FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Rawson Finances Pty Ltd (No 4) [2016] FCA 1436

ORDERS

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:

(a)    Mr Israel Zamir, formerly the Foreign Exchange Department Manager at the Tel Aviv Branch of Mercantile Discount Bank. A draft of the proposed letter of the request (excluding the documents to be annexed to the letter of request) is annexed to these orders and marked “Annexure 1”.

(b)    Mr Elie Septon, formerly the General Manager Assistant (also known as the Deputy General Manager) at the Tel Aviv Branch of Mercantile Discount Bank in Israel. A draft of the proposed letter of request (excluding the documents to be annexed to the letter of request) is annexed to these orders and marked “Annexure 2”.

(c)    Mr Shaul Antebi, Manager, at the Tel Aviv Branch of Mercantile Discount Bank in Israel. A draft of the proposed letter of request (excluding the documents to be annexed to the letter of request) is annexed to these orders and marked “Annexure 3”.

2.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the basis that it necessary to prevent prejudice to the proper administration of justice (s 37AG(1)(a)), the addresses referred to at paragraph 10 in the draft Letters of Request for the examination of Messrs Zamir and Septon respectively, are suppressed from publication.

3.    Costs are reserved.

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

Annexure 1 to the Orders of 30 November 2016

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 Applicant in these civil proceedings before the Federal Court of Australia is the Commissioner of Taxation (the Commissioner) and the Respondent is Rawson Finances Pty Limited (Rawson Finances), an Australian resident company.

(2)    The history of the dispute is as follows.

(3)    After an audit that commenced in 2006, the Commissioner issued various assessments to Rawson Finances which had the effect of disallowing claimed interest deductions on asserted loans and increasing Rawson Finances' assessable income and tax liability. Rawson Finances objected and the relevant objections were disallowed.

(4)    Rawson Finances applied for review to the Administrative Appeals Tribunal (the Tribunal). In the proceedings before the Tribunal, witnesses called on behalf of Rawson Finances gave evidence to the effect that:

(a)    Rawson Finances' directors had a family history of setting up special purpose vehicles which took out asserted loans from Israeli Banks;

(b)    Israeli Banks operated differently to Australian banks in that Israeli Banks were willing to lend on the basis of personal guarantees and relationships with the borrowers;

(c)    the directors of Rawson Finances and family members of the directors had direct involvement with Israeli Banks through entities known as BCI Finances Pty Limited (BCI Finances), Advance Finances Pty Limited (Advance Finances) and Civic Finances Pty Limited (Civic Finances) all of which received significant loans from Israeli Banks that were not supported by cash deposits and which were not back to back loans;

(d)    the details of the principal lent referred to in (c) above were asserted by the witnesses who gave evidence on behalf of Rawson to be:

(i)    on 14 May 1993, Bank Hapoalim B.M lent CHF 12,000,000 to BCI;

(ii)    on 9 July 1997, Mercantile Discount Bank lent AUD 4,000,000 to Advance Finances;

(iii)    on 16 June 1999, Israel Discount Bank lent AUD 5,000,000 to Civic Finances;

(iv)    in 2004, Mercantile Discount Bank lent a further AUD 2,500,000 to Advance Finances;

(v)    on 27 May 2004, Israel Discount Bank lent a further AUD 3,690,000 to Advance Finances; and

(vi)    on 1 March 2005, Bank Hapoalim B.M lent a further AUD 6,177,288 to BCI Finances.

(e)    the Rawson Finances loans were not supported by any deposit or back-to-back arrangement and Mercantile Discount Bank was willing to make the loan on the strength of a personal guarantee from a former director of Rawson Finances.

(5)    At the hearing of Areffco and Commissioner of Taxation [2011] AATA 628, Rawson Finances relied upon the following documents:

(a)    Statutory Declaration of Mr Israel Zamir dated 10 December 2009

(b)    Statutory Declaration of Mr Israel Zamir dated 15 February 2010; and

(c)    Statutory Declaration of Mr Israel Zamir dated 10 August 2010

(d)    Statutory Declaration of Mr Israel Zamir dated 14 February 2011.

(6)    The Tribunal accepted the case advanced by Rawson Finances, accepting significant aspects of Rawson Finances’ evidence. The Tribunal upheld Rawson Finances' objections to the assessments (and therefore the increased tax liability).

(7)    The Commissioner successfully appealed this decision in Commissioner of Taxation v Rawson Finances [2012] FCA 753. However, the Full Court of the Federal Court of Australia allowed Rawson's appeal in Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26.

(8)    In 2015, the Commissioner obtained documents which demonstrated that the loans made to BCI Finances, Advance Finances and Civic Finances were secured with cash deposits and were known as back-to-back loans. In these proceedings, the Commissioner has applied to the Federal Court to have the Tribunal's decision Areffco and Commissioner of Taxation [2011] AATA 628 (and/or the Full Court decision) overturned on the basis it was obtained by fraud.

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 Israel Zamir, formerly the Foreign Exchange Department Manager at the Tel Aviv Branch of Mercantile Discount Bank.

(2)    The general nature and subject matter of the examination of Mr Israel Zamir and the nature of the questions to be put during the examination are detailed in attachment 'C' to the letter of request.

(2A)    Before he gives evidence, Mr Israel Zamir should be informed that he should take legal advice on whether the answers he gives to questions to be put during the examination referred to in the previous paragraph may incriminate him.

(3)    It is also requested that, in aid of and ancillary to the examination, a subpoena duces tecum, summons or equivalent order which requires the Proper Officer of Mercantile Discount Bank to produce documents that fall within the categories of documents described in the schedule immediately below (except to the extent that those documents have already been produced in response to an order made by the judicial authorities in Israel pursuant to another letter of request issued in the proceedings referred to in Attachment ‘A').

Schedule to Attachment B

Rawson Finances

(4)    In relation to any advances of money by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 30 December 2013 (collectively referred to hereafter as “the advances”), for the purposes of answering the questions in each of the paragraphs referred to below including those relating to any documents outlined in those paragraphs, all documents recording or evidencing:

(a)    For the purposes of answering the questions at [14], [26], [29(c) and (d)], and [30(c)] including those relating to the documents outlined in those paragraphs. any security, deposit, asset or arrangement:

(i)    related or connected in any way to the advances; or

(ii)    accepted or treated as 'security' or 'collateral' for the advance of funds or the advances.

(b)    For the purposes of answering the questions at [29(a), (c) and (f)] and [30(a) to (r)] including those relating to the documents outlined in those paragraphs, the terms on which the advances or asserted loans were made and manner in which any party performed any agreement relevant to the asserted loans, including but not limited to:

(i)    the term of the loan;

(ii)    the dates on which the principal was to be repaid (and the amount of principal to be repaid on each date);

(iii)    the dates on which the principal was actually repaid (and the amount of principal repaid on each date)

(iv)    the dates on which interest was due to be paid (and the amount of interest paid on each date); and

(v)    the dates on which the interest was actually paid (and the amount of principal paid on each date);

(vi)    how principal and interest was paid or credited in any account related to the advances or loans.

(5)    In relation to the advances by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 30 December 2013, for the purposes of answering the questions at [14], [26], [29(c) and (d)], and [30(c)] including those relating to the documents outlined in those paragraphs, any documents that contain one or more references to a back-to-back loan or other arrangement or to any security, deposit or asset related in any way to the advances or loans.

(6)    For the purposes of answering the questions at [26], [29 (c) and (d)], and [30(b), (c), (e), (g), (i)] including those relating to the documents outlined in those paragraphs, all documents recording or evidencing any communication between Mercantile Discount Bank (or any of its officers, employees, representatives or agents) and Rawson Finances (including agents, representatives, solicitors or any person acting for, in relation to or on behalf of Rawson Finances) constituting or relating to or in connection with:

(a)    any security, deposit, collateral, asset or arrangement accepted or treated as 'security' or 'collateral' for the advance of funds by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 31 December 2013; and

(b)    any request for or on behalf of Rawson Finances to Mercantile Discount Bank for the provision of the documents or information relevant to the advances of funds and any response by Mercantile Discount Bank to same.

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)    For the purposes of understanding the questions set out further below, the background to the relevant entities, being Rawson Finances and Advance Finances is first set out below with the questions following immediately after.

Rawson Finances

(2)    On 21 April 1997, Rawson Finances was incorporated. Its only asset was AUD 2 of issued capital.

(3)    For the purposes of the questions below, we note that Rawson Finances asserts that it had a financial arrangement (which it called a loan) with Mercantile Discount Bank that included the features set out below (together with other relevant circumstances):

Transfers of funds

(a)    Between June 1997 and December 1997, Mercantile Discount Bank lent AUD 4,500,000 to Rawson Finances on the following terms:

(i)    5 June 1997: AUD 3,000,000, 5 year term, interest rate 8.298%;

(ii)    4 July 1997: AUD 1,000,000, 5 year term, interest rate 8.298%; and

(iii)    4 December 1997: AUD 750,000, 5 year term, interest rate 8.298%.

(b)    The 5 June 1997 loan was repaid in full on 18 September 1998.

(c)    The loan period for the remaining loans was extended in December 2002.

(d)    Before March 2004 there was a suspension of interest payments.

(e)    The loan period was again extended in January 2005.

(f)    The July 1997 and December 1997 loans were repaid in the following manner:

(i)    on 18 September 1998: AUD 200,000 of the July 1997 loan was repaid;

(ii)    on 20 July 2009: the balance of the July 1997 loan was repaid; and

(iii)    on 8 October 2009 and 11 December 2009: the December 1997 loan was repaid

(g)    There were 2 substantial periods of non-payment of interest by Rawson Finances, namely February 2001 to January 2005 and January 2006 to July 2009.

Loan terms – security

(h)    The loans were either unsupported by any security or supported solely by guarantees from Mr Erwin Binetter, a director of Rawson Finances. Neither Rawson Finances, nor any of its directors had any assets in Israel.

(i)    The borrowed funds were on-lent by Rawson Finances to associated businesses in Australia on the same terms as the loan from Mercantile Discount Bank.

Loan terms – principal and interest

(j)    The loans were bullet loans, that is, there was no requirement for periodic repayments of principal during the loan term, although early repayment without penalty was permitted.

(k)    The loans were denominated in Australian Dollars.

(l)    The interest rate on the loans was fixed at 8.298%, calculated on simple interest basis with a penalty of 1% should the repayments not be made in time.

(m)    The loans were extended in 2002 and 2005.

Advance Finances

(4)    On 21 April 1997, Advance Finances was incorporated. Its only asset was AUD 2 of issued capital.

(5)    For the purposes of the questions below, we note that Rawson Finances asserted that Advance Finances had a financial arrangement (which it called a loan) with Mercantile Discount Bank that included the features set out below (together with other relevant circumstances):

Transfers of funds

(a)    On 9 July 1997, Mercantile Discount Bank lent AUD 4,000,000 to Advance Finances on a 5 year term at an interest rate of 8.298%.

(b)    In June 2000, an amount of AUD 3,000,000 of the principal was repaid.

(c)    On 27 May 2004, Mercantile Discount Bank lent a further AUD 2,500,000 to Advance Finances at an interest rate of 6.5%.

(d)    The loans were repaid in full in June 2005.

Loan terms – security

(e)    The loans were either unsupported by any security or supported solely by guarantees from Mr Emil Binetter, a director of Advance Finances. Neither Advance Finances, nor any of its directors had any assets in Israel.

(f)    The borrowed funds were on-lent by Advance Finances to associated businesses in Australia on the same terms as the loan from Mercantile Discount Bank.

Loan terms – principal and interest

(g)    The loans were bullet loans, that is, there was no requirement for periodic repayments of principal during the loan term, although early repayment with a penalty of only AUD 500 was permitted.

(h)    The loans were denominated in Australian Dollars.

(i)    The interest rate on the loans was predominantly fixed at 8.298% (but was occasionally 7.2% or 6.5%) calculated on simple interest basis with a penalty of 1% should the repayments not be made in time.

(j)    The loan was extended in June 2002 and December 2002.

