Betfair Pty Limited v Racing New South Wales

Betfair Pty Limited v Racing New South Wales - [2012] HCA 12 - HCA 2012 case summary — Zoe

[17]

The appellant ("Betfair") is incorporated in Australia and has its head office in Victoria. Betfair provides wagering services in respect of events including horse races by operation of a betting exchange call centre at its premises near Hobart. It provides these services to customers dealing with it from anywhere in Australia, including New South Wales. Betfair is the only betting exchange operator located in Australia[5].
The first respondent ("RNSW") and the second respondent ("HRNSW") are authorities established by New South Wales statute[6]. They are independent of the executive government of New South Wales and are respectively responsible for the regulation of thoroughbred and harness racing in that State. Each is a "relevant racing control body" for the purposes of Pt 4 of the Racing Administration Act 1998 (NSW) ("the Act"). Part 2, Div 1 (ss 5‑11) of the Act deals with the licensing of racecourses and Pt 4 (ss 27‑33F) with the use of betting information and advertising.
The lawful use of New South Wales race field information is necessary for the conduct throughout Australia by Betfair and other wagering operators of their businesses with respect to racing events held in that State. This litigation concerns the system established previously by Pt 4 of the Act which came fully into effect in 2008[7]. This provides that RNSW and HRNSW, each as a relevant racing control body, may impose and receive a fee as a condition for the use by wagering operators of that field information. It will be necessary to say something more respecting that licensing system later in these reasons.
This litigation is a sequel only in a general sense to that in this Court in Betfair[8]. The Act, unlike the legislation of Western Australia which was in contention in the earlier case, does not erect against a betting exchange operator a barrier to entry by making it an offence for a person in New South Wales to make by telephone or electronic means a bet with a betting exchange outside that State, or by forbidding such a betting exchange to deal by those means with customers in New South Wales[9]; nor does the Act forbid, subject only to an illusory approval system, the publication by an out of State wagering operator of State field information[10]. Betfair does not make a case that it wishes to set up and operate a betting exchange sited in New South Wales and that s 92 of the Constitution renders invalid any law of that State which would stand in the path of it doing so[11]. Rather, the dispute concerns the validity of the fees imposed by and payable to RNSW and HRNSW for use of New South Wales race field information. It is in this respect that Betfair places reliance upon s 92.
The New South Wales Attorney‑General is the third respondent, and the Commonwealth, Victoria, South Australia, Queensland and Western Australia intervened on the appeal.

[43]

Something more now should be said respecting the three species of the genus "wagering operators". The New South Wales legislation provides for a licensing system with respect to bookmakers and totalizators, but not with respect to betting exchanges. In 2006 Betfair established at its Tasmanian premises a telephone call centre and a computer server system connected to the internet. These activities in Tasmania are conducted under a licence granted under the Gaming Control Act 1993 (Tas); this fixes 5% as the maximum commission on net winnings. As indicated above, like other wagering operators, Betfair seeks to attract customers from all areas in Australia.
A "betting exchange" is so defined in s 27 for the purposes of Pt 4 of the Act (dealing with betting information) as to exclude facilities (including electronic facilities) for the placing of wagers with a bookmaker or a totalizator; otherwise, a "betting exchange" includes a facility, electronic or otherwise, for the placement or acceptance of wagers which, on acceptance by the operator of the facility, are matched with opposing wagers placed with and accepted by that operator.
The term "bookmaker" is defined in s 4(1) of the Act to include "any person who ... gains, or endeavours to gain, a livelihood wholly or partly by betting or making wagers". Part 3A (ss 26A‑26I) of the Act[15] establishes a system for the authorisation required to carry on business as a bookmaker. Section 16 of the Act[16] provides for the acceptance and making of bets by a licensed bookmaker using telephonic or electronic means, while the bookmaker is at a licensed racecourse and at a time when it is lawful for betting to take place there.
The company known as TAB Limited ("TAB") was established by the Totalizator Agency Board Privatisation Act 1997 (NSW) ("the Privatisation Act"). Its ultimate holding company, TABCORP Holdings Limited ("Holdings"), is located in Melbourne. TAB has its servers and call centre location in Sydney. By virtue of s 14 of the Totalizator Act 1997 (NSW) ("the TAB Act"), TAB holds an exclusive licence to conduct an off‑course totalizator in New South Wales in respect of betting on events or contingencies scheduled to be held at a race meeting at any racecourse within or outside Australia. A person, other than a licensee, who conducts a totalizator in New South Wales is guilty of the offence created by s 9 of the TAB Act. For the purposes of the TAB Act, "totalizator" means a system, and any device through which the system is operated, used for investment of moneys on predictions of specified outcomes on events or contingencies, with the money left after deductions of commission to be divided among those investors whose prediction was successful (s 6).
By force of an agreement made in 1997 between parties including TAB, Holdings, RNSW and HRNSW, and known as the Racing Distribution Agreement ("the RDA"), TAB is obliged to pay between 4.5% and 5% of its wagering revenue to RNSW and HRNSW as a contribution to the costs associated with the racing industry. Bookmakers also are required to contribute but Betfair is not so required[17].
In the Sportsbet appeal, but not in this appeal, there is an issue taken as to the significance of any entitlement of TAB against RNSW and HRNSW for damages for breach by them of the RDA, and of the payment made to TAB in settlement of their dispute under the Deed of Release dated 25 November 2009.

