Betfair Pty Limited v Racing New South Wales & Ors; Sportsbet Pty Ltd v State of New South Wales & Ors [2011] HCATrans 231 (31 August 2011)

Last Updated: 31 August 2011

[2011] HCATrans 231

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S116 of 2011

B e t w e e n -

BETFAIR PTY LIMITED (ACN 110 084 985)

Appellant

and

RACING NEW SOUTH WALES (ABN 86 281 604 417)

First Respondent

HARNESS RACING NEW SOUTH WALES (ABN 16 962 976 373)

Second Respondent

ATTORNEY-GENERAL (NEW SOUTH WALES)

Third Respondent

Office of the Registry
Sydney No S118 of 2011

B e t w e e n -

SPORTSBET PTY LTD (ACN 088 326 612)

Appellant

and

STATE OF NEW SOUTH WALES

First Respondent

RACING NEW SOUTH WALES (ABN 86 281 604 417)

Second Respondent

HARNESS RACING NEW SOUTH WALES (ABN 16 962 976 373)

Third Respondent

ATTORNEY-GENERAL FOR SOUTH AUSTRALIA

Fourth Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 31 AUGUST 2011, AT 10.16 AM

(Continued from 30/8/11)

Copyright in the High Court of Australia

FRENCH CJ: Yes, Mr Gleeson.

MR GLEESON: Thank you, your Honours. Your Honours, we need leave to rely upon the notice of contention which was provided to the Court back in April. It was seven days late. I seek that leave. It is at page 2411 of volume 6.

FRENCH CJ: I think there are two applications for leave.

MR GLEESON: Yes.

FRENCH CJ: Yes, leave is granted.

MR GLEESON: Thank you, your Honour. Your Honours, I need to deal with some factual matters this morning concerning turnover, and propositions put yesterday by Mr Young about the merits of revenue. I would like to deal with that topic first, if I can, and it is related to proposition four on our list. The difference between the parties is that we submit that turnover provides a measure of equality between wagering operators in this industry, whereas Betfair urges the Court to find the only metric – they put it that high – that could possibly be adopted is revenue. They go so far as to say that turnover is irrelevant to their business, and they claim they do not hold turnover and that it really must be dismissed from the equation. Can I deal with those propositions?

Firstly, in terms of the framework with which to consider them, we would submit that we are looking at in terms of concepts of competition and substitutability. We are not looking at simply legal questions of whether money is place into an account or a trust account or simply in the general revenue of a trader, we are looking at competition and substitutability. If I could ask your Honours to go to our written submissions at paragraph 7.

We would urge that if one approaches the matter firstly from the concept of the demand side of the market from the perspective of the punter, the decision is whether to place the, for example, $100 of available wagering money with one or more of these different operators and the choice is whether to place it with a tote where it will be pooled of course, to be placed with a bookmaker where it would become part of the book or with the betting exchange. What happens in law, of course, is that Betfair acts as a principal in relation to two contracts. It is a principal assuming a liability to the punter and then it is, as it were, a punter by making a matched bet with the person who is the layer. So in economic terms, of course, what the punter is doing is trying to engage in a transaction which sees that money placed at risk in the hands of the ultimate layer.

In legal terms there are two contracts involved there. That is apparent, namely that there are two contracts, from the way Betfair pleaded the case at volume 1, page 24 where they set out their terms and conditions. The full terms and conditions are at volume 5, page 1996. But at volume 1, page 24 Betfair accurately says that under their terms and conditions if you are a punter you have to place funds in the trust account before you can start betting. You can only make offers to lay or to back if you have sufficient funds in trust to cover the bet, if accepted.

So the proposition that Betfair does not hold turnover, if one wishes to look at it legally what they do is receive a sum of money in trust which covers the back bet and the lay bet. In economic terms they are providing a substitutable service whereby they take the risk in respect of the bet of $100 knowing that they have a matched bet. The concept of the matched bets is referred to on page 24 at paragraphs (e) through to (i).

It is the necessary ingredient which they must win, that is, win over their rivals, in order to be in a position to earn revenue. Of course they earn revenue by doing so in a slightly different fashion. That is part of the competitive force, but the essence of being able to earn revenue is to receive back-bet turnover and that is true for everyone. If it was reduced to its absolute essence, there are these propositions.

FRENCH CJ: That is the $100 you are talking about?

