In the matter of St Gregory's Armenian School Inc (in liquidation) [2011] NSWSC 936

Solicitors: Robert Balzola and Associates - Applicants Addisons - Respondents Maurice Blackburn Lawyers - Intervening Creditors File Number(s): 2010/66795

EX TEMPORE Judgment 1HIS HONOUR: St Gregory's Armenian School Inc (in liq) is an incorporated association which operated a school. I will refer to it as "the school". 2On 21 June 2010, at the instance of six unpaid members of its staff, the school was placed under a winding up order. Mr Roderick Mackay Sutherland was appointed liquidator ("the liquidator"). 3Those six and another four members of staff had, before the winding up, sued the school for their entitlements in the Chief Industrial Magistrate's Court. Each had obtained a final order there in amounts ranging from less than $2000 to over $56,000, amounting in total to some $267,000. No appeal has been brought against any of the orders and the liquidator does not intend to bring any. Indeed, somewhat remarkably given what is set out below, six of the ten orders were consented to on behalf of the school by Mr Michael Ghougassian, its then public officer. 4With respect to two of the claims (which were heard together), Mr Ghougassian notified the union representative for the staff members and the registry of the Chief Industrial Magistrate's Court that he was not intending to attend the hearings, and he did not do so. The remaining two claims (those of Gemma Landrigan and Coharik Karadanian) were unsuccessfully contested by the school. Mr Ghougassian appeared for the school. The judgment of the learned Magistrate is in evidence. 5In none of the claims did the school put in contest that the employment of each claimant was governed by the provisions of the Teachers (Catholic Independent Schools) (State) Award 2006 ("the Award"). Even more so, in the contested claims, the learned Magistrate records at para 11 of his judgment that this was the agreed position between all parties. 6There is apparently a doctrinal dispute within the Armenian community, amongst others, about whether the school was a Roman Catholic institution. Mr Ghougassian and Dr Daniel Ghougassian (who claims to have been the chairman of the school) (collectively "the Ghougassians") were proponents of the school's opposition to the winding up and they undoubtedly remain aggrieved by that event. They are also proponents of the position that the school was not a Roman Catholic institution. 7After the winding up order, the Commonwealth Bank, which held a mortgage over the school premises, proceeded to sell them, yielding a cash sum of over $7M, which was paid into Court. Subsequently, the Court ordered that $4,600,000 of it be released to the liquidator. Over $3M remains in Court. 8Each claimant has lodged a proof of debt in the winding up for the judgment amount. The liquidator has yet to adjudicate upon the proofs but has indicated that he intends to accept them, and to pay them to the extent that they are priority debts and claims under s 556(1) of the Corporations Act 2001 (Cth) ("the Corporations Act"). 9The Ghougassians have themselves foreshadowed an intention to lodge proofs of debt on the basis that they are secured creditors of the school. They have not yet done so. The liquidator accepts that they are creditors for between $1 and $1M and that their debt is secured by mortgage. A contested accounting, which will determine these issues, has taken place before White J. His Honour has reserved judgment. 10It may well be that once all debts and liabilities of the school have been satisfied there will be a surplus for distribution. 11Section 53 of the Associations Incorporation Act 1984 (NSW) provided as follows: 53 Distribution of surplus property (1) In this section, a reference to the surplus property of an incorporated association is a reference to that property of the association remaining after satisfaction of the debts and liabilities of the association and the costs, charges and expenses of the winding up of the association. (2) In a winding up of an incorporated association, the surplus property of the association is to be distributed in accordance with a special resolution of the association. (2A) Any such distribution of surplus property: (a) must be approved by the Director-General, and (b) is not to be made to any member or former member of the association, or to any person to be held on trust for any member or former member of the association, unless the member or former member is an association (whether incorporated or unincorporated) that, at the time of the distribution, has rules preventing the distribution of property to its members, and (c) is subject to any trust affecting that property or any part of it. (2B) Surplus property or any part of it that consists of property supplied by a government department or public authority, including any unexpended portion of a grant, must be returned to the department or authority that supplied it or to a body nominated by the department or authority. (3) A person aggrieved by the operation of this section in relation to the surplus property of an incorporated association may apply to the Court which may make such orders as to the disposal of the surplus property as to the Court appears just. 12That Act was repealed by the Associations Incorporation Act 2009 (NSW). Section 65 of the latter Act is in effect the equivalent of s 53 of the earlier one. The parties conducted the proceedings on the basis that the earlier Act applies. There is no material difference between the two enactments for present purposes. I will refer to the earlier Act as "the Act". 13Section 23 of the Supreme Court Act 1970 (NSW) provides as follows: The Court shall have all jurisdiction which may be necessary for the administration of justice in New South Wales. 14By Amended Interlocutory Process, the Ghougassians seek orders restraining the liquidator from making any payments to the claimants. The claimants were represented at the hearing. 15The Ghougassians put that they are each a person aggrieved by the operation of s 53 of the Act in relation to surplus property of the school and that the orders they seek should be made pursuant to s 53(3). In the alternative, they put that the orders should be made under s 23 of the Supreme Court Act 1970 (NSW) or by the Court exercising its inherent jurisdiction. 