BCI Finances Pty Ltd (in Liq) v Commissioner of Taxation (No 3)
[2014] FCA 958
•10 September 2014
FEDERAL COURT OF AUSTRALIA
BCI Finances Pty Ltd (in Liq) v Commissioner of Taxation (No 3) [2014] FCA 958
Citation: BCI Finances Pty Ltd (in Liq) v Commissioner of Taxation (No 3) [2014] FCA 958 Parties: BCI FINANCES PTY LIMITED (IN LIQ), ANDREW BINETTER, GARY BINETTER and MARGARET BINETTER v COMMISSIONER OF TAXATION File number: NSD 626 of 2011 Judge: EDMONDS J Date of judgment: 10 September 2014 Catchwords: PRACTICE AND PROCEDURE – whether to grant leave to use documents in present proceeding to consider whether application should be made to set aside decisions in related proceeding – whether to grant leave to use documents in present proceeding in such an application – allegation that judgment in related proceeding procured by fraud – consideration of relevant circumstances and as to whether they constitute “special circumstances” sufficient to warrant a grant of leave Cases cited: Australian Trade Commissioner v McMahon (1997) 73 FCR 211 cited
Hearne v Street (2008) 235 CLR 125 cited
Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283 followed
Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307 referred to
Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 appliedDate of hearing: 19 August 2014 Place: Sydney Division: GENERAL DIVISION Category: CATCHWORDS Number of paragraphs: 61 Solicitor for the Second Applicant: Polczynski Lawyers Solicitor for the Third Applicant: Hoffmann & Koops Lawyers Solicitor for the Fourth Applicant: Henry Davis York Counsel for the Respondent: Mr TM Thawley SC Solicitor for the Respondent: Maddocks
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 626 of 2011
BETWEEN: BCI FINANCES PTY LIMITED (IN LIQ)
First ApplicantANDREW BINETTER
Second ApplicantGARY BINETTER
Third ApplicantMARGARET BINETTER
Fourth ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGE:
EDMONDS J
DATE OF ORDER:
10 SEPTEMBER 2014
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The respondent have leave to use those documents described in paras 1, 2 5, 7, 8, 12 and 15 in the schedule to the interlocutory application filed 10 June 2014 –
(a)in order to determine whether he will apply to the Court to set aside the decision of the Full Court of the Federal Court of Australia in Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307 and the earlier decisions in relation to the same on the basis that judgment was procured by fraud;
(b)in any proceeding instituted by the respondent seeking to set aside the decision given in Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307 and the earlier decisions in relation to the same.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 626 of 2011
BETWEEN: BCI FINANCES PTY LIMITED (IN LIQ)
First ApplicantANDREW BINETTER
Second ApplicantGARY BINETTER
Third ApplicantMARGARET BINETTER
Fourth ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGE:
EDMONDS J
DATE:
10 SEPTEMBER 2014
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
This is an interlocutory application filed 10 June 2014 whereby the respondent (“Commissioner”) seeks an order granting him leave to use certain documents, namely, affidavits filed but not read in this proceeding, an exhibit to one of those affidavits, a letter discovered in this proceeding and documents produced on the return of a subpoena issued in this proceeding –
(1)in order to determine whether he will apply to the Court to set aside the decision of the Full Court of the Federal Court of Australia in Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307 (“Rawson Finances”) and the earlier decisions in relation to the same on the basis that judgment was procured by fraud;
(2)in any proceedings instituted by the Commissioner seeking to set aside the decision given in Rawson Finances and the earlier decisions in relation to the same.
The documents sought to be used are described in a schedule to the application as follows:
Affidavit and documentary evidence
1.Affidavit of Baruch Etzion filed on 12 October 2011.
2.Exhibit “BE18” to the affidavit of Baruch Etzion filed on 12 October 2011, being a letter from Bank Hapoalim to BCI Finances Pty Ltd dated 10 November 2009 in relation to the balance of account for account no. 343415 as at 30 September 2009.
…
5. Affidavit of Margaret Binetter filed on 14 October 2011.
…
7. Affidavit of Andrew Binetter filed on 1 November 2011.
8. Affidavit of Baruch Etzion filed on 13 April 2012.
…
Documents produced by Andrew Binetter under subpoena and discovered
…
12.Letter from Bank Hapoalim to BCI Finances Pty Ltd dated 15 October 2009 in relation to account balance for account number 343415 as at 30 September 2009.
…
Documents produced by Signet Lawyers under subpoena
…
15.All documents produced by Signet Lawyers Pty Ltd on 22 May 2014 in an envelope pursuant to the subpoena to produce documents issued on 9 April 2014, being:
a.a letter from Bank Hapoalim (Switzerland) Ltd to Bank Hapoalim, Tel Aviv dated 25 May 2004; and
b.a letter from Bank Hapoalim (Switzerland) Ltd to Bank Hapoalim, Tel Aviv dated 1 June 2004.
