Re St Gregory's Armenian School Inc
[2015] NSWSC 1465
•7 October 2015
|
New South Wales |
Case Name: | In the matter of St Gregory’s Armenian School Inc |
Medium Neutral Citation: | [2015] NSWSC 1465 |
Hearing Date(s): | 4 – 6 March, 7 - 10 and 24 April, 14 July 2015 (last written submissions 21 September 2015) |
Decision Date: | 7 October 2015 |
Jurisdiction: | Equity - Corporations List |
Before: | Black J |
Decision: | Held that appeals against liquidator’s decision as to proofs of debt under s 1321 of the Corporations Act 2001 (Cth) substantially fail and that Cross-Claim brought by liquidator and company also fail. Parties to bring in agreed short minutes of order to give effect to this judgment, and as to costs, within 14 days. If there is no agreement between them, each party should submit draft orders, and submissions not exceeding 10 pages, as to the orders which they contend should be made, indicating whether a further oral hearing is sought. |
Catchwords: | CORPORATIONS – winding up – conduct and incidents of winding up – where liquidator rejected all or parts of proofs of debt lodged by Plaintiffs in the winding up – whether to set aside decision of liquidator under Corporations Act 2001 (Cth) s 1321 |
Legislation Cited: | - Civil Procedure Act 2005 (NSW) s 21 |
Cases Cited: | - Australasian Annuities Pty Ltd (in liq) (recs and mgrs apptd) v Rowley Super Fund Pty Ltd [2015] VSCA 9 |
Category: | Principal judgment |
Parties: | Michael Ghougassian (First Plaintiff) |
Representation: | Counsel: |
File Number(s): | 2013/386207 |
JUDGMENT
By an Originating Process dated 24 December 2013, the Plaintiffs, Mr Michael Ghougassian (“Mr Ghougassian”) and Dr Daniel Ghougassian (“Dr Ghougassian”) brought an application under s 1321 of the Corporations Act 2001 (Cth) in respect of decisions of Mr Roderick Sutherland, the liquidator of St Gregory’s Armenian School Inc (in liq) (“SGAS”) to reject the whole of Mr Ghougassian’s proofs of debt and that part of Dr Daniel Ghougassian’s proofs of debt which was rejected. They seek an order that the liquidator’s decisions to reject the proofs of debt be set aside. They also seek a declaration that appears to be directed to an estoppel claim to which I will refer below, namely that:
“A Declaration that the decision and ratio of his Honour Justice White in this Court on 29 February 2012 in the decision of Sutherland v Ghougassian & Ors [2012] NSWSC 125 is a judicial determination that the proofs of debt are, by virtue of his Honour’s judgment, judgment debts as unsecured creditors.”
Background facts
Several background facts are agreed between the parties. Other matters are disputed and I will reach determinations about them below. Mr Ghougassian was at all relevant times the public officer of SGAS. Mr Ghougassian and his wife, Mrs Ghougassian, are also the directors of Nareg Ltd, which wholly owns the shares in Nareg Internet Pty Ltd (“Nareg Internet”), of which Mr Ghougassian is a director. Mr Ghougassian and Mrs Ghougassian also own the shares in Nareg Bookshop Pty Ltd (“Nareg Bookshop”), of which Mrs Ghougassian is a director. SGAS’s principal asset was the land from which it operated, which was subject to a first registered mortgage to the Plaintiffs and a second registered mortgage to the Commonwealth Bank of Australia (“CBA”). The mortgage in favour of the Plaintiffs secured monies owing under a deed of loan dated 6 May 2005 between them and SGAS. The Plaintiffs had executed a deed of priority in favour of CBA. Following default in respect of the loan by CBA to SGAS, CBA obtained orders for possession of the land occupied by SGAS and sold it as mortgagee and, after discharging the debt owed to it, CBA paid surplus proceeds of $7,687,728.53 into Court. SGAS was wound up by order of the Court made on 21 June 2010 and Mr Sutherland was appointed as its liquidator.
The history of the winding up of SGAS was summarised by White J in a judgment dealing with an accounting for amounts owing by SGAS to the Plaintiffs and secured by mortgage (Sutherland v Ghougassian [2012] NSWSC 125 at [2] – [28]) (“2012 Judgment”). In the proceedings before White J (“2012 Proceedings”), the Plaintiffs were ordered to and provided accounts of the amounts they claimed SGAS owed to them. Mr Ghougassian then claimed the amount of $2,328,338.53 for the period 17 December 2003 to 1 December 2010 and Dr Ghougassian claimed the amount of $624,289.30 for the period 26 June 2003 to 19 November 2010. In the 2012 Judgment, White J noted that he had determined the amount secured by the mortgage on the available evidence (at [78], [95]) and that his decision was “made on limited evidence” and did not “create any issue estoppel on the question of what is the total amount that may be owed” to the Plaintiffs by SGAS (at [98]). His Honour held that Mr Ghougassian was owed $560,705 secured by the mortgage (at [78]) and Dr Ghougassian was owed $296,239.29 secured by the mortgage (at [95]), exclusive of interest, and ordered that amounts of $881,878.95 and $432,045.47 be paid to Mr Ghougassian and Dr Ghougassian respectively, inclusive of interest, and the balance of the monies then held in Court were then paid to the liquidator.
I will refer below to evidence led in the 2012 Proceedings and to findings made by White J in the 2012 Judgment. Both parties sought to rely on those findings to establish estoppels for some purposes and contested those findings for other purposes. I consider it preferable not to treat those findings as giving rise to an estoppel, other than in respect of White J’s findings as to two amounts due to Mr Ghougassian to which I refer below, where his Honour had expressly observed that he had reached his judgment based on limited evidence and that it did not give rise to an estoppel as to the wider dealings between the Plaintiffs and SGAS. I have had regard to evidence that was led in the 2012 Proceedings and also tendered by agreement of the parties in evidence before me, subject to his Honour’s rulings on evidence. I have not treated his Honour’s findings as determinative of any fact. However, the evidence before me substantially overlapped with the evidence before White J and, as will emerge below, I have largely reached the same findings as his Honour did in respect of significant issues dealt with in the 2012 Judgment.
In a further judgment delivered on 9 October 2012 (Re St Gregory’s Armenian School (in liq) [2012] NSWSC 1215) (“Removal Judgment”), Brereton J noted that, as well as secured debts to the Plaintiffs at the time of the winding up, SGAS owed approximately $1.2 million to the Australian Taxation Office and approximately $300,000 to employees and former employees, and had incurred the costs of the winding up proceedings, and also recognised the possibility that additional sums were owed to the Messrs Ghougassian that were not covered by the mortgage given by SGAS in their favour.
The process of lodgement of Mr Ghougassian’s proofs of debt and consideration of those debts continued over an extended period, as set out in the liquidator’s rejection of the proofs of debts (Ex P1). On 10 May 2012, the liquidator called for formal and updated proofs of debt to be submitted by 30 May 2012, in accordance with reg 5.6.39 of the Corporations Regulations 2001 (Cth). On 4 September 2012, the liquidator issued a notice under reg 5.6.53(3) of the Regulations, requesting further and better particulars and documentation from Mr Ghougassian to support his claim. On 7 February 2013, the liquidator issued a notice of rejection of formal proof of debt or claim with respect to the entirety of Mr Ghougassian’s claim, on the basis that he had not received a response to the request for further and better particulars and documentation. On 4 March 2013, Mr Ghougassian responded to the questions asked and also provided a further document in support of the proof of debt. The liquidator then wrote to Mr Ghougassian’s legal representative on 4 June 2013 and, on 21 June 2013, Mr Ghougassian, Dr Ghougassian and their legal adviser met with the liquidator’s staff. Twenty-two further proof of debt forms were lodged after 4 June 2013 relating to monthly interest on an equity line of credit account in Mr Ghougassian’s name for the period 31 August 2011 – 31 June 2013, extending the period for which such interest was claimed in earlier proofs of debt. An additional eight proofs of debt were provided on 3 July 2013, relating to funds advanced to SGAS by Mr Nicholas Megalaconomos (to whom I will refer as “Mr Conomos”, by which name he is commonly known) between 2006 and 2008.
On 5 December 2013, the liquidator rejected Mr Ghougassian’s proof of debt in whole, for reasons set out in a letter of that date; accepted Dr Ghougassian’s proof of debt in the amount of $434,143.89, subject to claimed offsets of $226,586.03, and allowed that claim in an amount ultimately quantified as $211,141.36. Mr Ghougassian then included additional proofs of debt in his affidavit dated 5 May 2014 filed in these proceedings. The liquidator subsequently adjudicated those additional proofs of debt and, on 24 June 2014, allowed them in the amount of $55,000, rejected the balance and set off that amount against the amount of $483,719.22 which the liquidator contends that Mr Ghougassian owed SGAS. Mr Ghougassian ultimately submitted 247 proofs of debt and Dr Ghougassian submitted 158 proofs of debt. The liquidator prepared a claims register summarising the reasons for rejection of each of the claims in respect of Mr Ghougassian (Ex D13, RMS 6) and Dr Ghougassian (Ex D10, RMS 2 Annexure 5). The basis of the adjudication of Mr Ghougassian’s claims was updated in a schedule prepared by the liquidator and tendered by the Plaintiffs (Ex P11).
I should note that there seems to me to be a fundamental difficulty with the approach adopted by Mr Ghougassian and Dr Ghougassian in lodging numerous separate proofs of debt for separate transactions. That difficulty was not raised by the liquidator in rejecting the proofs of debt or in his Defence filed in the proceedings and was only identified in the course of closing submissions, as a result of a submission made by Mr King (who appears for the Messrs Ghougassian) in respect of a somewhat similar issue arising in the liquidator’s Cross-Claim. It seems to me that the approach that Mr Ghougassian and Dr Ghougassian adopted, in identifying individual transactions that are said to give rise to debts, without taking any account of the numerous payments that were made by SGAS to Mr Ghougassian and Dr Ghougassian, potentially in repayment or partial repayment of debts including those debts, means that the claims made by Mr Ghougassian and Dr Ghougassian do not disclose the total amount of any debt that SGAS owes them, and potentially overstate any such debt. That proposition may be simply illustrated. If a lender lends a company the amounts of A, B, C, D, and E, and 242 further amounts, and the company makes repayments of the amounts of F, G and H and other unidentified repayments, the debt owed by the company to the lender cannot be determined by lodging 247 proofs of debt and disregarding all transactions that amount to repayments or possible repayments of the debt.
Had that point been squarely raised by way of defence, it may have been sufficient to determine the matter, because the Court arguably could not have been satisfied that the liquidator would have been wrong in rejecting the proofs of debt, in their present form, in their entirety. However, I do not determine the matter on that basis, because the case was not conducted on that basis, but by reference to the individual transactions as to which Dr Ghougassian and Mr Ghougassian had lodged proofs of debt. In the event, I reach largely the same result with respect to the individual transactions as would potentially have been reached by reference to the fact that Mr Ghougassian and Dr Ghougassian had not established, by their proofs of debt or in this application, any amount SGAS owed them, having regard to the totality of the dealings between SGAS and each of them. A similar difficulty arises, in a somewhat different context, in respect of the liquidator’s Cross-Claim, which I will address below.
