Clubs New Zealand Incorporated v Minister of Internal Affairs
[2014] NZHC 679
•8 April 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2013-485-664 [2014] NZHC 679
UNDER an application for review under the
Judicature Amendment Act 1972
IN THE MATTER OF
the responsible Ministers' recommendation of the Problem Gambling Levy under the Gambling Act 2003 and reliance on the
2012 Gambling Commission report
BETWEEN
CLUBS NEW ZEALAND INCORPORATED Applicant
AND
THE MINISTER OF INTERNAL AFFAIRS AND THE MINISTER OF HEALTH
First Respondents
AND
GAMBLING COMMISSION Second Respondent
AND
THE MINISTRY OF HEALTH Third Respondent
Hearing: 19-20 February 2014 Counsel:
H A Cull QC and J W True for for Applicant
K M Muller and N C Anderson for First and Third Respondents
C P Browne and S E Kuper for Second RespondentJudgment:
8 April 2014
JUDGMENT OF SIMON FRANCE J
CLUBS NZ INC v MINISTER OF INTERNAL AFFAIRS AND THE MINISTER OF HEALTH [2014] NZHC
679 [8 April 2014]
Introduction
[1] The Gambling Act 2003 (the Act) provides for the establishment of what is termed an integrated problem gambling strategy. It is funded by a levy imposed upon providers of gambling products. The strategy is revised each three years at which time the likely cost of the three year programme is established, and the levy set accordingly by regulation.1
[2] There are four groups in the gambling industry that fund the levy – casinos, lotteries, racing, and gaming machines. The gaming machine sector refers to all venues which house gaming machines other than casino venues. In practice this means pubs, and non-commercial clubs.
[3] Each group’s share of the market is a key determinant of what portion of the levy it pays. But there is a second key factor, namely the proportion of problem gamblers attributable to each group.2 The gaming machine group has the biggest share of the market, but it also has the biggest share of problem gamblers, and indeed has a disproportionately high share. This disproportion means that of the $54 million needed to fund the problem gambling strategy for the next three years, the gaming
machine sector will contribute $31 million, or nearly 60 per cent, even though its market share is around 40 per cent.
[4] As noted the gaming machine group is made up of pubs and non-commercial clubs. For many years clubs have sought to be split from pubs for the purposes of the levy calculation because they say it is the pubs that are responsible for the high problem gambling figures. The clubs argue that the figures show that their proportion of problem gamblers is considerably less than their share of the market. By being grouped together with pubs for the purpose of the funding calculation,
clubs are paying too much and are not being rewarded for their superior gambler care
1 Gambling (Problem Gambling Levy) Regulations 2013.
2 Problem gamblers is a convenient shorthand for the purposes of this judgment but it is misleading. The correct description would be people who present to social services or gambling addiction services with issues arising from gambling. The person presenting may be the gambler but could also be a family member. The inquiry which creates the statistics used for the problem gambling levy is whether the gambling is causing harm.
practices. Clubs provide a safer gambling environment that carries less risk of excess, but there is no recognition of that.
[5] In both the 2006/2007 and the 2009/2010 levy setting process, it seemed the clubs were making headway. The signs were that the split would be implemented for the 2012/2013 exercise, and clubs would pay a lower rate. However, two factors emerged to cause the decision makers to not proceed with a split. First, the Inland Revenue Department (IRD), which is responsible for collecting the levy, said its software could not accommodate the change and there was no money to modify it. Second, the most recent figures suggested that the problem gambling figures associated with clubs were increasing to an extent that undermined the basic argument.
[6] Accordingly, the 2013 levy was set using the same four groupings as had always been used. The plaintiff brings these proceedings seeking to have the underlying decisions invalidated, and the Gambling (Problem Gambling Levy) Regulations 2013 quashed. Boiled down to their essence, there are two complaints:
(a) decision makers were wrong to have regard to the incapacity of IRD
software to accommodate a split levy; and
(b)decision makers were in error or misled about the significance of the latest figures. Alternatively the plaintiff was inadequately consulted in that it never had an opportunity to respond to the particular interpretation that decision makers were placing on these figures.
