IG Index plc v State of New South Wales
[2006] VSC 108
•24 March 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 8556 of 2004
| IG INDEX plc AND IG AUSTRALIA PTY LTD | Plaintiffs |
| V | |
| STATE OF NEW SOUTH WALES | Defendant |
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JUDGE: | Bongiorno J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 and 4 August 2005 | |
DATE OF JUDGMENT: | 24 March 2006 | |
CASE MAY BE CITED AS: | IG Index v New South Wales | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 108 | |
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Constitutional law – Inconsistency between State and Commonwealth laws – s 109 Commonwealth of Australia Constitution Act 1900 (Cth) – Whether certain provisions of the Unlawful Gaming Act 1998 (NSW) and the Racing Administration Act1998 (NSW) are inconsistent with Ch 7 of the Corporations Act 2001 (Cth) – Part 1.1A Corporations Act2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D. Graham QC with Dr. M. Collins | Peter G. Richards |
| For the Defendant | Mr B. C. McClintock SC with Mr R. Weaver | Victorian Government Solicitor as Agent for Crown Solicitor of New South Wales |
HIS HONOUR:
On Monday 12 August 2002 The Australian newspaper carried a report of comments allegedly made by the New South Wales Minister for Gaming, the Honourable Richard Face to the effect that a company described as IG Index had flouted New South Wales gaming laws by operating a form of gambling in that State known as spread betting and by advertising its services in respect of spread betting in that State. A spokesman for Mr Face is quoted in the article as saying that the Minister had no doubt that what IG Index did was illegal.
Spread betting is a form of gambling in which the punter backs his predictions of the movements in indices associated with prices in organised markets such as commodity, shares, futures, currency and similar markets. An agreed document detailing the mechanism of spread betting as engaged in by IG Index is Appendix A to this judgment. There is no need for it to be further described here. The concept of spread betting generally (sometimes called index betting) is also described in some detail in the judgment of Lord Donaldson MR in City Index Ltd v Leslie.[1]It is sufficient for present purposes that spread betting is, on IG Index’s own material, clearly a form of gambling.
[1](1992) 1 QB 98 at 103.
On 13 October 2004 IG Index plc and IG Australia Pty Ltd filed a writ in this Court claiming damages against the State of New South Wales for defamation in respect of the statements attributed to the New South Wales Minister for Gaming in The Australian. The plaintiffs are an English and an Australian company respectively, the former being the holder of an Australian Financial Services Licence and the latter its authorised representative. That licence, which is subject to a number of conditions which are not relevant for present purposes, authorises it to carry on a financial services business in Australia concerned with dealing in “derivatives”. The licence entitles it not only to deal in derivatives but also to give advice and “to make a market” in respect of them.
In its defence to the plaintiffs’ statement of claim the defendant took a number of defences including justification, thus raising the truth of the Minister’s statements about the legality of the plaintiffs’ activities as an issue in the proceeding. In reply to this defence the plaintiffs pleaded that as the English company held an appropriate financial services licence issued by the Australian Securities and Investments Commission pursuant to the Corporations Act 2001 (Cth) and that the Australian company was its lawful authorised representative, their activities were lawful, notwithstanding any law of New South Wales. If there was any inconsistency between the provisions of the Corporations Act and any New South Wales law relating to gambling then, to the extent of such inconsistency, the New South Wales law was invalid.
Thus, there arises, in the somewhat unusual context of a claim in defamation, the question of whether s 109 of the Australian Constitution renders certain New South Wales laws relating to gambling inoperative to the extent that they purport to regulate the conduct of a person acting pursuant to a financial services licence issued under the Corporations Act.
The parties to this proceeding seek an order for the trial of the issue raised by the pleadings as to the validity of certain New South Wales gaming laws in the prevailing circumstances as a preliminary question. To that end they have each subscribed to a document entitled “Statement of Agreed Facts and Question” a copy of which is Appendix B to this judgment.[2] In the course of argument further New South Wales statutory provision was relied upon by the defendant, namely s 8 of the Unlawful Gambling Act 1998 (NSW). It was given leave to amend its case accordingly. Following that amendment the question should now read:-
[2]The Statement of Agreed Facts and Question filed had annexured a copy of the first plaintiff’s ASIC licence, its standard form customer agreement entitled “Spread Betting Customer Agreement”, its dealing handbook and a copy of an advertisement published in the Australian Financial Review of 31 July 2004. As there is no issue as to the first plaintiff’s ASIC licence that it engages in gambling with its clients or that it advertises spread betting as gambling it is unnecessary to reproduce any of the annexures to the Statement of Agreed Facts and Question.
“To the extent that IG Index:
(a)engaged in the Activities between 3 July 2002 and 12 August 2002, and;
(b) published the Advertisement;
was its conduct lawful, despite the provisions of ss 8, 9 and 11 of the Unlawful Gambling Act 1998 (NSW) and s 30 of the Racing Administration Act 1998 (NSW) (“the NSW provisions”), by reason that the NSW provisions, insofar as they apply to the Activities, are inconsistent with the Corporations Act 2001 (Cth) and, to the extent of that inconsistency, are rendered invalid by s 109 of the Commonwealth Constitution.”
The term “The Activities” is defined in paragraph 4 of the Statement of Agreed Facts and Question as follows: -
“Over the period from 3 July 2002 to 12 August 2002, IG Index offered to supply and supplied financial spread betting services to the Australian public including the public of New South Wales, in accordance with the terms and conditions of the “Spread Betting Customer Agreement” (“the Activities”)”
The Advertisement is an advertisement in which IG Index offered spread
betting to the public, including the public of New South Wales, published in
the Australian Financial Review on 31 July 2004.
The provisions allegedly contravened
Although the question posed for the Court’s determination appears to be premised on the assumption that one or other or both of the plaintiffs have breached a number of provisions of the New South Wales gambling statutes, argument was advanced by both counsel on the question of whether, if those provisions were operationally valid, the plaintiffs had, in fact, breached them. Accordingly, it is necessary to examine those provisions and reach at least a tentative conclusion as to whether the plaintiffs would have committed offences if they were operatively valid in their case.
