FEDERAL COURT OF AUSTRALIA
Commissioner of Taxation v Rawson Finances Pty Ltd [2023] FCA 617
SUMMARY
In accordance with the practice of the Federal Court in some cases of public interest, the following summary has been prepared to accompany the orders made today. This summary is intended to assist in understanding the outcome of this proceeding given the length and complexity of the judgment.
This summary is not a complete statement of the conclusions reached by the Court. The only authoritative statement of the Court’s reasons is that contained in the published reasons for judgment. This will be available on the internet at the Court’s website, together with this summary.
The applicant, the Commissioner of Taxation, applied to set aside the judgment of the Full Federal Court in Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26; (2013) 133 ALD 39 (Full Court proceedings) on the ground that it was obtained by fraud. The respondent, Rawson Finances Pty Ltd, was one of a number of entities owned and controlled by members of the Binetter family.
Background and facts
Following an audit commenced in July 2006 as part of Project Wickenby, the Commissioner was not satisfied with Rawson’s income tax returns, and issued notices of assessments for the years 1997 to 2008 and penalty assessments for the years 2001 to 2008. Specifically, the Commissioner included in Rawson’s assessable income three “loans” obtained by Rawson, totalling AUD$4.5 million, obtained from the Mercantile Discount Bank (MDB), Israel, in 1997, and disallowed deductions for interest on the alleged loans.
Rawson commenced merits review proceedings in the Administrative Appeals Tribunal under Part IVC of the Taxation Administration Act 1953 (Cth): Areffco v Commissioner of Taxation [2011] AATA 628; (2011) 84 ATR 924 (Tribunal proceedings). Rawson bore the onus of proving that the Commissioner’s taxation assessments were excessive.
The essence of Rawson’s case before the Tribunal was a “business practice” case, being that its former director, Erwin Binetter, and his family had a business practice of obtaining loans from Israeli banks on the basis only of personal guarantees. Rawson submitted that the Tribunal should infer that Rawson followed the same business practice as its related entities, and that its loans from MDB were not supported by any security beyond personal guarantees.
The Tribunal found that Rawson had established that the Commissioner’s taxation assessments were excessive, and set aside the Commissioner’s decision. The Commissioner appealed under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) to the Federal Court. On 17 July 2012, Edmonds J allowed the Commissioner’s appeal on the ground that it was not open on the evidence for the Tribunal to characterise the funds received by Rawson from MDB as loans.
Rawson appealed to the Full Federal Court, which allowed Rawson’s appeal and set aside the orders of the primary judge. Nonetheless, Jagot J observed that the funds transfer was “unusual” and that it was “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”.
Subsequently, the Commissioner obtained a very substantial body of new evidence including from the liquidators of two of the Binetter family entities, banks in Israel and evidence given on examination by Bank officers in Israel. The Commissioner alleged that the new evidence established that the Tribunal and Full Court decisions were obtained by fraud on the part of Rawson (but not on the part of the legal practitioners making submissions in the Tribunal and in proceedings in the Federal Court). The Commissioner specifically alleged that the new evidence established that the loans to the Binetter family entities, including Rawson, were secured by secret cash deposits, and in the case of Rawson and another Binetter family entity, Advance Finances Pty Ltd, those deposits were held by family members using a code name. On the basis of the new evidence, the Commissioner submitted that Rawson’s case that its loans were secured only by personal guarantees was knowingly false and misleading and on this basis sought to set aside the Full Court decision on the ground of fraud.
Findings about the new evidence which contradicts the case run by Rawson before the Tribunal and the Full Court
The new evidence overwhelmingly establishes that the decisions of the Tribunal and the Full Court were obtained by fraud on the part of Rawson through Andrew Binetter (Erwin’s son) (but not on the part of the legal practitioners making submissions in the Tribunal and Federal Court proceedings).
First, the Commissioner adduced new evidence contradicting Rawson’s “business practice” case which relied on the conduct of other Binetter family entities including BCI Finances Pty Ltd, Advance and other entities. This evidence establishes that the common “business practice” engaged in by the Binetter family was in fact to secure so-called loans from Israeli banks on the basis of back-to-back deposits and not as alleged by Rawson before the Tribunal on the basis of personal relationships and guarantees.
For example, in relation to BCI, new evidence emerged that on 8 March 2006, Andrew signed a deed of pledge which pledged a deposit as security for BCI’s loan with another Israeli bank, Bank Hapoalim. This unequivocally confirmed that the BCI loans were secured by a back-to-back deposit. Similarly, a plethora of new documents in relation to Advance, Rawson’s sister company controlled by Andrew’s cousin, established the existence of a deposit account securing the loan. Significantly, new evidence also emerged that, in 2007, Andrew arranged for the preparation of draft correspondence to be sent by the Israeli banks on their bank letterheads, which misrepresented the so-called loan arrangements by concealing the existence of the back-to-back deposits.
Secondly, the new evidence reveals that Rawson’s loans with MDB were in fact secured by a secret deposit account in the code name of “Arthur Belan”. The existence of the deposit account is further corroborated by the evidence of officers of MDB examined pursuant to letters of request to the Israeli authorities. The evidence establishes that Andrew, whose knowledge is to be attributed to Rawson, knew of the Arthur Belan deposit account and the true nature of the arrangements between Rawson and MDB from 1997 or shortly thereafter. Yet Rawson, through Andrew, ran a case now 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, including that:
1. he became aware during the Tribunal proceedings that it was his family’s business practice to provide personal guarantees as the only form of security, whereas in fact he was aware that his family’s actual business practice was to secure the “loans” with cash deposits in back-to-back accounts;
2. he had made enquiries with MDB regarding any deposits which may have been used as securities for the loan, whereas in fact he intentionally concealed information in relation to the Arthur Belan deposit account (which would have been provided by MDB if he had requested it); and
3. he arranged for the preparation of documents drafted by his solicitor, Mr Mark Douglass, to be placed on MDB letterhead which deposed only to the loan side of the arrangement.
It is therefore no overstatement to say that the evidence establishes highly egregious and fraudulent conduct by Rawson, through Andrew, in the case run before the Tribunal and in the Federal Court. The new evidence reveals that this is a case of extraordinary deceit and subterfuge involving a multitude of overseas accounts and highly suspicious and unexplained transactions of labyrithal complexity.
Materiality of the fraud and principles of setting aside the Full Court judgment
The Commissioner also established that the fraud perpetrated by Rawson was material. The new evidence completely undermines critical findings by the Tribunal, including its acceptance of Andrew’s evidence (now known to be false and misleading) that he had no knowledge of any security for the alleged loans. Furthermore, if the new evidence were before the Tribunal on a rehearing and remained unanswered, it is almost inevitable that the Tribunal would have reached a different decision. In this regard, Rawson’s submission that the new evidence demonstrated that the funds obtained from MDB were “genuine loans at interest” was misconceived at every level.
Conclusion
Accordingly, the Court held that the decision of the Full Court of the Federal Court should be set aside on the ground that it was procured by fraud. However, the Court held that the first instance decision of the Federal Court should not be set aside because the fraud was not material, given that the primary judge had allowed the Commissioner’s appeal and set aside the Tribunal’s decision.
Justice Perry
9 June 2023
Sydney
