Sutherland v Ghougassian & Ors

Judgment 1HIS HONOUR:In my reasons of 29 February 2012 (Sutherland v Ghougassian & Ors [2012] NSWSC 125) I stated my conclusions as to the amounts of advances and repayments that should be allowed in the taking of the account for the moneys owed by St. Gregory's Armenian School Inc (in liquidation) ("the School") to Mr Michael Ghougassian and Dr Daniel Ghougassian (at [78] and [95]) secured by the mortgage. I also said that the mortgage secured simple interest at the "Interest Rate" as defined in the Deed of Loan. I stood the proceedings over for the calculation of interest to be made. 2On 14 March 2012 counsel for Dr and Mr Ghougassian sought to make a claim that interest should be calculated in accordance with clause 3.2 of the Deed of Loan. Counsel submitted that interest was payable without demand by monthly instalments on each Payment Date and that as interest had not been paid, compound interest at the default rates was payable under clause 3.2. At that time I said that it was too late for that contention to be raised, and I directed that the calculation be brought in on the basis of simple interest at the Interest Rate as defined in the Deed of Loan and not at the Default Interest Rate. 3On 21 March 2012, at my request, my associate sent a note to counsel for the parties advising that I wished the matter to be relisted for further argument as to whether it was open to Dr and Mr Ghougassian to claim interest in accordance with clause 3.2 of the Deed of Loan, and if so, whether that clause applied. I thought that I may have come to the conclusion I did on 14 March 2012 too hastily. No orders have yet been made. Neither party disputed that it was open for me to reconsider those questions. 4An order had been made (in proceedings 2010/66795) on 13 December 2010 for Mr and Dr Ghougassian to file and serve an account stating the amounts claimed to be owing pursuant to the mortgage in accordance with rules 46.5 and 46.6 of the Uniform Civil Procedure Rules. 5In Vartanians v St. Gregory's Armenian School Inc [2011] NSWSC 406 Barrett J observed (at [14]) that Dr and Mr Ghougassian made their claim in accordance with the procedures stipulated by the court. That is to say, by the statement of account that they made pursuant to the earlier order. 6There have been no pleadings. The statement of account provided by Dr and Mr Ghougassian performs the function of identifying what it was that they claimed to be owed that was secured by the mortgage. 7The statements of account for Mr Michael and Dr Daniel Ghougassian claimed amounts described as "loan receipts". The amounts claimed as "loan receipts" included both amounts of advances and amounts described in the spreadsheets to which I referred in my first judgment of amounts of "loan interest". These spreadsheets were kept contemporaneously and were business records of the School. The amounts claimed as "loan interest" were added to the statements of outstanding principal. However, the amounts set out in the spreadsheets and claimed in the statements of account were not amounts of interest payable either as simple interest under clause 3.1 or as interest at a default rate payable under clause 3.2. Instead, they were amounts of interest paid by Mr Michael and Dr Daniel Ghougassian on the facilities obtained by them with their lenders. Thus, in the case of Mr Michael Ghougassian the amounts of interest included in the spreadsheet and credited to the debt said to be owed by the School was an amount of interest that was charged by Iden Group to Mr Ghougassian each month on a principal debt of $500,000. That interest was paid by Mr Michael Ghougassian each month. The interest was paid at the Interest Rate, but not the Default Interest Rate payable by Mr Michael Ghougassian to Iden Group. The interest paid by Mr Michael Ghougassian and Dr Daniel Ghougassian was in accordance with the "Interest Rate" as defined in the deed of loan. 8In substance in the statements of account lodged by Dr and Mr Ghougassian they claimed as part of the debt secured by the deed of loan the amounts of interest that they paid at the "Interest Rate", being the interest rate charged by Westpac and Iden Group on the moneys borrowed by them from those lenders. In substance, they claimed that those amounts of interest which they paid to those lenders should be added to the amount of principal payable by the School. The statements of account did not make a separate claim for interest payable under the deed of loan. 9Prior to the hearing before me, the parties exchanged outlines of submissions. The applicant on the taking of the account, that is to say, the liquidator, by his counsel, said that the liquidator's position was that the School was not liable for all of the interest that accrued on the accounts, and was not liable for interest on the interest payments