Betfair Pty Limited & Anor v State of WA

[2007] HCATrans 634

[2007] HCATrans 634

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 WEDNESDAY, 7 NOVEMBER 2007, AT 10.17 AM

Copyright in the High Court of Australia

MR S.J. GAGELER, SC:   If the Court pleases, I appear with MS K.C. MORGAN for the plaintiffs.  (instructed by Gilbert & Tobin)

MR R.J. MEADOWS, QC, (Solicitor‑General for the State of Western Australia):   May it please the Court, I appear with my learned friends, MR R.M. MITCHELL and MS K.H. GLANCY for the defendant.  (instructed by State Solicitor’s Office – Perth)

MR D.M.J. BENNETT, QC, (Solicitor-General of the Commonwealth of Australia):   If your Honours please, I appear with my learned friend MR G.A. HILL for the Attorney-General of the Commonwealth intervening.  It is proposed that I should address your Honours after the other State interveners.  (instructed by Australian Government Solicitor)

MR M.G. SEXTON, SC, (Solicitor-General for the State of New South Wales):   If the Court pleases, I appear with my learned friend MR J.K. KIRK for the Attorney-General for New South Wales who intervenes in the proceedings.  (instructed by Crown Solicitor for New South Wales)

MR C.J. KOURAKIS, QC, (Solicitor-General for the State of South Australia):   If the Court pleases, I appear with my learned friends, MR G.F. COX and MR S.A. McDONALD, for the Attorney-General of the State of South Australia intervening.  (instructed by Crown Solicitor for South Australia)

MS P.M. TATE, SC, (Solicitor-General for the State of Victoria):   May it please the Court,  I appear with my learned friends, MR S.G.E. McLEISH and MR S.P. DONAGHUE, for the Attorney‑General of the State of Victoria intervening in support of the defendant.  (instructed by Victorian Government Solicitor)

MR W. SOFRONOFF, QC, (Solicitor-General for the State of Queensland):   May it please the Court, I appear with my learned friend, MR A.M. POMERENKE for the Attorney-General of the State of Queensland, intervening.  (instructed by Crown Solicitor for Queensland)

MR N.J. YOUNG, QC:   May it please the Court, I appear with MR S.D. GATES for the State of Tasmania intervening in support of the plaintiff.  (instructed by Solicitor‑General of Tasmania)

GLEESON CJ:   Thank you.  Mr Young, I suppose you will follow Mr Gageler.

MR YOUNG:   Yes, your Honour.

GLEESON CJ:   Yes, Mr Gageler.

MR GAGELER:   Your Honours, there has been an agreed division of time.  The agreement is that Mr Young and I between us will take, if necessary, until noon tomorrow , and the rest of the time will be divided as our learned friends see fit.  I do not propose to spend very much time repeating the detail of the arguments that your Honours have seen set out, I hope with some clarity, in our written submissions.

May I take a moment to outline the way in which I do propose to proceed.  I propose to say something at the outset and at some length by way of explanation and comparison about the fixed odds betting products that are offered online by the statutory entity known as Racing and Wagering Western Australia, RWWA, by Western Australian bookmakers who trade online as Best Bookies, and by Betfair.

KIRBY J:   Why do they not have an acronym like Westbet or something to make it easier for us?

MR GAGELER:   Or RWWA, TABozbet or Sportsbet.  Your Honour will see all this in a moment, but they have got piles of acronyms.  In doing that I want to focus in particular on the increased or enhanced ability that customers choosing the Betfair product have to lay an outcome, that is, a phenomenon that is rather simplistically and emotively described in the submissions of some of the polities ranged against us as a phenomenon of betting to lose.

I then propose to say something at less length by way of explanation and comparison about the regularity regimes which govern the provision of those betting products by RWWA under its own Western Australian Act, by Western Australian bookmakers under the Betting Control Act of Western Australia, and under a variety of other statutory instruments, and by Betfair under the Tasmanian legislation pursuant to which it is licensed.

There I want to focus principally, but not exclusively, on the measures that exist to safeguard the integrity of the racing and sporting events upon which wagering is offered.

I then propose to move to the legal and factual context within which the 2000 amendments to the Betting Control Act (WA) were enacted. That context is something that we will submit bears upon the identification of the purpose or purposes or object or objects of those amendments which in turn has a bearing on the analysis under section 92. It is at that stage that I propose to get to the law and at that stage that I propose to say something generally about the freedom of interstate trade and commerce guaranteed by section 92 in the light of Cole v Whitfield, something about the origins of the Cole v Whitfield test about the method of identification of legislative objects and about the degree of fit required between a legitimate object and the legislative means that are chosen to achieve that legitimate object. 

It is only then, your Honours, that I want to get to the two prohibitions in question.  They are the two prohibitions in the Betting Control Act introduced by the 2007 amendments and I want to address specifically and once and for all really how we say each of them is invalid under section 92.  The two prohibitions I am talking about are of course the prohibition in section 24(1aa) under penalty of a $10,000 fine of any person in Western Australia betting on any event through the use of any betting exchange as defined in section 4AA of that Act.  To pick up an expression in the defendant’s submissions, that is the Western Australian submissions ‑ ‑ ‑

GUMMOW J:   You said “any person in Western Australia”.  That is not what the section says.

MR GAGELER:   I will come to the construction point in due course, your Honour.  You have to read it with the Western Australian Criminal Code.  The definition, picking up the language of the Western Australian submissions at paragraph 28, the definition of betting exchange, “It so happens” applies to Betfair but to no other wagering service provider in Australia.

HAYNE J:   Is that because of the last words of the definition in section 4AA(b), namely the matching of bets?

MR GAGELER:   Yes.

HAYNE J:   It is the matching of bets that marks off relevantly a betting exchange from a bookmaker, is it?

MR GAGELER:   Your Honour, I will show by demonstration that the distinction is an extremely fine one, but that is the point of the definition.

HAYNE J:   That may be but, so far as the legislation is concerned, it is the matching of bets that is the distinctive criterion that is in play in this case?

MR GAGELER:   That is right, the matching of the acceptance of one bet with the acceptance of another bet, yes.

HAYNE J:   Absent that, what Betfair would do would amount to acting as a bookmaker, would it not?

MR GAGELER: Exactly, yes. I will come to the distinction that I need to draw out. As I said, it is really a rather fine one on analysis. So that is the first of the two prohibitions. The second prohibition is the prohibition by section 27D(1) of the Betting Control Act effectively of any wagering operator using a Western Australian race field, which is simply a list of the runners in a Western Australian race, whether they be greyhounds or horses for commercial purposes, without Western Australian Executive approval.  I will come to that in due course.

Then finally, your Honours, I need to say something about the entirely separate ground of challenge that arises from the conflict which, it is common ground between the parties, exists between the prohibition in section 27D of the Western Australian Act and the provisions of the Gaming Control Act (Tas), in particular section 76A and section 76VA, which authorise Betfair to conduct its operations in and from Tasmania.

GUMMOW J:   That is 76A?

MR GAGELER:   Section 76A and 76VA.  They are essentially the same terms.  Section 76VA is more explicitly focused on a betting exchange operator.  I cannot resist saying, your Honours, that my overall aim is to be efficient. 

KIRBY J:   Is to be efficient but not brief?

MR GAGELER:   That may be so, your Honour.

KIRBY J:   I do not think I have ever seen in my 12 years here longer written submissions.

MR GAGELER:   I do not know whether to take that as a compliment or not, your Honour.

KIRBY J:   Take it as you will.  I mean, the danger of very, very long submissions is that the detail swamps the appreciation of the structure and essence of the point which the whole point of oral advocacy ought to be to try and refine and press upon our minds in the brief time that is available.

MR GAGELER:   Yes, I know all that and that is the way I hope to use the oral advocacy, your Honour.

KIRBY J:   It is just a response to your threat that you are going to be very long in some of your oral submissions.

MR GAGELER:   The long part is the bit that is just about to come, your Honour, but your Honour might find it interesting.  What I am about to do is deal with the online fixed odds betting products that are offered by RWWA trading, if you like, an acronym, as Ozbet or Sportsbet.

GUMMOW J:   This is all very interesting, Mr Gageler, but why do we have to know this, as a step to what legal proposition?

MR GAGELER:   As a step to demonstrating the degree of competition that exists between these products, as a step to demonstrating the insecurity, if I can use that general expression, of the notion that betting to lose is a phenomenon which is somehow intrinsic to a betting exchange’s operations but not intrinsic to betting online with these other products and as a step to providing the context within which these provisions of the 2007 amendments were enacted.

GUMMOW J:   Is this an anticipatory strike against a proposition that the protectionist arguments do not apply when what is being protected is apples and oranges?

MR GAGELER:   Absolutely, yes, and it is really necessary to deal with it upfront because when everything else is stripped away, the real point that is made against us is that with a betting exchange you can bet to lose and being able to bet to lose leads to some serious problems for the integrity of the sporting events that are involved.  I just want to show your Honours at the beginning that that is a concern which has no substance.

GLEESON CJ:   Presumably, to understand whether something is protectionist, you need to understand the market.

MR GAGELER:   You have to understand the market and you have to understand the nature of the products in the market, yes.  So that is what I am doing. 

If your Honours have to hand the special case – the special case is contained in the special casebook at page 8 – your Honours will see in paragraph 45 of the special case that RWWA, trading variously as TABozbet and Sportsbet, has established at various locations in Western Australia, amongst other things, a computer connected to the internet accessible to a person using a computer connected to the internet anywhere in Australia by entering – this is at page 166, your Honours – at or through which wagers may be made at fixed price odds with RWWA on, amongst other things, races conducted in Western Australia and elsewhere and sporting and other events in Western Australia and elsewhere including, amongst other things, AFL football. 

It is said that the compact disc being tab 29 contains a demonstration of the functionality of that website.  If your Honours then turn back to paragraph 37 and you will see:

At all material times Best Bookies’ Price Pty Ltd has operated a website on a computer located at the Cannington greyhound track in Western Australia.  That website is accessible to any person with a computer connected to the internet by entering the address or The website enables bets backing contingencies to be placed with any or all of the licensed bookmakers in Western Australia identified in paragraph 36 as having the URL and the SuperTAB, TAB Limited and UNiTAB totalisator pools.

If you go back to the previous paragraph, paragraph 36, you will see some 16 or so, I think, bookies who operate from that website, all Western Australian licensed bookies and so far as Betfair is concerned ‑ ‑ ‑

GLEESON CJ:   Is RWWA an agency of the Western Australian Government?

MR GAGELER:   Expressly not.

GLEESON CJ:   What is the Western Australian Government’s financial interest in it apart from from tax?

MR GAGELER:   It has a huge financial interest in it.  I will show your Honour that, but there is no direct financial contribution that is made to the Executive of Western Australia by RWWA.  There is a tax that is paid and there are distributions of profit or turnover – it is a matter of definition – that need to be made to various racing industry bodies within Western Australia, and also a component of the profit from sports betting is to be paid into a sports betting account.  The balance goes to the racing industry, but a component – it is 25 per cent of the net profit – goes into a sports betting account which is then available for distribution for sports in Western Australia.  But none of that directly involves the Western Australian Executive.

GLEESON CJ:   It is one of your arguments, as I understand it, that RWWA is one of the objects of what you say is protection.

MR GAGELER:   Yes, that is right.  It is a State statutory monopoly which exists as the sole wagering service provider in Western Australia save for licensed bookies and save for a few on course racing totalisators, yes.

CRENNAN J:   Does some component of the profits cover the costs of regulation of the industry in the State of Western Australia?

MR GAGELER:   The tax would go into consolidated revenue but I think, your Honour, that there is no direct connection between those things.  Your Honours, I was just coming to Betfair.  If you go to the special case at paragraph 18, page 146, it is noted that since 7 February 2006 Betfair Australia, which I am just going to call Betfair, has operated a betting exchange:

Betfair Australia has operated a betting exchange . . . 

(b)by means of computers connected to the internet accessible to any person using a computer connected to the internet by entering the address into a web browser.  

If you go to paragraph 20, it is noted that:

Since 28 August 2006 Betfair Australia has operated its betting exchange by means of computers connected to the internet in the manner described in paragraph 28 below. 

If you go to paragraph 28 – and I am not going to go through the technical detail – what you see in subparagraph (d) is that “If a customer selects a link for a market for an Australian Event” – the definition of which I will come back to – then information is sent to the customer’s web browser from a computer – I am looking at (ii) – that is located at Betfair’s Tasmanian premises with the address that is there noted.  The Tasmanian premises are in Glenorchy, a suburb of Hobart.  If you go back then to paragraph 24, it is said that:

Betfair Australia’s betting exchange enables registered customers to place wagers with Betfair Australia on Australian Events that are matched with opposing wagers placed by other registered customers with Betfair Australia. 

That is, Betfair is always the counter‑party but it will only accept a bet if there is another customer who is making an equal and opposite bet, in effect, and that the computer disc contains a demonstration of the functionality.  Then finally, paragraph 25:

The Australian Events on which registered customers may place wagers with Betfair Australia on its betting exchange include:

(a)races; and

(b)sporting and other events –

One has there again AFL football.  What the compact disc contains, your Honours, is a demonstration of the functionality of the three websites by reference to the placing in December 2006 of a bet, a back bet, on the West Coast Eagles to win the 2007 AFL Premiership.  It would not have been a particularly good bet, but it was a long time ago.  What I want to show your Honours in a moment extracts from that video some of the essential elements that are necessary from a comparison of the products.  So what I am about to show and tell comes entirely from what appears in the text of the special case, in the schedules to the special case – and I will need to take your Honours to some of the schedules – and from the demonstrations of functionality that one sees in the compact disc that forms part of the special case. 

Now, the difficulty, and for me I must say it is a fairly extreme difficulty, is that to explain and compare these products and, before going to the actual demonstration, I need to attempt to explain some basic betting concepts.  If I end up doing so in terms that are too obvious or too obscure, then I apologise in advance.  For some people these things are almost intuitive.  For other people they are almost impenetrable.  The three concepts that I need to explain and really which underlie a very large part of a case are these.  I need to explain “backing and laying”.  I need to explain “odds” and then I need to explain “margin” or “over‑round”.  That is the same thing. 

Now, your Honours, backing and laying are the subject matter of the special case in paragraphs 63, 75 and 76 and Schedule 9.  What I want to draw from those sources is this.  As a matter of definition “to bet” is to stake or hazard money on the outcome, however defined, of an event, however defined.  The outcome is necessarily contingent or uncertain in the sense that the particular outcome may or may not occur, that is, it is one of two or more possible outcomes of the one event.  The distinction that is traditionally drawn in legislation is between an event in which the outcome is determined entirely by chance and that is governed generally by gaming legislation and an event in which the outcome is influenced by factors other than chance and that is governed generally by wagering legislation. 

The bets with which we are concerned within the present case are within the second category, that is, the category of a wager.  Any bet on any outcome is necessarily either a bet that the outcome will occur, which is by definition a “back bet”, or a bet that the outcome will not occur, which is by definition a “lay bet”.  They are the definitions that your Honours will have seen in paragraph 63 of the special case.

What the compact disc contains, your Honours, is a demonstration of the functionality of the three websites by reference to the placing in December 2006 of a back bet on the West Coast Eagles to win the 2007 AFL Premiership.  It would not have been a particularly good bet, but it was a long time ago.  What I want to show your Honours in a moment are extracts from that video – some of the essential elements that are necessary from a comparison of the products.  What I am about to show and tell comes entirely from what appears in the text of the special case, in the schedules to the special case – and I will need to take your Honours to some of the schedules – and from the demonstrations of functionality that one sees in the compact disc that forms a part of the special case.

The difficulty – and for me I must say it is a fairly extreme difficulty – is that to explain and compare these products – and before going to the actual demonstration I need to attempt to explain some basic betting concepts.  If I end up doing so in terms that are too obvious or too obscure, then I apologise in advance.  For some people these things are almost intuitive but for other people they are almost impenetrable.  The three concepts that I need to explain, which really underlie a very large part of the case, are these.  I need to explain backing and laying; I need to explain odds and then I need to explain margin or over-round.  It is the same thing.

Backing and laying are the subject matter of the special case in paragraphs 63, 75 and 76 and Schedule 9.  What I want to draw from those sources is this.  As a matter of definition, to bet is to stake or hazard money on the outcome, however defined, of an event, however defined.  The outcome is necessarily contingent or uncertain in the sense that the particular outcome may or may not occur, that is it is one of two or more possible outcomes of the one event.

The distinction that is traditionally drawn in legislation is between an event in which the outcome is determined entirely by chance – and that is governed generally by gaming legislation – and an event in which the outcome is influenced by factors others than chance.  That is governed generally by wagering legislation.  The bets with which we are concerned within the present case are within the second category – that is the category of a wager.

Any bet on any outcome is necessarily either a bet that the outcome will occur, which is by definition a back bet, or a bet that the outcome will not occur, which is by definition a lay bet.  They are the definitions that your Honours will have seen in paragraph 63 of the special case.

KIRBY J:   To make this concrete to someone who does not know much about gambling, is gaming the use of, say, a poker machine with a random spin of wheels, and wagering is putting some money on a tennis match or the Melbourne Cup?

MR GAGELER:   Exactly, yes.  Your Honours, having defined “backing” and “laying”, it really follows as a matter of logic and it can be demonstrated as a matter of mathematics that for any bet on any event it is always the case that to back a particular outcome, that is to bet that that outcome will occur, is equivalent to laying each alternative outcome, that is betting that each alternative outcome will not occur; it simply follows.  It also follows that to lay a particular outcome, that is to bet that the particular outcome will not occur, is equivalent to backing that one of the alternative outcomes will occur.  Finally, and this is quite significant, it follows also as a matter of logic that to back each alternative outcome is equivalent to laying the particular outcome which is not backed.

To come to a concrete example, your Honours, that is fairly obvious if you define the event as the winning of a particular tennis match between two players – call them Federer and Agassi – to back Federer to win is to lay Agassi; to lay Federer is to back Agassi, and to back Agassi is to lay Federer.  But you can define an event in many ways.  You can define an event as the winning of a horserace in which the two possible outcomes are the favourite will win or some other runner in the field will win – a favourite against the field bet, which has been not an uncommon phenomenon. 

When you have an event with outcomes defined in that way, to back the favourite is to lay the field, to lay the favourite is to back the field, and to back the field is to lay the favourite.  That is for an event defined – and it is all a matter of definition – to have a binary outcome.  Exactly the same principle holds, however, as a matter of logic where you have two or more possible outcomes.  Here one goes to the winning of the AFL Premiership which has 16 teams and which is the subject of the video demonstration, but also the winning of race 2 at Ascot on 20 December 2006 in which there were seven horses running, which is the subject of the betting by the second plaintiff, Mr Erceg, that your Honours see described in the special case at paragraph 60.  I am not asking you to turn to that at the moment, but the same principle holds for a multi outcome event, whatever the event is, however defined and however the outcomes are defined.

So by reference to Mr Erceg’s betting where he bet on other horses with the intention of laying a particular horse, Homme, if you take the event or the market – and these terms are used interchangeably – which is defined as the winning of race 2 at Ascot on that particular day when there were seven horses, one of them was Homme, to back Homme was the equivalent to laying each of the other horses.  To lay Homme was the equivalent to backing each of the other horses, and to back each of the other horses was the equivalent of laying Homme. 

