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Gaming Law updated No. 07 |
Newsletter for sports betting and gambling law under special treatment of the German gambling market
No. 7 - 2nd March 2004 Release
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Summary:
1. Editorial
2. The “Hessischer Verwaltungsgerichtshof” (Hessian Administrative Court of Appeal) again unhinges state monopoly in the area of gambling
3. Newsflash: Federal Constitutional Court Decision regarding state restrictions of the gambling market expected this year.
4. Questions and Answers on the “Gambelli-Case”
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1. Editorial
Dear Reader,
from a sportsmanlike point of view the legal dispute regarding foreign bookmakers should be regarded as tied. After several negative (national) court decisions issued shortly after the ECJ’s Gambelli-decision, a currently issued and extensively reasoned decision of the Hessian Court of Appeal now – like the District Court of Munich and the County Court of Heidenheim – explicitly denies the applicability of Art. 284 German Criminal Code to foreign bookmakers due to the primacy of Community Law (Decision of 9th February 2004, Az. 11 TG 3060/03). The Hessian Court of Appeal meticulously analysis the ECJ’s Gambelli-Decision as well as the former decisions in this area to conclude:
“Art. 284 Criminal Code is not applicable (…)at present (…) either. (…) In any case, with regards to the outlined jurisprudence of the ECJ and the similar sanctions provided by the Italian Criminal Code, Art. 284 German Criminal Code cannot be applied to offering and forwarding offers of bets in Germany. A penal punishment of the agent would – due to the outlined reasons – constitute an illegitimate interference with the freedom to provide services and the freedom of establishment granted by Community Law”.
In the long run the state monopoly will probably not be able to be upheld due to reasons of community law. “Wild West”-conditions will not be set in place though. In fact a well-regulated procedure for the agent “on site” must exist. Insofar the court ordered the agent to apply for a license immediately.
At the same time the forthcoming decision of the Constitutional Court on the question of whether the current provisions regarding the state monopoly in betting and gambling services are compatible with the freedom of choice of one’s profession, is awaited with suspense.
The Editorial Staff
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2. The “Hessischer Verwaltungsgerichtshof” (Hessian Administrative Court of Appeal) again unhinges state monopoly in the area of gambling
The current decision (decision of 9th February 2004, AZ. 11 TG 3060/03) is based on the following facts:
The applicant operated a salesroom in which customers were able to conclude sports betting agreements. The agent then conveyed these bets to an English bookmaker.
The competent German authority barred the agent from exercising his activity, referring to Art. 1 of the law on state sporting bets and lotteries of Hessia, postulating that solely the state of Hessia was permitted the activity of offering bets on sporting events. In its order of September 19th the competent authority thus ordered the immediate execution of its order.
Before the administrative court of Kassel the agent filed for continuation of his business until a final decision were reached, but the administrative court of Hessia in its decision of 24th October 2003 again dismissed his claim referring to Art. 1 of the law on state sporting bets and lotteries of Hessia (SpW/LottG).
With an injunctive claim, the agent appealed against this decision to the Hessian Administrative Court of Appeal as last instance court in this case.
With decision of 9th February 2004 the Hessian Administrative Court of Appeal decided that the claimant’s opposition had suspensory effect and granted the injunction as claimed by the agent since “there is a preponderant probability” that the barring injunction granted by the administrative court would not stand a verification in the main proceedings concluding:
“The (…) injunction barring the operating of sporting bets will have to be discharged, since the provision of Art. 1 Hessian law on state sporting bets and lotteries (SpW/LottG) (…) on which the opposing party bases its barring injunction, is incompatible with overriding provisions of Community Law. Due to this contradiction to overriding provisions of Community Law, Art. 1 Hessian law on state sporting bets and lotteries (SpW/LottG) is not applicable as basis of authority for the barring injunction issued.”
As a result of the non-applicability of Art. 1 SpW/LottG the barring injunction “lacks a valid legal basis and is therefore to be considered illicit”.
The court considers Art. 1 SpW/LottG to be unlawful, for English bookmakers were generally forbidden to contract with a German agent (such as the claimant) as well as to offer advertising material in Germany. This did not only constitute an interference with the right of freedom of establishment and the freedom to provide services. Moreover this interference was not justified.
