Pham Van Thank and Le Thu Nguyet v Nguyen Mink Hoang, Dieu Tuan Kiet, Vu Duc Lam, Nguyen Kuu Ba and Dinh Thi Chung No. SCGRG 94/1067 Judgment No. 4869 Number of Pages - 10 Contracts

[1994] SASC 4869

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA BOLLEN(2) PRIOR(3) AND DUGGAN(1) JJ

CWDS
Contracts - appeal against finding that appellants were liable to indemnify respondents in respect of amounts paid by respondents following default of appellants in making payments due under a money lending scheme - appellants and respondents took part in a traditional Vietnamese scheme known as "Hui" - scheme involved a series of meetings at which the participants were entitled to bid for the loan of money contributed by the group - in the event of failure to repay amounts due from such borrowing the convenor of the scheme was required to make the repayments and seek indemnity from the defaulter - appellants had defaulted but denied liability to indemnify on ground that the scheme was a lottery and void by operation of the provisions of the Lotteryand Gaming Act, 1936.

The learned trial judge held that the general scheme was a "lottery" within the meaning of the Act but that the indemnity was a separate agreement and not tainted by illegality. Held that no part of the scheme was a lottery and that the respondents were entitled to be indemnified.

Kneebone v Whittle (1922) SASR 257 at 260; Ampol Petroleum Ltd v O'Sullivan
(1960) SASR 137 at 140; Church, Vice Horseman v News Limited (1933) SASR 70; Wallingford v The Mutual Society (1880) 5 AC 685 and Mutual Loan Agency Limited v Attorney-General for New South Wales (1909) 9 CLR 72 referred to.

Further question as to whether respondents entitled to judgment in respect of defaults by the appellants where payments had fallen due but the amounts had not yet been paid by the respondents. Held that the respondents were entitled to an order that the appellants pay to them the amounts which had fallen due even though the liabilities had not been discharged by the respondents. However relief in respect of amounts which had not fallen due would be restricted to a declaration that the appellants are liable to indemnify in respect of payments which fall due after the date of trial and remain unpaid.

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 595; Firma C-Trade S.A. v Newcast'e Protection and Indemnity Association (1991) 2 AC 1 and Re Dixon (1994) 1 Qd. R. 7 referred to.

HRNG ADELAIDE, 9-10 November 1994 #DATE 8:12:1994

Counsel for appellant:     Mr F Difazio

Solicitors for appellant:    White Berman

Counsel for respondent:     Mr B Fox

Solicitors for respondent: John G Mcginn

ORDER
Appeal allowed for limited purpose of adjusting the judgment sum and making the declaration referred to.

JUDGE1 DUGGAN J Each of the five respondents issued proceedings in the District Court against the two appellants claiming breach of contract by them. There was an alternative claim for restitution. The five separate actions were heard together. The learned trial judge found in favour of the respondents and entered judgment against the appellants for the amounts claimed in each action.

2. At the trial of the actions the appellants claimed that the agreements relied upon were illegal in that each was a "lottery" within the meaning of that term as defined in the Lottery and Gaming Act, 1936 and that they were void and therefore unenforceable. The learned trial judge found that each transaction between the appellants and the respective respondents was comprised of more than one agreement and, although he found that some of the agreements in each case were unlawful and void, he concluded there was, in each case, a contract of indemnity between the parties which was severable from the unlawful agreements and enforceable against the appellants. He also found that the respondents were entitled to recover the amounts claimed by way of their alternative claims in restitution. On appeal the appellants argued that the illegal nature of the transactions defeated the claims made under both causes of action.

3. The parties were all born in Vietnam and the actions arose out of their involvement in a money lending scheme used extensively in Vietnam where arrangements made under it are not only enforced by the civil law of that country but criminal sanctions apply to those defaulting under the obligations created by the scheme.