MR GLEESON: That is the $100 I have mentioned once or twice. Reduced to its essence, no use of the race field information then no back-bet turnover, no back-bet turnover, no revenue. Then how each operator earns revenue of course varies. We deal with this in paragraph 7 as well. With the tote the revenue is earned by the fixed takeout. With the bookmaker it is earned substantially through the overround and with Betfair it is earned through a charge of a commission on net winnings. As to that, contrary to what Mr Young put, there is nothing inherent in a betting exchange that it must charge its revenue on net winnings. It could charge a fee on each back bet, if it wished. It chooses that particular method and it is entitled to. But in economic terms, it adds nothing to the analysis to say they charge their revenue in a different way to the totalizator or the bookmaker.

If I could then ask your Honours to look at paragraph 8 of our submissions. If one were pursuing a true case of anti-competitive effect, which Betfair never did, one would need to be looking at the range of competition which occurs both in terms of price and quality. Little was said yesterday about the quality of the services by Mr Young, he made some submissions about price, but in the real competitive world the operators are competing partly in money terms, that is paragraph 8a, and in that sense the choice for the punter between the three operators is a function of not only the odds available from each but what fees Betfair is charging. It is the only operator in the market that charges a fee in addition to a price reflected in the odds.

As we indicate in paragraph 8b, each operator needs to make decisions as to how it will effectively charge in money terms for its offering, and it does that, and that is all part of the competitive struggle. We indicate in paragraph 8c, contrary to what Mr Young put yesterday, that there is no finding from the trial judge, and the evidence is to the contrary, that the betting exchange should be assumed to always, or most of the time, offer a better price in money terms. If I could ask your Honours to go to volume 1 at page 140, Mr Twaits agreed with that proposition. At page 140 between about lines 20 and 40 he agreed with the proposition that:

There are occasions, more than infrequently, where the odds on Betfair are not as good as the odds on one of your competitors.

He explained why that was so. What he was contending at page 141 between lines 20 to 30 was that on a particular event the price may be a higher price with Betfair but Betfair’s claim was that if you looked at things in the aggregate, its margin used in the sense Betfair uses that term, was lower than competitors.

Now, that focuses on price competition. In paragraph 8d we indicate there would of course be non-price competition, and if one were exploring competitive effects in any real world sense one would be looking at them as well and they include of course, for some people it is nice to be able to place a bet in a retail store or, indeed, it is often nice to be at the course and see the race. You cannot get those services from Betfair, but you can get other services that some people find highly attractive. So the proposition we are leading to is that in that competitive framework where different wagering operators compete on money and quality, the common integer that they are all seeking to win is the back-bet turnover.

It is therefore unsurprising that the back-bet turnover would be a measure of a quality between them and the essence, the beauty of this fee, is that whoever wins that competitive back-bet turnover pays exactly the same amount in dollar terms. That is the true reason why it is non-discriminatory and non-protectionist.

Your Honours, in that context Mr Young made some submissions yesterday about back-bet credits for bookmakers. I think he sought to persuade you that that is an example of the regulators tailoring the fee to meet a particular circumstance of the bookmaker, and he said, “Well, why can you not do that for us?” Of course the error in that submission is that all the back-bet credit does is ensure no double counting.

What it means is that if a bookmaker lays off with another bookmaker there will be one fee charged on the lay bet and it will be charged to the second bookmaker. Now, it is exactly the same approach that has been taken with Betfair because the racing authorities never sought to charge two fees on a Betfair transaction. They charge one fee, even though there are two match bets. They are both treated exactly equally in that fashion.

FRENCH CJ: It is incidental in a sense, but the way in which odds are determined on a bet which you place with Betfair, does the better look to odds that are being offered by layers, or is there some sort of indication on the screen, for example, as to the odds that you are going to get?

MR GLEESON: Yes, both indications are on the screen and it is functionally equivalent to looking at prices on an ASX or internet trading share scheme. If I am considering laying a back-bet wager, I can see on the screen that I can put a certain amount into the market at a particular price which has come from a layer, and if I am a layer, it is the reverse. Could I hand to your Honours a screenshot which is a slightly better version of what is in his Honour’s judgment, which shows just exactly how that occurs.

FRENCH CJ: Yes, we can get that document, please.

MR GLEESON: This is a screenshot of what is found in the primary judgment at paragraph 49. It is the best we could do. What it shows is that on a particular race at Wagga, the No 1 horse, Shania Jadestar, has a jockey, Maurice Johnson, and that is the race field information being displayed there, that is the name and number of the horse. Then if your Honours go over to the column headed “Back”, what that indicates is if I want to be a backer, I can wager $17 and get odds of 55 to 1. Then back to the left of that it shows other possibilities for a backer which are not as attractive, so I could place $32 but I will only get 44 to 1. It is slightly counterintuitive, but “back” means back here if you wish. On the layside, as it were, the best offer being made on the market is a layer is at 150 to 1, there is $12 available, and then it goes up to 180 to 1 and 200 to 1 odds.

