to Re Sabri; Ex parte Brien v Australian & New Zealand Banking Group Ltd (1996) 137 FLR 165 to Parsons v McBain in which such prejudice does not appear to have prevented the imposition of a constructive trust. In each case, the question appears to be what would be an appropriate or available remedy "to quell the controversy" (adopting their Honours' terminology in Bathurst ) and whether this would involve a remedy short of the imposition of a constructive trust (and (if not) whether any constructive trust so imposed should be fashioned so as to avoid or minimise prejudice to unsecured creditors in some way). 133In the present case, it has not been suggested that there are particular factors which would call for unsecured creditors of Tekitu to be protected in terms of priority vis a vis Australian Receivables. The assets and business were sold by Tekitu for value and the moneys said to be impressed with the trust were seemingly deposited into Tekitu's accounts in error. 134In the event, it is not necessary to determine whether, had the basis for imposition of a constructive trust been established, some lesser remedy should have been granted because I am not satisfied that Australian Receivables has established its Muschinski constructive trust claim. 135I am, however, satisfied (as noted above) that on the proper construction of clause 17.5 it gave rise to an implied or resulting trust in favour of Australian Receivables in respect of the moneys received in to Tekitu's bank accounts. 136It is further alleged, in the alternative, that Tekitu (as the paid vendor of the business) owed a fiduciary duty to Australian Receivables in relation to the business (part of which it remained in Tekitu's possession), not to prefer its own interests to those of Australian Receivables and to account to Australian Receivables for the retained moneys ([23] of the Further Amended Statement of Claim). On that basis it is alleged that it would be unconscionable or in breach of trust for Tekitu to assert any entitlement to the funds held in the Tekitu trading account. In Scott v Scott (1963) 109 CLR 649 (followed in Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440; (1983) 1 ACLC 1091 ) the High Court noted the proposition in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 that someone occupying a position of trust "must not make a profit which he can acquire only by use of his fiduciary position, or, if he does, he must account for the profit so made". 137Given that I consider that Tekitu was in the position of trustee holding the moneys for the benefit of Australian Receivables, it is not necessary to determine whether any fiduciary duty (independent of such a trust) would have arisen. 138Finally, a claim for money held and received to the use of Australian Receivables is also made ([25] of the Further Amended Statement of Claim) and that Tekitu would be unjustly enriched if it did not pay the retained moneys to Australian Receivables. (Mr Cotman contends that at best the facts in the present case give rise to a money had and received claim or moneys paid under a mistake of fact but that this does not warrant the imposition of constructive trust. Had I accepted Mr Cotman's construction of clause 17.5, I would have agreed with this conclusion.) 139Mr Cotman further submits, and I accept, that the mere fact that the moneys were secured by Court order in a controlled moneys fund pending determination of the proceedings does not mean they are subject of a trust. I agree, but again that is immaterial given the finding that the moneys were held on trust on their receipt into the account. 140Accepting that the moneys retained in Tekitu's account were impressed in its hands by a trust, the next question is whether it is open to Australian Receivables now to trace those moneys into the controlled moneys account. Mr Cotman submits there was a mixing of accounts in the Tekitu trading account such that the moneys paid into it (and the moneys now held in the controlled moneys account) have lost the character of trust moneys. Mr Cotman notes that the funds received into the Tekitu trading account were not kept separate from Tekitu's own money (nor was there any obligation to do so in the Sale of Business Agreement). It is submitted that to the extent that also paid into the account were (or may have been) moneys to which Tekitu was entitled (including 'sold' debts owing at November for commissions which had been 'put back' to Tekitu under the Sale of Business Agreement when not collected within the 90 day period), there was a mixing of moneys in the account and that any trust connection was lost. 141Mr Cotman submits that this is made clear by reference to the schedules prepared by the plaintiff showing that this account received funds from a number of sources after completion of the sale. Those schedules divided into separate columns moneys referable to the alleged obligation to remit under clause 17.5 and those received in relation to Tekitu's affairs (such as the November debtor payments) reference being made to the schedule at CB 7/55 and 58. 142Mr Cotman further submits that the moneys in the controlled moneys account over which a proprietary interest is asserted themselves came not from the (mixed fund) general trading account but from the personal account of Mr and Mrs Smith. 143In response, it is submitted by Mr Brender that Australian Receivables may require the restoration of the moneys or may trace those moneys into the controlled money account, because the trust property has been converted relying on Paul A Davies at [455]. He submits that insofar as the moneys paid into the controlled moneys account represents money paid by Tekitu out of its funds, then the question of mixing with the Smiths' money does not arise. 144As to the mixing of the funds in Tekitu's trading account, the learned authors in Jacobs' Law of Trusts in Australia summarise the position where trust property has been mixed with the trustee's own personal property (at [2706]) by reference to Re Hallett's Estate (1879) 13 Ch D 696; [1874-80] All ER Rep 793 noting that the Court approached the situation where there had been both deposits of other moneys and withdrawals after the wrongful payment of the funds in question on the basis that the allocation of withdrawals should be ordered by reference to the principle that "wherever an act 'can be done rightfully, [a fiduciary] is not allowed to say, against the person entitled to the property or the right, that he has done it wrongfully'" and that in those circumstances "the rule in Clayton's case, whereby it is assumed that, in the absence of evidence to the contrary, a person intends to draw from his account money in the order of payments in, was not applicable". Jacobs' notes that the result in Re Hallett's is based on the presumption that a trustee or other fiduciary in such a position intends to act honestly (and hence is presumed to draw out and dissipate from a mixed account the trustee's own moneys first). 145It is noted in Jacob's that the principles laid down in Re Hallett's have been elaborated and qualified in a number of ways ([2707]); in particular, it being said that there is no presumption that a trustee having manifestly committed a breach of trust intends by his subsequent acts to repair it (citing James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 at [69] per Sargant J as applied in Re Joscelyne; Allen's Plaster Products Pty Ltd v Prudential Assurance Co Ltd [1963] Tas SR 4 ; Lofts v MacDonald (1974) 3 ALR 404; Bishopsgate Investment Management Ltd (in liq) v Homan [1995] Ch 211; Re Global Finance Group Pty Ltd [2002] WASC 63; (2002) 26 WAR 385 at [102]) and also that where there is no balance remaining in the account, but assets have been acquired by the trustee with the withdrawn money, it is assumed that the trustee intended the investment to be for the benefit of the fund irrespective of the order of withdrawals ( Re Oatway [1903] 2 Ch 356). 146Jacobs' further notes that it has been suggested that where a trustee improperly creates a mixed fund consisting partly of the credit in a mixed account and partly of assets purchased with drawings therefrom, the beneficiary has a charge over each and every part of the amalgam. In Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102 Lord Millett said (at [131]): Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset. 147In the present case, I have found that the moneys when paid by clients into the Tekitu trading account (for fees and commission payable to Australian Receivables) were impressed with a trust in favour of Australian Receivables by reference to Tekitu's obligation to remit those funds on a daily basis. Tekitu at that stage had a duty to maintain the account in such a way that the funds held by it subject to the trust would be readily identifiable, it being a breach of trust to mix its own property with trust property ( Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd [2000] HCA 25; (2000) 202 CLR 588 ). 148The question then is how to characterise the withdrawal and transfer to the Smiths' personal account (said to be by way of payment of directors' loans) of the payments totalling $365,000. To the extent that this was a withdrawal from a mixed fund account for a purpose inconsistent with Tekitu's fiduciary duty to Australian Receivables as beneficiary, but there remained sufficient funds in the Tekitu account to satisfy the beneficiary's claim, then the reasoning in Re Hallett's would suggest that the withdrawal should be presumed to be of funds to which Tekitu was beneficially entitled. On that analysis the moneys paid to the controlled moneys account would be presumed to be from the Smiths' personal account and the trust connection lost. However, where there are insufficient funds remaining in the mixed account to meet Australian Receivables' claim, that result does not necessarily follow. 149Where the withdrawal by the trustee from a mixed fund is for purposes of investment then it seems, on the authority of Re Oatway, that such a withdrawal may be treated as being for the benefit of beneficiary. 150The evidence of Mrs Smith in November 2007 was, in effect, that the withdrawal of the funds from the Tekitu trading account to the Smiths' personal account (allegedly by way of discharge of loans by the Smiths) and the drawing of a bank cheque from the funds then held in the Smiths' personal account was for the purposes of investment. (Further, the fact that all that was paid in compliance with the subsequent order made in December 2007 for payment of the remainder of money transferred out of the Tekitu trading account was the relatively minor amount of $1,314 seems to indicate that the moneys withdrawn for investment purposes out of the personal account were the moneys which had been taken from Tekitu's trading account and deposited in the Smiths' account.) 151On the basis that the cheque(s) paid into the controlled moneys account from the Smiths' personal account represented moneys that had been withdrawn from the Tekitu trading account for the purposes of investment , then on the application of the above principles (and with particular reference to Re Oatway), it seems to me that Australian Receivables can trace into those moneys as held in the controlled moneys account. Thus, subject only to the issue as to what follows from the timing "hiccup", (the result of which was to reduce the "trust money" in that account by the amount of $54,667 before receipt of the released rental guarantee deposits in that amount which had the effect of replenishing the account) this would mean that Australian Receivables can claim priority over the moneys now held in the controlled moneys account. 152Whether or not the so-called "hiccup" was in breach of the Court orders, it seems to me to have had the effect that what was paid out on 6 December was trust money and hence that Australian Receivables has already recovered $54,667 of those moneys that were impressed with a trust before payment into the controlled moneys account. Does that mean that it is now only the balance of the moneys in that account after payment out of the $54,667 (i.e. $169,831.72) which it can trace? 153Re Global Finance and the authorities to which I have referred in [145] above suggest that the fact that the Smiths may have sought to replenish the trust fund after the payment out of the $54,667 (i.e. the timing hiccup) does not in my view alter the conclusion that those trust moneys have already been withdrawn and therefore that Australian Receivables can trace into the fund only for the lesser amount (though ultimately there is no difference in result once the remaining balance of the fund is offset against the amounts owing by it to Tekitu). 154Insofar as the allocation of withdrawals and treatment of payments out of a mixed account of this kind is based on a presumption as to the trustee's intention, an actual intention by the trustee (or the third party) to treat moneys subsequently paid in as replenishing the trust fund would permit the conclusion that the trust connection was not lost. However, in the present circumstances I am inclined to think that this would in effect require a finding that the release guarantee payments were the subject of a fresh (express) trust when paid into the controlled moneys account. 155As noted earlier, where the fiduciary, after depleting a mixed fund, pays into it further moneys of his or her own, there is no presumption that the further payments into the fund replace the lost moneys of the beneficiary ( James Roscoe at p 69; Re Global Finance ). However, that is not to say that if an intention of the fiduciary to restore the depleted fund with subsequent payment(s) can be found that such an interest is to be ignored. 156In James Roscoe , Sargant J accepted that if there was evidence that the intention of the trustee (in replenishing the account there in question) was to substitute the additional monies for the original trust monies, then that intention should be recognised and the beneficiary could trace into the monies held in the replenished account. However, on the facts of the case, no such actual intention could be deduced. Sargant J observed (at p 69) that: Of course, if there was anything like a separate trust account, the payment of further moneys into that account would, in itself, have been quite a sufficient indication of the intention of the debtor to substitute those additional moneys, and accordingly to impose, by ways of substitution, the old trusts upon those additional moneys. 157In Jacobs' Law of Trusts in Australia at [2713] ft 104, the learned authors note that although James Roscoe is often cited as authority that intention were irrelevant, in fact it is authority to the contrary, standing for the proposition for payments into a general account cannot, "without proof of express intention", be appropriated to the replacement of trust money which has been improperly mixed with that account and drawn out. 158In Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361, Campbell J (as his Honour then was) noted at [175] that: James Roscoe v Winder is authority for the "lowest intermediate balance rule". Under it, absent any payment in of money with the intention of making good earlier depredations, tracing cannot occur through a mixed account for any larger sum than is the lowest balance in the account between the time the beneficiary's money goes in, and the time the remedy is sought. In a case where the type of tracing being attempted involves detailed analysis of what has become of the property of a particular beneficiary, and into what other assets it has been converted or mixed, the lowest intermediate balance rule is fundamental to a principled approach to tracing. Remembering that the aim of tracing is to identify property which is still in the hands of a defendant, and which can be seen to be in substance the property of the plaintiff, no more than the lowest intermediate balance in a mixed account can meet that test. It is only to the extent of the lowest intermediate balance that the beneficiary can say "you cannot in conscience deny that your right to get money out of your bank account is property which you hold on trust, and which you must put back into the trust fund". 159In Re Global Finance , McLure J in the Supreme Court of Western Australia stated at [102] - [103] that: Secondly, subsequent deposits by a trustee of its own funds into a mixed fund are not presumed to be impressed with the trusts in favour of the beneficiaries: James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 at 69; Bishopsgate Investment Management Ltd (in liq) v Hom an [1994] 3 WLR 1270. If the subsequent deposits are not impressed with the relevant trusts, the beneficiaries are only entitled to the lowest balance in the mixed fund between the date when the beneficiaries' money was deposited in the account and the date of the claim. This is known as "the lowest intermediate balance rule". The rule has also been applied in Australia: Re Laughton [1962] Tas SR 300; Re Joscelyne (1963) Tas SR 4; Whitehand v Jenkins , unreported; SCt of Vic (Ormiston J); 6 February 1987. However, subsequent deposits by a trustee of its own funds into a mixed fund will be impressed with the trusts in favour of the beneficiaries if the trustee intended to make restitution to the trust by appropriating the funds to the replacement of the trust moneys: James Roscoe (Bolton) Ltd v Winder (supra) at 69; Taylor v London & County Banking Co [1901] 2 Ch 231; Re Grey (No 2) (1900) 26 VLR 529. (my emphasis) 160Thus the authors in Jacobs' note (at [2713]): If the fiduciary pays money into the fund with the intention of effecting restitution, then the interest of the beneficiary in the fund will be the same as if the sum represented by the later payment in had never been withdrawn by the fiduciary (citing Ex parte Kingston (1871) LR 6 Ch App 632; Taylor v London & Country Banking Co [1901] 2 Ch 231 at 254; Re Gottfried Banking Co (1970) 312 F Supp 643; Matter of Van Ingen (1950) 100 NYS 2d 244; Re Global Finance Group Pty Ltd (in liq) at [103]; Scott and Fratcher, The Law of Trusts (4th edn, Vol V) at 518.1). The existence of such an actual intention may be inferred from the facts, even if not manifested by direct evidence. 161There is no evidence here of an actual intention that the moneys paid into the controlled moneys account by the Smiths (after the payment out of the two payments in question) that operated to replenish the fund were to be impressed with a trust. Rather, it seems likely that the payments were made in compliance with the Court orders and perhaps without any appreciation of the effect of the 'timing hiccup'. (Indeed the position adopted by the defendants in the litigation is that there is no trust over any of the moneys.) 162I am left to conclude that the amount into which Australian Receivables can trace as trust money in the controlled moneys account is the $224,607.72 less the $54,667. (The balance can be relied upon by way of set-off in defence to the cross-claim.) Personal claim against Mr & Mrs Smith 163The personal claim against the Smiths with respect to the retained moneys is pleaded in paragraphs [27]-[37] of the Further Amended Statement Claim. The principal claim is of knowing assistance in a dishonest breach of trust by Tekitu in relation to its retention of the retained moneys. (This claim was also asserted in relation to the B-pay amounts though, as already noted, no proprietary claim to those amounts is now pressed as against Tekitu). 164The claim against the Smiths personally is thus pleaded as a second limb Barnes v Addy ((1874) LR 9 Ch App 244 at 251) claim of knowing assistance (not a first limb knowing receipt claim). 165The elements of a claim under the second limb of Barnes v Addy are concerned are the existence of a fiduciary duty; a dishonest and fraudulent design by the fiduciary; the assistance by the third party in that design; with knowledge, as articulated in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [160], [179] and [181] and Ingot and Ors v Macquarie and Ors [2004] NSWSC 1136 at [20] and [23] and something amounting to dishonesty or a want of probity in the conduct of the third party. Halsbury's Laws of Australia (online edn) notes that dishonesty in this context involves both an objective standard as to what a reasonable person would have known in the circumstances and a subjective element as to what a person actually knew at the time (citing Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 at [392] per Lord Nicholls; Twinsectra Ltd v Yardley . (See also Power v Ekstein [2009] NSWSC 130 at [52]). 166In a knowing assistance case, what is required is more than constructive notice of the dishonest or fraudulent design. There must be knowledge within the first three of the five categories listed in Baden Delvaux & Lecuit v Societe General pour Favoriser le Developpement [1983] BCLC 325 per Gibson J. The High Court in Farah Constructions at [174], considering the question of knowledge in the context of Barnes v Addy accessorial liability, accepted that such knowledge can be established not only by positive proof that the third party in fact knew the matters alleged but can also be established "negatively" by proving the existence of "Nelsonian blindness" arising from the wilfully shutting of their eyes to the obvious; and/or by wilfully and recklessly failing to make such enquiries as an honest and reasonable person would make about the matters in question. 167In the present case, knowledge of the relevant matters giving rise to the breach of trust is pleaded as arising from the position of Mr and Mrs Smith as directors; the dishonesty alleged is put on the basis that an honest person in their position would have known that the moneys deposited to the Tekitu trading account (and the B-pay accounts) were intended to be paid to the owners of the business (which was by then Australian Receivables) and that they nevertheless caused those amounts to be paid out of the account "for their own benefit or to reduce tax liabilities of Tekitu for which they would otherwise have been personally liable". 168In those circumstances it is alleged that the Smiths are liable to account for the moneys paid into their personal accounts out of the Tekitu trading account as constructive trustees on the ground of dishonest assistance in Tekitu's breach of trust. 169Alternatively, it is pleaded that Mr and Mrs Smith are liable for those moneys on the basis of unjust enrichment ([34]), as moneys had and received to their use ([35]), as constructive trustees of those sums or that part of those sums which they received and retained "which constituted a benefit to them" (accepted now as being $88,100) ([36]) and as accessories to the alleged breach of trust by Tekitu ([37]). 170As noted earlier, Mrs Smith deposes to having drawn sums totalling $88,100 from the account after 17 April 2007 (Mrs Smith's affidavit of 8 November 2007 at [59]-[60]) and Mr Smith does not cavil with this. (Mr Duncan's analysis (at CB 7/72) was that up to $450,054 was drawn for the Smiths' personal use.) Mr Brender submits that Tekitu obtained the difference (namely $235,770.73) between the sum of $567,084.73 retained in the Tekitu bank accounts after completion and the sum of $331,314 which was later paid to the solicitors' trust account and that withdrawals in excess of the entire shortfall were taken by the Smiths personally from the Tekitu trading account. Nevertheless, as I understand it, only the claim for $88,100 was ultimately pressed. 171It seems to me quite conceivable (particularly having regard to the difficulties in reconciliation of withdrawals and deposits from at least one of the client accounts to which reference was made in the IAG breach of warranty claim) that at least prior to the time at which issues were raised in respect of the accounts, Mr and Mrs Smith would not have been aware of the possibility that moneys withdrawn for their personal use were being made out of funds in which Australian Receivables had an entitlement or beneficial interest. I consider that the conclusion that there was dishonesty on their part in that regard cannot be drawn where the explanation could as readily be ignorance on their part of the derivation of the moneys coming into the account and of the operation of the Sale of Business Agreement in relation to those moneys. However, it seems to me that once the Smiths were on notice of issues in relation to the accounts (which seemed to emerge from around April/May 2007), then transfers of moneys out of the account for their personal benefit must have been done with a disregard for the possibility that on a proper account being taken those moneys would not belong to them. 172Thus, while there might have been some doubt on the part of the Smiths as to whether particular moneys received into the Tekitu account in the period around January to April 2007 were moneys which Tekitu was liable to remit to Australian Receivables (or were, for example, moneys referable to debts collected for its own benefit or moneys payable by way of fees or commission for pre-December debts), from May 2007 (and certainly by October 2007 when Mrs Smith transferred the sums totalling $365,000 to the personal account) there must have been a doubt as to the party entitled to those amounts. 173In October 2007, for example, there was no suggestion that the moneys ultimately paid into the controlled moneys account were due to Tekitu; rather, the initial response by Tekitu's lawyers appeared to acknowledge that there were moneys held as "setoff funds" that (absent set-off) would be due to Australian Receivables. Moreover, the conduct in transferring out of the Tekitu trading account on the very day that demand was made for the retained moneys is redolent of a concerted attempt to put the moneys out of reach of the plaintiff. The retention of the sum was seemingly regarded as leverage for other amounts claimed by them (conduct of a kind that was to some extent mirrored by Australian Receivables on its internal set-offs not confined to them). 