Federal Court of Australia La Mancha Africa S.A.R.L. v Commissioner of Taxation [2021] FCA 1564 File number(s): VID 778 of 2020 Judgment of: DAVIES J Date of judgment: 15 December 2021 Catchwords: TAXATION – Harman undertaking – where the Commissioner of Taxation (Commissioner) is a party to a proceeding – where documents produced under subpoena in the proceeding by a third party – whether the Harman undertaking constrains the Commissioner's use of the subpoenaed documents without a release from the Court – Harman undertaking yields to inconsistent legal obligations – Harman obligation does not abrogate any duty or compulsion imposed by law or statute– Harman undertaking does not preclude the Commissioner from using subpoenaed documents in the lawful exercise of his powers and functions Legislation: Evidence Act 1995 (Cth) s 128A Income Tax Assessment Act 1936 (Cth) s 166 Judiciary Act 1903 (Cth) s 64 Taxation Administration Act 1953 (Cth) sch 1 s 353-10 Cases cited: Advanced Holdings Pty Ltd v Commissioner of Taxation [2020] FCAFC 157; (2020) 281 FCR 149 Cadbury Schweppes Pty Ltd v Amcor Ltd [2008] FCA 398; (2008) ATPR 42-224 Denlay v Federal Commissioner of Taxation [2011] FCAFC 412; (2011) 193 FCR 412 Deputy Commissioner of Taxation v Karas [2012] VSC 143 Deputy Commissioner of Taxation v Rennie Produce (Aust) Pty Ltd (in liq) [2018] FCAFC 38; (2018) 260 FCR 272 Deputy Commissioner of Taxation v Shi [2021] HCA 22; (2021) 392 ALR 1 Esso Australia Resources Limited v Plowman [1995] HCA 19; (1995) 183 CLR 10 Federal Commissioner of Taxation v Donoghue [2015] FCAFC 183; (2018) 237 FCR 316 Gould v Deputy Commissioner of Taxation [2017] FCAFC 1; (2017) 343 ALR 275 Griffiths & Beerens Pty Ltd v Duggan (No 2) [2008] VSC 230 Harman v Secretary of State for Home Department [1983] 1 AC 280 Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 Law Institute of Victoria Limited v Deputy Commissioner of Taxation [2009] VSC 55; (2009) 224 FLR 37 Macquarie Bank Limited v Federal Commissioner of Taxation [2013] FCAFC 119 Riddick v Thames Board Mills Ltd [1977] QB 881 Division: General Division Registry: Victoria National Practice Area: Taxation Number of paragraphs: 13 Date of hearing: 3 December 2021 Counsel for the Applicant: Mr N Kaskani Solicitor for the Applicant: Clayton Utz Counsel for the Respondent: Mr T Begbie QC with Mr C Peadon Solicitor for the Respondent: Australian Government Solicitor Counsel for Ernest Henry Mining Pty Ltd: Mr D McInerney QC with Mr G Redenbach Solicitor for Ernest Henry Mining Pty Ltd: King & Wood Mallesons ORDERS VID 778 of 2020 BETWEEN: LA MANCHA AFRICA S.A.R.L Applicant AND: COMMISSIONER OF TAXATION Respondent ERNEST HENRY MINING PTY LTD Intervener order made by: DAVIES J DATE OF ORDER: 15 december 2021 THE COURT ORDERS THAT: 1. The parties are directed to provide minutes of orders giving effect to these reasons within seven days. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DAVIES J: 1 Ernest Henry Mining Pty Ltd (Ernest Henry Mining) has produced documents to the Court in this proceeding pursuant to a subpoena issued to it at the request of the applicant (La Mancha). La Mancha has agreed to confidentiality orders and given undertakings in relation to its use of the subpoenaed documents and has been granted leave to inspect, uplift and copy the subpoenaed documents on that basis. Ernest Henry Mining seeks additional orders and undertakings by the respondent (the Commissioner), the effect of which would be to limit the Commissioner's use of the subpoenaed documents for the purposes of these proceedings only. That limitation is sought "for the avoidance of doubt" – it was contended by Ernest Henry Mining that the obligation of law commonly referred to as the Harman undertaking (or obligation) constrains the Commissioner to use the subpoenaed documents only for the purposes of these proceedings, absent obtaining a release from the Court: see Harman v Secretary of State for Home Department [1983] 1 AC 280. The Commissioner, on the other hand, contends that the Harman undertaking does not operate to constrain his lawful exercise of his statutory functions and powers. The Court has been asked to determine the legal question as to whether the Harman undertaking would restrict his use of the subpoenaed documents to use in this proceeding only. For the reasons that follow, the answer to that legal question is "no". 2 The Harman undertaking is an obligation imposed by law on parties to a proceeding who receive documents or information from the other side or third parties pursuant to the Court's processes, such as through the subpoena process: Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 (Hearne), 131 [3], 154-5 [96], 160-2 [109]-[112]. The legal obligation arises by implication by reason of the circumstances in which the documents or information come into the possession of the parties to the litigation through the curial processes and binds the parties not to make use of such documents and information other than in the litigation. The imposition of that legal obligation rests on the principle that the production of documents or information under compulsion of the Court's processes is an invasion of the right to keep such