FEDERAL COURT OF AUSTRALIA

New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski [2011] FCAFC 106

THE COURT ORDERS THAT:

1.    The appeal be upheld in part.

2.    Orders 1 and 2 made on 17 August 2010 be set aside.

3.    Orders 1 and 2 made on 17 September 2010 be set aside.

4.    Damages be paid by the Appellant arising out of the Appellant’s contravention of the Trade Practices Act 1974 (Cth) in the amount of $5,000 plus interest to the First Respondent and in the amount of $15,000 plus interest to the Second Respondent.

5.    The parties are to file and serve written submissions in respect of costs of this appeal and the hearing before the primary judge within 28 days of the date of this order.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The appellant, New South Wales Lotteries Corporation Pty Ltd (‘Lotteries’), appeals from the decision of the primary judge delivered on 17 August 2010 (see Kuzmanovski v New South Wales Lotteries Corporation [2010] FCA 876). The primary judge found that a ticket in a lottery known as an ‘instant lottery’ which had been purchased by the first respondent (‘Mrs Kuzmanovski’) and given to the second respondent (‘Mr Kuzmanovski’) as a birthday present, was a winning ticket entitling the respondents (‘the Kuzmanovskis’) to a prize of $100,000. Additionally, his Honour found that Lotteries had engaged in misleading and deceptive conduct contrary to ss 52 and 53 of the Trade Practices Act 1974 (Cth) (‘the Trade Practices Act’). The primary judge assessed the Kuzmanovskis’ damages under s 82 or s 87 of the Trade Practices Act in the amount of $20,000.

2    Lotteries appeals from such decision, raising various issues, including: the correctness of the primary judge’s construction of the contract arising out of the purchase of the ticket; whether his Honour correctly construed the provisions of the Public Lotteries Act 1996 (NSW) (‘the Lotteries Act’), the Regulations (‘the Regulations’) and the Rules (‘the Rules’) made thereunder; and the correctness of his Honour’s finding that Lotteries contravened the Trade Practices Act.

3    On 1 October 2010 the Kuzmanovskis filed a notice of contention concerning the constitutional validity of the Lotteries Act in consequence of s 109 of the Constitution.

4    A notice under s 78B of the Judiciary Act 1903 (Cth) was provided to the Attorney-General of the Commonwealth of Australia and to all Attorneys-Generals of the Australian States and Territories. All Attorneys-General indicated that they did not wish to intervene in this appeal.

THE CONTRACT CLAIM

5    On 24 July 2007 Mrs Kuzmanovski purchased two $5 Pictionary instant scratchie lottery tickets from a newsagency located at Shop 2, 101 George Street, Parramatta (‘the newsagency’) as a gift for her husband’s birthday. One such ticket is relevant to these proceedings (‘the ticket’).

6    The ticket provided the Kuzmanovskis with the chance to win a prize in an instant lottery which was based on the game ‘Pictionary’ (‘the game’) and was one of several instant scratch games offered by Lotteries. The game requires a player to scratch off the coating from symbols on the face of the ticket. The tickets in the game have five categories, namely Category A, Category B, Category C, Category D and Category E. Each category contains three separate games. The play instructions for the game are displayed on the ticket 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.

7    Mr Kuzmanovski scratched the ticket. In the Category C game the word ‘BATHE’ appeared in bold letters above the portion to be scratched. Upon removing the opaque film a picture of a person swimming was revealed. Beneath the picture of the swimmer there was printed a caption stating ‘SWIM’. The Kuzmanovskis considered that since the picture of the swimmer matched the word ‘BATHE’, the ticket was a winning ticket, entitling them to the displayed prize of $100,000.

8    The ticket was taken to the newsagency and presented for payment. The newsagent entered the ticket into an electronic device to confirm its status with Lotteries as a winning ticket. The electronic response received by the newsagency from Lotteries was: ‘not a winning ticket’.

9    Upon further inquiry from the Kuzmanovskis, Lotteries declined to recognise the ticket as a winning ticket. Accordingly the Kuzmanovskis commenced proceedings in this Court seeking damages, payment of $100,000, and other orders.

Primary judge’s findings

10    The primary judge found that the newsagency was a licensed agent of Lotteries under the Lotteries Act, and that when Mrs Kuzmanovski purchased the tickets she entered into a contract with Lotteries through such agent to participate in the game. The Court notes that there is no dispute between the parties that there was a contract between Lotteries and both Mr and Mrs Kuzmanovski.

11    The primary judge was satisfied that Mr Kuzmanovski could successfully sue Lotteries under the contract for two reasons. His Honour at [26] relevantly stated:

First, Mrs Kuzmanovski assigned all her rights to and in the ticket to [her] husband when she made a gift of it to him.  Secondly, he accepted the offer by Lotteries under rr 9(d) and 16 to pay him, as the holder of a ticket, any prize that it indicated had been won on its presentation, after Lotteries determined that it was a valid ticket and had won that prize.

12    Lotteries defended the contractual claim on several bases. Firstly, it claimed that the word ‘BATHE’ did not match the picture of the person swimming with the caption ‘SWIM’ beneath it. The primary judge rejected such argument, finding that the words ‘BATHE’ and ‘SWIM’ were synonymous and that the picture depicted a person swimming or bathing. His Honour also rejected the submission of Lotteries that the caption beneath the revealed picture, namely the word ‘SWIM’, applied to the picture so as to require a complete match between the caption ‘SWIM’, the picture and the word ‘BATHE’.

13    His Honour concluded that the caption did not form part of the competition since the play instructions made no reference to it. His Honour also concluded that subs 51(2) of the Lotteries Act did not have the effect of rendering the caption a part of the picture for the purpose of the ticket. Subsection 51(2) of the Lotteries Act provides:

In an instant lottery, a caption to a number (for example, the word “one” beneath the number “1”) forms part of the number and does not constitute a separate number for the purposes of counting the number of numbers.

14    His Honour found that the game required matching a word with something which was not identical with that word ‘but was a different expression of a meaning or idea conveyed by the word, being a picture’.

15    Section 50 of the Lotteries Act (set out fully at [63] below) concerns the verification of tickets and prizes and provides further that a prize is not payable if the ticket does not satisfy Lotteries’ verification code or tests. In making its determination whether the ticket was a wining ticket, Lotteries applied a verification test.

16    The critical question considered by the primary judge was whether such test could be determinative in the absence of evidence of any notice or advertisement for such purpose and the fact that the play instructions gave the ‘only specified means of a holder determining whether the ticket had won, namely that the word and the picture for a game matched’. The primary judge concluded that the purpose of the verification code or test was 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 …

Lotteries submits that his Honour erred in his construction of the contract and failed to give due recognition to the relevant provisions of the Lotteries Act and the Rules. The respondents submit that the primary judge correctly applied the Lotteries Act and Rules and that his Honour was entitled to conclude that Lotteries was responsible for promoting an instant lottery which was poorly designed and allowed two synonymous words, namely, ‘bathe’ and ‘swim’ to potentially match the picture of the swimmer.

The statutory regime

17    To comprehend the submissions by the parties regarding the nature of the contract between the parties, it is necessary to first consider the extensive regulatory regime applicable to the conduct of lotteries in New South Wales. Such regime is derived from the provisions of the Lotteries Act and the Regulations and the Rules made thereunder.

