(1) Vartanians v St Gregory's Armenian School Inc (2) The Commonwealth Bank of Australia v Michael Ghougassian

[2011] NSWSC 406

Supreme Court

New South Wales

Medium Neutral Citation:	(1) Vartanians v St Gregory's Armenian School Inc (2) The Commonwealth Bank of Australia v Michael Ghougassian [2011] NSWSC 406
Hearing dates:	10 May 2011
Decision date:	10 May 2011
Jurisdiction:	Equity Division
Before:	Barrett J
Decision:	See paragraphs 16, 21 and 22
Catchwords:	PROCEDURE - account - taking of account - mortgagor and mortgagee - who is accounting party and who is non-accounting party - where onus lies - PROCEDURE - moneys in court - balance of proceeds of sale of mortgaged property - where taking of account between mortgagor and mortgagee pending - moneys in court substantially exceed total claimed by mortgagee - whether that excess should be paid out to mortgagor or left in court to be paid out as and when mortgagor's liquidator shows a proper need for funds for the purposes of the winding up
Legislation Cited:	Associations Incorporation Act 2009 Uniform Civil Procedure Rules 2005, Part 46, rule 55.11
Cases Cited:	Magafas v Carantinos [2009] NSWSC 1124
Category:	Procedural and other rulings
Parties:	(1) Vahanoush Vicki Vartinians & Ors - Plaintiffs St Gregory's Armenian School Inc - Defendant Roderick Mackay Sutherland - Liquidator of Defendant - Applicant Michael Ghougassian - First Respondent Daniel Ghougassian - Second Respondent Nareg Limited - Third Respondent (2) Commonwealth Bank of Australia - Plaintiff Roderick Mackay Sutherland - Liquidator of St Gregory's Armenian School Inc - Applicant Michael Ghougassian - First Respondent Daniel Ghougassian - Second Respondent Norwest Legal Services Pty Ltd - Third Respondent
Representation:	Counsel: (1) Ms J K Taylor - Applicant Mr P E King - First, Second and Third Respondents (2) Ms J K Taylor - Applicant Mr P E King - First and Second Respondents Mr D C Stewart - Third Respondent Solicitors: Addisons - Applicant Robert Balzola & Associates - First and Second Respondents Matthews Dooley & Gibson - Third Respondent
File Number(s):	(1) 2010/66795 (2) 2011/10869

Judgment

1. These proceedings came before me this morning for the taking of an account between the St Gregory's Armenian School Inc, an incorporated association in the course of being wound up under the Associations Incorporations Act 2009 (which I shall call "the company in liquidation"), and the Messrs Ghougassian. The company in liquidation and the Messrs Ghougassian are, respectively, the mortgagor and the mortgagees of the school property.

1. That property was sold by the Commonwealth Bank as first mortgagee. The proceeds, after the Bank's entitlement had been satisfied, were paid into court pending the determination of entitlements to it as between the Messrs Ghougassian as subsequent mortgagees and the company in liquidation as mortgagor.

1. Shortly before the luncheon adjournment, I found it necessary to vacate the hearing. This was when it became clear that, while the mortgagees had eventually filed their verified accounts and the mortgagor had filed falsifications, there was a genuine need, in the interests of reaching a just result between the parties, for the mortgagees to have an opportunity to put on evidence to deal with matters raised in the affidavit accompanying the mortgagor's falsifications.

1. It is, in hindsight, unfortunate that there were no directions with respect to evidence that might have avoided this need for the hearing to be vacated and for the matter to be taken up again at a later time.

1. It is desirable, however, that I record and confirm the ruling I made in the course of the morning that, for the purposes of Part 36 of the Uniform Civil Procedure Rules 2005, the Messrs Ghougassian, as mortgagees, are the accounting party and the company in liquidation (being the mortgagor) is the non-accounting party; that the non-accounting party has filed falsifications but not surcharges; and that upon the taking of the account the onus will be with the Messrs Ghougassian as the accounting party and they must begin: see Magafas v Carantinos [2009] NSWSC 1124 at [16]. This is, in any event, in accord with the general principle that it is for a mortgagee to establish what is owed to it on the security of the mortgage rather than for the mortgagor to prove what he owes.

1. It was in the light of the positions of the respective parties thus defined that I decided that the Messrs Ghougassian should have an opportunity to put on further evidence. I indicated that they should have 21 days within which to file and serve any affidavit to be relied on by them for the purpose of dealing with the content of Mr Samarasinghe's affidavit of 27 April 2011.

