The Essential Concept of a Wagering Contract: Key Features and Potential Implications

What is a Wagering Contract?

By way of background, in short, a wagering contract is one whereby "a person obliges himself to pay money or money’s worth to another upon the happening of an uncertain future event". Exemplifying the real essence of what a wagering contract constitutes, and how it may impact matters concerning gambling debts and/or the like, are the comments of the late Auslender J in "The Attorney General for the State of New South Wales v. Golden Ocean Group Limited" returned following the appeal prior to the subsequent Federal Court trial, whereby his Honour explained that essentially: "gambling contracts are void unless made under legislative authority enabling such wagers to be entered into and whether it is useful or necessary to use the term "wagering contract" to distinguish a contract which contravenes a statute rendering it void in part or in whole is not necessary". Irrespective of the opinion of the Court in New South Wales, other decisions have settled on the definition of a betting contract as being "a contract by which the parties agree that one (the loser) shall win from the other or lose to the other a sum of money depending upon the determination of an uncertain event." In contrast, a mere gaming contract is where in lieu of obligations , a prize is instead awarded to the winner. In other words, a wagering contract must exemplify a mutual agreement relating to bets (which may constitute money, property, goods or services), otherwise there can be no wagering contract, as highlighted in the case of "Consolidated Fertilizers Pty Limited v Duffy [1980]" which validated the notion that a true wager must necessarily involve a compromise between betting parties as to profits which formulates the existence of an uncertain and independent event upon which a loss may or may not be suffered by way of the aforementioned bets. Illustrating this aspect further, the case of "Bryan v O’Connor [1935]" had highlighted that "if the agreement is, in the whole course of dealing, simply a venture, a hazard, a risk, without any more than bet and win, and bet and lose, it is void; but if there be anything indicating mutual agreement as to profits, then it must be treated as a wager". As such, it is clearly indicative that a wagering contract will be characterised based purely on the existence of an inter-party agreement as to a bet, which must be "hitched or coupled" to a future uncertain event – in other words, a bet as to a "winning outcome" which is contingent on a genuine level of subjectivity.

Legal Regulation of Gambling or Wagering Contracts

The legal position in relation to wagering contracts varies by jurisdiction. It is important to consider the law in each relevant jurisdiction in order to determine first, whether there is a contract, and second, the extent to which it would be possible to enforce it in court.
Contracts where anything is won or lost are considered void and unenforceable in England and Wales. Contracts in restraint of trade are generally unenforceable in an employment context. However, the courts have the power to sever contracts incorporating offensive clauses, only enforcing the non-offensive parts.
Unless governed by a statute such as the Gambling (Licensing & Advertising) Act 2014, English common law applies which does not permit a person to bring a claim to recover money under a wager.
Contracts with an element of chance may be enforced although again, English common law applies which means that an action for breach of contract cannot be brought in England for a game or wager. In practice, a claim could be purchased in such circumstances for less than the value of the waged amount. A vengeful gambler could also bring a claim alleging misrepresentation given there is always an element of chance in these circumstances.
In Jersey and Guernsey, a contract whereby one person agrees to pay another a sum of money or a benefit or suffer a detriment depending on the outcome of a competition or event is not considered capable of being enforced by the court. The relevant courts may still exercise equitable powers to prevent unconscionable conduct.
In Australia, contracts of the type described above are considered to be gambling contracts. Gambling contracts are void where an element of chance is relied upon or the agreement is for gaming, the sale or transfer of rights of future property in winnings or in a prize.
Contracts will be enforceable in the United States unless invalidated by statute or public policy.
In many other jurisdictions, the relevant courts have a discretion to refuse to enforce a contract for gambling where there is a violation of public policy. For example, in South Africa, contracts relating to gaming, worth above 10,000 South African rand, are unenforceable.

Criteria for a Wagering Contract

When it comes to gambling, the concept of a betting or wagering contract is at the heart of the matter. The essential elements of such a contract are that there will be mutual chances, there will be a prize, and the outcome or event will be uncertain. To put it in other terms, the elements of a wager will be: Each party will have an interest in an uncertain or unknown outcome for purposes of gaining the prize for himself or herself. For a wagering contract to be deemed enforceable in the event of a lawsuit, the contract must contain all of these elements. Further, to be deemed a proper wagering contract, there shall not be an expectation of a certain outcome – in other words, be no reason that a person waged his home, if not knowing he may win a million dollars. There will be a risk, but the outcome must not be certain in any way.

Wagering Contracts and Insurance Contracts

The distinction between wagering contracts and insurance contracts
There is an important distinction between wagering contracts and insurance contracts. Essentially, a wagering contract is, in essence, a gamble. The parties know that the contract is a gamble when it is made. That is its quality, and it is a quality that will strike a court exactly as some red light will strike a kid on the street; the contract will be void. And this will be so whether it is called an insurance contract or not. It is not surprising that, as a matter of fact, in the years after Hayne, many doubtful economic consequences flowed from the anomaly created in the law, whether they were intended by the courts or not. The question that was almost universally asked by those courts, and by the lawyers who advised their clients, was whether or not the contract was a betting or a wagering contract; all the case-law in the years to follow was animated by this question. There are, however , other aspects of the Richmond Exchange Ltd case. The first is as to uncertainty. It is obvious that if a contract is void because it was illegal ex ante, that is, before anything had happened, there should be very stringent rules governing uncertainty. And this is so. A wager must be legal in its terms, it must be possible, it must be complete, and it must be certain (subject to different rules applying to unilateral contracts). This test is applied strictly. Thus, when the Court was considering a contract for a horse race, if one could not identify which horse was to win, the contract would fail. However, in the case of insurance contracts, many of the conventional rules are less manifest. Insurance contracts are known, as a class, to be insurance contracts. How the actual events they insure against may happen is rarely knowable. Further, they are completed when an event happens, even if the event may not be certain. For these reasons the law of insurance contracts has few certainties.

