FEDERAL COURT OF AUSTRALIA Tax Practitioners Board v Hacker (No 2) [2020] FCA 1048 File number: QUD 106 of 2019 Judge: RANGIAH J Date of judgment: 27 July 2020 Catchwords: CONTEMPT OF COURT –– where respondents made undertaking not to provide tax agent services within meaning of s 90–5 of the Tax Agent Services Act 2009 (Cth) – allegation of breach of undertaking – second respondent admitted contempt – whether first respondent received reward for providing tax agent services – where first respondent was shareholder of company which charged for tax agent services –– breach of undertaking established Legislation: Federal Court of Australia Act 1976 (Cth) s 31 Judiciary Act 1903 (Cth) s 24 Tax Agent Services Act 2009 (Cth) ss 50–5 and 90–5 Cases cited: Anderson v Hassett [2007] NSWSC 1310 Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 Australian Consolidated Press Limited v Morgan (1965) 112 CLR 483 Lade & Co Pty Ltd v Black [2006] 2 Qd R 531 Mallan v Lee (1949) 80 CLR 198 Metcash Trading Ltd v Bunn (No 5) (2009) FCA 16 Microsoft Corporation v Marks (No 1) (1996) 69 FCR 117 Tax Practitioners Board v Hacker [2020] FCA 1047 Witham v Holloway (1995) 183 CLR 525 Date of hearing: 10–13 February 2020 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 40 Counsel for the Applicant: Mr S Couper QC with Mr D Chesterman Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondents: Ms J Marr Solicitor for the Respondents: Fisher Dore ORDERS QUD 106 of 2019 BETWEEN: TAX PRACTITIONERS BOARD Applicant AND: KENT SCOTT HACKER First Respondent ONE STOP GLOBAL STAFFING PTY LTD ACN 097 166 204 Second Respondent NALEVIEW PTY LIMITED ACN 051 420 010 Third Respondent JUDGE: RANGIAH J DATE OF ORDER: 27 JULY 2020 THE COURT ORDERS THAT: 1. By 4.30 pm on 21 August 2020, the applicant file and serve written submissions (not exceeding 15 pages) and any affidavits concerning penalties for contempt of court in respect of the interlocutory applications filed on 17 June 2019, 19 November 2019, 26 March 2020 and 30 June 2020. 2. By 4.30 pm on 11 September 2020, the first and second respondents file and serve written submissions in response (not exceeding 15 pages) and any affidavits. 3. By 4.30 pm on 18 September 2020, the applicant file and serve any written submissions in reply (not exceeding three pages) and any affidavits in reply. 4. The hearing of the question of penalties for contempt of court be set down for 10.15 am on 28 September 2020. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT RANGIAH J: 1 By an interlocutory application and Statement of Charge filed on 17 June 2019, the applicant, the Tax Practitioners Board, seeks the imposition of penalties for contempt of Court upon the first respondent, Kent Scott Hacker, and the second respondent, One Stop Global Staffing Pty Ltd (OSGS). I will refer to this application as "the First Contempt Application". 2 In the First Contempt Application, the applicant alleges that on three occasions, Mr Hacker and OSGS breached an undertaking they gave to the Court on 1 March 2019. OSGS admits the allegations. Mr Hacker denies them. 3 By a further interlocutory application and Statement of Charge filed on 19 November 2019, the applicant alleges that on five further occasions Mr Hacker and OSGS were in contempt of Court by breaching their undertaking. I will refer to that application as "the Second Contempt Application". Both OSGS and Mr Hacker admit these allegations of contempt. 4 It follows that the only contested allegations of contempt are those made against Mr Hacker in the First Contempt Application. 5 The undertaking was given by Mr Hacker and OSGS in the course of a proceeding brought by the applicant alleging that they and another respondent had provided unregistered tax agent services for reward in contravention of s 50–5 of the Tax Agent Services Act 2009 (Cth) (the TAS Act). I will refer to that proceeding as "the Contravention Proceeding". 6 I have delivered reasons for judgment in the Contravention Proceeding: see Tax Practitioners Board v Hacker [2020] FCA 1047. I found that each of the respondents contravened s 50–5 of the TAS Act. Some of my findings of contravention overlap with the allegations of contempt and, in addition, there are common issues of construction of s 50–5 of the TAS Act. That makes it necessary to read the two sets of reasons together. 7 I will describe some matters of background before considering the allegations made against Mr Hacker in the First Contempt Application. Background 8 On 12 February 2019, the applicant commenced the Contravention Proceedings against Mr Hacker, OSGS and Naleview Pty Ltd (Naleview) alleging that each of them contravened s 50–5(1) of the TAS Act. That section provides: 50–5 Providing tax agent services if unregistered (1) You contravene this subsection if: (a) you provide a service that you know, or ought reasonably to know, is a *tax agent service; and (b) the tax agent service is not a *BAS service or a *tax (financial) advice service; and (c) you charge or receive a fee or other reward for providing the tax agent service; and (d) you are not a *registered tax agent; and (e) if you provide the tax agent service as a legal service—either: (i) you are prohibited, under a *State law or *Territory