If you take the event which I am going to describe to your Honours in more detail in a moment, which is defined as the winning of the 2007 AFL Premiership where there are 16 teams, one of them is the West Coast Eagles, to back the West Coast Eagles is the equivalent of laying the other 15 teams.  To lay the West Coast Eagles is the equivalent of backing the other 15 teams, and to back each of the other 15 teams is the equivalent of laying the West Coast Eagles.

What I am trying to say is this.  A customer can always by backing the alternative outcomes achieve the result of laying a particular outcome.  It may not be profitable and it may not be practicable.  That is what one needs to focus on.  When I talk about profitability I am talking about whether or not the customer can be assured of a net return if the outcome that is in effect laid does not occur.  When I am talking about practicability I am talking about the ability in practice to be able to place the bets on all the other outcomes in appropriate amounts to ensure that profitability.

HAYNE J:   But there is a further consideration which is injected by the concept of matching, is there not?  In a multi-competitor event, typically a horserace or the AFL Premiership, if there is a requirement to match the bet you have to have somebody on the other side who is framing the bet in the opposite sense, that is, laying the field against.

MR GAGELER:   Yes, that is right.

HAYNE J:   And whilst, yes, it is right to say that “back” and “lay” are necessary correlatives the existence of somebody who is making the correlative is something that is absent in a bookie, is it not?

MR GAGELER:   No, no.

HAYNE J:   No?  The bookie is laying it but there is not the punter who is laying it?

MR GAGELER:   Sorry, your Honour, we may be slightly at cross‑purposes.  The punter with a bookie, as I will show you, can lay a horse.

HAYNE J:   Yes, yes.

MR GAGELER:   Can lay a team.

HAYNE J:   I understand that.

MR GAGELER:   A punter online betting with a bookie or betting with RWWA may take a few clicks to do it.  That is the only difference.  So from the customer’s perspective, it is pretty much the same as I will seek to demonstrate for your Honour.  But your Honour’s point about the precise matching of bets is correct, that is the difference.

GLEESON CJ:   But a bookmaker publishes the odds.

MR GAGELER:   So does – the bookmaker will publish the odds on offer, and as I will show your Honour, the Best Bookies website publishes a couple of odds, and if you do not like those odds you can invite the bookie to treat your own odds, so there is very, very little difference, your Honour, in that respect.

GLEESON CJ:   But how do you work out the odds?  How are the odds fixed with a matching bet?

MR GAGELER:   Well, your Honour, that is what I have to come to.  I have to show your Honours how a bookmaker fixes his odds, and that is something I really need to come to, but the point ‑ ‑ ‑

CRENNAN J:   I was just going to say, drawing attention to the matching, one being the obverse of the other and so on, if you have got a multi-horse race is not West Australia’s point or one of its points this in relation to integrity, that it is much easier to monitor the connections of a short priced favourite to win than it is to monitor a whole range of lay bets?  The connections associated ‑ ‑ ‑

MR GAGELER:   That is one of the things that is said.  I just want to show your Honours, and I will demonstrate this, it is just not right, it is just not the truth, and I want to demonstrate that from the material that is before the Court.  I appreciate this is a highly fact-specific case.

GLEESON CJ:   This is an issue of fact we have to decide?

MR GAGELER:   Yes, but this is a special case, and your Honours are armed with material ‑ ‑ ‑

HAYNE J:   We decide how easy it is to monitor the integrity of horseracing, is that what you are telling us?

MR GAGELER:   I really missed what your Honour said.

HAYNE J:   But we have to decide how easy it is to monitor the integrity of horseracing?

MR GAGELER:   Your Honours have to form a view as to that, just as the Supreme Court of the United States had to form a view in the 1890s about the evils of that oleaginous substance that we now know as margarine, but, yes.

KIRBY J:   I will bet they did not take three days at it.

MR GAGELER:   I suspect they took quite a long time, your Honour.

GLEESON CJ:   Are we sitting here doing the sort of thing that the founding fathers thought the interstate commission would do?

MR GAGELER:   Yes, that is what they thought the interstate commission would do to appoint, but it is also why they included section 92, and I would want to say something about what the founding fathers thought, because the founding fathers had quite an understanding of the jurisprudence of the Supreme Court of the United States in the 1890s where, yes, decisions of fact had to be made and which Cole v Whitfield says, one has to accept, still have to be made under section 92 of our Constitution.

Your Honours, I am diverting myself from the task at hand and that is I wanted to focus on the circumstances in which it will be profitable and practicable for a customer backing with a traditional bookmaker, whether it be a licensed bookmaker or RWWA which operates upon the principles of a licensed bookmaker, where it is profitable to lay a particular outcome by backing other outcomes really turns on two factors.  One is the odds and one is the margin or over‑round of the bookie.  Whether it is practicable to do so depends on the sophistication of the customer, the sophistication of the technology available to the customer, the sophistication of the bookie and the sophistication of the technology the bookie makes available to the customer.

So the first thing I need to deal with is odds and odds are dealt with in the special case at paragraphs 64 and 65 and feature to some extent in Schedule 7 of the special case.  What we draw from that material I will now state.

The odds for any bet is the price of the bet.  Technically, the price or odds is or are the ratio of the amount the customer stakes on a particular outcome to the amount the customer will receive from the wagering operator if the outcome occurs in the case of a back bet or if the outcome does not occur in the case of a lay bet.  That ratio can be expressed in fractional or decimal terms and the ratio itself, whether expressed in fractional or decimal terms, being the price, really reflects two components.  One is the probability of the particular outcome occurring, or not occurring as the case may be, and the other is the margin or gross profit of the wagering operator offering the bet so within the price built in two things, one is a component for probability, the other is a component of margin.

Now, I just have to say something about fractional odds and decimal odds because your Honours have probably heard much about fractional odds in the past.  What your Honours will see is that everything offered online is offered in decimal odds so when odds are expressed in fractional terms the convention is that they state the ratio of the amount of the net payout or customer’s profit, if the bet is successful, to the amount of the stake and I will illustrate this in a moment.  When odds are expressed in decimal terms the convention is that they state the ratio of the amount of the gross payout, that is the profit plus the return of the stake, to the amount of the stake, so decimal odds will always be a multiple of one.

To use the examples from Schedule 7 to the special case, if the odds or the price of a bet are set such that for a $1 stake the customer if successful is to get back the $1 stake plus $4, a total of $5, then those odds when expressed in fractional terms would be 4:1 but expressed in decimal terms a 5.  So it is not unusual to talk about a horse being priced at $5; that is what it means.  If odds are set so that for a $1 stake the customer if successful is to get back the $1 stake plus 25 cents, that makes a total of $1.25, then those odds expressed in fractional terms – I do not know why; this is just convention – ought be 1:4 but they are not, they are 4:1 on, but in decimal terms they are expressed as 1.25.  So you talk about the horse being priced at $1.25 in those circumstances.

If you leave aside the margin, that is, ignore the profit of the wagering operator for a moment, and focus just on the probability of the particular outcome occurring, then decimal odds of 5 – I will ignore fractional odds – reflect a perception that the outcome backed has a one chance in five or a 20 per cent probability of occurring or not occurring, as the case may be.  That is what is reflected in those odds.  If you take the decimal odds of 1.25 or $1.25, what they reflect is a perception that the outcome has an 80 per cent probability of occurring or not occurring, as the case may be.  So with decimal odds the probability is always the ratio of those odds to one, so 1:1.25 gives you 80 per cent; 1:5 gives you 20 per cent.

Where this leads us is this, that a customer with any degree of sophistication offered odds on a particular outcome will have the customer’s own perception of the probability of that outcome occurring and will form a judgment as to whether the odds are fair, to use the language in the special case, or as to whether the outcome is underpriced or overpriced, which is another way of saying the same thing.  If the customer’s judgment is that the odds are underpriced, then the customer may well choose to back.  If the customer forms a view that the odds are overpriced, then, given no other option, the customer would ordinarily, acting in self‑interest, not choose to back.  Given the option where, faced with underpriced odds, the customer may well choose to make a counter offer to the wagering service provider at a different price or at the given price if the option is available, lay rather than back. 

If I can follow that through with a numerical example and I have to do this to make sense of the wagering products.  If the odds being offered on Homme to win at Ascot are 1.25, then they reflect a market perception of Homme having an 80 per cent chance of winning that race.

GLEESON CJ:   Are you telling us a nice reason why somebody might lay a horse?

MR GAGELER:   I am, your Honour.  I am telling your Honours that it is all about value, it is all about buying – it is just like share trading.  In fact, it is just like futures trading.  I know regulators probably would not like to base too much with it, but it is really very, very little different from forming a perception of value and working out whether the price reflects the value.  If it is overpriced you might sell and if it is underpriced you might buy.  It is the same thing here.  You back or lay depending on the price.  That is the point I am seeking to make.

If you find that Homme to win at Ascot is being offered odds at 1.25, that reflects an 80 per cent chance of winning.  If the customer takes the view that Homme actually only has a 75 per cent chance of winning, even though if you just look at the balance of probabilities, the customer is still taking the view that Homme is more likely to win than not, he is being offered odds that would say Homme would win four races in five, he takes the view – it is usually he – that Homme would only win three races in four, then the customer would take the view that Homme is overpriced.  He might back at 1.33 but he would not back at 1.25.  If he is offered a price of 1.25, then he may or may not choose to lay.  But on either case he is still looking at a horse that is, in simplistic terms, more likely than not to win.

Similarly, if the odds being offered on Homme to win at Ascot are five – Homme is priced at $5 – then, leaving the margin aside for a moment, what that reflects is a market perception that Homme has a 20 per cent chance of winning.  If the customer took the view that Homme actually had a 30 per cent chance of winning, I weigh still more likely to lose than to win but just a greater percentage chance of winning, the customer will take the view that Homme is underpriced and to back at $5 is a good deal.  You would take it.  But if the customer took the view that Homme only had a 10 per cent chance of winning, then to back at $5 is not a good deal.  To back at $10, which reflects a 10 per cent chance of winning, would be the right price for that customer to pay for that horse.

So if offered $5 on Homme to win at Ascot, the customer would not take it but the customer might, if given the option, choose to lay Homme at Ascot.  Although the numbers I have used are not quite right, that is precisely what Mr Erceg, the second plaintiff, chose to do with Homme at Ascot and did so successfully on 20 December, doing the calculations in his head and betting with Best Bookies.  All of that, your Honours, really comes down to this.  It is about value and it is very little different for a sophisticated customer in the wagering industry than it is for a sophisticated share trader or futures trader.

What the customer is doing is forming a judgment about value.  Here it is not a discounted cash flow, but a probability and the customer will perform his or her own judgment about that.  Then based upon the market’s reflection of the price and the customer’s own perception of value, the customer will make a decision to buy or sell back or lay given the options that are available.  That is what I wanted to say about odds and I need to bring it together in a moment, but can I say something about margin or over‑round and I really need to explain this. 

This is a concept, margin, over‑round or book percentage and it is a concept that underlines the way in which a bookmaker becomes a bookmaker, that is, a bookmaker makes a book or frames a market, and we are just talking about terminology drawn from different eras, 19th century terminology as distinct from 21st century terminology.  Making a book or framing the market are exactly the same thing and, that is, how does a bookmaker, coming to your Honour the Chief Justice’s questions, set the odds that the bookmaker is prepared to offer on the various outcomes of an event?

That is a process which is described in Schedule 8 to the special case and it is there described by reference to a horserace but it is exactly the same principle that applies to any other event.  Can I read it, your Honours, because it needs to be looked at carefully and then can I unpack it and draw out what I need to draw from it. 

1.A bookmaker will ‘frame a market’ for a particular horse race by offering odds for different horses in the race and taking wagers based on those odds with the intention of reaching a position where the net outcome of all bets placed will be in the bookmaker’s favour regardless of the outcome of the event. 

2.In order to reach this position, the sum of the percentage value of the odds offered by the bookmaker for all possible outcomes must be in excess of 100%.  The sum of these probabilities is referred to as the book percentage.  Any excess over 100% (or “overround”) represents the profit to the bookmaker as a proportion of the total amount bet, in the event of a balanced book. 

That is, in the event of the same amounts being bet on each outcome:

A balanced book will occur if bets are evenly distributed across each selection in proportion to the odds offered. 

3.In the case of an imbalanced book, there may be a risk to the bookmaker that he or she will have to pay out more in winnings than what was staked by all punters.  An imbalanced book may arise, for example, if there is a clear favorite and a bookmaker is unable to encourage sufficient betting on other selections in the event. 

4.A bookmaker will usually adjust the odds for various selections up to the start of the event in order to attract betting on each participant in an attempt in an attempt to achieve a balanced book . . .  

5.If a book percentage for a horse race is 120%, a bookmaker could expect to receive a profit of 20% assuming evenly distributed bets. 

Can I just draw out what I need to draw out from that description.  A bookmaker who offers to accept back bets at fixed odds sets out to offer odds that will balance or match the back bets on each outcome with the back bets on each other outcome so as to return a margin or profit to the bookmaker whatever the outcome.  That is what a balanced book is. 

If a bookmaker sets odds simply by reference to the bookmaker’s perception of the relative probability of each outcome occurring, then the sum of the percentage value of those odds, by definition, must equal 100 per cent.  You have one event, one outcome must occur and there are a number of possibilities, the probability of each when added up must, by definition, equal 100 per cent.  But if the bookmaker is to set odds so that the bookmaker gets a return whatever the outcome, then the bookmaker needs to set the odds so that the sum of the percentage value exceeds 100 per cent. 

The extent to which the sum of the percentage value of the odds exceeds 100 per cent is the book margin or the over‑round and in the special case at paragraph 72 one sees that the book margin or over‑round in Western Australia for bookmakers is in the range of 12 per cent to 40 per cent.  That is the bookmaker’s gross profit.  That is how the bookmaker makes a gross profit.  But it is not quite as simple for the bookmaker as simply setting the margin and that is because the bookmaker will only make the book margin or the over‑round that the bookmaker sets for himself if the bets are evenly distributed across all of the outcomes.

KIRBY J:   Can I ask a question which should perhaps have been asked earlier?

MR GAGELER:   Yes, your Honour.

KIRBY J:   There is a comment early in the Western Australian submissions about the factual foundation of a case that you will be presenting, and I am not entirely clear – I mean, normally in the original jurisdiction one would have evidence presented in the normal way, we then become a trial court, and I am wondering what is the status of all of this information that you are giving to us as evidence.

MR GAGELER:   Well, I am not doing anything other than drawing out of the material that is before your Honours what is necessary to make out my case.  I am not presenting evidence from the Bar table ‑ ‑ ‑

GLEESON CJ:   But this is part of the case stated.

MR GAGELER:   Yes, that is right.  It is part of the special case.  It is explained, I am just unpacking the explanation, your Honour, that is all.  Unfortunately, for my own purposes I found that I needed to be tutored into this material, and there is some complexity, but at the end of the day what I am really seeking to do is to look at these three products.

I really need to show your Honours the production processes that go into these products and then the options available for the customer given those production processes, and really, your Honour, what it comes down to is a clash of a 19th century production process with a 21st century production process, leading to a product with limited options versus a product with more enhanced options for the customer, but there is no way that I can explain the production processes without going through this detail, and I am nearly finished.

GLEESON CJ:   Well, on the subject of options for the customer, Schedule 8 goes on to deal with totalisators.  Is it the case that in Western Australia bookmakers are in competition with the totalisator?

MR GAGELER:   Yes, that is right, but the point is that the over-round or margin is pretty close to the same.

GLEESON CJ:   But the RWWA runs the totalisator?

MR GAGELER:   It runs a lot of things.  It runs the totalisator ‑ ‑ ‑

GLEESON CJ:   Yes, but it runs the TAB?

MR GAGELER:   It runs the TAB, it runs on-course totes ‑ ‑ ‑

GLEESON CJ:   So the punter who is the customer of either the bookmaker or the totalisator has a choice between betting by the method described in Schedule 8 under the heading “Bookmakers” or betting according to the method described in Schedule 8 as totalisators?

MR GAGELER:   That is right, yes.

GLEESON CJ:   So there is within Western Australia in the market that you are describing a state of competition at the moment between RWWA and the bookmakers?

MR GAGELER:   Yes, limited competition because it all in the end – it does not all, but a significant factor is the over-round or margin that is built into the totalisator product and the ‑ ‑ ‑

GLEESON CJ:   And whichever of those two alternative methods of betting a punter prefers there is government take?

MR GAGELER:   Exactly, yes.  Government take, exactly.  Government take and industry distributions.  In the justification for opposing betting exchanges, those two things are sometimes separated and sometimes not.  But, yes, the whole structure is such that the net income that is produced ultimately by the margin, whether it be in a traditional bookmaking model or in the totalisator, gets distributed in significant part by way of taxation revenue to the State and in significant part by way of payment of, one could call them dividends, to racing industry participants.

GLEESON CJ:   Is it part of your case that an object of the two prohibitions is the protection of government take?

MR GAGELER:   It is the protection of the revenue streams of the wagering operators in Western Australia.

KIRBY J:   You say that directly in your written submissions.

MR GAGELER:   Yes.

GLEESON CJ:   A protection of the two existing competitors, RWWA and the bookmakers.

MR GAGELER:   Correct, and there are reasons for doing that because of the structure but the protectionist ‑ ‑ ‑

GLEESON CJ:   Against the intrusion into the market of a third competitor, your client.

MR GAGELER:   Absolutely, yes.

KIRBY J:   But the suggestion is that that is supported by the proper defence of integrity of the industry and the support of the employment and other purposes of the industry.

MR GAGELER:   Yes, and I need to address ‑ ‑ ‑

KIRBY J:   That is what I understand to be the other case.

MR GAGELER:   Yes, of course, and I am seeking to address both of those things but the difficulty is, your Honours ‑ ‑ ‑

KIRBY J:   Could you come back to my question because it is paragraph 3 in the written submissions of the defendant in which they say the material set out in the submissions:

largely consists of references to material that is not factual, or submissions which are addressed in the Statement of the Defendant’s Argument.

I just want to be absolutely clear that what you are saying to us now is, and all is, entirely based on factual material which is properly before the Court as factual material.

MR GAGELER:   I am saying yes to that.

KIRBY J:   I mean, this is a reason, a very good reason I would have thought, to have facts found by the Federal Court or by the Supreme Court of a State instead of this Court of seven Justices sitting as a trial court in highly complex factual material in a specialist area of factual discourse of which I am completely ignorant. 

MR GAGELER:   Your Honour, I believe that paragraph 3 is really a commentary on the usual structure of written submissions.  The heading is “Statement of Material Facts that are Contested”.  In our written submissions we have obtained the indulgence of Justice Gummow to depart from the usual structure and we had put under the heading “Facts” an evaluative or qualitative discourse based upon material in the special case and I believe that is what our learned friends are saying.

KIRBY J:   We are the final national court of this country. We have duties under the Constitution but we exercise those functions much better when there is a sharp question which is based on found facts which the Court can then deal with or, if the facts are relatively straightforward and simple, which we can find. These facts are not straightforward and simple as far as I am concerned ‑ ‑ ‑

MR GAGELER:   I appreciate that, your Honour, and that is why ‑ ‑ ‑

KIRBY J:    ‑ ‑ ‑ and that is why you have written submissions which are the largest that I have seen in my time here and I am beginning to feel very uncomfortable at the role that is being forced on me.

