Between: Morley
And: Richardson

Judges: Rich J
Starke J
McTiernan J
Williams J

Subject References:
BETTING, GAMING AND LOTTERIES
Commercial contract
Whether speculative transaction by way of gaming or wagering

Legislative References:
Gaming and Betting Act 1912 No 25 - s 16

Sydney

Judgment by:
Williams J

This appeal arises out of the dismissal by the learned Judge in Bankruptcy of applications made under s. 124 of the Bankruptcy Act 1924-1933 by the bankrupts Edward John Morley and Eric Hopetoun Morley to have the sequestration orders made against them on 15th April 1940 annulled on the ground, inter alia, that the judgments upon which the bankruptcy petitions were based were obtained in respect of contracts by way of gaming and wagering within the meaning of the Gaming and Betting Act 1912 (N.S.W.), s. 16. The petitioning creditor was in each case a produce merchant and commission agent named Raymond Arthur Brown who carried on business at Wellington. The bankrupts were farmers living in the district who speculated on the rise and fall in the price of wheat by means of purchases from and sales to Brown. E.J. Morley's transactions covered the period from October 1936 to 1st March 1938, whilst those of E.H. Morley commenced on 18th December 1936 and continued until 18th March 1938. The amount of wheat bought by E.J. Morley from Brown was 460,000 bushels and sold by him to Brown was 455,000 bushels, while E.H. Morley bought from Brown 220,000 bushels and sold to him 225,000 bushels. In every case there were written contracts by which Brown sold to the bankrupts and the bankrupts sold to Brown. The contracts, after specifying the New-South-Wales Government grain elevator warrants which were the subject of the sale, provided for a price net per bushel less freight as indorsed on warrants and country handling charges, for payment by prompt net cash in exchange for warrants, and for delivery by the seller tendering correctly indorsed warrants at his option during certain months.

On their face, therefore, the documents related to bona-fide commercial transactions, but the bankrupts now allege no genuine sales or resales of wheat were ever intended and the contracts were only a cloak to cover an agreement that there should be a settlement of the differences in favour of the bankrupts or of Brown accordingto whether the wheat market rose or fell between the dates of the contracts and the dates for delivery of the warrants.

It is plain that the bankrupts were speculating in wheat and that Brown was the instrument through whom they were doing so. But, as it takes two persons to make a bet, the critical question is whether Brown was wagering with them on the rise or fall of the market, and there was a mutual agreement "that, dependent upon the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake; neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of the parties" (Carlill v Carbolic Smoke Ball Co; ^[F23] Ellesmere v Wallace; ^[F24] Attorney-General v Luncheon and Sports Club Ltd, ^[F25] at pp. 405, 406).

As a result of the transactions both the bankrupts lost money, so that on 31st January 1938 E. J. Morley owed PD1,100 and E. H. Morley PD800 to Brown, and as neither of them could pay they each gave Brown promissory notes for their respective debts payable on 1st February 1939, which were subsequently renewed as agreed for twelve months, the renewed promissory notes falling due on 1st February 1940. The notes were not met at maturity, and Brown then sued the bankrupts for these sums and recovered judgments in respect of which he issued bankruptcy notices with which they failed to comply. Their estates were then sequestrated on the above date.

On 10th September 1940 E. J. Morley was publicly examined and stated that Brown mentioned wheat dealing to him, saying: "You don't have to have money to buy wheat scrip, all you do is to make out a contract and sign it for a month ahead, and if the market rises in the meantime you sell it out again and collect the profit; it is only buying and selling on the rise and fall of the wheat market; there is no wheat in it... You know what a good friend I am to you, I'll see that you don't get a loss." The public examination of E. H. Morley took place on 15th August 1940. He stated referring to transactions with Brown and another broker Wilkins: "I agreed to buy a certain number of bushels at a certain price a month or two ahead for which I signed a contract. Either before or at the end of that time I would contract or agree to sell it back to whoever I bought it from at the ruling market price at that day," and that Brown said: "If the price went up we collected a profit and on account of being such good friends he would see that there wasnot any loss"; "Brown had advice from some of his friends in Sydney that the market was going to go up again and he always pretended that he was a good friend of mine"; "After December 1937, I bought very little, I had a lot of purchases on hand on this date which I had not disposed of. I transferred to a later month. I cannot remember the number. I did this on the advice of Brown." In reply to his own solicitor he said: "When Brown and Wilkins both told me in connection with the contracts `there was no wheat in it' I gathered from that that warrants would never be tendered and that when the contract became due that if I had not already sold it it would be sold by them on the first of the month at the ruling market price at that day. That is, the wheat I agreed to purchase would be sold. My understanding was that if I did not sell the wheat above referred to, the agent would buy it back from me at the ruling rate."

