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[2022] FCA 72
Federal Court of Australia
2022-02-07
Mr J, Davies J
Original judgment source is linked above.
Introduction 1 This appeal is brought by the applicant (the Commissioner) pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) from a decision of the Administrative Appeals Tribunal (the Tribunal), which set aside the Commissioner's decision made under ss 126A(1) and (3) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) to disqualify the respondent (Mr Coronica) from acting as a trustee of a superannuation fund (the disqualification decision). Mr Coronica's application for review of the disqualification decision was heard by the Tribunal concurrently with an application he made in his capacity as trustee of the G Coronica Superannuation Fund (the Fund) to review the decision of the Commissioner to issue a notice of non-compliance to the Fund under s 40(1) of the SIS Act. That decision was affirmed by the Tribunal and is not the subject of an appeal by Mr Coronica.
Legislative framework 2 The SIS Act makes provision for "the prudent management" of regulated superannuation funds and for their supervision by regulators (s 3(1)). A regulated superannuation fund is a superannuation fund that meets the requirements of s 19(2)-(4), namely: it must have a trustee; either the trustee must be a "constitutional corporation" or the fund must be a pension fund; and the trustee must elect for the fund to become a regulated superannuation fund. In return for a trustee electing for the fund be to be subject to regulation and supervision under the SIS Act, the fund may become eligible for concessional taxation treatment under the Income Tax Assessment Act 1997 (Cth) (ITAA 1997): SIS Act s 3(2). To qualify, the fund must be a complying superannuation fund for the purposes of the ITAA 1997 in relation to a year of income (see SIS Act, s 45). 3 The Commissioner is one of the regulators under the SIS Act and, by ss 5(2)(c) and 6(1) is given the general administration of the provisions of the SIS Act as they relate to regulated self-managed superannuation funds, including a fund's complying status for tax purposes. The requirements for a self-managed superannuation fund to be a complying superannuation fund are set out in s 42A and include the trustee's compliance with the operating standards prescribed by the SIS Act for self-managed superannuation funds. Section 42A(5) requires either that the trustee has not contravened any regulatory provisions during the year of income or, if contraventions during the income year have occurred, the Commissioner nevertheless thinks that a notice should be given to the trustee stating that the self-managed superannuation fund is a complying superannuation fund. In making that decision, the Commissioner must give consideration to the taxation consequences for the self-managed superannuation fund if it were to be treated as a non-complying superannuation fund, the seriousness of the contraventions and all other relevant circumstances: s 42A(5)(b)(i)-(iii). Where a fund does not meet the requirements of s 42A in a year of income, the Commissioner, by s 40(1), may revoke the complying status of the fund and, if revoked, the notice of compliance is taken never to have been given. 4 By s 34 of the SIS Act, it is a requirement for a trustee of a superannuation fund to ensure that the prescribed operating standards applicable to the fund are complied with at all times. A contravention of s 34 renders the trustee liable for administrative and criminal penalties: ss 34, 166. Contravention also renders the trustee liable to disqualification from acting as a trustee: ss 120, 126A. These sanctions are directed at ensuring compliance by trustees with their fiduciary and regulatory obligations: Senate Select Committee on Superannuation, Parliament of Australia, Safeguarding Super (Report, June 1992) 42-4; Supplementary Explanatory Memorandum, Superannuation Industry (Supervision) Consequential Amendments Bill 1993 (Cth) 1.
