Betfair Pty Limited & Anor v State of WA

[2007] HCATrans 748

[2007] HCATrans 748

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  No C2 of 2007

B e t w e e n -

BETFAIR PTY LIMITED

First Plaintiff

MATTHEW EDWARD ERCEG

Second Plaintiff

and

STATE OF WESTERN AUSTRALIA

Defendant

GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON MONDAY, 10 DECEMBER 2007, AT 2.16 PM

(Continued from 9/11/07)

Copyright in the High Court of Australia

MR GAGELER:   If the Court pleases. My own agenda for reply is limited to section 92. I have nothing to add to what we have already put in writing on the topic of the conflict between Western Australian and Tasmanian law.

In relation to section 92 I want to mention six factual matters and then three conceptual or historical matters. I then want to respond specifically to the arguments that were put by Western Australia against the application of section 92 to the two relevant Western Australian provisions. Those arguments were basically the integrity argument and what has now become, in writing, the free‑riding argument. I then want to say a couple of very minor things about the construction of the Western Australian legislation. Your Honours, that is where I propose to go.

Dealing first with the factual matters, your Honour the Chief Justice asked a couple of times why would anyone but a bookmaker lay a horse that is backed at 7-1 and the answer to that question really lies in recognising that odds of 7-1 reflect a market perception that the horse or runner in question as a one chance in eight or 12.5 percent chance of winning.

So, on the back side of that 7-1 bet you have someone who is prepared to risk $1 for a one in eight or a 12.5 per cent chance of getting a $7 return, and on the lay side of the same bet you have someone who is prepared to risk $7 for a seven-eighths or 87.5 per cent chance of getting a $1 return.  So that on the lay side of the bet, and indeed on the lay side of any bet other than an odds on bet, you are going to find someone who is prepared to risk more money for a higher chance of making a lower return.

Now, is that person necessarily a bookmaker or someone running a book acting as a bookmaker?  The answer to that is, no.  It is simply a person who either generally or in the particular case has a different attitude to risk, has a different perception of value or it may well be someone who has already backed the same horse at, say, 10-1, the market odds shortened to 7-1 and the person who has already backed the horse at 10-1 can lock in a profit as the market shortens by laying the same horse when it shortens to 7‑1 and that way the person will be able to make a profit whether the horse wins or loses, the person ‑ ‑ ‑

GLEESON CJ:   That is the equivalent of an arbitrageur on the stock exchange or what on the racecourse they call a crusher.

MR GAGELER:   Yes, somebody who is hedging their bets is another way of putting it, your Honour.  Yes, exactly.

GLEESON CJ:   But you have to find under your system somebody prepared to lay every horse.

MR GAGELER:   That is right, it only works if there is somebody who is laying at the same time that somebody else is betting.  Your Honours will recall, I do not ask you to turn back to it at all, that the betting exchange task force in its report volume 2 tab 33 at pages 1346 to 1352 went through a number of different categories of customers and really made the point that the ability to lay is attractive to a range of potential customers.  It is attractive to the recreational punter, it gives them more options, makes the punting experience more interesting.  It is attractive to the professional punter.  It is attractive to the trader, which is a category equating to the market phenomenon that your Honour the Chief Justice has mentioned, as well as to the bookmaker.  So a range of people, indeed, a broad range of people, necessarily matching those who are prepared to back the same bets will be prepared to lay the same bet. 

Your Honour, that is the first factual matter.  The second factual matter is a submission was made by Mr Meadows in the transcript at pages 188 to 189 in response to the point, somewhat laboured in my oral submissions but crystallised at paragraph 75 of our written submissions, that a customer being able to lay an outcome is not a phenomenon unique to a betting exchange.  A customer can often and for most events lay an outcome with a bookmaker simply by backing the alternative outcomes. 

What Mr Meadows pointed out at those pages, 188 to 189, by reference to some worked examples that were handed up, is that if a customer is going to lay with a bookmaker by backing the alternative outcomes, then the customer is going to have to risk a relatively large amount of money for a relatively low return.  That was something that was pointed out in support of a general proposition which was that laying with a bookmaker is not realistic.  That was the way he put it.  Your Honour Justice Kirby is recorded in the transcript as saying, “I think you have landed a bit of a blow in that submission”. 

There are a number of answers to that submission.  The first is that at level of principle – this goes back to my answer to your Honour the Chief Justice’s question – if you are going to lay an outcome other than odds‑on outcome, then whether you lay directly with Betfair or lay indirectly with a bookmaker, you are always going to have to risk a relatively large amount of money for a relatively low return but with a greater certainty in getting that return.  That is simply the nature of laying.

The second answer is that the level of practicality, the difference between the amount you would have to stake to lay an outcome with Betfair and the amount you would have to stake to lay an outcome with a bookmaker, is simply one of degree and is really quite well illustrated by the extremely realistic example – the real world example – given in paragraph 60 of the amended special case – no need to turn back to it, your Honours – that of Mr Erceg, the second plaintiff, laying the horse Homme on race two as Ascot on 20 December 2006. 

With Betfair he was able to lay Homme directly by risking $50 to make a $50 return if some horse other than Homme won the race, which ended up being the case.  With Best Bookies he was able to lay Homme only indirectly by backing other horses but when he did that he had to risk $70 to make somewhere between a $32 and a $58 return if some horse other than Homme won the race.  So it really is just a question of degree and it is a question that really turns very much on the particular odds that are being offered and, as I will mention again in a moment, on the amount of the margin that is built into the bookmaker’s odds that are being offered.

