Lo Pilato (Trustee), in the matter of Ghougassian (Bankrupt) v Ghougassian

Federal Court of Australia|2022-09-20|Before: Mr P, Markovic J

The applicant's amended summons filed on 6 August 2021 be heard and determined prior to the hearing of the first and second respondents' amended cross-claim filed on 27 April 2022.
The first and second respondents pay the applicant's costs of his interlocutory application filed on 8 June 2022.
The proceeding be listed for case management hearing on 4 October 2022 at 9.30 am AEDT. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MARKOVIC J: 1 On 27 August 2020 this Court made sequestration orders under the Bankruptcy Act 1966 (Cth) against the estates of each of Daniel Ghougassian and Michael Ghougassian (who, without meaning any disrespect, and for ease, I will refer to as Daniel and Michael respectively). Daniel and Michael are brothers. 2 At the time the sequestration orders were made, David John Kerr was appointed as trustee of their estates (Trustee). Pursuant to orders made by this Court, on and from 20 June 2022 Frank Lo Pilato, a partner of Mr Kerr, replaced Mr Kerr as Trustee of each of Daniel's and Michael's bankrupt estates. 3 At the time of their respective bankruptcies: (1) Michael was the registered proprietor as a joint tenant with his wife, Katrin Ghougassian (who for ease, and without meaning any disrespect, I will refer to as Katrin), of a property located at 16-18 Mungerie Road, Beaumont Hills NSW 2155 (Joint Property); and (2) Daniel was the registered proprietor of a property located at 4 Kira Avenue, Northmead NSW 2152 (Daniel's Property). Pursuant to s 58 of the Bankruptcy Act Michael's interest in the Joint Property and Daniel's interest in Daniel's Property have vested in equity in the Trustee. 4 Daniel and Michael have been embroiled in litigation for a decade or so, initially, in relation to issues arising in the liquidation of St Gregory's Armenian School Inc (in liquidation) and, more recently, in relation to their respective bankruptcies. The present proceedings concern their bankruptcies. 5 More particularly, on 5 August 2021 the Trustee commenced two proceedings in the Supreme Court of New South Wales, one naming Daniel as defendant and the second naming Michael and Katrin as defendants. On 6 August 2021 the Trustee filed an amended summons in each of those proceedings. In the amended summons the Trustee seeks to formalise by declaration that, in Daniel's case, Daniel's Property and, in Michael's case, Michael's share in the Joint Property, have vested in the Trustee pursuant to s 58 of the Bankruptcy Act and seeks orders for possession of the relevant property. In addition, in the proceeding concerning the Joint Property, the Trustee seeks orders pursuant to s 66G of the Conveyancing Act 1919 (NSW) for the appointment of statutory trustees for sale. 6 On 1 September 2021, each of Daniel, on the one hand, and Michael and Katrin, on the other, filed a cross summons in the proceeding commenced by the Trustee. Those cross summonses were substantially the same. 7 On 19 November 2021 the Supreme Court made orders pursuant to s 6(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) transferring the two proceedings commenced by the Trustee, including the cross summons filed in each proceeding, to this Court. 8 On 27 April 2022 each of Daniel and Michael and Katrin filed an amended notice of cross-summons and points of claim in the proceeding commenced by the Trustee against them. On 2 May 2022 Daniel filed a further amended document which is (unhelpfully) also called an amended notice of cross-summons. I will refer to Michael and Katrin's amended notice of cross-summons filed on 27 April 2022 and Daniel's amended notice of cross-summons filed on 2 May 2022 collectively as the cross-claims. As became apparent in the course of argument, save in one respect which is not apparent on the pleadings as drafted but which arises out of the fact that the Joint Property is jointly held by Michael and Katrin, once again the cross-claims and points of claim are substantially the same. 9 On 8 June 2022 the Trustee filed an interlocutory application in each proceeding seeking an order that in each case his amended summons dated 6 August 2021 be heard and determined prior to Daniel's and Michael and Katrin's cross-claims. It is those interlocutory applications which are now before me for determination.

BACKGROUND 10 There was a significant amount of evidence before me on the applications. However, the salient facts against which they are to be determined, beyond those referred to above, can be briefly summarised.

Daniel 11 Daniel's Property is subject to a mortgage to Westpac Banking Corporation. As at 19 June 2019 and 18 March 2022 respectively the amount outstanding to Westpac was $396,574.44 and $451,247.62. It is apparent from the statements of account in evidence before me that in the periods 19 June 2019 to 19 June 2020 and 17 December 2021 to 18 March 2022, interest accrued on the loan secured by way of the mortgage over Daniel's Property but no payments were made.

Michael and Katrin 12 The Joint Property is subject to a mortgage to Permanent Custodians Ltd which secures a loan from ING, referred to as "Better Choice". Michael explained that there is an equity line of credit to the value of $500,000 in place secured by the mortgage which is serviced by his three adult children who live in the Joint Property, where he also lives. 13 Katrin gave evidence to the effect that she has, over the life of the mortgage, made substantial contributions to payment of the mortgage and that she is presently compiling financial data in order to provide evidence of the amount she has contributed. 14 As at 16 May 2022, the amount outstanding to ING secured by the mortgage over the Joint Property was $431,719.27. 15 On or about 5 November 2020 Michael lodged his statement of affairs with the Australian Financial Security Authority (AFSA). 16 By letter dated 9 November 2020 AFSA informed Michael that it was unable to process the statement of affairs because it was not complete and not signed or dated by Michael. In its letter AFSA set out the steps which Michael needed to take in order to complete his statement of affairs. As at the date of the hearing of the Trustee's applications Michael had not taken the requisite steps to comply with AFSA's requirements and had not lodged a completed and signed statement of affairs with AFSA. The effect of Michael's failure to lodge his completed statement of affairs is that, for the purposes of s 149 of the Bankruptcy Act, his period of bankruptcy has not commenced to run.

