FEDERAL COURT OF AUSTRALIA Tax Practitioners Board v Kim (No 1) [2014] FCA 434 Citation: Tax Practitioners Board v Kim (No 1) [2014] FCA 434 Parties: TAX PRACTITIONERS BOARD v HANSIG KIM File number: NSD 2602 of 2013 Judge: PERRAM J Date of judgment: 2 May 2014 Catchwords: PRACTICE AND PROCEDURE – whether statement of claim disclosed reasonable cause of action – Federal Court Rules 2011 (Cth) Rule 8.03 and Rule 16.43 – provision of particulars for allegation of recklessness – requirement that originating application state statutory provision under which relief is claimed TAXATION – proceedings pursuant to Tax Agent Services Act 2009 (Cth) – whether Tax Practitioners Board has legal personality – whether Tax Practitioners Board may institute proceedings in its own name Legislation: Tax Agent Services Act 2009 (Cth) s 50-20, s 50-35, s 60-5, s 60-10 Federal Court Rules 2011 (Cth) Rule 8.03, Rule 16.43 Cases cited: Chaff & Hay Acquisition Committee v J A Hemphill & Sons Pty Ltd (1947) 74 CLR 375 cited Church of Scientology Inc v Woodward (1982) 154 CLR 25 cited Date of hearing: 11 April 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 33 Counsel for the Applicant: Mr C O'Donnell Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr HL Alexander Solicitor for the Respondent: Emmanuel Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2602 of 2013 BETWEEN: TAX PRACTITIONERS BOARD Applicant AND: HANSIG KIM Respondent JUDGE: PERRAM J DATE OF ORDER: 2 MAY 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicant file and serve an amended originating application within seven (7) days identifying the provision under which relief is claimed. 2. The respondent's application for interlocutory relief otherwise be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2602 of 2013 BETWEEN: TAX PRACTITIONERS BOARD Applicant AND: HANSIG KIM Respondent JUDGE: PERRAM J DATE: 2 May 2014 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The respondent, Mr Kim, moves to dismiss the Tax Practitioners Board's proceedings against him. The matter arises this way: until 15 August 2013 Mr Kim was a registered tax agent within the meaning of the Tax Agent Services Act 2009 (Cth) ('the Act'). On Christmas Eve 2013 the Tax Practitioners Board (hereafter, 'the Board') commenced the present proceeding in which it seeks declarations that Mr Kim made statements in connexion with the affairs of taxpayers which were false, misleading or incorrect. It has also sought the imposition of a civil penalty upon Mr Kim. 2 On 26 February 2014 Mr Kim applied to the Court to dismiss the proceeding on three bases: (a) the proceeding was a nullity because the Board had no legal personality and could not sue in its own name; (b) the statement of claim did not disclose a reasonable cause of action; and (c) the originating application did not sufficiently state the relief claimed. 3 I do not think the first contention has any substance. 4 It is likely that Mr Kim's submission that the Board has no legal personality separate from its members is correct. The Board is 'established' by s 60-5 of the Act and by s 60-10 is said to 'consist' of its Chair and the other Board members. There is absent, therefore, any indication of the granting of legal personality to the Board by the express language of the statute. Whilst it may occasionally be possible to infer that the legislature intended some form of corporate personality to be given to a body such as a committee even where there is no express grant of legal personality (see, for e.g., Chaff & Hay Acquisition Committee v J A Hemphill & Sons Pty Ltd (1947) 74 CLR 375) this statute probably does not exhibit sufficient indicia of such an intention. In particular, it is of some significance that the Board does not employ its staff or own property. Whilst it is able to sue in some circumstances – a significant matter to which I return below – I do not consider that to be a determinative consideration in the present circumstances: cf. Church of Scientology Inc v Woodward (1982) 154 CLR 25 at 56-57 per Mason J. I would be inclined, therefore, to accept Mr Kim's submission that the Board lacks its own legal personality. 5 I do not need to reach a finally concluded position on that issue, however, because the question of the Board's legal personality – or lack thereof – is beside the point. Section 50-35(1) of the Act provides: '50‑35 Federal Court may order you to pay a pecuniary penalty for contravening a civil penalty provision Application for order (1) Within 4 years after you contravene a civil penalty provision, the Board may apply on behalf of the Commonwealth to the *Federal Court for an order that you pay the Commonwealth a pecuniary penalty.' 6 This means what it says and what it says is that the Board may institute proceedings of the present kind. Mr Kim submitted that without this provision the Attorney-General (or some person authorized by him as a relator) could have applied on behalf of the Commonwealth to this Court and sought the relief now claimed by the Board. The purpose of the provision was, according to this submission, to make clear who could not sue. The words 'the Board may apply' did not mean, therefore, 'the Board may apply in its own name'. 7 This argument flies in the teeth of the text of the provision and if accepted results in an interpretation of the words 'the Board may apply' (the actual words of the statute) as meaning 'the Board may not apply' (the consequence of Mr Kim's interpretation of those words). Nor does it assist that when the Board sues it does so on behalf of the Commonwealth. Whether the Board sues on its own behalf or on behalf of another has no impact on the language of the section which makes clear that the Board can sue for a civil penalty. 