Ghougassian v Arnautovic, in the matter of Ghougassian

The Justice White proceedings 13 In proceedings 2010/66795, 2011/10869 in the NSWSC, Mr Sutherland sought an account to determine how much money was owed by the School to the Ghougassians that was secured by a mortgage given by the School in favour of the Ghougassians: see Sutherland v Ghougassian [2012] NSWSC 125 (Sutherland v Ghougassian [2012]) at [1]. The Ghougassians registered a mortgage against property on which the School was situated pursuant to a deed of loan dated 6 May 2005. On 12 October 2006, the Ghougassians entered a deed of priority in favour of the Commonwealth Bank of Australia (CBA). CBA subsequently obtained orders for possession and sold the land. After discharging the debt owed to the CBA, there was a surplus of sale proceeds of $7,687,728.53 paid into Court: see Sutherland v Ghougassian [2012] at [3]-[4]. 14 The Ghougassians were ordered to provide an account of the moneys claimed to be due under the mortgage. On 12 April 2011 they provided statements of account said to be statements of loans and loan repayments between the School and Mr Ghougassian for the period from 17 December 2003 to 1 December 2010 and between the School and Dr Ghougassian for the period from 26 June 2003 to 19 November 2010. Mr Ghougassian claimed to be owed $2,328,338.53 and Dr Ghougassian claimed to be owed $624,289.30. On 10 May 2011, Barrett J ordered that $4,600,000 be paid out to the School: see Sutherland v Ghougassian [2012] at [5]-[6]. 15 Justice White said the following in Sutherland v Ghougassian [2012] at [7]-[10]: 7 The liquidator served a notice of falsification to the accounts. In final submissions the liquidator contended that the amounts owing to the Ghougassians secured by the mortgage were $142,016.13 owed to Mr Michael Ghougassian and $54,894.24 to Dr Daniel Ghougassian. 8 The evidence of Mr Michael and Dr Daniel Ghougassian included evidence from their accountant that Dr Daniel Ghougassian was owed $1,278,728.52 and Mr Michael Ghougassian was owed $7,190,822.75. This was millions more than was claimed in the statement of account. 9 It can be seen from these figures that the parties were widely apart. In the course of final submissions, counsel for Mr and Dr Ghougassian accepted that the debt secured by the mortgage was limited to $1,000,000 plus interest. Counsel contended that up to that limit, the mortgage secured advances made from 22 December 2004. 10 The instrument of mortgage is undated. It was registered on 23 June 2005. The mortgage does not specify any particular debt or obligation that it secures. The form of mortgage provided for the inclusion of such provisions in an annexure or a memorandum. There was no annexure to the mortgage. The mortgage incorporated memorandum Q860000 filed at Land and Property Information New South Wales. That memorandum was filed on behalf of the Registrar General. It does not identify the principal debt secured by the mortgage or the interest secured. However, it was common ground that some debt was secured by the mortgage. Counsel for the liquidator accepted that a debt the subject of the Deed of Loan dated 6 May 2005 was secured. 16 For clarity, in these reasons, when the Court refers to the "instrument of mortgage", it means the document numbered AB566420Q registered on 23 June 2005 contained in exhibit RRB-5 to the affidavit sworn by the Ghougassians' solicitor, Robert Balzola, on 20 September 2017 (Mr Balzola's affidavit). References to the "memorandum of mortgage" are to the memorandum Q860000. A copy of the deed of loan was included in exhibit RRB-5 but it is notable that a copy of the memorandum of mortgage was not exhibited to Mr Balzola's affidavit. A copy of the memorandum of mortgage was contained in exhibit SA-11 to Mr Arnautovic's affidavit sworn on 17 November 2017 but neither party took the Court to that exhibit. 17 On 29 February 2012, White J found that the School owed $560,705 to Mr Ghougassian and $296,239.29 to Dr Ghougassian plus simple interest, being amounts which were secured by the mortgage. Justice White noted that he had determined the amount secured by the mortgage on available evidence and this decision was "made on limited evidence" and did not create an issue estoppel on the question of what the total amount owed was: see Sutherland v Ghougassian [2012] at [78] and [95]. 18 The proceedings were stood over to enable Mr Sutherland to calculate the interest payable. On 14 March 2012, White J ordered that there be a further calculation of the interest payable and found that Mr Sutherland should pay the Ghougassians' costs on an indemnity basis. Relevantly to these proceedings, in Sutherland v Ghougassian (No 2) [2012] NSWSC 325 (Sutherland v Ghougassian (No 2)), in response to a submission that, as the Ghougassians had been unsuccessful on many issues, there should be no order as to costs, White J found as follows at [7]-[10]: 7 Even where a mortgage does not make express provision, it would be implied that costs properly incurred by a mortgagee in an action for an account to determine what amount is secured by the mortgage would be added to the secured debt. 8 Here the mortgage makes express provision that: "In addition to all costs and expenses which the mortgagor may be liable at law or in equity to pay in respect of this security ... the mortgagor will upon demand pay all costs and expenses, including costs as between solicitor and client, incurred by the mortgagee ... in any manner in reference to this security". 9 Accordingly the mortgagees have a contractual right to have their costs paid out of the secured property, as between solicitor and client. 10 The closest analogy now to costs as between solicitor and client is costs on the indemnity basis. On an assessment of such costs, an assessor should allow all costs of Dr and Mr Ghougassian of the proceedings other than those that appear to have been unreasonably incurred, or appear to be of an unreasonable amount (Uniform Civil Procedure Rules, r 42.5(b)). 11 Doctor and Mr Ghougassian are thus entitled to an order for the payment of their costs on the indemnity basis. 19 The Court will refer to the quoted extract from the memorandum of mortgage set out in Sutherland v Ghougassian (No 2) at [8] as the costs and expenses clause. 20 On 11 April 2012, White J gave further judgment in respect of the calculation of interest: Sutherland v Ghougassian (No 3) [2012] NSWSC 334. On 12 April 2012, orders were entered requiring moneys held by the NSWSC to be paid to Mr and Dr Ghougassian in the amounts of $881,878.95 and $432,045.47 respectively (together with interest from 11 April 2012 to the date of payment), the balance to be paid to the Liquidator. The other order made was as follows: The Court orders that St. Gregory's Armenian School Inc. (in liquidation) in the Supreme Court Proceedings No. 2010/66795 pay the costs of Daniel Ghougassian and Michael Ghougassian of the Amended Notice of Motion dated 28 April 2011 in these proceedings, on an indemnity basis as an expense in the liquidation. This will be referred to as the Justice White costs order. 21 On 13 May 2014, the Ghougassian's costs were assessed as being $97,521.05 (less than the amount of $117,072.28 which they had claimed). That amount was paid into the trust account of Mr Balzola's firm on 5 June 2014.

The Justice Black proceedings 22 On 7 October 2015, Black J delivered judgment in proceedings in the NSWSC brought by the Ghougassians against Mr Sutherland in his capacity as liquidator of the School under s 1321 of the Corporations Act 2001 (Cth). The Ghougassians sought orders setting aside decisions made by Mr Sutherland to reject the whole of Mr Ghougassian's proof of debt and part of Dr Ghougassian's proof of debt: see In the matter of St Gregory's Armenian School Inc [2015] NSWSC 1465. 23 In that judgment, Black J also dealt with a cross-claim. The reasons for judgment clearly identify that the named parties to the cross-claim as being Mr Sutherland in his capacity as liquidator of the School (first cross-claimant), the School (second cross-claimant) and Mr Ghougassian and his wife (first and second cross-defendants respectively) in respect of payments made by the School to Mr Ghougassian and entities associated with the Mr Ghougassian. At [275], Black J found that Mr Ghougassian failed, and Dr Ghougassian substantially failed, in the applications to set aside Mr Sutherland's decisions, and Mr Sutherland and the School failed in their cross-claim against Mr Ghougassian and his wife. 24 On 16 November 2015, Black J delivered reasons in relation to the question of costs: see In the matter of St Gregory's Armenian School Inc [2015] NSWSC 1701. Justice Black found that the Ghougassians were jointly and severally liable to pay Mr Sutherland's costs of their application and Mr Sutherland and the School were to pay the costs of the cross-claim. His Honour made the following orders in chambers on that day: … 4. The Plaintiffs jointly and severally pay the liquidator's costs of the Originating Process on the ordinary basis as agreed or as assessed. 5. The Amended Interlocutory Process filed on 5 February 2015 by the liquidator and St Gregory's Armenian School Inc (in liq) and the Points of Cross-Claim filed on 12 August 2014 be dismissed. 6. The Cross-Claimants pay the Cross-Defendant's Costs of the Cross Claim on an ordinary basis as agreed or as assessed. 7. The Court directs that the assessment of costs as provided by Orders 4 and 6 be conducted on the basis that at least 75% of the hearing time and preparation time is treated as attributable to the Plaintiffs' claims with the remainder treated as attributable to the Cross-Claim. Order 6 (in light of Order 7) will be referred to as the Justice Black costs order. 25 It is notable that the reasons for the Justice Black costs order identify the "defendant" and "first cross-claimant" as being "Roderick Mackay Sutherland in his capacity as liquidator of" the School and in order 1(a), his Honour defined the "Defendant" as the "liquidator" notwithstanding that the "Title to the Proceedings" in the orders made on 16 November 2016 refers to the "First Defendant" as "Roderick Mackay Sutherland trading as Jirsh Sutherland". The "further details about the applicant and the defendant" in the orders stated that the first applicant's name was "in his capacity as liquidator of St Gregory's Armenian School Inc (in liquidation) (ABN 18283910231)". 26 As noted above, Mr Arnautovic replaced Mr Sutherland as liquidator of the School pursuant to orders made by Black J on 26 February 2016. 27 The respondent filed an application for costs assessment in respect of the Justice Black costs order on 3 May 2016. On 1 September 2016, the NSWSC issued a statement of reasons and certificates of determination dated 23 August 2016 with the "Costs Applicant" being identified as "Roderick Mackay Sutherland trading as Jirsch Sutherland". The Ghougassians were ordered to pay $6,037.95 for the costs of the determination of the costs assessment and the costs assessment resulted in an amount of $320,506.36 payable by the Ghougassians. Demand for $326,544.31 was made by letter from Hegarty Legal to Mr Balzola on 8 September 2016. The certificates were entered as a judgment of the NSWSC in an amount of $326,544.31 on 14 September 2016 and sealed on 28 September 2016 (case number 2016/276043). No payments were received by the respondent. Mr Arnautovic obtained garnishee orders as a result of which, on 30 November 2016, Westpac Banking Corporation issued a bank cheque in the amount of $5,339.76 to Mr Arnautovic in relation to Dr Ghougassian. 28 On 7 April 2017, the respondent's solicitors sent an email to the manager of costs assessment at the NSWSC which said: We act for the Liquidator of St Gregory's Armenian School Inc (In Liquidation). I refer to the matter of Roderick MacKay Sutherland trading as Jirsch Sutherland v Michael Ghougassian & Anor (2016/276043) in which we act for the Plaintiff. That proceedings number was allocated to the registration of the certificate of costs in the matter of St Gregory's Armenian School Inc (In Liquidation) (2013/386207), in which Mr Sutherland (in his capacity as liquidator of St Gregory's Armenian School (School) was the defendant and Cross-claimant and ultimately became the judgment creditor. A copy of the order is entered in respect of the registration of the certificate of costs is attached for your reference. It appears that an error has been made on the costs certificate (attached) which has resulted in an error being made in the entering of the judgment registering the cost certificate. The cost certificate should have referred to Roderick MacKay Sutherland in his capacity as Liquidator of St Gregory's Armenian School Inc (In Liquidation) rather than Roderick Mackay Sutherland trading as Jirsch Sutherland. Whilst it is known to all parties that the judgment was entered in favour of Mr Roderick Mackay Sutherland in his capacity as liquidator of the School, for the avoidance of any doubt we consider that the cost certificate should have been issued to Mr Sutherland specifying his capacity as liquidator. A second issue which arises is that Mr Sutherland was replaced by Mr Sule Arnautovic as liquidator of the School on 26 February 2016 (also of the firm Jirsch Sutherland) in proceedings before His Honour Justice Black (NSW Proceedings 2016/61814). A copy of the orders made in those proceedings is attached for your ease of reference. Accordingly, Mr Arnautovic assumed all the rights, responsibilities and liabilities that Mr Sutherland had previously held as liquidator of the School, including the right to enforce the judgment debt. In circumstances where Mr Arnautovic assumes all the rights and obligations previously held by Mr Sutherland as Liquidator, we would be grateful if a correction could be made to the certificate of cost to reflect the current status of the matter, namely that the Judgment Creditor is Sule Arnautovic in his capacity as Liquidator of St Gregory's Armenian School Inc (In Liquidation). The Solicitor for the judgment debtors, Mr Robert Balzola, is copied to this email. Should you require further information please let us know. 29 Initially, Mr Dyson did not accept that any error had been made, noting that the determination of costs made on 23 August 2016 had been in accordance with the information provided by the costs applicant prior to that date. Mr Dyson noted that, according to the email sent by Hegarty Legal on 7 April 2017, Mr Sutherland was not the liquidator of the School but was replaced by Mr Arnautovic on 26 February 2016 in accordance with the copies of the orders provided. 30 Following submissions made by letter dated 10 May 2017 in relation to the power of a costs assessor to vary certificates, on 19 June 2017, Mr Dyson advised Hegarty Legal and Mr Balzola that he had completed his assessment to amend the certificate of determination of costs and had forwarded it to the manager for costs assessment. On 27 July 2017, the NSWSC issued certificates of determination of costs with the costs applicant named as Sule Arnautovic in his capacity as liquidator of the School for an amount of $320,506.36 payable by the Ghougassians. On 4 August 2017, the amended cost certificates were registered as a judgment of the Court and on 23 August 2017 the orders were entered with case number 2017/237676. That judgment/order for $320,506.36 will be referred to as the 2017 judgment debt. 31 In his affidavit in support of the applications to set aside the bankruptcy notice, Mr Balzola estimated that the bill of costs for the Ghougassians in respect of the Justice Black costs order would be in an amount of $130,157.18.

