The Plaintiffs' Prima Facie Case
94 When the plaintiffs' ex parte application for leave to serve the Originating Process on IDB in Israel was before me, the plaintiffs relied (inter alia) upon the affidavit of John Sheahan affirmed on 24 May 2016. There were voluminous exhibits to that affidavit. Those exhibits included most of the Tender Bundle documents tendered by the plaintiffs at the trial before Gleeson J of proceeding SAD5 of 2015 (SAD5). That trial took place in August and September 2015. Justice Gleeson delivered judgment in that matter (BCI Finances Pty Ltd (In Liq) v Binetter (No 4) (2016) 348 ALR 227 (BCI Finances (No 4))) on 18 November 2016.
95 Instead of formally tendering all of that material, the plaintiffs relied upon a "mini bundle" of documents or "supplementary tender bundle" (STB).
96 This approach was adopted in order to avoid unnecessarily burdening the Court with documentary tenders.
97 At the hearing before me, on 29 September 2017, the plaintiffs adopted the same approach. IDB did not object to this course.
98 The STB was tendered in evidence before me on 29 September 2017. It became Exhibit A.
99 Exhibit A was largely, if not entirely, directed to the role played by IDB in this saga. It was not intended to address the position of the delinquent directors (Erwin, Andrew and Michael Binetter) to any degree. It is fair to say that, on 29 September 2017, and indeed at the second hearing on 12 November 2019, the parties proceeded upon the basis that the plaintiffs had at least a prima facie case against those directors and their associated corporate entities who were the first to tenth defendants in this proceeding. The hearings before me were conducted upon the basis that, for present purposes, the plaintiffs did not need to prove that case. In particular, at Transcript 29/09/17, p 7 ll 15-28, the following exchange took place:
HIS HONOUR: Do you accept that there's enough evidence here to a requisite prima facie level to establish the liability of the principal actors in the so-called fraudulent and dishonest design?
MR CLELLAND: Can we put it slightly differently and say that we don't want to be heard to argue that there isn't.
HIS HONOUR: All right. So you're concentrating very much on the position of your own client - - -
MR CLELLAND: Yes.
HIS HONOUR: - - - and on the absence of enough evidence to justify the case put against your client.
See also the observations which I made at Transcript 29/09/17, p 27 ll 5-10.
100 The prima facie case requirement does not call for a substantial enquiry. It is sufficiently satisfied if, on the material before the Court, inferences are open which, if translated into findings of fact, would support the relief claimed (Ho v Akai Pty Ltd (In Liq) (2006) 247 FCR 205 (Ho) at 208 [10] per Finn, Weinberg and Rares JJ).
101 To recap, before they were wound up, the corporate plaintiffs were under the control of their directors, Erwin, Andrew and Michael Binetter. The plaintiffs allege that the directors of each of the corporate plaintiffs breached the duties owed to them by involving and continuing to involve the plaintiffs in a scheme or schemes implemented to assist persons within, and entities connected with, the Binetter family in evading Australian tax. Involving the plaintiffs in that scheme or schemes provided no benefit to the plaintiffs, while exposing them to the risk of unfavourable tax assessments.
102 The scheme or schemes involved using the IDB Banking Service in order to bring substantial funds into Australia styled as loans to the plaintiffs, while at the same time concealing from the Commissioner the existence of offshore funds held in accounts with IDB for the purposes of evading Australian tax.
103 SAD5 was a proceeding brought by the corporate plaintiffs and BCI against members of the Binetter family and a number of their associated corporate entities. That is to say the plaintiffs in SAD5 were the same corporations as comprise the first three plaintiffs in this proceeding together with BCI. The subject matter of that proceeding was essentially the same subject matter as this proceeding. The scheme described in the pleadings in this proceeding is the same scheme as the scheme relied upon in SAD5. The tax assessments resulting from the fraudulent conduct of the Binetters referred to in this proceeding are the same tax assessments as were in play in SAD5. In truth, the only difference between the two sets of proceedings is the identity of the defendants. For this reason, observations made by Gleeson J in Binetter (No 4) are relevant to the present application. Although that judgment was the subject of an appeal, the settlement was agreed before the Full Court had delivered judgment in that appeal. The settlement resolved all matters under consideration in the appeal with the exception of the appeal concerning the position of Gary Binetter. For that reason, it was necessary for the Full Court to deliver a judgment dealing with that part of the appeal concerning Gary Binetter (BCI Finances Pty Ltd (In Liq) v Binetter (2018) 362 ALR 597 (BCI Finances v Binetter, FC). That Full Court judgment did not interfere with the findings and orders made by Gleeson J in Binetter (No 4). The appeal involving Gary Binetter was dismissed and the orders made by Gleeson J against the other parties in SAD5 remained in full force and effect after the settlement was agreed.
