Whitehouse Tavern Trust Board v Department of Internal Affairs [2014] NZHC 662 (3 April 2014)

Last Updated: 29 April 2014

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2012-485-000282 [2014] NZHC 662

IN THE MATTER of the Judicature Amendment Act 1972 and the Declaratory Judgments Act 1908

IN THE MATTER of an application for judicial review and/or for declaratory judgment under the Gambling Act 2003

BETWEEN THE WHITEHOUSE TAVERN TRUST BOARD

Applicant/Plaintiff

AND THE DEPARTMENT OF INTERNAL AFFAIRS

Respondent/Defendant

Hearing: 24 March 2014

Counsel: D M O'Neill for Applicant/Plaintiff

K M Muller and T M Badland for Respondent/Defendant

Judgment: 3 April 2014

_{JUDGMENT OF COLLINS J}

Introduction

[1] The primary questions I am required to consider are:

(1) Whether I should issue declarations under the Declaratory Judgments Act 1908 concerning the meaning of a Gazette Notice issued by the Secretary of Internal Affairs (the Secretary) pursuant to s 116 of the Gambling Act 2003 (the Act); and

(2) Whether I should judicially review the validity of the Gazette Notice and a venue costs schedule (Schedule) issued by the Secretary

THE WHITEHOUSE TAVERN TRUST BOARD v THE DEPARTMENT OF INTERNAL AFFAIRS [2014] NZHC 662 [3 April 2014]

pursuant to ss 69 and 366 of the Act. The Schedule is based on the requirements of the Gazette Notice.

[2] The Whitehouse Tavern Trust Board (the Trust) is licensed to operate class 4 gambling under the Act at the Whitehouse Tavern (the Tavern) in Papakura, South Auckland. I explain class 4 gambling in paragraph [6] of this judgment. The gaming venture at the Tavern is managed by a venue operator, Salutation Hotels Ltd, which owns the Tavern. The venue manager is Mr Hayes, who is the sole director and principal shareholder of Salutation Hotels Ltd. The Trust pays the venue operator expenses agreed to in a venue agreement approved by the Secretary. The expenses which the Secretary agrees to are set out in the Gazette Notice.

[3] The Trust and the venue operator agree that the Trust should pay the venue operator a fee for storing the Trust’s records and a mileage fee incurred when the venue operator banks the proceeds from the gaming machines and collects money used in operating the gaming machines. The Trust wishes to deduct these costs from the gross proceeds it receives from gaming. However, the Secretary has not approved these costs. His position is that these costs are not allowed by the Gazette Notice and therefore cannot be agreed to in the venue agreement.

[4] The Trust seeks declarations to the effect that the Gazette Notice should not preclude it from deducting from its net proceeds from gaming the storage and mileage expenses it wishes to pay the venue operator.

[5] The Trust’s claim for judicial review is that when issuing the Gazette Notice and Schedule the Secretary:

(1) made an error of law;

(2) breached the Trust’s legitimate expectations;

(3) failed to take into account relevant considerations; and

(4) acted unreasonably.

Class 4 gambling

[6] The Act provides for six classes of gambling. This case is concerned only with class 4 gambling, which is conducted through gaming machines. The gambler inserts $2 coins or $5, $10 or $20 notes into a gaming machine in the hope that, by chance, he or she will receive a return that cannot exceed $500 in a single bet.¹

Class 4 gambling can only be conducted in licensed venues, such as hotels, taverns or clubs. This case is not concerned with casino gambling, which requires a different type of licence.

[7] Class 4 gaming machines were first licensed in New Zealand in venues other than casinos in 1988. The licensing of class 4 gambling was first conducted under the Gaming and Lotteries Act 1977 (the 1977 Act) which authorised the Minister of Internal Affairs to grant gaming machine licenses to societies to generate gambling proceeds that could be used for community purposes (authorised purposes).

[8] Gaming machine licences under the 1977 Act tended to be held either by non- commercial clubs, which operated their own gaming machines on their own premises, or by other charitable organisations, which placed their machines in commercial premises, such as hotels or taverns, which were operated by a site operator.

[9] In 2000 the Department of Internal Affairs (the Department) endeavoured to cap the payments made by societies to site operators in order to enhance the amount of money that could be applied to authorised purposes. Those steps were a response to concerns that under the 1977 Act there was potential for site operators to inflate their expenses to the detriment of those who were meant to be the ultimate recipients of the net proceeds of class 4 gambling. However, the steps taken by the Department did not successfully address concerns about the scope for abuse that was thought to exist in the 1977 Act.

