HIS HONOUR: On 26 March 2021, I delivered the principal judgment in these proceedings: Sergei Sergienko v AXL Financial [2021] NSWSC 297 (the principal judgment). Definitions in the principal judgment are used here. I will refer to DKEC and IWC collectively as DKEC.
Orders were made that AXLF execute and deliver up to Sergienko a mortgage over the property. There was judgment for Sergienko against AXLF for money amounts, including $940,000 payable by AXLF to Sergienko under clause 2.2.10 of the Deed, and a number of other orders for the transfer of shares.
DKEC, in turn, succeeded against AXLF in its claim for a declaration that it was entitled to equitable compensation.
I referred the question of the amount of equitable compensation to which DKEC was entitled, to the Hon Kevin Lindgren AM QC under Uniform Civil Procedural Rules 2005 (NSW) (UCPR) r 20.23 for enquiry and report.
DKEC appealed the principal judgment.
The enquiry by Mr Lindgren was put on hold pending the outcome of the appeal. On 1 December 2021, the appeal was dismissed with costs: IWC Industries Pty Ltd v Sergienko [2021] NSWCA 292.
Mr Lindgren provided his characteristically well-prepared report on 16 December 2021.
At the instance of DKEC, on 11 February 2022, the Court adopted the report and gave judgment in favour of DKEC on its claim against AXLF for equitable compensation in the amount of $3,715,137.75, which includes the loss it suffered by the mortgage securing the $940,000.
All that remains to be dealt with is costs.
Originally, directions for written submissions on costs were made in 2021. Both sides provided submissions.
In written submissions dated 26 July 2021, DKEC conceded that they ought to pay Sergienko's costs of establishing the mortgage. However, they argue that they should not be ordered to pay his costs of what have been referred to as the "Trading Business Claims" which were pleaded in Sergienko's Commercial List Statement but abandoned on the last morning of the trial. These claims were that Sergienko and Zie Wang (see [3] of the principal judgment) had made assets over to AXLF and were entitled to recover them by tracing their proceeds into the Property. DKEC argued that these claims were hopeless and bound to fail and that Sergienko should pay their costs of resisting them.
The matter came before me on 7 February 2022. It was my intention to deal with costs at that time. Mr D Meyerowitz-Katz of counsel appeared for Sergienko. He was in a position to proceed. Mr D Brezniak of counsel appeared for DKEC. Mr Brezniak, who had only just been briefed in the matter, sought an eight week adjournment to answer "certain matters that do need to be answered" in Sergienko's submissions on costs. It is fair to say that I had difficulty in achieving an understanding of what he had in mind, both as to the nature of the matters he referred to as well as what it was that needed to be answered. He was not in a position to make any submissions on costs. With some hesitation, I granted DKEC an opportunity to make a formal application for an adjournment and stood the matter over to 11 February 2022. DKEC duly filed a motion supported by an affidavit of DKEC's solicitor Mr Vatche Janoyan affirmed on 10 February 2022.
On 11 February 2022, I dismissed the motion. I said that I would give reasons for doing so in my ultimate judgment on costs. I gave DKEC a further opportunity to provide written submissions on costs and for Sergienko to reply. DKEC provided submission on 19 February 2022 (one day late) and Sergienko responded on 22 February 2022. On Saturday 26 February, DKEC provided, without leave, further written submissions. It is worth once again repeating that it is impermissible without leave to make submissions after a case has been heard: Carr v Finance Corporation of Australia Ltd [No 1] (1981) 147 CLR 246, 258 (Mason J). The leave given here was limited to one set of written submissions from each side.
Sergienko moves for orders that AXLF, Roths and Roth Holdings Pty Ltd pay his costs of the proceedings against them. Sergienko is entitled to those orders and I will make them.
Sergienko moves for an order that DKEC pay his costs of the second cross-claim and that they pay his costs of the appearances and 7 and 11 February 2022 and the notice of motion filed on 10 February 2022 on the indemnity basis.
The affidavit supporting the motion commences by reiterating DKEC's submissions that Sergienko should pay their costs of the Trading Business Claims. It then proceeds to identify three matters further investigation into which is said to warrant an adjournment.
First, it recounts recent conversations between a solicitor representing Block Trading Service Pty Ltd (which I take to be the company referred to in clause 2.2.10 of the Deed) and Mr Janoyan in which the former informed him that his client had instructed that no payment as recorded in clause 2.2.10 of the Deed had been made and that his client did not owe such money to Sergienko. Mr Brezniak had difficulty in identifying how anything that could be discovered by further investigations into this, could impact Sergienko's prima facie entitlement to an order for costs (having succeeded in the principal judgment) and given that the appeal has been dismissed and there is no intention of seeking to impeach the principal judgment. Moreover, at DKEC's own instance, it has now obtained a verdict against IWC for damages which includes its loss arising out of this very amount being secured by the mortgage.
Second, the affidavit seeks to raise doubts about the finding in the principal judgment that Sergienko did not have knowledge of DKEC's interest in the property (see [121]-[124] of the principal judgment). Again, investigation of this matter can play no relevant part in the determination of the question of costs between Sergienko and DKEC, especially given no intention on the part of DKEC to impeach the primary judgment.
Third, the affidavit seeks to raise some question of the regularity of the execution of the deed. This matter is in the same position as the previous two matters. It can play no relevant part in determination of the question of costs.
I turn then to the costs.
Sergienko succeeded. I see no reason to depart from the general rule that costs follow the event: UCPR r 42.1. I reject the submission that Sergienko should pay any portion of DKEC's costs on the footing that Sergienko did not establish that the Trading Business Claims, as opposed to all other claims, are secured by the property.
Generally, the Court awards costs to the successful party without differentiating between the issues on which the party succeeded and those on which it did not. The substantial issue between Sergienko and DKEC in the proceedings, and hotly contested by DKEC, was Sergienko's right to be secured by the mortgage, and he succeeded with respect to it. I do not think that the circumstances of this case warrant the court exercising a discretion to depart from the general approach, especially given Sergienko's unqualified success with respect to the existence of the mortgage and his priority over DKEC. I also do not think that Sergienko's persistence in the Trading Business Claims, until he dropped them, lengthened the proceedings appreciably.
DKEC's final written submissions on costs concern, principally, the submission that contrary to the finding in the principal judgment, Sergienko had knowledge of DKEC's interest in the property. Submissions tantamount to assertions of misconduct on the part of counsel who had appeared for Sergienko in the proceedings which were settled by the deed are made. The assertions of misconduct are gratuitous and, in my opinion, should not have been made. Moreover, they seek to rely on what is, prima facie, plainly privileged material.
I consider that the motion for the adjournment and the subsequent submissions on costs made by DKEC (including those with respect to counsel) are so lacking in substance that an order for indemnity costs is warranted.
I note that Sergienko did not move for a gross lump sum costs order.
I make the following orders:
1. The first, second and third defendants are to pay the plaintiff's costs of the proceedings against them.
2. The fourth and fifth defendants/first and second cross-claimants on the second cross-claim are to pay the plaintiffs costs of the proceedings against them and of the second cross-claim on the ordinary basis except for the plaintiff's costs of the appearances on 7 and 11 February 2022 and the motion filed on 10 February 2022 which are to be paid on the indemnity basis.
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Decision last updated: 28 February 2022