Betfair Pty Limited v Racing New South Wales

Solicitor for the First and Second Respondents: Yeldham Price O'Brien Lusk

Counsel for the Intervener: Mr MG Sexton SC SG with Mr JK Kirk and Ms AM Mitchelmore

Solicitor for the Intervener: Crown Solicitor's Office (New South Wales)

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 903 of 2010

AND: RACING NEW SOUTH WALES (ABN 86 281 604 417)

HARNESS RACING NEW SOUTH WALES (ABN 16 962 976 373)

JUDGES: KEANE CJ, LANDER AND BUCHANAN JJ DATE OF ORDER: 17 November 2010 WHERE MADE: SYDNEY

1. The appeal be dismissed.
2. The appellant pay the respondents' costs of the appeal.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 903 of 2010

AND: RACING NEW SOUTH WALES (ABN 86 281 604 417)

HARNESS RACING NEW SOUTH WALES (ABN 16 962 976 373)

JUDGES: KEANE CJ, LANDER AND BUCHANAN JJ DATE: 17 november 2010 PLACE: SYDNEY

the court: 1 Section 92 of the Commonwealth Constitution provides, relevantly, that "trade, commerce, and intercourse among the States…shall be absolutely free". The central question in this case is whether this provision is breached by the imposition of a fee as a condition of an approval to conduct wagering operations in relation to racing events in New South Wales, where the fee is imposed on operators' turnover at the same rate for an interstate, low margin operator as for an intrastate, high margin operator. 2 The appellant, Betfair Pty Limited (Betfair), operates a betting exchange from premises in Hobart from which it provides wagering services to punters in New South Wales and elsewhere. It is common ground that Betfair is engaged in interstate trade. The respondents, Racing New South Wales (RNSW) and Harness Racing New South Wales (HRNSW), are independent statutory authorities responsible for the regulation of thoroughbred and harness racing in New South Wales. TAB Limited (TAB) is the largest wagering operator in New South Wales. 3 In 2006, the New South Wales Parliament passed legislation which allowed the respondents to impose a Race Field Fee (the fee) as a condition of an approval for the use of New South Wales race field information by wagering operators. The lawful use of this information is necessary for Betfair to operate its betting exchange in respect of races held in New South Wales. The fee was fixed at the rate of 1.5% of the "wagering turnover" of the wagering operator. It was imposed uniformly on all wagering operators without distinction as to whether their operation is conducted in New South Wales or elsewhere. 4 Betfair brought proceedings against RNSW and HRNSW alleging that, notwithstanding the apparently neutral operation of the fee, the legal and practical effect of the fee imposed by RNSW and HRNSW on the turnover of wagering operators in New South Wales is to protect wagering operators in New South Wales, particularly TAB, from competition from a wagering operator in another state (being Betfair). Betfair argued that the fee discriminated against it as a low margin operator relative to TAB which takes a higher profit margin from its turnover. Betfair contended that the imposition of the fee as a condition of the approval to use NSW race field information contravenes s 92 of the Commonwealth Constitution (the Constitution) and that, in consequence, RNSW and HRNSW were obliged to repay to Betfair the fees which they had collected from it. 5 The learned primary judge held that the fee did discriminate against Betfair, in the sense that the impost was a greater percentage of its commission than of TAB's, but his Honour concluded that Betfair had not made out a case that this differentiation was "protectionist discrimination" so as to engage the operation of s 92 of the Constitution. Accordingly, his Honour dismissed Betfair's claim. 6 The primary judge found that, subjectively speaking, RNSW and HRNSW "plainly intended" to "protect the TAB's revenues from competition from interstate operators". Nevertheless, his Honour concluded that Betfair had not pleaded or proved that, as a matter of objective fact, the effect of the imposition of the fee was likely to be a protectionist burden on interstate trade. Betfair had not made a case, beyond the mere assertion of protectionist effect, that the imposition of the fee was apt to deny Betfair any competitive advantage over TAB or bookmakers in New South Wales which Betfair would have enjoyed but for the imposition of the fee. 7 The primary judge considered that, if he was wrong in his conclusion that s 92 did not apply, then, assuming that the object of the fee was to ensure that those who use the race field information to take wagers on horse-racing in New South Wales make a contribution to the NSW racing industry commensurate with the value of their use of that information, the fee was not valid as a measure reasonably and appropriately adapted to achieving that end, having regard to the prohibition in s 92 of the Constitution upon protectionist discrimination. 8 On appeal to this Court, Betfair argues that his Honour should have concluded that the fee was of a protectionist character within the understanding of s 92 of the Constitution, authoritatively expounded by the High Court in Cole v Whitfield (1988) 165 CLR 360 and subsequent decisions. 9 Before seeking to come to grips with the arguments agitated on appeal, we will set out the background, factual and legal, which has given rise to this litigation. Because of the comprehensive discussion of these matters by the primary judge, it is possible to deal with these matters relatively briefly. We will then set out the reasons of the primary judge. We will refer to the principal authorities on which the parties relied, and then turn to a consideration of the arguments of the parties in the light of those authorities.

THE FACTUAL BACKGROUND 10 Punters may place wagers on thoroughbred and harness racing in New South Wales with: (a) bookmakers (both on-course bookmakers licensed in New South Wales and corporate bookmakers licensed interstate); (b) totalizators (such as TAB); and (c) betting exchanges (such as that operated online by Betfair). A betting exchange is a facility through which punters bet against each other on a fixed odds basis. 11 In order to assist a more detailed understanding of these wagering operations, a brief explanation of terminology is in order. A "back bet" is a bet that a certain event will occur. A fixed pay-off becomes due to the person placing the bet if the event does, indeed, occur. A punter placing a back bet, puts up a "stake" when making a back bet. If successful, the punter recovers his or her stake plus an agreed return, referred to as the "price" or "premium". 12 A person who accepts a back bet is described as "laying" that bet. That person is betting that the relevant event will not occur. If the event does not occur, the person keeps the punter's stake. If it does occur, he or she must return the punter's stake, plus the agreed price or premium. A wagering contract is brought into existence by the matching of a back bet with a corresponding lay bet. 13 A person who places a bet with a bookmaker is making a back bet, while the bookmaker is laying that bet. The primary judge explained, in detail, the mechanisms by which bookmakers earn a profit on their enterprise. For present purposes, it is sufficient to refer to the following (at [17]): All parties agreed that in substance bookmakers generally engaged in fixed price betting which meant that the price to be paid to the successful punter was agreed at the time the bet was placed rather than being determined after the winner was ascertained…The parties were also in agreement that bookmakers generally sought to make their money through what is known as "overround". 14 "Overround" can also be described as a "win rate" or "margin". Betfair's submissions reveal the following regarding the manner in which bookmakers determine their overround (at [16]-[17]): A bookmaker has an incentive to increase its win rate, or margin (subject to any impact that this has on demand by punters), but will be constrained in doing so by competition from other wagering operators…The lower the bookmaker's win rate or margin, the higher the odds offered to punters…The evidence demonstrates that the average win rates or margins of corporate bookmakers are in the order of 5% to 6%. (Footnotes omitted). 15 An alternative method of betting, referred to as pari-mutuel or totalizator betting, operates upon different principles. These were summarised by the primary judge at [30]: Totalizator betting or pari mutuel betting is a system of betting in which persons wishing to back an event or contingency do so by placing the bet with an operator who then pools all of the bets together. When the outcome is known the operator deducts a commission and the remainder of the pool is divided amongst the successful punters. The prices which result are not fixed and necessarily cannot be known before the outcome of the event in question. In that sense totalizator betting differs in obvious ways from the fixed price wagering offered by bookmakers. 16 In New South Wales, there are three totalizator betting operations. These were described by the primary judge at [35]: First, there are on-course totalizators operated by racing clubs such as the Australian Jockey Club (AJC), which operates Randwick Racecourse, or the Sydney Turf Club (STC), which operates Rose Hill Racecourse. The TAB is also permitted to operate on-course totalizators: s 15 Totalizator Act 1997. Secondly, there are totalizators operating from interstate; thirdly, there is a single off-course totalizator operated by the TAB. This third totalizator is a monopoly; s 14(2) of the Totalizator Act 1997 prohibits the grant at present of any more than one licence to conduct an off-course totalizator in NSW. Additionally, when the TAB operates its off-course totalizator on an event which is also being offered by an on-course totalizator, the latter acts as the TAB's agent and pays any money collected by it into the TAB's totalizator: s 17(3) Totalizator Act 1997. Thus, because bookmakers in New South Wales are confined to racecourses and are only able to operate during race meetings the TAB's off-course totalizator monopoly is not only free from competition from other on-course totalizators but also any intrastate off-course bookmakers. 17 The extent of TAB's wagering operation was described by the primary judge at [36]-[37]: The TAB was formerly a government monopoly but was privatised in 1998. It is presently owned by Tabcorp Holdings Limited. The TAB is the dominant operator in New South Wales. For those unfamiliar with the size of the racing industry the amounts of money involved may be surprising. The Australian Racing Fact Book for 2007/2008 reveals that the total wagering turnover on thoroughbred racing in New South Wales for the 2007 and 2008 racing season was $3,505,370,000 of which $2,767,870,000 was placed through the off-course totalizator conducted by the TAB in New South Wales; put another way, 78.96% of all money wagered on New South Wales thoroughbred races was wagered on the TAB's off-course totalizator. These figures leave out of account the betting on harness racing and greyhound racing. A report prepared for persons including HRNSW by BIS Shrapnel Pty Ltd entitled "Revenue Outlook for TAB Limited" suggested that in the preceding three years the TAB had collected 95% of the amount wagered on New South Wales thoroughbred, harness and greyhound racing across Australia and overseas, although it is not clear whether this related solely to the operations of its off-course totalizator. The TAB's off-course totalizator is a very significant undertaking. It is conducted through 1,971 retail agencies throughout the State and its green and yellow livery is a familiar sight in retail shopping areas. Moreover, it has a significant presence in the public hotels of New South Wales in which it often maintains betting facilities and television screens offering live footage of racing events. Because it is not lawful to conduct a totalizator or the business of a bookmaker from anywhere but a racecourse in New South Wales, it follows that the TAB has an unchallenged high street monopoly on betting shops. The encounter of that high street monopoly with the internet sets the stage for the present litigation. (Emphasis in original). 18 The primary judge found (at [69]), that "TAB's average take out or commission from its off-course totalizator is about 16% of the quantum of all bets placed". 19 The TAB's privatisation was preceded by the Racing Distribution Agreement (the RDA) made in 1997 between TAB, RNSW and HRNSW. The RDA requires TAB to pay between 4.5% and 5% of its wagering revenue to RNSW and HRNSW by way of contribution to the costs associated with the racing industry. Local bookmakers in New South Wales also make a financial contribution to the racing industry. Betfair, on the other hand, is under no such obligation. 20 The third method of betting is for back and lay bets to be matched through a betting exchange so that punters bet against each other on a fixed odds basis. The price is a function of the odds offered and the commission charged by the betting exchange which generates the betting exchange's margin. An increase in the margin will result in a decrease in the return to punters. This is the kind of enterprise in which Betfair is engaged. 21 Although Betfair is the counter-party to each bet accepted from a punter, it will only take the bet if it can match that bet with one or more opposing bets: that is to say, Betfair matches a bet on a horse to win (the "back bet") with a bet that the horse will lose (the "lay bet"). The primary judge described Betfair's business at [39]-[40], and [57]: A betting exchange…involves the idea of providing a facility to punters so that they can bet with each other on a fixed price basis. Although totalizator betting is, in a sense, a mode of wagering where the punters are betting with each other because the successful punters take their winnings from the bets placed by other punters, they are not doing so as a matter of contract and the prize cannot be known until the identity of the winning horse is ascertained and the number of successful punters determined. If punters are permitted to lay bets from each other then the possibility of matching back bets with lay bets becomes possible. A betting exchange is a facility whereby persons wishing to wager on the outcome of an event may make and accept offers to do so. Since each wager has a backer and a layer, the offers which may be made are necessarily offers to back and offers to lay. An offer to lay an occurrence would be open to acceptance by a person who wished to back that occurrence. Correspondingly, an offer to back an occurrence would be open for acceptance by a person wishing to lay it. The exchange model facilitates the making and acceptance of such offers. … Betfair operates from premises in Glenorchy, north-west Hobart. It holds a gaming licence from the State of Tasmania issued under the Gaming Control Act 1993 (Tas). That licence permits Betfair to conduct its betting exchange from various locales including Glenorchy. 22 Betfair is the only betting exchange operating in Australia. It is established in Tasmania under a licence from the Tasmanian Gaming Commission. Betting exchanges are by law not permitted to operate from New South Wales. 23 Betfair's commission is charged as a percentage of the net winnings of successful punters on a given event. The primary judge found that the percentage ranges from between 2 and 5 per cent of net winnings (at [138]). It is a requirement of Betfair's Tasmanian Gaming Licence that the commission on net winnings not exceed 5%.

