The Effect of Gambling Act 2005

It has been mentioned that all contracts that are made by way of gaming or wagering have been null and void in England by section 18 of Gaming Act 1845.70 However, section 18 of Gaming Act 1845 has been repealed by section 334(1 )(c) of Gambling Act 2005 which provides that,

(1) The following shall cease to have

effect-(c) section 18 of the Gaming Act 1845 (c. 109) (voiding of gaming contracts).

Furthermore, section 335 of Gambling Act 2005 renders gaming, or gambling, contracts enforceable. It states that,

"(1) The fact that a contract relates to gambling shall not prevent its enforcement.

(2) Subsection (1) is without prejudice to any rule of law preventing the enforcement of a contract on the grounds o f unlawfulness (other than a rule relating specifically to gambling)."

It can be said that, s.335 (2) constitutes a saving for "any rule of law preventing the enforcement of a contract on the grounds o f unlawfulness" unless the unlawfulness is based upon a rule relating specifically to gambling. As consequences of Gambling Act 2005, Merkin notes that, "(a) gambling contracts are valid; (b) any rule of law that

70 See section 2.3.2, supra. See, also, Robert Merkin, Colinvaux & Merkin's Insurance Contract Law, Vol. I, parag. A-0392. Professor Merkin argues that, "It has yet to be decided whether the assured's expectation o f acquiring an interest must be reasonable although, given that the test of wagering is subjective, it would seem that the assured's honest belief that he might acquire an interest is enough to save the policy from the taint of wagering."

does not relate specifically to gambling and that renders the contract unlawful remains operative; and (c), by way of exception to (b), any rule of law that relates specifically to gambling and that renders the contract unlawful ceases to have effect.”71

Therefore, as for the requirement of insurable interest in life insurance the rule is saved and remains applicable. Pursuant to the LAA 1774, an insured must possess insurable interest at the date of effecting the policy and failing to do so is unlawful.77

However, in Feasey v Sun Life Assurance Co o f Canada, Waller L.J. observed that 79

"the gambling was not the antithesis of insurable interest."74 According to Merkin, "A contract struck down by the 1774 Act is not, therefore, a gambling contract, but simply one that is not supported by insurable interest. It might be thought on this basis", he said, "that the Gambling Act 2005, s.335 (1) has no effect on the statutory insurable interest requirement for life assurance. Even if that is wrong, then the LAA 1774 is preserved by s.335(2) because it sets out a rule of law that provides for unlawfulness and it is not a statute that relates specifically to gambling."75 Thus, this rule applies to any insurances policy that fall within the scope of LAA 1774.

As far as marine insurance policies are concerned, it has been mentioned that s.4(l) of MIA 1906 renders a policy that is made "by way of gaming or wagering" void and s.4(2) illustrates positions where an insurance policy is deemed to be made "by way of

71 Robert Merkin, ibid, parag. A-0393; R. Merkin, "Insurable Interest: The repeal o f the prohibition on gambling", (Dec. 2005) Insurance Law Monthly 4, at p. 5.

72 Dalby v India & London Life Assurance Co (1854) 15 CB 365; Robert Merkin, ibid, parag. A-0393.

For more discussion on this, see, Robert Merkin 'Gambling by insurance- a study of the Life Assurance Act 1774' (1980) 9 Anglo- American LR 331.

73 [2003] EWCA (Civ) 885, [2003] Lloyd's Rep IR 637.

74 Robert Merkin, Colinvaux & Merkin's Insurance Contract Law, Vol. I, (2002), parag. A-0393 15 Ibid

gaming or wagering." Further, the position in respect o f insurance policies on goods is the same that applies in marine insurance policies.

An important issue is whether s.l o f Marine Insurance (Gambling Policies) Act 1909 has any effect on saving the requirement of insurable interest from being abolished?

