Frost Taxation Pty Ltd and Tax Agents' Board of South Australia
[2005] AATA 393
•2 May 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 393
ADMINISTRATIVE APPEALS TRIBUNAL )
) No S2003/537
GENERAL ADMINISTRATIVE DIVISION ) Re FROST TAXATION PTY LTD Applicant
And
TAX AGENTS' BOARD OF SOUTH AUSTRALIA
Respondent
DECISION
Tribunal The Hon R N J Purvis Q.C., Deputy President Date2 May 2005
PlaceAdelaide
Decision The decision under review is affirmed.
..............................................
R N J Purvis Q.C.
Deputy President
CATCHWORDS
INCOME TAX – tax agent – cancellation of registration as tax agent - registration of tax agent nominee – nominee not fit and proper person – nominees non-compliance with taxation and bankruptcy legislation – conduct not indicative of a person of integrity and good character – litigation and bankruptcy
Income Tax Assessment Act 1936 ss 251BC, 251JA, 251KA 251KB, 251KC, 251KG
Australian Broadcasting Tribunal v Bond (1990) 94 ALR 11;
Hughes & Vale Pty Limited v State of New South Wales (No 1) 93 CLR 127
Su v Tax Agents’ Board of South Australia (1982) 61 FLR 1
McKay v Tax Agents’ Board of Tasmania (1994) 94 ATC 2057
Micarone and ors v Perpetual Trustees Australia Limited and ors (1999) 75 SASR 1
Stasos v Tax Agents’ Board of New South Wales (1990) 90 ATC 4949
REASONS FOR DECISION
May 2005 The Hon R N J Purvis Q.C., Deputy President the application
1. On 1 September 2003 the Tax Agents’ Board of South Australia (“the Board”) refused an application made by Frost Taxation Pty Limited (“the Applicant”) for registration of a tax agent. The application was refused on the ground that the Applicant had not satisfied the Board that Mr Allen Gordon Frost, the sole director and shareholder of the Applicant and its original nominee as a tax agent, was a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. More particularly the Board was not satisfied that Mr Frost was a person of good fame, integrity and character.
2. The Applicant has appealed to the Tribunal seeking review of the decision made by the Board.
the hearing
3. At the hearing of the application Mr Frost was represented by Mr Paul Slattery of Counsel; the Board by Mr Martin Frayne of Counsel. The documents lodged by the Board pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were admitted into evidence and marked T1 to T28. Supplementary documents lodged by the Board were also received and marked ST29 to ST31. Written material tendered by and on behalf of the parties was received as exhibits and marked accordingly, namely:
Exhibit No
Description
Date
A
Statement of Mr Allen Gordon Frost
August 2004
B
Second supplementary statement of Mr Allen Gordon Frost
29 March 2005
C
1997 Trust Account Declaration
D
Reasons for Decision of Disciplinary Committee of Certified Practising Accountants of Australia
11 December 2000
E
Reasons for Decision of Appeals Committee of Certified Practising Accountants of Australia
26 June 2001
F
Bundled documents relating to Cullen Bay Serviced Apartments – 19 pages
G
Letter to Mr Ian Lock from Janet Lew, ANZ
9 February 2001
H
Letter to Mr Robert Bradshaw from Janet Lew
5 March 2001
J
Letter to Sheahan Lock Partners from Kelly & Co
12 November 2003
K
Letter to Allen Frost from Sheahan Lock Partners
20 November 2003
L
Letter to Sheahan Lock Partners from Kelly & Co
1 March 2004
M
Letter to Westpac Bank from Sheahan Lock Partners
23 March 2004
N
Letter to Mr Nick Fryer from Westpac Bank
7 June 2004
O
Income Tax Return of Applicant for 2002
P
Income Tax Return of Applicant for 2003
Q
Payment advice and notices of assessment for 2001 and 2002
R
Letters: Sheahan Lock to Applicant
ITSA to Sheahan Lock
ITSA to Applicant
ITSA to Applicant
31 March 2004
23 July 2004
16 December 2004
23 December 2004
1
Application for credit card with covering letter
4 October 2001
2
Supreme Court of South Australia order granting leave, affidavit and form 2
3
Applicant’s ANZ statements of account
4
Letters: Applicant to Sheahan Lock
Sheahan Lock to Applicant
28 November 2004 9 December 2004
30 November 2004
5
Applicant’s letter on Ambrose Baker Partners letterhead to Tax Agents’ Board
14 July 2003
6
Minutes of order in proceedings commenced by Applicant
4. Oral evidence was given by Mr Frost upon which he was cross-examined.
relevant legislation
5. The provisions of the Income Tax Assessment Act 1936 relevant to the present application are:
“Section 251BC FIT AND PROPER PERSONS TO PREPARE INCOME TAX RETURNS
(1) Without limiting the generality of an expression used in this Part, but subject to this section, a person is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters, as at a particular time, if:
(a) the person is not a natural person;
(b) both of the following conditions are satisfied:
(i) the person was not registered as a tax agent, or as a nominee, for the purposes of this Part immediately before the commencement of section 39 of the Taxation Laws Amendment Act (No. 2) 1988;
(ii) the person does not hold such qualifications (whether academic, by way of experience or otherwise) as are prescribed;
(c) the person has not attained the age of 18 years;
(d) the person is not of good fame, integrity and character;
(e) the person has been convicted of a serious taxation offence during the previous 5 years; or
(f) the person is under sentence of imprisonment for a serious taxation offence.
…”
In the present application the factor said by the Board to disqualify the Applicant and its nominee Mr Frost is section 251BC (1) (d). The other pre-requisites are satisfied.
