Global Enforcement of Gambling Debts

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SPRING 2011

Litigation onthe worldwideweb

THE INTERNATIONAL MAGAZINE FOR GAMING LAW SPECIALISTS

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Many interactive gaming operators have gaming licences inwell-regulated jurisdictions such

as Alderney, Gibraltar and the Isle of Man. Generally, licensed operators in these

jurisdictions will be allowed to acceptplayers from countries where the gamblingin question is legally uncertain. Unlike GreatBritain, which considers the gambling totake place at the operator’s location, manycountries will often assert jurisdiction evenif the operator does no advertising and has minimum contacts within thegambler’s country.

One important business decision wouldbe how to minimise the prospects of beingforced to litigate a gaming dispute broughtin the gambler’s country by a dissatisfiedplayer or, more importantly, ensuring thatthe dissatisfied player is not able to avoidpayment of interactive gambling debts.

In Hong Kong, Ontario and the US,gaming operators licensed in offshorejurisdictions have recently litigated incountries where internet gambling is eitherillegal or of questionable legality. In thesethree jurisdictions, the offshore operatorswere able to be successful largely becauseof a forum selection clause in the gambling agreement between the operatorand player.

This article will discuss the cases in thesethree jurisdictions: Hong Kong, Ontario,

Canada, and a federal court in Ohio, US. Intwo of the cases the forum selection clausewas an important, if not crucial, factor in thefavourable decision for the offshore gamingoperator. In Hong Kong, the forum selectionclause of Gibraltar was barely mentioned.

Hong Kong

In Victor Chandler (International) Ltd vZhou Chu Jian He, the Hong Kong courtshad to determine whether Victor Chandler,an internet bookmaker licensed in Gibraltar,could enforce HK$28m in gambling debts,commencing on March 20, 2003, whenseven post-dated cheques weredishonoured by a Hong Kong bank. Thedefendant was a Peruvian businessman whoordinarily resided in Beijing, but hadsubstantial real property and businessinterests in Hong Kong.

Litigation began in 2005 when Chandlerobtained a default judgment after thedefendant failed to respond to the plaintiff’swrit which was served “by inserting itthrough the letter box of the defendant’sHong Kong business address on February 8,2005.” The Master had set aside a defaultjudgment (August 2005), a decision whichwas affirmed by the court when defendantproved he was not in Hong Kong during thetime of service.

The court rejected the defendant’s forumnon conveniens argument that Beijing wouldbe “the more appropriate place for the trialof the action” since the defendant “is nowordinarily resident there and was soresident when he opened this gamingaccount with the plaintiff and that theconversations leading to the opening of theaccount were held there. He also says that ifthe trial is not held in Beijing he will bedeprived of an unanswerable defence to theaction because gambling debts areunenforceable in the PRC.”

The court concluded: “What the defendanthas to do is to demonstrate that it would becorrect to deprive the plaintiff of the right tosue in the courts of Hong Kong. This he hassingularly failed to do.” Hong Kong wasespecially appropriate since the “contractmade between the parties in respect ofthese cheques was made here or, at thevery least, breached by dishonour here.” Thecourt also opined that the defendant “is nowindulging in a most unattractive wriggle totry to get out of paying this debt. Had hewon his bet he would, no doubt, haveexpected to be paid. Now that he has lost heis trying to get out of paying.” The defendanttherefore failed to obtain an order topermanently stay the action because HongKong was held to be the appropriate forum.However, the writ by the plaintiff had to be re-served.

On October 24, 2007, a court denied thedefendant’s request to set aside an ex parteorder that allowed Chandler to serve asummons and claim outside of thejurisdiction and for substituted service. Thedefendant then requested the order be setaside primarily because “the cheques wereunenforceable because the consideration forthem, being for the purpose of repaying aloan advanced for gambling, is illegal as amatter of Hong Kong law.”

The appellate court analysed theApplication of English Law Ordinance,effective 1966, whose purpose was “todeclare the extent to which English law is inforce in the colony.” The defendant reliedheavily on the Statute of Anne, Gaming Actof 1710, as amended in 1843, and on Moulisv Owen (1907), where an English AppellateCourt concluded that the prohibition ofgambling debt enforcement applied toforeign legal gambling debts such as in acheque drawn on an English bank.

