Avis juridique important

Judgment of the Court of 21 September 1999. - Markku Juhani Läärä, Cotswold Microsystems Ltd and Oy Transatlantic Software Ltd v Kihlakunnansyyttäjä (Jyväskylä) and Suomen valtio (Finnish State). - Reference for a preliminary ruling: Vaasan hovioikeus - Finland. - Freedom to provide services - Exclusive operating rights - Slot machines. - Case C-124/97. European Court reports 1999 Page I-06067

Summary Parties Grounds Decision on costs Operative part

Freedom to provide services - Restrictions - National legislation reserving the operation of slot machines to a public body - Justification - Consumer protection and maintenance of order in society

(EC Treaty, Art. 59 (now, after amendment, Art. 49 EC))

$$National legislation which grants to a single public body exclusive rights to operate slot machines in the national territory - and which thus directly or indirectly prevents operators in other Member States from themselves making slot machines available to the public with a view to their use in return for payment - constitutes an impediment to freedom to provide services, even if it applies without distinction.

However, in so far as such legislation involves no discrimination on grounds of nationality, that impediment may be justified on grounds relating to the protection of consumers and the maintenance of order in society. Although that legislation does not prohibit the use of slot machines but reserves the running of them to a licensed public body, the power to determine the extent of the protection to be afforded by a Member State on its territory with regard to lotteries and other forms of gambling forms part of the national authorities' power of assessment. It is for those authorities, therefore, to assess whether it is necessary, in the context of the aim pursued, totally or partially to prohibit activities of that kind or merely to restrict them and, to that end, to establish control mechanisms, which may be more or less strict. In those circumstances, the mere fact that a Member State has opted for a system of protection which differs from that adopted by another Member State cannot affect the assessment of the need for, and proportionality of, the provisions enacted to that end. Those provisions must be assessed solely by reference to the objectives pursued by the national authorities of the Member State concerned and the level of protection which they are intended to provide.

In Case C-124/97,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234 EC) by the Vaasan Hovioikeus, Finland, for a preliminary ruling in the proceedings pending before that court between

Markku Juhani Läärä,

Cotswold Microsystems Ltd,

Oy Transatlantic Software Ltd,

and

Kihlakunnansyyttäjä (Jyväskylä),

Suomen Valtio (Finnish State),

on the interpretation of the judgment of the Court of Justice of 24 March 1994 in Case C-275/92 Schindler [1994] ECR I-1039 and of Articles 30, 36, 56 and 59 of the EC Treaty (now, after amendment, Articles 28 EC, 30 EC, 46 EC and 49 EC) and Article 60 of the EC Treaty (now Article 50 EC),

THE COURT,

composed of: P.J.G. Kapteyn, President of the Fourth and Sixth Chambers, acting for the President, J.-P. Puissochet (Rapporteur) and P. Jann (Presidents of Chambers), C. Gulmann, J.L. Murray, D.A.O. Edward, H. Ragnemalm, L. Sevón and M. Wathelet, Judges,

Advocate General: A. La Pergola,

Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

- Mr Läärä and Oy Transatlantic Software Ltd, by P. Kiviluoto, of the Jyväskylä Bar,

- Cotswold Microsystems Ltd, by H.T. Klami, Professor at the University of Helsinki,

- the Finnish Government, by T. Pynnä, Legal Adviser in the Ministry of Foreign Affairs, acting as Agent,

- the Belgian Government, by J. Devadder, Director of Administration in the Ministry of Foreign Affairs, Foreign Trade and Cooperation with Developing Countries, acting as Agent, assisted by P. Vlaemminck and L. Van Den Hende, of the Ghent Bar,

- the German Government, by E. Röder, Ministerialrat in the Federal Ministry of Economic Affairs, and C.-D. Quassowski, Regierungsdirektor in the same Ministry, acting as Agents,

- the Spanish Government, by L. Pérez de Ayala Becerril, Abogado del Estado, acting as Agent,

- the Netherlands Government, by A. Bos, Legal Adviser in the Ministry of Foreign Affairs, acting as Agent,

- the Austrian Government, by F. Cede, Ambassador in the Ministry of Foreign Affairs, acting as Agent,

- the Portuguese Government, by L. Fernandes, Director of the Legal Service of the Directorate-General for the European Communities in the Ministry of Foreign Affairs, A. Cortesão Seiça Neves, of the same Service, and J. Ramos Alexandre, Inspector-General of Gaming in the Ministry of Economic Affairs, acting as Agents,

