Tax Practitioners Board v Hacker (No 3)

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FEDERAL COURT OF AUSTRALIA

Tax Practitioners Board v Hacker (No 3) [2020] FCA 1814

File number: QUD 106 of 2019
Judge: RANGIAH J
Date of judgment: 18 December 2020
Catchwords:

TAXATION – contraventions of ss 50-5(1) and 50-5(2) of the Tax Agent Services Act 2009 (Cth) – where contraventions established – whether declaratory and injunctive relief appropriate – imposition of pecuniary penalties

CONTEMPT OF COURT – contempts by first and second respondent established – consideration of appropriate penalties – consideration of age and health of first respondent – where contempts were wilful and contumacious – imposition of sentence of imprisonment on first respondent – imposition of fine on second respondent

COSTS – whether respondents should pay whole of applicant’s costs – applicant succeeded on some issues and not others – costs apportioned

COSTS – whether indemnity costs are appropriate – where substantial fines and sentences of imprisonment will be imposed on respondents – costs ordered on party-and-party basis

Legislation:

Fair Work Act 2009 (Cth) s 546

Federal Court of Australia Act 1976 (Cth) s 31

Tax Agent Services Act 2009 (Cth) ss 2-5, 50-5, 50-10, 50-15, 50-35 and 70-5

Federal Court Rules 2011 (Cth) rr 42.11 and 42.12
Cases cited:

Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112

Australasian Meat Industry Employees’ Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98

Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157

Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169; [2002] FCA 559

Australian Competition and Consumer Commission v Dynacast (Int) Pty Ltd (formerly Phoneflasher.com Pty Ltd) ACN 001 234 642 [2007] FCA 429

Australian Competition and Consumer Commission v Halkalia Pty Ltd (No 3) [2017] FCA 522

Australian Competition and Consumer Commission v INFO4PC.com Pty Ltd (2002) 121 FCR 24

Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640

Australian Opthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560

Australian Securities & Investments Commission v Soust (No 2) (2010) 78 ACSR 1; [2010] FCA 388

Bovis Lend Lease Pty Ltd v Construction Forestry Mining and Energy Union (No 2) [2009] FCA 650

Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 3) [2007] FCAFC 119

Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482

Construction, Forestry, Mining and Energy Union v BHP Steel (AIS) Pty Ltd (2003) 196 ALR 350

Construction, Forestry, Mining and Energy Union v Cahill (2010) 194 IR 461

Construction, Forestry, Mining and Energy Union v Pilbara Iron Company (Services) Pty Ltd (No 4) (2012) 225 IR 113; [2012] FCA 894

Deputy Commissioner of Taxation v Hickey [1999] FCA 259

Director of Fair Work Building Industry Inspectorate v Cartledge (No 2) [2015] FCA 851

Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261

Hughes v Western Australian Cricket Association Inc (1986)…

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Details
Case
[2020] FCA 1814
Decision Date

CaseChat Overview and Summary

This matter concerns proceedings brought by the Tax Practitioners Board (TPB) against three respondents in respect of contraventions of the Tax Agent Services Act 2009 (Cth) (TAS Act) and contempt of court. The TPB sought injunctive and declaratory relief, pecuniary penalties, and costs. The respondents are David John Hacker (Mr Hacker), Osgs Pty Ltd (OSGS), and Naleview Pty Ltd (Naleview). The TPB brought the proceedings against Mr Hacker and OSGS in respect of contraventions of the TAS Act. Naleview was joined as a party to the proceedings by the TPB at a later stage. The proceedings against Naleview were brought in respect of contempt of court only. The TPB established that Mr Hacker, OSGS, and Naleview had contravened provisions of the TAS Act by providing tax agent services while unregistered. The TPB also established that Mr Hacker was guilty of contempt of court. The court was required to determine the appropriate relief and penalty to impose in respect of the contraventions of the TAS Act, the contempts, and the costs of the proceedings. The court found that the contraventions of the TAS Act were serious and deliberate. The court found that the contempts were wilful and contumacious. The court found that the respondents had not demonstrated sufficient contrition or co-operation with authorities. The court found that the contraventions of the TAS Act warranted pecuniary penalties. The court found that the contempts warranted imprisonment for Mr Hacker and a fine for OSGS. The court ordered that the respondents pay 35% of the TPB's costs of the proceedings on a party-and-party basis. The court ordered that Mr Hacker pay $106,875 in pecuniary penalties, OSGS pay $65,625 in pecuniary penalties, and Naleview pay $455,625 in pecuniary penalties. The court ordered that Mr Hacker be imprisoned for a total of 10 months and that OSGS pay a fine of $15,000. The court ordered that Mr Hacker be restrained from providing tax agent and BAS services for fee or reward, and that OSGS and Naleview be restrained from providing tax agent services for fee or reward, unless each respondent was registered to provide those services under the TAS Act. The court ordered that the respondents pay 35% of the TPB's costs of the proceedings on a party-and-party basis.

