ACT Supreme Court

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SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:	Kizmann v De Maine (No 2)
Citation:	[2024] ACTSC 139
Hearing Date:	10 July 2023
Decision Date:	9 May 2024
Before:	McCallum CJ
Decision:	(1) That judgment be entered for the plaintiff against the first defendant in the sum of $858,767.46 plus interest in an amount to be determined. (2) Direct the parties to provide to my Associate a short statement as to their agreed or competing positions concerning interest within 14 days. (3) That the first defendant pay the plaintiff’s costs.
Catchwords:	CIVIL LAW – LOAN AGREEMENT DISPUTE – where plaintiff made five loans to a friend – identity of the borrower – whether the loans were requested by the friend in his personal capacity or on behalf of his company – where plaintiff signed a written agreement with the company for one of the loans – whether the signed agreement was a sham prepared for the purpose of securing the release of the funds from a foreign bank after the legitimacy of a transfer of foreign currency was questioned
Cases Cited:	Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337 Fox v Percy [2003] HCA 22; 214 CLR 118 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11 Realestate.com.au Pty Ltd v Hardingham; RP Data Pty Ltd v Hardingham [2022] HCA 39 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Watson v Foxman (1995) 49 NSWLR 315
Parties:	Ivan Gerard Kizmann ( Plaintiff) Gregory John De Maine ( First Defendant) Shostko Systems Pty Ltd (deregistered) (Second Defendant)
Texts Cited:	J D Heydon, Heydon on Contract (Thomson Reuters, Lawbook Co, 2019)
Representation:	Counsel B Connell ( Plaintiff) W Sharwood ( First Defendant) None (ex parte) (Second Defendant)
	Solicitors Legal on London ( Plaintiff) Gabbedy Milson Lee ( First Defendant)
File Number:	SC 586 of 2019

McCALLUM CJ:

1․ Ivan Kizmann and Gregory De Maine shared a background in the armed services and were good friends for over 20 years.  Their relationship now is one of bitter hostility as a result of the events giving rise to these proceedings.  Mr Kizmann made a series of loans which he contends were made to Mr De Maine personally. Mr De Maine does not dispute that the loans were made at his request, or that the funds advanced were used to support business enterprises in which he was engaged.  At the time of each request, he assured Mr Kizmann that he would repay what had been borrowed (and more) within certain times or as soon as various events occurred.  However, as time went on, he became more evasive, saying he was too much in debt to make any repayments.  He blamed unforeseen difficulties for his straitened circumstances and even accused Mr Kizmann of being greedy for seeking repayment. Mr De Maine now contends that the funds were advanced not to him but to his company, Shostko Systems Pty Ltd.  That company was wound up in 2021 with no distribution to unsecured creditors and has since been deregistered.  The single issue in these proceedings is whether the considerable sums advanced by Mr Kizmann, over $400,000 and the same in interest, were borrowed by the now-defunct company or by Mr De Maine personally (other causes of action pleaded by Mr Kizmann were not pursued).

2․ Mr De Maine’s position finds some support in a written “contract investment agreement” signed by Mr Kizmann at his request on 19 December 2017.  That agreement named Shostko Systems Pty Ltd as the borrower of a loan from Mr Kizmann in the sum of €125,000.  However, Mr Kizmann contends the agreement was a sham, signed by him weeks after his agreement with Mr De Maine came into existence and only for the purpose of securing the release of the funds after the transfer was questioned by a bank in Dubai.  None of the subsequent advances was the subject of a signed written agreement.

3․ The principles to be applied in ascertaining the terms of the agreements (including the identity of the parties to the agreements) were not in dispute.  It is axiomatic that the question is not what the parties actually intended; the test is objective.  The task for the Court is to determine the presumed intention of the participants having regard to the objective framework of facts within which the agreements came into existence: Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337 at 352 (Mason J).

4․ The High Court has recently affirmed that approach, referring to it as the “principle of objectivity by which the rights and liabilities of the parties to a contract are determined”: Realestate.com.au Pty Ltd v Hardingham; RP Data Pty Ltd v Hardingham [2022] HCA 39, citing Pacific Carriers Limited v BNP Paribas [2004] HCA 35 at [22]; 218 CLR 451; and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at [40]; 219 CLR 165.   Those earlier decisions both involved written contracts but the decision in Realestate.com.au Pty Ltd v Hardingham did not.  That decision confirms that the approach is the same in the case of an agreement which is not in writing.  In the joint judgment of Kiefel CJ and Gageler J, their Honours said at [15]:

In a case such as this where the terms of an agreement between the parties have not been articulated, those terms must be ascertained by reference to the parties’ words and conduct. The words and conduct of each party must be understood by reference to what the words and conduct would have led a reasonable person in the position of the other party to believe. The ultimate question is what reasonable people with knowledge of the background circumstances then known to both parties would be taken by their words and conduct to have agreed (citations omitted).

5․ The principle of objectivity informs the admissibility of evidence in contractual disputes.  In Toll v Alphapharm the High Court explained, by reference to the decision in Codelfa, the vice of “uncritical reception of inadmissible evidence” about the parties’ subjective understanding in their dealings with each other.  The Court said at [35]:

It tends to distract attention from the real issues, give rise to pointless cross-examination and cause problems on appeal where it may be difficult to know the extent to which the inadmissible material influenced the judgment at first instance.

