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[2016] HCA 5
appellant. Appeal allowed with costs. Orders of the Court of Appeal of the Supreme Court of Victoria made on 4 December 2014 set aside. In their place, the appeal to that Court is allowed with costs, orders 1...
The High Court ruled that the Victorian Government did not owe Tatts Group nearly half a billion dollars after the gaming duopoly ended in 2012. The 1995 contract only required a 'terminal payment' if the government issued a new gaming operator's licence (the same statutory creature as Tatts already held) to someone else. Changing the entire system to fixed-price gaming machine entitlements allocated to venue operators was not the same thing. The judges emphasised that reasonable business people would have read the contract, the attached Treasurer's letter and the surrounding legislation as assuming the duopoly would continue; if it did not continue, the payment obligation never arose. The Court overturned the lower courts' broader 'substance over form' reading and ordered Tatts to repay the judgment sum plus interest.
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6 cited instruments linked from this judgment.
In the early 1990s Victoria legalised gaming machines through the Gaming Machine Control Act 1991 (Vic) (the 1991 Act). A duopoly was deliberately created by granting 20-year gaming operator's licences to the Totalisator Agency Board (later privatised as Tabcorp) and to the Trustees of the estate of George Adams (Tatts). When TAB was privatised in 1994, Tabcorp received a conjoined wagering and gaming licence under the Gaming and Betting Act 1994 (Vic) together with an express terminal-payment provision. Tatts' position remained less favourable: it had received its licence without payment and had no terminal-payment protection.
To "level the playing field" while preserving the duopoly (subject only to Crown Casino), the State negotiated with Tatts. On 17 November 1995 the parties executed the 1995 Agreement. Recital D recorded that Tatts' business was to be regulated on terms "substantially as favourable" as Tabcorp's. Clause 3 required Tatts to pay an annual licence fee whose present value matched the amount Tabcorp had paid on privatisation. Clause 6 promised regulation on comparable terms for the life of the licence. Clause 7, headed "Compensation", provided that if Tatts' "Gaming Operator's Licence expires without a new gaming operator's licence having issued to [Tatts]", the State would pay the lesser of the "Licence Value" (calculated by a formula referencing the $520 million Tabcorp float) or the premium paid by the new licensee. Clause 7.2 expressly stated that no amount was payable if no new licence issued to anyone or if it issued to Tatts or a related entity. Clause 8 obliged the Minister to use best endeavours to procure legislation that included both the new fee obligation and the terminal-payment obligation and that required any new licensee to pay a lump-sum premium.
The Gaming Acts (Amendment) Act 1996 (Vic) fulfilled that obligation. It inserted ss 33, 33A and 35A into the 1991 Act, mirroring cl 7 almost verbatim and making the premium a tax. The Gambling Regulation Act 2003 (Vic) (the 2003 Act) consolidated the regime. Tatts' licence was transferred to the newly listed Tatts Group Ltd in 2005.
On 10 April 2008 the Premier announced a complete restructure: the duopoly licences would not be renewed after 2012. The 2008 and 2009 amendments gave effect to that policy. Section 3.4.3 of the 2003 Act was inserted to provide that Pt 4 "applies only with respect to the gaming operator's licence that was issued on 14 April 1992 and does not authorise the grant of any further gaming operator's licence". Instead, 27,500 gaming machine entitlements (GMEs) were created with effect from 16 August 2012. These were allocated to venue operators, who paid approximately $981 million to the State. Tatts received no GMEs and conducted no further gaming operations after its licence expired.
Tatts commenced proceedings on 16 August 2012 claiming more than $490 million plus interest under cl 7 of the 1995 Agreement and/or s 3.4.33 of the 2003 Act. Hargrave J at first instance and the Court of Appeal (Nettle, Osborn and Whelan JJA) held that the phrase "new gaming operator's licence" was not confined to a Pt 3 1991 Act licence but extended to any authority conferring "substantially the same rights". They therefore upheld Tatts' claim. The High Court granted special leave and heard the appeal concurrently with the related Tabcorp appeal.