174I am satisfied that in relation to the moneys transferred in October 2007 to their personal account ($365,000) (and, on balance, also as to the drawings from the account between April and October 2007) that Mr and Mrs Smith either wilfully shut their eyes to the obvious (namely that this was money to which there was every likelihood or at least a real possibility that Australian Receivables, not Tekitu, was entitled and which Tekitu had agreed to retain and then remit to Australian Receivables under the terms of the Sale of Business Agreement) or wilfully failed to make enquiries that an honest person would have made as to the matters in question. 175To the extent that there is a shortfall on the retained moneys claim (and, having regard to the findings below, I do not think there is), I find that Mr and Mrs Smith are personally liable as constructive trustees for those moneys (the claim in that regard now being pressed only for the sum of $88,100.00, the benefit of which they acknowledge has been received by them), having knowingly assisted in the breach of trust by Tekitu within the meaning of the principles applicable to claims under the second limb of Barnes v Addy . 176Mr Cotman submitted that the Court should be disinclined to grant equitable relief to the plaintiff having regard to Australian Receivables' wrongful conduct in withholding payments acknowledged to be due to Tekitu. In that regard I accept there is criticism that may be levelled against Australian Receivables. However, it is criticism that is at least equally open to be levelled against Tekitu (and arguably more so as Tekitu was holding funds impressed with a trust). (ii) Adjustments to purchase price 177Pursuant to clause 6.4(2) of the Sale of Business Agreement, the second instalment of the purchase price was payable on 9 April 2007 (being $250,000 minus any adjustment in accordance with clause 7). A sum of $28,127.89 was paid on 28 April 2007 and a further sum of $73,583 was paid in October 2007 (a total of $102,583.11) in respect of that purchase price instalment. Australian Receivables contends that a number of adjustments are required to be made and that they should be set off against the retained moneys claim. 178As noted, various adjustments have been agreed: $33,925.39 as a cash adjustment; $4,580.06 as the figure for the trade creditors' payback; $29,749.62 as the November trade debtors buy-back figure, each of which operates to reduce the balance payable to Tekitu of the second purchase instalment. It is also agreed that there should be credits to Tekitu for payroll ($94,609.55) and superannuation ($43,878.39) paid by it. 179The disputes are as to what adjustment (if any) should be made for other items (December commission; software rentals and the cost of other services; business expenses; and the Smiths' salaries/consulting fees). 180Insofar as there is a dispute as to additional deductions claimed by Australian Receivables (the alleged shortfall in the IAG account said to have been caused by an overdrawing of commission prior to 31 December 2006 for which, in July 2007, Australian Receivables purported to deduct some $130,882.66) and an amount referable to the alleged under-provisioning of long service leave (said in July 2007 to amount to $60,267.06 as per Australian Receivables' schedule at CB5/227 but now put at a lesser amount), Tekitu contends that those additional deductions from the second purchase instalment were made by Australian Receivables in breach of the Sale of Business Agreement as they are not adjustments within either clause 7 or clause 12 of the contract. As I understand it, Australian Receivables does not now maintain that those deductions are within clause 7 but nevertheless maintains its claim for a set-off by reference to the alleged breaches of warranty in that regard. 181The issues in dispute in relation to the clause 7 adjustments to the second instalment of the purchase price are considered in turn below. (a) Commission adjustment on acquired debts 182The first adjustment issue relates to the calculation of the December loss. The parties agree that the figure posted in the accounts of $160,775.62 was incorrect and that an adjustment of $26,187.62 needs to be made to that figure in Tekitu's favour. However, Tekitu submits that a further adjustment to the December loss is required in order to take into account the gross revenues from the acquired purchase debt portfolios in December 2006 (not simply the notional commission on those debt portfolio collections) thus $33,912 (that being $56,321 less the commissions already allowed of $22,408). 183Australian Receivables' contention is that only an adjustment of $5,512.56 should be made (to correct the incorrect rate at which commissions on the acquired debt portfolio collections had initially been calculated), i.e. to increase the commissions allowed as part of the "net revenues" to $22,408 from the $16,896.23 previously allowed. (As I understand it, Tekitu does not disagree that an adjustment of somewhere in the order of that calculated by Australian Receivables is correct if all that is to be included in the net revenue figures for the purpose of calculating the December loss is the commission on the acquired debt and not the revenue from the collections themselves.) 184As noted earlier, as part of the sale of the business, two pre-existing purchase debt portfolios were acquired by NCO from Tekitu under the Asset Sale Agreement (namely the Police Credit Union/St George Motor Finance portfolios). NCO also acquired the Westpac purchase debt portfolio under a separate agreement with Westpac. As the effective date of the sale under the Asset Sale Agreement was the same as that provided for in the main Sale of Business Agreement, there was a similar adjustment to be made at completion for the December profits/loss of that portfolio (the collections in effect being made on behalf of NCO from 1 December 2006, with no commission payable by NCO in relation to those commissions). 185By letter dated 7 December 2006, Mrs Smith on behalf of Tekitu further confirmed that the arrangement in relation to the Westpac portfolios was that in the event that NCO entered into the debt purchase agreement with Westpac (which it did) Tekitu would have no interest in such agreement other than that commissions received in respect of the recovery of those debts at the rate of 30% would form part of the net revenues to be used to calculate the earn outs in the Sale of Business Agreement. (Under the Sale Business Agreement "total income" for the purposes of the first earn-out and the second earn out was to include commission income on the Police Credit Union/St George debt portfolios at the higher rate of 42.5%.) 186Australian Receivables contends that, with respect to the St George/Police Credit Union portfolios acquired directly (by NCO) from Tekitu, the amount of any cash receipts or collections with respect to those portfolios could not be a cash receipt which Australian Receivables would be entitled to receive from Tekitu as an adjustment at completion under clause 7 of the Sale of Business Agreement because that cash receipt was cash of NCO from the Effective Date (30 November 2006). Therefore, although Australian Receivables accepts that Tekitu is entitled to a commission of 42.5% of the cash collected on those portfolios for the purposes of the earn out calculation (and is prepared to accept, for the purposes of adjustment at completion, the figure of 42.5% as notional commission on those December collections), it contends that in fact Tekitu should not receive any adjustment at completion by reference to the Police Credit Union/St George purchase debt because revenue from those portfolios is not Tekitu revenue as from 1 December 2006. (The basis on which Australian Receivables is nevertheless prepared to allow for an adjustment to the December revenues to take into account 42.5% commission on those December collections is said to be because Tekitu did the work to collect those amounts.) 187(There was an issue at the outset as to whether the June to November 2006 revenue figures supplied to Australian Receivables by Tekitu included any amount with respect to purchase debt collections. Australian Receivables' calculations had assumed that the purchase debt collections of around $288,000 were included in the gross revenue and for the purposes of the earn-out it added the commission on those collections to the gross revenue. (However, the accountant called for Tekitu (Ms Bateman) gave evidence that this was not the case and Australian Receivables now accepts that the gross revenue figures did not include any amount referable to the purchase debt collections. (Mr Duncan, at T 95, accepted that the comments made by Ms Bateman on the $288,000 though disagreeing as to other matters.) 188It is submitted by Mr Cotman that there was an understanding in 2007 between Mr Horn (the consultant engaged for Tekitu) and Mr Cooney that gross revenues from the acquired debt portfolios in December 2006 would be taken into account in determining the total revenues for the business in December 2006 and that the only contention between them at that stage was whether that figure should be $47,766 (as contended for by Mr Cooney) or $56,321 (as contended for by Mr Horn). Reference was made to the correspondence at CB 5/227 to that effect. It is submitted that this understanding between the parties (namely that gross revenues from the acquired debt portfolios in December 2006 would be taken into account in determining the total revenues for the business in December 2006) as reflected in the correspondence remained in place until Mr Duncan filed his July 2010 affidavit in these proceedings and is indicative of what the parties' understanding was at the time of the contract. (Mr Cotman does not, however, contend there was an admission as such.) (In the witness box, Mr Cooney's explanation was that he had made an error when he referred to $47,776 as the December acquisition commission - T 146.15-25.) Whatever the positions adopted later in 2007 when the dispute first arose, I am not satisfied that it sheds light on the proper interpretation of this clause in the contract (particularly having regard to the fact that the parties seem to have adopted changing positions on various issues throughout the course of the dispute). 189The Sale of Business Agreement does not specify the manner in which collections from the acquired debt portfolios are to be treated for the purpose of calculating the December loss. That income is specifically addressed only in the provisions dealing with the inclusion of commission on that income for the purposes of the earn-out calculations. Mr Cotman submits that the explicit inclusion of the commissions in income for the earn-out period is necessary only because (but for that clause or provision, or the corresponding acknowledgement made by Mrs Smith in relation to the Westpac portfolio), the gross receipts would there be used (that being the ordinary basis for the calculation of Tekitu income). It is further submitted (and I think there is force in this submission) that the fact that the provisions relating to adjustment for December loss do not explicitly deal that which was specifically addressed in relation to the earn-out period calculations supports the inference that the basis of accounting for the December loss was to be the usual basis on which Tekitu accounted for receipts (and not the special basis adopted for the earn-out calculations). 190Clause 7.2.1 contains a definition of accrued net profit (but no separate definition of accrued net loss) and provides for that to be determined by reference to the revenue of the Business accrued during the Interim Period (including cash sales) and there was a corresponding definition for expenses. "Business", as defined, was the "business...carried on by [Tekitu] at the Business Premises". It is submitted that during the Interim Period that business included the collection of debts the subject of the acquired debt portfolios (albeit that Tekitu was contractually obliged to account for the collections to NCO as part of the Asset Sale Agreement). Mr Cotman submits that the structure of the sale arrangements was that for the month of December Tekitu continued to carry on the business of debt collections, including debts forming part of the purchase debt portfolios, and therefore (for the purposes of assessing December profit/loss), it makes sense that what would be taken into account would be the revenues including the collections of debts in respect of the Police Credit Union/St George portfolios (so as to enable a comparison like for like as to the performance of the business that had been acquired, albeit that the business had in effect been split as between Australian Receivables and NCO). 191I consider that the exercise in calculating the December loss (and hence the adjustment to be made from the second instalment of the purchase price in that regard) required focus on revenue of the "business". That included the whole of the debt collections in respect of the purchase debt portfolios and not simply the notional commission on those collections. (Conversely, the Westpac debt portfolio collections would not be included in this calculation because those were not receipts of revenue from the carriage of the business of Tekitu during that month.) 192On this issue, therefore, I find for Tekitu. I consider that the adjustment should be made referable to a calculation of December loss that includes the gross purchased debt collections and not just the commission. As I understand it, on the figures with which I have been provided that would operate to increase the amount payable to Tekitu for the second purchase instalment by a figure of $33,912 (there having been an amount already allowed for commission of around $22,000 which would mean the effective adjustment allowed the whole of the December collections). (b) Software rental/claims for other services * DebtSmart software rental 193It is clear from clause 6.2(10) of the Sale of Business Agreement, that Australian Receivables had the right to use the software systems then in use by Tekitu (the Mercantile system and DebtSmart software system) without charge for 90 days following completion of the contract and was entitled thereafter to use those systems on a month to month basis at monthly charges of $693.44 and $1527.34 respectively (totalling $2,220.78 per month) with the right to terminate those arrangements on 30 days' notice. There was no obligation on the part of Australian Receivables to make use of the said software systems; rather, clause 6.2(10) obliged Tekitu to give Australian Receivables the right to do so. There was no suggestion that Tekitu had not made the use of the relevant software systems available to Australian Receivables. As I read the clause, Australian Receivables had the option after 90 days to continue to use the DebtSmart software on a month-to-month basis and, if it then commenced to do so, then the licence so granted was terminable on 30 days notice. 194Therefore, the issues for determination in relation to this adjustment turn on whether Australian Receivables continued to use the DebtSmart software after 9 April 2007 (so as to give rise to a 30 day notice requirement for the licence then arising) and whether Australian Receivables validly terminated the arrangement in early 2008. An amount of $27,714.88 was claimed by Tekitu in relation to the software rental on the basis that the licence to use the DebtSmart software was not terminated until July 2008. (Although there was a suggestion that Tekitu may have contended that under the Sale of Business Agreement the DebtSmart software was in fact acquired by Australian Receivables when it refinanced the hardware, no such contention appeared to be pressed at the hearing.) 195Tekitu rendered invoices from April 2007 to July 2008 in respect of the software systems. Australian Receivables paid the April 2007 invoice of $2,220.78 but did not thereafter pay any further invoices. In its Defence to Cross Claim (at paragraph 60(d)), Australian Receivables pleaded that, to the extent that it had paid Tekitu for the right to use the DebtSmart software pursuant to clause 6.2(10), it had paid those invoices in error. 196Mr Cotman points to the evidence of Mr Noel Wyett (the former general manager of Tekitu now working for Australian Receivables) to the effect that, while debt collection clients were transferred from DebtSmart to Debtrak on a progressive basis throughout 2007, Australian Receivables "also kept DebtSmart going for our process serving and field calls; that was not transferred across". It is therefore Tekitu's submission (and Mr Wyett's evidence supports this, though Mr Brender notes that Mrs Smith concedes that any use of the DebtSmart software after April 2007 was "limited", referring to her affidavit sworn 3 June 2010 at [221]), that Australian Receivables continued to use DebtSmart (albeit to a limited degree) beyond February 2008. 197Australian Receivables now accepts responsibility for the rental fees in respect of the DebtSmart software system for a three-month period, but disputes the balance of the claim for software rental. An amount of some $7,626.65 therefore remains in dispute in relation to the software rental claim. 198I am satisfied on the evidence given by Mr Wyett that, whether limited or not, there was some use made of the software by Australian Receivables after 9 April 2007. Therefore, the remaining question is whether notice was validly given by Australian Receivables to terminate the licence that operated from that time. Australian Receivables relied upon a notice given in around January/February 2008 (CB19/794;803) that it no longer required access to the "Debtrak" software. 199Debtrak was a different software system (developed by the same person who had developed the DebtSmart software system in association with Tekitu - T 301 per Mrs Smith). Tekitu at no time held any licence to use the Debtrak system. The letter dated 1 February 2008 referred in its terms to the Debtrak system and stated that Australian Receivables "no longer acquires [sic] access in terms of the license [sic] agreements provided for in the Sale of Business Agreement to the above software. 200The main issue in dispute is as to whether there was any valid notice given to terminate the arrangement pursuant to which Australian Receivables was entitled to use the DebtSmart system (since the notices given in January and again in February 2008 referred to the Debtrak software not DebtSmart). (Mr Cotman submits that, to the extent that Australian Receivables in fact required access to DebtSmart beyond 1 February 2008, the letter concerning "Debtrak" evinces nothing more than an intention not to pay for that access any further.) 201It is submitted by Mr Brender (and I agree) that it must have been clear to Tekitu that what was being referred to in the letter of February 2088 was the use of the DebtSmart software (since this was the only software the use of which was then being provided through Tekitu). Mrs Smith refused to concede that this was the case, simply reiterating in answer to the questions on this topic that the letter said "Debtrak" (T303). It was submitted for Tekitu that as the present proceedings had been on foot for some months by the time Mrs Smith received the letter from Mr Cooney in February 2008, and the relationships between the main protagonists had completely broken down by February 2008, Mrs Smith could not know what was intended by Australian Receivables in sending the letter and that "she was perfectly entitled to take it at face value". 202It seemed to me that Mrs Smith's refusal to address the question as to whether she was in any doubt as to the intention of Australian Receivables in relation to the termination of the DebtSmart licence was a clear indication that Mrs Smith had no real doubt that this was Australian Receivables' intention and that Tekitu was simply seeking in this regard to take advantage of what seems clearly to have been a typographical error. 203In my opinion, the February 2008 letter, although not referring to a termination as such, clearly operated to put Tekitu on notice that Australian Receivables did not wish to continue to avail itself of the software licence it was using by reference to a service provided by Tekitu at the time. Since the only such licence was DebtSmart, it seems to me that this letter should be taken as sufficient notification that Australian Receivables wished to bring to an end the licence arrangements in relation to that software system. 204I consider that (notwithstanding the evident breakdown in the relationship between the parties by February 2008 to which Mr Cotman has referred) there can be no sensible construction placed on the letter of 1 February 2008 other than that Australian Receivables was intending to bring to an end whatever arrangements were then in place under which it was liable to pay Tekitu a licence fee for use of any software system then being made available to it by Tekitu. I therefore consider that the appropriate adjustment in this regard is only for the three-month period now conceded by Australian Receivables. * Ricoh printers 205It does not appear to be in dispute that, prior to 9 January 2007, Tekitu had leased two Ricoh printers which it used in the business at its Frenchs Forest office. Nor is it disputed that (at least on a temporary basis) Australian Receivables used those printers (and paid usage charges in respect of those printers) for a time after the completion of the Sale of Business Agreement ([35.2] of the Defence to Further Amended Statement of Cross Claim). Mrs Smith's evidence is that at no time after 9 January 2007 did Australian Receivables advise Tekitu that it did not want the printers or that Tekitu should arrange for the removal of the printers. 206Australian Receivables apparently ceased payments on the printers at some time shortly after completion and, in the latter part of 2007, Tekitu received demands from the lessor of the printers for payment of moneys in relation to the printers. In about June 2008, Leasechoice Pty Ltd (trading as CMS Asset solutions) commenced proceedings against Tekitu in the Local Court claiming $20,813.10 in relation to the lease of the printers. Tekitu defended the proceedings and judgment was entered in its favour in about May 2009. Of the legal costs incurred in defending the proceedings some $5,845 remains owing. It is this amount that that Tekitu now seeks to recover from Australian Receivables pursuant to the indemnity in clause 10.3 of the Sale of the Business Agreement. Tekitu contends that the Ricoh printers were an Asset of the Business. 207Australian Receivables denies liability for this amount and contends that, on the true construction of the Sale of Business Agreement, the Ricoh printers were not "Assets" of the "Business" purchased by it but, rather, that the contracts pursuant to which the printers were leased to Tekitu were liabilities of the business for which it did not assume any liability (having regard to the definition of Specified Liabilities). 208Mr Brender notes that the lease liability in respect of the Ricoh printers was not disclosed in the Sale of Business Agreement and points to Mr Duncan's evidence that this liability was not disclosed to him during the due diligence period (Duncan affidavit sworn 29 October 2007 at [27], Duncan affidavit sworn 14 November 2007 at [7], Duncan affidavit sworn 24 September 2009 at [61]-[63]). 209Clause 3 provided for the acquisition of the Assets and Business "as well as the assumption of the Specified Liabilities". "Assets" (as noted earlier) was defined as meaning all the "property and assets ... used in the Business as at the completion date" (my emphasis) other than the Excluded Assets. The Ricoh printers used in the Business as at the date were not within the term "Excluded Assets". 210The term "Specified Liabilities" was defined in clause 1.1(38) as those set out in Schedule 8. There was no disclosure in Schedule 8 of any lease in relation to the Ricoh printers. 211The definition of "Assets" also included plant and equipment and the benefit "subject to the burden" of Plant Leases. Insofar as printing equipment could be said to be within the concept of "plant and equipment", this would in its terms appear to encompass the Ricoh printers, they being items of equipment used by Tekitu in the business as at the completion date. 212The right to use those printers (albeit as lessee under an equipment lease) in the course of its business might in one view be described as "an asset" of the business in the broad sense of the term even if the physical property was not. Presumably, there was intended to be a distinction drawn in the definition of "Assets" between "property" of the vendor and an "asset" of the vendor. Arguably, the latter could encompass items used by Tekitu in respect of which it had no more than a leasehold interest (assuming that the leasehold interest was capable of assignment or novation to Australian Receivables). This is supported by the fact that the definition of "Assets" itself included other specified items in respect of which Tekitu had something less than a full legal ownership (such as the interest in certain software and the benefit of property leases). However, the Ricoh lease was not specified as a "plant lease" of which Australian Receivables had agreed to assume the burden. 213Clearly, Tekitu was not in a position legally to confer title to the Ricoh printers (as they were merely leased by it). At best it might have been in a position to confer on Australian Receivables the right to use the asset during the remainder of the lease (assuming that was not inconsistent with the provisions of the lease). There is nothing, however, to suggest that the parties had intended that (or provided in their contract for) the benefit of the leasehold interest in the Ricoh printers to be assigned or the lease novated and, insofar as it is asserted that any liabilities were being assumed in relation to any right of use, there was no disclosure of those liabilities in the contract. Therefore, while the right to use a leased printer could in my view fall within the definition of the assets purchased by Australian Receivables, having regard to the breadth of the definition of Assets in the contract, there is nothing to deal with how any liabilities associated with that asset was to be borne. 