So they are the options there. While your Honours have that, it is difficult to read, but immediately above the first column of numbers next to the horses there is a figure which shows 110 per cent. Now, that is the overround which has been generated in the market and it was the next point I wish to come to which Betfair so far has overlooked. His Honour made an important finding at paragraph 52, if I could go to that, that in the Betfair market, “in most of the markets” – that is the way he described it at the end of paragraph 52 – there is a phenomenon where the layers, taken as a class, are bound to make a profit and the backers, taken as a class, are bound to make a loss. His Honour says, well, why that came about was not explored but that is the way the world works.

What has actually happened in the Betfair model is that the layers are as a class obtaining an overround and as a class they are making a profit in the same way a bookmaker would construct an overround within a book. His Honour had explained the bookmakers overround at paragraph 24. Why am I mentioning that? Only because it is but the first reason why Betfair’s concept of commission, far from treating people equally, excludes part of the benefit they obtain from the use of the race field information. When I say “part of the benefit they obtain”, their model is based on a premise that they will take commission themselves and they will externalise revenue into the hands of the layers.

Why are they doing that? That is what is going to attract people to become layers in the Betfair market and many of them might be big bookmakers themselves. If you are measuring the use of the information by way of back-bet turnover, you capture the whole of the use. If you confine yourself to Betfair’s commission, you do not take into account the profit which the layers have made through this externalised process. Could I show your Honours that that is not an insignificant matter and ask your Honours to go to volume 5 at page 1903.

This is a letter that Betfair wrote to the minister in Tasmania seeking some indulgences. The paragraph I am relying upon is the first paragraph headed “Racing Products”. Betfair asserted that in relation to corporate bookmakers their:

average book percentage for a best tote product is 108% -

Now, by 108 per cent, using Betfair’s language, that is a margin of 8 per cent that the revenue, as a function of the back-bet turnover, is 8 per cent. They said that –

compares favourably with Betfair’s book percentages which are usually in the range of 101% - 104% prior to the application of commission rates. Once commission rates are factored in, the book percentage for Betfair’s products are closer . . . Therefore corporate bookmakers currently compete on a level playing field -

So Betfair was acknowledging that 101 to 104 per cent is the over-round externalised into the hands of the layers to which one then adds their commission rate. So immediately we can see that the over-round is a very substantial amount which would need to be added to the commission to get a fair measure of use. Mr Twaits was asked about that at volume 1, page 142, about this very letter and he agreed, between about lines 20 and 30, that the 101 to 104 per cent was:

the probabilities of each runner in a particular race, winning that race, add up to between 101 and 104 per cent.

So there we have the over-round and the 108 per cent is the combination of both. So we immediately see, and this is only the first difficulty with revenue, that it is artificial and fails to capture the full benefit Betfair obtained from the use of the information.

Your Honours, then in our submissions, if I could just make a point about paragraph 9? One matter the parties are agreed upon is the manner in which Betfair uses the expression “margin”. There is no confusion in this area and the Full Court was not confused in the way they approached it. Betfair’s concept of margin, which is not the way the term is often used, is simply the relationship, “overall and on average”, between revenue understood solely as commission and back-bet turnover. All Betfair is saying when it invokes margin is a comparison between those two integers - revenue understood solely as commission and back-bet turnover and it says it has a lower margin than TAB and others because, on average, its commission reflects a lesser percent of back-bet turnover.

Now, that is consistent with what Mr Young put yesterday, and Betfair’s reply submissions at paragraph 54 agree with that concept. What that means is that this concept of margin, as we say in paragraph 9, has nothing to do with the relative prices on an individual event, it has got nothing to do with that. It has nothing to do with the quality of the services provided and, importantly, it has nothing to say about the relationship between revenue and cost. One of the lacuna in Betfair’s case was that it never propounded any statements about its costs other than to say this cost is an additional impost. What it never did, as, for example, was done in Castlemaine Tooheys, is to say, “Here is my cost base. Here is TAB’s cost base. Here is how this fee will relatively impact us”.

Your Honours, at that point, could I just draw a comparison with the airline industry where sometimes people speak of low-cost airlines or low-margin airlines. When one speaks of a low-cost airline, traditionally the concept is that a new entrant has come into a market, has stripped out a lot of the costs which the incumbent bears and for that reason is able to charge a lower price. So it involves some relationships between cost, revenue and price. None of that is what is involved in this case of Betfair. It is just this comparison between the two entities I have mentioned. That is part of the reason why both the trial judge in the Full Court correctly found that Betfair’s concept of margin tells one nothing about competitive behaviour in a market, which leads me to this point, your Honour.

