Royal Guardian Mortgage Management Pty Limited v Nguyen
[2014] NSWSC 665
•28 May 2014
Supreme Court
New South Wales
Medium Neutral Citation: Royal Guardian Mortgage Management Pty Limited v Nguyen [2014] NSWSC 665 Hearing dates: 20 - 24, 27 - 29 May 2013 Decision date: 28 May 2014 Jurisdiction: Common Law Before: Adams J Decision: In respect of the action by RGMM against the defendants, judgment for the defendants. In respect of the amended cross-claim, judgment for the cross-claimants as follows -
(i) Ms Nguyen: $1,092,947 plus interest;
(ii) Mr Stolyar: $545,767 plus interest.
The parties are to calculate interest. I give leave to approach on three days notice in the event they are unable to agree. I will determine costs following further submissions.
Catchwords: CONTRACT - payments allegedly made under mistake - whether mistaken in fact - breach of employment contract - bonuses - collateral agreement as to management fee - no question of law Legislation Cited: Corporations Act 2001
Evidence Act 1995 (NSW), ss 63, 135
Taxation Administration Act 1953 (Cth)
Limitation Act 1969 (NSW)Cases Cited: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; 243 CLR 361
Payne v Parker [1976] 1 NSWLR 191
Jones v Dunkel (1959) 101 CLR 298
Ordukaya v Hicks [2000] NSWCA 180
Briginshaw v Briginshaw (1938) 60 CLR 336 at 361
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170; (1992) 110 ALR 449
Saunderson v Piper (1839) 5 Bing (NC) 425Texts Cited: Cheshire and Fifoot, Law of Contract (10th Australian ed, 2012, LexisNexis Butterworths) Category: Principal judgment Parties: Royal Guardian Mortgage Management Pty Ltd (Plaintiff/ Cross Defendant)
Beth Ngoc Nguyen (First Defendant/ First Cross Claimant)
Ian Stolyar (Second Defendant/ Second Cross Claimant)Representation: Counsel:
M W Young SC (Plaintiff/ Cross Defendant)
B McClintock SC/ B Kaplan (Defendants/ Cross Claimants)
Solicitors:
Bransgroves Lawyers (Plaintiff/ Cross Defendant)
Gibert & Tobin (Defendants/ Cross Claimants
File Number(s): 2010/105936
Judgment
Introduction
On 29 April 2010 the plaintiff, Royal Guardian Mortgage Management Pty Limited (RGMM) sued the defendants Ms Nguyen and Mr Stolyar (sometimes named and otherwise, for convenience, referred to as the defendants) for breach of contract and breach of the Corporations Act 2001 arising out of their employment in the business of RGMM, Ms Nguyen as general manager and Mr Stolyar as senior manager. (At all relevant times, the defendants were married.) The defendants cross-claimed against RGMM, alleging breaches of their employment agreements with RGMM.
RGMM processed loan applications received in large part (the proportion is somewhat controversial) through mortgage brokers or introducers, such as lawyers or accountants, (usually referred to in this judgment simply as brokers), passing them on when certain prerequisites had been satisfied to funders (also called lenders), which made the advances in due course to complying borrowers. When a loan was settled, RGMM was paid an "upfront" (immediate) and then a "trail" (continuing) commission, a part of which was passed on to the broker on an agreed basis. The defendants set up their own broking business, at first using their company, Bethian Pty Ltd and then under a business name, Dibelle Finance, owned by a friend, ultimately using a company, Dibelle Financial Services Pty Limited, of which the sole shareholder and director was Mr Stolyar's mother (both entities are referred to as "Dibelle" except where it is necessary to distinguish between them). Dibelle passed on applications from individual borrowers to RGMM and, when the loans were settled, was paid the same commissions as the other brokers who had made successful applications. RGMM claimed that the loan applications referred by Dibelle should simply have come directly to RGMM as part of the employment obligations of the defendants, in which event RGMM would have kept for itself the commissions paid to Dibelle. It sued for the repayment of these commissions. The defendants contend, for their part, that RGMM was fully aware of their connection with Dibelle and the commissions were lawfully claimed.
The cross claim alleges that RGMM did not pay their bonuses and profit share as provided in their employment agreements. RGMM contends that the bonuses were indeed paid and that, having regard to the breaches by the defendants of their employment contracts, no profit share is payable. It is agreed that, during the relevant time, RGMM paid to a company, Bethian Enterprises Pty Ltd, which was owned by the defendants, amounts more or less equivalent to the bonuses owed. The defendants' case is that these payments were due under a management agreement and were not the bonuses payable under the employment agreement, whilst RGMM maintains that the payments were the defendants' bonuses paid to Bethian at their direction.
Background
Mr Anthony Tomazin is a business man with over two decades of experience in the finance and mortgage industry. In 1998 he established Royal Guardian Mortgage Corporation Pty Limited (RGMC) which, as he said, "is in the business of originating and managing loans which are secured by mortgage". In the argot of finance, an originator is not an originator as that term might be understood in ordinary English, but is a business which passes on to a funder, with which it has accreditation, applications for loans that, in its view, comply with the funder's prerequisites and is paid commission for so doing. In this case, the term "mortgage manager" was also used in this sense. (The distinction is unimportant and I have usually just used the term "originator".) When the loan is settled the funder pays an upfront commission and a trail to the originator, which passes on some of the commission to the broker who initiated the process by preparing or assisting in the preparation of the loan application on behalf of the borrower. (The term "borrower" denotes the individual seeking the loan.) The interest rate ultimately charged to the borrower would also contain a margin paid to the originator. Broadly speaking, the greater the value of the loans referred by an originator (called the "book") the lower the wholesale cost of the loan might be and consequently the higher the margin able to be placed on the final rate by the manager. An example given in the evidence by Ms Nguyen was a delivery rate of 5 per cent with a margin at 0.5 per cent, thus a final rate to the borrower of 5.5 per cent. In general, the larger the "book" of loans brought to the funder by the originator, the greater the margin. One advantage of the margin - aside from the increased profit - is that it enables the originator (whose badge is, as it were, attached to the loans) to offer a more or less reduced interest rate to the borrower and, hence, compete more effectively for business. On occasions a funder would have a "sale" in which a significant margin would be offered should an originator reach a specified target in a particular period. Thus, there is a substantial financial inducement for increasing the size of the book, quite apart from the commission.
RGMM was registered on 31 October 2000 as an originator of loans almost entirely from brokers or introducers as distinct from the borrowers directly. Its directors at the relevant time were Mr Tomazin (who held 51 shares), Mr Pusic (24 shares) and Mr Pondelak (24 shares). At no time was there a legal link between RGMC and RGMM: they were wholly independent legal entities. At first, RGMM operated exclusively through RGMC, which had the accreditations with the funders, but later on it was itself accredited with several funders. Mr Tomazin said that RGMC was both a retailer (dealing directly with borrowers) and a wholesaler (dealing with brokers), whilst RGMM was a wholesaler. The defendants did not agree that RGMC dealt with brokers, at least after RGMM came into the picture. Mr Stolyar said that RGMC dealt only with direct clients, that is to say without the intervention of a broker. The RGMC sales person would meet the clients and offer them the various products available from the funders. On the other hand, RGMM did not expect its employees to attract potential individual customers but rather to process loans which were referred by brokers. Mr Tomazin agreed that Ms Nguyen was responsible for bringing in new broker business in (semble, to RGMM). Mr Stolyar said that he met with Mr Tomazin for the first time in early May 2001, Ms Nguyen also being present. Mr Tomazin told him that his conditions of employment would be the same as for Ms Nguyen in that, if he brought in any mortgage loans, he would be paid the same commissions and trails as any other introducer. Mr Stolyar understood that direct clients who, for example, walked into RGMM's offices on the street would be referred to RGMC and it was not possible for an employee to refer loans directly to RGMM, as it was the wholesale arm of the business. The differing business models used by these companies provides a significant context in which the relationship between RGMM and the defendants played out and is essential to understanding the character of the defendants' employment as well as some crucial events.
RGMC advertised widely to the public, inviting applications for loans and employed sales persons for the purpose of obtaining business from as many sources as possible. As Mr Tomazin said, by 2002 RGMC was accredited with some of the largest non-bank funders in Australia, RGMM working (as he put it) "under the RGMC ... accreditations". In 2002 RGMM also obtained accreditation with what appears to be a major funder, AFIG Wholesale Limited, and somewhat later with Macquarie Bank, these on the basis, inter alia, that Mr Tomazin provided financial guarantees. Although Mr Tomazin described RGMC as "the parent company" this was not in the sense that it owned or had any interest in the shares of RGMM. There was no legal relationship between the two companies, although they were, in effect, owned and controlled by Mr Tomazin. In respect of both companies, Mr Tomazin was for all practical purposes the controlling mind. Mr Tomazin says, and there is no reason not to accept, that what he described as the "Royal Guardian group" (which included a number of other companies that operated in the finance industry not presently relevant) was originating loans with a total value exceeding $100 million a month.
The general business model was that RGMC was responsible for RGMM's business, accounting, loan management and some office functions but not "underwriting" (by which is meant organizing a valuation, arranging mortgage insurance, assessing risk and ensuring the funder's prerequisites were satisfied) its loans, which was undertaken by Ms Nguyen and Mr Stolyar. Mr Tomazin and Mr Stariha (as to whom see below) said, in substance, that the costs attributable to the business of each company, paid by RGMC, were charged by RGMC to the companies according to their business volumes. (An issue arose during the trial as to the way in which this was done, with which I deal in due course.) Once settlement of a loan occurred, RGMC would receive the upfront commission payment from the funder and, in due course, trail commissions. In respect of a settled loan processed by RGMM, it would invoice RGMC for the upfront commission and pass on to the broker the broker's share of the commission. RGMM would also normally pay trail to the broker - again, on receipt of the funds from RGMC - unless the loan was in arrears or there was some other agreement with the broker.
On 19 August 2005 Royal Mortgage Management Pty Ltd (RMM) was registered. Ms Nguyen was a director between 19 August 2005 and 9 March 2006 and the holder of 25 of 99 shares, the balance being held by Mr Tomazin. She was also employed by that company for a period.
