First Sovereign Trust v Secretary for Internal Affairs HC Wellington CIV 2010-485-828

[2010] NZHC 1444

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-828

UNDER  The Gambling Act 2003 and the Judicature

Amendment Act 1972

IN THE MATTER OF     of an application for judicial review of various decisions made by the Secretary of Internal Affairs and the Gambling Commission

BETWEEN  FIRST SOVEREIGN TRUST First Plaintiff

ANDFIRST SOVEREIGN TRUST LIMITED Second Plaintiff

ANDSECRETARY FOR INTERNAL AFFAIRS

First Defendant

ANDGAMBLING COMMISSION Second Defendant

Hearing:         7 July 2010

Counsel:         T Sissons and S Cotterell for the Plaintiffs

M Parker for the First Defendant
C Browne for the Second Defendant

Judgment:      22 July 2010 at 10am

RESERVED JUDGMENT OF JOSEPH WILLIAMS J

In accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 10.00am on the 22 July 2010.

Solicitors:

T Sissons, Barrister, PO Box 23-063, Wellington, terry.sissons@@xtra.co.nz gca Lawyers, PO Box 3241, Christchurch,  [email protected]

Crown Law, PO Box 2858, Wellington,  malcolm[email protected]

Wilson Harle, PO Box 4539, Auckland,  chris[email protected]

FIRST SOVEREIGN TRUST AND V SECRETARY FOR INTERNAL AFFAIRS AND ANOR HC WN CIV-

2010-485-828  22 July 2010

Introduction and factual background

[1]      First  Sovereign  Trust  currently holds  a  Class  4  operator’s  licence  under Part I, Subpart 4 of the Gambling Act 2003.  It operates pokie machines at multiple venues throughout the country.  It has been in operation for about 10 years.  It has a turnover of $20 million per annum and makes community grants of about $8 million per annum.   I will refer to First Sovereign Trust as ‘the Trust’ throughout this judgment.

[2]      First Sovereign Trust Limited is a company established by [the Trust] with the intention of it taking over some or all of the Trust’s operations.  It was created because the purposes for which community grants could be made by the Trust were limited by its ‘statement of authorised purposes’ to charitable purposes only even though  the  Gambling  Act  allowed  grants  for  some  non-charitable  grants.    The trustees now wish to make grants to recipients within the racing industry and these did not qualify as charities so the company was established with a broader mandate. I will  refer  to  First  Sovereign  Trust  Limited  as  ‘the  Company’  throughout  this judgment.

[3]      The Company does not have a Class 4 operator’s licence and as far as I am aware it has never actually traded.

[4]      Kerry Bird is the promoter of both the Trust and the Company.  He is not a trustee or employee of the Trust.  Nor is he a director or employee of the Company. He is considered nonetheless to be a ‘key person’.  That is, in terms of the definition in the Gambling Act, he exercises significant influence in the management of both. His company (Administration Management Services Limited (AMS)) runs all of the Trust’s day to day operations under contract to the Trust.

Applications

[5]      The Trust applied in September 2008 to renew its licence.  The Secretary of Internal Affairs (the Secretary) refused renewal on 19 January 2010.  There were two reasons for his refusal.

a)       The AMS contract with the Trust was too expensive and so the Trust failed to maximise the net proceeds of its operation for distribution to the community; and

b)Kerry Bird had been engaged in activities that made him unsuitable as a key person.

[6]      Both grounds are specifically provided for in s 52 of the Gambling Act.

[7]      In December 2009 the Company applied for an operator’s licence.  As I have said, this was to widen the purposes for which funds could be disbursed to non- charitable  community purposes.   At that stage,  it was intended that Kerry Bird would have the same role in the Company to that which he performed in the Trust. The Secretary refused that application on 20 May 2010.  The Secretary relied again on his view that Kerry Bird had been engaged in activities that made him unsuitable as a key person.

The Brook investigation

[8]      It is necessary now to explain why the Secretary had come to this view about Mr Bird.  In August 2008 Mr R J Brook, a senior investigator in the Department of Internal Affairs commenced an investigation into anomalies found by the NZ Racing Board in its invoicing system.  Mr Brook’s investigations allegedly showed that:

a)       In December 2007, the New Zealand Racing Board issued an invoice to Dinsdale Tavern in Hamilton for $31,680 + GST, being the cost of upgrading and refurbishing its TAB;

b)        On  5  February  2008,  Kerry  Bird  had  a  meeting  with  the  Chief

Executive of the Waikato Racing Club;

c)       On 7 February 2008, the New Zealand Racing Board reversed its invoice to Dinsdale Tavern and issued a new invoice to the Waikato

Racing Club for the same amount but still purporting to be for the

Dinsdale upgrade;

d)That invoice was subsequently reversed and a new invoice issued for the same amount and to the same invoicee but the purpose of it was changed.  It was now described as an invoice for data cabling at Te Rapa Racecourse;

e)       The Waikato Racing Club then applied retrospectively to the Trust for a grant of $31,680.   The Racing Club said that the purpose of the grant was to fund an upgrade to the data cable at the racecourse;

f)        The   Trust   paid   the   grant   to   the   Waikato   Racing   Club   who subsequently on-paid the New Zealand Racing Board in accordance with the third revised invoice.