Betfair’s case is not just about some particular features of the wagering industry. Betfair’s case, if it were correct, commends this proposition to the Court; section 92 prohibits any form of charging which treats traders equally by reference to volume whenever traders earn revenue at different rates relative to volume.

GUMMOW J: Is that proposition in your oral outline?

MR GLEESON: That is what I am seeking to deal with in paragraph 4a and paragraph 5, your Honour. In particular, in paragraph 5 we seek to indicate near the end that if a trader in any industry makes decisions which for the time being mean it earns, on average, less commission per unit of turnover than a competitor, that does not make it an unequal who requires equalisation measures under section 92. That is our central point and our central difference with Betfair’s case.

HAYNE J: Is that a proposition to the effect that the difference observed is not a relevant difference?

MR GLEESON: Yes. That one commences with no difference as in the fee, treats people equally by reference to turnover, turnover is a measure of volume, and then the claimant says, “But there is a difference which is, I earn my revenue at a different rate to someone else” which if you think about it will just about always be the case. Most traders will have differing strategies which produce differing revenue relative to volume results and their proposition is as soon as there is such a difference it is a relevant one and you have to then discard the measure you have adopted, namely turnover or volume and you have to go to revenue because that is the only way you can treat us as equals. The essential point being made, slightly differently by the trial judge in the Full Court, was that such a proposition is simply too broad as in you have not yet found a relevant difference merely by observing that particular matter.

KIEFEL J: A difference in the volume of turnover is maybe that it reflects market share, the amount of turnover.

MR GLEESON: Turnover, as a measure of volume, is one very convenient measure of market share, but I would not - - -

KIEFEL J: But what you are saying is a fee could have no impact upon that.

MR GLEESON: It has no impact on that because whoever wins that turnover, wherever the market shares vary; if Betfair goes from 5 per cent of turnover to 20 per cent of turnover, the amount of revenue raised by the control bodies is the same and so, as I will be coming to a little later on, contrary to the notion that this sort of fee somehow erects a protective barrier around a high-margin trader and stems the flow of custom away from it to the low-margin trader, it does the exact opposite because it says whoever wins that battle between any of the traders in the market, wherever the turnover ends up, the same amount is added to the cost base of each trader. So our proposition is the case really does stand or fall upon the notion you can never treat turnover or volume as a measure of equality in any market where people earn revenue at different rates and I add that will be probably every market.

HAYNE J: Before you part from this, what is the criterion of relevance in determining whether a difference is relevant or not relevant?

MR GLEESON: Because we are in section 92 territory, the criterion of relevance is whether there is an actuality or a relatively clear tendency to interfere with the operation of interstate trade or, put differently, to produce a substantial interference with competition within the national economy.

Our only real difference on this point with the trial judge was the trial judge split the matter up into two boxes. He said, well, discrimination is one box, protection is another. The Full Court looked at them together. We would commend the Full Court’s approach. Essentially, that is what the Full Court’s approach came down to. The difference they were pointing two was not shown to have any relevance in the sense I have tried to summarise. Your Honours, perhaps the clearest place in the Full Court’s reasons where we submit the test is correctly stated is in three places. Firstly, paragraph 88 and, secondly, the first sentence of paragraph 92 and, thirdly, by way of application of that principle, paragraph 94.

CRENNAN J: In a sense, the epithet originally used, or the idea originally behind section 92, that is to say, whether that measure was discriminatory because it is protectionist, in the present setting protectionist as an epithet is really a synonym for anti-competitive.

MR GLEESON: Your Honour, we can accept and embrace that as part of our argument and indicate that what was necessary to be done and never embraced was the exercise of saying we are going to show how it is anti-competitive to treat us as equals in relation to turnover when we earn revenue at different rates. There were available means to do it. The first and most obvious means was expert evidence and that means it was disavowed. The second means was to see from the conduct, the actual conduct of the market participants, whether a fee which had been in force for a period of time was exhibiting any anti-competitive tendencies, and there was no evidence to that effect.

The third means was to at least hear from Mr Twaits as the principal of Betfair charged with all these decisions as to the impact or not that the fee had on competition. Your Honours know that that part of the evidence is in volume 1 and it commences at page 203 and then goes over to page 206. Without reading it, it is a fairly stark piece of evidence because it is not just, as Mr Young says, a recognition they have not passed the fee on. What is more important is it is a recognition that they have not in any way changed any aspect of their competitive behaviour nor plan to do so in the face of the fee.

For instance, at page 205 at line 10 there is no change in the commission structure. At line 15 there is no change in marketing spend. So to the extent Betfair is on a growth program, nothing to suggest that has changed. Then he agreed they had not lost a single dollar of back-bet turnover. So there has been no loss of turnover to TAB. Has not lost any revenue and, indeed, he then agrees they have continued to behave in the same competitive fashion as before and after, the fee has not impacted on strategy in any way at all.