6․ That is an important point in the present case.  The evidence on both sides included subjective explanation that was not the subject of objection.  Notwithstanding the fact that such evidence was admitted at the hearing, I have been careful to confine my attention to the task identified in Realestate.com.au Pty Ltd v Hardingham of making an assessment of the words and conduct of each party by reference to what those words and conduct would have led a reasonable person in the position of the other party to believe.

7․ As to the status of the “contract investment agreement”, it is necessary to bear in mind “the significance which the law attaches to the signature (or execution) of a contractual document”: Toll v Alphapharm at [42]-[46].  Absent fraud or misrepresentation, a party is bound by a contract they sign.  It is a premise of the application of that principle that the document that was signed was contractual.  Mr Kizmann relied in that context on the Honourable Dyson Heydon KC’s statement in Heydon on Contract (Thomson Reuters, Lawbook Co, 2019) at [9.90]:

The parol evidence rule only applies to contractual documents.  Hence it is always open to a party to show that the document alleged to be contractual is not so.

8․ Applying the foregoing principles, I have concluded that Mr De Maine was the borrower of all of the funds advanced by Mr Kizmann and is personally liable to repay those funds.  My reasons for reaching that conclusion are as follows.

Circumstances in which the advances were made

9․ Mr Kizmann made five loans, one of which was advanced in three separate payments.  It is common ground that the loans were made at a time when the two men were close friends.  That is a significant aspect of the objective framework of facts within which the agreements came into existence.  It meant their discussions were underpinned by mutual trust and unarticulated assumptions.  By contrast, their exchanges since their friendship has soured have been marred by vitriol in measure equal to the trust they once shared.

10․ For present purposes, two important considerations follow from this aspect of the circumstances in which the loans were made.  The first concerns the proper approach to the assessment of the evidence. To the extent that the loan agreements are said to have come into existence as a result of conversations between the two men, the evidence of those conversations (such as it is) must be treated with caution.  The fallibility of human memory as to what was said in a conversation is well recognised. As explained by McClelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at [319]:

ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said.  All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed.

11․ In light of those considerations, it is generally accepted that contemporaneous written records provide a sounder basis for determining issues of fact.  Thus, in Fox v Percy [2003] HCA 22 at [31]; 214 CLR 118 (Gleeson CJ, Gummow and Kirby JJ), the High Court acknowledged the existence of scientific research that “has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately” on the basis of a witness’s demeanour.  The Court accordingly endorsed the practice of judges limiting their reliance on the appearances of witnesses and instead reasoning their conclusions “as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events”.

12․ In the present case, in addition to the evidence of conversations, the exhibits included the written agreement to which I have referred, a relatively small number of emails and numerous WhatsApp messages (over 50 pages of closely typed text) exchanged between the two men between 16 December 2017 and 10 July 2019.  As already explained, the signed written agreement is impugned by Mr Kizmann and requires separate consideration.  Otherwise, for the purpose of determining the terms on which the loans were made, the contemporaneous written material generally provides a more reliable basis for determining the content and context of the relevant exchanges between the two men than their coloured recollection, years later, of conversations they had before they fell into dispute.

13․ The second consideration is that the context of friendship within which the loans were negotiated informs the objective interpretation of the men’s words and conduct. It was not, for example, a loan application made by an individual to a bank or an arms-length negotiation between the chief executives of two trading corporations.  A reasonable person in Mr Kizmann’s position would have taken their discussions to be underpinned by an assumption of trust and good faith.

14․ The evidence was given by affidavit.  Mr Kizmann’s primary affidavit was sworn on 15 July 2022.  He also swore an affidavit in reply dated 23 November 2022.  He was cross-examined at the hearing.  Mr De Maine swore an affidavit dated 18 October 2022. Mr De Maine did not attempt to reproduce the relevant conversations in direct speech and much of the content of his affidavit was ruled inadmissible.  In written submissions provided before the hearing, he foreshadowed giving oral evidence in addition to his affidavit evidence.  However, that course was not pursued at the hearing and he was not required for cross-examination.  His case rested principally on the existence of the signed written agreement and the contention that “the later advances were all on the same basis”.

The previous loan: US$15,000

15․ It was common ground that Mr Kizmann had previously made a personal loan to Mr De Maine in the sum of US$15,000 which was repaid within days.  That was in May 2017.  Mr Kizmann said Mr De Maine told him that the loan was for fees or costs relating to a Dubai-based company which Mr De Maine owned with his wife, Ms Svetlana Shostko.

16․ Mr Kizmann’s affidavit did not set out the conversation by which that loan agreement was negotiated.  He described it as “informal” and said the terms were settled over a voice call.  He said he agreed to advance US dollars and Mr De Maine agreed to repay him in Australian dollars.  He said, “we effectively split the exchange rate between us”.  He said Mr De Maine promised to repay the loan within a few days and that he did so.

17․ Mr De Maine accepts that he borrowed that money from Mr Kizmann.  He said he “required the money to pay an annual service fee for Svetlana Shostko’s company”.  However, he denied ever telling Mr Kizmann that he partly owned or had any interest in that company.  He said he had no such interest.

18․ Mr De Maine’s clarification of that issue misses the point.  Whether or not he in fact had an interest in his wife’s company, the earlier loan is a significant aspect of the objective background facts known to both parties: cf Codelfa at 352.  The later negotiations occurred in the context known to both men that Mr De Maine had previously borrowed a substantial sum of money in his personal capacity from Mr Kizmann and had repaid that loan promptly.