LEGISLATIVE BACKGROUND 24 As a practical matter, a bet cannot be placed on a horse race without the necessary race field information. In 2006 the Racing Administration Act 1998 (NSW) (the RA Act) was amended by the introduction of a new s 33 and s 33A to proscribe the use of race field information by a wagering operator without an approval from the relevant racing authority. 25 Section 33 of the RA Act provides: 33 Use of NSW race field information restricted (1) A wagering operator or prescribed person must not useNSW race field information unless the wagering operator or person: (a) is authorised to do so by a race field information use approval and complies with the conditions (if any) to which the approval is subject, or (b) is authorised to do so by or under the regulations. Maximum penalty: (a) in the case of a corporation - 500 penalty units or (b) in any other case: (i) for a first offence - 50 penalty units or imprisonment for 12 months (or both), and (ii) for a second or subsequent offence - 100 penalty units or imprisonment for 2 years (or both). (2) It is a defence to a prosecution for an offence against this section if a wagering operator proves that the use of NSW race field information: (a) did not occur in connection with the making or accepting of a bet (or the offer to make or accept a bet), and (b) did not occur in the course of the business of the wagering operator. (3) In this section, prescribed person means a person (or a person belonging to a class of persons) prescribed by the regulations. (Emphasis in original.) 26 Section 33A of the RA Act provides: 33A Relevant racing control body may grant race field information use approvals (1) The relevant racing control body in relation to an intended race (or class of races) to be held at any race meeting on a licensed racecourse in New South Wales may grant approval to a person to use NSW race field information (a race field information use approval) in respect of that race or class of races if the person has made an application for that approval under this Division. (2) A relevant racing control body may (but need not) impose any of the following kinds of conditions on a race field information use approval that it grants: (a) a condition that the holder of the approval pay a fee or a series of fees of an amount or amounts and in the manner specified in the approval (being a fee or fees imposed in accordance with any requirements prescribed by the regulations), (b) such other conditions as may be specified in the approval (being conditions of a kind that are prescribed as permissible conditions by the regulations. (3) Any fee that is payable under a race field information use approval is a debt due to the relevant racing control body that granted the approval and is recoverable as such in a court of competent jurisdiction. (4) A relevant racing control body that grants a race field information use approval may, by written notice to the holder of the approval, cancel or vary the terms of the approval on any grounds prescribed by the regulations. (5) If a relevant racing control body cancels or varies a race field information use approval, the body must provide the holder of the approval with written reasons indicating why the approval was cancelled or varied (as the case may be). (Emphasis in original.) 27 Clause 16 of the Racing Administration Regulation 2005 (NSW) (the Regulation) made pursuant to the RA Act, provides relevantly: 16 Fees for race field information use approvals: section 33A(2)(a) (1) A relevant racing control body may impose a condition on an approval (in addition to any other condition relating to fees) that the holder of the approval must pay a fee to cover the cost of assessing the application for the approval. (2) A relevant racing control body may impose a condition on an approval that the holder of the approval must pay the following fees: (a) in relation to a use in Australia of NSW race field information made in the course of the wagering operations of a licensed wagering operator - a fee that does not exceed 1.5% of the holder's wageringturnover that relates to the race (or class of races) covered by the approval plus any amount of GST payable in respect of the fee, b) in relation to any other use of NSW race field information - a fee determined by the relevant racing control body. 28 Clause 2.1 of RNSW's standard conditions on approvals for the use of race field information includes the following: Fees (a) The Approval Holder must pay to Racing NSW a fee of an amount equal to 1.5% of the Approval Holder's Net Assessable Turnover in respect of the Approval Period. 29 "Wagering turnover" is defined by Clause 14 of the Regulation to mean "the total amount of wagers made on the backers side of wagering transactions in connection with that race or class of races". Betfair emphasises that "wagering turnover" in this context should not be confused with turnover in the sense of "gross revenue". Betfair argues that a fee calculated as a percentage of the amount wagered necessarily has a greater impact on it in comparison with operators with higher margins. That is because a greater percentage of the low margin operator's price and revenue from the wagering operation is taken by the 1.5% fee. Thus, so it is said, the uniform imposition of a fee of 1.5% of the amount wagered discourages low margin operators and price competition to the benefit of high margin operators. 30 HRNSW imposes similar conditions on its approvals. The effect of these provisions is to require all those who used NSW race field information, including bookmakers, the TAB, and Betfair, to pay 1.5% of the total value of all back bets associated with NSW race events. This fee is subject to a fee-free threshold of $5 million for RNSW approvals and $2.5 million for HRNSW approvals. 31 The imposition of the fee on wagering turnover, albeit at the same rate, has the effect of reducing Betfair's commission by a greater percentage than it reduces TAB's commission. Betfair argued that, while the fees imposed on wagering operators were, on their face, neutral as between the various kinds of wagering operators, they discriminated against Betfair because it was a low margin operator engaged in interstate trade. Betfair did not argue that the RA Act or Regulation infringed s 92; rather it argued only that the fee condition of the approval was invalid. Betfair's case was that the imposition of the fee was not authorised by the RA Act and the Regulation because they should be construed so as not to authorise the exercise of an executive discretion to achieve a result proscribed by s 92 of the Constitution.

