(emphasis added)
It will be seen that nothing was expected to be raised from the TAB and the bookmakers looked to be better offer as a result of it.
(b) Clause 8 of the RDA required RNSW to provide race fields information to the TAB. A possible view - one apparently shared by Mr V'landys - was that this might impinge on the ability of RNSW to impose such a fee. His views appear in the table above.
(c) The TAB itself appears to have articulated the need for a 1.5-2.0% fee on turnover as early as November 2007. In a presentation which was tabled at a meeting of the business and strategy committee formed under the RDA, the following was put before the board of RNSW by Mr Nason of Tabcorp:
Ensure that all competitors pay a fair price for the racing products.
Ř Introduce a fee of 1.5-2.0% of turnover on all corporate bookmakers and betting exchanges who wish to publish NSW race fields. The charge should be the same irrespective of the operator's betting model.
(d) I infer the minutes of that meeting, at which Mr V'landys was present, came to the notice of the board. That proposal, in substance, is the one which is now in place. As these reasons will show, the TAB does not pay the fee and only a tiny minority of New South Wales on-course bookmakers pay it either.
(e) The TAB and RNSW share through the RDA a common commercial interest in ensuring that the revenues of the TAB are protected.
(f) In fact, in 2008/09 RNSW refunded the fee paid to it by the TAB in full. It is true that it only refunded 50% of the fee paid by Tabcorp (the Victorian parent). However, the issues relating to the position of that company - which does not operate the New South Wales off-course totalizator - is quite different and, in particular, is complicated by the potential for Victorian race fields legislation. In relation to the company which does operate that totalizator - the TAB - the capitulation by RNSW was complete and discloses no element of compromise. That, of course, is consistent with Mr V'landys' advice to the board that no fee would be recovered from the TAB. The actual sums refunded to the TAB were, in respect of RNSW $13,882,935, in respect of HRNSW $2,587,724 and for GRNSW, $3,354,950. It is true that cl 3(a)(5) of the accompanying Deed of Release says:
The Payment Amount is not a refund or return of any part of Applicable New South Wales Race Fields Fees.
However, there is no other conceivable explanation for why RNSW, HRNSW and GRNSW might give the TAB just under $20 million. I regard the statement in that clause as not according with the actual situation.
(g) This settlement between RNSW and TAB was likely to be repeated in the future. Mr V'landys referred to negotiations between himself and Mr Nason of Tabcorp and to the fact that Mr Nason regarded the Deed of Release as a "template" for the following year. So much appears in an email from Mr V'landys to Messrs Kennedy, Bulloch and Brown of 1 June 2009.
67 I accept that it is possible that the above matters could sustain the opposite inference to the one I am minded to draw. On this view, there is a substantial debate between the TAB and RNSW as to whether the fee has to be returned and what has occurred is not a refund but a compromise of a complex commercial dispute. On that view, the Deed of Release is precisely what it seems to be. There are difficulties with this view, however. There is a gulf between accepting the existence of the dispute contended for and Mr V'landys' (and I infer the board's) plain understanding that it was expected that $0 would be received from the TAB because of cl 8 of the RDA. I detect in the 18 June 2008 board paper simply no trace of the complex commercial dispute now contended for. So too, whilst it is possible that the fact that the fee structure, in its practical operation, is more or less as the TAB suggested in 2007 is an unfortunate coincidence, it seems to me to be more than a little passing strange. Nor do I think that that sense of strangeness or oddity is abated because the proposal itself predated the High Court's decision in Betfair 234 CLR 418 for in its execution it seems not to have been affected by that decision.
68 It is also relevant to note that the conclusion that Sportsbet contends for involves, implicitly, the proposition that RNSW has engaged in behaviour to generate the appearance of having a commercial dispute when, in truth, one does not really exist. That implicit inference is properly to be regarded as a grave conclusion to which the provisions of s 140(2)(c) of the Evidence Act 1995 apply. The significance of that is, of course, the need to take account of the gravity of the conclusion in drawing the relevant inferences. I do so.
