FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Rawson Finances Pty Ltd [2023] FCA 617

ORDERS

THE COURT ORDERS THAT:

1.    The orders made by the Full Court of the Federal Court in Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26 are set aside.

2.    On or before 4pm on 23 June 2023, the parties are to advise if any further orders are required to give effect to these reasons.

3.    In the event that agreement between the parties as to the appropriate order for costs is not reached:

a.    the parties are to agree a timetable by 4pm on 23 June 2023 in which short submissions on, and any evidence with respect to, the applicant’s application for indemnity costs are to be filed and served; and

b.    subject to further order of the Court, the application for indemnity costs is to be determined on the papers.

4.    Liberty to apply.

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

REASONS FOR JUDGMENT

PERRY J:

1.    INTRODUCTION

1    According to the Greek myth, Theseus was able to escape from the labyrinth by the use of Ariadne’s string, which helped guide him to the end of the twists and turns of that famous maze. No amount of string, however, would have saved Theseus from the labyrinth of lies and deceit which lie at the core of this case.

2    The applicant, the Commissioner of Taxation, seeks to set aside the decision of the Full Federal Court in Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26; (2013) 133 ALD 39 (Rawson (FCAFC)) on the ground that it was procured by fraud. Further, or in the alternative, the Commissioner seeks to set aside on the same ground both the decisions in Rawson (FCAFC) and of the Administrative Appeals Tribunal (Tribunal or AAT) in Re Areffco and Commissioner of Taxation [2011] AATA 628; (2011) 84 ATR 924 (Rawson (AAT)). Areffco was the pseudonym used by the AAT for the respondent, Rawson Finances Pty Ltd, which was one of a number of entities owned and controlled by members of the Binetter family.

3    By way of overview, the decisions in Rawson (AAT) and Rawson (FCAFC) arose in context of Project Wickenby, a project by the Australian Taxation Office (ATO) which investigated whether Australian taxpayers were returning profits earned abroad to Australia disguised as “loans” from overseas banks. Following an audit commenced in July 2006, the Commissioner issued under s 167 of the Income Tax Assessment Act 1936 (Cth) (ITAA 36) notices of assessment and amended assessment of the amount of taxable income of Rawson for the financial years ending 30 June 1997 to 30 June 2008 (the relevant period) and penalty assessments for the years ended 30 June 2001 to 30 June 2008 inclusive (the taxation assessments and the penalty assessments respectively). First, the Commissioner disallowed amounts which Rawson claimed for the relevant period were allowable deductions representing interest incurred by it on alleged loans from the Mercantile Discount Bank (MDB) in Israel to Rawson. Secondly, by assessments for the years of income ended 30 June 1997 and 1998, the Commissioner included in Rawson’s assessable income, amounts received by Rawson in Australia from MDB by way of purported loans. This resulted in the Commissioner assessing Rawson’s taxable income in the sum of $3,007,550.00 for the year ending 30 June 1998 and in the sum of $1,971,088 for the year ending 30 June 1999.

4    Rawson, however, contended that the amounts that the Commissioner had assessed as taxable income for the years ending 30 June 1998 and 1999 were loans made to it from MDB and claimed deductions over the relevant period for interest allegedly paid by Rawson on those loans. It lodged taxation objections to the taxation assessments (the taxation objections), and objections to the penalty assessments (the penalty objections) in September 2009.

5    Rawson’s taxation and penalty objections were disallowed by the Commissioner on 27 May 2010.

6    On 11 June 2010, Rawson commenced merits review proceedings against the Commissioner’s decision in the AAT under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA 53). The proceedings were heard from 9 to 13 May 2011, 8 to 10 June 2011, and on 17 June 2011. Section 14ZZK of the TAA 53 imposed the onus of proving that the Commissioner’s assessments were excessive upon Rawson.

7    In the course of the Rawson (AAT) proceedings, Rawson adduced evidence from several witnesses. Shortly stated, the effect of that evidence and Rawson’s submissions was as follows:

(1)    the Binetter family had a business practice of setting up special purpose vehicles to take out loans from Israeli banks, being MDB, Israel Discount Bank (IDB) and Bank Hapoalim;

(2)    Israeli banks operated differently from Australian banks because Israeli banks were willing to lend to foreign entities on the basis only of personal guarantees and relationships;

(3)    members of the Binetter family, including the directors of Rawson, had direct involvement with Israeli banks through various entities including:

(a)    BCI Finances Pty Ltd;

(b)    ACN 078 272 867 Pty Limited, formerly Advance Finances Pty Ltd;

(c)    ACN 087 623 541 Pty Limited, formerly Civic Finances Pty Ltd; and

(d)    EGL Development (Canberra) Pty Ltd;

(4)    BCI, Advance, Civic, and EGL, each received significant loans from Israeli banks which were not supported by any form of security, whether a back-to-back (abbreviated in some documents as BTB) cash deposit or any other form of security, but only by personal guarantees; and

(5)    by inference, the Rawson loans were also not supported by any deposit or back-to-back arrangement, and MDB was willing to loan monies to Rawson on the strength of a personal guarantee from a former director of Rawson.

8    In Rawson (AAT), the Tribunal accepted that Rawson had established that the taxation assessments were excessive. Accordingly, on 6 September 2011, the Tribunal set aside the Commissioner’s decisions insofar as the Commissioner had: (a) included in Rawson’s assessable income any part of the funds transferred from MDB; and (b) disallowed deductions for interest. As the Commissioner submitted, in so finding, the Tribunal accepted that:

Rawson, a recently incorporated Australian company with no net assets and issued share capital of $2 was able to obtain a loan for AUD4.75 million from a reputable Israeli bank whilst providing no security and was able to seemingly default on its interest payment obligations for lengthy periods of time without any recovery steps being taken, or without any apparent response from MDB.

(Applicant’s Outline of Submissions (AS) at [10].)

9    The Commissioner instituted an appeal against the AAT decision in the Federal Court under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). This was an appeal on a question of law only and not as to the merits of the AAT decision. In other words, as Jessup J held in Rawson (FCAFC) at [60], disagreement, or even strong disagreement, with the findings by the AAT would not suffice to establish a basis on which the Court could interfere with the AAT’s decision.

10    On 17 July 2012, Edmonds J allowed the Commissioner’s appeal on the ground that the AAT’s conclusion, that the Tribunal’s characterisation of Rawson’s funds received from MDB in 1997 as “loans”, was not open on the evidence, and Rawson had not therefore discharged its onus of proof under s 14ZZK(b)(i) of the TAA: Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753; (2012) 89 ATR 357 (Rawson (FCA) at [18]). Rawson then appealed from that decision to the Full Court, alleging that the primary judge had erred in failing to consider evidence which supported the inference that the 1997 transfers were by way of loans. On 5 March 2013, the Full Court in Rawson (FCAFC) allowed Rawson’s appeal, set aside the orders of the primary judge, and in lieu thereof, ordered that the application by way of appeal from the AAT be dismissed.

11    Nonetheless, in so holding, Jagot J (with whose reasons Nicholas J agreed) accepted the inherent implausibility of the Tribunal’s decision, observing that (at [78]-[80]):

This is a difficult case.

One reason it is difficult is that, after a hearing over 9 days and through a meticulous analysis of some 77 pages of the whole of the material before it, the Administrative Appeals Tribunal (the Tribunal) reached a conclusion which seems inherently implausible – that the appellant, Rawson Finances Pty Ltd (Rawson) had proved on the balance of probabilities that in 1997 an Israeli bank lent $4.75 million to an Australian company with an issued share capital of $2 without having any form of security or guarantee and thereafter took no step to require the payment of interest on the outstanding loan amounts of about $1.75 million over two periods of more than 3 years each between 2001 and 2009, the loans ultimately having been fully repaid by December 2009. This conclusion was reached despite: (i) the lack of any loan agreements, (ii) the lack of any witness who had any involvement in the establishment of the loans being called to give evidence, (iii) the evidence that Israeli banking practices usually would require security for such loans, (iv) Rawson’s lack of financial capacity at the time of the loans to repay the money, and (v) the lack of any action taken by the bank despite Rawson having failed to pay interest for some 7.5 years in total out of the 12 years over which the loans existed.