“251 JA
Original registration of tax agents
(1)The Board shall register the applicant as a tax agent if the applicant satisfies the Board that:
…
(c) if the applicant is a company:
(i) a person employed by the company and specified in the application as the original nominee of the company is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;
(ii) each executive officer of the company:
(A) has attained the age of 18 years at the date on which the application is made; and
(B) is of good fame, integrity and character;
(iii) except where the company is an authorised trustee company—the company is a company in which qualified directors have a substantial interest; and
(iv) the company has not gone into liquidation.
…
251JA
(2) The Board shall refuse to register the applicant in any other case.
…
251KA Original nominee to be registered as a nominee
(1) Where a partnership or company is registered by a Board as a tax agent under section 251JA or 251JC, the person specified in the application for registration or re-registration as the original nominee of the partnership or company, as the case may be, shall be registered by the Board as a nominee of the tax agent for the purposes of this Part.
251KB Applications for registration or re-registration of nominees
(1)A person or partnership may, in an application made for the purpose, request a Board to register or re-register, as a nominee of the person or partnership for the purposes of this Part:
…
(b) in the case of a natural person or company—an employee of the person or company.
251KC Registration and re-registration of nominees of tax agents
(1) The Board shall register or re-register the proposed nominee as a nominee of the tax agent for the purposes of this Part if the Board is satisfied that the proposed nominee is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters.”
“fit and proper person” to prepare income tax returns and transact business on behalf of taxpayers in income tax matters
6. The major issue for determination in this application is as to whether Mr Frost is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. This issue entails a consideration of his “fame, integrity and character”.
7. The words “fit and proper” carry no precise meaning. The very purpose for the use of the words “is to give widest scope for judgement and indeed for rejection” (Australian Broadcasting Tribunal v Bond (1990) 94 ALR 11 at 56; Hughes & Vale Pty Limited v State of New South Wales (No 1) 93 CLR 127 at 156). The expression:
“…takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of ‘fit and proper’ cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. The list is not exhaustive but it does indicate that, in certain contexts, character (because it provides indication of public perception as to likely future conduct) may be sufficient to ground a finding that a person is not fit and proper to undertake the activities in question.” (Australian Broadcasting Tribunal v Bond (1990) 94 ALR 11 at 56)
8. In Su v Tax Agents’ Board of South Australia (1982) 61 FLR 1 at 4-5 the Tribunal with specific reference to a tax agent stated:
“The function of a tax agent is to prepare and lodge income tax returns for other persons. A person is a fit and proper person to handle the affairs of a client if he is a person of good reputation, has a proper knowledge of taxation laws, is able to prepare income tax returns competently and is able to deal competently with any queries which may be raised by officers of the Taxation Department. He should be a person of such confidence and integrity that others may entrust their taxation affairs to his care. He should be a person of such reputation and ability, that officers of the Taxation Department may proceed upon the footing that the taxation returns lodged by the agent have been prepared by him honestly and competently.”
9. The matters that are relevant to an appropriate decision are various. As was stated in McKay v Tax Agents’ Board of Tasmania (1994) 94 ATC 2057 at paragraph 35:
“I am satisfied that the effect of s 251BC and particularly sub-s 251BC(1), in relation to sub-s 251JC(1) is that I am able to consider a multiplicity of factors (it being, however, unwise to attempt to define the factors which may be taken into account) when deciding whether the applicant is “a fit and proper person to prepare income tax returns and transact business on behalf of tax payers in income tax matters”; not being bound merely to consider the various factors in sub-s 251BC(1). However, I am bound to consider the criteria in sub-s 251BC(1) for the reason that if any of them are made out (subject to the discretion contained in sub-s 251BC(3)), I am compelled to find that the applicant is not such a fit and proper person. In other words, if I were to find, for example, that the applicant was “not of good fame, integrity and character”, it must be concluded that the applicant is not “a fit and proper person [etc]” for the purposes of sub-s 251JC(1).”
relevant factual considerations
10. The Board in opposing the registration of the Applicant and in maintaining that its nominee Mr Frost is not a fit and proper person to carry out the function of a tax agent, relies upon situations that arose and conclusions that may be drawn from the following matters:
·Evidence given and findings made in Supreme Court proceedings in South Australia, which relate to the conduct of Mr Frost in 1991 and 1992 referable to the preparation of accounts and the giving of financial advice.
·Mr Frost becoming a bankrupt consequent upon the Supreme Court proceedings.
·Action taken by the Society of Certified Practising Accountants consequent upon false declarations by Mr Frost as to the non-existence of a trust account, the audit of a trust account and the reports on such audit being qualified.
·Proceedings before the Disciplinary Committee of the Society of Certified Practising Accountants.
·Delay of Mr Frost in notifying the Board of his bankruptcy.
·Failure of Mr Frost to advice the Trustee in his bankruptcy of the ownership of a property at Cullen Bay, Darwin.
·Use by Mr Frost of rent monies arising from the Cullen Bay property during his bankruptcy for and to his own benefit.
·Application for acceptance and use during his bankruptcy of a visa credit card obtained from the ANZ Bank.
·Conduct in relation to the practice of an accountant and tax agent.
background – qualifications and experience – litigation and bankruptcy
11. Whilst there is not an issue in this matter as to the professional qualifications and experience of Mr Frost, it is relevant in the context of his activities as later discussed to have these matters in mind. He was not lacking awareness of the relevant law and the consequence of non compliance. He was and is an experienced professional person, who had had contact with and the conduct of the taxation and taxation related affairs of many clients over a number of years.