[10] The 2003 Act was intended to promote a more strict licensing regime and a more rigorous system of distributing proceeds from gaming machines to authorised

¹ Unless the machine is a $1,000 “jackpot” machine.

purposes. The Act was also designed to increase the accountability of gaming machine operators and venue operators in relation to both gambling operations and the distribution of the net proceeds from gambling.

The Act

[11] The Act contains a highly prescriptive regime for licensing and regulating gambling in New Zealand. I shall refer only to the key provisions relevant to this proceeding.

[12] The purposes of the Act include:

(1) controlling “the growth of gambling”;²

(2) limiting of “opportunities for crime or dishonesty associated with gambling”;³ and

(3) ensuring “that money from gambling benefits the community”.⁴

[13] Class 4 gambling can only be conducted by a corporate society. The term “corporate society” is defined to include a board incorporated under the Charitable Trust Act 1957.⁵ The corporate society must hold a class 4 operator’s licence for

gambling and a class 4 venue licence for the place where the gambling is conducted.⁶

[14] Before issuing a class 4 operator’s licence to a corporate society the Secretary must be satisfied of a wide range of criteria, including:

(1) The corporate society’s purpose in conducting class 4 gambling is to raise money for authorised purposes.⁷

² _{Gambling Act 2003, s 3(a).}

³ _{Section 3(f).}

⁴ _{Section 3(g).}

⁵ _{Section 4.}

⁶ _{Gambling Act 2003, s 31(a) and (b).}

⁷ Section 52(1)(b).

(2) The corporate society will maximise the net proceeds from class 4 gambling and minimise the operating costs of the gambling.⁸

(3) The net proceeds from class 4 gambling will be applied to or distributed for authorised purposes.⁹

[15] The definition of an “authorised purpose” in s 4 of the Act includes:

(i) a charitable purpose:

(ii) a non-commercial purpose that is beneficial to the whole or a section of the community.

[16] The regulation of class 4 gambling under the Act includes a requirement that gaming machine profits must be banked by the venue manager into a dedicated account at a registered bank in the name of the corporate society, within a timeframe specified in regulations.¹⁰ Regulation 4 of the Gambling (Class 4 Banking) Regulations 2006 requires the venue manager to bank gaming machine profits within five working days beginning on the day that the profits are, or ought to be,

calculated.

[17] The requirement for entities such as the Trust to store records is primarily governed by reg 5 of the Gambling (Net Proceeds) Regulations 2004. Those regulations require a class 4 operator to keep documents and data for seven years. Certain documents must be kept at the gaming venue for four weeks. All other documents and data may be stored away from the venue.

[18] The Act imposes the following controls on the costs of conducting class 4 gambling:

(1) First, a corporate society is restricted in what deductions can be made when calculating the net proceeds from gambling. Under s 4 of the

_{Act the net proceeds of gambling excludes:}

⁸ _{Section 52(1)(d).}

⁹ _{Section 52(1)(e).}

¹⁰ Section 104(2).

(a) the actual, reasonable, and necessary costs (including prizes), levies, and taxes incurred in conducting the gambling; and

(b) the actual, reasonable, and necessary costs incurred in complying with whichever of the following apply to the gambling:

(i) [the] Act or any other relevant Act: (ii) an operator’s licence:

(iii) a venue licence.

(2) Second, every venue agreement between a corporate society and a venue operator which must be approved by the Secretary includes “an itemised list of costs associated with the operation of class 4 gambling at the venue”.¹¹

(3) Third, under s 116 of the Act, the Secretary may by notice in the Gazette, set limits on or exclude, the costs that may be incurred by a corporate society. The costs that may be limited or excluded by the Secretary under s 116(2) of the Act include:

(a) costs associated with the class 4 venue, including salary or wages paid to a key person or another person for work associated with class 4 gambling at the venue, whether or not they are costs identified in the class 4 venue agreement:

(b) costs associated with repairing and maintaining gambling equipment:

(c) costs of operating the corporate society, including fees, salary, expenses, or other payments to a key person or another person involved in operating the corporate society.

Gazette Notice

[19] The first Gazette Notice issued by the Secretary under s 116 of the Act came into force on 1 December 2004. That Gazette Notice was replaced by a second

_{Gazette Notice which came into force on 18 July 2008. I explain the differences}

¹¹ Gambling Act 2003, s 69(1)(b).

between the two Gazette Notices in paragraph [21] of this judgment. However, those differences are not material to this proceeding.

[20] The 2004 Gazette Notice was the product of consultation and analysis by the

Department. In summary:

(1) In March 2004 the Department issued a consultation document setting out two options for paying venue operators.