By contrast, after a hearing confined to a question of law on an appeal under s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act), the primary judge concluded that it was not open on the evidence for the Tribunal to conclude that the funds transferred by the Israeli bank to Rawson in 1997 were by way of a loan because, in the circumstances of this case, the transfer of funds “may be equally explicable” as a transfer through the Israeli bank of Rawson’s own money and, indeed, an analysis of the evidence made it far more likely that this was so than the conclusion reached by the Tribunal. The primary judge’s conclusion that it was far more likely on the evidence that the funds transferred were not a loan to Rawson, given the circumstances to which brief reference has been made above and which the Tribunal itself considered warranted the characterisation of the funds transfer as at least “unusual”, has the advantages of immediate plausibility and apparent common sense. The primary judge’s conclusion, in contrast to that of the Tribunal:

•    explains the otherwise apparently inexplicable (that any bank was willing to lend a company with no assets and no apparent means of repayment $4.75 million without any security and was content to take no action whatsoever when the asserted borrower failed to pay interest for more than 7 years in total);

•    recognises that the respondent in this appeal, the Commissioner of Taxation (the commissioner) has no means of compelling the Israeli bank to produce the whole of its records to the commissioner;

•    recognises that the commissioner has no means of testing the assertions of the fund transfers relating to a “loan” in documents in circumstances where no officer of the Israeli bank was willing to give evidence and no person associated with Rawson who had any involvement in the establishment of the loans was available to give evidence; and

•    recognises that the kind of documents of the bank and Rawson which were located and put before the Tribunal were not only an incomplete record which may well not disclose the whole of the dealings between Rawson and the bank relevant to the question whether the funds were transferred by way of a loan or otherwise but also were, as the commissioner put it, precisely the type of documents that would be brought into existence if a company such as Rawson wished it to appear that it was obtaining loan funds when in reality it was moving into Australia its own funds or funds it already controlled overseas for the purpose of avoiding incurring a tax liability on those funds as part of its assessable income.

(Emphasis added.)

12    The Commissioner contends that he subsequently obtained a substantial body of new evidence since judgment in Rawson (FCAFC). The new evidence (which, together with the evidence and other documents pertaining to the Rawson (AAT) proceedings, comprised 56 volumes) includes the following:

(1)    documents and translated transcripts of examinations of officers of Bank Hapoalim obtained pursuant to the letter of request in the BCI proceedings (BCI Finances Pty Ltd v Commissioner of Taxation [2012] FCA 855; (2012) 89 ATR 861) (BCI letter of request)1 (noting that leave was granted to use these documents in the present proceeding);

(2)    documents produced by the liquidators of Advance and Civic in March and July 2015;

(3)    documents produced on 2 February 2020 and 21 April 2020 in answer to the subpoena issued in these proceedings;

(4)    translated transcripts of examinations of Messrs Zamir, Septon and Antebi conducted pursuant to the Rawson letters of request; and

(5)    documents produced by MDB pursuant to the Rawson letters of request.

13    The Commissioner contends that the new evidence establishes first that the loans to BCI, Advance, Civic and EGL were in fact secured by secret cash deposits and described as back-to-back loans, and that these matters were known to witnesses who gave false or misleading evidence to the contrary on behalf of, and to the knowledge of, Rawson in the Rawson (AAT) proceedings. Secondly, the Commissioner alleges that the new evidence establishes that the Rawson loans were supported by a secret linked deposit account in a code name and that Rawson’s case that they were secured only by personal guarantees was knowingly false. Thirdly, and also based upon the new evidence, the Commissioner alleges that the decisions in Rawson (AAT) and Rawson (FCAFC) were obtained by fraud and that the fraud was material to the outcome of the Rawson (AAT) proceedings.

14    For the reasons given below, the new evidence overwhelmingly establishes that the decisions of the AAT and the FCAFC were obtained by fraud on the part of Rawson (but not on the part of the legal practitioners making submissions in the Rawson (AAT) and Federal Court proceedings). First, this is now established by direct evidence of Rawson’s loan arrangements with MDB and Rawson’s knowledge of the fraud through its director and company secretary, Andrew Binetter. Secondly, the Commissioner also adduced new evidence in relation to other Binetter family entities (including BCI, Advance, Civic and EGL) because Rawson ran an inferential case before the AAT that it followed the same “business practice” as its related entities. Accordingly, the new evidence of the actual business practices of those entities was relied upon by the Commissioner in support of the alleged fraud perpetrated by Rawson. While, given direct evidence of the fraud, it might not be strictly necessary for me to make findings in relation to Rawson’s case in the AAT to the extent that it was based upon the alleged business practices of those related entities, I have nonetheless addressed that evidence. In particular, as trial judge, it is incumbent upon me to make findings with respect to all material issues. Furthermore, that evidence further strengthens the finding of fraud that I have made and exposes the extent of the fraud perpetrated by Rawson on the AAT and the Full Court. It also exposes the lengths to which Rawson went to conceal the back-to-back nature of its arrangement with MDB, seeking at every stage to conceal the fraud. Thirdly, I have no doubt that the fraud was material to the outcome of the AAT and in turn to the decision of the Full Court.

15    In short, this is a case of extraordinary deceit and subterfuge involving a multitude of overseas accounts and highly suspicious and unexplained transactions of labyrithal complexity. The evidence plainly establishes that Andrew Binetter, who was the company secretary and a director of Rawson since 1998, and was responsible for conducting the Part IVC proceedings and Federal Court appeals on Rawson’s behalf, knew the true nature of the arrangements between Rawson and MDB. Yet Rawson, through Andrew, ran a case known to be false and misleading in the Tribunal and pressed that case on appeal to the Federal Court and the Full Court. Indeed Andrew himself gave patently false evidence to the Tribunal. It is therefore no overstatement to say that the evidence establishes highly egregious and fraudulent conduct by Rawson, through Andrew, in the case run in the AAT and in the Federal Court. In the words of Lord Sumption in Takhar v Gracefield Developments Ltd [2019] UKSC 13; [2020] AC 450 at [61], this is a case where the Commissioner has established that he is “absolutely entitled” to have the Full Court’s decision set aside by reason of the fraud.

2.    DRAMATIS PERSONAE

16    The dramatis personae is largely taken from the Commissioner’s opening submissions which was non-contentious, save where I otherwise identify.

2.1    Rawson

17    Rawson was incorporated in the Australian Capital Territory on 21 April 19972. At all material times Rawson was the wholly owned subsidiary of Ligon 158 Pty Ltd as trustee of the Caringbah Investment Trust (applicant’s second further amended statement of claim (2FASOC) and defence (Def) at [2]). Margaret Binetter and her husband, Erwin Binetter, beneficially held the majority of the shares in Ligon 1583. The directors of Rawson were Erwin from the date of incorporation until his death on 25 August 2009, Margaret also from the date of incorporation, and their son, Andrew, from 9 March 1998, who was also appointed as company secretary on the same date (2FASOC and Def at [3]).

18    Rawson’s sole business was ostensibly the borrowing and lending of money4. As the Commissioner submits, its balance sheets for the relevant tax years reveal that it had no net assets and that the so-called “loans” from MDB were its only significant liability5.

19    In June, July and December 1997, a total of AUD$4.75 million was transferred in three tranches from MDB to Rawson, which was said to constitute the principal of a loan from MDB to Rawson (the Rawson loans)6. Between February 1998 and 2009, Rawson purportedly made a series of transfers to MDB in respect of the “loans”7.

20    There was no direct evidence before the Tribunal of any security or guarantee in support of the Rawson loans. As earlier explained, the case led by Rawson was one based on circumstantial evidence in which the AAT was asked to draw inferences from the alleged business practices engaged in by Erwin with banks in Israel. In so saying, I do not disagree with Jagot J in Rawson (FCAFC) at [88] that “permissible inference may be based on direct evidence or circumstantial evidence. The mere fact that evidence is circumstantial rather than direct does not convert permissible inference based on that evidence into impermissible conjecture”. However, the present is a case in which direct evidence is now available which establishes the false and misleading nature of the circumstantial case which Rawson fraudulently ran in the AAT and to which it adhered in defending the AAT decision in the Rawson (FCA) and Rawson (FCAFC) proceedings.

