England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/07/2012

Lord Justice Stanley Burnton :

Introduction

1. In these proceedings the Claimant seeks judicial review of the decision of the Horserace Betting Levy Board ("the Board") that customers of betting exchanges are not to be required to pay horserace betting levy ("the levy") pursuant to s. 27 of the Betting, Gaming and Lotteries Act 1963 ("the 1963 Act"). In essence, the Claimant contends that the decision of the Board was based on an incorrect interpretation and an incorrect application of the 1963 Act, and is therefore liable to be quashed for legal error.
2. The issue is one of statutory interpretation. It is of considerable financial importance because of the increasing popularity of betting through betting exchanges and the relative decline in betting with traditional bookmakers.

The parties

3. The Claimant, William Hill Organization Limited, is the largest operator of betting shops in the UK.
4. The Defendant Board is a statutory body established by the 1963 Act and is responsible for the setting, administration and collection of the levy, pursuant to the 1963 Act. It is required, by section 24(1), to apply the levy "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".
5. The First Interested Party, the Association of British Bookmakers, describes itself as the leading trade association for off-course bookmakers. It represents nearly 7,200 betting shops in the UK, about 85 per cent of the total. William Hill is one of its members, as are Gala Coral and Ladbrokes, who, like William Hill, operate numerous betting shops. The Association supports the claim, and has filed a witness statement, but did not appear and was not represented at the hearing.
6. Betfair, the Second Interested Party, is the leading betting exchange in this country. It supports the decision of the Board.
7. The Third Interested Party, the Bookmakers' Committee, is a statutory body, established pursuant to section 26 of the 1963 Act to be representative of the interests of bookmakers generally. There are 11 other Interested Parties. None of these Interested Parties has played an active part in these proceedings.
8. The British Horseracing Authority was an original Claimant, together with William Hill, but on the eve of this hearing it entered into a commercial agreement with Betfair, pursuant to which it withdrew its claim, leaving William Hill as the sole Claimant.

The applicable statutory provisions

9. The key statutory provisions are sections 27 and 55 of the 1963 Act. Section 27(2)(a) provides:

"(2) Any such scheme [i.e. a levy 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."

10. Section 55 provides, so far as is relevant:

"'betting transaction' includes the collection or payment of winnings on a bet and any transaction in which one or more of the parties is acting as a bookmaker;

'bookmaker' means any person other than the Totalisator Board who –

(a) whether on his 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; or

(b) by way of business in any manner holds himself out, or permits himself to be held out, as a person who receives or negotiates bets or conducts such operations,

…..

and the expression 'bookmaking' shall be construed accordingly;

…"

11. Most of the 1963 Act was repealed by the Gambling Act 2005. The provisions relating to the levy have been provisionally repealed, but survive temporarily by virtue of section 358(6) of the 2005 Act and the Gambling Act 2005 (Horseracing Betting Levy) Order 2007. I am however reminded of the old adage, that there is nothing as permanent as the temporary.

The issue in these proceedings

12. The issue between the parties may be shortly stated. As can be seen, under the 1963 Act only a bookmaker may be made liable to pay the levy. The Claimant contends that those who enter into betting transactions through a betting exchange, if they do so in the course of their business, are bookmakers within the meaning of the Act. The Board accepted legal advice that such persons (including companies) are not bookmakers within the meaning of the Act, and made the decision that is the subject of the claim accordingly. If that advice was wrong as a matter of law, the Board's decision falls to be quashed, and those who enter into betting transactions through a betting exchange in the course of their business may be made liable to pay the levy. If that advice was correct, the claim must fail.
13. The case is unusual in that the legal advice relied upon by the Board was that of Lord Pannick QC and Michael Fordham QC, who have appeared before me on behalf of the Board and submitted that their advice was correct.

Betting exchanges

14. Betting exchanges are creatures of the Internet. They are properly called exchanges, because they do not themselves normally take any position in a bet. They are described as follows in the Claimant's skeleton argument:

"An internet betting exchange is an online marketplace. Users of the exchange indicate the bets they wish to make and identify the odds they are willing to offer or accept and the sums they are willing to bet. The exchange then matches up one or more 'backers' (i.e. those who want to bet at particular odds that a particular event will occur: 'I bet that Camelot will win the Derby') with one or more 'layers' making an opposing bet (i.e. those who are prepared to bet at the same odds that the particular event will not occur: 'I bet that Camelot will not win the Derby'). The exchange charges commission on the winnings of the successful party. The exchange itself takes no risk."

15. A betting exchange was described as follows in Betfair's prospectus for the initial public offer of its shares:

"The Betting Exchange is an order-driven system which allows customers to bet at odds sought by themselves or offered by other customers. A bet is only confirmed on the Betting Exchange once its risk is exactly matched by Betfair with another customer or group of customers with an equal and opposite view. When betting on the Betting Exchange, customers can either place a 'back' bet or a 'lay' bet. A 'back' bet is a bet on something to happen (for example, a football team to win a match) and a 'lay' bet is a bet on something not to happen (for example, a football match not to end in a draw). Betting on the Betting Exchange allows a customer not only to 'back' or 'lay' a selection, but also to choose the price at which that customer wishes to 'back' or 'lay' and how much he or she is prepared to risk. If the price at which the customer wishes to bet improves while a customer is in the process of placing his bet, that customer will be automatically matched by at the best available price – higher for 'backing', lower for 'laying' – in other words, in accordance with the 'best execution principle'."

