Iseppi and Tax Practitioners Board (Taxation)

[2020] AATA 1523

Iseppi and Tax Practitioners Board (Taxation) [2020] AATA 1523 (12 May 2020)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2020/2187

Re:Darryl Iseppi

APPLICANT

AndTax Practitioners Board

RESPONDENT

File Number(s):      2020/2188

Re:Satellite Accounting Pty Ltd

APPLICANT

AndTax Practitioners Board

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:12 May 2020

Place:Brisbane

The application for a stay of the decision is refused. The interim stay orders dated 17 April 2020 be discharged as of 5:00pm on 22 May 2020.

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Deputy President Bernard J McCabe

CATCHWORDS

PRACTICE AND PROCEDURE – stay application – whether stay necessary to secure the effectiveness of the hearing – whether the discretion to grant a stay enlivened – factors in favour of granting a stay – impact on applicant and other parties – factors against granting a stay – public interest – action taken in a regulated profession – evidence of financial loss – whether evidence sufficient to establish the business will fail and render the review nugatory – interim stay order discharged – stay refused

LEGISLATION

Administrative Appeals Tribunal Act 1975 ss 41, 43

Tax Agents Services Act 2009 ss 2-5, 40-5, 40-15

CASES

Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185

Scott and Australian Securities and Investments Commission [2009] AATA 798

REASONS FOR DECISION

Deputy President Bernard J McCabe

12 May 2020

1. The applicants have sought review of decisions made by the Tax Practitioners Board. While that review proceeds, they have asked the Tribunal to make orders under s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) staying the operation or implementation of the decisions. Interim orders were made under s 41(2) to preserve the status quo while the Tribunal dealt with the stay application. After hearing from the parties, I have decided against making further stay orders. My reasons for that decision are set out below. The interim stay orders will be discharged as of 5pm on 22 May 2020. That brief delay in the implementation of the decisions under review will assist the applicants to make arrangements for their clients.

2. It is possible the corporate applicant might identify a suitable individual to become a director and provide supervisory tax agent services within the practice. In that event, the corporate applicant is free to approach the Board and the Tribunal to make a fresh application for a stay. But that is a question for another day. For now, I should explain my reasons for the decision I have made.

   The reviewable decisions

3. Mr Darryl Iseppi is the sole director of Satellite Accounting Pty Ltd (Satellite). Both Mr Iseppi and Satellite are – or were – registered tax agents. Mr Iseppi has been registered since 1988. In the course of Satellite’s practice, Mr Iseppi provided tax agents’ services and business and superannuation advice to clients. In that past, he also provided auditing services to self-managed superannuation funds (SMSF).

4. The Commissioner of Taxation had concerns about the quality of Mr Iseppi’s taxation and auditing services following ATO audits of some of the applicants’ clients. In due course, the Commissioner referred those concerns to the Australian Securities and Investments Commission (ASIC). ASIC has since decided to terminate Mr Iseppi’s approval to act as an auditor of SMSFs. The Commissioner also referred his concerns to the Tax Practitioners Board. The Board made findings about Mr Iseppi’s conduct and decided he was no longer a fit and proper person to be registered as a tax agent. On the strength of those findings, the Board made a reviewable decision to cancel Mr Iseppi’s registration and prevent him from seeking registration for three years. That reviewable decision was made under s 40-5(1)(b) of the Tax Agents Services Act 2009 (the TAS Act). The decision of the Board was contained in a notice to Mr Iseppi dated 16 March 2020.

5. The Board also cancelled Satellite’s registration on the basis that its director was not a fit and proper person. Satellite is not prevented from seeking reregistration, but it will need somebody other than Mr Iseppi as a director. It will also need a new tax agent to supervise the tax agency work. The Board’s reviewable decision with respect to Satellite was made under s 40-15. The decision was notified to Satellite in a letter also dated 16 March 2020.