4. The scheme is known as "Hui" and it is necessary to provide a brief explanation of its operation. It is initiated by a person who desires to borrow money for a particular purpose. That person nominates himself or herself as a Hui leader and assumes the responsibility of convening a group of people willing to take part in the Hui. The participants are usually drawn from the leader's circle of relations and friends, the element of trust being an important ingredient of the scheme's success.

5. The contribution which each participant is to make and a timetable of meetings are decided upon by the leader prior to the first meeting. To use an example given in the course of evidence, it might be decided that the leader and ten other persons will take part; that the amount of each contribution will be $1,000; that the Hui will commence on 1st August, 1993 and conclude on 1st June, 1994; and that there will be a meeting on the first day of each month throughout that period.

6. At the first meeting the leader will be entitled to collect $1,000 from each of the other ten members. The $10,000 thus collected can then be used for the purpose intended by the leader. No interest is payable on this amount but the loan itself must be paid back by monthly instalments of $1,000 at each of the remaining ten meetings. The participants are prepared to allow the interest free loan to the leader in return for the leader acting as the convener and administrator of the Hui and also by reason of the fact that he must accept responsibility for any defaulting member.

7. At the second meeting all participants except the leader are entitled to bid for the total amount which will be contributed by the participants in the course of the meeting. The bids are made by way of a silent auction. There is no obligation to make a bid but all those wishing to do so write their bids on a piece of paper. The bids are usually placed in a receptacle and are then drawn out. The person who places the highest bid is entitled to the monies contributed on that occasion. If more than one person bids the highest amount then the bid which was drawn first succeeds. By way of illustration, if the highest bid is $50.00 then the successful bidder will be entitled to the use of the money to be contributed at that meeting calculated as follows:
    First repayment of leader                 $1, 000
    Nine contributions from the
    remaining consisting of the
    amount of the monthly contribution
    ($1,000) less the amount
    of the bid which is payable
    to each of the remaining
    members ($50.00)=($1,000 - $50.00) x 9    $8, 550
    Amount received by successful bidder        $9, 550

8. A participant who is the successful bidder at one of the monthly meetings becomes a "dead" member and cannot bid at subsequent meetings. The convener is also deemed to be "dead" after the first meeting. "Dead" members cannot share in the amount offered by the successful bidder and so they must pay the full amount of the contribution ($1,000) at each meeting which follows their successful bid.

9. At the third meeting in the example given there will be nine "live" members eligible to bid. If the highest bid is, say, $45.00 then the person making that bid will be entitled to a loan calculated as follows:
    Two contributions of $1,000
    from the "dead" members, namely,
    the convener and the successful
    bidder at the second meeting
    ($1,000 x 2)   $2, 000
    Contributions from the eight
    "live" members less the amount
    of the bid=($1,000 - $45.00) x 8             $7, 640
    Amount received by
    successful bidder   $9, 640

10. The process is repeated up to and including the tenth meeting. At the last (11th) meeting the last "live" member will receive the total number of contributions due at that meeting ($1,000 x 10=$10,000). Although interest calculated in the usual way is not payable on the loans, the cost of each member's loan is the amount of his or her bid multiplied by the number of "live" members at the meeting at which the bid is made.

11. If a member defaults, then the convener must make good the default by paying the amount due. If the convener defaults on his own account the loss is suffered by the members at large. It should also be pointed out that a person can be a member of a number of Huis at any given time.

12. Before considering further the nature of this scheme and the claim that it is unlawful it is convenient to examine the circumstances leading up to the present litigation as found by the trial judge. There is no challenge to the learned judge's findings of fact. He reached the conclusion that the respondents were honest and reliable witnesses and he accepted the versions of the facts which they gave in evidence. The appellants are husband and wife and the female appellant was the only witness for the defence. The trial judge could place no confidence in her testimony and rejected her version where it conflicted with that given by any of the respondents.