21    Furthermore, at all relevant times, Rawson and the other Binetter family entities were represented by Mark Douglass, initially of MDA Lawyers and subsequently of Signet Lawyers.

2.2    Other entities controlled by members of the Binetter family (BCI, Binqld, EGL, Ligon 268, Advance, Civic, and the GERM entities)

22    In addition to Rawson, various members of the Binetter family controlled several entities (the Binetter family entities). These relevantly included:

(1)    BCI8;

(2)    Binqld Finances Pty Ltd;9

(3)    EGL;10

(4)    Ligon 268 Pty Ltd;11

(5)    Advance;12

(6)    Civic;13

(7)    Gerobin Finances Pty Ltd;14

(8)    Erbin Finances Pty Ltd;15

(9)    Rawbin Finances Pty Ltd;16 and

(10)    Marbin Finances Pty Ltd.17

23    The last four entities, Gerobin, Erbin, Rawbin and Marbin, are collectively referred to as the GERM entities.

24    Aside from Rawson, each of the entities listed above is now subject to external administration18.

25    BCI,19 Binqld,20 EGL,21 Ligon 268,22 Advance23 and Civic24 each separately commenced proceedings pursuant to Part IVC of the TAA 53 in the Federal Court or the AAT and contended that they borrowed funds from banks in Israel as follows:

(1)    from MDB in the case of Advance;

(2)    from Bank Hapoalim in the case of BCI; and

(3)    from IDB in the cases of Binqld, Ligon 268, EGL and Civic25.

26    However, Advance and Civic withdrew their Part IVC proceedings on 4 March 2013 prior to the Tribunal hearing and shortly after going into administration. BCI discontinued its Part IVC proceedings in the Federal Court on 10 March 2014 after the Commissioner obtained documents demonstrating that its loans were in fact supported by cash deposits. Binqld, Ligon 268 and EGL also withdrew their respective Part IVC proceedings in the Tribunal shortly thereafter on 22 May 2014.

27    Taking each of these entities in turn:

(1)    BCI was incorporated in the Australian Capital Territory on 1 May 199226. The following individuals, who were all members of the Binetter family, were appointed directors of BCI, among others27:

(a)    Margaret, appointed on 25 January 1994;

(b)    Gary Binetter (son of Emil Binetter), appointed on 25 January 1994;

(c)    Andrew, appointed on 25 January 1994;

(d)    Erwin, appointed on 4 May 1992 and ceasing on 25 August 2009; and

(e)    Emil (deceased) (Erwin’s brother), appointed on 4 May 1992 and ceasing on 20 June 2013.

(2)    Binqld was incorporated in the Victoria on 12 April 200628. Andrew was its sole director from incorporation29.

(3)    EGL was incorporated in the Australian Capital Territory on 20 June 197530. The following individuals, who were all members of the Binetter family, were appointed directors of EGL:

(a)    Erwin, appointed on 18 July 1975 and ceasing on 25 August 2009;

(b)    Emil, appointed on 31 January 1990 and ceasing on 28 September 2001;

(c)    Gary, appointed on 16 October 1996 and ceasing on 28 September 2001; and

(d)    Michael Binetter (older brother of Andrew), appointed on 16 October 1996 and ceasing on 28 September 2001; and

(e)    Andrew, appointed on 28 September 2001.

(4)    Ligon 268 was incorporated in New South Wales on 22 April 199131. The directors of Ligon 268 were, among others:

(a)    Erwin, appointed on 6 September 1991 and ceasing on 25 August 2009;

(b)    Michael, appointed on 5 July 1991 and ceasing on 30 June 1992;

(c)    Ronald Binetter (brother of Michael and Andrew), appointed on 5 July 1991 and ceasing on 27 March 1992; and

(d)    Andrew, appointed on 30 June 199232.

(5)    Advance was incorporated in the Australian Capital Territory on 21 April 199733. The directors of Advance were:

(a)    Gary, appointed on 21 April 1997;

(b)    Emil, appointed on 21 April 1997 and ceasing on 11 April 2011;

(c)    Debbie Binetter (sister of Gary), appointed on 21 April and ceasing on 11 April 2011; and

(d)    Lisa Binetter (sister of Gary), appointed on 21 April 1997 and ceasing on 11 April 201134.

(6)    Civic was incorporated in the Australian Capital Territory on 17 May 199935. The directors of Civic were:

(a)    Gary, appointed on 17 May 1999;

(b)    Emil, appointed on 17 May 1999 and ceasing on 11 April 2011;

(c)    Debbie, appointed on 17 May 1999 and ceasing on 11 April 2011; and

(d)    Lisa, appointed on 17 May 1999 and ceasing on 11 April 201136.

(7)    At all relevant times, Andrew Binetter was the sole director and shareholder of the GERM entities37. Erbin was incorporated in Victoria on 13 July 2009, and Gerobin, Marbin and Rawbin were incorporated in New South Wales on 16 November 200938.

28    I later discuss the evidence before the Tribunal in detail. I note at this stage, however, that Andrew, Margaret, Gary, and Baruch Etzion gave evidence39 and were cross-examined40 in the Rawson (AAT) proceedings. Mr Etzion had approved loans to BCI when he was employed by Bank Hapoalim and was said to be an expert with respect to the likelihood of a loan being granted on the strength of a bare personal guarantee. Their evidence was relied upon as indirect evidence of aspects of the purported loans from MDB. Their affidavits were also filed and served in Part IVC proceedings commenced by BCI in the Federal Court41.

2.3    Binetter family code names

29    As I later explain, the Binetter family members operated the “loan” accounts with the Israeli banks using various code names. These are conveniently set out in the table below.

30    In addition, as the Commissioner submitted (applicant’s submissions (AS) at [248]), the Belan code names may not be the only pseudonyms used by the Binetter family. The MDB documents reveal large payments being made to names such as “Peter Babis”42, “David Israel”43 and “M&D Lobelson”44. The identity of these persons has never been explained by Rawson and may also be code names.

3.    EVIDENCE

3.1    Rawson

31    Rawson filed its defence to the 2FASOC on 8 July 202045. However, by orders made on 29 April 2015, Rawson was excused from pleading to paragraphs 14, 16, 18, 20, 22, 24, 26, 29(c), 31, and 33 of the Commissioner’s 2FASOC on the basis that its directors, Andrew and Margaret, asserted the privilege against self-incrimination. Rawson did not tender any evidence and no witnesses gave evidence for Rawson.

3.2    The Commissioner’s evidence

32    The Commissioner relied upon a number of affidavits (including exhibits and annexures) of Thomas Charles Arnold, solicitor, namely:

(1)    save for those paragraphs not read, his affidavit affirmed 11 September 2015 (TCA1) setting out a chronology of events and exhibiting material provided by the liquidators, being:

(a)    exhibit TCA1-1 comprised of 11 volumes; and

(b)    exhibit TCA1-2 comprised of 13 volumes.

(2)    his affidavit affirmed 11 February 2016 (TCA3) which annexed various s 264 and s 264A notices issued to Rawson and the Binetter family entities;

(3)    his affidavit also affirmed 11 February 2016 (TCA4) identifying gaps in the evidence from the affidavit affirmed on 15 September 2015;

(4)    his affidavit affirmed 12 February 2016 TCA5) and exhibit thereto marked “TCA5-1” containing copies of Andrew Binnetter’s credit card statements to establish his location in Israel at various times; and

(5)    his affidavit affirmed 12 February 2016 (TCA6) and exhibit thereto marked “TCA6-1”, being a USB containing all of the material before the AAT and before Federal Court on appeal from the AAT.

