In the matter of St Gregory's Armenian School Inc

[2015] NSWSC 1701

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of St Gregory’s Armenian School Inc [2015] NSWSC 1701
Hearing dates:	Written submissions as to costs, 21, 28 October 2015
Decision date:	16 November 2015
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Orders substantially in accordance with the liquidator’s short minutes of order, as amended.
Catchwords:	CORPORATIONS – Winding up – where appeal under s 1321 of the Corporations Act 2001 (Cth) – consequential orders giving effect to principal judgment   PRODEDURE – Costs – General rule – costs follow the event – where Defendant substantially successful in primary claim but not on Cross-Claim – where evidence relating to the primary claims also informed the Cross-Claim – determination of appropriate orders as to costs.
Legislation Cited:	- Civil Procedure Act 2005 (NSW) s 98 - Corporations Act 2001 (Cth) ss 1321 - Uniform Civil Procedure Rules 2005 (NSW) r 42.1
Cases Cited:	- Milne v Attorney-General (Tasmania) [1956] HCA 48; (1956) 95 CLR 460 - Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 - Re St Gregory's Armenian School Inc [2015] NSWSC 1465 - Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229
Category:	Costs
Parties:	Michael Ghougassian (First Plaintiff) Daniel Ghougassian (Second Plaintiff) Roderick Mackay Sutherland in his capacity as liquidator of St Gregory’s Armenian School Inc (in liq) (Defendant) Roderick Mackay Sutherland in his capacity as liquidator of St Gregory’s Armenian School Inc (in liq) (First Cross-Claimant) St Gregory’s Armenian School Inc (in liq) Second Cross-Claimant) Michael Ghougassian (First Cross-Defendant) Katrin Ghougassian (Second Cross-Defendant)
Representation:	Counsel: P E King (Plaintiffs/Cross-Defendants) J K Taylor (Defendant/Cross-Claimants   Solicitors: Robert Balzola & Associates (Plaintiffs/Cross-Defendants) Thomson Geer (Defendant/Cross-Claimant)
File Number(s):	2013/386207

Judgment

1. On 7 October 2015, I delivered judgment ([2015] NSWSC 1465) (“Judgment”) in respect of proceedings brought by Mr Michael Ghougassian and Dr Daniel Ghougassian, under s 1321 of the Corporations Act 2001 (Cth) in respect of decisions of the liquidator (“liquidator”) of St Gregory’s Armenian School Inc (in liq) (“SGAS”) to reject the whole of Mr Ghougassian’s proof of debt and part of Dr Ghougassian’s proof of debt. I also dealt, in the Judgment, with a Cross-Claim brought by the liquidator against Mr Ghougassian and his wife, Mrs Katrin Ghougassian, in respect of payments made by SGAS to Mr Ghougassian and entities associated with him.

2. I summarised the result of the proceedings in paragraph 275 of the Judgment as follows:

“Mr Ghougassian has failed and Dr Ghougassian has substantially failed in their applications to set aside the liquidator’s decisions in respect of their proofs of debt and the liquidator and SGAS have failed in their Cross-Claim. The complexity of the issues in these proceedings may impact on the form of orders necessary to give effect to this judgment, and I will hear the parties in that regard. My preliminary view is that Mr Ghougassian and Dr Ghougassian should, jointly and severally, pay the costs of their unsuccessful applications under s 1321 of the Corporations Act, as agreed or as assessed; the liquidator should pay Mr and Mrs Ghougassian’s costs of the Cross-Claim, as agreed or as assessed; and there can be no set off between those amounts, other than by agreement of the parties, given the lack of identity of parties to those claims.”

I also directed the parties to bring in Short Minutes of Order to give effect to the judgment, and as to costs, within 14 days (that is, by 21 October 2015) and directed that, if there was no agreement between them, each party should submit draft orders and submissions as to the orders which they contend should be made.

