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Bet fair and bet far: A new frontier in freedom of interstate trade and commerce

Cover Story

Cite as: (2008) 82(10) LIJ, p. 34

Internet and telephone betting services are not confined to a geographical location. Their constitutional right to freedom of interstate trade will overcome restrictions imposed by protectionist state laws.

By Bill Brown

The recent High Court of Australia decision in Betfair Pty Ltd v State of Western Australia examined Western Australian (WA) restrictions on interstate trade in the context of telephone and internet gambling.1 The Court held these restrictions, to the extent they applied to Betfair Pty Ltd (Betfair), contravened s92 of the Australian Constitution and operated as an unfair commercial restraint on commerce between and within states.

As a result of the decision, WA residents will be able to place bets with Betfair’s betting exchange in Tasmania via the telephone or internet. Further, Betfair will be able to publish or otherwise make available WA race fields via telephone or internet between Tasmania and other states and territories in Australia. A race field is defined as information which identifies the names and numbers of horses or greyhounds that have been nominated or will take part in, or those that have been scratched or withdrawn from, a race.

The decision is notable from a number of perspectives. All seven judges agreed on the decision, with six judges delivering a joint judgment and Heydon J delivering his own concurring judgment.

The Court affirmed the approach to s92 taken by the Court in Cole v Whitfield,2 but noted that that approach should not be looked at in isolation from what had been said in the Court in respect of the place of s92 in the scheme of the Constitution. As well, the joint judgment examined US cases and the significant developments in the past 20 years in the Australian legal and economic milieu in which s92 operates.

The joint judgment also took note of the “new economy”, represented by the emergence of the internet (at [14]). In this “new economy”, internet-dependent businesses operate readily and deal with customers without regard to geographic boundaries. Their Honours also noted the emergence since 1995 of a National Competition Policy, which contains an element, described as a guiding principle, that legislation should not restrict competition unless it can be demonstrated that the benefits of the restriction to the community as a whole outweighs the costs, and that the objectives of the legislation can only be achieved by restricting competition (at [16]).

Finally, and relevantly for the gambling industry, the decision brings into sharp focus any Australian state or territory law that restricts or controls lawful out-of-state gambling operators from competing with in-state gambling operators. It also gives further credence to the notion of a developed national, and possibly international, market for the provision of wagering services on racing and sporting events by means of the telephone and the internet (at [114]). A national market for these services has emerged with the explosive growth of betting on racing and sports via the internet.

The background

In January 2006 Betfair established a licence under the law of Tasmania to operate a betting exchange. This exchange allows people to wager on a horse, greyhound or sporting team losing as well as winning. Betfair matches opposing bets between customers, and collects a fee from the transaction.

Some Australian state governments and racing officials had been concerned about the betting exchange model. The principal concern was that such betting could lead to an erosion of the racing industry’s integrity. Indeed, in 2003 the Conference of Australasian Racing Ministers established a betting exchange task force, which recommended that no state or territory grant a licence to a betting exchange.3

WA in particular opposed the betting exchange concept. On 29 January 2007 the Betting and Racing Legislation Amendment Act 2007 (WA) came into force. This legislation amended the Betting Control Act 1954 (WA) to prohibit WA residents from placing bets using an online gambling exchange.

The amendments made it an offence for a person to bet on a betting exchange and for a person to establish or operate a betting exchange in WA.

WA has been the only Australian state or territory to pass a prohibition in relation to operating and betting on betting exchanges. Residents in all other states and territories could continue to deal with Betfair, which could lawfully conduct its operations by being licensed in Tasmania.

The amendments also prohibited making a WA race field available without approval. This prohibition effectively meant that punters could not bet on WA races through Betfair, as Betfair could not use or publish the names and numbers of horses in WA races in order to promote and market its gambling services.4

Between August 2006 and January 2007 Mr Erceg, a WA resident and Betfair’s co-plaintiff in the case, used the internet to place bets with Betfair.

The Constitutional argument

With the support of the State of Tasmania, Betfair and Mr Erceg commenced proceedings in the High Court to challenge the validity of the WA amendments. The challenge was made by way of an amended special case reserved for the opinion of the Full Court in its original jurisdiction. Declaratory relief was sought.

The principal reliance was on s92 of the Australian Constitution. The relevant part of s92 provides:

“92. Trade within the Commonwealth to be free. On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free . . .”.

The plaintiffs contended that the WA amendments were inconsistent with that constitutional freedom of interstate trade and commerce on two bases:

  • that the WA legislation impermissibly precluded an increase in competition within the national market for betting services that would be provided by the presence in WA at any one time of persons such as the second plaintiff, Mr Erceg, and
  • that the legislation also applied to deny Betfair, as an out-of-state operator, access for the purposes of its Australia-wide operations to information respecting race fields generated in WA, while in-state wagering and betting operators did not suffer that disadvantage.
  • While the plaintiffs also argued that the race fields provisions were invalid or inoperative by reason of s118 of the Constitution (i.e. full faith and credit to the laws, etc, of every state), the Court determined that it was unnecessary to answer that question.

