United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2005] UKVAT(Excise) E902, [2005] UKVAT(Excise) E00902

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Prize Provision Services Ltd v Revenue & Customs [2005] UKVAT(Excise) E00902 (18 August 2005)

EO00902

GENERAL BETTING DUTY — "Great Weather Lottery" — whether several "society's lotteries" or single game of fixed odds betting — participants required to select six numbers — prescribed amounts won if three or more match second digit of published Fahrenheit temperatures at six pre-determined cities — no skill involved — Lotteries and Amusements Act 1976, ss 5, 11 — Betting and Gaming Duties Act 1981, s 1 — distinction between lottery and betting — scheme found to be lottery — appeal allowed

MANCHESTER TRIBUNAL CENTRE

PRIZE PROVISION SERVICES LIMITED Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Colin Bishopp (Chairman)

Rosalind Rudd

Ray Battersby

Sitting in public in London on 28, 29, 30 June 2005

Stephen Nathan QC, instructed by Hamlins, for the Appellant

Amanda Tipples, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

Introduction

The Appellant is one of two associated companies, in common ownership, engaged in the running of what is known as the Great Weather Lottery ("the GWL"). The question for our determination is whether, as the Appellant contends, it is providing facilities to the promoters of numerous charitable "society's lotteries", as that term is defined by section 5 of the Lotteries and Amusements Act 1976, or, as the Respondents believe, it is instead promoting a single game of fixed odds betting. It is common ground that it is one or the other and cannot be both. If the latter is correct, general betting duty is due: see section 1 of the Betting and Gaming Duties Act 1981. Lotteries do not attract the duty. Until 6 October 2001, duty was charged at the rate of 6.75 per cent of the stake; thereafter it became chargeable at 15 per cent of gross profit. The Respondents have assessed the Appellant to duty, for the period from 1 October 2000 to 31 August 2003, in the aggregate amount of £229,086. The assessment was upheld on the review which is obligatory before an appeal to this tribunal may be brought. The arithmetic of the assessment is not disputed, nor does the Appellant take the point in this appeal (without conceding it) that if the assessment is otherwise valid, it should be directed to its associated company; we are required to decide only the issue of principle.

The Appellant was represented by Stephen Nathan QC and the Respondents by Amanda Tipples of counsel. We heard evidence from only one witness, the Appellant's managing director Keith Milhench, and the facts of the case were largely agreed; what follows can be taken as our findings. We were provided with a bundle of documents included within which were various items illustrating the operation of the GWL.

The facts

The purpose of the GWL is to raise money for those charities which subscribe to it. They do so by entering into a contract with the Appellant's associated company, Lottery Service Providers Limited ("LSP"). The contract is in a standard form, and is not tailored to each society. Mr Milhench told us that the charities' suggestions were heeded and, where practicable, acted upon, but it remained necessary that each charity contract with LSP on identical terms, since the scheme would otherwise be unmanageable. We accept—as indeed will become apparent—that it would not be possible to cater for individual variations. A great many small charities participate in the scheme. At the time covered by the assessment, there were about 500; we were told that, now, there are many more. The charities raise funds either for local "good causes", such as schools and hospitals, or for the local branches of national charities.

Each such charity offers to those whose support it wishes to obtain the opportunity of entering the GWL. It does so by means of a leaflet which LSP provides, for the purpose of its being given by the charity to potential supporters. The leaflet consists of a single A4 sheet of paper, with two lateral folds; it thus has six panels, each measuring 10 cm by 21 cm. One side of the leaflet is entirely pre-printed, in a form which is identical in every case; the other side is partially pre-printed, with standard material, and then supplemented by material relevant to the individual charity for which it is prepared. In its folded form, as presented to a potential supporter, the front panel of the leaflet is devoted entirely to the charity, containing its name in prominent type and its logo, if it has one. It briefly invites the reader to enter into the lottery (as it is, we understand, universally described) with a view to supporting the charity while at the same time obtaining the chance of winning prizes to a maximum value of £10,000.