The Unlawful Gambling Act is expressed to have as its objects the prohibition, in the public interest, of certain forms of gambling, the prevention of the loss of public revenue derived from lawful forms of gambling and the deterrence of criminal influence and exploitation in connection with gambling activities.[3] In general the Act is concerned to prohibit unlawful games and to declare illegal certain gaming devices. It also preserves the legality of a number of recognised forms of gambling authorised under other legislation such as licensed totalizators, licensed lotteries and art unions, public lotteries, two-up authorised by the Gambling (Two-Up) Act 1998 (NSW), casino gambling and approved gaming machine gambling in hotels and registered clubs.[4] These objects and its provisions generally are relevant to its construction.[5]
[3]Unlawful Gambling Act 1998 (NSW) s 3.
[4]Unlawful Gambling Act 1998 (NSW) s 7.
[5]Interpretation Act 1987 (NSW) s 33.
The defendant contends that spread betting as practiced by IG Index offends s 8(1) of the Act and, specifically, s 8(1)(a) which prohibits:-
“(a)betting on any event or contingency if the person is not present at a licensed racecourse and the bet is made with a bookmaker,”
At first glance this provision seems completely inapt to describe any activity of the plaintiffs. However, they do engage in betting and the movement of, say, a share price index by a predicted amount could be described as an event. Certainly it has about it a notion of uncertainty such that it could qualify as a contingency upon which the plaintiffs’ clients wager. On its face the provision renders the plaintiffs’ activities illegal unless they could be described as bookmakers and they conducted their business on a licensed racecourse.
Although the term “bookmaker” is not defined, s 4 of the Act includes within the meaning of that word any person:-
“(a)who carries on the business of, or who acts as, a bookmaker, bookmaker’s clerk or turf commission agent, or
(b)who gains, or endeavours to gain, a livelihood wholly or partly by betting or making wagers.”
In ordinary language a bookmaker is one who quotes odds and accepts bets on (usually) sporting or similar contingencies. He fixes and quotes the odds at which he is prepared to bet against a particular competitor in an event being the winner. Such odds are fixed so as to ensure, as far as possible, that over all bets held the bookmaker will be financially advantaged no matter which contender wins. This is “making a book”. The extent of the bookmaker’s financial advantage (and whether it is positive or negative) depend upon the amount wagered and the odds at which bets on the winner are held by him as against the amount wagered with him on all non-winners. It may be difficult to bring the plaintiffs within such a description of a bookmaker although they doubtless fix the index movements which they quote and upon which they bet with their clients on similar principles and with a view to a similar result as that sought by a conventional bookmaker at an ordinary race meeting.
Application of the extended definition of bookmaker provided by the Act would require the plaintiffs to “. . . gain or endeavour to gain a livelihood from betting or making wagers”. Again, such a definition could only extend to the plaintiffs if the word livelihood could legitimately be extended beyond its ordinary meaning of the “deriving of sustenance” or “earning one’s living” to include the pursuit of profit generally. It is difficult to see how a company could ever derive sustenance or earn a living in anything other than a notional sense.
Similarly, the agreed facts do not suggest that the plaintiffs’ clients are bookmakers although some might be, and some might fit the extended definition in the Act. In any event it is not even faintly suggested that the plaintiffs carry on their business on licensed racecourses.
The defendant argued that s 8 (1)(a) prohibited all forms of betting other than those specifically authorised by the Unlawful Gambling Act (or perhaps other legislation) unless both parties to the bet are present at a licensed racecourse and one of them is a bookmaker. The plaintiffs submitted that, having regard to the objects of the Act and the context in which s 8 (1)(a) is found, it must be restricted to betting on sporting contingencies, perhaps only on horse races, harness races or greyhound races.
The width of the defendant’s contention suggests that it might not be correct. If it was correct it would mean that, subject to the question of the operative invalidity of s 8 (1)(a) in the plaintiffs’ case, their business would be rendered totally illegal by a provision contained in one sub-section of a long series of provisions, every other part of which is concerned only with betting on sporting contingencies, principally (but not solely) horse, harness and dog racing. It is strange that a sub-section which is itself concerned with bookmakers and racecourses could have the far reaching effect contended for by the defendant.
Having regard to the Court’s conclusion as to the effect of the Federal legislation under which the plaintiffs conduct their business it is unnecessary to reach anything other than a tentative conclusion that spread betting as conducted by them might constitute unlawful betting under s 8 (1)(a) of the Unlawful Gambling Act. Criminal liability would be a distinct possibility if this section was operatively valid in respect of the plaintiffs’ business.
Section 9 (1) of the Unlawful Gambling Act renders bookmaking illegal other than by a licensed bookmaker. The licensing of bookmakers in New South Wales is effected pursuant to the Racing Administration Act 1998 (NSW). That Act has as its objects the ensuring of the integrity of racing in the public interest, the ensuring that certain betting activities by licensed bookmakers are conducted properly, the minimisation of the adverse social effects of lawful gambling and the protection of public revenue derived from lawful gambling. It employs the same inclusive extensions to the meaning of the word “bookmaker” as the Unlawful Gambling Act.
In order to obtain a licence as a bookmaker a person must be authorised by a “controlling body” as defined in the Act. The only controlling bodies in existence at the time relevant to this proceeding were the New South Wales Thoroughbred Racing Board, Harness Racing New South Wales and the Greyhound Racing Authority (NSW).[6] Each of those authorities was permitted to grant an application for a bookmaker’s licence only to “a natural person over the age of 18 years” or a proprietary company which is “an eligible company” within the meaning of s 9AA of the Greyhound Racing Authority Act 1985 (NSW) or similar provisions in the Harness Racing New South Wales Act 1977 (NSW) and the Thoroughbred Racing Board Act 1996 (NSW). The plaintiffs concede that neither of them could qualify as eligible companies as none of their directors is a registered bookmaker under any of the relevant pieces of legislation. Thus, the New South Wales provisions, if they apply to the plaintiffs, seriously affect their capacity to exercise the rights conferred upon them by the ASIC licence issued pursuant to the Corporations Act to the first plaintiff. If either of them is a bookmaker in the terms discussed above, then by engaging in spread betting they would breach s 9(1) of the Unlawful Gambling Act unless their contention that this part of that Act is concerned only with gambling which relates to sporting contests is accepted. That contention is supported by the fact that s 9(2) would appear to render the plaintiffs’ business unlawful even if they were to obtain a bookmakers licence unless they only conducted their business at a licensed racecourse when it was lawful to bet there. The emphasis on bookmakers who bet on sporting contingencies in this part of the Act tends to support the plaintiffs’ argument although, again, it is sufficient, for present purposes, to conclude that s 9(1) may well render the plaintiffs’ business illegal if it is operatively valid in their case.
