FEDERAL COURT OF AUSTRALIA

BCI Finances Pty Limited v Commissioner of Taxation [2012] FCA 855

THE COURT ORDERS THAT:

1.    A letter of request be sent to the judicial authorities of Israel to take or cause to be taken the evidence of Mr Ilan Mazur. A draft of the proposed letter of request is annexed to these orders and marked ‘Annexure A’.

2.    The applicant provide to the Court a document signed on or behalf of the applicant in the form of the document in Schedule A in aid of and for transmission with the letter of request.

3.    Paragraphs 3 and 4 of the interlocutory application filed on 5 March 2012 be dismissed.

4.    There be discovery by the applicant of the documents in Schedule E to these orders.

5.    The costs of the interlocutory application filed on 5 March 2012 be reserved.

6.    The respondent have leave to amend the subpoena to Mr Andrew Binetter filed 20 April 2012 by replacing the word ‘Szanto’ in paragraph 7 with the word ‘Etzion’ and inserting the word ‘to’ after the word ‘relating’ in paragraph 10.

7.    The interlocutory application filed 29 May 2012 be dismissed.

8.    In relation to the interlocutory application filed 29 May 2012, the applicant pay the costs of the respondent as agreed or taxed.

9.    Paragraph 5 of the respondent’s interlocutory application filed 5 March 2012 be listed for hearing on 20 August 2012, and the matter for directions generally.

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

ANNEXURE “A”

DRAFT LETTER OF REQUEST

Request for international judicial assistance pursuant to the Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters.

Signature and seal of the requesting authority

Attachment “A” to the letter of request

Nature and purpose of the proceedings and summary of the facts

(article 3, c)

1.    The proceedings are an appeal by the applicant, BCI Finances Pty Ltd, from a decision of the respondent, the Commissioner of Taxation, to disallow an objection to assessments of income tax for the tax years ending 30 June 1997 to 30 June 2008.

2.    In the relevant income years, the applicant claimed that it had loan agreements in place with Bank Hapoalim, BM in respect of which it had made interest payments. The applicant claimed deductions in respect of these interest payments. The loans that the applicant claimed and claims to exist comprise a loan of 12,000,000 Swiss Francs said to have been entered into on 25 April 1993 and a loan of A$3,848,552 said to have been made on 24 April 2006.

3.    In issuing the assessments the subject of the appeal proceedings, the respondent Commissioner of Taxation disallowed certain deductions claimed by the applicant as interest and withholding tax in respect of the loans, included as income a payment made pursuant to the claimed loan arrangements in the 2006 tax year and imposed administrative penalties.

4.    In the proceedings, the applicant has the burden of proving that the assessments are excessive. The applicant contends that the loans were made to it by Bank Hapoalim, BM, that it made the interest payments and that the interest payments and withholding tax were and are properly deductable. The respondent contends that the applicant has not discharged its burden of proving that the loans were made, or made on the terms contended by the applicant, that the payments made by the applicant were interest payments and that such payments as were made were properly deductable.

Attachment “B” to the letter of request

Evidence to be obtained or other judicial act to be performed

(article 3,d)

1.    The evidence to be obtained is the evidence of Mr Ilan Mazur

2.    The general nature and subject matter of the examination of Mr Ilan Mazur and the nature of the questions to be put during the examination are detailed in attachment “C” to the letter of request.

3.    It is also requested that, in aid of and ancillary to the examination, a subpoena decus tecum, summons or equivalent order which requires Mr Ilan Mazur, as the proper officer of Bank Hapoalim, BM to produce documents that fall within the categories of documents described in the schedule. Submitted with the letter of request is a letter executed by or on behalf of B.C.I Finances Pty Limited which consents to the production of documents by Bank Hapoalim, BM pursuant to a subpoena, summons or order and waives any rights of secrecy, privacy or confidentiality in respect of the documents that may arise or exist by reason of the relationship between Bank Hapoalim, BM and B.C.I Finances Pty Ltd.

Schedule

1.    All documents recording or evidencing the application for, approval of, granting or making of, and terms of (including terms relating to any security and guarantees), any loan, finance facility or advance of money by Bank Hapoalim, BM to B.C.I Finances Pty Ltd during the period 1 January 1993 to 30 June 2008, including but not limited to any agreement for general business terms; agreement for opening a current account and its management; agreement for credit; agreement for collateral deposit safekeeping; personal guarantee; pledge and set off agreement; notice of pledge or negative pledge undertaking; pledge agreement or deed of pledge; bank guarantee or standby letter of credit.

