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

PROVIDENT INSURANCE CORPORATION LIMITED v THE COMMISSIONER OF INLAND REVENUE[2019] NZHC 995 [8 May 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-1199[2019] NZHC 995UNDER the Tax Administration Act 1994IN THE MATTER of the Goods and Services Tax Act 1985BETWEEN PROVIDENT INSURANCECORPORATION LIMITEDPlaintiffAND THE COMMISSIONER OF INLANDREVENUEDefendantHearing: 4-6 March 2019Counsel: L McKay and S Armstrong for PlaintiffA Goosen and E Venter for DefendantJudgment: 8 May 2019JUDGMENT OF CHURCHMAN JIn accordance with r 11.5, I direct the Registrarto endorse this judgment with the deliverytime of 4.15 pm on the 8th day of May 2009.Table of ContentsWhat 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]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 aregistered person in the course or furtherance of a taxable activity. Along withextensively defining financial services, s 3 of the Act contains a number of exemptionsin respect of them.[2] Provident Insurance Corporation Limited (Provident) offers insuranceproducts. Some of those products are designed to mitigate risk in relation to therepayment 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'sloan repayments upon the occurrence of specified insured events; and(b) the Guaranteed Asset Protection (GAP) policy which, in the event avehicle is written off in an accident, will cover the difference betweenthe total loss pay-out received from a comprehensive motor vehicleinsurer and any outstanding loan balance.[4] The question for the Court to decide is whether the premia paid for these twopolicies are subject to GST output tax, or exempt from tax under the financial servicesexemption.[5] Before addressing this issue, I will deal with a preliminary issue that arose inrelation to evidence.Admissibility[6] The defendant has challenged the admissibility of a brief of evidence filed bythe plaintiff from Robin Moncrieff Oliver.[7] Mr Oliver is an acknowledged expert in tax policy. His evidence consistslargely of expressions of opinion.[8] Section 25 of the Evidence Act 2006 determines whether or not his evidence isadmissible 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 aproceeding is admissible if the fact-finder is likely to obtainsubstantial help from the opinion in understanding other evidence inthe proceeding or in ascertaining any fact that is of consequence to thedetermination of the proceeding.[9] As there is no dispute of relevant fact in these proceedings, the Court, in termsof s 25, does not need to "ascertain any fact".[10] The issue is, therefore, whether or not the Court is likely to obtain substantialhelp 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 wasMr Owens. His evidence was largely non-contentious. He described the nature of theoperations of the plaintiff and gave what he described as "the business context" for thetwo insurance policies which are the subject of these proceedings: the CCI and GAPpolicies. He also explained the process for selling these insurance products andsettling 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 thedefendant. She, like Mr Oliver, was an acknowledged expert in tax policy and wascalled to give evidence solely in case the Court held Mr Oliver's evidence to beadmissible. Her evidence was not directed at assisting the Court to understandMr Owen's evidence but, like Mr Oliver's evidence, was opinion evidence about thepolicies which were said to underlie the "financial services" exception in s 3 of theAct.[13] The parties had initially intended to have the question of admissibility dealtwith by way of preliminary hearing. However, the submissions and books ofauthorities relied on were filed very late: the defendant's on the last working daybefore 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 beneesse. It was subject to the proviso that the Court saw some force in the submissionthat, on the face of things, the evidence appeared to be in the nature of legalsubmissions and, accordingly, inadmissible.The defendant's challenge[15] Mr Goosen, for the defendant, submitted that the Courts have consistentlyexpressed their disapproval of legal submissions being included in witness statementsin proceedings of this nature. He referred to the observations of O'Regan J inCommissioner of Inland Revenue v BNZ Investments Ltd:1We agree that both witness statements contain much in the nature ofsubmissions on legal issues. The difficulty which this poses is that it invites aresponse from the Commissioner from another tax expert essentiallyproviding counter submissions. We do not see it as helpful to the Court tohave 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 evidencea number of documents such as a GST commentary/guide prepared for the insuranceindustry2 and three Government discussion documents on GST.3 He submitted that1 Commissioner of Inland Revenue v BNZ Investments Ltd [2009] NZCA 47, (2009) 19 PRNZ 553at [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 materialssuch as Hansard, Bills, explanatory notes to Bills or reports from Parliament's SelectCommittee. Mr Goosen also referred to the disapproval expressed by the SupremeCourt in the case of Penny v Commissioner of Inland Revenue of the practice ofincluding what are legal submissions in the brief of expert taxation witnesses.4 Hesubmitted that the relevant intention was that of Parliament not that of experts orofficials, and that it was for counsel to make submissions on such extrinsic aids thatthey 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 obtainsubstantial help from the briefs of both Mr Oliver and Ms Pallot. He noted that therewas "significant common ground" in respect of the explanations by Mr Oliver andMs Pallot of the economic and tax policy objectives underlying the financial servicesexemption. The opinion of Mr Oliver as to whether the supply of "non-core financialservices" in certain situations was consistent with the purpose of the financial servicesexemption was submitted to be "entirely orthodox". Mr McKay also noted that similarexpert evidence had been admitted both in New Zealand and in Australia. He deniedthat the brief was in the nature of legal submissions.[18] Mr McKay accepted that the key issue in the proceeding was the interpretationof the GST Act and that this was an exercise ultimately for the Court. It was claimedthat the economic policies and objectives that underpinned the GST Act were "factualmatters, 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.5Mr McKay noted that the Federal Court in Woodside had admitted expert evidence inrelation to economic theory. He also referred to a decision in which the High Court ofAustralia held that evidence on economic policy and objectives underpinninglegislation should be admitted where the statute contains economic content, and where4 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 whichcould only be understood if economic theory was considered.6[20] Mr McKay referred to a decision of Thomas J in Lin v Commissioner of InlandRevenue.7 He acknowledged that this case did not involve an admissibility challengebut referred to the fact that the Court had accepted expert evidence on the policyframework and commercial objectives underlying the creation of Double TaxationAgreements, as well as expert opinion on how certain provisions of the Agreement indispute were intended to apply in light of these factors.[21] While Mr McKay acknowledged that Woodside and the other Australian caseshe referred to were decided under the Australian Evidence Act 1995 (Cth), he said thatthe difference in wording between that statute and the Evidence Act was immaterial.The difference is that the Australian courts are required to determine whether theevidence "could rationally affect (directly or indirectly) the assessment of theprobability 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 inunderstanding other evidence in the proceeding or in ascertaining any fact thatis of consequence to the determination of the proceeding.