[6]Racing Administration Act 1998 (NSW) s 4.
Section 11(1) of the Unlawful Gambling Act creates an offence of having a financial interest in a bookmaking business conducted in contravention of the Act. If the Act applies to the plaintiffs such that they are in breach of s 8(1)(a) and s 9(1) it follows that anyone who is entitled to receive any of the income from their business is in breach of s 11(1). Such persons (which would include the plaintiffs themselves) are subject to a criminal sanction.
The final New South Wales statutory provision alleged to have been breached by the plaintiffs’ is s 30(1) of the Racing Administration Act. This provision prohibits the publication of any advertisement that relates to any “gambling operations or services” carried on by a person who is not a licensed bookmaker. The plaintiffs concede that on 31 July 2002 they published an advertisement for spread betting in the Australian Financial Review. The advertisement asserted that profits from spread betting are “tax free” because it is betting. It invited participation in spread betting from readers of the newspaper. Unless the Act generally does not apply to the plaintiffs and their activities it would appear that publication of that advertisement breached s 30 (1)(d) of the Act.
The plaintiffs contend that, read in its proper context and having regard to its objects, its subject matter and the fact that it is primarily concerned with the regulation of betting on racing of various kinds and, by extension, other sporting contests, the Racing Administration Act has nothing to do with activities conducted in financial markets even if those activities can be properly described as “betting”. They argue that the legislation does not apply to them.
The Act is called the RacingAdministration Act. It is concerned with a large number of matters relating to betting on various types of racing, sports betting, the regulation of bookmakers, the licensing of racecourses and similar matters. It is only in Part 4 that it is arguable that it has an application that is somewhat wider. Part 4 is entitled “Betting Information and Advertising”. But even here it is still principally concerned with the activities of bookmakers (licensed by one of the controlling bodies of animal racing) and with “races”. None of the Act’s objects is concerned with restricting the advertising of gambling. Despite these arguments the plain words of the section are certainly wide enough to prohibit the advertisement which was placed in the Financial Review by the plaintiffs. There must be a significant chance that the section applies to them and that they are, accordingly, liable to a criminal sanction if it is valid in their case.
Section 109 inconsistency
Isaacs J in Clyde Engineering v Cowburn[7] accepted that if a competent legislature evinced an intention to “cover the whole ground” with respect to a particular subject of legislation then legislation of another legislature on the same subject would produce inconsistency, even if it was possible to obey both statutes. He considered the “covering the field” test to be conclusive with respect to the inconsistency referred to in s 109 of the Australian Constitution. That inconsistency is demonstrated by the mere existence of two sets of provisions on the same subject. Express words are not necessary. The intention to cover the field may be deduced as a matter of common sense; it need not be expressed in the Federal legislation.
[7](1926) 37 CLR 466 at 489.
In Ex parteMcLean[8], Isaacs CJ and Starke J expressed the same conclusion: when the very same conduct by the same persons is dealt with in conflicting terms by both State and Commonwealth legislation a court has no authority to inquire further into the scope of the State Act. Section 109 of the Commonwealth Constitution applies to render it, pro tanto, invalid. In the same case Dixon J held that inconsistency would exist even where the rule of conduct prescribed by each legislature was the same. However, his Honour excepted the case where Federal law was intended to be supplementary to or cumulative upon State law. The application of s 109 to render a State statutory provision inoperative on the basis that the Federal Parliament has legislated so as to cover the field depends upon its being the intention of the Federal Parliament to express the law exhaustively with respect to the matter being regulated.
[8](1930) 43 CLR 472.
In The Kakariki,[9] the High Court was concerned with competing claims between the State of Victoria and the Commonwealth as to the right of each to remove a ship which had sunk in Port Phillip Bay. The Marine Act 1928 and the Navigation Act 1912-35 (Cth) permitted officials of the Victorian Government and the Commonwealth Government respectively to remove ships sunk in waters in or near the State at their owners’ expense. The Court held that there was no inconsistency between the State and Federal legislation because all that each did was to confer power on the respective public officials to perform the act of removing the relevant wrecks. Dixon J again explained the principle which brings s 109 of the Constitution into effect. His Honour said that where a State law would, if valid, “alter, impair or detract from” the operation of a Commonwealth law then to that extent it is invalid.[10] In any event, if it appeared that the Commonwealth Parliament intended its enactment to cover the field with respect to the law on a particular matter then that fact alone would lead to the conclusion that for the State law to purport to regulate the same activity would amount to a “detraction” from the full operation of the Commonwealth law. Thus it would be inconsistent and, to the extent of that inconsistency, inoperative.
[9]The State of Victoria v The Commonwealth of Australia (1937) 58 CLR 618.
[10](1937) 58 CLR 618 at 630.
In Wenn v Commonwealth[11] Latham CJ acknowledged that there may sometimes be difficulty in determining what the field is as well as whether there was an intention to cover it. In that case the subject matter of each piece of legislation being examined was a scheme for conferring preferences in employment on ex-servicemen. The relevant Commonwealth legislation actually expressed an intention to cover the field. His Honour referred to those cases in which the question of whether it was intended that the Commonwealth legislation would cover the field was determined only by inference from the nature and scope of the statute and concluded that if that was a legitimate forensic exercise then there was no reason why the same result could not be achieved by the Commonwealth Parliament expressly providing that its legislation covered the field.
[11](1948) 77 CLR 84.
Dixon J distinguished the concept of covering the field from an attempt to exclude State concurrent power from a subject the Federal legislature had not effectively dealt with by regulation, control or otherwise. He also acknowledged the difficulty of defining the limits of the power to legislate upon a subject exhaustively so that s 109 would make inoperative State legislation which affected the same subject matter.
