London, WC2A 2LL
B e f o r e :
| The Queen on the Application of Sporting Options plc
|- and -
|The Horserace Betting Levy Board.
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
David Pannick Q.C., Michael Fordham and Andrew Lidbetter (instructed by Herbert Smith) for the Defendant.
Christopher Vajda Q.C. and Pushpinder Saini (instructed by S J Berwin) for the Interested Party, the Bookmakers' Committee.
Crown Copyright ©
Mr Justice Hooper
"4. The customary way in which a person can gamble on the outcome of a sporting event in this country is to place a bet with a traditional bookmaker. The better places a bet with the bookmaker by paying him a stake and receiving odds on the outcome of the event desired. If that outcome occurred, the bookmaker pays to the better out of his own funds the winnings, being the stake multiplied by the odds. There are currently four common forms of bookmakers:
large chains of bookmakers such as Ladbroke Racing Ltd, Coral Racing Ltd and William Hill Organisation Ltd who each have a large network of high street shops, a substantial infrastructure, internet sites which allow such bets to be placed on-line and services which allow bets to be placed over the telephone;
small high street bookmakers with an individual shop or small chains of shops; and
internet-only bookmakers such as Blue Square;
on-course bookmakers who tend to be sole proprietors.
6. All these bookmakers, although diverse in their businesses, operate effectively in the same way. They calculate the odds for the outcome of a sporting event, allow bets to be placed on such outcomes according to the odds they calculate and take the risk of paying out the winnings if the outcome bet upon arises. Calculating the odds is a matter of highly skilled expertise. The large bookmaking firms in particular employ (at great expense) many people who are responsible for calculating these odds.
"In the past three years, a completely new form of betting business has been developed known as "bet brokers" or "betting exchanges". With a betting exchange, the business does not enter into the bet with the better at all, but merely facilitates the better to enter into a bet with another person, unrelated to the business. When a better seeks to enter into a bet, he can do so either as a "backer", that is betting that a particular outcome will occur, or as a "layer", that is betting that a particular outcome will not occur. In this way, the backer enters into the traditional role of the gambler and the layer enters into the traditional role of the bookmaker. Accordingly, the betting exchange business takes no risk in the bet. The risk lies between the backer and the layer. The betting exchange makes its money solely by charging commission on the winner of the bet [whether backer or layer] for having brokered the transaction by introducing the backer and the layer to each other. "
"A betting exchange business offers three advantages to betters as follows:
Because the betting exchange does not enter into any bet itself, it does not have to enter into the complex process of calculating odds on the outcome of a sporting event. The odds are purely a matter for the respective betters, the backer and the layer. This saves the betting exchange very substantial costs and means that it can provide the service at a very significantly lower net cost than traditional bookmakers.
A better has the option of being a layer as well as a backer. With a traditional bookmaker, the better can be only a backer.
Once a bet has been entered into between a backer and a layer on a betting exchange service, either party may then seek to trade his position as the odds change.
For example, if a backer bets £10 that Horse A will win a race at odds of 2 to 1, he may subsequently be able to lay (that is bet against) the same amount on the same horse at shorter odds, of say 6 to 4. If the horse wins, he receives £20 for the bet where he was a backer and pays £15 for the bet where he was a layer, meaning that he wins £5 overall. Conversely, if the horse loses, he makes and loses £10 so he breaks even overall.
Typically, an individual may enter into a number of individual bets on one aspect of the outcome of a sporting event. This process in itself adds to the challenge and excitement of betting for some betters."
"6. Be the Bookie: Sporting Options has a 'Be the Bookie' feature that allows you to 'lay' multiple bets in a single process. To use this facility you would select your maximum payout and your odds for each selection in a betting market. 'Be the Bookie' will automatically calculate the various backers stakes you would need to 'lay' in order to achieve a proportionate set of prices. The system also calculates the guaranteed percentage return associated with your chosen prices. Please see the 'Betting Help' for a more detailed description of Be the Bookie."
8. Liquidity: Betting 'liquidity' or betting volume is vital to the success of a betting exchange. Sporting Options has carried out months of negotiations with several key groups of liquidity providers. These groups include numerous independent bookmakers both on and off-course, several on-line bookmakers, and many former City of London colleagues who enjoy trading sporting and financial markets on a regular basis."
"The disadvantage for a betting exchange to betters is that sometimes there may not - at any one time - be a counterpart better prepared to take a particular bet (a backer may not be able to find a layer or vice versa). By contrast, a bookmaker will always be prepared to accept a bet, albeit only at the odds he sets. This disadvantage is particularly acute with a small betting exchange business which has fewer members. This is one reason why any betting exchange starting up seeks to build up a substantial subscriber base as soon as possible."
"A further category of bookmaker is the companies that engage in spread betting. Spread betting involves betting on the outcome of a financial or sporting event based on a "spread" quoted by the bookmaker. The "spread" is a range of values (say, a range of between 150 and 200 runs for a cricket team score). The customer chooses whether they predict that the actual outcome will be above or below that spread. If they predict it will be above the spread then they "buy" at the top of the spread by staking an amount on the score being above the spread. If the customer is right and the end total is above the spread upper limit (in my example, if more than 200 runs are scored), the customer wins an amount which is equal to the value of their stake multiplied by the difference between the final total and the upper limit of the spread (in my example, if the score was 250 runs, the winnings would be 50 multiplied by the value of the stake). If on the other hand the customer is wrong, then, conversely, they pay an amount equal to their stake multiplied by the difference between the top of the spread and the actual total. The same principles apply (but in reverse), if the customer predicts that the outcome will be below the spread in which case they "sell" at the bottom of the spread. The customer can also sell his "bet" during the course of a game, before the final total is ascertained (e.g. before the end of the cricket team's innings) for a market price which will reflect how far above or below the spread the final total appears to be reaching."
Are betting exchanges "bookmakers"?
"bookmaker" means any person other then the Totalisator Board who --
(a) whether on his own account or as servant or agent to any other person, carries on, whether occasionally or regularly, the business of receiving or negotiating bets or conducting pool betting operations; .."
Betfair had apparently insisted that it was not a bookmaker (3/185). The betting exchanges, including Betfair, have, in fact, applied for and been granted permits as bookmakers. As such they are liable to pay the horserace betting levy.
The structure and responsibilities of the Horserace Betting Levy Board and the Bookmakers' Committee
"(1) There shall be a Horserace Betting Levy Board (in this Act referred to as 'the Levy Board') which shall be charged with the duty of assessing and collecting in accordance with the subsequent provisions of this Part of this Act, and of applying, subject to those provisions, for purposes conducive to any one or more of the following, that is to say—
(a) the improvement of breeds of horses;
(b) the advancement or encouragement of veterinary science or veterinary education;
(c) the improvement of horse racing,
monetary contributions from bookmakers and the Totalisator Board.
(2) The Levy Board shall consist of a chairman and seven other members of whom:
(a) the chairman and two other members shall be appointed by the Secretary of State and be persons who the Secretary of State is satisfied have no interests connected with horse racing which might hinder them from discharging their functions as members of the Board in an impartial manner;
(b) three members shall be appointed by the Jockey Club (incorporating the National Hunt Committee);
(d) one member shall be the chairman for the time being of the Bookmakers' Committee; and
(e) one member shall be the chairman for the time being of the Totalisator Board."
The membership at the time of the challenged decision was made up as follows:
(1) Mr Robert Hughes, Chairman – Formerly in local government, including 10 years as Chief Executive of Kirklees Metropolitan Council;
(2) Sir John Robb, Deputy Chairman – Formerly Chairman of British Energy, Chairman of Wellcome Plc and Chief Executive of Beechams;
(3) Mr Keith Elliot – Expert sports writer contributing form guides, formerly a lecturer in economics;
(4) Mr Warwick Bartlett – Chairman of the Bookmakers' Committee, Chairman of the Association of British Bookmakers, consultant on the British gaming industry, formerly Chairman of the British Betting Offices Association;
(5) Mr Keith Brown – Chairman of the Racecourse Association, racehorse owner, formerly a managing director of a merchant bank;
(6) Mr Peter Jones – Chairman of the Horserace Totalisator Board [the "Tote"], formerly director of an international advertising agency;
(7) Sir Eric Parker – Member of the British Horseracing Board Ltd [the "BHB"], formerly Chairman of the Racehorse Owners Association an Chairman of Trafalgar House Plc; and
(8) Mr Tristram Ricketts – Secretary General of the BHB, formerly Chief Executive of the HBLB.
At the meeting of 31 October Mr N Smith attended in the place of Mr K Brown. Mr Rodney Brack is the chief executive. Another member of the Committee, Mr Ross, would attend as an observer, in accordance with a well established practice (see 1/169G).
(1) The contributions such as are mentioned in section 24(1) of this Act to be made by bookmakers shall be paid by way of a levy in respect of each levy period in accordance with a scheme having effect for that period under this section; and in this Act the expression "levy period" means a period of twelve months beginning with 1st April in any year.
(2) Any such scheme shall include provision—(a) for securing that the levy shall be payable only by a bookmaker who carries on on his own account a business which includes the effecting of betting transactions on horse races, and only in respect of so much of the business of the bookmaker as relates to such betting transactions;(b) for bookmakers to be divided for the purposes of the levy into different categories;(c) for the amount, if any, payable by way of the levy by any particular bookmaker to be determined by reference to the category into which he falls;(d) as to the method of the promulgation of the scheme by the Levy Board;...
(3) Not later than such date before the beginning of any levy period as the Levy Board may determine, the Bookmakers' Committee shall make recommendations to the Levy Board with respect to the scheme to have effect under this section for that period, and those recommendations shall take the form either of a draft scheme or of a recommendation that the current scheme shall continue to have effect without amendment or with specified amendments.
(4) If the Levy Board approve the recommendations aforesaid, or those recommendations as revised by the Bookmakers' Committee in the light of any observations thereon made to the committee by the Board, the scheme so recommended and approved shall have effect accordingly for the levy period in question."
"For the purposes of the contributions such as are mentioned in section 24(1) of this Act to be made by bookmakers, there shall be a committee, which shall be known as the Bookmakers' Committee, constituted in such manner as the Secretary of State may, after consultation with any body appearing to him to be representative of the interests of bookmakers generally, by regulations made by statutory instrument provide."
"(a) two shall be appointed by Coral Racing Ltd;
(b) two shall be appointed by Ladbroke Racing Ltd;
(c) two shall be appointed by William Hill Organisation Ltd;
(d) two shall be appointed by the Betting Office Licensees Association Ltd to represent the interests of the members of that body other than those listed in paragraphs (a) to (c) above;
(e) two shall be appointed by the National Association of Bookmakers Ltd from amongst persons nominated for the purpose by associations for the time being affiliated to the National Association of Bookmakers Ltd; and
(f) two shall be appointed by the British Betting Office Association Ltd."
The organisations referred to in (d) and (f) have now merged. Mr Bartlett is and was at the time of the challenged decision, Chairman of the Committee. He was and is still a member of the Board.
"... the Committee has a statutory responsibility to make recommendations on behalf of the industry as a whole and as Chairman, I am conscious of the requirement for the Committee's recommendations to be based on a detailed and balanced assessment of what is a fair and reasonable contribution from each sector of the industry."
Events leading up to the adoption of the 42nd Scheme
"Two major factors have emerged. There is no doubt that the increasing popularity of alternative products, including the Football World Cup, have played their part. However, we believe the main reason to be that horseracing gross win across all platforms is running at about 1% less than we might have expected, almost certainly because money which might otherwise have been channelled through these platforms is being diverted through the betting exchanges. This effect has become much more pronounced since Betfair and Flutter.com merged earlier this year.
