Legal Services Commissioner v Bouhalis (Legal Practice) [2015] VCAT 254

The Tribunal finds the respondent, Mr George Bouhalis, guilty of two counts of professional misconduct within the meaning of section 4.4.3(1)(b) of the Legal Profession Act 2004 (the Act), for engaging in conduct that justifies a finding that the respondent was not a fit and proper person to engage in legal practice namely:

(a) He did not lodge on time income tax returns for each of the financial years from 1 July 1996 to 30 June 2007, which would have disclosed professional income he had earned for that financial year;

(b) He failed to lodge on time BAS for each of the quarters from 1 April 2001 to 30 September 2009, which would have disclosed professional income he had earned for the quarter and any PAYG he had withheld;

(c) His conviction for tax offences for failing to lodge on time income tax returns as above and his failure to lodge on time BAS for each of the quarters from 1 April 2001 to 30 June 2008;

(d) He did not discharge on time his obligations to pay amounts owing for:

(i) income tax owing for each of the financial years from 1 July 1996 to 30 June 2001 and 1 July 2003 to 30 June 2005;

(ii) PAYG tax withheld for the quarters from 1 October 2004 to 30 June 2007 (excluding the quarter ending 30 September 2006);

(iii) GST owing on professional income he had received in each of the quarters from 1 April 2001 to 30 June 2008 (except for the quarters ending 30 September 2001, 30 June 2002, 30 June 2003, 30 September 2004 and 30 September 2006.

(a) Recklessly failing to comply with section 2.4.27 of the Act [failure to provide to the Board within 7 days after the happening of the event notice in the form approved and failing within 28 days of the happening of the event to provide a written statement as required by the section] in respect of him having been found guilty of tax offences on 26 November 2009;

(b) Not providing a show cause notice in respect of him having been found guilty of tax offences on 26 November 2009 until late April 2010;

(c) In making a show cause notice dated 30 April 2010 in which he made a misleading statement that "he was fined for failing to lodge tax returns on time despite completing lodgement as required".

The Tribunal further finds the respondent, Mr George Bouhalis, guilty of one count of professional misconduct within the meaning of section 4.4.3(1)(a) of the Act for engaging in the following conduct that justifies a finding that the respondent has engaged in a substantial failure to reach or maintain a reasonable standard of competence or diligence, namely:

The respondent recklessly failed to comply with section 2.4.27 of the Act in respect of having being found guilty of tax offences on 3 October 2013.

1. Pursuant to section 4.4.17(b) of the Act the local practising certificate of the respondent is suspended for a period of 12 months ('the head suspension period').
2. The head suspension period is wholly suspended for a period of 3 years from the date of this order ('suspended order period').
3. During the suspended order period, a local practising certificate may be granted to the respondent.
4. During the suspended order period, the respondent shall not engage in or commit any act of professional misconduct or unsatisfactory professional conduct.
5. Pursuant to section 4.4.17(d) and 4.4.19 of the Act, the following conditions ('conditions') are imposed, from the date of this order, on the respondent's local practising certificate and on each of the respondent's local practising certificates during the suspended order period:

(a) The respondent must engage an accountant to prepare and file his annual tax returns, all Instalment Activity Statements or Business Activity Statements, and Annual GST Returns ('returns and statements' or, in the singular, 'return or statement'). Such engagement of an accountant and its reasonable terms shall be approved by the Legal Services Commissioner.

(b) If the respondent has not lodged a return or statement by the time it is required to be lodged, he must notify the Legal Services Commissioner in writing, by no later than 7 days after the date on which the return or statement was required to be lodged, of the following:

(i) that he has not lodged the return or statement as required;

(ii) when the return or statement was required to be lodged;

(iii) why he has not lodged the return or statement; and

(iv) when he expects the return or statement to be lodged.

(c) If the respondent has not paid all or part of any money owing in respect of a liability to pay income tax, PAYG tax or GST by the time required, he must notify the Legal Services Commissioner in writing, by no later than 7 days after the date on which he was required to pay the money owing, of the following:

(i) that he has not paid money owing in respect of his liability to pay income tax, PAYG tax or GST;

(ii) when he was required to have paid money owing in respect of his liability to pay income tax, PAYG tax or GST;

(iii) the amount he was required to pay and the amount outstanding, if such amounts are different;

(iv) why he has not paid money owing in respect of his liability to pay income tax, PAYG tax or GST; and

(v) when he expects to pay the money owing in respect of his liability to pay income tax, PAYG tax or GST.

