Bathe is not the same as swim…

By Legal Eagle

You have to feel pretty sorry for the New South Wales couple who thought that they had a winning scratchie ticket. The rules of the ticket were that if the word and the picture matched, the person got the stipulated sum of money:

Bale Kuzmanovski felt an ”explosion of elation” when the instant scratchie his wife bought for his birthday revealed a picture of a swimmer next to the word ”bathe” – which they thought was a match worth $100,000.

But NSW Lotteries disagreed. The machine at his local newsagent came up with a negative result. The word ”bathe”, NSW Lotteries argued, did not match the image of a swimmer, but a bathtub.

Adamant this was not in keeping with the rules written on the ticket, Mr Kuzmanovski and his wife, Elizabeth, took NSW Lotteries to the Federal Court and won – receiving the $100,000 prize plus interest, and a $20,000 damages payout for ”deceptive and misleading conduct”.

The couple put most of the winnings into their mortgage, but NSW Lotteries was not done.

The agency took the rail worker and his wife to the Federal Court of Appeal, arguing the previous judge had misinterpreted the nature of the contract the Kuzmanovskis entered into when they bought the ticket.

It said this contract did not just include the rules of the game printed on the ticket but large sections of the Public Lotteries Act and its subsidiary legislation.

Had the Kuzmanovskis delved into the statute books, they would have found the ”final arbiter” in determining a winning ticket is not the scratchable windows on the ticket, but the small verification code in the bottom corner.

Sometimes, it’s amazingly difficult to work out what the terms of a contract are. In this case, the Kuzmanovskis were arguing that the terms of the ticket were simply that if the picture and the word matched, the person was entitled to the sum next to them. The terms written on the ticket were as follows:

PLAY INSTRUCTIONS

  • Scratch Category A, Game 1 to Game 3 to reveal a word, a picture and a PRIZE in each Game.
  • If the word shown in any one Game matches the picture shown in the same Game, you win the prize shown for that Game.
  • Repeat this process for Categories B, C, D and E. …”


THIS TICKET IS GOVERNED BY THE PUBLIC LOTTERIES ACT 1996, THE REGULATIONS AND THE RULES.

1. Prizes (maximum $1,000 are payable at any NSW Lotteries Agent. 2. Other prizes are claimable at any NSW Lotteries Agent or NSW Lotteries, 2 Figree Drive, Homebush Bay, NSW 2127 by completing the details below (in pen in one name only). 3. Further details as to the conduct of Instant Lotteries and Promotional Instant Lotteries may be obtained by reading the Instant Lotteries Rules available at any NSW Lotteries Agent or www.nswlotteries.com.au. 4. The serial number on the front of this ticket is not part of the game. 5. You could win up to five (5) times on this ticket. Not all tickets are winning tickets. 6. The maximum prize of $100,000 may be available once on this ticket.”

Thus the Kuzmanovskis argued that they satisfied the criteria for receiving a prize in the play instructions. ‘Bathe’ is clearly a word which can be argued to match the picture of a person swimming. They also argued that these were the terms of the contract of which they had been given notice, and that they had not been given notice of any requirement for electronic verification of the winning ticket.

NSW Lotteries argued that there were additional terms not written on the ticket, but referred to, namely the terms of the  Public Lotteries Act 1996 (NSW) and the Regulations associated with it. Specifically, NSW Lotteries sought to argue that s 50 of the Act meant that it did not have to pay a prize in respect of the ticket because the relevant process for determining the award of a prize involved a verification code. Section 50 states as follows:

(1) A licensee may record on a ticket in an instant lottery a verification code by which the licensee can determine after the sale of the ticket whether it is a valid ticket and also whether it has won a prize.
(2) A licensee may implement other tests in respect of instant lotteries for determining whether a ticket is a valid ticket and also whether it has won a prize.
(3) Those verification codes or other tests have the following purposes:
(a) to prevent forgery or fraudulent alteration of tickets,
(b) to provide a conclusive means of determining prizewinning tickets in accordance with the total amount allocated for prizes in that lottery.
(4) A prize is not payable in respect of a ticket in an instant lottery if the ticket does not satisfy any such verification code or other test.
(5) This section has effect even though the ticket may indicate that a prize has been won.
(6) The regulations may make additional provisions for or with respect to the payment of prizes in instant lotteries.

