Lottery Commission shrugs off High Court indictment

Senior officials in the National Lottery Commission appeared surprisingly relaxed yesterday about the High Court's damning judgment of its handling of the competition to find the next operator of the game.

Senior officials in the National Lottery Commission appeared surprisingly relaxed yesterday about the High Court's damning judgment of its handling of the competition to find the next operator of the game.

Despite highly critical questions raised by Mr Justice Richards about their conduct, the five commissioners and their staff apparently took this embarrassing set-back as a hard fact of life. Suggestions that they should consider resigning were shrugged off.

"Lottery commissions run into the jurisdiction of high courts around the world: we've never been under any illusion that we wouldn't get there as well," one official said. "It's a highly litigious industry. We were always expecting it. It's a risk you take."

This coolness is unlikely to impress executives at Camelot, now celebrating after overturning the commission's decision last month to enter exclusive talks with Sir Richard Branson on taking over the next lottery licence from 1 October 2001.

As Dianne Thompson, Camelot's chief executive designate, made clear yesterday, the company's 800 staff felt deeply aggrieved at the commission's decision to bar them from any further talks. "All I think the commission should do now is reassure us that they can operate in a very fair way with us, which should take place without any of the prejudice they might have had," she said.

Camelot's shareholders - Cadbury Schweppes, ICL, Racal Electronics and De La Rue - will feel equally relieved at having a second bite at this plump cherry. Besides raising £1.48bn for good causes last year, the company generated pre-tax profits of roughly £1.25m a week, a total of £70m, paying £26.5m in dividends to its shareholders.

Camelot claims it can match Sir Richard's boast that he could raise up to £15bn in the next lottery round with new games and new technologies such as mobile telephones, digital television and the internet. Although the commission believes that is over-ambitious, it suggests Camelot's profits would also rise.

This underlines the significance of Mr Justice Richard's ruling yesterday, which puts the commission on notice that its handling of four weeks of fresh negotiations with Camelot, starting on Monday, will be closely scrutinised.

The judge upheld the main arguments put forward by Camelot's counsel, the public law specialist David Pannick QC. The central question was whether the commission had "offended the general principles of public law" by failing to treat all sides fairly and equally.

The commission had, the judge said, acted scrupulously in setting up an open competition for the licence last November with a clear timetable of events. Its decision, announced on 23 August, that neither side had won was also legal and fair. However, this contrasted sharply with the "conspicuously unfair" decision to begin exclusive talks with Sir Richard's People's Lottery team.

The commission believed the remaining doubts facing the People's Lottery, over the need for a legally guaranteed £50m fund to protect the prize in case the game folded or failed to raise enough income, could be easily dispelled by 1 October 2001. Significantly for Camelot's chances, the commissioners also believe the People's Lottery, set up as a "non-profit-making" venture, will generate more charitable funds per £1 played than the present organiser.

Camelot has had very serious problems with GTech, its software supplier. Last April, it emerged that the United States-based company's chairman and president had suppressed the discovery in July 1998 of a software glitch that led to wrong payments for about 100,000 small prizes.

This discovery was withheld from Camelot, even though GTech helped to found the lottery organiser in 1994. The scandal was so serious that the commission nearly removed the licence in July. Only the dismissal of two senior GTech executives and the introduction of very strict internal controls saved it. But the commission still believed this fatally undermined confidence in GTech's trustworthiness and in its future conduct during the next licence. The commission's advisers believed it would take at least 11 weeks to tackle these concerns - breaching its tight deadlines.

Jonathan Crow, the Treasury counsel acting for the commission, argued in court that Camelot's gambit earlier this month of buying GTech's British operation, in an attempt to answer the concerns, in effect meant Camelot was submitting a new bid. He also claimed, correctly, that the National Lottery Acts of 1993 and 1998 gave the commission very wide discretion on how it awarded the licence.

Despite its vindication yesterday, Camelot faces a tough task in persuading the commission to overturn last month's decision. Not only has Sir Richard in effect been named as thepreferred bidder, but the potentially fatal results of the commission's investigation into the GTech scandal have still to be given. That report is expected to come out next month, in the middle of the new talks, and could bring heavy fines for Camelot.