(2) As a result of feedback from the class 4 gambling sector the Department sought advice from McCullum Peterson, a firm of financial consultants, on developing a costing model to reimburse venue operators for the costs incurred in hosting gaming machines on behalf of corporate societies (McCullum Peterson Report).

(3) The McCullum Peterson Report was completed in July 2004. It contained proposals that the Secretary specify the actual, reasonable, and necessary costs that could be deducted when calculating the net proceeds of gambling. The authors of the report focused on meaningful costs, such as insurance, rent, rates, electricity, interest on the venue’s float and bank fees incurred in the operation of class 4 gambling at a venue. The McCullum Peterson Report included a recommendation of a 25 per cent margin to cover a venue operator’s management fee and incidental expenses. The authors of the report called this 25 per cent margin a “profit margin”. There was no reference in the McCullum Peterson Report to storage fees or mileage costs.

(4) The Department consulted with a representative group of class 4 gambling operators after which the Secretary issued the 2004 Gazette Notice.

[21] The 2004 Gazette Notice was not popular with many in the class 4 gambling sector. Unsuccessful efforts were made to challenge the validity of the Gazette

Notice before Parliament’s Regulations Review Committee. That Committee encouraged the Department and the sector to work together to evaluate the effect of the 2004 Gazette Notice. This resulted in the establishment of a venue costs working party whose members included some class 4 gambling operators. That Committee’s report was completed in November 2007. Storage fees and mileage costs were not referred to in the working party’s report. The report did contain recommendations that the 2004 Gazette Notice be amended to clarify whether the costs specified in the

2004 Gazette Notice included GST. The working party’s report also recommended the collection of better data to assess the labour costs of venue operators. As a consequence, when the 2008 Gazette Notice was issued it clarified the GST status of the costs which the Secretary would permit when a corporate society calculated its net proceeds from class 4 gambling. This was the only difference between the two Gazette Notices.

[22] The Gazette Notice specifies four classes of costs which a corporate society can incur in a venue agreement with a venue operator.

[23] Those limits relate to hourly operating costs for each gaming machine (limit A), weekly operating costs for each gaming machine (limit B), venue operating costs (limit C) and an overall cap on a corporate society’s expenditure in relation to venue costs in any 12 month period (limit D).

[24] The Gazette Notice states that a corporate society must not:

(1) incur any costs associated with class 4 gaming venues that are not hourly operating costs, weekly operating costs or venue operating costs;

(2) incur any costs associated with class 4 venues in relation to hourly operating costs, weekly operating costs or venue operating costs that are not within limits A, B, C and D;

(3) reimburse costs of a venue operator that a venue operator is not liable for under the venue agreement, or costs that have not actually been incurred by a venue operator; or

(4) incur the same costs simultaneously in more than one of limits A, B

or C.

[25] In each of limits A, B and C there is allowance for a fee for managing the provision of the relevant services. That allowance must not exceed 25 per cent of the costs of those services.

The Schedule

[26] To ensure it had reliable data to support any future changes to the cost limits in the Gazette Notice, the Department:

(1) Established a benchmarking working party. This resulted in a recommendation that standard categories of labour costs be adopted to assess the reasonableness of labour costs claimed by a corporate society.

(2) Issued a consultation document called “Categorisation of Venue Costs under the Gazette Notice and the Reasonable Timeframes Associated with Labour Costs”. This document aimed to ensure a consistent approach to labour costs.

(3) Issued the Schedule that became the “itemised list of costs” in venue agreements under s 69(1)(b) of the Act. The Schedule replicates the permitted costs in the Gazette Notice.

The Trust and its dispute with the Secretary

[27] The Trust qualifies as a corporate society under the Act because it was incorporated under the Charitable Trusts Act 1957 on 26 September 1998. A new deed of trust was executed on 26 September 2006.

[28] Although corporate societies are now limited to nine gaming machines under the Act, the Trust is permitted to have 18 gaming machines because of the “carry over” provisions in s 92 of the Act. The Tavern is a high performing venue which generates approximately $30,000 per week in gaming machine profits.

[29] The Trust is unusual in that it confines its gaming activities to one venue. As at 30 September 2013 there were 347 class 4 gaming operator licences in New Zealand based in 1,033 venues.

[30] The Trust and venue operator signed a venue agreement on 14 March 2005. The Secretary agreed, with qualifications, to that venue agreement on 14 September

2005. Each venue agreement is meant to last three years.¹² On 1 August 2010 the

Trust and venue operator agreed on a new venue agreement. The new venue agreement included:

(1) Provision for the venue operator to charge the Trust $125 per month for the storage of the records which the Trust is required to keep.

(2) Provision for the venue operator to charge the Trust a mileage cost of

$42 per week when conducting banking activities on behalf of the

Trust.