- the Swedish Government, by E. Brattgård, Departementsråd in the Department of Foreign Trade of the Ministry of Foreign Affairs, acting as Agent,

- the United Kingdom Government, by J.E. Collins, Assistant Treasury Solicitor, acting as Agent, assisted by M. Brealey, Barrister,

- the Commission of the European Communities, by A. Caeiro, Legal Adviser, and K. Leivo, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of: Mr Läärä and Oy Transatlantic Software Ltd, represented by P. Kiviluoto; Cotswold Microsystems Ltd, represented by H.T. Klami; the Finnish Government, represented by T. Pynnä; the Belgian Government, represented by P. Vlaemminck and L. Van Den Hende; the German Government, represented by E. Röder; the Spanish Government, represented by M. López-Monís Gallego, Abogado del Estado, acting as Agent; the Irish Government, represented by M. Finlay, SC; the Luxembourg Government, represented by K. Manhaeve, of the Luxembourg Bar; the Netherlands Government, represented by M.A. Fierstra, Deputy Legal Adviser in the Ministry of Foreign Affairs, acting as Agent; the Portuguese Government, represented by L. Fernandes and A. Cortesão Seiça Neves; the Swedish Government, represented by L. Nordling, Rättschef in the Legal Secretariat (EU) of the Ministry of Foreign Affairs, acting as Agent; the United Kingdom Government, represented by J.E. Collins, assisted by M. Brealey; and the Commission, represented by A. Caeiro and K. Leivo, at the hearing on 30 June 1998,

after hearing the Opinion of the Advocate General at the sitting on 4 March 1999,

gives the following

Judgment

1 By order of 21 March 1997, received at the Court on 25 March 1997, the Vaasan Hovioikeus (Court of Appeal, Vaasa) referred to the Court for a preliminary ruling under Article 177 of the EC Treaty (now Article 234 EC) three questions on the interpretation of the Court's judgment of 24 March 1994 in Case C-275/92 Schindler [1994] ECR I-1039 and of Articles 30, 36, 56 and 59 of the EC Treaty (now, after amendment, Articles 28 EC, 30 EC, 46 EC and 49 EC) and Article 60 of the EC Treaty (now Article 50 EC), with a view to determining whether national legislation reserving to a public body the right to run the operation of slot machines on the territory of the Member State concerned is compatible with those provisions.

2 Those questions were raised in proceedings between Mr Läärä, Oy Transatlantic Software Ltd, a company incorporated under Finnish law (`TAS'), and Cotswold Microsystems Ltd, a company incorporated under English law (`CMS'), appellants in the main proceedings, and Kihlakunnansyyttäjä (Jyväskylä) (Jyväskylä District Prosecutor) and Suomen Valtio (the Finnish State) concerning the operation of slot machines in Finland.

The national rules

3 In Finland, under Article 1(1) of the Arpajaislaki (1.9.1965/491) (Law No 491 of 1 September 1965 on gaming, in the version thereof in force at the material time), games of chance may be organised, with the authorisation of the administrative authorities, only for the purpose of collecting funds for charity or for another non-profit-making purpose provided for by law. According to Article 1(2) of the Arpajaislaki, games of chance, within the meaning of that law, include in particular casino activities, slot machines and other gaming machines or games in which, in exchange for a sum of money, the player may receive a cash prize, goods or other benefits of money's worth, or tokens to be exchanged for money, goods or benefits.

4 Article 3 of the Arpajaislaki provides, inter alia, for the issue by the administrative authorities to a public-law body of a licence for the operation, in return for remuneration, of slot machines and other gaming machines or for the carrying-on of casino activities, with a view to the collection of funds for various public interest initiatives as listed by that provision. Only one licence, valid for a specified period, may be issued to cover those activities.

5 Such a licence was issued to the Raha-automaattiyhdistys (Association for the Management of Slot Machines, hereinafter `the RAY'), pursuant to Article 1(3) of the Raha-automaattiasetus (29.12.1967/676) (Regulation No 676 of 29 December 1967 on slot machines, in the version thereof in force at the material time). According to Article 6 of that regulation, the RAY is entitled, with a view to achieving its object of collecting funds to meet the needs referred to in Article 3 of the Arpajaislaki, in return for remuneration, to operate slot machines and to carry on casino activities, and also to manufacture and sell slot machines and amusement machines. Article 29 et seq. of that regulation lays down the conditions under which the net proceeds of the RAY's activities, the amount of which appears in the State budget, are to be paid over to the Ministry of Social Affairs and Health and then distributed amongst the organisations and foundations established to meet the aforesaid needs.