The relevance of IRD advice
[7] I deal with this first because a decision unfavourable to the plaintiffs is determinative of the proceedings.
[8] The levy is just one part of the three yearly requirement to settle a problem gambling strategy. Section 318 of the Act sets out the procedure to be followed in settling the strategy. Responsibility for the exercise rests with the Ministry of Health who begin the process by releasing a consultation paper. That paper will contain the
draft strategy, an estimate of its cost over the three years, and an indication of what share of the cost will be levied against each group. In estimating each group’s share, the Ministry is required to use the formula set out in s 320. As noted the key factors in that formula are market share and problem gambling presentations.
[9] Section 318(1)(h) identifies groups with whom the Ministry must consult. It is an unremarkable list containing what one would expect – the four gambling operator groups, the organisations that provide problem gambling services and anyone else thought to be affected. Of some interest to the present dispute, the section splits the gaming machine group by expressly requiring consultation with operators both in commercial and non commercial venues.
[10] Once consultation is complete, the Ministry prepares a final strategy report. The report is to be presented to the responsible Ministers (Health and Internal Affairs) and to the Gambling Commission.
[11] Up to this point it is the Ministry of Health that runs the process. This emphasises that the first stage is about settling the overall integrated problem gambling strategy. The Gambling Commission’s role comes next and is more circumscribed. Having received the Ministry’s report, the Commission is then
required to report to the responsible Ministers with recommendations:3
… on the total annual amount of the problem gambling levy for the relevant
3 year period and the levy rate for each gambling sector …
[12] Before doing so, the Commission must also hold a consultation round. The specified groups with which it must consult include the Ministry of Health, the Department of Internal Affairs which administers the Act, “one or more” representatives of providers of problem gambling services and gambling operators, and any other group likely to be significantly affected.
[13] The Commission’s role is very much focussed on the funding issue. The structure of the Commission’s reports to the Ministers reflect this, for they
3 Gambling Act 2003, s 318(5).
sequentially follow each step of the statutory formula and conclude each section with a recommended figure for that part of the formula.
[14] The third step in the process is the actual decision on the levy which is a decision vested in the responsible Ministers. This decision is then reflected in the advice provided to the Governor General for the making of regulations. The only statutory requirement on Ministers is to have regard to the report submitted to them by the Gambling Commission.4 Inevitably in this process, however, there emerge departmental briefing papers for the Ministers, and papers by the Ministers to relevant Cabinet committees.
[15] Against that background I turn to the issue of IRD’s incapacity to accommodate a split levy. As noted earlier, the clubs had for some time been agitating for the split. The topic was discussed in 2006/2007, and again in
2009/2010. There appeared to be support from both the Ministry and the Gambling Commission, and there was a basis in the various comments for the clubs to think that the 2012/2013 round would see the split happen. To be fair, however, every positive statement over these preceding years was qualified by the observation that the statistics would have to continue to be favourable.
[16] Recalling that the review process begins with the Ministry of Health issuing its consultation document, that 2012 document was the first opportunity for the clubs to learn what was contemplated. The answer was not positive. The Ministry noted that the evidence continued to support a split. However:5
… the Inland Revenue Department advises that, given its current work programme, it has no capacity over the next three years to implement such an initiative requiring significant changes to its IT systems. As a result, this consultation document does not propose splitting the NCGM [gaming machine] sector into two sectors.
[17] The consultation process then took place following which the Ministry issued its final report. In the Ministry’s final report it was noted that two groups
representing clubs, and a gambling harm service provider, had continued to argue for
4 Gambling Act 2003, s 319(1).
5 Ministry of Health Preventing and Minimising Gambling Harm: Consultation Document
(Ministry of Health, Wellington, 2012) at [2.3.1].
a split on the basis that a split would recognise the clubs’ greater efforts to minimise harm, and would incentivise other groups to do likewise. However, the Ministry advised that the latest figures which had come to hand subsequent to the issuing of its consultation document were not supportive of a split. It noted that to the year ending 30 June 2012, the club share of problem gambling referrals had risen to
12.8 per cent which is close to its market share. This undermined the case for splitting, and anyway meant little benefit would accrue to clubs from a split.