16. It is, I think, pertinent to point out that the sequence in which transactions are concluded (to use wholly neutral terms) may be unknown to the user of the exchange when he inputs his order. When he seeks to bet that Camelot will win the Derby, it may be that someone else has already indicated that he is willing to accept that bet. It may also be that the transaction is concluded in part with someone who has already entered the countervailing bet on the exchange website, and in part with someone who does so subsequently. Thus, if A wishes to bet £100 that Camelot will win the Derby at stated odds, B may have already entered on to the website his willingness to accept that bet but with a stake of £35 only, while C enters into the countervailing bet in respect of the remaining stake of £65 subsequently. The situation may become even more complicated: C may have entered onto the website a willingness to accept a bet of £200 that Camelot will not win the race at the stated odds, and his balance of £135 may be taken up by one or more subsequent or existing bets. Furthermore, even if a customer can see on the Betfair website that someone has offered to accept his bet, by the time he enters his bet someone else may have taken up that bet, so that the customer, believing that he is accepting an offer, in fact makes one that may or may not be accepted by a later customer.
17. Betfair accepts that it is a bookmaker. In its skeleton argument, it states:

"31. … betting exchanges provide facilities that enable customers to bet on a range of sporting and other events. All bookmakers seek to minimise their own risk. However a betting exchange may do so more efficiently than other bookmakers by permitting a customer bet only if a corresponding 'matching' bet can be found. In this way the exchange eliminates for itself risk directly arising from the bet. This will not be possible for all betting opportunities the exchange operator may wish to afford customers, for example betting on multiples or when 'seeding' the market on an exchange. In these cases the risks assumed by the betting exchange operator are identical to those of other bookmakers.

32. Thus although betting exchanges did not exist in 1963, Belfair accepts that it falls within the genus of facts to which the 1963 Act was directed. It had a bookmaker's permit while the 1963 regime was still in force, and thereafter has been licensed under the Gambling Act 2005. It has paid more than £40 million in statutory Levy since 2000, together with an additional £14.25 million in voluntary Levy contributions. It is Betfair that:

(a) decides which markets will be offered and when those markets will be open for betting;

(b) determines an 'odds ladder' framework within which customers can select the odds at which they are prepared to bet;

(c) determines rules, and terms and conditions which apply to the use of the exchange and to bets placed on the exchange;

(d) determines whether to allow bets at the Betfair SP (this is Betfair's version of the 'starting price' used by traditional bookmakers);

(e) determines how any customer disputes will be resolved;

(f) determines whether to permit bets by reference to whether they can be 'matched';

(g) determines whether to void bets due to systems errors and other matters;

(h) holds the stake pending the outcome of the event (in the same way as a traditional bookmaker would, whether on the High Street or on-line); and

(i) retains the stake from those who lose and pays out to the winners.

33. Exchange customers, by contrast, are in a position analogous to that of customers of traditional bookmakers. The steps that a customer must take to place a bet on Betfair's website, as compared to the website of a traditional bookmaker like William Hill, are virtually identical. In each case, they must operate within the framework of the facilities put in place by the bookmaker. In particular, customers:

(a) cannot decide what betting markets should exist or which selections should be included in the market (e.g. whether a horse not yet listed can be included in the betting market for next year's Grand National);

(b) cannot choose odds that are not part of Betfair's 'odds ladder';

(c) cannot determine the extent to which the odds chosen will be reduced as a result of a 'non-runner';

(d) cannot set the rules determining which bets will be settled or voided;

(e) do not interact with other customers. Where the exchange is the counterparty to the bet, the customer contracts only with the exchange. Where another customer is the counterparty, the customer will never know the identity of the person or persons to whom their bet is matched. Their only interaction is with the exchange. Similarly, the losing customer of a traditional bookmaker (whether on the website of someone such as William Hill or on the High Street) will not know the identities of other customers whose bets on different selections have enabled the bookmaker to balance its 'book';

(f) are not able to impose charges on, or offer credit to, any other customer;

(g) are not able to build a profit margin into their prices; and

(h) do not receive the stake or deal with or pay out the winnings."

18. None of these descriptions of the operation of a betting exchange engages expressly with the definition of a bookmaker in the 1963 Act.

The submissions of the parties

19. For the Claimant, Dinah Rose QC submitted that business users of betting exchanges receive bets within the meaning of the 1963 Act. She equated receiving bets with entering into a betting transaction. She made no separate submission on the meaning of "negotiating bets". She pointed to the absurdity of William Hill, for example, being liable to pay levy on bets made in its betting shops, or on its website, and to its not being liable to pay levy in respect of its betting (or accepting bets) on a betting exchange.
20. For the Board, Lord Pannick QC emphasised that the reports of the Royal Commissions that led to the enactment of the predecessors of the 1963 Act showed that the definition of bookmaker was intended to encompass those who offer facilities for betting. Those who place bets on an internet exchange do not do so. The 1963 Act and its predecessors imposed criminal sanctions on bookmakers who were not licensed, and it follows that the statutory definition must be strictly construed. So construed, it does not include those who enter into betting transactions on betting exchanges. In the Board's skeleton argument at paragraph 25(f) its contention was put as follows:

"The natural reading of the statutory language is that a persons is engaged in 'receiving or negotiating' bets when he is a person with or through whom members of the public can place bets (i.e., a facilitator or arranger of bets); but not when he is merely a person placing or entering into bets, arranged or facilitated by another."

