FEDERAL COURT OF AUSTRALIA Iliopoulos v BM2008 Pty Ltd (In Liq) [2011] FCA 483 Citation: Iliopoulos v BM2008 Pty Ltd (In Liq) [2011] FCA 483 Appeal from: Application for leave to appeal: BM2008 Pty Ltd (In Liquidation) v Iliopoulos [2011] FMCA 203 Parties: STEVE ILIOPOULOS v BM2008 PTY LTD (IN LIQUIDATION) ACN 005 762 685 File number: VID 264 of 2011 Judge: GRAY J Date of judgment: 8 April 2011 Catchwords: PRACTICE AND PROCEDURE – judgments and orders – interlocutory judgment – leave to appeal – arguable case as to correctness of judgment – whether substantial injustice – point can be argued in appeal as of right if applicant unsuccessful at first instance PRACTICE AND PROCEDURE – stay of proceeding in another court – power exercised very sparingly BANKRUPTCY – bankruptcy notice – application to set aside – application dismissed – stay of order dismissing application – whether stay had the effect of extending time for compliance with bankruptcy notice – arguable case Legislation: Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41(7), 309(2) Federal Court of Australia Act 1976 (Cth) ss 24(1E), 29(1), 29(1)(a) Federal Court Rules O 52 r 17 Cases cited: BM2008 Pty Ltd (In Liquidation) v Iliopoulos [2011] FMCA 203 referred to Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 applied Ginnane v Diners Club Ltd (1993) 120 ALR 375 considered Date of hearing: 8 April 2011 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 21 Counsel for the applicant: Mr D Denton SC and Ms P Djohan Solicitor for the applicant: Belleli King and Associates Counsel for the respondent: Mr DC Harrison Solicitor for the respondent: Cooper Mills Lawyers IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 264 of 2011 BETWEEN: STEVE ILIOPOULOS Applicant AND: BM2008 PTY LTD (IN LIQUIDATION) ACN 005 762 685 Respondent JUDGE: GRAY J DATE OF ORDER: 8 APRIL 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application for leave to appeal be dismissed. 2. The motion the subject of the notice of motion filed in Court this day be dismissed. 3. The respondent's costs of the application for leave to appeal and the notice of motion be costs of the respondent as petitioning creditor in proceeding number MLG 1731 of 2010 in the Federal Magistrates Court of Australia. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 264 of 2011 BETWEEN: STEVE ILIOPOULOS Applicant AND: BM2008 PTY LTD (IN LIQUIDATION) ACN 005 762 685 Respondent JUDGE: GRAY J DATE: 8 APRIL 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 In the course of yesterday afternoon, the applicant, Mr Iliopoulos, filed in this Court an application for leave to appeal from a judgment of a federal magistrate handed down on 18 March 2011. The reasons for judgment are published as BM2008 Pty Ltd (In Liquidation) v Iliopoulos [2011] FMCA 203. It was represented to the Court that the application was urgent and arrangements were therefore made for it to come before me as duty judge. The application is supported by an affidavit of a solicitor acting on behalf of Mr Iliopoulos. The affidavit says nothing at all about circumstances of urgency. 2 The situation appears to be that the federal magistrate, in his judgment of 18 March 2011, made certain orders with which Mr Iliopoulos disagrees. The federal magistrate has subsequently reserved his judgment on a creditor's petition against Mr Iliopoulos, with the result that judgment on that petition could be given at any time. The relevant orders that the federal magistrate made on 18 March 2011 concerned, firstly, the issue of service of the creditor's petition. Referring to s 309(2) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"), his Honour ordered that personal service of the creditor's petition be dispensed with. In lieu thereof, his Honour ordered that the petition and certain other documents be served on solicitors acting for Mr Iliopoulos and that service of the creditor's petition be deemed to be effected on 18 March 2011, if the service of those documents on the solicitors were effected by 5.00 pm on that day. 3 His Honour also dismissed an interim application of Mr Iliopoulos, filed on 3 March 2011. That was an application to dismiss the creditor's petition on the basis that it was out of time. The petition was filed on 13 December 2010. The allegation was that the act of bankruptcy had occurred on 21 May 2010, with the consequence that more than six months had elapsed before the filing of the petition. His Honour took the view that the act of bankruptcy had occurred at a later date. 4 When the application came before me this morning, counsel for Mr Iliopoulos sought and was granted leave to file in the Court a notice of motion, seeking to stay the relevant proceeding in the Federal Magistrates Court until the hearing and determination of the application for leave to appeal, or further order. That notice of motion invokes s 29(1)(a) of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act") and O 52 r 17 of the Federal Court Rules (Cth) ("the Federal Court Rules"). Initially, I was disinclined to deal with the application for leave to appeal because it cannot have been served on the respondent, the petitioning creditor, a sufficient time before its return to enable proper preparation. Counsel for the petitioning creditor did indicate to me that his client was content for the application for leave to appeal to be dealt with today. Accordingly, I have heard argument on it as well as on the question of a stay, and these reasons for judgment deal with both of those applications. 5 In considering whether leave to appeal ought to be granted, I apply the well-known test derived from Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397. In that case, the Full Court suggested that the approach to an application for leave to appeal is a two-pronged one. The first question is whether the judgment in respect of which leave is sought is attended by sufficient doubt to warrant the attention of the appellate court. The second question is, supposing leave to appeal is to be refused, would the proposed appellant suffer substantial injustice by reason of that refusal? 