[60]

If, despite the submissions by RNSW and HRNSW, it was accepted that the licence fee had a greater impact upon the business Betfair conducted than upon those of its non‑betting exchange competitors, this might tend to support a proposition that the fee is discriminatory. It would be so in the sense of treating alike the impact to be expected upon all species of wagering operators, whereas the nature of the business of a betting exchange operator differs, in particular, from that of totalizator operators[25]. This proposition seemed to be the gravamen of Betfair's case. But it should be emphasised immediately that it would not necessarily follow from acceptance of the proposition that there was any engagement of s 92 of the Constitution.
No doubt the term "discrimination", in its legal sense of "discrimination against"[26], may be applied where there is a relevant difference between the entities or activities which are the object of a law, yet the law applies as if there is no such difference. But in order for Betfair to make good its case for the engagement of s 92, RNSW and HRNSW correctly submit, with the support of various interveners, that Betfair must do more.
Not every measure which has an adverse effect between competitors will attract the operation of s 92. The "confined area" in which s 92 operates was emphasised in Cole v Whitfield[27]. Betfair must establish that the fee conditions imposed upon it by RNSW and HRNSW were unauthorised because their practical effect is to discriminate against interstate trade and thereby protect intrastate trade of the same kind[28]. What is posited here is an essentially objective inquiry[29]. It is the concept of protectionism which supplies the criterion by which discriminatory laws may be classified as rendering less than absolutely free trade and commerce among the States. At various stages in its submissions, Betfair appeared, by emphasising notions of discrimination, to seek to diminish the requirement of protectionism.
It is important to note, as emphasised in Cole v Whitfield, that whether a facially neutral law in question is discriminatory in effect, and whether the discrimination is of a protectionist character, "are questions raising issues of fact and degree"[30].

[68]

In the course of argument in this Court, the emphasis by Betfair upon its particular circumstances attracted further submissions, particularly by Victoria, which should be accepted. First, emphasis upon the circumstances of particular traders, and upon features which may be accidental to those circumstances and to the interstate transactions in which the traders may engage, risks characterisation of the law in question not by its effect upon interstate trade, the constitutional issue, but by its effect upon particular traders.
Secondly, where a competitor, such as TAB in this case, engages in both intrastate and interstate commerce, the plaintiff does not clearly advance its case for invalidity of the law which applies both to it and to all the activities of the competitor by agglomerating those activities and asserting, as Betfair does of TAB, that the law gives TAB preferential treatment in a protectionist sense.
Thirdly, attempts to classify a trader, such as TAB, as an intrastate trader because its principal place of operation is located in one State and its business receives protection by the law of that State (here, New South Wales) are apt to yield inconclusive results. What, for example, is the significance of the position of TAB as the subsidiary of a Victorian listed public company?
The point may be illustrated by reference to what was decided in revenue cases such as O Gilpin Ltd v Commissioner for Taxation (NSW)[45]. The taxpayer in that case was incorporated in Victoria, where its central management and control was located. But it carried on business as a draper at retail shops in four States including Victoria and New South Wales. This Court held that where a business ordinarily consists of selling goods (and, it might have been added, of supplying services), the contracts with consumers are of the essence of the business[46]. The result was that, despite the location in Victoria of the central management and control, the taxpayer carried on trade in New South Wales where contracts were made and it derived income in that State. Thus the central management and control, in the sense used in these revenue cases, of a trader may be in one State but the operations of the business may be conducted from locations in several States, none or only one of which is the first State.
These considerations underline the proposition that the subject of s 92 is interstate trade, not traders, whose transactions may or may not consist wholly of interstate transactions or of intrastate transactions.

[79]

The appeal should be dismissed. The appellant should pay the costs of the first and second respondents. (The third respondent did not seek a costs order against the appellant.)
HEYDON J. Before a law can be held contrary to s 92 of the Constitution, it is a necessary but not sufficient condition that it create a certain effect. That effect is a discriminatory burden on interstate trade of a protectionist kind. The nature of the effect can be put in various ways. Each represents a useful attempt at elucidation through metaphor. One example is that it "constitutes an actual burden upon inter-State trade - a real impediment in its way"[54]. A second is that there must be "a burden which so disadvantages interstate trade in [an item] as to raise a protective barrier around [intrastate] trade in [that item]."[55] A third is that the practical effect of the impugned law must be to burden interstate trade to a significantly greater extent than it burdens intrastate trade. A fourth is that the burden must be meaningful and not insubstantial. A fifth is that interstate trade is exposed to a disadvantage which is "serious"[56].
If s 92 is to apply, it is necessary for an impugned law to give a relative trading advantage to intrastate trade as distinct from interstate trade. "The subject of immunity is trade, not persons"[57]. The relevant advantage must affect interstate or intrastate trade generally. The mere fact that an impugned law injures an individual trader does not suffice. That is because s 92 does not directly protect the individual rights of interstate traders. The impact on an individual trader would not burden interstate trade unless the trader's interstate trade was large either actually or potentially[58].
As was submitted on behalf of the Attorney-General for the State of Victoria, a law cannot be characterised as protectionist merely because its practical operation imposes a burden on a single interstate trader. It depends on the facts. The law may adversely affect only a few interstate traders. The law may benefit other interstate traders. The law may positively affect some interstate and intrastate traders and adversely affect others. The law may impose a heavier burden on local traders than interstate traders. The effect of the law on interstate trade or commerce may be very minor.
In short, a measure cannot contravene s 92 unless it involves the unequal treatment of interstate trade and intrastate trade to the serious trading advantage of intrastate trade when compared with interstate trade.
The relevant trading advantage has been described as a "competitive or market advantage"[59] or "significant competitive advantage"[60]. As initially used, and as correctly used, these expressions were not referring to or assuming the relevance of the word "market" as employed in the Competition and Consumer Act 2010 (Cth). And they were not referring to the test for contravention to be found in some provisions of that legislation, turning on the purpose, effect, or likely effect of substantially lessening competition in a market. The statement "intrastate trade has been given a competitive or trading advantage" does not entail a search for the outer limits of what market that intrastate trade is taking place in. Nor does it entail a search for whether that advantage substantially lessens competition in that market. The two expressions "competitive or market advantage" and "significant competitive advantage" were referring only to what flows from the burden created by the impugned law. Similarly, references in the authorities to protection from "the competition" of interstate traders[61], to the "competitive disadvantage" of interstate traders and to the "advantage" of intrastate traders[62] do not mean that the methods of analysis which the Competition and Consumer Act requires must be adopted. The same is true of references to "the preclusion of competition"[63].
Of course, s 92 of the Constitution must be applied to the circumstances of Australian life as they change from time to time. But the meaning of s 92 cannot be affected by legislative innovations three quarters of a century after 1900 which introduced the test of substantially lessening competition in a market in relation to particular types of conduct[64]. That meaning cannot be affected by judicial decisions interpreting that legislation handed down even later. Nor can intergovernmental agreements made many decades later affect that meaning.
Proceedings in the Federal Court of Australia frequently involve inquiries into the question whether there is a substantial effect on competition in a market. Those proceedings have developed certain unattractive drawbacks. They are ponderous. They are slow. In them the parties tender, often successfully, copious quantities of inadmissible or marginally admissible "expert" evidence, selected with extreme discrimination, assembled at enormous expense and given with considerable impertinence in more than one sense of that word. Those drawbacks also exist in certain proceedings for review of certain types of administrative action in the Australian Competition Tribunal. In those proceedings the rules of evidence do not apply, but the drawbacks described are equally undesirable. These are not drawbacks lightly to be imported into cases on s 92 of the Constitution. The question of whether there is a burden on interstate trade is a question of "fact and degree"[65]. But, as the appellant correctly submitted, it is not a question to be encumbered by analysis centred on whether there has been a substantial lessening of competition in a market.
The trial judge in this case did have before him expert trade evidence. It can often be of value. It was of value here. But his Honour said: "One interesting omission in this case was any expert witness skilled in economics."[66] The tone was regretful. The omission, however, may actually have been a blessing. It may have assisted clarity of thought.
The appellant's case was summarised thus[67]:

[84]

The evidence showed that the appellant was engaged in interstate trade or commerce. It also showed that the fee of 1.5% of back bet turnover resulted in the appellant paying a larger proportion of its gross revenue from gambling on New South Wales thoroughbred or harness racing than TAB Ltd, a local trader, did of its gross revenue from that type of gambling. But did the evidence show that a competitive disadvantage was imposed, not on the appellant, a single interstate trader, but on all interstate trade? The appellant pointed to no evidence which showed how the fee reduced the competitive advantage of interstate trade. It pointed to no evidence which showed how the fee increased the competitive advantage of intrastate trade. It pointed to no evidence of how the fee nullified or reduced a competitive disadvantage of intrastate trade.
The appellant took the Court to a great deal of evidence. But it did not analyse the forms which the relevant intrastate and interstate trade took. It did not examine how its case fitted in with the fluid and dynamic environment of the relevant trading activities. Those who experience the desire to gamble have many outlets at which to gratify that desire beyond those that the appellant and TAB Ltd provide. Even if the interstate and intrastate trade is limited to gambling on horse racing, which is questionable, those who desire to gamble on horse racing have available to them many persons prepared to provide the facilities to do so apart from the appellant and TAB Ltd.
The focus of the appellant was on its own position. That approach might have been legitimate if the appellant's position were typical of the relevant interstate trade or, as the appellant put it, "the lens through which one looks at the effect on interstate trade". But the singular position of the appellant negated that possibility. The appellant's approach might also be legitimate if it occupied so dominant a position in interstate trade that an impact on its position was sufficiently substantial to burden interstate trade to an extent significantly greater than the burden on intrastate trade. In that regard, the appellant drew an analogy between itself and the Bond brewing companies in Castlemaine Tooheys Ltd v South Australia[70]. It sought to portray itself in the manner that the Bond brewing companies portrayed themselves in that case, namely as a new challenger with a small share of sales that was vigorously shaking up a stagnant trade[71]. But the evidence did not bear out the analogy. It pointed the other way, suggesting complex and vigorous trading activity across the nation in which there were numerous participants in diverse circumstances. The appellant also submitted that there "is no other way of analysing the effect on the market … than via its effect on particular traders, otherwise it becomes an abstract exercise, an artificial one." Up to a point that may be so. But it does not justify limiting the traders examined to just one.
Even if the inquiry is limited to the appellant's own position, the evidence was not favourable to its case. Its chief executive officer, whose credibility was praised by the trial judge, admitted that the fee had not reduced the number or type of New South Wales thoroughbred or harness races on which the appellant sought wagers. He accepted that the appellant had not altered its commission structure in response to the fee. He acknowledged that the appellant had not introduced a premium charge in response to the fee. He admitted that there was no connection between the introduction of the fee and the odds offered by the appellant's customers. He also admitted that since the fee came in there had been no change of substance in the commissions which the appellant charged or the odds it offered. He further admitted that the appellant had not altered its "marketing spend" in response to the fee. He agreed that the fee had not caused the appellant to lose a single dollar of back bet turnover and that the fee had not caused the appellant to lose a single dollar of commission. He admitted that the fee had not caused the appellant to change its competitive behaviour in any way in relation to its dealings with customers and its attempts to win business away from competitors. He admitted that though an examination of the appellant's future conduct in the event of defeat in these proceedings was under way, no plan for change had been developed. And he agreed that the appellant's planning documents projected the achievement of "very substantial" and "healthy" targets notwithstanding the imposition of the fee. He did not assert that the appellant would cease to compete or to trade profitably, either at all or in relation to horse races in New South Wales. Nor did he assert that the appellant would not continue to gain market share.
The Full Court also dealt with a submission by the appellant that the uniform fee discouraged low margin operators and price competition, and that this discouragement was to the benefit of high margin operators. The Full Court held that to demonstrate that the fee was likely to diminish the appellant's competitive advantage, it would be necessary to show that it disturbed the appellant's low margin operation in fact. It found that the appellant had failed to do this. The Full Court stated that the appellant had failed to show that the fee could deter gamblers from betting with the appellant. The Full Court also stated that the appellant had failed to demonstrate by evidence that the fee would cause any disturbance of the competitive relativities in a way which could be significant in terms of market share or profitability. And the Full Court stated that the appellant had not pointed to evidence that any change in the competitive relativities would not readjust after the fee was introduced through a process by which the appellant and the appellant's competitors priced it into their margins. The appellant denied the legitimacy of the Full Court's approach. But it did not deny what the Full Court said about the lack of evidence to support the propositions necessary to establish the appellant's case.
The appellant has failed to point to evidence supporting the view that the fee challenged in these proceedings is an actual burden on interstate trade to a significantly greater extent than it is an actual burden on intrastate trade.
The appeal must be dismissed. The appellant should pay the costs of the first and second respondents. The third respondent did not seek a costs order against the appellant.
KIEFEL J. Information concerning a race field is necessary to place a bet on a horse race and is essential to the business of a wagering operator. This was recognised in Betfair Pty Ltd v Western Australia[72]. The legislation which is relevant to this appeal does not, as the legislation in that case did, effectively deny the use of race field information to particular kinds of wagering operators[73]. At issue in these proceedings is the fee imposed by Racing New South Wales ("RNSW") and Harness Racing New South Wales ("HRNSW")[74] as a condition of approvals to use race field information concerning racing venues in New South Wales granted to wagering operators including Betfair Pty Limited ("Betfair").
Betfair operates the only betting exchange in Australia out of Tasmania, where it holds a licence from the Tasmanian Gaming Commission[75]. It was the view of the primary judge in the Federal Court proceedings (Perram J) that Betfair could not lawfully carry out such an operation from New South Wales[76]. No issue as to the validity of the provisions which his Honour considered had that effect is raised in these proceedings. Betfair's customers are drawn from around Australia. They may place bets on horse races or sporting events anywhere in Australia, including in New South Wales, by telephone or through the use of the internet. Its business has the interstate dimension spoken of in Betfair Pty Ltd v Western Australia[77].
Betfair was granted approvals by each of RNSW and HRNSW under the Racing Administration Act 1998 (NSW) to use New South Wales race field information. Each approval was subject to standard conditions, including the imposition of a fee of 1.5 per cent on what is referred to as "back bet turnover". Betfair contends that this fee condition subjects it to a disadvantage of such a nature that s 92 of the Constitution is infringed and it contends that RNSW and HRNSW were actuated by the purpose of protecting the New South Wales totalizator, TAB Limited ("TAB"), in imposing the condition.

