Donnelly v Edelsten

[1991] FCA 942

IN THE FEDERAL CQURT OF AusTRALIA	)
)
VICTORIA DISTRICT REGISTRY	) No NG 421 of 1991
)
GENERAL DIVISION	)

BETWEEN:	MAX CHRISTOPHER DONNELLY
(as Trustee of the Bankrupt estate of Geoffrey Walter Edelsten)

(Applicant)

AND:	GEOFFREY WALTER EDELSTEN
and Ors

(Respondents)

Coram:	Ryan J
31 October 1991
Place:	Melbourne

EX TEMPORE REASONS FOR JUDGMENT

Ryan J:  By the substantive application in this matter, the

applicant who sues as the trustee of the bankrupt estate of

Geoffrey Walter Edelsten claims -

"1.	A declaration that at all material times the First Respondent
was the controlling mind of and a director of the VIP Companies
and each of them within the meaning of the Companies (New South Wales) Code and the companies (Victoria) Code .
2.	A declaration that at all material times the VIP companies and
each of them and their businesses were effectively operated by
and on behalf of the First Respondent.
[There being no paragraph (3);]
4.	A declaration that the Second Respondent at all material times
held and holds his shares in the companies VIP Management Pty Ltd, VIP Health Care Pty Ltd, VIP Holdings Pty Ltd and VIP
Health Corporation Pty Ltd on trust .for the First Respondent .
s.	A declaration that the Third Respondent at all material times

7 . A declaration that the Fifth Respondent at all material times held and holds his shares in the company VIP Health Corporation

--·---···- ___ ........ ". __ .... __ . ...... hf!ld .. and,. f:lol_cii'J .. h_er:_ -~.hi~,re.s ;_ i~ the .. company .. VIP .. Holdings. · Pty .. Ltd .

on trust for the P'irst· Respondent.

6 .           A declaration that the Fourth Respondent at all material times

held and holds her shares in the company Health care pty Ltd ,
VIP Holdings Pty Ltd and VIP Health Corporation Pty Ltd on

trust for the First Respondent.

Pty Ltd on trust for the First Respondent.

8.           A declaration that by virtue of the First Respondent's

bankruptcy on 21 September, 1987, and the provisions of the

Bankruptcy Act, .1966 (cth), the beneficial interests in each and all of the shares in the VIP Companies and each of them

have vested in the Applicant.

9.           A declaration that the First Respondent is in breach of his duties to the Applicant pursuant to Section 77 (f) and Section

77(g) of the Bankruptcy Act, 1966 (cth).

10.         An order that the Applicant or some fit and proper person be

appointed receiver and manager of the business and assets of

the VIP Companies being Sixth, Seventh, Eighth and Nineth (sic]

Respondents herein respectively without security."

Ancillary orders are then sought for the delivery up to the receiver and manager of the assets and records of the VIP

companies and for an order specifying the powers of that

receiver and manager.

By motion on notice dated 25 October, 1991, the applicant has

moved for orders in terms of paragraphs 10, 11 and 12 of the

application, they being the paragraphs seeking an appointment of a receiver and manager of what have been called the VIP

companies and the ancillary orqers to which I have referred.

That application has been described in the course of today's	proceedings as an application for the appointment of an
interim receiver.
The applicant has relied in part on an affidavit of Rodney
Kenneth Richards sworn 29 October, 1991. That is a voluminous
affidavit of some 28 pages in which Mr Richards recounts the
history of activity which he claims to have undertaken in
conjunction with Dr Edelsten from late 1988 until
approximately July 1989.
It has been sought on behalf of Dr Edelsten, the first
respondent, supported by counsel for the sixth to ninth respondents inclusive to have that affidavit struck out as scandalous. I have been invited to apply the principles
enunciated by the Court of Appeal in Rossage v Rossage [~960] 1 WLR 249 where in the judgment of Hodson L.J. at page 252 it
is said:

"There has been some discussion as to what is meant by ~scandalous."

It is quite clear that we cannot strike out matters in a pleading or

an affidavit simply because they are scandalous, because scandalous matter may be relevant, and may be the very matters which have to be

investigated by the court. But if, as here, the matters are plainly irrelevant, it seems there is no doubt that the court can strike them

out, either by virtue of its inherent power or by virtue of the power

contained in. order 38, r.ll ••• "

And his Lordship quotes from that rule to the following

effect:

"The court or judge may order to be struck out from any affidavit any

matter which	is scandalous, and may order the costs of any
application to	strike out such matter to be paid as between solicitor
and client."

The judgment then continues:

these matters are irrelevant and scandalous, and therefore they ought	"Within the meaning of those two rules, I am clearly of opLnLon that
to be struck out. The court ought not to be embarrassed by their
presence on the file; nor ought the party whom these statements tend
to implicate to be embarrassed by having to deal with them."

It is true that in the affidavit to which I have referred

there is a go.o~. deaJ .. o.~ .J!.lat:t_e:r; . whi_ch __ is __ 9apable of _ca~sii)g ....... __ _

embarrassment but the test, as his Lordship indicates, is not
confined to that consideration but rather directed to the

extent to which the material is relevant to some matter at
issue in the litigation.