[22] He sought to distinguish Penny v Commissioner of Inland Revenue on the basisthat Mr Oliver's evidence could not be said to be in the nature of legal submission oradvocacy.10Analysis[23] There are no "facts of consequence" to the determination of these proceedingsthat are required to be ascertained. Mr Oliver's brief of evidence does not engage inany way with that of Mr Owens. Unlike in Woodside, there is no economic evidencethat needs to be understood for the Court to understand how the applicable legislationoperates.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 isauthority for the proposition that New Zealand courts accept expert tax witnessesgiving their opinions about the policy underpinning a provision in the New Zealandtax legislation that the Court is required to interpret. That case involved theinternational treatment of double taxation and in particular considered the applicationof a model agreement developed by the OECD in relation to double taxationagreements (DTAs). It was said that the New Zealand China DTA was largely basedon that model. The OECD periodically issues "Commentaries" on its model and theseassist countries in applying the model. As Thomas J said: "Although theCommentaries are not legally binding, they are regarded as 'a source from whichcourts of different states can seek a common interpretation'."11[25] There was nothing novel in this approach and it followed the practice referredto 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 thesame Mr Oliver who gave evidence in this case. However, the evidence he gave inLin was somewhat different from the opinions he expressed in the present case as topolicies that might underlie s 3. As Thomas J said: "Much of the expert evidence andlegal argument at the hearing before me was dedicated to the interpretation andapplication of the OECD model."13 That is substantially different to expressing anopinion on the meaning of words in a New Zealand statute.[27] Mr McKay submitted that, in Lin v Commissioner of Inland Revenue, the HighCourt had said that it found the expert evidence to be helpful. That is not expresslyrecorded in the decision. However, the Court of Appeal did not seem to share thatview, saying:14However, in fairness, it appears that much of the argument in the High Courtfollowed a largely diversionary focus on extraneous materials and analogieswith 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 wasdeclined: 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 Commissionerof 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 directlyto the type of evidence in issue here. In any event, the Australian courts areinterpreting a different statute. To the extent that there is any divergence in approachbetween the Australian and New Zealand courts on this issue, I prefer the approachoutlined 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 thepolicies were that underpinned s 3 of the Act. He referred to various officialdocuments in advancing his theories. His evidence was, in large part, legalsubmissions. No exception could have been taken to them if they had been presentedby counsel.[31] The New Zealand Courts have consistently indicated that evidence of this typeshould not be admitted. In Penny v Commissioner of Inland Revenue, the SupremeCourt said:16[32] For his part, the Commissioner objects to portions of Mr Shewan'sevidence in which Mr Shewan expressed his views on some of the legal issuesin the case. It seems to us that the Court of Appeal dealt correctly with thisobjection. Randerson J said that this material had no place in the evidence ofan expert witness and should more properly have come from counsel. To thatextent, 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 Harleyin his submissions. So there is no practical consequence of the upholding ofthe objection. It should, however, be observed that it is undesirable andwasteful of time and effort of both parties when such material appears inexpert briefs of evidence. The practice of including it should stop. If itpersists, the Court should require amended briefs to be filed.[32] Mr McKay's closing submissions referred to the same background papers andtheories as to the policies underpinning s 3 that Mr Oliver did. He also addressed theviews expressed by Ms Pallot. The relevant background papers were included in theagreed bundle of documents. That is the appropriate way for this information to beplaced before the Court.15 Above n 4.16 (Citation omitted).[33] Accordingly, to the extent that they refer to background documents and expressopinions on the polices that might underpin s 3, the evidence of Mr Oliver andMs Pallot amounts to legal submissions. I am unable to place any weight on it and itis 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 lifeinsurance component which was exempt from GST, when the Commissioner made herassessments, she was not satisfied that the plaintiff had established the quantum of thepremia that should be allocated to the exempt life insurance component. The partieshave now agreed that an amount representing 22.5 per cent of the premia the plaintiffhas received in respect of its CCI policy during the relevant taxable periods should beexempt from tax.[35] The parties had initially requested the Court to direct the Commissioner unders 138P of the Tax Administration Act 1994 (TAA) to reduce GST assessmentsaccordingly. However, during the course of the hearing, they indicated that they nolonger 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 thisproceeding 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 obligationsunder a credit contract: s 3(1)(h); and/or(b) an agreement to pay an amount of interest, principal or other amountwhatever 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 3are 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 1or more of the following activities:(a) the exchange of currency (whether effected by the exchangeof bank notes or coin, by crediting or debiting accounts, orotherwise):(b) the issue, payment, collection, or transfer of ownership of acheque or letter of credit:(c) the issue, allotment, drawing, acceptance, endorsement, ortransfer of ownership of a debt security:(d) the issue, allotment, or transfer of ownership of an equitysecurity or a participatory security:(e) underwriting or sub-underwriting the issue of an equitysecurity, 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 ofobligations under a cheque, credit contract, equity security,debt security, or participatory security, or in respect of theactivities specified in paragraphs (b) to (g):(i) the provision, or transfer of ownership, of a life insurancecontract or the provision of re-insurance in respect of any suchcontract:(j) the provision, or transfer of ownership, of an interest in aretirement scheme, or the management of a retirementscheme:(k) the provision or assignment of a futures contract through adefined market or at arm's length if—(i) the contract does not provide for the delivery of acommodity; or(ii) the contract provides for the delivery of a commodityand 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 debtsecurity, equity security, participatory security, creditcontract, contract of life insurance, retirement scheme,financial option, or futures contract:(l) agreeing to do, or arranging, any of the activities specified inparagraphs (a) to (ka), other than advising thereon:(m) the investment in an entity, if—(i) the investment is in an equity security equal to orgreater than 10% of all equity securities issued by theentity or in a participatory security equal to or greaterthan 10% of all participatory securities issued by theentity; and(ii) the investment allows the investor, or a person actingon behalf of the investor, to influence themanagement of the business of the entity:(n) the evaluation by an investor of an investment referred to inparagraph (m) in an entity and the planning or acting by theinvestor to influence the management of an entity for theprincipal purpose of preserving or increasing the value of suchan investment.[38] Two other subsections of s 3 are also relevant:(a) subsection (3) confirms that the terms "debt security", "equitysecurity", and "participatory security" do not include a life insurancecontract or any other contract of insurance; and(b) subsection (4) expressly carves out certain activities from the definitionof financial services in s 3(1), including debt collection servicesprovided by a person other than the creditor whose debt is beingcollected.