[18] Of IRD’s incapacity to accommodate a split, the final report noted:6
IRD has confirmed that it does not have the capacity to create a separate club NCGM sector. The Ministry does not propose the creation of a separate sector for that reason, because the evidence for the split is more equivocal than it was when the consultation document was released, and because such a split might achieve very little.
[19] The next stage was the Gambling Commission. Recalling that its function is to recommend to Ministers:7
... the levy rate for each gambling sector or each gambling operator or each class of gambling operator that is subject to the levy
it would seem open to the Commission to recommend there be five sectors recognised for levy purposes. So whether to reorganise the groupings of those who pay the levy is definitely something within the Commission’s jurisdiction, although the ultimate decision will be that of the Ministers.
[20] The Act itself does not prescribe any levy groupings. However, for the purposes of the initial levy, the Act said it was to be payable by the following gambling operators:8
(a) the New Zealand Racing Board;
(b) a gaming machine operator;
6 Ministry of Health Preventing and Minimising Gambling Harm: Proposed Service Plan and
Levy Rates for 2013/14 to 2015/16 (Ministry of Health, Wellington, 2012) at [2.2].
7 Gambling Act 2003, s 318(5).
8 Section 321(1).
(c) a casino operator; and
(d) the Lotteries Commission.
[21] The Act is silent on whether individual operators within (b) and (c) must pay the same level of levy. However, practicalities and administration costs will inevitably play a part, particularly when it is considered that however the groups are divided up, the end result in terms of overall money collected will not change. It is really just a question of how individualised one goes in apportioning payment obligations. As another example of potential individualisation within the gaming machine sector, the New Zealand Racing Board has also unsuccessfully sought separate status for gaming machines that are located in its betting shops. So potentially the gaming machine sector could be divided into three. Likewise, presumably from time to time a case could be made to levy individual casinos separately.
[22] As noted, prior to 2012 the Commission had, like the Ministry, seemed supportive of recommending the pub/club split. However, its 2012 report to the Ministers mirrored the Ministry’s changed position. The Commission recommended four levy groups, observing:9
The Commission’s position on this issue [club/pub split] is this. The IRD has stated that it does not have the capacity to create a separate non-commercial NCGM sector over the next three years. The issue whether the NCGM sector should be separated for levy collection purposes is, therefore, moot – it cannot be done.
[23] Earlier the Commission had noted the Ministry’s concerns over the latest figures in relation to problem gamblers associated with clubs, and observed that a three year deferment of the split would allow an assessment of whether the recent higher figures were an aberration, or not. The matter could be reconsidered in 2015 by which time the IRD may have capacity.
[24] The next stage of the process is the Ministers who make the decision. For the purposes of these proceedings the Hon Peter Dunne MP has sworn an affidavit.
9 Gambling Commission Report on the Proposed Problem Gambling Levy: 2013–2016, (20 November 2012) at [10.4].
Mr Dunne was associate Minister of Health at the time with responsibility for problem gambling issues. As it happens he was also the Minister of Revenue.
[25] Mr Dunne said the issue of a split was a matter to which he paid close attention. He was aware that IRD collected the levy and had advised there were significant difficulties with implementing a split. Mr Dunne deposes that he was aware IRD could not implement the split unless Ministers were prepared to make specific tradeoffs within the IRD work programme that had previously been settled with the endorsement of the Minister of Finance.
[26] Mr Dunne advises that he took the IRD issue into account only from the viewpoint of whether it was reasonably practicable to collect the levy from two different gaming machine operators. He did not see it as a calculation difficulty, just a collection one. Mr Dunne notes that the issue makes no difference to the amount of money collected, nor to the effectiveness of the problem gambling strategy. In terms of the Act’s purpose he considered that the impact of a split would be neutral.
[27] Mr Dunne notes that s 319(3)(g) of the Act, the regulation making power, allows regulations to prescribe for any matters that are necessary or desirable “to calculate, administer, collect, and enforce the levy”. As a consequence he considered difficulties in collecting a split levy were relevant. In the Minister’s opinion:
... the costs of the proposal to split the non casino gaming machine into two sectors for problem gambling levy purposes including the opportunity costs of doing so outweighed the limited potential benefit, particularly since that potential benefit was uncertain at best.
