Does Malta have a case in its dispute with the European Commission?

Malta’s disagreement with the European Commission (EC) over its interpretation of European law is highly complex. Legal experts believe the gambling hub could have a case, after disputing an EC warning sent in June insisting the jurisdiction must comply with EU law.

Gaming lawyers from local Malta-based firms GTG Legal and financial services provider CSB Group say the EC could be acting outside of its jurisdiction.

“This is increasingly becoming more of a philosophical matter than a legal matter,” Dr Terrence Cassar, partner at GTG Legal, tells iGB.

“The TFEU covers very specific scope as the EU’s remit as a supranational union, and gambling has always been kept specifically out of the EU’s scope. The EU started as a trade agreement, but now it’s focusing on broader matters beyond its original remit, sometimes more on philosophical and other matters and surely beyond trade.”

The dispute relates to Article 56A, an amendment added to Malta’s Gaming Act in 2023, which aims to protect locally licensed operators from legal cases brought by other European jurisdictions. This relates to Malta’s interpretation of the EU’s TFEU (Treaty on the Functioning of the European Union), which Malta believes gives provision for services (like online gambling) to be provided freely across EU states.

The EC sent a formal warning to Malta in June, insisting it must comply with EU law and address its failure to recognise court judgments made against Malta licence holders.

One example of this is Malta’s refusal to enforce Austrian court judgments in favour of local players being awarded refunds for gambling on sites that were not locally licensed. This ruling was delivered by a Maltese Civil Court and determined that previous Austrian judgments, which were in favour of players who had lost winnings to Malta-licensed operators, were contrary to Maltese public policy.

What is Malta actually disputing?

Malta and its gambling regulator have defended its stance on the TFEU, and it believes Article 56A is a viable addition to local laws.

Digging into the details of its defence, Cassar says Malta does not take issue with locally regulated markets, as long as they operate in compliance with Maltese gaming law.

“Malta has had online gambling regulation since 2004, and with Article 56A, it was putting into writing what it always believed,” says Cassar.

“The legalities of online gambling are very nuanced. A local [licensing framework] should only be imposed by a member state as an exception to the EU freedom to provide services (TFEU), based on public health.”

The Maltese government is not disputing that operators must comply with local gambling laws across Europe. But it is arguing that its own licensing laws could effectively usurp the laws of other countries in disputable matters.

“Malta is saying it won’t recognise judgments from other countries because it goes against Malta’s public policy, and where the view would be that the other country’s regime is not compliant with EU law,” Cassar explains. “The fact that a licence is needed in a foreign country does not necessarily translate to that licence being legal in an EU context. It boils down to whether the laws of that particular country are justifiable from an EU point of view or not.”

Does Malta have a credible argument?

Malta does have a valid argument, Cassar says, as Article 56A should not be seen as breaking any terms set out by the EU.

Kyle Scerri, senior legal manager for commercial and financial services provider CSB Group, says Article 56A does not contradict EU law. Malta’s Gaming Authority protection of the amendment “codifies into law Malta’s long-standing public policy on gaming matters”.

“On this note, it is crucial to point out that EU law, which itself has been effective for a number of years prior to the introduction of Article 56A, specifically allows for the refusal and recognition of a judgment if such recognition ‘is manifestly contrary to public policy (ordre public)’ in the European Member state in question. Accordingly, Article 56A may be considered as a reiteration of the principles enshrined in EU law.”

Cassar said: “The EU is trying to rule on a domain which falls outside its jurisdiction. Malta has enough faith in its framework that it should stand up to scrutiny and it does not believe other relevant countries have stronger frameworks than Malta, which could be enforceable [instead].”

What happens next?

If Malta does not comply with the EC’s June letter within two months, the case could be referred to the European Court of Justice (ECJ), meaning a long and outstretched case and judgment could be likely.

However, the process could be sped up by an ongoing ECJ case which is considering Malta’s position in relation to a number of player losses cases in Germany and Austria. An update is expected on Thursday.

This could have huge implications for Malta’s argument, particularly if the ECJ sides with the EU on its interpretation of freedom of movement trade laws.

“I think it will take at least two or three years for a final outcome,” Cassar says.

“[But] the ECJ’s ruling in this regard in respect of Article 45 of the TFEU, not to be confused with Article 56A in Malta, can have a very direct impact, so once that plays out, this could then lead to impact on Malta’s Article 56A.”