The High Court (French CJ, Kiefel, Bell, Keane and Gordon JJ) unanimously reversed the lower courts because the phrase "new gaming operator's licence" in cl 7 bore its statutory meaning under Pt 3 of the 1991 Act as it stood from time to time. Five interlocking reasons appear in the judgment.
First, textual consistency. Clause 1.3 of the 1995 Agreement provided that words had the same meaning as in the 1991 Act unless the contrary intention appeared. Section 3(1) of that Act defined "gaming operator" by reference to a licence under Pt 3. The agreement used "Gaming Operator's Licence" as a defined term meaning the specific licence issued to Tatts in 1992. The addition of the word "new" did not change the essential statutory referent; the Court presumed consistent usage throughout the instrument. Clauses 5.2, 6 and 8 all employed the phrase in the same narrow sense.
Second, the internal logic of cl 7 itself. The payment was the lesser of "Licence Value" or "the premium payment by the new licensee". Both limbs presupposed a competitive tender for a semi-exclusive right whose market value would be set by bidding. The GME regime, by contrast, involved Minister-fixed prices for geographically and numerically limited entitlements tied to a venue operator's licence. Clause 7.2 reinforced the point: if no new gaming operator's licence issued to any person, no payment was due "whatever the value of infrastructure lost". That provision is irreconcilable with a construction that treats the mere cessation of Tatts' business as triggering compensation.
Third, the commercial context was the duopoly. Recitals A and D, cl 6, and the annexed Treasurer's letter all proceeded on the footing that Tatts and Tabcorp (plus Crown) would continue to share the market. The Treasurer's letter stated that the Government did "not currently intend to grant further gaming licences to persons who are not now authorised" and that any new licence would be granted on "conditions substantially to the same effect" as Tatts' existing licence. Reasonable business people would have understood the terminal payment as amortising the value of the duopoly right that was being transferred to another participant. If the duopoly itself was abolished, that value was not transferred; it simply ceased to exist. The 2009 amendments deliberately ended the duopoly; they did not continue it under another name.
Fourth, purpose. The 1995 Agreement was not an insurance policy against legislative change. The Treasurer's letter expressly reminded Tatts that "the Victorian Parliament has the power at any time to amend existing legislation or pass new legislation". The State had two objectives: to level the competitive field between the two duopolists and to obtain an adequate return from the co-exclusive licence. Both objectives were achieved by the 1995 Agreement and the 1996 Act while the duopoly lasted. The Court rejected the lower courts' view that a narrower construction made "commercial nonsense" of the State's promise; that view overlooked that Tatts' protected commercial interests were limited to the life of the duopoly.
Fifth, the relationship between contract and statute. Clause 8 obliged the Minister to procure legislation that would "include" the obligations in cll 3 and 7 and "give effect to this Agreement". The 1996 Act did exactly that. The Court regarded it as commercially improbable that the parties intended two parallel charters of rights on the same subject matter. Once the obligations were statutorily enacted, the contractual right was spent. Because the statutory trigger in s 3.4.33 (mirroring cl 7) was never satisfied, no payment was due. The Court found it unnecessary to decide whether the 2009 amendments abrogated any surviving contractual right.
Before the 1995 Agreement the law comprised the 1991 Act (Pt 3) and the 1994 Act. The 1991 Act defined a gaming operator's licence by the rights set out in s 14 (supply, installation, conduct of gaming at approved venues, maintenance). The 1994 privatisation gave Tabcorp a terminal-payment right but left Tatts without one. The 1995 Agreement and the 1996 Act altered that position. The 1996 Act inserted ss 33–35A, expressly providing for applications for a new gaming operator's licence after 14 April 2012, a premium payment (deemed a tax), and a terminal payment to the former licensee if the new licence was granted to another within six months. The 2003 Act re-enacted these provisions in ss 3.4.29–3.4.33 with only minor verbal differences and defined "gaming operator's licence" strictly as "a licence granted under Division 3 of Part 4 of Chapter 3".