The trial judge held that NSW Lotteries did not give adequate notice of the terms contained in the legislation (and that essentially that they were not incorporated into the contract) and that the play instructions gave the only specified means of a holder determining whether the ticket had won. He further held that the purpose of the verification code or test was said to be directed to the security or integrity of the instant lottery and did not operate as a ‘publicly unknown, additional criterion that changed the nature of a contractually valid prizewinning ticket into a worthless piece of paper.’

However, the Full Federal Court has overruled this in New South Wales Lotteries Corporation v Kuzmanovski [2011] FCAFC 106, saying that the provisions of the Lotteries Act were unambiguously incorporated into the contract. Further, the trial judge overlooked s 49 of the Act, which provided that the Division of the Act dealing with instant lotteries had ‘effect despite any other Act or law or any agreement‘. Importantly, in addition to s 50 of the Act, there had also been Rules made pursuant to the Lotteries Act which were published in a Government Gazette. Rule 16 provides: ‘A Prize in an Instant Lottery is payable only on presentation of a Ticket in that Instant Lottery indicating that the Prize has been won and after the Licensee has determined that the Ticket is valid and has won the Prize.’ Consequently, NSW Lotteries was not obliged to pay a prize despite the terms on the back of the ticket, because the terms of the Act and the Rules were incorporated into the contract and were paramount to the terms on the back of the ticket, and pursuant to s 50 and Rule 16, it had lawfully determined that the ticket was not valid and had not won the prize.

Interestingly, the Full Federal Court upheld the trial judge’s award of damages for misleading and deceptive practice pursuant to ss 52 and 53 of the Trade Practices Act (Cth) (as it then was – it has now been replaced by the Australian Consumer Law which is in substantially similar terms). The trial judge had found that NSW Lotteries engaged in misleading and deceptive practice by representing that the governing of the ticket by the Public Lotteries Act and Rules was consistent with effect being given to the play instructions. He also found that it falsely represented that the scratchie ticket had a particular standard, quality and value, whereas the standard of the goods was not determined by the terms of the Game, the quality of the goods was not of a game of chance and the value of $100,000 had no reference to the Game but rather whether it was a winning ticket.

NSW Lotteries argued on appeal that the rules of the Game (specifically ‘If the word shown in any one Game matches the picture shown in the same Game, you win the prize shown for that Game’) should be interpreted in the context of the broader contractual provisions, including the Lotteries Act and Rules. It contended that the Kuzmanovskis purchased a ticket that stated in plain terms that the Game was governed by the Lotteries Act and the Rules, but simply did not know what the Lotteries Act and the Rules said, and they chose not to find out.

The Full Federal Court said at [104] that ‘[w]hether a representation is misleading or deceptive is to be determined by reference to the meaning the representation conveyed to the ordinary and reasonable member of the class of consumers to which the representation was addressed.’ They then concluded at in [111], that ‘the bland reference on the ticket to the Lotteries Act and the Rules was not sufficient to apprise the consumer of the qualification to the representation in the second play instruction, and, therefore, to the true circumstances in which the prize would be paid. In addition, the broader context of the contractual provisions did not render the representation accurate. At [114], the Court concluded ‘[by] making no reference to the fact that the effect of the Lotteries Act and the Rules was to falsify the second play instruction, Lotteries created the impression in the mind of an ordinary and reasonable consumer of reading the ticket that there was nothing in the Lotteries Act or the Rules which would nullify the truth and integrity of the second play instruction.’

Thus, we have the interesting situation where the Act and the Rules were incorporated into the contract, and thus there was no breach of contract, but the fact that an ordinary consumer would not realise that these provisions qualified the terms on the ticket to the extent that they did rendered the terms on the ticket misleading.

The Kuzmanovskis were awarded $20,000 on the basis of disappointment and distress. Apparently Mr Kuzmanovski had planned to visit Macedonia to visit his ailing grandmother, among other things. The Court found it was open to the trial judge to award damages on that basis. It said at [122] – [123]:

The primary judge found that Lotteries’ conduct had caused an initial soaring of the Kuzmanovskis’ hopes and dreams and then, when those hopes and dreams were dashed, prolonged feelings of disappointment, anger and frustration arising from a sense of feeling cheated. The primary judge went on to find that that initial feeling of elation by the Kuzmanovskis was the very kind of human emotion played on by the sales pitch of Lotteries.