Accreditation agreements
It was the usual, perhaps invariable, practice for companies such a RGMC to enter into accreditation agreements with brokers or introducers who referred borrowers. This was also the case with RGMM. According to Ms Nguyen, the accreditation process at RGMM involved at least the following steps: the broker or introducer would provide company details, business name, directors and other formal information; RGMM would undertake an ASIC or business name search to confirm these details; which would be inserted into a pro forma agreement that was always used. The broker would normally come into the office to sign the agreements and would usually be introduced to Mr Tomazin. With some exceptions, Ms Nguyen would generally sign the agreements on behalf of RGMM. Ms Nguyen tendered two agreements with brokers with whom she had a close business and personal relationship. These agreements, dated 2 and 15 May 2001 were entered into respectively by South Western Financial Services and Jentrev Enterprises Pty Limited and executed on behalf of RGMM by Ms Nguyen and Mr Tomazin. I note, because it is later relevant, that each contains a clause that "the introducer is adequately insured with a reputable insurer against all risks which a prudent person carrying on the business of the Introducer would insure against".
Ms Nguyen said that, at the same time the accreditation agreement was signed, it was usual for the broker to sign a separate agreement in relation to Recipient Created Tax Invoices (RCTI's), which allowed RGMM to create an invoice on behalf of the broker for the commissions payable to the broker. A number of these agreements were tendered but none with Bethian or Dibelle, although many RCTI's relating to both were undoubtedly created (of which a number were tendered). Ms Nguyen said that the documents relevant to the payment of a commission were placed on the broker's file, which would contain the accreditation agreement and the Recipient Created Tax Invoice Agreement (RCTIA). Accordingly, when a payment was being processed it would be immediately apparent if an accreditation agreement had not been entered into and an RCTI could not be paid without an RCTIA. No referral (as I understand it) would have been accepted from a broker who had not been accredited.
The nature of RGMM's business
Mr Tomazin agreed that RGMM was set up as the wholesale division of the Royal Guardian group, dealing almost exclusively with brokers in terms of getting business, though there were a few direct clients. He agreed that "it was not set up to deal with people coming in off the street" meaning, obviously, individual would-be borrowers not referred by a broker. Mr Stariha, the general manager of RGMC, who joined the company in January 2001 said that, as at 2001 and 2002, RGMM "was a broker division of the R[oyal] G[uardian] group, and its "predominant purpose was to bring in broker business". RGMC's website which is used to market services to the public, states, "In March 2001 a wholesale division was established to deal with financial planners and accountants, with this wholesale program later expanded to deal with brokers and introducers who showed potential for higher growth". By the way, this supports Ms Nguyen's evidence (which was not at all events controverted) that RGMM had not begun to trade when she took up her employment with it.
This issue is important, since it not only provides the context in which interpretation of the various employment arrangements said to have been made between the parties occurred but also as to the issues surrounding the payments, allegedly under accreditation agreements, to Bethian and Dibelle.
RGMM employs the defendants
Ms Nguyen had met Mr Tomazin in late 1992 when she went to work as a secretary for his firm, Anthony Tomazin Financial Services, initially for an eight week period and then permanently. She was just 18 years of age and had just completed her HSC. She learned to prepare applications for home and business loans. After four months Ms Nguyen left the firm to undertake study for a degree in economics, majoring in accounting and finance. In July 1993, whilst studying part-time, she went back to work for Mr Tomazin in another of his businesses, providing sales support to sales consultants. Four of those consultants left to start their own business (South Western Financial Services (SWFS), which appears again as the narrative unfolds) and Ms Nguyen joined them as secretary and office manager. About three years later she went as an underwriter (promoted to senior underwriter) successively to two large mortgage insurance companies, eventually in mid 1999 accepting a position as credit manager for Mortgageport, an originator, where her duties were largely those of an underwriter and then managing its broking referral business. At the time of Mr Tomazin's approach, Ms Nguyen said she was paid by Mortgageport a base salary of $75,000 and a bonus of 0.25 per cent of the total of the company's settled loans over $2 million in any given month.
In November 2000, Ms Nguyen met Mr Tomazin at a mortgage industry function. At his suggestion, Ms Nguyen went to see him a few days later at his office, where she was introduced to Mr Pusic and Mr Pondelak, his business partners (mostly referred to as, simply, "the partners". Mr Tomazin asked Ms Nguyen to come and work for RGMM, which he had set up to deal only with brokers. They discussed the opportunity that Ms Nguyen would have to earn more money using the brokers she had met whilst working for Mortgageport. RGMC would only deal (he said, according to Ms Nguyen) with direct clients and would be the originator for RGMM's loans. He told her that RGMM would not deal with any new direct clients. He asked Ms Nguyen to set up a "broker referral system" for RGMM. He said she would be paid a salary comparable to what she was getting at Mortgageport and a commission on any loans she brought in. At this time, according to her, Mr Tomazin said he was not interested in making money from RGMM: the object was to increase the overall volume of the business and get a lower delivery rate. He said that the partners would have no involvement in RGMM except to source brokers who want to be accredited to it. Mr Tomazin agreed that he spoke to Ms Nguyen in his office at this time and, implicitly, that it was about employing her. He denied saying the things attributed to him but did not purport to relate the entire conversation, although he recalled Ms Nguyen saying that she needed to be careful because she had a 90 day hiatus clause in her contract with Mortgageport, saying she could still work for him but "it will just have to be on the quiet". It seems to me virtually certain that the subject of the nature of Ms Nguyen's proposed employment would have been broached and some indication given of her remuneration. Mr Tomazin's bare denial of Ms Nguyen's account is unpersuasive.
Ms Nguyen deposes to a further meeting on or about 18 December 2000 in which she told Mr Tomazin that she would only consider moving from Mortgageport to Royal Guardian if her total remuneration package was significantly better than she was currently earning and this would need to include profit share and commission on any loans that she brought in. According to Ms Nguyen, Mr Tomazin offered -
"I will pay you the same [as the Mortgageport] base salary, but I will pay you a bonus of 0.25 per cent for all loans if you settle over $2 million per month and profit share at a later date once you have proven yourself. I will also pay you a generous commission on all the loans you directly refer and settle.
RGMC is the company that is directly accredited to the funders and I'm the sole shareholder of RGMC, so all loans written by RGMM belong to RGMC anyway. My aim with RGMM, as a wholesale company, is to increase the overall business volume so I can get a lower delivery rate from the funders. This way RGMC will be more profitable."
Mr Tomazin disputes Ms Nguyen's account of this conversation. He said there was no discussion of RGMM at the meeting. He said that the proposal was that Ms Nguyen would be working for RGMC bringing in new broker business. However, he did not dispute Ms Nguyen's account of the proposed remuneration package. On 18 December 2000, an offer was made to Ms Nguyen by Mr Tomazin of employment in "a senior management position within our firm" on the letterhead of RGMC, a fact that provides some support for Mr Tomazin's evidence as to employing Ms Nguyen in RGMC rather than RGMM. The qualification "some" arises from the fact that Mr Tomazin regarded all the companies as part of what he called the "Royal Guardian group", of which RGMC was the principal. Since RGMM had been incorporated in the previous October to operate as "the wholesale division" of the group (see the next paragraph below) and Ms Nguyen was employed as the general manager in March 2001, it is most unlikely that RGMM was not mentioned in the context of her recruitment. Accordingly, I do not accept Mr Tomazin's evidence on this point.
The remuneration offered in the letter was $75,000 a year plus superannuation and "a generous commission structure for any directly referred successful applicants". The offer did not cover a number of important, indeed, crucial issues: the actual employer; the actual position; the nature of the job; the "commission structure"; possibly, payment of a bonus; and the commencement date. Although the connexion between the commission and the direct referral of applicants suggests it applied to borrowers who were not referred by brokers, Ms Nguyen said she understood the offer in this respect to mean that for any direct loans that she settled which were referred through her own broking company she would be paid an upfront commission and trail like any other broker. Otherwise, as I understand her, the offer would not have bettered her remuneration package with Mortgageport. That it was important to her that the move would improve her position is, I think, a given. In the result, as will be seen, the employment contract did not refer to payment of a commission, but to a bonus, and did not refer to direct referrals.
Mr Tomazin deposed that the employment details were agreed and Ms Nguyen started work with RGMC in early 2001. Ms Nguyen said that she did not resign from Mortgageport until February 2001 and commenced work for RGMM around 12 March 2001. It seems to me that this was, in fact, her first employment with Mr Tomazin, as was implied in her first affidavit, and that Mr Tomazin is mistaken. The next relevant document is a curious one. It is dated 29 May 2001 on RGMC letterhead, addressed "to whom it may concern" and "is to confirm that... [RGMC] has employed Beth Nguyen since 12 March 2001 as General Manager for the wholesale division ... [RGMM]", setting out salary and an unparticularised "generous monthly commission structure" (emphasis added). The last paragraph is an invitation to contact Mr Tomazin "should you need any further clarification regarding the above". The suggestion that Ms Nguyen was RGMC's employee is misleading, as is the implication that RGMM was owned by RGMC. (This might simply have been a reflection of Mr Tomazin's view of the business, rather than the legal, structure of the relationship between the companies and I draw no adverse conclusion about it.) As I have mentioned, RGMM actually had no legal connection with RGMC but, considering the business as a whole without regard to the technical legal elements, this letter suggests strongly that (noting use of the definite article) RGMC's wholesale business was being undertaken by RGMM, it therefore dealing with the retail business, namely loans sought by individuals without the interposition of a broker or referrer. However this may be, it is inescapable that there were discussions before this time between Ms Nguyen and Mr Tomazin about the nature of the businesses, in particular that of RGMM, and their relationship and the nature of the work that he was hiring Ms Nguyen to do. This is not, in terms, denied by Mr Tomazin except so far as the conversation involving his offer of employment is concerned. I do not accept the correctness of his evidence in this regard. The extent to which RGMC had or continued its broker referral business is unclear but I am satisfied that it did not pass on any of that business to RGMM.
The first employment agreement between Ms Nguyen and RGMM is dated 12 March 2001. RGMM is called "Royal Mortgage Management Pty Limited" but it is agreed that this is a mistake and the employer was RGMM. Ms Nguyen was appointed General Manager "to conduct mortgage lending". Her duties were as follows -
"Duties and accountability
4.1 The Executive's duties include, but not limited to:
4.1.1 work normally conducted by a General underwriter;
4.1.2 work normally conducted by a relationship manager;
4.1.3 any office work which the Company may reasonably ask the Executive to do, even though it does not fit with the normal duties of her position.
4.2 The Executive shall report to and be accountable to the Director of the Company.
4.3 In performing her duties the Executive must:
4.3.1 serve the Company faithfully and diligently and exercise all due care;
4.3.2 act in the best interests of the Company at all times;
4.3.3 refrain from acting or giving the appearance of acting contrary to the interests of the Company;
4.3.4 use her best endeavours to protect and promote the Company's good name and reputation; and
4.3.5 perform her duties to the best of her ability."
