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IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
CRI 2007-409-000095
DAVID JOHN HAMPTON AND CHESTERFIELDS PRESCHOOLS
LIMITED
Appellants
v
THE COMMISSIONER OF INLAND REVENUE
Respondent
Hearing: 3 August 2007
Counsel: J H M Eaton for Appellants
P J Shamy for Respondent
Judgment:
22 August 2007
JUDGMENT OF PANCKHURST J
An extension of time for appeal
[1] On 4 February 2005
Judge P A Moran found a series of charges which had
been the subject of a defended hearing proven. Mr Hampton, in both his personal
capacit y and as a partner in Chesterfields Preschools Partnership, and Chesterfields
Preschools Limited were convicted of failing
to file income tax returns in the years
ended 31 March 2002 and 2003. In addition Mr Hampton (in his partnership
capacit
y) and the company were convicted of failing to file GST returns on three and
four occasions, respectively, in the period late 2002
to early 2003.
D J HAMPTON AND CHESTERFIELDS PRESCHOOLS LIMITED V THE COMMISSIONER OF INLAND
REVENUE HC CHCH CRI 2007-409-000095
22 August 2007
[2] The Judge imposed fines of $1,000 for each of the income tax return, and
$500 for the GST return, charges.
[3] Notices of appeal dated 29 April 2007 were filed on behalf of both
defendants. Accordingly, the appeals were brought about
two years three months
after the case was determined, and approximately two years two months out of time.
[4] The thrust of
the intended appeal is that matters have emerged since the
District Court hearing which place the offending in such a different light
that it is
appropriate to substitute discharges without conviction in lieu of the previous
penalt ies. Hence, the appeal is against
sentence alone and counsel maintains that
despite the difficulties (which I will explain shortly) it remains possible to entertain
an appeal of narrow focus even after such significant delay.
When is it appropriate to extend time?
[5] Section 123(1) of
the Summary Proceedings Act 1957 contains the power to
extend time for the filing of a notice of appeal. In common with other provisions of
a similar nature, no statutory
criteria are prescribed.
[6] I shall approach the issue in light of the approach suggested by the Court of
Appeal in R v Knight
[1998] 1 NZLR 583 (CA), albeit that case concerned an
extensio n of time under s388 of the Crimes Act 1961. The Court observed that the
discretion should be exercised in the interests of justice by balancing the need for
finalit y of decisions
on the one hand, against the interests of the appellant on the
other. Approached in these terms the decision may involve the need
to look at a
range of factors. In this case I consider there are three issues which require
assessment:
[a] whether
the delay has occasioned prejudice to the respondent,
[b] the length of the delay and any explanation for it, and
[c] the strength of the proposed appeal.
Inevitably there is a degree of overlap between these factors. In particular, what
I
see as the dominant factor, the strength of the proposed appeal, is tied up with the
questions of prejudice and why the appeal
was only filed so long after the event.
Has the delay occasioned prejudice?
[7] Both Judge Moran's oral decision in which
he found the charges proved, and
his sentencing decision, are available. However, the notes of evidence from the
hearing were not
typed back and are now irretrievable. A memorandum from the
Criminal Caseflow Manager of the District Court indicates that the tapes
on which
the evidence was recorded were erased, when an appeal had not been filed and an
appreciable time had already elapsed.
[8] The District Court file does contain briefs of evidence for one of the
informant's witnesses who gave evidence with reference
to all three taxpayers. But
it is evident from the Judge's decision that there was another witness, or witnesses,
for the Department
and that Mr Hampton gave evidence in his own defence and on
behalf of the partnership and the company. In the result most
of the witness
evidence is missing, including all of the cross-examination of both sides' witnesses.
The exhibits produced are still
available, but the explanation of them is not.
[9] Therefore, the issue of prejudice is a significant factor. Its true implications
will become clearer as I examine the third aspect, the strength of the intended appeal.
Is the delay explained?