Dr Ghougassian's bankruptcy notice and application to set it aside 32 The claims made by the Ghougassians are most easily understood and addressed if Dr Ghougassian's bankruptcy notice is considered first. 33 In the covering letter which accompanied Dr Ghougassian's bankruptcy notice, Hegarty Legal, who acted for the respondent, said: We enclose, by way of service, a Bankruptcy Notice issued 25 August 2017 by the Official Receiver (Bankruptcy Notice). We also enclose a copy of the orders made on 26 February 2016 by His Honour Justice Black noting that Mr Sule Arnautovic replaced Mr Roderick MacKay Sutherland as Liquidator of St Gregory's Armenian School Inc (In Liquidation) (School). Accordingly, any judgements in favour of Mr Sutherland in his capacity as Liquidator of the School are now taken to be for the benefit of, and are enforceable by, Mr Arnautovic: Re Harris Scarfe Ltd (in liq) (2006) 203 FLR 46; 24 ACLC 1034; [2006] SASC 277 at [21]-[32] per Debelle J (affirmed on appeal). As such, the judgment/order entered 23 August 2017 in Supreme Court of New South Wales Proceeding 2017/237676 in the amount of $320,506.36 in favour of Sule Arnautovic in his capacity as Liquidator of St Gregory's Armenian School Inc (In Liquidation) (Judgment Debt) forms the basis of the amount claimed by the judgment creditor in the Bankruptcy Notice. The Judgment Debt remains outstanding in the amount of $315,166.60 calculated as follows: Description Amount Judgment/Order entered 23 August 2017 $320,506.36 Amount paid by Westpac Banking Corporation pursuant to a Garnishee Order forward Debts ($5,339.76) TOTAL AMOUNT OWING $315,166.60

For the avoidance of doubt, our client waives his right to enforce any outstanding judgment debts against you at the date of issue of the Bankruptcy Notice that are not included in the Bankruptcy Notice. 34 The "claims that you owe the following debt" section of Dr Ghougassian's bankruptcy notice reflected this summary. 35 A copy of the 2017 judgment debt was attached to Dr Ghougassian's bankruptcy notice. Also attached to the bankruptcy notice was a copy of the appointment order in relation to Mr Arnautovic. 36 Dr Ghougassian's amended application to set aside his bankruptcy notice relevantly stated as follows (deletions omitted, emphasis in original): Application to set aside Bankruptcy Notice BN216289 1. Application: Clause 5 Bankruptcy Notice: Order to set aside Bankruptcy Notice 216289 issued 25 August 2017 and served 12 September 2017 upon the Applicant. 2. s.40(1)(g): This application is made under s.40(1)(g) BA, seeking to satisfy this Court the debtor has a counter-claim, set-off or cross-claim equal to or exceeding the amount of the judgment debt or sum payable under the final order, being a counter-claim, set-off or cross-claim that he could not have set up in the action or proceeding in which the judgment or order was obtained. 3. s.40(7): this application is further made under s.40(7) the debtor applies to the Court for an order setting aside 4. The judgment debt the subject of both Bankruptcy Notice 216289 is Sule Arnautovic in his capacity as Liquidator of St Gregory's Armenian School Inc (In Liquidation) v Michael Ghougassian and Daniel Ghougassian [NSWSC 2017/237676] in the amount of $320,506.36 ['the Judgment Debt']. 5. Grounds: The total quantum of $315,166.60 has setoffs on the following amounts: Particulars a. To the value of set off claims in the amount of $359,389.90 as specified in the Affidavit of Robert Balzola sworn 20 September 2017 at paragraph [12] therein; PLUS b. To the value of $130,157.18 as specified in the Affidavit of Robert Balzola sworn 20 September 2017 at paragraph [13] therein. 6. The total quantum set-off etc. of $489,547.08 equals or exceeds the judgment debt entered in NSWSC 2017/237676 for the net amount of $341,480.19 as claimed and entered as at 25 August 2017 in this Bankruptcy Notice. 7. The Applicant relies on section 41(7) BA being the Applicant Debtor has a counter-claim, set-off or cross demand equal to or greater than the amount claimed in this Bankruptcy Notice. Particulars of Counter Claim or Set Off (a) Items of costs specified in paragraphs 11 & 12 of the Affidavit of Robert Balzola sworn 20 September 2017 as specified in Table titled "Table of Taxable Items to be Assessed in 11(a)": TOTAL = $359,389.90; (b) Items of costs specified in paragraph 13 of Affidavit of Robert Balzola sworn 20 September 2017 at exhibit RRB-1: TOTAL = $130,157.18. Application for extension of time for compliance 8. Application s.33 BA and Clause 4(a) Bankruptcy Notice: In addition or in the alternative to Order A below, application pursuant to section 33 BA and clause 4(a) of BN 216289 to extend the time for compliance to 2 December 2017 or to a date to be determined by this Court and is sought in Order B below on the following grounds. Application to serve itemised bills 9. Order s.30(1)(b) BA: the applicant serve an itemised bill upon the respondent within 14 days from date of making these orders in anticipation of assessment on the mortgage costs per decision of Justice White in the decision Sutherland v Ghougassian (No.2) [2012] NSWSC 325 at [8] and [9] that 'In addition to all costs and expenses which the mortgage or may be liable at law or in equity to pay in respect of the security … the mortgagor will upon demand pay all costs and expenses, including costs as between solicitor and client, incurred by the mortgagee … In any manner in reference to the security" [White J at paragraph 8]. 10. Order s.30(1)(b) BA: the applicant serve an itemised bill upon the respondent for the 25% costs order of Black J In the matter of St Gregory's Armenian School Inc.(In Liq.) [2015] NSWSC 1701 at [16] found at [11] of Affidavit of Robert Balzola sworn 20 September 2017 and Exhibit RRB-4 at pages 46-54 of the Affidavit. Orders Sought by Applicant A. Order: s.40(1)(g) BA and clause 5 setting aside the Bankruptcy Notice. B. Order: s 41(6A) BA and Clause 4(a) of the Bankruptcy Notice BN 216289 extending the time for compliance with the bankruptcy notice. C. Order: s.33 BA allow the amendment of this Application being a written process or notice under this Act. D. Order: s.30(1)(b) BA the Applicant serve an itemised bill upon the respondent within 28 days from date of making these orders in anticipation of assessment on the mortgage costs per decision of Justice White in the decision Sutherland v Ghougassian (No.2) [2012] NSWSC 325. E. Order: s.30(1)(b) BA the Applicant serve an itemised bill upon the respondent within 60 days from the date of making these orders for the costs order of Justice Black in the decision In the matter of St Gregory's Armenian School Inc.(In Liq.) [2015] NSWSC 1701 at [16] of 25% of the costs attributable to costs responding to the Respondent's Cross Claim in that matter. … Claim for interim relief The Applicant also claims interim relief. 1. Order: s.30 BA: Stay on effect of bankruptcy notice till determination of these proceedings. 37 The applicants' revised outline of submissions related to both of the Ghougassians' applications, although both the bankruptcy notices and the applications to set aside the bankruptcy notices were not in the same form. While both bankruptcy notices relied on the 2017 judgment debt, Mr Ghougassian's notice also relied on two other judgment/orders in the name of Mr Sutherland. The revised outline of submissions (and the oral submissions on their behalf) rarely addressed the difference in the notices, which did not assist the analysis of the positions which they sought to advance. 38 In the applicants' revised submissions at [9], the following was submitted (as written): Evidence of set-offs [and counter claims] is also further contained in the affidavit of Mr Balzola sworn 20 9 2017 which comprises 2 unassessed judgment orders in favour of the Applicants [one by Black J being the 25% counterclaim; one by White J being the contractual mortgage claim for costs re preserving the mortgage rights of the creditors] both of which are yet to be assessed: a. These are estimates, which exceed the judgment debts [see par. 5(a) of the Application as amended states it is $359,389.90; plus $137,157.18 - see the Affidavit of Mr Balzola par. S 12 and 13]; b. The assessments are being done by the costs consultants prior to the hearing, being by Mr David Gordon the leading costs consultant; c. These could not have been set off in the 2017 action as they were not then assessed; d. These could not have been set off in the 2014 action as: i. Nareg x 2 are judgment creditors with Michael Ghougassian; ii White J observed that Michael Ghougassian and Dr Daniel Ghougassian were entitled to costs under the mortgage contracts. 39 It appears that the cross-reference in paragraph a. is to Dr Ghougassian's application to set aside his bankruptcy notice, since there is no such paragraph in Mr Ghougassian's application. Paragraph d.i can only relate to the bankruptcy notice served on Mr Ghougassian.