“Restrictions can only be justified on the grounds of public order, security and health matters such as stipulated in Art. 46 EC-Treaty or on stringent grounds of public interest (ECJ, (…) Zanetti, (…) Schindler (…))”
The Hessian court of appeal refers to the decisive sections of the Gambelli-decision (No. 60, 62, 67) and interprets them in accordance with its spirit and purpose.
“The European Court of justice demands that the restrictions must be suitable to reach the goal of systematically and coherently limiting the betting activities. Furthermore they must really serve the end of limiting the opportunity of gaming. The financing of social activities by revenues from monopolistic state activities (...) may only be a fortunate side effect, but not the real reason for such restrictive politics.
(…) the senate (…) has considerable doubts, that the monopoly in the area of operating sporting bets attributed to the state and the resulting limitation of conveying sporting bets to state approved receiving offices is really aimed at protecting potential betting interested from financial exploitation by the operators and from dangers resulting from the excessive participation in sporting bets, and that the revenues resulting from operating sporting bets can subsequently be regarded mainly as a fortunate side effect of the legal restrictions.”
The court therefore clarifies that the general prohibition of admitting private betting operators is not a necessary and proportionate measure, but that e.g. it would be sufficient to “link the license to the obligation to distribute part of the profit in order to reach the alleged goal”.
The Hessian Court of Appeal regards the strategy of state monopolies (e.g. as stipulated by Art. 1 (SpW/LottG)) as a violation of community-law, since state lottery operators “massively advertise in the whole republic for people to participate in Oddset Sporting-bets (…), in order to finance or support cost-intensive public projects such as the football world-cup 2006 or to balance public budgets.”
Finally the Administrative Court of Appeal comments on the provision of Art. 284 German Criminal Law (illegal Gambling) which the public authority invoked in order to justify its order. It states that:
“(…) In the view of the outlined jurisdiction of the ECJ, Art. 284 German Criminal Code cannot be applied to operating and placement of sporting bets in Germany. A penal punishment of the agent would (…) constitute an illegitimate interference with the freedom to provide services and the freedom of establishment granted by Community Law”
Commentary by ARENDTS ANWÄLTE
Unfortunately from the point of view of a foreign bookmaker a predominantly negative development had taken place on the German gambling market recently, reflected in several negative court decisions as well as the drastic measures taken by the public authorities and the policy against foreign bookmakers without a German license.
The 11th Senate of the Administrative Court of Appeal in Hessia has revoked that trend.
Similar to the judgement of the administrative court of Stuttgart outlined in the last newsletter, the Hessian Administrative Court of Appeal’s decision is well reasoned and applies the rule of law stating that a court confronted with profound interferences in the rights of a EU-citizen must comment in detail on these interferences by discussing all legal problems in detail.
The arguments used by this court, considers the guidelines established by the ECJ (please compare “questions and answers regarding the Gambelli-decision). The German courts are bound to the examination criteria and the examination standards set forth by the ECJ. Therefore not only the goals of the provision interfering with community law (so in our view wrongly the High Bavarian Court of Appeal), but the actual implementation of that provision (in the present case the extensive advertising for the state betting offers).
This decision should encourage (foreign) bookmakers to consult a law firm for legal advice on whether to apply for a license for operating or placing sporting bets or not. For the Hessian Administrative Court of Appeal rendered this bookmaker-friendly decision requiring the bookmaker to apply for a license for placing sporting-bets. The state of Hessia on the other hand was order to: ”render a decision in the view of the legal views of this senate and to abide the placement activities until a final decision on the application was reached.”
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3. Newsflash: Decision of the Federal Constitutional Court on the question of state limitations of the gambling market expected this year
In our Newsletter No. 3 we reported, that since 1999 several appeals on an institutional issue were pending at the Federal Constitutional Court (BVerfG). The appellants mainly claim the confinement of their right of free choice of their profession (Art. 12 German Constitution).
Recently we received a statement from the Federal Constitutional Court announcing that it expects the decisions on these appeals to be rendered this year.
