Fiacon Property Services Pty Ltd v Ashourian
[2019] FCCA 3672
•18 December 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FIACON PROPERTY SERVICES PTY LTD v ASHOURIAN | [2019] FCCA 3672 |
| Catchwords: BANKRUPTCY – Application for sequestration order – whether preconditions for making sequestration order based on failure to comply with requirements of a bankruptcy notice satisfied – whether there are substantial reasons for questioning whether behind the judgment on the basis of which the bankruptcy notice was issued there is in truth and reality a debt owed to the petitioning creditor – substantial reasons for questioning debt established – whether petitioning creditor discharged burden of proving existence of debt – burden not discharged – creditor’s petition dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.52(1), 52(2) Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), rr.4.04(1)(a), 4.04(1)(b) |
| Cases cited: Cheung v Burness (Trustee) [2016] FCA 1381 |
| Applicant: | FIACON PROPERTY SERVICES PTY LTD |
| Respondent: | RAMIL ASHOURIAN |
| File Number: | SYG 2455 of 2018 |
| Judgment of: | Judge Manousaridis |
| Hearing dates: | 24 May 2019, 2 August 2019 |
| Date of Last Submission: | 2 August 2019 |
| Delivered at: | Sydney |
| Delivered on: | 18 December 2019 |
REPRESENTATION
| Counsel for the Applicant: | Mr L Katsinas on 24 May 2019 Ms P Clingan on 2 August 2019 |
| Solicitors for the Applicant: | Simone Legal |
| Counsel for the Respondent: | Mr D C Eardley on 24 May 2019 |
| Solicitors for the Respondent: | Mr R Raupach of Russo & Partners on 2 August 2019 |
ORDERS
The creditor’s petition is dismissed.
The respondent pay the applicant’s costs as agreed or assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2455 of 2018
| FIACON PROPERTY SERVICES PTY LTD |
Applicant
And
| RAMIL ASHOURIAN |
Respondent
REASONS FOR JUDGMENT
Before me is an application for a sequestration order against the estate of the respondent, Mr Ramil Ashourian. The act of bankruptcy on which the applicant, Fiacon Property Services Pty Ltd (Fiacon), relies is Mr Ashourian’s failure to comply with the requirements of a bankruptcy notice issued on 5 July 2018. The bankruptcy notice is based on a default judgment for $21,691.52 Fiacon recovered against Mr Ashourian in the Local Court of New South Wales on 22 January 2018 (Judgment) and interest of $726.52 on that amount.
Although raised as a ground of opposition to the making of a sequestration order, Mr Ashourian does not dispute, and I find, that the bankruptcy notice was served on him by email on 16 July 2018,[1] and that Mr Ashourian failed to comply with the requirements of the bankruptcy notice because he failed to pay on or before 7 August 2018 any part of the amount demanded by the bankruptcy notice. There is also no dispute, and I find, that Fiacon filed the creditor’s petition on 31 August 2018 and, on that day, it filed an affidavit required by r.4.04(1)(a) of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules),[2] and an affidavit of service of the bankruptcy notice, as required by r.4.04(1)(b) of the Rules; and that all other preconditions to the engagement of the power under s.52(1) of the Bankruptcy Act 1966 (Cth ) (Act) to make a sequestration order have been satisfied.
[1] Affidavit of N M Simone 04.10.2018
[2] Affidavit of C M Simone, 04.10.2018. An amended creditor’s petition was filed on 4 October 2018, and a further amended creditor’s petition was filed on 18 December 2018.
The ground on which Mr Ashourian relies for resisting the application for a sequestration order is that, although the Judgment was entered in relation to a true debt, the debt was not owed by Ms Ashourian, but by a company known as “The Maintenance Group Pty Ltd”, being a company of which Mr Ashourian is a director and shareholder. The principal questions that arise, therefore, are whether there are substantial reasons for going behind the Judgment and, if so, whether the Judgment represents a debt that Mr Ashourian owes to Fiacon.
