Sergei Sergienko v AXL Financial Pty Limited

1. [1]

   HIS HONOUR: A party asserting, and seeking to rely upon, the terms of an alleged, undocumented commercial transaction said to involve the transfer of very large sums of cash, ought not to be taken by surprise when he, she or it fails to persuade the Court of its existence.

2. [2]

   Various transactions which underlie the dispute involve claims of the unreceipted delivery of millions of dollars of cash in bags and suitcases, participation by a convicted criminal and a flagrant breach of trust.

3. [3]

   This case is somewhat exceptional for the additional reason that, apart from the solicitor for the plaintiff, Mr Andrew Wei (Wei), and one witness, Mr Zi Wang whose evidence became irrelevant, none of the witnesses who gave oral evidence is to be believed where his evidence is not corroborated by independent, objective circumstances or contemporaneous documents which can be demonstrated to be genuine. Each was prepared to say anything if he thought it assisted his cause.

4. [4]

   The proceedings were conducted remotely by video-link.

5. [5]

   The plaintiff (Sergienko) describes himself as a company director with businesses involved in aspects of cryptocurrency trading.

6. [6]

   The first defendant (AXLF) and the third defendant (Roths Holdings) are companies associated with the second defendant, Oliver Roths (Roths). Roths has convictions for fraud, perjury and for destroying, damaging, mutilating or altering a book in relation to a matter being investigated by ASIC, for which he served a period of imprisonment. He was previously known as Oliver Banovec. I shall refer to AXLF, Roths Holdings and Roths collectively as the Roths Interests. The Roths Interests, as is referred to more fully below, are in breach of orders by the Court to make discovery. Their defences were struck out and I declined to hear them: see Young v Jackman (1986) 7 NSWLR 97.

7. [7]

   The fourth defendant (IWC) and the fifth defendant (DKEC) are associated with Mr Daniel Klisovic (Klisovic), a concreter. IWC is avowedly the trustee of a unit trust styled the DK Excavation and Concreting Unit Trust (the Trust) in which DKEC holds all the units. Where it is not necessary to distinguish between IWC and DKEC, I will refer to them collectively as DKEC.

8. [8]

   Mr Ian Chalmers (Chalmers) was at all material times a director of a company called AXL Capital Partners Pty Ltd (AXL Capital) which although it bears the AXL name, has no corporate connection with the AXL Group. AXL Capital is the second cross-defendant to the second cross-claim and Chalmers is the third cross-defendant to the second cross-claim. During the hearing, DKEC dropped its cross-claims against AXL Capital and Chalmers. Those cross-claims are to be dismissed with costs. AXL Capital is also the respondent to a cross-claim brought by AXLF to which reference will be made later.

9. [9]

   From about 2015, Chalmers advised and assisted Sergienko in connection with various commercial and financial aspects of his business. Sergienko engaged him when he needed help with specific things.

10. [10]

    AXLF is the registered owner of a property identified as Lot 1 in Deposited Plan 87599 and known as 107 Killarney Drive, Killarney Heights (the Property). It occupies a peninsular projection into Middle Harbour, is surrounded by a reserve and adjoins a national park. It is heritage listed.

11. [11]

    The principal contest is between Sergienko and DKEC and concerns competing claims to an equitable interest in the Property. The subsidiary contest is between DKEC and the Roths Interests. DKEC brings a cross-claim for breach of trust against AXLF, seeking equitable compensation.

Sergienko’s settlement with the Roths Interests

1. [12]

   In 2016, Sergienko discussed with Chalmers, whom he took to be part of the AXL Group, acquiring a public company through which to make the equivalent of an Initial Public Offering, which in cryptocurrency speak is termed an ICO (or Initial Coin Offering). PLC Financial Solutions Limited (PLC) was identified as the vehicle. Chalmers apparently contributed $50,000 for marketing the ICO, which Sergienko says he paid back. It seems that the interest holders in the proposed business were to be Sergienko, Zi (also known as Jim) Wang, and Chalmers himself. Sergienko paid $1.58 million to the Roths Interests for the purposes of buying shares in PLC. [1] By 22 January 2018, Roths and Roths Holdings had, using $530,000 of Sergienko’s money, acquired a total [2] of 6,333,333 PLC shares at an average of $0.055 per share. They failed to transfer the shares to Sergienko.

2. [13]

   The PLC proposal never got off the ground because control of PLC was never achieved, apparently due to personal differences between Roths and the Chairman of PLC, Harry Fung.

3. [14]

   On 29 March 2018, Sergienko initiated proceedings in this Court against the Roths Interests suing, amongst others, to recover the money paid to the Roths Interests and not repaid.

4. [15]

   On 4 April 2018, Sergienko moved the Court ex parte for, and obtained, asset freezing orders against the Roths Interests. [3] Sergienko was represented by Mr S Docker (Docker) and Mr L Corbett (Corbett), both of counsel, instructed by Wei.