2.    For the period 1 January 1993 to 30 June 2008, all documents recording:

2.1    any payments or transfers of funds by Bank Hapoalim, BM to B.C.I Finances Pty Ltd or any person or entity at the direction of B.C.I Finances Pty Ltd;

2.2    any payments or transfers of funds received by Bank Hapoalim, BM from B.C.I Finances Pty Ltd or from any person or entity at the direction of B.C.I Finances Pty Ltd;

2.3    the balance standing to the credit or debit of any loan account, finance facility or deposit account held at Bank Hapoalim, BM on behalf of or in the name of B.C.I Finances or Erwin Binetter, Emil Binetter, Andrew Binetter, Michael Binetter, Margret Binetter, Gerda Binetter Ligon 158 Pty Ltd, Ligon 159 Pty Ltd, Milgerd Nominees Pty Ltd or Erma Nominees Pty Ltd.

3.    All documents recording or evidencing any agreement, arrangement or understanding between Bank Hapoalim, BM and B.C.I Finances or Erwin Binetter, Emil Binetter, Andrew Binetter, Michael Binetter, Margret Binetter, Gerda Binetter Ligon 158 Pty Ltd, Ligon 159 Pty Ltd, Milgerd Nominees Pty Ltd or Erma Nominees Pty Ltd which is or was collateral to, or connected in any way with, any loan, finance facility or advance of money by Bank Hapoalim, BM to B.C.I Finances Pty Ltd during the period 1 January 1993 to 30 June 2008.

4.    All documents recording or evidencing any communication between Bank Hapoalim, BM or any of its officers, employees, representatives or agents and B.C.I Finances or Erwin Binetter, Emil Binetter, Andrew Binetter Michael Binetter, Margret Binetter, Gerda Binetter relating to or in connection with any loan, finance facility or advance of money by Bank Hapoalim, BM to B.C.I Finances Pty Ltd during the period 1 January 1993 to 30 June 2008.

5.    For the period 1 January 1993 to 30 June 2008, all documents recording or evidencing the following in relation to Baruch Etzion:

5.1    the dates during which Mr. Etzion was employed or retained by Bank Hapoalim, BM or by any company associated with Bank Hapoalim, BM in respect of services to be provided to Bank Hapoalim;

5.2    the terms and conditions of any employment contract between Bank Hapoalim, BM and Mr. Etzion, or between Mr. Etzion and any company associated with Bank Hapoalim, BM in respect of services to be provided to Bank Hapoalim, BM;

5.3    the terms and conditions of any agency, consultancy or service contract between Bank Hapoalim, BM and Mr. Etzion, or between any company associated with Bank Hapoalim, BM in respect of services to be provided to Bank Hapoalim, BM;

5.4    the position, duties and responsibilities of Mr. Baruch Etzion as an officer, employee, agent or consultant to Bank Hapoalim, BM.

Attachment “C” to the letter of request

Questions to be put to the person to be examined or statement of the subject-matter about which they are to be examined

(article 3, f)

1.    The general subject-matter of the examination is the description, nature and provenance of the documents that have been produced by the applicant in the Federal Court proceedings as well as any documents located, identified and produced by or on behalf of Bank Hapoalim in response to a subpoena decus tecum, summons or equivalent order issued or made to Bank Hapoalim.

2.    The general nature of the questions to be put to the examinee are detailed in schedule 1 below, though allowance is to be made for the judicial rules, procedures and practices of the requested State. It may be necessary to ask additional or varied questions depending on what, if any, documents are produced by Bank Hapoalim in answer to the subpoena, summons or equivalent order.

Schedule 1

1.    What is your full name and occupation and where do you work?

2.    What are your duties and responsibilities in your work position?

3.    In your position, are you aware that a subpoena decus tecum, summons or equivalent order has been issued or made to Bank Hapoalim has been issued requiring it to produce documents that fall within specified categories of documents?

4.    Do you have with you and are you able to produce the subpoena decus tecum, summons or order or a copy thereof?

5.    Have searches been made by yourself, or to your knowledge other officers of Bank Hapoalim, to locate and identify documents that fall within the categories of documents detailed in the subpoena decus tecum, summons or order?

6.    If yes, what searches have been made?

7.    Have any documents been identified and located as a result of the searches?

8.    If yes, do you produce, or are you aware that there has been produced by Bank Hapoalim, documents in answer to the subpoena decus tecum, summons or order?

9.    If yes, the following questions should be put in relation to each document:

9.1    what is the document?

9.2    is it dated and if so, what is its date?

9.3    is the author or maker of the document, if any, known or ascertainable and if so, who was the author or maker?

9.4    does the document, or did the document at any time, form part of the records belonging to or kept by Bank Hapoalim, BM?

9.5    does the document contain representations or statements made or recorded in the course of or for the purpose of the business of Bank Hapoalim, BM?

