August 7, 2014

The Gibraltar Betting and Gaming Association (‘GBGA’) confirmed in June its intention to seek a judicial review of the UK Gambling (Licensing and Advertising) Act 2014. Jason Chess of Wiggin LLP examines the background to the GBGA’s potential claim and how the zeitgeist of online gambling regulation may influence the success of such a challenge.

The pre-legislative scrutiny of the 2014 Act1 envisaged that a ‘disgruntled remote gambling operator or association might try to bring a case against the UK in the ECJ’ in relation to the British PoC regime. The CMS Committee considered this, but judiciously confined itself to noting the Government’s ‘confidence that any challenge to the legislation would be unlikely to succeed.’ A year later, the potential for a challenge has crystallised into the GBGA’s letters before action served upon the British authorities on 18 June 2014.

The crux of the issue – that is to say the reason that the Government gave for bringing into existence the 2014 Act – seems to the writer to be as follows. In her evidence to the CMS Committee, Jenny Williams remarked that although the Gambling Commission (‘GC’) ‘had no reason’ to suppose that the ‘big companies in Gibraltar’ were not ‘behaving in a socially responsible way’ she ‘could not provide any assurance to…the [British] Government’ that they were doing so2. Earlier in the same report3 in which Jenny’s remarks are quoted, a DCMS official is also cited as having taken issue with a submission of the RGA’s which apparently said that no ‘risks’ to consumers had arisen in relation to white list operators. The civil servant pointed out that the RGA had ‘misquoted’ the ‘Regulatory Impact Assessment’ for the Bill which had rather said that no ‘issues’ had arisen. The upshot was that the department emphasised that it need only be on the basis of the ‘public protection risks’ that the Bill could be properly considered to be a ‘necessary and prudential measure’ of a ‘mainly precautionary kind.’4 ‘Issues’ (in the sense of something bad actually having occurred) were apparently considered otiose to the need for the legislation as was any need to go further and substantiate the likelihood, possibility, probability or other reality of the purported ‘risks.’ All that having being made clear to everyone, the Permanent Secretary at the DCMS was happy to reassure the CMS Committee of the EU-compatibility of the Bill. It is, he said, a ‘necessary and proportionate means of achieving enhanced consumer protection for British citizens.’5 At no point anywhere does anyone appear to contradict the oral evidence from Wes Himes that ‘None of the evidence or statistics indicates that there is a significant problem that would justify this new regime.’6

Meanwhile it seemed to the CMS Committee that if operators employed lots of people in the UK, then they ‘should be regulated by the UK.’ The Committee appeared to take the view that if you have your people here and your market here, then you should stump up the tax like everyone else.

The written evidence submitted by the GBGA to the CMS Committee on 29 April 2013 points out that EU law does not permit the UK ‘to arbitrarily switch from a free market system that it specifically set up…to a significantly more restrictive regime’ and that the compliance of the proposed new regime must be considered ‘in the light of the pre-existing regime.’7

So how is any challenge to the Act likely to fare? Some thoughts are as follows. Gambling (as the reader will know) is not subject to harmonisation across the EU. It is, however, a service like any other and hence subject to the basic legal framework guaranteeing the free movement of goods and services as enshrined in the Treaty of Rome. That said, Member States may derogate from the obligations imposed upon them by the Treaty and have done so widely in the case of remote gambling. Each Member State may ‘assess whether, in the context of the legitimate aims which it pursues, it is necessary to…lay down more or less strict supervisory rules for that purpose.’8 This is a wide discretion. However it is not entirely unconfined. Member States are not ‘exonerated…from ensuring that the measures they impose satisfy the conditions laid down in the case-law of the [ECJ], particularly as regards their proportionality’9 and ‘proportionality’ is a major topic of the ECJ judgments down the years.

The GBGA correspondence splits the concept into three main elements:

• Whether the restrictive measures are appropriate and necessary;
• Whether the restrictive measures are the least restrictive means available; and
• Whether they create more disadvantages than they solve.

How do these apply to the 2014 Act? The writer’s view is that it would make something of a nonsense of EU founding principles were a Member State to be able to derogate from them as a response to a harm that does not exist and is not likely to exist. The fact is that British remote gamblers enjoy almost universally excellent regulation from white listed regimes that were validated and endorsed precisely because they demonstrated British standards of social responsibility and player protection (or better). Other regimes failed to do so and the mechanism of attacking their advertising rights was adopted to bar them from the British market. So far as the writer is aware, this has been successful – the evidence seems to be that the vast bulk of British players gamble under the protection of the Gibraltar, Manx, Alderney or Maltese regimes and the GC has shown itself willing to take regulatory action against the promotion of ‘foreign’ gambling.

