Premier Swiss Group (Australia/Asia) Pty Ltd v. Robins Haigh McNeill Pty Ltd and Anor
13 ACLR 547
(Judgment by: Waddell CJ in Eq)
Supreme Court of New South Wales - Equity Division
Waddell CJ in Eq
Leveraged foreign currency contracts
Whether void as contracts by way of gaming or wagering
(NSW) Gaming and Betting Act 1912 - s 16
Universal Stock Exchange, Ltd v. Strachan, applied -  1 AC 196
Morley v. Richardson, applied - (1942) 65 CLR 512
Hearing date: 16 November 1987
Judgment date: 9 June 1988
Waddell CJ in Eq
An order for winding up the plaintiff company was made by this court on 9 December 1986. Mr J E Walker was appointed liquidator.
Previously, on 24 October 1986, he had been appointed receiver and manager of the property of the company upon an application made by the Corporate Affairs Commission under the Companies (NSW) Code and associated legislation.
The business of the company was to enter into leveraged currency contracts with members of the public. The liquidator has been advised that it is arguable that the contracts entered into were illegal under s 16 of the Gaming and Betting Act 1912. The liquidator has applied to the court for directions as to the basis upon which claims by persons who entered into contracts with the company should be admitted. The first defendant has been appointed by order of the court to represent those persons who assert that:
- the contracts between the company and its clients were illegal, and the clients are not entitled to recover any amount from the company; or
- alternatively, that irrespective of whether the contracts between the company and its clients were legal or illegal, the correct basis for lodgment of proofs of debts is the net balances payable at the conclusion of the said contracts.
In effect, the first defendant has been appointed to represent itself and the other trade creditors. The second defendant has been appointed to represent those creditors who assert that "irrespective of whether the contracts between the company and its clients were legal or illegal, the correct basis for lodgment of proofs of debts is the amounts originally paid by the clients to the company".
In effect, the second defendant has been appointed to represent himself and the other investors in currency deals with the company.
According to the liquidator's affidavit the way in which the company carried on business was as follows:
- the company placed advertisements in interstate newspapers:
- in response to those advertisements, members of the public contacted employees of the company by telephone during which an order was usually placed with the company;
- upon the placement of the order, the company's employees filled out a form entitled "Market Order Form" with the details of the client and the particular transaction;
- the client thereafter sent to the company (usually by telegraphic transfer) sums to complete the transaction, initially most of these were paid into a bank account which in the company's books was styled "Trust Account". Subsequently the funds were paid either to a "working account" with another bank; and
- it was the company's invariable practice to send a letter to each client headed "Confirmation in respect of foreign currency/commodity purchase contract" and signed on behalf of the company.
The letter was in a standard form. The relevant parts of the letter, with details taken from the contract in evidence, are as follows:
This is to confirm that in consideration of our agreement to act on your behalf for the purpose of executing orders for the purchase and/or sale of foreign currency/commodity, you have acknowledged, agreed, and consented to the following:
- Premier Swiss shall deliver the foreign currency/commodity being the leveraged sum specified in Sch 2 on the delivery date specified in Sch 2 on condition that you deliver to Premier Swiss within seven (7) business days prior to the delivery date, a bank cheque in the sum of $A60,431.90 being the difference between the cash sum specified in Sch 2 and the Australian dollar equivalent of the foreign currency/commodity calculated at the ERA, less the 1 per cent commission referred to in cl 7(a), plus 1 per cent of the leveraged sum, being brokerage for physical delivery.
- Premier Swiss has agreed to grant to you an option to terminate its obligations to purchase the foreign currency/commodity at any time prior to the delivery date which option shall be exercised upon receipt by Premier Swiss of written or telephonic communication of its exercise by you.
- Upon exercise of the said option by you in accordance with cl 2 and in consideration of the discharge by Premier Swiss of its obligation to deliver the foreign currency/commodity to you Premier Swiss agrees to pay to you the sum by which the leveraged sum has appreciated in value against the pound sterling. The calculation is based on the official close spot rate of the day on entry, and on liquidation. The appreciation of which shall be converted to Australian dollars at the corresponding rate of the day.
