Montgomerie v Commissioner of Inland Revenue

The Court of Appeal of New Zealand was presented with an appeal concerning the liability for goods and services tax (GST) on recoveries made by a liquidator pursuant to the Companies Act 1993. The appellant, Bernard Spencer Montgomerie, acting as liquidator, sought to determine whether GST applied to recoveries of voidable payments made under sections 292 and 296 of the Act. The respondent, the Commissioner of Inland Revenue, argued that GST was applicable under section 25 of the Act. The liquidator had received conflicting advice on the matter and sought a protective ruling from the court.

The primary legal issue before the court was whether the recoveries made by the liquidator were subject to GST. Specifically, the court had to decide if these recoveries constituted a "taxable activity" under section 6(1), a "supply of goods or services" under section 8(1), or a "taxable supply" within section 2 of the Act. The Commissioner conceded that the recoveries were not a taxable activity, supply of goods or services, or a taxable supply, but argued that they were nonetheless subject to GST under section 25. The court was required to examine whether the partial or full recoveries amounted to an alteration of consideration, as provided for in section 25(1)(b), and thus subject to GST.

The Court of Appeal, in its judgment delivered by Justice McGechan, concluded that the appeal should be allowed in part. The court found that the lower court's direction that GST was payable on less than full recoveries by the liquidator was incorrect. The court did not consider partial recoveries to amount to an alteration of consideration under section 25(1)(b). Consequently, the court quashed the direction that GST was payable on less than full recoveries and substituted a direction that GST was not payable on such recoveries. The court left open the hypothetical scenario where a creditor might reach a binding agreement not to prove in the liquidation for the balance, but noted that such a scenario was not involved in the present appeal. The Commissioner's concession, subject to the theoretical scenario, was deemed wise, and the appeal was allowed in part.

In light of the appeal's outcome, the court ordered that the costs should follow the event but could be moderated due to the Commissioner’s realistic approach, which significantly reduced hearing time. The liquidator was awarded costs of $2,500, plus reasonable disbursements and travel and accommodation expenses as approved by the Registrar.