It is a fact that the on-course market is being influenced by some bookmakers laying off their liabilities through the exchanges, thus enabling them to sustain a bigger price about a horse than the local market can justify. The effect is to reduce the off-course margin by artificially inflating the SP.
A further effect of diverting money through the betting exchanges is to reduce the amount of revenue which that money would otherwise have generated for the levy and for racing. This is because the gross profit margin on which the exchanges pay levy is very much lower than that of a commercial bookmaker. If we assume that the exchanges charge, on average, 4% commission and that this is their sole source of income, then their gross profit margin is 4%; this compares with a combined average margin of around 12.5% across the LBO, telephone and internet channels of other bookmakers. If £1.3M in levy is derived from 10% of a 4% margin, it follows that up to an additional £2.76M would have been payable had that money been channelled through the conventional platforms. If the betting exchange gross margin were 3%, up to £4.1M extra would have been payable.
It is therefore likely that between £3M and £4M of the theoretical £6M deficit is directly attributable to the diversion of money through the exchanges. Alternatively, it is arguable that the whole shortfall is due to the reduction in overall margin resulting from the activities of the betting exchanges.
The Committee will be seeking to alleviate the negative effect on the levy and the income to racing in general which the betting exchanges are having by making recommendations which address the liability of those who profit by laying bets through the exchanges, as well as that of the exchanges themselves."
"Generally, the first recommendations are submitted by the Bookmakers' Committee in September and these are considered by the HBLB at its board meeting in September. It is fair to say that it is not usual for these to be accepted by the HBLB. The Bookmakers' Committee will then usually submit revised recommendations which will be considered by the HBLB at its board meeting in October. These too are often not approved and it has not infrequently been the case that only on 31 October itself are the recommendations in a final form which the HBLB feels able to approve."
"Uniquely, representatives of the Committee have been in dialogue with members of senior management at the British Horseracing Board during the drafting process and we believe that the attached document accurately reflects the agreements which have been reached between the two bodies."
During the course of the 12 September meeting of the Board, Mr Ross, a member of the Committee, said that the recommendations put forward by the Bookmakers' Committee were intended to be a mirror of the BHB commercial policy.
"(iii) Betting Exchanges/Bet-Brokers. The Committee recommends that companies who derive their gross profits from operating betting exchanges or conducting bet-broking activities, should pay 10% of such gross profit in levy, where that profit arises from British horseracing. We recommend that gross profit in the case of betting exchanges should be defined as the revenue derived from their gross commission on horserace betting business deducted from the amounts paid out to bettors and bet-takers.
(iv) Betting Exchange Customers. We recommend that all betting exchange customers who wish to lay bets through the facilities of a betting exchange or bet-broker should be charged levy at a flat rate of 10% on any gross profits derived from laying bets on British horseracing. In effect, this recommendation means that the charge is 10% of all layers' profits assessed on an annual basis, which equates to the extraction of all "lays" relating to British horseracing on individual accounts and assessing the profit made on those "lays" during the year; ie, there is no aggregation between individual layers. "Backs" are not taken into account and there is no provision for offsetting successful "lays" against losing "backs". Similarly, and in order to provide consistency with the tax/levy rules applied to hedging, the Committee recommends that levy liability is assessed on layers' gross profits before the deduction of commission charges. To facilitate this, we recommend that bet-brokers/betting exchange operators be responsible for carrying out the required calculations and making the appropriate payments, in addition to the levy payments as recommended at paragraph 9b(iii) above."
"For the first time, the Committee will be making specific recommendations in respect of spread betting companies and betting exchanges/bet-brokers. We recognise that, under the 41st Scheme, the bet-brokers are currently required to pay levy at a rate 10% of the gross profits which they derive from the commission charged to their customers on horseracing business. However, we consider that individuals using the facilities of a betting exchange to lay bets also have an individual liability to pay levy on any gross profits they may make from horseracing and we will make recommendations to this effect; this reflects the BHB's commercial policy."
"At a later meeting of the HBLB on 23 October 2002, Mr Tristram Ricketts, Secretary General of the BHB, said that although a licence agreement had been signed by Betfair and returned to the BHB, the BHB had not co-signed the agreement because Betfair had not provided certain requested information. Mr Ricketts also said that "it appeared unlikely that any licence agreement with the betting exchanges would be concluded and in place before 31 October" ("RLB2" page 167)."
"50. Press reports following the joint press release on 17 April 2002 made reference to the idea of future levy schemes mirroring the commercial arrangements between bookmakers and the BHB (see e.g. Racing Post, 18 April 2002, fourth paragraph from the end, at "RLB2" page 69). The idea that the terms of the 42nd levy scheme would mirror the terms of the data licence agreements entered into between the BHB and certain off-course bookmaking companies was well known in the industry at the time.
51. Although the anticipation of the major bookmakers had been publicly stated, this aim was not conclusive as to what terms would be adopted by the Bookmakers' Committee for recommendation to the HBLB or what would be approved by the HBLB. I refer for example to an observation made by the Chairman of the HBLB during a meeting of the HBLB on 23 October 2002. The minutes record that he:
"acknowledged the Committee's desire to reflect the BHB's current commercial policy, but said that it did not have any statutory force and, therefore, the HBLB must consider the issues from the point of view of the statutory levy process" (first paragraph on page 3 of the minutes for that meeting at "RLB2" page 166).
I would respectfully invite the Court to conclude that there is no evidence that any of the board members failed to take into account their statutory and other obligations to the board when taking decisions as board members, nor put themselves (or indeed were put) in a position which could fairly be perceived as having compromised their role as board members."
"Under it, the bookmakers that were party to that agreement evidently agreed to recommend to the HBLB a levy scheme for each year which contained identical terms to, or no less favourable to the BHB than, the terms set out in the data licence. The BHB agreed in return "to support any such recommendation".
"Applying the recommendations described above, the Committee estimates the projected yield from the 42nd Scheme to be in the order of £94.31 million, to which may be added an allowance of up to £3.5 million for receipts from racecourse bookmakers betting exchanges and their customers, and the minimum guarantee, giving a total estimated yield of £97.81 million. However, as notified to the Board under separate cover, the Committee is aware that the effect of the betting exchanges has been to reduce the margins of bookmakers; if this trend were to continue, then it is most improbable that there will be significant growth in gross profits on horseracing next year. In that event, we would estimate the levy yield to be in the region of £93M-£94M."
"2.2 These figures need to be treated with some caution since little hard information is available on the fast changing betting market this year. For example, the Committee includes in its forecast, a contribution from the Betting Exchanges of £1.3m. This implies a total Betting Exchange turnover of around £6.2m per week (a 10% levy charge on a 4% gross profit margin). Recent Press reports indicate that turnover is currently running closer to around £20m per week"
6. It is understood that commercial deals between the BHB and the on-course bookmakers and the Betting exchanges have not yet been concluded. Discussions are continuing and it is likely, therefore, that the Committee will wish to change its recommendation in respect of one or both of these activities before 31st October 2002.
6.2 It is unknown whether the Betting Exchanges will be able to comply with the proposed charge on layers. At the least, it will require them to change their computer and accounting systems, with a degree of complexity and attendant cost. It is suggested that this issue should be explored with the leading Betting Exchanges before the Board takes a final view."
"Referring to comments made earlier to members by the Minister, Mr Bartlett said that it was incumbent upon all parties to reach an agreement on the 42nd Levy Scheme, thus avoiding a referral to [the Secretary of State]. "
The minutes do not set out the Minister's comments. As I have already said, that agreement had to be reached by midnight on 31 October if there was to be no such referral.
"noted that whilst the proposals for Betting Exchanges were controversial, they resulted from due process for levy purposes. …"
"Whilst noting THE CHAIRMAN's views, MR JONES said that he was concerned that the minority parties, within the bookmaking industry, i.e. spread betting bookmakers and Betting Exchanges, were not sufficiently represented on the Bookmakers' Committee which, in his view, was not fair. He did not think it was right that the majority views of the Committee should be imposed on those two sections of the industry to reach an agreement. The proposals were, therefore, invalid. …"
"Comments then followed between THE CHAIRMAN, MR RICKETTS, MR BARTLETT AND SIR ERIC on the interpretation of, and validity of Betting Exchanges and the impact of their operation on the betting market. MR ROSS [an observer] said that the recommendations put forward by the Bookmakers' Committee were intended to be a mirror of the BHB commercial policy. He said that the legality of the activities of Betting Exchanges was a separate issue to determining the Scheme. He referred to the Minister's earlier comments that the activities of Betting Exchanges was [sic] "potentially illegal". He said that the Bookmakers' Committee had received legal advice to the effect that, in the context of Betting Exchanges, the activity of the layer was illegal and, therefore, the activities of the bettor and Betting Exchange operator were illegal too."
"Following the meeting Mr Hughes wrote to Mr Bartlett on 23 September 2002 ("RLB2" pages 127 and 128). Amongst the points which Mr Hughes made in that letter, he noted that the Bookmakers' Committee's comments in respect of enforcement of certain National Pitch Rules had been passed to the NJPC (3rd paragraph at "RLB2" page 127). He also requested the supporting statistical analysis regarding the fall in the proportion of horseracing's share of total gross profits from betting (5th paragraph at "RLB2" page 127). Mr Hughes also discussed the absence of any commercial arrangements between the BHB and three types of bookmakers; on-course bookmakers, spread betting bookmakers and betting exchanges (6th paragraph "RLB2" page 127). He also acknowledged the issue, which had been mentioned in the HBLB meeting of 18 September 2002 (see above at paragraph 69), as to whether agreement needed to be reached between the Bookmakers' Committee and spread betting bookmakers and betting exchanges (which he identified as a legal point.)"
"The justification given by the Bookmakers' Committee in the BC Submission appears to be that because the Bookmakers' Committee believes that betting exchanges may be squeezing the profit margins of conventional bookmakers and that betting exchanges generate less levy per pound of betting turnover, the basis on which betting exchanges are assessed must be extended. We explain:
(1) why the Bookmakers' Committee's statistics and conclusions are insufficiently substantiated to be taken into account by the HBLB;
(2) more importantly, why even if these statistics and conclusions were true, the conclusions are merely the effect of legitimate competition and, as such, constitute an improper justification for extending the basis of the charge; and
(3) that the HBLB does not have the statutory authority to impose levy on anyone other than bookmakers and therefore the recommendation that "all betting exchange customers who wish to lay bets through … a betting exchange…should be charged a levy at a flat rate of 10% on any gross profits derived from laying bets on British horseracing" cannot be adopted.
We oppose any decision by the HBLB to adopt a dual basis of assessment, given the questionable impartiality of the Bookmakers' Committee and the BHB, whose appointees represent about half of the HBLB, and the limited justifications put forward for the dual basis and the procedure employed in reaching this decision.
We then set out the alternatives which we would submit are fair and therefore open to the HBLB. We conclude by recommending that the HBLB adopt a 42nd Levy Scheme in which betting exchanges continue to be charged, as is currently the case for the 41st Levy Scheme, on a commission basis. We indicate however that as a fair alternative, betting exchanges might be required to account for levy on the basis of their profitable layers' profits basis but that, if so, caps on liability should be imposed to protect against volatility."
