[2011] UKFTT  348 (TC)

TC01208

Appeal number: MAN/08/0811

Amusement machine licence duty - Whether lottery machines operating as a game of chance, and operated only by private members clubs and societies, ranked as dutiable amusement machines for duty purposes or whether  they were exempt from duty - Appeal allowed for one period and dismissed for another period

FIRST-TIER TRIBUNAL

TAX 

	DRANSFIELD NOVELTY COMPANY LIMITED & OTHERS	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			TRIBUNAL:   HOWARD M NOWLAN (Tribunal Judge)
					 ANNE REDSTON	

Sitting in public at Bedford Square, London on 11-13 April 2011

Valentina Sloane, Counsel, on behalf of the Appellants

Ewan West, Counsel, on behalf of the Respondents

© CROWN COPYRIGHT 2011

DECISION

Introduction
1.  This case required us to decide, as a matter of principle, whether various electronic lottery terminals ranked as “amusement machines” for the purposes of the Betting Gaming and Duties Act 1981 (“BGDA”).   If they did, it was then accepted that they required licences and, more significantly for present purposes, that a licence duty, called Amusement Machine Licence Duty (“AMLD”), of £1,965 per machine was owing.  There was then joint and several liability on the part of the small members’ clubs and societies that were operating the machines and the Appellant, Dransfield Novelty Company Limited (“Dransfield”), the supplier of the machines, for the duty.   One of the various appeals was for the repayment of £2,324,725 that had been paid, and allegedly overpaid, as AMLD by Dransfield on behalf of the various small clubs and societies and generally collected from the clubs in order to fund that payment. 

2.   Other appeals, by a few of the clubs (the appeal references for which are given on the front page of this Decision) were effectively heard by us simultaneously with Dransfield’s Appeal.  Those by other clubs were stood behind these Appeals, though all involved just the point of principle mentioned in the first sentence of paragraph 1 above.  There were then yet further appeals involving the same question as to whether machines ranked as amusement machines for a different period in time, to which we will refer below. 
Background facts 
3.  The machines in issue contained an electronic “virtual” stack of lottery tickets.  Those tickets had been put into a particular order before being installed in each machine, obviously many of the tickets being “losing” tickets, and others being “winning” tickets of varying prize amounts.  All that the machine did, when someone put in their coin and pressed the start button, was to access the next ticket in the stack.  Instead of producing a paper ticket, the machine then activated an electronic display of spinning fruit wheels in the familiar manner for “fruit machines”, but the rotation of the wheels and the point where each stopped rotating had no influence on whether the next ticket in the stack had been a winning or losing ticket.  The next ticket in the stack governed the outcome, and the spinning fruit wheels were simply designed to stop rotating to match the outcome indicated by that ticket, and therefore to do nothing other than create a bit of excitement. 

4.   In terms of outcomes, the ratio of winning and losing tickets meant that when the entire stack of tickets had been used, the machine would have effectively paid out an amount in prizes that could have been predicted when the stack was installed, that amount bearing a given ratio to the stakes inserted into the machine to play it.  For 20p stakes we were told that if there were 5,000 tickets in a stack, the machine would collect stakes of £1,000, and pay out £820, i.e. 82%. 

5.  All of the machines in question were operating in small members’ clubs and societies.   When first operating, the machines were able to accept a £2 coin, and the maximum prize was £2,000.  When, however, in 2007 a regulatory category of machines, known as B3A machines, was devised with a view to the machines delivering participation in lotteries and only being available for use in members’ clubs or miners’ welfare institutes, with a maximum stake of £1, and a maximum prize of £500, accompanied by “light-touch” regulation, the machines involved in these Appeals were all modified to comply with those requirements. 

The issue 
6.   A lottery is defined in the Gambling Act 2005 (“GA”) as being an arrangement where inter alia, the prizes are “allocated by a process which relies wholly on chance”. It was not in dispute that the machines in question were lottery machines because the order of the tickets had been determined randomly, before the tickets were bundled up and placed in the machines. The issue before us was whether they also satisfied other definitions so as to be amusement machines.  One might assume, since the facts were virtually undisputed, that this would have been a simple question of applying a clear definition to the agreed facts.  In fact, matters were somewhat more complicated.  In a period of 3 years and 3 days from 18 July 2006 to 21 July 2009, the definition of “amusement machines” was varied on three occasions, there thus being four relevant sets of definitions.  Admittedly only the last two definitions were strictly relevant to the cases before us, in other words the definitions in force in periods 3 and 4, though for two reasons we agreed with the Appellants’ counsel’s suggestion that we should consider the definitions in all four periods.  

7.   The first reason for this was that the earlier definitions, and the reasons for changes being made to the definitions, might reveal some policy underlying the definitions, or some reason why changes were made, all of which might assist us in interpreting the definitions relevant to periods 3 and 4.  In the event, the hope that some of the history might throw light on policy or the reasons for changes proved to be utterly unfulfilled.  Indeed one of the few conclusions that we reached with confidence in this case was that it seemed extraordinarily improbable that any thought had been given to the cogent treatment of the type of machines with which we were concerned when any of the definitions for periods 2, 3 and 4 were enacted.  

8.   The second reason for considering the earlier periods was that the definitions prevailing in period 2 were almost identical to those prevailing in period 4, so our considerations for both periods were very similar. 

9.   We were also told that, whilst a considerable number of similar appeals were stood behind the present appeals (in which the status of the machines in periods 3 and 4 was material) we were also told that there were other appeals pending in which the definitions prevailing in period 2 were relevant.   This appeal will have no formal bearing on appeals in relation to period 2, though because of the similarity between the periods 2 and 4 definitions, it may be that this decision, or the final outcome of this Appeal, will be helpful in the context of the machines operating during period 2. 
Summary of our conclusions in relation to the four periods and our decisions in relation to periods 3 and 4
10.   In short, our interpretation of the four relevant definitions, and thus our decisions as regards periods 3 and 4, are as follows. 

11.   In period 1, the definition of an “amusement machine” was actually in BGDA, and it seemed to us to be reasonably clear.  We were told that no duty had ever been charged on the machines with which we were concerned (or broadly similar earlier versions of the machines) during period 1. Counsel for HMRC did not concede this and refused to enter into a debate in relation to what he said was an irrelevant period. While we acknowledge that this period was not under appeal before us, and any comments we make on this period are thus obiter, we considered that the machines indeed fell outside the relevant definition. 

12.   In period 2, the definitions were changed. We explain our understanding of the reasoning in the main part of our decision.  In a rather involved way, the BGDA was amended to contain a cross-reference to a definition in the Value Added Tax Act, 1994 (“VAT Act”), which in turn made the final outcome dependent on the definition of “gaming” within the meaning of s 6 GA.  However, it was unclear whether one was required to address just the words of s 6 itself - if so, the machines would have ranked as “amusement machines” and been subject to duty.  If on the other hand one was required to pay regard to the fact that some machines which both satisfy the definition in s 6, and also satisfy the definition of a lottery in s 14 GA, are excluded from being a ‘gaming machine’ by virtue of the operation of “tiebreaker” in s 17 GA, the result might change This tiebreaker section deems some “private lottery” machines to fall outside the meaning of “gaming machines” if they satisfy both the lottery and the gaming machine definitions. If one follows this second interpretation, the machines might fall outside the definition of “amusement machines”.  We say “might” because each relevant club or society would still have to demonstrate a further matter which was not fully addressed during our hearing.  