9.6    if yes, were the statements or representations made by a person who might reasonably be supposed to have had personal knowledge of the facts in the statements or representations, or on the basis information directly or indirectly supplied by such a person?

10.    During or as a result of the searches, were any documents identified as having once existed and been in the custody or control of Bank Hapoalim, but which either do not now exist, or are no longer in the custody and control of Bank Hapoalim and as a result cannot be produced?

11.    If yes, in respect of each such document:

11.1    what is or was the document?

11.2    why is it not possible to produce the document?

11.3    what information, if any, is known about the contents of the document?

12.    The following questions should be put in relation to each of the documents listed in schedule 2 below, being copies of documents produced by the applicant in the Federal Court proceedings:

12.1    is this a copy of a document which was within the material that Bank Hapoalim has produced (and about which questions have just been asked);

12.2    if not, are you able to identify what the document is;

12.3    is it a document that you recognise to be in a form used in the ordinary course of the business of Bank Hapoalim;

12.4    if yes, what is the nature of the document and what is its purpose and role in terms of the ordinary business of Bank Hapoalim?

13.    How are the bank’s records maintained?

14.    If in hard copy are there multiple copies kept – for example a “head office” and “branch” copy; a “credit” copy; etc?

15.    Are the hard copy documents also maintained in electronic form? If so, who has access to those records?

16.    Is the data contained in the documents maintained in electronic form?

17.    If so:

17.1    who has access to that data?

17.2    What automatic communications and reports are generated using the data?

17.3    What language are those communications and reports generated in?

17.4    Can the data be accessed to create supplementary communications and reports?

17.5    If so, who has the authority to generate such supplementary communications and reports?

18.     [The following questions need only be asked if no documents, or no documents additional to the documents in schedule 2, are produced by Bank Hapoalim pursuant to the subpoena, summons or order] Assume for the purposes of the following questions that the documents in schedule 2 are the only documents that have been able to be produced in respect of purported dealings between a customer and Bank Hapoalim.

18.1    Would it be expected, in the ordinary course of Bank Hapoalim’s business, that the bank would have created, received, or maintained further documentation to record or evidence the entire dealings and agreements between the customer and the bank recorded in these documents;

18.2    If so, what additional documents;

18.3    Are you aware of a reason why the bank would no longer have copies or records of those additional documents;

18.4    What if there were related or collateral agreements or arrangements between the bank and the customer?

Schedule A

[ON LETTERHEAD OF B.C.I. FINANCES PTY LTD]

The purpose of this letter is to confirm and advise that B.C.I Finances Pty Limited consents to Bank Hapoalim, BM producing any and all documents that fall within the categories of documents listed in the schedule to this letter in accordance with any subpoena decus tecum, summons or equivalent order issued or made by any Israeli court, tribunal or judicial officer. For these purposes, B.C.I Finances Pty Ltd unconditionally waives any rights of secrecy, privacy or confidentiality in respect of the documents that may arise or exist by reason of its relationship with Bank Hapoalim, BM.

[To be signed by any officer or duly authorised representative of B.C.I Finances Pty Ltd]

Schedule

1.    All documents recording or evidencing the application for, approval of, granting or making of, and terms of (including terms relating to any security and guarantees), any loan, finance facility or advance of money by Bank Hapoalim, BM to B.C.I Finances Pty Ltd during the period 1 January 1993 to 30 June 2008, including but not limited to any agreement for general business terms; agreement for opening a current account and its management; agreement for credit; agreement for collateral deposit safekeeping; personal guarantee; pledge and set off agreement; notice of pledge or negative pledge undertaking; pledge agreement or deed of pledge; bank guarantee or standby letter of credit.

2.    For the period 1 January 1993 to 30 June 2008, all documents recording:

2.1    any payments or transfers of funds by Bank Hapoalim, BM to B.C.I Finances Pty Ltd or any person or entity at the direction of B.C.I Finances Pty Ltd;

2.2    any payments or transfers of funds received by Bank Hapoalim, BM from B.C.I Finances Pty Ltd or from any person or entity at the direction of B.C.I Finances Pty Ltd;

2.3    the balance standing to the credit or debit of any loan account, finance facility or deposit account held at Bank Hapoalim, BM on behalf of or in the name of B.C.I Finances or Erwin Binetter, Emil Binetter, Andrew Binetter, Michael Binetter, Margret Binetter, Gerda Binetter, Ligon 158 Pty Ltd, Ligon 159 Pty Ltd, Milgerd Nominees Pty Ltd or Erma Nominees Pty Ltd.

