Tax Agents' Board v Bray

The factual background 7 Mr Bray is a qualified accountant. According to the AAT, he has been a tax agent for about ten years. On 23 August 2002 he applied to be re-registered as a tax agent. On 20 March 2003 the TAB refused his registration. Mr Bray sought review by the AAT. 8 In the proceedings before the AAT, the TAB raised four matters which it said affected the fitness and propriety of Mr Bray to be registered as a tax agent, namely: (i) his delay in responding to correspondence from the TAB; (ii) the existence of a significant tax debt due by Mr Bray to the Australian Tax Office; (iii) a complaint lodged against Mr Bray by a former client ('Mr R'); and (iv) the utilisation by Mr Bray of another person in preparing tax returns in the conduct of Mr Bray's business as a tax agent, which was said to be contrary to s 251N of the Act.

The AAT's decision 9 The AAT began by describing the issue before it as whether Mr Bray is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. This required findings in relation to the four matters raised by the TAB and summarised above. On the hearing of this appeal, counsel for the TAB accepted that in this section of its reasons, the AAT correctly stated the statutory test. The AAT then proceeded to address each of the four matters identified by the TAB as affecting Mr Bray's fitness and propriety.

Delay in responding to correspondence 10 In relation to the delays in responding to the TAB's correspondence, the AAT noted the correspondence and then the explanations given for not responding. The AAT then stated that it was its view that it was 'very much the health and marital problems' that were affecting Mr Bray during the period of non-response and that 'it seemed to me that he had some difficulty at the time coping with the full range of administrative functions of a tax agent, especially as regards the tax debt'. It then referred to Mr Bray's faults in relation to his correspondence as 'relatively mild by comparison' with a decision that was quoted to it and then stated: 'However, I do not see [Mr Bray's] health and relationship problems as sufficient to neutralise the disrespect shown by him to the TAB. As Mr Allatt, counsel for the TAB said, [Mr Bray] was still operating a business in the relevant period. He could have telephoned. He could have explained his personal problems to the TAB. He never did that. This is a matter I will factor into my final decision on [Mr Bray's] fitness for re-registration.'

The tax debt 11 The AAT referred to the circumstances in which the debt arose, and to the fact that the debt had been paid by the time of the AAT hearing. The AAT concluded that it was not a matter which would adversely affect the appellant in its final decision.

Complaint by client 12 The AAT found that in October 1999 Mr R provided his business paperwork to Mr Bray to be used in preparation of his 1998-1999 business tax return. For over two years Mr Bray failed to undertake work on the tax return, and he eventually notified Mr R that he did not want Mr R's business. As a consequence, Mr R was unaware of the totality of his tax and child support debts until May 2002. Mr Bray also failed to forward to Mr R an amended 1996-1997 assessment which required a repayment of $9,925.15 which then began accruing interest. Mr R also incurred a child support debt because he did not notify the Child Support Agency that his taxable income had been reassessed and was higher than appeared on the agency's records. This led to penalties and arrears of $7,545.20. Finally, there was also evidence before the AAT that at some point Mr Bray had offered $1,200 as some form of compensation but Mr R did not consider that sufficient. 13 The AAT concluded: '[Mr Bray's] treatment of Mr R was, in my view, extremely negligent and unprofessional. [Mr Bray] himself says he greatly regrets how he handled Mr R, although he seems adamant that his $1,200 compensation offer was fair. [Mr Bray's] treatment of Mr R is a serious matter that I will address in the ultimate findings.' (emphasis added)

Breach of s 251N of the Act 14 Under s 251N of the Act, a registered tax agent may not allow any person to prepare income tax returns on his behalf unless, relevantly, the person is his employee. A person referred to by the AAT as AX03F prepared tax returns for Mr Bray in the conduct of his business as a tax agent. In this part of its reasons, the only finding which the AAT made in relation to this complaint is that AXO3F was not an employee of Mr Bray, but was instead an independent contractor.