214Under the Sale of Business Agreement Tekitu sold the Assets "free of any Encumbrance". It is submitted by Mr Brender that if the printers (or perhaps right to use the printers) is an Asset then it was one 'encumbered' by the obligation to make lease repayments. 215"Encumbrance" is defined in clause 1.1(17) of the Sale of Business Agreement as meaning: ... any legal or equitable interest or power: (a) reserved in or over any Asset or any interest in any Asset; or (b) created in or otherwise arising in or over any Asset or any interest in any Asset under a transfer, bill of sale, mortgage, fixed or floating charge, lien, pledge, trust or power, by way of security for the payment of a debt, any other pecuniary obligation or the performance of any other obligation. 216This highlights the need to be clear as to what it is that is said to be the "asset" since, for example the fact that Tekitu had only a leasehold interest in equipment does not mean that the leasehold interest was encumbered within the meaning of that term. While the retention by the owner of the Ricoh printers of legal title in those chattels might be seen as within (a) of the above definition, it is not immediately apparent to me that this would be described as being "by way of security for the payment of a debt, any other pecuniary obligation or the performance of any other obligation" (as opposed to the situation being that the owner has simply granted a leasehold interest in the goods during the term of the lease). 217Mr Brender submits that to the extent that there is any ambiguity as to whether Australian Receivables assumed a contractual liability to pay amounts due under any Ricoh lease regard may be had to the surrounding circumstances, including the fact that there was a reference to the Ricoh printers at an early stage (referring to Exhibit M). It is submitted that it was agreed that those would not form part of the transaction (reference being made to the evidence of Mr Horn in this regard to the effect that those items had not simply been overlooked - T 219). Mr Cooney's evidence was that the position of the Ricoh (and Commander) services was raised at an early stage ("much earlier" than March/April 2007 - T 174.11) but that no contract that Tekitu had with either was disclosed (T 172.45; T 174.50, T 176.10). Certainly the absence of evidence of any steps taken by Tekitu to transfer the Ricoh lease (taken with Mr Horn's evidence) suggests that the parties did not understand liability under the Ricoh lease(s) to have been assumed by Australian Receivables. 218In one sense the only "ambiguity" in this regard seems to be what was contemplated to be included in the plant and equipment that Australian Receivables agreed to acquire (subject to 'plant leases') but that, it seems to me, is not an ambiguity in the construction of the terms of the agreement but at most a factual uncertainty as to what was comprised by the plant and equipment. 219It is further submitted by Mr Brender that the true construction of the indemnity in clause 10.3 is that it was not intended that it (and it did not) operate with respect to assets where no liability was assumed. (In that regard, it seems to me that there may be a distinction between an agreement to assume a liability vis a vis a third party (such as the lessor in respect of the Ricoh printers) and the indemnity under clause 10.3 to make good losses arising in relation to assets acquired under the contract.) 220Australian Receivables maintains that clause 10.3 does not apply in any event because the cause of action by Ricoh arose before completion and alternatively because it did not arise out of the operation of the business by Australian Receivables but by reason of the operation of a pre-existing contract between Ricoh and Tekitu, which the latter was alleged to have breached. In the present context, it seems to me that the indemnity in clause 10.3 could cover costs incurred in defending a claim by the lessor of the Ricoh printers if Australian Receivables had assumed the burden of such a lease (since its conduct in not continuing to use and pay for the use of the Ricoh printers would be conduct in the operation of the business) but otherwise the liability for those costs would not fall within the ambit of clause 10.3 (in that such a liability relates not to the use of the printers as such but to the claims as between Tekitu and the lessor as to the status of the lease). Therefore, unless the Ricoh lease(s) were "plant leases" the burden of which Australian Receivables contractually agreed to assume, as to which it seems to me there is room for doubt, it does not seem to me that the indemnity in clause 10.3 would apply. 221Assuming, for present purposes, that a right (contractual or otherwise) to use property leased by Tekitu falls within the definition of an Asset of the business (which in a broad sense I think is arguable) and (which I think does not follow) there was a contractual liability on the part of Australian Receivables to pay for that use, it seems to me that Australian Receivables has a good answer to the present claim by way of set off by reference to the breaches of warranty it alleges in this regard. 222First, Australian Receivables relies on a breach of warranty 13 in Schedule 1 to the effect that Tekitu would have good and marketable title to all assets free from any encumbrances other than the leased assets set out in Schedule 3. It is submitted (and it seems to me that this is unanswerable) that this warranty was breached if it is said that the Ricoh printers were property that was an "asset" of the business for which Australian Receivables assumed responsibility under the contract (since it did not have marketable title to the printers and the lease was not disclosed). 223Reliance is also placed on warranties 41 (that Tekitu had disclosed all material particulars relating to the Business and the assets - in light of the failure to disclose the Ricoh lease(s)); 44 (that there were no circumstances that might give rise to a material claim); and 47 (that the Assets comprised all of the property and assets material to the conduct of the Business), all of which are said to be false if the claim made against Australian Receivables for the Ricoh liability is made out. In that regard, I consider that at least the breach of warranty 41 would have been made out if the claim were otherwise sustained for indemnification under clause 10.3 of the Sale of Business Agreement. 224The failure of Tekitu to specify the Ricoh lease(s) as the source of obligations to be assumed by Australian Receivables under the Sale of Business Agreement seems to me to be fatal to its present claim. 225In [35.5.5] of the Defence to the Further Amended Statement of Cross Claim, Australian Receivables further contends that if the construction contended for in the cross-claim is correct, then the legal expenses claimed are not solicitor and own client costs but indemnity costs. Mr Brender seemed in submissions to accept that if this were to be an item for which reimbursement is required then the claim would be for indemnity in respect of the legal costs for defending the claim less the amount of the party/party costs order made against Ricoh, which he put at $6,645.36 (but which Mr Cotman puts at a lesser amount as noted above). In the circumstances, an investigation of whether the costs claimed are the differential between solicitor/client and indemnity costs is not warranted, as I do not consider that Australian Receivables is required to reimburse this amount. 226For completeness, I note that Australian Receivables also defends this claim on the basis of an estoppel ([35.5.9]). It is not necessary for me to determine this claim, which seems to me to go no further than the defence based on breach of the warranties referred to above. * Commander voice data service 227The basis of this claim is not dissimilar from that in relation to the Ricoh printers. Commander supplied voice data services to the Tekitu business prior to the sale. It is submitted by Tekitu that those data services were an 'Asset' of the business within the meaning of the Sale of Business Agreement and thus acquired by Australian Receivables pursuant to clause 3. 228For a period after the sale Australian Receivables accepts that it continued to use those services (at least temporarily) (para [46.2] of the Defence to the Further Amended Statement of Cross-Claim) after completion and it seems that it paid for at least some of the services. Australian Receivables apparently stopped paying for those services at some stage and Commander demanded from Tekitu the sum of $167,942.25 (presumably for repudiation of whatever agreement was in place at that time). That claim has not been pursued since May 2009 (Commander having been placed into administration in about August 2008). Australian Receivables says that its use of the data services on a temporary basis was by agreement and that it did not assume any contractual liability in relation to the Commander voice data services. 229Other than insofar as the provision of these services involved the use of any equipment, it would seem that the only "asset" as such that could be said here to fall within the definition of "Asset" would be a right to make use of the voice date system. 230Tekitu again relies on clause 10.3 of the Sale of Business Agreement for this claim, under which Australian Receivables agreed to indemnify Tekitu in respect of liabilities and costs incurred by Tekitu in connection with the assets of the business. It seeks not a monetary amount but an order that Australian Receivables indemnify it in the event (conceded to be unlikely) that it is pursued by the administrators of Commander. 231It seems to be conceded that Australian Receivables was aware at around the time of the Sale of Business Agreement as to the use of the Commander voice data services insofar as Mr Duncan was aware during the due diligence period that the business was at that time being supplied with data services by Commander. The existence of a (by then expired) Commander Voice Services Agreement was disclosed at the time of the Sale of Business Agreement. Australian Receivables sought a copy of the relevant contract and was given a copy of a contract, the term of which had expired (on 18 December 2005). However, it seems that it was only after the Sale of Business Agreement was signed that Tekitu disclosed a further data contract due to expire in May 2008 (Duncan affidavit sworn 14 November 2007, annexures C and D, Duncan affidavit 24 September 2009 at [57]-[60]). 232Mr Brender points out that a 2006 quotation for voice data services from Commander was not accepted by Australian Receivables. Further, it is noted that no Commander data contract was referred to in the schedules to the Sale of Business Agreement. (Mr Cotman accepts that there was no written contract on foot between Commander and Tekitu either at the time of due diligence or at completion.) 233Mr Cooney's evidence in the witness box (though there was no reference to this in his affidavit) was that he had informed Mr Horn that it was his intention to migrate away from Commander and that he needed to understand if there was any commitment in place. (T 174). In his affidavit the conversation in relation to Commander was placed as being shortly after the receipt of a 12 February 2007 email when he said "we will not be continuing with Commander as we have an existing network" (at [89]). Mr Cooney says this was a repetition of what he had earlier said but there seems no logic in such a repetition. (Exhibit M is an email of 19 October 2006 in which there was reference to the Commander services.) 234As a matter of logic, it seems to me that a right to use Commander data services could fall within the definition of 'asset' for the purposes of clause 3 of the Sale of Business Agreement. However, it seems to be agreed that there was no written contract in existence in relation to the use of the services as at the time of completion - rather, there seems to have been some form of understanding or informal arrangement whereby the business continued to be permitted to use the data voice services after the expiry of an earlier contract. 235Australian Receivables maintains that it is not liable for any charges under the Commander agreement. I agree. The right to use software or equipment of this kind, insofar as it was a contractual right might well fall within the definition of "Asset" in the broad sense, but it surely cannot be said that contractual liabilities could be imposed on the purchaser without those liabilities being specified in the contract. In any event, I consider that there would be a good defence by way of set-off to the claim insofar as there would seem to have been a clear breach of the warranty in 13 (that the Assets were being sold with good and marketable title) if it is now said that the right to use the data voice services was subject to assumption of the burden of a contractual arrangement (not least one going beyond the informal arrangement in place at the time of completion). Australian Receivables contends in this regard that there has been a breach of the same warranties as those identified in relation to the Ricoh claim; and maintains that clause 10.3 similarly does not apply in this context; and that Tekitu is estopped from making such a claim. 236In my view, the same reasoning as that applicable to the Ricoh printers applies and Australian Receivables is not liable to indemnify Tekitu for any liability that might arise by reference to the cessation of the contractual arrangements in place with Commander (but not disclosed to Australian Receivables) at the time of completion of the sale. 237Had I been of the contrary view, then the question whether a declaration as to the liability to indemnify should be made. Mr Brender submits that, as Tekitu has not been pursued by Commander in respect of that claim (referring to Mrs Smith's affidavit sworn 3 June 2010 at [294]-[300]), the likelihood of a claim against Tekitu is minimal and therefore no indemnity is required. 238The court has a wide discretion to grant declaratory relief ( Hanson v Radcliffe Urban District Council [1922] 2 Ch 490 at [507]; Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 at [438]; Ibeneweka v Egbuna [1964] 1 WLR 219 at [225] ; Re Judiciary and Navigation Acts (Advisory Opinions Case) (1921) 29 CLR 257 ; Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 at [581] per Mason CJ, Dawson, Toohey and Gaudron JJ). 239Lockhart J, (with whom Spender and Cooper JJ agreed) in Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406; (1996) 139 ALR 663, at 670-671, outlined the applicable tests to be satisfied by a party in order for it to have sufficient standing to seek and obtain the grant of declaratory relief, the first of which is that: The proceeding must involve the determination of a question that is not abstract or hypothetical. There must be a real question involved, and the declaratory relief must be directed to the determination of legal controversies: Re Judiciary Act 1903 and Navigation Act 1912 (1921) 29 CLR 257. The answer to the question must produce some real consequences for the parties. 240His Honour noted that an applicant for declaratory relief will not have sufficient status if relief is "claimed in relation to circumstances that [have] not occurred and might never happen" (citing University of New South Wales v Moorhouse & Angus & Robertson (Publishers) Pty Ltd (1975) 133 CLR 1 at [10] per Gibbs J) or if the court's declaration will produce no foreseeable consequences for the parties (citing Gardner v Dairy Industry Authority New South Wales (1977) 18 ALR 55; 52 ALJR 180 per Mason J at [180] and per Aickin J at [189]). 241Here, however, I am satisfied that Tekitu has a real interest in raising the claim for declaratory relief ( Forster v Jododex Australia per Gibbs J at 437 and Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 per Lord Dunedin at 448) and that, notwithstanding that it may be unlikely that Commander's administrators will seek to revive the claim, there would have been utility in the grant of declaratory relief had I been satisfied that a declaration should otherwise been made (since the consequence of the grant of a declaration would provide certainty for Tekitu as to its rights against Australian Receivables in the event that Commander's administrators did press the claim). 242The question of liability for such an indemnity is one that has been contested by the parties and the fact that it might not now be pursued by the administrators does not mean that there would have been no utility in such a declaration (against the possibility, that cannot yet be excluded, however unlikely it may be, that such a claim would be revived and pressed against Tekitu). 243Therefore, it does not seem to me that the application for relief in this regard is so hypothetical that, had I concluded otherwise on this issue, a declaration should not have been granted. As it is, however, no declaration will be made. (c) Business expenses 244Under the Sale of Business Agreement, after 9 January 2007 Australian Receivables was to reimburse Tekitu for any expenses incurred by the latter in relation to the Statewide Mercantile business. Clause 6.2(13) permitted Tekitu to issue tax invoices for all expenses incurred by Tekitu in the conduct of the business from the Effective Date. 245In contention at the outset was the fact that reimbursement was not paid by Australian Receivables as and when invoices were rendered (even where it did not dispute liability). Australian Receivables had apparently created a 'Tekitu loan account' as a ledger account within the books of Australian Receivables and had proceeded both to credit to and debit from that account various items by way of a set-off or an adjustment of the claims between Australian Receivables and Tekitu (see CB5, p 235). In its Defence to the Further Amended Statement of Cross-claim, various assertions were made as to the payment of claimed amounts "by way of loan reconciliation". 246Mr Duncan conceded that this loan account was not one agreed to be established by Tekitu and was used by Australian Receivables to set off items, some of which were in dispute as between Tekitu and Australian Receivables. The effect of this was, as Mr Duncan conceded, that over the relevant period Tekitu was meeting various expenses and liabilities (for which Australian Receivables had agreed to pay or to indemnify Tekitu), but that Australian Receivables was not remitting funds to Tekitu to reimburse it for those amounts throughout 2007 and into 2008. 247The apparently deliberate decision of Australian Receivables to act in this fashion was relied upon, in part, by Tekitu as a discretionary factor going against the grant of equitable relief, though not put as a lack of clean hands as such. In circumstances where both parties seem to have chosen not to comply with contractual obligations in order to maintain leverage or a set-off in commercial negotiations, I do not consider that the internal set-off practice adopted by Australian Receivables is sufficient to warrant a denial of equitable relief nor does it seem to me that it would have the immediate and necessary connection with the relief claimed to make this a case where it could be said it was seeking to take advantage of its own wrong in the sense required to make the grant of equitable relief unconscionable ( Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318 at 319 - 320; Meyers v Casey [1913] HCA 50; (1913) 17 CLR 90 at [124]; FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552 at [561]). 248Of the outstanding amount claimed by Tekitu in relation to business expenses ($56,675.40), Australian Receivables admits that all but $4,834.10 is owing and payable by it. The disputed amount relates to an invoice dated 19 November 2007 (Exhibit S) for $4,834.10 relating to legal costs incurred by Tekitu in relation to the assignment of leases on the Frenchs Forest, Parramatta and Brisbane offices. The account also relates to the option exercised in relation to the lease of the Melbourne office. 249Mr Cotman notes that under clause 6.3 of the Sale of Business Agreement, Australian Receivables had an obligation to use its best endeavours to procure assignment of the property leases. 250The Melbourne premises were in a peculiar position because in or about July or August 2006 Tekitu had exercised an option in relation to that lease (as disclosed in the Sale of Business Agreement). Australian Receivables did not intend to enter into a lease for the Melbourne office. It therefore would not seem to have been the case that costs in relation to that lease were referable to the ongoing business being acquired and it would seem that those would be solely to Tekitu's account. However, Mr Smith gave evidence that he had discussed this issue at length with Mr Cooney during the due diligence exercise in 2006 and he said that Mr Cooney had agreed that the two would "handle" that issue together. (There is nothing in the contract that imposes any such obligation on Australian Receivables.) Mrs Smith's evidence was that in a meeting in December 2006, in relation to the Melbourne lease Mr Cooney said to her "I'll deal with it myself". Reliance was placed by Tekitu on the representation by Mr Cooney that he would assist in resolving the problem. 251Mr Cotman submits that this evidence was unchallenged (there being nothing in Mr Cooney's affidavit in relation to the Melbourne lease) and that it should be found that Mr Cooney had thereby given rise to a reasonable expectation on the part of the Smiths that Mr Cooney and/or Australian Receivables would assist in the resolution of the problem created by the fact that an option had been exercised for the Melbourne premises and that Australian Receivables did not want to take over the lease. 252Mr Cotman submits that it was not unreasonable (since by 9 August 2007 Australian Receivables had done nothing in relation to this issue) for Tekitu to invoice Australian Receivables for the legal costs incurred in addressing the problem on its own and refers to the evidence of Mrs Smith as to the efforts on her part (and others on her behalf including Mr O'Connor) to facilitate the assignment of the Frenchs Forest, Parramatta and Brisbane leases and the replacement of the bank guarantees. Reference was made to a file note of a conversation between Mr O'Connor and Mr Duncan (dated 9 August 2007) as evidence of the assistance being rendered to both the parties in facilitating the assignment of leases. 253With respect, whether or not that course of action was reasonable is not, however, the issue. 254Mr Brender points out that it was common ground that the Melbourne lease would not be ongoing (Warranty 40) and submits that it is apparent that the relevant invoices all relate to work done in Tekitu's own interest by lawyers retained by it (largely concerning its problem with the exercise of the option for the Melbourne premises). It is submitted, and I agree, that the costs of retaining lawyers to resolve the Melbourne lease problem is not a business expense which Tekitu is entitled to claim from Australian Receivables under the Sale of Business Agreement. Although Mr Cooney may have agreed to try and help resolve the problem that had arisen in relation to the Melbourne lease (and may indeed have failed to live up to that promise), I do not accept that this means that the expense is a business expense for which Australian Receivables is responsible. 255Insofar as it cannot on the fact of the evidence be determined how much of the relevant invoice relates to the so-called Melbourne problem (and it would have been open to Tekitu to call evidence as to the breakdown of that account), I am not persuaded that Australian Receivables has any liability for this disputed amount. (iii) Breach of contract claims * Long Service Leave 256In its Defence to the Cross Claim (at [60(d)]), Australian Receivables pleads that, in breach of warranty, Tekitu, prior to 9 January 2007, had under-provisioned for the long service leave entitlements of its employees. It claims at least $40,079.33 as compensation in relation to this alleged breach of warranty. 257The complaint made in this regard turns on the fact that the Sale of Business Agreement disclosed long service leave entitlements in the amount of $11,951.43 (referable only to the New South Wales employees and not their Victorian counterparts even though some of the latter had by then accrued unconditional long service leave entitlements). It does not appear now to be disputed that if the company had made provision in its accounts for the full amount of the (by then unconditional) long service leave entitlements of all its employees then the provision would have been in the amount of $53,761.87. (If conditional entitlements had been included then the amount that it is said ought to have been disclosed would increase to $115,034.63.) 258Australian Receivables contends that there has been a breach of contract by reason of the under-provision on the basis that it agreed to accept (as Specified Liabilities) only the long service leave liabilities in the disclosed amount and has suffered damage by now having a liability for such entitlements in a greater amount. It does not seem to me that there is any breach of contract claim other than in relation to the warranty claims in this regard. Clause 13.3 provided for Australian Receivables to assume the long service leave obligations which were set out in Schedule 9. (The fact that it may have assumed greater obligations than it was contractually obliged to do is not a breach of contract per se. (Schedule 9 disclosed only $11,951.43 by way of any such obligations.) No particular contractual obligation on the part of Tekitu was identified to suggest that there was a separate contractual claim going beyond a breach of warranty claim in this respect. 