19․ As already noted, it was agreed that the previous loan would be made in US dollars and repaid in Australian dollars.  Mr De Maine stated in his affidavit that, when he repaid the loan, Mr Kizmann said to him:

Thanks for paying me back so quickly.  That was a convenient way to get money into Australia without leaving a paper trail.

20․ That statement was not relevant to any issue of fact in the proceedings and appears to go only to the issue of Mr Kizmann’s integrity.  In other material in evidence, Mr De Maine made numerous attacks on Mr Kizmann, both directly (in the WhatsApp messages) and in a letter to Mr Kizmann’s solicitor.  However, when the opportunity arose to cross-examine Mr Kizmann at the hearing, there was no real attack on his credibility.  The cross-examination was confined to putting to him that certain critical conversations to which he had deposed did not take place.  It was not put to him that he had engaged in any dodgy financial dealings, or that he was lying; nor was it submitted that there was any reason to conclude that he was not honest.  As already noted, the central defence to the claim was that Mr Kizmann was bound by the written agreement he signed.

The first loan: €125,000 for the wine bar in Prague

21․ Mr Kizmann said that, in early November 2017, Mr De Maine approached him for a larger loan.  He said that, between early November and no later than 25 November 2017, he and Mr De Maine had “wide-ranging discussions around the proposed loan and how it was to be repaid”.  He said that Mr De Maine asked for, and he agreed to lend, the amount of €125,000. It was his recollection that Mr De Maine said words to the effect, “I want to buy a property in Prague, together with Svetlana.  It’s going to be a wine bar”.

22․ Mr De Maine denied telling Mr Kizmann that he planned to buy a wine bar in Prague.  He said, “I did not buy a wine bar in Prague, Svetlana did.  That I bought a wine bar appears to be an assumption Mr Kizmann made.”  Mr De Maine’s evidence was that the first loan was for the purchase of timber.  He said he approached Mr Kizmann and said words to the effect:

Svetlana and I have identified a business opportunity involving the importation of timber from Siberia. You say you have funds you are looking to invest. If you are prepared to invest in this venture we should all benefit. I’ll be able to get imports underway.

23․ As I will explain, the contemporaneous records support Mr Kizmann’s version that the request for the loan was discussed in the context of the purchase of the wine bar. Whether it was purchased by Ms Shostko alone or together with Mr De Maine is not important; the critical issue is what Mr Kizmann was told.

24․ Mr Kizmann said they discussed how long Mr De Maine would take to repay the loan. He said that Mr De Maine promised he would repay it in six months.  He said they also talked about how Mr De Maine would repay the loan.  He said that Mr De Maine told him about contract work he had at the time.  Mr Kizmann said that Mr De Maine said words to the effect that he had recently secured a contract which meant that he had or would soon have a high personal income and that he promised it would be used to pay off the loan.

25․ Mr De Maine agreed that he told Mr Kizmann he had recently secured a lucrative contract and that he would have a high contract income.  However, the words he used were “that I would have a high contract income, earned by the company as company cash flow”.  He did not give any account of that conversation in direct speech.  It seems unlikely that Mr De Maine said to Mr Kizmann, “I have recently secured a lucrative contract.  I will have a high contract income earned by the company as company cash flow”.  Rather, Mr De Maine’s affidavit evidence on that issue has the ring of having been overlaid, consciously or subconsciously, by a consideration of what he might have said if he was seeking a loan to the company.  I am not persuaded that Mr De Maine in fact used a form of words such as to convey to Mr Kizmann that the loan was to be repaid by the company as opposed to being repaid by Mr De Maine from his personal income.

26․ Mr Kizmann said that Mr De Maine said to him words to the effect “outside of living expenses, I’ll be putting everything towards paying you back”.  It may be noted that a company does not have living expenses.  Mr Kizmann recalled specifically asking Mr De Maine “what would you do if you lost your job”.  He said that Mr De Maine replied with words to the effect, “I’ve got wine valued at $600,000, I’ll just sell the wine stocks and sell the wine bar and pay you back”.  Mr Kizmann said that Mr De Maine repeated that promise, saying words to the effect, “there is effectively no risk because of the assets I’ve got.  I’ll use my wine sales and my contract.  If I need, I’ll just sell my wine stocks and sell the property in Prague.”

27․ It was put to Mr Kizmann in cross-examination that those words were not said.  However, Mr De Maine did not address that issue in his affidavit.  As Mr Kizmann maintained under cross-examination that the words were said, the only evidence on the issue is that the words were said.  No reason has been identified to disbelieve that evidence and accordingly I accept it.

28․ Mr Kizmann said that, because of the time it would take to repay the loan, he asked for interest and that Mr De Maine nominated the rate, saying words to the effect, “10% interest in the 6 months it will take me to repay”.

29․ Mr Kizmann stated that he said to Mr De Maine, “I don’t want to send the money to Australia and convert to AUD only for the funds to be converted to Euros at bank exchange rates.  It’s a waste of money.”  He said he told Mr De Maine he would send the money directly “to where you want it” and that Mr De Maine told him the funds should be sent to an account and entity in Dubai.