[39] The particular issue of statutory interpretation for the Court is whether theinsurance products constitute:(a) the provision of a security in respect of the performance of obligationsunder a credit contract and are therefore each a financial service unders 3(1)(h) of the Act; and/or(b) the provision of an indemnity in respect of the performance ofobligations under a credit contract and are therefore each a financialservice under s 3(1)(h) of the Act; and/or(c) an agreement to pay any amount of interest, principal or other amountwhatever in respect of a credit contract and are therefore each afinancial 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 plainand ordinary meaning of the definition of "financial services" on any one of the threebases advanced and should therefore be exempt from tax. He submitted that bothproducts are closely integrated with, and connected to, a core financial service, beingthe lending of money and the payment of interest and principal. In support of thesubmission that the "core financial services" addressed by s 3(1) were the lending ofmoney and the payment of interest and principal, Mr McKay drew the Court'sattention to the fact that the first seven examples given of financial services unders 3(1) were all clearly related to those activities.[41] A difference between the plaintiff's and defendant's position is that the plaintiffargues that the express inclusion of life insurance within the definition of a financialservice 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 GSTpurposes is determined by the contractual arrangements entered into by the supplierand the recipient. He said that the tax attaches to the supply to the person who, atcontract, can require its performance, and who has provided the consideration.Mr Goosen submitted that this approach requires the Court to focus on the supplies17 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 principalmerely because the insured was insured for a sum of money that was interest andprincipal in terms of the credit contract between the insured and the financier. Putanother way, he submitted that it was decisive that Provident did not borrow money orpay principal and interest under a credit contract.[43] The reply to this point from Provident is that the fact that Provident is not theborrower under the credit contract does not change the character of the paymentswhich are made as being the principal or interest. This is said to be analogous topayments made by the guarantor of a mortgage.[44] Provident submitted that payments made by a guarantor can be both paymentunder the guarantee and a payment of interest and/or principal. I am not convincedthat the reference by analogy to a guarantee is helpful because, in the case of aguarantee, both the principal debtor and the guarantor are parties to the same creditcontract and are in a direct contractual relationship with the creditor.Facts[45] Provident is a specialist insurance company offering a limited range ofproducts, all of which are connected with the automotive industry. In addition to theCCI and GAP insurance products, it also offers mechanical breakdown insurance andcomprehensive motor vehicle insurance. Provident accepts that GST is payable inrespect 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 andGAP 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] agreeto cover you during the Period of Cover for financial loss in respect of yourobligations under the Credit Contract arising upon the happening of an insuredevent in New Zealand, on the terms and subject to the exclusions set out inthis Policy.[48] The concept of "Credit Contract" is defined as meaning the particular creditcontract identified in the registration certificate under which a financier agreed toprovide loan finance to the policy holder. The financier is not a party to the insurancecontract which is between Provident and the insured person.[49] There are small, and immaterial, variation in the wording of the policiesdepending upon whether the policy holder is a salary/wage worker, business owner orbeneficiary.[50] When an "insured event" occurs, Provident pays the financier for the credit ofthe 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 limitsas to the maximum quantum of any claim and time limits as to the maximum durationof 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, toyour credit, the difference between the amount paid under yourComprehensive Motor Vehicle Insurance for the Total Loss of the Vehicle, andthe amount outstanding under the Credit Contract, up to the applicablemaximum claim limit.[52] It is a requirement of the GAP policy that the policy holder holdscomprehensive 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 hasprovided loan finance to the policy holder. That financier is not a party to the insurancecontract.[53] There is an exclusion from cover in relation to any amounts loaned by thefinancier to the policy holder under the credit contract that were not for the purchaseof the vehicle in question.GST[54] GST is charged at the rate of 15 per cent on a supply of goods or services inNew Zealand (other than exempt supplies or zero-rated supplies).[55] Insurers like the plaintiff who make taxable supplies must return GST oninsurance premia they receive. Those persons are permitted to deduct from theiroutput tax the input tax they have incurred on their expense in relation to the supplyof goods and services made during a taxable period.18 A person who makes exemptsupplies is not entitled to claim input tax expenses.19 The main categories of exemptsupplies are supplies of financial services and of residential accommodation.[56] The GST regime provides that a registered person is entitled to claim input taxdeductions in respect of the GST component of goods and services acquired for thepurpose 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 taxablesupplies. If input tax deductions exceed output tax, the person is entitled to a refundof GST.[57] As Mr Goosen, counsel for the Commissioner has emphasised, the nature of asupply for GST purposes is determined by the contractual arrangements entered intoby the supplier and the recipient.20Statutory interpretation – relevant legal principles[58] The starting point in interpreting legislation is s 5(1) of the Interpretation Act1999. This provides that the meaning of an enactment must be ascertained from itstext in the light of its purpose. When the meaning is not clear on the face of thelegislation, the Court will regard context and purpose as essential guides.2118 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 767at [24].[59] Mr McKay submitted that, while a taxation statute should be approached inmuch the same way as any other statute, often its purpose is only discernible from thewording of the provision. He referred in particular to a passage from the decision ofthe Supreme Court in Stiassny v Commissioner of Inland Revenue:22The purpose of a taxing provision may be a guide to its meaning and intendedapplication. But, as Burrows and Carter point out, in most cases the onlyevidence of that purpose is the detailed wording of the provision and the safestmethod is to read the words in their most natural sense. In construing andapplying a taxing provision, a court leans neither for nor against the taxpayer,but should require that before the provision is effectual to make the taxpayeramenable to the tax, it uses words which, on a fair construction, must be takento impose that tax in the circumstances of the case.[60] Mr McKay also submitted that words should only be interpreted as havingspecialised 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 clearlyintended 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 thefinancier (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 acredit contract.