[31] The Secretary has declined to approve these parts of the new venue agreement.

[32] There has been correspondence between the Trust and the Department over the Trust’s claim that it should be entitled to deduct storage costs incurred with the venue operator when calculating its net profits from the proceeds of gambling. Part of that correspondence focused on an error on the part of the Trust over exactly how much it was paying the venue operator in storage fees. The correspondence culminated in a letter from the Department to the Trust on 15 June 2012. From that

_{letter it is clear:}

¹² Gambling Act 2003, s 69(3).

(1) The Secretary accepts that it would be reasonable for the Trust to pay

$178 (plus GST) a month to have its documents stored by a storage company.

(2) The venue operator is charging the Trust $125 (plus GST) a month for exactly the same service.

[33] The Secretary’s position is that because storage costs are not a specific cost item in the Gazette Notice they cannot be included in the venue agreement between the Trust and the venue operator. The Secretary also says that there is nothing to prevent the Trust from having a third party store its documents so long as the venue operator does not charge for the service. The Secretary submits that if the Trust wants to pay the venue operator a storage fee then those costs have to be absorbed within the 25 per cent management fee provided in the Gazette Notice.

[34] There has also been correspondence between the Trust and the Department over the mileage costs, which the Trust is willing to pay the venue operator when performing banking services for the Trust. Part of that correspondence relates to the necessity for and reasonableness of the mileage fees.

[35] I do not have to concern myself with the necessity and reasonableness issues. For present purposes it is accepted that:

(1) The mileage fee that the venue operator wishes to charge the Trust is

$42 per week.

(2) The mileage fee relates to the venue operator conducting banking for the Trust five days a week.

_{(3) The mileage fee is calculated on the basis of $1.05 per kilometre.}¹³

¹³ The Department says this is excessive when compared to the Department of Internal Revenue’s allowable mileage rate of 0.77c per kilometre. The Department also says that at most only three “banking trips” need to be made on behalf of the Trust each week.

[36] The Secretary’s position, as recorded in the Department’s letter of 15 June

2012 is that because mileage fees are not a separate cost in the Gazette Notice they cannot be included in the venue agreement. The Secretary says the mileage costs should also be absorbed within the 25 per cent management fee prescribed in the Gazette Notice.

Claim under the Declaratory Judgments Act 1908

[37] The Trust seeks the following declarations under the Declaratory Judgments

Act 1908:

(1) The “costs” referred to in s 116 of the Act must be the “actual, reasonable, and necessary costs” that are referred to in the definition of “net proceeds” in s 4 of the Act.

(2) If the costs that the Secretary has to take into account are the “actual, reasonable, and necessary” costs, then the definitions in the Gazette Notice should include mileage and storage costs.

(3) Mileage costs incurred by a venue operator for banking gambling proceeds should be a cost that should be allowed by the Secretary pursuant to s 116.

(4) Storage costs incurred by a venue operator should be a cost that should be allowed by the Secretary pursuant to s 116.

(5) The definitions of “weekly operating costs” or “venue operating costs” in the Gazette Notice should include the costs of storage and mileage.

[38] Section 3 of the Declaratory Judgments Act 1908 empowers the High Court to determine questions as to the construction or validity of amongst other matters, any statute, regulation, bylaw or written agreement. In Public Trustee v Attorney-

General (Re Chase), Cooke P cited the following passage from Halsbury’s Laws of

England:¹⁴

... The action for a declaration is potentially one of the most fertile, generative and creative procedural devices for ascertaining and determining the rights of parties on points of law ...

[39] The following basic principles govern the approach I should take when considering the Trust’s application for relief under the Declaratory Judgments Act

1908:

(1) I should not attempt to answer purely abstract questions.¹⁵

(2) I should not attempt to resolve issues that involve mixed questions of fact and law.¹⁶

(3) I should not attempt to exercise the declaratory judgment jurisdiction if the matter in dispute can be conveniently brought before the Court in its ordinary jurisdiction.¹⁷

(4) There does not have to be an existing dispute in order for the declaratory judgments jurisdiction to be exercised.¹⁸

[40] There are three reasons why I have decided it is not necessary or appropriate for me to issue the declarations sought by the Trust in its application under the Declaratory Judgments Act 1908. Those reasons are:

(1) The real issues raised by the Trust can be more appropriately addressed in the Trust’s application for judicial review. In the application for judicial review, I can more adequately determine if the

_{Gazette Notice is inconsistent with the legislative requirements that}

¹⁴ _{Chase, Re [1989] 1 NZLR 325 (CA).}

¹⁵ New Zealand Insurance Co Ltd v Prudential Assurance Co Ltd [1976] 1 NZLR 84 (CA) at 85; Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 (HL).