These reasons are arranged as follows. First I set out the facts out of which arose the debt on the basis of which Fiacon obtained the Judgment, and what has become of the Judgment. The evidence in relation to those facts is to a large extent contained in documents, and the matters revealed by that evidence, therefore, are not in dispute. I will then briefly set out the relevant principles concerning a bankruptcy court’s going behind a judgment, after which I will consider whether there are substantial grounds for questioning whether there is a real debt behind the Judgment.
Facts
At all relevant times Fiacon was in the business of providing property maintenance and cleaning services. Its operations are controlled by Mr Garabedian.
According to Mr Garabedian, in around early March 2017 Fiacon began a business relationship with Mr Ashourian.[3] Mr Garabedian does not in his affidavit describe the nature of that business relationship; but the business relationship is described with some particularity in the amended statement of claim Fiacon filed with the Local Court of New South Wales against The Maintenance Group Pty Ltd (TMG) trading as “Ark Property Services” as first defendant, and Mr Ashourian as second defendant.[4]
[3] Affidavit of S Garabedian, 23.05.2019, [2]
[4] Affidavit of R Ashourian, 13.02.2019, [18]; annexure “C”. Mr Garabedian accepted in cross-examination that he had read the amended statement of claim – T12.25-T13.20
The amended statement of claim included the following allegations:
a)by a series of agreements in writing Fiacon agreed to supply to TMG maintenance and cleaning services;
b)TMG made the agreements with Fiacon through Mr Ashourian;
c)it was a term of the agreements that TMG would be responsible for the cost of the services Fiacon was to provide to TMG;
d)Fiacon supplied maintenance and cleaning services to TMG pursuant to the agreements, and from 8 March 2017 to 1 May 2017 Fiacon issued to TMG 30 invoices claiming amounts totalling $19,773.68; and
e)TMG failed to pay the amounts Fiacon claimed in the invoices.
In evidence given under cross-examination, Mr Garabedian said that Fiacon’s ledger records “Ark Property Services” as the entity to which invoices were issued, and that in some cases the ledger recorded “Orange Property Group trading as Ark”.[5] Mr Garabedian accepted that none of the invoices was addressed to Mr Ashourian.[6]
[5] T13.45-T14.5
[6] T14.20
Commencing on 7 April 2017 Mr Garabedian and Mr Ashourian exchanged text messages. On the evidence before me Mr Garabedian initiated the exchange with a text requesting payment. The texts from Mr Garabedian to Mr Ashourian do not refer to TMG or to any company, but use the word “you”. For example, in a text he sent to “Ramil Ashourian – Ark Services” on 13 April 2017 Mr Garabedian asked: “Have you paid us anything yet mat[e]?”, and in a text message Mr Garabedian sent on 24 April 2017 he stated: “Last week on Thursday, You promised me $5K that afternoon and more on Monday”. Mr Ashourian, on the other hand, also did not refer to TMG. He did not, however, refer to Fiacon but used the word “you”. He also used the words “I” and “we”.[7]
[7] Affidavit of S Garabedian, 23.05.2019, annexure “B” and “C”
On 27 April 2017 Mr Ashourian deposited into Fiacon’s bank account four amounts totalling $3,404.50.[8] After receiving no further payment, Mr Garabedian and Mr Ashourian exchanged text messages on 12 May 2017, [9] and on 21 May 2017.[10] In his affidavit Mr Garabedian deposes that in “reliance upon the promises made by Ashourian, Fiacon continued to provide serves [sic] to Ashourian and Ark”.[11]
[8] Affidavit of S Garabedian, 23.05.2019, [11]; annexure “E”
[9] Affidavit of S Garabedian, 23.05.2019, [12]; annexure “F”
[10] Affidavit of S Garabedian, 23.05.2019, [13]; annexure “G”
[11] Affidavit of S Garabedian, 23.05.2019, [14]
Shortly after 21 May 2017 Mr Garabedian, acting on behalf of Fiacon, filed with the Local Court a statement of claim against TGM. Fiacon obtained default judgment on 30 June 2017. After Mr Ashourian retained a lawyer, Fiacon agreed that the default judgment it had obtained against TGM be set aside. Fiacon then filed an amended statement of claim. The amendment included adding Mr Ashourian as a second defendant. The amended statement of claim alleges that by a “series of agreements, the Second Defendant agreed to perform the obligations of the First Defendant to the Plaintiff”.[12] The particulars to that allegation identify text messages Mr Garabedian sent to Mr Ashourian on 7 April, 13 April, 24 April, and 21 May 2017.