THE REASONS OF THE PRIMARY JUDGE 32 Betfair's case was that the fee was discriminatory in that it operated in practice to reduce its commission on its low margin turnover by approximately 60%, whereas it reduced TAB's commission by approximately 10%. His Honour summarised the elements of Betfair's case at [101]-[105]: Betfair's pleaded case was straightforward. First, it alleged that the takeout rate of the TAB had "typically been approximately 16% on average over all events and contingencies". Secondly, it alleged that the commission earned by the TAB by the operation of its off-course totalizator had a fixed and direct relationship with the betting turnover which took place on it. The pleading referred to this as gross revenue, rather than, as I do, commission. However, as these reasons will show, references in Betfair's further amended statement of claim to "gross revenue" are plainly references to commission both for the TAB and for Betfair itself. Thirdly, it alleged that there was no direct relationship between Betfair's commission and the turnover on its exchange. Fourthly, it alleged that the imposition of a fee calculated on 1.5% of back bet turnover represented between 55.86% and 60.79% of its commission earned from punters betting with each other on its exchange on thoroughbred races for the years 2005/06 - 2008/09 and between 54.83% and 61.41% over the same period in respect of harness racing. Only the years 2008/09 are directly relevant to these proceedings for it is only in those years that the fee was actually levied. The allegation suggests, however, a continuity of outcome rather than a statistical anomaly, which I accept. At the heart of the case is Betfair's next allegation that, by contrast, the imposition of a 1.5% back bet turnover fee on the TAB's off-course totalizator turnover will result in a drop in its commission of 9.375%. Another way of putting this allegation is that since the TAB's commission or takeout is approximately 16% of its turnover, the imposition of a 1.5% fee charged on back bet turnover will reduce its commission to 14.5% because of the alleged direct relationship between turnover and the totalizator's take out. That 1.5% drop in commission represents 1.5% of 16% or, as Betfair alleges, 9.375% of the TAB's commission. Fifthly, Betfair alleges that the fee, in its practical operation, requires an interstate operator, Betfair, to pay a sum that exceeds, in terms of a proportion of their respective commissions, the amount imposed upon an in-State operator, the TAB. Sixthly, therefore, it is alleged that the fee imposes a burden on interstate trade that is not imposed on intrastate trade and, in its legal or practical effect, protects the TAB from competition by reason of which its imposition is protectionist in character. Seventhly, Betfair alleges that there is no other object consistent with s 92 to which the fee can be seen as being reasonably appropriate and adapted. Finally, in that regard Betfair points to a series of statements made by officials from RNSW and HRNSW which, Betfair submits, show that the fee was intended to discriminate in a protectionist way and that it breaches s 92 by reason of that intention. Taken altogether, the case is that the fee is discriminatory in a protectionist sense and was always intended so to be. 33 Ultimately, the primary judge concluded that, although the fee did discriminate against Betfair, it was not protectionist in character and so did not offend s 92 because it was not shown to affect adversely any competitive advantage enjoyed by Betfair. His Honour said at [110]-[112]: The respondents submitted that s 92 was concerned with protectionism which, on the authorities, required Betfair to show that the fee was not competitively neutral. It was not enough to show that the fee discriminated against Betfair; rather, it needed to be shown that any discrimination which was proved either imposed some competitive disadvantage on Betfair or ameliorated some competitive disadvantage otherwise burdening the TAB. This question raises important issues about how Betfair went about running its case. In summary, I have concluded that the respondents and the intervenor are correct; that Betfair has not alleged that the discriminatory effect of the fee is not competitively neutral beyond proving that the fee is discriminatory. Betfair has not alleged or proven any of the following (by way of example): (i) that Betfair is more affected by the fee because it is a low margin operator and that its status as such derives from the competitive advantage it has as an interstate trader in not paying New South Wales betting taxes or payments to the racing industry under the Racing Distribution Agreement; or (ii) that Betfair's status as a low margin operator is a result of a competitive advantage it has over the TAB in not having to maintain a retail network in New South Wales. Further, Betfair has not alleged as part of its case on protectionism that the fee operates as an equalising tax falling only on interstate operators and is therefore protectionist. Without allegations of that kind, Betfair has only shown that the fee discriminates against it; it has not shown that that discrimination is protectionist. 34 The primary judge acknowledged that Betfair had asserted in its pleadings that the fee is "protectionist in character", but explained that Betfair's case failed to identify any competitive advantage which was nullified or diminished by the fee. His Honour considered that Betfair's conclusionary assertions of protectionism were supported only by the allegations that the fees discriminated against Betfair because it is a low margin operator. His Honour said at [162]-[163]: Cole v Whitfield 165 CLR 360 establishes that what is needed to enliven s 92 is not just discrimination but discriminatory protectionism. As one might expect, therefore, Betfair alleged that the fee was, in fact, protectionist and this it did at paragraphs 100 and 100A: 100. By reason of the matter [sic] referred to in paragraphs [98] and [99] above: (a) the Racing NSW Approvals and the RNSW Turnover Fee Condition impose on interstate trade, commerce and intercourse a burden or disadvantage which they do not impose on intrastate trade, commerce and intercourse of the same kind; and (b) the legal and practical effect of the Racing NSW Approvals and the RNSW Turnover Fee Condition is to protect a wagering operator in New South Wales (being TAB Limited) from competition from a wagering operator in another State (being Betfair). 100A. By reason of the matters referred to in paragraphs [99] and [100] above, the Racing NSW Approvals and the RNSW Turnover Fee Condition are protectionist in character and are thereby contrary to s 92 of the Constitution and invalid, or are invalid to the extent that they impose a discriminatory fee contrary to s 92 of the Constitution. (emphasis added) But it is quite obvious that those paragraphs did no more than rely on what was alleged in paragraphs 98 and 99 which, as I have already noted, contained only allegations of discrimination. 35 His Honour continued with his analysis of Betfair's pleaded case at [164]-[166]: The first allegation of protection is in paragraph 100(b). The matter in paragraph 100(b) flows, however, "by reason of the matter[s] referred to in paragraphs [98] and [99]". The second allegation of protection in paragraph 100A likewise arises "by reason of the matters referred to in paragraphs [99] and [100]". Whichever way one looks at it, the factual matters underlying the two allegations of protection are those in paragraphs 100 and 100A and they lead one inevitably back to paragraphs 98 and 99. But the only allegations in those paragraphs are that Betfair is engaged in interstate trade and commerce and that it has to pay a larger proportion of its commission than the TAB does. That, on the face of things, is not an allegation of protectionism. To understand that, it is important to emphasise some matters which are not alleged by Betfair in its pleading. It does not allege that the discriminatory effect of the fee on it and the TAB: (a) reduces some competitive advantage which Betfair enjoys over TAB; or (b) ameliorates the effect of some competitive disadvantage by which the TAB is burdened; or (c) is the result of an equalising fee or tax. Another way of putting this is to observe that Betfair does not allege in paragraph 99 of its pleading (or in any other part of its pleading) that the imposition of the fee is not competitively neutral. Be that as it may, it is not difficult to imagine ways in which it might have been alleged that the discriminatory effect of the fee was not competitively neutral. It might, as I have already noted, have been argued, for example, that the TAB's position in New South Wales was such that it was required to maintain an extensive retail network, pay significant betting taxes to the New South Wales Government as well as making substantial contributions to the racing industry under the RDA all of which could be characterised (perhaps controversially) as competitive disadvantages. The discriminatory effect of the fee could be seen to ameliorate the competitive disadvantages of the TAB vis À vis Betfair by subjecting the latter to an equalising or compensatory burden which severely impacted its operating margin in NSW and thereby levelled the playing field. 36 The primary judge explained that the deficiency in the case advanced by Betfair was not confined to the manner in which the case was pleaded. The insufficiency of the pleading was the harbinger of a failure to prove facts necessary to Betfair's case that the fee is protectionist. His Honour said at [167]-[172]: One might have some sympathy with the proposition that the fee's lack of competitive neutrality was so obvious that it went without saying. However, whilst it is always tempting to accede to the obvious I do not think that is a correct way to proceed in this case for four reasons. First, the short and perhaps unpalatable fact is that such a case has not been pleaded. Secondly, although the proposition may look obvious that may well be because it is presently unchallenged as the respondents have declined (as they are fully entitled so to do) to meet anything but the case pleaded against them. Thirdly, the evidence does not disclose why Betfair's commission rate is between 2% and 5% and why the TAB's is 16%. It may be that the lower commission rate is caused, in part or in whole, by any of the following: (a) the absence of the need to maintain a retail network; (b) the deliberate generation of losses by Betfair in order to increase its market share; (c) the presence of other streams of revenue, apart from the commission earned on the exchange, which are operating as a form of internal cross-subsidy; (d) undemanding shareholders; or (e) very large numbers of customers. So too, the reasons why the TAB's commission is over three times higher than Betfair's and why that state of affairs continues despite the presence of low margin operators are also matters of conjecture not having been explored in evidence. They may include, for example: (a) the ability of the TAB to trade at high rates given its monopoly with respect to operating an off-course totalizator on New South Wales racing events; (b) the costs and expense involved in maintaining a substantial retail network; (c) the size of New South Wales betting taxes and the expenses incurred by the TAB under the RDA; or (d) the brand strength of the TAB. I mention these points not to give any of them any particular credence but to indicate that to determine whether the fee is protectionist these matters would need to be examined. None of the propositions set out above, nor any like them, were put as part of the s 92 case and none have been factually investigated in a context where the respondents have been obliged to meet them. In those circumstances, it is not open to proceed upon the basis that the pleading should be taken, on the grounds of obviousness, to include an allegation that the discriminatory impact of the fee upon the respective commissions of Betfair and the TAB is not competitively neutral. Fourthly, by not saying what the competitive effect of the fee is Betfair denies the respondents any opportunity to make a defence to that case. This is the point which the respondents sought to make, I think, in paragraph 100.1(d) of their defence, which was in the following terms: Betfair cannot establish that the burden is offensive to section 92 of the Constitution without alleging and proving the economic or financial impact of the alleged burden on the relevant interstate trader including: (i) whether the interstate trader is able to pass the alleged burden onto its customers, either at all or in a manner that is competitively neutral vis-À-vis the relevant intrastate trader; (ii) the profitability of the interstate trader in light of the imposition of the alleged burden; (iii) whether it is uneconomic for the interstate trader to engage in the relevant interstate trade in light of the imposition of the alleged burden; (iv) whether the interstate trader does conduct or is able to conduct its business in such a way that the alleged burden does not place the interstate trader at a discernible competitive disadvantage vis-À-vis a relevant intrastate trader; (v) whether the interstate trader is able to achieve an amelioration of fees which it faces from other regulators relative to the same business, in whole or in part, such that the alleged burden does not place the interstate trader at a discernible competitive disadvantage vis-À-vis a relevant intrastate trader. … On the form that Betfair's case took all that was alleged was that Betfair was a low margin operator. Whilst it was true that fixed charges were apt to discriminate against low margin operators and in favour of high margin operators such discrimination could not, without more, constitute protectionism. For that, one needed to go further and to put that the low margin operator's status as such sprang from some competitive advantage over the high margin operator which the fee could be seen as reducing or eliminating. Low margins, per se, did not demonstrate the existence of a competitive advantage but might well arise from other extraneous circumstances which might not necessarily bespeak the presence of a competitive advantage; for instance, as already mentioned, a deliberate competitive tactic in order to attract market share. 37 The point made by his Honour in this passage is that the imposition of the fee does not necessarily adversely affect low margin operators in comparison with higher margin operators who are also subject to the fee. Unless issues of the kind referred to by the primary judge are addressed, one cannot conclude that any competitive advantage enjoyed by the low margin operator is likely to be diminished. His Honour considered that Betfair's own submissions in reply highlighted this difficulty in its case. His Honour explained at [173]-[176]: Betfair's written submission in reply recognised, I think, the problem with which it was confronted. At paragraph 8 of those submissions it was said: Section 92 is concerned with the "practical effect" of a law or executive action and whether it burdens interstate trade to a "significantly greater extent" than it burdens intrastate trade and the burden is "of a protectionist kind". A burden has that characteristic if in its differential effect it is likely to remove or diminish significantly any competitive advantage which the interstate trader enjoyed over the intrastate trader before the imposition of the fee or is likely to impose a competitive disadvantage on the interstate trade alone. A law or administrative decision which does not have that effect is one which can be described as "competitively neutral". Here the issue is whether the fee is "competitively neutral" as between TAB Limited (the trader within NSW) and Betfair (the trader outside NSW): Betfair v Western Australia at [146]. Having then said in paragraph 10 of the same document that the question was "whether in its operations the fee is not competitively neutral" the submission went on to say (at paragraph 11): At the time of the imposition of the fee Betfair enjoyed competitive advantages over TAB Limited as a result of its cost structure and operating margin. The competitive advantages which the betting exchange model enjoyed were the result of a lower cost structure partly because Betfair does not take any risk on the outcome of the wagering transaction, partly because it does not support retail outlets and oncourse facilities and partly because of the level of NSW tax and industry contributions paid by TAB under the RDA. The submission continued at paragraph 13: To identify any competitive effects of the fee it is necessary to understand what it means in terms of revenue or expense to Betfair and TAB Limited. It is only by reference to its revenue and expense consequences that likely competitive effects can be considered. (Such an analysis was in fact undertaken by Racing NSW in June 2008.) These submissions are, with respect, on the mark. They single out Betfair's competitive advantages and seek to show that the fee protects the TAB from them. The difficulty, as the respondents pointed out, was that this case was neither really in reply nor, more seriously, in Betfair's pleading. I am bound to accept the respondents' argument as correct. The pleading does not make the allegations about the competitive effects of the fee. 38 The primary judge reviewed at [179]-[194] the detail of Betfair's pleaded case and the arguments advanced by it at trial. His Honour concluded at [195]: Betfair did not run a case that its status as a low margin operator was derived from competitive advantages it enjoyed as a result of its being an out-of-State trader. Nor, for completeness, did Betfair's pleaded case allege that the fee was to be seen as an equalising measure to which the principles in Bath v Alston Holdings Pty Ltd (1988) 165 CLR 411 might apply. For the reasons delivered simultaneously with these reasons in Sportsbet [2010] FCA 604, the fee in question was, in fact, refunded to the TAB and the New South Wales on-course bookmakers so that it was a measure that fell substantially only on interstate traders and was to be seen as an equalising measure designed to reduce the burden imposed by the RDA and to prevent revenue leaking away from the TAB. Such a case was not run by Betfair. 39 The primary judge referred at [196]-[204] to the authorities in relation to s 92 of the Constitution. He drew from them the proposition that where the impermissible burdening of interstate trade is not apparent on the face of the impugned law, the kind of discrimination which offends s 92 involves the disruption of a competitive advantage which an interstate trader would enjoy were it not for the impugned law. His Honour concluded at [205]: Betfair needs to demonstrate that the fee is not only discriminatory (as I have found) but that the burden imposed is protectionist. Further, I accept that to demonstrate the protectionist effect it needs to prove that the fee is not competitively neutral. However, as I have endeavoured to show, the absence of the competitive neutrality was not put as part of Betfair's pleaded case. It follows that its case must fail. 40 It is important to appreciate that his Honour rejected a contention advanced by the respondents that Betfair was obliged to show that it had actually been adversely affected in its business by the imposition of the fee. In this Court, Betfair argued that his Honour did not appreciate that Betfair was not obliged to show that it was actually adversely affected by the fee, it being sufficient to show that the tendency of the fee was likely to affect it adversely. In this regard, his Honour said at [206]: It is necessary to add a postscript to these conclusions. The respondents pursued an argument that Betfair was obliged by Castlemaine Tooheys 169 CLR 436 to prove some actual competitive effect upon its business (for instance the raising of the rate of commission on winning bets). Mr Twaits' evidence was that Betfair had not yet done anything in response to the fee. It followed, as I understood the submission, that Betfair could have no claim under s 92. I reject this argument. There is a distinction to be drawn between requiring a plaintiff in a s 92 case to allege and prove the existence of some competitive advantage possessed by it (or correspondingly some competitive disadvantage possessed by the in-State trader) and requiring it to prove the effect of the impugned measure on its actual business decisions. If Betfair had alleged that its lower margins derived from the competitive advantage accruing to it then this may well have shown the fee to be protectionist. What Betfair did, however, in response to the fee is irrelevant. 41 The primary judge considered whether the motives of RNSW and HRNSW were material. His Honour was prepared to draw the inference (at [227]) "that the members of the board of RNSW were, at the time of the decision to impose the fee, of the view that the fee would limit revenue leakage away from the TAB and thereby protect its revenues from competition with interstate traders". 42 Having so found, his Honour went on to hold that the intention of those individuals responsible for the imposition of the fee was not material to the resolution of the issue as to protectionist effect. His Honour said at [236]-[237]: However, having concluded that the respondents were actuated by protectionism this does not, thereby, establish a breach of s 92. As matters presently stand, there appear to be two ways an infringement of the guarantee erected by s 92 may be established. First, a plaintiff may show that a law or measure directly discriminates against interstate trade or commerce. Secondly, it may be shown that the law or measure in its practical operation or effect is discriminatory in a protectionist sense: see Cole v Whitfield 165 CLR at 408. I can discern no room on either of those limbs for a role for the intention of the decision maker.

