Le'Sam Accounting Pty Ltd and Tax Practitioners Board
[2020] AATA 890
•20 April 2020
Le'Sam Accounting Pty Ltd and Tax Practitioners Board [2020] AATA 890 (20 April 2020)
Division: TAXATION AND COMMERCIAL DIVISION
File Number(s):2020/0223
Re:Le'Sam Accounting Pty Ltd
APPLICANT
AndTax Practitioners Board
RESPONDENT
File Number(s): 2020/0224
Re:Sam Rizkallah
APPLICANT
AndTax Practitioners Board
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:20 April 2020
Place:Sydney
The application for a stay of the decision under review is refused. The interim stay order dated 15 January 2020 be discharged on 27 April 2020.
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Deputy President Bernard J McCabe
CATCHWORDS
PRACTICE AND PROCEDURE – STAY APPLICATION – termination of registration as tax agent – breach of code of professional conduct – failure to respond to request and directions from the Board in a timely, responsible and reasonable manner and respond to request for information – prospects of success – interests of persons affected by the review – public interest – impact of respondent’s regulatory role – whether the review would be rendered nugatory if stay not granted – stay refused
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) ss 35, 41
Tax Agent Services Act 2009 (Cth) ss 20-5, 30-10, 40-25, 60-100
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
20 April 2020
Mr Sam Rizkallah is a registered tax agent. He is also a director of Le’Sam Accounting Pty Ltd, a company which carries on an accounting practice. On 5 December 2019, the Tax Practitioners’ Board (the Board) decided to cancel the registration of both Mr Rizkallah and Le’Sam. The applicants have asked the Tribunal to stay the reviewable decisions pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) while the Tribunal completes its review of the regulatory action. The Tribunal made an interim stay order to preserve the status quo while the stay application was adjudicated.
The applicants want orders that stay the operation and implementation of the decision. If successful, they would be permitted to continue in practice pending the outcome of the review. They want the stay order to restrain the Board from recording its reviewable decisions in the relevant register or otherwise publicising those decisions. Such an order would restrain the Board from announcing the regulatory action on its website or issuing a media release.
I will begin by briefly describing the findings of the Board which prompted the reviewable decisions before discussing the approach to the stay application.
The reviewable decisions to cancel the applicants’ registration
Mr Rizkallah has been a public accountant for nearly 40 years. He says he has a good record in practice. In his affidavit of 30 January 2020, he said he as never before been the subject of criminal proceedings. He said neither he nor his practice have been the subject of a claim for professional negligence that had to be notified to his insurers. He added that neither he nor any entity he controlled had ever been the subject of a disciplinary sanction: at [15]. He did acknowledge later in the same affidavit that he was the subject of a complaint before the Board in 2015. He had asked the Tribunal to review the Board’s adverse decision in relation to that complaint. Those review proceedings were effectively resolved in his favour by agreement under s 42C of the AAT Act.
The applicants’ present troubles arise out of an incident in which somebody within the firm used the Australian Taxation Office Tax Agent Portal to access information about a former client without that client’s authority. The decision to access the information was particularly problematic in circumstances where Mr Rizkallah was the respondent in legal proceedings brought by the former client. The Board was dissatisfied with Le’Sam’s responses to the Board’s enquiries about the incident. The Board decided Le’Sam contravened sub-section 30-10(14) of the Code of Professional Conduct set out in Part 3 of the Tax Agent Services Act 2009 (the TAS Act). That sub-section requires that registered entities “must respond to requests and directions from the Board in a timely, responsible and reasonable manner”. The Board also found Le’Sam had failed to respond appropriately to a notice dated 5 September 2019 that was issued under s 60-100 of the TAS Act. Section 60-100 permits the Board to request information or require the production of documents.