On the same side of the leaflet, once it has been opened out, appear a message to potential supporters which is entirely tailored to the individual charity, an abbreviated description of the rules of the scheme and some instructions, partly in standard format and partly tailored to the charity, about the manner in which those who wish to participate may subscribe. The other, entirely pre-printed, side of the sheet contains a description in readily understandable terms of the manner in which the scheme is operated. The leaflet is so prepared as to give the impression, at least to the casual reader, that it is a scheme peculiar to the charity whose leaflet it is; the name of the charity appears more prominently than any other item, the lottery is commonly described as "our" lottery or the "AB Charity's Lottery"; the charity's address appears at least once and the name of a promoter, an individual who, we deduce, may be personally known to some of those at whom the leaflet is aimed, also appears. However, as Miss Tipples was to emphasise, closer examination of the leaflet might make an enquiring reader realise that he is not being invited to participate in a scheme confined only to that charity. The reader is invited to complete the form and send it to LSP: that, at least, is what appears on the pre-printed side of the leaflet. On the bespoke side, the reader is in some cases asked to send the form to LSP; in others, confusingly, he is asked to send it to the charity itself. He is also asked to complete a banker's standing order form, in favour not of the charity but of the Appellant.

From the participant's point of view, the scheme itself is quite simple. He is required to choose six numbers, from 0 to 9, and enter them in boxes, one number to each box. The boxes correspond to six places - Corfu, Istanbul, Tenerife, Innsbruck, Edinburgh and Stockholm, chosen because their initial letters, in that sequence, spell "CITIES". Any one or more of the numbers may be duplicated. On each day from Monday to Friday the Daily Telegraph prints the maximum Fahrenheit temperature recorded at (among others) those six places on the preceding day. If three or more of the numbers chosen by a participant match the final digits of the printed temperatures, in the correct sequence, he wins a prize: £2 for three correct numbers, £20 for four, £200 for five and £10,000 for all six. The value of each prize is fixed; no matter how many winners there are on any day, each receives the appropriate advertised prize. The figure printed in the Daily Telegraph is determinative, even if it is misprinted or incorrect for some other reason (there are fall-back arrangements in case the Daily Telegraph is not printed on any day and in case the temperature at any of the places is not given).

The Respondents' original position was that (whatever other considerations might arise) the GWL could not constitute a lottery because prizes were not won by pure chance; there was, they said, an element of skill. That was the only reason advanced in the letter recording the review decision for its author's conclusion. The Appellant went to some trouble to demonstrate, by experts' evidence and otherwise, that skill could not play any part: its evidence showed that even a trained meteorologist with appropriate equipment could not predict the temperature at any one of the six places, with any measure of reliability, more than five days ahead. The rules of the scheme provide that a minimum of 10 days must elapse between a participant's sending in his standing order and the first day on which he can participate, to eliminate any possibility that skill might be of benefit (and in practice, because of the time the banks take to process standing order instructions, the delay is a good deal longer), and thus chance alone dictates the outcome.

Shortly before the hearing, the Respondents accepted that skill played no part in the winning of prizes, and changed their stance to contend that a different reason—that this is, as they now argue, fixed odds betting—disqualified the scheme as a lottery. It would be open to us to exercise the power conferred on us by section 16(4) of the Finance Act 1994 to allow the appeal and direct a further review on the grounds that the officer undertaking the review "could not reasonably have arrived at" the decision—inevitably so, since it is now accepted that the only reason relied upon for it is unsustainable—but that course would hold little attraction for the Appellant, since it would almost certainly result in a review upholding the assessment on the grounds which the Respondents now advance. Fortunately, however, we are not confined to the powers conferred by section 16(4) because the decision does not come within Schedule 5 to the Act and is thus not an "ancillary matter"; accordingly we have a full appellate jurisdiction and may substitute our own decision if we think it appropriate to do so.

The cost of participation in the GWL is 20p per "line" per day. The leaflet provides three "lines" of boxes. There is no reason why a participant should not complete more than one leaflet, or enter using leaflets provided by more than one charity. Although, in theory, participants can play a single line for a single day, the leaflets do not mention the possibility but offer only participation for a prolonged period; the full rules of the scheme reveal that playing for a short period is possible but participants are sent the full rules only on request (which must be made to LSP). The banker's standing order authorises monthly payment, and continues until cancelled, rather than for any pre-determined period. We have little doubt that those willing to give a banker's order do so, in the main, because they wish to benefit the charity; the prospect of winning a prize is probably not the principal motivation. The monthly cost of a single line is £4.34, being one twelfth (to the nearest penny) of the annual cost; it appears that the payment dates are so organised that participants always pay a little in advance.