- In the event that you should fail to deliver a bank cheque to Premier Swiss in accordance with cl 1, then you will be deemed to have exercised the said option on the delivery date and the provisions of cl 3 shall apply as at that date.
- The cash sum on receipt by Premier Swiss is the sole property of Premier Swiss, to be dealt with by Premier Swiss as hereinafter provided.
- Premier Swiss has indemnified and undertakes to keep you indemnified against any liability howsoever arising in connection with your contract in excess of the cash sum and in particular Premier Swiss indemnifies and undertakes to keep you indemnified against any and all margin calls.
- You have agreed in consideration of Premier Swiss complying with its obligations hereunder and providing the indemnity described in cl 6, Premier Swiss has your consent to the following:
- It may at any time deemed appropriate by it deduct and transfer from the cash sum to itself absolutely a commission totalling one per cent (1%) of the leveraged sum.
- It shall utilise the balance of the cash sum in its sole discretion to continually secure and hedge the leveraged sum as stated in Sch 2 throughout the currency of your contract.
- It shall be entitled to deduct, retain and transfer absolutely to itself any balance of the cash sum remaining after provision for the items referred to in sub-cll 7(a) and 7(b).
- Premier Swiss has acknowledged that it shall not be entitled to any payment or remuneration from you other than the cash sum, except in the event of you taking delivery pursuant to cl 1, in which case the 1 per cent commission of the leveraged sum for such delivery will apply.
- Premier Swiss will not deal with any moneys received from you in any manner other than as herein provided.
- The transactions referred to herein shall be construed in accordance with the laws of the State of New South Wales and for the purposes of legal proceedings shall be deemed to have been made in the said State and the Supreme Court of New South Wales shall have jurisdiction over all disputes which may arise pursuant thereto.
- This confirmation records the whole of the agreement between us.
Name and address of client: ______________
Particulars of foreign currency/commodity purchase contract (the contract):
- Cash sum received from client: (the cash sum) - $A3,001
- Foreign currency/commodity: (the leveraged sum) - $US24,008
- Commencement date: 25.8.86
- Expiry/delivery date: 31.12.86
- Purchase delivery price: $A36,518.34
- Exchange rate applicable at commencement date: (the ERA) - 1.484"
The figures relate to a transaction entered into on 13 October 1986 with a client in Victoria. The market order form states that the exchange rate between Australian and US currency at that time was.6387. The exchange rate shown in item F is that between the US dollar and the pound sterling.
The liquidator's report says:
Premier Swiss commenced trading as a leveraged currency dealer on 21 April 1986, soliciting business by newspaper advertising in Australia and New Zealand and by telephone canvassing. NSW and national newspaper advertising ceased in mid August after action by the NSW CAC. Its apparently 'high-powered' sales people wrote cash business with 220 clients for almost $1.5 million in the six months to October. One client had his original investment returned and seventeen had 'profit' returned - fifty-five (contracts) were rolled over either wholly or partially.
It is significant to note that currencies 'traded' from April to mid July were mainly in Australian dollars/Deutschmarks, Australian dollars/US dollars and 'profitable' - from mid July to early September mainly in pound sterling/US dollars for six month terms and showing an average 75 per cent return of their original cash sum paid due at 24 October - and from 11 September on again in Australian dollars (down) v US dollars with virtually no returns projected at 24 October 1986. Most 'open contracts' at 24 October 1986 have delivery dates of 31 December 1986 and 28 February 1987.
This makes it apparent that the option amount payable under cl 3 of the contract was expressed in other contracts in terms of currencies other than the US dollar and pound sterling.
I turn first to the effect of s 16 of the Act upon the contracts. This section provides:
All contracts or agreements, whether by parole or in writing, by way of gaming or wagering shall be null and void, and no suit shall be brought or maintained in any court of law or equity for recovering any sum of money or valuable thing alleged to be won upon any wager or which has been deposited in the hands of any person to abide the event on which any wager has been made: ...
