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Morley v. Richardson

65 CLR 512

(Judgment by: Starke J)

Between: Morley
And: Richardson

High Court of Australia

Rich J
Starke J
McTiernan J
Williams J

Subject references:
Commercial contract
Whether speculative transaction by way of gaming or wagering

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

Hearing date: 13 April 1942
Judgment date: 30 April 1942


On Appeal from the Federal Court of Bankruptcy.

Judgment by:
Starke J

Appeals from judgments of the Federal Court of Bankruptcy, District of the State of New South Wales, refusing applications for the annulment of orders of sequestration. The main ground of the applications was that the judgment debts upon which the petitions in bankruptcy were based were obtained inrespect of contracts or agreements by way of gaming and wagering within the meaning of the Gaming and Betting Act 1912 (N.S.W.), s. 16.

The facts disclosed that the petitioning creditor R. A. Brown sold to the bankrupt E. J. Morley grain elevator warrants in the years 1936-1937 and 1938 for nearly half a million bushels of wheat; and to the bankrupt E. H. Morley warrants for nearly a quarter of a million bushels of wheat. The purchases were spread over a number of contracts which on their face were ordinary commercial transactions. To take an illustration, Brown sold to E. J. Morley New-South-Wales Government grain elevator warrants equivalent to approximately 5,000 bushels of f.a.q. wheat 1936-1937 season at 5s. 2½d., and 5,000 bushels at 5s. 1 3/8d. net per bushel less freight as indorsed on warrants and country silo handling charge, prompt net cash in exchange for warrants; the tendering by seller of correctly indorsed warrants at his option during December/January 1936-1937 to constitute delivery. The wheat was never delivered to the purchaser, nor were any elevator warrants. But before the time of delivery expired the wheat or warrants were sold back to the vendor Brown by the purchaser Morley. To take an illustration, Morley sold to Brown New-South-Wales Government elevator warrants equivalent approximately to 10,000 bushels of wheat f.a.q. at 5s. 2½d. net per bushel less freight as indorsed on warrants and country silo handling charge prompt net cash in exchange for warrants the tendering by seller of correctly indorsed warrants at his option during December/January 1936-1937 to constitute delivery. These transactions resulted in a small profit, but over all the transactions the bankrupts lost heavily and their estates were sequestrated.

The law of the case has long been settled. Prima facie a commercial or other agreement operates according to the legal effect of its terms: it must be taken to be what it appears to be. The terms, however, of such an agreement may sufficiently show that it is an agreement by way of gaming or wagering, or it may be proved, notwithstanding the form of the agreement, that the transaction was colourable and not a commercial or other contract but an agreement by way of gaming or wagering, for example, an agreement for the payment of differences only (Forget v Ostigny; F9 Universal Stock Exchange Ltd v Strachan; F10 Ironmonger & Co v Dyne; F11 See v Cohen). F12 It was for the appellants to establish their allegation, and to establish it by plain, definite and clear evidence. The appellants themselves gave evidence of conversations with Brown that they had no money to pay for thousands of bushels of wheat, to which he replied: "You have not got to have any money to deal in wheat; there is no wheat in it. You sign for delivery of wheat contracts and on or before the due dates you sell it back to me and all you do is to pay the differences between the buying and selling price." Brown denied these statements and deposed that he made no agreement with the appellants other than that contained in the written contracts. His business, he said, was selling and buying wheat, and he sold it to the appellants and bought it back from them in the ordinary course of business and covered the contracts which he made with them by transactions with other persons which protected him and could be enforced against him.

The learned Judge in Bankruptcy accepted Brown's evidence and stated that he did not believe the appellants and was of opinion that they had prepared, developed and concocted a false narrative of the purport of numerous conversations which never took place, and had acted in concert to deceive the Court. Still the parties had a great many transactions whereby wheat was bought and sold, and the quantity bought by the appellants was substantially the same quantity as that bought back by Brown from them. No wheat or warrants were ever delivered, but adjustments of the differences in prices were made at intervals, sometimes in favour of the appellants, but mainly against them. The appellants were speculating in wheat, but not wagering or gaming in wheat unless the transactions with Brown were such that nothing was to happen except payment of differences.

Perhaps I should have had more difficulty in reaching the same conclusion as the learned judge, that the transactions between the appellants and Brown were not by way of gaming and wagering, but I cannot say that there is not reasonable evidence to support his conclusion or that it is against the evidence and the weight of evidence. The decision of this Court in See v Cohen F13 was much relied upon for the appellants in argument, but it is based upon a written term in the contract that sellers were to have the option of delivering scrip or of making or claiming a cash adjustment, i.e., payment to be made by sellers to buyers, or vice versa, of the difference between ¾d. per bushel and the amount or amounts per bushel declared from time to time inclusive of final dividend of the New-South-Wales 1915-1916 pool. But the decision has often puzzled me; the sale price was fixed and never altered, but an adjustment was to be made between that price and the amount ofthe dividend declared from time to time. The contract gave the seller the option of collecting dividends instead of delivering scrip. Thus, if the dividend were ½d. per bushel the seller had to collect ¼d. from the buyer to make up the sale price, but if it were 1d. per bushel then the seller had collected ¼d. per bushel more than the sale price and had to account for it and adjust accordingly. The seller got the price agreed upon, neither more nor less, and the purchaser any dividend subsequently declared in accordance with the agreement. It was, I should have thought, an unobjectionable business transaction, and some day the decision may require further consideration. It does not govern these appeals for the reason already given.

These appeals should, as above indicated, be dismissed.

It is unnecessary, in this view, to consider whether the appeals should not be dismissed upon other grounds.

Case Judgement
Table of contents
  Judgment by Rich J
  Judgment by Starke J
  Judgment by McTiernan J
  Judgment by Williams J

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