MR GAGELER:   Your Honour, I did apologise at the beginning.  The difficulty is that for some people what I am telling your Honour is entirely intuitive or well understood.  For some people, and I confess I am fairly close to your Honour’s category here ‑ ‑ ‑

KIRBY J:   Yes, I can imagine.

MR GAGELER:    ‑ ‑ ‑ it is not easy to understand.  It is all there.  One needs though really to come to grips with it and unless one understands these concepts, one simply cannot understand the different betting products, and one needs to understand those products in this case, and one cannot understand the arguments that are raised against us based on this phenomenon of betting to lose.  With these concepts, these tools at hand, the material which is put against us in the special case will be fully understood.  So, yes, I am taking a little while to do it but there is a point to it and I already did apologise.

KIRBY J:   I am sure there is a point.  It is just a question of the role of this Court.  Anyway, I will hold my peace for a little while longer.

MR GAGELER:   Thank you, your Honour.

KIRBY J:   I am betting on you to come up with a simple proposition which is suitable to the final Court of the nation.

MR GAGELER:   It may not be – the legal proposition will be very simple.  The underlying facts, however, are only simple when you have a grip on these basic betting concepts, and that is really what I am trying to deal with.  Your Honours, I will not take very much longer.  I am almost to the point that matters.  The bookmaker then seeks to set a book margin but the bookmaker will only make that book margin or over‑round if the bets are appropriately distributed across each of the alternative outcomes.  So the bookmaker takes on a risk that the book will not be balanced at the odds that the bookmaker sets.  Really all of this is contained in the schedule to the special case that deals with bookmaking.

HEYDON J:   Presumably a bookmaker – just an ordinary small concern at the racecourse - would change the odds not in accordance with perceptions of the health of the horses on the day but simply in accordance with the bets placed.  If someone put $10 million on the most remote outsider, would that not require him in prudence to adjust the odds for future bets?

MR GAGELER:   Your Honour, he starts with the odds.  He sets odds that he offers and then he has to adjust those odds given the bets that are placed with him.  Yes, your Honour is exactly right.

HEYDON J:   You can get quite different odds from different bookmakers and those odds in turn would be different from those on the totalisator presumably?

MR GAGELER:   Yes, but they cannot be too different, otherwise one or the other would go out of business in the end in the long term, but your Honour is absolutely right.  The bookmaker sets his odds to start with and if he were to get bets appropriately distributed across each outcome, then he would get the margin or over‑round that he set for himself but if he gets the big bet on one outcome, then he has to do something about it.  The main thing that he will do is to adjust the odds on that outcome or other outcomes for future bets so that he can balance the book.  Another thing he may do – and this is in Western Australia’s written submissions – is lay off some of the risk by making the bet himself on the same outcome with someone else.

HEYDON J:   Can he refuse bets?

MR GAGELER:   He can over a certain amount.  I will find out what that amount is.

HAYNE J:   That is what I thought.  He could wind the odds back so far that no punter is going to bet with him.

MR GAGELER:   Pardon, your Honour?

HAYNE J:   He could wind the odds in such a way that the punter is not going to ‑ ‑ ‑

MR GAGELER:   Of course, yes.  He can manipulate the odds in any way he likes.  He is running a business, that is right.  So even though he might technically be obliged to take whatever bet is sought to be made to him, it all depends on how he sets the odds.  So if he sets a price that he wants, he can in form comply with his legal obligation but in substance it has no effect on the running of his business.

HAYNE J:   The doors of the Savoy Hotel are open to everyone, Mr Gageler, are they not?

HEYDON J:   Mr Gageler, you gave a sort of account of the psychology of betting, depending on a perception of underpricing or overpricing.  Is that in the special case?

MR GAGELER:   Yes.  I have unpacked a lot, your Honour, from page 232 – this is within Schedule 7 – paragraphs 6 and 7.

HEYDON J:   It is taking the word “inference” from the case stated a fair way.

MR GAGELER:   Inference based upon rational behaviour, your Honour, but, yes.  Your Honours, can I say this.  It is the need for a bookmaker then to make a margin but to manage the risk of not having a balanced book and risk of not having a balanced book is pretty much spelt out in the special case.

GLEESON CJ:   But I presume one thing we will not find in the special case is information about potential for corrupt practices.

MR GAGELER:   Yes, you will.

GLEESON CJ:   Well, some information about it but if ultimately we are being invited to make a judgment about whether prohibition of betting exchanges is, if I may use this expression, an appropriate response or an acceptable response within the limits set by the Constitution to a certain problem or certain perceived problem of corruption, upon what facts do we base that judgment?

MR GAGELER:   What your Honours will see is that our learned friends deploy against us as the identification of the corruption problem a report of a group of racing and wagering industry regulators in 2003 called the Betting Exchange Task Force report.

KIRBY J:   Where do we find that?

MR GAGELER:   Your Honours will find that in the book of documents accompanying the special case in volume 2, tab 33.  That is, together with a couple of other bits and pieces, the document that is sought to be deployed against us as the source of information about the potential for corrupt practices.

GLEESON CJ:   What I have in mind is this, Mr Gageler.  In the area of tort law we have recently, I think, on a number of occasions pointed out that applying a test of foreseeability to criminal behaviour is extremely difficult.  A similar problem might arise in making a judgment about the issue that you earlier said may be presented for our decision.

MR GAGELER:   There is a question of the degree of risk or reality as to the existence of an integrity problem and on material both sides are presenting in the special case we both say your Honours can form a sufficient judgment about that.  I am aware that your Honours have had recent concerns about facts in special cases.  I am aware of that and the material has been framed in a way to attempt to allow your Honours to make a judgment.  But there is also then a question as to an appropriate and adapted regulatory response to the issue, assuming it to exist and, again, that is just a judgment that has to be made consistently with the commonly held understanding of section 92.

Your Honours, armed with this background information, in our submission, it is not going to be a particularly difficult judgment to make and I am not going to take very much longer to deal with it.

KIRBY J:   It is difficult, Mr Gageler, if you come to this with a complete absence of knowledge, any knowledge whatever, of the racing industry or of gambling or wagering.  I am not averse to all these things, but I just know nothing about them.  You are asking a big ask that we absorb all of this factual matter and the discontented party loses opportunities of appellate provision by the process you have engaged in and this Court has engaged in a trial process which is final and on material which is huge and which is impenetrable to a mind of a person who knows nothing about this industry.  I mean, I will do my best to understand it and to get on top of it.  It is a very big ask, and I am not sure it is a correct ask of the High Court of Australia.  I cannot imagine the Supreme Court of the United States or the Supreme Court of Canada sitting for three days to do a trial job like this.  I cannot imagine it, it would not happen.

MR GAGELER:   Will not take long, your Honour.  I am getting on with it.

HEYDON J:   Mr Gageler, just one technical thing.  When the Chief Justice asked you about the question of controlling crime, in effect, if you take paragraph 1 of the case stated, that says:

The facts considered by the parties to be necessary . . . are set out in this Amended Special Case as follows –

and paragraphs 90 to 92 deal with integrity proceedings and paragraph 2 says:

The documents . . . filed with this Amended Special Case –

Those documents in 90 to 92, are we simply interested to learn that Mr Ings sent a letter to Lord Faulkner on 6 December 2004, or can we take as correct every fact that Mr Ings assured Lord Faulkner of?

MR GAGELER:   Neither really, your Honour.  Your Honour has to approach this material as with a healthy scepticism, but going beyond simply the fact that a letter was sent or a document was created – so far as a lot of this material, your Honour, is not of our ‑ ‑ ‑

HEYDON J:   Generation.

MR GAGELER:   Generation, and particularly not within that paragraph or paragraph 93 ‑ ‑ ‑

HAYNE J:   Well, maybe, but the parties join in stating the special case, Mr Gageler.  Both sides take responsibility for this special case because it is the parties’ case and the parties join in stating the facts that are necessary for the Court to decide the issue.

MR GAGELER:   Your Honour, I am not denying responsibility for the material.  I do not seek to get anything out of that material.  Your Honours can read it.  Your Honours can form the view that the views expressed in the material are generally held views, but your Honours really cannot do very much more than that.

KIRBY J:   Is there an international dimension as well as a section 92 dimension?  One would imagine that because of the international and ubiquitous nature of the internet, the betting is not just within Australia.  The betting can be anywhere in the world.  Is that not correct?

MR GAGELER:   Of course, yes.

KIRBY J:   Has this Court passed on previously the way the section 92 guarantee, which is part of the economic community of Australia, interrelates with global trade, because that is a very important question?

MR GAGELER:   In the very first case on section 92 in 1909, Fox v Robbins, the law which was held to infringe section 92 was a law that imposed a £2 licence fee on a seller of wine in Western Australia who sold only locally produced wine and a £50 licence fee on a seller of wine in Western Australia who sold wine that came from anywhere else, whether in Australia or anywhere else in the world.  Insofar as that licence fee fell upon the seller of wine who sold Australian produced wine, that was held to infringe section 92.  So one can see it there in the very first case, but one can see it in other cases as well.  It is the interstate element that one needs to separate out from the global element, of course, to deal with section 92.

KIRBY J:   Presumably, the government of Western Australia loses control over, first of all, the problem of corruption and loss of integrity and, secondly, the support of the local industry if this becomes a global market in wagering and gambling on Western Australian venues.

MR GAGELER:   It is in practical terms difficult to see that the Western Australian Government can do very much about a wagering operator in Hong Kong offering bets to customers in Macau.

KIRBY J:   You say that is going to happen anyway in the nature of the global technology.

MR GAGELER:   But that is not part of my case, but your Honour is right, yes.

KIRBY J:   A bit like the Gutnick problem.

MR GAGELER:   Yes.

KIRBY J:   Trying to relate Australian municipal law to the international technology.  Anyway, I will not take you off – you had better get back to the things that interest you and I will keep quiet about the things that interest me.

MR GAGELER:   I hope I am educating your Honour about things that matter for the case.  Your Honours, I was talking about the 19th century production process involved in framing a market or producing a book for a bookmaker.  There is the need to set the margin and then there is the need to manage the risk of not having the balanced book and those two needs of the traditional bookmaker underlie the principal similarities and differences between RWWA and Western Australian bookmakers on the one hand, which operate upon that traditional model, and the online betting product that Betfair offers.

With the traditional model – and this is really the important point – the ability of the customer to lay a particular outcome by backing the alternative outcomes depends in each case on the relationship between the odds or the price and the margin and the only condition that needs to hold for it to be profitable for a customer betting with a bookmaker or an RWWA at fixed odds profitably to lay an outcome is that the percentage value of the odds is higher than the percentage value of the margin.  This is what is set out, and given the time I will not read it, but it is set out quite clearly in Schedule 9 to the special case at paragraphs 5, 6 and 7.

What it translates to in practical terms is this, that for a given margin the lower or shorter the odds the more likely it is that the customer can lay an outcome by backing others.  In practical terms that means that it is usually profitable at least to lay the favourite in most races and that is a point that is illustrated by the material that is contained in paragraph 75 of our written submissions ‑ ‑ ‑

KIRBY J:   It depends on the size of the contest, does it not?  The point is made, I think, by Western Australia, that in a tennis match if you back one, you lay the other and ‑ ‑ ‑

MR GAGELER:   That is the point I made as well, but ‑ ‑ ‑

KIRBY J:   Bit if you have a horserace with 15 starters, then it is a much less practical possibility.

MR GAGELER:   I am talking about profitable at the moment.  I will come to practical.  Practical just depends on how you have your computer set up.  Profitable depends on the odds and the margin.  Wherever you find that the percentage value of the odds is higher than the percentage value of the margin, then it will be profitable subject to being practicable; illustrated our submissions paragraph 75.  I am not going to waste time by going there, but it is a very important illustration of the ability to lay an outcome on a typical race day in Western Australia and you see there that with nearly every race you could lay the favourite, nearly every race. 

Now, the other thing – and this is another important aspect – is that for given odds, the lower the margin, that is, the cheaper the wagering product, the more likely it is that the punter can lay the outcome.  So there are two consequences.  One is that for a given margin the lower the odds, the more likely it is to be able to lay and for given odds the lower the margin or the cheaper the betting product, the more likely it is to be able to lay.

Your Honours have in the special case the example of Mr Erceg on a particular day laying Homme at race 2 at Ascot.  He did the calculations without using a computer but one can easily download a computer program from the internet called the “Dutch book calculator” and it is going to do all the calculations for you.  That is Schedule 9 of the special case.  Contrast Betfair – and this is the production process.  I will take three minutes to say it, then I will get to the slideshow.  The production process with Betfair is this.  The margin is eliminated.  It just does not exist.  What Betfair takes is a commission, two to five per cent of the winning bet.  You see that in the special case, paragraph 73. 

The customer with Betfair always has the option of backing or laying a particular outcome and doing so directly.  The customer can make the offer, but the bet is only going to be accepted where it is matched, and this ties up with the definition in the Western Australian Act where it can be matched immediately by Betfair with an equal and opposite bet from another customer.  So what happens is that Betfair does not take on any risk like the Western Australia bookmaker.  It just does not the risk.  If you like, its book is always perfectly balanced.  One bet will match another bet but Betfair does not have to reach the point of one bet needing to match all other bets.

GUMMOW J:   Can you just match what you are saying, Mr Gageler, against the definition 4AA?

MR GAGELER:   4AA?

GUMMOW J:   Yes, the Betting Control Act.

MR GAGELER:   Yes.  Betfair’s facility enables persons – paragraph (a) has got no application to Betfair Australia.

GUMMOW J:   That is what I am wondering about.  This follows from what you were saying to Justice Hayne, so forget about (a).

MR GAGELER:   That does not apply.  It is (b).

HAYNE J:   You forget about (a) because the bet a customer makes is with Betfair, it is not with the match?

MR GAGELER:   Correct, that is right.

GUMMOW J:   So it is not betting with another persons?

MR GAGELER:   Correct.  So it is placing a bet with Betfair, the operator of the betting exchange, that on acceptance are matched with opposing bets, that is, a bet on the same outcome – yes, a bet on the opposite outcome of the bet, which are accepted by the operator at the same time.  So under Betfair’s terms and conditions, which we have set out in our written submissions, Betfair will only accept and offer from a customer where Betfair is able to accept an equal and opposite offer from another customer on the same outcome.

KIEFEL J:   On exactly the same event?

MR GAGELER:   On the same outcome.

KIEFEL J:   Is it a direct or indirect effect?  Does it have to be an exactly opposite and matching bet on the same horse or is it the effect of the back bet on the horse by reference to what happens with the rest of the field?

MR GAGELER:   No.  The essential difference in the production of the product between Betfair and a bookmaker is that whereas a bookmaker receiving a back bet on horse A will need to adjust the book so that the back bets the bookmaker gets on horses B, C, D and E will produce a profit.  Betfair receiving a back bet on horse A will only accept that back bet on horse A if Betfair has another offer of a lay bet on horse A and those two bets are matched.

KIEFEL J:   So it is to be inferred that lay bets are far more common in relation to a betting exchange?

MR GAGELER:   Yes.  The facility exists to make them much more easy on a betting exchange, yes.

KIEFEL J:   And you would accept that it therefore encourages the laying of bets, whereas back bets are traditionally ‑ ‑ ‑

MR GAGELER:   I accept that it facilitates more easily the laying of bets, yes.

KIEFEL J:   If there is no matching bet, the bet is not accepted?

MR GAGELER:   That is right, yes.

GLEESON CJ:   But the matching is not only an amount; it is in odds, is it not?

MR GAGELER:   It is in odds and amount, exactly.

GLEESON CJ:   You will explain to us how you find a matching bet?

MR GAGELER:   I will, yes.  That brings me to the little demonstration, your Honours.  Your Honours ought have a bundle of material which is entitled “Demonstration of Online Betting”.

HAYNE J:   How much of this is on the CD?

MR GAGELER:   This is all on the CD, your Honour.  On the CD it is ‑ ‑ ‑

KIRBY J:   We had a Playstation shown to us in Sony and it was very exciting.  Why did you not try that?

MR GAGELER:   This is more fun.

KIRBY J:   It is one of the most exciting things that has happened in my time here.

MR GAGELER:   Can I just explain this.  This would be so much easier to show online if we could just do it live but we are confined of course to the material in the special case.  The CD is a video CD and what we have had to do is edit it slightly just to draw out the material that needs to be shown.

KIRBY J:   It is attached to the special case and it is referred to in it and part of it, I would have thought.

MR GAGELER:   Of course it is, yes, but I need to unpack this and take it a little bit slowly.  What it shows, your Honours, is the betting options offered by each of RWWA, Western Australian bookmakers and Best Bookies during the period of 8 to 12 December 2006 on an event defined as the winning of the 2007 AFL Premiership.

What one sees on the compact disc that I am not going to show you here is how you enter each site.  There is a registration process for each which is pretty much the same, there is a security check for each, there is an agreement to terms and conditions, there is an allocation of a username and a password and then there is the depositing of money into an account by credit card or by electronic funds transfer and it is that money that is in the account that can then be used to place bets.  So all of that is on the CD, your Honours do not need to see it, it is pretty much stock standard stuff.

KIRBY J:   You have to build a bank first, do you?  You have to deposit it.  It is not, as it were, automatically debited as you bet?

MR GAGELER:   Exactly.  You can only bet with the money that you have deposited into your account or wallet, as it is called.  So you put the money in first and it is that money and that money alone that you can use to bet.

KIRBY J:   This is getting interesting, Mr Gageler.  I might get addicted.

MR GAGELER:   I am and this is where all those incredibly boring things I have been telling your Honour come together.  Slide 1 is just the opening slide.  If your Honours then turn to slide 3 at the bottom of the page, what you see, and it is displayed on the screen, is the RWWA homepage that RWWA, you will see, trades with lots of acronyms; calls itself TAB, it calls itself TABozbet and one sees that to log in you simply press the login button which takes you to slide 4.  You then need to enter your account number and password, a security check.  You press login again and it is at that stage that you get back to the homepage and you are logged in and you can start betting. 

Your Honours will see across the top of the screen, or the slide, a number of tabs, “betting”, “racing info”, “sports info”, “my account” and you see at the left-hand side of the screen a tab for “Racing” which is open showing what racing events are being offered for betting and a tab for “Sports”.  It would be possible to get to sports betting by going to the tab at the top “betting” and scrolling down or going to the tab at the side “Sports” and clicking that.  Here what the customer does in the demonstration is click “my account” to check on his account balance.  He then goes to the “betting” tab at the top and selects “Sports Betting” here at slide 6 that your Honours have.  Having chosen “Sports Betting”, the customer gets to slide 7 which is a page showing the sporting events available from RWWA for fixed odds betting and you will see categories of events on the left-hand side.  The tab “Sports” is open and you can see what is being offered to a customer anywhere in the world is:

AFL FOOTBALL
AMERICAN FOOTBALL
BASKETBALL
CRICKET
GOLF
HORSE RACING
RUGBY LEAGUE
RUGBY UNION
SOCCER
TENNIS

and it is said, in the script at the right-hand side:

Sports betting is an ever increasingly popular leisure activity for a huge number of Australians, and there’s no easier way to enjoy having a sports bet than from the comfort of your very own home or office . . . 