Once a new participant has submitted his completed entry form and banker's order, he receives a "New Player Letter". The letter appears to come from the charity whose leaflet has been completed—it bears the charity's name and address and the typewritten "signature" of the charity's lottery promoter (we shall return to the promoter's role) but in reality, the letter is generated by LSP. It states that any enquiries should be addressed to LSP. The letter is merely the notification that the application has been received, and it makes it clear that the new participant will not be able to take part until his banker's order has been processed and cleared funds have been received. A second letter, similar in form to the first, is sent by LSP once cleared funds are received.

Each charity's agreement with LSP provides for the administration by LSP of the GWL, and for the charity's financial rewards. They, too, do not differ between charities. The Appellant's role is to act as "banker", while LSP undertakes the day-to-day administration. As we have mentioned, all of the standing orders provided by participants require the monthly payments to be made to the Appellant; when received, all the moneys, regardless of the charity concerned, are paid into a single bank account. The Appellant and LSP do, however, keep computer records which segregate the moneys between charities and between participants. On Friday of each week, the computer interrogates its records of participants, identifying all those who have sufficient in their notional individual accounts to pay for the following week's competitions—that is, £1 (5 times 20p) per line—and that sum is allocated to those competitions. The allocation amounts to no more than a change in the computer record; at that stage the money remains in the single bank account.

In the following week, the last digits of the relevant temperatures are taken from the Daily Telegraph and entered into the computer, which then searches through the participants' chosen numbers in order to ascertain which of them has won. The winnings are paid by cheques drawn on the single bank account. Periodically, the Appellant accounts to the charities for their shares of the participants' payments, and to LSP for the administration expenses. These are set at fixed proportions of the gross receipts: the administration cost is set at 20 per cent, plus VAT, and the charities' share at 31.5 per cent, which becomes 35 per cent if the charity is in a position to recover the VAT charged on the administration cost. The balance, stated in the Appellant's "prospectus" to charities to be 45 per cent, is allocated to prizes. The latter figure is not quite accurate; the evidence showed that 42.95 per cent was allocated to prizes. Mr Milhench told us this is, statistically, the amount which participants will win, in the long run. The evidence did not extend to an explanation of the difference, and we are left to assume that it provides a safety margin. Miss Tipples made the point that there is a discrepancy between what is said by LSP and the Appellant to the participating charities and the reality and, as a matter of fact, that seems to be correct. Rather more relevant to the issues before us, however, is the manner in which the Appellant accounts for its receipts.

Among the documents provided to us were copies of various accounting records produced by the Appellant or LSP. Some were detailed, including, for example, the names, addresses, bank account details, numbers chosen and similar information about individual participants; at the other extreme they carried no more than a monthly summary of the amounts received, and of the sums allocated to participation, paid out in prizes, paid to LSP for administration and paid to the charities collectively. Between them, the records make it possible for the Appellant to determine not only what moneys it has received from individual participants, and what they have won, but also to allocate its receipts and payments to the individual charities. At the end of each month it sends to each charity a breakdown of the money received, details of the winners "belonging" to each charity, a cheque for the charity's share of the receipts, and the names and addresses of participants who have failed to continue making payments, no doubt in order that the charity may try to persuade the person concerned to recommence his payments. Mr Milhench told us that each charity is able to interrogate parts of the Appellant's database containing information relating to itself via a secure internet link, and by this means could obtain information more frequently than monthly if it wished.

Miss Tipples argued that the monthly summary, the least detailed of the records we were shown, indicated that the Appellant was in reality running a single game, that the individual charities were merely providing participants for that game in return for reward, and that they were either the Appellant's agents for that purpose, or in a similar position. Her argument relied mainly upon the manner of presentation of the document, particularly the absence of any segregation between the individual charities, and the treatment of the prize allocation in each month. We have mentioned that the allocation is of 42.95 per cent of the receipts. Each month a sum corresponding to that portion of the total receipts is notionally set aside (notionally, because there is no actual movement of money at this stage) and the amount so set aside is noted on the summary. The actual amount paid out in prizes (prizes are paid weekly, although the accounting is undertaken monthly) is also noted. The difference between the two represents a notional profit or loss, which is added to the amount brought forward from the preceding month, and carried forward to the next. No attempt is made to allocate the prizes actually won to the individual charities. Thus, Miss Tipples said, there is in reality only a single prize fund and only a single game.