¹⁶ _{New Zealand Insurance Co Ltd v Prudential Assurance Co Ltd, above n 15, at 85.}

¹⁷ _{At 85.}

¹⁸ Mandic v The Cornwall Park Trust Board (Inc) [2011] NZSC 135, [2012] 2 NZLR 194 at [9].

the Trust maximise its profits from gambling in order to enhance the net proceeds that can be distributed to authorised purposes set out in ss 52(1)(b) and 106 of the Act. This was not one of the declarations sought by the Trust. Therefore it would not be appropriate to determine it as if it were a declaration sought by it under the Declaratory Judgments Act 1908 because I can better address it under the judicial review application.

(2) The five declarations sought by the Trust do not accurately address what I consider is the real reviewable error of law in this case and issuing the declarations sought would not assist the parties.¹⁹ I can address the real reviewable error of law more adequately in the application for judicial review.

(3) The declarations that focus upon the Trust’s claim for mileage fees cannot be properly answered without further evidence.²⁰

I shall now briefly explain these reasons.

[41] In New Zealand Insurance Co Ltd v Prudential Assurance Co Ltd McCarthy P explained that the Declaratory Judgments Act procedure is designed to provide a speedy and inexpensive method of obtaining a judicial interpretation where the matter in dispute cannot conveniently be brought before the court in its ordinary

jurisdiction.²¹

[42] In Mandic v The Cornwall Park Trust Board (Inc),²² the Supreme Court considered the High Court’s jurisdiction under the Declaratory Judgments Act. In

_{that decision Elias CJ said:}²³

¹⁹ _{Woolsworth (New Zealand) Ltd v Attorney-General [2001] 3 NZLR 123 (HC) at 133.}

20. At 133. Glazebrook J considered that both groups may have been able to put further evidence of the factual position before the Court and thus their absence weighed against the declaration

_{being granted.}

²¹ _{New Zealand Insurance Co Ltd v Prudential Assurance Co Ltd, above n 15, at 85.}

22. Mandic v The Cornwall Park Trust Board (Inc), above n 18, per Elias CJ dissenting. The majority agreed with Elias CJ’s views expressed at [5]-[9].

²³ At [9].

... The jurisdiction under the Declaratory Judgments Act enables anyone whose conduct or rights depend on the effect or meaning of an instrument, including an agreement, to obtain an authoritative ruling ... Access to the jurisdiction does not depend on there being an existing dispute. Nor is it necessary that there be a lis ...

[43] In the present case the Trust has sought declarations under both the Declaratory Judgments Act 1908 and the Judicature Amendment Act 1972 in its claim for judicial review. In its judicial review claim the Trust seeks declarations that the Gazette Notice is unlawful.²⁴ There is some overlap in the application for declarations under the Declaratory Judgments Act 1908 and in the application for declarations in the claim for judicial review.

[44] The concurrent claims for judicial review and the claim under the Declaratory Judgments Act 1908 demonstrate that the present dispute is capable of being resolved through the Court’s “ordinary jurisdiction” of judicial review. Therefore the issues in this case need not be determined under the Declaratory Judgments Act

1908.

[45] The second reason why I believe the Trust’s real concerns are best addressed in its application for judicial review is my assessment that the proposed declarations do not adequately address the gravamen of what I consider is the real issue in this case:

(1) The first declaration sought by the Trust does not address the Trust’s concerns. It is common ground that all costs paid by the Trust out of gaming machine proceeds must be “actual, reasonable, and necessary” as that term is used in the definition of “net proceeds” in s 4 of the Act. Issuing a declaration to that effect does not advance

_matters.

²⁴ The declarations sought in the claim for judicial review are: “(a) a declaration that mileage costs incurred by the venue operator for banking gambling proceeds are a cost that should be allowed by the Secretary pursuant to s 116; (b) a declaration that storage costs incurred by the venue operator should be costs that are allowed by the Secretary pursuant to s 116; (c) a declaration that the definitions of weekly operating costs or venue operating costs (whichever one is applicable), should include the costs of storage and mileage; (d) a declaration that storage and mileage costs are actual, reasonable and necessary costs as defined under s 4 of the Act”.

(2) The second to fifth declarations miss the real issue in this case. In my assessment, the Trust’s real argument is that when passing s 118 of the Act Parliament did not authorise the Secretary to exclude “actual, reasonable, and necessary” costs which maximise the net proceeds that can be distributed to authorised purposes even when those costs are incurred with a venue operator.

