IS IT A LOTTERY?

Dominion, Volume 5, Issue 1354, 3 February 1912, Page 6

IS IT A LOTTERY?

PREMIUM BONDS. CHARGE UNDER THE GAMING ACT. ALLEGED ILLEGAL PRIZES. UNCOMMON POEM OF INVESTMENT. , At tho Magistrate's Court yesterday afternoon before Dr. M'Arthur, 5.11., tho following charge was brought by the police against the International Investment Company, Ltd.:— That, on January 5, 1912, art Wellington, tliey did sell to one Harold Petersen certain means, to wit, a premium bond issued by the municipality of the City of l'aris, by which permission was given to the said Harold Petersen to have an -interest in a 6Wieme by which prizes of money are gained by a mode of chance.

Mr. T. E. Neave appeared for the prosecution, and tlie defence was conducted by Sir John Findlay, K.C., and Mr. D. Stanley Smith. Mr. Neave stated that tho proceedings were brought for the purposo of determining tho legality of tho International Investment Company in connection with this disposal o'f certain premium bonds. As the company had undertaken considerable obligations the case might go to tho highest Court in the land, but it was necessary, of course, to commence in this Court. , , , , The principal facts had been agreed upon and a statement of them signed by the solicitors on both sides, as follows:— 1. That the company is incorporated in New Zealand under the Companies Act, 1308. , . . „ 2. That tho company carries on in New Zealand the business of selling premium' bonds as hereinafter described. 3. That on January 5, 1912, at Wellington, the company sold to Harold letersen a premium bond issued by the municipality of the City of Paris. 4. That a premium bond is a bond debenture or obligation issued on the Continent of Europe by municipalities, foreign Governments, banks, and other public bodies or institutions in respect of loans usually exceeding one million pounds sterling raised'by them from the public. 5. That the bonds arc issued payable to bearer for amounts varying from 100 francs upwards. 6. That the currency of these bonds varies from. 50 to, 80 years. , 7. That somo of these bonds bear, during their currency, interest at rates varying from 2 to 3 per cent, per annum. B. That others of these bonds bear no interest, but aro redeemable at prices above par, an annual addition being made to each bond by .way of interest. 9. That in all cases theso bonds aro redeemable at not less than par. 10. That, in all cases theso bonds are redeemable by periodical drawings by lot, there being several of such drawings during each year of tho currency of tho bond.

11. That at every snch drawing certain of the bonds so drawn by lot carry, with them substantial money prizes far in excess of tho amount of tho bond, these prizes being paid to tho holder of tho bond so drawn in lieu of the redemption value of tho bond.

12. That tho prizes so obtained by bondholders vary in total amount from £5 to £10,000.

13. That a majority of the bonds so issued obtain no prize, and are redeemed either at par or at tho agreed value above par.

14. Tho bond referred to in paragraph 3 is ono of a seri<>s issued in Paris in 1904. They carry interest at the rato of 2{ per cent.' The loan in respect of which tliey were issued, amounted to 170,000,000 francs, and their payment is guaranteed by the municipality of the City of Paris. The highest premium payable by means of tho periodical drawings hereinbefore referred to is 40,000 francs, and thoro aro four of such drawings at regular intervals each year. This bond illustrates the practice herein described.

15. Panama Premium Bonds' and the City of Ghent Bonds further illustrate tho practioe above described. In the case of the Panama Bonds the amount of the loan is £12,000,000, and prizes to the value of .£135,G00 sterling are annually distributed by lot among tho bondholders. There are six drawings in each year, and on these drawings thero are awarded the following prizes in each year: —Throe of 500,000 francs, three of 25,000 francs, six of 100,000 francs, 12 of 10,000 francs, 12 of 5000 francs, 30 of 2000 francs, 300 of 1000 francs.. In the case of the Ciiy of Ghent Bonds, tho total issue amounts to 70 million francs. Four drawings talce place annually. The total annual value of the premiums is XBOOO. , Mr. Neave proceeded. He said that the information was laid under Section 41 (13) of the Gaming Act of 1908, which stated: , . Every person who sells or disposes of any tickets, or other moans by which permission or authority is gained or given to any, person to throw for, compete, or have any interest in any such lottery or scheme, whetlier promoted in New Zealand -or elsewhere, is liable to a fine not exceeding two hundred pounds, and, for any 6econd offence, besides such fine, is liable to imprisonment for any term not exceeding six'-months. ,Mr. Neavo contended that a person who sold one of the premium bonds in question gave to the purchaser a right to a chance of a prize, and that the person who was to get the prize was discovered by lot. It could not be contended by him that the purchasers of these bonus did get value l'or tho money they spoilt, i Tlic bonds wore redeemable by (it was I assumed) solvent corporations, and the money spent by the purchasers would not be lost. That was to say, he did not contend that the scliemo was a lottery because the purchasers of a bond risked money. Dr. JMrthnr: Ton say-it is a sort of : lottery by which .lie may get a greater amount than he is entitled to.

