Re Edelsten, G.W.; Donnelly, M.C. v Edelsten, G.W.

[1992] FCA 460

i

JUDGMENT NO. .. .%60,,,1 $.L ,,,,

IN THE FEDEW., COURT OF AUSTRALIA

EXERCISING FEDERAL JURISDICTION	No NB 497 of 1988
IN BANKRUPTCY

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN

CAPITAL TERRITORY

RE :  GEOFFREY WALTER EDELSTEN

Bankrupt

8                 ,

EX PARTE:  MAX CHRISTOPHER DONNELLY

AS TRUSTEE FOR THE ESTATE OF
GEOFFREY WALTER EDELSTEN

Applicant

AND :  GEOFFREY WALTER EDELSTEN AND OTHERS I

Respondents

COURT : NORTHROP J

PLACE :	MELBOURNE
DATE:	9 JUNE 1992  30 ~rru mm,

EX TEMPORE REASONS FOR JUDGMENT

This application was commenced in Sydney on 1 August

1991, but in a form not in conformity with the Bankruptcy Act	t
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or the Bankruptcy Rules. The application was brought by the applicant, Max Christopher Donnelly, as trustee of the
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bankrupt estate of Geoffrey Walter Edelsten. A sequestration	I
order had been made against the estate of Dr Edelsten on	i ,
10 March 1988 but by operation of law he was discharged from	L
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bankruptcy upon the expiration of 3 years from the date of hi*	i -
bankruptcy. As a result, Dr Edelsten has been a discharged	P
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bankrupt since 11 March 1991.	j_

Before and during his bankruptcy Dr Edelsten had	I :
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connections with what are described as 24-hour medical centres

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, ,; , !-.t:',k!'lL

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being businesses at which medical services are provided by doctors during the 24 hours of each day. This application concerns a number of 24-hour medical centres, including five

described as the centres at Brunswick, Kingsbury, Mill Park,

Broadmeadows and Kealba. These five are referred to in the

application in its further amended form as the former VIP

clinics.

Outwardly, it would appear that the former VIP clinics,

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as well as a number of other clinics, at all relevant times

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were owned and controlled by one or more of the companies

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.b&ing the s,ixth, seventh, eighth and ninth respondents, and

. . .a

. : -&he essential nature of the applicant's case is that despite

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I . _ .

.

.I ,

I,	the outward'appearances, in truth and in law Dr Edelsten was
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the 't;ue owner of the shares of the companies carrying on the

A VIp clinics, including the five former VIP clinics and was the

true owner of the - and I quote, "assets, undertakings and

businesses" being conducted at those clinics.

The applicant claims that pursuant to sections 58 and 116

of the Bankruptcy Act 1966 all the property owned by Dr

Edelsten at the commencement of his bankruptcy and all after

acquired property vested in him as trustee. In the

application the applicant is seeking orders as to his
entitlement to the shares in the VIP companies and to the
"assets, undertakings and businesses" of the clinics being
conducted by the VIP companies including the five former VIP
clinics. By an agreement dated 13 February 1992, being after
this application had commenced, a company, Australian Medical

Developments Limited, purchased and as a result claims to be entitled to the ownership of the assets and rights of the five former VIP clinics. The sale agreement was in fact an agreement made between VIP Health Corporation Pty Limited and Australian Medical Developments Limited. VIP Health Corporation Pty Limited is the ninth respondent to the application, and currently is in liquidation.

Pursuant to an order made on 6 March 1992, Australian

Medical Developments Limited was joined as an additional respondent to the application and became the fourteenth respondent. At the hearing of the application the only parties who in any practical sense are taking an active part are the applicant, who is appearing by counsel, Dr Edelsten, who is appearing in person, and the fourteenth respondent, who is appearing by counsel. It is clear that Dr Edelsten asserts that at no relevant time was he the owner of or entitled to any interest in the shares of the VIP companies conducting the VIP clinics, nor was he the owner of or entitled to any

interest in the assets, undertakings or businesses of the VIP

clinics including the five former VIP clinics. If that view is correct, it follows that the application must fail in the sense that the applicant has failed to establish that the

relevant assets were the assets of the bankrupt at the time of
his bankruptcy, or were after acquired property within the

meaning of the Bankruptcy Act.