Whether Mr Bray is a fit and proper person to be a tax agent? 15 Paragraphs 30-39 of the AAT's reasons for decision are reproduced in full hereunder: '30. Mr Powrie submitted that the test of whether [Mr Bray] is a fit and proper person is to be administered as at the present, not as at the time when he was experiencing personal problems and professional difficulties. He cited A Solicitor v Council of the Law Society of New South Wales (2004) 204 ALR 8 as authority. The full court in a joint judgment said at page 19 that the fact that the solicitor was guilty of professional misconduct in 1997 did not necessarily mean that he was unfit to practise in 2002. This seems a reasonable proposition in [Mr Bray's] context because any decision I make will have prospective effect. Any such decision is also highly important to [Mr Bray] as it will affect his right to work on his own account. 31. Nevertheless, a number of [Mr Bray's] actions are a cause of concern. His handling of Mr R was very poor, continued for far too long and ended only two years ago, but before the onset of the health and family problems. It seems that [Mr Bray's] explanation as to why such poor customer service is unlikely to be repeated is that he now accepts much less work than he was doing in 1999. 32. [Mr Bray's] signing of letters to the TAB suggesting a characterisation of his professional relationship with AXO3F that he knew to be wrong - ie AXO3F could not be a partner because he had no equity in [Mr Bray's] firm - was at the very least poor form and might be far worse. His failure to deal sensibly and respond to legitimate inquiries from the TAB was also unprofessional. These are serious matters. [Mr Bray] gave me evidence regarding his health and marital problems at the time, yet he did continue his practice, albeit with help from AXO3F. He must have considered himself capable of acting professionally to at least an extent. 33. A related problem is an apparent breach by [Mr Bray] of s 251N(1) of the Act in permitting AXO3F to prepare tax returns when the latter was not an employee or a partner. [Mr Bray] explained that he was unaware of the import of s 251N of the Act. This is not really a defence. A tax agent should be aware of statutory requirements directly related to how they are to conduct their work. This would seem even more the case where what is involved is a statutory provision carrying a penalty for breach. 34. The A Solicitor case [30] is instructive to a point, but a central feature of that case was the court's finding that the solicitor's sexual misconduct had no relationship to his professional work. The solicitor had also served a lengthy period without a practising certificate. The court was somewhat sympathetic in that context. The problems in [Mr Bray's] case are all intrinsically related to his work as a tax agent and he has continued to practise as a tax agent. 35. Mr Powrie provided two testimonials for [Mr Bray]. One was from a chartered accountant, dated 22 April 2004. The writer has known [Mr Bray] for six or seven years. He has always found [Mr Bray] hardworking and professional. He has relied on [Mr Bray's] knowledge and experience on more than one occasion. [Mr Bray] has always been approachable and makes an effort to help and guide. He believes [Mr Bray] to be a fit and proper person to hold a tax agent's licence. He refers to [Mr Bray] as a family man who was ill late in 2002 and who is well on the way to recovery from a minor upset. 36. Another chartered accountant wrote on the same day that he has known [Mr Bray] for 23 years in a professional and social capacity. The two have worked together on a number of professional engagements. He regards [Mr Bray] as a person of the highest integrity and character and he has no hesitation in recommending him. 37. My final position on these matters is that I am less concerned about the failure to respond to TAB correspondence than about the other matters. I am also less concerned about the confusion or dissembling relating to AXO3F's status within [Mr Bray's] business. It seemed to me, hearing the evidence, that [Mr Bray] was in fact unaware that AXO3F was a contractor. He seemed to misunderstand what is required for a person to attract the status of an employee. He seemed to consider AXO3F to be as well supervised and trained as any employee would be. He authored correspondence to the TAB that was apparently misleading at the same time as he was experiencing his personal problems. That may be a partial explanation and excuse. 38. Most important was the faulty handling of Mr R which, as I noted earlier, predated the onset of the personal problems. I was concerned by a certain reluctance on [Mr Bray's] part to admit fault and express contrition in this matter. He seemed to continue to see the offer of $1,200 compensation as adequate when it plainly was not. As against this I note that [Mr Bray] has incorporated AXO3F into the firm as an employee and that [Mr Bray] is accepting less work. I am also conscious that [Mr Bray] has attracted relatively few customer complaints over the years and none, so far as the evidence would indicate, in recent years. 39. On balance I have concluded that [Mr Bray] should be re-registered as a tax agent. On balance I accept that [Mr Bray] experienced a temporary health and marital crisis that coincided with a heavy workload. While the matters of concern in this case all relate intimately to [Mr Bray's] capacity to work properly as a tax agent and remain highly relevant to any assessment of his capacity to prepare tax returns and do the other functions of a tax agent, there are explanations for the derelictions of earlier times. [Mr Bray] will have to guard against any recurrence of these problems and his unsatisfactory handling of the problems. However, the TAB has ongoing supervision of [Mr Bray] and I am certain will deal sternly with [Mr Bray] if he finds himself in difficulties again.' 16 The AAT reached the following conclusion: '40. I am satisfied on balance that [Mr Bray] is now a person of the fame, integrity and character required of one who is to be a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. I consider that [Mr Bray] should be re-registered and I remit this matter to the TAB with directions that he be re-registered for a period of three years from today's date subject to any earlier termination, cancellation or suspension that the TAB might impose on [Mr Bray] during that period.' 17 The AAT expressed its decision in the following terms: '41. The decision under review is set aside. The tribunal has decided that [Mr Bray] is a person of the fame, integrity and character required of one who is to be a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. The matter is remitted to the TAB with directions that [Mr Bray] be re-registered for a period of three years from today's date subject to any earlier termination, cancellation or suspension that the TAB might impose on [Mr Bray] during that period.'