6 The draft notice of appeal provided to the Court, by way of demonstrating the grounds of appeal relied on, effectively raises three issues. The first, to which grounds 1 to 4 in the draft notice of appeal relate, is the issue of the date of the act of bankruptcy. This issue may depend upon the outcome of an argument about the application of s 41(7) of the Bankruptcy Act. That subsection provides: Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied. 7 In a judgment delivered on 21 May 2010, the federal magistrate determined that Mr Iliopoulos did not have a counter-claim, set-off or cross demand of the kind referred to in s 40(1)(g) of the Bankruptcy Act. At the time when his Honour delivered judgment, an application was made to him to extend the time for compliance with the bankruptcy notice so as to permit Mr Iliopoulos to appeal against his Honour's judgment. His Honour did not make an order extending the time for compliance with the bankruptcy notice. Instead, his Honour made an order dismissing the application of Mr Iliopoulos with costs and stayed the order for 14 days. 8 Mr Iliopoulos lodged an appeal to this Court and applied within the 14-day period for an order extending the time for compliance with the bankruptcy notice. Such an order could not be made because the time specified in the bankruptcy notice had already expired on 4 June 2010. Within the 14 days fixed by para 3 of the federal magistrate's order of 21 May 2010, however, Finkelstein J ordered that that stay be extended until the hearing and determination of the appeal or further order. Subsequently, Finn J heard the appeal and determined it adversely to Mr Iliopoulos. The petitioning creditor argues that, by reason of the order staying the federal magistrate's order dismissing the application, and the order extending that stay, the effect was to extend the date on which the Court determined whether it was satisfied that there existed a counter-claim, set-off or cross demand, for the purposes of s 41(7), so that an act of bankruptcy was not committed until Finn J delivered his judgment on the appeal. The federal magistrate accepted this view in his reasons for judgment delivered on 18 March 2011. It was on this basis that he dismissed Mr Iliopoulos's application to set aside the creditor's petition. 9 The question whether the orders of the federal magistrate and of Finkelstein J, in conjunction with s 41(7) of the Bankruptcy Act, had the effect of extending the time for compliance with the bankruptcy notice appears to me to be an arguable question. 10 Grounds 5 and 6 of Mr Iliopoulos's proposed notice of appeal raise the question relating to the order dispensing with personal service. It is clear that that order was made in the exercise of discretion conferred by s 309(2) of the Bankruptcy Act. The question Mr Iliopoulos seeks to raise is whether the federal magistrate in exercising that discretion departed from the analysis of the power by the Full Court in Ginnane v Diners Club Ltd (1993) 120 ALR 375. Mr Iliopoulos says that the Full Court made it clear that the exercise of the discretion involved a two-stage process. The first stage required the petitioning creditor to establish that there was difficulty in effecting personal service. The second stage involved the selection of a method of service likely to bring the petition to the attention of Mr Iliopoulos. Before the federal magistrate, there was evidence concerning an attempt that had been made to effect service of the creditor's petition on Mr Iliopoulos in the car park of a fast-food outlet. That attempt was apparently misconstrued by Mr Iliopoulos, who drove off. 11 The federal magistrate obviously regarded it as significant that, subsequent to that attempt, Mr Iliopoulos's solicitors took steps that could only have been taken on the basis that they had become aware that there had been, or may have been, an attempt at service of the petition. Clearly with the instructions of Mr Iliopoulos, they also took steps in the proceeding commenced by the filing of that petition. In order to succeed on appeal from the orders of the federal magistrate relating to dispensing with personal service, Mr Iliopoulos would be required to demonstrate that the exercise of discretion had miscarried, not merely that there was or might have been a preferable way in which it could have been exercised. There are subsidiary issues as to whether a conditional appearance entered by Mr Iliopoulos in the proceeding in the Federal Magistrates Court had any effect as a conditional appearance, and whether the participation of Mr Iliopoulos in that proceeding, by making applications for orders himself, involved a submission to the jurisdiction of the court. These issues, in my view, remain arguable. 12 Ground 7 of the draft notice of appeal contains an allegation of a reasonable apprehension of bias on the part of the federal magistrate. I have indicated to counsel for Mr Iliopoulos that I regard that ground as scandalous. The affidavit of the solicitor in reference to it appears to me to invoke nothing more than the proposition that interlocutory judgments have been made contrary to Mr Iliopoulos and that the federal magistrate has demonstrated a determination to move the proceeding quickly to its conclusion. Any legal practitioner ought to understand that those are not matters that give rise to an apprehension of bias on the part of the judicial officer. In the course of pronouncing these reasons for judgment when I reached this ground, senior counsel for Mr Iliopoulos rose and informed me that he now withdraws this proposed ground of appeal. 