The Board also decided Mr Rizkallah no longer met the registration requirement under s 20-5(1)(a) that he be a fit and proper person. The Board made that decision after concluding Mr Rizkallah was ultimately responsible (in his capacity as the supervisor of Le’Sam’s operations and staff) for the unauthorised access to the ATO Tax Agent’s Portal referred to earlier. The Board also found Mr Rizkallah had:
·not complied with taxation laws in the conduct of his personal affairs in that he had failed to lodge his personal income tax return by the due date for the 2018 year of income; and
·failed to ensure compliance with the s 60-100 notice that was issued to Le’Sam.
The finding that Mr Rizkallah was not a fit and proper person also meant the company was unable to satisfy the requirements for registration. Those obligations include a requirement that each director of a company that is a registered tax agent must be a fit and proper person: see s 20-5(3)(a) of the TAS Act. It was also decided both applicants were ineligible to apply for registration for a period of three years pursuant to s 40-25(1) of the TAS Act.
The approach to a stay application under s 41(2) of the AAT Act
Reviewable decisions made under most enactments come into effect on their terms and are capable of implementation notwithstanding the commencement of review proceedings in the Tribunal. The Tribunal can stay many of those decisions using the power in s 41(2),[1] but that power is only available where the requirements in that sub-section are satisfied.
[1] Note the Tribunal’s jurisdiction to order a stay may be qualified or limited or ousted by other legislation: see, for example, ss 14ZZB and 14ZZM of the Taxation Administration Act 1953.
The purpose of the stay power is explained in s 41(2). The power is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review”. The power to make an order is engaged if the Tribunal is satisfied as to that purpose, but the sub-section provides the discretion may only be exercised:
…if the Tribunal is of the opinion it is desirable to do so after taking into account the interests of any persons who may be affected by the review…
Importantly, the power extends to staying or otherwise affecting the operation and implementation of the reviewable decision. That means the stay order might stay the entirety of the decision, or merely parts of that decision. The Tribunal may also make orders subject to conditions.
There is no longer any doubt the Tribunal may, in an appropriate case, use the power in s 41(2) to restrain the Board from recording decisions in a register or publicising that decision: see, generally, Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185 (ASIC v AAT) at [62], [68]-[70] per Downes and Jagot JJ. It may also make confidentiality orders under s 35 of the AAT Act in an appropriate case. The Tribunal will carefully scrutinise applications for orders that have the effect of suppressing information about regulatory action and the Tribunal’s proceedings. Section 35 makes clear that Tribunal proceedings are generally expected to be conducted in public. The mere fact that individuals subject to the reviewable decision may experience commercial disadvantage as a result of publicity is not ordinarily a sufficient reason to justify a confidentiality order or what amounts to a gag order under s 41(2).
Downes J discussed the approach to stay hearings in the course of his reasons for decision in Scott and Australian Securities and Investments Commission [2009] AATA 798 (Scott). While each case must be considered on its merits and different questions might arise in a particular case, the Scott approach provides a useful guide. I will proceed to discuss the issues in this case under the headings referred to in Scott at [4].
The prospects of success
While it is incumbent on the applicants to satisfy me that a stay is appropriate, I will not conduct a mini-trial at the stay hearing in which the parties exhaustively ventilate all of the matters that might come up at a final hearing. Yet some sort of rough-and-ready assessment of the merits will still be required. It stands to a reason that an obviously strong case will weigh in favour of a stay. An obviously weak or fanciful case will weigh against a stay. Experience shows it is often difficult to do more than be satisfied there is an arguable case at this stage of the proceedings.
In this case, the applicants argue there was confusion over whether the former client had, in fact, ceased using the firm’s services. Mr Rizkallah explained he instructed an employee to access the individual’s information through the Tax Agents Portal on two occasions in March 2019 so the employee could check on the individual’s status with the firm. Mr Rizkallah’s motivation puts the conduct in an entirely different light, the applicants argued. The applicants also acknowledged the correspondence between the applicants and their lawyer (on the one hand) and the Board (on the other) had an unfortunate tone and may have been unnecessarily combative. The applicants argue that while the tone of that correspondence was regrettable, the finding that the applicants had not complied with their obligations was not justified, or did not of itself justify the regulatory action which resulted.