Correspondence between the Trustee and Daniel, Michael and Katrin 17 By letter dated 10 December 2020 from Matthews Folbigg, solicitors for the Trustee, to Robert Balzola & Associates, solicitors for Daniel and Michael, the Trustee advised, among other things, that: (1) on and from the date of their respective bankruptcies, Daniel's whole share interest in Daniel's Property and Michael's half share interest in the Joint Property vested in the Trustee pursuant to s 58 of the Bankruptcy Act; (2) the Trustee wished to realise Daniel's Property and the Joint Property for the benefit of creditors of Daniel and Michael's respective estates; and (3) Daniel and Michael were invited to make an offer, or facilitate the making of an offer by a third party, to purchase either or both of the properties. 18 By letter dated 29 March 2021 Matthews Folbigg informed Robert Balzola that the Trustees had not received any proposals or offers in relation to the properties and would thus be taking steps to obtain possession of the properties in order to proceed to market and sell them for the benefit of creditors in the estates of Daniel and Michael. At the time the Trustee also noted that he would entertain any offers made while taking steps to realise the properties. 19 By letter dated 29 March 2021 the Trustee informed Katrin that, as a result of Michael's bankruptcy, her joint tenancy with Michael of the Joint Property had been "severed", Michael's interest in the Joint Property had vested in the Trustee and that the Trustee and Katrin "therefore own the [Joint Property] as tenants in common in equal shares". The Trustee also invited Katrin to provide details of any claims against the Joint Property of which she was aware and a current loan account statement in relation to the loan secured by mortgage over the Joint Property and to indicate if she wished to make an offer to purchase Michael's interest in the Joint Property. 20 By letter dated 26 April 2021, in response to a request made by Mr Balzola in a telephone conversation, Matthews Folbigg provided Robert Balzola with "annulment figures" based on s 153A of the Bankruptcy Act so that Daniel and Michael could "consider providing a proposal so they may be released from bankruptcy". Among other things, the Trustee noted that he would be continuing to take possession of Daniel's Property and the Joint Property and that if: (1) vacant possession of Daniel's Property was not provided by 3 May 2021, he would commence a proceeding to seek orders for vacant possession; and (2) if an offer to purchase Michael's interest in the Joint Property was not received by 3 May 2021, he would commence a proceeding to seek orders for the appointment of trustees for sale. 21 On 28 April 2021 Matthews Folbigg once again invited Katrin to make any offer to purchase Michael's interest in the Joint Property, or alternatively, to confirm her agreement to sell the Joint Property together with the Trustee with the net proceeds of sale to be distributed equally between the Trustee and Katrin. The Trustee concluded his letter by notifying Katrin that: In the event that a suitable proposal is not provided by 5 May 2021, or any such proposal is not acceptable to the Trustee, the Trustee will immediately commence proceedings to obtain orders for the Property to be sold (which will seek an order for you to provide vacant possession of the Property). 22 On 4 May 2021 Matthews Folbigg informed Robert Balzola, among other things, that as no offer had been made to purchase Daniel's Property or Michael's interest in Michael's Property and no proposal had been made for an annulment of Daniel's and Michael's bankruptcies, the "Trustee will be taking steps to commence proceedings in regard to [Daniel's Property] and the [Joint Property] as previously noted". 23 By letter dated 5 May 2021 Robert Balzola responded to Matthews Folbigg's letter referred to in the preceding paragraph. Robert Balzola set out, among other things, the current amounts owed by each of Daniel, on the one hand, and Michael and Katrin, on the other, which were secured by way of mortgage over Daniel's Property and the Joint Property respectively. Robert Balzola requested that "in the interests of preservation of trust assets the Trustee consent to the refinancing of the two existing encumbrance loans with a new loan at a substantively lower rate, subject to the Trustee's examination and prior approval". 24 By letter dated 21 May 2021 Matthews Folbigg responded to Robert Balzola's letter dated 5 May 2021 noting, among other things, that the Trustee did not consider that it was part of his duties under the Bankruptcy Act to personally borrow monies and refinance a secured creditor and in any event he did not consider it appropriate to do so in the present matter. Matthews Folbigg went on to indicate that the Trustee was in the process of taking steps to realise Daniel's Property and the Joint Property and that, upon sale of those properties, secured creditors would be paid out from the proceeds of sale. The letter concluded as follows: 22. Thank you for the materials provided with your letter in relation to amounts said to be outstanding to the Bankrupts by the Liquidators of St Gregory's Armenian School Inc (in Liquidation) ("the Association"). 23. We will respond to your clients' claims regarding amounts said to be owed by the Liquidators and/or the Association in a separate letter shortly. 24. However, we note that having regard to those matters, the Trustee remains of the view that it is both necessary and appropriate to proceed with the realisation of [Daniel's Property] and the [Joint Property] in the interests of creditors of the Bankrupts' estates.

