Le'Sam Accounting Pty Ltd and Tax Practitioners Board (Taxation)
[2020] AATA 3041
•19 August 2020
Le'Sam Accounting Pty Ltd and Tax Practitioners Board (Taxation) [2020] AATA 3041 (19 August 2020)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2020/0223, 2020/0224
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:19 August 2020
Place:Sydney
Pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975, the Tribunal orders that the operation of the reviewable decision be stayed so that the applicants may continue to provide tax agent services until further order ON CONDITION THAT the applicants write to each of their clients to inform them of the regulatory action that has been taken by the Board and the Tribunal review. The letter should be in a form approved by the Board and should include a link to these reasons for decision. A draft of that letter should be provided to the Board for its approval within two days of the date of these reasons for decision, and the letter should be provided to all of the applicants’ clients within two business days of its being approved by the Board.
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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 granted
LEGISLATION
Tax Agents Services Act 2009 ss 60-100
Administrative Appeals Tribunal Act 1975 s 41
CASES
Sam Rizkallah and Le’Sam Accounting Pty Ltd v Tax Practitioners Board [2020] FCA 431
Scott and Australian Securities and Investments Commission [2009] AATA 798
REASONS FOR DECISION
Deputy President Bernard J McCabe
19 August 2020
Mr Sam Rizkallah is a registered tax practitioner and a director of Le’Sam Accounting Pty Ltd (Le’Sam). Le’Sam is also a registered tax practitioner. On 5 December 2019, the Tax Practitioners Board decided to cancel Mr Rizkallah’s registration as a tax agent under the Tax Agents Services Act 2009 (the TAS Act). The Board also decided Mr Rizkallah should not be eligible to apply for registration for three years. The Board’s decision was made after it found Mr Rizkallah no longer met the practitioner registration requirement that he be a fit and proper person. On the same day, the Board decided to cancel the registration of Le’Sam on the basis that it no longer met the registration requirements because one of its directors (Mr Rizkallah, its only director) was not a fit and proper person. The Board also decided Le’Sam should not be eligible for registration for three years.
News of the reviewable decisions was communicated to the applicants by letter dated 17 December 2019. The applicants both sought review in the Tribunal. While that review proceeds, they have asked for stay orders under s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act). The stay orders would permit the applicants to continue providing tax agent services. Interim stay orders were made on 15 January 2020, so the applicants were able to continue trading until the stay applications were resolved.
The stay applications were dealt with in the Tribunal earlier this year but the applicants, who were unsuccessful, appealed the stay decision to the Federal Court. The stay decision was remitted by consent. I am told the Tribunal did not have regard to an affidavit that was provided by the applicant. It turns out the affidavit was not placed before me due to an administrative error. In any event, the parties agreed I should now have regard to the material filed in connection with the stay application earlier in the year, but I should also take account of new material – and the fact we are somewhat further down the road toward the hearing. The hearing has been set down for 21 to 23 September 2020. In the interim, the applicants have enjoyed the benefit of interim stay orders that were put in place in advance of the original stay applications.
THE PRACTICE
Mr Rizkallah is the principal of Le’Sam. The firm provides tax agents’ services to clients. It has around 900 clients and a small staff, including four qualified accountants whom Mr Rizkallah describes as ‘assistant accountants’: statement of Mr Rizkallah dated 19 February 2020. Mr Rizkallah said he built strong personal relationships with many clients over a long period: at [7]. He explained he was the only tax agent in the business. He said nobody within the firm would be able to take his place if he were unable to practice and the value of the business would rapidly be destroyed. In his statement, he explained he occupied a position of trust and was a friend and adviser to many clients on business and personal matters. He said his clients would experience significant difficulty were he to be prevented from providing tax agent services.
Mr Rizkallah said in his statement dated 30 January 2020 that he has been a tax agent for 37 years. At [14] of that statement, he said neither he nor any entity through which he had practiced had ever been the subject of a disciplinary sanction. He later clarified that he had been the subject of an adverse disciplinary decision by the Board following a complaint in 2015, but the adverse decision was set aside by consent under s 42C of the AAT Act after he sought review.
WHAT HAPPENED?
