Understandings and Assumptions
Part VII of the Canadian Criminal Code (the “Code”) makes all activities related to operating or acting in support of a commercial “gaming” or “betting” enterprise an offence, unless it is an enterprise licensed by a provincial government.
Section 197 of the Code defines a “bet” as “a bet that is placed on any contingency or event that is to take place in or out of Canada, and without restricting the generality of the foregoing, includes a bet that is placed on any contingency relating to a horse-race, fight, match or sporting event that is to take place in or out of Canada”.
Section 201 of the Code provides that it is an indictable offence to keep a “common gaming house” or “common betting house” punishable for up to 2 years’ imprisonment. “Common gaming house” means a place that is:
(a) kept for gain to which persons resort for the purpose of playing games, or
(b) kept or used for the purpose of playing games
(i) in which a bank is kept by one or more but not all of the players,
(ii) in which all or any portion of the bets on or proceeds from a game is paid, directly or indirectly, to the keeper of the place,
(iii) in which, directly or indirectly, a fee is charged to or paid by the players for the privilege of playing or participating in a game or using gaming equipment, or
(iv) in which the chances of winning are not equally favourable to all persons who play the game, including the person, if any, who conducts the game.
A “common betting house” means a place that is opened, kept or used for the purpose of
(a) enabling, encouraging or assisting persons who resort thereto to bet between themselves or with the keeper, or
(b) enabling any person to receive, record, register, transmit or pay bets or to announce the results of betting.
Section 202 of the Code specifically creates offences regarding the provision of betting services and the advertisement thereof.
Section 202(1) sets out the following specific offences which may be applicable to the Game or the Website as currently proposed:
Every one commits an offence who:
Sections 206(1)(a) to (d) of the Code describe various offences which relate to the disposition of property “by any mode of chance”.
Section 206(1)(f) makes it an offence to dispose of any goods, wares or merchandise by any game of chance or “any game of mixed chance and skill in which the contestant pays money or other valuable consideration”.
While the precise language used in each of the Code provisions noted above varies, a common element required in each case for the offence to be made out is the risk of loss, inherent in the potential of winning or not winning some form of “prize”. In the case of Section 202, the prize element is satisfied by the possibility of reward by way of a “bet” or “betting” on some contingency. Sections 206(1)(a) through (d) make specific reference to the disposition of property (i.e. receiving a prize of some sort of value), and the cases interpreting these provisions (and their English predecessors) make clear that these are directed at illegal “lotteries”, the three essential elements of which are “chance”, “consideration” and “prize”. Absent any of these elements, the scheme will not constitute an illegal “lottery”.
“Chance” versus “Skill”
With respect to Section 206(1)(a) through (d), case law in Canada has made clear that, where there is any element of genuine skill involved in the disposition of the prize, these provisions will not apply. We think it is quite possible, though not a certainty, that a Canadian court would find that the User’s daily or weekly selection of teams, in particular where those teams may only be selected a maximum number of times per Game, would require the application of a sufficient degree of skill to take the Website out of the purview of these provisions.
By its terms, however, Section 206(1)(f) applies not just to “games of chance” but also to any game of “mixed chance and skill”. It is arguable whether “survivor sports” constitutes a game of pure skill or a game of mixed chance and skill. One view holds that survivor sports are pre-dominantly skill-based, given the emphasis on the participant’s ability to select teams on a weekly basis based on his/her reading and understanding of the sport in question.
However, the legal test in Canada is not one of pre-dominance, but rather involves a determination of whether playing the game involves a systemic and internally-generated resort to chance. In that context, certainly the unpredictability of player injuries, suspensions or the impact of a trade on any given team, as well as the intrinsic randomness of the User matchup itself, can be viewed as introducing elements of chance and randomness to the process of “conventional” survivor games on participants.
However, the website is designed to permit Users to change their selection(s) up to 5 minutes before the start of the Game so that team changes can be made upon a User becoming aware of a news item that may affect a team’s likely performance in a real-life game. Accordingly, those elements of chance which are systemic to conventional survivor sports (being the impact that unforeseen events befalling professional athletes and teams may have on a given user’s selection(s)) have arguably been eliminated by the Website’s permitting Users to adjust selection(s) up until the start of the game in order to react to such unforeseen events, and continue to employ skill in assembling the best selection(s).