CRENNAN J: I think Mr Young’s submission when these matters were suggested to him was that the point or the complaint being made is that there is less revenue available to compete.

MR GLEESON: Yes, and that is where the case starts and ends. That is a proposition which always follows where you charge based on volume and people earn revenue at different rates. We do not deny that as a proposition. There is less revenue available. The case they are seeking to propound to the Court is merely pointing to that fact, mean section 92 has been infringed without any analysis of how at all less revenue being available, which of course always occurs when there is a new impost, has or is likely to affect any competitive behaviour in the market.

If I could ask your Honours to go back to volume 6 in the trial judge’s reasons at paragraph 160 his Honour correctly summarised that that was the beginning and end of the case. There is less revenue available per dollar of turnover and what his Honour did, correctly, we submit, in a passage which is not just a pleading point, but was a point of substance, was to go on and analyse whether Betfair were propounding any additional matters for the court to consider, and in paragraph 165, he correctly analysed that the Betfair case did not involve any of those three matters and they are the types of matters which might have made the difference relevant.

In paragraphs 168 to 169, his Honour correctly said that what Betfair had eschewed any exploration of was the matters which might explain why margins were different between competitors and therefore whether there was any interference with competition by the apparently neutral fee. His Honour’s list of matters is not exhaustive, but if one looks simply at paragraph 168, the first matter he identifies is a question on the cost side, were there differences in cost between the competitors and, if so, how would that factor into the analysis.

The second matter, a deliberate generation of losses to increase market share, that would be the case if someone was charging a low price in the early stages of business to build big increases in turnover over time and that would need to be considered. The third matter is the presence of other streams of revenue - is there cross-selling or the like occurring. I propose to show your Honours that there was at least enough evidence from Mr Twaits to show that these matters were not fanciful, that is, there was no exploration of them in the trial – and I am not suggesting this Court should – but that these matters his Honour has pointed to as being the fatal lacunae were not to be dismissed as unrealistic.

Similarly in paragraph 169, he says they are the sorts of matters you might be exploring on the side of the higher margin trader and his Honour’s conclusion at 170 was simply that a true inquiry into protectionism, or anti-competitive effect, would require an analysis of those matters and that just never occurred.

So the point between these parties in the end is rather short. The proposition is section 92 strikes down everything where you charge on volume and there is differential revenue for whatever reason. Do not look further. Do not go to economics any further. Just assume that that is somehow offensive to the unfolding of a national economy.

HAYNE J: If the relevant inquiry is to search for whether there is an anti-competitive effect or result, how do you take account of the interstate requirement or element of 92?

MR GLEESON: Our submission is, and it is our proposition nine, that it remains an important element within section 92 which - - -

HAYNE J: If you are coming to it, deal with it at a time appropriate to you, Mr Gleeson.

MR GLEESON: No, your Honour, I will do it now. Our primary submission is it does remain an important element and it would be an error reverting to the individual rights theory for someone to say, “Because I am lower margin and I happen to be in interstate trade, you must accept my decisions as to revenue and charge on revenue”, but that would give no weight to the concept that it is trade, interstate trade as opposed to traders, that is protected by the guarantee.

The example we give is in Castlemaine Tooheys [1990] HCA 1; 169 CLR 436. There is a big difference between the parties in how we read that case. We submit that that was a case where, admittedly on agreed facts – the two particular vices which are found at page 462 over to the top of 464 were that the new measure effectively increased the cost base of a person who happened to be in interstate trade from 16 cents to 31 cents a bottle – that is found at the top of page 464 – whereas the local trader suffered no increase in cost base.

Now, that is the type of inquiry into competition that is appropriate under section 92 because one has started with the actual cost base and one has said one trader is having 15 cents added to its cost base and the other is not. If I could just pause there, this is actually a volume-based case. It is the bottle cost which is being used as the base, and the reason there is discrimination is that 15 cents is being added to the cost base per unit of volume, or bottle, of one trader but not the other. Now, I am attempting to come to answer your Honour’s question. On page 464, the first full paragraph which commences, “The practical effect”, was to prevent those companies obtaining the market share in excess of 1 per cent which they would otherwise achieve - - -

GUMMOW J: That phrase “was to prevent” is rather strong I would have thought.

MR GLEESON: Yes, your Honour, and Mr Young says your Honours should not place any reliance on that paragraph. That is not part of the reasoning, as it were. That is just a fact that came out of the agreed facts. We would - - -

GUMMOW J: Where do we see them in the agreed facts?

