BCI Finances Pty Ltd (in liq) v Binetter (No 4)

[2016] FCA 1351

FEDERAL COURT OF AUSTRALIA

BCI Finances Pty Limited (in liq) v Binetter (No 4) [2016] FCA 1351

File number:

SAD 5 of 2015

Judge:

GLEESON J

Date of judgment:

18 November 2016

Catchwords:

CORPORATIONS – directors’ duties – scheme for purpose of evading or avoiding liability to pay income tax – companies did not benefit from participation in scheme – whether directors breached duties – whether breach of duties resulted in tax liabilities – whether other respondents knowingly participated in breaches of duty

Legislation:

Corporations Act 2001 (Cth)

Evidence Act 1995 (Cth)

Foreign Evidence Act 1994 (Cth)

Income Tax Assessment Act 1936 (Cth)

Income Tax Assessment Act 1997 (Cth)

Taxation Administration Act 1953 (Cth)

Law Reform (Miscellaneous Provisions) Act 1944 (NSW)

Cases cited:

Allco Funds Management Ltd (Receivers and Managers Appointed) (In Liquidation) v Trust Company (RE Services) Ltd (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2014] NSWSC 1251

Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507

Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) [2005] FCA 1357; (2005) 147 FCR 235

Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345

Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 75 ACSR 1

BCI Finances Pty Limited v Commissioner of Taxation [2012] FCA 855; (2012) 89 ATR 861

Beach Petroleum NL v Johnson [1993] FCA 392; (1993) 43 FCR 1

Belmont Finance Corporation v Williams Furniture Ltd (No 2) (1980) 1 All ER 392

Bilta (UK) Ltd (in liq) v Nazir [2015] UKSC 23; [2016] AC 1; [2015] 2 WLR 1168

Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384

Blatch v Archer (1774) 1 Cowp 63; 98 ER 969

Breen v Williams [1996] HCA 57; (1996) 186 CLR 71

Buzzle Operations Pty Ltd (In Liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233; (2010) 77 ACSR 410

Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178

Commissioner of Taxation v Firth [2002] FCAFC 95; (2002) 120 FCR 450

Commissioner of Taxation v Radilo Enterprises Pty Ltd [1997] FCA 22; (1997) 72 FCR 300

Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753; (2012) 89 ATR 357

Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450

Daniels v Anderson (1995) 37 NSWLR 438; (1995) 118 FLR 248

Department of Health v Arumugam [1988] VR 319; (1988) 30 ALR 117

DeputyCommissioner of Taxation v Austin [1998] FCA 1034; (1998) 28 ACSR 565

Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113

Dowling v Dalgety Australia Ltd (1992) 34 FCR 109

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471

Evans v Federal Commissioner of Taxation (1989) 20 ATR 922; (1989) 89 ATC 4540

Ex parte Ferguson; Re Alexander (1944) 45 SR (NSW) 64

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89

Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181; (2014) 87 NSWLR 435

Greenhalgh v Arderne Cinemas Ltd [1951] Ch. 286; [1950] 2 All E.R. 1120

Grimaldi v Chameleon Mining NL [2012] FCAFC 6; (2012) 200 FCR 296

Hampton Court Ltd v Crooks [1957] HCA 28; (1957) 97 CLR 367

Hitch v Stone [2001] EWCA Civ 63, [2001] S.T.C. 214

Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572

In re Halt Garage (1964 Ltd) [1982] 3 All ER 1016

John Alexander’s Clubs Pty Ltd v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722

Krstic v Brindley [2006] NSWSC 1414

Lewincamp v ACP Magazines Ltd [2008] ACTSC 69

Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Limited v Kation Pty Limited [2005] NSWSC 482

Li v The Herald and Weekly Times Pty Ltd [2007] VSC 109; (2007) ATR 81-887

Macleod v The Queen [2003] HCA 24; (2003) 214 CLR 230

Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449

Mills v Mills [1938] HCA 4; (1938) 60 CLR 150

Mitchell v Cullingral Pty Ltd [2012] NSWCA 389

O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262

Parker v Paton (1941) 41 SR (NSW) 237

Paul’s Retail Pty Ltd v Sporte Leisure Pty Ltd [2012] FCAFC 51; (2012) 202 FCR 286

Permanent Building Society (in Liq) v Wheeler (1994) 11 WAR 187; (1994) 12 ACLC 674; (1994) 12 ACSR 109

Peters’ American Delicacy Co Ltd v Heath [1939] HCA 2; (1939) 61 CLR 457

Pilmer v The Duke Group Ltd [2001] HCA 31; (2001) CLR 165

R v Cuenco [2007] VSCA 41; (2007) 16 VR 118

Re Hampshire Land Co [1896] 2 Ch 743

Re Marseilles Extension Railway Co Ex p. Credit Foncier and Mobilier of England (1871) LR 7 Ch App 161

RHG Mortgage Ltd v Ianni [2015] NSWCA 56

Sharrment Pty Ltd & Ors v Official Trustee in Bankruptcy [1988] FCA 266; (1988) 18 FCR 449

Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch 246

Sheahan v Thompson (No 2) [2015] NSWSC 871

Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405

Smithton Ltd v Naggar [2014] EWCA Civ 939; [2015] 1 W.L.R. 189

Snook v London & West Riding Investments Ltd [1967] 2 QB 786

Spies v The Queen [2000] HCA 43; (2000) 201 CLR 603

Stone & Rolls Ltd (In Liquidation) v Moore Stephens (A Firm) [2009] UKHL 39; [2009] 1 A.C. 1391

Target Holdings Ltd v Redferns [1996] AC 421

Texxcon Pty Ltd v Austexx Corporation Pty Ltd [2011] VSC 203

Thomson v Golden Destiny Investments Pty Limited [2015] NSWSC 1176

Tobin v Ezekiel [2012] NSWCA 285; (2012) 83 NSWLR 757

Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125; (1996) 9 ANZ Insurance Cases 61-385

Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333

United Group Resources Pty Ltd v Calabro (No 5) [2011] FCA 1408; (2011) 198 FCR 514

Wardley Australia Limited v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514

Whitton v Regis Towers Real Estate Pty Ltd [2007] FCAFC 125; (2007) 161 FCR 20

Austin RP and Ramsay IM, Ford’s Principles of Corporations Law (16^th ed, LexisNexis Butterworths, 2014)

Hayne, KM. “Directors Duties and a Company’s Creditors” (2014) 38 MULR 795

Heydon JD, Cross on Evidence (10^th ed, LexisNexis Butterworths, 1970)

Date of hearing:

21 August 2015, 1, 2, 3, 4, 7, 9, 28 and 29 September 2015

Registry:

New South Wales

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Category:

Catchwords

Number of paragraphs:

1030

Counsel for the Applicant:

Mr JE Marshall with Mr JA Arnott, Mr B Mostafa and Ms C O’Neill

Solicitor for the Applicant:

Cosoff Cudmore Knox (Agent: Clayton Utz)

Counsel for the First, Fifth, Seventh and Ninth Respondents:

Mr ID Faulkner SC with Mr T Hollo

Solicitor for the First, Fifth, Seventh and Ninth Respondents:

Hoffmann & Koops

Counsel for the Second and Third Respondents:

Mr S Golledge with Mr  D Krokmalik

Solicitor for the Second and Third Respondents:

Brown Wright Stein

Counsel for the Fourth, Eighth and Tenth Respondents:

Mr DL Williams SC with Mr DL Cook and Mr ML Rose

Solicitor for the Fourth, Eighth and Tenth Respondents:

Polczynski Lawyers

Counsel for the Sixth Respondent:

Mr A Archibald QC with Mr CD Freeman

Solicitor for the Sixth Respondent:

ClarkeKann Lawyers

Table of Corrections
30 May 2017	In paragraph 259, “Hammershlag” has been replaced with “Hammerschlag”.
30 May 2017	In paragraph 447, “taxa” has been replaced with “tax”.
30 May 2017	In paragraph 866, “details” has been replaced with “detailed”.
30 May 2017	In paragraph 875, “EGL to EGL” has been replaced with “IDB to EGL”.
30 May 2017	In paragraph 887, “December 1998” has been replaced with “December 1988”.
30 May 2017	In paragraph 890(5), “(3) and (5)” has been replaced with “(3) and (4)”.
30 May 2017	In paragraph 894, “EGL to EGL” has been replaced with “Bank Hapoalim to BCI”.
30 May 2017	In paragraph 895, “ EGL to EGL” has been replace with “Bank Hapoalim to BCI”.
30 May 2017	In paragraph 899, “claimed by EGL” has been replaced with “claimed by BCI”.
30 May 2017	In paragraph 927, “[284] to [384]” has been replaced with “[285] to [305]”.
30 May 2017	In paragraph 937, “did not participated” has been replaced with “did not participate”.
30 May 2017	In paragraph 971, “lead” has been replaced with “leads”.
30 May 2017	In paragraph 1025, “2006, 2007 and 2007” has been replaced with “2006, 2007 and 2008”.
30 May 2017	In paragraph 1028, “EGL” has been replaced with “Binqld”.

ORDERS

SAD 5 of 2015

BETWEEN:

BCI FINANCES PTY LIMITED (IN LIQUIDATION)  (ACN 055 988 531)

First Applicant

E.G.L. DEVELOPMENT (CANBERRA) PTY LIMITED (IN LIQUIDATION) (ACN 008 517 646)
Second Applicant

LIGON 268 PTY LIMITED (IN LIQUIDATION) (ACN 051 824 081)
Third Applicant (and others named in the Schedule)

AND:

GARY ROBERT BINETTER IN HIS CAPACITY AS THE LEGAL PERSONAL REPRESENTATIVE OF THE LATE EMIL BINETTER

First Respondent

MARGARET BINETTER IN HER CAPACITY AS THE LEGAL PERSONAL REPRESENTATIVE OF THE LATE ERWIN BINETTER

Second Respondent

MARGARET BINETTER

Third Respondent (and others named in the Schedule)

JUDGE:	GLEESON J
DATE OF ORDER:	18 NOVEMBER 2016

THE COURT ORDERS THAT:

1.The proceedings against the third and fifth respondents be dismissed.

2.The matter be listed for hearing of submissions on orders to give effect to these reasons, and on the question of costs, on a date to be fixed.