5. [16]

   Between 4 and 9 April 2018, Sergienko and the Roths Interests negotiated a settlement of their disputes. What occurred during the negotiations is the subject of controversy. A settlement conference took place in a conference room at Docker’s set of chambers at which were present Wei, Corbett, Roths, the solicitor for the Roths Interests, Mr Derek Ziman (Ziman), Chalmers and Chalmers’ solicitor, Mr Jose Perez Varela. Sergienko was apparently in Samoa at the time. Roths offered to put the Property up as security for the payment of money to Sergienko under the proposed settlement.

6. [17]

   During a break, Wei arranged for a title search to be done on the Property. A title search was obtained. It showed that the Property had no encumbrances on title.

7. [18]

   Chalmers gave evidence that during the break he met Wei, Docker and Corbett in Docker’s chambers when he told them that the Property was “mortgaged and held in trust for DKEC”.

8. [19]

   Docker, Wei and Corbett all gave affidavit evidence of having no recollection of any such words being spoken. Wei was adamant that no such thing had been said. He said that Chalmers had not been in Docker’s chambers with them. Each said that had Chalmers said such a thing, more would have been asked about it because of its obvious significance.

9. [20]

   Wei was cross-examined and was unshaken. I believe him. Neither Docker nor Corbett was cross-examined.

10. [21]

    It is noteworthy that there is no contemporaneous written material which corroborates Chalmers on this significant issue. On any view, if he knew that AXLF held the Property on trust (which he says he did) he should have clearly and unequivocally disclosed it. Leaving aside the fact that neither Docker nor Corbett was cross-examined, it is inherently unlikely that had Chalmers said any such thing it would have simply been glossed over by experienced practitioners. Chalmers, who was cross-examined, is not unintelligent. He was an unsatisfactory witness and I do not believe him.

11. [22]

    On 9 April 2018, Sergienko and the Roths Interests settled the proceedings by entering into a Deed of Settlement (the Deed).

12. [23]

    Prior to the settlement, Roths and Sergienko had apparently levelled against each other claims of illegal behaviour. One of Roths’ accusations against Sergienko was, it seems, of insider trading in connection with the PLC shares (remembering that it was the Roths Interests rather than Sergienko that did the buying of the PLC shares). Another was, apparently, about money laundering in Sergienko’s cryptocurrency trading business. However, it was not put in the hearing that any identifiable criminal or other unlawful conduct had been engaged in by Sergienko, or for that matter by the Roths Interests, at any time prior to the Deed. It is not necessary in this case to intrude into the merits or demerits of the accusations. It is not clear what precise complaints Sergienko levelled at Roths prior to the Deed, apart from the fact that Roths had taken his money, had not transferred any PLC shares, and had not repaid money handed over but not spent on PLC shares.

13. [24]

    Shortly before the Deed was signed, Chalmers sent an email to Roths, copied to Sergienko, Wei and Ziman, which contained the following:

14. [25]

    I shall refer to this ‘agreement’ as the No Reporting Arrangement.

15. [26]

    The Deed was signed on behalf of AXLF by its solicitor, Ziman. [4]

16. [27]

    The Deed appears as a schedule to this judgment but for convenience the critical parts are reproduced below. I am satisfied that it is a genuine instrument.

17. [28]

    Clause 2.2 of the Deed provides:

18. [29]

    AXLF failed to:

19. [30]

    Amongst other manifest imperfections in the Deed, cl 2.2.10 does not say who is to pay the amount and who is to receive it. DKEC takes the point that this defect means that the mortgage to be given by AXLF does not secure the amount referred to in cl 2.2.10. It is, however, obvious that it was intended that AXLF pay the amount and that Sergienko receive it, and the clause should be so construed: HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296. As a safety check, if there was any doubt about the intention of the parties to the Deed, it is dispelled by an exchange of emails between Wei and Ziman on 9 April 2018 in which Wei asked:

20. [31]

    And Ziman replied:

21. [32]

    Ziman’s reference to AXL is a reference to AXLF.

22. [33]

    On 9 April 2018, Sergienko lodged a caveat on the Property to protect his interest.

Sergienko’s claims against the Roths Interests

1. [34]

   Sergienko sues to enforce the Deed. He:

   1. (1)

      seeks orders that AXLF execute a mortgage in registrable form over the Property, and in default of compliance that a Registrar be empowered to execute all such instruments and do all such things on behalf of AXLF as may be necessary to give effect to the order;

   2. (2)

      moves for judgment against AXLF for the money amounts payable under the Deed and for declarations that they are secured by the mortgage;

   3. (3)

      seeks orders that Roths transfer 2,500,000 shares in PLC to him and in default of compliance that a Registrar be authorised to execute all such instruments and do all such things on behalf of Roths as may be necessary to give effect to the order;

   4. (4)

      claims damages said to have been suffered by Roths’ failure to transfer the shares on time;

   5. (5)

      seeks orders that Roths Holdings transfers 3,833,333 shares in PLC to him and in default of compliance that a Registrar be authorised to execute all such instruments and do all such things on behalf of Roths Holdings as may be necessary to give effect to the order;

   6. (6)

      claims damages said to have been suffered by Roths Holdings’ failure to transfer the shares on time.