[62] Mr Goosen's submission as to the purpose of the financial services exemptionwas that Parliament intended:(a) GST to apply to the widest possible range of goods and servicessupplied in New Zealand;(b) that its primary reason being to address the difficulty of valuingfinancial services that were able to be included in an exempt interestcharge;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 servicesthat could be included in an interest charge (in order to avoid payinginput tax on those services if provided by external parties);(d) to exempt financial services but not services which are not inthemselves 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 purposesof the Act), Mr McKay submitted that the plain and ordinary meaning of the term issimply "anything that makes the money more assured in its payment or more readilyrecoverable". He rejected the proposition advanced by Mr Goosen that the concept ofsecurity referred to property pledged to a creditor as security against a debt, andsubmitted that:Security can be over a person, property or fund or indeed anything that makesa payment more certain. Express words would have been required to achievea meaning which limits "security" to a form that just has resort to property.[64] Mr Goosen submitted that Provident's insurance contracts did not pledgeproperty or any other form of security to the financier against the debt in the relevantcredit contract.[65] As to the meaning of the term "indemnity", Mr McKay submitted that the mostnatural sense of the word was "a duty to make good any liability". He submitted thatProvident was under a duty, upon the occurrence of an insured event, to make goodthe policyholder's liabilities under the relevant credit contract.[66] Mr Goosen submitted that an indemnity meant an indemnity provided to acreditor (the financier) in the relevant credit contract. He submitted that it did notmatter that the overall transaction was to a similar effect because Provident's insurancecontracts only supplied a service of insurance to the insured who was the debtor underthe credit contract rather than the creditor.[67] In relation to the concept of paying principal and interest, Mr Goosen differedfrom Mr McKay by urging a strict rather than liberal construction. He submitted thatwhat was paid when an insured event happened was not interest and principal but asum of money representing the proceeds of an insurance claim which just happenedto be calculated by reference to interest and principal liabilities of the insured.[68] Essentially, Mr McKay submits there should be a liberal interpretation of thefinancial services exemptions focussing on function rather than form. Mr Goosensubmits 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. Theplaintiffs must show on the balance of probabilities that the Commissioner'sassessments are wrong and by how much they are wrong.24[70] The starting point is to attempt to identify the natural and ordinary meaning ofthe words "indemnity", "security", and "the payment of interest, principal inrespect of any credit contract". The purpose of the Act as a whole and, to the extentit 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 ownindividual purpose which may supplement the over-arching purpose of the statute asa whole.25[72] As to the over-arching purpose of the Act, the parties are in agreement that theimposition 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 thefact 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 itselfwhy the financial services exemption was there and what its role is in the context ofthe Act. He argued that it was never Parliament's intention to bring consideration inthe form of interest into the GST tax base and said that, in order to exempt interesteffectively, you need to measure what interest is in a commercially and financiallyaccurate way.[74] In the present context, he contended that in a typical lending or borrowingtransaction, the cost of the service being provided may be spread over severalinstruments which made up the interest cost. It was said that such instruments whichhave 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 ofactivities were apparent:(a) first class: core lending – loans;(b) second class: guarantees, indemnities, underwrites, and security inrespect of core lending (all of these activities relating to risk allocationand 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 contractor the real rate of interest payable under it, but which Parliament wasobviously satisfied were sufficiently close to core lending to requireexemption. An example of this was said to be the provision andmanagement of retirement schemes.[76] Mr McKay argued that Provident's two policies were closer to core financialservices concepts than they were to what he described as 'intermediary" functions suchas brokerage activities.[77] However, this submission overlooks the fact that the treatment of brokerageappears to result from an intention to avoid the distortion that would arise if there wasan incentive for insurers to undertake such functions as brokerage internally in orderto avoid the GST input costs that would be incurred if the same brokerage serviceswere 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 thanbrokerage is, therefore, not a reliable indicator as to whether or not such servicesshould fall within s 3(1). This is because the purpose of including brokerage withinthe exemption for financial services had nothing to do with its similarity in nature tocore 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 exemptionwas that Parliament intended GST to apply to the widest possible range of goods andservices supplied in New Zealand. Drawing on a report from the advisory panel ongoods and services tax, he submitted that, other than the five categories of activityidentified in the Treasury Discussion Paper, it was not the purpose of Parliament toexempt services connected with the provision of financial services but not themselvesfinancial services.27[80] Mr Goosen said that it was not possible to discern from any publicly availabledocuments 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 thatsubmission.[81] I would also note that, although both parties refer to discussion documents andother such departmental papers, given that these documents express the views ofofficials rather than of legislators, they provide relatively little help in attempting to26 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 andServices Tax to the Minister of Finance (24 July 1985) at 18.identify Parliament's intentions, as opposed to the views of the officials who wrotethem.[82] Mr McKay argued that the services set out in s 3(1)(h) (which includedindemnity and security) were closely linked to the provision of the core financialservice of lending money, and then submitted that, "The charge for the provision ofthe non-core service can effectively be seen as a cost of borrowing."[83] This submission rather misses the point. The issue here is whether theparticular insurance services provided can fairly be described as the provision of eitheran indemnity or a security. That requires a consideration of the ordinary meaning ofthose terms. These words must be treated "in their most natural sense".28 It wascommon 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 claimreimbursement 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 contractby one party to keep the other harmless against loss."30[86] In its natural sense, a contract of indemnity is between two parties, one ofwhom contracts to make good the losses sustained by the other as a result of losscaused by a third party. This is fundamentally different to a contract of insurancewhere the insurer agrees, for the payment of a premium, to pay money to, or for thebenefit of, the other party to the contract in the event of the happening of an insuredevent.3128 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 wasconsidered by the Federal Court of Australia in Todd v Alterra at Lloyds Ltd.32 TheCourt said:Each of a guarantee and an indemnity has the object or purpose of makinggood the financial position of a creditor of someone other than the guarantoror indemnifier. The two categories do this by different means: the guarantoras surety assumes a secondary obligation to the primary obligation of theprincipal debtor. In a contract of indemnity the indemnifier is primarily liableto the creditor, not collaterally. This difference in character, ascertained byconstruction, is important in the identification of the parties' mutual rights andobligations. But both are a species of financial accommodation to support thecredit 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, orspreading 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 concededthat there was no principal contractor, Kόs J saying:33A guarantor's liability is co-extensive with that of the principal. If no principalcontract has been concluded, guarantor's liability does not arise. A contractof guarantee is an undertaking that the principal debtor will perform. There isno guarantor's liability without a principal debtor.