The plaintiffs in this case argued that, as the Commonwealth has legislated exhaustively on a full range of activities concerning the provision of financial services and financial markets, some of which may consist of gambling, what is permitted under the Commonwealth regime is lawful regardless of any provision in State legislation. Put another way, they say that the imposition of regulatory requirements by the New South Wales statutes “alter, impair or detract” from the operation of Chapter 7 of the Corporations Act 2001, which regulates the provision of financial services and financial markets in Australia and enables the plaintiffs to be licensed to provide financial services etc in respect of derivatives.
It is common ground that spread betting involves dealing in “derivatives” as that term is defined in s 761D of the Corporations Act. For the plaintiffs to engage in it would be illegal under Federal law (the Corporations Act) without an Australian Financial Services Licence issued by ASIC. The plaintiffs argue that that licence brings the plaintiffs’ activities within the protection of the field of operation of the Commonwealth legislative scheme. Any attempt by the State to impose a further requirement to render those activities lawful, such as the obtaining of a bookmakers licence or operating their business in a particular place would detract from the operation of the Commonwealth regulatory scheme. A fortiori with respect to the prohibition on the advertising of “gambling operations or services” by s 30(1)(d) of the Racing Administration Act. They say that the prohibition by the State of activities permitted by the ASIC licence would create a direct inconsistency resolved in favour of the plaintiffs by s 109 of the Commonwealth Constitution.
The defendant argued that the provisions of the Racing Administration Act and the Unlawful Gambling Act are capable of operating concurrently with the provisions of the Corporations Act so that no inconsistency arises. In particular it submitted that the licensing scheme for bookmakers imposed by the New South Wales Act (or by various New South Wales Acts) is capable of simultaneous obedience with the provisions of that part of the Corporations Act which regulates the provision of financial services with respect to derivatives. Thus, it says, no inconsistency arises. Further, no inconsistency arises, says the defendant, between the Unlawful Gambling Act (save perhaps for an irrelevant clash between s 56 and s 1101I of the Corporations
Act)[12] and the relevant part of the Corporations Act.
[12]Section 56 of the Unlawful Gambling Act renders unenforceable by action in any court any agreement in the nature of an unlawful gamble. Section 1101I of the Corporations Act renders lawful and enforceable any contract that is a financial product (as defined in s 763A of that Act) despite any State or Territory law about gaming and wagering. This apparent conflict may be illusory. The State Act relates only to unlawful gambling.
In the alternative, submits the defendant, the provisions of Part 1.1A of the Corporations Act operate to save the State legislation from the effect of any inconsistency with the Commonwealth Act and thus from operational invalidity.
The ASIC licence and its effect
As already noted, at all relevant times the first plaintiff, IG Index plc held an Australian Financial Services Licence issued pursuant to s 913B of the Corporations Act. This licence permitted it to provide advice, deal in and make a market for derivatives. Spread betting involves dealing in derivatives.
Section 916A of the Corporations Act permits a licensee such as the first plaintiff to appoint an “authorised representative” to provide a financial service within the terms of its licence on its behalf. It is agreed that the second plaintiff, the Australian company, is the English company’s authorised representative for the purposes of this section. Nor is it in issue that the scheme for the regulation of the business of financial services and markets in Australia (including the provision of all the financial services for which the first plaintiff was licensed) is found in Chapter 7 of the Corporations Act. Section 30(1) of the Racing Administration Act forbids what the Corporations Act permits, namely the advertising of certain financial services by a person licensed to provide those services.
Division 4 of Part 7.9 of the Corporations Act is entitled “Advertising for financial products”. Sections 1018A and 1018B lay down a series of requirements for the advertising of financial products. For example, an advertiser must make available a Product Disclosure Statement. An advertisement must provide certain particulars relating to the identity of the issuer of the financial product and there are restrictions on the advertising of certain products which do not require Produce Disclosure Statements because of other provisions of the Act. The division contemplates the advertising of financial products and regulates that advertising. The Corporations Act permits the first plaintiff as an ASIC licenceholder and through it the second plaintiff as its authorised representative to engage in spread betting in New South Wales. It also permits it to advertise that it does so and thus solicit business in that State. So much is clear from a consideration of its licence and the provisions of Chapter 7 of the Corporations Act. The question then is whether the operation of the New South Wales legislative provisions relied upon by the defendant create relevant inconsistency between what the Corporations Act permits the plaintiffs to do and what compliance with the Unlawful Gambling Act and the Racing Administration Act would require or forbid them to do, assuming that any of their provisions apply to them and their activities.
Sections 8 (1)(a) and 9(1) of the Unlawful Gambling Act would require, on their face, that IG Index would have to qualify for and obtain a bookmakers licence in order to provide spread betting in New South Wales and then only on a licensed racecourse! In other words, it would add requirements to those of the Commonwealth Act and would thus “alter, impair or detract from” the operation of the Commonwealth law. Concurrent operation would be possible only by diminishing the effect of the Commonwealth law and detracting from the privilege granted to the plaintiffs by the ASIC licence. Accordingly, a direct inconsistency between the two laws, such as that discussed by the High Court in Ex parte McLean, exists such that, (subject to Part 1.1A of the Corporations Act) the State laws can have no effect on the plaintiffs. The law of New South Wales cannot compel obedience to its requirements by a person holding an appropriate ASIC licence issued pursuant to the Corporations Act which entitles him to engage in the very conduct prohibited by the State Acts. The first plaintiff’s ASIC licence would be rendered useless as far as spread betting was concerned were it to be required to comply with the New South Wales statutes. All of the relevant New South Wales provisions are accordingly rendered operationally invalid as far as the plaintiffs are concerned unless they are saved by Part 1.1A of the Corporations Act.