2. [35]

   As will be observed, in cl 2.2.6 AXLF warranted that the Property was unencumbered. That AXLF was not the beneficial owner of the Property was, however, not disclosed in the Deed.

IWC’s and DKEC’s position and claims

1. [36]

   DKEC maintains that from no later than 29 July 2017, AXLF held the Property for its benefit as trustee under the Trust.

2. [37]

   DKEC denies that Sergienko has any equitable interest. It argues that the Deed will not be enforced by a Court of Equity because of the existence of the No Reporting Arrangement.

3. [38]

   DKEC contends that if Sergienko does have an equitable interest in the Property, that interest should be postponed to its own interest because Sergienko had notice of its interest. DKEC relies on what it says was the disclosure by Chalmers at Docker’s chambers on 5 April 2018, and in the alternative says that Chalmers held knowledge of its interest as Sergienko’s agent with the consequence that Chalmers’ knowledge is to be attributed to Sergienko.

4. [39]

   DKEC contends, as was mentioned earlier, that the Deed embodies no obligation on AXLF to make the payment in cl 2.2.10. It also argues that if ALXF has such an obligation, it is not secured by the equitable mortgage because it is not part of the ‘Secured Amount’ as defined in cl 2.2.1 and referred to in 2.2.5b).

5. [40]

   DKEC (supported by IWC) seeks orders for delivery up of the Certificate of Title to the Property, and orders vesting it in IWC.

6. [41]

   Additionally, DKEC asserts against AXLF that in entering into the Deed, it breached its fiduciary duties as DKEC’s trustee. It seeks orders that AXLF pay it equitable compensation.

The Roths Interests

1. [42]

   On 4 September 2020, orders were made for the parties to make discovery. Sergienko made discovery. DKEC made discovery. But the Roths Interests, somewhat predictably, failed to do so. As at 9 December 2020, the Roths Interests were, and to this day, remain in default.

2. [43]

   On 9 December 2020, on Sergienko’s application (by motion filed on 11 November 2020), I made orders striking out the Commercial List Responses of the Roths Interests but stayed the order until 15 December 2020 to give them further time to comply. On that occasion, a solicitor, Ms Mulligan, appeared as amica curiae on the footing that she expected to be instructed by the Roths Interests. But this did not happen. I directed that any affidavit to be relied upon in an application to discharge the striking out order had to be filed by Monday 14 December 2020. No affidavit was filed by the deadline but an affidavit by Roths was provided on 15 December 2020 which persuaded the Court to extend the operation of the stay to 5 February 2021 to give the Roths Interests more (probably over generous) time to comply. They failed to do so.

3. [44]

   The striking out accordingly took effect on 6 February 2021.

4. [45]

   At the instance of DKEC on 25 February 2021, I struck out AXLF’s Commercial List Cross-Claim Response to DKEC’s cross-claim against it on the same basis, namely that it remained in breach of the Court’s discovery orders.

5. [46]

   On 19 February 2021, DKEC moved the Court to vacate the hearing scheduled for 8 March 2021. On that occasion, Roths, personally sought to appear for the Roths Interests. I declined to hear him on the basis that they were in contempt of the orders for discovery and that their defences to Sergienko’s claim and DKEC’s cross-claim had been struck out.

6. [47]

   On the first day of the trial, Roths sent my Associate an email saying that he would be unable to attend the hearing on medical grounds and conveyed his apologies to the Court.

7. [48]

   On the third day, 10 March 2021, however, Roths sent my Associate a further email saying that he intended to appear that day and to seek leave to file an affidavit which was unsworn but which he was hoping to swear later that morning. Roths was present by video-link that day. I declined to hear him or to allow the material to be adduced.

8. [49]

   The only extant claim by the Roths Interests is a cross-claim by AXLF against AXL Capital (Chalmers’ company) for damages. AXLF is in breach of orders of the Court, does not have a solicitor on the record, and Roths did not have leave to appear for it. Chalmers, however, did not make an application to dismiss it, I assume by reason of oversight. Had he applied, it is inevitable that it would have been dismissed. It has not been motivated and there is no issue on it which needs to be determined. Exercising the powers under s 61(3)(a) [5] of the Civil Procedure Act 2005 (NSW) I propose to dismiss it.

DKEC and the Property

1. [50]

   DKEC’s dealings with respect to the Property are murky.

2. [51]

   Mr Lajos Kovacs (Kovacs) is the sole director and secretary of IWC. He is known to Klisovic as “Uncle Louie”.