12. Mr Frost was born on 15 July 1949 and commenced his TAFE accounting studies course in 1977 whilst employed on the sales staff of a bedding manufacturer. He completed the course in 1979 whilst still so employed and began to assist in the preparation of tax returns for friends. He undertook an “intensive” taxation course at a Technical College in order to obtain a qualification appropriate for registration as a tax agent, which registration he obtained on 25 August 1982. Changing his employment he obtained a position as an office manager and undertook a university course leading to a degree of Bachelor of Business Marketing. He graduated in about 1985 and commenced an accounting practice as a sole trader under the business name of Ambrose Baker and Partners. In 1993/1994 he completed the requirements for admission into the Australian Society of Certified Practising Accountants and became a member in 1994, by which time he was employing staff in his practice and responsible for preparing between 600 and 700 income tax returns each year.
13. It was in 1991/1992 that he obtained a Mr Tony Bechara as a client. It is not necessary for the purposes of these reasons to recite the factual material that later emerged in litigation. Suffice to say that Mr Bechara had at that time the effective control of a delicatessen business. In July 1991 the delicatessen was destroyed by fire. It was insured and a claim for loss and damage to stock and plant and loss of profits was made with the accounting assistance of Mr Frost. The claim for loss of profits was found to be based on calculations made by Mr Frost. The business had been quite heavily encumbered. Whilst waiting for the insurance claim to be recognised, Mr Bechara had need to borrow further monies. Mr Frost allegedly assisted in preparing and placing material before potential lenders. The insurance claim was not met as presented and monies borrowed were not repaid. Proceedings were in due course commenced by the lenders against Mr Frost, Mr Bechara and others. In November 1997 the Supreme Court made findings adverse to Mr Frost and damages were awarded against him. On appeal to the Full Court of the Supreme Court of South Australia in July 1999, the findings of the trial judge as they related to Mr Frost were maintained. An application in 2000 for special leave to appeal to the High Court was refused.
14. Mr Frost continued during the currency of the litigation to carry on his accounting practice even be it he was heavily involved in the proceedings. Following the refusal of the special leave application, the plaintiffs sought payment of the judgement debt, failing which a sequestration order was made against Mr Frost on 4 September 2000.
15. It was not until 30 March 2001 that Mr Frost advised the Board of the making of the sequestration order. On 5 June 2001 Mr Frost’s registration as a tax agent was cancelled due to his bankruptcy.
16. In the course of his practice and prior to his becoming a bankrupt Mr Frost held monies on behalf of clients. He was aware of this fact. In trust account declarations for 1997 and 1998 years lodged with the Society of Certified Practising Accountants in 1998 and 1999, Mr Frost declared that he did not hold client monies at any time during 1997 and 1998 and he “did not operate a dedicated trust account during the year ended 31 December 1997 and during the year ended 31 December 1998”. The declarations were false and false to the knowledge of Mr Frost.
17. An investigation was carried out by the Society of Certified Practising Accountants and on 29 January 2001 the Disciplinary Committee of the Society resolved to forfeit his membership. On 26 June 2001 the Appeals Committee of the Society affirmed the decision of the Disciplinary Committee.
18. At or about this time Mr Frost caused two companies, Frost Taxation Pty Limited and Frost Accounting Pty Limited to be incorporated. A Mr F J Jennings, chartered accountant was appointed a nominee tax agent. Since that time the company has been instrumental in the taking of instructions in the preparation of taxation returns, Mr Jennings signing the returns as nominee. More recently a Mr Birdseye has been appointed nominee to sign returns. These arrangements have enabled Mr Frost to continue the supervision of his practice even be it he says, the number of clients has been reduced. On 17 October 2002 by order of the Supreme Court of South Australia, Mr Frost was granted leave, although still a bankrupt, to be a director and secretary of Frost Taxation Pty Limited.
19. The staff that are employed by Frost Accounting Pty Limited do most of the accounting and taxation work with Mr Frost supervising and reviewing their material, signing letters and attending to the electronic lodging of returns. Neither Mr Jennings nor Mr Birdseye has as yet charged any fee. Mr Frost says that he is careful in not holding himself out as a tax agent and whilst the practice has declined, he feels that if he is able to regain his tax agent position, he will be able to “reactivate” the situation. He seeks, he says, to “make up for the ten years during which I have earned next to nothing”.
factual situations reflecting on the fame, intigrity and character of mr frost
20. It is necessary for consideration to be given in some detail to each of the factual situations relied upon by the Board in aid of its contention that Mr Frost is not a fit and proper person to be nominee of Frost Taxation Pty Limited and that the company should not be so registered.
the supreme court proceedings
21. The legal proceedings that led to judgements being entered against Mr Frost resulting in his bankruptcy and other untoward events had on the basis of evidence tendered their origin in advice given by Mr Frost and accounting statements prepared by him in 1991 and 1992. The situation as determined by the Court is conveniently summarised in the reasons for decision of the Board of 1 September 2003, where it is stated:
“27. In 1991, Frost was the accountant for a small business in the predominant nature of a lunch bar/takeaway food/corner store which was destroyed by fire. As is common with businesses of this nature, most of the income was in cash, much of which was not banked but was used to pay for most expenses and proprietors’ drawings in cash. Frost prepared financial statements for the year ended 30 June 1991 which formed the basis for the insurance claim for loss of profit. The insurance claim was denied in April 1992, but this was disputed. In about June 1992, Frost attended a meeting with the parents of the business proprietors, and following that meeting the parents provided some security for borrowings for the business. In about July 1992, the business reopened. In about December 1992, Frost attended meetings with the parents prior to a further refinancing using the parents’ properties as security. In June 1993, the insurance claim was settled for a sum considerably less than claimed and which was not sufficient to enable the borrowings and the parents’ securities to be discharged. The parents took legal action against a number of parties and were successful in respect of a claim of misrepresentation against Frost, ultimately resulting in his bankruptcy.
