Deputy Commissioner of Taxation v Karas & Ors [2012] VSC 143

Supreme Court of Victoria|2012-05-01|Before: J FORREST J

IMPLIED UNDERTAKING - Whether implied undertaking applicable in other related proceedings - Collateral or ulterior purpose - Express undertaking - Freezing orders - Affidavits filed in the course of the proceeding - Use of affidavits in open court - Special circumstances - Release from undertaking.

Mr Karas in person, and on behalf of 2nd, 3rd and 4th Defendants.

1 In June and July of 2011, the Deputy Commissioner of Taxation[1] obtained freezing orders preventing Mr Tom Karas and companies[2] controlled by him from disposing of or dealing with their assets.

2 In the course of this proceeding, 16 affidavits have been filed by Mr Karas on behalf of the companies or by their solicitor in relation to freezing and related orders. The Deputy Commissioner now seeks to utilise those affidavits in the course of the enforcement of a judgment debt obtained in this Court in a separate proceeding[3] and in relation to any appeal or review in the federal jurisdiction of Mr Karas' objections to taxation assessments issued for the financial years between June 2003 and June 2010.

3 The Deputy Commissioner's application raises questions concerning the implied undertaking as to the use of a document other than in the proceeding in which it was produced (often referred to as the Harman undertaking) as well as the extent of the express undertakings given by the Deputy Commissioner when he obtained the freezing orders.

4 I have concluded that the Deputy Commissioner's application should be granted and my reasoning is set out below.

5 The Deputy Commissioner issued amended tax assessments to Mr Karas for the period from June 2003 to June 2010 for an amount totalling $44,229,668.16.

6 On 15 June 2011, Davies J made ex parte interim freezing orders against Mr Karas and related companies with associated orders compelling the provision of details of assets held by them.

7 On 21 June 2011, Davies J made further orders extending the operation of the freezing order to 28 July.

8 On 1 July 2011,[4] Davies J dismissed an application pursuant to ss 18 and 19 of the Supreme Court Act 1986 (Vic) for an order for prohibition of publication of the contents of the affidavits filed by the Deputy Commissioner in support of his application.

9 On 28 July 2011, Davies J extended the freezing orders (with greater specificity of the relevant assets) and made orders requiring the provision of further details of the assets not provided in the initial affidavits filed on behalf of Mr Karas and the companies.

10 On 12 August 2011, Mr Karas lodged objections to all assessments, pursuant to Part IVC of the Taxation Administration Act 1953 (Cth).[5] There is now a deemed disallowance of those objections.

11 On 12 August 2011, the Deputy Commissioner issued the recovery proceeding against Mr Karas in respect of notices of assessment for the period between 30 June 2003 and 30 June 2010.

12 On 16 November 2011, Mr Karas issued a proceeding in the Federal Court pursuant to s 39B of the Judiciary Act 1903 (Cth) seeking to challenge the validity of the assessments.

13 On 1 December 2011, Zammit AsJ gave a summary judgment for the Deputy Commissioner in the recovery proceeding against Mr Karas for $47,147,983.00.[6] Her Honour noted that the production of notices of assessment are, under s 177 of the Income Tax Assessment Act 1936 (Cth), conclusive evidence of the making of the assessments.

14 On 23 December 2011, Bell J heard an application for variation of the freezing orders. His Honour varied the orders of 28 July 2011 by permitting the second defendant Capital One Securities Pty Ltd,[7] to sell a property in Fitzroy.[8]

15 On 21 February 2012, Kaye J allowed a further variation permitting Mr Karas to enter into a loan agreement to borrow $250,000 to meet legal fees and to execute a mortgage in favour of the lender over a property in Napier Street, Fitzroy.[9]

16 On 4 April 2012 (after the hearing of this application) and pursuant to Part IVC of the Taxation Administration Act, Mr Karas lodged a review of the deemed disallowance of his taxation objection by application to the Federal Administrative Appeals Tribunal.[10]

17 The orders sought by the Deputy Commissioner are as follows:

The Plaintiff be released from (a) the implied undertaking not to make collateral use of the material produced in this proceeding; and (b) the express undertakings given herein by the Plaintiff as recorded in paragraph 6 of Schedule A of each of the freezing orders made by the Honourable Justice Davies on 15 June 2011, 21 June 2011 and 28 July 2011, so far as necessary to enable the Plaintiff to use the documents identified in Schedule A to this order for the following purposes:

1.1 The enforcement or recovery of the judgment debt in Supreme Court of Victoria proceeding number S CI 2011 3778.

1.2 Any appeals or reviews of the determination of the First Defendant's objections to the assessments of tax and penalties issued by the Plaintiff in respect of the income years ended 30 June 2003 to 30 June 2010.

