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Re HOUVARDAS and TAX AGENTS' BOARD OF NEW SOUTH WALES

Members:
O'Connor J

Tribunal:
Administrative Appeals Tribunal

Decision date: 24 May 1991

O'Connor J (President)

The applicant seeks review of a decision of the Tax Agents' Board of New South Wales of 1 May 1990 which cancelled his registration as a tax agent. The operation of this decision was stayed with the consent of the respondent on 19 June 1990 pending the hearing of this application.

2. At the hearing the applicant was represented by Mr Pape of Counsel and the respondent by Ms Henderson of Counsel. At the hearing the Tribunal had before it documents lodged with the Tribunal under s 37 of the Administrative Appeals Tribunal Act 1975 (the T documents), as well as the following documents:

  • - a report by E Elias of KPMG Peat Marwick entitled ``Report on the Current Position at your Practice and the Problems it was Faced With'' (the KPMG Report);
  • - a bundle of documents relating to the income tax return of Marcos Silva for the year ended 30 June 1987;
  • - a carbon copy of the 1988 income tax return for Dimitrios Kounavis;
  • - an application to the Australian Taxation Office (ATO) for extension of time to lodge income tax returns, dated 24 May 1989;
  • - three pages from the register of Mail Call Courier Services;
  • - five pages of lodgement lists (handwritten);
  • - a handwritten document headed ``Client Evaluation Report - Test Check List'' (the Check List);
  • - two cheque books belonging to the applicant;
  • - a handwritten note of Mr McDermott dated 7 June 1990;
  • - Affidavits of Hugh Joseph Govers dated 4 December 1990 and 13 February 1991; and
  • - Affidavit of Robert Anthony McDermott dated 27 November 1990.

3. The applicant gave evidence at the hearing. He said he is a certified practising accountant and an Associate of the Australian Society of Accountants. He first registered as a tax agent in 1975. He commenced practice on his own account in April 1977. He gave evidence that prior to 1987 he lodged about 2000 income tax returns a year. During a ``tax amnesty'' in 1988 he took on extra clients. As a result, his lodgement load increased to about 3000 returns for the 1987-1988 taxation year. Under the amnesty the applicant was required to notify the ATO of clients that he had taken on under the amnesty and to lodge their outstanding returns by 15 April 1989. He gave evidence that many of his clients did not keep proper books and, even after being asked to produce missing records, failed to produce even source documents. He also had to spend a lot of time looking after his sick mother.

4. A number of complaints have been made against the applicant by clients and former clients.

5. Mr George Zervos, a client of the applicant, wrote a letter of complaint to the Tax Agents' Board dated 23 October 1989 (T 11). Mr Zervos said that his 1986 and 1987 returns were lodged late by Mr Houvardas for which Mr Zervos had to pay late lodgement penalty. Mr Zervos continued:

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``To avoid paying any further penalties the following year 1988 I approached Mr Houvardas in July 1988 and furnished him with all relevant information for him to complete the professional/company/partnership returns. Two or three weeks later I signed all completed documents and requested Mr M Houvardas to send them to the taxation office immediately. Approximately one month later (August) I called him and he assured me that the returns had been lodged...

Mr Houvardas has also failed to reply to the Taxation Department's letter dated 3.8.89 requesting 1988 returns to be lodged within fourteen days which he ignored and did not inform me of receiving such letter.''

In a letter to the Tax Agents' Board dated 27 December 1989 and at the hearing the applicant said he could not remember the telephone call in August from Mr Zervos. He said that the records of Mr Zervos were incomplete and that in any event the 1988 return was lodged by 31 March 1989. The Tribunal asked Counsel for the applicant to produce a copy of this income tax return. This was not done.

6. Mr Zervos also gave evidence at the hearing. He told the Tribunal that he had appeared before a court charged with failing to lodge his 1988 tax return. He was fined $50.

7. In cross-examination, Mr Zervos was vague as to the nature of records kept by a company called ``Pimoda'', which he described as his own and of which he is a director. He gave evidence however that he kept all source documents for Pimoda, a partnership in which he was involved and his personal affairs.