MR GLEESON: It is in the agreed facts at page 443. At about point 7 it is said:

As a result of that campaign the first four plaintiffs increased their share . . . from less than 0.1 per cent to 4 per cent in less than two months. [They] had intended to continue their advertising campaign. The first three plaintiffs had planned to attain 10 per cent of the market –

Then at 447, about point 7:

In the market conditions existing . . . the first three plaintiffs together could have captured up to 10 per cent of the market . . . at the expense of other producers in the market. Beer is a price sensitive commodity. A small increase in the price of a brand of beer will result in a disproportionately large decrease in sales of that brand. Accordingly it is not possible to sustain a market share in excess of 1 per cent with an uncompetitively priced product.

The link in the argument is fairly clear. You start with a cost base of about 16 cents each per bottle. The measure adds 15 cents to the cost base of one. You are going to have to increase price. That is an assumption. When you increase price you will lose custom and instead of being a person who was likely to get 10 per cent you will remain a de minimis competitor in the market. So we submit that what was on page 464, while it has come out of the agreed facts, is a central part of the substratum - - -

HAYNE J: Well, it comes directly from the agreed facts, I think, at 449 about point 8, or at least that is the agreed fact that gets closest.

MR GLEESON: Yes, and it is not a fact that hangs in the air, as it were. It comes as a consequence of that chain of reasoning that I sought to describe. With that as the context, the Court at 467, in the last full paragraph, said that:

a law which imposes a burden on interstate trade and commerce but does not give the domestic product or the intrastate trade in that product a competitive or market advantage . . . is not a law which discriminates –

So my answer to your Honour’s question is that that statement there remains a correct statement explicating the role of interstate trade within this inquiry, and on the facts then the Court said, because of those two disadvantages we have mentioned that gave the interstate traders a competitive or market advantage. So the vice in this case, contrary to what Mr Young put, has got nothing to do at all with the present sort of case. This is a case where, per unit of volume, one trader has its cost price doubled and the other does not.

Then, your Honours, the other point where this is mentioned is over on page 475. A series of arguments were being put in support of the measure. The second argument was dealt with at about point 4. That second argument is found at about point 2:

that the fixing of the refund amount at 15 cents advantaged C.U.B. as much as the domestic brewer –

CUB was another interstate trader. So the argument being put was: well, it has only hurt one interstate trader, it has not hurt another, indeed, it has benefited another, so how could section 92 be infringed? In that context the court said:

As for the second reason, the impact of the provision on C.U.B. might tend to suggest that the intended legislative object was not to discriminate against interstate brewers.

So, in other words, the fact that one could see interstate traders who were not burdened by the measure would at least be relevant in determining whether we had the offensive type of discrimination. The Court went on, though, to say:

It does not negate the purpose of discriminating against interstate trade consisting –

and then the next words are important –

in the main, of the trade of the Bond brewing companies . . . After all, it was the growing market share of those companies, not C.U.B –

the other interstate trader –

that threatened the market share of the domestic brewers. Discrimination in the relevant sense against interstate trade is inconsistent with s. 92, regardless of whether the discrimination is directed at, or sustained by, all, some or only one of the relevant interstate traders.

So this fact that the whole legislative object was to prevent an interstate trader building up a 10 per cent market share, that is what allowed one to conclude that this was not just a trader being burdened, but it was interstate trade itself. After that long prelude, my answer to the question is that it is not enough for Betfair to say, “This hurts me more by reference to revenue and I happen to be an interstate trader”. What we would be looking at is real, likely, competitive effects where this measure has a real tendency to impede or prevent Betfair gaining market share if that be its plan. That is the - - -

HAYNE J: Is a way of looking at Castlemaine Tooheys to see it as a case in which one significant would-be interstate trader could not, by reason of the measure, enter interstate trade by trading from WA into South Australia?

MR GLEESON: It probably goes as far as that, your Honour, because the finding - - -

GUMMOW J: It becomes a barrier to entry case, it seems to me.

MR GLEESON: It is a barrier to entry – finding that it rendered it uneconomic and the court is saying in the counter-factual, but for the measure, your plan was not only entry but was sustained significant entry where you were already up to 4 per cent and you were likely to get 10 per cent. Because of the measure, effectively, you are excluded from that market.

GUMMOW J: I think that is how Mr Jackson was maybe putting the case actually. If you look at 453, about line 12:

If an interstate trader carries on his business in a particular way . . . If there is a significant extra cost for no particularly good reason other than to protect local traders, that is an indication that the law was intended to have the effect of protectionism - - -

MR GLEESON: Could I remind your Honours that one of the reasons the trial judge thought this was a fatal gap was that in the very application by Betfair – if I could ask your Honours to go to volume 1 in the pleading – at page 61 your Honours see from the strikeout a previous version of the pleading which Betfair abandoned prior to trial and the paragraph at the bottom of the page would have tendered for issue a viable case under section 92.

