Ham and Tax Practitioners Board (Taxation)
[2017] AATA 1642
•9 October 2017
Ham and Tax Practitioners Board (Taxation) [2017] AATA 1642 (9 October 2017)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2016/6355
Re:Philip Ham
APPLICANT
AndTax Practitioners Board
RESPONDENT
DECISION
Tribunal:Senior Member A C Cotter
Date:9 October 2017
Place:Brisbane
The Tribunal affirms the decision under review.
..........................[sgd]..........................................
Senior Member A C Cotter
CATCHWORDS
TAX AGENTS – application for renewal – whether Applicant was a fit and proper person – where Applicant had been found liable for breach of trust – where Applicant had been found liable for breach of fiduciary duties – use of Supreme Court of Queensland findings – whether Applicant had shown contrition – where Applicant initially failed to disclose potential issues – decision under review affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) ss 2A, 33
Tax Agent Services Act 2009 (Cth) ss 2-5, 20-5, 20-15, 20-25, 20-50, 30-35CASES
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Australian Securities and Investments Commission v Adler (2002) ACSR 80
Briginshaw v Briginshaw (1938) 60 CLR 336
Canehire Pty Ltd & Anor v Themis Holdings Pty Ltd [2014] QCA 296
Carter and Tax Practitioners Board [2017] AATA 528
Re Grosfeld and Tax Practitioners Board (2014) 94 ATR 643
Hughes and Vale Proprietary Limited v New South Wales (No 2) (1955) 93 CLR 127
Re Kerin and Tax Agents’ Board (SA) (2009) 113 ALD 530
Kishore and Tax Practitioners Board [2017] AATA 271
National Mutual Life Association of Australasia Ltd and Others v Grosvenor Hill (formerly Hillier, Parker (Qld) Pty Ltd and Another (2001) 183 ALR 700
Law Society of NSW v Foreman (1994) 34 NSWLR 408
Li and Tax Practitioners Board [2014] AATA 299
Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 26 ALR 247
R v War Pensions Entitlement Appeals Tribunal; Ex parte Bott (1933) 50 CLR 228
Shi v Migration Agents Registration Authority (2008) 235 CLR 286
Re Su and The Tax Agents’ Board of South Australia (1982) 13 ATR 193
SRBP and Tax Practitioners Board [2016] AATA 456
Stasos v Tax Agents’ Board of New South Wales (1990) 21 ATR 974
Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38SECONDARY MATERIALS
Australian Law Reform Commission Interim Report No 26, Evidence (tabled 21 August 1985)
Concise Oxford English Dictionary (Oxford University Press, 12th ed, 2011)
Tax Practitioners Board Explanatory Paper TPB (EP) 02/2010 (updated on 9 March 2017)
The Macquarie Dictionary (Macquarie Dictionary Publishers, 2017)REASONS FOR DECISION
Senior Member A C Cotter
9 October 2017
BACKGROUND
Mr Ham
Mr Philip Ham was registered as an individual tax agent in June 1989. He is the sole director and supervising agent of a company, H & P Services Pty Ltd, which is also a registered tax agent.[1]
[1] Exhibit 1, T Documents, T 3-15, Tax Agent Application for renewal registration – Statement of Facts dated 13 October 2016, [1.1].
Mr Ham, Canehire Pty Ltd and Mr Trevor Holzapfel and the Fison Avenue land
For many years, Mr Ham acted as the accountant for Mr Trevor Holzapfel and his various entities; he was a family friend.[2]
[2] Exhibit 1, T Documents, T3-117, Canehire Pty Ltd & Anor v Themis Holdings Pty Ltd [2014] QCA 296, [6], (Muir JA).
In July 1991, on Mr Ham’s advice, the Holzapfel Property Trust (“HPT”) was established. The HPT was a discretionary trust of which Mr Holzapfel, members of his family and companies controlled by them, were beneficiaries. Canehire Pty Ltd (“Canehire”), a shelf company of Mr Ham (who was its sole director and shareholder), was appointed as the trustee.[3]
[3] Ibid.
In September 1993, Canehire, as trustee of the HPT, acquired the lessee’s interest in a Crown lease over land at Fison Avenue, Eagle Farm. A company controlled by Mr Holzapfel carried on business on the land. Between 1993 and 2000, various Holzapfel-related entities made improvements to the land.[4]
[4] Ibid, [7].
Mr Holzapfel was interested in acquiring the freehold title to the land. Between 1996 and 1998, Canehire, through Mr Holzapfel, conducted negotiations in that regard with the Department of Natural Resources (“DNR”). However, Canehill was not financially able to pay the purchase price sought by the DNR and instead obtained a renewal of the lease to December 2002.[5]
[5] Ibid, [8].
In 2000, one of the Holzapfel-related entities which carried on business on the land experienced financial difficulties. Its bank made demand on Canehire as guarantor of the borrower’s obligations. Mr Holzapfel and his entities lacked the capacity to satisfy the bank’s demand. Mr Ham, who was able to obtain funds at a cheaper rate than the bank was charging, proposed to Mr Holzapfel that Canehire, in its own right, pay out the bank and that the Holzapfel-related entities assume an obligation to repay Canehire. Mr Holzapfel accepted the proposal, which was documented. Subsequently, in April 2001, the bank assigned its securities in respect of the debts owing to it, to Canehire.[6]
[6] Ibid, [9]-[11].
Until 2002, Mr Holzapfel exercised control over the land and negotiated with the DNR for Canehire’s acquisition of the freehold.[7]
[7] Exhibit 1, T Documents, T3-118, Canehire Pty Ltd & Anor v Themis Holdings Pty Ltd [2014] QCA 296, [12], (Muir JA).
In November 2002, Mr Ham and his business partner in property development ventures, Mr Russell Kempnich, established the Fison Avenue Unit Trust (“FAUT”), with Canehire as trustee. The unit holders were companies respectively controlled by Mr Ham and Mr Kempnich.[8]
[8] Ibid, [13].
Later that month, Canehire accepted an offer by the DNR to acquire the freehold to the property. The acquisition price was paid from an advance made by South East Property Developments Pty Ltd (“SEPD”), a property development company controlled by Mr Ham and Mr Kempnich. The advance was subsequently repaid from monies borrowed by Canehire, the repayment of which was guaranteed by Mr Ham and Mr Kempnich. A deed of grant of the land in favour of Canehire was registered in February 2003. No reference was made to any trust.[9]
[9] Ibid, [14]-[15].
After acquiring the freehold, Canehire made improvements to the property to facilitate its letting to a new lessee.[10]
[10] Ibid, [16].
The property was sold by Canehire in October 2008 for $4,892,030.00. The proceeds were used to discharge indebtedness to Canehire’s secured lender, with the balance paid to SEPD, which expended the monies in development projects. No part of the proceeds was paid to the HPT or any of its beneficiaries.[11]
[11] Ibid, [16]-[17].
The legal proceedings
After Mr Holzapfel and the other beneficiaries became aware of the sale, Canehire was removed as the trustee of the HPT and replaced by Themis Holdings Pty Ltd (“Themis”). Themis in turn commenced proceedings in the Queensland Supreme Court for equitable compensation against Canehire and Mr Ham.
The crux of the dispute was whether there was an agreement between Mr Holzapfel and Mr Ham that the freehold be purchased on trust for the HPT, as Themis contended, or whether the agreement was that Canehire purchase the freehold in its own right (as Mr Ham contended).[12]
[12] Exhibit 1, T Documents, T3-46, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [2].
Themis also asserted that if Mr Ham’s version of the agreement was not accepted, then Canehire had acted in breach of its duty, and Mr Ham was knowingly concerned in that breach. Alternatively, if Mr Ham’s version were accepted, it was said that version was insufficient to constitute fully informed consent of the HPT beneficiaries, so that Canehire acted in breach of its duty, and Mr Ham was knowingly concerned in that breach.[13]
[13] Exhibit 1, T Documents, T3-52, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [39].
In March 2014, Philippides J found in favour of Mr Holzapfel’s version of the agreement. Her Honour gave judgment for Themis on its claim for equitable compensation.