HAYNE J:   Just before you part from that.  You accept then that it depends upon the way the book is framed?

MR GAGELER:   Yes, it depends primarily, your Honour, if I can give a fuller answer to your Honour’s question, the ability to lay a horse with a bookmaker, and here I am repeating just for the purposes of your Honour’s reference the point that I made in‑chief in the transcript at pages 28 to 29, the point made in schedule 9 of the special case and the point made in the Betting Exchange Task Force report, volume 2, tab 33 at page 1333 and the point is this.  What in practical terms determines the ability to lay a particular outcome with a bookmaker is the relationship between the odds that are being offered by the bookmaker on that outcome and the book percentage or over‑round or gross margin that the bookmaker is working by.

HAYNE J:   It is it depends on the way the book is framed.  Under current arrangements in Western Australia the book is framed by, to use a term perhaps inaccurately, a single licensed person.  The Betfair arrangement again depends on the way the book is framed but Betfair does not frame the book, the book is framed by the participants and the participants are not subject to immediate control.  Now, where that leads to, a separate set of questions, but that is the fundamental distinction, is it not?

MR GAGELER:   It is not the distinction I am making.

HAYNE J:   I understand that.

MR GAGELER:   I do not disagree with what your Honour has said.  The distinction I make – and I am really addressing the question where I thought your Honour’s question started – is, what is it that determines the ability to lay a horse with a bookmaker and I am seeking to make the point, and this is really quite an important point, it is the profit that the bookmaker is making so when it is said that it is hard to lay a horse with a bookmaker, it is only hard to lay a horse with a bookmaker to the extent that the over‑round in percentage terms exceeds the odds of the particular horse.  If the bookmaker’s margin was zero you could lay every horse with a bookmaker.  That is really quite an important point. 

It is the price, the monopoly rent if you like, built in to the monopoly service provider’s odds, the price of the product, that is the only thing that really prevents somebody from being able to lay more outcomes for the bookmaker.  As we have demonstrated, you can ordinarily lay at least the favourite, you can sometimes lay more and what stops you from being able to lay the lot is the price and nothing more.  That is really the point made in the Betting Exchange Task Force report at that page that I pointed out.

The last point is this, again in answer to Mr Meadows’ submission.  If ultimately the scenario with which one is concerned is that of a person lacking integrity being able to benefit from the laying a horse because the person knows that the horse has been nobbled and will not win, some other horse must win, then it really does not matter how much the person has to stake because the outcome is certain.  The person is assured of making a profit whether it is a matter of staking $10 or $10,000.  Your Honour, that is the second of the six factual things.  The others are much shorter. 

Mr Kourakis at page 207 of the transcript at line 9280, or thereabouts, said this:

The people who lay horses will not be people whose antecedents have been checked by a licensing authority but may well be people with convictions themselves or association with organised crime, and there is nothing about Betfair’s registration requirements that would necessarily reveal that. 

Could I simply point this out in response to that submission, that in volume 1, tab 3 at page 96 your Honours will see – and I do not ask you to turn to it – Betfair’s internal control procedures have been approved by the Tasmanian Commission as part of its licence conditions.  What you see there is that to be registered with Betfair an Australian customer has to undergo what is colloquially described and is described there as a 100 point credit check.  It is the same credit check that someone needs to go through to get a passport.  It is that level of identification that is required. 

The fourth thing is that Mr Meadows, quite properly and with leave of the Court, provided your Honours with a note on the regulation of betting exchanges in other jurisdictions.  Having had a look at that note, we considered it to be materially incomplete and we provided your Honours with a two‑page document in response.  The bottom line of that two‑page document really comes down to this.  Four jurisdictions in the world have specifically addressed the phenomenon of betting exchanges.  They are the United Kingdom, Malta, Tasmania and Western Australia.  In the first three of those jurisdictions betting exchanges have been licensed.  In Western Australia, of course, they have been prohibited.

The fifth thing is that there was an attempt by Mr Meadows in his oral submissions over quite a number of pages, from page 185 through to page 188, to point to events in the United Kingdom as demonstrating that the operation of Betfair’s United Kingdom betting exchange has been seen to cause damage to the integrity of racing within the United Kingdom.  That is not the experience or the perception of the relevant United Kingdom regulatory authorities.

If your Honours could perhaps turn to tab 40 of the book of documents which is within volume 3, at pages 1756 to 1757 there appears the most up-to-date statement of a kind repeated in many earlier statements by UK regulatory authorities.  This is the Horseracing Regulatory Authority’s director of security in a communication of 20 March 2007 saying in the last two paragraphs:

In summary, betting exchanges are here to stay; so it is not an option for us to ignore them.  Although they offer another avenue for potential corrupters, they have increased our ability to detect and successfully investigate malpractice.

Importantly, they provide a vital link in the chain to trace where money has been won; a chain that previously was missing and which made our investigations hard to conclude.

There is another statement – which I do not ask your Honours to turn to – in July 2003, tab 46 at page 2145, not of the same body but of relevant regulatory authorities.

Your Honours, the sixth thing is this, and here I am moving from betting exchanges to a more general observation about section 92. In the transcript at page 243 between lines 10925 and 10930 the Commonwealth Solicitor‑General said this:

Certainly, Cole v Whitfield has very much reduced the effect of section 92 and your Honours know how much it has reduced the work of this Court under that section since it was decided compared with the 140 cases, I think it was, that were overruled in Cole v Whitfield.