As a result, it is quite arguable that the Game amounts to a game of pure skill, as that concept is understood under Canadian law. By eliminating the element of chance, the Game would not run afoul of the Code and would be legal to operate, subject to section 206(1)(e) and those sections relating to the provision of information relating to betting, both of which are discussed in greater detail below, and still apply in respect of games of pure skill.
In the event that the Game was ever found, or alleged, to have not sufficiently removed all elements of chance, you would be faced with a charge that the Game constitutes a “game of mixed chance and skill” within the meaning of Section 206(1)(f) of the Code.
In that case, the elimination of consideration from the Game then becomes of paramount importance, and the elimination of payment as a required method of entry in this respect is discussed in greater detail below, as a result.
It is also worth noting that an offence is made out under this subsection where the disposition of a prize is specifically in the form of “goods, wares or merchandise” and, therefore, oddly, it is arguable that this provision is not applicable to games in which the prize awarded does not fall under those categories – for example, where the prize consists solely of cash or services. Since the only prizes payable to Game winners are in the form of cash, it is possible that a strict interpretation of this section may exempt the Website from application of the Code. As there is no Canadian case law directly on point of which we are aware, however, it must be said that reliance solely on this interpretation is not without risk.
Games of Pure Skill
(1) Keeping a Common Gaming House – s. 201 of the Code
The definition of “game” set out in the Code includes both a game of chance and a game of mixed chance and skill. Specifically excluded, therefore, are games of skill which are unmixed with chance. This excludes a game of pure skill from being the subject of a “common gaming house” prosecution under Section 201 of the Code. Accordingly, if the Game is deemed to be a game of pure skill, it would not be prohibited under Section 201 of the Code.
It is important to note that a skill game operation of the kind proposed by you has been very clearly and intentionally excluded from the ambit of Section 201 of the Code. By defining “game” so as to exclude games of pure skill, Parliament clearly expressed the intention that it remains lawful to keep a place for the purpose of playing games of pure skill. But for the exclusion of the element of chance and/or consideration, you would be keeping a “common gaming house” by operating the skill games.
Section 201 could be applied to the online environment, as the “place” where the network servers are kept and could be interpreted to be a “place” for the purposes of the definition of “common gaming house.” While the case law dealing with what constitutes a “place” for the purpose of the definition of “common gaming house” predates the computer era, it has been determined that a part of a single room within a building may constitute such a “place” even where the entire room would not be so considered. In a similar fashion, we believe that a court would have no difficulty in finding that part of your premises that houses the central servers empowering the gaming network to be a “place” to which Users resort in order to meet other Users and play the Games.
(2) Games of Chance and/or Mixed Chance and Skill – ss. 206(1) (a), (b), (c), (d) and (f)
The case law under ss. 206(1)(a), (b), (c) and (d) of the Code states that those provisions are limited to games and other “schemes” by which property is disposed of through mechanisms involving pure chance, with no element of skill mixed in. Subsection 206(1)(f) of the Code is explicitly limited to schemes involving chance or mixed chance and skill, excluding thereby any games of pure skill.
Subsections 206(1)(g), (h), (i) and (j) of the Code are offences applicable to the specific types of games cited therein, none of which are in any way related to the games of pure skill which you propose to offer to Users, if the Game is deemed to be a game of pure skill.
As a result, Sections 201 and 202 of the Code in their entirety, as well as all but one of the provisions of Section 206 of the Code, are inapplicable to the games of pure skill which you propose to offer. The only issue remaining to be considered is that relating to Section 206(1)(e) (“Pyramid Schemes”) found in Part VII of the Code.
(3) The “Pyramid Scheme” Provision – ss. 206(1)(e) of the Code
The broad wording of ss. 206(1)(e) does not limit the provision to pyramid schemes:
Every one is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years who:
. . .
(e) conducts, manages or is a party to any scheme, contrivance or operation of any kind by which any person, on payment of any sum of money, or the giving of any valuable security, or by obligating himself to pay any sum of money or give any valuable security, shall become entitled under the scheme, contrivance or operation to receive from the person conducting or managing the scheme, contrivance or operation, or any other person, a larger sum of money or amount of valuable security than the sum or amount paid or given, or to be paid or given, by reason of the fact that other persons have paid or given, or obligated themselves to pay or give any sum of money or valuable security under the scheme, contrivance or operation…
(a) Application of ss. 206(1)(e) to Games of Pure Skill
In the cases of Roe v. The King and R. v. Dream Home Games (Edmonton) Ltd. the Supreme Court of Canada stated that a “scheme, contrivance or operation” may run afoul of ss. 206(1)(e) of the Code even where winning is determined by the application of pure skill:
“This part of s. 236(c) [now 206(1)(e)] which stands alone, does not refer to chance, or to mixed chance and skill. The receiving of money is not subordinated to any of these elements.”