In the course of delivering her judgment, Philippides J made the following comments and findings in respect of Mr Ham’s conduct:
(a)“… there are important matters relating to Mr Ham’s evidence which undermine his credibility and cause me to reject his evidence. In addition to the fact that the defendants’ pleaded case underwent a number of amendments, including during the trial, Mr Ham’s actual evidence did not even then accord with aspects of the pleaded case.”[14]
(b)Mr Ham “did not inform Mr Holzapfel that he would involve a partner, who would be entitled to receive a share, let alone 50 per cent, of the net proceeds of sale before any payment to the HPT. Mr Holzapfel was not told of Mr Kempnich before 2008.”[15]
(c)“Mr Ham did not tell Mr Holzapfel that he and the beneficiaries would lose all beneficial interest in the property and that the beneficiaries would have no right to share in the sale proceeds of the property no matter how profitable.”[16]
(d)“In short, Mr Ham kept Mr Holzapfel in the dark about the manner in which he was dealing with the property. He did not explain the nature of the additional borrowings or provide updated valuations as they came to hand. To do so would have risked alerting Mr Holzapfel to the fact that the Fison Avenue property was being used as security to advance the property development interests of Mr Ham and his partner Mr Kempnich, about whom Mr Ham accepted he deliberately failed to inform Mr Holzapfel.”[17]
(e)“… Canehire acted in breach of its fiduciary duty and breach of trust by paying away the profits derived from the sale of the property.”[18]
(f)“Mr Ham was at the relevant times the directing mind and will of Canehire and was knowingly concerned in the breach of duty and trust committed by Canehire and therefore liable to compensate the plaintiff in equity...”[19]
(g)“… Mr Ham, as the controlling mind of Canehire, was consciously acting dishonestly in paying away the proceeds of sale. He had actual knowledge that the proceeds lawfully belonged to the beneficiaries of the HPT (knowing full well the terms of the agreement with Mr Holzapfel were that the freehold was to be acquired for the HPT), that Mr Holzapfel had not consented to Canehire distributing the proceeds to any other party, and that he was acting contrary to the express trust constituted by the agreement in so doing.”[20]
[14] Exhibit 1, T Documents, T3-102-103, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [196].
[15] Exhibit 1, T Documents, T3-104, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [202].
[16] Ibid, [203].
[17] Ibid, [204].
[18] Exhibit 1, T Documents, T3-105, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [209].
[19] Ibid, [210].
[20] Exhibit 1, T Documents, T3-108, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [224].
Her Honour also accepted the argument advanced by Themis that Mr Ham’s version of the agreement with Mr Holzapfel “smacked of recent invention”.[21] She agreed that it seemed “highly implausible” that the simple fact of the agreement as asserted by Mr Ham would not have been conveyed at some stage in response to the increasingly serious matters raised with him by Mr Holzapfel’s lawyer, describing Mr Ham’s explanation for that failure as verging “on the absurd”.[22]
[21] Exhibit 1, T Documents, T3-75, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [114].
[22] Exhibit 1, T Documents, T3-84, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [134].
An appeal by Canehire and Mr Ham to the Queensland Court of Appeal was dismissed.[23]
[23] See Exhibit 1, T Documents, T3-114-130, Canehire Pty Ltd & Anor v Themis Holdings Pty Ltd [2014] QCA 296.
Chartered Accountants Australia and New Zealand disciplinary action
In January 2016, the Chartered Accountants Australia and New Zealand (“CAANZ”) sent to the Tax Practitioners Board (“Board”) a copy of findings made against Mr Ham at a hearing of CAANZ’s Professional Conduct Tribunal (“PCT”) held on 6 October 2015. At the hearing, Mr Ham was found liable to disciplinary action and was excluded from membership of CAANZ. In particular, he was found to have breached several CAANZ by-laws, based on Philippides J’s judgment and findings at first instance as well as the judgment of the Court of Appeal.[24]
[24] Exhibit 1, T Documents, T 3-22, Chartered Accountants Australia and New Zealand, findings of Professional Conduct Tribunal concerning Mr Ham dated 21 October 2015.
The Board’s request for an explanation and Mr Ham’s response
In its letter of 5 May 2016, the Board sought a written explanation from Mr Ham regarding the PCT’s findings.[25]
[25] Exhibit 1, T Documents, T 3-24-25, letter from the Tax Practitioners Board to Mr Ham dated 5 May 2016.
On 16 June 2016, Mr Ham lodged a renewal of registration application. In response to the question whether there were any matters or events that may affect his good fame, integrity and character, including whether he had been subject to any disciplinary action by a relevant professional body, Mr Ham stated “yes”. He advised that he was the subject of a PCT hearing which resulted in his exclusion from membership of CAANZ. He said that he had furnished a detailed response to the Board.[26]
[26] Exhibit 1, T Documents, T 3-19-21, Mr Ham’s online application for renewal of registration.
Mr Ham’s explanation was set out in his letter to the Board of 15 June 2016.[27] He stressed that he had not been convicted of any offence, particularly one involving fraud or dishonesty.
[27] Exhibit 1, T Documents, T 3-26-28, Mr Ham’s letter to the Tax Practitioners Board dated 15 June 2016.
He stated that personally he found the legal arguments very complex, and even then, had difficulty fully comprehending the decision and reasons. Attaching a copy of submissions by his counsel at the Supreme Court hearing, he said that Themis had never pleaded that Canehire had breached its fiduciary duties by applying to acquire the property. Because of that, his counsel did not consider it relevant to introduce evidence against that contention. As a consequence, he said that the judge made findings without the benefit of allowing evidence to be introduced. Nor was it pleaded, or put to him, that he had deliberately acted wrongly or unconscientiously. Had he been afforded the opportunity to provide evidence on all matters, he said that the judge would not have made adverse findings against him. He questioned how the judge could make an adverse finding about his state of mind given the “mass of documentary” evidence and his personal testimony. Addressing the PCT’s statement that Philippides J’s findings were not overturned on appeal, he said that the appeal was conducted with respect to legal questions only and no new evidence could be introduced. Consequently, the Court of Appeal was not in a position to make a finding concerning him.[28]
[28] Ibid.
As to the PCT’s findings, he stated that he made it clear at the PCT hearing that he had settled the legal proceedings and that the settlement agreement contained both confidentiality and “no disparagement” clauses. His primary defence to the disciplinary charges was to argue that Philippides J made erroneous findings as she did not have all the facts “with the most persuasive of those being disparaging of the character of the plaintiffs”. As he was not prepared to breach his settlement agreement, he said he was denied natural justice. Mr Ham also pointed out that he had not appealed the PCT decision, as he had firmly resolved to put the episode behind him.[29]
[29] Ibid.
Mr Ham contended that he was a fit and proper person to be a tax agent and that if the Board disagreed, an appropriate penalty should be a letter of caution.[30]
[30] Exhibit 1, T Documents, T 3-28, Mr Ham’s letter to the Tax Practitioners Board dated 15 June 2016.
The Board’s decision
At its meeting on 13 October 2016, a committee of the Board, acting on the delegated authority of the Board, considered Mr Ham’s application for renewal of registration as a tax agent, and decided to reject it. That was on the ground that, in considering the renewal application, the Board was not satisfied that Mr Ham met the prescribed “fitness and propriety” requirement for registration as an agent, as set out in s 20-5(1)(a) of the Tax Agent Services Act 2009 (Cth) (“TAS Act”). In particular, it noted that Philippides J had found that Canehire had breached its fiduciary duties; that Mr Ham, as Canehire’s directing mind, was knowingly concerned in the breach of duty and trust by Canehire; and that Mr Ham consciously acted dishonestly in paying away the proceeds of sale. Those practices were considered to be unethical.[31]
[31] Exhibit 1, T Documents, T 1-8-13, letter from Tax Practitioners Board to Mr Ham dated 26 October 2016.
Mr Ham seeks a review of that decision by the Tribunal.
ISSUES FOR THE TRIBUNAL
The issues which fall for my determination are :
(a)whether Mr Ham is a “fit and proper person” within the meaning of the TAS Act; and
(b)whether Mr Ham is eligible for registration as a tax agent pursuant to s 20-5(1) of the TAS Act.
