In a previous article on this site , I suggested that the impact of Placanica was to leave the national courts in a bit of a hole. In Placanica, the ECJ largely resisted the temptation to interfere with a Member State's discretion as to gaming regulation, and, ultimately, the national courts remain in the difficult (politically sensitive) position of having to assess whether national gaming restrictions are justifiable in the light of national political objectives and the principle of proportionality.
Following Placanica, a number of other cases have hit (Unibet), or are about to hit (the Commission's infringement action against Italy), the ECJ. In addition, the European Commission has indicated that it will continue in its infringement actions against certain Member States and would appear to be trying to re-introduce "classic" free movement law back into the gaming arena.
The purpose of this article is to consolidate and provide some comment on post-Placanica developments, in particular whether any of the post-Placanica decisions can aid the industry in planning a "litigation strategy" to challenge restrictive national regimes and some "crystal ball" gazing as to the approach the ECJ may take to the infringement actions coming, or likely to come, before it.
Unibet
It is useful to start with Unibet. In essence, this case is a rather standard example of the ECJ respecting the "procedural autonomy" of the Member States (in this instance Sweden), subject to those rules not treating claims based on EC law less favourably than claims based on national law and subject to the national procedural rules not making it impossible in practice for an individual to exercise their EC law rights.
Here, Unibet (a UK/Maltese registered company focussing primarily on internet gaming) sought to challenge Swedish law that prohibited, on pain of criminal and civil sanctions, the promotion (for commercial gain) of participation in a foreign lottery. Unibet purchased advertising space in a number of Swedish newspapers with a view to promoting its gaming services on the internet. The Swedish authorities responded by, amongst other things, obtaining injunctions and commencing criminal proceedings against Unibet's advertisers. Unibet subsequently was unable to secure further advertising space in either the national newspapers or on TV/radio.
Unibet challenged the Swedish authorities before the national court with a three pronged attack based on Article 49 EC (freedom to provide services):
· A declaration that Unibet has the right, notwithstanding the prohibition on promotion, to market its gaming services in Sweden. In effect, Unibet was seeking to have the Swedish law struck down, on a general basis, as contrary to Article 49;
· An immediate order that the prohibition on promotion and the corresponding sanctions be disapplied (Interim Relief); and
· Damages from the Swedish state for the damage suffered as a consequence of the prohibition on promotion. This matter is currently proceeding before the Swedish courts and was not directly in issue before the ECJ. It may well result in a reference to the ECJ.
The Right to a Declaration
The ECJ rejected the argument that Unibet had a right to a declaration/free-standing action on compatibility, noting that Swedish law did not provide for such a right in relation to a claim based on national law and that there were other ways in which Unibet could challenge the validity of the law (as a preliminary issue), not least in the context of the damages claim it had already brought.
However, the ECJ also stated that if the only way in which an individual could assert his EC rights before a national court would be by first breaching national law, this would not satisfy the requirement of an effective legal remedy. As Advocate General Sharpston remarked: "An individual cannot be placed in the position of being able to test the lawfulness of a law only by breaking it".
AG Sharpston also doubted that the availability of judicial review as a means of challenging the compatibility of Swedish law with EC law provided sufficient judicial protection. It is worth noting that the prohibition on promotion was not absolute- it was possible to apply to the relevant authority for an exemption, though it is not clear from the action before the ECJ what the grounds of exemption were and how often, if at all, exemptions had been granted. It does seem that Unibet had not applied for an exemption, and AG Sharpston was not persuaded that should it have done so, and was refused, that would necessarily have led to an administrative decision susceptible to judicial review under Swedish law. The ECJ appeared to follow, albeit ambiguously, the Advocate General noting that "…judicial review proceedings, which would enable (my italics) Unibet to obtain a judicial decision that those provisions are incompatible with Community" satisfy the requirement of effectiveness though the Court did not analyse the availability of judicial review in any particular depth in the actual judgement.
Comment
Most jurisdictions require that an individual has some form of interest ("locus standi") before challenging a decision in the national court. Generally, this will be because that individual has tried to do something which is considered to be illegal and enforcement action has been taken by the State against that individual. However, there will be cases such as Unibet where the individual with the primary interest in the case (Unibet) will not be the same as those individuals the enforcement action was brought against (the advertisers).
What prevented Unibet seeking a declaration based on an EC law argument was the fact that it has lodged an admissible damages action in the Swedish court, which would allow the national court to consider the compatibility of national law with EC law as a preliminary issue. However, as the Advocate General remarked: " …if the damages route does not in fact afford protection that, in practical terms, allows Unibet to enforce any rights under Community law once they are recognised by the national court, a new remedy must necessarily be created if Sweden is to respect its obligations under Community law".