   The Board’s findings

6. The Board referred to a number of incidents described by the ATO in the course of its investigations and concluded Mr Iseppi failed to act competently and ethically in the discharge of his obligations. The Board noted four of Mr Iseppi’s clients were required to pay $2.2 million in unpaid tax, penalties and interest to the Commissioner as a consequence of the mistakes. The findings in relation to Mr Iseppi had consequences for Satellite.

7. Mr Iseppi said he was not afforded procedural fairness when the Board made its reviewable decision. Ms Corpe, who appeared for the applicants, said the Board rushed to judgment without properly consulting the applicants or conducting its own independent review. If it had engaged more effectively with the applicants, Ms Corpe explained, Mr Iseppi may have been able to explain or justify his actions.

   The stay power

8. A reviewable decision will ordinarily come into effect according to its terms notwithstanding that an applicant has sought review of the decision in the Tribunal: s 41(1) of the AAT Act. If a party to the review proceedings wants the decision stayed while the Tribunal does its work, that individual must make an application for a stay order under s 41(2). Section 41(2) permits the Tribunal to make orders “staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision”. The wording of the legislation makes clear the Tribunal has the power to fashion its orders to suit the circumstances of the situation – for example, by staying only part of the decision, or making the stay subject to conditions. It has also been accepted that the Tribunal’s power extends to making orders that restrain the decision-maker from publishing or recording the reviewable decision: see Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185 at [62], [68]-[70] per Downes and Jagot JJ.

9. The stay power in s 41(2) is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review”. Many applicants miss that requirement altogether. They focus on the hardship experienced by the applicant, or treat the purpose merely as one of several factors to be considered when deciding whether it is “desirable” to make the order. That is a mistake. The power in s 41(2) is not enlivened in the absence of the requisite purpose. Each application for a stay must explain how making a stay order would achieve the purpose before the discretion to make an order is enlivened.

10. When considering whether it is desirable to make an order, the Tribunal must take into account “the interests of any persons who may be affected by the review.” As it deliberates, the Tribunal will keep in mind the public interest and the legislation under which the reviewable decision was made. In a case like the present which involves occupational regulation, the Tribunal must be mindful of the statutory objectives and the functions of the regulator.

11. The decision of Downes J in Scott and Australian Securities and Investments Commission [2009] AATA 798 is often cited in stay applications. Downes J outlined an approach to stay applications (at [4]) which addresses a range of matters that are ordinarily relevant to the exercise of the power. His Honour’s reasoning should not be regarded as a checklist that can be substituted for the two-part enquiry required by s 41(2), but it does provide a convenient framework for dealing with these applications. I will deal with the matters his Honour discussed below.

    Prospects of success

12. A stay is more likely to be desirable where it is obvious the substantive case has good prospects of success. Where a case is obviously devoid of merit, that will weigh against making a stay order. But the assessment of prospects is rarely that clear-cut.

13. A stay application is typically made at the outset of the proceedings before any evidence has been submitted and before the statement of facts, issues and contentions has been filed. It is often difficult to assess the merits of the substantive case at that early stage. The Tribunal should not fill the gap by conducting a mini-trial in which it demands the applicant rehearse all of the evidence and arguments that will be made at the final hearing. But the Tribunal should be satisfied the case is arguable.

14. In this case, the applicants relied heavily on arguments about the Board’s failure to afford due process when it made the reviewable decisions. Attacking a reviewable decision on the basis of procedural fairness concerns is not always a productive strategy in the Tribunal. The Tribunal conducts a de novo review in which it steps into the shoes of the original decision-maker to remake the decision. Even if the original decision-maker made a mess of its task, the Tribunal can presumably cure those defects by doing the job properly the second time round.