Mr. Neavo: We say it is a lottery because he obtains a chance of a prize, whether a smaller or a larger amount, and because whether, or not lie gets that prize is determined by the drawing of lots. , Continuing his argument, Mr. • Neavo said that this business of 'the company was tho conducting of. a lottery because the company sold a chance. He referred his Worship to a lino of cases in support of the proposition that if a change was sold it was no defence to an information under the Section of the Act selected that a perfectly goo" security, also, was sold. ' Among the cases quoted by counsel was a decision of the Court of Appeal in England, which, he held, absolutely sot the matter at rest. It was a case in which premium bonds were concerned, and the company was held to be carrying on an illegal business which came within tho Gaming Act as lotteries. Judge Hawkins had saidj "I have no difficulty whatever in deefding that the so-called premium bonds come within the meaning of the Lotteries Act, and that the dealing in them is illegal." "I rely on that for tho decision _ of tho case," said Mr. Neavo. "This Judge agreed with Webster's definition of a lottery—that it was a deciding of tho distribution of prizes by chance." It might be contended by tho defendant that those-bowls correspond in nature to the shares purchased or obtained by persons in building societies, more especially that description of building society known as the Starr-Bowlcett Society. under wliich shareholders got loans frco of interest, the persons who obtained the loans being determined by ballot; that the ballot in those cases was only an incident and not the main object of tho dealing; and that tho ballot, or drawing of prizes, was only a convenient mode of distributine dividends. However. he asked his Worship to say that the two cases were not analogous at nil because under the constitution of tho building societies every member of the society got his loan free of interest: the ballot was merely a means of determining the priority of the recipients of (ho loan. In the case of the premium bonds only a very few extremely fortunate members of tho number who held tho bonds would ever get prizes through tho lottery. So there was a radical difference botwecn the issue of building society shares and premium bonds. indeed, in ISfl-l Ihero was passed in England a Building Societies Act by which balloting for loans was prohibiten. Tho pamphlet issued by the defendant company offered some very nth-active gambling, and in one portion of it there were clauses framed to increase the prizes and !<v=ssn tho chancc*—l ho offering to 1 tho public of what they called "oombinatjons."

Sir John Findlay: "Wo aro not oHerinj any ol those just now."

Air. Reave: "Still, it is appealing to the cupidity of the investor. Tho attraction really appears to Ire tho gambling element. It must appear to anyone who thinks over the matter that tho chances that a person may have of obtaining-a prim by taking one ot those combinations aro thousands and thousands ic ono.

. . . lu litti present case tho loan is 170,000,000 francs, and the bond in question is <i franc bond, to the holder had a 17,000,000 to ono chance."

Overrule the Houso of Lords. In addressing the Court on behalf of the defendant, Sir Jolrn Findlay said that tlie point was u. novel ono in Kew Zealand. Thoso bonds were being l sold in Loudon to-day, and ho would put in a proof of that. "To decide against us," ho continued, "you will haw lo overrule—of course an impossibility—a decision given by tho Houso of Lords." The first essential question was, "What in -reality aro these bonds f" Tho schcrno was not a mushroom growth of yesterday. This system of finance of European Governments had boon in use many years. Tho total amount raised by moans of theso bonds was no loss a sum than 700 millions sterling. It would bo naturally inferred that if theso things were illegal . they would bo stopped in England, lu reply to a cable message, information had bpen received that they were boing eold there still. Sir John Findlay read fk London letter saying that it was perfectly legal to deal in the bonds, but tho results of tho drawings must not be published.

Dr. M'Arthur: "That is to say, you may go to tho totalisatar, but you may not publish the dividend."

Sir John Findlay, continuing, said that in an articlo in the "Encyclopaedia Britannica" Mr. John Scott Keltie, one of the greatest of financiers, said that these bonds must not be confused with lotteries in which tho investor ran llic risk of losing tho whole of his investment. aFirst of all, then, they had the fact that "it was a safe legitimate investment. "It ninst be conceded that there was ait element of gambling, but I submit," said counsel, "it is an,appeal to the eradicable gambling spirit of human nature in order to encourage 1 thrift. It is the sugar of vice covering the pill of virtue to enable it to be comfortably taken." In the cases in which convictions had been obtained in- England it was because of publication, and in New Zealand publication of the numbers was not made. If these wore tickets in lotteries, the obligations on the company could . rot bo enforced by the holders, nor the obligations of the holders bo . enforced by tho company. Tho scheme was not a lottery merely because some part of it determined by lot to whom benefits were to go. For the prosecutipn to succeed the (substantial object of the whole scheme must be a lottery. In tho work on the "Laws of England," which was "tho last word" on the subject (Volumo XV, on Gambling—based on the decision ot tho House of Lords in Wallingford v. tho Mutual Society), it seemed that tho substantial object of tho whole scheme must bo looked at in order to determine that it was a lottery; and that where a scheme had for its main object'' the carrying on of a legitimate business, the fact that it . provided for . tho distributions of -ccrtain benefits by lo'ttcrj would not atfect tho scheme, lu this case, Sir John Findlay continued, tho substantial purposo was the raising of a legitimate loan • for national purposes, and tho drawings were a mere incident to tho main scheme to make_ it I more attractive. In a scheme in which holders were to got .£SOO for 30 years for, nothing, it had boon docided that it waa not a lottery becanso that was not th« substantial purposo. Davis, on tho law of building societies, made no such distinction as Mr. Neavo very ably tried to make during his address. There was no provision in New Zealand, as there was in England, prohibiting the Stnrr-Bow-kett Societies.- So, tho law (on this point) in England, prior, to 1891, was tho law in. Now Zealand to-day. Ho relied upon the fact that the substantial obicot was to raise a loan, and not to create a lottery. In' English law to-day there was no objection whatever to determining by lot what bonds or debentures should be paid off. If n series of debentures was issued those, .to ,be w ,redeemed , might w determined by drawing. Mr. Neave said it was quite cle-ar that the dominant motive of people in New 'Zealand in taking bonds of foreign countries so far away could only bo the chance of getting a .prize. His Worship said that he would do* liver judgment on February 13.