(d) The respondent must forthwith on receipt by him or his accountant provide to the Legal Services Commissioner a copy of any correspondence, statement or notice from the Australian Taxation Office (ATO) concerning any issue of compliance with Australian taxation laws that is received by him or his accountant.

(e) The respondent's practice is subject to an annual inspection by the Legal Services Commissioner or his delegate, at such time and place as the Commissioner may reasonably specify, for the purpose of determining whether the respondent is complying, or has complied, with this order or any condition of his practising certificate.

1. In the event that the respondent fails to comply with any condition set out in order 5(a), 5(b), 5(c) or 5(d) during the suspended order period, the Legal Services Commissioner may make an application to the Tribunal to revoke the suspended order period. On such application, if the Tribunal is satisfied that a material breach of this order has occurred during the suspended order period, and is satisfied that it is appropriate in all the circumstances, order 2 is vacated, and the respondent's practising certificate shall be cancelled and a local practising certificate shall not be granted before the expiry of 12 months from the date of cancellation or 12 months and any further period that the Tribunal may determine, having regard to the circumstances of the breach of this order.

1. On each of charges 3 and 4, pursuant to section 4.4.19(k) of the Act, the respondent is reprimanded

1. The respondent shall pay the applicant's costs of the proceeding, to be assessed by the Costs Court on a standard basis on County Court Scale, in default of agreement.

1. Mr Bouhalis pleads guilty to three charges of professional misconduct. One charge relates to his tax affairs; two further charges relate to his failure to comply with his obligations in respect of required show cause event notices under section 2.4.27 of the Act.
2. On 26 November 2009, the Magistrates' Court convicted Mr Bouhalis of a series of breaches of the Taxation Administration Act 1953 (Cth).
3. Mr Bouhalis had failed to lodge income tax returns on time for each of the financial years from 1 July 1996 to 30 June 2007. He had also failed to lodge Business Activity Statements (BAS) on time for each of the quarters from 1 April 2001 to 30 June 2008.
4. Mr Bouhalis pleaded guilty at the Magistrates' Court to consolidated charges. The Court convicted him, fined him $3,700.00 in total and ordered him to pay costs.
5. Mr Bouhalis filed all the relevant returns before or shortly after the Court hearing. By mid 2010, he had paid the relatively modest amount of tax assessed as owing. He did not have a high income over the period and when the returns were assessed, the tax payable in four of the 11 years was zero.
6. The Commissioner does not allege that Mr Bouhalis deliberately avoided paying tax, and he has not sought to evade his obligations by declaring himself bankrupt. It is accepted by the Commissioner, and is evident to the Tribunal that because of his personal circumstances, Mr Bouhalis 'put his head in the sand' - to use his Counsel's expression.
7. Mr Bouhalis accepts that his conduct is, nevertheless, professional misconduct and has pleaded guilty to the charge brought by the Commissioner in respect of those tax offences. Charge 1 is a charge of professional misconduct in relation to his failure to lodge income tax returns and BAS on time, his conviction for tax offences for failing to do so and for his failure to discharge on time his obligation to pay amounts owing for income tax, PAYG tax and GST. The Commissioner withdrew an alternative charge of misconduct at common law (Charge 2).
8. Being found guilty of a tax offence is a show cause event under the Legal Profession Act 2004 ('the Act').[1]
9. If a show cause event occurs, a holder of a local practising certificate has a number of obligations. Within seven days after the happening of the event, he or she must give notice to the Legal Services Board that a show cause event has occurred. And within 28 days after the happening of the event, he or she must provide a written statement explaining why, despite the show cause event, the person considers himself or herself to be a fit and proper person to hold a local practising certificate.
10. The happening of a show cause event must also be disclosed in the practitioner's application for renewal of their practising certificate.
11. The two further charges of professional misconduct, charges 3 and 4, arise out of Mr Bouhalis' failure to recognise his responsibility to give notice under the Act of a show cause event.
12. Charge 3 is a charge of professional misconduct in respect of Mr Bouhalis' failure to provide notice of a show cause event and a written statement within the time required; and making a misleading statement in the show cause event disclosure that he made in his practising certificate renewal application on 30 April 2010.
13. After the 2009 convictions (the first show cause event), Mr Bouhalis provided notice of the first show cause event in his application for renewal of his practising certificate in April 2010. But he did not comply with section 2.4.7 by giving notice within seven days of the event followed up by a written statement 28 days later. In addition, the statement he made in his practising certificate renewal application about the convictions was unclear and potentially misleading. He said that he was:

[F]ined for failing to lodge tax returns on time despite completing lodgement as required.