30․ Mr Kizmann said, “we discussed that companies would be involved (with Greg mentioning a company in Dubai and a company in Prague) and that Svetlana would be involved in the business as Greg’s partner”.  However, he said that Mr De Maine told him (and he believed these were the exact words), “the loan’s to me, not Svetlana or a company. I am responsible. It’s a loan from one friend to another.”  It was put to Mr Kizmann in cross-examination that those words were not said.  He maintained that they were.  Again, Mr De Maine did not address that issue in his affidavit. Again, as Mr Kizmann maintained under cross-examination that the words were said, the only evidence on the issue is that the words were said.  I accept that evidence.  No reason was established for disbelieving Mr Kizmann.  His evidence was plausible and made sense within the context of the friendship between the two men.

31․ On the strength of Mr Kizmann’s evidence, which I accept, an agreement had come into existence between him and Mr De Maine by the end of November 2017 that Mr De Maine would borrow €125,000 from Mr Kizmann for a term of 6 months with interest at 10% payable for the period of 6 months.

Difficulties transferring the funds to Dubai

32․ Mr De Maine’s version implicitly rejected Mr Kizmann’s version that he said he would send the money to where Mr De Maine wanted it.  Mr De Maine’s evidence was as follows:

An initial difficulty occurred as Mr Kizmann refused to pay the loan funds direct to Shostko Systems, so that I could pay the invoices directly from company accounts as I had been doing.  I insisted Mr Kizmann pay the agreed loan funds into my company’s bank account in Australia, but he refused.

33․ Mr De Maine explained that Mr Kizmann told him he did not wish the Australian Tax Office to become aware that he had money offshore because he had an outstanding debt to his ex-wife and did not want to risk having the money seized to pay that debt.

34․ No contemporaneous record supports Mr De Maine’s evidence that he “insisted” the funds be paid into his company’s account in Australia but that Mr Kizmann refused.  The earliest contemporaneous record of the arrangements for the first advance is an email dated 26 November 2017 from Mr De Maine to Mr Kizmann.  Mr De Maine’s evidence is at odds with what he wrote in that email:

Thanks Ivan. If you could send 125K euros to our Dubai account that would be appreciated. This will be easier for you and we can pay the transfer fee to Prague. The bank details are good; I send all my sales money to this bank address.

35․ The account details given in that email were for an account in the name of Galen World FZE. That was Ms Shostko’s company.

36․ Mr Kizmann responded to Mr De Maine’s email apologising for the delays and concluding, “money process initiated”.  That email was annexed to Mr Kizmann’s affidavit but Mr De Maine’s affidavit did not offer any explanation for the inconsistency between the version given in his affidavit (“I insisted Mr Kizmann pay the agreed loan funds into my company’s bank account in Australia, but he refused”) and the contemporaneous email (a polite request to “send 125K euros to our Dubai account”).

37․ Mr De Maine’s assertion that he told Mr Kizmann the purpose of the first loan was to buy timber rather than a property in Prague is also contradicted by the contemporaneous documents.  In a further email dated 1 December 2017, he wrote to Mr Kizmann, “if you get this email could you give me a call please; the lawyers are preparing the contract for this land in Prague and we don’t have much time left to do the transfer.”

38․ Mr Kizmann said that, as at November 2017, his savings were largely held by a Dubai and UK-based currency broker, GCEN.  He said the money left his account with GCEN on 4 December 2017.  However, it had still not been received in the Dubai account by 16 December 2017.  That is the day on which the encrypted WhatsApp chat between Mr Kizmann and Mr De Maine started.  In one of the first messages in that exchange, Mr De Maine wrote: “Svetlana is starting to panic which translates as angry with Dubai bank”.

39․ On 17 December 2017, Mr Kizmann received an email from his broker forwarding “the questions that Mashreq have asked for screening purposes”.  Mashrek is a bank in the United Arab Emirates.  The broker explained “we will need to know the relationship between yourself and the beneficiary and the source of wealth”. Mr Kizmann’s response is telling. He wrote:

Relationship between the remitter and the beneficiary: I worked with him 20 years ago – we are good friends and I still regularly assist him. We are both X Australian defence Force members so we trust each other.

Source of funds/source of wealth for the remitter. This is salary from when I was in Saudi. I will have to look for the bank statement if necessary as I left Saudi six months ago and parked the funds with GCEN pending a AUD transfer …

Purpose of the payment: he requested a loan of funds for a few months so he could purchase a property.

40․ During the same email exchange on 17 December 2017, Mr Kizmann’s broker asked, “is there a reason you are paying his company account rather than his personal account, is he is the owner of the company?” Mr Kizmann responded (copying in Mr De Maine), “Greg, you will need to clarify why you wanted the funds sent to your business account rather than a personal account”.

The “wobbly” contract

41․ Mr Kizmann said that, later that day, Mr De Maine called him and said words to the effect: “if we tell the currency broker that stuff you put in your email, your funds will probably be seized by Mashreq [Bank]. We’ll need to change the reason we gave them. I’ll have to get creative to cover this transfer”.  Mr Kizmann said that he replied with words to the effect, “you can say whatever you like but it doesn’t change our arrangement”.

42․ Having told Mr Kizmann he would have to “get creative” to cover the transfer, Mr De Maine next wrote to Mr Kizmann’s broker:

This money is payment for an open contract between Shostko Systems Pty Ltd (Australia) and Galen World FZE (UAE) for timber and wine sent to Australia. We have had a long record of doing business together Mashreq should know that.

Ivan Kizmann has paid the money to Galen World on behalf of Shostko Systems due to private offshore investment which Ivan has with Shostko Systems. If Mashreq Bank require further clarification they should contact me in Australia as soon as possible.