259Relevantly, however, Australian Receivables also claims that the shortfall in the provisioning for this liability in the accounts constitutes a breach of the warranties contained in paragraphs 7, 8, 9, 41 and 57 of Schedule 1 to the Sale of Business Agreement (on the following bases: that a failure to provide for accrued long service leave obligations is contrary to generally accepted accounting standards, principle and practices; that there was a failure to disclose true and correct values for long service leave; that material records of the business were not kept accurately in accordance with proper accounting and business practices; that the records of the business contained material inaccuracies; that the records were not kept on a consistent basis (in that provision was made for accrued liability in respect of NSW but not Victorian employees); that there was a failure to disclose material information; and that the schedules to the Sale of Business Agreement were not true and correct in all material respects). 260Tekitu denies that there was a breach of any of the warranties in this regard. Mr Cotman further submits that the amount for which Tekitu had provided in relation to the long service leave entitlements was disclosed during the due diligence process prior to the sale of the business and that to the extent that Australian Receivables did not carry out due diligence on this aspect then it is in breach of the warranty it gave that it had carried out a thorough and satisfactory due diligence. 261A number of issues arise in this regard: first, as to the appropriate accounting treatment for long service leave (there being no real dispute that the provision made in the accounts did not encompass the extent of the then unconditional entitlements of Tekitu's employees); second, whether there was a breach of warranty by reference to the manner in which provision for those entitlements was dealt with in the accounts; and, if there was a breach of warranty, whether Australian Receivables suffered loss or damage as a result (or is precluded from relying on any breach of warranty in relation to matters that would have been revealed had a complete due diligence been carried out, having regard to its contractual acknowledgment that it had completed a satisfactory due diligence). * Accounting standards 262The first issue to be determined is whether, on the applicable accounting principles, there should have been a greater provision for long service leave entitlements. Australian Receivables relied in this regard on the expert report of an accountant, Mr Scott Whiddett, as to the provision for long service leave entitlements that it says should have been made. 263Mr Whiddett confirmed (at T 214.12) that AASB 119 is the expression by the accounting profession of what is required in relation to the accounting for long service leave in company accounts in Australia. His evidence was that for small private companies (such as Tekitu) the application of AASB 119 is at the discretion of management (T 203) (and in that regard he seemed to accept that such a company could choose to recognise uneconomic or economic entitlements and that there might be instances in which long service leave entitlements for which provision was made might not result in a liability to the employee - such as where the employee elected to off-set those requirements against unpaid leave or maternity leave or the like). 264However, Mr Whiddett also confirmed that once an unconditional entitlement to long service leave had accrued then that constituted a liability which, if accounts were prepared on an accruals basis, would be recognised as such in the accounts of the company (T 205.15). (As I understand his evidence, this would be the case whether or not any discretion in relation to the adoption of AASB 119 had been exercised.) 265Mr Whiddett's opinion was thus that a company applying the Australian accounting standards in the ordinary course would reflect in the accounts accrued (i.e. unconditional) leave entitlements (report at [3.9], T 206.12). 266While Mr Whiddett agreed that his opinion was one on which reasonable minds might differ (T 208.12) and that the arbiter in relation to the striking of accounts for a small proprietary company is management (T 208.17), his evidence, as I understand it, was in effect that the proper application of accounting principles (at least where a small private company is accounting on an accruals basis) would require that provision be made in the accounts for unconditional leave entitlements as a liability. 267In summary, when Mr Whiddett's evidence was clarified in the witness box, it was as follows: for a small private company such as Tekitu the application of AASB 119 is discretionary (T 210.12); that standard is the relevant Australian accounting standard (T 212.37); if management of a small private company, in the exercise of its discretion, chose to apply that standard then there would be no discretion as to the recognition of unconditional leave entitlements (T 210.26), though there would be a discretion as to how much to accrue for conditional entitlements; if management were to choose not to apply AASB 119, then the general principle is that a company would prepare its accounts either on an accruals basis or on a cash basis and that, if the former, then normally the company would make provision for accrued liabilities (such as unconditional long service leave entitlements) (T 213.8/10). 268To all intents and purposes, therefore, it might be said that AASB 119 is mandatory in this respect, since Tekitu accounted on an accruals basis, Mr Whiddett was of the opinion that unconditional liabilities would have to have been provided for under general accounting principles even if the standard did not otherwise apply (and I considered that Mr Whiddett's evidence in general should be accepted). 269In Mr Whiddett's opinion if a company in Tekitu's position said that it was applying the Australian accounting standards this would have the result that it would make provision for unconditional leave entitlements (T 206/207; para [4.8] of his report). (Pausing there, it surely cannot be the case that a company could contend that it had complied with generally accepted Australian accounting standards by reference to the discretionary nature of AASB 119 alone, since it if chose not to apply AASB 119 then, as I understand Mr Whiddett's evidence, ordinarily accepted accounting principles would require accounts prepared on an accruals basis to make provision as a liability for unconditional leave entitlements.) 270(In relation to the question as to exercise of any discretion in respect of the accounts, I consider that the only way in which the warranty could sensibly be read was that if there was a discretion as to how a matter should be dealt with under the accounting standards then what was adopted was generally in accordance with accounting standards. If the treatment of accounting items were entirely discretionary then the warranty seems meaningless in its operation.) 271Mr Cotman submits that the management of Tekitu had effectively decided not to apply AASB 119 because, on its face, the provision for long service leave in the accounts was not what is opined by Mr Whiddett to be a AASB 119 provision. However, if that is the case, then management failed to follow the principles on which accruals based accounting was performed. 272Moreover, the difficulty in forming such a conclusion is that it does not appear that those responsible for management in Tekitu (Mr and Mrs Smith) ever turned their minds to the treatment of employee leave entitlements in the accounts (Mrs Smith said that this was left to the accountant - T 322.22; Mr Smith denied any involvement in that accounting issue - T 337) and there was no evidence that the accountant who prepared the accounts had made a conscious decision in that regard (nor was any evidence called from him to suggest that he had). 273It is submitted by Mr Brender that, to the extent that the applicable accounting standards permit management a discretion in this regard, management did not exercise that discretion and that any reasonable exercise of that discretion would have been to provide for accrued long service leave for Victorian employees. 274The most likely reason for the non-disclosure seems to me to be that neither Tekitu nor its external accountant apparently realised that there was a different statutory treatment in relation to long service leave as between New South Wales and Victoria (it accruing unconditionally in Victoria at an earlier time than in New South Wales). Email correspondence between Mr Horn and Mrs Smith at the time the issue was raised supports the conclusion that there was a lack of awareness as to this issue in May 2007. 275Mr Whiddett gave considered and balanced evidence and I accept his conclusions. It seems to me that the logical finding in light of Mr Whiddett's evidence is that the manner in which provision was made for the long service leave of employees in the 2006 financial accounts of Tekitu was not in accordance with either AASB 119 or generally accepted accounting principles for a small private company accounting on an accruals basis and there was an under-provision in the amount of $40,079.33 as Australian Receivables contends. * Contractual provisions 276The second issue is whether the under-provisioning amounts to a breach of warranty. As already noted, long service leave entitlements were disclosed in the contract (in both Schedule 8 and in Schedule 9) at an amount less than that for which Mr Whiddett says the company should have provided. Clause 5.3 of the Sale of Business Agreement contained an acknowledgment that the components of the initial purchase price were as set out in schedule 8. At paragraph 7 of Schedule 1, Tekitu warranted that the information set out in schedule 8 (i.e. which included the incorrect provision for long service leave) had been "prepared in accordance with accounting standards, principles and practice generally accepted in Australia". (I interpose to note that the underlying premise of the acknowledgement contained in clause 5.3 seems to be contradicted by the evidence of Mr Cooney that, in effect, no consideration was given to the scope of any liability for long service leave insofar as he maintained that it was premature to do this in advance of a decision being made as to which of the employees would be offered employment and confirmation as to which would accept the offer.) 277Clause 2.1 of the Sale of Business Agreement provided that Australian Receivables had completed its own due diligence and was buying the business as inspected and based on its own findings "but with the warranties provided for in Clause 9". 278It follows from the finding that there was an under-provision in respect of the long service leave entitlements (contrary to the requirements of the applicable accounting principles) that there was a breach at the very least of the warranty given that the accounts had been prepared in accordance with generally accepted accounting standards (in paragraph 7, and others, of Schedule 1). Indeed, it seems to me that the under-provision gave rise to a breach of each of the warranties identified by Mr Brender. That said, the onus is on Australian Receivables to prove it has suffered loss and damage as a result of the breach of those warranties. * Reliance by Australian Receivables 279Clause 9.7 provided that, save for any breaches disclosed in writing prior to the completion date, Tekitu would hold Australian Receivables harmless against all losses from breach of any of the representations or warranties contained in that clause. 280The question that arises in light of the above findings is therefore whether Australian Receivables has established that it suffered loss or damage by reason of the breach of warranties in relation to the long service leave provisioning. (In large part this turns on the knowledge that Australian Receivables had at the time as to the likelihood that the level of provision contained in the accounts for those entitlements was incorrect.) 281At the outset I note that Mr Cotman submitted that, as the provision in the accounts for leave entitlements in the sum of $11,951.43 did not relate to any particular employee, in order for Australian Receivables to demonstrate that it had suffered any loss it would have to show that it had made payments in excess of that provision. In this regard, Australian Receivables relied on material to show that it had paid long service leave in excess of the provision to at least four Victorian employees and on the fact that Mr Wyett has already accrued an unconditional entitlement to long service leave and is still employed by the company (hence there will be a liability to pay his leave entitlements in due course). 282The real issue, as I see it, is that the evidence reveals that Australian Receivables was on notice of the under-provisioning issue (at least through the knowledge of its business consultant Mr Duncan) prior to completion. Furthermore, the fact that Mr Cooney himself disclaimed any reliance on the level of provisioning as a matter on which the decision to purchase the business (and at what price) was based. 283The due diligence programme undertaken by Australian Receivables prior to the entry into the Sale of Business Agreement, as evidenced by the checklists and memoranda before the Court, included as an item the reconciliation of holiday leave, sick leave and long service leave entitlements for all employees (CB8/52). The due diligence checklist recorded the responsibility for this issue as being with Australian Receivables' Human Resources Manager. Mr Duncan in cross-examination said that he had delegated the responsibility for reviewing (or, as it was put to him, "interrogating") that information to the human resources manager (T 48.27). (Mr Duncan nevertheless also said that it would not be the human resources manager who would assess whether the correct provision had been made for employees. Rather, he thought that would be "more the role" of the Australian Receivables' finance division (T 50).) 284During the due diligence period (September to December 2006), Tekitu disclosed to Australian Receivables employee information (the names, dates of birth, office location, pay rates and employment commencement dates) and informed Australian Receivables that the sum of $11,951.43 had been provisioned for long service leave in relation to those employees. Mr Duncan's due diligence records disclose (and he confirmed at T 48.9) that on 23 October 2006 he was given by Mrs Smith a reconciliation of all leave entitlements for all employees. 285Mr Cotman submits that Australian Receivables therefore had enough information about employees by 9 January 2007 to find out if there had been any incorrect disclosure as to the long service leave provisioning and that Australian Receivables cannot therefore rely on the warranty in the Sale of Business Agreement (having regard to its failure to review that information for accuracy). 286Australian Receivables' position seems to be that, although the employee information provided in the course of due diligence pointed to an issue in that regard, there is no basis for any suggestion that the information that Mr Horn gave to Mr Duncan in relation to the long service leave provisions made it clear that there was any liability for long service leave over and above that for which provision had been made in the 2006 financial statements (a copy of which were Exhibit O) and Australian Receivables was entitled to do no more than receive information (and rely on the warranties as to its correctness without checking it in any way). 287The evidence as to what occurred in the course of the due diligence process suggests that Australian Receivables (at least on this particular issue) took no steps to verify the accuracy of the information provided to it. Mr Duncan's idea of what was comprised by the due diligence process (at least as gleaned by his evidence as to his involvement in it) seems to have been that he was in effect no more than a mailbox or vehicle for the collection and distribution of information. Although he said that "The purpose of the due diligence programme was to, basically, confirm various items in connection to the business" (T 45.47), he does not seem to have considered that he had any role to play in confirming the veracity of the information provided or the accuracy of the matters the subject of the due diligence. ("It wasn't my job to check it. I was just asked to gather information and supply it" (T 49.16); elsewhere he said that his job was about the collection of information and "to structure and implement a gathering in of information by people within [Australian Receivables]" (T 54.15).) 288Mr Cooney, for his part, seemed to suggest that all the due diligence check list represented was a "broad shopping list presented as a plan" (T 154) and said that the due diligence proposal that was put forward to the US was simply "to get approval to negotiate" (T 154.42), after which approval the relevance of any due diligence in relation to the decision to purchase the business was left unclear. Mr Cooney denied that he had caused due diligence to be directed towards establishing the value and extent of the long service leave liability (T 124). Mr Cooney explained that he saw the principal asset of the business as the "relationships" (T 123). (Mr Cooney did not recall in the witness box that there had been a warranty that Australian Receivables had undertaken a complete and satisfactory due diligence (T 155) and, asked whether he considered that this had been undertaken, he gave the qualified response "For the purposes of the transaction yes" (T 155.16).) When pressed on the issue, he later said that he was not familiar with the function of due diligence (T 159.41). 289Mr Cooney accepted that when he put forward the due diligence proposal it was in the context of a proposal for purchase of a business for an indicative price of about $5m and the due diligence was proposed in that context (T 156) but did not accept that the purpose of the due diligence included an assessment of the amounts for which Australian Receivables would be liable in respect of matters such as long service leave if the business was acquired. (This seems to be contradicted by his letter dated 22 September 2006 to Mr Horn in which he advised that he was authorised to make an offer "subject to due diligence" and would "want to make offers to selective staff", there requesting details of the employees (T 157).) 290Reference was made to Mr Horn's advice to Mr Cooney to the effect that the accounts of the company might be of limited use in the assessment of the business and that the purchaser should rely on its due diligence. Mr Cooney accepted that this advice had been given (T 159) but his attitude was that there were warranties in the agreement that protected Australian Receivables if there was an under-disclosure (and said that as the company did not know which of the employees would accept its letter of offer the liability exposure for employee entitlements was irrelevant (T 125.41). (With respect, the latter seems a non sequitur since the relevance of provisioning for long service leave entitlements would surely be to enable an assessment to be made of the extent of any liability the company might have in the event that one or more of the employees were to transfer to the company.) 291Mr Cooney agreed that in his affidavit he had deposed to having no confidence in the books and records or in the financial results and no confidence in the forecasts (which had led to the reduction of the price offered to $2.5m) (T 159.48). Mr Cooney's view, indeed, was that much of the information was unreliable and in cross-examination he seemed to accept that he had not assessed the value of the business (for the purpose of the acquisition) on the basis of the management accounts (T 161). 292Relevantly, Mr Duncan not only accepted that he had received the information from which the long service leave provisioning could have been checked (T 50), but he also conceded that from at least October 2006 he understood that there might be an issue with long service leave because he was aware of some quite senior and longstanding employees of the company (including Mr Wyett) (T 53.6) and although he saw his role as that of information gatherer Mr Duncan was quick to add that that was "not to say that I didn't form a view on it" (T 54.4). By email on 13 September 2006, Mr Duncan queried with Mr Horn the extent of the provision for long service leave in the balance sheets (at which point Mr Horn forwarded the email to Mrs Smith and sought input from the external accountant, Mr Robertson, but it seems that no further clarification or amendment of the information was relayed back to Australian Receivables). Mr Duncan said that he was advised by Mr Horn that a reconciliation of provisions for leave entitlements would be attached to the financial accounts which would then be attached to the contract (T 57.39) and this does not seem to be disputed. It is submitted by Mr Brender that Mr Duncan was entitled to rely on Mr Horn's assurance that a reconciliation would be provided and that Mr Cooney was entitled to take the position that this issue was of no concern because Australian Receivables would be protected by a warranty in the event that the accounts were incorrect. 293The upshot of Mr Duncan's evidence was that Australian Receivables' business consultant (who Mr Cooney expected would have conveyed to him any material information arising from the due diligence) had formed the opinion in October 2006 that the level of long service provisioning in the Tekitu accounts was or was likely to be inadequate (though he was not able to assess by how much it was understated). Mr Duncan, as noted, says he did not convey that information to Mr Cooney because he had not been 'tasked' to analyse the information. (Although this issue had been recorded as complete on the due diligence checklist, Mr Duncan said that this was because he had received the financial statements from Tekitu and that this meant it was 'complete' "for Tekitu's standard" (T 57.30) not from Australian Receivables' perspective.) 294Remarkably for a self professed experienced businessman, and one engaged as a business consultant (with responsibility, among other things, to implement the due diligence programme), Mr Duncan was seemingly sanguine as to the proposition that the effect of his evidence was that he was passing on information received during the course of due diligence that he knew or suspected to be incorrect without alerting Mr Cooney or anyone else that this was the case prior to entry into the agreement, emphasising that his role was to gather the information and pass it on (T 54.46) not to check it or to analyse it (T 58). Mr Duncan says that he "did mention to Mr Cooney that I believed the provision for long service leave was understated" (T 52.43) but said that this would have been "around February 2007" (after completion). Similarly, he said that he had spoken to accountants in Australian Receivables' finance division about the issue but again only after he had spoken to Mr Cooney (T 53). 295When pressed on the issue, Mr Duncan said that "of course" he did not consider as at October 2006 that what Tekitu had given him reflected what was actually required in relation to long service leave provisions (T 59) and he seems to have accepted that he considered it likely to be inadequate but then dismissed it as "just a sheet of paper" (T 60.10) and was adamant that, although his opinion was that it was inadequate, he had not been tasked to report that to Tekitu (T 60.25). 296Mr Cooney admitted that he had had a conversation with Mr Duncan in which the latter told him he thought that the long service leave provision should be greater (than disclosed) but his initial response was "but I can't say it was in December" (T 130.36) before saying that he could not recall whether it was before or after the completion date. (Pausing there, if it had been after the date one might have expected more of a sense of surprise had he not been told this earlier.) Mr Cooney accepted that he would have been surprised if Mr Duncan had heard of material information and did not communicate that to him (T 130). 297Somewhat inconsistently with Mr Duncan's description of his information gathering role, although consistent with Mr Duncan's emphasis on the revenue side of his role, Mr Cooney said that Mr Duncan's role was to "assist me in assessing whether or not the recurring revenue stream for the business was reliable rather than looking at the assets and liabilities position of the business" (T 131.2). 298Mr Cotman submits that whether or not Mr Duncan communicated to Australian Receivables (and he invited me to draw the inference that he did) his concern or suspicion that there was an under-provision for long service leave in the accounts, he had at least communicated the information he had received (i.e. the employee lists) from which it was open to Australian Receivables to give consideration to whether and to what extent it wished to make provision for long service leave. However, Mr Cooney denied having done so and Mr Brender submits that the approach taken by Australian Receivables was that it would treat the accounts as being correct and that there would be a warranty to that effect with the consequence that Tekitu took the risk if there was an under-provision. That was certainly Mr Cooney's evidence. 