18    Section 12 of the Unlawful Gambling Act 1998 (NSW) renders it unlawful for a person to organise or conduct or assist in organising or conducting an unlawful game. Section 13 renders the selling of a ticket or giving away a ticket or a chance or a share in a ticket in an unlawful game, an unlawful act.

19    Section 14 of such Act prohibits the participation of a person in an unlawful game. An ‘unlawful game’ is defined in subs 5(1)(d) of that Act to include any game that involves the disposal of money by lottery or by chance.

20    The Lotteries Act provides an exception to such prohibition. Part 2 of the Lotteries Act makes provision for the conduct of public lotteries by licensees who have been granted licences to administer public lotteries. A licensee is defined in s 4 of the Lotteries Act to mean the holder of a licence issued under the Lotteries Act.

21    Section 6 of the Lotteries Act relevantly provides:

Public lotteries not unlawful

(1)    A public lottery conducted by a licensee is not unlawful, despite the provisions of any other Act or law.

(2)    In particular:

(a)    any such public lottery is not an unlawful game for the purposes of the Unlawful Gambling Act 1998, and

(b)    …

22    Part 4 of the Lotteries Act makes provision for rules relating to the conduct of public lotteries and s 22 of such Act relevantly provides:

Making of rules

(1)    A licensee is required to make rules, not inconsistent with this Act, the regulations or the conditions of the licensee’s licence, for or with respect to the conduct by the licensee of the public lottery.

(2)    Without limiting subsection (1), the rules may make provisions as to the liability of a licensee, agent or other person acting under the authority or on behalf of a licensee in connection with the following:

(a)    the handling of applications for subscriptions to a public lottery,

(b)    the printing and issue of tickets in a public lottery,

(c)    the determination of the entitlement (if any) of a subscriber to a prize in a public lottery,

(d)    the payment of prizes in, or the refund of money subscribed to, a public lottery.

….

23    Part 6 of the Lotteries Act contains provisions relating to public lotteries and Division 3 thereof is relevant to instant lotteries. An instant lottery is defined in s 48 which relevantly provides:

In this Division:

instant lottery means a public lottery that is an instant lottery, and includes a public lottery in which the prizes are determined (wholly or partly) by exposing the matter in panels on the tickets in the lottery (whether or not additional prizes are determined in any other manner).

24    The word ‘numbers’ is defined as follows:

numbers has the same meaning as in section 5(2).

25    Subsection 5(2) of the Lotteries Act states:

(2)    For the purposes of this section, numbers includes:

(a)    symbols, or

(b)    a single number or symbol, or

(c)    a group or groups of numbers or of symbols (or of numbers and symbols), or

(d)    a combination or combinations of numbers or of symbols (or of numbers and symbols), or

(e)    a distribution or distributions of numbers or of symbols (or of numbers and symbols).

The Rules

26    Pursuant to s 22 of the Lotteries Act, the Rules have been made for the conduct of instant lotteries and promotional instant lotteries (the latter category, namely promotional instant lotteries, is not relevant to this decision). As provided by subs 23(2) of the Lotteries Act, once the Rules are approved by the Minister, the licensee must cause such Rules to be published in the Gazette. There is no dispute that the Rules have been so published.

27    Rule 1(a) of such Rules contains definitions, inter alia, as follows:

…

(xx)    “Player” means:

(1)    a player who has purchased a Ticket and paid the Fee in an Instant Lottery; and

…

(xxix)    “Rules” means these Rules made under the Act any amendment, modification, variation, or abrogation thereof for the time being in force;

…

(xxx)    “Ticket” means the form of entry to an Instant Lottery or Promotional Instant Lottery, whether it be in documentary, or other approved form, as agreed by the Chief Executive Officer, which permits a Player to play an Instant Lottery or Promotional Instant Lottery and which evidences:

(1)    in the case of an Instant Lottery, that a Player has paid the Fee to enter the Instant Lottery; and

…

(xxxi)    “Ticket Serial Number” means the verification code in the form of numbers and/or letters and/or bar codes which may be printed on Tickets and which constitute the means by which the Licensee can determine after the issue of the Ticket whether it is a valid Ticket and also whether it has won a Prize;

…

28    Rule 2 deals with ‘conduct of Instant Lotteries and promotional Instant Lotteries’, and relevantly provides:

(a)     These Rules are to be read subject to the Act, its Regulations and the Licence, and shall apply, where the context permits, to every Instant Lottery and Promotional Instant Lottery.

(b)     All decisions made by the Chief Executive Officer concerning the Prize Fund and the declaration and payment of Prizes shall be final and binding on all Players.

(c)    An Instant Lottery or Promotional Instant Lottery shall, at its commencement, have a Prize structure as determined by the Chief Executive Officer.

(d)    The Prize structure shall comprise the number and value of Prizes to be offered by the Licensee to Players during the period of each Instant Lottery or Promotional Instant Lottery, as the case may be.

29    Accordingly subr 2(c) determines the prize structure which will, by virtue of subr 2(d) be the number and value of prizes to be offered by the licensee in each instant lottery.

30    Subrule 3(a) makes the Rules ‘binding on all Players’ and in the event of any inconsistency between the Rules and the instructions and conditions printed on the tickets, the Rules prevail (subr 3(b)). Rule 3 relevantly provides:

(a)    These Rules and all instructions and conditions printed on Tickets shall apply to each Instant Lottery or Promotional Instant Lottery and shall be binding on all Players.

(b)    In the event of any inconsistency between these Rules and the instructions and conditions printed on Tickets, these Rules shall prevail.

31    Rule 7 relates to tickets. Subrules 7(a), 7(b) and 7(h) are set out hereunder:

(a)    The Ticket issued to the Player shall constitute the Player’s official receipt and acceptance thereof shall constitute the Players [sic] acknowledgment of all details thereon and shall be the only form issued by the Licensee or its Agents to the Player evidencing the Player’s entry in a particular Instant Lottery or Promotional Instant Lottery. …

(b)    In the event that the particulars recorded on the Player’s Ticket are not consistent with the particulars held by the Licensee by way of Computer Records or such other records held by the Licensee, then the latter shall apply and shall determine what Prize, if any, the Player shall be entitled to and the Player shall be bound by any such determination. Particulars which may be recorded on a Ticket include the Ticket Serial Number, the Numbers revealed, the particular Instant Lottery or Promotional Instant Lottery entered.

…

(h)    Tickets in an Instant Lottery shall specify:-

(i)    the manner in which the Ticket holder may determine whether an Instant Prize has been won; and

(ii)    the procedures for claiming Instant Lottery Prizes.

32    Rule 9 is entitled ‘Determination of Prizes’. Subrule 9(b) gives the licensee the discretion to determine the number of tickets in an instant lottery, the amount of the money prizes and the nature of the prizes. The word ‘Prize’ is defined in r 1(xxi) as “any prize determined in accordance with Rules 9 and 14”. Rule 14 relates to prizes in promotional Instant Lotteries and is not relevant to these proceedings. It follows that unless ‘the Prize’ is identified by such Rules there is no ‘Prize’. Accordingly, a ‘Prize’ is one which Lotteries solely determines.