Cole v Whitfield re-affirmed in the “new economy”

The joint judgment recognises that Cole v Whitfield, as further developed and applied in the cases decided shortly thereafter (at [10]), is the source of present doctrine respecting s92. Decided in 1988 and considered as the authoritative view on the interpretation of s92 since, the joint unanimous decision in Cole v Whitfield set out a new approach to s92. In doing so, the Court swept aside much of the existing, and discordant, case law on the section. Their Honours in Betfair do, however, say that it would be an error to read Cole v Whitfield as a complete break from all that had been said in the Court respecting the place of s92 in the scheme of the Constitution. After considering three significant developments since Cole v Whitfield in the Australian legal and economic milieu in which s92 operates, their Honours say that there is continued force in the sentiment expressed by O’Connor J in the early years of the Commonwealth:5

“It must always be remembered that we are interpreting a Constitution broad and general in its terms, intended to apply to the varying conditions which the development of our community must involve.”

The joint judgment concludes that the “accepted doctrine” (at [103]) of the Court in relation to s92 is the “appropriate and adapted” criterion expressed in the Castlemaine Tooheys case,6 which involves the existence of “proportionality” between, on the one hand, the differential burden imposed on an out-of-state producer, when compared with the position of in-state producers, and, on the other hand, any competitively “neutral” objective which it is claimed the law is designed to achieve (at [101]).

Their Honours go on to state:

“That ‘proportionality’ must give significant weight to the considerations referred to earlier in these reasons when discussing Castlemaine Tooheys. These involve the constraint upon market forces operating within the national economy by legal barriers protecting the domestic producer or trader against the out-of-state producer or trader, with consequent prejudice to domestic customers of that out-of-state producer or trader. They suggest the application here, as elsewhere in constitutional, public and private law, of a criterion of ‘reasonable necessity’” (at [102]).

Their Honours firmly reject, as against authority and principle, the proposition that an object of revenue protection may justify a law which discriminates against inter-state trade (at [108]), citing Bath v Alston Holdings7 and the Full Federal Court in the Sportodds Systems case.8 In the case before them, their Honours rejected the submission by WA that the laws could not be protectionist in nature where those laws have the effect of protecting the turnover of in-WA betting operators from diminution as a result of competition from an out-of-WA betting operator like Betfair. This was held to be the case even though WA argued consequent prejudice to the returns to the WA racing industry and in-state revenue generated by that industry.

The gambling market in the “new economy”

After considering the provenance of s92 (at [21]–[32]) and the relevance of US decisions (at [33]–[49]), the joint judgment notes that these general considerations are to be kept in mind in considering the facts. Their Honours then turn to describing the legal betting industry in Australia (at [50]–[58]), the particular attention given to betting exchanges (at [59]–[60]), the position of Racing and Wagering WA as the in-state TAB operator and a competitor with Betfair (at [75]–[77]) and the system of fees and levies payable by betting operators in WA (at [78]–[81]).

The joint judgment states (at [114]) that evidence showed there is a developed market throughout Australia for provision of telephone and internet wagering services on racing and sporting events, and notes that the “omnipresence” and ease of use of the internet reduce the inhibition to competition presented by geographic separation between rival suppliers and between supplier and customer. Relevantly for determining the competitive forces at play, their Honours note that there may well be cross-elasticity of demand and therefore close substitutability between the various methods of wagering (at [115]).

In this context, their Honours note that the effect of the WA legislation is to restrict what otherwise is the operation of competition in the national market by means dependent on the geographical reach of its legislative power within and beyond WA state borders. This, their Honours say, “engages s92 of the Constitution” (at [116]).

Later in their judgment, their Honours note that the cross-elasticity of demand is between different “species of fixed odds betting or the general field of wagering upon racing and sporting events” (at [121]). They refer to the discrimination in this case as being between different but competing forms of wagering on racing and sporting events (at [122]).

These conclusions are crucial to the finding that there is competition between Betfair and the in-state betting operators in WA. They will also advance the debate about the nature and extent of gambling markets in Australia.

The decision

The Court unanimously held that the challenged WA sections were unconstitutional as they imposed discriminatory and protectionist burdens on interstate trade and therefore directly contravened s92. In applying s92, the Court held that legislation was protectionist and was not appropriate and adapted for the purpose in accordance with the criterion established in Castlemaine Tooheys.

The joint judgment found (at [112]) that the WA section prohibiting WA residents from betting on betting exchanges was not necessary, on the facts available, for the protection or preservation of the integrity of the racing industry. It also found that prohibition of the activity was not proportionate, appropriate or adapted to the stated legislative object.9 In particular, their Honours found that the effect of the prohibition was to prevent Betfair, an out-of-state wagering operator, from providing a betting exchange for registered players in WA, leaving the in-state operators able to supply customers with their services without the competition to their revenue which Betfair would present. This was held to be a discriminatory burden of a protectionist kind.

