What is a Wagering Agreement?
Wagering agreements are defined by the Contracts Review Act 1981 (NSW) as a contract whereby one party agrees to pay the other party a sum of money or transfer property if a particular uncertain future event happens. In effect wagering agreements are most commonly known as betting contracts.
The use of the term ‘wagering agreement’ can often be confused with ‘wagering transactions’. A wagering transaction may consist of bets placed between parties on parties or things, or on events, regardless of whether or not a wagering agreement has been formed. Thus, a wagering transaction may not be a wagering agreement if there has been no set off of rights pursuant to that agreement. Hence, if the person who won their bet failed to pay, the loser of the bet would not be permitted to sue them for breach of contract , as gambling laws would render the contract unenforceable.
Wagering agreements can, and commonly do, exist in a number of common gambling situations:
When determining whether or not a court will enforce a wagering agreement, the court will consider specific factors that must be present in order for them to be enforceable:
Cases that have discussed wagering agreements include Department of Health NSW v World Vision Australia (2009), which looked at an agreement made by bid between charities and a channel nine journalist, and Packer v Irving (2015), where Frank Packer agreed to pay his son a sum of money for each of a number of different achievements.
Wagering agreements are of course subject to the effect of gambling laws in each State and Territory, which govern a wide range of activities associated with gambling.
Legal nature of a Wagering Agreement
There are numerous decisions with respect to wagering agreements. The courts have found them to be void, unenforceable or both. "Wagering contracts are void per se as being opposed to public policy" (see The Laws of Australia [1st Ed] at [45.2.472], which cites Moses v Macferlan [1760] 2 Burr 1005; (1744) 2 Freem & Gilm 16; 1 Ves Sen 180 and Haydon v Smith (no citation provided). "Contracts in the nature of a wager, made between parties intending that the event on which the wager is placed, shall not depend on the real issue between them in the action, are against public policy, and unenforceable." (Pacey v New South Wales Rugby Football League Ltd [1976] 1 NSWLR 255 [258]). There are also many cases that state they are void as being contrary to public policy (see for example Gilbert Kyriacou (No. 96) v Tradeways Actuarial Consultants Pty Ltd & Ors [1998] NSWCA 61; Public Transport Commission v Bua & Ors [2013] NSWCA 394; Farey v Burin [1913] WN 47; New South Wales Rugby League Ltd v Kelso [1997] 2 Qd R 537, [540]), or as being contra bonos mores (against good morals) (see Sutherland (Late of Mackay) v Sutherland (1900) 1 CLR 276; Keeley v Kealy (1907) 15 NZLR 104; Curtis v Small [1981] 2 All ER 511).
There are very few decisions that consider the current position as to the enforceability of wagering agreements, and it is only a matter of time before this is considered by the courts in Australia. There was a recent comment in relation to the enforceability of wagering agreements in the context of an appeal hearing, however this was only incidental to the matter to which the appeal was being heard in Wentworth v Rogers [2010] NSWCA 27. At [47] the Court stated: "His Honour made several findings in relation to the terms of the Agreement and also in relation to its likely enforceability. It is unnecessary for us to express any concluded views in relation to the terms of the Agreement or its likely enforceability. However, we note that a wagering agreement has been found to be void as being against public policy (see Wentworth v Rogers & Anor [2009] NSWSC 1134 at [16], citing Farey v Burin [1913] WN 47). In Curtis v Small [1981] 2 All ER 511, Scarman LJ expressed the view that a wagering agreement is unenforceable where the parties intend the event upon which the wager is made not to depend upon the real issue between them. But as Finkelstein J said it is arguable that a wagering agreement ought to be enforceable and that a contract should not be struck down for being against public policy unless the public interest is particularly and specifically affected. This issue may require further consideration by the Court of Appeal."
I suspect that before too long the Australian position with respect to wagering agreements will face scrutiny by the Courts (indeed this is arguably the case as shown in the above extract). Given the general consensus of wagering agreements being void, it is unsurprisingly difficult for a party to rely on an agreement where the arrangement is a wagering arrangement in order to establish the existence of a contact.
The most that I can say is that I hope that an issue of this nature finds its way to the High Court, given that it has not yet addressed this issue under Australian Law. It would be unfortunate for this type of issue to be left to the States or Territories to deal with given that Australian Law has tended to be uniform in approach to such matters. Furthermore, in light of the almost limitless scope of wagering agreements, it would be premature to express a view on the legality of wagering agreements without first publishing the results of the various requests for example in an Australian context.
Essential elements of a Wagering Agreement
The definition of ‘wagering agreement’ is set out in s 8 of the Wagering Act:, which requires it to involve a person who pays or is promised payment:
(a) only if a specified outcome occurs; and
(b) an event that is uncertain to occur, or uncertain to the person making the payment whether or not it will.
