Federal Court of Australia

Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas [2025] FCAFC 35

ORDERS

THE COURT ORDERS THAT:

1.    The respondent’s interlocutory application dated 24 February 2025 be dismissed.

2.    The parties’ costs of the respondent’s interlocutory application dated 24 February 2025 be costs in the appeal.

3.    The appeal be dismissed.

4.    The appellant pay the respondent’s costs of and incidental to the appeal, to be assessed in default of agreement in accordance with the court’s costs practice note (GPN-COSTS).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

SNADEN AND GOODMAN JJ:

1    On 17 February 2022, the appellant, Mr Meletsis, failed in his bid to defend an action brought against him by the respondent and another individual (with whom the respondent acted as a joint and several trustee of a bankrupt estate). Mr Meletsis was ordered to pay them a total of $3,365,152.46.

2    A few weeks later, freezing orders were made against Mr Meletsis, the effect of which (amongst others) was to preclude him from disposing of a property located at 258 Doncaster Road in Balwyn North, Victoria (the “Balwyn North Property”).

3    A few months following the making of those orders, additional orders were made appointing the trustees as joint and several receivers and managers of, amongst other things, the Balwyn North Property. That appointment was made on an interim basis, pending an appeal from the judgment described earlier.

4    That appeal was dismissed on 16 June 2023. On 3 July 2023—and on the application of the respondent—Mr Meletsis was issued a bankruptcy notice (the “Bankruptcy Notice”). It required that he pay to the respondent the sum of $3,708,010.79 (comprising the judgment debt referred to above plus interest) by no later than 28 November 2023.

5    By a hand-written application made on that date (28 November 2023), Mr Meletsis moved the court for (amongst other things) an order to have the Bankruptcy Notice set aside. That application, which the respondent opposed, came before a registrar of the court, who, on 22 February 2024, dismissed it.

6    On 14 March 2024, Mr Meletsis filed an interlocutory application for orders to quash the registrar’s determination and to require, in its place, that the Bankruptcy Notice be set aside. By a judgment dated 16 August 2024, the court dismissed that application with costs: Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas [2024] FCA 925 (Hespe J; the “Primary Judgment”).

7    By a notice dated 11 September 2024, Mr Meletsis appeals from the whole of the Primary Judgment. He seeks orders to quash both it and the determination to which it related, and to require, in their place, that the Bankruptcy Notice be set aside. For the reasons that follow, that relief should not be granted and the appeal should be dismissed with costs.

The contentions advanced below

8    In support of the relief for which he moved, Mr Meletsis contended before the learned primary judge that the Bankruptcy Notice ought to be set aside because (amongst other contentions not now relevant) its service upon him amounted to an abuse of process. That contention rested upon two alternative foundations: first, that the issue of the Bankruptcy Notice was “…unjustifiably oppressive [to a point that would] bring the administration of justice into disrepute”; and, second, that it “…could be inferred to be for an illegitimate purpose…”

9    The “unjustifiable oppression” attending the service of the Bankruptcy Notice was said to inhere in the fact that the respondent had obtained freezing orders against Mr Meletsis, the effect of which was to retard (if not extinguish) his ability to sell his assets and satisfy his debt with the proceeds. Mr Meletsis contended that it would be unjustifiably oppressive, or would otherwise imperil the proper administration of justice, for the respondent to subject him to bankruptcy processes at the same time that it was, in effect, preventing him from paying his debt.

10    Although not put with clarity before her Honour, there was perhaps another circumstance that was said to warrant the court’s concluding that service of the Bankruptcy Notice was unjustifiably oppressive and, hence, amounted to an abuse of process. At the hearing below, vague reference was made to a caveat that the respondent had apparently registered against the title of the Balwyn North Property. From the transcript of the proceeding below, it is difficult to ascertain with precision the significance that Mr Meletsis sought to attach to that caveat; but at least now, on appeal, he seeks to constitute it as an additional hindrance that was erected by the respondent, and that inhibited both his ability to sell that property and, with the proceeds thereof, satisfy his debt. In his oral reply submissions before the primary judge, counsel for Mr Meletsis explained that the interim receivership order (above, [3]), “…was used as a basis for lodging the caveat…” and that, because the respondent’s appointment as a receiver expired upon the dismissal of Mr Meletsis’s appeal from the judgment that established his debt, “…that’s when the caveat should have been removed…[b]ut it hasn’t been”. That, he said, stood as a “…pretty clear [basis for inferring] an improper purpose” sufficient to constitute the service of the Bankruptcy Notice as an abuse of process.