69 Be that as it may, I think it is likely - much more likely in fact - that the TAB and RNSW have an in principle understanding or arrangement that the TAB will have the race fields fee refunded to it. I can more comfortably draw that inference in circumstances where no witness has been produced by RNSW about the circumstances in which these payments were made and I do so.
70 I turn then to RNSW's understanding of the position that the on-course bookmakers would be placed in. I infer that RNSW understood and intended that the vast majority of on-course bookmakers would not be economically affected by the imposition of the fee. In his report to the board of 19 May 2008 Mr V'landys said:
The principal changes relative to the previous proposal are:
…
the introduction of a uniform $5 million threshold for commencement of fees - the net impact of which is that most inter-state on-course bookmakers will pay no fees as the turnover of most of those bookmakers on NSW thoroughbred racing will not exceed the $5m threshold. …
71 However, by 10 June 2008 it was clear that this process of ensuring that the bookmakers were not affected would involve more than mere threshold setting. Mr Vance told Mr V'landys on that date in a memorandum:
NSW racing clubs' bookmaker levies
Racing NSW's fee structure is predicated on the assumption that NSW thoroughbred racing clubs will rebate or eliminate their turnover fee to NSW bookmakers who pay the race field levy to Racing NSW. This will require agreement with the clubs. It is understood that the clubs have indicated that they would agree to such a reduction but that agreement has not yet been documented.
72 The footnote attached to that passage says:
The reduction in clubs' turnover-based fees may be one of the factors taken into account by Racing NSW in its proposed scheme of distribution of revenue from race fields fees. The reduction in clubs' turnover based fees for NSW bookmakers in association with the introduction of race fields fees could be argued by persons seeking to challenge Racing NSW's race fields fee structure to result in more favourable treatment for NSW bookmakers than for certain inter-State wagering operators. It is however understood that Racing NSW considers that any incremental legal risk associated with that element of the proposed structure is offset by commercial considerations (including administration of the race fields regime and other commercial considerations).
(emphasis added)
The reference to administration is to be noted; below I conclude that any attempts to justify the thresholds by reference to administration cost are untenable.
73 On 10 June 2008 Mr V'landys met with representatives of the AJC, the STC, the Provincial Association of NSW and Racing NSW Country. He indicated to that meeting, according to draft minutes:
Mr V'landys provided the delegates with an overview of the proposed Race Field Legislation and an update on the status of the proposed regulations under that legislation.
…
It was also pointed out that as the scheme would involve Racing NSW imposing a levy on NSW bookmakers it would be necessary for the race clubs to remove the fee they currently levy on bookmakers operating on NSW racing events. No change will be necessary for fees levied by clubs on interstate meeting turnover.
74 This might suggest an anticipation that an agreement would be reached with the race clubs that they would reduce their levies to diminish or extinguish the effects of the fee. The board was informed, on 18 June 2008, that such an arrangement had been reached with the clubs. Mr V'landys' report of that day (apparently copied from Mr Vance's note) said:
NSW racing clubs' bookmakers levies
- Racing NSW's fee structure is predicated on the assumption that NSW thoroughbred racing clubs will rebate or eliminate their turnover fee to NSW bookmakers who pay the race field levy to Racing NSW. This will require agreement with the clubs. It is understood that the clubs have indicated that they would agree to such a reduction but that agreement has not yet been documented.
75 As already noted, it was on that day - 18 June 2008 - that the board determined to impose the 1.5% fee along with the $5 million threshold. In the circumstances, I regret I am impelled to conclude that it reached that decision knowing at the very same time that it was participating in a compensation arrangement with New South Wales racing clubs the net effect of which, combined with the turnover threshold, was to exempt almost all New South Wales on-course bookmakers from having to pay the fee and that the TAB would have the fee refunded to it. Both these matters were before them at that meeting.
