The long-running dispute between Pioneer Mortgage Services and Columbus Capital moved a step closer to resolution this week, with Federal Court judge Justice Jayne Jagot ruling on several key areas of dispute, based on several days of hearings and evidence in October last year.In brief, the main dispute arose after Pioneer became aware that one of its trusted employees, Tupeia Dando, had exploited weaknesses in internal control processes to fraudulently siphon off about A$400,000 between 2006 and 2013 by accessing customers' redraw facilities and diverting funds to her husband's bank account. Pioneer was obliged to disclose this to Columbus, which had purchased the mortgage portfolio from ANZ in April 2012.(Under the original contract, which was in place between ANZ and Pioneer from 1994 until April 2012, Pioneer originated and managed a portfolio of mortgages in conjunction with ANZ. That arrangement continued, with Columbus taking the place of ANZ.)Thus Columbus was unwittingly being signed up to make good losses from the actions by Dando "from the first act of fraud. … in 2006 until her last act of fraud in 2013." In a previous court action between the parties in the Federal Court, Pioneer was held vicariously liable for Dando's acts of fraud, and was thus liable to Columbus for breach of contract, as well as engaging in misleading and deceptive conduct.In strict legal terms, the interpretation of events was that Pioneer had represented falsely to ANZ, and then to Columbus, that the customers targeted by Dando's acts of fraud had:•    requested and required each of the redraws; •    authorised payment to the account into which the money was paid; and •    authorised the customer and Pioneer to request payment from ANZ and then, as relevant, Columbus.  Jagot said that because Pioneer had allowed the fraud to occur, the firm - but not its principal, Stephen Stefanowicz, who had guaranteed certain of Pioneer's debts - was liable to Columbus for damages and under the common law for fraudulent misrepresentation. These add up to about $420,000.Columbus, for its part wanted to extend the damage claim to cover all payments made by it to Pioneer since April 2012. This was done on the basis that, had the fraud been known at purchase, the contractual arrangement with Pioneer to manage the loans would have been terminated back then. This amounted to almost $3.3 million extra.While Justice Jagot agreed that the full amount of the fees paid from 1 April 2012 was "undisputed" at just shy of $3.7 million, she applied the 'out of pocket test' and concluded that Columbus would otherwise have been required to pay management fees under the original contract.She also observed that the actions taken by Andrew Chepul, chief executive at Columbus Capital, did not reflect the narrative that he would have closed the operation down immediately, had he known of the fraud. Jagot pointed out he failed to do this for about eight months after disclosure.The parties were ordered to confer and to file draft orders reflecting these reasons for