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

REASONS FOR JUDGMENT
INDEX

The Commissioner’s proceedings?	[9]
Parties	[13]
Applicants	[13]
BCI	[13]
Directors of BCI	[17]
Shareholders of BCI	[25]
EGL	[27]
Directors of EGL	[31]
Shareholders of EGL	[37]
Ligon 268	[40]
Directors of Ligon 268	[45]
Shareholders of Ligon 268	[50]
Binqld	[51]
Directors of Binqld	[59]
Shareholder of Binqld	[61]
Respondents	[62]
General observations concerning the respondents and their activities in Australia	[68]
Erwin and Emil Binetter	[70]
Erwin Binetter	[73]
Gary Binetter	[76]
Michael Binetter	[77]
The Nudie juice business	[78]
“Binetter Entities”	[87]
Dealings with the Australian Taxation Office (“ATO”)	[100]
Israeli banks	[106]
Bank Hapoalim Israel	[106]
Baruch Etzion	[108]
Bank Hapoalim Switzerland	[114]
Israeli Discount Bank Limited	[115]
Principles concerning fact finding	[121]
Failure to give evidence	[121]
Destruction or suppression of evidence	[133]
Inferring knowledge from holding office as a director?	[136]
The liquidators’ case	[139]
The alleged scheme involving Israeli banks	[139]
Scheme	[142]
Purposes of the scheme	[144]
Summary of conclusions about the alleged scheme	[146]
The liquidators’ legal characterisation of transactions pursuant to the scheme	[154]
Loans	[154]
“Back-to-back” loans	[158]
Sham	[170]
Role of sham in the liquidators’ case	[170]
The liquidators’ case on “purported” transactions	[174]
Is there a dichotomy between “back-to-back” transactions and sham?	[178]
The offshore deposits and “back-to-back” arrangements	[188]
Knowledge of the offshore deposits as part of the relevant transactions	[199]
Source and ownership of the offshore deposits	[201]
Ms Huber’s evidence	[202]
Other evidence about the source of the deposits	[220]
Conclusions about source of the offshore deposits	[222]
Ronald Binetter’s evidence about ownership of offshore funds	[224]
Respondents’ submissions	[229]
Conclusions	[231]
When the existence of the offshore deposits was known	[236]
Michael Binetter’s “de facto” or “shadow” directorships	[239]
Summary of conclusions	[247]
Alleged directors’ duties	[252]
Fiduciary duties	[252]
Statutory duties	[265]
Common law and equitable duties	[267]
To whom are directors’ duties owed?	[270]
Informed consent	[278]
Alleged breaches of duty	[285]
Secondary liability	[306]
Knowing participation in breach of directors’ duties	[306]
Causation and loss	[314]
Alleged losses	[314]
The liquidators’ case on equitable compensation	[319]
Claim not pressed	[326]
Respondents’ argument that no loss suffered as a result of the revised tax assessments	[327]
Limitation periods	[333]
Breach of fiduciary duty	[333]
Breach of common law claims	[336]
Evidence	[337]
Parties’ agreement of evidentiary issues	[337]
Rulings	[340]
11 February 1998 file note	[340]
4 April 2007 file note	[346]
Transcript of examination of Mr Etzion	[354]
AUSTRAC records	[356]
Applicants’ tax affairs	[360]
Income tax returns as filed	[364]
BCI	[364]
EGL	[378]
Ligon 268	[388]
Binqld	[392]
ATO tax audit	[397]
The revised assessments	[421]
BCI	[421]
EGL	[427]
Ligon 268	[433]
Binqld	[439]
The revised assessments generally	[442]
Challenges to the revised assessments	[445]
Summary of flow of funds from Israeli banks to the applicants	[450]
Summary of use of funds	[456]
Funds advanced to BCI	[457]
Funds advanced to EGL	[460]
Funds advanced to Ligon 268	[463]
Funds transferred to Binqld	[464]
Chronological Factual findings: Dealings with Israeli banks	[465]
1989 income year and earlier	[466]
Commencement of the scheme	[467]
1990 income year	[478]
1991 income year	[483]
1992 income year	[492]
1993 income year	[496]
Erwin and Emil Binetter’s 1992 trip to Israel to arrange transaction with Bank Hapoalim	[496]
1994 income year	[548]
1995 income year	[571]
1996 income year	[573]
1997 income year	[576]
1998 income year	[581]
Commencement of Ligon 268’s dealings with IDB	[592]
1999 income year	[601]
2000 income year	[619]
2001 income year	[639]
2002 income year	[655]
2003 income year	[669]
2004 income year	[679]
Erwin, Michael, Andrew and Ronald Binetter’s trip to Israel	[680]
May 2004 transactions (including repayment of part advance from Bank Hapoalim to BCI)	[706]
2005 income year	[736]
Apparent capitalisation of interest on EGL loans	[743]
2006 income year	[754]
Increase of advance from Bank Hapoalim to BCI to $10 million	[762]
30 January 2006 correspondence	[762]
8 March 2006 correspondence	[766]
2007 income year	[788]
Payments by or on behalf of Ligon 268 to IDB	[818]
2008 income year	[819]
2009 income year	[837]
July to December 2009	[842]
2010	[850]
2011	[855]
February to April 2011: repayment of BCI loan	[855]
From 2012	[866]
Conclusions	[870]
The establishment of the scheme involving the Israeli banks	[870]
Purposes of the scheme	[875]
Results of the scheme	[883]
Respondents who gave effect to the scheme	[887]
The Bank Hapoalim transactions	[889]
Purposes of the Bank Hapoalim transactions	[893]
Results of the Bank Hapoalim transactions	[899]
Respondents who participated in the transactions between BCI and Bank Hapoalim	[902]
Further transactions between IDB and EGL (1993 and 2000 calendar years)	[904]
The transactions between IDB and Ligon 268	[909]
The transactions between IDB and Binqld	[921]
Breaches of duty	[927]
Drawdowns and rollovers, and on-lending	[928]
BCI	[931]
EGL	[932]
Ligon 268	[934]
Binqld	[935]
Receiving and making payments	[936]
BCI	[937]
EGL	[941]
Ligon 268	[946]
Binqld	[947]
Lodging tax returns	[948]
Margaret Binetter	[949]
Gary Binetter	[966]
BCI	[966]
EGL	[975]
Knowing participation in breaches of duty	[980]
Erma, Milgerd, Ligon 158 and Ligon 159	[980]
Michael Binetter	[985]
BCI	[985]
EGL	[986]
Ligon 268	[988]
Binqld	[989]
Benefits arising from participation in breaches of duty	[990]
Consequences of the breaches of duty	[992]
BCI losses	[992]
Conduct which enabled BCI to earn assessable income	[992]
Lodgement of false tax returns	[1008]
Costs of winding up	[1010]
EGL losses	[1011]
Conduct which enabled EGL to earn assessable income	[1012]
Lodgement of false tax returns	[1015]
Costs of winding up	[1017]
Ligon 268 losses	[1018]
Conduct which enabled Ligon 268 to earn assessable income	[1018]
Lodgement of false tax returns	[1022]
Costs of winding up	[1024]
Binqld losses	[1025]
Conduct which enabled Binqld to earn assessable income	[1025]
Lodgement of false tax returns	[1026]
Costs of winding up	[1028]
ORDERS	[1029]

GLEESON J:

1. The applicants are four companies formerly associated with the families of Erwin and Emil Binetter, two brothers who came to Australia from Eastern Europe as refugees in 1950. Erwin and Emil Binetter are now both deceased.

2. After an extensive audit by the Australian Taxation Office (“ATO”) which commenced in about July 2006 (“tax audit”), the Commissioner of Taxation (“Commissioner”) issued notices of assessment, amended assessment and penalty assessment to the various applicants between December 2009 and July 2010 (“revised assessments”). In the case of the second applicant (“EGL” or “EGL Development”), the revised assessments go back as far as the year ended 30 June 1992. In order to issue revised assessments going back so far in time, the Commissioner was required to form the opinion that there had been fraud or evasion.

3. After several years disputing the revised assessments, the applicants went into liquidation. The joint and several liquidators of each of the applicants are John Sheahan and Ian Russell Lock (“liquidators”).

4. The liquidators claim that the applicants are entitled to the monetary relief from the respondents, quantified principally by reference to the tax liabilities arising from the revised assessments. Claims for relief are also made with respect to the costs of the winding up of the applicants and there are claims for ancillary relief in the nature of charging orders over various identified assets. The claims totalled over $120 million as at 27 September 2015.

5. In their opening submissions, the liquidators stated that the claims are primarily made on the basis of rights to equitable compensation.

6. The claims are pleaded in a second further amended statement of claim filed 7 September 2015 (“statement of claim”). In summary, claims are based on allegations of:

   (1)breach of fiduciary, common law, equitable and or statutory duties owed to the various applicants by various respondents who were directors of the applicants at various times; and

   (2)knowing participation by other respondents in the breaches of duty by the director respondents.

7. The alleged breaches by the director respondents concern the applicants’ dealings with two banks in Israel: the Bank Hapoalim in the case of the first applicant (“BCI” or “BCI Finances”) and the Israel Discount Bank (“IDB”) in the case of the other applicants.

1. The liquidators’ case is based on a complex analysis of the transactions between the applicants and the two Israeli banks, and on the factual context in which those transactions took place from 1988. In summary, the liquidators argue that the respondents participated in a scheme for the purpose of evading or avoiding liability to pay income tax. The alleged scheme involved, as an important element, using funds in Switzerland or Israel (sometimes referred to as “offshore deposits”) as security for advances from the Israeli banks of amounts equivalent to the offshore deposits. The liquidators contend that the respondents’ conduct in participating in the scheme led the applicants to incur the liabilities which arose when the revised assessments were issued. Those liabilities comprise income tax, penalties and interest incurred under the Income Tax Assessment Act 1936 (Cth) (“ITAA 1936”), the Income Tax Assessment Act 1997 (Cth) (“ITAA 1997”) and the Taxation Administration Act 1953 (Cth) (“TAA”). In summary, the liabilities arose from the disallowance of deductions for interest expenses claimed to have been paid to the Israeli banks and the inclusion of amounts transferred from the Israeli banks to the applicants as part of the applicants’ assessable income.

   The Commissioner’s proceedings?

2. Mr Williams SC, who appeared as senior counsel for the fourth, eighth and tenth respondents (“Andrew Binetter parties”) submitted that the proceedings should be characterised as the Commissioner’s proceeding. He noted that the common denominator in respect of the applicants is that all of them have outstanding tax assessments following the tax audit. Mr Williams SC also noted that the revised assessments had led to extensive litigation between the applicants and the Commissioner before both this Court and the Administrative Appeals Tribunal (“AAT”).

3. Mr Williams SC argued that the liquidators were appointed by or at the insistence of the Commissioner; the only creditor of the applicants (apart from related parties) is the Commissioner; the applicants are funded in this proceeding by the Commissioner; the applicants have been indemnified in respect of their costs (or a substantial part) in this proceeding by the Commissioner; the Commissioner has given an undertaking to the Court (by way of security for costs in respect of any adverse costs order); and the Commissioner has given security for the undertaking as to damages in relation to freezing orders made in the proceeding.

4. Mr Williams SC submitted that the Court should not be “distracted” by the “interposition” of the applicants or the liquidators between the Commissioner and these claims.

5. For their part, the liquidators emphasised that it was not necessary for them to show that the revised assessments by which the applicants incurred liabilities are correct. Their case was that the revised assessments are conclusive evidence of the due making of the assessments and that the amounts and particulars in the notices of assessment are relevantly correct: cf. ss 175 and 177 ITAA 1936.

   PARTIES

   Applicants

   BCI

6. BCI was incorporated on 1 May 1992. Its registered office was at 883 Rawson Road, Rose Bay, New South Wales, the home address of Erwin and Margaret Binetter, from 17 October 1996. BCI’s principal place of business was at that address from 30 June 1994.

7. Erwin Binetter died on 25 August 2009. His widow, Margaret Binetter, in her capacity as legal personal representative of the late Erwin Binetter, is the second respondent. Margaret Binetter is also the third respondent. Erwin and Margaret Binetter are the parents of Andrew Binetter, the fourth respondent and Michael Binetter, the sixth respondent. They are also the parents of Ronald Binetter, who gave unchallenged affidavit evidence on behalf of the applicants. I accept Ronald Binetter’s evidence.

8. According to BCI’s amended appeal statement (“BCI’s tax appeal statement”) filed in Federal Court proceedings NSD 626 of 2011 (“BCI’s tax appeal”), at all material times BCI carried on business as a financier “on lending funds it obtained to other entities who used the funds for business purposes”.

