STAY - tax agent - misbehaviour - regulatory regime - financial consequences

Administrative Appeals Tribunal Act 1975

Scott and Australian Securities and Investments Commission [2009] AATA 798

Oaklands and Australian Securities and Investments Commission [2011] AATA 199

1. 2. The decision in relation to this interlocutory application was made at the hearing. The Tribunal delivered oral reasons for its decision on that occasion. One of the parties has subsequently requested written reasons. The statement of reasons which follows has been distilled from the transcript of the hearing.
2. This is an application for a stay which arises out of a decision made by the Tax Practitioners Board (the 'Board') to terminate the registration of both Hazel Scott Pty Ltd, a company which conducts business as a tax agent, and that of Mr Scott McClymont, who is the principal of that firm. The central concern for the Board is its finding that Mr McClymont engaged in conduct that included irregularities in the way in which refunds were dealt with. The Board's findings, which I understand they will be pressing on the review, suggest that conduct was both intentional and that it was misbehaviour.
3. If that finding were made by the Tribunal on review, that would be a very serious matter, and indeed, it is a very serious matter that the regulator makes such a finding. When a decision is made by a regulator in these circumstances, section 41(1) of the Administrative Appeals Tribunal Act 1975 (the 'AAT Act') says the decision takes affect according to its terms. There is no presumption that the decision will be stayed simply because the applicant has lodged an application for review. The Tribunal must actively decide to order a stay under section 41(2) of the AAT Act. Section 41(2) says that a stay can be ordered, including on conditions, after taking into account the interests of any persons who are affected by the review for the purpose of securing the effectiveness of the hearing and determination of the application for review.
4. When I consider whether or not to exercise that discretion, I do so against the backdrop of the regulatory regime in the Tax Agent Services Act 2009. That regulatory regime prioritises the public interest, specifically the interests of consumers of tax agent services, the clients of the firm, but it also prioritises protecting the integrity of the system of self‑assessment that lies at the heart of our income tax assessment system. It is important that people be able to trust their tax agents as interlocutors with the system; if they cannot, the system is in danger of breaking down. Being a tax agent is an important position of trust. That is all in the background.
5. The factors I consider are conventionally summarised in a decision made by Downes J, the former President of the Tribunal, in a case called Scott and Australian Securities and Investments Commission [2009] AATA 798. It is not a cookbook which exhaustively lists the factors that will be relevant in every case, and the order of the factors it refers to does not necessarily indicate their priority or weight. Nonetheless, I am content to use that analysis as the basis for the approach in this case.
6. I am grateful to both of the parties for the quality of their submissions. They have been of assistance.
7. The first factor, which occupied a good deal of the applicants' written submissions and was supported by an affidavit from Mr McClymont, deals with the prospects of success. It is generally true that where a case brought on behalf of an applicant is obviously a strong one, then that is probably going to count in favour of exercising the discretion to order a stay. On the other hand, if a case is obviously weak, then that will count against ordering a stay.
8. In most cases, the stay application will be dealt with at an early stage of the proceedings so it is difficult to make a clear assessment of the merits. The authorities say the Tribunal should avoid turning the stay hearing into a mini trial. In most cases, the assessment of merit will not count for or against the exercise of the discretion, or it might only count lightly one way or the other.
9. Mr Nixon has taken me to some of the underlying material and he says the applicants will contest whether, in particular, any irregularities that may have occurred were done with intent or with dishonest intent. He says there is good reason to believe that, at a minimum, the Tribunal will decide on review that the conduct which occurred was not as bad as the Board imagines, so much so that the likelihood of the most severe consequences for the applicants, the deregistration, may not be affirmed on review. Unsurprisingly, the Board takes a different view of the merits. They are confident in their case. Ultimately, I think this is something that is just going to have to be determined at the hearing.
10. I accept the question of intent and the precise factual findings as to the conduct are likely to be an important and relevant factor in the Tribunal's deliberations at the review. Those findings may depend on the account of Mr McClymont, and perhaps Mrs McClymont, in the witness box. There will need to be a lot of documents examined which will tell their own story. There may even be a need to talk to individual clients. We do not yet know.
