Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd

[2006] NSWSC 1418

CITATION:	Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd [2006] NSWSC 1418 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	15 December 2006
JUDGMENT DATE :	15 December 2006
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
EX TEMPORE JUDGMENT DATE:	12/15/2006
DECISION:	Reports returned to referee.
CATCHWORDS:	PROCEDURE – Supreme Court procedure – reference to referee – reference made before commencement of Uniform Civil Procedure Rules, but question of whether report should be adopted arises after commencement of Uniform Civil Procedure Rules – whether Uniform Civil Procedure Rules the relevant ones in deciding whether to adopt report – tests for adoption of report – whether appropriate for Court to itself correct certain errors in report – CONTRACTS – PARTICULAR PARTIES – principal and agent – commission agent – entitlement to commission when an effective cause of a sale – relationship between introduction and being an effective cause.
LEGISLATION CITED:	Civil Procedure Act 2005 Supreme Court Rules 1970 Uniform Civil Procedure Rules 2005
CASES CITED:	Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd [2002] NSWSC 232 Seven Sydney Pty Limited v Fuji Xerox Australia Pty Limited [2004] NSWSC 902
PARTIES:	Castlepines (IBM) Pty Ltd - Plaintiff Residential Housing Corporation Pty Ltd - Defendant
FILE NUMBER(S):	SC 2202/99
COUNSEL:	A Ogborne - Plaintiff P Brereton - Defendant
SOLICITORS:	Bruce Stewart Dimarco - Plaintiff Corrs Chambers Westgarth - Defendant

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

CAMPBELL J

FRIDAY 15 DECEMBER 2006

2202/99 CASTLEPINES (IBM) PTY LTD v RESIDENTIAL HOUSING CORPORATION PTY LIMITED

JUDGMENT – Ex Tempore

1 HIS HONOUR: This is an application relating to acceptance or rejection in whole or part of two referees’ reports. I gave judgment on some separate questions in this case as long ago as 19 April 2002: Castlepines (IBM) Pty Ltd v Residential Housing Corporation Ltd [2002] NSWSC 232.

2 Orders were eventually made, on 4 October 2002, as follows:

“[Resi] is liable from the Trigger Date to pay to [Castlepines] each month the sum of 0.1% per annum of the outstanding monthly balance of each Standard Variable Loan and of each Fixed Rate Loan advanced by the defendant after the Trigger Date to a customer of the Agent or to a customer of a Licensee provided that, prior to termination of the Agreement, the Agent or a Licensee is an effective cause of the relevant Standard Variable Loan or Fixed Rate Loan being advanced, where:
(a) the “Agent” means [Robert Daniel McEwan] as trustee of the McEwan Family Trust;
…
(f) “Trigger Date” means the date upon which the sum of all loans (not merely Standard Variable Loans and Fixed Rate Loans) advanced by [Resi] to customers of the Agent or a Licensee and settled exceeds $20,000,000.”

3 On 4 October 2002, the Court also ordered that the matter be referred for enquiry and report on the following questions:

“(a) What was the date upon which the sum of all loans (not merely Standard Variable Loans and Fixed Rate Loans) advanced by [Resi] to customers of the Agent and/or to customers of a Licensee and settled exceeded $20,00,000 (the “Trigger Date”)?
(b) Identify the Standard Variable Loans or Fixed Rate Loans advanced by [Resi] after the Trigger Date to a customer of the Agent or to a customer of a Licensee where the Agent or a Licensee was an effective cause of the loan being advanced (the “Trailer Commission Loans”).
(c) What was the outstanding monthly balance of each of the Trailer Commission Loans when calculated each month from the Trigger Date?
(d) What was the sum of 0.1% per annum of the outstanding monthly balance of each of the Trailer Commission Loans when calculated each month from the Trigger Date?”

4 The referee who was appointed to inquire was Mr Kelly, from the accountancy firm of WHK Greenwoods. He made a first written report of 21 March 2006. In summary, he calculated the Trigger Date to be 6 October 2006, identified the Trailer Commission Loans in three supporting spreadsheets and calculated the Trailer Commission earned up to September 2004 to be $244,775.38. That amount was calculated up to September 2004 only, because he did not have data which gave him loan balances beyond September 2004. He made a second report on 27 March 2005, after he had been provided with details of the loan balances beyond September 2004. In that report, he calculated the Trailer Commission earnt to 28 February 2006 to be $256,670.54.

5 I adopt, for the purpose of these reasons for judgment, the principles relating to consideration of referees’ reports as stated by McDougall J in Seven Sydney Pty Limited v Fuji Xerox Australia Pty Limited [2004] NSWSC 902 at paragraph 12.

“(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.
(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.
(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation; that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.
(4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.
(5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.
(6) If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”.
(7) Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.
(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.
(9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.
(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.
(11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.”