13.  Whilst period 2 is not under appeal before us, our view is that as the cross-reference from the VAT Act to the provision in GA is to “gaming within the meaning of section 6”, regard should be had, not only to the words of the section itself, taken alone, but to the meaning of “gaming”, and that this requires that the tie-breaker provision be considered. As a result, in our view the machines would fall outside the AMLD provisions for period 2, as long as they each individually satisfied the “private lottery” test on the facts.

14.  In period 3, the BGDA cross-referred in an identical manner to the same provision in the VAT Act, as it had done in period 2, but section 23 of the VAT Act had been amended. It now contained its own self-standing definition and no longer referred to the definitions in GA that had been adopted in period 2.  The self-standing provision was virtually identical to the definition in the section of GA to which cross-reference had been made in period 2, save for the critical feature that there was no tie-breaker (as there had been in GA during period 2) that might remove machines from the self-standing definition.   Accordingly, we conclude that the machines did rank during period 3 as amusement machines, since that was the clear effect of the self-standing provision, and because there was no tiebreaker for machines that also ranked as exempt lotteries for social and regulatory purposes. 

15.   In period 4, however (and period 4 runs to the present day) the BGDA ceased to refer to the VAT Act and referred directly to the provision in GA, to which indirect reference had been made, via the VAT Act, in period 2.   Accordingly, the tiebreaker provision again became relevant, and assuming that the clubs and societies can provide that further element of evidence to which we have referred in dealing with period 2, our decision is that for period 4, the machines are not amusement machines. 

16.   The end result is of course quite extraordinary.  Should our decision be right, its result is to treat the machines in question as dutiable amusement machines in period 3, and not as amusement machines in periods 1, 2 and 4.  We will refer to the reasons suggested to us as to why the changes were made which occasioned the definitions adopted in periods 2 and 3, though neither party could suggest why there was a further change so as to introduce the definitions in period 4.  The reasons for the changes that introduced the period 2 definitions appeared to have nothing to do with the machines that we were addressing, and the reason for the introduction of the definitions for period 3 appeared to have nothing to do with AMLD. 

17.   It is also worth just noting that the definition in period 1 is found in BGDA; that in period 2 in GA, though accessed via a cross-reference first to the VAT Act; that in period 3 it is found in the VAT Act itself, and that in period 4 by direct cross-reference from BGDA to GA. 

18.   We speculate (in paragraph 94 below) in relation to three seemingly cogent possible explanations for the various changes. In our view, the changes to the definition of the particular type of machine that we were considering resulted from the unintended effect of changes introduced for reasons wholly unrelated to AMLD, and thus without thought being given to the implications that arose in this Appeal. 
Format of this decision on the point of principle in dispute 
19.   In paragraphs 21 to 30 below, we will describe the lottery machines in slightly more detail than we did in the introduction, and record anything that we consider relevant from the evidence given by Mr. Christopher Haley (“Mr. Haley”), one of the two long-standing directors of Dransfield. We then set out the information provided to us as regards the financial implications of these appeals (paragraphs 31 and 32).

20.   In paragraphs 33 to 92, we will then deal with each of the four periods in turn.   Rather than summarise the facts and the law, leaving our decision to the final part of this Decision in the conventional manner, we consider that, when having to deal with four different sets of definitions, it will be clearer if we deal with every aspect, (law and the relevant definitions, contentions of the parties, inferences drawn in the period from the social legislation, reason for the adoption of a new definition in the case of periods 2, 3 and 4, and our decision) in relation to each of the four periods in turn. At paragraphs 93 to 95 we set out an overall view, followed (at paragraphs 96 to 101) by some background information on the social legislation. At paragraphs 102 to 106 we give our decision.
Further facts
The machines
21.  The basic description of the machines that we gave in paragraphs 3 to 5 above summarised the two critical features.  Firstly the machines operated as a lottery in the critical sense that they simply delivered the next ticket in the stack, and in total it was known what the total prize payout for the entire stack would amount to, once the players had “played” every ticket in the stack.   Secondly, to create a bit of excitement, rather than just to push out a paper ticket, saying Win or Lose, there was the visual display with the spinning discs, and doubtless flashing lights and perhaps sound effects.  This display, however, was fictitious in that it had no influence on the outcome of the particular play, even if (as was doubtless intended) it appeared to. 

22. Consistent with the above reality, and as was required by Regulations, the machines carried a label which clearly stated  “This is a Lottery Machine”.
The financial deal
23.   We assumed that Dransfield owned the machines, but whether it did or not it was certainly Dransfield that supplied the machines to the clubs and societies, invariably non-profit making members’ clubs and societies. 

24.  The financial deal between Dransfield and the user clubs was as follows.  The machines were installed without charge to the club.  Dransfield then sold the stacks of tickets to the clubs. The notion that the tickets were “sold” seemed slightly misleading in that what actually happened was that, as the machine was played, the club would remove the takings from the machine.  When players picked losing tickets, nothing would happen when the wheels stopped spinning other than that the display would indicate to the player that he had not won.  If the player won, the machine would either enable the player to play again, or would issue a paper ticket that could be redeemed at the nearby bar for cash. 

25.  As we indicated in paragraph 4 above, it was known that the stack of tickets would pay out, in total when the whole stack had run through, 82% of the total stakes taken.  That at least was the percentage payout when the stake contributed was 20 p. 

26.   Adopting the example that we gave in paragraph 4 above, if a stack contained 5,000 tickets and the stakes for that stack were 20p it would follow that when the stack had run through to the last ticket, stakes worth in total £1,000 would have been taken and prizes worth £820 would have been paid out.  Thus there was a profit of £180, or 18%.  This was then shared in some ratio, which we were told was often 50/50 between the club and Dransfield.  There was some form of counter on the machine, and this indicated on how many occasions the machine had been played since the club had last paid Dransfield for tickets.  When this counter was next read, therefore, Dransfield would be paid its percentage, which would be 9% assuming 50/50 sharing of the tickets purchased by players since the last reading. 