Ms Nguyen's remuneration was $75,000 per annum plus the following -
"6.3 The Executive shall be paid a bonus if she brings her own portfolio (clientele) to the Company and the total sum of settled loans from such portfolio in a calendar month is not less than one million dollars ($1,000,000.00), The bonus for that month shall be 0.25% of the sum of settled loans and shall be payable after settlement."
The contract also provided -
"16. This agreement constitutes the entire agreement between the Company and the Executive in relation to the Executive's employment with the Company and any representations made or agreements arrived at in relation to the performance by the other party of its respective rights an obligations under this agreement shall, except tot the extend they appear in this agreement, be deemed for all purposes not to have been made or arrived at."
It will be seen that this contract does not describe the business except that it was Ms Nguyen's duty to conduct "mortgage lending". Ms Nguyen accepted that her role was, as she said, to "get the operation off the ground including organising sales, credit, settlement and administration" (but those sales were to brokers not borrowers). As is obvious, these functions were not specified in the contract: the task of an underwriter was, in substance, to ensure that loan applications complied with the funder's criteria and the relevant documents were forwarded on to the funder; as I understand it, the duties of a "relationship manager" relate to the maintenance of positive communications with brokers, including assisting them to fulfil their responsibilities in connexion with the loan applications, designed to encourage compliance with the funders' requirements and, no doubt, increase RGMM's attractiveness as an originator. That these duties (and "office work" that might be requested) are described inclusively is of little significance to my mind. The other unspecified duties could be no more than those inherent in the role of General Manager itself or ancillary to the specified duties. Mr Tomazin said in his second affidavit that Ms Nguyen was "not responsible for any post-settlement work at RGMM... [which] was taken care of by a separate group of employees employed by RGMC". Although this was largely, it was not entirely, correct.
Something was sought to be made by Mr Young SC for RGMM of the conditions upon which a bonus was to be paid. However, whatever is meant in clause 6.3 by bringing "her own portfolio (clientele) to the company", no obligation to seek out and bring business to the company is, to my mind, imposed as to quantity or, indeed at all although both parties appeared to have acted on the basis that this was, indeed, Ms Nguyen's primary task. This is not to gainsay that clause 6.3 determines what transactions attract liability to pay bonus, an issue that is dealt with below. Ms Nguyen accepts that, from the beginning, Mr Tomazin made it clear that her main role was to increase overall business volume to obtain a lower funding cost and an adequate volume to satisfy the funders. Indeed, she says (and it is not disputed) that Mr Tomazin repeated this consideration on the day she started work. But this is not found in her employment contract. It is important to note, furthermore, that the agreement nowhere refers to the role of RGMC or suggests that Ms Nguyen had any duties or responsibilities in relation to that company or the business of that company.
Exhibited to Mr Tomazin's first affidavit is a document circulated in 2004 to Royal Guardian staff setting out the responsibilities of sales staff and brokers. This was, it appears, applicable to the whole of the relevant period. In light of the issues in the case concerning what was expected of Ms Nguyen and Mr Stolyar, it is useful as a description of what was not part of their duties. The work of sales staff was to conduct a loan interview, discuss loan options and determine the most suitable loan product for the customer. Brokers dealt with loan selection, document collection and variation, personally speaking to every applicant and advising the customer about the approval process, providing them with appropriate information and assisting with the preparation of the loan application; the broker also, having obtained all original documents supporting the loan application and checked their authenticity, signs, dates and notes on copies that the originals were sighted, completes the 100 point ID form and sends all copies of documents to the authorised officer with the loan application; completes all requests from credit staff regarding the application and maintains contact with the client until settlement. There were no sales staff or brokers employed by RGMM; this document was therefore directed to RGMC staff. It is, however, a fair indication of the tasks that brokers who referred business to RGMM were expected to have performed. There is nothing in the contract that implies a requirement that the defendants, in respect of loan applications, were obliged to perform these tasks or anything like them. It follows that, in undertaking - as they agree they later did - the work of a salesperson or of a broker in relation to loans ultimately processed by RGMM and settled, the defendants were acting outside their contractual obligations. Mr Tomazin himself described Ms Nguyen's responsibilities as including underwriting loans introduced by third parties, maintenance of RGMM's loan records, accreditation of brokers, training of brokers in Royal Guardian and funder policies, preparation of RCTI's, supervision of RGMM staff, introduction of new brokers and maintenance of existing broker relationships and everything necessary to be done prior to settlement of loans. Although this list is said to be inclusive, it appears to be exhaustive and, to my mind, certainly does not suggest she was expected to seek business from individual or direct borrowers or, in respect of any such borrowers, have performed the tasks that were expected of brokers. The crucial question is whether the defendants were entitled to refer such borrowers as they identified to Bethian in the first instance and later Dibelle, and charge RGMM in respect of that work, just as would another broker.
It should also be noted that, whatever might have been Ms Nguyen's verbal stipulation about profit share, this agreement did not provide for it.
Mr Stolyar had been involved, one way or another, in the finance business since 1989, eventually going to work for Mortgageport in February 2001 as National Lending Manager. In about April Ms Nguyen (with whom he had been in a relationship for several years) asked him to join RGMM. Sometime in early May 2001 he met with Mr Tomazin, Ms Nguyen also being present. At this meeting, he said, Mr Tomazin told him, in effect, that RGMC would "always deal with direct clients and RGMM will work only with mortgage brokers, accountants and other third party introducers". Mr Tomazin also told Mr Stolyar that Mr Pusic and Mr Pondelak (whom he had already met) were RGMC's best mortgage consultants, whom he had made directors of RGMM and minority shareholders. He said, however, that he and Ms Nguyen were to report directly to him and ignore directions or requests from them unless they came from him. He said their job was to bring direct business to RGMC and referred introduced business to RGMM. Mr Tomazin does not, as I understand his affidavits, deny this conversation. Mr Stolyar also claimed that Mr Tomazin told him that RGMM was a new company dealing exclusively with the wholesale side of the business, and would employ him as an underwriter, answerable to Mr Tomazin as Managing Director, with a salary of $75,000 plus superannuation and, as with Ms Nguyen, would be paid the same commissions and trails as any other introducer for mortgage loans he brought in. Mr Tomazin said that this conversation concerned the setting up of Bethian (when the defendants asked for their bonuses to be paid to that company, a matter dealt with in greater detail below) and denied saying anything about payment of commissions and trails like an introducer.
On 14 May 2001 an employment agreement between Mr Stolyar and RGMM was entered into. He was appointed a senior manager, his duties including "work normally conducted by a senior manager" and a "relationship manager". Mr Tomazin said that he was just employed as an underwriter, the other work descriptions being adopted for the purposes of an application for credit. Nothing depends on this. The matter is determined by the contract. The point is that he was not employed either as a sales person or a broker. The other terms of the contract were identical to those applying to Ms Nguyen, including the salary and bonus.
Administrative processes
The following description is taken from Ms Nguyen's affidavit. When an application came into the office, a customer file would be opened in a manila folder and the name of the introducer and the purpose of the loan stated on it. The files were kept in order of the settlement report, usually by settlement date. Commissions would be paid to the brokers following settlement. This process generally included the following steps: the broker's details would be entered into RGMM's system, together with the commission payable, usually by one of the office assistants; each month, around the first week, the administration officer at RGMM would generate a settlement report for each broker showing the borrowers' names, the funder, the loan amount, the settlement date, interest rate and the total figure of settled loans for the particular month; a recipient created tax invoice (RCTI) would be created, usually by Ms Nguyen or one of the administration officers, which was addressed to the relevant broker; the settlement report and RCTI would then be given to RGMM's accountant (also RGMC's accountant) who would cross-check the funder's settlement report with the internal settlement report and the RCTI for the purpose of drawing a cheque in favour of the broker for the commission amount for that month; the unsigned cheque was returned to Ms Nguyen with the settlement report and RCTI for the relevant broker; the cheque was signed by two people, generally Ms Nguyen and either the accountant or Mr Tomazin; the file would be reviewed with Mr Tomazin when the cheque was signed (a number of examples of cheques signed by both Ms Nguyen and Mr Tomazin for commissions paid to Dibelle were exhibited); and the RCTI with the cheque and settlement report would be sent to the broker.
According to Ms Nguyen, during the period from April 2001 to about May 2006, it was Mr Tomazin's practice to check the settled files before he authorised the payments of commissions from RGMC to RGMM. She said Mr Tomazin would often come into her office and review the files to check the loan amount, how the loan was structured, the introducer (ie. the broker) and the verification documents. He would pick up the customer files, skim through the documents and tick off the loan on the settlement report once he had cross-checked the settlement amount against the funder's settlement confirmation letter in the file. In his affidavit of 12 April 2013 Mr Tomazin said that, in relation to the accreditation of brokers, Ms Nguyen was required to conduct the necessary enquiries including confirmation of membership of the Mortgage Industries Association of Australia and satisfactory professional indemnity insurance cover. It was part of her responsibility to ensure that the executed accreditation agreement and evidence of current professional indemnity insurance was on file before accepting business from a broker. Otherwise, he agreed with her description of the process undertaken in relation to loan applications with RGMM "during the first few years" that she was employed by RGMM. However, he said it was not the process in later years. As I understand him, the changes were as follows. Firstly, although he checked every file for commission purposes, this was before RGMC had an accounting department and had only a part-time bookkeeper. He checked the commissions being claimed against the funder reports. He said that in 2002 he began to travel overseas frequently so the standard practice changed. In March 2003 RGMC employed its first full time accountant who took over the responsibilities of checking commissions to be paid and making the payments and, as the business grew, more accountants were employed. He agreed that RGMC provided accounting services to RGMM. Mr Tomazin said that, by 2003 (I assume when the accountant was employed) the standard practice was that Ms Nguyen would issue an invoice directly to the RGMC account staff who did not check the loan files. The RGMC account staff, Mr Tomazin said, only checked the commissions being claimed against the funder settlement and trail reports. He said that it would not have been feasible for either him or the account staff to check every settled file or even the majority of settled files each month because of the large volume of loans that were being written. He roughly estimated that, by December 2004, RGMM was writing approximately 100 loans a month. He said that this remained the standard practice until 2005 until he asked Mr Pusic and Mr Pondelak to help him with an audit of all current RGMM files. (I return to this matter in due course). In Ms Nguyen's affidavit of 6 May 2013, she responded to Mr Tomazin's assertions about this matter. She said that, whilst working at RGMM, she noted that the settlement figures and RCTI's were checked by the account staff but the physical files were checked by Mr Tomazin against the settlement reports when he was in the country. In this context it is important to note that the staff of RGMM and RGMC, together with Mr Tomazin and Mr Stariha, shared office space in their premises at Railway Parade, Burwood. Ms Nguyen gave (as an example) an RCTI of 12 May 2005 addressed to Ian Stolyar at Bethian Enterprises Pty Ltd, for which the settlement report (for April 2005) showed a total of 77 transactions through various funders, totalling over $27 million. One of those loans was to TJ and AL Worsley. Ms Nguyen said that Mr Tomazin asked her about the loan, observing that there was no confirmation of settlement in the file (as distinct from what was indicated on the settlement sheet) and told her to ensure that $70,000 was deducted from the month's settlement, "otherwise the Bethian management fee will be too much". Ms Nguyen said that she responded that settlement had probably been cancelled at the last minute and that she would amend the report and "reduce the management fee to Bethian", to which Mr Tomazin replied, "OK reduced the RCTI and I will give the OK to pay". The settlement sheet shows $70,000 is crossed out and the sum of $174.40 deducted from the Bethian payment. Mr Tomazin wrote "OK to pay" on the RCTI. In Mr Tomazin's third affidavit of 17 May 2013 made in response to the affidavit of Ms Nguyen of 6 May 2013 he made no reference to this matter or to the terms of the conversation, nor did he deny that he inspected the files, as Ms Nguyen described, when he was in Australia. She pointed also to an RCTI of 12 October 2004 addressed to Mr Stolyar at Bethian Enterprises Pty Limited on which RGMC's accountant at the time, Mojave Kannagara had noted "NB to be checked by Tony on his return 13/10/04". Ms Nguyen said that sometimes, in Mr Tomazin's absence, Daniel would check the files against the settlement reports and referred to an RCTI of 11 January 2005 addressed to Mr Stolyar at Bethian which is signed by him in the middle of the page. Although I think these RCTI's support Ms Nguyen's evidence that the account staff would check the settlement sheets against the invoices and that this may well have been done also by Mr Tomazin and Daniel this does not establish that the loan files were also checked. At the same time, it seems to be accepted by Mr Tomazin that the files were available to him to check at any time should he wish to do so, as also (as I apprehend) could be done by Mr Pusic and Mr Pondelak. Leaving questions of credit aside, I am unpersuaded by Mr Tomazin's statement of opinion about what the accountants did whilst he was away.