3. [52]

   They say that in the second half of 2016, Klisovic was interested in buying the Property but did not have the money. Klisovic says that he approached Kovacs for money, saying that they could get the Property for around $1.5 million. They inspected the Property. Kovacs said that they needed $1.8 million to secure it. Kovacs says Klisovic raised the possibility of appointing Chalmers, a banker, to assist in the purchase of the Property. Kovacs says that an old friend of his, Tony Madorma (Tony), agreed to provide the money.

4. [53]

   Kovacs says that in February 2017, Klisovic told him that he (Klisovic) had met with Chalmers, who wanted the money in cash because it was better for tax purposes and easier to work with. I asked Kovacs whether this rang any warning bells. He said it did not.

5. [54]

   Kovacs says that he told Tony that he needed the money in cash, which Tony said would be no problem.

6. [55]

   He says that on 26 February 2017, Tony handed him a canvas bag with $600,000 in it. He handed over another $600,000 on 13 March 2017, and yet another $600,000 on 16 March 2017, all in canvas bags. He says that he put the money in a suitcase and later handed the suitcase to Klisovic.

7. [56]

   There are in evidence three one-page documents each entitled Heads of Agreement, which purport to be loan agreements between Tony and Kovacs each for an amount of $600,000. Interest of 10% p.a. is payable annually with a default interest rate of 20% p.a. There is no evidence of interest having being paid. The term of each loan is 7 years. Tony has apparently since died. Kovacs has had no contact from anybody purporting to be his executor in relation to these significant amounts of money. I am not persuaded that these instruments are genuine or that any money was in fact advanced pursuant to them, or indeed otherwise.

8. [57]

   Kovacs says he reported to Tony from time to time, including informing him that settlement of the Property had taken place.

9. [58]

   In early November 2016, Klisovic instructed a solicitor, Mr Nikola Velcic (Velcic), to act in respect of the purchase of the Property, which was owned by Zahr Properties Pty Ltd (Zahr). Zahr was represented by solicitors, Halas Lawyers (Halas).

10. [59]

    There is in evidence a document, purporting to be a receipt dated 20 May 2016 from Chalmers for $1.8 million received from Klisovic for “property purchase”. The receipt states “funds to be provided to AXL Financial to arrange settlement of property purchase”. Interestingly, Klisovic’s interest in the Property seems to have begun in around August 2016 and according to Kovacs, he received the cash from Tony in February 2017, that is, well after the ostensible date of the receipt. No credence can be given to the genuineness of this receipt.

11. [60]

    On 15 November 2016, Velcic received a sale contract from Halas. Klisovic is reflected as the purchaser. The price was $1.5 million, with a deposit of $50,000. Klisovic arranged for a bank cheque for the deposit, which was handed to Velcic, but the contract was never exchanged, apparently because Klisovic did not have the money.

12. [61]

    Klisovic says that in early February 2017, he was introduced to Chalmers, a banker, who said he would take care of everything and would work out how best to structure the transaction. Klisovic says that he told Chalmers he did not need finance, and that Chalmers said it would be better for tax purposes if he could provide the purchase funds in cash, to which Klisovic agreed. Why this would be better for legitimate tax purposes was not revealed.

13. [62]

    Klisovic says that on or about 18 March 2017, he attended Kovacs’ house, together with a friend of his, Lyle Pendleton, where Klisovic says he took possession of a canvas bag which Kovacs said contained $1.8 million.

14. [63]

    Klisovic says that he and Pendleton then attended Chalmers’ office where he handed him the cash, which was counted using a money counting machine in Chalmers’ office. Klisovic says that Chalmers wrote out a receipt but Chalmers did not give him a copy. He says that Chalmers kept the receipt on his file. Chalmers produced no such receipt. There is no documentary evidence of this transaction and Klisovic could provide no rational explanation why the recipient, rather than the payer, should keep a receipt. I am not persuaded that these events happened.

15. [64]

    As will be referred to later, Chalmers says that he later gave this money back. There is also no receipt for this transaction. Chalmers says that it was recorded in his diary, which was stolen from his garage. I am not persuaded that these events happened.

16. [65]

    Apparently on the advice of Chalmers, DKEC was incorporated on 17 March 2017, with Klisovic as the sole shareholder and director.

17. [66]

    On 4 May 2017, Halas issued a further contract for the sale of the Property. This time the purchaser was DKEC and the price was $1.4 million with a deposit of $50,000. Klisovic says he signed it and it was exchanged, and he then left for Croatia for the purposes of becoming a godfather.

18. [67]

    He says that when he got back Pendleton told him that the Property had not settled. He called Chalmers who attributed the delay to an issue surrounding GST which Klisovic says he did not then, and does not now, understand. He says that at this time Chalmers said he should purchase the Property using a trust structure. Chalmers asked him to sign “a bundle” of documents the nature of which he does not recall.

