The impact of the ECJ ruling against Hungary’s online gambling laws

As we all know, the cross-border nature of supplying the remote gambling industry has always been and remains today highly complex from a legal standpoint.  Determining which laws actually apply to such activities has never been straightforward.

In recent years, many European jurisdictions have sought to either prohibit or expressly regulate the inward supply of remote gambling services to their citizens.  However, as signatories to the Treaty for the Functioning of the European Union (TFEU), all European Member States need to observe certain fundamental principles – the ‘freedoms’ that form the bedrock of the European Union project.  One such freedom, enshrined in Article 56 of the TFEU allows commercial enterprises in one Member State the “freedom to provide services” into another Member State.

Over the last dozen or so years, this freedom has been somewhat eroded by a succession of cases in the European Court of Justice (ECJ) which have, in aggregate, resulted in a now well-established set of principles that permit a Member State to introduce licensing regimes, prohibit gambling entirely, or even introduce monopolistic regimes, provided they do in a proportionate, consistent, transparent and non-discriminatory way.

The ECJ has consistently stated that no penalties may be imposed on the basis of rules held to be contrary to the fundamental principles and enshrined in the TFEU.  As such, when a Member State decides to enact legislation which is not proportionate, consistent, transparent nor non-discriminatory, it should be prevented from enforcing such legislation.

With all this in mind, it was interesting to read last week that the ECJ had ruled against the Hungarian requirement that online gambling operators must have a land-based licence in order to offer online gambling services to Hungarian citizens[1].  This is clearly discriminatory against any operator that does not have any land based enterprises at all as well as to an operator that has no presence in Hungary at all.  Similar restrictions apply in Belgium and in Lithuania and operators have consistently argued that such provisions are discriminatory, unjustified and ultimately unenforceable.

It was notable that the day after the ECJ’s judgment was published, the Hungarian Ministry of Justice stated that they will continue to seek enforcement against operators who were relying on licences in other Member States to supply to Hungarian citizens.

This comes at a critical time, some three months after the European Commission had decided that they would withdraw all ongoing infringement proceedings against Member States whose gambling regulations/legislation had previously been considered to be incompatible with their TFEU obligations.  Such a decision was clearly politically motivated and, at the time, many hoped that such political pressures would not impact on the integrity of the ECJ when it was asked to decide whether or not Member States were fulfilling their TFEU obligations.

One might conclude from the recent decision, therefore, that the ECJ will indeed continue to uphold the essential TFEU freedoms, even if the European Commission (the self-styled “guardian of the treaties”) will not.  The issues discussed in the ECJ will now be referred back to the Hungarian courts for them to either follow the ECJ guidance or ignore it, as one assumes the Hungarian Ministry of Justice would want the local courts to do.

However, this is certainly yet another indication of how the industry’s ongoing reliance on the 56-enshrined freedom of movement of services principle remains solid.  It will be interesting to see how the Hungarians react and whether they will adhere to the guidance given by the ECJ or whether they will provide another example of Member States cherry-picking which TFEU obligations to adhere to and ignoring such obligations when it comes to gambling regulation. We always knew gambling, as a revenue raising industry, was correspondingly politicised. Lets see if the Hungarians prove the point.

Stephen Ketteley, partner, Wiggin