Mr Rizkallah was named as a party in court proceedings commenced by a former client. Mr Rizkallah was said to have an interest in property that was subject to a dispute. The former client had engaged a new accountant who had attended to her taxation affairs since 2013. The former client learned someone at Le’Sam had accessed her affairs on the ATO Tax Agents’ Portal on at least two occasions in March 2019 even though she had not been a client of Le’Sam since 2013. She complained to the Board. The former client was plainly troubled that someone from Le’Sam would be making unauthorised access to her tax affairs after she had ceased to be a client – and after she became engaged in a civil dispute that involved Mr Rizkallah.
The Board wrote to Le’Sam on 23 August 2019 to ask whether anybody in the firm accessed the former client’s file on the ATO Tax Agents’ Portal without her authority after she ceased to be a client. Mr Rizkallah responded by email on 26 August. He declined to say whether he had accessed the file until he was given particulars of the dates on which the unauthorised access was alleged to have occurred. When the Board reiterated its request, it was contacted by a firm of solicitors acting on Mr Rizkallah’s behalf. (The firm also acted on behalf of the former client’s ex-husband in the court proceedings.) The response dated 30 August 2019 demanded that the Board provide a copy of the letter of complaint and further particulars but did not directly respond to the Board’s question about whether unauthorised access had occurred.
The Board decided to commence a formal investigation. It wrote to the applicants on 5 September 2019. It enclosed the formal notice of investigation and the letter of complaint. It also included a notice under s 60-100 of the TAS Act asking:
(a)whether the applicants had accessed the former client’s file on the ATO Tax Portal between January and September 2019;
(b)if the file was accessed, on what dates did that access occur, what was the reason and what information was obtained or entered;
(c)what did the applicants do with any of the information obtained?
The applicants’ lawyer’s response was aggressive and unhelpful. The lawyer said there was no valid complaint and demanded that the investigation be terminated. The questions posed in the s 60-100 notice were not directly answered.
The Board decided to cancel Mr Rizkallah’s registration as a tax agent after concluding he was not a fit and proper person in light of findings that:
·Mr Rizkallah was responsible as supervising tax agent for the unauthorised access to the former client’s details on the ATO Tax Practitioners’ Portal on two occasions in March 2019;
·He failed to adequately respond to the notice issued under s 60-100 of the TAS Act; and
·He had failed to comply with the law in the conduct of his own tax affairs in that he was late in filing his own tax return in the 2018 year of income.
The Board also decided that Mr Rizkallah should not be permitted to apply for (re)registration for three years.
The Board’s decision to cancel the registration of Le’Sam followed from its decision in relation to Mr Rizkallah. The Board also decided Le’Sam should not be able to seek (re)registration for three years.
The applicants complain of a want of procedural fairness in the Board’s decision-making. I note the applicants commenced parallel proceedings in the Federal Court seeking judicial review of the cancellation decisions, but the Federal Court declined to intervene at that stage: see Sam Rizkallah and Le’Sam Accounting Pty Ltd v Tax Practitioners Board [2020] FCA 431. The procedural fairness concerns will presumably be resolved as the Tribunal steps into the shoes of the Board and conducts a de novo review.
THE STAY POWER
In most cases, the original decision-maker’s decision will take effect on its terms: s 41(1) of the AAT Act. If the applicant wishes to stay the operation or implementation of the decision, it applies to the Tribunal for a stay order under s 41(2). The power to order a stay may affect all or part of the decision under review, and an order may be made on conditions. In this case, the Board agreed to an interim stay once the stay application was lodged.
The applicants initially asked the Tribunal to stay the deregistration decisions, but they also asked the Tribunal to restrain the Board from publicising the reviewable decisions or recording the fact of the decisions in the registers it maintains. The applicants were plainly worried about the impact of bad publicity on their standing and business. I assume the non-publication aspect of the application for stay orders has fallen away in circumstances where the Federal Court and the Tribunal have both discussed the deregistration decisions in the course of reasons published online.
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”. If that purpose is present, the discretion is enlivened but it 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...