3.    All documents recording or evidencing any agreement, arrangement or understanding between Bank Hapoalim BM and B.C.I Finances or Erwin Binetter, Emil Binetter, Andrew Binetter, Michael Binetter, Margret Binetter, Gerda Binetter Ligon 158 Pty Ltd, Ligon 159 Pty Ltd, Milgerd Nominees Pty Ltd or Erma Nominees Pty Ltd which is or was collateral to, or connected in any way with, any loan, finance facility or advance of money by Bank Hapoalim, BM to B.C.I Finances Pty Ltd during the period 1 January 1993 to 30 June 2008.

4.    All documents recording or evidencing any communication between Bank Hapoalim, BM or any of its officers, employees, representatives or agents and B.C.I Finances or Erwin Binetter, Emil Binetter, Andrew Binetter Michael Binetter, Margret Binetter, Gerda Binetter relating to or in connection with any loan, finance facility or advance of money by Bank Hapoalim, BM to B.C.I Finances Pty Ltd during the period 1 January 1993 to 30 June 2008.

Schedule E

In this schedule:

"Applicant" means BCI Finances Pty Limited

"borrowings" includes loans and advances.

"document" or "documents" includes:

Any record of information, including:

(i)    anything on which there is writing including letters, emails, notes, diaries, memorandums, minutes of meetings, agendas, reports;

(ii)    anything on which there are marks, figures, symbols, seals or perforations having a meaning for the persons qualified to interpret them;

(iii)    anything from which sounds, images or writings can be reproduced with or without the aid of anything else, including computer hard discs or drives containing information stored electronically and electronic storage devices, computer hard drives or back-up tapes used for storage or backup of information;

(iv)    a map, plan, drawing or photograph.

"entity" includes person.

"financial record" includes:

(i)    invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers;

(ii)    documents of prime entry;

(iii)    working papers and other documents to explain or which explain:

a.    the methods by which financial statements are made up;

b.    adjustments to be made in preparing financial statements

"lending" includes loans and advances.

"security" includes any security, guarantee or collateral or any other arrangement supporting any borrowings.

1.    All documents (including all banking records, bank statements, cheques and cheque stubs) and financial records for the period 1 July 1992 to 30 June 2008 which evidence, record or relate to:

(a)    any borrowings by the Applicant from Bank Hapoalim (including the calculation and payment of interest on, and repayment or forgiveness of, any such borrowings);

(b)    any lending by the Applicant to any entity (including the calculation and payment of interest on, and repayment or forgiveness of, any such lending)

(c)    the use to which any borrowings by the Applicant from Bank Hapoalim were put;

(d)    the use to which any lending by the Applicant to any entity was put; and

(e)    any security (including the value thereof) offered or provided by the Applicant or any other entity in relation to any borrowings by the Applicant from Bank Hapoalim or any lending by the Applicant to any entity and any discharge or potential discharge of any such security.

2.    Profit and Loss statements (including any drafts thereof) for the years ended 30 June 2007 to 30 June 2008;

3.    Balance Sheets (including any drafts thereof) for the years ended 30 June 2003 to 30 June 2008;

4.    Cash flow statements (including any drafts thereof) for the years ended 30 June 2002 to 30 June 2008.

5.    General ledgers and any trial balances (including any drafts thereof) for the years ended 30 June 2007 and 30 June 2008.

6.    Any journal books or other document or records listing journal entries for any of the years ended 30 June 2008 to date.

7.    Any cash books or other document, ledger or record recording cash entries for any of the years ended 30 June 1992 to 30 June 1994 and 30 June 2001 to 2008.

8.    Any document (including minutes), evidencing or recording:

(a)    the basis upon which the financial statements for the Applicant are prepared including whether they are prepared in accordance with accounting standards and, if so, which;

(a)    whether the Applicant did prepare, or considered preparing, financial statements and other information on a consolidated basis.

9.    Any document recording or relating to:

(a)    Mr Szanto's engagement as the Applicant's auditor and/or accountant;

(b)    any communication with Mr Szanto in relation to the financial state and performance of the Applicant at any time in the period 30 June 1992 to 30 June 2008;

(c)    any communication with Mr Szanto which records or relates to any borrowings by the Applicant from Bank Hapoalim or any lending by the Applicant to any entity.

10.    Without limiting paragraph 1 above, bank statements for the period 1 January 1997 to present relating to the following accounts held by, or on behalf of, the Applicant:

11.    Without limiting paragraph 1, any bank statement or other document which records or evidences the payment to Bank Hapoalim of any interest or repayment of principal by or on behalf of the Applicant, including (but not limited to) any such statements or documents relating to accounts held at or with the Colonial State Bank or Bank of America or accounts held in Swiss francs.

Any document which evidences or records any business or investment activity of the Applicant apart from the borrowing and on-lending of funds.

