Kishore and Tax Practitioners Board - [2017] AATA 271

Kishore and Tax Practitioners Board [2017] AATA 271 (28 February 2017)
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2014/5796
Re:Kamal Kishore
APPLICANT

Tax Practitioners BoardAnd
RESPONDENT

DECISION
Tribunal:Deputy President S E Frost
Date:28 February 2017
Place:Sydney

The decision under review is set aside and substituted with a decision that the Applicant be given a written caution for the breach of the Code of Professional Conduct in s 30-10 of the Tax Agents Services Act 2009.
......................[sgd]..................................................
Deputy President S E Frost
CATCHWORDS
TAX AGENTS – Code of Professional Conduct – termination of tax agent registration – whether conduct constituted breach of the Code – whether tax agent registration should be terminated – whether an alternative sanction is appropriate – decision set aside – decision in substitution that the Applicant be given a written caution
LEGISLATION
Tax Agents Services Act 2009 ss 2-5; 30-1; 30-10(1); 30-15(2); 30-20; 30-25; 30-30; 60-125; 90-1(1) & 90-5
CASES
Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350
Charltons CJC Pty Ltd v Fitzgerald (No. 2) [2013] NSWSC 958
Charltons CJC Pty Ltd v Fitzgerald No. 2 (Unreported, Supreme Court of NSW, Pembroke J, 20 August 2013)
Charltons CJC Pty Ltd v Fitzgerald (No. 3) [2013] NSWSC 1945
Charltons CJC Pty Ltd v Fitzgerald (No. 4) [2014] NSWSC 523
Kishore and Tax Practitioners Board [2016] AATA 764
Re Li and Tax Practitioners Board [2014] AATA 299
SECONDARY MATERIAL
Susan Butler (ed), Macquarie Dictionary (online ed, at 28 February 2017)
REASONS FOR DECISION
Deputy President S E Frost
28 February 2017
INTRODUCTION

Kamal Kishore became a registered tax agent on 7 March 2011 while working for his employer, Charltons CJC Pty Ltd, a firm that provides accounting and tax agent services to its clients.
In July 2012 Mr Kishore and two of his colleagues at Charltons – Alden Fitzgerald and Kirat Prasad – registered a new company, Intuitive Accountants & Associates Pty Ltd, with each of them becoming a director and equal shareholder of that company. The three men resigned from Charltons and started working for Intuitive. Intuitive was registered as a tax agent the following month.
On 14October 2014 the Tax Practitioners Board notified Mr Kishore that it had decided to terminate his registration as a tax agent, with effect from 14 November 2014. The Board’s decision was based upon its becoming satisfied, on the balance of probabilities, that Mr Kishore had breached s 30-10(1) of the Tax Agent Services Act 2009 by not ‘acting honestly and with integrity’ towards Charltons around the time he left that firm, in the circumstances described by Pembroke J in the Supreme Court of New South Wales in Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350.
Mr Kishore has applied to the Tribunal for review of the Board’s decision to terminate his registration as a tax agent.
BACKGROUND
In Kishore and Tax Practitioners Board [2016] AATA 764 (the Earlier Reasons), I dealt with seven preliminary questions arising from the Board’s decision which…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] AATA 271
Decision Date: 28 February 2017

CaseChat Overview and Summary

The Administrative Appeals Tribunal reviewed a decision by the Tax Practitioners Board to terminate Mr. Kishore's registration as a tax agent. The dispute concerned whether Mr. Kishore's conduct, primarily arising from his separation from his former employer, Charltons, constituted a breach of the Code of Professional Conduct, specifically the obligation to act honestly and with integrity under section 30-10(1) of the Tax Agent Services Act 2009 (Cth). Mr. Kishore contended that his conduct, which did not constitute a "tax agent service" as defined by the Act, was outside the scope of the Board's concern.

The Tribunal was required to determine whether the conduct relied upon by the Board was capable of breaching section 30-10(1) of the Act, even if it was not a tax agent service. The Tribunal also had to consider whether termination of Mr. Kishore's registration was the appropriate sanction, or if an alternative sanction should be imposed. The Board's decision was based on findings made by the NSW Supreme Court regarding Mr. Kishore's breaches of his employment contract, fiduciary obligations, engagement in deceptive strategies, diversion of business opportunities, and solicitation of clients from his former employer.

