The Reasons of the primary judge
22 The primary judge set out the applicable principles regarding the prima facie case requirement in r 10.43(4)(c) of the Federal Court Rules at [8]-[12] of the Reasons, referring to cases including Morris v McConaghy Australia Pty Ltd [2018] FCA 435 at [29]-[30] per Rares J; Australian Competition and Consumer Commission v Yellow Page Marketing BV [2010] FCA 1218 at [25] per Gordon J; and Australian Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd (No 6) (2010) 270 ALR 504 at [8] per Bennett J. In Morris, Rares J quoted from the judgment of the Full Court of this Court in Ho v Akai Pty Ltd (in liq) (2006) 247 FCR 205 (Ho v Akai) at [10], where the Full Court said that "a prima facie case for relief is made out if, on the material before the court, inferences are open which, if translated into findings of fact, would support the relief claimed". It was sufficient for the plaintiffs to establish a prima facie case in relation to either the Conveyancing Act claim or the Corporations Act claim: Reasons at [12], citing Bell Group Ltd (in liq) v Westpac Banking Corporation (1996) 20 ACSR 760; Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (1995) 58 FCR 365 (Cell Tech) at 373.
23 After describing the background to the interlocutory application, the primary judge discussed the inferences available from the relevant material at [26]-[38] of the Reasons. As the primary judge explained at [26], for the purposes of the interlocutory application, the following matters were in contest: the proper characterisation of the conduct of Emil Binetter and Gary Binetter; the precise arrangements and characterisation of the arrangements the plaintiffs put in place with the Banks; and the conduct and knowledge of the Banks. The Banks contended before the primary judge that the plaintiffs' material fell short of establishing the plaintiffs' contentions as to these matters on a prima facie basis. It followed, the primary judge said, that the Court needed to engage initially in a process of determining what relevant inferences were available from the material in evidence on the interlocutory application.
24 The primary judge explained at [27] that the proposed documentary tender by the plaintiffs had been refined, and that the refined documentary tender became Exhibit A. The primary judge then dealt with the available inferences. The primary judge stated at [28]-[29]:
28 In accordance with the authorities identified at [9] and [10] above, I have broadly examined and reviewed the material in Exhibit A, and for reasons I will explain, I am satisfied that inferences are available to be drawn from that material that:
(a) arrangements were implemented, which involved Emil Binetter and Gary Binetter putting in place 'back-to-back' agreements by which funds, under their control, were deposited in Israel, with those funds being used as security for advances of funds by the Banks to the plaintiffs;
(b) more specifically, the Banks created a deposit account and one or more borrowing accounts; funds were placed in the deposit account, and then the Banks permitted advances to be drawn on the borrowing account, which were styled as loans, provided that the total outstanding advances did not exceed the total amount in the deposit account: that is, the deposit account was back-to-back with the borrowing account and the Banks paid interest on the positive difference between the balances of each account and charged a margin on any funds received into the borrowing accounts;
(c) the purpose of the structure was that it created a patina of a regular loan, unconnected to any deposit account whereas, in reality, all the transactions depended on there being a surplus in the deposit account;
(d) these back-to-back arrangements allowed the plaintiffs to have the benefit, in Australia, of funds transferred to each of the plaintiffs by each of the Banks and allowed each of the plaintiffs to treat the transfers of funds from each of the Banks as loan funds;
(e) it also allowed income tax returns to be lodged on behalf of the plaintiffs which declared no taxable income, because any income disclosed would be offset by deductible interest expense amounts said to be liabilities to the Banks.
29 These inferences are to be drawn in circumstances where it is difficult to conceive readily of another commercial purpose for the unusual arrangements disclosed by the evidence. In the absence of other evidence or explanation, the inference is available that the arrangements evinced an intention by those then controlling Advance and Civic to conceal or dissemble the existence of the deposits for the purposes of evading tax. This concealment by those controlling Advance and Civic took place, in effect, by creating the false impression that the terms of the relevant transactions were not affected by the deposits. In this regard, it is also open to infer that the arrangements between the plaintiffs and the Banks were documented in such a way so as to permit the plaintiffs, if necessary or expedient, to produce misleading documents purportedly evidencing the arrangements, but which did not disclose them sufficiently completely so as to reveal the existence of the deposits.