[10] On 2 August
2007 Mr Hampton swore an affidavit in support of the intended
appeal. It includes this:
Appeal Out of Time
22. I appreciate
that this appeal has been filed significantly out of time. In
explanation, it was only after receiving the reserved decision
of Justice
Fogarty on 15 December 2006 and taking in the significance of that
decision that I sensed that,
had the Aronsen agreement records been
properly made available prior to the District Court hearing that things
ma y have been dealt with differently.
23. Furthermore, following the decision of Justice Fogarty in the Judicial
Review proceedings, it took a great deal of time to locate and work
through all of the documentation over
the years that seemed relevant to
track the various complaints I had made, the requests for the file notes
of Mr Aronsen, the requests for some form of acknowledgement of the
arrangements, the steps taken by the revenue
in conflict with the
arrangement and finally the records evidencing the revenue's failure to
acknowledge
and in some instances, to deny the arrangement.
[11] I can well appreciate the references in para 23 to the difficulty in working
through "all of the documentation". The proceeding before Fogarty J was an
applicat ion for judicial review on behalf of
the company, Mr Hampton, the
partnership and another company (to which I will refer shortly): (2007) 23 NZTC 21,
125. This case generated
voluminous material said to be relevant to the grounds of
review. Even the present appeal against sentence has generated a bundle
of
documents running to many pages. In addition reliance is placed upon Fogarty J's
decisio n in the judicial review proceeding which
is likewise a formidable document.
[12] Again, the explanation for the delay is closely connected to the issues which
are
raised in support of the appeal and which are said to demonstrate a basis for
ordering discharges pursuant to s106 of the Sentencing Act 2002. It is convenient,
then, to return to the explanation for the delay later.
Is there merit in the appeal?
[13] To understand
the matters advanced in support of the appeal it is necessary to
place this proceeding in a broader context. In the most general
of terms Mr Hampton
and associated entities have been in dispute with the Inland Revenue Department for
a prolonged period, extending
back to the early to mid-1990s.
[14] Fogarty J began his decision in the judicial review proceeding in this way:
[1] This is a difficult case. The events are spread over a long period of
time. There are numerous taxpayers' accounts.
The "taxpayers" have been
trying to take full advantage of every strategy possible to reduce tax. The
"taxpayers'"
accounts have now got quite out of hand. Against core
assessments in excess of $900,000, there is now a total liability
on paper of
about $4 million, the additional $3 million being made up of late payment
penalties and interest.
The plaintiffs seek judicial review on numerous past
decisions of the Commissioner.
[15] At the end of the judgment
the Judge concluded that there were certain faults
on the part of IRD and he directed the Commissioner to reconsider particular
decisio
ns taken in relation to the taxation affairs of Mr Hampton, Chesterfields
Preschools Partnership, Chesterfields Preschools Limited
and another company
Ano lbe Enterprises Limited. Anolbe is a property owning company which, I
understand, is the legal owner
of land and buildings (including a preschool childcare
business). Hence, the company was a plaintiff in the judicial review proceeding,
but
was not involved in the District Court prosecution with which I am now concerned.
[16] Against this general background it
is now necessary to turn to the more
specific matters which are advanced in support of the appeal. These include certain
matters
which were before Judge Moran, and which were considered by him in
imposing the fines to which I have already referred. But, in addition
Mr Eaton seeks
to reply upon new evidence, which he argues has the potential to tip the balance in
favour of discharges for the appellants.
The Aronsen arrangement
[17] In 1994 Blair Aronsen of the Revenue's Return and Debt Collections Unit,
assumed responsibility
to pursue overdue taxes considered to be payable by the
Hampton entities. The then indebtedness was of the order of $130,000. His
task
was complicated by the circumstance that other officers were conducting an audit
with reference to a GST credit claimed by Anolbe.
It was proposed that this credit, if
it survived audit scrutiny, would be transferred and applied to meet the indebtedness
of one
or more of the other entities.