I understand it is accepted Mr Rizkallah did not file his personal income tax return before the deadline. The focus of his complaint appears to be that the failure to comply with the tax laws on that occasion did not justify the stringent action that was taken.
There was also an argument over the procedural fairness of the Board’s decision.
I am unable to say the applicants have a strong case given the limited material before me, which includes extracts of the letters the applicants and their solicitors wrote to the Board. (The extracts were included in the Board’s written submissions.) I am not prepared to go so far as to say the case is not reasonably arguable – particularly since the applicants may focus on the stringency of the regulatory action, as opposed to whether there was a breach of the Code. This consideration does not weigh heavily in favour of a stay order.
The consequences for the applicants should a stay order be refused
Mr Rizkallah said in his affidavit that a loss of registration on the basis he was no longer a fit and proper person would have a devastating effect on him and his family. He said that, given his age, he was unlikely to obtain employment elsewhere. He said he could not sell the business if it was not a going concern. He claimed he would be unable to pay his debts. He did not specifically address the consequences for him in the short term if the decision were not stayed. I infer from his affidavit that being excluded from practice for even a short period would have serious economic implications. He would presumably lose his clients and put off his staff. It might not be possible to get them back quickly even if he were successful on review. His cashflow would also be impacted to some extent, I assume, although I was not provided with details of his current financial circumstances. I accept his financial circumstances may have deteriorated since the onset of the COVID‑19 crisis which has affected the operation of so many businesses, but those matters were not the subject of evidence before me.
Le’Sam is presumably in the same position as Mr Rizkallah in the sense it is likely the practice will be compromised in the short term if the stay application is refused. I was not provided with information about the company’s financial circumstances. Even so, I am prepared to infer it will, at a minimum, experience significant financial hardship that will be difficult to ameliorate if the stay were refused and the company were ultimately successful in these proceedings.
I am not aware of any reason why the matter could not proceed to an expedited hearing. The availability of an early hearing in this case is a relevant consideration. I accept the impact on the applicants weighs in favour of ordering a stay, albeit it is difficult to say it weighs heavily.
The interests of other individuals
Mr Rizkallah has a wife who works and adult children who are employed. It is not clear from the evidence how denying a stay will hurt their interests.
The applicants – perhaps more accurately, Le’Sam – have around 900 clients who will presumably be required to find an alternative tax agent in the short term if the application for a stay were denied. Requiring the applicants to cease trading in the short term would presumably be disruptive for the client base, although it is unclear whether all the clients are active. It is possible some clients would choose to engage somebody else if they were aware of the regulatory action even if the applicants were able to remain in business with the benefit of a stay. The possibility that clients might elect to take their business elsewhere if apprised of the regulatory action certainly militates against a stay order that restrains publication of the reviewable decision.
The applicants employ six staff. While I have not been told whether those staff remain engaged following the disruption to businesses as a result of the COVID-19 pandemic, I will assume for present purposes the staff remain employed and working from home. Their interests will presumably be adversely affected, and the adversity may be particularly great in circumstances where employment opportunities in the short term are scarce.
The impact of my stay decision on the interests of the employees is certainly a matter of concern. The impact on existing clients is less clear-cut – although the disruption can be minimised by allowing the applicants a short period during which they can take steps to assist clients to make an appropriate transition.
The public interest
The objectives of the regulatory regime are set out in the TAS Act. For present purposes, I should mention two objectives that can be divined from the legislative regime. The first is properly categorised as consumer protection. Users of professional and quasi-professional services are not necessarily in a good position to know whether they are getting a quality service. That informational asymmetry is certainly true as between tax agents and their clients. The tax laws are complex and changing constantly; even experienced business people need the assistance of competent, diligent and honest tax agents. The regulatory regime is designed to promote confidence and weed out those engaged in unsatisfactory behaviour. But it is not just clients that benefit from good quality tax practitioners. Our tax system works largely on the principle of self-assessment. That system depends on tax agents doing their job. The Commissioner of Taxation needs to know that tax agents are competent, honest and diligent.
