London-based Arch had questioned underwriting agency Dual about legal fee levels as part of its auditing processes, former company executive Peter Bailey told the County Court today.

A query in May 2012 was looked into by Dual, and the issue was raised again by Arch some months later, Mr Bailey told the court.

Mr Bailey was employed as COO by Dual Australia MD Damien Coates in July 2010 and was a signatory on the payment of invoices, including those for legal work. Claims manager Josie Gonzalez joined in November.

“Her initial reporting line was in to myself as COO,” he told the jury.

Mr Bailey said that when signing off he did not conduct additional veracity checks on the service provided, but matched system generated payment requests with invoices approved.

“My understanding is that Josie approved all invoices in regard to professional liability matters,” he said.

Josie Gonzalez and her husband Alvaro Gonzalez have each pleaded not guilty to 14 charges of obtaining a financial advantage by deception.

It’s alleged that Dual was defrauded of $17.4 million as a result of more than 400 false invoices for legal services in a period extending a little over two years from March 2011.

The prosecution alleges the couple’s firm Jaag Lawyers invoiced Dual for services never authorised or provided.

“There was a generally accepted panel of legal firms that was used by Dual,” Mr Bailey said today. The panel did most of the work and did not include Jaag Lawyers, which he had no concerns about until June 2013, he said.

Mr Bailey said he was contacted by claims administration assistant Olga Karakotina about legal spending, Jaag Lawyers and its association with Josie Gonzalez at that time.

“I agreed to meet Olga at my residence and I called Damien and he agreed to come over as well,” he said.

Dual executives later flew to Melbourne and met with lawyers about pursuing freeze and search orders in the Supreme Court.

Mr Coates said yesterday that Dual was expanding quickly when it was decided to take claims handling in-house.

Professional indemnity, the firm’s area of specialty, was in demand after the global financial crisis and there was a “massive increase” in claims and a “rapid increase” in the use of lawyers, he said.

Defence counsel Alan Hands suggested Josie Gonzalez’ proposal to outsource work to her husband’s firm was accepted by Mr Coates.

“She agrees to come and work for Dual on the basis that Dual would provide her husband’s legal firm with work,” he said. “Correct?”

Mr Coates said that was untrue and incentives to join Dual included an increase in salary and the appeal of the company.

Suggestions that a media campaign was waged against the couple after obtaining a Supreme Court freezing order were also rejected by Mr Coates.

“I was trying to save my company,” he said. “We were going to lose clients if we couldn’t recover the $17 million.”

Mr Hands questioned how the couple could have provided evidence of work done for Dual, given they had no access to their computers or documents at that time.

A deed of settlement signed by Josie and Alvaro Gonzalez included wording related to wrong-doing that would allow the company to fully recover funds including $6 million paid to the tax office, the court was told.

“Recovering that $6 million in tax was a key element of the $17 million,” Mr Coates said.

The trial continues.

By Wendy Pugh, at the County Court of Victoria