The issue in this appeal is whether business customers of betting exchanges may be required to pay a horse race betting levy. If they are bookmakers within the meaning of the Betting, Gaming and Lotteries Act 1963 (the 1963 Act) then the Horserace Betting Levy Board, the respondent, is entitled to impose a levy on them. Customers of a betting exchange will fall within the statutory definition of a bookmaker if they carry on the business of “receiving or negotiating bets”.

Stanley Burnton LJ dismissed the application of William Hill Organisation Limited to quash the decision of the Board that business customers of betting exchanges are not liable to levy (2012 EWHC 2039 (Admin)). The appeal turns on the correct construction of s.55 of the 1963 Act; in short, does a customer which, as part of its business, bets on a betting exchange, receive or negotiate bets?

The Board is a statutory body established by the Betting Levy Act 1961. Pursuant to s.24 of the 1963 Act, the Board was required to assess and collect duty to be applied for purposes conducive, amongst other things, to the improvement of horse racing. Monetary contributions to be applied for such purposes were to come from “bookmakers and the Totalisator Board” (s.24 (1)). By s.27(2)(a) of the 1963 Act the levy scheme was required to include provision:

Section 55 contains the dictionary:

The 1963 Act consolidated previous legislation both as to licensing of bookmakers under the Betting and Gaming Act 1960 and as to the provision of a levy under the Betting Levy Act 1961. The 1963 Act has largely been repealed with effect from 1 September 2007 by the Gambling Act 2005 but ss. 24-27, governing the levy, and s.55, remain in force (paragraph 2 of the Gambling Act (Horserace Betting Levy) Order 2007 (SI 2007/2159))

At the time the levy was introduced in 1961, replacing a voluntary scheme, there were no internet betting exchanges. The technology, at that time, was not capable of maintaining an online market place. Accordingly, the bookmaker within the meaning of s.55 was a traditional bookmaker who sought to build a “balanced book”. The traditional bookmaker sought to take enough money on each outcome in a race, or sporting event, in proportion to the odds offered so as to ensure that whatever the outcome of the race, or other event, it would make a profit.

The customer makes a bet at fixed odds offered by the bookmaker on a selected horse or selected outcome. If, for example, the horse wins, the bookmaker pays the customer out of its own funds. Traditionally, a bookmaker would not offer the customer the opportunity to make a “lay bet”, that is, a bet that a particular horse would not win the race, although from time to time traditional bookmakers have offered that opportunity and William Hill’s case does not depend on the distinction between betting for a certain outcome, “backing”, or betting against a certain outcome, “laying”. When betting was as uncomplicated as that, there could be little difficulty in distinguishing between the bookmaker and its customer, that is, between the bookmaker who carried on the business of receiving or negotiating bets within the meaning of s.55 and its customer, who was not in the business of receiving or negotiating bets. This case turns on whether the statutory definition of bookmaking can be interpreted so as to include betting on a betting exchange, and therefore requires some understanding of how a betting exchange works.

No issue was taken with the judge’s description of how a betting exchange works. He reproduced William Hill’s description and Betfair’s own prospectus (paragraphs 14 and 15). The essential features of the betting exchange are that whereas the traditional bookmaker seeks to generate profit by setting odds so that the amount they pay to winners is less than the stake they reclaim from losers, the betting exchange generates revenue by charging commission on the winnings of successful customers. It takes no risk in relation to individual bets made.

Customers place bets either as layers or backers. The exchange uses software to match opposing bets. The exchange operator only matches a bet request on a given betting “market” if it is has received one or more opposing bet requests from one or more other customers which allow the first bet to be matched. By that means it ensures that the book is always perfectly balanced.

Customers who enter into bets through an exchange specify, within the parameters set by the exchange, and on the exchange’s standard terms and conditions, the amount which they wish to bet either as backer or layer and the odds on which they wish to place their bet. If the exchange finds a matching customer or customers, (a large bet may be matched with one or more smaller bets), then a bet or more than one bet is effected. If the bet cannot be matched, the request is cancelled. Once the bet or sporting event is over and the bet has been matched, the exchange deducts money from the account of the losing customer and credits it to the account of the winning customer, less commission and other charges.