General Subject Matter of the Examination

(6)    The general subject-matter of the examination is:

(a)    the nature of the arrangements between Rawson Finances and Mercantile Discount Bank between 1997 and 2009;

(b)    the meaning, significance, description, nature and provenance of the documents that have been:

(i)    filed by the Commissioner in the Federal Court proceedings as described at Schedule A to Attachment C below in relation to Rawson Finances and which were annexed by Mr Zamir to his statutory declaration dated 15 February 2010;

(ii)    filed by the Commissioner in the Federal Court proceedings as described at Schedule B to Attachment C below in relation to Advance Finances, certain of which were annexed by Mr Zamir to his statutory declaration affirmed 10 August 2010;

and whether those documents are a complete record of all transactions and arrangements relevant to the asserted loans; and

(c)    the requests that were made for or on behalf of Rawson Finances to Mr Zamir in his capacity as Foreign Exchange Department Manager of Mercantile Discount Bank for documents or information relevant to the asserted loans and the response of Mr Zamir and Mercantile Discount Bank to those requests.

(7)    The general nature of the questions to be put to the examinee are detailed in Schedule A below, though allowance is to be made for the judicial rules, procedures and practices of the requested State.

Schedule A to Attachment C

(8)    What is your full name and what positions did you hold at Mercantile Discount Bank between 1996 and 2013.

(9)    What were your duties and responsibilities in your work positions?

Rawson Finances

(10)    What was the nature of all the arrangements between Mercantile Discount Bank and Rawson Finances or any other person or entity for on behalf of Rawson Finances in relation to the transmission of funds between Mercantile Discount Bank and Rawson Finances in the period 1 January 1996 to 2013?

(11)    Who had responsibility within Mercantile Discount Bank for the negotiation and supervision of the asserted loans?

(12)    Who was the representative of Rawson Finances that negotiated the original asserted loans and any changes in the terms of those loans including to the payment of interest or the extension of the loans?

(13)    What was the substance of those negotiations?

(14)    At or around the time the funds were advanced, was there a deposit or other collateral or security connected in any way with the alleged loans to Rawson Finances and if so what was the arrangement, including:

(a)    what were the terms of the arrangement and did:

(i)    it include the use of an arrangement known as a 'back-to-back loan'?

(ii)    the arrangement involve Mercantile Discount Bank holding fiduciary (or other) deposits for, or on behalf of, Rawson Finances?

(iii)    the arrangement involve the use of a 'non resident deposit account'

(iv)    a person or entity provide a deposit, collateral, security or other asset to which Mercantile Discount Bank would have recourse if the borrower defaulted on the loan term and if so, who was that person or entity?

(b)    if there was a deposit, or other asset, where was it held, who made the deposit, in whose name was the deposit held and what interest was paid on it or on respect of it?

(c)    if there was a deposit, what was the margin of interest rate between the deposit and the loan?

(d)    if there was a deposit or other asset, what instructions did Mercantile Discount Bank receive and what actions did Mercantile Discount Bank take in relation to that deposit or asset once the loan principal and interest was repaid and from which person or entity and when were those instructions received?

(e)    who was authorised to give relevant instructions to Mercantile Discount Bank in respect of the deposit or asset?

(f)    did Mercantile Discount Bank receive an application to effect banking operations as per phone instructions or by facsimile and if so who made the application and when and who was authorised to provide phone instructions to Mercantile Discount Bank?

(g)    did Mercantile Discount Bank receive a power of attorney relating to all or any accounts and transactions and if so, when and who were the authorised representatives under that power of attorney?

(h)     In the period 1997 to 2009 were back to back loans or loans secured by some form of cash deposit available to Mercantile Discount Bank customers? If so:

(i)    what documents were created and or entered into to give effect to the arrangement?

(ii)    what was the general nature of the arrangement?

(iii)    what was the general structure of the arrangement, including where the deposit was held?

(iv)    who in Mercantile Discount Bank had the responsibility for negotiating such loans?

(v)    were such loans subject to credit committee (or other internal committee) supervision, assessment or approval?

(15)    During the period of the time the asserted loans did Mercantile Discount Bank advise Rawson Finances of the amount of its interest payments? If so, when and how was that communicated to Rawson Finances and to who specifically?

(16)    Did Mercantile Discount Bank permit Rawson Finances to calculate the quantum of its interest payments? If so, on what basis did the Bank permit Rawson Finances to calculate its interest obligations and when and how were those calculations communicated to, or received by, Mercantile Discount Bank?

(17)    When and how was the interest received? Was the interest paid by way of funds transfer from Rawson Finances or was the interest paid from a deposit or other source such as an account (and if so identify the account) held for or on behalf of Rawson Finances in relation to the loan?

(18)    Was there a non-payment of interest in the period of the loan, (including the period described at [3(g)] of Attachment C above)?

(19)    What written or oral communications did Mercantile Discount Bank have with Rawson Finances in relation to the non-payment of interest? Please identify the time and nature of these communications.

(20)    If there was a non-payment of interest what steps did Mercantile Discount Bank take to compel payment of the interest? Did Mercantile Discount Bank agree to capitalise interest? Please identify the time and nature of any communications in this respect.

(21)    In relation to the interest payable in relation to the loans referred to at [3(a)] above:

(a)    How was the interest rate calculated and was it calculated by reference to a deposit held for or on behalf of Rawson Finances?

(b)    What was the amount of principal on which the interest was calculated?

(c)    What were the dates on which each payment of interest was to be made?

(d)    How much interest was to be paid on each of the dates referred to at (c) above?

(e)    In relation to any payment of interest made by Rawson Finances:

(i)    How was each payment of interest effected by Rawson Finances?

(ii)    On what dates did Rawson Finances make payments of interest?

(iii)    How much interest was paid by Rawson Finances on each of the dates referred to at (ii) above?

(22)    Did, and if so why did Mercantile Discount Bank agree to extend the loans in 2002 and 2005?

(23)    If the loans were supported by deposit, asset or arrangement other than a personal guarantee did Mercantile Discount Bank have any communications, whether written or oral, with Rawson Finances, or any agent of representative on its behalf, in relation to that deposit, asset or arrangement and if so in relation to each communication:

(a)    When was the communication made;

(b)    Who was the communication between;

(c)    What was the substance of the communication.

(24)    Questions will be asked concerning the evidence given by Mr Israel Zamir in the following documents which were relied upon in Areffco and Commissioner of Taxation [2011] AATA 628:

(a)    Statutory Declaration of Mr Israel Zamir dated 15 February 2010; and

(b)    Statutory Declaration of Mr Israel Zamir dated 14 February 2011.

(25)    Who had such authority to grant back to back loans and did Mr Zamir have such authority?

(26)    What were the 'sufficient securities' referred to in the statutory declaration dated 15 February 2010.

(27)    Were decisions to grant back to back loans subject to supervision by a credit committee?

(28)    Was Mr Zamir authorised by Mercantile Discount Bank to give the statutory declarations referred to at [24] above?

(29)    In relation to the following documents:

(a)    letter from Rawson Finances to Mr Ellie Septon dated 4 July 1997;

(b)    letter from Rawson Finances to Mr Ellie Septon dated 4 December 1997;

(c)    letter from Rawson Finances to Mr Ellie Septon dated 9 December 1997;

(d)    letter from Rawson Finances to Mr Ellie Septon dated 18 September 1998;

(e)    deposit / withdrawal in Standard Currency Form dated 23 September 1998;

(f)    two Loan Application in Foreign Currency for a Foreign Resident forms dated 23 December 2002;

(g)    two Amortisation schedules dated 30 December 2003;

(h)    six Mercantile Discount Bank payment forms generated on 11 December 2009;

(i)    a Mercantile Discount Bank Amortisation Schedule dated 3 January 2005; and

(j)    44 Mercantile Discount Bank statement form letters dated 24 January 2008

It is proposed to ask the witness general questions:

(a)    as to whether the bank has copies of these documents, whether they are included in the same form or whether the bank’s copy of the documents are different;

(b)    as to the authenticity, nature and provenance of those documents;

(c)    as to whether those documents are a complete record of the transactions relevant to the asserted loans;

(d)    as to whether those documents indicate or establish that there was a deposit or some other security or collateral relevant to the asserted loan;

(e)    as to whether the effect of the arrangement was that Rawson Finances could decide the interest rate on the asserted loan; and

(f)    in relation to each of the documents described above, does the document, or did the document at any time form part of the records belonging to or kept by Mercantile Discount Bank.

(30)    It is also proposed to ask the witness specific questions in relation to some of the documents identified at [29] above:

Letter from Rawson Finances to Mr Ellie Septon dated 4 July 1997

(a)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did the practice apply?

(b)    Was any response made by Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

(c)    Should, or do, the following documents exist and is there any explanation for the following documents not existing in relation to the loan agreement entered into on or about 4 June 1997:

(i)    agreement for opening an account or accounts and the terms and conditions of those accounts;

(ii)    corporate resolutions for the account covering general banking powers;

(iii)    certification of the officers of the borrower;

(iv)    a loan agreement that sets out the terms of the loan; and

(v)    agreements as to the type of security to be provided.

Letter from Rawson Finances to Mr Ellie Septon (sic) dated 4 December 1997

(d)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did the practice apply?

(e)    Was any response made by Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

Letter from Rawson Finances to Mr Ellie Septon dated 9 December 1997

(f)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did the practice apply?

(g)    Was any response made by Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

Letter from Rawson Finances to Mr Ellie Septon (sic) dated 18 September 1998

(h)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of an agreement struck by telephone the previous day?

(i)    Was any response made by Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when was it made?

Two Loan Application in Foreign Currency for a Foreign Resident forms dated 23 December 2002

(j)    Should or do the original loan applications exist and is there any explanation for why the loan extension documents exist produced but not the original loan applications?

(k)    At this time did Mercantile Discount Bank have a standard form for a loan extension or did it amend loan application forms?

(l)    In relation to the left hand column, was it in accordance with Mercantile Discount Bank's procedures not to record the date the loan was granted on?

Two Amortisation schedules dated 30 December 2003

(m)    How were the amounts of interest in the schedule calculated and in particular, was interest calculated on the basis that the period of calculation was 260 days?

Six Mercantile Discount Bank payment forms generated on 11 December 2009

(n)    Why are these forms addressed to 'E Pty Ltd'? What information is known by Mercantile Discount Bank in relation to 'E Pty Ltd'?

44 Mercantile Discount Bank statement form letters dated 24 January 2008

(o)    Was it in accordance with Mercantile Discount Bank's procedures for correspondence to be sent to a customer with the signature of only one officer of the Bank?

(p)    Was it in accordance with Mercantile Discount Bank's practice for correspondence of this nature to be sent?

(q)    Why were the details of the actual amounts of interest paid and / or details from the accounts recording the calculation of interest payments and the receipt of same not included in this correspondence?

(r)    Why was a printout of the account statement not provided? Would such an account show that interest was paid from another account, such as a non resident deposit account held in relation to the loan?

Schedule B to Attachment C

Advance Finances

(31)    What was the nature of the arrangements between Mercantile Discount Bank and Advance Finances or any other person or entity for or on behalf of Advance Finances in relation to the transmission of funds between Mercantile Discount Bank and Advance Finances in the period 1 January 1996 to 31 December 2005?

(32)    Was the nature of the arrangements identified in [31] above accurately and fully described at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628 through the following documents:

(a)    The statutory declarations of Mr Israel Zamir (see paragraph [33] below);

(b)    The affidavit of Mr Emil Binetter affirmed on 6 October 2010, which stated

(i)    in 1997, Mr Emil Binetter met with Mr Elie Septon, a manager of Mercantile Discount Bank, who agreed to loan Advance Finance AUD 4,000,000 and the security for the loan comprised a personal guarantee from Mr Emil Binetter, along with a list of his assets;

(ii)    Mr Binetter calculated the interest on the loans; and

(iii)    In 2004, Mr Emil Binetter and Mr Gary Binetter met with Mr Septon who agreed to loan a further AUD 2,500,000.

(c)    Exhibit 14A, being the 'Emil Binetter Group' summary assets and liabilities' which at row 14 stated that '… please note that Advance Finances took out a $4 million loan from Mercantile Discount Bank in the 1998 Financial Year'

(33)    Questions will be asked concerning the accuracy and completeness of the evidence given by Mr Israel Zamir in the following affidavits which were relied upon at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628:

(a)    Statutory Declaration of Mr Israel Zamir dated 10 December 2009; and

(b)    Statutory Declaration of Mr Israel Zamir dated 10 August 2010.

(34)    Questions will be asked in relation to the documents identified at:

(a)    (c) to (t) below, which were tendered on behalf of Rawson Finances and at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628; and

(b)    (u) to (ii) below, which were obtained from Mercantile Discount Bank by the liquidator for Advance Finances (and were not produced on behalf of Rawson Finances and at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628).