The “scheme” at issue in Roe v. The King involved the sale of tickets which gave the purchaser the right to guess the amount of time it would take a barrel to journey between two points down a river. Cash prizes were awarded in this “barrel derby.” The purchasers received benefits besides the opportunity to place a guess in the barrel derby, namely limited membership in a club, sufficient to entitle the ticket-buyer to attend club meetings and functions and take part therein, although not entitling them to a vote of club affairs.
R. v. Dream Home Games (Edmonton) Ltd. involved a contest in which participants were asked to buy a ticket for $1.00, which entitled them to submit an estimate of the value of a house and its contents. The closest estimator would receive the house, its contents and the land to which it would be transported. The award of the prize was guaranteed by the deposit of a sufficient sum of money with a trust company. Justices Taschereau and Fauteux of the Supreme Court of Canada held that the offence described in ss. 206(1)(e) would be committed even if skill was the only factor that allowed the winner to determine the value of the house and its contents.
(b) Internal Consistency: Limiting the Application of ss. 206(1)(e) of the Code
As a matter of internal consistency within Part VII of the Code, ss. 206(1)(e) cannot be as broadly applicable as its wording suggests. To interpret ss. 206(1)(e) too broadly would be to render superfluous every other gambling or betting related offence in Part VII of the Code. There would be no form of betting or gambling, or activity in relation to betting or gambling, that could not be prosecuted under ss. 206(1)(e).
In the specific case of your proposed skill gaming operation, to interpret ss. 206(1)(e) so broadly as to cover those activities would be to introduce an internal inconsistency into Part VII of the Code as between the “common gaming house” provisions of section 201 on the one hand and ss. 206(1)(e) on the other.
By defining “game” so as to exclude games of pure skill, Parliament clearly expressed the intention that keeping a place for gain to which people resort for the purpose of playing games of pure skill was to remain lawful. It would be internally inconsistent for Parliament to make a careful effort to craft an exclusion permitting this activity in sections 197 and 201, and then to re-criminalize that same activity by enacting of ss. 206(1)(e). In order for Parliament to extend the common gaming house provisions to include games of skill, it would need to clearly express that intention by amending the definition of “game” at section 197 accordingly.
Such an interpretation is consistent with the decisions in Roe v. The King and R. v. Dream Home Games (Edmonton) Ltd. In those cases, the Supreme Court of Canada stated that it is not relevant to a charge under ss. 206(1)(e) whether “skill” or “chance” factor into the determination of whether or how a person “shall become entitled under the scheme, contrivance or operation to receive…a larger sum of money or amount of valuable security.” However, those decisions did not apply ss. 206(1)(e) to a “game,” only to a “scheme.”
In the 1988 Ontario District Court decision in R. v. Simpsons Ltd., the court described the characteristics of a game as involving "entertainment", "excitement" and "fun in the common pursuit by a number of competitors of a similar and known object" and it is difficult to produce those elements "if the participants are in separate places with no communication between them while the activity is going on and thus no opportunity of seeing how their competitors are progressing". This would eliminate the "excitement and entertainment which any true game can provide".
Though a lower court decision, this concept of a "game" seems to be quite distinct from the "scheme" described in the Dream Home case. In that scheme, entrants only submitted a guess. There was no entertainment, excitement or communication.
Accordingly, a defensible position exists that the Dream Home case applies only to schemes (a definition of which remains elusive) and not "games", which a game of skill like the Game would be characterized as. As a result, a game of pure skill arguably remains exempt from all provisions of the Code, and from the principles of the Dream Home case.
Consideration & Prize
As set out above, the offences set forth in Section 202 of the Code would apply to survivor sports leagues where the operators of such leagues require payment of a fee for entry or participation in order to win a prize.