[18] Discussions occurred between Mr Hampton and Mr Aronsen. In light of
them Mr Aronsen made
a number of file notes which are fully set out in Fogarty J's
judgment. For example a note following a meeting on 23 September 1994
included
this:
I TOLD MR HAMPTON THAT I WAS PREPARED TO DEFER
COLLECTING THIS MONEY UNTIL THE CR [credit] IN ANOLBE
ENTERPRISES HAD BEEN FINALISED.
This is but an extract from a much longer file note but it is sufficient for present
purposes.
[19] Unfortunately the audit of Anolbe was conducted in a dilatory manner. Over
a year later on 23 November 1995 Mr Aronsen
made a further file note. It included
this:
I ADVISED MR HAMPTON THAT I CONSIDERED IT TO BE
UNPROFESSIONAL FOR
THE DEPT TO TAKE OVER 12 MONTHS TO
ACT ON THIS CASE. I.E. IN REFERENCE TO THE AUDIT CASE. I
SAID I WAS NOT HAPPY
FOR THESE LONG DELAYS ON OUR
PART. MR HAMPTON SAID HE DID NOT WANT TO STIR THINGS
UP AND HE WOULD BE PREPARED TO
WAIT FOR AUDIT TO MAKE
UP THEIR MINDS. I SAID I WOULD DEFER ACTION AGAIN ...
[20] Matters dragged on for a period of
years. With reference to the performance
of the auditors Fogarty J found (para [149] of his decision):
The Audit
Department did not make its decisions promptly and in
some, if not most, cases, did not make decisions at all in respect
of the
disputed GST refunds. Mr Hampton was given comfort in that
respect, and became naively confident
his claims would prevail, and
that the mounting penalties would be remitted.
[150] In the round, Mr Hampton
had reasonable expectations that his and his
associated entities' total liabilities to the Commissioner were
negotiable ...
[21] A little later in the decision Fogarty J found that from 1993 down to at least
1998 officers who
were responsible for debt collection felt it was unethical to
proceed with recovery action while audit was examining the merit of
the GST input
claims. This the Judge saw as significant because, in due course, the plaintiffs were
hit with interest and late payment
penalties which ultimately gave rise to the huge
indebtedness figure. Hence on review the Judge granted some relief by directing
that
the Commissioner reconsider aspects of the decisions taken over a period of several
years.
[22] But how is any of this
relevant to the failure to file income tax and GST
returns in 2002 and 2003? The Aronsen arrangement forms the starting-point for
the
argument advanced by Mr Eaton. Counsel contended that IRD's denial of the
arrangement (until it was unearthed as
a result of the judicial review proceeding),
preoccupied Mr Hampton for an extended period. As to this I heard competing
contentions
concerning whether the Aronsen file notes were disclosed to
Mr Hampton when a request for full disclosure was first made, or whether
the notes
were only disclosed in a meaningful way at a much later date. I do not think I need
trouble myself with this debate. Mr
Eaton's argument continued along the lines that
Mr Hampton's battles with IRD impacted in relation to his health such that he was
left "in a state where he was simply unable to deal with his tax responsibilities,
including the timely filing of tax (and GST) returns".
I turn, therefore, to the
evidence relevant to health issues.
A psychologist's report
[23] In mid-2005 (and therefore
after the District Court hearing) Mr Hampton
obtained a report from a clinical psychologist, Michael Davidson. The report was
obtained
in the context of the judicial review proceeding, in particular in support of
an application for an adjournment which was sought
in late 2005. An affidavit
which Dr Davidson swore included this:
I believe that he has developed depressive and pronounced
anxieties as a
consequence of the inescapable nature of being caught in a chronic dispute.
I believe he has been in
a chronic state of depression and disorganisation for
some considerable time, and I believe he cannot continue like this
indefinitely. The litigation is an all consuming matter for him. While it may
be difficult for him to take a break,
I believe that dealing with external
pressures at this time such as the need to communicate with the
plaintiffs'solicitors,
and the need to prepare for a September [2005] hearing,
will impact very negatively on his psychological health.
At the end
of the affidavit Dr Davidson described Mr Hampton's mental health as
"current ly poor".