Failure to apply the correct test 18 Counsel for the TAB submitted that although at the very outset of its reasons for decision (par 1) and at the very conclusion of those reasons (pars 40 and 41), the AAT adverted to the correct statutory test (albeit with some immaterial infelicity of language in the latter paragraphs), a review of the structure of those reasons, and the findings made and not made, reveals that the AAT did not apply that test. In the appellant's submission, the AAT did not approach its task on the basis that it had to be satisfied that Mr Bray was fit and proper, failing which the AAT was bound to refuse to re-register him. Instead, the AAT's reasons reveal that it approached the matter on the basis that it had some broad discretion as to whether it would or would not allow Mr Bray to be re-registered. 19 It is clear that the mere fact that the AAT correctly stated the correct statutory test in one or more parts of its reasons will not necessarily preclude a Court from holding on the basis of a consideration of the reasons as a whole that the AAT failed to apply the test which it had enunciated, although in any particular case, it may not be an easy task to persuade a Court to that conclusion. 20 In R v Australian Stevedoring Industry Board; Ex parte Melbourne Stevedoring Co Pty Ltd (1953) 88 CLR 100 at 119-120 Dixon CJ, Williams, Webb and Fullager JJ said: 'But the chief point of difficulty in the case lies in the distinction between on the one hand a mere insufficiency of evidence or other material to support a conclusion of fact when the function of finding the fact has been committed to the tribunal and on the other hand the absence of any foundation in fact for the fulfilment of the conditions upon which in point of law the existence of the power depends. It is not enough if the board or the delegate of the board, properly interpreting pars. (a) and (b) of s. 23(1) and applying the correct test, nevertheless satisfies itself or himself on inadequate material that facts exist which in truth would fulfil the conditions which one or other or both of those paragraphs prescribe. The inadequacy of the material is not in itself a ground for prohibition. But it is a circumstance which may support the inference that the tribunal is applying the wrong test or is not in reality satisfied of the requisite matters. If there are other indications that this is so or that the purpose of the function committed to the tribunal is misconceived it is but a short step to the conclusion that in truth the power has not arisen because the conditions for its exercise do not exist in law and in fact.' 21 As is apparent from the decision of the High Court in Sinclair v Mining Warden at Maryborough (1975) 132 CLR 473 the reasons of an administrative tribunal may disclose that the decision-maker (at 479 (Barwick CJ)): '… did not properly understand that matter he was bound to consider and that, in truth, he did not consider it.' resulting in a (at 483 (Gibbs J)) 'purported but not a real exercise of his functions'. And as Kirby J observed in Minister for Immigration & Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 291, it is legitimate for a person challenging reasons of a decision-maker to analyse both the language and structure to show that a legally erroneous approach has been adopted or that erroneous considerations have been taken into account. 22 Although careful consideration of the AAT's reasons is required, they must be read as a whole and considered fairly: 'It is erroneous to adopt a narrow approach, combing through the words of the decision-maker with a fine appellate tooth-comb, against the prospect that a verbal slip will be found warranting the inference of an error of law.' (Wu Shan Liang at 291 (Kirby J)) 23 In Wu Shan Liang, both Kirby J and the remaining members of the High Court (Brennan CJ, Toohey, McHugh and Gummow JJ) referred with approval to the decision of the Full Court in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 286-287 where their Honours said in a passage equally relevant to the present case: 'The limits within which the jurisdiction is conferred require that it be exercised with restraint. Only in exceptional circumstances should the decision of the Tribunal not be the final decision: Blackwood Hodge (Aust) Pty Ltd v Collector of Customs (NSW) (No 2) (1980) 47 FLR 131 at 145 (Fisher J); Commissioner of Taxation (Cth) v Cainero (1988) 19 ATR 1301 (Foster J). As the Full Court said in Repatriation Commission v Thompson (1988) 9 AAR 199 at 204: … the nature of the task of this Court is clear. It is to leave to the tribunal of fact decisions as to the facts and to interfere only when the identified error is one of law. This translates to a practical as well as principled restraint. The Court will not be concerned with looseness in the language of the Tribunal nor with unhappy phrasing of the Tribunal's thoughts: Lennell v Repatriation Commission (1982) 4 ALN N54 (Northrop and Sheppard JJ); Freeman v Defence Force Retirement & Death Benefits Authority (1985) 5 AAR 156 at 164 (Sheppard J); Repatriation Commission v Bushell (1991) 123 AAR 176 at 183 (Morling and Neaves JJ). The reasons for the decision under review are not to be construed minutely and finely with an eye keenly attuned to the perception of error: Politis v Commissioner of Taxation (Cth) (1988) 16 ALD 707 at 708 (Lockhart J).' 