11    The “improper purpose” that, so Mr Meletsis contended, had enlivened the respondent’s service of the Bankruptcy Notice is difficult to divine from the submissions that were advanced before the primary judge. Other than that it was “improper” or otherwise sufficient to reflect an abuse of process, Mr Meletsis made no submission about what the respondent’s purpose actually was, nor why it was relevantly illegitimate. The alleged impropriety of the respondent’s purpose in serving the Bankruptcy Notice does not appear to have risen beyond bald assertion.

12    There were, however, two additional circumstances that were said to bear in some way upon Mr Meletsis’s characterisation of the respondent’s purpose in serving the Bankruptcy Notice. The first concerned what was said to be the delay that separated the time at which the judgment debt arose and the time at which the Bankruptcy Notice was served. The second concerned the absence of any measures undertaken by the respondent to enforce the judgment debt.

The primary Judgment

13    As will already be apparent, the primary judge declined to accept that the service of the Bankruptcy Notice amounted to an abuse of process.

14    Her Honour’s analysis in that regard began with an orthodox exploration of relevant principle. It is convenient to replicate in full what was observed in that regard:

9    The circumstances in which a Court may set aside a bankruptcy notice as an abuse of process are “not governed by rigid rules and do not fall into fixed categories”: Clyne v Deputy Commissioner of Taxation (NSW) (No 4) [1982] FCA 166; 42 ALR 703 at 708 (Lockhart J). However, as McHugh J observed in Rogers v R [1994] HCA 42; 181 CLR 251 at 286:

abuses of procedure usually fall into one of three categories: (1) the court’s procedures are invoked for an illegitimate purpose; (2) the use of the court’s procedures is unjustifiably oppressive to one of the parties; or (3) the use of the court’s procedures would bring the administration of justice into disrepute.

10    The issuing of a bankruptcy notice to persuade the debtor to pay the debt, and in the event of default, to proceed with a petition for sequestration is a legitimate purpose: Nobarani v Mariconte [2021] FCAFC 96 at [32] (Allsop CJ, Farrell and Derrington JJ); Slack v Bottoms English Solicitors [2002] FCA 1445 at [20]–[21] (Spender J).

11    The time at which to assess abuse of process is the time the bankruptcy notice is issued: Killoran v Duncan, in the matter of Killoran [1999] FCA 1574 at [13] (Gyles J), [Royal v Nazloomian, in the matter of Royal [2019] FCA 555] at [30] (Stewart J); Nobarani at [32] (Allsop CJ, Farrell and Derrington JJ).

12    The Applicant bears the onus of establishing an abuse of process. The allegation of an abuse of process is a serious one which cannot be made without a sufficient factual foundation: Williams v Spautz [1992] HCA 34; 174 CLR 509 at 529 (Mason CJ, Dawson, Toohey and McHugh JJ); Prentice v Fewin Pty Ltd, in the matter of Prentice [2017] FCA 490 at [48]–[49] (Bromwich J); Royal v Nazloomian at [37] (Stewart J): Nobarani at [32] (Allsop CJ, Farrell and Derrington JJ). Establishing an abuse of process does not require direct evidence of an ulterior purpose and may be established by way of inference drawn from objective facts: Royal v Nazloomian at [37] (Stewart J).

…

14    Although more usually framed as amounting to a stay of execution of the judgment (see for example, National Australia Bank v Pollak [2001] FCA 1408; (2001) 186 ALR 44 at [41] (Madgwick J)), it may be accepted that the issue of a bankruptcy notice may amount to an abuse of process if the creditor has by his or her own actions done something that “actually and in fact prevents the debtor from paying”: Re Sedgwick, Ex parte Sedgwick (1888) 5 Morr 262 (Lord Esher MR), cited in Pollak at [43].