After the 2009 amendments the landscape changed fundamentally. Section 3.4.3 confined Pt 4 to the 1992 licence and prohibited any further gaming operator's licences. The authority previously conferred by a gaming operator's licence was fragmented: venue operators could now acquire and trade GMEs, but only in conjunction with a venue operator's licence and only for a fixed number of machines at approved venues. The statutory terminal-payment provision remained on the books but its trigger could never occur. The State received $981 million from GME allocations yet made no payment to Tatts. The High Court's construction confirms that the 2009 amendments did not engage either the contractual or the statutory terminal-payment mechanism.
The judgment contains several critical passages that repay close attention.
Clause 7.1 of the 1995 Agreement (quoted at para [22] of the reasons): "If the Gaming Operator's Licence expires without a new gaming operator's licence having issued to [Tatts], [Tatts] shall be entitled to be paid … an amount of money as compensation for the investment in infrastructure lost. This amount will be equal to the Licence Value of the Gaming Operator's Licence or the premium payment by the new licensee, whichever is the lesser."
Plain English: Payment is conditional on two things: (1) the old licence expires and (2) a fresh licence of the same statutory type is issued to someone else. The amount is capped by whichever is smaller—the pre-agreed formula or what the new licensee actually pays. The High Court read this literally: no new licence of that type was ever issued, so the condition precedent failed.
The Treasurer's letter, Schedule 2 (quoted at para [18]): "The Government does not currently intend to grant further gaming licences to persons who are not now authorised to conduct gaming or wagering during the licence period … If the new licensee is not [Tatts], [Tatts] will be entitled to receive from the State capital compensation … It is intended that any new licence will be granted on conditions which include conditions substantially to the same effect as those to which [Tatts'] licence is subject … the Victorian Parliament has the power at any time to amend existing legislation …"
Plain English: The Government is not promising the duopoly will last forever. Any new licence must be the same kind of licence. If Parliament changes the system instead, the compensation clause may never be triggered. The Court treated this letter as part of the matrix, showing that reasonable business people would not have expected compensation if the entire regulatory model was replaced.
The core holding (para [47]): "For the reasons that follow, the phrase 'new gaming operator's licence' in cl 7 of the 1995 Agreement referred to a gaming operator's licence granted under Pt 3 of the 1991 Act (as it might be amended, re-enacted or replaced from time to time). The phrase did not have a generic meaning which covered any statutory authority whose effect was to confer on the holder substantially the same rights as were conferred on Tatts by its gaming operator's licence at the time of its expiration."
Plain English: "New gaming operator's licence" is a term of art tied to the statute. Courts will not stretch it to cover a different regulatory invention (GMEs) even if the practical effect on operators looks similar. This is the ratio that disposed of the case.
Clause 8.1.7 and the "give effect to" language (para [68]): "includes any other provision deemed necessary or desirable to give effect to this Agreement."
Plain English: The legislation was meant to be the operative instrument. Once Parliament had spoken in 1996 and 2003, the contract did not float alongside it as an independent source of rights.
This decision will be triggered whenever a commercial contract in a heavily regulated industry uses a statutorily defined term and the statute is later amended or replaced. Three concrete triggers emerge from the reasoning.
First, the contract expressly or by incorporation adopts the statutory definition (here via cl 1.3 and the defined term "Gaming Operator's Licence"). A party seeking a broader "substance" construction must point to clear textual indications that the parties intended to depart from the statutory meaning.
Second, the commercial context is a statutory duopoly or oligopoly whose continuation is not guaranteed. If the terminal or exit payment is expressed to be contingent on a new licence of the same statutory type being issued to a third party, abolition of the entire licensing category will not engage the clause. The Court emphasised that cl 7.2 would be rendered otiose by any wider reading.
Third, the contract contains an obligation to procure legislation that will "include" or "give effect to" the contractual obligations. In that situation, once the legislation is enacted, the contract is spent unless the statute itself preserves an independent contractual right. Fact patterns that do not trigger the precedent include ordinary commercial contracts without statutory definitions, or contracts that contain an unequivocal "survival" clause preserving rights despite subsequent legislative change.
Practitioners advising on gambling, liquor, broadcasting or other licensed industries should therefore draft exit or compensation clauses with two limbs: one tied to the existing statutory licence and a separate, express fallback if the legislature changes the regulatory model entirely.