Orders

Orders of the court

9. Pursuant to s 70-5(1) of the Act, each respondent is restrained from providing or offering to provide any tax agent services (as defined in the Act) for fee or reward, unless that respondent is, at the relevant time, registered to provide those services under the Act.

10. Pursuant to s 70-5(1) of the Act, the first respondent is restrained from providing or offering to provide any BAS services (as defined in the Act) for fee or reward, unless the first respondent is, at the relevant time, registered to provide those services under the Act.

11. Pursuant to s 50-35 of the Act, the first respondent pay pecuniary penalties to the Commonwealth totalling $106,875 for the contraventions described in Order 1 above.

12. Pursuant to s 50-35 of the Act, the second respondent pay pecuniary penalties to the Commonwealth totalling $65,625 for the contraventions described in Order 2 above.

13. Pursuant to s 50-35 of the Act, the third respondent pay pecuniary penalties to the Commonwealth totalling $455,625 for the contraventions described in Order 3 above.

14. The second respondent pay a fine of $15,000 to the Commonwealth in respect of the contempts referred to in Orders 5, 6, 7 and 8, such fine to be paid by Fisher Dore Lawyers to the Commonwealth pursuant to the Irrevocable Authority dated 26 November 2019 provided by the first respondent on behalf of the second respondent.

15. The first respondent be imprisoned for a period of 14 days for each of the three contempts described in Order 5, each sentence to be served concurrently with the other sentences described in Order 5.

16. The first respondent be imprisoned for a period of one month for each of the eight contempts described in Order 6, each sentence to be served concurrently with the other sentences described in Order 6, but consecutively upon the sentences described in Order 5.

17. The first respondent be imprisoned for a period of two months for each of the three contempts described in Order 7, each sentence to be served concurrently with the other sentences described in Order 7, but consecutively upon the sentences described in Order 6.

18. The first respondent be imprisoned for a period of four months for each of the nine contempts described in Order 8, each sentence to be served concurrently with the other sentences described in Order 8, but consecutively upon the sentences described in Order 7. After the first respondent has served one month of the four months’ imprisonment, the first respondent will be released from prison and the balance will be suspended from execution subject to the condition that the first respondent will be imprisoned for at least the balance in the event that the first respondent contravenes Order 9 or Order 10 within three years of the date of these Orders.

19. A warrant issue for the committal of the first respondent to prison.

20. The warrant not be executed for a period of 35 days from the date of these Orders.

21. The respondents pay 35% of the applicant’s costs of the proceedings on a party-and-party basis.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

APPENDIX A

TABLE 1

No.

Date

Tax Agent Service

Client

1

12.09.2018

2018 Income Tax Return (ITR)

Jung, Yuri

2

06.03.2019

2018 ITR

Lore, Palwinder Singh

3

14.03.2019

2018 ITR

Park, Jeremy Jihyuk

4

19.03.2019

2018 ITR

Shaikh, Mohammed Rizwan

5

12.09.2018

2018 ITR

Wong, Wai Kam

TABLE 2

No.