[9]      Subsequent enquiries by the Department suggested that there had never been any intention to fund new data cabling at the racecourse and that this invoice was a fake.   The intention was to retrospectively cover the TAB upgrade at Dinsdale. Mr Brook’s report on the investigation alleges that Kerry Bird was the person who

‘facilitated’ the falsification of invoices in order for Dinsdale Tavern to qualify indirectly for a grant from the Trust.

[10]     The  Secretary relied  on  this  conclusion  in  refusing to  renew  the  Trust’s licence, and in refusing to grant the Company a licence.

Criminal charges, appeal and judicial review

[11]     In addition to these refusals, the Secretary subsequently brought criminal prosecutions against Kerry Bird and the Trust as a result of these findings.   The criminal  proceedings  have  not  yet  been  completed  but  Mr  Bird’s  trial  is  to commence in October.  There is no date in respect of the Trust’s trial.

[12]     In  the  meantime,  the  Trust  and  the  Company  have  both  appealed  the Secretary’s refusal to renew and grant their applications.  These appeals have yet to be heard.   The Trust’s licence is deemed to continue until the appeal is finally disposed of.

[13]     The Trust requested that the Commission delay consideration of its appeal until  after  disposal  of  the  criminal  proceedings.    The  Commission  refused  the request.

[14]     The Trust and the Company now apply for judicial review.  They argue that the Secretary’s refusal to renew the Trust’s licence and grant the Company’s licence were unlawful and should be set aside.  They also ask (presumably in the alternative) that the Commission be directed to await the outcome of the criminal proceedings against Kerry Bird and the Trust before proceeding to consider the appeal.

[15]     In addition if the appeals are to proceed, an order is sought separating the now consolidated appeals and requiring expedition in respect of the Company’s appeal for reasons that will become clear.

[16]     For completeness, I note that there is no challenge to the lawfulness of the Secretary’s   first   ground   for   refusing   both   the   Trust’s   and   the   Company’s applications.  It is accepted that the cost of the AMS contract is a legitimate issue for debate on the merits.  The legality argument is mounted only against the Secretary’s use of the allegations in respect of Kerry Bird.

Section 52

[17]     Section  52  of  the  Gambling  Act  provides  the  grounds  upon  which  the Secretary exercises his discretion to grant or refuse a Class 4 operator’s licence.  The relevant parts of s 52 are as follows:

(1)The Secretary must refuse to grant a class 4 operator’s licence unless the Secretary is satisfied that,–

....

(e)the net proceeds from the class 4 gambling will be applied to or distributed for authorised purposes; and

….

(h)any investigations carried out by the Secretary do not cause the Secretary not to be satisfied about the suitability of the applicant or any key person, in terms of subsection (4);

....

(4)       In  determining  whether  an  applicant  is  suitable  for  a  class  4 operator’s licence, the Secretary may investigate and take into account the following things:

(a)      whether the applicant or a key person has, within the last

10 years,–

(i)       been convicted of a relevant office:

....

(c)the profile of past compliance by the applicant and each key person with–

(i)       this Act, minimum standards, game rules, Gazette

notices, and licence conditions.

Analysis

[18]     The focus here is on s 52(4)(a)(i) and (c).  The first question is whether the Secretary can rely on the Brook investigation alone to say that the Trust (and Kerry Bird) have a profile of non-compliance with the Act in terms of s 52(4)(c) when charges have been laid in reliance on that investigation, but there is as yet no conviction in terms of s 52(4)(a)(i)?

[19]     The second question is, even if the answer to the first question is yes, must the Commission wait for the result of those criminal proceedings before exercising its powers on appeal anyway?  It is my view that in the end, the same considerations apply to both questions.