Your Honours, with respect, that is a slightly lawyer‑centric view of what has happened within Australia in the last 20 years or so.  Cole v Whitfield was decided in May 1988.  One month later Bath v Allston Holdings decided, applying the Cole v Whitfield formulation, that a State law was invalid.  Eighteen months later in Castlemaine Tooheys, again applying the Cole v Whitfield formulation, a State law was held to be invalid.

Then in 1994 a very significant piece of reform was implemented under the Competition Principles Agreement and your Honours ought be at least generally aware of the significance of that agreement between Australian governments which was concluded in February 1994.  I think we have provided your Honours with a copy of it.  But, relevantly, it introduced – if your Honours have it – in clause 3 a principle of competitive neutrality in the conduct of government businesses.  It required in clause 4 the undertaking of structural reform of public monopolies.  It provided in clause 6 for the implementation of an access regime to infrastructure facilities. 

Your Honours have glimpsed much of the work product of this agreement in legislative form but also in clause 5 your Honours see that it introduced a principle to guide legislation and it was said that:

(1)The guiding principle is that legislation (including Acts, enactments, Ordinances or regulations) should not restrict competition unless it can be demonstrated that:

(a)the benefits of the restriction to the community as a whole outweigh the costs; and

(b)the objectives of the legislation can only be achieved by restricting competition.  

Now, it is an intergovernmental agreement and it, of course, depends to a certain extent on political will for its implementation. But if one is asking the question in broad terms, why is it that so little work has been left for section 92 in the year since Cole v Whitfield, one cannot ignore the huge structural reforms that have been wrought within the Australian legislative landscape as a result of the implementation of this agreement.  In some areas, as I said, it has been more effective than in others.  The more entrenched a State‑based monopoly the more difficult it is to dislodge.

Your Honours, that brings me to the three conceptual or more historical matters that I wanted to touch upon with section 92. The first of them is this. Your Honour Justice Crennan asked me on at least two occasions why my argument was focusing so much on the supply side, paying so little attention to the demand side and, on reflection, I can only answer that it was due to a limited vision on my part as to the role of section 92.

On reflection, the guarantee of the absence of protectionism in section 92, in our submission, operates to the benefit of in‑State consumers such as Mr Erceg as much as it operates to the benefit of out‑of‑State producers such as Betfair Australia and, on reflection, one of the inadequacies of the individual rights view of section 92 was that it ignored that demand side entirely and focused improperly and incompletely simply on the so‑called rights of the out‑of‑State producers or, indeed, anyone engaging in interstate trade.

Certainly, when one looks at the vision of the United States Supreme Court before and after our federation, one can see that the view of the negative aspect of the commerce clause was not so limited.  In Minnesota v Barber, to which I took your Honours in the course of the submissions in‑chief, which is in our bundle of United States case law behind tab 3, your Honours will recall me perhaps labouring the point that this case was extremely well known to those involved in the convention debates.  It is said at page 326, about point 5 of the page, after the citation of authority that:

The people of Minnesota –

that is the importing State –

have as much right to protection against the enactments of that State, interfering with the freedom of commerce among the States, as have the people of other States.

At page 329, at the top of the page in the first line, in the course of rejecting an argument that had been put on behalf of the State in support of the law, it is said, after the comma that the argument:

ignores the right which the people of other States have in commerce between those States and the State of Minnesota.  And it ignores the right of the people of Minnesota to bring into that State, for purposes of sale, sound and healthy meat –

et cetera.  So it is looking very much at the demand side as well as the supply side.  A more modern case, but only in relative terms a slightly more modern case, is one that we have provided to your Honours in what we have called the plaintiff’s second bundle of US case law behind tab 14.  That is a case of Hood v Du Mond.  At page 539 there is a passage in the middle of the page which says this:

Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the Nation, that no home embargoes will withhold his exports, and no foreign state will by customs duties or regulations exclude them.

The supply side.  Moving on to the demand side:

Likewise, every consumer may look to the free competition from every producing area in the Nation to protect him from exploitation by any.  Such was the vision of the Founders; such has been the doctrine of this Court which has given us reality.

High rhetoric, your Honours, but good rhetoric in the very best sense of that term.

Your Honours, the second thing that we wanted to say – this is more historical than conceptual, but it is rather interesting and it is something that I only just realised.  If your Honours go back to Minnesota v Barber – you will recall that is the plaintiff’s bundle of case law behind tab 3 – at page 323, after some passages that I drew your Honours’ attention to on a previous occasion, the court says about a third of the way down the page, “The principles we have announced are fully supported by the decisions of this court”.  Then the court goes through a number of its earlier decisions. 

One of those mentioned at page 325 is perhaps of more significance than others.  It is the case of Guy v Baltimore where your Honours will see a short one‑paragraph summary of the subject matter and holding in that case.  Your Honours have been provided by us with a copy of Guy v Baltimore and there are two passages in it that I wanted to draw your Honours’ attention to.  This is a decision of the United States Supreme Court in 1879.  There is one passage at the bottom of page 439 where, having surveyed its earlier case law, the Supreme Court says this:

In view of these and other decisions of this court, it must be regarded as settled that no State can, consistently with the Federal Constitution, impose upon the products of other States, brought therein for sale or use, or upon citizens because engaged in the sale therein, or the transportation thereto, of the products of other States, more onerous public burdens or taxes than it imposes upon the like products of its own territory.

Why I am particularly reading that out is because it was read out by Sir Henry Parkes in 1890 and can really be seen to ‑ ‑ ‑

GUMMOW J:   Whereabouts?

MR GAGELER:   Your Honours have been provided with ‑ ‑ ‑

GUMMOW J:   The debates.