1. Mr Bouhalis admitted all the matters alleged in charge 3, save that he did not admit that he knowingly made a misleading statement, which was the allegation as originally drafted.
2. At the hearing, that part of charge 3 was amended to an allegation of professional misconduct,

In making a show cause notice dated 30 April 2010, in which he knowingly made a misleading statement, alternatively made a misleading statement that he was fined for failing to lodge tax returns on time despite completing lodgement as required.

1. At the hearing, Mr Bouhalis gave evidence about the circumstances in which he made the statement, and what he intended by it.
2. I found that what he meant by the statement, that he had completed lodgement "as required" was that he had met the requirements of the ATO prosecutors that he complete the returns prior to the Magistrates' Court hearing on 26 November 2009. In the circumstances, while I found the statement to be misleading, I was not satisfied that he knowingly made a misleading statement.
3. That finding having been made, the matter proceeded as a plea hearing. Counsel for the Commissioner made submissions. After the lunch adjournment, Counsel for the Mr Bouhalis asked that the plea hearing be adjourned. Some relevant additional matters had come to his attention about Mr Bouhalis' recent tax affairs, which needed to be addressed in supplementary witness statements by Mr Bouhalis and his accountant, Mr Romero.
4. The hearing resumed on 10 September 2014. On that date, Counsel for Mr Bouhalis advised the Tribunal that Mr Bouhalis had faced further charges, in October 2013, in respect of failures to lodge BAS on time. Counsel asked for a further adjournment as Mr Bouhalis was unable to make contact with his accountant.
5. When the matter returned on 12 December 2014, the parties had agreed to add a further charge to the application, Charge 4, to which Mr Bouhalis pleaded guilty.

1. Charge 4 relates to Mr Bouhalis' failure to give notice of the October 2013 findings of the Magistrates' Court, which constituted a show cause event (the second show cause event'). The Commissioner did not bring any disciplinary charge in relation to the findings of guilt themselves, only in relation to the failure to give notice of them.
2. Mr Bouhalis was charged with six charges of breaching section 8C (1)(a) of the Taxation Administration Act 1953 in respect of his failure to lodge BAS on time for each of the quarters from 1 July 2011 to 31 December 2012.
3. On 3 October 2013, the Magistrates' Court found the charges proven and discharged Mr Bouhalis under section 19B of the Crimes Act 1914 (Cth) without proceeding to conviction on the basis that he be of good behaviour for 12 months. Relevantly, the Court order states that:

'the charges are found proved but having regard to the extenuating circumstances surrounding the offence it is inexpedient to inflict any punishment'

1. The extenuating circumstances were that Mr Bouhalis had provided all the relevant information to his then accountant Mr Rumoro but, for a range of reasons, Mr Rumoro had failed to act.
2. Mr Bouhalis should have given notice under section 2.4.27 of the Act, of the Magistrates' Court order. He said that he believed that, because he was not convicted, it was not a show cause event. As he now understands and agrees, it was sufficient that he was found guilty of the tax offences.[2] He also thought that it was enough that he had informed an employee of the Commissioner of the then pending charges in August 2013.
3. Mr Bouhalis should have, but did not disclose the 2013 charges to his Counsel before the plea hearing in these proceedings, so that his Counsel could in turn disclose those charges to the Tribunal. The information is clearly relevant to a plea hearing; one of the matters for the Tribunal to consider is whether there has been any repetition of the conduct. The material filed had given the impression that Mr Bouhalis had maintained a clean tax record since his 2009 convictions. The additional information was relevant to the need for further monitoring or conditions, and impacted on the scope and content of the orders to be made by way of disposition, as discussed below.
4. Quite properly, once Mr Bouhalis' Counsel become aware of the information, he advised Counsel for the Commissioner and sought an adjournment to file further material correcting the omission. By agreement of the parties and with the leave of the Tribunal, the Commissioner amended the application to the Tribunal to add the further charge, to which Mr Bouhalis pleads guilty, rather than commence fresh proceedings.
5. The Commissioner accepts that Mr Bouhalis' failure to give a show cause notice was not intentional. Mr Bouhalis accepts that it was reckless.

