On 20 March 2018, the Full Federal Court has held that the “Harman obligation” did not excuse a liquidator from complying with an ATO notice “to produce documents”, under under s 353-10, Sch 1 TAA (which superseded the old s264 of the ITAA36).
Failure to comply with such a notice, if not constrained by law, is an offence. On the other hand, failure to comply with the ‘Harman obligation’ is a contempt of Court.
The Harman obligation is the general law obligation described in Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 (Hearne) commonly referred to as the Harman obligation (see Harman v Secretary of State for Home Department [1983] 1 AC 280). The Court described this [at para 27] as follows:
Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose, other than that for which it was given, unless it is received into evidence.
Their Honours observed that the nature of the obligation was that of an implied undertaking to the Court, that documents compelled to be produced, by the Court, would not be used for any other purpose, unless they were entered into evidence (at which point they did become public). As noted, failure to comply, was a contempt of Court. [para 28]
There is a complicating feature of this obligation, which is that it may be relieved, by leave of the Court. I say complicating, because the liquidators could have been allowed to comply, with the ATO’s notice, by leave of this Court, and, indeed, that is what they sought. But the Court distinguished between the two issues and held that the ‘Harman Obligation’ did not extend to the point of over-riding any other legal requirement (such as an obligation to comply with a s355-10 notice) and there was nothing for the Court to excuse.
The background was as follows.
- The Rennie Company (now in liquidation) had sold its business for $45m (or so it seems, probably as the sole vendor and, it appears in the 2013 financial year). The proceeds (or some of them) filtered through to Mr Rennie via various entities, including trusts that distributed the capital gain to him. However, Mr Rennie self-assessed a net capital gain of only $5m, which the Commissioner was investigating. It was in that context that he issued the s355-10 notices to produce, to the Liquidators.
- The Rennie Company went into liquidation (for reasons that are not clear in the judgement). The liquidators obtained orders compelling various parties associated with the sale to produce various documents, as part of their investigation of the company’s affairs. This was under their powers in the s596A & s596B of the Corporations Act 2001. And the liquidators obtained copies of the documents, the subject of those orders.
- The Liquidators were happy to comply with the Commissioner’s notice, but understood that the Harman obligation prevented them, unless relieved by Court application. So they applied.
- The Commissioner did not press the view that his statutory power prevailed over the Harman Obligation, because of the law sustaining legal professional privilege over this power (see Daniels case below). His case was limited to seeking the leave of the Court to relieve the Liquidators’ Harman Obligation. [para 42]
The Court’s legal reasoning (and in particular, the law it traverses) is interesting.
- The law is that the statute creating the Commissioner’s ‘notice to produce documents’ power (viz: the former s264 and now s355-10) overrides contractual and equitable duties of confidentiality (see all the cases cited in para 25).
- It has also been established that such a statute does not override ‘fundamental common law rights’, such as ‘legal professional privilege, without expressly saying so (which neither s264 or s355-10 do). This was established in Daniel’s case (2002) 213 CLR 453 (about an similar statutory notice to produce power). However, the Court did not think the Harman Obligation such a fundamental right. [paras 38 – 40]
- Rather, the Court adopted the reasoning of Gordon J, in the case of Cadbury Schweppes v Amcor [2008] FCA 398, which was that the Harman Obligation did not extend to (or ‘trespass on’) an inconsistent legal obligation (such as the Commissioner’s right to those documents). [para 34 & 36]
- As a result, the Court did not give leave to produce the documents to the Commissioner. Rather, it held that the Harman Principle yielded to the Commissioner’s statutory right to the documents.
This is quite an important case. It is unlikely to be appealed, as all the parties were inclined to comply with the notice, if permitted by law.
(DCT v Rennie Produce (Aust) Pty Ltd (in liq) [2018] FCAFC 38, Full Federal Court, Kenny, Robertson and Thawley JJ, 20 March 2018.)
22.3.18
[FJM; LTN 55, 21/3/18; Tax Month March 2018]
Study questions (answers available)
- Did the Court decide that the Liquidators could comply with the Commissioner’s notice to produce documents they received as part of their inquiry into the affairs of the company?
- Is the Harman Obligation an implied undertaking to the Court, that documents supplied under its powers, that did not ultimately go into evidence, would only be used for the purposes of that Court action?
- Could this obligation be relieved by application to the Court?
- Does the s264/s355-10 power overcome duties of confidentiality?
- Does the s264/s355-10 power overcome legal professional privilege and other fundamental common law rights?
- Was the Harman Obligation like a fundamental common law right?
- Did the Court give leave to the Liquidators to supply the documents to the Commissioner?
[answers:1.yes;2.yes;3.yes;4.no(para1Above);5.no(DanielsCase);6.no(yieldsToInconsistentLegalObligation);
7.no(didn’tHaveTo-ThatWasThePoint)]