The Reinforcement of Malta’s Role as a Regulatory Hub for Remote Gaming – Part 1

Whilst much has been said and written both for and against the removal of barriers to the free movement of gaming services within the European Union, anyone trying to get to grips with understanding how remote gaming is regulated within the EU is bound to have a tough time in digesting the variables involved – not to mention the legal “black-holes” created by the inter-jurisdictional structuring of operators’ affairs, with different laws applying in each of these jurisdictions. Clearly, the explosion of the internet as a medium through which products and services of any kind or description can be marketed across the globe in real time has left lawmakers equally awe-struck and perplexed.

The perplexity is caused primarily from the difficulties encountered when attempting to regulate the virtual world using conventional enforcement methods, or, put another way, the obstacles that must be overcome by sovereign states when enforcing their laws and public policies against operators that are not affected in any manner by geographical distances and/or national boundaries. Indeed the only physical elements on which such operators depend is the physical infrastructure required to deliver their services through the virtual world of the internet to internet users in the physical world.

Thus, whilst sovereign states enjoy the freedom of regulating and controlling any activities taking place within their respective political or jurisdictional boundaries or any extensions to their boundaries (as would be case of sea-going vessels or aircraft), the enforcement of such laws becomes a veritable legal obstacle course which significantly weakens the enforcement methods applied by law-enforcement authorities. For this reason the internet has evolved into a veritable free-for-all virtual world, having a combination of everything imaginable in the physical world- the informative; the obscene; the regulated; the unregulated; the pious; the profane; the good; the bad and the ugly.

As a virtual reflection of the real world, the internet has also seen an incremental rise in the number of gaming operators, providing a meeting place for punters from all over the world to play against each other, creating an industry which would have been unimaginable as little as ten years ago. In 2008 online gaming alone generated over €15.6 billion worldwide in revenue. European Parliament studies indicate that, even as other industries shrink amid the economic downturn, the remote gaming sector is growing by between 8% percent (Austria) and 17% (Italy) a year in the EU

Against this backdrop, operators large and small have sought the optimal arrangements to “legitimise” their operations by obtaining whatever credentials, recognitions or licenses that are available to them to provide their players with more peace-of-mind and to dispel the “fly-by-night” perception that may be associated with internet-based businesses, particularly when these operators expected players to deposit funds before playing for money. The fact that internet businesses are perfectly mobile – operating equally effectively from Valletta, Vilnius or Vladivostok – made the attainment of such credentials, recognitions or licenses significantly easier since operators could congregate in those jurisdictions which offered operators the possibility of licensing their remote gaming business without any material setback. These jurisdictions include Costa Rica, Curacao, Khanawake, Alderney, Isle of Man and Malta to name a few.

Malta immediately recognised the importance of remote gaming as a niche market and was quick to adopt a regulatory framework in the year 2000 through an amendment of the Public Lotto Ordinance2. Malta’s approach has always been that of providing a workable legal framework for Malta-based licensees through active and effective enforcement, safeguarding the collective interests of Malta-based licensees and protecting the interests of players as consumers of remote gaming services provided by such licensees. With these principles firmly established, Malta has matured into a respected jurisdiction for the regulation of online gaming and this position was further reinforced in 2004 when Malta become a full member of the European Union.

The Lotteries and Gaming Authority, which has succeeded the Public Lotto Department as the regulator of the industry, continues to demonstrate commitment and determination to retain its position as Europe’s leading remote gaming jurisdiction. Besides, the establishment of certain legal and diplomatic precedents over the past few years have gone some way towards establishing clearer parameters for Malta-based operators, providing them with heightened levels of comfort, and it is towards these developments that we turn our attention at this stage.

The case of Paris Mutuelle Urbain vs Zeturf Limited, otherwise referred to as the “Zeturf Case” was a significant legal milestone from a Maltese legal perspective as it gave interpretational life to the application of Council Regulation on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (EC 44/2001), creating a procedural obstacle for the enforcement in Malta of any public policy judgments delivered by a court in another Member State.

By way of general factual background, Zeturf Limited, a Maltese-registered company was licensed by the Malta Lotteries and Gaming Authority (LGA) in 2005 to act as bookmaker, holding a Class 2 Remote Gaming Licence and began its operations in June of that year. Barely a fortnight after launched its online operations, Zeturf was served with a writ issued by PMU alleging that Zeturf was breaching PMU’s monopoly to organize betting activities on horse races, a monopoly which is granted to PMU by law. An interim order was issued by the French tribunal on the 8th July 2005 in which Zeturf Ltd was ordered “to cease on-line bet taking operations on horse races organised in France” and a penalty of €15,000 per day was to apply with effect from the lapse of 48 hours from notification of the court’s decision. This decision was subsequently confirmed by the Paris court of appeal on the 4th January 2006.

Subsequently, PMU sought to have the judgment recognised and enforced in Malta, in terms of Regulation 44/2001. On the 16th March 2006 the Maltese First Hall of the Civil Court upheld PMU’s request and ordered that the decision given by the Court of Appeal in Paris become enforceable against Zeturf. At this stage Zeturf appealed to the Maltese Court of Appeal to overturn this order for the recognition and enforcement of the French judgment. Zeturf based the main thrust of its appeal on the arguments that the order issued by the French court was in fact of an administrative nature and that consequently regulation 44/2001 could not be invoked for administrative matters.

The Maltese Court of Appeal observed that although PMU was organised as a commercial company, it is controlled by the State as a non-profit making organisation with the primary objective – enshrined in its statute – of safeguarding French public policy in respect of betting on horse races. Consequently, it was reasoned by the Court, PMU acted before the French Courts not within the ambit of private law that regulates civil or commercial dealings between private persons, but in the ambit of public law intended to safeguard a monopoly in the interest of l’ordre public francais. The Court concluded that it necessarily follows that the subject matter of the decision of the Court of Appeal of Paris dated 4th January 2006, although formally or apparently of a civil nature or commercial, in reality falls within the ambit of Public law, therefore it is expressly excluded from the remit of Regulation 44/2001. On the basis of this conclusion the Court cancelled and revoked the decision of the First Hall of the Civil Court and denied the request for the enforcement of the judgment against Zeturf in Malta.

The effect of this decision was that it created a barrier to any sovereign states or person/s acting under their authority attempting to enforce public policy judgments pronounced by the courts in their jurisdiction against operators established in and operating from Malta.