a)In his text message of 7 April 2017 Mr Garabedian said “Your [sic] at $15K over 14 day payment terms . . . Really. Wed payment today”. Mr Ashourian responded stating “I agreed to pay 14 days from day of invoice to me”, and that “we will sort this out shortly”.[13]
b)In the first of his two text messages he sent on 13 April 2017 Mr Garabedian stated he was “checking in with” Mr Ashourian because “you said last week we would be paid something significant on Wednesday this week”, and Mr Garabedian asked whether “you paid us anything yet”. Mr Ashourian responded by stating “We are going through them all today and will be making payment shortly”.[14]
c)In his text message of 24 April 2017 Mr Garabedian stated Mr Ashourian “say[s] this every week to me”, that he has “been extremely patient”, that he gets “frustrated when you break your word”, and that “Last week on Thursday, You Promised me $5k that afternoon and more on Monday”.[15] Mr Garabedian sent this text message in response to Mr Ashourian’s text message of the same day that he “will get everything up to date by the end of the week”.[16]
d)In text message of 21 May 2017 Mr Garabedian said Mr Ashourian “missed your deadline” and, after stating he had some trouble lodging “an online statement of claim yesterday”, Mr Garabedian said he was not sure why “you don’t agree to a payment plan and I’m not sure why you havnt [sic] paid me anything”. Mr Garabedian sent this in response to a text message Mr Ashourian had sent on the same day asking that they “catch up asap and discuss a way forward”.[17]
[12] Affidavit of R Ashourian, 13.02.2019, annexure “C”, [10]
[13] Affidavit of S Garabedian, 23.05.2019, annexure “A”
[14] Affidavit of S Garabedian, 23.05.2019, annexure “B”
[15] Affidavit of S Garabedian, 23.05.2019, annexure “C”
[16] Affidavit of S Garabedian, 23.05.2019, annexure “C”
[17] Affidavit of S Garabedian, 23.05.2019, annexure “G”
The amended statement of claim then alleges that “by virtue of” Fiacon having supplied goods and services to TGM, it became indebted to Fiacon in the amount of $19,773.68 and that Mr Ashourian failed to pay that amount after Fiacon demanded that he do so.
TGM and Mr Ashourian filed a defence to the amended statement of claim. In relation to the claims made against Mr Ashourian the defence denies the allegations and claims those allegations in any event do not disclose any cause of action against him.[18]
[18] Affidavit of R Ashourian, 13.02.2019, [18]; annexure “D”.
On 4 December 2017 the Local Court notified Fiacon’s lawyer by email that on 30 November 2017 the Local Court ordered that the matter was listed for defence callover at 9:30 am on 14 December 2017, and that the defendants (TGM and Mr Ashourian) were to be notified that if they did not appear their defence would be struck out.[19] On 4 December 2017 the defence was struck out because Mr Ashourian did not appear at the defence callover.[20] Fiacon then obtained the Judgment.
[19] Affidavit of S Garabedian, 23.05.2019, annexure “K”
[20] Affidavit of S Garabedian, 23.05.2019, annexure “L”
On 9 March 2018 Mr Ashourian filed a notice of motion to set aside the Judgment.[21] The application to set aside the Judgment was due to be heard on 5 April 2018. Mr Ashourian appeared, but no one on behalf of Fiacon appeared.[22] The application was adjourned for hearing on 3 May 2018.[23] Fiacon appeared, but Mr Ashourian did not appear at the hearing. The Court ordered that the notice of motion to set aside the Judgment be struck out.[24]
[21] Affidavit of S Garabedian, 23.05.2019, annexure “N”
[22] Affidavit of S Garabedian, 23.05.2019,[33]
[23] Affidavit of S Garabedian, 23.05.2019, annexure “P”
[24] Affidavit of S Garabedian, 23.05.2019, [34]
Mr Ashourian and TMG took no further action to set aside the Judgment until 6 February 2019 when Mr Ashourian filed another application to set aside the Judgment.[25] This was nearly six months after Fiacon filed its creditor’s petition. According to Mr Garabedian the application came before a Registrar of the Local Court on 27 February 2019 who dismissed it.