The assessment of whether an applicant is a “fit and proper person” is made at the time of the decision; present fitness, not fitness at the time of the unsatisfactory conduct, is relevant.[32] Therefore, the Tribunal may have regard to facts and circumstances occurring after the Board made its decision.[33]
[32] See SRBP and Tax Practitioners Board [2016] AATA 456, [41] (SM O’Loughlin).
[33] See Shi v Migration Agents Registration Authority (2008) 235 CLR 286, at [99] (Hayne and Heydon JJ); at [143] (Kiefel J); and Crennan J agreeing at [117].
THE LEGISLATIVE FRAMEWORK
The starting point for a consideration of the relevant legislative provisions is s 2-5 of the TAS Act, which describes the Act’s object as “to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct.”
Part 2 of the TAS Act deals with the registration of tax agents, BAS agents and tax (financial) advisers. Their registration requirements are set out in Subdivision 20-A.
Section 20-5 is concerned with eligibility for registration. It relevantly provides that an individual aged 18 years or more is eligible for registration if the Board is satisfied that, amongst other things, he or she is a “fit and proper person”.[34] A company is eligible for registration if the Board is satisfied that, amongst other things, each director of the company is a fit and proper person.[35]
[34] See Tax Agent Services Act 2009 (Cth), s 20-5(1)(a).
[35] Ibid, s 20-5(3)(a).
In deciding whether it is satisfied that an individual is a fit and proper person, the Board must have regard to, amongst other things, whether the individual is “of good fame, integrity and character.”[36]
[36] Ibid, s 20-15(a).
Under s 20-25(1) of the TAS Act, the Board is required to grant registration (or renewal of registration[37]) if the applicant is eligible for registration of the particular type. Otherwise, the Board must reject the application. The onus of proof in establishing fitness and propriety therefore rests with the agent.[38]
[37] Ibid, s 20-50.
[38] See Tax Practitioners Board Explanatory Paper TPB (EP) 02/2010 Fit and proper person (updated on 9 March 2017) [101].
Part 3 of the TAS Act contains the Code of Professional Conduct. Section 30-35(1)(a) provides that an individual who is relevantly registered must notify the Board in writing whenever he or she ceases “to meet one of the tax practitioner registration requirements”.
THE LEGAL PRINCIPLES
Fitness and propriety
Although s 20-15 of the TAS Act sets out matters that the Board is to have regard to when deciding whether it is satisfied that an individual is “fit and proper”, that phrase is not otherwise defined in the TAS Act. It has, however, been the subject of much consideration by both this Tribunal and the courts in not dissimilar contexts.
In Hughes and Vale Proprietary Limited v New South Wales (No 2), Dixon CJ, McTiernan and Webb JJ noted that the expression’s purpose “is to give the widest scope for judgment and indeed for rejection”.[39]
[39] (1955) 93 CLR 127,156.
In Australian Broadcasting Tribunal v Bond, Toohey and Gaudron JJ made the following observations:
The expression “fit and proper person”, standing alone, carries no precise meaning. It 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 likely future conduct) or reputation (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.[40]
[40] (1990) 170 CLR 321, 380.
The functions of tax agents relevant to the question of fitness and propriety were considered by Davies J in Re Su and The Tax Agents’ Board of South Australia (“Su”):
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 competence 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.[41]
[41] (1982) 13 ATR 192, 195. Emphasis added.
Subject to one qualification, that Davies J stated too narrowly the functions of a tax agent by limiting them to the preparation of returns, the above comments in Su were cited with approval by Hill J in Stasos v Tax Agents’ Board of New South Wales (“Stasos”).[42] His Honour observed that besides dealing with his or her client, a tax agent would, almost invariably, have dealings with officers of the Australian Taxation Office (“ATO”) and perhaps boards and tribunals such as this Tribunal or the then Tax Agents’ Boards. He added:
Those dealings must be able to be carried on in an atmosphere of mutual trust. The Commissioner and his officers must be able to accept that, to the best of the ability of the tax agent, returns have been prepared which are true and accurate. This is particularly so now that the Commissioner has proceeded to a system of self assessment, with inaccuracies only coming to light in case of random audit or, presumably, other information coming to the hands of the Commissioner.[43]
[42] (1990) 21 ATR 974.
[43] Ibid, at 984. Emphasis added.
The relevant conduct need not occur directly in the course of professional practice as a tax agent to impact adversely on the agent’s fitness and propriety. Acts may be “sufficiently closely connected” with the actual practice that they demonstrate the presence of qualities (such as dishonesty or deception) that are inconsistent with fitness and propriety to practise as a registered tax agent.[44]
[44] See Tax Practitioners Board Explanatory Paper TPB (EP) 02/2010 Fit and proper person (updated on 9 March 2017), [108]; and Re Kerin and Tax Agents’ Board (SA) (2009) 113 ALD 530 (SM Dunne).
Contrition and insight
Whether an individual agent has understood the error of his or her ways, or demonstrated contrition, is relevant to the question of fitness and propriety.
In rejecting an appeal from a decision of the Tribunal upholding the cancellation of the tax agent’s registration, Hill J in Stasos made the following observations, which are pertinent to the situation, as here, where there is some significant time between the alleged offending conduct and the decision concerning registration:
Where the issue is whether a person, who has been guilty of misconduct is at a time somewhat after that misconduct a fit and proper person to exercise a particular occupation carrying with it privileges and responsibilities, it will be relevant whether that person has understood the error of his ways. Failure to do so would, of itself, demonstrate his unfitness: NSW Bar Assoc v Evatt (1968) 117 CLR 177 at 184. Thus, where a legal practitioner has been struck off and subsequently seeks readmission to the profession, he may lead evidence that he has redeemed his earlier errors and demonstrate that they did not reflect any permanent defect in character: Ex parte Lenehan (1948) 77 CLR 403 at 424. It will as Lenehan demonstrates, be a step on the way, to show that the applicant now understands that what he did was in error. Failure to admit the error of his ways, and thereby to show his contrition was fatal to the application made by Mr Clyne to be readmitted: see Ex parte Clyne...
It may be noted that in the proceedings in the Supreme Court in Clyne, Sugerman J said at 8 of his Honour’s judgment:
The court must be convinced that there has been a complete repentance and a determination to persevere in honourable conduct – see In re Weare [1893] 2 QB 439 at 447.[45]
…a person who has been shown to be other than a fit and proper person to be registered must satisfy the Tribunal considering his re-registration or cancellation of his registration as the case may be, that he appreciates the significance of his wrongdoing, 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.[46]
[45] Stasos v Tax Agents’ Board of New South Wales (1990) 21 ATR 974, at 983. (Hill J). Some case citations omitted. Emphasis added.
[46] Ibid, at 985. Emphasis added.
The Tribunal is entitled to count belated expressions of regret or contrition as insufficient to satisfy the Stasos test; it suggests ambivalence on the agent’s part about that conduct.[47]
THE EVIDENCE
[47] See Carter and Tax Practitioners Board [2017] AATA 528, [58] (DP Humphries).
The Board’s case
The Board’s case was based on the findings of the Supreme Court, the PCT findings and the CAANZ decision, and Mr Ham’s failure to disclose those matters to it earlier. No oral evidence was led by it at the hearing.
Mr Ham’s evidence
Mr Ham provided a statement, the contents of which he attested to on oath when called to give evidence at the hearing.[48]
[48] See Exhibit 5, witness statement of Philip Robert Ham dated 12 July 2017.
He stated that Mr Holzapfel told him in early 2002 that the leasehold of the Fison Avenue land could be converted to freehold at the end of that year, but the leasehold would not be extended. Unless the property was converted, all improvements on the land would be forfeited to the Crown. Mr Holzapfel’s family were unable to convert the land due to their financial circumstances.[49]
[49] Ibid, [19].
Mr Ham remained of the belief that he and Mr Holzapfel had a conversation concerning the freeholding, which resulted in the agreement that he could “deal with the property for my benefit and not for the (HPT)”.[50]
[50] Ibid, [20].
He stated that during the Supreme Court hearing, Mr Holzapfel denied that conversation took place, and that Philippides J accepted Mr Holzapfel’s version of events. Mr Ham continued:
I fully accept that the Judge was entitled to decide as to her findings of fact and her decision according to law. However, since the Judge did not find that I lied, I can maintain my version of events without any disrespect to the Judge’s findings of fact. There is no inconsistency between her findings and my belief that I told the truth.[51]
[51] Ibid, [21].