The Plaintiffs’ affidavits and other evidence
The Plaintiffs tendered the entire transcript of the 2012 Proceedings before White J over two days (Ex P8, Ex P9). The Plaintiffs also relied on Mr Ghougassian’s affidavit sworn 12 April 2011 in the 2012 Proceedings, subject to rulings on admissibility made by White J. That evidence contained a conclusory statement that SGAS owed Mr Ghougassian monies as set out in the schedule of accounts in issue in the 2012 Proceedings, which is inconsistent with the amount now claimed by Mr Ghougassian in these proceedings. The Plaintiffs relied on a further affidavit of Mr Ghougassian sworn 14 June 2011 in the 2012 Proceedings, subject to rulings on admissibility by White J, which set out the history of the mortgage arrangement between SGAS and Mr Ghougassian, and also referred to particular advances that Mr Ghougassian claimed to have made to SGAS.
The Plaintiffs read Mr Ghougassian’s affidavit sworn 14 March 2014 in these proceedings, which referred to the 2012 Judgment in a selective manner, including reference, for example, to White J’s observations as to the honesty of Mr Ghougassian and Dr Ghougassian’s evidence without reference to the matters in which his Honour had rejected their evidence, to which I will refer below. Mr Ghougassian referred to his proofs of debt as his “ambient claim”, although what was intended by that reference is perhaps unclear, and made various statements largely of an argumentative or conclusory character as to the basis of the claims. The Plaintiffs also relied on Mr Ghougassian’s affidavit dated 5 May 2014 which made several corrections to his earlier affidavit, and added additional proofs of debts to that affidavit. The Plaintiffs also read a further affidavit of Mr Ghougassian dated 12 November 2014, apparently directed to the Defence to the Cross-Claim, which referred to accounts lodged with the liquidator with ASIC and asserted SGAS’s solvency based on those accounts. I do not consider it necessary to determine whether SGAS is solvent, because Brereton J dismissed a previous application by the Messrs Ghougassian to remove the liquidator and no attempt has been made in these proceedings to reagitate that issue, the liquidator remains in office and he and SGAS have standing to bring the Cross-Claim. That Cross-Claim does not involve any cause of action which depends on proof of SGAS’s insolvency.
The Plaintiffs also relied on Mr Ghougassian’s further affidavit dated 20 March 2015 which referred to his role as public officer of SGAS and as its principal fundraiser and its financial controller and as signatory to SGAS’s cheques. Mr Ghougassian also referred to his business interests in the period from 1985 to 2010, which included Nareg Limited, Nareg Internet and Nareg Bookshop. Mr Ghougassian also referred in that affidavit, in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as a submission only, to the proper characterisation of the claims referred to in his proofs of debt and also referred, in evidence admitted with a limiting order under s 136 as to his state of mind, to his “belief and intention” that he would be responsible to SGAS in respect of financial assistance he arranged or provided and which SGAS had the obligation to repay. I rejected several conclusory statements in that affidavit that previous borrowings by Mr Ghougassian were “for the benefit of SGAS” or “to support SGAS”. I will refer to other aspects of that affidavit in respect of specific issues below.
Mr Ghougassian also referred, in his affidavit dated 20 March 2015, to limited documentary evidence but stated that “unfortunately many documents are missing and would have to be subpoenaed from others”. There has been ample opportunity for the Plaintiffs to issue such subpoenas in the period that it has taken for these proceedings to reach a hearing. Mr Ghougassian also contended that, notwithstanding orders for production made by the Court and the fact that 140 boxes of documents held by the liquidator in a storage facility (which, on the liquidator’s evidence, hold few relevant financial documents) have been made available for inspection, the Plaintiffs “have not had access to all of the relevant financial records in the possession and custody of the Liquidator”. I do not consider that the claim that the liquidator has not made available what he holds for inspection has been established by the evidence, although it appears that the Plaintiffs have not taken the opportunity which they have had for several years to inspect the 140 boxes held in storage. It seems to me that the most likely position, consistent with the liquidator’s evidence which I accept, is that SGAS did not maintain adequate financial records at the time the liquidator was appointed, or alternatively, for whatever reason, the liquidator was not provided with such relevant documents as SGAS did maintain at the time he was appointed, and those documents never passed into his possession. I note, for completeness, that the Plaintiffs had possession of SGAS’s premises for a significant period after the winding up order was made and before receivers appointed by CBA were able to take possession of those premises and grant the liquidator access to them. There is also a dispute between the parties, which was also raised in the 2012 Proceedings, as to the availability of computer records made by the Plaintiffs. There is evidence that the liquidator has offered to make available all computers held by SGAS to the Plaintiffs. It seems to me that it was a matter for the Plaintiffs to lead such evidence as was available from the computers, where they had been offered the opportunity to take possession of them, to seek to establish the debts on which they rely.
There were inconsistencies between Mr Ghougassian’s evidence in the hearing before me and earlier evidence that he had given when he was examined on other occasions. I will refer to an inconsistency in respect of his evidence as to dealings between SGAS on the one hand and Nareg Bookshop and Nareg Internet on the other in dealing with the liquidator’s Cross-Claim against him below. Although that inconsistency was of limited significance in determining the Cross-Claim, the inconsistencies between his evidence given on different occasions undermines the cogency of Mr Ghougassian’s evidence, and that is significant where Mr Ghougassian relies substantially on his own evidence to seek to identify the character of particular transactions between him and SGAS.
I consider that I should approach Mr Ghougassian’s evidence, particularly in respect of individual transactions, with caution. It is not necessary to find whether Mr Ghougassian gave his evidence honestly, at least in the sense that that evidence reflected his strong beliefs as to what occurred, or was consciously shaped to advance his claims. I am satisfied that his conviction of the rightness of his cause is so overwhelming that it has shaped large parts of his evidence. His belief that all payments made by him and many payments made by third parties to SGAS were in the nature of loans, so that they could be now recovered in the liquidation (and used, he says and I assume, for the purposes of establishing another school) is so strongly held that he is now unable to give objective evidence as to the particular transactions. It may be that, with the passage of time and the ongoing dispute with the liquidator, that position is now worse than it was when Mr Ghougassian gave evidence before White J in the 2012 Proceedings. However, I have also borne in mind that difficulties with Mr Ghougassian’s evidence do not establish the converse of that evidence, in the sense that Mr Ghougassian may still have provided funding and services to SGAS, as a matter of fact, although his evidence to that effect is imprecise, contradictory or now distorted by his belief as to the rightness of his cause. Indeed, the 2012 Judgment indicates that Mr Ghougassian had in fact provided such funding to SGAS, at least to the extent of the secured loans that White J ordered be repaid to him. That is matter of some importance when I turn to the liquidator’s Cross-Claim below.
Both White J and Brereton J have also previously pointed to somewhat similar difficulties with aspects of Mr Ghougassian’s evidence in earlier proceedings, although I have formed my view of that matter based on his evidence before me. In the 2012 Judgment, White J noted (at [24]) that he thought that Mr Ghougassian gave his evidence honestly, although there were respects in which that evidence was not satisfactory, and he rejected his evidence as to the terms of SGAS’s agreement as to advances by Dr Ghougassian to SGAS. His Honour noted that he would not reject his evidence about an advance, merely because it was not corroborated, particularly where that corroboration may be available on computers held by the liquidator that have not been examined by him. I would give less weight than White J to the fact that computers have been in the possession of the liquidator, where, as I noted above, they have been available for collection by the Plaintiffs over a long period, and they have not chosen to collect them, inspect them or lead evidence of their contents. Brereton J also referred to Mr Ghougassian’s evidence in the Removal Judgment, noting that:
“There are considerable difficulties with his evidence. He was consistently inclined to place on circumstances the most sinister interpretation where it pertained to the liquidator, and the most favourable when it pertained to [the Plaintiffs]. While this is to an extent not unnatural, in this case it was extreme.”
His Honour also indicated that, on matters of controversy, he regarded Mr Ghougassian’s evidence as unreliable. I have reached the view that Mr Ghougassian’s evidence at least needs to be approached with caution for the reasons noted above.
The Plaintiffs also relied on several affidavits of Dr Ghougassian read in the 2012 Proceedings and tendered in these proceedings, and on his further affidavit evidence read in these proceedings. I will refer to Dr Ghougassian’s evidence in dealing with the liquidator’s partial rejection of his proofs of debt below.
The Plaintiffs also rely on an affidavit of Mrs Ghougassian dated 2 March 2015, which was read without objection, although it did no more than indicate that Mrs Ghougassian had read Mr Ghougassian’s affidavits sworn 14 March 2014 and 12 November 2014 and agreed with his recollection and the statement of events to which he deposed. Mrs Ghougassian’s further affidavit dated 23 March 2015 indicated that she had read Mr Ghougassian’s affidavit sworn 20 March 2015 and agreed with and endorsed that affidavit so far as it referred to her or the actions of SGAS board. It emerged from Mrs Ghougassian’s cross-examination that she had not in fact read Mr Ghougassian’s affidavits and had relied on his oral explanation of the content of his affidavits to her. Both for that reason, and because one witness’s adoption of the complex evidence of another witness is of little weight, I give little weight to Mrs Ghougassian’s evidence.
The Plaintiffs also rely on the affidavit of Mr Hrair Badelian dated 8 June 2011 read in the 2012 Proceedings, subject to rulings on admissibility made by White J, which referred to the 2003 annual general meeting of SGAS to which reference was made in the 2012 Judgment. The Plaintiffs also relied on affidavits of several witnesses dealing with monies they had paid to Mr Ghougassian or SGAS, including the affidavits of Mr Raphael Ghougassian dated 23 January 2014, Mr Zhenik Yoonan dated 24 January 2014 and Mr Hrair Badelian dated 24 January 2014. I will refer to those affidavits in addressing particular issues below. The Plaintiffs also rely on Mr Badelian’s further affidavit dated 9 April 2015, which I will address below in respect of Mr Ghougassian’s claim in respect of monies paid by third parties to SGAS or to him to be provided to SGAS. The Plaintiffs also relied on an affidavit of Mr Conomos dated 5 March 2015, to which I will refer below in dealing with monies paid by Mr Conomos. The Plaintiffs also relied on Mr Raphael Ghougassian’s affidavits dated 5 March and 7 and 8 April 2015 to which I will refer in respect of the claim for gardening and other chattels below.
The Plaintiffs relied on an affidavit of Mr Lott dated 8 June 2011 read in the 2012 Proceedings, subject to the rulings as to admissibility of White J. Mr Lott was SGAS’s accountant and he referred to the accounting on which the Plaintiffs relied in the 2012 Proceedings and to schedules of monies owing to the Plaintiffs including compound interest, and made a conclusory statement that:
“[t]o the best of my knowledge and belief the recorded entries in the schedules are true and correct”.
