THE WHITEHOUSE TAVERN TRUST BOARD v THE DEPARTMENT OF INTERNAL AFFAIRS [2013] NZHC 2321

THE WHITEHOUSE TAVERN TRUST BOARD v THE DEPARTMENT OF INTERNAL AFFAIRS [2013] NZHC 2321 [6 September 2013]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV 2012-485-2589[2013] NZHC 2321UNDER THE Declaratory Judgments Act 1908IN THE MATTER OF an application for a declaratory judgmentunder the Gambling Act 2003 and theGambling (Class 4 Net Proceeds)Regulations 2004BETWEEN THE WHITEHOUSE TAVERN TRUSTBOARDPlaintiffAND THE DEPARTMENT OF INTERNALAFFAIRSDefendantOn the papersCounsel: D M O'Neill for the PlaintiffK Muller/A Sintenie for the DefendantJudgment: 6 September 2013JUDGMENT OF MALLON JIntroduction[1] The Whitehouse Tavern Trust Board (the Trust) seeks costs in respect of proceedings it commenced against the Department of Internal Affairs (the DIA). The DIA opposes the costs application and seeks costs in respect of the Trust'sapplication for costs.Background[2] The proceedings related to a report released by the DIA alleging breaches of the Gambling Act 2003 (the Act) by the Trust. The report was dated 30 August 2012and followed the DIA's audit of the Trust for the period 1 October 2010 to 30 September 2011. The 30 August 2012 report contained a request for specific information and action in respect of matters covered by the report. On 20 September 2012 the trustees of the Trust responded to the DIA by letter.[3] Having not heard further from the DIA, on 30 November 2012 the Trust commenced proceedings against the DIA, seeking the following declarations:(a) a declaration that the grants it made to the New Zealand Historic Aircraft Trust and the New Zealand Warbirds Association Inc were for authorised purposes under the Act;(b) a declaration that the travel costs and expenses paid to a venue operator to travel to a gaming expo in Sydney were from non-gaming funds;(c) a declaration that the Board is not holding excessive levels of undistributed net proceeds;(d) a declaration that the report issued by the DIA was in error.[4] On 30 January 2013 the DIA filed a statement of defence. On 28 February 2013 counsel for the DIA contacted counsel for the Trust advising him that the DIA was going to release a "final" audit report replacing the "initial" audit report. The letter stated "[g]iven the Audit Report, subject of the proceedings, no longer concludes that your client is non-compliant please let me have your client's responseon whether this is an acceptable resolution to this proceeding". In accordance withthat letter, the subsequent audit report dated 28 February 2013 stated that:(a) the grants made to the New Zealand Historic Aircraft Trust and the New Zealand Warbirds Association Inc complied with the Act and were covered by the authorised purpose of the Trust;(b) the travel costs and expenses paid to a venue operator to attend the gaming expo was paid out of non-gaming funds;(c) the finding that the Trust held excessive levels of undistributed net proceeds was on hold awaiting a High Court decision on the issue of undistributed net proceeds taken by another operator.[5] There was correspondence between the parties regarding costs. No agreement was reached. The Trust has now filed a notice of discontinuance and the only outstanding matter is the Trust's application for costs.General principles[6] Unless the court otherwise orders or the defendant otherwise agrees, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.1 In considering whether to order otherwise, the considerations that arise in this case are whether it was reasonable for the Trust to bring the proceeding and the reason the Trust has discontinued.Assessment of costs[7] The DIA says that the Trust's commencement of proceedings was"unheralded and premature" and was not reasonable. It says that the audit process is an iterative one which usually involves several meetings and the tabling of draftaudit reports for discussion. It says that this was hampered by the Trust's resistanceto engaging with the DIA. It says that, because of this, the 30 August 2012 report was a way of raising issues with the Trust. It says that if the Trust had forewarned the DIA that the Trust intended to file proceedings in relation to the audit report, the DIA would have been able to allay the Trust's concerns by confirming that a review of the "draft" audit report was still underway.[8] The Trust, on the other hand, says that there was no indication that the 30 August 2012 audit report was only a draft report. It says that its view is supported by the report itself and accompanying letter which said that the report had been"finalised", sought confirmation of non-compliance from the Trust, required the Trust to take immediate steps to rectify matters and said that consideration would be1 High Court Rules, r 15.23.given to what sanction would be imposed. The Trust also says that the statement of defence filed by the DIA on 30 January 2013 did not allude to a further audit report being prepared.[9] In my view the Trust has not shown that it should have costs in respect of the proceeding that is now discontinued. I accept that it was not clear to the Trust that the 30 August 2012 report was a draft report. The Trust was asked to provide a response to the breaches identified, to advise what action to take to rectify those breaches, and to provide further information. I also accept that the Trust discontinued the proceeding because the DIA released a final report addressing all but one of the Trust's concerns and therefore the proceeding was successful in achieving what it set out to do.[10] However the proceeding was issued before the DIA had provided anyresponse to the Trust's letter of 20 September 2012, and without any warning that the proceeding would be issued in the absence of a response. Had an inquiry been made before the proceeding was filed it seems very likely that the Trust would have been told that the DIA was still considering the information and had not yet formed a view on whether that information altered matters from its perspective. Once the proceeding was filed, the DIA responded quickly (bearing in mind the Christmas break) and responsibly in bringing matters to a conclusion.[11] In those circumstances I consider that costs should lie where they fall. That includes in relation to the costs application. Although I have not awarded costs to the Trust, it was not entirely unreasonable for the Trust to consider it was entitled to costs. Generally claims for costs in relation to costs applications are not ordered and I see no sufficient reason to do so in this case.22 Harley v Registrar-General of Land HC Wellington CIV-2009-485-2167, 23 September 2010 at [6]; Bloor v IAG New Zealand Ltd HC Rotorua CIV-2004-463-425, 3 February 2011 at [29];New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010 at [22]-[26].Result[12] Costs are to lie where they fall.Mallon J