BCI Finances Pty Limited (in liq) v Binetter - [2018] FCAFC 189 - FCAFC 2018 case summary — Zoe

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BCI Finances Pty Limited (in liq) v Binetter

[2018] FCAFC 189

Federal Court of Australia (Full Court)|2018-11-09|Before: Allsop CJ, Colvin JJ

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At a glance

Source facts

Court

Federal Court of Australia (Full Court)

Decision date

2018-11-09

Before

Allsop CJ, Colvin JJ

Source

Original judgment source is linked above.

Judgment (105 paragraphs)

[1]

rdian ad litem Phillip Dzienciol [2001] WASC 305(S) Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 Breen v Williams (1996) 186 CLR 71 Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300 Cuthbertson & Richards Sawmills Pty Ltd v Thomas (No 2) [1999] FCA 1789 Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 Hallstroms Pty Ltd v Commissioner of Taxation (Cth) (1946) 72 CLR 634 Hampton Court Ltd v Crooks (1957) 97 CLR 367 Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Company NL (1968) 121 CLR 483 House v The King (1936) 55 CLR 499 Howard v Commissioner of Taxation (Cth) (2014) 253 CLR 83 In re Beddoe; Downes v Cottam [1893] 1 Ch 547 In re Smith and Fawcett Ltd [1942] Ch 304 In re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 Kazar v Kargarian (2011) 197 FCR 113 Mills v Mills (1938) 60 CLR 150 Oshlack v Richmond River Council (1998) 193 CLR 72 Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 Richard Brady Franks Ltd v Price (1937) 58 CLR 112 Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243 Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385; [2007] NSWCA 55 SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288 Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1

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REASONS FOR JUDGMENT OVERVIEW [1] THE PROCEEDING BELOW AND THE APPEALS [22] STATEMENT OF THE FACTS [41] Key individuals [43] The corporate entities [51] BCI [51] EGL [57] Ligon 268 [63] Binqld [68] Milgerd [73] Erma [75] Ligon 159 [77] Ligon 158 [78] The Nudie Juice business [80] The Israeli banks [87] Bank Hapoalim [87] IDB [94] Back-to-back loans [96] The period before 1988 [97] 1988 [98] 1988-2000 - advances from IDB to EGL [104] 1989 [108] 1990 [109] 1991 [114] 1992 [121] 1993 [130] 1994 [179] 1995 [195] 1996 [196] 1997 [203] 1998 [213] 1999 [227] 1999-2006 - advances from IDB to Ligon 268 [235] 2000 [237] 2001 [257] 2002 [264] 2003 [273] 2004 [291] 2005 [336] January to May 2006 [351] May 2006 to January 2008 - advances from IDB to Binqld [370] May to December 2006 [372] 1992-2008 - BCI and EGL's tax returns [391] BCI [392] EGL [400] 2007 [406] 2008 [445] 2009 [450] 2009-2010 - the revised assessments [462] BCI [463] EGL [469] The revised assessments generally [475] 2010-2014 - the tax appeals [476] 2010 [479] 2011 [490] 2012 [500] 2013 [520] 2014 [523] The conduct of the tax appeals [528] The offshore deposits [530] THE REASONS OF THE PRIMARY JUDGE [535] The scheme [536] The nature of the transactions with the Israeli banks [538] Fiduciary duties [543] Breaches of duty [544] Dismissal of the case against Gary [545] Costs [548] CONSIDERATION OF THE ISSUES [554] Issue 1: Whether the primary judge erred in finding that the transactions between BCI and EGL and the Israeli banks were not loans and in failing to hold that there was no breach of Gary's duties to BCI and EGL because the advances from the Israeli banks were interest-bearing loans [555] Issue 2: Whether the primary judge erred in finding that Gary was not liable for breach of the duties he owed to BCI and EGL [577] The grounds of appeal [577] BCI's submissions (grounds 1 and 2) [579] Consideration of BCI's submissions [582] EGL's submissions (grounds 3 and 4) [600] Consideration of EGL's submissions [601] Issue 3: Whether the primary judge erred in relation to certain costs issues relating to Gary [604] CONCLUSION [628]

[22]

OVERVIEW 1 These appeals raise questions concerning the liability of directors of companies for their conduct in involving the companies in a scheme for the dishonest evasion of taxation, the result of which was the assessment of taxation imposed on the companies. The scheme has some complexity because of the lack of reliable evidence about its detail. That lack of reliable evidence is a consequence, in part at least, of the people involved being either dead or unwilling to give evidence, the existence of dishonesty and secrecy at various times, the destruction of documents in a fire, and the consequent doubt that reasonably arises as to whether documents that do exist reflect, or fully reflect, underlying transactions, rights and liabilities. 2 That said, there is some degree of simplicity of narrative and structure, which emerges through the documentary detail. In 1950, the brothers Emil and Erwin Binetter came to Australia as refugees from war-torn Europe. They (or their father) had been born in a town in Slovakia that gave its name to one of the corporate entities involved. From 1950, the brothers worked together, married and raised families. By 1988, Emil and Erwin had removed considerable sums of money from Australia (upon which no income tax had been paid) and deposited such in overseas banks. It is unnecessary to explore whether there was any augmentation of the untaxed funds overseas, other than by the expedients adopted in the scheme with which this case is concerned. 3 The events over the period from 1988 to 2014 involved Emil and Erwin, until their respective retirements and deaths, Gerda (the wife of Emil), Margaret (the wife of Erwin), Gary (the son of Emil), and Andrew, Michael and Ronald (the sons of Erwin). There were other children of Emil (Debbie and Lisa) and Erwin (Peter). They played no part in the present underlying facts. Some of the various corporate entities that were involved were controlled by the families separately, others were jointly controlled. There was no suggestion in the cases put by the liquidators that Ronald participated in any dishonesty. 4 In 1971, Erma Nominees Pty Limited (Erma) was incorporated with Erwin and Margaret (and from 1996, Andrew) as directors, and Milgerd Nominees Pty Limited (Milgerd) was incorporated, with Emil and Gerda (and from 1993, Gary) as directors. 5 In 1973 or 1974, Erwin, Michael (then around 19 years old), and Ronald (then around 16 years old) visited Tel Aviv and attended a bank, probably the Israel Discount Bank (IDB). Ronald, on the instruction of his father, signed a name that was not his name to open an account. It would appear that by 1974 Erwin, at least, had set up offshore accounts. 6 In 1975, Erwin incorporated EGL Development (Canberra) Pty Limited (EGL) with himself as a director. In 1988, Erwin and Emil incorporated Ligon 158 Pty Limited and Ligon 159 Pty Limited (Ligon 158 and Ligon 159). Andrew, Erwin and Margaret became directors of Ligon 158, and Emil, Gerda and Gary became directors of Ligon 159. 7 In 1990, Emil became a director of EGL, as did Gary and Michael in 1996 and Andrew in 2001. The shareholders of EGL were Milgerd and Erma. Thus, EGL was at relevant times a company owned and controlled by both branches of the family. 8 In 1991, Ligon 268 Pty Limited (Ligon 268) was incorporated, of which Erwin and Michael were shareholders and Erwin, Andrew, Michael and Ronald were directors. 9 In 1992, BCI Finances Pty Limited (BCI) was incorporated. It was a jointly owned and controlled company, with Erwin, Emil, Margaret, Andrew and Gary as directors. 10 In 2006, Binqld Pty Limited (Binqld) was incorporated with Michael as shareholder and Andrew as director. 11 Whilst other entities were at times relevant, the above companies reveal the following structure: (a) Erma and Milgerd were holding companies for the respective families, also being trustees for respective family trusts. (b) EGL and BCI were jointly owned finance companies for both families. (Binqld was later a finance company for Erwin's family, controlled by Andrew and Michael). The description "finance companies" should not be misunderstood. The business of these companies and the reason for incorporation of at least BCI and Binqld was the borrowing of money offshore in the manner to which we will come, and the on-lending of these funds to the companies conducting the family businesses and investments. (c) Ligon 158 and Ligon 159 were shareholding and investing companies: Ligon 158 being a shareholder in companies running a juice business, owning factory premises, and investing otherwise; Ligon 159 owning commercial real estate and otherwise investing. (d) Ligon 268 was the trustee of Ronald's medical practice, as well as acting as a finance company. 12 With this brief corporate background, it is helpful to describe in broad outline the nature of the transactions which are the subject of the case. The precise detail varied over time and for different entities. But there was a broad similarity of events and circumstance that makes such a summary useful. A finance company of the family group (such as EGL or BCI) received funds from an Israeli bank. This is said, by the Binetter interests, to be a commercial loan. The loan was secured by a deposit of cash in equivalent amount held by the Israeli bank. This cash deposit was constituted by moneys upon which no tax had been paid and which had been removed from Australia by members of the family. (We leave aside any augmentation over time by funds paid to the Israeli banks by this scheme.) Guarantees were given to the banks by members of the family and some of the family companies. The money that was brought on-shore, by loan it was said, was on-lent to other companies in the group for use as working capital in the family's businesses. The on-borrowers paid interest to the finance company, which made payments to the bank which it characterised as deductible interest payments to the bank. 13 For some years the Commissioner of Taxation (the Commissioner) accepted this structure that formed the basis of the tax returns of BCI and EGL: that there were borrowings from the relevant Israeli banks, on-loans to the relevant group companies, and so BCI and EGL were entitled to deduct interest payments to the Israeli banks against interest income from the on-borrowing companies. At no time was there any disclosure of the deposits of cash that secured the advances from the banks. The loans were always presented as loans secured only by personal or company guarantees. 14 After revelation of the family name in the records of one Philip Egglishaw that led to the well-known tax investigation called "Operation Wickenby" the Commissioner began a detailed tax audit of the family companies. The Australian Taxation Office (ATO) eventually issued amended assessments to the four companies that acted as finance companies (BCI, EGL, Ligon 268 and Binqld) based on fraudulent evasion of tax. These amended assessments did not recognise the deductibility of interest to the Israeli banks, nor the existence of loans from these banks, treating the inflow of money from Israel via the banks as income. 15 After some resistance to the amended assessments the four companies went into liquidation, being unable to pay the amended assessments. The Commissioner funded the liquidators of the companies to bring actions in the names of the companies alleging that the directors of the companies (BCI, EGL, Ligon 268 and Binqld) breached their fiduciary duty to the respective company by causing them to participate in the transactions of "loan" and thereby causing loss to the company being the relevant assessment. The claim also sought relief against the companies receiving the on-lent funds on the basis of their knowing participation in a fraudulent breach of director's duty. 16 Some preliminary comments should be made about the approach to the facts and the issues. First, there is little doubt that the secrecy (from the ATO, in particular) of the money in offshore accounts was a paramount consideration for members of the family. This can be best illustrated by some matters revealed by the evidence. On one occasion Michael Binetter discussed with an adviser in Israel the willingness of an apparently bribed and suborned bank officer in Israel to tell falsehoods to the Commissioner, if called upon (as he was, and did), to the effect that the only security for the loans was the guarantees. In the same meeting, Michael asked the adviser whether he could assist in locating someone who would help in (unlawfully) destroying the files of the Israeli bank. Both aspects of this conversation (in 2012, while tax appeals commenced by the finance companies were on foot) reveal the danger, fully appreciated by Michael, in the ATO becoming conversant with the details of the back-to-back cash deposits. The unusual clarity of this aspect of the evidence came from a written précis of evidence attested to by Deborah Huber (the wife of Ronald) who was present at the meeting and acting as Hebrew interpreter. The secrecy of the offshore moneys and the desire to utilise them, and if possible augment them, was the driving force, and determining feature, of the structure of the arrangements. 17 Secondly, much of the focus of debate in argument was whether it could be concluded that the advances from the Israeli banks were loans. As shall be seen, that was a central consideration of the primary judge's reasoning and conclusions. But there is a subtlety to that question. The advances of funds may have been repayable, and so loans in principle, and as to principal. Nevertheless, their proper characterisation also depends on what can be concluded about the deposits of money as security, and the setting of the interest rates. It is open to conclude from the evidence that the Israeli banks were prepared to lend any sum up to an amount placed on deposit with them for a fee. There is evidence that on occasions the fee was 0.3% of the sum lent. They would agree to lend at an interest rate requested by the borrower, paying an interest rate on the security deposit either slightly less than or the same as the requested borrowing rate. It is not always clear from the evidence how the fee was paid to the bank. Thus, if, as it is open to conclude, the requested interest rate bore a direct relationship, sometimes set by the fee, to the interest rate on the deposit, the payment of interest by the on-borrowing company (say Ligon 158) to the finance company (say EGL) funded the payment of "interest" to the Israeli bank, which was used to pay the interest on the deposit and, sometimes at least, the bank fee. So, if one recognises the conformity of interests of all concerned (the family business entity (Ligon 158), the family finance company (EGL) and the family members owning the offshore deposits), one sees pre-tax revenue of Ligon 158 augmenting the secret cash deposit in Israel, through the medium of a tax deduction in EGL for the payment to the Israeli bank of "interest". The amount of money thus augmenting the deposit accounts could be adjusted according to domestic profit of the on-borrowing companies, and management of the risk of discovery, by setting the borrowing rate (in arrears) with consequent amendment to the deposit rate. The advances from the Israeli banks and their terms can thus be seen to be driven by the commercial needs and convenience of the on-borrowing companies and the overriding and dishonest intention of the relevant family members involved to use and augment the offshore funds in eliminating taxation as far as possible on the family business and investments. The involvement of the lender was accommodated by its fee, which was either taken from the "interest" payment or collected otherwise in some fashion. 18 Once one appreciates the reality of the above, the characterisation of the arrangements as commercial loans at interest becomes problematic (to say the least) to any honest person, even if the advance of principal can be viewed as an advance that must be repaid at some time. 19 At [177] of her reasons, the primary judge recorded her understanding of the liquidators' case, in particular in its reference to "purported" rates of interest. Her Honour described the case as follows: … [I]t was that the rates of interest stipulated in the loan documentation were not rates for interest charges that were imposed by the bank as amounts that it would earn on the transactions but, rather, rates that were used to calculate the quantum of payments by the borrower to the bank wholly or partly for the benefit of an entity other than the bank, being an entity associated with one or more of the respondents. 20 Another way of expressing the matter would be that given the circumstances of the setting up of the loan and the willingness of the bank to enter the arrangement for a fee, passing most or all of the interest through to the deposit account, the interest was not an expenditure of the finance company calculated from a practical and business point of view to effect the borrowing, but rather to augment the deposit. The expenditure, from a practical and business point of view, necessarily incurred to obtain the loan for the purpose of gaining or producing assessable income from the on-borrowing company, was the true negotiated cost of the loan: the fee and the lack of use of the deposit funds (though the interest accrued was free to be used) during the life of the loan. 21 Such a practical and business view not being one based on "juristic classification of the legal rights, if any, secured, employed or exhausted in the process" (see Hallstroms Pty Ltd v Commissioner of Taxation (Cth) (1946) 72 CLR 634 at 648), was not one that would be the province only of a lawyer or tax practitioner. It is a practical business view plain to an honest person familiar with the details of the arrangement.

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THE PROCEEDING BELOW AND THE APPEALS 22 The applicants in the proceeding below were BCI, EGL, Ligon 268 and Binqld (the finance companies), each of which was in liquidation. The joint and several liquidators of each company were (and are) John Sheahan and Ian Russell Lock (the liquidators). 23 The respondents to the proceeding below were: (a) Gary Binetter, as legal personal representative of the late Emil Binetter (Gary's father); (b) Margaret Binetter, as legal personal representative of the late Erwin Binetter (her husband); (c) Margaret Binetter, in her own right; (d) Andrew Binetter; (e) Gary Binetter, in his own right; (f) Michael Binetter; (g) Milgerd; (h) Erma; (i) Ligon 159; and (j) Ligon 158. Without intending any disrespect, it will generally be convenient to refer to the individual members of the Binetter families simply by their first names. We will refer to Milgerd, Erma, Ligon 159 and Ligon 158 as the "downstream companies". 24 The finance companies' claims were pleaded in their second further amended statement of claim filed 7 September 2015 (the statement of claim). In summary, the claims were based on allegations of: (a) breach of fiduciary, common law, equitable or statutory duties owed to the finance companies by the respondents below who were directors of the finance companies at the relevant times; and (b) knowing participation by the other respondents below in the breaches of duty by the directors. The finance companies also relied at trial on a document styled "amended narrative". 25 The alleged breaches by the directors concerned the finance companies' dealings with two banks in Israel: Bank Hapoalim, in the case of BCI; and IDB in the case of the other finance companies. 26 At the behest of the liquidators, the finance companies' case was based on a complex analysis of the transactions between the finance companies and the two Israeli banks, and on the factual context in which those transactions took place. In summary, the finance companies argued that the respondents below 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 (referred to as "offshore deposits") as security for advances from the Israeli banks of amounts equivalent to the offshore deposits. The finance companies contended that the respondents' conduct in participating in the scheme led the finance companies to incur the liabilities which arose when the Commissioner issued notices of assessment, amended assessment and penalty assessment to the finance companies between December 2009 and July 2010 (the revised assessments). Those liabilities comprised income tax, penalties and interest incurred under the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936), the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997) and the Taxation Administration Act 1953 (Cth) (the 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 finance companies as part of their assessable income. 27 The finance companies' claim was quantified principally by reference to the tax liabilities arising from the revised assessments. Claims for relief were also made with respect to the costs of the winding up of the finance companies and there were 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. 28 At trial, Ronald gave unchallenged affidavit evidence on behalf of the finance companies. The primary judge accepted his evidence. 29 Deborah Huber, the wife of Ronald, gave evidence at trial following the grant of a certificate under s 128 of the Evidence Act 1995 (Cth). She was not cross-examined. The primary judge accepted her evidence. 30 The respondents below adduced no oral evidence, but the evidence tendered by the finance companies included affidavits made by Emil, Margaret, Andrew and Gary in tax appeal proceedings brought by the finance companies. 31 The primary judge's principal judgment in relation to liability was delivered on 18 November 2016: BCI Finances Pty Limited (in liq) v Binetter (No 4) [2016] FCA 1351 (the Liability Judgment). The primary judge dismissed the finance companies' cases against Margaret and Gary. Her Honour upheld the finance companies' claims against the other respondents below, and listed the matter for hearing on the form of orders to give effect to the reasons and the question of costs. 32 After a further hearing, on 15 December 2017 the primary judge delivered further reasons for judgment: BCI Finances Pty Limited (in liq) v Binetter (No 5) [2017] FCA 1524 (the Quantum Judgment). In addition to issues concerning the quantum of damages, these reasons dealt with costs. One of the issues concerned the appropriate costs orders in relation to the unsuccessful defence of Emil's estate and Erwin's estate (the first and second respondents below). On behalf of Margaret, it was argued that the costs order against her (in her capacity as legal personal representative of the late Erwin Binetter) should be limited to the assets of the estate, and there should be no set-off of the liabilities for costs as between BCI and Margaret. The primary judge rejected these arguments. Her Honour also rejected comparable arguments that were advanced by Gary in relation to Emil's estate. 33 On 16 April 2018, the primary judge published further reasons for judgment, dealing with certain outstanding issues: BCI Finances Pty Limited (in liq) v Binetter (No 6) [2018] FCA 500. 34 Four appeals were instituted against the judgments and orders of the primary judge: (a) An appeal brought by BCI and EGL against the dismissal of their claims against Gary and Margaret (proceeding No NSD2109/2016) (the Liquidators' appeal). (b) An appeal brought by Gary against the costs orders made by the primary judge (proceeding No NSD188/2018) (Gary's costs appeal). (c) An appeal brought by Michael against the findings of liability against him (proceeding No NSD189/2018) (Michael's appeal). (d) An appeal brought by Margaret (in her capacity as the legal personal representative of the late Erwin Binetter), Margaret in her own right, Andrew, Erma and Ligon 158 (proceeding No NSD195/2018). This appeal was structured in two parts, referred to as Section A and Section B: (i) Section A involved an appeal by Margaret (in her capacity as the legal personal representative of the late Erwin Binetter), Andrew, Erma and Ligon 158 (the Andrew parties) against the findings of liability against them (the Andrew parties' appeal). (ii) Section B involved an appeal by Margaret against the costs orders made by the primary judge (Margaret's costs appeal). 35 While judgment was reserved, settlement was reached in respect of the following appeals or parts of the following appeals: (a) The part of the Liquidators' appeal concerning Margaret. (b) The whole of Michael's appeal. (c) The whole of the Andrew parties' appeal. (d) The whole of Margaret's costs appeal. 36 The appeals that remain on foot are therefore as follows: (a) The Liquidators' appeal insofar as it relates to Gary. (b) Gary's costs appeal. 37 In the Liquidators' appeal, the finance companies' grounds of appeal are set out in a supplementary notice of appeal. Grounds 1-4 relate to Gary, while grounds 5 and 6 relate to Margaret. In light of the settlement, only grounds 1-4 remain relevant. 38 Further, in the Liquidators' appeal, Gary relies on an amended notice of contention. This contains a single ground, namely that the primary judge erred in finding that the transactions between BCI and EGL and the Israeli banks were not loans and in failing to hold that there was no breach of Gary's duties to BCI and EGL because the advances from the Israeli banks were interest-bearing loans. In support of this contention, Gary relies on the submissions made by the Andrew parties, both in writing and at the hearing of the appeals. Accordingly, in order to deal with this contention it will be necessary to consider the submissions made on this issue by the Andrew parties. It is logical to consider this contention before considering the finance companies' grounds of appeal. 39 Accordingly, the issues raised by the appeals that remain on foot can be summarised as follows: (a) whether the primary judge erred in finding that the transactions between BCI and EGL and the Israeli banks were not loans and in failing to hold that there was no breach of Gary's duties to BCI and EGL because the advances from the Israeli banks were interest-bearing loans; (b) whether the primary judge erred in finding that Gary was not liable for breach of the duties he owed to BCI and EGL; and (c) whether the primary judge erred in relation to certain costs issues relating to Gary. 40 The balance of these reasons will be structured as follows. First, we will set out a statement of the facts. Secondly, we will provide a summary of the reasons of the primary judge. Thirdly, we will consider each of the issues raised by the appeals.

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Bank Hapoalim 87 Bank Hapoalim is a banking corporation organised and existing under the laws of the State of Israel. Bank Hapoalim carried on a business of banking in Israel, which included the provision of loans. 88 Baruch Etzion is a former officer of Bank Hapoalim. 89 Mr Etzion first met Erwin and Emil in about 1992. He was introduced to them by Yacov Loew-Beer of IDB. Mr Etzion claimed (in a statutory declaration and an affidavit) to have been in charge of the "credit/loan department for major customers of the Bank" and, in that role, dealt with the "loans" provided by Bank Hapoalim to BCI. 90 After their first meeting, Mr Etzion met Erwin and Emil occasionally in Israel over several years. The meetings occurred in his office at the bank. In November 1997, Mr Etzion was introduced to Andrew by Erwin - again, in Mr Etzion's office in Israel. 91 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 a tax appeal brought by BCI in this Court (the BCI tax appeal). 92 Mr Etzion was not called as a witness in the proceeding below, but the finance companies tendered the statutory declaration and the affidavit. The primary judge stated that the evidence of Deborah Huber, set out below, strongly suggested that Mr Etzion had been corrupted by one or more members of the Binetter family. 93 The finance companies contended at trial, and the primary judge accepted, 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, or in conjunction with, the banking business operated by Bank Hapoalim.

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1988 98 On 20-23 December 1988, EGL entered into an arrangement with IDB for the advance of funds. 99 On 21 December 1988, Erwin and Margaret held a meeting of the directors of Erma. The minutes recorded, relevantly, that IDB had agreed to provide EGL with "certain facilities in an amount not exceeding SFr 17 million on the terms contained in a Facility Letter", a draft of which was tabled at the meeting. 100 The evidence below included a handwritten ledger for EGL with entries dating from 30 June 1982. Entries dating from 30 December 1988 referred to IDB. The 30 December 1988 entry referred to a loan of SFr 7,157,033.37 received from IDB and on-lent to Milgerd and Erma. An entry dated 30 June 1989 referred to overseas travelling expenses for a trip by Emil to Israel to arrange working capital loans from IDB. An unsigned letter dated December 1988 from EGL to IDB requested the grant of a loan facility in the amount of SFr 17 million, although the handwritten ledger entry for 30 December 1988 referred to an amount of SFr 9,085,000. The unsigned letter was provided by EGL to the ATO to justify deductions of interest expenses. 101 EGL's loan request letter requested that the loan facility be provided on the following terms as to interest: 4. The loan shall bear interest on its outstanding balance at a rate which shall be 9.35% p.a. less withholding tax in Australia resulting in 8.5% payable to you but should we pay such interest no later than twenty one (21) days after the date upon which interest is due then interest on the outstanding balance shall be at the rate of 7.997% p.a. less [withholding] tax in Australia resulting in 7.27% payable to you. Such rate of interest shall be fixed for the first two years of the loan facility and thereafter shall be at such rate to be agreed between us from time to time however, should we not agree upon a new rate from time to time, the rate shall be the last rate agreed and if no such rate exists the rate shall be the aforesaid rate. Interest shall be paid at the end of each six month period as from the date the loan is drawn, as aforesaid or other period or periods as agreed. Increased Costs. If due to either (i) the introduction of or any change in the interpretation of any law or regulation or (ii) the compliance by you with any request from any central bank or other governmental authority, there shall be any increase in the cost (including reserve requirements) to you of agreeing to make or making funding or maintaining the loan, then we shall from time to time upon demand by you, pay to you additional amounts sufficient to indemnify you against such increased costs. A certificate as to the amount of such increased costs, submitted to us by you, shall be conclusive. 5. Each and every payment of principal or interest shall be effected on its due date of payment to Israel Discount Bank Ltd., Tel Aviv in your favour. 102 EGL's loan request letter stated that the obligation to make the proposed loan was conditional upon the provision of guarantees by Milgerd, Erma, Emil and Erwin, board resolutions approving the loan and the guarantees, and an opinion of Emeric Szanto (an accountant) "reflecting favourably to our power to enter into the transactions contemplated by this letter". The evidence included guarantees signed by Erwin, Milgerd and Erma dated 23 December 1988 in favour of IDB under an agreement made or intended to be made on 23 December 1988. There was also an unsigned but stamped and initialled guarantee in the name of Emil. 103 The evidence included a letter dated 22 December 1988 from Mr Szanto to IDB in which Mr Szanto referred to himself as the auditor of the "Binetter Group" and set out a list of assets and liabilities of Erwin. The assets totalled $15,931,000, while the liabilities were nil. The assets included equity in Erma, which had interests in various items of real property in the Sydney area and in Queensland, shareholdings and term deposits.