11. All of that remains to be determined. I accept there is a legitimate question to be resolved, and that there is likely to be a spirited dispute on the facts. I think the best that could be said at this point is we will just have to see how that turns out. I am not inclined to give this factor much weight either way.
12. The second factor is the consequences for the applicants of the refusal of the stay. Typically, we do not just look at the interests of the applicant. We also look at the interests of other people associated with the applicant. Mr McClymont has pointed to very serious financial consequences for him if he is unable to earn a living in the short term. He pointed to evidence suggesting the bulk of his revenue is derived from the business, and specifically from the provision of tax agent services, and that he will be unable to derive that income if he is prevented from practicing.
13. Mr McClymont referred to recent travails including COVID and other impacts on his business. That disruption meant he is already in a financially weakened position. He says he will be unable to service some of his debts and that while he is throwing himself on the mercy of his creditors and perhaps family members, he expects he will suffer significant financial loss that will be difficult to recover. He says that once clients go elsewhere, the chances of them coming back are presumably diminished.
14. The respondent has been critical of some of the financial information provided by the applicant in connection with the stay application. The Board has cautioned against drawing too many inferences from that material, but I think I can safely infer, as a matter of common sense, that the applicant is going to suffer significant financial impact and the business will be compromised over, potentially, a significant period.
15. The respondent points out that financial consequences for an applicant are nothing unexpected. Those consequences are always a risk that attaches to participation in a regulated occupation where the Board prioritises the public interest. It is to be expected that a decision like this would have serious financial consequences so those consequences should not be given too much weight, and there is authority to that effect. Mr Nixon acknowledges those authorities quite properly, but points out this might be a case where the financial consequences for the applicant, and particularly Mr McClymont, might be especially serious.
16. There is also the potential impact, which was less clear, upon others. There are no employees of the firm. There are clients whose interest might be affected in that they may be inconvenienced by having to go and use another accountant. I note there were several positive references from clients, although it is unclear whether the referees were aware of the matters that were the subject of the Board's decision. I accept the references suggest the applicants have happy clients. There was also some question mark about the impact on the financial circumstances of Mr McClymont's father, with whom he is engaged in a property business. We cannot be sure of what impact the stay decision would have, but it seems reasonable to infer there might be some financial impact on Mr McClymont Senior.
17. All in all, I think the consequences for the applicants are such that they do weigh in favour of granting the stay. I take the respondent's point that the impact of the financial consequences for the applicants should not be given too much weight, but I am prepared to accept there is going to be serious consequences that perhaps might be more serious for this applicant than the ordinary course.
18. The next matter that needs to be considered is the most serious consideration. Given the regulatory regime, the public interest must be front and centre in a case like this. The public interest at the heart of the regulatory regime is reflected in the desire to protect individual consumers, but also a desire to protect the integrity of the system. Findings that someone has behaved, potentially, dishonestly are very serious indeed.
19. The applicant has referred to and acknowledged those core public interests, although he has also pointed to a decision in an ASIC matter of Oaklands and Australian Securities and Investments Commission [2011] AATA 199, which suggested there is also a public interest in a business being able to continue to function if it is not otherwise problematic to do so. Mr Nixon has also suggested the imposition of conditions will protect the public interest and he has referred to two common conditions that are employed in cases like this: specifically, that the applicants not be permitted to take on new clients, and that any existing clients in the business who remain should be informed about the regulatory action and the review process.
20. Ms McGovern, on behalf of the Board, has asked that the disclosure required of the applicants be more extensive if a disclosure condition were to be adopted, and she said the clients should be given access to the regulatory decision so that they get the full picture. Ms McGovern said that was only appropriate if I were minded to grant a stay on conditions. The Board's primary submission is that those conditions do not obviously deal with the situation where findings, in effect, of dishonesty and/or of misconduct, have been made.
