Sports Alive was a corporate bookmaker licensed by the ACT Gambling Commission to operate an online sports betting business from 2003 until it entered into liquidation in 2011. Monies were received from customers in respect of future betting transactions.
In the course of its liquidation, a dispute arose concerning the monies held in three term deposits1 held by Sports Alive. It was necessary for the Court to determine whether the term deposits constituted "segregated bank accounts" held under the Race and Sports Bookmaking (Rules for Sports Bookmaking) Determination 2005 (No 4) of the Australian Capital Territory (the Rules) or, in the alternative, whether the monies in deposits were held on trust for the betting customers of Sports Alive. If not, these monies formed part of the general assets of Sports Alive and were available for distribution by the liquidator generally to creditors.
When bets were made by a customer with Sports Alive, Sports Alive was required by the Rules to hold the amount of the bet, along with the client's possible winnings, in a trust account known as a "segregated bank account". In the event that the customer lost the bet, an amount equivalent to that bet could simply be withdrawn from the account.
Relevant Rules were Rules 4.1, 4.2, 4.7 and 4.8 which provide:
4.1 A sports bookmaker must, for the purposes of the sports bookmaking business, maintain a segregated sports betting bank account for the purpose of betting monies received.
4.2 The segregated bank account for clause 4.1 must be recorded under a title which includes the name of the sports bookmaker and the purpose of the account such as a "Trust Account".
4.7 A sports bookmaker must not withdraw money from a segregated sports betting account until such time as the outcome of the bet is determined and in accordance with the betting contract.
4.8 Money in the segregated sports betting account must not be utilised for the payment of debts of the sports bookmaker, (except as provided by these Rules) and those monies are not to be attached or taken in execution for satisfying a judgment against the sports bookmaker other than a judgment for a debt so payable.
The liquidator contended that none of the term deposits constituted a segregated bank account nor were any of the term deposits held on trust for the betting customers. Accordingly, the term deposits were available for the general body of creditors of Sports Alive.
The ACT Gambling and Racing Commission (GRC) appeared on behalf of the betting customers interests and argued that the monies contained in the term deposit accounts were moneys held on trust on their behalf.
The GRC submitted that the evidence, including letters and reports made by Sports Alive, identified the term deposits as segregated accounts, and that it was intended that the term deposits were to be held on trust for the betting customers.
In coming to its decision that the term deposits were not held on trust and accordingly constituted funds available for distribution to creditors, the Court took into account evidence indicating that Sports Alive had no intention to hold the moneys on trust.
Reference was made to the following:
- Sports Alive's accounts for 2009 and 2010, which were audited, reported expressly that the moneys contained in the term deposits were not held on trust but, rather, were assets of the company;
- None of the accounts included in their titles words to the effect that they were trust accounts or segregated accounts.
- NAB considered the money in the NAB term deposit as money available to NAB for setting off chargebacks under the credit card merchant facility agreement established between NAB and Sports Alive;
- The BOQ loan term deposit was established as a security for Sports Alive's Commercial Rate Facility and Bank Guarantee Facility;
- The BOQ guarantee term deposit was used to support the provision of a bank guarantee, a pre-requisite to the grant of a sports bookmaking licence, to the GRC in accordance with s 92 of the Race and Sports Bookmaking Act 2001 (ACT); and
- Deloitte had prepared a report noting the requirement that Sports Alive maintain a separate segregated bank account from which withdrawals were not to be made until the outcome of a bet was determined, but that Sports Alive had transferred $1 million from the accounts.
Robson J explained that, if the Court were to come to the view that the moneys in the term deposits were held on trust, the Court needed to be satisfied "that the source of the moneys in the term deposits were ... moneys received from or for betting clients".2 However, neither the GRC nor the liquidators were able to identify the source of the moneys. His Honour was unconvinced that Sports Alive considered that a distinction existed between the moneys that were to be held on trust for its betting customers and its own moneys, and was unprepared to "rely on representations of the officers of Sports Alive to find that the term deposits were sourced from trust moneys".3 Similarly, "in light of the statutory audited accounts and the manner in which the term deposits were used", the evidence adduced by Sports Alive was not sufficient to persuade his Honour that Sports Alive intended at all times to hold the term deposits on trust.4 Thus, the moneys in the term deposits were found to be an asset of Sports Alive, and available for the benefit of all of the creditors.
Accordingly, corporate bookmakers should ensure compliance with the Rules and other statutory obligations and take other steps to ensure customers deposits are held on trust for their customers. As was the case with Sports Alive, a bookmaker's failure to comply with statutory obligations will very likely "throw doubt on the reliability of [any] evidence" they may submit,5 and therefore affect substantially the likelihood of a conclusion as to whether those funds are sufficiently segregated so that they are held for the benefit of the betting customers and not all of the creditors.
Among the factors that will be considered are:
- has there been compliance with any statutory rules/requirements (including licence conditions)?
- what is the name of the accounts?
- were the accounts held and treated in a separate manner, consistent with a trust account including:
- did they form part of the generally available funds of the bookmakers;
- were they subject to direct debit/security arrangements consistent with trading accounts of the bookmaker;
- how were they recognised in the accounts and by the relevant institution.
This raises additional issues under Australian trust law as to whether a trust has been formed validly and in accordance with trust law. This may require formal documentation to be prepared and, where applicable, stamp duty to be paid.
1 The term deposits consisted of one deposit
with the National Australia Bank (the NAB term deposit), a loan
term deposit with the Bank of Queensland (BOQ loan term deposit),
and a guarantee term deposit with the Bank of Queensland (BOQ
guarantee term deposit).
2Re Sports Alive Pty Ltd (in liquidation)  VSC at 135
3Re Sports Alive Pty Ltd (in liquidation)  VSC 69 at 139
4Re Sports Alive Pty Ltd (in liquidation)  VSC at 140
5Re Sports Alive Pty Ltd (in liquidation)  VSC at 147
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