Manukau Golf Club Incorporated v Shoye Venture Limited HC Auckland CIV-2010-404-4422
[2011] NZHC 1281
•17 October 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-4422
BETWEEN MANUKAU GOLF CLUB INCORPORATED
Plaintiff
AND SHOYE VENTURE LIMITED Defendant
Hearing: 26 September 2011
Appearances: I T F Hikaka and K L J Simcock for Plaintiff
M R T Colthart for Defendant
Judgment: 17 October 2011 at 4:00 PM
RESERVED JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 17 October 2011 at 4:00pm.
pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors:
Lee Salmon Long (ITF Hikaka) P O Box 2026 Auckland 1140, for plaintiff.
Warren Simpson & Co, P O Box 72161 Papakura, for defendant.
Copy for:
Mark Colthart, P O Box 535 Auckland 1141 for defendant.
Case Officer: [email protected]
MANUKAU GOLF CLUB INCORPORATED V SHOYE VENTURE LIMITED HC AK CIV-2010-404-4422
17 October 2011
[1] The Manukau Golf Club (Inc) sues Shoye Ventures Ltd for breaches of a venue agreement under ss 65(3) and 69 of the Gambling Act 2003. Shoye applies for summary judgment against the club.
Leave under Rule 12.4(3)
[2] There is a preliminary procedural issue. Shoye needs leave under r 12.4(3) of the High Court Rules, as it did not file its summary judgment application when it filed its statement of defence, but eight months later. The club opposes. Shoye’s ground for seeking leave is that it obtained the materials on which it could found its application only after making an official information request of the Department of Internal Affairs and after receiving the club’s discovered documents.
[3] Rule 12.4(3) does not set out express grounds for the exercise of the discretion to grant leave to file a summary judgment application. No doubt the objective under r 1.2 of securing a just, speedy and inexpensive determination of a proceeding must be applied. A defendant’s right to apply for summary judgment up to the filing of a statement of defence without requiring leave encourages early summary judgment applications. But that does not mean that the court must take a niggardly approach to an application for leave. The court must still be alive to potential abuse by using a late application as a stalling device. While cases turn on their particular circumstances, in general if a case seems otherwise suitable for a summary judgment application and there is no element of stalling or abuse, it may be appropriate to grant leave.
[4] In this case the leave application and the summary judgment application were heard together. That meant that both parties prepared thoroughly for the summary judgment application. The effect was virtually to pre-empt the leave decision. Once both parties have invested in an opposed summary judgment application, then it is almost impossible for the court to refuse leave. Considerations directed at saving the
parties time on the application fall away. The need to recognise that, having prepared, the parties should be heard on the application outweighs other factors.
[5] I grant leave. I accept that at the outset the defendant did not have documents available that it could use for a summary application. In particular, Shoye did not have a copy of the contract on which it is sued. Without that key document, it could not have started a summary judgment application in time. The issues raised are suitable for summary judgment. The summary judgment procedure is not being used abusively. It would not be just to deny the parties a hearing after they have both invested so much in the application.
[6] There are other proceedings on foot. Shoye has counterclaimed against the club for breach of the venue agreement claiming damages of $1,109,027.85, with a further cause of action alleging breach of the Fair Trading Act. In CIV-2009-404-
7912 Shoye has sued Donald Gordon Wilson under a deed of guarantee of a management agreement for the conduct of gambling. Mr Wilson has joined the club as third party in that proceeding. During the hearing I asked the parties to address the spillover effect of any findings on the other proceedings. Spillover effect is the use of findings made in one proceeding in another. The issue arises only on a successful summary judgment application – only final decisions can give rise to cause of action or issue estoppel. There is a possible argument that when there is more than one proceeding on foot, it is desirable to avoid split hearings and piecemeal findings. Shoye said that it would not rely on any findings in its favour in other proceedings. I am not confident that my findings can be confined to this application. Nevertheless, if relevant, the potential for spillover is not enough to deny the parties a hearing of the defendant’s summary judgment application, whether filed before or after the statement of defence.
[7] In future, plaintiffs who wish to oppose the grant of leave under r 12.4(3) might consider asking for a separate hearing of the leave application. The hearing of a leave application should be short. It might be heard during a summary judgment list. An early hearing allows the leave issue to be decided separately and on its own merits.
Summary judgment principles on defendants’ applications
[8] The principles applied on defendants’ summary judgment applications are well-established. They are set out in the Court of Appeal’s decision in Westpac Banking Corporation v Kembla[1] and do not require restating.
[1] Westpac Banking Corporation v Kembla [2001] 2 NZLR 298 (CA) at [58]-[64].
