IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2018-404-1199
[2019] NZHC 995	

UNDER	the Tax Administration Act 1994	
IN THE MATTER	of the Goods and Services Tax Act 1985	
BETWEEN	PROVIDENT INSURANCE CORPORATION LIMITED
Plaintiff	
AND	THE COMMISSIONER OF INLAND REVENUE
Defendant	

Hearing:	4-6 March 2019	
Counsel:	L McKay and S Armstrong for Plaintiff A Goosen and E Venter for Defendant	
Judgment:	8 May 2019	

JUDGMENT OF CHURCHMAN J

In accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery
time of 4.15 pm on the 8th day of May 2009.

Table of Contents
What this case is about	[1]
Admissibility	[6]
The defendant’s challenge	[15]
The plaintiff’s response	[17]
Analysis	[23]
Life insurance component	[34]
The issues	[36]
The arguments	[40]

PROVIDENT INSURANCE CORPORATION LIMITED v THE COMMISSIONER OF INLAND REVENUE [2019] NZHC 995 [8 May 2019]

Facts	[45]
The policies	[47]
The GAP policy	[51]
GST	[54]
Statutory interpretation – relevant legal principles	[58]
Analysis	[69]
Prior legal interpretations	[129]
Sections 3(1)(ka) and 3(1)(l)	[149]
Conclusions	[160]
Other matters	[166]
Costs	[167]

What this case is about

[1]	This is a case of statutory interpretation. The Goods and Services Tax Act 1985 (the Act) imposes a tax on the supply in New Zealand of goods and services by a registered person in the course or furtherance of a taxable activity. Along with extensively defining financial services, s 3 of the Act contains a number of exemptions in respect of them.

[2]	Provident Insurance Corporation Limited (Provident) offers insurance products. Some of those products are designed to mitigate risk in relation to the repayment obligations for credit contracts for the purchase of motor vehicles.

[3]	Two of those products are in issue in this case:

(a)	the Credit Contract Indemnity (CCI) policy which covers a borrower’s loan repayments upon the occurrence of specified insured events; and

(b)	the Guaranteed Asset Protection (GAP) policy which, in the event a vehicle is written off in an accident, will cover the difference between the total loss pay-out received from a comprehensive motor vehicle insurer and any outstanding loan balance.

[4]	The question for the Court to decide is whether the premia paid for these two policies are subject to GST output tax, or exempt from tax under the financial services exemption.

[5]	Before addressing this issue, I will deal with a preliminary issue that arose in relation to evidence.

Admissibility

[6]	The defendant has challenged the admissibility of a brief of evidence filed by the plaintiff from Robin Moncrieff Oliver.

[7]	Mr Oliver is an acknowledged expert in tax policy. His evidence consists largely of expressions of opinion.

[8]	Section 25 of the Evidence Act 2006 determines whether or not his evidence is admissible in whole or in part. Section 25 relevantly provides:

25	Admissibility of expert opinion evidence

(1) An opinion by an expert that is part of expert evidence offered in a proceeding is admissible if the fact-finder is likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding.

…

[9]	As there is no dispute of relevant fact in these proceedings, the Court, in terms of s 25, does not need to “ascertain any fact”.

[10]	The issue is, therefore, whether or not the Court is likely to obtain substantial help from the opinions of Mr Oliver in relation to other evidence in the proceeding.

[11]	The only other witness who gave evidence on behalf of the plaintiff was     Mr Owens. His evidence was largely non-contentious. He described the nature of the operations of the plaintiff and gave what he described as “the business context” for the two insurance policies which are the subject of these proceedings: the CCI and GAP policies. He also explained the process for selling these insurance products and settling claims under them, and further gave an outline of the tax dispute as he saw it.

[12]	The only other witness called was Marie Pallot who was called by the defendant.  She, like Mr Oliver, was an acknowledged expert in tax policy and was

called to give evidence solely in case the Court held Mr Oliver’s evidence to be admissible. Her evidence was  not  directed  at  assisting the  Court  to  understand Mr Owen’s evidence but, like Mr Oliver’s evidence, was opinion evidence about the policies which were said to underlie the “financial services” exception in s 3 of the Act.

[13]	The parties had initially intended to have the question of admissibility dealt with by way of preliminary hearing. However, the submissions and books of authorities relied on were filed very late: the defendant’s on the last working day before the hearing, and the plaintiff’s on the morning of the hearing. It was, therefore, not possible to address this matter sensibly at the start of the hearing.

[14]	At the request of the parties, the evidence was, therefore, admitted de bene esse. It was subject to the proviso that the Court saw some force in the submission that, on the face of things, the evidence appeared to be in the nature of legal submissions and, accordingly, inadmissible.

The defendant’s challenge

[15]	Mr Goosen, for the defendant, submitted that the Courts have consistently expressed their disapproval of legal submissions being included in witness statements in proceedings of this nature. He referred to the observations of O’Regan J in Commissioner of Inland Revenue v BNZ Investments Ltd:1
We agree that both witness statements contain much in the nature of submissions on legal issues. The difficulty which this poses is that it invites a response from the Commissioner from another tax expert essentially providing counter submissions. We do not see it as helpful to the Court to have the roles of counsel and expert witnesses intermingled in this way.

[16]	Mr Goosen objected to the fact that Mr Oliver’s brief introduced into evidence a number of documents such as a GST commentary/guide prepared for the insurance industry2 and three Government discussion documents on GST.3 He submitted that

1	Commissioner of Inland Revenue v BNZ Investments Ltd [2009] NZCA 47, (2009) 19 PRNZ 553 at [28].
2	GST Co-ordinating Office Handbook on the Fire and General Insurance Industry (April 1986).
3	Inland Revenue GST: A Review (March 1999); Inland Revenue GST and Financial Services
(October 2002); and Tax Working Group Future of Tax: Interim Report (20 September 2018).

the Courts only take into account a limited number of sources of extrinsic materials such as Hansard, Bills, explanatory notes to Bills or reports from Parliament’s Select Committee. Mr Goosen also referred to the disapproval expressed by the Supreme Court in the case of Penny v Commissioner of Inland Revenue of the practice of including what are legal submissions in the brief of expert taxation witnesses.4 He submitted that the relevant intention was that of Parliament not that of experts or officials, and that it was for counsel to make submissions on such extrinsic aids that they consider inform the policy of and meaning of statutory provisions.

The plaintiff’s response

[17]	Mr McKay, for the plaintiff, submitted that the Court was likely to obtain substantial help from the briefs of both Mr Oliver and Ms Pallot. He noted that there was “significant common ground” in respect of the explanations by Mr Oliver and Ms Pallot of the economic and tax policy objectives underlying the financial services exemption. The opinion of Mr Oliver as to whether the supply of “non-core financial services” in certain situations was consistent with the purpose of the financial services exemption was submitted to be “entirely orthodox”. Mr McKay also noted that similar expert evidence had been admitted both in New Zealand and in Australia. He denied that the brief was in the nature of legal submissions.

[18]	Mr McKay accepted that the key issue in the proceeding was the interpretation of the GST Act and that this was an exercise ultimately for the Court. It was claimed that the economic policies and objectives that underpinned the GST Act were “factual matters, of direct relevance and consequence to the interpretation of the GST Act”.

[19]	In support of his arguments, Mr McKay relied on a number of Australian cases, in particular, the  case  of  Woodside  Energy  Ltd  v  Commissioner  of  Taxation.5  Mr McKay noted that the Federal Court in Woodside had admitted expert evidence in relation to economic theory. He also referred to a decision in which the High Court of Australia held that evidence on economic policy and objectives underpinning legislation should be admitted where the statute contains economic content, and where

4	Penny v Commissioner of Inland Revenue [2011] NZSC 95, [2012] 1 NZLR 433 at [32].
5	Woodside Energy Ltd v Commissioner of Taxation [2006] FCA 1303, (2006) 155 FCR 357.

the application of the statute to the facts combines legal and economic analysis which could only be understood if economic theory was considered.6

[20]	Mr McKay referred to a decision of Thomas J in Lin v Commissioner of Inland Revenue.7 He acknowledged that this case did not involve an admissibility challenge but referred to the fact that the Court had accepted expert evidence on the policy framework and commercial objectives underlying the creation of Double Taxation Agreements, as well as expert opinion on how certain provisions of the Agreement in dispute were intended to apply in light of these factors.