24 Counsel for the TAB relied upon the matters described in the following paragraphs as establishing that the AAT approached the matter on the basis that it had some broad discretion as to whether it would or would not allow Mr Bray to be re-registered, rather than being bound to re-register him if satisfied of certain matters, and bound not to grant re-registration if it was not satisfied of those matters. 25 First, a reading of its decision reveals that it made a number of positive findings, all of which pointed to it not being satisfied of Mr Bray's fitness and propriety, namely: (i) that Mr Bray had failed to deal sensibly and responsibly with legitimate enquiries from the TAB; (ii) that Mr Bray's treatment of his former client Mr R was: - 'extremely negligent and unprofessional'; - 'very poor'; - 'continued for far too long'; - had ended 'only two years ago, but before the onset of [his] health and family problems'; (iii) further in relation to Mr R, that: - Mr Bray was reluctant to admit fault and express contrition concerning his dealings with Mr R; - Mr Bray sought to try and shift some of the blame to Mr R for his own conduct in acting for Mr R; (iv) that in relation to his engagement of AXO3F: - there was an apparent breach by Mr Bray of s 251N(1) of the Act; - Mr Bray was unaware of the import of s 251N of the Act but 'this is not really a defence'; - Mr Bray signed a letter to the Tribunal suggesting a characterisation of his professional relationship with AXO3F that he knew to be wrong. 26 Second, a reading of the decision reveals an almost complete lack of any findings which are supportive or demonstrative of Mr Bray being fit and proper to prepare income tax returns and transact business of behalf of taxpayers: see R v Australian Stevedoring Industry Board (supra). The Tribunal did summarise the contents of two character testimonials, but did not set out any conclusions or findings in relation to that material. However, the fact that the summaries were included in the reasons suggests that the AAT accepted the testimonials, as reference to them would otherwise be pointless. It also noted that it was 'conscious that he had attracted relatively few customer complaints over the years'. Otherwise, all of its 'favourable' findings were merely by way of excuse or partial excuse to the otherwise adverse findings that the Tribunal had made against him. 27 Third, in par 39 of its reasons (extracted above), the AAT noted that there were matters of concern which were all 'highly relevant' to an assessment of Mr Bray's capacity to prepare tax returns and to perform the functions of a tax agent, and that there were 'explanations for the derelictions of earlier times'. It expressed the hope Mr Bray would guard against a recurrence of these problems. It noted that Mr Bray was subject to 'ongoing supervision' by the TAB which was there to 'deal sternly' with Mr Bray if he found himself in difficulties again. It was submitted that on behalf of the TAB that these last matters were entirely irrelevant to a proper analysis of the AAT's functions. Under s 251JC Mr Bray is either a fit and proper person or he is not. If the Tribunal is satisfied, then he must be registered. If it is not, his registration must be refused. By adverting to the possibility of ongoing supervision, the AAT expressed doubts about Mr Bray's fitness and propriety. This is suggestive of it not having reached the requisite state of satisfaction. 28 Taken together, it is submitted that these matters point strongly to the AAT not properly applying the correct statutory test or reaching the requisite state of satisfaction: Sinclair (supra) and R v Australian Stevedoring Industry Board (supra). In the TAB's submission, there is little, if any, consideration as to whether he is presently fit and proper to be registered. 29 In deciding that Mr Bray was entitled to be registered, the AAT referred to him being subject to 'ongoing supervision' by the TAB who would deal with him 'sternly' if he found himself in 'difficulties again'. As I have noted above, the TAB submits that these matters were entirely irrelevant to the function being performed by the Tribunal. The consequence said to flow from the AAT's discussion of these matters is that even if the Tribunal was applying the correct test, its reliance on these matters vitiates the opinion that it formed: Avon Downes Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 at 360 (Dixon J).