Date

Tax Agent Service

Client

1

15.09.2018

2018 ITR

Abelita, Mary Ann

2

25.08.2015

2015 ITR

Anderson, Desley Frances

3

17.08.2016

2016 ITR

Anderson, Desley Frances

4

20.08.2017

2017 ITR

Anderson, Desley Frances

5

25.08.2015

2015 ITR

Anderson, John Paul

6

17.08.2016

2016 ITR

Anderson, John Paul

7

20.08.2017

2017 ITR

Anderson, John Paul

8

19.08.2016

2016 ITR

Arandela, Michael

9

25.07.2017

2017 ITR

Arandela, Michael

10

21.08.2018

2018 ITR

Arandela, Michael

11

24.09.2018

2018 ITR

Becker, Ana Crolina

12

31.07.2016

2016 ITR

Bergin, Julie Fay

13

22.07.2017

2017 ITR

Bergin, Julie Fay

14

13.07.2018

2018 ITR

Bergin, Julie Fay

15

13.10.2017

2017 ITR

Camacho, Mark

16

31.10.2018

2018 ITR

Camacho, Mark

17

24.09.2018

2018 ITR

de Paulo, Claudemir Ferreira

18

29.09.2018

2018 ITR

Ewnetu, Gebeyaw

19

18.12.2018

Amendments to 2018 ITR and/or voluntary disclosure form

Fitzgerald, Edelmira de Leon

20

13.09.2018

2017 ITR

Giri, Nirmal

21

13.09.2018

2018 ITR

Giri, Nirmal

22

19.08.2017

2017 ITR

Gregas, Gary

23

12.08.2017

2017 ITR

Gregas, Maricris

24

29.09.2018

2018 ITR

Gregas, Maricris

25

31.07.2016

2016 ITR

Harte, Leith Ann

26

22.07.2017

2017 ITR

Harte, Leith Ann

27

16.07.2018

2018 ITR

Harte, Leith Ann

28

26.08.2018

2018 ITR

Hlawn-Maul, Sui Te

29

20.08.2016

2016 ITR

Kerr, Jeffrey Scott

30

18.08.2017

2017 ITR

Kerr, Jeffrey Scott

31

28.09.2018

2018 ITR

Kerr, Jeffrey Scott

32

08.07.2018

2018 ITR

Law, Sarath

33

24.10.2018

2018 ITR

Poudel, Prakash Raj

34

24.10.2018

2018 ITR

Poudel, Rukmani Adhikari

35

11.07.2016

2016 ITR

Stewart, Katie Jane

36

08.07.2017

2017 ITR

Stewart, Katie Jane

37

15.09.2018

2018 ITR

Vulker, Suryati

TABLE 3

No.