[85]

Prior to the introduction of the legislative provisions relevant to this appeal, wagering operators did not pay for the use of race field information in New South Wales or elsewhere. Wagering operators were permitted to accept bets on events in any State or Territory, with the relevant authorities in each State and Territory collecting fees and taxes only from the wagering operators they licensed (the so-called "Gentleman's Agreement")[78]. Some of the income from the fees and taxes was made available to bodies within the racing industry.
Changes to the methods by which wagering is conducted, including the use of the internet by "out-of-State" wagering operators, who accepted bets on races in States and Territories from which they had not received their licence, meant that this method of obtaining income was no longer viable. TAB, the monopoly off-course totalizator in New South Wales[79], which was privatised under the Totalizator Agency Board Privatisation Act 1997 (NSW), distributes income earned from its totalizator agencies in New South Wales pursuant to the Racing Distribution Agreement ("the RDA"), which was first entered into on 11 December 1997 between TAB, RNSW, HRNSW and others. RNSW and HRNSW are obliged to provide racing programmes at New South Wales race courses[80].
The second reading speech to the Bill which became the Act which introduced ss 33 and 33A of the Racing Administration Act[81] referred to interstate wagering operators as "free riding on New South Wales racing events."[82] The expression may be taken to convey that they benefited from what was provided by the racing industry in New South Wales without being required to pay. It was said that there was a need to "encourage the ongoing viability and future economic development of the racing industry"[83]. It is tolerably clear that the introduction of ss 33 and 33A was intended to obtain revenue from interstate wagering operators for the use of the New South Wales racing industry[84]. Perram J acknowledged that the new methods of wagering were having an impact on the revenues of TAB[85].
Section 33(1)(a) of the Racing Administration Act makes it an offence for a "wagering operator" to use "NSW race field information" unless authorised to do so by a "race field information use approval"[86] and the wagering operator complies with conditions to which the approval is subject. Section 32A relevantly provides that a person "uses NSW race field information" if the person, whether in Australia or elsewhere, publishes it or communicates it to a person. Section 32A's terms are broad enough to include publication by an on-line communications system such as the internet or subscription television.
Each of RNSW and HRNSW is a "relevant racing control body" for the purposes of Pt 4 of the Racing Administration Act[87]. Section 33A(1) and (2)(a) of that Act provides that the relevant racing control body may grant to a person a race field information use approval and may impose certain conditions, including that the holder of the approval pay a fee. Clause 20(b)(ii) of the Racing Administration Regulation 2005 ("the Regulations")[88] provides, inter alia, that in determining an approval application, the relevant racing control body must not take into account the locality in Australia of an applicant's head office or principal place of business. Paragraph (c) of cl 20 requires, in relation to an applicant that is a wagering operator, that the relevant racing control body must take account of whether the applicant holds a licence under State or Territory legislation to carry out its wagering operations.
Clause 16(2)(a) of the Regulations provides:

[90]