1. If the Tribunal finds a practitioner guilty of unsatisfactory professional conduct or professional misconduct, section 4.4.16 of the Act provides that the Tribunal may make any orders it thinks fit including the orders specified in sections 4.4.17, 4.4.18 and 4.4.19.
2. The available determinations include:
   • reprimand;
   • conditions on practice;
   • further legal education;
   • a fine;
   • suspension of a current practising certificate;
   • an order that a local practising certificate not be granted before the end of a specified period;
   • and in the most serious cases, a recommendation to the Supreme Court that the name of the practitioner be removed from the local roll of practitioners.
3. The objective of any determination is primarily the protection of the public and the maintenance of professional standards in the eyes of the public (protection of the reputation of the profession). The focus of the Tribunal will be on protection, not punishment.[3]
4. In determining penalty, the Tribunal considers a range of factors including the nature of the conduct, whether the practitioner pleaded guilty, whether there is a need for specific or general deterrence, whether there have been other disciplinary matters, evidence of character and medical or psychological evidence. Penalties imposed in other cases may be a useful guide to proportionality, and parity is important, but every case necessarily involves a different combination of factors. Each case is different.
5. In this case, the parties agreed that a global penalty was not appropriate and separate penalties should be imposed in respect of each of the three charges found proven.

1. The following matters, relevant to disposition, are in Mr Bouhalis' favour:
   • Mr Bouhalis did not deliberately avoid his tax obligations; he failed to comply with his tax obligations in the context of background circumstances which explained (but did not excuse) his conduct;
   • He did not live a lavish lifestyle - his income was relatively modest and once he put in his tax returns, the tax payable in several years was $0;
   • He did not avoid payment of tax found to be owing by bankruptcy and has discharged his obligations in full**;**
   • Other than the 2013 charges, he is on the way to rehabilitation;
   • The fact that the Magistrates Court discharged him without conviction in 2013, despite his previous convictions, is significant, and like the Court, I accept that there were extenuating circumstances.
2. Nevertheless, his failure to comply with his tax obligations extended over an 11-year period is a serious matter. It not only represented a failure of his obligations as a citizen to file tax returns and pay tax, but it also related to disclosure of his professional income.
3. The preparation and filing of taxation returns has been held to be sufficiently closely connected with the practise of law as to justify a finding of professional misconduct.[4] Depending on the circumstances, a legal practitioner's name may be removed from the roll, as in New South Wales Bar Association v Cummins[5] where the barrister concerned failed to lodge a taxation return for 38 years.
4. In Cummins, the New South Wales Court of Appeal found that the extent of the barrister's failure to observe his legal obligations and civic responsibilities, by such a systemic course of improper conduct over such a long period of time, was of such gravity that he must be regarded, as at the present time, as being permanently unfit to practise. Mr Cummins had not been convicted of any offence, however, the gravity of his conduct was described by Spigelman CJ as follows: [6]

This failure was an inexcusable pattern of illegal conduct in complete defiance of his civil responsibilities. Mr Cummins put no evidence before the Court which could explain, let alone excuse, this conduct. For almost four decades, Mr Cummins took advantage of the full range of public services made available by taxation, not least in the provision of the court system in which he earned his income. He left the burden of all this to his fellow citizens. Throughout the four decades he engaged in the rank hypocrisy of advocating that other people should perform their legal obligations, while systematically refusing to perform his own.

In the present case, unlike other cases, the barrister did not admit that his actions have jeopardised the reputation and standing of the legal profession. There is no doubt, however, that he has done so.