As the Holzapfels were unable to freehold the property, Mr Ham viewed the freeholding as an opportunity for him to recover a bank debt over the property of about $300,000.00 which he had paid to the bank when it threatened recovery action against Canehire in about June 2000, together with professional fees owed of approximately $200,000.00:
As the clients were unable to freehold the property, I did not consider that I was taking an opportunity from them. It was my assumption at the time that if the opportunity was not available to the client, then there were no ethical reasons why I could not pursue the opportunity.[52]
[52] Ibid, [22].
Mr Ham said that in the course of the litigation, he learnt that his understanding was incorrect and that:
…the opportunity to freehold the property should only have been pursued by (Canehire) for the client’s benefit. As their accountant, I should have used all my professional skills and proceeded ethically to try and obtain any benefit from freeholding to the benefit of my client. It was irrelevant that the client could not pursue the opportunity in their own right.[53]
[53] Ibid, [23].
As to obtaining the consent of all the beneficiaries, Mr Ham said that in all his dealings with Mr Holzapfel, the latter always spoke on behalf his family for all financial matters. Mr Ham therefore thought at the time of their agreement that it was enough for him to obtain Mr Holzapfel’s consent. Since that time, Mr Ham said that he is now aware that the consent of all beneficiaries of the HPT should have been obtained and that Mr Holzapfel’s consent alone was not sufficient.[54]
[54] Ibid, [24]
Mr Ham went on:
It is not an exaggeration to say that there is not a day that does not pass without my thoughts returning to this Case and the outcome. Initially I was angry and upset about the decision by the Court. However, with the passing of time, I have gradually become capable of viewing the whole affair objectively. I now unreservedly accept the Court’s decision and simply stated, believe it was my fault that the Case occurred at all. I should never have entertained any course of action which could result in a benefit to me.[55]
[55] Ibid, [26].
In all future dealings for clients, Mr Ham said that “there is no room in my thought processes of ever obtaining a benefit for me. It is only the client’s benefit which I will pursue.”[56] He observed that the Holzapfel matter was unique, in that none of his companies have ever acted as trustee for any other client’s trust, or operated their business. Nonetheless, he has implemented policies whereby trusteeships of client trusts or businesses will not be accepted and there will be no mixing of his personal affairs with those of a client, “as they need to (be) kept separate”.[57]
[56] Ibid, [27].
[57] Ibid, [28].
In his statement, Mr Ham said that if he were refused registration, his practice could not continue to operate. The age of his clientele (about his age, 62 years, or older) would be a major factor in his attempt to sell the practice.[58] Having regard to his age and CAANZ’s exclusion decision, he considers he would be unlikely to find employment (he plans to retire after age 70).[59] However, during cross-examination by the Board’s counsel, he conceded that he could work under the supervision of a registered tax agent.[60]
[58] Ibid, [11] and [29].
[59] Ibid, [30].
[60] Transcript of proceedings dated 9 August 2017, page 6, lines 14-16.
His settlement with Themis left him and his wife with a significant debt which they paid off by recourse to their superannuation. His wife suffers from a progressive chronic disease. Their unit has been modified accordingly to meet her needs. If he were unable to practise, Mr Holzapfel believes they would have to sell their home.[61]
[61] Ibid, [33]-[35].
Since 1981, he recalls only two other complaints having been made against him. It appears that neither proceeded further.[62]
[62] Ibid, [31]-[32].
During cross-examination by the Board’s counsel, Mr Ham said that he did not disclose this matter to the Board because he did not consider himself not to be fit and proper.[63]
[63] Transcript of proceedings dated 9 August 2017, page 7, lines 23-24.
Asked about his response to the Board’s letter, Mr Ham agreed that he did not express any understanding of what he did wrong. Nor did he express any contrition or remorse. He accepted that nowhere in the letter did he accept the decisions of either the Supreme Court or CAANZ; rather, he complained that he wasn’t treated fairly by the courts. He was asked whether at the time he wrote the letter, he was still angry and incapable of viewing the matter objectively. He said that he thought he had gone past the stage of being angry and upset. Following the decision, there was a “continuing evolution”. Although he could not name a day, he said it would have been in September/October 2016 that he realised that it was his fault that the matter occurred.[64]
[64] Ibid, page 7, lines 46-47 and page 8, lines 1-39.
Later in the cross-examination, Mr Ham denied having done anything dishonest. However, he did not accept that he believed that he did not do anything unethical.[65] Questioned as to whether he accepted that he was technically in breach of trust but that he did not think he was dishonest, Mr Ham replied:
I’m not sure I agree with the word “technically” because a breach of trust but I do not agree I was dishonest.[66]
[65] Ibid, page 11, lines 16-20.
[66] Ibid, page 12, lines 25-28.
Mr Ham also lodged several references, variously from: his firm’s superannuation funds’ auditor;[67] a lawyer who has acted for him and his associated entities, as well as having worked closely with him on a number of transactions for mutual clients;[68] a long-standing client and family friend;[69] and his parish priest.[70] All speak favourably of his character.
THE PARTIES’ SUBMISSIONS
[67] Exhibit 6, Statement of William J Lucas dated 12 July 2017.
[68] Exhibit 7, Statement of Steve Miotti dated 19 July 2017.
[69] Exhibit 8, Statement of Annie Fredericks, undated.
[70] Exhibit 9, Statement of Fr Leo Coote, undated.
Mr Ham’s submissions
Mr Ham’s counsel submitted that, although it is not bound by the rules of evidence, the Tribunal should treat Philippides J’s findings as having “minimal probative value” and as “statements of opinion which are irrelevant to the proceedings” before the Tribunal.[71]
[71] Outline of Argument for the Applicant, undated, [25].
He therefore submitted that the only evidence before the Tribunal as to the terms of the agreement was that of Mr Ham (as outlined in his statement referred to above): that he could deal with the property for his benefit and not for the HPT. It was said that there is no basis on which the Tribunal could find that any agreement other than that contended by Mr Ham was made.[72]
[72] Ibid, [29].
Mr Ham’s maintaining that his evidence in the Supreme Court trial was truthful was said not to involve any challenge to Philippides J’s findings, or any disrespect to her Honour. That was because her Honour did not make any finding to the effect that Mr Ham lied in his evidence. Rather, it was said that her Honour should be understood as having found only that it was more probable that the agreement contended for by Mr Holzapfel had been made than that advanced by Mr Ham.[73]
[73] Ibid, [30].
Counsel also submitted that Philippides J’s findings, namely that Mr Ham knew that the sale proceeds lawfully belonged to the beneficiaries and that he was acting dishonestly in paying them to SEPD, were an extrapolation from her finding that the agreement was that Canehire would acquire the freehold as trustee for the HPT. That was itself an extrapolation from her Honour’s finding on the credibility of the witnesses. For that reason, too, it was said there was no basis on which the Tribunal could properly find that Mr Ham was knowingly concerned in any breach of trust or duty or that he consciously acted dishonestly.[74]
[74] Ibid, [31].
Further, it was said that it could not be properly inferred from Mr Ham’s involvement in the Canehire transaction that he has a general proclivity for attempting to take for himself the benefit of opportunities that his clients have to profit from their property. The Fison Avenue transaction was a unique set of circumstances. Therefore, it was submitted that Mr Ham’s conduct was unlikely to be repeated; it could not be contended that there is a need to protect the public against such a repetition.[75]
[75] Ibid, [32].
As to detriment, counsel submitted that there is no real prospect that Mr Ham will cause harm to the public if his registration is renewed. Rather, he and his wife would suffer severe hardship if renewal were refused.[76]
[76] Ibid, [33]-[36].
On the question of insight into his conduct, Mr Ham’s evidence was that he did not see himself as depriving his client of the opportunity to acquire the freehold; he assumed that since the opportunity was not available to the client, there was no ethical reason to prevent him from pursuing the opportunity for himself. That, counsel submitted, was a reasonable assumption to make and does not indicate any lack of ethical standards on Mr Ham’s part.[77] Mr Ham‘s evidence was that in the course of the litigation, he learned that his previous assumption was wrong. Therefore, it was contended that even if similar circumstances arose again, the experience he gained from the Canehire transaction provides a further reason to conclude that his conduct will not be repeated.[78]
[77] Ibid, [37].