Class 4 gambling under the Gambling Act 2003
[9] This case is about off-site class 4 gambling using gaming machines. To understand the contractual issues, it is necessary to consider the statutory context – the Gambling Act 2003. Under s 9 gambling is prohibited and illegal unless it is:
(a) authorised by or under this Act and complies with this Act and any relevant licence, game rules, and minimum standards; or
(b) authorised by or under the Racing Act 2003 and complies with that
Act and any regulations made under it; or
(c) private gambling.
Under s 14:
(1) Every contract for, or relating to, illegal gambling is an illegal contract for the purposes of the Illegal Contracts Act 1970, and that Act applies accordingly.
(2) Gambling contracts authorised by or under this Act are enforceable at law.
While that applies to gambling contracts, the activities in this case are conducting gambling under s 5:
In this Act, conducting gambling includes any of the following activities:
(a) organising, using, managing, supervising, and operating (but not playing) gambling or gambling equipment:
(b) distributing the turnover of gambling (for example, by paying prizes, meeting costs, or making grants):
(c) selling tickets to participate in gambling: (d) promoting gambling:
(e) assisting in activities described in paragraphs (a) to (d).
[10] The gambling in this case is with gaming machines, which comes within class 4 gambling under s 30:
In this Act, class 4 gambling is—
(a) gambling that is not gambling of another class and that satisfies the following criteria:
(i) the net proceeds from the gambling are applied to or distributed for authorised purposes:
(ii) no commission is paid to, or received by, a person for conducting the gambling:
(iii) the gambling satisfies relevant game rules; and
(b) gambling that utilises or involves a gaming machine; or
(c) gambling categorised by the Secretary as class 4 gambling.
Under s 31:
Class 4 gambling may be conducted only by a corporate society that holds—
(a) a class 4 operator’s licence for the gambling; and
(b) a class 4 venue licence for the place where the gambling is conducted.
[11] The definition of corporate society under s 4 includes a society incorporated under the Incorporated Societies Act 1908. “Authorised purpose”[2] for class 4 gambling means gambling for any of these purposes:
[2] Section 4
(i) a charitable purpose:
(ii) a non-commercial purpose that is beneficial to the whole or a section of the community:
(iii) promoting, controlling, and conducting race meetings under the
Racing Act 2003, including the payment of stakes ...
[12] Part 2 of the Act provides for applications for operator’s licences and venue licences. Under s 65(3) a class 4 venue agreement is required with an application for a class 4 venue licence, unless the Secretary is satisfied that the applicant is a club
that intends to operate gambling equipment at a non-commercial class 4 venue that it owns or leases and is mainly for the use of club members. A class 4 venue agreement:[3]
[3] Section 4.
means an agreement or agreements between the holder of, or applicant for, a class 4 operator’s licence or a class 4 venue licence and the venue operator that sets out their respective rights and responsibilities ...
[13] A venue must not be used mainly for operating gambling machines.[4] A venue operator is the occupier of a class 4 venue to which section 65(3) applies who owns the primary business at the venue.[5] A venue manager is a natural person responsible for supervising the gambling and venue personnel at a class 4 venue and for banking the proceeds of class 4 gambling.[6]
[4] Sections 65(2)(j) and 67(1)(k).
[5] Section 4.
[6] Section 4.
[14] Section 69 requires a venue agreement to be approved by the Secretary of
Internal Affairs:
(1) The form and content of a class 4 venue agreement must be approved by the Secretary and must include—
(a) a schedule signed by the venue manager and the venue operator setting out—
(i) the full name, date of birth, and contact details of the venue manager; and
(ii) the gambling-related duties and responsibilities of the venue manager; and
(b) an itemised list of costs associated with the operation of class 4 gambling at the venue; and
(c) the expiry date of the venue agreement.
(2) A class 4 venue agreement must be signed by the holder of, or applicant for, the class 4 venue licence and the venue operator.
(3) The expiry date of a class 4 venue agreement may be overridden by anything to the contrary in this Act, game rules, minimum standards, or licence conditions but, in any case, must not be later than 3 years after the date of the venue agreement.
(4) Approval of a class 4 venue agreement lapses if the corporate society ceases to hold a class 4 operator’s licence or a class 4 venue licence for that venue.
[15] The requirement for a venue agreement means that the class 4 venue licence holder and the venue operator must be different people – an agreement requires at least two parties. Further the licence holder and the venue operator cannot be under common control or management. That is achieved by preventing a licence holder and a venue operator from having the same key persons.
