Pah-pah-pah-poker face

Hakki v Secretary of State for Work and Pensions 2014

This case has some impact on family law, because it arises from the decision of the First Tier Tribunal that Mr Hakki (who was earning about £500 per day from being a ‘professional poker player’) ought to pay Child Support to his children. This was appealed by Mr Hakki on the basis that as a professional gambler, he was neither employed nor self-employed, and thus not within the Child Support Agency remit.   [and on the unspoken basis that he was not a man who had a highly developed sense of shame]

I like this case, because it gets into a very old piece of caselaw which also has a great name   Graham v Green 1925   (not to be confused with Bill v Oddie 1951 – the famous case which turned on whether the pop singer had invited him to “put your hands all over my body” or Tim Brooke v Taylor 2004)

http://www.bailii.org/ew/cases/EWCA/Civ/2014/530.html

The point is that in order for a person’s income to be relevant for Child Support purposes, it has to be either income received in employment, or taxable income from self-employment.

As you may know, the Courts have historically said that you can’t legally enforce gambling debts

[There is a very fine A J P Herbert legal essay explaining that as marriage in those days when cohabitation simply wasn’t done, was in effect a gamble using skill and judgment that you had picked someone who you might be compatible with, that all ancillary relief claims are in effect lost gambles, and thus gambling debts that should not be enforced by the Courts]

Graham v Green 1925 decided that it was impossible for a man who made his living from gambling to be considered to be self-employed or for his winnings to be considered as taxable income.

        A mere gambler was not taxable; that was what had been decided in   Graham v Green and no subsequent authority had departed from that decision of 1925. It might be fair to say that Rowlatt J’s dictum was only part of a general introduction to the law about Case 2 of Schedule D, but it was clear that he did not think a gambler could ever have such a degree of organisation as would enable his winnings to be profits or gains arising from any trade, profession or employment.

      Mr Graham was a person who from his own home in Amersham betted on horses at starting prices; that was his only means of livelihood apart from some interest from a bank deposit. The General Commissioners for the Burnham Division of Buckinghamshire decided that he was assessable to tax on his winnings. Mr Barrington-Ward KC submitted on his behalf that no business or system could be constructed out of betting at starting prices; there was no capital and no evidence of continuity but merely individual bets. A bookmaker was different because he bet on a system by adjusting the odds. He was therefore liable to income tax on profits made from betting. The Inland Revenue instructed the Solicitor-General (Sir Thomas Inskip) to defend the Commissioners’ decision. He submitted that betting was (as found) Mr Graham’s livelihood; it was not done casually for amusement; it was a vocation resulting in profits or gains, the vocation of a backer of horses.

The Judge in Graham v Green went on to suggest that a professional gambler, even one who did very well for himself, was not “susceptible to organisation” in a way that could properly categorise him as being self-employed. [underlining mine]

Rowlatt J then distinguished the case of the bookmaker who is (page 42)

“organising an effort in the same way that a person organises an effort if he sets out to buy himself things with a view to securing a profit by the difference in their capital value in individual cases.”

He then turned to the man who bets with the bookmaker and said:-

“These are mere bets. Each time he puts on his money at whatever may be the starting price. I do not think he could be said to organize his effort in the way as a bookmaker organizes his, for I do not think the subject matter from his point of view is susceptible of it. In effect all he is doing is just what a man does who is a skilful player at cards, who plays every day. He plays to-day, and he plays to-morrow, and he plays the next day, and he is skilful on each of the three days, more skilful on the whole than the people with whom he plays, and he wins. But it does not seem that one can find, in that case, any conception arising in which his individual operations are merged in the conception of a trade. I think all you can say of that man, in the fair use of the English language, is that he is addicted to betting. It is extremely difficult to express, but it seems to me that people would say he is addicted to betting, and could not say that his vocation is betting. The subject is involved in great difficulty of language, which I think represents great difficulty of thought. There is no tax on a habit. I do not think “habitual” or even “systematic” fully describes what is essential in the phrase “trade, adventure, employment, or vocation”. All I can say is that in my judgment the income which this gentleman succeeded in making is not profits or gains, and that the appeal must be allowed, with costs.”