We cover all the world’s major events, concentrating on the sports that Australians are most passionate about –

and they are there listed.  What is shown under the heading “Sports” is all “Fixed Odds Betting” options.  You see at the bottom of the “Sports” tab the heading “Parimutuel Betting” which is another option entirely.  That is to go to the totalisator.  We do not click that here.

So what happens is the customer chooses from that menu at the left‑hand side “AFL FOOTBALL” which takes us to slide 9.  Then, having chosen “AFL FOOTBALL”, what you see is that the customer is given a choice of events upon which to bet.  So here there are three events that are available for betting on AFL football.  You can bet on the final eight, you can bet on the final quinella, that is the last two teams standing – those would be in the grand final – or you can bet on the AFL Premiership.  All of these are fixed odds bets.  So here the customer chooses “AFL PREMIERSHIP” and gets to the “Bet Entry” page.  Here the customer is told that:

EVENT:  2007 AFL PREMIERSHIP . . . 

BET TYPE:  Premiership

BETTING CONDITIONS:  Win Only

BET TYPE DEFINITION:  Select team to the AFL Premiership.

Then what you see is the teams listed on the left-hand side.  Each team is given a sports bet identification number and then what you see on the next column is the decimal odds for that team to win.  So looking at Adelaide its decimal odds are 7.  If one then scrolls down you get really just to the bottom of that page – and we are here on slide 9 – and you will see the West Coast Eagles are indicated and their decimal odds are 4.  What that means is if the customer backs the West Coast Eagles and the West Coast Eagles win, then the customer would receive $4 for every $1 bet.  That is a return of the $1 stake and $3 in profit.  So that is what it is indicating.

KIRBY J:   All of this is on sporting functions.  It is not, for example, on an election or bank rate or anything of that kind.

MR GAGELER:   No.

KIRBY J:   But there are gambling facilities on such things, are there not?

MR GAGELER:   Not offered by us.

KIRBY J:   They exist.  I have read about them in the papers.

MR GAGELER:   I am sorry, yes.

KIRBY J:   But you stick to sport?

MR GAGELER:   No, I am sorry, I am wrong in saying that nothing like that is offered by us but this is really all about sport and racing.  One then sees that in this example – and I am here going to slide 12 in your Honours’ pack – the customer decides to back the West Coast Eagles, puts $10 on the West Coast Eagles to win.  The customer enters “$10” into the box near the West Coast Eagles’ price and presses the button “SEND BET”.  That will result in the slide that you see at slide 13 coming up.  It will ask the customer to confirm the bet details.  It shows the relevant details of the bet.  It shows that the bet is on the West Coast Eagles.  It shows that the return for a $1 bet will be $4, that is, the $1 stake plus the $3 profit.  It shows the bet amount requested of $10 and it shows the amount that would be paid as the return given that amount, which is $40.  It asks, “Are you sure you want to place the above bet(s)?”, the customer presses, “YES”, and then what is shown is the receipt, that is slide 14.

So what one sees here is that the customer can obviously simply profitably back the West Coast Eagles with one click.  But if one did the maths and went back – I am not asking my assistant to go back, but if your Honours turn back to slides 10 and 11, what you see listed is the decimal odds for each team.  There is no difficulty in doing the maths and working out what the book percentage is and you find that the book percentage if you do the maths is 123 per cent.

What that means to anyone with any degree of sophistication is that by backing other teams one can effectively lay a team, the percentage value of whose odds is greater than 23 per cent, that translates to 4.34 or less, and here the West Coast Eagle is at $4, so it is possible to lay the West Coast Eagles.  You just have to enter in 15 different amounts and do 15 clicks, one bet to back and 15 bets to lay.  You are dealing with the same team, back or lay West Coast Eagles.  Backing is easy, laying is a bit more complicated.

But you do not have to do it all yourself.  If your Honours go to special case at paragraph 46 - this is in the special case book, paragraph 46.  What you see is that RWWA, that is the provider of this website, currently has a facility on the ozbet website called “Expert Bet” that allows a punter to create a batch of bets.  Each bet has to be either entered separately or created by another program to create a batch of bets, and then the batch is submitted at the same time and all bets are then placed simultaneously.

Each bet is recorded as a separate bet, et cetera, and then punters can go on and obtain a feed of data from the RWWA’s betting engine directly into their computer.  So, yes, if you wanted to do it manually you would have to – to lay the West Coast Eagles you would have to do it 15 times but you can set up your computer with a data feed and you do not have to worry about any of that.  So that is RWWA.

If your Honours then turn to slide 15 we will look at the product of Best Bookies.  These are the people who operate from the Cannington greyhound racetrack.  Slide 15 is just introductory.  Slide 16 is the home page for Best Bookies, and it is a rather busy home page, but you see on the left-hand side the heading “BETTING” covers – it says “All Racing Events”, “Horse Racing”, “Greyhounds”, “Harness Racing” and “Sports”.  You see on the right-hand side of the slide “Members Login”, and what you need to do to login again is to enter your login name and your password.  Here the customer does that.

KIEFEL J:   Mr Gageler, I am sorry to take you back, but where is the facility in relation to ‑ ‑ ‑

MR GAGELER:   RWWA?

KIEFEL J:   Yes, for laying a bet online.

MR GAGELER:   You cannot do it – you do not do it directly, but my point is that by backing the other – given the book percentage ‑ ‑ ‑

KIEFEL J:   I see, you simply back ‑ ‑ ‑

MR GAGELER:   You just back the other ‑ ‑ ‑

KIEFEL J:   You do not put on a lay bet, so that in principle the theory of backing horses remains?  It is just the effect of laying is different?

MR GAGELER:   The effect is you lay, yes.  The economic effect is you lay.  Yes, that is right.  So you are not betting directly that that outcome will not occur.  You are just betting that all of the alternative outcomes will occur in a way that gives you a return if that particular outcome does not occur.

KIEFEL J:   And more commonly you would do that to hedge?

MR GAGELER:   You could do it for any number of reasons.  You could do it to hedge or you could just do it because you think that the price does not reflect the value.

KIEFEL J:   Is there anything in the material about the traditional habits of punters in relation to the use of lay bets?

MR GAGELER:   Yes, there is.  Interestingly, there is some material in the Betting Exchange Taskforce Report, yes, your Honour.  So here we have logged in, and we get to slide 17.  We are here on the Best Bookies website, and that is a page that shows on the right racing events for this particular day, that is, Tuesday, 12 December 2006.  On the left categories of events, which include “Sports”, and so here the customer chooses “Sports” and goes to the next page, which is shown by slide 18, which is the “Sports Betting” page.  You see the “Sports Betting” categories that are available from these people operating from the Cannington greyhound track.  There is AFL, cricket, NFL – that is American football – rugby league and soccer.

Here the customer chooses AFL and finds that the only event on offer is the AFL 2007 Premiership and chooses that.  That then takes the customer to slide 19, which is the 2007 AFL Premiership page.  We just need to pause here for a moment to take in what is shown.  Your Honours will see the first row shows the West Coast Eagles and the columns are, of course, the name of the team and then a statement saying “Your Position”.  What that will show, once a bet is made, is how much the customer will win or lose if that team wins.  You then see a column that is headed “Offered”.  What you see is two prices and two amounts.  What that is showing is the price and the amount of a bet at that price that is currently being offered by a Western Australian bookmaker through Best Bookies.  The prices get better as they go across.  So $4.50 is not as good a price as $5.  What is shown are the best two prices on offer and the amount on offer at those two best prices.

You then see a column called “Requested”.  “Requested” will be filled in if the customer does not like either of those prices and wants a better price.  So the customer is not locked into just accepting what is on offer, the customer can make a counter offer.  It really would be technically an invitation to treat to the bookies, which the bookies may or may not accept.  But if they request some other price, then that will be shown in “Requested”.

You then see, if you scroll across to the right‑hand side, the column “REQUEST A BET”.  Whether you want to accept what is on offer or make your own counter‑invitation to treat, you press “REQUEST A BET”.  Here the customer wants to bet on the West Coast Eagles and presses “REQUEST A BET”.  That brings up slide ‑ ‑ ‑

GLEESON CJ:   Can I just ask a question?

MR GAGELER:   Yes, your Honour.

GLEESON CJ:   Why do you show two offers?   Why would anybody take the lower one?

MR GAGELER:   You would not take the lower one first, but you may wish to bet more than $415 that is on offer at the higher price.  You see, there is the price but there is only a certain amount on offer at that price.  Here we get to slide 21.  We have asked to “REQUEST A BET”.  From slide 21 it brings up a little box, “Bet To Win West Coast Eagles”.  You can enter your bet amount, which we will not do for the moment.  You see that it brings up the best price on offer.  It says “Request Bet @ $5.00”.  That is the best price – “OR Request a better dividend”.  If you wanted $6 you could ask to bet at $6.

Here the customer is content to bet at $5 and enters $5.  We come here to slide 22.  The customer enters the bet amount of $10.  The customer wants to bet $10 at decimal odds of five or $5 for every $1 bet.  The little box tells the customer at slide 22 that the customer will get an estimated payout of $50 if the West Coast Eagles win.

So the customer then says, “Yes, I am happy with that”.  Press “Request Bet @ $5.00” and, interestingly enough, you come up to slide 23 and we are told by Best Bookies, “Your request has been matched in full”.  The customer presses “OK” and that brings you to slide 24.  This is a rather interesting set of information that the customer then has.  The customer is now, under the heading “Your Position,” told how much better off or worse off the customer is going to be if any of those other teams win.

So, you see, having just bet one bet on the West Coast Eagles to win, a bet of $10, a back of $10, the customer is going to be $10 worse off if Adelaide wins or any of the other teams win, but scrolling down to slide 25, $40 better off if the West Coast eagles win.  Very usefully, interestingly, at the bottom of slide 25, what the customer is also told is the margin or book percentage on the best odds on offer.  So the customer is told that the book percentage is 107.6 per cent and with knowledge that the book percentage is 107.6 per cent ‑ ‑ ‑

KIRBY J:   Does the evidence reveal that this is fed into the computer by human agents or is there some automatic computer program that adjusts some of these things?

MR GAGELER:   It does not reveal, but I think it would be easily inferred that there is a computer program that adjusts the amounts shown and percentages shown by reference to the amounts that are bet from time to time.  So it would not require a human agent to manually calculate the 107 per cent, your Honour.

KIRBY J:   So as with poker machines, which are programmed to cream off a certain amount for the establishment, this computer program presumably has a similar sort of program in it that ensures your client does not ever lose ‑ ‑ ‑

MR GAGELER:   This is not my client.

GLEESON CJ:   This is Best Bookies.

MR GAGELER:   It looks a lot like my client, your Honour, but it is not.

KIRBY J:   Yes, but I mean, the thing your client would wish to do would be similar, I assume.

MR GAGELER:   That is what I am going to show you.  It is extremely similar, your Honour.

GLEESON CJ:   Can I ask you a question about slide 17?  I am not suggesting you go back to it.  We have it in front of us.

MR GAGELER:   Slide 17?

GLEESON CJ:   Slide 17.  It was about racing and it covered horseracing and greyhound racing in various States.  Presumably, if a customer pursued that and you did not for your purposes because you are interested in football for the moment, a customer would want access to the fields.  Where do Best Bookies get access to the fields in these races in those various other States?

MR GAGELER:   They just find out what horses are running and publish.  In Victoria there is now a system where there is approval that in some circumstances needs to be given and similarly in New South Wales and that is, in both of those States, although New South Wales is in a slight state of flux, contingent upon the wagering operator concerned entering into an appropriate agreement with the body or operator actually running the race ‑ ‑ ‑

GLEESON CJ:   One of the things we are concerned with in this case is a legislative prohibition in Western Australia on publishing elsewhere information about racefields in Western Australia but it is part of the informational background we have here that in other parts of Australia they give Western Australia, or Best Bookies in Western Australia, or Western Australian Best Bookies have no difficulty in getting access to racefields in other States.

MR GAGELER:   That is right and your Honours will see, and I will come to this, there is something called a gentlemen’s agreement whereby every incumbent wagering operator in every jurisdiction can use the product or at least traditionally has been able, since the 1960s, to use the racing products of other jurisdictions without having to account for any of the profits made from those products.

GUMMOW J:   We do not really know much about that, do we?

MR GAGELER:   It is a very shady thing.  We certainly do not know very much about it, whether it is written or oral, we do not know.  It is referred to, and I will show your Honours in due course where it is referred to, its effect is clear enough but what form it takes we just simply do not know. 

GLEESON CJ:   In all events, is that legislative prohibition in section 27D unique to Western Australia?

MR GAGELER:   In that form, yes.  What I was about to say to your Honours, if you go back to slide 26 which is I think where we are still at, is once you know the book percentage is 107.6 and here you do not even have to work it out then you will know, if you have any sophistication, that by backing other teams you can effectively lay any team, the percentage value of whose odds is greater than 7 per cent or in decimal odds that translates to 14.2.  So any team whose odds are greater than 14.2 you can lay and here you can do that with five teams.

HAYNE J:   The capacity to do that depends upon the way in which the person framing the book has framed the book.

MR GAGELER:   Exactly.

HAYNE J:   It does not depend upon the availability of a particular and identified matching bet.

MR GAGELER:   That is right.

HAYNE J:   Thus, though your focus is presently upon what the customer sees and does, and I understand the importance and purpose of that, it is not something that presently takes account of the consequences of matching in which, if you were to treat all of the bets made and laid as constituting the book, that book is not framed by your client, it is framed as a result of the individual choices of customers.  Is that right?

MR GAGELER:   Of the very large number of customers, yes.

HAYNE J:   Just so.  The unstated premise for it is that the customers framing the book are all in substantially the same state of knowledge or ignorance as each other, that the market is informed to whatever extent it is.

MR GAGELER:   There are a few elements in your Honour’s question, but can I go to what, I think, is at the heart of it.  Nobody suggests – and I have not seen it in any of the written submissions raised against us – that the evil of a betting exchange lies in the matching of bets.  Everybody suggests that the evil lies in the facility to lay bets.

HAYNE J:   Lay bets where?  The person laying the bet has reason to believe that the laying will be effective, that is, where there is an inequality of knowledge.

MR GAGELER:   It is put in a couple of different ways, but let me make it absolutely clear.  The argument put against us relates to this supposed ability to lay bets on a betting exchange.  It does not relate to the matching of bets.  It is the laying of bets.  All I am seeking to show, your Honour, is that the ability to lay bets already exists and it is already pretty straightforward.  With just a little bit of understanding of the industry and with a little bit of computer power it is very, very simple to do.

KIEFEL J:   But in dollar amounts there will always be inequality between the amount backed and the amount laid, but there might be a differential between the number of bets making up the total?

MR GAGELER:   That is right.  If you did it all manually then ‑ ‑ ‑

KIEFEL J:   So if someone laid a rather large bet, it might be a good way to regulate the industry or at least to be able to investigate?  Is that what you would say?

MR GAGELER:   If your Honour is suggesting that having an audit trail is a good idea ‑ ‑ ‑

KIEFEL J:   Is that part of your argument?

MR GAGELER:   Yes, it is.  I am not going to do another audio visual thing, just an audio thing, but I am going to show your Honour that with the Betfair product there is complete and real time monitoring of absolutely every bet that is placed.  You can tell who is betting what at any particular time.  You can look at the pattern of betting over any period you like.  You can investigate in huge detail every bet that was made, every bet that was matched. 

What I was just seeking to show here is, all right, with Best Bookies operating from the Cannington greyhound racetrack offering odds on the West Coast Eagles, you can back the West Coast Eagles, one click.  If you did not like the odds that were offered, you would counter-offer with your own odds, one click, may or may not be accepted, but if you thought that the prices warranted you doing it, you could do the maths and you could find out that with those odds and that book percentage you could actually lay the West Coast Eagles, if you wanted to, a different perception of their probability of winning, or you could lay any of indeed five of the 15 teams.  You could lay Adelaide, Fremantle, St Kilda, Sydney and the Western Bulldogs as well as the West Coast Eagles.  Not hard to do with a little bit of understanding.

We then come to Betfair, slide 27.  We go to slide 28, which is the Betfair home page and here in the demonstration the customer is already logged in.  This is what the customer sees as the Betfair homepage and the customer is given, you see in the tabs on the left‑hand side, which is open at the homepage, the opportunity of going to “Sports”, “Forum” or “Extras”.  Here the customer wants to engage in sports betting and presses “Sports”, which takes us to slide 29.  That then brings up what Betfair describes as sports markets and what you see in the column on the left‑hand side of the page is a list of categories of events.  Betfair describes them as markets rather than events, the same thing, just more modern terminology.

You can see that you can bet on American football, Australian rules, – I was not sure what Bandy is – basketball, boxing, et cetera.  Here the customer chooses to bet on Australian Rules and so presses the “Australian Rules” button which brings up slide 30.  Here the customer is given the choice in relation to Australian Rules of betting on the AFL “Grand Final Winner” or of betting on “Wooden Spoon”.  Just in case you think there is something – we all know what a wooden spoon is.  Does that somehow distinguish Betfair?   No.  Remember this is very early in the season.  Later on in the season, indeed on 14 April 2007, RWWA – that is the first Sportsbet people – were offering odds on the wooden spoon on the AFL themselves.  So you could bet to lose, bet for the last team on the AFL with one click this time from RWWA.  You see that at page 248 of the special case, but I do not ask you to turn to it.

GLEESON CJ:  In order to make the racing part of that work, you have to get access to a race field.

MR GAGELER:  Yes, exactly.  Here at slide 30, I think, the customer is only at this stage interested in AFL football.  He wants to bet on the grand final winner.  He clicks “Grand Final Winner”, which then takes the customer to slide 31 and what you see at slide 31 is the market for the AFL grand final winner.  You see the 16 selections, it is said, in the left‑hand column and then you will see a blue column in the original online showing the prices to back that are being offered to back and a pink column.

GLEESON CJ:  What are the amounts of money in the blue column?

MR GAGELER:   They are the amounts that are available on offer at that price.  So it is pretty irrelevant to a customer who only wants to bet $10 because the customer will just take the best odds on offer, but if the customer had $1,000 to bet then the customer can deal with it in a number of ways.  For example, here the customer could just say, “Well, I like that price of 4.7, which is the best price on offer for the West Coast Eagles to win, and I will take that price and I want to put $10 on it”, or the customer could say, “I think that at 4.9 I might choose to lay the West Coast Eagles because my perception of their probability of winning is a bit different from that”, or the customer might say, “Well, actually I want to back – I think the right price is 4.8”. 

So the customer can accept what is on offer, but if the customer chose another price, thought another price would be better to back the West Coast Eagles, say at 4.8, the customer would simply offer 4.8 instead of accepting any of the offers that are here displayed.  If the customer offered 4.8 then the customer who has offered to back that 4.8 would simply be entered into the system and turn up as a lay bet of 4.8 for somebody else to match.  It would then become the best price on offer to lay.  I hope I have explained that clearly enough.  There are simply more options available to the customer and more information presented to the customer from the Betfair site.

