Charity Law Association

Response to the Gambling Commission’s August 2006 paper:
“Prize Competitions and Free Draws”


1. The Charity Law Association (“CLA”) has over 900 members, mainly lawyers, but also accountants and charity professionals. It is concerned with all aspects of the law relating to charities and has established a working party to consider the impact of the new rules on prize competitions, set out in the Gambling Act 2005 and as interpreted by the Gambling Commission (“GC”) in this discussion paper. The members of this working party are:


Anne-Marie Piper, Farrer & Co (Chair of the working party and Chair of the CLA)
Christopher Hallam, FCIS, Robinsons, Solicitors
Catherine Rustomji, Dickinson Dees
Geoff Trobridge, Ashfords
Fiona Wharton, Wrigleys Solicitors LLP
Rosamund McCarthy, Bates Wells & Braithwaite
Benjamin James, Bircham Dyson Bell
Elizabeth Davis, Blake Lapthorne Linnell
Robert Porter, Harbottle & Lewis LLP

Problems with competitions under the Lotteries and Amusements Act 1976

2. Many charities use lotteries as a way of raising funds. In doing so, they have, of course, needed to comply with all necessary legal requirements. For many years, those involved in charity lotteries have felt frustrated that lotteries and their own well managed skills based competitions have had to compete with so-called ‘prize-competitions’, operated for commercial gain, in which the level of skill required to enter was derisory, but which, by framing themselves as ‘prize competitions’, escaped lottery regulation (and the costs that involves). It was felt that many competitions were, in reality, illegal lotteries and should be treated as such. By and large however, such competitions have continued unchallenged, thereby creating an un-level playing field, disadvantaging those who want to abide by the law and raise money for good causes.

3. Charity and lottery specialists lobbied for the Gambling Act 2005 (“the Act”) to rectify this issue. The Act does tighten up the rules, which is welcome.

The Gambling Commission’s questions

Has the Gambling Commission in any way mis-stated the requirements in the Act?

4. Subject to our comments below, we consider that the consultation paper accurately states the new law. However, the Gambling Commission’s interpretation reflects the slight ambiguity in section 14 (5) as to whether sub-clauses (a) and (b) are both to be satisfied rather than read disjunctively. Furthermore, it is important to mention that under section 14 an “arrangement” is a lottery, “irrespective of how it is described”. Under the Lotteries and Amusements Act 1976 (“the 1976 Act”), many schemes could avoid being an illegal lottery because they did not involve forecasting an “event”. The new terminology would appear to close this door, although it remains to be seen whether somebody adopts an ingenuous arguable interpretation in the future.

The description of the requirements in the Act is also somewhat selective. We would prefer to see a fuller and more literal description of both Schedule 2 and section 14. We think that the detailed comparison with section 14 of the 1976 Act is generally unhelpful since it serves to render the description more complicated than it need be. As the Commission will no doubt be aware, section 14 of the 1976 had its difficulties in application and interpretation, so that arguably it would be better not to interweave it with a description of S14(5) of the Act unless absolutely necessary, since it is our view that to do so could lead to confusion.



Will there be an onus on prize competition organisers to take steps to satisfy themselves that their proposals will meet the statutory test relating to the need for the skill element to eliminate a “significant proportion” and to be able to produce evidence that they have done so?

5. The law itself does not place this onus on them, since prize competitions remain unregulated. If, however, GC practice shows that competition organisers are under active scrutiny and that they will be brought to book if they cannot produce adequate evidence in borderline cases, then competition organisers are likely to impose this obligation on themselves.

6Put another way, the CLA considers that the evidence-related proposals are good, though we agree that it will be hard to show (or, for that matter, deny) that the skill required in any given competition has prevented a significant proportion of those who wished to enter from doing so. The requirement to provide the necessary evidence could also be a considerable expense to charities which should be using the majority of their funds to support their objects.

7However, these proposals will only foster best practice among prize competition promoters if they know that failure to do their homework could land them in trouble. The whole question of how this is defined is potentially risky for charities who, by the very nature of running these competitions are trying to encourage more people to enter and thus raise more funds, have tended to have questions on the easier side that might fall into borderline territory where they open themselves up to scrutiny. The Gambling Commission could give guidance, perhaps in the form of a Code of Practice on:
what would not be a level of sufficient skill; and
what would be reasonable evidence to estimate the likely proposition of people either not winning a prize or from being deterred from entering and to establish how to determine their target audience for the purposes of the legislation.