In support of his claim the applicant has presented much

evidence of the conduct of persons involved in the running and

management of the VIP clinics designed to establish that in

truth Dr Edelsten was the controlling mind and hand of the VIP

companies and the VIP clinics, including the five former VIP

clinics, with the result that in law the applicant was and is

entitled to all those assets as against Dr Edelsten and the

second to thirteenth respondents. The same evidence is

designed to prove that the vendor of the assets and rights of

the five former VIP clinics, namely VIP Health Corporation Pty

Limited (in Liquidation) had no title to them, and so could

not transfer them to the fourteenth respondent. Much of the
evidence so presented consisted of statements made by Dr

Edelsten in the course of conversations with witnesses and

some similar statements made by other persons being parties

other than the fourteenth respondent to these proceedings.

All these conversations took place before the fourteenth

respondent entered into the agreement on 13 February 1992.	In
fact, Dr Edelsten had by that stage ceased to be a bankrupt.

Counsel for the applicant contended that these statements

were evidence of conduct supporting the claims being made by
the applicant.	In this context it is not necessary to rely

upon the exception to the hearsay rule that evidence of

statements against interest given by a third party can be used

as evidence against the person making them. It is claimed

that the evidence is an aspect of the conduct of Dr Edelsten
and of other parties supporting the view that in truth Dr
Edelsten was the controlling mind and hand of the VIP
companies and the VIP clinics with the result that in truth he
was the owner of the shares and of the property of the

companies and the clinics which property vested in the trustee

by operation of law, namely sections 58 and 116 of the

Bankru~tcv Act.

Counsel for the fourteenth respondent objected to the

admissibility of these statements on the basis of not being
evidence given by the maker, as being hearsay and not made by
the fourteenth respondent or a person authorised by the
fourteenth respondent to make them. A general or blanket
objection was taken to the evidence but the Court deferred
final determination of the objection. After the close of the
cases for the applicant and Dr Edelsten, counsel for the 14th
respondent sought a ruling on the admissibility of this type
of evidence against the 14th respondent. The time for ruling
on the objection had arrived for a number of reasons including
the fact that the outcome of the ruling could affect the
further course of the action including the course to be taken
by the 14th respondent and, in any event, it was essential for

the 14th respondent to know the position of the status of

these statements as against the 14th respondent for the

purposes of general submissions at the conclusion of all the
evidence. The ruling sought, as formulated by counsel, was as
follows: A ruling on the admissibility of evidence as against
the 14th respondent of statements made by persons other than
the 14th respondent or its agents. This must go to the
admissibility of that evidence as truth of what was said since
it appears that counsel for the 14th respondent is not
concerned to dispute that the making of the statements
themselves by Dr Edelsten or possibly by the other persons can

be used as evidence of conduct to support claims as between Dr
Edelsten and the VIP companies but does dispute the fact that
that evidence can be used as evidence of conduct as against

the 14th respondent.

In order to understand the submissions of counsel for the

14th respondent, it is necessary to refer to the orders being

sought by the applicant. A large number of declarations are

being sought under subsection 30(1) of the Bankru~tcv Act and,

in this regard, it is important to read that subsection:

"30(1)	The Court -
(a)	has full power to decide all questions, whether of law or of fact in any case of bankruptcy or any matter under Part X or Part XI coming-within the cognisance of the Court; and
(b)	may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this

Act in any such case or manner."

Under paragraph (f) of subsection (1) of section 31 of the
Bankru~tcv	Act, the hearing of an application for a

declaration must be heard in open court and I read that

paragraph:

"31(1) In exercising jurisdiction under this Act, the

Court shall hear and determine the following matters in open Court -

(a) ...

(f) applications to declare for or against the title of the trustee to any property;

In this regard it is important to realise that the power is to make declarations for or against the title of the trustee.

The order sought in paragraph 7 of the further amended

application is of importance. If made, this order will be

binding on all the parties to the proceedings.	I read
paragraph 7:

"7. A declaration that by virtue of the first
respondent's bankruptcy on 10 March 1988 and the
provisions of the Bankruptcy Act 1966 (Cth), the
beneficial interest in each and all of the shares in the
VIP companies and each of them and/or each and all of the
assets, undertaking and businesses owned and/or conducted
by the VIP companies and each of them, as set out in
paragraph 6 of the amended statement of claim filed

herein, have vested in the applicant."

It is also necessary to refer to paragraph 6 as follows:

"6. A declaration that the sale agreement dated 13

February 1992 between the ninth respondent herein

and the 14th respondent is void and of no effect."

Paragraph 8: 

"8. Further or in the alternative, a declaration that the 14th respondent to the extent that any assets may have passed into the possession of the 14th

respondent pursuant to the sale agreement holds any
such assets on trust for the benefit of the

applicant."