8. Mrs Helen Pambris, a client of the applicant, is the daughter of a Mrs E Kritikos. The applicant had handled the affairs of a partnership between Mr and Mrs Pambris and Mrs Kritikos. Mrs Kritikos also had shares in Newtown Colonial Hotel Pty Limited; since about 1989 Mrs Pambris has also been a director of that company. Mrs Pambris gave evidence at the hearing that her mother has told her the company has been fined for late lodgement of its tax returns for the years ending 30 June 1988 and 1989, which returns were handled by the applicant. However, the applicant gave evidence at the hearing that any difficulties with these clients were associated with inadequate records. The 1987 to 1989 returns for the various Kritikos/Pambris partnerships, personal and company returns (apart from the personal return of Mrs Pambris) were lodged on 18 September 1990.

9. In a letter dated 13 September 1989 (document T 8) Mrs Silva, a client of the applicant, complains that the applicant assured her that he had lodged income tax returns for her and her husband for the years ending 30 June 1987 and 1988 when in fact he had not done so. The applicant explained (T 13) that he was unable to complete their returns as they were overseas in late 1987 to early 1988 and had not provided all the necessary documentation; their file was left pending. They enquired about their 1987 tax return on their return. The applicant said:

``At the time I thought that my staff had completed and lodged the returns, not realising that the clients could not be contacted prior to their departure overseas [as their telephone number had changed], and that their returns were still pending. I advised that the returns were lodged but we could not find the copies, and that we would check with the Taxation Department.''

He said he was also having trouble getting staff, he had an ill mother, and was having to deal with a sharply increased lodgement load including ``amnesty'' cases with missing records. He continued:

``After Mrs Silva had again contacted our office around 1989 I then personally checked the many outstanding pending files, and discovered that the 1987 and 1988 returns were not lodged, and completed...''

One could conclude that his advice that the returns were lodged was wrong and he had not fulfilled his undertaking to check with the Taxation Department. At the hearing, however, he said that although he had not checked he could not say that his staff had not. This applicant said at the hearing that Mr Silva failed to provide documentation despite repeated requests; such documentation as was provided eventually for the 1987 tax return was tendered at the hearing by the applicant and the Tribunal was invited to infer from these materials that proper records were not kept by the applicant's clients. Under cross-examination he said that he had allowed the client to sign the return certifying it to be correct before it was fully completed. He failed

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to explain how he could have thought that his staff had completed and lodged the returns when he was the only person who could sign the document. He admitted that when he told the client that their returns had been lodged he did not know whether this was in fact the case.

10. Dennis and Dimitrios Kounavis, clients of the applicant, complained that the applicant had not lodged tax returns with the ATO six months after he was paid to do so in 1988 and that he failed to respond to requests about what was happening (document T 10). The applicant says (document T 13) that after this letter was sent he showed his clients copies of their completed tax returns; he says that their complaint was the product of ATO delays in processing assessments that year. A tax return for Dimitrios Kounavis dated 14 June 1989 was tendered.

11. Ms Michelle Samways complained (T 15) that the applicant completed her income tax return for the year ended 30 June 1989. She indicates that she gave him a variety of source documents. However, information from some of these including information on some cheque butts was not included in the return. At the hearing the applicant explained that a return had been sent to Ms Samways in late November but she had not been prepared to sign it as she did not wish to mention a loan account from her father. An amended return was completed and lodged by the applicant after 12 April 1990 after he convinced her to include the loan account and the additional information from the cheque books was incorporated. The applicant could not recall on which date after 12 April 1990 he lodged the return; at the Tribunal's request he checked the records at his office and found that it was lodged on 27 June 1990. The Tribunal also had before it a handwritten note written by Mr McDermott of the Tax Agents' Board dated 7 June 1990. The note records that Ms Samways complained to Mr McDermott by telephone that she was unable to make contact with the applicant.