9. BCI was:

   (1)placed in administration under the provisions of Pt 5.3A of the Corporations Act on 5 March 2014;

   (2)wound up by resolution of its creditors passed pursuant to s 439C of the Corporations Act on 23 April 2014; and

   (3)wound up by order of this Court made on 27 August 2014.

   Directors of BCI

10. Erwin Binetter was a director of BCI from 4 May 1992 until his death on 25 August 2009.

11. Erwin’s brother, Emil Binetter was a director of BCI from 4 May 1992 to 22 November 2012. Emil Binetter died on 17 December 2014. His son, Gary Binetter, in his capacity as legal personal representative of the late Emil Binetter, is the first respondent. Gary Binetter is also the fifth respondent.

12. An ASIC search shows that Margaret Binetter, Andrew Binetter and Gary Binetter were also directors of BCI, from 25 January 1994.  There is a minute of a meeting of the directors of BCI held on 25 January 1994, which records the consents to these appointments.

13. There is a document entitled “Authority for Operations” which identifies the signature of persons authorised to operate an ANZ Bank account in the name of BCI. The document refers to an authority form dated 17 May 1993. There is an undated letter signed by Erwin and Emil Binetter which is probably the authority form. That letter requests that ANZ open a Swiss franc currency account for BCI. It lists Michael, Erwin, Emil, Gary and Andrew Binetter as individuals authorised to arrange transfer of fund by telephone and/or facsimile and purports to attach a list of authorised signatories and specimen signatures. The letter identifies Michael Binetter’s title as “authorised person”, and Erwin, Emil, Gary and Andrew Binetter each as “director”. The “Authority for Operations” also identifies Erwin, Margaret, Gary and Andrew Binetter as holding the office of “director”, while Michael Binetter is said to hold the office of “authorised signatory”. Each of Erwin, Emil, Margaret, Andrew, Gary and Michael Binetter provided specimen signatures on the “Authority for Operations”.

14. Despite these documents, I do not find that Margaret, Andrew and Gary Binetter were directors of BCI prior to the date recorded on the ASIC search. In my view, it is more likely that the documents were prepared in anticipation of their subsequent appointment as directors.

15. The liquidators allege that Michael Binetter was a “de facto” or “shadow” director of BCI from no later than 20 May 1993. That is, the liquidators allege that Michael Binetter was not formally appointed as a director of BCI, but that he was a person who acted at all times in the position of a director of BCI and/or a person in accordance with whose instructions or wishes the other directors of BCI were accustomed to act within the definition of para (b) of “director” in s 9 of the Corporations Act.

16. Michael Binetter is or was a solicitor, specialising in commercial tax law. Having regard to his professional background, I infer that he deliberately accepted the role of “authorised person” in connection with BCI and sought to avoid being appointed or identified as a director of BCI.

17. Although they each held the role of director of BCI from January 1994, the evidence does not suggest that either Margaret or Gary Binetter played an active role in the management of BCI. As will appear below, Erwin, Emil, Andrew and Michael Binetter were actively involved in the management of BCI at various times.

    Shareholders of BCI

18. At all relevant times, the shareholders of BCI were Erwin and Emil Binetter.

19. In the absence of any evidence to the contrary, I infer from the initial directorships and the shareholdings of BCI that Erwin and Emil Binetter caused the incorporation of BCI.

    EGL

20. EGL was incorporated on 20 June 1975. Its registered office was at 883 Rawson Road, Rose Bay from 28 October 1996 to 14 October 2014.

21. According to the statement of facts, issues and contentions filed by EGL in AAT proceedings 1704 to 1709 of 2011 (“EGL’s SOFIC”), the business of EGL was that of a finance company. There is no evidence that the nature of its business changed over the period of relevance to this case.

22. The Andrew Binetter parties did not dispute that the sole activity of EGL, from December 1988, was to operate as an intermediary in relation to transactions with IDB.

23. EGL was wound up in insolvency by order of the Supreme Court of New South Wales (“Supreme Court”) on 2 March 2015 on the application of the Deputy Commissioner of Taxation.

    Directors of EGL

24. Emil Binetter was a director of EGL from 31 January 1990 to 28 September 2001.

25. Erwin Binetter was a director of EGL from 18 July 1975 until his death on 25 August 2009.

26. Again, there is ample evidence that Erwin and Emil Binetter were actively involved in the management of EGL.

27. Andrew Binetter was a director and secretary of EGL from 28 September 2001 until at least 20 April 2012. He was actively involved in the management of EGL from around the time of his appointment as a director of EGL.

28. Gary Binetter was a director of EGL from 16 October 1996 to 28 September 2001. As for BCI, the evidence does not suggest that Gary Binetter played an active role in the management of EGL.

29. Michael Binetter was a director of EGL from 16 October 1996 to 28 September 2001. Thereafter, the liquidators allege, he was a “de facto” or “shadow” director of EGL.

    Shareholders of EGL

30. The shareholders of EGL were the seventh respondent (“Milgerd” or “Milgerd Nominees”) and the eighth respondent (“Erma” or “Erma Nominees”).

31. Milgerd is a combination of the names Emil and Gerda. At all relevant times, the shares in Milgerd were held by Emil Binetter and Gerda Binetter, Emil Binetter’s wife.

32. Erma is a combination of the names Erwin and Margaret. At all relevant times, the shareholders of Erma were Erwin Binetter (or his estate) and Margaret Binetter.

    Ligon 268

33. The third applicant (“Ligon 268”) was incorporated on 22 April 1991.  The company was incorporated, at the suggestion of Erwin Binetter, to be the trustee of the Bankstown Eye Trust. This trust was associated with Ronald Binetter, an ophthalmic surgeon. The paperwork for the incorporation of the company and the establishment of the trust, was arranged by Michael Binetter and presented to Ronald Binetter for signing.

34. In about 1998 or 1999, Ligon 268 expanded its activities to include lending funds to companies associated with Erwin Binetter.

35. The registered office of Ligon 268 was at 883 Rawson Road, Rose Bay from 16 July 1991 to 14 October 2014.

36. Ligon 268 was wound up in insolvency by order of the Supreme Court on 2 March 2015 on the application of the Deputy Commissioner of Taxation.

37. Ligon 268 conducted the administration of Ronald Binetter’s medical practice. Ronald Binetter paid the costs incurred by Ligon 268 along with a 15% service fee. Ronald Binetter’s income came from his surgical practice and he was not a signatory on Ligon 268’s bank accounts. When his practice became successful, he lent money to Ligon 268 at the request of Erwin Binetter.

    Directors of Ligon 268

38. Erwin Binetter became a director of Ligon 268 on 6 September 1991 and ceased to be a director on his death on 25 August 2009.

39. Andrew Binetter was a director and secretary of Ligon 268 from 30 June 1992.

40. Michael Binetter was a director of Ligon 268 from 5 July 1991 to 30 June 1992. Thereafter, the liquidators allege, he was a “de facto” or “shadow” director of Ligon 268.

41. Ronald Binetter was appointed as a director of Ligon 268 on 5 July 1991 and ceased to be a director on 27 March 1992, at his request.      

42. On the available evidence, the affairs of Ligon 268 were primarily managed by Erwin Binetter and Andrew Binetter at various times.

    Shareholders of Ligon 268

43. The shareholders of Ligon 268 were Erwin Binetter and Michael Binetter, with Michael Binetter owning 9 of the 10 issued shares.

    Binqld

44. The fourth applicant (“Binqld” or “Binqld Finances”) was incorporated on 12 March 2006. From incorporation until 12 December 2010, Binqld had its registered office at 883 New South Head Road, Rose Bay. This appears to be an alternate address for the home of Erwin and Margaret Binetter.

45. A file note of a meeting between Michael Binetter and Mark Douglass, lawyer, on 26 October 2007, records that Binqld was set up to “buy Emil’s shares on our side”.

46. However, in an affidavit affirmed by Andrew Binetter in AAT proceedings 275 to 277 of 2011 (“Binqld tax appeal”), Andrew Binetter stated that Binqld was “specifically set up for the purposes of borrowing money from IDB and then on-lending it to other entities for the purposes … outlined in” para 22 of his affidavit. Paragraph 22 states:

    Therefore in the second half of 2005, the following were the funding needs of the Binetter entities:

    (a)Ligon 158 required funds to start the construction work on the Pagewood premises;

    (b)Ligon 158 and Ligon 237 required funds to increase their investment in the Nudie business;

    (c)Tamarama Fresh Juices needed to purchase equipment for the Nudie and Tamarama business;

    (d)Funds to be paid to Winmar, which was the nominee for a partnership of investors, to enable Winmar as nominee to pay up its obligations concerning the investment in an Investec fund in Australia. Ligon 158 was one of the partners in that partnership.

47. The Pagewood premises mentioned by Andrew Binetter were premises owned by Ligon 158 and located at Corish Circle, Pagewood. Those premises were destroyed by fire in May 2004. According to Andrew Binetter, records destroyed in the fire included records of EGL, Ligon 158, Erma and BCI.

48. The Nudie juice business (described in more detail below) operated from the Pagewood premises, as did the business of Tamarama Fresh Juices, which owned the equipment located at the premises and supplied product manufactured to the Nudie juice business’s specifications. Michael Binetter also maintained an office from which he practised as a solicitor at the Pagewood premises from 1997 to at least October 2007.

49. Andrew Binetter’s affidavit evidence demonstrates that a substantial purpose for the establishment of Binqld was to obtain funds from IDB, to fund and invest in the Nudie juice business.

50. In his affidavit, Andrew Binetter also stated:

    At all times the only income-producing activity of Binqld was on-lending as referred to in this affidavit. The only receipt of Binqld was the interest payments received and any ancillary interest on bank accounts. The only assets of Binqld are the debts from on-borrowers of loans.

51. Binqld was wound up in insolvency by order of the Supreme Court on 2 March 2015 on the application of the Deputy Commissioner of Taxation.

    Directors of Binqld

52. Andrew Binetter was a director and secretary of Binqld from 12 April 2006. The available evidence shows that Binqld was principally managed by him.

53. The liquidators allege that, at all times, Michael Binetter was a “de facto” or “shadow” director of Binqld.

    Shareholder of Binqld

54. At all times, Michael Binetter was the sole shareholder of Binqld.

    Respondents

55. The roles of the first to sixth respondents as directors of the applicants are identified above.

56. Milgerd was incorporated on 4 November 1971. Emil Binetter was a director of Milgerd from 4 November 1971 until 22 November 2012. Gerda Binetter was a director from 4 November 1971 to 19 February 2003. Gary Binetter was a director of Milgerd from 18 January 1993. Milgerd appears to have been principally managed by Emil Binetter.

57. Erma was also incorporated on 4 November 1971. Erwin Binetter was a director of Erma from 4 November 1971 until his death. Margaret Binetter was also a director of Erma from 4 November 1971. Andrew Binetter was a director from 17 April 1996. The liquidators allege that Michael Binetter was a “shadow” director of Erma during an unspecified period. Both Erwin and Andrew Binetter participated in the management of Erma.

58. The ninth respondent (“Ligon 159”) was incorporated on 26 February 1988. Emil Binetter was a director of Ligon 159 from 9 May 1988 until 22 November 2012. Gerda and Gary Binetter were directors from 9 May 1988. As at January 2015, the shareholders of Ligon 159 were Gary Binetter, as well as his sisters, Debbie and Lisa Binetter.  In the absence of evidence that Gerda or Gary Binetter participated actively in the management of Ligon 159, it is more likely than not that Ligon 159 was principally managed by Emil Binetter.