Betfair accepts that it is a bookmaker, within the meaning of s.55 and seeks to emphasise that it acts like a traditional bookmaker. Like a traditional bookmaker it:

Section 55 is concerned to identify those liable to pay the levy pursuant to section 27(1). They are bookmakers. It is important not to overlook the impact of the word bookmaker, or, as Bennion (Statutory Interpretation 4^th Ed (2002)) would have put it, ‘the potency’ of the use of that description (see Lord Scott’s discussion in Oxfordshire CC v Oxford City Council [2006] 2 AC 674, [2006] UKHL 25). The definition in s.55 seeks to distinguish bookmakers from their customers. It does so by referring to bookmakers as those who receive or negotiate a bet.

It is as well to start with the paradigm of a bookmaker, the paradigm with which the 1963 Act was plainly concerned, long before betting exchanges were envisaged. At that time there was a clear division between bookmaker and punter, between those receiving a bet and those placing a bet.

The bookmaker, beyond question, receives a bet. The bookmaker issues to the would-be punter an invitation to treat. The punter makes a request to bet and the bookmaker decides whether to accept that request or not. In that sense the punter makes an offer and the bookmaker decides whether to accept it or not. The bookmaker receives the bet request, receives the stake and facilitates the placing of bets.

The punter places a bet or makes a bet. If he uses the services of the traditional bookmaker, as the 1963 Act envisaged, he receives nothing other than confirmation that his bet has been accepted. He does not receive or negotiate a bet. As Sir Stanley Burnton said, “nobody would say, ‘I am going to the betting shop to receive a bet’”.

Accordingly, s.55 distinguishes between bookmakers and their customers by identifying the bookmaker as the one who receives or negotiates a bet.

This distinction holds good whether the punter is in the business of making bets or not. Even Rowlatt J had difficulty in explaining why one whose livelihood depended on successfully backing horses was not carrying on a trade in Graham v Green [1925] 2 KB 37. The only significance of that case seems to me to show that professional gamblers are not a new phenomenon and that even if the professional gambler might be said to be carrying on a business, it is not the business of bookmaking. The scale and extent of his betting does not mean he is in the business of receiving or negotiating bets; they do not turn him into a bookmaker (as Lord Ashmore pointed out in McColl v Hyndman [1928] JC 17, 24, a bookmaker need not be carrying on a business). It does not matter whether the punter is a professional gambler, bets as part of a business or merely, like Lord Hippo, punted the lot on Little Nell “and got a telegram at dinner, to say that he had backed the winner”.

This traditional distinction between bookmaker and punter has been adopted throughout the legislative history which led to the 1963 Act. The definition of bookmaker, found in s.55 of the 1963 Act, is to be found in the Finance Act 1926 (s.18) which introduced betting duty on bets made with a bookmaker. Section 18, in its definition of betting premises, draws a distinction between making and receiving a bet. The Betting and Lotteries Act 1934 adopted a materially identical definition of bookmaker (s.20), restricting the number of days on which betting “by way of bookmaking or by means of a totalisator” could take place (s.1). The same definition was adopted in the Betting and Gaming Act 1960 which made provision for bookmakers’ permits and the licensing of betting offices, following the Royal Commission on Betting, Lotteries and Gaming 1949-1951 (Cmd. 8190).

All of these legislative provisions preserve the difference between bookmakers and their customers by drawing a distinction between those who receive or negotiate bets and those who make bets with a bookmaker, the punter or customer.

It is not disputed that the 1963 Act did not contemplate that those who made or placed bets were not bookmakers. The question in the instant appeal is whether the statutory definition of bookmaker is broad enough to encompass those who enter into a bet on a betting exchange.

The Board drew attention to the guiding principle when a new activity is said to fall within old statutory language. It is to be found in Lord Bingham’s endorsement (in R (Quintavalle) v Health Secretary [2003] 2 AC 687 [10]) of the dissenting opinion of Lord Wilberforce in Royal College of Nursing of the United Kingdom v Department of Health and Social Security [1981] AC 800, 822 (cited at length in the judgment below at [24]) Is the new activity within the genus of the statutory definitions? Is the inclusion of the new activity consistent with the purpose of the statute?

It is not difficult to identify a statutory purpose; Parliament intended to permit the Board to impose a levy on bookmakers and not on their customers. Under a statutory scheme which distinguishes between bookmakers, on whom the levy may be imposed, and their customers, who place bets, on whom no levy may be imposed, it is not possible to do away with that distinction and say that the customers are also bookmakers. Parliament maintained that distinction even after it recognised and made provisions in relation to betting exchanges (see s.5AB of the Betting and Gaming Duties Act 1981, q.v. infra [40]).