First claimed set-off: mortgage costs claim for "taxable items to be assessed" set out at [12] of Mr Balzola's affidavit 40 In relation to the first claimed set off of $359,389.90, it is useful to set out Mr Balzola's affidavit at [11]-[12] as follows: 11. As to BN216294 and BN216289, in Judgment Debts pertaining to Judgment/Order [2017/237676], there are two set off claims, yet to be billed and assessed by the Applicants upon the Respondent: (a) An itemized Bill of Costs further to the Order of White J in the decision Sutherland v Ghougassian (No 2) [2012] NSWSC 325 as to mortgage costs in that cause. (b) … 12. Bill of Costs in [11(a)]; I attach and mark the following Exhibits as to the claims yet to be billed and assessed with corresponding evidence as to the debt's existence: Table of Taxable Items to be assessed in 11(a) Exhibit Item Amount RRB-5 Matthew Dooley Gibson - Solicitor's fees related to mortgage contract with the Commonwealth Bank of Australia. $100,000.00 [E] RRB-6 Fraser Clancy Lawyers - Subject to Claim in the District Court of New South Wales against our client in matter NSWDC 37006/16 - Proof of Debt lodged by Fraser Clancy 1-Jul-11 with Respondent $123,985.46 RRB-7 Mahony Dominic Lawyers (a.k.a. Mahony Taren Lawyers) for legal fees in relation to the mortgage instrument: $27,371.49 RRB-8 Thompson Playford Cutler - Solicitor's fees related to mortgage contract to defend that contract: $9,012.45 RRB-9 Argyle Lawyers - Solicitor's fees related to mortgage contract as to final amount of $25,000 as agreed: $25,000.00 RRB-10 Robert Balzola and Associates - Draft Bill of Costs prepared as attached. $25,580.50 RRB-11 John Punch - Bill for accounting fees dated 3 November 2012 $15,000.00 RRB-12 S. Bruce Elliott & Co as to accounting fees related to the Mortgage Contract matter before White J referred to in 11] above: $33,440.00 Total $359,389.90

41 The Court will refer to the claim made at [5a] and [7(a)] of Dr Ghougassian's application and in Mr Balzola's affidavit at [11(a)] and [12] as the "mortgage costs claim" and to the items listed at [12] as the "proposed taxable items". 42 Mr Arnautovic and his legal advisors understood the mortgage costs claim to suggest that the Ghougassians were seeking to set-off the proposed taxable items which were "yet to be assessed" as "mortgage costs in the cause" pursuant to Justice White's costs order, even though taxation of costs the subject of that order has occurred and payment has been made. In the Court's view, the respondent's reading of Mr Balzola's evidence and the Ghougassian's revised outline of submissions was a fair one. The respondent submitted that a party cannot bring in a further bill of costs for the purposes of taxation to pick up costs overlooked for to do so would be to convert a final certificate of taxation into an interim one, relying on Dal Pont GE, Law of Costs, (4th ed, LexisNexis Butterworths, 2018) at [18.91], Estate of Segalov (deceased) [1954] P 241 at 248 per Wallington J and Murphy v Goldtrap Pty Ltd, (unreported, Supreme Court of Queensland, Ambrose J, 12 December 1996). If the respondent's understanding of the mortgage costs claim were correct, then his submission would be a complete answer to it. 43 However, after considerable efforts were taken to have this claim clarified during the course of oral submissions, counsel for the Ghougassians said that the respondent laboured under a misunderstanding, and instead the mortgage costs claim was a claim under the mortgage itself not pursuant to the Justice White costs order. They relied on the extract from the memorandum of mortgage quoted in Sutherland v Ghougassian (No 2) at [8]. 44 The Court accepts that this is the basis on which the Ghougassians ultimately put their claim. The Court finds that Mr Arnautovic and his legal advisors were entitled to understand the claim as they did having regard to the awkward and confusing language used in Mr Balzola's affidavit at [11]-[12], Dr Ghougassian's application at [7(a)] (and Mr Ghougassian's application at [15]) and the revised outline of submissions filed on behalf of the Ghougassians at [9]. The respondent was therefore put at an unfair disadvantage in addressing this claim. It is notable that Mr Hegarty sought clarification of the mortgage costs claim in correspondence dated 5 October 2017, shortly after the Ghougassians filed their applications to set aside the bankruptcy notice. Mr Hegarty made clear how the respondent and his lawyers understood the claim but neither Mr Balzola nor counsel for the Ghougassians made it clear that the mortgage costs claim relied on the costs and expenses clause of the memorandum of mortgage, not the Justice White costs order, until the hearing was quite advanced. 45 The Court considers the claimed taxable items claimed in Mr Balzola's affidavit at [12] in more detail below under the heading "Consideration of the proposed taxable items".

Second claimed set-off: the Justice Black costs order 46 The second claimed set-off is referred to in Mr Balzola's affidavit at [11(a)] and [13] as follows: 11. As to BN216294 and BN216289, in Judgment Debts pertaining to Judgment/Order [2017/237676], there are two set off claims, yet to be billed and assessed by the Applicants upon the Respondent: (a) … (b) An itemised Bill of Costs further to the Order of Black J In the matter of St Gregory's Armenian School Inc [2015] NSWSC 1701 at [16] being 25% of the costs attributable to costs responding to your client's Cross Claim in that matter … 13. The amount owing as per the attached final judgment in BN 216924 is $520,628.59 [Refer Exhibit RRB-1]. I therefore estimate that the estimated Bill of Costs in [11(b)] above will be in the order of 25 per cent of the Respondent's Bill of Costs of $520,628.59, or $130,157.18, subject to formal adjudication and assessment. 47 As may be seen from the applicants' outline of submissions, Mr Balzola's affidavit and Dr Ghougassian's amended application to set aside his bankruptcy notice appear to suggest that Dr Ghougassian has the benefit of the Justice Black costs order. However that is not the case, since he was not a cross-defendant in those proceedings: see the summary of the Justice Black proceedings at [24]-[25] above. Accordingly, Dr Ghougassian is not entitled to claim set-off of that amount. 48 The Ghougassians did not, in terms, present an argument that if Mr Ghougassian is entitled to set off his costs of the cross-defence, then that has the effect of reducing the 2017 judgment debt by the correlative amount, so that Dr Ghougassian has the indirect benefit of the Justice Black costs order. Ultimately, it is not necessary to address that issue because Mr Ghougassian has failed to establish a value which should be attributed to the Justice Black costs order.

Consideration of proposed taxable items 49 As the respondent did not dispute the accuracy of the extract of the costs and expenses clause in Sutherland v Ghougassian (No 2) at [8], the Court will consider the claimed taxable items by reference to that extract. 50 Further, as can be seen from Sutherland v Ghougassian [2012] at [10], counsel for the liquidator in that case accepted that a debt the subject of the deed of loan dated 6 May 2005 was secured by the mortgage. Clause 7 of the deed of loan provides as follows: The Borrower must pay to the Lender and indemnify the Lender against all costs and expenses paid or incurred by the Lender in relation to: (a) the negotiation, preparation, execution, stamping and registration of this Agreement and the Mortgage; (b) any breach or default of this Agreement; and (c) any exercise or attempted exercise of any right or remedy of the Lender under or by virtue of this agreement or the Mortgage. 51 Counsel for the respondent made brief general oral submissions concerning the proposed taxable items. Counsel for the respondent did not seek the opportunity to make more detailed written submissions concerning individual proposed taxable items even though the exact nature of the mortgage cost claim was only clarified at the hearing. 52 As the Court understands it, counsel for the respondent: (1) Relied on evidence given in Mr Arnautovic's affidavit at [31]-[45]; and (2) Submitted that, in order to make out a claim under the costs and expenses clause of the memorandum of mortgage, the Ghougassians must show that they have paid the debt claimed, and they have not done so. Counsel also submitted that the fact that claims were made in the liquidation in relation to a number of the proposed taxable items is inconsistent with the Ghougassians having paid those amounts which they now claim as "costs and expenses" which they say are secured by the mortgage. 53 Counsel for the Ghougassians sought to assail Mr Arnautovic's credibility. Counsel cross-examined Mr Arnautovic in relation to a number of matters, including comments alleged to have been made by Black J concerning Mr Arnautovic's conduct in a matter unrelated to these proceedings and a newspaper article in relation to Mr Arnautovic's response to those alleged comments. Neither the alleged comments by Black J nor the newspaper were put in evidence. The attack on Mr Arnautovic's credit is dealt with more fully below. Suffice it to say at this point that the Court found Mr Arnautovic to be a credible witness in relation to the matters on which he gave evidence in these proceedings. 54 Further, in oral submissions, counsel for the Ghougassians suggested that Mr Balzola's evidence in relation to the proposed taxable items was unchallenged. That is plainly not the case, in light of the matters addressed in Mr Arnautovic's affidavit at [31]-[45]. In any event, the Court is not obliged to accept uncritically the evidence which is given. 55 A counter-claim, set-off or cross-demand must be effective against the creditor at the time of the hearing to set aside the bankruptcy notice and capable of being enforced by an action: see Guss v Johnstone at [43]; Re GEB [1903] 2 KB 340. By parity of reasoning, the time by which the value of a counter-claim, set-off or cross-demand must have been quantified is also at the hearing of the application. That follows because it is necessary to determine whether the counter-claim, set-off or cross demand equals or exceeds the judgment debt: see Patane v Asteron Life Ltd [2004] FCA 232 at [74]-[76] (Lander J); James v Hill [2005] FCA 981 at [20] (Branson J). On that basis, there is no utility in granting orders directing Dr Ghougassian (or Mr Ghougassian, who seeks the same order) to seek assessment of the proposed taxable items. It is difficult to see why such an order would be required in any event, since it was open at all times for the Ghougassians to seek any necessary assessment of those items, and neither of them has done so, either before or after the hearing. 56 Whether or not any of the proposed taxable items might otherwise come within the costs and expenses clause of the memorandum of mortgage, the Court is satisfied that, as at the date of the hearing, the Ghougassians did not have a counter-claim, cross demand or set-off in respect of any of the proposed taxable items because, as submitted by counsel for the respondent, there is no evidence that the Ghougassians have paid any of the liabilities which they say they have incurred, save for an amount of $23,719.30 in respect of the eighth proposed taxable item. Further, and equally importantly, there is no evidence that the Ghougassians have made any demand on the School for payment of any of the proposed taxable items, as required by the words "the mortgagor will upon demand pay all costs and expenses, including costs as between solicitor and client, incurred by the mortgagee ... in any manner in reference to this security" (emphasis added) included in the costs and expenses clause. That is a necessary pre-requisite for establishing a set-off or cross-demand such as those claimed by the Ghougassians. 57 For completeness, the Court notes the following in relation to each of the proposed taxable items.

First proposed taxable item 58 The first item is said by Mr Balzola to be a claim for costs of Matthews Dooley & Gibson solicitors which he estimates to be $100,000. 59 The only evidence in support of this claim is exhibit RRB-5, which is a copy of a letter dated 5 July 2005 to the Ghougassians from Karen Do of Matthews Dooley & Gibson attaching the mortgage instrument and the deed of loan and noting that "this brings our involvement in the matter to an end". 60 In his affidavit, Mr Arnautovic accepted that this claim is for work done between March 2005 and July 2005 relating to the preparation of loan documents and the registration of the mortgage from the School to the Ghougassians in 2005. He notes (correctly) that there are no documents exhibited which, in any way, substantiate an estimate of $100,000. Mr Arnautovic says that Norwest Legal Services Inc trading as Matthews Dooley & Gibson lodged a proof of debt in the liquidation of the School in an amount of $7,566.57 and distributions were made on 23 March, 11 April and 23 August 2017 leaving a balance of $1,891.64. 61 Counsel for the Ghougassians submitted that Mr Arnautovic's evidence that distributions had been made to Matthews Dooley & Gibson should not be accepted because he was not the liquidator at the relevant time. When it was pointed out that the three distributions were made after Mr Arnautovic was appointed as the School's liquidator, counsel sought to challenge the evidence on the basis that he had not been the liquidator at the time the debt was incurred. That reasoning is plainly unsound and is not accepted. 62 The copy of the letter dated 5 July 2005 does not establish a prima facie basis for a set-off or cross-demand in an amount in the order of $100,000; it is not an invoice and the scope of work disclosed in the letter appears to be more consistent with the proof of debt lodged by Matthews Dooley & Gibson.