I accept that the relevant schedules (Ex D14, 1500-1502) maintained by SGAS were partly a business record of SGAS, although additions were later made to them (probably by Mr Ghougassian) providing for calculations of compound interest. In the 2012 Judgment, White J noted that those additions were not part of any business record of SGAS and were not evidence of the debt owed to Mr Ghougassian. I take the same view. White J placed some weight on, and I would also place weight on, that record of Mr Ghougassian’s loan account with SGAS as likely to be an accurate record of the state of account between Mr Ghougassian and SGAS. However, that schedule provides limited assistance to Mr Ghougassian in these proceedings. First, many of the amounts recorded in it relate to claims for interest on Mr Ghougassian’s home loan, which I will address below. While I accept that schedule is an accurate record of those amounts, I do not consider that a proper basis for treating those amounts as a liability of SGAS has been established, for the reasons noted below. Second, to the extent that other amounts are recorded as liabilities of SGAS to Mr Ghougassian, many of those amounts were repaid to him as a result of the orders made in the 2012 Proceedings (see, for example, the amounts claimed in proofs of debts (“PODs”) 160-165 and 167, to which reference is made in that record) and other amounts in the schedule relate to amounts advanced by third parties (for example, the amount claimed in POD 168, referable to an advance by Mr Badelian) which White J found, and I also find, were not properly repayable to Mr Ghougassian. The schedule, and Mr Lott’s evidence about it, also do not assist the Plaintiffs to the extent that schedule and the amount that Mr Lott then indicated was properly owed to the Plaintiffs is substantially less than the amount they now claim is owed to them.
The Plaintiffs also rely on an affidavit of Mr Lott dated 20 March 2015 which refers to a table which he and Mr Wing, another accountant, prepared as a result of inspection of documents at the liquidator’s office. Mr Lott’s evidence, admitted as a submission under s 136 of the Evidence Act, was that the table demonstrated that “the various claims made by proofs of debt” to the liquidator “were in fact debts of SGAS” in that they related to monies paid to SGAS in respect of which SGAS was indebted. The table also referred to Mr Lott and Mr Wing having “vouched” particular amounts which were described as payments made by Mr Conomos in the amount of $1,394,807; deposits into SGAS’s bank account by Mr Ghougassian and third parties controlled by him in the amount of $882,760; interest claimed in the proofs of debt; monies paid under the 2012 Judgment; monies paid into the account which are not clearly specified in SGAS’s books, in the amount of $457,070; the ING house loan (to which I refer below) and interest totalling $674,336.14; and gardening equipment quantified in the sum of $109,005.24. Mr Lott’s cross-examination indicated that the process of “vouching” referred to in that affidavit was a limited one, directed only to checking the correctness of figures, and not that they had the character that the Plaintiffs attributed to them as loans, and was also limited to the extent of documents now held by the liquidator (T255). Mr Wing, who had left for overseas and was not cross-examined, in turn gave evidence by his affidavit dated 23 March 2015 that he had attended with Mr Lott at the relevant inspection and agreed with Mr Lott’s affidavit. I give little weight to Mr Wing’s affidavit, on the basis that a second accountant’s agreement with the evidence of the first, with no additional reasoning or analysis, adds little to the evidence of the first.
A further affidavit dated 8 April 2015 of Mr Lott indicated that, when he provided accounting services to SGAS from 2004 to 2010, he viewed invoices from Nareg Internet and Nareg Bookshop and Nareg Limited to SGAS, but could not find those invoices or cheque butts in his inspection of documents held by the liquidator. I accept Mr Lott’s evidence in that regard, although it does not demonstrate any failure of production of documents by the liquidator, since it does not demonstrate that the relevant documents were ever made available to the liquidator.
I should also note that the Plaintiffs also rely on an observation of White J (2012 Judgment [22]) that, prima facie, subsequent payments should be applied against earlier advances made to SGAS, except where there is evidence that payments in reduction of the loans were appropriated by either SGAS or the lenders against subsequent advances. I accept the correctness of that observation. However, to the extent that the Plaintiffs seek to rely on that matter to establish that the debts they claim in the proofs of debt were not extinguished by payments to them, it was a matter for them to establish the earlier debts existed to which those payments should be applied. They have not done so. I would also infer that, where payments were made in amounts that appear to be referrable to the payments of particular loans, there is at least an implied appropriation by SGAS or the Plaintiffs against those subsequent loans.
The Defendants’ affidavit evidence
The Defendants rely on two affidavits of the liquidator dated 25 June 2014, two further affidavits of the liquidator dated 26 June 2014 and his affidavit dated 30 January 2015. The liquidator was also cross-examined at some length.
The liquidator’s first affidavit dated 25 June 2014 refers to correspondence relating to an assignment of the amount of $226,586.03 of Dr Ghougassian’s claim to Mr Ghougassian, exceeding the amount of Dr Ghougassian’s claim admitted by the liquidator. That affidavit also refers to an agreement between the parties that an amount of $195,553.50 was to be set off against legal costs in the Replacement Proceedings, such that the liquidator claims that amount cannot now be claimed by Mr Ghougassian in the liquidation. The liquidator’s second affidavit dated 25 June 2014 deals with the specific proofs of debt lodged by Dr Ghougassian, documents relating to the rejection of those proofs of debt, and elaborates the basis for rejection of those proofs of debt. Parts of that affidavit were admitted with limiting orders under s 136 of the Evidence Act as limited to the liquidator’s understanding or as submission.
The liquidator’s first affidavit dated 26 June 2014 responded to Mr Ghougassian’s affidavits sworn 14 March and 5 May 2014. That affidavit refers both to the proofs of debt initially lodged by Mr Ghougassian and to further proofs of debt annexed to Mr Ghougassian’s affidavit dated 5 May 2014. The liquidator responds to a claim by Mr Ghougassian that the liquidator had undertaken, in the 2012 Proceedings, to admit Mr Ghougassian’s proofs of debt in respect of transactions involving Mr Conomos. The liquidator denies he gave any undertaking of that kind, but refers to a confirmation that he gave in those proceedings that he would not reject a proof of debt lodged by Mr Conomos in the liquidation on the basis that the relevant loans were made by Mr Conomos to Mr Ghougassian rather than to SGAS, which would have been inconsistent with the position that the liquidator had taken in the 2012 Proceedings. I address that issue further in paragraph 132 below. I accept that any such undertaking (or, more precisely, confirmation) had that narrower scope, having regard to the transcript of the proceedings before White J on that occasion, to which reference is made in the liquidator’s affidavit. That undertaking is not presently relevant since Mr Conomos has not lodged such proofs of debt.
The liquidator also confirmed, in cross-examination, that he accepted that funds were advanced by Mr Conomos to SGAS, but he did not accept that there was a liability to Mr Ghougassian in respect of those amounts and he relied substantially on the 2012 Judgment in that regard (T347). He was asked whether there was any reason why he did not accept Mr Ghougassian’s word that he had arranged for those funds to be advanced to SGAS on his own credit, and he responded that a large portion of those funds were for donations and not loans (T347). Mr Conomos’ tax records, to which I refer below, support that proposition. I would add that it does not seem to me a responsible course for a liquidator, in dealing with competing claims to a company’s resources, to simply accept, without verification, a creditor’s claim to have advanced substantial funds to that company.
The liquidator’s affidavit dated 26 June 2014 indicates that the interest claimed by Mr Ghougassian, on the Iden housing loan of $500,000, to which I will refer below, amounted to $1,336,961.95 as at 2 May 2014. The liquidator also refers to documentation which establishes, as White J also noted in the 2012 Judgment, that the monies advanced were paid out to the former lender to Mr Ghougassian in respect of his home loan and to Nareg Internet. The liquidator’s position in cross-examination concerning the Iden Group loan was that, after Mr Ghougassian lodged a proof of debt claiming interest paid to the Iden Group, the liquidator requested further and better particulars of information; Mr Ghougassian provided a document which showed there was an advance, but the advance went to pay off Mr Ghougassian’s home loan and some went to Nareg Internet, and there was no evidence that any money went to SGAS (T341). Mr King put to the liquidator in cross-examination that the funds made their way to SGAS or were used for the payment of SGAS’s debts, but the liquidator’s response was that he had been provided with no evidence of that matter.
The liquidator’s second affidavit sworn 26 June 2014 addressed his response to Dr Ghougassian’s affidavit of 14 March 2014. That affidavit summarised the basis on which the liquidator had rejected proofs of debt lodged by Dr Ghougassian, in evidence which I admitted with a limiting order under s 136 of the Evidence Act that it was limited to the liquidator’s understanding. I will address Dr Ghougassian’s claims below.
The liquidator’s affidavit dated 30 January 2015 sets out, at considerable length, the inquiries made by him and employees of his firm into the financial affairs of SGAS prior to and after the 2012 Proceedings, and seeks to establish that information relating to payments made by SGAS to Mr and Dr Ghougassian to reduce the debt owed to them was not produced until recently, and was therefore not drawn to White J’s attention in the 2012 Proceedings. The liquidator notes that those payments were discovered as a result of analysis of documents produced by third parties in public examinations conducted after the conclusion of the 2012 Proceedings. The liquidator’s evidence in cross-examination, which I accept, was that the documents made available to him on his appointment included the 140 boxes of documents now held in storage, to which I referred above, which were inadequate in respect of SGAS’s financial and corporate records, and were largely incidental school material (T305). His evidence was that the bulk of the material held at SGAS contained material that was not relevant to the liquidation, and did not include cheque books, deposit books, or other material books or records, although there were several invoices contained in them (T315). He made clear in cross-examination that he had abandoned any claim to the computers held by SGAS, which the Messrs Ghougassian claim included some used for administrative purposes which contained records, and had offered the Messrs Ghougassian the opportunity to collect those computers, which had not been taken up (T315). He also explained steps that he had taken to examine or image some but not all of the computers, and that no relevant information was obtained from that process, which was not continued given its cost (T315–316). He subsequently qualified his evidence to indicate that there may have been a few cheque butts or deposit books and an invoice or two obtained from that process but that it was limited financial information (T316).
The Defendants also rely on the affidavits of Mr Christopher Brereton, a consultant previously in the liquidator’s employment, dated 12 August 2014 and 30 March 2015. Mr Brereton’s affidavit dated 12 August 2014 refers to the calculation of interest on amounts that White J ordered to be paid by Mr Ghougassian, of $50,000 on 19 December 2006, $10,000 on 21 December 2006 and $50,000 on 5 September 2007, which the liquidator now seeks to recover from Mr Ghougassian. Mr Brereton’s further affidavit dated 30 March 2015 relates to the inspection of SGAS’s records undertaken by the Plaintiffs and their representatives, pursuant to orders made by the Court, on 11–13 March 2015. Mr Brereton’s evidence is that he requested the return of all documents held in storage by the liquidator in respect of SGAS, and that he understood that the documents made available for inspection by the Plaintiffs comprised the entirety of the records available to the liquidator. Mr Brereton’s evidence in cross-examination was that, when he and other members of the liquidator’s staff first obtained access to SGAS premises, he oversaw the boxing of documents and that the financial records present on SGAS’s premises were boxed and returned to the liquidator’s office, but he could only box what was present (T364–365). The liquidator’s staff then sought to distinguish financial and non-financial documents and further analysis was done of the financial documents back at the liquidator’s offices (T365). Mr Brereton’s evidence was also that he had reviewed, and an independent contractor had listed the contents of, other several hundred boxes of other documents retrieved from SGAS’s premises, without identifying financial documents from any entity contained in them (T366).
