Joined Cases C-72/10 and C-77/10, Marcello Costa et al.

EU law precludes national betting and gaming legislation requiring minimum distance between betting outlets

  
>> These references for a preliminary ruling, which concerned the interpretation of Arts 43 EC and 49 EC, had been made in criminal proceedings brought against Mr Costa and Mr Cifone, managers of data transmission centres (‘DTCs’) bound by contract to Stanley International Betting Ltd, for failure to comply with the Italian legislation governing the collection of bets.

The legal and factual context of these references was similar to that of the cases which gave rise to the judgments in Case C-67/98 Zenatti [1999]; Case C-243/01 Gambelli and Others [2003]; Joined Cases C-338/04, C-359/04 and C-360/04 Placanica and Others [2007]; and Case C-260/04 Commission v Italy [2007].

Under the relevant Italian legislation currently in force, the collecting and managing of bets might be engaged in only by the holder of a licence, granted under a public tendering procedure, and police authorisation. Any infringement of that legislation carried criminal penalties.
In 1999, following public tendering procedures, the Italian authorities granted a significant number of licences for sports betting and betting on horse racing. Among the parties excluded from the tendering procedures were operators in the form of companies whose shares were quoted on the regulated markets. In 2007 the Court of Justice ruled that this exclusion was unlawful.
Starting in 2006, Italy introduced reformed in the betting and gaming sector, with the aim of bringing it into line with the requirements under EU law. In particular, Italy put out to tender a significant number of new licences, one of the requirements being that a minimum distance had to be observed between the new outlets and those for which a licence was awarded following the 1999 tendering procedure.

Mr Costa and Mr Cifone, were accused of the illicit operation of betting activities, because they had been collecting bets without meeting the requirements under the Italian legislation. Stanley operated in Italy exclusively through (over 200) agencies, in the form of DTCs. It had been unlawfully excluded from the 1999 tendering procedure and had decided not to take part in the 2006 procedure because the Italian authorities had not given it satisfactory answers to its requests for clarification of the new legislation.
  
>> First part of question

 By the first part of its question, the Corte Suprema di Cassazione asked whether Arts 43 EC and 49 EC (now Arts 49 and 56 TFEU) must be interpreted as precluding a Member State which, in breach of EU law, had excluded a category of operators from the award of licences to engage in a particular economic activity and which sought to remedy that breach by putting out to tender a significant number of new licences, from protecting the market positions acquired by the existing operators, by providing inter alia that a minimum distance must be observed between the establishments of new licence holders and those of existing operators.
  
The Court held that public authorities which granted betting and gaming licences had a duty to comply with the fundamental rules of the Treaties and, in particular, with Arts 43 EC and 49 EC, the principles of equal treatment and of non-discrimination on grounds of nationality and the consequent obligation of transparency (see, to that effect, Case C-203/08 Sporting Exchange [2010] and Case C-64/08 Engelmann [2010], on which I wrote this post).
  
The Court held that without necessarily implying an obligation to call for tenders, that obligation of transparency, which applied if the licence in question might be of interest to an undertaking located in a Member State other than that in which the licence was granted, required the licensing authority to ensure, for the benefit of any potential tenderer, a degree of publicity sufficient to enable the licence to be opened up to competition and the impartiality of the award procedures to be reviewed.
  
The Court held that the award of such licences must therefore be based on objective, non-discriminatory criteria which were known in advance, in such a way as to circumscribe the exercise of the national authorities’ discretion .

The principle of equal treatment required moreover that all potential tenderers be afforded equality of opportunity and accordingly implied that all tenderers must be subject to the same conditions.

The Court therefore held that Arts 43 EC and 49 EC and the principles of equal treatment and effectiveness must be interpreted as precluding a Member State which, in breach of EU law, had excluded a category of operators from the award of licences to engage in a particular economic activity and which sought to remedy that breach by putting out to tender a significant number of new licences, from protecting the market positions acquired by the existing operators, by providing inter alia that a minimum distance must be observed between the establishments of new licence holders and those of existing operators.


 >> Second part of question

By the second part of its question, the referring court asked in essence whether Arts 43 EC and 49 EC must be interpreted as precluding a national regulatory framework  which provided for the withdrawal of a licence for the collecting and managing of bets, and the forfeiture of financial guarantees arranged in order to obtain such a licence, where

– criminal proceedings had been brought against the licensee, his legal representedative or director for offences “liable to breach the relationship of trust with the Italian Independent Authority for the Administration of State Monopolies (AAMS)”; or

– the licensee markets, on Italian territory or by means of data transmission sites located outside Italian territory, games of chance analogous to those operated by the AAMS, or games of chance which were prohibited under Italian law.