15    The purpose of a freezing order is to prevent an abuse of process by the disposition of assets preventing the enforcement of the Court’s orders. The whole purpose of a freezing order is to aid in the execution of a judgment: Re Ousley; Ex parte Commissioner of Taxation (1994) 48 FCR 131 at 139 (Heerey J), cited in Re Ling; Ex parte Enrobook Pty Ltd (1996) 142 ALR 87 at 92 (Lehane J). The obtaining of a freezing order per se does not amount to an action on the part of the creditor that prevents the debtor from paying. A freezing order is distinguishable from the appointment of a receiver to take control of debtor’s property: Re Ousley at 138 (Heerey J); Ling v Eurobrook (1997) 74 FCR 19 at 29 (Davies, Wilcox and Branson JJ).

16    It is not sufficient to show that the actions of the creditor have made it more difficult for the debtor to pay the debt than if the creditor had done nothing at all: Pollak at [52] (Madgwick J).

15    Thereafter, her Honour was moved to consider the effect of the freezing orders that had been made against Mr Meletsis. Specifically, it was observed that they did not serve to transfer control over Mr Meletsis’s property; and that their terms did not prevent the parties from “…approaching the Court to vary the order to deal with the property or the proceeds of sale”. Those realities accepted, her Honour concluded that the freezing orders were insufficient to render as an abuse of process the respondent’s service of the Bankruptcy Notice.

16    The primary judge then addressed the two other considerations upon which Mr Meletsis sought to constitute the respondent’s service of the Bankruptcy Notice as an abuse of process (above, [12]). Again, it is convenient to replicate her Honour’s observations:

33    I am not persuaded that delay is relevant in this case. In any event, there was no substantial period of inaction by the Respondent. Following the delivery of the judgment giving rise to the judgment debt, the Respondent sought and obtained freezing orders in VID1279/2022, first made on 1 March 2022. On 2 September 2022, the Respondent applied for the appointment of receivers for the purposes of preventing any dealings in the North Balwyn Property. Interim receivers were appointed by order of the Court made on 5 September 2022. The appointment was until the hearing and determination of the appeal in VID226/2022 or such further order of the Court. On 16 December 2022, the Court delivered judgment in VID1279/2017 dismissing an application to set aside the appointment of interim receivers. As the chronology of events discloses, the Applicant appealed the decision giving rise to the judgment debt to the Full Court in VID226/2022 and upon the dismissal of that appeal in June 2023, applied for special leave to the High Court. The appeal process was effectively exhausted in November 2023.

34    The Court was not directed to any authority suggesting that there is a requirement that a creditor take some enforcement step in relation to a judgment debt before the issue of a bankruptcy notice. It is not a precondition to the issue of a bankruptcy notice that other means of enforcing the debt be exhausted: Nobarani v Mariconte at [43] (Allsop CJ, Farrell and Derrington JJ). There is no abuse of process in issuing a bankruptcy notice in the circumstances of this matter. The Applicant’s interlocutory application is to be dismissed.

The appeal

17    The present appeal proceeds upon six grounds, namely (errors original):

1.    The Learned Trial Judge should have held that it was an abuse of process to issue the bankruptcy notice against the Appellant when the Respondents had freezing orders upon all of the Appellant's assets and/or had lodged a caveat upon the property at 258 Doncaster Road Balwyn North Victoria 3104.

2.    The Learned Trial Judge should have held that the bankruptcy notice was issued for an ulterior purpose and was therefore an abuse of process.

3.    The Learned Trial Judge should have inferred that the Respondents had an ulterior purpose in issuing the bankruptcy notice, when the Respondents had maintained a caveat in reliance upon an interim order for the appointment of a receiver that was made on 5 September 2022 and that had been automatically discharged at the time that the bankruptcy notice was issued pursuant to the orders made on 16 June 2023.

4.    The Learned Trial Judge erred in inferring that the Respondents might have agreed to a variation of the freezing orders when the Respondents had acted with an ulterior purpose and maintained a caveat that had been automatically discharged pursuant to the orders made on 16 June 2023.

5.    The Learned Trial Judge did not provide any proper reasons as to why the maintenance of a caveat that had been automatically discharged pursuant to the orders made on 16 June 2023 did not justify making an inference that the Respondents had an improper purpose in issuing the bankruptcy notice.