33    Rule 9 provides:

(a)    The Licensee is to determine the number of Tickets in an Instant Lottery, the amount of money Prizes and the number and nature of other Prizes.

(b)    The Prizes payable in respect of an Instant Lottery are to be determined:

(i)    by revealing the Number on the Tickets in the lottery; or

(ii)    in such other manner as is approved by [sic] Chief Executive Officer for the purposes of that Instant Lottery.

(c)    Without limiting Rule 9(b), Prizes in an Instant Lottery may be determined by the inclusion of Tickets in the lottery in a draw.

(d)    If any Prizes in an Instant Lottery are to be determined in a manner approved under Rule 9(b)(ii), the Licensee is to give notice of the manner of determination:

(i)    by indicating the manner of determining the Prize on each Ticket in the Instant Lottery; or

(ii)    by publicly advertising the manner of determination of the Prize, or both.

34    The primary judge held that neither subr 9(b)(ii) nor subr 9(d)(ii) had application to the game, since the sole determinant was the method prescribed by subr 9(b)(i) and no ‘other manner’ of determination of the prize had been adopted (see subs 9(b)(ii)), nor publicly advertised (see subs 9(d)(ii)).

35    Rule 16 provides that a prize in an instant lottery is payable subject to two conditions, firstly on presentation of a ticket of an instant lottery indicating that the prize had been won; secondly after the licensee has determined that the ticket is valid and has won the prize. 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.

36    It follows from such analysis that there is no scope for a prize being awarded to any player unless the prize is determined in accordance with r 9. It is useful to interpose that the provisions of r 16 accord with s 50 of the Lotteries Act which makes provision for a verification code, by a licensee, for the purpose of determining the validity of the ticket and whether it has won a prize.

37    Rule 22 makes provision for the circumstances in which prizes are not payable. Relevantly subr 22(a) provides:

(a)    A Prize is not payable in an Instant Lottery or Promotional Instant Lottery:

(i)    if the Ticket in the Instant Lottery or an entry in the form of a Ticket or document in the Promotional Instant Lottery presented by the claimant for the Prize is damaged, altered, reconstituted or counterfeit; or

(ii)    if the Ticket or entry is stolen or is a Ticket or entry that has been printed but not issued by the Licensee; or

(iii)    if the Licensee has reasonable cause to suspect there has been unauthorised use of a computer linked terminal in relation to the verification code or any other test used in determining whether the Ticket or entry is a valid Ticket or entry and whether it has won a Prize; or

(iv)    if the Player who purchased the Ticket has tendered insufficient payment or commission for the Ticket or has presented a cheque that is subsequently dishonoured or if the form of payment tendered is not otherwise acceptable to the Licensee; or

(v)    in such other circumstances as are specified on the Ticket or entry or as have been publicly advertised by the Licensee in relation to the Instant Lottery or Promotional Instant Lottery; or

(vi)    in respect of a Ticket which fails any confidential security test of the Licensee.

…

38    Significantly, subr 22(e) states:

(e)    The Licensee shall be entitled, in its absolute discretion, to recognise the person who holds, bears and submits a Ticket as the Prize winner.

Game specification

39    Game specifications (the ‘specifications’) have been prescribed for the game. For the purpose of this decision, such specifications are not of direct significance. Nevertheless, we observe that the game is identified by the number K479 and the specifications relate to the ‘$5 Pictionary Game K479’. The specifications were approved on behalf of Lotteries on 20 November 2006 and contain the details relevant to participation in the game.

40    The specifications provide pictorial symbols and examples of various tickets. Relevant to the game, Category C – Pictorial Symbols shows various symbols with captions beneath. In Category C 20 Ink-Jet printed pictorial symbols with captions were provided. For example one such symbol portrays a person swimming with the words ‘SWIM’ displayed beneath as the caption. Another shows the picture of a person in a bathtub with the caption ‘BATHE’ beneath. Words are displayed beneath the picture for each of the 30 symbols.

41    As to prizes symbols for Category C, various denominations in dollar values are printed with captions. Relevantly, the amount of $100,000 is referred to beneath the caption.

Agency agreement

42    Lotteries entered into an agency agreement (‘the agreement’) with Prameny Holdings Pty Ltd on 7 June 2007. Such agreement appointed the newsagency as an agent of Lotteries as provided by s 4 of the Lotteries Act. Relevantly, pursuant to cl 9 of the agreement the agent acknowledged that Lotteries is subject to the provisions of the Lotteries Act and that such statutory provisions comprise part of the agency agreement.

43    Clause 13 of the agreement makes provision for Lotteries to supply the agents with copies and extracts of the Rules for each ‘Licensed Lottery Game’ which are to be displayed by the agent. ‘Licensed Lottery Games’ are defined in cl 31 as public lottery games as specified in Item 9 of Schedule 1 to the agreement. Listed therein are several kinds of lotteries including instant lotteries.

44    Clause 13.3 requires the agent to make available for inspection, as requested by members of the public, the Rules and Regulations or any extracts thereof, which Lotteries deems appropriate.

45    Other statutory provisions exist which are of indirect relevance only. These are referred to as a matter of completeness. For example, s 25A (contained in Part 5, Division 1 of the Lotteries Act) makes financial provisions relating to public lotteries. Section 25A requires a separate prize fund to be kept by a licensee for each kind of public lottery which the licensee is licensed to conduct. Section 26 of the Lotteries Act makes provisions for the requisite percentage of subscription to be paid by a licensee into a prize fund and s 27 requires a prize fund for public lotteries to be kept in a prize fund account at a bank.

46    Further, subs 27(3) of the Lotteries Act regulates the manner in which payments may be drawn from the prize fund. As prescribed by s 27(8) of the Lotteries Act, specific controls are imposed concerning the payment out of prize money. Money forming part of a prize fund may be applied for specific purposes which include the payment by a licensee for prizes won in a public lottery.

Provisions relating to Prize claims

47    Section 49 of the Lotteries Act (set out in full at [63] hereunder) prescribes the scope of Division 3 of such Act. Division 3 relates to instant lotteries, and gives supremacy to this Division of the Lotteries Act over any other statute, law or agreement.

48    Particular provisions are contained in the Lotteries Act for the verification of tickets and of prizes. Section 50 (which is relevantly set out below at [63]) includes detailed provisions for the recording by the licensee of a verification code on an instant lottery ticket for the purpose of determining whether the ticket is valid and, further, whether the ticket has won a prize.

49    No prize is payable in respect of a ticket in an instant lottery if the ticket fails any verification code or other test: see subs 50(4) of the Lotteries Act. Significantly, subs 50(5) provides: ‘This section has effect even though the ticket may indicate that a prize has been won’.

50    Rules also have been made in respect of acceptance of the claims for prizes. See subr 2(b), subr 7(b) and r 16 set out at [28], [31] and [35] respectively.

Respondents’ submissions

51    The Kuzmanovskis submit that subr 7(h)(i) specified the manner in which the ticket may be determined as eligible for a prize; that subr 9(b)(ii) and subr 9(d) of the Rules required Lotteries to indicate on the ticket or to advertise any other manner for determining whether a prize is payable. They further submit that the primary judge correctly found that there was no evidence of any notice or advertisement for such purpose and that the only instructions provided to them were those contained in the play instructions which merely required that the scratched word and picture should ‘match’.