The Tribunal reasoned that the Code of Professional Conduct, as indicated by the Guide to Division 30 of the Act, regulates both the personal and professional conduct of a registered tax agent. Therefore, section 30-10(1) is not confined solely to conduct related to the provision of tax agent services. The Tribunal found that Mr. Kishore's conduct was capable of breaching section 30-10(1). However, in considering the appropriate sanction, the Tribunal determined that termination of registration was reserved for the most serious cases. It concluded that Mr. Kishore's conduct, while a breach, was not in the most serious category, was unlikely to be repeated given his current employment circumstances, and that the public interest could be adequately protected by a less severe sanction.

Consequently, the Tribunal set aside the Board's decision to terminate Mr. Kishore's registration. In substitution, the Tribunal ordered that Mr. Kishore be given a written caution.

Orders

Orders of the court

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Background

Background to the litigation

Mr Kishore has applied to the Tribunal for review of the Board’s decision to terminate his registration as a tax agent.BACKGROUND In Kishore and Tax Practitioners Board [2016] AATA 764 (the Earlier Reasons), I dealt with seven preliminary questions arising from the Board’s decision which are outlined at paragraphs [5] to [7] of that decision. Among other things, I concluded that the conduct of Mr Kishore that had troubled the Board was capable of breaching s 30-10(1) of the Act, which forms part of the tax agent Code of Professional Conduct, even though very little of that conduct, and perhaps none of it, was a ‘tax agent service’ as defined in the Act.[1] [1] Kishore and Tax Practitioners Board [2016] AATA 764, [18]-[26]. For context, I now repeat the relevant part of the Earlier Reasons – namely, paragraphs [5] to [26] – by way of background to the remainder of the review application before the Tribunal:THRESHOLD QUESTIONS TO BE DECIDED[5]Mr Kishore considers that his behaviour in relation to his separation from Charltons is not behaviour of a kind that the Board should, or even can, concern itself with. He says that the Code of Professional Conduct contained in Part 3 of the Act, where one finds the obligation imposed on tax agents that they ‘act honestly and with integrity’, does not reach to embrace conduct undertaken with respect to an employer/employee relationship. He says the Board has exceeded its power.[6]It was agreed, after hearing preliminary oral submissions, that a convenient way of approaching the resolution of the dispute between the parties was for the Tribunal to address a series of ‘threshold questions’ formulated by the parties and accepted by the Tribunal as central to the dispute. Those questions are:1.What is the conduct relied upon by the Respondent to uphold the decision under review (the Conduct)?1A. Is the Conduct a tax agent service (as defined)?2.Whether the Conduct is capable of breaching section 30-10(1) of the Act?3.Whether the Respondent (or its authorised delegate) has failed to comply with subsection 60-125(3) of the Act, by failing to make a decision under subsection 60-125(2) within the prescribed timeframe?4.Whether the Respondent did properly delegate its power to commence an investigation so as to permit the instant investigation?5.Whether the decision to terminate the Applicant’s registration as a tax agent contravenes the Act because it was purportedly made by a committee of the Board acting without appropriate delegation?6.Whether the decision to terminate the Applicant’s registration as a tax agent contravenes the Act because it was purportedly made by the Board, the Board having delegated that power to a committee? [7]The parties provided written submissions addressing each question. Before answering the questions, it is necessary to set out relevant parts of the Act.RELEVANT LEGISLATIVE PROVISIONS[8]Section 2-5 of the Act provides as follows:The object of this Act is to ensure that *tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct. This is to be achieved by (among other things):(a)establishing a national Board to register tax agents, BAS agents and tax (financial) advisers; and(b)introducing a *Code of Professional Conduct for *registered tax agents, BAS agents and tax (financial) advisers; and(c)providing for sanctions to discipline registered tax agents, BAS agents and tax (financial) advisers.[9]Words or expressions that are preceded by an asterisk are defined in the dictionary in Division 90 of the Act. The dictionary includes the following definitions in s 90-1(1):…Board means the Tax Practitioners Board established by section 60-5.…Code of Professional Conduct means the Code of Professional Conduct set out in section 30-10.…registered tax agent means an entity that is registered under this Act as a registered tax agent.Note:In most cases, an entity is taken not to be a registered tax agent if the entity is suspended from providing tax agent services under section 30-25.…registered tax agents, BAS agents and tax (financial) advisers means the following:(a)entities that are registered under this Act as registered tax agents;(b)entities that are registered under this Act as registered BAS agents;(c)entities that are registered under this Act as registered tax (financial) advisers.…tax agent service has the meaning given by section 90-5.