The Dayal approach

[20]     In Dayal Holdings Limited v Secretary for Internal Affairs[1], Miller J dealt with a similar situation.   DHL operated a Class 4 venue licence (that is it owned venues with pokie machines on site).  The Secretary brought criminal proceedings against  two  of  its  directors  Ramesh  and  Suresh  Dayal  at  the  same  time  as  he proposed to decide whether to cancel DHL’s venue licences.  DHL applied for orders preventing cancellation until disposal of the criminal proceedings.  It was argued that any other course would breach Ramesh and Suresh Dayal’s right to silence.  It was argued that they would be effectively forced to give evidence about why DHL’s licence should not be cancelled.  Miller J held that the criminal proceedings related only to Ramesh and Suresh Dayal rather than to the company and the company itself had no right to silence to protect.  In addition, the licensing regime was voluntary so that Ramesh and Suresh could not be compelled to give evidence anyway.  Miller J held that the criminal proceedings and the administrative processes could proceed without conflict and so refused to grant the orders sought.

The Z approach

[1] HC Wellington CIV 2005-485-967, 28 April 2006.

[21]     Since that decision, the Supreme Court has considered similar issues in a different context in Z v Dental Complaints Assessment Committee[2].  In Z, a dentist had been  charged with  four counts of indecently assaulting three of  his female patients  whom  he  had  sedated  for  the  purpose  of  treatment.    A  criminal  jury acquitted him on all counts.   The Dental Complaints Assessment Committee then sought to bring disciplinary proceedings against Z before the Dentists Disciplinary

Tribunal.  Z applied to prevent the inquiry proceeding arguing that requiring him to face disciplinary charges at this stage amounted to an abuse of process.

[2] [2008] NZSC 55. As an aside, I must say I was most disappointed that no counsel referred to this decision in argument. It seems to me to provide a clear guide to the answer in this case.

[22]     The court wrote three decisions.  The Chief Justice upheld Z’s appeal.  The majority (McGrath J writing also for Blanchard and Tipping JJ) upheld the appeal in part.  Anderson J rejected the appeal in its entirety.

[23]     Elias CJ held that because the allegations in the criminal and disciplinary proceedings were entirely co-extensive, it was an abuse of process to try Z in the Disciplinary  Tribunal  when  he  had  already  been  acquitted  by  a  criminal  jury. Elias CJ considered that “A conclusion by the Dentist Disciplinary Tribunal that indecent touching had occurred would be a conclusion that the jury verdict was

wrong.”[3]

[3] At [73].

[24]     I expect that Elias CJ was driven to this conclusion by her earlier stated view that the standard of proof in disciplinary proceedings should be the criminal rather than civil standard.[4]   But even applying the ordinary civil standard, a disciplinary finding against Z would necessarily call the jury verdict into question.

[4] At [47]

[25]     The majority began  by analysing the purpose  and  nature  of  professional disciplinary proceedings and the interests involved as compared to criminal proceedings.   It was considered that disciplinary proceedings are about public protection through the maintenance of professional standards while criminal proceedings are mostly about finding culprits and punishing them.  These purposes are, in the majority’s view, ‘materially different’.   The two processes are also different, the majority said.  The disciplinary process is inquisitorial and the Tribunal can consider evidence that would be inadmissible in criminal proceedings and can summon its own witnesses.  In addition, the majority’s view was that the questions that each process must answer are also different.  A jury must be satisfied beyond reasonable doubt that each element of the offence is proved while a disciplinary tribunal asks broader questions about whether the practitioner is guilty either of conduct detrimental to patient welfare or professional misconduct.

[26]     These   factors,   it   was   found,   told   strongly   against   later   disciplinary proceedings being an abuse of process as a general proposition.  They suggested that in many cases the tribunal will hear different evidence and consider wider aspects of a practitioner’s conduct than would be appropriate in the stricter criminal process.

[27]     Having said that, the majority accepted Elias CJ’s reasoning to the extent that they  agreed  there  could  be  an  abuse  of  process  if  an  acquitted  defendant  was subjected to a subsequent disciplinary inquiry that simply replicated the exercise the criminal court had already completed.  The majority differed from Elias CJ only on what amounted to replication.  The majority took a narrower view.  They considered that  if  there  are  additional  elements  in  disciplinary  charges  not  present  in  the criminal charges, then subsequent disciplinary proceedings will not be an abuse even where there has been a prior acquittal relating to the same overall conduct.  In Z the additional element in all but one of the disciplinary charges was excessive use of sedation  on  patients  allegedly assaulted.    This  was  not  relevant  to  the criminal charges  (except  perhaps  in  relation  to  penalty)  and  meant  that  the  disciplinary process was not to be a simple rerun of the criminal inquiry.

[28]     Thus, the relevant principle to be drawn from the case is that it will be an abuse of power or process if a defendant is required to face disciplinary proceedings when he or she has already been acquitted of criminal responsibility in respect of a substantially identical charge on the same facts.  This principle will apply even if the purpose and procedures of the two inquiries are materially different.

