The court battles between loan originator and manager Pioneer Mortgage Services Pty Ltd and lending funder Columbus Capital Pty Ltd moved to a full court hearing in the Federal Court yesterday, with Pioneer appealing a finding by Justice Jayne Jagot that Columbus had a right to terminate the contractual arrangements between it and Pioneer. Pioneer manages a mortgage book of loans that were funded by ANZ under a series of agreements signed in the 1990s. In 2013, Columbus acquired the loan book from ANZ, and there have been several disputes in recent years between Columbus and several other smaller mortgage managers over aspects of this legacy agreement.One of the reasons Jagot gave as a basis for Columbus' right to terminate was that Pioneer had breached its contractual obligations to manage the loans "in an efficient and businesslike manner and in accordance with sound business practices." The court said this was "because the systems which Pioneer had in place ... permitted a fraud to be committed by one of Pioneer's employees over many years without detection." The employee in question was Tupeia Dando, one of Pioneer's managers. Between 2006 and 2014, Dando was able to arrange redraws from loan accounts of three borrowers, totalling over A$400,00 in amounts less than $10,000 each time, with the funds transferred to an account controlled by her husband. The borrowers had not requested or authorised the redraws.Columbus held Pioneer responsible for allowing the frauds to occur, and sought to terminate its management agreement and claw back the lost funds, interest and management fees, as well as to terminate the entire management agreement.Pioneer had appealed the earlier judgment against it on several grounds, although early in what turned out to be a two-hour hearing in Sydney before Justices Jennifer Davies, Jacqueline Gleeson and James Edelman, Pioneer yesterday boiled down its grounds of appeal to the question of vicarious liability - under what circumstances should an employer be held responsible for the dishonest actions of an employee?Counsel for Pioneer conceded at the outset that "if Pioneer loses on the argument over vicarious liability then it will be the end of the case."He then proceeded to set out a technical interpretation of what constituted conduct by a "reasonably prudent mortgagee in respect of each loan", with high reliance on several paragraphs of an operations manual provided to Pioneer by the lender. Columbus countered that the procedures manual was "not the be-all and end-all of prudent practice", arguing that Pioneer should have put further procedures in place to guard against such a fraud. Counsel for Columbus said it was clear that while Pioneer's rogue manager Dando was not authorised to fill in original re-draw forms and have the funds redirected, she had been given authority to access the computer system that allowed her to do so, resulting in the redraws appearing to be properly  authorised.Columbus further argued that Pioneer's chief operating officer had admitted in evidence that she did not check redraws below $10,000. He also pointed to paperwork