Second proposed taxable item 63 The second item is said by Mr Balzola to be a claim for $123,985.46 owing to Fraser Clancy Lawyers which was the subject of a proof of debt lodged with the liquidator and a claim "against our client" in the District Court of New South Wales by Fraser Clancy Lawyers. 64 Exhibit RRB-6 is a proof of debt lodged by Fraser Clancy Lawyers dated 1 July 2011. It relates to "legal services" subject to accounts addressed to the School and dated between 4 February 2010 and 1 July 2011 in connection with defence of a claim by the CBA and a dispute between the School and Nationwide Credit. The Court notes that the proof of debt indicates that the Ghougassians have given personal guarantees, copies of which are said to be attached, but they are not included in the exhibit. Nor is there any evidence of any District Court proceedings as mentioned in Mr Balzola's description of this proposed taxable item. 65 Mr Arnautovic's evidence is that Fraser Clancy Lawyers proof of debt was admitted for the full amount of $123,985.46. Distributions have been made during the period of Mr Arnautovic's role as liquidator, leaving a balance of $30,996.37. Mr Arnautovic says that a further proof of debt claiming $37,902.20 representing interest accruing between 22 June 2010 and 9 December 2016 was lodged. At the time of the hearing, it had not yet been admitted and Mr Arnautovic said that it would be paid after unsecured creditors have received 100 cents in the dollar. 66 Accepting Mr Arnautovic's evidence, and in light of the fact that the applicants did not seek to claim that they have a set-off or cross demand in relation to the amount for interest claimed in Fraser Clancy Lawyers' latest proof of debt which would indicate that no claim has been made on them for that amount, the most that the Ghougassians could be liable to pay Fraser Clancy Lawyers if the School fails to pay them is $30,996.37. However, it is clear from the proofs of debt that the Ghougassians have not paid Fraser Clancy Lawyers anything nor is there evidence that they have made any demand on the School with respect to amounts owing to Fraser Clancy Lawyers.

Third proposed taxable item 67 The third item is said by Mr Balzola to be a claim for $27,371.49 payable to Mahony Dominic Lawyers (aka Mahony Taren Lawyers) "for legal fees in relation to mortgage instrument". 68 Exhibit RRB-7 is correspondence between Mahony Taren Lawyers and Mr Balzola's firm acting on behalf of the Ghougassians. Included in the correspondence are six accounts dated between 13 December 2010 and 27 January 2011 issued by counsel to Mahony Dominic Lawyers or by Mahony Dominic Lawyers to the Ghougassians. 69 As noted by Mr Arnautovic, but not explained by the Ghougassians, the invoices appear to relate to proceedings brought by the Ghougassians against CBA in which they sought to enjoin the CBA from selling the property on which the School was located, among other things. 70 A copy of the "Standard Costs Agreement" dated 13 December 2010, between Mahony Taren Lawyers and the Ghougassians is included in exhibit RRB-7. Under the heading "Nature of the work" in clause 2, the following is said: The work we have been instructed to do is to act for you in relation to your dispute with the Commonwealth Bank and the liquidator of St Gregory's Armenian School. Under the heading "Estimate of costs" in clause 3 of annexure A to the Standard Costs Agreement, the following is said: It is not possible at this time to provide an accurate estimate of the total costs. Instead a range of estimates is provided: Stage 1: Instructions and investigation of the matter, briefing counsel and dealing with the liquidator and attempting to prevent the auction of the school's property. $15,000.00 (exclusive of GST) Stage 2: Negotiating with the liquidator to bring about a finalisation of the liquidator's accounts, including appropriate Court action $20,000.00 (exclusive of GST) Stage 3: Assisting with the new incorporation receiving surplus funds from the liquidation of St Gregorys $5,000.00 (exclusive of GST) Stage 4: All other further or ancillary matters as required - cannot estimate at the present time.

71 It is not possible to discern from the invoices issued by Mahony Taren Lawyers what the breakdown of costs is between each of the "stages" referred to above. . 72 Having regard to the decisions in the Justice White proceedings, legal costs of negotiation with the liquidator to bring about finalisation of the liquidator's accounts arguably falls within the costs and expenses clause, since that might have relevance to payment out of the amounts secured by the mortgage. 73 It is not clear that the action against the CBA falls into the same category. It is true that the words in the extract of the costs and expenses clause "the mortgagor will upon demand pay all costs and expenses, including costs as between solicitor and client, incurred by the mortgagee ... in any manner in reference to this security", are wide. However, it appears at least likely that the action related to the Ghougassians' desire to maintain the operation of the School rather than seeking to preserve their security in circumstances where the sale price of the land was much more than sufficient to cover both the CBA's loan and the amount secured by the Ghougassians' mortgage and stage 3 relates to the incorporation of a new entity to receive surplus funds upon the liquidation of the School. 74 There does not appear to be any basis to consider advice concerning the incorporation of a new company to receive surplus funds would be a cost and expense secured by the mortgage. It is clear from the letter dated 30 November 2012 from Mahony Taren Lawyers at [6] to Mr Balzola that at least some of the costs relate to that category of charge. 75 The Ghougassians have not established what the amount is that might properly be claimed from the School under the costs and expenses clause and it is not discernible from the face of the invoices.

Fourth proposed taxable item 76 The fourth item is said by Mr Balzola to be a claim for $9,012.45 said by Mr Balzola to be owing to Thompson Playford Cutler for "Solicitor's fees related to mortgage contract to defend that contract". 77 Exhibit RRB-8 contains a letter from Thomsons Lawyers (later known as Thomson Playford Cutler) addressed to Mr Ghougassian indicating that judgment was entered against the School on 3 September 2010 for $9,012.45. The subject line of the letter is "St Gregory's Armenian School" and the letter states that, until the amount is paid, the firm is entitled to retain all documents on its file until the judgment debt had been paid or suitable arrangements for payment had been made. There is nothing in Mr Balzola's affidavit or in any of the written or oral submissions on behalf of the Ghougassians which would explain why it might be thought that either of the Ghougassians has any liability for this amount. 78 It is Mr Arnautovic's evidence that, on 27 January 2011, Thomson Playford Cutler lodged a proof of debt in the liquidation of the School in an amount of $9,386.91, and it was admitted in full. After distributions have been made, the remaining balance of the claim is $2,346.73. 79 Mr Arnautovic noted that on 20 September 2017, Mr Ghougassian wrote an email to Thomson Playford Cutler (then known as Thomson Geer) which is set out in Exhibit SA-17 as follows: I attach for your reference an old invoice. We took action against the liquidator of the School and were granted indemnity. Therefore the liquidator has to pay all costs and expenses and your invoice is amongst them. I also believe you have put an application directly to the liquidator for payment, you may have already been paid. It is our duty to obtain funding for your invoice through the indemnity and not for you to be a creditor to the liquidator. Please assist with your present status on the situation. Michael Ghougassian. It appears that a lawyer at Thomson Geer Lawyers forwarded this email to Peter Hegarty of Hegarty Legal a few days later. 80 The invoice referred to in the email is not in evidence. On its face, this email suggests that the liquidator was ordered to indemnify Mr Ghougassian for this invoice but there is nothing in evidence that supports that claim. Mr Ghougassian's email casts doubt on the bona fides of the Ghougassians' claimed set-off or cross-demand on this account: it is difficult to see why Mr Ghougassian would object to a creditor of the School being paid in the liquidation of the School.

Fifth proposed taxable item 81 The fifth item is said by Mr Balzola to be a claim for fees payable to Argyle Lawyers for "Solicitor's fees related to mortgage contract as to final amount of $25,000 as agreed". 82 Exhibit RRB-9 contains correspondence between Mr Balzola and Argyle Lawyers attaching a number of documents in relation to "Matter 4000566: St Gregory's Armenian School CBA" and "Matter 4000636: General Business Advice". 83 The invoices are dated from July 2010 to March 2011 and appear to relate to legal advice received by the Ghougassians in respect of their dispute with the CBA and the liquidation generally. One of the invoices is addressed to Mr Ghougassian at St Gregory's Armenian School (invoice dated 27 July 2010). All others are addressed to Mr and Dr Ghougassian. Mr Balzola has not explained how he arrived at the figure of $25,000 , but an email from Argyle Lawyers to Mr Balzola dated 16 March 2011 would indicate that an aggregate amount of $12,081.63 was owing on accounts relating to the CBA proceedings and an aggregate amount of $13,125.24 was owing on account of "general business advice". The Ghougassians have not explained how the latter amount could be secured by the mortgage, nor is there any evidence of a demand having been made on the School for payment of Argyle Lawyers' accounts.

Sixth proposed taxable item 84 The sixth item is said by Mr Balzola to be a draft bill of costs prepared by him on behalf of Robert Balzola and Associates for an aggregate amount of $25,580.50. 85 Exhibit RRB-10 is the draft bill of costs which appears to make provision for a date in 2013 to be inserted. It recites the costs and expenses clause of the memorandum of mortgage and refers to clause 7 of the deed of loan. Item 3 indicates that costs claimed in the draft bill of costs cover the period of instruction to act on the Ghougassians' behalf in relation to recovery of monies advanced by them from on or about 21 January 2011 to on or about 21 April 2011 but it does not include costs incurred after on or about 21 April 2011 that were included in a separate bill of costs which was prepared pursuant to the Justice White costs order. Item 4 states that the work covered by the period of the bill of costs relates to: - The defence of an Interlocutory Process dated 18/10/10 in 2010/66795 that sought various orders including inter alia that the Respondent clients to that application each provide all property and books and records pertaining to the Mortgage, provided an account of the Mortgage and on any failure to comply to provide an executed discharge of Mortgage or alternatively that the Registrar in Equity execute a discharge of the Mortgage. - The defence of a second Interlocutory Process served in 2010/66795 dated 28/01/11 that sought various orders including inter-alia for contempt due to alleged failure to comply with various orders made in relation to the above first Interlocutory Process. - The defence of a Notice of Motion in 2011/00010869 dated 07/02/11 that sought a direction from the Court that funds of $7,667,728.53 paid into the Court be paid to Norwest Legal Services Pty Ltd t/as Matthews Dooley & Gibson in the sum of $24,249.40 with the balance to be paid to the liquidator. Due to the quantum of monies involved the orders sought in the Notice of Motion were opposed on the basis that the mortgagee clients were still to be paid their entitlement pursuant to the terms of Mortgage. 86 As this bill of costs is in draft, it is to be inferred that no demand has been made of the School for payment of these costs and no payment has been made by the Ghougassians in satisfaction of the bill of costs so as to establish a right of set-off, cross-demand or counterclaim in relation to the costs.

Seventh proposed taxable item 87 The seventh proposed item is said by Mr Balzola to be "John Punch-Bill for accounting fees dated 3 November 2012" for $15,000. 88 Exhibit RRB-11 is an invoice for $15,000 on the letterhead of John Punch F.C.A., chartered accountant, addressed to Mr Ghougassian. It is headed "Fee account - Re-Supreme Court order to produce documents" and Mr Punch said it related to services in complying with a Supreme Order for the production of all documents held for the eight years from 10 June 2004 to 30 June 2011 in relation to Nareg Internet Pty Ltd, Nareg Bookshop Pty Ltd and Nareg Limited. 89 The Ghougassians did not explain what Supreme Court proceedings this account relates to or how this account might relate to the mortgage so as to be claimable under the costs and expenses clause.

Eighth proposed taxable item 90 The eighth item is said by Mr Balzola to be for $33,440 payable to "S.Bruce Elliott & Co - as to accounting fees related to Mortgage Contract matter before White J" referred to in Mr Balzola's affidavit at [11(a)]. 91 Exhibit RRB-12 is an invoice dated 16 September 2011 and addressed to Mr Ghougassian at St Gregory's Armenian School. The exhibit includes a receipt for $23,719.30 paid on 30 April 2012 in relation to "Ghougassian, Ghougassian; Supreme Court Litigation". This would indicate that the fees have been paid to an amount of $23,719.30. It is not clear why this disbursement could not and should not have been claimed as a cost in the Justice White proceedings. That issue aside, prima facie, the Ghougassians would have the right to make a claim for $23,719.30 under the costs and expenses clause of the memorandum of mortgage for this expense as it appears to have related to the account which the Ghougassians were required to provide in the Justice White proceedings, but there is no evidence that they had made any demand on the School for payment at the time of the hearing.