Is Z relevant?

[29]     The first preliminary question is whether the fact that this is a licensing appeal rather than a disciplinary inquiry makes a difference.  I do not think it does. Refusal to renew the Trust’s licence has the same effect on the Trust as striking off would have had on Z.  And in any event the primary interest the court was anxious to protect in Z was the integrity of the criminal justice system itself.  The effect on Z while important, was not the decisive factor.

[30]     The second preliminary question is whether it is a material difference that in this case (unlike Z) the outcome of the criminal proceedings is not yet known. Elias CJ addressed this situation.[5]   She said:

But where there is entire coincidence between the professional misconduct charged and the commission of a crime (so that the professional misconduct consists of the commission of the crime), there must be some sufficient reason either to rerun the very issue in respect of which an acquittal has been entered at trial or where trial has not taken place at all, to proceed to find facts ahead of their determination in criminal proceedings.  (My emphasis).

[5] At [3]

[31]     Thus  in  Elias  CJ’s  view  the  order  in  which  the  inquiries  take  place  is immaterial because either way, replication will tend to undermine the integrity and protections of the criminal process.

[32]     The majority do not directly address the question of reversal of order but the clear implication is replication (on the narrower view of the term) is an abuse even if the administrative process goes first, unless there is good reason to allow it.

[33]     It is appropriate therefore to go through the analysis as set out by the majority in Z to determine whether there is a risk of abuse of process or power in this case.

Applying Z to this case

[34]     I propose  to  look  first at  whether  the  purpose  of,  and  procedure in,  the criminal and administrative inquiries in this case are different and then at whether the charges and factual allegations in the prosecution are the same as those relating to the appeal.

[35]     Looking to the criminal process first, the offence is contained in s 106(1) of the Gambling Act.  It provides:

A corporate society [the trust] must apply or distribute the net proceeds from Class 4  gambling  only  to  or  for  an  authorised  purpose  specified  in  the corporate society’s licence.

[36]     On conviction for failing to comply with this requirement, a court can impose a fine of up to $10,000 and make orders for recovery of funds wrongly distributed. The effect of a conviction is automatic cancellation of the Class 4 operator’s licence.

[37]     Section 106 speaks primarily to the purpose of the Act contained in s 3(g). That is to: “ ... ensure that money from gambling benefits the community.”

[38]     And to some extent perhaps s 3(f), to: “... limit opportunities for crime or dishonesty associated with gambling.”

[39]     Moving now from the criminal to the administrative appeal process, the task of  the  Commission  is  to  be  satisfied  of  the  requirements  in  s 52(1).    These requirements are broad in nature but the relevant requirement in this appeal is found in paragraph (e).  It is quite specific.  It requires the Commission to be satisfied that “the net proceeds from the Class 4 gambling will be applied to or distributed for authorised purposes.”

[40]     The Commission must also be satisfied after investigations under paragraph (h) that the applicant and any key persons are ‘suitable’ in accordance with s 52(4). This suitability test requires that the Secretary be satisfied (among other things) that the applicant has no relevant convictions (a conviction under s 106 is a relevant conviction), and no history of non-compliance with the Act.  As I have said these two requirements are the focus of this appeal.  They are also aimed at ensuring that the Act’s purposes in s 3(f) and (g) are achieved.

[41]     Thus, unlike Z, both the appeal and the criminal process in this case are designed to serve the same ultimate objectives – that is ensuring that the net proceeds of Class 4 gambling are applied only to authorised purposes under the Act and to prevent crime.   In fact the result of both processes will or could be the same in substance – loss of a Class 4 operator’s licence either through cancellation or non- renewal.

[42]     On   the   other   hand,   unlike   criminal   proceedings,   the   Commission’s procedures are inquisitorial and very unlike the criminal trial process.   The Commission is deemed to be a Commission of Inquiry[6], can summon witnesses[7] and

engage its own experts[8].  That tends to tell against replication here.

[6] Gambling Act 2003, s 225.

[7] Commissions of Inquiry Act 1908, s 40.

[8] Gambling Act 2003, s 226.

[43]     Finally, the factual allegations in the prosecution and the relevant allegations in the appeal are entirely co-extensive.  The alleged conduct relates to exactly the

same events and there are no additional elements in the Secretary’s allegations on appeal that have not also been made in the criminal charges.   As counsel for the plaintiff argued, the Secretary’s case on appeal will essentially be a dummy run for the later prosecution.   Unlike the majority’s view of the facts in Z, there are no additional elements in the appeal that would make the appeal inquiry a materially different one to the prosecution.