[24] Mr Eaton argued that the impact
of the Aronsen arrangement fell to be
assessed alongside Mr Hampton's health problems. I was urged to accept that the
depressive
illness was of longstanding, and dated back to at least 2002-2003.
Further, at that time, when the relevant returns were not filed,
Mr Hampton was said
to be at the height of despair because interest and penalties were ever increasing,
while IRD continued to deny
the existence of the Aronsen arrangement.
Delay by Mr Doubleday
[25] From about 1999-2000 Mr Doubleday another officer of the
Revenue, was
invo lved with the tax affairs of Mr Hampton and associated entities. This aspect was
raised before Judge Moran in the
District Court.
[26] In 2001 there was a proceeding before the Taxation Review Authority. It
resulted in a consent order, one
clause of which contemplated that Chesterfields
Preschools Limited would file outstanding returns by 30 October 2003. The returns
comprised both income tax and GST returns, being all or at least most of the returns
which became the subject of prosecution.
[27]
Returns were not filed by the agreed date, but draft accounts required with
reference to the returns were provided to Mr Doubleday
in November 2003.
Discussions ensued, as a result of which Mr Doubleday was to consult a valuer (as to
the market value of certain
properties) and advise an accountant retained by
Mr Hampton of the Department's stance. Mr Doubleday did not consult a valuer.
Nor
did he revert to the accountant. Indeed Judge Moran found that he did not return
calls made by the accountant. The end result was
that the finalising of the accounts
was delayed and, likewise, the filing of the various returns.
[28] With reference to this
aspect Judge Moran found:
But what of it? Assuming for the moment the concepts of estoppel and
waiver are known to
the criminal law, it seems to me to be irrelevant that
this delay was contributed to by Mr Doubleday. It is irrelevant because
the
time for filing these returns had already passed. The 30 October 2003
dea dline had passed. It seems to me that,
on the facts, there is no more here
than Mr Doubleday's volunteering to assist or co-operate in the finalising of
draft
accounts. It is unfortunate that he did not do what he said he would do.
It is unfortunate that that might have added to the
delay in filing returns. But
it had no bearing upon the commission of the offences because they had
already been committed.
[29] Building upon these assessments in the conviction decision, Mr Eaton argued
that the failings of Mr Doubleday remained relevant
to the overall assessment of
culpabilit y. Counsel complained that the Judge did not appear to have taken the
failings into account
when the financial penalties were fixed.
An extension of time to file the returns?
[30] This aspect was also considered by
Judge Moran. Subsequent to the
problems with Mr Doubleday, a Mr Mangels, a prosecutions officer with IRD, issued
final notices pertaining to the outstanding income tax and GST returns. These
contained a warning that further delay
would result in prosecutions being taken,
without further advice. The notices ended:
I anticipate being in a position to
lodge informations at the Christchurch
District Court on 18 May 2004 if the returns are not recorded as filed by that
date.
Based on this sentence in the notices, Mr Hampton raised by way of defence in the
District Court that the Commissioner
had extended time for the filing of the returns
to 18 May.
[31] This became highly relevant. All the returns were filed on 18
May 2004,
save for one which was filed the following day on account of an oversight by
Mr Hampton's accountant.
[32] Judge Moran
confronted the issue. He asked that the question "What then of
Mr Mangels' letter of 6 May 2004?". The Judge found that the Commissioner
was
not empowered to extend the time for filing income tax returns beyond the relevant
31 March final date (being a year on from
expiry of each financial year). He said "It
was simply not possible for the Commissioner legally to extend ... time ...".
[33]
With reference to the GST returns the Judge reached a similar conclusion, but
on different grounds. He considered that the letter
of 6 May 2004 did not constitute
an extension of time, but rather "an expression of intent to prosecute if returns were
not filed
by 18 May 2004".
[34] Mr Eaton did not need to challenge this conclusion, which was of course one
reached in the context of the
conviction decision. But rather, counsel's focus was
upon the significance of this factor (together with all the others) with reference
to
penalt y. In particular, he argued that the circumstance that the returns (but for one)
were filed by the deadline given for
prosecution action was a compelling factor in
favour of a decision to discharge the defendants without conviction.