6 Under Article 6(1) of the Arpajaislaki, a person who without a licence organises games of chance for which a licence is required is liable to the imposition of a fine or a term of up to six months' imprisonment. In addition, according to Article 16(2) of Part 2 of the Rikoslaki (13.05.1932/143) (Finnish Criminal Law, in the version thereof resulting from Law No 143 of 13 May 1932), any device belonging to an offender or to a person on whose behalf or for whose benefit he has acted and which has been used in the commission of the offence or has been made or obtained solely for that purpose may be confiscated.

The main proceedings

7 It is apparent from the order for reference that CMS entrusted TAS, of which Mr Läärä is the chairman, with the running in Finland of slot machines known as `AWP' machines, of the Golden Shot type, which, in terms of the contract between the two companies, remain the property of CMS. These machines contain rotating rollers bearing symbols which represent fruit. When the rollers stop turning, either by themselves or by the operation of a handle by the player, and the sequence formed by the symbols corresponds to one of the winning combinations, the machine delivers to the player winnings amounting to a maximum of FIM 200 (for a stake of between FIM 1 and FIM 5).

8 Criminal proceedings were brought against Mr Läärä, in his capacity as the chief executive of TAS, before the Jyväskylän Käräjäoikeus (Jyväskylä Court of First Instance) on a charge of having operated these machines in Finland without a licence. Supported by TAS and CMS, who were joined in the proceedings, he denied the offence with which he was charged, on the ground, in particular, that the prospects of winning offered by Golden Shot machines was not based exclusively on chance but also, to a large extent, on the skill of the player, with the result that those machines could not be regarded as gaming machines, and that the Finnish legislation was contrary to the Community rules governing the free movement of goods and services. The Käräjäoikeus, rejecting his arguments, sentenced him to a fine and ordered the confiscation of the machines.

9 On appeal against that judgment by the parties concerned to the Vaasan Hovioikeus, that court decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:

`(1) Is the judgment of the Court of Justice of 24 March 1994 in Case C-275/92 Her Majesty's Customs and Excise v Gerhart Schindler and Jörg Schindler to be interpreted in such a way that it may be regarded as analogous to the present case (compare the judgment of 6 October 1982 in Case 283/81 Srl CILFIT and Lanificio di Gavardo SpA v Ministry of Health), and that the provisions of the EC Treaty should be interpreted in the present case in the same way as in the aforesaid case?

If the answer to the first question is wholly or partly in the negative:

(2) Do the provisions of the EC Treaty on the free movement of goods and services (Articles 30, 59 and 60) also apply to gaming machines of the type in issue here?

(3) If the answer to the second question is in the affirmative:

(a) do Articles 30, 59 or 60 or any other article of the EC Treaty preclude Finland from restricting the right to manage slot machines to the monopoly operated by the Raha-automaattiyhdistys (Public-Law Association for the Management of Slot Machines), irrespective of whether the restriction applies under that Law to domestic and foreign organisers of gaming alike, and

(b) can that restriction be justified, having regard to the reasons set out in the Law on games of chance or the measures implementing that Law, or on any other grounds, by the principles contained in Articles 36 or 56 or any other article of the EC Treaty; in addition, is the answer to that question affected by the amount of the winnings which may be obtained from the machines and by the question whether the opportunity of winning is based on chance or on the player's skill?'

10 By those three questions, which should be examined together, the national court is asking whether, in the light of the judgment in Schindler, Articles 30, 59 and 60 of the Treaty are to be interpreted as not precluding national legislation such as that in force in Finland, which grants to a single public body exclusive rights to exploit the operation of slot machines, in view of the public interest grounds relied on in order to justify it.

11 Mr Läärä, TAS and CMS maintain that operating the slot machines at issue in the main proceedings is quite different - on account, in particular, of the modest size of the stakes and prizes and their ultimate purpose, namely to provide amusement based on the skill of the player - from the organisation of large-scale lotteries with which the judgment in Schindler was concerned. In their view, the exclusive right conferred on the RAY is contrary to the provisions of the Treaty regarding the free movement of goods and services and competition, principally because the public interest objectives relied on to justify it are not pursued in practice and could be attained by less restrictive measures, such as regulations imposing the necessary code of conduct on operators.