104 At 236-237 [1]-[8] and at 254-256 [146]-[153] in Binetter (No 4), Gleeson J described the relevant scheme or schemes which were undertaken by the delinquent directors of the corporate plaintiffs and BCI and expressed her conclusions about that scheme or schemes. At 254-256 [146]-[153], her Honour said:
Summary of conclusions about the alleged scheme
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.
In particular, the scheme, as initially implemented, involved:
(1) "back-to-back" arrangements by which funds, in the control of Erwin and Emil Binetter, deposited outside of Australia ("offshore deposits") were used as security for advances of funds by the Israeli banks to the various applicants;
(2) providing funds obtained pursuant to the "back-to-back" arrangements to various of the corporate respondents to assist in their business activities in Australia;
(3) documenting the arrangements between the applicants and the Israeli banks so as to permit the applicants, if required, dishonestly to produce documents purportedly evidencing the arrangements but which did not disclose the offshore deposits;
(4) lodging income tax returns on behalf of EGL and BCI which would declare no, or no significant, taxable income, because any income disclosed would be offset by substantially equivalent amounts claimed to be deductible expenses and generally (but not always) referable to payments to the Israeli banks, described in contemporaneous records as payments of interest to the Israeli banks.
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.
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.
Following from the conclusion that the scheme involved documenting the transaction in a manner which would not reveal the existence of the offshore deposits, I find that those who arranged the documentation intended to conceal the existence of the offshore deposits and any income earned from the deposits, principally by seeking to ensure that the applicants' records would create the false impression that the terms of the transactions were not affected by the deposits.
Based on the elements of the scheme, I find that its purposes, and the purposes of those respondents who participated in it, included the following:
(1) to allow various of the respondents to have the benefit in Australia of the funds comprising the offshore deposits, without transferring those funds to Australia;
(2) to interpose the applicants between various of the respondents and the Israeli banks;
(3) to arrange a situation whereby each of the applicants treated transfers of funds from the Israeli banks as loan funds and the applicants and various of the respondents claimed, as deductible interest expenses, amounts said to be liabilities to the Israeli banks, on the basis of documentation which, if produced by an applicant to the ATO, would enable the applicant to conceal dishonestly important aspects of the transactions with the Israeli banks (particularly, the existence of the offshore deposits and the recipient or recipients of interest paid on the offshore funds, but also the true quantum of payments made to the banks in consideration of their respective participations in the arrangements); and
(4) to thereby evade liability to pay income tax to the Commissioner or to assist others to evade their tax liabilities.
As for the results of the scheme, I find that they included the following:
(1) the applicants claimed deductions for overseas interest expenses in each of their income tax returns for the income years in respect of which the Commissioner ultimately issued the revised assessments;
(2) each of the applicants was exposed to a risk that, in the event of a tax audit, the Commissioner would issue them with revised assessments which disallowed the interest expenses claimed as deductible expenses (and which treated as assessable income certain amounts received by the applicants from the Israeli banks), because the applicants would not produce documents and provide information to explain the totality of the relevant transactions and, therefore, would not substantiate the claimed deductions;
(3) each of the applicants was exposed to a risk of that, in the event of a tax audit, the Commissioner would impose penalties and issue assessments requiring payment of interest on primary tax liabilities (including general interest charge and shortfall interest charge), because the documents and information supplied to support the interest expenses would not explain the totality of the relevant transactions and would cause ATO officers to strongly suspect, as was the case, that the advances from the Israeli bank were the subject of a security by way of a back-to-back deposit which may affect the correct tax treatment of both the advances and the claimed interest expenses; and
(4) various of the respondents, in implementing the scheme, acted so as to benefit various of the respondents to the detriment of the applicants.
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 applicant companies. Such detriments would include liabilities to pay income tax for which the relevant applicant 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.
See also BCI Finances v Binetter, FC at 603-605 [12]-[21].
