Australia: Cautionary tales of commercial dealings and sovereign risk

Last Thursday, the Victorian Supreme Court delivered judgment in Tabcorp Holdings Limited v The State of Victoria [2014] VSC 301 and Tatts Group Limited v The State of Victoria [2014] VSC 302.

As we have previously discussed (here), these proceedings relate to the termination of the gaming machine duopoly held by Tabcorp Holdings Limited (Tabcorp) and Tatts Group Ltd (Tatts) and whether the State of Victoria is liable to make certain termination payments to the two companies.

The dispute has arisen against the complex background of the 1994 privatisation of the Totalisator Agency Board of Victoria (which was a statutory corporation) and numerous legislative amendments in the gambling and gaming space in the State of Victoria over the past 20 years.

In the Tabcorp decision, Justice Hargrave noted that:

Parliamentary sovereignty means that Parliament can choose to legislate to take away existing rights, whether those rights arise by existing legislation, contract or otherwise. But where Parliament chooses to take that course, it must do so by clear language.

Both proceedings required an application of the principles of statutory and contractual interpretation.

Justice Hargrave found that in the case of Tabcorp, who relied on termination payment provisions in legislation and a Memorandum of Understanding that the right had been abrogated by later legislation. His Honour noted that it was an unfortunate case of the harsh reality of sovereign risk.

However, in relation to Tatts, which primarily relied on an agreement entered into with the State of Victoria in 1995, Justice Hargrave found that the termination payment provisions were activated by the issue of gaming machine entitlements to licensed venues. His Honour determined that Tatts was entitled to over $450 million plus interest.

Unsurprisingly, given the amounts of money involved, this is not the end of the matter. The State of Victoria has already indicated its intention to appeal the Tatts decision.

We will continue to follow this case and report on any further developments.

This week also saw the Victorian Court of Appeal deliver its decision in relation to a dispute that arose over levies issued on Tabcorp and Tatts in the 2012/2013 financial year (where they lost their duopoly and only operated gaming machines up until 15 August 2012). In Treasurer of Victoria v Tabcorp Holdings Ltd [2014] VSCA 143 the Court found that legislative provision enacted to impose the levy required the calculation to occur in accordance with the same formula as in previous years, despite the change in circumstances that was to occur in August 2012. The court noted that:

Any unfairness which might be thought to have resulted was the inescapable consequence of the provision as enacted.

It certainly has been an interesting week for the gambling sector in the State of Victoria!

This blog was co-authored by DLA Piper solicitor, Jaimie Wolbers.