15. The applicants argued that the ATO’s investigation focused on the issues with Mr Iseppi’s performance as an auditor, not a tax agent. While his performance as an auditor was relevant to ASIC’s decision, Mr Iseppi pointed out he is no longer acting as an auditor of SMSFs. He says the mistakes occurred a number of years ago and that he otherwise has a good record. The Board says the ATO investigation also uncovered problems in the provision of taxation and business advice, and argues the skills and qualities required of an auditor are not so far removed from those required of a tax agent in any event. The Board says the fact ASIC has already taken regulatory action tends to suggest the applicants will face difficulties on the merits.

16. Mr Iseppi says he has a good deal of evidence that he will produce in due course. That evidence will be directed to disputing the findings of fact, but also to argue the Board should not have deregistered the applicants.

17. The applicants’ case does not, at this point, seem especially promising. If I assume in the applicants’ favour that it is not a hopeless case because they may yet produce relevant evidence, I do not think this factor weighs heavily in favour of ordering a stay.

    The interests of the applicants and related parties

18. Mr Iseppi’s affidavit asserts the applicants’ business will be forced to close if the reviewable decisions are not stayed. He expects he and his family will suffer irreparable harm if that occurs. He says the applicants’ employees will be forced to find other work in a difficult economic environment, and the applicants’ clients will be disrupted by the need to find a new tax agent. Ms Corpe pointed out that is no small thing in circumstances where businesses are already struggling in the face of the pandemic.

19. Mr McGlade, who appeared for the Board, was critical of the evidence Mr Iseppi offered in support of his assertion that disaster would rapidly ensue if the stay were not ordered. Mr McGlade pointed out there was some evidence on the Satellite website suggesting it conducted a range of business activities. Only one of its employees was a tax agent, after all. Some of the other business activities might not be impacted if the stay were denied. I was also told it would be unsafe to assume the applicants would lose everything given I have not been provided with evidence regarding the applicants’ financial circumstances.

20. I am prepared to infer the applicants would be exposed to significant loss and hardship if the practice were to be suspended or closed while the review proceeded. It is unclear how serious that loss would be. Any loss that does occur will presumably impact on Mr Iseppi’s family. I am also prepared to accept some or all of the applicants’ employees may lose their jobs in the short term. That would be hard for them in the current environment. Many clients would also experience disruption if they had to find a new tax agent at this delicate time. Those circumstances tend to weigh in favour of ordering a stay.

    The public interest

21. The Board says disruption may be the lesser of two evils for the applicants’ clients. It says the shortcomings identified by the ATO and (partially) addressed by ASIC suggest there is an ongoing risk to existing and future clients.

22. That raises the question of the public interest and the objectives of the regulatory scheme. The objectives are set out in s 2-5 of the TAS Act. Those objectives include the need to promote appropriate standards of professional and ethical conduct. The reference to standards in the objects provision needs to be interpreted in light of the function of tax agents in our taxation system. The success of that system depends on tax agents performing (and being seen to perform) their role competently, efficiently and honestly. In the short term, when considering a stay application, the focus is on the interests of the applicants’ existing and prospective clients. If there is reason to suspect those clients face an unacceptable level of risk if the applicants remain in business, the Tribunal will be reluctant to order a stay.

23. The Board says there is good reason to think the applicants’ clients are at risk in the short term. It points to its own findings and those of ASIC, and the results of the ATO investigation. Those findings, on their face, suggest the applicants have not performed competently. That want of competence may have caused losses to clients. The Board also argues the applicants have demonstrated limited insight into what went wrong.

24. The Tribunal will not be able to make a final judgment about all of this until it completes its objective review of the evidence and hears from the parties. When the Tribunal undertakes that review, it does not (ordinarily) start from the presumption that the reviewable decision is correct: it conducts its review de novo. But the interlocutory application before me is a request for a stay order. The applicants must assume primary responsibility for establishing why the power should be exercised. Where questions have been raised about the risks of allowing the applicants to remain in business, the applicants should not necessarily expect the benefit of the doubt at this stage of the proceedings. As the Tribunal has pointed out elsewhere, an individual who participates in a regulated occupation enjoys a measure of protection from competition in order to maintain standards. Anyone who is admitted to that occupation must accept the risk of the regulator’s lawful intervention in that cause.