THE ARGUMENTS OF THE PARTIES ON APPEAL 43 Not all the points raised by Betfair's Notice of Appeal were pressed in argument before this Court. We will consider the arguments which were pressed. 44 Betfair pressed the following arguments: 1. The primary judge erred in holding that Betfair's pleadings did not sufficiently allege that the fees imposed by NSW were not competitively neutral and protectionist. 2. The primary judge erred in holding that "protectionism", under s 92, required a "detailed examination and 'weighing' of any putative competitive advantages and disadvantages enjoyed by the interstate trader". Betfair asserts that "all that must be shown is that the measure is 'likely to' or has a 'tendency to' benefit intrastate trade in the relevant market". 3. The primary judge erred in requiring that Betfair must show "its status as a low margin operator was the result of some competitive advantage or connected to competitive advantages possessed by it and that the effect of the imposition of the fees was to reduce that competitive advantage". 4. Once the primary judge found the fees imposed were discriminatory, and that there existed no non-protectionist justification for the fee, the primary judge should have concluded that the fees were protectionist and contravened s 92 "without the need for any further inquiry". 5. The primary judge erred in failing to conclude that the intention of RNSW and HRNSW to protect TAB against the loss of revenue to Betfair established the invalidity of the fee condition. Under the pressure of argument, Betfair's counsel were not disposed to press this contention in such broad terms, arguing rather that the subjective intention found by the primary judge was relevant only as tending to support the conclusion that the condition had a protectionist operation in fact. 45 The respondents, RNSW and HRNSW, contend: 1. Betfair's case miscarried in that it challenged the imposition of the fee as a condition of the approval under ss 33A of the RA Act, and cl 16(2)(a) of the Regulation, rather than the validity of the Act or Regulation. There is no basis to challenge the executive decision to impose the fee because it was authorised by legislation, the validity of which is not challenged. 2. The fee did not discriminate against Betfair, either on its face, or in its practical effect. But even if the fee discriminated against Betfair, the fee was not shown to have a protectionist effect. 3. There was no subjective protectionist intent behind the introduction of the fee; the primary judge's findings to this effect should be overturned. The primary judge was, however, correct to hold that the intention and purpose of RNSW and HRNSW in imposing the fee is only relevant as a matter of evidence pointing to the likelihood that the fee offends s 92 in fact. 46 The Attorney-General for New South Wales, intervening in the case, makes the following submissions: 1. Betfair failed to establish protectionist discrimination. Betfair had, at most, established discrimination between one interstate trader and one local trader. This kind of discrimination is not impermissible. 2. If all wagering operators increased their commissions/margins so as to pass on the turnover fee in full then there would be no change in their relative competitive positions within the market. The low margin operators would still have exactly the same competitive advantage on price that they previously held. If the relativities change, that is because of commercial decisions taken within the market. For the racing authorities to put a "low margin operator" in the position where it might choose to increase that margin by passing on the fee, does not disclose a relevant competitive disadvantage upon Betfair's trade. 3. The competitive expansion of Betfair has not been halted or reversed by the fees. On the evidence adduced at trial, Betfair continues to expect "healthy" rates of growth of its business. When a claim is made that a measure has the practical effect of imposing a protectionist discriminatory burden, it is relevant to take account of the facts as to the practical effect of the measure as occurred in Castlemaine Tooheys v South Australia (1990) 169 CLR 436.

THE SUFFICIENCY OF BETFAIR'S PLEADING 47 The primary judge concluded that Betfair, although referring to and relying upon the notion of protectionism, had failed to identify in its pleadings the way in which the discrimination of which it complained affected its competitive position. Betfair's case, as pleaded and conducted, was in substance that the effect of the discrimination it alleged, upon its competitive position, was self-evident. On that footing, neither specifically pleaded material effects on competition, or evidence about those matters, was required. 48 As to Betfair's argument that its pleading was sufficient to make a case of discriminatory protectionism, the first point to be made is that in proceedings by way of demurrer, the assertion of "tendentious legal conclusions" is not apt to conceal the insufficiency as a matter of law of the pleaded case; see South Australia v The Commonwealth (1962) 108 CLR 130 at 141-142; Kathleen Investments (Aust) Ltd v Australian Atomic Energy Commission (1977) 139 CLR 117 at 135, 144-145. But there was no demurrer in this case, or even a demurrer "ore tenus" which once was a feature of advocacy in the Supreme Court of New South Wales. The case had proceeded to trial, and Betfair was entitled to have its case determined on such merits as it was able to demonstrate at trial. 49 The basic function of pleadings is to identify the issues which require a court's attention and determination (see Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 ("Banque Commerciale") per Brennan J quoting Jessel MR in Thorp v Holdsworth (1876) 3 Ch D 637 at 639). In Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Pty Ltd (1991) 217 ALR 171 French J, when a member of this Court, said (at 173): A material fact is one which is necessary to formulate a complete cause of action. It is to be distinguished from particulars which are not part of the pleading. Material facts must be pleaded with the degree of specificity necessary to define the issues and inform the parties in advance of the case they have to meet. There are certain levels of generality in pleading which while they may bring in all facts necessary to establish a cause of action, are insufficient for that purpose: Bruce v Odhams Press Ltd [1936] 1 KB 697 at 705, 712; [1936] 1 All ER 282 at 289, 294; Ratcliffe v Evans [1892] 2 QB 524 at 532; [1891-4] All ER Rep 699 at 704; Farrell (formerly McLaughlin) v Secretary of State for Defence [1980] 1 WLR 172 at 179-80; Charlie Carter Pty Ltd v SDAEA (WA) (1987) 13 FCR 413. (Emphasis added.) 50 Pleadings provide a structure for a proceeding for the purpose of the attainment of justice. The pleadings identify the material facts upon which the parties rely and the issues the parties seek to have determined. Because the pleadings require the parties to identify all material facts and issues, the pleadings provide the benchmark for discovery before trial and the admissibility of evidence at trial. Parties are required to plead the material facts upon which the party relies and the issues which that party seeks to have resolved for the further purpose of giving the opposing party fair notice of the case to be met at trial thereby minimising any risk of injustice by taking the opposing party by surprise. Pleadings incidentally are the record of the proceeding for the purpose of any subsequent arguments relating to res judicata or issue estoppel or any like issue. 51 At trial a party is entitled to have the opposing party confined to that party's pleadings because the first party is entitled to come to trial to meet only the issues raised on the pleadings. However, if the first party does not seek to so confine the opposing party but allows the other party to raise other material facts and issues for the determination of the Court, then in our opinion the Court is permitted and possibly obliged to decide the proceeding on the further material facts and issues raised and addressed at trial: Banque Commerciale at 296-297; Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in Liquidation) (1916) 22 CLR 490 at 517. If it were otherwise, the party who has failed to plead all of the material facts or issues upon which the party's case relies, but has brought those material facts or issues to the attention of his or her opponent at trial, would be denied natural justice if at the end of the trial the Court decided the proceeding on the pleadings without notice to that party. The first party in those circumstances would have been denied the opportunity to apply to amend those pleadings so as to formalise what was in fact addressed at the trial. 52 Pleadings are a means to an end and not an end in themselves (Banque Commerciale per Dawson J at 292-3). As early as 1916 Isaacs and Rich JJ said, in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in Liquidation) (1916) 22 CLR 490 (at 517): Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest. (Emphasis added.) 53 Approached in these terms, the question is whether the respondents knew the nature of the case they had to meet. In our opinion, identifying the legislative and other measures under attack, and asserting that s 92 was infringed by those measures, necessarily incorporated reliance on the protection guaranteed by s 92 and the characteristics of the identified measures which were alleged to constitute its infringement. 54 Betfair's case was explicitly opened, both in writing and orally, on the premise that the fee imposed represented a discriminatory burden of a protectionist kind and that its object was to protect the TAB, as an intrastate operator, from competition by Betfair, an interstate operator. There can be no doubt that the nature of Betfair's case was understood by Betfair's opponents. 55 In our respectful opinion, the proposition favoured by the primary judge that, from beginning to end, Betfair's case was fatally flawed by a failure to adequately plead that the discrimination it alleged was of a protectionist kind, gave insufficient recognition to the fact that the case was fought out in every other sense on the constitutional issues arising from s 92. Betfair's opponents sought to rely at the trial on the general proposition that Betfair would be "held" to its pleaded case. An announcement of that kind by a party misstates that party's capacity to direct the course of the proceedings. The course of proceedings is in the control of the Court. That control is to be exercised for the attainment of a just outcome. There will obviously be cases where a pleaded case does not raise an important fact for attention. If that remains the position at the end of the case, the case may be lost on that basis, so far as it depends on that fact. Sometimes it would be unfair to allow a party to amend a case, or a pleading, to raise a new matter which could have been, but was not, raised earlier. On the other hand, mere infelicity of drafting will rarely be allowed to defeat a case on its merits if the merits of the case have been made apparent on the evidence without unfairness to the other party. 56 In this Court the formal requirements as to pleadings are stated in Order 11 of the Federal Court Rules but O 1 r 8 provides: The Court may dispense with compliance with any of the requirements of the Rules, either before or after the occasion for compliance arises. 57 Furthermore, s 22 of the Federal Court of Australia Act 1976 (Cth) encourages the Court to finally determine all matters legally in controversy between the parties to the proceedings and s 37M(2) may be seen as directed in part to the same objective. 58 The obligation on the Court to deal with the "real controversy" between the parties was emphasised recently in Vale v Sutherland (2009) 237 CLR 638 where the High Court at [41] cited with approval the following statement of Dawson J in Banque Commerciale: But modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties … cases are determined on the evidence, not the pleadings. 59 In our view, the case did require consideration of whether the discriminatory treatment alleged by Betfair was protectionist. The issue of protectionism was clearly in play. Any deficiency in the premise upon which the pleaded allegation of protectionism rested should have been dealt with as a matter of substance rather than as a point of pleading. We agree with the primary judge that Betfair's case lacked a vital ingredient but that deficiency was a reason why the case could not succeed, as a matter of substance, not as a reason why the case could not pass a pleading threshold. Betfair's case should therefore not have been rejected because of a perceived deficiency in the pleadings. Rather, it should have been determined on the merits. However, that conclusion does little to assist Betfair's cause. 60 Whether or not Betfair's case could succeed depends on whether Betfair could demonstrate that the fee disrupts, adversely to it, the competitive relativities between it, as an interstate trader, and intrastate traders. Betfair says that it makes this demonstration by pointing to the fact that the fee takes 60% of its commission from its betting operations as against 10% of TAB's commission. It argues that it is unnecessary to do more. Whether that is correct is a substantive issue rather than a pleading issue. 61 The resolution of that substantive issue depends on the other arguments agitated by the parties. Those arguments proceeded very much by reference to the decisions of the High Court in Cole v Whitfield (1988) 165 CLR 360; Bath v Alston Holdings Pty Ltd (1988) 165 CLR 411; Castlemaine Tooheys Ltd v South Australia (1990) 169 CLR 436; and Betfair Pty Ltd v Western Australia (2008) 234 CLR 418. Before we deal further with the arguments advanced by the parties, we should refer to these authorities.