…[10]Section 90-5 provides the meaning of the expression ‘tax agent service’:90-5 Meaning of tax agent service(1)A tax agent service is any service:(a)that relates to:(i)ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a *taxation law; or(ii)advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; or(iii)representing an entity in their dealings with the Commissioner; and(b)that is provided in circumstances where the entity can reasonably be expected to rely on the service for either or both of the following purposes:(i)to satisfy liabilities or obligations that arise, or could arise, under a taxation law;(ii)to claim entitlements that arise, or could arise, under a taxation law. …[11] The Code of Professional Conduct reads as follows:30-10 The Code of Professional ConductHonesty and integrity(1) You must act honestly and with integrity.(2) You must comply with the *taxation laws in the conduct of your personal affairs.(3) If:(a)you receive money or other property from or on behalf of a client; and(b)you hold the money or other property on trust;you must account to your client for the money or other property.Independence(4)You must act lawfully in the best interests of your client.(5)You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities that you undertake in the capacity of a *registered tax agent, BAS agent or tax (financial) adviser.Confidentiality(6)Unless you have a legal duty to do so, you must not disclose any information relating to a client’s affairs to a third party without your client’s permission.Competence(7)You must ensure that a *tax agent service that you provide, or that is provided on your behalf, is provided competently.(8)You must maintain knowledge and skills relevant to the *tax agent services that you provide.(9)You must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of the client.(10)You must take reasonable care to ensure that *taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.Other responsibilities(11)You must not knowingly obstruct the proper administration of the *taxation laws.(12)You must advise your client of the client’s rights and obligations under the *taxation laws that are materially related to the *tax agent services you provide.(13)You must maintain professional indemnity insurance that meets the Board’s requirements.(14)You must respond to requests and directions from the Board in a timely, responsible and reasonable manner.QUESTION 1 – WHAT IS THE CONDUCT RELIED UPON BY THE BOARD?[12]In its written submissions on the ‘threshold/preliminary questions’, at [5], the Board says it relies upon ‘the totality of the conduct engaged in by [Mr Kishore] as described and characterised in the 5 judgments of the NSW Supreme Court’. Those five judgments are:·Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350 (First judgment);·Charltons CJC Pty Ltd v Fitzgerald (No. 2) [2013] NSWSC 958 (Second judgment);·Charltons CJC Pty Ltd v Fitzgerald No. 2 (Unreported, Supreme Court of NSW, Pembroke J, 20 August 2013) (Third judgment);·Charltons CJC Pty Ltd v Fitzgerald (No. 3) [2013] NSWSC 1945 (Fourth judgment);·Charltons CJC Pty Ltd v Fitzgerald (No. 4) [2014] NSWSC 523 (Fifth judgment).[13]The submissions continue, at [6], by setting out ‘the findings in respect of the Applicant’s conduct upon which [the Board] particularly relies, along with the Supreme Court’s findings in respect of the circumstances in which that conduct occurred, and its characterisation of that conduct’. There follow 14 sub-paragraphs, over almost five pages, of identified behaviour – most of it sourced to the First judgment or the Second judgment – and then at [7] the following:Importantly, the defendants [Mr Kishore and his two colleagues] admitted most, but not all, of the conduct of which the plaintiff [Charltons] complained, and the dispute between the parties was primarily directed at the plaintiff’s entitlement to relief.[2] The Applicant, in this proceeding, concedes that ‘it is fair … to conclude that such admissions as his Honour is referring to, insofar as they are relevantly sheeted home to the applicant, were made by the applicant.’[3] (Footnotes in the original)[2] Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350 at [1]; Exhibit R1 – T-documents, T3-35 to T3-36. See also Exhibit R1 – T-documents, T3-38 at [8] & T3-39 at [10].[3] Transcript - Day 2 (10 February 2016), p 84 at lines 11-13.[14]Mr Kishore submits that the Board should not be allowed to rely on the matters, facts and circumstances detailed in [5]-[7] of the Board’s written submissions on the ‘threshold/preliminary questions’ to the extent that they do not reflect either:(a)the statement in the notification letter dated 10 October 2014, namely:The Board was satisfied, on the balance of probabilities, that you had breached subsection 30-10(1) of [the Act], by not acting honestly and with integrity, towards your former (registered company tax agent) employer, Charltons CJC Pty Ltd;or (as a secondary, alternative submission):(b)the facts set out by the Board in the Statement of Issues, Facts and Contentions of the Respondent, filed with the Tribunal on 24 July 2015 (RSIFC).[15]I reject Mr Kishore’s submission insofar as it attempts to confine the Board as specified in (a) above. That particular sentence needs to be read in context; it is immediately followed by a paragraph of commentary grounding the Board’s position in specified findings of Pembroke J in the First judgment. There could be no doubt, reading the notification letter in its entirety, as to the breadth, but also the specificity, of the Board’s concerns. [16]The Board’s position is spelt out in additional detail in its RSIFC. At [7] the Board refers to the proceedings commenced by Charltons against Mr Kishore and the other defendants. At [8] the Board refers to each of the five judgments, and then, at [9], details some of the specific findings made by Pembroke J in the First judgment and the Second judgment, namely:(a)Mr Kishore had breached his contract of employment by failing to comply with a valid restraint of trade clause and failing to abide by a contractual duty of fidelity[4];[4] Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350 at [35]-[44]; Exhibit R1 – T-documents, T3-49 to T3-52.