[21]	While Mr McKay acknowledged that Woodside and the other Australian cases he referred to were decided under the Australian Evidence Act 1995 (Cth), he said that the difference in wording between that statute and the Evidence Act was immaterial. The difference is that the Australian courts are required to determine whether the evidence “could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding”,8 as opposed to:9
… if the fact-finder is likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding.

[22]	He sought to distinguish Penny v Commissioner of Inland Revenue on the basis that Mr Oliver’s evidence could not be said to be in the nature of legal submission or advocacy.10

Analysis

[23]	There are no “facts of consequence” to the determination of these proceedings that are required to be ascertained. Mr Oliver’s brief of evidence does not engage in any way with that of Mr Owens. Unlike in Woodside, there is no economic evidence that needs to be understood for the Court to understand how the applicable legislation operates.

6	Boral Besser Masonry Ltd v Australian Competition and Consumer Commission [2003] HCA 5, (2003) 215 CLR 374 at [247].
7	Lin v Commissioner of Inland Revenue [2017] NZHC 969, [2017] NZCCLR 24.
8	Evidence Act 1995 (Cth), s 55(1).
9	Evidence Act 2006, s 25(1).
10	Penny v Commissioner of Inland Revenue, above n 4.

[24]	I do not accept that the decision in Lin v Commissioner of Inland Revenue is authority for the proposition that New Zealand courts accept expert tax witnesses giving their opinions about the policy underpinning a provision in the New Zealand tax legislation that the Court is required to interpret. That case involved the international treatment of double taxation and in particular considered the application of a model agreement developed by the OECD in relation to double taxation agreements (DTAs). It was said that the New Zealand China DTA was largely based on that model. The OECD periodically issues “Commentaries” on its model and these assist countries in applying the model. As Thomas J said: “Although the Commentaries are not legally binding, they are regarded as ‘a source from which courts of different states can seek a common interpretation’.”11

[25]	There was nothing novel in this approach and it followed the practice referred to by the Court of Appeal in Commissioner of Inland Revenue v JFP Energy.12

[26]	In Lin v Commissioner of Inland Revenue, the Commissioner had called the same Mr Oliver who gave evidence in this case. However, the evidence he gave in Lin was somewhat different from the opinions he expressed in the present case as to policies that might underlie s 3. As Thomas J said: “Much of the expert evidence and legal argument at the hearing before me was dedicated to the interpretation and application of the OECD model.”13 That is substantially different to expressing an opinion on the meaning of words in a New Zealand statute.

[27]	Mr McKay submitted that, in Lin v Commissioner of Inland Revenue, the High Court had said that it found the expert evidence to be helpful. That is not expressly recorded in the decision. However, the Court of Appeal did not seem to share that view, saying:14
However, in fairness, it appears that much of the argument in the High Court followed a largely diversionary focus on extraneous materials and analogies with other legal structures, at the expense of a close textual analysis.

11	Lin v Commissioner of Inland Revenue, above n 7, at [52] (citation omitted).
12	Commissioner of Inland Revenue v JFP Energy [1990] 3 NZLR 536 at 540 per Richardson J.
13	At [65].
14      Commissioner of Inland Revenue v Lin  [2018] NZCA 38, (2018) 28 NZTC 23-052 at [23].       Ms Lin’s application for leave to appeal the Court of Appeal’s decision to the Supreme Court was declined: Lin v Commissioner of Inland Revenue [2018] NZSC 54, (2018) 28 NZTC 23-061.

[28]	I therefore do not accept that the decision of Thomas J in Lin v Commissioner of Inland Revenue is authority for the proposition advanced by Mr McKay.

[29]	The Australian case law referred to by him also does not seem to relate directly to the type of evidence in issue here. In any event, the Australian courts are interpreting a different statute. To the extent that there is any divergence in approach between the Australian and New Zealand courts on this issue, I prefer the approach outlined by the Supreme Court in Penny v Commissioner of Inland Revenue.15

[30]	The principal purpose of Mr Oliver’s brief of evidence is to suggest what the policies were that underpinned s 3 of the Act. He referred to various official documents in advancing his theories. His evidence was, in large part, legal submissions. No exception could have been taken to them if they had been presented by counsel.

[31]	The New Zealand Courts have consistently indicated that evidence of this type should not be admitted. In Penny v Commissioner of Inland Revenue, the Supreme Court said:16
[32]	For his part, the Commissioner objects to portions of Mr Shewan’s evidence in which Mr Shewan expressed his views on some of the legal issues in the case. It seems to us that the Court of Appeal dealt correctly with this objection. Randerson J said that this material had no place in the evidence of an expert witness and should more properly have come from counsel. To that extent, the Court of Appeal put Mr Shewan’s evidence to one side. So do we. But of course this Court did hear the same arguments canvassed by Mr Harley in his submissions. So there is no practical consequence of the upholding of the objection. It should, however, be observed that it is undesirable and wasteful of time and effort of both parties when such material appears in expert briefs of evidence. The practice of including it should stop. If it persists, the Court should require amended briefs to be filed.

[32]	Mr McKay’s closing submissions referred to the same background papers and theories as to the policies underpinning s 3 that Mr Oliver did. He also addressed the views expressed by Ms Pallot. The relevant background papers were included in the agreed bundle of documents. That is the appropriate way for this information to be placed before the Court.

15	Above n 4.
16	(Citation omitted).

[33]	Accordingly, to the extent that they refer to background documents and express opinions on the polices that might underpin s 3, the evidence of Mr Oliver and       Ms Pallot amounts to legal submissions. I am unable to place any weight on it and it is not admissible. I now turn to the substantive issues.

Life insurance component

[34]	While the parties were always agreed that the CCI policy contained a life insurance component which was exempt from GST, when the Commissioner made her assessments, she was not satisfied that the plaintiff had established the quantum of the premia that should be allocated to the exempt life insurance component. The parties have now agreed that an amount representing 22.5 per cent of the premia the plaintiff has received in respect of its CCI policy during the relevant taxable periods should be exempt from tax.

[35]	The parties had initially requested the Court to direct the Commissioner under s 138P of the Tax Administration Act 1994 (TAA) to reduce GST assessments accordingly. However, during the course of the hearing, they indicated that they no longer needed the assistance of the Court on this point.

The issues

[36]	The parties are agreed that the key provision of the Act at issue in this proceeding is the definition of “financial services” in s 3. The issues are whether, under the two insurance contracts, Provident provided:

(a)	an indemnity or security in respect of the performance of obligations under a credit contract: s 3(1)(h); and/or

(b)	an agreement to pay an amount of interest, principal or other amount whatever in respect of a credit contract: ss 3(1)(ka) and (l).

[37]	Although the parties are agreed on the three relevant subsections of s 3, because the Court has received argument to the effect that the other subsections of s 3

are potentially relevant in ascertaining the meaning of the three subsections in issue, it is necessary to set out s 3(1) in full.

3	Meaning of term financial services

(1)	For the purposes of this Act, the term financial services means any 1 or more of the following activities:

(a)	the exchange of currency (whether effected by the exchange of bank notes or coin, by crediting or debiting accounts, or otherwise):

(b)	the issue, payment, collection, or transfer of ownership of a cheque or letter of credit:

(c)	the issue, allotment, drawing, acceptance, endorsement, or transfer of ownership of a debt security:

(d)	the issue, allotment, or transfer of ownership of an equity security or a participatory security:

(e)	underwriting or sub-underwriting the issue of an equity security, debt security, or participatory security:

(f)	the provision of credit under a credit contract:

(g)	the renewal or variation of a debt security, equity security, participatory security, or credit contract:

(h)	the provision, taking, variation, or release of a guarantee, indemnity, security, or bond in respect of the performance of obligations under a cheque, credit contract, equity security, debt security, or participatory security, or in respect of the activities specified in paragraphs (b) to (g):

(i)	the provision, or transfer of ownership, of a life insurance contract or the provision of re-insurance in respect of any such contract:

(j)	the provision, or transfer of ownership, of an interest in a retirement scheme, or the management of a retirement scheme:

(k)	the provision or assignment of a futures contract through a defined market or at arm’s length if—

(i)	the contract does not provide for the delivery of a commodity; or

(ii)	the contract provides for the delivery of a commodity and the supply of the commodity is an exempt supply; or

(iii)	the contract provides for the delivery of money:

(kaa)	the provision or transfer of ownership of a financial option:

(ka) the payment or collection of any amount of interest, principal, dividend, or other amount whatever in respect of any debt security, equity security, participatory security, credit contract, contract of life insurance, retirement scheme, financial option, or futures contract:

(l)	agreeing to do, or arranging, any of the activities specified in paragraphs (a) to (ka), other than advising thereon:

(m)	the investment in an entity, if—

(i)	the investment is in an equity security equal to or greater than 10% of all equity securities issued by the entity or in a participatory security equal to or greater than 10% of all participatory securities issued by the entity; and

(ii)	the investment allows the investor, or a person acting on behalf of the investor, to influence the management of the business of the entity:

(n)	the evaluation by an investor of an investment referred to in paragraph (m) in an entity and the planning or acting by the investor to influence the management of an entity for the principal purpose of preserving or increasing the value of such an investment.