The tribunal decision 5 The Tribunal affirmed the Commissioner's decision to issue a notice of non-compliance under s 40(1) to Mr Coronica as trustee for the Fund in respect of the 2009 income year (the non-compliance decision), finding numerous contraventions of the SIS Act in that income year which, in the view of the Tribunal, justified the decision to give that notice. It is sufficient to set out the Tribunal's findings at [323], where the Tribunal stated: The contraventions here are numerous. The trustee's actions or inactions: (a) involve multiple contraventions in the 2009 financial year and the contraventions extend over a period of time, including in the 2008 year through to the 2013-14 year; (b) go well beyond the acquisition of Nominees; (c) were implemented by an experienced accountant, registered tax agent and registered company auditor, who ought to have known that the arrangements constituted contraventions of the [SIS Act]; (d) were in breach of the provisions of the deed; (e) were in breach the trustee's covenants to keep the money and other assets of the Fund separate from those held by the trustee personally; (f) involved Mr Coronica being advanced, interest-free and unsecured, significant current day financial benefits for periods in the order of 9 to 12 months in at least two years; (g) involved Mr Coronica providing interest-free credit to the Fund for periods in the order of six months or more in at least more than one year; (h) involved the intentional acquisition of a related company for the dominant purpose of receiving franked dividends out of pre-acquisition profits and to provide personal income tax benefits and a contravention of the Sole Purpose test; (i) involved the lodgement of the 2009 Income Tax Return (and preparation of the Statement of Financial position) with misleading disclosure of the true asset and liability position of the Fund; (j) [i]nvolved Mr Coronica's reliance on his undocumented valuation of his private investment company that, while not wilful, was grossly negligent if not incompetent; and (k) the contravention in (h) above was not corrected within amnesty periods made public by the Commissioner and only corrected well after the Commissioner's audit activities had concluded. 6 The Tribunal found that the number and nature of the contraventions of the standards were very serious and that the seriousness was amplified by the standing of Mr Coronica as an experienced accountant, registered tax practitioner and registered company auditor: at [324]. The Tribunal held that it would be inconsistent with the objects of the SIS Act to issue a notice of compliance, reasoning that the s 40 notice was properly issued and the discretion afforded by s 42A(5)(b) was "not to be exercised": at [329]. 7 The Tribunal, however, determined not to disqualify Mr Coronica under s 126A and in lieu, the Tribunal accepted various undertakings from him. 8 In respect of s 126A(1), the Tribunal reasoned that the increased tax payable by the Fund in consequence of upholding the non-compliance decision was a monetary impost in the nature of a penalty imposed on Mr Coronica for his actions as trustee in contravening the SIS Act, because he was the only member of the Fund with an account balance and the taxation consequences had reduced his entitlements: at [333], [359]. The Tribunal considered that the financial consequences for Mr Coronica met the "sentencing objectives" identified by the High Court in Rich v Australian Securities and Investments Commission [2004] HCA 42; 220 CLR 129 (Rich v ASIC) at [32], namely "the need to protect society, deter both the offender and others, to exact retribution and promote reform": at [335] and [343]. 9 In respect of s 126A(3), the Tribunal reasoned as follows at [360]-[365]: The Tribunal notes that apart from the contraventions discussed above Mr Coronica is rightly proud that his fund has performed well, even after the reversal of the concessional tax privileges the Fund has delivered savings for his retirement consistent with the objects of savings through a regulated fund. Mr Coronica's attempted rectification, despite being begrudgingly and belated, and in part occurring after the disqualification, does demonstrate a newfound willingness to comply with the requirements of the [SIS Act]. The contraventions of the [SIS Act] founded on keeping the trustee's personal affairs and the Fund's affairs separate ceased in 2014, after intervention of the Fund's auditor. As a witness, Mr Coronica appeared to be a very proud man. That pride interfered with a proper understanding as to the boundaries of his competence and the benefits of a good governance model. This and his sole practitioner history contributed to him not understanding when the boundaries of his competence were challenged. There may also have been a factor that he did not appropriately prioritise complying with his personal affairs. The deterrent effect of the non-compliance assessment has clearly focussed him on prioritising compliance. He genuinely expresses a desire to going forward 'tick all the boxes'. This is evidenced by his willingness to enter 'appropriate undertakings'. The Tribunal is of the view he wants to, and will, do the correct thing if appropriate governance arrangements are in place. A past misjudgement of competence should not automatically result in what is in effect a lifetime ban. Section 126A of the [SIS Act] requires an assessment as to whether that previous misjudgement is recognised, and action taken that it will not reoccur. The proposed enforceable undertakings are an acknowledgement that corrective actions are necessary. The Tribunal is of the opinion that with appropriate enforceable undertakings which include a commitment to adopting appropriate governance arrangements Mr Coronica is highly likely to comply going forward. 10 The Tribunal concluded at [366] as follows: The Tribunal finds that due to the size of the monetary penalty, as a consequence of the [n]on-compliance [d]ecision, the attempted rectification of the breaches, his commitment to keep his personal affairs and the Fund's compliance separate since 2014, the willingness to provide appropriate undertakings and the assessment of a highly unlikely future compliance risk, the exercise of the discretion in section 126A(1) of the [SIS Act] is appropriate. The Tribunal also exercises the discretion in respect of section 126A(3).