21. For Betfair, David Anderson QC adopted Lord Pannick's submissions.

Discussion, legislative history and authorities

22. Much of the opinions given by Lord Pannick, Mr Fordham and Ms Rose was devoted to consideration of the meaning of "the effecting of betting transactions on horse races" within the meaning of section 27 of the 1963 Act. I do not think that the focus on these words is particularly helpful. I think it clear that the function of the words "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" is to restrict the horseracing levy to betting on horse racing.
23. As is obvious, internet betting exchanges were not envisaged by Parliament when it enacted the 1963 Act, and even more obviously when the definition of bookmaker in that Act was included in its predecessor, the Finance Act 1926. The approach of the Court to the interpretation and application of a statutory provision to facts that could not have been envisaged when it was enacted was authoritatively stated by Lord Wilberforce in his dissenting opinion in Royal College of Nursing of the UK v Department for Health and Social Security [1981] AC 800, 822:

"In interpreting an Act of Parliament it is proper, and indeed necessary, to have regard to the state of affairs existing, and known by Parliament to be existing, at the time. It is a fair presumption that Parliament's policy or intention is directed to that state of affairs. Leaving aside cases of omission by inadvertence, this being not such a case, when a new state of affairs, or a fresh set of facts bearing on policy, comes into existence, the courts have to consider whether they fall within the Parliamentary intention. They may be held to do so, if they fall within the same genus of facts as those to which the expressed policy has been formulated. They may also be held to do so if there can be detected a clear purpose in the legislation which can only be fulfilled if the extension is made. How liberally these principles may be applied must depend upon the nature of the enactment, and the strictness or otherwise of the words in which it has been expressed. The courts should be less willing to extend expressed meanings if it is clear that the Act in question was designed to be restrictive or circumscribed in its operation rather than liberal or permissive. They will be much less willing to do so where the subject matter is different in kind or dimension from that for which the legislation was passed. In any event there is one course which the courts cannot take, under the law of this country; they cannot fill gaps; they cannot by asking the question "What would Parliament have done in this current case - not being one in contemplation - if the facts had been before it?" attempt themselves to supply the answer, if the answer is not to be found in the terms of the Act itself."

24. In R (Quintavalle) v Secretary of State for Health [2003] UKHL 13 [2003] 2 AC 687, this statement of Lord Wilberforce was described as authoritative by Lord Bingham and Lord Steyn, and was referred to with approval by Lord Hoffmann. Lord Scott agreed with the opinions of Lord Bingham and that of Lord Steyn. Lord Bingham said:

7. Such is the skill of parliamentary draftsmen that most statutory enactments are expressed in language which is clear and unambiguous and gives rise to no serious controversy. But these are not the provisions which reach the courts, or at any rate the appellate courts. Where parties expend substantial resources arguing about the effect of a statutory provision it is usually because the provision is, or is said to be, capable of bearing two or more different meanings, or to be of doubtful application to the particular case which has now arisen, perhaps because the statutory language is said to be inapt to apply to it, sometimes because the situation which has arisen is one which the draftsman could not have foreseen and for which he has accordingly made no express provision.

8. The basic task of the court is to ascertain and give effect to the true meaning of what Parliament has said in the enactment to be construed. But that is not to say that attention should be confined and a literal interpretation given to the particular provisions which give rise to difficulty. Such an approach not only encourages immense prolixity in drafting, since the draftsman will feel obliged to provide expressly for every contingency which may possibly arise. It may also (under the banner of loyalty to the will of Parliament) lead to the frustration of that will, because undue concentration on the minutiae of the enactment may lead the court to neglect the purpose which Parliament intended to achieve when it enacted the statute. Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.

9. There is, I think, no inconsistency between the rule that statutory language retains the meaning it had when Parliament used it and the rule that a statute is always speaking. If Parliament, however long ago, passed an Act applicable to dogs, it could not properly be interpreted to apply to cats; but it could properly be held to apply to animals which were not regarded as dogs when the Act was passed but are so regarded now. The meaning of "cruel and unusual punishments" has not changed over the years since 1689, but many punishments which were not then thought to fall within that category would now be held to do so. The courts have frequently had to grapple with the question whether a modern invention or activity falls within old statutory language: see Bennion, Statutory Interpretation, 4th ed (2002), Part XVIII, Section 288. A revealing example is found in Grant v Southwestern and County Properties Ltd [1975] Ch 185, where Walton J had to decide whether a tape recording fell within the expression "document" in the Rules of the Supreme Court. Pointing out, at p 190, that the furnishing of information had been treated as one of the main functions of a document, the judge concluded that the tape recording was a document.

Who is a bookmaker?