[38]	Two other subsections of s 3 are also relevant:

(a)	subsection (3) confirms that the terms “debt security”, “equity security”, and “participatory security” do not include a life insurance contract or any other contract of insurance; and

(b)	subsection (4) expressly carves out certain activities from the definition of financial services in s 3(1), including debt collection services provided by a person other than the creditor whose debt is being collected.

[39]	The particular issue of statutory interpretation for the Court is whether the insurance products constitute:

(a)	the provision of a security in respect of the performance of obligations under a credit contract and are therefore each a financial service under s 3(1)(h) of the Act; and/or

(b)	the provision of an indemnity in respect of the performance of obligations under a credit contract and are therefore each a financial service under s 3(1)(h) of the Act; and/or

(c)	an agreement to pay any amount of interest, principal or other amount whatever in respect of a credit contract and are therefore each a financial service under ss 3(1)(ka) and 3(1)(l) of the Act.

The arguments

[40]	Mr McKay, for the plaintiffs, submitted that the products fell within the plain and ordinary meaning of the definition of “financial services” on any one of the three bases advanced and should therefore be exempt from tax. He submitted that both products are closely integrated with, and connected to, a core financial service, being the lending of money and the payment of interest and principal. In support of the submission that the “core financial services” addressed by s 3(1) were the lending of money and the payment of interest and principal, Mr McKay drew the Court’s attention to the  fact that the  first seven examples  given of financial services under  s 3(1) were all clearly related to those activities.

[41]	A difference between the plaintiff’s and defendant’s position is that the plaintiff argues that the express inclusion of life insurance within the definition of a financial service does not mean that all non-life cover cannot be financial services.17

[42]	Mr Goosen, for the defendant, submitted that the nature of a supply for GST purposes is determined by the contractual arrangements entered into by the supplier and the recipient. He said that the tax attaches to the supply to the person who, at contract, can require its performance, and  who  has  provided  the  consideration.  Mr Goosen submitted that this approach requires the Court to focus on the supplies

17	Goods and Services Tax Act 1985, s 3(1)(i).

that Provident made under its insurance contracts and the character of those supplies. The supplies, it was submitted, did not assume the character of interest and principal merely because the insured was insured for a sum of money that was interest and principal in terms of the credit contract between the insured and the financier. Put another way, he submitted that it was decisive that Provident did not borrow money or pay principal and interest under a credit contract.

[43]	The reply to this point from Provident is that the fact that Provident is not the borrower under the credit contract does not change the character of the payments which are made as being the principal or interest. This is said to be analogous to payments made by the guarantor of a mortgage.

[44]	Provident submitted that payments made by a guarantor can be both payment under the guarantee and a payment of interest and/or principal. I am not convinced that the reference by analogy to a guarantee is helpful because, in the case of a guarantee, both the principal debtor and the guarantor are parties to the same credit contract and are in a direct contractual relationship with the creditor.

Facts

[45]	Provident is a specialist insurance company offering a limited range of products, all of which are connected with the automotive industry. In addition to the CCI and GAP insurance products, it also offers mechanical breakdown insurance and comprehensive motor vehicle insurance. Provident accepts that GST is payable in respect of the premia it receives under the latter two types of policy.

[46]	Despite going through the disputes process set out in Part 8A of the TAA, Provident and the Commissioner have been unable to agree as to whether the CCI and GAP policies fall within the financial services exemption set out in s 3(1).

The policies

[47]	The CCI policy provides:

In consideration of the payment of premium due to us, we [Provident] agree to cover you during the Period of Cover for financial loss in respect of your

obligations under the Credit Contract arising upon the happening of an insured event in New Zealand, on the terms and subject to the exclusions set out in this Policy.

[48]	The concept of “Credit Contract” is defined as meaning the particular credit contract identified in the registration certificate under which a financier agreed to provide loan finance to the policy holder. The financier is not a party to the insurance contract which is between Provident and the insured person.

[49]	There are small, and immaterial, variation in the wording of the policies depending upon whether the policy holder is a salary/wage worker, business owner or beneficiary.

[50]	When an “insured event” occurs, Provident pays the financier for the credit of the policy holder instalments that become due and owing under the credit contract, excluding amounts due and owing prior to the insured event. There are financial limits as to the maximum quantum of any claim and time limits as to the maximum duration of cover (five years).

The GAP policy

[51]	The primary benefit recorded in the GAP policy states:

In the event of a Total Loss of your Vehicle, we will pay your Financier, to your credit, the difference between the amount paid under your Comprehensive Motor Vehicle Insurance for the Total Loss of the Vehicle, and the amount outstanding under the Credit Contract, up to the applicable maximum claim limit.

[52]	It is a requirement of the GAP policy that the policy holder holds comprehensive motor vehicle insurance at the time of the loss. As with the CCI policy, a registration certificate specifies a particular credit contract with a financier who has provided loan finance to the policy holder. That financier is not a party to the insurance contract.

[53]	There is an exclusion from cover in relation to any amounts loaned by the financier to the policy holder under the credit contract that were not for the purchase of the vehicle in question.

GST

[54]	GST is charged at the rate of 15 per cent on a supply of goods or services in New Zealand (other than exempt supplies or zero-rated supplies).

[55]	Insurers like the plaintiff who make taxable supplies must return GST on insurance premia they receive. Those persons are permitted to deduct from their output tax the input tax they have incurred on their expense in relation to the supply of goods and services made during a taxable period.18 A person who makes exempt supplies is not entitled to claim input tax expenses.19 The main categories of exempt supplies are supplies of financial services and of residential accommodation.

[56]	The GST regime provides that a registered person is entitled to claim input tax deductions in respect of the GST component of goods and services acquired for the purpose of making taxable supplies. In order to calculate a person’s GST liability, input tax is deducted from the output tax a person is required to collect on their taxable supplies. If input tax deductions exceed output tax, the person is entitled to a refund of GST.

[57]	As Mr Goosen, counsel for the Commissioner has emphasised, the nature of a supply for GST purposes is determined by the contractual arrangements entered into by the supplier and the recipient.20

Statutory interpretation – relevant legal principles

[58]	The starting point in interpreting legislation is s 5(1) of the Interpretation Act 1999. This provides that the meaning of an enactment must be ascertained from its text in the light of its purpose. When the meaning is not clear on the face of the legislation, the Court will regard context and purpose as essential guides.21

18	Goods and Services Tax Act, s 20(3)(a)(i).
19	Section 20(3C)(a).
20	See Wilson & Horton Ltd v Commissioner of Inland Revenue [1996] 1 NZLR 26 (CA) at 33.
21	Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR 767 at [24].

[59]	Mr McKay submitted that, while a taxation statute should be approached in much the same way as any other statute, often its purpose is only discernible from the wording of the provision. He referred in particular to a passage from the decision of the Supreme Court in Stiassny v Commissioner of Inland Revenue:22
The purpose of a taxing provision may be a guide to its meaning and intended application. But, as Burrows and Carter point out, in most cases the only evidence of that purpose is the detailed wording of the provision and the safest method is to read the words in their most natural sense. In construing and applying a taxing provision, a court leans neither for nor against the taxpayer, but should require that before the provision is effectual to make the taxpayer amenable to the tax, it uses words which, on a fair construction, must be taken to impose that tax in the circumstances of the case.