A careful perusal of the evidence which they gave on these examinations seems to suggest, not that they were betting with Brown, but rather that they were speculating through his agency. If the agreement was that the parties stood to win or lose according as the market rose or fell, then if the Morleys made a profit Brown had to make a loss, whereas their suggestion was that Brown was advising them when to buy and sell so that they would benefit if his predictions proved to be correct. But they could hardly expect him to be trying to make a loss so that they might win. Moreover, if they were simply betting on differences with Brown, one would have expected a date to be fixed at which the rise or fall of the market would be calculated; but optional dates were fixed for delivery of the warrants, the resales took place at various dates prior to the due date for their delivery, and, on some occasions, when the due date arrived and the market had fallen no settlement took place, but the warrants were transferred to a later date.

Until the Supreme Court action of Wilkins v Wheeldon was heard in Dubbo in April 1941, despite all the negotiations with respect to their indebtedness, neither bankrupt suggested that the transactions with Brown constituted wagering, but after the defendant in that action had succeeded in this defence, they alleged that their transactions with Brown were similar in all respects to Wheeldon's transactions with Wilkins, and launched the present applications. They field affidavits containing evidence similar to but somewhat stronger in their favour than the testimony which they had given upon their public examinations. Brown opposed the applications and filed an affidavit denying their allegations. The applications, which were consolidated, were heard partly on the affidavits and party on oral evidence given by the applicants and Brown.

His Honour accepted Brown's evidence, disbelieved that of the bankrupts, and said: "In my opinion they have prepared and developed and concocted a false narrative of the purport of numerous conversations which never took place, and I believe that they had acted in concert to deceive the Court. In my opinion both the Morleys went to Brown with the object of speculating in wheat and of taking advantage of the fact that Brown's business as a merchant and broker was suited to the kind of speculation they desired to carry on."

The effect of Brown's evidence was that he was prepared to buy and sell wheat warrants for persons who wished to indulge in such speculations. When the Morleys wished to buy, he bought warrants from merchants in Sydney at the ruling prices and resold these warrants to the Morleys at amounts equal to these prices plus broker's commission. When they wanted to sell, he inquired the Sydney price and bought from them at a figure which enabled him to sell there at a price equal to this figure plus such commission; although at times the variation in the Sydney market during the day caused him to make a smaller or higher profit than such commission and sometimes a loss. He denied that there was any agreement with either of the Morleys that he would not deliver the warrants or expect them to take delivery if there was no resale, and that the only settlement would be for differences. He said he had warrants in the bank ready for delivery when warrants had been issued in respect of the wheat sold, that he informed them of this, and expected them to take delivery unless they had resold in the meantime. He denied that there was any secret stipulation that the warrants need not be taken up and that the only bargain was for the payment of differences. His evidence as to his dealings with the Sydney merchants and the lodging of warrants with the bank was not contradicted, and he was not seriously cross-examined on either of these points. Apparently his books were available to the appellants, so that if his evidence was untrue it should have been easy to have contradicted him.

The contracts were absolute on their face, the Morleys' evidence tended to show the dealings were genuine, although they never intended to take delivery of the warrants but to resell on or before the due date; and there was ample evidence to justify his Honour as the judge of fact in coming to the conclusion that the transactions were real bargains for the purchase and repurchase of wheat after, as appears from his judgment, he had properly directed himself by asking himself the question put to the jury in Universal Stock Exchange Ltd v Strachan. ^[F26] As Scrutton L.J. said in Ironmonger & Co v Dyne: ^[F27]

"If it were a contract in which differences in prices were to be paid it was not a gaming contract unless it could be shown that there was an agreement between the parties that the purchaser had no right to claim delivery of the goods and the seller had no right to claim acceptance."

The appellants relied upon the decision of this Court in See v Cohen, ^[F28] but the facts in that case were quite different from the present transactions. It is not an authority for the proposition that if it is intended to carry out transactions by the payment of differences, although they relate to genuine sales and resales of goods, it is nevertheless a gaming contract. If it was it would be in conflict with Ironmonger & Co v Dyne. ^[F29] The contract in See v Cohen, ^[F30] which related to the sale of any future dividends on wheat certificates for ¾d. per bushel, provided for settlement to take place on the date of the declaration of the final dividend and that if the dividends, including the final one, exceeded ¾d., the seller would have to pay the buyer the difference, while if the dividends were less than ¾d., the buyer would have to pay the seller the difference. But the buyer alone was speculating, as the seller did not stand to gain or lose anything according to the amount of the future dividends; but was only to receive a fixed-price for the sale of the right to receive them.

The correctness of the decision may therefore be doubted. It certainly does not establish any new principle, and so cannot assist the appellants upon different contracts and facts. Brown's position was really analogous to that of the sharebrokers in Thacker v Hardy, ^[F31] H.W. Franklin and Co v Dawson, ^[F32] and Weddle, Beck & Co v Hackett. ^[F33]

The appeals should be dismissed.

Fuller K.C. (with him Moverley), for the appellants.

Cassidy K.C. (with him Paterson), for the respondents.

Solicitor for the appellants, D. Mander Jones, Wellington, by Barry, Norris & Wildes.

Solicitors for the respondents, Quirk & Davidson, Wellington, by Walter Dickson & Co