6 References were formerly conducted under Part 72 Supreme Court Rules. References are now conducted under UCPR Rule 20.13 ff. The reference involved in the present case was made at a time when Part 72 governed references. Under section 6, and clause 5 of schedule 6 of the Civil Procedure Act 2005, the reference is to continue under the Civil Procedure Act, and the rules made under it, even though the reference was commenced before the Civil Procedure Act itself commenced. None of that is of present practical importance, however, because there are no differences material to the present case between the provisions of Part 72, and those that now govern references. It is for that reason that I have adopted the statements of principle of McDougall J, just quoted, even though those statements were all made by reference to the adoption of a referee’s report under Part 72.

7 For the purpose of his first report the referee examined records relating to considerably more than 3711 loans. He originally identified and individually numbered 3711 loans, then found out that some of those loans had two or more components, that needed to be treated separately. For example, if a loan had originally been identified and allocated the number 2811, and it was then found out that it had two separate components, one of those components would retain the identification 2811, while the other would become 2811A.

8 The referee prepared three schedules. The first of them listed every single loan, and, in relation to each of them, stated certain data that had been provided by the plaintiff, certain data that had been provided by the defendant, and summarised the referee’s own conclusions.

9 In relation to every one of those loans, the referee decided the amount that had been advanced, and whether it was a loan that went into the Trigger Date calculation. He kept a cumulative listing of the amounts advanced that entered into the Trigger Date calculation, and thereby worked out when there had been advanced $20 million of loans that qualified towards the trigger, and thus what was the date that was the Trigger Date. As well, he identified, in relation to every single loan, whether it was the type of loan to which a right to trailer commission applied. The first schedule is a computer-generated spreadsheet, is printed using a very small font, lists data relating to up to 30 loans per page, and is 235 pages long.

10 The second schedule that he prepared was a schedule which set out data in relation to only those loans on which the referee had decided trailer commission was payable. It likewise is a computer-generated spreadsheet, that uses a very small font. It is 52 pages long.

11 All the loans to which trailer commission applied were ones under which the borrower was obliged to make monthly repayments, that would reduce the principal. Sometimes a payment would not be made, and the month’s interest would be capitalised, so that the principal owing was actually higher in a particular month than it had been in the previous month. Sometimes a borrower would make a repayment of more than the amount it was obliged to repay each month. Because the trailer commission depended on the monthly balances of principal outstanding, it was necessary for the referee to construct a third schedule, that showed, in relation to each single loan that he decided trailer commission was payable on, what the principal was that was outstanding in each single month. That likewise was a very densely printed spreadsheet. There were so many months involved in the calculation, from October 1998 to 2 September 2004 inclusive, that it took four pages, printed in landscape mode, to contain all the monthly entries relating to some of the loans. The third schedule was a spreadsheet 32 pages long.

12 Following through this procedure, the referee concluded that the Trigger Date occurred on 6 October 1998, and that, up to September 2004, trailer commission of $244,775 .38 had been payable.

13 The referee was unable to calculate the trailer commission that accrued beyond September 2004 as he had not, at the date of that report, been provided with the relevant loan balances after September 2004.

14 His second report was made after he had been provided with updated loan balances. Using similar methodology to that involved in his first report, he calculated the trailer commission earned to 28 February 2006 to be $256,670.54. That figure was arrived at by means of yet another closely printed computer spreadsheet, this time 60 pages long.

15 I found, in my earlier judgment, that the Agency Agreement terminated on 23 September 1999. I also found that, subject to the second clause numbered 10.3, after termination the plaintiff remained entitled to trailer commission every month that a loan of which the Agent or a Licensee had been an effective cause, and that settled prior to the date of termination, remained on foot. As well, also subject to the second clause numbered 10.3, if by the date of termination the Agent or a Licensee had carried out functions which made it an effective cause of a loan of the type identified in the Fee Schedule settling after the termination date, the company was entitled to receive a trailer commission each month that that loan remained outstanding (judgment para [49]).

Outline of Plaintiff’s Position

16 The plaintiff says that the referee’s reports are erroneous in both the date found to be the Trigger Date, and in the manner in which trailer commission was calculated on loans that settled after the Trigger Date. The plaintiff identifies a total of 18 different heads of alleged error, though there are some heads of alleged error that appeared twice, once in relation to the calculation of the Trigger Date, and then again in relation to the calculation of the trailer commission.

17 The plaintiff submits that the first report should be rejected, insofar as it manifests these alleged errors, but should otherwise be accepted. It submits that the second report should be rejected in whole.

18 The defendant accepts that errors of some of the kinds alleged by the plaintiff have been made. However, it submits that they are all identifiable, and able to be corrected by some modifications to the reports that are comparatively minor in their effect. As well, the defendant submits that there have been some errors different to those that the plaintiff has identified.

19 The plaintiff’s submissions include a series of schedules, one for each alleged error. Each of those schedules lists, by number, the loans in relation to which the plaintiff submits that that error occurred.