Paragraph 10:

"10. A declaration that by virtue of the first

respondent's bankruptcy on 10 March 1988 and the
provisions of the Bankruptcy Act 1966, the

beneficial interest of each of all the assets,
undertaking and goodwill of each of the businesses
purported to be conducted by the 14th respondent at
the following premises - (1) 30 Sydney Road,

Brunswick; (2) 1019 Plenty Road, Kingsbury; (3)

250 Childs Road, Mill Park; (4) 54 Banberg Street,

Broadmeadows; and (5) Sage Avenue, Cnr Sunshine
Avenue, Kealba. Hereinafter, the said businesses
will be collectively referred to as the former VIP

clinics, have vested in the applicant."

Paragraph 11:

"11. A declaration that the 14th respondent holds and

held at all material times on trust for the
applicant all the assets, undertaking and goodwill

of all the former VIP clinics."

Paragraph 13:

"13. An order that the 14th respondent transfer and deliver up to the applicant absolutely all the assets, undertaking and goodwill of the former VIP

clinics purported to be carried on by the 14th

respondent."

A number of consequential orders are then sought which will

arise only if the applicant is successful with respect to

these earlier claims.

Counsel for the 14th respondent contended that, in

reality, the applicant was not seeking any order as against Dr Edelsten, that there was no issue between the applicant and Dr Edelsten, that the applicant and Dr Edelsten were not opposing parties and that this was important to a resolution of the

issue since the proceeding should be considered as an action

between the applicant and the 14th respondent only. This was

illustrated, it was submitted, by the fact that the only
substantive orders being sought were against the 14th
respondent. Further, it is contended, and this seems to be
correct, that the 14th respondent does not trace its title
through Dr Edelsten. As a result, in considering the ruling
as to admissibility of the evidence, the issue between the
applicant and the 14th respondent should be considered on the
basis of statements against interest which cannot be used and
are inadmissible as against the 14th respondent. They are
admissible only, if made by a person authorised by the 14th
respondent and this has not occurred, or possibly by a person

through whom it claims title. This is not the case here.

I should indicate now that in my opinion there is an

issue between the applicant and Dr Edelsten. It arises in the

context of whether, at the relevant times, Dr Edelsten owned
the property, being the shares in the companies and the assets
of the clinics, being conducted by the VIP companies. It is

true that Dr Edelsten is claiming no such interest, that they

are, in form, owned by and controlled by the VIP companies,

but this type of problem is not at all unusual in bankruptcy

matters. In such a case it is not only desirable, but

essential, that the person who, - the bankrupt, who claims no

interest, should be a party, since the declaration thereby

becomes binding on him. Putting it another way, it is

important that all relevant parties should be joined in

relation to any declaration sought. In my opinion there is a

proper and tangible interest in opposing the claims made
against Dr Edelsten, and Dr Edelsten is so opposing them.

Counsel for the fourteenth respondent referred to Cross

on Evidence, the Australian edition, 4th edition, paragraph

33520.   This is a fairly long paragraph, but it sets out in a

clear form the questions arising in respect of admissions made
outside court by one CO-defendant, and the effect of such an
admission on another CO-defendant, as to the effect that
statements can be evidence against one respondent, but not
another, with results which sometimes appear to be rather

unusual, I read the first part of the passage:

"The out-of-court admission of a CO-defendant, CO-
plaintiff, or CO-accused, is not admissible evidence
against his fellow party to the litigation by virtue of
the mere fact that they are jolnt parties or said to be

jointly involved in a particular transaction. This

principle applies in all cases, but is most vividly
illustrated by its application to divorce proceedings
where, as was seen in discussing the principle of
multiple admissibility in chl, there may be a finding on
account of A's extra-judicial admission, that A committed
adultery with B although there is no finding that B
committed adultery with A, because the admission comes
within the rule against hearsay, and outside any
exception to it so far as B is concerned.

That decision does not mean that what was in effect the same act was committed by one person, but not committed

by another, it means it is proved against one, but it is

not proved against the other."

There is then a further passage in which a warning is given that extra-judicial admissions "may be received on some other ground other than that it is an admission".

Reference was made also to a number of authorities

including Rutherford v Richardson [l9231 AC 1, and in
particular per Lord Birkenhead at page 6. I do not propose to
read that passage, but it is an illustration of the statement

in Cross as to the problems of an admission outside court by
one party and the effect on another. Reference was made also
to Jones v Sutherland Shire Council [l9791 2 NSWLR 207, and in

particular to passages by Huttley JA appearing at pages 211

and 212. This is to the same effect, but adds a gloss in

relation to an admission by a predecessor in title of a person

being a party to a proceeding.