 27.  Matters were slightly more complicated in that different, i.e. lower and higher stakes could be inserted into the machine than the 20p stake that we have mentioned, the maximum stake being £1, once the B3A status described at paragraph 6 above had been adopted.   As the value of stakes increased from 10p. to 20p to 50p and to £1, the percentage payout gradually increased such that the percentage payout with 10p. stakes was 80% and with £1 stakes 90%.  Technically speaking, there was a separate lottery for each level of stake that could be inserted into the machine, such that with four different levels of stake, 10p, 20p, 50p and £1, it followed that one and the same machine was providing four different lotteries. 
The utilisation of the machines
28.  The machines with which we were concerned were always installed in non-profit making members’ clubs and societies, and it therefore followed that the money taken by the machines will often have been very modest.  We were told that on some occasions when Dransfield was discussing with a club or society whether it was worth installing a machine, it was concluded that, with the low level of usage, the club’s slice of the takings would probably make it more sensible to insert a cigarette machine or leave a bit more space for a pool table or something of that nature.  And Dransfield might equally conclude that its slice of the takings would not make it financially viable to provide the machine. 
The ten stacks
29.   In the introductory paragraphs, we over-simplified the description of the “stack” or virtual stack of lottery tickets in order to explain how it worked.   Each machine was in fact programmed with 10 stacks, rather than just one stack, for each of the lotteries that it provided.   At any time, only one stack for each distinct lottery would be in use, until every ticket in that stack had been purchased and played.  Once the stack had been exhausted a device attached to the back of the machine would select the next stack out of the 10 available stacks on an entirely random basis, and that selected stack would then be used from the first to the final ticket.  The random selection might re-insert the stack that had just been used.  The purpose presumably of having the 10 stacks rather than just one stack containing ten times as many tickets was that if there was just the one stack, with the tickets always running through in the same order, an astute or extremely bored barman might remember bits of the sequence and be able to play the machine when a winning ticket was next in line.  Whatever the thinking, this detail about there being 10 rather than just one stack seemed to be of no significance, and was certainly of no significance in relation to periods 3 and 4, the only ones directly relevant in these Appeals. 
Other visual displays
30.  We might mention that some machines may have enabled players to choose a different form of display, rather than the spinning fruit wheels.  Mention was made of some display in which a spider appeared to feature in some way.  It is easy to imagine various displays that might be thought to make the whole experience of playing the machine more entertaining.  Whether the machines with which we are concerned enabled players to choose different displays was irrelevant because the one constant feature would always be that the display was synthetic and had no bearing on whether the ticket chosen would emerge to be a winning or losing ticket. 
The financial implications of the imposition of AMLD
31.   As we mentioned above, the annual fixed licence duty claimed by HMRC for one of these machines was a fraction below £2,000, and being a fixed duty it would take a considerable proportion of the slice of takings left with the club or society, particularly in small clubs with low utilisation.  We asked Mr. Haley whether he could estimate what percentage of the club’s share of takings the fixed licence duty would represent, and whilst the figure given was a rough estimate based on his experience rather than on any sampling, his response was that, in the case of the smaller clubs with low usage, the duty would represent about half of the club’s share of takings.  It would follow that many smaller clubs might very well conclude that, if AMLD applied, it would be better to remove the machine and install a cigarette machine, a dart-board, or some other attraction. 
The Parliamentary question
32.   We will quote at the end of our decision the terms of a Parliamentary question which expresses concerns on behalf of the various clubs and societies about the assessments made by HMRC for both VAT and AMLD in respect of the machines that we have to consider.  The VAT question was decided by this Tribunal (Roger Berner and Ruth Watts Davies) in the recent case of Oasis Technologies (UK) Limited v. The Commissioners for Her Majesty’s Revenue and Customs, [2010] UKFTT 292 (TC) (“Oasis”). HMRC have not appealed that decision and the VAT assessments which were earlier a part of the present appeals have therefore been dropped. Nevertheless, the Parliamentary Question still indicates that the imposition of AMLD could force some of the small clubs out of existence.  We mention it at this point simply because it confirms the point made to us by Mr. Haley that we have just recorded. 
The four periods and their different definitions: Period 1
33   Period 1 had run for some considerable time, and ended on 18 July 2006.  

34.  During period 1, the definitions for what constituted an amusement machine were all found in the BGDA. 

35.  The version of section 25 BGDA in force from July 10 2003 to 18 July 2006 (stripping it of everything that is presently irrelevant) provided that:

“25.   Meaning of “gaming machine”.

(1) A machine is an amusement machine for the purposes of this Act if:

(a)…

(b)…

(c)…

(d)…

and 

(e) the machine is a gaming machine, … 

(1A)  A machine constructed or adapted for the playing of a game is a gaming machine for the purposes of this Act if:

(a)…

(b) the game which is played by means of the machine is a game of chance, a game of chance and skill combined or a pretended game of chance or of chance and skill combined; and

(c) the outcome of the game is determined by the chances inherent in the action of the machine, whether or not provision is made for manipulation of the machine by a player;

and for the purposes of this subsection …”

36. It was accepted that no duty had in fact been charged on electronic lottery terminals during period 1, but HMRC’s counsel declined the invitation to comment on whether he considered that the type of electronic lottery machine involved in the present case would indeed have fallen outside the relevant definition of amusement machine in that period on the ground that this point was immaterial to the present dispute.   The Appellants’ counsel contended that not only had there been no licence duty imposed on such machines in period 1, but that this was manifestly the right interpretation of the then relevant provision.  The reason for that was that the outcome of the game was pre-determined by the order of tickets in the stack, and no operation of the machine had any influence on the outcome of any chance. 

37.   The point was not fully argued in relation to Period 1, and in fairness to HMRC’s counsel, there was no evidence as to whether similar machines to the ones with which we were concerned had indeed been available in that period.  Whether they had been or not, it seems to us to be clear that the feature that the machines with which we are concerned had, through their operation, no influence on the outcome of the game, did mean that the relevant machines would not have ranked as amusement machines during period 1, because the outcome of the game was not determined by chances inherent in the action of the machine, but was pre-determined by the order of the tickets in the stack. Thus, the definition ensured that AMLD would not have applied. 

38.   On account of the Appellants’ counsel’s contention that tax law was historically broadly in line with the social and regulatory law in relation to lotteries and gaming, we should mention that lottery terminals were operated, during period 1, as private society lotteries under the Lotteries and Amusement Act 1976.  They did not fall within the definition of “gaming machines” (which were regulated by the Gaming Act 1968 until GA itself came into force). Under the Gaming Act 1968, “gaming machines” were defined to be “machines constructed or adopted for playing a game of chance by means of the machine”.   That definition was of course broadly in line with the phrase in bold type in paragraph 35 above, which excluded lottery terminals from ranking as “gaming machines” and “amusement machines” for AMLD purposes.  
Period 2 
39.    Period 2 ran from 19 July 2006 to 31 October 2006. 

40.   BGDA was modified with effect from 19 July 2006. Although period 2 only lasted until 31 October 2006, the relevant section 25 of BGDA in fact remained in force in its new form from 19 July 2006 to 20 July 2009, in other words spanning periods 2 and 3. What changed in Period 3 was the removal of the cross-reference between the VAT Act and the GA, as we explain below. 
The supposed reasons for the change to the definitions in period 2
41.   It was suggested to us during the course of the hearing that the reason for the adoption of the new form of wording in section 25 BGDA was that the earlier wording (that had concentrated on whether the chance was influenced or occasioned by “the operation of the machine”) had become unsatisfactory.  The reason for this was that certain machines had been devised that effectively provided gaming on a random chance basis, as distinct from a lottery basis, but the new machines managed to satisfy the old definition because the random chance feature was operated by a remote piece of equipment that governed the win/lose results of several different machines.  The claim was that the machines themselves did not influence or control the outcome of “plays”.  This issue came before the VAT and Duties Tribunal and then the High Court in the case of Rank v R&C Commrs [2009] EWHC 1244; both decided the case in favour of the Appellant. In the meantime, however, HMRC had doubtless noted that the old definition was at the very least “under attack” by machines that were, along with their remote “random choice selection machines”, providing gaming and not lotteries, so that the definition needed to be changed. 