In our view, Lotteries has not demonstrated that the primary judge erred in principle in the manner in which he approached the question of damages. The assessment of damages for disappointment and injury to feelings is not a precise science. In our view, the primary judge did not err in taking into account the fact that the ‘sales pitch’ of Lotteries was directed to inducing consumers to believe that with a stroke of luck, they could experience the very elation which the Kuzmanovskis felt when, by reason of the Lotteries’ contravening conduct, they believed that their ticket was a winning ticket. Nor, in our view, did the primary judge err in concluding that the deep and lingering sense of disappointment, anger and frustration felt by Mr Kuzmanovski and, to a lesser extent Mrs Kuzmanovski, was a natural human emotional response to Lotteries’ contravening conduct. It was, in our view, open to the primary judge to award damages in the sum which he did.

So at least the Kuzmanovskis get something for their natural feeling of disappointment.

Update:

I had a lightbulb moment this morning when I woke up. I think the Full Federal Court did not apply the law of the ticket cases correctly. Basically, there are two general ways in which people will be bound by the terms of a ticket. The first way is by purchasing the ticket and being bound by the terms upon it (as Nick points out below, it doesn’t matter whether the person reads the terms or not: see L’Estrange v Graucob [1934] 2 KB 394 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165).

However, the other way in which purveyors of tickets attempt to bind consumers with terms not on the face of the ticket is by giving notice that these additional terms apply. This is essentially what NSW Lotteries did in this case when they stipulated that ‘THIS TICKET IS GOVERNED BY THE PUBLIC LOTTERIES ACT 1996, THE REGULATIONS AND THE RULES.’

Cases such as Oceanic Sun Line Special Shipping Company Inc v Fay (1998) 165 CLR 197 and Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 establish the principles which determine when a person will be bound by additional terms sought to be incorporated into a ticket by notice. Whether or not the other party will be bound by such terms depends upon whether:

  1. Notice of terms was given before the contract was formed; and
  2. Reasonable steps were taken to bring the terms to the notice of the party to be bound.

The issue here is, I think, similar to both Oceanic Sun Line and Thornton v Shoe Lane Parking where there was no opportunity for the consumers to obtain notice of the terms before the contract was concluded. Once they had purchased the ticket, it was too late already to decide that they did not want to accept those terms and conditions. This is a difficulty with standard form tickets with which courts have been grappling since the 19th century with the explosion of railway transport and the like.

Thornton v Shoe Lane Parking is such a well written case (especially Lord Denning MR’s judgment, which is superb). What occurred in that case was the following: Mr Thornton, the plaintiff, parked his car at a multi-storey carpark owned by Shoe Lane Parking. There was a notice on the outside which set out the terms of entry and set out the parking charges. At the bottom it said, ‘All Cars Parked at Owner’s Risk’. The ticket also stated ‘this ticket is subject to the conditions of issue as displayed on the premises’. There was a traffic light at the entrance which showed red. As Mr Thornton drove in and approached the ticket machine, the traffic light turned green and a ticket was pushed out of the machine. However, the additional terms displayed on a notice inside the carpark stated that Shoe Lane Parking was not liable for injury to property or persons on the premises. Mr Thornton took the ticket and drove his car into the garage, where he left it. Later, when he returned to collect his car, there was an accident and Mr Thornton was severely injured. The company sought to rely on the incorporation of the terms in the notice to say that it was not liable for his personal injuries.

Lord Denning MR notes the falsity of a traditional contract analysis in the context of purchase of a ticket:

In those cases, the issue of the ticket was regarded as an offer by the company. If the customer took it and retained it without objection, his act was regarded as an acceptance of the offer. These cases were based on the theory that the customer, on being handed the ticket, could refuse it and decline to enter into a contract on those terms. He could ask for his money back. That theory was, of course, a fiction. No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat.

My favourite passage is not directly applicable to the scratchie ticket case, as it involves automatic ticket macines. However, I’m going to reproduce it because I love it so much:

None of these [old fashioned ticket] cases has any application to a ticket which is issued by an automatic machine. The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he put his money into the machine. The contract was concluded at that time. …

To me, this evokes the hilarious notion of an eccentric English judge having a “Basil Fawlty moment” with an automatic ticket machine.

The important passage for present purposes is:

…The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice beforehand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late.

I also note that there is Federal Court authority applying similar principles in eBay International AG v Creative Festival Entertainment Pty Ltd [2006] FCA 1768. Perhaps unsurprisingly, the judge in that case was Rares J, the trial judge in this case.