Documents tendered at the hearing of Areffco and Commissioner of Taxation

(c)    Loan application in foreign currency for a foreign resident dated 9 July 1997

(d)    Letter from Advance Finances to Mr Ellie Septon dated 24 June 1997

(e)    Deposit / Withdrawal in Standard Currency Form dated 9 July 1997

(f)    Facsimile from Advance Finances to Mercantile Discount Bank dated 24 June 2001

(g)    One Loan Application Extension in Foreign Currency for a Foreign Resident form dated 28 June 2002 and two Loan Application Extension in Foreign Currency for a Foreign Resident forms dated 23 December 2002

(h)    Mercantile Discount Bank form in Hebrew

(i)    One page of handwritten notes

(j)    One Amortisation schedule dated 30 December 2003

(k)    Mercantile Discount Bank form in relation to changes of rates of interest dated 7 January 2004

(l)    Mercantile Discount Bank form in Hebrew dated 2 January 2005

(m)    Letter from Advance Finances to Mercantile Discount Bank dated 21 February 2005

(n)    One Mercantile Discount Bank payment form generated on 3 January 2005

(o)    A Mercantile Discount Bank Amortisation Schedule dated 3 January 2005

(p)    Mercantile Discount Bank form in Hebrew dated 7 January 2005

(q)    [deliberately left blank]

(r)    Mercantile Discount Bank form in Hebrew dated 30 January 2005

(s)    Letter from Advance Finances to Mercantile Discount Bank dated 25 May 2005

(t)    19 Mercantile Discount Bank statement form letters dated 24 January 2008

Documents obtained by the liquidator for Advance Finances

(u)    Letter from David Belan to Ellie Septon of Mercantile Discount Bank dated 8 July 1997

(v)    Letter from Emil Binetter to Ellie Septon of Mercantile Discount Bank dated 24 February 2000

(w)    Draft letter from Mercantile Discount Bank to Advance Finances dated 23 March 2004

(x)    Guarantors' Signatures Account Holders Mercantile Discount Bank form in Hebrew dated 12 June 1997 signed by Gary Binetter

(y)    Guarantors' Signatures Account Holders Mercantile Discount Bank form in Hebrew dated 12 June 1997 signed by J Belan

(z)    Mercantile Discount Bank form in Hebrew described as company accounts list for Advance Finances ?

(aa)    Continuing All Debts' Guarantee unlimited in amount

(bb)    Advance Finances application form to open a non interest earning current account and an interest earning deposit account

(cc)    Application to effect banking operations as per telephone instructions

(dd)    Application for the execution of banking acts by means of facsimile dated 1 June 1997

(ee)    Power of Attorney applying to all accounts and transactions

(ff)    Corporate Resolutions for the Account of Advance Finances Covering General Banking Powers

(gg)    Letter from Michael Binetter to Mercantile Discount Bank dated 3 June 1997

(hh)    Mercantile Discount Bank non resident current account information print outs for the period 31 August 1997 to 6 July 2005

It is proposed to ask the witness general questions:

(a)    as to whether the bank has copies of these documents, whether they are included in the same form or whether the bank’s copy of the document are different;

(b)    as to the authenticity, nature and provenance of those documents.

(c)    as to whether those documents are a complete record of the transactions relevant to the asserted loans;

(d)    as to whether those documents indicate or establish that there was a deposit or some other security or collateral relevant to the asserted loan; and

(e)    whether the effect of the arrangement was that the customer could choose the interest rate on the asserted loan

(f)    in relation to each of the documents described at (c) to (t) above, does the document, or did the document at any time form part of the records belonging to or kept by Mercantile Discount Bank?

(g)    In relation to each of the documents described at [u] to [ii] above (being the documents provided to the liquidator), why were these documents not produced by Mercantile Discount Bank to Advance Finances along with the documents referred to at [c] to [t] above, being the documents said to constitute the Advance file at the hearing of Areffco v Commissioner of Taxation?

(35)    In your statutory declarations affirmed on 10 December 2009 and 10 August 2010, you produced the following documents the only documents:

Documents tendered at the hearing of Areffco and Commissioner of Taxation

(a)    Loan application in foreign currency for a foreign resident dated 9 July 1997

(b)    Letter from Advance Finances to Mr Ellie Septon dated 24 June 1997

(c)    Deposit / Withdrawal in Standard Currency Form dated 9 July 1997

(d)    Facsimile from Advance Finances to Mercantile Discount Bank dated 24 June 2001

(e)    One Loan Application Extension in Foreign Currency for a Foreign Resident form dated 28 June 2002 and two Loan Application Extension in Foreign Currency for a Foreign Resident forms dated 23 December 2002

(f)    Mercantile Discount Bank form in Hebrew

(g)    One page of handwritten notes

(h)    One Amortisation schedule dated 30 December 2003

(i)    Mercantile Discount Bank form in relation to changes of rates of interest dated 7 January 2004

(j)    Mercantile Discount Bank form in Hebrew dated 2 January 2005

(k)    Letter from Advance Finances to Mercantile Discount Bank dated 21 February 2005

(l)    One Mercantile Discount Bank payment form generated on 3 January 2005

(m)    A Mercantile Discount Bank Amortisation Schedule dated 3 January 2005

(n)    Mercantile Discount Bank form in Hebrew dated 7 January 2005

(o)    Letter from Advance Finances to Mercantile Discount Bank dated 21 February 2005

(p)    Mercantile Discount Bank form in Hebrew dated 30 January 2005

(q)    Letter from Advance Finances to Mercantile Discount Bank dated 25 May 2005

(r)    19 Mercantile Discount Bank statement form letters dated 24 January 2008

Why were the documents described at [34(u) to (ii)] not included to your statutory declarations affirmed 10 December 2009?

(36)    It is also proposed to ask the witness specific questions in relation to the documents provided by the liquidator referred to at [34(u)] to [34(ii)] above:

Letter from David Belan to Ellie Septon of Mercantile Discount Bank dated 8 July 1997

(a)    Who is David Belan and what relationship does he have to Advance Finances and on what basis was he authorised to give instruction with respect to the account?

(b)    On what basis was Mr Belan able to instruct Mercantile Discount Bank that 'the remaining AUD 30,000 (thirty thousand Australian dollars) is to be placed on the money market on three monthly roll-over'?

(c)    Is it correct that this instruction could only be made on the basis that Advance Finances had money on deposit with Mercantile Discount Bank and if so would this deposit be part of the security against which the loans were made?

Letter from Emil Binetter to Ellie Septon of Mercantile Discount Bank dated 24 February 2000

(d)    On what basis was Mr Belan able to instruct Mercantile Discount Bank to request that 'any fiduciary deposits you hold on behalf of Advance Finances should not be put on term deposits past 31 May 2000…'?

(e)    What were the fiduciary deposits?

(f)    What was the total amount of fiduciary deposits held on behalf of Advance Finances and in relation to each deposit:

(i)    When was the deposit placed?

(ii)    How much was the deposit?

(iii)    Who placed the deposit?

(iv)    Who was authorised to give instructions in relation to the deposit?

(g)    Is it correct that this instruction could only be made on the basis that Advance Finances had money on deposit with Mercantile Discount Bank and if so was this deposit the security, or part of the security, against which the loans were made?

Draft letter from Mercantile Discount Bank to Advance Finances dated 23 March 2004

(h)    Is it ordinary commercial practice for the Bank to accept draft letters from borrowers and then issue the draft letter back to the borrower on Bank letterhead?

(i)    Did the Bank issue a copy of the letter to Advance Finances and if not, why not? If the Bank did issue the correspondence in accordance with the request, why did the Bank decide to issue a copy of the letter?

(j)    The draft letter is in similar terms to a letter issued by the Bank to Advance Finances on 7 June 2000? Did the Bank also receive instructions from Advance Finances to issue the 7 June 2000 letter?

(k)    What is the reason for the handwritten comment in Hebrew that 'this is a back to back loan with a margin of 0.6 between the deposit and the loan'? And:

(i)    What was the deposit or security held by Mercantile Discount Bank that led to this loan being termed a back to back loan?

(ii)    Who placed the deposit or security with Mercantile Discount Bank and when?

(iii)    Who was authorised to be given information by Mercantile Discount Bank or give instructions to Mercantile Discount Bank in relation to the deposit or security?

(l)    Is it correct that this instruction could only be made on the basis that Advance Finances had money on deposit with Mercantile Discount Bank and if so would this deposit be part of the security against which the loans were made?

Guarantors' Signatures Account Holders Mercantile Discount Bank form in Hebrew dated 12 June 1997 signed by Gary Binetter

(m)    Was an equivalent or similar application completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

(n)    What were the assets provided to Mercantile Discount Bank that secured the loans referred to in the application?

Guarantors' Signatures Account Holders Mercantile Discount Bank form in Hebrew dated 12 June 1997 signed by J Belan

(o)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

(p)    What were the assets provided to Mercantile Discount Bank that secured the loans referred to in the application?

(q)    Who is 'John Belan' and what is his relationship to Advance Finances?

Mercantile Discount Bank form in Hebrew company accounts list for Advance Finances ?

(r)    What is a 'non resident deposit account'?

(s)    Is it correct that this instruction could only be made on the basis that Advance Finances had money on deposit with Mercantile Discount Bank and if so would this deposit be the security, or part of the security, against which the loans were made?

Continuing All Debts' Guarantee unlimited in amount

(t)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

(u)    What were the assets provided to Mercantile Discount Bank that secured the loans referred to in the application?

Advance Finances application form to open a non interest earning current account and an interest earning deposit account

(v)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011??

(w)    What amounts were placed on deposit for or on behalf of Advance Finances in relation to these accounts?

Application to effect banking operations as per telephone instructions

(x)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

Application for the execution of banking acts by means of facsimile dated 1 June 1997

(y)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

Power of Attorney applying to all accounts and transactions

(z)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

Corporate Resolutions for the Account of Advance Finances Covering General Banking Powers

(aa)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

Letter from Michael Binetter to Mercantile Discount Bank dated 3 June 1997

(bb)    Was an equivalent letter completed in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

Mercantile Discount Bank non resident current account information print outs for the period 31 August 1997 to 6 July 2005

(cc)    Were equivalent banking records available in relation to the Rawson Finances account with Mercantile Discount Bank? If so, why was this application not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

(dd)    What is the purpose of this account and how is it related to the loan account?

(ee)    What transactions are recorded in this account?

(ff)    Do these accounts indicate cash held on deposit for Advance Finances?

Schedule C to Attachment C

(37)    Is Rawson Finances, as a former customer of Mercantile Discount Bank, able to request that it be provided with documents or information relevant to the loan and any security for the loan?

(38)    If yes, what are the categories and types of documents that Mercantile Discount Bank would provide to Rawson on request? In particular:

(a)    whether the documents described at [29] in Schedule A above are the only types of documents that Mercantile Discount Bank would provide to Rawson Finances on request;

(b)    whether documents of the type described at [34(u)] to [34(ii)] in Schedule B above would be provided by Mercantile Discount Bank to Rawson Finances on request;

(c)    and if so, why did Mercantile Discount Bank not produce such further documents to Rawson Finances in light of requests assertedly made by or on behalf of Rawson Finances to Mercantile Discount Bank for:

(i)    '…copies of the bank's documents to show the loan was taken out, security, amount of loan, anything you have really…'

(ii)    '…copies of the banks records for interest payments due from Rawson to Mercantile'

(iii)    'any more documents that you have not given me for the Rawson loan? Also I am specifically looking for originals from the Bank's file?'

(iv)    'access to the Bank file'

(39)    If Rawson Finances, as a former customer of Mercantile Discount Bank were to request the documents of the type referred to at [34(u)] to [34(ii)] in Schedule B above, would Mercantile Discount Bank produce documents to Rawson Finances:

(a)    if the answer to the above is no, why would Mercantile Discount Bank not provide the documents to Rawson Finances; and

(b)    If the answer to sub-paragraph (a) above is no, why were the documents provided to the liquidator of Advance Finances.

(40)    What was the form and content of any request made by, or on behalf of Rawson Finances , to Mercantile Discount Bank for documents and information in relation to the loans for the period 1 July 2006 to present. Was the form of any request in writing or oral and who made the request?

