Battle over $4m IRD bill returns to court

David Hampton, who's embroiled in a $4m tax fight with the IRD. Photo / Geoff Sloan

A $4 million legal battle with Inland Revenue, which has been rumbling on for more than two decades, returns to court today after a recent Court of Appeal decision opened the way for a fresh action.

David Hampton, former owner of Christchurch preschool chain Chesterfields Preschools, will lodge a new judicial review at the High Court this morning against the chief executive of the IRD, and the Minister of Revenue, Todd McClay.

Hampton claims that in 1994 the IRD arranged to remit accumulating penalties on unpaid taxes while waiting on a series of tax refunds dating back 22 years. Such arrangements were common at that time.

He says that the department, and its legal representatives, have failed to disclose over a period of some 10 years - since 1996 - computer records concerning the existence of those arrangements that he says was "clearly critical to the resolution" of his historical complaints.

"If disclosed in a timely way, to allow early resolution of [Hampton's] complaints, [it] would have prevented the accumulation of millions of dollars in penalties and subsequent enforcement action that destroyed [Hampton's] businesses while the non disclosure conduct continued," the statement of claim says.

Last September, the IRD commissioner was granted consent to pursue High Court civil proceedings against Hampton.

A recent Court of Appeal misfeasance decision, involving Crown lawyers failing to properly disclose evidence, has broken the ground for the Chesterfields misfeasance case, which was cited in the judgment.

Hampton hopes his judicial review will force the IRD and its lawyers into providing disclosure in a manner that is "fair and reasonable to the interests and expectations" of his case.

"The essence of the new proceeding is whether the Minister and Commissioner have statutory powers to decline to investigate credible complaints of fraud while exercising powers of collection of taxes that are the subject of those fraud complaints? I am positive that they must investigate rather than ignore the complaints," Hampton said.

Hampton said it had been "incredibly stressful" and he hoped his "ground-breaking" case would save other small businesses from the same 22-year "nightmare".

"There has been no clear path to resolution. It's like you've dropped down a well," he said.

"It seems unbelievable that a situation like this could have developed in New Zealand."

The long-running battle began in the mid-1990s when Hampton ran into tax troubles.

He says he was due refunds from the IRD, but while he awaited his due cash, a penalty tax bill was being racked up.

IRD officials told him that the penalties would be put on hold until he got his refunds, avoiding late-payment penalties, he says.

However, Hampton, 55, says the government department in 1999 denied there was any evidence of the deal in its records and reneged on the deal, leaving him with a tax bill that spiralled out of control from 1993 to 2006 to reach $4 million in unpaid tax and late filing penalties.

For the last two decades, Hampton has been fighting his predicament, which he says has cost him his business, lost profits of $3 million to $4 million, and more than $500,000 in legal fees.