Re Titan Marketing Gesellschaft; Senator Hanseatische Verwaltungsgesellschaft mbH
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SAVILLE,LORD JUSTICE MILLETT,THE MASTER OF THE ROLLS |
| Judgment Date | 24 July 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0724-1 |
| Docket Number | FC3 96/6536/B |
| Court | Court of Appeal (Civil Division) |
| Date | 24 July 1996 |
[1996] EWCA Civ J0724-1
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION (COMPANIES COURT)
(THE VICE-CHANCELLOR)
Royal Courts of Justice
Strand
London WC2
The Master of the Rolls
(Lord Woolf)
Lord Justice Saville
Lord Justice Millett
FC3 96/6536/B
MR E BANNISTER QC and MR C H JONES (Instructed by Charles Buckley Esq, London W1A 1AZ) appeared on behalf of the Appellants.
MR R KAY QC and MR G NEWEY (Instructed by The Treasury Solicitor, London, SW1H 9JS) appeared on behalf of the Respondent.
On 9th May this year the Secretary of State for Trade and Industry issued winding up petitions against SHV Senator Hanseatische Verwaltungsgesellschaft mbH (SHV), Titan Marketing Gesellschaft (TMG) and Titan Business Club and shortly afterwards applied to the Court for the appointment of a Provisional Liquidator. The matter came before the Vice-Chancellor who on 14th June refused to appoint a Provisional Liquidator but instead enjoined SHV and TMG pending the hearing of the winding up petition from (in effect) continuing to operate in this country what is known as the Titan scheme. From this decision SHV and TMG appeal with the leave of the Vice-Chancellor. Since the Titan Business Club appears to be no more than a name used by SHV and TMG for the purposes of the Titan scheme it has played no separate part in the proceedings.
The petitions are issued under the powers given to the Secretary of State under Section 124A of the Insolvency Act 1986. This Section provides, among other things, that where it appears to the Secretary of State from any report made or information obtained under Part XIV of the Companies Act 1985 (company investigations etc) that it is expedient in the public interest that a company should be wound up, he may present a petition for it to be wound up if the court thinks it just and equitable for it to be so.
The case made by the Secretary of State is in effect that the sole or main business of the Appellants in this country is the operation of the Titan scheme; and that since this scheme is either an unlawful lottery or has (in itself or through its underlying administrative structure) undesirable characteristics it is just and equitable for those running it to be wound up; and that meanwhile the promoters of the scheme should be stopped from operating it.
Section 1 of the Lotteries and Amusements Act 1976 provides that lotteries which do not constitute gaming are unlawful, except as provided in that Act. It is not suggested that the scheme is gaming or a lottery permitted by this Act. The Vice-Chancellor held that the scheme was an unlawful lottery. He also considered that the Secretary of State had established a fairly arguable case that the administrative structure underlying the scheme, while not illegal, was "highly unsatisfactory, highly suspicious and thoroughly undesirable."
Mr Bannister QC on behalf of the Appellants accepted, in my view wholly correctly, that if the Titan scheme was a lottery, then it would be difficult (to say the least) to challenge the interim orders made by the Judge. However his argument was, in short, that the scheme was not a lottery and that since Section 124A of the Insolvency Act only applied to unlawful activities, there was no proper basis for the orders made by the Vice-Chancellor. In these circumstances the first question is whether or not the scheme is an unlawful lottery. To answer that question it is necessary only to look at the scheme operated by the Appellants and not at the full background to the case, which the Vice-Chancellor has set out in his judgment.
