Implications of the Dutch Breda Ruling

The Netherlands Administrative Court of Breda rendered a monumental decision on Dec. 2 in a case that could have a tremendous impact on future gambling-related court rulings and policy decisions in the country. The court ruled that the defendants of the case--the Dutch Minister of Justice and Dutch Minister of Economic Affairs--failed to prove that the country's state-run monopoly system for casino gaming is consistent and coherent in attaining its intended goals and therefore restricts freedom of services in an illegal way.

Following the ruling, the court has asked the two ministers once again consider whether the monopoly regime is consistent and coherent, and if so, to provide sufficient supporting evidence. The court also advises that if the ministers cannot demonstrate consistency, then Article 27h.1 of the Dutch Betting and Gaming Act--the provisions that establish a state-owned monopoly regime for the regulation of casinos in the country--should be rendered inapplicable because it is a violation of EU trade laws.

Although the court's decision pertains specifically to land-based casino gaming, the implications of the court's reasoning naturally extend to the world of online gambling. The Dutch government also uses monopolistic systems to regulate online gambling, and its arguments in support of them are essentially the same ones used to support its monopoly on casinos.

Case Background

On Feb. 23, 2003 Compagnie Financiere Regionale B.V., a subsidiary of French casino company Compagnie Financiere Regionale S.A. (CFR), applied for a license to operate a casino in the Dutch city of Bergen op Zoom. The application was denied, and the company filed an appeal in July 2003 through the Dutch court system. CFR argued that the casino monopoly enjoyed by Holland Casino does not achieve its intended goals of public protection. CFR noted the intensive amount of advertising done by Holland Casino and claimed it is impossible to maintain that such advertising activities seek to protect consumers. CFR also argued that the Dutch government's goals of public protection could just as easily be attained by granting several licenses to organizations that would be bound by the same regulations.

The appeal was not considered until September 2004, at which point the court reached the decision that the investigation of the relevant facts of the case had not been completed. In December 2004, the court consequently reopened the investigation by submitting 10 questions to the two Dutch ministers. The investigation was finally closed in October 2005, and a hearing of the case commenced.

Administrative Court of Breda's Reasoning

Established European Court of Justice (ECJ) case law dictates that restrictions on the freedom to provide services can be justified by urgent reasons of public interest, such as to prevent criminal acts and protect against gambling addiction as the Dutch regulations on games of chance aim to do. The ECJ determined in its Anomar ruling of September 2003 that member states have the power to determine their own level of protection with regard to gambling games, and a monopolistic regulatory system is certainly an acceptable mechanism as long as it accomplishes the goals of public protection.

Although CFR argued that the Dutch government's objectives could be just as easily realized by granting licenses to several entrepreneurs bound by the necessary regulations, the court does not believe this argument qualifies as making a monopoly unsuitable to realizing its objectives. The court reasons that member states retain the freedom of judgment to uphold a system composed of only one license if they so choose. The court also adopted the Dutch ministers' viewpoint that a system with multiple licensees might actually weaken the ability to achieve policy goals more than a system that monitors only one licensee.

But in referring to the ECJ's Gambelli decision of November 2003, the court notes: "Although member states are free to define their objectives on the restriction of the games of chance, the measures they take in this respect should be directed consequently at those objectives, to meet the suitability criterion." The court says it was compelled to examine whether the Dutch policy on casinos fulfills the suitability criterion.

The relevant text of the Gambelli decision reads: ". . . Restrictions on gaming activities may be justified by imperative requirements in the general interest, such as consumer protection and the prevention of both fraud and incitement to squander on gaming. Restrictions based on such grounds and on the need to preserve public order must also be suitable for achieving those objectives, inasmuch as they must serve to limit betting activities in a consistent and systematic manner."

The court also refers to paragraph 69 of the Gambelli decision, which states: "If the authorities of a member state incite and encourage consumers to participate in lotteries, games of chance and betting to the financial benefit of the public purse, the authorities of that State cannot invoke public order concerns relating to the need to reduce opportunities for betting in order to justify such measures such as those at issue in the main proceedings."

In answering the court's question as to whether the Dutch system fulfilled the language set out in paragraph 69 of the Gambelli decision, the Dutch ministers stated, ". . . The assessment to be made should consider measure (or policy acts) by the government itself, not facts and acts that are for the account and expense of the licensees alone, like their marketing budget or their annual report."

The court deemed this response contrary to the ministers' reasoning that a monopoly has been chosen as the system most suitable to provide for the supervision of the licensee's activities.

The court notes that in recent years the Dutch government has allowed Holland Casino to expand and has approved or tolerated consumers being encouraged through intensive advertising campaigns to gamble at casinos. The court also notes the financial benefit the state's treasury has received as a result of casino gaming, but acknowledges that the treasury's increasing revenue is only a side-effect of the monopoly system and not its primary objective.

The court inevitably declared that "at first sight," the growth figures and expansion plans of Holland Casino appear counterproductive to the objectives of regulating games of chance with the focus on preventing gambling addiction, protecting consumers and fighting criminal acts.

The ministers attempted to explain that "the growth observed precisely serves to realize the objective and sub-objectives," but the court found insufficient evidence to substantiate their viewpoint.

According to the court, "If the defendants want to make reliable statements about the positive effects of their policy on said objective and sub-objectives and thus about the answer to the question whether the coherence and systematic structure as referred to in paragraph 67 of Gambelli apply, it is in the court's view important to regularly study the effect of the defendants' policy decisions - both actively and passively - on (for instance) marketing or the expansion of the number of legal casinos on that objective and sub-objectives."

It is this need to regularly study the monopoly system's effects that caused the court to reopen the investigation of the case in December 2004 by submitting 10 questions to the ministers.

Generally, the court was not satisfied with the ministers' responses, citing absences of important evidence including studies on the casino monopoly's effect on gambling addiction, studies examining the monopoly's effect on illegal gambling, studies on how casino expansion affects addiction, and information regarding Holland Casino's marketing budget.

The Court's Ruling

The court determined that the Dutch ministers failed to recognize that the Gambelli decision requires measures that restrict cross-border gambling services to satisfy the criteria of coherence and systematic structure. Because the case involves an exception to the freedom to provide services in the EC, the coherence and systematic structure of the regulatory regime must be explicit and established on the results of studies and the effects of government actions.

The Dutch ministers have been asked to once again attempt to prove that the Dutch casino monopoly regulates is a coherent and consistent way, and sufficient evidence must be provided. Otherwise, the Court holds the view that Article 27h.1 of the Dutch Betting and Gaming Act should become inapplicable because it is a violation Article 49 of the EC Treaty.

Click here to view the Administrative Court of Breda's Ruling.