(41)    In relation to the evidence given by you on behalf of Rawson Finances at the hearing of Areffco v Commissioner of Taxation:

(a)    If a former customer of Mercantile Discount Bank requested copies of the bank's documents, including documents relating to the security, would Mercantile Discount Bank keep a record of such a request? If so, does any such record exist in relation to the Rawson loan file?

(b)    Were computerised records relating to of the loan kept?

(c)    Was a computerised record of the collateral against which the loans were offered maintained in accordance with Banking Regulation 318? If so, why were details of the collateral not annexed to your statutory declarations affirmed on 15 February 2010 and 14 February 2011?

(d)    Do the documents described at [29] in Schedule A above comprise the Rawson Finances' loan file that would be made available to Rawson Finances' on request? If not, are your statutory declarations affirmed on 15 February 2010 and 14 February 2011 incorrect or incomplete in stating that 'annexed to this affidavit at marked 'B' are copies of the Rawson loan file held by the Bank'.

(e)    Why did you produce letters in relation to the payment of interest rather than print details of the accounts showing the actual interest accrued and paid? Would the bank records have shown that interest was paid from a deposit held at Mercantile Discount Bank for on behalf of Rawson Finances?

(f)    If there was a deposit or other security supporting the Rawson Finances' loan was this communicated by you, or as far as you are aware by any other officer of Mercantile Discount Bank to Mr Andrew Binetter (or any other person acting for on behalf of Rawson Finance) or discussed with him (or them) at any time?

(g)    Did the Bank refuse to give Rawson Finances access to the complete Mercantile Discount Bank file? If so, was that refusal oral or in writing. If oral, who was the refusal made by? If in writing, what were the terms of the refusal, when was it communicated and to whom was it communicated?

(h)    If the Rawson Finances' loans were supported by deposits or other arrangements, was this communicated to Mr Andrew Binetter when he requested information relating to the existence of any deposits? If not, why not?

(i)    Did Mercantile Discount Bank receive any written correspondence from Rawson Finances (or persons acting on their behalf) in relation to the production of the Rawson Finances' loan file? If so, when?

(j)    Did Rawson Finances (or persons acting on their behalf) have communications with you Mr Mintz or any other Mercantile Discount Bank officer in relation to obtaining information in relation to the Rawson Finances' loan file? If not, what did it provide and when?

(k)    Did Mercantile Discount Bank refuse to provide Rawson Finances with the entirety of the loan file? If Mercantile Discount Bank did assist, what was that assistance?

(l)    Did Mercantile Discount Bank require the provision of a power of attorney before providing Rawson Finances with a copy of the loan file?

(m)    Did Mr Andrew Binetter instruct Mercantile Discount Bank to provide details of the business records in relation to the loan? If so, did Mercantile Discount Bank you not provide details of the business records in relation to the loan, in particular the security? If not, what not?

(n)    Are there any records held by Mercantile Discount Bank of any officer of Mercantile Discount Bank communicating with Mr Andrew Binetter? If so, which bank officer or officers and when did the communications occur?

(o)    Is it the case that the Rawson Finances and Advance Finances loan files were not computerised and instead only kept in hard copy such that the files could be misplaced or lost?

(p)    What were the practices or rules of Mercantile Discount Bank with respect to the decisions as to whether to provide a loan file to a former customer.

***

INDEX OF DOCUMENTS ANNEXED TO LETTER OF REQUEST

Annexure 2 to the Orders of 30 November 2016

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 Applicant in these civil proceedings before the Federal Court of Australia is the Commissioner of Taxation (the Commissioner) and the Respondent is Rawson Finances Pty Limited (Rawson Finances), an Australian resident company.

(2)    The history of the dispute is as follows.

(3)    After an audit that commenced in 2006, the Commissioner issued various assessments to Rawson Finances which had the effect of disallowing claimed interest deductions on asserted loans and increasing Rawson Finances' assessable income and tax liability. Rawson Finances objected and the relevant objections were disallowed.

(4)    Rawson Finances applied for review to the Administrative Appeals Tribunal (the Tribunal). In the proceedings before the Tribunal, witnesses called on behalf of Rawson Finances gave evidence to the effect that:

(a)    Rawson Finances' directors had a family history of setting up special purpose vehicles which took out asserted loans from Israeli Banks;

(b)    Israeli Banks operated differently to Australian banks in that Israeli Banks were willing to lend on the basis of personal guarantees and relationships with the borrowers;

(c)    the directors of Rawson Finances and family members of the directors had direct involvement with Israeli Banks through other entities known as BCI Finances Pty Limited (BCI Finances) , Advance Finances Pty Limited (Advance Finances) and Civic Finances Pty Limited (Civic Finances) all of which received significant loans from Israeli Banks that were not supported by cash deposits and which were not back to back loans;

(d)    the details of the principal lent referred to in (c) above were asserted by the witnesses who gave evidence on behalf of Rawson to be:

(i)    on 14 May 1993, Bank Hapoalim B.M lent CHF 12,000,000 to BCI Finances;

(ii)    on 9 July 1997, Mercantile Discount Bank lent AUD 4,000,000 to Advance Finances;

(iii)    on 16 June 1999, Israel Discount Bank lent AUD 5,000,000 to Civic Finances;

(iv)    in 2004, Mercantile Discount Bank lent a further AUD 2,500,000 to Advance Finances;

(v)    on 27 May 2004, Israel Discount Bank lent a further AUD 3,690,000 to Advance Finances; and

(vi)    on 1 March 2005, Bank Hapoalim B.M lent a further AUD 6,177,288 to BCI Finances.

(e)    the Rawson Finances loans were not supported by any deposit or back-to-back arrangement and Mercantile Discount Bank was willing to make the loan on the strength of a personal guarantee from a former director of Rawson Finances.

(5)    At the hearing of Areffco and Commissioner of Taxation [2011] AATA 628, Rawson Finances relied upon the following documents:

(a)    Statutory Declaration of Mr Israel Zamir dated 10 December 2009

(b)    Statutory Declaration of Mr Israel Zamir dated 15 February 2010; and

(c)    Statutory Declaration of Mr Israel Zamir dated 10 August 2010

(d)    Statutory Declaration of Mr Israel Zamir dated 14 February 2011.

(6)    The Tribunal accepted the case advanced by Rawson Finances, accepting significant aspects of Rawson Finances’ evidence. The Tribunal upheld Rawson Finances' objections to the assessments (and therefore the increased tax liability).

(7)    The Commissioner successfully appealed this decision in Commissioner of Taxation v Rawson Finances [2012] FCA 753. However, the Full Court of the Federal Court of Australia allowed Rawson's appeal in Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26.

(8)    In 2015, the Commissioner obtained documents which demonstrated that the loans made to BCI Finances, Advance Finances and Civic Finances were secured with cash deposits and were known as back-to-back loans. In these proceedings, the Commissioner has applied to the Federal Court to have the Tribunal's decision Areffco and Commissioner of Taxation [2011] AATA 628 (and/or the Full Court decision) overturned on the basis it was obtained by fraud.

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 Elie Septon, formerly the Deputy General Manager (and prior to that, Senior Manager) at the Tel Aviv Branch of Mercantile Discount Bank in Israel.

(2)    The general nature and subject matter of the examination of Mr Elie Septon 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 duces tecum, summons or equivalent order which requires the Proper Officer of Mercantile Discount Bank to produce documents that fall within the categories of documents described in the schedule immediately below (except to the extent that those documents have already been produced in response to an order made by the judicial authorities in Israel pursuant to another letter of request issued in the proceedings referred to in Attachment ‘A').

Schedule to Attachment B

Rawson Finances

(4)    In relation to any advances of money by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 30 December 2013 (collectively referred to hereafter as “the advances”), for the purposes of answering the questions in each of the paragraphs referred to below including those relating to any documents outlined in those paragraphs, all documents recording or evidencing:

(a)    For the purposes of answering the questions at [14], [26], [29(c) and (d)], and [30(c)(u)] including those relating to the documents outlined in those paragraphs. any security, deposit, asset or arrangement:

(i)    related or connected in any way to the advances; or

(ii)    accepted or treated as 'security' or 'collateral' for the advance of funds or the advances.

(b)    For the purposes of answering the questions at [29(a), (c) and (f)] and [30(a) to (w)] including those relating to the documents outlined in those paragraphs, the terms on which the advances or asserted loans were made and manner in which any party performed any agreement relevant to the asserted loans, including but not limited to:

(i)    the term of the loan;

(ii)    the dates on which the principal was to be repaid (and the amount of principal to be repaid on each date);

(iii)    the dates on which the principal was actually repaid (and the amount of principal repaid on each date)

(iv)    the dates on which interest was due to be paid (and the amount of interest paid on each date); and

(v)    the dates on which the interest was actually paid (and the amount of principal paid on each date);

(vi)    how principal and interest was paid or credited in any account related to the advances or loans.

(5)    In relation to the advances by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 30 December 2013, for the purposes of answering the questions at [14], [26], [29(c) and (d)], and [30(c)(u)] including those relating to the documents outlined in those paragraphs, any documents that contain one or more references to a back-to-back loan or other arrangement or to any security, deposit or asset related in any way to the advances or loans.

(6)    For the purposes of answering the questions at [26], [29 (c) and (d)], and [30(b), (c), (e), (g), (i)] including those relating to the documents outlined in those paragraphs, all documents recording or evidencing any communication between Mercantile Discount Bank (or any of its officers, employees, representatives or agents) and Rawson Finances (including agents, representatives, solicitors or any person acting for, in relation to or on behalf of Rawson Finances) constituting or relating to or in connection with:

(a)    any security, deposit, collateral, asset or arrangement accepted or treated as 'security' or 'collateral' for the advance of funds by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 31 December 2013; and

(b)    any request for or on behalf of Rawson Finances to Mercantile Discount Bank for the provision of the documents or information relevant to the advances of funds and any response by Mercantile Discount Bank to same.

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)    For the purposes of understanding the questions set out further below, the background to the relevant entities, being Rawson Finances and Advance Finances is first set out below with the questions following immediately after.

Rawson Finances

(2)    On 21 April 1997, Rawson Finances was incorporated. Its only asset was AUD 2 of issued capital.

(3)    For the purposes of the questions below, we note that Rawson Finances asserted that it had a financial arrangement (which it called a loan) with Mercantile Discount Bank that included the features set out below (together with other relevant circumstances):

Transfers of funds

(a)    Between June 1997 and December 1997, Mercantile Discount Bank lent AUD 4,500,000 to Rawson Finances on the following terms:

(i)    5 June 1997: AUD 3,000,000, 5 year term, interest rate 8.298%;

(ii)    4 July 1997: AUD 1,000,000, 5 year term, interest rate 8.298%; and

(iii)    4 December 1997: AUD 750,000, 5 year term, interest rate 8.298%.

(b)    The 5 June 1997 loan was repaid in full on 18 September 1998.

(c)    The loan period for the remaining loans was extended in December 2002.

(d)    Before March 2004 there was a suspension of interest payments.

(e)    The loan period was again extended in January 2005.

(f)    The July 1997 and December 1997 loans were repaid in the following manner:

(i)    on 18 September 1998: AUD 200,000 of the July 1997 loan was repaid;

(ii)    on 20 July 2009: the balance of the July 1997 loan was repaid; and

(iii)    on 8 October 2009 and 11 December 2009: the December 1997 loan was repaid

(g)    There were 2 substantial periods of non-payment of interest by Rawson Finances, namely February 2001 to January 2005 and January 2006 to July 2009.

Loan terms – security

(h)    The loans were either unsupported by any security or supported solely by guarantees from Mr Erwin Binetter, a director of Rawson Finances. Neither Rawson Finances, nor any of its directors had any assets in Israel.

(i)    The borrowed funds were on-lent by Rawson Finances to associated businesses in Australia on the same terms as the loan from Mercantile Discount Bank.

Loan terms – principal and interest

(j)    The loans were bullet loans, that is, there was no requirement for periodic repayments of principal during the loan term, although early repayment without penalty was permitted.

(k)    The loans were denominated in Australian Dollars.

(l)    The interest rate on the loans was fixed at 8.298%, calculated on simple interest basis with a penalty of 1% should the repayments not be made in time.

(m)    The loans were extended in 2002 and 2005.

Advance Finances

(4)    On 21 April 1997, Advance Finances was incorporated. Its only asset was AUD 2 of issued capital.