Conclusion concerning claimed set-offs or counter-claims 92 For the reasons explained at [55]-[56] above, the Ghougassians have not established a prima facie case that the proposed taxable items were due and payable at the time of the hearing so that Dr Ghougassian is not entitled to a set-off, cross-demand or counterclaim in respect of the them. 93 As the Court has concluded that Dr Ghougassian is not the beneficiary of the Justice Black costs order, Dr Ghougassian has no basis for his claim to set-off on that account. 94 Even if Mr Ghougassian were to establish a right of set-off in respect of the 2017 judgment debt in the order of $130,000 by reference to the Justice Black costs order (having the effect of reducing the amount payable under the 2017 judgement debt), Dr Ghougassian has not established that he has a counter-claim, set-off or cross-demand equal to or greater than the 2017 judgment debt on which his bankruptcy notice was founded.

Mr Ghougassian's bankrutpcy notice and application to set it aside 95 The bankruptcy notice served on Mr Ghougassian (BN 216294) is for an amount of $341,480.19. The following information was in the covering letter from Mr Hegarty of Hegarty Legal at the time of service of the bankruptcy notice and the judgment/orders referred to were attached to the bankruptcy notice: Attached to the Bankruptcy Notice is a copy of the orders made on 26 February 2016 by His Honour Justice Black noting that Mr Sule Arnautovic replaced Mr Roderick Mackay Sutherland as Liquidator of St Gregory's Armenian School Inc (In Liquidation) (School). Accordingly, any judgments in favour of Mr Sutherland in his capacity as Liquidator of the School are now taken to be for the benefit of, and are enforceable by, Mr Arnautovic Re Harris Scarfe Ltd (in liq) (2006) 203 FLR 46; 24 ACLC 1,034; [2006] SASC 277 at [21] - [32] per Debelle J (affirmed on appeal). As such, the following judgment debts form the basis of the amount claimed by the judgment creditor in the Bankruptcy Notice 1. the judgment/order entered 5 August 2013 in Local Court of New South Wales Proceedings 2013/00237106 in the amount of $4,568 73 in favour of Roderick Mackay Sutherland; 2. the judgment/order entered 31 March 2014 in Supreme Court of New South Wales Proceedings 2014/00096265 in the amount of $195,553.50 in favour of Roderick Mackay Sutherland: and 3. the judgment/order entered 23 August 2017 in Supreme Court of New South Wales Proceedings 2017/237676 in the amount of $320,506.36 in favour of Sule Arnautovic in his capacity as Liquidator of St Gregory's Armenian School Inc (In Liquidation). We refer to the Liquidator's letter to you dated 20 September 2016, a copy of which is enclosed for your ease of reference. At part 5 of that letter, the Liquidator set out the calculation of your claim as an unsecured creditor of the School. By way of summary, the judgment debts and the offsets allocated to them are set out below Description Amount Judgment/Order entered 5 August 2013 $4,568.73 Judgment/Order entered 31 March 2014 $195,553.50 Assignment of amounts admitted to proof as unsecured creditor of the School by Daniel Ghougassian to Michael Ghougassian pursuant to Deed of Assignment dated 21 April 2014 ($118,808.64) Admitted to proof as unsecured creditor of School (20 September 2016) ($55,000.00) SUBTOTAL $26,313.59 Judgment/Order entered 23 August 2017 $320,506 36 Amount paid by Westpac Banking Corporation pursuant to a Garnishee Order for Debts ($5,339.76) SUBTOTAL $315,166.60 TOTAL AMOUNT OWING $341,480.19

For the avoidance of doubt, our client waives his right to enforce any outstanding judgment debts against you at the date of issue of the Bankruptcy Notice which are not included in the Bankruptcy Notice. 96 The judgment/order in proceedings 2013/00237106 entered on 5 August 2013 in the Local Court of New South Wales required the Ghougassians, Nareg Bookshop and Nareg Internet to pay Roderick Mackay Sutherland $4,568 73. It will be referred to in these reasons as the 2013 judgment debt. 97 The judgment/order in proceedings 2014/00096265 entered on 31 March 2014 in the NSWSC required Mr Ghougassian, Nareg Bookshop and Nareg Internet to pay Roderick Mackay $195,553.50. It will be referred to as the 2014 judgment debt. 98 Mr Ghougassian's bankruptcy notice refers to two proofs of debt (which were admitted in the liquidation of the School) which were assigned by Dr Ghougassian to Mr Ghougassian. The first is for $118,808.64, assigned on 21 April 2014 (the 2014 proof) and the second is for $55,000, assigned on 20 September 2016 (the 2016 proof). 99 Mr Ghougassian's amended application to set aside his bankruptcy notice is rather more complex in its presentation than Dr Ghougassian's. 100 The Court understands Mr Ghougassian's claimed set-offs to be: (1) The set-offs which are conceded by the respondent in Mr Ghougassian's bankruptcy notice, being $118,808.64 for the 2014 proof and $55,000 for the 2016 proof. (2) The mortgage costs claim for $359,389.90. (3) The claim for costs in respect of the Justice Black costs order estimated by Mr Balzola to be $130,157.18. 101 As the Court understands it, Mr Ghougassian's amended application to set aside his bankruptcy notice provides as follows: (1) Mr Ghougassian contends that debts should be set-off in the order of oldest to current debt. (2) He seeks "an order under s 41(6A)(b)" of the Bankruptcy Act setting aside the bankruptcy notice on the basis that the respondent acknowledges that the there is a full set off of the 2013 judgment debt and a partial set-off of the 2014 judgment debt and therefore the 2013 judgment debt was fully set off by the amount ($118,808.64) of the 2014 proofs which were assigned by Dr Ghougassian to Mr Ghougassian before the bankruptcy notice was issued. (3) He says that the 2013 judgment debt and the 2014 judgment debt include two other parties (Nareg Bookshop and Nareg Internet) which are not parties to these proceedings but who are jointly and severally liable for those debts. (4) The aggregate of the amount of the admitted proofs of debt assigned by Dr Ghougassian to Mr Ghougassian on 21 April 2014 ($118,808.64) and the amount of other admitted proofs of debt assigned by Dr Ghougassian to Mr Ghougassian on 20 September 2016 ($55,000) is $173,808.64. The total of the 2013 judgment debt and the 2014 judgment debt is $200,122.23, leaving a "net judgment debt" owing by Mr Ghougassian of $26,313.59. (5) He seeks an order under s 30(1)(b) of the Bankruptcy Act that the amount of $26,313.59 be payable by three instalments over three months. Mr Ghougassian says that then his bankruptcy notice should be set aside as there is a set-off and payment equal to the residue of the 2014 judgment debt. (6) He says that, in the interest of "efficiency, economy and justice", the 2013 judgment debt and the 2014 judgment debt should be dealt with separately from the 2017 judgment debt. He asks for an order that the applicants serve an itemised bill of costs on the respondent within 14 days of the order being made "in anticipation of assessment on the mortgage costs per decision of Justice White in the decision in Sutherland v Ghougassian (No 2) [2012] NSWSC 325 at [8] and [9] that 'In addition to all costs and expenses which the mortgagor may be liable at law or in equity to pay in respect of this security … the mortgagor will upon demand pay all costs and expenses, including costs as between solicitor and client, incurred by the mortgagee … in any manner in reference to this security' [White J at paragraph 8]". (7) He notes that the judgment creditor is the respondent in the proceedings to set aside Mr Ghougassian's bankruptcy notice and it is the respondent in the application commenced in the NSWSC (proceedings 190855/2015) under s 482 of the Corporations Act 2001 (Cth) to "terminate the insolvency and related matters" (s 482 application). 102 The orders sought by Mr Ghougassian in his application are: (1) An order extending time for compliance with the bankruptcy notice under s 41(6A)(b) of the Bankruptcy Act to a time to be determined by the Court. (2) An order under s 30(1)(b) of the Bankruptcy Act for payment of the sum of $26,313.59 by instalments and then to set aside the bankruptcy notice on the ground that there is a set-off and payment equal to the residue of the 2014 judgment debt. (3) An order under s 30(1)(b) of the Bankruptcy Act that "the applicants serve an itemised bill upon the respondent within 14 days from the date" of making that order "in anticipation of the assessment of the mortgage costs per the decision of White J" in Sutherland v Ghougassian (No 2). (4) An order under s 30(1)(b) of the Bankruptcy Act that Mr Ghougassian serve an itemised bill upon the respondent within 60 days of the date of the Court making that order in respect of the Justice Black costs order, which he describes as "25% of the costs attributable to costs responding to the Respondent's Cross Claim in that matter". (5) Costs.

Consideration of set-off claims 103 No authority was cited by Mr Ghougassian in support of the approach to set-off of the 2013 and 2014 judgment debts, including the making of an order for payment of the $26,313.59 by instalments contended for in his application. 104 There is no evidence that any payments were made to the respondent in relation to the "net judgment debt" of $26,313.59; there was sufficient time for that to have occurred before the hearing. No application was agitated for interim orders directing payment of that amount by instalments and there was no explanation of why the compulsion of a Court order might be required as a basis for the Ghougassians to make such payments. The Court does not accept that the suggested basis for set-off or separate treatment of the 2017 judgment debt is appropriate. 105 For the reasons given at [55]-[56] above, the Court does not accept that Mr Ghougassian has established that any set-off or cross-demand was available at the time of the hearing in relation to the proposed taxable items in the mortgage costs claim. Accordingly, no set off in the amount of $359,389.90 is available.

Justice Black costs order 106 In relation to the Justice Black costs order, the Court accepts that Mr Ghougassian and his wife have the benefit of Order 6 and the costs are to be assessed in accordance with Order 7 on the basis that 25% of preparation and hearing time are attributable to the cross-claim in those proceedings. 107 The Court does not accept the submission put by the respondent based on the High Court's decision Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; 234 CLR 52 at [25] that the Ghougassians could only establish the monetary value of the Justice Black costs order if it had been taxed or assessed. At [25], Gleeson CJ, Gummow, Hayne and Crennan JJ said: Before considering those submissions, several general propositions regarding an award of costs should be noted. … Further, although capable of estimation, the actual monetary value of an award of costs cannot be ascertained until those costs are taxed or otherwise assessed. As acknowledged by the respondent, that decision concerned s 82 of the Bankruptcy Act, not s 40(1)(g). 108 In this context, and having regard to the "unrestricted" nature of the term "cross-demand", conceptually, there is no reason why an untaxed costs order, which establishes an entitlement to costs, should be treated more stringently than a claim for unliquidated damages in tort or damages for breach of contract in respect of which it is only necessary for the debtor to quantify the claim in an amount of money which is equal to or greater than the claim in the bankruptcy notice: see Re Brink; ex parte Commercial Banking Company of Sydney Limited [1980] FCA 78, 44 FLR 135 at 138-139. 109 Accordingly, if Mr Ghougassian produced evidence which would have formed a reasonable basis for an estimate of costs, then that would have been sufficient to establish a prima facie case of set-off. However, the Court was not satisfied that he did. 110 Mr Balzola's affidavit at [13] sought to estimate the Justice Black costs order by dividing by four the aggregate amount of the judgment debts the subject of his bankruptcy notice ($520,628.59), resulting in an estimate of $130,157.18. That is not a rational basis for estimating the value of the Justice Black costs order. It would have been more rational (if still imperfect) if Mr Balzola had made his estimate on the basis of the 2017 Judgement Debt, as it was based on the respondent's taxed costs of those proceedings on the basis that 75% of the preparation and hearing time had related to the Ghougassian's application to set aside Mr Sutherland's rejection of their proofs of debt. However, that was not the basis proposed for the calculation of the value of the Justice Black costs order. 111 A period of almost two years elapsed between the time when the Justice Black costs order was made and the time Mr Balzola swore his affidavit in these proceedings. There is no reason why it should not have been possible for Mr Balzola to support his estimate by applying an appropriate discount to the aggregate amount of his own invoices for acting in the Justice Black proceedings and fee notes from counsel, none of which are in evidence. 112 The applicants sought to rely on a further affidavit sworn by Mr Balzola on the morning of the hearing seeking to put into evidence a draft bill of costs which he had caused to be prepared by a costs consultant in relation to the Justice Black costs order. Although the estimate based on the draft bill of costs was less than Mr Balzola's estimate at [13] of his affidavit, the Court refused leave to rely on it on the basis of the respondent's objection that the respondent had only been provided with one of two such affidavits (said to be in the same form) on the morning of the hearing and the applicants had previously failed to provide invoices relevant to that claim pursuant to notices to produce issued four months before the hearing. When counsel called for production at the hearing, the response was that there was nothing to produce.