13. The respondent Hoang convened a $300.00 Hui in June 1990 with 65 participants and another $300.00 Hui in November 1990 with 61 participants. The appellants became members of both Huis and they were the highest bidders of the June Hui on 28th October, 1990 and the November Hui on 23rd December, 1990. They received $10,940 from the June Hui and approximately $10,000 from the November Hui.

14. The June Hui and the November Hui conclude on 6th May, 1995 and 1st July, 1995 respectively. The appellants made some payments, but then defaulted. The amount actually paid by the respondent Hoang to other members by reason of the defaults is $19,500. The amount which he is obliged to pay in the event of continuing default up to the termination of the Huis is $13,500. The learned judge gave judgment in favour of the respondent Hoang for the total of these amounts, namely, $33,000.

15. The appellants joined Huis convened by each of the other respondents and made similar defaults in the case of each Hui after making some initial payments. It is unnecessary to set out the details of each Hui. Suffice to say that the respondents paid some of the amounts due by reason of the defaults in each case and the trial judge gave judgment in their favour for these amounts and other amounts which the respondents are obligated to pay because of the appellants' defaults. In the result judgment was given in these other actions for the following amounts:
    Respondent     Amount
    Kiet         $ 33,000
    Lam            $ 16,500
    Ba             $ 9,000
    Chung         $ 11,700

16. The learned trial judge was of the view that there were a number of separate contracts between the participants in the various Huis in their various capacities, but the most important finding for present purposes was as follows:
    "With respect to the contract between the successful
    bidder/defaulting member and the convener, in my judgment,
    the terms which are expressed or implied therein include
    inter alia the following which are relevant for present
    purposes, namely that if, having won a pot, the successful
    bidder fails to make any contribution either wholly or in
    part, as and when due and/or as and when called upon to do
    so at any time during the period after winning the pot
    referrable to that member's live membership and before the
    extinction of the life of Hui, the convener will make good
    the default for and on behalf of the defaulting member, and
    the defaulting member will indemnify the convener against
    all contributions so made by the convener for and on his
    behalf, and will repay those moneys to the convener either
    immediately in a lump sum, or at such other time, and
    either in a lump sum and/or in such instalments as may be
    mutually agreed upon between the convener and the
    defaulting member."

17. This finding was accepted by the appellants on appeal. However, as I have already pointed out, the appellants contended that the agreement which included these terms was unenforceable because it was rendered void by the Lottery and Gaming Act, 1936.

18. A "lottery" is defined in s4 of the Act as -
    "a scheme, competition or device for the sale, gift,
    disposal or distribution of property, real or personal, or
    money, or any thing or any right thereto or of any share
    therein depending upon, or to be determined by, lot or
    drawing, whether out of a box or other receptacle, or by
    cards, token, coin or dice, or by any machine, ticket,
    envelope or device or chance whatsoever; and includes a
    scheme, competition or device for the sale, gift, disposal
    or distribution of property, real or personal, or money or
    any thing or any right thereto or of any share therein
    where -
    (a) entitlement to participation in the scheme, competition
    or device depends upon the payment of money, the purchase
    of a ticket or the giving of some other valuable
    consideration by the participant;
    and
    (b) such disposal or distribution depends, at any stage of
    the scheme, competition or device, upon an element of
    chance, notwithstanding that such disposal or distribution
    also depends, at some stage of such scheme, competition or
    device, upon a genuine or purported display of knowledge or
    skill;
    and also includes any sweepstakes."

19. Section 5 provides:
    "Every lottery is hereby declared to be a common nuisance
    and unlawful, and every sale or gift, disposal or
    distribution made by means or in pursuance thereof void."

20. Section 7 provides:
    "No person shall promise or agree to -
    (a) pay any sum of money; or
    (b) deliver any goods; or
    (c) do or forbear doing anything for the benefit of any
    person,
    whether with or without consideration, on any event or
    contingency relative or applicable to the drawing of any
    ticket or tickets, lot or lots, numbers, figures, or names
    in any lottery or
    (d) publish any proposal for any of the purposes aforesaid.
    Penalty - Two hundred dollars, or in default imprisonment
    for three months."