[60]	Mr McKay also submitted that words should only be interpreted as having specialised meanings if they were enacted against the background of an established “clear, accepted and universal meaning”.23

[61]	Mr McKay’s submission as to the purpose of s 3(1) was that Parliament clearly intended to exempt financial services and activities analogous to financial services, and that it was to apply an unduly narrow meaning to introduce a requirement that the financier (rather than the borrower) must be indemnified in the strict sense of being “held harmless from loss” arising from non-performance of an obligation under a credit contract.

[62]	Mr Goosen’s submission as to the purpose of the financial services exemption was that Parliament intended:

(a)	GST to apply to the widest possible range of goods and services supplied in New Zealand;

(b)	that its primary reason being to address the difficulty of valuing financial services that were able to be included in an exempt interest charge;

22	Stiassny v Commissioner of Inland Revenue [2012] NZSC 106, [2013] 1 NZLR 453 at [23] (citations omitted).
23	See Terminals (NZ) Ltd v Comptroller of Customs [2013] NZSC 139, [2014] 1 NZLR 121 at [47].

(c)	to discourage providers of finance from self-supplying related services that could be included in an interest charge (in order to avoid paying input tax on those services if provided by external parties);

(d)	to exempt financial services but not services which are not in themselves financial services but merely connected to them; and

(e)	to exempt life insurance but not other types of insurance.

[63]	As to the meaning of the term “security” (which is not defined for the purposes of the Act), Mr McKay submitted that the plain and ordinary meaning of the term is simply “anything that makes the money more assured in its payment or more readily recoverable”. He rejected the proposition advanced by Mr Goosen that the concept of security referred to property pledged to a creditor as security against a debt, and submitted that:

Security can be over a person, property or fund or indeed anything that makes a payment more certain. Express words would have been required to achieve a meaning which limits “security” to a form that just has resort to property.

[64]	Mr Goosen submitted that Provident’s insurance contracts did not pledge property or any other form of security to the financier against the debt in the relevant credit contract.

[65]	As to the meaning of the term “indemnity”, Mr McKay submitted that the most natural sense of the word was “a duty to make good any liability”. He submitted that Provident was under a duty, upon the occurrence of an insured event, to make good the policyholder’s liabilities under the relevant credit contract.

[66]	Mr Goosen submitted that an indemnity meant an indemnity provided to a creditor (the financier) in the relevant credit contract. He submitted that it did not matter that the overall transaction was to a similar effect because Provident’s insurance contracts only supplied a service of insurance to the insured who was the debtor under the credit contract rather than the creditor.

[67]	In relation to the concept of paying principal and interest, Mr Goosen differed from Mr McKay by urging a strict rather than liberal construction. He submitted that what was paid when an insured event happened was not interest and principal but a sum of money representing the proceeds of an insurance claim which just happened to be calculated by reference to interest and principal liabilities of the insured.

[68]	Essentially, Mr McKay submits there should be a liberal interpretation of the financial services exemptions focussing on function rather than form. Mr Goosen submits there should be a narrow or strict interpretation of the concepts of security, indemnity, and principal and interest.

Analysis

[69]	I start by noting that the onus in challenge proceedings is on the plaintiffs. The plaintiffs must show on the balance of probabilities that the Commissioner’s assessments are wrong and by how much they are wrong.24

[70]	The starting point is to attempt to identify the natural and ordinary meaning of the words “indemnity”, “security”, and “the payment … of interest, principal … in respect of any … credit contract”. The purpose of the Act as a whole and, to the extent it can be discerned, the purpose of s 3(1) must be identified.

[71]	It is possible that a particular provision in the statute may have its own individual purpose which may supplement the over-arching purpose of the statute as a whole.25

[72]	As to the over-arching purpose of the Act, the parties are in agreement that the imposition of GST was intended to apply to the widest range of goods and services, with as few exceptions as possible. Neither did there seem to be any dispute about the fact that the intended target of GST was consumption expenditure.

24	Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115,  [2009]  2 NZLR 289 at [115].
25	Diggory Bailey and Luke Norbury Bennion on Statutory Interpretation (7th ed, LexisNexis, London, 2017) at 349.

[73]	As to the purpose of s 3(1), Mr McKay submitted that the Court must ask itself why the financial services exemption was there and what its role is in the context of the Act. He argued that it was never Parliament’s intention to bring consideration in the form of interest into the GST tax base and said that, in order to exempt interest effectively, you need to measure what interest is in a commercially and financially accurate way.

[74]	In the present context, he contended that in a typical lending or borrowing transaction, the cost of the service being provided may be spread over several instruments which made up the interest cost. It was said that such instruments which have the capacity to impact on the cost of borrowing were covered by the definition, in addition to what was described as “core lending”.

[75]	Mr McKay submitted that by analysing s 3(1), three distinct classes of activities were apparent:

(a)	first class: core lending – loans;

(b)	second class: guarantees, indemnities, underwrites, and security in respect of core lending (all of these activities relating to risk allocation and the cost of borrowing under the first category of core lending); and

(c)	third class: financial services that fall within the activities in s 3(1) which do not obviously relate to risk allocation under the credit contract or the real rate of interest payable under it, but which Parliament was obviously satisfied were sufficiently close to core lending to require exemption. An example of this was said to be the provision and management of retirement schemes.

[76]	Mr McKay argued that Provident’s two policies were closer to core financial services concepts than they were to what he described as ‘intermediary” functions such as brokerage activities.

[77]	However, this submission overlooks the fact that the treatment of brokerage appears to result from an intention to avoid the distortion that would arise if there was an incentive for insurers to undertake such functions as brokerage internally in order to avoid the GST input costs that would be incurred if the same brokerage services were undertaken by a third party. This financial effect is sometimes referred to as “self-supply bias”.26

[78]	The fact that the two policies might be closer to core financial services than brokerage is, therefore, not a reliable indicator as to whether or not such services should fall within s 3(1). This is because the purpose of including brokerage within the exemption for financial services had nothing to do with its similarity in nature to core financial services but resulted from the policy objective of avoiding the self- supply bias.

[79]	Mr Goosen’s submission as to the purpose of the financial services exemption was that Parliament intended GST to apply to the widest possible range of goods and services supplied in New Zealand. Drawing on a report from the advisory panel on goods and services tax, he submitted that, other than the five categories of activity identified in the Treasury Discussion Paper, it was not the purpose of Parliament to exempt services connected with the provision of financial services but not themselves financial services.27

[80]	Mr Goosen said that it was not possible to discern from any publicly available documents that all services that affect or could possibly affect the cost of, or return on, capital were intended to be included in the financial services definition. I accept that submission.

[81]	I would also note that, although both parties refer to discussion documents and other such departmental papers, given that these documents express the views of officials rather than of legislators, they provide relatively little help in attempting to

26	See Inland Revenue GST & Financial Services, above n 3, at [6.7].
27	Advisory Panel on Goods and Services Tax Second Report of the Advisory Panel on Goods and Services Tax to the Minister of Finance (24 July 1985) at 18.

identify Parliament’s intentions, as opposed to the views of the officials who wrote them.

[82]	Mr McKay argued that the services set out in s 3(1)(h) (which included indemnity and security) were closely linked to the provision of the core financial service of lending money, and then submitted that, “The charge for the provision of the non-core service can effectively be seen as a cost of borrowing.”

[83]	This submission rather misses the point. The issue here is whether the particular insurance services provided can fairly be described as the provision of either an indemnity or a security. That requires a consideration of the ordinary meaning of those terms. These words must be treated “in their most natural sense”.28 It was common ground that these words were capable of having more than one meaning.

[84]	Black’s Law Dictionary defines “indemnity” as a “duty to make good any loss, damage, or liability incurred by another” or “[t]he right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty”.29

[85]	The Laws of New Zealand describe a contract of indemnity as being “a contract by one party to keep the other harmless against loss.”30

[86]	In its natural sense, a contract of indemnity is between two parties, one of whom contracts to make good the losses sustained by the other as a result of loss caused by a third party. This is fundamentally different to a contract of insurance where the insurer agrees, for the payment of a premium, to pay money to, or for the benefit of, the other party to the contract in the event of the happening of an insured event.31

28	Stiassny v Commissioner of Inland Revenue, above n 22, at [23].
29	Bryan Garner Black’s  Law Dictionary (10th ed, Thompson Reuters, St Paul, Minnesota, 2014)  at 886.
30	Laws of New Zealand Contracts of Indemnity (online ed) at [244].
31	See Chitty on Contracts (33rd ed, Sweet and Maxwell, London, 2015) Vol 2 at [44-001].