It is interesting to note that the Code’s definition of a “bet” does not actually include any reference to a “prize” or “disposition of property”. In fact, the Code’s definition of a “bet” is quite circular, as it defines a “bet” as “a bet that is placed on any contingency…”. Although dictionary definitions are not binding on any court, they may be instructive, and it is useful to review the Oxford English Dictionary’s definition of “bet”, which is “the backing of an affirmation or forecast by offering to forfeit, in case of an adverse issue, a sum of money or article of value, to one who by accepting, maintains the oppose, and backs his opinion by corresponding stipulation; the staking of money or other value on the event of a doubtful issue”.
Under this definition of a “bet”, the inclusion of the concept of “forfeiting” money implies that the bettor stands the chance to win or lose that money by participating in the wager, and, accordingly, the element of a “prize” is implicit in the activity of betting.
In fact, in the case of World Media Brokers, the court stated that the words “wager” and “bet” are so commonly used in everyday speech that there is no reason to ascribe to them anything other than their natural meaning.
Furthermore, it is established law in Canada that in order for a gaming offence to be created, a necessary element of the operation is that there must have been a chance that the participants could stand to lose money or money’s worth.
It is further established that the prosecution must also prove that the participants in the game or operators of the game have a chance of both winning and losing money or money’s worth by participating in a game of chance or mixed chance and skill.
In the Di Pietro case, the Supreme Court of Canada cited a U.K. House of Lords decision as being relevant to Canadian gaming law. Of note, the McCollom case referenced the U.K.’s Betting and Gaming Act, 1960, which provided that “gaming” means the playing of a game of chance for winnings in money or money’s worth. The House of Lords held that “gaming” only takes place where there is the chance not only of winning “but of losing; in other words where some stake has been hazarded”.
In that case, as there were no stakes being hazarded, it was found that the participants did not have a chance of winning or losing money or money’s worth.
It is also worth noting that in the Irwin decision, the Ontario Court Appeal stated that the fact that the definition of “game” in the Code does not include the modifying words “for winnings in money or money’s worth” does not render inapplicable the McCollom decision as it related to the keeping of a common gaming house.
While the majority of the discussion surrounding the legality of gaming and betting concerns the participation of and impact on the player, the Irwin decision, as stated above, also provided that prosecutors must prove that “operators of the game” have the chance of both winning and losing money or money’s worth. That is, in addition to the elements listed in this letter, any prosecution will have to establish that “gaming” took place in the sense of “wagering” on the part of the participants in a game either between the players themselves or the players and the person conducting or operating the game so that “the participants in or operator of the game may win or lose money or money’s worth depending on the outcome of the game…”.
In the Irwin case, the facts revolved around a blackjack game being conducted on the premises of a bar. The court found that certainly the proprietors of the bar stood to gain if sufficient players were attracted to the premises and if they purchased enough food and drinks to cover the cost of running the games. They also took the risk of losing if the games did not result in an increase in sales. Business promotion activities conduct in business premises, which may result in gain or loss to the proprietor, may amount to “gambling” on the part of a businessman in the broadest sense of that word, but do not necessarily constitute the premises as a “common gaming house” within the meaning of the Code.
In that case, the Court found that the risk of gain or loss on the part of the bar owner did not result from participation in or operation of the game. The risks of a gain or loss on the part of the bar owner were no more than the ordinary risks of a business promotion on the part of a businessman. The potential gain or loss was in no way dependent on the chance involved in sequence of cards dealt or the skill of the dealers, nor did the possible gain or loss relate to the playing of a game in which the participants were engaged in gaming.
Providing Information That is Related to Betting
Although the Website does not purport to constitute a common betting house (as defined and discussed above) or to facilitate betting between Users, there is a risk that the following offences could be made out under section 202(1):
These sections are of a particular concern in the context of online User communication via a chat-room, internal private messaging between Users or other related communication, if any such platforms are made available by you. If Users utilize these forum to communicate “side bets” or wagers amongst themselves, to be coordinated and paid offline, that activity would constitute a “bet” and you may be liable under the aforementioned sections.
Knowledge is a required element for offences to be made out under sections 202(1)(a) and (i), so it may be appropriate for you to take measures to ensure that Users are not communicating messages to one another related to betting. While it is not practical for you to monitor every chat-room posting or internal message that is exchanged between Users, you might consider making it a regular practice to check in on various forum of communication to ensure that no such conversation is taking place. A suggested practice may be for you to impose a form of screening or blocking on your internal messaging systems such that certain key words or terms that may be related to betting are prohibited from being exchanged. However, to the extent that this activity is too impractical to implement, you may wish to take some internal measures which should be logged and kept track of so that you may be able to demonstrate to law enforcement authorities that you did everything in your power to prevent betting from taking place. At a minimum, bearing the knowledge component of the offence in mind, it is vital that you promptly block or shut down any such communication amongst Users which comes to your attention so that you cannot be seen as having “known” that the Website was being used for betting or was transmitting any messages relating to betting.