[78] Ibid, [38].
As to contrition, counsel submitted that there is no reason to doubt the sincerity of Mr Ham’s statement, that his conduct in the Canehire transaction has occupied his mind for many years and that he regrets the distress that he caused to the Holzapfel family.[79]
[79] Ibid, [39]-[40].
The Board’s submissions
Counsel for the Board submitted that the present case is about trust – not necessarily in the legal or equitable sense, but in the ordinary sense of the word as emphasised by decisions such as Su and Stasos.[80]
[80] Transcript of proceedings dated 9 August 2017, page 19, lines 16-47 and page 20, lines 1-2.
The Board’s case was that because of the Supreme Court findings, his failure to disclose such matters, and his continued lack of acceptance, contrition and insight, Mr Ham is not a fit and proper person.[81]
[81] Ibid, page 20, lines 7-13.
As to the Court’s findings, counsel submitted that the Tribunal is not bound by the rules of evidence, and that past decisions of the Tribunal[82] had accepted the findings of earlier courts where they went to matters relevant to the determination of issues. As such, he said that the Tribunal should adopt the facts as found by Philippides J. Counsel did acknowledge, however, that to the extent that her Honour made comments as to Mr Ham’s credibility as a witness, the Board was not suggesting that I adopt those same findings.[83]
[82] Re Grosfeld and Tax Practitioners Board (2014) 94 ATR 643 (SM Redfern); and Kishore and Tax Practitioners Board [2017] AATA 271 (DP Frost).
[83] Transcript of proceedings dated 9 August 2017, page 20, lines 25-27 and 30-35.
Taking me to specific paragraphs in her Honour’s judgment,[84] it was said that it was wrong, and an understatement, to characterise the finding as one of simply preferring the evidence of one witness over another; there was a finding of actual dishonesty.[85]
[84] Exhibit 1, T Documents, T3-104-108, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [202], [204], [206], [211] and [224].
[85] Transcript of proceedings dated 9 August 2017, page 21, lines 5-47, p 22 lines 1-25.
Based on the passages referred to me, counsel submitted that the proper characterisation of the Supreme Court’s finding is that Mr Ham acted knowingly; dishonestly; contrary to the interests, agreement and instructions of his client; in breach of his fiduciary duties; and in breach of his instructions. In so doing, he secured a financial benefit for himself and his business partner.[86]
[86] Ibid, page 22, lines 27-34.
Counsel submitted that although the matter concerned one transaction, it involved a course of conduct over almost seven years; the conduct was serious and protracted.[87]
[87] Ibid, page 22, lines 36-39 and Exhibit 11, Submissions of the Board dated 7 August 2017, [44].
The Board also relied on Mr Ham’s failure to earlier disclose to it the Supreme Court and Court of Appeal judgments and the CAANZ decision as a matter counting against him.[88]
[88] Exhibit 11, Submissions of the Board dated 7 August 2017, [50].
As for contrition and insight to his conduct, it was said that Mr Ham’s statement was made late in the proceeding and is at odds with the attitude that he had maintained since the Supreme Court proceedings. In short, the Board submitted that the expression of contrition and insight was not genuine and failed to satisfy the test in Stasos.[89]
[89] Ibid, [51] and [52].
The statements of character witnesses were said to be of a general character and should be given limited weight.[90]
[90] Ibid, [47] and [48].
The Board therefore maintained that its decision should be affirmed.
CONSIDERATION
The evidentiary matter
The Tribunal is not bound by the rules of evidence, but may “inform itself on any matter in such manner as it thinks appropriate”.[91]
[91] Administrative Appeals Tribunal Act 1975 (Cth), s 33(1)(c).
While acknowledging that the Tribunal is not bound by the rules of evidence, Mr Ham’s counsel submitted that those rules should not be departed from except for good reason.[92] To depart from them is to “put aside a system which is calculated to produce a body of proof which has rational probative force”.[93] As Evatt J remarked in R v War Pensions Entitlement Appeals Tribunal; Ex parte Bott:
No tribunal can, without grave danger of injustice, set them (the rules of evidence) on one side and resort to methods of inquiry which necessarily advantage one party and necessarily disadvantage the opposing party. In other words, although rules of evidence, as such, do not bind, every attempt must be made to administer “substantial justice”. [94]
[92] Outline of Argument for the Applicant, undated, [17].
[93] Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 26 ALR 247, 256 (Brennan J, President).
[94] (1933) 50 CLR 228, 256 (Evatt J).
Mr Ham’s counsel also referred me to the decision of the Federal Court in National Mutual Life Association of Australasia Ltd and Others v Grosvenor Hill (formerly Hillier, Parker (Qld) Pty Ltd and Another,[95] which considered the extent to which use may be made of findings of fact in a civil judgment. After referring to s 91 of the Evidence Act 1995 (Cth), Cooper, Whitlam and Tamberlin JJ cited the rationale for the section set out in the Australian Law Reform Commission’s Interim Report No. 26:
It is recommended that a civil judgment not be admissible to prove the facts on which it is based. Its probative weight is considerably less than that of a conviction. It is founded upon the evidence chosen by the parties, who are not obliged to make available all known relevant evidence, as is a Crown Prosecutor. Further, the standard of proof is merely upon balance of probabilities and so there may be little to distinguish a successful or unsuccessful action by a plaintiff. The disadvantages of admitting evidence of a civil judgment (the potential for waste of time and costs in investigating the judgment, and the greater likelihood of challenge to the evidence) outweigh the minimal probative value of the evidence. An exception is made, however, in respect of grants of probate and letters of administration – as is the case in most jurisdictions.
Their Honours then turned to the matter before them:
The observations of White J as to the conduct of Richardson, his reliability as a witness, and as to the adequacy of the available documentation in proceedings between different parties as to different valuations made by different valuers at different points in time, even if there are some factual overlaps between the two proceedings, are in truth statements of opinion which are irrelevant to the proceedings in this court: Hollington v F Hewthorn & Co [1943] KB 587 at 594-7…; Land Securities Plc v Westminster City Council [1993] 1 WLR 286 at 288.[96]
[95] (2001) 183 ALR 700, [45]-[50] (Cooper, Whitlam and Tamberlin JJ).
[96] Ibid, at 715, [48]-[49]. Some case citations omitted.
Based on that decision, Mr Ham’s counsel submitted that, in making use of Philippides J’s findings, I should treat them as having “minimal probative value” and as statements of opinion which are irrelevant to the proceedings before the Tribunal. It was said that is particularly significant in the present case, where the Tribunal would require clear and cogent evidence before it could properly find that Mr Ham had been knowingly concerned in any breach of trust or duty or that he consciously acted dishonestly.[97]
[97] Briginshaw v Briginshaw (1938) 60 CLR 336, 362 (Dixon J).
By way of response, the Board’s counsel reiterated the wording of s 33(1)(c) of the Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”), saying that the Tribunal is entitled to rely on the findings of the Supreme Court in the Supreme Court judgment as evidence for its own findings.[98] He drew my attention to two decisions of the Tribunal which accepted findings of fact made by the Supreme Court of New South Wales.[99] However, it appears that, unlike here, no objection was taken to that course.
[98] Exhibit 11, Submissions of the Board dated 7 August 2017, [16].
[99] Re Grosfeld and Tax Practitioners Board (2014) 94 ATR 643 (SM Redfern); and Kishore and Tax Practitioners Board [2017] AATA 271 (DP Frost).
As mentioned already, s 33(1)(c) of the AAT Act provides that the Tribunal may inform itself on any matter in such manner as it thinks appropriate. In considering what is the “appropriate” manner, it is necessary to have regard to the circumstances of the particular case, as well as the Tribunal’s objective set out in s 2A of the AAT Act. That section provides:
In carrying out its functions, the Tribunal must pursue the objective of providing a mechanism of review that:
(a)is accessible; and
(b)is fair, just, economical, informal and quick; and
(c)is proportionate to the importance and complexity of the matter; and
(d)promotes public trust and confidence in the decision-making of the Tribunal.