[87]	The difference between contracts of insurance, indemnities and guarantees was considered by the Federal Court of Australia in Todd v Alterra at Lloyds Ltd.32 The Court said:

Each of a guarantee and an indemnity has the object or purpose of making good the financial position of a creditor of someone other than the guarantor or indemnifier. The two categories do this by different means: the guarantor as surety assumes a secondary obligation to the primary obligation of the principal debtor. In a contract of indemnity the indemnifier is primarily liable to the creditor, not collaterally. This difference in character, ascertained by construction, is important in the identification of the parties’ mutual rights and obligations. But both are a species of financial accommodation to support the credit risk of the principal debtor and to hold the creditor harmless.

A contract of insurance has the object or purpose of sharing the risk of, or spreading loss from, a contingency.

[88]	Similar comments were made in Radius Residential Care Ltd v Krishna where, in the context of an analysis of a claim against an alleged guarantor, it was conceded that there was no principal contractor, Kόs J saying:33
A guarantor’s liability is co-extensive with that of the principal. If no principal contract has been concluded, guarantor’s liability does not arise. A contract of guarantee is an undertaking that the principal debtor will perform. There is no guarantor’s liability without a principal debtor.

[89]	In suggesting an appropriate meaning for the words indemnity and security used in s 3(1)(h), Provident emphasised that words take their meaning from the sentences around them and therefore need to be interpreted in context.34

[90]	The three key points to be derived from the structure of s 3(1) were said to be:

(a)	The obvious overlap between many of the terms used suggests that Parliament did not intend that each term needed to be construed to avoid overlap [with] other terms.

(b)	The wide range of activities captured under the “financial services” definition, and their varying connection to core financial services, suggests that meanings within this range would align with Parliament’s intention.

32 Todd v Alterra at Lloyds Ltd [2016] FCAFC 15, (2016) 239 FCR 12 at [37]-[38].
33 Radius Residential Care Ltd v Krishna [2013] NZHC 2886 at [16] (citations omitted).
34  Relying on the observations of Stamp J in Bourne (Inspector of Taxes) v Norwich Crematorium   Ltd [1967] 1 WLR 691 (Ch) at 696. This concept is sometimes referred to as the principle of noscitur a sociis.

(c)	The definition of “financial services” (which has embedded within it a definition of “credit contracts”) should be interpreted consistently with related legislation, such as the [Credit Contracts and Consumer Finance Act 2003].

[91]	The fact that there is some obvious overlap between some of the terms in s 3(1) does not assist greatly in establishing the proposition that Parliament did not intend that each term needed to be construed to avoid overlap with other terms. Each of the concepts referred to in s 3(1) refers to a different activity. For example, in s 3(1)(e) there is a difference between underwriting and sub-underwriting. Parliament clearly wanted to make it clear that both fell within the definition of financial service.

[92]	As discussed above, the fact that s 3(1) covers a range of activities which have a varying connection to “core financial services” does not establish that any activities falling “within the range” of the variety of activities set out must have been intended by Parliament to be regarded as exempt financial services. The various activities were included for different reasons:

(a)	some, as discussed above, to address the perceived bias in favour of self-supply;

(b)	the difficulty of valuing services that could be included within an interest charge; or

(c)	the objective not to tax retirement schemes because providing an interest in such a scheme, or managing it, facilitates saving and imposing a liability for GST would, in reality, be a tax on savings rather than a tax on consumption.

[93]	In relation to the fact that s 3(1) includes a range of activities from core activities such as lending money to more peripheral activities, Provident concluded that Parliament’s intention was that the concept of financial services must “include supplies only loosely connected to the provision of core services”.

[94]	The implication was that the services provided in the two insurance policies were only loosely connected with the core financial service of lending money, but the

loose nature of that connection did not automatically exclude them from being financial services.

[95]	It was claimed that what was said to be an “expansive” definition of financial services suggested that broader rather than narrower definitions of words such as indemnity, security or even credit contract should be adopted. I do not accept this submission.

[96]	There is no discernible coherent link connecting all of the financial services listed in s 3(1). The structure and content of this section does not support a submission that Parliament intended to cast the financial services net so widely so that the provision of services which only had a loose connection to the lending of money were intended to be covered.

[97]	I accept the proposition that Parliament must have intended words such as security, guarantee and indemnity in s 3(1)(h) to have a meaning. If an extensive meaning of the type contended for by Provident is adopted, then the specifying of each of these different concepts would be surplusage.

[98]	Provident emphasised the linkages between the Act and the Credit Contracts and Consumer Finance Act 2003 (the CCCFA). It was noted that the insurance policies were entered into at the same time as the financing arrangements for the sale and purchase of a motor vehicle, and it was submitted that, at a commercial and practical level, the pricing of the insurance products was intertwined with the cost of borrowing (interest) under the credit contract.

[99]	This was said to arise because the dealer and/or financier might adjust the component parts of interest and charges and would sometimes take a reduced margin in order to fit the products within an overall weekly payment total which made completion of the deal achievable for the borrower. However, the fact that the dealer and/or financier might adjust their profit margin on the financing so as to encourage the borrower to obtain insurance does not alter the relationship between the insurer and the insured. Nor does it turn the insurance contract into the provision of a financial service. Neither does the insurance contract become a credit contract.

[100]	Provident noted that consumer credit insurance and credit-related insurance were defined in the CCCFA and brought under the CCCFA regime. However, that does not make them a credit contract either. Section 7 of the CCCFA defines credit contract as being:35
(1)	In this Act, unless the context otherwise requires, credit contract
means a contract under which credit is or may be provided.

(2)	If, because of any contract or contracts (none of which by itself constitutes a credit contract) or any arrangement, there is a transaction that is in substance or effect a credit contract, the contract, contracts, or arrangement must, for the purposes of this Act, be treated as a credit contract made at the time when the contract, or the last of those contracts, or the arrangement, was made as the case may be.

[101]	The fact that Provident, in relation to the two insurance products, may be subject to obligations under ss 41–52 of the CCCFA,36 does not transform the insurance policies into a credit contract either.

[102]	Provident noted that the views expressed by the Commissioner and published in Public Information Bulletins as to whether credit contract insurance was a financial service were not determinative of the issue. That is undoubtedly correct, particularly in the situation where the Commissioner appears to have done an about-face from the preliminary view expressed in 1987 that consumer credit insurance products were an exempt financial service under s 3(1)(h) on the basis that they constituted the provision of an indemnity in respect of the performance or obligations under a credit contract.37

[103]	In 1988, the Commissioner reversed this position holding that CCI policies were not financial services as defined in s 3 of the Act. The justification for that change was said to be:38
Premiums in respect of consumer credit policies are consideration for a supply of services on which GST is payable. However, any portion of a premium which is paid for life cover included in such a contract continues to be exempt as consideration for a financial service. In this respect it will be necessary to show there is an intelligible basis of apportionment to distinguish the proportion of the premium which is attributable to the life cover.

35	Section 7, CCCFA 2003.
36	Which relate to unreasonable fees, fees or charges passed on by the creditor [financier], payments and pre-payments.
37	See Inland Revenue Public Information Bulletin No 164 (August 1987) at 20.
38	Inland Revenue Public Information Bulletin No 175 (July 1988) at 26.

[104]	The Commissioner reiterated this view in 1991 where he said:39

A Consumer Credit and Payment Protection Insurance is a policy in which the insurer will pay the policy owner (the creditor) upon the happening of the insured events as set out in the respective policies. …

The mere fact that the quantum of the insurer’s liability under contract is determined partly by reference to the credit contract between the insured and policy owner does not make the policy in itself an indemnity in respect of the performance of the obligations under a credit contract.

[105]	The Commissioner again expressed similar views in 1998 when he said:40

A guarantee and an indemnity are both undertakings by a person to be liable to pay moneys or perform obligations. Under a guarantee, the guarantor promises to pay or perform in the event of another person not doing so. With an indemnity, the indemnifier promises to pay or perform, regardless of whether another person has or has not done so. In practice, it is desirable from the point of view of the recipient of this kind of undertaking that he/she need not establish that another person has failed to pay or perform, and accordingly an indemnity is preferable to a lender.