1. The above extract articulates the damage to the reputation of the legal profession that can result from a lawyer flagrantly disregarding his or her legal obligation to pay tax.
2. In contrast to Mr Cummins, Mr Bouhalis fully accepts the gravity of his conduct, and has compellingly expressed remorse and shame. He has not only discharged his payment obligations but also put in place systems to ensure it does not happen again.
3. He lodged his income tax returns and BAS on 26 November 2009, the date of the Magistrates' Court hearing, and paid all amounts owing by 30 August 2010. That he has paid his tax obligations was agreed by counsel for the Commissioner to be a significant mitigating factor.
4. It was agreed by both Counsel that Mr Bouhalis' conduct is not at the severe end of conduct in relation to failure to lodge tax returns.
5. Mr Bouhalis did not deliberately set out to avoid his taxation obligations and has not lived a lavish lifestyle, in contrast to the barrister the subject of Wardell v New South Wales Bar Association[7]. Mr Wardell had become bankrupt on his own petition, had enjoyed an income "far in excess of that required to meet ordinary living expenses" and pursued a "lavish lifestyle".[8]
6. Mr Bouhalis fully discharged his legal obligations to pay income tax within a relatively short period of time. This is to be compared with the barrister the subject of Matthew Stirling v Legal Services Commissioner, [9] who took a number of years to discharge his payment obligations, and whose debt to the ATO was significantly higher.
7. Mr Bouhalis did not declare bankruptcy, unlike the barrister the subject of Legal Services Commissioner v Turner,[10] who declared bankruptcy after having repaid only a small amount of his debt to the ATO.
8. It is also relevant, and unfortunate, that it is over 5 years since the Magistrate Court proceedings, which are the basis of charge 1, and nearly 5 years since Mr Bouhalis' failure to give a show cause event notice became apparent, which is the basis of charge 3. Delay is a mitigating factor which the Tribunal must take into account and which, in most cases, significantly reduces the penalty.[11]
9. At the first plea hearing date, before Mr Bouhalis 2013 charges came to light, both parties had submitted to the Tribunal that a 'suspended sentence' likely to be appropriate.
10. Following that additional information, Counsel for the Commissioner drafted proposed orders, modelled on the Court's orders in Stirling providing for a period of suspension, the whole or part of which would be suspended pending compliance with various conditions.
11. Counsel for the Commissioner submitted that it was for the Tribunal to determine whether Mr Bouhalis' practising certificate should be suspended for any period.
12. Counsel for Mr Bouhalis said that his client accepted that some form of compliance regime, similar to that in Stirling, would be imposed, but submitted that actual suspension of Mr Bouhalis' practising certificate would be harsh in all the circumstances, and highly detrimental to him as a sole practitioner.
13. In my view, orders that mirror the suspended sentence option which has been common in criminal proceedings, may be problematic in disciplinary proceedings. Imposing conditions on the practitioner's practising certificate will usually meet any need for ongoing monitoring or compliance. If suspension is appropriate to protect the public, it will usually be imposed.
14. In addition, in my view, it is potentially problematic to bind a future Tribunal to a particular disposition. So much depends on the circumstances that may arise in the intervening period, including the circumstances of any breach of the relevant conditions.
15. In this case, however, I was persuaded by the compelling submissions of Counsel for Mr Bouhalis that a form of 'suspended sentence' will best achieve the need for Mr Bouhalis to permanently change his approach to his tax affairs, will be more effective than conditions alone, and less harsh that a short period of suspension. As submitted, the terms of the conditions ensure Mr Bouhalis will know what he has to communicate to the Commissioner, and will provide the opportunity for him to work with the Commissioner if any problems arise. As submitted, it ought to provide strong incentive to Mr Bouhalis to keep his tax affairs in order for the next three years and beyond.
16. In the particular circumstances here, an order in similar terms to that in Stirling is appropriate, in my view, with one deviation from the orders drafted by Counsel for the Commissioner. The order as made, gives any future Tribunal the discretion as to whether or not to revoke the suspended order period, even if it is satisfied that there has been a material breach of the conditions.
17. In this case, my view is that specific and general deterrence will be served by the orders made.
18. There will accordingly be a 'head suspension period' of 12 months, which shall be wholly suspended for three years (the suspended order period), reflecting the fact that Mr Bouhalis' conduct is less blameworthy than that of the practitioners referred to in the cases above. A number of conditions are imposed. If Mr Bouhalis fails to comply with any of the specified conditions during the suspended order period of three years the Commissioner may make an application to the Tribunal to revoke the suspended order period. The orders also allow the Tribunal to impose a longer period than 12 months if it thinks appropriate.

1. In respect of each of charges 3 and 4, the parties both submitted that a reprimand was appropriate. I agree.
2. A reprimand is itself a serious form of sanction and censure, remaining on the practitioner's record permanently. It will serve both specific and general deterrence in my view.
3. It is important that practitioners familiarise themselves with the fine detail of their show cause event notice obligations, and understand that the obligation is triggered immediately the event occurs. Such notices are an essential part of the regulatory regime and enable assessment of the event to occur sooner rather than later. Disclosure may be embarrassing, depending on what has occurred, but failure to disclose will, of itself, have consequences that may be far more serious for the practitioner.

1. It is appropriate, under clause 46D of Schedule 1 to the Victorian Civil and Administrative Tribunal Act 1998, that Mr Bouhalis be ordered to pay the Commissioner's costs of the proceeding,

[1] Section 1.2.1, paragraph (d) of the definition of show cause event. It is essentially an event that requires the practitioner to show cause why they should be considered to be a fit and proper person to hold a practising certificate despite the happening of the event.

[2] See the definition in section 1.2.1 of a 'show cause event', paragraph (d).

[3] See the observations in Hannebery v Legal Ombudsman [1998] VSCA 142 at [22] (Tadgell JA with Phillips and Chernov JJA agreeing).

[4] See New South Wales Bar Association v Cummins [2001] NSWCA 284

[7] [2002] NSWSC 548; (2002) 50 ATR 302, per Cripps AJ.

[8] Referred to in Legal Practitioner's Complaints Committee v Pillay [2006] WASAT 309.

[9] [2013] VSCA 374.