25. In ordinary parlance, a bookmaker is a person who carries on the business of accepting bets from members of the public, commonly referred to as punters. He is so called because he normally will seek to make a book, that is to say, to accept bets at odds that ensure that whatever the result of the race or other event that is the subject of the bets, he will make a profit. If necessary he will lay off some bets with other bookmakers, particularly if he would otherwise be exposed to a loss in a particular event. The assemblage of his positions is his book.
26. The 1963 Act was a consolidating enactment, incorporating the provisions of the Betting and Gaming Act 1960 and the Betting Levy Act 1961. However, the statutory definition of bookmaker in the 1963 Act originated in the Finance Act 1926, which imposed an excise duty on "every bet made with a bookmaker". Section 18 included the following definition, which is materially identical to that in the 1963 Act:

"The expression 'bookmaker' means any person who, 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 who in any manner holds himself out or permits himself to be held out in any manner as a person who receives or negotiates bets."

27. It is also relevant to note the definition of "betting premises" in the 1926 Act:

"The expression 'betting premises' means any premises which are kept or used for the purpose of making, receiving or negotiating in any manner whatsoever bets on credit, …."

It follows from the difference of wording, which I have italicised, between the definition of "bookmaker" and that of "betting premises" that "receiving" a bet was something different from "making" a bet. The purpose of the definition of "betting premises" can be seen from section 16(2):

"Any officer authorised by the Commissioners for the purpose may enter any place where for the time being betting with bookmakers is being carried on, and also any betting premises, with a view to seeing whether the provisions of this Act and of any regulations made thereunder as to betting duty are being complied with."

This subsection makes it even clearer that making a bet is not the same as receiving a bet. It also follows that someone who made bets, but did not receive them, was not a bookmaker within the meaning of the Act, even if he did so in the course of his business.

28. This wording is relatively clear. In my judgment, a bet is "received" by someone who accepts bets (i.e., a bookmaker) when the punter approaches him and places his bet with him. On this basis, the definition of bookmaker in the 1926 Act was mainly explanatory, and did not introduce an artificial concept divorced from the ordinary meaning of bookmaker. This was consistent with the object of the 1926 Act, which was to tax bookmakers. But a person who made bets, but did not receive or negotiate them, would not be a bookmaker, even if he did so in the course of his business. If Parliament had intended to include within the definition of bookmaker anyone who, in the course of his business, makes bets, I have no doubt it would have used that verb instead of "receiving".
29. The meaning of "negotiating" a bet is less obvious. However, what was meant by negotiating a bet may be seen from the judgment of the Criminal Division of the Court of Appeal in R v Gambrell (unreported, 18 March 1981). The appellants had been charged with conspiracy to evade the payment of general betting duty, a duty payable by bookmakers on bets made with them. Giving the judgment of the Court, O'Connor LJ said:

"[Stone] ran an old established business as an agency for placing bets, that is, to act as agent for punters who chose to use him. They were required to deposit a float of money with him. He waived this requirement as far as Gambrell was concerned. He earned his money by getting commission from bookmakers with whom he dealt; there was no evidence of these arrangements. He was clearly negotiating bets and therefore a bookmaker within the definition. His case was that no bet was made with him by punters using his services as it made no difference to him whether the bet won or lost and therefore he was not liable for general betting duty. The bet only arose when he placed it with a bookmaker and it was that bookmaker who was liable for general betting duty.

The learned judge rules as a matter of law that when Stone accepted instructions a bet was being made with him as bookmaker and general betting duty became chargeable. He was wrong so to do. He misdirected himself by examining the provisions of the Act which make general betting duty chargeable on bets made through the totalisator. (See Section 1(1)(b) and (c) and Section 14 of the Betting, Gaming and Lotteries Act 1963.) He became further confused by considering the definition of "betting transaction" in Section 55 of the Betting, Gaming and Lotteries Act. He ended up by in effect construing the words "on any bet which is made with a bookmaker" as if they read "on any betting transaction to which a bookmaker is a party." This will not do, for it would make general betting duty chargeable on "any bet made with 'or by' a bookmaker" and there are no possible grounds for reading these words into Section 1(1) (a) or Section 2(1) (a) of the 1972 Act. The effect of this ruling was to prevent Stone from putting forward one main plank of his defence. To a lesser extent, but nonetheless to an important extent, it had the same effect on the cases against Gambrell, Pavion and Zimmerman. On their behalf the contention was that they were professional punters, that is, Gambrell and Pavion, and that in so far as the evidence showed betting instructions coming in to them, they were not accepting bets but merely acting as conduit pipes like Stone."

The italics are mine. The distinction between bets made with a bookmaker and bets made by a bookmaker is to be noted, but I can otherwise leave aside the concept of negotiating a bet, since the Claimant disclaims any reliance on it.