The validity of the impugned provisions of the Racing Administration Act and the Regulations, which confer power on RNSW and HRNSW to condition the grant of the relevant approvals, is not in issue in these proceedings. Betfair seeks declarations that the approvals granted to it by RNSW and HRNSW are invalid, or are invalid to the extent that they impose a discriminatory fee contrary to s 92, and seeks orders for the repayment by RNSW and HRNSW of the fees it has paid.
The decisions of RNSW and HRNSW to condition the approvals made under s 33A(1) of the Racing Administration Act pursuant to s 33A(2) of that Act are of an administrative nature. It was not disputed that they may be the subject of judicial review[90]. However, no issue has been raised in these proceedings as to whether the constitutional question raised by Betfair may have been dealt with on an application for judicial review.
The validity of the fee condition imposed by each of RNSW and HRNSW depends upon the lawful exercise of the discretion by those bodies. Stated shortly, the exercise of that discretion is confined by s 92. It is so confined because the grant of the discretionary power is itself confined. Brennan J observed in Miller v TCN Channel Nine Pty Ltd[91] that a discretion to issue a licence on conditions cannot be exercised against interstate trade and commerce, because a discretion must be exercised in accordance with any applicable law, including s 92[92], and because, in the absence of contrary intention, general words of a statute conferring administrative powers are to be read as subject to s 92[93].
The freedoms guaranteed by s 92 operate as a limit upon the exercise of Commonwealth and State legislative powers. The Racing Administration Act and the Regulations therefore cannot grant a discretionary power which is to be exercised in a manner inconsistent with s 92. Any such grant of power must be construed so as not to exceed the limits of legislative power[94]. The general words of cl 16(2)(a) of the Regulations, conferring the power to impose a fee condition, are therefore to be read as subject to s 92.

[91]

It is common ground that Betfair operates within a national market in Australia for wagering on horse races and other sporting events[95]. It is not disputed that the services offered by Betfair, TAB and bookmakers in New South Wales are closely substitutable. As was observed in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd[96], a market is not limited to goods and services of the same kind but extends to those goods and services which are closely substitutable.
There are some differences in what is offered to customers by wagering operators taking bets on New South Wales races and there are differences in how those operators earn their income. It is the latter which assumes importance in Betfair's case.
As has already been observed[97], a person who places a bet that a certain event will occur is said to place a "back bet". It will be recalled that the fee condition in question is directed to turnover on bets of this kind. The person who accepts a back bet is said to "lay" that bet. The latter is the exercise in which a bookmaker is engaged. Bookmakers engage in fixed price betting, by which the price to be paid to a successful punter is agreed at the time the bet is placed[98]. Bookmakers seek to make their profit on wagers by an "overround", which may also be described as a win rate or margin. In the Full Court, Betfair submitted that the evidence demonstrated that the average win rate or margin of corporate bookmakers is in the order of five to six per cent[99]. The maintenance of the win rate or margin and the reduction of a bookmaker's risk may require constant reassessment of the bookmaker's book and the placing of bets with other bookmakers.
A totalizator, or pari-mutuel, does not operate in this way. Wagering by totalizator involves the pooling of wagers in respect of which the price is not fixed. The pool is divided amongst the successful punters when the outcome of a race is known and after the deduction of the totalizator's commission[100]. The primary judge referred to three kinds of totalizator betting operators in New South Wales: those operated on-course, by racing clubs and also TAB[101]; those operating from interstate; and a single off-course totalizator operated by TAB.

[94]

In Cole v Whitfield, the Court gave some meaning to the general statement in s 92 that trade and commerce amongst the States shall be "absolutely free", by identifying the kinds of legal burdens from which trade and commerce were intended to be protected. The width and generality of the wording of s 92 in its draft form, and the question whether it should be more definitely expressed, were raised during the Convention Debates[113], but no amendments were effected to identify what regulations affecting trade might be permitted and those which might not[114]. Cole v Whitfield identified laws which impose "discriminatory burdens of a protectionist kind" as laws which were contrary to the object of s 92, historically ascertained[115].
The primary judge found that the fee, whilst facially neutral, discriminated against Betfair as a low margin operator in favour of a high margin operator like TAB. It discriminated against Betfair "because it treats two wagering operators who earn commission at different rates as if they were the same."[116] However, his Honour found that Betfair failed to prove that the fee was protectionist in nature[117].
A Full Court of the Federal Court (Keane CJ, Lander and Buchanan JJ) dismissed Betfair's appeal. The Court held that whether a protectionist character can be discerned as a matter of practical effect depends upon the effect of the law on the competitive relationship between intrastate and interstate trade[118]. It was observed that Betfair's case relied upon the impact of the fee on the business models adopted by individual traders as an enquiry relevant to whether the fee discriminates against interstate traders for the purposes of s 92, yet no decision had suggested this to be the concern of s 92[119]. In the Full Court's view, 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."[120]
The Full Court held that it was necessary that Betfair show some competitive disadvantage to which it was subjected by the imposition of the fee. If Betfair had a competitive advantage, as it contended, because of its low margin business model, Betfair needed to show that the fee was likely to deny or diminish that advantage[121]. Betfair had not shown it to be likely that punters would be deterred from placing bets with it or that it would lose any market share to TAB[122]. Betfair's argument proceeded upon an assumption that the "competitive relativities" would not be readjusted in the ordinary course of business to pre-fee condition levels once TAB and bookmakers priced the fee into their margin, and there was no evidence to support that assumption[123].
Betfair submitted before the Full Court that the Court should not insist upon the identification of any "putative competitive advantages and disadvantages"[124] to establish a breach of s 92 and it maintains that position on this appeal. It submits that the authorities do not suggest as necessary a separate enquiry into whether a law is protectionist or that it is necessary for it to show that its position in the market was adversely affected. These additional requirements, it submits, are not to be found in what was said in Cole v Whitfield, Bath v Alston Holdings Pty Ltd[125] and Castlemaine Tooheys Ltd v South Australia[126].