299The fact that Australian Receivables had been provided with the means of discovering the incorrectness of the provisions in the accounts does not in my view lead to the conclusion that it cannot rely on the warranty contained in the Sale of Business Agreement in respect of the accounts, at least in the absence of an obligation on the part of Australian Receivables itself to verify that information or a warranty that it had done so (the latter being in issue in the present case). In other words, it seems to me that it would have been open (had Australian Receivables not been on notice of any issue in relation to the correctness of the provisions in the accounts and had it not warranted that it had carried out a satisfactory due diligence) for Australian Receivables simply to rely on the warranties provided in relation to the accounts as Mr Cooney seeks to do. However, the facts do not seem to me to warrant such a conclusion in the present case for the reasons set out below. 300It is submitted by Mr Cotman that Mr Duncan's evidence that he did not disclose to Mr Cooney or anyone else in Australian Receivables his insights in relation to the provisioning for long service leave before 9 January 2007 should not be accepted (since Mr Duncan had been charged with conducting the due diligence programme for Australian Receivables and Mr Cooney's evidence was that, as a general rule, he would be surprised if Mr Duncan learned of what he (Mr Duncan) considered to be material information in relation to an acquisition and did not communicate that to him. 301It is further submitted (and I accept) that in circumstances where Mr Duncan was engaged by Australian Receivables as its consultant in relation to the due diligence exercise, his observations and analysis are to be taken as those of Australian Receivables for the purposes of the due diligence and the operation of the Sale of Business Agreement (including the warranty by Australian Receivables that it had conducted a complete and satisfactory due diligence in clause 9.3). 302Insofar as it is submitted by Mr Cotman that the Court should find that Mr Duncan did disclose to Mr Cooney his insights concerning the provisioning for long service leave prior to 9 January 2007, I consider that Mr Cooney's somewhat equivocal response on this issue in the witness box raises the possibility that Mr Duncan did indeed convey to him in some fashion prior to completion that there might be an issue as to the long service leave provisioning (and, in that regard, I treat Mr Duncan's insistence to the contrary with some caution given that he - as for that matter also did Mr Horn - appears to have taken a somewhat partisan view in justifying the position adopted by him in relation to the accounting issues in the proceedings). 303However, it is not necessary to come to any final view on this issue since I consider that Australian Receivables was fixed with Mr Duncan's knowledge (the question not being whether he was 'tasked' to check the information but whether, as I think it clearly was, it was expected within Australian Receivables that if he had (as he did) formed the view that there was a material inaccuracy in the information provided to him on due diligence then he would convey that to Mr Cooney or someone else with responsibility for making a decision on the issue within Australian Receivables and hence where he had a duty to do so that knowledge can be imputed to Australian Receivables for this purpose). 304Australian Receivables, through Mr Duncan, was in my view on notice that the provisioning might be inadequate and it seems to me that this now precludes it from contending that it has suffered any loss in circumstances where Mr Duncan's suspicions have now proven to be correct. (Equally, the evidence that Mr Cooney did not see the relevance of the long service leave provisioning to his decision in relation to entry into the contract also seems to me to be fatal to the breach of warranty claim - as it makes very clear the lack of reliance by Australian Receivables on the information provided.) 305Common law damages for breach of a contractual warranty will not be awarded to a party who has not relied on the alleged truth of the warranty because in those circumstances the breach of warranty is not causative of any loss. In Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 114 ALR 355, where a majority of the Full Court of the Federal Court (Northrop J dissenting) held that because warranties in the copyright assignment agreement were false there was misleading or deceptive conduct, Lockhart and Gummow JJ made it clear that the representee must be able to establish loss or damage suffered through reliance on the truth of that warranty in order to be granted relief. It followed that if there was no reliance on the truth of the warranty (i.e. if the representee had knowledge that the information warranted was not, in fact, true) then relief could not be obtained. 306I am not satisfied that any loss has been caused by the breach of warranties as to the long service leave entitlements in circumstances where I am satisfied that Australian Receivables was on notice before it entered into the contract that the provisioning might be incorrect. Insofar as it is suggested (and the contract in its terms asserts) that the purchase price was struck on the basis of the provisioning this is contradicted by Mr Cooney's evidence that the amount of provisioning was irrelevant until the company knew which employees would transfer to it. 307This makes it unnecessary for me to consider the import of what seems to have been an incorrect warranty by Australian Receivables that it had undertaken a complete or thorough due diligence process (which, in light of the evidence of Mr Duncan, it seems was clearly not the case). Had the issue arisen, I would nevertheless not have held that it precluded Australian Receivables from obtaining relief in relation to the above breaches of warranty, on the basis that it is difficult to see what reliance Tekitu could have placed on the acknowledgement in relation to the sufficiency of the due diligence in relation to the long service leave provisions in circumstances where its response to the query by Mr Duncan had been simply to refer to financial statements or reconciliations to be attached to the final agreement. (In other words, it does not seem that Tekitu was deprived of an opportunity to clarify or correct an error in the accounts on the basis that, in reliance on the representation by Australian Receivables, it assumed that the due diligence had been satisfactory.) 308For the reasons set out above, I find that even though Australian Receivables is now liable vis a vis the transferred employees to pay long service leave in a greater amount than that for which provision was made in the 2006 accounts, the evidence does not support the conclusion that any loss was suffered in reliance on the warranty (incorrect for the reasons explained by Mr Whiddett) given by Tekitu in relation to the preparation of the accounts. Therefore, there is no adjustment or set-off to be made in favour of Australian Receivables in relation to the long service leave issue. * IAG Trust Account Shortfall 309At paragraph 60(g) of the Defence to Further Amended Statement of Cross-Claim, Australian Receivables pleads that an adjustment or offset in favour of it is due in relation to a claimed shortfall of $119,548.98 in the IAG trust account. The claim is put as a breach of the contractual obligation under clause 3.1 of the Sale of Business Agreement "to hand over control of the IAG trust account or the funds in it with the correct balance" and the obligation in clause 17.5 to account for all client monies received by it into its trust accounts. In substance, however, the complaint in this regard is not that Tekitu has not accounted for client moneys but, rather, that Tekitu has overdrawn commission payable on the IAG accounts (leaving insufficient in the account to meet the obligation to account to IAG for money belonging to it). 310Australian Receivables' position in relation to this initial allegation therefore depends on it being established that there was client money (of IAG) in the account at the relevant time for which there is a liability on the part of Tekitu to account. Clause 17.5 does not seem to me to be applicable in relation to this situation since that clause deals with the account required to be made as at 9 January 2007 of client moneys in the account (not as to the historical treatment of moneys paid into but later withdrawn from the account prior to December 2006. (Had there been an overdrawing of commission in say July 2006 or even earlier, the amount of that overdraw would not seem to me to be money for which Tekitu was obliged as at the completion date or thereafter to accounts.) 311Further or in the alternative it is said that, in breach of the warranties contained in paragraphs 3, 8, 9, 28 and 41 of Schedule 1 to the Sale of Business Agreement, Tekitu had overdrawn commission from the IAG trust account "in earlier periods" in breach of the IAG contract and the Commercial Agents and Private Enquiry Agents Act 2004 (NSW); that the records of the business were not properly kept; and that there was a failure of material disclosure in this respect. Australian Receivables claims $119,548.98 by way of compensation for this alleged breach of warranty. Tekitu, for its part, denies that the IAG trust account was overdrawn as at 9 January 2007. 312A query in this regard was first raised by Australian Receivables in May 2007. Mrs Smith referred this query to Mr Horn and he appears to have drafted or suggested at least some of the correspondence from Mrs Smith in relation to this issue. The concern raised at this stage by Mr Cooney was that there was insufficient cash in the operating account to meet liabilities to the client (IAG) and also to pay the commission due to Australian Receivables on the collections. 313Mr Horn attempted to carry out a reconciliation of the IAG account for the period from December 2006 (but concedes that he was not successful in that regard). As at 21 September 2007, his preliminary reconciliation of trust balance as at 30 November 2006 (to which he added back outstanding deposits from December for cash collections processed in and before November 2006 and adjusted the bank balance subtracting the net amount due for collections) led him to the view that there was indeed a shortfall but it was only in the order of $55,000 and not the amount then asserted by Australian Receivables (of around $130,000 or on other occasions around $144,000). 314The exercise that Mr Horn says that he carried out was to try to reconcile the bank statements with the IAG account (T 275). He says that he considered that his inability to reconcile the account was because of timing differences (T 278) in the receipt and deposit of moneys and recording of entries. 315Pausing there, insofar as Australian Receivables relies on the fact that the attempted reconciliation done by Mr Horn in September 2006 itself disclosed a discrepancy of some $55,000, Mr Cotman accepts that it did but submits that this was in a significantly different amount than that now claimed and was addressing the position as at the end of November 2006. He maintains that reliance cannot be placed on that preliminary reconciliation. (Given the context in which the correspondence between the parties as to the reconciliation exercise was written, I do not understand Mr Horn's comments to amount to an admission by Tekitu that there was a shortfall of $55,000 or any other matter. I read the communications from Mr Horn in this regard as having been made with a view to a potential resolution of the dispute (a forlorn hope, it would seem) and representing a preliminary (or then view) at the time the statements were made as to the ongoing conduct of the Tekitu parties' claim. 316Mr Horn frankly conceded that there was a difficulty in reconciling the amounts drawn with the amounts payable as commission in the period. His evidence was quite descriptive in that regard: "I could not see a direct correlation between collections and bank deposits. It was up and down like the proverbial yo-yo" (T 283.16) and at T 285.24 (concluding that there could have been under draws or over draws) said that it was "a proverbial breakfast" from which he could not draw any conclusions other than that any discrepancy was nowhere near the amount that Australian Receivables had claimed. 317Mr Horn's advice to Mrs Smith was to issue a demand for other amounts owing to Tekitu and to leave this as a point for 'leverage' in the overall dispute negotiations (as per his 12 October 2007 email). (Similarly, he seems to have considered that the retained moneys could be treated as security for the claims by Tekitu - T 290.) Meanwhile, he seems to have been assuring Mr Cooney that the matter had Mrs Smith's "undivided" attention (an assertion contradicted by Mrs Smith in the witness box). 318Mr Duncan carried out a reconciliation of amounts in the IAG trust account at some time around January 2008, after having been asked by Mr Cooney to investigate a number of issues including the IAG account (T 63.42). He did so on the basis of figures given to him by Mr Cooney at the time (T 66), including the figure of $47,766.41 in relation to the gross collections for the December purchase debts now said by Mr Cooney to be incorrect. 319Mr Duncan said at T 105.27 "The entire reconciliation process was a work in progress if you like and at the beginning a lot of figures that I used were numbers that were given to me. But then as the reconciliation progressed I was required by Mr Cooney to prove those figures and make sure they were correct". He said there were difficulties in relation to data extraction because of the transition of the systems from Tekitu to Australian Receivables. According to Mr Duncan, data extracted up to the end of November 2006 was produced from the Tekitu software systems; during December data migration was happening and accounting information was produced on the Australian Receivables system; and from January 2007 onwards the data was extracted from Australian Receivables' system. Mr Duncan said that he carried out his "reconciliation" from both sets of bank statements in relation to moneys received from January 2007 to November 2007 (T 107). 320For the purposes of the proceedings, Australian Receivables tendered evidence from an accountant (Mr Angelini) whose firm had been instructed to create a 'bank reconciliation' of the IAG account as at 31 December 2006. Mr Angelini (or staff under his supervision) carried out an exercise in reconciliation (or perhaps more accurately) reconstruction of the bank account records then available to Stannards and prepared a report which was annexed to his 25 February 2011 affidavit. A supplementary report further explaining the exercise that had been carried out was also tendered as Exhibit X. 321In summary, Mr Angelini maintains that if "unpresented" deposits and deposits banked but not recorded in the accounts are taken into account then the notional (or 'expected') bank balance as at 31 December 2006 should have been $647,523.26. The claimed shortfall arises because it is said that at that stage the client (IAG) was owed $767,148.04. Hence, it is said that there is a shortfall of $119,624.78. 322In considering that alleged shortfall, reference needs to be made to the withdrawal in December 2006 from this account of three amounts of $50,000 (which were in due course accounted for as commission when the cash adjustment at settlement took place in January 2007). (Another amount of $30,000, withdrawn on 28 December 2006, was reversed around the time of completion and has for these purposes been treated as if it was not withdrawn at all.) 323The level of commission so withdrawn in December 2006 ($150,000) was slightly in excess of the commission amount due on the collections recorded in that period (the actual commission earned being accepted as being in the order of $128,000) but I was taken through a review of the monthly statements which supports the conclusion that although there was an overdrawing of commission in December there was an underdrawing of commission in other months; and no issue is taken as to the discrepancy between $150,000 and $128,000 in this regard. 324There seems no dispute that commission was correctly drawn for the months of January and February 2007 (once Australian Receivables was in control of the accounts). Mr Brender submits that any deficiency must therefore be Tekitu's responsibility. 325The complaint by Australian Receivables is that Tekitu had drawn commission in advance of when it was due. It is submitted by Mr Brender that at some stage prior to December 2006 there must have been an overdraw of commission so as to result in the alleged shortfall as at 31 December 2006. 326It seems to me that the difficulty in reconciliation of the accounts experienced by both Messrs Horn and Duncan when attempting the exercise of analysing the IAG account is strongly indicative of there having been a breach of warranty as to the proper keeping of accounts but, in the end, the substantive dispute was as to whether a shortfall had in fact been established and, if so, whether it was established to have been the responsibility of Tekitu (as opposed to any shortfall being attributable to some other cause for which Tekitu would not necessarily be liable - such as, for example, errors in the recording of deposits or the like or errors on the part of IAG). 327Although Mr Brender submitted that there had been ample time for Tekitu to obtain its own accounting evidence in order to explain the alleged shortfall (seemingly to suggest that a Jones v Dunkel ( (1959) 101 CLR 298) inference should be drawn), the onus lies on Australian Receivables to establish not only a breach of warranty but also the loss sustained in relation to any such breach. Until a case has been made out to that effect, then Tekitu has no need to adduce evidence to answer it. Therefore, unless Australian Receivables puts forward a case that Tekitu might be required to answer, the fact that Tekitu might have tendered expert evidence to disprove the allegations is not to the point. 328Turning to the task performed by Mr Angelini, the letter of instructions issued to Mr Angelini's firm (Stannards) requested him to create a bank reconciliation of this account as at 31 December and to provide an opinion as to certain questions posed. In fact, however, his report addressed a different set of questions in substance seeking his opinion as to whether the account "reconciled". Mr Cotman's criticism at the outset in relation to the process undertaken by Mr Angelini was that it was not clear to what the account had been sought to be reconciled. Mr Brender explained the process as one of taking the account balance as at 31 December 2006 and 'reconciling' it to find out what would have been in the account if unpresented deposits had in fact been presented in that month and had deposits banked but not yet recorded in fact been recorded in that month. 329That explanation describes a process of reconstruction of the account by reference to the documents to which Mr Angelini had reference but also, it would seem, by reference to assumptions as to when a cheque received by the company but not presented should be taken to have been banked and/or as to when unrecorded deposits should be treated as recorded. It was not made clear to me what any such assumptions were (or, indeed, whether a different answer to any of the questions posed might be affected if a different assumption were to be adopted). 330Ultimately, what was submitted by Mr Brender was that the account balance at the end of December 2006 (of around $627,000) had to be adjusted by reference to unpresented cheques and unrecorded deposits and Mr Brender pointed to 5 adjustments identified by Mr Angelini in that respect. Mr Angelini's (or his staff's) calculations produced the result that he said what needed to be in the account at the relevant time was a total of $767,000 (that being subsequently paid out of the account in January) and hence there was a shortfall of roughly $119,000. Mr Angelini said that the closing balance as at December he would have expected to find was $647,523. 331Mr Angelini was cross-examined by video-link. He presented as being defensive of the opinions contained in his report. He was adamant (at T 355.34) that the bank reconciliation was to confirm what the bank balance should have been at that time. When asked to what he was reconciling it, Mr Angelini said "movements I have been able to detail first cash book bank balance in bank statement", taking into account timing and accounting adjustments hence "reconciling a trust account" (see T 355/356). 332To the extent that Mr Angelini seemed in his report to be ready to draw conclusions on unstated matters or to make assertions as to matters beyond the scope of his review, it suggested some lack of objectivity on his part - a perception reinforced by the fact that he had seen fit in his report to make a number of serious, and as far as I could see unsupported, allegations of misappropriation - albeit that those parts of his report were not relied upon by Australian Receivables.) So, for example, Mr Angelini asserted forcefully that "the deficiency arose as a result of funds not being in the account due to the overdrawing of commission in the past " (T 357.27, my emphasis), a conclusion that seems difficult to sustain on the basis solely of the task that he said he had carried out. At best it seems to me that Mr Angelini might be able to say that there was a shortfall in what would have been expected to be in the bank balance at a particular time having regard to particular primary documents - I do not see how he could attribute this deficiency to an overdrawing of commission as such nor could be in a position to opine as to the purpose of any withdrawals at least without reference to documents from which that purpose might have been made apparent. Testing his hypothesis, there could for example have been other matters responsible for a shortfall in the accounts other than solely an overdrawing of commission. 333Relevantly for present purposes, Mr Angelini did not make any analysis as to what was banked during December 2006. He said that "We simply reconciled the bank balance as at December because we did not have the warehouse accounts and or bank statements provided by Tekitu" (T 358.15) but it appears that once those documents were available there was no attempt to revisit the exercise in order to determine if the deposits to the December trust account equalled or were approximate to those disclosed (although Mr Angelini agreed that it would be a simple matter to work this out by reference to the bank statements - T 358.47). Mr Angelini's position was that he had reconciled the bank statement as he was requested to do as at 31 December 2006 and not by reference to the entries in that month (T 359). Mr Angelini said that he had reviewed the exercise carried out by his staff in 2007; that it was the client (Australian Receivables) that had checked off the December receipts; and he had therefore assumed that the warehouse ledgers were correct by the client checking against the December bank statements (T 352.23-27) i.e. without verifying that this was the case. 334Mr Cotman argued that in order correctly to reconstruct the accounts correctly one would need to add back the commission withdrawn in the period in order to determine the account balance at the end of the period, submitting that this was logical in order to determine what funds would (but for the withdrawal of commission) have been available in the account in order to meet the calls upon the account. Thus, in cross-examination it was suggested to Mr Angelini that an approach to the issue was to add to the adjusted bank balance calculated by him ($647,523) the amounts withdrawn during the month in relation to commissions of $150,000, in order to derive an aggregate ($797,523), which could then be compared to the amount that Mr Angelini had assumed represented the total claims on the fund (being $895,524); the arithmetic difference being some $98,001. 335Mr Angelini did not accept this proposition (T 350), though it seems to me to have an obvious logic and Mr Brender in argument seemed in essence not to disagree with the underlying logic in such an exercise, subject only to the qualification that Mr Brender said that if that were done then a further $150,000 needed to be added to the other side of the ledger, so to speak, in terms of the amounts required to be met out of the account and therefore that the same shortfall would arise. Mr Angelini, however, was adamant that the problem was that payments had been drawn down progressively rather than in accordance with (his understanding of) the IAG agreement. 336Mr Angelini's calculations produced the result that he said what needed to be in the account at the relevant time (31 December 2006) was $767,000, which was subsequently paid in January, and therefore that there was a shortfall of roughly $119,000. He said that the closing balance at December he would expect to find was $647,523. Mr Angelini (T 353.18) accepted that, arithmetically, Mr Cotman's calculations were correct. Pressed on this issue, Mr Angelini was adamant that the $150,000 commission withdrawn in December already formed part of the $767,000 and that what should have been in the bank account at the end of December was the latter figure (T 354.40). He said that he did not take into account for the purposes of the reconciliation (or reconstruction) exercise the amounts withdrawn in December "because they've already gone out of the account". 337Mr Brender submits that Mr Angelini's supplementary report demonstrates that the sum of $119,624.78 is the shortfall in the account. It is submitted that the IAG contract, had it been followed, would not have permitted any such overdraw because it required the account to be calculated after month end transactions were processed. (Pausing there, it is accepted that IAG had the right to audit the trust account and its operation by Tekitu. Mr Wyett, in the witness box, confirmed that IAG had regularly audited not just the finance side of the account but the 'whole system' (T 184), though he was unable to recall when the last audit had taken place before the January 2007 completion of the sale. It seems commercially unlikely that if there had been wholesale breaches of the IAG agreement it would not at some point have raised queries in that regard - although I accept that there is no evidence one way or the other from IAG on this issue.) 