43․ On 18 December 2017, Mr De Maine wrote on the WhatsApp chat:

Looks like you’re going to get your money back. The answers to questions the bank want have gone via UK on a Sunday so Mashreq won’t see them until late today Dubai time. Svetlana has chosen to blame (sic) for everything and is very angry with me.  She claims that the police are now investigating to find out what the money is really for.

44․ On 19 December 2017, Mr De Maine wrote to Mr Kizmann on the WhatsApp chat to say that he had just sent him a loan agreement to sign. He wrote “sorry but bit of a wobbly contract but it will do for now.”

45․ The document was drawn up as a “contract investment agreement” between Ivan Kizmann as lender, Shostko Systems Pty Ltd as borrower and Galen World FZE as benefactor. It stated that the loan amount was €125,000 for a term of six months with interest on principle payable at 10%. Mr Kizmann signed the document. However, he contends that it was not a contractual document.

46․ The signed document was returned to Mr De Maine under cover of an email from Mr Kizmann which stated:

Hi Greg, just to clarify… You said you would repay the USD amounts that I converted to Euro (plus the 10% after six months). I sent you the conversion transaction so you saw the USD amount.

I am happy to get the money returned in USD or if you have AUD, perhaps I may need AUD later.

In order not to delay thins (sic) further, I have signed and returned to the contract.

47․ Mr Kizmann gave evidence that there was a conversation at this time as well.  He said that he told Mr De Maine he did not want to sign the contract: “my loan’s with you and I’m not involved with this timber and wine”.

48․ Mr Kizmann said that Mr De Maine said to him words to the effect, “this contract doesn’t change anything – it’s just to move the money. The loan is with me”.  Mr Kizmann said he agreed to sign the document in order to facilitate the release of the funds.

49․ There were further email exchanges between Mr Kizmann and Mr De Maine in early January as to the invoice or contract number to be specified in the “reference” space on the transfer instructions.  At the conclusion of an email dated 5 January 2018, Mr De Maine wrote to Mr Kizmann, “it looks like Prague is still in play”.

50․ Mr Kizmann re-sent the €125,000 on 8 January 2018.  On 10 January 2018, Mr De Maine confirmed that he had received it, saying on the WhatsApp chat, “yes all good now thanks Ivan start planning where and how you want your money back so we can dovetail it into activities.”  Over the following days, the two men spoke on the WhatsApp chat about people who were buying Porsches and Lamborghinis.  On 13 January 2018, Mr De Maine wrote, “if you help us build our global business I will buy you a yacht”.  The WhatsApp chat saw many such friendly exchanges while times were good.

Conclusion as to the first loan

51․ Based on my analysis of the foregoing evidence, I am satisfied on the balance of probabilities of the following facts.  Mr De Maine asked Mr Kizmann to lend him €125,000 which he said was to purchase a property in Prague for a wine bar.  Mr Kizmann agreed to lend Mr De Maine that amount.  A loan agreement came into existence between the two men at that point.

52․ I cannot be satisfied as to whether Mr De Maine said the property was to be purchased by him and Ms Shostko or by Ms Shostko alone, but that does not affect the terms of the loan, which was made in response to a request by Mr De Maine personally. I am satisfied that, until the written agreement was sent to Mr Kizmann, Mr De Maine said nothing to Mr Kizmann to suggest that the borrower was Shostko Systems Pty Ltd.  He asked to borrow the money.  On an objective assessment of the exchanges between the two men, he was the borrower.

53․ Based on the circumstances in which the written agreement was prepared and sent to Mr Kizmann, I am satisfied to a high degree of confidence that it was not a contractual document.  It was a sham, contrived by Mr De Maine for the purpose of satisfying Mashreq that there was a legitimate business purpose for the transfer of such a large sum in foreign currency.  The evidence does not permit me to make any finding as to the requirements of the underlying regulatory regime.  What is significant is that Mr De Maine clearly believed that foreign currency transferred via Mashreq would be seized or retained if it was known, as Mr Kizmann initially told his broker, that the purpose of the payment was that Mr De Maine had “requested a loan of funds for a few months so he could purchase a property”.

54․ The contemporaneous records support Mr Kizmann’s contention that the investment agreement drawn up by Mr De Maine was a sham and did not reflect the true agreement.  The true agreement, as established by an objective analysis of the conversations and written exchanges between the two men, was that the funds were borrowed by Mr De Maine personally.

55․ At the hearing, Mr De Maine noted that the only written agreement was with the company, Shostko Systems Pty Ltd.  He submitted that Mr Kizmann’s evidence of conversations about “who the contract was with” were not reflected in the “thousands of lines of WhatsApp messages” and that it was “an unfortunate situation for Mr Kizmann”.  I do not accept that the WhatsApp messages do not support Mr Kizmann’s version of events.  I have read the entire WhatsApp exchange and compared what was being said at various points in time with other documents and known events.  What is significant in those exchanges is the absence of any suggestion that, while it was Mr De Maine who was asking for the money, he did so on behalf of his company.  Mr De Maine submitted that it is natural for person in Mr De Maine’s position, being the sole director of a company, to refer to the company as “I”.  I do not accept that is how Mr De Maine’s conversation would be understood by a reasonable person in the position of Mr Kizmann.  In the context of such substantial borrowings a reasonable person would have expected that, if he was speaking on behalf of the company, Mr De Maine would have said so.

