The parties in the Pioneer Mortgage Services versus Columbus Capital saga were back in court yesterday to decide on costs, following the Court finding strongly in favour of Columbus in a Federal Court action earlier this year. The non-bank lender and administration provider had taken action against Pioneer for failing to implement appropriate audit and reconciliation measures that would have detected a long-running  fraud by one of its employees who was stealing from customer accounts. The fraud continued for a number of years until Columbus, which took over the mortgage portfolio, installed a modern computer system that prevented the fraudster from bypassing system checks - and then tried to institute changes to protect its investment - resisted in a series of court actions by Pioneer. As Pioneer's counsel put it himself, this was a case that was "hard fought by well-resourced commercial parties… this was a complex case including fraud, employer's vicarious liability, deceptive and misleading conduct."One of the main legal principles being tested in yesterday's hearing was whether or not a settlement offer had been unreasonably rejected - a so-called "Calderbank offer," made on what turn out to be better terms than what was actually achieved.If so that can give rise to indemnity costs.Counsel for Columbus reminded Justice Jayne Jagot in the Federal Court that his client had made four offers to settle: the first on 6 February and the final one on 4 June.All of the offers - in hindsight - were much better than Pioneer could now expect, having lost on all grounds.For instance, in its first offer Columbus said it would take on the management of the mortgages but give Pioneer at 35 basis point trailing commission (a compromise amount much less than originally paid before the fraud was discovered).Ultimately Justice Jagot agreed with Columbus that the loss arose by the failure of Pioneer to manage loans in a "businesslike manner". She said that, by the time of the fourth offer on 4 June this year, Pioneer had "unreasonably failed" to accept an offer. She also accepted that A$377,000 in principal and interest foregone was lost through fraud by Pioneer's ex-employee, but this figure did not take into account opportunity cost nor non-payment of management fees.Ultimately the situation arose from what seems to have been an unrealistic view in the Pioneer camp as to the true state of its mortgage book.