[95]

The legislative burdens identified in Cole v Whitfield as infringing s 92 were described as "discriminatory burdens of a protectionist kind"[127]. In Betfair Pty Ltd v Western Australia, it was pointed out that it would be wrong to take Cole v Whitfield as marking a complete break from what had earlier been said by this Court concerning the place of s 92 in the scheme of the Constitution[128]. The obvious exceptions to that statement are cases involving theories about the operation of s 92 which are no longer employed, including the so-called "individual rights" theory of s 92, discredited in Cole v Whitfield, which was that s 92 guarantees the right of an individual to engage in interstate trade or commerce[129]. Betfair's concentration upon the effects of the fee condition upon its profit margin may be thought to reflect something of this theory.
The idea that the guarantee in s 92 is directed to laws which discriminate against interstate trade in favour of intrastate trade, by the burdens or restrictions that they impose, is not new. In Fox v Robbins[130], the fee imposed by a West Australian statute for a licence to sell wine the product of fruit grown in Western Australia was two pounds. The fee for a licence to sell wine produced from fruit grown elsewhere in Australia was 50 pounds. Griffith CJ and Barton J respectively described the measure as a burden on sales of Australian wines other than West Australian wine[131] and a burden which would hamper or restrict interstate trade[132]. Each of the Justices described the effect of the law as a discrimination against wine from other States[133] and Barton J called it "inter-state protection, not inter-state free trade."[134]
In Cole v Whitfield, a Tasmanian regulation relevantly prohibited a person from buying or selling crayfish of less than the prescribed size, whether or not it was taken in Tasmanian waters. The defendants sought to sell, from Tasmania to mainland and overseas markets, crayfish sourced in South Australia, which were above the prescribed size in South Australia, but less than that prescribed in Tasmania. The Court referred to the historical object of s 92 as being the preclusion of protectionist burdens[135]. Not only border customs duties, which had been at the forefront of the Convention Debates, qualified as such a burden, but so too did any "burdens, whether fiscal or non-fiscal, which discriminated against interstate trade and commerce."[136] The Court said that "free trade", in the past as well as the present, commonly signified an absence of protectionism, that is, the protection of domestic industries against foreign competition[137]. Protectionism was the kind of legal burden to which, historically, s 92 was said to be addressed[138].
The means by which the Court in Cole v Whitfield saw the object of elimination of protection being achieved was the prohibition of "measures which burden interstate trade and commerce and which also have the effect of conferring protection on intrastate trade and commerce of the same kind."[139] The Court said that "[t]he general hallmark of measures which contravene s 92 in this way is their effect as discriminatory against interstate trade and commerce in that protectionist sense"[140], thereby signifying that a particular kind of discrimination is involved.
Discrimination of the relevant kind may be evident from the terms of a law, as in Fox v Robbins, or from its practical operation[141]. Castlemaine Tooheys furnishes an example of the latter. It was said in Cole v Whitfield that the concept of discrimination commonly involves the notion of a departure from equality of treatment[142]. In theory, discrimination may involve the differential treatment of things which have the same characteristics, or the treatment of things which are different as the same. In the context of s 92 it is the former treatment which is more likely to be involved because the goods and services the subject of interstate and local trade will be largely substitutable, and so in that sense the "same".
Nothing said in Cole v Whitfield, however, suggests that any discrimination will constitute a breach of s 92. As applied to interstate trade, the discrimination must also have a protectionist effect, that is, the creation of a protective barrier of some kind around the local market. Whilst the discriminatory character of a measure may be regarded as indicative of protectionism, not all discriminatory measures will have a protectionist effect. However, the concept of protectionism in the context of s 92 necessarily implies discrimination against interstate trade. Thus the critical descriptor in the expression "discriminatory burdens of a protectionist kind" is "protectionist". This may account for what was said in Castlemaine Tooheys, that there is one enquiry, that concerned with the characterisation of a law as protectionist or otherwise[143].
Betfair sought to rely upon the finding of the primary judge that, although facially neutral, the fee condition discriminates against Betfair because it treats all wagering operators as if they earned commission at the same rates or, put another way, it discriminated between high and low margin operators. However, that finding is of limited relevance to the question whether the fee condition has a protectionist effect. The primary judge subsequently found that no such effect was shown.
One difficulty with an approach which views the question of discriminatory effect separate from that of protectionist effect is that, where an interstate trader bases its s 92 case on the relative effect of a measure on it and a local trader, the enquiry simply becomes one as to whether there is a difference between the two traders the subject of comparison. The primary judge did find a difference between Betfair and TAB, but it was in their business model, as low and high margin operators, respectively[144]. It was not in the effect of the fee condition upon them as interstate and local traders respectively.
This is not to suggest that an examination of the effect of the impugned measure on Betfair itself is impermissible in the process of comparison which is at the heart of any assessment of discriminatory effects. But it is necessary to bear in mind that in such an assessment Betfair represents interstate trade. It is the effects upon Betfair as an interstate trader, more particularly in its ability to compete with local traders, with which s 92 is concerned and to which the requirement of protectionism is directed. It is not enough, as Betfair's argument perhaps assumed, that it be an interstate trader. It is necessary to show a protectionist effect upon it in that capacity.
Betfair's argument has always focussed upon the extent of the burden of the fee condition upon it, as a cost. But that is to say no more than that the fee represents a higher proportion of Betfair's gross revenue than TAB's. Many licence fees will have a differential effect upon the revenue stream of a company or an individual. Fundamentally, as Brennan J observed in Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board[145], the subject of the immunity given by s 92 is trade, not those who conduct it.
The argument that a burden has a protectionist effect directs attention away from the company or individual as such and to their position in the market. The term "protection", it was pointed out in Betfair Pty Ltd v Western Australia[146], is concerned with the preclusion of competition, which is an activity which occurs in a market for goods or services.