Only the Commissioner appeared on the hearing of the interlocutory application. I was informed by his senior counsel that the liquidator of the first applicant (“BCI”) neither consented to nor opposed the application; that Mr Andrew Binetter and Ms Margaret Binetter took the same position; and that there was agreement amongst the Commissioner and these individuals that each party should bear their own costs of this application. I was further informed by senior counsel for the Commissioner that Mr Gary Binetter had no right to be heard on the application as contrary to the position with respect to Mr Andrew Binetter and Ms Margaret Binetter, the Commissioner was not seeking to use any affidavit of Mr Gary Binetter sworn or affirmed in this proceeding.
In support of his application the Commissioner read two affidavits affirmed by Mr Thomas Charles Arnold, the first on 10 June 2014 and the second on 25 July 2014. I marked these Exs 1 and 2 on the hearing of the application, but for convenience in these reasons will refer to them and the documents respectively exhibited or annexed to them as “TCA 12” and “TCA 13”. They are the designations used in the affidavits.
BACKGROUND
General
In 2006, the Commissioner commenced an audit into the affairs of various entities associated with the Binetter family, including Rawson Finances Pty Limited (“Rawson”), BCI, BinQld Finances Pty Ltd (“BinQld”), EGL Development (Canberra) Pty Ltd (“EGL”) and Ligon 268 Pty Limited (“Ligon 268”). This culminated in the issuing of a number of assessments of income tax to these entities.
This in turn gave rise to objections to the various assessments, objection decisions and proceedings, including the following proceedings commenced in this Court or the Administrative Appeals Tribunal (“AAT”) by these entities on the following dates:
Rawson – AAT – 11 June 2010 (“Rawson proceeding”).
BinQld – AAT – 24 January 2011.
BCI – Federal Court – 12 May 2011 (“BCI proceeding”).
EGL – AAT – 31 May 2011.
Ligon 268 – AAT – 31 May 2011.At issue in each of these proceedings was whether the various entities had genuine loans from various banks in Israel in respect of which the various entities had claimed interest deductions. Broadly, the Commissioner’s case was that the asserted loans, if genuine, were not a complete explanation of the arrangements between the parties and that the relevant applicant had not discharged its onus of establishing that the relevant assessments were excessive. It was a central theme of the Commissioner’s case in the various proceedings that the loans were back to back loans or otherwise supported by cash deposits.
BCI was incorporated in the Australian Capital Territory on 1 May 1992. At all relevant times, its directors were:
(1)Margaret Binetter, appointed on 25 January 1994;
(2)Gary Binetter, appointed on 25 January 1994;
(3)Andrew Binetter, appointed on 25 January 1994;
(4)Erwin Binetter, appointed on 4 May 1992 ceasing on 28 August 2009 (Erwin Binetter is deceased); and
(5)Emil Binetter, appointed on 4 May 1992 ceasing on 20 June 2009.
BCI was incorporated for the sole purpose of obtaining loans from banks resident in Israel and then on-lending these funds to other private companies within the Binetter private group of companies.
Rawson was incorporated in the Australian Capital Territory on 21 April 1997. The following persons were relevantly directors of Rawson:
(1)Margaret Binetter, appointed on 21 April 1997;
(2)Erwin Binetter, appointed on 21 April 1997 ceasing on 28 August 2009; and
(3)Andrew Binetter, appointed on 9 March 1998.
Rawson was incorporated for the sole purpose of obtaining loans from banks resident in Israel and then on-lending these funds to other private companies within the Binetter private group of companies.
BCI Proceeding
The BCI proceeding continued during and after the conclusion of the Rawson proceeding.
On 12 October 2011, an affidavit of Mr Baruch Etzion affirmed 4 October 2011 was filed. Mr Etzion was the bank officer who was relevantly responsible for the asserted loans from Bank Hapoalim to BCI. Exhibited to his affidavit as Ex “BE18” was a letter from Bank Hapoalim dated 10 November 2009 providing the balance of the BCI account as at 30 September 2009.
On 31 October 2011, Mr Andrew Binetter affirmed an affidavit in the BCI proceeding stating at [72] that there were no cash deposits or assets overseas given to Bank Hapoalim to support the BCI loan from Bank Hapoalim.
On 9 August 2012, orders were made in relation to the issuing of a letter of request to judicial authorities in Israel for the taking of evidence from an officer of Bank Hapoalim.
On 28 September 2012, Mr Andrew Binetter discovered a letter dated 15 October 2009 from Bank Hapoalim to BCI which referred to “BTB Loans”. Attached to this letter is a bank statement, in Hebrew, which (translated) refers to back-to-back loans, fixed interest, of more than $10,000,000.
According to evidence given in the Rawson proceeding, Mr Andrew Binetter was in Israel, collecting documents from another bank on 13 October 2009.
On 19 November 2013, evidence was filed from Ms Lusthaus which revealed she has been asked to assume that the asserted loans were secured by a cash deposit.
On 26 January 2014, BCI filed a motion in the Israeli proceeding seeking what is described as a “delay”. This motion revealed that BCI (by its agent) had obtained some documents from Bank Hapoalim.
The solicitors for the Commissioner, Maddocks, wrote to the then solicitors for BCI, Signet Lawyers, on 30 January 2014, following service of Ms Lusthaus’ evidence, as to whether it was now asserted by BCI that there was a cash deposit.
Signet Lawyers responded on 3 February 2014 noting that “should new information come to light ... we will of course amend our appeal statement”.
