First Sovereign Trust Limited v Infinity Foundation Limited
[2015] NZHC 2136
•31 August 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2015-485-686 [2015] NZHC 2136
UNDER the Contracts (Privity) Act 1982 IN THE MATTER
of a proceeding for breach of contract
BETWEEN
FIRST SOVEREIGN TRUST LIMITED First Applicant
NZL LOCAL LIMITED, NZL OFFICE LIMITED AND NZL MARQUIS LIMITED
Second Applicants
AND
INFINITY FOUNDATION LIMITED Respondent
Hearing: 31 August 2015 Counsel:
M S Smith and S T Cottrell for Applicants
A G Sherriff and S A Barker for RespondentJudgment:
31 August 2015
Reasons:
4 September 2015
REASONS FOR JUDGMENT OF CLIFFORD J
Introduction
[1] The first applicant, First Sovereign Trust Limited (Sovereign), and the respondent, Infinity Foundation Limited (Infinity) are gaming trusts or, to use the more technical term from the Gambling Act 2003, “gambling operators”.
[2] The second applicants (the NZL Companies) operate bars and taverns in which Infinity operated gambling machines. As such, the NZL Companies are, again
to use the technical term, “venue operators”.
FIRST SOVEREIGN TRUST LIMITED v INFINITY FOUNDATION LIMITED [2015] NZHC 2136 [31 August
2015]
[3] Sovereign and the NZL Companies have entered into contracts for Sovereign to operate gambling machines at a number of venues in substitution for Infinity.
[4] In their substantive proceedings Sovereign and the NZL Companies allege that Infinity is unlawfully frustrating and interfering with those contracts.
Interlocutory application for injunctive relief
[5] At the time of filing those substantive proceedings on Monday 31 August, Sovereign and the NZL Companies applied for a mandatory interim injunction requiring Infinity to revoke and extend notices of surrender of venue licence it had given to the regulator, the Department of Internal Affairs (the Department). Sovereign and the NZL Companies also sought a mandatory order that Infinity was not to “in any way frustrate the transfer” of the NZL Companies’ venues to Sovereign.
[6] Sovereign and the NZL Companies gave notice to Infinity of that interlocutory application, albeit very short notice. The application was urgent as, from Sovereign and the NZL Companies’ perspective, Infinity’s notices of surrender were to expire at 12.00 pm on Monday evening. When that occurred, gambling at the NZL Companies’ venues would have to cease.
[7] I heard that application on the afternoon of Monday 31 August 2015. At the end of the hearing, I declined that application, giving brief reasons for doing so. I said I would give written reasons for my decision in somewhat greater detail later. I now do so.
Reasons
[8] To conduct the gambling operations at a particular venue, a gambling operator requires a current class 4 venue licence for the particular venue and a current class 4 venue agreement with the relevant venue operator. Venue licences may not be transferred, only surrendered. Therefore the “transfer” of a gambling venue from one operator to another requires the “transferee” operator, here
Sovereign, to obtain a new venue licence for the relevant venue, and to enter into a new venue agreement with the relevant venue operator.
[9] Sovereign brings its substantive proceedings under the Contracts (Privity) Act
1982 and in the tort of unlawful interference with contract. The NZL Companies base their substantive claim on the terms of their venue agreements with Infinity and also, as I understand it, the tort of unlawful interference with contractual arrangements.
[10] The NZL Companies did not exhibit those venue agreements. Rather Mr Jones, Sovereign’s general manager, annexed a copy of a venue agreement between Chapelli’s Eatery and Wine Bar Limited (Chapelli’s) and Sovereign to a supporting affidavit. Chappelli’s is another venue operator with whom Sovereign has contracted to replace Infinity as gambling operator, and in respect of which contract Sovereign has complaints about Infinity’s response. Chappelli’s is not, however, a party to these proceedings.