Schedule A then enumerates 16 affidavits, 11 sworn by Mr Karas, two by his solicitor Ms Louise Atwood and individual affidavits of Mr Bill Karas, Mr Daniel Holetic and Mr Vince Barca.

18 When the Deputy Commissioner's application initially came on for hearing in the Practice Court on 31 January of this year, counsel for Mr Karas and the companies sought an adjournment so that funding of their legal representation could be obtained. Somewhat reluctantly I granted the application which was returnable on 30 March 2012.

19 On that day, Ms Strong SC and Mr Linden appeared for the Deputy Commissioner. Ms Lewenberg, a solicitor employed by Messrs Lewenberg & Lewenberg, announced her appearance as a matter of courtesy on behalf of Mr Karas and Capital One. She informed the Court that as no funding had been obtained for Mr Karas' legal representation that her firm would not take part in the application and had not instructed counsel. Mr Karas thereafter represented himself and he was granted leave to appear on behalf of the companies.

20 In addition to the freezing order made on 15 June 2011, Mr Karas and each of the companies were required, by Order 11, to provide affidavits setting out "all their assets worldwide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of their interest in the assets". By Order 11 of 28 July 2011, Mr Karas and the third defendant, Securities and Investments Group Pty Ltd, were required to file further affidavits to address the deficiencies in the earlier affidavits.

21 As part of the orders of 15 June and 28 July 2011, the following undertaking was given by the Deputy Commissioner:

The applicant will not, without leave of the court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings either in or outside Australia, other than this proceeding.

22 The principle underpinning the Harman undertaking was set out by the High Court (Hayne, Heydon and Crennan JJ) in Hearne v Street[11] 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. The types of material disclosed to which this principle applies include documents inspected after discovery, answers to interrogatories, documents produced on subpoena, documents produced for the purposes of taxation of costs, documents produced pursuant to a direction from an arbitrator, documents seized pursuant to an Anton Piller order, witness statements served pursuant to a judicial direction and affidavits."[12] (emphasis added)

As is well known, the statement of principle is derived from the decision of the House of Lords in Harman v Secretary of State for Home Department.[13] The Court in Hearne pointed out that the expression "implied undertaking" may be misleading and that it is "in truth an obligation of law arising from circumstances in which the material was generated and received".[14]

23 The undertaking may be released or modified by a court; however, such an exercise is not undertaken lightly. It is well established that there are circumstances in which the implied undertaking may not apply or will be released. Relevantly in this proceeding, they can be summarised as follows:

(a) if the purpose for which the use is to be made is not collateral or ulterior to the subject proceeding then the undertaking has no application;

(b) where the undertaking has application, the undertaking may be unenforceable if the documents have entered "the public domain"; and

(c) where the undertaking has application, if the applicant is able to demonstrate "special circumstances"[15] then the Court may release the applicant from the undertaking.[16]

24 I shall deal with each of these considerations in more detail in a moment.

25 This proceeding was directed solely to the prohibition (by freezing order) of Mr Karas and the companies from dealing with their assets. In the context of this case, it is helpful to recite what was said by Kaye J in a recent application to vary the freezing orders:[17]

First, the purpose of a freezing order under order 37A.02 is to prevent the frustration or inhibition of the court's processes by seeking to meet a danger that a judgment or a prospective judgment of the court will not be wholly or partly satisfied.

Secondly, it is recognised that such an order constitutes a significant interference with the rights of the persons against whom the order is made. Thus at each stage of the supervision of such an order, the court must ensure that the reach of the order is no greater than that which is necessary to protect the processes of the court. In particular, it is necessary that the court, in determining an application such as this, ensure that the freezing order does not constitute an instrument of unfair oppression to the party in respect of whose assets the freezing order has been made.