52    On its face, the ticket contains a printed notice in block capital letters (reproduced at [57] hereunder) stating that the Lotteries Act, the Regulations and the Rules applied to the game. However, the Kuzmanovskis submit that such notice was not relevant to the question whether the ticket was a winning ticket. The Kuzmanovskis further submit that s 50 of the Lotteries Act does not authorise the creation of a verification code or test which could result in the disqualification of a ticket which, on its face, is a valid and therefore prizewinning ticket within the Rules, the game specifications and the contract.

53    The Kuzmanovskis submit that in the absence of notification of other requirements to be satisfied before the ticket could be found to be a winning ticket, there was no basis for Lotteries’ claim that the verification code or the caption beneath the picture was the, or a, manner of determining the prize. They agree with the primary judge that the verification code authorised by subs 50(1) of the Lotteries Act was merely a means of ensuring, objectively, the integrity of the conduct of the game.

Finding

54    The task of the Court is to determine the agreement between the parties by having regard to the words of the written contract. This task requires the Court to ascertain the objective intention of the parties having regard to the words used by them: see Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99. As referred to by Gibbs J (as he then was) at 109:

Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different.

55    As stated in State Lotteries Office v Burgin [1993] NSWCA 254, the objective intention theory has been accepted and applied in numerous cases: see for example Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-550 per Gleeson CJ.

56    In Burgin the New South Wales Court of Appeal said at [4]:

If the words of a contract are unambiguous, a court is not authorised to set them aside or to ignore them simply because it considers that the result appears to it to be capricious or unreasonable or even something which, probably, the parties did not actually intend.

57    The ticket contained on its face the following statement printed in prominent typescript:

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

58    Such statement unambiguously sought to incorporate the statutory requirements of the Lotteries Act and its subsidiary legislation into the contract (between the Kuzmanovskis and Lotteries). The fact that the incorporation of such provisions may operate to the detriment of the Kuzmanovskis or lead to an unreasonable result is irrelevant.

59    It has also been recognised 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. In Brown & Anor v Petranker (1991) 22 NSWLR 717, Clarke JA said (at 722D & E):

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.

His Honour continued (at 722G-723A):

The task presently confronting the Court is to construe the rule in accordance with well-established principles of statutory construction. This requires an examination of the natural and ordinary meaning of the words except in so far as that meaning may not give effect to the purpose of the scheme embodied in the Act and the rules.

60    Having considered the statutory provisions and rules applied in the matter before him, Clarke JA said of the rules applicable to the game of Lotto which was the subject of proceedings before him (at 724G):

Their primary purpose, as I see it, is to set in place very strict controls for the conduct of Lotto which, in the absence of such controls, would be open to fraud and abuse.

61    We consider that findings to the same effect apply in the present circumstances, and that the Court is required, by virtue of the clear notification, to treat the Lotteries Act, the Regulations and Rules as being incorporated into the agreement between Lotteries and the Kuzmanovskis. The statutory regulation achieves the above purposes of preventing fraud and abuse as well as ensuring the desired certainty in the conduct of lotteries.

Interpretation of the contract

62    Since we find that the Lotteries Act and subordinate legislation was incorporated into the contract, the question arises of the relationship between the play instructions and the statutory framework. At the outset, we observe that s 25 of the Lotteries Act gives supremacy to the provisions of such Act over any subordinate instruments, by providing:

Rules inconsistent with Act

If a rule becomes inconsistent with this Act, the regulations or the conditions of a licence (because of amendment of this Act or the regulations or alteration of the conditions of the licence), the rule ceases to have effect to the extent of the inconsistency.

63    Part 6 of the Lotteries Act is entitled ‘Other provisions relating to public lotteries’. Division 3 of Part 6 is entitled ‘Instant Lotteries’. After defining an ‘instant lottery’ in s 48 of the Lotteries Act (see [23] above), the Lotteries Act contains sections which are of critical significance, namely ss 49 and 50 which provide:

49 Application of Division

(1)    This Division applies to all instant lotteries promoted or conducted before or after the commencement of this Division, whether under the New South Wales Lotteries Act 1990 or under this Act.

(2)    This Division has effect despite any other Act or law or any agreement.

50 Verification of tickets and prizes

(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.

64    Relevant definitions contained in subr 1(a) of the Rules have been set out at [27].

65    Subrule 2(a) is relevantly set out at [28] above and subrr 3(a) and (b) are relevantly set out in [30] above.

66    Rule 7 is entitled ‘Rules Applying to Tickets’, and the provisions have been set out at [31] above.

67    Rule 16 is concerned with the payment of instant lottery prizes and provides:

PAYMENT OF INSTANT LOTTERY PRIZES

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.

68    The play instructions are relevantly set out in [6] above. Such instructions are not referred to in either the Lotteries Act or the Rules. Nevertheless, they are printed in full on the face of the ticket.

69    Considering the scope of the legislative framework, it is apparent from the operation of subss 49(2) and 50(5) of the Lotteries Act that its provisions establish beyond doubt the overriding effect of the Lotteries Act over any other statutory provision or ‘agreement’. Subrule 2(a) expressly provides that the Rules are to be read subject to the Lotteries Act.

70    Giving effect to the statutory provisions, any possible non-compliance by Lotteries with the requirements of the Rules relating to the determination of a winning ticket is of no consequence as a result of the paramount operation of Division 3 of the Lotteries Act provided by subs 49(2) and of the operation of subs 50(5) of the Lotteries Act.

71    Before the primary judge and before this Court, Lotteries submitted that it was empowered to create a verification code which might result in disqualification of a ticket despite it apparently, under the play instructions, being valid and prizewinning. The primary judge rejected such submission stating (at [54]):

In my opinion, the Public Lotteries Act does not authorise the creation or use of such a test or code. Rather than providing a safeguard against fraud by third parties in seeking to pass off tickets as winning where they were not genuine, Lotteries’ argument would create a means for it to subvert the integrity of instant lotteries that it marketed. Its effect would be to allow Lotteries to engage in public marketing and sales of instant lotteries on a false basis. It would mean that Lotteries could contract with members of the public on one set of rules, including play instructions on the instant lottery tickets, with no intention of honouring its contractual promise because of a secret code or test that permitted it to eschew any liability to pay a prize.

72    At [56] the primary judge stated:

Any verification code or test used by the licensee or Lotteries under s 50 must be consistent with the Public Lotteries Act itself, and the rules and game specifications for the instant lottery.

…

73    Subsections 50(1) and (2) of the Lotteries Act, reproduced at [63] above, empowers Lotteries to devise any form of test or verification code to determine whether the ticket is a prizewinning ticket.

74    We agree with Lotteries’ submissions on this issue and we are satisfied that the primary judge failed to give due regard to subs 49(2) insofar as it grants paramountcy to Division 3 over “any other Act or law or any agreement” which clearly includes the play instructions and the Rules. Subsection 50(5) of the Lotteries Act then ensures Lotteries’ right to implement a verification code or test even in the situation where the ticket appears otherwise to be a prizewinning ticket.

Was there non-compliance with the Rules?