The court concluded: “It is commonground that the AELO ceased to be part of

By Professor Joseph Kelly and Alex Igelman

Global enforcement of gamblingdebts - forum selection clausescan be crucial

Professor Joseph Kelly

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the laws of Hong Kong as of July 1, 1997,and any imperial Act that had beenincorporated into Hong Kong law by reasonof the AELO (including the Gaming Act 1710)would have ceased to be applicable to Hong Kong.” Furthermore, prior to the“hand-over,” while English Appellate“decisions would have been persuasiveauthority, they were not binding on thiscourt. I accept that a decision of the Englishcourts on the construction of an Englishstatute would naturally be of great weight.Nevertheless, I do not regard it as aforegone conclusion that Moulis wouldnecessarily have been followed.”

Instead the court concluded that thedissenting opinion in Moulis was correctlargely because the “Statute of Queen Annewas ‘of a local character.’ To give it abroader application would be to make it outof harmony with the chain of statutes ofwhich it forms part.” Thus the court deniedthe defendant’s motion to dismiss because“there is a serious issue to be tried.”

On December 31, 2007, the plaintiffobtained a default judgment which thedefendant then attempted to set asidebecause the judgment was “irregular” or,alternatively, that he had “a meritoriousdefence of the type that has a ‘real prospectof success’ as would on the relevantauthorities in these circumstances berequired of him.” On December 3, 2008, theCourt of First Instance concluded thejudgment was not irregular becausedefence lawyers failed to obtain either a stayor an extension of time.

The defendant argued that thetransactions were illegal, because gamblingdebts are illegal both in Gibraltar and in thePRC where the matter was transacted. Thecourt concluded that British law “17.(1)Section 18 of the Gaming Act 1845 (whichrenders wagering contracts unenforceable)shall not form part of the law of Gibraltar.”Moreover, the judge “construed section50(1) as declaratory that gambling is lawfulin Gibraltar and acknowledgement by thelegislature that the Gaming Act 1845 did notapply to Gibraltar. This construction issupported by the wording of Sub-section (2)which disapplied Section 1 of the GamingAct 1710 and Section 1 of the Gaming Act1835. In contrast, with the words “shall notform part of the law of Gibraltar” used in50(1), 50(2) uses the words “shall no longerform part of the law of Gibraltar.”

The court dismissed any PRC “illegality”argument because “the parties agreed totransact on the basis of Gibraltar law and itmatters not where the defendant was whenhe placed those bets. If he happened to be

in the PRC then he may well have brokenPRC law, but that is a matter between himand the PRC authorities, it will not affect therecoverability of any debt based on thosetransactions under Gibraltar law whichgoverns the position.”

Two things are remarkable about thelitigation. First, the gambler failed to stressthat internet gambling pursuant to statute isillegal in Hong Kong. The Hong Konglegislative assembly enacted the Gambling(Amendment) Ordinance 2002, whichcriminalised both the placing of the gamingbet and the operator who accepted a wagerfrom Hong Kong. The defendant ignored this and instead discussed whether HongKong would permit enforcement ofgambling debts.

Gaming operators should be aware thataccepting Hong Kong gambling customersis illegal, except for the Hong Kong JockeyClub, which has a monopoly in that area.Second, the gaming operator made only abrief mention that the parties agreed tolitigate any dispute in Gibraltar. Had thegaming operator emphasised theenforcement of a forum selection clause,then the case might have been much easierto resolve in its favour.

Canada

One interesting gambling case in Ontarioinvolved the validity of a forum selectionclause. In Bérubé v Rational EntertainmentLtd, the major issue was whether thefollowing Isle of Man choice of law andforum selection clause was enforceable inan online poker dispute. The agreementstated: “The agreement and any mattersrelating hereto shall be governed by, andconstrued in accordance with, the laws ofthe Isle of Man. Each party irrevocablyagrees that the relevant courts of the Isle ofMan shall have exclusive jurisdiction inrelation to any claim, dispute or differenceconcerning the agreement and any matterarising therefrom and irrevocably waivesany right that it may have to object to anaction being brought in those courts, or toclaim that the action has been brought in aninconvenient forum, or that those courts donot have jurisdiction.”