30. It is pertinent to note that the 1926 Act required bookmakers to take out a bookmaker's certificate, for which a duty was payable, and in addition, for any betting premises kept or used by him, an entry certificate, for which an additional duty was payable. A bookmaker who carried on business without the proper certificate was liable to pay an excise penalty, and someone who failed to produce a bookmaker's certificate when duly required to do so was liable to be arrested without warrant.
31. The expression "receiving a bet" was, I think, used in a different sense in the Street Betting Act 1906, which prohibited street betting. Section 1(1) imposed criminal liability on:

"Any person frequenting, or loitering in streets or public places, on behalf of himself or any other person, for the purpose of bookmaking, or betting or wagering, or agreeing to bet or wager, or paying or receiving or settling bets …"

32. In Bland v Cowan [1963] 2 QB 735, the Divisional Court held that receiving bets for the purposes of this section involved dealing with the punter's winnings. Clearly, the receiving of a bet, in the context of the subsection, was something done after the bet had been placed.
33. I think it clear that the meaning I have ascribed to the definition of bookmaker in the 1926 Act was generally accepted afterwards, in particular by Parliament when subsequent legislation was passed. The Betting and Lotteries Act 1934 imposed restrictions on bookmaking, which were subject to criminal sanctions. The principal part of the 1926 definition of bookmaker was repeated in section 20:

" 'bookmaker' means any person who, 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 pari mutual or pool betting operations, or who in any manner holds himself out, or permits himself to be held out in any manner, as a person who receives or negotiates bets or conducts such operations, and 'bookmaking' shall be construed accordingly; so, however, that a person shall not be deemed to be a bookmaker by reason only of the fact that he operates, or is employed in operating a totalisator, and the operating of a totalisator shall be deemed not to be bookmaking."

34. The report of the Royal Commission on Betting, Lotteries and Gaming 1949-1951 recommended the following principles for new gambling legislation:

"189. These are the difficulties which have to be met in framing new gambling legislation. It will not be easy to meet them and it may well be found that the first attempt is not wholly successful. But there are certain basic principles the acceptance of which is in our view essential to success. These are:

(1) That there should be a strict control over the provision on a commercial basis of all major forms of gambling facility, including the licensing or registration of all those who provide such facilities:

(2) That the law should apply fairly to all sections of the community; and

(3) That as much information as is practicable should be made available to the public about the extent of gambling, and, wherever possible, the conduct of the various forms of gambling.

190. The first of these principles is in our view the most important. Without this form of control there is no reliable method of preventing undesirable persons from entering the business or of measuring the extent of gambling. Abuses of all kinds can without difficulty be concealed and the influence of healthy public opinion is ineffective.

191. Two different objections have in the past been raised to this proposal, the first that it implies State approval of gambling, and the second that it is an unwarrantable interference with the liberties of those who provide gambling facilities. We do not consider that the imposition of control implies State approval in the sense that the State regards gambling as an activity which is to be encouraged, any more than the liquor licensing laws imply that the State wishes to encourage the drinking of alcoholic liquor. In either case it would be more accurate to say that the State recognises the activity as one in which its citizens may properly indulge in moderation, but that it also recognises that there are grave dangers in uncontrolled indulgence. It is on these grounds that liberty to provide facilities for participation may justifiably be controlled. The application of this principle in the liquor licensing laws has been markedly successful, the restrictions imposed are generally regarded as reasonable, both by the trade and by the public, and there has been a very great improvement in the standard of conduct of licensed premises and of those who make use of them. The attitude of public opinion towards excessive drinking has greatly changed, and a drunken man is no longer a joke but an object of disapproval. We see no reason why the application of the same principle to the problem of gambling should not have equally satisfactory results."

35. The Commission also recommended that there should be compulsory registration of bookmakers, who would be required to pay a substantial registration fee:

"252. We share the view expressed by the last Royal Commission that the registration of bookmakers is an integral part of any scheme for dealing with organised betting facilities and, in particular, with off the course betting and that it is a valuable and necessary means of enforcing compliance with the law on the part of bookmakers.

253. We propose that all bookmakers should be registered, whether they intend to carry on their business on or off the course, on credit or in cash and whether at fixed odds or on the pool betting principle. Any person who intends to act as a bookmaker should be required to obtain a certificate of eligibility from the licensing authority for the area in which the office is situated at which he proposes to carry on business or (in the case of the bookmaker who proposes to do business only on racecourses) in which he resides. A certificate of eligibility should not be refused except on certain grounds specified by statute, such as that the applicant has been convicted of an offence against the gambling laws or any offence involving dishonesty, or that satisfactory evidence has not been produced of the applicant's good character, or that during the last five years the applicant's registration as a bookmaker has been cancelled….."

36. The Royal Commission Report led to the enactment of the Betting and Gaming Act 1960, which legalised licensed betting shops. The Home Secretary, R A Butler, informed the House of Commons on 16 November 1959, when moving the second reading of the Betting and Gaming Bill:

"The Bill is based on the practical Report of the Royal Commission on Betting, Lotteries and Gaming, …., and I pay that Commission a tribute which, I hope, the whole House will endorse."

37. Section 1(2) of the 1960 Act was as follows:

"Save as permitted by virtue of subsections (5) of this section or subsection (1) of section four of this Act, no person shall use, or cause or knowingly permit any other person to use, any premises for the purpose of the effecting by that person or, as the case may be, by that other person of betting transactions with persons resorting to those premises; and any person who contravenes the provisions of this subsection shall be guilty of an offence;

Provided that this subsection shall not apply where both the person so using the premises and all the persons with whom the betting transactions are effected-

(a) either reside or work on those premises or on premises of which those premises form part; or

(b) are, or are acting on behalf of, holders of bookmaker's permits which are for the time being in force,

and, without prejudice to section three of the Betting and Lotteries Act, 1934, shall also not apply in relation to pool betting transactions."

