Austria: The Proposed Concessions Directive And Gambling Services

Last Updated: 26 August 2013
Article by Arthur Stadler and Nicholas Aquilina

The EU Commission has issued proposals for a Directive on the award of concession contracts, but was recently put under pressure by opponents of the Directive. The Directive shall ensure transparency and equal treatment when it comes to the award of services concessions. Gambling services are - for questionable reasons - excluded from this proposal. Arthur Stadler and Nicholas Aquilina of Brandl & Talos Attorneys at Law explain why the granting of concessions for gambling services should run through a public and transparent proceeding, according to CJEU case law and should not receive any special treatment under the proposed Directive.

Unjustified blanket exclusion of gambling services

A recent uproar, criticising the EU Commission's alleged attempt to privatise public water supply, has gone through the media and brought back attention to the Commission's proposal for a Directive on the award of concession contracts (the 'Directive')1. Pursuant to Art 2 para 1 of the Directive, 'concessions' shall mean 'public works concessions' or 'services concessions' relating to a contract concluded between economic operators and contracting authorities or entities having as their object either the execution of works or the provision of services and the consideration consisting of either solely the right to exploit the works or services or in that right together with payment. In any case, according to the Commission this public fear is without any reason: 'The Commission denies all allegations of such an intention which is a deliberately erroneous reading of the legislative proposal.' Respecting the EU's principle of subsidiarity, the Directive does not force local governments to privatise public water supply 'and supports the autonomy of local government regarding the provision and organisation of such services of general economic interest.'2 However, if a local government has privatised or aims at privatising the distribution of water, the Directive shall ensure transparency in awarding such contracts, thereby adhering to the principle of transparency as a specific expression of the principle of equal treatment in order to prevent any discrimination against potential concessionaires established in other Member States.Whereas the granting of concessions regarding the distribution of water - clearly a service of general interest - has made it into the public debate, the blanket exclusion of gambling services - most likely less probable to be qualified as a service in the general interest - has not gained as much media attention despite its potential to considerably water down the fundamental principle of equal treatment.

But where is all this coming from? Back in 2007, the Court of Justice of the European Union ('CJEU') considered the award of gambling concessions as constituting a public service concession3. Unlike other forms of public contracts, the award of public service concessions has not been subject to secondary legislation, but only covered by the general principles stipulated within the Treaty on the Functioning of the European Union ('TFEU'), which the Commission considers a loophole that 'gives rise to serious distortions of the internal market, in particular limiting access by European businesses [...] to the economic opportunities offered by concession contracts'.4 According to the draft legislation's aim such unequal treatment shall be eliminated. However, various stakeholders pressed for amendments5 that give rise to concerns whether the Directive will actually effectively pursue the aim of eliminating loopholes that are harmful to the internal market. And this is the key difference between the distribution of water and the operation of gambling services: whereas the fear regarding the forced privatisation of the distribution of water is unfounded, the blanket exclusion of gambling services from the Directive's scope of applicability gives rise to concerns.

The amendments argue that the blanket exclusion of gambling services from the Directive is justified by objectives of public interest, such as combating illegal gambling, fraud,money laundering and gambling addiction6. It is further argued that Member States would be deprived of flexibility and are consequently impeded in their ability to act, if gambling was included in the Directive7. The 'exclusion would be justified by the granting of exclusive rights to a single body at national level,making a competitive procedure inapplicable [...]'.8 In this context, it must not be forgotten that gambling - again as a result of lobbying activity - is excluded from various other sources of secondary EU law, such as the E-Commerce Directive9, the Consumer Rights Directive10 or the Services Directive11 by questionable arguments.

The exclusion from the Directive currently under discussion clearly contravenes the statements made in consistent CJEU case law regarding the award of concessions and the gambling sector as well as the Commission's approach in relation to (online) gambling services in its Communication 'Towards a comprehensive European framework on online gambling'12, which, in absence of harmonisation, intends at pushing for national compliance with EU law.