THE AMENDED SUMMONSES AND THE CROSS-CLAIMS 25 As set out at [5] above, in the amended summonses the Trustee, in effect, seeks: (1) declarations that: (a) in the case of Daniel, Daniel's Property is vested in the Trustee pursuant to s 58 of the Bankruptcy Act; and (b) in the case of Michael, Michael's one half interest in the Joint Property is vested in the Trustee pursuant to s 58 of the Bankruptcy Act; and (2) orders that Daniel, in the case of Daniel's Property, and Michael and Katrin, in the case of the Joint Property, deliver up vacant possession of those properties and, because the Joint Property is held jointly by Michael and Katrin, an order pursuant to s 66G of the Conveyancing Act for the appointment of trustees for the sale of that property. 26 The Trustee has filed affidavits sworn by Mr Kerr, now the former Trustee, in support of the relief sought in the amended summonses. Counsel appearing for the Trustee informed the Court that the Trustee is ready to proceed to a hearing of his amended summons in each case. 27 No defences have been filed in response to the amended summonses. That is probably explained by the fact that the proceedings were commenced by way of summons. However, Daniel and Michael have recently filed affidavits in response to the relief sought. In addition, as set out above, Daniel, on the one hand, and Michael and Katrin, on the other, have each filed a cross-claim and points of claim in support of those cross-claims. 28 Putting to one side minor differences in expression, the relief sought by Daniel and Michael and Katrin in their respective cross-claims is largely identical. By reference to the cross-claim filed by Daniel, the relief sought is as follows (as written): 1. Declaration voiding and setting aside or striking out the Affidavit of Fitness of Trustee (David Kerr) of Mark Petrucco sworn 4 August 2021. 2. Declaration voiding and setting aside or striking out the Affidavit of Fitness of Trustee (Richard Stone) of Mark Petrucco sworn 3 August 2021. 3. Order staying proceedings upon Summons pending determination of setting aside affidavits referred in [1] and [2] above. 4. Order under Insolvency Practice Rules (Bankruptcy) 2016 ['Rules'] rule 42-20 the Trustee notify the creditors and any other prescribed person of conflict or potential conflict of interest of solicitors acting for the Trustee of conflict of Mark Petrucco, Director Matthews Folbigg. 5. Order for Mandamus under s.19(1)(b) Bankruptcy Act 1966 and AFSA Inspector-General Practice Direction 14 clause 2.10 to determine whether the estate includes other property that can be realised to pay a dividend. 6. Order for taking of accounts to determine the net value of the judgment debt and other debts the subject of the Summons. 7. Order staying proceedings upon the Summons pending determination of criminal conduct and trustee breaches of former Liquidators of St Gregory's Armenian School Inc. (in liq.) as to bona fides of judgment debt. 8. Order under Rules 42-20 to realise assets including cross claimed monies owed to Michael Ghougassian by the judgment creditor John McInerney and Phillip Campbell-Wilson in their capacities as liquidators of St Gregory's Armenian School Inc. (in liq.) 9. Other orders as to accounts and equitable compensation that this Court thinks fit. 29 The points of claim filed in support of the cross-claims by each of Daniel and Michael and Katrin (who I will refer to collectively as respondents) are also largely identical. In those points of claim the respondents set out the basis upon which they seek the orders in the cross-claims. To the extent necessary I address the matters raised by way of pleading below. 30 The evidence before me demonstrated that the cross-claims are not ready to proceed to hearing. In a letter dated 27 April 2022, Robert Balzola informed Matthews Folbigg that: each cross-claim was "at the initial pleading stage" and that his clients intended to have at least one subpoena issued (it was common ground this had not yet occurred); his clients' evidence in chief on each cross-claim is dependent upon the material to be produced in answer to the proposed subpoena; the estimate of the preparation of that evidence was, at the time of despatch of the letter, one month "subject to size and complexity of the materials" yet to be produced; and at that stage, any potential interlocutory matters to be determined in the course of preparation of the cross-claims for hearing could not be anticipated.

LEGISLATIVE FRAMEWORK AND APPLICABLE PRINCIPLES 31 Part 15 of the Federal Court Rules 2011 (Cth) concerns cross-claims and third party claims. Rules 15.10, 15.11 and 15.13 relevantly provide that: 15.10 Conduct of proceeding after cross-claim is filed (1) To the extent practicable and not inconsistent with this Part: (a) the parties must conduct a cross-claim in the same way as the principal proceeding; and (b) these Rules apply to the cross-claim in the same way as they apply to the principal proceeding; and (c) the trial or a hearing, or any other step, in relation to the cross-claim is to be carried out at the same time as the trial or hearing, or any other step, in relation to the originating application. (2) For the purpose of giving effect to this rule: (a) a cross-claimant is to be treated as an applicant; and (b) a cross-respondent is to be treated as a respondent. 15.11 Separate proceeding in relation to cross-claim A cross-claim may proceed even if: (a) an order has been made and entered in the principal proceeding or any other cross-claim in the proceeding; or (b) the principal proceeding or any other cross-claim has been stayed, dismissed or discontinued. 15.13 Hearings in relation to cross-claims A party to a cross-claim may apply to the Court for an order: (a) that any claim, question or issue arising in the cross-claim be tried in accordance with an order of the Court; or … (e) for the hearing and determination of the principal proceeding and the cross-claim; or 32 Rule 30.01 of the Rules provides that: (1) A party may apply to the Court for an order that a question arising in the proceeding be heard separately from any other questions. (2) The application must be made before a date is fixed for trial of the proceeding. 33 In Buurabalayji Thalanyji Aboriginal Corporation v Onslow Salt Pty Ltd (No 4) [2019] FCA 1275 McKerracher J considered the principles to be applied in guiding the Court's discretion to order, in that case, that certain cross-claims be heard separately and before determination of the principal claim and another cross-claim. At [19] his Honour noted that the default position is that all issues of fact and law should be determined at one time following a trial and that the hearing and determination of a cross-claim should take place at the same time as the principal proceeding. 