 42.  In addition, GA had been introduced, with countless new concepts and definitions, and this may also have explained why section 25 BGDA was changed with effect from 19 July 2006. 
The scope of the Gaming Act, governing social and regulatory aspects
43.    Prior to giving the tax definitions, it is worth mentioning that GA clearly dealt with three forms of gambling. Under section 3 of the Act “gambling” was defined to mean:
(a)	gaming (within the meaning of section 6),
(b)	betting (within the meaning of section 9), and
(c)	participating in a lottery (within the meaning of section 14 and subject to section 15).

44.  The only point that we will add at this stage is that under GA it was clearly possible for a machine to provide “a game of chance”, and thus provide “gaming” within the meaning of section 6, and also to rank as a lottery under section 14.  There was then a tiebreaker contained in section 17 that treated various exempt private lotteries as lotteries and not “games of chance”, and treated other lotteries as “games of chance”. We will quote much of sections 6, 14, and section 17 (the tiebreaker section for games that fell within the definitions of “game of chance” in section 6, and lotteries under section 14) but it will be clearer first to address the tax definitions that take us to these provisions. 

The chain of definitions for AMLD purposes in period 2
45.   The relevant wording of section 25 BGDA during periods 2 and 3 was as follows, again stripping away everything that is presently irrelevant:

25.	Meaning of “gaming machine”

(1)	A machine is an amusement machine for the purposes of this Act if it is:
(a)	a gaming machine, and 
(b)	…………….

(1A) In this Act “gaming machine means a machine that is a gaming machine for the purposes of section 23 of the Value Added Tax Act 1994”

46.   During period 2, section 23 VAT Act was in the following terms, again stripping away the irrelevant:

23	Gaming machines

(4) In this section “gaming machine” means a machine which is designed or adapted for use by individuals to gamble (whether or not it can also be used for other purposes).

(6) In this section -

(a)	a reference to gambling is a reference to –

(i) gaming within the meaning of section 6 of the Gambling Act 2005…

47.   From October 1, 2005 until the present day all of the following provisions of GA were in force in the terms that we will now quote.  It follows that these terms were relevant to period 2 (on account of the cross-reference just mentioned); they were of no relevance to period 3 (because as we have already mentioned, in that period, VAT Act contained its own self-standing definition).  They were also relevant to period 4, when BGDA referred directly to section 6 GA, albeit that the terms of the cross-reference were marginally different, as we will note in due course. 

48.   All of the provisions of GA that may be relevant to these Appeals (all but section 6 being irrelevant in the view of the Respondents) were as follows, again deleting everything that is completely irrelevant:

     “6  Gaming & game of chance

(1)	In this Act “gaming” means playing a game of chance for a prize.

(2)	In this Act “game of chance” 
	(a) includes- 

(i)	a game that involves both an element of chance and an element of skill, 
(ii)	a game that involves an element of chance that can be eliminated by superlative skill, and
(iii)	a game that is presented as involving an element of chance, but

(b)	does not include a sport.

 (6) 	The Secretary of State may by regulations provide that a specified activity, or an activity carried on in specified circumstances, is or is not to be treated for the purpose of this Act as -

(a)	a game;
(b)	a game of chance;
(c)	a sport.”

“14  Lottery

(1) For the purpose of this Act an arrangement is a lottery, irrespective of how it is described, if it satisfies one of the descriptions of lottery in subsections (2) and (3).

(3)	An arrangement is a simple lottery if – 

(a) persons are required to pay in order to participate in the arrangement,
(b) in the course of the arrangement one or more prizes are allocated to one or more members of a class, and 
(c)	the prizes are allocated by a process which relies wholly on chance…”

“17  Lotteries and gaming

(1)	This section applies to an arrangement which satisfies –
(a)	the definition of a game of chance in section 6, and 
(b)	the definition of a lottery in section 14.

(2)  …
(3) An arrangement to which this section applies shall, subject to ….., be treated for the purposes of this Act as a lottery (and not as a game of chance) if – 
	(a)…
(b) it satisfies paragraph 10(1)(a) and (b) of Schedule 11…
(4)	Any other arrangement to which this section applies shall be treated for the purposes of this Act as a game of chance (and not as a lottery).”