13 On the basis that the two issues of the date of the act of bankruptcy and the dispensation with personal service raise matters that are arguable, I am prepared to regard Mr Iliopoulos as having satisfied the first limb of the Decor test. That is to say, I am prepared for the purposes of this application to assume that the judgment of the federal magistrate is attended by sufficient doubt to warrant an appeal court considering the issues. The second question, therefore, is whether Mr Iliopoulos would suffer substantial injustice if I were to refuse leave to appeal. 14 The proceeding in the Federal Magistrates Court has reached the point at which the federal magistrate has reserved his judgment in relation to the creditor's petition. If leave to appeal were to be refused in the present application, Mr Iliopoulos will not be required to do anything further in relation to the proceeding in the Federal Magistrates Court. He will be required to expend no further funds on representation in that court in the proceeding. He will not be required to make any further attendance upon the court in relation to that proceeding. All that will be necessary will be to await its outcome. If the judgment of the Federal Magistrates Court in that proceeding is in favour of Mr Iliopoulos, then the points he wishes to agitate in his proposed appeal against the federal magistrate's interlocutory judgment will disappear. They will become entirely moot. Mr Iliopoulos will have succeeded in relation to that proceeding. 15 On the other hand, if the Federal Magistrates Court is to make a sequestration order against the estate of Mr Iliopoulos, he will have the capacity to appeal as of right in respect of that judgment. Such an appeal will carry with it a right to rely upon any of the interlocutory judgments that were given and, indeed, to found his appeal on the ground that those interlocutory judgments are incorrect. In case there should ever have been any doubt about the ability of a party to invoke error in an interlocutory judgment as a ground of appeal from a final disposition of a proceeding, that doubt is resolved by s 24(1E) of the Federal Court Act. 16 It is for these reasons that I do not accept that Mr Iliopoulos would suffer injustice, let alone substantial injustice, if he were to await the outcome of the proceeding in the Federal Magistrates Court before instituting any appeal. If he were to institute an appeal now, it may well be with respect to points that will become of no insignificance if he should be the successful party in the court below. On the other hand, as I have said, if he is unsuccessful in the court below, he will have an automatic right of appeal together with a right to apply for such a stay as the court may consider to be appropriate. 17 The application for a stay seeks that this Court should stay a proceeding that is pending in another court, and that it should do so on the basis that it has granted an application for leave to appeal from an interlocutory judgment of that other court. Plainly, provisions such as s 29(1) of the Federal Court Act and O 52 r 17 of the Federal Court Rules are predicated on the proposition that, in the ordinary case, there will be an appeal as of right from a final determination of a proceeding in another court. That proceeding will therefore no longer be pending in the other court. The exercise of the right of appeal will have created a proceeding in this Court and given this Court the power to deal with the subject matter of that proceeding, including the granting of a stay. 18 The principle of comity between courts means that this Court should be very reluctant to stay a proceeding in another court. Indeed, it is usual that, if the Court sees fit to make an order that would have the effect of staying a proceeding in another court, such an order is by way of injunction directed to a party to that proceeding not to prosecute it, rather than what would be effectively an injunction directed to the court itself to stay its hand. It may be that, if leave to appeal is granted in respect of an interlocutory judgment of another court, the power exists to stay. In my view, if it does, it ought to be exercised very sparingly. 19 For these reasons, it is not appropriate to grant leave to appeal at the present time and it would be inappropriate to consider the grant of a stay if the power to grant a stay is indeed available. I therefore propose to dismiss both the application for leave to appeal and the motion the subject of the notice of motion filed in the Court this day. 20 Counsel for the respondent has asked for an order different from the usual order for costs in favour of the successful party. He has requested that the respondent's costs of the application for leave to appeal and the notice of motion be treated as part of its costs as petitioning creditor in the Federal Magistrates Court. It seems to me that that would be an appropriate order, and an appropriate exercise of the Court's discretion as to costs, in the circumstances of the present case. If the respondent is successful as petitioning creditor, and if the normal order giving priority to the costs of a petitioning creditor is to be made, then the costs of resisting the application for leave to appeal and the motion for a stay ought to be regarded legitimately as part of the costs of the petitioning creditor for that purpose. If, on the other hand, the respondent is unsuccessful as petitioning creditor, it will have to pay its own costs of this proceeding. 21 The orders I make are as follows: 1. The application for leave to appeal be dismissed. 2. The motion the subject of the notice of motion filed in Court this day be dismissed. 3. The respondent's costs of the application for leave to appeal and the notice of motion be costs of the respondent as petitioning creditor in proceeding number MLG 1731 of 2010 in the Federal Magistrates Court of Australia. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the reasons for judgment herein of the Honourable Justice Gray. Associate: Dated: 11 May 2011