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Hambach & Hambach Law Firm obtains referral to the ECJ

February 11, 2008 2008

As already mentioned in our press release of 31 January 2008, the Administrative Court of Schleswig-Holstein (VG Schleswig-Holstein) decided to stay the main proceedings brought by Hambach & Hambach Law Firm, its subject matter being the validity of a European license for a sports betting offer in Schleswig-Holstein and to refer the relevant Community Law questions for a preliminary ruling by the ECJ.

Background on the Administrative Court of Schleswig-Holstein’s Gambling Monopoly Decision of 30 January 2008

In the course of the oral hearing the Administrative Court of Schleswig Holstein already voiced its legal opinion that a sports betting monopoly can only be justified by the goal of fighting compulsive gaming, if all legal provisions and factual regulations of a Member State with respect to the entire gaming market – and not only to those concerning the sports betting- and lottery monopoly – are made the subject of the examination as to a systematic and coherent gaming limitation. The judge drew a very graphic comparison on this: In the case that a state ban or monopoly on wine and beer were to be justified by the dangers of alcoholism, it would hardly be coherent, if other alcoholic beverages such as Schnapps would keep being available over the counter.

This courageous court decision shortly after the coming into effect of the Interstate Treaty on Gambling shows, that the doubts already expressed by the jurisprudence in several earlier decisions to stay proceedings (VG Stuttgart, decision of 24 July 2007, VG Gießen, decision of 7 May 2007, VG Köln, decision of 21 September 2007) with regards to the conformity of the former legal situation with Community Law apply to the new Interstate Treaty on Gambling as well.

As soon as the end of last year (decision of 8 November 2007) the Administrative Court of Appeal of Hesse (Hessischer Verwaltungsgerichtshof (VGH)) had suggested that its current jurisdiction, which declared the hitherto existing measures to be sufficient, was solely based on the transition period granted by the Federal Constitutional Court’s (Bundesverfassungsgericht) sports betting decisions until 31 December 2007. The pending proceedings however are stayed, with regards to the legal questions already referred, since, in the view of the Administrative Court of Appeal, the answer to these questions referred and thus the decision on the requirement of an “overall consistency” in particular is of crucial importance.

The Administrative Court of Appeal points to the inconsistency of the state objective invoked as a justification for the state monopoly on the one hand and the actual conduct of the state as gaming operator on the other hand and cites the EU-Commission’s letter of formal notice in the infringement proceedings no. 2003/4350, para. 38. One could therefore determine that, in defiance of the increased addiction potential of casino games, the German authorities kept pursuing expansionary politics in this area. The number of licensed casinos for example had expanded from 66 in the year 2000 to 81 in the year 2005.

Regarding the fact, that the requirements of the ECJ are not fulfilled despite the Interstate Treaty on Gambling coming into effect, the court explains:

“Regarding the question of a coherent and systematic limitation of gambling, the court is therefore not capable to find that the ECJ’s requirements for enacting a valid limitation were complied with. A holistic view of all licensed and permitted offers of games of chance is obviously nonexistent. Only such a holistic view can enable the legislator called upon to comprise the perceived dangers of gaming- and gambling addiction for the individual and society and to provide the necessary remedies.”

Moreover, the Administrative Court of Schleswig explicitly explains that it does not share the opinion expressed by the Administrative Court of Appeal of Hamburg (OVG Hamburg) in its decision of 9 March 2007, but instead acted on the assumption that the ECJ’s decision of 9 March 2007 did not result in a break-up of the market into different gambling sectors. Looking at a single gambling sector one did not only have to consider prevalent sports betting but the other various forms of gambling as well. In this respect the Administrative Court of Schleswig refers to the EFTA Court’s judgement of 3 May 2007 (Landbrokes Ltd. ./. Norway; case E-3/06) and thus corrects a frequently observed misinterpretation of this judgement. This decision states that the national court must “decide on the consistency of the gaming policies”.