“Schedule 11 EXEMPT LOTTERIES
Part 2 PRIVATE LOTTERIES
Private society lottery
	10
(1)	A lottery is a private society lottery if:
(a)	it is promoted only by authorised members of a society, and
(b)	each person to whom a ticket is sold is either a member of the society or on premises wholly or mainly used for the administration of the society or the conduct of its affairs (“society premises”)
(2)	In this Part “society” means any group or society established and conducted for purposes not connected with gambling.
(3)	In sub-paragraph 1(a) “authorised means authorised in writing by the society or, if it has one, its governing body.
(4)	In relation to a society which has branches or sections, the reference to a society in sub-paragraph 1(a) is a reference to a single branch or section.”
The contentious points, and the contentions of the parties
49.   It is these definitions that occasioned the real dispute in relation to Period 2. 
50.   Both parties accepted that the machines provided a ‘game’ and that it was also a ‘game of chance’.  We understood them to say that this was on the basis that it satisfied the third category of definitions of ‘game of chance’, namely that it was “a game that is presented as involving an element of chance.”  However, we think there is a further reason why the machines provide a “game of chance”. The definition of “game of chance” is an inclusive one, so that games within the three specific subsections at s 6(2)(a)(i) to 2(a)(iii) are thus explicitly brought within the definition, but other games may also be included. It seemed to us that there was also an element of chance - albeit not controlled by the player - in the random allocation of winning tickets to the stacks before they were loaded into the machine. This element of chance, coupled with the fact that it is a game, means the machines satisfy the definition without needing to refer to the specific subsections. This point, is, however, not material to our considerations as both parties in any event accepted that it was a “game of chance”.  
51.  The Respondents counsel contended that when the VAT Act defined gambling as gaming, and gaming within the meaning of section 6 of GA, one looked just to the provisions of section 6 itself.   
52.  He further said that if the intention had been to refer to other sections, such as sections 14 and 17, this would have been made clear.  
53.   On the Respondents’ case, once one had decided that the machine offered a game of chance, it then followed that since the player plainly played the game, and he might have won a prize, the rest of the definition of “gaming” was satisfied. 
54.   This was said, by the Respondents, to be unsurprising since section 3 GA defined “gambling” to include gaming, betting and participating in a lottery. Furthermore, there was, and is, no exemption in BGDA for lotteries, in contrast to the VAT position where there is an express exemption for lotteries (in Item 2 of Group 4 of Schedule 9 to the VAT Act). 
55.   The Appellants’ case was that when section 23 VAT Act defined “gambling” to be “gaming within the meaning of section 6 GA”, this was not just a cross-reference to the definitions in section 6, but a reference to what was meant by game of chance in section 6.  And because, for the game of chance that was also an exempt lottery within Schedule 11, section 17 deemed it to be a lottery, and “not to be a game of chance”; it followed that the exempt lottery was not a game of chance within the meaning of section 6.  Accordingly, playing it was not “gaming”. 
56.   In opposition to this, the Respondents contended that no regard could be paid to section 17 because the deeming noting of section 17 was expressed to apply only “for the purposes of this Act”, i.e. GA itself, and so not to apply when another statute referred simply to the meaning of something in section 6.  In response, the Appellants’ counsel said that the phrase “for the purposes of this Act” imported the tiebreaker rule of section 17 into section 6, because section 6 was indeed part of GA.
The conclusion of the Oasis Tribunal in relation to the present point of the cross-reference to section 6, and whether that cross-reference imports also the effect of the tie-breaker rule in section 17
57.   The Tribunal in Oasis, in dealing with the contention by HMRC that the type of machines with which we are now dealing were outside the VAT exemptions for gambling, had to deal with precisely the point that we are now considering as to whether one should pay regard just to the terms of section 6, in isolation, in ascertaining the meaning of the word “gaming”, or whether one should pay regard to the tie-breaker rules in section 17.  
58.  The Oasis Tribunal concluded that it was appropriate to pay regard to the tiebreaker rules in section 17.   The reason for this was that since the cross-reference had been to the meaning of the word “gaming”, not “game of chance”, one could only answer this question by noting, within section 6, that one first had to decide whether there was or was not a game of chance, and since that decision could not be reached in reading section 6 itself, without referring to the section 17 tie-breaker, it followed that one did have to apply the tie-breaker. 
59.   The Oasis Tribunal noted that the tiebreaker would only operate in favour of the exempt lottery status under Schedule 11 if the various Schedule 11 tests had been satisfied, and the Tribunal observed that they had been shown no evidence to the effect that clubs and societies had resolved to acquire a lottery machine, and more relevantly, no evidence that they had authorised a particular person to promote the lottery.  The Tribunal did not say that it was clear that there was no evidence; merely that the relevant evidence had not been produced to them.  Since the Appellant in that case still prevailed in its appeal on the secondary ground that even if the machines in question were “gaming machines” (by virtue of the lack of evidence just referred to), the machines still promoted lotteries which were exempt supplies for VAT purposes, so that there was no need in that case to pursue the issue of whether the absent evidence might indeed be available. 
60.   We should make one point about the Respondents’ counsel’s comments on the Oasis Tribunal’s conclusion that in period 2, the cross-reference to the “gaming” definition in section 6 did import the tiebreaker test.  It seemed to us that the Respondents’ counsel made two inconsistent statements.  At one point, counsel suggested that it was not conceded for any period that the machines fell outside the definition of “gaming machines”.   Implicitly thus, he was suggesting that the Oasis Tribunal’s conclusion on the “game of chance” point was wrong, albeit that this had no bearing on the VAT decision, because that was eventually reached on a different ground altogether.  Somewhat inconsistently, however, counsel suggested that the Oasis Tribunal’s approach to the point of statutory construction on the inter-relationship between section 23 VAT Act and section 6 GA might have been right for VAT purposes, where there was a separate exemption for lottery machines, though it would still be wrong in the present context, for AMLD purposes, where there was no express lottery exemption from AMLD.   We reject that suggestion altogether.  We accept that the drafting is poor and that the cross-reference is ambiguous but the suggestion that there can be two different constructions of the confusing points for the purpose of VAT and AMLD is untenable.   This is all the more obvious in period 2, when the cross-reference to GA section 6 is indeed made indirectly via the very VAT definition, which the Respondents’ counsel conceded might have been right for VAT purposes. 
Inferences to be drawn from the social, and regulatory, legislation, and from a Regulatory Impact Assessment issued in March 2006
61.   Prior to summarising our own construction of the cross-reference to section 6, we should refer to the Appellants’ argument to the effect that since the cross-reference is, on any test, ambiguous, it is appropriate to look at the presumed intention of the legislation, and indeed to the material published by HMRC and the Treasury when the period 2 rules were introduced.  
62.   In this context, we were referred to Regulatory Impact Assessment (“RIA”) 17, which was issued in March 2006, in anticipation of the changes about to be introduced.  There is nothing absolutely conclusive in this RIA in favour of the case advanced by either the Appellants or the Respondents, though in fairness to the Appellants, two points certainly emerge from this document.  It did confirm the general point that it was thought desirable to have at least some common ground between the definitions and categories for social and regulatory purposes and those for tax and AMLD purposes.  It also indicated all the various types of operators who were likely to be affected by the proposed changes.  In this regard, all the focus was on commercial operators, and not a word was mentioned to the effect that the proposed changes would sweep away the earlier lack of charge for the countless numbers of small clubs and societies, all non-profit making, that were using lottery terminals of the type we are considering. 
Our conclusion in relation to the correct application of the cross-reference to section 6 GA, and whether the tiebreaker rule of section 17 is imported for AMLD purposes 
63.   Our conclusion is that the Appellants’ counsel’s argument is correct, and that the cross-reference to the meaning of “gaming” in section 6 did import the full meaning of the expression “gaming”, including the feature that section 17 deemed the game of chance that ranked as an exempt lottery, not to be a “game of chance”, and thus not to rank as “gaming”. 
64.  First, we make the point that when the reference was to “gaming within the meaning of section 6”, the phrase “within the meaning” can be said to be somewhat more general than an alternative phrase that could have been used, namely the equally common phrase, “within the definition of ‘gaming’ in section 6”.   We would have found it difficult to look more widely at the meaning of “gaming” and “game of chance”, had the cross-reference simply adopted “definitions”.  The reference to the “meaning”, however, is slightly broader and refers to what is meant in section 6, and a perfectly cogent answer to that enquiry is that whilst a game of chance, played for a prize, was defined to be gaming, a game of chance that also ranked as an exempt lottery was deemed not to be a game of chance, so that when the tie-breaker operated, the exempt lottery actually ceased to rank as a game of chance, and so within the meaning of section 6 was not a game of chance.  