Schedules of claims and evidence relied on by the parties
On the completion of the evidence, and prior to the parties making their closing written and oral submissions, I directed each party to serve:
“A schedule identifying all facts, matters and circumstances on which the [parties] rely to support or contest each proof of debt and each claim relied on by the liquidator by way of set-off or cross-claim, that is pressed, identifying all affidavit evidence by paragraph number or documentary evidence (by Court Book page number or exhibit number and page number) and all evidence relied upon."
Mr King noted that the schedule contemplated was a "sort of Scott Schedule", which seems to me to be a helpful analogy. I have referred to the schedules of claims and evidence served by the parties below, since they provide a helpful summary of the parties’ respective positions and the evidence on which they rely in respect of the numerous individual claims that are raised by the PODs.
I should note, however, that the schedule of claims and evidence on which Mr Ghougassian relied from time to time inaccurately summarised the evidence, or referred to evidence that was not found at the evidentiary reference given for it, and also referred to evidence that had either not been admitted or had been admitted only on a limited basis without recognising that matter. I have been alert to that difficulty, and referred to examples of it below, but have not sought to identify every occasion on which it arose in this judgment. Where the evidence referred to was not located at the reference given for it, it was sometimes possible to identify the evidence to which Mr Ghougassian may have intended to refer, and I have sought to locate and have regard to that evidence where that was possible. However, there were also occasions where Mr Ghougassian referred to a matter that was not supported by the evidence to which he referred, the liquidator pointed to the absence of evidence of that matter and no other evidence of that matter was identified by Mr Ghougassian or was identifiable.
The scope of an appeal under s 1321 of the Corporations Act
In her opening outline of submissions, Ms Taylor, who appears for the liquidator, draws attention to principles applicable to an appeal under s 1321 of the Corporations Act. In Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 339, Brennan and Dawson JJ observed that the principles that determine the enforceability of a liability to which a proof of debt relates are, in the main, the same as the principles which would be applied in an action brought directly against the company to enforce that liability. Their Honours also observed (at 340-341) that such proceedings are to be heard as a matter de novo, so that the Court must consider the plaintiff’s claim and decide for itself as to the existence and amount of the debts, and described the role played by a liquidator or administrator in such an appeal as follows:
“In such a proceeding, a liquidator who defends his decision to reject a proof of debt is no longer acting in a quasi-judicial capacity; he is cast in the role of an adversary, defending the assets available for distribution against a liability which, according to the view he formed when acting quasi-judicially, is not legally enforceable. The liquidator may defend those assets against the creditor’s claim on any ground on which the company might have defended the claim had it been sued by the creditor. … The issue in the proceeding is whether the liability referred to in the proof of debt is a true liability of the company enforceable against it. The issue is contested between the putative creditor on the one hand and the liquidator on the other; the liquidator is a party litigant. And none the less so though the liquidator is required to act fairly in conducting the litigation.”
A person appealing against rejection of a proof of debt must present a case which identifies an alleged debt or liability that corresponds with that originally sought to be conveyed by the proof of debt: Johnston v McGrath (2008) 67 ACSR 169 at [26]. The party appealing against the liquidator’s decision to reject the proof of debt has the onus of showing that decision was wrong, and that question is determined by reference to the evidence before the Court when it considers whether or not to affirm the liquidator’s decision: Westpac Banking Corp v Totterdell (1998) 20 WAR 150; 29 ACSR 448 at 451; Brodyn Pty Ltd (t/as Time Cost and Quality) v Dasein Constructions Pty Ltd [2004] NSWSC 1230 at [33]. Ms Taylor also points out that the liquidator may properly reject a proof of debt if a liability, although enforceable against an entity, is not a true liability of the entity in the sense that it is founded on an act or omission on the part of the entity which unjustly prejudices the interests of creditors or contributories in the assets available for distribution: Tanning Research Laboratories Inc v O’Brien above at 338 – 340; Re Jay-O-Bees Pty Ltd (in liq) [2004] NSWSC 818 (2004) 50 ACSR 565 at [35] – [45]; Re Young in his capacity as Liquidator of Great Wall Resources Pty Ltd (in liq); Capocchiano v Young [2013] NSWSC 879.
The Plaintiffs’ claim that the liquidator failed to have regard to the 2012 Judgment and claim for estoppel
I should first note several wider attacks made by the Plaintiffs on the liquidator’s decisions in respect of the proofs of debt, although those wider attacks are ultimately only of relevance in an appeal under s 1321 of the Corporations Act so far as they would support a different view as to whether a particular debt is a true debt of SGAS. The Plaintiffs claim that the liquidator failed to have regard to the observations of White J in the 2012 Judgment especially at paragraphs 8, 53 and 98 and, by their Points of Claim dated 29 July 2014, the Plaintiffs also rely on an estoppel said to have arisen from the 2012 Judgment. The liquidator denies that such an estoppel has arisen. In their Reply to the Amended Points of Defence filed on 20 March 2015, the Plaintiffs plead that the liquidator is estopped from denying that the Plaintiffs were creditors of SGAS between 6 June 2003 to 21 June 2010, by reason of the 2012 Judgment.
In the 2012 Judgment, to which I have referred above, White J held that monies up to a limit of $1 million were secured by SGAS to the Plaintiffs. The liquidator contends that those monies have been paid by the liquidator to the Plaintiffs and that White J did not otherwise determine whether the claims as to which the Plaintiffs lodged proofs of debt were valid. In their opening submission, the Plaintiffs contend that, in the 2012 Proceedings:
“The manner of financing SGAS’s operation by the Ghougassians was explained and the accuracy and integrity of such payments was found, from the total pool of which a portion was then held to be secured in favour of the Ghougassians.”
It does not seem to me that the 2012 Judgment had that effect, not least because White J was there determining the issue before him, in respect of the amount secured by the mortgage, and expressly noted that he did so on limited evidence and in a way that did not determine the wider issues.
The Plaintiffs also contend that the liquidator failed to make any or any adequate inquiry as to the nature of the proofs of debt and, in the case of Mr Ghougassian, rejected all of the proofs of debt without any or adequate reasons. I do not accept that submission. The liquidator sought information from the Messrs Ghougassian to support the proofs of debt and properly evaluated those proofs of debt by reference to that information and the limited financial records in SGAS’s and his possession. Mr King cited no authority for any proposition, implicit in his submissions, that the liquidator was obliged to seek out information which the Messrs Ghougassian had not provided and which was not in his or SGAS’s possession in order to assess their claims.
Proofs of debt 1–80, 95-106, 183-184, 233-246 and 249-257 Iden Group home loan and interest
It is helpful to deal with the proofs of debt made by Mr Ghougassian in categories, as the liquidator did in submissions. The first of those categories; PODs 1-80, 95-106, 183-184, 233-246 and 249-257 relate to a loan account held by Mr Ghougassian with Iden Group, formerly known as Home Loan Services Pty Limited (“Home Loan Services”) (and subsequently with ING) and claims for interest on that account.
I will refer generally to the evidence that relates to this category of claims, in dealing with PODs 1-80 and 95-106, before dealing with other PODs falling within this category of claims. POD 1 is a claim for $1,953.29 relating to 31 August 2003 described as “[i]nterest paid to Iden Group for monies borrowed for benefit of SGAS”; PODs 2–80 are described in the same way and relate to the period 30 September 2003 to 31 March 2010; and PODs 95–106 are similarly described as “[i]nterest paid to Iden Group for monies borrowed by [Mr Ghougassian] for benefit of SGAS” and relate to the period 10 June 2011 to 30 April 2012. First, I will seek to set out the relevant events and relevant evidence, in broadly chronological order and, in doing so, I will also refer to matters identified by Mr Ghougassian in his schedule summarising the evidentiary basis of these PODs.
By way of background, Mr Ghougassian’s home, to which this loan was connected, was situated on property adjacent to and purchased from SGAS. Mr Ghougassian’s evidence in cross-examination was that the transfer of his home from SGAS, where it was originally part of SGAS’s property, to him was undertaken so that he could borrow money on it to help SGAS. That evidence was characteristic of Mr Ghougassian’s wider approach of describing each transaction he undertook, in his personal capacity or in his business capacity, as being a transaction to advance the interests of SGAS. I think it likely that Mr Ghougassian genuinely takes that view, because he does not distinguish his own position and that of SGAS, partly because, as he indicated in cross-examination, he believes that he owned the school (T186). He subsequently explained (at T187) that he held that view because he and Dr Ghougassian had financed the purchase of the relevant property, although the school buildings and its operation were financed by the New South Wales State Government (T187). Mr Ghougassian returned to that theme in cross-examination in emphasising, after cross-examination as to the financing of the original purchase of land by SGAS, that he “did own” the school and had “paid for it” (T189).
Mr Ghougassian borrowed $140,000 from Advance Bank (later St George Bank) in respect of that home. In his schedule of claims and evidence, Mr Ghougassian relies on paragraph 36 of his affidavit dated 20 March 2015 as evidence that that transaction was undertaken “for the benefit of SGAS”; however, that paragraph of his affidavit was rejected for form and under s 135 of the Evidence Act. Mr Ghougassian’s evidence in cross-examination was also that the whole purpose of the loan in relation to his home, whether from Advance Bank (or, later, St George or Home Loan Services or Iden Group) “was for the purpose of lending it to SGAS” (T190). In his schedule of claims and evidence, Mr Ghougassian’s also submits that:
“… [Mr Ghougassian] should be believed when he swore that the initial $140,000 raised by this loan was also for the benefit of SGAS after it transferred the land (originally owned and beneficially held for him) to him ‘so that I can borrow money on it to help SGAS’ [Day 5 p 185 lines 49-50].”
I cannot accept the proposition advanced here that the land owned by SGAS and subsequently transferred to Mr Ghougassian as his home was “originally owned and beneficially held for” him, which is not established by the fact that Mr Ghougassian was a substantial donor to, or lender to, or had practical control of, SGAS, at the time it acquired the land for use as a school.
On 13 December 1999, Mr Ghougassian discharged the mortgage to Advance Bank over his home, which then secured a loan of $116,098.36, by refinancing that loan with Home Loan Services Pty Ltd, later called Iden Group, as agents for Permanent Custodians Ltd in the sum of $400,000. He submits that all of the funds raised by the increase in loan, namely $217,705.29; $11,140 and $34,446.47 were paid to or for the benefit of SGAS on the next day, 14 December 1999. There is evidence that the amount of $217,705.29 was paid into SGAS’s account by Mr Ghougassian on 14 December 1999 (Ex P3, p 19). In his schedule of claims and evidence, Mr Ghougassian refers to that payment and submits that he should be believed in his evidence in cross-examination that that payment “wasn’t refinancing of [his] house” (T185). The second and third of those payments were made by Mr Ghougassian to Dr Ghougassian, rather than to SGAS, although I recognise that Dr Ghougassian had also paid, or lent, substantial funds to SGAS from time to time.