28.…He then estimated cash drawings as the difference between sales not banked and purchases paid by cash. This process is a reasonable approach to estimating both sales and costs of goods sold.
29. However, after undertaking this process, Frost then reduced cost of goods sold by $95,000 and increased profit by the same amount. The result of this entry was to bring the claim for loss of profit to approximately the insured amount and to maximise the insurance claim.”
22. Findings were made by the Court at first instance and on appeal which were also summarised by the Board as follows:
“32. “I appreciate that in many respects an accountant is reliant on information given by his or her client and that this is particularly so where very few accounting records exist. This was a point made by Mr Frost on a number of occasions during his evidence. However, it is another thing for an accountant to become involved in a process of preparing accounts by means of manipulating figures to suit the transparent motives of a clearly dishonest client. I have little doubt that this is what occurred in the present case. The usual disclaimer in relation to accounts which was also relied upon in the present case cannot absolve an accountant from the consequences of knowingly co-operating in an exercise of this nature.”
33 “I have recorded my view that Mr Frost collaborated with Tony Bechara in the preparation of financial statements for the Hutt Street delicatessen which both men must have known had no foundation in fact. The detailed and specific financial statements which were prepared in Mr Frost’s office gave every indication that they could be relied upon; there was no hint of their unsatisfactory nature. They were used to support a claim which was well in excess of $400,000. From this time onwards Mr Frost and Tony Bechara reinforced in the minds of the four plaintiffs the impression that the insurance claim would be successfully resolved to the extent of the amount claimed and that the monies would be used to pay off the liabilities which they were being asked to undertake.”
34. “I should add that, even on his own version, [Frost] did not explain any of the difficulties inherent in the [insurance] claim [at the meetings]. In view of the manner in which he prepared the financial statements on which the claim was based, he must have been well aware of those difficulties. Indeed on the facts as I find them to be he was aware that a claim for the amount sought on the basis on the accounts which he prepared was, in large part, no more than a sham.”
35. “I find that Mr Frost also assisted in encouraging the plaintiffs to accept that Tony Bechara’s business interests were in a sound state. The effect of this conduct was to encourage the plaintiffs to support Tony Bechara financially in circumstances in which they had nothing to gain and a considerable amount to lose. Mr Frost would have been well aware of the perilous situation of Tony Bechara’s finances immediately prior to the execution of the Perpetual mortgage and the unreliable basis upon which the insurance claim was put forward.”
36. In the Full Supreme Court Judgement, Olsen J said:
“Of course, these submissions ignore the separate issue of misrepresentation arising from the patently false and unsupportable financial statements prepared by Frost and used both as a basis for discussion with the plaintiffs and also as a foundation for the re-financing applications. There can be no doubt that Frost full well appreciated their falsity and that they remained in discord with actual takings received when the business was re-opened. Yet he was a willing party to all of the misrepresentations necessarily involved.
The same must be said of the formal declaration which he signed as to the business takings, which was indicative of his overall approach. It is an affront to common sense to suggest that he could have had any genuine belief in that which he declared.”
23. In the joint judgement, on the appeal, of Debelle and Wicks JJ (Micarone and ors v Perpetual Trustees Australia Limited and ors (1999) 75 SASR1 at 101-102) it is stated:
“The Judge’s findings:
The trial judge concluded by making the following findings concerning Frost:
·That Frost had collaborated with Tony Bechara in the preparation of financial statements for the Hutt Street delicatessen which both must had known had no foundation in fact.
·Those financial statements gave every indication that they could be relied upon. There was no hint of their unsatisfactory nature.
·The statements were used to support a claim in excess of $400.000.
·Frost and Tony Bechara reinforced in the minds of the plaintiffs the impression that the insurance claim would be successfully resolved with the recovery of $400.000 that the monies would be used to pay off the liabilities which they were being asked to undertake.
·Frost also assisted in encouraging the plaintiffs to accept that Tony Bechara’s business interests were in a sound state. This further encouraged the plaintiffs to support Tony Bechara.
·Frost was well aware of the perilous situation of Tony Bechara’s finances immediately before the execution of the Perpetual mortgage and of the unreliable basis upon which the insurance claim had been made.
·Frost knew that the claim for $400.000 could not be justified.
·That the plaintiffs relied on the representations made by Frost and those representations induced them to enter into the Perpetual transaction.”
24. In his evidence before the Tribunal Mr Frost says that he now accepts the findings at first instance and those of the Full Court as being open to the Court on the basis of the material that was before it. He acknowledges that conduct as described in the findings is not acceptable on the part of a tax agent. “If I was guilty of the conduct” he says “it was and is not acceptable but I am unable to accept that I was so in the context of the proceedings I am taking against the lawyers”. The latter refers to a contention of Mr Frost that evidence appropriate to his defence was not placed before the trial judge, was not accepted as fresh evidence by the Full Court and that his then lawyers and others were negligent in the conduct of his defence. He maintains that he is entitled to commence proceedings against designated members of the legal profession.
25. The conduct found to have been engaged in by Mr Frost occurred 13-14 years ago. The court proceedings are more recent but they related to the earlier events. Whilst the decision of the Board that is under review may have been based primarily on the findings made by the courts and the consequent bankruptcy, much additional material is now before the Tribunal.