On 6 February 2014, the Commissioner filed an affidavit of Mr Ben Zeev. Mr Zeev was an employee of Bank Hapoalim for over 30 years, finishing as the CFO and Deputy CEO. He had also been head of client asset management, head of international private banking and head of international operations. He deposed at [7]-[10] on p 21 of his affidavit that the BTB Letter refers to “Back to Back Credit in Foreign Currency – Fixed Interest”. He noted that the amounts of the cash deposit approximated very closely the purported loans totalling $10 million.
On 6 March 2014, Signet Lawyers wrote to the Commissioner indicating that BCI had been placed into voluntary administration and that the administrators wished to discontinue the BCI proceeding.
On 10 March 2014 the BCI proceeding was dismissed by consent, although issues with respect to costs were left outstanding.
On 31 March 2014, the Commissioner filed an interlocutory application seeking to join Gary, Margaret and Andrew Binetter in the BCI proceeding and seeking indemnity costs against BCI and the individuals.
Liquidators were appointed to BCI on 1 May 2014.
On 6 May 2014, Justice Jagot heard and determined an interlocutory application filed 31 March 2014 in which the Commissioner sought leave to use documents described in the schedule to that interlocutory application in the three proceedings in the AAT which had been listed for hearing for four weeks commencing 23 June 2014 (BinQld, EGL and Ligon 268). Her Honour made the orders sought. The applicants in those AAT proceedings withdrew the AAT applications on 22 May 2014.
On 22 May 2014, Gary, Andrew and Margaret Binetter consented to being joined as parties in the BCI proceeding and to orders for indemnity costs. That left unresolved an application for indemnity costs against BCI.
On the same day, Signet Lawyers produced documents in response to a subpoena issued on 9 April 2014. Amongst the documents produced were those identified in para 15 of the schedule to this interlocutory application. Those documents indicate that the BCI loans were in fact secured by cash deposits contrary to the evidence which had been given in the Rawson proceeding and filed in the BCI proceeding.
SIMILARITIES BETWEEN THE RAWSON AND BCI PROCEEDINGS
The similarities between the two proceedings (and the three AAT proceedings involving BinQld, EGL and Ligon 268), broadly stated, are as follows:
(1)BCI and Rawson are private companies of which the shareholders and directors are all members of the Binetter family. The same is true of BinQld, EGL and Ligon 268.
(2)BCI and Rawson contended that they each were special purpose vehicles that were incorporated for the sole purpose of obtaining loans from banks resident in Israel and then on-lending these funds to other private companies within the Binetter private group of companies. The same is true of BinQld, EGL and Ligon 268.
(3)The critical issue in BCI was whether the purported loans from Bank Hapoalim were really what they were said to be or whether, in truth, they were merely a part of some other undisclosed arrangement such as a back-to-back loan arrangement. The respondent had considered they could well be back-to-back loans from as late as 2007 and so informed BCI.
(4)This was also the critical issue in the Rawson proceeding (except that the asserted loans were from Mercantile Discount Bank) and in the three AAT proceedings involving BinQld, EGL and Ligon 268.
(5)In Rawson Finances, the Commissioner asserted that the terms of the loans were so uncommercial that the transactions could not be genuine loans or that loans could not be a complete explanation of the parties’ dealings. The Commissioner relied on the fact that:
(i)The security that was asserted to have been provided consisted of personal or corporate guarantees from Australian residents and the Israeli banks therefore had no recourse to any assets in the event of default by the borrowers;
(ii)the principal was only required to be repaid on maturity of the loan term;
(iii)the loan terms were extended when the loans were in default and the Israeli banks were seemingly indifferent to the default by the borrowers.
(6)Rawson contended that the lack of commerciality of the loan terms was explained by differences between Australian and Israeli banking practice and also a longstanding relationship between the Binetter family and various Israeli banks. In the Rawson proceeding, Rawson specifically relied upon the BCI loans the subject of this proceeding as supporting the conclusion that Israeli banks were prepared to lend very substantial sums of money without security.
(7)In the Rawson proceeding, the three AAT proceedings and the BCI proceeding, the Binetter family and the entities associated with them asserted that they did not have overseas assets and that no overseas assets were relied on by the Israeli banks as a form of security when granting the various loans to the various entities, including Rawson and BCI.
(8)In the Rawson proceeding, the three AAT proceedings and the BCI proceeding, reliance was placed by the various applicants on a fire in a warehouse, the death of Erwin Binetter, the mental incapacity of Emil Binetter and the general intransigence of Israeli banks in providing documents, as explaining the paucity of contemporaneous source material that would usually be expected given the magnitude and term of the various loans.
(9)The common directors of Rawson and BCI are:
(i)Margret Binetter;
(ii)Andrew Binetter; and
(iii)Erwin Binetter.
(10)The common witnesses who provided affidavits/witness statements in the Rawson proceeding and in the BCI proceeding are:
(i)Margret Binetter;
(ii)Andrew Binetter; and
(iii)Baruch Etzion.