[16] Under s 4:
key person means ,—
(a) in relation to a class 4 operator’s licence, a person who—
(i) is a trustee or other officer of a corporate society that is an applicant for, or holder of, a class 4 operator’s:
(ii) is the chief executive (or performs that function) of a corporate society that is an applicant for, or holder of, a class
4 operator’s licence:
(iii) exercises significant influence in the management of a corporate society that is an applicant for, or holder of, a class
4 operator’s licence; and
(b) in relation to a class 4 venue licence,—
(i) a venue manger: (ii) venue personnel: (iii) a venue operator :
(iv) a person who is a director, chief executive, or senior manager of a venue operator:
(iva) any other person whom the Secretary reasonably believes to have a significant interest in the management, ownership, or operation of a venue operator, except for the following persons holding office, elected, or appointed under the Sale of Liquor Act 1989:
(A) a member of a licensing trust elected in accordance with sections 191 to 194 of that Act or appointed under section 195 of that Act; or
(B) a trustee of a community trust holding office under section 219Q of that Act or elected in accordance
with section 219R of that Act or appointed under section 219U of that Act.
(v) a person contracted to service gambling equipment at a class
4 venue...
[17] Under s 52(1)(j) a ground for refusing an operator’s licence is that a key person of the holder of the operator’s licence is a key person in relation to a class 4 venue licence (unless the club intends to operate the gambling equipment on its own premises). Under s 67(1)(m) a ground for refusing a venue licence is that a person is a key person for both an operator’s licence and a venue licence. Key persons for venue licences must satisfy suitability standards under s 68.
[18] Section 104 requires gaming machine profits to be banked within specified times into a dedicated account of the corporate society holding the class 4 operator’s licence. The person responsible for banking is the venue manager. Under s 106 the corporate society must apply the net proceeds from gambling for an authorised purpose. Under s 116 the Secretary may by Gazette notice set limits on or exclude costs incurred by a corporate society conducting class 4 gambling. Relevantly for this case, limits have been set on “venue payments”, amounts paid to the venue for the operation of gaming machines there.
Written agreements
[19] The plaintiff, Manukau Golf Club (Inc), owns and runs the Manukau golf course at Takanini. It is a corporate society under the Gambling Act. Until 2007 it had operated gaming machines at its club premises. This on-site gambling was mainly for club members. It was apparently lawful, was within the exception under s 65(3) and did not require a venue agreement. The club’s general manger was Mr Ross Keown. The club was interested in increasing its revenue from gambling through gaming machines off-site which members of the public could use.
[20] Ms Tania Mara began working in the bar at the golf club in June 2007.
[21] Mr Maurice Joyce is director of Shoye Ventures Ltd. Shoye owned a bar at
276 Great South Road, Takanini called the Trophy Bar. In 2007 the Trillian Trust
had 18 gaming machines operating in the bar. Mr Joyce was interested in selling the bar. He said that he began discussions with the club, in particular with Mr Keown. The discussions led to these agreements being signed:
(a) A venue agreement between the club and Shoye dated 10 September
2007 to allow the club to place gaming machines at the Trophy Bar;
(b) A management agreement between Shoye and Ms Mara dated
10 September 2007 for Ms Mara to manage the Trophy Bar business;
(c) A deed of guarantee between Shoye and Mr Donald Wilson dated
10 September 2007; and
(d) A second venue agreement between the club and Shoye dated
9 October 2007.
[22] The September venue agreement is for a term of three years, allows the club to place gambling machines at the Trophy Bar premises, identifies Shoye as the venue operator, requires Shoye to provide a float and to be responsible for any cash shortfalls in the proceeds available for banking, and requires the club to pay Shoye venue payments at rates fixed by the Department of Internal Affairs. Other contract terms set out requirements for the conduct of gambling at the Trophy Bar using the club’s machines. The agreement has a schedule under s 69(1)(a) signed by Shoye as venue operator and by Tania Mara as venue manager. The agreement does not have an itemised list of costs under s 69(1)(b). There is no evidence that the Department of Internal Affairs approved the agreement under s 69. The second venue agreement superseded this agreement.
[23] Under the management agreement Shoye appointed Ms Mara manager of the Trophy Bar business, assigned all rights and interest in the income to the business to Ms Mara in consideration of her paying Shoye $2,307.70 per week (with annual CPI adjustments), allowed Ms Mara to perform her duties under the agreement as she thought fit, while also requiring her to discuss the management of the business with Shoye. There are also provisions directed at the sound management of the business,
including complying with requirements of the Department of Internal Affairs. Ms Mara is to indemnify Shoye for any loss suffered as a result of a breach of any obligations under the agreement. One party may terminate by written notice to the other if the other has breached an obligation under the agreement and fails to remedy the breach within 15 days after receiving notice. If Shoye terminates under this provision, Ms Mara is required to buy the business for $300,000 plus GST.