In the ‘Carmen’ case, the ECJ observed that one could hardly posit gambling as a private sector activity needing to be controlled on grounds of social harm when at the same time promoting it enthusiastically via the public sector. Conceptually, the judges recognised that circumstances in Germany contradicted the ostensible claims of the German authorities to a fatal extent. In relation to the British market, there is no evidence to indicate that the liberalised and free market-compliant regime instituted by the 2005 Act has given rise to social harm. As the GBGA trenchantly observe, ‘the current regulatory regime is entirely fit for purpose.’10 So to the writer’s mind, the British authorities are in a position analogous to the Germans in the ‘Carmen’ case, in that the facts provide no support whatsoever to the world view they are seeking to sell to the ECJ. The British will also need to justify the unique situation whereby they have chosen to reverse out of a free-market regime when that regime has operated since 2007 and no public harm has arisen as a consequence. This seems somewhat different to the usual ECJ situation where the Member State seeks to justify a monopoly. In the case of the UK, Pandora’s Box has already been opened, and nothing nasty has come out – the ECJ may expect to see better reasons for shutting it again than it customarily demands for you not wanting to open it in the first place.

All that said, the writer’s view is that the GBGA challenge might still fail. The ‘Carmen’ case was after all an aberration in a series of cases in which the increasing trend was for the court to find for the authorities. A Strasbourg ‘fonctionaire’ might well view the British regime – a comparatively reasonable rate of profits-based duty, no land-based nexus, etc – as a ‘light touch’ response to the ‘problem’ of gambling, compared with the regimes adopted by some other lawful EEA regulated markets. A clue as to why the GBGA (and indeed other private sector ‘free market’ claimants) experience so little traction with the Strasbourg judges, and why the GBGA may yet struggle, is that the ECJ appears to harbour an a priori conviction that remote gambling is a particular threat to the social good. Hence, they are predisposed to favour restrictions upon it. To look no further than the ‘Carmen’ case, the judges refer11 with evident approval to restrictive national legislation aimed at ‘preventing the squandering of money on gambling, combatting addiction to the latter and protecting young persons…the characteristics specific to the offer of games of chance by the internet may prove to be a source of risks of a different kind and a greater order in the area of consumer protection.’ In a nutshell, operators are pre-characterised as morally depraved by the court before they have even had the chance to take their jackets off and sit down. If the ECJ is prepared to take such a negative view, one wonders how much of an onus probandi the British authorities will face in relation to their similar, unsubstantiated chimeras.

Secondly, the topography of the gambling industry is shifting irrevocably. The days of ‘international’ business operating from the offshore jurisdictions are numbered. The future of remote gambling is for a small number of powerful local players in each regulated market. The EEA has seen a series of Member States ‘liberalise’ since 2008 and the British may simply be seen to be the next in line. Indeed, many operators have taken the phlegmatic view that if the Italians, Danes, French, et al are all wetting their beaks, then why not the Brits? A network of increasingly integrated EEA regulatory regimes is just the sort of construct to appeal to the European mind.

Any GBGA challenge is going to be intensely interesting to follow. The facts are clearly with the GBGA, but history may have left it behind.

1. ‘Pre-legislative scrutiny of the draft Gambling (Licensing and Advertising) Bill’ (Sixth Report of Session 2012-2013), House of Commons Culture Media and Sport Committee, HC 905, 1 May 2013 at para. 29, p. 15.
2. Ibid, at para. 34, pps. 16-17.
3. Ibid, at para. 25, p. 14.
4. Ibid, at para. 37, p.18.
5. Ibid, at para. 28, p. 15, citing the DCMS’ provided evidence, w26 at para. 4.5.
6. Oral Evidence taken before the CMS Committee, 29 January 2013, Q. 90, Ev 11.
7. CMS Committee, ‘Written Evidence submitted by the GBGA’, 29 April 2013, pps. 1-2.
8. Carmen Media Group v. Land Schleswig-Holstein & Innenminister des Landes Schleswig-Holstein, Case C-46/08, para. 3.
9. Ibid, para. 3.
10. GBGA ‘Evidence’ (Op. Cit.), p.3 .
11. Carmen, Op. Cit., para. 4.