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1992 121 By facsimile dated 28 February 1992 from Mr Szanto on behalf of Erma to Lloyds International Ltd, Mr Szanto provided "Confirmation of request to transfer by TELEGRAPHIC TRANSFER Sw. Fr. 356,250.00 from our Swiss Franc account". The request was for a transfer to IDB "whose bank account is with the Union Bank of Switzerland. Bahnhofstrasse 45. Zurich. Switzerland. THEIR ACCOUNT NO. IS: 791-598". The facsimile requested the following message: Being interest payment for six months, from 1st. Jan. 92 to 30th. June, 92 on loan granted to EGL Development (Canberra) P/L. Loan no.: 971014/13692. Borrowing of Erma Nominees Pty. Ltd. For the attention of Mr. Loew-Beer. 122 The primary judge observed that: the evidence did not explain why an interest payment to IDB would be made to an account in Switzerland, rather than to an IDB account with a number corresponding to the loan number; the evidence did not demonstrate that this Swiss account was an account owned by IDB or that an interest payment to IDB could be made to that account; a likely explanation was that this facsimile recorded a payment that was falsely described as a payment of interest on a loan from IDB to EGL but which was, in truth, a payment to a Swiss bank account owned by Erwin and Emil; it was not necessary, however, to make a finding about this matter, or about other similar correspondence which recorded payments to the Union Bank of Switzerland. 123 In its tax return for the year ended 30 June 1992, EGL disclosed gross interest income of $1,751,410 and claimed deductions for overseas interest expenses of $1,750,410. The primary judge found that the evidence did not justify a conclusion that this amount, or any amount, was paid by way of interest to IDB during the year ended 30 June 1992 by or on behalf of EGL. 124 In or around November 1992, members of the Binetter family took steps to arrange transactions between Bank Hapoalim and BCI. 125 In or around 1992, Mr Loew-Beer of IDB introduced Erwin and Emil to Mr Etzion of Bank Hapoalim. They met in Israel. 126 The evidence below included a letter dated 6 November 1992 from Mr Szanto to Mr Etzion in which Mr Szanto identified himself as the auditor of Milgerd, Erma, Ligon 158, Ligon 159, Emil and Erwin. The letter certified that those six entities had a net value in excess of US$25 million and listed 17 assets said to be their major assets. 127 A facsimile copy of minutes of a meeting of the directors of BCI dated 10 November 1992 was obtained from the files of Bank Hapoalim. The minutes recorded that Erwin and Emil resolved that: [F]or the proper handling of the corporation's funds, it was convenient to open an account with Bank Hapoalim, Central Branch, Tel-Aviv, Israel in addition to the company's other accounts. … Mr Emil Binetter, Mr Erwin Binetter and Mr Michael Binetter each acting individually, be and is hereby authorised, for and on behalf of this corporation, to sign and draw cheques against such account and to manage and transact any other business of whatever nature with such bank with the broadest powers … 128 The primary judge inferred that, by about late 1992, Emil, Erwin and Michael had agreed to enter into discussions with Bank Hapoalim through, among others, Mr Etzion, and to enter into transactions whereby a substantial amount would be advanced by Bank Hapoalim to BCI on terms that included dealings with Bank Hapoalim Switzerland and the provision of a deposit of offshore funds as security for the advance. 129 The evidence below included a document dated 10 November 1992 entitled "Deed of continuing guarantee unlimited in amount" signed by Erwin and Emil in favour of Bank Hapoalim in respect of "credit in the form of loans in foreign currency" that BCI had received or might receive from time to time. A similar document was executed on behalf of Erma, Milgerd, Ligon 158 and Ligon 159. The latter document was signed by Erwin and Margaret on behalf of Erma and Ligon 158 and by Emil and Gerda on behalf of Milgerd and Ligon 159. Each document referred to Mr Szanto's 6 November 1992 letter, and verified its accuracy.

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1993 130 The evidence below included a letter dated 6 January 1993 from Bank Hapoalim Switzerland to a Mr Ben Zeev, a banker at Bank Hapoalim in Israel. (This was a different person to the expert witness of the same name referred to at [96] above.) The letter was copied to Mr Etzion and was entitled "Australian deal". The letter was produced by Bank Hapoalim from its records relating to BCI. The letter stated: As I wrote to Mr. M. Reshef we lost contact with the client and we shall review the documentation sent to us when the matter becomes relevant again. I would like to draw your attention to Mrs. R. Zmiri's memo in Hebrew to Mr. Reshef, dated October 5, 1992, in which she states in paragraph 3 that both deed of pledge and our confirmation to Central Branch are kept with us and not sent to Tel Aviv as written in your message. 131 This letter confirmed the existence of a "deed of pledge" and a "confirmation" from Bank Hapoalim Switzerland to Bank Hapoalim prior to the May 1993 advances, referred to below. The primary judge considered it likely that the deed of pledge and confirmation referred to in the January 1993 letter recorded terms on which advances from Bank Hapoalim to BCI would be secured by an offshore deposit. 132 The letter showed that an apparently significant aspect of the arrangements concerned the location where the "deed of pledge" and the "confirmation" were to be stored. The primary judge considered this to be consistent with an arrangement between BCI and Bank Hapoalim by which the offshore deposit to be provided as security for advances would be concealed. 133 The letter also showed that, in around January 1993, Mr Etzion was probably aware of the existence of the deed of pledge and the confirmation, and that they were relevant to the advances ultimately made in May 1993. 134 By letter dated 6 January 1993, Michael wrote to Mr Etzion concerning some amendments apparently proposed by Mr Etzion in relation to a "letter of undertaking". The letter was addressed "Dear Baruch" and was signed "Michael". The primary judge inferred that Michael had been introduced to Mr Etzion by this date. 135 The evidence included a facsimile dated 6 January 1993 from Erwin on behalf of Erma to Lloyds Bank entitled "Confirmation of request to transfer by TELEGRAPHIC TRANSFER Sw. Fr. 206,230.00 from our Swiss Franc account". The request was for a transfer purportedly to IDB, and it stated the same account details at the Union Bank of Switzerland mentioned in the February 1992 facsimile. The facsimile requested the following message: This is a partial interest payment. Being the balance of interest due for the period from 1st. July, 92 to 31. Dec. 92. SW. Fr. 150,000.00 was remitted to you on 29th. Dec. 1992. Reference loan granted to EGL DEVELOPMENT (CANBERRA) P/L. Loan No. 971014/13692. Borrowing of Erma Nominees P/L. Attention: Mrs. Miriam Cohen. 136 The payment did not appear to be recorded in the EGL handwritten ledgers. The primary judge was not satisfied that this was a payment of interest to IDB, in the absence of other evidence that the Union Bank of Switzerland bank account was owned by IDB. 137 On 25 April 1993, BCI resolved to enter into an arrangement with Bank Hapoalim for the advance of funds. On that date, Erwin and Emil held a meeting of the directors of BCI. Under the heading "Proposed loan from Bank Hapoalim BM", the minutes recorded: PRODUCED to the meeting was a form of letter of undertaking intended to be entered into by this company with Bank Hapoalim B.M. Central Branch, Tel Aviv, Israel. RESOLVED: (1) to agree to the terms of the letter of undertaking produced to the meeting, being a letter of undertaking between this Company and Bank Hapoalim B.M. Central Branch, Tel Aviv, Israel; (2) to date the letter of undertaking this 25th day of April 1993; and (3) to execute the said letter of undertaking under the common seal of this Company and to authorise Mr Emil Binetter and Erwin Binetter to attest the affixing of the common seal of this Company to the said letter of undertaking and to cause delivery of the said letter of undertaking to Bank Hapoalim B.M. Central Branch, Tel Aviv, Israel. PRODUCED at the meeting was a form of request for provision of credit. RESOLVED that this company agree to the terms of the request for provision of credit and authorise each of Mr Emil Binetter, Mr Erwin Binetter and Mr Michael Binetter on their own to negotiate the terms of any provision of credit, to fill in any request for credit, to execute any request for credit, to make any request for credit and to deliver any request for credit, in each case on behalf of this Company to Bank Hapoalim B.M. Central Branch, Tel Aviv, Israel. 138 The minutes also recorded that the directors had agreed to execute a deed of charge in favour of Bank Hapoalim. The deed of charge, dated 25 April 1993, was in evidence. It referred to the two 10 November 1992 guarantees as "Collateral Securities". 139 The evidence below included a document entitled "Letter of undertaking" dated 25 April 1993, executed by BCI and signed by Erwin and Emil (the 1993 letter of undertaking). The document referred to past or future requests to Bank Hapoalim "to provide me, from time to time, with credit by means of loans in freely convertible foreign currencies". Clause 7(k) recorded that the financial certificate issued by Mr Szanto dated 6 November 1992 was true and correct. Clause 9 provided: As security for the due and punctual performance of all or any of my undertakings hereunder or pursuant hereto, all securities given or which may be given (if any) by me and/or on my behalf to the Bank and also all bills and other negotiable instruments which I have delivered and/or may deliver (if any) to the Bank from time to time, shall serve as collateral as well as all the additional securities which may be given by me to the Bank after the signing of this Letter of Undertaking. 140 Neither the 1993 letter of undertaking, nor the deed of charge, referred to any security for loans in the form of a deposit. 141 The primary judge accepted the finance companies' submission that the 1993 letter of undertaking and the charge were deliberately drafted without reference to the offshore deposit that had been or would be provided as security for the advances to be made pursuant to these documents, and found that the documents were drafted in this way to permit BCI to provide them to the ATO, if necessary, in support of deductions that BCI intended to claim in its tax returns for overseas interest expenses. Based in particular on Michael's 6 January 1993 letter, the primary judge found that Michael participated in the creation of the documents in this form and for this purpose. 142 On 27 April 1993, BCI took further steps to enter into an arrangement with Bank Hapoalim for the advance of funds. By letter of that date, Michael wrote to Bank Hapoalim, purportedly as the Australian solicitor to BCI, in connection with the 1993 letter of undertaking. The letter set out certain opinions concerning BCI and the letter of undertaking under Australian law. Paragraph 9 of the letter stated: Mr Emil Binetter and Mr Erwin Binetter who attested the affixing of the seal of the Borrower to the Letter of Undertaking had the right[,] power and authority to do so and any one of Mr Emil Binetter, Mr Erwin Binetter and Mr Michael Binetter has the right to sign on any Request for Provision of Credit and/or to give any certificate, notice and other instrument pursuant to the Letter of Undertaking. 143 By a second letter dated 27 April 1993, Michael wrote to Bank Hapoalim, purportedly as the Australian solicitor to Milgerd, Erma, Ligon 158, Ligon 159, Emil and Erwin, concerning guarantees given in connection with banking facilities granted or to be granted by Bank Hapoalim to BCI. 144 By another letter dated 27 April 1993, from Emil on behalf of BCI, BCI enclosed 10 documents in relation to a "proposed loan from Bank Hapoalim" to BCI. 145 The evidence also included a letter dated 27 April 1993 from Bank Hapoalim to Bank Hapoalim Switzerland, copied to Mr Etzion, entitled "Australian transaction" and seeking agreement to the wording of a draft "letter of irrevocable instructions to be issued to you by the pledgor in connection with the a/m transaction". The letter continued: Please note that in order to proceed we require your agreement to the wording of the said draft. … Please note that our customer has agreed to the said wording. 146 This letter was produced by Bank Hapoalim from its records relating to BCI. It provided confirmation of the existence of the deed of pledge referred to in the 6 January 1993 letter referred to at [130] above, and of Mr Etzion's probable knowledge of its existence. 147 The evidence included a letter dated 11 May 1993 from EGL to IDB which foreshadowed a transfer of SFr 6 million to loan account "Code NO. (&971057 A/c. NO. 13692" to "reduce the principal of our loan account. This reduction of the account is to be applied in connection with the borrowing of ERMA NOMINEES PTY LTD." The loan account details corresponded with the account number on the 28 February 1992 and 6 January 1993 facsimiles identified above. 148 On 13-14 May 1993, BCI requested 12 advances of funds from Bank Hapoalim totalling SFr 6 million. The evidence included 12 letters dated 13 May 1993 from BCI to Bank Hapoalim, by which BCI purported to request the provision of credit in accordance with the 1993 letter of undertaking. Each letter requested the provision of credit in the amount of SFr 500,000. Each letter provided that interest would be at the rate of 6.2% per annum, less Australian interest withholding tax. The interest rate of 6.2% was completed by hand, apparently on behalf of BCI rather than by the bank. Each letter was signed by Erwin. 149 On 14 May 1993, there was a meeting of Erwin and Emil as directors of BCI that resolved: 1. To become a party to Bank Hapoalim BM's arrangement for executing transactions by means of instructions given by telephone and/or fax. 2. To empower each and every one of Mr Emil Binetter, Mr Erwin Binetter and Mr Michael Binetter to give instructions as aforesaid. 150 The minutes were certified by Michael as BCI's solicitor. 151 By letter dated 17 May 1993 from Bank Hapoalim to Michael, the Bank requested that a deed of charge be duly registered in favour of the bank and that confirmation evidencing the registration be provided. 152 By a further batch of 12 letters, dated 27 May 1993, from BCI to Bank Hapoalim, BCI purported to request the provision of credit in accordance with the 1993 letter of undertaking. Again, each letter requested the provision of credit in the amount of SFr 500,000. Again, each letter provided that interest would be at the rate of 6.2% per annum, less Australian interest withholding tax. Each letter was signed by Emil. 153 Between 17 and 28 May 1993, Bank Hapoalim advanced SFr 12 million to BCI. That amount was then transferred to other Binetter entities. 154 By an undated letter from Erwin and Emil on behalf of BCI to the International Services Manager, Australia and New Zealand Banking Group Ltd (ANZ Bank), signed around 17 May 1993, BCI requested that ANZ Bank open a Swiss franc currency account for BCI. The individuals authorised to arrange transfers of funds from the account were Michael, Erwin, Emil, Gary and Andrew. The letter identified Michael's title as "authorised person", and Erwin, Emil, Gary and Andrew each as "director". 155 The evidence below included a document entitled "Authority for Operations" which identified the signature of persons authorised to operate an ANZ Bank account in the name of BCI. The "Authority for Operations" document identified Erwin, Margaret, Gary and Andrew as holding the office of "director", while Michael was said to hold the office of "authorised signatory". Each of Erwin, Emil, Margaret, Andrew, Gary and Michael (amongst others) provided specimen signatures on the "Authority for Operations" document. 156 According to BCI's appeal statements in the BCI tax appeal, the funds BCI received from Bank Hapoalim in 1993 were on-lent to EGL to enable EGL to refinance a portion of loans it had received from IDB. 157 The handwritten ledgers of BCI recorded the amount of SFr 12 million as having been received on 17 May 1993 from Bank Hapoalim and lent first to EGL, and through it then to each of Erma and Milgerd. 158 Erma advanced the funds received from EGL to Ligon 158. Milgerd advanced the funds received from EGL to Ligon 159. 159 According to EGL's statement of facts, issues and contentions (SOFIC) in the tax appeals commenced by the finance companies, in May 1993, EGL repaid to IDB the following amounts: (a) $5,829,770.60 (described as "repayment by Erwin Binetter"); and (b) $6,030,150.17 (described as "repayment by Emil Binetter"). 160 The amounts corresponded with the figures set out in the BCI handwritten accounts as amounts lent to Erma and Milgerd via EGL. The $6,030,150.17 loan was recorded in the EGL ledgers, as "new loan to Milgerd". The ledger recorded payments made by Milgerd on behalf of EGL to IDB totalling approximately $6,030,150.17. There was no obvious reference to the $5,829,770.60 loan to Erma in the EGL ledger. 161 A balance sheet attached to EGL's 1993 income tax return recorded that overseas loans reduced from $17,039,544 to $7,318,767.80 during the year ended 30 June 1993. The difference between those two figures was $9,720,776. 162 By letter dated 4 June 1993, from Erwin on behalf of EGL to IDB, Erwin wrote: RE: OUR LOAN ACCOUNT: CODE NO. 971057 A/c. No. 13692 Around the time you receive this letter, you will have received Sw.Fr. 100,000.00 (One Hundred Thousand Sw. Fr.) into the above account to reduce the principal of our loan account. This reduction of the principal account is to be applied in connection with the borrowing of ERMA NOMINEES PTY. LTD. The loan is now reduced from Sw.Fr. 3,100,000.00 to the round figure of Sw.Fr. 3,000,000.00 163 A letter dated 7 June 1993 from Erwin on behalf of EGL to IDB referred to a rate of 5.4% net of withholding tax on "the new SF 2,000,000 facility" and a rate of 7.27% net of withholding tax "on the outstanding SF 3,000,000 existing facility". An unsigned letter from Erwin on behalf of Erma on behalf of EGL (sic) to IDB, also dated 7 June 1993, requested remittal of SFr 2 million and stated: "When remitting this SF 2,000,000 please state that this loan is based on our new loan agreement." 164 According to the EGL SOFIC, on 10 June 1993, EGL received a transfer of $2,010,050 from IDB. This amount was lent by EGL to Erma which in turn lent it to Ligon 158. 165 By facsimile dated 10 June 1993, Mr Szanto wrote on behalf of EGL to Therese Poulton, International Services Manager, ANZ Bank, as follows: RE: Sw.Fr. 2,000,000.00 We were advised that the above amount was credited to our Sw.Fr. account no. 527028-001 We are asking you to remit out of these funds ONLY ON THE 11th. JUNE, 1993 BY TELEGRAPHIC TRANSFER Sw.Fr. 330,785.00 TO: ISRAEL DISCOUNT BANK LTD. 16 Mapu Street. Tel Aviv. Israel. whose bank account is with the Union Bank of Switzerland. 45 Bahnhofstrasse. Zurich. Switzerland, with the following message: "Being interest payment on Loan No. 971057/13692 of E.G.L. Development (Canberra) Pty. Ltd. for the period from 1 Jan. 93 to 30 June, 93. Borrowing of Erma Nominees Pty. Ltd. Attention; Mrs M. Cohen. 166 The primary judge stated that the effect of this instruction, when read with the 7 June 1993 letters and EGL's SOFIC, appeared to be that a portion of an amount advanced by IDB would immediately be returned to IDB, albeit into a bank account in Switzerland. The primary judge considered this letter to reinforce the suspicion that IDB was not the owner of a Swiss bank account with the Union Bank of Switzerland and that the payments into that account were not, in truth, payments of interest expenses on a loan from IDB; rather, the primary judge said, they may have been payments that augmented offshore funds that were originally owned by Erwin and Emil and, from some unknown time, also owned by Andrew, Michael and Gary. 167 In its tax return for the year ended 30 June 1993, EGL disclosed gross interest income of $1,308,480 and claimed deductions for interest expenses within Australia of $1,308,480. However, the profit and loss statement attached to the tax return referred to an expense of $1,308,480 as "Interest paid to Israel Discount Bank Ltd". There were no primary records to support the payment of interest expenses to IDB on behalf of EGL during the year ended 30 June 1993. 168 The primary judge inferred that the manner in which the advance of SFr 12 million was documented was agreed between Emil, Erwin and Michael with knowledge of the totality of the arrangements by which the advance was procured; that agreement included creating and executing documents that gave the appearance that there was a transaction comprising loans totalling SFr 12 million secured only by the guarantees set out above and a charge over the assets of BCI; however, as each of Emil, Erwin and Michael knew, the advance was secured by an offshore deposit of SFr 12 million. 169 Based on later evidence of two deposits, called "fiduciary" deposits, upon which interest was earned, the primary judge inferred that each of Emil, Erwin and Michael knew that the deposited funds would earn interest. Based on the fact that Emil, Erwin and Michael were able to procure the deposits, the primary judge inferred that they each owned the deposits and, therefore, earned any interest income that was earned on the deposits. 170 The primary judge also concluded that Emil and Erwin as the directors of BCI decided that BCI would: (a) record advances totalling $11,859,921.30 to EGL in the records of BCI in the manner set out above; and (b) advance those funds to Erma and Milgerd in the amounts recorded in the records of BCI. 171 Erma advanced the funds received from EGL to Ligon 158, while Milgerd advanced the funds received from EGL to Ligon 159. The primary judge found that Emil and Erwin as the directors of BCI (but not Michael) agreed for these advances to occur. 172 According to EGL's SOFIC, in August 1993, EGL received a transfer of $4,153,685.40 from IDB. 173 By letter dated 13 August 1993 from Erwin on behalf of BCI to Bank Hapoalim, Erwin requested "a schedule of dates when interest is payable and the amounts of interest payable so that there can be no misunderstanding as to the amounts payable and the dates on which interest is to be paid". The letter also requested confirmation "that payments are to be received at Central Branch, Tel Aviv". 174 A second letter dated 13 August 1993, from Erwin on behalf of BCI to Bank Hapoalim enclosed a deed of charge dated 25 April 1993 and a certificate of entry of a charge. 175 A letter dated 16 August 1993 from Emil on behalf of EGL to IDB referred to a net interest rate of 7.27% until the end of December 1993 on a "further drawdown of the loan to [EGL] to the extent to which it will be on lent to [Milgerd] namely SFR4,000,000", reducing to 6% (inclusive of Australian withholding tax) from 1 January 1994. The letter referred to a total loan of SFr 7.5 million. 176 A letter dated 30 August 1993 from Erwin on behalf of EGL to IDB stated, relevantly: We confirm your agreement as follows:- a, From 1 January, 1994 the loan facility of SF 2,000,000 referred to in our letter of 7 June, 1993 and the above referred to amount of SF 3,000,000 will be governed upon the same basis as the proposed SF 4,000,000 loan, referred to in our letter of 16 August, 1993. Accordingly, from 1 January 1994 interest shall be at the rate of 8 per cent (8%) per annum reduced to 6% per annum if paid on time being 30 June and 31 December, though if interest is paid more than two monthsslate [sic] from those dates then additional 1% interest above the 8% interest is payable for each and every additional month of delay. In relation to the payment of interest we will pay Australian interest withholding tax therefore for [example] if interest is paid on time then the rate is 6% with 5.4% to be sent to you and 0.6% payable as withholding tax. 177 The substance of the 30 August 1993 letter was confirmed by a letter from IDB to EGL dated 1 December 1993, which referred to a "loan facility of SwFr.2,000,000". 178 By facsimile dated 5 November 1993, Erma requested Lloyds Bank Ltd to make a telegraphic transfer of SFr 171,120 to Bank Hapoalim (account number 343415-00001) with the following message: For the attention of Mr Baruch Etzion. Representing interest payment by BCI Finances Pty Ltd, borrowing of Ligon 158 Pty Ltd of Sw Fr 6,000,000 interest due on 14.11.93. Please forward receipt.

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1994 179 On 25 January 1994, Gary became a director of BCI. 180 By facsimile dated 10 February 1994, Erwin on behalf of Erma wrote to Lloyds Bank Ltd in Sydney. The facsimile stated: "Confirmation of request: Please transfer by TELEGRAPHIC TRANSFER Sw.Fr. 281,750-00". The request was for a transfer to IDB "whose bank account is with the Union Bank of Switzerland, 45 Bahnhofstrasse, Zurich". No account number was stated. The facsimile requested the following message to accompany the transfer: Being interest payment on borrowings of Sw.Fr. 5,000,000 from 1st. July, 93 to 31 December, 1993. Account of E.G.L. [DEVELOPMENT] (CANBERRA) P/L. Loan no.: 971057/13692 Borrowing of Erma Nominees P/L. Attention: Mrs. Miriam Cohen. 181 By letter dated 17 February 1994, Erwin on behalf of EGL wrote to IDB requesting, relevantly: The term of all loan facilities between the Bank and this company be for a period of 5 years except that after 1 June 1994 the whole or any part or parts may be repaid on one or more times upon one month's notice stating the amount to be repaid. 182 By letter dated 22 February 1994, Erwin on behalf of Erma wrote to IDB concerning "the finalisation and extension of our existing loan agreement". 183 A letter dated 15 March 1994 from IDB to EGL referred to "AUD$4,153,685.40 loan; (arising from the agreed conversion of Swiss Franc facility of SwFr 4,000,000.00)". 184 A letter dated 20 March 1994 from IDB to EGL entitled "Loan arrangements" referred to letters dated 17 and 22 February 1994 and "the finalisation and extension of our existing loan agreement". 185 By letter dated 29 March 1994, the Erwin Binetter Family Trust wrote to the Deputy Commissioner of Taxation, as follows: This is to advise you that on 25 April, 1993 an associate company, B.C.I. FINANCES PTY. LTD. (Tax file no. 40 548 737) entered into a loan agreement with BANK HAPOALIM B M of 50 Rothschild Blvd., Tel Aviv, Israel, to borrow Swiss Francs 12,000,000.00 The purpose of this borrowing was to onlend this amount to two Trusts, viz.;:- a, The Erwin Binetter Family Trust. Sw.Fr. 6,000,000-00 (File no. 51 324 546) b, The Emil Binetter Family Trust. Sw.Fr. 6,000,000-00 (File no. 51 324 551) "B.C.I. Finances" and the above mentioned two Trusts agreed in a separate contract, that:- a, The Trusts will pay the interest on behalf of "B.C.I. Finances" to "Bank Hapoalim" in proportion [to] what they borrowed respectively from "B.C.I. Finances". b, The rate of interest [that] the two Trusts pay to "Bank Hapoalim" will be 6.2%, less the Interest Withholding Tax. This rate is the same as that agreed on between "Bank Hapoalim" and "B.C.I. Finances". c, The term of the loan will be for 5 years. d, The Trusts will pay the Interest Withholding Tax on any amount of interest paid to "Bank Hapoalim". As this letter is written solely on behalf of The Erwin Binetter Family Trust, we are advising you furthermore:- 1. The purpose of the borrowing by the Erwin Binetter Family Trust was to refinance their onerous borrowings, which carried an interest rate of 8.0777% 2. On the 26 May 1993, Bank Hapoalim B M transferred Sw.Fr. 6,000,000.00 to B.C.I. Finances, via ANZ Bank, Martin Pl. and Pitt St. Branch. Sydney, and the Erwin Binetter Family Trust received a converted Austral Dollar amount of $A 5,829,770-60. 186 There were no primary records substantiating an interest rate of 8.0777% on any borrowings. 187 The Emil Binetter Family Trust also wrote to the Deputy Commissioner on 29 March 1994, stating: This is to advise you that the trustee as trustee of this trust agreed on or about 13 May 1993 with B.C.I. Finances Pty Ltd (A.C.N. 055 988 531) to borrow at interest swiss francs from that company upon terms that: (a) this trust would pay to the lender to B.C.I. Finances Pty Limited, Bank Hapoalim B.M., such interest as is payable by B.C.I. Finances Pty Limited to Bank Hapoalim BM in respect of the amount of swiss francs borrowed by this trust from B.C.I. Finances Pty Limited subject to deduction and remission to the Australian Taxation Office of any applicable interest withholding tax. (b) this trust would indemnify B.C.I. Finances Pty Limited for all costs expenses and liabilities which B.C.I. Finances Pty Limited is responsible to the Bank in respect of the swiss francs borrowed by this trust from B.C.I. Finances Pty Ltd and which B.C.I. Finances Pty Limited drew down from the Bank. (c) this trust would be entitled to any exchange gains referrable to and would be responsible for any exchange losses referrable to the swiss francs borrowing by this trust from B.C.I. Finances Pty Limited which B.C.I. Finances Pty Limited drew down from the Bank. (d) the terms of the loan [are] such that any amounts draw down by B.C.I. Finances Pty Limited from the Bank and on-lent to the trust which are to be repaid by B.C.I. Finances Pty Limited to the Bank shall require this trust to repay the equivalent amount to B.C.I. Finances Pty Limited. The purpose of the borrowing by this trust was to increase this trust's working capital for use in this trust's businesses and refinance various borrowings of this trust. 188 By facsimile dated 30 March 1994 from Erwin on behalf of EGL to IDB, Erwin confirmed the Bank's conversion of "our last borrowing, on 9th. June, 1993" of SFr 2 million to Australian dollars, being $2,010,252. 189 By facsimile dated 6 April 1994 from Erwin on behalf of Erma to Lloyds Bank Ltd, Erwin requested a transfer of SFr 200,000 by telegraphic transfer to IDB "whose bank account is with the Union Bank of Switzerland, 45 Bahnhofstrasse. Zurich. THEIR BANK A/C. NO. IS: 791-598". The facsimile requested the following message: Being final repayment on the principal of the account of the original loan of Sw. Fr. 1,000,000 borrowed on 20 July, 1989 on account of E.G.L. DEVELOPMENT (CANBERRA) P/L. Borrowing of Erma Nominees Pty. Ltd. Attention: Mrs. Miriam Cohen. 190 By letter dated 4 May 1994, IDB wrote to EGL as follows: This letter serves to confirm the agreement between the Israel Discount Bank Ltd. and your Company, that the interest rate agreed to between us in relation to A$2,010,252.00 loan, arising from the agreed [conversion] of part of the Swiss Franc loan facility (Sw.Fr. 2,000,000.00 transferred on 10 June, 1993) and converted on 29 March, 1994 to A$2,010,252.00 loan, is - at the rate of 7.1/2% (Seven and half per cent) per annum, before deduction of Australian Interest Withholding Tax. We note that this part of the above loan facility, as converted, relates to the onloaned loan by your Company to Erma Nominees Pty. Ltd. 191 A note attached to BCI's tax return for the year ended 30 June 1993, which return was dated 11 May 1994, asserted that BCI had borrowed SFr 12 million which was on-lent to Milgerd and Erma as trustees. The note also asserted that prior to this transaction, Milgerd and Erma had borrowed from EGL. The note stated, in part: Note to the Commissioner of Taxation During the current taxation year BCI Finances Pty Ltd, (File No. 40 548 737) entered into a loan agreement with Bank Hapoalim BM of 50 Rothschild Blvd, Tel Aviv, Israel to borrow Swiss Fr 12,000,000-00. The purpose of this borrowing was to onlend this amount to two trusts: a) The Emil Binetter Family Trust SWFR 6,000,000 b) The Erwin Binetter Family Trust SWFR 6,000,000. The main conditions of the borrowing between "BCI Finances" and the "Bank Hapoalim" were: 1. The term of the loan was for 5 years; 2. The rate of interest is 5.4% 5.5% 6.2% net in the hands of the lender [?], that is The borrower to [indecipherable] the Australian Interest Withholding Tax; 3. Penalties apply for late payment of interest; 4. The security for the loan was provided by the above mentioned two family trusts ... The 2 trusts entered into the abovementioned agreement because they wanted to refinance their previously contracted borrowings which carried an onerous interest rate of 7/27% 8.0777% net in the hands of the lender. The borrower paying the interest withholding tax. Notes to the Commissioner of Taxation continued Prior to the borrowing from "BCI Finances", the 2 trusts borrowed funds from "EGL Development (Canberra) Pty Limited", File No: 81 573 751 who in turn borrowed the funds from "Israel Discount Bank Limited" of 16 Mapu Street, Tel-Aviv, Israel. The terms of the borrowing were similar to that of from "BCI" via the "Bank Hapoalim" but the Israel Discount Bank charged 7.27% net interest ... It is advised to you furthermore as stated in the first paragraph of these notes:- a) Bank Hapoalim transferred via ANZ Bank, Martin Pl, 8 Pitt St, Sydney, SwFr 6,000,000 on 28 May 1993 to BCI Finances P/L re the borrowing of the Emil Binetter Family Trust. This was converted to $A 6,030,150.70 b) Bank Hapoalim transferred via ANZ Bank, Martin Pl, 8 Pitt St, Sydney, SwFr 6,000,000 on 28 May 1993 to BCI Finances P/L re borrowing of the Erwin Binetter Family Trust. This was converted to $A 5,829,770.00 192 A facsimile dated 27 June 1994, from Erwin on behalf of EGL and Erma to IDB referred to a drawdown of $1.5 million requested on 9 June 1994, and requested that the drawdown be increased to $2.5 million. 193 In its tax return for the year ended 30 June 1994, EGL disclosed gross interest income of $291,725 and claimed deductions for overseas interest expenses of $290,725. The profit and loss statement attached to the tax return referred to interest income received from Erma of $34,876 and from Milgerd of $256,848.99. 194 There were no primary records recording payment of the overseas interest expenses.

