Sportsbet Pty Ltd v State of New South Wales & Ors [2012] HCA 13

The Australian betting industry has boomed in recent years as private betting agencies have gained greater foothold in the market and governments have abandoned their holdings in state based TAB operations effectively developing a national betting market. From 2007 to 2012 the betting industry has reaped revenue of more than $25bn 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 it ever has been before. This technology has allowed betting agencies located in other states or territories to operate across Australia.

These developments throughout the betting industry have made state regulation significantly more difficult. This article will look at a recent attempt by licenced corporate sports bookmaker, Sportsbet Pty Ltd, to challenge regulations on the grounds of alleged protectionism in state laws.

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

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; however, in this case the appellant’s wager turnover exceeded the threshold amount and they were therefore liable.

The appellant challenged this legislation on the grounds that due to the way the fees were calculated by reference to the appellant’s wager turnover, the RAA and Regulations effectively “imposed a burden or disadvantage on trade and commence between the Northern Territory and New South Wales, which was not imposed on interstate trade and commerce of the same kind.” Effectively they argued that the fee calculation that applied to interstate betting agencies was much more onerous than the fee calculations that applied to local NSW betting agencies.

At first instance the Federal Court declared that the approvals granted by the respondents were invalid but rejected the broader contention that subsections 33 and 33A of the RAA 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 subsections 33 and 33A of the RAA and Part 3 of the Regulations. Sportsbet then sought special leave to appeal to the High Court of Australia.

The essential issues of the appeal were two fold:

  1. “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.”
  2. "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 trade, commerce and intercourse between the territory and the states, whether by means of internal carriage or ocean navigation, to be absolutely free.

The 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 had to look at whether as a matter of its practical operation or effect, the Act has the character of being protectionist.

The High Court held that in determining whether Section 49 had been breached this 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 the objective effect of the imposition of the fee upon interstate trade relative to intrastate (local) trade.

The court then looked at the practical operation of the fee condition upon on course bookmakers and the TAB in comparison to Sportsbet. In regards 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 $5 million of turnover. With respect to Harness Racing New South Wales, those operators with a turnover in excess of $2.5m 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 within and outside New South Wales (95.9% liable for fees in NSW 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 book makers 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 if the New South Wales TAB had obtained a practical benefit under the law in comparison to Sportsbet. At the time of the implementation of section 33 of the RAA, TAB, Racing New South Wales and Harness Racing New South Wales were parties to the Racing Distribution Agreement. This entitled TAB to use New South Wales racing information without paying the fee. However under the Racing Distribution Agreement, TAB agreed to pay a substantial fee generally. 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 whilst TAB could use the New South Wales race field information without further charge, this did not amount to protectionist activity in favour of TAB. This was because under the Racing Distribution Agreement TAB had to make substantial contributions to horse racing in New South Wales to preserve the industry and this included the race field information. Therefore TAB 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 and 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.  

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 the interstate and intrastate businesses in the operation of their business. In the betting industry, where at present many of the gambling agencies are registered in the Northern Territory, the fees applicable to such agencies by the other States and Territories will only be invalid if the total effect of the legislation puts these agencies in a worse position than the position of the local gambling agencies.