25 After referring to some of the evidence, the primary judge stated at [32] that, in the absence of any explanation by further evidence, it was open to infer that the omission by Advance and Civic in disclosing the true nature of the whole of the arrangements between the plaintiffs and the Banks was no accident and that "the Banks were willing to assist in arming Advance and Civic with documents which allowed those controlling Advance and Civic to create, by omission, a false impression".
26 The primary judge also stated at [38]:
In the absence of evidence on behalf of the Banks, and in the absence of any other evidence, it would be unsafe in the circumstances revealed by Exhibit A to treat any particular terms upon which any of the advances were made by the Banks at face value. Given the nature of the arrangements revealed in the evidence, and the apparent concerted efforts taken to conceal their true nature, I am not satisfied that I can, without evidence from the Banks or others, safely rely on any documents suggesting that the loans were for a proper purpose. It is notable a similar conclusion was drawn in not substantially dissimilar circumstances, albeit on the basis of different evidence and in the absence of evidence from the respondents by Gleeson J in BCI Finances at 257 [157].
27 The reference to the judgment of Gleeson J is to BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227. That judgment was subsequently substantially affirmed on appeal: BCI Finances Pty Ltd (in liq) v Binetter (2018) 362 ALR 597. That case involved different corporate entities associated with the Binetter family. Of course, as the primary judge clearly understood, the interlocutory application had to be determined on the basis of the evidence before the primary judge for the purposes of the interlocutory application.
28 The primary judge dealt with the Conveyancing Act claim at [40]-[65]. In relation to this claim, the case made by the plaintiffs is that by paying principal and interest to the Banks with the alleged purpose of avoiding tax, the main purpose of each of Emil Binetter and Gary Binetter was to prevent the amounts paid from becoming divisible among the plaintiffs' creditors or to hinder or delay the process of making those amounts available for division among the plaintiffs' creditors: see the statement of claim at 44.5 and 73.5. It is further asserted that each of Emil Binetter and Gary Binetter knew, and it was their intention, that by making the relevant payments, the plaintiffs would be unable to pay all of their creditors and meet existing and future likely taxation liabilities: see the statement of claim at [60] and [89]; and at the time of making the above payments, the plaintiffs were, or were about to become, insolvent: see the statement of claim at [61] and [90].
29 As put in their submissions below, the plaintiffs assert that the application of s 37A of the Conveyancing Act in the present circumstances follows by reference to the following logical sequence:
(a) in 2005 there was a prospective creditor, namely the DCT, for taxation liabilities that would ultimately become due and payable in March 2011 (when Advance and Civic were reinstated);
(b) payments by Advance to MDB and by Civic to IDB, in June 2005, removed all funds (effectively all assets) available to Advance and Civic from the jurisdiction;
(c) after these payments in June 2005, neither Advance nor Civic was left with any funds at all with which to pay their prospective taxation liabilities to the DCT;
(d) the effect of these June 2005 payments was to delay or hinder a creditor (it is said it will be a question of fact at any hearing to ascertain whether earlier payments in the period 2000 to 2004 had the same effect);
(e) it can be inferred from the above that the payments made in June 2005 by Advance and Civic were made with intent to defraud creditors; and
(f) (although, it is said not to be relevant to prove in the plaintiffs' case in chief), the Banks are not purchasers in good faith without notice of intent to defraud within the meaning of s 37A(3) of the Conveyancing Act.
30 The Banks' submissions before the primary judge were, in summary, that: s 37A does not apply to the repayments of principal and interest on a loan and that the plaintiffs had not established, on a prima facie basis, that there were alienations of property with intent to defraud; and the plaintiffs had failed to demonstrate, on a prima facie basis, that the Banks were not acting in good faith as they had, at the time of the alienation, no notice of the intent to defraud creditors. The primary judge set out the applicable law in relation to s 37A of the Conveyancing Act and then considered each of these submissions in turn.
31 In relation to the first submission (concerning alienations of property with intent to defraud), the primary judge reasoned as follows:
56 As I have already explained, there is ample material in Exhibit A, and inferences are open from that material which, if translated into findings of fact, would support the plaintiffs' contentions that payments by Advance to MDB and by Civic to IDB in June 2005 removed all funds from Australia and after the payments, neither Advance nor Civic had funds to pay any prospective tax liabilities, with the effect that those payments delayed or hindered the DCT (a prospective creditor) and hence, it can be inferred, the payments made were made with intent to defraud a prospective creditor.