Although the judgment is recent, its treatment of the Court of Appeal's reasoning is instructive. The High Court politely but firmly rejected the "would undoubtedly have answered, yes" hypothetical posed by the Court of Appeal. That hypothetical had asked whether reasonable business people would treat any authority conferring "substantially the same rights" as a new gaming operator's licence. The High Court held that the question itself was misframed because it ignored the duopoly context and the Treasurer's letter. Future courts are therefore directed to test commercial purpose against the actual matrix known to the parties rather than an abstract "substance of the rights" test.
The decision also reinforces the Tabcorp companion appeal. Both appeals confirm that terminal-payment provisions tied to specific licensing events do not survive a deliberate legislative decision to abolish the licensing category. Lower courts applying either decision must therefore examine whether the new regulatory mechanism is the statutory successor contemplated by the original bargain or a qualitatively different regime. The High Court's insistence on revenue neutrality for the State (the new licensee must pay a premium that can fund the terminal payment) supplies a practical litmus test that later courts are likely to adopt.
The Court left two significant issues undecided because the construction point was dispositive.
First, the precise relationship between the 1995 Agreement and the 1996 Act remains open. The Court of Appeal had held that the contract was intended to "survive" the legislation and that it would be "commercially improbable" for the rights to be spent once the statute was passed. The High Court noted that this view sat uncomfortably with cl 8 but expressly declined to rule on whether the contractual promise could have created an enforceable obligation independently of statute. That question may engage constitutional issues concerning the power of the Executive to bind the State without parliamentary appropriation—an issue the Court explicitly reserved.
Second, the Court found it unnecessary to decide whether the 2009 amendments abrogated any surviving contractual right. Had the construction of cl 7 been different, it would have been necessary to analyse whether a later statute that abolishes the very licence category referred to in the contract impliedly repeals the compensation obligation. The existence of an express "no further gaming operator's licence" provision in s 3.4.3 suggests that any contractual right tied to the issue of such a licence would be frustrated or abrogated, but that proposition was not finally determined.
A third practical question left for another day is the interaction with the Notice of Contention based on s 3.4.33 of the 2003 Act. The High Court endorsed the primary judge's view that the defined term "gaming operator's licence" in s 1.3(1) left no room for a broader reading that would encompass GMEs. Future litigants in analogous consolidated licensing regimes will need to consider whether definitions that cross-reference specific Divisions can ever be read generically.
These open questions mean that carefully drafted "change-in-law" or "regulatory-replacement" clauses will remain important in long-term regulated industries. The decision is a reminder that courts will not imply a broad compensation obligation where the text, context and statutory history point to a narrower trigger.
Victoria v Tatts Group Limited [2016] HCA 5 2 March 2016 M83/2015
(b) orders 1 and 2 of the orders of Hargrave J made on 27 June 2014 be set aside, and in their place order that the proceeding be dismissed with costs;
(c) the respondent pay the appellant $540,467,887.92 with interest, calculated from 27 June 2014.
W A Harris QC with R G Craig and K A Loxley for the appellant (instructed by Johnson Winter & Slattery)
N J Young QC with P D Crutchfield QC and N P De Young for the respondent (instructed by Clayton Utz Lawyers)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
Contract - Construction of terms - Where contract used statutory term "gaming operator's licence" - Where contract provided for payment to respondent if "new gaming operator's licence" issued to person other than respondent - Where statutory scheme amended so gaming operator's licence could no longer be issued - Meaning of "new gaming operator's licence" - Whether payment due.
Contract - Construction of terms - Context and purpose - Where commercial context regulated by statutory regime - Where letter from member of Executive annexed to contract - View of reasonable business people.
Contract - Construction of terms - Whether pre-existing contractual right operated independently of statutory right on same subject matter - Whether pre‑existing contractual right discharged or abrogated by subsequent legislative enactment.
Words and phrases - "gaming machine entitlement", "gaming operator's licence", "new gaming operator's licence".
Gaming Machine Control Act 1991 (Vic), Pt 3. Gambling Regulation Act 2003 (Vic), Pts 4 and 4A of Ch 3.