Questions of law 11 Four questions of law have been raised for the Court's determination. Those questions of law raise three issues for the Court's determination in this appeal: (a) whether the Tribunal addressed the correct statutory questions posed by ss 126A(1) and (3) of the SIS Act (questions of law 1 and 2; grounds 4 and 5); (b) whether the Tribunal asked itself the right question in exercising its discretion under ss 126A(1) and (3) of the SIS Act (question of law 3; ground 6); (c) whether the decision was irrational or otherwise legally unreasonable (questions of law 4 and 5; grounds 7 and 8).
Questions of Law 1-3; Grounds 4 -6 12 These grounds can be dealt with together. 13 Section 126A of the SIS Act provides: 126A The Regulator may disqualify individuals (1) The Regulator may disqualify an individual if satisfied that: (a) the person has contravened this Act or the Financial Sector (Collection of Data) Act 2001 on one or more occasions; and (b) the nature or seriousness of the contravention or contraventions, or the number of contraventions, provides grounds for disqualifying the individual. … (3) The Regulator may disqualify an individual if satisfied that the individual is otherwise not a fit and proper person to be a trustee, investment manager or custodian, or a responsible officer of a body corporate that is a trustee, investment manager or custodian. … 14 It was submitted for the Commissioner that the Tribunal's reasons disclosed that the Tribunal: (a) failed to consider the statutory question posed by s 126A(1)(b) - namely, whether the Tribunal was satisfied that the nature, number and/or seriousness of the contraventions provided grounds for disqualifying Mr Coronica; (b) failed to consider the statutory question posed by s 126A(3) - namely, whether the Tribunal was satisfied that Mr Coronica was a fit and proper person to be a trustee; and (c) failed to ask the right question in the exercise of its discretion. 15 The statutory questions (whether the nature, number and/or seriousness of the contraventions provides grounds for disqualifying the individual (s 126A(1)); and whether the person is otherwise not was a fit and proper person to be a trustee (s 126A(3))) arise from the express terms of the provisions themselves, which make the formation of the state of satisfaction of those matters a precondition to the exercise of the statutory power to disqualify a person from acting as trustee of a superannuation fund. As the exercise of the power under either provision turns on satisfaction of the matters prescribed, it is a mandatory step for the regulator (here the Tribunal standing in the shoes of the Commissioner) to consider whether to form the required states of satisfaction as a statutory condition for the exercise of discretion. As the decision whether to reach the requisite state of satisfaction is a mandatory step, the formation of that state of satisfaction is not only a jurisdictional fact, but it is also a matter that affects the exercise of the discretion having regard to the subject matter, scope and purpose of the power. In the absence of the formation of the requisite states of satisfaction, or if there are errors in the process by which those states of satisfaction were reached, the exercise of the discretion under s 126A will have miscarried: Plaintiff M70/2011 v Minister for Immigration and Citizenship [2011] HCA 32; 244 CLR 144, [57] (French CJ); Minister for Immigration and Multicultural Affairs v Eshetu [1999] HCA 21; 197 CLR 611, [130]-[137] (Gummow J); Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 [2003] HCA 30; 73 ALD 1, [59] (McHugh and Gummow JJ). 16 The Tribunal's reasons did not refer to whether the Tribunal had formed the requisite states of satisfaction under ss 126A(1) and (3). It was submitted for Mr Coronica that it was implicit from the reasons nonetheless that the Tribunal did form the requisite states of satisfaction under both ss 126A(1) and (3). It is well established that the decision of the Tribunal must not be read with an "eye keenly attuned to error" and that a "commonsense and realistic approach should be taken to understanding the reasons as a whole to see what it was that the [decision-maker] was saying": Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; 185 CLR 259, 272; Fang Wang v Minister For Immigration & Multicultural & Indigenous Affairs [2003] FCA 1044, [14]. However, as