Palmer Bookmaking Pty Ltd v State of New South Wales

Supreme Court of NSW|2024-08-16|Before: McGrath J

of New South Wales [2023] HCA 4; (2023) 97 ALJR 150 University of Wollongong v Metwally (1984) 158 CLR 447; [1984] HCA 74 Walton v Commonwealth Bank of Australia [2020] NSWCA 191 Texts Cited: Office of the Director of Public Prosecutions (NSW), Prosecution Guidelines (March 2021) Category: Costs Parties: Palmer Bookmaking Pty Ltd (Plaintiff) State of New South Wales (Defendant) Representation: Counsel: O Jones (Plaintiff) Z Heger (Defendant)

INTRODUCTION

These proceedings have been brought in the wake of investigations undertaken by Liquor & Gaming NSW (L&GNSW) in relation to the betting accounts of two customers of the plaintiff, Palmer Bookmaking Pty Ltd, which trades as Palmerbet. Those two customers, Serena Hu and Yohan Dias, had each made a complaint to L&GNSW after Palmerbet issued them with "bonus bets" and then suspended their betting accounts, refusing any withdrawal of funds from those accounts unless they provided certain financial and identification information.
Palmerbet commenced these proceedings against the defendant, the State of New South Wales (of which L&GNSW is an emanation) by summons filed 14 June 2024, seeking relief pursuant to s 75 of the Supreme Court Act 1970 (NSW) and/or the court's inherent jurisdiction. The relief sought was a declaration to the effect that, where Palmerbet refuses to permit withdrawals from a customer's betting account in good faith and (among other things) in fulfilment or purported fulfilment, or compliance or purported compliance, with requirements under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act), Palmerbet is not in breach of s 33JA(3) of the Betting and Racing Act 1998 (NSW).
The declaratory relief sought was also framed by reference to the immunities in ss 92(5) and 235 of the AML/CTF Act, being immunities from an action or suit where a person is seeking in good faith to exercise its powers or discharge its obligations under the AML/CTF Act.
Palmerbet discontinued these proceedings by notice of discontinuance filed 17 July 2024. This occurred after the State filed its commercial list response on 27 June 2024, conceding that if Palmerbet refused to permit withdrawals from a customer's betting account in circumstances where ss 92(5) or 235 of the AML/CTF Act applied, then no action, suit or proceeding against Palmerbet for breach of s 33JA(3) of the Betting and Racing Act would lie.
This judgment addresses the issue of the costs of the proceedings, which I have determined in chambers on the basis of the parties' written submissions.
The parties' respective positions on costs as articulated in their submissions can be summarised as follows: 1. Palmerbet submits that the State should pay its costs of the proceedings on the grounds that: 1. L&GNSW's conduct justified Palmerbet commencing proceedings and Palmerbet acted reasonably in doing so; and 2. the State's "admissions" in its list response meant that Palmerbet emerged as the successful party. 1. The State submits that pursuant to r 42.19(2) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), Palmerbet should pay the State's costs of the proceedings up to the date on which Palmerbet filed the notice of discontinuance (17 July 2024) as well as the costs incurred by the State in responding to Palmerbet's costs application. 2. The State further submits that, in light of offers to settle that it made on 28 June 2024 and 29 July 2024, it should be awarded its costs: 1. on an ordinary basis up to and including 28 June 2024 and on an indemnity basis on and from 29 June 2024, based on the 28 June 2024 offer of compromise; or 2. on an ordinary basis, except in respect of the State's costs of responding to Palmerbet's costs application which should be awarded on an indemnity basis on and from 30 July 2024, based on the 29 July 2024 offer of compromise. 1. Alternatively, if the court were to decide that each party should bear its own costs of the proceedings, the State nonetheless seeks orders that Palmerbet pay: 1. the State's costs on an indemnity basis on and from 29 June 2024 based on the 28 June 2024 offer of compromise; or 2. the State's costs of responding to Palmerbet's costs application on an indemnity basis on and from 30 July 2024 based on the 29 July 2024 offer of compromise.
For the reasons outlined below, I have determined that the State should pay Palmerbet's costs of the proceedings.

Palmerbet and its operations

Palmerbet is a family-owned and operated bookmaker, operating under a licence granted to it by Racing New South Wales. Palmerbet conducts its business across Australia and offers betting markets for about 27 different sports in Australia and internationally. Palmerbet is required to comply with a host of legislative and regulatory requirements which differ between the States and Territories.
As part of these requirements, Palmerbet must constantly monitor betting activity and account use across its operations, in order to identify any suspicious matters associated with gambling or integrity concerns. Such matters include unusual activity from problem gambling, match fixing, race fixing, money laundering, cheating, betting by restricted persons, fraud and identity fraud.
On 2 November 2023, Palmerbet adopted its current anti-money laundering and counter-terrorism financing program pursuant to s 81 of the AML/CTF Act. That program sets out the monitoring, risk mitigation and due diligence processes, systems and measures that Palmerbet has in place in order to ensure its compliance with s 81 of the AML/CTF Act and associated regulations. The program also contains provisions that in some circumstances, such as where Palmerbet suspects that a customer may be at risk of engaging in money laundering or terrorism financing activity, Palmerbet will cease providing designated services to that customer, such as paying out winnings, until a further event occurs, which may involve the collection and verification of additional information about the customer.
In the past, Palmerbet has assisted industry regulators with investigations into suspicious betting activities, including the use of a "bowler account". "Bowler account" is a term used in the gambling industry to refer to a betting account that is in the name of a person who is not the same person as the operator or beneficial owner of the account. In those circumstances, the account holder is called the "bowler". Such accounts are frequently used to conceal the identity of the beneficial owner of the account, and ultimately for unscrupulous purposes such as money laundering, matched betting schemes (used to defraud bookmakers by obtaining multiple bonus or free bets for registering new accounts in different names, guaranteeing a profit when used in conjunction with laying bets) and to circumvent betting restrictions.
The common ways in which Palmerbet might identify a suspected bowler account include: the IP information (which identifies the internet location of the person accessing the account) is the same across multiple accounts; there is a suspicious bet type; the same bet is placed by a number of new accounts at the same time; the email address used to open the account does not appear to be an email address that is the primary email address for the account holder; and the account holder is unable to provide basic information associated with the account when requested.
Not all bowler account uses are illegal or give rise to AML/CTF Act concerns; however, where a bowler account is identified, Palmerbet is required to consider what further steps to take under its anti-money laundering and counter-terrorism financing program.
Palmerbet routinely offers incentives to its customers in the form of "bonus bets" which may include a "free bet" (essentially a credit to an account), a "deposit match" (an offer to effectively double the amount of any deposit made into an account) and "concessional bonuses" (a bonus bet that is applied to an account if a certain outcome occurs, that is not a winning outcome).