"(1) The Bookmakers' Committee believes that the 41st Levy Scheme will generate £6m less levy than the Bookmakers' Committee initially predicted;
(2) the Bookmakers' Committee believes that this shortfall is due (i) to profit margins of the conventional bookmakers being squeezed by "artificial" inflation of SP; and (ii) to the assumption that betting turnover channelled through betting exchanges generates less levy;
(3) therefore a new basis of levy should be imposed on betting exchanges."
there was no convincing evidence that the profit margins of conventional bookmakers were down,
if they were down that "may be for any number of reasons other than those cited",
the original estimate of the expected levy was "an estimate based on a large number of assumptions any one of which may prove to be wrong as a result of factors unrelated to betting exchanges",
the estimate may have been a deliberately optimistic estimate to procure a low rate of levy, "the betting exchanges present a convenient scapegoat on which to place the blame for the over-estimate", and that
the estimate may prove to be wrong- "the betting exchange contribution alone was likely to be significantly in excess of the 1.3 million suggested by the Bookmakers' Committee."
"The conclusion of the BC Submission amounts to saying that any low margin bookmaker should be penalised and be required to pay more levy simply because they are low margin bookmakers. This would suggest that the Bookmakers' Committee are seeking to link liability to levy to turnover. We submit that one of the main reasons why the Secretary of State decided to shift the 41st Levy Scheme from a turnover-based system to a gross profits system was so that low margin operators would be encouraged and would not be prejudiced. The Bookmakers' Committee proposal would completely undermine the rationale behind this shift".
"Any decision to increase the charge paid by lower margin competitors is intrinsically anti-competitive, pandering to conventional bookmakers and encouraging them to sustain their oligopolistic overrounds and profit margins."
"Notwithstanding the statutory limitations, we believe that the logic of treating all layers equally regardless of whether or not they are registered bookmakers is completely flawed. Fundamentally the distinction between backing and laying on an exchange is arbitrary: if a punter offers odds on Man Utd not to win the Premiership, has he layed that outcome or backed the outcome Man Utd to win it? … Betting exchange users are generally ordinary punters who are prepared to enter a bet with other punters that an outcome will or will not occur. Unless a user is a registered bookmaker with all of the rights and obligations that entails (authority to advertise and solicit bets directly from the public, handle their stakes, pay out their winnings etc), there is no justification for treating him differently merely because he choose to bet that an event will not occur (i.e. 'laying') instead of choosing to bet that an event will occur ( ie. 'back')."
"Betfair has calculated that if the dual basis of assessment proposed by the Bookmakers' Committee had been applied during the period April – September 2002, this would have generated liability to levy equal to approximately 19% of Betfair's commission over the same period.
The new element in the BC Submission (i.e. 10% of all profitable layers' profits) would however generate an extremely volatile liability which would be impossible to predict. In many circumstances, levy liability will greatly exceed commission revenue generated by the betting exchange; indeed in any races where an odds on favourite loses, the levy liability generated will be many times greater than the commission revenue generated.
This solution is also open to sabotage: Two people A and B could act in concert. Person A lays a horse to Person B for £10,000 at Evens and Person B lays that same horse to Person A, also for £10,000 at Evens. Regardless of the outcome, both Person A and Person B come out flat and thus pay no commission. However, if the horse fails to win then both Person A and Person B will have won on the "lay" part of their bets and will, together, generate £2,000 (£10,000 x 10% x 2) of levy liability for the exchange. Clearly, this is a grossly simplified example but it serves to illustrate how such a solution is very open to sabotage.
The Bookmakers' Committee and the BHB may argue that it is up to the betting exchange whether it seeks to recover the cost from the layers themselves. It is quite clear however that that would not be a commercially viable option for the exchanges. There may be accounts which quite legitimately end up in the situation described above, where each is flat from a net winnings perspective but which would give rise to a large levy liability. Passing this cost on to layers would completely distort trading activity on betting exchanges. The exchanges would therefore have to choose between undermining the business model or paying the increased liability themselves. They would no doubt opt for the latter.
In short, if the Bookmakers' Committee proposal is accepted, the liability of betting exchanges would probably be doubled and would be exposed to extraordinary volatility and sabotage. In such an oppressive environment, it is likely that some if not all betting exchanges will choose to relocate off-shore."
"The aggregated layers' profits basis has proved extremely volatile but appears to work reasonably well for short accounting periods, such as one month. However for longer accounting periods such as the one year period used for levy schemes, the aggregated layers' profits basis is unlikely to work well because over such extended periods the aggregated position of layers will tend to zero."
"Also, as discussed above, this solution is flawed in practice in that it exposes the betting exchange operator to enormous volatility because the liability to levy is dependent not on the gross profits of its own operation but on those of its layers, which are not within its control. The aggregated profitable layers' profits basis would indeed be significantly more volatile than the aggregated layers' profits basis. It would also be open to sabotage. Despite these flaws, we believe it would be possible to accept the aggregated profitable layers' profits basis as fair as long as (i) it is the exclusive basis for assessing betting exchanges to levy; and (ii) sensible caps are placed on potential liability to ensure that it does not become unreasonably large and to manage the inherent volatility and potential for sabotage."
"We believe that this is best achieved by betting exchanges continuing to account for levy on a commission only basis. However if the HBLB prefers to adopt a profitable layers basis, we believe that this could be made fair if reasonable caps were imposed on liability to protect against volatility and sabotage."
"… the Committee is now seeking legal advice in respect of its statutory remit in making recommendations which impact upon all bookmakers and bet-brokers; and also in respect of due process in discharging that remit."
"33. In and around 20 October 2002, I read an article in the Racing Post newspaper which stated that the Bookmakers' Committee had proposed that for the 42nd Levy Scheme, the levy imposed upon betting exchanges would be:
(a) 10% of the commission received from bets on British horse racing; plus
(b) 10% of the aggregate profitable layers' winnings bets on British horse racing (that is the total of only those betters who had placed bets in the period as layers and who, over the period, had made a profit from the bets they had laid – those who had made a loss would be excluded from the calculation).
34. Sporting Options never received any direct communication from the Levy Board or the Bookmakers' Committee regarding the proposals despite the facts that we were registered with the Levy Board, paid a Levy each month to the Levy Board and we were a betting exchange which, as the Levy Board and the Bookmakers' Committee must have known, had a real and immediate interest in any changes to the Levy Scheme as it applied to betting exchanges.
35. I was appalled that the Levy for betting exchanges could be set by reference to aggregate profitable layers' winnings. I was concerned that the proposal would have a very considerable harmful economic impact on our business in that we would have to pay a greatly increased amount in the Levy irrespective of the amount of income received.
36. I immediately telephoned Mr Rodney Brack, the Chief Executive of the Levy Board. He confirmed that the article in the Racing Post was correct. He expressed some sympathy with the position of Sporting Options. We arranged to meet a week later on 28 October 2002 to discuss the question of the levy proposed as it applied to us.
37. I also telephoned Mr Edward Wray, the Managing Director of Betfair. Mr Wray told me that he had received a letter early in October from the Levy Board setting out the proposals. I told him that I had received no such letter. He said that he had prepared a paper setting out Betfair's response to the proposals which he had submitted to the Bookmakers' Committee. He also told me that there was a meeting of the Bookmakers' Committee taking place the following Friday, 25 October 2002. I arranged with Mr Wray to attend that meeting with him.
38. I was very busy running Sporting Options at this time. In the short time available, I did not have the opportunity to prepare our case against the proposed Levy Scheme as thoroughly as I would have liked. It seemed to me the unfairness of the proposal was obvious and I proposed to put this to the Bookmakers' Committee on 25 October.
39. On 25 October 2002, I met with Mr Wray in a hotel some half an hour before the meeting with the Bookmakers' Committee was due to take place. He showed me a paper which Betfair had submitted to the Bookmakers' Committee. I reviewed this document quickly. I noted that it stated that Betfair preferred that the Levy for betting exchanges should continue to be assessed on the basis of gross commission but stated that it could accept that this Levy be assessed on the basis of aggregate profitable layers, provided there was a cap which meant that the amount payable did not exceed a percentage of gross commission. This did not seem sensible to me. Although such a cap would provide a degree of protection for betting exchanges, I considered that the only proper basis for assessing the Levy for betting exchanges was gross commission because it was imperative that the Levy was assessed proportionately to our gross profits (that is our commission) as it is for traditional bookmakers.
40. At the meeting, I made a number of points to the Committee. A copy of the minutes of the meeting was later provided to me... . During the meeting I made it clear that my view was that the only fair basis to assess the Levy on betting exchanges was (as with the 41st Levy Scheme) on gross commission received.
41. On the following Monday, 28 October 2002, I met with Mr Brack. He was extremely sympathetic to the position of Sporting Options and of betting exchanges generally. He agreed with all my points and he indicated that he thought that the only fair basis to assess the Levy for betting exchanges was on gross commission. After that meeting, I prepared a short note for submission to the Levy Board. I attach a copy at KRPG4 [3/204]."
"What happened next was that I met with Mr Griffiths of Sporting Options on 28 October. Mr Griffiths had telephoned me (possibly on 20 October, although I am not sure) to express his concerns over the proposed 42nd levy scheme. Noting these, I had suggested that we meet. During this meeting, Mr Griffiths had explained why he was opposed to the Bookmakers' Committee's recommendations. He also set out why he disagreed with Betfair's attitude to these recommendations set out in Mr Wray's letter of 15 October 2002 (i.e. Mr Griffiths was only willing to accept the commission basis and was not prepared to accept the individual layers' basis, even with a cap). Contrary to what Mr Griffiths says at paragraph 41 of his witness statement, I did not express sympathy for the position of Sporting Options and the betting exchanges generally. Nor did I agree with the points he was making and indicate that the only fair basis to assess the levy for betting exchanges was on a gross commission basis."
6. Following members' comments at its September meeting, the Bookmakers' Committee has held further consultations with its members who represent the on-course bookmakers. This provided them with an opportunity to explain their objections to the Committee's recommendations in respect of on-course bookmakers. It is understood that, as a result of those consultations, amendments will be made to the Committee's recommendations, but this will not be in time for their consideration at the 23rd October meeting.
7. In view of the comments expressed at the last meeting by the Chairman of the Tote with regard to the Committee's recommendations in respect of betting exchanges and spread betting companies, legal advice was sought from the Board's solicitors, Herbert Smith, on the process which the Committees had followed. A copy of Herbert Smith's advice is attached as Appendix 'B'.
Submission from Betting Exchanges and Spread Betting Companies
8. In the light of Herbert Smith's advice, the Chief Executive held meetings with representatives of Betfair, the largest betting exchange company, and the Spread Betting Association. Both groups, at their respective meetings, made it clear that;
(a) they were not represented on the Bookmakers' Committee;
(b) they had not been properly consulted, in their view, by the Bookmakers' Committee in the preparation of it s recommendations; and
(c) they objected strongly to the recommendations on the grounds of quantum.
9. As a result, they were invited to make written submissions to the Board setting out their views. …"
"that, in his view, there was a changing betting marketplace, and a lack of a clear understanding of what the betting exchange business entailed prevented the establishment of a fair and level playing field for all interested parties."
"MR JONES suggested that in the event there was no agreement reached with the betting exchanges and spread betting companies, there should be acceptance of no change to the levy rates by the Committee. He proposed that this would provide time while the BHB pursued its commercial agreement. He felt that if higher rates were forced through they would attract a legal challenge. This could lead to unpleasant public allegations of collusion between the BHB and the bookmakers for anti-competitive purposes.
Taking members' views into account, and his understanding of the situation, Mr K BROWN said that if it was being suggested that there was a difference between the two sides of perhaps an additional £3m, this amount was not so significant to pursue that it should result in a referral to the Secretary of State, who had already made it clear that she would not wish to entertain another levy scheme determination. He also said that, if there was a referral, it was highly likely that the Secretary of State would merely repeat her determination of the relevant terms of the Forty-First Levy Scheme. He said that in risk: reward terms, in his view, to risk the whole levy against an extra £2m-3m was unjustified. Also, the fall out from any referral would be high and the reward very little; it must be avoided at all costs. A compromise was necessary and it should be agreed next week. THE CHAIRMAN AGREED.