CJEU case law on the award of concessions and the gambling sector

In principle, consistent CJEU case law calls for a public and transparent award of gambling concessions, following the core intent of the internal market, in particular protected by Art 49 and 56 TFEU, namely the freedom of establishment and the freedom to provide services.When awarding gambling concession,Member States 'will be required to observe the fundamental rules of the Treaties, including in particular Articles [49 and 56 TFEU], the principles of equal treatment and of non-discrimination on grounds of nationality and the consequent obligation of transparency.'13 The award of concessions must be based '[...] on objective, nondiscriminatory criteria which are known in advance, in such a way as to circumscribe the exercise of the national authorities' discretion.'14 It follows that 'all the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner, to make it possible for all reasonably informed tenderers exercising ordinary care to understand their exact significance and interpret them in the same way [...].'15 Applying these criteria is necessary to provide all potential concessionaires with equal chances. If the principle of equal treatment was disregarded, operators potentially interested in applying for a concession could not 'express their interest and, therefore, [...] exercise their rights deriving from Articles [49 and 56 TFEU]'.16 Exactly this fact makes the principle of transparency 'a mandatory prior condition of the right of a Member State to award to one or more private operators the exclusive right to carry on an economic activity [...]'.17

Also the award of a single licence must not take place without obeying the fundamental rules of transparency and nondiscrimination. Even though the Commission has stressed the importance of competition on the gambling market in its Communication, some Member States have excluded competition by implementing a monopoly or awarding exclusive rights to a single operator. This major restriction of the freedom to provide services is justifiable only under very stringent conditions that have been constantly specified by the CJEU,most recently in the Stanleybet decision on the Greek gambling monopoly rendered in January 201318. Even if Member States have used their discretionary power to exclude competition on the gambling market, the competition for the gambling market, relating to the process of awarding exclusive rights to a single operator (monopoly) or to a limited number of operators (oligopoly) must adhere to the principles of transparency and equal treatment and the consistent CJEU case law on the award of concessions in the gambling sector19.

Granting concessions without applying the principle of transparency is possible only under narrow circumstances derived from CJEU case law. Like any exception, these circumstances may not be applied broadly. The CJEU's landmark decision relating to the possible exemptions from the principle of transparency is the Teckal case of 1999. There are only two exceptions from the principle of transparency: (i) operations without cross-border interest, particularly by reason of very modest economic stake and (ii) 'in-house-operations.'

As regards operations without cross-border interest, even if 'the conditions imposed by the Member State are such as to dissuade undertakings from expressing their interest in the activity in question, those conditions must still be actually made known to them so that they can make a decision.' Otherwise a potentially interested operator would be deprived of the possibility to assess the feasibility of applying for such a concession. In other words, the principle of transparency needs to be applied even if the respective Member State is of the opinion that no operator would seriously consider applying for a licence due to the unattractiveness of the market20.

The 'in-house' award of licences may take place if four cumulative conditions are given (the first three being referred to as the 'Teckalcriteria'):

  • the licensing relation must be between a public authority and a legal entity different from this authority;
  • the public authority exercises similar control as it exercises over its own departments - this similar control meaning that the public authority must have 'decisive influence over both strategic objectives and significant decisions'21 and thereby must be able to exercise structural and functional22 as well as effective23 control, which means that in case of joint control a purely formal affiliation is not sufficient as this would lead to a circumvention of the criterion of 'similar control'24;
  • the entity carries out most of its activity with the public authority controlling it25; and
  • the legal entity must not be (partly) owned by private investors as such an owner's structure would per se exclude that the public authority exercises similar control as over its own departments26. These criteria have been - consistently with the Directive's aim to foster the application of the principle of transparency - written into the draft text of the Directive in Art 15. It follows that in any case, state-controlled operators (also of gambling services) will be exempt from the scope of the Directive: Art 15 para 1 of the Directive provides for an expressis verbis 'in-house' exemption: The Directive is not applicable if
  • the public authorities have decisive influence over strategic objectives and significant decisions of the legal entity to which the concession shall be awarded;
  • 90% of the activities are carried out for the State, regional or local authorities; and
  • there is no private participation in the legal entity.

Therefore, Art 15 of the draft Directive already excludes all state operators of lotteries and casinos from its scope of applicability if the above-mentioned criteria are fulfilled. A further-reaching exclusion of gambling activities therefore lacks justification and is clearly contrary to the Directive's aim, the market freedoms protecting the internal market and fundamental EU principles, namely the principles of transparency, equal treatment and non-discrimination.