The decision of Downes J in Scott and Australian Securities and Investments Commission [2009] AATA 798 provides a useful framework for considering the exercise of the stay power. It must be emphasised that the matters referred to by his Honour in that decision are merely indicative of the matters that would ordinarily be relevant. It is still necessary in every case to determine (a) whether the stay order is for the requisite purpose and (b) if it is desirable to make the order after considering the interests of relevant persons.
Before proceeding to the matters discussed in Scott, I should note that the parties have made significant progress towards preparing the matter for the final hearing. The final hearing is set down for 21 to 23 September 2020. The proximity of the hearing is a relevant factor that potentially counts for and against a stay.
The merits of the substantive application for review and prospects for success
The Tribunal may be more inclined to order a stay in cases where the applicant’s case is obviously strong. Conversely, the Tribunal may be more sceptical where the case is obviously weak. In most cases, it will be difficult to attach much weight to this consideration precisely because it remains to be seen.
It is not appropriate to conduct a mini-trial when considering a stay application, so the information before the Tribunal is often thin. The applicants in this case are further along in their preparations for the hearing than is ordinarily the case in a stay application, and they have the benefit of a remittal to refine their application. It is no surprise then that some additional information has come to light since the stay hearing earlier this year which might shed some light on the applicants’ prospects at the final hearing. I refer in particular to a statement provided by Marilise Nashed dated 15 July 2020, and a further statement provide by Mr Rizkallah on the same date. (I also have the benefit of the statement of Mr Rizkallah dated 19 February 2020 which was omitted from my deliberations on the previous occasion.)
Ms Nashed explains she was the employee of Le’Sam who accessed the former client’s details on the ATO Tax Agents Portal on two occasions in March 2019. She explained she was new to the practice and inexperienced. She does not say Mr Rizkallah instructed her to access the portal; he merely asked her to confirm whether the former client was, in fact, still a client of the firm. That evidence, if accepted at the hearing, might lend a more benign appearance to what was still unauthorised access. (Recall the Board was particularly concerned about unauthorised access in circumstances where the applicants were engaged in a civil dispute with the client in question.)
Mr Rizkallah’s statement of the same date provides more detail about his side of the story. He acknowledged he did ask the employee to access the portal to determine whether the former client was still, in fact, a client. He explained he had known the former client and her ex-husband well over a number of years. He said the ex-husband asked him whether the former client was still a client, and he felt obliged to check. Mr Rizkallah referred to the possibility of being subpoenaed to provide the former client’s tax returns and other data in the court proceedings if she was still an active client. He said he would not necessarily be aware if a client had left the firm and engaged a new agent. He pointed out that with so many clients, it was hard to keep track. He claimed that if the former client had not said anything and if no contact had been received from a new agent, checking the portal was a reasonable step.
Both statements discussed the technical operation of the portal. Mr Rizkallah’s statement also referred to a statement by Carl Collits dated 4 February 2020. Mr Collits is an employee of the Australian Taxation Office who is involved in the operation of the portal.
Mr Collits’ statement raises questions over whether a search of the portal would be a practical means of checking whether a client was still linked to a particular agent.
It will be necessary to wait for the hearing before I can sort out whether the evidence about the operation of the portal sheds light on whether accessing the portal was a sensible or feasible means of checking the status of a former client.
While the statements of Ms Nashed and Mr Rizkallah may hold some promise from the applicants’ point of view, it is difficult to know what weight they should be given until they are tested in cross-examination alongside the rest of the evidence.
It is not clear how the procedural fairness claims will impact on the hearing, if at all. I note Mr Rizkallah conceded his tax return was not filed by the relevant date, but that is unlikely to be a significant factor in the final decision.
I am prepared to accept the applicants have some prospect of success on the substantive hearing, although the additional evidence does nothing to explain the unhelpful and aggressive responses to the notice under s 60-100. In the circumstances, this consideration weighs marginally in favour of exercising the discretion.
The consequences for the applicants if the stay is refused
Mr Rizkallah asserted in his statement of 30 January 2020 that if the applicants were to lose their registration, the six employees would lose their jobs and 900 clients will be displaced. I will return to this claim below. He added that he was unlikely to find new work given his age and qualifications. He said the loss to him and his company would be “immeasurable”: at [29].