The third principle is that, ordinarily, freezing orders, as they have done in this case, allow the person, against whom the orders are made, to have reasonable access to its assets, in order to be able to pay any reasonable legal fees, particularly any fees associated with litigation in respect of the debt or transaction which is the basis of the freezing order.

Fourthly, in his reasons for judgment on 23 December, Bell J identified two other important matters. They are, first, that a freezing order is not an order for the appointment of the plaintiff as the de facto administrator of the defendants' business or assets. Secondly, and allied to that, if there is a basis for thinking that a defendant might have access to other sources of funds within its control, nonetheless that cannot justify seeking, in an application such as this, legal discovery of documents, or making detailed requests for the provision of information, which take the matter well beyond the scope of the type of application with which I am concerned. [18]

26 For the purpose of my determination the following should be added. This proceeding is discreet to the recovery proceeding determined by summary judgment by Zammit AsJ. It is also, patently, separate from any appeal or review initiated by Mr Karas in the Federal Court or the AAT pursuant to the Taxation Administration Act. But there is a common thread - the income tax assessments are the basis for each of the various proceedings.

27 It should also be noted that the circumstances in which the affidavits were filed by Mr Karas or the companies varied. For instance, a number of the affidavits were produced pursuant to orders of the court requiring disclosure of information concerning the assets of Mr Karas and the companies. A failure to provide the affidavits would have resulted in Mr Karas and the companies being liable to contempt proceedings. Several affidavits filed by Mr Karas subsequently have sought to achieve variations of the orders made on 15 June and 28 July 2011.

28 This undertaking is quite clear, as Mr Karas pointed out: absent an order of the Court, it does not permit the affidavits filed in this proceeding to be used in either the recovery proceeding or in any federal appeal or review.

29 The issue then arises as to the matters that may persuade a court to order otherwise. Counsel for the Deputy Commissioner submitted that the considerations relevant to a release from the implied undertaking are equally relevant on this point and should persuade the Court to order the release of the affidavits. Mr Karas contended that the order was plain and that absent extraordinary circumstances no exception should be made to it.

30 The use of the words "unless the court otherwise orders" enables flexibility in the release of material adduced in the course of a freezing order proceeding, if an appropriate basis is demonstrated. Both the express undertaking and the implied undertaking seek to achieve the same purpose: to preserve the confidentiality of material obtained under the compulsory processes of the court in the proceeding. For there to be consistency between the two, I consider that the principles relevant to determination of the application of the the implied undertaking, or release from it, are also applicable to the consideration of whether a party should be released from the express undertaking. In particular, questions of the closeness of the relationship between the relevant proceedings, whether the documents have entered the public domain and whether special circumstances exist which would permit the documents to be used elsewhere are germane to a decision as to whether a party should be relieved of its obligations under the express undertaking.

31 With perhaps one exception[19], it was not in issue that the implied undertaking had, potentially, application to each of the affidavits sought to be used by the Deputy Commissioner.

32 The following issues arise in relation to the application of the implied undertaking to the affidavits:

(a) whether the Deputy Commissioner's intention to use the affidavits in the recovery proceeding or any review or appeal against the taxation assessments constitutes a collateral or ulterior purpose. If it does not, then there is no question of the operation of the implied undertaking;

(b) whether the use of the affidavits in the hearings before Davies J, Bell J and Kaye J renders the implied undertaking unenforceable as the documents have already entered the "public domain"; and

(c) if the implied undertaking applies to the release of the affidavits then are special circumstances disclosed such as to warrant the Deputy Commissioner being released from the implied undertaking.

Is the intended use of the affdivaits for a collateral or ulterior purpose?

33 As I mentioned earlier, this proceeding is directed solely to freezing the assets of Mr Karas and the companies. At the present time, the orders of Davies J, as varied by Bell J and Kaye J, remain in force. The purpose of a freezing order is, as Kaye J noted, to ensure that the court process is not frustrated by a person removing or dissipating assets to avoid the bite of a judgment. It is not intended to be a security for the putative judgment creditor; courts are repeatedly warned of the necessity to exercise care in the making of such orders.

34 The recovery proceeding has now reached the enforcement stage - default judgment having been entered. Some of the processes to enforce the judgment will take place in this Court. Others (such as bankruptcy proceedings) may take place in the Federal Court. The review in relation to the disallowance of Mr Karas' objection will take place in the AAT.

35 The first question that arises is whether such use is for a "collateral" or "ulterior" purpose - in the sense of "foreign to this proceeding".

36 In British American Tobacco Australia Services Ltd v Cowell (representing the Estate of McCabe deceased) (No 2),[20] the Court of Appeal held in relation to the purpose of the undertaking:

The primary purpose of implying such an undertaking, it seems, is to protect the subject party's privacy and thereby inter alia to encourage full and frank disclosure whenever required for the purposes of the litigation.[21]

To that end the party gaining access to the documents is bound to the court by means of the implied undertaking not to use the documents which it has been privileged to see for any "collateral or ulterior purpose", as that phrase was explained by Lord Diplock in Harman - or at all events not to so use them without the leave of the court.[22]

37 It was not in issue in Cowell that the documents had been obtained as part of the court's coercive processes. More importantly to this determination was the use to which the applicants sought to make of the documents. The documents (obtained in the course of discovery) had been obtained in the course of the late Mrs Rolah McCabe's personal injuries claim against British American Tobacco Services Limited. Mrs McCabe died after the conclusion of that proceeding but prior to the appeal. Subsequently her estate sought to provide the documents to the United States Department of Justice and the ACCC in their investigations into the conduct of British American Tobacco companies. As the Court noted:

First and foremost, the plaintiff was applying for leave to use the documents not for some purpose of her own but for the purposes of others.[23]

The court is really being asked to authorise the handing over of the documents in question and to transfer all supervision without rhyme or reason. No public interest has been demonstrated; reliance is placed merely upon the requests which have been received by the respondent's solicitors and, as earlier seen, those requests were couched in the vaguest of terms...[t]hat the documents are subject to an implied undertaking given for the purpose of proceedings in the Trial Division which are still pending is not an irrelevant factor. Whatever test be applied, we are clear that this application fails. Perhaps it suffers because it was not articulated below, but, as will be seen that was the choice of the respondent. Quite simply this is not an appropriate case in which to grant relief from the undertaking.[24]

38 In Hearne, the issue did not arise; Gleeson CJ (who agreed with the plurality as to the nature of the implied undertaking) noted that the case did not raise a question whether the documents were being used for a collateral purpose or whether special circumstances existed.[25]

...that obligation would be of very limited protection if it were only personal to the litigant, which is why it is often said to be extended also to a litigant's solicitor, industrial advocate or barrister, and also to third parties like a shorthand writer or court officer. For that reason the authorities recognise a broader principle by which persons who, knowing that material was generated in legal proceedings, use it for purposes other than those of the proceedings are in contempt of court.[26]

39 In Hearne, the court cited with apparent approval observations of Lord Denning in Riddick v Thames Board Mills Ltd[27], that documents obtained on discovery may only be used "for the purpose of that action and no other purpose".[28] However, his Lordship also said:

The court should therefore not allow the other party - or anyone else - to use the documents for any ulterior or alien purpose. Otherwise the courts themselves would be doing injustice.[29]

40 Here, the position is different to that in Cowell and Hearne. The Deputy Commissioner contends that the use of the affidavits in the other proceedings (the recovery proceeding and the review at the AAT) is not for collateral or ulterior purpose: there is sufficient relationship between the three proceedings for the implied undertaking not to apply for the purposes sought by the Deputy Commissioner.

41 On this point, senior counsel for the Deputy Commissioner relied particularly upon the reasoning of Chesterman JA in the Queensland Court of Appeal decision of Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd (No 4).[30]. The case has a number of similarities to this proceeding and I think it is helpful to set out briefly, some of the background. A redeveloper and builder were engaged in a significant dispute over a Sunshine Coast redevelopment. The builder obtained a freezing order against the redeveloper. The builder wished to use documents obtained in a freezing order proceeding (including those provided under subpoenas) in the course of an arbitration and expert determination of the dispute. It sought leave of the court to do so. The Court of Appeal held that the builder was entitled to use the documents in cross-examination of the redeveloper's witnesses and released the builder from the implied obligation. McMurdo P (with whom Muir JA agreed) concluded that the implied undertaking applied but that special circumstances existed particularly given the close connection between the freezing order proceeding and the expert determination.

42 Chesterman JA, however, held that this was not a case in which it was necessary to relieve the builder of the implied undertaking as the connection between the two pieces of litigation was such that the documents were not to be used for a collateral or ulterior purpose - therefore the undertaking was not engaged. His Honour's analysis commences at [26]:

Lord Diplock in Home Office v Harman explained that the contempt of court in that case was in allowing a journalist access to documents disclosed by the Home Office:

"... not for any purpose connected with the conduct of that action, but for some collateral or ulterior purpose of her own".

His Lordship then posed the question raised by the appeal:

"... whether it is the duty of the solicitor ... who in the course of discovery in ... litigation has obtained possession of ... documents belonging to the other party ... to refrain from using the advantage enjoyed by virtue of such possession for some collateral or ulterior purpose of his own not reasonably necessary for the proper conduct of the action on his client's behalf".[31]

After a review of the authorities, including Hearne, his Honour held:

The scope of the undertaking is, I think, not entirely accurately expressed in the narrower phrase; "for the purposes of that action" or "use in the action in which they are disclosed".

The wider designation has the support of Mason CJ in Esso and Kirby P in Ainsworth as well as Lord Diplock in Harman. The undertaking will not be broken unless the disclosure which is impugned can be seen to be for a "collateral purpose", or an "ulterior purpose". Both terms indicate some disconnection between the proper conduct of the proceedings or litigation, and the use to which the documents are put.[32]

and then distinguished a number of other cases, including Cowell:

In all these cases the purpose to which the disclosed documents were put had no connection with the prosecution of the proceedings in which and for which the documents were produced. The use was therefore improper, and in breach of the implied undertaking. In each case the impugned use can be easily described as ulterior or collateral to the purpose behind the documents' production.

These cases are all very different from the present case in which the documents are sought to be used between the same parties and with respect to the same dispute. As the President has pointed out the application for a freezing order was made so as to protect the value of the cause of action which the appellants are pursuing in the expert determination. The successful application for an order restraining the respondent from dissipating its assets was a means of ensuring that success in the determination would not result in a pyrrhic victory.

I would not regard the purpose of the production of the documents in the application for the freezing order as being limited to the conduct of that application. It was ancillary to, and an adjunct of, the wider dispute between the parties to be determined by the expert. They were "connected", and each "related" to the other. It was, in my opinion, reasonably necessary for the conduct of the proceedings between the parties that the documents produced in the application for the freezing order be used in the expert determination.

When one comes to answer the question: are documents produced on discovery being used for a purpose unrelated to or unconnected with the proceeding, or litigation, in question or not for a purpose reasonably necessary for the conduct of the litigation? One must analyse what is the litigation or proceeding in question. One should not take any narrow or technical approach to the analysis. [33] (emphasis added)

His Honour went on to hold that there was a sufficient connexion between the subject matter of the freezing order and that of the expert determination:

To use the documents produced under compulsion in the application for the freezing order in the expert determination of whether, pursuant to the contract between them, the appellant is entitled to payment for the work done at the request of the respondent cannot sensibly be regarded as an invasion of the respondent's privacy or confidentiality, or as for any purpose other than the doing of justice between the parties in the ongoing alternative dispute resolution processes in which they have chosen to engage. The rationale for imposing the undertaking will not be offended by holding that the documents may be used for the cross-examination.[34]

43 In my view, the reasoning of Chesterman JA is persuasive and should be followed. In this case, the freezing order is intimately bound up with the enforcement of the recovery proceeding in this Court. It is not for a purpose unrelated to the obtaining of the freezing order which seeks to preserve the assets which may be the subject of legal proceedings undertaken by the Deputy Commissioner (cf Cowell and Hearne). It is ancillary to the wider dispute between the Deputy Commissioner and Mr Karas in relation to his tax liabilities between June 2003 and June 2010. Proceedings in the federal jurisdiction (be it in the AAT or any appeal to the Federal Court) relate directly to the income tax assessments which are also the foundation for the obtaining of the freezing order and the judgment in the recovery proceeding. As Chesterman JA demonstrated, the fact that such a proceeding is in a different court (in Northbuild Constructions it was for the purpose of an expert determination outside the curial process) is immaterial provided the relevant processes are sufficiently related.

44 It follows that the implied undertaking does not apply to the purposes proposed by the Deputy Commissioner. He may use the affidavits in enforcement of the recovery proceeding or in the AAT review or any Federal Court appeal, subject to consideration of the effect of the express undertaking.

45 I need to address this question for two reasons. First, if I am wrong in relation to my conclusion as to the question of collateral purpose, this is a relevant matter. Second, this issue and any conclusion reached in relation to it is relevant to any variation or release of the Deputy Commissioner from his express undertakings.

46 In Cowell, the Court of Appeal said of documents entering the public domain:

But if the document does contain material personal to the affairs of the party which is of a private or confidential nature, then, no matter by whom produced, the implied undertaking will ordinarily be important to the party and its enforcement of concern. In such circumstances, we see no reason why, if it once attaches, the implied undertaking should not endure despite the tender of the document in evidence against the party seeking protection. The fact that, by reason of its tender, it has passed into "the public domain" may be a consideration when leave is sought to use the document otherwise than for the purposes of the litigation in which it was produced, but it does not per se gainsay the continuance of the undertaking. The distinction between the use that may be made of the document by a stranger to the litigation who encounters the document in the public domain and the use that may be made of it by a party to whom it has been disclosed involuntarily in the course of the proceeding has already been explored.

The very concept of "the public domain" was criticised as "of doubtful precision", by Lord Roskill in Harman, and with respect we agree. Lord Scarman, who was in dissent, considered it to mean only that the document in question had become public knowledge, but even so some uncertainty must remain in cases like the present. The respondent sought to escape the problem here by pointing to the admission of the documents into evidence, as witness their being marked as exhibits in the course of cross-examination of the appellant's witnesses on the application to strike out the defence; but the focus is none the less upon the passing of the documents into "the public domain". From one angle, it might be thought clearer here than in Harman that the documents had passed into "the public domain" because they were marked as exhibits in open court; from another, it was less clear that any publicity attended them because, so far as we are aware, most if not all were not read aloud by counsel, the witness or the judge. If, as the respondent contended, they were in "the public domain" once they were marked as exhibits, the contrast can be made again between the scant knowledge of the documents likely to be obtained by the casual bystander who is in court at the time and the more complete knowledge gained by the party to whom they have earlier been disclosed under compulsion. The contrast is only the greater if the documents have been put before the court by means of an affidavit to which they are exhibited; the affidavit becomes evidence, together with its attendant exhibits, once it is relied upon in open court but not uncommonly that does little or nothing to publicise the contents of the documents exhibited, to which only passing reference may happen to be made in the affidavit. Moreover, exhibits are not normally available for inspection.[35] (emphasis added)

47 In other words, the use of a document in court does not, of itself, release a party from the undertaking. However the manner of its use and its notoriety may be a relevant consideration in determining whether the undertaking still applies.

48 In Hearne, which was decided subsequent to Cowell, the High Court's approach appears to be less restrictive. The plurality referred to the continuing obligation over "documents or information... unless it is received into evidence".[36]

49 There is other authority for a less rigid test in relation to documents entering the public domain and the enforceability of the undertaking. Late last year in Sapphire (SA) Pty Ltd v Barry Smith Grains Pty Ltd (in liq)[37], Ward J summarised the position as follows:

In Harman, it was accepted that the implied undertaking becomes unenforceable once the documents enter the "public domain". What constitutes the "public domain", has been the subject of divergent judicial opinion. In Harman there was unanimous agreement that the implied undertaking becomes unenforceable when documents are received into evidence, but remains in force if the documents are neither read nor received into evidence. Their Lordships were, however, divided on the status of documents that are read in open court (and therefore brought into the "public domain") but not received into evidence. (The majority concluded that in this situation, the undertaking would continue to apply.)

In Esso, Mason CJ said that the undertaking (at 32-33) is:

...subject to the qualification that once material is adduced in court proceedings it becomes part of the public domain, unless the court restrains publication of it.

and in Moage Ltd v Jagelman and Others Gzell J stated (at [12]):

Once a document has been read in open court, however, it loses its confidentiality and loses the protection of the undertaking.

In Ainsworth v Hanrahan Kirby P, as his Honour then was, when considering whether the use of interrogatories would amount to contempt in the circumstances, held (at 168) that:

It is always open to a party wishing to secure the use of such answers for other purposes to seek the permission of the court in whose process the answers have been given under compulsion. Once the answers are tendered or read in open court, pace Harman, the liability in contempt for their later use will evaporate:[38] (emphasis added, citations omitted).

50 I acknowledge that it is not easy to synthesise the effect of these judgments, particularly those of a binding nature. I propose to apply the following principles in relation to the use of affidavits (and exhibits) in this proceeding in determining whether such documents have entered the public domain:

(a) that the mere filing of an affidavit in the course of a proceeding does not mean that its contents (and for that matter any exhibits referred to) have entered the public domain;

(b) that at the very minimum it is necessary for the relevant affidavit to have been deployed in open court - in the sense that it constituted admissible evidence on a particular application or in a trial and was, in fact, utilised for the purpose of the decision; and

(c) that there may be cases where notwithstanding the use of the affidavit and exhibits in the course of an application, the disclosed material cannot properly be said to have entered the public domain.

51 Determination, therefore, of whether a particular affidavit has entered the public domain requires scrutiny of the circumstances in which it was used at the particular hearing. An example can be found in this case. Senior counsel for the Deputy Commissioner submitted that it was irrelevant as to how the document found its way into evidence at the hearing - as long as it was part of the evidentiary material relied upon by the judge. I am not so sure I agree. It would seem, at least to me, contrary to the interests of justice to permit a party to produce a document in court and then argue it had entered the public domain where the party seeking to maintain confidentiality over the document had not relied upon it in the course of the proceeding. Of course, if the document attracted publicity or notoriety and became "public knowledge", the continuation of any obligation of confidentiality would be pointless.[39] In any event, the issue is moot in this case as in the course of the hearings the various affidavits were referred to by counsel appearing for Mr Karas or the companies.

52 I have examined each of the transcripts of evidence provided in relation to the hearings before Davies J and Bell J. I have examined also the judgments or rulings of Davies J, Bell J and Kaye J.

53 With the exception of the hearing before Davies J on 28 July 2011, a number of the affidavits were either utilised in the course of a hearing by counsel for Mr Karas or are referred to by the relevant judge. I am satisfied that each of the eleven affidavits sworn by Mr Karas have, in the sense I have explained, entered the public domain. I am also satisfied that the two affidavits of Louise Atwood, the affidavit of Bill Karas and the affidavit of Vince Barca have entered the public domain. The affidavit of Daniel Holetic was not referred to in open court and is not mentioned in any of the rulings or judgments and therefore it has not entered the public domain.

54 Accordingly, I would permit each of the affidavits, with the exception of Mr Holitec's affidavit, to be used in the other proceedings being of the opinion that the implied undertaking has now been spent as a result of the use of the affidavits in open court.

55 I deal with this issue on the same basis as that concerning the affidavits entering the public domain.[40]

56 The statement by Wilcox J in Springfield Nominees Pty Ltd v Bridgelands Securities Ltd[41] is the accepted starting point for consideration of whether special circumstances exist so as to release a party from the implied undertaking:

For 'special circumstances' to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court's discretion, many factors being relevant. It is neither possible nor desirable to propound an exhaustive list of those factors. But plainly they include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the document came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding.[42]

57 More recently, Vickery J in Ambridge Investments Pty Ltd v Baker (No 3) said:[43]

However, in approaching a determination as to whether "special circumstances" are present in a particular case, consistently with the applicable case law as it has developed to this point, I would vary a little the formulation of Wilcox J in Springfield, to arrive at the following test: "special circumstances" may arise where there are special features (or a special feature) of the case which afford good reason for modifying or releasing the undertaking, being circumstances which are of sufficient gravity to override the private and public interest in protection of the confidentiality of a person's private documents which are required by law to be produced to a court.[44]