The validity of s 11 of the Unlawful Gambling Act in the plaintiffs’ case depends upon the validity of ss 8(1)(a) and 9(1) as, unless they are valid, s 11 can have no operation as far as the plaintiffs are concerned. If ss 8(1)(a) and 9(1) are relevantly inconsistent with the Corporations Act, s 11 will suffer from the same inconsistency for the same reasons. It would detract from the effect of the Federal statute in as much as it would impose a criminal sanction on the plaintiffs and those financially interested in them for exercising their rights under the ASIC licence granted to the first plaintiff. Thus, unless a Federal law which regulates the interaction of State and Federal laws in the corporations area is available to save the operation of the relevant New South Wales statutory provisions, s 109 of the Constitution will render all of them incapable of having any effect on the plaintiffs’ business of spread betting. Part 1.1A of the Corporations Act is such a Federal law. It remains to examine whether its provisions save the New South Wales provisions from operative invalidity in this case.
Part 1.1A Corporations Act 2001 (Cth) – Section 5E
Part 1.1A of the Corporations Act is entitled “INTERACTION BETWEEN CORPORATIONS LEGISLATION AND STATE AND TERRITORY LAWS”. It is designed to harmonise the operation of the Corporations Act with certain State and Territory laws to enable appropriate concurrent operation of those laws where that is possible and appropriate. As s 5E(1) says, the corporations legislation is not intended to exclude or limit the concurrent operation of any law of a State or Territory. That this should be so is understandable in the context of the referral of certain State legislative powers to the Commonwealth to enable the corporations legislation to be enacted. That legislation is, as Winneke P noted in Tat Sang Loo v Director of Public Prosecutions (Victoria)[13], the result of political compromise. It was reached at a meeting of the Premiers of New South Wales and Victoria with the Prime Minister on 21 December 2000 to enable a national corporations regulatory scheme to be enacted following High Court decisions which had effected the operation of earlier schemes designed to achieve the same end.
[13][2005] VSCA 161.
Section 5E(2) explains the intention expressed in s 5E(1) as including an intention that the Corporations legislation not exclude or limit the concurrent operation of a State law which imposes “additional obligations or liabilities (whether civil or criminal) on . . .” a company or its officers. But s 5E(4) limits the operation of the saving provisions of s 5E to those cases where there is no direct inconsistency between the State law being considered and the Corporations legislation.
The effect of s 5E is that the Commonwealth parliament has expressly disavowed an intention that the Corporations Act should “cover the field” as far as the regulation of corporations is concerned. State laws are able to continue to regulate rights and obligations of and in relation to corporations provided they do not do so in a way which involves “direct inconsistency” within the meaning of s 5E(4)[14].
[14]HIH Casualty and General Insurance Ltd (in liq) & Ors v Building Insurers Guarantee Corporation & Anor (2003) 203 ALR 610 at 642 per Barrett J.
The concept of direct inconsistency is derived from the many High Court authorities construing s 109 of the Constitution. In Tat Sang Loo Winneke P considered the question of direct inconsistency in the context of Part 1.1A. His Honour (with whom Charles and Callaway JJA agreed) held that, for s 5E to permit the operation of a State law concurrently with the Corporations Act, the State law must not “alter, impair or detract from” the operation of that Act. He referred to the dictum of Dixon J in Victoria v The Commonwealth (The Kakariki)[15] and to Telstra Corporation Ltd v Worthing[16] and R v The Credit Tribunal, Ex parte General Motors Acceptance Corporation[17]. Callaway JA expressly agreed with this formulation. Thus, this Court is bound to apply these criteria to the New South Wales provisions relating to gambling relied upon by the defendant to determine whether they exhibit the characteristics of direct inconsistency with Part 7 of the Corporations Act – that part of the Corporations legislation which regulates financial services and markets. However, in applying the criteria for inconsistency accepted by the Court of Appeal in Tat Sang Loo those criteria must be reconciled with the express statement in s 5E(2)(a) that the Corporations Act is not intended to exclude or limit the operation of a State law which imposes additional obligations or liabilities on a company. Such reconciliation can only be achieved if s 5E(2)(a) is read as permitting the concurrent operation of State laws which impose additional obligations or liabilities (civil or criminal) on companies, but only if by doing so those laws do not exhibit a direct inconsistency with the Corporations Act. The principal of direct inconsistency accepted by the Court of Appeal in Tat Sang Loo must be read in light of this necessary reconciliation between s 5E(4) and s 5E(2)(a) of the Corporations Act – a situation which was not relevant in Tat Sang Loo but is relevant in this case.
[15](1937) 58 CLR 618.
[16](1999)197 CLR 61.
[17](1977) 137 CLR 545.
Mr McClintock SC for the defendant argued that no direct inconsistency arose in this case because both the State and Commonwealth laws were capable of simultaneous obedience. He submitted that the plaintiffs could, at least in theory, conduct their spread betting operation at a licensed racecourse when it was legal to do so after qualifying for and obtaining a bookmaker’s licence from one of the controlling bodies of horse racing, harness racing or dog racing and they could desist from advertising contrary to the provisions of the Racing Administration Act. But in any real or practical sense the imposition of such requirements would destroy the plaintiffs’ capacity to enjoy the privileges granted by the first plaintiff’s ASIC licence. Those provisions would not merely impose additional obligations or liabilities on the plaintiffs. They would impose such obligations or liabilities as would effectively destroy their business – a business specifically permitted and licensed pursuant to the Federal legislation. Further, as Mr Graham QC for the plaintiffs submitted, the implications of a finding that the plaintiffs had to obtain a bookmaker’s licence and operate on a racecourse etcetera would affect every stockbroker who engaged in a financial services business which involved cash-settled futures contracts and futures options. They are contracts of gaming.[18]
[18]See See v Cohen (1923) 33 CLR 174 at 180 and Wilson, Smithett & Cope v Terruzzi [1976] QB 683.
To construe s 5E(1) and (2)(a) as permitting concurrent operation of the New South Wales provisions relevant to this case with Part 7 of the Corporations Act so as to require compliance with those provisions by the plaintiffs notwithstanding the first plaintiffs ASIC licence would appear to ignore the very type of inconsistency to which s 109 of the Constitution is directed. In R v The Credit Tribunal, Ex Parte General Motors Acceptance Corporation Mason J accepted the proposition that the Commonwealth Parliament has no power to enact a law denying the existence of relevant inconsistency when it exists in fact.[19] However, the constitutional capacity of the Federal Parliament to legislate so as to declare no inconsistency in circumstances where the application of doctrine developed by the High Court over a very long time would hold inconsistency to exist was not argued in this case. Mr McClintock confined his argument to a submission that the application of ordinary principles of statutory construction to s 5E(1) and (2)(a) would lead to a conclusion that no inconsistency existed. As this submission must be rejected for the reasons already advanced, no occasion arises to consider further the interesting, if difficult, constitutional question.