76 Further, just as RNSW's understanding that the TAB would have the fee refunded to it came to pass, so too was it the case that almost no New South Wales on-course bookmakers were affected by this fee. The consequence of the clubs' agreement to reduce their fees together with the $5 million threshold ultimately resulted in a state of affairs where no bookmaker was worse off as a result of the 1.5% race fields fee unless his or her turnover was more than $11.7 million, at least in the case of metropolitan bookmakers. Certainly, this is what RNSW told the racing press as is shown by one of its background briefing notes formulated for the Daily Telegraph.
77 The actual agreement in the case of the metropolitan clubs was that their levies would be reduced from 1% of turnover to 0.33% on the first $5 million and zero thereafter. Again, that is known because of RNSW's background briefing paper to the Daily Telegraph which said just that. The precise agreement in the case of the provincial clubs is less clear. A report tabled by Mr V'landys to the board members at the 21 May 2007 meeting suggested that the provincial clubs levied a fee of 0.5% on on-course bookmakers. I am unable to determine the final fee reduction agreed to by the provincial clubs. However, whatever it was the bottom line effect was clear and, I infer, was the one contemplated by Mr V'landys, namely, the insulation of the on-course bookmakers from the fee.
78 The effect on them was plain. RNSW admitted in its defence that there were 210 licensed thoroughbred bookmakers in New South Wales. Its annual report for 2009 stated that there were 213. A summary document tendered by RNSW suggested that there were 182. I propose to proceed on the basis of the annual report which has the virtue of not having been directly prepared in contemplation of this litigation. I conclude therefore that there are relevantly 213 licensed bookmakers. In Betfair Pty Ltd v Racing New South Wales [2010] FCA 603, I have concluded that there are 267. This disparity is driven by the fact that the pleadings and evidence in the two cases is not the same. The memorandum prepared by RNSW suggests that there are presently 39 licensed bookmakers with turnovers in excess of $5 million which I accept. Only 17 of those are based in New South Wales and one of those is the TAB, which, as I have already indicated, has an arrangement with RNSW whereby the fee is refunded to it. Of the remaining 16 bookmakers, only eight have a turnover in excess of $11.7 million. The number of New South Wales bookmakers paying the fee, therefore, is negligible (in the vicinity of 1%) as is further the number of New South Wales bookmakers who are worse off under the new scheme.
79 Nor do I have any doubt that RNSW always intended to and to the extent presently possible has rebated these fee reductions back to the clubs. There are but two references to this arrangement in RNSW's documents and these are early in the piece. On 20 December 2006 Mr V'landys told the board:
… it will be imperative that [NSW] bookmakers are not double taxed and that NSW race clubs are not adversely affected.
80 He told the board much the same thing on 23 April 2007and informed them that the clubs' levy would be discontinued and that it was necessary for "race clubs to be compensated for the loss of bookmakers' fees from new revenue". I interpolate that "new revenue" must refer to the proceeds of the 1.5% fee. That became explicit on 21 May 2007 when he told the board that fees should be expended "firstly towards reimbursing clubs for the loss of revenue previously generated from the levy on on-course bookmakers (1% metropolitan, 0.5% country and provincial)".
81 Thereafter, discussion of this compensating arrangement disappears entirely from RNSW's documents. There can be no doubt, however, that it remained in play. This is for two reasons. First, it is now obvious that RNSW, although no longer referring to the reduction in the clubs' levies in its internal correspondence, was orally informing the industry of the undertaking. There is little doubt about this because its statements to that effect are recorded in third party documents. Secondly, because it has in fact paid the clubs moneys from the proceeds of the fees in circumstances which make no sense unless such a compensatory arrangement is in place. As to the first matter, Mr V'landys met the AJC, the STC and others on 10 June 2008. The draft minutes of that meeting record, inter alia, Mr V'landys saying:
In addition it was confirmed that the clubs would be consulted in the determination of an appropriate scheme for the disbursement of revenue gained under the race fields proposal. In any event Mr V'landys confirmed that in the 1st instance race clubs should be recompensed for revenue foregone as a result of the abolition of on-course levies.
