Sportsbet ‘Boxed Out’ of the Retail Market – the Betbox Case – Tabcorp’s Appeal Successful in the Full Federal Court

Overview

On 12 October 2012, the Full Court of the Federal Court of Australia reversed the decision of Gordon J at first instance in the Betbox case.¹

The effect of the Full Court's decision is that Sportsbet (and any other interstate betting operator) is restricted from installing and operating Betboxes (described further below) in hotels and clubs across Victoria. In effect, this appears to reinforce the offcourse retail wagering exclusivity enjoyed by Tabcorp by virtue of its statutory monopoly under Victorian law.²

From a legal standpoint, the decision also adds to the growing jurisprudence on s 92 of the Constitution (the constitutional protection relating to the freedom of interstate trade and commerce) in the context of conditions imposed, at a State level, on wagering operators.

We review the decision below and note some of its potentially broader implications.

What is a 'Betbox'?

Justice Emmett provided a useful description of a 'Betbox' and its operation:

The Facts

A Betbox was installed in the Eureka Stockade Hotel in East Ballarat, Victoria.

In July 2010, the Victorian gambling regulator (the Victorian Commission for Gambling Regulation or 'VCGR') seized the Betbox, asserting that the installation and operation of the Betbox gave rise to offences under provisions of the Gambling Regulation Act 2003 (Vic) and the Liquor Control Reform Act 1998 (Vic).

Sportsbet challenged the seizure and sought declarations from the Federal Court to the effect that the statutory provisions relied upon by the VCGR were invalid insofar as they related to the installation and use of the Betbox. Sportsbet's argument was to the effect that the provisions were unconstitutional on the basis that they were contrary to the principle in the Australian Constitution that guarantees the freedom of interstate trade and commerce.

The Initial Decision

The Court agreed with Sportsbet that the provisions were invalid due to their inconsistency with section 49 of the Northern Territory (Self Government) Act 1978 (Cth) (Self Government Act). Section 49 uses similar language to section 92 of the Constitution and the interpretation of that section of the Constitution was relevant in causing the Court to reach its decision.⁴

Justice Gordon reached her conclusions for the following reasons:

1. Sportsbet was engaged in interstate trade or commerce (or in this case, trade between a State and a Territory). This occurred as the Betbox customer is located in Victoria while Sportsbet is licensed and has its principal place of business in the Northern Territory.
2. The provisions were burdensome (prevented Sportsbet from operating the Betbox) in a discriminatory manner (they did not apply to Tabcorp).
3. The burdens were protectionist because they entrenched Tabcorp's position as the sole supplier in Victoria of betting facilities of a kind which Sportsbet seeks to supply and impose a competitive disadvantage on Sportsbet (as an interstate trader).
4. The State of Victoria and Tabcorp did not demonstrate that the provisions were appropriate and adapted to achieving objectives which were consistent with section 92 of the Constitution (i.e. securing the funding or integrity of the Victorian racing industry).⁵

The Appeal Decision

As foreshadowed shortly after the decision, the State of Victoria and Tabcorp appealed the decision of Gordon J.

The Full Court was asked to consider whether the provisions offended section 49 of the Self Government Act.

The Full Court was unanimous in allowing the appeal; however the Court was slightly divided in its reasoning, with Justice Emmett giving separate reasons.

A significant point of difference between the decision of Emmett J and the joint decision of Kenny and Middleton JJ related to the question of whether Sportsbet had, in fact, engaged in interstate trade or commerce (i.e. trade or commerce between Victoria and the Northern Territory). Emmett J was of the view that Sportsbet had not engaged in trade or commerce of an interstate nature on the basis that all of the relevant aspects of a betting transaction through a Betbox took place in Victoria (i.e. the punter, the Betbox and Sportsbet's senior management are all located in Victoria).⁶ The majority did not agree with this point.⁷

However, this point proved to be rather inconsequential as the Court was unanimous in concluding that the provisions do not impose a discriminatory burden of a protectionist kind.

The majority (Kenny and Middleton JJ) held that the provisions were not discriminatory towards interstate operators, nor were they protectionist. As to whether the provisions were discriminatory, their Honours observed that the differential treatment that Tabcorp receives when compared with Sportsbet (i.e. retail exclusivity) is based on its unique commercial arrangements dating back to the privatisation of the TAB in Victoria. Moreover, their Honours noted that neither Tabcorp nor Sportsbet is a reliable representative of the intrastate and interstate markets respectively for the purposes of assessing whether there is a discriminatory burden on interstate trade.

