PUB CHARITY INC V THE DEPARTMENT OF INTERNAL AFFAIRS HC WN CIV-2012-485-705

PUB CHARITY INC V THE DEPARTMENT OF INTERNAL AFFAIRS HC WN CIV-2012-485-705 [21 May 2013]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2012-485-705[2013] NZHC 1160UNDER the Judicature Amendment Act 1972, Part30 of the High Court Rules, and theDeclaratory Judgments Act 1908IN THE MATTER OF an application for judicial review and/or fora declaratory judgmentBETWEEN PUB CHARITY INCPlaintiffAND THE DEPARTMENT OF INTERNALAFFAIRSDefendantHearing: 14 May 2013Counsel: FMR Cooke and M S Smith for PlaintiffK M Muller and A B Sintenie for DefendantJudgment: 21 May 2013In accordance with r 11.5 I direct that the delivery time of this judgment is 3.00 pm on the 21st day of May 2013.RESERVED JUDGMENT OF MACKENZIE J[1] This is an application by the defendant for particular discovery against the plaintiff.[2] The Secretary for Internal Affairs, the Chief Executive of the defendant, has statutory functions under the Gambling Act 2003 (the Act). These proceedings areconcerned with actions taken in the exercise of those functions. I therefore refer to the defendant, for convenience, as "the Secretary".[3] The plaintiff (Pub Charity) is the holder of a class 4 operator's licence underthe Act. On 2 July 2010, the Secretary gave notice under s 59 of the Act of a proposal to suspend that licence. The notice advised that an audit report had identified two reserves in the financial statements for the year ended 30 September 2006 of $11.8 million and $6.6 million respectively, and asserted that those funds had been accumulated in breach of reg 11 of the Gambling (Class 4 Net Proceeds) Regulations 2004 (the Regulations), and contrary to a condition of PubCharity's operator's licence. Pub Charity disputed the notice, and exchangesbetween the parties culminated in the issuing of this proceeding in April 2012.[4] The essence of Pub Charity's contention, as stated in the original statement of claim, was that the amount in the two reserves, totalling $18.4 million, was not funds available for immediate distribution in terms of the Regulations because:(a) the expense incurred in purchasing machines had to be deducted from this amount and was therefore not cash able to be distributed; and(b) part of the amount was distributed after the end of the 2006 financial year in accordance with the Regulations.[5] The original statement of claim sought, under the Declaratory Judgments Act 1908, the following declarations:(a) that the plaintiff is compliant with the requirements of reg 11 of the Regulations; and(b) that the plaintiff has distributed all or nearly all of the net proceeds from the class 4 gambling during its financial year or within three months after the end of its financial year.[6] The defendant issued a notice requiring further particulars. It sought particulars of the expense incurred in the purchase of gaming machines, and of theamount distributed after the end of the 2006 financial year. The requested particulars were not provided. Instead, in November 2012 Pub Charity filed an amended statement of claim. That statement of claim essentially repeated the earlier pleadings, and sought the same relief. It differed from the original in that the figures were altered to reflect the accounts for the 2011 financial year. Those figures were not pleaded in a way which gave the particulars which had been requested. In a subsequent case management memorandum, counsel for the defendant expressed the view that the amended statement of claim "appears to change the focus of the proceeding very substantially". The memorandum signalled an intention to apply for particular discovery.[7] In February 2013, new counsel instructed by Pub Charity filed a third amended statement of claim.1 That statement of claim is more detailed. It no longer seeks declarations that Pub Charity had complied with its obligations. It says:16. Two issues of dispute have arisen between the Department and Pub Charity in this respect:16.1 First whether the cost to Class 4 operators of acquiring gambling equipment is to be deducted from gross proceedsfor the purpose of determining "net proceeds"?16.2 Second what is the correct way of accounting for the costs ofacquiring gambling equipment in a Class 4 operator'scalculation of net proceeds?[8] The relief sought by Pub Charity is in these terms:1. a declaration that the cost to a Class 4 operator of acquiring gambling equipment used in the relevant gaming conducted by the operator is to be deducted from gross proceeds for the purpose ofdetermining "net proceeds" under the Act and associatedRegulations;2. a declaration that a Class 4 operator is to account for the cost to the operator of acquiring gambling equipment by including the full purchase price of the equipment in the calculation of net proceeds for the year in which the equipment is acquired, rather than amortising the equipment on a useful life basis;3. a declaration that when the operator later sells the gambling equipment it has purchased, the proceeds from sale of the equipment become part of the gross proceeds in the year of sale;1 There is no second amended statement of claim.4. a declaration that the calculation of net proceeds should not include any depreciation charged;5. an order setting aside the Department's proposal to suspend.[9] Following the filing of the third amended statement of claim, the Secretary has filed the present application for particular discovery of the following categories of documents:1. Data, work papers, ledger sheets, calculations, board papers, reports and other documents held by the applicant which relate to its accounts and the legal issue of whether the proposal to suspend is invalid.2. Data, work papers, ledger sheets, calculations, board papers, reportsand other documents held by the applicant's accountants andauditors which relate to its accounts and the legal issue of whether the proposal to suspend is invalid.3. Board papers, reports and other documents held by the applicant relating to accounting treatment of the capital cost of gambling assets purchased in each year ended 30 September 2004, 2005, 2006 and 2007.4. Documents held by the plaintiff's accountants and auditors relatingto accounting treatment of the capital cost of gambling assets purchased in each year ended 30 September 2004, 2005, 2006 and 2007.[10] I have briefly described the somewhat tortuous procedural path which this proceeding has followed. The changes to the statement of claim have in some respect widened, and in other respects narrowed, the proceeding. The relief pleaded in the original and first amended statements of claim was the making of declarations which, according to the heading of the pleadings, were sought under the Declaratory Judgments Act. In the third amended statement of claim, the declarations are not sought only under the Declaratory Judgments Act. The Judicature Amendment Act 1972 and Part 30 of the High Court Rules are also relied on. The wider relief available under the Judicature Amendment Act arguably widens the proceeding. However, the declarations originally sought were wider in scope than the sort of declaration described in s 3 of the Declaratory Judgments Act. The declarations 1 to 4 sought in the third amended statement of claim are narrower, and might fall within s 3. In that respect, the proceeding has been narrowed.