European briefing

Gambling: stricter enforcement

In Joined Cases C-338/04, C-359/04, and C-360/04, Placanica (6 March 2007), the European Court of Justice (ECJ) Grand Chamber considered (not for the first time) Italian rules restricting gambling. It was called upon to consider three interlocking sets of rules: a rule requiring gambling operators to obtain a licence of which there were limited numbers available on restrictive terms, a rule requiring them to obtain police authorisation, and a rule making it a criminal offence to conduct business without the relevant authorisation.

The case arose out of references under Art 234 EC from national courts considering cases in which the defendants were prosecuted for carrying out gambling without authorisation. Each of the defendants ran what was, in effect, a branch establishment operated by a UK casino and gambling operator, Stanley International Betting Ltd. Stanley had been unable to obtain licences, because when they were awarded in 1999 it had been a requirement that all shareholders be identifiable: since Stanley is a subsidiary of a listed company it could not comply with that requirement. Each of the defendants had nevertheless applied for police authorisation, but received no response probably because the response would inevitably have been negative, since the relevant licences were not held.

Much of the judgment is entirely predictable. Rules restricting gambling implicate the rights of freedom of establishment (Art 43 EC) and freedom to provide services (Art 49 EC): see Case C-243/01 Gambelli [2003] ECR I-13031. The question was therefore whether the rules in question could be justified '“ a matter left for the national courts to decide, although with the steer from the ECJ that while it might be justifiable to restrict gambling to licensed establishments and limit the number of licences, the rules on transparency of shareholding could not be justified.

Most interestingly is the court's conclusion. In 2002 the Italian system had changed, for the future, by eliminating the rules about shareholding transparency. The ECJ was clear that this was not sufficient. Given the restriction on the number of licences, and the duration of those granted under the old (unlawful) system, it was essential that steps should be taken to unravel the position, by revoking and re-granting licences on a lawful basis.

Moreover, until this happened, the ECJ made it clear that it would be extremely difficult to maintain the status quo even temporarily. While it was satisfied that a system of police authorisation, backed by criminal penalties, could be maintained in support of a valid licensing system, it made it clear that the system could not be maintained in support of an unlawful system. That means, in effect, that until a properly based licensing system is put in place, the entire edifice is unenforceable. This strong approach underlines the significance of EC law. Where a system is put in place which does not comply with EC law rules, it may be difficult to apply it partially or temporarily. There is therefore a strong incentive to replace a doubtful system with a fully lawful one.

• Treaty of Rome: 50 years

25 March 2007 marked the 50th anniversary of the Treaty of Rome. It was predictably celebrated with a somewhat florid declaration issued in Berlin. It is tempting to be cynical about such statements and anniversaries but it would be churlish to deny the politicians their moment of celebration. The achievement of the past 50 years is remarkable; all the more remarkable that many of the fundamental principles applied today can be seen in the original Treaty of Rome.

The legacy is, however, not altogether satisfactory '“ as even the politicians admit. In particular, the institutional framework of the Community, originally designed for a group of six member states with fairly limited ambitions, is creaking under the weight of the enlarged membership and expanded competences.

The last attempt at a constitution seems dead, but constitution-making is now urgently on the agenda (supposedly with the ambition of having something concrete achieved by 2009).

• Share capital

In Case C-524/04, Test Claimants in the Thin Cap Group Litigation (13 March 2007), the ECJ Grand Chamber has grappled with the application of EU legislation designed to deal with cases where companies make heavy use of loan capital in lieu of share capital. Interest payable under such loans may fall to be treated for tax purposes as if it were a distribution from profits. The difficulties occured in particular where the lender/shareholder is foreign, and with the need to achieve consistency in the tax treatment of the payments when made by the company and when received by the shareholder.

The ECJ held that the legislation in question constituted a restriction on freedom of establishment, adversely the position of foreign-resident parent companies who wished to maintain thinly-capitalised UK subsidiaries. Some legislation designed to combat tax abuse might be necessary, but the UK approach was over-broad. The ECJ was not prepared to limit the temporal effect of this ruling.

• Air travel

In Case C-95/04P British Airways (15 March 2007), the ECJ rejected appeals by British Airways from the Court of First Instance's decision upholding Commission fines to BA for abusing its dominant position by allowing discounts to travel agents. The CFI had held (Case T-219/99 [2003] ECR II-5917) that the schemes in question were 'fidelity-building', and therefore impermissible when operated by a company with a dominant position. On appeal, BA argued that the CFI had applied the wrong test and should have asked instead whether the schemes prevented the recipient from having any effective choice but to deal with the dominant firm.

The ECJ rejected that suggestion, and held that the CFI's approach was acceptable. The real question was whether the schemes had an exclusionary effect and lacked objective justification. BA's attempt to ask the ECJ to second-guess the CFI's overall assessment of the effects in question was inadmissible. The finding in question was a factual one, based on all the circumstances of the case, and gave rise to no point of law suitable for appeal.