26. I have not in the above resume detailed all of the findings made by the Supreme Court as they reflected upon the character of Mr Frost. They include the making of false and misleading statements referable to financial accounts and in such accounts, the putting forward of information known to be false, the manipulation of figures to suit the motives of a dishonest client, the swearing of a false statutory declaration, willingness to assist in the manipulation of figures in financial statements prepared for the information of the Australian Taxation Office, the preparation of accounts to support a position sought to be achieved by a client and the preparation of accounts having no foundation in fact.
27. The events did happen a long time ago. Mr Frost, whilst not accepting that he was in fact a party to conduct such as that found against him, recognises the decision of the Court and the basis on which it was made. Conduct of a like nature by a tax agent is acknowledged by him as being unacceptable. If there was not other alleged relevant misconduct raised against Mr Frost, it may well be appropriate after such a long period of time, to reinstate him to his former tax agent status. But that is not the case.
non notifying of board of making of sequestration order
28. The sequestration order was made against Mr Frost on 4 September 2000 and he did not notify the Board of this fact until the 30 March 2001 at which time he was seeking a renewal of his registration. He says, that although he well realised that he had an obligation under section 251KG of the Income Tax Assessment Act 1936 to forthwith notify the Board if he became an undischarged bankrupt, he failed to do so. He says that he obtained advice which was contrary “to what I understood”, that he did not have to take any action until he made application for re-registration.
29. Even be it he was so advised, Mr Frost knew that the advice was not correct. He, as a tax agent, was or should have been well aware of the statutory provision in part VII of the Assessment Act. If he was not aware of the provisions of section 251KG, he could have easily ascertained the position for himself.
30. It was put to Mr Frost that he failed to notify the Board in order to “gain time” in which to reorganise his affairs. If this be not so, and Mr Frost denied its accuracy, I am satisfied that he acted regardless of his then obligation as a tax agent. He acknowledged awareness of the necessity for a tax agent to comply with the Act. He chose not to do so. This was an error of judgement on his part as well as an offence under section 251KG (2).
Certified Practising Accountants disciplinary proceedings
31. I have already made mention of Mr Frost signing false trust account declarations, which he presented to the Society of Certified Practising Accountants. In its Reasons for Decision of 11 December 2000 (Exhibit D), the Disciplinary Committee after noting his then bankruptcy, made a finding to the effect that whilst holding trust monies Mr Frost had failed to maintain proper accounting records and to have his records audited. The false declarations were made by Mr Frost according to the Committee “to avoid the requirement for such trust account to be audited”. The Appeals Committee of the Certified Practising Accountants in its reasons of 26 June 2001 (Exhibit E) stated in this regard “Mr Frost was prepared to lie to get out of a difficult situation and to do so on more than one occasion”.
32. The Appeals Committee concluded that Mr Frost was not a fit and proper person to be a member of Certified Practising Accountants and forfeiture of his membership was appropriate.
33. In his evidence before the Tribunal Mr Frost acknowledged that his conduct had been “extremely bad and would never happen again”. He attributed his failure largely to the pressure of the then litigation and his consequent failure to properly manage his affairs. But he did realise at the time of signing the declarations that he in fact did hold moneys in trust and that he should have maintained a trust account which needed to be audited, and that what he was declaring was incorrect and dishonest. His only defence is that in completing the declarations as he did, he was “deferring the problem” that had arisen from his poor bookkeeping and absence of an audit. It has never been alleged that there was a misappropriation of any trust funds.
property unit 54/26 marina boulevard, cullen bay, darwin
34. This property was acquired by Mr Frost in his own name in 1997. He borrowed the whole of the money required for its purchase, this by way of first mortgage to the ANZ Bank and thereafter borrowings totalling $20,000 from various people. At the time of acquisition Mr Frost had no equity in the property.
35. The contract for sale was the subject of an income guarantee. Rental payments were to be paid into an account with the ANZ Bank in the name of Mr Frost and interest payable on the first mortgage was to be transferred from that account to the mortgage account with the bank on a regular monthly basis. Outgoings were also paid from the account.
36. Mr Frost says that at the time of his bankruptcy he included the property in his statement of affairs. Mr Sheahan, the trustee of Mr Frost’s estate, at no time he says sought a transfer of the property into his, Mr Sheahan’s own name. Thereafter the arrangements he had made with the bank were maintained; the agent caused the rent to be paid into Mr Frost’s account and remittances were made on the account of interest and property outgoings.
37. A problem arises however, in that Mr Frost at the same time also caused monies to be withdrawn from the account for his own purposes without informing the trustee. These withdrawals made between March and October 2003 amounted in all to $10,560 and led to a deficiency in the account and inability to fund the interest payment, foreclosure on the mortgage by the bank and sale of the property in May 2004. A surplus of approximately $30,000 arose on the sale.
38. Mr Frost knew or ought to have known that the real estate vested on the making of the sequestration order in the trustee, regardless of a formal transfer, and that this vesting extended to the income derived from it. He had no entitlement to the monies which he appropriated to his own use. He recognised this fact in that he omitted reference to the property and income derived from it in his original income tax returns for the 2001 and 2002 years. Later amended returns were lodged (after he says discussing the matter with the Australian Taxation Office) referring to the property, even be it the date of the property first earning income was wrongly stated as 1 July 2000. The property was income producing from the date of its purchase in 1997.
39. Mr Frost did not seek the consent of or notify Mr Sheahan or anyone in Mr Sheahan’s office of his withdrawals and it was not until the bank notified him of its intent to foreclose on the mortgage that the trustee became aware of the conduct of Mr Frost. He forthwith wrote to him demanding repayment and threatening legal proceedings.
