Lessons for Gambling Licensees from Tatts v Victoria and Tabcorp v Victoria, recent decisions of the Victorian Supreme Court.

Last month (July 2014), two apparently conflicting court decisions were handed down in Australia involving disputes between a state government and its principal gambling licensees. In a decision which will send shockwaves through Australian governments and regulators, Tattersalls (or Tatts) was successful in its claim against the Victorian Government, arising from the termination by that Government of Tatts’ gaming machine licences.

A Notice of Appeal has been lodged by the Victorian Government. If this decision is confirmed on appeal, Tatts will recover an amount in excess of $500 million from the State of Victoria.

The Tatts decision was awarded by the Victorian Supreme Court on the same day as the Court’s decision in the claim brought by Tabcorp. However, in that case, the Court came to a different conclusion, finding in favour of the Victorian Government. Accordingly, the claim brought by Tabcorp to recover over $650 million was unsuccessful. Tabcorp has since lodged a Notice of Appeal to the Victorian Court of Appeal.

These claims arose from the decision of the Victorian Government in 2008 to change the regulatory structure relating to gaming machine licensing in Victoria. Among the changes effected was the replacement of the duopoly held by Tatts and Tabcorp relating to the supply and operation of gaming machines with arrangements under which venues would hold operating licences directly. At the same time, it was announced that neither Tabcorp nor Tatts would be entitled to any compensation arising from the expiration of their licences in 2012.

Needless to say, claims were made by each of Tatts and Tabcorp to recover the monies paid under their licences to the Victorian Government. At first blush, it might seem odd that different decisions were reached in respect of the two claims. Even though this disparity may not occur once the appeals are determined, the Court held that the dealings of each of Tatts and Tabcorp with the Victorian Government were different. This led to different results.

The factual matrix is unusual as it arose from the following combination of factors:

  • the legalisation of gaming machines in Victoria;
  • how best to roll out gaming machines in a manner that was in the best public interest;
  • the necessity to maximise the sales proceeds upon the privatisation of the Victorian TAB; and
  • the basis on which existing licensees may be prepared to make payments in respect of current gaming licences even though granted initially for no consideration (on the basis that significant investment was required).

Yet, these decisions are illuminating as they provide useful guidance for regulators, governments, prospective gambling licensees and their advisers facing similar issues.  

A chronology of the background to the decision is available on request.1

We set out below some of the core principles stated in the decisions of the Court:

  • Any gambling licence, and the underlying legislation, is subject to change, or even cancellation of the licence, if the government changes its policy. This concept of ‘sovereign risk’ must be recognised generally – parties to a contract with government must understand that a government cannot commit itself to future executive or legislative action.
  • Governments granting gambling licences may seek to maximise the sales proceeds/monetary compensation payable by the licensee in respect of any licence, perhaps on the basis of certain rights or undertakings given to the licensee by the government. Care should be taken  by a licensee in placing reliance on any statutory provision to obtain a level of comfort that the government will honour its side of the bargain.
  • The existence of concurrent statutory and contractual entitlements of a gaming licensee is possible.
  • Contracts, including with government, should be interpreted in a manner so as to avoid commercial nonsense or to give rise to commercial inconvenience.
  • If language of a contract may be given two different constructions, it is preferable to give effect to an interpretation which avoids consequences that are capricious, unreasonable, inconvenient or unjust.
  • A statutory entitlement may be repealed by subsequent legislation. This does not mean automatically that a concurrent contractual entitlement is cancelled.

The decisions in the two cases are easier to reconcile on a closer read. In summary:  

  • Neither Tatts nor Tabcorp had a claim under statute to recover compensation following the introduction of a new statutory licensing regime relating to gaming machines upon the expiration of their respective licences.
  • This right did not exist despite specific statutory provisions being enacted which contemplated a payment being made to the respective pre-existing licensee (i.e. Tatts and Tabcorp) upon new licences being granted.
  • Prior to the enactment of the relevant statutory provisions, Tatts had entered into an agreement with the Victorian government under which the State committed to make a payment to Tatts if a new gaming operator’s licence were not issued to Tatts upon expiration of its current licence. (It was agreed that no payment would be due if no licence were issued.)
  • No binding agreement of this nature was entered into between the Victorian government and Tabcorp.
  • The contract between Tatts and the government operated concurrently with the statute – it was not affected by subsequent legislation.

Much of the reasoning of the Court is dependent on specific principles of statutory and contractual interpretation and the detailed wording of the relevant contract and the statutory provisions.  

Yet, due to the complexity of the issues under consideration, a significant number of findings were made by the Court, with many of them being interdependent. Both for this reason and due to the amounts involved, it was anticipated that appeals would be lodged from the Court’s findings. This has proved correct with Tabcorp lodging an appeal on 9 July 2014 – the Victorian Government has also lodged an appeal in respect of the decision in favour of Tatts.