Further grounds 113 The applicants relied on further grounds, most of which should have been pleaded but were not and some of which were raised in submissions which the Ghougassians did not have leave to make. However, given the nature of some of the claims and issues identified by the Court, the Court sought submissions in relation to: (1) Events since the hearing. (2) Whether the new liquidators wished to be joined as parties. They did not. (3) The significance, if any, of Emmett AJA dismissing the Ghougassians' application under s 482 of the Corporations Act for termination of the winding up of the School: see In the matter of St Gregory's Armenian School Inc: Ghougassian v Arnautovic in his capacity as Liquidator of St Gregory's Armenian School Inc [2018] NSWSC 1022. (4) In relation to the claim raised by counsel for the Ghougassians for the first time at the hearing that Mr Arnautovic was not the "judgment creditor" in relation to the debts which founded the bankruptcy notices, the relevance of the High Court's decision in Growden v Wiltshire (1935) 52 CLR 286 which the Ghougassians relied on for the first time, without leave, in the supplementary submissions. (5) The nature of the causes of action giving rise to the 2013 and 2014 judgment debts in light of the fact that the orders founding them are in Mr Sutherland's name without reference to his capacity as liquidator of the School. (6) The fact that the 2017 judgment debt arose out of proceedings taken by the Ghougassians against Mr Sutherland in his capacity as liquidator of the School in relation to his decision to reject proofs of debt lodged by the Ghougassians rather than proceedings brought by Mr Sutherland against them to get in property of the School. (7) What, if any, relevance r 39.1 of the Uniform Civil Procedure Rules 2005 (NSW) had in relation to the judgment debts having regard to the change of liquidator from Mr Sutherland to Mr Arnautovic. The Court invited submissions having regard to the Full Court's decision in McIntyre v Guy [1994] FCA 1009;51 FCR 472 and the discussion in Rookharp Pty Ltd v Webb [2011] FMCA 801 at [103]-[113]; cf Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18. The Court noted that these decisions deal with circumstances where the name of the person entitled to enforce the debt had changed by reason of assignment of the debt.

Rule 2.06 ground 114 In their revised outline of submissions, the Ghougassians noted that the grounds of opposition filed by the respondent were that the applications filed by the Ghougassians were "ambiguous and embarrassing and likely to cause prejudice and delay in the further conduct of the proceeding" and that the respondent sought an order directing the applicants to file and serve and amended application "in the proper form". The Ghougassians submitted that the notices of objection do not comply with r 2.06 of the Federal Court (Bankruptcy) Rules 2011 (Cth), and they gave notice that they objected to the affidavits filed in support by the respondent and sought an adjournment until the disputes the subject of their claimed set-offs and counterclaim could be resolved "by agreement or resolution", on the basis that the respondent owed them more than they owed him. At the hearing, they relied on Jones v Thomson [2017] FCA 125 at [66]-[68], [71] and [77]-[78] (Farrell J). 115 It is notable that the Ghougassians' list of authorities referred to eight authorities (not including the Justice White proceedings and the Justice Black proceedings) and Dal Pont's Law of Costs. Only two authorities had pinpoint references and there were no pin point references to the Law of Costs. Only one of the authorities (being Walton v Gardiner [1993] HCA 77) was referred to in the revised outline of submissions (and that in the paragraph included in the submissions and filed without leave on the afternoon before the hearing). While Jones v Thomson was in the list of authorities, there was no pinpoint reference and it was not referred to in the revised outline of submissions. That approach was not helpful to the efficient conduct of the matter. 116 In essence, the applicants' contention is that, although the respondent filed a notice of grounds of opposition in response to their applications to set aside the bankruptcy notices, the respondent did not file a further notice of grounds of opposition after the applications to set aside the bankruptcy notices were amended and the respondent confirmed that he no longer relies on the grounds set out in the notice which was filed. Counsel for the Ghougassians relied on remarks made in Jones v Thomson at [77]-[78] to support an argument that the course taken by the respondent resulted in a want of procedural fairness to the applicants, having regard to the significance of the grounds of opposition - since the respondent abandoned the grounds of opposition that they did file. Counsel for the applicants submitted that the applicants did not know the case on which the respondent relied. 117 Rule 2.06 of the Federal Court (Bankruptcy) Rules provides as follows: 2.06 Opposition to application, interim application or petition A person who intends to oppose an application (including an interim application) or a petition must, at least 3 days before the date fixed for the hearing of the application or petition or, with the leave of the Court, at the hearing: (a) file a notice of appearance in accordance with Form B4; and (b) file a notice in accordance with Form B5 stating the grounds of opposition; and (c) file an affidavit in support of the grounds of opposition; and (d) serve the notices and supporting affidavit on the applicant. 118 Jones v Thomson is not authority for the proposition that a further grounds of opposition must be filed following the filing of an amended application. In Jones v Thomson at [71], it was said that the obligation to file a notice of grounds of opposition at least three days before the application for hearing might not (if it is left that late) allow enough time for an applicant to address those grounds adequately and that it was open to the judge to make orders to ensure that the respondent's case is made known in sufficient time for the applicant to be able to address any issues raised in evidence and submissions at the hearing. 119 In this case, the respondent filed a notice of opposition long before the matter was set down for hearing and that was sufficient to comply with the rule, albeit that the notice of grounds of opposition did not reflect how his case was conducted at the hearing. On the same day as the notice of grounds of opposition were filed, Mr Hegarty sent a letter to Mr Balzola stating the respondent's issues with the applications. After the applicants filed their amended applications, Mr Arnautovic filed his affidavit. The Court is satisfied that Mr Hegarty's letter, Mr Arnautovic's affidavit and his submissions filed in the proceedings clearly disclosed the basis of his opposition to the applications in detail and the applicants had ample opportunity to address those issues in submissions and at the hearing. 120 It is notable that Mr Arnautovic's affidavit was filed on 17 November 2017, slightly after the time originally specified. That affidavit set out (at [31]-[45] ) detailed information in relation to the proposed taxable items and stated, at [19], that the Ghougassians had neither filed a bill of costs in relation to the Justice Black costs order nor taken any other steps to have those costs taxed. On 22 November 2017, by consent of the parties, the Court made orders extending the time for filing that affidavit to 17 November 2017 and stating that no further evidence was to be filed by either party without leave of the Court. The applicants did not seek leave to file further evidence responding to Mr Arnautovic's evidence until the day of the hearing and that was Mr Balzola's affidavit sworn on that day, relating to assessment of the Justice Black costs order. The applicants also did not seek to relist the matter for case management before the hearing on the basis that the respondent's case was not sufficiently disclosed to them, a course which was open to them at all times. 121 In the Court's view, there has been no failure to comply with r 2.06 of the Federal Court (Bankruptcy) Rules in this proceeding. If that view were wrong, as the Court is satisfied that the applicants have not suffered any procedural unfairness by reason that the respondent abandoned the grounds of opposition it did file, the Court is minded to dispense with compliance with that rule, a course open to it having regard to the terms of r 1.04(1)(a) of the Federal Court (Bankruptcy) Rules. Rule 1.04 provides as follows. 1.04 Application of these Rules and other Rules of the Court (1) Unless the Court otherwise orders: (a) these Rules apply to a proceeding in the Court to which the Bankruptcy Act applies; and (b) Part 14 applies to a proceeding in the Court under the Cross-Border Insolvency Act. (2) The other Rules of the Court apply, to the extent that they are relevant and not inconsistent with these Rules: (a) to a proceeding in the Court to which the Bankruptcy Act applies; and (b) to a proceeding in the Court under the Cross-Border Insolvency Act.