[44]     Considering   these   elements   together,   I   think   that   the   Commission’s distinctive procedure is too weak a factor to prevent me from concluding that the appeal will replicate the prosecution.  The two telling factors are that the processes for licence renewal and criminal enforcement are designed to achieve the same purpose and that the issues and allegations in the appeal replicate those in the prosecution.  On the reasoning of Elias CJ and the majority, that establishes an abuse without the need for further inquiry.

[45]     It is necessary therefore, for the hand of the Secretary and the Commission to be stayed until the outcome in the prosecutions is known now that they have commenced.  That ought to be the general approach unless as Elias CJ posits, there is

‘sufficient reason’ to rebut it.9[9]  This acknowledges that flexibility may be needed in

some cases.   For example the prosecution case may be particularly strong and/or there  may be real  apprehension  of  ongoing breaches  of  the  Act  that cannot  be prevented by the Secretary’s ordinary audit and supervisory procedures.

[9] At [3].

[46]     In the end it will be a matter of weighing the impact of the abuse on the defendants and the system against the risk to the purposes of the Gambling Act if licences are allowed to continue in the meantime.  I am aware that this may mean licences will be allowed to continue for a considerable time pending completion of the criminal process.  I agree that this is a concern, but it must in most cases be met through the vigilance of the Department’s investigators and auditors.  And, as I have said, in cases where there is ongoing and serious risk or the prosecution’s case is very strong, it may be appropriate to hear applications or appeals before the verdict is available.

[47]     In this case the weighing process is straightforward.   Mr Bird’s trial is to commence in October and all will depend on the verdict of the District Court sitting, I am told, in its summary jurisdiction.  If he is acquitted, there is no prospect of the prosecution against the Trust continuing.   If he is convicted there may still be a defence for the Trust but on much reduced grounds.

[48]     In light of the imminence of the Bird trial, and the fact that his defence will depend  on  witness  credibility there  can  be  little prejudice to  the Secretary,  the Commission or the purposes of the Act in waiting until verdicts are known.

[49]     On the other hand the risk to the protections and integrity of the criminal process  are  significant.     The  greatest  impact  of  a  conviction  on  the  Trust’s

$20 million per annum operation is automatic cancellation of its licence.  A fine of up to $10,000 is hardly token but it will not hurt nearly as much as the forced closure of the business.   If prior to trial, the Commission refuses to renew the Trust’s licence,  that   will  have  the  same  practical   effect  as  a  conviction,  but  the Commission’s processes lack many of the safeguards of criminal procedure.   In addition if the appeal is heard first, it will inappropriately replicate and pre-empt the criminal inquiry when the latter process may yet yield an acquittal.  That, in the view of four of the five Judges in Z would be an abuse of process or power.  There is no

‘sufficient reason’ to allow that to happen.

[50]     It follows in my view that it is inappropriate for the Commission to proceed at this stage to hear those aspects of the appeal relating to the second of the Secretary’s grounds for refusing renewal of the Trust’s licence.

Consolidation

[51]     Very much as an ancillary argument, the Trust sought an order separating the

Trust’s  and  the  Company’s  appeals  which  the  applicant  believed  had  been

‘consolidated’.    This  application  was  made  on the  basis  that  Mr Bird had  been removed from any key person role in respect of the Company.  It was even suggested in  the  hearing  before  me  that  he  would  relinquish  the  shares  he  holds  in  the Company, they being held only in a custodial capacity anyway.

[52]     The Commission advised that it had yet to finally decide how the two appeals should proceed.  It will be for the Commission to decide whether Mr Bird has been sufficiently jettisoned from the Company’s proposed operations for his alleged conduct to no longer be a factor in considering the applications.  I do not wish to pre- empt any decision the Commission may make in that respect.   If there is dissatisfaction with the result, the Company may apply for relief at that point.

Conclusions

[53]     The application for orders setting aside the Secretary’s decisions in respect of the Company’s and the Trust’s applications are dismissed as unnecessary in the circumstances.

[54]     The application for orders setting aside the Commission’s consolidation of the  Trust  and  Company  appeals,  and  directing  expedition  in  respect  of  the Company’s appeal are dismissed as premature at this stage.

[55]     The application for an order directing the Commission to adjourn the hearing of the Trust’s appeal until after the charges against Kerry Bird and the Trust have been dealt with is granted, and there will be a further order that the Commission take no further steps in the matter until verdicts are to hand.

[56]     The Trust has been partially successful and will be entitled to costs to that extent.  The Company has been unsuccessful and the Secretary and Commission will be entitled to costs in that respect.  The two positions cancel each other out and it is

simpler to leave costs where they lie.

Joseph Williams J