So here the customer simply wants to back that 4.7.  You go to slide 32.  The customer simply presses “Back” at 4.7, the best odds to back on offer.  That takes the customer to slide 33 and you see a little box comes up on the right‑hand side of the screen and you see the West Coast Eagles are shown with the best price on offer, 4.7, but you can adjust the odds if you want to.  That is the best price on offer to back, but if you wanted a different price then you would just simply enter in the different price and it would get entered into the system as a different price and be matched if it was matched.

You then enter the stake that you want to bet, which is $10 here, and it automatically shows you that at 4.7 with a stake of $10 your profit will be $37, that is, the $37 that you get on top of the return of your $10 stake.  That is how you get to the 4.7.  So that is what it shows you as a Betfair customer with slide 33.  So having entered the stake of $10 being shown the profit is 37, the customer presses “Submit” which takes the customer to slide 34, which describes the bet and asks for confirmation.  So you see on the right-hand side there is a heading:

Win Only Market . . . 

Please review the following information to ensure it is correct.  A commission is charged on your NET profit from each market.

Back

West Coast Eagles 4.7 $10.00 $37

You are backing West Coast Eagles.  If you win, your stake of $10.00 is returned to you together with a profit of $37.00.  If you lose you lose your stake.

The customer is asked whether or not to place the bet now.  The customer presses “Yes” and goes to slide 35.  This is the confirmation screen, and remember the Best Bookies website, it is very similar.  It tells you in the column on the left-hand side under the name of each of the teams what your position now is, that is, how much better or worse off you are going to be if that particular team wins given the bet that you have made.  That really is I think a sufficient demonstration of the Betfair product.

KIEFEL J:   Mr Gageler, I think it is said that there is a better return to a punter under the Betfair scheme because of the lower commission rates?

MR GAGELER:   Exactly, yes.

KIEFEL J:   Does the application of the scheme in terms of the return, putting commission aside, or overheads, whatever costs, skew the return on a lay bet, in favour of a lay bet, in a way different from what can be achieved under the other two systems, that is, by mathematical formula it must make it more attractive to put a lay bet than the other two systems?

MR GAGELER:   It is cheaper, it is a cheaper product and more attractive.

KIEFEL J:   But putting aside the commissions, I am asking whether it is the application of the equality of the system, because they are matched, that allows the lay bet to be more attractive.

MR GAGELER:   There are a couple of aspects to that.  From the wagering service provider’s point of view, it is the direct matching of bets on a particular outcome that eliminates the risk that the bookmaker faces so Betfair’s product is like a bookmaker always having a perfectly balanced book, so it is a more efficient product from that point of view.

KIEFEL J:   So you are saying it can offer better odds.

MR GAGELER:   So it can offer the customer a cheaper product.

KIEFEL J:   So the answer to my question is yes.

MR GAGELER:   I was going to say more, but the answer is yes, your Honour.

GUMMOW J:   Mr Gageler, is all this designed to explain to us that there are competing services?

MR GAGELER:   It goes a little bit beyond that.  It is an explanation of competing services, but it also an explanation of the ability to lay outcomes on these competing services offered by Western Australian bookmakers and RWWA.

GUMMOW J:   What is the constitutional notion of competition which we are worrying about between in‑State and out‑of‑State operators, competition for what?

MR GAGELER:   It is competition for customers who wish to bet on Australian horseracing, harness racing and greyhound racing events and Australian sporting events.

GUMMOW J:   I guess I am asking you what the market is?

MR GAGELER:   What is the market?  It can be defined in a number of ways.  It is part of a broader gambling market and it is particularly a market for wagering on racing and sporting events.

GUMMOW J:   Is there any notion of substitutability here?

MR GAGELER:   Hugely, yes.  There is a whole access economics report that looks at elasticities ‑ ‑ ‑

GUMMOW J:   No, I am worrying about a constitutional concept.  Does the constitutional concept have any element of substitutability in it?

MR GAGELER:   Yes, of course.

GUMMOW J:   As jurisprudence on Part 4 of the Trade Practices Act does?

MR GAGELER:   Yes, your Honour.  The answer is yes. 

GUMMOW J:   The reason why I am asking you is that heretofore has not been explored much in the cases post Cole v Whitfield.

MR GAGELER:   This case raises ‑ ‑ ‑

GUMMOW J:   So I am going to need some help.  That is why I am putting up the flag.

MR GAGELER:   Yes, I am going to attempt to help your Honour with it.  Can I move on, because I want to move on to the next topic, which is a comparison of the scheme of regulation that governs these three products and in this context I want to look a little bit more broadly at the legislative scheme under which RWWA, Western Australian Bookmakers and Betfair each operate. 

I should say this, that with the provision of online gambling and within that the provision of online wagering is obviously something that could be regulated at the Commonwealth level.  There is a Commonwealth Act called the Interactive Gambling Act 2001 which regulates some forms of online gambling but that Act in sections 5 and 8A make it clear that wagering is excluded from the scope of the Act and section 69 makes clear that the Act is not meant to cover the field of online gambling to the exclusion of State laws.

GUMMOW J:   What activities does it cover?

MR GAGELER:   Online casinos basically and things of that nature.

GLEESON CJ:   Presumably competitors or potential competitors of RWWA and registered bookmakers, if they existed in Western Australia, would be starting price bookmakers.

MR GAGELER:   Yes.

GLEESON CJ:   Using a telephone.

MR GAGELER:   Yes, that is right.  They have the industry pretty much sewn up in Western Australia.  Perhaps if your Honours are able to turn to the plaintiffs’ bundle of legislation in volume 2, behind tab 10 is the RWWA Act.  If your Honours go to section 4 you will see the establishment of RWWA.  In answer to one of your Honour the Chief Justice’s earlier questions, section 5 says that it is “not an agent of the Crown”.

GLEESON CJ:   It is off-balance sheet.

MR GAGELER:   Yes, exactly, although it makes a significant contribution, as your Honours will see.  Section 26 is just a general conferral of functions:

RWWA has –

(a)the functions conferred or imposed on it by or under this Act or any other written law; and

(b)such other functions as may be prescribed.

Section 29 says:

RWWA in performing its functions –

that is all of them –

must –

(a)act in accordance with prudent commercial principles; and

(b)endeavour to make a profit.

If you then go to page 892, which is the beginning of Part 4, you will see a heading, “Specialised functions in relation to racing”.  Section 35 says:

Without limiting the functions of RWWA . . . it is a function of RWWA –

(a)to control, regulate and supervise racing in the State; and

(b)to foster the development, promote the welfare and ensure the integrity of –

various forms of facing –

(ba)to enter into contracts or arrangements for the commercial exploitation of information held by RWWA relating to the racing industry in Western Australia –

was a function that was conferred newly in the same amending Act that inserted section 27D of which we complain and it needs to be read, if your Honours turn back to page 887, with the new power that was inserted by the same Act.

GUMMOW J:   It is Act 70 of 2006?

MR GAGELER:   That is correct, yes.  Section 30(2)(ba) at the same time gave RWWA power to:

provide on a commercial basis, under a contract or arrangement entered into with a person given an approval under the Betting Control Act 1954 section 27D(2), information held by RWWA that identifies the names or numbers of the horses and greyhounds –

running in a Western Australian race ‑ ‑ ‑

GLEESON CJ:   It displaced the Western Australian Turf Club, did it?

MR GAGELER:   Yes, well, it is now ‑ ‑ ‑

GLEESON CJ:   I am just looking at section 36.  It took over as the principal club.

MR GAGELER:   Yes, it does everything.

GLEESON CJ:   So it is the RWWA that warns people off the course and suspends jockeys and ‑ ‑ ‑

MR GAGELER:   All that stuff.  Well, it may actually be in practical terms the stewards, but it is the RWWA that has the ‑ ‑ ‑

GLEESON CJ:   Does it make the rules of racing?

MR GAGELER:   It makes the rules of racing, yes.  It makes the rules of racing, polices the rules of racing.  It is in the wagering market itself.  It does a lot of things.  So that was section 35(1)(ba).  Section 35(1)(d) has a function:

to supervise racing clubs and their affairs; and . . . 

(f)to determine the race meetings on which RWWA will conduct off‑course wagering -

The answer to your Honour the Chief Justice’s question about making the rules of racing is at page 898, section 45:

(1)RWWA may make rules of racing with respect to the control, regulation and supervision of –

(a)thoroughbred racing . . . 

(b)harness racing . . . and

(c)greyhound racing -

Then if you turn back to section 39, what you see is that in accordance with the rules of racing, RWWA can, in section 39(1):

refuse to license –

(a)     a racecourse;

(b)     a race meeting;

(c)     a race -

Section 40, again, in accordance with the rules of racing, which it makes, can “register or refuse to register a racing club”.  Section 41:

(1)RWWA may, in accordance with the rules of racing and the regulations, register or refuse to register –

(a)     any thoroughbred racing horse;

(b)     any harness racing horse; or

(c)     a greyhound.

Then in section 42(2):

RWWA may, in accordance with the rules of racing and the regulations, license or refuse to license –

(a)any owner or trainer . . . 

(b)any jockey . . . 

(c)any driver of harness racing horses; or

(d)any other person associated with racing.

Under section 44:

RWWA may, in accordance with the rules of racing and the regulations, do all or any of the following –

(a)disqualify, either permanently or temporarily –

(i)       any owner . . . 

(ii)     any jockey;

(ii)     any driver . . . 

(iv)     any other person associated with racing;

(b)prohibit any person from participating in or associating with racing in any specified capacity -

and so on.  So there you have lots of powers, if you want to do something about the integrity of racing.  If your Honours then please note that the rules of racing, made by RWWA, are in the book of documents in volume 1, tabs 10, 11 and 12, dealing with thoroughbred racing, harness racing and greyhound racing and, as we note, in our written submissions, in paragraph 77 and in footnote 224, that is of course where you would expect to find and do, to some extent, find provisions that are designed to safeguard the integrity of racing specifically from nasty practices of people with inside knowledge or an ability to influence the outcome of races.  Given the time, your Honours, I will just say one thing in conclusion, if I may, about those.

I am not going to go to those rules, but what you do not find in those rules is any general provision as you find in the share market for the continuous disclosure of material information.

GUMMOW J:   Section 84 is important, is it not?   They have to keep the Minister informed of their financial performance and financial position.

MR GAGELER:   I was going to come to that.  That is really interesting, the financial stuff.  I will deal with that after lunch.

GLEESON CJ:   After lunch perhaps also you might tell us, when you come to section 102(2)(b), what the rates of tax are.

MR GAGELER:   Yes, I will.

GLEESON CJ:   Is that a convenient time?

MR GAGELER:   Yes, your Honour.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.19 PM:

GLEESON CJ:   Yes, Mr Gageler.

MR GAGELER:   I was in the plaintiff’s bundle of legislation, volume 2, tab 10, the Racing and Wagering Western Australia Act.  If your Honours turn to page 904 you will see the beginning of Part 5, “Specialised functions [of RWWA] in relation to gambling”, section 50(1)(b) the functions of RWWA include carrying on the business of an “off-course totalisator”, of an “on-course totalisator of “setting, accepting and making fixed odd wagers”, “any other business related to gambling” and “any other business considered by the board to be conducive to the success of or incidental to the business of gambling” and (c):

to develop and implement a scheme for the distribution of net profits and to negotiate funding arrangements with individual racing clubs.

If you go to section 54(2):

RWWA may conduct –

(a)totalisator wagering and fixed odds wagering on –

basically on “ any race” or “any sporting event” or “any other event” anywhere or any other contingency.  Section 54(5):

Wagering authorised under this section must be conducted in accordance with the regulations and the rules of watering.

The rules of wagering are something that RWWA itself makes with the approval of the Gaming and Wagering Commission under section 120.  That is at page 946.  There is no need for your Honours to turn to it.

Section 55(1) then allows for totalisator wagers to be lodged, despite any other law.  Section 55(2) does the same thing in relation to fixed odds wagering.  Section 56(1) says:

The mere fact of a person wagering on a totalisator through RWWA or conducted by RWWA, wagering at fixed priced odds through RWWA or wagering with RWWA under this Act –

(a)does not make the wagering an offence, whether at common law or by any Act –

We take that to mean that the act of wagering or placing a bet with RWWA cannot give rise to an offence under another law.

HAYNE J:   What would have been the common law that ‑ ‑ ‑

MR GAGELER:   There was no common law prohibition on betting, your Honour.  There is a very interesting little book written by Sir Victor Windeyer in about 1920 where he had a look at ‑ ‑ ‑

HAYNE J:   I have read it.

MR GAGELER:   It is very little.

KIRBY J:   It was in the 1930s, I think, was it not?  It is footnoted in the submissions.

HEYDON J:   1929, I think.

MR GAGELER:   Nearly 1930s, your Honour, yes.  So far as the conduct of wagering by RWWA is concerned, I pointed to section 54(5).  It is subject to “the rules of wagering”.  The rules of wagering, so far as we read them, contain some rules governing the conduct of RWWA of totalisators.  They do not appear to have any rules governing the conduct of fixed odds betting by RWWA.

GLEESON CJ:   Under this legislation would they be empowered to operate a betting exchange?

MR GAGELER:   Yes.  I will show you something interesting in just a moment.  There is in the regulations – and I do not want to take you to them – some provisions that govern the operation of online betting by RWWA.  Without going to the detail, as we see it, there is no requirement in those regulations or elsewhere for the recording or keeping a record of the internet sites of persons using the facility.  There is no requirement that we can see for the audio recording of telephone bets and there is no requirement that we can see for any monitoring or analysis or recording of betting activity.

One then goes to page 926 which deals with the financial provisions in Part 7, and your Honour the Chief Justice asked me about section 102, which is a couple of pages further on at page 932.  It requires by subsection (2) “RWWA must, in accordance with this Act,” paragraph (b), “pay tax, at the rates imposed by” its own tax Act.  That is behind tab 12.  In section 4 your Honours will see one rate for totalisators.  In section 5 another rate for fixed odds wages.

In section 107 of RWWA’s Act you will see:

RWWA must pay from the moneys received by RWWA in respect of totalisator and fixed odds wagering on sporting events –

first, the dividends then the amount of the wagering tax and then –

25%, or such other percentage as may be prescribed, of the balance to the Sports Wagering Account –

which is kept by the Gaming and Wagering Commission.  I am not going to go to that Act, but it allows that money to be distributed for sporting purposes within Western Australia.  That leaves the other balance of 75 per cent of the profit and that, according to subsection (2), is to be dealt with in accordance with section 105 or 106.  So 75 per cent of the net profit from sports betting, including American football and AFL and all that stuff, gets dealt with in the same pool as is dealt with in section 105 and section 106, that is, with the racing money.

What you see in section 105 is that up until 1 August 2006 there was to be a series of deductions and then when you got the balance in subsection 105(2) that balance was to be distributed in fixed percentages to thoroughbred racing clubs, to harness racing clubs and to – I think that is the greyhound people.

GLEESON CJ:   What is the position about income tax?

MR GAGELER:   I do not know.  I will see if I can find out.  I do not know how income tax is dealt with.  Then section 106 is the position after 31 July 2006 and what one sees there is that the balance of the funds under subsection (2) were to be paid in such amount as RWWA determines to those various bodies.  I do not ask your Honours to turn to it now, but the special case contains in paragraph 48 the vast turnover figures that we are concerned with here, in paragraph 49 the pretty vast gross profit figures.  Then I wanted to take your Honours to the book of documents, volume 3.

GLEESON CJ:   Bookmakers pay income tax.

MR GAGELER:   A bookmaker would pay income tax, that is right.

GLEESON CJ:   Yes, and Betfair pays income tax, I presume.

MR GAGELER:   I am just not sure about RWWA.  I am surprised that there is no reference to income tax in that scheme of distribution.  I just do not know.  I will find out.  Within the book of documents, volume 3, at tab 51 is the RWWA annual report for 2006.

At page 2354 you get a sense of the magnitude of the allocations that are actually made that would have been under section 105.  You see the table at the bottom of page 2354.  Then going back to 2350 within the Chairman’s Report there is a reference in the third paragraph to the distributions of racing stakes.  Then in the next paragraph, the fourth paragraph on page 2350, it is said:

The past twelve months has seen the licensing of the UK based betting exchange Betfair, by the Tasmanian Government.  RWWA is concerned that the operation of betting exchanges in Australia will have an adverse impact on the future welfare and integrity of the Australian Racing Industry as well as impacting on wagering revenues of Australian based totalisator operators.  The Board continues to assert that a wagering system that enables customers to bet on losing outcomes, poses serious problems for the integrity of racing . . . 

The Board and Management continue to undertake important research to scan the dynamic competitive market, and any opportunities and threats.

If your Honours would then put that to one side and look at volume 1 of the book of documents, tab 18, to get a sense of what a competitive environment might hold.  This is a letter obtained on freedom of information relating to the drafting of the very legislation with which we are concerned and it is from the Chief Executive Officer of RWWA dated 21 March 2006:

Following review of Draft 4 of the Betting Control Amendment Bill 2006, RWWA generally supports the thrust of the legislation.  However, we do have some concerns with section 27B totally banning the establishment or operation of a Betting Exchange, in that it could inhibit the development and operation of a Betting Exchange by RWWA if required at a future date.

We would seek some commitment that the Department of Racing Gaming & Liquor would support amendments to this legislation so they could be enacted in a timely manner if in the future RWWA is required to meet competitive pressures and establish a Betting Exchange operation either independently or in a pooling arrangement.

Your Honours, that is RWWA.  We do not see it needs any amendment to the legislation to achieve that.  It can do so under section ‑ ‑ ‑

HAYNE J:   It is a question of construction I would have thought, not what the general manager of RWWA might choose to write.

MR GAGELER:   There are a couple of questions, your Honour.  There is a question of substance and there is a question of construction, and on the question of construction it does not matter what the general manager might write.  On the question of substance, it is not irrelevant.

Can I turn to Western Australian bookmakers.  They are regulated under the Betting Control Act.  Your Honours have this mustard coloured copy.  It is in its current form, of course, incorporating the amendments of which we complain.  I will not deal with those at the moment but just look at the provisions dealing with bookmakers.

There is a definition of “bookmaker” in section 4 which really assumes that everyone knows what the bookmaker does:  makes a book.  One then goes to page 13 of the print which is the beginning of the licensing provisions.  What you see is that a bookmaker can be a natural person, the licensing of whom is governed under section 11A, a partnership, 11B, or a body corporate, 11C.  Whatever it is, it is subject to a provision like 11A(5).

GLEESON CJ:   What is it that leads to the assumption in section 5 that betting needs legalisation?

MR GAGELER:   It is not the common law.  It is by virtue of the prohibitions that you find a bit later on - section 24(1)(a), for example.  So there is a statutory prohibition on betting with someone who is not a bookmaker.  Exactly how these provisions work gets a little tedious and I was not going to go through them, but it is not by virtue of some illegality at common law.

GLEESON CJ:   What offence would a starting price operator commit?

MR GAGELER:   A person betting with a starting price bookmaker would breach section 24(1)(a).

HAYNE J:   The better, would it not?

GUMMOW J:   Section 23?

MR GAGELER:   Section 23 is where I was turning back to, yes.

HAYNE J:   Section 24(1)(a) would not be engaged against the better, would it?  It would be engaged against the bookie.