[89] In suggesting an appropriate meaning for the words indemnity and securityused in s 3(1)(h), Provident emphasised that words take their meaning from thesentences 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 thatParliament did not intend that each term needed to be construed toavoid 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 withParliament'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 CrematoriumLtd [1967] 1 WLR 691 (Ch) at 696. This concept is sometimes referred to as the principle ofnoscitur a sociis.(c) The definition of "financial services" (which has embedded within ita definition of "credit contracts") should be interpreted consistentlywith related legislation, such as the [Credit Contracts and ConsumerFinance 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 intendthat each term needed to be construed to avoid overlap with other terms. Each of theconcepts 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 clearlywanted 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 havea varying connection to "core financial services" does not establish that any activitiesfalling "within the range" of the variety of activities set out must have been intendedby Parliament to be regarded as exempt financial services. The various activities wereincluded for different reasons:(a) some, as discussed above, to address the perceived bias in favour ofself-supply;(b) the difficulty of valuing services that could be included within aninterest charge; or(c) the objective not to tax retirement schemes because providing aninterest in such a scheme, or managing it, facilitates saving andimposing a liability for GST would, in reality, be a tax on savings ratherthan a tax on consumption.[93] In relation to the fact that s 3(1) includes a range of activities from coreactivities such as lending money to more peripheral activities, Provident concludedthat Parliament's intention was that the concept of financial services must "includesupplies only loosely connected to the provision of core services".[94] The implication was that the services provided in the two insurance policieswere only loosely connected with the core financial service of lending money, but theloose nature of that connection did not automatically exclude them from beingfinancial services.[95] It was claimed that what was said to be an "expansive" definition of financialservices suggested that broader rather than narrower definitions of words such asindemnity, security or even credit contract should be adopted. I do not accept thissubmission.[96] There is no discernible coherent link connecting all of the financial serviceslisted in s 3(1). The structure and content of this section does not support a submissionthat Parliament intended to cast the financial services net so widely so that theprovision of services which only had a loose connection to the lending of money wereintended to be covered.[97] I accept the proposition that Parliament must have intended words such assecurity, guarantee and indemnity in s 3(1)(h) to have a meaning. If an extensivemeaning of the type contended for by Provident is adopted, then the specifying of eachof these different concepts would be surplusage.[98] Provident emphasised the linkages between the Act and the Credit Contractsand Consumer Finance Act 2003 (the CCCFA). It was noted that the insurance policieswere entered into at the same time as the financing arrangements for the sale andpurchase of a motor vehicle, and it was submitted that, at a commercial and practicallevel, 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 thecomponent parts of interest and charges and would sometimes take a reduced marginin order to fit the products within an overall weekly payment total which madecompletion of the deal achievable for the borrower. However, the fact that the dealerand/or financier might adjust their profit margin on the financing so as to encouragethe borrower to obtain insurance does not alter the relationship between the insurerand the insured. Nor does it turn the insurance contract into the provision of a financialservice. Neither does the insurance contract become a credit contract.[100] Provident noted that consumer credit insurance and credit-related insurancewere defined in the CCCFA and brought under the CCCFA regime. However, thatdoes not make them a credit contract either. Section 7 of the CCCFA defines creditcontract as being:35(1) In this Act, unless the context otherwise requires, credit contractmeans a contract under which credit is or may be provided.(2) If, because of any contract or contracts (none of which by itselfconstitutes a credit contract) or any arrangement, there is a transactionthat is in substance or effect a credit contract, the contract, contracts,or arrangement must, for the purposes of this Act, be treated as a creditcontract made at the time when the contract, or the last of thosecontracts, or the arrangement, was made as the case may be.[101] The fact that Provident, in relation to the two insurance products, may besubject to obligations under ss 41–52 of the CCCFA,36 does not transform theinsurance policies into a credit contract either.[102] Provident noted that the views expressed by the Commissioner and publishedin Public Information Bulletins as to whether credit contract insurance was a financialservice were not determinative of the issue. That is undoubtedly correct, particularlyin the situation where the Commissioner appears to have done an about-face from thepreliminary view expressed in 1987 that consumer credit insurance products were anexempt financial service under s 3(1)(h) on the basis that they constituted the provisionof 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 policieswere not financial services as defined in s 3 of the Act. The justification for thatchange was said to be:38Premiums in respect of consumer credit policies are consideration for a supplyof services on which GST is payable. However, any portion of a premiumwhich is paid for life cover included in such a contract continues to be exemptas consideration for a financial service. In this respect it will be necessary toshow there is an intelligible basis of apportionment to distinguish theproportion 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], paymentsand 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:39A Consumer Credit and Payment Protection Insurance is a policy in which theinsurer will pay the policy owner (the creditor) upon the happening of theinsured events as set out in the respective policies. The mere fact that the quantum of the insurer's liability under contract isdetermined partly by reference to the credit contract between the insured andpolicy owner does not make the policy in itself an indemnity in respect of theperformance of the obligations under a credit contract.[105] The Commissioner again expressed similar views in 1998 when he said:40A guarantee and an indemnity are both undertakings by a person to be liableto pay moneys or perform obligations. Under a guarantee, the guarantorpromises to pay or perform in the event of another person not doing so. Withan indemnity, the indemnifier promises to pay or perform, regardless ofwhether another person has or has not done so. In practice, it is desirable fromthe point of view of the recipient of this kind of undertaking that he/she neednot establish that another person has failed to pay or perform, and accordinglyan indemnity is preferable to a lender.The word "security" in section 3(1)(h) is used in a different sense from its usein equity security, etc.In section 3(1)(h), security means a document creating a charge over someproperty, e.g., a land or chattel mortgage.