[24] Under the deed of guarantee, Mr Wilson, a member of the golf club, guaranteed Ms Mara’s performance of the management agreement. Shoye is suing on this agreement in CIV-2009-404-7912.
[25] The second venue agreement has been adapted from some precedent. The adaptation has slips[7], but it is still possible to make sense of it. It is an agreement for Shoye to provide services, the operation of gaming machines at the Trophy Bar for the club. It imposes particular gambling-related duties on Shoye. The second venue agreement is more extensive than the first. It has a schedule under s 69(1)(a) and an itemised list of costs under s 69(1)(b). Mr Joyce has signed it both as director of
[7] For example, the club is said to be the “Trust”, but the “Trust” is identified as another body; the services to be provided are said to be specified in the First Schedule, but that Schedule does not have a detailed specification of services. In addition, there is no Third Schedule, which is meant to identify the venue manager.
Shoye, the venue operator, and as venue manager. The Department of Internal
Affairs approved it under s 69.
[26] Mr Joyce has deposed as to the circumstances in which he signed the October venue agreement. He says that he has dyslexia, needs more time than others to read and understand a written document and was not given enough time to consider the agreement properly. Shoye has pleaded a defence of non est factum to the claims on the venue agreement. It did not base its summary judgment application on that defence for the very obvious reason that, if available, that defence would require a careful examination of the facts leading to the signing of the venue agreement. In this case that defence is not a suitable ground for a defendant’s summary judgment
application.
The claims for breach of contract
[27] The club sues on the October venue agreement. There are six causes of action in the statement of claim. The first claims $65,172.76 for an alleged shortfall in the banking of gaming machine proceeds plus courier costs incurred by the club. The second alleges that the bar was not kept open for the minimum hours per week required under the venue agreement and claims lost profits of $316,109.50. The third claims a loss of $114,039.50 for reimbursement of overpaid venue payments. The fourth claims $10,000 for the cost of a cash float it provided, which Shoye was required to provide under the venue agreement. The fifth claims loss of profits of
$638,032.51 for the closure of the bar from 5 September 2009 to 30 November 2010. The sixth, in the alternative to the fifth, claims $33,427.67 for loss of profits for
30 days during the suspension of the operator’s licence by the Department of Internal
Affairs. All causes of action are for breaches of the October venue agreement. [28] Paraphrased, these are the terms that the club says Shoye breached:
(a) Clause 4.1(d) – provide cash float;
(b) Clause 4.1(i) – inform the club of irregularities in collection of gaming machine proceeds;
(c) Clause 4.1(j)(iv) - bank gaming machine profits in time;
(d) Clause 4.1(k)(ix) – carry out meter readings, operate a gaming machine float, bank gaming proceeds, follow procedures in regulations, game rules and licence conditions;
(e) Clause 4.1(n) – maintain minimum hours of operation;
(f) Clause 3.3 – perform services so as to fully comply with Gambling Act, with due diligence and care and in compliance with agreement; and
(g) Clause 3.5 – comply with all applicable laws including Gambling Act, and ensure compliance with the terms of the agreement by its staff, agents or sub-contractors “and all other parties with whom it deals under this agreement”.
The conduct of gambling in the Trophy Bar
[29] For the summary judgment application, Shoye does not challenge that the club may have incurred these losses. But it says that it cannot be sued for breach of contract. For that it says that the club involved itself in the running of gambling operations in the bar in such a way that it is not now open to the club to allege that Shoye breached the venture agreement.
[30] In addition to Mr Joyce’s affidavits in this proceeding, the evidence Shoye
relies on comes from affidavits of Ms Mara, Mr Joyce and Mr Wilson in CIV-2009-
404-7912, Shoye’s claim against Mr Wilson under the guarantee of the management contract. The plaintiff did not object to the affidavits in that proceeding being read in this application.
[31] Ms Mara says that Mr Keown offered her the job of managing the Trophy Bar on behalf of the club. She was told that the club would finance “the whole thing.” She was to be paid a wage, but found that that was to come from the Trophy Bar’s takings. Mr Keown agreed with her request to be paid at least $25 an hour.