Section 2 prohibited any person acting as a bookmaker unless he held a bookmaker's permit, and "bookmaker" and "bookmaking" were defined in familiar terms in section 28:

" 'bookmaker' means any person other than the Board who, 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, or who by way of business in any manner holds himself out, or permits himself to be held out, as a person who receives or negotiates bets or conducts such operations, so, however, that a person shall not be deemed to be a bookmaker by reason only of the fact –

(a) that he carries on, or is employed in, sponsored pool betting business; or

(b) that he operates, or is employed in operating, a totalisator"

Once again, Parliament distinguished between making a bet and receiving a bet.

38. The Royal Commission Report was followed by the Report of the Departmental Committee on a Levy on Betting on Horse Races, commonly referred to, after its chairman, as the Peppiatt Report. It recommended the imposition of a compulsory levy. Paragraph 23 of the Peppiatt Report was as follows

"If there is to be a levy, it could in theory be collected from backers or bookmakers or both. The possibility of making the levy on backers has attractions. It is estimated in paragraph 40 of Appendix II to the Report of the Royal Commission on Betting and Gaming 1949-51 that the average annual expenditure of credit and cash bettors off-the-course is between £145-£170m. A turnover tax of 3d. in £1 would produce about £2m. It is true that a tax on turnover was imposed in 1926 with little success; but the position will soon alter considerably if the provisions of the Betting and Gaming Bill for registering bookmakers and enlarging the scope of legal betting pass into law. Even so, because of the nature of betting transactions, opportunities for evasion of a levy on stakes would be widespread. Administrative difficulties of collecting the levy would be considerable and the costs of collection would severely reduce the proceeds. It is, indeed, unlikely that any equitable and effective scheme could be devised unless the Customs and Excise undertook the responsibility of collection; but since we conceive of the levy as being domestic to the industry of horse racing, it would be inappropriate that the Customs and Excise should be asked to carry out this function. We have been forced to conclude that a levy on backers is not feasible and that if there is to be a levy, it should come from the bookmakers."

39. The Peppiatt Report led to the Betting Levy Act 1961, which was based on its recommendations.
40. As mentioned above, the 1963 Act was a consolidating measure, incorporating the provisions of the 1960 Act and the 1961 Act. I have set out the definition of "bookmaker" in the 1963 Act in paragraphs 9 and 10 above.
41. In Graham v Green [1925] 2 KB 37, Rowlatt J held that a professional gambler, i.e., one whose sole means of livelihood was derived from betting on horses, was not carrying on a trade or vocation and was therefore not liable to pay income tax on his net winnings. Rowlatt J said, at 41-42:

"... It has been settled that a bookmaker carries on a taxable vocation. What is the bookmaker's system? He knows that there are a great many people who are willing to back horses, and that they will back horses with anybody who holds himself out to give reasonable odds as a bookmaker. By calculating the odds in the case of various horses over a long period of time and quoting them so that on the whole the aggregate odds, if I may use the expression, are in his favour, he makes a profit. That seems to me to be organizing an effort in the same way that a person organizes an effort if he sets out to buy himself things with a view to securing a profit by the difference in their capital value in individual cases.

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

42. The judgment has stood the test of time, and Ms Rose did not suggest that it was incorrectly decided, but I do not think it of real assistance. It was distinguished by Pennycuick J in Burdge v Pyne [1969] 1 WLR 364, in which he held that the owner of a club in which he gambled at cards was liable to pay income tax on his net profits from his gambling, on the basis that those profits were part of his profits on his business as owner and operator of the club.
43. I was referred to the speeches in the House of Lords in Attorney General v Luncheon and Sports Club Ltd [1929] AC 400. The facts appear from the headnote:

"A limited company was the proprietor of a club formed for social intercourse. Upon the club premises betting on horse races was transacted through the instrumentality of two machines, called totalisators, owned by the company and worked by the company's servants. Any member desiring to use these machines for the purpose of backing horses applied to join the club pool and, if elected as a pool member, he became entitled on payment of a small subscription to operate, and for this purpose he was supplied with credit vouchers of varying amounts. Under the rules of the pool, 10 per cent. of the gross amount of the stakes on each race was retained by the company in respect of the facilities provided and the expenses of management, and the balance was divided among the backers, called in the rules 'investors,' of the winning horse in the proportion of their stakes. The winnings for each week were paid by the company from its own funds irrespective of any possible loss owing to dishonour of the vouchers. The rules provided that the club acted simply as a distributing agent."

44. The Attorney General alleged that the company was liable to pay betting duty in respect of wagers on horse races made by members of the club by means of these machines. The company admitted that it was a bookmaker and that the transactions in question were bets within the meaning of the Finance Act, 1926. Nonetheless, it was not liable to pay betting duty because the bets were not made with it. In an admirably concise speech by modern standards, Viscount Dunedin stated:

"My Lords, the essence of a bet is that on the determination of an event in one way the first party wins and the second loses; on the determination the other way the first party loses and the second party wins. To induce liability under the statute there must be a bet with a bookmaker. The only bookmaker alleged is the club. Inasmuch as on the determination of the event in question - to wit, whether a certain horse is first or is placed in a race, as the case may be - the club can neither win nor lose, it follows that there is no bet with the only bookmaker alleged. The case for the Crown's claim therefore fails. Quod erat demonstrandum."