[19](1977) 137 CLR 545 at 562.
The relevant New South Wales statutes are not capable of concurrent operation with Part 7 of the Corporations Act. Direct inconsistency in the terms accepted by the Court of Appeal in Tat Sang Loo, as reconciled with s 5E(2)(a), exists so as to require s 5E(4) to operate. Section 5E of the Corporations Act does not apply to save the relevant New South Wales provisions.
Part 1.1A of the Corporations Act 2001 (Cth) – Section 5G
The defendant submits that even if s 5E of the Corporations Act is inapplicable to this case, s 5G operates to save the New South Wales statutory provisions from operative invalidity.
Section 5G is expressed to have effect despite anything else in the Corporations legislation but does not apply to a State law that is capable of concurrent operation with the Corporations legislation.[20] It applies to the interaction between a provision of a State law and a provision of the Corporations legislation if the State provision meets certain criteria set out in a table which is part of s 5G(3). Relevantly for present purposes, that State law must have been enacted and have come into force before the commencement of the Corporations Act[21], it must not have been materially amended after the commencement of the Corporations Act[22] and it must have operated despite the provision in the then Corporations Law of the State which corresponds to the Commonwealth provision[23]. Other criteria which the State law must meet are not now relevant. If the section applies to a State law then s 5G(11) provides that the Corporations legislation, including the Corporations Act, does not operate in the State to the extent necessary to ensure that no inconsistency arises between a provision of the Corporations legislation and a provision of the State law that would, on its face, be inconsistent with it. To avail itself of the saving provision of s 5G(11) the defendant must demonstrate compliance by the State law with the criteria referred to.
[20]Corporations Act2001 (Cth) ss 5G(1) and (2).
[21]Section 5G(12)(a).
[22]Section 5G(12)(b).
[23]Item 1(a)(i) of table in s 5G(3).
The Unlawful Gambling Act and the Racing Administration Act both came into effect in their original form before the Corporations Act, that is to say before 15 July 2001. They were both amended in 2002 by the Racing Legislation Amendment (Bookmakers) Act 2002 but the amendments effected by that Act did not specifically alter the sections relied upon by the defendants in this case although they did alter the system of registration of bookmakers in New South Wales. Such amendments probably did not constitute “material” amendments within the meaning of s 5G(12)(b) to as to render them, for that reason alone, other than “pre-commencement (commenced)” provisions as described in Item 1 of the table incorporated into s 5G(3) of the Corporations Act.
The problem for the defendant in this case posed by s 5G and in particular, s 5G(3) and its table of conditions is demonstrating that the New South Wales statutory provisions relied upon had effect in New South Wales immediately before the commencement of the Corporations Act despite the provisions of the Corporations Law of New South Wales in force at that time “which correspond(s) to the commonwealth provision”. That is to say the defendant must demonstrate that ss 8(1)(a), 9(1) and 11 of the Unlawful Gambling Act and s 30(1) of the Racing Administration Act had effect in New South Wales prior to 15 July 2001 despite provisions in the statute law of New South Wales which then regulated corporations and which now correspond to Part 7 of the Corporations Act. In particular, they mist have operated despite laws corresponding to those sections of the Corporations Act which enabled the granting of its Australian Financial Services Licence to the first plaintiff, enabled the plaintiffs to engage in the business of spread betting under that licence, and to advertise that business.
Mr McClintock proffered two provisions of the former Corporations Law of New South Wales which, he submitted, were the laws of New South Wales in force prior to the Corporations Act which corresponded to the provisions of the Corporations Act which are now said to be inconsistent with the provisions of the Unlawful Gambling Act and the Racing Administration Act upon which the defendant relies. The existence of these two provisions, argued Mr McClintock, brought the relevant Unlawful Gambling Act and Racing Administration Act provisions within the terms of the criteria imposed by Item 1 of the table in s 5G(3) of the Corporations Act so as to make them “pre-commencement (commenced)” provisions to which s 5G(11) would apply. They operated, so his argument went, despite the provision or provisions of the Corporations Law of New South Wales that correspond to the Commonwealth provision with which they are now inconsistent.
The provisions of the Corporations Law of New South Wales to which Mr McClintock referred were ss 778 and 1141. Section 778 appeared in Chapter 7 of the Corporations Law headed “Securities”. It was in a part of Chapter 7 which dealt with securities exchanges and stock markets. Its terms were as follows:-
“778(1) Nothing in a law of this jurisdiction about gaming or wagering prevents the entering into of, or affects the validity or enforceability of, an option contract entered into on:-
(a)a stock market of a securities exchange; or
(b)an exempt stock market.
(2)Nothing in a law of this jurisdiction about gaming or wagering prevents the entering into, or affects the validity or enforceability, of a relevant agreement of a kind prescribed for the purposes of paragraph 92A(1)(b).”
This provision is simple enough. It quarantined option contracts entered into on a stock market of a securities exchange or on an exempt stock market from any New South Wales law about gaming or wagering which might have effected the entry into such an option contract or its validity or enforceability. Section 778(2) preserved the validity of certain agreements from being regarded as illegal under laws relating to gaming or wagering. Those agreements were of a particular type, prescribed by regulation, and were treated by the Corporations Law as if they were securities.
Section 1141 appeared in Chapter 8 of the Corporations Law, entitled “the Futures Industry”, and in a part of that chapter concerned with futures exchanges, clearing houses and futures associations. It provided:-
“1141(1) Nothing in a law of this jurisdiction about gaming or wagering prevents the entering into of, or affects the validity or enforceability of, a futures contract made:-
(a)on a futures market of a futures exchange or of a recognised futures exchange; or
(b)on an exempt futures market; or
(c)as permitted by the business rules of a futures association, of a futures exchange or of a recognised futures exchange.