34 At [21]-[23] his Honour relevantly said: 21 While there are authorities suggesting that it is only in an unusual case that a cross-claim should be heard and determined separately (for example, Barclays Bank v Tom [1923] 1 KB 221 and Shrimp v Landmark Operations Ltd (2007) 163 FCR 510), any approach by this Court must be informed by the broader and more flexible principles and powers prescribed in s 37M and s 37P of the Federal Court of Australia Act 1976 (Cth) (the FCA). There is also a need to facilitate a just resolution as quickly, inexpensively and efficiently as possible: s 37M(1) of the FCA. 22 In relation to the principles applicable in guiding the Court's discretion to order a cross-claim be heard separately, the parties chiefly refer to Beach J's decision in Australian Energy Regulator v Snowy Hydro Limited [2014] FCA 1013. There Beach J said (at [38]-[40]): 38 Rule 15.13 is expressed broadly. Likewise r 30.01 gives the Court a broad power to make an order for the determination of a separate question in a proceeding. Sometimes this has been described as a power to be exercised where it is "just and convenient" to do so, although this is not the precise language of r 30.01. 39 An important, if not overarching, consideration informing the exercise of any power under r 15.13 or r 30.01 is the need to facilitate a just resolution involving, inter alia, efficient case management (s 37M of the FCA). That is, will this proceeding be managed more efficiently if there is a separate determination of the invalidity question or cross-claim? 40 An issue may not be appropriate for separate and preliminary determination where: (a) It is one of two or more alternative ways in which a case is framed and determination of the separate issue would still leave significant other issues unresolved; (b) It gives rise to significant contested factual issues both at the time of the hearing of the separate determination and at trial; (c) It results in significant overlap between the evidence adduced on the hearing of the separate determination and at trial (GMB Research & Development Pty Ltd v Commonwealth of Australia [1997] FCA 934 (GMB) and Reading Australia Pty Ltd v Australia Mutual Provident Society (1999) 217 ALR 495 (Reading Australia) at [8]); (d) Related to point (c), it results in the calling of the same witnesses at both stages of the hearing (GMB and Reading Australia). Such a factor may be significant if not exacerbated if credit issues are involved in relation to lay witnesses or reliability issues are involved in relation to expert witnesses, although the latter problem has less significance; (e) It would or is likely to prolong rather than shorten the litigation. (Emphasis added) 23 Whether a separate hearing is appropriately ordered is a question to be answered by having regard to the 'utility, economy and fairness' between the parties: see Tepko Pty Ltd v Water Board (2001) 206 CLR 1 per Kirby and Callinan JJ (at [168]-[170]). 35 At [26] McKerracher J observed that ultimately the question that arises for the Court is whether, in the exercise of the Court's discretion, it is appropriate given the circumstances of a particular case to depart from the ordinary course that all issues should be determined at one time, on the basis that it is just and convenient for the order to be made.

RESPONDENTS' SUBMISSIONS 36 Not surprisingly, given that their cross-claims are essentially identical, Daniel, on the one hand, and Michael and Katrin, on the other, rely on the same submissions in opposition to the Trustee's applications to have his amended summons filed in each proceeding heard separately and before the cross-claims. As a general proposition the respondents submitted that the Court should reject the orders sought by the Trustee because the Trustee's proposal was not "quick or cheap or just" and the proposed orders were not consistent with the Rules, especially having regard to the nature of the proceedings commenced by the Trustee in the Supreme Court and transferred to this Court. Their written submissions address each category of relief sought in the cross-claims (see [28] above). Those submissions were supplemented by oral submissions which I set out below. 37 The respondents submitted that the amended summonses are not ready to proceed and, contrary to the Trustee's submission, have not been ready at any time since they were filed on 5 August 2021. They submitted that the summonses were filed in the wrong court and in the wrong division of that court. They also submitted that when the Trustee filed each amended summons (the day after filing the summonses, because the registry refused to accept it) the Trustee still had not acted by having the summonses amended by any order of this Court. The respondents also contended that it had taken the Trustee six months to accept that there had been an error in relation to the "certificate of the trustee" or that their concern about that document was correct. 38 Next the respondents submitted that the Court had "no power of deconsolidation", that r 30.01 of the Rules did not apply to the relief being sought by the Trustee and that r 15.13 was not appropriate. The respondents contended that r 15.10(1) of the Rules was key and relied on the decision in Han Jing Pty Ltd v Nestle Australia Limited [2021] FCA 143 at [17]-[20] in support of their contention that r 30.01 of the Rules was not the appropriate source of power. 39 The respondents also relied on the decision of Scrutton LJ and Eve J in Barclays Bank v Tom (1923) 1 KB 221 in support of their submission that the Trustee's applications "go nowhere" in terms of complying with the Rules and demonstrating that there should be separate hearings. The respondents submitted that they had founded a community school, paid a lot of their personal money towards it (for reasons which are presently irrelevant), the school has failed and all of its funds are in the hands of liquidators, which is where they remain and that they have been whittled away. They said that the liquidators of the school have said, and the Trustee is acting accordingly, that it should now be a matter of getting adverse judgment costs orders paid. However, they contended that is not the case and that this is a case where, having regard to the considerations referred to in Han Jing and Barclays Bank there are very substantial issues to be determined. 