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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Revenue and Customs v The Rank Group Plc [2015] UKSC 48 (8 July 2015) URL: https://www.bailii.org/uk/cases/UKSC/2015/48.html Cite as: [2015] WLR(D) 299, [2015] UKSC 48, [2015] 1 WLR 3472, [2015] STC 1921, [2015] 4 All ER 77, [2015] WLR 3472, [2015] LLR 665, [2015] STI 2395, [2015] BVC 31 |
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Trinity Term
[2015] UKSC 48
On appeal from: [2013] EWCA Civ 1289
Commissioners for Her Majesty's Revenue and Customs (Respondent) v The Rank Group Plc (Appellant)
before
Lord Neuberger, President
Lord Reed
Lord Carnwath
Lord Toulson
Lord Hodge
JUDGMENT GIVEN ON
Heard on 21 April 2015
Appellant Paul Lasok QC Valentina Sloane (Instructed by Forbes Hall LLP) |
Respondent George Peretz QC Laura Elizabeth John (Instructed by HMRC Solicitor's Office) |
LORD CARNWATH: (with whom Lord Neuberger, Lord Reed, Lord Toulson and Lord Hodge agree)
Introduction
The disputed machines
"… the hardware of a slot machine consists of a cabinet containing the electronic control board, power supply coin insert and pay-out mechanisms, reels and/or video screens and cashboxes. The electronic control board is an embedded microprocessor control system that generates the winning and losing games and displays the results to the player via the reels, lamp displays or video screens. The machine's software is a list of instructions that the processor executes in order to generate the winning or losing games. Such software is controlled either by embedded software that is controlled or random or by a remote 'random number generator'. 'RNG' (for 'random number generator') is used to describe the system for producing numbers for the machine's software, whether the system is embedded in that software or provided by means of another device."
As is apparent from that description, and was explained in evidence, modern machines are entirely computerised:
"In modern slot machines, the reels and lever are present for historical and entertainment reasons only. The positions the reels will come to rest on are chosen by an embedded RNG contained within the machine's software.
The RNG is constantly generating random numbers, at a rate of hundreds or maybe thousands per second. As soon as the lever is pulled or the 'Play' button is pressed, the most recent random number is used to determine the result. This means that the result varies depending on exactly when the game is played. A fraction of a second earlier or later, and the result would be different." (quoted by Rimer LJ, para 26)
The legislation
"Item no.
1. The provision of any facilities for the placing of bets or the playing of any games of chance.
2. The granting of a right to take part in a lottery."
The general effect of this provision, which remained unamended until 1 November 1975, was to exempt from VAT the takings of all machines used for gaming. Note (1) to item 1 made three exclusions (a), (b) and (c) not relevant to the present dispute. Note (2) provided that "game of chance" had the same meaning as in the Gaming Act 1968.
"(4) 'Gaming machine' means a machine in respect of which the following conditions are satisfied, namely –
(a) it is constructed or adapted for playing a game of chance by means of it; and
(b) a player pays to play the machine (except where he has an opportunity to play payment-free as the result of having previously played successfully), either by inserting a coin or token into the machine or in some other way; and
(c) the element of chance in the game is provided by means of the machine."
It is common ground that the disputed machines fall within (a) and (b) of the definition, the area of disagreement being confined to (c).
Gaming Act comparisons
"26 (1) This Part of this Act applies to any machine which –
(a) is constructed or adapted for playing a game of chance by means of the machine, and
(b) has a slot or other aperture for the insertion of money or money's worth in the form of cash or tokens.
(2) In the preceding subsection the reference to playing a game of chance by means of a machine includes playing a game of chance partly by means of a machine and partly by other means if (but only if) the element of chance in the game is provided by means of the machine." (Emphasis added)
The significance of the definition in that context was in identifying the different forms of regulatory control to be applied. Part II of the 1968 Act applied to gaming on licensed premises, other than gaming by means of a machine to which Part III applied. Section 21 provided for the regulation of machines not falling within the Part III definition; hence the expression "section 21 machines", used in the evidence and the judgments below. By contrast, the main regulatory provisions for "Part III" machines were in sections 31 to 34 of the Act.
"(2) Not more than two machines to which this Part of this Act applies shall be made available for gaming on those premises.
(3) The charge for play for playing a game once by means of any such machine on the premises shall be a coin or coins inserted in the machine of an amount not exceeding (or, if more than one, not in the aggregate exceeding) one shilling or such other sum as may be specified in an order made by the Secretary of State for the purposes of this subsection."
Reference has also been made to section 37(1) which gives the Secretary of State a general power to impose "such restrictions as he may consider necessary or expedient" on the "sale, supply ,maintenance or use of machines" to which Part III applies.