Mr Tomazin's evidence was that, on the 15th of the month, "when the commission was due and payable, it was standard that [Ms Nguyen] created... tax invoices for her broker partners and for herself as well". Ms Nguyen said that the system, so far as the issue of an RCTI was concerned was -
"... all that RCTI was done by my admin staff, but then it would be passed on to the accountant who would verify the totals and then the accountant would generate the cheque and then the cheque would come back for Tony's and my signature. That's how the whole process at Royal Guardian works. So the accountant's job was to make sure if you were pay on that RCTI, an agreement must exist. That's my understanding that you require that for GST purposes, but I don't know anything more than that."
In effect, Ms Nguyen's evidence amounts to a denial that she had complete control of the relevant files or of the process of billing and payment such that she did or could conceal from Mr Tomazin or, for that matter Mr Pusic and Mr Pondelak the basis on which, initially, broker's commission was paid to Bethian and her and Mr Stolyar's connexion with that company. The same is also true of the commissions paid to Dibelle, with which I deal below. RGMM did not call any witness who was employed at the relevant time in respect of billing, payment or accounting procedures to support Mr Tomazin's account or contradict Ms Nguyen's. No explanation for this omission was given. The point is, not so much whether Mr Tomazin in fact checked the brokers' files at the relevant times (although I am satisfied that he did from time to time do so) but whether he had the opportunity to do so and, had he done so, he would have discovered whether, in particular accreditation agreements with Bethian and the Dibelle entities (an issue discussed below) had been executed. I am satisfied that, on this issue, Ms Nguyen's evidence is to be preferred.
The accreditation of Bethian Enterprises Pty Ltd
Bethian was incorporated on 23 May 2001, having as its directors and equal shareholders Ms Nguyen and Mr Stolyar. Ms Nguyen said that, although inquiries from individual borrowers were rare, in light of her responsibilities in managing the operational side of RGMM, including looking after the brokers and building up the business, she did not have the time to interview them and put the loan applications together. Accordingly, she would refer these persons to an accredited broker. This also would help her to reach her bonus target if the loan was ultimately settled. As I understand her, it was this situation that led her, in early May 2001, to take up with Mr Tomazin the accreditation of Bethian to RGMM, a meeting at which, she says, Mr Stolyar was also present. She said that she told Mr Tomazin she would like to formalise the commission arrangement with RGMM in accordance with the agreement of January 2001 and that she and Ian would like Bethian to start referring loans as an introducer. She stated that Mr Tomazin told her that she could accredit her own company as an introducer to RGMM for direct deals as long as it was not paid more than any other broker. He wanted every introducer, including Bethian, to execute an accreditation agreement. He suggested that the agreement which had been prepared for SWFS could be used and wanted the agreement to be executed before any commission was paid. Ms Nguyen said that she responded, "OK, lets execute the agreement for Bethian in the next day or so".
Ms Nguyen said that, as far as she was concerned, if Mr Tomazin had not agreed to accredit Bethian as a broker to RGMM, she would not have continued her employment with RGMM, I take it because she was expecting to expand RGMM's business and felt that, if she did so by introducing (in addition to brokers) personal borrowers for whom she would need to perform the work undertaken by a broker, she should be entitled to the income which a broker would have obtained for undertaking the same work. Ms Nguyen said that, although she did not recall the exact date, the accreditation agreement between Bethian and RGMM was executed by her and Mr Stolyar on his behalf and Mr Tomazin on behalf of RGMM. (This agreement was distinct from a separate management agreement which, Ms Nguyen said, was later executed between Bethian and RGMM. I deal with the issues surrounding this agreement in due course.) She said that she herself saw Mr Tomazin sign the agreement and that Mr Stolyar was present also at the time. She said it was the practice to store original signed accreditation agreements in the broker files which were placed in a filing cabinet and that the agreement was placed in a Bethian broker folder which, she said, Mr Tomazin kept in his Campsie office. She said that she was also given a copy of this agreement and placed it in her drawer in her office at Campsie but that she did not now have a copy of it and did not know where it was. She said that, from late March to June 2006, Mr Tomazin, then overseas, frequently told her that he was going to come back in a week, which was then delayed by another week. She had made up her mind to leave the company and wanted to tell him in person but he delayed for two months and, when he finally returned, she formally resigned in person and gave him a couple of days' notice. She said in those last days she was busy telling the brokers that she was going, sorting out pending applications and leaving sufficient details with the staff in the office to enable the pending files to be finalised and she had given priority to these tasks. She said her departure was very rushed and she left a lot of her documents in a drawer in her office and forgot to take them with her.
Mr Stolyar confirmed that Bethian was incorporated with the intention that it would act as a broker through which borrowers would be introduced to RGMM. He confirmed that Mr Tomazin told him that it was necessary that all introducers needed an accreditation agreement with RGMM as well as a RCTIA before commissions could be paid. Mr Stolyar added that Mr Tomazin told him that he had instructed Ms Nguyen that he (Mr Tomazin) was to co-sign all cheques and meet all the introducers with whom they (the defendants) had a personal relationship. Mr Stolyar said that about early June 2001 the accreditation agreement between Bethian and RGMM was executed and he witnessed Mr Tomazin doing so on behalf of RGMM.
In substance, Mr Tomazin denied that there was a conversation about Bethian operating as an introducer for direct borrowers, as deposed to by Ms Nguyen. He agreed there was a conversation about this time concerning Bethian but this was simply a request by Ms Nguyen for payment to Bethian of the "override bonus payments" due to her and Mr Stolyar, although they wanted their salaries paid into their individual bank accounts. Mr Tomazin said that he was indifferent to the way in which the bonuses were paid and agreed to the payments being made to Bethian. The defendants denied making any such request. Mr Tomazin also denied that Bethian was broker or an introducer to RGMM and that there was ever an accreditation agreement between RGMM and Bethian. Moreover, Mr Tomazin claimed, it was a requirement that brokers take out professional indemnity (PI) insurance and provide evidence of its currency when making a claim for commission. The defendants conceded that Bethian (and Dibelle) did not have PI insurance. (I should mention for completeness that Mr Tomazin also said it was also a requirement that brokers be members of the Mortgage Industry Association. However, this was not a term of the accreditation agreements, the defendants gave no evidence and were not asked about it. I infer that, so far as they were concerned, this was not an issue.)
Ms Nguyen agreed that it was standard that the accreditation agreements between RGMM and its brokers required PI insurance to be taken out but said that, at the time of the Dibelle accreditation agreement (and, it follows, earlier at the time of Bethian's), this was not a requirement. In her second affidavit Ms Nguyen said that it was never "compulsory" for a broker to have such insurance "before they were accredited to RGMM". In cross-examination she said that the requirement for PI insurance became standard probably around late 2005. In the affidavit she cited the example of a (named) broker accredited to RGMM who did not have cover and added that the broker files produced by RGMM pursuant to a Notice to Produce showed that only an accreditation agreement and a signed RCTIA was required for payments of commission to be made. No objection was taken to this mode of adducing this evidence. Since the files were readily available to RGMM if it wished to contradict Ms Nguyen's evidence on the point and no attempt to do so was made, it seems to me appropriate to accept her evidence of what the files showed as undisputed. (At this point I should mention Mr Tomazin's evidence that he did not check to see whether "all" brokers had an accreditation agreement and current insurance cover on file and that it would have been possible for Ms Nguyen to have permitted brokers to write loans to RGMM without this documentation. The administrative arrangements are discussed above. It is enough to say for the present that to some extent, Mr Tomazin's evidence is a non sequitur, since others had responsibilities in relation to processing payments and it is clear that he also would or could have inspected the files.) Mr Stolyar also agreed that Bethian had not taken out any PI insurance but testified that, at that time, no introducer had professional indemnity insurance.
Although several accreditation agreements in existence in mid 2001 were produced, which required professional indemnity insurance to be taken out, they were not shown either to Ms Nguyen or Mr Stolyar and they were not cross-examined about them. There is a difference, at all events, between a formal contractual condition requiring PI to be taken out an insistence that the obligation be honoured. Furthermore, RGMM did not seek to tender any certificate of insurance or cover note from any of its accredited brokers at the material time. Although I accept that some of the records before 2002 and, perhaps, 2003 have not been able to be located, this does not amount to an explanation for omitting to produce the particular material in question, let alone some witness able to give evidence about the relevant procedures.