This indeed is the limit to a Member State's procedural autonomy and no doubt gaming organisations will be considering very carefully the procedural rules in a particular Member State with a view to seeking more novel, innovative and effective remedies than may be provided.
What is also interesting is that neither the ECJ nor the Advocate General, focussed on the fact that Unibet had not applied for an exemption to the prohibition on promotion. There may be good reasons for Unibet not so doing, and it may have been the case that this was something that the advertisers were primarily responsible for. However, it is surprising that the Swedish state does not appear to have greater utilised Unibet's "failure" to exhaust national procedural avenues to weaken any argument that Sweden had insufficient remedies to protect an individual's EC rights. It is also surprising that the failure to apply for an exemption did not feature more prominently in the ECJ's and the Advocate General's discussion as to the effectiveness of the national remedies.
Interim Relief
In relation to the Interim relief, the ECJ re-iterated its long line of jurisprudence that, where it is argued national legislation contravenes EC law, while a national court must be able to grant interim relief, a national court is not required to do so. The ECJ confirmed that it is for the national court to ultimately consider whether the granting of such relief is necessary and also determine the conditions under which interim relief is to be granted.
Comment
Interim injunctions and the like, are a useful litigation tool for gaming entities looking to enter "closed markets" as it provides a mechanism which potentially allows them to continue their activities pending judicial assessment of the legality of any restrictive regulation. However, traditionally, certainly in England, it has proved difficult for litigants to obtain interim relief on the basis that national legislation infringes EC law- given the extent of Member State discretion in the gambling arena (and therefore the uncertainty as to whether a particular restriction contravenes EC law) the extent to which Interim Relief will be available to gaming litigants, in practice, can be doubted.
The Infringement Actions
AG Sharpston's Opinion in Commission vs Italy
AG Sharpston also features in the Commission's infringement action against Italy for renewing 329 horse-race betting licences without a prior tendering procedure. This, argued the Commission was contrary to freedom of establishment and the freedom to provide services. The Advocate General agreed.
Public bodies are, of course, subject to detailed procurement rules for contracts over a certain value. However, "public service concessions" remain outside the scope of the detailed procedural rules contained in the EC procurement directives, though are subject to the fundamental rules of EC law- non-discrimination on the grounds of nationality and, more generally, equal treatment, which thrown together adds up to a duty on public bodies to act transparently. Acting transparently entails a degree of advertising sufficient to enable the service concession to be opened up to competition and the impartiality of procurement procedures to be reviewed.
Sharpston concludes, and it is likely the ECJ will conclude likewise, that "…it is not contested that the 329 concessions in question were quite simply and automatically renewed…it is quite obvious that the degree of publicity vis-a-vis those concessions…was not, on any view, "sufficient to enable the service concession to be opened up to competition and the impartiality of procurement procedures to be reviewed."
Three points, in particular, arise from the Advocate General's opinion:
· Follow-On Damages Actions
If the ECJ agrees with the Advocate General's conclusions, the exclusion of companies from the tender procedure leaves Italy open to possible damages actions by the excluded parties. The difficulty they face is, in particular, quantifying loss and proving the casual link between Italy's infringement of EC law and any damage suffered. However, Italy potentially will be in the dock for many years to come on this issue.
· Breach of Procedural Requirements
As indicated in the previous article, a deficient tender procedure offers those in the gaming industry a real opportunity to challenge the concessions granted by Member States. In particular, a Member State's regulation of gaming may be caught by procedural irregularities more easily than a claim for a "more substantive" breach of the free movement rules.
· Justification
Italy sought to justify its renewal of the concessions as follows: "…the need to ensure continuity, financial stability and a proper return on investment for concession-holders, thereby discouraging recourse to clandestine betting activities, until the current concessions could be re-awarded on the basis of tender procedures".
This is not too dissimilar from the proffered justification in Placanica, but ultimately given short thrift by the Advocate General. She notes that "considerations of purely economic or administrative nature" cannot justify the measure and "[a]s regards other (non-economic) overriding reasons, only that of preventing clandestine betting may be said, at least in principle, to be in the public interest".
The Advocate General's approach is interesting. Italy seemingly tried to pin a financial/administrative justification (non-permissible) to the back of a social policy justification (sometimes permissible), where as the Advocate General clearly treated them as separate grounds. In relation to the social objective- "may be said"/"at least in principle"- does not suggest that the Advocate General felt that the aim of preventing clandestine betting was either a particularly strong justification, or more likely, she simply did not believe that is what the Italian state was trying to do.