[25] Affidavit of S Garabedian, 23.05.2019, [42]
At the time I heard the creditor’s petition on 24 May 2019, I was informed that Mr Ashourian had again applied to the Local Court for an order to set aside the default judgment, and that his application was set down to be heard on 13 June 2019. At the conclusion of the hearing I reserved judgment, and listed the matter for judgment on 20 June 2019. I informed the parties that I expected them to notify me of the outcome of the hearing on 13 June 2019 before the Local Court.
At the request of the parties, I adjourned the matter on two occasions and the matter was last before me on 2 August 2019. On that day I read an affidavit made by Ms Simone, the lawyer for Fiacon, which I accept discloses the following: [26]
a)The Local Court set aside the Judgment, and ordered that Mr Ashourian pay Fiacon’s costs. The Local Court further ordered that Mr Ashourian pay Fiacon’s costs within 21 days, failing which Fiacon could apply for default judgment without further notice to Mr Ashourian.
b)On 3 July 2019 the Local Court ordered Mr Ashourian pay Fiacon $11,000 in costs, and that he do so within 21 days.
c)Mr Ashourian did not pay the costs by 24 July 2019, and on 29 July 2019 Fiacon obtained judgment against Mr Ashourian in the amount of $22,392.77.
[26] Affidavit of C M Simone, 01.08.2019
Principles – going behind judgments
I have on a number of occasions considered the principles relating to the jurisdiction of a court of bankruptcy to go behind a judgment. It would be sufficient if I repeat here what I said in Ziman v McKellar:[27]
It will be apparent that an application for a sequestration order must be based on the debtor owing the petitioning creditor a debt. In most cases the relevant debt will be constituted by a judgment debt. That will be the case where the act of bankruptcy on which the creditor relies is the debtor’s failure to comply with the requirements of a bankruptcy notice. If the judgment debt has been paid before the date of the hearing of the creditor’s petition, the Court may decline to make a sequestration order. Even if, however, the judgment debt remains unpaid as at the date of hearing of the creditor’s petition, a bankruptcy court has a discretion to “go behind the judgment” if “substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”.[28] Where the Court is satisfied such substantial reasons exist, the petitioning creditor will bear the legal burden of proving the judgment records a true debt.[29]
[27] [2018] FCCA 3401, at [20]. I am satisfied this summary is consistent with the statement of the relevant principles given in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28, at [72]
[28] Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 at page 225 (Barwick CJ)
[29] Cheung v Burness (Trustee) [2016] FCA 1381 at [79] (Moshinsky J)
Substantial reasons for questioning existence of debt?
In my opinion there are substantial reasons for questioning whether behind the Judgment there is in truth and reality a debt Mr Ashourian owes to Fiacon. First, the Judgment was not entered after an examination by the Local Court of the merits of Fiacon’s claim against Mr Ashourian. The Judgment was entered after the Local Court had struck out a defence because Mr Ashourian had failed to appear at a defence callover.
Second, and more significantly, the evidence does not sufficiently support the debt Fiacon claimed against Mr Ashourian. The matter on which Fiacon in its amended statement of claim relies for claiming that Mr Ashourian is liable to pay the amounts claimed in those invoices is the allegation that he agreed to “perform the obligations of” TGM under the agreements Fiacon entered with TGM.[30] The basis of that allegation is text messages in which Mr Ashourian used the word “I” when making representations and promises about the payment of amounts claimed in invoices Fiacon issued. Those statements, however, must be viewed in the context in which they were made; and the outstanding context is that Fiacon issued invoices for the services it performed, not to Mr Ashourian, but, at least in most cases, to TGM, a company. Viewed objectively – that is, from the position of how reasonable persons in the position of Mr Garabedian and Mr Ashourian would have viewed their relationship at the time they dealt with each other – the arrangement was one where Mr Ashourian, acting on behalf of TGM, a company he controlled, engaged Fiacon, a company Mr Garabedian controlled, to provide cleaning and maintenance services; and that Fiacon looked to TGM, not to Mr Ashourian, to pay Fiacon for the services it agreed to provide to TGM.