8.As a preliminary, we believe written guidance about what the GC will regard as a “significant proportion” would be useful; but it would obviously have to develop with case law. We would expect that promotion organisers complying with written guidance would not be prosecuted by the GC.

9.With regard to the onus question, we think there is a danger that they way in which the Commission has expressed its position in relation to section 14(5) of the Act (and at Paragraph 15 of the Issues Paper in particular) might be construed as an attempt to shift the burden of proof in relation to section 14(5) from the prosecution to the defence.

10.Since there are criminal offences relating to lotteries at Part 11 of the Act, it will fall to the prosecution in their context to determine beyond reasonable doubt that the arrangement in question is a lottery. We would have thought that this would require the prosecution to prove in the terms of section 14(5) (and not how section 14(5) is expressed); but of course it would be open to the defendant to submit evidence that the process did not rely wholly on chance and that the “significant proportion” test was satisfied. It would be our view that a prudent promoter would in any event gather evidence about fulfilment of the skill element, to rebut any allegations by the prosecution that the requirements had not been fulfilled.

11.We note that the onus on the prosecution to establish beyond reasonable doubt that a lottery is illegal (including with respect to section 14(5)), is not to be confused with, for instance, the provisions of section 258(4) which provide a defence of “reasonable belief”. A defendant will not need to prove on the balance of probabilities that he or she had a reasonable belief [an offence was not being committed] unless the prosecution first establishes a case that a lottery has occurred under section 14. Of course, as stated above, a prudent operator of a competition might in any event retain sufficient data to enable him or her to establish that the competition satisfied the “significant proportion” test.

12.We would conclude by noting that the “reasonable expectation” requirements in section 14(5) might mean that it would be easier for the prosecution to establish on a second or subsequent occasion that the section 14(5) requirements “could not reasonably be expected to prevent…”; but it would be for the prosecution to prove that it could not, and not for the defence to prove that it could.


Do you have any views on whether any more definitive guidance could be produced on what amounts to a “significant proportion”?

13.Without first seeing how the new law pans out, it would – in our view – be premature to produce such guidance. That said, the GC should be able to list the elements that it will consider when deciding whether or not the skill required in any given competition will exclude a “significant proportion” of people from entering or winning. In due course, the GC’s experience should enable them to produce more detailed guidance. Such guidance would be very useful, for example it would be helpful to have clarification on what the GC considers significant proportion to mean. Does it mean a significant proportion of the people at whom the particular lottery or competition is aimed or a significant proportion of the population as a whole? Does the level of skill and judgment that would be expected take account of the people e.g. a special interest group at whom the competition is aimed? The GC alludes to these issues in the consultation paper.

14.In the end, the phrase ‘significant proportion’ will, as the GC itself accepts, be interpreted by the Courts. It may be that the threshold here is not as high as the GC might hope. It is our sense that a “significant proportion” might be interpreted by the Courts as being not a particularly high hurdle. For instance, a very low proportion of prevention might satisfy the provisions of section 14(5) on the basis, say, of statistical significance, or material significance to income generation. The OED definition of “significant” is “Important, notable; consequential”, and in relation to statistics is “of an observed result”, which again suggests that the hurdle need not be very high

15.Further ambiguity arises in relation to the meanings of the words “participate” and “prevent” in section 14(5) of the Act. Paragraph 14 of the GC’s paper refers to ‘participate’ and ‘enter’ although section 14(5) only uses the word ‘participate’. The GC’s paper also refers to a person being ‘deterred’ from entry whereas the wording of section 14 (5) is ‘prevented’.

Does ‘participate’ mean:

Attempt the process but not submit an entry to the organisers – which would seem to be the situation covered in section 14(5)(b) although it is difficult to see that the person is ‘prevented’ as opposed to ‘deterred’ from entry – or
Complete the process, correctly or not, and submit and entry to the organiser who will then determine whether the person is entered in the draw – which would seem to be the situation covered in section 14 (5) (a)?

16.Does ‘prevent’ mean that unless the requirement is met the person is ineligible to participate under the rules of the competition or does it mean that the requirement to demonstrate skill and judgment would discourage or deter people from entering?

17.No indication is given in the GC’s document as to who is meant here by the ‘prize competition organiser’. Will this mean the charity/business that will collect the profits or, perhaps the ‘publisher’, either broadcaster or television, or website host of any print media? Charities will need to be careful on whom responsibilities lie and where it might lie with the ‘publisher’. This might prove prohibitive to engaging in this type of activity if the ‘publisher’ is not willing to take on this responsibility.