1. There is then the question of the moneys in court. They currently amount to either $7,644,509 or $7,645,109 (the difference is immaterial for present purposes). It is accepted on all hands that, even allowing for the greatest amount that could possibly be found to have been secured by the mortgage held by the Messrs Ghougassian, millions of dollars of the money in court are unaffected. By this I mean that the Messrs Ghougassian, on their own view of matters, are owed a total that is millions of dollars short of the total of the moneys in court. The company in liquidation contends that a substantial sum may safely be paid out to it.

1. The Messrs Ghougassian, while accepting that a surplus exists, argued that all moneys should remain in court pending the taking of the account. Indeed, submissions made by Mr King of counsel for the Messrs Ghougassian were to the effect that nothing should be paid out to the company in liquidation except upon proof that a particular sum is required by the liquidator for a particular purpose properly within this scope of the winding up.

1. In making that submission Mr King made allegations of a general and non-specific kind about bias on the part of the liquidator and the possibility that funds coming into his hands would be wrongly applied, including perhaps because he wrongly admitted claims of certain persons claiming to be creditors. One must assume that Mr King made these allegations on instructions.

1. Mr King ultimately accepted that the effect of the position he took on behalf of his clients was that the court should, on a virtually day-to-day basis, superintend the application by the liquidator of the funds in court over and above those required to satisfy the mortgagees' entitlement. The proposition only has to be stated to be seen to be absurd. The process of the taking of the account will determine how much, if anything, is to be paid to the mortgagees. The balance belongs to the mortgagor. It is irrelevant that the mortgagor is a body subject to winding up. On no conceivable basis, would the court properly retain the balance so that it might play some role as the liquidator's supervising cashier.

1. It is clear that a substantial sum should go to the company in liquidation. It is necessary to decide the amount.

1. Ms Taylor, who appears for the liquidator, says that there should be retained a sum of $3 million which represents the total of the amounts in the verified accounts filed by the mortgagees plus a small buffer. The aggregate amount in the verified accounts is $2,952,670.83.

1. Mr King submitted that a large further retention should be made on account of interest not included in the accounts filed by the Messrs Ghougassian - being, I might say, accounts verified by their affidavits and certified and passed by an auditor.

1. I cannot see how a large further retention would be justified.. The mortgagees have, in accordance with the procedures the court has stipulated, filed their verified accounts and thereby made their claim. They cannot now maintain that there is some further hidden liability owed to them. The case before the court is one concerning the verified accounts they have produced.

1. Mr King next submitted that there should be an interim payment out of the moneys in court to the Messrs Ghougassian on the basis that they must be owed something. But that, of course, is the whole object of this exercise - to find out in a structured and definitive way whether anything is owing to the Messrs Ghougassian on the security of the mortgage and, if so, how much. The concept of an interim payment out to the mortgagees is therefore quite inconsistent with the whole purpose and structure of the proceeding.

1. There has also been discussion about further directions and I have settled these with counsel. Leaving aside for the moment the question of costs, the orders and directions I make are as follows:

1. Vacate the further hearing by me of the amended notice of motion filed in court today and the claim in paragraph 5 of the interlocutory process filed on 18 October 2010.

2. Direct that any affidavit to be relied on by Michael Ghougassian or Daniel Ghougassian or each dealing with matters emerging from Mr Samarasinghe's affidavit of 27 April 2011 be filed and served by 31 May 2011.

3. Direct that any affidavits in reply to be relied on by the liquidator or company in liquidation be filed and served by 20 June 2011.

4. Fix the amended notice of motion filed in court today and the claim in paragraph 5 of the interlocutory process of 18 October 2010 for hearing before the Corporations Judge on 30 June 2011 with two days allocated.

5. Order under rule 55.11 of the Uniform Civil Procedure Rules 2005 that the sum of $4,600,000 held in court in proceedings 2011/00010869 be paid out of court to St Gregory's Armenian School Inc (in liquidation).

1. It remains to deal with the question of costs.

1. Ms Taylor submits that the Messrs Ghougassian should be ordered to pay the costs of the company in liquidation thrown away by the adjournment of the hearing with the costs being assessed on the indemnity basis and being payable forthwith.

1. It is true an indulgence has been granted to the Messrs Ghougassian, but I have already referred to the fact (on which Mr King relies) that no directions were made with respect to evidence as a result of which, I think, it can fairly be said that there was doubt about just how evidence should be dealt with plus, as it emerged this morning, doubt about who bore the onus and who was to present their case first.

1. In those circumstances, and having regard to the fact that both those matters have now been resolved as a result of submissions made today, the appropriate order is that the costs of today and the costs occasioned by the adjournment be costs in the cause.

1. I so order.

1. Finally, I make an order in terms of paragraphs 6, 7, 8 and 9 of the usual order for hearing in Annexure 1 to Practice Note SC Eq 1 but with paragraph 6 amended to refer to five working days instead of ten working days.

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Decision last updated: 11 May 2011