(11)The common witnesses who provided affidavits/witness statements in the Rawson proceeding and in the BCI proceeding asserted that they did not have overseas assets and that no overseas assets were relied on by the Israeli banks as a form of security when granting the various loans to the various entities, including Rawson and BCI.
(12)This contention is inconsistent with reality of the transaction described above which indicated that the BCI loans were in fact secured by cash deposits prior to the Rawson proceeding being commenced.
THE RAWSON PROCEEDING
The parties filed Statements of Facts, Issues and Contentions in the AAT in the Rawson proceeding. In summary:
(1)Rawson contended it had entered into three loans with the Mercantile Discount Bank in Israel, totalling AUD4.75 million, and that it was entitled to deductions in respect of interest payments made under those loans.
(2)The Commissioner contended that there were no loans (or no genuine loans) and that Rawson had not established that the assessments were excessive.
One factual issue in the proceeding was whether the purported loan arrangements between Mercantile Discount Bank and Rawson was as explained by Rawson or whether that was an incomplete (or false) explanation of the arrangement. In particular, a factual issue was whether there was in fact a cash deposit securing the loan or whether the loans were really “back-to-back” loans. One of the many unusual features of the loans was that, on Rawson’s case, they were unsecured by anything other than a personal guarantee, which itself was undocumented.
Before the AAT hearing, the Commissioner had taken steps to determine whether there were in fact cash deposits supporting the purported loans. Summonses were issued out of the AAT to Andrew Binetter, Erwin Binetter, BCI and a number of other entities associated with the Binetter family. By an agreement reached between the parties, these summonses were agreed to be read as requesting “documents recording or evidencing any deposit made or moneys held with any financial institution or bank outside of Australia in the period 1 July 1995 to 30 June 2008 to be used as security for or otherwise related to any one of the loans from Israeli banks described in the affidavits filed on behalf of the Applicants [which included BCI] and excluding any documents already provided to the Respondent”. No entity produced any document.
Rawson sought to establish its case by adducing evidence concerning a series of loans between Israeli banks and entities associated with the Binetter family. Counsel for Rawson said (Transcript, 9 May 2011, p 57):
[COUNSEL] ... But again, the applicant’s contention is the business practice was to secure loans by personal guarantee and to provide the bank with a list of assets ...
Also, in this case, Mr Baruch Etzion’s evidence is highly relevant because he gives evidence of a loan, the BCI loan from which Irwin [sic] and Emil were directors. That was at a spread very similar to the spread that this loan was taken out. It was secured on only a personal guarantee and also had a five-year interest only loan, so the terms were very similar. He is available to be cross-examined. So the applicant’s expert evidence is very much that this loan was commercial.
[COUNSEL] ... The essence of the applicant’s case is that there is sufficient documentary evidence for the tribunal to form a view that the loans were entered into and the existence of the business practice indicates that loans were routinely taken out with personal guarantees and no link deposits and that the evidence of bankers in Israel, that these loans could and would have been taken out. Importantly, Mr Etzion, who was the person negotiating the loan with Emil and Irwin [sic], giving evidence of his recollection of the loan and to the documents which include a personal guarantee and a loan application at a time when the spreads were commensurate with the spreads in the present loan.
(Emphasis added)
Mr Etzion was an Israeli lawyer and, from 1985 to 1999, was the Deputy General Manager of the Central Branch of Bank Hapoalim in Israel. In that role, Mr Etzion dealt with the loans given by Bank Hapoalim to BCI. Mr Etzion retired from the Bank in 2001 but remained as a liaison between BCI and Bank Hapoalim until 2011. Mr Etzion made a statutory declaration on 16 December 2009. In that statutory declaration he noted at [16] that the loans granted to BCI in 1992/1993 were supported by personal guarantees and a Deed of Continuing Guarantee from Milgerd Nominees Pty Limited, Erma Nominees Pty Limited, Ligon 158 Pty Limited and Ligon 159 Pty Limited. He did not mention any cash deposit or back-to-back loan.
Mr Etzion also affirmed documents entitled “expert opinion” dated 15 February 2011 and 1 April 2011. In the document dated 15 February 2011 he gave evidence that the Bank Hapoalim’s procedures for loans to foreign customers included obtaining personal guarantees as security for the loan: at [6]. He did not mention any other security. In the opinion dated 1 April 2011, he disagreed with evidence which had been filed for the Commissioner and stated “at the time of the [Rawson] Loans it was not uncommon to have loans granted on the type of terms as the loans granted to Rawson, especially on the basis of personal guarantees”: at [7]. He gave evidence concerning the loans Bank Hapoalim granted to BCI and he stated at [17]:
In the Witness Statements of Dr Shapira and Mr Ben Zeev, it was said that personal guarantees were not acceptable, or sufficient, forms of security for a loan. From my banking experience, I can say that it was not uncommon for Israeli banks to grant loans based on personal guarantees from the client. In fact, in my opinion, at the time of the Loans it was not unusual to accept personal guarantee as the only form of security for loans provided the bank was satisfied that the clients were people of good standing and considered that they could make the payments. Again, in my experience, BH granted loan on this basis to other clients as well as to BCI.
