Background
Facts
Lower court decisions
Appellate decision
Comment


Background

The Australian betting industry has boomed in recent years, with private betting agencies gaining a greater foothold in the market and governments abandoning their holdings in the operations of the state-based totalisator agency boards, effectively developing a national betting market. From 2007 to 2012 the betting industry reaped revenue of more than A$25 billion, with an annual growth of 1.8%. Due to the advent of mobile and internet technology, betting in Australia is now vastly more accessible than ever before. This technology has allowed betting agencies located in other states or territories to operate across Australia.

These developments have made state regulation significantly more difficult. This update assesses a recent attempt by licensed corporate sports bookmaker Sportsbet Pty Ltd to challenge regulations on the grounds of alleged protectionism in state laws.

Facts

Sportsbet Pty Ltd (the appellant) is registered as a betting agency in the Northern Territory and holds a sports bookmaking licence that authorises it to accept wagers by telephone and over the Internet from anywhere in Australia in relation to certain events. In New South Wales, Sections 33 and 33A of the Racing Administration Act 1998 make it illegal for a betting agency to use New South Wales race-field information otherwise forbidden by Section 33 of the act.

Section 33A allows the use of this information banned by Section 33 on condition of payment of a fee. Under Part 3 of the New South Wales Racing Administration Regulations 2005, these fees were calculated by reference to the appellant's wager turnover. If the appellant's wager turnover was below a certain threshold, the appellant would not be liable to pay a fee (in this case the appellant's wager turnover exceeded the threshold amount and it was therefore liable).

The appellant challenged this legislation on the grounds that due to the way the fees were calculated by reference to its wager turnover, both the act and the regulations effectively "imposed a burden or disadvantage on trade and commerce between the Northern Territory and New South Wales, which was not imposed on interstate trade and commerce of the same kind". It argued that the fee calculation applied to interstate betting agencies was effectively much more onerous than the fee calculations that applied to local New South Wales betting agencies.

Lower court decisions

At first instance, the Federal Court declared that the approvals granted by the respondents were invalid but rejected the broader contention that Sections 33 and 33A of the act and Part 3 of the regulations were invalid.

Sportsbet appealed the decision to the Full Federal Court, which held that the approvals had been granted validly and upheld the validity of Sections 33 and 33A of the act and Part 3 of the regulations.

Sportsbet sought special leave to appeal to the High Court of Australia. The essential issues of the appeal were twofold, as follows:

"Whether the power of approval, upon conditions as to payment of a fee, which is conferred by section 33A(2) of the Act upon Racing New South Wales and Harness Racing New South Wales, is confined, lest section 33A of the Act 'alter, impair or detract' from the operation of the positive rule created by section 49 of the Self Government Act that trade and commerce between territory and states shall be free from discriminatory restraints and inferences of a protectionist kind... [and]

Whether, if the power is not to confine, section 33A, to the extent of the inconsistency, is invalid with the consequence that clause 16 of the Regulation is wholly or partially invalid as beyond the regulation making power."

Section 49 of the Northern Territory Self Government Act 1978 (Cth) requires that trade, commerce and intercourse between the territory and the states, whether by means of internal carriage or ocean navigation, be absolutely free.

Appellate decision

In its ruling(1) the High Court initially looked at the law itself and considered whether it was protectionist in nature. Following the reasons in Betfair, the court held that the New South Wales law is, on its face, neutral and its legal effect is not discriminatory in a protectionist sense. The court then examined whether, as a matter of its practical operation or effect, the act had the character of being protectionist.

The court held that whether Section 49 had been breached should be determined not by looking at the subjective intentions or motives of those responsible for the adoption of the measure or their understanding of Section 92 of the Constitution, but by examining the objective effect of the imposition of the fee on interstate trade relative to intrastate (local) trade.

The court then examined the practical operation of the fee condition on on-course bookmakers and the totalisator agency board in comparison to Sportsbet. With regard to on-course bookmakers, it was found that the fee condition imposed by Racing New South Wales gave all wagering operators the benefit of the exemption in respect of the first A$5 million of turnover. With respect to Harness Racing New South Wales, those operators with a turnover in excess of A$2.5 million in New South Wales harness racing paid a fee on the whole amount of the turnover.

The fee was statistically payable on approximately the same percentage of wagering turnover both within and outside New South Wales (95.9% liable for fees in New South Wales, compared to 98.7% interstate businesses liable for fees). It was therefore held that the practical operation of the threshold did not provide a protectionist measure to insulate New South Wales on-course bookmakers from the economic burden of the fee. Both interstate and intrastate competitors could benefit from the threshold and, in any event, there was no necessary connection between the location from which a bookmaker conducted its business and the turnover of the business.

The court then looked to see whether the New South Wales totalisator agency board had obtained a practical benefit under the law in comparison to Sportsbet. At the time of implementation of Section 33 of the act, the board, Racing New South Wales and Harness Racing New South Wales were parties to the Racing Distribution Agreement. This entitled the board to use New South Wales racing information without paying the fee. However under the Racing Distribution Agreement, the board agreed to pay a substantial general fee. Sportsbet argued that no part of the payments under the Racing Distribution Agreement would be directly attributable to the supply and use of New South Wales race-field information.

The court held that while the board could use the New South Wales race-field information without further charge, this did not amount to protectionist activity in favour of the board (under the Racing Distribution Agreement, the board had to make substantial contributions to horse racing in New South Wales to preserve the industry, including the race-field information). The board therefore did not obtain a discriminatory advantage, protectionist or otherwise, over Sportsbet.

The effect of the legislation was therefore not to put the local operator in a better position than the interstate operator with respect to an equivalent operation. Furthermore, it did not increase the liabilities of the interstate carriers. Therefore, it was held that the practical operation of the act with respect to the fees payable by Sportsbet was not to alter, impair or detract from the positive rule mandated by Section 49 of the Self-Government Act, and Section 109 of the Constitution was not engaged. The appeal was dismissed.

Comment

This decision shows that with the advent of businesses trading throughout Australia, for Section 109 of the Constitution to apply and invalidate legislation, it must be shown that there is a practical effect that is discriminatory against interstate trade with respect to an equivalent operation. The assessment must take into account all agreements between interstate and intrastate businesses in their operations. In the betting industry, where many gambling agencies are registered in the Northern Territory, the fees applicable to such agencies by the other states and territories will be invalid only if the total effect of the legislation puts these agencies in a worse position than the position of the local gambling agencies.

For further information on this topic please contact Daniel Coloe at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email (dcoloe@piperalderman.com.au).

Endnotes

(1) Sportsbet Pty Ltd v State of New South Wales [2012] HCA 13.

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