75    We note however that r 9, set out in [33] above, prescribes the obligations of Lotteries with respect to the determination of prizes. For convenience subr 9(b) is restated hereunder:

(b)     The Prizes payable in respect of an Instant Lottery are to be determined:

(i)    by revealing the Number on the Tickets in the lottery; or

(ii)    in such other manner as is approved by [sic] Chief Executive Officer for the purposes of that Instant Lottery.

76    ‘Number’ is defined in the Rules and the Lotteries Act (see [24]-[25] above) and includes symbols and numbers. ‘Symbols’ is defined in s 4 of the Lotteries Act as including “amount, word or picture”.

77    For convenience subr 9(d) is also restated as follows:

(d)    If any Prizes in an Instant Lottery are to be determined in a manner approved under Rule 9(b)(ii), the Licensee is to give notice of the manner of determination:

(i)    by indicating the manner of determining the Prize on each Ticket in the Instant Lottery; or

(ii)    by publicly advertising the manner of determination of the Prize, or both.

78    Subrule 9(d) only applies where the prizes in the game are determined otherwise than by the method prescribed in subr 9(b)(i). Lotteries submits that the prizes payable in the present game are determined ‘By revealing the Number on the Tickets in the lottery’ in accordance with subr 9(b)(i), and consequently that subr 9(d) has no application.

79    According to subr 9(b)(i) all that is required of the player of the game is to apply the ‘Numbers’ (as defined in [76] above) to determine if a prize is payable. However, even if the relevant symbols, words and numbers are revealed, it is apparent that the prizes payable are still not able to be determined without the use of Lotteries’ verification code, as a second step of determination.

80    The significance of such arguments lies in the fact that subr 9(d) may apply. If so Lotteries was required to ‘indicate the manner of determining the Prize on each Ticket’ or ‘publicly advertis[e] the manner of determination of the Prize’. It is apparent that neither subrr 9(b)(i) nor (ii) were satisfied because the use of a verification code was not indicated on the face of the ticket, and there was no notice regarding a verification code made by Lotteries.

81    Indeed the primary judge found at [66] that:

Rules 7(h)(i), 9(d)(ii) and 22(a)(v) required the licensee, Lotteries, to give notice that a further, radically different, and conclusive means of determining the prize, contrary to or entirely omitted from the play instructions, governed the ticket.

82    Based on the above, the Court recognises the finding of the primary judge regarding the application of subr 9(b) and subr 9(d), which led to his observations concerning the lack of notice to the public, and we concur with the findings of the primary judge on this issue.

What is the effect of the non-compliance with the Rules?

83    Despite Lotteries’ non-compliance with r 9, the primary judge’s concern for the lack of notice of the existence and operation of a verification code and his Honour’s reference to the authorities relating to the incorporation of exclusion clauses in ordinary contractual relationships, the critical issue remains the paramountcy of Division 3 of the Lotteries Act and the unique nature of a statutorily governed contract (see Brown v Petranker set out [59] above).

84    A prize is only available to be won in an instant lottery in respect of a predetermined prizewinning ticket. The verification code applicable to each ticket determined whether that ticket was one which had been selected by Lotteries as a winning ticket. The verification code, by statute, is to be the final arbiter in determining whether the ticket was a winning ticket: subs 50(3) of the Lotteries Act states that the verification code is to provide ‘a conclusive means of determining prizewinning tickets’.

85    Further, the provisions of s 25 of the Lotteries Act operate to confirm beyond doubt that the Lotteries Act prevails over the rules to the extent of their inconsistency: see [62] above.

86    We are unable to agree with the primary judge’s conclusion that the verification code did not form part of the contract. By statute it was given this very purpose. We consider that his Honour also failed to recognise the application of subr 22(a)(vi) which provided that a prize was not payable in an instant lottery (or promotional instant lottery) if the ticket failed any confidential security test of the licensee. The verification test was applied and the ticket, after being scanned by the newsagency, returned the answer “not a winning ticket”.

87    The primary judge concluded that a reconstructed ticket which was submitted for testing by a company known as Scientific Games by Lotteries was not a proper test. However, that test was undertaken solely for the purpose of showing that the original test performed electronically by the newsagency demonstrated that the subject ticket was not a winning ticket.

88    Subsection 49(2) of the Lotteries Act which is contained in Division 3 also gives effect to such Division “despite any other Act or law or any agreement”. Since the verification, in the manner prescribed by the licensee, is paramount, and since the Kuzmanovskis’ ticket did not satisfy the verification test, the ticket is not a prizewinning ticket.

89    Further, as observed above, any non-compliance by Lotteries with the Rules is of no consequence due to the operation of subs 49(2), subs 50(5) and s 25 of the Lotteries Act.

Conclusion

90    It follows that the issues concerning the matching of the word ‘BATHE’ and the picture of the swimmer are of no consequence. Whilst we do not disagree with the primary judge’s conclusion that the words ‘BATHE’ and ‘SWIM’ are synonymous, such correlation is not relevant once the finding is made that the ticket is not a prizewinning ticket.

91    Accordingly, the finding that the reconstructed test was not a valid test is irrelevant, since the original validation test is the only test to which regard must, by subs 50(3) of the Lotteries Act, be paid.

92    For these reasons, we consider the primary judge erred in the construction of the contract made between the Kuzmanovskis and Lotteries and that his Honour’s decision on this aspect should be set aside. Instead, Lotteries’ submission should be upheld, namely, that upon a proper construction of the contract which existed between the Kuzmanovskis and Lotteries, the provisions of the Lotteries Act and the Rules were paramount and the playing instructions were wholly subverted to the Lotteries Act and the Rules made there under.

93    The primary judge’s concern expressed at [54] of his Honour’s decision (reproduced at [71] above) relating to the possible subversion of integrity of future Lotteries’ games is a matter which is discussed with reference to the Trade Practices Act later in this decision.

THE TRADE PRACTICES CLAIM

94    The primary judge held that Lotteries engaged in conduct in contravention of ss 52 and 53 of the Trade Practices Act in the creation for sale, and sale of, the ticket.

95    Mr and Mrs Kuzmanovski pleaded that Lotteries made nine representations in trade or commerce, by the play instructions, pictures and content of the ticket. The primary judge found that, even if he was wrong in findings in respect of the contractual argument, Lotteries had, nevertheless, engaged in misleading or deceptive conduct in relation to the making of the following of the pleaded representations, namely, that Lotteries represented that:

(8)    the governing of the ticket by the Public Lotteries Regulations and Rules is consistent with effect being given to the play instructions.

(9)    in connection with the supply or possible supply of goods [Lotteries] falsely represented that the scratchie ticket had a particular standard, quality and value by reason of the Pictionary game and the $100,000 heading. Whereas the standard of the goods was not determined by 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, contrary to s 53(a) of the Trade Practice Act 1974 … .

96    The primary judge accepted Mr Kuzmanovski’s evidence that, at the time that he scratched the ticket, he believed that there was nothing in the Lotteries Act or the Rules that was inconsistent with the play instructions. His Honour was of the opinion that such a belief was simply ‘commonsense’.