The termination of Bethian's entitlement to commissions as a broker occurred, according to the defendants, in early 2003, having introduced 27 loans to RGMM between May 2001 and February 2003. It follows, as it seems to me, that Bethian charged a commission in respect of these transactions. That commission was paid on an RCTI which identified the loans settled during the previous month to which was attached the settlement report listing the loans and the broker ("member") who had referred the borrower. The list of completed transactions exhibited both to Ms Nguyen's and Mr Stolyar's affidavits show, in respect of loans for which Bethian is named as "member", one in August and one in November 2001, one in March, two in April, two in July, ten in August, one in September, one in October, one in November and two in December 2002, and two in January, one in February and one in March 2003. Since the procedure was for monthly accounts, this meant that RCTI's for Bethian commission's were processed in September and December 2001, April, May, August, September, November, and December 2002 and January, March and April of 2003. The information also needed to be retained for the payment of the trail in due course. That Bethian's claim to be a member was almost certainly not a secret seems obvious. I do not believe it was a secret from Mr Tomazin: he said that it was the company to which the defendants' bonuses were to be paid. It also received payments (also described in RGMM's accounts as "commissions") pursuant to what the defendants claimed was a management agreement, which Mr Tomazin denied ever existed. Other developments had intervened in the meantime and it is convenient to deal with them first, in an attempt to deal with the events chronologically as much as possible.
The employment contract of 1 February 2002
During the period from April 2001 to February 2002, RGMM settled $97 million worth of loans. Ms Nguyen said that, in January, Mr Tomazin raised with her the subject of variations to her and Mr Stolyar's employment contracts. She claimed that Mr Tomazin told her that he wished them to sign new contracts for a longer period and would increase their salaries linked to monthly settlements. Ms Nguyen agreed but raised the issue of her bonuses which, she said, had not yet been paid. She said that Mr Tomazin said he would "sort out the bonus I owe you once we execute the new employment agreement". (I deal below with the issue of whether bonuses were due and whether they were paid.) Except, I take it, in respect of the bonus, Mr Tomazin does not take issue with this account.
On 1 February 2002 a further employment agreement was entered into between Ms Nguyen and RGMM. The earlier agreement was terminated as at 31 January 2002 and the new agreement came into effect on 1 February 2002. Ms Nguyen was reappointed as "general manager". The term was two years. The duties of Ms Nguyen were specified as -
"Duties and accountability
4.1 The Executive's duties include, but not limited to:
4.1.1 work normally conducted by a senior underwriter;
4.1.2 work normally conducted by a relationship underwriter;
4.1.3 any office work which the Company may reasonably ask the Executive to do, even though it does not fit with the normal duties of his position.
4.2 The Executive shall report to and be accountable to the Director of the Company.
4.3 In performing her duties the Executive must:
4.3.1 serve the Company faithfully and diligently and exercise all due care;
4.3.2 act in the best interests of the Company at all times;
4.3.3 refrain from acting in conflict to the interests of the Company;
4.3.4 use her best endeavours to protect and promote the Company's good name and reputation; and
4.3.5 perform her duties to the best of her ability."
It will be seen that her duties were specified as those normally conducted by a "senior underwriter", as distinct from a "general underwriter" (as earlier specified) whilst the additional duty of that of a "relationship manager" was changed to that of a "relationship underwriter". In the absence of any evidence about the significance, if any, of the change in these terms, I think the better view is that it was not intended to and did not effect any real change. The significant variation concerned remuneration, in which respect it was provided -
"5.1 If the total sum of settled loans from portfolios brought in by the Executive in a quarter (either February - April, May - July, August - October, or November - January) is not less than ten million dollars ($10,000,000.00), the Executive shall be paid a salary on the basis of One Hundred Thousand dollars ($100,000,00) per annum.
5.2 If the total sum of settled loans from portfolios brought in by the Executive in a particular quarter (either February - April, May - July, August - October, or November - January) is less than ten million dollars ($10,000,000.00), the Executive shall be paid a salary on the basis of Seventy-five Thousand dollars ($75,000.00) per annum."
The bonus provisions also changed both by increasing the triggering value of settlements and requiring GST to be added to the amount payable -
"6.3 The Executive shall be paid a bonus if she brings her own portfolio (clientele) to the Company and the total sum of settled loans from such portfolio in a calendar month is not less than two million dollars ($2,000,000,00). The bonus for that month shall be 0.25% (plus GST) of the sum of settled loans and shall be payable after settlement."
There is no evidence explaining the addition of GST to the bonus. Such a provision had not been included in the parallel clause 6.3 in the contract of 12 March 2001. Since the bonus is remuneration, no GST is payable, although, of course, income tax is. This is significant for reasons later discussed. It seems to me that the clause must be read as plus GST if any is payable.
The requirement as to variations needing to be in writing was repeated.
On the same date as the second Nguyen agreement Mr Stolyar entered into a new agreement. As before he was described as a "senior manager". His duties varied to the extent that they included work normally conducted by a "senior underwriter" as distinct from a "senior manager" and work normally conducted by a "relationship manager" was changed to work normally conducted by a "relationship underwriter". Given that it is common ground that the duties of an underwriter concern the assessment of an application to ensure its compliance with the funder's criteria, it seems at least clear that Mr Stolyar was still not expected to seek new business, let alone new business from the borrowers themselves. It is true that the duties were described as including work of the specified kind and were not limited to that work but I do not think there is any basis for construing the duties as comprehending any significantly different kind of work. The duration of the contract was two years from 1 February unless earlier terminated, with an option for Mr Stolyar to renew by a notice in writing given on or before 1 February 2004. Mr Stolyar's remuneration was specified as follows -
"5.1 If the total sum of settled loans from portfolios brought in by the Executive in a quarter (either February - April, May - July, August - October, or November - January) is not less than ten million dollars ($10,000,000.00), the Executive shall be paid a salary on the basis of One Hundred Thousand dollars ($100,000,00) per annum,
5.2 If the total sum of settled loans from portfolios brought in by the Executive in a particular quarter (either February - April, Ma - July, August - October, or November - January) is less than ten million dollars ($10,000,000.00), the Executive shall be paid a salary on the basis of Seventy-five Thousand dollars ($75,000,00) per annum."
The bonus provision was -
"6.3 The Executive shall be paid a bonus if he brings his own portfolio (clientele) to the Company and the total sum of settled loans from such portfolio in a calendar month is not less than one million dollars ($2,000,000.00), The bonus for that month shall be 0.25% (and GST) of the sum of settled loans and shall be payable after settlement."
(The addition of the GST amount is also made in this contract. There is controversy as to which of the words or the figures should be taken as the settlement target. I deal with this in due course.)
The variation clause was repeated.
The variations of 1 November 2002 and 17 March 2003
According to Ms Nguyen, this variation arose out of a contretemps between the defendants and the partners concerning referrals to RGMM by SWFS, Ms Nguyen's earlier employer. She said that, shortly after she joined RGMM, she was called by the managing director of SWFS, Mr George Koovousis, who told her that he wanted to continue to refer loans to her having, as I understand it, referred loans to her when she was at Mortgageport. He said that he wanted to deal only with her and asked whether accreditation for SWFS could be arranged as soon as possible. Ms Nguyen said that a solicitor had been engaged to prepare the accreditation agreement and an appointment would be made to execute it. This was done on 2 May 2001, Mr Tomazin signing for RGMM, witnessed by Ms Nguyen and Mr Koovousis signing for SWFS. SWFS began referring loans to RGMM very shortly afterwards and became a very significant introducer, referring loans on its own behalf and from other sub-introducers the largest of which was VIP Financial Services (VIP). They accounted for a large proportion of the loans referred to RGMM.
In July 2002, Ms Nguyen said, Mr Koovousis informed her that Mr Tomazin had arranged for some of his salesmen to approach VIP, adding -
"What kind of business is Tony trying to run? I give most of my business to RGMM so why would he go behind my back and steal one of my top referrers. How can I trust RGMM with my business now?"
Ms Nguyen said she would speak to Mr Tomazin. On about 23 July 2002 she took up the matter with him. According to her the following conversation occurred -
"George is really upset with this VIP fiasco. He has faxed to me a list of the VIP loans for the last four months and it shows on average George was getting about $1 million in loans from VIP. He's now rethinking about whether to refer loans to RGMM as he thinks this is out of my control. I don't want RGMM to be linked to RGMC."
In answer to a question from Mr Tomazin as to what she wanted, Ms Nguyen said -
"RGMM needs to trade under a new name. I don't want the industry and market to mix us up. There must be a distinction between RGMM and RGMC."
Mr Tomazin agreed that he and Ms Nguyen discussed the SWFS situation but not in the terms related by Ms Nguyen. He did not deny the approach to VIP nor give an account of what was discussed. He did not suggest some failure of recollection. His bare denial is unconvincing and does not lead me to doubt Ms Nguyen's account.
Mr Stolyar's involvement was second hand in the sense he was told by Ms Nguyen of what of Mr Koovousis' complaint, though he dated it in early or mid 2002. He said they (the defendants) regarded this as a breach of the understanding they had with Mr Tomazin that RGMC was to operate in the retail area exclusively whilst the wholesale business was operated by RGMM. The consequence was that RGMC was competing with RGMM for loans which otherwise would have gone to RGMM. Mr Stolyar said that Mr Tomazin, being a director of both companies, had access to all the introducers brought to RGMM by him and Ms Nguyen and was in a position to offer them commission structures with which RGMM could not compete. In May or June 2001, Mr Tomazin had said to him words to the following effect -
"The business has to run cash flow positive; to do that, I don't want you to pay more than 1 per cent to your brokers. We receive one per cent in up front commission from the funders. I pay 0.25 per cent of it out to you and 0.75 per cent to the broker."
Accordingly, Mr Tomazin could approach RGMM's introducers and offer them a more attractive commission than that which had been imposed on RGMM by him. Indeed, according to Mr Stolyar, this is what he did with VIP. Furthermore, commission payments passed on by RGMM to the brokers were made by RGMC, which was therefore in a position to withhold them. Mr Stolyar said that because of these matters he gave verbal notice to Mr Tomazin in October 2002 of his intention to terminate the employment agreement. Mr Tomazin denied this occurred.
Ms Nguyen said that she raised the matter again with Mr Tomazin in about October 2002, proposing that RGMM changed its name to Precise Mortgage Management Pty Limited and RGMM should trade from another office, preferably in the city. Mr Tomazin asked why. Ms Nguyen replied -
"What happened with VIP endangered my relationship with South Western. I want to reassure my brokers that their source of business will be protected but more importantly I want to protect my source of business. If I can't stop RGMC from dealing with brokers, I want to make sure the market out there knows there is no association with RGMC to my operation. The source of business in this business model is my livelihood Tony. If you don't agree with this, I can't see how our working relationship can continue."
