National Lottery operator Camelot sought judicial review of the Gambling Commission’s refusal to review local authority licensing for the “Health Lottery” run by Express Newspapers’ Richard Desmond. Does the verdict offer new ideas for legal promotional lotteries? Hannah Willson reports.
Topic: Promotion marketing
Who: Camelot UK Lotteries v Gambling Commission, Health Lottery and Others
Where: England and Wales
When: 22 August 2012
Law stated as at: 12 September 2012
On 22 August 2012 the High Court denied Camelot the right to apply for judicial review in relation to the licensing of The Health Lottery on the grounds that its claim was both out of time and had no real prospects of success.
The Health Lottery is an amalgamation of 51 separate "community interest companies" (CICs) operated by an external lottery manager (ELM) owned by Richard Desmond. The Health Lottery supports health causes in the local areas assigned to each CIC – such as HealthPerfect for Cornwall and HealthCourage for Hertfordshire and Bedfordshire.
Camelot, the exclusive national lottery operator in the UK, made a claim against the Gambling Commission, Health Lottery and Others in March 2012 on several grounds, including that:
1. the CICs were in reality established for commercial purposes since they had been set up with a view to the ELM – The Health Lottery ELM Limited (THL) – being profit making and therefore breaching s19 Gambling Act 2005 (Gambling Act);
2. THL was in reality one lottery and not 51 separate lotteries formed by the CICs and therefore breached s99 of the Gambling Act on the financial limits of lotteries (£2 million per year and £10 million per year in aggregate); and
3. Camelot was not out of time to make the claim for judicial review.
Section 98 of the Gambling Act provides that lottery licences can be issued to a non-commercial society, a local authority or an ELM. Therefore for the CICs to obtain a lottery licence they must be non-commercial, i.e. they must be established and conducted for a) charitable purposes; b) enabling participating in, or supporting of, sport, athletics or cultural activities or c) for any other non-commercial purpose other than for private gain.
The judge was brief with his analysis and considered that the CICs fell in the third category and in applying the private gain test he focused on the society and not those working for it. Therefore if the CIC was not profit making then there would be no private gain and the CIC would be considered non-commercial. It remains to be seen whether this analysis is questioned on appeal with regards to the motive behind the establishment of the CIC or if they are being conducted as part of private gain for the ELM.
One of Fifty-one
The judgment on whether the financial limits should be aggregated and that THL is in reality one lottery and not 51 separate lotteries was equally brief and the judge could see no legal basis for aggregating the proceeds. They were promoted by different legal entities, the Court said, and therefore they must be different lotteries and the limits in s99 of the Gambling Act would not be reached.
Interestingly in a previous case (R v Royal Borough of Kensington and Chelsea (ex p Blennerhasset)) in 1996 ("Blennerhasset") a similar situation arose, albeit under previous legislation, and the judge looked at the reality of the arrangement and not merely its form and considered that it would in fact be one lottery and therefore subject to the financial limits in the relevant act.
The Civil Procedure Rules set out that any claim for judicial review must be brought promptly and in any event within 3 months of when the grounds for the claim arose. Camelot filed its claim in March 2012; however this was 6 months after the launch of THL and 18 months after the grant of lottery licences to the CICs and over 12 months since Camelot became aware of the facts.
It is fair then that the judge considered that this claim was made out of time. It is interesting to note, however, that had there been a real prospect of success the judge would not have allowed the time issue to stop an illegal lottery from continuing.
Therefore if Camelot were to launch an appeal that was successful on its merits, the fact that the claim is out of time may not be a bar for Camelot successfully applying for judicial review.
Why this matters:
Camelot has enjoyed a statutory monopoly over the National Lottery since 1994, but this new decision may pave the way for more lotteries that are an amalgamation of a number of CICs to create large, national lotteries.
The judgment might also serve to highlight the so far relatively untapped potential for marketers offered by local authority-licensed lotteries. For those brands and promotion marketers who are happy to release a relatively modest proportion of promotion proceeds in the direction of good causes and of course to ensure that the administrative red tape is tackled in a way that preserves the "non-commercial society" status of the licensee, there could be considerable possibilities.
No tax and lower proportion of proceeds to charity
For instance, the rules for THL are different to those for the National Lottery. THL is only required to pay 20% of the proceeds to charity and has no liability for tax. The National Lottery on the other hand pays 28% to charity and must pay 12% tax. The Gambling Commission has already stated that preserving the National Lottery monopoly is not one of its objectives so providing a lottery is within the ambit of the Gambling Act, the Gambling Commission do not look like they are going to rush to close the loop hole.
The Secretary of State, however, may be keener to preserve the National Lottery's monopoly and may be minded to bring in mandatory conditions for THL, limiting its size and may also bring in additional regulations to close the loophole against further lotteries starting up.
Camelot has already announced that it intends to appeal and it may have significant grounds for doing so, particularly in light of the Blennerhasset case, but if Camelot's appeal fails, this could spell a new wave of promotional/good cause lotteries in the UK.