documents and information private and the public interest in privacy and confidence "demands that this compulsion should not be pressed further than the course of justice requires": Riddick v Thames Board Mills Ltd [1977] QB 881, 886 (Denning LJ), cited in Hearne, 159 [107] (Hayne, Heydon and Crennan JJ). The effect of that legal obligation is that the parties "cannot, without the leave of the Court, use [such documents or information] for any purpose other than for which it was given unless it is received into evidence": Hearne, 154-5 [96]. Parties can apply to the Court for leave to be released from the Harman undertaking and a well-established body of law has developed as to when such leave should be granted. However, it is not necessary to refer to those authorities as the Commissioner does not seek a release from the Harman obligation. Rather the Commissioner's case is that the Harman undertaking does not operate to prevent the Commissioner from using documents and information which come into his possession through the curial processes in the lawful exercise of his statutory powers and duties under the taxation laws. The Commissioner relies on the well settled principle that the Harman undertaking yields to inconsistent legal obligations, including statutory obligations: Hearne, 161 [110], citing Esso Australia Resources Limited v Plowman [1995] HCA 19; (1995) 183 CLR 10 (Esso), 33, where Mason CJ (with whom Dawson and McHugh JJ agreed) said: No doubt the implied obligation must yield to inconsistent statutory provisions and to the requirements of curial process in other litigation, eg discovery and inspection…. As Gordon J explained in Cadbury Schweppes Pty Ltd v Amcor Ltd [2008] FCA 398; (2008) ATPR 42-224 (Cadbury Schweppes) at [13], the undertaking impliedly given in one proceeding not to use documents compulsorily produced in that proceeding except for the purpose of that proceeding is necessarily subject to other requirements of the law as "the undertaking is no answer to otherwise compulsive processes of the law". 3 Ernest Henry Mining contended that the "well understood" exception to the Harman undertaking to which Mason CJ referred in Esso is brought into play where a further obligation at law requires a party to disclose the documents, citing Deputy Commissioner of Taxation v Rennie Produce (Aust) Pty Ltd (in liq) [2018] FCAFC 38; (2018) 260 FCR 272 (Rennie) in support. In that case, the Commissioner had served a notice under s 353-10 notice of sch 1 to the Taxation Administration Act 1953 (Cth) (s 353-10 notice) requiring the respondent company, through its liquidators, to produce documents obtained through an earlier court process. It was common ground that the documents were obtained in circumstances that attracted the Harman undertaking. The Full Court held that the Harman undertaking did not preclude the respondent company from producing documents to the Commissioner in accordance with the s 353-10 notice. The Full Court said at [37]: In our opinion, providing documents to the [Commissioner] in answer to the Notice is not use of documents by the person the subject of the Notice. Rather, the true character of providing such documents is compliance with a requirement to give any document to the [Commissioner] in circumstances where a refusal or failure to give the document, where the person is capable of so doing, is an offence of absolute liability: s 8C of the [Taxation Administration Act 1953 (Cth)]. An offence under s 8C is punishable on conviction under s 8E. In reliance on that passage, Ernest Henry Mining argued that there is a distinction between a person subject to the Harman undertaking merely supplying a document under compulsion of law and the person making "use" of documents produced in the proceeding. Ernest Henry Mining argued that it is important to distinguish between the position of the Commissioner as a regulator exercising his powers and functions to compel a person subject to the Harman undertaking to produce documents under the Commissioner's information gathering powers (as was the case in Rennie), and the position of the Commissioner when he is a litigant in proceedings (as he is in this case). In this case, it was said, the Commissioner, as a party in the proceeding, is subject to the Harman undertaking in respect of his use of documents compulsorily produced in the proceeding and, accordingly, must obtain a release from the Court from that obligation (the second "well understood" exception to the Harman undertaking) in order to use those documents for purposes outside of the proceeding. Ernest Henry Mining sought to bolster this argument by reliance upon s 64 of the Judiciary Act 1903 (Cth) (Judiciary Act), contending that s 64 of that Act gives the Commisioner rights and imposes obligations "as nearly as possible" the same as any other party – including obligations to abide by any undertaking given to the Court or to the Court that arises in the conduct of litigation. 