[11] I consider that, despite the widening of the statutory basis for the relief sought, the subject matter of this proceeding, as now framed in the third amended statement of claim, is narrower than it was in the earlier pleadings. The proceeding seeks declarations on what are, on their face, questions of law. The essence of the question, as it is framed in the declarations sought, is whether, in calculating net proceeds from class 4 gambling, the cost of the gambling equipment used is to be accounted for:(a) as an expense when the equipment is acquired; or(b) as a capital item, to be amortised as an expense over time by an allowance for depreciation.[12] The answer to that question seems likely to depend on the construction of the relevant statute and regulations, and so to involve questions of law.[13] Declarations 1 to 4 are framed in a general way. They are not specific to Pub Charity. They do not require any determination of facts specific to Pub Charity'ssituation. There are paragraphs in the statement of claim which assert that Pub Charity has deducted the cost of acquiring gambling equipment in the year in which it has been obtained, and has not subsequently claimed depreciation. These paragraphs are, in their context, explanatory of the background to the issues. They are not, as I read them, assertions raising a disputed factual issue to be resolved at trial. It appears that factual findings on them will not be required to answer the questions in declarations 1 to 4.[14] An important principle underlying the new discovery rules is that discovery must be proportionate to the subject matter of the proceeding.2 Because of the narrow scope of the declarations sought, I consider that the documents sought are not directly relevant and that discovery of them would not be proportionate to the subject matter of this proceeding. I set out my reasons for that conclusion.2 High Court Rules, r 8.2.[15] The declarations sought in 1 to 4 will not resolve all issues between theparties. The answers will have to be applied to Pub Charity's situation. Factualfindings specific to Pub Charity's case will be required. An examination of PubCharity's affairs will be needed to determine whether, having regard to the legal answers which the Court gives to the questions posed in this proceeding, PubCharity's treatment of its funds complies with the Regulations and its operator'slicence. A detailed examination of Pub Charity's records may be necessary for that purpose.[16] Pub Charity has confined the scope of this proceeding to the general questions of law which it has identified. For the purposes of this application, I must take the pleadings as they stand. Approaching the matter in that way, I consider:(a) that the discovery sought is not proportionate to the subject matter of this proceeding on the pleadings as they stand; and(b) that discovery which might subsequently become necessary to resolve the issues between the parties as a consequence of this proceeding should not be ordered at this stage.[17] A further relevant consideration is that the Secretary's ability to obtain access to the documents which are now sought does not depend only on an order for discovery. Section 333 of the Act contains a power to require information and documents for the exercise of the Secretary's statutory functions. The availability of that power weighs against the making of an order for discovery of documents which may be relevant, not to answering the questions posed, but to applying those answersto Pub Charity's situation.[18] Ms Muller submits that reliance on s 333 is not appropriate, and an order for discovery is necessary, because there is a limit on the time for which information and documents must be retained by the holder of a licence. She submits that, if discovery is not ordered now, the passage of time before this proceeding is determined may mean that documents which would now be available may have been destroyed. I do not find that submission persuasive. As I have said, after the legalquestion is answered, there must be a factual investigation of what Pub Charity has done, so that the law as declared by the Court can be applied to it. There is, on the face of s 333, no reason why the power to require information and documents for the purposes of that investigation could not be exercised now. In applying the law to the facts as disclosed by the information and documents, the Secretary may need to await the decision of this Court on the issues posed in this proceeding. That does not mean that the Secretary must await that decision before taking steps under s 333 to obtain the information and documents.[19] In my discussion to this point, I have had regard only to the relief sought in declarations 1 to 4, set out at [8]. There is one aspect in which the prayer for relief goes beyond declarations as to the general legal position. That is the prayer in 5, for an order setting aside the proposal to suspend. It is not clear whether, if all or any of declarations 1 to 4 were made in the terms sought by Pub Charity, the proposal to suspend in the letter dated 2 July 2010 would necessarily be left without a sufficient foundation to remain in place. Therefore, the relief sought in 5 might not depend solely on the answers to 1 to 4. It is however clear from the statement of claim that the only basis upon which Pub Charity seeks to have the proposal to suspend set aside is the assertion that the proposal is based on a wrong legal interpretation on the issues raised by Pub Charity in this proceeding. The pleadings do not permit Pub Charity to rely on any considerations to support the relief sought at 5, other than those raised in the two issues identified and encapsulated in the declarations sought at 1 to 4. The references to the setting aside of the proposal to suspend in paragraphs 37 and 38 are similarly limited by the context of the pleadings. If the answers to 1 to 4 do not lead to the conclusion that the proposal to suspend cannot stand, then the relief sought at 5 would necessarily be refused. Therefore, the apparently wider relief sought at 5 does not extend the subject matter of this proceeding in a way which makes discovery of the categories of documents sought proportionate to this proceeding.[20] For these reasons, the application for particular discovery is dismissed. Pub Charity is entitled to costs, on this application, which I fix on a 2B basis plus disbursements."A D MacKenzie J"Solicitors: Paul Cheng & Co, Wellington, for PlaintiffCrown Law, Wellington, for Defendant