Mr Milhench told us that it would be possible, if necessary, to calculate whether there was any surplus of prize allocation over prizes actually won by an individual charity's participants, for example if a charity were to leave the scheme, although that has never happened. We think from the evidence before us that it would be possible to make such a calculation, though we have the impression it would be difficult and laborious; it was clear from Mr Milhench's evidence that the Appellant's computer was not set up in a way which would make the task simple. It was also clear to us that the scheme is run on the basis that over the longer term there will be no significant difference between one charity and any other, and that separation of the prize allocations and payments is for that reason considered unnecessary.

The Appellant has arranged insurance to cover the payment of £200 and £10,000 prizes. The cost of the insurance is charged to the prize money allocation. Since, on the Appellant's own evidence, the frequency with which participants will win prizes is predictable in the longer term we deduce that the insurance cover has been obtained rather less for conventional insurance reasons than as a means of smoothing the cost of paying prizes over time. Mr Milhench described the policy as the purchase of a fund for payment of the larger prizes. The cost is set at a proportion of the aggregate entry fees; again, there is no segregation between charities. There is a single insurance policy in which the policy holder is named as "Prize Provision Services Limited and/or as Agents for individual societies participating in the Great Weather Game Lottery", a further factor which, Miss Tipples argued, pointed to the conclusion that there was a single scheme. Moreover, the insurer has imposed the condition that no more than seven participants may select the same numbers, in order to limit the possibility of its being required to pay a large sum of money on any day. A new participant who has selected numbers already selected by seven other participants is asked to make a different selection. The limit relates to the aggregate number of participants, and not to the participants introduced by any single charity. The Appellant pays the £200 and £10,000 prizes to the winners and then claims reimbursement from the insurer. We do not accept Miss Tipples' contention that this is of significance in itself; it seems to us to be no more than a practical means of ensuring that winners are paid promptly. Of more importance is the Appellant's practice when, contrary to statistical forecasts, more smaller prizes are won than are allowed for by the prize fund; it makes up the deficiency itself. Conversely, it appears, a surplus of prize fund over prizes benefits the Appellant. Again, no attempt is made to apportion gains and losses of this kind between charities although we accept that, over time, discrepancies will largely even out.

The parties' arguments

The Appellant's primary contention is that it manages a series of society's lotteries. The statutory definition of a society's lottery is to be found in section 5 of the 1976 Act which, as amended, reads:

"(1) In this Act 'society's lottery' means a lottery promoted on behalf of a society which is established and conducted wholly or mainly for one or more of the following purposes, that is to say—

(a) charitable purposes;

(b) participation in or support of athletic sports or games or cultural activities;

(c) purposes which are not described in paragraph (a) or (b) above but are neither purposes of private gain nor purposes of any commercial undertaking.

(2) Any purpose for which a society is established and conducted and which is calculated to benefit the society as a whole shall not be held to be a purpose of private gain by reason only that action in its fulfilment would result in benefit to any person as an individual.

(3) Subject to the provisions of this Act, a society's lottery is not unlawful if—

(a) it is promoted in Great Britain; and

(b) the society is for the time being registered under the appropriate Schedule; and

(c) it is promoted in accordance with a scheme approved by the society; …

(3A) The appropriate Schedule for the purposes of subsection (3)(b) above—

(a) is Schedule 1 to this Act if none of subsections (3B) to (3D) below applies to the lottery;

(b) is Schedule 1A to this Act if any of those subsections applies to the lottery …

(4) The whole proceeds of a society's lottery, after deducting sums lawfully appropriated on account of expenses or for the provision of prizes, shall be applied to purposes of the society such as are described in subsection (1) above.

(5) Schedules 1 and 1A to this Act shall have effect."