(5)    For the purposes of the questions below, we note that Rawson Finances asserted that Advance Finances had a financial arrangement (which it called a loan) with Mercantile Discount Bank that included the features set out below (together with other relevant circumstances):

Transfers of funds

(a)    On 9 July 1997, Mercantile Discount Bank lent AUD 4,000,000 to Advance Finances on a 5 year term at an interest rate of 8.298%.

(b)    In June 2000, an amount of AUD 3,000,000 of the principal was repaid.

(c)    On 27 May 2004, Mercantile Discount Bank lent a further AUD 2,500,000 to Advance Finances at an interest rate of 6.5%.

(d)    The loans were repaid in full in June 2005.

Loan terms – security

(e)    The loans were either unsupported by any security or supported solely by guarantees from Mr Emil Binetter, a director of Advance Finances. Neither Advance Finances, nor any of its directors had any assets in Israel.

(f)    The borrowed funds were on-lent by Advance Finances to associated businesses in Australia on the same terms as the loan from Mercantile Discount Bank.

Loan terms – principal and interest

(g)    The loans were bullet loans, that is, there was no requirement for periodic repayments of principal during the loan term, although early repayment with a penalty of only AUD 500 was permitted.

(h)    The loans were denominated in Australian Dollars.

(i)    The interest rate on the loans was predominantly fixed at 8.298% (but was occasionally 7.2% or 6.5%) calculated on simple interest basis with a penalty of 1% should the repayments not be made in time.

(j)    The loan was extended in June 2002 and December 2002.

General Subject Matter of the Examination

(6)    The general subject-matter of the examination is:

(a)    the nature of the arrangements between Rawson Finances and Mercantile Discount Bank between 1997 and 2009 (or up until Mr Septon’s retirement where it occurred before the end of 2009);

(b)    whether the statutory declarations affirmed by Mr Zamir in relation to Rawson Finances dated 15 February 2010 and 14 February 2011 and the statutory declarations affirmed by Mr Zamir in relation to Advance Finances dated 10 December 2009 and 10 August 2010 set out a complete record of all transactions and arrangements relevant to the asserted loans in the above period, and in particular whether the loans were supported by a deposit or arrangement other than a personal guarantee (based on Mr Septon’s knowledge of the asserted loans); and

(c)    the documents or information requests that were made for or on behalf of Rawson Finances to Mr Septon and the response of Mr Septon to those requests, the documents or information that Mercantile Discount Bank would typically provide to Rawson Finances in relation to the loans on request from Rawson Finances, and in particular whether Mercantile Discount Bank would typically disclose to Rawson Finances the manner in which the loans were secured.

(7)    The general nature of the questions to be put to the examinee are detailed in Schedule A below, though allowance is to be made for the judicial rules, procedures and practices of the requested State.

Schedule A to Attachment C

(8)    What is your full name and what positions did you hold at Mercantile Discount Bank between 1996 until the time of your retirement?

(9)    What were your duties and responsibilities in your work positions?

Rawson Finances

(10)    What was the nature of all the arrangements between Mercantile Discount Bank and Rawson Finances or any other person or entity for on behalf of Rawson Finances in relation to the transmission of funds between Mercantile Discount Bank and Rawson Finances in the period 1 January 1996 until the time of your retirement?

(11)    Who had responsibility within Mercantile Discount Bank for the negotiation and supervision of the asserted loans?

(12)    Who was the representative of Rawson Finances that negotiated the original asserted loans and any changes in the terms of those loans including to the payment of interest or the extension of the loans?

(13)    What was the substance of those negotiations?

(14)    At or around the time the funds were advanced (see paragraph 3 of Attachment C), was there a deposit or other collateral or security connected in any way with the alleged loans to Rawson Finances and if so what was the arrangement, including:

(a)    what were the terms of the arrangement and did:

(i)    it include the use of an arrangement known as a 'back-to-back loan'?

(ii)    the arrangement involve Mercantile Discount Bank holding fiduciary (or other) deposits for, or on behalf of, Rawson Finances?

(iii)    the arrangement involve the use of a 'non resident deposit account'

(iv)    a person or entity provide a deposit, collateral, security or other asset to which Mercantile Discount Bank would have recourse if the borrower defaulted on the loan term and if so, who was that person or entity?

(b)    if there was a deposit, or other asset, where was it held, who made the deposit, in whose name was the deposit held and what interest was paid on it or on respect of it?

(c)    if there was a deposit, what was the margin of interest rate between the deposit and the loan?

(d)    if there was a deposit or other asset, what instructions did Mercantile Discount Bank receive and what actions did Mercantile Discount Bank take in relation to that deposit or asset once the loan principal and interest was repaid (at any time up until your retirement) and from which person or entity and when were those instructions received?

(e)    who was authorised to give relevant instructions to Mercantile Discount Bank in respect of the deposit or asset?

(f)    did Mercantile Discount Bank receive an application to effect banking operations as per phone instructions or by facsimile and if so who made the application and when and who was authorised to provide phone instructions to Mercantile Discount Bank?

(g)    did Mercantile Discount Bank receive a power of attorney relating to all or any accounts and transactions and if so, when and who were the authorised representatives under that power of attorney?

(h)    in the period 1997 up until the time of your retirement were back to back loans or loans typically secured by some form of cash deposit available to Mercantile Discount Bank customers? If so:

(i)    what documents were created and or entered into to give effect to the arrangement?

(ii)    what was the general nature of the arrangement?

(iii)    what was the general structure of the arrangement, including where the deposit was held?

(iv)    who in Mercantile Discount Bank had the responsibility for negotiating such loans?

(v)    were such loans subject to credit committee (or other internal committee) supervision, assessment or approval?

(15)    During the period of the time of the asserted loans did Mercantile Discount Bank advise Rawson Finances of the amount of its interest payments? If so, when and how was that communicated to Rawson Finances and to who specifically?

(16)    Did Mercantile Discount Bank permit Rawson Finances to calculate the quantum of its interest payments? If so, on what basis did the Bank permit Rawson Finances to calculate its interest obligations and when and how were those calculations communicated to, or received by, Mercantile Discount Bank?

(17)    When and how was the interest received from Rawson Finances? Was the interest paid by way of funds transfer from Rawson Finances or was the interest paid from a deposit or other source such as an account (and if so identify the account) held for or on behalf of Rawson Finances in relation to the loan?

(18)    Was there a non-payment of interest in the period of the loan, (including the period described at [3(g)] of Attachment C above)?

(19)    What written or oral communications did Mercantile Discount Bank have with Rawson Finances in relation to the non-payment of interest? Please identify the time and nature of these communications.

(20)    If there was a non-payment of interest what steps did Mercantile Discount Bank take to compel payment of the interest? Did Mercantile Discount Bank ever agree to capitalise interest (up until the time of your retirement)? Please identify the time and nature of any communications in this respect.

(21)    In relation to the interest payable in relation to the loans referred to at [3(a)] above:

(a)    How was the interest rate calculated and was it calculated by reference to a deposit held for or on behalf of Rawson Finances?

(b)    What was the amount of principal on which the interest was calculated?

(c)    What were the dates on which each payment of interest was to be made?

(d)    How much interest was to be paid on each of the dates referred to at (c) above?

(e)    In relation to any payment of interest made by Rawson Finances:

(i)    How was each payment of interest effected by Rawson Finances?

(ii)    On what dates did Rawson Finances make payments of interest?

(iii)    How much interest was paid by Rawson Finances on each of the dates referred to at (ii) above?

(22)    Did, and if so, why did, Mercantile Discount Bank agree to extend the loans in 2002 and 2005?

(23)    If the loans were supported by any deposit, asset or arrangement other than a personal guarantee did Mercantile Discount Bank have any communications, whether written or oral, with Rawson Finances, or any agent or representative on its behalf, in relation to that deposit, asset or arrangement and, if so, in relation to each communication:

(a)    When was the communication made;

(b)    Who was the communication between;

(c)    What was the substance of the communication.

(24)    Questions will be asked concerning the evidence given by Mr Israel Zamir in the following documents which were relied upon in Areffco and Commissioner of Taxation [2011] AATA 628:

(a)    Statutory Declaration of Mr Israel Zamir dated 15 February 2010; and

(b)    Statutory Declaration of Mr Israel Zamir dated 14 February 2011.

(25)    Who had such authority to grant back to back loans within Mercantile Discount Bank and did Mr Zamir have such authority?

(26)    What were the 'sufficient securities' referred to in the statutory declaration dated 15 February 2010 based on your knowledge and experience in relation to the asserted loans?

(27)    Were decisions to grant back to back loans subject to supervision by a credit committee?

(28)    Do the statutory declarations of Mr Zamir set out a complete record of all transactions and arrangements relevant to the asserted loans, and in particular whether the loans were supported by a deposit or arrangement other than a personal guarantee?

(29)    In relation to the following documents:

(a)    letter from Rawson Finances to Mr Elie Septon dated 4 July 1997;

(b)    letter from Rawson Finances to Mr Elie Septon dated 4 December 1997;

(c)    letter from Rawson Finances to Mr Elie Septon dated 9 December 1997;

(d)    letter from Rawson Finances to Mr Ellie Septon (sic) dated 18 September 1998;

(e)    deposit / withdrawal in Standard Currency Form dated 23 September 1998;

(f)    two Loan Application in Foreign Currency for a Foreign Resident forms dated 23 December 2002;

(g)    two Amortisation schedules dated 30 December 2003;

(h)    six Mercantile Discount Bank payment forms generated on 11 December 2009;

(i)    a Mercantile Discount Bank Amortisation Schedule dated 3 January 2005; and

(j)    44 Mercantile Discount Bank statement form letters dated 24 January 2008

It is proposed to ask the witness general questions:

(k)    as to the authenticity, nature and provenance of those documents;

(l)    as to whether those documents are a complete record of the transactions relevant to the asserted loans;

(m)    as to whether those documents indicate or establish that there was a deposit or some other security or collateral relevant to the asserted loan;

(n)    as to whether the effect of the arrangement was that Rawson Finances could decide the interest rate on the asserted loan; and

(o)    in relation to each of the documents described above, does the witness recognise the document as one that at any time formed part of the records belonging to or kept by Mercantile Discount Bank.

(30)    It is also proposed to ask the witness specific questions in relation to some of the documents identified at [29] above:

Letter from Rawson Finances to Mr Elie Septon dated 4 July 1997

(a)    Do you recognise this document as a document that was received by you?

(b)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did the practice apply?

(c)    Was any response made by you and/or Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

(d)    From your own knowledge and experience and involvement in respect of the asserted loan, did any of the following documents exist at any time and if not, is there any explanation for the following documents not existing in relation to the loan agreement entered into on or about 4 June 1997:

(i)    agreement for opening an account or accounts and the terms and conditions of those accounts;

(ii)    corporate resolutions for the account covering general banking powers;

(iii)    certification of the officers of the borrower;

(iv)    a loan agreement that sets out the terms of the loan; and

(v)    agreements as to the type of security to be provided?

Letter from Rawson Finances to Mr Elie Septon dated 4 December 1997

(e)    Do you recognise this document as a document that was received by you?

(f)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did the practice apply?

(g)    Was any response made by you and/or Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

Letter from Rawson Finances to Mr Elie Septon dated 9 December 1997

(h)    Do you recognise this document as a document that was received by you?

(i)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did the practice apply?

(j)    Was any response made by you and/or Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

Letter from Rawson Finances to Mr Ellie Septon (sic) dated 18 September 1998

(k)    Do you recognise this document as a document that was received by you?

(l)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of an agreement struck by telephone the previous day?

(m)    Was any response made by you and/or Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when was it made?

Deposit / withdrawal in Standard Currency Form dated 23 September 1998

(n)    Do you recognise this document?

(o)    Did you prepare this document or any part of it?

(p)    Did you authorise this document or any part of it?

(q)    Is this document in any way related to the letter dated 18 September 1998 addressed to you by Rawson Finances?

(r)    Please explain each of the numbers that appears on the document and based on your knowledge and experience, what each of those numbers relate to?

Two Loan Applications (Extension) in Foreign Currency for a Foreign Resident forms dated 23 December 2002

(s)    Do you recognise this document?

(t)    Based on your knowledge and experience in relation to the asserted loans, would there have been an original loan application for the loan (that was to be “extended”) that was kept by the Mercantile Discount Bank? Would there be any explanation for why loan extension documents would be kept by the Mercantile Discount Bank but not the original loan applications?