Miss Rose QC, on behalf of William Hill, sought to rely on the mechanics of betting on the betting exchange to establish that those who made bets were bookmakers. As I have recalled, on the exchange, a bet request will either match an existing bet request already placed on the exchange or be available for matching by a subsequent request or requests. If a bet request is not matched before the market for the particular event is suspended, it will be cancelled by the operator of the exchange such as Betfair. Miss Rose QC contended that once a bet request is matched, the layer or backer ‘receives’ the opposing bet. Both users of the exchange, the backer and layer, receive a bet.

If this contention were correct, it would involve, on many occasions, a number of receivers of a bet, in cases where, for example, a large bet is matched by a number of opposing bets. In every case there will be at least three bookmakers, the two users and the organiser of the exchange, who, it is accepted, receives or negotiates the bet.

To regard those whose bets are matched on an exchange as persons who receive bets seems to me to be inconsistent with the division made in s.55 between those who make bets and those who receive them. The users of the exchange make bets no less than the punters who make bets with the traditional bookmaker. Section 55 distinguishes between those who make bets and those who receive them. It cannot be interpreted in a manner which destroys that distinction.

Moreover, William Hill’s argument depends in part on the notion that when a bet is matched each bet is accepted by the punter who has made the opposing bet. The acceptance of the opposing bet is, so the argument runs, to be equated with the receipt of that bet. It was this argument which was, it appears, adopted by Sir Stanley Burnton, who seems to have concluded that the users of an exchange do receive bets. He said:

The judge’s reasoning, wrongly in my view, elides the distinction between accepting a bet and receiving a bet. The fact that it may be said that when a bet is matched, the maker of the bet accepts the opposing bet at the odds offered (within the parameters laid down by the operator of the exchange) does not mean that each opposing punter receives the bet of the other. To regard each punter whose bet is matched as accepting the offer of the other is a meaningless concept for the purposes of s.55.

The customer of a betting exchange never knows, when he enters a bet, whether he is offering odds or taking the odds of another customer. No customer can know, when he places his bet, whether he is offering a bet or accepting a bet. It will be entirely arbitrary, therefore, on a construction which equates acceptance with receipt, whether the customer is making a bet or receiving a bet. The concept of acceptance thus provides no sensible means for identifying those who are bookmakers in any particular transaction.

It may be that it was this difficulty which explains the final paragraph of the judge’s reasoning:

That paragraph may be understood, so Mr Anderson QC on behalf of Betfair suggests, as meaning that while the counterparty customer accepting an opposing bet receives a bet, he is not ‘in the business’ of receiving bets because he does not know when he makes the bet whether he will be accepting a bet or not.

But there will be many cases where not one of the makers of the opposing bets is counterparty. There are many cases where the only contractual counterparty is the operator of the exchange (as in the case of multiple bets). In such cases the only betting contracts are those made between customer and operator. The counterparty to all bets made by non-UK registered Betfair customers betting on the Betfair exchange is Betfair International Limited.

Moreover, the Totalisator Board carries on the business of receiving bets, although it is not a party to any betting transaction, does not set or select odds and takes no risk. Sections 14(1) and 17(2) of the 1963 Act acknowledge that the Tote receives or negotiates bets. It would, absent the statutory words of exclusion in s.55, be a bookmaker, as was conceded in Attorney-General v Luncheon & Sporting Club [1929] AC 400, 402. It redistributes winnings to winning customers, after extracting a profit, in a manner similar to that deployed by the betting exchange operator. For those reasons I do not think s.55 should be construed as equating the receipt of a bet with its acceptance.

To limit the scope of the statutory definition of bookmaker to those who operate the exchange preserves the distinction between those who make the bets and those who receive them. The customer must log in to his account, deposit funds, if necessary, select a betting market, choose which horse to back or which horse to lay (although all parties accept that the distinction makes no difference to the statutory meaning of bookmaker), choose whether or not to accept the odds offered on the website or seek better odds (customers do request odds from a traditional bookmaker different from those advertised), choose the stake from the parameters offered on the website and place the bet, which will be processed if there is a sufficient account balance.