MR BARTLETT said that he supported MR K BROWN'S views regarding the fallout of any referral, and his Committee were working hard to avoid this. However, in terms of the amount of money that the betting exchanges should pay, he pointed out that they earned 90% of their business from British horseracing using the BHB's racing data. Whilst the exchanges had offered to pay levy, it should be acknowledged that their businesses were successfully operating as a result of a tax concession but once this was removed their businesses would founder. MR BARTLETT said the betting exchanges should pay the same as other bookmaking businesses. MR RICKETTS commented that the BHB was not holding the Committee to its commercial intentions."
"Richard Wright's article (Racing Post 25/12/2002) illustrates the twin folly of Betfair's claims it is not a bookmaker and Betfair's dubious deal to pay Gross Profits Tax on exchange 'layers aggregated profits' which, as I predicted in a letter published here earlier this year, is now beginning to backfire on them, leaving their users and other exchanges caught in the crossfire.
Betfair and Flutter (now part of Betfair) negotiated this deal with the government, fully aware the low over-round books and professional backers in operation on their exchanges were ensuring the layers collectively lost and there would be little GPT for Betfair and Flutter to pay [see further Betfair submissions, paragraph 70 above].
But GPT for betting exchanges is under review now and, more immediately, the BHB has adopted the 'layers' profits' mechanism as the basis for paying for the Data Rights Licence, but has cunningly amended it so one layers' losses cannot be offset against another.
Moreover now, capitalising on Betfair's dogmatic insistence it is not a bookmaker, the BHB is set to impose a second licence, levying 10% of the exchange's gross commissions on UK horseracing, in addition to 10% of layers' profits on UK horseracing.
The 10% levy of all commissions on UK horseracing is reasonable, but an additional 10% of all layers' profits could leave exchanges with the twin consistently exceeding revenues, raising the spectre of the exchange having to pass the Levy onto its users in the form of higher commission rates.
The saddest aspect of this shambolic performance by Betfair – which leaves themselves, other exchanges and all exchange users in a parlous state – is that it could so easily have been avoided.
Exchanges are bookmakers.
Bookmaking is about laying bets to lock in a profit on any given event so that, ultimately, the bookmaker has no interest in the outcome of the event.
By locking in a profit on every matched bet (via the commission) exchanges demonstrate that "bet brokering" is actually bookmaking in its purest form.
'Layers' on exchanges are NOT bookmakers.
They are punters, betting on thing not happening, the same as people who sell performances with spread firms are punters.
Bookmakers want a level playing field – fair enough.
But these new proposals are not equitable.
Bookmakers make their Gross Profits via their over-rounds, exchanges make their Gross Profits via gross commission.
The fact exchanges garner less in commission on turnover than bookmakers do via the over-round is a key reason why exchange betting is a superior product for "win only" and "place only" betting to betting with a bookie in the modern era.
It's not creating a level playing field to penalise an exchange because it offers better value for a punter's betting pound than a bookmaker.
That would be like Harrods saying Asda should pay more higher rates of tax because Asda charge their customers lower prices and are nicking Harrods' customers.
Exchanges should pay 15% GPT on all its commissions to the Treasury and an additional 10% of its UK horseracing revenues to the BHB in Levy."
"However, I would like to reiterate my position elucidated at the last meeting. It would be disastrous for Levy and racing for this to be referred to the DCMS. It sends out totally the wrong message that we cannot manage our own affairs and should have sorted out the commercial arrangements months ago. There must, therefore, be a strong possibility that the DCMS would first roll over the 2002/3 settlement if they received a referral. However, a Chancellor anxious for revenue would see a rise in the GPT rate fair game and even a punishment to the bookmakers. Therefore a referral can only be to everybody's disadvantage.
We cannot run the risk of legal action from the bet-exchanges for potentially another £2m of income and risk £85-90m from the Levy. I fully understand that the bookmakers see bet-exchange operations in an uneven playing field, but it may not be as uneven as they make it out to be. The Levy is not there for commercial advantage. Furthermore it is clear that current legislation was framed at a time when this type of technological innovation could never have been envisaged. The Minister seemed clear that he wished to avoid a conflict today but would legislate tomorrow. The Bookmaker Committee and the Levy Board must be careful not to pre-empt legislation. The DCMS made its views known on the Levy to be paid by bet-exchanges and spread betting companies at the last settlement and the lowest risk strategy is to continue with the existing rates until a firm commercial agreement is put in place.
I hope you will be able to persuade the Bookmaker Committee that a referral is in the interests of neither the bookmakers nor the HBLB."
The letter was not, it appears, included within the papers for the meeting of 31 October.
"As a matter of longstanding practice, a committee agrees its final recommendations at the end of the day on 30 October, leaving me, as Secretary, little if any time to turn around the necessary documents and forward them to the Levy Board in time for their meeting on 31 October."
The minutes of that meeting, heavily redacted to exclude legal advice, appear in the documents prepared for this hearing (2/161) although they did not form part of the material upon which the Board reached its conclusions on the next day.
"On reflection, we believe this basis [the 41st Scheme basis] to be inappropriate because the exchanges themselves do not bet on race outcomes, whereas, like bookmakers, those who offer to lay horses through the medium of the exchanges do. We therefore consider that a more suitable mechanism would be for the exchanges, as the sole facilitators of such betting, to be accountable for a levy assessed on the gross profits of their successful layers; and we will make recommendations to this effect." (Emphasis added)
The paragraph setting out the proposals for betting exchanges was also altered. In the September proposals (paragraph 29 above), there had been one paragraph for betting exchanges and a separate paragraph for betting exchange customers. The new single paragraph started with these words:
"We recommend that betting exchanges should be assessed for levy on the basis of the gross profits earned by those of their customers who successfully lay bets on British horseracing through the medium of a betting exchange."
The proposed method of method of calculation is described in terms similar to those used in the September recommendations. The Committee was now basing its case for change upon the basis that layers on an exchange were like bookmakers, and should therefore be treated, for levy purposes, in the same way whether they were permit holding bookmakers or not. In September the Committee was recommending that the betting exchanges be responsible "for carrying out the required calculations and making the appropriate payments" (see paragraph 29 above). Under these recommendations, exchanges, "as the sole facilitators of such betting" were to be accountable for a levy assessed on the gross profits of their successful layers.
"Furthermore, we recognise that, under the provisions of the 41st Scheme, permit holding bookmakers are required for levy purposes to declare any gross profits accrued as a result of conducting business through the exchanges. We therefore recommend that, if the exchanges are responsible for making the appropriate levy payments, irrespective of whether or not they choose to charge this cost to their customers, the liability should be disregarded as discharged in full and that the requirement for permit holders to make separate declarations in respect of levy should be discontinued." (Emphasis added)
"I therefore gave an oral report of the meeting to the Chairman and the independent members of the HBLB, shortly after the meeting (and certainly before the next board meeting on 31 October 2002)."
"Sporting Options' insistence on a commission-based levy had been communicated to me and to the two independent members at a briefing with Mr Brack who had met with a representative of Sporting Options."
"Noting the tabled proposals, as amended, from the Chairman of the Bookmakers' Committee set out in a letter dated 30th October 2002, THE CHAIRMAN asked if copies had been sent to the betting exchanges and spread betting companies; he was of the view that this should occur. MR BARTLETT said that this had not occurred and that he wished to reflect on the request. MR JONES agreed that sending the amended proposals to the affected parties, as soon as possible, would be appropriate."
"He suggested, however, that the Board members could decide if they wished to distribute the information to the two parties."
"Comments then ensued between MR JONES, MR BARTLETT, THE CHAIRMAN and MR ELLIOT on the effect of not circulating the proposals in the event that the two parties chose to seek a Judicial Review. It was confirmed that the exchanges and spread betting companies were not aware of the detail of the Committee's amended proposals.
MR ROSS [the observer] said that the Committee had carried out its statutory responsibilities by circulating its final, amended proposals to the Levy Board. It was his view, therefore, that it was not necessary for the exchanges and spread betting companies to be accorded the right to view and comment on the amended proposals. THE CHAIRMAN reiterated his view, and agreed with MR JONES and MR ELLIOT that the proposals should be circulated by the Committee to the two parties as a matter of courtesy. SIR ERIC agreed that if the proposals were to be circulated, it was for the Committee and not the Board to do this.
In response to MR BRACK, MR BARTLETT said that the Committee's secretary had visited and consulted with the two parties in July [apparently Betfair, but see paragraph 58 above, and the Spread Betting Association] before the initial recommendations were prepared. He confirmed that the Committee had taken legal advice to the effect that the Committee should consult further on the recommendations with the exchanges and spread betting companies; this had been done and, as a result, the proposals had been amended.
Following further comments from THE CHAIRMAN and MR BARTLETT, MR JONES proposed that, in the absence of the Bookmakers' Committee being prepared to send their proposals to those parties materially affected by the proposals, the Board should do so. SIR ERIC proposed, in amendment, that the Board should request the Committee to send them to the two parties not represented on the Committee. The Board then voted on the amendment and it was carried. Upon being put as the substantive motion,
That the Board should request the Committee to send its amended proposals to the two parties not represented on the Committee."
"THE CHAIRMAN then thanked the Committee for its amended proposals, but expressed concern regarding the lack of change in the proposals affecting the spread betting companies. He said that the proposed levy rate of 10% represented a 400% increase over the Secretary of State's determination in March of 2%. He understood the Committee's desire to set a level playing field between competing bookmakers and that it was consistent with the other proposals. However, it could make the Board vulnerable, if it was accepted on the proposed basis."
"Both MR JONES and MR ELLIOT requested clarification on what the amended proposal relating to the payment by betting exchanges would yield compared to the initial proposal. MR BARTLETT and MR SMITH confirmed that this was a difficult calculation and not easy to estimate because of the fast changing nature of the betting exchanges' business. SIR JOHN also expressed surprise that this was not available, and added that even an educated guess would be helpful. MR ELLIOT accepted that the proposal would increase Levy Board income."
"Commenting on the levy, its statutory process, and having regard to the fair treatment of all parties to the agreement, MR SMITH asked if yield was more important than equity."
"MR BARTLETT confirmed that the betting exchanges were willing to pay either on an assessment of the profits of their successful layers, or on their gross commissions, but not on both."
"He [Mr Bartlett] also explained the Secretary of State, when determining the Forty-First Levy Scheme, had had available to her a Nottingham Trent University Report commissioned by the Spread Betting Companies themselves. MR BARTLETT said that at that time the Report was not passed to the Committee, so the Committee was unable to express a view on whether what was proposed [by the Secretary of State] was fair or equitable. In fact, a request for the same Report the previous day had been refused. This had not been helpful to the current process."
"Both MR JONES and THE CHAIRMAN agreed that betting exchanges were a new and largely 'unknown' element to the betting industry and, therefore, it was necessary to receive a robust proposal from the Committee."
"In response to SIR ERIC, MR BARTLETT confirmed that the Committee's proposal relative to the betting exchanges was different only in detail to the arrangements with Customs & Excise, however, this was currently under review." (Emphasis added)
"THE CHAIRMAN then summarised the discussions:
It was clear that members still had concerns on several aspects of the amended proposals and they could not be agreed as they stood;
Regarding spread betting companies, the consensus was that there appeared to be concern about the sensitivity of increasing their payment level to the proposed proportion;
It was acknowledged that the Committee had gone through the proper consultation process in finalising the proposal relative to betting exchanges, which was deemed fair and in line with the needs of racing; however, noting earlier comments, he urged the Committee to consider circulating the proposal to the betting exchanges"
"The Board felt that the bookmakers should simply declare their gross profits on British horseracing, and there should not be a zero rated category based on foreign horseracing;
There was discontent regarding the 54% default level set for British horseracing's share of total gross profits.
