Law student attempts to extort payment of outrageous “fantasy” invoice from client … Privileged documents supplied to the ATO … $30 million assessment set aside because of misuse of client privilege … In Melbourne, VCAT suspends the suspension of a local solicitor who was 11 years behind with his tax stuff … Emilie Lentz reports 

WE’VE a couple of gripping cases in the zone where tax and lawyers intersect. 

First up is Donoghue v Commissioner of Taxation, where telecommunications businessman Garry Donoghue, with the help of Bret Walker SC in the Federal Court, secured an order that his $30 million tax assessment and penalties for the years 2005, 2006 and 2007 are invalid because they were partly based on privileged information provided to the ATO by his legal adviser.  

The legal adviser at the time was Simeon Moore, studying for a JD at Bond University. He had not been admitted to practice but worked as a paralegal and “research consultant” for his father Peter Moore at the family law shop in Sydney, Moore & Associates. 

Donoghue had been introduced to Simeon by his daughter Alexandria, who had also been studying law at Bond. Moore & Associates was engaged by Donoghue to handle a dispute about property ownership and financing. 

Simeon followed through on his threat to provide the ATO with privileged documents relating to Donoghue’s financial affairs unless he paid an eye-watering bill for $753,174.62.  

Email correspondence as well as documents satisfied Justice John Logan of the Brisbane Feds that Simeon Moore was regarded by Donoghue, on reasonable grounds, to be a “lay associate” of Moore & Associates, and that any information that came to young Moore for the dominant purpose of providing advice, was subject to legal professional privilege. 

The judge described the hours claimed on the invoice as “truly fantastic”. 

“If the entries on the invoice are to be believed, for the periods between April 20 and June 5, 2010 (each inclusive) and between June 13 and 15, 2010 (each inclusive), Simeon Moore performed services each and every hour of each and every day that fell in these periods. 

HH added: 

“The sum sought is outrageously extortionate but quite in keeping, behaviourally, with Simeon Moore’s character. I regard this tax invoice as a fantasy document. Its best use is for the insight it offers into the character of Simeon Moore (whom I infer to be its author) and the reliability of his statements, not for the accuracy of what it purportedly records.” 

Two conversations, on August 5 and August 11, 2010, were recalled by Garry Donoghue where he claimed Simeon said words to the effect: 

“Garry, if you don’t pay me and my family, I will have no hesitation in giving the ATO everything I have on you. You should be very worried. A family friend is an assistant commissioner and I’ve reported people to him before and he’s taken them down. There’s no doubt he’ll look at you and take everything from you and the Donoghue Family Trust. If you don’t want that to happen, pay up what you owe.” 

Subsequently, Donoghue received an email from Moore on August 11, 2010 saying that he had passed documents to the ATO, as threatened. 

Shannon Main, the primary auditor on Donoghue’s case at the ATO observed in an email dated November 8, 2011, that some of the documents in his possession may be subject to legal professional privilege under s66 of the ITAA36, and therefore may not be used for the purpose of assessment. 

He requested that Moore provide documents to further substantiate his allegations. 

Simeon responded by providing a 127-page statement, a 132-page bundle of documents and two laptops. 

In his affidavit, Main said that he considered whether the documents may be subject to privilege and considered it “unlikely”. He also came to the conclusion that young Moore was a “pretty odd person”. 

He was, however, aware that a copy of a document produced to a lawyer would be privileged if that copy was made for the dominant purpose of obtaining legal advice. 

At this stage, Main was not sure that Moore was a lawyer, and was reluctant to investigate in case the confidential nature of the audit be jeopardised and Donoghue be deterred from returning to Australia. 

Paul Dufus and Catherine Jay were Shannon Main’s supervisors and they failed to take note of his apprehension or offer counsel in relation to this matter. 

Justice Logan found that Main’s judgment was reckless and clouded by his preference for performing the audit rather than maintaining Donoghue’s right to privilege. 

This was because the potential tax liability resulting from the audit was large. Main’s actions demonstrated a reckless disregard of Donoghue’s common law right to legal privilege.

The assessments and penalties were declared to be invalid and the ATO was restrained from using the privileged documents for assessment and auditing of Donoghue.

Simeon has now qualified and is plying his trade at the Moore Law Firm in Sydney’s leafy St Ives. 

AT Yarraside, VCAT spanked solicitor George Bouhalis with a good firm lettuce leaf after it was established that for eleven years he failed to lodge tax returns and business activity statements and didn’t pay income tax, PAYG or GST between July 1996 and June 2007. 

George also failed to provide notice to the Legal Services Commission of his conviction for tax offences from November 2009 to late April 2010. Notification is a requirement of the Legal Profession Act. 

He also neglected to give the commissioner a statement as to why he was a fit and proper person to practice law for this period. 

When he did provide a statement Bouhalis included unintentionally misleading information that he “was fined for failing to lodge tax returns on time despite completing lodgement as required”. 

In relation to the tax offences and failure to provide notice and statements, the tribunal found Bouhalis had substantially failed to reach or maintain reasonable standards of diligence or competence, which amounted to professional misconduct – s.4.4.3(1)(a) of the Legal Profession Act.  

Bouhalis pleaded guilty to all three charges relating to tax and failure to give notice. VCAT found that he did not actively avoid paying tax, rather, as his counsel said, “he put his head in the sand” by reason of personal circumstances. However, lack of intention was not of assistance.

In 2013 Bouhalis was found guilty of tax offences in the Magistrates’ Court. No conviction was recorded due to “extenuating circumstances”. Apparently, his accountant Mr Rumoro, failed to complete tax and BAS returns in spite of being provided with the details. 

Bouhalis had the idea that because the conviction wasn’t recorded, in spite of a finding of guilt, he was relieved of the duty to notify the commissioner of the occurrence of a show-cause event. 

In the course of proceedings before the tribunal, he acknowledged that his assumption was false. 

Prior to proceedings getting underway in the tribunal Bouhalis had neglected to tell his counsel of the 2013 findings by the magistrate. The result was that his barrister was unable to disclose this relevant information.

The tribunal weighed a range of extenuating circumstances before deciding to suspend the suspension of his ticket – his lack of deliberate tax avoidance, the absence of a lavish lifestyle, his modest income (tax payable in several years was $0), the fact that he did not declare bankruptcy to avoid paying tax, the rehabilitative path he had taken, the failure of the court in 2013 to record a conviction, despite previous convictions. 

In effect, he got a three year suspended sentence. Conditions were imposed – to engage an account and get all the paperwork in on time and make tax payments on time. 

If that doesn’t happen, George faces the prospect of losing his ticket for 12 months.