56․ Mr Kizmann submitted in the alternative that, even if the written agreement was a binding agreement between Mr Kizmann and Shostko Systems Pty Ltd, it was not expressed as an entire agreement and was not inconsistent with the agreement that had been reached between the two men by the end of November 2017.  On that basis, he submitted that the written agreement (if that is what it was) did not exclude or amend the earlier agreement.

57․ In case my conclusion that the written agreement was a sham is wrong, it is appropriate to indicate that I accept that alternative submission.  The agreement was not expressed to be an entire agreement. Extraneous evidence is admissible to determine whether it was.  The document was prepared after Mr Kizmann had transferred the funds to an entity other than Shostko Systems Pty Ltd at the request of Mr De Maine.  The proposition that Mr Kizmann dealt with the company and only the company finds no support whatsoever in the contemporaneous documents and is inherently unlikely in the context of the close friendship and informal dealings between the two men.

The second loan: AU$50,000 in three separate advances

58․ Mr Kizmann said that, around 27 December 2017, Mr De Maine asked for more money.  The transfer of the €125,000 had still not gone through at that point and Mr De Maine said the delays were putting the purchase of the Prague property at risk of being “lost” unless additional funds were provided.  Mr Kizmann said Mr De Maine also sought assistance with “personal expenses” at that time.

59․ On 28 December 2017, Mr De Maine sent two messages to Mr Kizmann on the WhatsApp chat two minutes apart as follows:

Hi Ivan. With regards to the 42K euros and the current surge in Aussie dollar maybe want to get some Aussie offshore? I can pay you the interest in US dollars in Dubai? Can we do this? I have sent lots of money through Galen World from here so there will be no hold-ups if I send it from here.

If you want/can do this, we will have to move fast or we will lose Prague.  But Prague is OUR problem not yours so only do this if it works for you too.

60․ On 29 December 2017, Mr De Maine wrote “hi Ivan okay I sent the email to you requesting the money. If you can send it ASAP that would be good thanks.”  In an email of the same date, Mr De Maine wrote:

Hi Ivan – as discussed.

Could you send AU$50,000 to my account below; I will return to you in less than six months with 15% interest; this interest can be converted to what ever currency you like and to where ever you like.

Thanks Ivan this won’t happen again.

61․ Mr De Maine’s affidavit was silent as to his requests for borrowings other than the loan of €125,000.  The only attempt he made to address the issues concerning those further advances was in the last paragraph of his affidavit where he said:

At no time did I guarantee to Mr Kizmann that I would cover the debts owed to him by my company.  Any reference to ‘I’ in correspondence with Mr Kizmann is a reference to my company with whom he was dealing.

62․ That is an example of the kind of evidence disapproved in Toll v Alphapharm in the passage cited above.  What Mr De Maine meant when he said “I” is irrelevant.  The question is what his words and conduct would have led a reasonable person in the position of Mr Kizmann to believe.  On an objective assessment, the text of the WhatsApp chat messages considered in the context of the relationship between the two men makes plain that they were dealing with each other as individuals – indeed, as friends. A reasonable person in Mr Kizmann’s position would have believed “I” meant “I”.

63․ The last line in the email set out above (“Thanks Ivan this won’t happen again”) is telling.  Of course it did happen again.  But the point is that Mr De Maine’s thanks, and his reassurance that “this” (asking for money) would not happen again, is the language of friendship, not the language of the director of a company confirming a second investment in his company.

64․ It may be accepted that the account nominated in the email was an account in the name of Shostko Systems Pty Ltd.  In cross-examination of Mr Kizmann, counsel for Mr De Maine relied on this as an example of Mr De Maine referring to his account when he meant the company’s account. However, the nomination of a company account for receipt of the funds does not necessarily indicate that the company was the borrower.  The possibilities are that the loan was to Mr De Maine personally for him to advance to his company (meaning that he was warranting repayment to Mr Kizmann and taking the investment risk) or that Mr Kizmann was advancing directly to the company and taking the investment risk.  It is in this context that the history of friendship is significant.  An objective analysis would not conclude that Mr De Maine was asking Mr Kizmann to invest in Mr De Maine’s company at Mr Kizmann’s risk.  The conversations proceeded on an unspoken assumption of trust.  An objective bystander would infer that Mr De Maine was asking for a personal favour, not offering a business investment opportunity.

65․ Mr Kizmann did not in fact transfer the whole AU$50,000 to the account in the name of Shostko Systems Pty Ltd.  He explained that there was a limit on his account (presumably, a cap on how much he could transfer each day).  Instead, he made transfers as follows:

(a)       AU$20,000 to an account in the name of Gregory De Maine;

(b)       €9,300 to a company called Alabaster Company which it appears may be the company that bought the wine bar in Prague; and

(c)       AU$14,990 to Galen World.

66․ On 31 December 2017, Mr De Maine sent a WhatsApp message to Mr Kizmann as follows:

Just to make your day Ivan the money arrived too late so Svetlana lost her company in Prague. We should have sent the money the day before instead of the 20K to Australia which by the way, has still not arrived.  I will call you tonight to send the last money direct to Dubai. It’s only small money so should not be held up.

67․ WhatsApp messages sent by Mr De Maine confirmed that he received the AU$20,000 on 2 January 2018.  By 4 January 2018 he had also received the balance: “money arrive in Prague and 9K arrived in Dubai ok”.