21. The learned trial judge, after considering the arrangements involved in the various Huis, said:
    "It is my opinion that although when tendering their bids,
    the members of Hui exercise substantially more than a
    slight degree of skill in an endeavour to become the winner
    of the pot in question, the end result, on the evidence as
    a whole, having regard to the examples quoted by Mr Di
    Fazio in the case at bar, leads me to conclude, as I do,
    that it is really the element of chance that preponderates
    the degree of skill, and that it does so at various times
    and during each stage of the operation of Hui."

22. It was on this view of the matter that he reached the conclusion that the scheme came within the definition of "lottery" in the Act.

23. Although private and unlicensed lotteries have been declared illegal by statute in England since the latter part of the 17th century, there is no statutory definition of "lottery" in any of the English statutes. However the accepted definition at common law is - "A distribution of prizes by lot or chance." (Taylor v Smetten (1883) 11 QBD 207 at 210. See also the more extensive definition in Reader's Digest Association Ltd v Williams (1976) 3 All ER 737 adopted by the House of Lords in Imperial Tobacco Ltd v A-G (1981) AC 718).

24. These elements of the common law definition were incorporated into the definition of "lottery" in the first South Australian statute dealing with lotteries, the Lottery and Gaming Act, 1875. (Kneebone v Whittle (1922) SASR
257 at 260; Ampol Petroleum Ltd v O'Sullivan (1960) SASR 137 at 140.) The definition in s2 of that Act remained unchanged until the passing of the Lottery and Gaming Amendment Act, 1970 which repeated the earlier definition in substantially the same terms up to and including the words "or chance whatsoever" appearing in the present section and then added the remaining words of the present section.

25. The 1970 amendment, and particularly that part of it contained in s4(b), was clearly intended to resolve the frequently recurring problem at common law and under various statutes of determining whether an element of skill played a part in a particular scheme. If there was, then the English authorities held that, despite the existence also of an element of chance, the scheme was not a lottery. (Scott v DPP (1914) 2 KB 868; Moore v Elphick (1945) 2 All ER 155).

26. In Church, Vice Horseman v News Limited (1933) SASR 70 Angas Parsons J was of the view that the South Australian statute warranted a stricter view. He said (p77):
    "In the statutory definition there is nothing which
    expressly declares that a competition is not a lottery if
    some degree of skill is present. The relevant words are
    'depending upon or to be determined by any chance
    whatsoever,' and it is necessary to consider in each case
    what the facts are, and to see upon what the distribution
    really depends. Certainly, it is not a lottery if the
    element of skill preponderates or balances the element of
    chance, but if in truth one must say that although there is
    room for some slight degree of skill still the
    determination is really a matter of chance, then, for my
    part, I should say that the competition was within the
    definition."

27. However the difficulty remained of assessing the comparative incidence of skill and chance. It was for this reason, no doubt, that the amendment brought within the scope of the Act an arrangement which depended at some stage upon an element of chance, notwithstanding the presence also of some element of skill.

28. It is common ground that there is an element of skill and experience exercised by participants in Hui, but under the present Act the only relevance of considering the exercise of skill when assessing whether a scheme is a lottery lies in distinguishing the arrangement from one in which chance plays a role. Skill is the most obvious antithesis of pure chance, but there may be other factors which demonstrate that the scheme is not aleatory in character.

29. In the present case, leaving aside for the moment the procedure for determining which of two or more highest bids is to be accepted, the scheme cannot be said to depend upon chance in the sense contemplated by the Act. Whether or not a participant is successful in securing a loan at a particular meeting is dependent upon the extent to which he or she is prepared to bid as compared with the level of other bids. As in the case of an auction one could speak of the "chance" of success, but that is not the sense in which chance is an element in a lottery. Bidding as part of a Hui involves conscious and deliberate decision making which will determine the eventual result. In addition it is relevant to take into account that the result may be influenced by the element of skill and experience previously referred to.