[11] Clause 17 of Chapelli’s venue agreement with Infinity deals with termination. As relevant, cl 17(a)(iii) provides:
Without cause, the venue operator can terminate this agreement by giving one months notice in writing. To avoid doubt, if notice is given, Infinity agrees that they will not frustrate the transfer process to the new trust in any way. Extensions will be given to the incoming trust and not withheld if asked at any time. Furthermore, if notice is given, Infinity agrees that the venue payment will not reduce in any way from the fixed amount as agreed (subject to legal/law changes only i.e. if commission based VP’s was introduced). [sic]
[12] The NZL Companies sue on what they say are Infinity’s obligations under that provision, which they also say applies as between themselves and Infinity. Sovereign says that the reference to “the new Trust” in that clause gives it standing to sue as a third party beneficiary under the Contracts (Privity) Act.
[13] They do so on the basis of a pleaded narrative which can, for these purposes, be summarised as follows:
(a) Pursuant to the agreements reached between Sovereign and the NZL Companies, the NZL Companies gave Infinity written notice by email of their intention “to change our Gaming Society” and, with reference to cl 17(a)(iii), of “notice, with a final operating date of Sunday 30
August 2015”.
(b)On 14 July 2015 Infinity provided the requested surrender letters, effective Monday 31 August.
(c) Sovereign found subsequently that it was taking longer for it to receive the required venue licences from the Department. On
26 August 2015 the Department advised Sovereign to seek new surrender dates for the end of September. Infinity did not reply to that request. Sovereign contacted the Department. Sovereign inquired whether the “surrenders would be activated if no extension was received”. At 2.49 pm on Friday 28 August the Department advised Sovereign that it had received confirmation that Infinity was proceeding “with the surrender of the venues” under s 79(1)(b) and that the Department was “obligated to process the surrenders effective of the date notified”.
(d)In his affidavit, Mr Jones confirmed that he had been advised that the machines at the NZL venues had been disabled through the electronic monitoring system, Intralot. That could only have been done, he said, on instructions from Infinity.
[14] High Court Rule 7.53 provides for applications for interlocutory injunctions to be made. The legal position is clear. Two principal questions are to be considered:
(a) is there a serious question to be tried? and
(b) where does the balance of convenience lie?
[15] In determining the balance of convenience a first, and important but not necessarily determinative, question is whether damages would be an adequate remedy for the plaintiffs. Maintenance of the status quo can also be an important consideration. The Court will not grant injunctions which would be futile or pointless. Mandatory injunctions, as is the injunction sought here, will only be granted in special circumstances and then only in clear cases where the injunction is directed at the simple and summary act which could be easily remedied. Moreover, the Court has to feel a high degree of assurance that at trial it would appear that the injunction had rightly been granted.
[16] No authority is needed for those well-known principles.
[17] Applying them, I reasoned as follows in declining Sovereign and the NZL
Companies’ application for mandatory injunctive relief.
[18] I was first attracted by the proposition that maintenance of the status quo would be of value here, and perhaps could be achieved with little difficulty. In that way, gambling operations at the NZL Companies’ venues would not be affected and gambling revenues would not be interrupted. From the point of view of the public interest in the application for charitable and other non-commercial purposes of gambling revenues, that could be seen – the parties’ commercial interests aside – as an appropriate outcome. I then had to consider, however, the mandatory relief that the applicants were seeking to achieve that outcome.
[19] The contractual position here is not at all clear.
[20] For Infinity, Mr Sherriff provided me with the relevant extracts from the actual venue agreements1 between Sovereign and the NZL Companies. Clause 17(a)(iii) from the Chapelli’s contract did not, more than a little surprisingly, feature in any of those agreements. Rather:
The Office venue agreement provided:
1 The venues in question are two bars in the Wellington area known as The Office and The Local, and the Marquis of Normanby tavern in Taranaki.
“16 …
(b) This agreement may be terminated following the first 12 consecutive months of operation, with 3 months notice in writing.