40. As I have said, Mr Frost should have known that he had no entitlement to the monies. He acted in breach of his obligations under the bankruptcy legislation. His conduct was consistent with that noted by the Disciplinary Committee of the Certified Practising Accountants, when it noted that Mr Frost had indicated to the Committee prior to December 2000, that the successful plaintiffs in the Supreme Court proceedings “had not been paid one cent” by him and “he was resolved that they would not receive one cent from him…he indicated that the trustee had obtained no assets from him…I would not let [the trustee] get any assets either”.
41. Mr Frost said in his evidence before the Tribunal and during his cross-examination that he did not believe “these assets” were vested in the trustee. “It was” he said “my bank account and my income. I was entitled to the benefit”. I do not accept this evidence as given by Mr Frost. He knew that he had no entitlement to the money, even be it a formal transfer had not taken place. The position taken by him and as expressed to the Committee is confirmatory of this. Indeed, whilst stating in his evidence that he “did not realise the status of the property” he also said that he “did believe that it was to pass to the trustee”. He said that this belief changed in late 2002 or early 2003 after he spoke to a taxation official. He did not seek to clarify the situation with the trustee. I consider it more likely than not Mr Frost did amend his tax returns to support his claim to entitlement of the funds well knowing that he had no such entitlement to them or to use them for his personal benefit.
42. Ignorance of this position on the part of a professional accountant and tax agent would be incompatible with his training and experience. I do not accept that Mr Frost was so ignorant. It is of significance that it was only after the withdrawals had taken place in 2003 that Mr Frost sought to amend the 2001 and 2002 tax returns.
43. Mr Frost did not adversely affect his financial position by lodging the amended returns. They disclosed a deficiency after allowable deductions were taken from gross rent (Exhibit O and Exhibit P). The improper withdrawals made by Mr Frost were in effect taken from rent monies which should have been available to meet legitimate expenditure or creditors in his estate or as in the case of depreciation put aside for renewal or replacement purposes. The withdrawals by Mr Frost led to an insufficiency of funds and the foreclosure.
credit card application
44. Consistent with his not revealing to the Trustee the withdrawals from the ANZ account in Darwin was the application made by Mr Frost in June 2001 for a credit card with the same bank.
45. Mr Frost acknowledges knowing that he was unable by reason of his bankruptcy to borrow money in excess of $3000 without the approval of his trustee. He applied for a pre-approved limit of $10,000. He says the bank knew that he was an undischarged bankrupt. He was issued with a credit card which he used for a period of three or four months until the situation came to the attention of the trustee when it was withdrawn. Mr Frost paid the then balance outstanding in full. He says that the amount owing did not at any time exceed $3000.
46. Again Mr Frost knew or ought to have known of his position under the bankruptcy legislation. He acted with knowledge of the fact that he was offending against the legislation. Whilst it may well be that he was in need of monies for personal expenditure and to cover debts that he had incurred, his conduct in this regard was not consistent with that of a person of integrity, good fame and character.
remorse
47. Remorse is an intangible quality. It may not equate to being sorry. It implies recognition of guilt, of having done wrong in the past. The Oxford Dictionary speaks of “a finding of…deep regret and repentance for sin or wrong committed”.
48. In the Reasons for Decision of the Board it is stated (T27/276) that Mr Frost “did not appear to consider that his actions were wrong or inappropriate”. In his written statement (Exhibit B) he says:
“16. I have feelings of deep remorse following the judgement in the Supreme Court actions. The conduct reported in the Judgement is and was not acceptable conduct.
17. With respect to my dealings with the Plaintiffs and others associated with the Plaintiffs in the Supreme Court proceedings, I regret:
a.that I did not recognise the conduct of the Plaintiff’s and others associated with the Plaintiff’s was not of an acceptable standard.
b.That I did not disassociate myself with the Plaintiff’s and others associated with the Plaintiff’s earlier than I did.
18.Since the Supreme Court Judgement I have taken active steps as to how I may conduct myself as an Accountant. In particular:
a.I do not work for clients where I have any suspicions as to their integrity;
b.If I find that I feel uncomfortable with a client, then I now advise them that they should find the services of another account.
A number of my former clients have now left my practice.
19. However, it is also extremely difficult for me here to make the statements of remorse in the usual manner due to the nature of the judgement against me. I have lost almost everything: my marriage, my children are estranged from me and I am an undischarged bankrupt. I have lost my usual professional associations and connections. I am still forced to deal with bankruptcy issues and I am currently involved in an application to obtain a discharge from bankruptcy which is now before the Federal Court.
20.These are very real and live issues for me. I am deeply ashamed that I have allowed myself to get into this position. And I am deeply embarrassed and ashamed about what has followed.”
49. Mr Frost has read he said the reasons for judgement of the Supreme Court at first instance and on appeal and understands them. Although he disagrees with it, he “accepts the judgement”. At one time he says he was angry with the decision and “felt cheated”. The true position he still maintains, was not properly put before the Court, this is the fault of those then acting for him. He holds these people responsible for the adverse result of the litigation and has sought to commence proceedings against them.
50. However, having had the situation explained to him, he now accepts that “the judgement was just in the circumstances”.
51. Mr Frost says that he has lost the benefits of his professional associations and with the Society of Certified Practising Accountants.
52. It was put to Mr Frost in the course of his cross-examination that he had not expressed his remorse until he caused to be prepared his second statement (Exhibit B) filed in these proceedings. This he admitted was “quite possibly true. The problem was getting the wording right so as not to prejudice the action against my former lawyers”.