It is common ground that, if each society is conducting its own lottery, none comes within subsections (3B) to (3D) (which deal with the values of ticket sales), that they are correspondingly registrable, in accordance with subsection (3A)(a), under Schedule 1 (that is, with the local authority) and that all are so registered. The Respondents also accept that all of the participating societies are established for charitable purposes, that (again assuming each lottery is separate) they are all promoted in Great Britain and that there is compliance with subsection (4). There is thus no formal reason why each such scheme should not be considered to be a society's lottery.

We were referred also to the provisions of section 11 of the 1976 Act which sets out the rules which must be followed by a society's lottery. So far as material, as it is now in force, that section provides:

"(1) In the case of a society's lottery—

(a) the promoter of the lottery shall be a member of the society authorised in writing by the governing body of the society to act as the promoter; and

(b) every ticket distributed or sold shall specify the name of the society, the name and address of the promoter and the date of the lottery.

(2) No ticket or chance in a society's lottery … shall be sold at a price exceeding £2.

(3) The price of every ticket or chance shall be the same, and the price of any ticket distributed or sold shall be stated on the ticket.

(4) No person shall be admitted to participate in a society's lottery … in respect of a ticket or chance except after payment to the society … of the whole price of the ticket or chance; and no money received for or on account of a ticket or chance shall in any circumstances be returned.

(4A) No payment other than the price of a ticket or chance shall be required of a person as a condition of his admission to participate in a society's lottery …

(5) No prize in a society's lottery … shall exceed in amount or value £25,000 or 10 per cent of the total value of the tickets or chances sold in the lottery (whichever is greater).

(6) The total value of the tickets or chances sold in any one such lottery shall not exceed £2,000,000.

(7) The total value of the tickets or chances sold in all such lotteries held in any one year and promoted on behalf of the same society … shall not exceed £10,000,000 …

(11) The amount of the proceeds of a society's lottery … appropriated for the provision of prizes shall not exceed 55 per cent of the whole proceeds of the lottery.

(12) The amount of the proceeds of a society's lottery … appropriated on account of expenses (exclusive of prizes) shall not exceed whichever is the less of—

(a) the expenses actually incurred; and

(b) whichever of the amounts specified in subsection (13) below applies.

(13) The amounts referred to in subsection (12)(b) above are—

(a) where the whole proceeds of the lottery do not exceed £20,000, 35 per cent of those proceeds; or

(b) where the whole proceeds of the lottery exceed £20,000, 15 per cent of those proceeds or such larger percentage, not exceeding 35 per cent, as the Board may authorise in the case of a particular lottery …"

Miss Tipples' argument was that although there may be apparent formal compliance with section 5 and (with one exception) section 11 that is achieved only upon the premise that each society has its own lottery. The evidence, she said, is not consistent with the proposition that there truly are numerous separate society's lotteries. There was not only the manner in which the Appellant accounted for its receipts and payments, and the single insurance policy; the letter sent to participants required enquiries to be sent to LSP, the leaflets, in all cases, were to be sent to LSP even if some also invited the participant to send it, when completed, to the charity, while payment was in no case to be made to the charity but invariably to the Appellant. All those factors indicated that this was in reality only one scheme, that it was promoted as well as managed by LSP and the Appellant, and that the charities did no more than introduce players in return for a fixed share of the money paid by the players they introduced. The careful reader of the leaflets would realise that he was not truly being invited to enter a small society's lottery, but a much larger scheme promoted by the Appellant and LSP. All of the evidence showed that there was not a series of separate society's lotteries, but a single scheme promoted by LSP and the Appellant, and that must be a fixed odds betting scheme.

Even if there are separate lotteries, Miss Tipple continued, they do not comply with section 11(1)(a). Her argument was that, although the leaflets purport to name a promoter (who, if he or she truly is the promoter, satisfies the requirements of the paragraph), the promoter so named in fact plays no part whatever in the operation of the lottery and cannot be said to be promoting it. That the promoter plays little active part may well be correct as a matter of fact. Mr Nathan emphasised the promoter's tasks of forwarding entry forms which had been sent to the society rather than LSP, of registering with the local authority and furnishing the periodic returns required by Schedule 1 of the 1976 Act, and of persuading participants whose banker's orders have lapsed to renew then. We accept that these are real tasks, though we are not persuaded they are as arduous as Mr Nathan suggested. However, we agree with him that this factor is immaterial. The 1976 Act imposes the duty on the promoter of ensuring that the lottery is run lawfully, but it does not require him to run the lottery personally and, indeed, it does not spell out his duties in any detail at all. There is no evident reason why the running of the lottery should not be delegated, although the promoter will remain responsible for any failing on the delegate's part.