The third loan: AU$55,000 for cedar

68․ On 26 February 2018, Mr De Maine wrote to Mr Kizmann on the WhatsApp chat, “Ivan we need more investment capital to buy some cedar. Are you interested?”

69․ Mr De Maine sent an email the same day in which he stated “As discussed we want to import cedar … The sooner we can buy the sooner we can get sales going”.  The email said:

We can give you:

1. $45K for 3 months return $47,250 (5%)

2. $45K for 6 months return $49,000 (10%)

3. $45K for 12 months return $54,000 (20%)

70․ It may be accepted that the use of the words “we can give you” and the references to “return” (a term usually used in respect of an investment) rather than “interest” suggested an investment rather than a loan.  Conversely, however, no company was identified.  The reference to “we” accordingly suggested a personal request.

71․ On 27 February 2018, Mr Kizmann replied on the WhatsApp chat, “can you please confirm the money I gave you earlier is 100% to be returned.  If not I am reluctant to go deeper until I see some initial confidence.”

72․ Mr De Maine replied “very busy today. Can I call you midday your time? Got our second liquor license and sales have started nationally albeit slowly. Start another radio add (sic) in Sydney soon which will lift sales. Now have $700K in product in Australia plus have a new contract for 12 months so your return is 100%.  How and when you want to receive your money is the only issue we need to consider”.

73․ On 1 March 2018, Mr De Maine sent a further message as follows:

Hi Ivan. I had a long conversation with Svetlana last night and we believe this cedar is a great opportunity that we can’t afford to miss. If we don’t lock in a deposit soon for this timber the Russian government will take it. The logger said he will give us the best timber. Just looking at other cedars in Australia we can get 200K profit per container. Who else sells 300 x 50 x 7 m slabs? It could be as much as 20K per cube; that could be 1/2 mil per container? After a couple of containers of profit we will secure a license ourselves to log an assigned area. Ivan if this turns out the way I think I will make it my personal mission to help you clear away your 700K headache. We all want be offshore making money 75,000 AUD enjoying life. Worst case scenario; I sell off all my wine at 50% and you get everything back plus interest. Then we both slave away down here for a few more years. Yes the wines are slow now but that will turn around as I build trust with my customers. This is going to take time. I think we should go for it.

74․ Mr Kizmann said he and Mr De Maine also had a voice call at around that time in which they discussed a loan amount of €28,000 at 10% per six months interest.  He said Mr De Maine told him he was extremely confident that the timber he was selling would be profitable and that he had made extensive enquiries and carried out significant market research and due diligence.

75․ Later the same day, Mr De Maine wrote:

Hi Ivan if you could send 28k euro to Dubai as before I will send contract to you to support the transfer.  Remember we fill out transfer documentation with contract details or they will seize the money again.

76․ Mr De Maine sent Mr Kizmann another contract drawn up as a contract investment agreement. In his affidavit, Mr Kizmann stated that he had a conversation with Mr De Maine at around that time in which he said “I don’t like these dodgy contracts, why can’t I just send the money to Galen World?  Mr De Maine replied, “you can’t just send money, you have to have documentation”.  Mr Kizmann asked, “why not have a contract between you and me?” Mr De Maine replied “because Shostko and Galen World have a trading history and money going between them won’t get flagged”.  Mr Kizmann said “but it’s fake”.  Mr De Maine replied, “I know but I lost a lot of money because of the delays with the Prague deal. This will work”.

77․ Mr Kizmann’s affidavit addressed in detail a series of unsuccessful attempts to transfer the money.  It is not necessary to record the detail of those attempts, save to note the terms of an email written by Mr De Maine to Mr Kizmann’s broker in which he expressed his concerns as to the reasons for the holdup.  In short, he said he suspected that, as Mr Kizmann had a Ukrainian name (Ivan), had spent 20 years in the Middle East and had made numerous transfers to a Russian beneficiary, a security alert had been raised (“looks like they suspect an Arms Deal”).

78․ In that context, Mr De Maine provided answers to the broker for communication to Mashreq that the purpose of the payments was to make the last payment for a shipment of wine; that there was no relationship between the beneficiary (Galen World) and Mr Kizmann and that “Ivan is making the payment on my behalf as per an official loan contract that I have with Ivan”.

79․ Eventually, the transfer was made in Australia in Australian dollars.  Mr Kizmann travelled to Australia and stayed with Mr De Maine, arriving on 24 April 2018.  On 25 April 2018, they attended Anzac Day services together.  The following day, they went to the bank together where Mr Kizmann transferred $55,000 (which he said was the approximate AUD equivalent of €28,000) to Mr De Maine’s personal account with the purpose noted as “personal loan to a friend”.

The fourth loan: US$55,405 for more cedar

80․ Mr Kizmann was still staying with Mr De Maine in May 2018.  Sometime between 15 and 20 May 2018, Mr De Maine asked him for a further loan to import timber into Australia to sell to customers who were seeking ready stock.  Mr Kizmann said they discussed the terms and purpose of the loan as follows: that the loan principal would be US$55,405; that interest would be paid on the principal at the rate of 10% every six months in USD; that the loan monies would be paid directly to Shostko Systems in USD to avoid fees that would be payable if loan monies were in AUD and then converted back to USD and that the term of the loan would be about six months.

81․ While that evidence was not given in direct speech, there was no objection to that paragraph of the affidavit.  Further, as already noted, Mr De Maine did not address these further borrowings in his affidavit.