[106] Although these various documents express the Commissioner's views inrelation to the wording of s 3(1)(h), none of them considers the application ofs 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 theword "security" in s 3(1)(h) involves a security over property. It also challenges theCommissioner's submission that the security must be given to the person to whom themoney is owed. Provident's submission was that security "as it is commonlyunderstood, means security over a person, property or fund or indeed anything thatmakes a payment more certain". They submit that interpreting the concept of securityas being security over property involves adding words to what is said to be the plainand ordinary meaning of security. Whether this is so depends on what the plain andordinary meaning of security actually is. If the concept is generally understood as39 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 thereis no need to add the words "over property" to convey that meaning.[108] Both parties have referred extensively to the dictionary definitions of theconcept of security. However, because the concept of security is capable of so manydifferent meanings in different contexts, the dictionary definitions are not overlyhelpful. 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 theword "security" in s 3(1)(h) that would indicate that Parliament must have intended itto 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 apayment more certain". There is nothing particularly helpful either way. Theimmediate preceding words "guarantee and indemnity" and the directly followingword "bond" all refer to legal obligations but, at least in relation to guarantee andindemnity, not to obligations secured by a charge of real or personal property. Theword "bond" has a range of potential meanings. Bonds may be secured by a mortgagebut can also refer to unsecured debt instruments. Therefore, little help is gained fromlooking at the immediate context of the word "security". Perhaps the most that can besaid is that the concepts involve different legal consequences and that if all Parliamenthad intended was to refer to a broad obligation to hold another party safe against lossor damage, they would not have needed to list the various specific concepts in thisway.[110] Sometimes it is possible to discern a common theme or common use of a wordin order to establish its ordinary meaning.42 Unfortunately, there is no obviouscommon theme or common use emerging from the various dictionary definitions.[111] Black's Law Dictionary (upon which both parties relied) gives as its primarydefinition of "security":4341 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 orcredit extended to a debtor.[112] It then goes on to define "chattel security" as "[a] security consisting ofpersonal 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:44Something which makes the enjoyment or enforcement of a right more secureor certain. A security may be a personal security; or a security on property(called in jurisprudence a real security); or a judicial security. A personalsecurity consists in a promise or obligation by the debtor or another person, inaddition to the original liability or obligation intended to be secured. Asecurity on property is where a right over property exists, by virtue of whichthe 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 powersvested in a court of law. In a secondary sense, "security" denotes aninstrument by which a security is created or evidenced, such as a bond, bill ofexchange, 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 dealseparately 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 generalsense such as "something that secures or makes safe" or "anything that makes themoney more assured in its payment or more readily recoverable", then the wordssurrounding it (guarantee, indemnity and bond) would be unnecessary as they couldall be described as something "that makes the money more assured in its payment ormore readily recoverable".[116] The word "security" is clearly capable of bearing the meaning advanced by theCommissioner, namely security over real or personal property. Placement of the wordin the context of words such as guarantee, indemnity and bond support the44 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 theBlack's Law Dictionary definition was intended.[117] The Commissioner argues that a security in s 3(1)(h) must be given to theperson to whom the money is owed. The Commissioner submits that, like guarantees,indemnities and bonds, securities are provided to creditors and draws the inferencethat Parliament intended security in respect of the performance of obligations under acredit contract to mean property pledged as security to the financier to secure theperformance of the borrower. Obviously, the insurance contracts do not do that.[118] Provident counters that argument by saying that none of the dictionarydefinitions 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 Contractand Commercial Law Act 2017 (the CCLA), the financier would have a direct right toclaim against Provident if it failed to make good the financier's loss.46 For the reasonsI now set out, I accept that it is therefore arguable that it can be said that Provident hasgiven an assurance to the financier.[120] Under the doctrine of privity of contract, a person may be neither entitled norbound 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 whicheventually resulted in the enactment of the Contracts (Privity) Act 1982, the provisionsof which have been re-enacted in pt 2, sub-pt 1 of the CCLA. This subpart deals withcontractual privity, its purpose being "to permit a person who is not a party to a deedor contract to enforce a promise made in it for the benefit of that person".4846 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, allowinga third party to recover a benefit under a contract when the requirements of the Act aresatisfied. 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 orcontract(1) This section applies to a promise contained in a deed or contract thatconfers, or purports to confer, a benefit on a person, designated byname, description, or reference to a class, who is not a party to thedeed 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 insubsection (1) is in existence when the deed or contract is made.13 Section 12 does not apply if no intention to create obligationenforceable by beneficiarySection 12 does not apply to a promise that, on the proper construction of thedeed or contract, is not intended to create, in respect of the benefit, anobligation 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 deedor contract) is or may be subject; or(ii) a right to which a person (other than a party to the deed orcontract) is or may be entitled; and(d) any extension or other improvement of a right or rights to which aperson (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 anadvantage 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 designationrequirement. A person who stands to benefit from a contract, but who is notsufficiently designated by it, cannot enforce the contract. As stated by Wylie J in Crossv Aurora Group Ltd, "Designation is a strong word, a positive word, and meanssomething more than a mere contemplation or possibility."50 If the lender is expresslyidentified in the policy or falls within a class of persons identified in the policy, thenthe lender would meet the designation requirement. In this case, the lender or financieris identified in the registration certificates and the requirements of the CCLA in thisregard are met.[127] The policy therefore confers a benefit on the lender. If the borrower were tobe unable to pay back a loan, for example, as a result of illness, the lender could relyon the credit insurance policy issuer to meet the loan repayments. Without this creditinsurance 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 thegreater level of risk. There is therefore privity of contract between the lender and thepolicy issuer.