45. The case would be helpful if the issue before me was whether a company running an internet betting exchange which does not take any position on the bets placed on the exchange is a bookmaker, but it does not assist me on the question whether a business punter on such an exchange is a bookmaker.
46. The decision of the House of Lords in Seay v Eastwood [1976] 1 WLR 1117 was to a similar effect as the decision in the Luncheon and Sports Club case. A bookmaker had two fruit machines in premises in respect of which he held a bookmaking office licence. The machines paid out a fixed percentage of the moneys inserted in them. The conviction of the bookmaker for carrying on a business other than bookmaking on his licensed premises was upheld, because the punter operating a machine did not place a wager with the bookmaker, who had no liability to any successful punter. There was neither a "bet" nor a wager placed with the bookmaker. It followed that the business of providing the machines was not the business of bookmaking. Lord Simon of Glaisdale said, at 1123:

"The language of the statute is about as close to ordinary speech as is to be expected in an Act of Parliament, and 'bet' is not a term of art, but an ordinary English word. The appellants were convicted of an offence which involved that the resident magistrate at petty sessions did not consider that the appellants in relation to the gaming machines were carrying on the business of receiving or negotiating bets. On appeal the recorder made the following finding:

'Upon the facts I held that by any natural application or interpretation of the words contained in the … Act … the proprietor could not properly be described as making a bet … Even if an individual user of the machine could be described as making a bet when he put his coin into the machine, which I doubt, I cannot hold that he could be said to be making it with a bookmaker.'

That is really the beginning and the end of the case (cf. Cozens v. Brutus [1973] AC 854). I have quoted the learned recorder (a professional judge) in case it were considered that the linguistic register of the statute was not entirely that of ordinary speech. but has some legal overtone. For what it is worth, my own view coincides entirely with his."

Lord Kilbrandon's reasons for dismissing the appeal were concise:

"When the occupier of premises instals a gaming machine therein for the entertainment of visitors, and recoups himself by arranging that the machine shall reserve to him a percentage of the sums paid by the visitors for the privilege of working the machine — and that is all that the facts in the present appeal disclose — there is no usage of the English language which will permit it to be said that the owner had made or organised bets between himself and the visitors."

47. For what it is worth, I think that the Government shared my view of the meaning of "bookmaker" in 2003, when new legislation regulating gambling was being considered. In its position paper of May 2003, it opined:

"Bookmaking is defined in section 55 of the 1963 Act. It is generally regarded as the carrying on, whether occasionally or regularly, of the business of receiving or negotiating bets by a person who holds himself out for that purpose. The Totalisator Board and individuals working for them or the operations of a greyhound totalisator are not regarded as bookmakers. Nor are registered pools promoters where that is their only business."

48. I should also note paragraph 35 of the Position Paper, which I note was under the heading "Betting Intermediaries":

"We have considered carefully representations suggesting that customers of betting exchanges who offer (or 'lay') odds should be licensed as bookmakers. We have considered these proposals carefully but have concluded that it is not necessary for any exchange users to be licensed. Rather, we believe that the conditions of licence proposed for betting exchanges (outlined in summary form below) will be sufficient to ensure that the aims of gambling regulation can be achieved without further regulation. Nor do we propose any regulation of any other group of betting customers. …"

49. Lastly, in paragraphs 8 to 14 of the annex to the position paper the Government rejected the contention that those who carry on the business of betting through exchanges should be required to obtain a betting licence. Paragraphs 13 and 14 are as follows:

"(13) A comparison with traditional forms of bookmaking illustrates the point: If a private person acts as though s/he was a bookmaker in public or at an office, and offers odds to other private individuals, there is a risk to those third parties. The unlicensed person offering odds may not have sufficient finance to make good winnings, or they may simply not make themselves available to pay. There is a risk of harm.

(14) On the other hand, where someone who may not qualify as a bookmaker offers odds on the betting exchange, there is no risk of harm. The person cannot deprive other users of winnings, because s/he does not hold any stakes. Moreover, the exchange operator will not permit the 'unfit' user to bet or lay odds where s/he does not have sufficient funds deposited to cover the maximum liability associated with those transactions. There is no risk of harm to the public from an exchange user. The user enters a regulated market where the market provider is licensed in ways that ensure that no user may present a risk to other users. If payment is guaranteed and anti-money laundering measures are in place the threat of criminal activity is negligible."

50. In the document entitled "Draft Gambling Bill – The Policy" of November 2003, the Department for Culture, Media and Sport stated:

"4.24. Betting exchanges have been a successful innovation in the betting market, using the Internet to facilitate person-to-person betting through the facilities offered by the exchange operator. The volume of trade passing through betting exchanges continues to increase. The Commission will define exchanges as 'betting intermediaries' and issue a specific licence for their activities. This category will also include tics-tacs operating at horse racecourses.