(u)    At this time did Mercantile Discount Bank have a standard form for a loan extension or did it amend loan application forms?

(v)    In relation to the left hand column, was it in accordance with Mercantile Discount Bank's procedures not to record the date the loan was granted on?

Two Amortisation schedules dated 30 December 2003

(w)    Do you recognise these documents?

(x)    How were the amounts of interest in the schedule calculated and in particular, was interest calculated on the basis that the period of calculation was 260 days?

Schedule B to Attachment C

Advance Finances

(31)    What was the nature of the arrangements between Mercantile Discount Bank and Advance Finances or any other person or entity for or on behalf of Advance Finances in relation to the transmission of funds between Mercantile Discount Bank and Advance Finances in the period 1 January 1996 up until your retirement?

(32)    Was the nature of the arrangements identified in [31] above accurately and fully described at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628 through the following documents:

(a)    The statutory declarations of Mr Israel Zamir (see paragraph [33] below);

(b)    The affidavit of Mr Emil Binetter affirmed on 6 October 2010, which stated

(i)    In 1997, Mr Emil Binetter met with Mr Elie Septon, a manager of Mercantile Discount Bank, who agreed to loan Advance Finance AUD 4,000,000 and the security for the loan comprised a personal guarantee from Mr Emil Binetter, along with a list of his assets;

(ii)    Mr Binetter calculated the interest on the loans; and

(iii)    In 2004, Mr Emil Binetter and Mr Gary Binetter met with Mr Septon who agreed to loan a further AUD 2,500,000.

(c)    Exhibit 14A, being the 'Emil Binetter Group' summary assets and liabilities' which at row 14 stated that '… please note that Advance Finances took out a $4 million loan from Mercantile Discount Bank in the 1998 Financial Year'

(33)    Questions will be asked concerning the accuracy and completeness of the evidence given by Mr Israel Zamir in the following documents which were relied upon at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628:

(a)    Statutory Declaration of Mr Israel Zamir dated 10 December 2009; and

(b)    Statutory Declaration of Mr Israel Zamir dated 10 August 2010.

(34)    Do the statutory declarations of Mr Zamir set out a complete record of all transactions and arrangements relevant to the asserted loans, and in particular whether the loans were supported by a deposit or arrangement other than a personal guarantee?

(35)    Questions will be asked in relation to the documents identified at:

(a)    (c) to (k) below, which were tendered on behalf of Rawson Finances and at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628; and

(b)    (l) to (y) below, which were obtained from Mercantile Discount Bank by the liquidator for Advance Finances (and were not produced on behalf of Rawson Finances and at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628).

Documents tendered at the hearing of Areffco and Commissioner of Taxation

(c)    Loan application in foreign currency for a foreign resident dated 9 July 1997

(d)    Letter from Advance Finances to Mr Elie Septon dated 24 June 1997

(e)    Deposit / Withdrawal in Standard Currency Form dated 9 July 1997

(f)    Letter from Elie Septon to Advance dated 7 June 2000

(g)    Facsimile from Advance Finances to Mercantile Discount Bank dated 24 June 2001 marked to the attention of Mr E Septon

(h)    One Loan Application Extension in Foreign Currency for a Foreign Resident form dated 28 June 2002 and two Loan Application Extension in Foreign Currency for a Foreign Resident forms dated 23 December 2002

(i)    Mercantile Discount Bank form in Hebrew

(j)    Letter from Advance Finances to Mercantile Discount Bank (per Mr Elie Septon and Mr Israel Zamir) dated 21 February 2005

(k)    Letter from Advance Finances to Mercantile Discount Bank (per Mr Eli Septon (sic) and Mr Israel Zamir) dated 25 May 2005

Documents obtained by the liquidator for Advance Finances

(l)    Letter from David Belan to Elie Septon of Mercantile Discount Bank dated 8 July 1997

(m)    Letter from Emil Binetter to Elie Septon of Mercantile Discount Bank dated 24 February 2000

(n)    Draft letter from Mercantile Discount Bank to Advance Finances dated 23 March 2004

(o)    Guarantors' Signatures Account Holders Mercantile Discount Bank form in Hebrew dated 12 June 1997 signed by Gary Binetter

(p)    Guarantors' Signatures Account Holders Mercantile Discount Bank form in Hebrew dated 12 June 1997 signed by J Belan

(q)    Mercantile Discount Bank form in Hebrew described as company accounts list for Advance Finances

(r)    Continuing All Debts' Guarantee unlimited in amount

(s)    Advance Finances application form to open a non interest earning current account and an interest earning deposit account

(t)    Application to effect banking operations as per telephone instructions

(u)    Application for the execution of banking acts by means of facsimile dated 1 June 1997

(v)    Power of Attorney applying to all accounts and transactions

(w)    Corporate Resolutions for the Account of Advance Finances Covering General Banking Powers

(x)    Letter from Michael Binetter to Mercantile Discount Bank (per Mr Elie Septon) dated 3 June 1997

(y)    Mercantile Discount Bank non resident current account information print outs for the period 31 August 1997 to 6 July 2005

It is proposed to ask the witness general questions:

(z)    as to the authenticity, nature and provenance of those documents.

(aa)    as to whether those documents are a complete record of the transactions relevant to the asserted loans;

(bb)    as to whether those documents indicate or establish that there was a deposit or some other security or collateral relevant to the asserted loan; and

(cc)    whether the effect of the arrangement was that the customer could choose the interest rate on the asserted loan

(dd)    in relation to each of the documents described at (c) to (k) above, does the witness recognise the document as one that at any time formed part of the records belonging to or kept by Mercantile Discount Bank?

(36)    It is also proposed to ask the witness specific questions in relation to the documents provided by the liquidator referred to at [35(l)] to [35(y)] above:

Letter from David Belan to Elie Septon of Mercantile Discount Bank dated 8 July 1997

(a)    Do you recognise this document as a document that was received by you?

(b)    Who is David Belan and what relationship did he (or does he) have to Advance Finances and on what basis was he authorised to give instruction with respect to the account?

(c)    On what basis was Mr Belan able to instruct Mercantile Discount Bank that 'the remaining AUD 30,000 (thirty thousand Australian dollars) is to be placed on the money market on three monthly roll-over'?

(d)    Is it correct that this instruction could only be made on the basis that Advance Finances had money on deposit with Mercantile Discount Bank and if so would this deposit be part of the security against which the loans were made?

Letter from Emil Binetter to Elie Septon of Mercantile Discount Bank dated 24 February 2000

(e)    Do you recognise this document as a document that was received by you?

(f)    On what basis was Mr Binetter able to instruct Mercantile Discount Bank to request that 'any fiduciary deposits you hold on behalf of Advance Finances should not be put on term deposits past 31 May 2000…'?

(g)    What were the fiduciary deposits?

(h)    What was the total amount of fiduciary deposits held on behalf of Advance Finances and in relation to each deposit:

(i)    When was the deposit placed?

(ii)    How much was the deposit?

(iii)    Who placed the deposit?

(iv)    Who was authorised to give instructions in relation to the deposit?

(v)    Where was the deposit placed?

(i)    Is it correct that this instruction could only be made on the basis that Advance Finances had money on deposit with Mercantile Discount Bank and if so was this deposit the security, or part of the security, against which the loans were made?

Draft letter from Mercantile Discount Bank to Advance Finances dated 23 March 2004

(j)    Is it ordinary commercial practice for the Bank to accept draft letters from borrowers and then issue the draft letter back to the borrower on Bank letterhead?

(k)    Did the Bank issue a copy of the letter to Advance Finances and if not, why not? If the Bank did issue the correspondence in accordance with the request, why did the Bank decide to issue a copy of the letter?

(l)    The draft letter is in similar terms to a letter issued by the Bank to Advance Finances on 7 June 2000. Did the Bank also receive instructions from Advance Finances to issue the 7 June 2000 letter?

(m)    What is the reason for the handwritten comment in Hebrew that 'this is a back to back loan with a margin of 0.6 between the deposit and the loan'? Further:

(i)    What was the deposit or security held by Mercantile Discount Bank that led to this loan being termed a back to back loan?

(ii)    Who placed the deposit or security with Mercantile Discount Bank and when?

(iii)    Who was authorised to be given information by Mercantile Discount Bank or give instructions to Mercantile Discount Bank in relation to the deposit or security?

(n)    Is it correct that this instruction could only be made on the basis that Advance Finances had money on deposit with Mercantile Discount Bank and if so would this deposit be part of the security against which the loans were made?

Guarantors' Signatures Account Holders Mercantile Discount Bank form in Hebrew dated 12 June 1997 signed by Gary Binetter

(o)    Was an equivalent or similar application completed in relation to the Rawson Finances account with Mercantile Discount Bank?

(p)    What were the assets provided to Mercantile Discount Bank that secured the loans referred to in the application?

Guarantors' Signatures Account Holders Mercantile Discount Bank form in Hebrew dated 12 June 1997 signed by J Belan

(q)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank?

(r)    What were the assets provided to Mercantile Discount Bank that secured the loans referred to in the application?

(s)    Who is 'John Belan' and what was/is his relationship to Advance Finances?

Mercantile Discount Bank form in Hebrew company accounts list for Advance Finances?

(t)    What is a 'non resident deposit account'?

(u)    Is it correct that this instruction could only be made on the basis that Advance Finances had money on deposit with Mercantile Discount Bank and if so would this deposit be the security, or part of the security, against which the loans were made?

(v)    Did Rawson Finances also have a “non resident deposit account(s)” with the Mercantile Discount Bank? If so, was any such deposit the security, or part of the security, against which the asserted loans were made by Mercantile Discount Bank to Rawson Finances?

Continuing All Debts' Guarantee unlimited in amount

(w)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank?

(x)    What were the assets provided to Mercantile Discount Bank that secured the loans referred to in the application?

Advance Finances application form to open a non interest earning current account and an interest earning deposit account

(y)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank?

(z)    What amounts were placed on deposit for or on behalf of Advance Finances in relation to these accounts?

Application to effect banking operations as per telephone instructions

(aa)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank?

Application for the execution of banking acts by means of facsimile dated 1 June 1997

(bb)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank?

Power of Attorney applying to all accounts and transactions

(cc)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank?

Corporate Resolutions for the Account of Advance Finances Covering General Banking Powers

(dd)    Was an equivalent application completed in relation to the Rawson Finances account with Mercantile Discount Bank?

Letter from Michael Binetter to Mercantile Discount Bank dated 3 June 1997

(ee)    Was an equivalent letter completed in relation to the Rawson Finances account with Mercantile Discount Bank?

Mercantile Discount Bank non resident current account information print outs for the period 31 August 1997 to 6 July 2005

(ff)    Were equivalent banking records available in relation to the Rawson Finances account with Mercantile Discount Bank?

(gg)    What is the purpose of this account and how is it related to the loan account?

(hh)    What transactions are recorded in this account?

(ii)    Do these accounts indicate cash held on deposit for Advance Finances?

Schedule C to Attachment C

(37)    Up until the time of your retirement and based on your experience and knowledge and senior positions held in the Mercantile Discount Bank, was Rawson Finances, as a former customer of Mercantile Discount Bank, able to request that it be provided with documents or information relevant to the loan and any security for the loan?

(38)    If yes, what are the categories and types of documents that Mercantile Discount Bank would typically provide to Rawson Finances on request? In particular, would Mercantile Discount Bank typically produce to Rawson documents that described the collateral or security against which the loans were granted?

(39)     In particular:

(a)    whether the documents described at [29] in Schedule A above are the only types of documents that Mercantile Discount Bank would typically provide to Rawson Finances on request;

(b)    whether documents of the type described at [35(l)] to [35(y)] in Schedule B above would typically be provided by Mercantile Discount Bank to Rawson Finances on request;

(c)    Were computerised records relating to the asserted loans kept?

(d)    Were computerised records of the collateral against which the asserted loans were offered maintained?

(40)    What was the form and content of any request made by, or on behalf of Rawson Finances, to you or Mercantile Discount Bank for documents and information in relation to the loans for the period 1 July 2006 to present. Was the form of any request in writing or oral and who made the request?

*************************

INDEX OF DOCUMENTS ANNEXED TO LETTER OF REQUEST

Annexure 3 to the Orders of 30 November 2016

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 Applicant in these civil proceedings before the Federal Court of Australia is the Commissioner of Taxation (the Commissioner) and the Respondent is Rawson Finances Pty Limited (Rawson Finances), an Australian resident company.