8 No argument was advanced that s 50-35(1) did not authorize the Board to claim declaratory relief even if it did authorize the Board to sue for a penalty. A consideration of that argument would require an analysis of whether s 50-35(1) carried with it a grant to the Board to apply in its own name for incidental relief (such as costs) and whether the declaratory relief it in fact sought could be described as incidental in that sense. Since these matters were not the subject of argument I consider them no further. 9 I turn then to Mr Kim's second contention that the Board's pleading fails to disclose a reasonable cause of action. Mr Kim attacks the adequacy of paragraphs 19, 43, 51, 66, 72 and 79 of the Statement of Claim. These allegations concern three sets of taxpayers referred to in the Statement of Claim as the Schedule A, B and C taxpayers. Paragraph 19 deals with an allegation that Mr Kim made misleading statements when making declarations which accompanied the Schedule A taxpayers' returns. Paragraph 43 makes an allegation that Mr Kim included misleading material in the Schedule A taxpayers' returns. Paragraphs 51 and 66 make identical allegations but with respect to the Schedule B taxpayers, whilst paragraphs 72 and 79 serve the same purpose for the Schedule C taxpayers. In relation to all paragraphs the Board alleges that Mr Kim infringed s 50-20 of the Act. It provides: '50‑20 Making false or misleading statements You contravene this section if: (a) you are a *registered tax agent or BAS agent; and (b) you: (i) make a statement to the Commissioner; or (ii) prepare a statement that you know, or ought reasonably to know, is likely to be made to the Commissioner by an entity; or (iii) permit or direct an entity to do a thing mentioned in subparagraph (i) or (ii); and (c) you know, or are reckless as to whether, the statement: (i) is false, incorrect or misleading in a material particular; or (ii) omits any matter or thing without which the statement is misleading in a material respect. Civil penalty: (a) for an individual—250 penalty units; and (b) for a body corporate—1,250 penalty units.' 10 The Board's case in paragraph 19 is that Mr Kim prepared returns for taxpayers other than in accordance with information provided by them; that he did not receive a declaration from each taxpayer that the information provided to him was true and correct; and that Mr Kim was not authorized by the taxpayers to give information on their behalves to the Commissioner. By contrast, each time Mr Kim lodged a return electronically he certified that the return had been prepared in accordance with information provided by the taxpayer; that he had received a declaration from the taxpayer that the information provided was true and correct; and that he was authorized by the taxpayer to provide the information to the Commissioner. To put the matter another way, Mr Kim is alleged to have certified matters which were wrong. 11 By so certifying the Board argues Mr Kim breached s 50-20. I turn then to the actual pleading. 12 By way of background paragraph 14 of the Statement of Claim provides: 'At all relevant times during 2010 and 2011, when a tax agent lodged an income tax return using the ELS, the tax agent thereby electronically provided the Commissioner with a tax agent certificate in which he knowingly declared that: 14.1. The return had been prepared in accordance with the information supplied by the taxpayer; 14.2. The agent had received a declaration from the taxpayer stating that the information provided to the agent was true and correct; and 14.3. The agent was authorised by the taxpayer to give the information in the return to the Commissioner.' 13 Paragraph 19 (the first of the impugned paragraphs) provides: 'Each time the respondent lodged a Schedule A return, the respondent, on or about the lodgement date set out in Schedule A for that return, knowingly or recklessly made false, incorrect or misleading declarations in the tax agent certificate referred to in paragraph 14 in respect of that return because: 19.1. The Schedule A return was not prepared in accordance with information supplied by the corresponding Schedule A taxpayer; 19.2. The respondent had not received a declaration from the Schedule A taxpayer stating that the information provided to the respondent was true and correct; and 19.3. The respondent was not authorised by the Schedule A taxpayer to lodge the corresponding Schedule A return on behalf of that Schedule A taxpayer.' 14 It will be noted that the language used in paragraph 19 ('knowingly or recklessly') is similar to the words 'know, or are reckless' appearing in s 50-20(c). 15 Mr Kim submits that knowledge and recklessness are subjective 'states of mind' and 'conditions of mind'. This is not entirely correct, at least formally. Rule 16.43 of the Federal Court Rules 2011 (Cth) provides: '16.43 Conditions of mind (1) A party who pleads a condition of mind must state in the pleading particulars of the facts on which the party relies. (2) If a party pleads that another party ought to have known something, the party must give particulars of the facts and circumstances from which the other party ought to have acquired the knowledge. (3) In this rule: condition of mind, for a party, means: (a) knowledge; and (b) any disorder or disability of the party's mind; and (c) any fraudulent intention of the party.' 16 The effect of Rule 16.43(1) and (3)(a) is to require the provision of particulars of an allegation of knowledge. But 'condition of mind' in subrule (3) does not include recklessness. On the other hand, the effect of Rule 16.43(2) is to require the provision of particulars where it is said that someone should have known something. In my opinion subrule (2) is sufficient to include an allegation of recklessness even if it does not fall within the definition of 'condition of mind' in subrule (3). 