57 The Banks' contentions in their supplementary written submissions that the evidence is only capable of supporting an inference that IDB and MDB are banks which loaned funds to the plaintiffs and that "on the available evidence", the purpose of the loans was "for business purpose" and there is "no evidence" the loans were other than "on commercial terms" are put much too highly and (in the absence of any further evidence) defy a commonsense review of the available material in evidence and should be rejected.
58 In particular, the submission that the evidence is only capable of supporting an inference that the Banks loaned funds to the plaintiffs and any transfers were in discharge of an obligation to repay principal and interest on a loan entered into (and used) for business purposes is one I cannot embrace in the light of the inferences available as to the existence of the back-to-back arrangements, the apparent concealment of those arrangements, and their apparent purpose. The further notion that in the absence of further evidence shedding light of what actually occurred, I should conclude that no prima facie case has been established because of the existence of the loan documentation and payments pursuant to a loan obligation, carries with it the unstated premise that I can safely treat at face value one aspect of the contractual documentation between the Banks and the plaintiffs and Ligon (a company related to Advance and Civic). For reasons I have already explained, I simply cannot.
59 There is sufficient material from which it may be inferred that the aim of the actions of Emil Binetter and Gary Binetter was to denude Advance and Civic of moneys in June 2005 by remitting them to the Banks in purported repayment of loans. This necessarily had the intended consequence that Advance and Civic would not have those funds with which to meet an obligation to a prospective creditor, the DCT, to meet their taxation liabilities.
32 In relation to the second submission (concerning lack of evidence as to mala fides), the primary judge first addressed the question of where the onus of proof lies in connection with s 37A(3) of the Conveyancing Act. The primary judge set out a passage from the reasons of Hodgson JA in Wentworth v Rogers [2004] NSWCA 430, and then noted that Davies J in Royal v El Ali (2016) 14 ABC(NS) 108; [2016] FCA 782 at [217] cited the passage as authority for the proposition that the party relying on the defence under s 37A(3) bears the onus of proving that the subsection applies. The primary judge noted that Gilmour J in Commissioner of Taxation v Oswal (No 6) (2016) 229 ALR 560 at [115] approached the matter in the same way. The primary judge stated, at [64], that the approach to s 37A(3) in those cases could not be said to be wrong, let alone plainly wrong, and that nothing in PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 or the analysis of a different statutory regime in Lewski v Australian Securities and Investments Commission (2016) 246 FCR 200 compelled a different approach. Accordingly, the primary judge proceeded on the basis that it was unnecessary for the plaintiffs to plead that s 37A(3) had not been satisfied or to seek to negative the statutory ingredients of the subsection in their case in chief. However, the primary judge also stated that, even if he was wrong about this point, he would have concluded, subject to the provision of further evidence, that a prima facie case had been established as to a want of the good faith by the Banks.
33 Accordingly, the primary judge concluded that a prima facie case had been established for the Conveyancing Act claim. Subject to any discretionary argument, this was sufficient to determine the interlocutory application. However, the primary judge proceeded to deal also with the Corporations Act claim.
34 The primary judge dealt with the Corporations Act claim at [66]-[84] of the Reasons. The plaintiffs allege that, as directors, Emil Binetter and Gary Binetter each breached their respective statutory duties to Advance and Civic by involving, and continuing to involve, the companies in a scheme or schemes implemented to evade Australian tax. It is asserted that involving Advance and Civic in such a scheme provided no benefit to those companies, while exposing them to the risk of unfavourable tax assessments and penalties. Put more specifically, it is contended that if Emil Binetter and Gary Binetter had complied with their duties, the plaintiffs would not have been used as the conduit for the funds provided by MDB and IDB, they would not have submitted tax returns claiming those funds were loans, would not have been placed in the position where they did not have documents or information to justify the tax returns and would not have been exposed to the risk, and actuality, of unfavourable tax assessments, including substantial assessments for interest and penalties. Further, if Emil Binetter and Gary Binetter had not denuded Advance and Civic of all moneys in June 2005 by remitting them to the Banks in purported repayment of loans, then Advance and Civic would have had those funds with which to meet their taxation liabilities and pay their creditors, at least to the extent of those moneys.