[28] The reference to opportunity costs is a reference to what would be lost if an existing priority were delayed to allow resources to be redirected to the IT project required to enable a split levy. The reference to uncertain benefits is a reference to the minimal gains that would ensue to clubs if the present higher problem gambling figures continued. The more even the figures for market share and problem gamblers are, the less clubs would gain. If, of course, the problem gambling figures exceeded market share, a split would potentially be disadvantageous.
[29] The plaintiff contends that it was incorrect for the Ministry, the Gambling Commission and the Ministers to have regard to IRD’s incapacity. It is submitted that the capacity of IRD to collect a split levy is not a statutory consideration, and IRD is not a party to be consulted under s 318. In the plaintiff’s written submissions, as well as claiming it to be an irrelevant consideration, the idea is introduced that there was an inadequate inquiry by the Ministry and the Commission into what IRD was saying, and it is said that evidence has subsequently emerged to suggest it is possible to collect a split levy.
[30] It is claimed that in giving weight to the IRD incapacity all three decision makers have abdicated their statutory responsibilities by allowing the collection issue to determine their decisions. Finally, it is said that all decision makers have exercised their decision making powers for an improper purpose, namely accommodating the administrative needs of IRD.
[31] In my view the objection to the decision makers having regard to IRD’s capacity to collect a split levy is flawed regardless of the head of review under which it is raised. It would be inconceivable for the issue to be ignored and there is nothing that supports the proposition that the decision makers should do so.
[32] Looking at the statute, those who the Ministry must consult are listed in s 318(1)(h). As has been seen, the last of these mandatory consultees is “anyone likely to be significantly affected by the strategy”. Since IRD has been required by successive regulations to collect the levy, it might be thought it is an organisation that must be consulted. Alternatively, it can equally be observed there can be no suggestion that s 318(1)(h) creates an exclusive list of consultees outside which the Ministry cannot go. The Act does not say “must only consult” and it would be unusual to suggest a provision such as this prevented wider consultation where that was thought necessary and appropriate. Once that is accepted, ascertaining and giving weight to the capacities of the organisation charged with collecting the levy would seem an obvious consideration. These observations apply equally to the consultation obligations on the Commission, and no separate comment on that is needed.
[33] More generally concerning the relevance of the IRD information to the Commission, it is charged with recommending to Ministers the quantum of the levy, and the proportions to be paid by all gaming operators. In recommending a package that delivers the total money required, it would be impractical if the Commission could not have regard to the logistics and costs of the different options of allocating the levy. Plainly the ability to implement the various collection options, and the respective cost of each, must be a consideration.
[34] As for the Minister, in my view the passage earlier cited from Mr Dunne in which he sets out his conclusion highlights that the comparative costs of different levy options must be a legitimate consideration.10 Concerning the proposition there has been an abdication of function by the decision makers, the reality is that it is not IRD preventing the change or taking the decision. Rather, information emerged from the collection agency that one of the levy options could not presently be
implemented without the expenditure of considerable, and presently unavailable, resources on IT. It must be the case that it is permissible for the responsible Ministers to assess whether it is possible, and desirable, to obtain the resources required to enable a split levy. The contrary proposition is untenable.
[35] It is correct, as Mr Dunne observes, that the regulation making power refers to collecting the levy as a matter for which regulations may provide. Although one could establish in this way the relevance of having regard to IRD’s capacity to collect the levy, it is not necessary to do so. The relative collection cost of different levy options must inherently be a relevant consideration for Ministers, and thereby equally relevant to those charged with making recommendations or providing information to the Ministers.
[36] That is enough to dispose of the point but I observe it is not correct to say decision makers allowed the collection difficulties to overwhelm their analysis of the issue. The Ministry in its consultation paper, despite not recommending a split, identified the evidence favouring a split. Then, in its final report the Ministry discussed why the new statistics diminished the case for a split. Likewise, although
the Commission clearly saw IRD’s incapacity to collect a split levy as determinative,
10 Above para [27].
that did not stop it from commenting on the merits of the proposal. The Commission noted the door was still open, and that the position could be reviewed in three years time if IRD capacity changed and the recent unfavourable figures proved to be an aberration. It (sensibly with respect) observed that a deferment of three years would allow an opportunity for more clarity around the recent figures.