The Titan scheme, at least as it operates in this country, is based upon invitations to become members of the Titan Business Club. In order to take up the invitation the person concerned attends a recruitment meeting organised by persons described as self-employed consultants of SHV, is interviewed by one of these consultants, signs an application form and pays what was originally £2500 but which was recently increased to £3000. The new recruit then becomes what is called a Junior Partner with the right (but no obligation) to seek to introduce, by the same means, new members to the Titan Business Club. The Junior Partner receives £450 for each of the first two new members he successfully introduces, which comes from the money paid by those new members. He receives no more from those first two new members but if and when he successfully introduces a third new Member he becomes what is called a Senior Partner and receives £1220 from the money paid by that new member. In addition for each of the first two new members which that new member in turn successfully introduces the Senior Partner will receive £770 from the money paid by them; and so on down the line, since each new member becomes a Junior and then (if and when he successfully introduces a third new member) a Senior Partner and is treated in the way I have described. If a Senior Partner successfully introduces more than three members they are treated in the same way as the third introduction, so that the Senior Partner gets £1220 from each of them, £770 from each of the first two introduced by them, £770 from the first two in turn introduced down the line and so on.
Under this scheme, therefore, £1220 of the £2500 or £3000 paid by each new member is received by the Junior or Senior Partner concerned. The balance is distributed among the consultants and the Appellants. As will be appreciated from the foregoing, a new member will make £450 from each of the first two members he introduces, £1220 from each of the subsequent members he introduces, and further amounts of £770 the number of which (if any) depend entirely on the success of the latter members in introducing two new members and so on down the chain of the particular "family tree" in question. At least in theory, very large amounts indeed could be generated by this means, given each new layer of membership is successful in introducing new members. The scheme therefore provides the organisers and their "self-employed consultants" with half the amounts paid by members, and the latter with the chance of recouping their outlay and making money when and if other members join. The scheme has no other purpose.
There is no statutory definition of a lottery. Mr Bannister QC submitted that an essential feature of a lottery is the distribution of money or other prizes entirely by chance or, in other words, by the equivalent of drawing lots. He cited Taylor v Smetten (1883) 11 QBD 207, Hall v Cox [1899] 1 QB 198 and Scott v DPP [1914] 868, which do indeed support this general proposition. Building on this Mr Bannister submitted that since the receipt by participants, whether Junior or Senior Partners depended upon the exercise of skill in persuading others to join the scheme, this essential feature was lacking and the scheme could not be a lottery.
In my judgment the correct starting point in any given case of this kind is to adopt the approach suggested by Lord Wilberforce in Seay v Eastwood [1976] 1 WLR 1117. This case was concerned with the question whether the playing on fruit machines installed in a betting shop could be said to be part of the licensed business of bookmaking carried on at those premises, but the following passage from the speech of Lord Wilberforce is of general application:-
"Legislation against, or controlling, gaming, wagering and betting is many centuries old in the United Kingdom. With only moderate success Parliament has endeavoured to keep up with the enormous variety of these activities which has arisen from the ingenuity of gamblers and of people who exploit them. It is impossible to frame accurate definitions which can cover every such variety: attempts to do so may indeed be counter-productive, since each added precision merely provides an incentive to devise a variant which eludes it. So the legislation contains a number of expressions which are not, or not precisely defined: bet, wager, lottery, gaming, are examples of this. As to these, while sections appear in various Acts saying that a particular activity is, or is deemed to be, within the word, the general meaning is left to be decided by the court as cases arise under the common law. The process, and I think it is a very sound one, is then for magistrates, using their local knowledge, experience of the world and common sense, to give a sensible interpretation of the expressions used, subject to control of their decision by a court itself experienced in deciding this type of question. When, as should rarely occur, higher appellate courts are required to review these cases, they should, in my opinion, endorse decisions which they can see have been reached and confirmed in this way. Refined analytical tools are not suitable instruments in this context."
As can be seen from this passage, an over-analytical approach should not be adopted, but rather one of common sense. In the present case, the reality of the matter is undoubtedly that those persuaded to join the scheme did so and paid their money in the hope of the rewards that would result from those afterwards joining their particular "family tree." True it may be said that a given member might be able, by the exercise of his own skill, to select and persuade others to attend a recruitment meeting and (if they were acceptable) to induce them to become a member. By doing so that person would recover £450 or (after the second...
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