82 The board of STC met on 13 August 2008 at which time the CEO reported:
We have indicated to bookmakers that we prefer them not to be worse off as a result of this RFL and we may need to reimburse some bookmakers who are worse off. We do not know however how the RFL revenue will be split by RNSW, with the exception that they have verbally advised us that we will be made whole i.e back to the 1% level, however we do not know how the 'overs' will be split
83 The same view appears in the board papers of the STC for 15 September 2008 where it is said:
The difference in revenue … will be made up by RNSW from the 1.5% [fee] they will charge bookmakers betting on NSW races whose turnover exceeds $5,000,000 per annum.
84 I infer from those materials that RNSW reached an arrangement with the clubs to compensate them for the reduction in their levies out of the race fields fee. The absence of any reference to such an arrangement in RNSW's documents after 21 May 2007 tends to the opposite conclusion. I draw the inference nonetheless. There is no reason to doubt the veracity of the documents appearing in the clubs' records. The absence in RNSW's documents may be explained, I think, by a deliberate policy of not referring to the compensation arrangement. That is consistent with the background briefing to the Daily Telegraph which explicitly denied that the compensating was occurring. As to the second matter (namely that RNSW has paid moneys to the clubs from the fee) the following should, at least be noted. By a letter dated 6 January 2009 STC wrote to RNSW in these terms:
I am writing to seek compensation to this club in the form of a further interim distribution of moneys collected by Racing NSW since the introduction of the Racefields Legislation.
You will recall my previous advice that it is this club's intention to assist on-course bookmakers where ever possible and since the introduction of the legislation we have reduced the 1.0% turnover tax on NSW races to 0.33% for all bookmakers whose turnover is below the net $5,000,000 threshold mentioned in the legislation and to 0.00% for those whose NSW turnover is above net $5,000,000.
The amount requested is $141,364.95. This represents the difference between what would have been collected from a net 1% turnover tax and the net 0.33% on NSW racing and, from those bookmakers who have exceeded the net NSW threshold from meetings held in the period 1 November 2008 to 27 December 2008. For your information I have attached a spreadsheet which details the amount requested.
With your agreement I will send a similar request at the end of February 2009.
I look forward to your favourable response.
85 Mr V'landys wrote to the STC on 18 March 2009 in these terms:
Gents,
As you are aware, the New South Wales State Government introduced the Race Fields Legislation in order to ensure that all wagering operators who use New South Wales race fields contribute to the racing industry and the costs of New South Wales racing events. Racing NSW appreciates that it is essential to the development and sustainability of the NSW Thoroughbred racing industry that fees that Racing NSW receives pursuant to the Race Fields Legislation be available for distribution to the industry participants.
As you are no doubt aware, Betfair and Sportsbet have commenced Federal Court proceedings challenging the validity of the fees imposed under the Race Fields Legislation. Whilst Racing NSW is confident that the validity of the fees imposed under the Race Fields Legislation will ultimately be upheld, those proceedings (including any appeals) may not be finally determined until sometime in 2010. The nature of the orders sought by Betfair and Sportsbet and the payment of fees under protest by some wagering operators restricts the ability of Racing NSW to distribute much needed funding to the NSW Thoroughbred racing industry.
Racing NSW recognises that this restriction caused by the Federal Court challenges of Betfair and Sportsbet places many clubs in financial hardship, particularly in these testing economic times. In an effort to lessen such financial hardship, Racing NSW intends to release an amount of $1,000,000 to NSW race clubs. Whilst that distribution is made from the fees received pursuant to the Race Field Legislation, Racing NSW will underwrite that distribution from its accumulated surpluses in the unlikely event that Racing NSW is required to repay fees received under the race field legislation.
The distribution to your Club is $320,640.65 inclusive of GST.
86 It is difficult to know what to make of this chain of events. Clearly the STC understood itself to be asking for compensation of the very kind which RNSW appeared to have contemplated and promised. On the other hand, Mr V'landys' letter makes it appear that the money is compensation for harm engendered by the persistence of this litigation rather than, as the STC seemed to think, the loss suffered by the deliberate reduction by them of their levies at the request of RNSW. The two appear to be talking about somewhat different things. Yet, the numbers appear roughly to equate on a month by month basis. Then again, this may be a coincidence.