[37] Similarly, it is clear the Minister considered the topic, and assessed the resourcing difficulties against the purposes of the levy and the impacts on clubs of not splitting the sector. Accordingly, the plaintiff’s complaint that the collection difficulty overwhelmed other analysis is not correct.
[38] For completeness I record that I did not accept the plaintiff’s submission that the evidence showed there had been either inadequate inquiry into the IRD position, or that it has now emerged collecting a split levy was possible. Concerning the first criticism, the respondents’ deponents refer to discussions with IRD about the issue and I see no basis to conclude those discussions were inadequate to establish the position that the collection agency did not presently have the IT capacity.
[39] As for the proposition that collection of a split levy is possible, the plaintiff is reading too much into the evidence filed on behalf of IRD. It is there explained that the vast bulk of tax payer data is processed through a primary computer system which does not have the capacity to accommodate a split levy. However, it is acknowledged there is a sub-system which is used to collect some levies (those involving less than 10 returns a month). The plaintiff appears to be fastening on this sub-system as an option, but the deponent does not resile from the correctness of the advice provided by IRD, and there is no evidence to suggest the contrary is true. Although the levy rate is set for a group, it is the individual gaming machine operators who each pay the levy monthly. Their number will greatly exceed 10, which is the current scope of the sub-system.
[40] The conclusion that it was permissible for decision makers to have regard to the advice that a split levy could not be accommodated by IRD is determinative of these proceedings. The position is that a split, even if desirable, is not logistically possible. It would therefore preclude the granting of any relief in relation to any
other errors that may have occurred. As the Gambling Commission succinctly put it, the issue is moot, and there would be no point in referring the matter back.
[41] For completeness I will discuss the other primary complaint, but in light of the conclusions already reached it will be a truncated analysis.
The complaint about the use of recent statistics
[42] For some years there was a gap between the market share of clubs and clubs’ share of problem gamblers. The market share has been steady at around 13–14 per cent of gaming machine expenditure. By contrast the clubs’ share of people presenting with gambling problems attributable to the gaming machine sector has been lower:
2007-8 – 8.07 per cent
2008-9 – 10.06 per cent
2009-10 – 10.86 per cent
2010-11 – 9.71 per cent
2011-12 – 12.78 per cent
2012-13 – 13.98 per cent
[43] Three qualifications to these figures are required. First, the 2007-8 figure is partial, as only half of the gaming machine presentations were linked to their source. Second, the 2011-12 figures are the figures that became available to the Ministry after its consultation paper was issued, but before it completed its final report. These figures were well known and “on the table” by the time of the Gambling Commission consultation process. Third, the 2012-13 figures relate only to the first six months. These figures became available prior to the Ministers taking their decision but after consultation had concluded. They were not the subject of consultation.
[44] The plaintiff has two primary complaints. First, it is said that it was an error not to consult on the 2012-13 figures. Second, it has emerged that in the briefing papers prepared for the Ministers, and then in the Ministers’ papers for Cabinet committees, the idea was introduced that the figures showed a trend of increasing
club problem gambling presentations. It is said by the plaintiff that the idea of a trend was not discussed and had it been it could have been shown to be incorrect. It is incorrect because the new figures are the product of a different approach to data collection, and are therefore not comparable to earlier figures. It is therefore incorrect to speak of a trend.
[45] It would require too much detail to fully explain the data collection point, but the essential issue is this. When the presentation data was first collected, those entering the data (problem gambling advisers) could enter up to five primary sources, and five secondary sources. Only the primary sources were counted for the statistics. Then in 2010 the system changed to allow entry of only five sources. The distinction between primary and secondary sources was abandoned, and the criterion for making an entry changed from whenever the gambling was causing significant harm to whenever the gambling was causing harm. Finally, for recording purposes, all entries count equally even if one source was a greater contributor. Thus, a problem gambler who spends 80 per cent of their time on pub machines, and
20 per cent on club machines, will be recorded equally against both sources.