Although we acknowledge Mr Nathan's point that we should prefer a construction which leads to the conclusion that the Appellant's and LSP's activities are lawful, we find it difficult to accept that there truly is a multiplicity of separate lotteries. Each charity is invited to join an established scheme. Its doing so swells the scheme as its supporters subscribe, but has no other effect on it. There is no possibility of introducing variations to suit an individual charity; each joins on the Appellant's and LSP's terms or not at all. The segregation of charities in the Appellant's accounts goes no further than is necessary to enable the Appellant to pay the charities the sums due to them each month and to inform them which of their supporters have won prizes. Otherwise, all of the money received by the Appellant is mixed. It bears losses, if more prizes are won than the prize fund will meet, not on a charity by charity basis, but collectively. We also find it a material feature that there is a collective insurance policy. The significance lies, in our view, not in whether the description in the policy of the insured means that there is a single insured body (the Appellant) or that each participating charity is also an insured body; more important is the fact that no charity has, or is expected to have, its own policy. It is, we think, particularly telling that the restriction on the number of participants who may select the same sequence of numbers, albeit imposed by the insurers, applies to all the participants.

However, whether there is a single scheme (which may or may not mean that the Appellant's operations are unlawful) is not an issue we need to decide. We do not accept, for reasons which will later appear, Miss Tipples' argument that, if we were so to decide, we must necessarily determine that the Appellant is engaged in promoting fixed odds betting, and we turn now to consider the distinction between lotteries and fixed odds betting. Neither term has a statutory definition, either in the legislation relating to betting and gaming, or in the Betting and Gaming Duties Act 1981. In default of legislative guidance, both parties referred us to two classic definitions. Of wagering (which the parties agreed is synonymous with betting), Hawkins J said in Carlill v Carbolic Smoke Ball Company [1892] 2 QB 484 at 490:

"a wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent upon the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake; neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of the parties. It is essential to a wagering contract that each party may under it either win or lose, whether he will win or lose being dependent on the issue of the event, and, therefore, remaining uncertain until that issue is known. If either of the parties may win but cannot lose, or may lose but cannot win, it is not a wagering contract."

In Reader's Digest Association Ltd v Williams [1976] 3 All ER 737 at 739, Lord Widgery said:

"A lottery is the distribution of prizes by chance where the persons taking part in the operation, or a substantial number of them, make a payment or consideration in return for obtaining their chance of a prize. There are really three points one must look for in deciding whether a lottery has been established: first of all, the distribution of prizes; secondly, the fact that this was to be done by means of a chance; and thirdly, that there must be some actual contribution made by the participants in return for them obtaining a chance to take part in the lottery."

And in Barnes v Strathern (1929) SLT 37 at 42 Lord Blackburn said it:

"is settled law, that if the winning of a prize in a scheme in which a number of persons take tickets depends entirely on chance, and is independent of any exercise of skill, the scheme is a lottery".

We draw additionally some assistance from what was said by Russell LJ in Earl of Ellesmere v Wallace [1929] 2 Ch 1 at 52:

"The truth is that you cannot have more than two parties or two sides to a bet. You may have a multipartite agreement to contribute to a sweepstake (which may be illegal as a lottery if the winner is determined by chance, but not if the winner is determined by skill), but you cannot have a multipartite agreement for a bet unless the numerous parties are divided into two sides, of which one wins or the other wins, according to whether an uncertain event does or does not happen."

Mr Nathan's argument was that the GWL did not have the characteristics of betting. The participants paid a fee in order to enter; the fee could never be returned to them. That is a requirement of section 11(4) of the 1976 Act and is clearly spelt out in the rules of the scheme:

"Once payment has been received and an application accepted, the contract is not capable of cancellation or early termination before the end of the playing period."