cole v whitfield 62 In Cole v Whitfield, a Tasmanian law proscribed the taking or selling or farming of crayfish of less than a prescribed size. The defendant had imported crayfish from South Australia for the purpose of sale in Tasmania. The law was held not to contravene s 92 of the Constitution. The High Court thoroughly reviewed the earlier cases on s 92 and identified its purpose as the prevention of protectionism between the states. By way of explanation of the unidentified burden from which trade was to be left "free" by virtue of s 92, the High Court referred to the history of its inclusion in the Constitution. Their Honours said at 393: Section 92 precluded the imposition of protectionist burdens: not only interstate border customs duties but also burdens, whether fiscal or non-fiscal, which discriminated against trade and commerce. That was the historical object of s 92 and the emphasis of the text of s 92 ensured that it was appropriate to attain it. 63 On the view of s 92 expounded in Cole v Whitfield,the burdens on interstate trade proscribed by s 92 include those which are imposed by the practical operation of the law. They include discrimination which is not apparent on the face of the impugned law or executive measure. The High Court said at 399-400: The concept of discrimination in its application to interstate trade and commerce necessarily embraces factual discrimination as well as legal operation. A law will discriminate against interstate trade or commerce if the law on its face subjects that trade or commerce to a disability or disadvantage or if the factual operation of the law produces such a result…The court looks to the practical operation of the law in order to determine its validity. 64 The approach to be adopted was explained by the Court (at 408-409): In the case of a State law, the resolution of the case must start with a consideration of the nature of the law impugned. If it applies to all trade and commerce, interstate and intrastate alike, it is less likely to be protectionist than if there is discrimination appearing on the face of the law. But where the law in effect, if not in form, discriminates in favour of intrastate trade, it will nevertheless offend against s 92 if the discrimination is of a protectionist character. A law which has as its real object the prescription of a standard for a product or a service or a norm of commercial conduct will not ordinarily be grounded in protectionism and will not be prohibited by s 92. But if a law, which may be otherwise justified by reference to an object which is not protectionist, discriminates against interstate trade or commerce in pursuit of that object in a way or to an extent which warrants characterisation of the law as protectionist, a court will be justified in concluding that it nonetheless offends s 92. … The means by which domestic industry or trade can be advantaged or protected are legion. The consequence is that there will always be scope for difficult questions of fact in determining whether particular legislative or executive measures constitute discriminatory interference with interstate trade. 65 Whether a protectionist character can be discerned as a matter of practical effect depends on the effect of the law on the competitive relationship between interstate and intrastate trade. That is because it is settled that a state may impose equal burdens on interstate and intrastate trade. In Cole v Whitfield at 395, the High Court referred, with evident approval, to the following statement by Gavan Duffy J in W & A McArthur Ltd v Queensland (1920) 28 CLR 530 at 567-568. Gavan Duffy J said: The vice in the suggested argument lies in assuming that s 92 forbids every interference with State trade and commerce; and this brings me to a consideration of the second question, namely, what is the exact nature of the freedom which the section vindicates? There are few epithets in the English language which extend over a larger area of meaning than the word 'free' or vary more with the object qualified. The word 'free' is often used to qualify the word 'trade', and sometimes, though not so often, to qualify the word 'commerce'. When used with respect to trade and commerce among Sovereign States it ordinarily means no more than unrestricted by tariff or customs duties; it more rarely means free from all artificial restrictions or restraints conditioned on the international character of the trade or commerce; but freedom of trade and commerce never means freedom from regulation or control, or complete immunity from municipal law with respect to the acts which constitute such trade or commerce. No civilized nation has ever tolerated a trade or commerce, whether foreign or domestic, which was not subject to regulation and control both with respect to the method of carrying it on, and the general conduct of those who carried it on. It could not be contended that a treaty guaranteeing freedom of trade and commerce between two nations would enable the subjects of each, while carrying on such trade and commerce within the territory of the other, to ignore either the municipal laws regulating the general conduct of individuals within the State, or those prescribing the general conditions applicable to trade or commerce within the State. All that could be demanded under such a treaty would be equality of trading rights for the subjects of each nation in the territory of the other. I see no reason for attributing to the word 'free' in s 92 any larger meaning than that which it naturally bears in the collocation in which it is there used. Indeed, to do so would immediately create an inconsistency between s 92 and s 51(i), for it would leave no room for the operation of the latter.