There is no doubt that the Supreme Court proceeding involved a number of complex issues concerning Mr Ham’s conduct over a protracted period of time. It is apparent that numerous witnesses were called, relating to events that occurred between five and 11 years (or more) earlier. The hearing ran for over 12 days during August and October 2013. Mr Ham and Canehire were represented by senior and junior counsel, as was Themis.
Having regard to those factors, the question arises as to what is the “appropriate” means by which the Tribunal can inform itself about the matters relating to Mr Ham’s conduct in the Fison Avenue transaction.
Clearly, the most expeditious and efficient means by which the Tribunal can inform itself is by reference to the Supreme Court findings. It would be costly and time consuming to effectively conduct a re-hearing of those proceedings, even on a limited basis. Assuming the key witnesses are still available, considerable doubts would be raised as to their recollections of events that unfolded over a protracted seven year period a decade or more ago.
Those considerations need to be weighed against the potential for unfairness or injustice to Mr Ham in the Tribunal relying on the Supreme Court’s findings as evidence for its own findings. I believe that the potential for unfairness or injustice is reduced, given that Mr Ham was actively engaged in both proceedings and was represented by experienced counsel in both. He now “unreservedly” accepts the court’s decision and fully accepts that Philippides J “was entitled to decide as to her findings of fact and her decision according to law”. To the extent that he wished to refute her Honour’s adverse findings against him, it was open to Mr Ham to lead further evidence (as he contemplated in the PCT hearing).
Taking into account those various considerations, I believe that the Tribunal is entitled, in this instance, to rely on the findings of the Supreme Court as evidence for its own findings.
That raises the next question, as to what specific findings are sought to be relied upon.
What use is to be made of the Supreme Court findings?
The Board’s case
Counsel for the Board submitted that the facts as found by Philippides J should be adopted by the Tribunal.
In saying that, he partially accepted the submissions of Mr Ham’s counsel that, to the extent that her Honour had made some comments about Mr Ham’s credibility as a witness, I was not being asked to make those same findings about credibility.[100] The Board said that it was wrong to attempt to explain away the Supreme Court decision by saying that it was simply a matter of Mr Holzapfel’s evidence being favoured over that of Mr Ham; her Honour in fact found actual dishonesty on the part of Mr Ham.[101]
[100] Transcript of proceedings dated 9 August 2017, page 20, lines 25-27 and 30-35.
[101] Ibid, page 20, lines 37-42 and page 21, lines 5-11.
The background to that finding of dishonesty is found in cl 24(b) of the relevant trust deed. It excluded the trustee’s liability for any breach of duty or trust unless the breach “shall be proved to have been committed, given or omitted in personal conscious bad faith, by the Trustee”.[102] Having already found that Canehire acted in breach of its fiduciary duty and in breach of trust by paying away the profits derived from the sale of the property, and that Mr Ham, as Canehire’s directing mind, was knowingly concerned in those breaches, the question for Philippides J was whether Mr Ham exhibited personal conscious bad faith.[103]
[102] See Exhibit 1, T Documents, T3-105, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [212].
[103] Transcript of proceedings dated 9 August 2017, page 21, lines 16-29.
In support of his submissions, counsel took me to the specific paragraphs of the judgment on which the Board relied. For completeness, and at the risk of repetition, I set out those paragraphs in full below.
In paragraph [202] of the judgment, Philippides J found as follows:
I find that Mr Ham did not tell Mr Holzapfel that Canehire would not be exercising the entitlement that he knew rested in Canehire on behalf of the HPT to apply for the freehold of the property. He did not tell Mr Holzapfel and it was not agreed that the freehold would be taken by Canehire in its own right. He did not inform Mr Holzapfel that he would involve a partner, who would be entitled to receive a share, let alone 50 per cent, of the net proceeds of sale before any payment to the HPT. Mr Holzapfel was not told of Mr Kempnich before 2008.[104]
[104] See Exhibit 1, T Documents, T3-104, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [202].
In paragraph [204], her Honour stated:
In short, Mr Ham kept Mr Holzapfel in the dark about the manner in which he was dealing with the property. He did not explain the nature of the additional borrowings or provide updated valuations as they came to hand. To do so would have risked alerting Mr Holzapfel to the fact that the Fison Avenue property was being used as security to advance the property development interests of Mr Ham and his partner Mr Kempnich, about whom Mr Ham accepted he deliberately failed to inform Mr Holzapfel. Mr Ham only revealed that the HPT had no beneficial interest in the property and made the disclosure about Mr Kempnich when Mr Holzapfel and Simone (Mr Holzapfel’s daughter) confronted Mr Ham, in February 2008, armed with an agenda of issues and determined on resuming control by taking over the loan over the property.[105]
[105] Ibid, [204].
Her Honour found as follows in paragraph [206]:
I find that Mr Ham knew in 2002 that the terms of the agreement with Mr Holzapfel were that the freehold was to be acquired on trust for the HPT. That remained the position in 2008 when the Fison Avenue property was sold, prior to which he sought the consent of Mr Holzapfel, which was refused, and 2009 when the proceeds were distributed. When the proceeds were distributed to parties other than the beneficiaries of the HPT, Mr Ham was fully aware that he was acting contrary to what had been expressly agreed in 2002. There was nothing that transpired between 2002 and 2009 that altered the position as to his knowledge that the agreement reached with Mr Holzapfel was that the freehold was to be obtained on an express trust for the HPT.[106]
[106] See Exhibit 1, T Documents, T3-105, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [206].
After referring to authorities as to what is meant by the expression “personal conscious bad faith”, her Honour stated at paragraph [224]:
I am satisfied that Mr Ham, as the controlling mind of Canehire, was consciously acting dishonestly in paying away the proceeds of sale. He had actual knowledge that the proceeds lawfully belonged to the beneficiaries of the HPT (knowing full well the terms of the agreement with Mr Holzapfel were that the freehold was to be acquired for the HPT), that Mr Holzapfel had not consented to Canehire distributing the proceeds to any other party, and that he was acting contrary to the express trust constituted by the agreement in so doing. There is more than sufficient evidence to support that conclusion, including evidence already outlined that, unlike what occurred in 2000, that there was not a single document or note to substantiate Mr Ham’s version of the agreement and his memo that the FAUT not be disclosed on the title once Canehire acquired the freehold.[107]
[107] See Exhibit 1, T Documents, T3-108, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [224].
In summary, based on those passages, the Board’s counsel submitted that Mr Ham acted knowingly; dishonestly; contrary to his client’s interests, agreement and instructions; in breach of fiduciary duty; and in breach of instructions. In so doing, he secured a financial benefit for himself and his business partner, Mr Kempnich.[108]
[108] Transcript of proceedings dated 9 August 2017, page 22, lines 27-34.
Mr Ham’s case
Mr Ham’s counsel submitted that the only evidence before the Tribunal as to the terms of the agreement concerned in the Canehire proceedings is Mr Ham’s evidence, that Mr Holzapfel and he had a conversation in which they agreed that Mr Ham “could deal with the property for (his) benefit and not for the (HPT)”. It was said that Philippides J’s findings about the terms of the agreement do not constitute a sufficient basis for rejecting Mr Ham’s evidence and consequently, there is no basis on which the Tribunal could properly find that any other agreement was made.[109]
[109] Outline Argument for the Applicant, undated, [29].
Findings
I accept the submissions of the Board’s counsel that the Tribunal should adopt the specific findings of the Supreme Court quoted above. Those findings are clearly relevant to the issue before me in this proceeding, namely whether Mr Ham is a fit and proper person.
In my opinion, it is an oversimplification to characterise the Supreme Court findings as a case of Philippides J merely favouring the evidence of Mr Holzapfel over that of Mr Ham. Her Honour’s findings were reached after an exhaustive review of the entirety of the evidence, on a variety of levels.[110] I am satisfied that those findings provide a sufficient ground for rejecting Mr Ham’s evidence about making the agreement.
[110] See, for example, Exhibit 1, T Documents, T3-74 and 75, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [113] and [114]-[157].
It was open to Mr Ham to have called further evidence before the Tribunal in order to refute her Honour’s adverse findings against him. He failed to do so, notwithstanding his previous complaint that he was not afforded the opportunity to do so at the Supreme Court hearing.[111]
[111] See Exhibit 1, T Documents, T3-27, Mr Ham’s letter to the Board dated 15 June 2016.