105 In the detailed respects which I have discussed at [24]-[40] above, the plaintiffs allege that IDB knowingly assisted the delinquent directors in the breaches of the fiduciary obligations owed by those directors to each of the plaintiffs more particularly described in the pleadings and was knowingly involved in the breaches of s 181(1) and s 182(1) of the Corps Act relied upon by Binqld against its directors more particularly described in the pleadings.
106 The plaintiffs' claims in proceeding SAD 5 of 2015 are substantially the same as the claims made by them in this proceeding. The main difference between the two sets of claims is that the defendants in proceeding SAD 5 of 2015 are different entities from the defendants in this proceeding.
107 In an earlier judgment delivered by me in this proceeding on 31 July 2019 (Binqld Finances Pty Ltd (In Liq) v Israel Discount Bank Limited; In the Matter of Binqld Finances Pty Ltd (In Liq) [2019] FCA 1186), at [39]-[42], I said:
At the hearing before me on 11 February 2019, the following exchange took place between Counsel for the plaintiffs and me at Transcript p 4 l 1-p 5 l 28:
HIS HONOUR: How do you put your damages claim?
MR ARNOTT: The damages claim is put by reference to the tax liabilities that each of the plaintiffs have suffered. Now, in relation to our primary case accessorial liability claim, it's on the basis that none of those losses will have been suffered, and then for the 37A claim, your Honour will see - - -
HIS HONOUR: Yes. But what's the quantum? Is it the entirety of what was claimed when I granted you ex parte leave to serve out or is it something else?
MR ARNOTT: It's all of the losses which haven't yet been recovered. So since your Honour - - -
HIS HONOUR: Well, I know that.
MR ARNOTT: Yes.
HIS HONOUR: All right. I will ask you this question then. Is it what you had as a claim before less what you got on the settlement?
MR ARNOTT: Yes, your Honour.
HIS HONOUR: All right. Well, that's an entirely different case, isn't it?
MR ARNOTT: It's not, your Honour. No. It's not. It's for a lower amount of damages but it's still for a significant sum of money.
HIS HONOUR: Do you accept that you bear the onus of proving what that damages quantum is?
MR ARNOTT: Yes.
HIS HONOUR: So you have to tender the settlement deed, do you?
MR ARNOTT: Yes. Or prove it through other means. So we might be - the other way of doing it, your Honour, which I discussed with Dr Bell last year, was that we would give him enough - - -
HIS HONOUR: You can't discuss it with him now, can you?
MR ARNOTT: Well, I can except he would probably shut the door in my face.
HIS HONOUR: I'm surprised he didn't do it then.
MR ARNOTT: Your Honour, what I had said to Dr Bell we could do - and this continues to be the position - is that obviously, at some point, the liquidators are going to have to put on an affidavit which explains precisely what recoveries have been made. Now, that includes from Bank Hapoalim and that includes the money which has come from the Binetters, and then to show her that has all flown through, and part of the settlement deed involves us taking control of particular pieces of real property and then disposing of those, so we're going to have to explain how that process has occurred - what was realised from all of that. So that will, absolutely, your Honour, have to be part of our evidence, and so that's why I can't tell your Honour to the dollar yet - because, at the moment, we're still realising the benefits of the - - -
HIS HONOUR: I'm not asking you to tell me to the dollar.
MR ARNOTT: No.
HIS HONOUR: I'm really just probing the issue of onus of proof - - -
MR ARNOTT: Sure.
HIS HONOUR: - - - and you seem, from what you've just said to me, to accept that you bear the onus of proving the quantum - - -
MR ARNOTT: Yes.
HIS HONOUR: - - - which, in this particular case, requires you to prove what other recoveries you have made.
MR ARNOTT: Absolutely.
HIS HONOUR: All right.
While Counsel accepted that the damages or compensation (called hereafter "damages") claimed by the plaintiffs in SAD 5 of 2015 in respect of the losses suffered by them as a result of the breaches of duty alleged against their directors in that proceeding are substantially the same damages as are claimed by the plaintiffs in this proceeding in respect of the same losses, he demurred from the proposition that the damages claimed by different corporations in proceeding NSD 2171 of 2016, which is a further but separate set of proceedings involving members of the Binetter family and corporations associated with them, and the present liquidators, were the same damages as are claimed by the plaintiffs in this proceeding. Proceeding NSD 2171 of 2016 is still on foot and is presently in the docket of Lee J. For present purposes, I intend to proceed upon the basis that no account need be taken in the calculation of damages in this proceeding of any recoveries that might ultimately be made in proceeding NSD 2171 of 2016.