33    In addition, the Commissioner relied upon the affidavits of the following additional witnesses:

(6)    the affidavit of Ester Copley, a National Accreditation Authority for Translators and Interpreters accredited Hebrew to English translator, affirmed 16 September 2015 annexing copies of documents translated by her from Hebrew to English;

(7)    the affidavit of Chris Kinsella, solicitor, affirmed 17 September 2015, save for those parts not read and documents not tendered (T25.42-46) (as specified in the objections schedule);

(8)    the affidavit of Rochelle Layoun, public servant employed by the Australian Tax Office (ATO), affirmed 11 February 2016, including annexed summaries of incoming passenger cards from the Passenger Movement Reconstruction Database maintained by the Department of Immigration and Border Protection about the movement of various Binetter family members, including Andrew, Erwin, Michael and Gary, to and from Australia at various times;

(9)    the affidavit of Max Christopher Donnelly, chartered accountant and consultant at Ferrier Hodgson and registered liquidator of Civic and Advance, sworn 12 February 2016, including exhibits being documents obtained from MDB in the course of the liquidation relevant to the asserted loans from MDB to Civic and Advance;

(10)    the affidavit of Naomi Elizabeth McGregor, solicitor, affirmed 19 June 2020 exhibiting a USB containing documents obtained from the Commissioner’s records relating to Rawson and associated entities.

34    The documentary material was voluminous and comprised:

(1)    the key documents bundle (KDB) (8 volumes);

(2)    the Court Book (CB) (38 volumes) containing the documentary evidence in chronological order save for the MDB Documents; and

(3)    the Supplementary Court Book (SCB) (10 volumes) comprising the MDB Documents.

35    The parties also filed:

(1)    their respective lists of legal and factual issues to be determined at the hearing;

(2)    extensive written submissions in advance of the hearing; and

(3)    a lengthy agreed chronology hyperlinked to the relevant documents.

3.3    Grant of leave to use certain documents obtained in Part IVC proceedings instituted by BCI in the Federal Court in these proceedings

36    As I have earlier mentioned, BCI instituted proceedings in the Federal Court of Australia challenging assessments by the Commissioner which treated as taxable income, monies transferred to it from Bank Hapoalim in Israel pursuant to alleged loans. On 9 August 2012, orders were made by Jagot J in the BCI proceedings: BCI Finances Pty Ltd v Commissioner of Taxation [2012] FCA 855; (2012) 89 ATR 861. Among other orders, Jagot J made orders for the BCI letter of request to be sent to judicial authorities in Israel for the taking of evidence from Mr Ilan Mazur, an officer of Bank Hapoalim46. Jagot J also made orders for there to “be discovery by [BCI] of documents in Schedule E to these orders”. In broad terms, the documents in Schedule E primarily pertained to:

(1)    documents related to borrowings by BCI from Bank Hapoalim, including bank statements which record of evidence payment of interest or repayment of principal by BCI to Bank Hapoalim;

(2)    documents related to lending by BCI to any entity; and

(3)    various other financial records, accounts and recordings concerning BCI.

37    On 26 January 2014 (and after the Full Court’s decision in Rawson (FCAFC)), BCI filed a motion in the Israeli proceedings which concerned the letters of request. That motion requested a short delay in proceedings, on the basis that BCI had not yet received all of the documents relevant to that letter of request held by Bank Hapoalim47. Implicitly, that document therefore indicated that BCI had obtained at least some documents from Bank Hapoalim.

38    Following the filing of that motion in the Israeli proceedings, on 29 January 2014, the Commissioner filed and served a notice to produce document in this Court, requiring the applicant to produce “all documents provided by Bank Hapoalim [to BCI] … following the directions hearing before … the Magistrate’s Court Tel-Aviv Jaffa … as referred to in the Applicant’s motion filed in those proceedings on or about 26 January 2014”.48

39    Finally, on 9 April 2014, the Commissioner issued a subpoena (returnable on 30 April 2014) in the BCI proceeding to Signet Lawyers (formerly MDA Lawyers).49 By that subpoena, the Commissioner sought production of “all documents provided by Bank Hapoalim to you [Signet Lawyers] or to the applicant [BCI] following the directions hearing before … the Magistrate’s Court Tel-Aviv Jaffa … as referred to in the Applicant’s motion filed in those proceedings on or about 26 January 2014”.50

40    On 10 June 2014, the Commissioner filed an interlocutory application and supporting affidavit in the BCI proceedings51 seeking leave to use certain documents obtained in those proceedings:

(1)    in order to determine whether he would apply to the Court to set aside the decision of the Full Court in Rawson (FCAFC) (or alternatively, the Rawson (AAT) decision) on the basis the orders were procured by fraud; and

(2)    in any such proceeding instituted by the Commissioner.

41    That application identified various documents sought to be released, including the following:

Affidavit and documentary evidence

1.    Affidavit of Baruch Etzion filed on 12 October 2011 [TCA1-1 8/365/4619].

2.    Exhibit “BE18” to the affidavit of Baruch Etzion filed on 12 October 2011, being a letter from Bank Hapoalim to BCI Finances Pty Ltd dated 10 November 2009 in relation to the balance of account for account no. 343415 as at 30 September 2009 [TCA1-1 3/187/1211].

…

5.    Affidavit of Margaret Binetter filed on 14 October 2011 [TCA1-1 8/367/4636].

…

7.    Affidavit of Andrew Binetter filed on 1 November 2011 [TCA1-1 8/370/4658].

8.    Affidavit of Baruch Etzion filed on 13 April 2012 [TCA1-1 8/379/4789 and 8/380/4800]

…

Documents produced by Andrew Binetter under subpoena and discovered

…

12.    Letter from Bank Hapoalim to BCI Finances Pty Ltd dated 15 October 2009 in relation to account balance for account number 343415 as at 30 September 2009 [TCA1-1 3/184/1162].

…

Documents produced by Signet Lawyers under subpoena

…

15.    All documents produced by Signet Lawyers Pty Ltd on 22 May 2014 in an envelope pursuant to the subpoena to produce documents issued on 9 April 2014, being:

a.    a letter from Bank Hapoalim (Switzerland) Ltd to Bank Hapoalim, Tel Aviv dated 25 May 2004 [TCA1-1 1/93/541]; and

b.    a letter from Bank Hapoalim (Switzerland) Ltd to Bank Hapoalim, Tel Aviv dated 1 June 2004 [TCA1-1 1/94/543].

42    On 19 August 2014, Edmonds J heard that application. On 10 September 2014, in BCI Finances Pty Ltd (in liq) v Commissioner of Taxation (No 3) [2014] FCA 958; (2014) 320 ALR 747, his Honour made orders that:

1.    The respondent (the Commissioner) have leave to use those documents described in paras 1, 2, 5, 7, 8, 12 and 15 of the schedule to the interlocutory application filed 10 June 2014 –

a.    In order to determine whether he will apply to the Court to set aside the decision in [Rawson (FCAFC)] and the earlier decisions in relation to the same on the basis that judgment was procedure by fraud;

b.    in any proceeding instituted by the respondent seeking to set aside the decision given in [Rawson (FCAFC)] and the earlier decisions in relation to the same.

43    Between February and April 2015, the Commissioner obtained further documents from Bank Hapoalim pursuant to the BCI letter of request, necessitating a further application for leave to use those documents in the present proceeding.

44    On 4 June 2015, the Commissioner filed an interlocutory application and supporting affidavit in the BCI proceedings. That application sought, amongst other orders, for the Commissioner to be released from the implied obligation not to make use of documents filed in those proceedings for purposes other than those of the proceedings, so far as necessary to enable the Commissioner to use the documents identified in Schedule A in the present proceeding52.

45    On 7 July 2015, Jagot J made orders, amongst others, that the Commissioner be released from the implied obligation not to make use of documents filed in the BCI proceedings for purposes other than those of the proceedings, so far as is necessary to enable the Commissioner to use, in the present proceeding, the documents identified in Schedule A and B as attached to the Commisioner’s interlocutory application dated 3 June 2015: B.C.I Finances Pty Limited (in liq) v Commissioner of Taxation [2015] FCA 679.

