In Australia and many other countries the holding of lotteries is now taken for granted. But Australia’s first lottery, in 1849, was founded on disaster, was surrounded by controversy, and was probably illegal.
The disaster was the virtual collapse of the economy of the Colony of New South Wales in the early 1840s. This crisis was to a large extent due to the cessation of convict transportation in 1840. So long as New South Wales received Britain’s convicts the British government paid not only their direct costs but also a substantial subsidy to develop the colony’s infrastructure of public buildings, roads and the like. With the cessation of transportation these subsidies were largely withdrawn, causing a general scarcity of money and putting a severe brake on public works. There was widespread unemployment.
These disruptions to normal economic activity punctured the balloon of land speculation. During the 1830s there had been excessive speculation in newly-opened lands, fuelled by the willingness of the banks to lend to speculators on the basis of absurdly inflated values. When land values collapsed and mortgage payments could not be made, many borrowers were ruined and the banks came into possession of thousands of properties which had little market value. The banks thus found themselves in difficulties with inadequate assets to cover deposits and other liabilities. In March 1843 one of the Colony’s major financial institutions, the Bank of Australia, collapsed.
Not only had the 180 or so shareholders of the Bank lost their investment, but, unless a way was found to cover the Bank’s debts, they faced personal ruin, as their liability was unlimited. The Bank’s assets were primarily in real estate which was now worth very little. But the shareholders’ assets were also mostly real estate and there was therefore little likelihood that shareholders could raise sufficient funds to cover their liabilities. Nor was there any point in seizing shareholders’ assets because the Bank could not have sold them either. The ruin of so many individuals would only increase the damage to the economy and create a general panic.
The Bank’s directors came to the conclusion that there must be a levy upon all shareholders, and that in order to assist them to meet this levy the assets of the Bank should be divided amongst them. Perhaps they could sell the assets individually, instead of holding a mass sale by the Bank which would depress prices overall, or perhaps they might prefer to hold on to the property they received in the hope that values would eventually rise. The Bank’s real estate holdings were very numerous and diverse, from large farms and prominent city buildings to small, unproductive and almost valueless allotments in distant country areas. Some turned out, on investigation, to be encumbered or to have some defect or uncertainty in their titles, but 11,247 pieces of real estate were identified as available for distribution immediately. The directors considered how best to divide up these assets among shareholders in an equitable manner, and concluded that distributing them by lot was the only way which would ensure fairness and impartiality.
A scheme was devised by which the assets would be numbered from 1 to 11,247. The same number of tickets would be printed, and issued to shareholders in proportion to their shareholdings. Then a drawing would take place at which each ticket would be matched with one of the Bank’s assets. As a private arrangement among the shareholders such a scheme was not a public lottery (which were outlawed in Great Britain at the time, and therefore probably illegal in New South Wales too). However, because some shareholders expressed dissatisfaction at the likelihood of their being awarded a relatively worthless piece of land, it was proposed that any shareholder who did not wish to participate could sell his ticket to a third party, transferring to the buyer all his rights in the drawing. This made the scheme more like a public lottery and it was felt that legislative sanction would be advisable.
Fortunately, but not surprisingly, some of the shareholders and most of the directors of the Bank were prominent citizens of the Colony, and several of them were members of the Legislative Council. In 1844 the directors drafted a Bill which would relieve the shareholders of their liability and empower the Bank “to dispose of certain real and personal property in the Colony of New South Wales in certain shares by lot”. W.C. Wentworth, a major shareholder in the Bank, introduced the Bill into the Legislative Council, which referred it to a select committee, chaired by Wentworth. Wentworth’s committee reported favourably and the Bill was promptly passed. (Apparently the concept of ‘conflict of interest’ was either unknown or could be safely ignored in the Colony at that time.)
Governor Sir George Gipps caused widespread consternation when he declined to give the Royal assent to the Bill on the grounds that as lotteries were proscribed in Great Britain the Legislative Council of New South Wales probably lacked the power to authorise them in the Colony. He referred the Bill to London for decision by the Queen. In doing so Gipps made it clear that, though he personally disapproved of lotteries, the paramount consideration for the good of the Colony should be the settlement of the affairs of the Bank “by almost any means”. The Bill had been passed by “great majority”, and “the disappointment is great, which has been caused by my reservation of it”. He concluded his report by saying “it would give me much pleasure could the Bill be allowed by Her Majesty, though I can scarcely venture to hope that it can be”.
Gipps’s despatch to London was accompanied by a petition to the Queen by the Chairman and directors of the Bank, setting out their reasons why the Bill should be allowed. Essentially, they arguedthat settlement of the Bank’s affairs would greatly relieve thepresent economic depression in the Colony, the state of the markets made it impossible for the Bank’s assets to be disposed of by sale, and the proposed lottery was the only effective means of resolving the situation and restoring value to the economy. These appeals were in vain. The British government declined to advise the Queen to give the Royal assent to the Bill on the grounds that, however worthy the cause, “public Lotteries are regarded with the highest disfavour by Parliament and by public opinion in this Country … [because] … the temporary advantage is gained at the expense of the morality and the permanent interests of Society at large”. It was also noted that, as several of the shareholders who would benefit from the Bill were also members of the Legislative Council, there could be some doubt “whether the measure was adopted with a due amount of vigilance and circumspection”.