59. The tenth respondent (“Ligon 158”) was also incorporated on 26 February 1988. Erwin Binetter was a director of Ligon 158 from 6 July 1991 until his death. Margaret Binetter was also a director of Ligon 158 from 6 July 1991. Andrew Binetter was a director from 9 May 1988. As with Erma, the liquidators allege that Michael Binetter was a “shadow” director of Ligon 158 during an unspecified period.

60. The shareholders of Ligon 158, as at January 2015, were Erwin, Margaret, Andrew, Michael and Ronald Binetter, as well as Peter Binetter, the fourth son of Erwin and Margaret Binetter.

    General observations concerning the respondents and their activities in Australia

61. The respondents were represented by four sets of lawyers. I will refer to Gary Binetter as legal personal representative of the late Emil Binetter, Gary Binetter in his own right, Milgerd and Ligon 159 as the “Gary Binetter parties”; Margaret Binetter as legal personal representative of the late Erwin Binetter and Margaret Binetter in her own right as the “Margaret Binetter parties” and Andrew Binetter, Erma and Ligon 158 as the “Andrew Binetter parties”. Michael Binetter was separately represented.

62. The respondents adduced no oral evidence in this proceeding, but the evidence tendered by the liquidators included affidavits made by Emil, Margaret, Andrew and Gary Binetter in tax appeal proceedings brought by the various applicants.

    Erwin and Emil Binetter

63. All causes of action subsisting against each of Erwin and Emil Binetter have survived against their respective estates: Law Reform (Miscellaneous Provisions) Act 1944 (NSW), s 2(1).

64. According to an affidavit affirmed by Andrew Binetter, Erwin and Emil Binetter conducted a shoe manufacturing business at Marrickville, Sydney until around 1990. At some time, they commenced investing in property and property development. As appears below, by the time of BCI’s incorporation in 1992, the brothers appear to have amassed a portfolio of property investments which they valued in the several millions of dollars. Erwin and Emil Binetter engaged in numerous joint business ventures. Examples are the shoe manufacturing business, and the joint ownerships and directorships of BCI and EGL.

65. Gary Binetter gave evidence, in an affidavit affirmed on 20 December 2012 in tax appeal proceedings brought by Civic Finance Pty Ltd (in liquidation) and Advance Finances Pty Ltd (in liquidation), to the effect that, in about 1997, Emil and Erwin Binetter had decided to separate their business dealings.  However, Emil and Gary Binetter continued to be directors of EGL until September 2001 and Erwin and Emil Binetter were directors of BCI until their respective deaths.

    Erwin Binetter

66. Erwin Binetter died in August 2009 at the age of 85. By April 2004, he had been diagnosed with dementia according to medical reports which were in evidence. Ronald Binetter gave evidence of accompanying Erwin Binetter on a trip to Israel in 2003, during which he observed his father to be physically unwell and showing early signs of vascular dementia and memory loss.  According to Ronald Binetter, Erwin Binetter told him that the purpose of the trip was to talk to the banks.

67. Ronald Binetter also gave an account of conversations with Erwin Binetter in around 2007 or 2008 in which Erwin Binetter said:

    When Nudie is sold, there will be millions of dollars in profit and I will give you a percentage of my share.

68. Ronald Binetter’s evidence was that, based on these conversations, he trusted his father. I infer that Ronald Binetter did not consider that Erwin Binetter lacked mental capacity at the time of the conversations, to the point where Ronald Binetter did not place trust in him. Thus, although I accept that Erwin Binetter was diagnosed with dementia, I do not find that he lacked mental capacity to make decisions affecting various of the applicants at any point in time prior to his death.

    Gary Binetter

1. Between 1986 and 2007, Gary Binetter was employed as a flight steward with Qantas Airways. ASIC searches show that he had an address in Double Bay, in Sydney, while he was a director of BCI and EGL. In more recent times, Gary Binetter has lived in Israel.

   Michael Binetter

2. According to Ronald Binetter, Michael Binetter worked at law firms including Speed & Stracey, Andersen Legal, Kevin Munro & Associates and, as of 15 July 2015, operated his own law firm called Binettervale Lawyers. In more recent times, Michael Binetter has resided in New York.

   The Nudie juice business

3. In May 1990, Erwin Binetter set up a company called Tamarama Fresh Juices Pty Ltd and appointed himself and Andrew Binetter as its directors. The company bought a business called Tamarama Fresh Juices, which operated from Marrickville.  According to Andrew Binetter, Erwin Binetter arranged the funding to buy this business and, in about 1992, to buy out a competitor to increase the scale of the juice operation.

4. Between 1990 and 1993, the juice business tripled in size. To accommodate it, Erwin Binetter organised the purchase of the Pagewood premises.  The premises were owned, at least by July 2003, by Ligon 158.

5. Andrew Binetter was appointed a director of Nudie Pty Ltd from about 31 October 2002. Ligon 158 is a shareholder in Nudie Pty Ltd, and also a shareholder in Nudie Foods Pty Ltd.

6. The Nudie brand was launched in January 2003. From July 2003, the Nudie juice business was carried out from the Pagewood premises.

7. In May 2004, Andrew Binetter was appointed a director of Nudie Foods Pty Ltd.

8. On 12 July 2004, Andrew Binetter was appointed a director of Nudie Foods Australia Pty Ltd. Andrew Binetter became the Chief Operating Officer of the Nudie juice business in October 2004, and the Chief Executive Officer in March 2005.

9. According to an affidavit affirmed by Andrew Binetter in the Binqld tax appeal, in 2005 Erwin Binetter expressed the view that “[w]e should take every opportunity to increase our interest in Nudie so that we can effectively control Nudie”. Thereafter, according to Andrew Binetter, steps were taken to achieve that end.

10. In this affidavit, Andrew Binetter recounted how he had described the Nudie juice business to IDB bank officers in late 2005 as follows:

    28.      … In March 2005 I was appointed CEO of the Nudie fruit juice business.  The juice business has really taken off in Australia.  Nudie was the No. 1 new company start-up in 2004 as voted by Australian Business Review Weekly Magazine, which is the Australian equivalent of Forbes Magazine.  We are getting a lot of good financial press in the Australian Business media.  We have even been in discussion with a Richard Branson company with a view to acquiring it.  Nudie is being sold in more than 4,000 shops in Australia including major supermarket chains.  Nudie employs more than 100 people.

    29.      … CHAMP, who are Australia’s largest private equity business owned by Castle Harlan in New York in 2004 invested an initial investment of $5.5 million in the Nudie business.  This investment values the business Nudie at $29 million.

    30.      … The fire at the factory in May 2004 where the Nudie business was being run from set the Nudie business back but we are rebounding from this set back.

    31.      The fire destroyed all the equipment used to manufacture the juices for the Nudie and Tamarama business but Nudie outsourced the manufacture to various premises around Australia.  But we need to get back into the Pagewood premises and manufacture the juice there, which will be more profitable for Nudie. My father wants to set up a new company to borrow monies from your bank so that it can on lend to Ligon 158, so that Ligon can rebuild the Pagewood premises so that Nudie can get back into its premises.  Also we want to borrow money so that Ligon 158 and Ligon 237 can increase their investments in the Nudie Group business.  Currently we own about 27.5% of Nudie, but my father wants to take control of Nudie because as you can see it is a growing business.  Tamarama Fresh Juices had the equipment for the juice business at the Pagewood factory which was also destroyed in the fire.  A loan is also needed so Tamarama can buy equipment for Nudie and the Tamarama business to be kept at the Pagewood premises.

    32.      … My father also wants to borrow monies to invest in the Investec Fund, it is a private equity fund run by David Gonski.  As you know he is a South African born Jewish Australian who is regarded as one of the best business minds in Australia.  He is Chairman of Investec.  David has invited my father to invest alongside him in the Fund.  Also the Binetter entities may need funding for other business purposes.

11. In late December 2014, the Nudie juice business was sold for approximately $80 million.

    “Binetter Entities”

12. The statement of claim defines, as the “Binetter Entities”, Erwin and Emil Binetter together with the third to tenth respondents. The expression “Binetter Entities” is used in the pleading of the fiduciary duties allegedly owed to the applicants by their various directors.  The use of the collective description “Binetter Entities” reflects the liquidators’ case that the respondents were collectively responsible for giving effect to a single scheme in which the respondents had agreed to participate from December 1988 or, alternatively, November 1993. The evidence did not support such a simple analysis. Rather, the evidence was that different respondents participated to different extents in the conduct to which the applicants pointed as evidence of the scheme, and the giving effect to the scheme. This is not surprising because the events on which the applicants relied spanned from 1988 to the present, that is, a period of over 25 years.

13. On the other hand, there is evidence that the affairs of the applicants were treated as “family” affairs, in which family members had an interest.

14. For example, in 2003, either Michael or Andrew Binetter told Ronald Binetter that they needed to discuss loans with the Israeli banks. Ronald was asked to come along so he could look after Erwin Binetter, who was not well. The fact that Ronald was asked and agreed to make this trip supports a conclusion that the dealings with the Israeli banks were for the ultimate benefit of Michael, Andrew and Ronald Binetter as well as their father. Erwin, Michael, Andrew and Ronald Binetter travelled to Israel to meet with Bank Hapoalim.

15. According to Ronald Binetter, sometime in the late 2000s, Michael Binetter said to him:

    Tax assessments have been received for a couple of the family companies. They are large tax assessments and they include Ligon 268.

16. Ronald Binetter gave evidence of a conversation with Andrew Binetter, around the time of Erwin Binetter’s death (that is, in August 2009), to the following effect:

    Ronald:       What are the assessments about?

    Andrew:They’ve assessed us for taxes on the basis that we have loans. They say that those loans are based on deposits we have with banks overseas and that’s the basis of the assessments.

    Ronald:       We do have money overseas.

    Andrew:We have money overseas and it is used as part of the security for the loans.

17. This conversation must have taken place after the issue of the revised assessments to one or more of the applicants. As noted earlier, revised assessments were issued to BCI and Binqld in December 2009.

18. In about August or September 2010, at a “family meeting”, Andrew Binetter said to Ronald Binetter:

    We need to go overseas again, Ron and you need to come with us  …

    Michael and I are in charge of our dispute with the tax office. If we cannot travel, because we have our passports taken, then we need you to know where we go.

19. In October 2010, Andrew, Michael and Ronald Binetter took a complicated trip to Switzerland and Israel, apparently for the purpose of protecting or promoting shared financial interests. First, they flew to Frankfurt, Germany. One of Andrew or Michael said to Ronald:

    We are going to Zurich but we don’t want an entry stamp into Zurich. We will fly into Frankfurt, then we will hire a car and we will drive from Frankfurt to Zurich.

20. In Zurich, Andrew, Michael and Ronald Binetter visited UBS and Bank Hapoalim. One of Andrew or Michael introduced Ronald Binetter to a banker at Bank Hapoalim.

21. After visiting Zurich, the three brothers travelled to Tel Aviv where they arrived on 31 October 2010. On 1 November 2010, they visited IDB. At IDB, they met a banker. One of Andrew or Michael introduced Ronald Binetter to her. Andrew and Michael participated in a lengthy meeting which Ronald Binetter left after about 30 minutes.

22. That night, after dinner, the brothers met Baruch Etzion. Mr Etzion was a former employee of Bank Hapoalim. The meeting was brief and the conversation was social and mostly between Andrew and Michael Binetter and Mr Etzion.