Accordingly, you should be aware of the possibility of intermediary liability as the service provider for the forum which may ultimately facilitate these illegal transactions. Although it would seem intuitive that you would have to have knowledge of illegal activity in order to be held criminally responsible, the lack of case law dealing with intermediary liability in the internet gaming and betting context makes it difficult to conclude what would constitute such knowledge.
There are a number of cases, however, which may be instructive in determining the intermediary liability of a website on which betting transactions are inadvertently coordinated. These cases suggest that mere passive transmission of unknown content will not create liability, and that there is a line between such activity and knowingly promoting the illegal activity.
Although it is beyond the scope of this letter to analyze these cases in great depth (as many are applied to the copyright context) there are a few general principles that are worthwhile to explore.
In the case of Society of Composers, Authors and Music Publishers of Canada v. Canadian Association of Internet Providers, the Supreme Court considered the intermediary liability of internet service providers in connection with illegal downloads of music. The court decided in the ISPs’ favour, reasoning that if “an internet intermediary does not itself engage in acts that relate to the content of the communication…but confines itself to providing ‘a conduit’ for information communicated by others”, then it will not be deemed to be a participant to the infringement.
Accordingly, the question of your potential intermediary liability for facilitating betting transactions turns on the interpretation as to when an intermediary ceases to be a “conduit” and becomes an active infringer. The court described that notice of infringing content, and a failure to respond by ‘taking it down’ may in some circumstances lead to a finding of ‘authorization’. This uncertainty may be a cause of concern for intermediaries.
Other sources of potential source of liability for you may be made out based on a court’s interpretation of the following offences under section 202(1) of the Code:
These sections are of a particular concern in the context of the Website’s posting of sports statistics and related information and analyses, to the extent that these figures may be used in connection with betting, either on the Website or in other forums. Unfortunately, there is no existing case law in Canada which is instructive on these points.
An offence could potentially be made out under section (e) as the payment of an entry fee may be viewed as the User’s purchase of access to sports statistics that may assist in betting. However, it may be difficult to establish an “intent” to assist in betting. For this same reason, a defensible position against an offence under section (f) may be available, as well. Further, if the Website offers such statistics on the landing page, and they are made available to all Website visitors, not just paying Users, it is more difficult to establish a link between the purchase and the access to information.
This conclusion is reinforced by the World Media Brokers decision wherein the court stated that intent was a necessary element to make out an offence under section 202(1)(f). In that case, the accused attempted to rely on the section 207(1)(h) exemption (described in greater detail below) where it is lawful to print betting materials to a place where their use is lawful. The court in World Media Brokers found that, in fact, the activity being conducted in the US was unlawful, so, accordingly, that exemption could not be relied upon and the intent element of section 202(1)(f) was satisfied.
As discussed above regarding intermediary liability, the knowledge component which is required for offences under section (i) is unlikely to be met, however, to the extent that you can block Users who are discussing or communicating about betting from accessing the Website, you may be better positioned to defend a position that you were not conveying such infringing information.
With respect to section (g), our understanding is that the Website’s servers may be located outside of Canada. Accordingly, the elements of importation and bringing information into Canada may be met. Further, the threshold of this information being likely to “promote betting” removes this offence from the ambits of intent and knowledge which characterize the other sections of the Code discussed herein. However, there is no case law which exists which has analyzed this section in the context of internet betting. Accordingly, we are not aware of whether a foreign-based server can be said to be “importing” or “bringing into Canada” any information which is accessed by a Canadian via the internet. Such an analysis would involve a technical interpretation of “importation” in the context of data transmitted online.
In addition, section (g) makes specific reference to importing material that is intended or likely to promote betting, in contrast to sections (a) and (h) which create offences related to advertising offending operations. A successful prosecution under this section would require an interpretation of “promote” and how this conduct is different from “advertising” as, clearly, the drafters of the Code intended to have these terms apply separately under each offence.