Serena Hu's Palmerbet betting account

On 2 December 2023, a betting account in Ms Hu's name was activated with Palmerbet (Hu account). On that day, the following sequence of events took place: 1. At 10:19am, a "welcome" email was sent to Ms Hu inviting her to, among other things, verify her account. 2. At 11:02am, Ms Hu's identity was verified via the relevant identity verification process. 3. At around 11:26am, Palmerbet sent Ms Hu a text message with a "bonus bet" offer (SMS bonus offer). 4. At 2:28pm, $100 was deposited by credit card into the Hu account. 5. At 2:56pm, the following bet was placed via the Hu account (Caulfield bet): RACE 6 CAULFIELD - 3. KING MAGNUS. $100 bonus bet @ $5 1. At 3:04pm, Palmerbet unsuccessfully attempted to contact Ms Hu using the mobile phone number listed as the contact number for the Hu account. Following that unsuccessful attempt to contact Ms Hu, Palmerbet blocked online access to the Hu account, setting up an automated prompt to request that the account holder contact Palmerbet upon the next login attempt. 2. At 3:23pm, Ms Hu telephoned Palmerbet. Palmerbet asked Ms Hu about the last bet she had placed using her account. When asked, Ms Hu could not recollect the specific details of the Caulfield bet, including the name of the relevant race or the horse betted on. At the conclusion of the phone call, Palmerbet requested that Ms Hu complete a further verification email.
On 5 December 2023, Ms Hu sent an email to Palmerbet requesting, among other things, that the Hu account be reactivated. In that email, Ms Hu said that if Palmerbet would not reactivate her account, then she wanted to withdraw all funds from it.
On 6 December 2023, Palmerbet sent an email to Ms Hu advising that she was required to further verify her betting account by providing certain documents, including 100 points of identification and a bank statement, and that her account would be suspended if she failed to do so.
Palmerbet asserted that this request for information was issued in response to the unusual circumstance whereby Ms Hu was unable to answer Palmerbet's inquiries about the Caulfield bet over the phone. Palmerbet states that the request for further information was made pursuant to s 92 of the AML/CTF Act, which is in the following terms: 92 Request to obtain information from a customer Scope (1) This section applies to a reporting entity if: (a) the reporting entity has adopted: (i) a standard anti‑money laundering and counter‑terrorism financing program; or (ii) a joint anti‑money laundering and counter‑terrorism financing program; that applies to the reporting entity; and (b) the reporting entity is providing, or has provided, a designated service to a particular customer; and (c) the reporting entity has reasonable grounds to believe that the customer has information that is likely to assist the reporting entity to comply with: (i) Part A of the program; or (ii) if the program has been varied on one or more occasions - Part A of the program as varied. Request to give information (2) The reporting entity may, by written notice given to the customer, request the customer to give the reporting entity, within the period and in the manner specified in the notice, any such information. (3) The notice must set out the effect of subsection (4). Power to discontinue, restrict or limit provision of designated services (4) If the customer does not comply with the request, the reporting entity may do any or all of following: (a) refuse to continue to provide a designated service to the customer; (b) refuse to commence to provide a designated service to the customer; (c) restrict or limit the provision of a designated service to the customer; until the customer provides the information covered by the request. Protection from liability (5) An action, suit or proceeding (whether criminal or civil) does not lie against: (a) the reporting entity; or (b) an officer, employee or agent of the reporting entity acting in the course of his or her office, employment or agency; in relation to anything done, or omitted to be done, in good faith by the reporting entity, officer, employee or agent in the exercise, or purported exercise, of the power conferred by subsection (4).
On 4 February 2024, Ms Hu sent an email to Palmerbet advising that she would only agree to provide a redacted bank statement.
On 5 February 2024, Palmerbet sent an email to Ms Hu stating that she needed to provide documentation in the form specified in its email of 6 December 2023.
It appears that sometime between February and March 2024, Ms Hu made a complaint about Palmerbet to L&GNSW.

Action taken by L&GNSW

L&GNSW is the regulatory authority that administers the Betting and Racing Act.
On 15 March 2024, L&GNSW issued a notice to produce to Palmerbet (first notice to produce), requesting information and records relating to the Hu account and Ms Hu's betting activity, as well as any correspondence between Ms Hu and Palmerbet.
On 19 March 2024, Palmerbet complied with the first notice to produce.
On 16 April 2024, L&GNSW issued a show cause notice to Palmerbet in relation to the Hu account, relevantly stating: … [L&GNSW] refer to the [first notice to produce] and your response to the Notice in relation to a complaint received from Serena Hu … (the complainant) alleging she deposited $100 into her Palmerbet account and was provided with a free bet that was successfully wagered. She alleged that Palmerbet immediately locked her betting account, and she was unable to withdraw her winnings. [L&GNSW] is of the view that this constitutes an offence … [under s 33JA(3) of the Betting and Racing Act] as: 1. The complainant was offered a free bet where the payout from the free bet could not be withdrawn. [L&GNSW] is considering commencing enforcement action for breaches of section 33JA …
By submissions dated 30 April 2024 (April submissions), Palmerbet responded to the show cause notice, saying that L&GNSW should not take enforcement action against Palmerbet because: 1. the Hu account was suspended after Ms Hu refused to comply with Palmerbet's s 92 request by providing a bank statement to verify the source of funds used in the Hu account; 2. the s 92 request was required to be made by Palmerbet under s 82 of the AML/CTF Act, which requires compliance by a relevant reporting entity with any s 81 anti-money laundering and counter-terrorism financing program that entity has adopted; and 3. section 92(5) of the AML/CTF Act operates as an immunity for Palmerbet from any action taken against it under s 33JA of the Racing and Betting Act and, in the event of any inconsistency between a state law and Commonwealth law, s 109 of the Commonwealth Constitution provides that the relevant Commonwealth law (here, the AML/CTF Act) shall prevail.
On 14 May 2024, L&GNSW issued a further notice to produce to Palmerbet in relation to the Hu account (second notice to produce). The second notice to produce requested information from Palmerbet about, among other things, its reasons for contacting Ms Hu and for deactivating the Hu account, including details of any "AML/CTF triggers".
By submissions dated 22 May 2024, Palmerbet responded to the second notice to produce.
Also on 22 May 2024, L&GNSW issued a further notice to produce to Palmerbet (third notice to produce), requesting a copy of Ms Hu's account ledger and specific details of the SMS bonus offer and its issuance.
On 24 May 2024, Palmerbet sent a letter to L&GNSW providing the information requested in the third notice to produce.
On 29 May 2024, L&GNSW sent an email to Palmerbet attaching a penalty notice for non-compliance with s 33JA(3) of the Betting and Racing Act and fine notice in the amount of $15,000.
Palmerbet, through its solicitors (Cadre Moss), elected to have the penalty notice heard in the Local Court of NSW (Local Court proceedings). On 29 May 2024, Revenue NSW sent Cadre Moss an email acknowledging that election and noting that further details about court attendance requirements would be provided.
On 31 May 2024, L&GNSW issued a notice to produce to Palmerbet in relation to the Palmerbet betting account of Yohan Dias (Dias notice to produce) following a complaint lodged by Mr Dias to the effect that he was unable to withdraw a payout from a "free bet" on his Palmerbet account.
On 31 May 2024, Cadre Moss sent a letter to L&GNSW (31 May letter) in which they referred to the penalty notice, asserted that L&GNSW's decision to issue the penalty notice was plainly wrong, and requested that L&GNSW take no further action against Palmerbet in relation to any purported breach of s 33JA(3) of the Betting and Racing Act until the Local Court proceedings were determined. The letter also stated that Palmerbet was willing to arrange for any winnings from bonus bets unable to be withdrawn by a suspended customer consistently with Palmerbet's AML/CTF program to be paid into an escrow account pending finalisation of the dispute between Palmerbet and L&GNSW. Cadre Moss indicated that if L&GNSW did not agree to either of these courses, Palmerbet would seek injunctive relief from this court, and requested a response by 4pm on 3 June 2024.
On 3 June 2024, L&GNSW sent a letter to Cadre Moss in reply to the 31 May letter (3 June letter). In it, L&GNSW stated that a proper construction of s 33JA(3) of the Betting and Racing Act prohibited Palmerbet from offering free bets unless any winnings from the free bets were able to be withdrawn at any time, and that it was for Palmerbet to ensure that its AML/CTF program did not interfere with Palmerbet's capacity to deliver such payouts at any time. L&GNSW also refused to provide an undertaking not to take any further action against Palmerbet under s 33JA(3) of the Betting and Racing Act and indicated that any application for injunctive relief would be vigorously defended.
On 12 June 2024, Palmerbet provided submissions (June submissions) in response to the Dias notice to produce. These were in substantially similar terms to the April submissions, citing the relevant account holder, Mr Dias' non-compliance with Palmerbet's requests for information made in accordance with s 92(2) of the AML/CTF Act and Palmerbet's AML/CTF program and, in turn, Palmerbet's immunity from suit under ss 92(5) and 235 of the AML/CTF Act. The June submissions also noted that Mr Dias was a resident of, and located at all material times in Victoria, meaning that s 33JA(3) of the Betting and Racing Act did not apply to any of the transactions on Mr Dias' Palmerbet betting account. On the evidence before me, it seems that no response to the June submissions was provided by L&GNSW.