The word “security” in section 3(1)(h) is used in a different sense from its use in equity security, etc.

In section 3(1)(h), security means a document creating a charge over some property, e.g., a land or chattel mortgage.

[106]	Although these various documents express the Commissioner’s views in relation to  the  wording  of  s 3(1)(h),  none  of  them  considers  the  application  of s 3(1)(ka) and s 3(1)(l) in the context of consumer credit insurance products.

[107]	Provident challenges the submission on behalf of the Commissioner that the word “security” in s 3(1)(h) involves a security over property. It also challenges the Commissioner’s submission that the security must be given to the person to whom the money is owed. Provident’s submission was that security “as it is commonly understood, means security over a person, property or fund or indeed anything that makes a payment more certain”. They submit that interpreting the concept of security as being security over property involves adding words to what is said to be the plain and ordinary meaning of security. Whether this is so depends on what the plain and ordinary meaning of security actually is. If the concept is generally understood as

39	Inland Revenue Tax Information Bulletin Vol 2 No 8 (April 1991) at 3.
40	Inland Revenue Technical Rulings Manual (September 1998) at [104.6.3.8].

referring to a charge over some property such as land or a chattel mortgage, then there is no need to add the words “over property” to convey that meaning.

[108]	Both parties have referred extensively to the dictionary definitions of the concept of security. However, because the concept of security is capable of so many different meanings in different contexts, the dictionary definitions are not overly helpful. As Mr McKay acknowledged, where dictionary definitions are relied upon, the statutory context of the term is still paramount in its interpretation.41

[109]	The question needs to be asked whether there is anything in the context of the word “security” in s 3(1)(h) that would indicate that Parliament must have intended it to be a security over property, or merely security in the sense advanced by Provident, namely “security over a person, property or fund or indeed anything that makes a payment more certain”. There is nothing particularly helpful either way. The immediate preceding words “guarantee and indemnity” and the directly following word “bond” all refer to legal obligations but, at least in relation to guarantee and indemnity, not to obligations secured by a charge of real or personal property. The word “bond” has a range of potential meanings. Bonds may be secured by a mortgage but can also refer to unsecured debt instruments. Therefore, little help is gained from looking at the immediate context of the word “security”. Perhaps the most that can be said is that the concepts involve different legal consequences and that if all Parliament had intended was to refer to a broad obligation to hold another party safe against loss or damage, they would not have needed to list the various specific concepts in this way.

[110]	Sometimes it is possible to discern a common theme or common use of a word in order to establish its ordinary meaning.42 Unfortunately, there is no obvious common theme or common use emerging from the various dictionary definitions.

[111]	Black’s Law Dictionary (upon which both parties relied) gives as its primary definition of “security”:43

41	See Wilson & Horton Limited v Commissioner of Inland Revenue, above n 20, at 41.
42	See OPC Managed Rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 778 (CA) at [36]-[38].
43	Above n 29, at 1559.

Collateral given or pledged to guarantee the fulfillment of an obligation; esp., the assurance that a creditor will be repaid (usu. with interest) any money or credit extended to a debtor.

[112]	It then goes on to define “chattel security” as “[a] security consisting of personal property.”

[113]	There is no doubt that some dictionaries give a broader definition of security. Jowitt’s Dictionary of English Law gives as its primary definition:44

Something which makes the enjoyment or enforcement of a right more secure or certain. A security may be a personal security; or a security on property (called in jurisprudence a real security); or a judicial security. A personal security consists in a promise or obligation by the debtor or another person, in addition to the original liability or obligation intended to be secured. A security on property is where a right over property exists, by virtue of which the enforcement of a liability or promise is facilitated or made more certain. A judicial security exists where a right is enforceable by means of the powers vested in a court of law. In a secondary sense, “security” denotes an instrument by which a security is created or evidenced, such as a bond, bill of exchange, debenture, scrip, etc.

[114]	In the New Zealand context, the New Zealand Law Dictionary defines “security” as “[s]omething that secures or makes safe”.45 It then goes on to deal separately with the meaning of security in the defence, financial and social settings.

[115]	If Parliament had intended the use of the word “security” in a very general sense such as “something that secures or makes safe” or “anything that makes the money more assured in its payment or more readily recoverable”, then the words surrounding it (guarantee, indemnity and bond) would be unnecessary as they could all be described as something “that makes the money more assured in its payment or more readily recoverable”.

[116]	The word “security” is clearly capable of bearing the meaning advanced by the Commissioner, namely security over real or personal property. Placement of the word in the context of words such as guarantee, indemnity and bond support the

44	Daniel Greenberg (ed) Jowitt’s Dictionary of English Law (4th ed, Sweet & Maxwell, London, United Kingdom, 2015) at 2183.
45	Peter Spiller New Zealand Law Dictionary (8th ed, LexisNexis, Wellington, 2015) at 275.

interpretation that the narrow or particular meaning of security in accordance with the Black’s Law Dictionary definition was intended.

[117]	The Commissioner argues that a security in s 3(1)(h) must be given to the person to whom the money is owed. The Commissioner submits that, like guarantees, indemnities and bonds, securities are provided to creditors and draws the inference that Parliament intended security in respect of the performance of obligations under a credit contract to mean property pledged as security to the financier to secure the performance of the borrower. Obviously, the insurance contracts do not do that.

[118]	Provident counters that argument by saying that none of the dictionary definitions make any mention of the party to whom the assurance is given. That is so. However, the reason for that is that it is obvious that the security (just as the guarantee, indemnity and bond) is given to the creditor.

[119]	Provident advances, as an alternative argument, the fact that under the Contract and Commercial Law Act 2017 (the CCLA), the financier would have a direct right to claim against Provident if it failed to make good the financier’s loss.46 For the reasons I now set out, I accept that it is therefore arguable that it can be said that Provident has given an assurance to the financier.

[120]	Under the doctrine of privity of contract, a person may be neither entitled nor bound by the terms of a contract to which he or she is not an original party.47

[121]	However, in practice this doctrine led to some unsatisfactory outcomes which eventually resulted in the enactment of the Contracts (Privity) Act 1982, the provisions of which have been re-enacted in pt 2, sub-pt 1 of the CCLA. This subpart deals with contractual privity, its purpose being “to permit a person who is not a party to a deed or contract to enforce a promise made in it for the benefit of that person”.48

46	Part 2, sub-pt 1.
47	Price v Easton (1833) 4 B & Ad 433; Tweddle v Atkinson (1861) 1 B & S 393.
48	Contract and Commercial Law Act 2017, s 10.

[122]	The CCLA does not abolish the rule of privity but, rather, modifies it, allowing a third party to recover a benefit under a contract when the requirements of the Act are satisfied. However, any right which exists apart from the Act is not affected by it.49

[123]	The CCLA’s key provisions are as follows:

12	Deed or contract for benefit of person who is not party to deed or contract

(1)	This section applies to a promise contained in a deed or contract that confers, or purports to confer, a benefit on a person, designated by name, description, or reference to a class, who is not a party to the deed or contract.

(2)	The promisor is under an obligation, enforceable by the beneficiary, to perform the promise.

(3)	This section applies whether or not the person referred to in subsection (1) is in existence when the deed or contract is made.

13	Section 12 does not apply if no intention to create obligation enforceable by beneficiary

Section 12 does not apply to a promise that, on the proper construction of the deed or contract, is not intended to create, in respect of the benefit, an obligation enforceable by the beneficiary.

[124]	Section 12 provides that the contract, in this case a credit insurance policy, must confer a benefit. Section 11 of the CCLA defines “benefit” as including:

(a)	any advantage; and

(b)	any immunity; and

(c)	any limitation or other qualification of—

(i)	an obligation to which a person (other than a party to the deed or contract) is or may be subject; or

(ii)	a right to which a person (other than a party to the deed or contract) is or may be entitled; and

(d)	any extension or other improvement of a right or rights to which a person (other than a party to the deed or contract) is or may be entitled.

49	Section 20(a).

[125]	An indemnity in respect of the repayment of a debt would qualify as an advantage and therefore would come within the CCLA’s definition of a benefit.