(2)Nothing in a law of this jurisdiction about gaming or wagering prevents the entering into, or affects the validity or enforceability, of a Chapter 8 agreement of a kind prescribed for the purposes of paragraph 72A(1)(b).”
Again, the section enabled the entering into and preserved the validity and enforceability of futures contracts provided they were made in the manner provided in s 1141(1)(a), (b) or (c). Section 1141(2) conferred similar immunity to s 778(2) from gaming and wagering laws on certain agreements relating to futures.
Mr McClintock submitted that prior to the commencement of the Corporations Act on 15 July 2001, the relevant provisions of the Unlawful Gambling Act and the Racing Administration Act would have been effective to render the plaintiffs’ activities unlawful notwithstanding ss 778 and 1141. The relevant provisions of the gambling laws operated despite those sections of the Corporations Law. He submitted that ss 778 and 1141 correspond to s 1101I of the Corporations Act which is in these terms:-
“1101IDespite any law of a State or Territory in this jurisdiction about gaming and wagering:-
(a)a person may enter into a contract that is a financial product; and
(b)the contract is valid and enforceable.”
His argument that ss 778 and 1141 of the former Corporations Law correspond to s 1101I was that to “correspond” laws did not need to be identical. He relied upon a decision of Asche CJ, of the Northern Territory Supreme Court, Samarkos v Commissioner for Corporate Affairs[24] in which His Honour had to determine whether two provisions in succeeding legislative enactments of the Northern Territory Parliament relating to companies “corresponded”. Each of the sections concerned the duties of a company liquidator upon his discovering information which made it appear to him that persons associated with a company in liquidation may have misapplied money or property of the company. The two sections were s 306 of the Companies Act 1978 (NT) and s 418(1) of the Companies (Northern Territory) Code. Although there were, as His Honour found, obvious textual and operative differences between the two enactments they each required the liquidator to report his belief to a control authority: in one case the Attorney-General, in the other the Corporate Affairs Commission. One section spoke of “an offence in relation to the company for which (a person) is criminally liable”; the other spoke of “an offence under any law of the Commonwealth or of a State or Territory in relation to the company”.
[24](1988) 12 ACLR 764.
Asche CJ considered Sackville-West v Viscount Holmesdale[25]. In that case the court was called upon to construe certain expressions in a will such as “to correspond as far as may be practical’ and “to correspond as nearly as may be”. Lord Cairns held that “to correspond” does not usually or properly mean “to be identical with”, but “to harmonise with” or “to be suitable to”[26]. Asche CJ accepted this analysis of the phrase and found that the two provisions with which he was concerned did indeed correspond. He considered that the differences between them were “. . . no more than necessary changes to bring the earlier sub-sections into line with the provisions of the Code without in any way destroying the general intent”[27].
[25](1870) LR 4 HL 543.
[26](1870) LR 4 HL 543 at 576.
[27](1988) 12 ACLR 764 at 772.
Section 778 and 1141 of the Corporations Law of New South Wales and s 1101I of the Corporations Act are each concerned with exempting certain activities from gaming and wagering laws. The difference is that the two earlier provisions are very specific as to the activities exempted. They are confined to dealings in options and futures. On the other hand, having regard to the definition of financial product in s 763A of the Corporations Act and the provisions of Division 3 of Part 7.1 of the Act generally, s 1101I purports to exempt a much more extensive range of transactions from the operation of State gambling and wagering laws. It does this by the use of very broad definitions. A financial product is defined in s 763A as a facility through which or through the acquisition of which a person makes a financial investment, manages financial risk or makes non-cash payments! Each of these concepts is expanded even more widely in subsequent sections. To say that ss 778 and 1141 correspond with s 1101I is correct only at such a high level of generality that such correspondence is largely meaningless. It is confined to the result of the application of the various statutory provisions, not to most of the dealings or transactions upon which those provisions operate.
Mr McClintock argued that the purpose of the conditions imposed by the table in s 5G(3) to qualify a legislative provision for inclusion under the section was to preserve the status quo as it was at the commencement of the Corporations Act, namely on 15 July 2001. However that may be, the language used in the three sections being considered does not permit a conclusion that the first two “correspond” to the third.
In any event, the successful demonstration of sufficient correspondence between s 778 and 1141 of the Corporations Law and s 1101I of the Corporations Act would be of no avail to the defendant. The relevant Commonwealth provisions which would need to “correspond” in this case would be those contained in Chapter 7 of the Corporations Act. It is under those provisions that the first plaintiff holds its ASIC licence and the plaintiffs conduct their business. It is those provisions which are inconsistent with the Unlawful Gambling Act and the Racing Administration Act. Chapter 7 does not correspond to any provisions of the Corporations Law. It was inserted into the Corporations Act by an amendment in 2001 with effect from 11 March 2002. There were no equivalent provisions in the Corporations Law which regulated financial services and markets. Correspondence between the sections proffered by Mr McClintock and s 1101I of the Corporations Act is irrelevant for the purpose of seeking to demonstrate that the New South Wales provisions as to gambling upon which the defendant relies qualify as “pre-commencement (commenced) provision (s)” under Item 1 of the table set out in s 5G(3) of the Corporations Act.
Finally, the New South Wales provisions as to gambling do not meet the criteria in Item 1 of the table set out in s 5G(3) because they did not operate prior to the commencement of the Corporations Act “despite” the provisions of the Corporations Law of New South Wales. Section 5 of the Corporations (New South Wales) Act 1990 (NSW), which gave legislative effect to the Corporations Law provided:-
“5.(1) An Act enacted, or an instrument made under an Act, after the commencement of this section is not to be interpreted as amending or repealing, or otherwise altering the effect or operation of, this Act or the applicable provisions of New South Wales.
(2) Sub-section (1) does not affect the interpretation of an Act, or of an instrument made under an Act, so far as that Act provides expressly for that Act or instrument, as the case may be, to have effect despite a specified provision, or despite any provision, of this Act or the applicable provisions of New South Wales.”
The “applicable provisions of New South Wales” included the Corporations Law: s 3(1) Corporations (New South Wales) Act 1990.