58 Finally, in Northbuild Construction, McMurdo P said of this test:

The important public policy considerations behind implied undertakings of this kind are about securing justice between the parties and maintaining public confidence in the justice system. It follows then that courts will usually relieve a party from its implied undertaking where, after giving proper consideration to the public policy reasons behind it, the circumstances of the case demonstrate this is plainly in the interests of justice: Springfield Nominees Pty Ltd v Bridgelands Securities; Minister for Education v Bailey.[45]

59 Here, in my view, there are special circumstances which enable the Deputy Commissioner to be relieved of the implied undertaking (if that be necessary). They can be summarised as follows:

(a) the Deputy Commissioner is fulfilling a public function in seeking recovery of monies the subject of the assessments or defending those assessments in the AAT or Federal Court. That function is important and is in the public interest; it would be frustrated if the affidavit material was not able to be used in those proceedings;

(b) the Deputy Commissioner has identified specifically the material which he proposes to rely upon and the proceedings in which he seeks to use the affidavits;

(c) the recovery proceeding is intimately bound up with the orders made in this proceeding. The enforcement of the judgment in the recovery proceeding will take place pursuant to this Court's processes and, presumably, the assets which are the subject of the freezing orders may form part of the assets over which that enforcement takes place. The AAT proceedings (and any Federal Court proceeding), although not as intimately connected with this proceeding, nevertheless have a common thread - the assessments of any tax liability of Mr Karas to the Deputy Commissioner. They are, as I have said earlier, related proceedings;

(d) apart from the general principle of coercive invasion of his confidential material it was not argued by Mr Karas that some specific deleterious result or prejudice will flow from the release of the material in the limited way proposed by the Deputy Commissioner; and

(e) there is no suggestion that the material contained in the affidavits is commercially sensitive.

60 In my opinion, the circumstances are such that I should make a further order exempting the Deputy Commissioner from the express undertakings given by him. The basis for doing so, I hope, is apparent, from what I have already said, and can be summarised as follows:

(a) the three proceedings are intertwined. The question of Mr Karas' tax liability is at the heart of each of the proceedings and it is in the interests of justice to permit the affidavits to be used outside this proceeding provided such use relates to proceedings connected with these assessment;

(b) with the exception of Mr Holetic's affidavit, each of the other affidavits have entered the public domain by their use in the various applications heard in this Court; and

(c) special circumstances have been demonstrated for the making of a further order which include the public function being performed by the Deputy Commissioner in examining Mr Karas' taxation liabilities. It is in the public interest to do so.

(a) the implied undertaking does not apply to the affidavits filed by Mr Karas (or on his behalf) in this proceeding;

(b) if I am wrong about this conclusion, and the implied undertaking does apply, then by reason both of their use in court and of demonstrable special circumstances the Deputy Commissioner should be relieved of his obligations under the implied undertaking;

(c) the release of the affidavits for use by the Deputy Commissioner in the other proceedings is presently limited by the express undertakings; and

(d) however, it is appropriate, in the circumstances of this case, to order that the Deputy Commissioner be entitled to use those affidavits in the recovery proceeding, the AAT review and if necessary in any related Federal Court proceeding notwithstanding the original order.

62 I propose to make the orders sought by the Deputy Commissioner and set out in [17] of these reasons.

I certify that this and the 21 preceding pages are a true copy of the reasons for Judgment of J Forrest J of the Supreme Court of Victoria delivered on 1 May 2012.

[2] The second, third and fourth defendants.

[6] Judgment 1 December 2011, reasons of that date.

[14] Hearne ,[102]. I will for the sake of consistency refer to the obligation as "the implied undertaking".

[19] The first affidavit of Mr Karas dated 22 June 2011 supporting the application before Davies J to keep the evidence and orders confidential.

[27] [1977] QB 881 ("Riddick").

[30] [2011] 1 Qd R 145, [25] - [55].

Administration Act 1953

Tax Assessment Act 1936

Administration Act 1953

Tax Assessment Act 1936

Administration Act 1953

Tax Assessment Act 1936

Administration Act 1953

Tax Assessment Act 1936

Administration Act 1953

Tax Assessment Act 1936

At a glance

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Judgment (139 paragraphs)

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Legislation Cited (15)

Cases Cited (3)