It could not be said that the participation fee of 20 pence per day is returned to a prize winner; the advertised prizes are of specified sums and that is precisely what a winner receives—he does not receive 20 pence in addition. The participant has no opportunity to negotiate his own terms, such as the amount to be staked (save by playing more than one "line"), or the nature of the event which determines the outcome (for example, whether a horse wins a race or is placed in the first three); he must accept the terms on offer if he is to participate.

By contrast, the arrangements do have the characteristics of a lottery, a term which is not to be narrowly interpreted: see Seay v Eastward [1976] 1WLR 1117 at 1121, per Lord Wilberforce: "the general meaning is left to be decided by the courts as cases arise"; and in re Senator Hanseatische Verwaltungsgesellschaft mbH [1997] 1WLR 515 at 523, per Millet LJ: "Parliament has left it to the courts to decide what constitutes a lottery by reference to the general underlying idea". It does not matter, as the Respondents contend, that winners receive a pre-determined amount, regardless of the number of winners, rather than a share of the pool, the size of the share being dictated by the extent of the pool and the number of winners. The £10 prizes awarded in the National Lottery are fixed; yet it is not suggested that it is not a lottery. Indeed, as Griffiths J said in Atkinson v Murrell [1972] 2 QB 274, in a passage later approved by the House of Lords in the same case ([1973] AC 289 at 295):

"Whereas it is true that most lotteries involve a scheme which creates an identifiable prize fund, I can find no reason to conclude that this is an essential feature of a lottery, provided the scheme achieves the overall object of the distribution of money by chance."

Mr Nathan emphasised the Appellant's treatment by the Gaming Board for Great Britain. We are not bound by the views of the Board but we agree with Mr Nathan that we should not lightly dismiss the opinion of the regulatory body for the gaming industry, who must be taken to be experts in the field. In 2000 the Board insisted that either the Appellant or LSP must be certified as an External Lottery Manager, in order to comply with section 9A(1) of the 1976 Act which reads:

"(1) No person shall manage a society's lottery or a local lottery unless that person is—

(a) a member of the society on whose behalf or of the local authority by whom the lottery is promoted, acting in his capacity as such,

(b) an employee of that society or authority acting in the course of his employment,

(c) in the case of a society's lottery, a company that is wholly owned by the society,

(d) a person certified as a lottery manager under Schedule 2A to this Act, or

(e) an employee of a person so certified acting in the course of his employment."

The Appellant is now so certified, but is evident that it was for some time most reluctant to accept the Board's view. We find that reluctance somewhat surprising (even if understandable because of the substantial levy payable to the Board) since it seems to us that the Board's view that the Appellant is managing a society's lottery scheme is entirely consistent with the arguments Mr Nathan advanced before us. It is, in our view, impossible to say that the charities are each managing their own lotteries (assuming these are separate lotteries), and that the Appellant and LSP merely provide some facilities; between them they undertake almost all the management. The charities are required to do no more than persuade their supporters to subscribe, to forward those completed standing orders they receive from new participants to the Appellant, to encourage those who allow their subscriptions to lapse to renew them and to submit a monthly return—which in any event is prepared by LPS or the Appellant—to the local authority with which it has registered its lottery to satisfy the requirements of paragraph 11 of Schedule 1 to the 1976 Act. It is quite unrealistic to describe that as management, whether there is one lottery or several. It is, incidentally, not clear to us from the documentation we have whether the Board has considered that particular issue.

Miss Tipples' argument was that, when properly analysed, the GWL does not have the true characteristics of a lottery. She drew our attention to the standard textbook on the law, Smith & Monkcom's Law of Betting, Gaming and Lotteries in which, at paragraph C14.7, three elements are described: that there should be a scheme designed to attract a large number of participants, who are in one way or another in competition with each other; that the promoter should have no competitive interest against the entrants—that is, whatever the outcome, the promoter neither gains nor loses; and that the participants' payments are the consideration for the chance to enter and not a stake which will be returned if they win. None of these elements is to be found in the Appellant's scheme. Her argument was predicated upon our finding that there is indeed a single scheme.

