In the recent decision of Deputy Commissioner of Taxation v Rennie Produce (Aust) Pty Ltd (in liq) [2018] FCAFC 38, the Full Federal Court held that a person issued with a valid notice to provide documents[1] to the Commissioner of Taxation cannot be excused from complying with the notice by reason of the “Harman Undertaking”.
The Harman Undertaking is the general law obligation described in Hearne v Street[2008] HCA 36 following its origins in Harman v Secretary of State for Home Department [1983] 1 AC 280. In Hearne, the plurality of the High Court described it as:[2]
“Where one party to litigation is compelled…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….”
On the one hand, failure to comply with a notice to produce documents to the ATO is an offence. Alternatively, a failure to comply with the Harman Undertaking is a contemptof Court. This decision is significant because it resolves the tension.
The Facts
Rennie Company was sold for about $42 million. Soon after the sale, Rennie Company went into liquidation. The liquidators obtained orders compelling various persons (including Mr Rennie, its sole director and a shareholder) to produce documents.[3] Mr Rennie produced documents to the liquidators. They included documents relevant to his capital gain following the sale of Rennie Company.
Separately, the Commissioner of Taxation was conducting an audit in relation to the income tax return lodged by Mr Rennie including his self-assessed net capital gain of $5 million following the sale of Rennie Company. The ATO issued the liquidator with a notice to produce documents.[4]
The liquidator resisted, saying that the Harman Undertaking applied. The ATO commenced proceedings against the liquidator seeking production of the documents.
The Court held that the ATO’s powers to demand documents applied notwithstanding the Harman Undertaking. In so doing, it held that the legislation creating the power to compel production overrides the equitable duties of confidentiality.
The decision is unlikely to be appealed, as all the parties were inclined to comply with the notice, if permitted by law.
A copy of the judgment is here [2018] FCAFC 38.
[1] Per s 353-10 of Sch 1 of the Taxation Administration Act 1953.
[2] Hearne, at [27].
[3] Under their powers in sections 596A and 596B of the Corporations Act 2001.
[4] Under s 353-10 Sch 1 of the Tax Administration Act 1953.