[128] However, because of the conclusion I have come to as to the nature of themeaning of the word "security", this does not assist Provident in this case because ithas not provided security over real or personal property.Prior legal interpretations[129] Having considered the context, it is now necessary to consider how the relevantterms might have been interpreted by prior case law.[130] The parties were agreed that the terms "security" and "indemnity", in thecontext of the Act, or indeed any tax context, had not been judicially considered inNew Zealand. The concept of "security" has been considered in other jurisdictions50 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 Canadiancases that consider the meaning of security in the tax context. However, some cautionis required in attempting to apply meanings that might have been arrived at in otherjurisdictions. That is because the approach to consumption taxes like GST differs fromcountry to country as, indeed, does the approach to taxation generally.[131] As Mr McKay conceded, the various cases he cited each emphasised that thedefinition was subject to the language, structure and purpose of the Act in question.The observations of Lord Shaw of Dunfermline nearly a century ago remainapposite:51The word "securities" has no legal signification which necessarily attaches toit on all occasions and it is to be interpreted without the embarrassment ofa legal definition and simply according to the best conclusion one can makeas to the real meanings of the term as it is employed in, say, a testament, anagreement, 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 theyaccept 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 relatedto tax statutes in other countries.[133] The submissions for Provident proceeded on the premise that the term securityhad a plain and ordinary meaning (and that was the informal or popular broadmeaning) and that, therefore, what the Commissioner was attempting to do was to readdown that meaning or add words to it.[134] Mr McKay referred to the well-known authorities that set out thecircumstances in which the words of the statute can be qualified.54 But the authoritieshe referred to in respect of these propositions are only relevant if there is, in fact, oneclear or ordinary meaning. If the natural and ordinary meaning of word "security" ins 3(1)(h) involves a security over real or personal property, then this Court is not51 Singer v Williams [1921] 1 AC 41 at 57.52 See, for example, General Motors Acceptance Corporation Australia v South Bank Traders PtyLtd [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 applyingthat meaning.[135] Similar issues arise in relation to the meaning to the word "indemnity" as areencountered 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 numberof different meanings.[136] Provident's case is that the wording "indemnity" in s 3(1) simply means a dutyto make good any liability. It invites the Court to focus on the substance of thetransaction rather than the form. It says that it is not necessary for Provident toindemnify the financier but sufficient if Provident indemnifies the borrower in thesense of being held harmless from loss arising from the non-performance of anobligation under a credit contract.[137] Provident starts by referring to the first two definitions in Peter Spiller'sNew Zealand Law Dictionary which say:551 Compensation for wrong done, or for trouble, expense or lossincurred.2 An undertaking to indemnify another. Thus, in insurance, indemnityis a promise by one party to keep the other harmless against loss.[138] Provident notes that some dictionary definitions require a contract (express orimplied) 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 theparty giving the indemnity, and the party suffering the loss.[139] However, this is at odds with the New Zealand Law Dictionary definition hequotes which refers to an insurance indemnity being "a promise by one party to keepthe other harmless against loss". That reference is clearly to the parties to theindemnity 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 contractualrelationship between the parties to the undertaking".56 That may be so in some taxcases but in GST interpretation, the statute focuses upon the particular services thatare the subject of the supply and the relationship between the supplier and therecipient. The fact that other parties may also benefit from the services is notdeterminative.57[141] In terms of context, the same observations apply to the word "indemnity" as tothe word "security". If all that Parliament intended was to refer to an obligation tomake good any liability, then specifying particular forms of obligations such asguarantee, 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 isdirected at a unilateral promise or duty without adding any requirement on the formof 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 ins 3(1)(h) with the words "taking, variation or release". There is nothing in its meaningor context which supports a reference to a unilateral promise or duty. It clearlyqualifies the terms "guarantee, indemnity, security or bond". The words also need tobe read in the context of the obligations to be indemnified. These are obligations inrespect 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 servicesinvolving the provision of credit.[144] Faced with the problem of the Court of Appeal decision in Wilson and HortonLtd v Commissioner of Inland Revenue, Mr McKay says it can be distinguished andthat it referred to a different provision in the Act, the operation of which depended on56 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 atdistinguishing this case in unconvincing.[145] In assessing whether or not the services provided under the two insurancepolicies are "financial services" and therefore exempt from GST, the issue of who theservices 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 Australiadecision 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 boththe guarantee and indemnity had the object or purpose of making good the financialposition of a creditor.[147] Mr Goosen notes that the insured party under the two contracts of insurance isnot a creditor but is a debtor under the relevant credit contract. He notes that theinsurance contracts in question cover the loss of the insured who is a party to theinsurance contract or who pays the premiums, not the financier (creditor). He relieson the Court of Appeal's decision in Wilson & Horton Ltd as authority for theproposition that, while an effect of the insurance contract might be that the insured'screditor might be more likely to receive payment under the credit contract, this is notrelevant when assessing the nature of the insurance contracts, or the supplies that aremade 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 questionis 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 havecertain claims against the insurer pursuant to the CCLA, that is a different issue as towhether the insurer is party to the credit contract. The credit contract is solely betweenthe financier and the insured. The insurer obtains no rights in respect of it. There isno contract of indemnity between the insurer and the financier, and the fact that the58 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 insureddoes 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 lifeinsurance, retirement scheme, financial option, or futures contract:(l) agreeing to do, or arranging, any of the activities specified inparagraphs (a) to (ka), other than advising thereon:[150] Provident argues that because, as between the insured and the third-partyfinancier, the proceeds of a claim on the policy represent the repayment of principaland interest owed by the insured to the financier, that, in respect of the service providedby the insurer to the insured, they should also be classified as payments of principaland interest.