65.   In fairness, it is worth noting that most definitions are phrased in terms that some term “means” whatever is intended, so that the expressions “definitions” and “the meaning of something” come close - but there is, nevertheless, a difference. 
66.   In this context, however, it is perhaps of some significance that section 17 itself refers initially to activities that fall within the “definitions” in section 6 and 14, which is clearly a reference to activities that, in the context of section 6, fall within the precise wording, or “the definition”, of what ranks as “a game of chance”.  The effect of section 17, when the tie-breaker operates in favour of the lottery classification, is not to deem games of chance to be treated for certain purposes as lotteries, but to deem those reconciled in favour of the lottery classification, no longer to be “games of chance”. 
67.   We are not persuaded by the argument by the Respondents’ counsel that if the AMLD legislation, and more particularly section 23 VAT Act, had intended to import the rule in section 17 as well as the cross-reference to section 6 GA, it would have stated that clearly.   As the change made to section 23 for period 3 made clear, very few words were actually needed to insert a stand-alone definition of “gaming” or “game of chance” actually in the VAT Act, or possibly in a rather more straightforward way, actually into BGDA itself.  When GA itself contained tie-breaker rules, one of which dealt with the activity that fell within the definitions of “game of chance” and “lottery”, and when there was at least some tradition of symmetry between the tax and the social and regulatory rules, we would have considered it far more appropriate, had this been the intention, for the cross-reference to section 6 to make it absolutely clear that only the precise definition of “gaming”, and more relevantly “game of chance” were to be adopted and carried into the AMLD context.  When so few words were needed to insert the actual definition of “game of chance” into BGDA, the feature that a cross-reference was made to legislation where a more complex concept was adopted suggests to us that it was the entirety of that concept that was meant to be imported into BGDA. 
68.   We are not persuaded either by the Respondents’ argument that the wording in section 17 that deemed the tiebreaker provision to apply “for the purposes of this Act” precludes the meaning of “game of chance” and “gaming” in section 6 being changed by section 17, when the meaning of “gaming” in section 6 is adopted for AMLD purposes.  Deeming wording regularly provides for some notion to be applied “for the purposes of this Act”, and sections 6 and 14, to which the tiebreaker notion had to apply, were of course sections in “this Act”.  Furthermore, when GA was enacted, it is noteworthy that no other statutes at that time were adopting any of the meanings of anything in GA.  For the wording enacted in GA to preclude some provision from applying to other legislation that had not even been enacted would have shown some foresight. 
69.   We are also very struck by the point that when an RIA summarised the expected effects of a new provision, it made no mention of the fact that the previous exempt lottery status of various private society lotteries, still of course reflected in GA itself, was to be swept away for AMLD purposes.  We were told that this would inflict on such non-profit making small clubs and societies a charge to duty that would apparently put some clubs and societies out of business, and result in others concluding that it was no longer viable to operate electronic lottery terminals.  And no mention of these implications was made. The Appellant’s counsel also pointed out that there was no AMLD banding for this type of machine, as one might have expected had their been any intention to charge AMLD.
70.  Our conclusion on the contentious point of statutory interpretation material to period 2 is, therefore, that we agree with the Appellants’ counsel, and indeed with the Tribunal in Oasis, and we say that the cross-reference to the meaning of gaming in section 6 does require one to address the tie-breaker section 17, when a game of chance is simultaneously an exempt lottery.   We consider this to be the better interpretation, and the one more in tune with the seeming absence of any intention to sweep away the duty exempt status for private society lotteries, that plainly remain a feature of the social legislation of GA itself. 
Satisfying the final hurdle of the private society lottery tests
71.  We turn now to the point that, in order to satisfy the rule in paragraph 10, Schedule 11 GA, each club and society must still demonstrate that the relevant club or society resolved in the correct manner under its own constitution to authorise someone to promote the lottery, that this had been done in writing, and that it was that authorised promoter who agreed with Dransfield for the installation of the machine, and that the ticket was sold only to a member of the society or to someone on the premises. 
72.   Taking the last point first, in the case of a rather heavy machine, located in club premises, it is self evident that tickets could only be sold for the particular lottery either to club members or to people on the club premises.  That, after all, is where the machine was inevitably located.  So one of the requirements was obviously satisfied.
73.   We agree with the Respondents that the document that we would have expected to have been shown, in establishing the appropriate authorisation of a person to promote the lottery would have been a resolution of the club committee, confirmed almost certainly in written Minutes, or some equivalent written authorisation by the appropriate body within the club or society, that had the authority to authorise someone to promote the lottery.  All that we were actually shown during the hearing were a few agreements, effectively at the next stage, when the ostensible authorised person was entering into the agreement with Dransfield for the installation of the machine.  Admittedly those agreements recited that the Dransfield counter-party was duly authorised in the appropriate way, but the agreement was not the written authorisation. 
74.  However, we accepted the Appellants’ submission that the proper authority to enforce this provision of the GA was in fact the Gambling Commission and not HMRC; that there was no suggestion that the Commission considered that the procedures carried out by the clubs was a breach of the Schedule 11 rules - indeed, had that been the case, there would have been serious consequences for all these small clubs. Therefore, although we were not shown any written documentation under which a particular individual was given the authorisation required by Schedule 11, it appears to be the case that the Commission accept that the procedures are adequate. 
75.  When we refer also to type of activity that is involved in the promotion of a lottery, we note that section 252 GA, which deals with this topic, is written almost entirely in terms of the appointment of someone to promote a paper lottery.   Of the 11 particular activities taken to be included within the notion of “promoting a lottery”, within section 252(2) GA, only four can, on a strained interpretation, be said to be relevant when the lottery promotion involves an electronic lottery terminal.  Only in a rather strained way can the promoter of the electronic lottery machine be said “to sell or supply lottery tickets,” or “invite a person to participate in a lottery”.  In an even more strained sense, it seems very difficult to say of the theoretical promoter of the electronic terminal that “he uses premises for the purpose of allocating prizes or for any other purposes connected with the administration of a lottery”, or that “he does or offers to do anything by virtue of which a person becomes a member of a class among whom prizes in a lottery are to be allocated”.   All of the other seven listed attributes, such as making arrangements for the printing of lottery tickets, arranging for the printing of promotional material, arranging for the distribution of promotional material sound to be completely irrelevant. 
76.  Finally, we record the statement made on behalf of the Respondents’ that, if we conclude that the reference to section 6 imports the tie-breaker test of section 17, then HMRC will put “each and every club to proof to provide copies of the written authorisations”.  Whether HMRC decide to spend their scarce resources in this way is not an issue for determination by this Tribunal, but we note that:
(a)  HMRC are not the regulator which is required to enforce the GA; and
(b) It seems clear to us that there was no appreciation by Parliament that any of the three new definitions, introduced in just over a three-year period, would have any impact on exempt lotteries operated by private societies (lotteries that the Parliamentary question to which we will refer below indicates are a life-line in providing some funding to small societies) and there was certainly no announcement that any of the changes would have the effect now claimed by HMRC. 
Period 3
77.  Period 3 ran from 1 November 2006 for the relatively long period until 20 July 2009.   As we have already indicated, BGDA remained unchanged on the switch from period 2 to period 3, and the change resulted simply from the fact that section 23 VAT Act itself was changed. 
78.  Accordingly, the cross-reference from section 25 BGDA remained that a machine would be an amusement machine if it was a gaming machine and “gaming machine” continued to mean “a machine that is a gaming machine for the purposes of section 23 VAT Act.”
79.  The relevant new provisions of section 23 VAT Act then provided that:
“(4) In this section “gaming machine” means a machine which is designed or adapted for use by individuals to gamble (whether or not it can also be used for other purposes).
(5) …
(6) For the purposes of this section - 
(a)	a reference to gambling is a reference to –
(i)	playing a game of chance for a prize, and
(ii)	…
(f) “game of chance” includes – 
(i)		a game that involves both an element of chance and an element of skill,
(ii) 	a game that involves an element of chance that can be eliminated by superlative skill, and
(iii)	a game that is presented as involving an element of chance,
but does not include a sport”. 
80.  In short, the relevant definition for period 3 is virtually identical to the effective cross-reference to the definition of “gaming”, and so to “game of chance” in section 6 GA during period 2, save for the critical point that the definition of “game of chance” is a stand-alone definition and there is quite clearly no tie-breaker to remove from the definition of “game of chance” some activity that constitutes both a game of chance and an exempt lottery. 
81.   On the plain words of section 23, it is our decision that the Respondents succeed in their contention that during this period the machines did rank as amusement machines.  We note that the Tribunal in the Oasis case reached the same conclusion that from 1 November 2006, the link with GA (and critically the application of the section 17 tie-breaker test was severed) and this does appear to mean that the decision for period 3 is a simple one. 
82.  Whilst it may be simple, it is still very curious.  We are explicitly told in the Explanatory Memorandum accompanying the Statutory Instrument which effected the change to section 23 that the reason for adopting the stand-alone definition was that if the GA definitions had been retained, the Secretary of State could change the categories of game that fell within or did not fall within section 6.  In other words, the stand alone definition had been adopted to prevent some future change to s 6 unintentionally affecting the VAT position.   So there was no suggestion that the change to section 23 was intended to effect an immediate (even less an immediate and totally unannounced) change to the VAT or AMLD position.
83.  The Appellants’ counsel accepted that it would be difficult for us to conclude that exempt lottery terminals were somehow excluded from a definition of “game of chance”, when it was virtually common ground that the machines did provide “games of chance”.   We cannot rely on the reference in the Explanatory Memorandum which suggests that the new provision was “based on provisions in section 6” to imply a continued link to the tiebreaker notion.  Neither can we rely on the reference to the reasoning, discussed in paragraph 82, as allowing us to ignore the words of the legislation. We come back to this point about legislative interpretation and purpose at paragraphs 94 and 103 to 105 below below. 
84. For the Appellants the far more troublesome concern, which counsel for the Respondents did not particularly stress, is that the suggestion that the new stand-alone definition was meant to be basically the same as the section 6 GA definition is quite a powerful argument for saying that this proposition only makes sense if our conclusions in relation to period 2 were wrong.  In other words, if the Respondents were right to say in period 2 that the cross-reference was just to section 6 in isolation, without any importation of the tiebreaker test, then the stand-alone definition in VAT Act in period 3, and the terms of the Explanatory Memorandum would all tie together.  We will revert to this argument below.  For present purposes, we conclude that our interpretation of the cross-reference to both sections 6 and 17 was correct for period 2, but we have no basis for ignoring the absolutely clear words of section 23 in period 3.  In period 3, the machines were gaming machines, and thus were amusement machines. 
Period 4
85.   Period 4 commenced on 21 July 2009 and continues today.  For the purposes of these appeals, we are not strictly concerned with the period right up to the present date. 
86.  Once again, the changes made to introduce the period 4 definitions, and the reason for those changes, are both curious in the extreme.   Neither counsel was able to suggest any reason why these changes were made. 
87.   We have already indicated that section 23 VAT Act remained unchanged from 1 November 2006 and indeed it is in the same form today.   The feature that occasioned the Period 4 definitions was that BGDA itself was amended, and from 21 July 2009, it reverted to the period 2 notion of adopting the GA definitions by a direct cross-reference, rather than by the indirect one via the VAT Act, which had been adopted for period 2. 
88.   The relevant definitions for period 4, again stripping away the irrelevant, were as follows:
“25.  Meaning of “gaming machine”
(1) A machine is an amusement machine for the purposes of this Act if it is:
(a)	a gaming machine, and
(b)	 …………….
(1A) In this Act “gaming machine” means a machine which is designed or adapted for use by individuals for gambling (whether or not it can also be used for other purposes).
(5)	For the purposes of this section –
(a)	a reference to gambling is to –
(i)	gaming, or
(ii)	……. 
Section 33 Interpretation
(1) in this Act - 
“gaming” means playing a game of chance ……………
(1A)  In the definition of “gaming” in subsection (1) –
(a)	“game of chance” has the meaning given by section 6(2) of the Gambling Act 2005,
(b)	 “playing a game of chance” is to be read in accordance with section 6(3) of that Act, and
(c)	…………..
Finally, sections 6, 14 and 17 GA remained unchanged, and there is no need to repeat the quotations that are contained in paragraph 48 above. 
89.  The only difference between this definition chain, and the definitions that operated in period 2, was that the lead-in wording in section 23 VAT Act in period 2 cross-referred to the meaning of “gaming” within section 6 GA, whereas the period 4 definitions cross-referred to the meaning of “game of chance” within section 6 GA.   Neither counsel suggested that this difference occasioned any different result, though the only conceivable difference was along the following lines. 
90.  It might just be argued that the reason for construing section 6 in the narrow sense, contended for by the Respondents, was that it was the wording of the referring section (section 23 VAT Act in the case of period 2) that required one to read the definition referred to (that of “gaming” in period 2) in the narrow sense.  Thus in period 2, when referring to the other definition in section 6 of “game of chance”, which had to be applied but which had not been directly referred to by section 23, there was nothing to restrict the meaning of that phrase, so that that fell to be interpreted entirely in the context of GA, so importing the section 17 tie-breaker. 
91.  By contrast it might just be argued that when the period 4 cross-reference referred directly to the meaning of “game of chance”, and it required the second definition of playing a game of chance to be read “in accordance with section 6(3) of that Act”, those cross-references, and most particularly the first addressed just the precise meaning of “game of chance” within section 6, without importing the tie-breaker test of section 17.
92.  We reject this possible distinction, and conclude that the period 4 test was in fact identical to the period 2 test.  The difference in wording was so fine that we cannot conclude that it was intended to import any different meaning.   The first cross-reference in period 4 still used the slightly wider notion of what was “a game of chance” within “the meaning of section 6”, though we note that for no obvious reason the cross-referencing words to the “playing a game of chance” phrase were slightly different themselves.   We also note that the VAT Act had managed, during period 3 to write out the definition of “game of chance” by using virtually no more words than were involved in making the cross-reference from BGDA in period 4, and this may suggest that by adopting the cross-reference approach, the very intention was indeed to pick up the whole of the meaning of “game of chance”, within the whole context of section 6, including section 17.   Again, if the intention of the cross-reference during period 4 was to ensure that, rather than to avoid the risk that, the tax definitions would be affected by the Secretary of State’s, or other, modifications to the terms of section 6, and ensure that the BGDA notion tracked the notion in the social and regulatory Act, it would make sense to be cross-referring to the entire notion in GA of what ranked as a “game of chance”.  If the intention during period 4 was just to freeze the definition of “game of chance” to the wording then prevailing, why did the draftsman not do what the draftsman of the change to section 23 did at the beginning of period 3, and write out the short definition of “game of chance” in BGDA itself?
An overall view
93.   Having given our decision that the effect of the period 4 definition is identical to that of the period 2 definition, and that the result of both is to treat the machines in these Appeals as not ranking as “amusement machines” during those periods, we will now stand back and look at all four definitions more generally, in order to consider whether this more general approach confirms or undermines the decisions that we have reached. 
94.   It seems to us that there are three possible rationalisations for these rapid changes of definition.  
•	The first is the one that the Respondents might have advanced, which is that if the period 3 stand-alone definition was not meant to change the effect of the period 2 definitions, this is strongly indicative that during period 2, our conclusion above was wrong, and that indeed it must have been the intention to refer just to the stand-alone definition within section 6 GA, ignoring section 17 and the other context of GA.   Quite why then, on the change to the period 4 definitions, the draftsman chose to re-create the confusion and the ambiguity is unclear, and indeed neither party advanced any suggestion as to why those final changes were made. 