[30] Amended statement of claim, [10]
What the evidence shows to be the objective nature of the relationship between Mr Garabedian and Mr Ashourian is supported by Mr Garabedian’s conduct when he commenced proceedings in the Local Court on behalf of Fiacon. Mr Garabedian did not include Mr Ashourian as a defendant, which means he did not claim that Mr Ashourian had agreed to perform the obligations of TGM. It is reasonably open to me to treat Ms Garabedian’s conduct as an implied admission, and I do find that it is an implied admission, by Mr Garabedian that there was no agreement between Fiacon and Mr Ashourian that Mr Ashourian would perform TGM’s obligations to Fiacon.[31]
[31] An “admission by conduct” by a party to a contract is capable of constituting “strong evidence not only as to what was agreed between them” but “also as to what was thought to be the effect of the contract”: Winks v WH Hecke & Sons Pty Ltd [1986] 1 Qd. R 226, at page 233
Is there a debt?
Having concluded there are substantial reasons for questioning whether behind the Judgment there is in truth and reality a debt Mr Ashourian owes Fiacon, the next question is whether Fiacon has discharged the burden of proving that there is in fact a debt. For the reasons I have concluded there are substantial reasons for questioning whether there is a debt behind the Judgment, I cannot be satisfied that behind the Judgment there is in truth and reality a debt Mr Ashourian owes Fiacon.
I therefore conclude that, although the preconditions for making a sequestration order under s.52(1) of the Act exist, my not being satisfied that behind the Judgment there is in truth and reality a debt Mr Ashourian owes Fiacon constitutes an “other sufficient cause” within the meaning of s.52(2) of the Act why a sequestration order ought not be made. I propose, therefore, to order that the creditor’s petition be dismissed.
Costs
Having successfully defended the creditor’s petition on the grounds on which he relied, Mr Ashourian submits he should be entitled to his costs. He additionally submits that I should order that his costs be assessed on an indemnity basis. Fiacon, on the other hand, submits that not only should an order for costs not be made in favour of Mr Ashourian; he should be ordered to pay Fiacon’s costs. Fiacon relies on Mr Ashourian’s allowing the Judgment to be entered against him, and his not seeking to apply to set aside the Judgment until after the creditor’s petition was filed.
In my opinion, the determination of what order for costs I should make turns on whether Fiacon’s decision to commence and pursue bankruptcy proceedings against Mr Ashourian was a reasonable response to unreasonable conduct by Mr Ashourian. That question is to be answered in the affirmative. On the one hand, Mr Ashourian acted unreasonably; he permitted his defence to be struck out in December 2017, and the Judgment to be entered on 22 January 2018, in circumstances where it was open to him to defend in the Local Court the claim Fiacon made against him on the very grounds he elected to defend the creditor’s petition. Mr Ashourian did not, however, apply for leave to defend Fiacon’s claim in the Local Court until after Fiacon filed the creditor’s petition; and that application was not heard by the Local Court until after I heard the creditor’s petition. On the other hand, Fiacon had the benefit of a judgment in its favour that Mr Ashourian showed no inclination to disturb until after Fiacon filed the creditor’s petition; and then he did not succeed in having his application heard until after I heard the creditor’s petition. In those circumstances it was reasonable for Fiacon to seek to enforce its rights as creditor by commencing and maintaining the bankruptcy proceedings against Mr Ashourian.
I am satisfied, therefore, that Mr Ashourian should be ordered to pay Fiacon’s costs, and I propose to so order.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 18 December 2019
0
4
3