[98]

Betfair did not suggest that the identification of the market and the close substitutability of the services offered by its local competitors were not relevant to questions about s 92, yet it challenges the opinions of the primary judge and the Full Court that it was necessary for it to show that it was likely to suffer some competitive disadvantage by reason of the fee condition. Its argument contains the suggestion that to require it to demonstrate effects upon competition is to import into constitutional questions concerning s 92 concepts which have relevance only to competition law. Its suggestion that such a requirement is not to be found in decided cases implies that it is a novel approach.
More particularly, Betfair submitted that Cole v Whitfield does not require a party alleging breach of s 92 to show something akin to "a substantial lessening of competition", an effect which is referred to in Pt IV of the former Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)). The phrase describes the result which certain kinds of anti-competitive conduct may have and may not be seen as necessary to proof of protectionism. Nevertheless, what has been said about the enquiry the phrase encapsulates has relevance generally to questions concerning effects upon competition, namely that it is directed "not so much at the position of particular competitors as to the state or condition constituting the market or markets in question"[148].
The reasons of the Full Court did not state a requirement that Betfair demonstrate the likely effect of the fee condition upon competition generally within the market. I did not understand any party to suggest this was necessary. What the Full Court correctly pointed out was that a conclusion that the fee condition operated in a protectionist sense required Betfair to demonstrate some likely effect upon its ability to compete as an interstate trader.
In his further submissions on the appeal, the Attorney-General for the State of Victoria, intervening, observed that insights from competition law may reveal that the practical operation of a facially neutral law discriminates against interstate trade or commerce in a way that may merit characterisation of the law as protectionist. That is because insights drawn from the economic theory of competition are useful to explain the effects of a legislative or other measure upon trade in a market. Such insights have long informed discourse on s 92. Even if it has not always been necessary to identify the effect of burdens on interstate trade in economic terms, it is evident that the focus of the courts has always been upon whether interstate trade was prevented or disadvantaged in its ability to compete within a market.
In Fox v Robbins, Barton J considered that the much higher licence fee which was imposed upon interstate traders in wine had the same effect as a duty collected at the border[149]. Isaacs J foresaw that trade would be prevented because residents of one State would be deterred from purchasing or importing the products of other States[150]. In Castlemaine Tooheys, the provisions had the effect of preventing the Bond brewing companies, as interstate suppliers, from increasing their market share in South Australia beyond a certain point. The effect of the impost in Fox v Robbins could be described, in the language of competition law, as a barrier to entry to the local market, as could the effect of the impugned provisions in Castlemaine Tooheys and in Betfair Pty Ltd v Western Australia.
In Castlemaine Tooheys, it was said that decisions of United States courts, at least in so far as they spoke of concepts such as the suppression of interstate competition and the existence of a national economic unit, were helpful in the characterisation of laws for alleged contravention of s 92[151]. It was also said that Cole v Whitfield established that a law which imposes a burden on interstate trade, but does not give the domestic product or the local trade in that product a "competitive or market advantage", is not a law which discriminates against interstate trade on protectionist grounds[152]. The Full Court in this case attached some importance to that observation, as requiring as a necessary step in establishing protectionism the identification of a competitive disadvantage[153].

[99]

Whether the object of the protection of free trade in s 92 might be supported more generally by competition principles has not been a matter to which the attention of this Court has previously been directed. However, in Betfair Pty Ltd v Western Australia it was observed that, since Cole v Whitfield was decided, there had been developments in the Australian legal and economic milieu in which s 92 operates, including the emergence of a National Competition Policy which included, as a "guiding principle", that legislation should not restrict competition, unless it can be shown that the benefits of the restrictions to the community as a whole outweigh the costs and that the "objectives of the legislation 'can only be achieved by restricting competition'"[154]. Such a principle may treat as undesirable any effect of substance lessening the ability of those in a market to compete and require, as a justification, that measures which have that effect are necessary to the achievement of their objective. If such a principle were applied in cases involving s 92, the requirement that a legislative or other measure be seen as protectionist in effect may not be essential.
Betfair Pty Ltd v Western Australia also recognised that problems may arise from changes in the way business is now conducted, including in markets where borders have no relevance. It was pointed out that there were "practical and conceptual difficulties" where the focus was upon "the geographic dimension" given by State boundaries when considering competition in a market in internet commerce[155] and that it may be difficult to accommodate commerce of that kind to the notion of protectionism in intrastate trade and commerce[156]. Reference was there made[157] to the remarks of O'Connor J in Jumbunna Coal Mine NL v Victorian Coal Miners' Association[158], that the Constitution is intended to apply "to the varying conditions which the development of our community must involve."
In Cole v Whitfield, it was acknowledged that two elements in s 92 arguably gave it a wider operation to trade and commerce than the prohibition of protectionist burdens. One element is the reference to "intercourse" among the States and the other is the words "absolutely free"[159]. It might also be thought that the words "among the States" have particular importance, since they may either limit or enlarge the view of the operation of s 92, when read in conjunction with the words "absolutely free". Given the structure of s 92, much may depend upon where the emphasis is placed.
The purpose of s 92 was said in Cole v Whitfield to be to create a free trade area throughout the Commonwealth and to deny the Commonwealth and the States the power to prevent or obstruct the free movement of people, goods and communications across State boundaries[160]. The framers of the Constitution may not have envisaged the extent of the national markets which now exist, but they did realise that a single trade area was necessary to achieve the objective of trade "among the States" being free. However, present authority maintains as relevant to s 92 the distinction between interstate and intrastate trade, a distinction drawn in part from what has been said about the words "among the States" appearing in s 51(i) of the Constitution, although the distinction has sometimes been said to be somewhat artificial[161]. As long as an interstate element is seen as present in s 92, the requirement of protectionism is both relevant and necessary, as Cole v Whitfield held.
It is not necessary to the outcome of this appeal to determine whether a further step should be taken, beyond what was decided in Cole v Whitfield, to recognise that any effect lessening competition in a market which operates without reference to State boundaries is contrary to s 92[162]. This is clearly a large question and requires a particular set of facts to illuminate it. This case does not involve such facts. The evidence here does not permit a conclusion as to the likely consequences of the fee condition upon competition within the relevant market. It does not even identify the consequences for Betfair in that regard.
It is necessary to mention that, during argument on this appeal, Betfair sought to refer to a report of the Productivity Commission[163] in order to show, inter alia, the effect of the fee condition upon competition within the market[164]. A draft of this report was tendered, but not received, in evidence at trial as relevant to a different purpose, namely to show Betfair's competitive advantage over TAB[165]. Regardless of whether it has the status of authoritative economic material, as Betfair contends, Betfair should not now be permitted to rely upon it for other purposes, particularly since the respondents have not had the opportunity to test the opinions contained within it.