Spain, intervening in support of Italy, offered up the following justifications (presumably based on concerns as to the legality of its own gaming regime):
- the morally and financially harmful consequences for the individual and society associated with gaming and betting, may imply a margin of appreciation for Member States. The Advocate General could not see how this could justify, however, Italy's failure to tender the concessions;
- a transitional period is required when replacing one concession regime by another; complex social interests are involved, in particular the use of betting revenue as the sole source of financing the improvement of horse breeding (!); and current serious financial difficulties in the Italian horse-race betting sector. The Advocate General dismissed, out of hand, the availability of such justifications to an infringement of the free movement rules.
Other Infringement Actions- Sports Betting Services
On 21 March 2007, the Commission announced that it had issued "reasoned opinions" to each of Denmark, Finland and Hungary concerning restrictions on the provision of sports betting services, including the requirement for a State concession or licence (even where a provider is lawfully licensed in another Member state). The Commission also objects to restrictions as to the promotion or advertising of services and to the participation of nationals in the games. I have also been informed by the Commission that Germany and the Netherlands remain firmly on the Commission's radar screen, though for procedural reasons there has been a delay in issuing these countries with reasoned opinions.
The Member States have 2 months in which to respond to the satisfaction of the Commission, failing which the Commission is likely to take them before the ECJ.
These cases obviously come soon after the ECJ's ruling in Placanica and will reveal what the Commission thinks of, and how it interprets, the ruling- it is keeping its lips firmly shut at the moment. It also gives the ECJ an opportunity to deal with the issue head on as opposed to through the more difficult route of the preliminary reference procedure (such as in Placanica).
What is striking is that the Commission looks like it is seeking to push classic free movement law back into the gaming arena, namely: if a provider is lawfully licensed in one Member State there is no reason why its activities should be prohibited in another. The last time this argument appears to have been raised with any degree of force was by Advocate General Fennelly in Zenatti back in 1999. It may well be the case that the Commission hopes that the ECJ has lost patience with the Member States and that it will seek to "judicially liberalise" a market that patently has not been, and is not likely to be, liberalised through the legislative process. The Commission's approach will also beg the question as to why gaming should be treated differently from other industry sectors.
The argument between the Commission and the Member States, and ultimately the focus of the ECJ's decision(s), is likely to remain justification. The Commission focuses on the ECJ's consistent statements that any restrictions which seek to protect general interest objectives must be "consistent and systematic" in how they seek to limit betting activities. The Commission's press release goes on to assert that "[a] Member State cannot invoke the need to restrict its citizens' access to betting services if at the same time it incites and encourages them to participate in state lotteries, games of chance or betting which benefits the state's finances."
However, the ECJ in Placanica while re-iterating the "consistent and systematic" point did so in relation to one justification offered by Italy, namely, the objective of reducing gambling opportunities. The ECJ, as discussed in the previous article, noted a separate legitimate objective of "combating criminality by making the operators active in the sector subject to control and channelling the activities of betting and gaming into [controlled systems]" .
In relation to this ground, the ECJ specifically recognised, in contradiction to the Commission's latter point that: "…in order to achieve that objective, authorised operators must represent a reliable, but at the same time attractive, alternative to a prohibited activity. This may as such necessitate the offer of an extensive range of games, advertising on a certain scale and the use of new distribution techniques". This arguably blows the Commission's second point out of the water, though as noted in my previous article the ECJ's reasoning could be viewed as somewhat illogical.
But what about the need for any system to be "consistent and systematic", which arguably underlies Sharpston's opinion in Commission vs Italy?
If the ECJ does decide enough is enough and it is time for it to do the job of the legislature, it may well seek to "re-introduce" this criteria to any justification along the lines of the second one offered up in Placanica. This seems to be a fair compromise- yes, a Member State should have a measure of discretion on public policy grounds, but, no, this is not without limit and the "genuiness" of the justification, which should be evidenced by a Member State's consistent and systematic practice, will be assessed.
Final Comment
In my previous article, it was suggested that the ECJ in Placanica almost seemed to provide a Member State with the necessary terminology to cloak what otherwise could be viewed as protectionist or revenue raising measures. Another way to view what the ECJ did in Placanica is that it offered up a possible justification with a view to "tightening" it up in the infringement actions: an example of the ECJ giving "hope" to the Member States with one hand and then dashing it with the other. In conjunction with the Advocate General's opinion in Commission v Italy, a Member State's ability to justify regulatory restrictions in the gaming sector may well become a lot narrower after the ECJ has deliberated- who indeed would be in a hole then?
Sebastian McMichael is a solicitor specialising in EC and competition law with UK commercial law firm Shepherd and Wedderburn LLP.
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