46    The orders made on 7 July 2015 were opposed by Andrew. An appeal by Andrew from that decision was dismissed unanimously by the Full Court on 27 August 2015: Binetter v BCI Finances Pty Ltd (in liq) [2015] FCAFC 122; (2015) 235 FCR 410. Andrew further sought special leave to the High Court. On 12 February 2016, Keane and Gageler JJ refused special leave with costs, on the basis that the appeal “would have insufficient prospects of success to warrant the grant of special leave to appeal”: Binetter v BCI Finances Pty Ltd [2016] HCATrans 33.

3.4    Manner of citing documents and glossary

47    For reasons of consistency, I have adopted the manner of referring to documents in the footnotes which was used by the Commissioner in his written submissions, namely:

a reference to a document that is part of an exhibit is a reference to, first, the mark identifying the exhibit, second, the volume number describing where the document is located, third, the tab number the document is behind and fourth, the page number of the document contained in the exhibit. For example, TCA1-1 1/13/296 refers to the document at page 296 behind tab 13 in volume 1 of exhibit TCA1-1.

48    In addition, the Commissioner provided a glossary of terms used in the applicant’s submissions in chief. As I have adopted the same terminology as the Commissioner, I have reproduced the glossary in Appendix A (with appropriate amendments) to these reasons to assist the reader.

49    Finally, footnote references to the evidence have been included for the convenience of the parties only and are not intended to comprehensively identify the location of all documents or every location in the evidence where a particular document is found. Nor, while there are some cross-references included to the agreed chronology, does the judgment contain comprehensive cross-references to the agreed chronology.

4.    OVERVIEW OF THE ISSUES

50    The Commissioner submitted that the decision of the Full Court should be set aside on the ground that it was procured by fraud. The way in which the Commissioner put the case of fraud in oral and written submissions can be summarised as follows.

(1)    The onus lay upon Rawson under s 14ZZK of the TAA 53 in the Part IVC proceeding to prove that the Commissioner’s assessment was excessive.

(2)    In order to discharge that onus, Rawson, through its directors, presented a case in the AAT that the taxation assessments were excessive based upon the repeated assertion (in its pleadings, evidence, statements of facts, issues and contentions (SFICs) and submissions) that the loans by MDB to Rawson were secured by personal guarantees only, and that there was no back-to-back deposit against which the loans were secured. Rawson also alleged that although interest on the loan account had not been paid for a period, it had been capitalised and was eventually fully paid. In other words, as Jagot J held in Rawson (FCAFC) at [91]:

The only basis upon which Rawson sought to discharge its burden of proof [before the Tribunal on the Part IVC proceeding] was that the funds transferred to Rawson by the Israeli bank in 1997, the Mercantile Discount Bank (MDB), were not assessable income because they were loans which Rawson was obliged to and did repay and on which Rawson had paid interest. Accordingly, the ultimate issue between Rawson and the commissioner in the proceedings before the tribunal was whether, on the whole of the material, Rawson had discharged its burden of proving that the funds transferred were loans. If they were loans, it followed that the assessments were excessive. If they were not loans, it followed that Rawson had not discharged its onus of proof.

(Emphasis added.)

(3)    That case was pressed again in the Federal Court and on appeal to the Full Court when Rawson alleged that there was no error of law in the AAT’s decision because the AAT’s findings accepting Rawson’s case were open on the evidence before it. While Edmonds J on the s 44 appeal in Rawson (FCA) held against Rawson and quashed the AAT’s decision, Rawson’s case was upheld on the appeal to the Full Court, despite the inherent implausibility of Rawson’s case to which Jagot J referred in Rawson (FCAFC).

(4)    However, the case presented by Rawson was, to the knowledge of Rawson at least through its director, Andrew, entirely false. Andrew had been involved from the outset as a signatory to the secret code-named Arthur Belan deposit account against which the loans were secured and from which so-called interest was repaid, and was involved in transactions concerning the Arthur Belan deposit account since at least 2002. Margaret also had an account in a code name, Ida Belan.

(5)    While pleaded in the 2FASOC, the Commissioner submitted that it was not necessary on the case as articulated in his submissions for the Commissioner to establish that Mr Zamir, Mr Etzion and other witnesses had knowledge of the fraud or knowingly misled the AAT. Nor was it necessary to show that these witnesses committed perjury or had been suborned to give false evidence. It sufficed that Rawson knew that it was presenting a completely false case to the Tribunal as to why the assessments were excessive.

(6)    The Commissioner contended that the fraud was material in that:

(a)     the deliberately false evidence and intentional concealment of evidence were an operative cause of the Tribunal’s decision (and the Full Court decision); and

(b)    it is likely that a different outcome would be reached if the Tribunal were to rehear the matter appraised of the new evidence.

51    In the face of overwhelming evidence of the existence of the back-to-back loans in the case of Rawson and the Binetter family entities, Rawson admitted the existence of the back-to-back loans for the first time in its written submissions in this proceeding, but contends that the Commissioner still cannot succeed for essentially the following reasons.

52    First, Rawson contends that in order to succeed on his pleaded case, the Commissioner must establish that the Andrew and Margaret, as well as the the other witnesses on which Rawson’s case depended (who are referred to in the 2FASOC) including Mr Zamir, perjured themselves or were suborned into giving false evidence. In Rawson’s submission, this is the case which has been pleaded by the Commissioner. (I note that this submission also explains why Rawson says that the decision which must be set aside is the AAT’s decision because the perjury occurred at the level of the AAT, and why it contends that there would be no inconsistency between the decision of this Court setting that decision aside and the decision in Rawson (FCAFC), because the Full Court simply determined whether the AAT’s decision was open to it on the basis of the evidence before the AAT). Rawson therefore denies that the Commissioner has pleaded that Rawson ran an entire case before the AAT, the Federal Court and the Full Court which was knowingly fraudulent. Given that fraud must be strictly pleaded and proved, Rawson says that the Commissioner must be held to his pleaded case which he cannot establish. Rawson also alleges that the 2FASOC is largely based upon a wrong assumption, because it does not suffice to establish fraud that the evidence give was “misleading” or “materially misleading” as pleaded. Instead, Rawson contends that perjury must be proved to the standard articulated in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 and the elements are those applicable to a criminal prosecution.

53    However, for reasons which I later develop, the Commissioner’s submissions as to the adequacy of its pleaded case to establish fraud is, in my view, unquestionably correct. Rawson’s submissions impermissibly conflate the question of whether Rawson had the requisite fraudulent intent with the means by which the fraud was allegedly perpetrated, namely, by the leading of false or misleading evidence, including by material non-disclosures.

54    Secondly, Rawson also submits that when regard is had to the new evidence (including produced by MDB and the witnesses examined in Israel pursuant to the letters of request), the result would be the same: the evidence of the witnesses in the AAT was truthful as Rawson itself had no overseas assets, and the new evidence confirms that the Rawson loans were genuine and enforceable loans in respect of which interest was payable. To the contrary, Rawson submits that the new evidence makes it clear that these were genuine loans. As Rawson submitted in its written submissions (RS) at [3]:

The evidence obtained pursuant to the Letters of Request to Israel unequivocally confirms that the funds received from the bank were genuine loans at interest. Had the ‘undisclosed evidence’ been before the Tribunal, namely that there were cash deposits (in an account owned by a person other than Rawson), which secured the loans from the bank, the Tribunal and the Full Court would have reached the same conclusion, a fortiori.

55    The Commissioner however alleges that Rawson is effectively seeking to impose the onus upon the Commissioner to establish that these were not genuine loans, rather than Rawson being required to establish that the assessments were excessive in accordance with the statutory onus on the basis of the case which it chose to run in the AAT. As the Commissioner submitted orally in reply:

… we disagree, on a matter of [principle], with Mr Hutley’s [Rawson’s counsel’s] submissions. That your Honour’s job is to look at the decision of the Tribunal, and impose, on the Senior Members decision, the existence of the deposit. And determine whether, in the context of some of his – of the Tribunal’s – findings, Rawson would still have satisfied the onus. Now we say that that’s not the right approach and that’s inconsistent with authority; that the approach your Honour has to undertake is your Honour has to undertake an assessment of the evidence that was led and the submissions put and assess the new evidence in light of that. And whether the new evidence would have had an impact.