12. The Tribunal had before it an Affidavit of Robert Anthony McDermott of the Tax Agents' Board with Mr McDermott's notes of an interview with Mr Sozen annexed. According to these notes, Mr Sozen, a client of the applicant, complained that he had incurred $3,863.08 late lodgement penalties and that the applicant had been negligent in the conduct of Mr Sozen's affairs. Counsel for the applicant objected to these notes being admitted into evidence, but in view of the fact that Mr McDermott gave evidence at the hearing the Tribunal accepted the Affidavit. It appeared from a letter to the Sydney Tax Office dated 19 June 1990 that the 1988 and 1989 returns for Mr and Mrs Sozen and First Class Engineering (a company in which Mr Sozen had an interest) were lodged on 19 June. The Tribunal had before it a book of cheque butts showing payment to Mr Sozen of $3,862.65 which the applicant said was for penalties imposed on Mr Sozen for 1987 to 1989.

13. The Tribunal also had before it an Affidavit of Hugh Joseph Govers with letters of complaint from Emil Jacob (the son-in-law of a Mr J Sneddon), Thomas Hantzopoulos, G Fenwick and Nesdet Sarigul annexed. Mr Govers attended at the hearing at the request of the applicant; applicant's Counsel did not however cross-examine him on the material in his Affidavits. Mr Hantzopoulos and Mr Fenwick complain that the applicant failed to honour undertakings that he made to them. Mr and Mrs Hantzopoulos were convicted of not lodging their tax returns within the prescribed time and fined $500. The applicant undertook to pay this; subsequently they were fined for failure to pay this amount. The amount remains unpaid and now totals about $5,000. The applicant admitted that he could have sought an extension of time but did not and that as a result of this omission these clients now have criminal convictions recorded against them.

14. Also annexed to the Affidavit were a number of letters from the Australian Taxation Office which gave details of clients of the applicant who had been convicted and fined for taxation offences. The applicant gave evidence that nearly all of those persons were still his clients. Annexed to another Affidavit was a letter of complaint from J Kekatos & Partners. At the hearing the applicant gave evidence about these clients. He said that the problems with Mr Sneddon arose from his son-in-law confusing a demand for payment of the 1988 tax return with payment of the 1989 return. Mr Jacob specifically complained that he telephoned the applicant five times but his calls were not returned. The applicant's response, in evidence, was ``I must admit I was hard to get at the time'' although he thought his staff were

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``dealing with the matter''. A letter from the applicant to Beverly Marsh shows the 1989 return was lodged about 25 January 1991. The applicant said that Mr Hantzopoulos did not keep proper books and that he was in spite of everything still a client of the applicant. Further, although the applicant considered late lodgement penalties incurred by the client were the result of the client and his partner keeping two sets of books and accordingly the client's fault he undertook to pay these penalties. Yet at the time of the hearing the applicant had not honoured this undertaking. As regards Mr Fenwick and Mr Sarigul the applicant said that delays in lodging returns were the result of his having taken on too much work. The applicant told Counsel for the respondent that he would make inquiries and tell the Tribunal when he lodged Mr Sarigul's return. The applicant paid Mr Sarigul $908.54 to reimburse him for penalties imposed. The applicant did not challenge Mr Fenwick's complaint that he and his wife were ``consistently misled and lied to that the submissions had been made'', but said that they were not lied to because he assumed the returns had been lodged. He made this assumption because he knew the returns were completed and there was no reason for him to hang on to the returns. He thought the records had probably been misplaced within the office if they had not been lodged.

15. The applicant has been convicted of a number of taxation offences (document T 16):

  • (1) on 24 July 1980, 8 June 1984, and 19 February 1985 he was convicted of failure to comply with notices to furnish various returns under s 223 of the Income Tax Assessment Act 1936 (the ITAA) (now repealed);
  • (2) on 16 November 1984 he was convicted of failure to comply with a court order to furnish the 1983 return under s 225 of the ITAA (now repealed);
  • (3) on 27 March 1987 he was convicted of failure to comply with a notice to furnish the 1985 and 1986 returns under s 8C of the Taxation Administration Act 1953 (the TAA); and
  • (4) on 8 October 1987 he was again convicted of failure to comply with a notice to furnish the 1985 and 1986 returns.