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1996 196 IDB issued a credit note to EGL dated 1 February 1996 referring to two amounts of $236,600 and $236,250 respectively with the following particulars: "Transfer received from ANZ Bank, representing payment of interest until 2.1.96". The payments were identified as made to accounts with the numbers 016799 and 016802. 197 By letter dated 11 June 1996, IDB wrote to EGL concerning the interest rate on a loan number 803189-016799. The loan amount was stated to be $5.51 million. 198 In its tax return for the year ended 30 June 1996, EGL disclosed gross interest income of $1,787,983 and claimed deductions for overseas interest expenses of $1,786,416. The 1 February 1996 credit note provided some evidence of payment of overseas interest expenses of $472,850. There were no primary records recording payment of the remaining $1,313,566. 199 On 10 September 1996, Erwin and Margaret held a meeting of the directors of EGL. The minutes recorded, relevantly, the following resolution: [T]hat the existing loan of the Company from the Israel Discount Bank Ltd. at Tel Aviv, Israel (Aud. 5,500,000.-) be enlarged by the addition of a new drawdown of Aud. 350,000.- on the same conditions as the original Loan Agreement. 200 The evidence below included a handwritten letter of request from Erwin on behalf of Erma to IDB in accordance with the resolution. 201 By letter dated 18 September 1996, from IDB to Erma, IDB wrote: Re: Loan account of E.G.L. Development (Canberra) Pty. Ltd. Loan number: 803189-016799 AUD5,500,000.- This is in reply to your fax of 11th September 1996. Please be informed that in principle we agree to enlarge the above loan, adding AUD350,000. - For this purpose, we need to receive the following documents: a. A copy of the Minutes of the meeting of the Board of Directors, in which it was decided the present request, indicating the names of the persons who signed on behalf [of] the Company. b. A personal guarantee from the Directors of the Company. Other conditions remain unchanged. 202 On 16 October 1996, Gary became a director of EGL.

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1997 203 AUSTRAC records in evidence at trial showed funds transferred by BCI to Bank Hapoalim in the year ended 30 June 1997 of $653,686. The overseas interest expenses disclosed in BCI's tax return for the year ended 30 June 1997 were $674,814. There was no evidence to explain the $21,128 difference. The ATO adjusted BCI's overseas interest expense deduction by the amount of $21,128. That is, the Commissioner accepted that the payments totalling $653,686 were deductible expenses. 204 In its tax return for the year ended 30 June 1997, EGL disclosed gross interest income of $1,218,291 and claimed deductions for overseas interest expenses of $1,217,808. There were no primary records of payment of these interest expenses. The AUSTRAC records in evidence did not include any payments that might comprise part or all of these interest expenses. 205 According to an affidavit affirmed by Gary on 20 December 2012, in about 1997 Emil told him that Emil and Erwin had decided to separate their business dealings "now that the children are getting older". 206 In November 1997, Erwin and Andrew went to Israel where Erwin introduced Andrew to Mr Etzion. 207 On 20 November 1997, there was a meeting of Erwin and Emil as directors of BCI concerning a request to Bank Hapoalim for provision of credit to convert the existing loan from Swiss francs into Australian dollars. The minutes recorded the following resolution: RESOLVED that this company agree to the terms of the request for provision of credit and authorise each of Mr Emil Binetter, Mr Erwin Binetter and Mr Michael Binetter on their own to negotiate the terms of any provision of credit, to make any request for credit and to deliver by facsimile any request for credit, in each case on behalf of this company to Bank Hapoalim B.M. Central Branch Tel Aviv Israel. 208 On about 20 November 1997, BCI amended the arrangement for the advance of funds with Bank Hapoalim (advances 1-12) by converting it from Swiss francs to Australian dollars (this was Erwin's share). A statement of account produced by Bank Hapoalim for account 343415 referred to the amount as a "loan" (AB Pt C, tab 195, p 3708). 209 By letter dated 20 November 1997, Michael wrote to Bank Hapoalim, stating that he acted as the Australian solicitor to BCI in connection with an amendment to the letter of undertaking to the Bank dated 20 November 1997. The letter concluded by saying that "any one of Mr Emil Binetter, Mr Erwin Binetter and Mr Michael Binetter has the right to sign on any Request for Provision of Credit and/or to give any certificate, notice and other instrument pursuant to the Letter of Undertaking". 210 Bank Hapoalim produced a letter dated 20 November 1997 from Erwin on behalf of BCI entitled "Request for Provision of Credit - Loans 1-12/Our Letter of Undertaking for Credit Dated April 25th, 1993, as amended November 20, 1997". The letter requested the provision in foreign currency account number 343415 of credit in Australian dollars in 12 approximately equal amounts totalling $6,177,288.20. It stipulated the repayment date as 20 November 1998. There was also in evidence a document entitled "Amendment" between BCI and Bank Hapoalim dated 20 November 1997, executed by BCI and signed by Erwin and Emil. 211 On or about 25 November 1997, BCI amended the arrangement for the advance of funds with Bank Hapoalim (advances 13-24) by converting it from Swiss francs to Australian dollars (this was Emil's share). On that date, there was a meeting of Erwin and Emil as directors of BCI concerning a request to Bank Hapoalim for provision of credit to convert "the existing loans 13-24 inclusive into Australian dollars". The minutes recorded a further resolution authorising: [E]ach of Mr Emil Binetter, Mr Erwin Binetter and Mr Michael Binetter on their own to negotiate the terms of any provision of credit, to make any request for credit and to deliver by facsimile any request for credit, in each case on behalf of this company to Bank Hapoalim B.M. Central Branch Tel Aviv Israel. 212 Bank Hapoalim produced a letter dated 25 November 1997 from Emil on behalf of BCI entitled "Request for Provision of Credit - Loans 13-24/Our Letter of Undertaking for Credit Dated April 25th, 1993, as amended November 20, 1997". This letter requested the provision, again in foreign currency account number 343415, of credit in Australian dollars in 12 approximately equal amounts totalling $6,188,757.10. The letter stipulated the repayment date as 30 November 1998.

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1998 213 On 11 February 1998, Michael met with Philip Egglishaw, and requested quotes for two "back-to-backs". Michael's proposal was that funds would be deposited with an offshore branch of a United Kingdom bank, apparently as security for a loan of funds "to a purpose formed Australian company" which would lend to another Australian company that would invest in real estate. The finance companies submitted at trial that Mr Egglishaw's file note of his meeting with Michael "provides incontrovertible evidence of Michael's role in actively procuring back to back arrangements". They did not submit that the file note could be connected to any of the transactions the subject of this proceeding. 214 On or about 9 April 1998, Ligon 268 entered into an arrangement with IDB for the advance of funds. The evidence included a form on the letterhead of IDB entitled "General Conditions for management of foreign currency debitory accounts" dated 9 April 1998. It was executed by Ligon 268 and included three stamps in Hebrew script that referred to Erwin, Andrew and Michael. In addition, the evidence included the following documents dated 9 April 1998: (a) a form on the letterhead of IDB entitled "Application to effect banking operations as per phone instructions", executed by Ligon 268; and (b) a form on the letterhead of IDB entitled "Application to act upon facsimile orders", on the rear of which were three stamps in Hebrew, referring to Erwin, Andrew and Michael. 215 There was also in evidence a form on the letterhead of IDB completed on behalf of Ligon 268 requesting the opening of a foreign currency account, and identifying Andrew, Erwin and Michael, by their signatures, as the "attorneys" of Ligon 268. The form stated the account number as 982-01-627887. 216 Finally, there was in evidence an undated document, executed by Ligon 268, entitled "Loan application in foreign currency for a foreign resident". 217 On 3 May 1998, Ligon 268 received an advance from IDB of $850,000 and on 6 May 1998 it received a further advance of $800,000. 218 By letter dated 26 June 1998, Emil wrote on behalf of BCI to Mr Etzion, Bank Hapoalim as follows: According to our agreement, I have sent one (1) years interest in advance, till 28 May, 1999, for account Number 71940801001 000.086. Representing payment by B.C.I. Finances Pty Ltd borrowing of Milgerd Nominees Pty Ltd. Please acknowledge receipt. 219 This account number was different from BCI's Bank Hapoalim account number, identified above as 343415. 220 AUSTRAC records in evidence at trial showed funds transferred by BCI to Bank Hapoalim in the year ended 30 June 1998 of $314,340. The overseas interest expenses disclosed in BCI's 1998 income tax return were $1,032,294. There was no evidence to explain the $717,954 difference. The ATO adjusted BCI's overseas interest expense deduction by this amount. That is, the Commissioner accepted that payments totalling $314,340 were deductible expenses. 221 In its tax return for the year ended 30 June 1998, EGL disclosed income of $955,724 and claimed deductions for overseas interest expenses of $955,391. There were no primary records of payment of these interest expenses. The AUSTRAC records in evidence did not include any payments that might comprise part or all of these interest expenses. 222 By letter dated 4 August 1998, from Bank Hapoalim to BCI, the bank acknowledged receipt of $356,249 and stated "This sum would cover the interest due on your loan no. 343415/10004 till 28.5.1999". 223 On or about 20 November 1998, BCI renewed advances 1-12 with Bank Hapoalim until 20 November 2002 at an interest rate of 6% . On or about 23 November 1998, BCI renewed advances 13-24 with Bank Hapoalim until 30 November 2002 at an interest rate of 6%. 224 The evidence below included a letter from Erwin on behalf of BCI to Bank Hapoalim dated 20 November 1998 headed "Request for provision of Credit" referring to an amount of $6,177,288.20 and a similar letter dated 23 November 1998 from Emil on behalf of BCI, referring to an amount of $6,188,757.10. In submissions on behalf of BCI and EGL in the Liquidators' appeal, it was submitted that the latter letter (AB Pt C, tab 166) was signed by Gary. This was disputed by Gary, who submitted that the letter was initialled by Gerda rather than Gary. The initials appear to be consistent with other documents initialled by Gerda (see, eg, AB Pt C, tabs 152 and 156). And the signature at the end of the letter appears to be Emil's signature (see also AB Pt C, tabs 152 and 156). Accordingly, we are not satisfied that Gary signed or initialled the letter. 225 The evidence below also included two Bank Hapoalim statements in relation to account number 343415 in the name of BCI (AB Pt C, tabs 184, 185). Each statement was headed "Re: Amendment - Loan Confirmation and Repayment Schedule". One statement referred to a "loan amount" of $6,177,288.20, the other to a "loan amount" of $6,188,757.10. 226 Other documents created around this time were: (a) minutes of a meeting of Erwin and Emil Binetter as directors of BCI on 20 November 1998, at which the following resolution was passed: IT WAS RESOLVED that this company borrow and extend its borrowing from [Bank Hapoalim] upon the basis of a Request for Provision of Credit acceptable to any one of Erwin Binetter and Emil Binetter and any one of Erwin Binetter, Emil Binetter and Michael Binetter be and are hereby authorised and empowered for and on behalf of and in the name of this company and as its corporate act and deed and upon terms and conditions as may be agreed to in writing by any of the aforesaid to execute a Request for Provision of Credit to [Bank Hapoalim]. This resolution shall continue in full force and effect until [Bank Hapoalim] shall receive written notice from this company or by one of the aforesaid persons of the revocation of this resolution. (b) a document entitled "Reaffirmation of guarantee" dated 20 November 1998 signed by Erwin on behalf of Erma and Ligon 158; (c) minutes of a meeting of Erwin and Margaret as directors of Ligon 158 on 20 November 1998, at which it was resolved that Ligon 158 "guarantee and reaffirm its guarantee in favour of [Bank Hapoalim]"; (d) a document entitled "Reaffirmation of guarantee" dated 23 November 1998 signed by Emil, marked with a facsimile stamp with the name "Andersen Legal". Andersen Legal was a law firm at which Michael worked; (e) a document entitled "Reaffirmation of guarantee" dated 23 November 1998 signed by Emil and Gerda on behalf of Milgerd and Ligon 159; (f) minutes of a meeting of Emil and Gerda as directors of Ligon 159 on 23 November 1998, at which it was resolved that Ligon 159 "guarantee and reaffirm its guarantee in favour of [Bank Hapoalim]"; (g) minutes of a meeting of Emil and Gerda as directors of Milgerd on 23 November 1998, at which it was resolved that Milgerd "guarantee and reaffirm its guarantee in favour of [Bank Hapoalim]"; (h) a letter from Michael to Bank Hapoalim dated 24 November 1998, in which Michael stated that he had acted as the Australian solicitor to BCI "in connection with the Request For Provision Of Credit dated 20 November 1998 and Request For Provision Of Credit dated 23 November 1998 … which related to the previous loans numbered 1 - 24 (inclusive) signed by the Borrower". The letterhead referred to the Pagewood property as Michael's address. The letter also stated: Mr Emil Binetter and Mr Erwin Binetter who have signed the 1998 Loan Requests had the right, power and authority to sign the 1998 Loan Requests on behalf of the Borrower and any one of Mr Emil Binetter, Mr Erwin Binetter and Mr Michael Binetter has the right to sign … any certificate, notice and any other instrument pursuant to the 1998 Loan Requests.

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1999 227 By letter dated 29 January 1999, IDB wrote to EGL concerning "Loan No. 803189-16799 in the amount of AUD 4,750,000" confirming that the "above loan was granted to you on July 2nd, 1998 for a period of 5 years, until July 2nd, 2003. At present the loan's balance is AUD2,700,000". 228 In his 20 December 2012 affidavit, Gary stated that, sometime in 1999, Emil told him that he had told Erwin that "it is time to completely separate our businesses … I have decided to set up a new company and refinance my part of the EGL loan through the new company". According to the affidavit, the company Civic Finance Pty Limited (Civic) was incorporated to refinance the EGL loan with IDB. 229 By letter dated 8 June 1999, Erwin on behalf of EGL wrote to IDB as follows: As you are aware loans by your bank to this company have been on lent to one of two companies, namely, Erma Nominees Pty Limited and Milgerd Nominees Pty. Limited. As you are also aware Milgerd Nominees Pty. Limited does not wish to have loans through this company any longer. To this end a Deed of Novation was presented to you for approval. Despite representations to you, your bank has declined to accept the Deed of Novation as an appropriate method for the separation of the various loans. Accordingly it is proposed that this company repay loans to you, to the extent to which loans from you, have been lent to Milgerd Nominees Pty. Limited. Consequently once those loans are repaid, which will occur prior to 30 June 1999, Milgerd Nominees Pty. Limited will cease to guarantee any monies outstanding by this company. 230 On 24 June 1999, Erwin and Margaret held a meeting of the directors of Erma at which Erwin advised that IDB had agreed to provide certain facilities to EGL on the terms contained in a draft facility letter. The meeting resolved that Erma enter into an instrument of guarantee in favour of IDB. 231 The same day, Erwin wrote to IDB on behalf of EGL requesting a loan facility in an amount of $10 million. 232 AUSTRAC records in evidence at trial showed an outgoing, on 29 June 1999, of $144,544 from an unidentified ordering customer to IDB, for which the receiving customer was identified as EGL. The EGL handwritten ledgers identified an amount of $144,544 as a payment by Erma on behalf of EGL for interest for six months to 30 June 1999. 233 In its tax return for the year ended 30 June 1999, BCI claimed deductions for overseas interest expenses of $677,344. There were no primary records of payment of these interest expenses. The AUSTRAC records in evidence did not include any payments that might comprise part or all of these interest expenses. 234 In its tax return for the year ended 30 June 1999, EGL disclosed gross interest income of $280,282 and claimed deductions for overseas interest expenses of $273,367. The only primary record that might demonstrate that there was a part payment of these amounts was a 29 June 1999 AUSTRAC record for transfer of $144,544.

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2000 237 On or about 28 March 2000, EGL entered into an arrangement with IDB for the advance of $10 million in funds. 238 The evidence below included a document dated 28 March 2000, apparently signed by Erwin, entitled "General Conditions for Management of Foreign Currency Debitory Accounts", with the customer account number 803-16799. This account number matched references to an account held by EGL. 239 On 11 April 2000, a facsimile was sent from an unknown sender to EGL, comprising a one page form marked with the letterhead of IDB and executed by EGL (and signed by Erwin). The form was headed "Framework instrument for the creation of an approved deposit for the grant of loans in foreign currency" (the April 2000 IDB framework instrument). The form was not fully completed. Relevantly it provided: We the undersigned hereby request to deposit with you, to the credit of a deposit account that shall be opened in our names, the amount particularised below in connection with the grant of loans by you: 240 The document did not particularise an amount to be deposited. The form contained the following section concerning interest: INTEREST On the deposit: … % per annum (annual adjusted interest … %) (The interest rates mentioned in this instrument shall be changed from time to time in accordance with the Bank's determination and in coordination with the customer) On the loan: … % per annum (annual adjusted interest … %) (or as shall be specifically prescribed for every borrower separately in a notice to be sent separately). 241 In handwriting, the amount of 7.2% was inserted as the figure for annual adjusted interest on the loan. No other figures were inserted. 242 The primary judge inferred that the April 2000 IDB framework instrument was part of a larger document that included terms to the effect of the terms set out in the March 2004 framework instrument, discussed below. 243 The evidence included a document dated 28 March 2000 entitled "Loan application in foreign currency for a foreign resident", signed by Erwin on behalf of EGL requesting a loan of $10 million on 2 July 1998, repayable on 2 July 2008. Clause 8 of the document referred to a lien that the bank would have "on all monies and/or securities that we have deposited and will deposit with you". 244 There was also in evidence another document entitled "Loan application in foreign currency for a foreign resident", signed by Erwin on behalf of EGL apparently requesting a loan of $10 million on 2 July 1998. The form identified the loan number as 16799. Concerning interest, the form stated: The loan shall bear compound interest at the rate of LIBOR plus 7.2% per annum. The interest shall be determined for every period of 6 months, commencing with the granting of the loan, two business days before the commencement of each such period. 245 The primary judge observed that the documents referred to above tended to bear out the contention, made by Gary and associated parties, that Emil ceased to be involved in the dealings between EGL and IDB from around 1999 or 2000. Emil ceased to be a director of EGL on 28 September 2001. 246 On 12 May 2000, EGL received $1 million from IDB. 247 In its tax return for the year ended 30 June 2000, BCI claimed deductions for overseas interest expenses of $679,836. There were no primary records of payment of these interest expenses. The AUSTRAC records in evidence did not include any payments that might comprise part or all of these interest expenses. The notes to the balance sheet attached to the tax return recorded that the interest was paid directly to Bank Hapoalim: by Erma as to $340,986 and by Milgerd as to $338,850. 248 In its tax return for the year ended 30 June 2000, EGL disclosed gross interest income of $544,061 and claimed deductions for interest expenses within Australia of $75,933 and overseas interest expenses of $468,128. The EGL handwritten ledgers recorded a payment made on 30 December 1999 of interest net of withholding tax to IDB of $184,389 and a payment on 28 June 2000 of interest net of withholding tax in the sum of $283,739. 249 The evidence below included an unsigned letter dated 6 July 2000 from Erwin on behalf of EGL to IDB requesting a drawdown of $250,000 "from the loan account of EGL Development (Canberra) Pty Ltd Code No. 803189 Account No. 016799 (Erma Nominees P/L)". 250 The evidence included a similar unsigned letter dated 6 October 2000 from Erwin on behalf of EGL to IDB requesting a drawdown of $500,000 "from the loan account of EGL Development (Canberra) Pty Ltd Code No. 803189 Account No. 016799 (Erma Nominees P/L)". 251 By facsimile dated 10 October 2000 entitled "Loan No. 16799" from IDB to EGL, the bank wrote: Following our phone conversation of October 5th regarding your request to increase loan facilities from AUD 10 Million to AUD 15 Million; we are pleased to inform you that the above has been approved. All conditions of the loan in question remain unchanged. Please confirm the above by signing this letter and returning same by fax. 252 The letter was signed by Erwin immediately above the words "We confirm the contents of this letter". 253 The evidence included an unsigned letter dated 10 November 2000, from Erwin to IDB that stated: RE: INTEREST ON LOAN ACCOUNT As discussed with you on 1 November 2000 the interest payable to The Israel Discount Bank Ltd from January 1 2001 will be 8.50% Net to the Bank on all outstanding loans. 254 Under the name of Erwin was a file name including the words "family affairs" (in the folder path) and "IDB drawdown by 268 191399". The primary judge stated that: the unsigned letter was probably a copy of a letter that was sent on the letterhead of Ligon 268; and the drafter of the letter probably considered advances from IDB to Ligon 268 to be appropriately classified as "family affairs" and not the sole concern of one person or entity. 255 An AUSTRAC report in evidence recorded a payment of $170,493 from EGL to Bank Hapoalim (that is, not to IDB) on 17 November 2000, with the message: Attention Baruch Etzion Interest payment BCI Finances Due November 256 The account number for the payment was 3421500001, a different account number from the account number designated by Bank Hapoalim for BCI (which was 343415). There were no documents explaining why EGL purportedly made a payment of interest on behalf of BCI. There was no evidence from Bank Hapoalim that identified the owner of account number 3421500001.

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267 In the absence of corroborative evidence from IDB, and in the absence of verification of the minute by Andrew, the primary judge did not find that there was an agreement of the kind described in the unsigned minute. 268 In its tax return for the year ended 30 June 2002, BCI claimed deductions for overseas interest expenses of $754,261. The profit and loss statement attached to the tax return recorded that interest of $678,835 was paid to Bank Hapoalim. There were in evidence AUSTRAC reports of three payments from BCI to Bank Hapoalim that equalled $678,835, on 23 November 2001, 6 June and 27 June 2002. For the first, the beneficiary customer was Ligon 158 (attention Mr Etzion), and the account number was 3421500001; for the second, the beneficiary customer was "Bank of Hapoalim" and the account number was 3421500001; for the third, the beneficiary was "BCI Finances Pty Ltd Ligon 159 PL" and the account number was 209220. 269 In its tax return for the year ended 30 June 2002, EGL disclosed gross interest income of $965,248 and claimed deductions for overseas interest expenses of $965,133. 270 The evidence included a document entitled "Amendment", dated 20 November 2002, which purported to extend repayment dates of the November 1998 advances from Bank Hapoalim to BCI to 31 May 2004. The document was signed by Erwin and Emil on behalf of BCI and included a handwritten certification by Michael. By the document, BCI reaffirmed the representations and warranties made in the 1993 letter of undertaking and the deed executed by BCI in favour of Bank Hapoalim. 271 The evidence included an AUSTRAC report of an outgoing payment of $170,000 from Ligon 158 to Mr Etzion on 27 November 2002. The payment was described as "Mr Baruch Etzion interest by Ligon Pty due 22/11/02". The account number was 3421500001. 272 By this time, Mr Etzion had left Bank Hapoalim, having retired from there on 31 December 2001. He claimed that he continued to act as a liaison between the bank and the Binetters after his retirement, but, as the primary judge noted, this did not explain his apparent receipt of payments that were claimed as interest expenses paid to Bank Hapoalim.