97    The primary judge set out his findings in relation to the Trade Practices Act claim at [95]-[96] of his reasons:

Lotteries [sic] conduct was misleading and deceptive because it concealed on the face of the ticket critical information that substantively negated the crystal clarity of its play instruction:

“If the word shown in anyone Game matches the picture shown in the same Game, you win the prize shown for that Game.”

It was not open for Lotteries to suggest that the Delphic statement that the ticket is governed by the Public Lotteries Act, and Rules, negated the pellucid play instruction. It would have been a simple task to make the play instructions fit accurately the game Lotteries was seeking to play. All Lotteries had to do was add the words “and caption” after “picture” and a short statement at the end of the play instruction to the effect:

“Your ticket also contains, as a security measure, the confidential verification code for this prize.”

The face of the ticket had no reference at all to any requirement that it meet a verification code to win. The concealment or failure to state both this qualification and the need for a matching capacity was the essence of Lotteries’ misleading and deceptive conduct. It would follow that, if the play instructions were deficient in this way, Lotteries lacked reasonable grounds for making any future representations.

Lotteries’ arguments on appeal

98    Lotteries advanced two arguments in support of its contention that the primary judge had erred in making the findings that he did.

99    First, Lotteries contended that the primary judge erred by construing the second play instruction as having primacy over the contract as a whole, which includes the Lotteries Act and the Rules.

100    The second play instruction written on the ticket reads:

If the word shown in any one Game matches the picture shown in the same Game, you win the prize shown for that Game.

101    Lotteries contended that the second play instruction is not to be construed in isolation, without also taking into account all other terms of the contract, and the surrounding circumstances.

102    According to Lotteries, the Kuzmanovskis purchased a ticket that stated in plain terms the legal position that existed anyway, namely that it was governed by the Lotteries Act and the Rules. The Kuzmanovskis knew that the ticket was so governed, but simply did not know what the Lotteries Act and the Rules said, and they also chose not to find out.

103    Lotteries relied on Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 in support of its first contention.

104    Lotteries’ argument is not accepted. Whether 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: see Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at [103].

105    Furthermore, it is well settled that s 52 of the Trade Practices Act should be interpreted broadly due to its remedial nature. In Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470, Lockhart and Gummow JJ stated at 503:

… the evident purpose and policy underlying Pt V, which includes s 52, recommends a broad construction of its constituent provisions, the legislation being of a remedial character so that it should be construed so as to give the fullest relief which the fair meaning of its language will allow.

106    The class of consumers to which the representations on the ticket was addressed was a very large class of consumers including people from all walks of life and educational backgrounds. As mentioned, the primary judge characterised the meaning attributed to the representation by Mr Kuzmanovski, namely, that there was nothing in the Lotteries Act or the Rules that was inconsistent with the second play instruction, to be a matter of common sense.

107     In our view, the finding of the primary judge amounts to a finding that an ordinary and reasonable member of the class of consumers to whom the writing on the ticket was addressed, would have understood it to convey the same meaning as it conveyed to Mr Kuzmanovski. In coming to that view, for the reasons that he gave, the primary judge did not err.

108    The Butcher case is distinguishable on the facts.

109    In Butcher, the appellants were purchasers of a waterfront property on which there was located a swimming pool. Prior to purchasing the property, they received from the respondent, a suburban real estate agent, a brochure which contained a survey diagram which showed the location of the pool being entirely within the freehold land. The pool was not, in fact, entirely within the freehold land. The real estate agent’s brochure contained disclaimers, which stated that it was not a surveyor and it did not engage a surveyor to do the survey, and that the diagram recorded what a particular surveyor had found. One of the disclaimers, reproduced in Butcher at [50], stated:

…We believe the vendor and the surveyor are reliable, but we cannot guarantee the accuracy of the information they have provided. Whatever you rely on, you must rely on your own inquiries.

110    The High Court held that the agent did not engage in misleading or deceptive conduct, since he did no more than to pass on the information provided to him by the vendor, without adopting or endorsing it. In coming to that conclusion, Gleeson CJ, Hayne and Heydon JJ at [40] took into account “the nature of the parties, the character of the transaction contemplated, and the contents of the brochure itself”.

111    The class of the persons to whom the statements in the brochure, in that case, was addressed, was small. There were only 100 brochures printed. Further, the property that was being advertised for sale was an expensive waterfront property and, therefore, likely to attract only persons who could afford to buy the property. The appellants in Butcher were property investors. It was in that context that the observations of Gleeson CJ, Hayne and Heydon JJ were applied to support the finding that the conduct of the agent was not misleading or deceptive. By contrast, the class of consumers to whom the writing on the tickets was addressed in this case, was very large and comprised persons from a wide diversity of backgrounds. In our view, construing the representations made on the ticket, in the context of its surrounding circumstances in this case, supports the finding made by the primary judge. The qualification to the second play instruction contained in the Lotteries Act and Rules, so undermined the integrity of the representation contained in the second play instruction, 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.

112    Secondly, Lotteries contended that the primary judge erred by focussing too much on the “face of the ticket”, as the basis on which to make conclusions about the representations conveyed by Lotteries’ conduct.

113    Lotteries’ contention was that the primary judge should not have paid exclusive attention to the “face” of the ticket, and that his erroneous construction of the second play instruction was an incorrect and incomplete basis on which to make findings about what Lotteries’ conduct conveyed. Lotteries contended that no reasonable person inspecting the ticket, who chose to exercise a modicum of care and attention to its entirety and to its context, could come to the conclusion that the ticket, in the second play instruction, provided all the relevant information required to determine whether it is a winning or losing ticket. Lotteries submitted that, if the law is to give governing force to the Lotteries Act and, particularly if that is also noted on the ticket, the reasonable person would be expected to read the ticket so as to understand that the game will be played in accordance with the entirety of the contract, and not merely a part of it.

114    Lotteries’ second contention is not accepted for the same reasons as the first contention is not accepted. 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.

115    It follows that ground 8 of the grounds of appeal is dismissed.

116    Lotteries also appealed on the grounds that the primary judge erred in the quantum of damages which he awarded.

117    The primary judge concluded that the Kuzmanovskis had suffered loss or damage as a result of Lotteries’ misleading conduct. Lotteries submitted no loss or damage was suffered by the Kuzmanovskis, and that the award of damages of $20,000 by his Honour was “plainly excessive”.

118    The primary judge found Mr and Mrs Kuzmanovski to be honest witnesses. However, he did not conclude that Mr and Mrs Kuzmanovski were misled into the purchase of the ticket. Rather, the terms of the ticket, once purchased and scratched, misled them as to its inherent characteristics.

119    The primary judge accepted that, as the misrepresentation inherent in the ticket became more and more apparent, the sense of disappointment, anger and frustration felt by the Kuzmanovskis increased, especially on the part of Mr Kuzmanovski. Mr Kuzmanovski had planned to use the money for, among other things, financing a trip to Macedonia to visit his ailing grandmother.

120    While recognising that there were no objective criteria for assessing the value of such injured feelings, his Honour proceeded to assess the damages under the Trade Practices Act at $20,000 ($15,000 for Mr Kuzmanovski and $5,000 for Mrs Kuzmanovski).