23. On 2 November 2010, the brothers flew back to London. On 3 November 2010, they flew to Lyon and drove to Geneva. After lunch at Geneva, they went to the offices of Bank Hapoalim. Andrew and Michael Binetter left Ronald Binetter at the reception for about 15 or 20 minutes and, when they returned, one of them introduced Ronald Binetter to a young banker. Andrew Binetter said: “We just want you to know where the bank is and how to get there”.

24. Finally, there is correspondence from Ligon 268 to IDB dated between November 2000 and May 2006 which is marked with file names that each included the words “family affairs”.

    Dealings with the Australian Taxation Office (“ATO”)

25. The dealings between various of the respondents on behalf of the applicants and the ATO over the period from 1988 to the present can be divided roughly into the following periods, which overlap to some extent:

    (1)The period during which the applicants lodged annual income tax returns upon which the Commissioner issued assessments;

    (2)The period of the audit of entities associated with members of the families of Erwin and Emil Binetter, including the applicants;

    (3)The period during which the applicants disputed the revised assessments issued following the audit.

26. As part of their case, the liquidators contended that the directors of the applicants “deliberately set out to conceal from, and therefore mislead, the Commissioner as to the precise, correct and true nature of the transactions entered into by BCI with Bank Hapoalim and by EGL, Ligon 268 and Binqld with IDB”. This submission reflects a case which did not always focus on the conduct of individual respondents.

27. During the second and third periods, the applicants were represented by the lawyer Mark Douglass in their dealings with the ATO. There is evidence that Andrew and Michael Binetter both gave instructions to Mr Douglass or staff of his law firm on the basis of which he dealt with the ATO on behalf of the various applicants. Generally, there was no evidence that Mr Douglass acted on the direct instructions of any of Emil, Erwin, Margaret or Gary Binetter.

28. In closing submissions, Mr Williams SC acknowledged, in very general terms, that there was conduct in the course of the tax appeal proceedings that no one would suggest was honourable conduct. However, he argued, the Court does not need to make detailed findings about the respondents’ conduct after the commencement of the tax appeal proceedings because that conduct is “legally inconsequential”.

29. On behalf of the liquidators, Mr Marshall SC argued that lies allegedly told by Andrew, Emil and Gary Binetter in affidavits in the tax appeal proceedings were relevant to the factual question of the ownership of offshore deposits that secured advances from the Israeli banks to the applicants. First, it was submitted that alleged lies by Andrew Binetter about the existence of a deposit provide a basis to infer that he was in a position to control the deposits. As set out below, I have found that Andrew was one of the members of the Binetter family who was in a position to control deposits that formed security for advances made by the Israeli banks to the various applicants. Even assuming that Andrew Binetter told the relevant lies, I do not accept that this evidence adds weight to this finding.

30. Second, it was submitted that the alleged lies assist to prove one of the components of the alleged scheme, namely that the existence of the deposits would not be disclosed. Andrew Binetter conceded that none of the respondents ever disclosed the deposits to the Commissioner. There is no evidence that any of the respondents ever had any intention to disclose the existence of the deposits to the Commissioner. Putting aside the question of the alleged scheme, there can be no serious doubt that the dealings between the Israeli banks and BCI and EGL were documented in a manner that was intended by the applicants to conceal the existence of the deposits. (The position of Ligon 268 and Binqld is different because there was minimal evidence of the terms of their dealings with IDB.) It is not necessary to make findings about the alleged lies to fortify that conclusion. Judgment writing should not be “a process that is oppressive and that produces unnecessary prolixity”: Mitchell v Cullingral Pty Ltd [2012] NSWCA 389 at [2] (Allsop P, McColl JA agreeing).

    Israeli banks

    Bank Hapoalim Israel

31. The liquidators contended that Bank Hapoalim is a banking corporation organised and existing under the laws of the State of Israel which, at all times material to this action, acted through its central bank at 50 Rothschild Boulevard, Tel Aviv, Israel. In BCI’s tax appeal statement, BCI referred to Bank Hapoalim as an entity with which BCI had entered into loan agreements in 1993, the duration of one of which was subsequently extended in about 1997 and in 2006.

32. There are documents obtained from Bank Hapoalim and other documents from which I infer that Bank Hapoalim was carrying on a business of banking in Israel, which included the provision of loans.

    Baruch Etzion

33. Mr Etzion made a statutory declaration dated 16 December 2009, in which he described himself as a lawyer admitted in Israel and a former Deputy General Manager of the Central Branch of Bank Hapoalim in the period 1985 to 1999. From 1999 to his retirement on 31 December 2001, Mr Etzion worked in the legal department of Bank Hapoalim. On 4 October 2011, Mr Etzion affirmed an affidavit in BCI’s tax appeal.

34. Mr Etzion was not called as a witness in this proceeding, however, the liquidators tendered the statutory declaration and the affidavit. The evidence of Deborah Huber, set out in detail below, strongly suggests that Mr Etzion had been corrupted by one or more members of the Binetter family. Ms Huber is the wife of Ronald Binetter. She gave evidence following the grant of a certificate under s 128 of the Evidence Act 1995 (Cth) and was not cross-examined. I accept Ms Huber’s evidence.

35. As set out in more detail below, Mr Etzion first met Erwin and Emil Binetter in about 1992. He was introduced to them by Mr Loew-Beer of IDB, Mr Etzion claimed to have been in charge of the “credit/loan department for major customers of the Bank” and, in that role, dealt with the “loans” given by Bank Hapoalim to BCI.

36. After their first meeting, Mr Etzion met Erwin and Emil Binetter occasionally in Israel over several years. The meetings occurred in his office at the bank. In November 1997, Mr Etzion was introduced to Andrew Binetter by Erwin Binetter – again, in Mr Etzion’s office in Israel.

37. The liquidators submitted that Mr Etzion was deployed on behalf of BCI to give evidence of fact as well as “expert” evidence to bolster the case of BCI in BCI’s tax appeal. Mr Etzion purported to give evidence of the banking practices of Bank Hapoalim. More significantly, in my view, Mr Etzion gave evidence of requesting “a list of assets so that we can see what the security will be” and evidence of the security for the “loans” to BCI without reference to the now admitted overseas cash deposits. In the light of those deposits, that evidence was plainly misleading. Andrew and Michael Binetter met with Mr Etzion in November 2010, after the revised assessments were issued. Andrew and Michael Binetter were in charge of the family’s tax disputes. It is likely that Andrew Binetter and Michael Binetter gave instructions to BCI’s lawyers for this misleading evidence to be served in BCI’s tax appeal. I find that they knew that the evidence was misleading at the time that it was served.

38. Mr Etzion also gave expert evidence of Israeli banking practices in support of tax appeal proceedings brought by Rawson Finances Pty Ltd (“Rawson Finances”), a company associated with Erwin and Andrew Binetter. The Andrew Binetter parties did not dispute that the effect of Mr Etzion’s evidence was that transactions with Israeli banks and in the amounts and of the type that were the subject of those proceedings were not unusual and did not require security other than personal guarantees. Such evidence would be irrelevant and misleading if the relevant transactions did, in fact, involve the provision of additional security such as cash deposits.

    Bank Hapoalim Switzerland

39. The liquidators contended that each of Bank Hapoalim (Switzerland) Limited, Bank Hapoalim (Schweiz) and Banque Hapoalim (Suisse) SA was, and together were, banks carrying on the business of banking in Switzerland from an office at 33 Stockerstrasse Zurich, Switzerland (together, “Bank Hapoalim Switzerland”) as part of and/or in conjunction with, the banking business operated by Bank Hapoalim. The written correspondence between Bank Hapoalim Switzerland and Bank Hapoalim supports an inference to this effect.

    Israeli Discount Bank Limited

40. The liquidators contended that IDB is a banking corporation organised and existing under the laws of the State of Israel which, at all times material to this action, acted from a branch at 16 Mapu Street, Tel Aviv, Israel.

41. In EGL’s SOFIC, EGL referred to IDB as an entity with which EGL had entered into loan agreements in 1988 and 1993.

42. In its statement of facts, issues and contentions (“Ligon 268’s SOFIC”) filed in AAT proceedings 1721 to 1730 of 2011 (“Ligon 268’s tax appeal”), Ligon 268 referred to IDB as an entity with which Ligon 268 had entered into loan agreements between about May 1998 and April 2006.

43. In its further amended statement of facts, issues and contentions (“Binqld’s SOFIC”) filed in the Binqld tax appeal, Binqld referred to IDB as an entity with which Binqld had entered into loan agreements in 2006 and 2007.

44. It was not in dispute that IDB carried on a business of banking in Israel, which included the provision of loans.

45. Hagai Peled and Fernanda Barisaac were representatives of IDB with whom some of the respondents had dealings.

    PRINCIPLES CONCERNING FACT FINDING

    Failure to give evidence

46. None of Margaret, Andrew, Gary and Michael Binetter gave evidence. The documentary evidence demonstrates that many of the relevant facts were matters about which Andrew, Gary or Michael Binetter could have given evidence.

47. Where a plaintiff has the onus of proving a matter, and “relevant facts are peculiarly in the knowledge of the defendant or where the defendant has the greater means to produce evidence relating to those facts”, then if the plaintiff provides sufficient evidence from which the matter may be inferred, “the defendant then comes under an evidential burden, or an onus of adducing evidence”: Krstic v Brindley [2006] NSWSC 1414 at [26].

48. Where a fact is peculiarly within the knowledge of a party to litigation, slight evidence of that fact may suffice to prove the fact unless that evidence is explained away by the party with the knowledge of the fact: Hampton Court Ltd v Crooks [1957] HCA 28; (1957) 97 CLR 367 at 375; Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [121]; Parker v Paton (1941) 41 SR (NSW) 237 at 243; Ex parte Ferguson; Re Alexander (1944) 45 SR (NSW) 64 at 67, 70.

49. A failure by respondents to deny or explain facts when it was in the respondents’ exclusive power to do so allows increased strength or weight to be given to primary facts favourable to the applicants and allows inferences favourable to the applicants to be more confidently drawn: United Group Resources Pty Ltd v Calabro (No 5) [2011] FCA 1408; (2011) 198 FCR 514 at [75]-[76]. The silence of a party may serve to resolve a doubt or an ambiguity regarding the existence of a fact, especially where the facts are peculiarly within the knowledge of the silent party: Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125; (1996) 9 ANZ Insurance Cases 61-385 at 142.

1. All evidence “is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted”: Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450 at [80], quoting Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 at [14]–[15], Hodgson JA (with whom Beazley JA agreed) said:

   [I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision …

   In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so …

2. In RHG Mortgage Ltd v Ianni [2015] NSWCA 56, McColl JA (with whom Sackville AJA agreed) said (at [76]):

   The circumstances for drawing a Jones v Dunkel inference are found where the uncalled witness is “a person presumably able to put the true complexion on the facts relied on [by a party] as the ground” for any inference favourable to the plaintiff: Jones v Dunkel (at 308) per Kitto J; Australian Securities and Investments Commission (ASIC) v Hellicar [2012] HCA 17; (2012) 247 CLR 345 (at [168]) per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ.

3. In the passage from Australian Securities and Investments Commission (ASIC) v Hellicar (2012) HCA 17; (2012) 247 CLR 345 to which McColl JA was referring, the High Court emphasised that a missing witness will only be significant where the evidence which such a person is expected to give would (not might) elucidate a particular matter in issue.