The proximity in the timing of the borrowing of $400,000 and the payment of $217.705.29 to SGAS supports an inference that the latter was funded by the former, and that the latter amount was made available to SGAS by Mr Ghougassian. However, that inference does not substantially advance Mr Ghougassian’s claim for repayment of a much larger amount and for interest on that larger amount since August 2003. First, neither the amount of $217.705.29 nor any larger amount, nor interest payable on it, would be recoverable by Mr Ghougassian unless it was in the nature of a loan and had not been repaid by SGAS in the subsequent period. The former proposition is inconsistent with SGAS’s accounts, at least immediately after the borrowing in December 1999 and June 2000, to which I will refer below, and the latter is at least potentially inconsistent with the evidence of numerous payments by SGAS to Mr Ghougassian and his related companies in subsequent years.
The financial accounts for SGAS for the year ended 31 December 1999 record non-current liabilities of $884,036, comprising an amount owed to the Armenian Catholic Church of $803,831 and other loans of $80,205 (Brereton 30.3.2005), which is inconsistent with the amount which Mr Ghougassian claims to have lent SGAS prior to that time, and particularly from his home loan in mid-December 1999. The financial accounts for SGAS for the year ended 30 June 2000 similarly record non-current liabilities of $706,443, which are recorded as owed to the Armenian Catholic Church. Mr Ghougassian rejected, in cross-examination, the proposition that those financial records indicated that previous loans made by him to SGAS had been repaid (T212–213). However, the proposition that those loans remained outstanding is entirely inconsistent with the content of those accounts. Mr Ghougassian in turn sought to explain the form of those accounts by the proposition, which seems to me, at best, difficult to follow, that it reflected the fact that bus drivers were employed by the Armenian Catholic Church to drive children backwards and forwards, as a subcontractor to SGAS, and “any funding that [Mr Ghougassian] made for the bus drivers will appear as funding to the Church” (T213), with the implication that the accounting records showing a loan from the Armenian Catholic Church to SGAS in fact referred to a loan from Mr Ghougassian to SGAS. Even if that proposition is correct, it does not explain how a loan in excess of $217,000 made by Mr Ghougassian in mid-December 1999 could, by the end of December 1999, have been converted by bus usage to a loan by the Armenian Catholic Church to SGAS. A more likely explanation is that the payment to SGAS did not have the character of a loan, where substantial tax-deductible donations were made over the period, or that it was repaid, at least by 30 June 2000, by other transactions between SGAS and Mr Ghougassian and his related companies.
Mr Ghougassian also relies on evidence that he and Dr Ghougassian gave, in the 2012 Proceedings, of a statement by SGAS’s chairman, at SGAS’s annual general meeting on 22 June 2003, that SGAS would be responsible for interest, “being the same as normal banking rates of interest and its variations so that there is no disadvantage to you”. The first difficulty with that proposition is that the evidence led in the 2012 Proceedings was that statement related to loans by Dr Ghougassian, not Mr Ghougassian. The second difficulty is that it does not seem to me that that statement could be read as extending more widely than the arrangement subsequently documented in the Deed of Loan to which I will refer below. There was also reference, in the 2012 Judgment, to the minutes of the annual general meeting, held on 22 June 2003, prepared by Dr Ghougassian, which recorded that Mr Ghougassian would provide a $500,000 loan obtained on first mortgage security over his house and that “interest/costs on overrun on the above loan during the year to be met by SGAS at all times”. White J recorded that he did not accept that there was a discussion at the 2003 annual general meeting to the effect deposed to by the Plaintiffs and Mr Badelian in their evidence in the 2012 Proceedings. To the extent that the Plaintiffs rely on the evidence which they gave in those proceedings, I take the same view as did White J.
In July or August 2003, Mr Ghougassian took out a larger loan with Permanent Home Loans for $500,000, with Iden Group as the broker, the purpose of which was stipulated as being to refinance an owner occupied property and provide funds for future investment (Ex P3, T276, T183). The funds borrowed were disbursed by a bank cheque to Permanent Custodians Ltd to pay out the existing mortgage on his home and by a bank cheque to Nareg Internet (which was, as I noted above, a company associated with Mr Ghougassian) for $91,636.70 (Sutherland 26.6.14, Annexure F, p 23, T183). Mr Ghougassian’s explanation, in cross-examination, was that the relevant payment had gone to his home loan, because other payments, and in particular the amount of $217,705.29 on 14 December 1999, nearly four years before, had gone to SGAS (T185).
In the 2012 Judgment, White J referred to that loan and held (at [30]) that:
“Mr Michael Ghougassian said that the opening balance of $174,336.14 was interest incurred on a capital loan of $500,000 that had accrued up to 1 January 2004. Mr Michael Ghougassian’s statement of account showing the amount claimed to be owed under the mortgage did not include this advance of capital. Mr Michael Ghougassian said that he and his wife borrowed $500,000 from the Iden Group on 2 July 2003 at 12% interest (affidavit 14 June 2011 at para 10(iii)(5)). The statement for the account (issued by Home Loan Services Pty Ltd) shows that two cheques, one for $403,737.01 was draw in favour of Permanent Custodians Ltd. Another cheque for $91,636.70 was drawn in favour of Nareg Internet Pty Ltd. The latter company is Mr Ghougassian’s own company. Mr Ghougassian said that the payment to Permanent Custodians was made for the purposes of SGAS (T38). There was no material to show how the moneys drawn down on the loan account with Home Loan Services Pty Ltd to Permanent Custodians Ltd and Nareg Internet Pty Ltd were applied for the benefit of SGAS. Nor was there any explanation as to how the opening interest of $174,336.14 was calculated on any payments made for the benefit of SGAS.”
For the reasons noted above, I do not treat those findings as giving rise to an estoppel. However, the evidence in these proceedings is consistent with his Honour’s observation that SGAS’s bank account statements do not show the receipt of deposits consistently with Mr Ghougassian making further loans of the order described in his evidence by deposit to SGAS’s bank account in July or August 2003, although his Honour had also fairly recorded that that did not necessarily mean that other payments were not made for the benefit of SGAS.
A Deed of Loan, which was in issue in the 2012 Proceedings, was subsequently signed between SGAS and the Plaintiffs on 6 May 2005 and the mortgage in issue in those proceedings was executed pursuant to a resolution of SGAS’s board on 22 December 2004. That Deed of Loan provided that SGAS must pay interest at the Interest Rate (as defined) on the Amount Owing (as defined) by monthly instalments on each Interest Payment Date. However, that Deed of Loan was directed to an advance by the Plaintiffs to SGAS of $1 million by way of financial assistance for the purposes of working capital and to assist in the construction of new buildings for SGAS, which was the subject of the mortgage considered by White J in the 2012 Proceedings. It does not seem to me that the right to interest on that amount confers a right to interest on any other amounts.
In his schedule of claims and evidence, Mr Ghougassian also relies on SGAS’s unsigned 2009 accounts as follows:
“As to interest on the repayments – see the acknowledgement by the SGAS accountant Mr Lott in the 2009 accounts Ex D 14 Vol 1 Tab 20 page 1476T. By that stage also, in support of the above submission as to the purpose of the Iden Group loans, the ‘Liabilities’ shown in the 1986 accounts had been extinguished. See also the P and L for the year 2000 and 2006. Interest on other debts is allowed eg Ex RMS 2 Annex G-1 [lawyers POD for debt claim].”
The reference to the 2009 accounts of SGAS here is to the financial accounts for SGAS for the year ended 31 December 2009, which record a non-current liability of SGAS to Mr Ghougassian of $1,563,968 for the year ended 31 December 2008 increasing to $1,647,612 for the year ended 31 December 2009, but are not signed by the directors and the auditor’s declaration is also not completed. There is also no breakdown of the amount of that liability stated in those accounts, or draft accounts, as between the various debts claimed by Mr Ghougassian.
Mr Ghougassian has paid interest on the amounts borrowed under the Iden Group, and later ING, loan for each month since August 2003 and he has lodged proofs of debt in SGAS’s liquidation for each such interest payment (Ex 2 p 87, T184). Mr Ghougassian puts that claim on the basis that the Iden Group loan was taken out on behalf of SGAS and SGAS is liable for all of his monthly interest payments on that loan. In information provided to the liquidator in March 2013, Mr Ghougassian explained that approach (Ex D13, RMS 5, Annexure 3) as follows:
“These debts are payable by the [SGAS] based on the fact that I should not be “disadvantaged” for lending monies to SGAS. The “no disadvantage” clause is and was per agreement with the [SGAS], agreed to unanimously at the AGM of 2003 by the then members of [SGAS]. Monies lent to [SGAS], originating from the Iden account, attracted interest payments which must then be paid by [SGAS].”
I have referred to the position in respect of the 2003 annual general meeting of SGAS in paragraph 46 above. Mr Ghougassian’s affidavit dated 20 March 2015 also sought to support the claim for interest in respect of the amount of this loan, which Mr Ghougassian characterised (in evidence admitted with a limiting order under s 136 of the Evidence Act, as a submission only) as:
“arranged under an agreement with SGAS Board in June 2003 formalised in May 2005 solely for the purpose of provided [sic] financial assistance by me to SGAS as part of its working capital”.
In his opening submissions, Mr Ghougassian similarly seeks to support interest on the claim for $500,000 on the basis that the loan was increased to that amount in August 2003 “so that more money would be used by SGAS for the construction of the High School for St Gregory’s Armenian School”. That submission continues that:
“During this last discharge, two cheques were made out: One for $403,737.01 and one for $91,636.70 (and $4,626.29 for the setting up of the Low Doc finance by the said broker) bringing to a total of $500,000 facility in existence for the duration of obtaining a DA from the Baulkham Hills Shire Council for the building of the permanent High School building. The plan being that this $500,000 facility was to be reimbursed by the CBA upon the installation of their funding for the High School and the commencement of building. The sum of $491,636.70, as explained to the liquidator, went to Nareg Internet because, at that time, Nareg Internet had advanced that sum to SGAS while the loan application was progressing. This loan persists until today by payment of about $3,500 per month interest-only loan, dependent on the interest rate from time to time.”
I will refer to further evidence in relation to the previous payments made by Nareg Internet, on which Mr Ghougassian relies in respect of POD 183, in paragraph 60 below. This submission proceeds on the basis that, if Mr Ghougassian made a payment to Nareg Internet in respect of monies previously advanced by Nareg Internet to SGAS (for example, by payment for teachers as relied on for POD 183), that can properly be characterised as the repayment of the earlier advance by Nareg Internet to SGAS and the creation of a new loan by Mr Ghougassian to SGAS, rather than, for example, a loan by Mr Ghougassian to Nareg Internet. It is not necessary to determine the correctness of that approach given the conclusions that I reach on other grounds.
In his schedule of claims and evidence, Mr Ghougassian similarly contends that the funds provided to Mr Ghougassian under the August 2003 loan were “to provide funds to the SGAS by way of refinancing of an existing loan with an extension to assist SGAS in funding an extension for building the High School at Beaumont Hills”, and that those payments to SGAS “for its benefit” and Mr Ghougassian’s “expenses in maintaining that benefit to SGAS [ie interest]” gave rise to “an express or implied contract and/or in restitution to reimbursement in [Mr Ghougassian] against SGAS.”