[126]	The next aspect to consider is whether the lender would meet the designation requirement. A person who stands to benefit from a contract, but who is not sufficiently designated by it, cannot enforce the contract. As stated by Wylie J in Cross v Aurora Group Ltd, “Designation is a strong word, a positive word, and means something more than a mere contemplation or possibility.”50 If the lender is expressly identified in the policy or falls within a class of persons identified in the policy, then the lender would meet the designation requirement. In this case, the lender or financier is identified in the registration certificates and the requirements of the CCLA in this regard are met.

[127]	The policy therefore confers a benefit on the lender. If the borrower were to be unable to pay back a loan, for example, as a result of illness, the lender could rely on the credit insurance policy issuer to meet the loan repayments. Without this credit insurance policy, it is unlikely the lender would have been prepared to offer the loan, or would only have offered the loan at a much higher rate of interest to reflect the greater level of risk. There is therefore privity of contract between the lender and the policy issuer.

[128]	However, because of the conclusion I have come to as to the nature of the meaning of the word “security”, this does not assist Provident in this case because it has not provided security over real or personal property.

Prior legal interpretations

[129]	Having considered the context, it is now necessary to consider how the relevant terms might have been interpreted by prior case law.

[130]	The parties were agreed that the terms “security” and “indemnity”, in the context of the Act, or indeed any tax context, had not been judicially considered in New Zealand. The concept of “security” has been considered in other jurisdictions

50	Cross v Aurora Group Ltd (1989) 4 NZCLC 64,909 (HC) at 64,913.

and Provident’s counsel referred me to a number of English, Australian and Canadian cases that consider the meaning of security in the tax context. However, some caution is required in attempting to apply meanings that might have been arrived at in other jurisdictions. That is because the approach to consumption taxes like GST differs from country to country as, indeed, does the approach to taxation generally.

[131]	As Mr McKay conceded, the various cases he cited each emphasised that the definition was subject to the language, structure and purpose of the Act in question. The observations of Lord Shaw of Dunfermline nearly a century ago remain apposite:51
The word “securities” has no legal signification which necessarily attaches to it on all occasions … and it is to be interpreted without the embarrassment of a legal definition and simply according to the best conclusion one can make as to the real meanings of the term as it is employed in, say, a testament, an agreement, or a taxing or other statute as the case may be.

[132]	The most that can be said for the authorities cited by Mr McKay is that they accept that the word “security” is susceptible of more than one meaning,52 and that a “popular”53 or broad meaning of the term “security” has been upheld in cases related to tax statutes in other countries.

[133]	The submissions for Provident proceeded on the premise that the term security had a plain and ordinary meaning (and that was the informal or popular broad meaning) and that, therefore, what the Commissioner was attempting to do was to read down that meaning or add words to it.

[134]	Mr McKay referred to the well-known authorities that set out the circumstances in which the words of the statute can be qualified.54 But the authorities he referred to in respect of these propositions are only relevant if there is, in fact, one clear or ordinary meaning. If the natural and ordinary meaning of word “security” in s 3(1)(h) involves a security over real or personal property, then this Court is not

51	Singer v Williams [1921] 1 AC 41 at 57.
52	See, for example, General Motors Acceptance Corporation Australia v South Bank Traders Pty Ltd [2007] HCA 19, (2007) 227 CLR 305.
53	See Fons HF v Corporal Ltd [2013] EWHC 1801 (Ch) at [59].
54	Such as West Coast Ent Inc v Buller Coal Ltd [2013] NZSC 87, [2014] 1 NZLR 32.

involved in reading down or impliedly limiting the terms of the statute by applying that meaning.

[135]	Similar issues arise in relation to the meaning to the word “indemnity” as are encountered with the word “security”. The word indemnity is not defined in the Act. The word indemnity is capable of a range of meanings in different contexts and, unsurprisingly, the various dictionary definitions that the parties refer to give a number of different meanings.

[136]	Provident’s case is that the wording “indemnity” in s 3(1) simply means a duty to make good any liability. It invites the Court to focus on the substance of the transaction rather than the form. It says that it is not necessary for Provident to indemnify the financier but sufficient if Provident indemnifies the borrower in the sense of being held harmless from loss arising from the non-performance of an obligation under a credit contract.

[137]	Provident starts by referring to the first two definitions in Peter Spiller’s
New Zealand Law Dictionary which say:55

1	Compensation for wrong done, or for trouble, expense or loss incurred.

2	An undertaking to indemnify another. Thus, in insurance, indemnity is a promise by one party to keep the other harmless against loss.

[138]	Provident notes that some dictionary definitions require a contract (express or implied) whereas others express the concept in unilateral terms such as “undertaking” or “a duty”. Mr McKay expressly submits:

None of the definitions impose a requirement on the relationship between the party giving the indemnity, and the party suffering the loss.

[139]	However, this is at odds with the New Zealand Law Dictionary definition he quotes which refers to an insurance indemnity being “a promise by one party to keep the other harmless against loss”. That reference is clearly to the parties to the indemnity relationship not to other parties whom might suffer loss.

55	Above n 46, at 144.

[140]	Mr McKay argues, based on Australian and English tax cases that the word “indemnity” can legitimately cover instances “whether or not there is a contractual relationship between the parties to the undertaking”.56 That may be so in some tax cases but in GST interpretation, the statute focuses upon the particular services that are the subject of the supply and the relationship between the supplier and the recipient. The fact that other parties may also benefit from the services is not determinative.57

[141]	In terms of context, the same observations apply to the word “indemnity” as to the word “security”. If all that Parliament intended was to refer to an obligation to make good any liability, then specifying particular forms of obligations such as guarantee, indemnity, security and bond, would be unnecessary.

[142]	Mr McKay argued that the use of the word “provision” in s 3(1)(h) meant it is directed at a unilateral promise or duty without adding any requirement on the form of the instrument or the relationship between the parties. In this context, “provision” is  simply the noun form of the  verb “to provide”.   It is immediately  followed in     s 3(1)(h) with the words “taking, variation or release”. There is nothing in its meaning or context which supports a reference to a unilateral promise or duty. It clearly qualifies the terms “guarantee, indemnity, security or bond”. The words also need to be read in the context of the obligations to be indemnified. These are obligations in respect of duties arising “under a cheque, credit contract, equity security, debt security, or participatory security”, or in respect of the activities specified in paragraphs (b) to (g).

[143]	The activities specified in s 3(1)(b)-(g) relate to core financial services involving the provision of credit.

[144]	Faced with the problem of the Court of Appeal decision in Wilson and Horton Ltd v Commissioner of Inland Revenue, Mr McKay says it can be distinguished and that it referred to a different provision in the Act, the operation of which depended on

56	As was argued in Denmark Community Windfarm Ltd v Federal Commissioner of Taxation [2017] FCA 478, (2017) 105 ATR 746 at [32].
57	Commissioner of Inland Revenue v Capital Enterprises Ltd (2002) 20 NZTC 17,511 (HC) at [50];
Wilson & Horton Ltd v Commissioner of Inland Revenue, above n 20.

identifying the person to whom the services had been provided.58 The attempt at distinguishing this case in unconvincing.

[145]	In assessing whether or not the services provided under the two insurance policies are “financial services” and therefore exempt from GST, the issue of who the services are provided to is just as important as it was in Wilson & Horton Ltd.

[146]	Mr Goosen placed considerable reliance on the Federal Court of Australia decision in Todd v Alterra at Lloyds, where the Court compared contracts of insurance, indemnities and guarantees.59 He noted that the majority in that case held that both the guarantee and indemnity had the object or purpose of making good the financial position of a creditor.

[147]	Mr Goosen notes that the insured party under the two contracts of insurance is not a creditor but is a debtor under the relevant credit contract. He notes that the insurance contracts in question cover the loss of the insured who is a party to the insurance contract or who pays the premiums, not the financier (creditor). He relies on the Court of Appeal’s decision in Wilson & Horton Ltd as authority for the proposition that, while an effect of the insurance contract might be that the insured’s creditor might be more likely to receive payment under the credit contract, this is not relevant when assessing the nature of the insurance contracts, or the supplies that are made under them.

[148]	I am satisfied that the principles articulated by the Court of Appeal in Wilson & Horton Ltd are determinative in the present case. The financial service in question is the provision of a contract of insurance. The parties are the insurer and the insured. A contract of insurance is not a credit contract. Although the financier may have certain claims against the insurer pursuant to the CCLA, that is a different issue as to whether the insurer is party to the credit contract. The credit contract is solely between the financier and the insured. The insurer obtains no rights in respect of it. There is no contract of indemnity between the insurer and the financier, and the fact that the

58	Wilson and Horton Ltd v Commissioner of Inland Revenue, above n 20.
59	Todd v Alterra at Lloyds, above n 32, at [35]-[37].

financier might benefit as a result of the provision of insurance services to the insured does not result in the insurer supplying exempt services to the financier.