Ms Nguyen said that Mr Tomazin agreed to her proposal as he did not want to lose her but wanted a new contract signed with her and Mr Stolyar. He said that, to make up for the VIP fiasco, he would offer, in addition to the 0.25 per cent bonus, a profit share arrangement and shareholding at a later date to tie her in. Ms Nguyen said that they should talk about the profit share arrangement and added that she wanted RGMM to obtain direct accreditation to Macquarie Bank. Mr Tomazin said, according to Ms Nguyen -
"Look, last financial year RGMM made a profit of $210,000 so if RGMM can make a profit over this amount, I will give you 25 per cent share of RGMM's profits and if it makes you happy, I will arrange RGMM to be directly accredited to Macquarie."
Mr Tomazin's first affidavit did not deal with this matter at all. He said in his second affidavit, whilst conceding they had a conversation about the subject matter, he did not agree with Ms Nguyen's account. He said that she complained that she and Mr Stolyar could not work with the partners and wanted to set up their own company called Precise Mortgage Management which should be in the city to access the larger accounting firms, running the company for Royal Guardian but with its own accreditations. Mr Tomazin said he told Ms Nguyen that he doubted a new company would get accreditations but her proposal was acceptable providing the shareholding remained the same as that of RGMM, so "I don't lose Daniel and Zoran". He said that Ms Nguyen agreed to this but wanted a new employment agreement with a pay rise and a share of the profits.
Mr Stolyar does not refer to the proposed new arrangement, as I understand it because he did not have the conversation with Mr Tomazin. However, he said that, a day or so after he gave notice of his intention to resign, Mr Tomazin told him that, because of his reaction to what had happened, he had negotiated an arrangement with Ms Nguyen that RGMM will be separately accredited with the funders, the business would move to a new office and they would receive higher salaries. Mr Tomazin denied that this conversation occurred.
Variations, dated 1 November 2002 and signed by Mr Tomazin, were made to the February 2002 employment agreements. Ms Nguyen's contract was varied by increasing her salary to $125,000 "effective 1 October 2002" provided settlements averaged $15 million per month together with a profit share of 25 per cent for any profits over $210,000 a year as from 1 July 2002, with a set off for losses against future profits. In Mr Stolyar's case, the only variation was an increase in his salary to match that of Ms Nguyen. Both variations also provided -
"- RGMM to be changed to Precise Mortgage Management Pty Ltd.
- RGMM/PMM will be separately accredited for all Macquarie Bank loans subject to Macquarie Bank approval.
- RGMM / PMM will go under RGMC banner for all Origin loans.
- Both parties undertake to execute a new employment contract will be executed in due course i.e once the lease agreement for the City office is finalised. The term of the new employment contract will be the same as the term of the lease for the proposed office, and the terms & conditions of the new employment contract shall incorporate the above conditions."
Given the nature of the variations, it is obvious that there must have been discussions about the extent of the profit share and the target that triggered payment as well as the proposed future arrangements. Thus the document provides support for preferring Ms Nguyen's account of the preceding conversation over that of Mr Tomazin's.
It has been submitted on behalf of the plaintiff that the November variations did not come into effect since there was no change of company name, no "new employment contract" was executed, nor was a city office leased, (although RGMM was accredited with Macquarie Bank). I do not agree. In terms, the salary and profit share stipulations are unconditional, whilst the last four matters were prospective and not expressed as preconditions. The agreement to execute a further contract did not imply that the variation would not take effect unless this were done. In any event, further executed agreements were entered into on 17 March 2003, which provided in identical terms as the earlier agreements for the variations to the defendants' salaries and Ms Nguyen's profit share but omitted the prospective clauses.
Mr Tomazin did not refer in his first affidavit to the agreement of 1 November 2002 (though he executed it), saying of the 17 March 2003 agreement, in substance, that it was entered into following a request made about that time by Ms Nguyen that her contract be extended and her salary increased. In light of the November agreement, this cannot be right either as to date or subject matter although, of course, there must have been a discussion about increasing her salary.
In the meantime, Ms Nguyen said that she asked Mr Tomazin in mid- December when he would pay the bonuses and profit share. She says that Mr Tomazin acknowledged his obligation to pay the bonuses and this would be done once a new office had been found and a new employment contract signed. She said he told her, "Just go on your holiday and enjoy yourself and we will sort it out when you come back". Mr Tomazin denied this conversation occurred.
The calculation of bonuses
(As stated above, one of the disputes in the case concerns whether payments agreed to have been made to Bethian, were payments of bonus or of a management fee. This issue is discussed below. The present discussion concerns the basis for calculation of bonuses, about which the parties also disagree.)
The relevant clause (6.3) in the employment agreements is in the same terms for each of Ms Nguyen and Mr Stolyar. It is not easy to construe. The preconditions for payment of a bonus are twofold: first, the "executive" must bring his or her "own portfolio (clientele) to the Company"; and, secondly, "the total sum of settled loans from such portfolio in a calendar month is not less than one million dollars". Upon satisfaction of these requirements, the "bonus for that month shall be 0.25% of the sum of settled loans". According to Mr Tomazin, bonuses were paid on all loans, however the borrower came to the company although, according to him, they were only due with respect to borrowers introduced directly (ie not through a broker) by Mr Stolyar or Ms Nguyen, as distinct from "borrowers introduced by a broker or other introducer or referrer, a staff member or a business with which RGMM had already dealt or otherwise were part of the goodwill of RGMM". He said that, instead of restricting the bonus payments to these loans, he permitted payments to be made on the total value of settled loans, regardless of the source of the borrowers. He gave, as "an example" of an introducer (broker) not brought in by either Mr Stolyar or Ms Nguyen, Express Home Loans (Express) which, he said, he did not "have enough manpower, time and resources to manage, [and] I could give them to Beth [Nguyen] to handle and train and later she would receive the 0.25 per cent bonus on their loans despite the fact that neither Express Home Loans nor their borrowers were brought to RGMM by Beth [Nguyen] or Ian [Stolyar]". Ms Nguyen does not, in terms, dispute this evidence but says that Express was a very inexperienced broker which referred work to Mr Pusic but, after she trained and developed their brokering skills, settled many loans with RGMM and RMM. She says that, sometime in mid 2003, she told Mr Tomazin that she had been told by the directors of Express that Mr Pusic had tried to get their business referred to him but they refused, wanting to deal only with her and that Mr Tomazin confirmed that Mr Pusic had told him the same thing. Mr Tomazin did not take issue with this account. It seems to me that this minor controversy (if it is one) is relatively insignificant. It is well arguable that Express qualified as part of Ms Nguyen's clientele in light of this history. Ms Nguyen pointed out, that since RGMM had just commenced its business, as a practical matter all new business with some minor exceptions such as employees seeking loans, was indeed new clientele. The lack of any evidence from Mr Tomazin as to any brokers (with the possible exception of Express) which were earlier accredited to RGMC and transferred accreditation to RGMM confirms this position. In addition to Express, the only example of a client with whom RGMC had a relationship and later secured a loan through RGMM was one Mr Steven Webster who, Mr Tomazin said, was a panel lawyer for one of RGMC's lenders and also for RGMM itself and RGMC had been dealing with Mr Webster as a lawyer since 2001. Mr Tomazin noted that although Steven Webster was a "direct client" as he defined the term, the loan was recorded as having been written by Dibelle, which received commission and trail payments from the loan. Mr Stolyar agreed that Mr Tomazin introduced Mr Webster to him, but this was not related to any loan enquiry. He said that, in 2003, Mr Webster contacted him to ask for advice on personal financial matters in respect of which he needed finance. Mr Stolyar said that he arranged these loans through Dibelle and RGMM since, he said, RGMM did not deal with direct clients. Had he sent Mr Webster to RGMC, RGMM would not have benefited from the business. I think that Mr Webster's loans might fairly be regarded as "brought" to RGMM by Mr Stolyar.
Ms Nguyen said that, although she agreed that it was theoretically possible for existing customers of RGMM to refinance loans or obtain a new loan whilst still a customer of RGMM, in practice this would almost never occur because the majority of RGMM loans were referred from introducers: they were referred to other brokers in the early period and later to Bethian and Dibelle. The schedule of settled loans to which I have referred shows that, except for eight occasions, an introducer is recorded. The exceptions show "staff" which is, according to Ms Nguyen, an indication that no introducer was involved and the loans were for staff members of RGMM. This is confirmed by a comparison with a list of employees disclosed by RGMM on discovery. Ms Nguyen denied that RGMM gave loans without an introducer being involved to existing borrowers or refinanced existing loans without an introducer except, perhaps, for some staff members who sought loans. It is the substance of her evidence that the brokers who brought loans to RGMM did so because of her contacts and marketing efforts.
Mr Tomazin said that the reason for paying bonuses he was not obliged to pay was that he understood that Ms Nguyen and Mr Stolyar had been paid in that way by their previous employer and expected RGMM to do likewise and he "was prepared to make payments to meet those expectations because at the time RGMM was very concerned with increasing the volumes of loans to satisfy the volume requirements of the new funders we had signed up, and it was more practical and effective that way". As I understand him, therefore, the gratuitous bonuses were paid in order to encourage Ms Nguyen and Mr Stolyar to develop the business. This strikes me as unlikely. Firstly, Ms Nguyen and Mr Stolyar were prepared to come to work for RGMM on the conditions set out in the employment agreements and it is difficult to see a justification for thinking that they were not content with the arrangement to which they had agreed. At all events, since it is clear that Ms Nguyen was employed to develop RGMM's business and since that was, if not exclusively, overwhelmingly (as Mr Tomazin conceded) dealing with loans referred by brokers, it would be very surprising indeed if Ms Nguyen's bonuses were to be paid only on loans sought by individual borrowers, even more surprising when the trigger volume for that payment was $1 million a month. Moreover, it seems clear, as Ms Nguyen said, when she joined RGMM it had not started business and it was necessary for her to develop it. As mentioned, her experience with Mortgageport was with its broker business. On the basis that the loans falling within the description of "own portfolio (clientele)" comprehended brokers, except in relation to Mr Webster and Express, there was no evidence from RGMM as to borrowers or brokers who would not have qualified (with the possible exception of about half of Dibelle's borrowers whom, it was contended by RGMM - but rejected by me, as to which see below - were earlier clients of RGMM, not brought in the first place by the defendants). Ms Nguyen said that, in September 2001, Mr Tomazin came into her office and congratulated her for settling almost $10 million worth of loans in that month, saying "I am very impressed that it took you only five months to deliver the volume that you promised", a conversation which he has not denied. I think it adds some support for the defendants' case in respect of the source of the RGMM business, namely that it was not transferred from RGMC, a matter which Mr Tomazin would have been almost certain to have known if it had occurred on a significant scale.