HAYNE J: It would be an exit from the market case.

MR GLEESON: Yes, and with the sting in it that would thereby reduce wagering on New South Wales thoroughbred races and that is the element that was not pursued in the case and, similarly, it is of little significance that if your Honours go back to pages 56 and 57 the words that have been struck out indicated that Betfair was not pursuing a case that the fee would impact on its ability to offer the services profitably. Now, once those two elements have gone, one asks what was the relevance of the difference they were contending for?

HAYNE J: Then coming back to the question which began this series of interrogatories, Mr Gleeson, what does “relevant” mean in this context? We have identified entry and exit to an interstate market as being a circumstance that qualifies as relevant. In the case where there is likely to be continued participation in a market, what kinds of things are we looking for in identifying what is relevant? I do not expect some exhaustive list, would that life were so easy, but what kinds of things?

MR GLEESON: If the fee makes an addition to the cost base of one trader but not to another which is so significant that it is likely to alter the competitive behaviour of the first trader such that the second trader can either preserve or build its turnover and market share, one would be in the territory. That is one possibility. The second, which is slightly different, which is what both the trial judge and the Full Court focused on, which is to say, does the fee attack a true competitive advantage which interstate traders hold? Does it undermine or burden or negate a true competitive advantage and thereby operate to distort the competition which would be occurring in the national economy?

What the trial judge considered, again correctly, your Honours, is that that sort of case which might possibly have been available – this is volume 6, at page 2264, paragraph 173 – that Betfair in reply for the first time propounded that that would be a section 92-type case. They said:

A burden has [the relevant] characteristic if in its differential effect it is likely to remove or diminish significantly any competitive advantage which the interstate trader enjoyed over the intrastate trader before the imposition of the fee or is likely to impose a competitive disadvantage –

Then his Honour noted in paragraph 174 that this reply submission tried to make such a case on the facts and it tried to assert that Betfair had:

competitive advantages over TAB Limited as a result of its cost structure and operating margin.

Then there was some reference to aspects of the costs structure. So the very matters which had been eschewed in the case were here adverted to. Then the next paragraph, 175, went further:

To identify any competitive effects of the fee it is necessary to understand what it means in terms of revenue or expense –

we note “expense” –

to Betfair and TAB Limited. It is only by reference to its revenue and expense consequences that likely competitive effects can be considered.

His Honour said:

These submissions are, with respect, on the mark.

That is the sort of case that might get you in the territory. His Honour then said they could not be permitted to run this case because it was not a reply case and it had not been run. Then the following paragraphs are only important in that his Honour gave the most detailed consideration to whether he would permit that type of case to be run and concluded at paragraph 195 he would not.

FRENCH CJ: Do you accept that it is not necessary in order to find an infringement of section 92 that the burden be characterised as affecting market structure, for example, as a barrier to entry, that it may be sufficient if it affects interstate trade, in fact, by its impact on a particular trader?

MR GLEESON: Yes. The guarantee is broad and it is not confined to particular cases and there will be more extreme cases and there will be more subtle and flexible ones. What his Honour was saying was, “The territory you needed to be in you never engaged with, really, until too late and I will not let you do it.” That decision of discretion by his Honour not to permit an opening up of that type of inquiry is one which is correct and should be beyond challenge.

HAYNE J: Whether or not that is so, can I take you back to 173 in his Honour’s reasons and the recitation of the submissions. Is that a set of propositions that directs attention to traders or trade, and is there a distinction that has to be drawn in this field of discourse between the effect on a trader and the effect on trade?

MR GLEESON: That proposition has not clearly drawn the distinction and we submit it does need to be drawn. This point may be taken up by New South Wales in more detail, but on the present case factually we have the situation where we have a raft of traders all over the country of varying margins, some of them engaging in local trade, some engaging in interstate trade, some using more than one business model. Betfair, for instance - - -

HAYNE J: But where the market is a national market.

MR GLEESON: In a national market, yes, and if one was seeking to strike down this measure you would be needing to conclude that the consequence of the differential margins was to impede, to a substantial extent, competition within that market and that is what they just fell short on.

CRENNAN J: One answer, I suppose, is it would be possible to concentrate on the position of an individual trader to such an extent that you would get back to Dr Evatt’s theory of section 92.

MR GLEESON: Yes, and the Full Court did see an error in Betfair’s submissions in that it was in effect urging such an argument that all I need to do as an individual trader is say, “I have a particular revenue outcome per unit of turnover. It is different to that person who happens to be a local. You must exercise your powers to devise your structure in a way that best suits me, having made those decisions and those arrangements with Tasmania”.

