Case Note: LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd
By Alicia Hill, Principal and Lee Filkin, Law Clerk
In LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd (In Liquidation)  FCA 324, the Federal Court of Australia provided guidance as to when the Harmon undertaking is not applicable. This case clarified the purposes for which a party to proceedings is permitted to use documents produced in another proceeding, and when leave is not required to do so. More specifically, clarification is provided as to when the Harman undertaking is not operative.
A liquidator was appointed in the winding up of 316 Group Pty Ltd (316 Group). Several claims were identified by the liquidator, including a claim against Rabah Enterprises Pty Ltd (Rabah), but the liquidator was unable to acquire funding for public examinations.
The liquidator substantially assigned the right to the claims in question to LCM Operations Pty Ltd (LCM). The liquidator retained a 15% interest in the claim against Rabah.
Rabah was compelled to produce documents to the Court by way of order for production, and the Court granted LCM the right to uplift, inspect and produce these documents.
Subsequently, LCM commenced proceedings in the Supreme Court against Rabah, pursuing the claim for a debt assigned to LCM by Group 316. In these proceedings, LCM sought to rely on the documents produced pursuant to the orders for production in initial proceedings.
Rabah asserted that LCM was restrained from relying on these documents due to the operation of the Harman undertaking.
LCM filed an interlocutory application to determine whether it was permitted to use the documents in the subsequent proceeding.
Overview of the Harman principle
The Harmon undertaking is derived from Harman v Secretary of State for Home Department  1 AC 208 and becomes operative when one party to litigation is compelled to produce documents or information to the other party. In such circumstances an implied undertaking restrains the other party from using documents and information produced for any other purpose other than that for which it was given. A party can only be released from this obligation by the Court.
Relevant issues in interlocutory proceeding
The main issue of whether LCM could rely on the documents in the Supreme Court proceedings was divided into two sub-issues by His Honour Justice Stewart:
- whether leave was required to use the documents; and
- if leave is required, whether it should be granted.
Rabah alleged that LCM’s use of the documents constituted a private purpose placing LCM outside the position of a liquidator who uses such documents for purposes associated with the liquidation of Group 316 and for the benefit of creditors. That is the use was for an ‘ulterior or other purpose’ and required leave of the Court to utilise the documents.
However, His Honour rejected this assertion due to:
- the purpose of the proceeding in which the documents were ordered to be produced was to investigate the same claim that LCM sought to pursue in the subsequent Supreme Court proceedings.
- the liquidator, and hence Group 316’s creditors, retained a 15% interest in the claim LCM was pursuing in the Supreme Court proceedings.
Although there was a mixed purpose, being the satisfaction of LCM’s own interests as well as that of creditors, this was accepted as a permissible purpose by the Court and consistent with the reason why the documents were compelled to be produced in the first instance.
An abuse of process will only be found where the purpose of the proceedings does not include benefiting the corporation in question and its creditors; because this comprised part of the reason for proceedings by virtue of the liquidator’s 15% stake in the claim against Rabah, the purpose in this case was accepted.
His Honour concluded that the purpose for which the documents were to be used was the same in both proceedings. On this basis, His Honour held that no leave was required.
This case is instructive for those who may have assigned to them causes of action from a liquidator of a company in liquidation who may wish to utilise documents obtained by a liquidator to prosecute that cause of action.
It allows documentary evidence provided in one proceeding (for e.g. documents produced in response to a public examination summons) to be utilised in a later proceeding (recovery proceedings for insolvent trading or voidable preferences), provided these later proceedings share the same purpose.
Parties accepting assignment from liquidators of causes of action should consider the terms of any such assignment if they wish to satisfy a Court that the purpose does in fact remain the same or remain vigilant of the need to seek leave to use documents and information between proceedings.