So I think the Full Federal Court overlooked the matter of timing, and that in the event, Rares J was right to say that reasonable steps were not taken to alert consumers of the terms of the ticket.

Update 2:

On a further and closer reading, the reason why the Full Federal Court did not apply the ticket cases was because apparently there is authority to suggest that gambling contracts are fundamentally different:

The Full Court notes that a contract made between a participant in a lottery and the lottery provider is a special kind of contract, regulated by an act of parliament and the rules thereunder. They cite Brown & Anor v Petranker (1991) 22 NSWLR 717, in which Clarke JA said:

The Court is not dealing with a contract freely negotiated between two parties. On the contrary, while it can be accepted for present purposes that upon the facts alleged by the respondent the appellants came under a duty which may be described as contractual to send the validated coupon to the Lotto offices, the relationship between the parties was governed by an Act of Parliament and rules passed thereunder which imposed the terms and conditions under which the duty arose. The question which arises is not the same as the one which arises in the construction of a written private agreement. In that instance the Court is concerned to ascertain the presumed intention of the parties from the written words. In the present case the Court is concerned with the proper interpretation of a rule passed pursuant to a rule making power contained in an Act of Parliament. Accordingly, the line of cases dealing with the effectiveness of exclusion clauses in contracts to exclude liability for negligence exemplified in Canada Steamship and discussed in Bright v Sampson and Duncan Enterprises Pty Ltd (1985) 1 NSWLR 346, especially at 359, 362-368, has no application.

Nonetheless, even if it is a special contract, I’m still not convinced that the particular terms in question should be incorporated.

8 Comments

  1. kvd
    Posted August 30, 2011 at 4:42 pm | Permalink

    Hi Steve. Not a lawyer, but I’m game for the game, if you’ll allow. I can’t find a tag to “valid reasons to fire your lawyer” so if you can help with a direct post reference, I’d be obliged.

  2. Posted August 30, 2011 at 4:59 pm | Permalink

    Try this one kvd, you should be able to follow the tag from there.
    http://the-public-house.blogspot.com/2009/10/marching-orders-part-1.html

  3. Posted August 30, 2011 at 7:19 pm | Permalink

    Unlike other professionals, lawyers do not have access to the only truly fair method of charging in commercial relationships – a commission. There are perfectly good policy reasons for this, but the fact is that lawyers can’t actually tie their charging directly to the value they add.

    But Nick, it’s fairness concerns that bar lawyers from working on a commission basis – it risks compromising the independence of their advice which is why they’re moving financial advisors across to a fee model and phasing out product commissions in the UK. The difficulty of charging for the value you add as a lawyer is of course quantifying it – you’d risk turning the whole practice into a mutant derivative of IP law.

    The author asserted that their respective clients had “inretractable differences”.

    Spot of WD40 will fix that.

  4. kvd
    Posted August 30, 2011 at 7:36 pm | Permalink

    Thank you Steve – not least for a link back to an earlier LE post on this blog. You write well, but I’m not overly impressed by the content of your tagged posts. Just being honest here, plus remembering many years ago being advised that the solicitors working in and for the liquor industry were very much a closed shop – dealing as they necessarily were with some fairly powerful individuals, families and corporates used to having their way, while governed by some fairly archaic regulations.

    I admire anyone who can succeed in that environment, be they lawyer or licence holder, but I think I will just leave it at that.

  5. Posted August 30, 2011 at 8:12 pm | Permalink

    kvd, I don’t see the relevance. None of those solicitors were working in, or for the liquor industry, & none of the matters were specific to the liquor industry. Most were straightforward commerical transactional work. If any of that stuff were to happen in 2011 I’d try to have the solicitor involved sent to gaol.

    Please comment on the posts you think suck (there are only 7 posts under that tag). My perceived problems with those solicitors may not be inretractable. I have had to since rehydrate one solicitor.

  6. Nick Ferrett
    Posted August 30, 2011 at 8:42 pm | Permalink

    But Nick, it’s fairness concerns that bar lawyers from working on a commission basis – it risks compromising the independence of their advice …

    Hence my observation:

    There are perfectly good policy reasons for this …

    The point I was obliquely trying to make is that rules take some more commercially effective practices off the table.

  7. Posted August 30, 2011 at 9:16 pm | Permalink

    Except of course, the better quality advice, or the better the quality of service, attract a higher hourly rate.
    Am I right?

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