REASONS FOR JUDGMENT

THE APPLICATION

1        By an interlocutory application filed on 5 March 2012, the respondent, the Commissioner of Taxation, seeks an order that a letter of request be sent to the judicial authorities of Israel to take or cause be taken the evidence of a Mr Ilan Mazur, as well as an order that the applicant, BCI Finances Pty Limited, provide to the Court a document signed by or on behalf of the applicant in the form of a document in Schedule A to the interlocutory application in aid of and for transmission with the letter of request.

2        The application seeks to engage the provisions of s 7 of the Foreign Evidence Act 1994 (Cth), which provides that:

(1)    In any proceeding before a superior court, the court may, if it appears in the interests of justice to do so, on the application of a party to the proceeding, make an order, relating to a person outside Australia:

(a)    for examination of the person on oath or affirmation at any place outside Australia before a judge of the court, an officer of the court or such other person as the court may appoint; or

(b)    for issue of a commission for examination of the person on oath or affirmation at any place outside Australia; or

(c)    for issue of a letter of request to the judicial authorities of a foreign country to take the evidence of the person or cause it to be taken.

(2)    In deciding whether it is in the interests of justice to make such an order, the matters to which the court is to have regard include the following:

(a)    whether the person is willing or able to come to Australia to give evidence in the proceeding;

(b)    whether the person will be able to give evidence material to any issue to be tried in the proceeding;

(c)    whether, having regard to the interests of the parties to the proceeding, justice will be better served by granting or refusing the order.

3        As stated in s 7(1)(c) of the Foreign Evidence Act, the Court may, if it appears in the interests of justice to do so, on an application by a person who is a party to the proceeding, make an order relating to a person outside Australia for issue of a letter of request to the judicial authorities of a foreign country to take the evidence of the person, or cause it to be taken. Section 7(2) sets out the matters to which the Court must have regard in determining whether it is in the interests of justice for such an order to be made. I note, however, that s 7(2) is expressed inclusively and therefore does not provide an exhaustive list of the relevant considerations.

4        Division 29.2 of Part 29 of the Federal Court Rules 2011 is also relevant, in particular rules 29.11 and 29.12 which set out procedural and related requirements for the making of such an application and the consequences of the making of such an application. In the present case there is no dispute that the application, at least in terms of form, meets those procedural requirements. It is accompanied by a draft of the proposed letter of request as Annexure A. Annexure A sets out as required the nature and purpose of the proceeding and summary of facts, the evidence to be obtained or other judicial act to be performed, the questions to be put to the person to be examined or statement of the subject matter about which they are to be examined and the proposed letter of authority from the applicant.

BACKGROUND

5        It is relevant to the resolution of this application to observe that the substantive proceeding before the Court in which the interlocutory application is brought is an application by BCI Finances against a reviewable objection decision by the Commissioner of Taxation by which BCI Finances seeks to set aside or vary certain notices of assessment, amended assessments and penalty assessments, on the basis that the objection decision which the Commissioner made disallowing the objections in full should be set aside and the objections allowed. Further detail about the essence of the issues in dispute in the proceeding is disclosed by the applicant’s amended appeal statement filed 6 March 2012 and the respondent’s appeal statement filed 24 June 2011. In particular, the respondent’s appeal statement discloses that the objection decision related to the assessments of the amount of taxable income of the applicant for the income years ending 30 June 1997 to 30 June 2008 inclusive. In issuing the assessments and disallowing the objection the Commissioner acted on the basis that certain deductions claimed by the applicant as interest and withholding tax on alleged loans made to the applicant by a bank based in Israel known as Bank Hapoalim should be disallowed and that a payment made pursuant to an alleged loan arrangement with this bank should be included as income. As also set out in the appeal statement, the applicant’s appeal is brought on the basis that the income assessed was excessive.

6        The essential issue in dispute between the parties is the status of the arrangements between the applicant and Bank Hapoalim. It is the Commissioner’s position that the available evidence is insufficient to support the existence of these arrangements as loans and that the genuineness of the arrangements is in question. The Commissioner contends that there are numerous indicia which indicate that the arrangements should not be accepted as genuine arrangements. Accordingly, it was put by senior counsel for the Commissioner in support of the application that it must be recognised that the provenance, integrity and adequacy of the documents evidencing the loans and other arrangements between the applicant and Bank Hapoalim are themselves the critical issue in the proceeding. As such, it was pointed out for the Commissioner that the current application is somewhat unusual in that the Commissioner is seeking to obtain evidence from Bank Hapoalim which if in fact obtained would support the applicant’s case rather than the Commissioner’s case. Nevertheless, the applicant opposes the making of the order sought.