The joint judgment also found that the section prohibiting un-approved use of WA race fields was a burden on interstate trade and commerce both directly and indirectly (at [118]). It did so directly by denying Betfair use of an element of its operations (namely, using race fields). It did so indirectly by denying to Betfair’s players information on WA race fields when accessing Betfair’s website or communicating with its telephone operators. These restrictions resulted in a competitive disadvantage to Betfair and an advantage to Betfair’s competitors in WA. The legislation therefore operated as a discriminatory burden on interstate trade.

In a separate judgment, Heydon J said the effect of the race fields section was to prevent persons who “as a tool of their trade” wished to publish or otherwise make available a WA race field from doing so, and thereby affected a class of persons much wider than the class at which the legislation was directed (at [144]). His Honour held the section “goes so far beyond the end of preserving the integrity of racing in WA as to exclude the possibility of that being its purpose” (at [145]).

Laws now under focus

The High Court’s decision is concerned with Betfair’s telephone and internet betting operations. However, there is no doubt that other laws or legislative schemes set up under laws in Australian states and territories are also in the spotlight, including those that:

  • establish an approval process for out-of-state gambling operators to publish or use race fields;
  • as part of an approval process, impose a fee only on out-of-state gambling operators in order to publish or use race fields;
  • prohibit advertising in-state by out-of-state gambling operators; and
  • restrict or limit in-state provision, by out-of-state gambling providers, of bet types or other products which are lawful in the out-of-state provider’s home jurisdiction.

The natural follow-on from these are laws that restrict or prohibit the out-of-state operator from having its premises or equipment, or conducting part of its business, in-state. In the telephone and internet space, these restrictions appear unjustifiable and do not make economic sense for states and territories concerned about attracting jobs.

It is beyond the scope of this article to consider other laws or circumstances where the Betfair decision may apply. Suffice to say that if a business delivers its products or services by way of the internet and it faces competitive hurdles set up by state laws or statutory regimes which effectively favour an in-state business, s92 of the Constitution may well be engaged.

The value of gambling licences granted by states and territories

The Betfair decision may, in the writer’s opinion, prompt some in the gambling industry to take stock of the value of their current gambling licences. These are generally thought of as exclusive licences, for which a monopoly-type premium was paid. Where the internet or other similar delivery methods are available, those licences could be devalued by the action of another state or territory.

Indeed, the Betfair decision may, in the writer’s opinion, erode the value of any new or extended gambling licence to be issued or granted by a state or territory government. Any prospective applicant for a major licence would be well advised to seek assurances that the licensed activity is properly protected in order to justify any premium payment. This is of particular moment given the recent announcement by the government of Victoria that wagering/TAB and keno licences for the state will be open for public tender from 2012.10

What are the consequences and possible next steps?

States and territories, as well as racing controlling bodies and gambling operators, are likely to now embrace the betting exchange model. As with other gambling services, regulatory control will suffice and can permit a workable, profitable business. In the writer’s opinion, the racing industry needs to consider sensible controls over industry participants to maintain the ongoing high level of integrity racing now enjoys.

The Victorian government and racing industry is presented with a unique opportunity in the lead-up to 2012 to investigate and implement a best practice model that shores up confidence in the racing product while maintaining competition in an increasingly global market without the burden of anti-competitive laws or state-supported near-monopolies.

In the Betfair case, the court made it abundantly clear that the onus of justifying a law which has a discriminatory purpose or effect rests on the state or territory which imposes the restriction. There must be a valid interest which is not outweighed by the protectionist impact. In the writer’s opinion, it is up to Australian state and territory governments to review their laws and to work constructively with industry stakeholders to avoid unwarranted disputes and litigation.

BILL BROWN is special counsel with Lander & Rogers Lawyers. An earlier version of this article appeared in the May 2008 issue of World Online Gambling Law Report, a subscriber-based trade magazine.

1. (2008) 244 ALR 32.

2. (1988) 165 CLR 360; 78 ALR 42.

3. Report of the Betting Exchange Task Force to the Australasian Racing Ministers’ Conference, 10 July 2003.

4. The first state to implement a similar race field legislative regime was Victoria in 2005. NSW has passed similar legislation, but it has not commenced operation.

5. Jumbunna Coal Mine NL v Victorian Coal Miners’ Association (1908) 6 CLR 309 at 367–8; 145 ALR 701 at 110–12.

6. Castlemaine Tooheys Ltd v South Australia (1990) 169 CLR 436; 90 ALR 371.

7. Bath v Alston Holding Pty Ltd (1988) 165 CLR 411; 78 ALR 609.

8. Sportodds Systems Pty Ltd v New South Wales (2003) 133 FCR 63; 202 ALR 98; [2003] FCAFC 237.

9. At [120]–[[122] (joint judgment); [134] (Heydon J).

10. “New structure for gaming in Victoria beyond 2012”, Premier of Victoria, media release, 10 April 2008.


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