19. [68]

    On its face, the Trust Deed was executed on 29 July 2017 on behalf of AXLF by Alexander Gordon Johann Harmstorff (Harmstorff), its director and sole company secretary and by Klisovic on behalf of DKEC. Harmstoff is apparently a solicitor. Klisovic says that he executed the document on that day. I am prepared to accept that the Trust Deed was in fact signed.

20. [69]

    There is in evidence a document purporting to be minutes of a meeting of AXLF at which Klisovic was present with Harmstorff on 1 May 2017 at 11 AM. Klisovic says no such meeting took place.

21. [70]

    There is in evidence a document dated 29 July 2017 purporting to be an application by DKEC to AXLF for 1,530,000 ordinary units in the Trust which records that $1,530,000 was paid. This is no evidence that this payment was made and I do not accept that it was.

22. [71]

    There is an undated Certificate of Unit Holding in which AXLF certifies that DKEC holds 1,530,000 ordinary units.

23. [72]

    The Trust Deed contains the following relevant provisions:

24. [73]

    The contract for the purchase of the Property which was exchanged in May 2017 was never completed.

25. [74]

    Klisovic says that on about 16 October 2017, Velcic informed him that AXLF was sacking him as Klisovic’s lawyer. Velcic told him that he did not trust them and did not like Chalmers. Velcic told Klisovic not to sign anything without ringing him first.

26. [75]

    There is in evidence an email dated 16 October 2017 in which a person named JB Costigan, designated as AXL Acting Group Manager – Risk Assessments wrote to Velcic, “I am writing to you at the direction of Oliver Roths to inform you that your instructions in this matter are withdrawn with immediate effect”.

27. [76]

    Klisovic says that he never gave instructions or authority for this to happen. He says that he raised it with Chalmers, who told him not to worry, that the conveyance was taking too long and that Velcic was “stuffing us around”. Klisovic went along with it.

28. [77]

    Klisovic says that on or about 20 November 2017, he signed documents (despite Velcic’s advice) at Chalmers’ office in the presence of Costigan, whom he believed was Chalmers’ solicitor. He met with Chalmers after he signed the documents. He was not given any paperwork in relation to the Property.

29. [78]

    Another contract was exchanged, in puzzling circumstances on about 15 December 2017, with AXLF as the purchaser “ATF DK Excavation & Concreting”. I take ATF to connote “as trustee for”. This is the contract which was settled and pursuant to which the Property was transferred to DKEC. The documents supposedly signed on 20 November 2017 may have included this contract (settlement of this contract ultimately took place on 7 February 2018).

30. [79]

    There is in evidence a statutory declaration ostensibly signed by Costigan on behalf of ALXF for the purposes of the Duties Act 1997 (NSW) dated 30 January 2018 to the effect that AXLF purchased and took transfer of the Property as trustee for DKEC. There is nothing to suggest that this document is not genuine. I accept that it is.

31. [80]

    There is in evidence a Deed of Loan which on its face provides for AXLF, in its capacity as trustee of the Trust, to borrow $1.5 million from itself as authorised representative of Moshav Financial Pty Ltd (Moshav). There is an executed mortgage by AXLF as trustee in favour of itself in evidence. But contrary to this, it is to be remembered that in the Deed AXLF warranted that the Property was unencumbered.

32. [81]

    DKEC and Klisovic’s position is that the Property was acquired using the cash which was supposedly handed over in March 2017. There are significant difficulties in the way of accepting this. If it were correct, there would have been no need for external finance. Yet, as is set out below, there are many dealings inconsistent with this.

33. [82]

    In evidence is a solicitor’s file note dated 16 May 2017 (the genuineness of which I have no reason to doubt) made by “KG” which is Kylie Griffin (Griffin) of Velcic’s office which states:

34. [83]

    Klisovic was overseas as the file note records and he confirmed that the telephone number is that of his wife. But he denies that any conversation between his wife and the solicitor took place because, he says, his wife says it did not. He was unable to explain the existence of the file note or the reference to mortgage documents. I have no reason to doubt the genuineness or accuracy of the solicitor’s file note.

35. [84]

    On 16 May 2017, Griffin wrote to Chalmers:

36. [85]

    And Chalmers responded:

37. [86]

    On 1 June 2017, Klisovic signed an Indicative Letter of Offer for finance from an organisation called Moshav for $1 million, the terms of which included providing a first-ranking mortgage over the Property. Klisovic could not explain why he did this.

38. [87]

    On 2 June 2017, Chalmers wrote to Griffin confirming that Klisovic had signed the loan documents. A solicitor’s file note dated 6 June 2017 (the genuineness and accuracy of which I have no reason to doubt) refers to Klisovic having apparently signed mortgage documents and to Klisovic having informed Griffin that he attended the broker and, as far as he knew, signed all the paperwork. Klisovic denies having had these dealings.