Three important concessions were made by Counsel for the plaintiffs in the exchange which I have extracted at [39] above. First, Counsel accepted that the plaintiffs bear the ultimate onus of proving their damages claim. Second, he accepted that the damages claimed in this proceeding are the same damages as were claimed in proceeding SAD 5 of 2015 in respect of the same losses alleged in that proceeding. That is, the losses underpinning both damages claims are the same. The only point of difference is that the entities against whom those claims were made in SAD 5 of 2015 differ from the defendants in this proceeding. Third, Counsel conceded that, when due regard is had to the above propositions, it is clear that, in order to prove their damages claim in this proceeding, the plaintiffs must prove not only the quantum of compensation to which they are prima facie entitled for the losses which they contend they have suffered at the hands of IDB but they must also prove the value of the settlement to them which must then be deducted from the amount of their prima facie entitlement. In order to discharge that onus, the plaintiffs will be obliged to tender the Settlement Deed and all relevant settlement documentation in respect of the settlement or prove the terms of the settlement in some other acceptable way. They will also be required to explain and prove by admissible evidence the way in which the settlement will have been worked through and ultimately consummated. I note that Counsel also accepted that the plaintiffs had to bring to account in the calculation of their damages in this proceeding any amounts recovered from Bank Hapoalim B.M. and Bank Hapoalim (Switzerland) Limited.
In my judgment, the above concessions were appropriately made and reflected a correct understanding of the relationship between the damages claim being made by the plaintiffs in this proceeding and the damages claim made in proceeding SAD 5 of 2015 and the impact of the settlement on those claims.
108 The matters of which IDB is alleged to have knowledge are set out in par 124 of the 4FASOC and the equivalent paragraphs later appearing in that pleading in respect of Ligon 268 and EGL.
109 In the pleading, the plaintiffs also rely upon constructive knowledge and imputed knowledge (as to which, see pars 124A and 124B of the 4FASOC).
110 In its Written Submissions dated 8 September 2017, after referring to Ho, IDB made detailed submissions in support of the proposition that all of the alleged assistance relied upon by the plaintiffs took place in, and from, Israel. It then submitted that the "knowing assistance" claims are governed by the law of Israel as the lex loci delicti. Next, IDB submitted that the law of Israel required that the person charged with knowingly assisting the breaches of duty relied upon must be shown to have had actual knowledge of the dishonest and fraudulent design. In this case, what must be shown is that IDB had knowledge of the scheme and the purposes for which it was created.
111 IDB went on to submit that the plaintiffs had failed to demonstrate a prima facie case under Australian law (if Australian law applied to the knowing assistance claims) essentially because the pleading then before the Court did not satisfy the relevant pleading rules. Of course, as I have said, IDB's primary contention was that the law of Israel governed the knowing assistance claims.
112 Those submissions were made before Exhibit A was available and before it was tendered in evidence.
113 In support of its contention that the law of Israel required actual knowledge of the relevant matters, IDB gave notice that it proposed to read and rely upon the expert report of Professor Israel Gilead who was, at the time, a Law Professor at the Academic Center of Law and Sciences in Israel.
114 On 26 September 2017, my Associate received an email from IDB's former solicitors, King & Wood Mallesons, in which the following was said:
1. The Plaintiffs concede, only for the purposes of the interlocutory application being heard this Friday, that they have no prima facie case under Israeli law unless they could prove that [the defendant] had actual knowledge that its conduct assisted the directors of the Plaintiffs in breaching the directors' duties owed to the Plaintiffs.
2. For an abundance of clarity, the parties agree that the above concession will not bind the Plaintiffs for any other purpose, including any future application or hearing. The Plaintiffs reserve their rights with respect to any arguments they may advance on any future application or at any future hearing in these proceedings.
115 In light of the agreement apparently reached between the parties to the effect that the law of Israel required actual knowledge of the dishonest and fraudulent design, at the hearing before me on 29 September 2017, IDB did not read or rely upon the expert report of Professor Gilead. Notwithstanding that agreement, the parties remained at issue as to whether the law of Australia (the lex fori) or the law of Israel (the lex loci delicti) governed the knowing assistance claims against IDB.