MR GAGELER:   ‑ ‑ ‑ the debates from the conference on Monday, 10 February 1890.  It was in Melbourne.  I am afraid it is an internet print.  At the bottom of page 10 of the print Sir Henry had read it carefully and told the entire multitude about the facts of the case.  Then he read out at page 11 the passage that I have just read to your Honours.  Then, if your Honours were to put that together with what then occurred the next year in – I hope your Honours have to hand the plaintiff’s bundle of historical material.  Behind tab 1 at page 3 you see the moving of the famous resolution by Sir Henry Parkes in 1891, “That in order to establish and secure an enduring foundation for the structure of a federal government” certain principles were to be agreed to and the second of those was, “That the trade and intercourse between the federated colonies whether by means of land carriage or coastal navigation shall be absolutely free.”

In speaking to that, and you see this at the bottom of the page we have numbered 5, two pages further on, just before the break in the paragraph that you see at the bottom of the page, Sir Henry said, “There is absolute freedom of trade throughout the extent of the American union” and so he goes on but he goes on in that passage there and across the page to really make it very clear that the absolute freedom of trade  that he was talking about embodying in the Australian Constitution expressed was the freedom of trade that he understood that the Americans had by virtue of the United States Supreme Court’s construction of the negative commerce clause.  It is really Professor La Nauze’s article which I reread yesterday that actually makes that point.  Professor La Nauze’s article is referred to extensively in Cole v Whitfield but this point does not seem to be brought out within the judgment in Cole v Whitfield. 

We have given your Honour’s Professor La Nauze’s article behind tab 15 of our bundle of historical material.  I do not want to go to the detail of it but that is really the point, the origin of Sir Henry’s conception of “absolute freedom of trade” as lying in his understanding of the American Union is an important theme of Professor La Nauze’s article.

GLEESON CJ:   How do you relate to the facts of this case, that paragraph from Guy v Baltimore?

MR GAGELER:   One really lies in the more onerous public burden being imposed on a product of another State than is imposed on the products of like by which we read it as meaning competing products of its own territory.

HAYNE J:   That is the killing ground, is it not, reading “like” as competing?

MR GAGELER:   Yes, of course.

HAYNE J:   In particular, do any of the materials you have thus far taken us to address the case where one of the States says the particular product is injurious to health or society and may not be imported on that ground?

MR GAGELER:   The Margarine Case that I took your Honour to, you might recall that.

HAYNE J:   That is dealt with, is it not, by saying, “Well, they said that but it’s not true”?

MR GAGELER:  

It is not true to the extent that they say it was another way of looking at it.  It might be in cases where there is adulteration of the product, where bad people get into the production process.

HAYNE J:   At the end, does your case have to make a similar kind of point in answer to Western Australia’s case here?

MR GAGELER:   That it is not true?

HAYNE J:   Not true at least to the extent that is the way you dealt with the Margarine Case.

MR GAGELER:   The answer is, I can win that way but it is not the only way I can win and I will deal with that a little more fully later.  But, no, your Honour, I do not have to nail my colours so high up the mast, I think.

Can I go back to your Honour the Chief Justice’s question relating this case to the passage in Guy v Baltimore at page 439.  Can I add to that passage what appears at page 443 which spells out the same thought a little more.  There are a couple of statements, but let me read both of them.  At the top of the page it is said:

But it cannot –

this is a State agency –

employ the property it thus holds for public use so as to hinder, obstruct, or burden inter-state commerce in the interest of commerce wholly internal to that State.  The fees which it exacts to that end, although denominated wharfage dues, cannot be regarded, in the sense of our former decisions, as compensation merely for the use of the city’s property, but as a mere expedient or device to accomplish, by indirection, what the State could not accomplish by a direct tax, viz., build up its domestic commerce by means of unequal and oppressive burdens upon the industry and business of other States.

Your Honours, that ties in with the answer that we have given fairly extensively in our written submissions in answer to the Court’s first question that was communicated by the Registrar, and that is ‑ ‑ ‑

GUMMOW J:   So where do we note this then in your document?

MR GAGELER:   If your Honours have what we have described as the plaintiffs’ supplementary submissions, and in answer to question 1 your Honours will see that we have sought to say that when you put section 92 together with section 90 you can see that:

the purpose of s 92 can be expressed as being to complement s 90 by preventing the fragmentation of the single Australian market through State- based non-tariff measures designed or operating to confer a competitive advantage on an in-State producer or a competitive disadvantage on an out-of-State producer.

At paragraph 5 we have said that you can see that understanding of section 92 in a judgment of Justice Barton and in the judgment of Justice Higgins in the early days of this Court and in some decisions of the United States Supreme Court. Your Honours could add this early decision of the US Supreme Court, well-known to Sir Henry Parkes, to the list of cases that we have given in paragraph 5.

GLEESON CJ:   Mr Gageler, that reference on page 443 of Guy v Baltimore to doing something “so as to hinder”, et cetera, “in the interest of” is a reference to purpose not effect?

MR GAGELER:   Yes, and the way in which the distinction between – I am sorry, your Honour is right.

GLEESON CJ:   Now, what I wanted to ask you was this.  It concerns mixed purposes.

MR GAGELER:   Yes.

GLEESON CJ:   There are some areas of the law, dealings by fiduciaries, for example, specifically company directors, where in the case of mixed purposes one of them, sometimes called an improper purpose, may be a vitiating purpose.

MR GAGELER:   Yes.

GLEESON CJ:   That is, whatever the other purposes may be, the presence of this one vitiates the decision.

MR GAGELER:   Yes.