(See also the Commissioner’s written submission in reply (AR).)

56    As the Commissioner also submitted:

… the significant issue that was put by Mr Hutley today was an argument he has run on various occasions, which is the idea of this being a genuine loan. Well, the three loans being genuine. As your Honour now knows, it was every year it had to be redone. We now know that. It wasn’t just one loans or three loans in 1997. It was in fact extended every single year, including by Andrew Binetter prior to the hearing and that was never revealed. But everything that Mr Hutley submitted this morning, your Honour, would not have been an argument that could have been [r]un in the tribunal.

Mr Hutley’s client would have been constrained by the terms of its objection, and the objection that it had articulated and ran was – these were loans, and the interest was as paid, by Mr Andrew Binetter, and in the 90s by his father. So what your Honour’s task actually is, is not whether MDB as an enforceable right under a loan contract, but whether or not your Honour is satisfied that the commissioner has proved the fraud that is pleaded, whether if that material had been available, whether for each year of income, Rawson would have been able to satisfy the commissioner, that the assessments were not excessive.

(T 22/09/20 at pp. 517.38-518.8 (Ms Morgan); emphasis added.)

5.    RELEVANT PRINCIPLES

5.1    Principles applying where it is sought to impeach a judgment on the ground of fraud

57    First, the Federal Court has implied jurisdiction to set aside orders procured by fraud: Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd [1986] FCA 248; (1986) 12 FCR 14 at 15 (Morling J) and the authorities cited therein. This is reflected in r 39.05(b) of the Federal Court Rules 2011 (Cth) (FCR) which provides that the Federal Court may set aside or vary any judgment or order after it has been entered if it was “obtained by fraud”.

58    Secondly, as the Commissioner submitted, while the fraud alleged by the Commissioner commenced with the case presented by Rawson to the Tribunal, unlike a court, the Tribunal lacks any equitable jurisdiction to set aside its decision on the basis that it was procured by fraud. Nor does a decision of the Tribunal authoritatively determine the rights of the parties, in contrast to an exercise of judicial power.

59    However, as the Commissioner also submitted, the effect of the orders of the Full Court was to restore the operation of the Tribunal’s decision which itself merged into the judgment of the Full Court. Thus, by analogy in Thiess Pty Ltd and Hochtief Ag v Industrial Court of NSW [2010] NSWCA 252; (2010) 78 NSWLR 74, Spigelman CJ held (at [74]) that:

In a case such as the present, it is not sufficient to make orders directed only at the outcome of the proceedings in the Local Court. An order dismissing the appeal, as made by the Full Bench of the Industrial Court in this case, has the consequence that the orders of the Local Court become merged in the judgment of the Full Bench: see Wishart v Fraser (1941) 64 CLR 470 especially at 482–483 … It is, accordingly, necessary to make orders directed to the order of an appellate court dismissing an appeal.

60    The case to which Spigelman CJ referred to in Thiess was Wishart v Fraser [1941] HCA 8; (1941) 64 CLR 470 which concerned an appellant who sought special leave from a decision of the then Court of Quarter Sessions, and at the same time sought to overturn, by order nisi, a conviction from the then Court of Petty Sessions. Although Wishart involved a special leave application to the High Court, the Commissioner placed particular reliance on Dixon J’s proposition (at 482-3) that:

It is not denied that the order of the Court of Quarter Sessions was within its jurisdiction and was validly made. While it stands it is a judicial declaration by a competent court exercising Federal jurisdiction establishing the order of the magistrate and preventing its being called in question. If this court made an order setting aside the conviction, there would be two inconsistent judicial orders in operation at the same time, that of the Court of Quarter Sessions confirming the conviction and that of this court discharging it.

61    Equally, if this Court were to set aside the Tribunal’s decision on the ground of fraud, there would be two inconsistent judicial orders in operation at the same time, namely, the Full Court’s decision upholding the Tribunal’s decision and the decision of this Court setting the Tribunal’s decision aside. It follows as the Commissioner submitted (AS at [130]), that, consistently with authorities concerning the effect of an appellate court’s order, the only operative decision, and the one which should be set aside if it was indeed procured by fraud, is that of the Full Court in Rawson (FCAFC). Nonetheless, as the fraud was perpetrated on the Full Court by reason of Rawson pressing, on appeal, the fraudulent case that it ran before the Tribunal, it is necessary in the first place to establish that the decision of the Tribunal was induced by fraud.

62    Thirdly, as the Commissioner has done in these proceedings, it is generally appropriate for a party wishing to impeach a judgment on the ground of fraud to institute independent proceedings for that purpose: Australasian Meat at 15; Clone Pty Ltd v Players Pty Ltd (In Liquidation) (Receivers & Managers Appointed) [2018] HCA 12; (2018) 264 CLR 165 at [32] (the Court); see also e.g. Tjiong v Tjiong [2021] NSWSC 1389 at [74] (Parker J). In this regard, Lord Sumption (with whom Lord Hodge, Lord Lloyd-Jones and Lord Kitchin JJSC agreed) in Takhar v Gracefield Developments Ltd [2019] UKSC 13; [2020] AC 450 at [60]-[61] explained that:

An action to set aside an earlier judgement for fraud is not a procedural application but a cause of action. As applied to judgments obtained by fraud, the historical background was explained by Sir George Jessel MR in Flower v Lloyd (1877) 6 Ch D 297, 299–300. Equity has always exercised a special jurisdiction to reverse transactions procured by fraud. A party to earlier litigation was entitled to bring an original bill in equity to set aside the judgment given in that litigation on the ground that it was obtained by fraud. Such a bill could be brought without leave, because it was brought in support of a substantive right. If the fact and materiality of the fraud were established, the party bringing the bill was absolutely entitled to have the earlier judgment set aside. In this respect, an original bill differed from a bill of review on the basis of further evidence, which was essentially procedural and did require leave. After the fusion of law and equity in the 1870s, the procedure by way of original bill was superseded by a procedure by action on the same juridical basis.

The cause of action to set aside a judgment in earlier proceedings for fraud is independent of the cause of action asserted in the earlier proceedings. It relates to the conduct of the earlier proceedings, and not to the underlying dispute. There can be no question of cause of action estoppel. Nor can there be any question of issue estoppel, because the basis of the action is that the decision of the issue in the earlier proceedings is vitiated by the fraud and cannot bind the parties: R v Humphrys [1977] AC 1, 21 (Viscount Dilhorne). If the claimant establishes his right to have the earlier judgement set aside, it will be of no further legal relevance qua judgment. It follows that res judicata cannot therefore arise in either of its classic forms.

(Emphasis added.)

63    Fourthly, the High Court in Clone held (at [55] and [69]) that the power to set aside a judgment on the ground of fraud requires actual fraud, reflecting the public interest in the finality of litigation. In so holding, their Honours at [55] approved inter alia the statement by Sir John Rolt LJ in Patch v Ward (1867) LR 3 Ch App 203 at 212-213 that:

… the fraud must be actual positive fraud, a meditated and intentional contrivance to keep the parties and the Court in ignorance of the real facts of the case, and obtaining that decree by that contrivance. Mere constructive fraud not originating in actual contrivance, but consisting of acts tending possibly to deceive or mislead without any such intention or contrivance, would probably not be sufficient … What, therefore, the Appellant has to do is to satisfy the Court that the decree was obtained by the positive and actual fraud and contrivance of the party obtaining it.

64    Thus, the High Court held that serious malpractice by the respondent’s lawyers did not suffice; nor would accident, surprise, mistake or a lack of frankness alone: Clone at [55] and [57] (quoting The Ampthill Peerage [1977] AC 547 at 571 (Lord Wilberforce) and 591 (Lord Simon of Glaisdale)); see also e.g. Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538 (Kirby P). As, for example, Lord Simon of Glaisdale said in Ampthill Peerage at 591 (on which Rawson relied):

To impeach a judgment on the ground of fraud it must be proved that the court was deceived into giving the impugned judgment by means of a false case known to be false or not believed to be true or made recklessly without any knowledge on the subject. No doubt, suppression of the truth may sometimes amount to suggestion of the false: The Alfred Nobel [1918] P. 293. But, short of this, lack of frankness or an ulterior or oblique or indirect motive is insufficient.