17 That point may be put aside, however, because I do not consider that Mr Kim's argument that paragraph 19 of the Statement of Claim does not provide proper particulars of knowledge is correct. The pleading alleges that the returns had not been prepared by Mr Kim from information provided by the Schedule A taxpayers; that Mr Kim had received no declaration from the taxpayers as to the correctness of the information; and that he had not been authorized by the taxpayers to provide the information to the Commissioner. If the Board establishes that each of these matters is true then it would it be open for the Court to infer that Mr Kim knew that the declarations made by him were false. It might not be bound to draw such an inference but it would plainly be open to it to do so. 18 What then of the allegation of recklessness? It was submitted on Mr Kim's behalf that recklessness was different to gross negligence. It was said that an allegation of recklessness was an allegation that Mr Kim knew there was a real risk that the statements were false but simply did not care whether that was the case or not. I am content to accept this view of recklessness for present purposes. The problem is that I have no difficulty reading paragraphs 19.1-19.3 (above) as providing adequate particulars of such an allegation. It may be that the particulars would also support an allegation of negligence (or even gross negligence) but to show that does not mean that they cannot also support an allegation of recklessness. 19 I reject the challenge to paragraph 19. 20 Next Mr Kim submitted that paragraph 43 suffered from a similar vice. That paragraph alleges: 'The respondent knew, or was reckless as to whether, the statements pleaded in paragraphs 22 to 41 were false, incorrect, or misleading in a material particular, by reason of one or more of the following: 43.1. Each of the Schedule A taxpayers had no dealings with the respondent regarding the preparation of any tax return in their name and they did not authorise the lodging of a return in their name by the respondent. 43.2. By the time that the respondent lodged the Schedule A returns employers were required to have lodged their annual payment summary returns with the ATO. 43.3. The respondent did not check the Portal or use the pre-filling service which would have provided or may have been expected to provide correct information for the Schedule A taxpayers. 43.4. Correct information regarding each of the Schedule A taxpayers' payment summaries for the 2010 tax year could have been made available to the respondent by the ATO if he had sought the information. 43.5. Correct information regarding a taxpayer's spouse, if a return was lodged the previous year with a claim for a spouse tax offset, may have been made available to the respondent had the respondent checked the Portal. 43.6. The tax withheld amounts that the respondent stated in each Schedule A return were significantly higher than the amounts set out in the "Tax Payable Ready Reckoner" for the relevant income year for the income stated for the Schedule A taxpayers in the Schedule A returns.' 21 The issues concerning this paragraph are not quite the same as those in the case of paragraph 19. To begin with paragraph 43 refers to the allegations in paragraphs 22 through to 41. These are each largely in the same form and each refers to the position of an individual taxpayer. I will set out paragraph 23 as an example: '23. Apart from declarations made in the tax agent certificate, the respondent on 15 October 2010 also made statements to the Commissioner that were false, incorrect or misleading in a material particular in the Schedule A return he lodged in the name of [a taxpayer] by including statements in that return that falsely or incorrectly stated the name, identity or details of [the taxpayer's]: 23.1. telephone number; 23.2. bank account; 23.3. employer for the 2010 tax year; 23.4. occupation for the 2010 tax year; and 23.5. income and total tax withheld.' (I have deleted the taxpayer's name from these reasons) 22 Essentially the allegation is that Mr Kim lodged a return for the taxpayer in which he incorrectly stated her telephone number, her bank account, her employer, her occupation, her income and the amount of tax withheld. The Board therefore alleges in paragraph 43 that Mr Kim knew that the statements in her return about these matters were incorrect or he was reckless as to their correctness. Why? My reading of paragraph 43 is that this was because Mr Kim had not had any dealings with her and she had not authorized him to lodge a return; because her employer would have lodged the relevant information with the Commissioner (so that, presumably, that information would be available on the Commission's Tax Portal); because Mr Kim did not check the Portal; and because the tax withheld by her employer was more than might have been suggested by the Commissioner's 'Tax Payable Ready Reckoner.' 23 I do not accept the submission that this information is not a discharge of the Board's obligation to provide particulars under Rule 16.43. If the facts alleged were established the inference that Mr Kim was aware of the falsity of the information contained in the returns would be available. Particularly is this so when 20 separate taxpayers each having the same problems are involved. 