16The substantive source of their grievance is apparently that they wish that the funds held by the liquidator be used for the establishment of a new school, rather than for the payment of the claimants. In support of this, they say that on 1 April 2011 (that is after the winding up order) the members of the school so resolved. This self-evidently cannot give rise to a juridically cognisable grievance. However, I accept that if there were a legitimate complaint with respect to the liquidator's intention to make payments to the claimants, the status of the Ghougassians as creditors of the school would give them standing. 17I should record that at the end of final submissions, the Ghougassians moved to amend their interlocutory process to claim interim relief pending finalisation of the accounting. Leaving aside the fact that the other parties had not been given previous notice of this application, I refused the application because in my view the accounting will have no effect on the present proceedings and an interim injunction could not properly be made pending the outcome of it. 18A number of patently untenable propositions put on behalf of the Ghougassians in support of their position were, after some debate, properly abandoned. Ultimately they restricted themselves to the proposition that the liquidator should be restrained because the judgments obtained in the Chief Industrial Magistrate's Court were void because that Court had no jurisdiction to entertain the claims. 19There are a number of insuperable difficulties standing in the way of the orders sought. 20In my view s 53(3) of the Act has no application to the present case. The section is concerned with how a surplus has, or is, to be dealt with. The section operates in relation to a surplus and presupposes the existence of one. The present case involves an attempt to restrain discharge of liabilities. Section 53(3) is an inapposite vehicle for the determination of whether there is a surplus at all. Other statutory mechanisms, if employed, will lead to that determination, such as those relating to proofs of debt and realisation of property. One such relevant mechanism is s 1321(1) of the Corporations Act (which applies to the school by virtue of s 51(3) of the Act). The section gives a right of appeal against an act, omission or decision of a liquidator. The Ghougassians have not invoked any such provision. They have identified no basis for the intervention of the Court either at law or in Equity or pursuant to s 23 of the Supreme Court Act 1970 (NSW). 21The orders in favour of the claimants were made pursuant to s 366 of the Industrial Relations Act 1996 (NSW) which confers upon the Industrial Magistrate's Court jurisdiction to order an employer to pay an amount payable to a person under a contract of employment where there is an industrial instrument that fixes the minimum rate or amount of remuneration for the work done under the contract. 22The Ghougassians submitted that no award applied in the present case. 23Paragraph 22 of the Award provides relevantly that: The award applies to all teachers and teacher librarians employed in any recognised Catholic school or special school registered under the provisions of the Education Act 1990 including the following: ... St Gregory's Armenian College, Rouse Hill ... and excluding Catholic schools operated by the Archdioceses of Canberra-Goulburn or Sydney ... 24The Ghougassians put that the Award did not apply to the claimants, firstly, because the reference to "St Gregory's Armenian College, Rouse Hill" is not a reference to the school, and secondly, because (even if it is) the school would still not have been covered as it is not a "recognised Catholic school" within the meaning of the Award. In support of the latter proposition they relied on an affidavit by their solicitor, Mr Robert Balzola, who expresses the opinion that according to Canon Law the school is not a Roman Catholic institution. 25These submissions are unsustainable. 26Firstly, I am satisfied that the reference to St Gregory's Armenian College, Rouse Hill, in the Award is indeed a reference to the school. Documents in evidence emanating from the school reflect its address variously as Lot 1, Mungerie Road, Rouse Hill and 20 Mungerie Road, Beaumont Hills, New South Wales. The evidence establishes that there was no St Gregory's Armenian School or College in either of those areas, except the school. 27Secondly, the Award is a statutory instrument which applies in terms to the school and is valid as a statutory instrument in this State. Neither the Ghougassians nor the school put the application of the Award in issue in the Chief Industrial Magistrate's Court. Indeed, consent orders were made on the basis that it applied. That either in the view of Mr Balzola, or otherwise, the school is not a Roman Catholic institution according to Canon Law is irrelevant. 28Finally, and perhaps most importantly, no basis has been shown which would warrant any conclusion other than that the learned Magistrate acted within jurisdiction and correctly in giving the judgments which he gave. 29It may be accepted that in particular circumstances a collateral attack on a judgment would be open, but the Ghougassians have fallen well short of making out any such challenge. 30In my view the liquidator is bound by judgments against the school in favour of the claimants, with the consequence that each is a creditor. Not only should the relief sought be refused, I consider it apt to say that the liquidator would be justified in paying each of the staff members the amount to which he or she is entitled to receive by way of a priority payment pursuant to s 556(1) of the Corporations Act. 31Counsel for the Ghougassians put that, notwithstanding that they had failed, the parties should pay their own costs, on the basis that the liquidator has benefited. Far from benefiting, in my view, the other parties to these proceedings have been put to needless expense and delay. 32The result is that the Amended Interlocutory Process is dismissed with costs.