40 In relation to the proceeding in which Michael and Katrin are respondents and cross-claimants, they submitted that there are some major issues to be decided in respect of the Trustee's claim against them, which arise on the cross-claim. First, Michael and Katrin submitted that to effect severance of the joint tenancy at law, the Trustee's interest must be registered, relying on Sistrom v Urh [1992] 40 FCR 550; 117 ALR 528. They said that had not happened yet. Secondly, Michael and Katrin submitted that, while the Trustee complains about Michael's statement of affairs, he has had the statement of affairs since November 2020 and has done nothing about it. The respondents contended that the Trustee has powers under s 19 of the Bankruptcy Act but has taken no steps to apply for examination summonses. They submitted that the question that arises on the cross-claims, which has not been addressed by the Trustee, is that Katrin has a Muschinski v Dodds interest because she has been constantly working since the purchase of the Joint Property in 1997 and has paid virtually all of the mortgage payments. 41 The respondents submitted that the cross-claims became part of the whole matter when it was filed as of right in the Supreme Court in September 2021 and was transferred to this Court by order of the Supreme Court on the application of the Trustee. The Trustee has not moved to strike out the cross-claims as misconceived but seeks to have them heard separately. They contended the Trustee sought to have the cross-claims transferred to this Court and consented to their amendment. The Trustee has acknowledged the respondents' right to file their cross-claims and have them disposed of. The respondents said that it was not appropriate, at the heel of the hunt, to make a submission that the cross-claims are "hopeless" and that, in any event, the Trustee's applications and his submissions, assume the contrary. The respondents said that it would be inconsistent with the Trustee's conduct to date, or possibly an abuse of process, to order separate hearings of the amended summonses and cross-claims. 42 The respondents observed that the Trustee relies on three discretionary reasons to persuade the Court to make the orders sought. First, the Trustee relies on delay but the respondents submitted that the delay lies at the feet of the Trustee. Secondly, the Trustee relies on a failure to co-operate but the respondents say this is not a case where there has been such a failure and that the Trustee had ample power to deal with issues under s 19 of the Bankruptcy Act but has not pursued that course. Thirdly, the Trustee says it is not appropriate to press the cross-claims because the claims made in them are either doubtful or inappropriate but the respondents say that the merits of the cross-claims are a matter for hearing, not to be dealt with on the run with inadequate evidence and without the respondents having had a fair opportunity to put the whole of their case. They said that it is not suggested that the cross-claims are ready to be heard. 43 The respondents referred to r 40.43 of the Rules (which concerns short form bills for migration appeals) and submitted that rule is the only reference to separate hearings in the whole of the Rules. They submitted that the Rules do address the concept of separate hearings but only in respect of costs in migration matters and that there is no other reference in the whole of the Rules to any right of separate hearings such as that advocated by the Trustee in his interlocutory applications. The respondents submitted that the proper order for the claims in the amended summonses and the cross-claims was for them to be heard together. 44 The respondents submitted that the Trustee first raised the possibility of bringing applications of the nature now before me in the Supreme Court, although they acknowledged no such applications had in fact been made. The respondents contended that, despite there being no change in circumstances, they now bring the applications in this Court, which is a matter that I should take into account in considering the applications. 45 The respondents submitted that there is a further matter that counted against the Trustee, namely that he was, by his own admission, in default as he had not filed a defence to the cross-claims and points of claim and that accordingly under r 5.23 of the Rules I would be entitled to dismiss the interlocutory applications on that basis alone. In addition, if the hearings of the amended summonses and cross-claims are separated, the Court would need to case manage two separate processes and ultimately "meld" two results. 46 Finally, the respondents addressed the substance of their points of claim. First, they referred to the claim by Katrin that Michael held a part of his share of the Joint Property on a constructive trust for her. While they conceded that the amended points of claim did not clearly articulate such a claim and may require amendment, they submitted that was the effect of the pleading and the claim they wished to press. 47 Secondly, the respondents submitted that the Court should go behind three costs judgments entered against Daniel and Michael for the reasons set out in Wren v Mahoney (1972) 126 CLR 212. The three judgments referred to are those upon which Daniel and Michael's bankruptcies were founded. The respondents submitted that the three judgments based upon which the Court made the sequestration orders are flawed and that they will demonstrate that to be so on the hearing of their cross-claims. They submitted that was so because there were very substantial sums which Amanda Young, the former liquidator's sister, who was an employee of the former liquidator's firm, "stole from the property the subject of the fund". The respondents contended that in addition there were substantial issues about Ms Young over servicing and taking out "very substantial amounts in relation to the school fund". 48 The respondents submitted that it is their case that, instead of there being a costs judgment in the proceeding concerning termination of the liquidation of St Gregory's, the Court would go behind the judgment and reach the view that, had the liquidator disclosed what was actually going on, the costs order would never have been made in that proceeding. The respondents said, in effect, that when one looks at what happened, the way in which Daniel and Michael were misled by the former liquidator, and the ultimate merit of their case to have the liquidation terminated, the costs order made in that proceeding against them should never have been made and the true debt was nil.