4. As to the significance to be given to the failure to adduce the evidence, that is explained in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 itself where it was said (at 308) per Kitto J (and see also at 312 per Menzies J, and at 320-321 per Windeyer J) that:

   [A]ny inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness.

5. This aspect of the principle is summarised in Cross on Evidence, where it is stated (at [1215]) that:

   [T]he rule [in Jones v Dunkel] only applies where a party is “‘required to explain or contradict”‘ something. What a party is required to explain or contradict depends on the issues in the case as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts “‘requiring an answer”‘.

   (Citations omitted).

6. Thus, there must be some existing basis in the evidence before the Court to support the inference which the party relying on the principle seeks to have drawn before the absence of evidence from the opponent takes on any significance.

7. In Paul’s Retail Pty Ltd v Sporte Leisure Pty Ltd [2012] FCAFC 51; (2012) 202 FCR 286, the Full Federal Court (Jacobson, Yates and Katzmann JJ) said (at [95]):

   The purpose of the rule is to enable the tribunal of fact to more readily draw an inference “fairly to be drawn from the other evidence” if a witness able to contradict that inference has not been called: State Bank (NSW) v Brown (2001) 38 ACSR 715 at [17]-[18] per Spigelman CJ. Such an inference is drawn, if at all, once all the evidence in the case is in. Before that can happen, there must first be an available inference against the party on the evidence: Manly Council v Byrne [2004] NSWCA 123 per Campbell J, Beazley JA and Pearlman AJA agreeing at [54].

8. In Department of Health v Arumugam [1988] VR 319; (1988) 30 AILR 117 at 330, Fullagar J said:

   If all that is proved, by inference or otherwise, in the absence of explanation, is less than all the elements of proof required for the complaint to succeed, neither a total absence of explanation nor a non-acceptance of an explanation can by itself provide an element of proof required. It can enable already available inferences to be drawn against dishonest explainers with greater certainty, but that is all.

   Destruction or suppression of evidence

9. If a litigant (or their agent) does anything which tends to suggest a lack of confidence in that litigant’s position in litigation, this is a matter that can be taken into account and lead to an inference that the facts essential for the litigant to maintain his position are lacking: Li v The Herald and Weekly Times Pty Ltd [2007] VSC 109; (2007) ATR 81-887 (“Li v Herald and Weekly Times”) at [305]–[306].

10. Examples of such conduct include “the destruction of, or failure to produce, important relevant documents, particularly incriminating ones, and the subornation of a witness or the fabrication of evidence” as well as recourse to lies: Li v Herald and Weekly Times at [306], [309]; Tobin v Ezekiel [2012] NSWCA 285; (2012) 83 NSWLR 757 at [60]–[62]. Statements by a litigant that he is unable to recollect an event or the details thereof may, in combination with other evidence, evidence a consciousness of liability: R v Cuenco [2007] VSCA 41; (2007) 16 VR 118 at [20].

11. The inference to be drawn depends on the consciousness that is demonstrated by the litigant’s conduct. Conduct, including bribery or destruction of evidence, may be such as to suggest a consciousness that the litigant’s case is generally weak. Conduct such as the failure to produce a specific document or witness may indicate a weakness of a specific part of the case:  Li v Herald and Weekly Times at [307].

    Inferring knowledge from holding office as a director?

12. On behalf of the liquidators, Mr Marshall SC made a submission that the directors’ knowledge of the offshore deposits could be inferred from the fact that they held the office of directors. It was not clear whether he sought to have a wider submission that knowledge of a director as to the company’s activities could be inferred from the fact of holding office as a director.

13. I do not accept that there is a general proposition as to the inferences of knowledge that may be drawn from the fact that a person holds office as a director. In my view, this must depend upon the circumstances of the case and, in particular, any evidence about the director’s participation in the management of the company. I do not accept that the decision in Texxcon Pty Ltd v Austexx Corporation Pty Ltd [2011] VSC 203 supports a broader proposition.

14. A director’s continuing obligation to keep informed about the activities of the corporation (Daniels v Anderson (1995) 37 NSWLR 438; (1995) 118 FLR 248 (“Daniels”) at 503) does not permit a general inference as to knowledge, not least because the relevant director may not have complied with that obligation.

    THE LIQUIDATORS’ CASE

    The alleged scheme involving Israeli banks

15. The liquidators’ case was based on the premise that the respondents participated in a “scheme” involving Israeli banks, for their benefit and, ultimately, to the detriment of the applicants. The scheme was allegedly implemented by four sets of transactions, involving:

    (1)BCI and Bank Hapoalim;

    (2)EGL and IDB;

    (3)Ligon 268 and IDB; and

    (4)Binqld and IDB.

16. The statement of claim pleads the scheme, its purposes and its result as follows:

    20.From a date no later than December 1988, or alternatively from a date no later than November 1993, each and all of Emil Binetter, Erwin Binetter, Margaret Binetter, Andrew Binetter, Gary Binetter, Michael Binetter, Milgerd Nominees, Erma Nominees, Ligon 159 and Ligon 158 (together, ‘“the Binetter Entities’”) agreed to participate in a scheme (‘the scheme involving Israeli banks’) whereby:

    20.1a company would be incorporated in Australia by the Binetter Entities, or a company would be acquired by the Binetter Entities (‘an Australian finance company’);

    20.2an Australian finance company would purport to enter into a transaction with an Israeli Bank;

    20.3the transaction between the Israeli Bank and the Australian finance company would be documented by the Binetter Entities or some of them so as to give the appearance that the transaction comprised a loan of funds from the Israeli Bank to the company, which was secured only by guarantees given by the Binetter Entities or some of them;

    20.4funds held or controlled by the Binetter Entities with banks or other entities outside of Australia (‘offshore funds’) equal to the amount of the purported loan from the Israeli Bank to the Australian finance company would be deposited with the Israeli Bank so as to constitute security to the Israeli Bank for the advance of funds to the Australian finance company (described as a ‘back-to-back’ arrangement) and interest would accrue on the offshore funds to the ultimate benefit of the Binetter Entities or some of them (‘offshore income’);

    20.5each and all of Emil Binetter, Erwin Binetter, Michael Binetter, Andrew Binetter and Gary Binetter would, in their own capacities, in their capacities as directors of the Australian finance company and, or, in their capacities as directors of the companies compromising the Binetter Entities, sign documents and have communications with the Israeli Bank by documentation:

    20.5.1to give the appearance of a loan from the Israeli Bank on terms as to interest, interest payments and repayment,  which  was  secured  by guarantees only; and

    20.5.2to conceal the offshore funds, the offshore income and the back-to-back arrangement;

    20.6funds received from the Israeli Bank would then be advanced by the Australian finance company under the control of the Binetter Entities to one or more of Milgerd Nominees and, or, Erma Nominees, at a purported rate of interest and on terms which matched the purported rates of interest and terms of the purported loan from the Israeli Bank;

    20.7in turn, the funds purportedly so loaned to Milgerd Nominees and, or, Erma Nominees would be further advanced by Milgerd Nominees to Ligon 159, or by Erma Nominees to Ligon 158, at terms and at rates of interest which match the terms and rates of interest of the purported loan and purported terms and purported rates of interest;

    20.8the funds further so advanced to Ligon 159 or Ligon 158 or to both would be used by Ligon 159 and by Ligon 158 in furtherance of business activities to earn income including, through investments and further advances, in property investments, in commercial retail investments, in commercial and residential property developments, in residential real estate investments, in nursing home businesses, and in fruit juice businesses; and

    20.9the Australian finance company which had purportedly borrowed monies from the Israeli Bank would declare, in its income tax return, as income, the interest from the monies which it had on-loaned directly or indirectly to one or more of Milgerd Nominees, Erma Nominees, Ligon 159 and, or, Ligon 158 and would claim, as a deductible expense under the Income Tax Assessment Act 1936 (Cth) against that income, an amount equal to the purported rate of interest which was purportedly payable to the Israeli Bank.

    21.      The purposes of the scheme involving Israeli banks were to:

    21.1allow the Binetter Entities to have the benefit in Australia of offshore funds, while the offshore funds accrued offshore income;

    21.2conceal the offshore funds and offshore income from the Commissioner of Taxation in Australia (‘the Commissioner’);

    21.3interpose the Australian finance companies between the Binetter Entities and the Israeli Banks;

    21.4arrange a situation whereby the Australian finance company and the Binetter Entities or some of them could claim deductible expenses in connection with the use by them in Australia of the offshore funds; and

    21.5thereby evade or, alternatively, avoid liability to pay income tax to the Commissioner.

    22.      As a result of the scheme involving Israeli banks:

    22.1the Australian finance companies incorporated or acquired by the Binetter Entities to enter into the purported loan transactions with Israeli banks claimed deductions for interest in each of their income tax returns for each financial year;

    22.2the Australian finance companies were exposed to a risk of audit by the Commissioner and a risk that the Commissioner would issue them with assessments or amended assessments which disallowed the interest expenses claimed as deductible expenses; and

    22.3the Binetter Entities acted so as to benefit those entities to the detriment of the Australian finance companies.

17. The liquidators’ case was the scheme was implemented using each of the applicants as an “Australian finance company”. The liquidators contended that the applicants could not ever have benefitted from the scheme and it should be inferred that they were never intended to. The liquidators acknowledged that the applicants derived significant interest income from the scheme, but argued that this was not a benefit because the interest income was always matched by an equivalent, or substantially equivalent expense paid to one of the Israeli banks.

    Scheme

18. The “scheme” as pleaded is the type of arrangement or course of conduct that might be described as a scheme within the meaning of Part IVA of the ITAA 1936. In that context, “scheme” is defined very broadly to mean:

    (a)any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

    (b)       any scheme, plan, proposal, action, course of action or course of conduct.

19. I am doubtful that the liquidators’ characterisation of the relevant arrangements or course of conduct as a scheme significantly advanced their case.

    Purposes of the scheme

20. In competition legislation, the “purpose” of an arrangement means the effect which is sought to be achieved. The purpose of an arrangement will typically be inferred from the nature of the arrangement, the circumstances in which it was made and its likely effect: Dowling v Dalgety Australia Ltd (1992) 34 FCR 109, particularly in the absence of evidence to the contrary from the parties to the arrangement.

21. I understood the liquidators’ case on the purposes of the scheme to be directed to the states of knowledge of the various participants in the scheme.

    Summary of conclusions about the alleged scheme

22. On the evidence set out below, I find that Erwin and Emil Binetter agreed to participate in a scheme involving EGL and IDB and, subsequently, BCI and Bank Hapoalim, broadly to the effect of the alleged scheme, although it will be necessary to be precise about the elements of the scheme that are supported by the evidence.

23. In particular, the scheme, as initially implemented, involved:

    (1)“back-to-back” arrangements by which funds, in the control of Erwin and Emil Binetter, deposited outside of Australia (“offshore deposits”) were used as security for advances of funds by the Israeli banks to the various applicants;

    (2)providing funds obtained pursuant to the “back-to-back” arrangements to various of the corporate respondents to assist in their business activities in Australia;

    (3)documenting the arrangements between the applicants and the Israeli banks so as to permit the applicants, if required, dishonestly to produce documents purportedly evidencing the arrangements but which did not disclose the offshore deposits;

    (4)lodging income tax returns on behalf of EGL and BCI which would declare no, or no significant, taxable income, because any income disclosed would be offset by substantially equivalent amounts claimed to be deductible expenses and generally (but not always) referable to payments to the Israeli banks, described in contemporaneous records as payments of interest to  the Israeli banks.