Decision 30 The first sentence of par 39 of the AAT's reasons should not be read as conveying that it assumed that it had a discretion to decide whether to re-register Mr Bray if, for example, it concluded that the public would not thereby be exposed to a material risk of harm. That sentence is simply a shorthand version of the conclusion expressed more fully in par 40 that Mr Bray should be re-registered because the AAT was satisfied that he is now a fit and proper person. 31 The AAT considered matters which might lead to a contrary conclusion, as well as mitigating factors, such as the matters referred to in the last two sentences of par 38, and the testimonials referred to in pars 35 and 36. Whatever criticisms may be made of Mr Bray's past conduct, the AAT was satisfied, on balance, that he is now a fit and proper person. In my view, the substance of the TAB's present complaint is that the balance was wrongly struck by the AAT, but that is a question for the AAT to decide, rather than an error of law. 32 The TAB's subsidiary argument, that the AAT erred by taking into account irrelevant considerations, can be dealt with shortly. The last sentence of par 39 is irrelevant to the issue which the AAT had to decide, but on a fair consideration of the whole of the reasons, it is not a step in the AAT's reasoning process leading to its conclusion that Mr Bray is a fit and proper person. A possible explanation for the inclusion of this legally irrelevant sentence is to place before both parties a reminder of the statutory context, just as (as counsel for the TAB accepted) the qualification on the terms of the re-registration which the AAT directed was simply a statement of the effect of the statutory scheme. 33 The appeal is dismissed with costs. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Solicitor for the Applicant: Australian Government solicitor