Present proceedings

As noted above, Palmerbet commenced the present proceedings by filing the summons and the supporting affidavit of Grant Palmer (a director of Palmerbet) sworn 14 June 2024. The summons sought a declaration in the following form: A declaration pursuant to s 75 of the Supreme Court Act 1970 (NSW) and/or the Court's inherent jurisdiction, that where [Palmerbet] refuses to permit withdrawals from a customer's betting account in good faith: a. by reason of a failure by the customer to comply with a request for information made under s 92(2) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act); and/or b. in carrying out [Palmerbet's] applicable customer identification procedure under the AML/CTF Act; and/or c. in fulfilment, or purported fulfilment, of a requirement under the AML/CTF Act not to continue to provide designated services to the customer; and/or d. in compliance or purported compliance with a requirement under the AML/CTF Act, [Palmerbet] does not act contrary to, and is not subject to any action, suit or proceeding for breach of, s 33JA(3) of the [Betting and Racing Act] because: e. on its proper construction, s 33JA(3) of the [Betting and Racing Act] does not prohibit [Palmerbet] from exercising its powers and discharging its obligations under the AML/CTF Act; and/or f. [Palmerbet] is protected from liability pursuant to s 92(5) of the AML/CTF Act: and/or g. [Palmerbet] is protected from liability pursuant to s 235 of the AML/CTF Act.
That same day, Cadre Moss sent L&GNSW an email attaching the summons and the supporting affidavit. Cadre Moss did not receive a response from L&GNSW.
On 17 June 2024, Stevenson J made orders, among other things, that the summons be returnable instanter, abridging the time for service of the summons and supporting affidavit to 5pm on 18 June 2024, and stipulating that service of those documents on L&GNSW was to be effected by email. Palmerbet served the summons and supporting affidavit on L&GNSW via email later that day.
On 20 June 2024, Cadre Moss sent a further letter to L&GNSW seeking confirmation of Palmerbet's understanding of L&GNSW's position (Palmerbet's 20 June letter), relevantly stating: … 5. We note the following: a. As we understand [L&GNSW's] position, it contends that our client will act in contravention of s 33JA(3) of the [Betting and Racing Act] where it suspends a customer's account, even in circumstances where it takes that action because it is seeking, in good faith, to act in accordance with its obligations under the [AML/CTF Act]. …
On 20 June 2024, the New South Wales Crown Solicitor's Office on behalf of the State sent a letter to Cadre Moss (State's 20 June letter), adopting L&GNSW's position in the 3 June letter and raising, among other things, a series of procedural complaints in relation to the expedited determination of the proceedings in this court as sought by Palmerbet.
On 21 June 2024, Stevenson J made timetabling orders directing Palmerbet to file and serve its commercial list statement by 5pm that day (which it did) and the State to file and serve its list response and evidence by 5pm on 27 June 2024 (which it also did).
The list statement relevantly identified the following issues as likely to arise: 1. Where Palmerbet refuses to permit withdrawals from a customer's betting account in good faith: 1.1 by reason of a failure by the customer to comply with a request for information made under s 92(2) of the AML/CTF Act; and/or 1.2 in carrying out Palmerbet's applicable customer identification procedure under the AML/CTF Act; and/or 1.3 in fulfilment, or purported fulfilment, of a requirement under the AML/CTF Act not to continue to provide designated services to the customer; and/or 1.4 in compliance or purported compliance with a requirement under the AML/CTF Act, does Palmerbet act contrary to, and is Palmerbet subject to any action, suit or proceeding for breach of, s 33JA(3) of the [Betting and Racing Act]? 2. On its proper construction, does s 33JA(3) of the [Betting and Racing Act] prohibit Palmerbet from exercising its powers and discharging its obligations under the AML/CTF Act? 3. In the circumstances set out at B1.1 above, is Palmerbet protected from liability pursuant to s 92(5) of the AML/CTF Act? 4. In the circumstances set out at B1.2 and/or B1.3 and/or B1.4, is Palmerbet protected from liability pursuant to s 235 of the AML/CTF Act?
The contentions contained in section C of the list statement are supportive of these issues, the principal contentions being as follows: … 8. The position of L&GNSW is that where: (a) Palmerbet offers a free bet to the holder of a betting account; and (b) in good faith reliance on its powers and/or obligations under the AML/CTF Act and/or the Program, Palmerbet subsequently refuses to permit the payouts from such free bet to be withdrawn by the holder of the betting account, either at all or until the occurrence of an event or satisfaction of a condition specified by the AML/CTF Act and/or the Program, Palmerbet acts contrary to, and is subject to an action, suit or proceeding for breach of, s 33JA(1) of the [Betting and Racing Act]. Particulars (a) Penalty Notice and Fine Notice issued by L&GNSW to Palmerbet in respect of the betting account of Serena Hu dated 29 May 2024. (b) Letter from L&GNSW to Cadre Moss, solicitors for Palmerbet dated 3 June 2024. 9. The position of L&GNSW as set out at paragraph 8 above is incorrect. 10. On the proper construction of s 33JA(1) of the [Betting and Racing Act] Palmerbet does not act contrary to, and is not subject to any action, suit or proceeding for breach of, s 33JA(3) of the [Betting and Racing Act] where: (a) Palmerbet is purporting to exercise its powers and/or to discharge its obligations under the AML/CTF Act; and/or (b) Palmerbet is protected from liability pursuant to s 92(5) of the AML/CTF Act; and/or (c) Palmerbet is protected from liability pursuant to s 235 of the AML/CTF Act. 11. Alternatively, to the extent that s 33JA(1) of the [Betting and Racing Act] purports to have effect in the circumstances set out in paragraph 10 (a)-(c) above, it is inconsistent with the AML/CTF Act and therefore inoperative to the extent of the inconsistency pursuant to s 109 of the Constitution.
The form of the relief stated in section D of the list statement was precisely the same form of declaration as was sought in the summons.
The list response contained statements of key matters in relation to the allegations and the relief sought by Palmerbet in the summons. Relevantly, [1.2] in section B of the list response provided: … The [State] accepts that, if the circumstances in s 92(5) and/or s 235 of the [AML/CTF Act] applied, then no action, suit or proceeding would lie against [Palmerbet] for breach of s 33JA(3) [of the Betting and Racing Act].