In re-examination on 12 May 2011, Mr Etzion said the following (Transcript, 12 May 2011, p 244):
[COUNSEL]: Please say if there was any other form of security such as a cash deposit [in Bank Hapoalim securing the loans to BCI]? --- There was no cash deposit in the Bank Hapoalim.
In an affidavit affirmed on 6 October 2010, Margaret Binetter stated at [7]:
I do not have any assets overseas and I have never been aware of assets that my husband had overseas. I believe that if Erwin had assets overseas he would have told me.
In an affidavit affirmed on 15 April 2011, Andrew Binetter stated at [27]:
... as a result of the Australian Taxation Office investigations into my father’s business affairs, I have become aware that it was my father’s business practice to provide personal guarantees as a form of security for any borrowings he ... had from Israeli banks.
Under cross-examination Mr Binetter said the following (Transcript, 12 May 2011, at p 172):
[COUNSEL]: ... Mr Binetter, have any of the companies with which you are associated had moneys on deposit with either the Mercantile Discount Bank or the Israel Discount Bank?
Andrew Binetter: No.
[COUNSEL]: Have any of the companies with which you’re associated made investments with either the Mercantile Discount Bank or the Israel Discount Bank?
Andrew Binetter: No.
[COUNSEL]: Mr Binetter, I’d suggest to you that there have been in the past some deposits or investments that you are in fact reluctant to have officers of the Israel Discount Bank and the Mercantile Discount Bank give evidence in these proceedings because of you [sic] concern as to what information they may disclose about those matters.
Andrew Binetter: That is not the case.
Under cross-examination Mr Binetter said the following (Transcript, 9 June 2011, at p 515):
[COUNSEL]: ... I would suggest to you, Mr Binetter that one of the reasons for your frequent trips to Israel was to deal with matter to do with investments or deposits held there?
Andrew Binetter: No, that is not the case.
Under cross-examination Mr Binetter said the following (Transcript, 9 June 2011, at pp 516-517):
[COUNSEL]: Mr Binetter, at paragraph 27 [of your affidavit affirmed on 15 April 2011 in these proceedings] you said ... that you’ve become aware it was [your] father’s business practice to provide personal guarantees as a form of security. By that, do you mean circumstances where there was a personal guarantee that was the only form of security?
Andrew Binetter: Yes.
[COUNSEL]: Will you please indicate the particular guarantee that you are referring to at paragraph 27?
Andrew Binetter: He gave a guarantee to Bank Hapoalim ...
Under cross-examination Mr Binetter said the following (Transcript, 9 June 2011, at pp 529-530) in relation to the Deeds of Continuing Guarantee Unlimited in Amount in BCI:
[COUNSEL]: ... I would suggest to you, Mr Binetter, that this guarantee was given in respect of a transaction where there was other security?
Andrew Binetter: My father never told me about any other security he gave in regards to any loan.
[SENIOR MEMBER]: So you say the asserted proposition is the banks with these people accepted personal guarantee as the totality of the sufficient security …
[COUNSEL]: ... the transaction [the loan from Bank Hapoalim to BCI] is one which has been presented as part of the applicant’s case, as a transaction in respect of which there was the giving of guarantees, full stop ... There are four transactions that are relied upon, essentially for the proposition that there was a practice of giving guarantees and that the transaction[s] were relevantly ones under which there was a borrowing on the strength of personal guarantees, without security ...
In an affidavit affirmed on 6 October 2010, Emil Binetter states at [204]:
In or about November 1992, I travelled with my brother Erwin to Israel to meet with the bank manager of Bank Hapoalim, Baruch Etzion. At our meeting with Mr Etzion, either Erwin or I said words to effect of:
“We came to you with a question and a request. The question is are you able to lend us money and if it is possible then we will ask you to lend us some.”
…
Mr Etzion said words to the effect of:
“What will be the security?”
Either Erwin of [sic] I said words to the effect of:
“It will be secured first of all with the company that is getting the loans and personal guarantees from us and our four main companies .”
In its Outline of Submissions dated 15 April 2011, Rawson submitted at [41]:
... the evidence of Emil Binetter (affidavits affirmed on 6 October 2010 and 12 November 2010) goes to the business practice of obtaining loans from Israeli banks. Thus, providing corroborative evidence as to Rawson’s case that Rawson again in 1997 borrowed funds from an Israeli bank for the purposes of on-lending ...
In its Opening Submissions dated 9 May 2011, Rawson submitted at [16] and [16(f)–(l)]:
The following documents support the business practice of Erwin and Emil Binetter, and the companies in which they were directors of, to obtain loans from Israeli banks to show: that Israeli banks did accept personal guarantees as security for the loans from Australian companies and that the loans were commercial; payment of interest to Israeli banks; on-lending of loans to Australian companies and the payment of interest by those companies.
In its Submissions in Reply dated 15 August 2011, Rawson made the following submissions:
[8(c)]The only evidence adduced by the Commissioner as to the alleged un commerciality of the loans was the expert evidence of Ehud Shapira, Barry Ben Zeev and Norman Sturrock. However, the totality of the said experts’ evidence, when tested against the evidence of Baruch Etzion, does not rise high enough to raise an inference that the loans between MDB and Rawson would not have been made unless there was a cash deposit, security or other asset having the character of income in Rawson’s hands.