Section 1 of Marine Insurance (Gambling Policies) Act 1909 states that,

"(l)If-(a) any person effects a contract of marine insurance without having any bona fide interest, direct or indirect, either in the safe arrival of the ship in relation on which the contract is made or in the safety or preservation of the subject matter insured, or a bona fide expectation of acquiring such an interest; or

(b) any person in the employment of the owner of a ship, not being a part owner of the ship, effects a contract of marine insurance in relation to the ship, and the contract is made 'interest or no interest', or 'without further proof o f interest than the policy itself, or 'without benefit of salvage to the insurer', or subject to any other like term,

the contract shall be deemed to be a contract by way of gambling on loss by maritime perils, and the person effecting it shall be guilty of an offence, and shall be liable, on summary convection, to imprisonment, with or without hard labour, for a term not

exceeding six months or a fine not exceeding level 3 on the standard scale, and in7A

either case to forfeit to the Crown any money he may receive under the contract."77

Thus, the 1909 Act criminalises taking out a marine insurance policy "by way of gaming or wagering." Having said that, the requirement of insurable interest in s.4 of MIA 1906 should be saved by s.335(2) of Gambling Act 2005 which states that,

"...without prejudice to any rule of law preventing the enforcement o f a contract on the grounds of unlawfulness..."

In other words, the position here should be similar to that relating to life assurance policies under LAA 1774 which renders void and illegal the taking out of insurance policies within the scope of the 1774 Act without insurable interest. However, Merkin argues that s.4 of MIA 1906 does not render insurance policies without interest unlawful; it simply renders them void. He is of the opinion that, "s.335(2) does not apply to any rule of law which relates specifically to gambling, but this is precisely what s.4 does." Therefore, he thinks that, "It might be thought, therefore, that s.335 of the Gambling Act 2005 deprives s.4 of the 1906 Act of any effect."78

In so far as the application of 1909 Act is concerned, there is no authority that could be found on applying s.l of Marine Insurance (Gambling Policies) Act 1909 on an insured who had gambled on an insurance policy. Davey observes that, "...the

76 Marine Insurance (Gambling Policies) Act 1909 s.l (1) (amended by virtue o f the Criminal Justice Act 1948 s.l (2); and the Criminal Justice Act 1982 ss.38,46). 'Standard scale' means the standard scale of maximum fines for summary offences as set out in the Criminal Justice Act 1982 s. 37 (as amended). See, Halsbury's Laws o f England, Vol. 2 5 ,4th ed., (2003 Reissue), parag. 387; see also, parag. 22, note 9, "At the time at which this volume states the law, the standard scale is as follows:

level 3, £1000."

77 (9 Edw. 7, c. 12).

78 Robert Merkin, "Insurable Interest: The repeal of the prohibition on gambling", (Dec. 2005) Insurance Law Monthly 4, at p. 5.

effecting of marine gambling policies is criminalised by the Marine Insurance (Gambling Policies) Act 1909." He notes, however, that, he "can find no reported prosecutions under this Act. Such prosecutions require the consent of the Attorney- General, and his office has confirmed that it has no record of this consent being granted."79

Merkin observes that "It is the case that the Marine Insurance (Gambling Act) 1909 does create criminal offences in virtually all cases where the policy is made without

79 James Davey "The reform of gambling and the future o f insurance law" Legal Studies (2004) Vol. 24 No. 4, 507, at 509 and note 15. In Moran v Lloyd’s [1983] 1 Lloyd's Rep. 51, Lloyd J. said, at p. 54, that, " After the passing of the Marine Insurance (Gambling Policies) Act, 1909, it would, of course, have become necessary for a person charged with an offence under that Act by reason o f having effected such a policy to prove his interest. Otherwise he would have been liable to a maximum penalty of six months imprisonment." Davey notes that, the allegation in Moran case " would have fallen within the 1909 Act had they concerned marine and not aviation insurance."