20 I will deal with the errors alleged by the plaintiff one by one.

A: ALLEGED ERRORS AFFECTING THE TRIGGER DATE

Error 1 - mistakenly attributing a nil balance to Trigger Date Loans

21 The plaintiff submits that the referee decided that certain loans qualified for the purposes of determining the Trigger Date, but erroneously attributed a loan amount of zero to those loans when working out the cumulative total of loans that went towards ascertainment of the Trigger Date.

22 The money that Resi lent was money that Resi itself borrowed from a company called Interstar. Interstar had records of each loan, that were made available to the referee. He said, in para 13 of his report, that he relied upon the Interstar monthly balances to calculate the loan amounts upon which trailer commission was payable, with one exception. That exception is that there were some loans that were agreed by both parties -- concerning those, he, sensibly, did not engage in any further analysis, but simply accepted what the parties had agreed.

23 The plaintiff constructed its schedule of loans that exhibit error 1 (the Error 1 Schedule) by comparing, for individual loans, the loan balance that had been accepted by the referee as going towards the cumulative total, with the loan balance that appears on the Interstar records.

24 The plaintiff’s Error 1 Schedule contains nine loans. Explanation by reference to source documents, in the course of address, of how the first of those loans in the schedule exhibited this particular error turned out to show that that loan did not exhibit the first type of error at all, but rather that it exhibited the second type of error.

25 The defendant accepted that the referee had committed error one in relation to the nine loans that the plaintiff alleged. I have no reason, therefore, to proceed on any basis other than that an error of this type has been committed in relation to all except the first of the loans identified in the plaintiff’s Error 1 Schedule.

26 The tendency of this error is to make the Trigger Date earlier than it otherwise would have been.

Error 2 - failing to include agreed Trigger Date loans

27 I have earlier explained that the referee had said that he had accepted loans that had been agreed by the parties as qualifying loans. It is common ground that there were some loans that the parties had agreed would count towards the Trigger Date, but which the referee did not count towards the Trigger Date. The plaintiff’s schedule of loans said to exhibit Error 2 contains 24 loans.

28 The defendant accepts that this error has been made. I shall proceed on the basis that that concession is correct.

29 The tendency of this error is to make the Trigger Date earlier than it otherwise would have been.

Error 3 - loans erroneously applied towards calculation of the Trigger Date which were not applicable to the calculation of the Trigger Date

30 In his first spreadsheet, the referee identified the loans that did not qualify for the purpose of determining the Trigger Date by entering “NO” in a column headed “WHK-trigger applies?”. For some of those loans, the referee counted a loan towards the cumulative total of $20 million, even though he had thus identified it as non-qualifying.

31 The plaintiff’s Error 3 Schedule identifies 16 loans alleged to have exhibited this error.

32 The defendant accepts that this error has been made. I shall proceed on the basis that that concession is correct.

33 The tendency of this error is to make the Trigger Date later than it otherwise would have been.

Error 4 - loans applied by Referee to calculation of the Trigger Date with incorrect loan amounts

34 This alleged error is really a variant of the same type of error as manifested by Error 1. It arises when, for certain loans, the amount entered by the referee as the loan amount in the “loan balance” column of his first spreadsheet is inconsistent with the amount recorded in the Interstar list.

35 There are also some loans that were not included in the Interstar list, but which were included in a list prepared on behalf of Resi by Mr Gwynne. Concerning those, the defendant submits that the Referee should have acted on this concession by Resi.

36 The Plaintiff’s Error 4 Schedule identifies 21 loans alleged to have exhibited this error.

37 The defendant accepts that that error has been committed, in relation to all except two of those 21 loans. Those two exceptions are loans 127A, and 308. I do not propose to decide whether the defendant is right concerning those two exceptions. I shall proceed on the basis that it is common ground that there are errors of this type in relation to 19 loans.

Error 5 – erroneous exclusion of loans from Trigger Date calculation due to Referee’s failure to arrange loans in chronological settlement date order

38 I have earlier explained how a loan initially identified as being a particular numbered loan was sometimes later found to have two or more components, and those components were then separately identified. The way in which this happened, as a matter of building up the spreadsheet that forms the referee’s first schedule, was that the loans that were identified as a separate component were added at the end of the schedule, once they had been identified.

39 Some of the loans that were added to the end of the schedule, in this way, are ones that were made prior to the date that the referee has found was the Trigger Date. Thus, they should have contributed to the cumulative total by reference to which the Trigger Date was ascertained. However, the calculation of the cumulative total was done by starting at the first line of the schedule, and keeping on going, adding amounts of principal of loans that qualified towards the Trigger Date line by line, until a cumulative total of $20 million was arrived at. This methodology meant that, because the loans were not organised in the first schedule in chronological order, some of them that should have contributed to the calculation of when the Trigger Date occurred were left out of that calculation.

40 The Plaintiff’s Error 5 Schedule identifies 12 loans concerning which this error was made.

41 The defendant accepts that this error has been committed, in relation to all except one of those 12 loans. That one is loan number 127A. I do not propose to decide whether the defendant is right in contending that this loan is not one that has committed Error 5.