[46] My third reason for not exercising the jurisdiction conferred by the Judicature Act 1908 is that if I am correct in my assessment of the real issue in this case then it is difficult to issue a declaration in relation to the Trust’s claim in relation to mileage fees without agreement that the mileage fees claimed by the Trust would maximise the net proceeds that can be distributed to authorised purposes.

[47] For these reasons, I decline to issue the declarations sought by the Trust.²⁵

Claim for judicial review

[48] In its claim for judicial review the Trust seeks declarations that are similar but not identical to the declarations it sought under the Declaratory Judgments Act 1908. The Trust also seeks orders in its claim for judicial review that the Gazette Notice and the Schedule be either set aside or amended by the Secretary to specifically include mileage and storage costs.

[49] I shall now analyse the Trust’s claim for judicial review under the four headings I set out in paragraph [5] of this judgment, namely:

(1) error of law;

(2) substantive legitimate expectation;

(3) failure to take into account relevant considerations; and

_{(4) unreasonableness.}

²⁵ The question posed in paragraph [1(1)] of this judgment is answered “No”.

Error of law

[50] The Secretary accepts that if he has made an error of law that materially affected his decision when issuing the Gazette Notice and the Schedule, then his decision is amenable to judicial review.²⁶ The Secretary’s acknowledgement reflects well settled law. The Court of Appeal has held that “a material error of law” was “an established ground of judicial review”.²⁷ See also R v Hull University Visitor; ex parte Page:²⁸

... what must be shown is a relevant error of law, ie, an error in the actual making of the decision which affected the decision itself.

[51] The Trust says the Secretary’s errors of law are that:

(1) the storage and mileage fees are “actual, reasonable, and necessary costs”; and

(2) the failure to incorporate them in “the definitions contained within the Gazette Notice does not correctly reflect actual, reasonable or necessary costs under the Act”.

[52] In my assessment, the Secretary did make a reviewable error of law in the Gazette Notice, and in issuing the Schedule in the form that it was issued. His error, however, was not as alleged by the Trust.

[53] To explain my reasoning I shall briefly restate:

(1) An object of the Act is to ensure money from gambling benefits the community.²⁹

(2) The Trust is required to maximise the net proceeds from class 4 gambling and minimise the operating costs from that gambling.³⁰

²⁶ _{Peters v Davison [1999] 2 NZLR 164 (CA) at 181 and 188-189 per Smellie J.}

²⁷ _{At 189.}

28. R v Hull University Visitor; ex parte Page [1992] UKHL 12; [1993] AC 682 (HL) at 702 per Lord Browne- Wilkinson.

²⁹ _{Gambling Act 2003, s 3(g).}

³⁰ Section 52(1)(d).

(3) The requirement to maximise net proceeds is designed to ensure the maximum distribution of the net proceeds of gambling to authorised purposes.

(4) To ensure entities like the Trust maximise the distribution of net proceeds to authorised purposes, net proceeds are defined to include “the actual, reasonable, and necessary costs”.

[54] However, Parliament also decided not all “actual, reasonable, and necessary costs” would necessarily be able to be lawfully deducted by a corporate society when calculating net proceeds. Parliament authorised the Secretary to exclude or set limits on certain “actual, reasonable, and necessary costs” that a corporate society might agree to with a venue operator and which can be deducted when calculating the corporate society’s net profit from gambling. It is axiomatic that Parliament did not provide the Secretary with an unfettered discretion when determining what “actual, reasonable, and necessary costs” can be deducted by a corporate society when calculating net proceeds from gambling. What Parliament intended was that the Secretary would be able to exclude or limit costs that were “actual, reasonable, and necessary” and which undermined the legislative intention that net proceeds from gambling are maximised to ensure a greater distribution of the proceeds of gambling to authorised purposes. Conversely, Parliament did not intend the Secretary would exclude or limit “actual, reasonable, and necessary costs” which maximise the net proceeds from gambling even when those costs were payments to a venue operator.

[55] In this case, the Secretary’s Gazette Notice precludes the Trust from deducting from its net proceeds storage fees which the Trust incurs with the venue operator. The Secretary accepts he would have no concerns if the Trust incurred reasonable but greater storage fees with an entity other than the venue operator.

[56] Similarly, if the Trust was able to establish that the mileage fees were necessary, and less than an amount that might otherwise be reasonably incurred transferring money to and from the Whitehouse Tavern to the Trust’s bank through

the services of a third party, then in all likelihood the Secretary would not take issue with mileage fees being paid to that third party.³¹

[57] The obvious question is why should it matter if cheaper storage and mileage fees are incurred pursuant to a venue agreement as opposed to more expensive charges being incurred through a contract with a third party? When questioned on this point, Ms Muller, senior counsel for the Secretary, made the following points:

(1) Storage fees and mileage fees could reasonably be subsumed within the 25 per cent management fee which the Secretary has specifically allowed in the Gazette Notice and Schedule.

