If a national licensing system is inconsistent with EU law, sanctions cannot be imposed for violating that system
In a judgment issued on 22 June 2017 the Court of Justice took a negative view of the Hungarian system of licences for operation of online gaming. The judgment was preceded by an opinion by Advocate General Maciej Szpunar providing an excellent example of reasoning in cases involving restrictions imposed by EU member states on the freedom to provide services.
Unibet International Ltd v Nemzeti Adó- és Vámhivatal Központi Hivatal (Case C-49/16)
Facts
Unibet, a company based in Malta holding licences to operate games of chance in various EU member states, offered online gaming in Hungary without obtaining a Hungarian licence for that activity. The Hungarian tax authorities consequently issued administrative decisions blocking access to Unibet’s websites in Hungarian territory. The company appealed against the decisions, arguing that the national regulations offered online gaming operators only the theoretical possibility of providing cross-border services, as in reality foreign operators could not obtain licences from the Hungarian authorities required to provide such services in Hungary.
In the resulting dispute, the Hungarian court requested a preliminary ruling from the Court of Justice of the European Union.
Advocate general’s opinion
The advocate general first pointed out that neither the Services Directive (2006/123/EU) nor the E-Commerce Directive (2000/31/EC) applies to gaming, and thus the case involves direct application of Art. 56 of the Treaty on the Functioning of the European Union, concerning the freedom to provide services.
Then he indicated that under the established CJEU case law, Art. 56 TFEU requires elimination of any discrimination based on nationality against service providers registered in other member states, as well as any restrictions on the freedom to provide services, even if the restrictions are applied equally to domestic service providers and service providers from other member states. Moreover, the freedom to provide services protects not only service providers, but also service recipients, who have a right to use services offered in another member state.
Under CJEU case law, the very existence of a licensing procedure is sufficient to conclude that there is a restriction on the freedom to provide services. Then it must be examined whether the restriction can be justified.
Restrictions on the freedom to provide services may be justified on grounds of public policy, public security or public health (Art. 52 TFEU), as well as overriding reasons in the public interest recognised in the CJEU case law, such as consumer protection.
Here the advocate general stated that only the considerations set forth in Art. 52 TFEU can justify discrimination based on nationality, but they do not apply in this case. In turn, to justify a restriction on the free flow of services based on overriding reasons in the public interest, under CJEU case law the restriction must be non-discriminatory and proportional.
In the advocate general’s view, the requirements for obtaining a licence in Hungary are harder to fulfil in practice for foreign operators than for domestic operators, and consequently they indirectly discriminate against foreign operators.
Because introducing a system of licences for operation of games of chance is permissible only if it is based on objective and non-discriminatory rules and criteria known in advance limiting the discretion of national authorities so it is not applied arbitrarily, the advocate general concluded that the Hungarian regulation is contrary to EU law.
Then he addressed the question of whether in the event of national regulations conflicting with Art. 56 TFEU, administrative and criminal sanctions for violation of such regulations also conflict with the freedom to provide services. In his view, CJEU case law clearly confirms that if a licensing system is inconsistent with Art. 56 TFEU, sanctions cannot be imposed on an undertaking for violating that system.
CJEU judgment
The Court of Justice ruled in line with the proposal presented in the advocate general’s opinion. The court also pointed out that the principles of legal certainty and the protection of legitimate expectations, based on Art. 2 of the Treaty on European Union, require that “rules of law be clear and precise and predictable in their effect, especially where they may have negative consequences on individuals and undertakings.”
The court held that Art. 56 TFEU must be interpreted as precluding national legislation which introduces a system of concessions and licences for the organisation of online games of chance if it contains discriminatory rules with regard to operators established in other member states or lays down rules which are not discriminatory but which are applied in a manner which is not transparent or are implemented in such a way as to prevent or hinder an application from certain tenderers established in other member states. Art. 56 TFEU also precludes penalties imposed for the infringement of national legislation introducing a system of concessions and licences for the organisation of games of chance when the national legislation proves to be contrary to Art. 56 TFEU.
Summary
In the Unibet case, the Court of Justice confirmed that as a rule, the very existence of licensing procedures for operation of online gaming by service providers based in other member states suffices for a finding of a restriction on the freedom to provide services enshrined in Art. 56 TFEU. Departures from the freedom to provide services must be justified on grounds of public policy, public security or public health indicated in the treaty or overriding reasons in the public interest recognised in the CJEU case law, such as protection of consumers. Restrictions justified by overriding reasons in the public interest must not discriminate directly or indirectly against entities based in other EU member states and must be proportionate to their aim. A licensing system must be based on objective and non-discriminatory rules and criteria known in advance limiting the discretion of the national authorities.
If the restrictions do not meet these requirements, they violate the freedom to provide services enshrined in the EU treaties. In that case, sanctions for violating the regulations conflicting with EU law also conflict with EU law.
Agnieszka Kraińska, EU Law practice, Wardyński & Partners