the cases demonstrate, it is not appropriate to draw the inference that the Tribunal had formed the requisite states of satisfaction where there is a lack of basis for such an inference having regard to the reasoning: Acting Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v CWY20 [2021] FCAFC 195; 395 ALR 57 (Besanko J with Allsop CJ, Kenny, Kerr and Charlesworth JJ agreeing), [130]. In my view, the Tribunal's reasons, read fairly, do not disclose that it did proceed to consider whether or not s 126A was enlivened and it did not, in my view, perform the statutory task required of it. If I am wrong and it is implicit that the Tribunal did form the requisite states of satisfaction, I am of the view that it erred in its approach to the exercise of its discretion by failing to take those factors into account in deciding not to disqualify Mr Coronica. 17 The reasons of the Tribunal on the disqualification decision began with noting that disqualification is one of the "range of actions" that the regulator can take against a trustee who contravenes the provisions of the SIS Act (at [330]). The Tribunal then noted that the Commissioner decided to disqualify Mr Coronica on the grounds that he was satisfied both that the nature, number and seriousness of the contraventions provided grounds for disqualifying Mr Coronica from acting as trustee and that Mr Coronica was not a fit and proper person to be a trustee of a superannuation fund. 18 After setting out s 126A(1), the Tribunal then dealt with the "appropriateness" of the decision of the Commissioner to disqualify Mr Coronica from acting as a trustee, having regard to the increased tax consequences for him as a result of the change in status of the Fund from a complying fund to a non-complying fund, which the Tribunal considered to be "in the nature of imposing a monetary penalty" on him (see [332]-[333]). The Tribunal went on to hold that the financial consequences to Mr Coronica was an appropriate penalty for the contraventions. The Tribunal stated at [343]: The contraventions of the [SIS Act] that underpin the non-compliance decision above have, in their circumstances, been held to be serious and, considering their financial consequences, justify being upheld. Those financial consequences meet the sentencing objectives discussed above. The penalty satisfies 'the need to protect society, deter the offender and others, to extract retribution and promote reform.' In the Tribunal's opinion, the noncompliance decision is an appropriate 'penalty' for the 'offence/offender'. That paragraph is telling against the contention that the Tribunal formed the requisite state of satisfaction under 126A(1). Whilst the Tribunal did consider the nature, number and seriousness of the contraventions in its consideration of the non-compliance decision, the Tribunal failed to give any active consideration as to whether those matters also provided grounds to disqualify Mr Coronica from acting as a trustee, which was a separate and discrete inquiry which was not addressed at all. 19 The Tribunal then went on to consider s 126A(3), noting at [344] that: "[n]otwithstanding the adequacy of the financial penalty, an upholding of the disqualification [decision was] still supportable if the financial penalty could not satisfy one of the purposes of disqualification, namely protecting society against future contraventions". At [347]-[348], the Tribunal set out the Commissioner's submissions "as to the issue of future compliance risk", namely that Mr Coronica's evidence "demonstrated a failure to comprehend the character of the obligations of a trustee", and that "the inaccuracies in his workings and evidence demonstrated a lack of competence and that the seriousness of the errors was 'magnified by the fact that Mr Coronica not only has more than 50 years' experience as a [Certified Practising Accountant] but also continues to provide advice to clients in relation to superannuation matters'". The Tribunal stated that it did not take issue with those submissions which it considered were consistent with its findings that the contraventions were serious in the non-compliance decision (at [348]). Crucially however, the Tribunal did not separately and independently consider for itself whether it was satisfied that Mr Coronica was not a fit and proper person to act as trustee. Rather, the Tribunal proceeded straight into a consideration