53. The expression quoted above sums up, he said, “my feeling on the whole thing”. He denies expressing the remorse for the benefit of these proceedings. Referring more particularly to the findings of the trial judge in the Supreme Court proceedings, he acknowledges that conduct the like of that identified in the Reasons for Decision is “not acceptable conduct”. The position taken by Mr Frost is summarised in his evidence before the Court when seeking leave to act as a director and secretary of Frost Taxation Pty Limited (Exhibit 2). He was asked “Have you come to terms with the finding of the Court that you have been deliberately dishonest” to which he replied “…if the evidence had been put before the Court correctly I did not believe the Court would have made the decision it did. There's massive amounts of evidence that was never put before the Court…I have come to terms with the fact that the finding has been made…”.
54. Mr Frost says that he is “very sorry” for what has occurred, the “whole thing has been a nightmare. I am extremely embarrassed. I will never allow myself to get into this position again. The conduct is unacceptable for anyone in the financial industry let alone a tax agent”. Whilst he contends that lawyers acting for him were in fact representing the insurance company and not himself and that he should not have been put in the position in which he found himself, in hindsight he says that he “did not realise what was going on” and that “the blame for this is on me”.
55. Whilst the above might indicate remorse for the adverse consequences that eventuated from his alleged 1991/1992 conduct and his neglect at not ensuring he was appropriately represented at trial, there was little remorse expressed by him for the signing of the false declarations, the withdrawing of monies and the using of credit card facilities. He did express remorse at not notifying the Board of his bankruptcy.
56. It is thus relevant for me to consider whether there is a lack of contrition or a failure on the part of Mr Frost to appreciate the errors of his ways. In Stasos v Tax Agents’ Board of New South Wales (1990) 90 ATC 4949 at 4960 it was said:
“However, a person who has been shown to be other than a fit and proper person to be registered must satisfy the Tribunal considering his registration or cancellation of his registration as the case may be, that he appreciates the significance of his wrong doing, that he regrets it and that he has rehabilitated himself such that it is truly unlikely that there will be any lapse in the future of the standards which are required of him. The more serious his dereliction from duty the longer may be the time necessary to show this. It will not be sufficient for him to merely express his contrition. The Tribunal must be satisfied on the balance of probabilities, that not only is that contrition actually felt, but that he will not again deviate from the high standards required of him as a registered tax agent.”
57. Putting aside the Supreme Court findings, I am not satisfied that Mr Frost appreciates the significance of his wrong doing in relation to the other activities discussed in these reasons. He has not expressed his regret at his conduct but rather seeks to justify it or excuse it as attributable to lack of knowledge or awareness.
58. I am not persuaded, as I need to be, that if a like situation or situations again occurred he would not act in a similar manner that is avail himself of an opportunity to obtain a personal advantage even be it he was aware that such conduct was in breach of a statutory provision or personal obligation.
59. Mr Frost did not, whilst giving his evidence and whilst being cross-examined, exhibit contrition. He did not directly answer questions put to him but sought to give his own version of what the answer should be. On occasions he sought to avoid answering the question put to him. I am not satisfied that it is unlikely he will lapse in the future in his adherence to standards expected of him. As was exhibited in his relationship with Mr Sheahan, the trustee, so with officers of the Australian Taxation Office. They will not be able to rely upon the word or conduct of Mr Frost being consistent with his obligations as a tax agent and under the income tax legislation. He has in the past feigned ignorance of the taxation law when he clearly knew or should have known and appreciated a provision. I am not persuaded that he will not adopt the same attitude in future. I am not satisfied on the balance of probabilities that he will not again deviate from the high standards that would be expected of a tax agent.
relationship with the trustee in his bankruptcy
60. The trustee appointed on the making of the sequestration order, Mr John Sheahan of Sheahan Lock Partners, has experienced difficulty in the management of Mr Frost’s estate. This is evidenced in correspondence tendered before the Tribunal. As a result of the conduct of Mr Frost referrable to the property that vested in the trustee, his improper use of rental monies and his obtaining of credit, the trustee has threatened to cause criminal proceedings to be commenced against Mr Frost as well as proceedings under the Bankruptcy Legislation. Correspondence detailing the position taken by the trustee and Mr Frost is in evidence (Exhibits K and R).
61. Mr Frost has applied to the Federal Court for a discharge from his bankruptcy, which discharge is opposed by Mr Sheahan. The trustee has two objections now outstanding, initially there were five. They are the subject of proceedings now pending.
medical condition
62. Recent medical evidence is not before the Tribunal. However, in the material contained in the T-documents reports of a Dr Gregory Dare, Consultant Psychiatrist, of November 2002 and January 2003 exhibit Mr Frost presenting “a major depressive disorder”. Dr Dare in his November 2002 report continues by saying:
“He is very irritable, angry, and unable to concentrate. He has a general loss of interest, and cannot settle to do any tasks. His social life is suffering and his marriage has broken down. He is indecisive and unable to cope with work. He is trying to work one or two days a week. However, this is just some simple task work which he attempts, and most work he leaves to his other staff”.
In January 2003 Dr Dare again refers to a depressive disorder and a reduced capacity to work. No more recent report is before the Tribunal.
submissions and decision
63. It is true to say, as was submitted by Mr Slattery of Counsel on his behalf, that Mr Frost in a professional sense was “self made”. He started upon his accountancy studies whilst not still a young man and when otherwise engaged in full-time employment. He qualified after years of study. He established his own practice and in due course was admitted to the Australian Society of Certified Practising Accountants. He conducted the practise as a sole trader for many years. Up until the time of the 1991/1992 events no suggestion of improper conduct or practise was raised against him. Indeed it is not maintained that he does not possess the technical competence and expertise to be a tax agent. Clients are still seeking to have their affairs dealt with by him. There is not any evidence of an adverse effect experienced by any taxpayer on account of his conduct. There is no record of default in relation to any tax matter.