In requesting the Committee's members to reflect on the comments that had been made, THE CHAIRMAN proposed that the meeting be adjourned until 2:00 pm so that amendments to the recommendations could be made; he proposed that a Vote on the Committee's then proposals should take place at that time.
The meeting adjourned at 12.20 pm and reconvened at 2.00pm."
"THE CHAIRMAN said that the independent members retained concerns about the proposals in so far as they related to the spread betting companies. He wished to invite the Committee to consider rolling forward the terms of the Forty-First Levy Scheme. This would provide time for the Committee to study the position of the spread betting companies before making proposals for the Forty–Third-Levy Scheme. He said that this was not intended as a criticism. In response to MR BARLETT as to why the on-course bookmakers were not included in this request, THE CHAIRMAN said that they were represented on the Committee and had demonstrated their collective responsibility in endorsing the majority view of the Committee. It was felt that the possibility of a legal challenge from the on-course bookmakers was minimal. MR BARTLETT did not agree with that view. MR ELLIOTT said that the NAB (on-course bookmakers) had been make privy to the Committee's proposals, whereas the betting exchanges and spread betting companies had not; this was the key point of difference. MR BARTLETT explained that the two parties had in fact received the first set of proposals presented in September."
"On behalf of the independent members, THE CHAIRMAN urged the Committee again to consider rolling forward the relevant terms of the Forty-First Levy Scheme arrangements. He added that, if there was a referral to DCMS, it was likely that this would be the basis of the Secretary of State's determination."
"The consensus was that the Committee had prepared a fair submission for the Board's consideration; this was based on the premise that there was no discrimination, and all the betting media were treated equally."
He said that, in the Committee's view, "the threat of a Judicial Review was not a factor they wished to consider". He confirmed that there was no change in the 55% vs. 58% issue.
"However, we accept that more research may be required in pursuit of this objective and are therefore prepared to recommend that, for the period of the 42nd Levy only, the rate of 2 per cent gross profit determined by the Secretary of State for the 41st Scheme should remain in place. … [W]e do not accept that 2% is a fair rate when compared to other bookmakers."
"The Committee had taken note of members' comments, and the BHB's in particular, and were prepared to recommend a British horseracing default figure, increased to 57%, from 55%, for the Forty-Second Levy Scheme."
"THE CHAIRMAN expressed the Board's appreciation to MR BARTLETT and MR ROSS for the efforts that they and their Committee colleagues had made in proposing acceptable terms. MR RICKETTS, on behalf of the BHB representatives, endorsed the CHAIRMAN'S comments.
He noted that there were likely to be a number of variations between the levy agreement and the commercial deal that would ultimately be concluded. He expressed the hope that the BHB's support today would not prejudice any future talks to come."
An overview of the events leading up to the vote at 6.30
Obligation to consult
"An essential feature of the context is the statute which creates the discretion, as regards both its language and the shape of the legal and administrative system within which the decision is taken".
In my view, fairness required consultation with those liable to be adversely affected by the imposition of a tax by a statutory body such as the Levy Board. That consultation may, for certain groups, be effected through the Committee. However, neither the Board nor the Committee saw the Committee's task as being one which involved making representations to the Board on behalf of bookmakers not represented on the Committee. Furthermore the Board knew that the Committee did not represent the views of the betting exchanges. Indeed the Committee took the view that money which might otherwise have been channelled through the traditional bookmakers was being diverted through the betting exchanges, that the on-course market was being adversely influenced by some bookmakers laying off their liabilities through the exchanges, that the betting exchanges were reducing the amount of the levy and causing the theoretical £6m default (paragraph 26 above) and believed, in accordance with legal advice, that, in the context of betting exchanges, the activity of the layer was illegal and, therefore, the activities of the bettor and betting exchange operator were illegal too (paragraph 13 above). The Committee also supported the attempts by the BHB to set the licence fee on the same aggregated profitable layers basis. As Mr Ross had said on 12 September, the recommendations put forward by the Committee "were intended to be a mirror of the BHB commercial policy" (paragraph 28 above). Furthermore Mr Bartlett had expressed the view that the betting exchanges "were successfully operating as a result of a tax concession but once this was removed their businesses would founder" (paragraph 84 above).
Did any consultation which did take place cure the procedural defects?
"To be proper, consultation must be undertaken at a time when proposals are still at a formative stage; it must include sufficient reasons for particular proposals to allow those consulted to give intelligent consideration and an intelligent response; adequate time must be given for this purpose; and the product of consultation must be conscientiously taken into account when the ultimate decision is taken…"
"I was very busy running Sporting Options at this time. In the short time available, I did not have the opportunity to prepare our case against the proposed Levy Scheme as thoroughly as I would have liked."
"42. Reviewing the comments I made at the meeting of the Bookmakers' Committee and a paper I asked to be read by the Levy Board, I considered that I did my best at short notice (I had just three full days before the meeting of the Bookmakers' Committee) on a complicated area to make the position of Sporting Options known. However, I consider that if I had been consulted properly on the proposals and if I had had more time to prepare I believe that I could have made the points I did make more forcefully and further points as follows:
I would have been able to calculate the economic impact these proposals would have on the business of Sporting Options by reference to our past performance.
If I had been provided with the reasons for the proposed change in the Levy, I would have been able to consider and address them and suggest alternative options which may have achieved the same ends without causing such harm to the business of Sporting Options.
I would have pointed out that the Levy Scheme proposed discriminated against betting exchanges compared to traditional bookmakers.
I would have pointed to the particularly severe impact of the proposed Levy Scheme on new entrants in the market.
43. Moreover, I do not consider that the approach made to and consultation afforded to Betfair by the Levy Board was in any way an adequate substitution for consultation with Sporting Options. Betfair is a different company and while we are both betting exchanges, it is in a radically different position in the market and the impact of the proposed changes on its business and on our own is very different. Indeed, I believe that the fact that Betfair was given a much better opportunity to put its views forward to the Bookmakers' Committee and the Levy Board than we were skewed the consultation against us. For example, the Bookmakers' Committee and the Levy Board may have given considerable weight to Betfair's preparedness to accept in principle a Levy assessed on aggregated profitable layers (but subject to a cap) although we strongly opposed this. I can see no justifiable reason why we were not consulted on the proposals equally with Betfair."
"In the event (as occurred last year) that the new scheme has to be referred to the Secretary of State for determination, the following steps take place, before the administrative steps for implementing the new scheme can occur (under a compressed time-frame to meet the 1 April start-date). Again, this is well-known within the industry.
1) The Secretary of State writes to all interested parties, such as the BHB and the Committee, inviting them to make representation on the terms of the new scheme. Representations are generally made in writing, although if expressly requested, and the Secretary of State deems this to be appropriate, oral representations may be made in addition to or instead of written representations. The process of requesting and receiving representations generally takes three to four weeks.
2) The Secretary of State may then appoint external economic consultants or chartered accountants in order to assess various aspects of the submissions received from interested parties, and/or related issues, and advise.
3) The Secretary of State's officials at the Department of Culture, Media and Sport will then consider the representations and any expert reports before putting recommendations before her for the determination of the new scheme. Altogether, this process can take several months."
The defendant's submission that, notwithstanding any procedural defects, there was no material unfairness
"[The claimant] submits that … the decision of the Board on 31 October 2002 to adopt the scheme was irrational, since it was taken by the board without the benefit of essential information, or a proper understanding of centrally relevant matters, and without any consideration of the issues that arose, or any conclusions being reached in relation to them. The Board failed to ask itself the right question, or to take reasonable steps to obtain the information necessary to answer that question."
"3.10 In proposing alternative GPT arrangements for exchanges many respondents (primarily representing traditional bookmakers) argued that the principle of treating all exchange layers as bookmakers for duty purposes should continue. The one change they advocated was to move away from the process of aggregating the position of all layers over the month, to taxing the profits of just winning layers.
3.11 The Government has decided not to adopt this approach. This is because it would fail to address the fundamental flaws with current arrangements, for example the lack of any direct link to an exchange's revenue and the volatility of duty liability, indeed these problems would be exacerbated. Had duty been based on the aggregated profits of winning layers the effective rate of tax [15% of the profits of winning layers] for exchanges during 2001-02 would have exceeded 30% [of the commission], threatening the business model.
3.12 The main alternative is to levy duty on an exchange's commission – effectively the real gross profit for operators. This would relate tax to ability to pay; it would address concerns about the volatility of duty payments under the current system; and liabilities could not exceed commission.
3.13 The Nottingham Universities conclude that such an approach would be fairer and more efficient than the current system. All betting exchanges that responded to the evaluation believe this approach would be appropriate."
"Further, the Decision discriminates without justification against betting exchanges. Betting exchanges are being less favourably treated than traditional bookmakers, who are to be charged the Levy on the basis of 10% of their own gross profits. Traditional bookmakers [unlike the exchanges] are thus to be taxed on a basis that is by definition proportionate to their profits, at a reasonable level, predictable, and not vulnerable to abuse. (Paragraph 80 of claimant's skeleton argument)"
Whether Miss Rose is right or wrong, the issue certainly requires detailed consideration.
"The impact on any new business, competing with a very well established rival (Betfair) of being forced to raise its prices by one third is self-evident. If the Claimant could compete with prices one third higher than they are currently set, it would already be doing so. The difficulties are particularly great in this market, since an exchange cannot operate without a large enough pool of customers to generate a market. The business is extremely price sensitive, particularly for new, smaller exchanges, yet the 42nd scheme has the greatest impact upon them (see Griffiths at 1/81, paragraph 52(b)). In short, the increase in commission is very significant, and is likely to hit disproportionately at new entrants. The 42nd scheme is a very significant barrier to entry."
"The members did not even have the benefit of an "educated guess", as to the amount that would be raised, as was acknowledged on 31 October 2002 [paragraph 109 above]. This is in contrast to the efforts made by the Defendant to verify the BC's estimates of the share of horserace gross profits in total betting gross profits, which were subjected to independent analysis … . It also contrasts with the treatment of Spread Betting Companies. The Defendant decided to leave the basis for the assessment of the Levy on Spread Betting Companies unchanged, on the ground that more research was required into their operation: [see October 31 letter from Committee, paragraph 136 above]."
"[The Chairman] said that the proposed levy rate of 10% represented a 400% increase over the Secretary of State's determination in March of 2%."
"The new element in the BC Submission (i.e. 10% of all profitable layers' profits) would however generate an extremely volatile liability which would be impossible to predict. In many circumstances, levy liability will greatly exceed commission revenue generated by the betting exchange; indeed in any races where an odds on favourite loses, the levy liability generated will be many times greater than the commission revenue generated."
"Just because betting exchanges tend to make smaller margins by charging 'minimal commission' does not mean that it is fair to impose a different basis of tax just as it would not be fair to impose on Ryanair a different basis of corporation tax than British Airways."
"Further, traditional bookmakers are permitted to lay bets through exchanges without paying the Levy on their profits, and thereby to pass on their liability for Levy to betting exchanges." (Paragraph 80)
"… under the 42nd scheme, licensed bookmakers are not liable to be assessed for the levy on any profits they make through laying bets on betting exchanges. Instead, the exchange (which may have earned no commission from their bets) is liable to pay the levy on the bets laid by the profitable licensed bookmaker.