There is nothing in the Unlawful Gambling Act or the Racing Administration Act which could be said to “provide expressly” that they were “…to have effect despite a specified provision, or despite any provision …” of the Corporations Law of New South Wales.[28]
[28]See Tat Sang Loo v Director of Public Prosecutions (Victoria) [2005] VSCA 1261 per Winneke P at [34] and Callaway JA at [48].
It follows that as none of the New South Wales provisions relied upon in this case by the defendant can be brought within Item 1 of the table set out in s 5G(3) of the Corporations Act, s 5G cannot operate to save those provisions from the operation of s 109 of the Constitution. They are thus rendered operationally invalid with respect to any activities of the plaintiffs authorised by the first plaintiff’s ASIC licence.
Conclusion
Sections 8(1)(a), 9 and 11 of the Unlawful Gambling Act and s 30(1) of the Racing Administration Act may apply to the plaintiffs’ business and its advertising of it. However, each of those provisions is directly inconsistent with the provisions of Part 7 of the Corporations Act so that, to the extent of that inconsistency, they are deprived of operative validity by s 109 of the Commonwealth Constitution. They are not saved by the provisions of Part 1.1A of the Corporations Act and, in particular, by ss 5E or 5G of that Act.
The question posed by the parties in the Statement of Agreed Facts and Question annexed to this judgment is answered in the affirmative.
The parties will have leave to submit minutes reflecting the determination of this question as a preliminary issue in the proceeding pursuant to RSC r.47.04, any order concerning their pleadings consequent upon this determination, other directions and costs.
APPENDIX A
The financial spread betting service offered and supplied by IG Index operates as follows:
(a)At the request of a customer, IG Index quotes an index range for a nominated market index or a price range for a nominated share, currency, commodity, interest rate or option as at a future date specified by the customer.
(b)The customer may place an ‘up bet’ or ‘buy’ bet if he or she wishes to bet that, at that future date, the relevant index or price will be higher that the top of the range quoted by IG Index. Such a customer is said to have ‘bought’ at IG Index’s quote. If, when the bet expires on the future date, the index or share etc. is higher than the top of the range quoted by IG Index at the time of the bet, IG Index pays to the customer the amount of the bet, multiplied by the number of points or cents by which the actual index or price exceeds the top of the quoted range.
(c)The customers of IG Index may place a ‘down bet’ or ‘sell’ bet if he or she wishes to bet that, at that future date, the relevant index or price will be lower than the bottom of the range quoted by IG Index. Such customers are said to have ‘sold’ at IG Index’s quote. If, when the bet expires on the future date, the index or share etc is lower than the bottom of the range quoted by IG Index at the time of the bet, IG Index pays to the customer the amount of the bet, multiplied by the number of points or cents by which the bottom of the quoted range exceeds the actual index or price.
(d)The customers of IG Index may ‘close’ a ‘buy’ bet at any time before the specified future date by ‘selling’ at IG Index’s quote for the relevant index or share etc. rate at the time of closing. Customers may ‘close’ a ‘sell’ bet at any time before that date by ‘buying’ at IG Index’s quote for the relevant index or share etc at the time of closing.
(e)If, when a ‘buy’ bet expires on the future date without having been closed, the index or price is lower that the level of the index or price at which the bet was placed, the customer becomes liable to pay IG Index an amount calculated by reference to the amount of the bet and the downward movement in the level of index or price.
(f)If, when a ‘sell’ bet expires on the future date without having been closed, the index or price is higher that the level of the index or price at which the bet was placed, the customer becomes liable to pay IG Index an amount calculated by reference to the amount of the bet and the upward movement in the level of index or price.
APPENDIX B
STATEMENT OF AGREED FACTS AND QUESTION
Agreed Facts
The first plaintiff (‘IG Index’) is and was at all material times a company incorporated in England and Wales and registered as a foreign company under the Corporations Act 2001 (Cth).
On 3 July 2002 the Australian Securities and Investments Commission granted to IG Index Australian Financial Services Licence number 220439 pursuant to section 913B of the Corporations Act 2001 (Cth), a true copy of which is annexed hereto and marked ‘A’ (‘the Licence’).
The Licence authorised IG Index, from 3 July 2002, to carry on a financial services business as specified therein.
Over the period from 3 July 2002 to 12 August 2002, IG Index offered to supply and supplied financial spread betting services to the Australian public including the public of New South Wales, in accordance with the terms and conditions of the ‘Spread Betting Customer Agreement’ (‘the Activities’). The Spread Betting Customer Agreement is annexed hereto and marked ‘B’. That agreement incorporates by reference the IG Index Dealing Handbook, which is annexed hereto and marked ‘C’.
In engaging in the Activities over the period from 3 July 2002 to 12 August 2002 in accordance with the terms and conditions of the Licence, IG Index:
(a)carried on a financial services business (as defined in section 761C of the Corporations Act);
(b)provided general financial product advice (as defined in sections 766A(1)(a) and 766B of the Corporations Act) for derivatives (as defined in section 761D of the Corporations Act and in regulation 7.1.04 of the Corporations Regulations);
(c)dealt in derivatives by issuing, applying for, acquiring, varying or disposing of derivatives; and
(d)made a market (as defined in sections 766A(1)(c) and 766D of the Corporations Act) for derivatives to retail and wholesale clients.
IG Index has not at any time held a licence under the provisions of the Racing Administration Act 1998 (NSW) and was not at any time a licensed bookmaker for the purposes of the Unlawful Gambling Act 1998 (NSW).
On 31 July 2002 IG Index caused to be published in New South Wales an advertisement in the Australian Financial Review newspaper, a true copy of which is annexed hereto and marked ‘D’ (‘the Advertisement”).
Agreed Question for Separate Trial under Rule 47.04
To the extent that IG Index:
(a)engaged in the Activities between 3 July 2002 and 12 August 2002, and
(b)published the Advertisement;
was its conduct lawful, despite the provisions of sections 9 and 11 of the Unlawful Gambling Act 1998 (NSW) and section 30 of the Racing Administration Act 1998 (NSW) (‘the NSW provisions’), by reason that the NSW provisions, insofar as they apply to the Activities, are inconsistent with the Corporations Act 2001 (Cth) and, to the extent of that inconsistency, are rendered invalid by section 109 of the Commonwealth Constitution?
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