30. However Mr Di Fazio, for the appellants, laid considerable stress on the "tiebreaker" procedure in the event of equal highest bids. According to the argument there is always a possibility that this situation will eventuate and, when it does, the choice between the highest bids is determined by chance ballot. There was some evidence that the use of this procedure was not an unusual occurrence, but on my reading of the facts as found by the learned trial judge there was no evidence that it occurred in any of the Huis which are the subject of this litigation.

31. In order for that element of the definition of "lottery" which is identified in s4(b) of the Act to be established, it must be proved that the disposal or distribution depends on an element of chance at some stage of the scheme. A contingency which might take place in the course of a particular Hui falls short of establishing this essential ingredient of chance in every scheme entered into pursuant to the rules of Hui. If the "tiebreaker" scheme is not an essential step to be taken in every Hui and was not in fact utilised in any of the Huis involved in this litigation, then it can hardly be said that the individual schemes depended, even in part, on an element of chance.

32. In any event it is difficult to accept that the purpose of the Act was to make such schemes unlawful. Hui is designed to provide genuine loans to borrowers who pay the equivalent of interest (with the exception of the convener who provides other consideration for his loan.) The procedure at each meeting simply determines the consideration for the loan and the order in which the members are to borrow.

33. In interpreting the provisions of the Act regard must be had to its purpose. Although decided under different legislation it is of interest to note the view taken by the House of Lords in Wallingford v The Mutual Society
(1880) 5 AC 685 where the defendant society accumulated capital by means of monthly subscriptions from members so as to provide a fund for loans to members. The right to receive a loan was determined by the members drawing lots. Despite the fact that this introduced an element of chance the House of Lords rejected the view that the scheme was a lottery and did so on the basis that the transactions were clearly outside the purpose of the legislation.

34. In Mutual Loan Agency Limited v Attorney-General for New South Wales
(1909) 9 CLR 72 the High Court found that a scheme described by the promoters as "genuine ballot loans" was, in reality, a distribution of prizes by way of lot or chance and, therefore, a lottery. Barton J said:
    "This is very far removed from the case of Wallingford v
Mutual Society 5 App. Cas., 685 where the persons concerned
    had associated themselves for the laudable purpose of
    enabling the members to build houses, on the principle of a
    Starr Bowkett Society. There, for want of a better method
    of deciding who shall have the benefit for which they are
    associated, it is determined by chance or ballot, the issue
    being not who shall have a prize, but who shall have the
    privilege of this loan the obtaining of which is the
    general object of all the members. That is a totally
    different case from the present."

35. In my view the schemes with which the present case is concerned are outside the scope and purpose of the Act and, for the reasons already given, they do not come within the definition of "lottery" in s4 of the Act.

36. Mr Di Fazio quite properly conceded that a finding that the scheme was a lottery was essential to the success of the appeal and, in the circumstances, it is unnecessary to consider the other grounds of appeal concerned with the consequences of illegality and the alternative claim for restitution.

37. There remains a dispute as to the quantum of the judgment sum in some of the actions. The parties were agreed before the trial judge that the respondent Lam should receive the sum of $16,500 and the respondent Ba the sum of $9,000. However the respondents Chung and Kiet have paid some but not all of the amounts which should have been paid by reason of the appellants' default, despite the fact that the Huis with which these respondents were concerned have now been completed. Furthermore in the case of the respondent Hoang, he paid some of the amounts not paid by the appellants but the Huis in which he is involved do not end until May and July 1995 respectively.

38. The learned trial judge gave judgment for the total amounts claimed, including payments which had fallen due but which had not been paid by the respective respondents at the time of trial and, in the case of the respondent Hoang, payments which were not due but for which Hoang would be responsible by reason of the appellants' anticipated continuing default to the end of the Huis.