4.25. The Government's view is that the regulatory risks associated with betting exchanges can be negated by focussed regulations, in the same way that risks associated with other betting operators can be contained. The entry tests will be much the same as those for other betting operators but will be tailored to fit the exchange model. Betting exchanges will be permitted to operate through betting offices and at betting tracts and, where they also hold a remote operating licence, through the Internet and other technologies. Conditions attached to the betting intermediary licence will require practical protections such as the compulsory ring fencing of customer deposits, comprehensive audit trails, and the flagging of certain categories of customer. There will also be a specific prohibition on the exchange operator participating in the betting exchange, by for example, 'kick-starting' a particular market. With this new licence in place the Government believes it quite unnecessary to license betting exchange customers. That would constitute superfluous over-regulation."

51. I see no reason, therefore, to strain the definition of bookmaker to include such persons, if they are not within what I consider to be the natural meaning of the statutory definition.
52. The Gambling Act 2005 is drafted in very different terms from those of the 1963 Act. Section 5 of the 2005 Act sets out what was described in the Explanatory Notes to the Act as "The fundamental concept in the Act", namely the provision of "facilities for gambling", a concept that is not to be found in the 1963 Act. In its 2003 Position Paper, the Government stated that the new legislation it would bring forward would make a clear distinction between the business of bookmaking and the use of betting exchanges. Ms Rose and Mr Jaffey were in my judgment right to submit in their skeleton argument that:

"It is … impossible to draw any inference from the licensing provisions in the 2005 Act as to the proper scope of the Levy under the 1963 Act. In particular, there is no reason to conclude that the scope of regulated activities under the 2005 Act should be construed as being the same as 'receiving or negotiating bets' under the 1963 Act."

However, they were wrong to submit otherwise in their submissions in reply.

53. The Board and Betfair laid stress on the practical difficulties involved in identifying whether someone who bets through an exchange is carrying on the business of betting. It is clear that the 1963 Act was drafted in order to render the identification of bookmakers and the collection of the levy relatively straightforward: the requirement of a licence means that those liable for the levy are the licence holders (as to which, see paragraph 35 of the Peppiatt Report). However, even under the 1963 Act it is necessary to ascertain whether someone who receives bets is doing so in the course of his business; so I do not think that the difficulties involved in identifying those liable for the levy on the Claimant's case assist me. Moreover, the collection of a tax from persons liable to pay may be made more difficult as a result of technical advances, just as breach of copyright is now much easier than previously. It does not follow that the applicable legislation should be construed so as to exclude the liability of those whom it may be difficult to identify.
54. I accept that for present purposes there is no significant difference between the making of a bet and laying bets. In a two horse race, or a round of a competition (for example, the Wimbledon tennis final), a gambler who has agreed to pay if one player wins (say Murray) may lay off his liability either by betting that Federer will not win (a lay) or by betting with another that Murray will win.
55. I draw no assistance from the fact that previous levy schemes assumed that those who bet by way of business on internet betting exchanges were liable for levy. The issue presently before me had not then been taken.
56. I turn, therefore, to the ultimate question in this case: is someone who places bets on an internet betting exchange in the course of his business a bookmaker within the meaning of the 1963 Act? Since criminal sanctions are involved, I consider that it would be wrong to give an expansive interpretation to the statutory wording.
57. Lord Pannick sought to assimilate the receiving of a bet with the provision of facilities for betting. I do not think that it is possible to interpret the receiving of bets as meaning providing facilities for betting. The words are simply different. However, there is something in his submission, since someone who is receiving a bet, rather than making a bet, will normally be providing facilities for betting. He will normally be making either an offer or offering to deal at specified odds.
58. For its part, the Claimant submitted in summary in its skeleton argument:

"Each user of an internet betting exchange receives the opposing bet placed by another user (or users) that is matched by the exchange, and negotiates the bet by offering particular odds to other exchange users."

However, this is to equate the making of a bet with receiving a bet, and as I have stated above I consider that these terms as used in the 1963 Act are not synonymous; and as also appears above I do not consider that the negotiation of a bet has the meaning for which the Claimant contends in this extract.

59. On the Claimant's case, there is a significant difference between a person who bets by way of business with a bookmaker and a person who bets by way of business on an exchange. The former does not, in my judgment, receive bets, even if by placing an assemblage of bets he is seeking to make a profit whatever the outcome of a race, and has never been generally regarded as being a bookmaker. In my judgment, he is indeed not a bookmaker. Someone who does his betting through an exchange, however, would be receiving bets, and therefore a bookmaker, even if he is accepting offers that have been put in place by others. When he enters his bets, he may or may not know whether he is making or accepting an offer: even if the Internet site indicates that an offer is open to him, by the time he enters his details, it may have been accepted by someone else, and his bet then becomes an offer that may or may not be accepted by someone else.
60. The question posed by the statute is not whether, in the course of a business, a person receives bets. The question is whether he carries on the business of receiving bets. Someone who operates a betting shop, or who has a stand at a race meeting, receives bets there. His business is that of receiving bets. The person who operates through a betting exchange may in the course of doing so find himself receiving a bet. But he does not carry on the business of receiving bets. He is not a bookmaker.
61. It follows that he is not liable to pay the levy.
62. For these reasons, the claim will be dismissed.