One should be curious to find out which side the Constitutional Court will be on – especially if one reflects the guidelines set forth by the ECJ. Only one thing is for sure: the outcome of the process is completely open.
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4. Questions and answers on the “Gambelli-Case”
• Why does the European Court of Justice (ECJ) deal with Gambling ?
Even the previous jurisdiction of the ECJ regarded the offering of gambling as a commercial activity in terms of the EC-Treaty (After all we are talking about money). Restrictions of the freedom to provide services granted by the EC-Treaty must therefore “be justified by imperative requirements in the general interest, be suitable for achieving the objective which they pursue and not go beyond what is necessary in order to attain it. They must in any way be applied without discrimination” (Gambelli-judgement, No. 65)
• What is new with the Gambelli-judgement ?
In this case the ECJ for the first time had to deal with a penal provision restricting the freedom to provide services. Reviewing the provision at stake in respect to its proportionality the ECJ stipulated the examination criteria to be observed by the national courts. These criteria are binding for German courts.
• Is a drop in tax revenues suitable to justify a restriction of the freedom to provide services ?
From a community-law point of view the answer is clearly No. The ECJ explains it as follows: Tax income “may only be a fortunate side effect, but not the real reason for such restrictive politics”.
• Under which circumstances can a restriction of the freedom to provide services be regarded as “suitable”?
Only if a comprehensible and coherent politics is being pursued. The ECJ explicitly refers to advertisement for state lotteries:
“In so far as the authorities of a Member State incite and encourage consumers to participate in lotteries, games of chance and betting to financial benefit of the public purse, the authorities of that state cannot invoke public order concerns relating to the need to reduce opportunities for betting in order to justify measures such as those at issue in the main proceedings.”
Given the extensive publicity for the state-owned Oddset sporting bet offers the restrictions for foreign providers from the EC cannot be upheld for this reason already.
• Why did the ECJ not declare the Italian criminal Provision as illicit ?
The ECJ did not have the authority to declare the Italian provision as illicit in this procedure. The judgement was rendered in the context of a preliminary ruling procedure, which was used by an Italian penal court dealing with the case to have the ECJ clarify questions of community law. In such a case the ECJ interprets community law, not the relevant national provisions.
Nonetheless, from our point of view the ECJ clearly indicated which decision should be reached by the Italian court. It clearly questioned the proportionality of the penal sanction.
• Do gambling customers have the right to invoke the freedom to provide services ?
Yes, customers can refer to prevailing case law of the ECJ ruling on the passive freedom to provide services. (Potential) customers are entitled to receive or to benefit as recipient from the services offered by a supplier established in another Member State without being hampered by restrictions (see Gambelli-judgement No. 55). Art. 285 German Criminal Code is therefore inapplicable due to the primacy of community law.
• What kind of discretionary power is attributed to the member states when restricting the freedom to offer services in the area of sporting bets ?
According to the ECJ “moral, religious and cultural factors” as well as “morally and financially harmful consequences” of gambling must be considered (Gambelli-judgement No. 63). Insofar the Member States and their authorities have a “margin of appreciation”. That does not mean, that they are free to restrict the freedom to provide services, though. In fact the imposed restrictions must comply with the rather strict conditions set forth by the ECJ – i.e. they must be non-discriminatory as well as proportional.
• Can the German states agree on licensing German (state) providers only ?
From a community-law point of view: clearly not. Discriminatory, i.e. regulations discriminating providers form other Member States are never justified. Restrictions must apply without distinction, i.e. they must apply in the same way and under the same conditions for providers established in Germany as well as for those from other Member States alike (Gambelli-judgement No. 70).
• Does freedom to provide services lead to the “Wild West” ?
No, of course not. The ECJ on several occasions emphasises that especially regulations fighting fraud are admissible. These regulations must not go beyond what is necessary though. Regulations entailing controls and penalties which the supplier of the service is subject to in his Member State of establishment where he is lawfully constituted must be taken into consideration. Especially with respect to the strict licensing conditions and the adequate control of English and Austrian bookmakers a restriction of the freedom to provide services should not be valid on the grounds of fighting fraud alone.
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© 2004; Publishing is desired with publication of the source including contact information. A copy or publication information is requested. |
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