(c) Upon expiry of this agreement, if the Venue Operator intends to shift to another Class 4 Operator, the Venue Operator will arrange for the incoming Operator to pay the outgoing Society in cash for any and all assets owned at the Venue by the Society, such payment to be made contemporaneously with the expiry.”
The Marquis venue agreement provided:
“17 …
(a) …
(iii) Without cause the venue operator can terminate this agreement by giving one month notice in writing. On termination Infinity agrees not to frustrate the transfer in any way whatsoever.”
The Local venue agreement provided:
“17 …
(a) …
(iii) Without cause the operator can terminate this agreement by giving one month notice in writing. On termination Infinity agrees to not frustrate the transfer in any way whatsoever.
Without cause, the venue operator can terminate this agreement by giving one months notice in writing.
To avoid doubt, if notice is given, IFL agrees that they will not discontinue the operation of gaming machines on site at any time.
IFL agrees that they will not frustrate the transfer process to a new trust in any way.
Extensions to the transfer date, will be given to the incoming trust, if required and requested and not withheld if asked for at any time.
Furthermore, if notice is given, IFL agrees that the venue payment will not reduce in any way from the fixed amount as agreed (subject to legal/law changes only, i.e. if commission based venue payments are introduced).”
[21] In no case were there, Mr Sherriff submitted, words equivalent to the Chapelli’s cl 17(a)(iii). The Local’s clause came closest. Even there, Mr Sherriff submitted, Infinity had not breached any relevant obligation. Mr Sherriff made that submission notwithstanding what, in the context, was the clearly arguable meaning of the words “Extensions to the transfer date, will be given to the incoming trust, if required and requested and not withheld if asked for at any time”.
[22] I inquired of Mr Sherriff how, notwithstanding that proposition, Infinity had accepted the notice of surrender/transfer given as regards The Office. The suggestion was that Infinity had treated notice with respect to that venue as a repudiation of the venue agreement. That was not a proposition that I found persuasive at the time.
[23] In any event, for Sovereign and the NZL Companies Mr Smith drew my attention to an email that had been sent by Infinity’s operations manager to Sovereign, following receipt of the “transfer notices” as regards The Local, The Office, and the Marquis. That email described Infinity’s process for venue transfers as follows:
· Notice is received from the venue operator
· Contact is made by the in-coming trust
·Asset list is created and confirmed by the directors then supplied to the in-coming trust
· Sale & Purchase documents are completed for the assets once agreed
·Surrender Letter and Evidence of Ownership are supplied to in- coming trust for their application to DIA
·Extensions to the surrender date are provided if needed to ensure the venue continues to operate until DIA processing is complete and new licence is issued
[24] Mr Smith’s submission was that, in effect, that constituted the creation of a contract between Sovereign and Infinity which, in effect, was on identical terms to that found in cl 17(a)(iii) of the Chapelli’s venue agreement.
[25] My assessment was that, while both sides had arguable cases, it could not be said that the contractual position was clear in the context of the application for a mandatory injunction.
[26] Moreover, the propositions, advanced in the affidavit of Mr Jones and also in an affidavit provided by Mr Kerry Bird, the Chief Executive Officer of Sovereign, that Infinity’s actions were “extremely unusual”, and in effect contrary to industry practice, were undermined by the fact that Sovereign, in the venue agreements it has entered into with the NZL Companies, does not provide for “transfer”. That is, there is no provision whereby the NZL Companies may terminate the venue agreement before its expiry date, whether with or without cause. General principles of contract law will, no doubt, give a termination right for cause notwithstanding that provision. The same cannot be said, however, of a termination without cause to facilitate a change of venue operator.
[27] I was not persuaded that “damages” would not be an adequate remedy.