The details of the State's response to the central contentions in [8]-[11] of the list statement are contained in [8]-[11] of section C of the list response. In summary, those responses deny Palmerbet's contentions, disagree with how the State's position was characterised and assert that the matter was hypothetical and there did not exist a state of facts which made it necessary to decide Palmerbet's claim of the inconsistency. Importantly, in [8] of the list response, the State said: 8.1 … 8.2. … in circumstances where [Palmerbet] offers a free bet to the holder of a betting account, and refuses to permit the payouts from such free bet to be withdrawn by the holder of the betting account (either at all or until the occurrence of an event or satisfaction of a condition specified by the AML/CTF Act and/or the Program), the mere fact that it has done so in good faith in reliance on its powers and/or obligations under the AML/CTF Act does not mean [Palmerbet] has not breached s 33JA(3) of the [Betting and Racing Act]; 8.3. however, [the State] accepts that, in circumstances where [Palmerbet] offers a free bet to the holder of a betting account and: 8.3.1. [Palmerbet] refuses to permit the payouts from such a free bet to be withdrawn by the holder of the betting account, but that refusal occurs in good faith in the exercise or purported exercise of the power conferred by s 92(4), then, pursuant to s 92(5), no action, suit or proceeding would lie against [Palmerbet] in relation to that refusal for breach of s 33JA(3); 8.3.2. [Palmerbet] refuses to permit the payouts from such a free bet to be withdrawn by the holder of the betting account, but that refusal occurs in good faith: 8.3.2.1. in carrying out an applicable customer identification procedure under the AML/CTF Act within s 235(1)(c); or 8.3.2.2. in fulfilment or purported fulfilment of a requirement under the AML/CTF Act not to commence to provide a designated service, or not to continue to provide a designated service, within s 235(1)(d); or 8.3.2.3. in compliance, or purported compliance, with any other requirement under the AML/CTF Act, or the regulations, or the AML/CTF Rules, within s 235(1)(e); then, pursuant to s 235(1), no action, suit or proceeding would lie against [Palmerbet] in relation to that refusal for breach of s 33JA(3); and 8.4. … after [Palmerbet] received the Penalty Notice issued by L&GNSW on 29 May 2024, on the same day [Palmerbet] elected for the matter the subject of the Penalty Notice to be dealt with by the Local Court under s 23A of the Fines Act [1996 (NSW)].
On 28 June 2024, the Crown Solicitor sent a letter to Cadre Moss (28 June letter) in which it stated that the State accepted and had never disputed that if Palmerbet refused to permit withdrawals from a customer's betting account in good faith in the circumstances identified in ss 92(5) or 235 of the AML/CTF Act, Palmerbet would be immune from any action for breach of s 33JA(3) of the Betting and Racing Act. The Crown Solicitor commented that it was unclear whether the remaining issue - being whether, on a proper construction of s 33JA(3), Palmerbet could breach that provision by exercising its powers or discharging its obligations under the AML/CTF Act - needed to be agitated, given their concession. They noted that this remaining question was hypothetical in any event, as the Local Court had not made any factual findings that Palmerbet's conduct was such as to engage ss 92(5) or 235 of the AML/CTF Act. The 28 June letter also asserted difficulties with this court's jurisdiction in relation to the alleged constitutional issues of inconsistency, and concluded by enclosing an offer of compromise open for acceptance until 5pm on 5 July 2024, on terms that the proceedings be dismissed and each party bear their own costs (28 June offer of compromise).
Also on 28 June 2024, Ball J made orders fixing the matter for a one-day hearing on 24 July 2024.
On 2 July 2024, Cadre Moss sent a letter to the Crown Solicitor (2 July letter), stating that the "admissions" by the State in the list response had rendered the proceedings effectively otiose, that the remaining question identified in the 28 June letter no longer needed to be agitated, and that L&GNSW's apparent position as disclosed in the 3 June letter (from which it was now purporting to resile) necessitated these proceedings and exposed the State to an indemnity costs claim. The 2 July letter concluded by advising that Cadre Moss were instructed to discontinue the proceedings and seek an order for Palmerbet's costs on an indemnity basis.
Also on 2 July 2024, Cadre Moss sent a letter to the Crown Solicitor via email communicating Palmerbet's rejection of the 28 June offer of compromise.
On 12 July 2024, Cadre Moss sent an email to the Crown Solicitor noting that they had not received a response to the 2 July letter, enclosing a proposed email to the court requesting vacation of the hearing date of 24 July 2024, and attaching proposed consent orders in relation to the issue of costs.
On 16 July 2024 at 10:38am, the Crown Solicitor sent an email to Cadre Moss in response to their email of 12 July 2024, providing a revised form of the proposed consent orders and an amended form of the proposed communication to the court, with the amendments directed to clarifying that the State also intended to seek its costs of the proceedings. The Crown Solicitor indicated that it otherwise consented to the proposed communication to the court being sent.
On 16 July at 1:29pm, Cadre Moss responded to the Crown Solicitor's email proposing a minor further amendment to the proposed email communication to reflect the agreed position of both parties that the court could determine the issue of costs on the papers or at a hearing.
The Crown Solicitor confirmed that it consented to the amendment proposed by Cadre Moss and on 16 July at 2:09pm, Cadre Moss sent an email to the Associate to Ball J in the form agreed between the parties and attaching the proposed consent orders.
That afternoon, Ball J made orders in chambers by consent, including vacating the hearing of the proceedings on 24 July 2024, directing Palmerbet to file a notice of discontinuance and directing Palmerbet and the State to provide submissions on the issue of costs.
On 17 July 2024, Palmerbet filed a notice of discontinuance.
On 26 July 2024, Palmerbet filed and served its submissions on the issue of costs.
On 29 July 2024, the Crown Solicitor sent a letter to Cadre Moss (29 July letter) enclosing a further offer of compromise in respect of the whole proceedings on terms that there be no order as to costs, which was expressed to be open for acceptance until 5pm on 5 August 2024 (29 July offer of compromise).
As of 9 August 2024, Palmerbet had not provided a response to the 29 July letter.
On 9 August 2024, the State filed and served its submissions on the issue of costs.
On 16 August 2024, Palmerbet filed and served submissions in reply.