6.    The Learned Trial Judge did not provide any proper reasons as to why the failure of the Respondents to not take any steps to enforce the judgment debt did not justify making an inference that the Respondents had an improper purpose in issuing the bankruptcy notice.

18    The respondent contends that grounds three, four and five do not reflect submissions that Mr Meletsis advanced before the primary judge. He maintains that leave is required in order that Mr Meletsis can agitate them now on appeal. Anticipating a possibility that leave might be granted, he moves upon an interlocutory application dated 24 February 2025 for leave pursuant to r 36.57 of the Federal Court Rules 2011 (Cth) to adduce further evidence (the nature of which is addressed below), which Mr Meletsis opposes.

19    It can immediately be accepted that Mr Meletsis ought not to be permitted to agitate on appeal contentions that were not made before the primary judge: Coulton v Holcombe (1986) 162 CLR 1, 7-8 (Gibbs CJ, Wilson, Brennan and Dawson JJ). All the same, it is unnecessary that we be distracted by issues of procedural regularity. Whether he needs leave to agitate some of them or not, the grounds upon which Mr Meletsis’s appeal proceeds all lack substance. For reasons that can shortly be stated, his appeal should fail at least on that basis; and it is unnecessary that we should rummage through the unusually murky terrain of what was and was not advanced below.

20    Before turning to the grounds, something should be said of the respondent’s interlocutory application to lead further evidence. That evidence is contained in a short affidavit sworn on 24 February 2025 by his solicitor, Mr Leslie Andrew Fox. Annexed thereto is an order that this court made on 26 June 2023 in the proceeding that gave rise to the judgment debt. On that day, shortly after the dismissal of the appeal from the judgment in that proceeding and shortly before the issue of the Bankruptcy Notice, O’Callaghan J made orders that continued the respondent’s appointment as a joint and several receiver and manager of, amongst other things, the Balwyn North Property (the original appointment having been expressed to apply until “…the hearing and determination of the appeal or such further order”).

21    The significance of that evidence might be apparent. At least on appeal, Mr Meletsis submits that the respondent’s service of the Bankruptcy Notice was an abuse of process because, at that time, he maintained a caveat over the Balwyn North Property that was purportedly founded upon his interim appointment as receiver, notwithstanding that the appointment had ceased upon the determination of the appeal a few weeks earlier. The respondent seeks to lead further evidence now to demonstrate that, in fact and by reason of the 26 June 2023 orders, he remained so appointed at the time that the Bankruptcy Notice was issued, a reality to which neither party adverted when the matter was before the primary judge.

22    Mr Meletsis’s opposition to the receipt of the further evidence on appeal is difficult to fathom. He submits that, had it been led at the hearing below, he might have made inquiries, led evidence or advanced submissions to impugn the 26 June 2023 orders in some way or another. How that might be so was not made clear. The orders are regular on their face and no appeal from them was attempted. It is plainly the case that the respondent’s appointment as a receiver and manager of the Balwyn North Property remained in place at the point that the Bankruptcy Notice was issued.

23    It wouldn’t matter if it were otherwise.

24    Again, and for the reasons to which attention should now turn, Mr Meletsis’s appeal grounds—new or not—are foredoomed to failure regardless of whether the further evidence is admitted. That being so, we are not inclined to indulge an interesting but unnecessary debate about the circumstances in which this court on appeal might entertain applications to admit further evidence. In the absence of a need to determine whether further evidence ought be admitted, that application should and will be dismissed.

25    There is one final preliminary matter that should be mentioned. Given the interlocutory nature of the application that was before the primary judge, there is at least some reason to wonder whether Mr Meletsis requires leave to proceed with his appeal: Federal Court of Australia Act 1976 (Cth), s 24(1A). That issue was not canvassed at the hearing of the appeal and, in the absence of argument, we shall proceed upon the same assumption as that upon which the parties appear to have settled: namely, that her Honour’s judgment was not an interlocutory judgment and that no leave to appeal is required. Plainly, the result is the same.