[28] I note first that the concept of “damages” may not be an appropriate one in this context. In general terms, gambling trusts operate on a non-profit basis: as explained to me, the regulatory framework controls the costs they incur and the revenue that may be generated by gambling machines. The difference, what would in normal circumstances be the after-tax profit, must be applied for charitable purposes or other non-commercial purposes. That regime reflects the purposes of the Gambling Act, which are, amongst other things, to “ensure that money from
gambling benefits the community”.2
[29] Putting those considerations to one side, I accept that an interruption to gambling on one site would result in some loss of gambling revenues. But such a loss would not be hard to estimate, as past takings would be a reasonable guide.
[30] Sovereign also pointed to the possibility that, were it not to be able to obtain a venue licence within six months of Infinity’s surrenders of its licences, Resource
Management Act approval for gambling operations on a site could automatically
2 Gambling Act 2003, s 3.
terminate, meaning it would have to reapply. The outcome of any such reapplication would be uncertain. My assessment was that even if that relatively remote outcome did eventuate, again it would be reasonably straightforward to determine the loss of gambling revenue that would result.
[31] For themselves, the NZL Companies pointed to the fact that they would lose the cost reimbursement payments they receive from the gambling operator for allowing their premises to be used for gambling operations. Those amounts are, however, known or easily able to be determined: damages are clearly an adequate remedy in their case.
[32] Finally, I note that the NZL Companies made no reference at all to the increased bar takings which I think I can fairly infer are associated with the availability of gambling machines. They would appear to be the real reason why venue operators want gambling machines to be located on their premises. In the absence of such a claim, I need not consider the possible impact of a temporary suspension of gambling on those revenues. If I had to, however, I am satisfied that damages would be an appropriate remedy. Mr Sherriff advised me that he was not aware of any industry study or understanding of the impact of the presence of gambling machines on the bar revenue generated by venue operators. Be that as it may, the before and after figures would speak for themselves.
[33] I concluded it was likely that the grant of the relief sought by Sovereign and the NZL Companies would be futile.
[34] I was provided with a copy of a letter dated 31 August 2015, sent by the
Department to Infinity. That letter read, in part:
Thank you for your notification of surrender for your class 4 venue licences in respect of … These have now been processed and our records have been altered to reflect the surrenders of these class 4 venue licences.
[35] For Sovereign Mr Smith submitted on instruction that, notwithstanding that advice, Infinity could nevertheless take the step requested, and withdraw its surrender and seek a new surrender date. I remained more than a little doubtful as to the feasibility of that. The Department’s letter is clear on its face.
[36] Mr Sherriff also submitted that, as the NZL Companies had given notice terminating their venue agreements with Infinity, it would be unlawful for Infinity to continue to operate the gambling machines at the NZL venues. In support of that proposition, Mr Sherriff referred me to ss 118(2), (3) and (4) of the Gambling Act. Sections 118(2) and (3) prohibit venue owners from receiving, and prohibit gambling operators from paying, venue operators amounts in excess of those recorded in approved venue agreements. As following termination, there would be no relevant venue agreements, it would therefore be unlawful for Infinity to make payments to the NZL Companies as owners of the venues and, accordingly Mr Sherriff submitted, it would be unlawful to operate the gambling machines at those venues. I accepted the first proposition. The second I found less persuasive, but I gave the risk that it was correct some weight.
[37] It was for those reasons that I declined Sovereign and the NZL Companies’
applications for interim relief by way of interlocutory mandatory injunction.
[38] That is not to say that, as a matter of contract, there is not some merit in their claim. Whether, in the interests of the industry as a whole and the achievement of the objects of the Gambling Act, “transfers” of venue should be left to contractual arrangements between gambling operators and venue operators is a matter which the Department may wish to consider.
[39] In the circumstances, and bearing in mind the fact that gambling is a regulated industry and that, in my view, this was something of a commercial arm-wrestle between Sovereign and Infinity (neither of whom came to Court with completely “clean hands”) I determined that costs on this interlocutory application should lie where they fall.
“Clifford J”
Solicitors:
GCA Lawyers, Christchurch for Applicants
Buddle Findlay, Wellington for Respondent
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