Although this final paragraph concludes with a reference to Mr Graham himself, it is couched in terms of complete generality. It is clear that Rowlatt J thought that the effort of a gambler is not “susceptible to organisation” in the same way that a bookmaker organises his effort. If that is right an individual gambler, as such, cannot be taxable on his winnings. The fact that many gamblers may have (or think they have) a system which results in their winning more often than losing cannot constitute a sufficient degree of organisation to constitute a trade, profession or vocation.

This authority has now stood for many years and I would certainly not in 2014 wish to question it, even though it can be said that the Court of Appeal in Cooper v Stubbs [1925] 2 K.B. 723 left the matter open.

But of course, the world of the professional gambler in 1925 is slightly different to what it is today. If the way in which Mr Hakki ran his enterprise had that element of organisation , could his winnings be taxable and thus relevant for Child Support? And if not, might there be areas of Mr Hakki’s income that COULD in fact be categorised as being taxable, or self-employed?

For example, Mr Hakki has appeared on television programmes about poker, appeared in poker magazines and gives advice on his website about being a professional gambler. If he were to be earning from THIS, in addition to winning on the tables, the former might be taxable income, whilst the latter would not be.

Rowlatt J did not have to consider, however, a case of a gambler who could legitimately be said to be running a business. A poker player who appeared regularly on television advising people how to play poker and received a fee for so doing would no doubt be taxable in respect of his fees because he would be engaging in a trade or profession. If in the course of that business he also made winnings from other people participating in that programme, that might well be part of that business. Mr Bartlet-Jones suggested numerous hypothetical cases in which it might be said difficult to say precisely which side of an undoubtedly existing line each such hypothetical case might fall. I am therefore persuaded that it is possible to conceive a case in which a gambler’s winnings might be taxable.

Subsequent authorities show that such a case is indeed conceivable. In Down v Compston [1937] 2 All E.R. 475 a professional golfer was taxed on his professional earnings in the ordinary way. He also received winnings from bets on separate private games. These winnings were not taxable since his vocation as a professional golfer did not give rise to his winnings nor did he have an organisation constituting the business of betting on his private games of golf. In Burdge v Pyne [1969] 1 W.L.R. 364, by way of contrast, the taxpayer was the owner of a club which provided fruit machines, a card room and roulette. Mr Burdge was usually present and successfully played Three-Card Brag with members of the club. He (or a member of his family) always acted as dealer and he always won. These winnings were held to be part of his trading receipts and were taxable. The case was thus different from that of Mr Graham because there was a trade whereas Mr Graham “was not carrying on any trade at all”, see page 368A per Pennycuick J.

The question is therefore whether Mr Hakki had sufficient organisation in relation to his poker playing to constitute a trade in the sense that the word is used in the tax cases.

In this particular case, please bear in mind that both Mr Hakki and the Secretary of State were arguing that the income of Mr Hakki was not taxable, and thus not relevant for child support. That meant that Mr Hakki, although not impoverished, had no duty to support his children with his gambling income, and the Child Support Agency couldn’t touch him for it. You can understand why the Court of Appeal wanted to look at this with some rigour, as it doesn’t sit very comfortably when you look at it from the viewpoint of his children and the mother of those children.

But even with that in mind, the Court of Appeal were unable to conclude that Mr Hakki had the organisation in his enterprise to make it a taxable trade

On the facts found I do not consider that it can be said that Mr Hakki had a sufficient organisation in his poker playing to make it amount to a trade (or a business) let alone a profession or a vocation. Mr Bartlet-Jones relied on the findings (1) that Mr Hakki appeared on television for a few weeks, made the final programme and got a prize (2) that he had his own website and communicated his strategies for online poker (3) that his poker results over 7 or 8 years were published on two other poker websites, (4) that he chose his location (5) that he set a target sum to win after which he stopped and (6) that he selected the table which was most likely to pay him. Even in combination these findings do not to my mind amount to such organisation as to constitute a trade, profession or vocation. The last 3 factors must be common to many successful gamblers. Isolated appearances on television and having one’s own website are hardly, these days, evidence of organisation amounting to a trade or profession. There is just no element of what Rowlatt J called

“a subject matter which does bear fruit in the shape of profits or gains.”