25. ASIC’s findings against the applicant are troubling even though they relate to events that happened several years ago in one area of the applicants’ practice. The concerns expressed by the ATO are also problematic. While these concerns might be addressed at the final hearing, the regulatory regime suggests it is appropriate to be risk averse in circumstances where the interests of clients are at stake. It follows this factor weighs against granting a stay order.

    The interests of the decision-maker

26. I have suggested elsewhere that making a stay order would rarely compromise the interests of the decision-maker. Some decision-makers apparently regard stay orders as an embarrassment. But making a stay order does is not ordinarily a reflection on the original decision-maker. The exercise of the stay power in the course of merits review should be seen for what it is: a feature of a coherent system of executive decision-making.

27. The Board did not suggest there was any basis for arguing it would be compromised in the discharge of its functions if a stay were ordered.

    Would the review be rendered nugatory if the stay is not granted?

28. This consideration goes to the purpose of the stay power. The applicants say their business will fail if a stay is not ordered. If that occurs, they say, there is no point to the review. In that sense, the review will be rendered nugatory if I do not make orders preserving the status quo.

29. I have already noted the Board questioned whether the applicants had provided evidence to substantiate their claim that the business will inevitably fail in the event I do not order a stay. Mr Iseppi did provide some detail in his affidavit about the significant losses he expected the business to experience if it were forced to suspend the tax agents’ practice in the short term: at [24]ff.  I have no reason to doubt those figures. Mr McGlade, for the Board, argued those losses did not inevitably mean the business would fail. The Board has a point. The evidence paints a distressing picture of the losses that would be sustained if the decision were to be implemented in the short term but I was not provided with an explanation of the applicants’ financial affairs that would enable me to reliably assess the impact of those losses. I accept I can infer from the evidence – and from common experience – that the applicants might experience significant loss in the event they are denied a stay. It stands to reason that some or all of that loss might not be recouped if they are successful once the Tribunal makes a decision under s 43. But that does not of itself mean the hearing is inevitably rendered nugatory.

    Conclusion

30. I am not satisfied the applicants have established a stay order is required to secure the effectiveness of the hearing and review. But even if I give the applicants the benefit of the doubt on this issue, I am not satisfied it is desirable to make an order beyond providing a brief extension of the interim arrangement. I acknowledge the applicants will almost certainly experience hardship if the stay is not ordered. I acknowledge the likely disruption for the applicants’ employees and clients. I also acknowledge Mr Iseppi appears to have a clean record apart from the matters that were uncovered by the ATO. I also acknowledge the events in question occurred a number of years ago in a separate part of the business, and that Mr Iseppi is no longer undertaking that work after being subject to regulatory action at the hands of ASIC.

31. Ultimately, the public interest – and the interests of the clients in particular – weighs decisively against ordering a stay. That is a hard outcome for the applicants, but the questions over Mr iseppi’s conduct are so troubling that it would not be appropriate to permit him to continue until further information comes to hand. The fact that most of the problems relate to his work as an auditor offers little comfort since that work is not so far removed from the work of tax agents – and the complaints about his auditing work appear to reflect on his taxation advice in any event.

32. The interim stay will lapse at close of business on Friday 22 May 2020. The applicants should not take on any new clients in the meantime. The brief extension to the current orders will facilitate the applicants making arrangements for their clients to deal with the disruption. If, during that period, Satellite should identify a suitable candidate to be appointed to its board and act as the supervising tax agent, it can always revert to the Board and the Tribunal and renew its request for a stay.

I certify that the preceding 32 (thirty -two) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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Associate

Dated: 12 May 2020

Date(s) of hearing:	27 April and 8 May 2020
Date final submissions received:	4 May 2020
Solicitors for the Applicant:	Cornwalls
Counsel for the Respondent:	Mr B McGlade
Solicitors for the Respondent:	Tax Practitioners Board