116 It is fair to say that the preponderance of authority tends to favour the lex fori as the governing law. There are many good reasons for this. However, careful consideration of the relevant authorities demonstrated that there may be some force in the proposition that, if the source of the relevant fiduciary obligation is a foreign contract, the law which should govern the fiduciary obligation and thus any ancillary claims based upon knowing assistance of a breach of that obligation, should be governed by the law which governs that contract.
117 For the reasons which follow, I do not think that I need to resolve this interesting academic question. The primary case sought to be made by the plaintiffs against IDB is one of actual knowledge. Indeed, the Binqld Corps Act claim against IDB requires proof of actual knowledge. In my view, the material in Exhibit A is sufficient to found the necessary inferences of actual knowledge in the circumstances of the present case.
118 I now turn to briefly address the contents of Exhibit A.
119 Tab 1 of Exhibit A contains a number of IDB forms setting out general conditions under which banking might be undertaken with IDB. Those documents are all dated 1998. The document which appears at Folio 5/2260 is an application to effect banking operations as per telephone instructions. This document concerns Ligon 268. The next folio in Tab 1 is Folio 5/2261 which is an application by Ligon 268 to open a foreign currency account with IDB. The next folio is Folio 5/2262 which is an application for banking business to be conducted on facsimile instructions.
120 Tab 2 in Exhibit A comprises an application by EGL for a foreign currency loan.
121 These documents were all described by Counsel for the plaintiffs as "clean" documents by which I understood him to mean that there was nothing in those documents that revealed the existence of the deposit accounts.
122 The document in Tab 3 is a Framework Instrument document for the creation of an approved deposit for the grant of loans in foreign currency. The borrower was a Binetter company called Civic. The document is dated 19 March 2004. Included within Tab 3 is a pro forma letter prepared by one of the individual Binetters which was then to be retyped on IDB letterhead and sent to Civic. The text of the letter makes clear that it would be Civic which would determine the interest rate on the so-called loans rather than IDB.
123 The borrowing company would also nominate the amount of the loan.
124 As submitted by Counsel on behalf of the plaintiffs, cl 2.4 in the Framework Agreement in Tab 3 allows the Binetters to place a sum of money nominated by them into a bank account with IDB. That is the account referred to in the literature as "the deposit account". Then, a Binetter representative would send the pro forma letter setting out the details of a loan to be made to one of the Binetter companies by IDB. Those letters contained the amount of the loan, the term of the loan and the interest rate. All of these matters were determined by the Binetters, not by IDB. As submitted by Counsel for the plaintiffs, the documents dealing with the loans made no reference to the back to back deposit accounts. Counsel for the plaintiffs submitted that the Court should infer that, by its conduct in agreeing to deal with the Binetters in this fashion, IDB, through its officers and employees, was well aware that these arrangements were being used to manufacture unjustified interest deductions for tax purposes back in Australia.
125 The bank statements in Tab 4 support the proposition that IDB had a regular business in providing banking services to foreign residents, including in Australia.
126 Tab 5 contains a letter from the Australian Taxation Office to Andrew Binetter dated 18 December 2007 challenging the legitimacy of the loan arrangements entered into by the Binetter companies with IDB. Tab 6 contains a note of a meeting held on 19 December 2007 involving Andrew Binetter, Michael Binetter and a lawyer representing the Binetters. The note makes clear that the subject matter of that meeting was the letter received from the Australian Taxation Office the day before.
127 Tab 7 in Exhibit A contains a draft letter prepared by the Binetters' lawyer apparently intended to be sent to IDB for it to engross and return to that lawyer. That letter was in the following terms:
[## ON THE LETTERHEAD OF ISRAEL DISCOUNT BANK LIMITED##]
20 December 2007
Mr Mark Douglass Australian Taxation Office
MDA Lawyers
Level 12
111 Elizabeth Street
Sydney NSW 2000
By facsimile: 0011 612 9222 1220
Dear Mr Douglass
RE: ADVANCE FINANCE PTY LIMITED, CIVIC FINANCE PTY LIMITED AND EGL DEVELOPMENTS (CANBERRA) PTY LIMITED
Israel Discount Bank Limited provides this letter upon customers' request in connection with the above companies affairs.