The Effect and Consequences of a Wagering Contract

Parties to a contract should be aware that entering into a wagering contract has no legal effect. Any such contract is entered into at the risk of the parties, as the parties to a purported wagering contract will not be able to enforce the agreement in the courts. In doing so, parties should also keep in mind that by entering into a wagering contract (whether or not it is legally enforceable) such parties may have committed an offence pursuant to the Criminal Code Act 1995 (Cth), and expose themselves to the full rigour of Federal and/or State criminal law. Further, a contract based on chance or luck (even if it does not amount to a "wagering contract" for the purposes of the legislation) may be subject to the operation of the contracts formulation titled Ex turpi causa non oritur actio (from a dishonourable cause an action does not arise). In very general terms, this principle means that courts will not assist the claimant to have rights or seek to recover damages under a contract should the contract arise out of the claimant’s involvement in an illegal activity or crime (i.e., betting or gambling). When applying this principle, the Court will make a decision by balancing public policy interests against the rights of the claimant. There is also the potential for a party to argue that the contract in question is unenforceable because the arrangement raises illegality issues i.e. it is against public policy. For example, a contract for the sale of a stolen item, or agreement to sign a contract whilst intoxicated and unable to understand its practical effect. Of course, these limitations are subject to the Court being satisfied the illegal or immoral activity is closely connected with the contract.

Current Trends and Developments on Wagering Contracts

Wagering contracts have undergone significant changes in public perception and legal treatment. Historically consigned to the underbelly of a criminalised society or regulated by morality, its relationship with legality evolved from a time when gambling was outlawed amidst political infighting and societal derision. The 19th Century Union Club case, determining the validity of wagers was helped by the win of Douglas Macfarlan’s horse Cossack in the 1873 Melbourne Cup.
In the 20th Century, Australia’s relationship with gambling continued to evolve. Growth in international tourism exposed a new client base: whether it was professional punters or high rollers in Victorian casinos, who contributed over $300 million to the pokies alone, gambling was harnessed and redirected into benefitting the wider community. State revenues from gambling in NSW and Victoria for the financial year 2013-2014 were $2.4 billion and $3.41 billion respectively, increasing annually 0.6% and 2.48%. Gambling industries play an integral role in our economy; providing entertainment, creativity and employment. However, community concern for problem gambling is a balance which must be had. Accordingly, the gambling welfare industry is a substantial sector, costing the Australian government $7 million every year.
As gambling has been absorbed into perceived public interest, the legal treatment of wagering contracts followed suit. Once void at common law, wagering contracts were gradually legitimised Professor Leslie Zines’ ground-breaking 1975 Law Review article correlated this change, describing the shift in rulings from ‘unconditional right to eat one’s own dog’ to ‘conditional right not to give one’s cat the death penalty’ -reflecting a progressive recognition of wagering’s place in society.
Further changes in the law followed. The flow on effects of this decriminalisation saw gambling regulated by special legislation under the Gambling Control Act 2013 and various regimes imposed by different states, each with their own racing codes, controlling bodies and licensing authorities. The enforcement of the future warrants a discussion of how these state bodies navigate licensing, reliance and errant behaviour in wagering contracts .
Gambling saturated Australian life in the 1980s with an estimated 30% of the population gambling regularly. A change in mentality coupled with increasing legal tolerance reflected a cultural shift in the 1990s, where antagonistic relationships with gambling disappeared amidst increased access through betting corporations, member based gaming venues and later on, online gambling. The shift from outlaw to empire builder made profits attractive to various industries. Paired with a deregulated sector, the convergence of industries designed to optimise profits has seen the growing of an otherwise niche industry. For example, the financialisation of gambling markets has simplified the decision to gamble into a simple price risk factor, where an index is available to investors, bringing another quantitative dimension to betting contracts and wagering. Effectively, gambling has become a global market, with personalised investment options across several betting platforms.
Parliament has since intervened to manage the ramifications of this new sector. In July 2013, the Federal Minister for Communications’ $1 billion Telecommunications Interception and Access Amendment (TAIA) Act 2013 was enacted. It allows interception of personal communications in the past 45 days between any two selected terminals for the purposes of investigating online gambling. The TAIA Amendment was addressed after the success of ‘Chiptyke’, where alleged money laundering was intercepted during 2010 to 2011. The scheme co-ordinated bulk communications data with data from betting sites, backroom call betting and gaming venues and was used to identify thousands of potential ‘whales’ in a relatively small pool, without connection to any other crime.
Given the recent focus on crime and gambling, the protections and responsibilities of betting operators envisage a spotlight on anti-money laundering, problem gambling strategies and minimisation of harm. On the other hand, industry growth and community attitudes will raise questions for commercial arrangers of wagering contracts, including entitlements to remedies upon breach, application of duties of care, reliance and non est factum.