Turning now to PODs 2-80, relating to interest for the period 30 September 2003 to 31 March 2010, Mr Ghougassian’s schedule of claims and evidence also refers to paragraph 6 of Mr Ghougassian’s affidavit sworn 14 June 2011 and paragraphs 5, 7, 11-13 and 49 of Mr Ghougassian’s affidavit sworn 20 March 2015. Paragraph 6 of Mr Ghougassian’s affidavit sworn 14 June 2011, read in the proceedings before White J, refers to but does not set out discussions between him and members of SGAS’s board as to payment of interest on monies loaned by him and Dr Ghougassian to SGAS. He specifically refers to the 2003 annual general meeting of SGAS and comments made by Mr Badelian at that meeting. I have addressed that matter in paragraph 46 above. Paragraph 5 of Mr Ghougassian’s affidavit dated 20 March 2015 contained statements that funds raised by him were “authorised by the Board of [SGAS]” between 1985 and 2010” and that cheques signed by him were “authorised by the Board of [SGAS]” between 1985 and 2010, which were rejected for form. Paragraph 7 of that affidavit was largely rejected for form and under s 135 of the Evidence Act; paragraphs 11 and 12 referred to a table prepared by Mr Lott and Mr Wing, to which I have referred in paragraph 22 above and were admitted as submissions only; paragraph 13 set out Mr Ghougassian’s “belief and intention” and his understanding as to dealings with third parties, who he dealt with in raising funding for SGAS, and was admitted with a limiting order that it was directed to his state of mind; and paragraph 49 referred to his borrowing monies from friends and relatives from 1985 to 2010 for financing SGAS.
It is common ground that PODs 81–94 were withdrawn and consolidated into POD 95. PODs 95-106 in turn claim interest for the period 10 June 2011 to 30 April 2012, on each proof of debt, calculated at the Reserve Bank rate. Mr Ghougassian’s evidence in cross-examination is that he claimed interest on the loan by Iden Group at the Reserve Bank rate because he did not know how to calculate interest at the rate at which interest was actually paid to the Iden Group, and he responded to the proposition that there was no agreement with SGAS that interest should be paid at the Reserve Bank rate by contending that there was interest to be paid, without reference to whether that interest was to be at the Reserve Bank rate (T191). Mr Ghougassian’s evidence was also that an agreement to pay interest on his mortgage account with SGAS existed from mid-2003 and was ratified at SGAS’s annual general meeting in June 2003 (T193). In his schedule of supporting evidence, Mr Ghougassian relies on the matters relied on to support POD 1 to support PODs 95-106 and adds that:
“As to liability for ongoing obligation to pay [Mr Ghougassian] for his ongoing obligations to Iden Group after DOA [date of appointment] … see the evidence of Mr Sutherland as to his non-disclaimer of the contract to repay [Mr Ghougassian] see Corps Act section 568(1)(f) and (d) and the evidence in xx Day 8 p 371 lines 1 to 15.
The non-disclaimer is consistent with the large sums of SGAS funds held by Liq. shortly after his DOA [date of appointment] (plus $7millions) – he no doubt thought he could pay all claims. It is also consistent with his do-nothing approach to the whole liquidation. The non-disclaimed funds advanced to SGAS by [Mr Ghougassian] and [Dr Ghougassian] were not financially speaking onerous, but from the DOA relevantly future certain property which if disclaimed gave rise to other obligations on his part.”
I do not accept that anything can be drawn from the liquidator’s not disclaiming an obligation to pay interest to Mr Ghougassian where his position is that no such obligation exists.
The liquidator’s position as to these matters is in turn set out in his response to the PODs, his evidence and his submissions. By his letter dated 5 December 2013 (Ex P1), the liquidator identified and responded to various matters raised by Mr Ghougassian in support of this category of claims. The liquidator indicated that he was not satisfied that there was sufficient evidence that the initial drawing of $500,000 from the Iden Group facility was advanced for the benefit of SGAS and referred to paragraph 30 of the 2012 Judgment, to which I have referred above. The liquidator also noted that he was not satisfied, given the lack of any documented agreement between the parties, that there was sufficient evidence to support Mr Ghougassian’s claim that interest payments should be treated as principal debts for the purposes of that arrangement. The liquidator also noted that PODs 1–80 were rejected on the basis that Mr Ghougassian had not provided sufficient documentation to evidence an entitlement to interest on advances made to SGAS and interest claims could not be determined until such time as principal advances were quantified, and sufficient supporting documentation had not been provided for the claims. The liquidator also referred to Mr Ghougassian’s claim that interest was payable on the principal amounts of his claim at Reserve Bank rates and responded there was no evidence of any agreement that would give rise to interest being payable by SGAS on the claim to unsecured amounts. By that letter, the liquidator also noted that insufficient documentation had been provided in respect of PODs 95–106 to evidence why Mr Ghougassian was entitled to interest on the claimed advances to SGAS. The liquidator’s schedule updating the basis of the adjudication of Mr Ghougassian’s claims (Ex P11) recorded that POD 95 was rejected by the liquidator on the basis that it was an interest claim, there was insufficient documentation, and a portion of the claim was after the winding up date.
The liquidator’s schedule of claims and evidence in turn referred to Mr Ghougassian’s reliance on an agreement that the SGAS would assume liability for interest on borrowings made by Mr Ghougassian or Dr Ghougassian for its benefit, referred to White J’s findings in the 2012 Judgment in that regard, and submitted that:
“None of this evidence established that the School would be liable on all advances from loan accounts of [Mr Ghougassian] from Advance Bank, St George Bank, Permanent Custodians Ltd (the $400,000 account or the later $500,000 account). No members of the Board gave evidence corroborating [Mr Ghougassian]’s account of the agreement, notwithstanding that Mr Badelian and [Dr Ghougassian] were available to give that evidence.”
The liquidator also submitted that Mr Ghougassian had not proved that the advances made from these accounts were loaned to SGAS or were used for its benefit or that there was an agreement entered into with the authority of SGAS’s board, and submitted that the Court should conclude that a large part of the funds were used for Mr Ghougassian’s own purposes, including for the purchase of the home that he and his wife occupied.
As I noted above, the bank statements in evidence indicate that the $500,000 borrowed from Iden Group were drawn in the amounts of $403,737.01 in favour of Permanent Custodians Ltd, the previous lender on Mr Ghougassian’s home, and $91,636.70 in favour of Nareg Internet, his company (Sutherland 26.6.2014 [14], Annexure F, p 23). The information submitted by Mr Ghougassian to Iden Group as to the purpose of the loan does not disclose any purpose of borrowing on behalf of SGAS. The monies advanced by Iden Group in August 2003 were not used, at least directly, for a purpose of SGAS, including the development of its high school, but to pay out the existing mortgage on Mr Ghougassian’s home and for the relevant payment to Nareg Internet, which I have addressed above. Mr Ghougassian’s affidavit evidence as to the purpose of the transaction and the manner in which the borrowings were applied seems to me to be unreliable for the reasons noted above. I am not persuaded that the evidence which I have set out above establishes, on the balance of probabilities, that Mr Ghougassian advanced the $500,000 borrowed from Iden Group or any identifiable part of it in August 2003 to SGAS or for SGAS’s purposes. In saying that, I recognise, of course, that there were numerous other financial and other transactions involving payments by Mr Ghougassian and his related companies to SGAS and by SGAS to Mr Ghougassian and his related companies throughout the period in issue in the proceedings.
Where I am not satisfied that it has been established that the monies borrowed by Mr Ghougassian from Iden Group or other lenders in respect of his home, as to which interest is claimed under POD 1-80 and 95-106, were used for the benefit of SGAS, so as to support that claim, the liquidator’s decision not to allow those claims should not be set aside. The liquidator submits, and I accept, that there is also no evidence of any agreement or arrangement with SGAS that Mr Ghougassian should be paid interest at the Reserve Bank rate. That is also sufficient to support the liquidator’s rejection of the claims for interest at that rate.
POD 183 is associated with PODs 1-80 and 95-106, in respect of the Iden Group loan, and POD 184 relates to initial interest on the loan. Mr Ghougassian’s schedule of claims and evidence describes POD 183 as “[f]rom ING capital borrowing that is outstanding payment to SGAS” and identifies the evidence to support it, mixed with submission, as:
“This is the $500,000 loan being the ING line of credit which remains current and accruing interest on a monthly basis of approximately $3,000.The funds of $100,000 less banking charges generated by the increase in the subsisting loan, taking into account a small excess on the overdraft [see Item 1 above] of $100,000 was paid to N[areg] I[nternet], being $91,636.70 to reimburse it for the payments made to teachers: see Court Book 1 after Tab18 page 188. The sum of $91,636.70 was transferred to N[areg] I[nternet] on 11. 8. 2003 for the benefit of SGAS namely to pay SGAS wages and related expenses esp compulsory super paid to MLC.
The evidence that N[areg] I[nternet] had paid the teachers is found in the Liq[uidator]’s material [eg Court Book Vol 6 tab 34 – sets out many examples of such payments by N[areg] I[nternet] to teachers because SGAS did not have available at the time funds – it was awaiting grants payments; for other samples of Group Certificates for teacher payments by N[areg] I[nternet] in [Mr Ghougassian’s]’s aff[idavit] sw[orn] 15 3 2015 at pages 261-262]. N[areg] I[nternet] has paid teachers in this fashion for many years (the total teacher bill for SGAS during the life of SGAS was in excess of $2millions) – and in the years 2002 and 2203 paid wages and superannuation for SGAS [to MLC – see Ex P20 pages 7 to 8) in the sum of approximately $160,000.
The payment of $91,636.70 as a credit towards SGAS’ liability to N[areg] I[nternet], with the result that [Mr Ghougassian] then stands in the shoes of N[areg] I[nternet] as the creditor. These payments all demonstrate that [Mr Ghougassian] was a true benefactor of SGAS, as White J found, and was not fraudulent as the Liq[uidator] has contended.
The account found by White J does not include the loan funds of $500,000 – the total amount secured, found by White J related to sums due and owing that came into existence after the date of the mortgage in 2005.”
I accept that there is evidence that may relate to the payment of teachers by the Nareg companies, although I note that the PAYG Payment Summaries and pay slips contained at Ex D14, RMS 7 p 2 (which corresponds to Court Book vol 6 tab 34) identify Nareg or Nareg Internet as the payer and the names of payees, but do not identify the payees as teachers within the school, as distinct from employees of Nareg Internet performing other functions. It appears that the reference to Mr Ghougassian’s affidavit sworn 15 March 2015 is to his affidavit sworn 20 March 2015 which contains several further examples of PAYG Payment Summaries, three of which appear to relate to third parties, one of which appears to relate to a relative and one of which appears to relate to his wife, and which do not indicate the nature of the work undertaken by those persons. The document referred to at Ex P20 is an advice by MLC that it was “unable to provide [Nareg Limited’s] gross wages”, and it otherwise contained a document recording payments which again does not identify the role performed by the persons to whom those payments were made. I should add, for completeness, that the question I must address is not, as Mr Ghougassian here submits, a binary question whether Mr Ghougassian was a “true benefactor” of SGAS (as White J found and I would also tend to think) or whether Mr Ghougassian was fraudulent. The liquidator did not advance a broader allegation of fraud against Mr Ghougassian, although he did advance a particular allegation of fraud in the Cross-Claim which I will address below. The question I must address is the narrower question whether the disbursement of monies borrowed by Mr Ghougassian and paid, in part, to Mr Ghougassian’s previous home loan and in part to Nareg Internet has been shown to give rise to liability of SGAS to repay, or pay interest on, the whole or an identified part of those borrowed monies.