Costs on discontinuance

Section 98(1) of the Civil Procedure Act 2005 (NSW) (CPA) provides: Subject to rules of court and to this or any other Act - (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
The discretion to award costs under s 98 of the CPA is broad and the section itself is to be construed liberally: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, Gaudron and Gummow JJ at [21]. The discretion is, however, subject to the rules of court, being the UCPR. It is therefore necessary to consider whether there are any rules which would impact on the exercise of that discretion.
Rule 42.1 of the UCPR states: Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.
There was no "event" in the present case because there was no hearing on the merits, such that r 42.1 of the UCPR has no bearing on the exercise of the discretion to award costs. In such circumstances, the court must be careful not to engage in a hypothetical hearing.
This point is emphasised in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6, McHugh J at 624-625 saying (footnotes omitted): In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
There are particular provisions in the UCPR regarding the discontinuance of proceedings and the way in which costs are to be dealt with in such a case. Notably, r 12.1(1) of the UCPR states: The plaintiff in any proceedings may, by filing a notice of discontinuance, discontinue the proceedings, either as to all claims for relief or as to all claims for relief so far as they concern a particular defendant - (a) with the consent of each other active party in the proceedings, or (b) with the leave of the court.
Rule 42.19 of the UCPR has particular application to the determination of costs in discontinued proceedings, relevantly stating: (1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1. (2) Unless the court orders otherwise …, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued. …
Rule 42.20(1) of the UCPR similarly provides "unless the court orders otherwise, the plaintiff must pay the defendant's costs" in relation to proceedings which are dismissed by order of the court.
In Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274, the Court of Appeal of this court considered the operation of r 42.19 of the UCPR. The case involved two neighbours feuding over the access to land of one neighbour to enable the other neighbour to remove trees on that land to stabilise and replace a retaining wall. At first instance, the primary judge granted an interlocutory injunction ex parte to the plaintiff to restrain the defendant's access to the land to remove the trees. When the proceedings did not go to final hearing, the primary judge dismissed the proceedings and ordered the defendant to pay the plaintiff's costs.
The following propositions emerge from the judgment of McColl JA (with whom Beazley and Santow JJA agreed) in Fordyce at [84]-[87]: 1. Rules 42.19 and 42.20 do not create a presumption that upon a discontinuance of proceedings the plaintiff must pay the defendant's costs. 2. Rules 42.19 and 42.20 contain a relevant but not determinative consideration. 3. The costs discretion conferred by rr 42.19 and 42.20 is unconfined. 4. Other relevant considerations are those contained in Lai Qin which are plainly pertinent, although not necessarily determinative.
In Fordyce, Santow JA at [3] added: … the fact of the discontinuance is likely to be a factor of some weight in exercising the discretion to determine whether the discontinuing party should be ordered to pay the other party's costs. While it is true the Court may otherwise order, the onus remains on the discontinuing party to justify such an order by reference to the circumstances said to justify exception to the normal cost outcome in such event. That the Court retains a discretion to accommodate such circumstances does not alter their character as being by way of exception nor the consequence in terms of onus. …
In Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32, the plaintiff was granted leave to discontinue proceedings in the District Court and costs orders were made in favour of the plaintiff against the defendant. Hodgson JA (with whom Tobias JA agreed) at [53]-[54] said: [53] It has been said that UCPR 42.19 does not give rise to a presumption that costs will be ordered against the discontinuing party: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497; Foukkare v Angreb Pty Ltd [2006] NSWCA 335 at [65]. [54] However, like UCPR 42.20, UCPR 42.19 states what the order for costs is to be unless there is a discretionary decision to order otherwise: Australiawide Airlines Limited v Aspirion Pty Limited [2006] NSWCA 365 at [53]. This means there is an onus on the discontinuing party to make an application in respect of costs if it does not propose to pay the costs of the other parties: Foukkare at [65]. In my opinion, it also means that there must be "some sound positive ground or good reason for departing from the ordinary course": Australiawide Airlines at [54].
These principles from Bitannia have been regularly cited and applied since: see, for example, Walton v Commonwealth Bank of Australia [2020] NSWCA 191, Basten JA (with whom Macfarlan and White JJA agreed) at [26] and Nadilo v Eagleton [2021] NSWCA 232; (2021) 250 LGERA 89, Brereton JA (with whom Meagher JA agreed) at [7].
Deputy Commissioner of Taxation v Rhodium Australia Pty Ltd [2011] FCA 988 concerned the issue of costs in the proceedings after the Deputy Commissioner of Taxation as the applicant for an order winding up the defendant company in insolvency sought leave to discontinue at the outset of the hearing. At [3] and [4], Bromberg J cited and applied the principles stated in Lai Qin, stating at [5]: The principles to which I have referred have application in this case. There has been no hearing on the merits but Rhodium can claim to be the successful party as the application against it was withdrawn. For Rhodium to be denied its costs I will need to be satisfied that there is good reason for departing from the ordinary rule. In my view there is good reason as this is a case in which the reasonableness of the conduct of the parties provides the controlling basis for the exercise of the Court's discretion.
Distilling these various principles, I propose to apply the following approach: 1. In accordance with r 42.19(2), unless I order otherwise, the discontinuing plaintiff must pay the defendant's costs (Fordyce, Bitannia and Nadilo). 2. This rule does not give rise to a presumption; it is a relevant but not determinative consideration (Fordyce, Bitannia and Nadilo). 3. There must be some sound or good reason for departing from the position that the plaintiff must pay the defendant's costs (Bitannia, Walton and Nadilo). 4. Other relevant considerations in cases where there is no hearing on the merits are that: 1. the court does not engage in a hypothetical trial; 2. if the court is able to conclude that one of the parties has acted so unreasonably, then the other party should obtain the costs of the proceedings; 3. in rare cases, the court may be confident that, although both parties acted reasonably, one party was almost certain to have succeeded if the proceedings were fully tried in which case an award of costs can be made in favour of that party; and 4. where both parties acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable, the proper exercise of the cost discretion will usually mean the court will make no order as to costs of the proceedings. (Lai Qin applied in Rhodium Australia)

Indemnity costs based on a Calderbank letter

The principles relating to the awarding of indemnity costs based on the failure of a party to accept an offer of compromise contained in a Calderbank letter were set out in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, Giles JA at [37] saying: The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure …
Offers on terms that the parties "walk away" by discontinuing the proceedings (with each party to bear their own costs) may not amount to a genuine offer to compromise: Townsend v Townsend (No 2) [2001] NSWCA 145, Giles JA at [4]-[5]; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375, Handley, Beazley, and Basten JJA at [5]. Such offers, in many cases, have been described as invitations to capitulate, which are distinct from and incapable of amounting to a genuine compromise that it is unreasonable for the offeree to reject (Bignell Pty Ltd v Edenden Pty Ltd t/as Everdry Waterproofing and Coatings [2004] NSWSC 288, Shaw J at [9]; Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3, Gleeson and Leeming JJA and Emmett AJA at [5], applied in Mendonca v Tonna (No 3) [2020] NSWCA 332, Bell P, Meagher and Payne JJA at [24]) - unless, that is, the offering party is truly giving something of value away (see Gideon Rathner as trustee for Garland Lot 4 Unit Trust v Bartlett (No 2) [2023] NSWSC 1166, Ball J at [4]-[6], referring to Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (Bryson and Stein JJA agreeing) at [31]ff).
However, this is context sensitive. Not all offers to compromise on terms that the proceedings be abandoned and the parties pay their own expenses will fall short of genuine offers to compromise. Much depends on the individual circumstances of the case. As observed in Leichhardt Municipal Council by Santow JA at [36], applying GIO General Ltd v ABB Installation and Service Pty Ltd [2000] NSWCA 118, "no error of legal principle exists in holding that a 'walk-away' offer can in a particular case be a 'genuine offer of compromise'". The court's task is to determine whether the particular offer in the circumstances represented a genuine attempt to reach a negotiated settlement as between the parties (Leichhardt Municipal Council, Santow JA at [39]). The litmus test is whether the offeror is giving something up - some advantage in the proceedings - in any real sense (see, for example, Mautray Pty Ltd v Pillemer Pty Ltd [2022] NSWSC 1315, Williams J at [19]).