[32] She says that the club arranged for the incorporation of a company, Trophy Bar Ltd, to run the bar. It arranged an overdraft with the club’s bank for the business. The club provided all funds, including the purchase of stock and the cash float for the bar and gaming machines. The club required any cheques for Trophy Bar Ltd to have two signatories, one a club member. She was required to report to Mr Keown once a week and to take instructions from him. He told her that the club was the operator of the Trophy Bar. She was to be the front for the operation with the club running it in the background. She did not regard herself as having taken over the business in her own right, but only through having been made manager by the club. As for the requirements for gaming machines, Mr Keown would make all
the important decisions as they arose. Mr Keown told her not to tell Mr Joyce anything, but that he would take care of Mr Joyce.
[33] A letter from the club to Ms Mara of 17 September 2007 said among other things:
... In return for your co-operation the Club will arrange for your position to be underwritten to the extent necessary to ensure that while you comply with all reasonable requirements in relation to the management and operation of the Bar such operation of the Bar by you is conducted at no personal financial risk to yourself and to such extent as may be necessary to ensure that your own personal income is maintained throughout the period. The Club will also ensure that you are provided with such assistance as you may reasonably require in establishing your management of the Bar and in your subsequent operation of the Bar for the period while the Club maintains its machines on site...
This letter must be kept absolutely confidential between you and the Club at all times...
[34] At the club’s request, Ms Mara signed a letter of 21 September 2007 addressed to her. The letter recorded the intention that any surplus earnings by the Trophy Bar should be retained in the business’s account pending direction as to its use by the general manager of the club. It also said:
...Notwithstanding any provision to the contrary in any other documents by countersigning this letter in the space below you agree to hold such excess earnings as bare trustee pending such direction. You also by countersigning this letter in the space below irrevocably authorise the general manager of the Manukau Golf Club to act as your attorney and to do all such things and sign all such documents as may be necessary to withdraw any such excess from the business’s account should the need arise...
[35] While Ms Mara acknowledges signing the management agreement of September 2007 with Shoye, the tenor of her evidence is that she did not understand the effect of the agreement and did not have independent legal advice. She dealt with Shoye as if it were a landlord who was entitled to a return on the use of the premises but had no other interest in the business of the Trophy Bar. She did not appreciate that the management agreement required her to report to Shoye.
[36] Ms Mara says that the Trophy Bar ran at a loss. It was always in overdraft.
[37] There were also problems with banking gaming machine proceeds. Cash from the gaming machines was kept separate and was banked into the trust account for the club weekly. But gaming machine money that went through the EFTPOS machine went into the Trophy Bar account, which was also used to meet the outgoings of the business. At times there was not enough money to make the weekly bankings for gaming machines. She would collect cash from the club to cover the short banking and pay it into the club trust account. Mr Keown was informed when there was a short banking. Despite this, the club did not disconnect the gaming machines as required by s 104(3) of the Gambling Act.
[38] Mr Wilson refers to a discussion with Mr Keown in 2007 describing the
club’s plans for the Trophy Bar:
...Ross then called me in and said that the Club was now going to buy the business itself. He said that it would do this by appointing its own manager who would set up a business and the Club would underwrite a management company to run the Trophy Bar. He told me that the Club would receive the profits from the machines. Ross told me that although the company would operate the Trophy Bar, this was just a front to get around the gaming laws that applied to poker machines. He told me that in fact it was the Club that was controlling the bar, and that it had employed a manager, who I now understand to be Tania Mara... to run it on the Club’s behalf...
[39] Mr Wilson includes in his evidence copies of annual reports from the club showing that the off-site gaming income was significant for the club.
[40] Mr Joyce describes the contractual arrangements entered into in September and October 2007 and discussions that led up to them. He refers to a meeting in July
2007 with Mr Keown, the club president and a lawyer representing the club. According to Mr Joyce, the lawyer advised that it was possible for the club to control the operation of the bar, without Mr Joyce being involved in overseeing it. The club would take over the full management of the bar by appointing a suitable manager, whom the club would control and whose performance would be guaranteed by a person of standing associated with the club. Mr Joyce says that he signed the venue agreement of October 2007 without appreciating its effect; especially that he was to be the venue manager. He says that once Ms Mara began running the bar, he was kept in the dark.
[41] Mr Joyce exhibits copies of emails between Mr Keown and Ms Mara showing that she reported to Mr Keown as her superior, sought his advice, received and acted on his directions in the management of the bar, and in dealing with Mr Joyce, the bank and other creditors. She provided him with reports as to financial performance. He told her not to open the bar when the Department of Internal Affairs began an audit. He gave other directions about opening and closing the bar.