bathv alston 66 All parties to this appeal lavished attention on the decision of the High Court in Bath v Alston. Under the Victorian Business Franchise (Tobacco) Act 1974, licensing fees were imposed in relation to the wholesale and retail sale of tobacco products. The fee for the licence included an amount equal to 25% of the value of tobacco sold by the licensee in an earlier period of trading. The retailer's licence fee did not take into account the value that had been purchased by the retailer in Victoria from the holder of a wholesale licence. The challenge to the constitutionality of the scheme was brought by a Victorian retailer which purchased its tobacco products from a wholesaler in Queensland where there was no tobacco licence fee. 67 The High Court held by majority that the 25% retail licence fee contravened s 92 in that it burdened the sale of a product imported from another state by denying the product the competitive advantage which it enjoyed in its state of origin. The tax on retailers imposed "discrimination at the retail level" which was "of a protectionist kind". It was a discriminatory burden upon interstate trade because it was apt to "equalize" the advantage which tobacco purchased from wholesalers in Queensland enjoyed in Victoria and so to protect Victorian wholesalers. In the view of the majority of the High Court (at 427), the vice of the Victorian scheme, so far as s 92 is concerned, was that it sought to "equalize" the "advantage which...interstate goods enjoy in their State of origin". 68 Professor Zines in The High Court and the Constitution,5th Ed, The Federation Press (2008) at p 185 summarised the effect of this decision: "The imported product…carries with it any competitive advantage at the time of entry" into the importing state. Betfair's case is that its competitive advantage lies in its low margin business model. It is difficult to see that this advantage can sensibly be described as an advantage which the services provided by Betfair enjoy in its state of origin. The fee paid by Betfair is not higher because its services are supplied in New South Wales rather than in Tasmania. Further, neither Bath v Alston, nor any other decision, suggests that s 92 is concerned to protect the business model adopted by individual traders. 69 In Bath v Alston, Mason CJ, Brennan, Deane and Gaudron JJ looked to the practical impact of the tax upon the trade in tobacco in Victoria in the light of an analysis of competitive advantage and disadvantage in the Victorian retail market for cigarettes. Their Honours said (at 424-427): In form, the provisions of s 10(1)(c) and (d) select the fact that tobacco was "purchased in Victoria" from a licensed wholesaler as the qualifying condition for exemption from inclusion in the products by reference to which liability to ad valorem tax is calculated. In substance, those provisions protect local wholesalers and the tobacco products they sell from the competition of an out of State wholesaler whose products might be cheaper in some other Australian market place for a variety of possible reasons, e.g, that the laws of the State in which he carries on his business as a wholesaler either do not require that he hold a licence at all or exact a licence fee comparatively lower than the fee exacted from a Victorian wholesaler. Even when the provisions of the Act imposing the liability to pay the retail tobacconist's licence fee are read in the context of the Act as a whole, they retain their discriminatory and protectionist character. Such a reading reveals the explanation for the exclusion from the basis of calculation of the retailer's licence fee of tobacco products purchased within Victoria from a licensed wholesaler. That explanation is that the licence fee which the Act requires Victorian wholesalers to pay to the Victorian Government will not have been paid to the Victorian Government by an out of State wholesaler who does not carry on business in Victoria and therefore does not require a licence in that State. The explanation tends, however, to underline, rather than remove, the protectionist character of the discrimination at the retail level effected by the provisions imposing the tax. If wholesalers of tobacco products in another State already pay taxes and bear other costs which are reflected in wholesale prices equal to or higher than those charged by Victorian wholesalers, the practical effects of the discrimination involved in the calculation of the retailer's licence fee would be likely to be that the out of State wholesalers would be excluded from selling into Victoria and that the products which they would otherwise sell in interstate trade would be effectively excluded from the Victorian market. On the other hand, if out of State wholesalers pay less taxes and other costs than their Victorian counterparts, and in particular if they pay no (or a lower) wholesale licence fee, the effect of the discriminatory tax upon retailers will be to protect the Victorian wholesalers and the Victorian products from the competition of the wholesalers operating in the State with the lower cost structure. Either way, the operation and effect of the provisions of the Act imposing the retail tobacconist's licence fee are discriminatory against interstate trade in a protectionist sense. For practical purposes, their operation is to impose on Victorian retailers who, during the relevant earlier period, purchased tobacco products both locally and in the markets of another State, an obligation to pay to Victorian consolidated revenue an ad valorem tax calculated by reference to the sale value of so much of those products as came from interstate. Ignoring the flat fee of $50 or $10, the effect of s 10(1)(c) and (d) is to discriminate against tobacco products sold by wholesalers in the markets of another State and to protect both Victorian wholesalers and the products which they sell from the competition of out of State wholesalers and their products. The wholesaler's licence fee, imposed on local wholesalers by reference to all their local sales, does not infringe s 92 in that it does not discriminate against goods coming from another State. The ad valorem content of the retailer's licence fee does infringe s 92 in that it discriminates against interstate trade and commerce in a protectionist sense by taxing a retailer only because of, and by reference to the value of, his actual or imputed purchases of products in any State other than Victoria. (Emphasis added.) 70 Mason CJ, Brennan, Deane and Gaudron JJ went on to explain at 428-430 why an equalizing impost may fall foul of s 92: The effect of an equivalent tax on transactions at another stage in the chain of distribution of the same goods or goods of the same kind is immaterial. That must be so unless s 92 permits the protection of an entire chain of distribution of goods within a State against competition from goods which might otherwise enter the chain from interstate. That proposition has only to be stated to be rejected. If that proposition were accepted, s 92 would present no impediment to the imposition of border duties ‑ at all events if they did not exceed the amount necessary to place on interstate goods a tax burden equivalent to the tax burden earlier placed on similar goods already in the local chain of distribution. As Barton J commented in Fox v Robbins [(1909) 8 C.L.R., at p.123]: By burdens of this kind and that, whether under the name of licence fees or under any other name, the operation of interstate free trade could be so hampered and restricted as to reduce the Constitution in that regard to mere futility...There is no difference in substance or effect in its bearing on interstate commerce between a burden such as this and a duty collected at the borders or the ports of one State on the products of another. In either case that commerce is restricted which the Constitution says shall be free; and in either case the disability may be made so great as to render the product unsaleable, and therefore virtually to prohibit its introduction. A tax upon retailers in respect of their trading in goods may burden their trade in interstate goods consistently with the guarantee of s 92 only if it applies equally to the interstate and local goods which the retailers sell; it cannot lawfully discriminate between them so as to protect the local goods. Again to quote the words of Barton J in Fox v Robbins [(1909) 8 C.L.R., at p.124]: When the interstate transit is over and they have become part of the mass of property within the State, any goods may be taxed, no matter whence they have come. But they must be taxed alike with all other such goods in the State. The tax must be general, and laid equally on all goods of the kind to be taxed, whether their State of origin be the taxing State or another. It would have provided no answer in Fox v Robbins to have demonstrated that the price of local wine to the retailer reflected an equal or higher burden of some local tax which had been imposed on local manufacturers or wholesalers at an earlier time. Similarly, the fact that the price of local tobacco products to the retailers will reflect the burden of the licence fee imposed upon local wholesalers provides no answer to the attack upon the discriminatory ad valorem tax imposed upon retailers by reference to interstate purchases in the present case. Nor does the fact that s 92 invalidates the ad valorem content of the retailer's licence fee mean that the section has re-emerged as a source of preference for interstate trade and commerce over local trade and commerce. The source of any such preference, if it exists, lies in the fact that the imposition of the wholesaler's licence fee has placed local goods at a competitive disadvantage vis-À-vis goods which have passed through the wholesale stage of distribution in some other State. 71 These observations do not apply to the fee impugned in this case. The case made by Betfair does not even set out to show that the fee is an "equalizing" fee rather than an equal fee.

castlemaine tooheys 72 The High Court's decision in Castlemaine Tooheys illustrates the importance of the facts relating to the market where an ex facie neutral law is said to have the effect of disturbing a competitive advantage enjoyed by an interstate trader. 73 In Castlemaine Tooheys, the legislative provisions which fell foul of s 92 were introduced by South Australia after an interstate trader, the Bond group of brewing companies which operated out of Western Australia, New South Wales and Queensland, had increased its market share in South Australia. The Court said (at 458): In order to explain how the plaintiffs seek to make out their case, it is necessary to refer to the 1975 Act and to developments which occurred in the market for beer in South Australia before the 1986 Act came into operation. An important element in the plaintiffs' case is that between 1985 and the middle of 1986 the Bond brewing companies substantially increased their market share in packaged beer in South Australia. According to the plaintiffs, the 1986 Act was introduced as a consequence of that increase in market share and it had the effect of protecting brewers who brewed beer in South Australia. 74 The intrastate brewers, South Australian Brewing Co Ltd (SAB) and Coopers and Sons Ltd (Coopers), used refillable bottles to package their beers, but the Bond group used non-refillable bottles. Prior to the introduction of the impugned legislation, the law provided for a mandatory refundable deposit of 5 cents per bottle on all bottles; refillable bottles were, however, exempt. While that situation favoured the brewers who used refillable bottles, and thus the local brewers, there were some advantages to the use of non-refillable bottles, including a lower initial purchase price, lower cost of plant and equipment, and lower transport costs. Mason CJ, Brennan, Deane, Dawson and Toohey JJ explained (at 459): SAB and Coopers, which brew beer in South Australia, predominantly use refillable bottles. To this extent the Bond brewing companies were at a disadvantage because the mandatory deposit of 5 cents applied to its non-refillable bottles. However, there were other advantages flowing from the use of non-refillable bottles and the exemption did not therefore place the plaintiffs at a discernible competitive disadvantage so long as the amount of the deposit differential did not exceed 5 cents…There are economic advantages to producers in using non-refillable containers. They include lower initial purchase price, lower cost of plant and equipment and lower transport costs. 75 Under the impugned legislation, the refund amount for non-refillable bottles was fixed at 15 cents per bottle, while the refund amount on refillable bottles was fixed at 4 cents per bottle. 76 Importantly, the facts of the case established that in this state of competitive disadvantage, the Bond group obtained no more than 1% of the market share in packaged beer in South Australia, whereas, as recorded in the case stated (at 447), in the pre-existing conditions, the Bond group could have obtained a market share of up to 10%. Their Honours said (at 463-464): The difference between the prescribed amounts of 15 cents and 4 cents resulted in a price differential which made the Bond brewing companies' product non-competitive. Before the commencement of the 1986 Act, the "bottle cost" (excluding transport costs but including deposit and costs of return or disposal system) of the products of the Bond brewing companies was 16 cents per bottle. The "bottle cost" in the case of SAB was 16.65 cents per bottle. Following the introduction of the 1986 Act and the regulation imposing a 15 cent deposit on non-refillable bottles, the "bottle cost" of the products of the Bond brewing companies was 26 cents per bottle. The "bottle cost" in the case of SAB remained at 16.65 cents per bottle. Secondly, the Bond brewing companies' non-refillable bottles were not eligible to be exempted from the application of s 7 whereas the refillable bottles of the South Australian brewers were eligible for such exemption and were so exempted. Those retailers selling the Bond brewing companies' beer in non-refillable bottles were obliged to comply with s 7, accept delivery of such bottles and pay the refund amount of 15 cents per bottle. On the other hand, retailers selling South Australian brewed beer in refillable bottles, not being obliged to comply with s 7 in relation to such bottles, were not bound to accept delivery of them or to pay the refund of 4 cents per bottle. A customer seeking to obtain a refund for such a bottle could return it to a collection depot and obtain a refund from the depot. The natural result of the requirement that retailers pay the refund amount was that they were inclined not to stock a beer when the volume of sales of a particular brand was not high. There was no limit to the number of empty bottles of a particular brand sold by a retailer which he would be bound to accept by way of return and for which he would be liable to pay the refund amount. The fact that the customer returning the bottle may have bought the bottle elsewhere was irrelevant to the retailer's liability. The Bond brewing companies could alleviate but not eliminate the burden imposed upon the retailers who were willing to stock their beer by establishing their own collection depots. The establishment of such depots would not have altered the retailers' obligations under s 7. Moreover, the establishment of such depots would have increased the "bottle cost" in the case of the Bond brewing companies by about 5 cents per bottle, making a total of 31 cents per bottle as against the "bottle cost" in the case of SAB of 16.65 cents per bottle. 77 It was the effect of the law upon the Bond companies' market share which their Honours identified as the practical effect of the law which gave it its protectionist character. Their Honours said at 464: The practical effect of the 1986 Act and regulations and the notice under s 5b was to prevent the Bond brewing companies obtaining a market share in packaged beer in South Australia in excess of 1 per cent whilst their competitors used refillable beer bottles. It is uneconomic for the Bond brewing companies to convert their existing interstate plants to use refillable bottles. 78 There was also an important comment on the reasoning in Cole v Whitfield, as it related to the identification of competitive advantage as a step in establishing the protectionist character of a law by reference to its practical effect. Their Honours said at 467: Cole v Whitfield established that a law which imposes a burden on interstate trade and commerce but does not give the domestic product or the intrastate trade in that product a competitive or market advantage over the imported product or the interstate trade in that product, is not a law which discriminates against interstate trade and commerce on protectionist grounds. The present case stands on a different footing because the facts recited in the special case show that the Bond brewing companies were disadvantaged in the two respects already mentioned which gave the South Australian brewers a competitive or market advantage. 79 In the present case, it has not been demonstrated as a matter of fact that Betfair is likely to be competitively disadvantaged by the fee. Whether or not Betfair chooses to recoup the fee from punters, there is no reason in the evidence to suppose that the fee would be apt to have a greater adverse effect on Betfair's market share or profitability than it would have upon TAB. 80 Neither in Castlemaine Tooheys, nor in any other case, has attention focused upon the business structure of a particular trader as an inquiry relevant to whether the impugned burden discriminates against interstate trade for the purposes of the operation of s 92 of the Constitution. Betfair invites the Court to determine the application of s 92 by reference to one aspect of the impact of the fee upon its particular business model. This invitation may itself be said to be unorthodox, but Betfair then says that the inquiry it has invited into the effect of the fee upon its business must stop at the obvious arithmetical truth that the fee will take a greater percentage of its turnover that of wagering operators who do business on a higher margin. Why the inquiry which Betfair has invited into the practical effect of the fee upon its business should stop at this point and leave hanging the obvious questions as to the likely effect of the fee upon its market share or profitability was not satisfactorily explained.