Palmerbet's submissions on costs

Palmerbet submits that it is the successful party in these proceedings and should be awarded its costs for two reasons: first, because L&GNSW's conduct necessitated its decision to commence proceedings in the first place, and second, because the State's "admissions" in its list response, which departed from L&GNSW's earlier position, justified Palmerbet discontinuing the proceedings.
In support of its claim for costs, Palmerbet refers to L&GNSW's conduct in: 1. issuing the show cause notice notwithstanding Palmerbet's response to the first notice to produce; 2. issuing a penalty notice, notwithstanding Palmerbet's explanation (in its April submissions) that its actions in relation to the Hu account were taken pursuant to its AML/CTF program which had been adopted under s 81 of the AML/CTF Act, and pursuant to Palmerbet's obligations under s 82 of the AML/CTF Act; 3. failing to give the confirmation requested in the 31 May letter that L&GNSW would not take any further action against Palmerbet under s 33JA(3) of the Betting and Racing Act until the Local Court proceedings were determined; 4. asserting in the 3 June letter that Palmerbet would be in breach of s 33JA(3) of the Betting and Racing Act even if it was complying with its AML/CTF Act obligations and the only way to avoid this position would be for Palmerbet to decline to offer any free bets in the first place unless the AML/CTF program contemplates a situation where payouts from such bets are able to be withdrawn at any time; and 5. not admitting in the 3 June letter that Palmerbet would be entitled to the protection of ss 92(5) and 235 of the AML/CTF Act if, in refusing to permit a withdrawal, it was acting in good faith in furtherance of its obligations under the AML/CTF Act.
Palmerbet asserts that at no stage did L&GNSW acknowledge that if Palmerbet was acting in good faith pursuant to its obligations under the AML/CTF Act, then no action could be taken against it under s 33JA(3) of the Betting and Racing Act. Further, Palmerbet contends that L&GNSW's 3 June letter did not admit that Palmerbet had any immunities or protections in circumstances where it was complying, or purporting to comply, with its obligations under the AML/CTF Act by refusing to permit a withdrawal. Palmerbet says, therefore, the State's "admissions" in the list response constituted a significant change of position from that adopted by L&GNSW prior to the issuance of proceedings.
Palmerbet also contends that the State did not dispute or seek to correct Palmerbet's understanding of the State's position, as set out in Palmerbet's 20 June letter, being that Palmerbet will act in contravention of the Betting and Racing Act where it suspends a customer's account in good faith in accordance with its AML/CTF Act obligations. Palmerbet points out that the State's 20 June letter instead referred, without dissent, to the position adopted by L&GNSW in the 3 June letter.
Palmerbet says that it communicated its understanding of L&GNSW's position to L&GNSW on a number of occasions, but at no stage did L&GNSW take any step to disabuse Palmerbet of that understanding. Moreover, it says that L&GNSW had many opportunities to clarify its position but failed to do so.
Palmerbet acknowledges that it would not be entitled to the immunities under ss 92 and 235 of the AML/CTF Act if it were not acting in good faith in furtherance of its AML/CTF Act obligations, but says that L&GNSW has never suggested that there is any proper basis to contend that Palmerbet has acted in bad faith.

State's submissions on costs

In short, the State contends that Palmerbet should pay the State's costs of the proceedings in accordance with r 42.19(2) of the UCPR for the following reasons: 1. Firstly, the State submits that the concessions made in the list response did not represent a complete change in position as it had never actually disputed Palmerbet's construction of ss 92(5) and 235 of the AML/CTF Act. The 3 June letter primarily responded to Palmerbet's broader submission that ss 81 and 82 of the AML/CTF Act were inconsistent with s 33JA(3) of the Betting and Racing Act within the meaning of s 109 of the Constitution, and as such the AML/CTF Act provisions prevailed. The State says that Palmerbet could not properly infer from the 3 June letter, which did not expressly address the application of the ss 92(5) and 235 immunities, that L&GNSW necessarily disputed Palmerbet's construction of s 92(5) of the AML/CTF Act. The State further notes that Palmerbet had not at that stage relied upon s 235 of the AML/CTF Act. 2. Secondly, the State asserts that Palmerbet never sought clarification of L&GNSW's position on ss 92(5) or 235 of the AML/CTF Act or put the State on notice that it intended to commence proceedings in this court of the kind that were commenced. Instead, it says, Palmerbet threatened to seek injunctive relief to restrain L&GNSW from taking any enforcement action against Palmerbet for any future breaches of s 33JA(3) of the Betting and Racing Act, and purported to serve the State with the initiating documents without prior notice to it. The State also says that it would not have been appropriate for L&GNSW to give the undertaking that Palmerbet sought, insofar as any future breaches by Palmerbet would need to be assessed on their merits. 3. Thirdly, the State notes that it served its list response on 27 June 2024, promptly after service of the summons and the list statement upon it on 17 and 21 June 2024 respectively, and at that point made concessions as to the operation of ss 92(5) and 235 - that is, at an early opportunity. The State submits that it was reasonable for it to take a short period of time to instruct the Crown Solicitor and counsel and to obtain advice. 4. Fourthly, the State says that those concessions did not represent a complete victory for Palmerbet and did not render the entire proceedings redundant, as Palmerbet sought a declaration that it would not breach s 33JA(3) of the Betting and Racing Act because, on its proper construction, s 33JA(3) "does not prohibit [Palmerbet] from exercising its powers and discharging its obligations under the AML/CTF Act" (prayer 1(e) of the summons). The State disputed this in its list response, alleging that such a declaration went beyond the protection of immunity from suit afforded by ss 92(5) and 235 of the AML/CTF Act. The State submits that Palmerbet has not provided a satisfactory explanation for why these broader allegations have been discontinued, and that this represents a capitulation on Palmerbet's part. 5. Fifthly, the State argues that the proceedings were duplicative in circumstances where Palmerbet had elected to have the offence the subject of the penalty notice dealt with by the Local Court, pointing to the fact that the Court Attendance Notice (CAN) had not yet been issued and Palmerbet had received advice from Revenue NSW that the CAN would only be issued after further information was provided. The State says that it was open to Palmerbet to allege in the Local Court proceedings that it was protected by s 92(5) and/or s 235 of the AML/CTF Act. 6. Further, pointing to the fact that Palmerbet sought a declaration about the proper construction of ss 92(5) and 235 of the AML/CTF Act, the State submits that the proceedings were hypothetical, unless and until the Local Court found that Palmerbet had actually breached s 33JA(3) of the Betting and Racing Act and was exercising, in good faith, the powers referred to in s 92(5) and/or s 235. In circumstances where the court was exercising federal jurisdiction because of the constitutional issue raised (citing Citta Hobart Pty Ltd v Cawthorn (2022) 276 CLR 216; [2022] HCA 16), the hypothetical nature of the issue meant that there was no "matter" for the court to determine within the meaning of s 76 of the Constitution. In terms of Palmerbet's allegations of inconsistency between s 33JA(3) of the Betting and Racing Act and relevant provisions of the AML/CTF Act within the meaning of s 109 of the Constitution, the State submits that the well-established position is that courts should not decide a constitutional question unless a state of facts exists which makes it necessary to decide the question in order to do justice in the given case and to determine the rights of the parties (citing Mineralogy Pty Ltd v State of Western Australia (2021) 274 CLR 219; [2021] HCA 30 at [56], which in turn cited Lambert v Weichelt (1954) 28 ALJ 282 at 283). The State suggests that unless the Local Court made the above-mentioned factual findings, it was unnecessary to determine the constitutional issue and as such, the proceedings were fundamentally misconceived.
In respect of the 28 June and 29 July offers of compromise, the State submits that: 1. Both offers were made in accordance with r 20.26 of the UCPR, or alternatively framed as Calderbank offers. Neither offer was accepted. 2. While the 28 June offer of compromise does not engage the cost consequences arising under UCPR rr 42.15 or 42.15A (because at the time the offer was made the 'claim' encompassed the entire proceeding, and neither party has obtained judgment on that claim), Palmerbet's rejection of this offer was unreasonable in light of the matters set out in the 28 June letter and therefore sounds in cost consequences at general law. 3. Alternatively, if the court were to order that Palmerbet pay the State's costs, or even that each party bear their own costs, the 29 July offer of compromise - which offered to compromise Palmerbet's claim for its costs of the proceedings - would trigger the consequences under UCPR rr 42.15 or 42.15A. The State would then seek orders that Palmerbet pay its costs on an ordinary basis, except for the State's costs of responding to Palmerbet's costs application, which would be sought on an indemnity basis from 30 July 2024.
As a further alternative, if the court determined that each party should bear its own costs, the State would seek orders, based on the two settlement offers, that Palmerbet should pay the State's costs on an indemnity basis from 29 June 2024, or the State's costs of responding to Palmerbet's costs application on an indemnity basis from 30 July 2024.