Britain’s refusal to assist the shareholders by allowing the lottery did not cause the widespread dismay which might have been expected, because another possible solution had been found which might bring relief. The Bank of Australia’s principal creditor was a sister institution, the Bank of Australasia, which had advanced it large sums of money. A group of shareholders of the Bank of Australia launched a legal action disclaiming any obligation to repay these loans on the grounds that their directors had had no authority to borrow this money and so they (the shareholders) could not be liable. This argument was upheld by the Supreme Court of New South Wales, but the Bank of Australasia appealed to the Privy Council. The matter dragged on until February 1848 when the Privy Council upheld the appeal. The Bank of Australia’s shareholders were indeed liable for its debts and the awful spectre of widespread calamity was revived.
The situation required a desperate remedy, and the directors met and confirmed their decision that the fairest way of relieving shareholders’ liability and disposing of the Bank’s property assets was the lottery scheme. They resolved to proceed without formal legal sanction on the grounds that even though their Bill had been rejected by London (though it had been passed with the overwhelming support of the Legislative Council and of the community generally) there was no law of the local legislature expressly forbidding a lottery. Accordingly, in October 1848 11,247 tickets (Illustration 1) were printed, numbered by hand, signed by four directors, and issued to the shareholders in proportion to their shareholdings.
It appears that many shareholders preferred to sell their tickets for ready cash now rather than take their chances in the lottery. The assignment value was set at four pounds per ticket. Numerous advertisements appeared in newspapers offering tickets for sale, and the auctioneer Samuel Lyons, who had been commissioned by some shareholders to dispose of their tickets, issued a pamphlet soliciting applications from the public for 200 tickets at four pounds each, and listing the more attractive prizes to be won (Ferguson 4709).
The most valuable prize, said to be worth 6,000 pounds, was a farm of 8,320 acres, including a house, barns, vineyards, orchards, 3,700 head of cattle, etc. in the Dungog-Barrington Tops district, north of Newcastle. Second most valuable, at 3,000 pounds, was a parcel of several public houses and cottages in inner Sydney plus a public house and two acres of land at Woolloomooloo, plus a farm on the Nepean River and other smaller properties. Third, at 1,500 pounds, was “The Normal Institution, Elizabeth Street Sydney fronting Hyde Park” plus a house and other items. Other prizes included many houses and shops in Sydney and suburbs, and numerous farms and allotments in country areas of New South Wales. The great majority of properties were small country allotments, said to be valued at about four pounds each. Because property prices were severely depressed these valuations were approximate only, but a small number of undoubtedly valuable properties were available, along with a very large number of properties of very modest value, at least in the short term.
The lottery was a great novelty and caused much excitement. Nothing like it had ever been experienced before, and the prospect of obtaining a valuable property for only four pounds caught the popular imagination. Despite the fact that the Bill authorising it had been disallowed by the British government several years earlier, the local authorities appear not to have taken any action to stop it. A new Governor, Sir Charles Fitzroy, had assumed office and his view of lotteries may have been more tolerant. In any case, public opinion was certainly on the side of the lottery and there was very keen interest. The drawing of the prizes was set for January 1st, 1849 and took three days to complete. It was conducted amid scenes of great public excitement. The Sydney Herald reported:Who can ever forget the rows upon rows of anxious purchasers of tickets, male and female, daily and all day long crowded in the pit and boxes of the City Theatre? Who can ever forget the eager looks, the patient and sustained listening to the announcements of the numbers of the tickets as drawn, the uncompromising suppression of an occasional child – for even crying infants in arms were carried by their amiable mothers to the lottery – the hard breathing, and the excitement amongst the shoes, whenever something considered a prize was drawn, the almost audible groans of the old woman as a Fitz Roy fell to her …
(A ‘Fitz Roy’ was current slang for something worthless and contemptible, an allusion to scandalous behaviour by the Governor and his sons.)
The Herald later published a full numerical list of the prizes won, which could be matched against the Bank’s published list describing each prize (Ferguson 4710). John Dunmore Lang recorded in his Historical and Statistical Account of New South Wales that the major prize was won by “a Scotch Highlander, of the name of McDonald, who had been for some time as a farm labourer in my brother’s service … ” and who had purchased his ticket from a Bank shareholder for four pounds.
Ferguson records (Ferguson 4710) the existence of eleven surviving tickets in the Bank of Australia lottery, out of the 11,247 issued, ten in his own collection now at the National Library of Australia and one in the Mitchell Library. Two more, in my possession, were found in 1980 in the strongroom of the NSW Cricket Association when it was being emptied of an accumulation of miscellaneous material before the Association moved to new premises. How they got there is a mystery. Tickets 3506 and 3507, issued to a Dr Thomas Foster (sic – the shareholders list shows a Thomas Forster with 21 shares) were assigned by him for four pounds each to a John George Llewellyn Williams(Illustration 2). Mr Williams was not one of the fortunate prize-winners, securing only two small country allotments which, if only he could sell them, were said to be worth about what he had paid for the tickets.