In relation to English legislation in the same terms Hawkins J in Carlill v Carbolic Smoke Ball Co  2 QB 484 at 490-1 said:
It is not easy to define with precision what amounts to a wagering contract, nor the narrow line of demarcation which separates a wagering from an ordinary contract; but, according to my view, a wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree 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. It is essential to a wagering contract that each party may under it either win or lose, whether he will win or lose being dependent on the issue of the event, and, therefore, remaining uncertain until that issue is known. If either of the parties may win but cannot lose, or may lose but cannot win, it is not a wagering contract.
This statement was approved in the decision of the Court of Appeal in Petranker v Brown  2 NSWLR 177 by Samuels JA at 181 and by Priestley JA at 194-5. The third member of the court, Mahoney JA, did not deal with this question.
In Thacker v Hardy (1878)
4 QBD 685
at 695 Cotton LJ said:
The essence of gaming and wagering is that one party is to win and the other is to lose upon a future event, which at the time of the contract is of an uncertain nature - that is to say, if the event turns out one way A will lose, but if it turns out the other way he will win.
This statement was approved in the decision of the High Court in Morley v Richardson (1942)
65 CLR 512
by Rich J at 517 and McTiernan J at 522. The passage cited from Carlill v Carbolic Smoke Ball Co was approved by Williams J at 524. Starke J said at 519:
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 .... It was for the appellants to establish their allegation, and to establish it by plain, definite and clear evidence.
In Morley v Richardson the facts were that the petitioning creditor in the bankruptcies of the two appellants, over a period of about 18 months, sold to them a number of grain elevator warrants for large quantities of wheat. The wheat was never delivered to the purchaser, nor were any elevator warrants, but before the time for delivery expired the wheat or warrants were sold back to the vendor. Adjustments of the differences in prices were made at intervals, sometimes in favour of the appellants, but mainly against them. There was a large balance in favour of the petitioning creditor. The High Court affirmed the decision of the court below that the sales were in each case a genuine transaction and that the real agreement between the parties was not one for the payment of differences only between the buying and selling prices.
Starke J referred to the decision of the House of Lords in Universal Stock Exchange, Ltd v Strachan
 1 AC 196
. There the respondent had entered into an agreement with the appellants regulating the terms on which he might make a series of purchases and sales of shares. It was held that there was evidence before the trial jury which entitled it to conclude that the transactions entered into between the parties were not genuine and were gambling transactions. The following passage in the charge to the jury by the trial judge was approved:
... the question which you have to try is whether these transactions were real bargains for purchase of stock, or whether they were simply gambling transactions intended to end in the payment of differences .... A man goes to a broker and directs him to buy and sell so much stock as the case may be. That may be, in the eye of the purchaser, a gambling transaction, or it may not. If he means to invest his money in the purchase of the stock which he orders to be bought, that undoubtedly is a perfectly legitimate and real business transaction. If he does not mean to take up his stock, if he means to sell again before the settling day arrives, that may be a gambling transaction so far as he is concerned, but it is not necessarily a gambling transaction so far as the broker is concerned; and in order to be a gambling transaction such as the law points at, it must be a gambling transaction in the intention of both the parties to it .... Notwithstanding those ostensible terms of business, was there a secret understanding that the stock should never be called for or delivered, and that differences only should be dealt with? If there was that secret understanding, then the plaintiff is entitled to recover his securities. If there was not that secret understanding, then he is not entitled to recover them, and that is the only question with which I need trouble you. (pp 167-8).
I turn now to apply these statements to this case. The effect of the form of contract may be summarised as being that, in consideration of the cash sum paid by the client to the company:
- the company agreed to deliver the leveraged sum of foreign currency to the client on the delivery date on condition that the purchase delivery price (which included, in effect, 2 per cent for commission and brokerage) be paid seven days beforehand; and
- at the option of the client, the company agreed to pay the amount by which the leveraged sum had appreciated against the pound sterling at the time of exercise of the option.
If such a contract reflected the true arrangement between the parties it would not, in my opinion, be a contract of wagering because part of the contract provided for actual delivery of foreign currency and it could not be said that neither of the contracting parties had no interest in the contract other than in some sum which might be won or lost. As a practical matter, the contract provided that a client, who found it profitable to do so, might require actual delivery of the leveraged sum rather than exercise the option provided.