[151] The service being provided by Provident is that of an insurer. If an insuredevent 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 thatit would make under its mechanical breakdown insurance or comprehensive motorvehicle insurance policies. It is paying out under a contract of insurance because therisk it undertook to provide cover for has eventuated. There is no argument that thepayments under the mechanical breakdown and comprehensive motor vehicleinsurance policies do not involve making exempt supplies. The fact that as betweenthe insured and the financier, the proceeds of the CCI and GAP polices extinguish anobligation in respect of principal and interest does not transform the nature of theproceeds of the policy. They still remain, from Provident's viewpoint, payments madeunder an insurance policy because the risk event covered by that policy has occurred.[152] The Privy Council decision in Commissioner of Inland Revenue v DatabankSystems Ltd considered the meaning of s 3(1)(l) and s 3(1)(ka) of the Act.60 Databank60 Commissioner of Inland Revenue v Databank Systems Ltd [1990] 3 NZLR 385.provided computer services to four banks pursuant to a written agreement. Databankclaimed that it had agreed or arranged the payment and collection of cheques. It wasargued that the service it provided was therefore exempt as being a financial service.However, the Privy Council dismissed that argument, saying that there were twoseparate contracts. The contract between the bank and its customers under which thebank supplied financial services (specifically in relation to cheques) and the contractbetween the bank and Databank, whereby Databank supplied computer services inrespect of those cheques.[153] Databank had sought to argue that it was "involved" in the supply of financialservices. It had convinced the majority of the Court of Appeal that this was sufficientto render its supplies exempt. However, the Privy Council said:61Exemption is not afforded to "a person" who is "involved" in "an activity"which "results in" the supply of financial services; such an exemption, (whichwould present great difficulties of definition and application) is nowhere to befound in the wording of the Act.[154] Therefore, notwithstanding the fact that the services supplied by Databank tothe bank were clearly and specifically in relation to cheques, the Privy Council lookedat the supply of services from the point of view of the service that Databank wassupplying, not the service that the bank supplied in respect of the same cheques. Thatapproach clearly applies in the present case.[155] Mr Goosen also relies on the Court of Appeal decision in Turakina Māori GirlsCollege Board of Trustees v Commissioner of Inland Revenue for the proposition thata supply that is quantified by reference to an exempt financial service of the recipientwill not change the nature of the supply.62 In that case, the Board of Trustees renderedthe parents or guardians of students at a school attendance dues that were solely forthe payment of debt obligations for capital works in relation to the school. The Courtof Appeal held:63The attendance dues may be calculated by reference to the proprietors' debtobligations, but they are not themselves "interest, principal, dividend or other61 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 madeto secure the enrolment of the pupil in a school for which the proprietorsprovide the buildings and ensure the special character. It is the supply of thesethings 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 proprietorsare financial services, but the services supplied by the proprietors to theparents are not. As Lord Templemann said [in Databank Systems Ltd], "Thereis 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 theservice being supplied by the taxpayers was the security of a school placement forchildren which was not a financial service. However, this misses the point. Providentis arguing that the payment of insurance proceeds to the financier is the provision of afinancial service to the insured because the payments are in respect of the insured'sliability to pay the financier principal and interest. That is the same argument as wasrun by the trustees unsuccessfully in Turakina.[157] Mr McKay also refers to the English Court of Appeal decision in WestminsterBank Executor and Trustee Co (Channel Islands) Ltd v National Bank of Greece S.A.64He said that case was authority for the proposition that a payment under a guaranteeof interest retains its character as interest.65 However, that also misses the point. Thiscase does not involve payments under a "guarantee of interest". It involves paymentsunder an insurance policy. In any event, this point was abandoned when the case wasappealed to the House of Lords.66[158] In analysing whether or not the service provided by Provident amounts to thepayment of interest or principal, it is also necessary to reflect on the nature of theinsurance contracts. The premium is payable by the insured at the commencement ofthe insurance contract. It is that premium that is subject to GST. There is no furtheror additional premium payable if an insured event occurs. In many, perhaps most, ofthe policies, there will not be any insured event and there will be no payment by64 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 providedis insuring the identified risk. That is not a financial service. In that respect, theservice provided by Provident under the CCI and GAP policies is identical to theservice it provides under its other policies.[159] Just as in the Databank case, the supplier of the service that is connected to, orinvolved in, a financial service provided by someone else is not itself the supplier of afinancial service.Conclusions[160] The purpose of the Act is to levy a consumption tax on the widest possiblerange of goods and services with as few exemptions as possible. Payments of interestand principal are not payments for the supply of goods and services and were intendedto be exempt. As a consumption tax, the purpose of GST was not to tax savings andthat has resulted in the exemption of life insurance policies, retirement schemes andthe like.[161] To reduce the "self-supplier of services" bias that could be included within anexempt interest charge, the definition of financial services was drafted so as to includeservices in the nature of brokerage and intermediary services provided other than byfinancial institutions. However, the policy drivers behind that exemption do not applyin relation to an insurance policy that is separately priced and provided by a differentparty to the party who charges interest under the credit contract.[162] Apart from brokerage and intermediary services, it was not the purpose ofParliament to exempt services connected with the provision of financial services butnot themselves financial services.[163] There is no identifiable policy underlying s 3(1) of the Act that differs from theoverall policy of the Act set out above.[164] The nature of a supply for GST purposes is determined by the contractualrelationship between the supplier and the recipient of the supply. The fact that theservices supplied may benefit another party in relation to a contract of financialservices does not transform what are, in this case, insurance services provided pursuantto a contract of insurance into exempt financial services.[165] As the plaintiff has not shown that, on the balance of probabilities, theCommissioner'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 wasconceded 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 financialservices, there would need to be an apportionment of the premium with Providentbeing required to return output tax on the portion of those premia under which specialbenefits were also provided, to the extent the premium was attributable to the specialbenefits.Costs[167] Costs follow the event. The parties are invited to settle costs betweenthemselves. Failing agreement, the defendant is to provide a memorandum in supportof an application for costs within 14 days, with the plaintiff having 14 days fromreceipt of the defendant's memorandum to file a memorandum in reply.Churchman JSolicitors:Russell McVeagh, Auckland for PlaintiffCrown Law, Wellington for Defendant