The amount of the levy due is assessed purely on the basis of the bookmaker's performance on the exchange. The result is that if a bookmaker has made a loss laying bets through his betting shop, but has made an equal profit laying bets on an exchange, the bookmaker has no liability to pay levy, while the betting exchange is liable to pay the levy on the bookmakers' profits on the exchange, without being able to set off the losses made through his betting shop. "
"18. … If a customer uses more than one exchange as a layer, he cannot offset losses he makes on one exchange against profits he makes on another. By contrast, a bookmaker with a chain of shops may offset losses made in one shop against profits made in another. Thus, an individual who lays bets on exchanges may incur a substantial levy liability even though he has made no profit from laying bets on horseracing. This cannot happen to a traditional bookmaker under the 42nd Scheme, who is only taxed on the overall gross profit he has made from laying bets on horseracing.
20. This particular element of the 42nd Scheme will seriously impede the efforts of new betting exchanges to enter the market, if the levy is to be passed on to layers. Customers wishing to lay bets (as the great majority do) are much less likely to experiment or use more than one exchange, if in doing so on an infrequent basis they risk building up a large levy liability which cannot be offset against their losses on other exchanges. "
"2. I understand that a point has arisen as to whether a minuted comment of Mr Bartlett misled members of the Board as to the position of betting exchanges, and in particular into thinking that Betfair had dropped its insistence on a cap and that Sporting Options had dropped its insistence on a commission-based levy.
3. Betfair's insistence on a cap was set out in its written submissions with which Board Members had previously been circulated. Sporting Options' insistence on a commission-based levy had been communicated to me and to the two independent members at a briefing with Mr Brack who had met with a representative of Sporting Options [confirmed by Mr Brack].
4. I did not take it, from any comment made at the meeting or otherwise during the day, that this position had changed.
5. Moreover, I can say from my recollection of the formal discussions and the informal discussions which took place in between the formal sessions of the meeting, that I was and I believe all the Board members were aware in general terms of the position of Betfair, Sporting Options and Betdaq [another betting exchange] in relation to contributions by them to the levy."
"3. The minutes of the Levy Board meeting on 31 October … were not a verbatim account. The meeting commenced at 11am and as I recall, did not finish until approximately 6.45pm. Though of course there were a number of adjournments during which individual members discussed various issues, the notes only consist of some 8 and a half pages of text and represent only a summary of the discussions which took place between Levy Board members at the meeting. Moreover, the notes do not include reference to discussions between Levy Board members which took place during the various adjournments."
"4. The record indicates that I confirmed, in response to a question concerning the capacity of betting exchanges to pay levy, "that the betting exchanges were willing to pay either on an assessment of the profits of their successful layers, or on their gross commissions, but not on both." No doubt, in isolation, this statement can be interpreted in many ways, and to many ends, as the Claimant has sought to do. However, in addition to the fact that this is only a summary minute, the statement must be considered within its proper context.
4.1 There is no way that anyone present at that meeting of the Levy Board on 31 October could have been under the impression that betting exchanges, whether as a group or individually, agreed with the recommendations of the Bookmakers' Committee. I have seen and agree with what is said in Herbert Smith's letter of 29 May 2003 on behalf of the Levy Board. Notably, Levy Board members were fully aware of Betfair's views (including the apparent need for a cap) after its letter of 15 October had been circulated to them. Also, Rodney Brack of the Levy Board received a discussion note from Mr Griffiths on 30 October which clearly indicated that in his view betting exchanges should not be asked to pay more than 10% of their revenues (i.e. commission) in levy (see RLB2 page 205). The Levy Board was well aware that neither the views of Betfair nor the Claimant had changed since their written communications.
4.2 Moreover, there was considerable discussion of the views of the exchanges on the day. As is the case each year, this meeting of the Levy Board was characterised by discussions on certain subjects and then adjournments, during which all the parties took time to consider and discuss with each other, generally in smaller groups, matters of disagreement between them. During such adjournments, there was discussion of a number of contentious matters including the position of betting exchanges, the desire of Betfair to cap its levy liability and the desire of the Claimant to pay on the basis of the 41st Scheme. I certainly personally discussed the views of the exchanges with the Chairman of the Levy Board (who reports back to the other independent members), with Mr Peter Jones (Chairman of the Tote) and with those representing the British Horseracing Board. This is usual practice. No member of the Levy Board can have been in any doubt whatsoever that betting exchanges were not happy with the recommendations of the Bookmakers' Committee insofar as they affected them. Moreover, there is no question that the issue of Betfair's preference for a cap on its liability was discussed.
5. In summary, my statement was a fair reflection of the position against a background of considerable discussion and debate about and knowledge of the position of the betting exchanges. I cannot recall a levy where all parties subject to it have been happy with the recommendations of the Bookmakers' Committee. The 42nd Levy Scheme was no different.
6. By indicating that exchanges were prepared to pay on one particular basis or another, I certainly did not intend to give the impression, nor do I believe I gave such an impression, that the Claimant specifically was prepared to pay on the basis of its layers' profits."
"8. It is alleged that I wrongly stated that the basis proposed in the Recommendation of the Bookmakers' Committee was different only in detail from the basis on which betting exchanges are assessed for gross profits tax by Customs and Excise … The important point I was making was that the Recommendation was based on assessing profits from layers rather than on commission and in that respect was similar to the method of assessment of GPT used by Customs & Excise."
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MR JUSTICE HOOPER: Before I hand down the judgment, there is one matter I have to raise with Miss Ross who is not here.
MR MILL: I have been asked to step into her rather formidable shoes today. Sadly, Miss Rose is convalescing after an operation. She apologises for her non-attendance.
MR JUSTICE HOOPER: Please pass on my good wishes.
It is paragraph 199. Mr Fordham sent me a comment in relation to paragraph 199 as it is worded, suggesting that there might be a risk that setting it out in the way that I have set it out, tehre may be confusion between the two forms of the irrationality.
I have considered that comment made by Mr Fordham, and unless you wish to say anything about it, I have re-written paragraph 199 in the following way: for all these reasons, I conclude that the manner in which the Board reached its decision on 31 October was manifestly unfair. Do you have any comments about that?
MR MILL: No, except that will feed through into the draft order that I am going to ask my Lord to see in due course.
MR JUSTICE HOOPER: In which case you can have all copies of the judgment. As to the rest of the corrections which you have sent to me, I think I have adopted them all. I am grateful to counsel for having read the drafts.
For the reasons which are now being handed down, I will now hear further argument as to what is the appropriate relief to grant. As I made clear in paragraph 202, but for the fact that only the (inaudible) relief is now sought, I would have quashed the decision for the reasons which I have given.
MR MILL: My Lord, may I hand up a draft order and indicate to my Lord the extent to which it is acceptable to my learned friends and where your Lordship might be asked to make any ruling, if necessary?
My Lord, I have made manuscript alterations in the light of your Lordship's changes to paragraph 199 by adding the words "And irrationality."
It is accepted by my learned friend that your Lordship should make an order for relief. It is also accepted that within that relief there should be what your Lordship finds at paragraph 2 of the draft order. As to paragraph 1, my learned friends had a difficulty, particularly with the words that I have now exercised. It may be that now there is no difficulty with the revised wording which says:
"The decision of the defendant to adopt paragraphs 18 to 21 42nd Levy Street was made unlawfully and unfairly."
I understand one point that my learned friends wish to make is that it should be made clear in your Lordship's order that we are giving the undertaking which your Lordship may recall was made on the previous occasion. Formally I do not think that is necessary. Of course, the undertaking which we gave is an undertaking which is still binding on us. If my learned friends are concerned by it, and your Lordship thinks it appropriate, I am of course more than happy that your Lordship should include it.
MR JUSTICE HOOPER: I do think it is appropriate.
MR MILL: My Lord, then that will be done by way of amendment to the draft.
If I may turn overleaf, paragraph 3 is not contentious. That deals with the question of costs. Your Lordship will, as I understand it, hear applications from both the defendant and the interested party for permission to appeal. Those are opposed. Whatever order my Lord makes, we do not oppose their requests for an extension of time to 15 October. My Lord, I do not know whether your Lordship has had paragraph 6.
MR JUSTICE HOOPER: I thought we would do that right at the end.
MR MILL: I have some observations I wish to make.
MR JUSTICE HOOPER: We will deal with that after everyone else has gone.
MR PANNICK: My Lord, I confirm that there is, of course, no objection to us paying the claimant's costs on the standard basis. We have prepared our own draft order. Could I pass up to your Lordship a copy of that? That deals with the undertaking. We took the view that it was important that the order should state the undertaking. Your Lordship will see the terms in which it is put at the beginning of our draft order. I do not understand there to be any objection to the wording of that undertaking. We drafted the narrative declaration which is item 1 in a different form. We put together no liability to pay such sums under the 42nd scheme. The decision by the defendant to adopt the scheme, having been one which was contrary to law, for the reasons contained in the judgment. The reason why we drafted it in that way was it seemed to us that would simply encourage anyone interested to read the judgment, which speaks for itself as to the detailed reasons why your Lordship had arrived at the conclusion your Lordship has. For that reason, we would invite your Lordship to make a declaration in terms of one, rather than saying unlawfully and unfairly.
The only other matter I think that it is for me to deal with, it being agreed that time should be extended, either time for starting an appeal or for seeking permission from the Court of Appeal to appeal to that court, is to explain to your Lordship why we, for our part, do ask your Lordship to grant permission to appeal.
MR JUSTICE HOOPER: Can I resolve the issue of the declaration; whether it should be your paragraph 1 or the now amended paragraph 1?
MR MILL: May I just explain why we separated it out? It appeared to those instructing me and to Miss Ross, who I discussed the matter with, that the thrust of your Lordship's decision should be that the decision was made unlawfully and unfairly, and that paragraph 2 is a consequential matter which relates specifically to my client. The problem with what is proposed by my learned friend is it puts very much the emphasis on my client's liability which seemed to those on this side of the court to be somewhat inappropriate given the nature of the proceedings that have been brought. That is why we chose to put it in the way that we did, so that it would be clear to anyone seeing the order that it is not specific to our client, that your Lordship has made the decision that he has in relation to the decision insofar as it relates to those paragraphs the 42nd Levy Street, which of course has an application not just to us, but to other betting exchanges.
Therefore, that is why we separated it out in the way that we have. As to the words 'unlawfully' and 'unfairly', I have taken those directly from your Lordship's conclusion in paragraph 152 of my Lord's judgment, and of course now paragraph 199 as well as a result of the changes that my Lord has made to it. It is simply to pick up the language that is in the concluding paragraphs of the different sections of my Lord's judgment.
MR JUSTICE HOOPER: That seems to me to raise a new point which I have not seen. My decision relates to the claimant.
MR PANNICK: Precisely so. That was the reason why we have drafted our paragraph 1 in the terms we have. It is a particular claimant who is before the court. Your Lordship's judgment addresses in detail the circumstances relating to this claimant.
It may or may not be the case -- we reserve our position entirely -- as to whether anyone else could seek to rely upon this judgment. That inevitably depends upon the circumstances relating to them and, of course, issues of delay as well.
We would respectfully invite your Lordship to focus on the declaration on the circumstances of this applicant. It is only this claimant who is before the court.
MR JUSTICE HOOPER: That must be right, surely?
MR MILL: My Lord, there will come a point at which I cannot necessarily do justice to this matter before the court today, having been instructed yesterday evening, and having done my best, as it were, to get up to speed with it.
MR JUSTICE HOOPER: Unless you are purporting to represent someone else other than Sporting Options.