Israel Discount Bank Limited ("the Bank") has held a long standing banking relationship with each of the companies named above. The Banks relationship was established through the personal relationship developed with the Binetter Family and, in particular, Mr Erwin Binetter and Mr Emil Binetter. The Banking relationship commenced in approximately [## to be insert ##].
The Bank has been involved in financing the various business operations of the two brothers for many years through formal loans with various companies through which they conduct business in Australia.
The loan funds have been advanced at various times on the Bank's prevailing commercial terms and either with or without security. However, all have been based upon personal guarantees secured by the Bank with Mr Erwin Binetter or Mr Emil Binetter.
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.
Yours faithfully,
There were handwritten notations on that letter.
128 It is quite clear that the letter was drafted so as to suggest that the only security for the loans made by IDB referred to in the letter were personal guarantees provided by one or more of the individual Binetters. This was clearly an endeavour to conceal from the Australian Taxation Office the existence of the deposit account and its back to back relationship with the loan accounts. The expectation on the part of Andrew and Michael Binetter was that IDB would provide to them a letter in these terms. I infer that IDB was prepared to do so notwithstanding that the letter makes no mention of the deposit accounts.
129 Tab 8 contains a letter dated 20 December 2007 from Andrew Binetter's lawyers to him containing a number of draft letters and other documents. The draft letters are letters which Mr Binetter's lawyer had drafted for various financial institutions in Israel (including IDB) with which the Binetters had dealings to send to the relevant corporate entities within the Binetter group. The covering letter contained the following statements:
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.
130 The draft letters prepared by Mr Binetter's lawyer and forwarded to him in late December 2007 went through a number of drafting changes during January 2008.
131 The material in Exhibit A does not include any copy letters sent by any of the Israeli banks in early 2008 to the relevant corporations along the lines of the draft letters prepared by Mr Binetter's lawyer in late 2007 and early 2008. However, at Tab 10 in Exhibit A there is a letter dated 2 March 2009 from IDB to EGL which is substantially in the form of the latest draft prepared the year before by Mr Binetter's lawyer. In the letter, IDB made the following statements:
IDB had provided loans to [EGL] in various amounts, over time (the "loans"). IDB had been informed that the loans from IDB to [EGL] had been used by [EGL] for granting loans for various business activities of entities associated, directly or indirectly, with one or both of Mr Erwin Binetter and Mr Emil Binetter.
The loans had been granted by IDB, upon commercial terms, according to IDB's decision at the relevant time. All loans had been supported by the personal guarantees obtained by IDB from Mr Erwin Binetter, Mr Emil Binetter and by the guarantees from Erma Nominees Pty Limited and Milgerd Nominees Pty Limited.
132 The letter went on to emphasise that it was the personal guarantees of the two older Binetter gentlemen that the bank regarded as the valuable security taken by it.
133 The letter is utterly misleading. It conspicuously fails to mention the deposit accounts. In my view, it is a very strong indication that IDB was well aware of the integers of the scheme being implemented by the Binetters and was well aware that its purpose and rationale was to avoid tax in Australia. In my view, this letter is a particularly sound basis for inferring that IDB knew that the delinquent directors were conducting the affairs of the corporate plaintiffs in a fashion which was designed to avoid Australian tax and that, in so doing, those directors were breaching their duties as directors of those plaintiffs.
134 At the conclusion of his oral submissions on the question of prima facie case made on 29 September 2017, at Transcript 29/09/17 p 50 l 31-p 51 l 7, Counsel made the following submissions:
MR ARNOTT: Now, the material that we put in this small tender bundle, your Honour, we say, supports findings that we have a prima facie case that IDB created a banking service and supplied it to foreign residents. IDB had structured the service so that it could be operated from other places, in this case, from Australia, by either telephone or by fax. The amounts the subject of the accounts, although held in Israel, were in Australian dollars and, relevantly to how the structure was designed, in foreign currency.
IDB created pro forma documentation which could be filled in by the customer of the service that gave the appearance that funds coming, in this case, into Australia were secured only by guarantees given by the persons the subject of the loan, in this case, the Binetters. In fact, the banking service that was in place had the deposit account/lending account structure, which is evidenced by the documents behind tab 3. The benefit that IDB derived from providing the service was the margin between the deposit and the loan accounts, as I've shown to your Honour.
