Casino Credit Facilities, are they Enforceable Loans?

The trial judge dismissed both the defamation claim and the respondent’s counterclaim. The appellants were unable to adduce evidence in proving that the respondent had on his own or through his agent wrote or published such defamatory statements in Sin Chew Daily News newspaper or in the WeChat account.

In regard to the counterclaim, the trial judge held the counterclaim was an attempt to recover a gambling debt, prohibited under ss 24 and 31 of the Contracts Act 1950 and s 26 of the Civil Law Act 1956. The trial judge found that the enforcement of gambling debts is also contrary to public policy and such contracts are considered nudum pactum (empty contracts) which is unenforceable under the law.

The Court of Appeal unanimously affirmed the trial judge’s decision to dismiss the defamation claim against the respondent due to the fact that the appellant failed to prove directly or by circumstantial evidence that the respondent was the one who had published the alleged defamatory statement.

However, the Court of Appeal allowed the respondent’s counterclaim and found that there was an oral agreement for the lines of credit for gambling purposes and held that the counterclaim was not for recovery of gambling debt as such, but rather for a loan to buy gambling chips. Hence, the two lines of credit and rolling rebate were considered as loans, not gambling debts, and thus deemed enforceable.

The appellants appealed to the Federal Court.

Arguments

The appellant contended that the credit facilities extended to him were part of a composite contract which was essentially a gaming or wagering contract. He argued that the respondent’s claim was for recovery of gambling debts and not a genuine loan, making the claim unenforceable citing section 26 of the Civil Law Act 1956 and subsection 24 and 31 of the Contracts Act 1950.

He further argued that the High Court decision in Wynn Resorts (Macau) SA v Poh Yang Hong was wrongly decided and misunderstood the nature and mechanics of a gaming transaction and as a result it would breach section 26 of the Civil Law Act 1956 and subsection 24 and 31 of the Contracts Acts 1950.

The Appellant relied on the Singapore apex court decision in Star City Pty Ltd v Tan Hong Woon, and other foreign jurisdiction emphasizing that no action could be taken in recovering monies that related to gambling or wagering.

The respondent however, argued that the credit facilities and rolling rebate were not gambling debts, but genuine credit facilities granted in the form of an oral agreement. He further contended that the credit was extended to enable lawful gambling at the Naga Casino in Cambodia and did not involve uncertainty typical of wagering contracts.

Furthermore, the respondent argued that the decision in Star City should not be followed, and the Federal Court should uphold the previous rulings in Wynn Resorts, which allowed recovery, deeming such credit agreements enforceable.

Federal Court Findings

The Federal Court findings were based on three main issues:

1. Whether there was a gaming or wagering contract when the appellant was granted the credit lines and the rolling rebate by Huang Group to the appellant?
2. Whether the granting of the credit lines and rolling rebate was independent of the gaming activities by the Appellant at the casino and to be considered a pure loan and enforceable under Malaysian Law?
3. Whether the recovery of money based on credit lines and rolling rebate is the recovery of gambling debt unenforceable under Malaysian law.

First issue

The Federal Court affirmed that the credit lines and rolling rebate granted to the Appellant did arose from gaming transactions at Naga Casino. The Federal Court further referred to the STG agreement which was signed between Naga Casino and Huang Group which provides that the Naga Casino’s chips are the accepted form of payment for all gambling activities at the casino. Hence, when the credit facilities were given to players in order to be able to purchase gambling chips from Naga Casino, it is undeniable that the appellant’s credit facilities were part and parcel of the gaming transactions.

The Federal Court further stated that the credit facilities granted to the Appellant could also be termed as composite gambling contract since casino chips are only tool for the gamblers in the casino without money or money worth. The Federal Court referred to a case of CHT Ltd v Ward [1965] 2 QB 63 whereby Davis LJ commented that the reason people play games or gambles is to win money, not chips. Chips are not considered as monetary units, but rather symbols used for convenience in gaming.

Such principle was also applicable with the Singapore which has the same law as Malaysia where any gaming and wagering contract is considered null and void thus unenforceable.

The Federal Court further held that the case of Wynn no longer considered as a good law, as the trial judge failed to consider the true nature of the transaction. The credit facility granted to the defendant was solely intended to obtain casino chips for gambling purposes. Accepting such decisions would undermine the legislative intent behind the provisions referred to earlier, rendering them obsolete or redundant. Furthermore, the Federal Court also observed that allowing parties to circumvent the effect of sub-ss 24 and 31(1) of the Contracts Act 1950, as well as ss 26(1) and 26(2) of the Civil Law Act 1956, merely by executing a credit agreement, would contradict the government’s effort to curb gambling and wagering activities.

The second and third issues

The credit lines and rolling rebate in the present case is not a genuine loan distinct from the gaming activities by the appellant at the Naga Casino. This is because the credit facilities were meant solely for gambling at the Naga Casino and without it the appellant unable to exchange it with casino chips for gambling. It is also pertinent to mentioned that such facilities cannot be used for other purposes but for gambling in the casino. Hence, the term of genuine loan does not in line with the credit facilities provided by the respondent to the appellant or otherwise it would allow parties to take advantage on such loose term and indirectly defeat the law.

The Federal Court further affirmed that Malaysia’s position in gaming or waging contracts is similar with the English’s position and referred to the case of Law v Dearnley [1950] 1 KB 400 whereby Judge Tucker LJ mentioned:

“…in my opinion it is the duty of this court to see that actions which are in reality actions in respect of betting transaction only but are given the guise of legitimate transactions by being described as accounts stated, should not be allowed to continue.”

Hence, in the current case, the Federal Court should not accept the credit facilities granted to the appellant to be considered as pure and legitimate. The Federal Court ruled that the reality of such transactions where it related to any gaming or wagering contract is considered null and void and unenforceable as provided under s 26 of the Civil Law Act 1956.

The Federal Court relied on the second limb of s 31(1) of the Contracts Act 1950 and s 26(2) of the Civil Law Act 1956. Whereby both provisions assert that recovery of money or valuable things won through any wager is unenforceable which includes gambling debt.

This stance is similar with the England’s provisions which further affirmed in the case of Hill v William Hill (Park Lane) Ltd [1949] 2 All ER 452 that the second limbs of s 18 of the Gaming Act 1845 applied to all cases brought forward to recover money that is won on wager is consider unenforceable. Hence, it could be seen that regardless whatever terms used by the respondent to claim the money against the appellant, it is without doubt consider as recovery of gambling debt which automatically render such claim to be unenforceable under Malaysian law.