87 However, I am not convinced by Mr V'landys' interpretation of events as it is not clear to me what the harm being caused by the non-distribution of the race fields fee could be since none of the clubs were receiving any such fee prior to its introduction. The only way to make sense of this is if the clubs were looking forward to a share of the fee and had reduced their own levies in anticipation of that. It is possible, I suppose, that the clubs had decided, serendipitously, independently to aid the bookmakers without RNSW becoming aware of this. However, the difficulty is that the evidence is to the contrary.
88 This conclusion that that is what Mr V'landys' letter is, in truth, discussing is consistent with the STC's request for payment. Further it suggests the existence of an antecedent understanding that the reduction in fee was to be compensated.
89 I conclude that RNSW intended, in part has, and intends in the future to compensate the clubs for the reduction in fees charged by them to on-course bookmakers.
90 My conclusions therefore are:
1. RNSW intended that almost all of New South Wales' on-course bookmakers would not be economically affected by the fee and that this would be achieved through the $5 million threshold and by the simultaneous reduction by the clubs in their levies;
2. RNSW agreed or arranged with the clubs that it would compensate them for the loss of their revenues arising from that reduction out of the proceeds of the race fields fee;
3. RNSW has done so; and
4. RNSW intends to do so in the future.
91 I have wondered whether the documentary records is not perhaps also consistent with some other less adverse conclusion, but the other theories are simply less plausible. For example, I cannot accept any of the following:
(a) that the threshold was driven by desire to keep administration costs down. I reject this for six reasons. First, no evidence was advanced to support it and it was ultimately no more than assertion from the bar table. Secondly, the fee foregone on $5 million of turnover is $75,000 (1.5%) and I cannot accept that the administration costs involved in processing an application for an approval, by any stretch of even the most fertile imagination, can approach figures in that vicinity. Thirdly, it is evident that a much lower threshold of $250,000 was earlier contemplated which makes it difficult to accept that the fee could be about administration costs without some evidence explaining why a twentyfold increase occurred. Fourthly, the actual cost of collecting the fees was reported in RNSW's 2009 Annual Report, which was in evidence and was modest at $36,641. Fifthly, if the measure were truly about administration costs it would not operate as a threshold; rather, the fee would not become payable until the $5 million level was reached, but, once reached, the fee would be due on the whole amount. Sixthly, all operators are in any event required to lodge applications even if the amount of their turnover is below the threshold so that the suggested administration saving appears illusory. There may be answers to some of these matters. No evidence was called to provide those answers;
(b) that the thresholds were selected to catch the large operators but to leave the smaller ones alone regardless of their location. It was said, for example, that the percentage of interstate bookmakers who were over the threshold was roughly the same as the percentage of New South Wales bookmakers over the threshold. That submission rested upon an argument that there were only 182 licensed bookmakers in New South Wales which I have rejected finding instead, based on RNSW's annual report, that there are 213. That conclusion damages the arithmetic upon which the argument is premised. Quite apart from that problem, however, the argument is detached from the documentary record which shows, rather, an anxiety to protect the position of New South Wales' bookmakers to the extent of even going so far as to put in place a compensatory arrangement. Further, there is no evidence - rather than submission - to support it. The numbers do not reveal a similar breakdown between interstate and out-of-State operators. But even if they did that fact would not prove that RNSW was seeking to achieve that end. Coincidence of outcome does not dictate coincidence of purpose;
(c) the clubs were mistaken in thinking that RNSW had agreed that they should be reimbursed. One could not embark upon that view without someone giving evidence from RNSW to contradict what appears to have been the understanding of the clubs.
92 For those reasons the only real inference open on the documents is the one I have indicated above at paragraph [90]. I do not think that the contrary inferences are really plausible. I may more confidently draw the inference I have drawn above in circumstances where RNSW has not called any witnesses to provide any support for its asserted case and I do so.