If both of these conditions are failed to be met, then the agreement will not be a wagering agreement for the purposes of the Wagering Act – but there is still scope as to when an agreement is a ‘wagering agreement’ under common law.
A wager or bet is defined as a game where the parties stake money on the outcome of an uncertain future event – in essence, something that they will never have control over. The most obvious example of this is gambling on the outcome of a horse race, but can also include something obscure, like the outcome of a penalty shootout in a penalty shootout, or the number of goals scored in a football game, because these are all uncertain events. One example of where a wagering agreement was found to be invalid at common law, was in Black v Bennet (2007) 11 VR 52. In that case the court had to determine the validity of the contract which was entered into by the parties, and found that there were several factors which meant that the agreement was not a valid wagering agreement:
Black v Bennet (2007) 11 VR 52 involved a legal where two parties agreed to bet on the outcome of the AFL grand final, with one party agreeing to purchase a new car for the other party, benefitting from the rise in share prices in a company that dealt in sports memorabilia. The court held that this agreement involved elements that went beyond mere outcome – including the required involvement of consideration (in the form of the car purchase).
For an agreement to be a wagering agreement, each side must have a chance of gaining or losing something by the outcome. In Black v Bennet, the Court determined that, while the agreement contained both a gain (the new car) and a loss (the rise in share prices and expenses of other nature), they had not been made contingent on a specified event. The agreement therefore did not constitute a wagering agreement, because there had been no element of uncertainty as to the winning or losing of the money. This was determined even despite the agreement referring to a bet – however the money was simply a ‘means of reckoning’.
The element that each party must have the chance of gaining or losing something, makes the distinction between a wagering agreement and a normal, enforceable, agreement. In Foo & Anor v Eason and Ors [2004] NSWSC 568, it was established that it was "necessary that each party assumes a chance of gain or liability of loss"; and that "the party seeking the order must show it is even possible for that party to lose a thing by the event".
Wagering agreements – as distinct from a Contract of Insurance
It is well established that the distinction between a wagering agreement and a contract of insurance is this:
A contract of insurance is a contract of indemnity and so the insurer should be in the position of being able, upon the happening of the risk or peril to which the subject matter was exposed, to make good the loss sustained by the assured as pre-established by the amount for which he or she was insured.
However a contract of insurance and a wagering agreement might be indistinguishable at the time of the making of the contract, because it is only upon the happening of the risk or peril that the contract is cognoscible as an insurance contract or a wager. The distinction turns on the object and effect of the contract as a contract of indemnity or a contract whereby the parties are content to bear the loss.
As Gleeson CJ and Gummow J explained in Pavey & Matthews Pty Ltd v Paul: A system of insurance is not repugnant to any principle of law, and such contracts are not void on public policy unless the provisions of the Insurance Acts sufficiently declare them to be so. In general, no undertaker of a gambling commitment can prevent the failure of his enterprise from causing loss to other persons otherwise entitled to it. But a party to a contractual relationship who has been allocated a risk should not be able to escape the consequences of that allocation on the ground that, despite the language of the agreement, the transaction was fundamentally one of betting.
If a contract is made by a person who has no "insurable interest" in the subject matter of it, it is in the nature of a bet. A contract that is a valid and enforceable insurance contract is not a wagering agreement even though it may turn on chance whether the insurer is under an obligation to perform it.
Judicial clarification and case law
Notable case law and judicial interpretations have further developed the understanding of wagering agreements in contract law. For example, in Mohamed Shaikh Nooruddin & Anr v Chinta Ramachary, AIR 1991 AP 247, the Appellate Court of Andhra Pradesh considered a contract entered into by two owners over the disposal of the proceeds of the fruits of certain trees. The court observed that the consideration for the other was the money which was to be obtained from the sale of the timber of the mango trees and the agreement between the parties expressly provided that the future income from the sale of the timber of the mango trees was the consideration for the agreement. The court held that the amounts realised from the sale of timber did not, therefore, form part of the corpus available for the parties to take their respective shares. On this view, the court held that the owner of the mango trees was not entitled to a decree for a half share of the amount of Rs. 69,000/- which had been realised as sale proceeds of timber grown on his land.
In Ram Rattan v Dhani Ram & Ors, AIR 1986 SC 107, the Supreme Court held that an agreement between a landlord and a tenant to share bi-cycles purchased by the tenant during the period of his tenancy on termination or expiry of the period of tenancy, is a wager and neither the landlord nor the tenant can enforce such an agreement in a civil court. In this case, an agreement executed between a land owner and a tenant had provided that the advance rent paid by the tenant had been adjusted as the offer made to him to withdraw his letter of surrender and realise a just share in the appliances, etc. given by the tenant to the landlord at the time of execution of the agreement, upon vacating the property. The Supreme Court held that such an agreement was in the nature of a wager and, therefore , the civil courts had no jurisdiction to entertain the suit filed by the land owner against the tenant.