42 It is to be observed that loan 127A is a loan concerning which the plaintiff submits that both Error 4, and Error 5, have been committed. There are several loans, in relation to which the plaintiff, similarly, alleges that more than one error has been committed. Thus, it is not possible to ascertain the number of loans in relation to which the plaintiff alleges there has been some mistaken treatment simply by adding up the number of loans that appear in each of the plaintiff’s Error Schedules.

Error 6 - loan erroneously determined to have settled “outside period” for trigger Date calculation but which settled before the Trigger Date

43 There is one loan, number 357A, that the referee held had settled after 6 October 1998 (ie, after the date that he found was the Trigger Date), the principal of which therefore did not go towards calculation of the Trigger Date. The plaintiff alleges that the referee was mistaken in taking that view. It alleges that loan 357A was part of a split loan, and that it settled with loan 357 on 9 July 1998.

44 The referee is not bound by the rules of evidence, and may inform himself as he sees fit: Part 72 rule 8 Supreme Court Rules 1970, Rule 20.20 UCP Rules 2005. There is no necessity for the two components of a split loan to both settle on the same date. There was material before the referee on the basis of which it was open to him to conclude that loan 357A had settled on 19 April 2004. In these circumstances I am not persuaded that, concerning this particular allegation, the referee has made the sort of error that can be corrected in the course of deciding whether or not to accept a referee’s report.

45 There are two other loans, 123A and 473B, that the plaintiff alleges also suffer from this error. It is not necessary to give these two loans any separate consideration, because the defendant accepts that they suffer from the error of being excluded from the calculation of the Trigger Date by reason of the loans not having been arranged in chronological order (Error 5).

Error 7 - New Zealand loans erroneously rejected from calculation of the Trigger Date

46 There are two particular loans that appear to have been brought about by the Agent, and to have been advanced prior to the date that the referee fixed as the Trigger Date, but to have been advanced to borrowers in New Zealand. The referee excluded those two loans from the calculation of the Trigger Date, on the ground, apparently, that no trailer commission was payable, under the Agreement, in relation to loans advanced to New Zealand residents.

47 If the referee were to have been mistaken in reaching this conclusion, it would be an error of law, which I should correct on an application concerning the adoption of the referee’s report. The question of whether New Zealand loans qualify for trailer commission also arises again, in connection with alleged error 16. That error concerns the alleged wrongful exclusion, from the calculation of the amount of trailer commission, of various loans made to New Zealand residents. I turn to consider whether, as a matter of construction of the Agreement, the plaintiff is entitled to trailer commission concerning loans advanced to New Zealand residents.

48 I set out in the original judgment the definitions contained in the agreement relating to “Business”, “Customer”, “Marketing Plan”, “Products” and “Territory”. I also set out the provisions relating to clause 2.1, a clause that confers an exclusive licence on the Agent. I also note the provisions of recital D, which can properly be taken into account in construing the agreement.

49 Under that agreement, there is a fundamental distinction between the Agent, and the Company. The licence that is given by clause 2.1 is a licence that is given to the Agent. The agreement contemplated that the Agent might work through licensees of its own. It was the Agent that had the responsibility, under clause 6.9, to actually organise and carry out the work that was involved in selling the Products to Customers. The one-off fee that Resi was obliged to pay, upon settlement of a loan, pursuant to clause 10.1 was payable to the Agent.

50 Trailer Commission was payable, under clause 10.2, to the Company, not to the Agent. The sole role of the Company is that provided by clause 11.1, namely to provide services in respect of the sales and marketing of the Products to the Agent.

51 I also note that clause 10.1 makes provision for the payment of flat fees to the Agent, and fixed those fees in amounts of a flat number of dollars. For some products, the amount of that fee depended upon the amount that had been lent. There was no provision that said how the Agent’s fee was to be calculated, if the loan was in a currency other than Australian dollars.

52 Clause 10.2 created the entitlement of the Company to Trailer Commission. It had, as a fundamental element of it, the passing of a Trigger Point of $20 million. It said nothing about how that Trigger Point was to be calculated, if some of the loans that had been written were in a currency other than $A. It said nothing about how the Trailer Commission was to be calculated, in relation to a loan written in a currency other than $A, if there were to be fluctuations in the exchange rate between the $A and the currency the loan was written in, during the period that the loan was on foot.

53 The plaintiff submits that the territorial limitation that is imposed by the Agreement is a limitation imposed on the exclusive licence that is granted to the Agent under clause 2.1. It submits that the usual common law rule, whereby an Agent is entitled to commission if it is an effective cause of the sale, ought apply to any products the Agent sells, even if the sale is not to an Australian borrower. It submits that there are no good grounds for implying any further limitation into clause 10.2 based on the limitation imposed on the exclusive licence.