It has been urged by Mr Caldwell QC who appears with Mr Harper

for the applicant trustee that the whole of the affidavit or

almost all of it is relevant as demonstrating a degree of control exercised by Dr Edelsten over businesses which, I

gather, it is suggested have been conducted by or through the

companies being the sixth to ninth respondents in respect of

which the appointment of an interim receiver is sought.

In my view, sufficient of the affidavit in question can be

j u stified on that ground to persuade me not to strike out the

whole of the affidavit. I have found the analysis of the

question of relevance to be somewhat difficult in the absence,

as Mr Beaumont QC has pointed out, of pleadings or any clearer

indication of the way the case for the trustee is put than can

be distilled from the substantive application itself.

I therefore decline to strike out the whole of the affidavit.

I reserve the question of whether specific parts of it .should

defined. In the meantime, I shall order that the affidavit	be struck out until the issues have been more appropriately
remain confidential and that there be no access to it by any
person other than the parties or their legal advisers.
[After further submissions by Counsel his Honour continued;]
I have been urged on behalf of the applicant to appoint an
interim receiver of the businesses and assets of the sixth to
ninth respondents to which I shall refer collectively as "the

s.

VIP companies". It has been submitted that I should take that step because the evidence discloses prima facie that shares in

the VIP companies have been owned beneficially by Dr Edelsten who is, or was - at least until March this year, a bankrupt.

Even assuming that assertion about the ownership of the shares

to ' be so, and I observe parenthetically that the relationship

between the medical clinics to which the evidence is related

and the sixth to ninth respondents is by no means clear, I am

not persuaded that there is sufficient urgency by reason of

imminent danger of loss or of diminution of the value of the

businesses and assets involved to justify the appointment of

an interim receiver without giving the respondents an

opportunity to file affidavits. That is particularly so as the substantial part of the evidence relied on by the

applicant trustee goes only to the conduct of the businesses

and the management of the relevant assets up to mid 1989 .

Part of that conduct of the businesses and management of the

assets apparently occurred before any of the VIP companies was	incorporated . It is common ground that Dr Edelsten was
committed to prison in Sydney to serve a sentence of 12 months
imposed by Sharp J of the Supreme Court of New South Wales and
was not released until the middle of this year. I am
confirmed in the conclusion to which I have come by the fact
that the initiating application herein was filed in the New
South Wales registry of this court on 1 August 1991 and there
were proceedings in that registry to have it transferred to
the Victoria registry. Further, two of the three principal
affidavits relied on in support of an application, which is
now said to be urgent, were respectively sworn on 18 June 1991 and B July 1991. It seems that it was only when the third affidavit came to hand on 29 October that the matter came to
be regarded as assuming a degree of urgency which justifies
the strong step of appointing an interim receiver.
For these reasons the motion for appointment of an interim
receiver is refused. However, I consider that it is
appropriate to give directions which would conduce to an early
trial of the whole application or at least to permit. the question of whether or not a receiver should be appointed to
be resolved on an interlocutory basis. I shall hear Counsel now on the directions which should be given to that end .
[After further submissions by Counsel his Honour indicated
that he would make the following orders:]

1.        That the affidavit of Rodney Kenneth Richards sworn 29

October 1991 remain confidential and that there be no access

to it by any person other than the parties or their legal

advisers.

2.       That Rodney Kevin Edelsten , Christine Weinberg and Hymie

.. ..

Edelsten be joined as respondents to the application herein

and that each such respondent be served within seven days of

this day with a copy of the application herein and each of the

affidavits filed herein and the several exhibits thereto,

other than the affidavit of Rodney Kenneth Richards sworn 29th
day of October 1991.

3.       That the applicant file and serve within seven days of

this day a statement of claim including such allegations to
charge the added respondents as he may be advised.

4 .        That each respondent file and serve a defence by 19

November 1991.

5. That all parties file and serve affidavits of documents on

or before 26 November 1991 and there be mutual inspection of

such documents by 29 November 1991.

6.        That the directions hearing herein be · adjourned to 2

December 1991.

7.      That liberty be reserved to any party to apply on not less

than 48 hours notice in writing to the other parties.

8 .      That the costs of all parties of this day be reserved.

I certify that this and the

preceding- six ( 6) pages are ·

a true copy of the judgment

of his Honour Mr Justice Ryan

Associate:

Date: 

\

a. \

Counsel for the Applicant:	Mr Caldwell QC and
Mr R Harper
Solicitor for the Applicant:	Isenberg Spedding & Player
Counsel for the First Respondent:	Mr N H M Forsyth QC and H A Aizen
Solicitor for First Respondent:	Mowbray Erdynast
Counsel for the Second and
Fourth Respondents:	Mr T Artemi
Solicitor for the Second and
Fourth Respondents:	Michael  Webb and Bruce
Arthur Solicitors
Counsel for the Fifth to Ninth
Respondents:	Mr G Beaumont QC and Mr A K Panna
Solicitor for the Fifth to
Ninth Respondents:	Michael  Webb and Bruce
Arthur Solicitors
Date of Hearing:	31 October 1991

Date of Judgment:  31 October 1991