3. It appears that agreement was not reached between the parties as to the form of orders or as to costs. The liquidator provided submissions as to orders and as to costs within the time specified in my Judgment, and the Messrs Ghougassian subsequently made submissions on 28 October 2015. I have had regard to those submissions although they were made late.

Substantive orders

4. The first order proposed by the liquidator deals with proof of debt numbered 113 lodged by Dr Ghougassian. That order reflects my finding that the liquidator’s partial rejection of that proof of debt should be set aside, and that proof of debt should be admitted in whole. The Messrs Ghougassian indicate they do not oppose that order. The liquidator submits, and I accept, that the amount of the set-off in respect of amounts received by Dr Ghougassian (to which I refer below) is greater than the amount payable to him in respect of that proof of debt and that no further order requiring payment in respect of that proof of debt is therefore necessary. The Messrs Ghougassian did not seek such an order in their submissions.

5. The liquidator also submits, and I also accept, that it is not necessary for the Court to specify the amounts that should be paid by the liquidator concerning other proofs of debt lodged by Mr Ghougassian that were partially admitted by the liquidator, where the liquidator’s adjudication of those proofs of debt has not been disturbed on the appeal brought by the Messrs Ghougassian. In any event, the Messrs Ghougassian did not seek an order specifying that amount in submissions, and neither they nor the liquidator provided the Court with any calculation of any such amount so as to place the Court in a position to make such an order. The liquidator also indicated that he does not seek any further order in relation to the assignment of debts by Dr Ghougassian to Mr Ghougassian noted in paragraph 274 of the Judgment and accordingly I do not make such an order.

6. The second order proposed by the liquidator provides that the amount which would be payable to Dr Ghougassian is reduced by amounts already paid to him, including the amounts set out in paragraph 10A of the liquidator’s Defence. The Messrs Ghougassian did not expressly address this order in their submissions. The liquidator drafted that order in inclusive form, and it seems to me that drafting is correct where it appears that there were, or may be, other payments made to Dr Ghougassian that were not in contest in this hearing. I have amended that order to refer, in an inclusive manner, to the particular amount of $92,329.72 to which reference was made in paragraph 10A of the liquidator’s Amended Points of Defence and paragraph 272 of the Judgment.

7. The third order proposed by the liquidator provides for the Originating Process filed by the Plaintiffs otherwise to be dismissed. As the liquidator points out, that reflects the outcome noted in paragraph 262 of the Judgment, and the Messrs Ghougassian do not oppose that order. The fourth order proposed by the liquidator deals with costs of the Messrs Ghougassian’s claim and I will address it below. The fifth order proposed by the liquidator provides for the dismissal of the liquidator’s Interlocutory Process and Cross-Claim and reflects the finding in paragraph 275 of the Judgment, and I will make that order where no party contested it. The sixth and seventh orders proposed by the liquidator also deal with costs and I will address them below.

Orders as to costs

8. The fourth order proposed by the liquidator provides for the Messrs Ghougassian jointly and severally to pay the costs of the Originating Process as agreed or as assessed. That reflects the preliminary view as to costs expressed in paragraph 275 of my Judgment. The sixth order proposed by the liquidator provides for the liquidator to pay the Messrs Ghougassians’ costs of the Cross-Claim as agreed or as assessed and reflects the preliminary view as to costs expressed in 275 of the Judgment. The liquidator seeks a seventh order, in the form of a direction that the assessment of costs contemplated by the fourth and sixth orders be conducted on the basis that at least 75% of the hearing time and preparation was attributable to the Plaintiffs’ claim and the remainder attributable to the Cross-Claim.

9. Section 98 of the Civil Procedure Act 2005 (NSW) sets out the Court’s power to order costs and r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides that:

“Subject to this Part, if the Court makes any order as to costs, the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs.”