That evidence does not address the issue before me at present, which requires me to consider the impact on the applicants in the short term if I do not order the stay. Mr Rizkallah filed a further statement dated 19 February 2020 after the earlier hearing on 7 February 2020 to deal with that issue. It is that statement which was not before me when I made the stay decision. The statement says nobody else could step in to take over the business, which would presumably lead to it being shuttered and a substantial loss to Mr Rizkallah and the company. (I say presumably because the statement does not refer to any financial information that would shed light on the applicants’ ability to hold out until the hearing which has already been listed.)
While I regret the paucity of detail, I accept the implementation of the reviewable decisions in the short term is likely to have significant economic consequences for the applicants. The business of providing tax agent services will presumably come to a halt until the review is completed and the Tribunal’s decision is made if a stay is not granted. Whether that is a fatal blow to either entity would depend on the scale and profitability of the rest of their business interests (and in the case of Mr Rizkallah, his family finances) that were not explained. I can safely assume that refusing the stay will affect cash flows in the short term. I accept this consideration weighs in favour of the exercise of the discretion, although not heavily: any individual who enjoys the privilege of working in a regulated occupation must be conscious there is a risk of loss upon regulatory action.
Consequences for others if the stay is not granted
Mr Rizkallah’s statement of 19 February 2020 in particular makes clear his belief that the applicants’ employees will lose their jobs in the short term if a stay is not granted. He also spoke of significant disruption to the affairs of the applicants’ clients. Mr Rizkallah said he had an intimate knowledge of many of those clients. He said they would be nonplussed and inconvenienced if they were forced to leave the firm and engage a stranger. Although he did not mention it in his earlier statement, Mr Rizkallah was plainly aware of the uncertain environment created by the pandemic. (He did refer to the Jobkeeper scheme which was of interest to his clients in his later statement.) One could assume the applicants’ small business clients are already having a difficult time; forcing them to change accountants now would be inconvenient.
I accept the applicants’ employees would likely lose their jobs in the short-term if the stay were not ordered. I also accept the applicants’ clients would be disrupted. Of course, there is a danger that the applicants’ clients would be upset if they were left to deal with the applicants in ignorance of the regulatory action that is underway. They may prefer to make the decision to continue with the applicants in the knowledge that serious questions have been raised. That cannot be done unless they are made aware of the regulatory action.
This consideration weighs in favour of the exercise of the discretion to order a stay, although not heavily. On the other hand, the consideration suggests strongly it would be inappropriate to suppress news of the regulatory action.
The public interest
The stay power must be exercised having regard to the objectives of the legislation under which the reviewable decision was made. The regime has the objective of affording protection to clients who depend on competent, diligent and honest tax practitioners to provide tax agent services. But the regime also has the objective of promoting trust and confidence in the self-assessment system of which tax agents are an important part.
A tax practitioner who obtains unauthorised access to an individual’s files on the portal calls the integrity of the system into question. The trust which underlies the whole system of self-assessment might be undermined. The damage is all the greater if it turns out the unauthorised access was motivated by improper, self-interested designs on the part of a tax agent.
For present purposes, I must decide whether the public interest militates in favour of preventing the applicants from remaining in practice while the allegations against them are tested. I should say at once I think it unlikely that the applicants would repeat the specific mistake of accessing the portal improperly. But Mr Rizkallah’s evidence is troubling all the same. He says he had no way of knowing whether the former client – the ex-wife of a business associate – was still serviced by the firm. He was certainly aware she was a party to litigation that involved him. He says he thought checking the portal would be a reasonable way of resolving the issue notwithstanding the obvious conflict of interest. That he did not pause before instructing his employee to do something that was so obviously problematic raises serious questions about his judgment, and about his ability to behave appropriately even in the short term.
I am also concerned by the way in which the applicants engaged with the Board. Mr Rizkallah, in his letter dated 26 August 2019, and his solicitors in subsequent correspondence, were unhelpful and argumentative. At the stay hearing, counsel for the applicants argued the clients should not be held responsible for the tone of correspondence written by their lawyers. But Mr Rizkallah set the tone in his letter, and he issued the instructions. The combative approach to the Board was unprofessional and raises questions about whether the applicants understood the magnitude of what was being clearly put against them. That also reflects poorly on the applicants’ judgment, which is an issue in the short term.