(2)    The history of the dispute is as follows.

(3)    After an audit that commenced in 2006, the Commissioner issued various assessments to Rawson Finances which had the effect of disallowing claimed interest deductions on asserted loans and increasing Rawson Finances' assessable income and tax liability. Rawson Finances objected and the relevant objections were disallowed.

(4)    Rawson Finances applied for review to the Administrative Appeals Tribunal (the Tribunal). In the proceedings before the Tribunal, witnesses called on behalf of Rawson Finances gave evidence to the effect that:

(a)    Rawson Finances' directors had a family history of setting up special purpose vehicles which took out asserted loans from Israeli Banks;

(b)    Israeli Banks operated differently to Australian banks in that Israeli Banks were willing to lend on the basis of personal guarantees and relationships with the borrowers;

(c)    the directors of Rawson Finances and family members of the directors had direct involvement with Israeli Banks through other entities known as BCI Finances Pty Limited (BCI Finances) , Advance Finances Pty Limited (Advance Finances) and Civic Finances Pty Limited (Civic Finances) all of which received significant loans from Israeli Banks that were not supported by cash deposits and which were not back to back loans;

(d)    the details of the principal lent referred to in (c) above were asserted by the witnesses who gave evidence on behalf of Rawson to be:

(i)    on 14 May 1993, Bank Hapoalim B.M lent CHF 12,000,000 to BCI Finances;

(ii)    on 9 July 1997, Mercantile Discount Bank lent AUD 4,000,000 to Advance Finances;

(iii)    on 16 June 1999, Israel Discount Bank lent AUD 5,000,000 to Civic Finances;

(iv)    in 2004, Mercantile Discount Bank lent a further AUD 2,500,000 to Advance Finances;

(v)    on 27 May 2004, Israel Discount Bank lent a further AUD 3,690,000 to Advance Finances; and

(vi)    on 1 March 2005, Bank Hapoalim B.M lent a further AUD 6,177,288 to BCI Finances.

(e)    the Rawson Finances loans were not supported by any deposit or back-to-back arrangement and Mercantile Discount Bank was willing to make the loan on the strength of a personal guarantee from a former director of Rawson Finances.

(5)    The Tribunal accepted the case advanced by Rawson Finances, accepting significant aspects of Rawson Finances’ evidence. The Tribunal upheld Rawson Finances' objections to the assessments (and therefore the increased tax liability).

(6)    The Commissioner successfully appealed this decision in Commissioner of Taxation v Rawson Finances [2012] FCA 753. However, the Full Court of the Federal Court of Australia allowed Rawson's appeal in Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26.

(7)    In 2015, the Commissioner obtained documents which demonstrated that the loans made to BCI Finances, Advance Finances and Civic Finances were secured with cash deposits and were known as back-to-back loans. In these proceedings, the Commissioner has applied to the Federal Court to have the Tribunal's decision Areffco and Commissioner of Taxation [2011] AATA 628 (and/or the Full Court decision) overturned on the basis it was obtained by fraud.

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 Shaul Antebi of Mercantile Discount Bank.

(2)    The general nature and subject matter of the examination of Mr Shaul Antebi 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 duces tecum, summons or equivalent order which requires Mr Shaul Antebi as the proper officer of Mercantile Discount Bank to produce documents that fall within the categories of documents described in the schedule immediately below.

Schedule to Attachment B

Rawson Finances

(4)    In relation to any advances of money by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 30 December 2013 (collectively referred to hereafter as “the advances”), for the purposes of answering the questions in each of the paragraphs referred to below including those relating to any documents outlined in those paragraphs, all documents recording or evidencing:

(a)    For the purposes of answering the questions at [14], [25], [28(c) and (d)], and [29(c)] including those relating to the documents outlined in those paragraphs, any security, deposit, asset or arrangement:

(i)    related or connected in any to the advances; or

(ii)    accepted or treated as 'security' or 'collateral' for the advance of funds or the advances.

(b)    For the purposes of answering the questions at [28(a), (c) and (f)] and [29(a) to (r)] including those relating to the documents outlined in those paragraphs, the terms on which the advances or asserted loans were made and manner in which any party performed any agreement relevant to the asserted loans, including but not limited to:

(i)    the term of the loan;

(ii)    the dates on which the principal was to be repaid (and the amount of principal to be repaid on each date);

(iii)    the dates on which the principal was actually repaid (and the amount of principal repaid on each date)

(iv)    the dates on which interest was due to be paid (and the amount of interest paid on each date); and

(v)    the dates on which the interest was actually paid (and the amount of principal paid on each date);

(vi)    how principal and interest was paid or credited in any account related to the advances or loans.

(5)    In relation to the advances by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 30 December 2013, for the purposes of answering the questions at [14], [25], [28(c) and (d)], and [29(c)] including those relating to the documents outlined in those paragraphs, any documents that contain one or more references to a back-to-back loan or other arrangement or to any security, deposit or asset related in any way to the advances or loans.

(6)    For the purposes of answering the questions at [25], [28(c) and (d)], and [29(b), (c), (e), (g), (i)] including those relating to the documents outlined in those paragraphs, all documents recording or evidencing any communication between Mercantile Discount Bank (or any of its officers, employees, representatives or agents) and Rawson Finances (including agents, representatives, solicitors or any person acting for, in relation to or on behalf of Rawson Finances) constituting or relating to or in connection with:

(a)    any security, deposit, collateral, asset or arrangement accepted or treated as 'security' or 'collateral' for the advance of funds by Mercantile Discount Bank to Rawson Finances during the period 1 January 1996 to 31 December 2013; and

(b)    any request for or on behalf of Rawson Finances to Mercantile Discount Bank for the provision of the documents or information relevant to the advances of funds and any response by Mercantile Discount Bank to same.

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)    For the purposes of understanding the questions set out further below, the background to the relevant entities, being Rawson Finances and Advance Finances is first set out below with the questions following immediately after.

Rawson Finances

(2)    On 21 April 1997, Rawson Finances was incorporated. Its only asset was AUD 2 of issued capital.

(3)    For the purposes of the questions below, we note that Rawson Finances asserted that it had a financial arrangement (which it called a loan) with Mercantile Discount Bank that included the features set out below (together with other relevant circumstances):

Transfers of funds

(a)    Between June 1997 and December 1997, Mercantile Discount Bank lent AUD 4,500,000 to Rawson Finances on the following terms:

(i)    5 June 1997: AUD 3,000,000, 5 year term, interest rate 8.298%;

(ii)    4 July 1997: AUD 1,000,000, 5 year term, interest rate 8.298%; and

(iii)    4 December 1997: AUD 750,000, 5 year term, interest rate 8.298%.

(b)    The 5 June 1997 loan was repaid in full on 18 September 1998.

(c)    The loan period for the remaining loans was extended in December 2002.

(d)    Before March 2004 there was a suspension of interest payments.

(e)    The loan period was again extended in January 2005.

(f)    The July 1997 and December 1997 loans were repaid in the following manner:

(i)    on 18 September 1998: AUD 200,000 of the July 1997 loan was repaid;

(ii)    on 20 July 2009: the balance of the July 1997 loan was repaid; and

(iii)    on 8 October 2009 and 11 December 2009: the December 1997 loan was repaid

(g)    There were 2 substantial periods of non-payment of interest by Rawson Finances, namely February 2001 to January 2005 and January 2006 to July 2009.

Loan terms – security

(h)    The loans were either unsupported by any security or supported solely by guarantees from Mr Erwin Binetter, a director of Rawson Finances. Neither Rawson Finances, nor any of its directors had any assets in Israel.

(i)    The borrowed funds were on-lent by Rawson Finances to associated businesses in Australia on the same terms as the loan from Mercantile Discount Bank.

Loan terms – principal and interest

(j)    The loans were bullet loans, that is, there was no requirement for periodic repayments of principal during the loan term, although early repayment without penalty was permitted.

(k)    The loans were denominated in Australian Dollars.

(l)    The interest rate on the loans was fixed at 8.298%, calculated on simple interest basis with a penalty of 1% should the repayments not be made in time.

(m)    The loans were extended in 2002 and 2005.

Advance Finances

(4)    On 21 April 1997, Advance Finances was incorporated. Its only asset was AUD 2 of issued capital.

(5)    For the purposes of the questions below, we note that Rawson Finances asserted that Advance Finances had a financial arrangement (which it called a loan) with Mercantile Discount Bank that included the features set out below (together with other relevant circumstances):

Transfers of funds

(a)    On 9 July 1997, Mercantile Discount Bank lent AUD 4,000,000 to Advance Finances on a 5 year term at an interest rate of 8.298%.

(b)    In June 2000, an amount of AUD 3,000,000 of the principal was repaid.

(c)    On 27 May 2004, Mercantile Discount Bank lent a further AUD 2,500,000 to Advance Finances at an interest rate of 6.5%.

(d)    The loans were repaid in full in June 2005.

Loan terms – security

(e)    The loans were either unsupported by any security or supported solely by guarantees from Mr Emil Binetter, a director of Advance Finances. Neither Advance Finances, nor any of its directors had any assets in Israel.

(f)    The borrowed funds were on-lent by Advance Finances to associated businesses in Australia on the same terms as the loan from Mercantile Discount Bank.

Loan terms – principal and interest

(g)    The loans were bullet loans, that is, there was no requirement for periodic repayments of principal during the loan term, although early repayment with a penalty of only AUD 500 was permitted.

(h)    The loans were denominated in Australian Dollars.

(i)    The interest rate on the loans was predominantly fixed at 8.298% (but was occasionally 7.2% or 6.5%) calculated on simple interest basis with a penalty of 1% should the repayments not be made in time.

(j)    The loan was extended in June 2002 and December 2002.

General Subject Matter of the Examination

(6)    The general subject-matter of the examination is:

(a)    the nature of the arrangements between Rawson Finances and Mercantile Discount Bank between 1997 and 2009;

(b)    the meaning, significance, description, nature and provenance of the documents that have been:

(i)    filed by the Commissioner in the Federal Court proceedings and referred to in Schedule A to Attachment C below in relation to Rawson Finances and which were annexed by Mr Zamir to his statutory declaration dated 15 February 2010;

(ii)    filed by the Commissioner in the Federal Court proceedings and referred to in Schedule B to Attachment C below in relation to Advance Finances, certain of which were annexed by Mr Zamir to his statutory declaration affirmed 10 August 2010; and

(iii)    produced in response to any subpoena duces tecum, summons or equivalent order as described in Attachment B

and whether those documents are a complete record of all transactions and arrangements relevant to the asserted loans; and

(c)    the requests that were made for or on behalf of Rawson Finances to Mercantile Discount Bank for documents or information relevant to the asserted loans and the response of Mr Zamir and/or Mercantile Discount Bank to those requests as referred to in Schedule C to Attachment C below .

(7)    The general nature of the questions to be put to the examinee are detailed in Schedule A below, though allowance is to be made for the judicial rules, procedures and practices of the requested State. It may become necessary to ask additional or varied questions depending on what, if any, documents are produced by Mr Shaul Antebi as Manager of the Tel Aviv Branch of Mercantile Discount Bank in answer to the subpoena, summons or equivalent order in Attachment B in the course of answering the questions in Attachment C.

Schedule A to Attachment C

(8)    What is your full name and what was your position at Mercantile Discount Bank (or otherwise) between 1996 and 2013?

(9)    What were your duties and responsibilities in your work positions as identified above?

Rawson Finances

From either your own knowledge or after consulting any records of the Mercantile Discount Bank where necessary:

(10)    What was the nature of all the arrangements between Mercantile Discount Bank and Rawson Finances or any other person or entity for on behalf of Rawson Finances in relation to the transmission of funds between Mercantile Discount Bank and Rawson Finances in the period 1 January 1996 to 2013?

(11)    Who had responsibility within Mercantile Discount Bank for the negotiation and supervision of the asserted loans?

(12)    Who was the representative of Rawson Finances that negotiated the original asserted loans and any changes in the terms of those loans including to the payment of interest or the extension of the loans?

(13)    What was the substance of those negotiations?