After the convictions in March 1987 the applicant signed an Annual Notice by Registered Tax Agent dated 1 April 1987 (document 3A). In answer to the question:

``Have you, during the previous twelve months, been convicted of any offence (including any offences under the Income Tax Assessment Act) against the law of Australia, a State, a Territory or any other country...?''

the applicant ticked the ``no'' box. When asked about this matter he explained that this was because he thought it referred only to tax agents' situations and not his personal taxation affairs, and because he thought as the Tax Department knew about it the Tax Agents' Board also knew. After the October 1987 conviction the applicant signed another Annual Notice on 3 March 1988, again answering this question ``no''.

16. The applicant submitted that although he had experienced difficulties with his practice about three years ago, these difficulties were the only ones in his fourteen years of practice on his own account. They were the result of an increased workload due to taking on amnesty cases, his mother being sick and staff problems. Many clients did not keep proper records and failed to provide source documents. He had recognised these problems and had sought to overcome them by taking professional advice. On his instruction KPMG Peat Marwick prepared a report on the practice. The applicant received a preliminary report in about September or October 1990. The final report tendered to the Tribunal reported on the situation as at 25 February 1991. The ATO produced a list of tax returns under the applicant's control on 20 December 1990. Since that date a number of clients had been deleted and others added so that on 25 February 1991 the applicant was responsible for 1939 returns for the year ended 30 June 1990, of which 90.5% had been lodged. He was also responsible for 496 returns for previous years of which 63.3% had been lodged. Of the 172 returns not lodged, 76 were nearly completed, 54 were not started or in progress, and the completion of 42 was being hindered by missing information from clients. The KPMG Report observes that since KPMG Peat Marwick's involvement with the practice much better tax lodgement records are kept for lodged

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tax returns and deletions of clients. The KPMG Report made a number of recommendations to the applicant including:
  • (i) institution of a formal client evaluation process to assess the scope of the engagement before accepting it;
  • (ii) deletion of existing clients who are not providing appropriate and complete records from the applicant's tax lodgement program where appropriate (including the 42 clients whose 1989 and prior year lodgements cannot be done due to missing information and the 54 clients whose returns were not started or in progress);
  • (iii) employment of additional staff to meet the increased volume of work and possibly also an office manager; and
  • (iv) implementation of a standard administration program.

The author of the KPMG Report, Mr Ezekial Elias gave oral evidence. The applicant told the Tribunal that he had implemented a formal client evaluation procedure which included a test check list. He said that now where a client cannot keep proper books his staff would prepare the proper documents at a cost. At the Tribunal's request the applicant undertook to provide a copy of the check list. On the following day on resumption of the hearing a handwritten Test Check List was produced (Exhibit 7); the applicant explained that this was written in his own handwriting having been written the previous evening, because his computer operator had been ``unavailable'' to produce a hard copy of the check list although it was on the computer. The Tribunal also asked to see any other documents for training or information for the staff now handling clients; the applicant produced handwritten documents. These documents were lists of tax returns lodged with the Tax Agent Liaison Centre or the Defaults Office; the applicant said they were an example of a procedure he instituted in June 1990 whereby a covering letter with a list of accompanying returns and a request to stamp and return the same were sent to the ATO with the returns lodged. In this way the applicant obtained evidence that the returns had been lodged. The applicant said he has taken on a qualified accountant and was about to take on another university graduate. He also has a secretary and a computer operator.

17. In this matter the Tribunal has to be satisfied about two matters:

  • (1) whether the applicant has neglected the business of a principal (s 251K(2)(b)(i) of the ITAA); and
  • (2) whether the applicant has been convicted of a ``serious taxation offence'' during the previous five years as defined in s 251A of the ITAA. If he has been, then s 251BC(1) provides that he is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters.

If the answer to either of the above questions is yes, then the Tribunal has to consider:

  • (3) the appropriate exercise of its discretion to suspend or cancel the registration of the tax agent under s 251K(2).

18. The Tribunal is required to be satisfied of the allegations against the applicant, but the degree of satisfaction required depends on the seriousness of the allegation made and the gravity of the consequences flowing from a particular finding.
Briginshaw v Briginshaw & Anor (1938) 60 CLR 336 at 361-362 per Dixon J;
Hardcastle v Commissioner of Police (1984) 53 ALR 593 at 603.