The applicants point out they generally have a good record and there have been no complaints or other incidents identified while they have operated under the interim stay.
I think the public interest weighs against exercising the discretion, although I acknowledge my concerns are lessened in circumstances where the final hearing is listed in the near future. The opportunities for mischief or mishap are less than they might otherwise be.
The consequences for the regulator
It is appropriate to consider whether making the stay order would have any impact on the regulator or implications for the performance of its role.
The approach of the applicants towards the regulator in advance of the reviewable decision is certainly problematic. The regulator needs registered tax agents to cooperate in order to do its job. Instances of non-cooperation invite a strong response. But that can be dealt with at the final hearing when all of the evidence is reviewed. It is unlikely that the Tribunal’s decision on the stay will send a message one way or the other on this. I am also satisfied the Tribunal will be able to address any concerns about the way in which the appliants have conducted themselves in the course of the investigation once all the evidence about the interaction is available. A stay decision will not send a message to the applicant or to others that compromises the Board in its work.
In those circumstances, this consideration does not count for or against the exercise of the discretion.
Would the applicant for review be rendered nugatory if the stay were not ordered?
This consideration is directed to the purpose of the stay power. Would preserving the status quo help to secure the effectiveness of the hearing?
Mr Rizkallah’s statement of 19 February 2020 says the applicants’ business will close in the short term if a stay is not granted. That is obviously true in relation to the business of providing tax agents’ services, although he did not discuss the implications for any other business interests. He claims he and the business will experience irrecoverable loss in the short term because clients would leave. Many of them would not return if the applicants were successful before the Tribunal.
I accept, as a matter of common sense, there will be disruption that will lead to significant short-term loss if the business is closed until the review is finalised. Some of that loss, at least, might not be recovered if the applicants are successful in these proceedings. I can be confident in that prediction because almost every regulatory decision of this nature will lead to loss and disruption in the short term that will be hard to recover. That risk is inherent whenever one participates in a regulated occupation: what the registration arrangements give can be taken away. The risk of irrecoverable loss might be greater in the current environment where stressed small business clients may have difficulty engaging a new tax agent. Once they go to the trouble of finding somebody new, it is unclear whether they would revert to the applicants if the applicants were successful in these proceedings.
I would prefer to have been provided with more detailed information about the applicants’ businesses and their capacity to withstand the disruption that would follow if the reviewable decision were implemented in the short term. Even so, I have enough material to be satisfied there would be enduring consequences that could not be entirely remediated should the applicants be successful on review. That conclusion suggests the efficacy of the review process is called into question.
CONCLUSION
The question of whether to grant a stay is finely balanced. In the circumstances, after having regard to all of the matters I have referred to above, I am satisfied I should make orders under s 41(2) of the AAT Act. The applicants should be permitted to remain in practice pending the outcome of the review. I do not propose to restrain the Board from publicising its decisions, partly because it would be futile in circumstances where the applicants have litigated the matter in public, but partly because individual clients should not be denied access to information about the regulatory action. Clients should have the ability to make their own assessment whether they wish to retain the applicants.
To that end, I will make the stay conditional upon the applicants writing to each of their clients to inform them of the regulatory action that has been taken and the progress of the review. The letter should be in a form approved by the Board and should include a link to these reasons for decision. A draft of that letter should be provided to the Board for its approval within two days of the date of these reasons for decision, and the letter should be provided to all of the applicants’ clients withing two business days of its being approved by the Board.
I certify that the preceding 48 (forty -eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe
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Associate
Dated: 19 August 2020
Date(s) of hearing: 22 July 2020 Date final submissions received: 21 July 2020 Counsel for the Applicant: Mr M Cashion SC and Mr D Raphael Solicitors for the Applicant: Mr G Penhall, Penhall & Co Lawyers Counsel for the Respondent: Dr G O'Mahoney Solicitors for the Respondent: Mr J Lie, Tax Practitioners Board
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