80 Robert Merkin, Colinvaux & Merkin’s Insurance Contract Law, Vol. I, (2002), parag. A-0393/1, note 1, atp. 10362.

81 Robert Merkin, "Insurable Interest: The repeal of the prohibition on gambling", (Dec. 2005) Insurance Law Monthly 4, at p. 5. Professor Merkin observes that, "The indemnity principle is untouched by the 2005 Act and it remains the case that the assured must prove his loss when the peril occurs. There is little point, therefore, in the assured taking out a policy without interest given that he can never recover under it, assuming, of course, that there is no move to write policies on a ppi basis, a practice which was permitted by the common law in the marine context before 1745, when it was outlawed but only as regards marine policies."

One more thing need to be said here is that, the principle of insurable interest is, actually, included in the principle of indemnity. That is to say, you cannot be indemnified for a loss of a property unless you are interested in it. Thus, it is the duty of law to form a clear definition of insurable interest and identify the time of its presence.

Under Islamic law, for instance, there is nothing preventing a son from looking after his dead father’s friend financially according to the father’s will because, in fact, that is an obligation on the son under Sharia. 89 If, for example, the wealthy son buys a house for his father’s poor friend and registers it in the latter’s name, the son, on the face of thins, is not interested in the house; thus, under English law, he cannot insure the house in his name even if he pays the premium to an insurer. It is obvious, under legal interest test, that the son has no insurable interest in the house. Insurable interest under legal interest test is described by Lord Eldon as,

"a right in the property, or derivable out of some contract about the property, which in either case may be lost upon some contingency affecting the possession or enjoyment of the party.”84

However, it is arguable that the son is interested in the house under the factual expectation test which is presented by Lawrence J:

82 Under Islamic law of succession, a person is allowed to grant a non-successor person up to one third o f his wealth. It is assumed in this hypothesis, there was an agreement between the father and the son that instead of granting one third o f the father's wealth to his poor friend, the son undertakes to look after the friend financially during the friend's life.

83 Lucena v Craufurd ( 1806), 2 B. & P. (NR.) 269, 127 ER, 630,p e r Lord Eldon.

u Ibid, at 321.

"To be interest in the preservation of a thing, is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction. The property of a thing and the interest deviseable from it may be very different: of the first the price is generally the measure, but by interest in a thing every benefit and advantage arising out o f or depending on such thing, may be considered as being as comprehended."85

Therefore, applying the notion of factual expectation test on this hypothesis, if the son could prove that he is so circumstanced with respect to the house as to have benefit from its existence, prejudice from its destruction, why could not he insure the house in his name, especially if he could prove his responsibility on looking after his father's friend according to the father's registered will and the fact that the son disclosed the position to the insurer at the stage of negotiation?

Furthermore, the principle of indemnity obliges the injured insured to show his loss when the risk insured against has actually occurred. Therefore, the insured will satisfy such a requirement where he shows his loss. In commercial activities, such a conclusion would be convenient due to its flexibility. Thus, the main role of the contract of insurance is to shift the risk from the insured to the insurer and that what the insured pays the premium for. Accordingly, in the above hypothesis, the friend is looked after by the son according to the father's will, consequently, the friend will not be able to reinstate the house where it is burnt down by an insured risk, i.e. fire and, therefore, the man will be homeless. If that is happened, the son is obligated either to

85 Ibid, at 301-2.

reinstate the house or provide another accommodation to the friend, which means that, the son has an economic interest in the friend's house. Therefore, since the son pays the premium to the insurer to shift such a risk to the latter, the insurer cannot deny, when the risk insured against has occurred, the insured son's claim on the ground of lack of insurable interest. It could be argued, therefore, that the requirement of insurable interest, herein, could be described as a contractual requirement which could be waived by the insurer. In addition, should the insurer claims, at the litigation, that he could reject the insured's claim for wanting of proof of interest, a Court could reject it on the ground that the insured has disclosed all the essential facts which allowed the insurer to reject the claim at the time of the negotiation stage.