[42] In 2009 the Department of Internal Affairs carried out an audit of the club’s off-site gaming operation, apparently after having been alerted by the club’s auditors. The audit showed that the club had overpaid venue payments by $101,368.80 and that there had been underpayments of gaming proceeds of $65,172.76. The Department’s investigation found that there had been numerous late bankings of gaming proceeds without gaming machines being switched off. The Department proposed a 30 day suspension of the club’s operator licence. The club accepted that and went further. It surrendered its licence under s 79 of the Gambling Act. The club relies on the findings made by the Department and also on the closure of the gambling operation following the audit.
[43] In Westpac v Kembla the Court of Appeal said: [8]
It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own.
[8] Westpac v Kembla at [64].
[44] The club has not given any evidence in opposition to Shoye’s application. In the absence of contrary evidence from the club it is possible to draw inferences from the undisputed primary evidence to make findings.
[45] Those who signed the venue agreements of September and October 2007 on behalf of the club had the club’s authority to do so. Those agreement s provided for off-site gambling. Mr Keown was general manger of the club. He had the club’s
authority to carry out those agreements. In the absence of evidence as to his express
authority, he had implied authority to do so. This case comes within the Court of
Appeal’s judgment in Giltrap City Ltd v Commerce Commission:[9]
Actual authority can be of two kinds – express or implied. Express authority is authority which is expressly given by the principal to the agent for or covering the transaction in question. One form of implied authority is the authority which the law regards as existing by reference to the position held by the agent vis-à-vis the principal. In the corporate arena, as here, the role performed by the servant or agent in the corporate structure will influence the extent of that person’s implied authority. In general terms the more senior the role the greater the person’s implied authority is likely to be.
[9] Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA) [40]. See also Hely- Hutchinson v Brayhead Ltd [1968] 1 QB 549 (EWCA) at 583.
[46] As general manager he had full managerial responsibility for the club’s gambling operation. The fact that his conduct may not have complied with the Gambling Act or with the agreements made with Shoye does not take his conduct outside the authority given by his role as general manager. See Giltrap City v
Commerce Commission:[10]
... The fact that conduct is unlawful does not of itself prevent it from falling within the scope of the implied actual authority of a servant or agent. If the activity is within the scope of that authority the fact that the particular manifestation is unlawful does not of itself take it outside that scope; a similar rule applies in the case of fraud...
[10] At [42].
[47] The club is bound by the way Mr Keown managed the club’s gambling operation, including its venue agreement with Shoye. The club says that its board was not aware what Mr Keown was up to. It is arguable that it was not. But any ignorance on the part of the board is irrelevant. Mr Keown was acting within his authority as general manager of the club.
[48] Through Mr Keown, the club managed the gambling operation at the Trophy Bar. He arranged for Ms Mara to become manager of the bar, arranged for her to incorporate the Trophy Bar Limited, and arranged banking accommodation for her. He required her to answer to him for the operation of the bar. He gave her instructions and exercised authority over her.
[49] One effect of Mr Keown’s management of the bar was to limit Shoye’s and
Mr Joyce’s roles in the operation of the bar. Mr Keown dealt directly with Ms Mana
and the bar himself. The club did not look to Shoye as venue operator under the venue agreement or to Mr Joyce as venue manager under that agreement for the proper management of the gambling operation. Instead Mr Keown required Ms Mana to report to him, on the basis that he would deal with Shoye. He limited Shoye’s role to that of owner, who was simply to be paid for the use of the premises.
[50] Mr Keown’s management of the Trophy Bar ran at least from the installation of the gaming machines in October 2007 to 14 September 2009. That last date is when Mr Keown met Ms Mara and told her to hand the keys to a staff member and walk away. By then, the Department of Internal Affairs had begun its audit. Mr Keown stopped working for the club on 18 September 2009.
[51] The matters the club sues Shoye for all arose during and out of Mr Keown’s management of the Trophy Bar and the gaming operation there. The first cause of action, for failure to deposit $65,172.76 of gaming machine profits, alleges a failure by Shoye, but the person with day-to-day responsibility for banking was Ms Mara, who answered to Mr Keown at his direction, not to Shoye. Mr Keown arranged that Shoye and Mr Joyce would not deal with banking gaming proceeds.
[52] The second cause of action is for alleged failure to maintain a minimum hours of operation. But Mr Keown, not Shoye or Mr Joyce, directed Ms Mara on the operation of the business. Mr Keown excluded Mr Joyce and his company from such matters.
[53] The club, managed by Mr Keown, made the excess venue payments in the third cause of action. The payments went to Trophy Bar Ltd, the company set up at the behest of the club and managed by Ms Mara, who answered to Mr Keown.
[54] The fourth cause of action is for the cash float of $10,000. The club provided that itself. It did not look to Shoye for the float or require Shoye to pay it.
