Court of Justice confirms when gambling legislation will be compatible with EU law

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

On 30 April 2014 the Court of Justice of the European Union ("CJEULandesverwaltungsgericht OberösterreichC-390/12GSpG") handed down its decision to a request for a preliminary ruling from the Austrian Court, , in the Pfleger case (). The reference was made by the Austrian Court with respect to the Federal Law on Games of Chance (Glücksspeilgesetz, BGBI. 620/1989) ("") which requires operators of games of chance to obtain authorisation before arranging, organising or making available such games. Operating without authorisation may result in administrative penalties as well as criminal offences under the Austrian Criminal Code.

The reference to the CJEU arose from four disputes pending before the Austrian Court. In each of those disputes gaming machines had been seized from various establishments for allegedly operating without authorisation, in breach of the GSpG. The Austrian Court asked the CJEU for guidance on the compatibility of the GSpG with EU law, in particular the freedom to provide services (Article 56 of the Treaty on the Functioning of the European Union) and the freedoms to choose an occupation and conduct a business, and the right to property (Articles 15, 16 and 17 of the Charter of Fundamental Rights of the European Union).

Justification: tackling crime or raising taxes?

The CJEU held that the prohibition on the operation of gaming machines in the absence of prior authorisation contained in the GSpG was, on the face of it, a restriction incompatible with the freedom to provide services. However, restrictions on the freedom to provide services can in some instances be justified on grounds of public policy, public security or public health. Previous cases in the gambling sector have confirmed that legislation which genuinely pursues the aims of consumer protection and/or the prevention of fraud and gambling addiction may fall within the public policy exception.

The Austrian authorities argued that the objectives pursued by the GSpG were the protection of gamblers by restricting the supply of games of chance and the fight against crime connected with those games, and therefore the GSpG fell within the public policy exemption. Conversely, the Austrian Court considered that the real aim of the legislation was to increase State tax revenue, noting that there had been "colossal expenditure" on an "aggressive advertising campaign" to promote gambling, which was inconsistent with a policy to protect consumers.

The CJEU ruled that the freedom to provide services must be interpreted as precluding legislation which does not actually pursue the objective of protecting gamblers or fighting crime. It also confirmed that legislation with the aim of increasing public tax revenue will not be permitted as a justification for a restriction on the freedom to provide services.

Proportionality

Furthermore, the CJEU held that any restriction on the freedom to provide services imposed by a Member State must satisfy the principles of proportionality and non-discrimination. National legislation will only be appropriate for attaining the objective pursued if it genuinely reflects a concern to attain it "in a consistent and systematic manner". The CJEU held that the GSpG was disproportionate and went beyond what was necessary to fulfil the purported objectives.

Legal first: application of The Charter of Fundamental Rights of the European Union

In its ruling the CJEU continued to note that where legislation is held to restrict the freedom to provide services, it is also capable of limiting the freedom to choose an occupation, the freedom to conduct a business and the right to property under Articles 15, 16 and 17 of the Charter. This represents the first time that the Charter has been applied in a gambling related ruling by the CJEU. The CJEU provided further guidance, stating that restrictions on such rights and freedoms would be permitted if national legislation is proportional, "necessary and genuinely meet[s] objectives of general interests recognised by the European Union or the need to protect the rights and freedoms of others".

Consequences

Finally, the CJEU confirmed that where legislation is found to be incompatible with the freedom to provide services, an infringement of that legislation cannot give rise to penalties. Consequently, if on applying the CJEU's ruling the Austrian Court determines that the GSpG is in fact incompatible with EU law, the Austrian authorities will not be able to pursue the administrative penalties set out in the GSpG or any related criminal sanctions against the parties to the proceedings before the Austrian Court.