Notwithstanding this clause, the plaintiffsued defendant Rational Entertainment Ltd(Poker Stars) in Ontario’s small claims courtfor $983.45 in poker losses which sheclaimed was a result of fraud and requestedpunitive and other damages. She alleged that the “governing law” clausewas invalid since her claim had nothing todo with the agreement because the

defendant was “operating an onlinecasino illegally.”

The Ontario Superior Court of Justice(Divisional Court), in upholding thedismissal of the plaintiff’s claims, stated:“Her action does concern the agreementand/or ‘any matters relating to theagreement.’ The subject matter of herStatement of Claim, in my further opinion,relates to ‘any claim, dispute or differenceconcerning the agreement and any matterarising therefrom.’ The language ofparagraph13 is very wide and there is novalid reason why it should be given anarrow interpretation.”

The court also stated that Ontario law isdeferential to any forum selection clausesince “deference to forum selection clausesachieves greater international certainty,shows respect for the agreements that theparties have signed and is consistent withthe principle of international comity.” Thecourt suggested that the plaintiff’s appealwas “frivolous and vexatious” and required$6,000 in security should the plaintiff wantto appeal further.

When the plaintiff appealed to a three-judge Superior Court panel, sheconcentrated on the licence agreementbeing an adhesion contract which should beunenforceable because it is against publicpolicy and is illegal. While the court said “atfirst glance, that argument (illegality) isattractive,” the user agreement mandatedthat it was the plaintiff’s responsibility toverify that online poker was legal in theplaintiff’s jurisdiction. In dismissing theappeal, the plaintiff was assessed costs of$3,000. The matter is no longer beforethe court.

United States/Ohio

In Wong v PartyGaming, Ltd the plaintiffsrequested class certification for allPartyGaming customers who lost playing ata PartyGaming site from January 1, 2002, toOctober 13, 2006. They claimed damages ofover $5m, which is the minimum necessaryfor federal class action certification. Theplaintiffs alleged numerous causes of actionsuch as misrepresentations, violation ofstate consumer protection laws andprimarily fraud because they alleged thatPartyGaming had falsely assured playersthere would be no risk of player collusion.

The federal district court concluded theclass might number “hundreds ofthousands or more” but limited the class toOhio residents since different stateconsumer laws prevented commonquestions of law and fact, which were

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mandatory for any class action lawsuit.The plaintiffs then filed two amended

complaints which included one for an Ohioclass and a second for class members from23 other states. When PartyGaming failed totimely respond to the plaintiffs’ complaint,the court filed an entry of default on January31, 2008, and the plaintiffs filed a motion fordamages on February 8, 2008. PartyGamingon March 3, 2008, then moved to set asidethe default. Wong concluded the service ofprocess on PartyGaming was proper. Thecourt, however, granted PartyGaming’smotion because the set-aside would notprejudice plaintiffs and becausePartyGaming had meritorious defences.

For example, PartyGaming, according tothe court, asserted “that Gibraltar is theproper forum, that the plaintiffs offer noevidence of collusion or other unfair play,that the plaintiffs offer no evidence that theywere harmed as a result of PartyGaming’salleged activities, that the class wasimproperly certified and that the plaintiffsare misconstruing PartyGaming’s statedpolicies. Some, if not all, of these allegeddefences provide at least a ‘hint ofsuggestion’ of a complete defence if provenat trial, especially when construed in lightmost favourable to PartyGaming.”

PartyGaming then requested that thecase be dismissed for improper venue andfailure to state a proper claim. The court,however, dismissed the complaint suasponte, on grounds of forum nonconveniens, basically because of thefollowing agreed upon forum selectionclause: “This agreement shall be governedby and construed in accordance with thelaws of Gibraltar without giving effect toconflicts of laws principles. You irrevocablyagree to submit, for the benefit of thecompany, to the exclusive jurisdiction of thecourts of Gibraltar for settlement of anydisputes or matters arising out of orconcerning this agreement or itsenforceability. If any part of this agreementis found to be invalid, illegal orunenforceable in any respect, it will notaffect the validity of the remainder of theagreement, which shall remain valid andenforceable according to its terms.”