GLEESON CJ:   In the area with which we are concerned, if there were two purposes, one of them a purpose of the kind described on page 443 of Guy v Baltimore and the other what I will call for convenience a legitimate purpose, what is the consequence?  Are you driven back to the kind of factual decision that Justice Hayne referred to a moment ago or is there a concept of vitiating purpose that operates?

MR GAGELER:   Yes.  In our submission – and we have put this quite highly in our written submissions and we maintain this approach – that when one finds a true object or purpose as being ‑ ‑ ‑

GUMMOW J:   A true?  What is an untrue one?

MR GAGELER:   All right.  I do not need the word “true,” you are right, your Honour.  If you find an object or purpose which is a vitiating purpose, then it is sufficient to characterise the law as protectionist.  The law fails by reason of that object or purpose alone.

GLEESON CJ:   A problem I have with that is this.  A lot of political activity is the consequence of a happy conjunction of principle and self‑interest and the idea of a vitiating purpose in relation to political activity is not quite so easy to accept as the idea of a vitiating purpose when you are dealing with the fiduciary, for example.

MR GAGELER:   Yes.  Your Honour, can I perhaps expand my answer in a way that may assist.  Purpose only becomes relevant where effect is shown.  So we are concerned with a law which in its factual operation does impose an anti-competitive burden on an out‑of‑state producer.  That is the starting point for this inquiry.  So you find a law that does that in fact.  If you find then that the purpose of that law is to achieve that very factual result, in our submission, that is the end of the inquiry.  If you find that a purpose of the law is to achieve that factual result, that is the end of the inquiry. 

If you find that a purpose of the law is not to achieve that factual result but that there are one or more other non-anticompetitive or at least competitively neutral results that are sought to be achieved by the law, then you get into a slightly different factual inquiry.  The question then becomes whether the attempt to achieve those other results sufficiently explains and justifies the differential burden that is being placed on the out‑of‑State competitor.  But the starting point for the inquiry is always that the law in its operation is protecting a local industry, your Honour.

In support of the approach, that is, once you find that that is what the law is actually trying to do, that is enough.  Can we draw your Honours’ attention to what Justice Cardozo said in Baldwin v Seelig – it is also in that supplementary book of materials at tab 13, a decision in 1935 – where his Honour at page 522, speaking for the Court – this is the origin of that aphorism that the States are required by the commerce clause to sink or swim together.  That is at page 523.  At page 522, towards at the top of page after the reference to Article 1 clause 3:

It is the established doctrine of this court that a state may not, in any form or under any guise, directly burden the prosecution of interstate business . . . Nice distinctions have been made at times between direct and indirect burdens.  They are irrelevant when the avowed purpose of the obstruction, as well as its necessary tendency, is to suppress or mitigate the consequences of competition between the states.

In the present case, again coming back to your Honour’s question, in our submission, what one finds and one finds it most clearly in relation to the basic prohibition in section 24(1aa) is a differential burden, indeed an absolute burden, in the form of a prohibition being placed upon the marketing of out‑of‑State products to the benefit of competing in‑State products in those circumstances where one finds that a purpose – and we are talking about a real and substantial purpose – I am sorry if am falling into the same trap as I did before, your Honour Justice Gummow – of the law is to achieve that very result, that is, to damage the out‑of‑State producer and to commercially benefit the in‑State producer, then that is enough for the law to be seen to be protectionist. 

In any event, in this case – and it is a point to which I will come in just a moment – when one analyses the competitively neutral justifications that are sought to be advanced for this differential burden, those justifications simply do not stack up.  They do not, in the language of both judgment in Castlemaine Tooheys, provide an acceptable explanation or justification for the differential treatment that one finds.  I will come to that in just a moment.

The other passage in Guy v Baltimore at page 443 is of the wrap–up paragraph towards the end where it is said:

In the exercise of its police powers, a State may exclude from its territory, or prohibit the sale therein of any articles which, in its judgment, fairly exercised, are prejudicial to the health or which would endanger the lives or property of its people.  But if the State, under the guise of exerting its police powers, should make such exclusion or prohibition applicable solely to articles, of that kind, that may be produced or manufacture in other States, the courts would find no difficulty in holding such legislation to be in conflict with the Constitution of the United States.

GLEESON CJ:   Those two alternatives posed in that paragraph do not exhaust the possible universe.

MR GAGELER:   Of course not.

GLEESON CJ:   They do not deal with the problem that was concerning me in the other case where you have both.

MR GAGELER:   No, your Honour, they do not.  I think I am unable to point to a case in Australia or in the United States where it has been quite as factually stark on the material before the court that there was, in addition to the justifications thrown up by the State parties seeking to justify the law, a real substantial purpose which was not being articulated before the court.  One can infer from the cases where the Court has said, “No, we reject that as being the explanation of the law” that they were accepting there as being a true purpose of another kind, but we are not aware of any case where the other purpose has been apparent in the material before the court from the beginning, your Honours.

GUMMOW J:   At the bottom of page 521 of Baldwin, in the last paragraph, “both” has the idea of barriers to entry really and as to reasonable regulation it was put more strongly in terms of absolute necessity.

MR GAGELER:   Yes, that brings me to the other point, your Honours.  This is really the third of the conceptual things.  It is very useful to recognise that passage in Baldwin to which your Honour Justice Gummow has just drawn attention as really that the negative aspect of the commerce clause is being concerned with barriers to entry, whether they be tariff barriers or non‑tariff barriers, there, section 92, at least as it applies to the States, being more concerned with non‑tariff barriers because section 90 removes tariffs entirely. But the point to which I am now coming is that it is not just barriers to entry of State products but in some cases barriers to the exit of State products that can be used for an anti‑competitive purpose and that is really the subject matter of the decision in Hood.