"I expect that everybody knows ordinary bingo. It is played at bazaars, sales of work, and so forth, for small prizes and is perfectly lawful. Now prize bingo is like ordinary bingo, but played with sophisticated apparatus. Instead of cards with numbers on them, there are dials facing the players. A player puts in a coin (5p for two cards). Thereupon two dials light up showing numbers corresponding to two cards. When the game starts, instead of someone drawing a number out of a hat, a machine throws a ball into the air. A gaily dressed lady plucks one of them and calls out the number. If it is one of the numbers on the dial, the player crosses it out by pulling a cover over it. If he gets all his numbers crossed out correctly before the other players, he gets a prize. This is obviously a lottery or a game of chance, but it is not a 'gaming machine' because the element of chance is not 'provided by means of the machine' but by means of the gay lady: see section 26(2) of the Gaming Act 1968.
In some of these premises there are also some 'one-armed bandits'. These are gaming machines. The player puts in a coin. This enables him to pull a handle to forecast a result. Cylinders revolve and give an answer. If he succeeds, he gets the winnings. If he fails, he loses his money. This is undoubtedly a 'gaming machine' because the element of chance is provided by means of a machine: see section 26(1) of the Act of 1968 …"
The contrast there drawn is between an element of chance provided by machinery within the device itself, and one provided by an outside agency of some kind. That approach may have been readily applied to the relatively simple types of equipment then in use. However, it is of little assistance in applying the statutory words to the more sophisticated forms of gaming device later developed.
The decisions below and the arguments on the appeal
"48. It is not in dispute that in respect of all the potential comparators, whether multi-terminal or single terminal, the element of chance was provided by the RNG. In the case of slot machines it is clear that 'the machine' to which Note (3)(b) refers was the terminal into which the coins or tokens were inserted. If the conditions in (b) and (c) were both to be satisfied both the terminal and the RNG had to refer to the same machine. The use of the definite article before the word 'machine' in (b) and (c) makes this clear. Indeed condition (a) had to be satisfied also. Where the RNG was situated inside the terminal so as to be an integral part of it, we have no doubt that the RNG and the terminal formed part of a single machine …
53. Where the RNG was situated outside the terminal and served a number of terminals we conclude that the terminals were not 'gaming machines' because the RNG was not part of any terminal and the element of chance was not provided by means of the machine containing the slot. We do not consider that the language of Note (3) was apt to cover a series of terminals linked to one RNG. The result is that by reason of Note (1)(d) to Group 4 the provision of gaming facilities by multi-terminal products was exempt as a matter of law."
"The argument proceeded on the footing that the element of chance had to be provided by 'the machine' and the problem lay in identifying 'the machine'. The 'element of chance' is the determining event which governs the outcome of the game being played on the machine which has the slot in it and which the player is playing. Where the determining event is a random number there is I think no difference in principle between a human being selecting a numbered ball, an electric ball shuffler (such as that used in the National Lottery) producing a numbered ball or a microprocessor emitting a stream of numbers. It is a question of fact in each case whether that determining event is produced by 'the machine', and fine distinctions might have to be drawn. In my judgment the principle by reference to which those judgments have to be made is whether the outcome of the game may sensibly be regarded as determined by an external event which the machine records or is produced by the machine itself. Like the tribunal I would hold that the random generation of a number in a separate unit which serves various player terminals (which may themselves be running different games) is properly regarded as an external event and not one produced by the machine that the player is playing. Like the tribunal I do not think it is possible to elaborate further." (para 67)
"The regulatory context helps me to decide that the argument that 'the machine' is the system of terminals linked to a common RNG is wrong (because it would effectively mean that the restrictions on numbers of machines on any given premises for which Part III provides would be meaningless since the restriction would relate to the RNG in each system, to which vast numbers of playing terminals could be linked)." (para 63)
"77. That cannot be the correct construction of the word 'machine'. The word must, if the language of Part III is to be given a sensible and practical effect that will enable it to achieve its obvious purpose, be interpreted as including equipment ancillary, and connected, to the playing terminal that automatically provides the element of chance that determines the outcome of the game played on the terminal …
79. If this is right, it follows in my view, and for like reasons, that a purpose built system comprising a terminal with a separate, but connected, RNG is also properly characterised as a 'machine'. The terminal cannot be used for gaming purposes except by being linked to the RNG; and the RNG is designed to be linked to the terminal in order to enable the game to be played. Again, no doubt they constitute two separate items of equipment; but to treat the terminal as a separate 'machine' in considering the impact or otherwise of Part III is unrealistic. They are being used together for the purpose of playing a game on the terminal and the RNG forms an essential element of the system.
80. If right so far, I also do not understand why the multi-terminal systems should be treated any differently. The fact that there is only one RNG serving several terminals cannot make a material difference. In substance, the systems are exactly the same as in both previous configurations. By like reasoning, I cannot see why each terminal and the single RNG do not together constitute a machine within section 26. That is the substance of any such multi-terminal system; and it is the substance of the matter that counts."
Discussion