Ground one: significance of freezing orders and caveat

26    By his first ground of appeal, Mr Meletsis charges the primary judge with error insofar as she determined that there was nothing about the existence of the freezing orders or the respondent’s caveat over the Balwyn North Property that sufficed to stigmatise the Bankruptcy Notice as an abuse of process.

27    It is convenient to bifurcate the analysis that follows as between the existence of the freezing orders and the maintenance of the respondent’s caveat.

28    As concerns the continued existence of the freezing orders, Mr Meletsis’s contention on appeal did not deviate from what was advanced before the primary judge. He maintained that it was unjustifiably oppressive to permit the respondent to serve the Bankruptcy Notice whilst at the same time maintaining his reliance upon, or otherwise benefitting from, the freezing orders that were made at his initiative.

29    For the reasons that her Honour identified—which we would adopt as though our own—that contention cannot be accepted. The evident purpose of the freezing orders was, as with any such orders, to prevent Mr Meletsis from selling the Balwyn North Property and apportioning the proceeds in a way or ways that might imperil the satisfaction of his debt to the respondent. There is nothing that suggests that they arose or were relied upon in anything other than orthodox manners.

30    Her Honour’s analysis was, with respect, equally orthodox; and there is nothing within it that even approximates appellable error.

31    We turn, then, to consider the significance of the caveat that the respondent had lodged over the title to the Balwyn North Property. Her Honour’s reasons for judgment disclose that she considered the respondent’s caveat only in relation to a contention that Mr Meletsis made about his solvency (which is not repeated as an element of this appeal). Reviewing the transcript of the proceeding below, it is apparent that that reflects that the caveat was not raised—and certainly not with clarity—as a circumstance that should have inclined her Honour to accept that service of the Bankruptcy Notice was unjustifiably oppressive (in that it stood as a barrier of the respondent’s own making that impeded Mr Meletsis’s capacity to pay his debt).

32    Again, none of that matters because it is plain that, even had it been advanced, the contention could not sensibly have been accepted, for precisely the same reasons as her Honour identified in respect of the freezing orders. There is no apparent basis for thinking—and much less was it clearly asserted—that the respondent’s lodging of the caveat was effected for any reason other than to protect his interest in having Mr Meletsis pay him the judgment debt. Much as with his reliance upon the freezing orders, the respondent’s recourse to the unremarkable caveat process was orthodox. There is no basis upon which to doubt that it was a mechanism of which the respondent sought to avail himself so as to protect against the possibility that Mr Meletsis might dispose of the Balwyn North Property and distribute its proceeds in a way that imperilled or did not advance the satisfaction of the judgment debt.

33    Distilled to its essence, Mr Meletsis’s contention—in respect of both the freezing orders and the caveat—is that each had the effect of inoculating him against the prospect of bankruptcy at the respondent’s initiative. Why that should be so is anything but clear. Much less does it warrant the conclusion that the service of the Bankruptcy Notice amounted to an abuse of process. Respectfully (and to the extent that it arose before her), her Honour was correct to reject that contention.

34    Appeal ground one must fail.

Ground two: ulterior purpose

35    By his second ground of appeal, Mr Meletsis contends that the primary judge erred by not holding that “…the bankruptcy notice was issued for an ulterior purpose and was therefore an abuse of process”.

36    As has already been noted, Mr Meletsis did not identify before the primary judge any purpose for which he contended that the respondent had served the Bankruptcy Notice, nor what it was about that purpose that made it “ulterior” or otherwise improper. That failure has endured on appeal and the contention inherent in Mr Meletsis’s second ground of appeal should fail on that basis alone.

37    Additionally, it should fail because there is nothing in the evidence that establishes a basis upon which the court might properly have inferred that the respondent’s purpose in serving the Bankruptcy Notice was to effect anything other than the payment of the debt that Mr Meletsis owed to him. The contention that service of the Bankruptcy Notice was animated by some purpose sufficient to expose an abuse of process is unsustainable. No error on the part of the primary judge has been exposed.

38    Mr Meletsis’s second ground of appeal should fail.

Ground three: ulterior purpose in maintenance of caveat

39    Equivalent observations suffice to address Mr Meletsis’s third ground of appeal. His contention is that her Honour ought to have accepted that the respondent’s service of the Bankruptcy Notice proceeded for “an ulterior purpose”; and, specifically, that that purpose ought to have been inferred given the respondent’s maintenance of the caveat lodged against the title to the Balwyn North Property.