MR GAGELER:   You are right, yes.

GUMMOW J:   It would be 23.

MR GAGELER:   It is 23 and 24(1)(a), yes.

HAYNE J:   Section 23 has to be understood with its reference to “place” and the like against the background provided by Prior v Sherwood 3 CLR 1054 and Powell v Kempton Park [1899] AC 143, I would have thought.

MR GAGELER:   Your Honour is a bit ahead of me there.  I will have to look at those.  If you look at section 11A(5)(a) – and I will look at those overnight, your Honour – the basic provision repeated elsewhere, 11B(10)(a) and 11C(7)(a) is that a bookmaker’s licence entitles the holder to carry on the business of a bookmaker on a racecourse and if permitted to do so by the committee.  What one sees in relation to all of the bookmakers whose names are listed in the special case is that they all carry on business on a racecourse in Western Australia, including the Best Bookies website which is actually conducted from the Cannington greyhound racetrack.  Section 12(1) really spells that out even more in saying:

Nothing in this Act authorises a bookmaker . . . bet or carry on business as such on a race course without first having obtained a permit to do so from the committee or other authority controlling it.

(2)Subject to this section, the committee or other authority may grant permits to do so subject to such conditions as the committee or other authority thinks fit –

So there is a requirement for a bookie to be on a racecourse and obviously the bookie has to enter into some arrangement considered appropriate by the racecourse committee or other authority.

Section 4B deals specifically with sports betting.  On the assumption that a bookmaker is otherwise dealing with racing, section 4B(1) says:

This Act applies to the conduct of betting, by the holder of a bookmaker’s licence endorsed to authorise such betting, on a sporting event ora contingency where bookmaking on that event, or that contingency, has been approved by the Commission ‑

So it allows the Commission to designate sporting events or other contingencies upon which a bookmaker can offer bets, as well as on racing.  In the special case at page 38 – I do not ask your Honours to turn to this – and in Schedule 6 to the special case there is a list of the sporting events upon which ‑ ‑ ‑

GUMMOW J:   The Commission spoken of there is the Gaming and Wagering Commission, is it not?

MR GAGELER:   That is right.  What you see, in any event, is a huge range of events, many of them events with binary outcomes – that is, one person will win or the other person will win.  You then go to section 13 of this Act.  You see that a bookie is required to pay an annual licence fee.  Then section 14, the bookie is required to pay a betting levy.  That is a levy under the Bookmakers Betting Levy Act, again probably the precise percentages do not matter, but your Honours can see that it is a percentage of turnover as defined.  The Act - we have given your Honours volume 1, tab 5.

Section 33 then provides for the making of regulations governing bookmakers.  We have given your Honours the regulations, but I do not think I want to detain us by going to the detail of them.  They are in volume 1, tab 4 of the bundle of documents for your Honours’ reference.  The most relevant of them appear to be regulations 37, 48 and 50.  It is implicit in regulation 50 that a bet accepted by a bookmaker will be a back bet, but it seems only to be implicit, in part because that is the way in which bookmakers have traditionally made their books – that is by reference to back bets.

GLEESON CJ:   And the Commission has to approve, does it, all sporting events that are the subject of betting.

MR GAGELER:   Yes.

GLEESON CJ:   I put that clumsily, but you could not make a book on the outcome of the Under 12 soccer match between two schools next Saturday.

MR GAGELER:   Not unless the Commission approved it.  It has approved a lot of things but I do not think it has got quite to that level.  Regulation 48 is relevant because it requires, I think I am right in saying, compliance with the rules of wagering.  You will remember that the rules of wagering are those rules made by RWWA itself, again with the agreement of the Commission under section 121, I think, of the RWWA Act.

Again, I do not really want to go into the detail, it is a bit tedious, but there are overlapping provisions, almost identical, not quite identical, in the regulations and in the rules of wagering that govern telephone and internet betting offered by bookmakers.  In the regulations they are regulations 71 to 76, in the rules of wagering in a much more modern form they are rules 45 and 46.

HAYNE J:   Can I just take you back to the understanding of what or who is a bookmaker.  The statutory definition really does not illuminate much.  Is it an essential characteristic of bookmaker that that person frame the odds that are offered?  Is it an essential characteristic that the bookie lay the bets?

MR GAGELER:   No.  For definitions of “bookmaker” you have to go back to some old case law of the 1880s and 1890s which is really nothing more than a description of what was happening in the marketplace in the 1880s and 1890s so it really cannot be used as a particular guide to the meaning of the word.

HAYNE J:   But, for example, is Betfair a bookmaker according to your contention?

MR GAGELER:   Yes, it is a bookmaker that manages its risk perfectly and which has a different way of charging commission.  In England, when Betfair was set up in 2000, this is Betfair UK, it was licensed as a bookmaker.

HAYNE J:   Under particular legislation, I assume.

MR GAGELER:   No, under the bookmakers’ legislation that generally existed it was licensed as a bookmaker.  So there is no difficulty whatsoever in describing its activities as a particular form of bookmaking.  There is legislation in England which was introduced I think in 2005, which we have described in our written submissions, which has a slightly different regime which applies to betting exchanges, but as originally set up it was set up as a bookmaker. 

GLEESON CJ:   The expression that used to be used in England, for what we call a bookmaker, was commission agent. 

MR GAGELER:   Yes.  All that prevents a bookmaker from operating a betting exchange is a particular provision of the rules of wagering, rule 51(d) which came in in 2003 which says a bookmaker cannot operate a betting exchange and what is implicit in regulation 50 in relation to betting on at least something that is not a sporting event, there will be a back bet.  So they seem to be the things that stop a bookmaker from ‑ ‑ ‑

CRENNAN J:   Section 27B?

MR GAGELER:   Yes, that is one of the provisions I am going to come to, that is right.

HAYNE J:   But before we come to those, which ‑ ‑ ‑

CRENNAN J:   It is just not only the rules.

MR GAGELER:   Sorry, 27B, your Honour?

CRENNAN J:   Yes, in terms of the capacity of a bookmaker to operating a betting exchange.

MR GAGELER:   Yes.  Is your Honour looking at subsection (1) or subsection (2)?

CRENNAN J:   Subsection (1).

MR GAGELER:   Have a look at (2).

CRENNAN J:   Yes.

HAYNE J:   But in understanding the prohibitions in 23 and 24 we need to understand, at least for 24, do we not, who is a bookmaker, in particular for 24(1)(b) and (c) whether to bet with a person who says, “I will accept your bet only if it is matched by an equal and opposite bet” is a bookmaker as used, for example, in 24(1)(c)?

MR GAGELER:   It would be odd if that person were not a bookmaker because then the carve out – I am getting a bit ahead of myself here – but then the carve out in section ‑ ‑ ‑

HAYNE J:   If we are coming to it, come to it.

MR GAGELER:   The carve out in section 4AA would seem to make no sense.  Section 4AA, when it was inserted to give content to the prohibition in section 24(1aa) prohibiting a person betting through the use of a betting exchange, section 4AA defined “betting exchange” to exclude a facility that enables a person to place bets only with a bookmaker.  That would be superfluous if it were not the case that a bookmaker is able to match a bet made with the bookmaker with an opposing bet placed and accepted by the bookmaker.

HAYNE J:   No doubt a bookie can, of course, match bets, particular bets, but is a person who says, “I will accept no bet unless matched”, is that person conducting business as a bookmaker or vocation of a bookmaker, “carries on the business or vocation of, or acting as, a bookmaker”?

MR GAGELER:   Really it does not form part of my argument to deal with that, your Honour, but I will look at the old cases overnight.  If there is an answer I can usefully give, I will give, but the only thing that prevents, in our submission, a bookmaker in Western Australia from carrying on a business of a full-blown betting exchange is one regulation and a bit of the rules of wagering.  That is our position and, as I understood the submissions of Western Australia, it is their position as well.

CRENNAN J:   So 27B(2)(c) at the present position is that there are specific regulations which would prohibit a registered bookmaker in Western Australia from carrying out the functions of a betting exchange, particularly the matching bet aspect?

MR GAGELER:   No, it is implicit in regulation 50 that the bets will be generally back bets, perhaps not in relation to sporting events.

CRENNAN J:   Right.

MR GAGELER:   Your Honour probably should look at volume 2 of the plaintiff’s bundle of legislation, tab 13, page 1069.  Rule 51(d) is the explicit thing.  You remove those, subject to having looked again at the old law regarding what is a bookmaker, there is nothing stopping a bookmaker from modifying its website just a little bit and offering exactly the same full range of products as Betfair offers online.

HAYNE J:   Understanding you are coming back to it when you do, Mr Gageler, would you bear in mind that the question will then be, are betting exchanges modern phenomena?  I thought they were.

MR GAGELER:   The answer is, yes.

HAYNE J:   And thus if they are, what guidance are you getting from the old cases if it is not the guidance that bookies lay bets and accept back bets?  That is a subject to which you can come.

MR GAGELER:   Well, you do not get much from the old cases.  What you do get from the history – I was going to save this for reply – but what you do get from the history – I do not mind using it now.

HAYNE J:   It is true confessions time, is it, Mr Gageler.

MR GAGELER:   What you do get from the history of the licensing of bookmakers in Western Australia, in particular – I think the licensing came in in about 1948, it was not licensed before, everyone was an SP bookie who did it – the laying of bets – and, see, the term can be used in different ways.  I have been using it this morning in very technical ways, involving betting against an outcome occurring, but it was used more broadly in those days and what it involved was the bookie making a book and the traditional way of making a book ‑ ‑ ‑

CRENNAN J:   Accepting a bet.

MR GAGELER:   Yes, but the whole way you made a book was, without rather sophisticated calculating equipment, you would be taking back bets because you could not really do it any other way, so you would be taking back bets and when you laid the bet what you were doing was holding a customer’s stake.  That was really what the laying was about, the integrity of the wagering operator holding the customer’s money.  When you look at the origins of the regulation of bookmakers, only in the early to mid 20th century, that is what was being looked at, the laying of bets involving the taking of the punter’s money, keeping it, and then being a person of integrity who would do the right thing with it and pay out on a winning bet.

GLEESON CJ:   Mr Gageler, in the information you took us to earlier about the legislative requirement that RWWA distribute money in certain ways, including to the race clubs, do we have information as to the extent to which the race clubs are dependent upon those distributions by RWWA to provide the prize money for which racehorses compete?

MR GAGELER:   There will be snippets of that information in the special case.  There is something called the racing fact book that contains all sorts of statistics.  I will have a look at that.

GLEESON CJ:   Apart from entry fees to people who go onto a racecourse and entry fees to enter a horse in a race, at the moment I cannot think of what else provides the prize money for which the horses compete.

MR GAGELER:   Probably some sponsors, but apart from that one can infer ‑ ‑ ‑

GLEESON CJ:   Television companies, perhaps, if they have the right to broadcast the races.

MR GAGELER:   Yes, that is right.  Your Honour has seen the figures involved.  They are vast amounts of money that get distributed to the racing industry.  It would be surprising if the racing industry, under the present structure, were not substantially dependent upon those revenues.  Indeed, we will be asking your Honours to draw a very easy inference from the material that there was a concern that really is the real object of this legislation to safeguard the revenues of these incumbent wagering operators so as to be able to continue the traditional structure of distributions to racing clubs.  Racing clubs get a cut not just of the racing income but a cut of the income that comes from sport, 75 per cent of the net profit, as well as safeguarding those significant revenues that come to the State from the taxing regimes.

CRENNAN J:   Is it part of your argument that there would be no reason why Betfair could not pay some sort of commission if there was  ‑ ‑ ‑

MR GAGELER:   Of course not, no, as it does elsewhere.

CRENNAN J:   ‑ ‑ ‑ legislative arrangements elsewhere?

MR GAGELER:   Yes.  It is no part of my argument to argue that Betfair ought not, in appropriate non‑discriminatory circumstances, be required to contribute to the racing industry which produces the input product that goes into the competing wagering products that it offers and that RWWA and bookmakers offer, no part of my argument.

GLEESON CJ:   But your argument, as I understand it, is that the aim of this legislation is to protect a very heavily‑weighted favourite against competition from a light‑weighted outsider.

MR GAGELER:   No.  I appreciate the racing ‑ ‑ ‑

GLEESON CJ:   An outsider that does not bear the burdens of contribution towards the industry that the RWWA has to carry.

MR GAGELER:   Yes, all of that.  I was just trying to find, over lunch, an article written a couple of years ago by Judge Posner.  It was in the antitrust context.  I will find it and give it to your Honours tomorrow.  It was entitled Antitrust in the New Economy.  The basic point being made in the article is that antitrust concerns this century are more likely than not to arise in the case of a failing monopolist, that is, a monopolist whose structure is based on an earlier age who is being faced with competition from a newer, more technologically advanced competitor.  In our submission, that is the sort of case with which we are concerned.  There are many ways of dealing with it.

KIRBY J:   If in this case, instead of using the criminal law and the two provisions that you object to – and I understand that objection – the Parliament of Western Australia had enacted a provision requiring that bodies like your client or other international computer betting agencies would have to be licensed to operate in Western Australia and by such licence fees to contribute to a fund which would in turn contribute to the prize money and the running of the industry and all the other things that the present arrangements advance, would that fall foul of section 92 of the Constitution?

MR GAGELER:   No, if it were designed and administered in a non‑discriminatory way, that is, it did not make the financial burden on wagering operators operating from interstate relatively more than the financial burden on in‑State wagering operators we would not and could not complain.

KIRBY J:   You see, if you look at the two points put up by Western Australia, you will ultimately get to them, both of them are legitimate concerns of any polity, including in Australia, that they protect the integrity of those who are involved in gambling and they also protect the employment, prize money and other legitimate objectives of making it a viable employment activity and industry within our society.  Both of those being legitimate objectives, your attack is essentially on the way the Parliament of Western Australia went about upholding those objectives.  That is all you have to do to win this case.

MR GAGELER:   I go a bit further than that, but that is all I have to do to win this case. 

KIRBY J:   But you see, it seems to me that I have to test your proposition and your theory of section 92 against the legitimate need in the Australian polity of a free market within Australia but a free market which can also advance these two seemingly very legitimate objectives in a world that now has the added dimension of global internet gambling.

MR GAGELER:   Yes, we agree with all that, your Honour.  We say essentially to ‑ ‑ ‑

KIRBY J:   I want to hear your answer to this.  Your voice is dropping every time I want to especially hear it.  I think the microphone must be a little ‑ ‑ ‑

MR GAGELER:   No, your Honour, it is my problem of having spent too many days on my feet recently.

KIRBY J:   Just spare a few more for us, please, and make sure I hear you.

MR GAGELER:   Your Honour, we essentially have two responses and I want to make this an instructive way in due course.  One is that those objectives, absolutely legitimate as they are, do not explain this legislation.  There is another protectionist objective of maintaining the wagering turnover of incumbent wagering service providers for potentially good reasons, but that is the essential objective of this legislation.  That in itself is enough to label it protectionist and to cause it to fall foul of section 92.  Independently of that, however, ignoring that entirely as one cannot, but ignoring it hypothetically ‑ ‑ ‑

KIRBY J:   But you would probably be saying that for whatever scheme was put up even if it was a licensing scheme for international betting agencies who operate in Australia.

MR GAGELER:   Absolutely not, no, I would not say that.  I have some specific things ‑ ‑ ‑

KIRBY J:   I just want to test where you are going, you see?

MR GAGELER:   Yes, I will get there soon.  What I wanted to say - and I am just finishing what I wanted to say about bookmakers - is there are those provisions of the rules of wagering and the betting control regulations which control internet betting and telephone betting.  What one does not see within them is any requirement for the analysis of betting, the reporting of unusual betting activity or any other form of monitoring, save for – and this is the closest one gets – rule 46(4)(o) of the rules of wagering which says that when internet wagering is engaged in by a bookmaker – this is at volume 2 of our legislation, page 1065: 

a duplicate copy of the wager confirmation message is to be transmitted to the relevant racecourse controlling authority in respect of each internet wager accepted, or alternatively, the committee or other body controlling the racecourse is to be provided with real time on‑line system access.

That is as far as it appears to go.  So far as betting with a bookmaker on a racecourse is concerned, there is simply no requirement for anybody betting in cash to be in any way identified.  They can just get a chip, pay in cash, get a chip, come back and be paid out.  Then their identity can be entirely obscured. 

Now, Betfair - if your Honours would permit me to go to the plaintiffs’ bundle of legislation, volume 1, tab 1.  What you see is the Gaming Control Act 1993. I am afraid that Tasmania has gone completely online. You cannot get an official print of Tasmanian legislation any more. This is what you get. There are a few definitions at page 13, using the book numbers. Page 13 you will see the definition of “Commission”. At page 15 you will see a definition of “gaming activity” and “gaming endorsement” and at page 22 you will see a definition of “Tasmanian gaming licence”.

You then go to page 57 and you will see section 76A which provides “Despite any other law, the following activities are lawful” and (a) is sufficient:

the conduct of a gaming activity in accordance with, and subject to, a Tasmanian gaming licence ‑ ‑ ‑

GLEESON CJ:   Is it section 92 that explains Betfair’s move to Tasmania?

MR GAGELER:   Not entirely.

GLEESON CJ:   If this were a UK operation the same issues would arise, would they not, in terms of ‑ ‑ ‑

MR GAGELER:   But of course I could not call in aid section 92.

GLEESON CJ:   Exactly.

MR GAGELER:   Yes.  Your Honour, I am not suggesting it is irrelevant, but it is not beyond the consideration that was involved in Betfair’s move.

GLEESON CJ:   In some of the cases, including Cole v Whitfield, I think, there is a comment upon the fact that a certain view of section 92 gives a preference to State trade.

MR GAGELER:   Certainly it is ‑ ‑ ‑

GLEESON CJ:   Over intrastate or international trade.

MR GAGELER:   It is certainly a preference, even on the Cole v Whitfield view, to interstate trade over international trade.  There is no doubt about that, yes.  Then if you go to section 76C it allows for making an application for a licence.  Section 76I, the Commission determines whether or not a licence is granted and 76L is the actual issuing of the licence.  Section 76M(1) then says that:

A Tasmanian gaming licence must be endorsed with at least one gaming endorsement –

one of the gaming endorsements being for a betting exchange, as your Honours have seen and 76N requires the specification of premises.  Section 76VA then says that:

A Tasmanian gaming licence endorsed with a betting exchange endorsement authorises the licence provider, subject to this Act and any conditions to which the Tasmanian gaming licence is subject, to –

(a)      operate a betting exchange by way of a telecommunications device; and

(b)broker wagering through that betting exchange; and

(c)do all things necessarily incidental to the carrying on –

of those activities.  Section 76X then says that:

(1)      A Tasmanian gaming licence is subject to any conditions determined by the Commission and specified in, or attached to, it . . . 

(3)      Without limiting the matters to which conditions may relate ‑

They can relate to the approval of premises, security of gaming equipment and approval of an electronic monitoring system.  I want to take your Honours to the relevant electronic monitoring system in a moment.  I promise no more visual aids.  At page 69 then you will see specific provisions that deal with Tasmanian gaming licence with a betting exchange endorsement.  Section 76ZDC sets out some special conditions that are automatically included.  Your Honours might note paragraph (a), paragraph (n) and paragraph (o).