There is no “element of fecundity”, merely frequent and successful playing at cards.

In these circumstances I am satisfied that, if the First Tier Tribunal had correctly directed themselves in law, they could not have found that Mr Hakki’s winnings at gambling were earnings from gainful employment within the MASC Regulations. There would have to be evidence of much more by way of organisation than found by the Tribunal before Mr Hakki could be said to be making earnings from any gainful employment. There was no such evidence in the present case and it is, indeed, the converse of Edwards v Bairstow [1956] A.C. 14 where the General Commissioners had decided that buying and profitably selling a spinning plant did not constitute an adventure in the nature of trade under Schedule D of the Income Tax 1918, when the only possible conclusion on the facts found was that it was such as adventure. In these circumstances the House of Lords held that the Commissioners’ inference that there was an adventure in the nature of trade had to be set aside. So here the only possible conclusion is that Mr Hakki was not gainfully employed as a self-employed earner.

Unless you are a poker-playing man with children he doesn’t want to support, I suspect you may be saying “Boo” here.

Me too.

The Court of Appeal do offer mother one final card to play (I will in turn suggest another )

One quite understands Judge Mesher’s anxiety to hold that Mr Hakki should make the appropriate contribution to his children’s upbringing when he is apparently quite able to make that contribution. Mr Buley pointed out that there may be a way to compel him to make such contribution by making a “departure direction” pursuant to sections 28A-28I of the Child Support Act 1991 as further elaborated by the Child Support (Departure Direction and Consequential Amendments) Regulations 1996. One ground for making a departure direction is:-

“where the Secretary of State is satisfied that the current assessment is based upon a level of income of the non-applicant which is substantially lower than the level of income required to support the overall lifestyle of that non-applicant” (see Regulation 25).

Once the Secretary of State gives effect to our decision setting aside the First Tier Tribunal’s assessment of Mr Hakki’s contribution to the support of Ms Blair’s children, it may be open to Ms Blair to apply for a departure direction on this or other grounds. This court cannot say whether such an application will succeed, only that the opportunity of making such an application appears to exist.

The other card that mother could possibly play is an application under Schedule One of the Children Act 1989, which is not asking for maintenance*, but for the children to share in the capital of a parent. If Mr Hakki has salted away some of his winnings, then this would be capital, and potentially capital that could be claimed against.

[*It is possible to apply for periodical payments under Schedule One, I might want to avoid that, in case the “income” arguments here arise again]

I believe, though would recommend getting specialist legal advice, that there have been Schedule One claims made against capital that arose from windfalls, such as lottery wins or inheritances, rather than capital that built up from an accumulation of taxable income. I can’t see anything within the Act that would fetter the Court’s ability to consider any capital that the father has based on how he happened to come by it.

I have made such applications in the past where a father’s level of wealth was such that the Child Support Agency cap was reached without being a meaningful contribution to the lifestyle that the children would have had if the father and unmarried mother had continued their relationship.

(The mother’s legal costs can be claimed in such an application following NMT v MOT 2006   [2007 2 FLR 925] )

Presumably, though it is hard to see the circumstances in which this would ever be litigated, if a man’s earnings arise predominantly from crime (such as making and selling crystal meth) then that would not be a taxable form of self-employment – it might be that the Court would find that there was a level of organisation   (although if the organisation is so bad that the mother of the drug lords children blows the whistle on him because he is too tight to pay any child maintenance, it isn’t much of an organisation)

Being the sort of loophole guy that I am by nature, I am pondering now whether one could do plastering for free, with the proviso that after the work is done, you then play poker with the person you did the plastering for. That person coincidentally being very bad at playing poker.

You don’t get paid for the plastering (which would be taxable income), you just WIN the same sort of amount that you would theoretically have charged by being lucky/skilful at poker (which would not be taxable income)

Or indeed, rather than charging people for legal advice, you give them the legal advice for free, and then play some poker with your new found friend for money.  

I STRENOUSLY ADVISE against attempting this. Seriously, don’t try it. I really don’t think that it would actually work in the real world. Unless you are Jimmy Carr, or a minor member of the Royal Family. Not even then, probably. DON’T DO IT.