The monthly settlements have been listed in documents produced (as I understand it, by the defendants but not disputed by RGMM). If the payments made to Bethian matched the bonuses that would have been payable in accordance with those figures and, hence, on the meaning of clause 6.3 contended for by the defendants, then they were vastly more generous than Mr Tomazin's contended was justified. On his contention, virtually no bonus would have been payable in the result, leaving aside the clients who, according to the defendants, had been located by them and brought in via Dibelle. Mr Tomazin's contention as to what was meant by cl 6.3 is therefore very unlikely to have been the agreement.
The differing interpretations placed on clause 6.3 by the defendants on the one hand and Mr Tomazin on the other are not, of themselves, material to its correct construction although their evidence as to what was meant by the technical terms it contains is receivable. Despite my doubts about the admissibility of the meanings attributed to the phrase "own portfolio (clientele") by the parties, no objection was taken to the evidence as explaining the language. Accepting that the phrase is ambiguous, evidence as to "objective framework of facts within which the contract came into existence" is admissible: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352 per Mason J. Here, the evidence is that RGMM was set up as a wholesale business dealing with brokers, Ms Nguyen's experience with the company from which she came was in that business, she was employed to commence and expand that business and her bonus entitlement arose only when settled loans exceeded $1 million a month. The conclusion is inevitable that the clause meant she was entitled to a bonus where the settled loans exceeded that sum, whether the borrower was brought by her or by a broker, providing she was responsible for attracting the application.
I have mentioned above the registration on 19 August 2005 of RMM, of which Ms Nguyen was a shareholder and director. Quite what happened to her employment at this stage is somewhat uncertain. Ms Nguyen says that RGMM continued to trade but under RMM's name. A written agreement on 4 March 2006 (the surrounding circumstances are discussed below) contained an agreement by Ms Nguyen to transfer her shares to the partners for $110,000 and provided that she would "manage and control both RGMM and RMM portfolios in the interests of both companies" and would be entitled to 25 percent share in RMM's "(new book) profit". The payroll activity statement for RGMM contains a handwritten query whether Ms Nguyen left on 10 August 2005, and that for RMM contains a handwritten note that she commenced 14 September 2005. However, her PAYG Payment Summaries (detailed below) showed, in effect, her employment with RGMM terminated on 31 August 2005 and commenced with RMM on 1 September 2006. It seems to me that it is appropriate to rely on the PAYG summaries as reliable indicators of her employers at the specified dates.
Mr Tomazin said that, when she was employed by RMM, Ms Nguyen was no longer entitled to what he called her "usual bonus ... that she was entitled to while she worked for RGMM" since she was entitled to the profits engendered by her 25 percent shareholding in RMM. It is surprising that there is nothing in writing produced by either party about this rather fundamental change, while the agreement of 4 March 2006 suggests, to my mind, the arrangements under the then current employment contracts remained in place, including clause 6.3 concerning bonus payments and profit share. However, Ms Nguyen did not take issue with Mr Tomazin's evidence about the termination of the bonus entitlement and agreed that it occurred, saying in cross-examination -
I have rehearsed in some detail the competing evidence about the nature of RGMM's business and my view about the matter, including the duties for which the defendants were employed. This does not need to be repeated here. The Dibelle arrangement grew out of or was largely instigated by the change in the arrangements within the Royal Guardian group brought about by the partners, which Mr Tomazin adopted. It may well be that the defendants might anyway have wished to enter the retail business. After all they had started to do so in a small way with Bethian. However, I accept their account that it was the fact that the partners commenced to compete with their broker business which led them to undertake the recruitment of individual borrowers at an increasing rate. There was obviously significant resentment with the attempts by the partners to attract the defendant's brokers, especially, as Mr Stolyar thought, by using their inside knowledge as directors of RGMM. Of course, someone needed to do the brokers' work, so that the borrowers either needed to be referred to other brokers who would then seek the loans through RGMM or the defendants had to do it. In the latter case, they would have been undertaking work for which, despite Mr Tomazin's evidence, it is clear they had not been employed and which would have required very much longer working hours. I do not need to consider whether, even if Mr Tomazin had not been informed of the defendants interest in Dibelle, it was proper for the defendants to have used Dibelle, given their terms of employment, since I am satisfied Mr Tomazin was at all times well aware not only that commissions were being paid to Dibelle but also that it was the defendants' vehicle for obtaining broker's commissions in respect of loans sought by individual borrowers.
I propose first to deal with the evidence concerning the accreditation agreement claimed by the defendants to have been signed by Mr Tomazin (for RGMM) in respect of Dibelle Financial Services Pty Ltd. This involves the testimony, not only of the defendants but also of Faina. It is, of course, not in issue that she was indeed the sole shareholder and director of the company and that it referred many applicants to RGMM for which it received substantial commissions. The crucial question is whether Mr Tomazin was aware of the defendants' connexion with it. In this respect I am satisfied that he was so aware, indeed, that he executed the accreditation agreement as claimed by the defendants and Faina. As mentioned previously concerning her evidence relating to the 2002 mortgage application, I thought Faina was a truthful and reliable witness. I accept her evidence that she attended with the defendants when the accreditation agreement was executed and it was executed by Mr Tomazin. This is a matter about which she could not be mistaken. I do not accept that she fabricated her account with the defendants. It follows that I reject Mr Tomazin's account.
It is, of course, true that the evidence must be considered as a whole and, as already mentioned, four significant parts of the evidence support Mr Tomazin's denial that Dibelle was accredited. The first (in no particular order) is that it would have been risky for his business in light of the conflict of interest that would arise because Dibelle would be the agent of the borrower and RGMM would be employing the defendants to assess the viability of the loan as the agent of the funder, an arrangement that the funders would find unacceptable. I have discussed the evidence about this issue above. In substance, it was not disputed by the defendants. The question is whether Mr Tomazin would have been inclined to take the risk in light of the precautions which, according to the defendants, he suggested and the potential commercial advantage it represented. The second matter is that Dibelle did not have PI insurance, though the defendants' evidence was that, at the time, this was not an actual requirement. The third issue is that no copy of any of the accreditation agreements (with Bethian, Dibelle Finance and Dibelle Financial Services Pty Ltd) has been produced. Loss of one agreement might be thought reasonably possible, but the loss of three (or four, if the Bethian management agreement is included) is so unlikely as to strongly indicate that they never existed. Against this, Ms Nguyen's evidence is that she left her papers behind when she left RGMM in rushed circumstances. The fourth matter is the lack of any attempt to obtain in writing at the time the various subsequent employment variations were entered into an acknowledgement of the amount of bonus due and some provision as to the mode of payment, the more so as the amount allegedly owed became very substantial. So far as this issue is concerned, I accept Ms Nguyen's evidence that Mr Tomazin was a father figure for her: her genuine (I accept) feelings of betrayal when, as she said, he chose Mr Pusic and Mr Pondelak over her was persuasive evidence that their relationship was not simply a business one. Furthermore, she was relatively young at the relevant time and, although no doubt an effective salesperson of RGMM's products, her naive relationship with Mr Tomazin made her vulnerable to his blandishments. I consider that Ms Nguyen was telling the truth when she said that thought she was protected by her employment agreement and trusted Mr Tomazin to pay her in due course. I accept Ms Nguyen's evidence about the cash state of the RGMM's accounts not permitting the payment of bonuses and that she believed Mr Tomazin's continuing excuses and prevarication, although she became suspicious about the genuineness of the payments for "rent". This latter matter is corroborated by the reference to transfers in the March 2007 draft agreement. When it came to the draft agreement of March 2007, I believe her evidence to the effect that, by the time it came to writing the draft, she had decided not to proceed and any agreement as to payment of past bonuses was irrelevant. I think that her understanding of legal or forensic utility was rudimentary. Lawyers instinctively try to obtain evidence likely to support a case but many ordinary people do not think defensively in that way. I do not think that Ms Nguyen had litigation in mind at the time of the meeting but had decided to move on. At all events, as an objective matter (as she said) she had the benefit of a written agreement providing for the payment of bonuses and (if she is telling the truth about Bethian) she might well have thought that it would be easy to prove that she had not been paid. Although, therefore, at first blush, the contention on behalf of RGMM that the absence of any mention of bonuses in the draft agreement, especially in light of the amount claimed to be outstanding, strongly suggests that no such debt existed, in all the circumstances, including my view of Ms Nguyen's demeanour, I accept Ms Nguyen's evidence about the matter. Mr Stolyar was not naïve and, I think, much less inclined to trust Mr Tomazin as time went on. However, he accepted Ms Nguyen's assurances that she had known Mr Tomazin for a long time and believed that the bonuses would be paid. He said he wanted to leave in about February 2002 because of Mr Tomazin's broken promises and the way RGMC was being run but he accepted Ms Nguyen's judgment about Mr Tomazin's trustworthiness and gave an instance of a conversation between them about it. I thought that Mr Stolyar was telling the truth about this matter and that, though rather more hard-headed than Ms Nguyen, he deferred to her judgment in this respect. I also accept Mr Stolyar's evidence as to his reason for not suing at a later point.
It is also necessary to bear in mind Mr Tomazin's response to the discovery by the partners of the defendants' involvement in Dibelle. To my mind, the adjustments that he made for the purpose of continuing to employ Ms Nguyen and Mr Stolyar, despite the antagonism of the partners, are inconsistent with a genuine belief that he had been deceived by the defendants - in particular Ms Nguyen - about Dibelle, in such a way, moreover, that placed his vital business relationships with his funders at risk. Nor was his continuing attempt to employ the defendants, as witness the draft agreement of March 2007, consistent with such a view of their behaviour.
The evidence concerning the administrative arrangements in the RGMC/RGMM combined office is set out above. I prefer Ms Nguyen's description of the process, although (except as to the extent of his personal involvement) Mr Tomazin does not take substantial issue with it at all events. It is not possible to be certain at this remove of the actual extent to which Mr Tomazin was present in the office and not travelling. But I am satisfied that he was present for significant periods throughout, though longer in 2001 and 2002. I do not accept that Ms Nguyen sought to conceal her connexion with Dibelle by, for example, keeping the relevant file away from staff who might need to check it when calculating commissions or preparing RCTIs. More to the point, I accept Ms Nguyen's evidence that the accreditation and RCTI agreements were kept with the file and thus that, in the normal course, the fact that there was no accreditation agreement (if that were the case) would have become known, at least to the staff. I accept that, implicit in her evidence, she did not endeavour to conceal the Dibelle file. Indeed, I am satisfied the absence of an accreditation agreement, if that were the fact, would almost certainly have become known to Mr Tomazin in the course of his management responsibilities, however episodic they may have been.