[35] For
completeness I note that Judge Moran referred to this aspect at another
point in the substantive decision. With reference to the
notices of 6 May 2004 he
said this:
Ther e can be no question that that notice was a statement that prosecution
would follow if the returns were not filed by 18 May 2004 or, conversely, if
they were filed by 18 May 2004 charges would
not be laid. That much is
plain. The charges were laid on 28 May 2004 notwithstanding that the
dea dline had been
met. It is obvious that after Mr Mangels had issued those
notices and uttered those threats, somebody in the department had
a change
of mind. That is not a good look, but at the end of the day the Commissioner
has a discretion to prosecute
or not. It is not for the Court to interfere with
that discretion and the Court will not interfere with that discretion unless
ther e has been bad faith or abuse of process or some other misconduct on the
part of the prosecuting authority.
None of that is evident here.
[36] Again, Mr Eaton did not directly challenge the Judge's reasoning. Counsel
was content to rely
on this aspect as a further element in the argument that the entry
of convictions was disproportionate in all the circumstances.
Analysis of the merit based arguments
[37] I am unpersuaded that there is merit in the arguments based on the so-called
Aronsen
arrangement and the evidence of the psychologist, Dr Davidson. I think the
submissio n that the existence of the arrangement became
a total distraction to
Mr Hampton, and was compounded by his health issues, is strained. The obligations
to file income tax, and
GST, returns is part and parcel of any business operation.
Mr Hampton is legally qualified and a mature person and businessman.
The
suggest ion that he was so overwhelmed by events as to be "simply unable to deal
with his tax responsibilities"
impresses me as unreal.
[38] Indeed, given his history of difficulties with IRD I think it is extraordinary
that returns were
not filed as they fell due in 2002-03. It is not to be forgotten that
Mr Hampton had the assistance of professional advice from an
accountant, although
I note that there was an endeavour to shift blame to the advisor in the course of the
District Court hearing.
In this context I find an observation made by Fogarty J in the
judicial review decision striking. He said of Mr Hampton at para [45]:
He has been remarkably sanguine about the mounting penalties and interest,
based on a personal confidence in his
view of the world.
This is an assessment made with the benefit of observing Mr Hampton in
represent ing himself over the course
of a five day hearing in this Court. It is an
assessment which impresses me as the antithesis of the one for which Mr Eaton
contended,
namely that as at the relevant period in 2002-03 Mr Hampton was
reduced to a state where he was incapable of complying with his legal
obligations.
[39] The remaining two aspects of the argument were of course considered by
Judge Moran. I have already referred
to his assessments of them. These were drawn
fro m the conviction decision. Now, the focus is more upon the Judge's sentencing
decisio
n, to which I have yet to refer.
[40] In the sentencing remarks Judge Moran began by referring to the "strong
public interest
in ensuring that everybody who owes tax pays it". He then noted the
obligat ion upon taxpayers to file returns and that it was serious
when this did not
occur.
[41] The Judge continued:
[3] The aggravating feature of the offending is that these
returns were
late despite the indulgence granted after 30 October 2003 deadline. It is a
further aggravating feature,
of course, that both you and the company have
got previous convictions for offending of this kind.
[4] Mitigating
factors, of course, include the fact that you filed the
returns and that, despite the history that the previous convictions
reflect, you
wer e involved in a process of co-operation with the department through
Mr Crowhen. Regardless of
the maximum penalties that this offending
might attract you cannot get blood out of a stone and I have to impose fines
which are right and just having regard, not only to the aggravating features
of the offending, but also to the reality
that you are in financial difficulty.
Then, after a brief reference to the need for deterrence, the Judge fixed the financial
penalt
ies previously described (see para [2]).
[42] What is noteworthy is that the Judge did not refer to s106. But this was
unsurprising,
given that an application pursuant to the section was not made.
Mr Hampton appeared for himself and the company at sentencing.