Section 76ZDL prohibits brokered wagering the persons who are not registered.  Section 76ZDM then says:

(1)A person must not wager through a betting exchange if the person is a direct participant in the brokered wagering event –

I will not read out the details of that.  Your Honours will recall the provision 76X(3)(c), to which I have already referred, referring to the inclusion within a gaming licence of a condition relating to the approval of an electronic monitoring system.  I will not take your Honours through the details but if you were to look at the current licence, volume 1, page 2.01, you see condition 1 which deals with the existence of internal control procedures.  Those internal control procedures in a redacted form because they deal with highly sensitive information, that is, sensitive to potential users of the exchange, appear in the book of documents, volume 1, tab 3, page 15 and following. 

At page 118 there is a requirement for every telephone call to Betfair’s premises in Tasmania to be recorded and at pages 78 and 79 there is a reference to various online monitoring and alert systems.  One of them is the Betfair monitoring tool.  The Betfair monitoring tool is referred to in the special case at paragraph 15 and it is referred to also in the special case at paragraph 31.  At paragraph 15 it is noted that the functionality of Betfair’s procedures for real time monitoring and auditing is contained within the CD, the same CD as contained the other material.  If you go to paragraph 31 it is said:

Betfair Australia has entered into confidential information sharing agreements with the controlling bodies of several racing and sporting events, being Racing Services Tasmania, Racing Victoria Limited, the Australian Football League, Cricket Australia –

and others under which it –

has agreed to provide betting information (including access to auditing and monitoring systems) –

What I wanted to show your Honours is the Betfair monitoring tool.  It is contained within the material in the CD which your Honours can watch at leisure, but your Honours have been given a few slides which capture the essence of it.  I hope they are to hand. 

So a racing steward or regulator or industry body with access to the Betfair monitoring tool can, by entering their ID and PIN number and going through certain security measures, see a page like your Honours see numbered page 17 before you.  What you see is they are able to enter fields which relate to minimum stake, minimum risk, maximum age, which is referring to the time at which bets were laid, and here the maximum age has been entered at 30 minutes.  So what one is seeing in this first slide is the details of every bet made with Betfair in the 30 minutes immediately before this screen was opened.  It could have been two minutes, it could have been 24 hours, but it would bring up absolutely every bet.

What you can see if you go to the next page is that simply sorting by the sport filter it will bring up every bet in the last 30 minutes on a horserace.  So what you see on this page – you see in the left‑hand column the unique customer number, you see in the next column the kind of event, you see in the next column a full description of the event itself.  You then see in the next column under “Selection” the selection in the race that the customer has chosen.  You then see where it is a back or a lay bet.  You then see the price, you see the stake, you see the amount the customer is risking, you see the return to the customer, you see the very precise time placed and you see the precise time that the bet was matched or accepted.

If you turn over to the next slide, slide 19, you can sort so that you have all of the details of the betting on a particular horse or runner or team in a particular event and if you go to the next page, page 20, if you want to, again by reference to any period of time, any real time if you want to just by clicking the refresh button, you will see every bet that a particular punter has made.  That, your Honours, complies with the condition of the Tasmanian licence.

Now, the context of the 2007 amendments, legal and factual, and I will try to do this legally very quickly, factually I am going to get a little more into the detail.  Legally, the context of the 2007 amendments comes down to four points.  The first is that by operation of provisions of the RWWA Act, the Betting Control Act that we have set out in the footnotes to our submissions in-chief, paragraph 20(1), apart from those few racing clubs in Western Australian that provide on-course totalisators, the only persons who could lawfully establish or carry on a business of providing betting on racing or sporting events in Western Australia were RWWA and licensed bookmakers.  That is the first point.

The second point is by operation of the provisions of the RWWA Act, the RWWA Tax Act, the Betting Control Act, the Bookmakers Betting Levy Act, which I have already mentioned and they are too tedious to mention again but they are collected in our submissions in the footnotes to paragraphs 21 and 24, RWWA and licensed bookmakers were obliged to pay a variety of taxes, levies and distributions to the State of Western Australia and to participants in the Western Australian racing industry.

The third point is that there was no obligation under Western Australian legislation for any interstate or overseas wagering operator to pay any similar tax or levy.  The understanding that led to that legislative omission your Honours will see in the “Gentlemen’s Agreement” that is referred to in volume 2, tab 33 at page 1327.  Your Honours might like to keep this volume to hand because I want to come back to it.  This is a pretty shadowy agreement but this is the only reference we have got to it in this material and you can comb all public material and not find much else.  At the bottom of page 1327, at the bottom of the page, about the fourth last line:

A feature of the development of wagering on racing in Australia since the 1960s is what has become known as the “Gentlemen’s Agreement”.  Flowing from this, wagering operators in one jurisdiction are basically free to bet on racing events in other Australian States and Territories.

The “Gentlemen’s Agreement” in the footnote, it said that:

Under the “Gentlemen’s Agreement”, wagering operators licensed in one Australian jurisdiction are free to accept bets on races in other Australian jurisdictions without the payment of a “product fee” to the jurisdiction in which the race is run.

And, of course, in the 1960s these are all State run TABs.  Things changed in the 1990s.  That is the third feature of the legislative landscape.

The fourth feature of the legislative landscape, and coming slightly more directly to a question your Honour Justice Kirby was asking me earlier, the only prohibition on a person in Western Australia betting with an interstate or overseas wagering operator was before these amendments contained in section 27A of the Betting Control Act, and in the form in which it then stood, your Honours have it in our bundle of legislation, the plaintiff’s bundle of legislation, volume 1, tab 3, page 316, and what you see is that section 27A(2) provided that:

A person in this State who makes an offshore bet with a person whom the person making the bet knows, or would be reasonably be expected to know, is not an authorised person commits an offence.

So there is a prohibition on the person in Western Australia betting with somebody who was not an authorised person. Section 27A(1) then defined:

“offshore bet” means a bet made –

(a)on a race conducted in Australia;

(b)by telephone or electronically by means of the internet . . . 

(c)with a person who is outside the State –

And “authorised person”, these are the persons who the bet could be made with, mean

(a)a bookmaker –

that is a licensed Western Australian bookmaker as defined:

(b)a person authorised under the law of another State or Territory to engage in or conduct betting on races; or

(c)an offshore betting operator granted an exemption by the Commission under this section –

Two things to know.  One is it was assumed that a person authorised under the law of another State or Territory to engage in or conduct betting on races, one, would meet any integrity concern and, two, no doubt by reason of the gentlemen’s agreement did not need to be the subject of some measure dealing with contribution to the local wagering industry.  Two, the criteria for granting an exemption to an offshore betting operator, defined to mean someone outside Australia, were the criteria set out in subsection (5), and subsection (5) allowed the Commission to refuse to grant an exemption having regard to two things.  One is:

(a)whether the jurisdiction which granted the authorisation to engage in or conduct betting on races applies similar standards to those that would apply to an authorisation granted in Australia; and

(b)any arrangements made by the offshore betting operator with Australian racing organisations –

the organisations who actually produce this input product –

in relation to engaging in or conducting betting on races –

Now, the reasons that one can see in 2003 that were advanced for the introduction of this provision – before that there was no prohibition on offshore betting - we have extracted in our long written submissions in paragraph 28. In paragraph 28 of our written submissions we have extracted the relevant part of the second reading speech for the insertion of section 27A. There was a refreshing honesty about what was said in 2003:

The purpose of these offence provisions is twofold:  first, to restrict the outflow from the State of betting revenue that is so critical to the welfare of the racing industry in Western Australia; and second, to ensure that Western Australian punters are not exposed to gambling service operators that have not been subjected to the rigorous integrity processes that are applied by Australian regulators.

That is the legal context.  If I can come to the factual context, it is this.  If your Honours keep our written submissions open, I am going to trot through a very quick chronology by reference to what we have set out in our written submissions.  In paragraph 4 we note that Betfair Australia’s co‑owner, Betfair UK, first established its betting exchange in the United Kingdom in 2000, as I said, licensed as a bookmaker.  If you then go to paragraph 35 you will see that in February 2003 there was the establishment by the Australasian Racing Ministers’ Conference – that is the racing Ministers of each of the Australian States and Territories plus New Zealand of something called the Betting Exchange Task Force which reported in July 2006.

If you go to paragraph 38 you note that the recommendations of the majority of that task force were against the granting of licences.  Paragraph 39 records that in October 2003 a majority of Ministers here – Tasmania and the Northern Territory opposing and New Zealand abstaining – resolved to adopt the majority recommendations.  I want to go to this report because, if you look at the material that is ranged against us about this so‑called integrity concern, apart from a little bit of anecdotal stuff and a couple of testimonials, it is all based on this Australian Racing Ministers’ Conference report – the Betting Exchange Task Force report.  It is really quite illuminating ‑ ‑ ‑

KIRBY J:   You say “arranged against” you, but the legislation is general.  It is not addressed only at your client.

MR GAGELER:   I am sorry, your Honour.

KIRBY J:   You say “ranged against” you, but the legislation is not targeted only at your client ‑ ‑ ‑

MR GAGELER:   I am going to show that it is.

KIRBY J:   It is addressed to a general social problem.  Can you deny that, in the area of gambling, it is within judicial knowledge that the nature of that industry is such as to run or introduce a peril of corrupt practices?   In short, if you fix horseraces, you can make an awful lot of money.

MR GAGELER:   I do not deny that even slightly.

KIRBY J:   Therefore, that there is a legitimate and universal public policy need of government to ensure, for the protection of the citizens and of other people using gambling, that they will not be the subject of victimisation of corruption and lack of integrity.  It is not addressed to you.  It is addressed to the world. 

MR GAGELER:   The general concern is a legitimate general concern.  If it were dealt with in a legitimate, general, non‑discriminatory way I would have not the slightest complaint.

KIRBY J:   Concerns in government are often very complex.  There may be a concern to raise a bit of revenue as well but there may also be a concern to protect the industry from corrupt practices and to stave up the employment and the prize money.

MR GAGELER:   Yes, I want to go to this, your Honour.  We have to look at the detail of this.  The Betting Exchange Task Force is volume 2, tab 33.  The reason I want to go to this in just a little detail and I will try to do it within half an hour of this, it spells out two reasons very, very clearly for opposing a betting exchange being set up in Australia.  One is this so‑called integrity issue.  When I say “so‑called integrity issue” I mean heightened integrity concerns because of the increased facility to lay a bet, that is what it comes down to.  What are those heightened integrity concerns?  They are that some unscrupulous people connected with the racing industry might seek to fix a race or somehow benefit from inside information, something that unscrupulous people connected with the racing industry have done for decades.  There is just no doubt that there is a legitimate concern about that. 

How is that dealt with in relation to the wagering products of RWWA and of bookmakers in the sort of indirect ways that I showed your Honours?  How is it dealt with in my client’s case?  Total prohibition.  Even focusing on that concern alone what has happened here has no element of proportionality, that is one thing I wanted to show your Honours.  But the other thing I wanted to show your Honours is that there was another real concern and it even crept into the explanation of that integrity concern.  The other real concern was, “Gosh, we’re going to lose a lot of money to this new wagering operator”, and these things are completely intertwined and the very justification that deals with the integrity issue just cannot be divorced from the explanation of the loss of revenue. 

At page 1250 your Honours see the membership of this task force.  At 1280 you see the terms of reference that were given to it in February 2003.  Your Honours might note 2.2(a) and (b).  If you go back then to page 1239, you get a sense of the structure of the report dealing with the effects on betting exchanges.  It dealt in 5.1 with the effects on integrity of racing events and participants, in 5.2 with the effect on licensed Australian wagering operators and on racing and government revenue streams and then down in 5.7 with betting exchanges – it probably should mean “and sport” and 5.7 ought be read with the reference to appendix E over the page and there was annexed to the report a document that emanated from the United Kingdom department relevantly of sport which was the only experience at that time of betting exchanges. 

Let me not waste too much time about that.  If your Honours turn to appendix E, which is at page 1458, you see the document that emanated from the government department which had had experience of a betting exchange.  At page 1461 the integrity of betting exchanges is specifically referred to and what was said was:

Representations have also been made to the Department that betting exchanges involve a new risk to the integrity of betting events.  These representations observe that the exchange allow persons with ‘inside knowledge’ to exploit less informed punters.  This threat seems to be particularly relevant to events, like horseracing, where there is a multiplicity of possible outcomes.  Knowledge that one outcome is highly unlikely allows an individual to then offer apparently attractive odds on the exchange.  One scenario might involve a user laying long odds on a horse otherwise thought to have a reasonable chance of success, on the basis of knowledge of an injury or illness. 

Of course, the use of inside knowledge for personal profit, however inappropriate, is not new.  It existed long before betting exchanges came into being, and the threat of corruption would be present even without the exchange model. 

The responsibility for tackling it must fall primarily on the sport, and its regulators.  Regulators must decide what restrictions to place on the betting activities of participants and other licensed persons . . . 

What the Government, and the Gambling Commission, can do is to give its full support to sporting regulators in their endeavour to maintaining the very highest standards of integrity.

GLEESON CJ:   Mr Gageler, I am sorry, but you did take us, did you not, to the bottom of 1264 and the top of 1265?

MR GAGELER:   Not yet, your Honour.

GLEESON CJ:   And 1267, which is an analysis of the likely consequences of permitting betting exchanges. 

MR GAGELER:   Yes.  No, I was going to take your Honours to those in due course.  I just wanted to show you the one experience of betting exchanges to date, that is, the UK experience as at that time.  That was what was before the ‑ ‑ ‑

KIRBY J:   Are you suggesting that this memorandum prepared by our local equivalents of Sir Humphrey is disingenuous, that it pretends to be deeply concerned about the issue of corruption and the local industry, but is really concerned about protecting the revenue which, since Ha, is a very important source of revenue for State Governments?

MR GAGELER:   “Disingenuous” is probably just a little harsher than I seek to make it, your Honour.  It is, in some ways, quite honest.

GLEESON CJ:   At pages 1265 and 1267 it is extremely frank.  It says the likely consequence of this will be a big loss of business from the existing revenue providers.

MR GAGELER:   That is right, so it is not entirely disingenuous.

KIRBY J:   If there is such a word, it is “genuous”.

MR GAGELER:   You want to show how that very clear and not disingenuous point really flows through into this integrity thing as well.  If your Honours were to go now to page 1308.

I want to focus on this because this is the reasoning.  This is the material that is the factual foundation of the assertions before the court of increased integrity concerns.  At page 1308 you will see the introduction, 5.1.1, this is under the heading Integrity.  You see 1311, the top of the page “Licensing of wagering operators” and the paragraph that occurs under that.  Page 1312 there is a heading “WAGERING INTEGRITY VERSUS RACING INTEGRITY” and the point then made in the paragraph or two that follows is that nobody has ever really suggested that a betting exchange gives rise to some problem with wagering integrity, that is, the actual wagering process.  The problem, if it exists, is about the integrity of racing, that is, the problems that might be associated with the conduct of the racing event if someone has an ability to lay.

GLEESON CJ:   At 1312 there is a concern about bets being placed after a race has commenced.  I suppose there is even more concern that the bet is placed after the race is completed.

MR GAGELER:   Yes, that is right.  At 1313 we have some “VIEWS ON HOW BETTING EXCHANGES CAN ADDRESS CONCERNS REGARDING RACING INTEGRITY”.  I just want to go through these a little bit because at the end of the day what was being said is, look, the majority of the people who made submissions to us expressed concerns about racing integrity, the majority of them.  Let us just have a look at what was said.  Firstly, the Australian Racing Board said in the paragraph in the middle of the page:

The integrity concern that is frequently raised in relation to betting exchanges is that the ability to lay bets through exchanges and thereby profit from a horse losing carries a temptation for either racing personnel (owners, trainers, jockeys, stable staff) or an external party to compromise racing integrity.

That, at the end of the day, is what the real concern is about.

KIRBY J:   Sounds like the argument at the time about the new forms of cricket. 

MR GAGELER:   That is right.

KIRBY J:   When new international approaches came which were linked to the new technology of television everybody said this is the end of civilisation as we know it but, in fact ‑ ‑ ‑

MR GAGELER:   That is a very good analogy, your Honour, my learned friend from the West says it was.

KIRBY J:   In fact, it really increased the world audiences.  I mean, even people in South America watch cricket now, something they never would have done.

MR GAGELER:   No.  Page 1314, this is still part of the same Australian Racing Board submission, at the bottom of the page:

The general experience in Australia has been that incidents of undesirable betting transactions are minimised where the mask of anonymity is removed and scrutiny and disclosure of such transactions is available to controlling bodies.  In addition, we note that, as presently provided for in the Australian Rules of Racing, certain categories of licensed persons (for example jockeys) are prohibited from betting.  Once it is known that betting transactions can be and are monitored, and there is a real likelihood of being detected, then the incidence of undesirable transactions is likely to decrease. 

The next page, 1315, about halfway down the page:

it is submitted that the most appropriate response to the integrity issues that may be associated with betting exchanges is to concentrate on achieving the following outcomes:

-gaining access for real time monitoring of betting exchange transactions . . . 

-expanding current race supervision . . . 

-enhancing controls on the flow of pre‑race information ‑ ‑ ‑

GLEESON CJ:   This expression “it is submitted”, it is submitted by the Australian Racing Board, is that right?

MR GAGELER:   It is submitted by the Australian Racing Board.  You will see that the Victorian controlling body took a very similar view.  I just want to go through the competing views.  Then at 1315 you see a corporate bookmaker.  It is self‑serving stuff, I do not want to go to that.  You see 1317, Betfair UK, the betting exchange.  I do not want to go to that.  Of course they support a betting exchange but I want to go to the views against a betting exchange at 1319.  Here we have, “VIEWS OF AUSTRALIAN RACING ADMINISTRATORS AND STEWARDS”.  No 1, Australian Capital Territory:

In general we believe that the racing industry should oppose any move to license Betting Exchanges in this country and request that Governments legislate to prohibit them setting up if integrity concerns can not be addressed and payment of an agreed “product fee” to the racing industry is not a prerequisite of that licence being issued.

There we have it.  That is the integrity concern being expressed by the Australian Capital Territory.

KIRBY J:   Are you saying that with a mocking voice?

MR GAGELER:   I certainly am, yes.

HAYNE J:   But they did go on just a bit, Mr Gageler.

MR GAGELER:   Just a bit, yes.

KIRBY J:   No, but they have both points there and they say “integrity” and “product fee” which is revenue which, from a point of view of government of a territory, is perfectly legitimate.

MR GAGELER:   Legitimate if it is done in a non-discriminatory way, yes.

KIRBY J:   It may be anti-competitive.  It may be legitimate from the government’s point of view but it may be anti-competitive and contrary to section 92.

MR GAGELER:   I am using “legitimate” in a constitutionally legitimate sense, your Honour, yes.

GLEESON CJ:   What are you trying to persuade us of in relation to this?  There are two concerns being expressed throughout this document; the effect on revenues and consequential effect on the racing industry and the government, and integrity problems.

MR GAGELER:   These are the views that are being expressed purportedly in relation to the effect on revenue.  That is dealt with separately in this report.  These are the submissions that have been made by the Australian racing administrators which then feed into the conclusions and recommendations in this report as to the concerns about racing integrity.  What I am seeking to do is simply to elucidate the basis upon which the conclusion of this report in relation to integrity was formed.