What those amounts were, in terms of quantum, were directed by the customer, and it appears from the evidence that IDB provided a service to this effect from around 1987 up to 2012. During that time, it received instructions from the Binetters, who were all based in Australia at that time. During that time, it transferred various sums of money to Australia from time to time, as evidenced in the transactions behind tab 17, and received money back from Australia, again, in that period of time, denominated always in Australian dollars.
135 Those submissions constitute a fair summary of the essence of the scheme.
136 At the hearing before me on 12 November 2019, in circumstances which I do not need to detail presently but which are revealed at Transcript 12/11/19 p 9 l 43-p 17 l 31, IDB read and relied upon two affidavits affirmed by Professor David Hahn who was Professor of Law in the Faculty of Law at the Bar-Llan University in Israel. Those affidavits had been prepared on behalf of the plaintiffs in order to meet the evidence of Professor Gilead which IDB had informed the plaintiffs it intended to read and rely upon at the hearing before me on 12 November 2019. Having read and relied upon the evidence of Professor Hahn (that is, the evidence prepared and filed by the plaintiffs, not IDB), IDB then sought to read and rely upon the evidence of Professor Gilead.
137 In light of these rather strange events, I determined that the plaintiffs should be released from the concession which they had notified to the Court on 26 September 2017 (as to which, see [114] above) because it would be unfair to hold them to that concession. That leave was exercised and that concession was withdrawn. For reasons which are apparent from a reading of the transcript, I then rejected IDB's late application to read the affidavit of Professor Gilead.
138 The upshot of these manoeuvres was that the evidence of Professor Hahn was tendered before the Court. Professor Hahn was not cross-examined. No evidence contradicting his evidence was tendered.
139 Professor Hahn explained in his reports that there are several causes of action under Israeli law that may be regarded as the Israeli analogues to the Australian "knowing assistance" in a fraudulent and dishonest design cause of action, and that, at a minimum, the relevant knowledge for these causes of action can be established by showing that the defendant "shut its eyes" to the relevant matter. Even constructive knowledge suffices if the plaintiff sues on the tort of causing or inducing a breach of contract. Accordingly, it was submitted on behalf of the plaintiffs that, if I should decide that it is necessary for me to determine the content of Israeli law relevant to the knowing assistance causes of action, then I should find that the relevant knowledge required under the Israeli analogue to the knowing assistance claims does not require actual knowledge in the sense of the first category set out in Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 (Farah) at 163 [174] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ. Rather, as submitted by the plaintiffs, the first three, and possibly any, of the Farah categories will suffice. Professor Hahn also explained that there was a relatively low threshold under Israeli law for concluding that a person has shut his or her eyes to the relevant matter. This is why I took the view that it was not necessary to decide whether the lex fori (Australian law) or the lex loci delicti (Israeli law) applied to the knowing assistance claims. To all intents and purposes, the substantive law of Australia and the analogous substantive law of Israel are the same.
140 For all of the above reasons, I am satisfied that the plaintiffs have established a sufficient prima facie case in respect of their knowing assistance claims and in respect of Binqld's Corps Act claims.
141 Rule 10.43(4)(c) requires that the party have a prima facie case for some of the relief claimed in the proceeding. For this reason, in light of my conclusions in respect of the knowing assistance claims, I do not think it is necessary for any of the plaintiffs to establish a prima facie case in respect of their s 37A claims.
142 IDB made detailed submissions in support of the proposition that r 10.43 FCR requires that each plaintiff establish that its claim is of a kind mentioned in r 10.42 and that each plaintiff establish that it has a prima facie case to at least some of the relief claimed in the proceeding. The submissions to this effect were developed in some detail in IDB's Written Submission dated 20 September 2019 at pars 23 to 33.
143 The first step in IDB's argument was that the claims by each of the individual corporate plaintiffs should be regarded as a separate proceeding for the purpose of r 10.43 FCR. I do not think that this is correct. The "proceeding" referred to in r 10.43(4) is the proceeding commenced by the Originating Application service of which is being sought under r 10.43 FCR. In this case, the "proceeding" is this entire proceeding as originally constructed. That proceeding includes the separate claims maintained by each of the corporate plaintiffs.
144 As I have observed earlier in these Reasons, this proceeding was regularly commenced by invoking r 9.02 FCR and, in the absence of some application challenging the propriety of that course, should be regarded as the one proceeding.
145 That being so, IDB's argument fails at the outset. I reject that argument.