39. [88]

    On 6 June 2017, Roths wrote to Griffin referring to being in the process of arranging security documents to be prepared.

40. [89]

    Another solicitor’s file note dated 7 June 2017 (the genuineness and accuracy of which I also have no reason to doubt) refers to a conversation with Roths in which he “advised that he acts for the mortgagee”. It also makes reference to mortgage documents being prepared.

41. [90]

    Another solicitor’s file note dated 11 July 2017, reflects a conversation between Velcic and Klisovic in which Klisovic indicated that he had no objection to AXLF being the purchaser. There is a reference to “issues in respect of the way in which the lending is to be structured on behalf of the Trust, which relate to serviceability” and that the shelf company created in March (which I take to be DKEC) was “unable to satisfy the banking institution” and accordingly the matter would need to proceed on a different basis. It records Klisovic’s consent to AXLF being the purchaser of the Property on behalf of the Trust. Klisovic, unconvincingly, denied having spoken to Velcic.

42. [91]

    On the same day, Velcic wrote to Halas saying, relevantly, “our client is unable to obtain its finance in its own corporate name and style… We understand the issues relating to the property are the financier’s valuation. Once that issue can be addressed and finance is available then the matter is able to proceed forthwith”. Klisovic denied having anything to do with these dealings and had no explanation for the reference to obtaining finance or for the necessity for a financier’s valuation.

43. [92]

    Klisovic says he never told Velcic about the cash he says was available to buy the Property. He had no convincing explanation for why he kept this from his lawyer.

44. [93]

    AXLF took transfer of the Property on 7 February 2018.

45. [94]

    Kovacs says that from about June 2018 he told Klisovic that he wanted the Property transferred out of the Trust and placed back within his control. They spoke of a purchase price of $1.5 million. Kovacs says he instructed a solicitor, Johanna Licuanan (Licuanan), to assist in the conveyance of the Property. She told him that something was not right with it.

46. [95]

    Kovacs went to see Roths. He told him that he wanted to take over the Property and asked him what the reason was for the holdup. He says that Roths said he wanted a deposit from Kovacs. Kovacs then found out that Sergienko had caveated the Property. Licuanan recommended that Kovacs go see Atticus Busby (Busby) of MacKellar Lawyers.

47. [96]

    Kovacs was cross-examined on his motivation for wanting the Property transferred. He gave no rational explanation.

48. [97]

    On 13 December 2018, Roths, on behalf of AXLF, wrote to Klisovic attaching “a final statement of accounts for this property”. The letterhead describes AXLF as “[a]uthorised AFS representative of Moshav Financial Wholesale Pty Ltd”.

49. [98]

    The statement of account is from an organisation called Agility Finance. The entries on it include three Loan Drawdowns totalling $1.5 million. Klisovic could not explain why loans were recorded.

50. [99]

    Klisovic says that in about mid-February 2019 he instructed Busby to act for him on the conveyance of the Property. Busby told him there was a caveat on the title. He then met with Chalmers who told him that Roths was “the guy who handled the whole thing”. He says Chalmers told him that the trouble with Property was that Roths owed a debt to a “Russian mate of mine” (presumably Sergienko) and that Roths had given security over the Property.

51. [100]

    Klisovic says that he met with Roths on 19 February 2019. The caveat was discussed.

52. [101]

    In March 2019, Busby told Klisovic that he had spoken to Roths about removal of the caveat and Roths had said they were taking steps to have it removed and had issued a lapsing notice.

53. [102]

    But the caveat was never removed.

54. [103]

    The sale to Kovacs’ company did not proceed. However, on 6 June 2019, by Deed of Appointment (the existence of which is not in issue), DKEC removed AXLF as the trustee of the Trust and appointed IWC.

55. [104]

    The ultimate state of the evidence does not permit a finding to be made with any confidence as to what was the real source of the money used by AXLF to buy the Property.

Enforceability of the Deed

1. [105]

   DKEC does not argue that the legal obligations which the Deed imposes on the Roths Interests are not legally binding or that it does not give Sergienko an entitlement to have a money judgment.

2. [106]

   Further, it argues that by reason of the existence of the No Reporting Arrangement, the Court should withhold its assistance in granting Sergienko equitable relief in the form of the orders for specific performance which Sergienko seeks.

3. [107]

   It argues that the Deed is a component of a broader agreement of which the No Reporting Arrangement is an integral and unseverable part.

4. [108]

   The No Reporting Arrangement was separate from, collateral to, and severable from the transactions embodied in the Deed. The elimination of the invalid promises in the No Reporting Arrangement does not affect the kind of contract which the Deed is or its operation in any way: see MacFarlane v Daniell (1938) 38 SR (NSW) 337, 345.