4 Ernest Henry Mining made reference to Gordon J's judgment in Deputy Commissioner of Taxation v Shi [2021] HCA 22; (2021) 392 ALR 1 (Shi) in further support for the contention that the Commissioner, as a party to this proceeding, cannot use the subpoenaed documents for purposes outside the proceeding without obtaining a release from the Court. In that case, the Commissioner had obtained freezing orders against Mr Shi. The Court orders included an ancillary asset disclosure order requiring him to inform the Commissioner in writing of all of his worldwide assets. Mr Shi prepared affidavits containing that information, but used the procedure under s 128A of the Evidence Act 1995 (Cth) to object to complying with the disclosure order on the ground that the information contained in the affidavits may tend to prove that he had committed an offence against or arising under an Australian law or a law of a foreign country. Pursuant to s 128A(6) the Court could require the information to be disclosed in the interests of justice, notwithstanding that the Court was satisfied that the information may tend to prove that an offence under Australian law was committed. If the Court ordered disclosure, it was required by s 128A(7) to grant a certificate in respect of that information, which had the effect by s 128A(8) that the information disclosed could not be used against the person. One of the arguments advanced by Mr Shi was that it was not in the interests of justice that he be required to comply with the disclosure order as the Harman obligation would not prevent the Commissioner or the Australian Federal Police from using that information for the purpose of parallel or related criminal investigations. Gordon J rejected the submission at [50] stating that: …leave of the court is required before a party will be permitted to use material obtained in a civil proceeding in furtherance of a criminal investigation or to provide such material to an investigative agency. Taking such steps without having sought and obtained leave of the court contravenes the Harman undertaking. 5 Ernest Henry Mining also referred to the decision in Deputy Commissioner of Taxation v Karas [2012] VSC 143 (Karas), submitting that Forrest J similarly proceeded on the basis that the Harman obligation could apply to prevent the Deputy Commissioner from using affidavits filed in a freezing order proceeding but, on the facts of that case, the undertaking did not apply because the proposed alternate use of the documents had a sufficient relationship with the freezing order proceeding (see [60]). 6 Ernest Henry Mining's contention that the subpoenaed documents cannot be used by the Commissioner outside of this proceeding without release from the Harman obligation rests on the premise that where documents come into the Commissioner's possession as a litigant in proceedings, not as a regulator, the Commissioner, as a litigant to the proceedings, is in the same position as any other litigant bound by the Harman undertaking in respect of the "use" of documents obtained through the Court's processes. However, that premise is neither supported by the cases on which Ernest Henry Mining relied nor is it correct. 7 It is important to bear in mind the nature of the Harman obligation. As the Full Court stated in Rennie at [29], the content of the Harman obligation is such that it recognises and is shaped by inconsistent legal obligations. The imposition of the obligation not to use documents or information compulsorily produced in a proceeding other than for the purposes of that proceeding is necessarily abrogated by a duty or compulsion imposed by law or statute to use the information for other purposes. Hence the Harman undertaking must yield to inconsistent statutory provisions and to the requirements of curial process in other litigation. 8 There is a wealth of appellate authority to the effect that the Commissioner's duty under s 166 of the Income Tax Assessment Act 1936 (Cth) requires him to act upon the information which he has in his possession for the purpose of determining and fixing the amount of tax liability that the law operates to impose on the taxpayer. Furthermore, s 166 not only permits but requires the Commissioner to act upon the information which he has in his possession, regardless of how he came to have it: Federal Commissioner of Taxation v Donoghue [2015] FCAFC 183; (2018) 237 FCR 316, [74], [114]; Denlay v Federal Commissioner of Taxation [2011] FCAFC 412; (2011) 193 FCR 412 (Denlay); Macquarie Bank Limited v Federal Commissioner of Taxation [2013] FCAFC 119; Gould v Deputy Commissioner of Taxation [2017] FCAFC 1; (2017) 343 ALR 275; Advanced Holdings Pty Ltd v Commissioner of Taxation [2020] FCAFC 157; (2020) 281 FCR 149. The nature of that duty was cogently expressed by the Full Court in Denlay at [81] as follows: Section 166 imposes a duty upon the Commissioner. The interpretation of s 166 urged by the taxpayers would limit the performance of that duty to cases where the Commissioner is able to satisfy himself that his officers had not infringed any law in the gathering of the available information. It would be a remarkable state of affairs if the Commissioner were entitled, and indeed obliged, to refrain from doing what is expressed to be his duty by the terms of s 166 of the [Income Tax Assessment Act 1936 (Cth)] by reason of a suspicion on his part, even a reasonable suspicion, that some illegality on the part of