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Wikborg Rein Newsletter: Court approves Norwegian legislation on gaming activities

December 2008 - Corporate & Commercial. Legal Developments by Wikborg Rein.

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On 3 October 2008 Oslo District Court approved the Norwegian legislation concerning the operation of gaming activities. In course of the proceedings, several questions were referred to the EFTA Court. In reaching its conclusion the Court relied heavily on the EFTA Court’s preliminary ruling, as well as previous case law from the ECJ and the EFTA Court. The findings of the Oslo District Court are in line with a decision adopted by the Norwegian Supreme Court on 26 May 2007, and thus confirm that the Norwegian courts consider Norway’s strict approach towards the gaming sector to be in accordance with the EEA law.

Under Norwegian law, it is prohibited to offer gaming and lottery services without a licence granted pursuant to specific exemptions in statutory law. Offering of commercial games of chance is also punishable by up to one year of imprisonment as long as the game is not permitted by specific statutory law.

The relevant statutory exceptions are set out in three different laws: the Totalisator Act (lov 1. juli 1927 nr 3 om veddemĂĄl ved totalisator), the Gaming Act (lov 28. august 1992 nr. 103 om pengespill mv.) and the Lottery Act (lov 24. februar 1995 nr. 11 om lotterier mv.)

According to section 5 of the Lottery Act, lotteries may only be held for the benefit of a humanitarian or socially beneficial purpose. The Lottery Act also prohibits holding lotteries without a permit, and such permits may only be granted to organisations and associations which have a socially beneficial or humanitarian purpose. Hence, private commercial operators may not be granted permission to operate lotteries or gaming schemes.

The Gaming Act provides that the wholly State-owned gaming company Norsk Tipping AS has the exclusive right to operate gaming schemes in connection with sporting events, such as football betting games. In addition, the Act confers upon Norsk Tipping the exclusive right to operate the number game Lotto, and bear the sole responsibility for the operation of gaming machines.

Under the Totalisator Act, license to arrange horserace betting may only be granted to organisations or companies whose aim include supporting horse breeding. Moreover, according to the Regulation on Totalisator Betting, Norsk Rikstoto enjoys an exclusive right to arrange horserace betting.

On June 2004, Ladbrokes Ltd, applied to the Norwegian author-ities for permission to operate and provide sports gaming, betting on horse and dog racing, betting on special events and random number games with set odds in Norway, and to establish gaming outlets in Norway to carry out these activities, subject to supervision by the Norwegian authorities.

Ladbrokes Ltd is the world's largest bookmaker and gaming company, with headquarters in London. The company is registered in England and Wales and operates internationally. It holds a licence in the United Kingdom and is subject to surveillance by the British Gambling Commission. The Norwegian authorities nevertheless rejected Ladbrokes' application relying on the provisions in the Totalisator Act, the Gaming Act and the Lottery Act. On 2 December 2004 Ladbroke filed a lawsuit before Oslo District Court arguing that this legislation violated Articles 31 and 36 of the EEA Agreement (corresponding to Articles 43 and 49 of the EC Treaty) which provides for the right to provide services and the freedom of establishment.

In the proceedings before the Court it was agreed that the system under consideration, reserving the right to operate different gaming activities to certain organisations, constitutes a restriction on the right to establishment and the free movement of services under Articles 31 and 36 of the EEA agreement. However, the restrictions are non-discriminatory, since the contested legislation applies without distinction to domestic and foreign operators. The question before the Court was therefore whether the restrictions could be justified by overriding reasons of general interest, and whether they comply with the principles of proportionality and necessity.

Oslo District Court concluded that the objectives behind the contested legislation was to protect the citizens against un-fortunate consequences of gaming activities (such as compulsive problem gambling), prevent crime, ensure efficient supervision, and prevent the operation of gaming from being a source of private profit. Moreover, the Court regarded financing of public-interest activities to be an incidental beneficial consequence of the system. Relying upon previous decisions from the ECJ and the EFTA Court, especially C-275/92 Schindler, C-124/97 Läärä, C-67/98 Zenatti, C-6/01 Anomar, C-243/01 Gambelli, E-1/06 Gaming Machines and E-3/06 Ladbrokes, Oslo District Court concluded that these objectives could justify restrictions on the right of establishment and the free movement of services.

The Oslo District Court further concluded that the measures under consideration were suitable for achieving the intended objectives, stating that the rationale behind the Norwegian system for gaming activities was to persuade people who might otherwise engage in more dangerous and uncontrolled games, to instead turn to authorised games. In this relation the Court emphasised that the range of games offered by the authorised entities and the development and marketing of new games was consistent with this rationale.

Following this conclusion, the Court went on to assess whether the restrictions under consideration were necessary to achieve the objectives pursued. The Court held that the Norwegian system for gaming activities secured a high level of protection. It was thus necessary to examine whether such a high level of protection could be achieved with other, less restrictive measures, i.e. licensing systems. Arguing that the special entities entrusted with the right to operate gaming activities in Norway have less economic incentives to maximize their profits, less interest in aggressive marketing strategies, and that the current system allowed for more effective control to be exercised, the Court concluded that objectives pursued could not be achieved to the same extent by less restrictive measures. Hence, the restrictions were necessary.

In conclusion the Oslo District Court found the Norwegian legislation concerning gaming activities to be in accordance with Articles 31 and 36 of the EEA agreement. Taking into account the ECJ's and the EFTA Court's previous decisions in the field of gaming, and especially the Ladbrokes case, this conclusion was hardly surprising. As the EFTA Court emphasised in the Ladbrokes case "Moral, religious and cultural factors, as well as the morally and financially harmful consequences for the individual and for society associated with gaming, may serve to justify a margin of discretion for the national authorities, sufficient to enable them to determine what is required in order to ensure consumer protection and the preservation of public order. The EEA Contracting Parties are free to set the objectives of their policy on gaming, and where appropriate, to define in detail the level of protection sought." The decision of the Oslo District Court is furthermore in line with a decision adopted by the Norwegian Supreme Court on 26 May 2007, where it was decided that a measure reserving operation of gaming machines to the State-owned undertaking Norsk Tipping AS was consistent with Articles 31 and 36 of EEA agreement. In reaching this conclusion, the Supreme Court relied heavily on the ruling given by the EFTA Court in the Gaming Machines case. If the Oslo District Court's decision is not challenged, private operators involved in the gaming industry face a difficult future in relation the Norwegian gaming market. Ladbrokes' decision to appeal the decision may therefore be of great importance.


For more information, please contact:

Helle Nørgaard
e-mail: hno@wr.no, tel. + 47 22 82 75 24

Mads Magnussen
e-mail: mma@wr.no, tel. +47 22 82 75 05

www.wr.no