MR MILL: No, absolutely not my Lord, but the way, as I read the claim form and the submissions that were made, the objection went to the decision. As I read the submissions, the submissions that your Lordship took into account related not simply to consultation or absence of it in relation to my client, but others who were in the business of betting exchanges. Of course Betfair is one of those, but there are a number of others as well.
My Lord, I certainly had understood that the thrust of the submission on our side was that the decision itself, due to the absence of proper consultation, was all those who fall within the category of betting exchanges was made unlawfully and unfairly as a result of the failure in particular to consult which your Lordship has found the defendant was under an obligation to do and failed properly to do.
Obviously we are in my Lord's hands. Your Lordship will make whatever declaration you think is appropriate. We had certainly intended in a case such as this that the relief sought should reflect the decision which of course has application not just to my client, but to others in a similar situation. Certainly it was framed in that way.
MR JUSTICE HOOPER: Thank you.
I propose to make this order: to adopt most of paragraph 1 of the draft order prepared by Board. It will now read:
"It is declared that the claimant has no liability to pay such sums under the 42nd Scheme as would be due under the provisions of that scheme. The decision by the defendant to adopt the 42nd Scheme having been one which was made unlawfully and unfairly for the reasons contained in the judgment of the court."
I agree with your stay now with the order. Number 2 I endorse the issue of costs. Number 3 I am going to come back to later. Number 4 I will hear from you now.
MR PANNICK: Do I also understand your Lordship correctly that the draft order will begin with the undertaking?
MR JUSTICE HOOPER: Yes.
MR PANNICK: I am grateful.
Permission to appeal. We say that your Lordship's judgment does raise issues of importance to the Board and issues of general importance. We also submit -- it is always a difficult submission of course -- that there is a real prospect that the Court of Appeal would take a different view on the matters addressed in your Lordship's judgment. It is paragraph 52.3.6 of the CPR, which your Lordship is very familiar with.
The particulars issues we would identify are these: first of all your Lordship has concluded that the Board had a duty to consult those liable to be adversely affected. Your Lordship has so concluded because the Board was a taxing body. In my submission, that is an important issue of law, both in relation to this statutory scheme and in general in relation to duties of a taxing body. We would wish to submit in the Court of Appeal that the scope of the duty must depend upon the statutory scheme. Here there is no such duty upon the Board. That is the first issue.
The second issue. Your Lordship has attached importance to the Board's own view of what fairness required; the perception of the members of the Board at various times.
MR JUSTICE HOOPER: Perception of the Board?
MR PANNICK: Yes.
MR JUSTICE HOOPER: Not members of the Board?
MR PANNICK: The Board itself, yes indeed. We would submit if, as your Lordship has found, those concerns are relevant, it must also be of relevance that the Board's conclusion was that it was appropriate to proceed to a decision in this case.
The third issue we would identify is that your Lordship found that the opportunities given to the claimant to comment on the proposals were inadequate. We would say that raises issues of principle as to the extent to which the duty of consultation goes.
Fourthly -- and this is a less important general point given the way in which your Lordship structured the judgment but it is of some importance in any event -- your Lordship has found by reference to the minutes that the Board did not properly consider the issues at the final meeting. There is an important issue of the extent to which in relation to an administrative body it is appropriate to assess fairness by reference to the minutes taken of a day long meeting.
As I say, those are general issues of importance and issues which we say modestly are issues on which there is a real prospect that the Court of Appeal may come to a different conclusion. I do not need to put it any higher than that in relation to that matter. Your Lordship is very familiar with the issues. That is all I want to say in relation to that.
MR SAINI: My Lord, the most important one is the first, which is scope of the duty to consult when there is a detailed statutory framework. As far as my clients are concerned, it raises an important issue of law as to whether or not they are the consultative body, or whether they must consult in a wider fashion, and whether or not the Levy Board must consult in a wider fashion.
With respect to my Lord, we would wish to submit in the Court of Appeal that my Lord has not given sufficient weight to the statutory framework in deciding what the scope is.
MR JUSTICE HOOPER: Remind me, do interested parties have the right to appeal?
MR SAINI: They certainly do. The most familiar will be the immigration context, where generally a decision is made by the Immigration Appeal Tribunal. My Lord, subject to that, we adopt what Mr Pannick says.
MR MILL: We invite my Lord to reject the application and invite the defendant and interested party to address the matter to the Court of Appeal if they are so minded.
We make four points. There is no important point of law involved in this case in respect of what my learned friend has said. Your Lordship's decision involved the application of the principle of public law to the facts set out in great detail before my Lord and, with respect, in your Lordship's judgment. A reading of your Lordship's judgment certainly leads this advocate to the conclusion that there would be appear to be an overwhelming case for the declaration sought. There is reason to suppose the Court of Appeal would be likely to reach any contrary view.
There is, in all those circumstances, no other reason for the Court of Appeal to be interested in this particular case. Beyond that my Lord, I do not really think, unless I can assist you further, there are any further points I wish to make.
MR JUSTICE HOOPER: Mr Pannick?
MR PANNICK: It would be repetition, my Lord.
MR JUSTICE HOOPER: Permission to appeal is refused.
Time for lodging an application is extended to 15 October. I think that completes everything that you have to do, Mr Pannick and Mr Saini.
MR MILL: Before my learned friend Mr Weisselberg rises, may I just indicate the approach of my clients in relation to this application, so your Lordship knows. If your Lordship is of the view, having read the application that it is without merit, then we are content for your Lordship to deal with it today. If your Lordship is not, then we will be making an application that this matter be dealt with on another occasion. If that is opposed, I will make my submissions in support of that. It seemed to me more sensible to do that before Mr Weisselberg makes any substantive submissions on the merits of his application.
MR JUSTICE HOOPER: Thank you. I think Mr Weisselberg should make his submissions now, and I will delay any decision on your application to adjourn.
MR MILL: I am much obliged.
MR WEISSELBERG: My Lord should have my skeleton argument and Miss Rimer's witness statement.
MR JUSTICE HOOPER: Yes. Obviously I am familiar with the issue. Have you had a copy of the judgment?
MR WEISSELBERG: I have, my Lord.
MR JUSTICE HOOPER: And you have had the opportunity see the references to the BHB.
MR WEISSELBERG: I have, my Lord. But what my application is directed to is simply what was raised in addition to the matters that were in my Lord's judgment and in the matters canvassed by the parties before my Lord, both at the permission hearing and then at the substantive hearing for the application for judicial review.
MR JUSTICE HOOPER: What I would like you to do is to take me to clause 1 or paragraph 1 so that I fully understand what paragraph 1 meant of what I call the side agreement. I think I find that very helpfully in the bundle of documents prepared by your solicitors.
MR WEISSELBERG: The agreement is at page 7.
MR JUSTICE HOOPER: Please take me through paragraph 1 and what it means.
MR WEISSELBERG: My Lord, the starting point is, with respect, what was being put in addition to my clients in 39 A and 39 D of the grounds for the application for judicial review. If we could start there and then go to this, I would be happier.
MR JUSTICE HOOPER: Yes, certainly.
MR WEISSELBERG: The grounds that my clients came to deal with are in the main hearing bundle and it should be in Divider B.
The allegation that my client came to meet was apparent bias on the basis of clause 1 of the agreement that we are about to come to 39 B Coral, Ladbrook and William Hill appoint 6 of the 12 members of the Bookmakers Committee. The BHB appoints 3.
"The terms of the agreement on their face give rise to an appearance of bias in relation to the decision of the defendant."
"Compromises the independence and impartiality of the defendant contrary to section 6(1) of the Human Rights Act."
It was in that response to that amendment that my client put in the grounds of resistence which appear, I hope, in the bundle at Tab F. In those grounds of opposition, which my Lord may not have looked at during the course of the hearing, my clients take issue with only 39 A to D of the amended statement of facts and grounds for judicial review. Paragraph 2:
"The 17 April agreement did not on its proper construction nor in its actual effect require those persons nominated as members of the Levy Board to exercise their functions so as to support a recommendation, nor to require BHB to procure that such persons so exercised their functions."
The grounds then go on look at whether or not the Levy Board should be treated as a tribunal for the purposes of Article 6.
MR JUSTICE HOOPER: Which is to do with the Board.
MR WEISSELBERG: Which is to do with the Board, but also to deal with BHB in dealing with 39 A to D.
Then there are other matters set out there as to the merits of 39 A to D. Turning on in the bundle to Divider M.
MR JUSTICE HOOPER: I do not really see what the rest of that is to do with the BHB. I can clearly how 1 and 2 relate to the BHB. The rest seem to relate largely to any defence which the Board might wish to raise.
MR WEISSELBERG: I think that is fair. It goes to my client was right to deal with them because once one has gone into the frame in relation to the appearance of bias as a result of the 17 April 2002 agreement, it was right to deal with all the matters set out in 39 A to D.
MR JUSTICE HOOPER: I am not sure. Let us go on.
MR WEISSELBERG: What my Lord will see in Divider M is the evidence that my clients put in, in respect of 39 A to D.
MR JUSTICE HOOPER: This is Mr Rickett's statement.
MR WEISSELBERG: This is Mr Rickett's statement. I am not sure if this was a statement that my Lord was taken to.
MR JUSTICE HOOPER: I re-read it this morning. Again, it seems to have an awful lot to do with issues other than this issue of clause 1.
MR WEISSELBERG: With respect, what Mr Ricketts had to do at that stage thinking that the Horseracing Board would have to be dealing with all the issues in 39 A to D, would set out a full history of the BHB and how it came to conclude the agreement in April 2002. So what the first three paragraphs do are formula. Paragraphs 4 to 8 deal with the functions and formation of the BHB. In my submission, it is entirely right that those matters were put in his witness statement to deal with the allegation of apparent bias.
MR JUSTICE HOOPER: Let us cut it short. Can you take me to the part where he deals with clause 1 of the side agreement?
MR WEISSELBERG: He has to deal with the new data licence agreements at paragraph 15 to 17.
MR JUSTICE HOOPER: As the judgment shows, I am aware of most of that.
MR WEISSELBERG: What he does at paragraph 25 is he sets out clause 1. He goes on in paragraph 26 to say.
He has explained the relationship between the data licence and the Levy Scheme. As referred to in paragraph 19 above the levy payments during the 41st Levy Scheme were 10 per cent as long as the levy payments at least equal BHB's access to and use of the pre-race debt from the bookmakers. BHB was content not to receive separate payments or have separate arrangements in place. The common intention was for the levy scheme charges to remain in line with charges under the data licence."
He goes on in that paragraph to set out why it was paragraph 1 came to be formulated in the way it did. It was directed to the inter relationship of payments under the Levy Scheme and the BHB's data charge under the data licence.
"To ensure that the bookmakers would recommend to the Levy Board for the 42nd scheme and subsequent levy schemes, terms which were at least equal to the payment terms under the shadow BHB commercial licensing arrangements."
MR JUSTICE HOOPER: That is the part I am having difficulty in following. That is why I want to look at the clause with you.
MR WEISSELBERG: If one goes back to 25 the clause is set out there. If my Lord would rather look at it in the actual agreement.
MR JUSTICE HOOPER: Yes.
MR WEISSELBERG: It is the bookmakers.
MR JUSTICE HOOPER: They are?
MR WEISSELBERG: They are the people at the top of the agreement. So it is Coral, Hilton Group, Stanley Racing, William Hill organisation. See page 6.
MR JUSTICE HOOPER: And the Confederation.
MR WEISSELBERG: The bookmakers are defined as the first 1, 3, 4 and 5.
MR JUSTICE HOOPER: Yes I follow.
MR WEISSELBERG: They agree to recommend to BHB a levy scheme.
MR JUSTICE HOOPER: How are they going to do that?
