(1) Vartanians v St Gregory's Armenian School Inc

Judgment 1These proceedings came before me this morning for the taking of an account between the St Gregory's Armenian School Inc, an incorporated association in the course of being wound up under the Associations Incorporations Act 2009 (which I shall call "the company in liquidation"), and the Messrs Ghougassian. The company in liquidation and the Messrs Ghougassian are, respectively, the mortgagor and the mortgagees of the school property. 2That property was sold by the Commonwealth Bank as first mortgagee. The proceeds, after the Bank's entitlement had been satisfied, were paid into court pending the determination of entitlements to it as between the Messrs Ghougassian as subsequent mortgagees and the company in liquidation as mortgagor. 3Shortly before the luncheon adjournment, I found it necessary to vacate the hearing. This was when it became clear that, while the mortgagees had eventually filed their verified accounts and the mortgagor had filed falsifications, there was a genuine need, in the interests of reaching a just result between the parties, for the mortgagees to have an opportunity to put on evidence to deal with matters raised in the affidavit accompanying the mortgagor's falsifications. 4It is, in hindsight, unfortunate that there were no directions with respect to evidence that might have avoided this need for the hearing to be vacated and for the matter to be taken up again at a later time. 5It is desirable, however, that I record and confirm the ruling I made in the course of the morning that, for the purposes of Part 36 of the Uniform Civil Procedure Rules 2005, the Messrs Ghougassian, as mortgagees, are the accounting party and the company in liquidation (being the mortgagor) is the non-accounting party; that the non-accounting party has filed falsifications but not surcharges; and that upon the taking of the account the onus will be with the Messrs Ghougassian as the accounting party and they must begin: see Magafas v Carantinos [2009] NSWSC 1124 at [16]. This is, in any event, in accord with the general principle that it is for a mortgagee to establish what is owed to it on the security of the mortgage rather than for the mortgagor to prove what he owes. 6It was in the light of the positions of the respective parties thus defined that I decided that the Messrs Ghougassian should have an opportunity to put on further evidence. I indicated that they should have 21 days within which to file and serve any affidavit to be relied on by them for the purpose of dealing with the content of Mr Samarasinghe's affidavit of 27 April 2011. 7There is then the question of the moneys in court. They currently amount to either $7,644,509 or $7,645,109 (the difference is immaterial for present purposes). It is accepted on all hands that, even allowing for the greatest amount that could possibly be found to have been secured by the mortgage held by the Messrs Ghougassian, millions of dollars of the money in court are unaffected. By this I mean that the Messrs Ghougassian, on their own view of matters, are owed a total that is millions of dollars short of the total of the moneys in court. The company in liquidation contends that a substantial sum may safely be paid out to it. 8The Messrs Ghougassian, while accepting that a surplus exists, argued that all moneys should remain in court pending the taking of the account. Indeed, submissions made by Mr King of counsel for the Messrs Ghougassian were to the effect that nothing should be paid out to the company in liquidation except upon proof that a particular sum is required by the liquidator for a particular purpose properly within this scope of the winding up. 9In making that submission Mr King made allegations of a general and non-specific kind about bias on the part of the liquidator and the possibility that funds coming into his hands would be wrongly applied, including perhaps because he wrongly admitted claims of certain persons claiming to be creditors. One must assume that Mr King made these allegations on instructions. 10Mr King ultimately accepted that the effect of the position he took on behalf of his clients was that the court should, on a virtually day-to-day basis, superintend the application by the liquidator of the funds in court over and above those required to satisfy the mortgagees' entitlement. The proposition only has to be stated to be seen to be absurd. The process of the taking of the account will determine how much, if anything, is to be paid to the mortgagees. The balance belongs to the mortgagor. It is irrelevant that the mortgagor is a body subject to winding up. On no conceivable basis, would the court properly retain the balance so that it might play some role as the liquidator's supervising cashier. 11It is clear that a substantial sum should go to the company in liquidation. It is necessary to decide the amount. 12Ms Taylor, who appears for the liquidator, says that there should be retained a sum of $3 million which represents the total of the amounts in the verified accounts filed by the mortgagees plus a small buffer. The aggregate amount in the verified accounts is $2,952,670.83. 13Mr King submitted that a large further retention should be made on account of interest not included in the accounts filed by the Messrs Ghougassian - being, I might say, accounts verified by their affidavits and certified and passed by an auditor. 14I cannot see how a large further retention would be justified.. The mortgagees have, in accordance with the procedures the court has stipulated, filed their verified accounts and thereby made their claim. They cannot now maintain that there is some further hidden liability owed to them. The case before the court is one concerning the verified accounts they have produced. 15Mr King next submitted that there should be an interim payment out of the moneys in court to the Messrs Ghougassian on the basis that they must be owed something. But that, of course, is the whole object of this exercise - to find out in a structured and definitive way whether anything is owing to the Messrs Ghougassian on the security of the mortgage and, if so, how much. The concept of an interim payment out to the mortgagees is therefore quite inconsistent with the whole purpose and structure of the proceeding. 16There has also been discussion about further directions and I have settled these with counsel. Leaving aside for the moment the question of costs, the orders and directions I make are as follows: