Deputy Commissioner of Taxation v Rennie Produce [2018] FCAFC 38 | Case summary

Deputy Commissioner of Taxation v Rennie Produce [2018] FCAFC 38 | Case summary | Zoe

[17]

Background 6 The Commissioner performs functions and exercises powers under various laws, including taxation laws. The applicant, the Deputy Commissioner of Taxation, has been delegated powers under s 8 of the TAA 1953, including the power to issue notices under Division 353 of Schedule 1. Section 353-10(1)(c) furnishes power to the Commissioner to require the recipient of a notice in writing to the relevant effect to produce documents in the custody or control of the recipient. 7 Rennie Produce is a company in liquidation pursuant to s 461 of the Corporations Act 2001 (Cth) (Corporations Act). On 9 August 2010, joint and several liquidators were appointed to Rennie Produce (Liquidators). 8 The second respondent (Mr Rennie) was a shareholder in and, in the period 1 March 1997 to 29 April 2005, the sole director of Rennie Produce. 9 The third respondent was the advisor to Mr Rennie and Rennie Produce in respect of the sale of the business operated by Rennie Produce to Moraitis Group Pty Ltd. That sale occurred in March 2013. The fourth respondent was a partner at Gilbert + Tobin Lawyers, who acted for Moraitis Group Pty Ltd in relation to its purchase of the business. The fifth respondent was a board member of Moraitis Group Pty Ltd. 10 Mr Rennie and the third to fifth respondents have filed submitting notices, save as to costs. 11 Mr Rennie lodged an income tax return for the year ended 30 June 2013, which included a net capital gain arising from the sale of the Rennie business. The relevant sale transaction yielded $41,455,000 (subject to adjustments) to Mr Rennie and various businesses and entities associated with him, including trusts which distributed the capital gains in such a way that they were received by Mr Rennie. Mr Rennie self-assessed a net capital gain of $5,340,526. 12 On 11 December 2013, the Liquidators applied to this Court under ss 596A and 596B of the Corporations Act to summon various persons (including the third, fourth and fifth respondents) for examination about the affairs of Rennie Produce. 13 On 4 February 2014, the Liquidators, in their capacity as liquidators of Rennie Produce, procured the issuing pursuant to s 596B of the Corporations Act of three summonses, one to each of the third, fourth and fifth respondents (the Summonses), requiring the production of certain documents. 14 Representatives of the third, fourth and fifth respondents produced documents to the Court on 21 March 2014. The Court granted the Liquidators leave to uplift, inspect and copy those documents, and the Liquidators did so on 21 March 2014. 15 The Commissioner is conducting an audit in relation to the income tax return lodged by Mr Rennie for the year ended 30 June 2013 and is investigating whether Mr Rennie's self-assessment of the taxable capital gain arising from the sale of the Rennie business is too low. 16 On 5 August 2016, the Commissioner issued the Notice to Rennie Produce, care of one of the Liquidators, requiring Rennie Produce to produce documents in its custody or under its control falling within the scope of the Notice. 17 On 2 September 2016, Rennie Produce provided a number of documents (the Documents) to the Australian Government Solicitor in sealed envelopes, which it considered fell within the scope of the Notice. The Documents were provided by Rennie Produce to the Australian Government Solicitor by the Liquidators. 18 This process was described in the Statement of Agreed Facts relevantly as follows: 6. On 9 August 2010, Mr Andrew Yeo and Mr Gess Michael Rambaldi were appointed joint and several liquidators of the First Respondent (Liquidators). Steps taken by the Liquidators as described below were taken in that capacity, for and on behalf of the First Respondent. … 20. On 5 August 2016, the Applicant issued a notice pursuant to s 353-10 of Sch 1 to the TAA to the First Respondent requiring it to provide documents falling within the scope of the notice (Notice). The Applicant considered the documents to be relevant in assessing and verifying the Second Respondent's self-assessment of his net capital gain for the income year ended 30 June 2013. A copy of the Notice is exhibited as SAF 3. 21. By letter dated 23 August 2016, the Liquidators informed the Applicant that the First Respondent held a significant number of documents, obtained through the Summonses, which were relevant to the assessment of the capital gains tax. The Liquidators further advised that, while wishing to comply with the Notice, they were constrained by the principle in Harman v Secretary of State of the Home Department [1983] 1 AC 280 (the Harman obligation). A copy of the letter is exhibited as SAF 4. 22. On 2 September 2016, the First Respondent provided to the Australian Government Solicitor (AGS), in five sealed envelopes, those documents it considered fell within the scope of the Notice but which it considered it was prevented by the Harman obligation from producing to the Applicant without first obtaining leave of the Court (the Sealed Documents).

[18]

THE COMMISSIONER AND S 353-10 19 The Commissioner has the general administration of the taxation laws: s 8 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936); s 1-7 of the Income Tax Assessment Act 1997 (Cth); s 3A of the TAA; s 356-5 of Sch 1. 20 The Commissioner's duties include a duty to make an assessment and a duty to pursue the recovery of tax-related liabilities: Denlay v Commissioner of Taxation (2011) 193 FCR 412 at [81], per Keane CJ, Dowsett and Reeves JJ; Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 618 (per Brennan J), 629 (per Toohey J). 21 The Commissioner is given various powers in furtherance of the discharge of his duties. These powers include the powers to obtain information and evidence provided in Div 353 of Sch 1. Section 353-10 furnishes a power, inter alia, to obtain information, evidence and documents. It corresponds with the former s 264 of the ITAA 1936. Section 353-15 furnishes a power, inter alia, to access land, premises or a place, and to full and free access to documents, goods or property and to inspect, examine, make copies of, or take extracts from, any documents. It corresponds to the former s 263 of the ITAA 1936. 22 These powers to undertake broad enquiries are conferred for the purpose of facilitating the proper discharge by the Commissioner of his or her duty to administer the tax laws and, more particularly, to ascertain accurately the extent of any tax liability and to facilitate recovery of tax-related liabilities. 23 Section 353-10(1), under which the Notice was issued, is in the following terms: The Commissioner may by notice in writing require you to do all or any of the following: (a) to give the Commissioner any information that the Commissioner requires for the purpose of the administration or operation of a taxation law; (b) to attend and give evidence before the Commissioner, or an individual authorised by the Commissioner, for the purpose of the administration or operation of a taxation law; (c) to produce to the Commissioner any documents in your custody or under your control for the purpose of the administration or operation of a taxation law. 24 The Notice in the present case engaged the power in s 353-10(1)(c) only. 25 It is well-settled in relation to the former s 264 of the ITAA 1936, that a contractual duty or equitable obligation of confidentiality cannot be relied upon to defeat its operation: Smorgon v Australian and New Zealand Banking Group Ltd (1976) 134 CLR 475 at 487, 490, per Stephen J; Fieldhouse v Commissioner of Taxation (1989) 25 FCR 187 at 208, per Hill J. Further, a person examined under s 264 of the ITAA 1936 could not refuse to answer a question put on the grounds that the answer might tend to self-incriminate: Deputy Commissioner of Taxation v De Vonk (1995) 61 FCR 564 at 566 per Spender J, 583-584 per Hill and Lindgren JJ; Binnetter v Deputy Commissioner of Taxation (2012) 206 FCR 37 at [30], per Edmonds, Perram and Jagot JJ. On the other hand, the provision has been understood as not over-riding legal professional privilege: Fieldhouse v Commissioner of Taxation (1989) 25 FCR 187 at 199 (per Lockhart J), 202 (per Burchett J), 208 (per Hill J); Federal Commissioner of Taxation v Coombes (No 2) (1998) 160 ALR 456. The same principles apply equally to s 353-10 and we agree with what was said in Commissioner of Taxation v Warner [2015] FCA 659; 244 FCR 479 at [27], per Perry J. 26 The issue in the present case is whether the Harman obligation constrains the operation of s 353-10(1)(c).

[19]

The Harman obligation 27 In Hearne at [96], the plurality of the High Court described the Harman obligation in the following way: 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. 28 Their Honours noted that it was common to speak of the relevant obligation as flowing from an "implied undertaking": at [97]. Their Honours recorded - quoting a passage from Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756 at 764-765; [1991] 3 All ER 878 at [885] per Hobhouse J - that this had some benefit in that it confirmed that the obligation was one owed to the court and that the court can modify or release a party from it: at [107]. Nevertheless, their Honours noted that the obligation is one imposed as a matter of law rather than from any implied undertaking and the tendency has increasingly been for the language of implied undertaking to be regarded as "unrealistic, and on balance unmeritorious": at [115]. 29 The content of the Harman obligation is such that it recognises and is shaped by inconsistent legal obligations. In Esso Australia Resources Limited v Plowman (1995) 183 CLR 10 (Esso) at 33, Mason CJ (with whom Dawson and McHugh JJ agreed) said: It would be inequitable if a party were compelled by court process to produce private documents for the purposes of the litigation yet be exposed to publication of them for other purposes. 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, but that circumstance is not a reason for denying the existence of the implied obligation. (Emphasis added.) 30 Esso concerned documents produced or disclosed to an opposing party in or for the purposes of an arbitration held in private. Brennan J, at 36-7, considered that an obligation of confidentiality would be implied into the arbitration agreement. He said: I would hold that, in an arbitration agreement under which one party is bound to produce documents or disclose information to the other for the purposes of the arbitration and in which no other provision for confidentiality is made, a term should be implied that the other party will keep the documents produced and the information disclosed confidential except (a) where disclosure of the otherwise confidential material is under compulsion by law; (b) where there is a duty, albeit not a legal duty, to the public to disclose; (c) where disclosure of the material is fairly required for the protection of the party's legitimate interests; and (d) where disclosure is made with the express or implied consent of the party producing the material. 31 He equated this implied obligation of confidentiality with the Harman obligation owed by a party obtaining discovery in an action (footnotes mostly omitted): To imply an obligation of qualified confidentiality in this way substantially equates the contractual obligation of a party under an arbitration agreement with the obligation of a party who impliedly gives an undertaking of confidentiality to the court when obtaining an order for discovery in an action. The underlying principle in the latter situation is that a party who obtains the production of documents or the disclosure of information for a particular purpose cannot use the documents or information for a "collateral or ulterior purpose" [Citing Alterskye v Scott (1948) I All ER 469 at 470; Central Queensland Cement Pry Ltd v Hardy (1989) 2 Qd R 509 at 510]. That phrase is not used in the pejorative sense, as Lord Diplock said in Home Office v Harman, but it is used "merely to indicate some purpose different from that which was the only reason why, under a procedure designed to achieve justice in civil actions, [the solicitor for a party] was accorded the advantage, which she would not otherwise have had, of having in her possession copies of other people's documents." If the duty of production or disclosure in an arbitration were ordered by a court, an undertaking to the court to use the documents produced or information disclosed only for the purposes of the arbitration would be implied and would be enforced by proceedings for contempt. 32 Later in that paragraph, his Honour said that "the obligation enforceable as an undertaking to the court in the case of a curial order is not unqualified". He then said: In the present case, the Minister has a statutory right under the State Electricity Commission Act 1958 (Vict) (SEC Act) to obtain information from the State Electricity Commission of Victoria (SECV). It is the duty of SECV to furnish the Minister with the information required under that sub-clause and that duty cannot be defeated by any contractual duty to keep documents or information confidential. Any implied obligation of confidentiality must be qualified accordingly. Further, the Gas and Fuel Corporation of Victoria (GFC) and SECV are public authorities. 33 Whilst his Honour approached the case from the perspective of an obligation of confidentiality which he considered would be implied in the arbitration agreement, his Honour's reasons equate that obligation with the Harman obligation in curial proceedings, both being obligations the content of which he stated were qualified. 34 In Cadbury Schweppes Pty Ltd (ACN 004 551 473) v Amcor Limited (ACN 000 017 372) (2008) ATPR 42-224; [2008] FCA 398, a question arose as to whether documents subject to the Harman obligation because they had been compulsorily produced in one set of proceedings (between Cadbury and Amcor for damages in relation to collusion between Amcor and Visy) were required to be discovered and produced for the inspection of opposite parties (ACCC and Visy) in another proceeding. Gordon J concluded that the Harman obligation did not operate to prevent production in the second set of proceedings, not because a release should be granted (although her Honour noted at [14] that she would have granted one if necessary) but because the Harman obligation had a content which did not trespass on an inconsistent legal obligation. Her Honour stated at [13]: [T]he resolution of any tension between what would otherwise be competing and inconsistent obligations, is readily apparent; resolution lies in properly identifying the contents of the implied undertaking. In particular, it is necessary to recognise that the undertaking impliedly given in one proceeding not to use documents compulsorily produced in that proceeding except for the purposes of that proceeding is necessarily subject to other requirements of the law. So to take what may be a clearer example of the limits of the undertaking, the implied undertaking given in one proceeding would provide no answer to a subpoena for production of these documents in another proceeding. When a party is subpoenaed to produce documents obtained in another proceeding, it is no answer to say that "I am subject to an undertaking about how I may use these documents". The party's undertaking in the first proceeding restricts the uses to which that party may choose to put the documents. But the undertaking is no answer to otherwise valid compulsive processes of law: Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10, 32, 36-37, 46. As the Court in Plowman stated (at 33): 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, but that circumstance is not a reason for denying the existence of the implied obligation. (Emphasis added) 35 It would not have been a contempt of Court or a breach of the Harman obligation to have discovered the documents and produced them for inspection in the second proceedings without first seeking a release from the obligation. The obligation simply did not apply to prevent discovery of the documents by the discovering party in the second proceedings, nor - by implication - of inspection of those documents by the other party (irrespective of the fact that the other party had notice that the documents were ones in respect of which a Harman obligation was owed). 36 We agree with this analysis. The same is true in the present case. The Harman obligation does not require the person owing the obligation to refuse to comply with a valid notice issued under s 353-10 or to make an application to the relevant court for release from the undertaking. That is because the content of the obligation does not extend to requiring the holder of the obligation not to comply with such a notice. Nor does the Harman obligation require the Commissioner not to use the documents, when received, for the purpose of discharging his statutory duties and functions. 37 We have set out at [27] above the statement of the Harman obligation in Hearne. 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 TAA. An offence under s 8C is punishable on conviction under s 8E. 38 The first respondent submitted that: (a) the Harman obligation is a "fundamental common law right"; and (b) s 353-10 does not expressly, or by necessary implication, abrogate the Harman obligation. 39 In support of this submission, the respondent referred to Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 453 (Daniels). In Daniels at [11], Gleeson CJ, Gaudron, Gummow and Hayne JJ stated that legal professional privilege was not merely a rule of substantive law but an important common law right. Their Honours noted it was well-settled that statutory provisions are not to be construed as abrogating important common law rights, privileges and immunities in the absence of clear words or necessary implication. 40 We do not consider this to be the correct approach to the resolution of the present issue. To characterise the Harman obligation as a "fundamental common law right" or a "substantive common law right" distracts attention from the real issue, namely the content or scope of the obligation. The use of the word "right" to describe the Harman obligation is not apt and directs attention away from the obligation on the recipient of the documents. The description "substantive" or "fundamental" does nothing to elucidate the nature of the obligation, but rather assumes some importance or significance which the obligation may or may not have. 41 The respondent relies on the decision of the Full Court of the Family Court in Commissioner of Taxation v Darling (2014) 285 FLR 428. Relying on his information gathering powers then contained in ss 263 and 264 of the ITAA 1936, the Commissioner had obtained documents from a Family Court file in proceedings to which he was not a party. He had sought an order from the primary judge releasing him from an implied obligation not to make use of those documents for purposes other than those of the proceedings. The primary judge had dismissed his application. The Full Court allowed the appeal. This was on the basis that the trial judge erred in exercising her discretion to release the Commissioner from the implied obligation. The Full Court relied upon the conduct of an audit pursuant to the duty and power imposed by s 166 of the ITAA 1936 in concluding that the Commissioner should be released from the implied obligation: at [175] and [198]. 42 Before the Full Court, the Commissioner did not contend that the implied obligation must give way to ss 263 and 264 of the ITAA 1936: see [135]. The Full Court considered the Commissioner was correct not to put such an argument because it could not stand in the face of the High Court's decision in Daniels. These comments were obiter. We do not think it correct to equate the Harman obligation to the common law right to legal professional privilege. Daniels concerned the question of whether the common law right to legal professional privilege was abrogated by statute. That is not the question which arises here. 43 The issue was also considered by the New South Wales Court of Appeal in Blanch v Deputy Commissioner of Taxation [2004] NSWCA 461; (2004) 58 ATR 113. Documents had been produced under subpoenas issued in proceedings in the Court of Appeal for the removal of a legal practitioner from the Roll of legal practitioners. After the conclusion of the proceedings, the Commissioner had issued notices under s 264 of the ITAA 1936 requiring production to him of certain documents including documents which had been obtained by the recipients of the s 264 notices by virtue of the subpoenas, such documents therefore being the subject of a Harman obligation. 44 Giles JA (with whom Hodgson and Ipp JJA agreed), in an ex tempore decision, recorded that the Court of Appeal was invited by the claimants to deal with the matter on the basis of whether a release should be granted, even though the Commissioner preferred a resolution of the matter of principle: [9] At the hearing of the summons the claimants in effect invited us to proceed directly to the question of release of the undertakings. They had filed written submissions as to the interaction between an implied undertaking and s 264, and were willing to argue for the former prevailing over the latter, but they had no interest in doing so if they could be released from the undertakings so as to permit compliance with the s 264 notices. The opponent asked that we decide which of the undertakings and s 264 prevailed over the other, and had filed written submissions supporting the primacy of s 264, but he also submitted that the claimants should be appropriately released from their undertakings. 45 His Honour went on to say: [11] In my opinion it is not appropriate to decide in this case the important question of the relationship between a Harman v Secretary of State for the Home Department undertaking and s 264. Even if s 264 trumps the undertakings, release of the undertaking will have to be considered, although the result may be automatic … 46 It seems clear that, as indicated by Giles JA at [11], the claimants made plain that, in furtherance of good citizenship, their preference lay in providing the documents to the opponent, and they were really not a contradictor on the prior question. The prior question is the question with which we are presently concerned. 47 In those circumstances, with respect, it is not entirely clear what his Honour intended by the second sentence in [11]. In our view, his Honour was saying no more than that, even if the Court were to hear full argument on and address the question of whether s 264 "trumped" the Harman obligation, it would on the application before it also need to hear full argument on the question of whether a release should be granted in the event it concluded that s 264 did not have the effect contended for by the Commissioner. In our view, his Honour intended to do no more than indicate that the Court was prepared to deal with the matter on the basis of considering whether a release should be granted notwithstanding that a release might not have been required if the Commissioner's argument were correct. His Honour could not be taken as meaning that a Court would still need to consider whether a release should be granted if the Harman obligation did not prevent the recipient of a s 264 notice from complying with it.

[20]

PROCEDURAL ISSUE 48 At the hearing, the applicant applied for and was granted leave, nunc pro tunc, to bring and continue these proceedings against Rennie Produce under s 471B of the Corporations Act. This was done in case leave was necessary. 49 Section 471B provides: While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. 50 Although Rennie Produce (and the Liquidators) consented to leave being granted under s 471B, it contended in written submissions dated 28 February 2018 that: (1) leave was not necessary because there was no proceeding "against" Rennie Produce or in relation to property of Rennie Produce nor was there any enforcement process in relation to such property within the meaning of s 471B of the Corporations Act; (2) it was the Liquidators who were the eligible applicants who applied for the examination summonses that led to production, who were given leave to uplift and copy (and uplifted and copied) the documents produced in compliance with the summonses, who have them in their possession and who are bound by the Harman obligation. 51 Rennie Produce and the Liquidators saw the issue as "administrative" in nature and the Liquidators consented to being substituted for Rennie Produce, or joined, if necessary. 52 The Statement of Agreed Facts and the substance of the argument before this Court proceeded on the basis that it was common ground that: (1) the Notice was issued to Rennie Produce requiring it to produce documents in its custody or control; (2) the Summonses had been issued and the Documents had been obtained by the Liquidators in their capacity as liquidators, for and on behalf of Rennie Produce; (3) the Documents delivered to the AGS had been in the custody or control of Rennie Produce and were delivered by Rennie Produce (by the Liquidators) in responding to the Notice; and (4) the Documents fell within the scope of the Notice. 53 According to the Statement of Agreed Facts (at [20]) and the terms of the Notice, the Notice was issued to Rennie Produce, not the Liquidators. It is neither necessary nor appropriate to join the Liquidators because the Notice was not directed to the Liquidators and, therefore, no question arises as to whether they are prevented by the Harman obligation from compliance with such a statutory notice. 54 As to the submission that s 471B does not apply because there is no proceeding "against" Rennie Produce, this must be rejected. Rennie Produce is the first respondent and these proceedings are relevantly "against" it. 55 On one view, the written submissions of Rennie Produce (and the Liquidators on their behalf) on the question of leave under s 471B is inconsistent with the Statement of Agreed Facts. The written submissions perhaps imply that there are no documents in the custody or control of Rennie Produce. We were not asked to depart from the Statement of Agreed Facts, which at [20] and [21] included that it was agreed that the Notice was issued to Rennie Produce and that Rennie Produce "held a significant number of documents, obtained through the Summonses" within the scope of that notice. The agreed facts included that the Documents (defined in [17] above) now held by the AGS in sealed envelopes, and to which the declarations are directed, were provided to the AGS by Rennie Produce. It is to be inferred from exhibit SAF4 to the Agreed Statement of Facts that the Liquidators provided the Documents to the AGS for and on behalf of Rennie Produce. We proceed accordingly.

Deputy Commissioner of Taxation v Rennie Produce

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