law that regulates legal practice and the provision of legal services, from providing that tax agent service; or (ii) subject to subsection (3), the service consists of preparing, or lodging, a return or a statement in the nature of a return. Civil penalty: (a) for an individual—250 penalty units; and (b) for a body corporate—1,250 penalty units. … 9 On 1 March 2019, in response to an application brought by the applicant for an interlocutory injunction, Mr Hacker, OSGS and Naleview gave the following undertaking to the Court: On a without admissions basis, until further order of the court or final disposition of this proceeding, each respondent (and in the case of the first respondent, either personally or on behalf of another entity) will not provide tax agent services within the meaning of s 90–5 of the Tax Agent Services Act 2009 (Cth) or BAS services within the meaning of s 90–10 of the Tax Agent Services Act 2009 (Cth) for fee or reward to any person or entity with the exception of those entities in respect of which the first respondent holds an officer position (being either director, company secretary and/or public officer), and, for the avoidance of any doubt, the undertaking does not prohibit the first respondent from receiving a fee or reward in respect of his officer role for those entities. (Emphasis added.) 10 On 17 June 2019, the applicant filed the First Contempt Application. The hearing of that application commenced on 10 September 2019. In the course of the hearing it became apparent that there were issues of construction of s 50–5 of the TAS Act which substantially overlapped with the issues that would have to be determined in the Contravention Proceeding. I considered that it would be preferable to decide the Contravention Proceeding first. I adjourned the hearing of the First Contempt Application until immediately after the hearing of the Contravention Proceeding. 11 On 30 September 2019, the applicant filed an Amended Statement of Charge in support of the First Contempt Application. The amendments allege, further or alternatively, that Mr Hacker is liable for contempt on an accessorial basis. 12 It may be noted that the applicant filed further applications on 26 March 2020 and 30 June 2020 alleging contempt against Mr Hacker and OSGS by failure to comply with the undertaking. The Court has been informed that both Mr Hacker and OSGS admit these allegations. Those charges are not dealt with in these reasons, which are concerned only with the First and Second Contempt Applications. The Amended Statement of Charge 13 The Amended Statement of Charge for the First Contempt Application is as follows: 1. On 1 March 2019 the Respondents provided an undertaking to the Court… 2. In breach of that undertaking: (a.) on 6 March 2019 the Second Respondent, and/or the First Respondent (either personally or on behalf of the Second Respondent): (i.) provided a tax agent service within the meaning of s 90–5 of the Tax Agent Services Act 2009 (Cth) to Palwinder Lore; (ii.) did so in return for a fee or other reward. Particulars: The tax agent service provided was the preparation of a 2018 Income Tax Return (ITR). The fee charged was $132.00. (b.) on 13 March 2019 the Second Respondent, and/or the First Respondent (either personally or on behalf of the Second Respondent): (i.) provided a tax agent service within the meaning of s 90–5 of the Tax Agent Services Act 2009 (Cth) to Jeremy Park; (ii.) did so in return for a fee or other reward. Particulars: The tax agent service provided was the preparation of a 2018 ITR. The fee charged was $132.00. (c.) on 18 March 2019 the Second Respondent, and/or the First Respondent (either personally or on behalf of the Second Respondent): (i.) provided a tax agent service within the meaning of s 90–5 of the Tax Agent Services Act 2009 (Cth) to Mohammed Rizwan Shaikh; (ii.) did so in return for a fee or other reward. Particulars: The tax agent service provided was the preparation of a 2018 ITR. The fee charged was $132.00. 3. Each of the circumstances in subparagraphs 2(a.), (b.) and (c.) is a separate contempt of Court and breach of the undertaking. 4. Further, or alternatively, the First Respondent assisted the Second Respondent to engage in the conduct referred to at subparagraphs 2(a.), (b.) and (c.) above, and thereby aided, abetted, counselled or procured the Second Respondent in breaching the undertaking. 5. Further, or alternatively, the First Respondent was knowingly concerned in, or a party to, the Second Respondent's conduct referred to at subparagraphs 2(a.), (b.) and (c.) in breach of the undertaking. (Emphasis in original.) 14 Each allegation of contempt set out in paras 2(a)-(c) is supported by an affidavit of the person to whom the tax agent service was allegedly provided, namely Palwinder Lore, Jeremy Park and Mohammed Rizwan Shaikh respectively. These witnesses have not been required for cross-examination. It may be noted that in the Contravention Proceeding, I found each of the tax agent services described in paras 2(a)-(c) to be a contravention of s 50–5(1) of the TAS Act. Consideration Proceedings for contempt 15 Under s 31 of the Federal Court of Australia Act 1976 (Cth), the Federal Court has the same power to punish contempts of its power and authority as is possessed by the High Court in respect of contempts of the High Court. Section 24 of the Judiciary Act 1903 (Cth) confers on the High Court the same power to punish for contempt as was possessed at the commencement of that Act by the Supreme Court of Judicature in England. 