The Court held that Arts 43 EC and 49 EC required the abolition of all restrictions on freedom of establishment and freedom to provide services – even if those restrictions applied without distinction to national providers of services and to those from other Member States – if they were liable to prohibit, impede or rendered less attractive the activities of a service provider established in another Member State in which it lawfully provided similar services.

It was common ground that national legislation which made the exercise of an economic activity subject to a licensing requirement and which specifies situations in which the licence was to be withdrew constituted an obstacle to the freedoms thus guaranteed by Arts 43 EC and 49 EC.

Furthermore, when licences such as those in the cases before the referring court were awarded, the licensing authority had an obligation of transparency consisting inter alia in ensuring, for the benefit of any potential tenderer, a degree of advertising sufficient to enable the licences to be opened up to competition and the impartiality of the procurement procedures to be reviewed.

The Court held that the purpose underlying the principle of transparency, which was a corollary of the principle of equality, was essentially to ensure that any interested operator might take the decision to tender for contracts on the basis of all the relevant information and to preclude any risk of favouritism or arbitrariness on the part of the licensing authority.


According to the Court, it implied that all the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner, to make it possible for all reasonably informed tenderers exercising ordinary care to understand their exact significance and interpret them in the same way, and to circumscribe the contracting authority’s discretion and enabled it to ascertain effectively whether the tenders submitted satisfy the criteria applying to the relevant procedure (see Case C-496/99 P Commission v CAS Succhi di Frutta [2004] and Case C-250/06 United Pan-Europe Communications Belgium and Others [2007])

The Court futhermore held that the principle of legal certainty required, moreover, that rules of law be clear, precise and predictable as regards their effects, in particular where they might have unfavourable consequences for individuals and undertakings (see Case C-17/03 VEMW and Others [2005]).

>> Withdrawal of licence because of initiation of criminal proceedings
  
The Court held that the exclusion of operators whose managers had been convicted of criminal offences could in principle be regarded as a measure which was justified by the objective of combating criminality. Nevertheless, the Court found that withdrawal of the licence constituted a particularly serious measure for the licensee, a fortiori in circumstances such as those of the cases before the referring court, in which it lead automatically to forfeiture of a substantial financial guarantee and possible obligations to compensate the AAMS for damage suffered.

In order to enable any potential tenderer to assess with certainty the likelihood that such penalties would be applied to it, to preclude any risk of favouritism or arbitrariness on the part of the licensing authority and, lastly, to ensure that the principle of legal certainty was observed, it was therefore necessary for the circumstances in which those penalties would be applied to be set out in a clear, precise and unequivocal manner.

The Court found that since criminal proceedings against an operator – such as Stanley, or its representatives or directors – which, in the light inter alia of Placanica and Others, were subsequently revealed to be unfounded, were pending at the time of the tendering procedure, making it impossible in practice for such an operator to participate in that tendering procedure without immediately having its licence withdrew as a result of those proceedings, it must be concluded that the new tendering procedure had not in fact remedied the exclusion of that operator from the earlier tendering procedure which was at issue in Placanica and Others.

Accordingly, according to the Court, penalties for engaging in the organised activity of collecting bets without a licence or police authorisation could not – even following the new tendering procedure provided for under the Bersani Decree – be imposed on persons, such as Mr Costa and Mr Cifone, who were linked to an operator such as Stanley, which was excluded from the earlier tendering procedures in breach of EU law.

>> Withdrawal of licence because games of chance were being marketed by means of data transfer sites located outside national territory

The Court held that an operator such as Stanley could not be criticised for deciding not to apply for a licence in the absence of legal certainty, with uncertainty remaining as to whether its business model complied with the provisions of the contract to be signed if a licence were to be granted. Where such an operator had been excluded, in breach of EU law, from the earlier tendering procedure – at issue in Placanica and Others – it must be held that the new tendering procedure had not in fact remedied the exclusion of that operator.

The Court concluded that Arts 43 EC and 49 EC precluded the imposition of penalties for engaging in the organised activity of collecting bets without a licence or police authorisation on persons who were linked to an operator which was excluded, in breach of EU law, from an earlier tendering procedure, even following the new tendering procedure intended to remedy that breach of EU law, in so far as that tendering procedure and the subsequent award of new licences had not in fact remedied the exclusion of that operator from the earlier tendering procedure.

Furthermore, the Court stressed that it followed from Arts 43 EC and 49 EC, the principle of equal treatment, the obligation of transparency and the principle of legal certainty that the conditions and detailed rules of a tendering procedure and, in particular, the provisions concerning the withdrawal of licences granted under that tendering procedure must be drawn up in a clear, precise and unequivocal manner, a matter which it was for the referring court to verify.