of whether in the exercise of its discretion it should disqualify Mr Coronica and concluded for the reasons given at [360]-[365] (extracted above at [9]) that it was appropriate to accept undertakings from Mr Coronica in lieu of disqualifying him. 20 An analysis of the reasons shows that no consideration was given by the Tribunal as to whether it should form the states of mind which were preconditions for the exercise of power under s 126A. Rather, it is apparent that the Tribunal approached the question as to whether or not to affirm the disqualification decision by reference to a consideration of the various countervailing matters, which were considered by the Tribunal to weigh upon whether disqualification was "appropriate". 21 It was submitted for Mr Coronica that if the Court found that the Tribunal did not form the requisite states of mind, the failure to reach those states of satisfaction before exercising the discretion not to disqualify Mr Coronica was immaterial, because compliance could not realistically have resulted in a different decision, as regardless of the Tribunal's state of satisfaction, the Tribunal would have exercised the discretion not to disqualify Mr Coronica. Thus, it was submitted, the failure did not amount to jurisdictional error. There is no substance in that submission. First, the criteria of which the Tribunal had to be satisfied to enliven the exercise of its discretion under s 126A (standing in the shoes of the Commissioner) were patently relevant to the discretion. Those matters were factors that bore in favour of disqualification and thus bore upon the exercise of discretion. The Tribunal could not exercise that discretion without evaluating those matters, which could be decisive, against the other matters which the Tribunal took into account; and by disregarding the matters which the Tribunal was statutorily obliged to consider, the Tribunal did not address the correct statutory questions in the exercise of its discretion. Secondly, in view of the failure of the Tribunal to perform its statutory task, there is at least the realistic possibility that the Tribunal would have reached a different conclusion on whether a disqualification order should be made against Mr Coronica, if the preconditions to the exercise of power were met and those matters had been taken into account in the exercise of discretion. 22 The Tribunal also fell into error by characterising the financial consequences for the Fund becoming a non-complying fund as a monetary impost in the nature of a penalty on Mr Coronica. That characterisation is wrong. The financial consequences followed from the consequence of the decision to make the Fund non-compliant, which resulted in the Fund being ineligible for concessional tax treatment. That consequence is a separate and independent sanction under the SIS Act. The scheme of the SIS Act contemplates that multiple sanctions may be both appropriate, and the sanction of a disqualification order is different from the sanction of giving a fund a notice of non-compliance. The sanction of a disqualification order causes the person against whom it is made to forfeit the office of trustee and forbids that person from acting as a trustee of a superannuation fund. That consequence is inflicted on the person because that person is not a fit and proper person to act as trustee: Rich v ASIC, [37]. The Tribunal, by focussing on the resultant financial consequences from the change of status of the Fund, did not give appropriate consideration to the question of whether Mr Coronica is a fit and proper person to continue to act as a trustee and thereby misdirected itself about the factors relevant to, and bearing upon, whether to impose the sanction of disqualification on Mr Coronica.
Questions of Law 4 and 5; Grounds 7 and 8 23 These questions of law/grounds are premised on the Court finding that the Tribunal did perform the statutory task required by each of the sections by reaching the requisite state of satisfaction. Given my findings that there was jurisdictional error in the Tribunal's decision not to disqualify Mr Coronica, it is unnecessary to consider these grounds.
conclusion 24 The appeal is allowed with no order as to costs and the matter should be remitted to the Tribunal for determination in accordance with the law. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Davies.
Commissioner of Taxation
Coronica