338Mr Brender submits that as the 'shortfall' was not contributed to in January or February 2007 (a proposition that Mr Horn seemed to accept), then any shortfall must logically have been referable to an overdrawing in previous months. That, however, presupposes that there is a shortfall. (Had there been a discrepancy of that magnitude in earlier months one might have expected it to have been the subject of a complaint by IAG, but in the absence of any evidence as to when it had last audited the trust account and the operation of the account as a whole it is impossible to draw any inference in this regard.) 339Mr Cotman notes that in July 2007, Australian Receivables claimed the figure was $130,882.66 (see the schedule prepared by Australian Receivables at CB 5/227). He submits that the evidence demonstrates that numerous people have attempted to analyse the trust bank account with "wildly varying" results. (I interpose to note that this would support the conclusion that there had been a breach of warranty in relation to the manner in which the accounts had been kept but would not assist in establishing any loss sustained as a result of that breach of warranty.) 340Mr Cotman submits that reliance cannot be placed on the report of Mr Angelini because it is limited to an analysis of the one issue addressed, (namely whether adequate funds were available at the end of the month of December 2006 to meet the claims of IAG and Australian Receivables, respectively), and because Mr Angelini proceeded on the basis that the respective claims were reflected in a summary document provided to him by Australian Receivables. Mr Cotman submits that no work was done by Mr Angelini to test the assumptions that were made as to the dealings in the account before 31 December 2006 and that, in particular, Mr Angelini did not look at the December bank statements for the IAG account or the transaction records for that month. (Mr Cotman notes that Mr Angelini agreed that he had made no attempt to determine whether the perceived December shortfall was an issue that arose in December or pre-dated December, or whether it involved any clerical error in the recording of the ledgers, or excess payment to IAG, or some other explanation.) 341Insofar as the implicit assertion that Mr Angelini's calculation demonstrates a deficiency arising out of the dealings on behalf of IAG (such that Australian Receivables has suffered loss) assumes that any discrepancy of the kind identified by Mr Angelini reflects some irregular dealing with the account, Mr Cotman submits that this has neither been tested nor demonstrated. Thus it is submitted that Australian Receivables' proposition that the balance of the account as at 31 December 2006 necessarily reflects a breach of contract begs a fundamental question, namely whether the calculation of the amount payable to the IAG is, or is not, in fact accurate, either in December 2006 or from an earlier date. 342(As to the significance of the interaction between the bank deposits of a month and the basis of any accounting to IAG, Mr Cotman pointed to CB 16/121 where Mr Horn commented on the large discrepancies he had identified at that stage. 343Having considered Mr Angelini's report and the basis on which his reconstruction of the account seems to have proceeded, I am left unpersuaded that there has been a dealing with the funds in the IAG account in some unidentified period prior to 31 December 2006 that represents an overdrawing of commission by Tekitu. Nor am I satisfied that there has been a failure to account for client moneys in the trust account as at completion by reference to the balance that Mr Angelini says should have been expected to be in the account at that date. In circumstances where Australian Receivables bears the onus in this regard, and where I cannot be satisfied on the balance of probabilities that there is a shortfall or as to the amount of any such shortfall (or that the explanation for any shortfall is the responsibility of Tekitu), Australian Receivables has not established that there should be any adjustment or off-set on this part of the claim. * Earn-out calculations 344The Sale of Business Agreement called for payment of two earn-out amounts based on profits after completion. On Australian Receivables' calculations, no earn-out payment was due for the first earn-out period and that the second earn-out payment was $122,117.28. However, although Australian Receivables admits (in [60(c)] of the Defence to the Further Amended Cross Claim) that the second earn-out payment of $122,177.28 has become due since completion of the contract, it contends that an adjustment to the purchase instalment is due in respect of the items set out in 3-10 of the schedule attached to the defence and that various other adjustments or setoffs are required to be made (as pleaded in para [60(f)-(h)]). The claimed adjustments have been considered above. 345The first earn-out payment covered the period between 1 July 2006 and 30 November 2006. Tekitu relied upon an expert report prepared by Ms Fiona Bateman, a forensic accountant and partner of the firm Dolman Bateman Pty Ltd. (Insofar as Ms Bateman's report dated 14 July 2010 noted her instructions to provide a report setting out amounts payable by Australian Receivables to Tekitu by way of earn-outs had the business been conducted in the manner and form required by the contract, a matter referable to the breach of contract claim by Tekitu, to which I will turn shortly, Ms Bateman ultimately was not able to comment on that issue.) 346Ms Bateman's report identified a number of accounting errors in the first earn-out calculations provided by Australian Receivables, including understated commissions over the period July to November 2006 ($291.413), understated commission of December 2006 ($16,896), overstated cost of sales for the period July to November 2006 ($61,474) leading to understated net revenue due to accounting errors of $369,783. 347Ms Bateman's opinion was that a simple error was made in the calculations for the first period, namely the reduction of the gross revenues of $2,793,131 for the purchased debt commission, on the mistaken assumption that it was included in gross revenue. The explanation for that mistake was that Australian Receivables had prepared its calculations from the MYOB unadjusted figures and not from the final 30 November 2006 figures in the accounts prepared by Tekitu's external accountant (Mr Robertson). Mr Duncan, who accepted part of Ms Bateman's criticisms, agreed that the Robertson accounts had not been used. He said that this was because they were not statutory accounts (T 99.22) and he thought they were unexplained. 348Ms Bateman made calculations of the loss of earn-out payment on the first earn-out period on alternative assumptions (that the gross commissions or revenue would have been similar to those of the same period in the previous year reduced by 5% - $373,695; or that they would have been equal to the same period in the previous year - $548,219) that producing a loss of $85,878 or $160,574 respectively, assuming cost of sales at 14.4%. (I accept the logic of Ms Bateman's evidence. However, I am not satisfied that the basis for attributing any such loss to Australian Receivables has been shown.) 349Mr Cotman submits that in Mr Duncan's reworked calculations Mr Duncan has nevertheless accepted that the correct gross income figure for July to November 2006 is that as calculated by Ms Bateman (but has failed to take into account the second part of her analysis which is the overstatement of the cost of sales by some $61,000 and the omission of $16,896 in the December income (referring to Ms Bateman's report at CB 12/228). It is submitted by Mr Cotman that Mr Duncan's calculation requires adjustment to reflect the cost of sales figure having regard to the identified journal entries referred to in Ms Bateman's report and also to reflect the observed revenue issue in December. (I note that while Mr Duncan said that Ms Bateman's figures on cost of sales were wrong, he was unable to say what the correct figures might be (T 100) and that he did accept the proposition that one would expect cost of sales to be reasonably consistent over an extended period (T 96.15). Mr Duncan also agreed that he would expect a consistency of gross profit margin over time in relation to collections from the business centre unless something material had happened to the business (T 102) and in that regard Mr Duncan was not aware of any changes in relation to the cost structure of the business (T 102).) 350I found Ms Bateman to be an objective witness, readily prepared to concede where she had made an error in the calculations at one point and careful not to trespass upon areas beyond the scope of the material with which she had been provided (she stated quite clearly in her report that she was unable to give an opinion as to certain matters). I would accept her analysis from an accounting point of view as having the necessary quality of independence more so than Mr Duncan (who seemed at one stage to see his role as that of 'proving' the figures at the request of Mr Cooney and who has had an ongoing association with Mr Cooney). 351That said, even on the reworked calculations no payment would be due under the first earn-out (subject to the damages claim made by Tekitu) since the relevant threshold is ($5.6m). 352As to the second earn-out period, Ms Bateman confirmed the mathematical correctness of the calculations carried out for Australian Receivables. Ms Bateman noted that commissions were less than for the previous year (June to December 2006) by approximately $178,291 but was unable to ascertain whether this reduction or any other reduction in commissions was a result of the alleged failure to conduct the business in the manner and form required by the contract. 353Ms Bateman conducted a monthly sales revenue analysis from which she concluded that gross commissions for the six months from July 2006 to December 2006 were 9% less than in the previous year and for the January 2007 to July 2007 period were 16% less with March to June being significantly lower. (In cross-examination Ms Bateman agreed that the table in her report containing the analysis of the July to December 2007 period, in which she concluded that the business was returning to the pre-purchase level of commissions, was incorrect.) 354Ms Bateman's confirmation of the calculation of the second earn-out (on the figures provided to her) means that Tekitu's claim in relation to the earn-out periods thus rests on it establishing that Australian Receivables was in breach of clause 2.2 of the Sale of Business Agreement, under which clause the business was to be conducted from the completion date and until payment of the second earn-out "in the ordinary and usual course, and in a manner that will not materially prejudice payment" of the earn-outs. It is contended that Australian Receivables has breached that obligation and that as a result Tekitu has suffered loss (by reason of the inability to earn greater earn-out income under the contract). 355By way of general comment, I note that it was submitted by Mr Cotman that Australian Receivables had entered into the Sale of Business Agreement intending to prosecute Tekitu at the first sign of breach of contract by it, referring to a directive issued to Mr Cooney from Mr Weitzel at NCO on 5 December 2006 to the effect that, from a legal perspective, the company wanted strong representations and warranties (and no limitations on indemnifications) so that "If we buy this, I want to make sure we can go against them when they breach" (CB 4/126). However, the readiness of a party to sue for breach (or even an attitude that suggests the party would be on the look-out for any basis on which to argue that there was a breach) does not warrant any inference that the party in question has precipitated any such breach nor does it suggest that there was any intention on the part of that party not to honour its own obligations under the contract. 356Similarly, although Mr Cotman submitted that the evidence demonstrated that Australian Receivables, under the direction of Mr Cooney, was "braced to enforce any contractual obligations owed to it" but had paid little regard to the contractual obligations it owed to Tekitu, I do not consider that the evidence warrants such a conclusion (although I do consider that scant attention was paid to the import of the acknowledgement contained in the contract as to there having been satisfactory due diligence conducted). Moreover, it seems to me that both parties have adopted the stance that they would withhold moneys owing to the other pending a balancing of the respective claims against each other (or perhaps as security or leverage in respect of those claims) and hence to that extent are equally liable to criticism. 357I turn then to the alleged matters to which Tekitu points as amounting to a breach of clause 2.2. It makes a number of specific criticisms in this regard, though Mr Cotman frankly concedes that in isolation it cannot prove any particular loss referable to each of those matters. Principally, Tekitu seems to base this allegation on the comparative diminution in the performance of the business of the company over the first 6 month period in 2007 at which time various changes in the operation of the business (its location; the migration of data software and problems caused thereby; and changes to business practice) were said to be occurring. It is the coincidence of timing as between those events and the diminished results for that period on which reliance is placed. 358Thus, although reliance seemed to have been placed by Mr Horn to a large degree on the failure of the company to meet the budget or target income in respect of particular clients as the cause of the claimed breach of clause 2.2 (leading to the criticism that this was tantamount to Mr Horn treating a budget as a guarantee of performance), Mr Cotman points to the lack of explanation for the discrepancy between actual and budget both as to the income and as to expenses at a time when it is said that there significant difficulties in the conduct of the business as permitting an inference that the poor performance was caused by the changes in question. 359Before turning to the specific allegations made by Tekitu in relation to the change in the business by Australian Receivables, I note that what clause 2.2 requires is that Australian Receivables continue to conduct the business "in the ordinary and usual course" and in a "manner that will not materially prejudice" the earn-out payments. The former phrase has been considered in a number of contexts. 360In Duncan Davis Pty Ltd v Hurstbridge Abattoirs [1995] 1 VR 279, Ashley J said (at 285-6): In the end I think that the difference [between usual and ordinary] is really no more than addition of emphasis by repetition . The first meaning of "usual" in the Oxford English Dictionary is "that is in ordinary use or observance"; while the third meaning is "ordinarily used". In Australia a transaction in "the ordinary course of business" has been described as "one of the ordinary day to day business activities, having no unusual or special features..."; see Re Bradford Roofing Industries Pty. Ltd. [1966] 1 N.S.W.R. 674 per Street J. It seems that that which is "unusual" will not be "ordinary". The connection of the words is not special to Australia and England. Words and Phrases, 1658 to date, Vol. 43A, pp. 390-1, lists a series of such uses. But there is nothing to indicate that joinder of these adjectives has an additive effect as regards meaning. (my emphasis) 361In Re Bradford Roofing Industries Pty Ltd (in liq) & Companies Act [1966] 1 NSWR 674 Street J (as his Honour then was), noted that the phrase "ordinary course of business" had been seen as descriptive of day to day business activities with no unusual or special features. 362In the bankruptcy context, the words 'usual and ordinary course' were considered in Emwest Products Pty Ltd v Olifent (1996) 22 ACSR 202, citing Perkins v State Bank of South Australia (1993) 61 SASR 246 and in Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 6 ACSR 601 per Kearney J (at [618]): As to whether the payments were received in the ordinary course of business there has been some difference in judicial formulations of the test to be applied. I agree with McGarvie J in Taylor v ANZ Banking Group (1988) 13 ACLR 780 and with Hodgson J in Maurice Dry Cleaners Pty Ltd v National Australia Bank Ltd (unreported, 12 July 1990) that the appropriate test is as stated by Rich J in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (In liq) (1948) 76 CLR 463 at 476-477 to the effect "that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation". 363In Taylor v White (1964) 110 CLR 129 Dixon CJ said at [136]: ... I do not doubt that 'in the ordinary course of business' refers to 'business' as a general conception and is not restricted to the conduct of any particular business such as the business carried on in a shop or merchant's office or the like, but is referring to the transaction of business as a known and recognised activity pursued by anybody engaged in an attempt to win or earn or 'make' money or a living in a systematic or regular way. ... The time-honoured phrase 'in the ordinary course of business' is meant to refer to transactions regularly taking place in a sustained course of activity or some usual process naturally passing without examination. 364Reference was also made by Mr Brender to Re Cummins (t/a Nam Constructions); Ex parte Harris v ARC Engineering Pty Ltd (1985) 62 ALR 129 per Pincus J.) Similarly, in Taylor v White , Kitto J referred to what had been said by Rich J in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (in liq) (1948) 76 CLR 463, saying at [129]: ... Rich J, however, amplified what had been said concerning those words [in the ordinary course of business] in Burns v McFarlane (1940) 64 CLR 108, observing that s 95(2) supposes that "according to the ordinary and common flow of transactions in affairs of business, there is a course, an ordinary course. It means", he said, "that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation" (1948) 76 CLR, at p 477 365In Robertson v Grigg (1932) 47 CLR 257 at [267] Gavan Duffy CJ and Starke J said that the test for the requirement that a transaction be in the ordinary course of business is whether it is "a fair transaction, and what a man might do without any bankruptcy in view". 366In Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 8 ACLR 422 Mahoney JA said (at p 428): . . . within this principle, `ordinary' is not to be confined to what is in fact ordinarily done in the course of the particular business of the company. Transactions will be within this principle even though they be, in relation to the company, exceptional or unprecedented. 367In Countrywide Banking Corporation Ltd v Dean (1997) 8 NZCLC 261 Keith J said (at [328]): The wording of the phrase and the standard interpretation of it make it plain that the test is an objective and general one. Emphasis is not to be placed on the business of the particular parties to the transaction, whether jointly or singly. That understanding is supported by the contrasting usage in other legislation (such as that regulating partnerships, sharebrokers and motor vehicle dealers) which does focus on transactions by a company in `the ordinary course of its business. 368In Harkness v Partnership Pacific Ltd (1997) 41 NSWLR 204 Clarke JA said (at [217] - [218]): The High Court has repeatedly emphasised that in applying s 122(2)(a) (and its earlier equivalent) the question a court must ask is not whether the payment was made in the ordinary course of any particular trade or business, but rather whether the payment was made in the course of business generally. In Robertson v Grigg (1932) 47 CLR 257 at 267, Gavan Duffy CJ and Starke J said that the test "is not whether the act is usual or common in the business of the debtor or of the creditor, but whether it is a 'fair transaction, and what a man might do without having any bankruptcy in view'". Evatt J simply said that "... the 'ordinary course of business' is not, I think, to be related to any special business carried on by either debtor or creditor but is concerned with the character of the impeached transaction itself" (at 273). In S Richards & Co Ltd v Lloyd (at 64), he repeated what had been said in Robertson. In Burns v McFarlane (1940) 64 CLR 108 at 125, Rich J, Dixon J and McTiernan J referred to these cases and agreed that the expression "... does not require an investigation of the course pursued in any particular trade or vocation and it does not refer to what is normal or usual in the business of the debtor or that of the creditor": see also Starke J (at 128). ... Although the High Court has continually emphasised that the section is concerned with the ordinary course of business generally and not the ordinary course of the business of the parties, it does not mean that the normal procedures and practices of the parties' businesses and the trade in which they operate, as well as the dealings between them, are irrelevant. Evidence of such matters is necessary so that the court may consider the payment in question in its factual context. However, it does mean that the particular procedures followed in the parties' businesses will not determine whether what occurred was in the ordinary course of business. That issue falls to be determined by whether or not the transaction by which the payment was effected arose out of a special or particular situation calling for remark or comment. A payment will fit that description when, for example, the method and timing of the payment, or the motivations which prompted its being made, indicate that it did not take place as part of ordinary business dealings. 369Finally, in National Commercial Banking Corporation of Australia v Batty [1986] HCA 31; (1986) 160 CLR 251 , in considering "the ordinary course of the business" of the partnership for the purposes of s 10 of the Partnership Act 1982 (NSW), Deane J noted at [414]: The notion of the ordinary course of a business presupposes a flow of transactions and activities within a common course. It will usually comprehend all those transactions and activities which would normally be involved in carrying on a business of the kind carried on by the particular firm : "all things that it is part of the business of [an accountant] to do": cf Rich, Dixon, Evatt and McTiernan JJ in PolkingHorn, at p 156. Thus, in the case of a firm of accountants, it covers not merely dealings with and acting for clients but all the other transactions and activities involved in carrying on an accountancy practice. In referring to a business "of the kind" carried on by the particular firm, I have in mind considerations of scale as well as character . It would, for example, be little to the point to assess what was in the ordinary course of the business of a firm of accountants such as the partnership in the present case by reference to the activities of a leading international firm of accountants which might be customarily involved in activities of a kind which would be well beyond the ordinary course of business of an ordinary country firm.... the question whether an act falls within the ordinary course of the business of a firm will usually be determined by reference to whether it comes within the scope of a "class" of act which would normally be encompassed within the flow of the business activities of a firm carrying on a business of the relevant kind and size. (my emphasis) 370In the present case, apart from the comparison of performance as against budget, Tekitu raises various matters, relating both to the physical or administrative aspects of the business and to the alleged failure to pursue new business opportunities. The cross claim pleads 14 specific breaches of the obligation to conduct the business in the ordinary and usual course (as to which Mr Brender submits that even if all were established they would not take the operation of the business out of the "the undistinguished common flow of business done", since they relate to administrative arrangements concerning the same business). 371The alleged breaches in question are pleaded at [100] of the Further Amended Statement of Cross-Claim as follows: (a) lack of notification to the Tekitu parties prior to the making of changes in respect of the role of the general manager, Mr Wyett; (b) non-provision of monthly revenue reports or revenue reports prepared in accordance with contract; (c) failure to take "appropriate commercial action" to secure new business opportunities introduced by Mr Smith and to consult him; (d) closure of 4 Statewide Mercantile Services offices during the earn-out period, retaining only one small office in each of Adelaide and Perth (thereby allegedly "changing the meaning of the Business" without consent); (e) changing the head office of the business without consent; (f) failure to retain 12 key senior staff and large number of other staff "including employing them at significantly lower salaries"; (g) replacing the computer systems and cancelling software maintenance and support arrangements from March to September 2007; (h) changing the brand name for debt collection and debt purchase activities to Australian Receivables/NCO brands and/or changing the business and/or accounting practices in relation to the Business without consent; (i) converting clients from existing Mercantile Services software system to Debtrak software system in January 2007 (j) cancelling DebtSmart software maintenance and support arrangements in April 2007, thereby allegedly interrupting and/or curtailing possible business activity during this period; (k) disbanding the Statewide Mercantile Services computer/IT department in February 2007, thereby allegedly interrupting and/or curtailing possible business activity during this period; (l) relocation of all computer systems to Melbourne in July 2007 as part of the closure of the Frenchs Forest head office, thereby allegedly interrupting and/or curtailing possible business activity during this period; (m) changing the system of client debtor receipts in April 2007 so they were forwarded to Melbourne for processing and allocation via a single trust account instead of individual accounts, resulting in excessive unallocated revenue, thereby allegedly interrupting and/or curtailing possible business activity during this period; and (n) "unnecessarily" replacing all Statewide Mercantile Systems workstations/computers with new hardware and providing insufficient training, thereby allegedly interrupting and/or curtailing possible business activity during this period. 