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

Federal Court of Australia|2022-12-20|Before: Mr P, Commission J, Markovic J

THE COURT ORDERS THAT:

The respondent deliver up vacant possession of the property recorded as Folio Identifier 8/229528 and known as 4 Kira Avenue, Northmead in the State of New South Wales (Property) to the applicant within 42 days.
The respondent deliver up all keys for all building and improvements of the Property to the applicant within 42 days.
In the event that the respondent fails to deliver vacant possession of the Property in accordance with Orders 1 and 2 above, a writ of possession be issued forthwith in favour of the applicant.
The respondent remove from the Property all personal property, including vehicles, rubbish and other chattels (personal property) which are not vested in the applicant within 42 days.
In the event that the respondent fails to comply with Order 4 above, the applicant is empowered to remove and dispose of the personal property on the Property as the applicant sees fit.
The Property be sold free of encumbrances by the applicant.
The respondent execute all documents and do all things necessary to enable the applicant to effect the sale of the Property.
Such sale of the Property: (a) may be by auction or by private treaty or by tender; (b) may be for cash or on such terms as the applicant may think suitable but subject to a reserve of 85% of the value of the land as determined by a registered valuer instructed by the applicant.
The applicant apply the proceeds of sale of the Property in the following manner and priority: (a) in discharge of any valid encumbrance over the title of the Property; (b) in adjustment of council rates, waters rates and other statutory imposts; (c) in payment of agent's commission, auctioneer's and auction fees associated with the sale of the Property; (d) in payment of expenses and reasonable legal costs and disbursements incurred upon the sale of the Property by the applicant; and (e) subject to the Orders above, the remainder be distributed to the applicant. 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 a sequestration order under the Bankruptcy Act 1966 (Cth) against the estate of Dr Daniel Ghougassian. At that time David John Kerr became the trustee of Dr Ghougassian's estate (Trustee). I note that at the time that a sequestration order was made in relation to Dr Ghougassian's estate, such an order was also made in relation to the estate of his brother, Michael Ghougassian, and Mr Kerr was appointed trustee of Michael Ghougassian's bankrupt estate. 2 By order of this Court made on 10 June 2022, on and from that date, Frank Lo Pilato, a partner of Mr Kerr, replaced Mr Kerr as Trustee of Dr Ghougassian's bankrupt estate and as trustee of Michael Ghougassian's estate. 3 The Trustee now seeks, by way of an amended summons originally filed in the Supreme Court of New South Wales and subsequently transferred to this Court pursuant to an order made by the Supreme Court on 19 November 2021, orders for, among other things, the delivery up and vacant possession of a property registered in the name of Dr Ghougassian which is comprised in folio identifier 8/229528 and known as 4 Kira Avenue Northmead NSW (Property) and, in the event that Dr Ghougassian fails to deliver up vacant possession of the Property, that a writ of possession be issued in his favour. 4 In response to the Trustee's amended summons Dr Ghougassian filed and served a cross-summons and subsequently an amended notice of cross summons and points of claim (collectively cross-claim). 5 On 20 September 2022 I made orders, including an order that the Trustee's amended summons be heard and determined prior to Dr Ghougassian's cross-claim: see Lo Pilato (Trustee), in the matter of Ghougassian (Bankrupt) v Ghougassian [2022] FCA 1117 (Ghougassian (No 1)). 6 On 6 December 2022 the Trustee's amended summons came before me for hearing.

background 7 Dr Ghougassian is a neurologist. He resides in and operates his medical practice from the Property. He has no other real property holdings. 8 Dr Ghougassian purchased the Property in 1988 and since about 2004 it has been subject to a mortgage in favour of Westpac Banking Corporation. 9 According to research undertaken by Dr Ghougassian in about May 2022, he estimates the Property has a value of about $1.52 million. A valuation obtained by the Trustee dated 30 March 2022 values the Property at $1.25 million. Dr Ghougassian estimates that as at 18 March 2022 the amount owing to Westpac secured by the mortgage was $451,247.62. 10 Dr Ghougassian uses the Property as his primary place for storage of client medical files and has approximately 3,000 such files stored there. He also stores office equipment, including medical equipment, at the Property. 11 On 7 September 2020 the Trustee lodged a caveat on the title of the Property notifying his interest in it. 12 As set out in the Trustee's report to creditors dated 10 May 2022, in March 2021 the Trustee served formal notices to vacate the Property on Dr Ghougassian and any occupiers of the Property requiring them to vacate by 3 May 2021. As this did not happen, in August 2021 the Trustee commenced this proceeding. 13 Dr Ghougassian says that if the Trustee takes possession of the Property it would make his capacity to run his medical practice impossible.

