Expensive losses in court may cost state of Victoria $540m as they compensate poker machine operator for contract collapse.
A broken contract can lead to expensive litigation as the Australian state of Victoria is finding out. Tatts and Tabcorp once enjoyed a duopoly over poker machines beyond Melbourne’s Crown casino but following a government decision in 2009 altering gambling laws in Australia operation was given over to venues.
The legal action began by both companies in 2012 saw Tatts seeking at least $490m and Tabcorp asking for $686.8m. A ruling handed down by Victorian supreme Justice Kim Hargrave proved bad news for the state.
Whilst the government was ordered to pay $450m (plus interest) to Tatts, Tabcorp lost its attempt to gain compensation. The state instantly announced it would appeal the Tatts decision, which is now being used as a political football ahead of state elections five months hence.
“We will be appealing the decision with respect to this $540m, but the Labor party ought to apologize to the people of Victoria for their mismanagement of this process,” said state premier Denis Napthine
The Guardian: Denis Napthine says Victoria will appeal $540m payout to pokies giant
In what can only be described as a kind of legal side bet the three entities, state and two operators, are also at each other’s throats over 80 million dollar’s worth of health tax. This stems from the fact that despite having their duopoly removed the two companies were charged a health levy for the full year.
This, they claim, is unfair since they did not operate the machines for the full fiscal year concerned and thus are entitled to a refund for the portion of the year remaining. The Victorian supreme court ruled in their favor but in an interesting twist the Court of Appeal threw out that decision.
The Appeals court said the levy was a flat tax on gaming machines that was entirely within reason for the government to charge and that the revenue earnings of the machines, and the date on which those revenues were injected are neither here nor there in regards of a tax calculation.
Yahoo News: Vic Government wins appeal on repayment of health levy to pokies companies
The $42.6 million Tatts was charged, and the $42 million Tabcorp was levied has been spent on good causes around the state from schools to hospitals despite the Victorian state Treasurer having ruled its imposition was “unfair and unreasonable”.
Mr Michael O’Brien’s decision was overturned by Supreme Court judges Maxwell, Beach and McMillan who said the Treasurer’s decision was incorrect due to the wording of the law which means the “statutory language permits no other interpretation”.
“The Treasurer was bound to determine the tax payable in accordance with the prescribed formula,” they said. “Any unfairness which might be thought to have resulted was the inescapable consequence of the provision as enacted.”
Or to put it another way, the fact the operators only got 46 days where their machines were in use, they were charged for the whole year because the law doesn’t allow for anything else. If they were merely charged for 46 days it would still cost them $7m.
The Sydney Morning Herald: Tatts, Tabcorp could face $85 million in pokies levies after government appeal allowed
Of course appealing is going to keep this case running in the gambling news for a while longer yet. The two operators are likely to appeal the health tax levy, the state is going to appeal the decision against them (that’s costing the nearly half a billion) and that’s without the Auditor General’s two cents.
The Auditor General has found that the Brumby government that was responsible for the licensing of the poker machines in the first place made what can only be described as a complete pig’s ear of the entire thing costing the state almost $3bn,
The Brumby government breaking an agreement made by the Kennett government to pay compensation to the two operators should their licenses not be renewed in 2012 is now seen as political ammunition with the opposition spokesman laying the blame squarely on the liberal’s doorstep.
“It appears the contracts signed by the Kennett government with Tattersalls has provided a windfall gain.” He said, adding, “If the government is confident of its case, then it should strongly consider appealing.”
Herald Sun: Tatts to get up to $450m from Victoria’s coffers