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2003 273 In January 2003, the Nudie brand was launched. 274 In April 2003, Erwin was examined by a consultant neurologist, Dr O'Neill, at the request of Ronald. In a report of the examination, Dr O'Neill recorded that he had explained to Erwin that there was objective evidence of worsening cognitive function since Dr O'Neill had first seen him. 275 By letter dated 24 June 2003 to IDB, apparently signed by Erwin on behalf of EGL, Erwin requested a drawdown from "loan account Code No. 803189 Account No. 016799" of $220,000. 276 From July 2003, the Nudie juice business was carried on from the Pagewood premises. 277 In its tax return for the year ended 30 June 2003, BCI claimed deductions for overseas interest expenses of $754,261 (that is, the same amount as for the year ended 30 June 2002). The profit and loss statement attached to the tax return recorded that the interest of $678,835 was paid to Bank Hapoalim. There was a single AUSTRAC report of a payment of $170,000 from BCI to Bank Hapoalim on 20 May 2003. That report showed the beneficiary customer as Mr Etzion. The account number was 3421500001. 278 In its tax return for the year ended 30 June 2003, EGL disclosed gross interest income of $1,037,210 and claimed deductions for overseas interest expenses of $1,037,193. 279 In 2003, Erwin, Michael, Andrew and Ronald travelled to Israel to meet with Bank Hapoalim. Before the visit, either Michael or Andrew told Ronald that they needed to discuss loans with the Israeli banks. Ronald was asked to come along so he could look after Erwin, who was not well. The primary judge observed that the fact that Ronald was asked and agreed to make this trip supported a conclusion that the dealings with the Israeli banks were for the ultimate benefit of Michael, Andrew and Ronald as well as their father. 280 While in Israel, the four men went to Bank Hapoalim for a meeting with bankers and their legal advisers. The meeting lasted between 20 minutes and one hour, and no documents were exchanged. 281 Ronald gave affidavit evidence of accompanying Erwin on the 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. 282 The evidence included an unsigned letter from Erwin to IDB dated 25 October 2003 which stated: RE: INTEREST ON LOAN ACCOUNT As discussed with you on 1 September 2003 the interest payable to The Israel Discount Bank Ltd from October 1 2003 will be 7.30% Net to the Bank on all outstanding loans to Ligon 268 Pty Ltd 283 On 20 November 2003, Bank Hapoalim Switzerland sent a facsimile to Bank Hapoalim in the following terms: Back-to-back transaction Australian Dollar Loan Facility granted by yourselves to one of your clients Our fiduciary deposit for AUD 6,177,2888.17 [sic] placed with yourselves as security Dear Mrs. Emilie Our above stated fiduciary deposit matured for value today, November 20, 2003. On November 18, 2003 we telephoned Mr. Goldberg (Credit Department Tel. 5673502) who informed us that your Bank will extend the loan until May 2004 and that we are to rollover our fiduciary deposit until May 31, 2004. We have today established that you have in fact repaid to us the total amount of our fiduciary deposit plus the interest. Only the interest payment should have been effect [sic]. Consequently, we shall remit back to you the amount of AUD 6,177,288.17 however, we shall most probably not be in a position to effect repayment for value today, November 20. Any loss of interest is to be born [sic] by your Bank. 284 The following day, 21 November 2003, Bank Hapoalim Switzerland sent a further facsimile to Bank Hapoalim concerning the same transaction. The letter stated: Back-to-back transaction Australian Dollar Loan Facility granted by yourselves to one of your clients Our fiduciary deposit for AUD 6,177,288.17 placed with yourselves as security Ladies and Gentlemen As already stated in our faxletter of November 20, 2003 Bank Hapoalim Tel Aviv has granted an Australian Dollars loan. As collateral for your Bank, we have placed a fiduciary deposit with you, which matured value November 20, 2003. On November 18, 2003 Mr Goldberg (Credit Department Tel. 5673502) has given us instructions to roll over the deposit until May 31, 2004 since your Bank is also extending the loan facility until May 2004. This was also confirmed by Mr. David Kirschenbaum of the Legal Department. On November 20, 2003 late afternoon we have noticed that you have repaid to us the full amount of our deposit, e.g. AUD 6,177,288.17 plus the interest. In fact you should have paid us only the interest, in the same manner as you have done for all previous roll-overs in the past. We discussed the matter on the phone and you have requested us to repay the funds to yourselves. We have effected such payment today value, November 21, 2003 and any loss of interest is to be borne by your Bank. A copy of our swift payment has been sent today to Mr. Alon Keden. Since your Bank has granted the loan and we are only providing the collateral, we are of the opinion, that it is indeed your responsibility to take the lead in this transaction. 285 The amount of the fiduciary deposit matched the amount in the 20 November 1998 BCI request for credit signed by Erwin on behalf of BCI. 286 The primary judge found (at [687] of the Liability Judgment) that the documents showed that there was an arrangement between Bank Hapoalim and BCI (which Bank Hapoalim called a "back-to-back" transaction) comprising: (a) an advance of monies from Bank Hapoalim to BCI on terms that included an obligation of repayment, that is, a loan; and (b) a deposit of an equivalent amount by Bank Hapoalim Switzerland from funds procured by or on BCI's behalf, probably on terms that, if BCI defaulted on its repayment obligation, Bank Hapoalim would have recourse to the deposit. 287 The primary judge stated that there was no evidence that the arrangement was materially different at any time, except as to the amounts advanced. 288 The evidence below included a record printed on 24 November 2003, which appeared to be an internal bank record of Bank Hapoalim. It referred to a "Fixed Loan/Deposit Confirmation" and identified the sender as Bank Hapoalim Switzerland and the receiver as Bank Hapoalim. The principal amount was stated as AUD$6,177,288.17. The interest rate was stated as 5.1%. The sender to receiver information was: /A/ZH/TRUST FUNDS //ROLLOVER/SPECIAL AGREEMENT BANK T //BACK FINANCING 289 A facsimile dated 24 November 2003 marked with the details of Kevin Munro & Associates, a former employer of Michael, showed that Michael was involved in the November 2003 dealings with Bank Hapoalim. In particular, Michael witnessed two documents dated 10 November 2003 entitled "Reaffirmation of guarantee" addressed to Bank Hapoalim from Erwin and Emil, and from Milgerd, Erma, Ligon 158 and Ligon 159. In the case of the former document, the signatures of Erwin and Emil were certified as genuine by Michael. For the latter document, Michael also certified that Erwin and Emil were authorised to bind each guarantor. 290 The evidence below included an AUSTRAC report recording a transfer of $169,000 from Ligon 158 on 28 November 2003. The beneficiary customer was Mr Etzion and the account number was 3421500001. The details of payment were: ATTENTION OF MR BARUCH ETZION REPRESENTING PAYMENT LIGON 158 P/L

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2004 291 Dr O'Neill examined Erwin again on 20 January 2004. His report recorded that Ronald felt that there had been further deterioration in his father's recent memory but that he was still driving the car safely. 292 In an affidavit made in October 2011, Gary gave an account of a meeting that he attended with Emil at IDB on 16 March 2004. On that account, Gary had some prior beliefs about Emil's dealings with IDB (Gary said to his father, "You have been a good customer. You even paid interest in advance"). According to Gary, at the meeting, Emil said to Ms Barisaac of IDB: Fernanda, I need your help. I have a loan from another bank which I would like to repay. I would like to borrow money from your bank in order to do this. I intend paying the money back in about one year. 293 Gary recounted a similar conversation the same day with an officer of Mercantile Discount Bank, another Israeli bank. Then, he recounted a meeting with Mr Etzion in which Emil told Mr Etzion that he would be repaying "the loan to Bank Hapoalim". 294 The evidence below included documents relating to the establishment of arrangements between Civic, a company associated with the Emil side of the family, and IDB. There was a document dated 19 March 2004, signed by Emil and Gary and titled "Framework Instrument for the creation of an approved deposit for the grant of loans in foreign currency" (the March 2004 framework instrument). The first page was similar to the April 2000 IDB framework instrument signed by Erwin in 2000. The March 2004 framework instrument referred to a deposit of $3,690,000. The depositor was identified as "C/A 791628", notwithstanding that the form provided for the identification of the depositor by name, passport number and address. The document included "Provisions, terms and conditions that shall apply to the deposit against the grant of the loans". Clause 1 provided relevantly: 1.1 The Israel Discount Bank Ltd … shall, in its discretion and subject to the matters set forth in the terms and conditions of this instrument, grant loans in the deposit currency against the deposit monies to borrowers … … 1.4 Without prejudice to all the aforegoing, the amount of the balance of the loans shall not exceed the balance of the deposit monies less an appropriate safety margin in the Bank's sole discretion, unless the Bank decided to act otherwise in a specific case or in general. 295 Clause 2 provided relevantly: 2.1 The interest that shall be credited to us on the amounts in the deposit shall be freely available to us, and the Bank shall transfer it to the credit of the account from time to time in accordance with the Bank's usual procedures herein. 2.2 You shall, in accordance with all statutory provisions, be entitled to deduct at source or otherwise the tax and any other levy and charge that shall apply to the deposit and the interest thereon, such that every payment on your part in respect of the deposit shall only be made available to our credit after the deduction as aforesaid. 296 A draft letter dated 19 March 2004 was obtained from IDB. The letter included the following handwritten annotation: Dear Hagai, Kindly have this re-typed on IDB letterhead (as it is, including the date) and post it to us at the address below. Thank you! 297 As the primary judge observed, plainly enough this was a request for IDB to create a document that would be back-dated. 298 The draft letter was in the following terms: CIVIC FINANCES PTY LTD 2/63 BAY STREET DOUBLE BAY NSW 2028 AUSTRALIA 19 March 2004 Attention: Mr Emil Binetter Dear Mr Binetter, This letter is to confirm agreement between the Israeli Discount Bank Ltd and your company. Civic Finances Pty Ltd agreed that from 27 May 2004 interest of 6.00% p.a. (including Australian Withholding Tax) will be paid on the existing loan of AUD1,000,000 (one million Australian Dollars) and an additional loan amount of AUD3,690,000 (three million, six hundred and ninety thousand Australian dollars), provided that the interest on these amounts is paid on or before the due date (that is to say, 30 June and 31 December each year). Civic Finances Pty Ltd will pay Israel Discount Bank 5.40% p.a. Civic Finances will pay the Withholding Tax of 0.60% due in Australia. We note that the above facility relates to the loan by your Company to Ligon 159 Pty Ltd. This confirms the content of loan documents signed by you. However in any event, the loan documents will always prevail. 299 According to an affidavit affirmed by Andrew on 27 July 2012, he visited IDB with Erwin in March 2004. On that occasion, he met Ms Barisaac and Mr Peled of IDB. 300 In April 2004, Margaret visited Dr O'Neill without her husband. She reported that Erwin had remained in bed for most of the day. Dr O'Neill told Margaret that Erwin had dementia for which there was no additional useful treatment that could be recommended. 301 In May 2004, the Pagewood premises were destroyed by fire. According to an affidavit prepared by Andrew for proceedings in the AAT commenced by Binqld (the Binqld tax appeal), records destroyed in the fire included records of BCI, EGL, Erma and Ligon 158. 302 On 24 May 2004, $3.69 million was transferred from an account in Zurich with UBS AG (UBS) to an account with IDB. The primary judge stated that this amount was probably the deposit of $3.69 million referred to in the March 2004 framework instrument. 303 The SWIFT transfer form named the ordering customer as "Batorove Kesy Foundation". At trial, Andrew and associated parties did not dispute that the father of Erwin and Emil was born in the village of Batorove Kosihy (also known as Batorove Kesy) in Slovakia. The transfer form identified the beneficiary customer only as "/ATTENTION HAGAI PELED 791628". 304 The primary judge found that the Batorove Kesy Foundation was probably an entity owned by Erwin and Emil. 305 The primary judge stated that the funds from UBS appeared to have been received into an IDB account number 130-0803-18-997560. 306 A letter dated 21 May 2004 signed by Emil on behalf of Civic to IDB requested that $3.69 million be sent to Ligon 159's bank account. 307 On 25 May 2004, Bank Hapoalim Switzerland wrote to Bank Hapoalim. The letter stated: Two back-to-back transactions, concerning Two Australian Dollar Loan Facilities granted by yourselves to two of your clients As security for the above loans, we have placed with yourselves: Our fiduciary deposit for AUD 6,188,757.00 maturing May 31, 2004 Our fiduciary deposit for AUD 6,177,288.17 maturing May 31, 2004 Ladies and Gentlemen Please be informed that we have two back-to-back Australian Dollar transactions whereby we have placed the following fiduciary deposits with your Bank as collateral for two loans you have granted to two Australian clients: AUD 6,188,757.00 From: November 28, 2003 Maturity date: May 31, 2004 Interest rate: 5.1% Interest amount: AUD 162,197.01 Interest days: 185 AUD 6,177,288.17 From: November 20, 2003 Maturity date: May 31, 2004 Interest rate: 5.1% Interest amount: AUD 168,897.35 Interest days: 193 We understand that your Loans will not be repaid and that the transactions will be rolled over for a further 6 months (from May 31, 2004 until November 30, 2004) with the same conditions. Consequently, our above stated Fiduciary Deposits placed with yourselves must NOT be repaid to us on May 31, 2004.. The two interest amounts, e.g.: AUD 162,197.01 and: AUD 168,897.35 are however to be transferred as follows: value May 31, 2004 To our AUD account maintained with ANZ, Melbourne (anzbau3mxxx) Australia and New Zealand Banking Group Ltd., Melbourne 308 Gary signed a document dated 27 May 2004 entitled "Loan application in foreign currency for a foreign resident" in connection with the advance from IDB to Civic. 309 An IDB document entitled "Withdrawal of Foreign Currency Loan/Credit" recorded "your instructions dated 27/05/04 to withdraw loan for the amt of 3,690,000.00 AUD from acc. No. 803-18-997560 at branch 130 and credit acc. no. 980-18-955159 at branch 130". 310 In this document, IDB apparently referred to the transfer of $3.69 million from the account into which it had been deposited by Batorove Kesy Foundation, to another account, as a "loan". 311 A bank statement for an account in Sydney in the name of Ligon 159 recorded a receipt of $3,689,995 on 27 May 2004. The printed narration for the transaction on the bank statement was "Ourselves". The primary judge found that the narration accurately summarised the true position, which was that the ultimate source of the funds was the $3.69 million sent from UBS in Switzerland by the Batorove Kesy Foundation to IDB. Next to the printed narration were the handwritten words "from Israel Discount Bank". These words reflected the fact that the funds came from UBS in Switzerland via IDB (and, in that sense, "from" IDB). The primary judge stated that, without more evidence, it was not clear whether the funds were transferred from IDB to Ligon 159 pursuant to a loan arrangement involving an obligation of repayment to IDB. 312 The Ligon 159 bank statement also recorded a credit of AUD$2,499,981 on 27 May 2004, apparently from a related entity, Advance Finances Pty Ltd (Advance). A handwritten note next to this entry stated "from Mercantile (Israel)". 313 On 28 May 2004, Ligon 159 transferred $6,188,757 to an account in Israel. The relevant AUSTRAC report identified the beneficiary customer as BCI and the account number as 209220. This was one of a number of references to account 209220 in the documents, and the second time that it was associated with the name "Birk". The details of payment were: SWIFT CODE POALILIT ATT A BIRK FOR LOAN PAYMENT BEHALF LIGON 159 LTD 314 The primary judge found that it was more probable than not that Emil, as a director of both Ligon 159 and BCI, arranged Ligon 159's 28 May 2004 transfer of $6,188,757. 315 On 27-28 May 2004, Emil's share of the BCI funds advanced by Bank Hapoalim was discharged with funds advanced by IDB and Mercantile Discount Bank. 316 On 31 May 2004, Bank Hapoalim sent a facsimile to Bank Hapoalim Switzerland titled "Back-to-back transactions" which stated: Following your fax transmission of 25 May 2004 this is to inform you that we renew the loan for AUD 6,177,288.17 for an additional period of six months, from 31 May 2004 until 30 November 2004. Please advise us of the rate of interest applied to the relevant deposit (bearing in mind that the margin stands at 0.3%). The deposit for AUD 6,188,757.00 is released and the credit facility against this deposit is cancelled. Please relay to us your customer's further relevant instructions. We have no objections regarding the transfer of the interest, and we would like to point out that until now our consent (i.e. of the Central Branch) to this extent was not required. Therefore please contact Mr. Y. Wodnik (Back Office - Tel Aviv) with any questions pertaining thereto. (Emphasis added.) 317 Based on this facsimile, the primary judge found that, around the time of Ligon 159's 28 May 2004 transfer of $6,188,757, the amount of $6,188,757, which had been deposited as a "fiduciary deposit" by Bank Hapoalim Switzerland with Bank Hapoalim, was returned by Bank Hapoalim to Bank Hapoalim Switzerland. 318 The facsimile confirmed that the arrangements between BCI and Bank Hapoalim thereafter included that an amount of $6,177,288.17, previously advanced to BCI, remained secured by an equivalent amount deposited as a "fiduciary deposit" by Bank Hapoalim Switzerland with Bank Hapoalim. 319 The facsimile also confirmed, as would be expected, that the deposit that supported the $6,177,288.17 advance was accruing interest. The primary judge inferred, from Bank Hapoalim's request to be advised of the rate of interest applied to the deposit, that Bank Hapoalim did not set the interest rate apart from the margin of 0.3%. In this regard, the primary judge noted that Andrew and associated parties did not dispute the finance companies' proposition that the indifference to the interest rates revealed in the 31 May 2004 facsimile disclosed that the arrangement under discussion in the facsimile was a back-to-back transaction. Nor did they dispute the proposition that the 0.3% represented Bank Hapoalim's fee for facilitating the transaction. During the appeal hearing, the Andrew parties accepted that Bank Hapoalim in Israel was indifferent to the interest rate (T51). It was submitted that the rate was set by Bank Hapoalim Switzerland. 320 By facsimile dated 1 June 2004, Bank Hapoalim Switzerland confirmed that $6,188,757 should be repaid "to our AUD account maintained with ANZ, Melbourne". This was the same account mentioned in the 25 May 2004 facsimile from Bank Hapoalim Switzerland to Bank Hapoalim. 321 The evidence below included an AUSTRAC report of a transfer of $178,826 from Ligon 158 on 2 June 2004. The beneficiary customer was Mr Etzion. The account number of the beneficiary customer was 3421500001. The details of payment were: ATT MR BARUCH ETZION INTEREST [PAYMENT] BY LIGON.158 INT DUE 28/05/04 322 On 2 June 2004, Gary sent a facsimile to IDB on behalf of Civic in the following terms: Re: loan of AUD3,690,000 I am going away on holidays on 11 June and therefore need to organise the interest payment due on 30 June 2004 prior to that date. Kindly fax (to the above number) or email (garybinetter@hotmail.com) the amount of interest due on the loan at 30 June 2004 based on the interest rate of 6.5% p.a. 323 On 11 June 2004, BCI executed documents to renew its account for the advance of funds with Bank Hapoalim for Erwin's share. On that date, Erwin and Andrew held a meeting of directors of BCI. The minutes of the meeting referred to a letter of undertaking by BCI to Bank Hapoalim and a request for the provision of credit by BCI to Bank Hapoalim. The directors approved, among other things, "the execution, dating and delivery, from time to time, of forms of Request for the provision of Credit by [BCI] to Bank Hapoalim B.M, by any one of Erwin Binetter, Andrew Binetter and Michael Binetter and/or for any one of [them] to give any certificate, notice and other instrument pursuant to the Letter of Undertaking". 324 The same day, Erwin and Andrew signed a document entitled "Letter of Undertaking" on behalf of BCI. The document contained terms concerning security for the performance of undertakings given, but no reference to any security in the form of a deposit. The primary judge inferred from this document that each of Erwin and Andrew was participating in the management of BCI insofar as it involved transactions with Bank Hapoalim, and each was aware of the terms of the arrangements between BCI and Bank Hapoalim around this time. 325 The evidence below included a letter from BCI to Bank Hapoalim dated 11 June 2004 and entitled "Application for Provision of credit - My Letter of Undertaking (Mem Shin 20(E) for Credit in Foreign currency dated 11 June 2004" requesting credit in the sum of $6,177,288.20, repayable on 31 May 2014. This document was signed by Erwin and Andrew on behalf of BCI. It bore endorsements stamped at the Embassy of Israel in Canberra on either 9 November 2004 or 11 September 2004. 326 On about 21 June 2004, EGL ordered a transfer of $200,000 to Blanford. The evidence included an unsigned letter from Andrew to IDB requesting a drawdown from loan account "Code No. 803189 Account No. 016799" in that sum. 327 In its tax return for the year ended 30 June 2004, BCI claimed deductions for overseas interest expenses of $386,504. There were no primary records to substantiate payment of any part of this amount. 328 In its tax return for the year ended 30 June 2004, EGL claimed deductions for interest expenses to IDB of $1,140,040. There were no primary records to substantiate payment of any part of this amount. 329 By message dated 6 July 2004, Bank Hapoalim wrote to Bank Hapoalim Switzerland as follows: re your fiduciary deposit for aud 6,177,288.17 placed with ourselves from 20.11.03 until 31.05.04 back-to-back transaction - roll-over dollar loan facility further to your letter dated 18.06.04, we hereby inform you that since the deposit topic is not under our responsibility and since we are dealing with the loan facility topics only, we are not in the capacity to credit you with the amount claimed in your letter. 330 The letter dated 18 June 2004, mentioned in this message, was not in evidence. 331 The evidence included a document entitled "Deed of Continuing guarantee unlimited in amount" addressed to Bank Hapoalim signed by Erwin and dated 18 July 2004. The recitals referred to BCI as the "Borrower". 332 There was in evidence a similar document dated 18 July 2004 signed by Erwin and Andrew on behalf of Erma and Ligon 158. 333 On 12 August 2004, Andrew was informed that Erwin had Alzheimer's disease by a psycho-geriatric specialist named Dr Brodaty. 334 By facsimile dated 26 November 2004, Bank Hapoalim Switzerland wrote to Bank Hapoalim as follows: Back-to-back transaction Australian Dollar Loan Facility granted by yourselves to one of your clients Our fiduciary deposit for AUD 6,177,288.17 placed with yourselves as security Ladies and Gentlemen We have been trying to roll over to roll-over [sic] our fiduciary deposit with your Bank as follows: AUD 6,177,288.17 Value date: November 30, 2004 Maturity date: February 28, 2005 Interest rate: 5.10% No payment of the Capital is to be effected to us value November 30, 2004. (Only the interest due is to be remitted). 335 The evidence included another letter, dated 30 November 2004, from BCI to Bank Hapoalim entitled "Application for Provision of credit - Our Letter of Undertaking (Mem Shin 20(E) for Credit in Foreign currency dated 11 June 2004" and requesting credit in the sum of $6,177,288.20 on 30 November 2004, repayable on 28 February 2005. The application was signed by Andrew on behalf of BCI. The primary judge stated that this letter might suggest that the terms of the facility were not extended to 31 May 2014, as had been requested in June 2004, but were extended only to 30 November 2004.

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341 The evidence included an AUSTRAC report of a transfer of $868,620 on 4 April 2005. Ligon 268 was the ordering customer. Ligon 158 was the beneficiary customer and the account number was 8031890167992. The details of payment were: ATT HAGAI PELED INTEREST 12 M 30/03/2002 EGL DEVELOPMENT PL 342 The evidence included an AUSTRAC report of a transfer of $183,500 on 24 May 2005. The ordering customer and the beneficiary customer were both BCI. The details of payment were: ATT - MR BARUCH ETZION INTEREST PAYMENT FOR LIGON PL 30/09/2005. 343 In its tax return for the year ended 30 June 2005, BCI claimed deductions for "interest expenses overseas" of $487,222. 344 In its tax return for the year ended 30 June 2005, EGL claimed deductions for "interest expenses overseas" of $1,215,173. 345 Paragraph 22 of Andrew's affidavit prepared for the Binqld tax appeal stated: … 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. 346 The evidence included a letter dated 5 September 2005 from BCI to Bank Hapoalim entitled "Application for Provision of Credit - My Letter of Undertaking (Mem Shin 20(E) for Credit in Foreign currency dated 11 June 2004" and requesting credit in the sum of $6,177,288.20 on 8 September 2005, repayable on 8 May 2006. The application was signed by Andrew on behalf of BCI. 347 By letter dated 8 September 2005, Andrew on behalf of BCI wrote to the Commonwealth Bank of Australia to request a transfer of $182,000 to account number 34215-00001 with the following message: For the attention of Mr Baruch Etzion. Representing interest payment by B.C.I Finances P/L to 31 March 2006 Please forward receipt. 348 The evidence below included another letter from BCI to Bank Hapoalim, dated 14 September 2005, entitled "Application for Provision of Credit - Our Letter of Undertaking (Mem Shin 20(E) for Credit in Foreign currency dated 11 June 2004" requesting credit in the sum of $6,177,288.20, repayable on 8 March 2006. The application was signed by Andrew on behalf of BCI. 349 In late 2005, Andrew visited IDB in Israel. 350 In an affidavit prepared for the Binqld tax appeal, Andrew 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 [Nudie business] 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.