Justice Emmett held that the provisions do not impose a discriminatory burden of a protectionist kind on the basis that, with the exception of Tabcorp, registered bookmakers in Victoria are subject to the same prohibitions as interstate bookmakers.⁸

As to whether the provisions were protectionist, Kenny and Middleton JJ held that the objective intent behind the provisions was non-protectionist.⁹ That is, the introduction of those provisions was not motivated by protectionism. Their Honours had regard to the historical context surrounding the provisions, including the establishment of the TAB in the 1960's and its subsequent acquisition by Tabcorp in 1994, which had the primary objectives of securing funding for, and preserving the integrity of, the Victorian racing industry.¹⁰

In reaching this conclusion, each of the judges confirmed the entitlement of interstate bookmakers to provide and promote bookmaking services conducted under their licence throughout Australia.

Broader Implications

One of the interesting points to emerge from the decision was the Court's comments regarding monopolies. Justices Kenny and Middleton noted that statutory monopolies do not offend necessarily against the freedom of interstate trade or commerce. This is because they might disadvantage intrastate and interstate operators equally (as was the case here).

This suggests that it would be difficult to challenge, on constitutional grounds, exclusive licensing regimes (in respect of any service, whether online or not) established under State legislation. This, however, may depend upon a number of factors, including the nature of the exclusivity.

What Does This Mean for the Wagering Sector?

With Sportsbet evidently electing not to appeal the decision of the Full Court, and Sportsbet's recent abandonment of similar proceedings in New South Wales, the decision will stand. It will be interpreted as confirming that the retail exclusivity conferred under State and Territory wagering laws on the locally licensed totalisator is valid and not vulnerable to challenge on constitutional grounds. The Betbox case confirms the protection given to monopoly operators granted retail exclusivity in respect of their ability to conduct wagering from premises located in the relevant jurisdiction.

This is enhanced in New South Wales with the 2011 amendment to the Unlawful Gambling Act 1998 (NSW) which preserves further the TAB's off-course retail wagering exclusivity by prohibiting the provision of "remote access betting facilities" in public places (which are defined to include registered clubs and licensed premises).¹¹

Although the decision of the Full Court confirms the entitlement of interstate licensed wagering operators to provide and promote services conducted in accordance with the relevant licence throughout Australia, there still remains room for argument about the scope of the exclusive rights conferred on the various totalisators and the ability of interstate wagering operators to take steps which conflict with that exclusivity. Accordingly, we anticipate that further disputes regarding the scope of these rights will occur from time to time, with consequential legal challenges.

The Legal Context

Where considering similar issues in the future, it is worth keeping in mind Justice Emmett's comments on the present Australian legislative regime relating to gambling regulation, which will be quoted in years to come by advocates of harmonisation:

From our last count, this is an understatement – there are not only 10 different legislative regimes, but at least 20 regulators of gambling in Australia.

The assistance of Nicholas Rozenberg, Solicitor, of Addisons in the preparation of this article is noted and greatly appreciated.

Footnotes

¹ Sportsbet Pty Ltd v The State of Victoria [2001] FCA 961, a decision published on 22 August 2011.

² Tabcorp entered into a new 12-year exclusive wagering licence in early 2012.

³ The State of Victoria v Sportsbet Pty Ltd [2012] FCAFC 143 at [50].

⁴ Section 49 of the Self Government Act confers benefits on the Northern Territory which are similar to those conferred on the States under section 92 of the Constitution (namely, that trade between the Territory and the States should be free). A state law which is inconsistent with the Self Government Act is invalid by virtue of section 109 of the Constitution (which ensures the supremacy of Federal law over State law).

⁵ For further information, see our earlier paper on the first instance decision: " Federal Court Rules in Favour of Betbox: The End of Retail Exclusivity?"
See also The State of Victoria v Sportsbet Pty Ltd [2012] FCAFC 143 at [124] per Kenny and Middleton JJ, discussing the findings of Gordon J at first instance.

⁶ His Honour held that Sportsbet's computer systems (which are located in the Northern Territory) are "no more than incidental to the particular transactions in question": at [93].

⁷ Per Kenny and Middleton JJ at [250]ff. Their Honours refer to the fact that, inter alia, the bets made with the Betbox are processed and accepted in Darwin.

⁸ At [110].

⁹ At [299].

¹⁰ At [293].

¹¹ Unlawful Gambling Act 1998 (NSW), s 11A.

¹² Per Emmett J at [1].

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.