54 In putting those propositions sequentially, the plaintiff’s argument is making a slip. The usual common law rule about entitlement of an agent to commission is one that would apply, if there were no contract that specified entitlement to commission on foot. Here, there is a contract on foot that specifies entitlement to commission. Further, it is not as though the company puts itself forward as being an effective cause of any loans being made – it is, as I said in my earlier judgment, not itself a commission agent, but rather a commission agent’s assistant. Its entitlement to commission, in circumstances where it does not assert itself to be an effective cause of the loan being made, depends only on the provisions of the special contract that has been entered. The task for the Court at present, is to decide what clause 10.2 entitles the company to, by way of Trailer Commission, if there were to be a loan written that involved customers who were outside Australia.

55 The whole frame of reference of the agreement, in my view, was to do with the provision of loans within the Territory. The assistance that the company was to provide to the Agent, envisaged by the agreement, was assistance for the Agent to carry out his tasks under the agreement. Those tasks were tasks that related to making loans to Australia. In those circumstances, I do not accept that the agreement, on its proper construction, makes any provision for the payment of Trailer Commission in relation to loans made to borrowers outside Australia.

56 It might be that, when there is no contract in place relating to such loans, there could be quasi contractual rights of the Agent or a Licensee to remuneration, but that is not the present problem. The present problem concerns what amount is payable to the company under the agreement.

Error 8 - loans now applying towards the Trigger Date owing to a change in the Trigger Date

57 This alleged error is really the consequence of all the previous alleged errors. Its separate listing is, it seems to me, a result of the plaintiff’s forensic desire to construct as long a list of errors as possible, so as to make the referee’s report be seen in as poor a light as possible. In deciding what to do about the referee’s report, I do not place any weight on the length of the list of errors that the plaintiff has constructed. Rather, it is the nature of any demonstrated errors, and the overall significance of any errors to the referee’s conclusion, that needs to be considered.

58 The reader will recall that the referee had determined the Trigger Date to be 6 October 1998, and that the tendency of some errors had been to make the Trigger Date earlier than it otherwise would have been, while the tendency of at least one of the errors was to make the Trigger Date later than it otherwise would have been. The plaintiff submits that, when all the errors that it contends the referee has committed concerning calculation of the Trigger Date are corrected, the correct Trigger Date is 23 October 1998. The defendant submits that, when all the errors that it accepts that the referee has committed concerning calculation of the Trigger Date are corrected, the correct Trigger Date is 24 November 1998. In other words, they both say that the referee found a Trigger Date that is too early – a factor that, considered by itself, would tend to lower the amount of any trailer commission that was payable.

59 As this alleged error is merely consequential on other alleged errors, I give it no separate consideration.

B: ALLEGED ERRORS AFFECTING THE QUANTUM OF TRAILER COMMISSION AFTER THE TRIGGER DATE

Error 9 - referee decided certain loans attract Trailer Commission but erroneously failed to include them in the Trailer Commission calculation

60 This alleged error is an analogue, concerning the calculation of the quantum of trailer commission, of Error 1.

61 The referee’s methodology was to identify, in his first spreadsheet, loans that settled after the Trigger Date that qualified under the Agency Agreement as having trailer commission payable on them. The loans so identified were then, according to the methodology, transposed into the second and third schedules, so that calculations of the quantum of trailer commission could be made in relation to each of them.

62 Unfortunately the methodology miscarried. There were some loans that were identified in the first schedule as being ones in relation to which trailer commission was payable, that were not transposed into the second and third schedules.

63 The plaintiff identifies, in its Error 9 Schedule, 52 loans alleged to suffer from this error.

64 The defendant accepts that these 52 loans are shown in the first spreadsheet as having trailer commission payable on them, but do not appear in the second and third spreadsheets. However, the defendant submits that, various of the loans that were shown in the first spreadsheet as having trailer commission payable on them did not, in truth, attract trailer commission. Thus, it submits that, while there is a discrepancy between whether the first spreadsheet shows a loan as being one that is entitled to trailer commission, and whether that loan appears in the second and third spreadsheets, there is other good reason for not including those loans in the second and third spreadsheets.

65 The justification for excluding these loans is, according to the defendant, of several different types -- that two of them are Home Start loans, that four of them were loans made by an entity called Olympic Home Loans (i.e., they were not loans made by Resi at all), that another loan was not made by Resi either, that some of the loans were ones concerning which the Agent was not an effective cause, that two of the loans were made outside the relevant period, and that five of the loans should have been excluded by the referee because he made a wrong decision about entitlement to commission concerning loans introduced by AAA Mortgage Services Pty Ltd, and that three of the loans did not proceed and were cancelled. Some of these reasons are reasons that are consistent with the reasoning of the referee for excluding certain loans; others of them challenge a decision of the referee.

66 Even when the loans that the defendant identifies, in this way, as having been rightly excluded from the second and third spreadsheets are ignored, there remain, on my counting, 36 loans concerning which it appears to be common ground that Error 9 has been made.