Sections 3(1)(ka) and 3(1)(l)

[149]	Sections 3(1)(ka) and (l) include within the definition of financial services:

(ka) the payment or collection of any amount  of  interest,  principal, dividend or other amount whatever in respect of any debt security, equity security, participatory security, credit contract, contract of life insurance, retirement scheme, financial option, or futures contract:

(l)	agreeing to do, or arranging, any of the activities specified in paragraphs (a) to (ka), other than advising thereon:

[150]	Provident argues that because, as between the insured and the third-party financier, the proceeds of a claim on the policy represent the repayment of principal and interest owed by the insured to the financier, that, in respect of the service provided by the insurer to the insured, they should also be classified as payments of principal and interest.

[151]	The service being provided by Provident is that of an insurer. If an insured event happens, then payments are made under the CCI and GAP policies to a financier. The payments that Provident makes are not different in character to the payments that it would make under its mechanical breakdown insurance or comprehensive motor vehicle insurance policies. It is paying out under a contract of insurance because the risk it undertook to provide cover for has eventuated. There is no argument that the payments under the mechanical breakdown and comprehensive motor vehicle insurance policies do not involve making exempt supplies. The fact that as between the insured and the financier, the proceeds of the CCI and GAP polices extinguish an obligation in respect of principal and interest does not transform the nature of the proceeds of the policy. They still remain, from Provident’s viewpoint, payments made under an insurance policy because the risk event covered by that policy has occurred.

[152]	The Privy Council decision in Commissioner of Inland Revenue v Databank Systems Ltd considered the meaning of s 3(1)(l) and s 3(1)(ka) of the Act.60 Databank

60	Commissioner of Inland Revenue v Databank Systems Ltd [1990] 3 NZLR 385.

provided computer services to four banks pursuant to a written agreement. Databank claimed that it had agreed or arranged the payment and collection of cheques. It was argued that the service it provided was therefore exempt as being a financial service. However, the Privy Council dismissed that argument, saying that there were two separate contracts. The contract between the bank and its customers under which the bank supplied financial services (specifically in relation to cheques) and the contract between the bank and Databank, whereby Databank supplied computer services in respect of those cheques.

[153]	Databank had sought to argue that it was “involved” in the supply of financial services. It had convinced the majority of the Court of Appeal that this was sufficient to render its supplies exempt. However, the Privy Council said:61
Exemption is not afforded to “a person” who is “involved” in “an activity” which “results in” the supply of financial services; such an exemption, (which would present great difficulties of definition and application) is nowhere to be found in the wording of the Act.

[154]	Therefore, notwithstanding the fact that the services supplied by Databank to the bank were clearly and specifically in relation to cheques, the Privy Council looked at the supply of services from the point of view of the service that Databank was supplying, not the service that the bank supplied in respect of the same cheques. That approach clearly applies in the present case.

[155]	Mr Goosen also relies on the Court of Appeal decision in Turakina Māori Girls College Board of Trustees v Commissioner of Inland Revenue for the proposition that a supply that is quantified by reference to an exempt financial service of the recipient will not change the nature of the supply.62 In that case, the Board of Trustees rendered the parents or guardians of students at a school attendance dues that were solely for the payment of debt obligations for capital works in relation to the school. The Court of Appeal held:63
The attendance dues may be calculated by reference to the proprietors’ debt obligations, but they are not themselves “interest, principal, dividend or other

61	At 390.
62	Turakina Māori Girls College Board of Trustees v Commissioner of Inland Revenue  (1993)    15 NZTC 10,032.
63	At 10,037.

amount whatever in respect of any debt security”. They are payments made to secure the enrolment of the pupil in a school for which the proprietors provide the buildings and ensure the special character. It is the supply of these things which is a taxable service, and it does not fall under paragraph (ka).

…

So in the present case the services provided by the lenders to the proprietors are financial services, but the services supplied by the proprietors to the parents are not. As Lord Templemann said [in Databank Systems Ltd], “There is nothing in the Act which infects separate activity with the exempt or non- exempt status of another separate activity.”

[156]	Mr McKay submits that this decision can be distinguished on the basis that the service being supplied by the taxpayers was the security of a school placement for children which was not a financial service. However, this misses the point. Provident is arguing that the payment of insurance proceeds to the financier is the provision of a financial service to the insured because the payments are in respect of the insured’s liability to pay the financier principal and interest. That is the same argument as was run by the trustees unsuccessfully in Turakina.

[157]	Mr McKay also refers to the English Court of Appeal decision in Westminster Bank Executor and Trustee Co (Channel Islands) Ltd v National Bank of Greece S.A.64 He said that case was authority for the proposition that a payment under a guarantee of interest retains its character as interest.65 However, that also misses the point. This case does not involve payments under a “guarantee of interest”. It involves payments under an insurance policy. In any event, this point was abandoned when the case was appealed to the House of Lords.66

[158]	In analysing whether or not the service provided by Provident amounts to the payment of interest or principal, it is also necessary to reflect on the nature of the insurance contracts. The premium is payable by the insured at the commencement of the insurance contract. It is that premium that is subject to GST. There is no further or additional premium payable if an insured event occurs. In many, perhaps most, of the policies, there will not be any insured event and there will be no payment by

64	Westminster Bank Executor and Trustee Co (Channel Islands) Ltd v National Bank of Greece SA
[1970] 1 QB 256.
65	At [271].
66	National Bank of Greece SA v Westminster Bank Executor and Trustee Co (Channel Islands) Ltd
[1971] AC 945.

Provident on behalf of the insured to a finance company. The service being provided is insuring the identified risk. That is not a financial service. In that respect, the service provided by Provident under the CCI and GAP policies is identical to the service it provides under its other policies.

[159]	Just as in the Databank case, the supplier of the service that is connected to, or involved in, a financial service provided by someone else is not itself the supplier of a financial service.

Conclusions

[160]	The purpose of the Act is to levy a consumption tax on the widest possible range of goods and services with as few exemptions as possible. Payments of interest and principal are not payments for the supply of goods and services and were intended to be exempt. As a consumption tax, the purpose of GST was not to tax savings and that has resulted in the exemption of life insurance policies, retirement schemes and the like.

[161]	To reduce the “self-supplier of services” bias that could be included within an exempt interest charge, the definition of financial services was drafted so as to include services in the nature of brokerage and intermediary services provided other than by financial institutions. However, the policy drivers behind that exemption do not apply in relation to an insurance policy that is separately priced and provided by a different party to the party who charges interest under the credit contract.

[162]	Apart from brokerage and intermediary services, it was not the purpose of Parliament to exempt services connected with the provision of financial services but not themselves financial services.

[163]	There is no identifiable policy underlying s 3(1) of the Act that differs from the overall policy of the Act set out above.

[164]	The nature of a supply for GST purposes is determined by the contractual relationship between the supplier and the recipient of the supply. The fact that the services supplied may benefit another party in relation to a contract of financial

services does not transform what are, in this case, insurance services provided pursuant to a contract of insurance into exempt financial services.

[165]	As the plaintiff has not shown that, on the balance of probabilities, the Commissioner’s assessments are wrong, the proceedings are dismissed.

Other matters

[166]	During the course of argument, Provident accepted that, under the GAP policy, in some circumstances special benefits were provided to the policy holder. It was conceded that the special benefits did not constitute the supply of a financial service. Therefore, if the Court accepted that the GAP policy did involve the supply of financial services, there would need to be an apportionment of the premium with Provident being required to return output tax on the portion of those premia under which special benefits were also provided, to the extent the premium was attributable to the special benefits.

Costs

[167]	Costs follow the event. The parties are invited to settle costs between themselves. Failing agreement, the defendant is to provide a memorandum in support of an application for costs within 14 days, with the plaintiff having 14 days from receipt of the defendant’s memorandum to file a memorandum in reply.

Churchman J

Solicitors:
Russell McVeagh, Auckland for Plaintiff Crown Law, Wellington for Defendant