35 The plaintiffs also allege that each of IDB and MDB was involved (within the meaning of s 79 of the Corporations Act) in breaches of the duties under ss 181(1) and 182(1) of the Corporations Act that Emil Binetter and Gary Binetter owed to the plaintiffs, so as to amount to contravening conduct on the part of the Banks under ss 181(2) and 182(2). The remedy sought is statutory compensation under s 1317H for losses, being the amounts paid out of Australia by Advance to MDB and by Civic to IDB in 2005 and the amounts of the amended assessments and penalty assessments issued by the DCT. These losses are said to have arisen when the risk, to which the plaintiffs were exposed by the wrongful conduct of their directors, materialised.
36 The primary judge stated, at [74], that "inferences can be drawn which, if translated into findings, would be sufficient to prove that Emil Binetter and Gary Binetter were acting in such a way as to put in place a scheme to evade the payment of tax and acted contrary to their statutory obligations as directors in doing so". The primary judge stated at [75] that "[t]he real question therefore is, does a prima facie case exist that the Banks were involved in the contravening conduct engaged in by the directors?"
37 The primary judge referred to cases concerning s 79 of the Corporations Act and stated at [80] that "[i]t is trite, as the Banks emphasise, that s 79 requires actual knowledge of the essential facts constituting the contravention". The primary judge reasoned as follows at [82]-[83]:
82 In the absence of further material, such a review reveals that inferences are open that an ordinary, decent person in the position of the Banks with knowledge of all the circumstances would have concluded at material times that:
(a) the purpose of Emil Binetter and Gary Binetter in implementing the arrangements was to assist the plaintiffs evading Australian tax; and that it was the intention of each of Emil Binetter and Gary Binetter to conceal the deposit accounts for this purpose;
(b) the banking arrangements were designed in such a way as to assist in dissembling the true position and hence evade tax, which could not conceivably be in the best interests of the plaintiffs (because it exposed the plaintiffs to risks of investigation and remedial responses by the ATO) and which amounted to Emil Binetter and Gary Binetter preferring their own interests over the interests of the plaintiffs (in having them act properly as directors of the plaintiffs); additionally, if the risk of not successfully concealing the scheme from the tax authorities came to pass, then deleterious consequences would result, exposing the plaintiffs to the risk of loss.
83 One would further infer that it was because the Banks had this knowledge, that they were prepared (as I have explained in Section D above at [30]-[36]) to assist those controlling the plaintiffs in preventing revelation of the true nature of the overall commercial relationship between the plaintiffs and the Banks. Given that what is being dealt with is inferences open on a prima facie basis, it is notable that despite my invitation to do so, Counsel for the Banks could not point to a benign commonsense explanation for the unusual arrangements disclosed by the evidence. Although, as a matter of logic, the absence of a contrary benign explanation does not of itself make out, even on a prima facie basis, the malign inference contended for by the plaintiffs, I reject the notion that an inference is unavailable that the arrangements were documented in such a way so as to permit the plaintiffs to produce misleading documents purportedly evidencing the arrangements, but which did not disclose them sufficiently completely so as to reveal the existence of the deposits. Indeed, as I have explained, it is presently open to infer that the Banks, by putting in place these arrangements and providing letters and statutory declarations on request, assisted the directors in this endeavour.
38 The primary judge concluded, at [84], that "inferences are available, on the present state of the evidence, of the necessary knowledge of the essential facts constituting contraventions by Emil Binetter and Gary Binetter". Thus, subject to a further issue concerning the power of the Court to grant relief, the primary judge stated that, had it been necessary to do so, he would have determined that a prima facie case of s 79 involvement by the Banks was made out. The further issue concerned s 1317K of the Corporations Act, which provides that a proceeding for a declaration of contravention, or for a compensation order, may be started no later than six years after the contravention.
39 The primary judge considered discretionary matters at [85]-[94] of the Reasons. In relation to s 1317K of the Corporations Act, the primary judge considered that it was not appropriate to deal with that issue on the application, particularly in the absence of any assistance on this point. After indicating his approach in relation to s 1317K, the primary judge noted that no limitation point was raised or developed in relation to the Conveyancing Act claim and that the finding as to a prima facie case in relation to that claim was dispositive of the interlocutory application. His Honour also stated that the Conveyancing Act claim did not suffer from a want of prospects of success such as to mean that overseas defendants should not be put to the time, expense and trouble of defending the claim, referring to Agar v Hyde (2000) 201 CLR 552.
40 The primary judge made orders on 22 June 2018 that: the interlocutory application of the fourth and fifth defendants dated 16 October 2017 be dismissed; and the fourth and fifth defendants pay the plaintiffs' costs of and incidental to the interlocutory application.