372As to those allegations, a number can be grouped together and I will consider them in that context. However, as a general comment I am not satisfied that the conduct to which Tekitu points would be said to be conduct outside the ordinary and usual course of Tekitu's debt collection business (nor do I consider that it amounts to conduct of the business in a manner prejudicial to the earn-out). 373Some emphasis was placed on the position of Mr Wyett (who accepted an offer of employment with Australian Receivables after the sale of the business and is currently the general Manager of Statewide Mercantile Services, the field service arm of Australian Receivables). Prior to the sale of the business, Mr Wyett had been the General Manager of the business and had managed all aspects of the business. The Smiths had been concerned to ensure that Mr Wyett continue to be employed after the sale, Mr Smith's evidence being that this was because Mr Wyett had a critical role to play in ensuring that the business was managed and operated by Australian Receivables in the same manner as it had been by Tekitu. The importance attached to this is said to be reinforced by the express obligation in clause 2.2(2) to notify Tekitu "prior to making any changes in respect of the General Manager of the business, My Wyett". 374The complaint made by Tekitu is that after the sale Mr Wyett's role changed from that of an executive in charge of the entire business operation to an executive in the management structure with the added responsibility for Australian Receivables' collection business as well, which it was said resulted in Mr Wyett managing double the collections staff. (Reliance is placed on this not only for the breach of clause 2.2 but also as evidence that the business was not being conducted in the ordinary and usual course after the sale.) 375It is submitted by Mr Brender that the failure to notify cannot of itself have caused any damage (and in the absence of any contractual right to preclude a change in Mr Wyett's role I am inclined to agree). Moreover, Mr and Mrs Smith were still performing a consulting role with the company and there is no suggestion that Mr Wyett's role was in some way unknown to them after the sale (yet no complaint was made at that stage). Mr Wyett's evidence (which in general I accept though noting that his evidence in relation to the effect of business decisions is simply his opinion to that effect) was that in his opinion the change in his responsibilities has not affected revenue (and, though I place little weight on this, that view is shared by Mr Cooney). In the absence of evidence to suggest that the restriction of Mr Wyett to a management role or the added responsibilities of managing Australian Receivables' staff has precluded him from attending to critical aspects of the Tekitu business, I have difficulty seeing how any loss could have been suffered by this change. Moreover, I am not persuaded that the change in operational role means that the business is not being conducted in the ordinary and usual course or that this has been done in a manner likely to cause prejudice to the earn-out. 376As to the failure to provide the Tekitu parties with monthly revenue or revenue reports, it is not suggested that this caused particular loss, nor does it seem to be referable to an aspect of the conduct of ordinary business activities vis a vis clients (as opposed to an administrative tool for use by management). 377As to the role of Mr Smith and the complaint in relation to the failure to take appropriate commercial action to secure business opportunities introduced by him and consult with him, It is submitted by Mr Cotman that once Australian Receivables terminated Mr Smith's services effective the end of July 2007, Australian Receivables placed Mr Smith in a position where he could no longer assist it after that date. (Thus, in relation to the Attorney-General's business opportunity which it is said that Mr Smith had introduced, and contracts were not signed by Australian Receivables until October 2007, it is said that Mr Smith was not in a position to assist Australian Receivables to ensure work flowed from that opportunity to Australian Receivables.) 378Mr Cotman referred to the business opportunities that Mr Smith said he had introduced (namely the Attorney-General's Department, a new portfolio from the Police Credit Union and Ford Credit). From the evidence, it is submitted by Mr Cotman that an inference can be drawn that after the sale of the business, Statewide Mercantile Services collections staff were not devoting their time to the service of Statewide Mercantile Services clients. The complaints made by Mr Smith (as to failing to tender for Macquarie Bank work or the loss of the opportunity to secure the AG's contract, by way of example) seem to me to be speculative and I consider that there is force to the submission that much of the complaint related to the making of legitimate business decisions contrary to the position that Mr Smith considered should be adopted. 379Mr Brender notes that Mr Smith's evidence was that he introduced two or three business opportunities. (Evidence was given as to the reasons attributed for the loss of business in relation to those opportunities, such as the decision not to tender for Macquarie business in view of the cost and the limited time frame allowed thereof and the decision of the Attorney-General's Department not to proceed with discussions - the former being in my view an example of commercial decision making in the ordinary course of business; the latter being attributed by the department, according to the plaintiff's evidence, to a decision to continue with the existing service provider (not referable to any conduct by Australian Receivables or its staff). 380It is submitted that there was no obligation on the part of Australian Receivables to consult Mr Smith but that in any event he was employed in a consulting role for the first few months and there was no reason that he could not have involved himself in the business (particularly given his close relationship with both Mr Wyett and with Mr Smith's son, Mr Warrick Smith, both of whom continued with the business). As to the new business opportunities I consider those further below. However, in summary, I am not satisfied that the manner in which Mr Smith's services were apparently not availed of (or the lack of consultation with him) permits a conclusion that there was a breach of clause 2.2. 381A number of complaints are made as to the physical and staffing changes of the business. It is submitted by Mr Brender that these did not constitute material changes (the consolidation and relocation of the Parramatta and Frenchs Forest offices to the city and the Melbourne office was relocated to another location where Australian Receivables already had an office). As a debt collection business relying on field calls, process service and the like it is hard to see that the changed location would be a change outside the ordinary course of business and (unless there were significant impacts in terms of rental or the like) that this would be conduct in a manner to cause material prejudice to the payout. Tekitu was already on notice of the intentions in relation to the Melbourne office before the sale and had raised no issue in relation thereto. Less still does a change of head office location seem to be a change in the ordinary and usual course of the business (unless, say, to use the example considered by Rich J above, if this were a question of scale or, say, if the business enterprise was relocated offshore altogether). It is certainly conceivable that relocation of offices caused some disruption but some level of disruption would not be surprising on the integration or assimilation of one business into another business. Had there been an intent that Australian Receivables not be permitted to change aspects of the business (such as its office and the like) then one would expect to see a specific provision in that regard in the contract. It seems hard to see this as a breach of clause 2.2. 382As to the staffing of the offices, it is submitted by Mr Brender, in effect, that there was a (again perhaps not surprising) transition of staff and no attempt made to quantify lost revenue by reference to staff changes. (Mr Wyett's evidence, and that of Mr Cooney, was again to the effect that such changes did not in his opinion affect revenue.) (Mr Wyett says that there was no talk of rationalisation of staff from the staff point of view in the period immediately after completion ('the early days") (T 185).) The evidence in relation to staff changes does not persuade me that this was a breach of the statutory obligation. 383Mr Cotman notes that on 10 January 2007, Mr Cooney sent a memorandum to staff advising that there would be "short term and immediately noticeable changes for Statewide Mercantile Services staff" (CB 4/382). That of itself does not suggest that the changes took the conduct of the business out of the ordinary course and is consistent with there being the kind of change one might expect when an existing business is acquired by new operators. 384As to the various complaints in relation to changes to computer systems, software systems, maintenance arrangements and the like, again the changes in question do not seem to be quantitative or qualitative enough to take the conduct of the business out of the ordinary course. Mr Brender submits that the Sale of Business Agreement itself contemplated that there might only be a short-term retention of the then current computer/software systems. 385Mr Wyett confirmed that at Statewide Mercantile Services there were two software systems in use for the collection purposes (T 180) and that while the business had been in the process of transferring from Mercantile Systems software to DebtSmart software not all clients were on the DebtSmart system at the time of the sale. He confirmed that there was a software failure towards the end of 2006 that affected the ability to remit client files electronically but that this was resolved by around January/February 2007 (T 185). Mr Wyett's evidence was that there were some "minor issues" with the migration of the information to the new system but said that in early 2007 the business was operating on both systems and that at least one client (such as Optus, which was on the Mercantile Services software not DebtSmart) did not go across to the new Debtrak system until midway during 2007 (T 186). Mr Wyett also said that DebtSmart continued for process services and field calls for a period of some 7-12 months after completion of the purchase (T 186). 386It does appear that there were some problems with software migration (and staff training issues) that may have impacted on revenue in the immediate aftermath of the sale. As to the provision of new computer hardware, again there is some suggestion in the email communications that there was complaint by staff as to the sufficiency of training but, as Mr Brender submits, this has not been demonstrated to have affected revenue in a material way and it seems to me that changes in software or hardware are not (unless they dramatically changed the scope or substance of the work) likely to amount to the conduct of business other than in the ordinary and usual course. 387Nor am I satisfied that there has been a material prejudice to the earn-out established as a result of the identified changes. 388Mr Cotman submits that, as to the alleged disruption to the business, Warrick Smith's evidence of the disruption he observed in the period from 10 January until September 2007 should be accepted. (I note that there is a close relationship between Warrick and his parents, and the evidence from Mr Wyett, who is perhaps in a unique position to comment as he is in the position of having been employed independently of the Smiths and independent in terms of his association with Mr Cooney in that regard, as an employee of both businesses, seems likely to be less coloured by his association with the parties.) 389Even accepting Warrick Smith's evidence as to his discussions with Mr Wyett about the problems he was observing with the new business operations, it seems to me that this kind of integration difficulty bears the hallmarks of teething problems of the kind that would to a lesser or greater extent ordinarily be expected on such an acquisition. 390As to the brand change, again had that been an issue it would seem likely to have been dealt with in the contract itself. Mr Brender points to the Asset Sale Agreement as demonstrating Tekitu's consent to debt purchase activities being operated under the NCO banner and refers to the evidence of Mr Wyett at [47] of his affidavit. 391As a general matter, it is submitted by Mr Cotman that the evidence demonstrates that Australian Receivables entered into the Sale of Business Agreement intending to make "wholesale changes" to the business throughout 2007 and thus not to conduct the business in the ordinary and usual course. Reference was made to correspondence that was sent between Mr Cooney and his colleagues in the United States prior to the entry into the Sale of Business Agreement in November 2006 in which consideration was given to the possibility of "rationalisation benefits and process improvement" and in particular to the concern expressed by Mr Weitzel on 14 November 2006 (CB 3/118) that "My concern with an earnout is that we will need to keep the business together and will not be able to take advantage of rationalization benefits and process improvements". 392Mr Cotman submits that the reason that Mr Cooney thought it essential to acquire the Statewide Mercantile Services business was so that he had a large team of experienced people to service GE Money (a minor client of Tekitu but then about to become a major client of Australian Receivables for the collection of aged debts - an exercise that Mr Cooney agreed would take serious effort in debt collection T 133.41). He submits that this was evident from Mr Cooney's email to the executive to whom he reported in the US (Mr Paul Weitzel) of 4 December 2006 (CB4/126). 393Mr Cooney denied that the Tekitu acquisition was attractive because he was going to acquire a team to deploy for use in relation to the GE Money client and said he would use the Melbourne portfolio team for this (T 133.41). I accept that this contradicts with what he had told the US, namely that "servicing and field call staff and resources make it [the acquisition] essential". Mr Cooney accepted that what he was saying to the US was that it was critical to secure staff properly to service the exploitation of the GE opportunity (T 135.20) but says that this was because there would be surplus staff in Tekitu and so he would be able to recruit from a captive audience (T 135.31). He dismissed the suggestion that the acquisition was essential from a staff resourcing perspective (even though this is what he had told the US), saying that this was "what I put in an internal memo to support the transaction" (T 136.2) and that it was a situation where "I was selling a story to achieve an outcome" (T 136.6). He accepted (T 163) that it was fair to say that in his dealings with the US a principal part of the submission was that substantial economies of scale would be brought into the business by the rationalisation of resources and systems including the reduction of staff, changing office configuration and the number of offices and migration of the existing systems onto the Australian Receivables system. Even accepting that Mr Cooney appears (on his own account) to be prepared to 'gild the lily' in his communications with the US majority shareholder, I do not accept that I can infer that the business of Tekitu was ignored in favour of the Australian Receivables business, when the evidence of Mr Wyett is taken into account. 394Mr Cotman submitted that the steps taken by Australian Receivables after the sale amounted in effect to embarkation on a process whereby the Tekitu business was effectively integrated into Australian Receivables operations and not 'kept together' and that the changes in this respect were not consistent with conducting the business in the ordinary and usual course. 395It seems to me that what is meant by the ordinary course in the context of this contract has to be understood in the context that Tekitu was aware that the business was being acquired by an entity that carried on a similar business (presumably it understood that the attractiveness of its business to such a purchaser would have included to some extent the synergies between the businesses). It seems to me that if Tekitu had considered it essential for the two businesses to be kept separate without any measure of integration then it could have sought such a provision in the contract. I am not persuaded that integration or rationalisation of the kind that appears to have occurred is a change in the ordinary course of the conduct of the business or conduct in a manner materially to prejudice the earn-out as contemplated under clause 2.2 396I am not persuaded that any of the breaches alleged in paragraph [100] of the Further Amended Statement of Cross-Claim have been established. 397I turn then to the more general allegation of breach based on the performance of the company against budget over the relevant period. 398Mr Horn (who accepts that he had no direct knowledge or involvement in the Statewide Mercantile Services business after 9 January 2007 - T 229) has expressed the opinion (based largely on the information received from the Smiths and his comparison between actual performance and the budget) that there has been a shortfall in revenue generation of about $500,000 and accordingly a loss of earn-out in the relevant earn-out periods. This raises issues as to the manner in which performance was budgeted and the significance to be drawn from the fact that budgets were not met. 399In relation to particular clients, Mr Horn has expressed the opinion that there has been a loss of the following amounts of revenue (by comparison between budget and actual performance): Allianz ($500,000); Optus (losses totalling $100,000 and $150,000); ATO ($500,000); AG's department ($500,000); Macquarie Bank ($400,000); GE Money ($1.7m being the shortfall from budget); Hertz ($86,000); St George; SIMPlus (again the budget shortfall); Ford ($150,000); Tru Energy ($148,000); and IAG ($487,000). 400(I should note that I admitted and read Mr Horn's affidavit in this regard as a submission and not as an expert opinion.) 401Mr Horn's mantra in the witness box was that achieving budget (or in some cases target) income was "a management responsibility" (T 249.33). Therefore the reason he considered that Australian Receivables should be responsible for any shortfall between actual revenue and that for which a budget or target had been set was that it was responsible for the management of the accounts during that period (T 249). Mr Horn said "It is an overall responsibility of all management to seek to increase the business" (T 249.36); "management is responsible for not achieving budget and targets" (T 250.34). 402As noted, the basis on which Tekitu puts its claim largely focuses on the performance of the business relative to the budget done in 2006 relating to the 2007 year (although Mr Cotman does not base this on the failure to meet budget per se, as Mr Horn seems to do, but on that as reflective of other issues). 403At T 264.32, Mr Horn accepted that a budget was not a guarantee but said that "it is a most likely outcome". Mr Brender submits, and it seems to me indisputable, that the budget was a forecast only, not a guarantee. He further submits (though this is contentious) that it contained "bullish" figures. 404Put simply, Mr Horn's position seemed to be (as explained at T 238.48) that he looked at the budget that was prepared by Mr Wyett (and at the assumptions for that budget) and where the budget was not achieved then he considered it was the responsibility of management and Australian Receivables should be responsible for the loss of revenue. 405Mr Cotman, who accepts that the Tekitu parties cannot prove particular loss flowing from any of the changes in the method of conduct of the business after acquisition to which reference has been made above (at least when looked at in isolation), submits nevertheless that what can be discerned is a material change in the performance of the business in that period (not only compared to the performance of the business in the equivalent period in the previous year (2006) but also to its expected performance as it had been budgeted for by people who were experienced in setting such targets) and hence it can be inferred (in the absence of a cogent explanation for the change) that the change of business practices were responsible therefor. 406The 2007 budget was initially set in 2006 (in consultation between Mr Wyett, Mr Duncan and Mr Horn) and was sent to the United States shareholder by Mr Cooney for approval. It is submitted that this was a conservative budget (reflecting Mr Wyett's view as to the likely income from the existing client base). Reference is made by Mr Cotman to the figures contained in the memorandum sent by Mr Duncan to Mr Cooney commenting on the clients and expected income from those clients (CB 3/100) and the budget set for the calendar year 2007 (CB 8/85). 407Mr Cooney and Mr Duncan's evidence was that they had little faith in Tekitu's performance as a result of the losses in the second half of 2006. (The December loss was $160,000, although that was not fully quantified until later). Mr Duncan says his involvement in the budget process was only in making comparisons with revenues produced by Tekitu and his assessment of revenues in the revised budget (T 77.26); the expense items were derived from Mr Cooney. The budget allowed for a monthly income and cost of sales derived from the division of an annual amount into 12 equal monthly amounts (without any consideration of seasonal variations) (T 78). Mr Duncan's view was that the income projections by Tekitu were over-optimistic and he reduced them to what he considered was a proper figure (T 80). Mr Duncan gave his budget to Mr Cooney at the end of 2006 in relation to the then proposed acquisition of the business. Mr Duncan was adamant that this was a first draft (T 81.23) budget for the amalgamated business but later maintained that the 2006 budget was a final budget (T 83.10). His evidence on this was confused. At T 108.35 he said that he thought it was a final budget before January 2007 but that he did another budget in March 2007 (Exhibit E). (Mr Cotman submits that the evidence from Mr Duncan was that the January budget reflected actual costs incurred.) 408Mr Duncan said that he did not take into account in preparing this budget any new clients that might be achieved. He saw it as a conservative budget as to his assessment of the likely income of the business (T 83.47 and T 94.1). (Similarly, Mr Wyett was prepared to accept that the budget was a more conservative one than Mr Horn had suggested should be adopted in terms of forecast revenue - T 200.) Mr Wyett said that he considered that the revenue figures being suggested by Mr Horn during the 2006 discussions were at the higher end of the range that Mr Wyett had estimated for prospective work (T 196). Mr Wyett also, and in my view quite understandably, described the budget as a forecast of what it was hoped would happen - T 199. Mr Wyett recalled having said at one stage to Mr Horn that the forecast was too ambitious and would need to be revisited (T 199.34), although he could not recall having told Mr Cooney that the budget figures were not achievable (T 199). Mr Wyett accepted that he did not suggest that the budget figures had been created to make the business look more positive (T 199). 409The 2006 budget was then revised in early 2007 (apparently to bring it into line with the US budget reporting period - per Mr Cooney at T 137) by Mr Wyett and/or Mr Duncan. Mr Cotman notes that the income line was changed to reflect the expected commission income on the collection of acquired debt, so as to reduce the figure from 42.5% to 30% and the expenses line was amended to include another $100,000 in collection costs. (It is submitted by Mr Cotman that it is conspicuous that the revised budget did not change the ordinary commission income of the business from that which had been forecast in 2006.) 410In relation to the revised budget (Ex E), the only change in the revenue line was in relation to the purchase commissions (reflecting use of the correct percentage rates - a change from 42% to 30%). Mr Cotman, for the purposes of making a comparison of the gross revenue between budget and actual in earn-out calculations used the 42% rate. The expense line reflected an increase in the process service costs to cover increased fees for service as required under the ATO contract. Accordingly, Mr Cotman submits that the only relevant change for comparative purposes is that there was an additional $100,000 in process service expenses. A revised earn out calculation (CB12/212) was prepared after Ms Bateman's report. 