19. As previously stated the applicant objected to the admission into evidence of certain documents annexed to Affidavits tendered at the hearing and also to part of the T documents where complaints against the applicant were made by persons who were not made available for cross-examination at the hearing. Lodgement of the T documents was mandatory under s 37(1)(b) of the Administrative Appeals Tribunal Act 1975 (AAT Act) and, subject to observation of the rules of natural justice and s 39 of the AAT Act, the Tribunal is entitled to take into account any material before it which is relevant to any issue it has to determine. Although not bound by the rules of evidence, in a situation where the Briginshaw principle requires a high standard of proof it may be that where a fact to be established is an important one essential to the determination it should be proved by cogent evidence such as a person exercising common prudence could safely act upon (see
Bercove v Hermes (No 3) (1983) 74 FLR 315 at 323). Accordingly, although the Tribunal is not obliged to completely disregard statements

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made by persons who were not available for cross-examination at the hearing the Tribunal accepts the applicant's explanations of these materials.

20. Counsel for the applicant submitted that the Tribunal was precluded from considering the applicant's taxation offences and his failure to declare the offences in two Annual Notices. The applicant had been asked to explain the offence and to show cause as to why the Board should not consider him not to be a fit and proper person when he sought registration as a tax agent in 1989. On 12 July 1989 (document T 6) he had done so and the Board had apparently accepted his explanation (document T 7) when it re-registered him as a tax agent. The Board thereby created a legitimate expectation that it would not revoke the decision. In support of this, Counsel relied on
Haoucher v Minister of State for Immigration and Ethnic Affairs (1989) 93 ALR 51. However, that case decided that where a legitimate expectation arose it would give rise to a prima facie entitlement to procedural fairness for the future. This entitled the appellant to the opportunity to persuade the Minister that the recommendation of the AAT in that case should be followed (page 76). The legitimate expectation arose because of a policy that AAT recommendations that a person not be deported should be overturned by the Minister only in exceptional circumstances and only where strong evidence could be produced to justify his or her decision. Deane J said of the term:

``the word `legitimate' is prone to carry with it a suggestion of entitlement to the substance of the expectation whereas the true entitlement is to the observance of procedural fairness before the substance of the expectation is denied...''

(p 52)

Counsel further submitted that a legitimate expectation can found in public law a right similar to an estoppel in private law, but, as Brennan J said in
Annetts & Anor v McCann & Ors ((1990) 97 ALR 177 at 184), ``[n]o doctrine of administrative estoppel has emerged''. The Tribunal is therefore able to consider the applicant's taxation offences.

Has the applicant neglected the business of a principal?

21. The Tribunal finds that the applicant has neglected the business of a principal in the following respects:

  • (i) as a result of the negligent conduct of his practice, a number of his present and former clients, in particular Mr Zervos and Mr Hantzopoulos, now have criminal convictions recorded against them. It was submitted on behalf of the applicant that some of these clients, because of their poor record keeping and business practices, had brought this misfortune on themselves. In the case of Mr Zervos, who gave evidence at the hearing that he had taken particular precautions to avoid this happening, which the Tribunal accepts, this is clearly not the case. Nor, in the case of Mr Hantzopoulos, can the Tribunal accept the applicant's explanation;
  • (ii) he permitted Mr Silva to sign an incomplete taxation return;
  • (iii) he failed to reply to a letter from the Taxation Department dated 3/8/89 requesting Mr Zervos' 1988 return be lodged within fourteen days and failed to inform his client that such a letter had been received. As a result the client was convicted of an offence;
  • (iv) he assured Mrs Silva that he had lodged income tax returns for her and her husband for the years ending 30 June 1987 and 1988 when in fact he had not done so. Further, he failed to fulfil his undertaking to check these matters with the Taxation Department;
  • (v) as a result of taking on too much work he delayed in lodging Mr Sarigul's return which resulted in $908.54 in penalties being imposed on this client;
  • (vi) he consistently misled his client, Mr Fenwick, as to the lodgement of returns when in fact the records had been misplaced in the office.