24 During the hearing it occurred to me that there might be some infelicity about paragraphs 43.3 and 43.4 which are expressed, at least in part, in language of some tentativeness ('…may have been expected…'; '…could have been made…'). Ultimately, the point being made by the Board is that Mr Kim did not check the Portal. The balance of the allegations in 43.3 and 43.4 are directed to showing why it might have been a good idea for him to do so. The allegation is that Mr Kim knew the statements were false or was reckless as to their falsity. The allegation of recklessness is therefore supported by the allegation that Mr Kim did not check the Portal. It is also supported by the allegations that checking the Portal might have assisted in obtaining pertinent information. That it might have been expected to be helpful to check the Portal provides material from which an inference might be drawn that it was reckless not to do so. 25 Although a pleading that something might be the case will frequently be unhelpful here it is, I think, tolerably clear that the pleader is only seeking to explicate the ordinary prudence of checking the Portal. 26 In those circumstances I reject the challenge to paragraph 43. 27 Paragraphs 19 and 43 (which I have just dealt with) concerned the Schedule A taxpayers. Mr Kim made the same submissions about the allegations concerning the Schedule B taxpayers (in paragraphs 51 and 66) and the Schedule C taxpayers (in paragraphs 72 and 79). The issues which arise with respect to these paragraphs are the same as those arising with respect to paragraphs 19 and 43 and the Schedule A taxpayers. I reject Mr Kim's challenges to these paragraphs for the same reasons. 28 Finally, Mr Kim submitted that the originating application failed to comply with Rule 8.03 which provides: '8.03 Application to state relief claimed (1) An originating application must state: (a) the relief claimed; and (b) if the relief is claimed under a provision of an Act—the Act and the provision under which the relief is claimed. (2) An originating application claiming relief of the kind mentioned in column 2 of following table must state the details mentioned in column 3 of the table. Item Relief sought Details 1 Interlocutory relief The interlocutory order sought 2 An injunction The order sought 3 A declaration The declaration sought 4 Exemplary damages The claim for exemplary damages (3) The originating application need not include a claim for costs.' 29 There were said to be three deficits. First, Mr Kim argued that the taxpayers 'were not identified in the endorsement itself'. It may be accepted that this is true and that the taxpayers are not identified in the originating application. However, Rule 8.03 does not require that they should be. Secondly, it is alleged that the facts in respect of which declarations were sought would not establish that Mr Kim contravened s 50-20 of the Act. The declarations are quite long and little would be served by setting them out in full. It will suffice to say that they pick up in large part (although not completely) the language of the allegations in paragraph 19 and 43 (and paragraphs 51, 66, 72 and 79). The point is essentially the same as the pleading argument I have rejected. That is a sufficient reason to reject it. In any event, it has nothing to do with Rule 8.03. A variant of this argument was that the second declaration sought (declaring that Mr Kim had, in various ways, contravened s 50-20) did not contain matters which could constitute a breach of the provision. This is, in substance, the same as the question of the adequacy of the particulars point. I reject it for the same reasons. 30 Thirdly, it is said that the originating process fails to comply with the requirement in Rule 8.03 that an originating application state the statutory provision under which relief is claimed (if the claim is statutory in origin). Order 1 sought in the originating application reads: 'An order that the Respondent pay to the Commissioner on behalf of the Commonwealth, a pecuniary penalty in respect of each of the contraventions of section 50-20 of the Tax Agent Services Act 2009 as pleaded in the statement of claim.' 31 The source of the power of this Court to impose a civil penalty on Mr Kim is not, however, s 50-20 but rather s 50-35(2) which provides: '50‑35 Federal Court may order you to pay a pecuniary penalty for contravening a civil penalty provision … Court may order you to pay pecuniary penalty (2) If the *Federal Court is satisfied that you have contravened a civil penalty provision, the Federal Court may order you to pay to the Commonwealth, for each contravention, the pecuniary penalty that the Federal Court determines is appropriate (but not more than the maximum amount specified for the provision). …' 32 The Board submitted that Order 1 did state the relevant provisions for the purposes of Rule 8.03. However, the reference in Order 1 is to s 50-20 (above at [9]) which creates Mr Kim's obligation not to engage in certain conduct and erects a civil penalty if he does. It does not confer any power on this Court to impose a civil penalty. That work is done by s 50-35(2). I do not accept therefore that s 50-35(2) is a mere machinery provision. It is the source of this Court's power to impose the penalty and it is for relief under that section in the form of a civil penalty that the Board contends. In those circumstances, the originating application is defective as alleged. The appropriate order, however, is that the Board file an amended originating application within seven days adding a reference to the relief being claimed under s 50-35(2). 33 Mr Kim has failed on all arguments except one minor one having no substantive consequences. He should pay the Board's costs of his application. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 2 May 2014