[8(d)]Baruch Etzion, as an experienced banker with Bank Hapoalim, said that when he was Deputy General Manager of Bank Hapoalim in Tel Aviv, he had in fact granted loans to a foreign borrower, being BCI, in 1992 and 1997 for significantly more than $4.75 million and did so on the basis of personal and corporate guarantees, albeit with a floating charge over BCI finances (who’s only assets or unsecured loans to related entities [sic]): Expert Opinion Baruch Etzion dated 15 February 2011 and 1 April 2011: T.p. 226.10-34 and 243.26. Mr Etzion said that the a personal guarantee would be security T.p. 227.27. This is consistent with the evidence of Emil Binetter (as set out at paragraph 262 to 265 of the Affidavit of Emil Binetter of 6 October 2010 that in 1997 he obtained a loan from Elie Septon of MDB, for $4 million on the strength of guarantees and no cash deposit.
[8(f)]On the basis of Mr Etzion’s evidence that he granted loans on the strength of guarantees and the fact that neither Mr Ben Zeev nor Dr Shapira could discount completely such a possibility and Rawson’s evidence as to the absence of cash deposits and availability of assets in Australia for security, the Tribunal would find, on the balance of probabilities that the loans that were made were supported by guarantees or some other form of security which did not have the character of income.
36.Mr Andrew Binetter gave the following evidence as to loans between Rawson and MDB:
(l)Andrew Binetter’s evidence as to no cash deposit: Affidavit of Andrew Binetter, 4 May 2011, paragraphs 118-121; Affidavit of 6 May 2011, paragraph 4.
37.…
c) ...It is clear from the whole of Mr Eztion’s evidence that what was relevant in granting the loan was the personal relationship with the borrowers and the personal guarantees ...
46.Emil Binetter says that he and to his knowledge Erwin Binetter had no assets outside Australia. Emil’s closeness to his brother suggests that if Erwin had substantial assets offshore Emil would have been aware of them.
49.The Matching Conduct Chronology, Exhibit 22A, discloses the relationship of Emil and Erwin Binetter was such that they engaged in the same type of loan arrangements.
53.Emil also gave evidence of loans obtained by BCI from Baruch Etzion at Bank Hapoalim (at paragraphs 201 to 210, also see Exhibit 25A, Tabs 5.2 to 59) and again the practice of on-lending to other companies who made investments (at paragraphs 212 to 214).
54.Emil Binetter says he has never had any deposits overseas or had any other money in overseas banks or any assets overseas which were used as security for any of the loans from the Israeli Banks ...
58.Margaret Binetter was cross-examined as to the existence of a cash deposit or assets overseas. Margaret Binetter said ... that if Erwin had assets overseas he would have told her. Margaret Binetter’s evidence as to her husband not having assets overseas should be accepted in light of the fact that Mr Binetter was a credible, truthful witness whose credit was not impugned in any way under cross-examination.
59.... Rawson says that:
a)Mrs Binetter refused to accept the Commissioner’s suggestion that her husband would not have told her about “big matters” like a significant cash deposit overseas or if he “had an asset” …
63.Mr Etzion gave evidence in his report dated 15 February 2011 of a loan that he granted whilst at Bank Hapoalim to BCI, the directors of which were Erwin Binetter and Emil Binetter in 1993 of 24 Loans in parcels of CHF500,000. Mr Etzion gave evidence as to:
d)Mr Etzion granted the loan to BCI on behalf of Bank Hapoalim and obtained as security guarantees from Milgerd Nominees, Erma Nominees, Ligon 159 Pty Limited, Ligon 158 Pty Limited, Emil and Erwin Binetter ...
65.... the loan [from Bank Hapoalim to BCI] in November 1997 was secured by the guarantees which had previously been given in 1992.
71.Mr Etzion during evidence before the Tribunal gave evidence ... that “there was no cash deposit in the Bank Hapoalim” as a form of security for the loan Bank Hapoalim granted to BCI.
74.... the Tribunal on the balance of probabilities would accept the above evidence given by Mr Etzion.
129.The evidence [of Barry Ben Zeev that an Israeli bank would have wanted a greater security than just personal guarantees in granting these loans] is inconsistent with the evidence of Baruch Etzion that in 1992 and then in 1997 whilst Mr Etzion was a banker at Bank Hapoalim he agreed to give a loan to BCI essentially on the strength of guarantees ...
135.Given that Mr Etzion was available for cross-examination, the Commissioner did not challenge Mr Etzion as to whether he had in fact granted the loans in 1992 and 1997 to BCI, or its commerciality, the Tribunal has direct evidence of an Israeli bank providing loans in 1997... (c) on the back of personal guarantees and (d) with no cash deposit with the bank as security.
141.... The Commissioner must go so far as to say that the bank would not have made the loan without a cash deposit as security: that this would be contrary to the evidence and contrary to the evidence of Baruch Etzion who gave powerful evidence of having made a loan similar to the Rawson loan on the strength of having met Emil and Erwin Binetter and being impressed by their history (see T.p. 239.1-7) and on the strength of personal guarantee floating charge and on the basis that no such deposit had been provided as security (T.p. 244.13). Mr Etzion was prepared to attend and give oral evidence and be subject to cross-examination. He was an impressive witness who answered questions fully and frankly.