the relief sought 14 Putting aside the questions of costs, the Trustee seeks the following orders in his amended summons: 1. A declaration that the real property recorded as Folio Identifier 8/229528 and known as 4 Kira Avenue, Northmead in the State of New South Wales ("the Property") is vested in the [Trustee]pursuant to s 58 of the Bankruptcy Act 1966 (Cth). 2. An order that [Dr Ghougassian] deliver up vacant possession of the Property to the Plaintiff within 28 days. 3. An order that [Dr Ghougassian] deliver up all keys for all building and improvements of the Property to the [Trustee] within 28 days. 4. An order that, in the event that [Dr Ghougassian] fails to deliver vacant possession of the Property in accordance with the orders above, a Writ of Possession be issued forthwith in favour of the [Trustee]. 5. An order that [Dr Ghougassian] remove from the Property all personal property, including vehicles, rubbish and other chattels ("personal property") which are not vested in the [Trustee] within 28 days. 6. An order that, in the event that [Dr Ghougassian] fails to comply with order 4 (sic) above, the [Trustee] is empowered to remove and dispose of the personal property on the Property as the [Trustee] sees fit. 7. An order that the Property be sold free of encumbrances by the [Trustee]. 8. An order that [Dr Ghougassian] execute all documents and do all things necessary to enable the [Trustee] to effect the sale of the Property. 9. An order that such sale of the Property: (a) May be by auction or by private treaty or by tender; (b) May be for cash or on such terms as the [Trustee] may think suitable but subject to a reserve of 85% of the value of the land as determined by a registered valuer instructed by the [Trustee].

dr Ghougassian's submissions 15 Dr Ghougassian opposes the relief sought by the Trustee in his amended summons. He made two principal submissions. 16 First, Dr Ghougassian submitted that the orders sought in the amended summons were either unnecessary, could not be made on the basis of the available evidence or that the Court lacked the power to make the orders. 17 Dr Ghougassian submitted that the declaration sought in prayer 1 of the amended summons should not be made. That is because there is no doubt that the Property vests in the Trustee pursuant to s 58(1) of the Bankruptcy Act and it is therefore unnecessary to make the declaration sought. 18 Dr Ghougassian submitted that, for the balance of the orders sought, there was either no evidence to support the making of the orders or, in the alternative, the Court had no power to make the orders. In support of that submission Dr Ghougassian referred to s 92 and s 104 of the Civil Procedure Act 2005 (NSW) and rr 6.8, 39.1, 39.2 and 39.3 of Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and contended that: (1) the Court would not make the order sought in prayer 2 of the amended summons because there was no evidence of the matters required by r 6.8 of the UCPR and there is no power to direct Dr Ghougassian to deliver up vacant possession; (2) there is no power to grant the relief sought in prayer 3 of the amended summons; (3) what the Trustee really needs is for a writ of possession to be issued as sought in prayer 4 of the amended summons but a writ can only be issued in a state court by a state sheriff. Dr Ghougassian referred to s 20 and s 104 of the Civil Procedure Act which respectively concern claims for possession of land and provide for the issue of a writ of possession. He submitted that, to the extent that the Trustee seeks a writ of possession, there is no evidence before the Court that would support any such claim and the Trustee has not met the requirements of r 39.1 and r 39.2 of the UCPR which are mandatory; (4) the Court would not grant the relief sought in prayer 7 of the amended summons because there was no evidence about encumbrances on the title of the Property; and (5) the Court would not grant the relief sought in prayers 8 and 9 of the amended summons because there was no power to make those orders in the absence of compliance with r 39.1 and r 39.2 of the UCPR. 19 On that basis Dr Ghougassian submitted that the Court would not grant any of the relief sought in the amended summons, this was a matter that could have been dealt with before or after the filing of the amended summons in the Supreme Court and there is no occasion now to make the orders and declaration sought by the Trustee. 20 In the alternative, and assuming he was wrong about the Court's power and/or ability to grant the relief, Dr Ghougassian submitted that the Court would make the orders sought but would also make an order that the writ of possession issued in relation to the Property would lie in the office, or be subject to a stay, pending determination of the cross-claim. 21 Dr Ghougassian submitted that, despite the order that the cross-claim be heard separately, it remains part of the proceeding. Dr Ghougassian submitted that on the assumption that he succeeds on the cross-claim and that, as he contends, the amounts owed by creditors to him exceeds the amount the subject of the bankruptcy notice which was served on him and which led to the making of a sequestration order, then a great injustice will have been visited upon him unnecessarily by the enforcement of a writ of possession in relation to the property. 22 Dr Ghougassian submitted that while the judgment debt which founded the bankruptcy notice upon which the sequestration order was made was based on a costs order made in favour of the liquidators of St Gregory's Armenian School Inc (in liq), the bulk of the costs the subject of that order were incurred in a proceeding in which Dr Ghougassian (and Michael Ghougassian) sought to set aside the appointment of the former liquidator, Sule Arnautovic. He noted that as things have turned out, an employee of Mr Arnautovic, Amanda Young, was subsequently charged with and convicted of fraud effected in the course of her employment. Dr Ghougassian submitted that the Court has before it an unresolved cross-claim which, if successful, will negate the whole of the judgment debt. This he said is apart from any payment which he might make into Court. 23 Dr Ghougassian submitted that there was nothing in the decision in Wren v Mahony (1972) 126 CLR 212 which suggests that there is a limitation period in relation to setting aside a sequestration order and that he plainly has standing, even now, to have it set aside and should not be denied that opportunity in circumstances where the Court has adjourned the unresolved cross-claim. Dr Ghougassian also noted that just the day before the hearing he had filed an application to annul his bankruptcy. 24 Dr Ghougassian submitted that the unresolved cross-claim will be rendered otiose and vacant unless the orders he seeks there are addressed and resolved before any orders made on the amended summons are executed because the obvious outcome is that he will lose his residence before the issues he has properly raised are determined.

