Over the last 5 years, Hungary's approach to regulation in the gambling sector has been rather restrictive, resulting in a string of legal disputes between industry players and the Hungarian regulator, in turn, referring a number of cases to the Court of Justice of the European Union (CJEU). It seems that the impact of these cases may reach beyond Hungary's boundaries as other Member State regulators face increased resistance from the market players throughout Europe. 

“No dice”, says the European Court

In 2016, the CJEU indicated that it didn’t share the opinion of the Hungarian legislator, when it decided that certain Hungarian laws constituted a restriction on the freedom to provide services granted by Article 56 of the Treaty on the Functioning of the European Union. The Hungarian laws subject to the ruling had introduced a five-fold increase in the tax to be paid on certain gambling services and/or prohibited operation for certain gambling operators entirely, without providing for either a transitional period or compensation.

This ruling by the CJEU clarified that restrictions on the freedom to provide services of this nature can only be justified by reasons of public interest. Specifically, these are if the national court finds that the relevant laws:

  • actually primarily pursue objectives relating to the protection of consumers against gambling addiction and the prevention of criminal and fraudulent activities linked to gambling;
  • pursue those goals consistently and systematically, and
  • meet the requirements arising from general principles of EU law, in particular the principles of legal certainty and the protection of legitimate expectations and the right to property.

Moreover, the ruling clarified that Article 56 TFEU is intended to confer rights specifically to individuals. This means that if that provision is infringed by a Member State, including as a result of that state’s legislative activity, this will give rise to a right to obtain compensation from that Member State for the damage suffered by that individual as a result of the infringement. That part of the decision was a great step forward, because it broke Hungary’s long lasting state immunity at the local courts and permitted claims for damages caused by unlawful legislative activity.

The European Court doesn’t miss a trick

In June 2017, a new judgement of the CJEU was published, which may have significant impact not only in Hungary, but also in other Member States. The CJEU adjudicated in proceedings between Unibet International Ltd. (a Maltese company providing gambling services in Hungary) and the Hungarian gambling supervisory authority. The dispute arose when the gambling authority temporarily prohibited access to Unibet’s websites and imposed fines on the grounds that it did not have the relevant gambling licence in Hungary.

The CJEU’s standpoint in the case was pretty clear – it held that the then current Hungarian legislation (as of June 2014) was contrary to Article 56 TFEU, due to the introduction of a system of concessions and licences required for online games of chance. The system contained rules that discriminated against gambling operators established in other Member States or in the alternative, it laid down rules which, though not necessarily discriminatory, were applied in a manner that was either not transparent or in a way that prevented or hindered application from gambling operators established in other Member States.

It’s worth mentioning that the rules relating to the grant of gambling authorisations in Hungary today are based on different laws to the ones criticised by the CJEU in this judgment. Nevertheless, this legislation continues to be very restrictive and has the practical effect that it is still very difficult for a foreign operator to get a gambling licence in Hungary. It therefore looks like the Hungarian authority will have to contend with further unfavourable rulings from the European Court, should a plucky player roll the dice and challenge these new rules again.

The other important outcome of the Unibet judgment was that the sanctions imposed by Hungary were also found to be unlawful. This highlights that penalties imposed at national level for the infringement of non-EU law must also be compliant with EU principles. Though it was made clear in the judgement that the pecuniary penalties imposed on non-licenced gambling operators could not be enforced, it remains to be seen whether those operators are still entitled to provide their services on the basis that the blocking of their websites is against the principles of the TFEU. Moreover, it is unclear whether such operators could claim compensation for the blocking under the TFEU. The interpretation of the CJEU judgment in that respect is eagerly awaited by the market players.

Action by other European Players on the cards

The judgments of the CJEU are a clear sign to Member States that they must reconsider their standpoint restricting the national online gambling market and change their protectionist attitude. The first signs are already showing: a stock exchange listed international operator declared that it will take all action necessary to defend any attempt of enforcement based on the current gambling law in the Netherlands, stating that it is not in line with EU law referring to the above CJEU judgment. No doubt other players will soon follow suit.