121    Lotteries contended that the award was plainly excessive. Lotteries contended that Mr and Mrs Kuzmanovski became aware of the correct position at law the morning after they scratched the ticket. That is, although they stayed up for most of the night with excitement at the thought of winning, the following morning they were informed by the agent for Lotteries that the ticket was in fact not a winning ticket. Regardless of the fact that their disappointment had continued to mount since that time, they had suffered no compensable loss because the day after scratching it they found out the answer to the question of whether they had a winning ticket.

122    In our view, this contention is not to be accepted. 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.

123    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.

124    Grounds 9 and 10 of the appeal are dismissed.

CONSTITUTIONAL ISSUES

125    By notice of contention the respondents submitted that the appeal should be dismissed because, for various reasons, certain of the statutory provisions, relied on by Lotteries, were invalid and unenforceable. The reasons advanced by the respondents raised matters arising under the Constitution and involving its interpretation. As a result, as has already been noted, notices were issued under s 78B of the Judiciary Act advising the Commonwealth, State and Territory Attorneys-General that these issues were to be raised on the appeal. Each indicated that he or she did not wish to be heard on these issues.

126    The respondents’ notice contained eight contentions. They were:

1.    That his Honour should have held that the provisions of s50(2)(b) and s50(4) and s50(5) and s51(2), s8 of the Public Lotteries Act 1996 and Rules 7 and 9 thereunder are inconsistent with the statutory cause of action relied upon by the respondents under the Trade Practices Act 1974 and to the extent of the inconsistencies invalid under s109 of the Constitution and/or are not picked up by ss79 and 80 of the Judiciary Act 1903.

2.    That by reason of ss56, 58 and 64 of the Judiciary Act 1903, Chapter III and s109 of the Constitution, the State, being a party to the proceedings through the appellant, the said provisions and rules are invalid to the extent of the inconsistency by seeking to exclude or limit the contractual rights of the respondents against the State.

3.    That the appellant is the State and thereby liable to be sued in contract without statutory exclusion or limitation by implication of Chapter III and Chapter V, s75(iv) and s106 of the Constitution.

4.    That the said provisions and rules impermissibly interfere with the judicial power of the Commonwealth under Chapter III by purporting to be conclusive of or impermissible interference with issues for judicial determination and are accordingly invalid under s 109 and/or are not picked up by s79 and 80 of the Judiciary Act 1903.

5.    That the appellant is a trading corporation within the meaning of s51(xx) of the Constitution and thereby a corporation under the meaning of s4 of the Trade Practices Act 1974.

6.    That any purported exclusion of the appellant by s2B of the Trade Practices Act 1974 would in the circumstances of the alleged statutory cause of action be an acquisition of property otherwise than on just terms within s51 Placitum (xxxi) and thereby invalid.

7.    That the absence of the game specifications on the ticket did not prevent the representation that the play instructions prevailed and contravened s52 and s53(a) and (g) of the Trade Practices Act 1974.

8.    That the amount of the loss and damage suffered under s82 by the conduct in contravention of the Trade Practices Act 1974 was $100,000 and or under s87 declaring void the provisions that introduce the said provisions, rules or verification code and ordering the said amount as appropriate to prevent or reduce the loss and damage suffered or likely to be suffered by the respondents and or the lost chance.

127    Most of these contentions were not developed before the primary judge.

Grounds 1 and 8

128    The respondents contend that five provisions of the Lotteries Act and two rules made thereunder are invalid because they are inconsistent with the statutory cause of action under the Trade Practices Act on which they founded their action. Subsections 50(4) and (5) are set out at [63] above. They deal with the requirement that prizes are not payable unless a ticket satisfies a verification code which a licensee has linked to a ticket. Subsection 51(2) is set out at [13] above. It provides that, in an instant lottery, a caption to a number forms part of that number. There is no subs 50(2)(b) in the Lotteries Act. There appears to be a typographical error in the respondents’ notice. We assume that what was intended was a reference to subs 50(3)(b) which renders verification codes a conclusive means of determining prizewinning tickets. Section 8 of the Lotteries Act makes it an offence for a licensee to conduct a lottery in contravention of a requirement of the Act or subordinate instruments made under it.

129    Rules 7 and 9 have been made under s 22 of the Lotteries Act. They are set out above at [31] and [33]. They relate, respectively, to the particulars which must appear on lottery tickets and the role of tickets in determining eligibility for prize money.

130    It will be convenient, later in these reasons, to refer, collectively, to the provisions identified in the two preceding paragraphs as “the State legislative provisions”.

131    The impugned provisions are said by the respondents to be inconsistent with the statutory cause of action relied on by them under the Trade Practices Act. We understand this to be a reference to the proscriptions which are contained in ss 52 and 53 and the causes of action for breach of those sections provided for in ss 82 and 87 of that Act. Section 82 provides for the award of damages to a person who has suffered loss or damage as a result of contravening conduct. Section 87 provides for a range of additional remedial orders.

132    Section 109 of the Constitution contains the well known provision that:

When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.

133    The relevant authorities on the construction and application of s 109 were recently and conveniently summarised by Flick J in Heli-Aust Pty Ltd v Cahill (2011) 277 ALR 332 at 368-371. It is sufficient, for present purposes to note that an “inconsistency” of the kind comprehended by s 109 will occur where there is a “direct inconsistency” between a Commonwealth law and a State law or where the Commonwealth law has manifested an intention to “cover the field”.

134    The underlying principle was identified by Aickin J in Ansett Transport Industries (Operations) Pty Ltd v Wardley (1980) 142 CLR 237 at 280 as being that:

The two different aspects of inconsistency are no more than a reflection of different ways in which the Parliament may manifest its intention that the federal law, whether wide or narrow in its operation, should be the exclusive regulation of the relevant conduct. Whether it be right or not to say that there are two kinds of inconsistency, the central question is the intention of a particular federal law. The field of its operation may be regarded as wide or narrow and produce inconsistency because of the intention to cover a particular field exclusively or because of an intention to regulate specific conduct so that any other regulation of that conduct is inconsistent because the attempt to regulate the identical conduct in a different manner, or perhaps at all, necessarily impairs the operation of the federal regulation of that conduct.

135    The respondents’ case appeared to be founded on direct inconsistency between the identified provisions of the Lotteries Act and the rules made under it on the one hand and the identified provisions of the Trade Practices Act on the other. They submitted that the “statutory provisions or rules that would otherwise create a breach of the norm of behaviour mandated by the Trade Practices Act by reason of being misleading, deceptive and false” were inconsistent with that Act. If the State legislative provisions are invalid, so it was contended, there would be no obstacle to damages being awarded in the sum of $100,000 which Lotteries had represented was payable to the holder of a ticket which bore the picture and adjacent word on which the respondents relied.

136    We do not accept these submissions.

137    Direct inconsistency will arise where it is impossible for a person bound by both a Federal and State law to obey both those laws or where the Commonwealth law grants a permission or a right and the State law prohibits a person from doing that which the Commonwealth law allows: see Wardley at 259 (per Mason J). Sections 52 and 53 of the Trade Practices Act prohibit a corporation, in trade or commerce, from engaging in misleading or deceptive conduct or from making false and misleading representations. If these proscriptions are contravened remedies are available under ss 82 and 87.

138    The Lotteries Act regulates the conduct of public lotteries in New South Wales. Corporations may only conduct public lotteries if licensed to do so. Licensees must comply with the regulatory regime contained in the Lotteries Act and in rules made under it.