Betfair v western australia 81 In Betfair Pty Ltd v Western Australia at [15], Gleeson CJ, Gummow, Kirby, Hayne, Crennan and Kiefel JJ said: Cole v Whitfield established that, at least in its application to trade and commerce among the States, the object of s 92 is the elimination of protection. The term "protection" is concerned with the preclusion of competition, an activity which occurs in a market for goods or services. 82 In Betfair Pty Ltd v Western Australia the High Court proceeded on the basis that the relevant market was for the provision of the services of all wagering operators to punters. There was no suggestion in this case that this Court should do otherwise. Thus, the question is whether the imposition of the fee is apt adversely to affect competition in the market in Australia for the provision of wagering services. 83 In Betfair Pty Ltd v Western Australia, the High Court held that s 92 of the Constitution struck down two provisions of the Betting Control Act 1954 (WA). These provisions were not concerned with the imposition of a fee as a condition of doing business; rather, they were broader in their operation than those of present concern in that they operated to preclude interstate trade altogether. The relevant provisions were: · s 24(1aa), which provided that a person who bet through the use of a betting exchange committed an offence; and · s 27D(1), which provided that a person who conducted a betting exchange in Western Australia who published, or otherwise made available information that identified the names of horses or greyhounds nominated for a race to be conducted in Western Australia, committed an offence unless authorised to do so by an approval granted under the Act. 84 In relation to s 24(1aa), Gleeson CJ, Gummow, Kirby, Hayne, Crennan and Kiefel JJ concluded at [120]-[122]: The relevant effect of this provision is to prohibit a person in Western Australia from placing a particular form of fixed odds bet by means of a cross-border electronic communication, and to render the out-of-State wagering operator liable for aiding, counselling or procuring an offence by Betfair's registered players even if all its acts occurred outside Western Australia. It is true that this particular form of fixed odds betting also is denied to in-State wagering operators and their customers. But that does not deny to s 24(1aa) its character of a discriminatory burden on interstate trade of a protectionist kind. The subsection operates to protect the established wagering operators in Western Australia, including RWWA, from the competition Betfair otherwise would present. What has been said above respecting cross-elasticity of demand is relevant here. The intrastate trade and interstate trade are of "the same kind" [Cole v Whitfield (1988) 165 CLR 360 at 407-408; Barley Marketing Board (NSW) v Norman (1990) 171 CLR 182 at 204-205.], whether the subject matter be different species of fixed odds betting or the general field of wagering upon racing and sporting events. That view of the matter proceeds from the evidence indicating cross-elasticity of demand. Some analogy is provided by the situation in Castlemaine Tooheys [(1990) 169 CLR 436]. There the discrimination was between bottles having different characteristics; here it is between different but competing forms of wagering on racing and sporting events. The effect of s 24(1aa) is to prohibit Betfair, an out-of-State wagering operator, from providing a betting exchange for registered players in Western Australia, leaving the in-State operators able to supplycustomers with their services without the competition to their revenue which Betfair would present. This is another discriminatory burden of a protectionist kind. 85 In relation to s 24(1aa), Heydon J said at [133]: Section 24(1aa) isolates for prohibition certain types of trading activity. It prohibits a gambler in Western Australia from placing a particular type of bet…Western Australia relied on the fact that the legislation prevented persons in Western Australia from betting through a betting exchange whether that exchange operated from Western Australia or elsewhere. That is, it prevented Western Australian traders from employing a betting exchange in their trade as much as it prevented non-Western Australian traders from doing so. However, the prohibitions on trading activity created by s 24(1aa) to burden inter-State trade to a significantly greater extent than they burden intra-State trade. This is because they protect the Western Australian traders who offer gamblers the facility of betting from the rivalry they would otherwise face from inter-State traders employing the prohibited forms of trading activity. The trading activity prohibited and the trading activity protected are not identical, but they are each part of the same overall trading activity - offering facilities to gamblers to bet. 86 The High Court held that s 27D(1) attracted the thunder of s 92 because it was apt to affect interstate trade to its disadvantage in the competition for the custom of punters in New South Wales. As the joint judgment explained at [118]-[119]: This provision applies to the conduct of Betfair in publishing or otherwise making available a WA race field. This burdens interstate trade and commerce, both directly and indirectly. It does so directly because it denies to Betfair use of an element in Betfair's trading operations. It does so indirectly by denying to Betfair's registered players receipt and consideration of the information respecting the latest WA race fields by access to Betfair's website or by communication with its telephone operators. These effects of s 27D(1) operate to the competitive disadvantage of Betfair and to the advantage of RWWA and the other in-State wagering operators. The law in its application to Betfair answers the description of a discriminatory burden on interstate trade of a protectionist kind. The provision for authorisation may be put to one side so far as concerns Betfair. Given the stated legislative purpose of prohibition of betting through and the establishment and operation of betting exchanges, a matter to which the Minister is bound to have regard when considering an application under s 27D, the prospect of Betfair obtaining approval must be illusory. The evidence of the refusal of the application which Betfair made bears this out. 87 Having considered these authorities, we turn to a consideration of whether the fee is protectionist in character.