A participant can calculate in advance what his chance of winning is, she said, and the amount he will win is known; thus the odds themselves are readily calculable, and they are fixed. The promoter (assuming that to be LSP or the Appellant) has a conflict of interest with the participant: if the participant correctly guesses the correct numbers, he wins the advertised prize and the Appellant loses it; if not, the participant loses his 20 pence and the Appellant wins it. It cannot be said that the Appellant is a mere stakeholder since it suffers the loss if the allocated prize fund is insufficient (and gains if it exceeds the prizes won). There is no element of competition between the participants: each receives the full advertised prize, if he is a winner, regardless of how many other winners there may be. Although a participant cannot dictate the terms on which he participates, he can increase his chances of winning by playing more than a single line. There is thus, she said, a contract between the Appellant which is in the position of a bookmaker, and the participant. And, she said, the prizes are not distributed, as Lord Widgery's definition in Reader's Digest v Williams requires, since distribution implies sharing or apportionment, and not the payment of a pre-determined sum.

Conclusions

Miss Tipples advanced her arguments most attractively but we have concluded that the Appellant's case is to be preferred. It is plain from the judicial comments we have quoted above that our task in determining whether the scheme amounts to a lottery, or series of lotteries, on the one hand, or fixed odds betting on the other, cannot be discharged by simply applying a formulaic test which is guaranteed to deliver the correct answer. A lottery may have some of the characteristics of betting yet remain a lottery; and betting may have some of the characteristics of a lottery—most obviously that the outcome of the bet may be dependent on pure chance—yet remain betting. We agree with Mr Nathan that we should apply common sense, and ask ourselves whether, overall, the scheme more closely resembles the classic description of a lottery, as explained in Reader's Digest v Williams, or of betting as it is set out in Carlill.

There seems to us to be little room for doubt that, if the GWL is a series of society's lotteries, each is indeed a lottery, and Miss Tipples did not suggest otherwise. The only significant difference between a series of individual lotteries on the one hand and a single scheme on the other lies in the manner in which the cost of the prizes is borne. The participants win in exactly the same way and it seems to us difficult to argue that the payments they make are the price of the opportunity to win if they are paid to a society's lottery, but become betting stakes if they are paid to the Appellant. We accept that whereas the promoters of the individual society's lotteries, if that is what they are, have no pecuniary interest in the outcome of the lottery, the Appellant, at least potentially, does have such an interest. But Miss Tipples concentrated on two months, in one of which the Appellant "won" and in the other of which it "lost". That approach ignores the evidence of Mr Milhench, which we accept (and which was not challenged) that, statistically, participants will win 42.95 per cent of the amount paid in by them. This is not a scheme which operates once, or sporadically, but one which is designed to be operated daily over a long period of time so that, overall, the Appellant should neither gain nor lose. That the Appellant may win or lose on any individual day, or in any individual month, is not an insignificant factor but it is not enough, in our view, to disqualify the GWL from being a lottery. Pecuniary isolation of the Appellant from the outcome could be achieved by limiting the prizes to the available fund, but we are satisfied that this is not an essential characteristic of a lottery.

We are also not persuaded that the participants in a lottery must (rather than may) be in some form of competition with each other, and if the authors of Smith & Monkcom are so stating (which we do not think they are) we consider they are mistaken. That there must be any such competition (so that, in particular, the value of a prize is affected by the number of winners) is not a feature of the judicial comments we have cited. We are also not persuaded that Miss Tipples' proposed definition of "distribute", that it imparts an element of sharing, is correct. Indeed, in her own skeleton argument, in her description of the promoter's tasks, appears the phrase "distributing leaflets to potential participants". In our view "distribute" means no more than hand out, whether at random or to a class who have some entitlement. We cannot agree that it necessarily implies a sharing. We have already disposed of the argument that the participants' payments represent stakes.

We see nothing in the Appellant's scheme (or in the individual society's lotteries, if that is the correct view) which disqualifies them from being categorised as lotteries. We are satisfied that they cannot properly be regarded as a form of betting, and that the appeal must therefore be allowed.

We were asked to give permission for the parties to make applications in respect of costs and we do so. It may help if we say that, as we presently see the matter, the Appellant ought to have its costs of the appeal, to include the costs expended on establishing that the winners are determined by chance.

COLIN BISHOPP

CHAIRMAN

Release Date 18 August 2005

MAN/04/8030