The finding that the applicants improperly accessed the Tax Agents’ Portal to find information about an individual who had commenced a civil action against Mr Rizkallah is a very serious matter. If the finding is affirmed on review, it would reflect badly on his judgment and speak to his honesty and competence. In a practical sense, such a finding might alarm clients of other tax agents who might question the integrity of the portal. In the short term, the finding implies such a lapse of judgment that there must be some question about whether the applicants can be trusted to remain in practice until all this is cleared up.
I am not encouraged by the applicants’ responses to the Board’s investigation, even as more recent material suggests Mr Rizkallah at least is aware of the problems. The extracts of letters written by the applicants or on their behalf do not suggest any insight into the seriousness of that which was alleged against them.
The public interest weighs against ordering a stay.
The consequences for the respondent if a stay is not ordered
I would not ordinarily attach much weight to a claim from a regulator that its authority will be compromised if a stay were ordered. The Tribunal review is a part of the decision-making continuum, and the stay power is a feature of that review. A stay order should not be regarded as a ‘black eye’ for a regulator in the ordinary course.
The Board’s submissions in this case focused on the potential impact of a stay on the Board’s power in s 60-100 to gather facts in the investigatory process. There may be something to that more nuanced argument, although any lesson administered by the Tribunal to the wider profession in a stay decision would surely be superseded by the decision at the final hearing. This concern counts marginally against ordering a stay.
Would the application for review be rendered nugatory if the stay were not ordered?
This concern addresses the preliminary question in s 41(2) of the AAT Act – namely, whether a stay is necessary to secure the effectiveness of the hearing and review process. The applicants make clear that their business might be imperilled if a stay is not ordered. If the business fails, the review might be pointless. At a minimum, I understand them to argue they will experience economic loss that will be difficult to recover even if they are successful on review.
Downes and Jagot JJ pointed out in ASIC v AAT that the prospect of economic loss consequent upon regulatory action is inherent in the regulatory regime. The prospect of harm to a licence holder’s reputation if news of the reviewable decision was published would rarely, of itself, justify a stay of publication: at [76]. But the principle is applicable more generally. The parliament has seen fit to regulate this occupation. It has established barriers to entry that keep out unsatisfactory rivals but also incidentally suppress competition and confer benefits on registrants. One implicitly accepts the risk of regulatory action interrupting the business. The Tribunal’s review is one mechanism for ensuring regulatory action is not capricious or unfair. That review can be completed quickly.
The applicants did not clearly articulate how the review process would be rendered nugatory if they were not allowed to continue in practice in the short term. But even if I infer their review would be compromised by a financial crisis in the short term, it is only one of the factors I must consider.
Conclusion
In all the circumstances, I am not satisfied a stay is necessary for the purpose of securing the effectiveness of the review process. But even if I were to decide that issue in favour of the applicants, I am not satisfied it would be appropriate to make an order under s 41(2) of the AAT after having regard to the interests of persons who might be affected by the reviewable decision. After weighing the interests which I referred to above, the public interest in particular suggests a stay is not appropriate.
The interim stay order should be revoked but that should not occur until five business days after the date of these reasons to provide the applicants with an opportunity to assist their clients to transition to an alternative tax agent.
I certify that the preceding 35 (thirty -five) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe
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Associate
Dated: 20 April 2020
Date(s) of hearing: 7 February 2020 Date final submissions received: 23 March 2020 Counsel for the Applicant: Mr M Cashion SC Solicitors for the Applicant: Penhall & Co Lawyers Counsel for the Respondent: Mr G O'Mahoney Solicitors for the Respondent: Tax Practitioners Board
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