(2) The Gazette Notice was prepared after extensive consultation with interested persons. No one raised storage or mileage fees as being an issue which required consideration.

(3) It is unrealistic to expect the Secretary to turn his mind to every conceivable cost when considering what costs might be excluded pursuant to a Gazette Notice issued pursuant to s 116 of the Act.

[58] I do not believe the 25 per cent management fee provides the answer which the Secretary is advocating. It is clear from the McCullum Peterson Report that minor and incidental costs might be covered by the 25 per cent management fee. It is also clear that until the Trust raised the issue of storage and mileage fees no one had contemplated claims of the kind the Trust wishes to make.

[59] In particular, all attention was on controlling the ability of venue operators to maximise their returns thereby minimising the net proceeds from gambling that could be distributed to authorised purposes. The fact that no one thought of the possibility that actual, reasonable, and necessary storage and mileage fees could be

_{incurred with a venue operator at better rates than might ordinarily charged}

³¹ I appreciate that the Secretary disputes the necessity for five banking trips a week and the reasonableness of the mileage rate currently charged by the venue operator. These are factual issues which compound the difficulties in granting the relief sought by the Trust.

illustrates that the 25 per cent management fee was not intended to cover the type of costs with which this proceeding is concerned.

[60] While the management fee might absorb minor and incidental costs, the costs associated with storage do not appear to be any less significant than some of the specific costs provided for in the Gazette Notice. For example, in the present case, it appears the sums the Trust pays the venue operator for insurance, interest on the float and electricity are similar to the amount it wishes to pay the venue operator for

storage costs.³²

[61] I have sympathy for the position the Secretary has found himself in. It is clear that when determining what costs to exclude or limit by way of a s 116 Gazette Notice the Secretary did not contemplate the possibility the Trust might incur “actual, reasonable, and necessary costs” with the venue operator that would enhance the profits that could be available for distribution to authorised purposes. The Secretary understandably focused on excluding and limiting costs that reduced the profits that would be available for distribution to authorised purposes by controlling the payments a corporate society can make to a venue operator. However, by limiting his attention to only one side of the equation, the Secretary has inadvertently issued a Gazette Notice that fails to give effect to Parliament’s intention set out in the provisions which I have cited in paragraph [52] of this judgment. In doing so, the Secretary has made a reviewable error of law.

Substantive legitimate expectation

[62] Having concluded the Secretary made a reviewable error of law, it is not necessary for me to dwell on the Trust’s remaining claims for judicial review.

[63] The Trust claim that the Secretary has breached its substantive legitimate expectation is based upon a number of assertions, including the following:

(1) The volume of records which the Trust is required to store has increased and that the Secretary needs to “move with the times”.³³

³² _{Affidavit of BV Scoun, 20 August 2013, exhibit O.}

³³ Plaintiff ’s submissions at paragraph 19.1.

(2) The McCullum Peterson Report provided a foundation for the Trust to legitimately expect the Secretary would permit deductions for mileage and storage fees.

[64] A claim for judicial review based on a legitimate expectation of a substantive outcome will rarely succeed.³⁴ In GXL Royalties Ltd v Minister of Energy,³⁵ the Court of Appeal upheld Randerson J’s analysis of the law in New Zealand Association of Migration and Investments Incorporated v Attorney-General:³⁶

Where very specific promises are made to an individual or a small class with serious consequences for them if the promises are not kept, the Court’s approach is likely to be one of particularly close examination of the decision to ensure that the legitimate expectations of individuals are not unfairly or unreasonably thwarted. The Court will be astute to ensure the decision maker has conscientiously considered the position of those affected, has sound and logical reasons for reneging on the promises made, and has otherwise acted lawfully, fairly, and reasonably in the administrative law sense. In other cases, such as where the policy choices, are very much in the macro-political field and there are strong countervailing grounds to support the course adopted, the Court may give greater recognition to the wider public interest in enabling governments to adjust policy including, when change is required and how, in their judgment, it is to be achieved. Even so, the Court will not in those situations, forego its proper constitutional role on judicial review of ensuring that the decision maker has acted in accordance with law, fairly and reasonably.

In no case, however, could I envisage a Court directing that a substantive benefit (such as a licence or permit) be granted. That would be to usurp the function of the executive.

This passage illustrates the challenges which a plaintiff faces when they base a claim for judicial review on substantive legitimate expectation.