The court rejected the plaintiffs’argument that the clause wasunenforceable because it was obtained by“negligent, reckless and fraudulentrepresentations.” Instead the court upheldthe clause because there was no evidencethat PartyGaming’s representatives inducedthem to agree to the forum selection clause.The court also concluded that private andpublic interest factors weighed in favour of

Gibraltar as the appropriate forum, asGibraltar law allows class action suits, has alegal system “based on the EnglishCommon Law” and Gibraltar has significantinterests in the matter since PartyGaming isa “substantial player in that country’scomparatively small economy.” Gibraltarwas also the more appropriate forumbecause Ohio courts had “congesteddockets” and because of the “burden of juryduty on people of the community having noconnection with the litigation.” The courtdismissed the fact that Gibraltar had no jurytrials for this kind of civil matter.

The US Appellate Court upheld theGibraltar forum selection clause. The majorobstacle for PartyGaming was that theplaintiffs’ complaint alleged violation of Ohioconsumer law. The federal court, however,concluded that it would not apply Ohioconsumer law which held that “forumselection clauses are less readilyenforceable against consumers, which is adistinction that federal courts do notrecognise.” Instead it applied to federal lawwhich had no such deference to stateconsumer law and forum non conveniens.

A concurring judge added an unusualobservation: “But for me the most importantconsiderations are not the splits in thecircuits or the ambiguities inherent in theexisting law on forum selection clauses, butrather the fact that the gambling contractentered into between the parties here islikely illegal in Ohio but completely legal inGibraltar. If we read Ohio law as controllingthe contract in question, the partiesprobably are guilty of a crime under Ohiolaw.” PartyGaming’s alleged illegality is

questionable, however. PartyGaming hadceased accepting US players after theenactment of UIGEA on October 13, 2006.Moreover, individual internet poker playersare not prosecuted even when there is a lawsuch as that of Washington state whichcriminalises online poker players as havingcommitted a class C felony.

It is important to stress that manyEuropean states have different contractuallaws depending on whether the contract isconsidered a consumer contract or ageneral commercial contract. The Brusselsand Lugano Conventions (Art 13) and the ECRegulation “Brussels I” (Art 15) consider aconsumer contract to be for a purpose“which is ‘outside the trade or profession’ of the person(s) involved. If we take thisquite broad definition, it cannot be deniedthat the vast majority of gambling contractsare to be included in the category ofconsumer contracts.”

Many European jurisdictions will not giverecognition to a gambling contract choice offorum clause when the gambler is aresident of the European country since it isconsidered a consumer contract. As amatter of fact, “in most Europeanjurisdictions, choice of forum agreementsare subject to important limitations whenthey are concluded with a customer.

“Thus, according to EC regulation number44/2001, a choice of forum agreement whichdeprives the consumer of one of the forawhich are provided for by the regulation(domicile of the consumer or domicile of theother party), is only valid when it has beenentered into after the dispute arose (Art 17).A similar rule is included in the Brusselsand Lugano Conventions. The consequenceof the violation of these rules is normallythat the foreign judgment - rendered on thebasis of an invalid choice of forum -cannot be recognised.”

About the authors...

Professor Joseph Kelly of the StateUniversity College of New York is anassociate of the Catania Consulting groupand co-editor of the Gaming Law Review.Alex Igelman, a gaming attorney andconsultant, is a principal and founder ofGaming Research Partners, a boutiquegaming research firm based in Toronto,Canada. This article will be part of anupcoming book on global enforcement ofgambling debts. The authors wish to thankAlex Lai (Hong Kong), Stephanie Lewis(Ontario) and Ben Dayanim (DC) forreviewing the article, but the authors aloneare responsible for any inaccuracies.

Individual internet poker

players are not prosecuted

even when there is a law

such as that of Washington

state which criminalises

online poker players as

having committed a

class C felony

““