(b)Mr Kishore had breached his fiduciary obligation of loyalty to his employer[5];[5] Charltons CJC Pty Ltd v Fitzgerald(No. 2) [2013] NSWSC 958 at [4]-[10]; Exhibit R2 – Supplementary T-documents, ST2-5 & ST-6.(c)Mr Kishore’s conduct (and that of his co-defendants) was ‘characterised by dishonesty, misrepresentation and intrigue’[6];[6] Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350 at [2]; Exhibit R1 – T-documents, T3-36.(d)Mr Kishore and his co-defendants were ‘engaged in a strategy of deception’ with respect to the establishment of a new business[7], which ‘effectively diverted from Charltons the business opportunity’ of various clients[8];[7] Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350 at [6]; Exhibit R1 – T-documents, T3-37.[8] Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350 at [8]; Exhibit R1 – T-documents, T3-39.(e) ‘The admissions made and the evidence tendered, also satisfy me generally that after termination, Fitzgerald and Kishore assisted each other, and after 13 July 2012 – assisted Intuitive, to solicit and entice away from Charltons a significant number of existing clients of the firm’[9];[9] Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350 at [10]; Exhibit R1 – T-documents, T3-39.(f)Mr Kishore’s conduct (along with that of his co-defendants) caused substantial loss to Charltons[10].[10] Charltons CJC Pty Ltd v Fitzgerald [2013] NSWSC 350 at [5]; Exhibit R1 – T-documents, T3-37.[17]On a fair reading of the notification letter and RSIFC, I consider that the conduct relied upon by the Board to uphold the decision under review (the Conduct) comprises the following matters, as found by Pembroke J[11]:[11] There is some overlap between these matters.·Mr Kishore’s breach of several of his contractual obligations to his former employer, Charltons;·Mr Kishore’s breach of his fiduciary obligations to Charltons;·Mr Kishore’s ‘engag[ing] in a strategy of deception’ to Charltons’ detriment;·Mr Kishore’s provision of accounting services to people who were not existing clients of Charltons, failing to bill those people on behalf of Charltons, and effectively diverting from Charltons the business opportunity those clients represented; and·Mr Kishore’s soliciting and enticing away from Charltons a significant number of existing clients of the firm.QUESTION 1A – IS THE CONDUCT A TAX AGENT SERVICE (AS DEFINED)?[18]Part of the fourth matter may be a ‘tax agent service’; the rest of them appear not to be.QUESTION 2 – IS THE CONDUCT CAPABLE OF BREACHING SECTION 30-10(1) OF THE ACT?[19]Mr Kishore’s primary submission is that s 30-10(1) of the Act is read in light of the objects clause, s 2-5, and the definition of ‘tax agent service’ in s 90-5, so that s 30-10(1) requires a registered tax agent to act honestly, and with integrity, in respect to the provision of tax agent services.[12] In other words, where impugned conduct is not itself the provision of a tax agent service, there can be no breach of the requirement to act honestly and with integrity.[12] Transcript - Day 1 (9 February 2016), p 15 at line 44 to p16 at line 1.[20]I do not accept the submission.[21]I do accept that the various provisions of the Act must be interpreted so as to further the objects in s 2-5. But that does not mean that s 30-10(1) should be read in the way Mr Kishore submits.[22]As the Board’s submissions point out, Division 30 of the Act, which includes the Code of Professional Conduct (the Code), begins with a ‘Guide to this Division’. The Guide, in s 30-1, explains what Division 30 is about, and relevantly:The Code of Professional Conduct regulates your personal and professional conduct as a registered tax agent, BAS agent or tax (financial) adviser.[23]In interpreting an ‘operative provision’ of the Act, such as a provision included in s 30-10, the Guide may only be considered[13]:[13] Tax Agents Services Act 2009, s 80-5(2). (a)in determining the purpose or object underlying the provision; or(b)to confirm that the provision’s meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision; or(c)in determining the provision’s meaning if the provision is ambiguous or obscure; or(d)in determining the provision’s meaning if the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.[24]In noting that the Code ‘regulates your personal and professional conduct as a registered tax agent …’ (emphasis added), the Guide clarifies that the purpose or object underlying s 30-10(1) in particular, but more broadly the entire Code, is to uphold standards in all aspects of a person’s conduct as a registered tax agent, whether that conduct is personal conduct as a registered tax agent, or professional conduct as a registered tax agent. It follows that the reach of s 30-10(1) is not confined in the way contended for by Mr Kishore. If it were so confined – so as to require honesty and integrity only in relation to the provision of tax agent services – then one would expect the remaining subsections of s 30-10 to be similarly confined. That would have the effect of depriving subsection (2), at least, of any meaning at all.[25]That the Code reaches beyond conduct undertaken in relation to the provision of tax agent services does not conflict with the object of the Act as specified in s 2-5. It is by requiring appropriate standards in all aspects of a person’s personal and professional conduct as a registered tax agent that the Code seeks to ensure that tax agent services are provided to the public ‘in accordance with appropriate standards of professional and ethical conduct’. [26]I conclude that the Conduct is capable of breaching s 30-10(1) of the Act. The answer to question 2 is ‘yes’.ISSUES TO BE DECIDED