Error 10 - loans agreed by the parties to attract Trailer Commission but which were erroneously not included in the Referee’s Trailer Calculations

67 This alleged error is an analogue, concerning the calculation of trailer commission, of Error 2.

68 The plaintiff identifies, in its Error 10 Schedule, 22 loans alleged to suffer from this error.

69 The defendant submits that the plaintiff’s Error 10 Schedule is itself in error, and that there are only 14 loans that were agreed by the parties to count as trailer commission loans, that the referee has omitted to include in his second and third schedules.

70 The defendant also seeks to say that, concerning one loan, its agreement that the loan attracted trailer commission was in error.

71 I shall proceed on the basis that it is common ground that Error 10 has been committed in relation to 13 loans.

Error 11 – Loans not attracting Trailer Commission which were erroneously applied to calculation of Trailer Commission

72 This alleged error is an analogue, concerning the calculation of trailer commission, of Error 3.

73 There are some loans that the referee identified, in his first spreadsheet, as not attracting trailer commission, that were included in the second and third spreadsheets, and concerning which the referee calculated an amount of trailer commission.

74 The plaintiff identifies 10 loans, in its Error 11 Schedule, that are of this type.

75 The defendant accepts that there is a discrepancy of this type between the first spreadsheet and the second and third spreadsheets, relating to those 10 loans. The defendant makes no submission, of a type analogous to that which it made concerning Error 9, about there being possible reasons for this discrepancy existing.

76 I shall proceed on the basis that it is common ground that the discrepancy exists in relation to 10 loans.

Error 12 - loans erroneously determined to be “outside period” for Trailer Commission but which settled prior to 23 September 1999

77 The referee determined that loans that settled after 30 September 1999 did not attract trailer commission. The plaintiff attacks that conclusion of the referee as being Error 13.

78 For the purpose of identifying those loans said to exhibit Error 12, however, the plaintiff accepts that conclusion. Error 12 consists, it submits, in the referee having excluded certain loans from those in relation to which trailer commission was allowed, on the basis that the loans had settled after 30 September 1999, when in fact the records obtained from Interstar showed that those loans had settled on a date prior to 30 September.

79 The plaintiff identifies 79 loans, in its Error 12 Schedule, that are said to be of this type.

80 The defendant accepts that the referee has committed errors of this type. However, it submits that many of the loans identified in the plaintiff’s Error 12 Schedule are ones in relation to which no trailer commission ought be payable, for other reasons. Some of them, it says, are Home Start loans. Some of them, it says, are New Zealand loans. Some of them, it says, are ones that would be excluded if the Trigger Date was 24 November 1998 (as the defendant contends), rather than 6 October 1998 (as the referee found). Some of them are ones where the defendant submits that the referee was correct in concluding that the loans fell outside the relevant period. Some of them, it says, are ones where the plaintiff’s initial submission to the referee was that the loan had settled after 30 September 1999, in consequence of which the defendant did not further investigate the loans. One of them, the defendant says, is a loan where the lender was Olympic, not the defendant. Others of them are ones where the plaintiff’s Error 12 Schedule is in error, and the referee has in fact included those loans in his calculation of trailer commission. Others are ones where the defendant submits it could not be established that the Agent or a Licensee was an effective cause of the loan.

81 Even if one excludes all of the loans contained in the plaintiff’s Error 12 Schedule, that the defendant says should be excluded for one or other of these reasons, there remain 14 loans that are ones concerning which it is common ground that the referee has committed error 12.

Error 13 - loans erroneously determined to be “outside period” for Trailer Commission but which had application dates on or before 7 October 1999

82 As mentioned earlier, the referee decided that all loans that settled after 30 September 1999 should be excluded from payment of trailer commission. In broad terms, his reason was that the Agent or Licensees could not have been an effective cause of loans which settled more than seven days after the termination of the agency agreement on 23 September 1999 because “it was usual practice for the processing of a loan to take at least seven days from the date a potential customer approaches Resi until the loan settles”.

83 The plaintiff submits that that reasoning involves three significant errors. The first is that, even as the “usual practice” had been identified by the referee, it was that the processing of the loan took at least 7 days from the initial approach to settlement. It simply does not follow as a matter of logic, the plaintiff submits, that therefore any loan that settled more than seven days after the termination of the Agency Agreement could not have had activity by the Agent as an effective cause.

84 The second error, according to the plaintiff, is that the referee has misunderstood the evidence in a significant way. There was evidence from Mr Gwynne that “there was a lag of at least seven days between the date of the application (i.e. the date that it was signed) and the application date being recorded in the Resi system.” Being “recorded in the Resi system” is a fundamentally different thing to the loan settling. As well, there was evidence from Mr Christie, a director of Resi, that:

“Residential loans take a minimum of seven days to settle from the date the loan application is made (although this is a very quick time and by no means the average). The average time for a residential loan to settle from the date the loan application is made is between four and six weeks.”

85 That evidence leaves open a possibility that, in relation to at least some loans, the activities of the Agent might have been an effective cause, even if those loans settled more than six weeks after 23 September 1999.