Amongst others, in its decision the EFTA Court addresses the question, whether it was compatible with the freedom to provide services, that a Member State provides for a monopoly system for certain gaming sectors. The Court formulates a very general answer to this, stating that a limitation of the freedom to provide services is admissible, if it is established for reasons of overriding general interest and the measures taken to achieve this objective are adequate, consistent and do not exceed the necessary extent for its implementation. The interesting question with regards to the German legal situation, that is, whether a regulation of a Member State can still be regarded as a coherent and systematic measure to allow for a limitation of the freedom to provide services, if only few gaming sectors are affected by the state monopoly, whereas those games with high addiction potential are liberalised, was not answered by the EFTA Court. The EFTA Court merely declares that, with regards to the examination of Adequacy and Consistency of a measure, it was up to the national court to assess the consistency of the gaming policies (para. 52). Moreover, the necessity of a state monopoly could be at stake, if there was only a very low protection level. The national court could use the number of licensed gambling possibilities and types to determine the existing level of protection. In particular, the number of gambling offers per week/day, the number of outlets, sales- and marketing strategies and the development of new games had to be taken into account for the assessment (para. 60). From these explications one can understand that the national court should assess the consistency and necessity of the given regulations applying a holistic view.

With regards to the fact that the diverging directions of statutory provisions in Germany are attributed to differing legislative authority the Administrative Court of Schleswig-Holstein explicates:

“In the opinion of the chamber federal particularities regarding legislative authority of the Federation and the states cannot justify a state monopoly applying to one sector of potential games of chance, especially since Art. 74 para. 1 no. 11 of the Constitution provides for the federal legislator’s concurrent legislative authority on sports betting and lottery matters.”

It was this deliberation that caused the Administrative Court of Schleswig-Holstein to submit this question, which explicitly includes that the diverging regulations are incoherent with regards to the danger of addiction and are attributed to the diverging legislative authority of the Federation and the states:

“Is Art. 49 EC-Treaty to be interpreted to the effect that it conflicts with a national state monopoly on the operation of sports betting and lotteries (with more than minor addiction potential) justified by the need to fight compulsive gaming, if other games of chance with considerable addiction potential may be offered by private service providers and the different statutory regulations regarding sports betting and lotteries on the one hand and other games of chance on the other hand are based on the differing legislative authority of the federation and the states?”

In case this question is answered in the affirmative by the ECJ the Administrative Court of Schleswig-Holstein asks for an additional ruling on the two following two questions:

c) Is Art. 49 EC-Treaty to be interpreted to the effect that it conflicts with a national regulation that leaves the granting of a license for the operation and the transfer of games of chance to the licensing authority’s discretion even in case that the statutory requirements for granting such a license are fulfilled?

d) Is Art. 49 EC-Treaty to be interpreted to the effect that it conflicts with a national regulation that prohibits the operation and the transfer of public games of chance via the internet, in particular, if – although limited to a transition period of one year – the operation and the transfer via the internet complying with youth- and gamer protection provisions is permitted in order to observe the principle of proportionality and to allow two commercial gaming agents, who had been operating via Internet so far, to adapt to the distribution channels to be permitted by the Interstate Treaty?

The Administrative Court of Schleswig-Holstein has thus already suggested which steps it is going to take in case that the state monopoly is declared illegal. For, even if an online sports betting operator is in principle capable of obtaining a license, it is of material importance whether the decision to grant a license is left to the authority’s discretion or if the latter must grant the license provided that all requirements are fulfilled. Following the European Commission’s deliberations on this issue, a decision based on the authority’s discretion is probably going to pose the great risk of discriminatory decisions. The same applies for the transition period for internet offers, which does first and foremost boil down to privileging German operators and thus constitutes a form of discrimination as well.

In a next step the Hambach & Hambach law firm is going to prepare a written opinion regarding the questions referred to the ECJ and is full of expectation as regards to the ECJ-proceeding.

Wulf Hambach

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