What I am really seeking to show, your Honours, is that it is not really any considered analysis of integrity, there are a few ideas thrown up and they are always combined with this concern about protecting wagering revenue.

KIRBY J:   But how could we, sitting effectively as a trial Court, say there are these three concerns that are coming out of here:  revenue, the integrity and the employment/prize money and other factors of the industry and we just do not believe that they are really interested in these other factors.  There are no officials coming, nobody is coming in to give real evidence.  How could we sort that out?

MR GAGELER:   What I will be asking you to do at the end of the day is two things.  One is to form the judgment that a substantial object of this particular legislation was to safeguard the revenue streams of these wagering operators.  That is in itself enough, in our submission, to colour the law with a protectionist character.

KIEFEL J:   Like a dominant purpose test.

MR GAGELER:   No.  I do not even have to go to dominant purpose, your Honour.  I just have to say that the law cannot be simply explained in the context.  It is really the explanation or justification for the law.

KIEFEL J:   Cannot be completely explained ‑ ‑ ‑

MR GAGELER:   Cannot be completely explained.

KIEFEL J:   But you were speaking before in relation to proportionality.  Are you denying two purposes operating in parallel?

MR GAGELER:   I say that if there are two purposes in parallel and one of them is protectionist and a court can form a judgment that the law is giving effect to a protectionist purpose, then that is the end of the case.  We do not have to go further.  But even if one did not really have the protectionist purpose, which I say you have, and you looked at a supposed legitimate non‑protectionist purpose where the effect of the law is still to discriminate against an interstate trader, then the question really becomes whether the degree of the discriminatory burden is explained by the different circumstances of that trader.

What I am seeking to show your Honours is really, when you get the integrity concern, what is being said here is that the increased ability to lay a horse on Betfair’s betting exchange gives rise to such an increased possibility of some people in the racing industry fixing races or profiting from inside information, that the absolute banning of betting with the betting exchange is justified.

KIEFEL J:   You accept that there is an increased risk ‑ ‑ ‑

MR GAGELER:   No.

KIEFEL J:   You say that there is no material reverting to the question about how far this Court is involved in a factual inquiry ‑ ‑ ‑

MR GAGELER:   I will say ‑ ‑ ‑

KIEFEL J:   You keep saying there is a capacity for this, but someone must surely say there is an increased risk and that is what the prohibition is addressed to.

MR GAGELER:   No, nobody says there is an increase.  Well, some people will say that there is a possibility of an increased risk.  Perhaps I should just go to the conclusions in this report as summarised - page 1251 in relation to ‑ ‑ ‑

KIRBY J:   Normally we have a trial judge and an intermediate Court of Appeal who have gone through all these facts and the trial judge has seen witnesses and weighed all the things up and really you are making a very big ask of us to effectively say, well, they have dressed it up but it is not really that.

MR GAGELER:   Your Honour, they did it in the Potato Case, they did it in Vacuum Oil, they did it in Castlemaine Tooheys.  It is not as if this has not happened before, and the Court has decided questions.  This is more material than usual, but this document really does contain the weight of analysis such as it is that our learned friends rely upon to show that total banning is a proportionate response.

KIEFEL J:   But what conclusion do you say we should come to about the risk to integrity spoken of in relation to laid bets in terms of fixing horses, and how do you say we should come to it?

MR GAGELER:   Your Honours should accept that there is a risk to the integrity of racing and sporting events that arises from any form of betting.  Your Honours should not conclude – and here in our submission it is our opponents who bear the onus of proof – one, that there is an increased risk to the integrity of racing or sporting events that arises from the operation of a betting exchange in accordance with the conditions that exist under Betfair Australia’s Tasmanian licence, that is, with real time monitoring and ‑ ‑ ‑

KIRBY J:   But the Royal Insult incident, which is referred to on 1331, is a pretty good illustration, whatever happened there, of what is potentially possible.

MR GAGELER:   I have not got to three, but I will deal with that.  I will do three and then I will come back to that incident.  Three, that even if your Honours were to conclude that there were some potential, which is the language used at page 1251, for an increased risk, your Honours could not conclude that the total banning of a betting exchange is a proportionate response to that increased risk.  It is entirely a question of degree.  I have shown your Honours ‑ ‑ ‑

GLEESON CJ:   What do you mean by “proportionate”?

MR GAGELER:   I mean a measure reasonably appropriate and adapted to safeguarding the integrity of racing and sporting events.  That is what I mean ‑ ‑ ‑

KIEFEL J:   But you have to identify the degree of the risk to know what you are addressing it to.

MR GAGELER:   Your Honour is way ahead of me and that is what I am trying to do with this material.

KIEFEL J:   Sorry.  I am just so interested to get there.

GLEESON CJ:   You are not inviting us to substitute our opinion as to the degree of risk, or the opinion of the Racing Minister’s as to degree of risk, are you?

MR GAGELER:   I am seeking to do – yes, yes, I am.  I am seeking to do two things.  One is explain ‑ ‑ ‑

GLEESON CJ:   Well, how would we know?

MR GAGELER:   I am not forgetting your Honour’s question.  Our opponents bear the onus, in our submission, of showing legitimate object and reasonable and proportionate means of achieving that object and that that reasonable and proportionate response to a legitimate and non‑discriminate object is the explanation or justification for the law, and here I am using Castlemaine Tooheys language.  Now, if your Honours do not know, then they lose, but your Honours can know if your Honours just look at the material with a healthy degree of scepticism.

GLEESON CJ:   If you were invited to write for us a paragraph in our judgment as to this material that you have been taking us to, what would it be?

MR GAGELER:   It would be that the risk to the integrity of racing identified in this report is no more than a potential risk, one.  Two, that the potential risk so identified was based on nothing more in the end than assertions by the State controlling bodies of racing who had a financial interest in maintaining the existing system.  Three, the views they expressed were (a) tainted by a concern at maintaining the wagering streams of existing wagering operators upon whom they were dependent and (b) were ill-informed about the integrity safeguards built into the Betfair operational system, that is, the real time monitoring.

Most of these representations are all about the problems of anonymity, which it could not be further from the truth.  I hope I have got to the end of the paragraph.  That is about what I want from it, I think.

KIRBY J:   Yes, I mentioned the case of Royal Insult but since then I have referred to 1336 and the conviction of the Gleesons.

MR GAGELER:   Yes, different Gleesons, I think.

GLEESON CJ:   That sounds like the trotting industry.

KIRBY J:   A very serious matter.

MR GAGELER:   Of course it is.

GLEESON CJ:   We had a list of the members of the Gypsy Jokers recently in front of us.

MR GAGELER:   It is a very serious matter.

KIRBY J:   I am only getting my own back.

MR GAGELER:   Can I simply say this.  You cannot blame a speed camera for someone speeding.  To point to an incident where somebody through the use of the Betfair monitoring system is caught and prosecuted and convicted proves what?  That there is an element of corruption within sport and racing?  Of course there is.  But you cannot blame that element of corruption on the vehicle that catches it.

HAYNE J:   Does the material that you have taken us to show that ‑ ‑ ‑

MR GAGELER:   I have not quite got there, your Honour.

HAYNE J:   ‑ ‑ ‑ several considerations might be thought relevant to whether to make betting exchanges lawful?  They include, one, considerations of State revenue.

MR GAGELER:   Yes.

HAYNE J:   Two, considerations of integrity of sport.  Three, considerations of the health of the sporting industry concerns on which the wagering products are parasitic.

MR GAGELER:   Yes, that is right.

HAYNE J:   There may well be many others, but they include at least three?

MR GAGELER:   Yes, that is right.

HAYNE J:   A State legislature may make an assessment of the weight or value of those factors and whatever other factors may be thought to be in play and may lead, as in Tasmania, to the conclusion that the betting exchange should be permitted to conduct its business subject to various conditions.

MR GAGELER:   Yes.

HAYNE J:   Does it follow then, in section 92 terms, that the participation from another State cannot be prohibited either at all or at least cannot be prohibited so long as revenue protection is one of the relevant factors, third choice, so long as revenue protection is a substantial dominant, here insert whatever qualifying epithet is chosen?

MR GAGELER:   What does your Honour mean by “revenue protection”?

HAYNE J:   State revenue protection.

MR GAGELER:   It is not really the point.  The point is the protection of the revenues of the competing ‑ ‑ ‑

HAYNE J:   The other gaming operators.

MR GAGELER:    ‑ ‑ ‑ gambling operators within the State.  That is the point.  You cannot treat an interstate producer in a discriminatory way for the purpose of safeguarding or enhancing the revenue stream of your incumbent in-State producer.  That is the very definition of protectionism.

GLEESON CJ:   That raises the question of discrimination and here the law on its face is not discriminatory.  It says nobody can carry on a betting exchange or bet with a person carrying on a betting exchange in Western Australia.

MR GAGELER:   Yes.

GLEESON CJ:   Not RWWA?

MR GAGELER:   Well, not quite.  I have not got to it yet, but it excludes RWWA.  Your Honour is thinking of section 27B(1).  RWWA is excluded form that by section 27B(2).

KIEFEL J:   As it currently operates, though.

CRENNAN J:   As the regulations stand.  That is (2)(c), is it not?

MR GAGELER:   I am sorry.  RWWA is expressly carved out of the prohibition on a betting exchange in Western Australia.  We complain about facial discrimination of the law, but I will deal with it at a purely substantive level.

We complain that this legislation – and I am going to assume it to be facially mutual and it is not – is aimed at our interstate Tasmanian business.  There is nobody else in Australia who is currently conducting these betting exchange activities.  It is aimed at us, there is no doubt about it.  I wanted to show your Honours a little bit more in the material how that is so.

CRENNAN J:   Can RWWA do it now or is it something they can potentially do in the future?  That is the bit I do not understand about 27B(1) and (2), particularly (2)(c).

MR GAGELER:   Section 27B says that:

A person who establishes or operates a betting exchange commits an offence.

So that is the prohibition.  This applies interstate.  Section 27B(2) then says subsection (1) does not apply to anything done by a bookmaker and (b) says it does not apply to anything done by RWWA in accordance with its Act.  I have shown you the provisions of its Act.  It can set up a betting exchange if it wants to.  This is facially discriminatory, which is one of the grounds of our attack.  It does not prevent RWWA from setting up a betting exchange if it wants to as a result of its strategic review and in response to its competitive concerns – and I have already shown you – and as its CEO said, it might ‑ ‑ ‑

GLEESON CJ:   Is this the legislative response to that letter you showed us earlier?

MR GAGELER:   It may well be, we do not have the draft.

GLEESON CJ:   At all events, the letter was written and then this legislation was introduced.

MR GAGELER:   That is right.

CRENNAN J:   And we have rule 51.

MR GAGELER:   Pardon?

CRENNAN J:   And rule 51 I think was the rule that you referred to.

MR GAGELER:   No, that deals with bookmakers.  That rule does not affect RWWA.  So the rule deals with bookmakers.  You see, bookmakers can set up a betting exchange, they are not prohibited, I am sorry, by section 27B.

CRENNAN J:   And RWWA can also?

MR GAGELER:   Yes.  RWWA, in our submission, unquestionably can set up a betting exchange if it wants to and, as the letter indicates, may well want to once it has completed its strategic review.  So far as bookmakers are concerned, it is rule 51 of the rules of racing and perhaps some elements of the regulations only that prevent them from operating a betting exchange at the moment.

GLEESON CJ:   But if Betfair set up a Western Australian operation like its Tasmanian operation, a Western Australian company, this would stop that company operating a betting exchange in ‑ ‑ ‑

MR GAGELER:   Yes, unless it could get a bookmaker’s licence, yes, that is right.

KIRBY J:   I think there has been some reports in the newspapers in recent days concerning your client.  Are we just to disregard that entirely?

MR GAGELER:   No, if your Honour wants to ask me a question I will answer it.

KIRBY J:   I will think about that but actually, if you read the Northern Territory dissenting conclusions, they are pretty powerful reading but we are not a legislative body.  How do we judge these matters of the merits ‑ ‑ ‑

MR GAGELER:   I need to address this theme in the written submissions against us that this is all political. Yes, it is all political but we are concerned with a provision of the Constitution that emphatically places constraints on political choice and it does so – and I think I referred to Ely’s Democracy and Distrust in a footnote, in our written submissions – but it is really quite significant work and in this respect they make some really pertinent observations.

The whole point of a provision like section 92 is to constrain political outcomes where those political outcomes can be readily seen to be the product of incumbent in‑State constituencies and where they discriminate against entities or groups that have no part within that State political process.  Essentially that is what section 92 is about.  Yes, it does involve second‑guessing judgments made at a political level, but the Court has done it on many occasions.  Cole v Whitfield itself said that that is what is involved in a section 92 case.

KIRBY J:   I get a bit of an impression here that this is – I think you opened this morning with an entirely new and global approach ‑ ‑ ‑

MR GAGELER:   Yes.

KIRBY J:   ‑ ‑ ‑ using a new and global technology meets Australian regulatory authorities with the comfortable world in which they have operated, which has been largely down at the track, in the TAB and on the phone and suddenly there is this new, amazing technology available ‑ ‑ ‑

MR GAGELER:   And it is a big threat.

KIRBY J:   ‑ ‑ ‑ and the old regulators want to keep it all as it used to be, but, like world cricket, that is not going to happen.

MR GAGELER:   Your Honour has it in one.  That is really the thesis.

KIRBY J:   But even if you have that view and you think that this is an anti‑competitive purpose, then you are asking us to substitute our view for views that have been expressed by people who know a whole lot more about the industry than the other Justices of this Court and infinitely more than this particular Justice of the Court knows.

MR GAGELER:   Your Honour has captured the thesis perfectly, so your Honour has caught up in the course of the day very well.

KIRBY J:   Thank you for the reassurance.

MR GAGELER:   If that is the thesis that your Honour is prepared to accept, and it really does come through very clearly – it looks like I will not be going through the detail of this report – it does come through very clearly from this report then your Honour must conclude, in our submission, that the proportionate response to a non‑protectionist objective is not the true explanation for this law.

GUMMOW J:   I think the article by Judge Posner is in the Antitrust Law Journal 68 for the year 2001, page 925.  It is called Antitrust in the New Economy.  Does that ring a bell?

MR GAGELER:   Thank you, your Honour, yes.  That was it.

CRENNAN J:   Would it be part of your argument that the integrity issues, so far as they arise for the intrastate producers of betting exchanges are presumably dealt with just through the licensing arrangements that currently exist.

MR GAGELER:   Exactly, and they are not any different from the – they are simply integrity issues that arise because people who bet on races or bet on sporting events may have an incentive to influence the outcome of those sporting events.  That is it.  That is where it comes from.  That is a problem that arises with any form of gambling.  There are different measures that are taken in different regimes – regulatory regimes – to safeguard against that concern and none of them go to the extent of the conditions imposed by Tasmania on Betfair.  None of them are as stringent as those with which we comply and there is simply nothing that would justify the total prohibition of any offering of our product as a proportionate response to something that on any view is just a question of degree, yes.  I am sorry, your Honour to labour ‑ ‑ ‑

GLEESON CJ:   If we were to take the view that this report and other material makes it clear that a substantial purpose of the prohibition is protection of a local industry, then what is the significance of the fact that there was a genuine integrity concern?

MR GAGELER:   This, your Honour.  You have to identify the concern, and that is what I have been attempting to do.  You have to really identify what is this integrity concern.

GLEESON CJ:   Let us suppose we have identified that concern.  We then have to make a judgment as to whether the prohibition involves what Lord Diplock calls “taking a sledgehammer to crack a nut” or some Europeans call “shooting sparrows with a cannon”.

MR GAGELER:   Yes, that is exactly right, and you cannot do that without a fairly clear understanding of just what the basis of this nut or sparrow is.  I will not take your Honours through the document.  Can I simply give your Honours the references that I particularly wanted to draw attention to?  From page 1319 onwards what you see after the Australian Capital Territory is New South Wales, Northern Territory, South Australia, Western Australia in various forms.  I will not read the passages, but all of them proceed upon either a misunderstanding of the monitoring that is involved in betting online and/or an express reference in this context of integrity to wanting to safeguard the existing wagering operator’s revenues.

It is just intertwined with the references to integrity.  The only experience of betting exchange at that stage was the British experience.  I have taken your Honours to appendix E.  For the current position your Honours can see it in the United Kingdom expressed in volume 3, tab 40 at page 1756 and in world cricket terms, your Honours, the British have said, “Get real, this phenomenon is here to stay.  It’s new technology, get used to it”.  What you do not see in any of this material is anything other than assertions of the possibilities and potentialities summarised here at page 1251 – and this is really as high as it gets, where under the heading “Effects on integrity” it is all about integrity being potentially at risk; potential, potential, potential.  That is the word that is used.  It is a possibility.  It never rises higher than that.

Contrast that with what you see at page 1252, addressing the other topic, commercial and revenue repercussions.  In the middle of the page the task force concludes that:

betting exchanges on Australian racing would pose a serious threat to current betting turnover levels –

It is just clear-cut and that is what is shown by the ‑ ‑ ‑

KIEFEL J:   I suppose at the other end I would assume that it is too early days for it to be shown in the UK experience that regulation is effective to address those concerns?

MR GAGELER:   To address integrity ‑ ‑ ‑

KIEFEL J:   Concerns about the integrity issues, race fixing and the like.

MR GAGELER:   Well, so far as the United Kingdom regulator was concerned ‑ ‑ ‑

KIEFEL J:   I assume that there is no objective evidence that anyone can point to to say that one way or the other that they are effective?

MR GAGELER:   One way or the other, no.  All that one could point to is the experience of the regulator then, and one can point to the experience of the UK regulator now.

KIEFEL J:   Because otherwise one has a set of regulations addressed to the issue and all you can say about them is that they are potentially effective, but they might also be motivated by the same concern, that is, established monopolies and wishes to maintain them, that is, a desire for income.

MR GAGELER:   No, we are talking about the regulatory authority in the United Kingdom, we are not talking about representations made by incumbent industry participants, but I understand what your Honour is saying but not in this case.

GLEESON CJ:   Now, Mr Gageler, we have reached a point which is two‑thirds of the time that has been allocated to you and Mr Young together and we have reached the end of the second of your five points.

MR GAGELER:   Yes, I am not doing very well.

GLEESON CJ:   And we are about to come to Cole v Whitfield.

MR GAGELER:   Yes.  I will just have to cut down what I was going to say, your Honours.

GUMMOW J:   That is what is most useful, you see.  It is much more useful to me than rummaging through this material.  That is what I tried to make clear to you this morning.

MR GAGELER:   Okay.  I will deal with that first thing in the morning but, your Honours, I am afraid, are directed by Cole v Whitfield to the facts, and I have been attempting to deal with the facts.

GLEESON CJ:   Do you think that you and Mr Young can finish by lunchtime tomorrow on that basis?

MR GAGELER:   Well, I would like more time.

GLEESON CJ:   Would it make a difference if we were to sit at 10 o’clock tomorrow morning?

MR GAGELER:   It would help, yes.

GLEESON CJ:   We will adjourn until 10 o’clock tomorrow.

AT 4.18 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 8 NOVEMBER 2007