Finally, for completeness, I note that the version of the agreement asserted by Mr Ham at the hearing before me (namely, that he could deal with the property for his benefit and not for the HPT) is silent with respect to two additional matters that were pleaded in what I understand was Mr Ham’s last Amended Defence (delivered on the third day of the Supreme Court hearing). That referred to a conversation between Mr Ham and Mr Holzapfel in which the former allegedly said that in the event that he made a profit from the sale of the property, and after a return on his investment, he would “consider making a payment to Mr Holzapfel”. Mr Holzapfel is said to have responded that he had “total trust and faith in Mr Ham”. Shortly after that conversation, it is alleged that another discussion took place between the two men, in which Mr Holzapfel asked if the property could be transferred back to him. Mr Ham is said to have responded that if Mr Holzapfel had the ability to fund the purchase, then he could.[112]
[112]Exhibit 1, T Documents, T3-53, Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38, [46].
I mention that here because, on his own pleaded case, Mr Ham acknowledged that Mr Holzapfel maintained interest in the fate of the property, and to that end, reposed his trust and faith in Mr Ham. Despite being aware of that fact, Mr Ham, to use Philippides J’s words, kept Mr Holzapfel “in the dark” about the manner in which he was dealing with the property, including the involvement of a business partner who would be entitled to 50 per cent of the net proceeds of sale before any payment to the HPT.
Is Mr Ham a fit and proper person?
Having regard to his conduct outlined in the Supreme Court findings, the question arises as to whether Mr Ham is a “fit and proper person” for the purposes of s 20-5(1)(a) of the TAS Act.
As mentioned earlier, that expression is not defined in the Act, although s 20-15 of the TAS Act offers some guidance. It provides that in deciding whether an individual is a fit and proper person, the Board must have regard to whether he or she is of “good fame, integrity and character”. The Macquarie Dictionary defines “integrity” as “soundness of moral principle and character; uprightness; honesty”,[113] while the Concise Oxford English Dictionary attributes the following meaning: “the quality of having strong moral principles”.[114]
[113] Macquarie Dictionary Publishers, 2017.
[114] Oxford University Press, 12th edition, 2011.
Questions of an individual agent’s fitness and propriety have also been considered by the courts and this Tribunal (and its predecessors) on various occasions, as I have discussed earlier.
The conduct concerning the Fison Avenue property
The sole reason for contending that Mr Ham is not a fit and proper person is his involvement in the Canehire transaction. There is no suggestion that he is not competent or that he lacks the necessary experience as a tax agent.
As found by the Supreme Court, Mr Ham deliberately dealt with the Fison Avenue property between 2002 and 2008 in a manner which he knew to be contrary to his agreement with Mr Holzapfel and in a manner where he kept Mr Holzapfel in the dark about the true nature of his dealing. He acted in breach of both his client’s instructions and his fiduciary duties. As a result, he derived a substantial financial benefit, to the detriment of the beneficiaries of the HPT. He put his own interests ahead of his client.
That conduct is all the more serious given that it occurred over such an extended period of time. Mr Ham had ample opportunity to reflect on his actions and to take steps to redress the situation he created.
Even on his own pleaded case, Mr Ham acted in a manner that kept Mr Holzapfel in the dark about the true nature of his dealing with the property.
I consider that Mr Ham’s conduct was inconsistent, not only with the qualities of strong moral principles, uprightness and honesty, but also with the “atmosphere of mutual trust”, spoken of in Stasos, that underpins the agent’s relationships with his or her clients, the ATO and the Board.
Assessment at the time of decision
That said, I am conscious of the fact that the Fison Avenue dealings occurred some nine to 15 years ago and that the assessment of whether a person is “fit and proper” is to be made at the time of the decision, rather than at the time of the unsatisfactory conduct or wrongdoing. As Hill J observed in Stasos, because a person is not considered fit and proper at the time of the wrongdoing does not mean that they will “for all time be unfit to be re-registered”. That raises questions as to whether, with time, the agent appreciates the significance of his wrongdoing and regrets it, that he has rehabilitated himself such that it is truly unlikely that there will be any lapse in the future of the standards required of him, and that he demonstrates genuine contrition.[115]
[115] Stasos v Tax Agents’ Board of New South Wales (1990) 21 ATR 974, 985.
The character witnesses’ statements
Before I deal with those matters, it is opportune to consider the statements of the four witnesses who spoke to Mr Ham’s character. While they were favourable to, and supportive of, Mr Ham, they were general in nature. Significantly, none of them made reference to the conduct which is the subject of this proceeding, even though Mr Ham said that he had received “uniform support from clients when this case is discussed”.[116] As Mahoney JA observed in Law Society of NSW v Foreman, character is tested “not by what one does in good times but in bad”.[117] With due respect to the referees, I place little weight on their statements.
[116] Exhibit 1, T Documents, T3-28, letter, Mr Ham to the Board dated 15 June 2016.
[117] (1994) 34 NSWLR 408, 449.
Insight and contrition
As regards Mr Ham’s insight and contrition, his counsel pointed to a number of paragraphs in his statement of July this year. In particular, Mr Ham said that at the relevant time, he did not consider that he was taking an opportunity from his clients as they were unable to freehold the property. However, in the course of the litigation, he said that he had learnt that was not correct and that the opportunity to freehold should only have been pursued by Canehire for the client’s benefit.[118]
[118] Exhibit 5, Mr Ham’s statement dated 12 July 2017, [22]-[23].
Mr Ham said that there is not a day that passes without his thoughts turning to the case. He said that while he was initially angry and upset about the Supreme Court’s decision, with the passage of time he had become capable of viewing the whole affair objectively. He now unreservedly accepts the court’s decision and accepts that it was his fault that the case occurred at all. He acknowledged that he should never have entertained any course of action which would result in benefit to him.[119]
[119] Ibid, [26].
Mr Ham stated that in all future dealings, “there is no room in my thought processes for ever obtaining a benefit for me. It is only the client’s benefit which I will pursue”.[120] He said that the Canehire matter was unique in that none of his companies have ever acted as trustee for any other client’s trust, or operated their business. Nevertheless, he had implemented policies whereby trusteeships of client trusts would not be accepted and that there would be no mixing of his personal affairs with those of a client as they needed to be kept separate.[121]
[120] Ibid, [27].
[121] Ibid, [28].
Counsel for the Board submitted that Mr Ham’s statements do not align with complete and genuine contrition and insight. Nor do they satisfy the test set out in Stasos. It was said that the concessions came late and were at odds with the attitude that Mr Ham had maintained since the Supreme Court proceedings, that he had committed no wrongdoing. His assertion that future misconduct would be prevented by the policies he had implemented oversimplified the conduct found by the court.[122]
[122] Exhibit 11, Board’s submissions dated 7 August 2017, [51] and [52].
I am not persuaded by Mr Ham’s expression of contrition and insight. I say that for several reasons.
First, the expression of contrition and insight was made late, some 13 months after his initial response to the Board’s letter and just under a month before the hearing. Mr Ham conceded that his response to the Board expressed no understanding of his wrongdoing, nor contained any expression of contrition or remorse.[123] He acknowledged that it contained no acceptance of the Supreme Court or CAANZ decisions, and indeed, effectively complained that he was not treated fairly by the courts.[124]
[123] Transcript of proceedings dated 9 August 2017, page 7, lines 46-47 and page 8, lines 1-2.
[124] Ibid, page 8, lines 5-9.
Second, there are a number of inconsistencies in Mr Ham’s explanations. For example, his expression of contrition and insight states that he “unreservedly” accepts the Supreme Court’s decision,[125] yet he continues to maintain his own version of events.[126] Elsewhere, Mr Ham says that while he initially did not consider that there were any ethical reasons why he could not pursue the freehold opportunity if the client was unable to, he acknowledges that “in the course of the litigation” (which presumably means some time prior to November 2014 when the Court of Appeal delivered its decision) he learnt that was incorrect. He realised that he should have used “all (his) professional skills and proceeded ethically to try and obtain any benefit from the freeholding to the benefit of (his) client”.[127] That revelation and acknowledgement did not prevent him from contesting the CAANZ disciplinary proceeding.[128] Nor did it stop him from contesting (in his Application for Review[129] and both his original and amended Statement of Facts, Issues and Contentions[130]) the Board’s finding that his practices had been unethical. Neither of those examples sits comfortably with a genuine expression of contrition or insight.