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352 The AUSTRAC report of this transfer contained the following details of payment: ATTENTION: MR HAGAI PELED, INTEREST FOR LOAN NO. 803189-0167992 353 The primary judge observed that it appeared that the initial transfer was rejected because the Commonwealth Bank of Australia had wrongly stated the beneficiary to be Mr Peled. By letter dated 27 January 2006, Andrew requested that the transfer be made for the benefit of: Loan No. 803189 - 0167992. Being interest on behalf of E.G.L. Development (Canberra) Pty. Limited on Erma Nominees Pty. Ltd's loan account 354 On 26 January 2006, Andrew on behalf of BCI signed a document entitled "Limited power of representation", permitting Mr Etzion to deal with Bank Hapoalim on its behalf and to receive information from Bank Hapoalim "about any of our loan accounts with the Bank". It was marked with a facsimile stamp dated "30 Jan 2006 14:39". 355 The evidence included a letter to Bank Hapoalim, in Michael's handwriting, signed by Andrew on behalf of BCI, which "acknowledge[d] that our application for a loan of A$10 million for 10 years awaits the approval of you". This document was marked with a facsimile stamp dated 30 Jan 2006 14:40. 356 In February 2006, Ronald re-married Ms Huber (they had divorced in 1992). After Ms Huber asked some questions about financial matters, Ronald mentioned her questions to Michael, who instructed Ronald not to discuss Ligon 268 with Ms Huber, saying "We don't want her to know anything about the family businesses". 357 The evidence included a letter signed by Andrew, apparently on behalf of BCI, dated 8 March 2006. It was sent by facsimile dated 8 March 2006 from Bank Hapoalim Switzerland to Bank Hapoalim. The letter was addressed to Bank Hapoalim and entitled "Application for Provision of credit - Our Letter of Undertaking (Mem Shin 20(E) for Credit in Foreign currency dated 11 June 2004". The letter requested the provision of credit in Australian dollars in the amount of $10 million. 358 Also forming part of the facsimile dated 8 March 2006 was a letter of the same date addressed to Bank Hapoalim Switzerland. This letter was signed by Andrew on behalf of "The Pledgor". It was entitled "Deed of Pledge and Declaration of Assignment executed by us on Account No. 7196960" (the letter of irrevocable instructions). The recitals to the letter recorded that "pursuant to the Deed of Pledge we have pledged a deposit held with you as specified in the Deed of Pledge … as collateral for all claims vested in [Bank Hapoalim]". The recitals also recorded that "the Deposit and the credit balance thereof are to create a fund that … serve for satisfaction and payment of any and all amounts due and payable by the Debtor to [Bank Hapoalim]". 359 The letter of irrevocable instructions recorded that the "Deposit … is pledged and assigned pursuant to the Deed of Pledge". It included the following clause: Your obligations to pay any amount on account of the Deposit either to us or to our order, to the extent of the amount outstanding from time to time by the Debtor to [Bank Hapoalim], pursuant to the Documents of Undertaking, ceases to be an ordinary obligation between a bank and its customer or depositor so that, to the extent of the amount outstanding from time to time by the Debtor to [Bank Hapoalim] pursuant to the Documents of Undertaking, it is and shall be contingent upon your receiving from [Bank Hapoalim] written advice to the effect that there are no amounts owing by the Debtor to [Bank Hapoalim] (hereinafter: "Notice of Release") before your becoming obligated to make any payment on account of that part of the credit balance of the Deposit which does not exceed the amount outstanding from time to time by the Debtor to [Bank Hapoalim] pursuant to the Documents of Undertaking. 360 The letter of irrevocable instructions operated to provide "collateral" for the "provision of credit" made by Bank Hapoalim, and was expressed to be irrevocable except with the consent of Bank Hapoalim. It concluded with the words: "This letter is regarded as constituting an inseparable part of the Deed of Pledge". 361 The evidence included two other letters dated 8 March 2006. Each was signed by Andrew on behalf of BCI, and was addressed to Bank Hapoalim. Both of the letters requested credit in the sum of $6,177,288.20. One letter provided for an interest rate of 6.67% per annum less Australian interest withholding tax. The primary judge observed that, from the document's footer, it appeared to have been created by Mr Etzion. The other provided for an interest rate of 7% per annum less Australian interest withholding tax. The latter letter was sent by facsimile from Kevin Munro & Associates on 13 March 2006. 362 The evidence included several more letters from Andrew on behalf of BCI to Bank Hapoalim around this time. One was dated 8 April 2006, and requested credit of $3,850,000 at an interest rate of 7%, repayable on 8 March 2011. The primary judge observed that, from the document's footer, it appeared to have been created by Mr Etzion. Another was dated 8 April 2006 and requested credit of $3,822,717.80. 363 The evidence included a letter from BCI to Bank Hapoalim dated 22 April 2006, entitled "Application for Provision of credit - Our Letter of Undertaking (Mem Shin 20(E) for Credit in Foreign currency dated 11 June 2004". It was signed by Andrew on behalf of BCI and requested "that you provide me in my foreign currency account with you No. 343415" an amount of $3.85 million in accordance with the terms set out in the 11 June 2004 letter of undertaking. There was also an unsigned letter dated 22 April 2006 from Andrew on behalf of BCI requesting a drawdown from loan account number 343415 of $3.85 million. 364 On 26 April 2006, BCI received $3,848,552 from Bank Hapoalim (representing the amount of $3.85 million less charges imposed by Bank Hapoalim). 365 According to BCI's appeal statement in the BCI tax appeal, the advance that it received in April 2006 was used for purposes set out in Andrew's 31 October 2011 affidavit, namely: (a) $2,816,633.64 was lent to EGL so it could repay its loans that it had with IDB, which loans had initially been used by EGL for various investments; (b) $650,000 was lent to Winmar Investment Trust which was then invested with a managed fund with Investec; (c) $244,158.59 was paid to Bank Hapoalim as interest; (d) $110,000 was partially used to invest in Nudie, that being $44,008 and the balance of approximately $50,000 was used as a partial interest payment to BCI; (e) $26,780.93 was used to pay legal fees incurred by BCI; and (f) $1,463.46 was deducted on account of bank fees. 366 The sum of $3,848,552 and $6,177,288 is $10,025,840, being approximately the amount of credit referred to in two applications for provision of credit in May 2006. The primary judge stated that it appeared that, by this time, there was a deposit of about $10 million that secured the advances from Bank Hapoalim to BCI. 367 As for earlier advances from BCI, documents were prepared in connection with the advance that gave the appearance that the transaction comprised a loan from Bank Hapoalim to BCI, secured only by guarantees and a charge over the assets of BCI when the true position was that the advance was secured by a "back-to-back" deposit. The primary judge inferred that Michael, together with Andrew, procured the preparation of the relevant documents. The primary judge also inferred that Michael knew that the advance was secured by a "back-to-back" deposit that would earn interest income offshore to the ultimate benefit of the owner of the deposit. 368 On 28 April 2006, BCI transferred $2,816,633.64 to Ligon 158. The same day, Andrew on behalf of EGL wrote to Premium Business Services requesting a transfer from Ligon 158 of $2,816,633.64 to IDB. He requested that the transfer be accompanied by the following message: Interest for the period 01 July 2005 to 30 April 2006 and partial loan repayment as follows on behalf of E.G.L Development (Canberra) Pty. Limited on Erma Nominees Pty Ltd's account. Loan No. 803189-0167992. Date Amount Interest owed 01/07/05-31/12/05 $15 033 165 $542 676.67 01/01/06-30/04/06 $12 522 677 $293 956.97 Loan repayment $1 980 000 $1 980 000.00 TOTAL = $2 816 633.64

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375 On 7 June 2006, Andrew sent a facsimile to Ophira Perry of IDB, annexing a signed form entitled "Application to receive a foreign currency loan". The customer was identified as Ligon 268 and the loan amount sought was $11,250,000. The proposed repayment date was 31 May 2016. The form contained a provision for interest but no rate was inserted into that provision. Andrew had initialled the form at various places. 376 In July 2006, the ATO commenced an audit into the affairs of BCI, Ligon 158 and another company that the ATO had identified as associated with Erwin, namely Rawson Finances Pty Ltd. By a letter dated 31 July 2006 addressed to Erwin care of Mark Douglass of MDA Lawyers, and entitled "Confirmation of income tax audit", the ATO sought information that included details of all funds received by BCI from overseas and funds sent overseas by BCI, as well as details of any loans held by BCI. 377 The letter stated, relevantly: The Commissioner is particularly concerned with the prevalence of offshore schemes and has expressed this in his Media Release NAT 2005/35 dated 10 June 2005. In that Media Release, a copy of which is attached, the Commissioner states that any persons who may have been caught up in these schemes should come forward and clear up their tax position. 378 The media release attached to the ATO's 31 July 2006 letter relevantly stated: Over the last two days the Tax Office has acted on information suggesting that individuals have entered into offshore schemes directed at creating fictitious deductions or concealing income from tax. The schemes rely on the use of offshore structures put in place by scheme promoters. "The information indicates that in some cases deductions are claimed for payments for expenses and services that are fictitious," Tax Commissioner Michael Carmody said. "In other cases, assessable income derived offshore is not brought to account in Australia. This income is secretly returned to Australia disguised as a loan, an inheritance, a gift, or through credit and debit cards." 379 The media release referred to breaches of the tax law, potential criminal behaviour being referred to the Australian Crime Commission and warrants having been issued. It also referred to the possibility of penalty discounts being available to people who came forward to "clear up their tax position". 380 The primary judge stated that it must have been obvious to those of the first to sixth respondents below who took an interest in the tax affairs of the finance companies that the tax audit would involve investigations by the ATO into the transactions between the finance companies and the Israeli banks, because the terms on which those transactions were made were critical to the proper tax treatment of advances from the banks to the finance companies and to whether the finance companies could substantiate their deductions for interest expenses. It followed, her Honour said, that those individuals readily appreciated, from shortly after the commencement of the tax audit, that: (a) the tax audit might uncover information about the relevant arrangements between the finance companies and the Israeli banks that would cast doubt on the proper tax treatment of the advances and on whether the deductions could be substantiated; (b) BCI, EGL and Ligon 268 might be assessed to pay additional tax, penalties and interest for unpaid tax if they could not substantiate their tax returns and, in particular, their deductions for interest expenses; and (c) Binqld might be assessed in a similar fashion if it pursued transactions with IDB that were relevantly similar to the transactions between BCI, EGL and Ligon 268 and the Israeli banks. 381 The primary judge found that Erwin and Emil were in a position to appreciate what the tax audit was likely to involve for those companies of which they were directors, because they were the original architects of the scheme that was found to have been established and implemented. Further, the primary judge found that Andrew and Michael were in a position to appreciate more generally that the tax audit would involve consequences of the kind that she had described in relation to each of the finance companies, because they took charge of the finance companies' responses to the audit and therefore were required to familiarise themselves with the financial affairs of the finance companies, to the extent that they were not already fully aware. 382 On 31 August 2006, the ATO met with MDA Lawyers and complained that no information had been received from BCI pursuant to the 31 July 2006 letter. There followed correspondence and meetings between the ATO and MDA Lawyers to progress the audit. 383 By letter dated 8 September 2006, the ATO confirmed that the audit was extended to include EGL and Ligon 268. 384 By letter dated 19 September 2006 from Andrew on behalf of EGL to Premium Business Services, Andrew requested a transfer of $5,278,137 from Ligon 158 to IDB with the following message: Attention Ms. Ophira Perry Interest for the period 01 May 2006 to 19 September 2006 and partial loan repayment as follows on behalf of E.G.L Development (Canberra) Pty. Limited on Erma Nominees Pty Ltd's account. Loan No. 803189 - 0167992. Date Amount Interest Owed 01/05/06-10/07/06 $10 000 000 $138 082.21 10/07/06-19/09/06 $10 000 000 $140 054.79 Loan repayment $ 5 000 000 $5 000 000.00 TOTAL = $5 278 137.00

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BCI 392 BCI's first tax return was for the year ended 30 June 1993 and was dated 11 May 1994. A tax loss of $648 was disclosed. 393 The tax returns for the years ended 30 June 1994 to 30 June 2001 were lodged more or less on time. Sheets inserted into the returns typically recorded that interest income was received from Erma and Milgerd by way of direct payment to Bank Hapoalim. 394 BCI did not file tax returns for the next five years and did so only after the ATO tax audit commenced in July 2006. 395 In its tax returns for the years ended 30 June 1993 to 30 June 2008, BCI claimed deductions of many millions of dollars. The primary judge stated that it appeared that BCI claimed, as deductible expenses, amounts equivalent to the interest purportedly paid or payable by BCI to Bank Hapoalim. 396 The affairs of BCI were managed by Erwin and Emil, at least during the period in which the 1994 to 2001 tax returns were lodged. In the primary judge's view, it was probable that each of Erwin and Emil procured the preparation and lodgement of BCI's 1994 to 2001 tax returns, and approved the contents of the returns. 397 The primary judge found that Michael (with Andrew), procured the lodgement of the finance companies' outstanding income tax returns after the commencement of the ATO tax audit. 398 The primary judge did not find that Erwin and Emil procured or approved the lodgement of tax returns by BCI after the commencement of the ATO tax audit. Nor did she find that Margaret or Gary played any role in procuring or approving the lodgement of any of BCI's tax returns. 399 Based on these conclusions and on the various signatures on the tax returns and the identification of Erwin as the public officer in several returns, the primary judge found that the following respondents below caused BCI to claim the deductible expenses claimed in the following tax returns: (a) Erwin, for the 1994 to 2001 tax returns; (b) Emil, for the 1994 to 2001 tax returns; (c) Andrew, for the 2002 to 2008 tax returns; and (d) Michael, for the 2002 to 2008 tax returns.

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2007 406 Ronald gave affidavit evidence of conversations with Erwin in around 2007 or 2008 in which Erwin said: When Nudie is sold, there will be millions of dollars in profit and I will give you a percentage of my share. 407 By letter dated 7 March 2007, Andrew on behalf of BCI wrote to the Commonwealth Bank of Australia requesting a transfer from BCI of $306,594 to: Bank of Hapoalim B.M 50 Rothschild Blvd. Tel Aviv Israel For Account No:- 34215-00001 With the following message:- "For the attention of Mr. Baruch Etzion. Representing balance of interest due by B.C.I Finances P/L to 8 March 2007." 408 The evidence below included an ATO document headed "Submission for authorisation to issue notice under section 264" dated 12 March 2007, in connection with a proposed notice directed to the public officer of EGL. The description of the subject matter of enquiries referred to Operation Wickenby as a "whole of government initiative investigating participation by Australians in internationally promoted tax arrangements that allegedly involve secrecy and dishonesty". Under the heading "Reasons for proposing issue of notice requiring information and production of documents", the ATO submission document stated, relevantly: 5. One of the identified structures, 'back to back loans', can be summarised as an Australian taxpayer, with funds offshore, accesses this money by 'borrowing' it through an international promoter. The funds may be used for working capital and the interest claimed as a deduction which continues to "top-up" the offshore funds. 6. Austrac records indicate the likelihood of these back to back loan arrangements having been implemented by EGL Development Pty, but it is not known whether these arrangements made use of Strachans structures/vehicles, or other offshore service providers. 409 The primary judge found that Andrew and Michael were the people principally responsible for instructing MDA Lawyers to act on behalf of the finance companies in their dealings with the ATO. 410 The earliest evidence of a meeting between Mr Douglass of MDA Lawyers and Michael in connection with the ATO audit was a handwritten file note of a meeting on 21 March 2007. During that meeting, there was discussion of "debt management" and a schedule of lodgements of outstanding income tax returns including the 2001 to 2005 returns for EGL. Those returns were lodged in April and May 2007. 411 The evidence below included two documents dated 4 April 2007. One was an agenda for a meeting between Michael, Andrew and Mr Douglass. The agenda document was on "Binettervale Lawyers" letterhead (a firm at which Michael worked). That document also included an agenda for the discussion between Michael and Mr Douglass on 21 March 2007. 412 The 21 March 2007 agenda recorded Ligon 159 and Milgerd as matters for discussion and "All notices to be discussed … in so far as possible Andrew Binetter will be the person attending, otherwise it will be Emil Binetter". The agenda referred to debt recovery and noted: "MB to instruct re: offset amounts to various entities". 413 There was also a box containing the words "Lodgement program" with the note: "MB to advise re: bundle of new documents for lodgement". 414 The second document was a handwritten file note of a meeting between Michael and Andrew and Mr Douglass on 4 April 2007. 415 At trial, the finance companies relied on the file note of this meeting as unequivocal evidence of Binqld's involvement in the alleged scheme. The note recorded the establishment of new entities by Andrew, of which he was the sole director, possibly including Binqld. It recorded that the entities borrowed money from overseas after June 2005. As noted earlier, Binqld was incorporated in April 2006. The note recorded: Whenever $$ available + accumulated + sent offshore to discount bank + then re-borrowed to Binqld 416 The primary judge found that Michael was involved in instructing Mr Douglass throughout the period that he or his law firm was retained to deal with the ATO in connection with the tax affairs of the finance companies. 417 The next day, 5 April 2007, MDA Lawyers wrote to the ATO stating, relevantly, that MDA Lawyers acted for Andrew and his related entities. 418 According to Andrew's 27 July 2012 affidavit in a proceeding in the AAT commenced by EGL, EGL fully repaid its loans from IDB in three payments: on 19 September 2006 ($5,000,000); 2 April 2007 ($4,250,000, an amount obtained by Erma from Binqld); and 3 May 2007 ($750,000, an amount obtained by Ligon 158 from Binqld). Andrew arranged the payments at Erwin's request. In making these payments, EGL deprived itself of those funds as a source of payment of any tax debt that might arise from the tax audit. There was no evidence that it had other funds to pay any tax debt. 419 On 18 June 2007, Andrew and Michael met with Mr Douglass to prepare for Andrew's meeting with the ATO the following day. 420 From no later than May 2007, EGL had no funds available from any source to meet any future liabilities to the Commissioner. 421 On 19 June 2007, Andrew made a statutory declaration attaching an unsigned copy of the 8 March 2006 Application for Provision of Credit document, which he described as an application "to increase the loan facility for BCI Finances Pty Limited from approximately $6 million to approximately $10 million". The statutory declaration was provided to the ATO at an interview pursuant to s 264 of the ITAA 1936 that day. 422 Also on 19 June 2007, Andrew made a statutory declaration attaching "my file copy of a 2006 Application to receive a Foreign Currency Loan and Terms and Conditions to [IDB] in respect of [Binqld]". By this time, in the ordinary course, Binqld would have had records of the terms on which seven advances from IDB between 4 May 2006 and 10 May 2007 had been received. The document attached to the statutory declaration was incomplete as to the loan account number, the amount of the loan and the rate of interest payable in respect of the loan, but was endorsed with a handwritten notation to the effect that the loan would be for a term of 120 months commencing in 2006 and expiring in 2016. The document was signed by Andrew. 423 As at June 2007, Binqld had minimal (and insufficient) documentation to support any deductions for interest expenses that it would claim based on its transactions with IDB. However, it had not yet lodged an income tax return. 424 By letter dated 27 July 2007, the ATO sought access to the Pagewood premises to inspect documents concerning entities including BCI, EGL, Binqld and Ligon 158. 425 The primary judge stated that it appeared from Ligon 268's SOFIC that, by 30 June 2007, Ligon 268 had repaid in full advances that had been made to it by IDB. 426 By letter dated 10 August 2007, the ATO requested further material from MDA Lawyers concerning several companies, including Binqld. In particular, the ATO requested at point (4) "the details of security or collateral used to obtain the loans from Israel Discount Bank". 427 On 23 August 2007, Andrew made a statutory declaration which attached an annexure headed "Application to Receive a Foreign Currency Loan" which did not have a loan account number, but was endorsed by Andrew with the words "AUD$4,000,000 … four million Australian dollars" for a term expiring "on the 15th day of July 2017". The primary judge stated that the document appeared to bear the signature of Andrew. 428 On 26 October 2007, Michael met with Mr Douglass for 1.25 hours. According to a file note, the meeting included discussion of Andrew's tax return for the year ended 30 June 2005 and EGL's tax return. The file note recorded that "MB says will lodge this return". The note also recorded: Ligon 158/Erma Nominees Pty Ltd by Xmas Ligon 268 is a long way down the track 429 In relation to "Binqlds Pty Ltd" (sic), the note recorded: "MB doesn't believe on her radar". The primary judge stated that this note probably recorded a statement by Michael to the effect that he did not believe that an ATO officer was concerned about lodgement of tax returns by companies including Binqld. 430 The note concluded "List to Michael B. Reconvene tomorrow with shopping list". 431 By letter dated 26 October 2007, Mr Douglass informed the ATO, in response to point (4) of the ATO's 10 August 2007 letter, as follows: We are instructed that no security or collateral has as yet been provided to the Israel Discount Bank apart from a personal guarantee(s). 432 Based on the fact of the meeting between Michael and Mr Douglass that day, and the other material in the letter concerning matters within the knowledge of Michael, the primary judge found that this instruction was probably provided by Michael, in his capacity as sole shareholder of Binqld. 433 The primary judge found that the statement in the letter dated 26 October 2007 set out above was almost certainly false having regard to what was acknowledged by the respondents below (by the conclusion of the trial) about the arrangements between the finance companies and the Israeli banks, although it was not suggested at trial (and the primary judge did not find) that Mr Douglass or MDA Lawyers was aware of the falsity of the statement. 434 On 29 October 2007, Mr Douglass met with ATO officers in relation to their audit of Binqld. The primary judge inferred from the 26 October 2007 file note, including the meeting between Mr Douglass and Michael on that day, that Michael provided instructions to Mr Douglass for the purpose of his 29 October 2007 meeting with the ATO. 435 On 7 November 2007, the ATO issued several offshore information notices pursuant to s 264A of the ITAA 1936, relating to companies including BCI, EGL, Ligon 268 and Binqld. 436 By memo dated 14 November 2007, Mr Douglass informed Michael of the entities that had received the notices and provided copies of the notices. Mr Douglass wrote: As discussed with you earlier today I am of the opinion that these notices have been issued as a precursor to the issue of amended assessments to each entity to deny deductions claimed for interest (amongst other things) where applicable. Given the very serious implications of these notices in the assessment/appeal process you Andrew and I should meet very soon to discuss a range of matters that need to be considered including both immediate responses and longer term strategies in connection with the documents that the ATO seeks in relation to the various loans from the Israeli banks. 437 On 30 November 2007, MDA Lawyers requested that the ATO withdraw the s 264A notices or grant an extension of time to respond to the notices. 438 By letter dated 18 December 2007 addressed to Andrew (care of MDA Lawyers), the ATO responded to a request for reasons why the s 264A notices were issued. Among other things, the letter stated: The Tax Office has issued the notices requiring information and production of documents for the following reasons: 1. Israel is a jurisdiction where banking and secrecy laws operate in favour of their clients. There is no double tax agreement with Israel. The Tax Office has no powers over banking institutions in Israel. 2. The nature of the structures is believed to be designed to avoid natural persons, in particular Australian taxpayers, from being connected to the various trust or company structures established for or by them. 3. One of the identified structures, 'back to back loans', can be summarised as an Australian taxpayer, with funds offshore, accesses this money by 'borrowing' it through an international promoter or directly. The funds may be used for working capital and the interest claimed as a deduction which continues to "top-up" the offshore funds. 4. It is believed that by issuing an offshore information notice to produce documents to the listed entities the Tax Office will: a) Uncover further factual material and information that may assist us to determine if Australian residents have derived income which ought to be subject to taxation in Australia and / or claimed deduction which cannot be substantiated. b) If the taxpayer refuses or fails to comply with this request, subsection 264A(10) of ITAA 1936 provides that those documents requested are not admissible in proceedings disputing the taxpayer's assessment. 439 The letter concluded by granting a 90 day extension of time for compliance with the offshore information notices. 440 On 19 December 2007, Michael and Andrew met with Mr Douglass. A file note of the meeting recorded "MCD draft letters from banks to Binetters". The primary judge observed that, remarkably, there was evidence that Mr Douglass thereafter drafted letters to be sent on the letterhead of IDB and another bank. A handwritten note showed that one of the draft letters was discussed in a conference with Michael on 20 December 2007. The primary judge stated that the draft letters appeared to have been forwarded on 20 December 2007 to Andrew care of Michael. The draft letters concerned, relevantly, EGL and Binqld. 441 An early draft, concerning EGL (and Advance and Civic) stated, relevantly: The Bank confirms the amounts remitted to it in the attached Table A constitute interest amounts incurred by the borrower company and paid to the bank by the company named and in the years as set out in the attached schedule. 442 Other draft letters prepared around this time included the following words concerning interest: [For EGL] IDB hereby confirms that the amounts remitted to it constitute interest amounts incurred by the relevant borrower companies, on the outstanding loan amounts, and paid to IDB by that company or on its behalf, in the amount and at the time as set out in the Table B below. [For Binqld] IDB hereby confirms that the amounts remitted to it constitute interest amounts incurred by the relevant borrower company, on the outstanding loan amounts, and paid to IDB by that company or on its behalf, in the amount and at the time as set out in the Table B below. 443 For EGL, the draft letter included a table headed "Table B - Interest Amounts Received by Bank from Borrower Companies". For Binqld, the draft letter included a table headed "Table B - Interest Amounts Received by Bank from Borrower Company". 444 In the 20 December 2007 covering letter from MDA Lawyers to Andrew, the following warning appeared: Please note that the above draft letters should be considered to be a "first-cut" working draft of our suggested inclusions for your consideration and by no means is settled. We note that we are very concerned that if identical letters are sent to the ATO from the respective banks that this will serve to heighten rather than allay the suspicions of the ATO. It may therefore be prudent to amend the letters so that they are structurally and linguistically different to ensure that suspicions of this nature do not arise.

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2008 445 The draft letter concerning EGL was revised in late January 2008, apparently by MDA Lawyers. The paragraphs about interest were revised to read: IDB hereby confirms that from time to time IDB has received from the Company interest payable by the Company to IDB in relation to the loans advanced by IDB to the Company. Even though the interest received by IDB, in relation to the loans by IDB to the Company, may not have been sent by the Company, the interest has been treated by IDB as interest paid by the Company. The interest remitted to IDB has always been remitted by an entity associated with, directly or indirectly, Mr Erwin Binetter or Mr Emil Binetter. IDB hereby confirms that the amounts set out in Table B below are the aggregate amount received by IDB during the periods as set out in that Table, as interest payable by the Company in relation to the loan funds owing to IDB by the Company. From time to time IDB may have requested that either interest be paid to IDB other than on the due date that it was originally required to be paid by the Company and/or that interest amounts be capitalised as an increase to the outstanding loan balance of the Company. 446 By letter dated 15 April 2008, MDA Lawyers reiterated to the ATO that Binqld did not have any documents explaining the advances that had not already been provided to the ATO. However, in the course of the Binqld tax appeal, Binqld served an affidavit of Andrew which attached 10 documents purporting to relate to the transfers from IDB to Binqld. The documents were forms entitled "Application to receive a foreign currency loan". Each form bore Andrew's signature and each form contained handwritten endorsements of amount, term and interest rate that appeared to correspond with the 10 transfers from IDB to Binqld. The primary judge noted that the handwriting included the handwriting of Michael (for example, the description of the purpose of the loan on each document). 447 The primary judge stated that the genuineness of the 10 documents was suspect because they were not provided to the ATO during the audit and because Andrew and Michael had asked Mr Douglass, in late 2007, to prepare a letter on behalf of IDB about the terms of the "loans" from IDB to Binqld. Some of the documents contained identical handwritten inclusions, suggesting that they were created from an earlier document that contained those inclusions. In the absence of corroborative evidence from IDB, the primary judge did not accept that the 10 documents proved the terms of the transfers from IDB to Binqld. 448 By letter dated 30 April 2008, MDA Lawyers provided a substantial volume of documents to the ATO on behalf of BCI. 449 By letter dated 21 May 2008, the ATO drew to Mr Douglass's attention the following matters concerning the financial record keeping obligations of various companies including the finance companies: Under the system of self assessment income tax return forms require tax payers to provide only limited information. However taxpayers are require[d] to retain records in relation to transactions relevant to the calculation of their taxable income. The substantiation rules also require taxpayers to retain records to verify claims for deductions. Subsection 262A(1) of the Income Tax Assessment Act 1936 (the Act) imposes the primary obligation on persons carrying on a business to keep records that record and explain all transactions engaged in by them that are relevant for any purpose of the Act. We consider that a record will 'explain' transactions engaged in by a person if it contains information which will enable Tax Office staff with accounting skills to understand the essential features of the transactions. Subsection 262A(2) makes it clear that records to be kept under subsection (1) include documents that are relevant for the purpose of ascertaining a person's income and expenditure. The content of the information needed in a record will depend on the circumstances of each case. The records that a person must 'keep' under subsection 262A(1) must record every transaction that relates to the person's income and expenditure. We consider that the word, 'keep', in subsection 262A(1), means both 'make' and 'retain'. So where a record is created in the normal course of engaging in transactions, the person carrying on the business must retain that record.

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2009 450 By letter dated 2 March 2009, IDB wrote to the directors of EGL in terms similar but not identical to the January 2008 draft. The 2 March 2009 letter, which was tendered by Andrew and associated parties at trial, stated relevantly: IDB hereby confirms that from time to time IDB has received from the Company payments/transfers in relation to the loans granted by IDB to the Company. Even though the payments/transfers received by IDB, in relation to the loans granted by IDB to the Company, may not had [sic] been sent by the Company, the above payments/transfers had been treated by IDB as interest/principal paid by the Company. IDB hereby confirms that the amounts set out in Table B below are the aggregate amounts received by IDB during the periods set out in Table B, from the Company (or on its behalf) in relation to the loans owing to IDB by the Company. 451 In the 2 March 2009 letter, Table B was headed "Transfers received by IDB from the Company or on its behalf (including principal payments)". The table set out payments covering the period from 1 July 1999 to 30 June 2007. 452 The primary judge inferred that either IDB was not willing to refer in the extracted passages to the relevant "transfers" as payments of interest, or those instructing MDA Lawyers were ultimately not willing to ask IDB to refer to the transfers as payments of interest. In either case, the primary judge concluded, this was because IDB did not receive interest payments from or on behalf of EGL. The primary judge found (at [841] of the Liability Judgment) that any amount that IDB earned from the transactions between EGL and IDB was probably not in the nature of interest. 453 Following the audit, the ATO issued a position paper dated 7 August 2009 explaining the ATO's position for BCI. Similarly, the ATO issued a position paper dated 9 February 2010 explaining the ATO's position for EGL, a position paper dated 2 October 2009 explaining the ATO's position for Ligon 268 and a position paper dated 11 August 2009 explaining the ATO's position for Binqld. 454 On 25 August 2009, Erwin died. 455 The evidence below included a letter dated 15 October 2009 from Bank Hapoalim to BCI. The letter stated: Balance of Account At your request we are pleased to confirm the balances at the close of business on 30 [S]eptember 2009 in your account N. 343415 with us: Current Account: AUD 304457.80 B.T.B Loans AUD 10061353.96. 456 On the reverse side of the letter was a spreadsheet in Hebrew script. This spreadsheet was said (in November 2013), by Ms Varda Lusthaus, BCI's expert on Israeli banking practices, to contain the following words under the heading "Loans": Back to back; constant interest rate…(the first loan) Back to back; constant interest rate…(the second loan) 457 Between 13 and 15 October 2009, Andrew was in Israel. The primary judge found that the 15 October 2009 letter was probably prepared at his request. 458 On 27 October 2009, Michael and Gary met with Judith Sutton of MDA Lawyers. A file note of the meeting recorded that Andrew and Michael had met with Mr Etzion. It recorded that Andrew was going back (to Israel, the primary judge inferred) from the end of November to early December. The note recorded that Andrew wanted to "fix the statement. Then will organise the statement". The primary judge inferred that this was a reference to a statement to be signed by Mr Etzion. 459 On 10 November 2009, Bank Hapoalim wrote a further letter to BCI, entitled "Balance of Account". The letter recorded: At your request we are pleased to confirm the balance in your account 343415 with us at the Close of business on 30.09.2009 as follows: CURRENT ACC. AUD -304,457.80 LOANS AUD 10,061,353.96 PRINCIPAL: AUD 6,177,288.00 INTEREST: AUD 205,909.96 PRINCIPAL: AUD 3,850,000.00 INTEREST: AUD: 13,475.00 460 The 10 November 2009 letter was annexed to an affidavit affirmed by Mr Etzion on 4 October 2011. In the affidavit, Mr Etzion said that he obtained the letter from the bank at the request of Andrew. 461 The finance companies submitted at trial that the 10 November 2009 letter was fabricated by Mr Etzion, to replace the 15 October 2009 letter. The primary judge was not satisfied that the evidence supported this conclusion.

