R William Hill Organization Ltd (Claimant) The Horserace Betting Levy Board (Defendant) The Association of British Bookmakers and Others (Interested Parties)

Hearing dates: 4, 5 July 2012

Introduction

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.

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

The Claimant, William Hill Organization Limited, is the largest operator of betting shops in the UK.

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".

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.

Betfair, the Second Interested Party, is the leading betting exchange in this country. It supports the decision of the Board.

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.

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

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."

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;

…"

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

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.

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

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."

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'."

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.

Betfair accepts that it is a bookmaker. In its skeleton argument, it states:

"31. …betting exchanges provide...