40    The closest that Mr Meletsis appears to have come to agitating that point before the primary judge was in the oral reply submissions that were made on his behalf (above, [10]). Again, no attempt was made to identify what was said to be the respondent’s purpose, nor why it might be impugned in a way that sufficed to expose any abuse of process.

41    Regardless, and for the reasons already stated in relation to the second ground of appeal, Mr Meletsis’s contentions cannot be accepted. Nothing to which we have been taken identifies any evidential basis upon which the court might properly have inferred that the purpose for which the respondent served the Bankruptcy Notice was something other than to recover the debt that Mr Meletsis owed him.

42    It follows that appeal ground three should fail.

Ground four: potential agreement to vary freezing orders

43    Appeal ground four posits that the primary judge erred by “…inferring that the Respondents [sic] might have agreed to a variation of the freezing orders…”

44    Her Honour did not draw any such inference. Rather and more simply, she explained that it was open under the terms of the freezing orders for the parties to agree upon the sale of the Balwyn North Property and the manner in which its proceeds might be distributed; and that that told against any suggestion of unjustifiable oppression inhering in the freezing orders’ existence. Respectfully, those observations were inarguably correct.

45    Appeal ground four must fail.

Ground five: reasoning regarding caveat

46    By his fifth ground of appeal, Mr Meletsis contends that the primary judge failed to provide proper reasons for not inferring, from the maintenance of his caveat over the Balwyn North Property, that the respondent served the Bankruptcy Notice for an improper purpose.

47    It is the case that her Honour’s reasons do not address the contention that Mr Meletsis now complains was inadequately reasoned. That very likely reflects the want of clarity that attended its agitation. At the risk of undue repetition, the point does not appear to have been made in the proceeding below until the closing oral reply submissions that were advanced on Mr Meletsis’s behalf; and, even then, there was no identification of the purpose for which it was said that the respondent had served the Bankruptcy Notice, nor any submission about what it was that made that purpose improper.

48    In that universe, it is difficult to see how the primary judge’s reasons could fairly be criticised in the way that Mr Meletsis seeks to criticise them.

49    Regardless—and for the reasons already outlined in relation to appeal ground three—the point that Mr Meletsis complains was absent from her Honour’s reasons is without merit. There is no occasion to impugn her Honour’s judgment as a product of the error that is alleged.

50    Appeal ground five should fail.

Ground six: reasoning regarding enforcement

51    Appeal ground six is similar to appeal ground five, in that it charges the primary judge with error inhering in a failure to provide adequate reasons; specifically, as to why the respondent’s failure to enforce the judgment debt did not reflect that his service of the Bankruptcy Notice was effected for an improper purpose.

52    At the hearing of the appeal, no oral submissions were attempted in support of appeal ground six. Instead, counsel for Mr Meletsis indicated that he was content to rely upon what was said in the written outline that Mr Meletsis had earlier filed on his own behalf. Perhaps regrettably, that written outline was also silent as to why the court should uphold the ground, beyond general assertions that the court should infer that the respondent “had an improper purpose”.

53    It suffices to say, then, that it is difficult to see how the court might accept what appeal ground six posits. In any event, it is plain that the reasons that the primary judge gave for rejecting the contention (above, [16]) cannot be impugned as inadequate. On the contrary (and with respect), they addressed the contention as expansively as was warranted. What’s more (and, again, with respect), her Honour’s observations were plainly correct. That the respondent had not taken steps to enforce the judgment debt may be accepted; but that does not stand as a proper basis upon which to infer that his subsequent service of the Bankruptcy Notice was effected for an improper purpose.

54    Ground six should also fail.

Disposition

55    None of the appeal grounds is made good. The Primary Judgment was not attended by appellable error in any of the forms that Mr Meletsis has advanced and the appeal should, thus, be dismissed, with the usual order as to costs.

Associate:

Dated:    24 March 2025

REASONS FOR JUDGMENT

MCDONALD J:

56    I agree with the orders proposed by Snaden and Goodman JJ, for the reasons given by their Honours.

Associate:

Dated:    24 March 2025