The liquidator’s schedule updating the basis of the adjudication of Mr Ghougassian’s claims (Ex P11) recorded that POD 183 was rejected on the basis of “insufficient documentation/no grounds” and was statute barred. The liquidator’s schedule of claims and evidence notes that, although the claim refers to a transaction on 1 July 2003, it appears that this is a claim for the entire home loan taken out by Mr Ghougassian in July or August 2003. The liquidator submits that:
“The evidence (summarised above under POD 1-80) establishes that the majority of the line $500,000 line of credit taken out with Iden Group (which Michael [Ghougassian] referred to in his evidence as ING from time to time) was not advanced to, or for the benefit of, the School, or pursuant to any loan agreement with the School.”
This claim is not established for the same reasons that the claims reflected in PODs 1-80 and 95-106 are not established.
Dr Ghougassian here relies on paragraph 4 of his affidavit dated 20 March 2015, which rejected a claim made in the liquidator’s Amended Points of Defence that Dr Ghougassian had received additional repayments of his loan on specified dates, on the basis that, although those amounts were recorded as repayments in SGAS’s records kept by Mr Lott, “they do not represent set-offs of my current Equity Access Loan to [SGAS]”. That paragraph was admitted subject to a limiting order under s 136 of the Evidence Act, as submission only, and the proposition seems to me to be little more than a conclusory assertion. Dr Ghougassian also relies on his evidence in cross-examination (T21) where he maintained his claim that he had loaned SGAS $58,014.53, by giving monies directly to Mr Ghougassian by cheque or cash or paying bills for SGAS, and maintained that everything that went from his Equity Access Account went to SGAS. I have addressed that evidence in paragraph 241 above. Dr Ghougassian also relies on his evidence in cross-examination (T238) that he deposited $75,000 from an account held with Capral Credit Union into SGAS’s account as a loan to SGAS.
Dr Ghougassian also relies on paragraph 9 of Mr Ghougassian’s affidavit dated 20 March 2015 which stated, also in a conclusory fashion, that:
“I also confirm that each of the claims made in the proofs of debt lodged by my brother and in dispute on this appeal is an indebtedness of [SGAS] to him.”
That paragraph of Mr Ghougassian’s affidavit was admitted with a limiting order under s 136 of the Evidence Act that it was to be treated as submission only and not as proof of the asserted fact, and that submission has little weight where it does not address the circumstances of the particular transaction or identify the basis on which Mr Ghougassian holds that view.
Dr Ghougassian also refers to paragraphs 14–25 of his affidavit dated 14 March 2014 which press claims to amounts in his statement of account filed in the 2012 proceedings, refer to the decision of White J in those proceedings, and “declare” that Dr Ghougassian’s total claim from 27 June 2003 to 19 May 2005 is $525,288.42 and that he deducts amounts repaid to him of $252,881.89 from that claim to leave a total of $272,406.53 being the residual claim that is the subject of his proof of debt, exclusive of interest. Dr Ghougassian in turn states, in paragraphs 21 – 22 of that affidavit that:
“I declare that the monies advanced by me to [SGAS] were loans to [SGAS].
I declare that the amount of $525,288.42 was only paid into [SGAS] by way of loan advance, but all of these monies have been judicially recognised by this Court.”
Paragraphs 23–25 of that affidavit, parts of which were admitted with limiting orders under s 136 of the Evidence Act as submission only, in turn referred to Dr Ghougassian’s claim for interest.
Dr Ghougassian also refers to paragraph 79 of the 2012 Judgment, where White J expressed the view, to which I have referred above, that a question would arise as to whether repayments by SGAS were appropriated either by it or by Dr Ghougassian to advances made after 6 May 2005 and, if not, such repayments were to be applied against earlier debts. His Honour there recorded an acceptance by the liquidator that as at 6 May 2005, Dr Ghougassian had made advances to SGAS of $97,946.50, and his Honour also observed that it was not necessary for him to determine what was the balance owed to Dr Ghougassian as at that date. Dr Ghougassian also relies on Mr Lott’s affidavit dated 8 June 2011, read in the 2012 Proceedings, which annexed a schedule which he prepared of monies “owing to” Dr Ghougassian by SGAS including compound interest under the loan agreement which was the subject of the 2012 Proceedings.
Dr Ghougassian’s schedule indicates that he relies on the same matters for PODs 2-101, and he also identified several matters which overlapped with those matters. Dr Ghougassian identified one additional matter on which he relied in respect of PODs 77-101, namely that:
“As to claims from Items 77 to 101 ie after DOA [date of appointment] of 21 6 2010 – there was no disclaimer by the Liq[uidator] under Corp Act s 568(1)(d) and no order under 569(1A) and no Notice under s 568A.”
I do not accept that anything can be drawn from the liquidator’s not disclaiming an obligation to reimburse interest paid by Dr Ghougassian on his borrowings where his position is that no such obligation exists, at least other than in respect of advances used for SGAS’s benefit.
PODs 102-108 are in turn described in Dr Ghougassian’s schedule of claims and evidence as:
“Bank fees paid by [Dr Ghougassian] in respect of the same E[quity] A[ccess] account No 037-137 61-2883, where all funds were used for the benefit of SGAS. Payment by [Dr Ghougassian].”
Dr Ghougassian’s schedule of claims and evidence identifies the evidence supporting these claims as:
“Statement No 2 attached to POD in Ex D 9 [folder 2] Tab 102, demonstrates the continuing liability of [Dr Ghougassian] and his payment on a running account to Westpac. The above evidence under Item 1 as to the use and purpose of the E[quity] A[ccess] account is relevant.
The funds were loaned on a ‘no disadvantage basis’ accepted at the board meeting in 2004 [and likewise see clause 3.2 of the deed of loan Ex D 14 Folder 1 Tab 22.”
The liquidator’s corresponding schedule recognised that Dr Ghougassian relied on bank statements showing the total interest payments he had made on the relevant account (Ex D9, RMS1 tabs 1-76) The liquidator submits that the evidence does not establish that the line of credit was taken out for SGAS. For example, as the liquidator points out, the initial drawing of $58,014.53 on the line of credit was paid to Capral/Capital Finance not to SGAS and there is no evidence of a loan agreement for this amount with SGAS (Dr Ghougassian 20.03.15 [7]; T238). The liquidator also notes that Dr Ghougassian made advances of $10,000, $9,999, $53,352.36 and $4,999 in April 2004 to unidentified persons, and there is no evidence of the use to which these advances were applied or as to the use to which a further advance of $156,744 on 15 June 2004 was applied.
As I have noted above, Dr Ghougassian paid an amount of $250,000 drawn down on 26 July 2004 to Mr Ghougassian rather than to SGAS and Dr Ghougassian accepted in cross-examination that amount would properly be treated as on Mr Ghougassian’s loan account (T242). There is no evidence of a deposit of that amount in SGAS’s bank account, although Nareg Internet’s bank statements record a deposit in that amount on 29 July 2004 to its account (Ex P16). The liquidator also points out that other advances, including advances of $49,999 and $49,998 in 2003 were repaid on 20 July 2004 (Ex D8, 593; Dr Ghougassian’s statement of account, as annexed to his 12.4.2011 affidavit, p 247) and Dr Ghougassian accepted in cross-examination that SGAS no longer owed him for those advances as they had been repaid (T23-24). The liquidator also submits that the Court should not accept that SGAS accepted liability for interest for Dr Ghougassian’s line of credit, not limited to advances obtained on it that were actually made to it or at its direction. The liquidator also notes that Dr Ghougassian’s evidence of an agreement with SGAS that it would pay that interest from 2003 was rejected by White J in the 2012 Judgment. The liquidator’s schedule in turn noted that Dr Ghougassian had put forward evidence of each interest payment (Ex D9) in PODs 77-101 and 102-108 and indicated the liquidator denies SGAS’s liability for these payments on the basis of the matters set out above in relation to PODs 1-76 above.
The liquidator in turn submits that:
“The claim is for interest on the entire loan account. [Dr Ghougassian] should not receive interest on amounts he borrowed that he has not established were loans to the School. Accordingly, the claims to recover his interest payments and costs on this bank account should be rejected.
Further, there is insufficient evidence to conclude that the School (with the Board’s authority) agreed to be liable for these borrowings.”
The premise of Dr Ghougassian’s claim, so far as it extends to all interest paid and all fees paid in respect of that account, is that the account was operated only for SGAS’s benefit. I accept that, from time to time, Dr Ghougassian advanced monies to SGAS. However, the onus rests upon him to establish that particular advances were made to, or for the benefit of SGAS, and I do not accept that the conclusory statements as to that matter in Dr Ghougassian’s affidavit evidence, to the extent they were admitted, or in cross-examination are sufficient to establish that all borrowings on his personal account were used for SGAS’s purposes. That is sufficient basis for rejecting these proofs of debt. The liquidator also points out, and I accept, that to the extent those claims relate to advances or payments said to have been made after the date of the liquidator’s appointment, the claims should be rejected by reason of s 554(1) of the Corporations Act. Dr Ghougassian also claims interest at the Reserve Bank rate. That claim has not been established, for the same reason that the corresponding claim by Mr Ghougassian has not been established.
The liquidator’s decisions in respect of these proofs of debt have not been shown to be in error and the appeal against it should not be allowed.
PODs 109–112, 114-116, 118-124 – Proofs of debt accepted but not paid
PODs 109–112 are described in Dr Ghougassian’s schedule as loans paid by Dr Ghougassian, or made to, SGAS; PODs 114–116 are described as amounts paid to a superannuation fund for SGAS; and PODs 118–124 are described as loans for various purposes of SGAS. The liquidator has accepted the claims but not paid the amounts to Dr Ghougassian, for the reasons noted below. The real issue in dispute is therefore not the basis of the claims, but the reasons they have not been paid. I address that wider issue below in dealing with the defences raised by the liquidator to Dr Ghougassian’s claims.
POD 113 – Payment to Australian Taxation Office
This claim relates to an amount of $13,493.50, of which Dr Ghougassian contends he paid $13,487 to the Australian Taxation Office for SGAS. Dr Ghougassian refers in support of that proposition to the entry for 28 July 2004 in an accounting record of SGAS (Ex D13 p 1058). That entry refers to a payment of $13,487 made with a process date of 29 July 2004 and an effective date of 28 July 2004. That entry does not identify the person who made the payment, but corresponds, as Dr Ghougassian submits, to the amount withdrawn by Dr Ghougassian from his account less a bank cheque fee of $6.50. Dr Ghougassian also notes that Mr Ghougassian has “confirmed the accuracy” of Mr Ghougassian’s proofs of debts and refers to paragraph 9 of Mr Ghougassian’s affidavit dated 20 March 2015 to which I referred in paragraph 249 above. Dr Ghougassian submits that the partial acceptance of this claim by the liquidator should be overturned and the whole should be accepted.