Contention that Mr Arnautovic was not the "judgment creditor" as required by s 40(1)(g) of the Bankruptcy Act 122 The appointment order under which Mr Arnautovic was said to have been appointed as liquidator of the School to replace Mr Sutherland provided as follows: Sule Arnautovic be appointed as official liquidator of St Gregory's Armenian School Inc (In Liquidation) ABN 18 283 910 231 and that this appointment take effect immediately upon Roderick Mackay Sutherland filing with the Registrar and the lodgement with the Australian Securities and Investments Commission of a memorandum of resignation within 3 business days of the date of this order in accordance with Rule 7.1 of the Supreme Court (Corporations) Rules 1999 (NSW). 123 Although, during his oral submissions, counsel for the Ghougassians mentioned the fact that there was no evidence of the filings referred to in the appointment order, the Ghougassians did not claim that Mr Arnautovic was not the liquidator of the School in their applications to set aside the bankruptcy notices or in their submissions. The Court does not understand that to be a new claim raised at the hearing. Indeed, in Mr Balzola's affidavit at [17] he states: The Judgment Creditor in all three Judgment Orders of 2013, 2014 and 2017 are the Respondent. 124 For the first time, in cross-examination of Mr Arnautovic, counsel for the Ghougassians sought to challenge Mr Arnautovic's credit on the basis that his evidence that he was the judgment creditor in relation to the judgment debts attached to the bankruptcy notices issued to the Ghougassians was not truthful. This challenge was continued in closing submissions on the basis of Rangiah J's decision in Anne v Ask Funding Ltd [2015] FCA 1111; 240 FCR 229 at [78]-[90]. 125 As noted above, the ground that the respondent was not the judgment creditor in the sense required by s 40(1)(g) of the Bankruptcy Act in respect of the 2013, 2014 and 2017 judgment debts was not raised in either of applicants' amended applications or in their revised outline of submissions filed before the hearing. Anne v Ask Funding Ltd was not referred to in the applicants' written submissions or their list of authorities. No leave was sought to rely on that ground at the hearing, although the issue was again raised in the supplementary submissions, without leave. Further, it might be inferred that the way it was raised - as an attack on Mr Arnautovic's credit - was ancillary to the abuse of process claim in respect of the s 482 application. The abuse of process claim was raised for the first time in the Ghougassians' revised outline of submissions which were filed the day before the hearing, without leave. There was no foundation established in the evidence for the attack made on Mr Arnautovic's credit, which was again repeated in the supplementary submissions in commentary on the alleged circumstances of Mr Arnautovic's retirement as liquidator and his motivation in causing the bankruptcy notices to be issued. The approach adopted by the Ghougassians to these (and other) matters was unfair to the respondent and inconsistent with the efficient disposition of this matter. 126 The authors of McDonald, Henry & Meek Australian Bankruptcy Law & Practice, McQuade P, Gronow M (ed) (Thomson Reuters, subscription service) at [40.1.195] (update 236) states that where a creditor is a company in liquidation, the bankruptcy notice should be issued in the name of the company, although it may require the debtor to pay or compound to the satisfaction of the liquidator. It goes on to refer to the High Court's decision in Growden v Wiltshire. 127 In the report of Growden v Wiltshire, the Commonwealth Law Reporter, H Dallas Wiseman, records that the official liquidator, Mr Wiltshire, took out a summons pursuant to s 179 of the Companies Act 1892 (SA) against Mr Growden and others. The order made by Piper J was that Mr Growden and others pay certain amounts to Mr Wiltshire as liquidator, for some of which he was solely liable and for others of which he was jointly and severally liable. Mr Growden failed to comply with the order within the 14 days period for payment and Mr Wiltshire applied for a bankruptcy notice to issue. It subsequently issued and Mr Wiltshire was described in it as the "official liquidator of Coo-ee Pictures Ltd". Mr Growden sought declarations that: (1) The notice was invalid on the ground that it was not issued "in the name of and on behalf of" the company, and it was therefore not a proceeding properly undertaken by the liquidator in accordance with s 117 of the Companies Act; and (2) The order made by Piper J was not a "final judgment or order" within the meaning of s 52(j) of the Bankruptcy Act 1924-1933. That application was dismissed on both grounds by Paine J. 128 Subsequently, a bankruptcy petition was also presented in the liquidator's name as official liquidator of Coo-ee Pictures Ltd. It was contended before the High Court that both the bankruptcy notice and the petition should have been issued in the name of the company in liquidation. As the judgments are brief, it is worth setting out in full the judgments of Rich, Starke and Dixon JJ with whom Evatt and McTiernan JJ agreed (emphasis added, footnotes deleted): Rich J. We think that the petition ought not to have been presented in the official liquidator's name, but that the irregularity should be met by amendment. The bankruptcy notice we think operated to found an act of bankruptcy. The matter should be remitted to the Bankruptcy Court for the purpose of amending the petition by substituting the name of the company for that of the official liquidator, and of making all consequential amendments. Otherwise the appeals will be dismissed. No order as to costs. Starke J. The bankruptcy notice is a sufficient compliance with the Bankruptcy Act, secs. 52 (j) and 53. But the Act requires that the petition for sequestration be presented by a creditor. The company in this case, and not the liquidator, is the creditor for that purpose. Dixon J. I agree. In substance I think the bankruptcy notice is sufficient. · In requiring payment to the official liquidator as the liquidator-of the company, it follows the order of the Supreme Court upon which it is founded. It is not wrong in calling upon the debtor to secure or compound for the sum ordered to be paid to the satisfaction of the official liquidator. It would have been open to little criticism in describing the counter-claim, set-off, or cross-demand by which the debtor might comply if it had called it a counter-claim, set-off; or cross-demand against the company and not against-the liquidator. But this is an irregularity which could not have caused any substantial injustice and ought not to invalidate the bankruptcy notice (sec. 7). The case is almost covered by In re De Murrietta; Ex parte South American and Mexican Co (1), except that there the petition needed no amending, because it was presented in the name of the company. It may be desirable to add that I do not disagree with the contention that sec.52(j) does not cover a liquidator and make him a creditor in respect of a judgment debt of the company. 129 Section 117 of the Companies Act 1892 (SA) was relevantly in the same form as s 477(2)(a) of the Corporations Act which provides that a liquidator of the company may "bring or defend any legal proceeding in the name and on behalf of the company". 130 Section 52 of the Bankruptcy Act 1924-1933 (Cth) relevantly provided as follows: 52 A debtor commits an act of bankruptcy in each of the following cases: … (j) If a creditor has obtained a final judgment or final order against him for any amount, and execution thereon not having been stayed, has served on him in Australia, or, by leave of the Court, elsewhere, a bankruptcy notice under this Act, and the debtor does not, within seven days or such time as is prescribed after service of the notice in Australia, or within the time limited in that behalf by the order giving leave to effect the service elsewhere; either comply with the requirements of the notice, or satisfy the Court that he has a counter-claim, set-off, or cross-demand which equals or exceeds the amount of the judgment debt, and which he could not set up in the action or proceeding in which the judgment or order was obtained: Any person who is for the time being entitled to enforce a final judgment or final order for the payment of money shall be deemed a creditor who has obtained a final judgment within the meaning of this paragraph. 131 Section 52 of the Bankruptcy Act 1923-1933 was therefore relevantly in the same form as ss 40(1)(g) and 40(3)(d) of the Bankruptcy Act. 132 Turning first to the 2013 and 2014 judgment debts. The submissions filed by the solicitors who have acted for Mr Arnautovic and the new liquidators of the School described the background to the 2013 and 2014 judgment debts as follows: In Supreme Court of NSW Proceedings No. 66795 of 2010, Mr Sutherland in his capacity as the Liquidator of the School was the subject of an application by Michael and Daniel Ghougassian for orders, inter alia, that Mr Sutherland be replaced as Liquidator and for leave to seek damages against the Liquidator. The application was dismissed by orders of Brereton J on 9 October 2012 and costs were ordered against Michael Ghougassian (see In the Matter of St Gregory's Armenian School (In Liq) [2012] NSWSC 1215). The quantum of the Liquidator's legal costs underwent the Court assessment process to an Appeal Panel, and on 21 February 2014 it was ordered that the Liquidator's costs be assessed at $195,553.50. On 31 March 2014, the Liquidator registered that assessment of costs as a judgment of the Supreme Court of NSW in Proceeding No 96265 of 2014, being the 2014 judgment debt referred to in your email. The costs of the cost assessment, being $4,568.73, were also registered by the Liquidator as a judgment of the Local Court of NSW in Proceedings No. 237106 of 2013, being the 2013 judgment debt referred to in your email. 133 The orders establishing the 2013 and 2014 judgment debts were issued in Mr Sutherland's name and Mr Ghougassian is jointly liable with Nareg Bookshop and Nareg Internet for those judgment debts. The fact that it is a liability shared with Nareg Bookshop and Nareg Internet (companies which the Court understands to be controlled by Mr Ghougassian) does not affect his liability for those debts. In the further supplementary submissions, counsel for Mr Ghougassian stated that the 2013 and 2014 judgment debts in favour of Mr Sutherland were in his own name, not that of "his alleged successors in title", noting that the respondent had not adduced evidence in relation to the discrepancy. That submission cannot be accepted. Given the nature of the proceedings, it cannot seriously be disputed that Mr Sutherland was a party to those proceedings in his capacity as liquidator of the School. The appointment order in relation to Mr Arnautovic is in evidence and a copy of it was attached to Mr Ghougassian's the bankruptcy notice. 134 Growden v Wiltshire is a case where the judgment debts were incurred in actions taken by the liquidator to recover debts owed to the insolvent company. It appears that each of the 2013 and 2014 (and the 2017 judgment debts) were incurred in proceedings brought by one or both of the Ghougassians against the liquidator as such. They were proceedings seeking Mr Sutherland's removal or seeking to set aside decisions taken by Mr Sutherland as liquidator in relation to proofs of debt lodged by the Ghougassians. The Court therefore accepts that in this case, the liquidator was the appropriate person to be named as the creditor and it was appropriate that payment be directed to Mr Arnautovic as the then liquidator having regard to the following matters: (1) Re Harris Scarfe Ltd (in liq) [2006] SASC 227; 203 FLR 46; 24 ACLC 1034 (Debelle J) at [32] is authority for the proposition that if the person holding office as liquidator is replaced by another, the person succeeding that office will be bound by and have the benefit of orders made before being appointed to that office. (2) Growden v Wiltshire supports the validity of the bankruptcy notices even if the School should have been named as the creditor in the notices, since the orders establishing both the 2013 and 2014 judgment debts required payment to be made to the then liquidator, Mr Arnautovic. (3) In Lewis v Nortex Pty Ltd (in liq) [2013] FCAFC 56 at [41], Dowsett J relied on Re a Debtor [1952] 1 Ch 192 at 193 as establishing that if a judgment or order directs payment of money to a liquidator in that capacity, any bankruptcy notice concerning the debt must demand payment to the liquidator in that capacity. That is consistent with s 41(2)(a)(i) of the Bankruptcy Act. (4) The Ghougassians could not have been misled as to the basis of Mr Arnautovic's identification as the person to whom payment should be directed because: (a) They had been the moving parties to the litigation against Mr Sutherland as liquidator resulting in the 2013 and 2014 judgment debts (and the 2017 judgment debt); (b) A copy of the appointment order was with the bankruptcy notices when they were issued along with (as appropriate) the 2013, 2014 and 2017 judgment/orders. Accordingly, neither of the bankruptcy notices should be set aside on that basis. 135 In oral submissions, counsel for the Ghougassians relied on Anne v Ask Funding Ltd. In that case, Rangiah J set aside a bankruptcy notice because only one of two judgment/orders on which the notice relied had accompanied the bankruptcy when it was issued by the Official Receiver. That was found to be a defect which could not be remedied even though the other judgment/order was attached by the solicitors for the creditor when the bankruptcy notice was served on the debtor. A further ground was that the debtor was not properly identified because variants of her name were used. The relevance of Anne v Ask Funding Ltd and [78]-[90] of that judgment (on which counsel relied) in particular to the issues in contention in these proceedings is not apparent. 136 An issue not raised by the Ghougassians but which emerged in consideration of the "creditor" issue is the relevance of r 39.1 of the Uniform Civil Procedure Rules 2005 (NSW) which provides as follows: 39.1 Circumstances in which issue of writ requires leave (cf SCR Part 44, rule 2) (1) A writ of execution may not be issued in the following circumstances except by leave of the court: (a) if there has been any change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise, … (2) If leave is required, it may be applied for in the notice of motion for the issue of the writ of execution. (3) The motion for leave must be supported by the following evidence: (a) evidence that the applicant is entitled to proceed to execution on the judgment, (b) evidence that the person against whom execution is sought to be issued is liable to execution on the judgment, (c) if the judgment is for the payment of money, evidence as to the amount due on the date of the motion, (d) if subrule (1)(a) applies, evidence as to the change which has taken place, … (4) Subrule (1) does not limit the operation of any other Act or law that requires leave for the issue of a writ of execution. 137 This raises the issue of whether the 2013 and 2014 judgment debts answer the description of "a judgment or order the execution of which has not been stayed", as required by s 40(1)(g) of the Bankruptcy Act, having regard to the fact that Mr Sutherland, not Mr Arnautovic, is named in those orders so that there has been a "change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise" within r 39.1 of the Uniform Civil Procedure Rules. 138 While, as submitted by the respondent, Mr Arnautovic was entitled to stand in the shoes of Mr Sutherland as liquidator of the School at the time the bankruptcy notices were issued having regard to the authority of Re Harris Scarfe Ltd (in liq) at [32], that does not answer the issue raised by r 39.1 of the Uniform Civil Procedure Rules and the decisions in McIntyre v Guy and Rookharp Pty Ltd v Webb. 139 In Rookharp Pty Ltd v Webb, Barnes FM (as Judge Barnes was then known) explained the relevance of r 39.1 of the Uniform Civil Procedure Rules and McIntyre v Guy (at [103]-[107]) as follows: 103. As the respondents submitted, in Re Richards; Ex parte Sommers (1947) 14 ABC 112 Clyne J distinguished the right to enforce a judgment from the right to issue a bankruptcy notice. The former is a pre-condition to the latter and as stated in McIntyre v Gye at 292: … a legal assignee must be in a position, at the time of the issue of the bankruptcy notice, to issue immediate execution upon the judgment. 104. A legal assignee of a debt based on a judgment of the District Court of New South Wales or, that for that matter, a person said to be entitled to execution under the judgment on the basis of an agreement such as that said to be constituted by the Deed, is not in a position to issue immediate execution, but needs leave of the court that gave the judgment. Rule 39.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides: 1) A writ of execution may not be issued in the following circumstances except by leave of the court: (a) if there has been any change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise, 105. In McIntyre their Honours said of the equivalent Supreme Court rule at 293: If a creditor who has taken a judgment debt as a legal assignee has not obtained the requisite leave, a bankruptcy notice cannot be issued at the instance of that assignee. 106. The applicant submitted that r.39.1 of the Uniform Civil Procedure Rules did not apply because there was no change in the persons entitled or liable to execution under the judgment because there was no assignment of the judgment debts in question either absolutely at law or alternatively in equity and no change in the ownership of the debt. Hence it was contended that the leave of the District Court would not be required and therefore that Rookharp at all times retained the ability to enforce judgment. 107. However r.39.1 also contemplates changes in "the persons entitled or liable to execution" brought about "otherwise" than by assignment. The applicant's contention is that the Deed did effect such a change as it meant that one of two joint creditors had a separate entitlement to enforce each judgment. Hence if such a "change" in entitlement was effected by the Deed, the leave requirement would still be applicable. On the applicant's contention there would have been a change in the persons entitled to execution under the judgment in that either one of the joint creditors would be so entitled notwithstanding that there was no assignment of the debt in law or in equity and no change in ownership. 140 While it is true that it is the capacity of liquidator which clothed Mr Sutherland and later Mr Arnautovic with the right to enforce the 2013 and 2014 judgment debts, the Court is not satisfied that the change in the identity of the liquidator does not fall within r 39.1 of the Uniform Civil Procedure Rules. Accordingly Mr Arnautovic was not in a position to issue execution upon those judgments/orders at the time the bankruptcy notices were issued; they were effectively stayed. 141 Albeit that both McIntyre v Guy and Rookharp Pty Ltd v Webb were cases dealing with assignments of debts, the language "any change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise" is very wide and in the Court's view, wide enough to encompass a change in the identity of the liquidator. The policy purpose for r 39.1 can be inferred: it puts the sheriff and the judgment debtor in a position to know with certainty the entitlement of a person to levy execution where the name of the person on the judgment/order is different from the name of the person seeking to enforce the judgment/order, however that circumstance arises. 142 As there is no evidence that Mr Arnautovic sought leave to execute the 2013 and 2014 judgment debts in lieu of Mr Sutherland, the Court is not satisfied that the judgment/orders giving rise to those debts have not, in effect, been stayed. 143 Turning now to the 2017 judgment debt, which was in Mr Arnautovic's name, counsel for the Ghougassians relied on the fact that, on 1 September 2016, the NSWSC issued a statement of reasons and certificates of determination dated 23 August 2016 with the "Costs Applicant" identified as "Roderick Mackay Sutherland trading as Jirsch Sutherland". That certificate was entered as a judgment of the NSWSC in an amount of $326,544.31 on 14 September 2016 and sealed on 28 September 2016 (case number 2016/276043). 144 Counsel for the Ghougassians pointed out that at the time the costs application was made. Mr Arnautovic was already the liquidator of the School, having replaced Mr Sutherland pursuant to the appointment order made by Black J on 16 February 2016. Counsel sought to establish that this constituted misleading conduct by Mr Arnautovic. It is plain from the orders made by Black J on 16 November 2015 that his Honour understood the capacity in which Mr Sutherland was a party to the proceedings: see [25] above. The Court does not accept that Mr Arnautovic sought to obtain an advantage to which he was not entitled by making the application for costs assessment in Mr Sutherland's name or in the subsequent correspondence which resulted in the order made on 23 August 2017 resulting in the 2017 judgment debt. 145 In their supplementary written submissions filed on 31 July 2019, the Ghougassians relied on the decision in Katter v Melhem [2015] NSWCA 213; 90 NSWLR 64 at [80] per Campbell AJA to submit that the NSWSC did not have jurisdiction to enter the order establishing the 2017 judgment debt on the basis that it was inconsistent with the order previously entered in Mr Sutherland's favour and there was no evidence of fraud or a statutory power authorising its entry. The Court notes that this submission was made without leave and Katter v Melhem had been decided long before the hearing of the applicants' applications so that it was open to the Ghougassians to have drawn it to the Court's attention when it raised the issue of whether Mr Arnautovic was a "judgment creditor" at the hearing and in the submissions filed before the hearing. 146 The submission must be rejected. Whether or not there was error in the decision to reissue the certificate in Mr Arnautovic's name as liquidator of the School or in the 2017 judgment debt being entered in that form on 23 August 2017, that order is an order for the payment of money made by a superior court of record. An order of a superior court of record, even if made in excess of jurisdiction, is, at worst, voidable, and is valid and binding unless and until it is set aside: see Francis v Eggleston Mitchell Lawyers Pty Ltd at [27] (Rares, Flick and Bromberg JJ) citing Cameron v Cole [1944] HCA 5; 68 CLR 571 at 590 (Rich J with whom Latham CJ agreed at 585, see also McTiernan J at 598, 599 and Williams J at 607); Re Macks; Ex parte Saint [2000] HCA 62; 204 CLR 158 (Gleeson CJ at [20]-[21], Gaudron J at 184 [49], 187 [57], McHugh J at 215-217 [152]-[156], and Gummow at [216]); D.M.W. v C.G.W. [1982] HCA 73; 151 CLR 491 at 507 (Mason, Murphy, Wilson, Brennan and Deane JJ). 147 Mr Ghougassian has not claimed that the bankruptcy notice overstates the amount owing to the respondent in any way that engages s 41(5) of the Bankruptcy Act. Accordingly, his bankruptcy notice remain validly issued insofar as it relies on the 2017 judgment debt. The same is true for the bankruptcy notice issued to Dr Ghougassian, to which the 2013 and 2014 judgment debts were not relevant. 148 Mr Ghougassian's bankruptcy notice concedes that he is entitled to set off the amount of the garnishment payment of $5,339.75 made by Westpac Banking Corporation as well as the 2014 and 2016 proofs of debt assigned to him by Dr Ghougassian in the amounts of $118,808.64 and $55,000 respectively. The aggregate amounts of the garnishment payment and the 2014 and 2016 proofs of debt does not equal or exceed the 2017 judgment debt.