24. I also find that Milgerd, Erma, Ligon 159 and Ligon 158 were parties to the scheme from its inception. I do not find that Margaret Binetter agreed to participate in or facilitate a scheme of the kind alleged, or in any scheme to avoid or evade income tax. I find that each of Andrew and Michael Binetter agreed to participate in or took steps to facilitate the scheme at various times.

25. Ligon 268 and Binqld subsequently entered into transactions with IDB that involved the key elements of the scheme set out above. Ligon 268’s income tax returns were affected by its role as trustee of the Bankstown Eye Trust, but it did not disclose any significant taxable income from its activities as a lender of funds obtained from IDB.

26. Following from the conclusion that the scheme involved documenting the transaction in a manner which would not reveal the existence of the offshore deposits, I find that those who arranged the documentation intended to conceal the existence of the offshore deposits and any income earned from the deposits, principally by seeking to ensure that the applicants’ records would create the false impression that the terms of the transactions were not affected by the deposits.

27. Based on the elements of the scheme, I find that its purposes, and the purposes of those respondents who participated in it, included the following:

    (1)to allow various of the respondents to have the benefit in Australia of the funds comprising the offshore deposits, without transferring those funds to Australia;

    (2)to interpose the applicants between various of the respondents and the Israeli banks;

    (3)to arrange a situation whereby each of the applicants treated transfers of funds from the Israeli banks as loan funds and the applicants and various of the respondents claimed, as deductible interest expenses, amounts said to be liabilities to the Israeli banks, on the basis of documentation which, if produced by an applicant to the ATO, would enable the applicant to conceal dishonestly important aspects of the transactions with the Israeli banks (particularly, the existence of the offshore deposits and the recipient or recipients of interest paid on the offshore funds, but also the true quantum of payments made to the banks in consideration of their respective participations in the arrangements); and

    (4)to thereby evade liability to pay income tax to the Commissioner or to assist others to evade their tax liabilities.

28. As for the results of the scheme, I find that they included the following:

    (1)the applicants claimed deductions for overseas interest expenses in each of their income tax returns for the income years in respect of which the Commissioner ultimately issued the revised assessments;

    (2)each of the applicants was exposed to a risk that, in the event of a tax audit, the Commissioner would issue them with revised assessments which disallowed the interest expenses claimed as deductible expenses (and which treated as assessable income certain amounts received by the applicants from the Israeli banks), because the applicants would not produce documents and provide information to explain the totality of the relevant transactions and, therefore, would not substantiate the claimed deductions;

    (3)each of the applicants was exposed to a risk of that, in the event of a tax audit, the Commissioner would impose penalties and issue assessments requiring payment of interest on primary tax liabilities (including general interest charge and shortfall interest charge), because the documents and information supplied to support the interest expenses would not explain the totality of the relevant transactions and would cause ATO officers to strongly suspect, as was the case, that the advances from the Israeli bank were the subject of a security by way of a back-to-back deposit which may affect the correct tax treatment of both the advances and the claimed interest expenses; and

    (4)various of the respondents, in implementing the scheme, acted so as to benefit various of the respondents to the detriment of the applicants.

1. It follows that I find no breach of duty by Mrs Binetter and the case against her must be dismissed.

   Gary Binetter

   BCI

2. Gary Binetter was not a director of BCI at the time of the 1993 advances from Bank Hapoalim to BCI. He did not cause BCI to enter into those transactions.

3. To the extent that BCI entered into further transactions with Bank Hapoalim in November 1997, there is no evidence that Gary Binetter dealt with Bank Hapoalim or assisted Emil, Erwin, Andrew or Michael Binetter to deal with Bank Hapoalim.

4. There is also no evidence that Gary Binetter caused BCI to enter into any further transactions with Bank Hapoalim after November 1997. The most that can be said is that he was aware, in March 2004, of his father’s intention to “repay the loan to Bank Hapoalim” which apparently led to the payment of $6,188,757 by Ligon 159 to Bank Hapoalim.

5. There is no evidence that Gary Binetter took any steps, as a director of BCI, to give effect to the scheme involving BCI.  There is also no evidence that he took any particular role in the management of BCI.

6. The liquidators submitted that, from May 1993 (when he executed BCI’s request to open a Swiss franc account with ANZ), Gary Binetter “had knowledge of and agreed to participate in the Scheme and have BCI participate in the Scheme”. This submission was put on the basis of the following matters:

   (1)the only business of BCI from its incorporation until its winding up was to be used to take steps to implement the Scheme;

   (2)contrary to his sworn testimony, Gary Binetter plainly knew about the involvement of the Binetter family in back-to-back arrangements and appears to have held term deposits with IDB himself;

   (3)Gary Binetter participated in the advance of funds from IDB to permit “repayment” of Emil’s share of the Bank Hapoalim transaction in May 2004;

   (4)on about 18 February 2013 and 19 February 2013, Gary Binetter’s lawyers recorded that they became aware that Gary Binetter was aware of a deposit with IDB from 2004;

   (5)Gary Binetter attended the meeting with both Andrew Binetter and Michael Binetter with Mr Gicelter in Tel Aviv in June 2012 when instructions were given to seek to obtain or destroy the Bank Hapoalim file relating to BCI and the back-to-back arrangements;

   (6)when the true nature of the transactions was exposed in BCI’s tax appeal, Gary Binetter gave instructions to Mark Douglass that he should consent to orders joining him and ordering him to pay costs on an indemnity basis personally, which he would not have done had he any way of resisting the order (for example, in the basis that he had not known the true position).

7. Even assuming that the evidence supports findings in accordance with (1) to (6), I do not accept the liquidators’ submission. As to (1), the evidence does not reveal that Gary Binetter knew that BCI’s business was “to implement the Scheme”. I accept that Gary Binetter knew from May 1993 that BCI had foreign currency dealings, in Swiss Francs. I also find that Gary Binetter was aware that Emil Binetter’s dealings with IDB in 2004 involved back-to-back arrangements. The evidence also supports a conclusion that Gary Binetter was aware of back-to-back arrangements with BCI by June 2012. However, even if the 2004 dealings support a further inference that Gary Binetter knew that the dealings between BCI and Bank Hapoalim involved back-to-back arrangements, I am not satisfied that this knowledge leads to the further inference that Gary Binetter knew of the key elements of the scheme or that he agreed to participate in it or agreed that BCI should participate in it. Further, even if Gary Binetter agreed to participate in the scheme, there is no evidence that he did participate in the scheme by doing any particular thing or receiving any particular benefit.

8. As for Margaret Binetter, I do not accept that any relevant inference can be drawn from Gary Binetter’s consent to being joined to BCI’s tax appeal, and to an indemnity costs order against him in favour of the Commissioner in those proceedings. I am not persuaded that these matters support the proposed inference, particularly as to her state of mind at any particular time.

9. I am also not satisfied that Gary Binetter’s failure to give evidence lends support to any inference sought to be drawn by the liquidators in the case brought by BCI.

10. It follows that I find no breach of duty by Gary Binetter as a director of BCI.

    EGL

11. Gary Binetter was a director of EGL from 16 October 1996 to 28 September 2001. There is no evidence that he participated in any dealings between EGL and IDB.

12. There is also no evidence that Gary Binetter took an active role in the management of EGL or took any steps, as a director of EGL, to give effect to the scheme involving EGL.

13. The liquidators submitted that “[i]t should be inferred from Gary’s being a director of EGL, from Gary’s BCI-related involvement in the Scheme and from the similarities between the BCI transactions and the EGL transactions that Gary knew that the transactions that EGL was engaging in with [IDB] were transactions pursuant to the Scheme”. I do not draw this inference as to Gary Binetter’s knowledge. There is nothing to suggest that Gary Binetter knew of any dealings between EGL and IDB during the period of his directorship.

14. I am also not satisfied that Gary Binetter’s failure to give evidence lends support to any inference sought to be drawn by the liquidators in the case brought by EGL.

15. It follows that I find no breach of duty by Gary Binetter as a director of EGL.

    KNOWING PARTICIPATION IN BREACHES OF DUTY

    Erma, Milgerd, Ligon 158 and Ligon 159

16. Erma, Milgerd, Ligon 158 and Ligon 159 undertook various acts which furthered the scheme as implemented by the various applicants, including the provision of guarantees and the making of payments to the Israeli banks.  Some of those payments were treated by the applicants as deductible interest expenses.  Other payments were repayments of funds advanced by the Israeli banks on behalf of the various applicants.

17. It was a matter of importance to Erma, Milgerd, Ligon 158 and Ligon 159 whether their respective acts were facilitating or furthering the scheme because the scheme was implemented for purposes including the evasion of income tax.

18. Accordingly, the knowledge of Erwin, Emil and Andrew Binetter about the scheme, to the extent that they were directors of Erma, Milgerd, Ligon 158 and Ligon 159, must be imputed to those companies.

19. I am satisfied that this conduct amounts to participation in the various directors’ breaches of fiduciary duty in procuring drawdowns and in procuring payments to the Israeli banks in furtherance of the scheme because it was conduct which enabled those breaches to be committed.

20. I am not satisfied that Erma, Milgerd, Ligon 158 and Ligon 159 participated in the breaches of fiduciary duty involving the lodgement of the applicants’ income tax returns or in concealing the offshore deposits from the ATO.

    Michael Binetter

    BCI

21. Michael Binetter participated in the breaches of duty by Erwin, Emil and Andrew Binetter by the conduct described above which assisted those directors to procure the advances from Bank Hapoalim. I have previously found that he had knowledge at all relevant times of the terms of the transactions between Bank Hapoalim and BCI and of the purposes for which BCI engaged in the transactions.

    EGL

22. Within the period of his directorship of EGL, between October 1996 and September 2001, I infer that Michael Binetter made a deliberate decision to accept the role of director for the purpose of participating in the management of EGL including its dealings with IDB. That inference is based on the fact that Michael Binetter was a commercial lawyer who made a deliberate choice to accept the role of “authorised person” in connection with BCI. 

23. There is no direct evidence that Michael Binetter otherwise participated in breaches of duty by the directors of EGL. I do not infer from his role as director of EGL that he participated in the breaches of duty by the directors of EGL that did not occur within the period of his directorship.

    Ligon 268

24. There is no direct evidence that Michael Binetter participated in the breaches of duty by the directors of Ligon 268. I am not satisfied that there is evidence to support an inference that he participated in those breaches of duty.

    Binqld

25. Michael Binetter assisted in the completion of the documentation which was said by Andrew Binetter to have documented its “loans” from IDB.

    Benefits arising from participation in breaches of duty

26. Each of Erma, Milgerd, Ligon 158 and Ligon 159 benefited from their participation in the breaches of duty in that, by their participation, they obtained the use of the funds advanced to various of the applicant companies and, consequently, they claimed tax deductions for interest paid to the applicant companies thereby reducing their assessable income.

27. Michael Binetter benefited from his participation in the breaches of duty to the extent that they led to interest being earned on the offshore deposits in which he had an ownership interest.

    CONSEQUENCES OF THE BREACHES OF DUTY

    BCI losses

    Conduct which enabled BCI to earn assessable income

28. The primary tax liabilities levied against BCI, by the revised assessments, arose primarily from the fact that the ATO disallowed interest expense deductions claimed by BCI, thereby increasing its assessable income.

29. Those interest expense deductions were disallowed because they were not substantiated to the satisfaction of the ATO.

