Mr Mallalieu said the allegations of the children were corroborated by the man to some extent, because he admitted to touching one girl around the groin while towel-drying her leg after a shower, but said it was in a totally different situation to that which was claimed, and it was innocent.
He also admitted to pinching their bottoms as part of a cuddle, but maintained there was nothing indecent about it, and it also was innocent.
Mr Mallalieu told the jury critical evidence would come from the two girls themselves, and they should focus on their reliability and credibility.
He urged them to think in context of the victims being children and how the offending occurred - when they were in a state of semi-sleep.
Defence counsel Roger Crowley made a short opening address outlining the issues for the jury. It was the defence position that the man did not sexually violate or indecently assault either girl.
He told the jury the allegations against the man were "very easy" to make but "almost impossible" to disprove, because there were no witnesses or recordings.
He told the jury they would see in the girls' police video interview they would say something that didn't make any sense, which pointed to the child fabricating the evidence.
"As difficult as it is to make this submission ... Kids do tell lies. We all know that."
Mr Crowley said the defendant was an "upstanding member of the community", who had never been in trouble before, and the allegations had come out of the blue.
He too told the jury to be very careful listening to the evidence and in assessing the credibility of the children.
The trial is expected to take four days.