[101]

Betfair relied upon inferences to be drawn from the effect of the fee upon its revenue as demonstrating that it was commercially disadvantaged. It emphasised the fact that the fee represents a greater cost to its business, per revenue dollar, in the order of five or six times more than the cost to TAB. It says that the natural consequence of such a high cost is to competitively disadvantage it and to favour TAB.
It was not sufficiently explained by Betfair how a cost effect may be translated into a competitive effect in the market. The only matters to which Betfair pointed were the percentage the fee bears to its gross revenue and a comparison with one competitor who has a different business model. Its reliance upon Fox v Robbins as analogous is misplaced. So far as concerned the practical effect of the fee in that case, it was possible to determine that those whose business was selling wine in Western Australia would be deterred from importing wine from other States because of the high cost of the licence. It may be added that courts today are likely to undertake a more detailed approach to questions concerning effects upon competition, in part because it is a more complex question in today's markets and because courts now are more often exposed to issues surrounding competition principles.
Betfair pointed to two obvious choices that were open to it: to absorb the cost or pass it on to its customers. Even assuming that these would be the only adaptations a business could make to maintain its market position, such adaptations would be the same for any business faced with a new or increased cost.
Betfair has chosen not to pass on the cost of the fee, or any part of it, to its customers during the currency of the proceedings. Neither, apparently, has TAB done so. There was some evidence to suggest that Betfair could apply to the Tasmanian Gaming Commission to change the rate at which it charged commission. Any effect upon Betfair's ability to compete by the maintenance of a ceiling on the rate of commission it may charge would not, in any event, qualify as an effect flowing from the fee condition. Betfair did not suggest that it would be necessary to seek permission to change its rate of commission. There would appear to be a substantial margin between its present charges and the permitted rate of five per cent. More importantly, the prospect of costs being passed on raises questions about whether relativities with Betfair's competitors might be maintained or significantly altered, as the Full Court observed[166]. This question was not addressed by Betfair in evidence.
It is not obvious how Betfair's ability to compete is likely to be adversely affected if it absorbs the cost of the fee. Its reliance upon the findings in Castlemaine Tooheys is also misplaced. It does not provide an example of the Court drawing inferences from the high cost imposed by the legislation. In Castlemaine Tooheys, the effects of the measures upon competition were agreed as facts by the parties. It was agreed that the measures concerning the deposit fees so substantially affected the Bond brewing companies' trading position that they lost market share: that they were limited to attaining only one per cent of the market when they had projected that they would capture a ten per cent share[167]. It is, however, evident from that case that the parties understood that the Court would be required to determine matters of that kind in order to address the principal question which arose, namely whether the measures, and the effects that they had upon competition, could be justified by reference to other, non-protectionist, objects.
Betfair sought, unsuccessfully, during the trial in these proceedings to rely upon the draft report of the Productivity Commission to show that it had a competitive advantage over TAB. Its low margin and TAB's high costs might be relevant to such a question, as may other factors such as the nature, and difference, of the services it offers. Assuming for present purposes that it did enjoy some such advantage, it did not show that it was likely to have been diminished or lost. More was required than to point to an increase in its costs.
Betfair did not demonstrate that the fee condition, in its practical operation, is likely to have a discriminatory, protectionist effect.

[102]

Consideration need only be given to the purposes or objects of a legislative or other measure if it is found to impose a discriminatory burden of a protectionist kind. A court need only consider purpose where it is contended that, despite a measure imposing a discriminatory burden of a protectionist kind, it is justified because it is directed to the achievement of a non-protectionist purpose. In the context of s 92 it is usually required that the measures be reasonably necessary to achieve that legitimate purpose[168].
In Cole v Whitfield, the purpose of the prohibition was found to be the environmental purpose of protecting and conserving a valuable natural resource in the stock of Tasmanian crayfish, and the prohibition on the size of crayfish sold in Tasmania from any source was necessary to that end[169]. In Castlemaine Tooheys, some balancing of means and objects was recognised as appropriate[170], but the means chosen were considered to be disproportionate to the achievement of those objects[171] and could not be justified.
Obviously, Betfair does not contend that the fee condition is a measure which could be justified by reference to an object other than protectionism. It relies upon the purpose of RNSW and HRNSW, which is to say their respective subjective intentions, to satisfy the requirement of protectionism. The primary judge found that members of the boards of these racing authorities were, at the time of the decision to impose the fee, of the view that its imposition would limit the loss of revenue to TAB and protect its revenue from competition with interstate traders[172]. However, his Honour also held that such an intention is not relevant to an enquiry as to whether s 92 is breached[173].
It is Betfair's contention that the subjective purpose of RNSW and HRNSW is relevant because the fee condition was imposed as the result of an administrative decision. In such a circumstance the purpose or intention of the decision-maker is said to be relevant in characterising the decision as imposing a discriminatory burden in a protectionist sense. Any other view, it submitted, would allow the delegation of the power to a decision-maker to achieve, by indirect means, what could not be done directly.
The answer to Betfair's lastmentioned concern is that a power to subvert the freedoms guaranteed by s 92 cannot be delegated. Any discretion provided by a statute must be exercised compatibly with s 92, as explained earlier in these reasons[174].
The balance of Betfair's contention may be dealt with shortly, by reference to the relevance of RNSW's and HRNSW's intentions to the matters in issue. The intention of those bodies might be relevant, in proceedings for judicial review, to show that they have some improper purpose. But these are not proceedings of that kind. Any intention on the part of RNSW and HRNSW to protect TAB is not relevant to proving that the measure had a protectionist effect. That is a question of fact to be determined by reference to factors relating to Betfair's ability to compete as an interstate trader. Whether the measure may be said to have other purposes, determined objectively, does not arise. This is because, as has been explained, Betfair has not established that the fee condition is a discriminatory burden of a protectionist kind.

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