[46] The clubs consider these changes disadvantage them because they were more often in the non-counting secondary sources under the old method. It is this change in recording methods which leads the clubs to submit the Ministers had to be advised of the change as a possible explanation for the higher figures. The different data collection method also means one cannot compare pre 2011 figures to post 2011 figures, and talk of a trend is therefore invalid.
[47] I consider there is an argument to say the data collection changes may account for the higher figures. I did not find the plaintiff’s evidence on the point wholly convincing, but the timing coincidence is a factor in support of the plaintiff’s thesis. It is clear that the Ministers were not advised that the different collection system could explain the increase because the advisers did not realise that was so, and to be fair still remain unconvinced about the point.
[48] However, it is unclear where the plaintiff’s complaint about this and about the validity of identifying a trend takes the plaintiff. Assuming the plaintiff’s
proposition is correct, and therefore there is no “trend”, the reality is that the latest figures considered in isolation still undermine the plaintiff’s case. Regardless that the data is now collected differently, and whether or not it is a better or worse method, the figures are the figures. The Act expressly says that when calculating the levy, regard must be had to the latest, most reliable and most appropriate sources.11
One component of the levy formula is “the customer presentations to problem
gambling services that can be attributed to gambling in a sector”.12 That is exactly what these figures are and the statute mandates consideration of them.
[49] Trend or no trend, it is the latest figures that must be confronted. This was the point emphasised by the Commission in its submission. In accordance with the requirements of the Act, when doing its levy analysis, the Commission uses the latest figures and has always done so.
[50] I conclude my observation on this by noting that my sense is that “trend” was a rather over-stated word to have been used and not too much should be read into it. All that is really being said is the obvious – namely, that the last two sets of figures show an increase. Indeed to my eye, other than the dip in 2010-11, the figures have been steadily rising under either collection method.
[51] As for the point about the Ministers’ relying on undisclosed 2012-13 figures, I consider this falls squarely within the perameters set in New Zealand Pork Industry Board v Director-General of the Ministry for Primary Industries.13 The obligation to renew consultation that is otherwise complete arises only if the new material alters matters. If the new material is consistent with previously discussed data, there is no need to consult further.
[52] Here the 2011-12 figures had been discussed as part of the Gambling Commission consultation, and the new six month figures available to the Ministers merely confirm the higher figure that had appeared in 2011-12 and had been
discussed. Accordingly, I conclude in relation to these 2012-13 figures that it was
11 Gambling Act 2003, s 320(3).
12 Section 320(2)B.
13 New Zealand Pork Industry Board v Director-General of the Ministry for Primary Industries
[2013] NZSC 154.
correct for the information to be given to the decision makers, and there was no obligation to resume consultation.
[53] To summarise on consultation, the evidence left me of the view that the
2011-12 figures were disclosed as soon as they could be, and were the subject of adequate consultation.14 There was no obligation to disclose and consult on the
2012-13 figures. It is correct that later papers refer to a “trend” of higher presentations attributable to clubs, but this was just a way of saying the figures were increasing, which they were. No consultation obligation arose in relation to the use of that word.
Conclusion
[54] The application is declined. I have found no error that gives rise to the need to consider relief. Concerning the relevance of the IRD advice that its software could not accommodate a split levy, I consider it was of obvious central relevance and was understandably treated as such.
[55] As regards the use of the recent client presentation data, I consider there was proper disclosure and consultation. The plaintiff raises an arguable point that the increase in presentations linked to clubs may be attributable at least in part to a different collection system, and I accept this was not explained to the responsible Ministers. However, I do not see that the point particularly advances the plaintiff’s position and it would not have merited quashing any part of the process.
[56] Finally, I record that I consider the plaintiff’s loss on the first ground of challenge, namely the incapacity of IRD to accommodate a split levy, was determinative of the case and meant relief would not anyway have been appropriate on the other grounds. A split levy cannot be accommodated at this point, and there would be no point in requiring the process to be restarted on that aspect.
[57] The first and third respondents together, and the second respondent separately, are entitled to costs. If agreement cannot be reached, memoranda may be
filed.15
Simon France J
Solicitors:
H A Cull QC, Wellington
Crown Law, Wellington
Wilson Harle, Auckland
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