THE COMMISSIONER’S EVIDENCE

7        The application has been supported by a large amount of evidence from both the Commissioner and the applicant. In terms of the Commissioner’s evidence the application is supported by a number of affidavits, including from Thomas Arnold, the solicitor who has the day-to-day carriage of the matter on behalf of the Commissioner. Mr Arnold’s affidavit of 5 March 2012 identifies documents which have been produced by the applicant and the means by which those documents were produced. This affidavit discloses that there has been an issue about the provenance, integrity and adequacy of documents said to constitute the loan agreements and other arrangements between the applicant and Bank Hapoalim since at least 20 October 2006 when there was an audit occurring in relation to the applicant’s activities. It is not necessary to identify the lengthy course of correspondence between the Commissioner and the applicant other than to say that the correspondence is indeed lengthy, extending over many years, and that as part of that correspondence the obtaining of documents from Bank Hapoalim has always been in the forefront of the issues between the parties.

8        Mr Arnold’s second affidavit of 8 August 2012, amongst other things, identifies that despite this lengthy correspondence as recently as 26 October 2011 the lawyers for the applicant were still communicating with Bank Hapoalim on the basis that certain specified documents should be produced. Although it was pointed out by the applicant that the request included general matters such as any security held by the bank regarding the loans, as well as bank records of debits and credits on particular accounts, there is not much doubt that the letter is a request for the enumerated documents, and not for all documents held by the bank in respect of its dealings with the applicant. In any event, after certain documents had been obtained on 30 March 2012, the lawyers for the applicant again wrote to Bank Hapoalim seeking amongst other things urgent confirmation that the documents that had been provided constituted all of the documents that could be found in relation to the loans. Unsurprisingly, given the nature of the request which had been made, Bank Hapoalim responded on 1 May 2012 to the effect that Mr Binetter had never requested the totality of the documents relating to the loan, but rather had provided the bank with the list of documents and asked the bank to provide him with copies of such documents. While such documents had been provided, the bank accordingly could not confirm that it was unable to locate additional documents in relation to the loans.

9        In addition, there is an affidavit of Amos Hacmun of 4 March 2012. Mr Hacmun is a lawyer in Israel. In short, he gives evidence to the effect that he would expect in accordance with the relevant provisions of Israeli law that certain documents would exist and be held by the bank, and would still be held by the bank given the requirements of Israeli law, as well as the fact that a bank has a duty to provide its customers with certain documents concerning the loans and collateral. Mr Hacmun notes that Israel is a signatory to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters and sets out what the appropriate course would be for the making of a letter of request to the relevant authorities. Mr Hacmun also notes that as the current matter is a civil matter there is “a fair chance that banking secrecy would be upheld as the circumstances for lifting the secrecy do not seem to apply unless the customer itself [that is, the applicant] cooperates and provides consent to the bank making the disclosure”. Accordingly, Mr Hacmun noted that it is “advisable that the Australian court compel the applicant to issue a written waiver of its banking secrecy which would be part of the application to compel the bank to produce evidence based on the order of the Australian court”.

10        Otherwise there is an affidavit of Barry Ben Zeev of 4 March 2012. Mr Ben Zeev is a highly experienced banker employed for a substantial period by Bank Hapoalim. Mr Ben Zeev’s evidence is to much the same effect as that of Mr Hacmun in terms of the documents that he expects the bank would hold. He also notes that Israeli law requires banks to keep all documentation for seven years after full repayment of a loan or credit facility and accordingly, if the loans were not repaid before September 2010 as the applicant maintains, then the bank should have in the credit file all documentation.

THE APPLICANT’S EVIDENCE

11        The applicant, which opposes the making of the order, relied on its own evidence. Baruch Etzion, according to his affidavit, was the person employed by Bank Hapoalim who in fact arranged the loans for the applicant. In his affidavit, Mr Etzion attaches various documents sourced either from Bank Hapoalim or otherwise. Mr Etzion also refers to his attendance with Mr Andrew Binetter at Bank Hapoalim for the purpose of obtaining documents, and refers to the relevant bank officer, Mr Glizer, saying that he was sorry the bank could not give all the documents requested, and that “[t]hese are all the documents that we found”. It is apparent that there is at least some potential for inconsistency between this evidence and the correspondence from the bank itself to the effect that it had not been requested to provide all of the documents. In any event, it is sufficient to say that the Commissioner’s position is that the documents which Mr Etzion has produced and attached to his affidavit raise as many or perhaps more questions than they answer, it being pointed out that apart from one document none of the documents appear to bear any notation, seal or signature of any person on behalf of the bank, thereby supporting the Commissioner’s position that it is the provenance, integrity and adequacy of the documents evidencing the purported loan agreements which is the central issue in this case.