Considering the evidence as a whole, including those matters pointing in the opposite direction, I am satisfied that the accreditation agreement between Dibelle Financial Services Pty Ltd was executed as the defendants and Faina assert. It follows that I reject the evidence of Mr Tomazin as to this matter. Bearing in mind the gravity of the conclusion, I am actually persuaded on the balance of probabilities (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170; (1992) 110 ALR 449 at [3] per Mason CJ, Brennan, Deane and Gaudron JJ) that Mr Tomazin's evidence as to the loan application and the accreditation agreement was dishonest.
I now return to the question whether there had been an earlier accreditation agreement when, the defendants said, Ms Chahine was introduced to Mr Tomazin. I have set out above the relevant evidence on each side. I am satisfied that the evidence of the defendants on this matter should be accepted. This conclusion is fortified by, though it does not depend upon, my view of Mr Tomazin as a dishonest witness.
Whether there was an accreditation agreement with Bethian is not directly relevant to the cases in the pleadings, though the conflicting evidence of the defendants on the one hand and Mr Tomazin on the other raises issues about credibility. It is not, in the circumstances necessary for me to express a concluded view about this matter but I am minded to accept the defendants' evidence rather than Mr Tomazin's as the more probably truthful.
I should note, for completeness, that the defendants had pleaded mutual releases of liability. This was the subject of cross-examination in which the defendants referred to negotiations which, they understood, justified the allegation. However, in the end the evidence was to my mind inconsequential and I have not thought it useful to deal with it.
Limitation Act defence
RGMM pleaded a defence under the Limitation Act 1969 (NSW) in respect of the defendants' cross claim. It is unanswerable. It follows that, both in respect of bonuses due and profit share, if any, only those sums due on and from 29 April 2004 can be claimed.
Loss of profits
Ms Nguyen's employment agreement was varied on 1 November 2002 March 2003, in effect, to conditionally increase her salary and entitle her to "profit share for any profits over $210,000 per annum as from 1 July 2002" with a set off for losses against future profits. These clauses were repeated in a variation of 17 March 2003. Although this variation, as it happened, was not referred to in the Amended Cross-Claim, this is of no moment. The relevant terms are set out. No prejudice can be suffered by RGMM if the defendants are permitted to rely on the variation (which was exhibited to one of Mr Tomazin's affidavits). At all events, I have already found that the variation contained in the agreement of 1 November 2002 was effective.
It is not disputed that no profit share was paid. The net profits of RGMM for 2004 would not, it is agreed, have fallen due until 30 June 2004. Ms Nguyen was employed by RMM from 1 September 2005 and ceased to be entitled to her bonuses from RGMM on loans settled after that date. It is submitted on behalf of RGMM that she was not entitled to any share of RGMM's profits after 1 September 2005, since the agreement of 6 March 2005 provided only for payment of a share of the profits from RMM's new book. As mentioned above, the fact that this agreement provided for a profit share in respect of RMM was not inconsistent with a continuation of the entitlement to a share of RGMM's profits. Indeed, given Ms Nguyen's continuing responsibility to manage and control RGMM, continuation of her profit share seems likely. The documentary evidence establishes on the probabilities that Ms Nguyen ended her employment with RMM on 9 June 2006. I think it follows that her responsibilities for and entitlement to a share of the profits of RGMM ended on that date. It is implicitly submitted by Mr Young that the result is that she lost her entitlement to any profits since, as I understand it, they could not be calculated until 30 June and were not payable until after that had been done.
The crucial term is as follows -
"The employee shall be entitled to profit share of 25% for any profits over $210,000 per annum as from 1 July 2002 [subject to set-off for losses]."
In my view this clause should be construed as meaning that, if the employment ended before the end of the financial year, Ms Nguyen was entitled to a 25 percent share of the profit attributable to the period of employment provided that it exceeded the proportion of $210,000 attributable to that period. This construction would make sense also because the business was, broadly speaking, steady and exhibited little volatility.
Ms Nguyen's case is that Mr Tomazin (authorised by RGMM) in substance agreed to vary the profits clause by calculating the profit, not by the standard method, namely income minus outgoings, but by deducting from the outgoings the amounts paid by way of "rent" to RGMC. Furthermore, the directors' fees would usually be an outgoing but, by agreeing that they were to be included in the trigger amount of $210,000, that figure would be more easily reached. This did not mean, however, that, if (when adding in the directors' fees) the $210,000 profit was reached, the relevant figure for calculation of the Ms Nguyen's should disregard the fees. The ultimate position would be that, if the company made a profit of $210,000 (disregarding director's fees), Ms Nguyen would be paid 25 percent of the profit after tax, disregarding the payment of "rent" to RGMC but counting all other conventional outgoings, including the directors' fees.
It will be recalled that the employment contracts contained a clause providing variations which were not in writing signed by the parties were unenforceable. As the learned authors of Cheshire and Fifoot, Law of Contract (10th Australian ed, 2012, LexisNexis Butterworths) point out (at [4.32]) a clause which "stipulates a formal process for making changes ... can never be drafted in such a way as to prevent informal contract variation ... because the very clause governing contract changes may itself be changed (usually tacitly) by the conduct of the parties". For obvious reasons, on the assumption that Ms Nguyen's evidence about the conversation of late August is accepted, there was consideration for the oral amendments. Accordingly, Ms Nguyen's profit share is to be calculated on the basis of those amendments.
So far as Mr Stolyar is concerned, he resigned on 16 June 2005 but, in a conversation with Ms Nguyen (set out in full above) Mr Tomazin told her to tell him "to continue working", in the context, for RGMM. As mentioned, Mr Tomazin denied this conversation. The spreadsheet of loans settled showing Mr Stolyar as "account manager" (meaning salesperson) lists the last loan application as dated 10 May 2006. I accept that Ms Nguyen's account of her conversation with Mr Tomazin on that date as truthful. However, what quite was meant by the exchange is not clear. The effect of Mr Stolyar's evidence is that, although he continued to refer loans he was not otherwise employed by RGMM. The written submissions of Mr McClintock referring to the claim of bonus settled to August 2005 is based, as I understand it, on the assumption that, after registration of RMM on 19 August 2005, Mr Stolyar's loan referrals were to RMM, rather than RGMM. Given the history to which I have referred and the objective facts, it seems to me that the inference that Mr Stolyar was entitled to payment in respect of the loans he continued to refer to RGMM is inescapable. (Payment for the referrals to RMM is not within the scope of this litigation.) The likely inference is that the basis for payment was that to which he had hitherto been entitled, namely 0.25 percent of those loans which settled.
It will have been noted that Mr Stolyar's employment contract of 1 February 2002 provided in cl 6.3 for the payment of a monthly bonus if the settled claims for the month amounted to "one million dollars ($2,000,000)". Which of the two nominated amounts applies? It is submitted by Mr McClintock that I should apply the rule of thumb stated in Saunderson v Piper (1839) 5 Bing (NC) 425 by Tindal CJ that it was "the rule of the commercial writers that where a difference appears between words of bill, it is safer to attend to the words". This approach has been adopted many times, for which citations are unnecessary. Nevertheless, as submitted by Mr Young, where there are other indications of the parties' intentions, the evidence might justify departure from the rule of thumb. He points, in this regard, to the form of the document itself as compared to that of its predecessor. If I may say so, there is much in Mr Young's argument on this matter. However, it makes no difference, given the amount Mr Stolyar's settled loans over the relevant period, that is to say, from 29 April 2004 to 18 August 2005 well exceeded $2 million.
Conclusion
I deal first with Ms Nguyen's bonus entitlements. The value of settled loans for each of the months from 29 April 2004 to 31 August 2005 exceeded $2 million by a substantial margin, thus triggering the obligation to pay bonuses at 0.25 percent of the monthly total. It is therefore unnecessary to deal separately with each month but, because the bonus payable is a debt referable to the year in which it is incurred, the profit for that year must be adjusted accordingly. The total value of loans settled was, respectively, $54,688,325, $208,093,577 (deducting $340,000 for a staff loan) and $26,528,701. The bonus at 0.25 percent for each year is (all calculations disregard cents), respectively, $136,720, $520,233, and $66,321, a total of $723,274.
In respect of Mr Stolyar, the value of settled loans for each of the months from April 2004 to August 2005 exceeded $2 million and his entitlement to bonus was therefore engaged. The total value of loans settled for from 29 April to 30 June 2004, 1 July to 30 June 2015 and 1 July 2006 to 18 August 2006 is, respectively, $39,211,150, $163,683,149 and $15,413,500. The respective bonuses are $98,027, $409,207 and $38,533, a total of $545,767.
I now come to Ms Nguyen's profit share for the 2004, 2005 and 2006 tax years. The net profit after tax for 2004 was $54,583. Directors' fees were $272,727 and, as agreed, need to be added to the profit. The trigger sum of $210,00 was therefore reached. Adding back the "service fees" of $915,173 gives a total for the purpose of calculating Ms Nguyen's share of $969,756. Although, by virtue of the Limitation Act, the claim for unpaid bonus dates from 29 April, the unclaimed as well as the claimed bonus must be deducted to deduce the true profit. The settled loans totalled $281,839,780. The bonus due was therefore $704,599 which, when deducted from the total, gives a balance of $265,157. Ms Nguyen's 25 percent share is $66,289. As to 2005, net profit after tax was $486,843, obviously triggering Ms Nguyen's entitlement. Adding back "service fees" of $915,173 gives a total of $1,402,016. Deducting bonus yields a balance of $472,576 of which 25 percent is $118,114. In respect of the last period, ending 9 June 2006, the net profit to 30 June 2006 was $344,090. It is clear that the trigger point was reached, even disregarding directors' fees of $350,000. Adding back the "rent" of $553,933, gives the sum of $898,023. The proportion attributable to 344 days is 0.942 of the entire year, yielding $845,937. Deducting bonuses leaves a balance of $741,083, of which Ms Nguyen's 25 percent share is $185,270.
Judgment
In respect of the action by RGMM against the defendants, judgment for the defendants. In respect of the amended cross-claim, judgment for the cross-claimants as follows -
(i) Ms Nguyen: $1,092,947 plus interest;
(ii) Mr Stolyar: $545,767 plus interest.
The parties are to calculate interest. I give leave to approach on three days notice in the event they are unable to agree. I will determine costs following further submissions.
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Decision last updated: 10 June 2014
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