[125] Exhibit 5, Mr Ham’s statement dated 12 July 2017, [26].
[126] Ibid, [21].
[127] Ibid, [22] and [23].
[128] See Exhibit 1, T Documents, T 3-27 and 28, Mr Ham’s letter to the Board dated 15 June 2016.
[129] Exhibit 1, T Documents, T 1-6, Mr Ham’s Application for Review of Decision dated 21 November 2016.
[130] Exhibit 4, Mr Ham’s Statement of Facts, Issues and Contentions dated 19 April 2017, [7] and Exhibit 10, Mr Ham’s Further Amended Statement of Facts, Issues and Contentions dated 1 August 2017, [7].
I also agree with, and accept, the submission of counsel for the Board, that the assertion that future misconduct will be prevented by ensuring that “no trusteeships of client trusts or businesses will be accepted” oversimplifies the conduct found by the Supreme Court.[131] So, too, do I consider it an oversimplification to describe the Canehire transaction as a “singular” or “unique” event for which there is no need to protect the public against a recurrence.[132] That only serves to downplay Mr Ham’s deliberate course of conduct over the extended life of the transaction. This matter does not concern a single error or lapse of judgment, the recurrence of which can be guarded against by the implementation of appropriate policies and procedures. Rather, it goes to Mr Ham’s very character.
[131] Exhibit 11, Board’s submissions dated 7 August 2017, [51.3].
[132] Exhibit 10, Mr Ham’s Further Amended Statement of Facts, Issues and Contentions dated 1 August 2017, [14] and Exhibit 5, Mr Ham’s statement dated 12 July 2017, [28].
It follows from what I have said that I am not persuaded by Mr Ham’s expression of contrition and insight. Nor do I consider that it satisfies the test in Stasos.
Failure to disclose to the Board
Counsel for the Board submitted that Mr Ham’s failure to disclose to the Board the judgments of the Supreme Court and the Court of Appeal and the CAANZ decision weighed against his character.
I agree. At some stage during the litigation, Mr Ham realised that he had not acted in an ethical manner. He said that at the time, he did not disclose that matter pursuant to s 30-35(1)(a) of the TAS Act as he did not consider that he was not a fit and proper person. After having been engaged in lengthy litigation which resulted in serious and adverse findings being made against him, it is difficult to accept that Mr Ham did not think that it would have potential implications for his registration as a tax agent.
In any event, one would have thought that the PCT’s finding of multiple breaches of the relevant by-laws and the consequent decision to exclude him from CAANZ membership would have prompted Mr Ham to notify the Board. There is no excuse for his failure to do so.
Detriment to Mr Ham
Counsel for Mr Ham submitted that any perceived risk to the public from allowing Mr Ham to continue to practise as a tax agent must be balanced against the personal hardship that would result from refusal of registration.[133] In support of that proposition, he referred me to the decision of Santow J in Australian Securities and Investments Commission v Adler,[134] which was cited with approval by the Tribunal in Li and Tax Practitioners Board (“Li”)[135] in the context of the termination of a tax agent’s registration.
[133] Outline of Argument for the Applicant, undated, [33].
[134] (2002) ACSR 80.
[135] [2014] AATA 299.
It was said by Mr Ham’s counsel that while there is no real prospect that Mr Ham would cause any harm to the public if his registration were renewed, he and his wife would suffer severe personal hardship if renewal were refused.[136]
[136] Outline of Argument for the Applicant, undated, [33]-[36].
While I do not disagree with the factors outlined in Li, I believe they are more relevant to a consideration of the appropriate sanctions for a breach of the Code, rather than the issue here, which concerns registration or renewal of registration, and in particular, whether Mr Ham is a fit and proper person.
In any event, I agree with the submission of the Board’s counsel, that the principal purpose of the TAS Act’s provisions regarding registration of tax practitioners is to protect the public and maintain public confidence in the tax agent profession; it is not to punish misconduct or improper or unprofessional conduct.[137]
[137] Exhibit 11, Board’s submissions dated 7 August 2017, [53].
Conditions on registration
Mr Ham indicated that he would be prepared to abide by two conditions being imposed on his registration under s 20-25(5) of the TAS Act. The first condition was that he would furnish a written report to the Board on the last day of each month for a period of 12 months, identifying any transactions entered into by him or a related entity involving a dealing with property belonging to a client or its related entity. The second condition involved Mr Ham undertaking a Professional Development Business Ethics Training Course to be held on 24 November 2017.[138]
[138] Exhibit 10, Mr Ham’s Further Amended Statement of Facts, Issues and Contentions dated 1 August 2017, [17].
The Board submitted that the proposed conditions were not appropriate, for several reasons.[139]
[139] Exhibit 11, Board’s submissions dated 7 August 2017, [55].
First, and most importantly, it was said that the imposition of a condition is not designed to overcome the question of whether the applicant is a fit and proper person. The Tribunal must reach that conclusion independent of the proposed conditions; no conditions can render someone fit and proper if they have otherwise been found to not be so. I agree with, and accept, the Board’s submission on that point. The imposition of conditions is not intended to be an alternative avenue for an applicant who fails to satisfy the standard of fitness and propriety.
In any event, the Board added that the specific conditions proposed in this instance were not appropriate. The imposition of a condition on registration must relate to the subject area in respect of which the agent may provide tax agent services.[140] The proposed conditions are silent as to that matter.
[140] Tax Agent Services Act 2009 (Cth), s 20-25(6).
As to the first condition, it is said to be redundant because, according to his statement, none of Mr Ham’s companies have ever acted as trustee for any other client’s trust, or operated their business. Further, he has put in place policies whereby trusteeships of client trusts or businesses will not be accepted.
With respect to the second condition, the Board says that insufficient details of the proposed course have been provided. In any event, it is thought unlikely that such a course would remedy conduct where Mr Ham was found by the court to have been “consciously acting dishonestly”.
I do not disagree with those comments concerning the proposed conditions.
Summary
To summarise, I am not satisfied that Mr Ham is a fit and proper person. His conduct, over an extended period of time, was inconsistent with the qualities of moral soundness, uprightness and honesty that one would expect of a tax agent. Such conduct was, and is, incompatible with the “atmosphere of mutual trust” which underpins the relationships which tax agents have with their clients, the ATO and the Board.
Although the offending conduct happened some years ago, it was particularly serious, striking at the very heart of longstanding client and fiduciary relationships, not to mention friendship. While the conduct was concerned with dealings with the same property over an extended period of time, it is an oversimplification to describe the offending conduct as an isolated instance of lapse or error of judgment. Mr Ham had ample opportunity over the years to redress the wrongdoing. Far from doing that, he continued on his course of conduct and perpetuated the situation.
Confronted with Supreme Court litigation and then action by the CAANZ and the Board, Mr Ham remained defiant. There was no contrition or remorse, or any sign of introspection or insight as to his offending conduct until the hearing in this proceeding approached. By then, the statement of contrition and insight he gave was not only late but wanting. It failed to show genuine remorse and a true insight into his wrongdoing. Given that the conduct goes to the fundamental questions of character and trustworthiness, I believe that the risk of recurrence remains.
CONCLUSION
For the reasons outlined, I am not satisfied that Mr Ham is a fit and proper person within the meaning of the TAS Act. He is therefore not eligible for registration as a tax agent pursuant to s 20-5(1) of that Act.
Accordingly, I consider that the Board’s decision to reject Mr Ham’s application for renewal of registration as a tax agent was correct, and should be affirmed.
I certify that the preceding 144 (one hundred and forty -four) paragraphs are a true copy of the reasons for the decision herein of Senior Member A C Cotter
.................[sgd]............................................
Associate
Dated: 9 October 2017
Date of hearing: 9 August 2017 Counsel for the Applicant: Mr M Bland Advocate for the Applicant: Mr J Matthews Solicitors for the Applicant: QBM Lawyers Counsel for the Respondent: Mr M McKechnie Advocate for the Respondent: Ms J Mills
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