CONSIDERATION 49 Contrary to the respondents' submissions, the Court clearly has power to make the orders sought by the Trustee. 50 Section 37M of the Federal Court of Australia Act 1976 (Cth) provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. The Court or a judge is empowered to give directions about the practice and procedure to be followed in relation to a proceeding or any part of it: see s 37P of the Federal Court Act. 51 Rule 15.13 of the Rules permits a party to a cross-claim to apply to the Court for orders including an order that any claim arising in the cross-claim be tried in accordance with an order of the Court or an order for the hearing and the determination of the principal proceeding and the cross-claim. There is nothing to suggest that the type of order which can be made in relation to the hearing of a cross-claim is constrained by the nature of the orders specified in r 15.13 of the Rules, particularly when one has regard to s 37M and s 37P of the Federal Court Act. The question of whether to make an order pursuant to r 15.13, or its predecessor O 5 r 12(2), to hear the principal or head claim prior to a cross-claim has been considered by this Court on previous occasions: see for example Shrimp v Landmark Operations Limited (2007) 163 FCR 510 where an application pursuant to the former O 5 r 12(2) to hear the principal claim before the cross-claim was declined. 52 Rule 15.13 of the Rules is a source of power for the Court to make the order sought by the Trustee. In some cases, in considering whether a cross-claim should be heard separately from the principal claim, there has also been reference to r 30.01 of the Rules which permits a party to make an application for a separate or preliminary question arising in a proceeding to be heard separately from any other questions. That rule is not the primary or most apt source of power for the purpose of the relief the Trustee seeks. However, it is an available source of power to order the determination of a separate question in some circumstances. That being so I do not think that the principles summarised at [17]-[20] in Han Jing, which concerned an application for the Court to determine certain questions arising in the proceedings separately, are relevant here. 53 The respondents relied on the decision in Barclays Bank in support of their submission that it is only in an exceptional case that a cross-claim should be determined separately from the principal claim. That case concerned the question of whether a third party can counter-claim against a defendant. In addressing that question Scrutton LJ considered the applicable third party procedure and relevantly said: The object of the third party procedure is then in the first place to get the third party bound by the decision between the plaintiff and the defendant. In the next place it is directed to getting the question between the defendant and the third party decided as soon as possible after the decision between the plaintiff and the defendant, so that the defendant may not be in the position of having to wait a considerable time before he establishes his right of indemnity against the third party while all the time the plaintiff is enforcing his judgment against the defendant. And thirdly, it is directed to saving the extra expense which would be involved by two independent actions. With these objects in view the third party order usually provides that the third party may appear at the trial between the plaintiff and the defendant. 54 But, as McKerracher J observed in Onslow Salt, that principle must be informed by the principles and powers prescribed in s 37M and s 37P of the Federal Court Act. 55 On this application, the question for the Court is whether, having regard to s 37M and s 37P of the Federal Court Act, the proceedings will be disposed of more efficiently if there is a separate determination of the amended summonses prior to the determination of the cross-claims. In this case that question must be answered in the affirmative. My reasons for reaching that conclusion follow. 56 First, as the Trustee submitted, he has a duty under s 19 of the Bankruptcy Act to take appropriate steps to recover property for the benefit of a bankrupt estate: see s 19(f) of the Bankruptcy Act. Sequestration orders were made in relation to Daniel and Michael's estates in August 2020. Since that time the Trustee has communicated with Daniel and Michael about their bankruptcies and sought information about their estates. More particularly, he has communicated with Daniel about Daniel's Property and with each of Michael and Katrin about the Joint Property and has invited them to obtain any third party offers for their purchase. No such offers have been forthcoming. Nor have Daniel or Michael and Katrin given up possession of the properties, despite the effect of s 58 of the Bankruptcy Act. Given the passage of time, it is incumbent on the Trustee to take the necessary steps to enable him to realise Daniel's Property and Michael's share of the Joint Property for the benefit of creditors of their respective estates. 57 Secondly, the issues raised in each case by the amended summons are relatively straight forward. There can be no real argument that Daniel's Property and, subject to one matter which I address below, Michael's share in the Joint Property have vested in the Trustee pursuant to s 58(1) of the Bankruptcy Act. 58 Thirdly, again subject to one issue which arises only in relation to the proceeding concerning the Joint Property, there is unlikely to be any overlap between the evidence adduced on the hearing of the amended summonses and the hearing of the cross-claims. The amended summonses seek orders for possession and require the Trustee to prove his entitlement to those orders. In contrast, the cross-claims seek orders which ultimately go to establishing Daniel and Michael's contention that they are not indebted to St Gregory's (or its liquidators) and that the debts on which their respective bankruptcies were founded do not exist. They contend that the effect of their cross-claims, if successful, will be that the sequestration orders made by the Court in August in 2020 will be set aside. There seem to me to be a number of difficulties with claims of that nature and the relief sought which I identify below. 59 Fourthly, the separate hearing of the amended summons before the cross-claim in each proceeding is not likely to prolong the litigation in any way. 60 Fifthly, the Trustee submitted, and I accept, that the amended summons filed in each proceeding is ready to be listed for final hearing. In contrast, the cross-claims are not ready to proceed. As set out at [28] above, the respondents seek a range of relief. In order to establish their entitlement to that relief they will need to establish matters which occurred some years ago and over the course of a lengthy period. To do so, they intend to rely on evidence yet to be produced in answer to subpoenas which have not yet been issued by the Court nor served upon their intended recipients. On the respondents' own evidence the length of time it will take for the cross-claims to be ready for hearing is unknown. The respondents suggested in their submissions that the whole of the proceedings (i.e. amended summonses and cross-claims) could be dealt with in six months. But there can be no guarantee of that in circumstances where the cross-claims are not ready for hearing. 