Plaintiff's reply submissions on costs

In response the State's costs submissions, Palmerbet maintains that it is the successful party as L&GNSW's conduct led it to form the reasonable belief that litigation was necessary and because the State's position was not the position taken by L&GNSW prior to proceedings being issued.
Palmerbet submits that L&GNSW as a State regulator is responsible for the administration of s 33JA(3) of the Betting and Racing Act, and that certain expectations apply to its conduct in that role, namely: 1. The public is entitled to expect that L&GNSW will understand the meaning and effect of the statutory provisions that it administers, including issues that arise in the betting and gaming context in relation to money-laundering under the AML/CTF Act. 2. Entities that are subject to L&GNSW's oversight, such as Palmerbet, expect that the regulator will be aware of and identify any potential immunities engaged by the conduct under investigation, and consider and apply them where appropriate in making decisions about where and how to exercise its powers.
Palmerbet observes that any breach of s 33JA(3) of the Betting and Racing Act is a criminal offence, meaning that L&GNSW in determining whether to issue a penalty notice under s 35AA of the Betting and Racing Act is acting in the position of a prosecutor and is bound by the duty of prosecutorial fairness (citing Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229, Austin J at [516]-[521]). This includes, Palmerbet notes, a duty to pursue the public interest to ensure that justice is done, and to present its case completely, including in relation to any issues that it might have anticipated the defence would raise. Palmerbet also points to the Prosecution Guidelines issued pursuant to s 13(1) of the Director of Public Prosecutions Act 1986 (NSW), requiring Crown prosecutors to determine whether there are reasonable prospects of conviction, including by considering any defence open to or indicated by the accused.
Palmerbet also notes that the State is expected to act as a model litigant and as such with completely propriety, fairness and in accordance with the highest professional standards, which includes not advancing technical points that rely on a literal interpretation rather than the underlying reality of the situation (citing [3] of the NSW Government, Premier & Cabinet's Model Litigant Policy for Civil Litigation).
Palmerbet submits that the State's position - that L&GNSW did not need to grapple with the AML/CTF Act immunities in determining whether Palmerbet was in breach of s 33JA(3) and whether to bring criminal proceedings against it because Palmerbet did not expressly refer to ss 92(5) and 235 of the AML/CTF Act in its correspondence with L&GNSW prior to issuing proceedings - is wrong for three reasons.
Firstly, Palmerbet expressly referred to these provisions of the AML/CTF Act in the April submissions and June submissions in relation to the show cause notice and Dias notice to produce respectively, which the State acknowledged in its costs submissions. The State, however, did not go on to explain why it did not address the immunities that were being expressly asserted by Palmerbet.
Secondly, and in any event, Palmerbet was not required to expressly refer to these sections for it to be reasonable and necessary for L&GNSW to consider the relevant immunities in determining whether to exercise its powers. Palmerbet consistently explained to L&GNSW its position that it was necessary for Palmerbet to suspend the Hu account in order to comply with its AML/CTF program. This position, so expressed, effectively raised the substantive issue of the application of the immunities in ss 92(5) and 235 of the AML/CTF Act. In those circumstances, it was incumbent on L&GNSW as the responsible regulator under the Betting and Racing Act to address that issue. The State, Palmerbet says, is incorrect in contending that it is only necessary to consider those matters if they are expressly referred to by the person being investigated.
Thirdly, Palmerbet submits that the State's assertion that it was not possible to infer from L&GNSW's position that it disputed the application of ss 92(5) and 235 of the AML/CTF Act is difficult to reconcile with L&GNSW's overall approach. The 3 June letter clearly suggested that Palmerbet would be in breach of s 33JA(3) of the Betting and Racing Act even if it were complying with its AML/CTF obligations, and the only way to avoid this was to not offer any free bets in the first place. That position is different from the State's current position.
In response to the State's submission that Palmerbet capitulated on its statutory construction claim by its discontinuation of the proceedings in their entirety, including the relief sought at prayer 1(e) of summons, Palmerbet says that its statutory construction argument was well-founded and seriously brought. It says that its statutory construction argument was not pursued because of the State's later concessions in relation to the immunities in ss 92(5) and 235 of the AML/CTF Act. Palmerbet submits that abandoning that argument was a reasonable approach for it to take and is not a matter that should be held against it in the determination of costs.
Palmerbet submits that the State's contention that the proceedings were hypothetical or duplicative is obviously wrong and that it was entitled to seek relief from this court rather than waiting for the determination of the Local Court proceedings. In support of that submission, it points to the following reasons: 1. A "matter" within the meaning of s 76 of the Constitution requires an immediate right, duty or liability to be established by determination of the court and Palmerbet had a "real" or "sufficient" interest in obtaining the relief in relation to the issue of potential invalidity of legislation (citing Unions NSW v State of New South Wales [2023] HCA 4 at [15]-[16]; (2023) 97 ALJR 150). Palmerbet says that it is entitled to know "which of two inconsistent laws" it is required to observe in the context of s 109 of the Constitution (citing University of Wollongong v Metwally (1984) 158 CLR 447; [1984] HCA 74, Gibbs CJ at 458). 2. The penalty notice was issued on 29 May 2024, the CAN was issued on 1 July 2024 and the Local Court proceedings listed for a first mention on 2 December 2024. It is not clear when the charge will ultimately be determined, yet every day Palmerbet opens an average of 100 new accounts for customers and about half of those customers are offered a "bonus bet". L&GNSW's original approach, prior to the changed position adopted by the State in the proceedings, meant that Palmerbet was faced with the significant risk that for some of these accounts, money-laundering issues would arise and it would be in the same position of having to decide whether to comply with its obligations under the AML/CTF Act or the Betting and Racing Act. 3. This court has jurisdiction to grant declarations concerning the legality of future or past conduct, even where proceedings are on foot, citing French J (as the former Chief Justice then was) in Crane v Gething (2000) 97 FCR 9; [2000] FCA 45 at [24]-[27]. 4. Lastly, criminal proceedings are only commenced with the issuance of a CAN under s 172 of the Criminal Procedure Act 1986 (NSW), which had not occurred when the summons was issued on 14 June 2024 or the State's list response was filed on 27 June 2024.