MR WEISSELBERG: One assumes, I do not know, that they were going to recommend it during the course of Levy Board meetings.
MR JUSTICE HOOPER: Who, the committee?
MR WEISSELBERG: The point is this allegation was not pursued.
MR JUSTICE HOOPER: It may not be, but before I decide the issue of costs I have to understand what this clause would mean to someone looking at it.
MR WEISSELBERG: My Lord with respect, no. The basis for the complaint my Lord is that we were not told that this was an issue that would be raised at the permission hearing before my Lord. The application was made. The additional paragraphs were added in. One then had the position that the BHB had to deal with it by way of putting it in evidence because it was something that my Lord had included in the claim form.
As a result of that, my clients had to produce evidence in relation to the whole history of the BHB and how one got there. In those circumstances, it was necessary for the BHB to put in the evidence. Once the evidence was put in, what happened? The application was then withdrawn. If my Lord is suggesting that perhaps the application was not withdrawn because it was seen to be well-founded, or if my Lord is suggesting that the application was withdrawn because an explanation had finally been given, then in my submission as to the second ground, I am entitled to my costs. If I had been asked to explain before I would not have been asked to put in grounds of opposition or the witness statement that was put in.
MR JUSTICE HOOPER: I have heard you. Now will you take me through clause 1?
MR WEISSELBERG: To recommend to the Levy Board a Levy Scheme for each year.
MR JUSTICE HOOPER: That would seem to be through the committee, which represents what I call traditional bookmakers.
MR WEISSELBERG: That seems to be right. For each year of the term of the licence after the period of the 41st Levy scheme, which shall contain terms identical in all material respects to or no less favourable to the BHB in the terms set out in the licence relating to and calculation level of and payment procedure for payment of the charge.
MR JUSTICE HOOPER: We read that against the evidence of Mr Ross and the letter which said uniquely the recommendations put forward in September reflected the joint agreement of the committee and of the BHB. Do you agree?
What happened on the 42nd scheme was what was put forward was supposed to mirror exactly what the BHB were trying to do in respect of the betting exchanges and the spread betting companies. That is how I understand it.
MR WEISSELBERG: We say that this clause in its proper factual circumstances shows that the BHB is simply seeking to protect its own position, to make sure that if any change to the 41st scheme is made, we do not do any worse than we have done on the basis of the draft licence that we are seeking to rely upon in the commercial terms.
MR JUSTICE HOOPER: You are missing the point. Maybe it is my fault. As I understand it, and tell me if I am wrong, in effect the committee were agreeing with the BHB that what would be put forward to the Board would mirror, to use Mr Ross's words, the commercial agreements that the BHB had either obtained from the bookmakers, or was hoping to obtain from the betting exchanges and from the spread letters. Am I right or am I wrong?
MR WEISSELBERG: I think that is right, my Lord. Like Mr Mill, I come in relatively new to the case. I was not counsel who settled the grounds of opposition.
MR JUSTICE HOOPER: So we have that clear. That is exactly what happens; the committee does send forward recommendations saying: "These are the results of a unique agreement with the BHB."
Then as far as the betting exchanges are concerned, subject to the dropping of the first part, what actually happens is the adoption by the Board of the very scheme which the BHB was trying to impose upon the betting exchanges. That is what actually happened.
MR WEISSELBERG: What this clause does is it seeks to preserve the BHB's position viz a viz the commercial licence that it has concluded.
MR JUSTICE HOOPER: And going to conclude.
MR WEISSELBERG: And has nothing to do with the betting exchanges.
MR JUSTICE HOOPER: A moment ago you conceded that it had. That is why I read paragraph 26 as I read it.
MR WEISSELBERG: What he is saying in paragraph 26 relates only to the bookmakers because, as long as the level of levy payments at least equal the BHB's charge for access, BHB was content not to receive separate payments. In paragraph 27:
"The reference to the licence in this clause is of course to the standard form data licence on which agreement has been reached. Arrangements for the licensing access to and use of pre-race by betting exchanges would be dealt with under a separate data licence agreement. Discussions have since taken place between BHB and betting exchanges, but as yet there are no concluded agreements."
The licence attached to it did not relate to betting exchanges. Therefore, clause 1 again does not relate to betting exchanges.
MR JUSTICE HOOPER: So you have gone back on what you have just told me.
MR WEISSELBERG: I must not have understood what my Lord was putting to me and the repercussions of what my Lord was putting to me.
MR JUSTICE HOOPER: Let us look at it again. So the licence that is referred to in paragraph 1 relates only to the bookmakers, not to the betting exchanges.
MR WEISSELBERG: If one looks back to paragraph 20, what was anticipated there was a standard form data licence had been agreed which was to be signed up to by whoever was willing to sign up to it.
MR JUSTICE HOOPER: That is the point though, including the betting exchanges.
MR WEISSELBERG: It says:
"It relates to bookmakers based in Great Britain and the Channel Islands but not on bookmakers, although it does cover betting shops. It does not relate to betting exchanges."
MR JUSTICE HOOPER: Let me have a look at the betting licence. What page is that?
MR WEISSELBERG: That is in the exhibits, RLB2 which should be in my Lord's second bundle. What is said in the witness statement is that separate agreement was to be reached with the betting exchanges. One has seen that from paragraph 27. again in paragraph 20 the assertion is made that it does not relate to betting exchanges.
My Lord, as I understand it, when the claimant made the allegation that it did, it was not making the allegation on the basis of this agreement being in its hand. Mr Mill may know better than I, but from my understanding of the correspondence attached to Miss Rimer's witness statement, that was not the basis on which the allegation was being made.
MR JUSTICE HOOPER: It was clause 1. We are now looking at what clause 1 meant. I therefore need to know what the licence is to which they are referring. Are you telling me the licence to which they are referring is the one RLB, our page 40 of volume 3 which starts "Basic data licence and bookmakers." We know that betting exchanges and betting companies are bookmakers.
MR WEISSELBERG: My Lord, set against that we have the assertions made in the witness statement that I have taken my Lord to, showing that separate negotiations would be undertaken with betting exchanges.
MR JUSTICE HOOPER: I am minded to think this needs quite a lot of considerable argument. I am going to hear what is said about how this should be dealt with on a separate occasion.
Mr Mill, what do you wish to say about that?
MR MILL: My Lord on that, can I draw my Lord's attention to the following facts? In the correspondence behind Miss Rimer's statement, your Lordship will find at the back a letter from Shaw Goddard at page 33, dated 28 May. It says:
"There is reference made to a telephone conversation in which there was confirmation that the client was no longer pursuing the claim set out at paragraphs 39 A to D."
Then they said they received statement of facts incorporated in the amendment; that is an oversight.
"As is clear from our client's view supporting evidence, our client took an active part in these proceedings solely for dealing with the claim set out in those paragraphs which concern the action for BHB, Levy Board and needs and the effect of the agreement to which BHB is a party. Those claims are no longer being pursued. There is no longer any purpose. In the circumstances, would you please confirm that your client would agree to an order to pay our client's costs on a standard basis?"
The circumstances relied upon them are simply that we are not pursuing it. We respond on the next day. That is just two months ago, 29 May, in which we set out in a substantive way the reasons why we will object to any such order being made. We say it was a proper ground of complaint necessary and proper for the levy.
MR JUSTICE HOOPER: You told me that if I wanted to go into the merits in such a way that I needed to hear from you, you would want an adjournment.
MR MILL: I was simply making the point that we dealt with the merits of it in a letter over two months ago. That is the point I was trying to make. Your Lordship will find the response to that on 28 July. That is to say three days ago.
"We understand that the judgment of Hooper J will be handed down at 2 pm on Thursday 31 July. We are writing to confirm that, for the reasons set out in our letter of 28 May, we shall be making an application for an order."
What they did at that point was simply say that they are relying upon the fact that they discontinue with that part of our application. There is no attempt to respond either then or at any previous time to the points that we made in our letter of 29 May. That is to say some two months beforehand.
What your Lordship has is a witness statement and exhibits of Miss Rimer which was received yesterday, and seen by me for the first time when I was first instructed yesterday evening. That was then supported by a skeleton argument of Mr Weisselberg this morning.
What is abundantly clear from all those documents is that they are completely unconnected with the terms of your Lordship's judgment. Indeed they were prepared before they had seen your Lordship's judgment. There is absolutely no justification for the approach that they have taken on this. They have waited until the last minute in circumstances where, I regret to say, they were aware that there was at least a very considerable risk that Miss Rose, who had conduct of the case, would not be present today.
MR JUSTICE HOOPER: What you are inviting me to do?
MR MILL: I am saying if your Lordship feels there is merit, it has to be dealt with substantively. It should be dealt with by someone who has had a reasonable opportunity to consider the papers, consider the arguments and to be able to deal with such points as your Lordship may make on the merits, which I am afraid to say, I am not in a position to do.
May I just one make one other point? It is a point which I have indicated to my learned friend, Mr Fordham, on behalf of the defendant. It is this: if your Lordship is minded to make any order, we would be inviting your Lordship on the hearing of such an application to address that order and the consequences of it not to my client, but to the defendant because, as would be explained in detail, the reason why we made the amendment that we did in paragraphs 39 A to D was because of the wholly inappropriate, unhelpful and inadequate response of Messrs Herbert Smith on behalf of the Levy Board when we raised the point with them because it was essentially a point for them.
That is obviously something with which my learned friend Mr Pannick and Mr Fordham cannot reasonably be expected to deal with today and we could not reasonably have been expected to warn them in advance of this, given the failure of the BHB to let us know in advance what the arguments were.
MR JUSTICE HOOPER: The BHB may or may not succeed against you. As I can now see, you will be able to point to letters from Herbert Smith which you say support the action you took.
MR MILL: Yes exactly, that is right.
MR JUSTICE HOOPER: Do you want to say anything, Mr Weisselberg? I am minded to adjourn this. You are not familiar as you could be, and I am not complaining, but it is a complex issue which involves quite a detailed relationship between that important agreement, the governing letter of 5 September.
MR WEISSELBERG: Obviously that is the position that my Lord is provisionally adopting. I would seek to persuade my Lord that a great deal examination is not needed in relation to those matters. It is essentially a straightforward issue. An issue was raised; the issue was dropped; should I be entitled to my costs of the issue?
I say one can look at those issues, particularly in the circumstances of: I only came to fight those issues. Once those issues went, I went away. I should be entitled to a costs order. I do not need to go through a detailed examination of what clause 1 means in particular factual circumstances of my Lord's judgment.
MR JUSTICE HOOPER: At the moment, you are far from convincing. Put it that way. Do you want to wait until after there has been an application to the Court of Appeal to do this, or should it be done as a discrete topic?
MR MILL: I would respectfully suggest it is not vacation business, so my Lord will be adjourning it to a date to be fixed in the next term.
MR JUSTICE HOOPER: It will have to be in December.
MR MILL: As your Lordship pleases.
MR PANNICK: The Board may wish to be represented before your Lordship in the light of Mr Mill's indication that there will be criticisms of Herbert Smith's response on behalf of the Board. Perhaps we can think about that.
MR JUSTICE HOOPER: I would be very unhappy if this issue itself manages to mount up to a significant amount of costs.
MR PANNICK: So would we. I am sure I can look after Herbert Smith's interests.
MR JUSTICE HOOPER: I will set half a day for it, so it will be late November.
MR MILL: We will lodge a revised order for your Lordship's approval.
MR JUSTICE HOOPER: Yes. I will need help, not only from Miss Rose, but also probably from a witness statement setting the whole history out.
MR MILL: That will be done.
MR JUSTICE HOOPER: Thank you all very much.