Has the applicant been convicted of any serious taxation offences during the previous five years?

22. The Tribunal finds that the applicant was convicted of serious taxation offences under s 8C of the Taxation Administration Act 1953 on 8 October 1987.

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Should the applicant's registration be cancelled or suspended?

23. It was submitted on behalf of the applicant that this is not an appropriate case for the exercise of the discretion to suspend or cancel.

24. To support this submission the following matters were put to the Tribunal:

  • (i) Mr Houvardas' practice attracted clients, particularly during the amnesty period, at ``the lower level of the market''. These clients had poor business practices and poor records and these factors were the principal cause of what has been admitted were unsatisfactory professional outcomes such as loss of material, late lodgement and fines;
  • (ii) he paid the fines incurred by these clients, not because of legal or moral obligation, but because he saw it as a solution to his problems. This was mistaken and the applicant now realises this; and
  • (iii) he has, by securing the services of Peat Marwick to develop a management plan for his business, abandoned the practices which led to his professional problems and as a result, his practice is now functioning smoothly.

The Tribunal does not accept these submissions. It has considered the weight which should be given to the Peat Marwick report and the likelihood that this plan will be implemented successfully. At the time of the hearing the applicant had had the benefit of Mr Elias' advice since August of 1990 - a period of six months. There was evidence that between 20 December 1990 and 25 February 1991, 65 new clients had been taken on in the practice. Great emphasis was given by the applicant to the fact that a client assessment form had been developed to screen clients as to their business practices and records and other matters with a view to either preventing the acquisition of the sort of client who had created problems for the applicant or else arranging for proper record keeping at a cost. A proper copy of this assessment form could not be produced at the hearing. The Tribunal does not accept the applicant's explanation that this form, if it existed, could not be produced overnight. The exhibit called ``Client Evaluation Report - Test Check List'' in the applicant's handwriting does not convince the Tribunal that such a form is in fact in systematic use in the applicant's practice.

25. Further, the Tribunal does not accept that the Peat Marwick plan is currently operational in any substantial way in the applicant's practice. To the extent that the plan has been implemented, the Tribunal is concerned about one particular matter - the amnesty clients. Evidence was given by the applicant that amnesty clients who are to be deleted had not been notified of this management decision, although they probably would be told ``within the next 14 days''. The respondent submitted that such clients who had tax problems going back to 1973 were now in a very serious position with loss of amnesty protection and had not yet been notified about the applicant's unilateral decision to delete them. The Tribunal accepts that submission. Although the Tribunal does not accept the submission that the Peat Marwick consultancy was and is a self-servicing exercise entirely, it is not satisfied that it has been implemented effectively at present or will be so implemented in the future.

26. The primary purpose of exercising the discretion to cancel is to protect the public. It is not to punish the tax agent for past wrongdoing. Considerations of personal hardship cannot override this primary purpose. See
Re Su and the Tax Agents' Board, SA 82 ATC 4284; (1982) 61 FLR 1 and
Re Chapman and the Tax Agents' Board of SA 84 ATC 4353. The power to suspend the registration of a Tax Agent did not exist before 1 November 1988. Cases decided before then should be treated with caution. As Davies J said in 1983:

``The only sanction which the Tax Agents' Board may impose is a sanction by way of cancellation of registration. For this reason, cancellation of a tax agent's registration may be effected for less cause than would be the case if the alternatives of fine or suspension were available. Nevertheless, there should be strong reasons for cancelling a registration.''

(
Re Denton and Tax Agents' Board, SA 83 ATC 4009 at 4013; (1983) 5 ALN No 17 at N21.)

There may be cases in which a tax agent's registration would previously have been cancelled and in which it would now be suspended.

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27. This is not such a case. The applicant has committed a number of serious tax offences and made false statements to the Taxation Board in respect of these matters on two occasions and he has seriously neglected his clients' interests.

28. In weighing these matters against the explanations given by the applicant in his evidence and on his behalf by his Counsel, the Tribunal is not convinced that they are of sufficient weight to counter the need to allow the public to be confident that those who practise as tax agents are fit and proper persons and competent professional people.

29. The Tribunal affirms the decision under review.


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