5. [109]

   Additionally, it is not suggested that any aspect of the transactions embodied in the Deed itself is unlawful and none of Sergienko’s claims is based on the commission of fraudulent or unlawful behaviour: see North v Marra Developments Limited (1981) 148 CLR 42, 60.

6. [110]

   DKEC did not identify, indeed expressly eschewed identifying, any illegal or unlawful conduct by Sergienko which could be the subject of any reporting.

7. [111]

   One aspect on which I believe Sergienko is that he was not really concerned about threats to report him. His motivation was plainly to get back his money and to get the PLC shares.

8. [112]

   Finally, the No Reporting Arrangement is not of a quality which would warrant the Court withholding equitable assistance from Sergienko as against the Roths Interests, especially at the instance of DKEC, a party who has not established the source of money used to buy the Property, and has been unable to do so because of the undocumented manner in which it conducted its business.

Construction of the Deed

1. [113]

   The central provision of the Deed is cl 2.2. It contains a number of infelicities.

2. [114]

   Clause 2.2.2 refers to AXLF’s obligation under cl 2.2 as being a debt owed to Sergienko. Cl 2.2 includes 2.2.10.

3. [115]

   Clause 2.2.3 refers to “clauses 2.2”. Clause 2.2.4 refers the debt in “cls 2.2 and 2.2”. Clause 2.2.7a) contains the same error. It refers to the mortgage securing AXLF’s obligations and the debt in “cls 2.2 and 2.2.”

4. [116]

   There is some substance in the proposition that only the amount for which cl 2.2.1 provides is the Secured Amount (as defined), to which cl 2.2.5b) applies. But the point is of no moment because the legal mortgage, which is to be given under cl 2.2.7, does not secure only the Secured Amount but AXLF’s obligations and the debt in cls 2.2 and 2.2 [sic] against the Property. Clause 2.2 includes cl 2.2.10. The registerable mortgage must cover this amount.

The Trust

1. [117]

   DKEC has not established where the money to buy the Property came from and certainly not that it was the source.

2. [118]

   Nevertheless, I find (with some reservation) that the Trust exists. I am satisfied that the Trust Deed was in fact executed, and although if Klisovic is to be believed there was no meeting on 1 May 2017, and although payment for the units has not been proved, there is sufficient to conclude that AXLF at all times (until it was removed) held the Property on trust for DKEC. The material which supports this includes the Trust Deed itself, the Sale Contract, and the deed removing AXLF and appointing IWC as trustee.

3. [119]

   Non-payment for the units may once have given AXLF an entitlement to revoke the Trust: Valoutin Pty Ltd v Furst (1998) 154 ALR 119, 134-135. But it is no longer open for it to do so.

4. [120]

   Subject to Sergienko’s rights, IWC is entitled to be registered on the title of the Property.

Priorities

1. [121]

   Under the Trust Deed, DKEC expressly conferred on AXLF the means of representing itself as the beneficial owner of the property. It expressly conferred upon it the power to do what it did, notwithstanding that as between them this was a flagrant breach of trust by its trustee. AXLF was an agent which exceeded the limits of its authority but it acted within its apparent indicia. DKEC has a claim against AXLF but Sergienko’s interest prevails against DKEC: Abigail v Lapin (1934) 51 CLR 58; Hyde v Reliance (1983) 154 CLR 326.

2. [122]

   Sergienko gave value for the interests which the Deed gives him. I find that he gave value without notice of DKEC’s interest: Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265.

3. [123]

   I have already said that I do not believe Chalmers that he disclosed. I believe Wei (and for that matter Docker and Corbett) that he did not disclose DKEC’s interest.

4. [124]

   I reject the submission that Chalmers’ knowledge of DKEC’s interest is to be attributed to Sergienko. Chalmers was not, at the time of the Deed, acting as Sergienko’s agent or on his behalf in anyway with respect to the entry into of the Deed. Chalmers had assisted him in relation to the PLC share proposal but Sergienko did not retain him in anyway with regard to the settlement and the entry into of the Deed. He had no authority to do anything on behalf of Sergienko in relation to those transactions. If he had authority, I would not attribute his knowledge to Sergienko anyway because he knew of DKEC’s interest and that Sergienko was not aware of it, and as I have found, did not disclose it. This could not have been inadvertent. If contrary to my finding, Chalmers was Sergienko’s agent, this withholding (as Sergienko argued in final submissions) would have been a fraud on him with the consequence that Chalmers’ knowledge would not be sheeted home to him.

Sergienko’s claim for damages

1. [125]

   Clause 2.2.8 of the Deed required Roths and Roths Holdings to transfer the shares they held in PLC to Sergienko or at his direction on or before 13 April 2018.

2. [126]

   Clause 2.2.9 provided that any specific costs incurred by the Roths Interests in the “PLC transaction” (up to $20,000) would be deducted from the debt “outlined in 2.2 upon proof of expenditure”.