30. In the case of BCI, the interest expense deductions were largely (but not entirely) claimed by reference to payments made to Bank Hapoalim. Those payments were made pursuant to transactions between BCI and Bank Hapoalim that resulted from the breaches of duty of BCI’s directors in causing BCI to obtain advances from Bank Hapoalim.

31. For the 1997 income year, the primary assessment of $14,455.04 arose from disallowed interest expense deductions of about $21,000 being the difference between payments made to Israeli and the amount of the claimed deduction. BCI’s assessable income arose from its receipt of interest income on its borrowing of funds procured from Bank Hapoalim to BCI in May 1993, which funds were procured by the breaches of duty of Erwin, Emil and Michael Binetter.  That assessable income would not have been earned if the breaches of duty had not been committed.

32. Accordingly, the 1997 assessment is a loss that would not have suffered by BCI if there had not been those breaches of duty.

33. For the 1998 income year, BCI’s assessable income arose from its receipt of interest income on its borrowing of funds procured from Bank Hapoalim to BCI in May 1993, in respect of which there was an alteration to the currency of the facility and an extension to the duration of the facility in late 1997. Those changes were procured by Erwin, Emil, Andrew and Michael Binetter.  BCI’s assessable income arose from its receipt of interest income on its borrowing of funds procured from Bank Hapoalim to BCI in May 1993, which funds were procured by the breaches of duty of Erwin, Emil and Michael Binetter and which continued to be available to BCI by reason of the breaches of Erwin, Emil and Michael Binetter. Accordingly, the 1998 assessment is a loss that would not have been suffered by BCI apart from those individuals’ breaches of duty, including Andrew Binetter to the extent that income was earned after the late 1997 changes.

34. For the 1999 income year, BCI’s assessable income arose from its receipt of interest income on its borrowing of funds procured from Bank Hapoalim to BCI in May 1993, in respect of which there was, at least on the face of the available documents, an extension to the duration of the facility. That change was procured by Erwin, Emil, Andrew and Michael Binetter in breach of their respective duties as directors of BCI.  Applying the reasoning for the 1997 and 1998 income years, BCI’s assessable income was earned by reason of the breaches of duty of each of Erwin, Emil, Andrew and Michael Binetter. Accordingly, the 1999 assessment is a loss that would not have been suffered by BCI apart from those individuals’ breaches of duty.

35. For the 2000, 2001 and 2002 income years, there were no material changes to the arrangements between Bank Hapoalim and BCI. Accordingly, the 2000, 2001 and 2002 assessments are losses that would not have been suffered by BCI apart from the same breaches of duty of Erwin, Emil, Andrew and Michael Binetter.

36. There were also penalty assessments for the 2001 and 2002 income year. Those assessments arose because BCI earned the assessable income which it did not disclose. It follows that these assessments are losses that would not have been suffered by BCI apart from those breaches of duty of Erwin, Emil, Andrew and Michael Binetter.

37. During the 2003 income year, the arrangements between Bank Hapoalim and BCI were apparently extended to May 2004, in about November 2002. That change was procured by Erwin, Emil and Michael Binetter in breach of their respective duties as directors of BCI. Accordingly, the 2003 assessment is a loss that would not have been suffered by BCI apart from those breaches of duty of Erwin, Emil and Michael Binetter. As to Andrew Binetter, it is a loss that would not have been suffered by BCI apart from his breach to duty to the extent that the 2003 assessment includes income earned prior to the November 2002 extension of the facility.

38. There is also a penalty assessment for the 2003 income year. As for the 2001 and 2002 penalty assessments, this assessment arose because BCI earned assessable income in the 2003 income year which it did not disclose. Accordingly, this is a loss that would not have been suffered by BCI apart from the breaches of duty of Erwin, Emil and Michael Binetter. It is also a loss that would not have been suffered by BCI apart from Andrew Binetter’s breach of duty to the extent that it is referrable to assessable income earned prior to the November 2002 extension of the facility.

39. During the 2004 income year, the arrangements between Bank Hapoalim and BCI were probably extended to 30 November 2004. That change was procured by Erwin and Andrew Binetter in breach of their respective duties as directors of BCI. Accordingly, the 2004 assessment is a loss that would not have been suffered by BCI apart from the breaches of duty of Erwin, Emil and Michael Binetter, and the breaches of duty of Erwin and Andrew Binetter.

40. There is also a penalty assessment for the 2004 income year. This is a loss that would not have been suffered by BCI apart from the same breaches of duty as caused the loss arising from the 2004 assessment.

41. During the 2005 income year, there were further extensions of the arrangements between Bank Hapoalim and BCI, procured by Andrew and Michael Binetter. Accordingly, the 2005 amended assessment and the 2005 penalty assessment are losses that would not have been suffered by BCI apart from the breaches of Andrew and Erwin Binetter and the breaches of duty of Andrew and Michael Binetter.

42. During the 2006 income year, the arrangements between Bank Hapoalim and BCI were managed by Andrew Binetter. This included procuring the advance of A$3,850,000 in April 2006. It follows that the assessable income earned by BCI in that year was earned by reason of Andrew Binetter’s breaches of duty to BCI. Accordingly, both the 2006 amended assessment and the 2006 penalty assessment are loss that would not have been suffered by BCI apart from Andrew Binetter’s breaches of duty to BCI.

43. For the 2007 and 2008 income years, there were no material changes to the arrangements between Bank Hapoalim and BCI. Accordingly, the 2007 and 2008 amended assessments and the 2007 and 2008 penalty assessments are losses that would not have been suffered by BCI apart from the same breaches of duty of Andrew Binetter.

    Lodgement of false tax returns

44. I have previously found that each of the directors of BCI who lodged the relevant tax returns on behalf of the company breached their fiduciary duties by doing so because they acted in a manner that was detrimental to the interests of the relevant company.

45. The consequence of those breaches of fiduciary duty was that BCI suffered the losses identified in the various penalty assessments, as well as liabilities for interest on the primary tax liabilities.

    Costs of winding up

46. The costs of the winding up would not have been incurred but for BCI incurring the tax liabilities which it was unable to pay. Therefore, the costs of the winding up are losses that were inflicted upon BCI by the various directors in causing BCI to incur those tax liabilities.

    EGL losses

47. The same reasoning applies to the losses incurred by EGL. In particular:

    Conduct which enabled EGL to earn assessable income

48. Applying the same reasoning as for BCI, the revised assessments for the 1992, 1993, 1994, 1995 and 1996 income years are losses that would not have been suffered by EGL apart from the breaches of duty of Erwin and Emil Binetter.

49. The revised assessments for the 1997, 1998, 1999, 2000 and 2001 income years are losses that would not have been suffered by EGL apart from the breaches of duty of Erwin, Emil and Michael Binetter.

50. Thereafter, the revised assessments for the 2002 to 2007 income years are losses that EGL would not have suffered apart from the breaches of duty of Andrew and Erwin Binetter.

    Lodgement of false tax returns

51. Andrew and Michael Binetter were responsible for the lodgement of the EGL 2002 to 2007 income tax returns. They breached their fiduciary duties to EGL in lodging those returns without documents to explain the transactions relied upon to claim deductions for overseas interest expenses, thereby exposing EGL to penalty assessments.

52. The consequence of those breaches of fiduciary duty was that EGL suffered the losses identified in the various penalty assessments, as well as liabilities for interest on the primary tax liabilities.

    Costs of winding up

53. The costs of the winding up would not have been incurred but for EGL incurring the tax liabilities which it was unable to pay. Therefore, the costs of the winding up are losses that were inflicted upon EGL by the various directors in causing EGL to incur those tax liabilities.

    Ligon 268 losses

    Conduct which enabled Ligon 268 to earn assessable income

54. The connection between the breaches of duty and the losses is more complex in the case of Ligon 268 because it earned assessable income from sources apart from its dealings with the Israeli banks.

55. The adjustments to Ligon 268’s assessable income in the revised assessments included overseas income (except for the 2007 year). It was the conduct of Erwin and Andrew Binetter, in breach of their respective duties to Ligon 268 which enabled Ligon 268 to earn this assessable income to which Ligon 268 was eventually assessed by the various revised assessments.

56. To the extent that Ligon 268’s assessable income was increased by the disallowance of deductions for “interest expenses overseas”, I do not find that the additional primary tax liability was caused by the breaches of duty. Rather, that liability probably arose from income earned from other sources.

57. However, Erwin and Andrew Binetter’s breaches of their respective duties led to Ligon 268’s liabilities to pay penalties and shortfall interest charges. Thus, but for the conduct of Erwin and Andrew Binetter in breach of their respective duties to Ligon 268, Ligon 268 would not have suffered those losses in the revised assessments issued to that company.

    Lodgement of false tax returns

58. Andrew and Michael Binetter were responsible for the lodgement of the Ligon 268 2005 to 2007 income tax returns. They breached their fiduciary duties to Ligon 268 in lodging those returns without documents to explain the transactions relied upon to claim deductions for overseas interest expenses, thereby exposing Ligon 268 to penalty assessments.

59. The consequence of those breaches of fiduciary duty was that Ligon 268 suffered the losses identified in the 2005 to 2007 penalty assessments, as well as liabilities for interest on the primary tax liabilities.

    Costs of winding up

1. The costs of the winding up would not have been incurred but for Ligon 268 incurring the tax liabilities which it was unable to pay. Therefore, the costs of the winding up are losses that were inflicted upon Ligon 268 by Erwin and Andrew Binetter in causing Ligon 268 to incur those tax liabilities.

   Binqld losses

   Conduct which enabled Binqld to earn assessable income

2. Applying the same reasoning as for BCI, the 2006, 2007 and 2008 amended assessments are losses that would not have been suffered by Binqld apart from the breaches of duty of Andrew Binetter. Similarly, the 2006, 2007 and 2008 penalty assessments are losses that would not have been suffered by Binqld apart from the breaches of duty of Andrew Binetter.

   Lodgement of false tax returns

3. Andrew and Michael Binetter were responsible for the lodgement of the Binqld 2006 to 2008 income tax returns. They breached their fiduciary duties to Binqld in lodging those returns without documents to explain the transactions relied upon to claim deductions for overseas interest expenses, thereby exposing Binqld to penalty assessments.

4. The consequence of those breaches of fiduciary duty was that Binqld suffered the losses identified in the various penalty assessments, as well as liabilities for interest on the primary tax liabilities.

   Costs of winding up

5. The costs of the winding up would not have been incurred but for Binqld incurring the tax liabilities which it was unable to pay. Therefore, the costs of the winding up are losses that were inflicted upon Binqld by Andrew Binetter in causing Binqld to incur those tax liabilities.

   ORDERS

6. The proceedings against the third and fifth respondents will be dismissed.

7. I will hear the parties on the orders which should be made to give effect to these reasons, and on the question of costs.

I certify that the preceding one thousand and thirty (1030) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

Associate:        

Dated:        18 November 2016

SCHEDULE OF PARTIES

SAD 5 of 2015
Plaintiffs
Fourth Applicant:	BINQLD FINANCES PTY LIMITED (IN LIQUIDATION) (ACN 119 243 220)
Respondents
Fourth Respondent:	ANDREW JOHN BINETTER
Fifth Respondent:	GARY ROBERT BINETTER
Sixth Respondent:	MICHAEL THOMAS ROBERT BINETTER
Seventh Respondent:	MILGERD NOMINEES PTY LIMITED
Eighth Respondent:	ERMA NOMINEES PTY LIMITED
Ninth Respondent:	LIGON 159 PTY LIMITED
Tenth Respondent:	LIGON 158 PTY LIMITED