The Newham Ripple: FOBTs and the Law

ON THE MATTER OF BETTING PREMISES LICENCES UNDER THE GAMBLING ACT 2005, THE USE OF CATEGORY B MACHINES AND THE REFUSAL OF PREMISES LICENCES BASED ON “PRIMARY PURPOSE”, “CLUSTERING”, AND THE REPORTING OF SAME

I read with interest the decision by Newham Council to refuse an application for a betting licence by operator Paddy Power. The refusal was reported in local newspaper the Newham Recorder, here on 14 February 2013. The article proclaims: “Councillors invoked a primacy clause under the 2005 Gambling Act that states at least 50 per cent of gambling in shop premises must be ‘traditional’ betting rather then gaming machines.”

The licensing committee convenor, Cllr Ian Corbet is quoted as saying: “Green Street already has a number of bookmakers and we believe that another would lead to an increase in crime and disorder with issues such as violence, street drinkers, and vagrants. We do not want this in our borough.” The decision was picked up by various gambling websites such as Casinos online, here, as well as the mainstream press.

Newham council themselves released a news item on this decision on their website, which can be viewed here. The council statement opens with the following declaration: “Newham has stepped up its fight against bad bookies by becoming the first council in the country to use the ‘primary activity’ of a betting shop in their decision to reject a licence application”. The statement then goes on to read:

“The circumstances being that the new betting shop was to be in a ‘cluster’ area of betting shops with gaming machines. The council believed the premises would add to the ‘cluster’ of betting shops that already operate on the street. The committee also believed that it would increase the number of controversial B2 gaming machines already in use in Green Street and that the primary use of the premises would not be traditional betting but machine gaming.”

The decision has been picked up by a number of sources interested in this area of law particularly as a result of the visibility of the anti-FOBT campaign picked up by national press such as the Daily Mail, with these machines invariably being referred to as “the crack cocaine of gambling” by those involved in the campaign. This has been picked up closer to home in various places such in this Daily Record article. Similar articles have appeared in newspapers across the UK.

Paddy Power have appealed the decision. The Association of British Bookmakers say the decision is at odds with the Gambling Commission guidance. Cllr Corbet is quoted as having responded to that by saying: “The council fully understands the Gambling Commission’s advice”. You can read this here.

I should make it clear that the aim of this blog is to explore how the law deals with all of this, and not to provide commentary on the FOBT debate itself.

THE “PRIMACY CLAUSE”
The decision is reported in various platforms as Newham council “invoking” the “primacy clause”. There is in fact no such thing as the primacy clause, in the sense suggested. Newham council’s website even goes so far as to say that the “primacy clause” means that at least 50% of gambling at a betting premises has to be betting, as opposed to gaming on what are known as Fixed Odds Betting Terminals, or FOBTs (I will speak a little later about these machines). This betrays a misunderstanding of the legal position. That misunderstanding may apply to Newham council in terms of their refusal of the Paddy Power licence, as well as the council’s PR officer and local and national press.

The exact phrase here is “primary activity” and it is a phenomenon created by the Gambling Commission which is far more complicated than a simple 50% test. I should start by saying that the notion of “primary activity” does not exist in the Act itself. The Gambling Commission created the concept of “primary activity” in response to concerns that betting licences were being sought purely in order to obtain the machine benefits that a betting licence allows. The grant of a betting licence allows up to 4 FOBT machines to be used at the premises. Whether or not the concept of “primary activity” is at all legal is matter which continues to be debated.

In driving the policy of “primary activity”, the Gambling Commission has altered it’s own definitions on a few occasions, by introducing other concepts such as “actual use”, “typical betting shop”, and “sufficient facilities for betting”. None of these concepts exist in the Gambling Act 2005. The notion of primary activity was first introduced in relation to the splitting of premises; i.e. where an operator has one licence and splits the premises into two and applies for a second licence, and is based on their interpretation of s.150 of the Act which provides for different types of licence (i.e. betting, casino, bingo and so on).

The Commission was concerned that this “splitting” was being used to get around the machine limit per licence. The concept has now, it seems been extended well beyond the “splitting” issue into the basic nature of a betting licence itself. Some historical perspective is required here. Firstly, I should say that the machines we are discussing are called Category B2 machines. The phrase “fixed odds betting terminal” no longer exists in the legislation. However, the media and parts of the trade still use this acronym so I think it is here to stay – FOBTs it is. B2 machines (sorry, FOBTs!) are only allowed in betting premises. You can compare them to, for example, B3 machines which play like a fruit machine with a £500 prize and would typically be found in a high street arcade (now known as Adult Gaming Centres), and C machines, which are your classic pub fruit machine with a jackpot of £70 (although I note there is a proposal to raise that to £100).

Historically, certain premises had machine entitlements under the previous legislation and those entitlements were not carried through or “grandfathered” to the new system. This lead to many operators splitting premises to simply return their businesses to the position they were in prior to the 2005 Act. This perspective has been somewhat lost in the furore surrounding FOBTs. Now, we have a concept created to prevent split premises applications being used, it seems, to control the amount of one form of gambling over another, when both are legal.