3. [127]

   Sergienko maintains that had the PLC shares been transferred to him on time he would have held on to them until 29 May 2018 to allow Roths to achieve a controlling interest in PLC and if Roths was not able to do so by 29 May 2018, he would have sold them.

4. [128]

   He does not explain why his deadline was 29 May 2018. He gives evidence that 56 million new shares in PLC were issued in June 2018. This he says would have made him even more keen to sell, because of the dilution effect. He says he would have tried to sell the shares off market in the first instance where his experience is that sale prices are higher than on market sales. He provides no evidence of this experience.

5. [129]

   He believes that he would have been able to sell the shares for between 2 and 4 cents per share. He produces a graph from the Australian Securities Exchange website showing prices of PLC shares between 4 April and 4 October 2018. He claims that his lost opportunity cost is $75,000 for the shares to be transferred by Roths and $115,000 for the shares to be transferred by Roths Holdings, which is calculated at 3 cents per share.

6. [130]

   This claim fails. It has a number of insuperable difficulties.

7. [131]

   First, I do not accept Sergienko’s evidence that he would have sold as he says he would. This evidence is self-serving, given well after the event, and there is nothing objective to support it.

8. [132]

   Second, I do not accept Sergienko’s opinion that he would have been able to sell such a significant volume of shares at the price he suggests. The Australian Securities Exchange record shows that trading volumes were very thin. In addition, he takes no account of the dilution effect of the issue of the shares in June 2018. He gives no evidence which satisfies me that he is in any position to give admissible evidence on these matters. Conventionally, these types of issues are the subject of expert testimony.

9. [133]

   Third, Sergienko still seeks specific performance of Roths and Roths Holdings’ obligations to transfer the PLC shares they hold but does not establish that these shares have no economic value.

10. [134]

    He is, however, entitled to the orders for specific performance for the delivery of the PLC shares that he seeks.

DKEC’s claim for breach of trust

1. [135]

   DKEC has established a clear breach of trust by AXLF in committing to mortgage the Property to Sergienko. DKEC is entitled to equitable compensation.

2. [136]

   Quantification of this will require a further hearing. If DKEC wishes to proceed, I am inclined to refer this question to a referee for enquiry and report.

3. [137]

   The Court will make the following orders:

   1. (1)

      Within 21 days of this order, the first defendant must execute and deliver up to the plaintiff a mortgage in registrable form (‘Mortgage’) over Lot 1 in Deposited Plan 87599, being the property contained in folio identifier 1/87599 and known as 107 Killarney Drive, Killarney Heights NSW (‘Property’), and any other document necessary to register the mortgage.

   2. (2)

      In default of the first defendant complying with order ‎1 above, a Registrar of the Court be empowered to execute all such instruments and do all such things in the name of and on behalf of the first defendant as may be necessary in order to give effect to that order.

   3. (3)

      Judgment for the plaintiff against the first defendant for the following amounts:

   4. (4)

      Within 21 days of this order, the second defendant must transfer 2,500,00 shares in PLC Financial Solutions Limited to the plaintiff or his nominee (such nominee to be notified in writing to the second defendant within 7 days of this order).

   5. (5)

      In default of the second defendant complying with order ‎(4) above, a Registrar of the Court be empowered to execute all such instruments and do all such things in the name of and on behalf of the second and/or third defendant, as the case may be, as may be necessary in order to give effect to that order.

   6. (6)

      Within 21 days of this order, the third defendant must transfer 3,833,333 shares in PLC Financial Solutions Limited to the plaintiff or his nominee (such nominee to be notified in writing to the third defendant within 7 days of this order).

   7. (7)

      In default of the second defendant complying with order ‎(6) above, a Registrar of the Court be empowered to execute all such instruments and do all such things in the name of and on behalf of the second and/or third defendant, as the case may be, as may be necessary in order to give effect to that order.

   8. (1)

      The Court declares that the first cross-defendant to the second cross-claim breached its equitable obligations as trustee to the second cross-claimant to the second cross-claim.

   9. (2)

      The Court declares that the first cross-defendant is liable to pay the second cross-claimant equitable compensation.

   10. (3)

       The Court declares that with effect from 6 June 2019 the fourth defendant/first cross-claimant to the second cross-claim was appointed trustee of the DK Excavating and Concreting Unit Trust.

On the cross-claim by AXLF against AXL Capital

1. [138]

   The first cross-claim is dismissed.

Other orders and directions

1. [139]

   The Court will stand the matter over until 23 April 2021 to allow the parties to consider these reasons, to consider the final form of orders to be made, to draw to the Court’s attention any further issues that are required to be dealt with, and to give directions with respect to the determination of costs and to the quantification of the equitable compensation to which DKEC is entitled.

2. [140]

   The parties are to liaise with my Associate with respect to the platform to be utilised on that date.

3. [141]

   The exhibits will be returned.