his officers may have occurred in the course of gathering the information. A clear expression of legislative intention so to qualify the duty imposed on the Commissioner would be required to relieve him of his duty under s 166. We are unable to see that such a limitation is consistent with the unqualified language in which the duty is cast upon the Commissioner and the high importance of making an assessment based on the information available to the Commissioner. These cases are binding authority on the Commissioner's duty to apply the law on the facts as he understands them to be on the basis of the information which he has in his possession. That duty is not dispensed with by the Harman undertaking but is a duty which is inconsistent with the Harman undertaking, which would otherwise fetter what is the Commissioner's obligation and statutory duty under the taxation laws. That obligation and duty imposed by law on the Commissioner is such that the implication against use cannot be made: Law Institute of Victoria Limited v Deputy Commissioner of Taxation [2009] VSC 55; (2009) 224 FLR 37, [15] (Pagone J) citing his Honour's earlier remarks in Griffiths & Beerens Pty Ltd v Duggan (No 2) [2008] VSC 230, [4]-[5] and fn 11. 9 Contrary to the submissions for Ernest Henry Mining, the decision in Rennie is authority against, not for, the proposition that the Commissioner's discharge of his powers and duties under the taxation laws is subject to the Harman undertaking, where he is a party to a proceeding. In that case, the Full Court was also asked to make a declaration that the Commissioner and taxation officers were not subject to the Harman obligation in receiving or using any information given to the Commissioner pursuant to the s 353-10 notice in the lawful exercise of his powers and functions. The Full Court granted that declaratory relief. Ernest Henry Mining sought to explain the outcome in Rennie by arguing that it could not be said that Rennie would have been decided in the same way in the absence of s 353-10, as s 353-10 was the basis for their Honour's reasoning that the undertaking must yield – once it did, it was submitted, such that the Commissioner had access to the documents, there was nothing left of the undertaking to restrict the Commissioner's use of the documents in the course of his duties and s 166 had no role to play with respect to confining the scope of the Harman undertaking. That submission is wrong. In the course of reasoning that the Harman obligation did not constrain the Commissioner and taxation officers from receiving or using the documents in the exercise of the Commissioner's statutory powers and functions, the Full Court expressly had regard to the Commissioner's duty to make an assessment and to pursue the recovery of tax liabilities (at [20]) for which he is given various powers, including the power to obtain information and evidence by a notice issued under s 353-10 (at [21]) conferred for the purpose of facilitating the proper discharge of his duty to administer the tax laws (at [22]). After referring to the relevant principles in Hearne, their Honours then said at [29] that "the content of the Harman obligation is such that it recognises and is shaped by inconsistent legal obligations" and went on to explain this by reference to Esso and the decision of Gordon J in Cadbury Schweppes. In making the declarations sought, the Full Court concluded at [56] that: The Harman obligation does not prevent or excuse a person owing that obligation from complying with a valid notice issued under s 353-10(1)(c). Nor does the Harman obligation prevent the applicant or taxation officers receiving documents the subject of a Harman obligation from using those documents in the lawful exercise of the powers and functions vested in the Commissioner. It is clear that the grant of the declaration in favour of the Commissioner was framed and decided by reference to the inconsistent legal duties to which the Commissioner is subject under the taxation laws. 10 Nor do Shi and Karas assist Ernest Henry Mining. In Shi Gordon J, in rejecting the argument advanced in support of the contention put on behalf of Mr Shi that there was a risk of derivative use of the information, only addressed the constraints on derivative use where the use of documents is subject to the Harman obligation. Her Honour said nothing about whether the derivative use postulated on behalf of Mr Shi would come within the exception to the Harman undertaking as an inconsistent legal requirement. Karas also said nothing about the present issue. 11 Finally, Ernest Henry Mining's reliance on s 64 of the Judiciary Act does not advance its argument. That provision has no bearing at all on whether the Commissioner's duties and powers override the Harman undertaking as inconsistent statutory obligations. 12 Accordingly, I have concluded that the Harman undertaking would not constrain the Commissioner from using the subpoenaed documents in the lawful exercise of his powers and functions. 13 The parties are directed to provide minutes of orders giving effect to these reasons within seven days. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Davies. Associate: Dated: 15 December 2021