There is no sufficient distinction between the operation of an exchange and of a traditional bookmaker to justify distinguishing between the customers who make bets on an exchange and those who make bets with a traditional bookmaker. Once it is recognised that the statute distinguishes between those who make bets, the customers, and those who receive them, the bookmakers, the size and organisation of those customers who make bets on an exchange is irrelevant.

That the division between bookmakers and their customers is fundamental to the statutory scheme for imposing a levy is underlined by the linked statutory system of regulation. Traditionally, gambling has been controlled by regulating those who provide facilities for betting rather than imposing restrictions on those who make bets, as the Betting and Lotteries Act 1934 demonstrates. The 1949-1951 Royal Commission identified the “basic principle” of strict control over the provision on a commercial basis of all major forms of “gambling facility” (Paragraph 189) .

The Betting and Gaming Act 1960 provided for the licensing of bookmakers by means of a bookmakers’ permit. As I have observed, bookmakers requiring a permit were those in the business of receiving or negotiating bets.

The important link between levy and regulation is made in s.5 of the Betting Levy Act 1961:

This link was maintained when the two statutory schemes of levy and regulation were consolidated in the 1963 Act in Paragraph 16(2) of Schedule I. The Betting and Gaming Duties Act 1981 maintained the distinction between the customer who makes bets (section 2(1)(a)) with a bookmaker and the bookmaker who receives or negotiates bets (s.12(4) which maintains the 1963 definition of bookmaker) when a general betting duty on bets was introduced.

The first statutory reference to betting exchanges came in the Finance Act 2003, which charged general betting levy (by amendment of the 1981 Act) on the commission charged by a betting exchange:

This section applies where—

General betting duty shall be charged on the amounts (“commission charges”) that the parties to the bet are charged, whether by deduction from winnings or otherwise, for using those facilities.” (my emphasis)

It seems to me impossible to regard those who use the facilities of a betting exchange as bookmakers when Parliament has distinguished in one statute, the 1981 Act as amended in 2003, between bookmakers (defined in s.12(4)), betting exchanges (those who provide facilities whereby one person makes a bet with another) and those who make bets with each other using facilities provided by a third party (s.5AB). William Hill’s arguments fly in the face of statutory distinctions which have persisted up to the advent of the betting exchange and its recognition by Parliament.

The Gambling Act 2005 abolishes bookmakers’ permits and introduces a system of licensing. A general betting operating licence authorises the provision of facilities for betting (section 65 (2)(c) read with s.5) and a betting intermediary operating licence is required for a person who “provides a service designed to facilitate the making or acceptance of bets between others” (s.65(2)(e) read with s.13). These operating licences may be reviewed if a licence holder fails to pay the levy imposed by the 1963 Act (2007 Order).

The provisions of the 2005 Act led to considerable controversy as to whether those who use the facilities of a betting exchange in the course of their business were now required to obtain a licence (a remote general betting standard or remote platform licence). Primarily, this was said to be relevant to the debate between the parties as to how difficult it might be to police the payment of levy if it was chargeable against users of a betting exchange.

Disappointingly, I do not think it necessary to resolve these issues. The 2005 Act definitions in s.5 and s.13 do not adopt the earlier definition of bookmaker and do not refer to one who receives or negotiates a bet. I do not think the new regime assists in the question of construction raised by this appeal. The Board accepted that the payment of levy by users of a betting exchange in the course of a business could be monitored although with far greater difficulty than that envisaged in the original simple scheme envisaged in the 1963 Act and in earlier legislation.

The answer to the question of construction lies in the persistence with which the legislation has maintained the difference between those who make bets and those who receive them, between the customer and the bookmaker. In light of that distinction, those who use a betting exchange do not receive or negotiate bets within the meaning of section 55 of the Betting, Gaming and Lotteries Act 1963.

William Hill also contend that it should not have to pay 25% of Betfair’s costs. By agreement no costs were ordered in favour of the Board. It was said that Betfair’s only interest was in supporting the Board, well able to fend for itself. It had no interest requiring separate representation (Bolton MBC v Secretary of State for the Environment (Practice Note) [1995] 1 WLR 1176, 1178).

I disagree. This was, in reality, a commercial dispute between parties, one of whom, William Hill, thought it was being unfairly treated in comparison with its competitors, particularly Betfair. Betfair had every reason actively to participate to protect its own commercial interests. Its helpful participation was properly reflected in the order the judge made, an order which flouted no principle. I would, accordingly, dismiss the appeal.

I agree.

I also agree.