16 A breach of an undertaking is, like disobedience of a court order, a contempt of court, for which the contemnor is liable to punishment: Australian Consolidated Press Limited v Morgan (1965) 112 CLR 483 at 496–497. 17 It is necessary to prove the contempt beyond all reasonable doubt: Witham v Holloway (1995) 183 CLR 525 at 534. 18 A deliberate act committed in breach of an injunctive order or undertaking will constitute wilful disobedience unless it be casual, accidental or unintentional: Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 113. 19 However, it is not necessary for the applicant to prove that the contemnor intended to breach an order of, or an undertaking to, the Court: see Lade & Co Pty Ltd v Black [2006] 2 Qd R 531 at [57]–[58]; Anderson v Hassett [2007] NSWSC 1310 at [8]; Mudginberri at 112. Nor is it necessary to prove that the contemnor was aware that his or her conduct constituted a breach of the undertaking: Microsoft Corporation v Marks (No 1) (1996) 69 FCR 117 at 143; Metcash Trading Ltd v Bunn (No 5) (2009) FCA 16 at [9]. The allegations against Mr Hacker 20 Mr Hacker does not dispute the facts alleged against him. His defence against the direct allegations of contempt is based upon the proper construction of the undertaking, which he contends must be understood in light of the proper construction of s 50–5(1) of the TAS Act. Further, he submits that the allegations of accessorial liability in the Amended Statement of Charge are inadequate and should be struck out. 21 Mr Hacker observes that his undertaking was given in the context of an application for an interlocutory injunction to restrain conduct which could contravene s 50–5(1) of the TAS Act. He submits that the undertaking cannot be given a broader meaning than s 50–5(1) itself, and must be construed within the confines of that provision. Mr Hacker submits that s 50–5(1) requires proof that he had the requisite knowledge and, critically, that he personally charged or received a fee or reward for providing tax agent services. 22 Section 50–5(1)(c) of the TAS Act requires that, "you charge or receive a fee or other reward for providing the tax agent service". Mr Hacker repeats a submission he made in the Contravention Proceeding that s 50–5(1)(c) requires a direct connection between the tax agent service provided and the charging or receipt of a fee or reward for that work. 23 The applicant relies upon two matters which are said to amount to the receipt of a "reward" for the purpose of the undertaking and s 50–5(1)(c) of the TAS Act. First, the applicant submits that the reward was the increase in the value of Mr Hacker's shareholding in Naleview resulting from the payment of fees by clients to OSGS for the provision of tax agent services by Mr Hacker. Second, the applicant relies upon the payment of a wage by Naleview to Mr Hacker for the 2018/2019 year. 24 Mr Hacker submits that neither of these matters provide a direct connection of the kind required under s 50–5(1)(c). I infer, having regard to Mr Hacker's submission in the Contravention Proceeding, that he also contends that there is insufficient evidence of an increase in the value of his shareholding in Naleview. 25 It suffices, for present purposes, to describe the evidence of Mr Lore. He deposes that on 6 March 2019, he visited Mr Hacker's office in Brisbane City to have his 2017/2018 income tax return prepared. Mr Hacker opened the MyGov website on a desktop computer and asked Mr Lore to log in. Mr Lore logged in using his username and password and Mr Hacker took over the keyboard and operated the computer. Mr Hacker asked Mr Lore for some details of his income and asked questions about his expenses. Mr Hacker wrote down information Mr Lore provided to him on a piece of paper. Mr Hacker called a receptionist into his office. She took the paper Mr Hacker had been writing on and started entering numbers from the paper into the computer. Mr Hacker checked the details that had been entered. Mr Lore saw a confirmation screen on the computer saying that his tax return had been completed. Mr Hacker gave Mr Lore a piece of paper showing how much money he would have to pay to the ATO. Mr Hacker told Mr Lore that the fee for the income tax return would be $132. Mr Lore paid the fee using an EFTPOS machine. The fee was paid to OSGS. 26 The affidavits of Mr Park and Mr Shaikh are broadly similar. It is unnecessary to summarise them as Mr Hacker does not dispute the matters deposed to. 27 In my reasons for judgment in the Contravention Proceeding, I rejected Mr Hacker's submission that s 50–5(1)(c) of the TAS Act should be construed such that the person providing the tax agent service must receive a direct reward from the person to whom the service is provided. I held that the reward can be indirect. I also held that the meaning of "reward" is wide. I held that where an individual who provides a tax agent service causes a fee for that service to be paid to a company in which the individual holds shares, the increase in the value of the shares created by the payment may satisfy s 50–5(1)(c). Further, I held that if an individual is employed by a company and the company pays the individual a wage for the provision of tax agent services to clients, the wage may be a reward for the provision of the services. I adopt and apply that reasoning. 