IRD scolded for errors in tax case

Judge unfreezes bank account and in an `unprecedented' move orders dept to pay costs.

A High Court judge has rebuked the IRD, calling its application to freeze $462,000 in the bank account of a Rotorua woman "misleading" and saying it contained "significant, avoidable and troubling" errors.

The judge removed the freeze and also ordered IRD to pay all the legal costs of the woman and her husband - a move described as "unprecedented" by a tax academic.

Inland Revenue early last month deemed that two liquidated companies associated with Rotorua businessman Marcus Dymock owed $462,000 in tax.

The companies' liquidator then sought $450,000 from Dymock, already having $25,000 on hand, which in total could meet the tax liability if it was ultimately proven.

Dymock agreed to return that amount but the money had been transferred to his wife, Charlotte Dymock, and some had gone to a solicitor for a potential house deposit. The couple were also overseas when much of this was going on.

After some complications the $450,000 arrived in the liquidator's account but the IRD did not check if this had happened before making an ex parte application to the High Court for a freezing order.

An ex parte application is where a defendant is unaware the application is taking place. The freezing orders were subsequently granted over bank accounts of the couple. A total of $462,000 was restrained and the order was later limited to being over one specific account of Charlotte Dymock.

The Dymocks this month went to the High Court at Wellington applying for the orders to be discharged.

The Dymocks' lawyer Mike Lennard argued there were "material mis-statements" in the freezing order application which mean it should be set aside.

He also said there was not originally, and was still not, an identifiable risk of the money disappearing that justified a freezing order.

Justice Simon France agreed and said in his decision this week that he did not consider this risk had ever been established.

The IRD, as part of its original application for the freezing orders, said that Marcus Dymock "had a poor history of tax compliance".

However, Justice France said this was misleading. He also took issue with how the IRD presented Dymock being out of the country, which invited the inference he might have left New Zealand permanently.

And he criticised another instance of "loose use of language" by the IRD made as part of "building up a picture of funds being at risk".

"I consider these errors significant, avoidable and troubling."

He said the errors were "at the upper end of misleading the court".

The judge said he did not consider the orders would have been granted "had the correct facts been presented".

He also awarded the Dymocks indemnity costs - which means their legal costs will be paid in full by IRD.

University of Auckland Business School senior lecturer in tax law Mark Keating said the court awarding indemnity costs against the IRD was "unprecedented".