It is, of course, well-established that an order for costs is made to compensate a successful party for the expense of being put to the necessity of litigation; a wholly successful party should ordinarily receive its costs unless good reason is shown to the contrary; and the discretion to order costs must be exercised judicially and not against the successful party except for some reason connected with the proceedings: Milne v Attorney-General (Tasmania) [1956] HCA 48; (1956) 95 CLR 460 at 477; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97–98 per McHugh J, at 119–123 per Kirby J; Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at 234–235.

10. The Messrs Ghougassian responded, in relation to the question of costs generally, that the proceedings could and should have been completed within an original estimate of a three day hearing and were “hopelessly confounded” by the liquidator’s Cross-claim which, they submitted, “added substantially to the cost and length of what was at first instance a straightforward s 1321 statutory application”. With respect, it does not seem to me that the application was by any means a straightforward application under s 1321 of the Corporations Act, given the numerous proofs of debts that were in issue and the evidentiary difficulties, as a perusal of my Judgment will indicate. It also seems to me that the large bulk of the evidence led, and the bulk of the submissions, were directed to seeking to establish matters relating to the appeal against the liquidator’s disallowance of the proofs of debt, rather than the Cross-Claim.

11. The Messrs Ghougassian also repeat a submission, made at the hearing, that the liquidator has not provided access to their (or, possibly, SGAS’s) documents, and complained as to the manner in which their goods (or, more precisely, SGAS’s goods) have been stored in a storage facility. The Messrs Ghougassian also submitted that:

“Our goods have been trashed with insufficient capacity to access or identify boxes with a reckless indifference to the present or future of [SGAS] which, it is clear by the conduct of the liquidator, is already pre-determined is killed off beyond redemption and the monies already pre-supposed to be distributed to any other person other than us upon completion of the liquidation.”

I addressed the question of access to documents in the Judgment. It also seems to me that the liquidator can scarcely be fairly held responsible for the state of insolvency of SGAS which required his appointment, or brought it to a position where its affairs will be administered in a winding up. This submission also does not seem to me to relate to matters as to the conduct of the proceedings which are relevant to the costs of the proceedings. The Messrs Ghougassian also make further submissions as to the liquidator’s conduct of the liquidation, which are not supported by the Judgment and also not relevant to the determination of the costs of the proceedings.

12. The Messrs Ghougassian submit, on that basis, that the liquidator should pay his own costs and pay the majority of their costs of the proceedings. It does not seem to me that such an order would be a proper exercise of the Court’s jurisdiction as to costs, where the liquidator has been substantially successful in respect of the Messrs Ghougassians’ appeal under s 1321 of the Corporations Act, and, as I will note below, it seems to me that the substantial majority of the costs of the proceedings related to that application. The Messrs Ghougassian also submit that Dr Ghougassian was “successful in reversing the decision against him by the liquidator”, necessitating his appeal, and he should have his costs. I do not accept that submission, where Dr Ghougassian was successful in respect of his appeal against only one proof of debt, number 113, lodged by him and, as the Judgment makes clear, was unsuccessful in the substantial part of his appeal. I note, for completeness, that it seems to me that this order should be made on a joint and several basis against Mr Ghougassian and Dr Ghougassian where they shared legal representation and made common submissions and the case was otherwise not conducted in a manner which would allow the time or costs attributable to the claims by Mr Ghougassian and Dr Ghougassian to be readily separated.

13. I will therefore make the fourth order proposed by the liquidator, amended to make clear that costs are payable on the ordinary basis, where the liquidator did not seek costs other than on that basis. The sixth order proposed by the liquidator in respect of the Cross-Claim appeared to be common ground and I will make that order.