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BCI 463 In December 2009, the Commissioner issued to BCI: (a) notices of assessment for the years ended 30 June 1997 to 30 June 2004; (b) notices of amended assessment for the years ended 30 June 2005 to 30 June 2008, including assessments of "shortfall interest charge"; and (c) notices of assessment and liability to pay penalty for the years ended 30 June 2001 to 30 June 2008. 464 On 14 December and 15 December 2009, the Commissioner issued notices of assessment against BCI for the years ended: (a) 30 June 1997 in the amount of $14,455.04; (b) 30 June 1998 in the amount of $489,649.15; (c) 30 June 1999 in the amount of $463,027.64; (d) 30 June 2000 in the amount of $464,871.02; (e) 30 June 2001 in the amount of $230,125.94; (f) 30 June 2002 in the amount of $226,420.50; (g) 30 June 2003 in the amount of $226,509.90; and (h) 30 June 2004 in the amount of $116,163.30. 465 On 14 December 2009, the Commissioner issued notices of amended assessment against BCI for the years ended: (a) 30 June 2005 in the amount of $146,285.10; (b) 30 June 2006 in the amount of $1,295,685.90; (c) 30 June 2007 in the amount of $118,924.50; and (d) 30 June 2008 in the amount of $206,710.50. 466 On 18 December 2009, the Commissioner issued notices of assessment and liability to pay penalty against BCI for the years ended: (a) 30 June 2001 in the amount of $207,113.35; (b) 30 June 2002 in the amount of $203,778.45; (c) 30 June 2003 in the amount of $203,858.90; (d) 30 June 2004 in the amount of $104,546.95; (e) 30 June 2005 in the amount of $131,656.60; (f) 30 June 2006 in the amount of $1,166,117.30; (g) 30 June 2007 in the amount of $107,032.05; and (h) 30 June 2008 in the amount of $186,039.45. 467 The adjustments to BCI's taxable income included the disallowance of the difference between the amounts remitted to Israel and the amounts claimed as an overseas deduction in the 1997 and 1998 tax returns. All overseas interest deductions claimed by BCI in the years ended 30 June 1999 to 30 June 2008, totalling $6,292,090, were disallowed. The adjustments also included the inclusion as income of funds received from Israel for the year ended 30 June 2006. 468 The interest payments claimed in the period to 30 June 1997 were denied under s 51(1) of the ITAA 1936, and the interest deductions claimed in the years ended 30 June 1998 to 30 June 2008 were denied under s 8-1 of the ITAA 1997.

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EGL 469 In July and August 2010, the Commissioner issued to EGL: (a) notices of assessment for the years ended 30 June 1992 to 30 June 2004; (b) notices of amended assessment for the years ended 30 June 2005 to 30 June 2008, including assessments of "shortfall interest charge"; and (c) notices of assessment and liability to pay penalty for the years ended 30 June 2001 to 30 June 2008. 470 Between 8 July 2010 and 26 July 2010, the Commissioner issued notices of amended assessment against EGL, for the years ended: (a) 30 June 1992 in the amount of $682,659.51; (b) 30 June 1993 in the amount of $510,212.43; (c) 30 June 1994 in the amount of $95,918.13; (d) 30 June 1995 in the amount of $425,531.70; (e) 30 June 1996 in the amount of $643,089.76; (f) 30 June 1997 in the amount of $438,294.16; (g) 30 June 1998 in the amount of $342,993.80; (h) 30 June 1999 in the amount of $98,287.56; (i) 30 June 2000 in the amount of $1,518,409.44; (j) 30 June 2001 in the amount of $784,253.52; (k) 30 June 2002 in the amount of $319,501.50; (l) 30 June 2003 in the amount of $377,155.80; (m) 30 June 2004 in the amount of $456,009.90; (n) 30 June 2005 in the amount of $364,533.30; (o) 30 June 2006 in the amount of $324,905.40; and (p) 30 June 2007 in the amount of $107,194.80. 471 On 30 July 2010, the Commissioner issued further notices of amended assessment which imposed liabilities for penalties on understatement and on interest against EGL, for the years ended: (a) 30 June 1992 in the amount of $1,412,213.90; (b) 30 June 1993 in the amount of $1,721,122.85; (c) 30 June 1994 in the amount of $313,949.65; (d) 30 June 1995 in the amount of $1,342,032.60; (e) 30 June 1996 in the amount of $1,944,575.80; (f) 30 June 1997 in the amount of $1,291,134.55; (g) 30 June 1998 in the amount of $975,050.75; (h) 30 June 1999 in the amount of $267,798.05; and (i) 30 June 2000 in the amount of $3,628,645.30. 472 Between 9 July and 6 August 2010, the Commissioner issued notices of assessment of shortfall penalty against EGL for the years ended: (a) 30 June 2001 in the amount of $705,828.15; (b) 30 June 2002 in the amount of $287,551.30; (c) 30 June 2003 in the amount of $339,440.20; (d) 30 June 2004 in the amount of $410,408.90; (e) 30 June 2005 in the amount of $328,079.95; (f) 30 June 2006 in the amount of $292,414.85; and (g) 30 June 2007 in the amount of $96,475.30. 473 The adjustments to EGL's taxable income included disallowances of overseas interest deductions totalling $15,972,649 for the years ended 30 June 1992 to 30 June 2007, and adjustments to include as income funds received from Israel by EGL directly during the years ended 30 June 2000 and 30 June 2001 and by Blanford during the years ended 30 June 2001 to 30 June 2004. 474 The interest deductions for the years ended 30 June 1992 to 30 June 1996 were disallowed under s 51(1) of the ITAA 1936, and the interest deductions for the remaining years were disallowed under s 8-1 of the ITAA 1997.

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2010 479 According to Ronald, sometime in the late 2000s, Michael 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. 480 Ronald gave evidence of a conversation with Andrew 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. 481 Although Ronald gave evidence that this conversation took place around the time of Erwin's death (which occurred in August 2009), the primary judge found that the conversation must have taken place after the issue of one or more of the revised assessments (that is, during or after December 2009). 482 In about August or September 2010, at a "family meeting", Andrew said to Ronald: 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. 483 In October 2010, Andrew, Michael and Ronald 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. 484 In Zurich, Andrew, Michael and Ronald visited UBS and Bank Hapoalim. One of Andrew or Michael introduced Ronald to a banker at Bank Hapoalim. 485 After visiting Zurich, the three brothers travelled to Tel Aviv, arriving on 31 October 2010. On 1 November 2010, they visited IDB. At IDB, they met a banker. One of Andrew or Michael introduced Ronald to her. Andrew and Michael participated in a lengthy meeting. Ronald left the meeting after about 30 minutes. 486 That night, after dinner, the brothers met Mr Etzion. The meeting was brief and the conversation was social and mostly between Andrew and Michael and Mr Etzion. 487 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 left Ronald at the reception for about 15 or 20 minutes and, when they returned, one of them introduced Ronald to a young banker. Andrew said: "We just want you to know where the bank is and how to get there". 488 In an affidavit dated 29 November 2010, Emil stated: I have never made any deposits overseas or had any other money in overseas banks or any assets overseas at all which were used as security for any of the loans from the Israeli banks. 489 The primary judge found that the above statement was misleading because, in fact, Emil and Erwin had accumulated funds outside Australia that were used to provide the offshore deposits that were security for the advances from Bank Hapoalim to BCI and from IDB to EGL.

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2011 490 On 4 March 2011, Erma received two amounts, totalling $5.1 million from Ligon 158. On 7 March 2011, Erma transferred $5,162,454 to Bank Hapoalim in part repayment of advances to BCI. 491 From no later than 8 April 2011, BCI had no funds available from any source to meet its liabilities to the Commissioner, which then exceeded $12 million. 492 On 4 October 2011, Mr Etzion affirmed an affidavit in the BCI tax appeal that set out that the securities for the advances made to BCI were guarantees given by Emil, Erwin, Milgerd, Erma, Ligon 158 and Ligon 159 and a charge over the assets of BCI. The primary judge found that the affidavit was plainly misleading because it omitted to identify the overseas deposits that formed part of the security. The primary judge found that it was likely that Andrew and Michael gave instructions to BCI's lawyers for this misleading evidence to be served in BCI's tax appeal. Her Honour found that Andrew and Michael knew that the evidence was misleading at the time that it was served. 493 On 13 October 2011, Margaret affirmed an affidavit in the BCI tax appeal in which she stated (at [9]): 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. Erwin did not discuss business details with me but he did discuss big things like assets. 494 On 21 October 2011, Gary affirmed an affidavit in the BCI tax appeal in which he stated (at [53]): I am not aware of any offshore assets that were used as security for the BCI loan. I am sure my father would have told me if such assets existed in case something happened to him. 495 On 31 October 2011, Andrew affirmed an affidavit in the BCI tax appeal in which he stated at [72], in reference to the transactions between BCI and Bank Hapoalim: The security for the loans referred to in paragraphs 62 to 70 were the guarantees at Exhibit 'AJB24' and 'AJB25', the previous guarantees and the deed of charge referred to in paragraph 51. There were no cash deposits or assets overseas given to Bank Hapoalim to support the BCI loan from Bank Hapoalim. 496 At trial, Andrew and associated parties tendered two letters dated 4 November 2011 from IDB. The first letter purported to attach loan agreements for two loans, in the sums of $700,000 and $1.45 million respectively. The letter stated: Re: Bank Loans As you requested…in connection with Loans which Israel Discount Bank Ltd. granted the Company as follows: Loans no: 803-18-998877 803-18-998907 497 The attached documents, each entitled "Application to Receive a Foreign Currency Loan" included the following clause: 2B Please credit the current account set out at the top of this Deed … with the proceeds of the Loan. 498 Neither loan document included details of a current account. 499 The second letter dated 4 November 2011 from IDB purported to attach "photocopies of customer notifications, regarding payments of principale [sic] and interest of the following loans". Accompanying the letter were 10 documents dated 4 November 2011 and 70 documents dated 3 November 2011. Each document was headed Israel Discount Bank Ltd and referred to account number 130-0980-01-962124. That account number was stated to be the "proceeds account" credited with amounts corresponding to the ten advances. Each document stated: RE: PROVISION OF LOAN - IN FOREIGN CURR. WITH FIXED INTEREST Please be advised that on the date … A loan was provided value … In account no. … in the sum of Proceeds account … was credited with …

[84]

2012 500 Ms Huber gave evidence that, in early 2012, Michael snatched a Hebrew bank document away from her after asking her to translate it, saying "none of your business" when she asked what it was. 501 On 5 March 2012, the Commissioner filed an interlocutory application in BCI's tax appeal seeking an order that a letter of request be sent to the judicial authorities of Israel to take evidence of an officer of Bank Hapoalim and an order that BCI take all reasonable steps to procure or obtain all or any documents in the possession, power or control of Mr Etzion. 502 On 24 April 2012, Ronald and Ms Huber arrived in Israel for a vacation. During their vacation, they received a telephone call from Michael seeking Ms Huber's help to find a lawyer in Israel to assist in connection with the production of documents. Ms Huber speaks and writes Hebrew fluently; apparently, Michael did not. 503 Ms Huber located an Israeli lawyer named Amiram Gicelter. 504 Shortly after, Ms Huber attended a meeting with Mr Gicelter and Michael in Tel Aviv. Before the meeting, Michael said to Ms Huber words to the effect: Deb, you have to come with me to the meeting with the lawyer. You speak Hebrew and I want you to be the client so that it cannot come back to me. 505 At the commencement of the meeting, Michael said to Mr Gicelter: "It's extremely important that Deborah is the client". The primary judge observed that this evidence was consistent with her conclusion that Michael took particular care as to the roles that he adopted in connection with the various respondents below. At least on the occasion of the meeting with Mr Gicelter, Michael took this care in an effort to conceal misconduct on his part. 506 There was then a conversation to the following effect (as set out in Ms Huber's evidence, which the primary judge accepted): Mr Gicelter said to Michael: What's the problem? Michael said: The Australian tax office has been carrying out an investigation called Operation Wickenby after they raided a tax accountant and seized his laptop. They found my name on his laptop. Mr Gicelter said: Have you done anything wrong? Michael said: Absolutely not! But the Australian tax office began investigating my family and issued amended assessments, which we have been fighting. One of the companies is in Court now. The assessments relate to allegations that the companies had back-to-back loans with Israeli banks. We are concerned about what might be in the bank files about "back to back" loans. Ms Huber asked: What's a back-to-back loan? Michael said to Ms Huber: The allegation is that loans which have been granted by Israeli banks are supported by cash deposits. Our position is that the loans were secured by a personal guarantee. Mr Gicelter said to Michael: Were they back-to-back loans? Michael said: Yes. The loans were secured by large cash deposits in Switzerland and Israel. But the cash deposits are held by a bank which has a separate banking licence, so they won't find it. … Mr Gicelter then said to Michael: Well, where did the money come from? Michael said: My father and his brother took the money out of Australia. At some point during the conversation, Michael also said: The bank in question is Bank Hapoalim. We have someone in Bank Hapoalim - a man called Baruch Etzion who we've been giving money and gifts to for many years and he has given … evidence that it was quite normal practice to give loans secured by a personal guarantee alone. We have been giving Baruch presents and gifts so he will give the evidence that is correct for us. Michael then asked Mr Gicelter: Do you think an Israeli bank would produce our customer records if a Court ordered them? Mr Gicelter replied: I think they would. The days of Israeli banks protecting the secrecy of their customers are over - they now want to be part of the international banking community and will not do that anymore. After Michael had explained the above matters to Mr Gicelter, Mr Gicelter said: Well, what do you really want from me? Michael said: Can you find someone to give evidence to say that it was usual practice of Israeli banks to give unsecured loans? Mr Gicelter said: I could give that evidence. Michael then asked: I don't think that's going to be very useful. Michael then abruptly changed topic and said words to the effect of: Do you know anyone who could copy or destroy the file held by Bank Hapoalim on us? Mr Gicelter said: Possibly we do know somebody who could help you. After a discussion between Mr Gicelter and his colleagues in Hebrew, Mr Gicelter turned to Michael and said in English words to the effect of: "Yes, I think we know somebody who could help you, but we will have to check and get back to you". Subsequently, Mr Gicelter said: Well, we are not talking about hard copy files. This is 2012 and it is going to be electronic files. They would have to be accessed at night. Michael said: We want the files destroyed. If we only get a copy, we have no control over what is ultimately produced. I am particularly concerned about meetings where negotiations for the loans took place and whether there are any file notes of who attended those meetings. After this conversation, the meeting concluded with a discussion about costs and further communications. [Ms Huber recalled] the conversation occurring to the following effect: Michael said: Should we discuss how much this will cost? Will it cost a lot of money? Mr Gicelter: I will get back to you about the cost once I know I can help you. Michael said: Deborah is to be the contact point. There is a Court deadline coming up for the production of documents. (Michael said the date, but Ms Huber could not recall what date he said.) The file needs to be accessed or destroyed before then. 507 After the meeting, Michael said to Ms Huber: "That's the first time that I've met a lawyer who really understands what we need". 508 At the request of Michael and Andrew, Ms Huber thereafter made telephone calls from Australia to Mr Gicelter asking about progress, to which Mr Gicelter responded: "It is a difficult matter but we have found the person". 509 Subsequently, Mr Gicelter requested payment of $3,000. After arranging this payment, Ms Huber received a telephone call from Michael asking her to attend a meeting at his house. At the meeting, Michael and Andrew asked Ms Huber to go back to Israel with Andrew for another meeting with Mr Gicelter. During that conversation, Michael said: I don't want to go back to Israel. But Andrew's going and it's important that you go as well. It's a critical matter. 510 Ms Huber gave evidence that at a family meeting in 2012, Ronald and another family member were asked to leave the room before Andrew and Michael asked Ms Huber to travel to Israel for another meeting with Mr Gicelter. 511 Around this time, Mr Gicelter called Ms Huber and requested $60,000. Ms Huber then had the following conversation with Andrew: Ms Huber: Amiram says the price we have to pay for the man at Bank Hapoalim is $60,000. Andrew: I will arrange the payment. 512 Ms Huber gave evidence that when she asked Andrew the source of money to pay Mr Gicelter, he said "It's on a need to know basis". 513 Ms Huber had email communications with Mr Gicelter including one in which she said: "153,495NIS sent today will be in your account tomorrow". 514 This email confirmed a payment of Israeli shekels, which the primary judge found was probably a payment made in response to Mr Gicelter's request for $60,000. In response, Mr Gicelter sent the following message: Received. It's only 65% but he is starting to work … [Therefore] you must be in contact with me before you arrive to make sure he has it all. 515 In the primary judge's view, this episode, which she described (appropriately) as "disgraceful", demonstrated that Michael was participating (in a dishonest way) in the management of BCI's tax dispute which, by then, was the principal business of BCI. 516 On 24 June 2012, Ms Huber returned to Israel. On 26 June 2012, she attended a meeting with Andrew, Gary and Mr Gicelter. She gave the following account of a conversation that took place during the meeting: Gary: Mark Douglass is a really good friend of mine and has said to me that there is nothing illegal about back to back loans. Mr Gicelter: Well, it depends on where the money has come from. Gary: You realise that it's black money we're talking about. Mr Gicelter: Yes I realise that. (Emphasis added.) 517 On 27 July 2012, Andrew affirmed an affidavit in the Binqld tax appeal that included numerous paragraphs to the effect that no security other than guarantees had been provided for the advances from IDB to Binqld. 518 On 20 December 2012, Gary affirmed an affidavit for the purposes of proceedings brought by Civic and Advance against the Commissioner in the AAT. (According to BCI and EGL's submissions in the Liquidators' appeal, the affidavit was not filed.) In the affidavit, Gary stated at [128]: I am not aware, during the entire period that there were loans up until the time the loans were repaid, that there were any offshore assets. Nor am I aware of any assets that were used as security for any loans from Israeli Banks. I am sure that my father would have told me if such assets existed in case something happened to him, as my father was constantly concerned he would die as he was not of good health. As at 1997, my father had a major health scare. He was in hospital and we had been told he had cancer. Prior to that my father was a serious asthmatic and had numerous health scares. 519 On the hearing of the appeals, BCI and EGL submitted that the statementthat Gary did not know of any offshore deposits connected to the advances was false.

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2013 520 On 6 June 2013, Michael gave instructions to a lawyer working with Mr Douglass, Melissa Care, to make contact with Mr Douglass and to arrange to seek a stay of an order for the examination of a bank officer in Israel. On 11 June 2013, Andrew told BCI's lawyers that he had given Michael an update on matters relating to BCI. On 16 July 2013, Ms Care had a conversation with Andrew in which she recounted a conversation between Mr Douglass and Michael about whether Mr Etzion was in good health. Her note of the conversation was as follows: MXC: Basically, Mark met with Baruch and formed the view he was of good health. Discussed same with Michael and they formed view we shouldn't push hearing. That was the only reason we were going to rely upon. AB: That wasn't our reason, it was our excuse. 521 On 18 September 2013, Michael participated in a conference attended by Andrew, Mr Douglass, Ms Care and Sheila Kaur-Bain, a barrister retained on behalf of BCI. Michael gave instructions that he was happy for Mr Etzion to send a letter to Bank Hapoalim saying nothing about him was to be sent to BCI. 522 On 6 November 2013, Ms Lusthaus, BCI's proposed expert witness on Israeli banking practices in the BCI tax appeal, sent an email to BCI's lawyers. The email related to a Hebrew bank statement from BCI dated 15 October 2009, which included the words "back-to-back". In the email, Ms Lusthaus stated: Eli and I have started to go through the material, and we have a problem that might be quite serious. In tab 42 there is a statement by the Bank in relation to the loans. There is a page in Hebrew which is a statement of the loans. The problem we see is under the heading of Loans, it is written as follows: Loans Back to back; constant rate … (the first loan) Back to back; constant rate … (the second loan) The wording of back to back seems to indicate that the loans were secured, even if informally, by deposits. That is the usual meaning in Hebrew of the term "back to back". If that is the case, we think that it changes the whole picture. (Emphasis added.)

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The offshore deposits 530 During the course of the trial, the respondents below conceded that the offshore deposits existed and that they secured the advances from the Israeli banks to the finance companies. However, the respondents did not concede that they had knowledge (at the relevant times) of the existence of the offshore deposits. Further, although it was conceded that for each advance there was an offshore deposit of (at least) an equivalent amount, details were not provided as to matters such as the amounts of the offshore deposits, who controlled them, and how they related to the advances. 531 The primary judge found that the offshore deposits were probably located in Switzerland or Israel at all relevant times. Her Honour found that the offshore deposits had been accumulated by Erwin and Emil and were available to them and to the various finance companies to be used to obtain transfers of funds from the Israeli banks to the finance companies in Australia. 532 The primary judge stated that there was no sensible reason for Erwin and Emil to establish the scheme unless the offshore funds were, as Gary called them, "black money". The primary judge inferred that the offshore funds were not after tax earnings. 533 The primary judge found that each of Erwin, Emil, Andrew, Michael and Gary owned all or part of the offshore funds from which the offshore deposits were sourced at various times. 534 The primary judge found that Erwin and Emil knew about the offshore deposits securing the advances to BCI and EGL at all relevant times. The primary judge found that Michael and Andrew knew of the deposits securing the advances to BCI and EGL from the commencement of their participation in the management of each company, and about the deposits securing the advances from IDB to Ligon 268 and Binqld when those advances were made. Based on the 26 June 2012 conversation referred to above, the primary judge found that Gary had a general awareness of the existence of the deposits from at least June 2012.

[90]

The scheme 536 After setting out (at [140]) the scheme alleged by the finance companies, the primary judge summarised her conclusions in relation to the alleged scheme at [146]-[153] as follows: 146 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. 147 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 [finance companies]; (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 [finance companies] and the Israeli banks so as to permit the [finance companies], 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. 148 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. 149 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. 150 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 [finance companies'] records would create the false impression that the terms of the transactions were not affected by the deposits. 151 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 [finance companies] between various of the respondents and the Israeli banks; (3) to arrange a situation whereby each of the [finance companies] treated transfers of funds from the Israeli banks as loan funds and the [finance companies] 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 [a finance company] to the ATO, would enable the [finance company] 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. 152 As for the results of the scheme, I find that they included the following: (1) the [finance companies] 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 [finance companies] 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 [finance companies] from the Israeli banks), because the [finance companies] 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 [finance companies] 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 [finance companies]. 153 Thus, the scheme (and the individual transactions undertaken in pursuance of the scheme) operated to the benefit of various of the respondents but, if revealed, would operate to the detriment of the [finance] companies. Such detriments would include liabilities to pay income tax for which the relevant [finance] company would not otherwise have been liable, liabilities to pay penalties on assessments issued by the Commissioner and liabilities to pay interest including shortfall interest charges and general interest charges. (Emphasis added.) 537 Her Honour set out more detailed conclusions in relation to the scheme at [870]-[888].

[91]

The nature of the transactions with the Israeli banks 538 The primary judge noted, at [157], that the case of the respondents below was that the various advances from the Israeli banks to the finance companies were loans. Her Honour was not satisfied that they were loans, stating at [157]: In the absence [of] evidence on behalf of the Israeli banks, and in the absence of oral evidence from any of the respondents themselves, I am not satisfied as to the precise terms upon which any of the advances were made. In particular, without knowing the terms on which the admitted offshore deposits secured the advances, I am not satisfied that I should rely on any of the documents which purport to evidence loan arrangements at face value. It is quite possible that the terms of those documents are affected, or even contradicted, by the terms on which the admitted offshore deposits secured the advances. It is also possible, as Mr Etzion said, that the "financial source" of the advances was funds owned by some entity associated with the Binetters. Without understanding more about the true facts, I am unable to reach a conclusion about whether this possibility would affect the characterisation of the advances as loans. 539 The primary judge found (at [167]) that each transfer of funds from Bank Hapoalim or IDB to one of the finance companies was a transfer pursuant to an arrangement that included the provision, by or on behalf of the relevant finance company, of a deposit, in an amount at least equivalent to the amount of the funds transferred to the relevant finance company, over which the relevant bank had rights. 540 The primary judge considered the concept of "sham" at [170]-[187]. After setting out the finance companies' case, her Honour concluded as follows: 183 In this case, I understand the alleged sham to be the documents relied upon by the [finance companies] to justify their claims for interest expenses, and for the non-inclusion of monies advanced from the Israeli banks as income, where such documents were (it is alleged) a "false front" for the true transactions. The alleged true transactions included, as a critical element, offshore deposits equivalent to the amount of the advances as security for the advances. The alleged sham is not that the documents disguised advances of the [finance companies'] own funds from Israel to Australia. If that were the allegation, then I would conclude that the [finance companies] have not demonstrated a sham of that kind. In my view, the evidence does not permit the Court to reach a view about the true terms of the arrangements between the [finance companies] and the banks because of the likelihood that the totality of the arrangements included one or more terms which affected, qualified or contradicted the terms recorded in the available documents. 184 I have no hesitation in concluding: (1) The documents provided to the ATO by each of the [finance companies] did not reveal the totality of the arrangements between the [finance companies] and the Israeli banks because they did not reveal the arrangements concerning the offshore deposits, and those arrangements formed part of the arrangements between the [finance companies] and the Israeli banks; (2) The documents provided to the ATO by BCI and EGL were designed to conceal the totality of the arrangements between those [finance companies] and the Israeli banks (whatever was the totality of those arrangements). This aspect of the design of the transactions is most painfully revealed by the communications between Bank Hapoalim and Bank Hapoalim Switzerland which show that those banks sought (without complete success) to maintain a separation between the documentation of the advances from Bank Hapoalim to BCI and the documentation of the so-called fiduciary deposits which secured the advances. 185 It follows that I accept the Commissioner's conclusion that the BCI and EGL documents were shams. I do not reach the same conclusion in relation to the Ligon 268 and Binqld documents because those [finance companies] never purported to provide the ATO with a complete suite of the documents governing their respective transactions with the Israeli banks. 541 The primary judge set out detailed conclusions in relation to the Bank Hapoalim transactions at [889]-[903]. As to the purposes of these transactions, the primary judge stated: 894 As for the earlier transactions between EGL and IDB, the evident purposes of the Bank Hapoalim transactions (and, therefore, the purposes of those parties who participated in the transactions), included allowing Erma, Milgerd, Ligon 158 and Ligon 159 to have the benefit in Australia of offshore funds accumulated by Erwin and Emil Binetter (by using them as a means of securing the advances provided by Bank Hapoalim to BCI, which were subsequently on-lent) without either transferring those funds to Australia, or disclosing the existence of those funds in the records of BCI. … 896 The statement of claim pleads that a purpose of the persons who entered into and gave effect to the Bank Hapoalim transactions was "to create circumstances whereby each and all of BCI Finances, Milgerd Nominees, Erma Nominees, Ligon 159 and Ligon 158 would purport to incur apparent borrowing expenses for which deductions could be claimed under the provisions of the Income Tax Assessment Act, thereby reducing the tax otherwise payable by each of them". An obvious and predictable consequence of entering into the Bank Hapoalim transactions, and then on-lending advances from Bank Hapoalim, was that BCI would purport to incur borrowing expenses in accordance with the documentation that formed part of the transaction and, in turn, interest would be charged and incurred by the downstream borrowers, and deductions would be claimed for interest incurred or purportedly incurred. There is no reason to doubt that these consequences were a purpose of the persons who entered into and gave effect to the Bank Hapoalim transactions. 897 The Bank Hapoalim transactions are not materially different from the transactions between IDB and EGL. The respondents did not seek to differentiate between them. I accept that it was a purpose of the scheme, as implemented by the Bank Hapoalim transactions, that BCI would pay no income tax as a result of its involvement in the transactions. This conclusion is supported by the submissions made on behalf of the Gary Binetter parties that, at no time during its existence could BCI have paid any assessment of the kind that were eventually issued. As they said "Its inability to do so now simply reflects its corporate life and purpose". 898 Further, once it is accepted that the advances from Bank Hapoalim to BCI were secured by deposits, there is no reason to accept at face value the documentation which suggests that BCI incurred significant interest expenses to Bank Hapoalim as the price of the advances. The unlikelihood of that proposition is increased by the evidence concerning the flow of funds, which does not correlate with the terms of available documentation. In the absence of evidence from Bank Hapoalim about what it received in return for the advances, I conclude that a purpose of the Bank Hapoalim transactions was to falsely seek to justify deductions on account of interest expenses. That is a purpose of evading liability to pay income tax. (Emphasis added.) 542 The primary judge set out detailed conclusions in relation to the other transactions with the Israeli banks at [904]-[926].