21. A stay with disclosure conditions might be attractive in circumstances where other shortcomings have been identified, but where questions of honesty or integrity are at stake, it is not clear how disclosure would necessarily be helpful. I note we have heard from a number of clients, at least indirectly, in the form of references, although, as I say, it is not clear those clients were aware of the full extent of what is alleged against the applicants. I note Mr Nixon points out the applicants have, to date, been co‑operative and there is no reason to expect that will not continue to occur in connection with the observance of conditions were they to be ordered.
22. I am concerned about the public interest, as I must be. If the serious findings made by the delegate were sustained, that would be a very serious matter indeed. As I understand the case, part of the argument is that shortcomings in the applicants' performance occurred because they were under pressure, including financial pressure. Those pressures have not abated and may even be worse. The public interest counts against the grant of a stay in these circumstances, even on condition, because it is not clear the conditions will necessarily address the particular danger the Board has considered.
23. The fourth factor that is conventionally considered is the consequences for the respondent in carrying out its functions, depending on whether a stay is granted or not. I do not think this factor counts against the exercise of the discretion. I do not think there are serious consequences for the respondent in these circumstances if the stay were granted. It does not reflect on the respondent when a stay is granted simply because someone is availing themselves of their review rights. The review process is part of the decision‑making process which is part of the regulatory regime, and the fact that someone should avail themselves of all their rights under that process is not embarrassing or awkward for the Board.
24. The fifth factor is whether the application for review would be rendered nugatory if the stay were not granted. This particular factor actually encompasses one of the primary questions that I mentioned when I summarised the operation of section 41(2), namely: is the stay necessary to secure the effectiveness of the review? Is it appropriate that the status quo be maintained, because if the status quo was not maintained, something irrecoverable would happen that would defeat the point of the proceedings?
25. The applicants say the consequences for them will be so severe that they are likely to experience financial loss which will be difficult to recover. They say they may even lose their business altogether. I accept, for the purposes of the argument, that there may be serious ongoing consequences for the applicants that will be difficult to remediate if the stay is not granted even if they are successful on review. I am prepared to accept that factor does weigh in favour - although not especially heavily - of exercising the discretion to order a stay.
26. That leaves other relevant matters that Downes J referred to in Scott. The obvious factor is whether there would be any delay in getting the proceedings listed for a final hearing at an early opportunity. The prospect of an early hearing is often the best answer. There is going to be some delay, it would appear, in bringing the matter on because of the evidence that is going to have to be gathered and evaluated. The applicants have only recently come to be represented by their counsel, and while he was very helpful, it is apparent there is going to be some significant time involved in preparing the case for hearing.
27. The fact of delay counts both for and against ordering a stay. It counts in favour because the consequences become potentially more serious for an applicant the longer they are left 'on the bench', and so damage will accrue. That is if they do not get a stay. If they do get a stay and there is delay in bringing on the proceedings, there are more opportunities for misbehaviour.
28. So those are the factors to which I am having regard. It is a weighing exercise that I must perform. As in so many of these cases, it is not an easy decision to make. I am particularly conscious of the difficult circumstances for the applicants ‑ and they have already had a taste of that because the reviewable decision has come into effect ‑ but I must also honour the public interest concerns. Given that I do not know in detail what this case is about yet, beyond observing that there are questions of dishonesty and misconduct that need to be dealt with, I think the balance goes against the exercise of the discretion.
29. I am, therefore, not satisfied it is appropriate to grant a stay, even on conditions, because I do not think the conditions are well adapted to addressing the potential risk. I hope that, upon review, it will become apparent that those concerns are not well‑founded and that we will be able to take a more benign view, but at present, given what I have in front of me, I do not have any alternative but to refuse the application for a stay.

I certify that the preceding 30 (thirty) paragraphs are a true copy of the reasons for the decision herein of

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