12        In addition to Mr Etzion’s affidavits, there are also affidavits from Judith Sutton who is the solicitor with day-to-day conduct of the matter on behalf of the applicant. The primary relevance of Ms Sutton’s affidavits is that it annexes the relevant correspondence, including correspondence between the solicitors and the bank, and contains correspondence which shows that communications continued after the bank’s response that it had never been requested to provide the totality of documents, an issue which I note the applicant’s solicitors dispute. In any event, the correspondence continued, and continues to date.

13        The correspondence shows that on 2 May 2012 the solicitors for the applicant made a request to Bank Hapoalim for production of documents in terms largely the same as the schedule to the Commissioner’s interlocutory application. However, as the bank had made clear from the outset, it required a power of attorney to be produced, and the bank responded on 3 May 2012 noting, amongst other things, that it had yet to see a properly executed power of attorney as mentioned in its previous correspondence. In any event, ultimately a power of attorney was executed by Mr Andrew Binetter as a director of the applicant and was forwarded to the bank on 11 July 2012. Thereafter, the solicitors for the applicant continued to follow up the bank and ultimately it was disclosed some time within the last week that Mr Glizer, the person within the bank with whom the solicitors for the applicant had been dealing, apparently no longer worked at the bank and another bank officer was responsible. As matters stand, there has apparently been no response from the bank to the letter of 2 May 2012 containing the further list of documents.

14        The applicant also relies on an affidavit of Anita Leviant who is herself a lawyer in Israel. It is sufficient to say that Ms Leviant holds some views different from those of Mr Hacmun and expresses certain statements which the applicant relies on to suggest that because of bank secrecy laws as well as the rights of third parties to protect their information the granting of the orders sought may ultimately prove to be futile. There are objections to many paragraphs of this affidavit but, for reasons which I will come to, it is not necessary that they be resolved at this time.

DISCUSSION

15        Both parties filed helpful written submissions. The Commissioner's position as set out in its submissions is that in the circumstances of the case it is in the interests of justice for the orders to be made which would have the ultimate effect of compelling the giving of evidence by an officer of Bank Hapoalim relating to all potentially relevant documents and ancillary orders requiring the production of those documents. According to the Commissioner, given the state of the evidence the Court would have little or no confidence that proper and genuine attempts have been made by the applicant to obtain all relevant documents and it is incongruous for the applicant to object to a course that would compel the giving of evidence and production of documents that should demonstrate the true nature of the transactions, payments and relationship between it and the bank.

16        For applicant’s part, it is said that: – (i) this application is akin to an application for discovery by a third party outside the jurisdiction and such an order would not be made, (ii) the application, insofar as it does refer to oral evidence, is merely ancillary to the production of documents which is the essence of the application, and again the order would not be made, (iii) the applicant says that the evidence of the identified officer, Mr Mazur, is not evidence of the company, and I should not be satisfied that Mr Mazur would be able to give any relevant evidence to the facts in issue, (iv) there is a risk of futility, referring to the affidavit of Ms Leviant, (v) Mr Etzion is a former bank officer who was directly involved with the loans in question, and although his evidence would be subject to challenge, he would be available for cross-examination. As I understand it, this goes to the question of whether it is in the interests of justice for the order to be made, and (vi) as the correspondence discloses, the bank has been cooperating with the applicant for the production of documents.

17        In relation to these submissions, the applicant in particular pointed to the fact that Australia has made a full exclusion from the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters under article 23 to the effect that Australia has made a general declaration that it will not execute letters of request issued for the purpose of obtaining pre-trial discovery of documents. The applicant relied on this in support of its first two arguments against the making of an order. The applicant also referred to certain decisions in support of its position, in particular Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (1987) 14 FCR 461 at 465, where Gummow J said (at 465):

The production of documents to a court in compliance with a subpoena or an order in the nature of a subpoena is not the taking of evidence or the causing of the taking of evidence of the person producing the documents.

18        In Novotny v Todd [2002] WASCA 79, Anderson J took the same view and held that no matter which way the request was dressed up in that case, it was seeking nothing more than the production of documents (at [2]-[3]). The applicant otherwise referred to the decision in Hardie Rubber Co Pty Ltd v General Tire & Rubber Co (1973) 129 CLR 521 at 537, in particular the emphasis therein that the person in question be able to give evidence relevant to the facts in issue. Reference was also made to the decision in Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 at 481 where Stephen J noted that “[a] corporation cannot…itself “give evidence”. It may authorise an individual to depose to facts on its behalf and is obliged to do so in the course of litigation…[b]ut it is not then itself giving evidence [as] the oath remains that of the individual”, rather than that of the corporation. As I understand it, this was put in support of the proposition that I should not be satisfied that Mr Mazur's evidence will be relevant evidence as required.