I have already taken your Honours to a snippet of the Supreme Court of the United States decision in Hood.  Can I just return to it briefly.  It is in that supplementary book of materials behind tab 14 and there are two short passages I just wanted to refer your Honours to.  If you go to page 535, after the reference to Baldwin v Seelig, which are described as:

an explicit, impressive, recent and unanimous condemnation by this Court of economic restraints on interstate commerce for local economic advantage, but it does not stand alone.  This Court consistently has rebuffed attempts of states to advance their own commercial interests by curtailing the movement of articles of commerce, either into or out of the state, while generally supporting their right to impose even burdensome regulations in the interest of local health and safety.  As most states serve their own interests best by sending their produce to market, the cases in which this Court has been obliged to deal with prohibitions or limitations by states upon exports of articles of commerce are not numerous.

But a few of them are mentioned, and one that is mentioned is across the page ‑ ‑ ‑

GLEESON CJ:   Just before you go from that page, two sentences on:

when a state recognizes an article to be a subject of commerce, it cannot prohibit it –

et cetera, that concept of recognising an article to be a subject of commerce, again I guess it depends of the level of abstraction at which you describe the article, is the article betting on racehorses or is the article this particular kind of betting?  But Western Australia has not, at the lower level of abstraction, recognised this as an article which is a subject of commerce.

MR GAGELER:   I will not quibble with your Honour.  I will say something factually in just a moment, but your Honour is right.  It does to some extent turn on the level of abstraction if one states it in that way.  Another way of putting it is that it turns on the reality of the market place and whether the articles are truly in commerce and competing.

GLEESON CJ:   Yes, but I think the example was given on an earlier occasion, one State legalised marijuana and the other States did not recognise this as being an article of commerce, section 92 would have no application.

MR GAGELER:   That is right. Your Honour asked me, though, I think a variation of that question. Your Honour’s question to me I think was to the effect if a State sought to prohibit the importation of marijuana for the purpose of protecting the local tobacco industry and my answer to that question was that that would be a protectionist law brought down by section 92 and, really, that, I suppose, highlights what we say is the inability to adopt any particularly fine distinction in circumstances where one is necessarily looking at the substantive operation of a law.

Getting back to my slight qualification to accepting your Honours statement that Western Australia has not recognised the betting exchange product as an article of commerce, there was a period of about a year, your Honour, in which Betfair Australia and, indeed, Betfair UK lawfully marketed its product in Western Australia.  Your Honour will recall that was pursuant to section 27A of the Betting Control Act.  It was perfectly lawful because Betfair was licensed in Tasmania to market in Western Australia and this legislation of which we complain brought that status quo to an end.

HAYNE J:   Other than the Margarine Case, is there another case where the products in issue have not been identical or substantially identical?

MR GAGELER:   It depends what your Honour means by “substantially identical”.   There was, of course, the Vacuum Oil Case where you had two different sorts of oil which on one view were competitive and on another view may not have been, of course, decided under several different views of section 92. But I think beyond that, I have to tell your Honour the answer is no, in our survey of the cases. I am looking to Mr Young to see if he has got a broader view, but I do not think I have seen that in the cases. I think the answer is no.

HAYNE J:   Thus we are concerned with legislation which in one sense is definitive of the market in that it seeks to take one of the products outside it, does it, or is that too large a proposition perhaps?

MR GAGELER:   Well, no, it seeks to be definitive of a State market which cannot exist, in our submission, consistently with sections 90 and 92 of the Constitution, but in a way I can accept what your Honour is saying, that is really to state that which, in our respectful submission, simply cannot occur consistently with the constitutional scheme.

Your Honours, I have taken you to Hood at page 536 at about point 5.  There is a useful discussion of another case.  I did not want to read that.  I simply wanted to refer your Honours to what was said in Barley Marketing Board v Norman 171 CLR 182 at page 203. The line of cases to which I have just drawn attention, that is restrictions on exports in the United States, are mentioned. They are mentioned with some reservation. The Court notes them, the Court is not entirely sure that every aspect of every case fits with the Cole v Whitfield formulation, but the Court – and this is the entirety of the Court at page 204 having expressed reservations - says this, the first full paragraph on page 204:

At the same time it could scarcely be denied that a prohibition or restriction upon the export of a commodity from a State with a view to conferring an advantage or benefit on producers within the State over out-of-State producers would amount to discrimination in a protectionist sense.

We draw attention to that because at the end of the day that is the complaint that we make about the operation of section 27D in the present case.

GUMMOW J:   Just explain that, Mr Gageler.

MR GAGELER:   Section 27D in the present case is in substance in its intended practical operation a prohibition on an out‑of‑State wagering service operator being able to use an input product into its wagering services, being racing products of Western Australian racing operators.  It does that to the commercial competitive disadvantage of Betfair Australia and to the commercial advantage of in‑State wagering operators, being RWWA and Western Australian bookmakers.  That is the basic complaint that we make and have always made about section 27D.

Your Honours, they are the three conceptual or historical things we needed to say about section 92. That brings me to our response to the arguments put by Western Australia against the application of section 92 to the two Western Australian provisions, section 24(1aa) and section 27D, that is, arguments put by Western Australia to the effect that those sections, although they do have an effect on Betfair Australia’s trade, can be explained and justified by reference to legitimate or non-protectionist purposes being pursued by the State of Western Australia.