14. The question of the costs occupied by the claim and Cross-Claim, which arises in respect of the seventh order proposed by the liquidator and the contrary position put by the Messrs Ghougassian is, of course, to some extent a matter of impression. However, a number of matters support the direction proposed by the liquidator. The first, to which the liquidator did not directly refer, although it was perhaps so obvious that he did not consider it necessary to do so, is that the Messrs Ghougassians’ appeals were very complex and involved a significant amount of evidence on the liquidator’s part, dealing with numerous individual claims. The second matter noted by the liquidator, which I accept, is that only Counsel for the Messrs Ghougassian opened, and that opening made limited reference to the Cross-Claim. The liquidator also points out, and I also accept, that the only cross-examination relating to the Cross-Claim was that of Mr Michael Ghougassian, commencing on the afternoon of the fourth day of the hearing (T101) and continuing into the morning of the sixth day of the hearing (T233), although the liquidator rightly noted that there was a significant degree of overlap between the parts of Mr Ghougassian’s cross-examination and re-examination which were relevant to his primary claims and the Cross-Claim. While the liquidator acknowledges that Ms Katrin Ghougassian’s evidence was also relevant to both the primary claim and the Cross-Claim, it was very brief. The liquidator also points out, and I accept, that only a relatively small part of the liquidator’s cross-examination was directed to the Cross-Claim, and that the parties primarily relied on their written outlines in respect of the Cross-Claim.

15. The Messrs Ghougassian oppose the seventh order sought by the liquidator and propose a different apportionment of the costs of the claim and the Cross-Claims. They refer to the findings of White J in an earlier judgment, to which I had referred in the Judgment; again criticise the liquidator’s approach in the liquidation; refer to the amendment of the Cross-Claim at the commencement of the proceedings; and submit that the Cross-Claim constituted 75% rather than 25% of the case, and that 50% would be a more fair and reasonable and basis for any division as proposed in the seventh order proposed by the liquidator. I have had regard to that submission, but it does not seem to me to reflect either the time spent in respect of the primary claim and the Cross-Claim at the hearing, or the time that is likely to have been spent by the parties in preparing their evidence and submissions as to the relevant issues.

16. It seems to me that a 25% attribution of costs to the Cross-Claim may be generous to the Messrs Ghougassian, with respect to the amount of time at the hearing devoted to the Cross-Claim is concerned, but I recognise that work in respect of affidavit evidence and submissions was also directed to the Cross-Claim. The approach adopted by the liquidator may be tested by noting that, even if the whole of Mr Ghougassian’s cross-examination were treated as primarily relevant to the Cross-Claim, the hundred or so pages of transcript referable to that cross-examination reflect about a quarter of the total length of the hearing. I am satisfied that the Court is in a better position to make the assessment of the proportion of costs attributable to the claim and Cross-Claim than a costs assessor who was necessarily not present at the hearing, and that the seventh order sought by the liquidator should properly be made.

Orders

17. Accordingly, I make the following orders:

1.   In relation to proof of debt numbered 113 lodged by the Second Plaintiff (“Dr Ghougassian”) in the amount of $13,493.50:

(a)   The Defendant (“the liquidator’s”) partial rejection of the proof of debt be set aside;

(b)   The proof of debt be admitted in whole; and

(c)   Any payment of the amount claimed in that proof of debt be subject to the set-off referred to in Order 2 below.

2.   Any amount that would properly be payable to Dr Ghougassian is reduced by the amounts already repaid to him including the amount of $92,329.72 previously paid to him, as pleaded in paragraph 10A of the liquidator’s Defence.

3.   The Originating Process filed by the Plaintiffs is otherwise dismissed.

4.   The Plaintiffs jointly and severally pay the liquidator’s costs of the Originating Process on the ordinary basis as agreed or as assessed.

5.   The Amended Interlocutory Process filed on 5 February 2015 by the liquidator and St Gregory’s Armenian School Inc (in liq) and the Points of Cross-Claim filed on 12 August 2014 be dismissed.

6.   The Cross-Claimants pay the Cross-Defendants’ costs of the Cross-Claim on an ordinary basis as agreed or as assessed.

7.   The Court directs that the assessment of costs as provided by Orders 4 and 6 be conducted on the basis that at least 75% of the hearing time and preparation time is treated as attributable to the Plaintiffs’ claims with the remainder treated as attributable to the Cross-Claim.

**********

Decision last updated: 17 November 2015