[94]

Dismissal of the case against Gary 545 The primary judge dealt with BCI and EGL's claims against Gary at [966]-[979]. In relation to BCI's claims against Gary, the primary judge stated: 966 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. 967 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. 968 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. 969 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. 970 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, [on] the basis that he had not known the true position). 971 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. 972 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 [his] state of mind at any particular time. 973 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. 546 Accordingly, the primary judge concluded that there was no breach of duty by Gary as a director of BCI. 547 The primary judge also rejected EGL's case against Gary, for the following reasons: 975 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. 976 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. 977 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. 978 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.

[95]

Costs 548 In the Quantum Judgment, the primary judge addressed (among other things) contentions advanced on behalf of Margaret and Gary in relation to costs, in circumstances where there would be costs orders in their favour with respect to their successful defences of the finance companies' claims against them personally, and costs orders against them in their capacities as legal personal representatives of the late Erwin Binetter and the late Emil Binetter respectively with respect to the claims against Erwin and Emil's estates. 549 The primary judge dealt first with Margaret's contentions and then applied the same reasoning in relation to Gary. As set out in [102] of the Quantum Judgment, Margaret accepted that she was liable to a costs order against her as the legal personal representative of the late Erwin Binetter, but contended that: (a) any order against her as the representative of Erwin should not be enforceable against her personally, but should only be claimable from the estate; and (b) there should be no set-off as between the costs order in favour of Margaret (in relation to her successful defence of the claim against her in her own right) and the costs order against her (in relation to the case against Erwin's estate). 550 The finance companies, on the other hand, sought an order for set-off of the costs order in favour of Margaret and the costs order against her. 551 The primary judge dealt with the issue at [103]-[112] of the Quantum Judgment. Her Honour referred to the submission on behalf of Margaret that the Court's broad power in s 43 of the Federal Court of Australia Act 1976 (Cth) includes the power to limit or qualify the liability of a party subject to an obligation to pay costs, referring to Cuthbertson & Richards Sawmills Pty Ltd v Thomas (No 2) [1999] FCA 1789 (concerning a company liquidator). The primary judge reasoned as follows: 104 I accept that the Court's power is as broad as contended by Mrs Binetter. However, the role of the liquidator in Cuthbertson was materially different from Mrs Binetter's role. As the Full Court recognised from its citation of Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285, a liquidator cannot protect him or herself against claims arising from the functions of liquidator that have been carried out. In contrast, Mrs Binetter consented to her role as representative of the estate of her deceased husband. 105 Mrs Binetter submitted that the role imposed upon her by an order under r 9.24 of the Federal Court Rules 2011 should not bring with it liability for costs where she has been found completely innocent of all allegations made against her in the proceeding and she had no knowledge of or involvement in the misconduct of her husband. I do not accept this submission: in my view, these matters are not relevant to the question of costs. In any event, in the litigation, Mrs Binetter had access to the evidence against her husband and she defended the proceeding on behalf of the estate in the face of that evidence. Mrs Binetter did not identify any case law to support a contention that, generally speaking, a person who has consented to represent a deceased person's estate should not bear the costs of an unsuccessful defence. 106 Mrs Binetter also submitted that her appointment to represent the estate did not lead to any increase in the costs necessarily incurred by the [finance companies] in the prosecution of [their] case against the estate. Mrs Binetter noted that she took a very limited role beyond that necessary to defend her own position as third respondent. In my view, this is an argument which goes to the quantum of costs, rather than the question of the appropriate costs order. 107 Accordingly, I am not satisfied that the costs order against Mrs Binetter as the representative of the estate of Erwin Binetter should be limited. 552 In relation to set-off, the primary judge referred to Margaret's submission that set-off should not be ordered, as a matter of discretion, because of a lack of mutuality between the two claims. However, the primary judge was not persuaded that any lack of mutuality should deny BCI the benefit of set-off in the present case. Accordingly, the primary judge concluded that there should be a set-off of the liabilities for costs as between BCI and Margaret. 553 Her Honour applied the same reasoning in relation to Gary's costs at [115] of the Quantum Judgment.

[97]

Issue 1: Whether the primary judge erred in finding that the transactions between BCI and EGL and the Israeli banks were not loans and in failing to hold that there was no breach of Gary's duties to BCI and EGL because the advances from the Israeli banks were interest-bearing loans 555 This issue is raised by ground 1 of Gary's amended notice of contention in the Liquidators' appeal, which is in the following terms: The primary judge erred in finding that the transactions between BCI Finances Pty Limited (in Liquidation) (BCI) and EGL Development (Canberra) Pty Limited (in Liquidation) (EGL) and the Israeli banks were not loans and in failing to hold that there was no breach of [Gary's] duties to BCI and EGL because the advances from the Israeli Banks were interest bearing loans. Particulars … [Gary] adopts in these proceedings paragraphs [51]-[59] of the submissions dated 25 June 2018 of [the Andrew parties] in proceedings no. NSD 195/2018. 556 The submissions of the Andrew parties, adopted by Gary, can be summarised as follows: (a) The primary judge's findings that the directors breached their fiduciary duties proceeded on the premise that the advances from the Israeli banks were not loans (or could not be accepted as loans). So much is apparent from: the primary judge's conclusion that "the scheme was implemented for purposes including the evasion of income tax" (Liability Judgment, [981]) (the only tax that can relevantly have been "evaded" was the tax the subject of the revised assessments); her finding that in entering the arrangements the directors exposed the companies to the risk that the amounts received would be considered by the Commissioner to be assessable income; and her finding that the directors breached their duties by lodging false tax returns (which can only have been "false" because they did not declare the advances as income and claimed as deductions interest payable on the loans, as that was the basis of the revised assessments). (b) While the primary judge considered that there was no breach of duty in causing the finance companies to earn income from lending funds to the downstream companies, her Honour held that causing the repayments from that income to the Israeli banks "depleted the [finance companies] of funds that could otherwise have been used to pay their tax liabilities" (Liability Judgment, [936]). Again, this conclusion can only logically be founded on the premise that the advances were not loans. (c) However, this was a false premise. The essence of a loan is an enforceable obligation on the part of the recipient of the funds to repay the funds advanced to it either at a fixed time or as demanded: Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243; Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300 at 313. There was simply no evidence that suggested the advances were not accompanied by an obligation to repay. Indeed, the overwhelming evidence and the findings of the primary judge are to the contrary. (d) In particular, in light of: the primary judge's findings that the advances from the Israeli banks were secured by cash deposits accumulated by Erwin and Emil and owned by Erwin, Emil, Andrew, Michael and Gary; the unchallenged evidence of the finance companies' expert, Mr Ben Zeev, which was accepted by the primary judge; the contemporaneous internal bank records of Bank Hapoalim that disclosed that the arrangement with BCI was a loan at interest; and the unchallenged bank statements of the Israeli banks, the only conclusion open to the primary judge was that the advances from the Israeli banks were loans upon which interest was payable. (e) The primary judge held that the advances were "secured" by cash deposits. That is, if any of BCI, EGL, Ligon 268 or Binqld defaulted on its respective repayment obligations, the relevant Israeli banks would have recourse to the relevant offshore deposit. If that were not already self-evident, it was also the evidence of Mr Ben Zeev. Moreover, the finding that in each case the security was "in an amount at least equivalent to the amount of the funds transferred to the relevant [finance company]" (Liability Judgment, [167]) leads inexorably to the conclusion that the advances were "back-to-back" loans of the type described by Mr Ben Zeev. A bank does not secure a gift. (f) While the primary judge considered that she should not rely on any of the documents that purported to evidence loan arrangements at face value (Liability Judgment, [157]), this can only be understood as a reference to the documents created or signed on behalf of the finance companies that purported to show that guarantees were the only security for the loans; so much is evident from her Honour's description of the "scheme" and her finding that such documents as were provided to the ATO were shams (Liability Judgment, [184]-[185]). Importantly, it was never suggested, and the primary judge made no finding, that the internal bank records described in the Liability Judgment at [685]-[687], [711] and [720] or the statements of account of Bank Hapoalim and IDB appearing in the Appeal Book were anything other than what they purported to be. (In the Andrew parties' written submissions, they referred to the statements of account appearing at AB Pt C, tabs 184, 185, 256, 257, 326, 327, 341, 379, 533, 555 and 748.) Moreover, there was no reason not to accept the internal bank documents as evidence of the loans and their interest rates as they were wholly consistent with both the primary judge's findings regarding the security and the evidence of Mr Ben Zeev, which she accepted. The primary judge's observation that it was possible the terms of those documents were affected, or even contradicted, by the terms on which the offshore deposits secured the advances was not only mere speculation, there was no evidence to support such an inference. This observation was directly contrary to the primary judge's finding that the interest on the deposits was earned by members of the Binetter family. (g) It follows that the primary judge ought to have found that the advances from the Israeli banks were loans upon which interest was payable. (h) Once it is accepted that the amounts received by the finance companies were loans, it follows that the directors could not have breached the fiduciary duties the primary judge found they owed to the finance companies regarding procuring or extending the loans and causing repayments by or on behalf of the finance companies. As the primary judge correctly found, the interests of each finance company were to carry on the business for which it existed, namely to procure funds from Israeli banks for on-lending to related companies. This is exactly what the directors set out to achieve and in fact achieved. The primary judge therefore erred in concluding that the directors had breached their fiduciary duties. 557 In oral submissions, Mr N Hutley SC, senior counsel for the Andrew parties, focussed on the transactions between BCI and Bank Hapoalim, on the basis that there was no material difference between these transactions and the transactions between the other finance companies and IDB (see the Liability Judgment, [897]). This involved an examination of certain documents passing between Bank Hapoalim Switzerland and Bank Hapoalim in Israel, and between BCI and Bank Hapoalim. Many of these documents have been described in the "statement of the facts" section of these reasons. Senior counsel for the Andrew parties noted that her Honour had not found that the transactions were not loans, but rather had not been satisfied that they were loans. 558 The Andrew parties' contention that the primary judge erred in not finding that the advances were loans at interest was fundamental to their challenge to the primary judge's conclusion that directors of the finance companies breached their fiduciary duties. As senior counsel for the Andrew parties put it in oral submissions: "if one accepts as a predicate … that there was a loan bearing interest from … Bank Hapoalim to BCI", then the interest paid by BCI "was a permissible deduction" (T18). It was further submitted: "if one accepts there were loans from Bank Hapoalim [to BCI] at interest, what … was being put forward as the taxable position of [BCI] was, in truth, honest" (T21). It was also submitted that no director could reasonably have anticipated the assessments that were made by the Commissioner, some of which treated the advances as the income of the finance companies, if the director was intending to enter into "actual loans on actual terms" with the Israeli bank (T63). 559 Senior counsel for the Andrew parties also relied on [590] and [687] of the Liability Judgment, which were said to accept that certain transactions between Bank Hapoalim and BCI were loans. 560 In response, the finance companies submitted, first, that the proposition that the advances from the Israeli banks were not loans was not the premise of the primary judge; and, secondly, that at trial the Andrew parties had argued that the advances should be found to be loans and the primary judge correctly rejected that submission. 561 There is some force in the Andrew parties' submission that the findings that the advances made by the Israeli banks to the finance companies were "secured" by offshore deposits (see the Liability Judgment at, eg, [147], [222], [236], [237], [503], [890]) suggest that the advances were repayable. If the advances were not repayable, what obligation were the offshore deposits securing? Likewise, the provision of guarantees to the Israeli banks (see the "scheme" description in [140] of the Liability Judgment - there was no suggestion that the guarantees were not effective) suggests that the advances were repayable. 562 It is also true that, although the documentation is incomplete, the bank documents that do exist (such as statements of account and documents passing between the Israeli banks and the finance companies) refer to the advances as "loans" and to "interest" being payable by the finance companies on the loans. Examples have been referred to in the "statement of the facts" section of these reasons. 563 However, it is important to keep in mind why one is asking the questions whether the advances from the Israeli banks to the finance companies were loans at interest and whether the primary judge erred in not so finding. These questions arise in a case brought by the finance companies against former directors of those companies alleging breach of fiduciary duty and against third parties for knowing involvement in those breaches. The question whether the advances were loans at interest falls to be considered in the course of, and for the purposes of, considering these claims. 564 When one examines the transactions between the finance companies and the Israeli banks in their full context, the proposition that the advances from the Israeli banks to the finance companies were commercial loans at interest becomes problematic (to say the least) to any honest person, even if the advances of principal can be viewed as advances that must be repaid at some time. 565 The scheme as alleged by the finance companies at trial and substantially accepted by her Honour may be simply stated. Advances were made by the Israeli banks (Bank Hapoalim and IDB) to the finance companies (BCI, EGL, Ligon 268 and Binqld), ostensibly loans at interest. These funds were on-lent at interest by the finance companies to other companies owned by the Binetter family (the downstream companies), including operating entities requiring working capital. The advances from the Israeli banks were secured by offshore deposits located in Switzerland or Israel, representing funds that had been taken out of Australia without Australian tax having been paid on them. The offshore deposits were owned by members of the family. Their existence was not disclosed to the Commissioner and it was intended that their existence would not be disclosed in the event of a tax audit or tax proceedings. The Israeli bank paid interest on the offshore deposit at a rate that matched the "interest" paid by the finance company to the Israeli bank (eg, 6% per annum), less a margin or fee (eg, 0.3%). The downstream companies claimed deductions for the interest they paid to the finance companies. The finance companies declared the interest income they received, and claimed deductions for the "interest" payments made to the Israeli banks. Interest was received on the offshore deposits, but no tax was paid. 566 Further, the findings by the primary judge show that the interest rate payable by the finance company to the Israeli bank was determined, or at least nominated, by the finance company (the borrower) rather than the Israeli bank (the lender). While this would be surprising in normal circumstances, it is unsurprising once one appreciates that the Israeli bank was paying the same interest rate (less a margin or fee) on the offshore deposit. Given the structure, the Israeli bank was indifferent to the rate of interest, provided it received its margin or fee. Although not determinative, we note also that the interest payments were made at irregular intervals, and often paid by the downstream companies (rather than the finance companies) to the Israeli banks. 567 In light of the matters set out above, the proposition that the "interest" payments made by the finance companies were, from a practical and business point of view, necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income (see s 51(1) of the ITAA 1936 or s 8-1 of the ITAA 1997) cannot be sustained. The 'price' for the advance was in substance the margin or fee charged by the Israeli bank rather than the "interest" payments. The bank was indifferent as to the amount of the interest, provided it obtained its margin or fee. The interest rate was in effect set by the finance company. By the arrangement, amounts of money were transferred offshore (as "interest"), equivalent amounts (less a small margin or fee) were added to the offshore deposits (again, as "interest"), and no tax was paid on the amounts. It is difficult to see how any honest person in the position of a director of one of the finance companies, with knowledge of the matters set out above, could consider the deductions for interest to be legitimately claimed. 568 By procuring the finance companies to enter into the transactions with the Israeli banks, each of Emil, Erwin, Andrew and Michael exposed the finance companies to a substantial risk of adverse tax assessments in the event of a tax audit, with the inability (realistically) to challenge any such assessments (because the existence of the offshore deposits and their role as security would not be disclosed), for the benefit of others (that is, persons other than the finance companies); they put the finance companies in harm's way in order to further their personal interests and the interests of other members of the Binetter family. As Dixon J said in Mills v Mills (1938) 60 CLR 150 at 185, directors of a company are fiduciary agents, and a power conferred upon them "cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power". A director's power cannot be exercised "for some ulterior and illegitimate object" (Mills v Mills at 186). Or, to put it another way, they did not exercise their powers as directors bona fide in the interests of the company as a whole: see Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Company NL (1968) 121 CLR 483 (Harlowe's Nominees) at 490, 492-494. 569 The primary judge's conclusions in relation to the "interest" payments, while not expressed in the same terms, were substantially similar to the above analysis. Before setting out those conclusions, we refer to the way in which the primary judge summarised the relevant aspect of the finance companies' (or liquidators') case at trial. Although [177] of the Liability Judgment has been set out above, for ease of reference we set it out again: … As I understood the liquidators' case, it was that the rates of interest stipulated in the loan documentation were not rates for interest charges that were imposed by the bank as amounts that it would earn on the transactions but, rather, rates that were used to calculate the quantum of payments by the borrower to the bank wholly or partly for the benefit of an entity other than the bank, being an entity associated with one or more of the respondents. 570 At [184] of the Liability Judgment, her Honour stated that she had no hesitation in concluding that: (a) the documents provided to the ATO by each of the finance companies did not reveal the totality of the arrangements between the finance companies and the Israeli banks because they did not reveal the arrangements concerning the offshore deposits, and those arrangements formed part of the arrangements between the finance companies and the Israeli banks; and (b) the documents provided to the ATO by BCI and EGL were designed to conceal the totality of the arrangements between those companies and the Israeli banks. 571 Further, at [898], the primary judge concluded that, once it was accepted that the advances from Bank Hapoalim to BCI were secured by deposits, there was "no reason to accept at face value the documentation which suggests that BCI incurred significant interest expenses to Bank Hapoalim as the price of the advances". Her Honour said that the unlikelihood of that proposition was increased by the evidence concerning the flow of funds, which did not correlate with the terms of available documentation. In the absence of evidence from Bank Hapoalim about what it received in return for the advances, the primary judge concluded that "a purpose of the Bank Hapoalim transactions was to falsely seek to justify deductions on account of interest expenses". This was, her Honour concluded, "a purpose of evading liability to pay income tax". We refer also to the Liability Judgment at [878], [879], [880], 890, [896], 916 and 922. (Consistently with the way the Andrew parties' case on appeal (relevantly adopted by Gary) was presented, the conclusions in relation to the Bank Hapoalim-BCI transactions may be taken to apply also to the transactions between IDB and the other finance companies.) 572 Not only was it open to the primary judge to reach these conclusions in relation to the "interest" payments, in our view her Honour was correct to do so. The evidence supports the conclusion that the payments made by the finance companies to the Israeli banks were not truly interest, and that the interest deductions claimed by the finance companies were not honestly claimed. In other words, the primary judge was correct to accept the finance companies' case as summarised in [177] of the Liability Judgment. 573 During the course of the hearing of the appeals, we asked the parties whether the primary judge's summary at [177] accurately reflected the way in which the finance companies' case had been put at trial. The finance companies submitted that it did, and prepared a note in support of that proposition. The Andrew parties and Michael disputed this. Gary may be taken to have adopted the same position. On the basis of the matters referred to in the finance companies' note, we are satisfied that [177] accurately records how the finance companies' case was put at trial. 574 As already indicated, there is some force in the proposition that the advances were repayable and thus loans. However, we do not consider the question whether the advances were repayable, and thus loans, to be material to the ultimate relevant issue to be determined, namely whether the directors breached their fiduciary duties. Even if it be accepted that the advances were loans, for the reasons given above we consider that the primary judge was correct in her conclusions regarding the "interest" payments. This is a sufficient basis to sustain her Honour's conclusions regarding breach of duty. 575 Although the Andrew parties relied heavily on the existence of the offshore deposits (in support of the contention that, as the offshore deposits secured the advances, it was to be inferred that the advances were repayable), it is important to note the lengths to which some of the Binetter parties went to conceal the offshore deposits, including the provision of false or misleading affidavits in the course of the tax appeals and arranging for the destruction of documents on Bank Hapoalim's file following the issuing of a letter of request to obtain bank documents. It was not until part way through the trial of the proceeding below that the Binetter parties clearly acknowledged the existence of the offshore deposits. (Even then, little detail was provided.) This conduct supports an inference that the relevant directors appreciated the significance of disclosure of the offshore deposits in the context of the tax appeals - they understood that it would be very difficult to sustain the proposition that the "interest" payments were deductible if the existence of the offshore deposits and their role in securing the provision of funds were known. (The observation of the primary judge at [187], relied on heavily by the Andrew parties in the course of oral submissions, that there was no reason to suppose that if the finance companies had provided proof of the existence of the offshore deposits that would have satisfied the Commissioner, is not inconsistent with this proposition. Her Honour was not suggesting that the concealment of the offshore deposits was immaterial or that inferences could not be drawn from the fact that the relevant directors had concealed the existence of the offshore deposits. She was merely saying that the disclosure of the offshore deposits would not have satisfied the Commissioner that the revised assessments were wrong.) While the existence of the offshore deposits, and their provision as security for the advances, support the proposition that the advances were repayable, this does not address the questions whether the "interest" payments were truly interest and whether the interest deductions were honestly claimed. 576 For these reasons, the approach taken by the primary judge to the interest payments was fundamentally correct, and any error in the primary judge's failure to be satisfied that the advances from the Israeli banks to the finance companies were loans was not material. Accordingly, we reject the ground raised in Gary's amended notice of contention.

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The grounds of appeal 577 This issue is raised by grounds 1-4 of the Liquidators' appeal, which are as follows: B.C.I. Finances Pty Ltd (BCI) v Gary Binetter 1. The primary judge erred in holding that Gary Binetter did not breach any of the duties that he owed to BCI as a director of BCI (Judgment at [974] and reasons supporting that conclusion). Particulars (a) Based on the available evidence, and given Gary Binetter's failure to give evidence, the primary judge erred in failing to find that Gary Binetter was, at the times he was a director of BCI, aware of the key elements of the scheme outlined at Judgment [147] and [150]-[153] insofar as it involved BCI: cf Judgment [971]. (b) The primary judge should have found that Gary Binetter's knowledge of the scheme involving BCI could be inferred from, amongst other things, his involvement in the same or similar scheme involving Civic Finance Pty Ltd (Civic) and Advance Finances Pty Ltd (Advance) and through his role as a director of Milgerd Nominees Pty Limited (Milgerd) or Ligon 159 Pty Limited (Ligon 159) which were the recipients of funds obtained through the scheme involving BCI. (c) Based on the available evidence, and given Gary Binetter's failure to give evidence, the primary judge should have found that, when he was a director of BCI, Gary Binetter, along with others, caused BCI to be involved in the scheme outlined at Judgment [147] and [150]-[153]. (d) In circumstances where Gary Binetter had the knowledge referred to in particular 1.a above, the primary judge should have held that Gary Binetter's conduct in causing BCI to be involved in the scheme breached the following fiduciary duties owed by him to BCI: (i) not to exercise a power conferred upon him as a director of BCI in order to obtain some private advantage or for any purpose foreign to the power; and (ii) not to exercise a power conferred upon him as a director of BCI in a manner detrimental to the interests of BCI. 2. The primary judge should have held that, as a result of his breaches of the fiduciary duties that he owed to BCI, Gary Binetter is liable to BCI for losses comprising income tax for which BCI would not otherwise have been liable, penalties on assessments issued by the Commissioner and interest including shortfall and general interest charges, including: (a) the additional tax / penalty in the 1998 amended assessment issued to BCI by the Commissioner; (b) the income tax and additional tax / penalty in the 1999 and 2000 amended assessments issued to BCI by the Commissioner; (c) the income tax in the 2001 to 2004 amended assessments issued to BCI by the Commissioner; (d) the penalties imposed on BCI by the Commissioner for financial years 2001 to 2004; and (e) GIC on the amounts in each amended assessment from 1997 to 2004, and on the amounts of the penalties imposed on BCI by the Commissioner for financial years 2001 to 2004, until 5 March 2014. E.G.L. Development (Canberra) Pty Limited (EGL) v Gary Binetter 3. The primary judge erred in holding that Gary Binetter did not breach any of the duties that he owed to EGL as a director of EGL (Judgment at [979] and reasons supporting that conclusion). Particulars (a) Based on the available evidence, and in light of Gary Binetter's failure to give evidence, the primary judge should have found that Gary Binetter was, at the times he was a director of EGL, aware of the key elements of the scheme outlined at Judgment [147] and [150]-[153] insofar as it involved EGL. (b) The primary judge should have found that Gary Binetter's knowledge of the scheme involving EGL could be inferred from, amongst other things, his involvement in the same or similar scheme involving Civic and Advance and through his role as a director of Milgerd or Ligon 159 which were the recipients of funds obtained through the scheme involving EGL. (c) Based on the available evidence, and in light of Gary Binetter's failure to give evidence, the primary judge should have found that, when he was a director of EGL, Gary Binetter, along with others, caused EGL to be involved in the scheme outlined at Judgment [147] and [150]-[153]. (d) In circumstances where Gary Binetter had the knowledge referred to in particular 3.a above, the primary judge should have held that Gary Binetter's conduct in causing EGL to be involved in the scheme breached the following fiduciary duties owed by him to EGL: (i) not to exercise a power conferred upon him as a director of EGL in order to obtain some private advantage or for any purpose foreign to the power; and (ii) not to exercise a power conferred upon him as a director of EGL in a manner detrimental to the interests of EGL. 4. The primary judge should have held that, as a result of his breaches of the fiduciary duties that he owed to EGL, Gary Binetter is liable to EGL for losses comprising income tax for which EGL would not otherwise have been liable, penalties on assessments issued by the Commissioner and interest including shortfall and general interest charges, including: (a) the income tax and penalties in the 1997 to 2001 amended assessments issued to EGL by the Commissioner; and (b) GIC on the above amounts until 27 October 2014. 578 It will be convenient to deal separately with grounds 1 and 2 (relating to BCI) and grounds 3 and 4 (relating to EGL).