FRENCH CJ, KIEFEL, BELL, KEANE AND GORDON JJ. Introduction The legalisation of gaming in Victoria in 1991 by the Gaming Machine Control Act 1991 (Vic) ("the 1991 Act"), the creation in 1992 of a duopoly in the gaming industry in Victoria by the issue of a gaming operator's licence to each of the Totalisator Agency Board of Victoria ("TAB") and the Trustees of the Will and Estate of the late George Adams ("Tatts") for a term of 20 years, the subsequent privatisation of TAB (resulting in the creation of Tabcorp Holdings Limited ("Tabcorp")) in 1994 and the enactment of the Gaming and Betting Act 1994 (Vic) ("the 1994 Act"), as well as the inclusion in the 1994 Act of a "terminal payment provision" in favour of Tabcorp, are explained in the reasons published in the related appeal in Tabcorp Holdings Ltd v Victoria. That factual and legislative history is also relevant to the resolution of this appeal by the State of Victoria ("the State"). This appeal concerns steps taken by the State and Tatts after the privatisation of TAB in 1994. One of those steps was the entry into an agreement between the State and Tatts dated 17 November 1995 ("the 1995 Agreement"). Clause 7.1 of the 1995 Agreement provided for a terminal payment to be made to Tatts "[i]f the Gaming Operator's Licence expires without a new gaming operator's licence having issued to [Tatts]". Clause 7.2 then went on to provide that no amount would be payable if a new gaming operator's licence was not issued at all, or was issued to Tatts or a related entity of Tatts. The principal question in this appeal is whether Tatts is entitled to payment under cl 7.1 because the State allocated gaming machine entitlements ("GMEs") to licensed venue operators under s 3.4A.5 of the Gambling Regulation Act 2003 (Vic) ("the 2003 Act"). The answer to that question turns on whether the primary judge and the Court of Appeal of the Supreme Court of Victoria were correct in concluding that the phrase "new gaming operator's licence" in cl 7.1 was not restricted to a gaming operator's licence granted under Pt 3 of the 1991 Act (as it might be amended, re-enacted or replaced from time to time) but had a broader generic meaning which covered any statutory authority whose effect was to confer on the holder substantially the same rights as were conferred on Tatts by its gaming operator's licence at the time of its expiration. For the reasons that follow, the phrase "new gaming operator's licence" in cl 7 referred to a gaming operator's licence granted under Pt 3 of the 1991 Act (as it might be amended, re-enacted or replaced from time to time). The phrase did not have a generic meaning which covered any statutory authority whose effect was to confer on the holder substantially the same rights as were conferred on Tatts by its gaming operator's licence at the time of its expiration. A "new gaming operator's licence" never issued and Tatts is not entitled to payment under cl 7 of the 1995 Agreement. Structure These reasons will set out the facts, including the relevant provisions of the 1995 Agreement, the legislative history and events subsequent to the 1995 Agreement. The reasons will then turn to the question of the proper construction of cl 7 of the 1995 Agreement. Facts Negotiations with Tatts following the privatisation of TAB Following the privatisation of TAB in 1994, Tabcorp held its conjoined wagering licence and gaming licence under the 1994 Act. Tatts still held its gaming operator's licence under the 1991 Act. The duopoly that had been created in 1992 was retained, but the terms on which Tatts and Tabcorp participated in that duopoly were different. Tabcorp had paid for its conjoined licences and had the benefit of a terminal payment provision. Tatts had not paid for its gaming operator's licence and did not have the benefit of a terminal payment provision. The State wanted to level the playing field between the duopolists (Tatts and Tabcorp) and to divide that playing field between them (with the limited exception of the Crown Casino). The State also wanted an adequate return from the "co-exclusive" licence which had been provided to Tatts and to put Tatts onto a more equal competitive footing with Tabcorp. 