In Maharashtra SRTC v Balwant B. Patil, AIR 2009 SC 1974, the Supreme Court held that when an award is made in respect of a dispute as to the rights, title and interest in or relating to an ‘actionable claim’, the bar contained in Section 30 of the Indian Arbitration Act, 1940, would be attracted, and the award would be null and void. The appeal arose out of a judgement of a Single Judge of the High Court which had refused to set aside an award. The division bench reversed the judgement of the learned Single Judge and set aside the award, agreeing with the objections raised by the appellants. The matter reached the Supreme Court on a Special Leave Petition. The appellants’ suit filed under the Maharashtra Rent Control Act, 1999 had been treated as arbitration proceedings on the basis of an inapplicable arbitration clause.
In State of Punjab v Mohar Singh, (2004) 8 SCC 397, the Supreme Court held that a suit for recovery of an amount paid under a wager in connection with a horse race is not maintainable and is, therefore, barred under Section 30 of the Indian Arbitration Act, 1940. A suit for recovery and a suit for the return of the amount paid may be equivalent for the purpose of determining whether it is hit by Section 30, but while the former suit is maintainable despite its being a wager because the proceedings in a suit for recovery are in rem, the latter suit is not maintainable because the proceedings therein are only in personam. The bar under Section 30 relates to the contract, whereas the bar can be avoided in a suit for recovery (in rem) despite its being a wagering contract by the plaintiff resorting to provisions of the Specific Relief Act, 1963, whereas it cannot be avoided in a suit for recovery of the money in the nature of a wager (in personam).
Effect of entering a Wagering Agreement
By their very nature, wagering agreements are intended to risk money on an uncertain outcome, to apply the law of averages to those outcomes and to provide financial gain.
Therefore, an agreement entered into in terms of section 49 of the CPA, by its nature, carries great risk of financial loss for both parties to the agreement.
Should a dispute arise as to the outcome of the wager, there is no basis upon which any party will recover payment of any money paid from the other party.
This is so for the following reasons:
- The agreement was a wager which was not legally binding in terms of the Exchequer and Audit Act 66 of 1976. The contract was void and cannot be performed.
- In terms of the CPA, there is no right to payment of a debt arising from an unlawful agreement.
- Under the common law it is trite law that an agreement which is illegal cannot be enforced and leaves the parties in pari delicto (equal guilt) and potior est conditio defendentis (the position of the defendant is preferable).
While none of these reasons in themselves are insurmountable, in combination with the doctrine of estoppel it becomes virtually impossible for a party to obtain payment of the amount wagered from the other party.
It is also interesting to note that in terms of section 4(2) of the CPA, if a party has claimed delivery of performance under a prohibited transaction, the court may limit the penalty payable for such a transaction – which is exactly what a wagering agreement is.
However, where the parties have already exchanged performance under the prohibited transaction, the court may set aside the exchange. In these circumstances neither of the parties will receive performance. In which case, the court may not grant relief.
Given these obstacles to the recovery of payment, it is advisable that parties do not enter into wagering agreements. This conduct, as already indicated above, is illegal and will attract criminal liability. Accordingly, while gambling is not illegal per se (it is not pervasive in terms of section 1(2)(a), (b) and (d) of the CPA), it is illegal in the form of a wagering agreement entered into between private parties.
Reform and policy issues
The treatment of wagering agreements in contract law has continued to be the subject of debate, and even legislative activity, in various jurisdictions. Recent debates within the law reform commission in England and Australia, the Canadian Parliament, and US legal scholarship, have focused on whether the common law’s strict approach to the enforcement of such agreements is still appropriate. Such work has been prompted by an increasing awareness of the need to examine how gambling is treated in light of broader developments in our understanding of decision-making under conditions of risk and uncertainty.
Legislative activity also continues in the United Kingdom with respect to the codification of this area of law in relation to betting and gaming contracts . The UK Law Commission’s recently proposed draft Gambling (Remote Gambling and Software Technical Standards) Regulations 2007, which are the Regulations introducing remote gambling and software technical standards under the Gambling Act 2005, include a provision stating that "the Act (the Gambling Act 2005) does not affect the rights and obligations of the parties to a ‘wagering agreement’ …".
In addition, the New South Wales Law Reform Commission in Australia ("NSWLRC") released a discussion paper in February 2008, examining the scope of the doctrine of illegality, taking into account recent approaches by the English courts, and current reform proposals in both Canada and England. The NSWLRC proposes the repeal of the doctrine of wagering contracts, as it may prevent the enforcement of certain employment contracts which are commercially reasonable, but which include an element of wagering. The NSWLRC’s proposal is still in draft, and they are currently inviting comment before publishing their final report.