CONSIDERATION

I start my consideration with the relevant, but neither presumptive nor determinative, factor that UCPR r 42.19(2) dictates that, unless I otherwise order, Palmerbet is to pay the State's costs of the proceedings. I then turn to other relevant considerations, remaining mindful that (as noted in Lai Qin) it is not for me to consider in any thorough-going manner the merits of the substantive issues raised in the proceedings by conducting a trial of a hypothetical action between the parties.
To my mind, this is a case of the kind described in Lai Qin, where, notwithstanding the lack of an "event" and thus the usual determinative factor in the assessment of costs, I am able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. To use the expression of Bromberg J in Rhodium Australia, the present case is one in which the reasonableness of the conduct of the parties provides the "controlling basis" for the exercise of my discretion as to costs.
In terms of the reasonableness of each of the parties' conduct, I am of the view that: 1. Palmerbet behaved reasonably in instituting the proceedings because it was faced with the significant risk that L&GNSW would take further action against it pursuant to s 33JA(3) of the Betting and Racing Act. This was in circumstances where: 1. Palmerbet had repeatedly explained to L&GNSW in correspondence and submissions that the reason for its conduct in relation to the Hu account was the need to comply with its obligations under its internal AML/CTF program and the AML/CTF Act; 2. L&GNSW did not agree to suspend enforcement under the Racing and Betting Act until determination of the Local Court proceedings; and 3. the State did not acknowledge at any stage prior to making the statements in the list response that if Palmerbet was acting in good faith in compliance with its obligations under the AML/CTF Act, then it would be immune from any action or suit under the Betting and Racing Act. 1. I do not agree with the State's submission that the proceedings were hypothetical and/or duplicative. I consider that Palmerbet's interest in knowing which of two inconsistent laws it was (and is) required to observe in the context of s 109 of the Constitution, in circumstances where it had been issued with the penalty notice, meant that it had a real and sufficient interest in obtaining the declaratory relief sought. Moreover, the proceedings were not duplicative, for reasons including that (as Palmerbet observes in its submissions) the CAN had not yet been issued - and therefore the Local Court proceedings commenced - by the time the summons in these proceedings was filed on 14 June 2024. 2. Palmerbet acted reasonably in discontinuing the proceedings, in circumstances where the State's approach by making concessions in its list response rendered the proceedings redundant. I am satisfied that this was the effect of the State's concession in [B1.2] of the list response, given that the State did not otherwise seek to challenge the lawfulness of Palmerbet's conduct in respect of the Hu account, for instance, on the basis that Palmerbet had acted mala fides. 3. In respect of the above point, I reject the State's submission that Palmerbet's decision to discontinue the proceedings in their entirety represented a capitulation by Palmerbet. The argument that Palmerbet, by prayer 1(e) of the summons, sought, in effect, a declaration that it was acting lawfully, potentially by virtue of the protection of immunity from suit afforded by ss 92(5) and 235 of the AML/CTF Act but potentially also by virtue of some other source, rests on a technical and literal (rather than contextual) reading of the relief sought. I also consider that this submission by the State is difficult to reconcile with its position that the proceedings ought not to have been commenced in the first place because they were hypothetical and/or duplicative. 4. The State acted reasonably in making the statements in the list response 10 days after receiving Palmerbet's list statement and in duly recognising that, given its concessions, there was no need to litigate the issue of statutory construction. This did, however, amount to a late and fundamental change of position by the State compared to that adopted by L&GNSW prior to the commencement of proceedings. 5. If, as the State submits, the State and/or L&GNSW had truly always held the view (or at least not disputed) that if s 92(5) and/or s 235 of the AML/CTF Act applied, no action, suit or proceeding would lie against Palmerbet for breach of s 33JA(3) of the Betting and Racing Act, then it was unreasonable for the State not to put Palmerbet on express notice of that view before filing its list response. 6. The State did not necessarily act unreasonably in refusing to provide an undertaking that it would cease enforcement as a regulator; however, it was still open for L&GNSW to wait until the determination of the Local Court proceedings before issuing the Dias notice to produce. This is because the ruling in those proceedings stood (and does stand) to provide L&GNSW with guidance as to how to proceed in situations of this kind, and specifically in relation to Palmerbet and its practices and procedures for addressing money-laundering and terrorism financing risks.
I do not agree with the State's submission that Palmerbet never expressly relied on ss 92(5) or 235 of the AML/CTF Act, as these provisions are directly referenced in the April submissions and June submissions. Moreover, Palmerbet's 20 June letter sought to confirm its understanding that the State was of the view that Palmerbet would be breaching s 33JA(3) of the Betting and Racing Act even if it was attempting to comply with its AML/CTF obligations. In the State's 20 June letter, the State responded by referring to the position articulated by L&GNSW in the 3 June letter (which did not agree with Palmerbet's views). As a result, the State did not expressly disavow L&GNSW's position, which did not consider whether Palmerbet was immune and indeed maintained that Palmerbet would be in breach of s 33JA(3) of the Betting and Racing Act even if it was complying with its AML/CTF obligations, and the only way to avoid this (and ensure its compliance with both Acts) was to not offer any free bets in the first place.
In all the circumstances, I consider that Palmerbet has demonstrated a good reason that the State should pay its costs, in light of the unreasonableness of the State's conduct.
In assessing the reasonableness of the State's conduct, I have had regard to L&GNSW's role as the regulator responsible for the administration of s 33JA(3) of the Betting and Racing Act and as the prosecutor in the Local Court proceedings, and the expectations which legitimately attach to those roles. I have also taken into account the State's duty, as the defendant in these proceedings, to act as a model litigant. In this connection, I am guided by the long-standing principles applicable to model litigants, to which expression is given in the Model Litigant Policy for Civil Litigation and which requires the State to deal with claims promptly, to not cause unnecessary delay in the handling of claims and litigation, and to keep the costs of litigation at a minimum (Mahenthirarasa v State Rail Authority of New South Wales (No 2) (2008) 72 NSWLR 273; [2008] NSWCA 201, Basten JA (Giles and Bell JJA agreeing) at [22]; Elanor Operations Pty Ltd v Chief Commissioner of State Revenue (No 2) [2022] NSWSC 275, Ward CJ in Eq (as the President then was) at [30]). By reason of the factors outlined above, I am not altogether satisfied that the State has met the standard of the model litigant in this case.
Turning to the State's application for indemnity costs, even if I were minded to award the State its costs, this is not a case which affords any basis for an award of indemnity costs in favour of the State.
The 28 June offer of compromise was made a short time after the State had made its concessions in its list response. The 29 July offer of compromise was made after Palmerbet had already sent the State a letter indicating its intention to discontinue the proceedings based on the State's "admissions" in the list response. It was completely reasonable for Palmerbet to refuse the State's offers of compromise, given: 1. the timing of their issuance; 2. the fact that the terms of the proposed compromises were that the parties bear their own costs; and 3. the State had effectively put Palmerbet to the expense of initiating the proceedings - as it turned out, needlessly.
To use the words in SMEC Testing, a recipient of the offers of compromise could reasonably fail to accept those offers without suffering in costs.
In my assessment, L&GNSW's and the State's conduct effectively forced Palmerbet to incur costs by bringing the proceedings. In the circumstances, I consider that Palmerbet's costs should be paid by the State.

ORDERS

Accordingly, I propose to order that the defendant is to pay the plaintiff's costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 September 2024

Anti-Money Laundering and Counter-Terrorism Financing Act 2006(Cth)

Betting and Racing Act 1998(NSW)ss 33JA(3), 35AA

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