The liquidator’s schedule of claims and evidence indicates that this proof of debt was admitted in part and that Dr Ghougassian’s bank account shows a withdrawal for $13,394.50 (Ex D9 tab 113) whereas the School’s bank account records a deposit for $9,913 on that date (Ex D8 p 593). The liquidator submits that the Court should admit the proof of debt in part in the amount of $9,913, reflecting the amount of that deposit. However, the amount of that payment must relate to a different transaction if Dr Ghougassian is correct that the amount that he withdrew was paid directly to the Australian Taxation Office.
On balance, it seems to me that I should accept Dr Ghougassian’s account of this transaction, since the correspondence in the date and amount of Dr Ghougassian’s withdrawal and the payment to the Australian Taxation Office supports a conclusion that the amount was paid of SGAS’s behalf and there is no suggestion this amount was characterised as a donation rather than a loan to SGAS. Dr Ghougassian’s appeal in respect of this proof of debt should be allowed, so that the proof should be admitted for the amount of $13,493.50, subject to the issues of set-off that I will address below.
PODs 117, 142 – Advance by Ms Bakunowicz
Dr Ghougassian advances a claim, in POD 117, for $100,000, which is recorded in SGAS’s records as monies advanced by Mrs Bakunowicz. This claim is duplicated in Dr Ghougassian’s POD 142 and I will address both claims at this point.
Dr Ghougassian’s schedule of claims and evidence describes POD 117 as “settlement of Archdiocese title claim – to allow School to borrow from Bank and to build the SGAS”, recognises that the payments was made by Ms Bakunowicz and identifies the evidence to support it as a Deed of Release dated 20 December 2004 between the Trustees of the Roman Catholic Church for the Diocese of Sydney and SGAS (Ex D11 pp 836–839). Dr Ghougassian acknowledges the relevant payment was not made from his Equity Access Account and also refers to Mr Lott’s affidavit dated 8 June 2011, which in turn refers to the schedule relied on the 2012 Proceedings, to which I referred in paragraph 19 above. Mr Ghougassian submits that Ms Bakunowicz put funds into SGAS as did others, and refers to the payment of the moneys to the Catholic Archdiocese Development Fund. That account does little to indicate the basis on which this amount is properly recoverable by Dr Ghougassian as distinct from Ms Bakunowicz.
The liquidator’s schedule records the detail of dealings with these monies in greater detail, which I need not repeat. The evidence lodged with Dr Ghougassian’s proof of debt is a receipt from the Catholic Church’s solicitors for $100,000 dated 20 December 2004 (Ex D9 tab 117), which is described as “received from Mr Michael P and Mr Daniel F Ghougassian”, and to have been “received by direct deposit”. The liquidator notes that Dr Ghougassian did not claim in his affidavit or proof of debt to have advanced this money. Several other documents were lodged with the proof of debt, which refer to transactions that do not total the amount claimed and which are not otherwise explained. The liquidator notes the monies were paid to the Roman Catholic Archdiocese Development Fund by SGAS (Ex D11, p 844). The liquidator also point out that, in his liquidator’s examination, Mr Ghougassian did not suggest these funds had been provided by Dr Ghougassian (Ex D11, pp 819–820). There is evidence that Ms Bakunowicz made a deposit to SGAS for the same amount at this time (Ex D8, 604) and a deposit summary records a donation from “P+J Bakunowicz” for $100,000 on 17 December 2004 (Ex D4A).
The liquidator submits that there is no reliable evidence from which the Court could conclude that Dr Ghougassian lent the amount of $100,000 to SGAS on around 20 December 2004 and that the Court should find that $100,000 was paid by SGAS to settle a dispute with the Catholic Church and that those monies did not come from Dr Ghougassian. The liquidator submits that, if it is necessary to go further, the Court should find that the $100,000 was funded by a donation or possibly a loan from Mr or Mrs Bakunowicz. I am not satisfied that those monies were sourced from Dr Ghougassian, although it appears SGAS’s cheque in payment of them may have been delivered to the Church’s solicitors by Dr Ghougassian and Mr Ghougassian. I am not satisfied that these monies are a debt properly recoverable by Dr Ghougassian rather than a loan or donation to SGAS by Mrs Bakunowicz. The appeal against the liquidator’s decision rejecting this proof of debt should not be allowed.
POD 119 – Loan for construction
Dr Ghougassian’s schedule of claims and evidence identifies this claim as a claim for $20,000 being a loan to SGAS for construction activities and identifies the evidence in support as being attached to the POD, namely SGAS’s account for 31 December 2004. Dr Ghougassian also refers to Mr Lott’s affidavit dated 8 June 2011, which in turn refers to the schedule relied on the 2012 Proceedings, to which I referred in paragraph 19 above. Dr Ghougassian submits that White J was prepared to accept certain loans had been made by Dr Ghougassian despite the absence of corroboration. I have addressed that submission in paragraph 80 above, and I should reach a finding as to this matter on the evidence before me in this application, in which Dr Ghougassian bears the onus of establishing that the proof of debt should be allowed. These proceedings are, of course, being heard after Dr Ghougassian has had a substantially longer period to assemble relevant documents that he had prior to the 2012 Proceedings.
The liquidator’s schedule of claims and evidence in turn notes that the evidence in support of this loan is a record of a deposit in SGAS’s bank account, which does not identify the party making the deposit (Ex D9 tab 119), although a “Deposit Summary” record of SGAS records that Dr Ghougassian made a “donation” of $20,000 on that date (Ex 4A p 2). The liquidator notes that the spreadsheet showing loans by Dr Ghougassian, which was provided by Mr Ghougassian and Dr Ghougassian to the liquidator, and which was relied on in the 2012 Proceedings, also does not record a loan of $20,000 by Mr Ghougassian to SGAS on 31 December 2004, although it refers to a loan of that amount on 31 December 2003, which was not claimed by a proof of debt (Ex D14 p 1506).
The liquidator submits that the claim is not made out on the evidence or, further, or alternatively, the Court should conclude that the relevant payment is a donation. On balance, I think it likely that Dr Ghougassian did make this payment, the fact of which is recorded in SGAS’s records, but it was a donation to SGAS as described in that record and not a loan. I am not satisfied that this transaction gave rise to a debt owed to Dr Ghougassian and the appeal against the rejection of this proof of debt should not be allowed.
PODs 125 – 141 Reimbursement of interest on loan account and amounts paid to creditors after date of winding up
Dr Ghougassian’s PODs 125–141 relate to claims for interest on Dr Ghougassian’s loan account and for reimbursement of sums paid to creditors of SGAS, and raise the same issues as PODs 1-76 and 77-101. Dr Ghougassian’s schedule of claims and evidence supporting these claims relies on several paragraphs of his affidavit sworn 14 March 2014 which were rejected or admitted only on a limited basis. The liquidator submits that there is no evidence to establish the character of those payments and that, to the extent that they were made after the date of the winding up, they were inadmissible under s 554 of the Corporations Act. So far as Dr Ghougassian claims interest on the loan account, I am not satisfied these claims have been established, for the same reasons that PODs 1-76 and 77-101 have not been established. So far as Dr Ghougassian claims amounts referable to payments to creditors after the date of the winding up, I noted a similar claim by Mr Ghougassian in paragraph 67 above. The liquidator submits, and I accept, that the evidence does not establish that he had directed any party to make such payments to creditors and that matter does not support the claim to interest after the date of the winding up. The appeal against the rejection of these proofs of debt should not be allowed
PODs 143 – 158 Payments recovered in the 2012 Proceedings
The liquidator submits that proofs of debt numbered 143–158 relate to payments recovered by Dr Ghougassian under the orders made in the 2012 Proceedings. Dr Ghougassian’s summary of evidence acknowledges that these claims were the subject of the 2012 Judgment and the amounts claimed were paid in accordance with that judgment. The liquidator submits that those claims should be rejected on the basis that payment has already been made to Dr Ghougassian. I accept that submission, on the basis that any earlier debts to which those payments could have been applied have not been established. I address that question below in dealing with the liquidator’s defences to Dr Ghougassian’s claims.
Liquidator’s defences to Dr Ghougassian’s claim
The liquidator relies on two wider matters by way of defence to the claims made by Dr Ghougassian. First, by paragraph 10A of Amended Points of Defence filed by leave on 4 March 2015, in further answer to paragraph 11 of the Points of Claim, the liquidator relied on repayments to Dr Ghougassian of several amounts in the period between 21 July 2003 and 13 June 2008 as reducing Dr Ghougassian’s proof of debt. Those repayments were referred to in Dr Ghougassian’s statement of account dated 12 April 2011 and in his affidavit sworn 14 March 2014 in these proceedings, where Dr Ghougassian accepts that he received payments of amounts totalling $92,329.72. By the Reply to Amended Points of Defence filed 20 March 2015, Dr Ghougassian admits the repayments to him pleaded in paragraph 10A of the liquidator’s Amended Points of Defence, but denies any right of set-off on the basis that the total indebtedness of SGAS to Dr Ghougassian should have been considered by the liquidator.
It seems to me that Dr Ghougassian’s approach to this matter inverts the onus of proof, so far as he bears the onus of establishing that a debt which he claims is a liability of SGAS and properly payable to him in an application under s 1321 of the Corporations Act. Where Dr Ghougassian accepts that these amounts were repaid to him, then his claim must allow for those repayments, where the evidence does not establish that those payments should have been applied to earlier debts owed to him. Any amount properly payable to Dr Ghougassian should be reduced by the amounts already repaid to him. That should be reflected in the orders that I will direct the parties to prepare to give effect to this judgment.
Second, the liquidator also relies on the fact that Dr Ghougassian’s claims were assigned to Mr Ghougassian by deed of assignment dated 21 April 2014. That deed of assignment referred to the assignment of the “Assigned Interest”, being the claims which the liquidator had allowed in adjudicating Dr Ghougassian’s proof of debts. The liquidator points out that Mr Ghougassian relied on the assignment of that amount in responding to a bankruptcy notice founded on a judgment debt arising from the costs orders made in other proceedings brought by the Messrs Ghougassian. It appears that agreement was ultimately reached that the costs assessments in those proceedings would be offset against debts owing by SGAS to Dr Ghougassian pursuant to the proofs of debt (Sutherland 26.6.14, [14], Annexure F). Obviously enough, Dr Ghougassian is not now entitled to the benefit of claims that had been assigned by him to Mr Ghougassian and offset against costs orders previously made against Mr Ghougassian. That should also be reflected in the orders that I will direct the parties to prepare to give effect to this judgment.
Orders and costs
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.
The parties should bring in short minutes of order to give effect to this judgment, and as to costs, within 14 days. If there is no agreement between them, each party should submit draft orders, and submissions not exceeding 10 pages, as to the orders which they contend should be made, indicating whether a further oral hearing is sought.
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Key Legal Topics
Areas of Law
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Corporate Law & Governance
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Trusts & Equity
Legal Concepts
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Winding Up & Liquidation
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Unjust Enrichment
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Fiduciary Duty
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Account of Profits
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