consideration 25 The first questions to resolve are whether the Court should make the declaration sought by the Trustee and whether the Court has the power to make the balance of the orders the Trustee seeks the effect of which would be to enable the Trustee to take possession of the Property. 26 By prayer 1 of the amended summons the Trustee seeks a declaration that the Property vests in him pursuant to s 58 of the Bankruptcy Act. At the hearing it became apparent that it was not in fact in dispute that, upon the making of the sequestration order in relation to Dr Ghougassian's estate, the Property vested in the Trustee pursuant to s 58(1) of the Bankruptcy Act. 27 In summary, a declaration should only be made if there is a legal controversy; the party seeking the declaration has a real interest in obtaining it; there is a proper contradictor; and the declaration serves a legitimate purpose and is of utility (perhaps in the sense that it will produce a foreseeable consequence for the parties). Declarations will not be made where they would have "no practical effect": see Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582; Russian Commercial and Industrial Bank v British Bank for Foreign Trade [1921] 2 AC 438 at 448; and Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited (No 2) [2017] FCAFC 99 at [3]. 28 I accept that there has been a history of litigation between, among others, Dr Ghougassian and the Trustee and that there is an apparent lack of co-operation on Dr Ghougassian's part in vacating the Property which I infer may have led the Trustee to seek relief by way of declaration. However, it is now clear that there is no dispute between the parties about the effect of s 58(1) of the Bankruptcy Act on the Property and that the Property has vested in the Trustee. The declaration is not required for any other identified purpose, beyond the understanding or apprehension by the Trustee that there was a dispute, and the balance of the relief sought by the Trustee in the amended summons is not dependent on the making of a declaration in the terms sought in circumstances where the effect of s 58(1) of the Bankruptcy Act is not in dispute. In those circumstances, there is no legal controversy to quell and no utility in making the declaration sought. It ought not to be made. 29 I turn then to the source of the Court's power to make the orders sought in prayers 2 to 10 of the amended summons. As set out above, Dr Ghougassian contends that the issue of a writ of possession is governed by the Civil Procedure Act and the UCPR and that the orders sought by the Trustee cannot be made because he has failed to comply with the requirements of the relevant parts of the Civil Procedure Act and the UCPR. In particular Dr Ghougassian points to the following provisions: (1) section 92 of the Civil Procedure Act, which concerns judgments for possession of land, and provides that such a judgment takes the place of, and, subject to the UCPR, has the same effect as a judgment for the claimant in ejectment given under the practice of the Supreme Court as it was immediately before 1 July 1972 (which was the date of commencement of the Supreme Court Act 1970 (NSW)); (2) section 104 of the Civil Procedure Act which provides, among other things, that a judgment for possession of land may be enforced by a writ of possession; (3) rule 6.8 of the UCPR which requires a proceeding for possession of land to be served on the occupier of the land, if the person in occupation is not the defendant to the proceeding; and (4) part 39 of the UCPR which concerns enforcement of judgments and Div 1 thereof which concerns enforcement of writs of execution generally. Rule 39.1 of the UCPR sets out the circumstances in which the issue of a writ of execution requires the leave of the court including relevantly where the writ is one for possession of land, that leave may be applied for by notice of motion and the evidence required in support of any such motion for leave. Rule 39.2 of the UCPR concerns the way in which a party seeking to apply for a writ of execution of a judgment is to proceed. 