1995 Agreement The State entered into negotiations with Tatts. Those negotiations culminated in the 1995 Agreement. The arrangements in that agreement were broadly similar to those which applied to Tabcorp in relation to gaming. The recitals to the 1995 Agreement provided: "A. [Tatts] hold[s] a Gaming Operator's Licence in the [State]. B. Clause 8 of the Gaming Operator's Licence provides for a review of amounts payable by [Tatts] under Section 136 of [the 1991 Act] to the Victorian Casino and Gaming Authority, to be undertaken not later than 1 November 1996. This Agreement when it becomes unconditional constitutes that review. … D. This Agreement recognises that the business carried on by [Tatts] is to be regulated on terms substantially as favourable as the terms regulating the gaming machine business operated by [Tabcorp] or its operator, and is to otherwise have the benefit of the terms of this Agreement. E. The parties have agreed to enter into an arrangement on the terms and conditions contained in this Agreement." (emphasis added) The term "Gaming Operator's Licence" was defined in cl 1.1 of the 1995 Agreement to mean "the gaming operator's licence issued to [Tatts] pursuant to [the 1991 Act]". "[B]usiness" was defined in cl 1.1 of the 1995 Agreement to mean "[Tatts'] gaming machine business carried on in the [State], including the acquisition, supply, installation and operation of gaming machines". Clause 8 of the 1995 Agreement, entitled "Draft Legislation", relevantly provided: "8.1 The Minister will cause to be drafted and will use his best endeavours to procure that the Parliament of Victoria enacts legislation which: 8.1.1 includes [Tatts'] obligation to pay the Minister in accordance with clause 3 of this Agreement; 8.1.2 includes the obligation of the [State] to pay the Licence Value to [Tatts] in accordance with the provisions of clause 7 of this Agreement; … 8.1.6 includes provision requiring the holder of any new gaming operator's licence issued following the expiry of the Gaming Operator's Licence to pay any licence fee by way of lump sum premium upon the grant of the new licence; 8.1.7 includes any other provision deemed necessary or desirable to give effect to this Agreement." (emphasis added) So what were the obligations in cll 3 and 7 of the 1995 Agreement? Clause 3 imposed a new obligation on Tatts to pay the State an annual licence fee. The present discounted value of the annual licence fee payments to the State was substantially equivalent to the amount paid by Tabcorp from the proceeds of TAB's privatisation. Clause 7, entitled "Compensation", cannot be understood without reference to cll 5 and 6. Under cl 5, headed "New Licensee", cl 5.2 provided: "If the Gaming Operator's licence is transferred to, or a new gaming operator's licence is issued to, a related entity of [Tatts] prior to the time at which the Gaming Operator's Licence would expire by effluxion of time, no compensation will be payable to [Tatts] pursuant to clause 7 at the time of such transfer or issue but such related entity will be entitled to the benefit of clause 7 as a permitted assignee or properly constituted successor of [Tatts]." By cl 6 of the 1995 Agreement, entitled "Other Gaming Machine Operator", the State and Tatts agreed that: "… [T]he Minister agrees that for the term of the Gaming Operator's Licence [Tatts'] conduct of the business will be regulated on terms substantially as favourable as the terms regulating the gaming machine business operated by [Tabcorp] or its operator. At the time of entering into this Agreement the share of net machine income retained by [Tatts] is 33 1/3 percent and other terms regulating the business are contained in the Ministerial Directions document dated 28 August 1995 (annexed as Schedule 1). Prior to entering into this Agreement [Tatts] received from the Treasurer of Victoria, and considered, the letter annexed to this Agreement as Schedule 2." (emphasis added) The letter referred to was addressed to Tatts and signed by the Treasurer of Victoria, and stated: "LICENCE PAYMENT FOR ELECTRONIC GAMING MACHINES I am writing to confirm the principles on which the Government of Victoria is reaching agreement with you over the payments relating to your Gaming Operator's Licence. I must, however, make it clear that the statement of principles in this letter does not bind this Government or future Governments and, of course, that the Victorian Parliament has the power at any time to amend existing legislation or pass new legislation affecting your operations or the terms on which those operations are conducted. The principles are as follows:-
Victoria
Tatts Group Limited
Appeal allowed with costs. Orders of the Court of Appeal of the Supreme Court of Victoria made on 4 December 2014 set aside. In their place, the appeal to that Court is allowed with costs, orders 1 and 2 of Hargrave J made on 27 June 2014 are set aside and the proceeding is dismissed with costs. Tatts Group Limited must pay the State of Victoria $540,467,887.92 with interest calculated from 27 June 2014.