In respect of free draws, do you agree with the way the Gambling Commission interprets the definition of “payment to enter” in the 2005 Act?

18. The GC’s description in Paragraphs 18-26 of the Issues paper seems broadly correct, but we have the following comments:

Will guidance be issued about the meaning of “less convenient” in Paragraph 8(1)(b)(ii) of Schedule 2 of the Act?

Will the Commission be issuing guidance about its expectations with regard to Paragraph 8(1)(c) of Schedule 2 of the Act?

19. The question of whether the provision of data should count as a payment needs to be resolved as does how telephone entry competitions are dealt with when conducted to benefit one or more charities.

20.It appears that competitions connected to a television programme where a standard fee is charged by the telephone service provider and a fixed donation is made to charity would fall within the payment provisions. It would be a benefit to charities if the GC included an exemption that when call cost is at a standard or normal rate and any fee in addition to the standard or normal rate is paid to a registered charity that such a competition would still be considered to be a free prize draw.

Do you agree that a reasonable indication of whether a (non-post) “free entry route” is as convenient and as well publicised as the paid route, is that a substantial proportion of entrants make use of that route?

21.In our opinion, that “substantial proportion” would need to be extremely high for this to be a reasonable inference. Why would anyone choose the paid route, if the free route is genuinely as convenient and equally well publicised? These figures could be used as one indicator, but, in the view of members of the CLA, they should be supplemented by details of what the alternatives were and how they were publicised.

22.The Act simply requires each individual to have the choice whether to pay or participate by sending a ‘communication’ and this must be adequately publicised. It is unlikely that the Courts will interpret these provisions to infer an additional requirement as to actual use when this has not been included by the legislature. The key element of the ‘Choice of Free Entry’ provision in Schedule 2 is freedom of choice and parity of opportunity and it is not concerned with how participants exercise that choice in practice.

23.At present, very few people choose to use ‘free entry’ routes where they have been publicised. This may be because the different means of entry receive different levels of publication and in different media. For example, the free entry route may be via an email facility, advertised on a website, whilst the paying route is the regular entry route (e.g. a premium rate telephone number) advertised on television. The potential audience in the latter scenario is far greater. In our opinion, the GC should take such factors into consideration when determining whether or not entry methods have been equally well publicised.

24.In any event it seems clear that the drafting of Paragraph 8 of Schedule 2 of the Act was intended to get away from the “substantial number” test under the old law. Otherwise why was that phrase not used?

25.As a result, we do not agree with the Commission’s statement in Paragraph 22 of the Issues Paper that “…in cases where there is a choice of entry as envisaged in the second tiret of paragraph 20(ii), it is reasonable to take the stance that, if the alternative “free entry” route is genuinely as convenient and as well publicised as the entry by payment, it would be expected that a substantial proportion of participants would use that route.” In our view, for paragraph 8 of Schedule 2 of the Act to apply, it is not necessary that a substantial number of persons actually use the “free entry route”, so that the presumption proposed by the Commission here is not appropriate. The dynamics at play may be different in each case.


Do you agree with the Gambling Commission that the provision of data does not amount to payment?

25 In many instances, data (i.e. personal data) very much has a commercial value to its recipients and so, strictly speaking, falls within Schedule 2 paragraph 2(b) as an example of something that has “money’s worth”. However, the CLA would qualify this to exclude data which is de minimis. Conversely the GC might also reconsider its stance in cases where grossly disproportionate transfers of personal data are required. To prevent ingenuous avoidance schemes it would be wise not to give such a strong view that a transfer of data may not amount to transferring money’s worth.

26. Whether or not the provision of personal data amounts to a ‘transfer’ of money’s worth will also depend on how the word ‘transfer’ is construed. On a narrow interpretation, the word ‘transfer’ will only cover situations where something leaves the possession of the transferor and passes to the transferee. This construction of the word excludes the provision of personal data by participants.


Are you content with the Gambling Commission’s view on the way product promotions will be able to operate under the 2005 Act?

27. As read in conjunction with the GC’s interpretation on other aspects of what constitutes payment, yes. However, with regard to what the Commission says at Paragraph 26 of the Issues Paper, does Schedule 2, paragraph 2(a) of the Act not mean that paying for a product containing a competition could amount to a payment unless Schedule 2, paragraph 8 is satisfied?



CHARITY LAW ASSOCIATION
October 2006