65    Rawson submitted that the decision in Ampthill Peerage is authority for the proposition that merely failing to disclose evidence without a positive duty to do so is not fraud (T403.15-17), relying upon the following passage from the judgment of Lord Kilbrandon at 595-596:

It is fraudulent conduct to represent to another what is not true with the intention of inducing that other to act contrary to his own interest or, sometimes, his duty. If the conduct has succeeded, fraud has been committed. Fraud is a civil wrong when it breaches a duty not to deceive; the deception may consist of the imparting of false information or the non-disclosure of true information. In either case the duty binds the representer not in the abstract, whatever his moral obligation may do, but because he stands in a relationship with the recipient which calls in law for truthful communication.

66    In support of this proposition, Rawson also placed reliance on The Alfred Nobel [1918] P 293 at 296 where the President of the Prize Court, Sir Samuel Evans, held that:

Every Court has the inherent right to set aside an order which it has made if it has been procured by fraud; and that rule applies to the Prize Court certainly as strongly as it does to any other Court. It cannot be too well known that claimants who desire to establish their claims [for a decree for release of the proceeds of consignments to them in Admiralty] must put their cases honestly, fairly, candidly, and fully before the Court. That has been said in the course of the last three years or so over and over again. So far from having done that, the deponent in this particular case unfortunately stated what was untrue, and impliedly what was false, by suppressing material facts which ought to have been laid before the Court.

67    Thus, the thrust of Rawson’s submission was that where it is sought to impugn a judgment on the ground of fraud by reason of a material non-disclosure, it is necessary to establish that there was a positive duty to disclose the true facts, such as that duty which exists in the case of proceedings in the Prize Court. Specifically, Rawson submitted that, in the Prize jurisdiction, a positive duty lay upon a person claiming release of the consignment to make full disclosure to the Court, akin to the duty imposed on a party on an ex parte application.

68    Rawson’s submission, with respect, misstates the law. In the first place, it takes the statement by Lord Kilbrandon in Ampthill Peerage out of context. That case concerned an action to set aside a declaration of legitimacy by the court under s 8 of the Legitimacy Declaration Act 1858 (UK) on the ground that it had been obtained by fraud. Following the passage on which Rawson relies, Lord Kilbrandon continued to explain at 596 that he understood “fraud” to be used in s 8 of the Legitimacy Declaration Act to have the same meaning as at common law and that:

Thus if a declarator of legitimacy has been obtained by the dishonest misrepresentation of facts, whether by assertion or by non-disclosure, made by or on behalf of the petitioner, to a person whom from his relationship with the representer was entitled to have the truth disclosed by the representer, that declaration is not binding upon any person prejudiced by it. Since the section is concerned with obtaining a decree of the court by fraud, I shall assume that it is the relationship of a duty owed to the court which will render fraudulent in the legal sense any misrepresentation which succeeded in deceiving the court.

(Emphasis added.)

69    This approach is entirely consistent with that taken in The Alfred Nobel. That case does not stand for the proposition that there is a special duty of full disclosure only in the Przie jurisdiction imposed upon a claimant seeking to establish their claims for a decree for release of the proceeds of consignments to them in Admiralty. The correct view is simply that the person claiming release of the consignment has the onus of proving that the ship was not bound towards an enemy state, and therefore that any material non-disclosure may provide a basis on which adverse inferences might be drawn. Thus, for example, Halsbury’s Laws of England (5th ed, 2020) Vol 85, The Law of Prize, “Condemnation of Prize” states (at [737]) that:

The object of bringing in a captured ship or cargo for adjudication is that a sentence of condemnation may be pronounced by a competent court, namely, the Prize Court, decreeing the capture to have been rightly made. It is for the claimant to show that there was no reasonable suspicion justifying the seizure or to displace such reasonable suspicion as in fact exists. If there is concealment of material matters within the claimant's knowledge, the court may draw inferences adverse to his claim and condemn the goods in question, and, it seems, ships.

(Citations omitted.)

70    This view accords with the decision in The Louisiana and Other Ships [1918] AC 461. In that case, the neutral appellants shipped conditional (in the sense that they could not be condemned as lawful prize unless destined for the enemy) contraband goods purportedly to neutral traders in Sweden. The Privy Council held on appeal from the Prize Court, England, that the goods were properly condemned as being destined for Germany. In particular, Lord Parker of Waddington (who delivered the judgment of their Lordships) held at 464-465 that:

For a belligerent State is entitled to seize the goods in transit on reasonable suspicion that, being in their nature absolute contraband, they are destined for the enemy country, or, being in their nature conditional contraband, they are destined for the enemy Government or the enemy naval or military forces. The goods when seized must of course be brought into the Prize Court for adjudication, but in the Prize Court the neutral trader is not in the position of a person charged with a criminal offence and presumed to be innocent unless his guilt is established beyond reasonable doubt. He comes before the Prize Court to show that there was no reasonable suspicion justifying the seizure or to displace such reasonable suspicion as in fact exists. The State of the captors is necessarily unable to investigate the relations between the neutral trader and his correspondents in enemy or neutral countries, but the neutral trader is or ought to be in a position to explain doubtful points. If his goods had no such destination as would subject them to condemnation by the Prize Court, it is his interest to make full disclosure of all the details of the transaction. Only if his goods had such destination can it be in his interest to conceal anything or leave anything unexplained. If he does conceal matters which it is material for the Court to know, or if he neglect to explain matters which he is or ought to be in a position to explain, or if he puts forward unsatisfactory or contradictory evidence in matters the detail of which must be within his knowledge, he cannot complain if the Court draws inferences adverse to his claim and condemns the goods in question.

(Emphasis added.)

71    In the fifth place, as the essence of the action is fraud, it “must be pleaded distinctly and with particularity and clearly proved”: Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563 at 573; Clone at [62]; see also r 16.42 of the FCR. Furthermore, where a condition of mind such as a fraudulent intention is alleged as part of the fraud, this must also be properly particularised: r 16.43 of the FCR. Thus, as Wright J held in Dickson v Commissioner of Australian Federal Police [2019] NSWSC 1293 at [124] (upheld on appeal in Dickson v The Queen [2020] NSWCA 125):

… in order properly to plead and particularise the fraud alleged fraud sufficient to provide a basis for setting aside the restraining orders, Mr Dickson [the plaintiff] had to identify each person who allegedly engaged in a meditated and intentional contrivance to keep the Court in ignorance of the real facts of the case, what the contrivance was, what the real facts of the case were and how the contrivance was alleged to be meditated and intentional.

72    Sixthly, the circumstances in which a judgment may be set aside for fraud were considered by the NSW Court of Appeal in Wentworth (No 5) by Kirby P (with whose reasons Hope and Samuels JJA agreed) (approved, eg. in Spalla v St George Motor Finance Limited (No 5) [2004] FCA 1262 at [60]-[61] (French J (as his Honour then was)). In Wentworth (No 5) at 538-539, Kirby P (as his Honour then was) identified a number of principles governing proceedings in which it is sought to set aside a judgment on the basis of fraud. These may be summarised as follows (per French J in Spalla at [60]):

(1)    as the essence of the action is fraud, “particulars of the fraud claimed must be exactly given and the allegations established by the strict proof which such a charge requires”;

(2)    given the public interest in the finality of litigation, “it must be shown, by the party asserting that the judgment was procured by fraud, that there has been a new discovery of something material, in the sense that fresh facts have been found which, by themselves or in combination with previously known facts, would provide a reason for setting aside the judgment”;

(3)    “mere suspicion of fraud, raised by fresh facts later discovered, will not be sufficient to secure relief … The claimant must establish that the new facts are so evidenced and so material that it is reasonably probable that the action will succeed. This rule is founded squarely in the public interest in finality of public litigation and in upholding judgments duly entered at the termination of proceedings in the courts” (emphasis added);

(4)    “although perjury by the successful party or a witness or witnesses may, if later discovered, warrant the setting aside of a judgment on the ground that it was procured by fraud, and although there may be exceptional cases where such proof of perjury could suffice, without more, to warrant relief of this kind, the mere allegation, or even the proof, of perjury will not normally be sufficient to attract such drastic and exceptional relief as the setting aside of a judgment …” (emphasis alleged). This stringent requirement also flows from the public interest in the finality of litigation given the frequency, in hard fought litigation, of instances in which litigants consider that they were unsuccessful because the decision was procured by false evidence;

(5)    as emphasised by Rawson, “it must be shown by admissible evidence that the successful party was responsible for the fraud which taints the judgment under challenge”; and

(6)    “the burden of establishing the components necessary to warrant the drastic step of setting aside a judgment, allegedly affected by fraud or other relevant taint, lies on the party impugning the judgment. It is for that party to establish the fraud and to do so clearly.”