(14)    At or around the time the funds were advanced (see paragraph 3 of Attachment C), was there a deposit or other collateral or security connected in any way with the alleged loans to Rawson Finances and if so what was the arrangement, including:

(a)    what were the terms of the arrangement and did:

(i)    it include the use of an arrangement known as a 'back-to-back loan' or some similar or other description?

(ii)    the arrangement involve Mercantile Discount Bank holding fiduciary, or other, deposits (or some other form of security or collateral) for or on behalf of Rawson Finances or otherwise related to advances made by Mercantile Discount Bank to Rawson Finances?

(iii)    the arrangement involve the use of a 'non resident deposit account'?

(iv)    a person or entity provide a deposit, collateral, security or other asset to which Mercantile Discount Bank would have recourse if the borrower defaulted on the loan term and if so, who was that person or entity?

(b)    if there was a deposit, or other asset, where was it held, who made the deposit, in whose name was the deposit held and what interest was paid on it or on respect of it?

(c)    if there was a deposit or other asset, what was the margin of interest rate between the deposit and the loan?

(d)    if there was a deposit or other asset, what instructions did Mercantile Discount Bank receive and what actions did Mercantile Discount Bank take in relation to that deposit or asset once the loan principal and interest was repaid and from which person or entity and when were those instructions received?

(e)    who was authorised to give relevant instructions to Mercantile Discount Bank in respect of the deposit or asset?

(f)    did Mercantile Discount Bank receive an application to effect banking operations as per phone instructions or by facsimile and if so who made the application and when and who was authorised to provide phone instructions to Mercantile Discount Bank?

(g)    did Mercantile Discount Bank receive a power of attorney relating to all or any accounts and transactions and if so, when and who were the authorised representatives under that power of attorney?

(h)    In the period 1997 to 2009 were back to back loans or loans secured by some form of cash deposit available to Mercantile Discount Bank customers? If so:

(i)    what documents were created and or entered into to give effect to the arrangement?

(ii)    what was the general nature of the arrangement?

(iii)    what was the general structure of the arrangement, including where the deposit was held?

(iv)    who in Mercantile Discount Bank had the responsibility for negotiating such loans?

(v)    were such loans subject to credit committee (or other internal committee) supervision, assessment or approval?

(vi)    did Rawson Finances participate in any such arrangement and, if so, how?

(15)    During the period of the time the asserted loans existed did Mercantile Discount Bank advise Rawson Finances of the amount of its interest payments? If so, when and how was that communicated to Rawson Finances and to whom specifically?

(16)    Did Mercantile Discount Bank permit Rawson Finances to calculate the quantum of its interest payments? If so, on what basis did the Bank permit Rawson Finances to calculate its interest obligations and when and how were those calculations communicated to, or received by, Mercantile Discount Bank?

(17)    When and how was the interest received from Rawson Finances? Was the interest paid by way of funds transfer from Rawson Finances or was the interest paid from a deposit or other source such as an account (and if so the identity of the account) held for or on behalf of (or otherwise related to) Rawson Finances in relation to the loan?

(18)    Was there a non-payment of interest in the period of the loan, (including the period described at [3(g)] of Attachment C above)?

(19)    What written or oral communications did Mercantile Discount Bank have with Rawson Finances in relation to the non-payment of interest? Please identify the time and nature of these communications.

(20)    If there was a non-payment of interest what steps did Mercantile Discount Bank take to compel payment of the interest? Did Mercantile Discount Bank agree to capitalise interest? Please identify the time and nature of any communications in this respect.

(21)    In relation to the interest payable in relation to the loans referred to at [3(a)] above:

(a)    How was the interest rate calculated and was it calculated by reference to a deposit held for or on behalf of Rawson Finances?

(b)    What was the amount of principal on which the interest was calculated?

(c)    What were the dates on which each payment of interest was to be made?

(d)    How much interest was to be paid on each of the dates referred to at (c) above?

(e)    In relation to any payment of interest made by Rawson Finances:

(i)    How was each payment of interest effected by Rawson Finances?

(ii)    On what dates did Rawson Finances make payments of interest?

(iii)    How much interest was paid by Rawson Finances on each of the dates referred to at (ii) above?

(22)    Did, and if so why did Mercantile Discount Bank agree to extend the loans in 2002 and 2005? If the loans were supported by deposit, asset or arrangement other than a personal guarantee did Mercantile Discount Bank have any communications, whether written or oral, with Rawson Finances, or any agent or representative on its behalf, in relation to that deposit, asset or arrangement and if so in relation to each communication:

(a)    When was the communication made;

(b)    Who was the communication between;

(c)    What was the substance of the communication; and

(d)    In so far as the communication was in writing, provide a copy.

(23)    In addition to the specific questions identified below, general questions will be asked concerning the evidence given by Mr Israel Zamir in the following documents which were relied upon in Areffco and Commissioner of Taxation [2011] AATA 628:

(a)    Statutory Declaration of Mr Israel Zamir dated 15 February 2010; and

(b)    Statutory Declaration of Mr Israel Zamir dated 14 February 2011.

(24)    Who had such authority within Mercantile Discount Bank to grant back to back loans and did Mr Zamir have such authority?

(25)    What were the 'sufficient securities' referred to in the statutory declaration dated 15 February 2010.

(26)    Were decisions to grant back to back loans subject to supervision by a credit committee?

(27)    Was Mr Zamir authorised by Mercantile Discount Bank to give the statutory declarations referred to at [23] above?

(28)    In relation to the following documents:

(a)    letter from Rawson Finances to Mr Elie Septon dated 4 July 1997;

(b)    letter from Rawson Finances to Mr Elie Septon dated 4 December 1997;

(c)    letter from Rawson Finances to Mr Elie Septon dated 9 December 1997;

(d)    letter from Rawson Finances to Mr Ellie Septon (sic) dated 18 September 1998;

(e)    deposit / withdrawal in Standard Currency Form dated 3 July 1997, 11 December 1997 and 23 September 1998;

(f)    two Loan Application in Foreign Currency for a Foreign Resident forms dated 23 December 2002;

(g)    two Amortisation schedules dated 30 December 2003;

(h)    six Mercantile Discount Bank payment forms generated on 11 December 2009;

(i)    a Mercantile Discount Bank Amortisation Schedule dated 3 January 2005; and

(j)    44 Mercantile Discount Bank statement form letters dated 24 January 2008,

It is proposed to ask the witness general questions:

(k)    as to whether the bank has copies of these documents, whether they are included in the same form or whether the bank’s copy of the documents are different;

(l)    as to the authenticity, nature and provenance of those documents;

(m)    as to whether those documents are a complete record of the transactions relevant to the asserted loans;

(n)    as to whether those documents indicate or establish that there was a deposit or some other security or collateral relevant to the asserted loan;

(o)    as to whether the effect of the arrangement was that Rawson Finances could decide the interest rate on the asserted loan; and

(p)    in relation to each of the documents described above, does the document, or did the document at any time form part of the records belonging to or kept by Mercantile Discount Bank.

(29)    It is also proposed to ask the witness specific questions in relation to some of the documents identified at [28] above:

Letter from Rawson Finances to Mr Elie Septon dated 4 July 1997

(a)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did this practice apply?

(b)    Was any response made by Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

(c)    Should, or do, the following documents exist and is there any explanation for the following documents not existing in relation to the loan agreement entered into on or about 4 June 1997:

(i)    agreement for opening an account or accounts and the terms and conditions of those accounts;

(ii)    corporate resolutions for the account covering general banking powers;

(iii)    certification of the officers of the borrower;

(iv)    a loan agreement that sets out the terms of the loan; and

(v)    agreements as to the type of security to be provided.

Letter from Rawson Finances to Mr Elie Septon dated 4 December 1997

(d)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did this practice apply?

(e)    Was any response made by Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

Letter from Rawson Finances to Mr Ellie Septon dated 9 December 1997

(f)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of the loan and if so, to what kind of loans did this practice apply?

(g)    Was any response made by Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

Letter from Rawson Finances to Mr Ellie Septon (sic) dated 18 September 1998

(h)    Was it in accordance with generally accepted banking practice for a borrower to write to a bank setting out the terms of an agreement struck by telephone the previous day and if so, to what kind of loans did this practice apply?

(i)    Was any response made by Mercantile Discount Bank to Rawson Finances and if so what was that response to Rawson Finances or its advisors and when and to whom was it made?

Two Loan Application in Foreign Currency for a Foreign Resident forms dated 23 December 2002

(j)    Should or do the original loan applications exist and is there any explanation for why the loan extension documents exist produced but not the original loan applications?

(k)    At this time did Mercantile Discount Bank have a standard form for a loan extension or did it amend loan application forms?

(l)    In relation to the left hand column, was it in accordance with Mercantile Discount Bank's procedures not to record the date the loan was granted on?

Two Amortisation schedules dated 30 December 2003

(m)    How were the amounts of interest in the schedule calculated and in particular, was interest calculated on the basis that the period of calculation was 260 days?

Six Mercantile Discount Bank payment forms generated on 11 December 2009

(n)    Why are these forms addressed to 'E Pty Ltd'? What information is known by Mercantile Discount Bank in relation to 'E Pty Ltd'?

44 Mercantile Discount Bank statement form letters dated 24 January 2008

(o)    Was it in accordance with Mercantile Discount Bank's procedures for correspondence to be sent to a customer with the signature of only one officer of the Bank?

(p)    Was it in accordance with Mercantile Discount Bank's practice for correspondence of this nature to be sent?

(q)    Why were the details of the actual amounts of interest paid and / or details from the accounts recording the calculation of interest payments and the receipt of same not included in this correspondence?

(r)    Why was a printout of the account statement not provided? Would such an account show that interest was paid from another account, such as a non resident deposit account held in relation to the loan?

Schedule B to Attachment C

Advance Finances

(30)    What was the nature of the arrangements between Mercantile Discount Bank and Advance Finances or any other person or entity for or on behalf of Advance Finances in relation to the transmission of funds between Mercantile Discount Bank and Advance Finances in the period 1 January 1996 to 31 December 2005?

(31)    Was the nature of the arrangements identified in [30] above accurately and fully described at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628 through the following documents:

(a)    The statutory declarations of Mr Israel Zamir (see paragraph [33] below);

(b)    The affidavit of Mr Emil Binetter affirmed on 6 October 2010, which stated

(i)    in 1997, Mr Emil Binetter met with Mr Elie Septon, a manager of Mercantile Discount Bank, who agreed to loan Advance Finance AUD 4,000,000 and the security for the loan comprised a personal guarantee from Mr Emil Binetter, along with a list of his assets;

(ii)    Mr Binetter calculated the interest on the loans; and

(iii)    In 2004, Mr Emil Binetter and Mr Gary Binetter met with Mr Septon who agreed to loan a further AUD 2,500,000.

(c)    Exhibit 14A, being the 'Emil Binetter Group' summary assets and liabilities' which at row 14 stated that '… please note that Advance Finances took out a $4 million loan from Mercantile Discount Bank in the 1998 Financial Year'

(32)    Questions will be asked concerning the accuracy and completeness of the evidence given by Mr Israel Zamir in the following documents which were relied upon at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628:

(a)    Statutory Declaration of Mr Israel Zamir dated 10 December 2009; and

(b)    Statutory Declaration of Mr Israel Zamir dated 10 August 2010.

(33)    Questions will be asked in relation to the documents identified at:

(a)    (c) to (t) below, which were tendered on behalf of Rawson Finances and at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628; and

(b)    (u) to (ii) below, which were obtained from Mercantile Discount Bank by the liquidator for Advance Finances (and were not produced on behalf of Rawson Finances and at the hearing of Areffco and Commissioner of Taxation [2011] AATA 628).

Documents tendered at the hearing of Areffco and Commissioner of Taxation

(c)    Loan application in foreign currency for a foreign resident dated 9 July 1997

(d)    Letter from Advance Finances to Mr Elie Septon dated 24 June 1997

(e)    Deposit / Withdrawal in Standard Currency Form dated 9 July 1997

(f)    Facsimile from Advance Finances to Mercantile Discount Bank dated 24 June 2001

(g)    One Loan Application Extension in Foreign Currency for a Foreign Resident form dated 28 June 2002 and two Loan Application Extension in Foreign Currency for a Foreign Resident forms dated 23 December 2002

(h)    Mercantile Discount Bank form in Hebrew

(i)    One page of handwritten notes

(j)    One Amortisation schedule dated 30 December 2003

(k)    Mercantile Discount Bank form in relation to changes of rates of interest dated 7 January 2004