86 The third error, according to the plaintiff, is that excluding loans based solely on the amount of time that had passed after the termination of the Agency Agreement is contrary to the proper construction of the Agency Agreement, as determined by my earlier judgment. In accordance with that judgment, it is a matter of factual inquiry, in the individual case, whether or not any particular loan that settled after termination of the Agency Agreement was one of which the Agent was an effective cause.

87 The plaintiff includes, in its Error 13 Schedule, loans that were excluded from the trailer commission calculation on the basis that they settled after 30 September 1999, but concerning which application was made prior to 23 September 1999. There are 305 loans in the plaintiff’s Error 13 Schedule.

88 The defendant accepts that the referee’s process of reasoning, whereby he adopted 30 September 1999 as a cut-off date, is defective. It submits, however, that all of the loans identified in the Error 13 Schedule are ones on which no trailer commission is payable, for a variety of reasons -- that the plaintiff has not discharged its onus of proving that it was an effective cause, that the loan was a Home Start loan or a Line of Credit loan, that it was a New Zealand loan, or that it was a loan made by Olympic rather than the defendant.

89 In my view, the process of reasoning adopted by the referee in adopting 30 September 1999 as a cut-off date is defective. That defective reasoning is something that has led the referee to perform a significant aspect of his task -- namely, deciding whether trailer commission is payable on loans that settled after 30 September 1999 -- in a way that exhibits repeated and systematic error. In relation to those loans, he has not carried out a fundamental task of the reference, namely deciding whether, on the evidence, the Agent was an effective cause of the loan settling. It may be that, when that task is carried out, he comes to the view that the loans contained in the Error 13 Schedule on which trailer commission is actually payable are fewer than the plaintiff contends, or even perhaps that no trailer commission is payable on any of them. However, it is necessary that the task be carried out.

Result of the Consideration so Far

90 So far, the plaintiff’s submissions have successfully identified numerous errors in the reports, that the defendant accepts were made. The number of the errors is such that I could not assume that their combined effect is so small that for all practical purposes it should be ignored.

91 The nature of the reports themselves, their dependence upon lengthy computer-generated spreadsheets, and the multiple errors that it is common ground were made are such that I could not confidently set about correcting those errors myself. The task is one that calls for an accountant’s expertise. Further, because the errors are ones that are manifested in spreadsheets, it would not be unusual for an error in one cell of the spreadsheet to generate other, follow-on errors in other cells of the spreadsheet – and conversely, for correction of an error in one cell of the spreadsheet to generate corrections in other cells of the spreadsheet. Concerning at least one of the errors identified – the failure to list in chronological order -- there is every reason to believe that a computer would be able to correct the error in a moment, if the table were re-sorted by reference to the column that identifies the settlement date of the loan. It may be that, to someone familiar with the principle in accordance with which the spreadsheets were established in the first place, correction of the errors that I have identified so far is not a very difficult task. Finally, if I were to try to correct the errors myself, that would be undertaking a task that is inconsistent with the purpose of references.

92 It seems to me that the errors that have been identified so far affect the reports to such an extent that it is not a practical alternative to accept the first report in part.

93 For all these reasons, the reports should be rejected.

94 Even though my decision to reject the reports is based upon the errors that both parties accept were made, it will be open, on a reconsideration, for the referee to decide whether the scope of an error of a type I have accepted was made is as wide as the plaintiff contends, or as narrow as the defendant contends.

Error 14 - referee mistakenly determined who had been “the introducer” of each loan rather than whether the Agent or a Licensee had been an effective cause of the loan being advanced

95 There is repeated reference in the referee’s report to him seeking to determine the identity of “the introducer” of a loan (para 12 (d), 24, heading above para 29, para 29, para 32 (4 times), and para 33). One column in his first spreadsheet, in the part that identifies his own decision-making process, is headed “WHK- Introducer”. In that column, he made entries like “McEwan”, or “Resi” or “other”. Only loans where the entry “McEwan” was entered in that column were included as trailer commission loans.

96 The plaintiff submits that what the referee has done is to record the party who was given the designation of the “introducer” in the records of Resi. The plaintiff submits that the referee has thereby failed to consider the correct question, namely whether the Agent or a Licensee was an effective cause of the loan settling.

97 As well, the referee’s report contains some diversity of terminology concerning the type of cause that he was looking for. In some parts of the report (paras 4, 8(b), 10 (b), and 16) he uses the correct terminology of “an effective cause”. In other parts, however (paras 6, 21 and 28) he uses terminology of “the effective cause” or “the cause”.

98 An event can be “an effective cause” of some result, even if there are also other events or circumstances that are “an effective cause” of that same result. Use of the terminology “the effective cause”, or “the cause” indicates, according to the plaintiff, that the referee was searching for a single cause. This is, the plaintiff submits, another manifestation of the referee not considering the correct question concerning causation.