82․ Mr Kizmann said that, at the time of those negotiations, Mr De Maine said words to the effect, “I’ve got around $700,000 worth of wine and timber and that’s at cost price. I could sell at short notice” and “I’ve got timber on order. Even if it was sold below cost, you’d still get your money back” and “Prague is still there to cover you if it comes to that” and “my contract is worth $200,000.  That alone is enough to pay you back the vast majority in six months”.

83․ On 23 May 2018, Mr Kizmann transferred the amount of US$55,405 to Shostko’s account as requested by Mr De Maine.

The fifth loan: Mr Kizmann’s last €27,968

84․ As at 30 May 2018, Mr Kizmann was still staying with Mr De Maine in Canberra.  During that time, Mr De Maine learned that his security clearance had been downgraded, which had implications for his contract work. He was understandably distressed. Mr Kizmann and Mr De Maine discussed Mr De Maine’s plans to sell the timber he had ordered so that he could generate income independently of his contract work.  Mr Kizmann asked about the timber Mr De Maine had purchased with the funds advanced in the fourth loan. Mr De Maine said words to the effect, “if I can’t find the money to clear the shipments from the wharf and customs, all will be lost”.

85․ Mr Kizmann said at that point he offered to lend Mr De Maine the last of his available funds in his UAE account as a loan.  Mr De Maine declined, saying “this has to stop” and “it is best to let the business fail and I’ll sell everything to repay you”.

86․ Mr Kizmann left Mr De Maine alone for a while.  About an hour later, they had a further conversation in which Mr De Maine said, “if you give me the money, I’ll be able to recover and get back on my feet.  I may take up to 12 months to repay you”.  Mr Kizmann said “sure”.

87․ Mr De Maine said “you’ll get your money back even if I have to work for the next 10 years. I’ll never forget this”.

88․ Mr Kizmann told Mr De Maine he had about €27,968 available.  He said this was the last money he had and that he needed it back to live on.  Mr De Maine said “I’m selling my stock, you’ll get your money. All the loans but this one.”

89․ Mr De Maine asked Mr Kizmann to transfer the money to Shostko, which he did.  Mr Kizmann said that, as with the other loans, Mr De Maine agreed to pay interest at 10% for every 6 months.

Conclusion as to the second to fifth loans

90․ Mr Kizmann submitted that the evidence establishes the existence of a series of separate loan agreements between Mr Kizmann and Mr De Maine.  He further submitted that the evidence was “relatively clear” as to the terms of the loans.  In that context, he relied on the decision of the NSW Court of Appeal in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,118 (McHugh JA, with whom Mahoney and Hope JJA agreed).  That decision was cited with approval in two of the separate judgments in the decision of the High Court in Realestate.com.au Pty Ltd v Hardingham, first, by Kiefel CJ and Gageler J at [30] where their Honours said:

An agreement and its terms may be inferred from the acts and conduct of the parties, including the absence of their words. In light of surrounding circumstances that absence may evidence a tacit understanding.

91․ Justice Gordon said at [48]:

Put in simpler terms, the intention of H/REMA and each agency, objectively ascertained, about the scope of the licence and the ability to grant a sub-licence is to be identified from what was said and not said, from what was done, and from what they reasonably knew or ought reasonably to have known.

92․ The objective intention of the parties in the present case is very much informed as much by what was not said as by what was said.  In assessing the objective framework of facts within which the agreements came into existence, the friendship looms large.  Objectively ascertained, the intention was that Mr De Maine would repay the money he had borrowed from his friend.  Had the parties intended that the risk of failure of the company would instead rest with Mr Kizmann, that would have been said.

93․ For those reasons, I am satisfied on the balance of probabilities that the second to fifth loans were between Mr Kizmann and Mr De Maine in his personal capacity, not on behalf of Shostko Systems Pty Ltd.

Calculation of debt

94․ Mr Kizmann tendered a calculation prepared John Mihailaros of PKF Chartered Accountants of the amount outstanding for all of the loans as at 10 July 2023.  The admission of that document was not opposed. Mr Mihailaros recorded the principal amount of each loan, the currency in which it was advanced and the principal equivalent in Australian dollars as at the repayment date based on the Reserve Bank of Australia exchange rate for the relevant currency on the relevant date. He included simple interest at 20% per annum, which reflected Mr Kizmann’s undisputed evidence that Mr De Maine offered to pay 10% interest per 6 months on all borrowings.  The calculation also gave credit for Mr De Maine’s only repayment to Mr Kizmann, the princely sum of $1,000 paid on 31 October 2018.  I did not understand that method of calculation to be disputed by Mr De Maine.

95․ The sum outstanding as at 10 July 2023, as calculated by Mr Mihailos, was $858,767.46.

96․ It will be necessary to hear the parties as to the amount of interest that should be awarded on that sum from 10 July 2023 to the date of this judgment in accordance with r 1619 of the Court Procedures Rules 2006 (ACT) (unless there is agreement on that issue as well).

Orders

97․       For those reasons, I make the following orders:

(1)       That judgment be entered for the plaintiff against the first defendant in the sum of $858,767.46 plus interest in an amount to be determined.

(2)       Direct the parties to provide to my Associate a short statement as to their agreed or competing positions concerning interest within 14 days.

(3)       That the first defendant pay the plaintiff’s costs.

I certify that the preceding ninety-seven [97] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Chief Justice McCallum. Associate: Date: 9 May 2024