39. The trial judge found, and it was not disputed by the appellants, that the arrangement between the appellants and the respondents included an undertaking that the respondents would pay to the members the amounts in which the appellants defaulted and that the appellants would indemnify the respondents in respect of those payments.

40. At common law the right to an indemnity arises on payment of the liability and not before. (Port of Melbourne Authority v Anshun Pty Ltd
(1981) 147 CLR 589 at 595.) However, as was pointed out in Firma C-Trade S.A. v Newcastle Protection and Indemnity Association (1991) 2 AC 1, there is a more extensive remedy in equity. Lord Brandon said (p28):
    "There is no doubt that before the passing of the Supreme
    Court of Judicature Acts 1873 and 1875, there was a
    difference between the remedies available to enforce an
    ordinary contract of indemnity (by which I mean a contract
    of indemnity not containing any express 'pay to be paid'
    provision) at law on the one hand and in equity on the
    other. At law the party to be indemnified had to discharge
    the liability himself first and then sue the indemnifier
    for damages for breach of contract. In equity an ordinary
    contract of indemnity could be directed to be specifically
    performed by ordering that the indemnifier should pay the
    amount concerned directly to the third party to whom the
    liability was owed or in some cases to the party to be
    indemnified. Johnston v Salvage Association (1887) 19
    Q.B.D. 458, 460, per Lindley LJ; British Union and
National Insurance Co. v Rawson (1916) 2 Ch. 476, 481-482,
    per Pickford LJ. There is further no doubt that since the
    passing of the Supreme Court of Judicature Acts 1873 and
    1875 the equitable remedy has prevailed over the remedy at
    law."

41. The relevant cases are reviewed in the judgment of Shepherdson J in Re Dixon (1994) 1 Qd R 7.

42. In my view, therefore, the trial judge was empowered to order the appellants to pay the amounts concerned to the respondents even though the liabilities had not been discharged by the respondents. However I do not think that principle can be extended to those payments which have not fallen due in the case of the unfinished Huis convened by the respondent Hoang. In the case of this respondent the judgment sum should have been calculated by reference to the payments which had fallen due up to the date of trial and in respect of which the appellants had defaulted. The total of these amounts is not immediately apparent on the evidence and I would invite counsel to provide this court with the relevant details. The learned trial judge included an amount for payments which had not fallen due in the judgment sum and I am of the view that the award must be adjusted accordingly. However it would seem that the respondent Hoang is entitled to a declaration that the appellants are liable to indemnify him in respect of payments in the two Huis conducted by him which fall due after the date of trial and which remain unpaid.

43. For the reasons which I have given I would dismiss the appeals against all the respondents except the respondent Hoang and I would allow that appeal for the limited purpose of adjusting the judgment sum in accordance with these reasons and making the declaration to which I have referred.

JUDGE2 BOLLEN J I agree with the order proposed by Duggan J and with his reasoning.

JUDGE3 PRIOR J I am in substantial agreement with the reasons published by Justice Duggan. In particular, I share his view that the mere possibility that a tie-breaker might be required should not render the entire scheme illegal. A meaning of the word "depend" is, "to rest entirely upon for support, or what is needed": Shorter Oxford English Dictionary. That meaning seems the most appropriate here. The distribution of money in this case does not depend upon an element of chance. The scheme is not resting entirely on what is to occur in the event of a tie-breaker. It is not a lottery as defined in s4 of the Lottery and Gaming Act 1936.    Even if that view be wrong, and the scheme is a lottery within the meaning of the Act, the nature of this scheme is such that the courts should not decline to effect remedies in equity: Pavey and Matthews Pty Ltd v Paul (1987) 162 CLR 221 and Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 155 CLR 107 at 175 and 176. The plaintiffs are entitled to judgments. I agree with what Justice Duggan has said about the issue of damages and with the orders he proposes.