[55] The fifth and sixth causes of action, relying on the surrender of its operator licence and on the suspension of its licence respectively, arose from the club’s own management of the venue through Mr Keown.
The sham argument
[56] Do these findings give Shoye a watertight defence? Shoye says that the venue agreement of October 2007 was a sham and therefore cannot be sued on. Its argument is that the venue agreement was never intended to be acted on. The real nature of the transaction was that the club was to run the Trophy Bar, but the venue agreement was to conceal this.
[57] The club opposes the sham argument. It says that sham is part of the common law of fraud and that the court should be wary of making findings of fraud on a summary judgment application. It draws the distinction made by Richardson J in Marac Finance Ltd v Virtue[11] between a sham, where the document does not reflect the true agreement between the parties, and a sham where the document was bona fide at the outset, but the parties have departed from their agreement and have
allowed its shadow to mask their new arrangement. It says that if it is the first, then the reputations of those not before the court are at stake and summary judgment ought not to be given. If it is the second, then the agreement has become illegal through performance. Its argument also relies on the inability to determine at the summary judgment stage which sort of sham arose here. It also says that there must be a common intention for a sham, and there is insufficient evidence to find such a common intention.
[11] Marac Finance Ltd v Virtue [1981] 1 NZLR 586 (CA) at 588.
[58] I do not accept the sham argument, but for another reason. Under the Gambling Act a venue agreement has significance beyond the interests of its parties. Its form and content must be approved by the Department of Internal Affairs. It must comply with s 69. It must identify the venue manager, who has special banking responsibilities under s 104. If the venue manager ceases to be the venue manager or is incapable of performing the manager ’s duties, the department must be notified. [12]
[12] Section 71(1)(d).
Clearly Parliament intended that any agreement approved under s 69 should be binding and enforceable. A finding that a venue agreement is a sham says that the
venue agreement is merely window-dressing without any effect. It cannot be open to
parties whose venue agreement has been approved under s 69 to say that the agreement is no more than an empty charade.
Not an illegal contract
[59] For similar reasons I do not find that the venue agreement is illegal under the Illegal Contracts Act. The venue agreement is lawful according to its own terms. The question is whether it became illegal from the way it was performed.[13] The potential illegality would arise out of Mr Keown becoming a de facto key person in breach of s 67(1)(m) of the Gambling Act. Under s 5 of the Illegal Contracts Act
1970:
A contract lawfully entered into shall not become illegal or unenforceable by any party by reason of the fact that its performance is in breach of any enactment, unless the enactment expressly so provides or its object clearly so requires.
[13] The fourth case of illegality identified by Gibbs ACJ in Yango Pastoral Company Ltd v First
Chicago Australia Ltd (1978) 139 CLR 410 (HCA) at 413.
[60] There is no provision in the Gambling Act that venue agreements carried out in breach of the act are to be illegal. S 14 applies to gambling contracts, not to contracts for the conduct of gambling. The object of the act does not require that non-compliant performance of a venue agreement approved under s 69 should make the agreement illegal. The act has its own provisions to address venue agreements
that no longer comply.[14] An illegal contract is unenforceable under s 6 of the Illegal
Contracts Act (subject to the right of relief under s 7 and other statutory provisions). The legislative object is clearly that approved venue agreements should bind and be enforceable. That object would be defeated by a finding of illegality, as the agreement would become unenforceable under s 6. Accordingly I hold for the club that the venue agreement of October 2007 is lawful and enforceable.
Construction of venue agreement
[14] For example, s 74(1)(c): The Secretary may suspend for up to 6 months, or cancel, a class 4 venue licence if the Secretary is satisfied that – ...
(c) the class 4 venue agreement is no longer consistent with ensuring compliance with this
Act or the licence; ...
[61] Can the club allege that Shoye breached the venue agreement? In essence what happened is that although the club made Shoye its venue operator and Mr Joyce the venue manager, it disregarded those arrangements and ran the venue itself.
[62] The agreement does not say what is to happen if the club manages gambling in the Trophy Bar itself.[15] The agreement could not be expected to do so, because the Gambling Act contemplates that for off-site Class 4 gambling there should be a separation between the incorporated society and the venue operator. The agreement operates on the basis that only the venue operator is to provide the services. Against the provisions for Shoye to be the exclusive supplier of services under the agreement
and the contextual setting of the provisions of the Gambling Act, is Shoye to be liable to the club for alleged lack of services or defective service if the club conducts the gambling itself and through its management of the Trophy Bar suffers loss? The agreement does not provide for Shoye to guarantee to the club the due performance by the club of its conduct of gambling at the Trophy Bar. The provisions of the venue agreement that the club relies on apply only if Shoye itself is providing the services in issue. It is a proper answer to the complaint of breach of terms to supply services that the club itself took over performance of those services and that Shoye does not have to answer to the club for the club’s defective performance.