28 The evidence discloses that OSGS has a single share issued, which is owned by Naleview. Mr Hacker owned half the shares in Naleview. 29 Mr Hacker provided tax agent services to Mr Lore, Mr Park and Mr Shaikh. Mr Hacker caused each of those persons to pay a fee to OSGS for the provision of his services. The provision of tax agent services to strangers is an activity inherently unlikely to be done without the expectation of a financial reward. I infer that it was Mr Hacker's intention in providing the tax agent services that he would benefit financially. 30 When Mr Lore, Mr Park and Mr Shaikh paid their fees, the value of the assets of OSGS increased correspondingly. I infer that with each payment, the value of the share in OSGS increased, and the value of the shares in Naleview also increased. Mr Hacker received a financial benefit through the increase in the value of the shares. In my opinion, Mr Hacker received a reward for his provision of the tax agent services to each of Mr Lore, Mr Park and Mr Shaikh. 31 Mr Hacker received a wage from Naleview for the 2018/19 year. He was an employee of Naleview. However, the fees for the services provided to Mr Lore, Mr Park and Mr Shaikh were paid to OSGS, not Naleview. I do not think it can be inferred that the wage was paid, in whole or part, to Mr Hacker for the tax agent services provided on behalf of OSGS. 32 Mr Hacker did not dispute that the services he provided to Mr Lore, Mr Park and Mr Shaikh were tax agent services within s 90–5 of the TAS Act. However, on one reading of his written submissions, he may be understood to contend that the applicant has not demonstrated, as is required under s 50–5(1)(a), that he knew or ought to have known that the services were tax agent services. However, it is clear from the facts deposed to by Mr Lore, Mr Park and Mr Shaikh that Mr Hacker prepared or assisted in the preparation of their income tax returns, including by asking questions about their incomes and work-related expenses and applying that information. Mr Hacker inferentially provided advice about their obligations and entitlements under taxation law by preparing and submitting the returns, particularly in relation to the deductions they were able to claim. OSGS, of which Mr Hacker was the sole director, charged fees for his services. The value of his services apparently lay in the application of his knowledge of income tax law. I infer that Mr Hacker knew that he was providing tax agent services. If he did not know, then he ought to have known. 33 Mr Hacker provided an undertaking to the Court on 1 March 2019 that he would, "not provide tax agent services…for fee or reward to any person or entity…". While there were exceptions to that undertaking, those exceptions are not presently material. 34 I accept that the undertaking must be read in the context of s 50–5(1) of the TAS Act. I accept that the provision of a tax agent service which did not contravene s 50–5(1) would not breach the undertaking. However, I have found that Mr Hacker contravened s 50–5(1) by providing the tax agent services to Mr Lore, Mr Park and Mr Shaikh alleged in the Amended Statement of Charge. By providing each of those services, he failed to comply with the undertaking. There is no suggestion that his non-compliance was merely casual, accidental or unintentional. 35 I am satisfied, beyond reasonable doubt, that Mr Hacker committed each of the contempts alleged in paras 2(a)-(c) of the Amended Statement of Charge for the First Contempt Application. 36 The Amended Statement of Charge also alleges that Mr Hacker is accessorily liable for the contempts committed by OSGS, which OSGS has admitted. Those allegations are expressed to be made, "[f]urther, or alternatively", to the allegations of contempt made directly against Mr Hacker. 37 Mr Hacker submits that if he is found to be directly liable, he cannot also be found to be liable as an accessory, referring to Mallan v Lee (1949) 80 CLR 198 at 215-216. I understand the applicant to accept that the allegations of accessorial liability only become relevant if the allegations of direct liability fail. As the allegations of direct liability have succeeded, it is unnecessary to consider the allegations of accessorial liability. Summary 38 In respect of the First Contempt Application, OSGS has admitted the allegations. I formally find the allegations to be proven. I have also found the allegations against Mr Hacker to be proven. 39 In respect of the Second Contempt Application, Mr Hacker and OSGS have admitted the allegations. I formally find the allegations to be proven. 40 I will make directions for the conduct of a hearing on the question of penalties, including in respect of the further applications filed on 26 March 2020 and 30 June 2020. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rangiah. Associate: Dated: 27 July 2020