•	The second possible rationalisation is that the period 2 definitions were not intended to undermine the earlier period 1 fashion in which BGDA intended not to impose duty on “passive” lottery terminals, though this was done (to avoid the artificial exploitation of the “passive machine” definitions that we referred to in paragraph 41 above) by using a more careful notion that excluded only private lotteries of one form or another.   Period 3 then involved an effective drafting error, and this was then corrected in period 4, when the period 2 definitions were effectively re-adopted. 
•	The third possible rationalisation is that, not least because no mention was made of the Parliamentary intention to sweep away a licence duty exemption for private lottery machines, used in non-profit making small clubs and societies, and providing a financial lifeline to some of those clubs which would be severed if duty was imposed, no thought was actually given to the status of these private lottery machines, and all the implications that we are having to consider were unintended. 
95.  There is no way of knowing for sure which of those three rationalisations is correct.  There is, however, every indication that the third explanation is the realistic one, as we consider that otherwise there would have been some written indication of the policy intention behind the change, which explained the implications - indeed, a Regulatory Impact Assessment or similar may well have been required in accordance with normal government policy.  If there is any underlying policy behind the various changes, and the draftsman, or at least some of the various draftsmen, were striving to achieve some coherent objective, then we prefer the second rationalisation to the first. 
The B3A machine categorisation
96.   We will now address various definitions and changes in the social legislation, which appear to have no direct impact on the tax definitions, though they do indicate some deliberate policy intentions. 
97.   There is a definition of “gaming machine” in section 235 of GA, which was not adopted for duty purposes at any time, and this again defined “gaming machines” as machines designed or adapted for use by individuals to gamble (whether or not they could also be used for other purposes).   There was however an exclusion from this definition which excluded machines that dispensed lottery tickets or otherwise enabled a person to enter a lottery provided that the result was “not determined by the machine”, and that the result was not announced within a period from the playing of the machine that the Secretary of State would later prescribe.  That period was then later set as “one hour”. 
98.  When the fairly obvious point was noted that GA and the Secretary of State had then adopted a definition that would preclude any lottery terminal machine from ever satisfying the definition, a compromise was struck, by the adoption of the B3A category of lottery machine. 
99.  The Categories of Gaming Machine Regulations 2007, made on 23 July 2007 and entering into force on 1 September 2007 created a new category of gaming machine, in the following terms:
“A machine is a sub-category B3A machine if-
(a)	it enables a person to participate in a lottery but not in 		any other form of gambling;
(b)	it is made available for use by a members’ club or a 		miners’ welfare institute; 
(c)	the maximum charge for use is no more than £1;
(d)	the maximum prize value is no more than £500; and
(e)	it is not a sub-category B4 machine or a Category C or 		D machine”.
100.  Once this category of machine was devised, the machines with which we are involved in these Appeals were all modified, simply in the respects of reducing the maximum stake from £2 to £1, and reducing the maximum prize from £2,000 to £500.  Thereafter they complied with the B3A specification, and some certificate confirmed this.  
101.   We were not concerned in these Appeals with the regulatory implications of the status of the B3A machines, but broadly understood that the consequence of machines ranking as B3A machines was that they were subjected to only mild regulatory control.  We were told that no separate duty rates were ever specified for AMLD purposes for B3A machines, which either indicates that it was acknowledged that they were potentially within the section 14/17 category that exempted them from AMLD altogether, or for duty purposes they simply ranked as Category B machines (as the Respondents suggested), or alternatively in creating a new “social” category of machine, no-one gave thought to the AMLD implications.   Whilst there are differences in the Schedule 11 GA tests for what rank as private lottery machines, and the definition and requirements of B3A machines, we consider that the first of the three approaches that we have just canvassed is the appropriate one.  This also tends to confirm our conclusion that the intention was that the private lottery machines that satisfied the Schedule 11 tests, and were ranked as lottery machines, and not as “games of chance” were not meant to be liable for licence duty. 
Our decisions
102.  Whilst acknowledging that our decision for period 1 is only of historical significance, and our decision for period 2 of historical significance, and possible relevance in relation to other appeals not before us, we nevertheless conclude that in periods 1,2 and 4, the machines in the present case fell outside the definition of “amusement machines”, whilst the same machines ranked as “amusement machines” in period 3.
103.  In making our decision we started from the principle set out by the House of Lords in Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51 at [28], referring with approval to the words of Lord Steyn in Inland Revenue Commissioners v. McGuckian [1997] 1 WLR 991 at [999], that ‘the modern approach to statutory construction is to have regard to the purpose of a particular provision and interpret its language, so far as possible, in a way which best gives effect to that purpose’. It is clear that we must construe the words of the legislation; it is only if the language is ambiguous that we are able to consider which of two (or more) possible meanings was intended, we can then consider other material (such as Hansard) which may aid us in this task. 
104. Speaking generally, we have been unable to identify any material that makes explicit the policy or intention as regards the intended treatment of exempt private lotteries for AMLD purposes during periods 2,3 and 4, and indeed it appears to us that changes that were made overlooked the possible significance of the changes to the areas we have been considering. As discussed in the preceding section, to the extent that there was a general policy approach to these machines, it was to recognise that they stood apart from other “gaming machines”, to the extent that a separate category was made for them. Had there been a policy intention to charge AMLD, one would have expected a Regulatory Impact Assessment, and, indeed, a separate banding for this type of machine within the AMLD charging provisions. We thus find no evidence of a policy to charge AMLD on these machines, and indeed all the evidence points in the other direction. 
105. Our decision in relation to periods 1, 2 and 4, which we arrived at by analysing the words of the legislation, is consistent with our findings in the preceding paragraph of this judgment. Our decision in period 3 is not. Despite this, we do not consider that we are able, in period 3, to interpret the statute in accordance with our assessment of the overall purpose of the legislation.  This is because the wording in period 3 is itself clear.  We agree with the Oasis Tribunal that the link with section 17 appeared to have been broken.  
106.   This, however, is not to say that the decision in relation to period 3 makes any sense to us.  It does not.  It simply means that we consider that it is not permissible for us to construe the clear words of the legislation by taking it upon ourselves to correct what seems to us to be drafting slip and an error. We thus record that for AMLD purposes, we find it impossible to reach a decision in favour of the Appellants for period 3, though we do so with considerable reluctance, as it seems to us to be an unfair and capricious interpretation. 
The Parliamentary question
107.     We referred earlier to the fact that on 1 February 2010, an Early Day Motion, numbered 769, was put down complaining about the then aims of HMRC to impose VAT and AMLD on the type of lottery machines involved in this case being operated in private members’ clubs, and it is included here for completeness.    We understand that nothing was done in relation to that motion, pending the outcome of the Oasis case, and now of course the final outcome of the present Appeals as well.    The terms of the Motion were as follows:
“That this House is alarmed that large numbers of traditional working men’s clubs, ex-servicemen’s and political clubs may have to close following the decision of HM Revenue and Customs to serve them with assessments to pay Value Added Tax (“VAT”) and duty on category B3A automated lottery machines operating on their premises, having changed their status from lottery machines to gaming machines; notes that unlike gaming machines, category B3A machines do not dispense cash prizes, and that winning tickets are redeemed via the club; appreciates that there is no private gain to be had from such machines as they are simply another source of fundraising for the club and the revenue often serves as a lifeline to smaller clubs; points out that HM Revenue and Customs consider paper-based lottery machines, which differ only from automated lottery machines in that they display the result via paper, to be exempt from value added tax and duty; draws attention to the fact that the Gambling Commission still states that category B3A machines can offer only lottery games; points out that private members’ clubs are not-for-profit organisations and as such do not have the resources to pay retrospective tax bills; and calls on the Government to halt this process, taking into account its negative economic and social impact on local communities up and down the country.”
Right of Appeal
108.   This document contains full findings of fact and reasons for the decision.  Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

HOWARD M NOWLAN
TRIBUNAL JUDGE

RELEASE DATE: 26 May 2011