Abuse of process 149 Although the fact that the Ghougassians had made an application to terminate the winding up of the School under s 482 of the Corporations Act was mentioned in his application to set aside his bankruptcy notice it did not state what significance the Court should attach to that fact. The s 482 application was not referred to at all in Dr Ghougassian's application to set aside his bankruptcy notice. Mr Balzola's affidavit stated at [18] that if, as a consequence of the bankruptcy notices, "an act of bankruptcy were made, [it] would impede the benefit of litigation presently before that Court". That was not a claim that Mr Arnautovic's application for the issue of the bankruptcy notices gave rise to an abuse of process. 150 On the day before the hearing, the applicants filed, without leave, their revised outline of submissions. The only revision was to include a paragraph [13] as follows: In relation to setting aside the bankruptcy notices the Applicants will further contend that in the circumstances, with the s 482 matter pending, as agreed in by and with the knowledge of both parties, the bankruptcy notices or their disposition prior to that matter are in substance an abuse of process because having regard to the delay in filing and serving the notices and the pendency of the s 482 application it should be inferred that a or the purpose of the notices was to frustrate or avert the s 482 application: Walton v Gardiner [1993] HCA 77; (1993) 177 CLR 378. Alternatively it is put, in support of the adjournment application, that in order to obviate such possible abuse the present matters should be stayed or adjourned until after the pending hearing and decision of Emmett AJA. 151 Unhelpfully, counsel for the Ghougassians did no more than use the name Walton v Gardiner in his submissions. The Court understands that case to be authority for the proposition that the grounds upon which a permanent stay may be granted are not limited to cases where the proceedings have been brought for an improper purpose or where there is no possibility of a tribunal affording the affected party a fair hearing. 152 The revised outline of submissions at [13] suggests that the basis of the abuse of process claim is delay in the issue of the bankruptcy notices, although in cross-examination of Mr Arnautovic, counsel for the Ghougassians put the proposition that the liquidator's resistance to the s 482 application was based on a desire to obtain more fees, which Mr Arnautovic denied. It is notable that both bankruptcy notices were issued within days after the order establishing the 2017 judgment debt was made. Dr Ghougassian's bankruptcy notice relies entirely on that debt. While the 2013 and 2014 judgment debts are older, there were off-setting claims against the School leaving a balance of only $26,313.59. It is difficult to see that there was relevant delay. 153 The Ghougassians also relied on the pendency of the s 482 application at the time the bankruptcy notices were issued. While there was no evidence of when the s 482 application was made to the NSWSC, it was submitted that the proceeding commenced in 2015 and would be heard two months after the hearing in this matter. The Court accepts Mr Arnautovic's explanation for the issue of the bankruptcy notices: that it was his duty as liquidator to get in the assets of the School. That was not an improper purpose. While it was open to Mr Arnautovic to delay causing the issue of the bankruptcy notices, the amounts of the judgment debts were substantial. In the event, the s 482 application was heard and dismissed while judgment in this matter was reserved (giving effect to the Ghougassians' application for an adjournment pending the outcome of those proceedings) so that these proceedings have had no impact on those proceedings: see In the matter of St Gregory's Armenian School Inc: Ghougassian v Arnautovic in his capacity as Liquidator of St Gregory's Armenian School Inc [2018] NSWSC 1022. 154 In closing submissions, counsel for Ghougassians submitted that the liquidator caused the issue of the bankruptcy notices without regard to their interest in the termination of the winding up. The "interest" was said not to be a financial interest, but rather in the community's interest in surplus funds being applied towards a new school (the land on which the school was built having been sold by the CBA to realise its security). While the "community interest" in the revival of the School might have been relevant to the s 482 application, it is difficult to see why it should prevent the School's liquidator from taking steps to get in costs orders in the liquidator's favour in the administration of the liquidation of the School. 155 Further, as submitted by counsel for the respondent, the Ghougassians' submission supposes that they do not pay the amounts claimed in the bankruptcy notices because the alleged abuse is predicated on them losing standing to bring the s 482 proceedings or to be appointed as an officer of the School upon termination of the winding up which will only arise if they are made bankrupt. It was, at all times from the issue of the bankruptcy notices to the time that the NSWSC made its decision in the s 482 application, open to the Ghougassians to pay the amounts claimed in the notices, or to prove their solvency on any petition for a sequestration order, so that standing in the s 482 proceedings would not be compromised. 156 The Court does not accept the submission made by counsel for the Ghougassians in the supplementary submissions (without leave), that the issue of the bankruptcy notices was, in context, simple debt collecting, nor would that be a basis for setting aside the bankruptcy notice in the absence of better evidence than that submitted by the Ghougassians. 157 In the Court's view, inadequate notice of this ground was given to the respondent because it was first enunciated as an abuse of process claim in the revised outline of submissions filed the day before the hearing without leave. That alone would be a reason to dismiss that ground. The Court is also satisfied that, as a matter of substance, that ground should be dismissed.

Challenge to extension of time 158 In the supplementary submissions, counsel for the Ghougassians submitted (for the first time and without leave) that the order extending time for compliance with Dr Ghougassian's bankruptcy notice was conditional on the notice being served on Dr Ghougassian by 31 August 2017. He submitted that the condition was not satisfied because it was not served until 14 September 2017 having regard to the evidence given in the affidavit of Morrie Michael Fahd that it was sent by post on 12 September 2017. In fact, the order made by Registrar Segal was as follows: Pursuant to subsection 41(6A) of the Bankruptcy Act 1966 and rule 3.03 of the Federal Court (Bankruptcy) Rules 2005, on condition that Bankruptcy Notice No. BN 216289 issued on 25 August 2017 was served on the Applicant on 12 September 2017, the time for compliance by the Applicant with the requirements of the Bankruptcy Notice is extended up to and including 11 October 2017. 159 The letter and bankruptcy notice were served on Dr Ghougassian by email on 12 September 2017 (affidavit of Nicola Katherine Gunn affirmed on 13 September 2017) and in person by prepaid post sent on the same date (affidavit of Rizza Charmaine Andrada affirmed on 13 September 2017 and the affidavit of Morrie Michael Fahd sworn on 20 September 2017). It is also recorded in the first paragraph of the application to set aside Dr Ghougassian's bankruptcy notice that the notice was served on him on 12 September 2017. 160 Not only was this ground raised without leave, it was plainly entirely misconceived.

Conclusion 161 The applications to set aside the bankruptcy notices should be dismissed with costs. 162 The Court considers it appropriate to make orders extending time for compliance with the notices for a period of seven days after judgment is delivered. I certify that the preceding one hundred and sixty-two (162) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.