What he said in
mit igat ion is not evident from the sentencing decision.
[43] It follows, I think, that the effective issue
for me is whether, if application
had been made, was there a genuine possibility that the question of discharges would
have required
serious consideration. In light of what I have already said, I do not
think that the Aronsen arrangement and the question of ill
health would have been
viewed as influential by Judge Moran at sentencing. Of course, there was no
evidence about these aspects
before him.
[44] On the other hand, I think that the Judge would have had cause for pause,
particularly arising from the circumstance
that prosecution action was taken
regardless of the implication in Mr Mangels' letter that 18 May 2004 was the new
deadline for filing
the returns. As the Judge said this was "not a good look".
However, he, rightly, observed that it was not for the Court to second
guess the
decisio n to prosecute, unless an abuse of process was indicated. But, what he did not
expressly consider was whether this
circumstance should nonetheless be
significant ly influential at the time of sentencing.
Is an extension of time appropriate?
[45] On balance, I consider that an extension of time should be granted. As I have
just said, there is some merit in the intended
appeal. As best I can judge delay has
not occasioned significant prejudice to the IRD. The only two factors which I regard
as of
moment in relation to the merits of the intended appeal, were considered by
Judge Moran. Accordingly, the effect and implications
of them is apparent from the
convict ion and sentencing decisions. The absence of the notes of evidence is not of
real moment, given
the narrow focus of the appeal.
[46] On the other hand I do not regard the explanation for the delay in bringing
this appeal
as convincing. To my mind the filing of the appeal in the aftermath of
the judicial review decision is an afterthought. Once the
Aronsen arrangement and
the issue of ill health (being the aspects said to have emerged as a consequence of the
judicial review
proceeding) are put to one side, there is nothing new in explanation
of the delay.
[47] However, I remain of the view that an
extension of time is appropriate.
Should the appellants be discharged without conviction?
[48] I have already considered the
merits in the context of the application to
extend time. That discussion need not be repeated. It is possible, therefore, to deal
with this question quite economically.
[49] The test for a discharge without conviction is contained in s107:
The Court
must not discharge an offender without conviction unless the
Court is satisfied that the direct and indirect consequences
of a conviction
would be out of all proportion to the gravity of the offence.
Mr Eaton argued that this test was satisfied.
Mr Shamy contended it was not.
[50] I do not of course have the benefit of Judge Moran's view. The issue was not
raised before
him. Had it been I think the Judge would have viewed the decision to
prosecute, when the 18 May 2004 deadline was very largely met,
as about the only
argument in favour of discharges. Certainly, he did not place much significance on
the aspect of Mr Doubleday's
inaction, and I am not disposed to differ from that
assessment.
[51] Otherwise, the circumstances were generally adverse. There
were previous
convict ions. There were multiple failings to file returns, not just an isolated breach.
All the failings occurred
against a background of longstanding disputes between the
taxpayers and IRD. This surely suggested the necessity for compliance,
not a
sanguine approach to filing returns as they fell due.
[52] In all the circumstances I am not persuaded that the entry of
convictions was
disproportionate to the seriousness of the offences. It must be remembered, as Judge
Moran noted, that fines potentially
in excess of $100,000 could have been imposed.
The Judge considered that comparatively modest penalties were required, but only
because "you cannot get blood out of a stone ...".
[53] Even considering the matter de novo I am not persuaded that the entry
of
convict ions is out of all proportion to the seriousness of the offences. With reference
to this aspect Mr Eaton submitted that
the existence of further convictions would
likely impact against the appellants in their future dealings with IRD. No doubt they
will assume relevance, particularly in the event of further prosecution action in the
future. But this does not impress me as a consequence
of the convictions which
militates strongly in favour of discharge orders. I think the adverse circumstances
already referred to
are much more weighty.
Result
[54] Leave to appeal is granted, but the appeals are dismissed.
_________________________________________________________________________________
Solicitors:
Jonathan Eaton Barrister, Christchurch for Appellants
Ra ymond Donnelly & Co, Christchurch for Respondent
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