Conclusion

The draft Directive expressly mentions the aim to provide for a minimum coordination of national procedures, objective award criteria ensuring compliance with the principles of transparency, nondiscrimination and equal treatment.While almost all services without exemptions are subject to stringent rules, the gambling sector is set aside - with no further justification - and considered as a 'particular sector of economy' by questionable parameters. If transparent, non-discriminatory granting of concessions is considered to be crucial also in the gambling sector, it is logical for gambling services to be covered and not exempt from legislation. If the Directive is actually - as intended and as its name suggests - a harmonising legal framework, it is more than evident to include gambling services.

Arthur Stadler and Nicholas Aquilina of Brandl & Talos Attorneys-at-law, Vienna (http://www.btp.at)

This article has been first published in the World Online Gambling Law Report ( http://www.e-comlaw.com/world-online-gambling-law-report/article_template.asp?from=woglr&ID=1891&Search=Yes&txtsearch=Concessions%20directive

Footnotes

1. Proposal for a Directive of the European Parliament and of the Council on the award of concession contracts, 2011/0437 (COD), SEC(2011) 1588 final, SEC(2011) 1589 final, COM(2011) 897 final.

2. European Commission, Press Release of 23 January 2013, available at http://ec.europa.eu/commission_2010- 2014/barnier/docs/news/2013/130124_ water-services_en.pdf

3. CJEU 13 September 2007, C-260/04, Commission vs. Italy, para 20.

4. Explanatory Memorandum, indent 1, regarding COM(2011)0897 final; emphasis added.

5. See in particular Amendments ('AM') 75, 311, 510.

6. AM 75, justification.

7. AM 75, explanatory statement.

8. AM 311, Recital (13a) new; justification, AM 510; emphasis added.

9. Directive 2000/31/EC of the European Parliament and the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market, OJ 2000 L 178, 1-16.

10. Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council, OJ 2011 L 304, p 64-88.

11. Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the Internal Market, OJ 2006 L 376, 36-68.

12. European Commission, 'Communication towards a comprehensive European framework for online gambling,' COM (2012) 596 of 23 October 2012, available at http://ec.europa.eu/internal_market/servi ces/docs/gambling/comm_121023_onlin egambling_en.pdf.

13. CJEU 16 February 2012, C-72/10, Costa and Cifone, para 54, CJEU 24 January 2013, C-186/11, Stanleybet, para 47.

14. CJEU 3 June 2010, C-203/08, Sporting Exchange, para 50, CJEU 19 July 2012, C-470/11, Garkalns, para 42 and most recently CJEU 24 January 2013, C-186/11, Stanleybet, para 47; emphasis added.

15. CJEU 16 February 2012, C-72/10, Costa and Cifone, para 73; emphasis added.

16. Opinion AG Bot, 17 December 2009, on joined cases C-203/08, Sporting Exchange, and C-258/08, Ladbrokes, para 153.

17. Ibid, para 154, see also Talos/Aquilina, WOGLR 3/2010, 14.

18. See Aquilina/Pichler, WOGLR 2/2013, 10.

19. See Talos/Aquilina, WOGLR 3/2010, 14; Stadler/Aquilina, ELR 1/2013, 2 (6).

20. Opinion AG Bot, 17 December 2009, on joined cases C-203/08, Sporting Exchange, and C-258/08, Ladbrokes, para 167; see also Talos/Aquilina, WOGLR 3/2010, 14 (14-15).

21. CJEU 13 October 2005, C-458/03, Parking Brixen, para 65; CJEU 13 November 2008, C-324/07, Coditel Brabant, para 28.

22. CJEU 17 July 2008, C-371/05, Commission vs. Italy, para 26.

23. CJEU 13 November 2008, C-324/07 Coditel Brabant, para 46.

24. CJEU 21 July 2005, C-231/03, Coname, para 24; CJEU 29 November 2012, C-182/11, Econord, paras 27, 31.

25. CJEU 18 November 1999, C- 107/98, Teckal, para 50; CJEU 13 October 2005, C-458/03, Parking Brixen, para 58.

26. CJEU 13 November 2008, C- 324/07, Coditel Brabant, para 30; CJEU 10 September 2009, C-573/07, Sea, para 46.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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