Senior counsel for the applicant was not concerned to

dispute these principles. He contended that the ruling being

sought was based upon a misunderstanding of the issue raised	, .
by the proceeding. It was clear, it was contended, that the 14th respondent claimed title through the VIP companies, and in particular the ninth respondent, pursuant to the sale	i
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agreement of 13 February 1992.	Counsel contended that the	I I
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only claim the 14th respondent had, and could have, was to the	I
title in the relevant property which it had acquired from the	!
ninth respondent. Put another way, it was said that at the time of such agreement, when the 14th respondent purported to
acquire the assets and rights of the ninth respondent on 13

February 1992, the question of who owned or was entitled to the property in dispute was the issue, the VIP companies or Dr

Edelsten. In order to establish that Dr Edelsten was owner,

evidence of conduct, including statements, both by Dr Edelsten
and of other persons involved, is, it was contended,
admissible, not being a case of admissions against interest as
against the 14th respondent or its predecessor in title, but

as conduct showing that Dr Edelsten was in fact the true owner

of the property. This evidence of conduct on the part of Dr

Edelsten was proved, it was said, by the evidence of other	:,.
persons of events and of statements and of actions which
tended to prove that Dr Edelsten, in reality, was the owner of
the VIP clinics and of the shares in the VIP companies.	I.
It is not unusual in cases under the Bankruptcy Act for matters of this kind to be raised.	In most cases the position

is that the bankrupt apparently is the owner of property, but
claims that he in reality is not the owner. This is a

variation of that, but the issues in my opinion are the same.

What has to be determined is who owned the property. It seems

to be not disputed that the evidence the subject of the
present application can be used as between Dr Edelsten and the

VIP companies and the applicant on the question of the

ownership of the property. What is disputed is whether that 1.'

evidence can be used against the 14th respondent in
proceedings in which the question arises as to the title

between the applicant and the 14th respondent.

I accept the contentions of counsel for the applicant as

being correct. The evidence, being the statements, is
admissible as being directed to prove ownership at the time
both of the sequestration order and the 3 year period

thereafter in relation to after acquired property.

This is

all at a time before the 14th respondent became involved. Of
necessity this evidence relates to events which occurred
before 13 February 1992. Statements by Dr Edelsten admitted
as against the other respondents, the 2nd to 13th respondents,
goes to conduct and to the title of the property in dispute.

It is all directed to the question of who was in truth the

owner of the property. It is directed to conduct and is

admissible on that basis.

In my opinion this same evidence is admissible as against

the 14th respondent. In this regard it may well be that the

evidence itself is not admissible as to the truth of the

statements contained in them. It is not a case of

admissibility of evidence against interest of the 14th
respondent. It is evidence which can be used, in my opinion,
against the 14th respondent on the question of the ownership
of the assets of, in this case, the 9th respondent which

purported to sell them to the 14th respondent. Declaration 7

is an essential part of this process. It is a nice question, -

in these circumstances, whether the Court should look at it as
a matter of methodology of determining questions as between
the 1st and the 13th respondents before coming to the 14th
respondent, or whether the Court must be required to look at
the whole of the evidence and treat the whole lot as one, as it were, and make findings at one time. But logically there

is much force in the contention that what has to be determined
is whether at the date of the bankruptcy or during the period

of the bankruptcy, this property had vested in the trustee in

bankruptcy. If it had, that may well affect the position of

the 14th respondent. The 14th respondent contends that
evidence as to conduct during that relevant period cannot be
used against the 14th respondent because of the rule against
hearsay insofar as it consists of statements, but at the same
time seems to accept that conduct other than statements may

well be admissible. That is something which I will need to
decide in due course, but at the present time I make a ruling
that the evidence of the statements in dispute, although it
cannot-be used as admissions against interest by the 14th
respondent, are relevant on the question of conduct of Dr
Edelsten and other persons connected with the VIP companies.

The statements can be used in that sense against the 14th

respondent.	In this regard to a large extent the ruling being
sought is not the right question.	In my opinion it is a

question that may need to be looked at further during final
submissions, but at the present time I do not make the ruling

sought.

I admit the evidence on the basis that it is evidence of

conduct of Dr Edelsten and the other persons connected with

the VIP companies and to that extent can be used against the

. ..

14th respondent.

I certify that this and the preceding thirteen (13) pages are

a true copy of the Ex Tempore Reasons for Judgment of the

Honourable M r Justice R.M. Northrop.

/-- - . L./;\

Associate :  / ~ t t -&

Date:  /$ &tut 193 2-