19        It seems to me that there are a number of important factors to the resolution of the issues in dispute between the parties in respect of this application. In terms of s 7(2)(a) of the Foreign Evidence Act, which requires me to have regard to “whether the person is willing or able to come to Australia to give evidence in the proceeding”, I infer from the whole of the evidence before me, in particular the course of conduct of the bank with the applicant itself, that there is no real prospect that Mr Mazur would be willing or able to come to Australia to give evidence in the proceeding. Even when dealing with the applicant, the other party to the loan and the account holder, the bank insisted upon, as no doubt it was entitled to do, proper authority before it would communicate or engage in communication with persons said to be acting on behalf of the applicant. In these circumstances, s 7(2)(a) of the Foreign Evidence Act is satisfied.

20        Section 7(2)(b) refers to the question of “whether the person will be able to give evidence material to any issue to be tried in the proceeding”. As I have emphasised, I accept that a central issue in this proceeding is the provenance, integrity and adequacy of documents evidencing the loans and other arrangements between Bank Hapoalim and the applicant. I have no doubt that an officer of the bank could give evidence relevant to the proceeding in terms of what has been described by the Commissioner as evidence of the bank's systems in relation to its administration of its credit arrangements, its processes for requiring and maintaining documents, and its processes and systems for ensuring the provenance and authenticity of documents. In this case, given that the provenance and authenticity of documents already produced by the applicants is in issue, that relevant evidence could also be given by Mr Mazur as to those issues. Accordingly, I also have no doubt that s 7(2)(b) of the Foreign Evidence Act is satisfied.

21        Section 7(2)(c) requires me to have regard to “whether, having regard to the interests of the parties to the proceeding, justice will be better served by granting or refusing the order”. On the evidence that has been adduced before me, and in the circumstances of the proceeding as referred to above, I have no doubt that it is in the interests of the parties to the proceeding that the order be made and that justice will be better served by the granting of the order. This is the applicant's appeal seeking to set aside the Commissioner's disallowance of objections on the basis that the taxation amount in the assessments is excessive. The basis upon which the applicant seeks to do so essentially is the existence of loans and other credit arrangements between it and Bank Hapoalim. Despite numerous attempts to obtain relevant documents so as to demonstrate the genuineness of those loans the documents which have been produced thus far by the applicant, not unreasonably from the Commissioner's point of view, raise more questions than they answer. In these circumstances, for Bank Hapoalim to be required to give evidence in accordance with the interlocutory application would be in the interests of both parties and would serve justice, because it would ensure that the parties and indeed the Court will be determining the appeal on the basis of a proper evidentiary foundation and not an incomplete or dubious evidentiary foundation, as the Commissioner currently asserts is the case.

22        I am also not satisfied that the arguments made by the applicant are persuasive against the making of the order sought. In terms of the letter of request, it is true that there is a request that a subpoena, summons or equivalent order be issued requiring the production of documents. However, they are described as “in aid of and ancillary to the examination”. The examination is set out in Attachment C to the letter of request and is directed to the systems and processes of the bank and not only to the specific documents in question. I do not think that this is a case where the application is simply one for discovery or the application for the taking of oral evidence is simply ancillary to the production of documents. It seems to me that on the evidence I can be satisfied that Mr Mazur, who is the chief legal officer of the bank and the person whom the Commissioner has been informed is the relevant officer for this purpose, can give relevant evidence. I am not satisfied that any concern about futility, as set out in Ms Leviant's evidence, weighs particularly against the making of an order.

23        If there is any issue with third party rights, then presumably that can be dealt with as appropriate at the time. Given also the nature of the documents which Mr Etzion has produced the fact that he will be available for cross-examination also does not weigh against the making of an order. Finally, in terms of the cooperation of the bank, I accept the submission put by the Commissioner that, speaking colloquially, enough is enough. This application was filed on 12 May 2011 and there has been ample opportunity for the applicant, if it was so minded, to use its best endeavours to obtain whatever information it could from Bank Hapoalim. The relevant power of attorney was not provided until recently.

24        There is no material in evidence which persuades me that the result of the more recent correspondence will be any different from that which has been achieved thus far and indeed that the only way the issues in dispute in this proceeding can be properly tested and resolved is to accede to the Commissioner's request. In other words, I am satisfied that it appears to be in the interests of justice to make an order in accordance with s 7(1)(c) of the Foreign Evidence Act in the terms which the Commissioner has sought. I am also satisfied that I should make the ancillary order in terms of proposed order 2.

25        It is apparent from the evidence that there may be difficulties in obtaining the documents unless the applicant provides the signed consent sought. In circumstances where, according to the most recent correspondence, the applicant itself wants to obtain the same material from the bank, there should be no apparent difficulty with the applicant accepting the effect of order 2.

26        Orders will be made accordingly.

Associate:

Dated:    14 August 2012