61 That there may be sufficient equity in Daniel's Property and the Joint Property (subject to any claim made by Katrin which I address below) such that any deferral of the hearing of the amended summonses will not prejudice the estates, is not to the point. As I have already observed the Trustee has certain duties specified by the Bankruptcy Act. Further, in the case of Daniel's Property, the equity in that property is decreasing given Daniel's apparent failure to meet interest payments. In the circumstances of this case the creditors ought not be required to await the resolution of the hearing of the cross-claims (and if they arise, any related appeals). 62 Sixthly, it is necessary to have regard to the nature of the claims made in the cross-claims, as pleaded in the points of claim. As I have already observed the cross-claims and points of claim filed in each proceeding are largely identical. The Trustee does not say that those claims should not be determined at some stage but says that their determination should occur separately and after the determination of the claims for possession and related orders in the amended summonses. That is because, as considered above, of the time it will take to prepare the cross-claims for hearing, their apparent complexity and because, according to the Trustee, they have little, if any, prospect of success. On these applications it is not necessary for me to consider the merits of the respondents' claims for relief in any detail and I would not do so. However, I make the observations set out below in relation to the nature of the claims and issues that arise in relation to them. 63 The respondents seek relief in relation to the affidavits of fitness of trustee sworn by Mark Petrucco in relation to the proposed appointment of the trustees for sale pursuant to s 66G of the Conveyancing Act. The Trustee no longer relies on those affidavits. In the case of Mr Stone's proposed appointment the Trustee will now rely on an affidavit sworn by Adam Young on 15 September 2021. It does not appear that an affidavit of fitness has yet been filed in relation to Mr Lo Pilato's proposed appointment as one of the trustees for sale. That is presumably explained by his relatively recent appointment as Trustee, replacing Mr Kerr. However, counsel appearing for the Trustee made it abundantly clear that, despite the Trustee not accepting that any conflict arose as alleged by the respondents, he had arranged for substitute affidavits as to fitness to be prepared and filed in order to put that issue to rest. Counsel appearing for the respondents informed the Court that the "first three paragraphs" of the cross-claims which (together with [4] concern those claims) had "been resolved in [his] clients' favour". While counsel for the respondents was somewhat non-committal, it appears that, if the issue has been resolved, whether as a result of the Trustee acting pragmatically and without admission of liability, or otherwise, there is no longer any basis on which the respondents would or could seek the relief sought in [1]-[4] of the cross-claims. 64 Next, somewhat unusually, the respondents seek an order requiring the Trustee to determine whether there is other available property that can be realised to pay a dividend to creditors. The Trustee has an obligation under s 19 of the Bankruptcy Act to do that very thing i.e. ascertain whether the estate includes property that can be realised to pay a dividend to creditors. As the Trustee submitted, it is, as part of the discharge of that very duty, that he now comes to the Court seeking the relief sought in the amended summonses. 65 Putting that to one side, in the points of claim the respondents allege that, because of Katrin's joint tenancy, the Joint Property, or some portion of it beyond Katrin's presumptive half share attributable to her joint tenancy, may be exempt property for the purposes of s 116 of the Bankruptcy Act (which concerns property divisible among creditors). No explanation was given in the pleading as to how that arose. Although not expressly pleaded in the points of claim, it became apparent in the course of oral argument that Katrin alleged that a part of Michael's share in the Joint Property is held for her on a constructive trust. Such an allegation was not made in any of the correspondence that passed between the Trustee and Michael or the Trustee and Katrin (see [17]-[24] above), nor, despite the respondents' assertion, is it apparent from the cross-claims or the points of claim as presently pleaded. It is alluded to for the first time in Katrin's affidavit sworn on 28 August 2022 where Katrin says that "she made financial contribution (sic) to the ING mortgage over the life of the mortgage" without quantifying to what extent. Counsel for the respondents informed the Court that the evidence would establish that Katrin was entitled to about 75% of the Joint Property. 66 In [6] of their cross-claims, the respondents seek a taking of accounts, it seems, in order to determine the unsecured debt owing by St Gregory's to Daniel and Michael. Insofar as that prayer for relief is concerned, the Trustee submitted that the secured and unsecured debts owed by St Gregory's to Daniel and Michael have been determined by the Courts and the appeal process exhausted such that there is no room for a further inquiry. Daniel and Michael have been embroiled in litigation with the liquidators of St Gregory's for many years. Relevantly: (1) in Sutherland v Ghougassian [2012] NSWSC 125 at [78] and [95] White J found that the amounts advanced by Michael and Daniel that were secured by the first registered mortgage over land owned by St Gregory's and the principal on which interest was payable was $560,705 and $269,239.29 respectively plus simple interest calculated on that amount. At [98] his Honour said: If, as appears to be the case, the funds available to the liquidator are well in excess of all of the debts owed by [St Gregory's], the question of how much of the debts payable to Mr Michael and to Dr Daniel Ghougassian are secured by the mortgage should be academic. My determination of how much of the debt is secured by the mortgage has been made on limited evidence. It does not create any issue estoppel on the question of what is the total amount that may be owed to them by [St Gregory's]. No doubt they and other parties who have advanced moneys to [St Gregory's] by way of loan will lodge proofs of debt. Proofs of debt to be lodged by Mr Michael and Dr Daniel Ghougassian will have to give credit for the recovery made by them pursuant to the mortgage. (2) in due course White J made orders fixing the amount payable by St Gregory's to each of Daniel and Michael which was secured by their first registered mortgage as $881,878.95 and $432,045.47 (together with interest payable from 11 April 2012 to the date of payment): see the observations of Farrell J in Ghougassian v Arnautovic, in the matter of Ghougassian [2019] FCA 1569 at [20]; (3) an appeal from the orders made by White J was dismissed: see Ghougassian v Sutherland [2013] NSWCA 168; and (4) the liquidator of St Gregory's then called for proof of debts and ultimately rejected the whole of Michael's proof of debt and accepted Daniel's proof of debt subject to claimed offsets: see In the matter of St Gregory's Armenian School [2015] NSWSC 1465 at [5]-[7]. Daniel and Michael appealed the liquidator's decision, the result of which was that Michael failed to set aside the liquidator's decision to reject his proof of debt and Daniel substantially failed to do so: see St Gregory's Armenian School at [275]. 