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

I conclude that Mr Kishore’s conduct breached s 30-10(1) of the Act.QUESTION 2 – SHOULD MR KISHORE’S REGISTRATION AS A TAX AGENT BE TERMINATED? Section 30-15(2) of the Act sets out the available sanctions in the event of a failure to comply with the Code of Professional Conduct. The Board, or the Tribunal on review, may do one or more of the following:(a)give the tax agent a written caution;(b)give the tax agent an order under s 30-20 of the Act (for example, requiring the tax agent to complete a course of education or training, or restricting the kinds of services the tax agent may provide to clients);(c)suspend the tax agent’s registration under s 30-25 of the Act;(d)terminate the tax agent’s registration under s 30-30 of the Act. Neither the Board nor the Tribunal is required to do any of those things; there remains the option to impose no sanction at all even though there has been a breach of the Code. The imposition of a sanction is not for the purpose of punishing the individual, but for the protection of the public and the maintenance of proper standards within the regulated industry. A sanction may also serve the purpose of personal deterrence (to encourage the individual to comply with standards in the future) or general deterrence (to encourage others to comply). In deciding on the appropriate sanction, a decision-maker should take into account the following:·the seriousness of the conduct warranting the sanction; ·the likelihood that the conduct will be repeated and the potential harm to the public if it is; ·the impact of a particular sanction on the individual (and especially where the sanction may inhibit or prevent the individual’s capacity to earn a living); ·the interest of the public in seeing appropriate sanctions applied; ·the extent to which the individual has acknowledged the breaches and the seriousness of them; and ·the extent to which the individual has demonstrated genuine contrition or remorse.[22] There may be other relevant factors in particular cases.[22] See for example, Re Li and Tax Practitioners Board [2014] AATA 299 at [74]. Termination of registration should be reserved for the most serious cases of wrongdoing. That is because, except in the most serious cases, the public and the regulated industry can generally be adequately protected, and the public interest adequately served, by a sanction less severe than termination, or by no sanction at all. This case is not in the most serious category. Termination of Mr Kishore’s registration is not warranted.QUESTION 3 – SHOULD SOME ALTERNATIVE SANCTION BE APPLIED, AND IF SO, WHAT SHOULD THAT SANCTION BE? The first point to make is that the conduct Mr Kishore engaged in is not likely to be repeated. He is currently an employee of Intuitive, a company of which he is a director and shareholder. The circumstances that arose in his relationship with Charltons are not likely to arise in his relationship with Intuitive. Those circumstances include the fact that Mr Kishore felt aggrieved by Mr Charlton’s treatment of him from around 2009 in failing to honour (as far as Mr Kishore was concerned) a promise that Mr Kishore would be offered equity and partnership in the Charltons business, or at least engage in meaningful discussion about the prospect.[23] There was also a denial of a pay rise in 2012, leading ultimately to Mr Kishore feeling that he could not trust Mr Charlton,[24] that their relationship had broken down[25] and that Mr Charlton was not acting fairly towards him.[26][23] Transcript – Day 1 (20 December 2016), pp 95-96.[24] Transcript – Day 1 (20 December 2016), p 97 at lines 4-5.[25] Transcript – Day 1 (20 December 2016), p 97 at line 6.[26] Transcript – Day 1 (20 December 2016), p 98 at lines 42-43.