64. Mr Frost has suffered greatly as a consequence of the findings made by the courts, which findings he is required to accept. His practise has been adversely affected. He has been made bankrupt. He has been divorced. His health, at one time, was the subject of medical appraisal. He has lived with anxiety, apprehension and anger over a number of years. Irrespective of his own views as to the character assessment, damage has been done to him. All of these matters are recognised by the Tribunal. He has expressed his regret more than remorse as best he can. He is unable to rewrite the past. But as to the future?
65. Mr Frost accepts that the behaviour of which he was found remiss was unacceptable. But this was behaviour in 1991/1992, even be it he was not accepted by the trial judge in 1997 as a witness of truth. Admittedly this was the finding of a judge hearing evidence in a matter which was peculiar in its own context and may not reflect universally upon Mr Frost’s character. However, it is a factor that must be taken into account.
66. If the Supreme Court proceedings stood alone, it may well be time to say “how long is long enough”. But this is not so. The declarations as to trust accounts were signed in 1998 and 1999, they were incorrect to the knowledge of Mr Frost. He sought to mislead his own professional organisation, conduct recognised as heinous by reason of his being struck of the register of members. He sought to frustrate the efforts of his trustee in bankruptcy in properly conducting the affairs of his estate by not revealing the extent of his property, by withdrawing funds from a bank account properly the property of the trustee and obtaining credit without the trustee’s knowledge or consent. He failed to inform the Board of his bankruptcy, well knowing that this was his statutory obligation.
67. It was submitted on his behalf that with reference to the Cullen Bay property and no doubt the other instances of misconduct relied upon by the Board, that whilst the event is to be determined by the factual situation, the important factor is intent. This is true. I am satisfied however, that Mr Frost at all times intended the consequences of his conduct, that is, he intended to take the money, obtain the credit, not inform the Board and misinform the Society of Certified Practising Accountants and not inform the trustee of the existence of the Cullen Bay property. His conduct in most instances was in clear breach of statutory obligations of which he was or should have been aware.
68. Having in mind that the conduct referable to the use of the rental income and the application for the credit card occurred of recent date and at or about the time the subject application was made, the Tribunal finds it difficult to accept that, as submitted on his behalf, Mr Frost has learned the error of his ways. I am not satisfied that he will not repeat his conduct on a future occasion. It is not so much that Mr Frost has, on the evidence before the Tribunal acted appropriately in relation to the tax affairs of clients of Frost Taxation Pty Limited, but that he has a propensity to disobey or not comply with the law, to be dishonest even with his own professional organisation, to take monies that he knew or ought to have known were not his own. These are not the indicia of a person of integrity and good character. I am not satisfied that if the facts were known, the public would have confidence in the capacity of Mr Frost to carry out the task of a registered tax agent be it in a nominee capacity.
69. As was submitted on behalf of the Board, it is a special privilege to prepare taxation returns and submit them to the Australian Taxation Office. Reliance is inevitably placed on the honesty and diligence of the tax agent. Mr Frost deviated from the high standards required of him as a tax agent. He had the findings made against him by the Supreme Court. He failed to have his trust account audited and falsely declared on two occasions that he did not have a trust account. He deliberately delayed notifying the Board of his bankruptcy. He failed to notify his trustee of the existence of property owned by him, even be it he originally lodged tax returns omitting reference to the property. The amended returns lodged by him were to give the pretence of ownership to property that he knew was to vest in the trustee. He used funds rightly the property of the trustee to his own benefit. He obtained credit beyond the statutory limit. Each of these matters individually and of greater significance all of them together, reflect adversely upon his character and an assessment of his being a fit and proper person to be registered as a nominee tax agent. The nature of the regret expressed by him is not that of true remorse that is an acceptance of the error of his ways and such as would otherwise evidence little likelihood of there being a repetition of his conduct. No character evidence or indeed medical evidence of a recent date was forthcoming and before the Tribunal.
70. The Tribunal is satisfied that Mr Frost is not a fit and proper person to be registered as a nominee tax agent. His conduct has been improper and it is quite possible that it may reoccur if the opportunity presents itself. Objectively the general community could not be confident that it would not reoccur. I am not confident that with knowledge others would entrust their taxation affairs to his care. I am also not satisfied that officers of the Australian Taxation Office would be confident that taxation returns would be prepared by him honestly.
71. The Tribunal is further of the opinion that Mr Frost does not appreciate the significance of his wrongdoing and is not satisfied that the passage of time other than for the situation that was the subject of the Supreme Court proceedings has lessened the likelihood of his rehabilitation. The Tribunal is not satisfied on the balance of probabilities that contrition is actually felt or that he will not again deviate from the standards required and expected of a person registered as a tax agent.
72. For the above reasons the decision under review is affirmed.
I certify that the 72 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon R N J Purvis Q.C., Deputy President
Signed: .....................................................................................
AssociateDate/s of Hearing 29, 30 and 31 March 2005
Date of Decision 2 May 2005
Counsel for the Applicant Mr Paul Slattery
Solicitor for the Applicant Mr Paul Richardson
Counsel for the Respondent Mr Martin Frayne
Solicitor for the Respondent Mr David Williams, AGS
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