that were being charged to the School by Dr and Mr Ghougassian. In her opening outline of submissions counsel for the liquidator submitted that Dr and Mr Ghougassian appeared to treat the interest charged as principal advances, which was not within the terms of the loan agreement, nor consistent with ordinary practice. In their opening written submissions Mr and Dr Ghougassian submitted that they relied on the draft accounts in the court book and on the accounts annexed to the affidavits of Daniel and Michael Ghougassian. The affidavits relied on by Dr and Mr Ghougassian included claims for interest that added the amounts of interest paid by them to the principal amount of the debt claimed to be owed by the School, and then added interest at default rates and compounded at monthly rests on that debt, which in turn encompassed both the principal amounts of advances and amounts of interest paid by Dr and Mr Ghougassian. In other words, the affidavits claimed a debt that involved a doubling up of interest, and a compounding of interest at the default rate. 10There was no argument at the hearing as to whether there had been any variation of the Deed of Loan, nor as to whether Dr and Mr Ghougassian might be estopped from claiming interest at the default rate or on a compound basis, nor as to whether Dr and Mr Ghougassian, as fiduciaries, would be entitled to profit from the advances they made to the School pursuant to the Deed of Loan. If Dr and Mr Ghougassian might profit from the terms of the Deed of Loan under which they were entitled to interest at default rates and on a compound basis, then, prima facie at least, they would be liable to disgorge any such profits, unless the School gave its informed consent to such a profit. None of this was clearly identified in the statement of account that was the substitute for a pleading, nor in the affidavits. 11Counsel for the liquidator fairly accepted that the substance of the arrangement made by Dr and Mr Ghougassian with the School was that Dr and Mr Ghougassian should be compensated for the advances they made to the School and for the interest they incurred to the lenders to them from which advances were then made to the school. Contractually, Dr and Mr Ghougassian were entitled to interest at the default rates and in accordance with clause 3.2. That is because interest was payable under the deed of loan at default rates compounded on the last day of each month where any payment was not made under the Deed of Loan, and the Deed of Loan required payments of interest monthly without demand. Although that was the contractual right of Dr and Mr Ghougassian and the obligation of the School, it was not the basis on which by their statements of account, Dr and Mr Ghougassian made their claim for the debt. 12It would not be just to permit what would be in substance an amendment to the statements of account, to include a claim for interest on a compound basis and at default rates if there might be an arguable defence to such claims. The evidence adduced at the hearing would not suggest that there would be an arguable defence to that claim based on principles of estoppel or variation of contract. But there could be an arguable defence to the contractual claim if allowance of interest at the contractual rate would result in a profit to Dr and Mr Ghougassian at the expense of the School. That is because it would be at least arguable that informed consent of the School was not given to the terms of the Deed of Loan, if the Deed of Loan resulted in a profit to Dr and Mr Ghougassian. It is clear that the relationship between Dr and Mr Ghougassian and the school was a fiduciary one. 13It is true, as counsel for Dr and Mr Ghougassian submitted, that to award interest on the amounts of the advances that I have found are secured by the mortgage on a compound basis and at default rates would not necessarily give a profit to Dr and Mr Ghougassian. The evidence of the costs incurred by Dr and Mr Ghougassian to raise the funds by which advances were made to the School shows that Dr and Mr Ghougassian were incurring compound interest at the non-default rates of interest. To award interest on that basis would not provide any profit to Dr and Mr Ghougassian. But to award interest on a compound basis and at default rates might arguably do so. Therefore, to award interest at a default rate and on a compound basis, whilst it would accord with the parties' contract, should not be permitted because that was not the basis of the claim made by Dr and Mr Ghougassian in the statements of account that provide the substitute for a pleading. 14Accordingly, interest on the advances should be calculated on a compound basis, but at the non-default rates of interest. 15I direct the parties to bring in a calculation on that basis. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 April 2012