[65] In my assessment, the Trust’s claim for judicial review based upon substantive legitimate expectation is not sustainable. The Secretary made no commitments that would form the basis of a claim of substantive legitimate

_{expectation. In particular:}

³⁴ _{Back Country Helicopters v Minister of Conservation [2013] NZHC 982 at [184].}

³⁵ _{GXL Royalties Ltd v Minister of Energy [2010] NZCA 185, [2010] NZAR 518 at [21].}

³⁶ New Zealand Association for Migration and Investments Incorporated v Attorney-General

[2006] NZAR 45 (HC) at [158]-[159].

(1) There is no evidence the Secretary made a commitment that the Trust would be able to deduct storage and mileage fees as proposed by the Trust.

(2) The McCullum Peterson Report does not refer to storage and mileage fees. In any event, policy advice to the Secretary does not bind the Secretary or constitute a commitment from the Secretary.

Failure to take into account relevant considerations

[66] The Secretary accepts that if he failed to take into account relevant considerations when exercising his discretion when settling upon the terms of the Gazette Notice, then his decision would be amenable to judicial review. This is because the Secretary would not have properly exercised his discretion.³⁷

[67] The Secretary submits he did take into account all relevant considerations. However, for reasons which mirror those I have explained in paragraphs [50] to [61] of this judgment I am bound to disagree with the Secretary.

Unreasonableness

[68] The threshold for granting judicial review on the grounds of unreasonableness is high in a case such as this.³⁸ In Carroll v Coroner’s Court at Auckland, Winkelmann J held that a public authority’s finding will be unreasonable if it is not supported by any probative evidence, or if “the reasoning by which the decision-maker justified inferences of fact that he had drawn is self-contradictory or otherwise based upon an evident logical fallacy”.³⁹ It is not enough for an applicant challenging the finding to show that there was evidence available that might

_{reasonably have supported other findings.}⁴⁰

³⁷ R v Vesty of St Pancras (1890) 24 QBD 371; Petrocorp Exploration Ltd v Butcher [1991] 1

_{NZLR 1 (CA) at 33.}

³⁸ Waitakere City Council v Lovelock [1997] 2 NZLR 385 (CA); Nichols v Health & Disability

_{Commissioner [1997] NZAR 351 (HC) at 366.}

³⁹ Carroll v Coroner’s Court at Auckland [2013] NZHC 906, [2013] NZAR 650 at [21], citing Re Erebus Royal Commission; Air New Zealand Ltd v Mahon [1983] NZLR 662 (PC) at 681; Discount Brands Ltd v Northcote Mainstreet Inc [2004] 3 NZLR 619 (CA) at [58].

⁴⁰ Re the State Coroner; ex parte The Minister for Health [2009] WASCA 165 at [57].

[69] In my assessment, a claim for judicial review based upon unreasonableness is unable to succeed in the circumstances of this case. It is clear that when issuing the Gazette Notice the Secretary inadvertently failed to consider the circumstances in which an entity such as the Trust would incur actual, reasonable, and necessary costs with the venue operator that would maximise the profits available for distribution to authorised purposes. This error falls short of being unreasonable in an administrative law sense, particularly as the issues raised by the Trust appear not to have been considered at any stage during a very long process of consultation and analysis.

Relief

[70] Ms Muller has advised that the Minister for Internal Affairs has signalled legislative reform of the payment of costs to a venue operator and that if I were to direct the issuing of a new Gazette Notice then such a Gazette Notice would have a short life span. Ms Muller submits that there would therefore be little utility in directing the Secretary to issue a new Gazette Notice.

[71] While there may be every intention on the part of those responsible for the Government’s legislative programme to review the payment of venue costs, there can be no assurance that those reforms will be achieved within the foreseeable future.

[72] I believe the most appropriate and effective remedy is contained in a declaration issued under s 4(1) of the Judicature Amendment Act 1972. My declaration will identify the error in the Gazette Notice.

[73] I declare that the Gazette Notice does not fully comply with the Act. To fully comply with the Act the Gazette Notice would need to be amended to authorise the Secretary to allow the deduction of a corporate society’s costs that are:

(1) actual, reasonable, and necessary; and

(2) which have the effect of increasing the profits from gaming machines that are available for distribution to authorised purposes even when those costs are paid to a venue operator.

[74] This declaration provides the Trust with the most effective relief to which it is entitled. No other relief is necessary.

Costs

_{[75] The Trust is entitled to costs on a scale 2B basis.}

Solicitors:

Nielson Law, Hamilton for Applicant/Plaintiff

Crown Law Office, Wellington for Respondent/Defendant

D B Collins J