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BCI's submissions (grounds 1 and 2) 579 In summary, BCI submits that it should be inferred that Gary, along with others, caused BCI to participate in the scheme on the basis of the following matters: (a) Gary consented to, and was appointed, as a director of BCI (Liability Judgment, [19]). (b) There would be no reason for Gary to be appointed as a director of BCI if he were not to be involved in its activities. (c) BCI had no function other than to participate in the scheme (Liability Judgment, [889]). (d) The scheme benefited the Emil branch of the family. Gary was the only son in the next generation and his sisters had no involvement. If anyone in that generation (ie, Emil's children) were to be involved, it had to be Gary. Gary was involved in two other similar schemes involving other companies on the Emil side of the family (Civic and Advance) (Liability Judgment, [697]-[702]). (e) One of the purposes of the scheme was to facilitate the on-lending of the funds via Milgerd and Ligon 159 and Gary was a director of both (Liability Judgment, [63], [65], [261]). (f) Gary was a part owner of offshore funds from which the offshore deposit was sourced (Liability Judgment, [231]). (g) Gary and his father Emil caused a similar scheme to be entered into by Civic using an offshore fund which they controlled to generate the funds so as to bring to an end the Emil tranche of the BCI scheme. That involved providing funds to Bank Hapoalim in Israel that were then remitted to Bank Hapoalim in Switzerland. Once remitted to Bank Hapoalim in Switzerland, the funds would be available to Emil and Gary. (h) In 2012, Gary was involved in an attempt to cause a destruction of evidence in relation to the BCI scheme. Further, Gary told lies as to his knowledge of the existence of offshore deposits in affidavits made in 2011 and 2012. (i) Gary's purpose for seeking to cause destruction of evidence and telling lies at least must have included a desire to protect his father, Emil. Nevertheless, the more serious available inference is that he sought to destroy evidence of his own involvement. That inference is available and should have been acted upon: see SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288 (SS Pharmaceutical) at 293. (j) Gary consented to being joined, and having an indemnity costs order made against him, in the BCI tax appeal. (k) Gary did not give evidence at the trial. 580 In its written submissions, BCI made detailed submissions in support of the above propositions, including by reference to the documents at AB Pt C, tabs 50, 166, 268, 269, 273, 274, 275, 282, 283, 284, 293, 294, 295, 296, 523, 524, 525, 758, 761, 832 and 834. 581 BCI further submits that the primary judge erred in the following respects: (a) The primary judge treated the Civic dealings with IDB in 2004 as "Emil Binetter's dealings", and held that, although Gary was aware that these involved back-to-back arrangements, Gary could only be found to have known about BCI's back-to-back arrangements by June 2012 (Liability Judgment, [971]). This was an error. Gary's lies under oath, including in 2011, suggest that he knew the truth before June 2012. The Civic-IDB 2004 dealings were not just "Emil Binetter's", as the primary judge found. Gary was a director of Civic, and signed key documentation that showed the true nature of the arrangements. The funds obtained by Civic (and Advance, of which Gary was also a director) were used for BCI to "repay" Bank Hapoalim. Gary was a director of BCI, and Emil was 77 years old at the time. The appropriate finding was that Gary had full knowledge not only of the Civic (and Advance) part of this transaction, but of the BCI part. Once that finding is made, there is no reason to think that Gary's knowledge of the true nature of BCI's dealings with Bank Hapoalim did not extend back to the time when he became a director of BCI. (b) The primary judge held that there was no evidence that Gary took any steps, as a director of BCI, to give effect to the scheme involving BCI or that he took any particular role in the management of BCI (Liability Judgment, [969]). The primary judge found that "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" (Liability Judgment, [971]). This approach should not be accepted for the following reasons. (c) First, the primary judge held elsewhere that Gary owned "part of the offshore funds from which the offshore deposits were sourced at various times" (Liability Judgment, [231]). That being so, Gary plainly stood to benefit from the scheme. (d) Secondly, the primary judge did not give sufficient weight to Gary's failure to give evidence considering the material that was available against him: cf Liability Judgment, [973]. The evidence summarised above provided a firm basis to find that Gary knew all relevant facts regarding BCI's affairs when he was a director. Only Gary knew the full truth (Emil having passed away). Any doubts about whether it should be inferred that Gary knew of the true state of BCI's affairs while he was a director of BCI should have been resolved against Gary: see, eg, Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at 141-142; Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371-372; SS Pharmaceutical at 293. (e) Thirdly, once it is accepted that Gary knew the nature of BCI's dealings with Bank Hapoalim, given his position as a director of BCI, the appropriate finding was that he agreed, as a director, that BCI should continue its participation in the scheme. That alone is sufficient to show that the primary judge's dismissal of the case against Gary should be overturned. But if more were required, the fact that Gary was involved in the process by which BCI "repaid" Emil's family's half of the BCI-Bank Hapoalim transaction is, contrary to the Liability Judgment at [971], evidence of Gary participating in the scheme by doing a "particular thing". The Court should hold that Gary breached his director's duties to BCI by continuing to involve it in the scheme for the period in which he was a director of BCI.

[101]

Consideration of BCI's submissions 582 In our view, BCI has not established any error in the primary judge's conclusion that Gary did not breach the duties he owed BCI as a director of that company from January 1994. 583 As the primary judge noted, Gary was not a director of BCI at the time of the 1993 advances. The primary judge found that Gary did not cause BCI to enter into the 1993 transactions (Liability Judgment, [966]) and there is no challenge to that finding. 584 The primary judge approached the question whether the directors breached their fiduciary and other duties on the basis that it was necessary to show a particular act or omission on the part of the relevant director (Liability Judgment, [292]). In other words, it was necessary to look at the conduct of the relevant director (see, eg, [298] and [299] of the Liability Judgment). This was consistent with the way the finance companies' case had been presented at trial (see the Liability Judgment, [286]-[288]). Further, the finance companies' case at first instance proceeded on the basis that they needed to establish knowledge of the scheme on the part of the relevant director (see the Liability Judgment, [289]). 585 The primary judge found, at [967], that, to the extent that BCI entered into further transactions with Bank Hapoalim in November 1997, there was no evidence that Gary dealt with Bank Hapoalim or assisted Emil, Erwin, Andrew or Michael to deal with Bank Hapoalim. Further, at [968], the primary judge stated that there was no evidence that Gary caused BCI to enter into any further transactions with Bank Hapoalim after November 1997. The primary judge also stated, at [969], that there was no evidence that Gary took any steps, as a director of BCI, to give effect to the scheme involving BCI, and there was no evidence that he took any particular role in the management of BCI. Considering the extent of the evidence over a long period of time showing the involvement of other family members, this was a significant finding properly reflecting the evidence. 586 The matters relied on by BCI do not establish any error in the above findings and statements. BCI relies on inferences that may be able to be drawn as to Gary's knowledge, but does not point to particular acts or omissions on the part of Gary after he became a director of BCI that involved a furtherance of the scheme. 587 BCI relies heavily on the dealings between Civic and Advance and IDB in 2004. The documents indicate that Gary was involved in these transactions and that the transactions involved back-to-back arrangements. However, even if it be accepted that these documents show knowledge on Gary's part of back-to-back arrangements between a family company and an Israeli bank, this does not establish any relevant act or omission by Gary in relation to the scheme involving BCI. 588 BCI relies on the fact that, as found by the primary judge, Gary was one of the owners of the offshore deposits. However, again, this does not establish any relevant act or omission on the part of Gary as a director of BCI. 589 BCI submits that the primary judge did not place sufficient weight on the fact that Gary did not give evidence. However, in circumstances where the evidence did not establish relevant acts or omissions on the part of Gary as a director of BCI, the failure of Gary to give evidence does not provide a basis upon which to find Gary liable for breach of duty. 590 BCI submits that it should be inferred that Gary had knowledge of all relevant facts from the time that he became a director of BCI and that it should be found that he agreed, as a director, that BCI should "continue its participation in the scheme". But this is not the way BCI's case was put at trial. As indicated above, the finance companies' case was put on the basis that a breach of duty would arise from "particular acts or omissions on the part of the relevant director" (see the Liability Judgment at [292]). The specific acts and omissions relied on by the finance companies at trial were identified in a document styled "breach note" (see the Liability Judgment at [290]). Although item (1) in the breach note was "involving the relevant [finance company] (in the scheme)" and item (2) was "continuing to involve the relevant [finance company] (in the scheme)", the primary judge noted at [291] that, as the finance companies put their case, items (1) and (2) were "no more than conclusory descriptions" of the conduct referred to in items (3) to (8). Accordingly, the primary judge focussed on whether each director had been shown to have engaged in conduct as described in items (3) to (8), including drawdowns and rollovers; on-lending; and receiving and making payments. 591 BCI relies on Gary's involvement in the process by which BCI "repaid" Emil's family's half of the BCI-Bank Hapoalim transaction in May 2004. It appears that the relevant amount ($6,188,757) was paid by Ligon 159, which in turn received funds in two transactions the previous day. However, these transactions involved the discharge of half of the BCI-Bank Hapoalim transaction rather than the entry into a new transaction by BCI and, in any event, Gary's involvement appears to have been limited. The primary judge referred to the May 2004 repayment at [968], 970 and [971] and said that, even if the 2004 dealings supported an inference that Gary knew that the dealings between BCI and Bank Hapoalim involved back-to-back arrangements, she was not satisfied that this knowledge led to the further inference that Gary knew of the key elements of the scheme or that he agreed to participate in it or agreed that BCI should participate in it. We see no error in her Honour's approach. 592 BCI relies on Gary's affidavits dated 21 October 2011 (see [494] above) and 20 December 2012 (see [518] above). The second affidavit was made after the 26 June 2012 meeting with Mr Gicelter during which Gary referred to the offshore deposits (see [516] above). BCI seeks to rely on inferences arising from false or misleading statements in these affidavits. Even if it be accepted that one or both of these affidavits was misleading or false, this is not sufficient, in our view, to overcome the difficulty discussed above, namely that BCI has not identified particular acts or omissions by Gary in connection with the scheme involving BCI. 593 BCI relies on the fact that the orders that were made disposing of the BCI tax appeal included, by consent, an order joining Gary as a party and ordering him together with the other Binetter parties to pay the costs of the proceeding on an indemnity basis. However, we see no error in the primary judge's conclusion (at [972]) that no relevant inference could be drawn from this. 594 For the above reasons, we reject grounds 1 and 2 in the Liquidators' appeal. 595 We note that the Andrew parties and Michael challenged the existence of the third fiduciary duty identified by her Honour in [260] of the Liability Judgment (see [543] above), but Gary did not challenge the correctness of her Honour's statement of the applicable fiduciary duties. In circumstances where the Andrew parties' appeal and Michael's appeal have now been settled, and Gary does not challenge her Honour's statement of the fiduciary duties, it is unnecessary to consider the correctness of her Honour's statement of the fiduciary duties. Nevertheless, in circumstances where BCI's grounds of appeal proceed on the basis of her Honour's statement of the fiduciary duties, we make the following observations. 596 It has long been accepted that company directors owe a fiduciary duty to exercise their powers bona fide in the interests of the company as a whole. This was accepted by all members of the High Court (Barwick CJ, McTiernan and Kitto JJ) in Harlowe's Nominees at 490, 492-494. The rule has a long lineage: see, eg, Richard Brady Franks Ltd v Price (1937) 58 CLR 112 at 135 per Latham CJ; In re Smith and Fawcett Ltd [1942] Ch 304 at 306 per Lord Greene MR; Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 at 268 per King CJ; Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 147-148 per Clarke and Cripps JJA. In the 1957 edition of The Principles of Modern Company Law (Stevens & Sons, London, 2nd ed, 1957) at p 474, Gower referred to this as the first of four facets of the fiduciary duty owed by company directors: The general principle upon which these duties are based is clear and simple. Directors are fiduciaries and must therefore display the utmost good faith towards the company in their dealings with it or on its behalf. But the application of this principle has four facets which are probably best treated as distinct, though in practice they tend to overlap. First, the directors must act bona fide, that is in what they believe to be the best interests of the company. Secondly, they must exercise their powers for the particular purpose for which they were conferred and not for some extraneous purpose, even though they honestly believe that to be in the best interests of the company. Thirdly, they must not fetter their discretion to exercise their powers from time to time in accordance with the foregoing rules. And finally, despite compliance with the foregoing rules, they must not, without the consent of the company, place themselves in a position in which there is a conflict between their duties and their personal interests. 597 The bona fide rule has been described as "central and foundational in the scheme of directors' fiduciary duties": Langford RT, Directors' Duties: Principles and Application (Federation Press, 2014) at p 57. The rule is reflected in s 181(1) of the Corporations Act 2001 (Cth), but the focus for present purposes is on fiduciary rather than statutory duties. 598 Although the High Court has stated that fiduciary duties are proscriptive rather than prescriptive in nature (see Breen v Williams (1996) 186 CLR 71 at 113 per Gaudron and McHugh JJ; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at [74] per McHugh, Gummow, Hayne and Callinan JJ), it has not suggested that the earlier authorities of the High Court referred to above are no longer the law and we do not take the High Court to be suggesting this (a matter discussed in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1). We note that, in Howard v Commissioner of Taxation (Cth) (2014) 253 CLR 83, French CJ and Keane J stated (at [37]) that there was no suggestion that the decision of the directors "involved an exercise of their powers as directors other than in the interests of the company", and Hayne and Crennan JJ (at [58]) stated that no question arose of "the application of the obligation or obligations, often compendiously described as the duty of directors to act in the interests of the company as a whole, examined and applied in Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL". 599 The primary judge did not express what she referred to as the "company interests duty" as it has traditionally been expressed, namely a duty of directors to exercise their powers bona fide in the interests of the company as a whole. This may reflect the way that the case was presented below (see, eg, the Liability Judgment at [252], quoting the fiduciary duties pleaded by BCI). We prefer the traditional formulation, but we do not consider her Honour's formulation to be substantively different.

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Issue 3: Whether the primary judge erred in relation to certain costs issues relating to Gary 604 This issue is raised by Gary's costs appeal. 605 In the proceeding below, BCI and EGL succeeded in their claims against Gary in his capacity as the legal personal representative of Emil (the first respondent) and failed in their claims against Gary in his personal capacity (the fifth respondent). There was no issue that costs should follow the event in respect of each claim. However, Gary contended that the costs payable by him in his representative capacity should be limited to the assets of Emil's estate, and that there should be no set-off as between the relevant cost orders. The primary judge did not accept these contentions. 606 The costs orders relevant to Gary's costs appeal were made on 15 December 2017 and were as follows: 1. The first, second, fourth and sixth respondents pay the costs of winding up [BCI], such costs to be determined by a Registrar of the Federal Court of Australia pursuant to r 30.41 of the Federal Court Rules 2011 ("Rules") and/or s 23 of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"). 2. The first, second, fourth and sixth respondents pay the costs of winding up [EGL], such costs to be determined by a Registrar of the Federal Court of Australia pursuant to r 30.41 of the Rules and/or s 23 of the Federal Court Act. … 5. Each of the first, second, fourth, sixth, seventh, eighth, ninth and tenth respondents pay [BCI's] costs on the ordinary basis, as agreed or taxed, with such liability to be joint and several. 6. Each of the first, second, fourth, sixth, seventh, eighth, ninth and tenth respondents pay [EGL's] costs on the ordinary basis, as agreed or taxed, with such liability to be joint and several. … 10. [BCI and EGL] pay the costs of the fifth respondent on the ordinary basis, as agreed or taxed, with that amount to be set off against the costs liability arising as against the first respondent by reason of orders 5 and 6 above. 607 By his amended notice of appeal, Gary challenges these costs orders. Gary contends, in summary, as follows: (a) Gary was joined as personal representative of the estate of Emil after Emil (a named party) had died. Gary's joinder was for the purpose of the proceeding only. He was not otherwise the personal representative of the estate. His joinder was a matter of convenience, and this required that no order for costs of BCI and EGL be made against him personally. (b) Submissions on costs were made on the basis referred to in (a), but the primary judge overlooked them in her reasons for judgment. (c) By reason of the operation of r 9.05(3) of the Federal Court Rules 2011, Gary could not be made liable for costs before the date of his joinder, but the costs orders against him are not so confined. (d) BCI and EGL did not seek any orders that the respondents' liability for costs should be on a joint and several basis. In the circumstances, the primary judge should not have considered or ordered joint and several liability for costs. (e) The primary judge erred in failing to consider that: BCI and EGL did not succeed against all respondents; BCI and EGL were ordered to pay Margaret's costs of the failed actions against her as third respondent below and Gary's costs of the failed actions against him as fifth respondent below; orders 5 and 6 will result in Gary (as the first respondent below) and other Binetter parties paying to BCI and EGL the costs that they incurred in their failed claims against Margaret (as third respondent below) and Gary (as fifth respondent below). (f) In relation to set-off, the primary judge failed to take into account the matters referred to above. There was an absence of mutuality of costs liabilities such that set-off as ordered was not fair and just. (g) Gary also challenges the orders that the first respondent below pay the costs of the winding up of BCI and EGL. 608 BCI and EGL submit, in summary, that the costs orders made by the primary judge were a fair and reasonable exercise of discretion and should not be overturned on appeal. They submit that the submissions filed on Gary's behalf do not identify any miscarriage in the exercise of the primary judge's discretion within the principles set out in House v The King (1936) 55 CLR 499; and that his submissions simply reflect a different view as to how the discretion should have been exercised, which is an insufficient basis on which to appeal the exercise of that discretion. 609 Gary's challenge to the primary judge's costs orders raises a number of discrete issues, which we will deal with separately. 610 The main issue is whether the primary judge erred in not limiting the costs payable by the first respondent below to the assets of Emil's estate and in providing that the costs payable by the first respondent and the costs payable to the fifth respondent be set off against each other. Her Honour's reasons for so concluding (expressed in relation to Margaret and then applied to Gary) have been set out above. 611 An award of costs is discretionary, but must be exercised judicially, that is according to relevant considerations and taking account of the contextual features and facts of the litigation: Kazar v Kargarian (2011) 197 FCR 113 at [4]. Settled principle guides the exercise of the discretion: Oshlack v Richmond River Council (1998) 193 CLR 72 at [65]. Generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [25]. 612 Where an application is made for a costs order that will have the consequence that the order will require a personal representative to bear the costs personally then, as explained below, the Court takes account of that particular circumstance in considering the appropriate costs order to be made. 613 Rule 9.24 of the Federal Court Rules provides: 9.24 Deceased persons (1) If: (a) a deceased person was interested in, or the estate of a deceased person is interested in, any matter or question in a proceeding; and (b) the deceased person has no personal representative; a party may apply to the Court for an order: (c) that the proceeding continue in the absence of a person representing the deceased person; or (d) that a person who has consented in writing represent the deceased person's estate for the purpose of the proceeding. (2) An order under subrule (1) and any subsequent order made in the proceeding binds the estate of the deceased person as the estate would have been bound if the deceased person's personal representative had been a party to the proceeding. Note: Before making an order under this rule, the Court may require the application to be served on persons having an interest in the estate, as the Court considers appropriate. 614 Given the terms of r 9.24(1)(d) and the alternative provided in r 9.24(1)(c), the appointment of a personal representative is made for the purpose of enabling the case to proceed with representation. In considering whether to make an order under r 9.24(1)(c) (as distinct from r 9.24(1)(d)), the Court would need to take into account whether the consequence would be that there would be no substantive defence and the effect upon those with an interest in the deceased estate. It may be that the grant of such an order would be on terms that would address those matters. However, no such order was sought by the finance companies in this case. Instead, they acquiesced in the appointment of Gary as personal representative under r 9.24(1)(d). 615 A personal representative of a defending party may be in a different position to a personal representative of a party who brings a claim. In the latter instance, the representative may be involved in making the choice to bring and maintain the claim. In the former instance, the personal representative facilitates the fair advancement of the claim. This is a relevant factor in considering whether the personal representative of a defendant should be made personally liable for costs orders: cf Cuthbertson & Richards Sawmills Pty Ltd v Thomas (No 2) [1999] FCA 1789 at [9] (citing In re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285). The distinction is well recognised in dealing with costs orders in cases involving litigation representatives: Australia and New Zealand Banking Group Ltd v Moszko Mejer Dzienciol by his guardian ad litem Phillip Dzienciol [2001] WASC 305(S) at [15]-[17]. 616 It is also to be noted that liquidators and trustees in bankruptcy who often have the carriage of court proceedings in a representative capacity are not made personally liable for costs in circumstances where they are defending proceedings unless they are shown to have acted unreasonably: see Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385; [2007] NSWCA 55 at [48]-[56]. The Court also recognises that those who assume the office of liquidator or trustee in bankruptcy may be subject to claims concerning the manner in which the duties of their office have been discharged. The fact that they are subject to statutory duties and to the supervision of the Court is also significant. There are aspects of these considerations where a person agrees to act as a personal representative for the purpose of regularising matters procedurally so as to facilitate a claim to relief that would be sought to be enforced against a deceased estate notwithstanding the absence of an executor or administrator of the estate. An order appointing a personal representative has the consequence that the estate of the deceased person is bound by any order made in the proceeding thereafter: r 9.24(2) of the Federal Court Rules. However, the estate is not made a party. 617 A trustee who defends proceedings may be expected, in the proper discharge of those responsibilities, to seek advice from the court in the exercise of the advisory jurisdiction (in equity or under statute) before continuing with the defence of proceedings: In re Beddoe; Downes v Cottam [1893] 1 Ch 547. Liquidators and bankruptcy trustees may also seek advice from the court. Although there do not appear to be cases where this has occurred, it may be that a personal representative could, in appropriate circumstances, seek judicial advice as to whether to defend the proceeding or that provision could be made in that regard in the order appointing the personal representative. 618 In the present case, the claims brought by the finance companies in the proceeding below involved an allegation that there was a scheme by which the arrangements made by the directors of the finance companies concerning the advances made and their tax treatment had a common character and origin. Other respondents below were alleged to have been liable on Barnes v Addy principles by reason of their knowledge of and involvement in the scheme. So, the factual foundation for the case brought against each of the respondents was broadly the same. 619 Gary had not actively sought out the role as personal representative. The issue concerning a personal representative for Emil arose at a case management hearing conducted by Besanko J on 30 January 2015. His Honour pointed out that the proceeding was irregular because it named Emil as first respondent rather than, for example, an executor or administrator of his estate. After that, Gary agreed to be named as the personal representative of Emil's estate. He was not otherwise involved in the administration of the estate. 620 The reasons of the primary judge in ordering Gary to personally pay the costs of the claim against Emil's estate rested upon Gary's consent to act as personal representative, his access to the evidence against Emil and the absence of any case law to support the contention that, generally speaking, a person who has consented to represent a deceased person's estate should not bear the costs of an unsuccessful defence. 621 In seeking to uphold the costs orders made against Gary personally in respect of the unsuccessful defence of claims against Emil, the finance companies did not seek to demonstrate with any particularity how it was said that Gary's actions had been unreasonable in all the circumstances. Rather, they emphasised the discretionary character of the decision to make a particular costs order. Then they stated in general terms that: (a) Gary actively defended the proceedings against Emil; (b) he gave no evidence as to his motivation in consenting to act as personal representative; and (c) the evidence against Emil was available to Gary. They also said that he could have entered a submitting appearance at any stage of the proceedings. 622 In our respectful view, her Honour failed to have regard to certain relevant circumstances, in particular that: Gary had agreed to act as the representative of Emil's estate to overcome a procedural irregularity in the proceeding against the first respondent and thus to assist the orderly conduct of the proceeding; and Gary as representative defended proceedings brought by the finance companies - he was not a plaintiff. Further, it was not suggested that Gary had acted unreasonably in defending the claims against Emil's estate: cf Cuthbertson at [8]. Once regard is had to these matters, in our view, the appropriate costs order was that the costs payable by the first respondent below be limited to the assets of Emil's estate. We consider that her Honour erred in not so ordering. For the same reasons, we consider that her Honour erred in ordering set-off as between the relevant costs orders. The costs orders should be adjusted accordingly. 623 It remains to deal with a number of subsidiary issues raised by Gary's costs appeal. Gary contends that, by reason of the operation of r 9.05(3) of the Federal Court Rules, Gary could not be made liable for costs before the date of his joinder. In light of the approach we have taken, namely limiting the costs orders against the first respondent to the assets of the estate, this point falls away. 624 Gary contends that BCI and EGL did not seek any orders that the respondents' liability for costs should be on a joint and several basis. It may be that in light of the approach we have taken regarding the costs orders against the first respondent, this point largely falls away. In any event, it is not unusual to order that the costs liability of several respondents be joint and several, and we see no error in the primary judge's decision that this was appropriate in the circumstances of this case. 625 Gary submits that the primary judge erred in ordering that the first respondent (and certain other respondents) pay BCI's and EGL's costs of their failed actions against Margaret (as third respondent) and Gary (as fifth respondent). In response to this contention, counsel for the finance companies submitted that the costs incurred by BCI and EGL in their failed claims against the third respondent and the fifth respondent would not be allowed on a taxation (T374). Thus, there is no substantive issue between the parties that the costs payable to BCI and EGL under paragraphs 5 and 6 of the 15 December 2017 orders are not intended to include the costs incurred by BCI and EGL in their failed claims against the third and fifth respondents below. We do not consider it necessary to vary the orders to state this; we think it sufficient for this concession to be recorded in these reasons. 626 Gary challenges the orders that the first respondent below pay the costs of the winding up of BCI and EGL (paragraphs 1 and 2 of the 15 December 2017 orders). We accept the submissions of BCI and EGL that these orders are of a similar nature to the money judgments entered against the first respondent below, namely they are in substance another form of loss suffered by BCI and EGL and form part of the equitable compensation awarded against the directors who breached their fiduciary duties. It follows from this that paragraphs 1 and 2 of the orders dated 15 December 2017 are enforceable only against the estate of Emil and not against Gary personally. We do not consider it necessary to adjust the wording of the orders as this is sufficiently clear. 627 In summary, we conclude that the primary judge erred in not limiting the costs orders against the first respondent below to the assets of Emil's estate, and in providing for the relevant costs orders to be set off against each other. The costs orders should be adjusted accordingly.

[105]

CONCLUSION 628 For the above reasons, in the Liquidators' appeal (proceeding No NSD2109/2016), the appeal (insofar as it relates to Gary) is to be dismissed. (The part of the appeal that relates to Margaret has already been dealt with in orders that were made to give effect to the parties' settlement.) There is no apparent reason why costs should not follow the event. Accordingly, we will also order that the finance companies pay Gary's costs of the appeal. 629 In Gary's costs appeal (proceeding No NSD188/2018), we will make orders as set out below. There is no apparent reason why costs should not follow the event in relation to the appeal. Accordingly, these orders include an order that BCI and EGL pay Gary's costs of the appeal. In case there are any issues concerning the form of the orders, we will reserve liberty to apply within a short period for any such matter to be raised. The orders we will make are as follows:

The appeal be allowed.
Subject to paragraph 4 below, paragraphs 5, 6 and 10 of the costs orders made by the primary judge on 15 December 2017 be set aside and in lieu thereof it be ordered that: 5. Each of the first, second, fourth, sixth, seventh, eighth, ninth and tenth respondents pay the first applicant's costs on the ordinary basis, as agreed or taxed, with such liability to be joint and several, and with the liability of the first respondent limited to the assets of the estate of the late Emil Binetter. 6. Each of the first, second, fourth, sixth, seventh, eighth, ninth and tenth respondents pay the second applicant's costs on the ordinary basis, as agreed or taxed, with such liability to be joint and several, and with the liability of the first respondent limited to the assets of the estate of the late Emil Binetter. 10. The first and second applicants pay the costs of the fifth respondent on the ordinary basis, as agreed or taxed.
Subject to paragraph 4 below, the respondents pay the appellant's costs of the appeal, as agreed or taxed.
There be liberty to apply within seven days if any party wishes to raise a matter regarding the form of these orders. I certify that the preceding six hundred and twenty-nine (629) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop and Justices Moshinsky and Colvin.

BCI Finances Pty Limited (in liq) v Binetter

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Judgment (105 paragraphs)

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Legislation Cited (6)

Cases Cited (22)

Cited By (14)