30 The Civil Procedure Act and the UCPR govern civil practice and procedure in, relevantly, the Supreme Court. They have no role to play in this proceeding. That is because the Court is empowered to make the orders sought under the Bankruptcy Act. The Court's general power in relation to bankruptcy matters derives from s 30(1) of the Bankruptcy Act which provides: (1) The Court: (a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter. 31 In Coshott v Prentice (2014) 221 FCR 450 at [92]-[94] a Full Court of this Court (Siopis, Katzmann and Perry JJ) said the following about the ambit of s 30(1) of the Bankruptcy Act: [92] As is apparent, the power to make orders under s 30(1)(b) must be exercised for the purposes of carrying out or giving effect to the Act in the particular case. Those purposes, in common with any modern system of bankruptcy law, are to provide for the appropriation and equitable distribution of the assets of the insolvent debtor, and upon this, the debtor's release from future liability in respect of his or her existing debts: Storey v Lane (1981) 147 CLR 549 at 556 (Storey) (Gibbs CJ). [93] In line with these objects and the breadth of the language in s 30(1), it has been held that the provision should not be construed narrowly. As Neaves J observed in Re Bilen; Ex parte Sistrom (unreported, Federal Court, Neaves J, No NSW706 of 1983, 11 April 1985) in a passage quoted with approval by the Full Court in Talacko v Talacko (2010) 183 FCR 311 (Talacko) at 321, s 30(1): … is a facultative provision giving the court full power, within the limits of its jurisdiction to be found elsewhere, to make such orders as it considers should be made in order to carry out and give effect to the Act. The words used are not words of limitation but of extension. [94] Thus, the section has been held to provide sufficient power to make orders against a bankrupt for the vacation of property, issuing a warrant of possession and for the sale of a property in circumstances where the bankrupt is not complying with his or her obligations under the Act: see, eg, Vince (Trustee) v Sopikiotis v Sopikiotis (No 2) [2012] FCA 1298 at [4] (Bromberg J); Pattison v McKinnon [2008] FCA 1624 at [2] (Jessup J); Official Receiver v Fall (2008) 5 ABC(NS) 772 at [10]-[12] (Lucev FM (as his Honour then was)). It also expressly extends to ancillary relief such as injunctions and other equitable remedies to prevent the scheme of the Act from being defeated. Such ancillary orders are, as the Full Court observed in Talacko at [17], "neither novel or unusual": see also Storey at 557 (Gibbs CJ). 32 In Coshott the Full Court went on to consider whether the power in s 30(1) extended to enable the Court to make orders for the sale of property which is co-owned by a person who is not a bankrupt. It concluded that it did not: at [19], [100]. The proper course in those circumstances was to order a sale of the property pursuant to s 66G of the Conveyancing Act 1919 (NSW) as picked up and applied by s 79 of the Judiciary Act 1903 (Cth): at [20], [116]. 33 Dr Ghougassian is the sole registered proprietor of the Property. No question of the rights of a co-owner who is not a bankrupt arise. Given that, and Dr Ghougassian's acceptance that upon becoming bankrupt the property vested in the Trustee, s 30(1)(b) is of sufficient breadth to enable the Court to make the orders sought for the delivery up of vacant possession of the Property and, failing that, for the issue of a writ of possession in relation to the Property and for the ancillary orders sought. Such orders must be made for the purpose of giving effect to the Bankruptcy Act. That purpose is satisfied in this case given the operation of s 58(1) of that Act, the Trustee's obligations to take appropriate steps to recover property for the benefit of the estate (see s 19 of the Bankruptcy Act), the bankrupt's obligations, among other things, to assist his or her trustee in relation to the identification and realisation of his or her property (see s 77 of the Bankruptcy Act) and the evidence that Dr Ghougassian remains in occupation of the Property despite the Trustee's request that he and any other occupiers vacate the Property. 34 For those reasons I am satisfied that the Court has power to make the orders sought by the Trustee enabling him to take possession of and sell the Property. 