In relation to both sections, Western Australia proffers the integrity argument and, in addition, in relation to section 27D, Western Australia proffers the free‑ride argument, that is, a wagering operator needs to pay for the input product into the wagering service product that it provides to its customers and the input product is Western Australia races. 

Can I deal with the integrity argument first.  The integrity argument is really quite usefully put by Mr Meadows in the transcript at page 140, beginning at line 6275 and continuing on to the next page.  Mr Meadows said at line 6275 or thereabouts that:

the mischief that this legislation was directed at was identified by the Minister in his second reading speech.

He went on to quote the second reading speech in part on the next page, page 141.  What you get out of that identification of mischief or purpose  object of legislation as there identified is it is the threat to the integrity of racing in Western Australia that arises from a person, or perhaps an associate and a person, who has a capacity or opportunity to affect the performance of a runner in a race being able to profit from laying a bet on that runner.  That is essentially the integrity argument as the administrator was articulating it. 

So the threat is that a person in that category, that is, a person who is or knows someone with the capacity or opportunity to affect the performance of a runner, will be able to profit from laying a bet on the runner which creates an incentive for the person in that category actually to affect the performance of that runner in a race.  It is easier to stop someone from winning than it is to make someone win.

Your Honours, there is no doubt at all that it is legitimate in the sense of being competitively neutral and entirely proper and appropriate at any level for the Parliament of a State to be concerned with safeguarding the integrity of racing events that occur within that State.  That is, if you like, the legitimate legislative nut to be cracked.

The legislative sledgehammer that is section 24(1aa) says nothing about that relevant category of persons.  It does nothing about the ability of that category of person or any other person to lay an outcome with RWWA or with a Western Australian bookmaker.  What it does is to say to every person who happens to be in Western Australia you cannot through the use of a betting exchange place a back bet or a lay bet on any race or any sporting event anywhere in the world.  That is what section 24(1aa) is doing in terms.

That back bet or lay bet may well be on a horse race in Melbourne run by Racing Victoria Limited or a tennis match in Sydney run by Tennis Australia or a cricket match in Adelaide run by Cricket Australia, each of which, as your Honours see from the material before the Court, has a commercial agreement with Betfair Australia - perfectly happy with that; gets a satisfactory commercial return and is given access to Betfair’s monitoring system to satisfy its integrity concerns and obligations.

The tool, in our respectful submission, that is section 24(1aa) is so ill suited for the stated legislative purpose that one would have to comfortably conclude that it was designed for another purpose, that is, even absent, your Honour the Chief Justice, the other purpose that sticks out from the material not referred to by the Minister in the second reading speech and is on the public record and is plain for all to see – even absent that material the way in which the legislature of Western Australia has purported to go about implementing the purpose identified by the Minister in the second reading speech – that is safeguarding the integrity of racing in Western Australia from the risk that arises because of a person, or an associate of a person, who has the capacity and opportunity to affect the running of a race in Western Australia from being able to lay a bet on that runner is so disproportionate to the object to be achieved that it does not explain, certainly does not justify what has been done.

GLEESON CJ:   Is that argument you have just been putting to be understood as a proposition of fact directed towards persuading us that integrity is not the substantial purpose of this?

MR GAGELER:   Yes.

GLEESON CJ:   Or is it an argument along the lines of what some European lawyers might call strict proportionality, that is to say that as a matter of legal necessity section 92 requires that there be such a relationship between the harm feared and the remedy applied, that can be described as a proportionate relationship.

MR GAGELER:   Yes. We put it at both levels, your Honour. That is, we can win at both levels. What section 92 requires, stated at the broadest level, is the application of proportionate means in support of legitimate ends. We can point to the disproportionality, if that is a word, of the means as indicative of the ends not being truly those that have been articulated. We have certainly put the argument in that way and against the background of the concerns about the protection of racing operators’ revenues. That is a very easy submission for us to put. But we also put it in terms of if one were simply concerned with a legitimate object, then the pursuit of a legitimate object by disproportionate means, in the European sense, is to infringe section 92. We have articulated that fairly well in our submissions in reply, your Honour. So that is section 24(1aa).

In relation to section 27D, again just focusing for a moment on the integrity argument, the integrity argument is the same integrity argument that I articulated, that the Minister set out in his speech and that Mr Meadows identified at pages 141 to 142 of the transcript.  Again, if that is the legislative nut, the sledgehammer, that is section 27D, in its intended practical operation totally prevents a betting exchange from having access to the input product but allows it to accept either back bets or lay bets on any race in Western Australia not from that relevant category of persons, but from any person anywhere in the world, that is, from any customer anywhere in the world who may wish to put a bet on a West Australian race with Betfair. 

It says nothing about the relevant category of persons, that is, those who are or know someone who is a person with the ability to affect a race in Western Australia and it does nothing about the ability of that category of persons, or any other person, to lay a bet on a race in Western Australia with RWWA or a Western Australian bookmaker.

Again, leaving aside the purpose, a protection, in our submission, readily apparent from the other public materials, that tool of section 27D is so inappropriate to its stated purpose as to suggest that it is not designed for that purpose – one way in which we put it – or separately and in any event, it is not proportionate to the purpose.  Even if it explained the law, it does not justify the law using those two terms which we have drawn out from the two judgments of the Court in Castlemaine Tooheys. 