139    The respondents have not established that it was not possible for Lotteries to comply with both the Commonwealth and the State statutory requirements.

140    Section 50 of the Lotteries Act is an empowering provision which allows, but does not require, a licensee to record a verification code on tickets issued in instant lotteries. If, but only if, verification codes are placed on tickets will subss (3), (4) and (5) have operation. A licensee which chooses to utilise verification codes can do so without making any representation or any representation that would attract the operation of ss 52 and 53 of the Trade Practices Act.

141    Compliance with rr 7 and 9 is also possible without any contravention of ss 52 and 53 of the Trade Practices Act. Again, many of the requirements of these rules do not involve the making of representations. Where the rules require that some representation be made as, for example, under subr 9(d)(ii) it is possible for Lotteries to make the representation without contravening ss 52 and 53 of the Trade Practices Act.

142    There is nothing in either s 8 or subs 51(2) of the Lotteries Act which gives rise to direct inconsistency with ss 52 and 53 of the Trade Practices Act.

143    Furthermore, there is nothing in any of the State provisions which impairs, detracts from or removes any remedy provided for in ss 82 and 87 of the Trade Practices Act in the event of a contravention of ss 52 or 53 being made out.

144    For the sake of completeness we would add that there is nothing in the Trade Practices Act which manifests any intention, on the part of the Federal Parliament, to “cover the field” of lotteries regulation.

Ground 2

145    The respondents contended that the State provisions were ‘an impermissible interference with the judicial power of the Commonwealth’ and were, as a result, invalid.

146    Reliance was placed on three decisions of the High Court. They were International Financial Trust Company Limited v New South Wales Crime Commission (2009) 240 CLR 319; Thomas v Mowbray (2007) 233 CLR 307 and Nicholas v R (1998) 193 CLR 173.

147    In each of these cases it was argued that particular statutory provisions were invalid because they impinged, in an impermissible manner, on the exercise by courts of the judicial power of the Commonwealth. Their factual contexts are far removed from those presently being considered and the principles on which they were decided do not assist the respondents.

148    Nicholas was concerned with an evidentiary provision in the Crimes Act 1914 (Cth). It stipulated that, in determining whether evidence should be admitted in prosecutions for drug importation, the participation of authorised officers in controlled importations should be disregarded even if their conduct would also have constituted an offence. The Court held that the evidentiary provision was valid and did not affect the judicial function of fact finding and the judicial power involved in determining the guilt of the accused.

149    In Thomas v Mowbray the Court considered a section of the Criminal Code Act 1995 (Cth) which empowered certain Federal courts to impose interim control orders on persons who were suspected of involvement in terrorist activities. The orders could be sought ex parte by a Federal Police officer. The applicant objected that the legislation required courts to act in a manner inconsistent with the essential character of a court established under Chapter III or with the nature of judicial power. The applicant said that such departures were involved in the provision for ex parte applications, the requirement that the Court be satisfied of certain matters on the balance of probabilities and that restrictions could be imposed on the personal liberty of a person who had not been found guilty of any criminal offence. The Court rejected these arguments. None of the identified incidences constituted a departure, to any significant degree, from the established methods and standards that had applied in Australian Courts for over a century.

150    In International Finance Trust the High Court dealt with a New South Wales law which allowed the State Crimes Commission to apply ex parte to the Supreme Court for a restraining order preventing dealings with property which an authorised officer suspected of being the proceeds of serious crime. The Supreme Court was bound to make a restraining order if it considered that there were reasonable grounds for the officer’s suspicion. The majority of the High Court held that the relevant section was invalid because it required the Supreme Court to depart, to a fundamental degree, from the judicial process. This was because the Court was required to hear the application ex parte, no requirement of full disclosure on the part of the applicant was imposed and no provision was made for an application to dissolve the restraining order although it operated for an indefinite period. In a passage relied on by the respondents, French CJ held that the Parliament could not direct courts exercising Federal jurisdiction as to the manner and outcome of the exercise of that jurisdiction. Nor could legislation validly require or authorise Federal courts to exercise judicial power in a manner inconsistent with the essential character of a court or the nature of judicial power: see at 352-3.

151    None of the State provisions impose any obligations on courts. The various obligations are imposed on licensees who are engaged in the conduct of lotteries. No departure, much less a departure to a fundamental degree, from the judicial process is mandated by any of these provisions.

152    This ground lacks substance.

Ground 3 to 6

153    Under these grounds the respondents submitted that the State provisions were ‘contrary to the Constitution entrenched liability of the State to be sued in contract’. They contended that the State of New South Wales was a party to the proceeding “through the appellant”. Alternatively, they relied on an implication, said to be drawn from Chapters III and V of the Constitution, which renders a State unable to exclude itself from liability in contract.

154    The trial judge held that Lotteries was not the Crown in right of the State of New South Wales or its government.

155    The respondents’ contentions confront a number of difficulties. The first is that, at relevant times, Lotteries was a corporation constituted by the New South Wales Lotteries Corporatisation act 1996 (NSW). It was a “statutory SOC” within the meaning of the State Owned Corporations Act 1989 (NSW) (‘State Owned Corporations act’). Section 20F of the latter Act provides that:

A statutory SOC or any of its subsidiaries:

(a)    is not and does not represent the State except by express agreement with the voting shareholders of the SOC, and

(b)    …

(c)    cannot render the State liable for any debts, liabilities or obligations of the SOC or any of its subsidiaries,

unless this or any other Act otherwise expressly provides.

156    There is no applicable express contrary provision.

157    The consequence is that Lotteries was, as the trial judge found, not the State of New South Wales and the State had no liability for any debts, liabilities or obligations sustained by Lotteries arising out of its dealings with the respondents and other participants in lotteries conducted by it.

158    A second difficulty confronted by the respondents is that nowhere in the State provisions is there to be found any provision which expressly or by necessary implication prevents the State of New South Wales being sued in contract. These provisions regulate the conduct, by Lotteries, of the various forms of gaming conducted by it. As we have held, Lotteries enters contractual relations with members of the public who purchase tickets in the lotteries conducted by it. Lotteries must comply with the terms of such contracts and, if it does not, it may be sued for breaching its obligations. No negative implication is to be discerned concerning the liability of the State. Any immunity from suit enjoyed by the State could indirectly be founded, if at all, on the provisions of s 20F of the State Owned Corporations Act.

159    Next, we were not referred to any authority which supports the proposition that there exists an implied constitutional right to sue a State in contract when a corporate entity, established under State legislation, enters into contracts with third parties in the course of performing its statutory functions.

160    These grounds must fail.

Ground 7

161    The respondents’ final contention was that the trial judge erred in holding, at [92], that Lotteries had not represented to the respondents that the play instruction prevailed over any game specification appearing on a lottery ticket.

162    This complaint lacks substance. The ticket purchased by Mrs Kuzmanovski made no mention of the games specification. Moreover Mr and Mrs Kuzmanovski had never heard of any such specification prior to the commencement of the proceeding. In these circumstances it cannot be said that any representation about game specifications was ever made to them. The trial judge was correct to so hold.

Associate:

Dated:    24 August 2011