99 The plaintiff’s Error 14 Schedule contains a listing of 80 loans, concerning all of which bar 8 the plaintiff says there was documentary evidence put before the referee proving that Resi had paid the agent’s fee under clause 10.1 of the Agreement to a McEwan licensee in respect of the loan. Payment of the agent’s fee ought have been seen, according to the plaintiff, as a very powerful indication that it was the Agent or a Licensee that was an effective cause of the loan settling. The remaining eight loans are ones that the plaintiff submits were admitted by Mr Christie to have been introduced by McEwan and his licensees.

100 Frequently, in the law of commission agency, proof that the agent introduced a person who ultimately proceeds to enter a contract turns out to be sufficient to establish that the agent was an effective cause of that contract being entered. However, it is purely a question of fact whether that is so. It is possible to envisage factual situations in which a commission agent has introduced a particular person, who then comes to be totally opposed to the idea of entering the contract, and who, well after the initial introduction, is persuaded, by someone other than the commission agent, to enter the contract. In such a factual situation, the correct conclusion might be that, notwithstanding the introduction, the agent was not an effective cause of the eventual sale. Conversely, in some factual situations it might be the case that, even though a commission agent did not introduce a person who ultimately proceeds to enter a contract, that commission agent is an effective cause of the contract being entered. When causation is a question of fact, there is no rule that introduction is either necessary, or sufficient, to prove causation -- rather, causation depends on assessing all the facts of the individual case.

101 I am not prepared to conclude, on the basis of the submissions that the plaintiff has made to me, that the referee has mistaken his task of determining whether the Agent or a Licensee was an effective cause of a loan settling. The most that the material that the plaintiff points to establishes, in my view, is that there is ground for wondering whether the referee might have mistaken his task. For reasons other than those relating to the alleged Error 14, it will be necessary for the report to be reconsidered by the referee. If, on reflection in the light of these reasons, the referee decides that he has in some ways mistaken his task of deciding causation, it will be open to him to apply the correct test in preparing a further report.

Error 15 – loan erroneously rejected as a duplicate

102 The referee rejected loan 842, on the ground that it was a duplicate of loan 841. The plaintiff submits that he was mistaken in so doing. The defendant accepts that loan 842 was not a duplicate of loan 841. Despite that, the defendant submits that loan 842 was correctly excluded, on the ground that it was a New Zealand loan. The defendant is right in saying that it was a New Zealand loan. Thus, there is no occasion for the referee to include loan 842 in his calculation.

Error 16 - New Zealand loans erroneously rejected by Referee for Trailer Commission calculations

103 This alleged error has been dealt with earlier, in conjunction with Error 7. I am not satisfied that there is an error of this description.

Error 17 - loans rejected for Trailer Commission calculation because they were erroneously determined (in whole or in part) to be Lines of Credit

104 In Resi’s records, each loan was allocated an individual alphanumeric identifier. Part of that identifier was a code, that was supposed to indicate whether the loan was a Line of Credit loan, or one of the various other types of loan in which Resi dealt. This alleged error is said to have occurred when the referee found certain loans to be Line of Credit loans, even though the individual identifier of those loans did not have the Line of Credit code, but rather had the code appropriate to a Principal & Interest loan, or an Interest Only loan. The plaintiff submits that the correct particulars for these loans are recorded in the Interstar list, and show that they were not Line of Credit loans.

105 Concerning some of the loans to which this error is alleged to apply, the plaintiff itself had identified the loan to the referee as being a Line of Credit loan. I see nothing erroneous in the referee having decided to act on this admission.

106 The referee’s report says, in para 26, that he examined all documentation provided to decide whether loans were Line of Credit loans. I am not persuaded that, in choosing to categorise these loans in a way different to the Interstar list, the referee was making the sort of error that can be corrected upon a review of the referee’s report.

Error 18 - loans erroneously rejected as “home start loans”

107 In connection with this alleged error, the plaintiff alleges that the referee was mistaken in classifying certain loans as Home Start loans, and therefore not eligible for payment of trailer commission.

108 The referee identified loans as being Home Start loans by reference to the low interest rate charged on them. In my view it was open to him to do so. I am not persuaded that this error is made out.

Error 19 - loans which now qualify for Trailer Commission owing to a change in the Trigger Date

109 The plaintiff provided an Error 19 Schedule, containing four loans, that was said to be have been incorrectly excluded as loans entitled to trailer commission due to the determining of an incorrect trigger Date. However no submissions were made about them. I shall give them no further consideration.

110 The orders of the Court are:

1. I reject each of the reports of the referee.

2. I refer back to him the same questions as were referred by the orders of 4 October 2002.

111 In preparing a fresh report, the referee is to be at liberty to rely upon as much of the material contained in, or that was the basis of, his first and second reports, as seems to him to be appropriate. If the referee wishes to act upon admissions that a party has already made to him, he is at liberty to do so.

**********

31/01/2007 - Incorrect judgment date - Paragraph(s) coversheet