This has all developed over the last several years into a condition in the Licence Conditions and Code of Practice (LCCP) document issued by the Commission. Condition 16 says:

Gaming machines may be made available for use in licensed betting premises only at times when there are also sufficient facilities for betting available

The Commission has then created further guidance documents as to how “sufficient facilities” should be analysed. This is all laid out in the Commission’s document “Indicators of betting as primary gambling activity” from November 2011 which you can view here.

One interesting area in the indicators test is that concerning “actual use”. I worry that this is inadvertantly creating a sort of “duty to gamble”. It is forcing operators to make their customers place bets. It may be actively driving operators to do what they can to push up the betting side of the business. I am not sure how that sits with the licensing objectives. It should be up to a customer to decide whether to place a bet, play a machine, or indeed to do neither but to be on the premises for other reasons such as checking form and odds, socialising or having a drink or snack.

WHOSE JOB IS IT TO ENFORCE PRIMARY ACTIVITY?
Leaving aside the arguments as to whether the creation of these concepts and tests is intra vires, the enforcement of this to date has been in relation to operating licences, not premises licences. There is a question then as to whether primary activity is a matter for the Commission only, in terms of the operating licence they issue, as opposed to the licensing authority who issue the premises licence. Or is it both? And are you still with me?

If such a significant concept such as primary activity existed as a concept on the face of the Act, then one would have expected Parliament to make that clear. And in turn, it would have made clear who is the appropriate enforcing body of that concept.

As it stands, we now have both the Gambling Commission investigating operators in terms of their operating licence, and now licensing authorities taking action in terms of premises licences. I wonder whether it is appropriate for an operator to be investigated and potentially punished twice by separate authorities for alleged failing of the primary activity test, with sanctions on both operating and premises licences. Interestingly, it is open to the Gambling Commission as a responsible authority under the Act to ask a licensing authority to “review” a betting licence on grounds relating to the general principles to be applied (i.e. those quasi grounds of refusal under s.153). This route is also open to neighbours.

There has not been a single review of a gambling licence by a Scottish licensing board since the 2005 Act came into force on 1 September 2007. I am unaware of the position in England & Wales but I suspect these reviews will be very rare indeed.

IS “CLUSTERING” A GROUND OF REFUSAL?
The phrase “clustering” was used publicly by ministers such as Harriet Harmann who spoke at length about what might be described as an “overprovision” of betting premises in a particular locality, and even produced a paper on this back in November 2011. Interestingly, I recall hearing at a BISL conference in summer 2011 that the overall actual numbers of betting licences has dropped since the 1970s. The issue then is the apparent “clustering” of these premises. 

There is in fact no ground of refusal based on clustering or overprovision. There is no demand test either (see s.153(2) of the 2005 Act). The reports indicate that the notion of “clustering” was in the mind of the committee in the Paddy Power refusal and the Chairman’s statements to the press afterwards appear to suggest this too.  Part of the decision making required under the Act is that the licensing authority shall “aim to permit” the application in so far as it thinks it is “reasonably consistent” with the licensing objectives, one of which is “Protecting children and other vulnerable persons from being harmed or exploited by gambling”. Is the argument that “too many” betting licences in a local area is not consistent with these objectives? What information was presented to evidence that? It will be very interesting to see what the magistrate makes of all this.

Harriet Harman, Derek Lammy and others have discussed the “clustering” issue in planning terms. They have suggested in public that members of the public cannot object to new betting licences, despite the terms of s.161 and s.158 which do in fact allow neighbours to object. There is a clear misunderstanding of the 2005 Act as far as that goes. But the planning “solution” is also very interesting because planning is a reserved matter, so any change to planning would only apply in England & Wales. Holyrood would have to deal with the matter separately.

THE REPORTING OF GAMBLING DECISIONS
There is an additional discussion to be had as to whether it is appropriate for the licensing authority to speak of the matter in public. When the authority’s own website describes the context as “the fight against bad bookies” I question whether that sort of statement is at all appropriate and especially where there is an active appeal. Public statements can be taken into account and may conflict with the “written” reasons behind the refusal, so I also query whether allowing the Chairman of the licensing committee making public statements as to the committee’s reasoning is at all sensible.

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About Stephen McGowan

Leading Scottish licensing solicitor at TLT. Chairman of BII Scotland.
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5 Responses to The Newham Ripple: FOBTs and the Law

  1. Andy says:

    Stephen, interesting blog, thank you. It was surprising to note that Scottish Licensing Boards have not reviewed any licence since the act took effect. Is this because the local authorities are trying to get a grip of the Licensing (Scotland) Act 2005 first ?
    The issue about the wording of he Gambling Act 2005 and the use of Licensing Standards Officers as enforcement officers, could be another reason that no action has occurred in Scotland as yet.
    I think the view point of the Local Authorities will be that it is the Gambling Commissions responsibility to take action against premises. With the amount of press coverage going on at the moment, I feel a storm coming for FOTB’s soon.

    • Andy, thanks for comment. I think a mixture of both lack of experience of GA2005 plus no enforcement due to the drafting error. The experience issue is definitely changing for the better, considerably so in some areas.

  2. Pingback: Overprovision under the Gambling Act 2005? | Stephen McGowan's Licensing Blawg

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