However, it is submitted by the first defendant that the provision for delivery of currency was never intended to be implemented and did not reflect the true arrangement between the parties. This submission was asserted rather than elaborated but the answer to it is by no means obvious and requires some consideration of the circumstances. If this submission is correct the contract would prima facie be a contract of wagering because the agreement between the parties would simply have been one on which, in return for the cash sum, the client obtained a promise of a return on his money dependent entirely on the happening in the future of an event which was uncertain. If the currency appreciated the client stood to gain and the company to lose by an equal amount although, of course, the company would already have gained the cash sum.
It is possible that the contract might reflect the true arrangement in the case of one client but not of another. However, this seems unlikely. It seems reasonable to give a general answer to the question of validity of the contract merely noting that there may be exceptions.
It is to be noted that in each case the agreement between the parties was made orally on the telephone in the first instance and the cash sum was paid before the confirming letter of contract was sent out. There is no evidence of any conversation with any client leading to a cash payment. The court must assume, as apparently the parties have done, that the contract reflects the substance of all conversations.
Two copies of advertisements are in evidence. These indicate what the company was putting forward as the essence of the investment offered. One, published in The Australian and The Financial Review of 2 July 1986 states: "FAST PROFIT NOW! unlimited returns - limited liability - Premier Swiss will structure an investment package to suit your needs ...". The other states: "SIXTY-ONE PER CENT NET PROFIT IN 14 DAYS!" and goes on to state what are claimed to be three actual case histories of clients making large profits in a short time, the longest being 34 days in which 74 per cent was made. It continues: "We specialise in speculation. We offer no guaranteed returns". In my opinion, these advertisements may be regarded as an indication that making quick profits by the exercise of the option given by the agreement was the primary object of each investment rather than the purchase of actual currency.
The market order form used by the company's employees is in evidence. It records the details of the client, details of the exchange rate and the "fee" which is the same amount as the cash sum noted in the contract. There is no provision for mention of the amount of the leveraged sum which presumably bore a particular relationship to the fee. It is unlikely that the amount of the leveraged sum would not have been mentioned in conversation with the client, but the absence of any particulars of it indicate that actual delivery of foreign currency was not in the forefront of the arrangement made orally.
Further, the evidence of the liquidator is that there is no record of the company ever actually delivering the foreign currency the subject of any agreement. In this respect, however, it must be remembered that the company traded for only a short space of time. Although there is in the liquidator's report a statement of the limited bulk hedging carried out by the company there is no evidence to connect it with particular liabilities such as protecting the end position of clients. No attempt has been made by the parties to suggest that the nature of the hedging permits any inference to be drawn as to the arrangement made by the company with its clients.
The matters mentioned indicate that it is likely that in most investments neither the client nor the company contemplated payment of the purchase delivery price and actual delivery of foreign currency as an option likely to be exercised. But this is a long way from saying that cl 1 of the contract is a sham and not part of the legal relationship between the parties. In my view, there is no evidence to indicate that the client was not entitled to claim delivery of foreign currency under this clause or that the company was not obliged to give it. It is possible that, in particular circumstances, a client might have been better off by requiring delivery, even if he had to borrow the purchase delivery price, rather than by exercising his option under cll 2 and 3. It may well be that if the company had traded longer some clients may have found it worth while to take this course.
Accordingly, it is my view that the confirmation of contract sent out did actually record the legal relationship between the parties, that is to stay, the true arrangement made between them. It must be concluded that the contracts made between the company and its investing clients are not void pursuant to s 16 of the Gaming and Betting Act 1912.
There is, therefore, no reason to consider the submissions made for the second defendant that, even if the contracts are void, for a variety of reasons, clients are entitled to prove in the winding up to claim either the whole of their cash sum or the amount to which they would be entitled if the contracts were valid.
The second defendant does not submit that if the contracts are valid any client is entitled to claim more than the amount due under his contract in accordance with its terms. There should be a declaration that each client is entitled to prove in the winding up on this basis.