was the fee protectionist in character? 88 In our respectful opinion, the primary judge was correct to proceed by analysing the operation of the tax in the market in order to gauge its likely effect upon the competitive advantages of interstate trade, in relation to intrastate trade. The regime established by the RA Act, the Regulation and the standard conditions of approval imposed by RNSW and HRNSW prescribe the general conditions applicable to the business of betting on horse races conducted in New South Wales. These conditions apply alike to interstate and intrastate traders. No protectionist object can be discerned on the face of the RA Act or Regulation. Nor is it possible to discern a protectionist object from the imposition of the fee condition which applies to all wagering operators who require an approval to use New South Wales race field information. 89 In Cole v Whitfield at 409, the High Court, having concluded that the regulation there in question revealed "no discriminatory purpose on its face", identified the questions to be addressed as whether the: …burden which the regulation imposes on interstate trade in crayfish goes beyond the prescription of a reasonable standard to be observed in all crayfish trading and, if so, whether the substantial effect of that regulation is to impose a burden which so disadvantages interstate trade in crayfish so as to raise a protective barrier around Tasmanian trade in crayfish. 90 These questions their Honours described as "questions of fact and degree on which reasonable minds might legitimately differ". 91 Betfair Pty Ltd v Western Australia was a case where the disturbance of the competitive balance, which would otherwise exist, was apparent from the terms of the law itself. The impugned law, in terms, precluded the conduct of interstate trade. Bath v Alston and Fox v Robbins are further examples. In other cases, the law may be ex facie neutral, but the facts of the case may reveal that, in its practical operation, the law produces a disturbance of the competitive balance by reducing a competitive advantage enjoyed by interstate trade. Castlemaine Tooheys was such a case: the disturbance of competitive advantage was demonstrated by reference to the facts relating to the course of trade. 92 The authorities direct attention to the question whether the substantial effect of the imposition of the fee is to impose a burden which so disadvantages the provision of interstate wagering services by betting exchanges such as Betfair or interstate bookmakers, as to raise a protective barrier around wagering services provided by traders in New South Wales. Betfair seeks to answer this question by pointing to the fact that the fee takes a greater percentage of Betfair's commission than it takes of TAB's commission. To make this arithmetical point is not to show that the fee disadvantages interstate bookmakers or betting exchanges (which may or may not use the same low margin business model as Betfair) so as to protect the TAB and intrastate bookmakers from interstate competition. Nor is it even to show that Betfair is not able to continue to enjoy any competitive advantage which it enjoys by reason of its business model. By limiting its case to the arithmetical point to which we have referred, Betfair eschewed the "questions of fact and degree" with which it was required to engage if it was to make good its case of discrimination in fact. 93 It is for a party who asserts an entitlement to the immunity conferred by s 92 by relying upon the effect of the impugned legislation to demonstrate that effect. In S.O.S. (Mowbray) Pty Ltd v Mead (1972) 124 CLR 529 at 574-575, Windeyer J referred to a view of Oliver Wendell Holmes J expressed in the constitutional jurisprudence of the United States of America that the courts should recognise the danger of unduly limiting the power of elected legislatures or government to regulate trade and commerce by an expansive reading of constitutional limitations on that power. His Honour went on to make the point that the burden of making good a claim to immunity under s 92 falls on the party who asserts that immunity. Windeyer J said: It seems to me that an ever-increasing scope is sought for s 92 too. I am, of course, not concerned, as Holmes J was, by this as a cutting down of State rights. That does not arise in Australia. What does cause me anxiety is the still greater danger of us putting more and more matters outside the authority of all the parliaments of Australia, Commonwealth and State. I think that we should be careful not to do this, except when the Constitution clearly demands it, and that the denotation of the concept that is embodied in the words of s 92 as now interpreted must be accordingly confined. If in doubt whether a particular matter was within the scope of the freedom that s 92 proclaims I would resolve the doubt in favour of the Parliaments. When anyone claims an immunity from a duly enacted law, or an executive direction, on the ground that, he being engaged in inter-State trade, it cannot bind him, he must I consider make out his right to the immunity that he claims. It is not, I think, for the High Court, perhaps by a majority decision, to increase the size of the field into which Parliamentary Government cannot enter. 94 No disturbance of competition is shown merely by showing that the percentage of the turnover of a low margin operator captured by an impost is greater than the percentage of turnover taken from a high margin operator. As his Honour held, there is no necessary relationship between that discrimination between Betfair and TAB, and the state of the competitive balance between Betfair and TAB. 95 As we have noted, there is no decision which suggests that s 92 guarantees that an individual trader is entitled to adhere to a particular business model. That is hardly surprising. Section 92 operates to protect interstate trade, not individual traders. While s 92 is concerned with matters of substance and effect, it is not concerned with effects peculiar to the business structure of individual traders. The protection which s 92 gives to an individual trader is incidental to, and consequential upon, the protection which is given to the entirety of interstate trade: R v Vizzard; ex parte Hill (1933) 50 CLR 30 at 78-95; Cole v Whitfield at 402-403; Barley Marketing Board (NSW) v Norman (1990) 171 CLR 182 at 201. In Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board (1985) 157 CLR 605 at 649-650, Brennan J (who dissented as to the result, but not on this point), said: The subject of immunity is trade, not persons, although a trader who engages in an interstate trading transaction which is immune from an invalid burden is entitled to the benefit of that immunity. … The individual rights which s 92 confers are no more than rights to invoke the jurisdiction of the courts to enforce the immunity which s 92 creates. It creates no new juristic rights: The Commonwealth v Bank of NSW [(1949) 79 CLR 497, at p 635]. It is only because individuals engage in transactions that s 92 can be regarded as a source of individual rights, and the individual rights conferred correspond with the area of immunity created by s 92, whether the immunity relates to interstate trade as a whole or to particular transactions that are part of interstate trade. 96 That concern may be put to one side in order to focus upon the question whether the fee is likely to diminish the competitive advantage enjoyed by Betfair as a low cost operator. Because the price of a wagering operator's services is relative, it is more accurate to speak of Betfair as a lower cost operator than its competitors. In order to demonstrate that the fee is likely to diminish the competitive advantage enjoyed by Betfair, it would be necessary to demonstrate that the fee which is imposed at a uniform rate on all wagering operators taking bets on horse races in New South Wales is likely to operate in fact to disturb Betfair's low margin operation relative to the other wagering operators. This Betfair did not do. 97 We are here concerned with an interstate trade in services. The analogical value of decided cases concerned with imposts on goods is limited; but guidance in relation to goods and services alike is given by the observations of Isaacs J in Fox v Robbins (1909) 8 CLR 115 at 129: If the Western Australian Act is found on examination to be in effect an enactment impairing the absolute freedom of inter-State commerce, it is pro tanto void. And if any of the provisions discriminate adversely to other States it does impair that freedom, because it deters the residents of the State from selling or consuming, and therefore from purchasing and importing, the products of the other States. 98 In light of the observations by Isaacs J, we may test Betfair's case by asking whether it appears that residents of the states other than Tasmania would, in practical effect, be deterred from placing bets with Betfair by reason of the fee if Betfair chose to pass it on. Betfair relied upon indications in documents prepared for RNSW that the imposition of the fee would be likely to reduce the leakage of revenue from TAB to Betfair. But Betfair was not able to show that it was likely that punters would be deterred from placing bets with Betfair or that Betfair would lose any market share to TAB or that it would suffer any loss of net revenue whether it chose to pass on the fee or not. One would not conclude without evidence that the sophisticated punters who bet with Betfair are likely to shift their custom to TAB. 99 To counter the apparent competitive neutrality of the imposition of the fee, Betfair points to the greater impact of the fee upon its gross revenue. It suggests that the imposition of the fee will have price consequences when the fee is passed on to customers which will adversely affect the competitive relativities in the market. But Betfair did not show that punters who might otherwise be disposed to bet with Betfair would be disposed to patronise another gaming operator because of any response Betfair might make to the imposition of the fee. Nor does Betfair's argument in this Court descend to a demonstration by evidence that any disturbance of the competitive relativities would be significant in terms of market share or profitability. This is, we think, a fatal deficit in Betfair's attempt to show that the apparently neutral fee is apt to have the practical effect of denying or diminishing the competitive advantage which it enjoys by reason of its low margin business model. Further, Betfair's argument assumes that the competitive relativities would not readily be readjusted in the ordinary course of business to pre-fee levels as a result of TAB and bookmakers also pricing the fee into their margin. There is no evidence to support that assumption. 100 Betfair argued that the Court should not insist upon the identification of "any putative competitive advantages and disadvantages". Betfair refers to the statement of Mason CJ, Brennan, Deane and Gaudron JJ in Bath v Alston at 426 that all that must be shown is that the measure is "likely to" benefit intrastate trade. Betfair also relies on Heydon J's statement in Betfair Pty Ltd v Western Australia that all that need be shown is that the measure has a "tendency to" discriminate in a protectionist sense. Heydon J said (at [146]): Instead of providing in terms for a neutral contribution to the persons conducting Western Australian races, s 27D(1) has a tendency to exclude persons in the position of the first plaintiff, namely would-be entrants from outside Western Australia into the trade of supplying wagering services to gamblers, from that trade. That tendency operates to the advantage of Western Australian suppliers of those services. 101 In Betfair Pty Ltd v Western Australia, the competitive disadvantage involved was clearly shown by reference to the terms of the legislation there in question. The inquiry into matters of fact and impression required to prove the likely effect in fact of an ex facie neutral law was not necessary. In the reasons of Heydon J, his Honour stated (at [141]-[142]): In short, the preferential treatment afforded to RWWA, both by its exemption from s 27D(1) and through the intended practical operation of conditional approvals to be granted under s 27D(2), is of its nature preferential treatment afforded to an in-State wagering operator at the expense of any out-of-State wagering operator who seeks to compete with RWWA using the means of publishing or otherwise making available a WA race field. The imposition of a prohibition subject to a discretion to grant permission contravenes s 92 where the mere existence of the prohibition (with or without the discretion) has the immediate practical effect of discriminating in a protectionist way. Thus, the plaintiffs concluded, the intended practical operation of s 27D is as a prohibition on an out-of-State offeror of wagering services to gamblers being able to use as an element of its services information about race fields generated by Western Australian racing operators. It was thus no accident, submitted the plaintiffs, that by 26 October 2007, of the 115 applications for approval to publish or otherwise make available WA race fields made pursuant to s 27D, 110 had been approved, four had not yet been determined and one had been refused - that of the first plaintiff. The Minister's letter refusing approval referred to the first plaintiff's operation of a betting exchange enabling the laying of bets and its supposed impact on the "integrity or perceived integrity of Western Australian races". 102 These statements by Heydon J describe the "discernible competitive disadvantage" involved in protectionist discrimination of the kind proscribed by s 92 by reference to the "natural", ie the ex facie, effect of the legislation. The reasoning of the joint judgment also identified the effect of the impugned legislation upon Betfair's ability to compete by reference to the natural effect of its terms, which was to preclude competition altogether. The joint judgment, after the passage set out above at [84] of these reasons, went on to say, at [122]: That view of the matter proceeds from the evidence indicating cross-elasticity of demand. Some analogy is provided by the situation in Castlemaine Tooheys. There the discrimination was between bottles having different characteristics; here it is between different but competing forms of wagering on racing and sporting events. The effect of s 24(1aa) is to prohibit Betfair, an out-of-State wagering operator, from providing a betting exchange for registered players in Western Australia, leaving the in-State operators able to supply customers with their services without the competition to their revenue which Betfair would present. This is another discriminatory burden of a protectionist kind. (Footnote omitted.) 103 In Bath v Alston, the natural tendency of the impugned law to equalize in favour of intrastate trade a competitive advantage, which interstate trade enjoyed in its state of origin, was apparent on the face of the legislation. That is not so in this case. All that Betfair has shown in this case is that by maintaining current pricing structures, and given its low margin, the fee takes a higher proportion of Betfair's turnover as compared to that of the TAB. It is not an effect which is apt to characterise the measure as protectionist. This will be the case with any low margin operation, whatever its state of origin.

SUMMARY 104 The relevant inquiry as to whether a law or other governmental measure operates in fact to impose a protectionist burden on interstate trade contrary to s 92 of the Constitution is not concerned to vindicate a right in individual traders to carry on their business as they wish. The inquiry is whether the individual trader, as a participant in interstate trade, is subject to a differential burden by reason of the operation of the law or measure in the common circumstances of the trade. The differential burden must be imposed by the law or executive measure in the common circumstances of the milieu in which the trade occurs: the enquiry is as to whether there is a denial by the law or measure of a competitive advantage in trade, not whether an individual trader's particular circumstances are such that its trade may be adversely affected by a law of general application to all traders: Cole v Whitfield at 409, Castlemaine Tooheys at 458-459, 464, 467-468; Bath v Alston at 427; Barley Marketing Board (NSW) v Norman at 202-203; BetfairPty Ltd v Western Australia at [118]. 105 The decision of the High Court in Castlemaine Tooheys does not support a different view. The measures impugned in that case were proved as a matter of fact to affect adversely interstate traders whose products were not produced in conformity with the locally favoured model. 106 But even if the relevant inquiry were whether an individual trader is subject to a differential burden by reason only of the circumstances of its own particular business model, Betfair failed to show that it was adversely affected, in fact, in terms of any competitive advantage it might otherwise have enjoyed but for the imposition of the fee condition. It failed to make out a case for immunity under s 92 of the Constitution. To say this is not to say that Betfair was obliged to show that it had actually lost customers or profit to TAB or local NSW bookmakers because of the imposition of the fee. Rather, it is to say that Betfair was obliged to demonstrate that the imposition of the fee was likely to have that effect in fact, and it did not discharge that burden. 107 Betfair's argument does not descend beyond the evident arithmetical truth that the lower a wagering operator's margin, the greater the percentage of the wagering operator's price and revenue will be taken by the fee. Betfair suggests that sophisticated punters, who bet large amounts on the footing that they will be able to make more bets with a low margin operator before they will have expended the betting stake they are prepared to lose, will be deterred from betting with Betfair. But Betfair does not seek to show that, as a matter of fact, it is likely that this possible effect will be sufficiently significant in the demand side of the market - which is assumed to be made up of both sophisticated and unsophisticated punters - to affect adversely Betfair's niche in the supply side of the market - which includes operators on a higher margin than Betfair who must also choose whether or not to pass on the 1.5% fee to punters. We are unable to conclude that, notwithstanding the ex facie uniform application of the fee, it is apt to diminish Betfair's competitive advantages in a material way. Betfair eschewed any attempt to demonstrate that it is likely that the practical effect of the imposition of the fee will be a loss to Betfair of market share or profit. Like the primary judge, we are unable to conclude that the fee will, in fact, adversely affect Betfair in its competition with intrastate traders. 108 For these reasons, we consider that the primary judge was correct to hold that Betfair failed to demonstrate a breach of s 92.

CONCLUSION AND ORDERS 109 In our respectful opinion, the primary judge was right to conclude that Betfair had not made out a case that the fee condition was apt to deprive it of any competitive advantage in trade which it would otherwise have enjoyed. 110 This conclusion makes it unnecessary to determine whether Betfair's case was also fatally flawed because of its failure to challenge the validity of the RA Act and Regulation. 111 In our respectful opinion, the primary judge was correct to conclude that Betfair had not made out a case that s 92 invalidated the imposition of the fees. 112 The appeal should be dismissed. 113 Betfair should pay the respondents' costs of the appeal. I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Keane CJ, Lander and Buchanan JJ.