12 The Finnish, Belgian, German, Spanish, Irish, Luxembourg, Netherlands, Austrian, Portuguese, Swedish and United Kingdom Governments and the Commission consider, by contrast, that the provisions of the Treaty do not preclude legislation such as the Finnish legislation, granting exclusive rights to run the operation of slot machines, since it is justified by considerations analogous to those accepted by the Court in Schindler. In the view of all those Governments, the games at issue in the main proceedings, which offer, in return for payment, the opportunity of winning cash prizes, constitute a form of gambling comparable to lotteries, in relation to which the Court has accepted that it is for the Member States, having regard to their specific social and cultural characteristics, to assess whether it is necessary to restrict or even prohibit the activities concerned in order to maintain order in society.

16 It is true that, in its judgment in Case C-368/95 Familiapress v Bauerverlag [1997] ECR I-3689, the Court declined to equate certain games with lotteries of the type considered in Schindler. However, that case concerned competitions published in magazines in the form of crosswords or puzzles, giving readers who had sent in the correct solutions the chance of being entered in a draw from which a number of them were selected as prize-winners. As the Court noted, particularly in paragraph 23 of that judgment, such games, organised only on a small scale and for insignificant stakes, do not constitute an economic activity in their own right but are merely one aspect of the editorial content of a magazine.

17 In the present case, by contrast, it is apparent from the information supplied by the national court that a game of chance is involved and that the machines at issue in the main proceedings offer, in return for a payment specifically intended to represent consideration for their use, the prospect of winning a sum of money. As has been pointed out by the majority of the governments intervening in the present proceedings, the relatively modest size of the stakes and prizes, on which the appellants in the main proceedings base their case, does not in any way preclude the possibility of earning considerable sums from the operation of such machines, particularly on account of the number of potential players and the tendency amongst most of them, given its short duration and its repetitive nature, to play the game over and over again.

19 However, the present case differs from Schindler in a number of respects.

21 Next, whereas the national legislation at issue in Schindler prohibits the holding of lotteries on the territory of the Member State concerned, subject to certain exceptions laid down therein, the legislation at issue in the present case does not prohibit the use of slot machines but reserves the running of such machines to a public body holding a licence issued by the administrative authorities (`the licensed public body').

22 Finally, as has been pointed out in certain of the observations submitted to the Court, other provisions of the Treaty, such as those relating to the right of establishment or the competition rules, may be applicable to legislation of the kind at issue in the main proceedings.

23 As regards the latter point, however, since the national court has merely added to the reference to Articles 30, 36, 59 and 60 of the Treaty in its third question the words `or any other article of the ... Treaty', without providing any further details in that regard, either in the reasoning or in the operative part of its order, the Court is unable to rule on the question whether any provisions of the Treaty other than those relating to the free movement of goods and services preclude national legislation of the type at issue in the main proceedings.

25 It should be noted in that regard that national legislation of the kind at issue in the main proceedings may hinder the free movement of goods, inasmuch as the licensed public body is, in law, the only possible operator of slot machines intended to be used in return for payment, and has the right to manufacture such machines itself.

28 As the referring court points out, national legislation on slot machines such as the Finnish legislation prohibits any person other than the licensed public body from running the operation of the machines in question; it therefore involves no discrimination on grounds of nationality and applies without distinction to operators who might be interested in that activity, whether they are established in Finland or in another Member State.

30 It is therefore necessary to examine whether that obstacle to freedom to provide services can be permitted pursuant to the derogations expressly provided for by the Treaty, or whether it may be justified, in accordance with the Court's case-law, by overriding reasons relating to the public interest.

34 As noted in paragraph 21 of this judgment, the Finnish legislation differs in particular from the legislation at issue in Schindler in that it does not prohibit the use of slot machines but reserves the running of them to a licensed public body.

38 The position is not affected by the fact that the various establishments in which the slot machines are installed receive from the licensed public body a proportion of the takings.

43 Accordingly, the answer to be given to the national court must be that the Treaty provisions relating to freedom to provide services do not preclude national legislation such as the Finnish legislation which grants to a single public body exclusive rights to operate slot machines, in view of the public interest objectives which justify it.

Costs

44 The costs incurred by the Finnish, Belgian, German, Spanish, Irish, Luxembourg, Netherlands, Austrian, Portuguese, Swedish and United Kingdom Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT,

in answer to the questions referred to it by the Vaasan Hovioikeus by order of 21 March 1997, hereby rules:

The Treaty provisions relating to freedom to provide services do not preclude national legislation such as the Finnish legislation which grants to a single public body exclusive rights to operate slot machines, in view of the public interest objectives which justify it.