Your Honours, the other argument which has been articulated really only in support of section 27D is the free‑rider argument.  I am using that terminology because it has some economic meaning and it is the terminology that Western Australia has sought to use in its supplementary submissions in answer to the second, I think, of the Court’s questions as to the relevant market in the present case.  The argument really comes down to this.  It is said that Western Australia ought be able to ensure that a wagering operator, wherever that wagering operator happens to be, pays a commercial price for the use of the Western Australian wagering product. The running of Western Australian races is an input into the wagering product offered by wagering service providers.

Our answer to that is this, and we have said it before but we have said it again fairly clearly in our submissions, our supplementary submissions, at paragraphs 9 to 12.  There is not the slightest difficulty in Western Australia ensuring that the organisers of Western Australian races and participants in Western Australian races obtain a fee, obtain reward, for the running of those races from those wagering operators who use the races as inputs into the wagering product, not the slightest difficulty with that.

What is required by section 92, in our submission, is that be done by competitively neutral means, that is, it cannot be done in a way that shuts out an out-of-State operator and it cannot be done in a way that gives an in‑State operator, in this case RWWA, a commercial veto over the use by out-of-State wagering operators of that State input. That runs smack into the problem of the kind that was referred to in Hood and acknowledged by the Court in Norman.

Your Honours, there is just one other slight topic that I wanted to deal with before moving on to some almost irrelevant aspects of the construction of the Western Australian legislation and that is that in the Western Australian written submissions at paragraph 60 – these are the submissions in-chief – and in the transcript at page 198 the argument was put that section 24(1aa), if it is invalid in its fullest form, can be read down by applying section 7 of the Western Australian Interpretation Act, and I think the language used in the written submissions at least is “so as not to apply to betting in the course of interstate trade and commerce” still leaving that section to apply to betting in intrastate trade or international trade and commerce.

The cases cited again in the written submissions in support of that approach to reading down are cases which, on a proper analysis or, indeed, on any analysis, relied upon a criterion of liability approach to section 92. In our respectful submission, if the Court concludes that the object or purpose of section 24(1aa) is protectionist, that is, it is not adequately explained by a non-protectionist purpose, then reading down in that way is not a permissible process in the sense that it is not available for the Court to engage in as a process of construction.

The Court cannot determine what the law would look like without that protectionist purpose on the part of the legislature.  It would be struck down in its entirety.  Your Honours, that brings me really to a couple of very minor points about the ‑ ‑ ‑

GUMMOW J:   You are not going to say anything about paragraph 18 of your supplementary written submissions? 

MR GAGELER:   Not more than what is already said there, your Honour.  I know it is cramped up towards the bottom of the page to get it in five pages, but I had said in that paragraph what I wanted to say.  I am happy enough to answer any question on any aspect of it, your Honour.

GUMMOW J:   I think it is said against you that that approach in paragraph 18 is just inconsistent with the authorities.

MR GAGELER:   We sought to demonstrate in paragraph 18 itself that that can be seen to be the way in which Cole v Whitfield itself was decided.  Your Honour, the notion of a law being appropriate and adapted to a purpose and the notion of a law that imposes a differential burden on an out‑of‑State operator to the competitive advantage of an in‑State operator needing to be explained and justified by reference to a competitively neutral purpose obviously is one that involves an evaluation of degree that would be related, to some extent, to the extent of the burden that is imposed. 

Now, in circumstances where you have a total prohibition on one activity, the out‑of‑State activity, and regulation of the in‑State activity, purportedly both directed to the same end, that is, to the maintenance of integrity or to ensuring that an in‑State producer of an input product is paid

a fair price, then it is more difficult to justify the total prohibition, in our submission. 

The final couple of things, your Honours, and I should say this is not the main game, that is, our primary submission is that we win whether or not RWWA and Western Australia Bookmakers are able to set up a betting exchange in Western Australia, that is, we win because of the competitive advantage that is given to the wagering products that they currently provide in competition with Betfair.  There are a couple of a submissions made about their inability to set up a betting exchange to which we should very briefly respond.

The first relates to section 4AA of the Betting Control Act.  It was put in relation to section 4AA, the carve‑out at the end of the definition of “betting exchange”, that is, the non-inclusion of a facility that enables persons to place bets only with a bookmaker, can be explained by the Best Bookies platform.  That certainly would explain the carve‑out from paragraph (a).  It does not explain the carve‑out from paragraph (b), and it is paragraph (b) that describes what Betfair does and it is paragraph (b) where the definition bites in the present case. 

Next, in relation to RWWA, it was said that the power of RWWA under section 50(1)(b)(iii) and section 54(2) to engage in fixed odds, odds wagering, ought be interpreted as confining RWWA to the traditional bookmaking role of accepting back bets and not accepting lay bets.  The problem with that definition is that it overlooks the definition of “fixed odds wager” in section 3 of the Act, which is:

a wager where a fixed amount that will be won if the wager is successful is determined before the wager is accepted -

That covers comfortably a lay bet as much as it covers a back bet.  Finally, your Honours – this is getting a bit tedious, but a submission was put that the immunity in section 56(1)(a) in respect of a person wagering with Western Australia not committing an offence under any other law ought not be read as sufficiently wide to exclude the operation of section 24(1aa)

That submission overlooks the symmetry between section 55(2) and section 56(1)(a).  The former gives authority to RWWA to receive, the latter gives authority to the customer to make any fixed odds wagers with RWWA and both are expressed to be despite any other law.  Your Honours, that is, I think, as much as I wanted to say in reply.  Your Honour gave me an afternoon and I took it, I am afraid.

GLEESON CJ:   Thank you, Mr Gageler.  We will reserve our decision in this matter and we will adjourn until 10.15 on Wednesday, 12 December.

AT 3.40 PM THE MATTER WAS ADJOURNED