73    Kirby P concluded at 539, with respect to the party seeking to set aside the judgment, that:

… he or she must establish that the case is based on newly discovered facts; that the facts are material and such as to make it reasonably probable that the case will succeed; that they go beyond mere allegations of perjury on the part of witnesses at the trial; and that the opposing party who took advantage of the judgment is shown, by admissible evidence, to have been responsible for the fraud in such a way as to render it inequitable that such party should take the benefit of the judgement.

74    A consideration of the second and third of Kirby P’s propositions in Wentworth (No 5), as approved by French J in Spalla, necessarily involves a consideration of the impact of the false evidence and concealment upon the decision of the Court (or Tribunal) which it is sought to challenge on the ground of fraud. In this regard, the words of Aikens LJ in Royal Bank of Scotland PLC v Highland Financial Partners LP [2013] EWCA Civ 328; [2013] 1 CLC 596 at [106] (to which the Commissioner referred) are apt:

The principles are, briefly: first, there has to be a ‘conscious and deliberate dishonesty’ in relation to the relevant evidence given, or action taken, statement made or matter concealed, which is relevant to the judgment now sought to be impugned. Secondly, the relevant evidence, action, statement or concealment (performed with conscious and deliberate dishonesty) must be ‘material’. ‘Material’ means that the fresh evidence that is adduced after the first judgment has been given is such that it demonstrates that the previous relevant evidence, action, statement or concealment was an operative cause of the court’s decision to give judgment in the way it did. Put another way, it must be shown that the fresh evidence would have entirely changed the way in which the first court approached and came to its decision. Thus the relevant conscious and deliberate dishonesty must be causative of the impugned judgment being obtained in the terms it was

(Citations omitted.)

75    However, insofar as Aikens LJ further stated that the question of materiality is not to be assessed “by reference to its impact on what decision might be made if the claim were to be retried on honest evidence”, that does not accord with the principles enunciated in Spalla which the parties implicitly accepted as correctly stating the position under Australian law. In this regard, as I later explain, the parties did in fact make submissions assuming the relevance both of the inquiry as to the impact of the previous false evidence upon the Tribunal’s reasoning as well as the likely impact, hypothetically speaking, of the new evidence on the decision which the Tribunal would make on a rehearing.

76    The principles enunciated by Aikens LJ in Highland Financial in this passage were subsequently quoted with approval in Takhar at [56] (Lord Kerr) and in Tjiong at [205] (Parker J). In Tjiong at [204]-[205], Parker J described the requirement of materiality as a “control factor” designed to ensure that challenges can be made only in limited circumstances so as to preserve the fundamental tenet of the finality of litigation. Similarly, but more colourfully, Lord Briggs JSC in Takhar (at [68]) described the inherent tension in actions to set aside fraud as “a bare-knuckle fight between two important and long-established principles of public policy. The first is fraud unravels all. The second is that there must come an end to litigation”.

77    However, judicial statements to the effect that an action to set aside a civil judgment must be based on new evidence, which could not reasonably have been discovered in the earlier proceedings, have been discredited: McDonald v McDonald [1965] HCA 45; (1965) 113 CLR 529 at 533 (Barwick CJ (with whose reasons Kitto J concurred)), 535 (Taylor J) and 542 (Menzies J); Toubia v Schwenke [2002] NSWCA 34; (2002) 54 NSWLR 46 at [22]-[45] (Handley JA); Takhar at [480] (Lord Sumption, agreeing with the Australian decisions in McDonald and Toubia); Clone at [63]-[68] (the Court). The requirement of reasonable diligence was one of the conditions for leave attaching to the bill of review, which did not survive the Judicature Reforms (Clone at [47] and [53]). As such, it is not a precondition to the exercise of power that reasonable diligence must have been exercised to discover the fraud in the course of the proceedings: Clone at [63]-[68]. As Brennan J explained in Gould v Vaggelas [1984] HCA 75; (1984) 157 CLR 215 at 252, “[a] knave does not escape liability because he is dealing with a fool.” The Commissioner’s written submissions in chief assumed the contrary, citing the decisions in Spalla at [61] and Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) [1992] FCA 548; (1992) 37 FCR 234 as approving the “stringent principles” set out in Gordon QC’s “Fraud or New Evidence as Grounds for Actions to Set Aside Judgments” (1961) 77 LQR 358 and in Owens Bank Limited v Bracco [1992] 2 AC 443 at 483 (Lord Bridge) (AS at [133] and [136]-[137]). However, as the Commissioner submitted in oral address (T377.1-9), it is clear that insofar as Spalla, Monroe and other authorities imposed a requirement that the evidence relied upon to set aside an earlier decision for fraud could not have been discovered by the time of the trial with reasonable diligence, they do not represent the current state of authority.

78    Furthermore and in any event, even before the decision in Clone, it had been held that no such restraint applies in public law and that the Court can, subject to any applicable procedural and evidentiary rules, take account of any relevant material before it: SZSXT v Minister for Immigration and Border Protection [2014] FCAFC 40; (2014) 222 FCR 73 at [65]-[78] (the Court) (citing among other authorities SZFDE v Minister for Immigration and Citizenship [2007] HCA 35; (2007) 232 CLR 189 at [16]-[17] (the Court) and Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163 at 175-176 (the Court)).

5.2    Principles concerning fact-finding: Briginshaw

79    In approaching my assessment of the evidence I have borne firmly in mind the seriousness of the allegations of fraud against Rawson and its directors, including the allegations that Andrew and other witnesses gave false and/or misleading evidence before the Tribunal. In this regard, in arriving at a state of satisfaction in civil proceedings that a case has been proved on the balance of probabilities, s 140(2) of the Evidence Act 1995 (Cth) provides that:

(2)    Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account—

(a)    the nature of the cause of action or defence; and

(b)    the nature of the subject-matter of the proceeding; and

(c)    the gravity of the matters alleged.

(Emphasis added.)

80    The considerations which s 140(2) of the Evidence Act now requires a court to take into account align with Dixon J’s consideration in Briginshaw of how the civil standard of proof at common law operates: see e.g. Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 at [31] (the Court). Thus, in an oft-quoted passage at 362 from Briginshaw, Dixon J observed that:

reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency.

81    In other words, as explained by Barwick CJ, Kitto, Taylor, Menzies and Windeyer JJ the “degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved”: Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517 at 521. This principle, as Flick and Perry JJ observed in Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93; (2014) 226 FCR 555 at [99], “is ultimately founded upon principles of fairness and common sense”.

5.3    Failure to call witnesses and lead evidence

5.3.1    Relevant principles

82    Without detracting from the weight to be given to the Briginshaw principle in the context of this case, the question arises as to whether adverse inferences should be drawn on the basis of the rule in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 by reason of the failure by Rawson to call evidence in determining whether the Commissioner has discharged its onus establishing that the decision of the Tribunal and, in turn, the Full Court should be set aside on the basis of fraud. This is subject, as I shortly explain, to the fact that the directors of Rawson relied upon the privilege against self-incrimination.