144.It is open to the Tribunal to find that the companies that Erwin Binetter controlled had sufficient assets to provide security to MDB: Mud Map (Exhibit 14A). The security could have been by way of guarantees, consistently with the security provided and taken by Israeli banks in the past in relation to the EGL loan, BCI loan and Advance loan. Although it is clear that the BCI loan was also supported by a floating charge over BCI Finances.
159.The Commissioner has failed to adduce any evidence with transactions affecting Advance, Civic, EGL or BCI are capable of being impugned. So far as BCI is concerned Mr Etzion was available to be cross-examined on the loan.
162.Baruch Etzion’s evidence demonstrates how a special relationship might develop quickly between borrower and lender. As Holocaust survivors who had arrived in Australia with nothing and built up substantial assets it may be inferred (particularly in light of Mr Etzion’s compelling evidence) that Rawson found favour with MDB.
171.Rawson relies upon the business practice of the Binetter family providing guarantees as evidenced by Mr Emil Binetter and Baruch Etzion: see “Matching Conduct Chronology” Exhibit 22A.
In broad summary, Rawson’s case was as follows:
(1)There was a paucity of material (for example: Rawson could not produce the documents that described the nature of the security provided and no officer of MDB agreed to be available for cross-examination). However, the two brothers, Emil and Erwin Binetter, being the two main individuals behind the various loans and establishing the various Binetter entities, had a history of “matching conduct” with respect to obtaining loans from Israeli banks, one such loan being that obtained by BCI. Rawson adduced evidence concerning the BCI loan and submitted that it could be inferred that the process of obtaining the Rawson loan would have followed the same process as when the BCI loan was obtained.
(2)While no bank officer of MDB was willing to give evidence, Baruch Etzion was the bank officer from Bank Hapoalim who was responsible for granting the BCI loan. Rawson submitted that in light of Mr Etzion’s evidence about the granting of the BCI loan without security and the history of the “matching conduct” of Emil and Erwin Binetter, it should be inferred by the Tribunal that the Rawson loan was granted on the same or similar terms as the BCI loan. Critically, Mr Etzion’s evidence in the Rawson proceedings was that the BCI loan was not granted by Bank Hapoalim on the basis of anything other than personal guarantees, corporate guarantees and a deed of charge from BCI.
(3)The Rawson loan was not granted by MDB on the basis of undisclosed assets, such as by way of a so-called back-to-back loan, because the evidence of Andrew Binetter, Margaret Binetter and Emil Binetter (supported by the evidence of Mr Etzion) was that the Binetter family and entities associated with them had no such assets and were not aware of any such assets and they would have been aware of such assets if they existed.
THE COMMISSIONER’S SUBMISSIONS
The Commissioner seeks leave to use certain documents obtained in connection with the BCI proceeding to determine whether he should apply to this Court to set aside the decisions in Rawson Finances (and, if he so decides, to use the documents in any such proceeding). Certain documents affirmed or produced in the BCI proceeding establish that, or may be held to establish that, contrary to the evidence and submissions put in the Rawson proceeding, Bank Hapoalim did not grant a loan to BCI on the basis of corporate and personal guarantees, but instead on a back-to-back basis (that is, that the loans were supported by cash deposits). That material suggests that Baruch Etzion’s evidence in the Rawson proceeding was knowingly false and that Mr Andrew Binetter’s evidence was also knowingly false. The material supports a submission that certain material submissions advanced for Rawson were known by Rawson to be false. The Commissioner does not make, nor does he intend to make, any allegation against the legal practitioners who made the submissions.
Items 12 and 15 of the Schedule to the Interlocutory Application – being the back-to-back loan documents/offshore asset documents
These documents might be held to establish the existence of a cash deposit securing Bank Hapoalim’s loans to BCI, being cash deposits in place before evidence was adduced in the Rawson proceeding with respect to this issue. Accordingly, these documents directly contradict the submissions and evidence of Rawson in the AAT proceeding on this issue.
Items 1, 2 and 8 of the Schedule – being Mr Etzion’s affidavits filed in the BCI proceeding and documents exhibited at time of making
The documents described at [1], [2] and [8] of the Schedule are affidavits and an exhibit to the first of those affidavits. This material contains statements made in the context of an obligation to the tell the truth by Mr Etzion with respect to the circumstances in which Bank Hapoalim granted the BCI loans and in particular, that the BCI loans were not secured by anything other than personal and corporate guarantees and a Deed of Charge. The material is relevant to be compared with his evidence in the Rawson proceeding and to his credibility which would be an issue in any proceeding commenced to set aside the Rawson Finances decisions. The fact that Mr Etzion was prepared to give such apparently false evidence in the BCI proceeding (which directly related to the BCI loans) might be held to support an inference that his evidence in the Rawson proceeding was not merely a mistake but was consciously false.