411Mr Cooney did not agree that the revised budget in early 2007 was quite conservative in its forecast income (T 139) and said that it was not a sophisticated budget. He did not answer directly the question whether, having revised the budget for 2007, if there were significant issues up to March they would have been reflected in the revisited budget, saying at T 140.18 that he was not sure where the cross-examiner was going with that but being adamant that "our" company rules were that once a budget was submitted it did not get changed. At 93.11, he said this might not be the final budget (when taken to the inconsistency of that budget with the existing Tekitu cost structure). 412As to the expense line, as noted above Mr Duncan accepted that budgets for debt collection businesses adopted as the cost of sales a consistent percentage of gross revenues for budgeting purposes (T 85). He denied that in March or April 2006 there was a significantly higher ratio of cost of sales to sales than anything budgeted for in late 2006 (T 85.41) and denied that the actual figures showed that the business was incurring a significantly higher proportion of costs - insisting that his budget was a calculation on what he had anticipated (T 86). 413Nevertheless, it seems that one factor in the higher cost of sales for which the revised budget provided was the change in the process service cost component. The budget prepared by Mr Duncan allowed a line item of $48,000 per month (T 88.6) in relation to the income then budgeted for the ATO and Mr Duncan accepted ('in part') that the actual results for January to June 2007 were inconsistent with the cost structure in operation at Tekitu before the sale (T 93). That said, as the evidence emerged, the reason for this was the term imposed by the ATO in this respect during the negotiation of the novation deed contemplated as part of the acquisition. Therefore, it seems difficult to maintain that an increased cost of business due to client pressures is one for which Australian Receivables ought be responsible (even if Mr Smith considers that he might have been able to secure a better deal). 414Mr Cotman places emphasis on the fact that Mr Wyett, in his affidavit at [11] to [14]), deposes to his experience in budget setting (in particular, that the business when conducted by Tekitu under his management usually achieved within 1% of his budget and that he budgeted to allow for a modest increase in the existing levels of business and any particular new clients or new lines of business in respect of which he had a high level of confidence as to them being achieved). Mr Cotman also points to Mr Duncan's self-expressed experience in the debt collection industry (and the fact that he was involved in assessing the quality of the income stream that was sought to be acquired through the Statewide Mercantile Services acquisition). 415Mr Cotman submits that Mr Wyett and Mr Duncan were both very experienced people with no interest in exaggerating the financial future of the business set the 2007 budget for the business having regard to the various changes that they expected to occur and that, having done so, when they revised the budget in early 2007 they made no material change to the income expectations and a 'minor' change to the expense expectations. (The increase in the expense component, however, seems inconsistent with the position as to the correspondence between the proportionality of cost of sales of sales as compared with revenue, as I understand it.) 416Mr Cotman pointed out that there was a significant (and, he says, persistent) discrepancy between the actual performance of the business and the budgeted performance of the business as well as a significant discrepancy between its actual performance in 2007 and the equivalent period in 2006. (The discrepancy in income and expense relative to budget is said to be significant on a month-by-month basis in the first half of the year.) What is also seen as significant is that in the second half of the year the income of the business and the discrepancy between actual 2007 income and the equivalent period in 2006 is almost completely reduced (performance against budget only being down by $236,000 for the second half of the 2007 year). 417The significance of the first half 2007 result is said to be that the changes to the business (which it is said have generated the bulk of the complaint of adverse change) occurred in the first half of the year from the date of completion as the changing business model (and integration of the businesses) was implemented. It is submitted that the largest observable loss of income (relative to experience and expectation) and the largest expense (relative to income) occurred in the first half of 2007, coinciding with the period of the largest observed dislocation to the conduct of the Statewide Mercantile Services business by reason of the acquisition. I am invited from this to conclude that in the first half of 2007 (during the second earn-out period), the business was not carried on in the ordinary and usual course and/or in a manner materially prejudicial to the earn-out payment. 418Mr Cotman submits that simply replicating the 2006 performance would have increased net revenue by $645,000; achieving budget would have produced $840,000 additional net revenue; and simply maintaining costs would have increased net revenue by just under $100,000. It is submitted that the discrepancy between the required income (to maintain the conduct of the business in the usual course) and the target income for the 2006-7 period is in the order of $150,000. 419Having said that, there are a number of factors referable to particular clients and/or particular aspects of the business to which reference is made by Tekitu as indicating the breach of contract. One of those is the assertion that revenue was lost due to failure of Australian Receivables to consult with Mr Smith or to give him the opportunity to participate in the business after completion. (It must of course be remembered that Mr Smith was being paid as a consultant for some time after completion and there seems no reason for him not to have made himself available rather than waiting to be called upon to do so. Thereafter, his attitude seems to have been that he was not going to work if he was not paid for that work, although if he is right and his work would have increased revenue then it would have been in Tekitu's interest for him to become involved in order to maximise any earn-out). 420Reliance is placed by Tekitu on the forecasts and estimates prepared by Australian Receivables as indicative of a failure to comply with the above obligation. However, Mr Brender also submits that the lay witnesses point to a range of matters that may have contributed to the failure to earn-out what the directors of Tekitu may have expected (including office relocations and other business changes or reorganisation, changing Mr Wyett's role, computer issues, changing of staff and lost business opportunities). Mr Brender submits that none of these, if they happened (and that is not conceded), are shown to have had a material effect on performance and that, even if they did depress earnings, they did not constitute a breach of the Sale of Business Agreement. 421Mr Horn's evidence, as noted, was that if the budget was not met then this was the responsibility of management. He did not explain in any detail why it was asserted that losses were said to have been sustained as a result. (Ms Bateman in her report was unable to opine on the reasons why the budget was not met and the earn-out was not achieved.) Mr Brender submits that there is insufficient material on which one could safely conclude that any breaches of the contract by Australian Receivables caused any damage whatsoever. I agree. 422Mr Brender submits that the Statewide Mercantile business was in dire straights when it was being sold and suffering huge losses; that its solvency was doubtful and that there could have been no proper basis for safely assuming the earn-outs would deliver more than they did to Tekitu. 423Mr Brender notes that Mr Duncan had calculated in the lead up to the sale that trading was break even at best for 2006-2007 and the balance sheet showed insolvency in 2006. (At CB 8/72, Mr Duncan had sent a memorandum to Mr Cooney replying on due diligence matters in relation to revenue, asserting that the company was insolvent.) Mr Duncan acknowledged that he had identified the management of client relationships as a major risk (T 75), though asserting that the risk had not eventuated (T 76). There were losses for the months leading up to and ending October and November 2006 respectively ($270,000 and $285,000) as noted in Mr Duncan's affidavit at [76]-[78]. The December 2006 loss was ultimately agreed at $160,776 ([80]) and there was a six-month trading loss to December 2006 of $656,011 before adjustments ([82]). Hence there was a history leading up to completion of financial problems with the business and Mr Brender submits that there are sound reasons why each of the alleged lost opportunities was not causative of any loss, and that clients were lost as a result of matters that had their genesis before the date of the Sale of Business Agreement. 424Mr Brender submits, and I consider this submission to have force, that Mr Horn made his assessments as to the losses to Tekitu during the earn-out period based on what other people told him, including conversations with the Smiths and documents. He accepted that he had no direct knowledge or involvement with the business (T 229.33). 425As to the clients, Mr Brender notes that Australian Receivables 'kept' all the major Tekitu clients but that the position was that the revenue from some of them did not meet budget. Mr Brender points to the reasons for this outlined in the affidavit evidence of Messrs Cooney and Wyett, who also explained the position in relation to the potential new clients or new business opportunities that did not eventuate. I do not consider it necessary to go into the detail of each of the clients. However, in summary, the evidence on this issue was as follows. 426As to Allianz , Mr Horn's opinion was that the 'loss' was due to the fact that Mr Smith was not given an opportunity to use his contacts (T 231.40). Mr Brender submits, and I agree, that it has not been shown that Mr Smith was prevented from using any such opportunity (Mr Brender referring to Mr Cooney's affidavit at [116] and Mr Wyett's affidavit at [114].) 427As to Optus , Mr Horn's view was that Australian Receivables did well but "could have done better" (T 232.36). He did not address the matters raised by Mr Cooney (at [126]) or Mr Wyett as to why the results were not better (T 234.45). 428As to the ATO , Mr Horn pointed to the fact that Australian Receivables achieved the target but not the budget (T 237.40). He referred to a failure by Australian Receivables to follow Mr Smith's recommendation to increase the charges (T 238.5) even though Mr Cooney's evidence was that there were restrictions on price increases as a result of a novation deed entered into with the ATO (Mr Horn refused to change his opinion in light of that issue - T 239.5). (Reference is made by Mr Brender to Mr Cooney's evidence at [97] and Mr Wyett at [71]).) 429As to the Attorney-General's Department , Mr Horn considered that one of the reasons for the losses was that Australian Receivables did not utilise Mr Smith's services (T 239.40). Mr Horn's opinion was that the matter had not been followed up by senior management (T 244.45). This is inconsistent with the evidence that Mr Warrick Smith was the contact with the Attorney-General's Department and that he worked diligently on that opportunity until he left in August (T 341). (Reference is made by Mr Brender to Mr Cooney's evidence at [110] and Mr Wyett at [66].) Mr Smith agreed at T 327 that there was no impediment to him seeking to introduce new clients and agreed that he had attended a meeting with Warrick Smith in relation to this client and that there was no problem picking up the phone to Mr Wyett (T 328). 430As to GE Money , Mr Horn's evidence (at T 249) was that Australian Receivables should be responsible for the shortfall between actual and target or budget because it had responsibility for management and that if there were no new referrals then that is a failure of management. Mr Horn did not give any basis for the conclusion that management failed in that regard (T 40.15-47). Mr Brender points out that, at T 250, Mr Horn conceded that in order to draw his conclusion that management had failed he would need to know about a series of matters (none of which he in fact did know), but still concluded that management was responsible for making budget (T 250.53). (Reliance is placed on Mr Cooney's evidence at [132]). 431As to Hertz , Mr Horn's conclusion was that Australian Receivables failed to achieve budget because Mr Smith was not given a chance to help and due to "just general management shortcomings" (T 253.7). (Mr Brender relies on Mr Wyett's evidence at [57].) 432As to SIM Plus , there were problems which it is accepted had an impact on the referrals and hence the revenue up to early 2007; however, Mr Horn attributed the whole of the budget shortfall to a failure of management (T 257) without allowance for those problems and even for that part of the year when the result was above target (T 257.44). (Mr Brender pointed to Exhibit W which recorded SIM Plus' happiness at the August 2007 figures and referred to the evidence of Mr Cooney at [119] and Mr Wyett at [59].) 433As to Ford Credit , Mr Horn again attributed the shortfall to Mr Smith not having an opportunity to use his contacts but also expressed the view that Mr Cooney should have been bypassed because Ford Credit did not like him. Mr Horn had no knowledge about who was involved in the negotiations (T263). (Reference was made to Mr Cooney's evidence at [113] and Mr Wyett at [48].) Mr Smith's evidence was that he took Mr Wyett to a meeting with Ford Credit in 2006. The problem with that deal (according to his evidence) was Mr Cooney. Mr Brender submits that no opportunity was lost by anything attributable to Australian Receivables. 434As to Tru Energy , at T 264 Mr Horn's evidence was that the failure to get work was a management failure although he conceded he did not have 'any idea why' (T 265.10). (Mr Brender refers to Mr Cooney's evidence at [130].) 435As to IAG , Mr Horn conceded that the actual results were better than both the target and the 2006 results but he assessed damages because the company did not make the budget and attributed that to staff training and staff morale. (Mr Brender relies on Mr Cooney's evidence at [121]). Australian Receivables submits that there is no basis for linking the two. (In addition it is submitted that it is quite possible, if staff morale was low, (which is not accepted by Australian Receivables) that this may have been because there was a superannuation shortfall attributable to Tekitu (Exhibit P).) 436As to Macquarie Bank , Mr Horn was critical of the decision by Australian Receivables not to participate in a tender (T 241.49). However, it seems to me that this was a commercial decision falling within the ordinary course of business. Mr Horn in the witness box conceded that it was a business decision open to Mr Cooney and that different people might have different opinions (T 242.37). The reasons for that decision were cogently explained by Messrs Cooney [108] and Wyett [68]. 437As noted earlier, I read Mr Horn's evidence only by way of submission. It seemed to me that his conclusions in relation to the causes for the revenue shortfall were superficial and his estimation of the quantum of the loss lacked analytical rigour. I do not accept that his submissions were compelling and his refusal to concede or revisit his opinion when the flimsy basis for some of his conclusions was made apparent, left me to question the objectivity of his evidence. 438I am not persuaded that there has been a breach of clause 2.2, whether by reference to the comparatively poor performance in the first half of 2006 (which could have been due to a number of extraneous factors in the market for debt collection services) or the decision to increase the cost of sales line in the budget (apparently due to the requirements for the ATO tender) or the matters raised in relation to particular clients or decisions in relation to the operation of the business. I find that there is no adjustment to be made in this regard. (d) Smiths' service agreements - consulting fees 439Australian Receivables accepts that there were service agreements with each of Mr and Mrs Smith under which Australian Receivables was obliged to pay fees to Tekitu for their services for the period from the completion date. However, Mrs Smith's fees (payable on an hourly basis) rendered in July 2007 and October 2007, totalling $8,580.00, are disputed. 440Mrs Smith ceased any regular attendance at the Frenchs Forest office by May 2007. It is said that by that time any role Mrs Smith had was working in her own interest (Mr Duncan's affidavit of 13 October 2010 at [227]-[230] deposes to this). Mr Smith's fees for July 2007 are disputed because his agreement had been terminated by letter dated 23 July 2007 (see Mr Duncan's affidavit of 13 October 2010 at [231]-[234). 441The dispute relates to the two final invoices, copies of which are together marked Exhibit R. Mr Brender notes that the work that Mrs Smith did, for which charges are rendered in those invoices, was not recorded in time sheets, was not done at the Frenchs Forest office, and it is alleged that it did not relate to the provision of administrative services for Australian Receivables. Mrs Smith agreed that up to May 2007 she rendered regular invoices with time sheets but that she did not render any time sheets for the July or October invoices (T304). 442Mr Brender further submits that much of the October invoice related to time that Mr Smith spent on the Melbourne lease issue. In that regard, Mrs Smith concedes that the October invoice was for time worked by both Mr and Mrs Smith (though the former was not covered by any service agreement at that stage) (T304). 443Mrs Smith's evidence was that she spent her time on lease assignments, changing bank direct debits, monitoring bank accounts, reconciling the IAG account and chasing debtors (T 305). (Mr Brender notes that the debtors in question were not Australian Receivables debtors, but the November debtors that had been bought back by Tekitu - T 305-307). Mr Cotman further notes the evidence that, in the period 18 May to 13 July 2007, Australian Receivables had not arranged for all debtors to pay moneys into bank accounts operated by it nor had it assigned the property and plant leases. Thus it is said that, in addition to the matters that were put to Mrs Smith in cross-examination, the inference to be drawn from the evidence is that Mrs Smith was spending time in the period 18 May to 13 July 2007 administering bank accounts crucial to the running of the business; getting in invoices relating to the business; paying such invoices; and rendering invoices to Australian Receivables. 444It is submitted by Mr Brender that Mrs Smith spent a lot of her time in this period dealing with the leasing companies for her own benefit because she wanted to remove her name from the leases (something she conceded that she wanted to do - T 308.10). According to Mr Horn, Mrs Smith also spent considerable time trying to reconcile the IAG trust account (something that would not in my view fall within the services agreement). 445Neither Mr nor Mrs Smith was able to apportion with any specificity the time spent as between the two of them in the October invoice (T 309.8). Indeed, it seemed that Mrs Smith had simply estimated the time in the invoice as a generalisation rather than by reference to any record of the time spent. 446For the period 18 May to 13 July 2007, Mrs Smith charged 45 hours (Exhibit R) (said to equate, at approximately 40 working days between 18 May and 13 July, to an average rate of just over one hour per working day). It is submitted that this is not excessive relative to the services Mrs Smith was rendering. In the period 13 July to 29 October 2007, the Smiths have charged 75 hours across 78 working days, an average of less than one hour per day. It is submitted that again, apart from the matters set out in the invoice, the inference is open that Mrs Smith was spending time in the period 13 July to 29 October 2007 administering bank accounts crucial to the business; getting in invoices relating to the running of the business; paying such invoices; and rendering invoices to Australian Receivables. 447The contemporaneous correspondence from Mr Horn (which it might be inferred had been approved by Mrs Smith or at least the substance of it) was that the IAG reconciliation issue had her "undivided attention" at the time (something Mrs Smith in the witness box did not accept - T 305). Mrs Smith did, however, concede that she had spent some time reconciling the IAG accounts and that she had spent time monitoring bank accounts and chasing Tekitu debtors (in relation to this she was defensive, saying that "well I believe that if ARL had chased the debtors as they should have been I wouldn't have been doing it" - T 305.50, even though she accepted that she was chasing buy-back debtors for the benefit of Tekitu not clients of the business acquired by Australian Receivables), 448Australian Receivables closed the Frenchs Forest office in August 2007. Mr Cotman submits that, by closing the Frenchs Forest office, Australian Receivables had frustrated the Lyn Smith service agreement. It is submitted that Australian Receivables cannot rely upon its own frustration of the service agreement to argue that Mrs Smith is in breach of the service agreement by not attending the Frenchs Forest office to perform the administrative services. I accept that as a matter of logic the closure of the Frenchs Forest office must have operated to frustrate Mrs Smith's ability to attend at that office in order to perform the administrative services. However, it is not necessary in my view to have regard to the location where the services were said to have been performed in order to form the view that the invoices are not of the kind contemplated by the services agreement. 449The difficulty I have with Mrs Smith's claim is that there are no time sheets (as required) or documents to support the assertion that Mrs Smith was performing services for Australian Receivables of the kind that would be required to be reimbursed and the invoice includes time for Mr Smith that is not the subject of any agreement for reimbursement. The time spent by Mrs Smith has only been generally identified and it is difficult not to assume that it includes time that is not referable to Australian Receivables (such as removing the Smiths' name from the property leases and following up Tekitu debts, let alone seeking to reconcile the IAG trust account). 450I am not satisfied that entitlement on the part of Tekitu to the amount claimed under the two invoices in question has been established and therefore I make no adjustment for those invoices. Conclusion 451As noted, there is agreement as to the quantum of the retained moneys (those amounting to $567,084.73). On the basis that Australian Receivables is permitted to retain the amounts (totalling $177,874) paid to it without admission of liability (being the $106,107 and the three sums reflecting released rental guarantee payments), the amount outstanding in respect of the retained moneys is $389,210.73. Australian Receivables is entitled to trace into the controlled moneys account for the sum of $169,831.72, thus further reducing the shortfall on the retained moneys claim (to $219,379.01). 452On the cross-claim, taking into account the two instalments paid to date of the April 2007 second purchase price instalment ($101,710.89), a sum of $147,416.89 was owing to Tekitu. The agreed adjustments as per the reconciliation attached to the Defence to the Further Amended Cross-Claim (as set out earlier) reduced the balance payable to Tekitu to $46,945.50. To that must be added the adjustment for the December acquired debt collections ($33,912.00) but there is no adjustment to be made for the balance of the amounts claimed by Tekitu nor is there to be any adjustment for the respective breach of contract claims. Therefore the balance owing to Tekitu on its cross-claim is the sum of $49,860.15 plus the amount agreed to be outstanding on the second earn-out ($122,117.28) - a total on my calculations of $171,977.43. 453Off-setting the amount owing to Tekitu by way of the balance of the second purchase instalment and second earn-out payment against the amount owing to Australian Receivables by way of shortfall on the retained moneys claim (namely, $219,379.01), on my calculations there is a balance payable to Australian Receivables of $47,401.58. That amount can be met out of the remaining moneys held in the controlled moneys account ($54,667) leaving a small balance ($7,265.42) payable to Tekitu (or more precisely its administrators). 454While I consider that Australian Receivables has established that there was knowing assistance under the second limb Barnes v Addy by reference to the withdrawals of moneys from the Tekitu trading account at least from the time that issues were raised as to Australian Receivables' entitlement to those moneys, on the above calculations (and subject to any correction that may need to be made thereto) the claim by Australian Receivables will be satisfied in full by a combination of payment out of the money into which it can trace in the controlled moneys account and an offset in relation to the claims by Tekitu. Therefore no order for compensation personally by the Smiths is necessary. Orders 455As there may be submissions that the parties may wish to make as to the mathematical working out of the above findings, I direct that the parties prepare agreed short minutes of order to reflect this judgment (or competing versions if agreement cannot be reached) within 7 days and I will list this matter at a time convenient to Counsel for the making of final orders and any submissions as to costs. ********** 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. Decision last updated: 01 November 2011