[15] That is not the only matter on which it is silent. Clause 6.2 provides for Shoye to invoice the club when fees are due. It is left to be implied that the club will pay those invoices.
[63] None of the provisions in [28] can be construed to apply, when Shoye is not supplying services under the agreement. The provision which might suggest that Shoye is responsible for the club’s actions is the final words in clause 3.5. However
“...all other parties with whom it deals under this agreement...” is to be read in context. The words follow “employees, agents or sub-contractors”, that is, people Shoye engages to carry out its services under the agreement. The words, “all other parties”, do not extend beyond other persons Shoye engages to carry out its services. They do not apply to the club, when it provides the services instead of Shoye.
[64] To hold that Shoye should make good any losses of the club when the club has taken over the management of the gambling operation would change the role of
Shoye from supplier of services to underwriter of the club’s gambling operation. That is clearly not the commercial purpose of the agreement. The provisions the club relies on should not be given an interpretation inconsistent with that purpose.
[65] The same result follows from applying the approach of Cockburn CJ in
Stirling v Maitland:[16]
[16] Stirling v Maitland (1864) 5 B & S 840, 852, 122 ER 1043 at 1047.
... I look on the law to be that, if a party enters into an arrangement that can only take effect by the continuance of a certain state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that set of circumstances, under which alone the arrangement can be operative...
In Southern Foundries (1926) Ltd v Shirlaw,[17] Lord Atkin said that that proposition was in his opinion well established law. In this case the state of circumstances to be continued is the supply of services by Shoye. The club put an end to that by managing the operation of the Trophy Bar itself. There is an implied term under Stirling v Maitland that the club should not put an end to Shoye supplying the services under the agreement. The club cannot allege breach by Shoye when it has itself broken the implied term by managing the Trophy Bar instead of Shoye.
[17] Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 (HL) 714.
[66] The implication of such a term is consistent with the approach to implied terms in the advice of the Privy Council in Attorney General of Belize v Belize Telecom Ltd:[18]
[18] Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 (PC) at [16]–[19].
The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority...
[67] The interpretation I have applied does not add to the venue agreement, but spells out what it means. The result is that the club cannot sue Shoye for the alleged breaches of the venue agreement. None of the club’s causes of action can succeed.
Estoppel argument
[68] As well as denying that it breached the venue agreement, Shoye pleads waiver and estoppel. It alleges a “Real Agreement” which operated in place of the venue agreement. The club, Shoye and Ms Mara are said to have entered into this arrangement in September-October 2007. It was to apply instead of the venue agreement. Given my findings that Shoye did not breach the venue agreement, it is not necessary for me to consider these alternative defences. Further I would not give summary judgment on those defences.
[69] The club’s wholesale departure from the venue agreement cannot be a simple waiver. See Watson v Healy Lands Ltd:[19]
[19] Watson v Healy Lands Ltd [1965] NZLR 511 (SC) at 513.
At least I think it can be said that where the modified version of the original contract involves such changes in the contractual obligations of the parties
that its structure is clearly affected, then the change goes beyond any question of waiver and must be regarded as a variation.
[70] While there is some evidence to support Shoye’s claim that there was some estoppel by convention that arose from the way that the venue agreement was performed, the case is not clear enough for summary judgment to be given on that defence. I have found that Shoye did not breach the venue agreement on the basis of uncontested evidence as to the club’s management of the Trophy Bar. I did not have to make any findings as to the conduct of Shoye except that it was excluded from management of the bar. The success of the pleaded estoppel defence will turn on Shoye’s conduct as well. Its conduct is not clear-cut. On the one hand, there are allegations of the Real Agreement, but on the other, Mr Joyce deposes that he was kept in the dark; there is evidence that Mr Keown instructed Ms Mara that the arrangements between the club and her were confidential and that Shoye was not to be told what was happening. There are difficulties with inferring from that evidence that Shoye was knowingly involved in those arrangements. Mr Joyce’s evidence that he asked for reports from Ms Mara without success also counts against an estoppel by convention.
Disposition
[71] In summary, I grant Shoye’s summary judgment application. The defendant is entitled to costs. If the parties cannot agree on costs, memoranda may be filed. Subject to what counsel may later submit I do not see any reason for departing from the normal 2B category and band.
..................................... R M Bell
Associate Judge
0
1
1