Date

BAS Agent Service

Client

1

30.10.2017

Business Activity Statement (BAS) for period ended 31 March 2017

Comacho, Mark

2

30.10.2017

BAS for period ended 30 June 2017

Comacho, Mark

3

30.10.2017

BAS for period ended 30 September 2017

Comacho, Mark

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

I will proceed by first considering the evidence adduced in the penalty hearing. I will then consider the relief sought by the applicant in respect of the contraventions of the TAS Act, and then relief in respect of the contempts. I will then deal with the issue of costs.Evidence adduced in the penalty hearingMr Hacker Mr Hacker gave evidence. He deposed that he became a tax agent in 1979, but that his license lapsed in 1982/83. He has worked as an accountant in the years since then. He is now 72 years of age. In his affidavit, Mr Hacker acknowledged his wrongdoing in respect of each of the contempt charges. He stated that, with the exception of the first set of contempt charges, he provided early instructions to admit the charges. He said that liability as to the first set of contempt charges was contested on the basis of a legal argument, but that he admitted the underlying conduct. On 26 November 2019, Mr Hacker paid into his solicitor’s trust account the amount of $15,000 as security against the commission of further contempts on behalf of each respondent. He accepts that the $15,000 should be forfeited. Mr Hacker deposed that he has no prior convictions in relation to contempt of court, and has never previously been the subject of any professional disciplinary proceedings in respect of his work as an accountant. Mr Hacker annexed to his affidavit a report from Peter Perros, a neuropsychologist, dated 11 September 2020, and a report from Dr Catherine Yelland, a geriatrician, dated 15 September 2020. In his report, Mr Perros noted that Mr Hacker reported that he was not depressed, anxious or stressed, and seemed untroubled by the potential penalties he faces. Mr Perros said that neuropsychological assessment had identified a subtle visuospatial disturbance and inefficient visual scanning, which could contribute to clerical errors in his work. Mr Perros said that this was not a full explanation of the offending as, for example, Mr Hacker said that he provided taxation services to at least some clients because they were struggling. Mr Perros said that there was “a small chance” that Mr Hacker’s judgement was sub-optimal due to a medical condition. His testing suggested that there was an emerging picture of an age-related cognitive decline. Mr Perros said that the opinion of a geriatrician was needed to clarify whether the cognitive difficulties identified by the assessment were functional or biological in nature. Under cross-examination, Mr Hacker was taken to a passage of Mr Perros’ report which stated that:Mr Hacker reported that he had continued lodging income tax returns for clients who are themselves under financial strain and personal duress, and he bowed to pressure to make claims for deductions the clients were not entitled to or could not prove. Mr Hacker accepted that he told Mr Perros that clients had pressured him into making deductions to which they were not entitled, but denied that was a lie. Mr Hacker agreed that he had told Dr Yelland that he did not lodge clients’ tax returns. He accepted a proposition put to him that the contempt charges that he had admitted had, as their underlying basis, that he had lodged tax returns on behalf of taxpayers. However, that proposition was inaccurate—the basis of the contempt charges was that Mr Hacker and OSGS had prepared income tax returns, not that he had lodged them.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

However, it must be remembered that the respondents are being sentenced only for providing unregistered tax agent services, and, in Mr Hacker’s case, by also providing unregistered BAS services, in contravention of s 50-5 of the TAS Act. Under s 50-35(2), the Court may order payment of the pecuniary penalty that the Court determines is appropriate if the Court is satisfied that a person has contravened a civil penalty provision. The respondents’ contraventions are based only upon the fact of having provided the services for fee or reward while unregistered, not upon incompetence or fraudulent conduct in providing those services. It would not be appropriate to impose a penalty for consequences that are outside the scope or reach of the particular provision that is contravened. In my opinion, it is not appropriate to determine penalties based upon harm caused to clients resulting from the provision of the tax agent services.Co-operation Co-operation with authorities in the course of investigations and subsequent proceedings will be a mitigating factor that may reduce the penalty that would otherwise be imposed. The reduction reflects the fact that such co-operation:(a) can be evidence of contrition and an acceptance of responsibility;(b) increases the likelihood of co-operation in a way that furthers the object of the legislation;(c) frees up the regulator’s resources, thereby increasing the likelihood that other contraveners will be detected and brought to justice; and (d) reflects a willingness to facilitate the course of justice.(See NW Frozen Foods v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 293–294; Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 at [73]–[74].) I have rejected any suggestion that the respondents have demonstrated contrition. However, I accept that OSGS and Naleview have cooperated to some extent in a way that reflected a willingness to facilitate the course of justice and has saved the regulator’s resources to some extent. OSGS and Naleview admitted a number of contraventions, although they denied others that were ultimately proved. The admissions were made in the face of a strong case against them, supported by affidavits from each of the relevant clients. I accept that they are to be given some credit for their admissions. While Mr Hacker submits that he should also be given credit for his admission of a number of facts and for the fact that he did not challenge clients’ evidence, any such credit should be very limited. The admissions were made after much of the evidence had already been gathered and in the face of a strong case against him. Double punishment The respondents submit that s 50-35(3) of the TAS Act is applicable. Section 50–35(3) provides that:If conduct contravenes 2 or more civil penalty provisions of this Act, proceedings may be instituted against you in relation to the contravention of any one or more of those provisions. However, you are not liable to more than one pecuniary penalty in respect of the same conduct.