Items 7 of the Schedule – being Mr Andrew Binetter’s affidavit filed in the BCI proceeding
The document described at [7] of the Schedule is the affidavit of Mr Andrew Binetter. Broadly speaking, the affidavit contains statements made under oath by Mr Binetter with respect to the circumstances in which Bank Hapoalim granted the BCI loans and in particular, that the BCI loans were not secured by anything other than personal and corporate guarantees and a Deed of Charge. The material is relevant to be compared with his evidence in the Rawson proceeding and to his credibility which would be an issue in any proceedings commenced to set aside the Rawson Finances decisions. The fact that he made this statement in the BCI proceeding and subsequently consented to being joined and paying costs on an indemnity basis might be regarded by a Court as probative of whether evidence given in the Rawson proceeding was false.
Item 5 of the Schedule – being Mrs Margaret Binetter’s affidavit filed in the BCI proceeding
The document described at [5] of the Schedule is the affidavit of Mrs Margaret Binetter. The affidavit contains a statement (at [7]) made under oath by Mrs Binetter that she was not aware of the existence of any offshore assets and that her husband, Mr Erwin Binetter, would have told her about any assets should the assets have existed. The material is relevant to be compared with her evidence in the Rawson proceeding and to her credibility which would be an issue in any proceedings commenced to set aside the Rawson Finances decisions. The fact that she made this statement in the BCI proceeding and subsequently consented to being joined and paying costs on an indemnity basis might be regarded by a Court as probative of whether similar evidence she gave in the Rawson proceeding was false.
The documents obtained in the BCI proceeding indicate, at least at a prima facie level, that there is a real prospect that the decisions in Rawson Finances might be considered by a Court to have been relevantly procured by fraud. However, without being able to use the material from the BCI proceeding, there is insufficient material available to pursue consideration of that issue.
CONSIDERATION
In Hearne v Street (2008) 235 CLR 125 at [96], Hayne, Heydon and Crennan JJ said:
Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise [Bourns v Raychem Corporation [No 3] [1999] 1 All ER 908 at 916 [19]; affd [1999] 3 All ER 154 at 169-170], to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence. The types of material disclosed to which this principle applies include documents inspected after discovery [Riddick v Thames Board Mills Ltd [1977] QB 881; Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 32-33], answers to interrogatories [Central Queensland Cement Pty Ltd v Hardy [1989] 2 Qd R 509 at 510-511; Ainsworth v Hanrahan (1991) 25 NSWLR 155], documents produced on subpoena [Eltran Pty Ltd v Westpac Banking Corporation (1990) 25 FCR 322], documents produced for the purposes of taxation of costs [Bourns Inc v Raychem Corporation [1999] 3 All ER 154 at 169-170], documents produced pursuant to a direction from an arbitrator [Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 33, 39, 46-47, 48], documents seized pursuant to an Anton Piller order [Cobra Golf Inc v Rata [1996] FSR 819], witness statements served pursuant to a judicial direction [Central Queensland Cement Pty Ltd v Hardy [1989] 2 Qd R 509; Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 at 223; State Bank of South Australia v Smoothdale (No 2) Ltd (1995) 64 SASR 224 at 229] and affidavits [Medway v Doublock Ltd [1978] 1 WLR 710; [1978] 1 All ER 1261; Re Addstone Pty Ltd (In liq); Ex parte Macks (1998) 30 ACSR 156] …
The material in this proceeding was not “received into evidence”. The proceeding was dismissed on 10 March 2014 before hearing.
Where the obligation applies, a release from it depends on establishing what has been described as “special circumstances”. In this regard, the cases generally refer to the observations of Wilcox J in Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 at 225.3. In Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283, Branson, Sundberg and Allsop JJ said:
[31] … The notion of “special circumstances” does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined. In Springfield Nominees, Wilcox J identified a number of considerations which may, depending upon the circumstances, be relevant to the exercise of the discretion. These were:
• the nature of the document;
• the circumstances under which the document came into existence;
• the attitude of the author of the document and any prejudice the author may sustain;
• whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain;
• the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information);
• the circumstances in which the document came in to the hands of the applicant; and
• most importantly of all, the likely contribution of the document to achieving justice in the other proceeding.
The Full Court treated those matters as a “helpful guide”: at [32].
In Australian Trade Commissioner v McMahon (1997) 73 FCR 211, Lehane J said at 217C:
Where an application for release is decided in contested proceedings, it seems that “special circumstances” will fairly be found where it is established that the use of documents discovered in proceedings is reasonably required for the purpose of doing justice between the parties in other proceedings.
The relevant circumstances here include:
(1)The release is sought in order to assist in determining whether proceedings should be brought to set aside decisions which may have been procured by fraud;
(2)the documents are likely to have a material contribution to achieving justice between the parties. If the Commissioner were not able to use the documents for the purposes of the Rawson proceeding, he could not make his determination based on highly probative material and, further, would not have sufficient material on which to commence proceedings alleging fraud;
(3)there is no relevant injustice in this course to BCI or Rawson or others and none has been suggested; and
(4)none of the deponents of the affidavits or the authors of the document could complain of prejudice.
CONCLUSION
For these reasons, the Commissioner should be released from any obligation that exists with respect to the identified documents and leave should be granted in the terms sought in the interlocutory application.
I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds. Associate:
Dated: 10 September 2014
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