35 Dr Ghougassian conceded, in the event that I did not accept his argument as to the Court's power and/or ability in the present circumstances to make the orders, that a writ of possession would issue but submitted that if the orders were to be made, they should be stayed pending the determination of his cross-claim. In summary, Dr Ghougassian submitted that it was in the interests of justice to stay any orders because, assuming success in the cross-claim, the result will be that Dr Ghougassian owes no moneys to the Trustee and/or the Court will find that the judgment debt on which the bankruptcy notice leading to his bankruptcy was founded is not owing. 36 For the following reasons I would not order any stay. 37 First, the Trustee has the duties imposed on him by the Bankruptcy Act including the duty to take appropriate steps to recover property for the benefit of Dr Ghougassian's bankrupt estate. There is no requirement that the Trustee recover property in any particular order or that he defer recovery of one asset over another or that all claims need to be administered before a trustee can realise assets such as the Property. In any event it is clear from Dr Ghougassian's statement of affairs that the Property is his only asset. 38 Secondly, as set out in Ghougassian (No 1) at [66]-[67] the quantum of Dr Ghougassian's (and Michael Ghougassian's) secured and unsecured claims against St Gregory's Armenian School have been determined and any further claims or entitlements have vested in the Trustee. 39 Thirdly, it seems that Dr Ghougassian wishes to rely on the fraudulent conduct of an employee of the former liquidator to impugn the costs orders which underpinned the judgment on which the bankruptcy notice served on him was based. Whether that outcome could be achieved is a matter to be determined on another day. However, I observe that the costs orders arose out of proceedings between, among others, Dr Ghougassian and the liquidators of St Gregory's Armenian School and not by reason of the conduct per se of the employee of the former liquidator who engaged in the fraudulent conduct affecting matters under the former liquidator's control. As I understand it there was more than one costs order made in more than one proceeding including in proceedings concerning the rejection by the liquidators of proofs of debt. Further even if Dr Ghougassian is successful in that claim, there remains the question of satisfaction of the Trustee's remuneration which, as at May 2022, was estimated to be in an amount of $154,339 up to June 2023, exclusive of disbursements such as legal fees. 40 Fourthly, the question of whether the Court should go behind the judgment debt on which the bankruptcy notice was based, having regard to the principles in Wren v Mahony and more recently, Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132, was to be determined at the time of consideration of whether a sequestration order should be made. I expressed the same view in Ghougassian (No 1) at [69]. 41 Finally, I should address Dr Ghougassian's submission that he intends to, or has commenced, a proceeding seeking an annulment of his bankruptcy. He does so some two years after the sequestration order was made. That application, and the basis upon which it is to be made, was not before me. However, I note that it is for the bankrupt to satisfy the court that such an order should be made and that it has been observed that a person seeking to do so carries a heavy burden: see Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 at [16]. In any event, as things presently stand, the mere fact of the filing of the application for annulment is not sufficient for me to stay the orders sought by the Trustee. 42 The only matter which I wish to address in relation to the relief sought by the Trustee is the requirement that Dr Ghougassian deliver up vacant possession of, and the keys and improvements for, the Property and remove all personal property from the Property within 28 days of the making of any orders. Given the time of year I intend to extend that time to 42 days.

conclusion 43 For those reasons and subject to the change set out at [42] above, I will grant the relief sought by the Trustee in prayers 2 to 10 of the amended summons. Given that the Trustee has been substantially successful in obtaining the relief sought he should have his costs of the amended summons. 44 I will make orders accordingly. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

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