67 It is apparent from these decisions that the quantum of Daniel and Michael's secured and unsecured claims as creditors of St Gregory's have been determined. In any event, if Daniel and Michael have any further entitlement as unsecured creditors of St Gregory's, those entitlements are assets which have vested in the Trustee to be pursued by him. While it is a question that does not fall for determination on these applications, in those circumstances it is unclear how Daniel and Michael say that there can be a taking of accounts and how, in any event, that could be relief they could seek against the Trustee. 68 Next the respondents seek a stay of the amended summonses pending the determination of criminal proceedings against Ms Young, a former employee of the former liquidator of St Gregory's, Sule Arnautovic, and determination of "trustee breaches" of the former liquidator of St Gregory's. It was not in dispute that Ms Young has been sentenced following a conviction which arose out of her conduct while employed by Mr Arnautovic. It seems that Ms Young caused funds to be drawn from the St Gregory's liquidation bank account and paid into her own bank accounts. As Ms Young has now been sentenced, there can be no requirement for a stay pending the determination of the proceedings against her. 69 As to the question of "trustee breaches", it seems that the respondents will contend that, because of the actions of Ms Young, the amounts owing by them to St Gregory's and thus the debts based upon which they were made bankrupt, are not owing. They contend that the Court should go behind those judgments for the purpose of determining if the debts based on which the sequestration orders were based were truly a basis for making those orders. In that regard the respondents rely on Wren v Mahony. But the question of the existence of the petitioning creditor's debt and the Court's ability to go behind a judgment in order to consider whether there is in truth a debt owing, as explained in Wren v Mahony and, more recently, in Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132 at [54]-[55], arises at the time of the consideration of whether a sequestration order ought to be made. In the case of Daniel and Michael that was in 2020 when the creditors' petitions were considered and sequestration orders were made: see McInerney, in the matter of Ghougassian v Ghougassian [2020] FCA 1230. 70 Once a sequestration order is made, it is open to a bankrupt to bring an application for annulment of a bankruptcy pursuant to s 153B of the Bankruptcy Act. No such application has been brought by Daniel and/or Michael. 71 The final prayer for relief in the cross-claims concerns a costs order made in Michael's and Katrin's favour against the liquidator of St Gregory's arising out of a cross-claim filed in the proceeding concerning their appeal of the liquidators' decision to reject their proofs of debt: see St Gregory's Armenian School at [275]. According to Mr Balzola a bill of costs has been served on the liquidator which quantifies the costs at $90,555.51 but those costs have not been assessed or paid by the liquidators. In contrast in an affidavit sworn by Michael in proceeding 2019/299647 in the Supreme Court between John McInerney and Phillip Campbell-Wilson in their capacity as liquidators of St Gregory's as plaintiffs and Michael and Daniel as defendants, which is annexed to Mr Balzola's affidavit filed in this proceeding, Michael states that he has "elected not to take our 25% costs order in [St Gregory's Armenian School] against the liquidator for its failed cross claim against me, by wasting yet more time and money in taking this matter to full assessment; monies which I do not wish to disturb for the benefit of the school". 72 Despite Michael's evidence, the respondents now contend that the Trustee should pursue payment of the costs as set out in the bill of costs. Whatever the position in relation to those costs, the costs order, insofar as it was made in Michael's favour, has vested in the Trustee. It is a matter for the Trustee to determine whether to pursue its payment for the benefit of the estate. Further, if pursued it will not necessarily follow that the recoverable amount can be set off against the judgment debts in favour of the liquidators and/or St Gregory's such as to reduce the claim made by those entities as creditors of Michael's estate. It will depend on the capacity in which the costs order is payable by the liquidators and the capacity in which the liquidators are creditors, which are matters for determination at another time. 73 Having regard to the above, the only matter arising on the cross-claims which might be connected to, or affect, the resolution of the amended summons is Katrin's allegation that a portion of Michael's share in the Joint Property is held on trust for her. That claim, which has not been pleaded and for which the evidence is yet to be filed, arises only in relation to the Joint Property and not in relation to Daniel's Property. Even if made out, according to counsel for the respondents, at its highest the claim will result in Katrin being entitled to 75% of the Joint Property. In the correspondence which has passed between the Trustee and Michael and Katrin, Katrin has not made any claim of that nature nor has she offered to purchase Michael's share of the Joint Property, be that 50% as the Trustee contends to date or some lesser portion. It seems in those circumstances that the Joint Property will, in any event, need to be sold. 74 Accordingly, Katrin's claim ought not to delay the hearing of the amended summons. It will be open to her to raise her claim in response to the amended summons seeking possession of the Joint Property or, if deferred until hearing of the cross-claims, she can seek orders preventing the Trustee from dissipating the net proceeds of sale of Michael's half share in the Joint Property pending the resolution of that claim.

CONCLUSION 75 For those reasons the order sought by the Trustee in each of the interlocutory applications filed on 8 June 2022 should be made. As they have been unsuccessful, Daniel, on the one hand, and Michael and Katrin, on the other, should pay the Trustee's costs of the interlocutory applications. 76 I will make orders accordingly. I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

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