In the end, the reason the racing authorities acted as they did was a belief, which we submit was correct in law, that this regulatory scheme was not requiring them or even permitting them to be engaging in those sort of activities and what it would do is simply treat the immediate benefit they all obtained through the turnover as the measure of a quality and then after that leave it to these people to trade to their heart’s content in whatever way they chose.

Your Honours, in relation to the outline, I have now covered point 4a, and I have perhaps covered point 5. In relation to the balance of point 4, as to 4c, we have handed your Honours that volume yesterday, and I would just seek to rely upon that summary we have provided of those being examples of volume-based fees across many areas of the industry.

As to point b, which is turnover having a respectable ancestry in this very industry itself, in our written submissions we have given a long list of the various betting Acts which have used turnover as the measure of equality – that is footnote 5 and just - - -

HAYNE J: What do we get out of that, Mr Gleeson, when the market has changed – that helps you, that is? I would have thought if anything it was running against you.

MR GLEESON: Well, respectable ancestry, in the sense that bookmakers over time would be operating on different margins and with different degrees of success, and turnover has been treated as the measure of equality. Your Honour, that is one aspect of 5b. The other aspect is Betfair ask you to accept that turnover is irrelevant to their business, they put it as highly as that at one stage. We contend that it plays the functional or economic role in their business the same as in everyone else’s business.

Could I just give your Honour a reference to where Mr Twaits, after some dispute, agreed with that proposition. It is in volume 1 at page 215. It is between lines 10 to 30 after he had been taken to some documents where Betfair was in fact talking in terms of volume, the very concept that we are speaking of he was – in his document he was speaking of certain customers making up 20 per cent of the volume and he was asked what the volume was and he said that is “double the aggregate back bets”.

So that, Betfair use and publish and measure which is back-bet turnover times two, and then he accepted at line 21 it was a relevant factor in the assessment of their business and the way he put it a little further down was it was “a means to an end”. That is as far as we could come to agree upon the topic. It is sufficient for our purposes, we would submit.

GUMMOW J: I take it that those yellow blots on line 15 were percentages referred to. Is that part of confidentiality orders, do you know?

MR GLEESON: It probably is. We make no application or rely upon any orders in respect of confidentiality in anything in the book. So that is one aspect - - -

GUMMOW J: We are going to have to resolve this question at some stage.

MR GLEESON: That is one aspect of Mr Twaits. Another, your Honours, is at page 149 at around line 20. He was being asked about some revenue projections for Betfair and he agreed that to achieve those projections they would have to build –

back bet turnover, from the 200 million through to the seven or 800 million [dollars] –

So that it is the essential integer which they need to build in order to earn the revenue they seek to earn. And while your Honours have it, on page 148 at the bottom, and I think Mr Young accepted this figure yesterday, he agreed that on average empirically –

there is a strong correlation between the aggregate back bet turnover you achieve and the commission –

of about 2.5 per cent.

Your Honours, that brings me to proposition six where I have already covered the gaps in the case of Betfair arising from the pleading, the expert evidence, the empirical evidence, the evidence from Betfair’s conduct and what I have described the impermissible reply submission. I think what was put yesterday to you as a tasty morsel was a proposition off so-called common sense economics, that the Court could simply infer that with a fee like this it will inevitably, somehow, deter Betfair from competitive behaviour. We would submit that there is no such proposition that the Court could simply accept and it is the matter which should have been explored through evidence if it had any merit. Could I respond to it though. The proposition seemed to have two limbs. The first was - - -

FRENCH CJ: Was there any evidence of competitive options open that Betfair precluded or restricted by reference to the fee?

MR GLEESON: The short answer to that is no. The only matter Betfair said was, “Well, we do not have absolute control over our commission if we were considering on increasing our rates.” The short answer to that was that although its commission is, legally at least, fixed by the Tasmanian gaming control body under the Act - - -

FRENCH CJ: It is capped I think, is it not?

MR GLEESON: It is capped, but from time to time, and regularly, Betfair has obtained changes to its licence from the control commission in respect to a whole variety of aspects of its fee structure. So it is not capped by statute. All it does is go to the gaming control body and Mr Twaits agreed – your Honours will see that at page 265, lines 10 to 30 – that there had been four or five occasions where he has had the fee structure changed. Indeed, one of them is that premium fee that was discussed yesterday. That is an addition that was allowed. There is a letter from the commission itself extracted in the middle of the page:

Notwithstanding the provisions of the Tasmanian Act the charging of commission is essentially a commercial matter for you because you’re the best-placed person to decide the appropriate commission rates –

So we would submit, in terms of there being restraint on how Betfair behaves, that is not established. I will just give a reference to paragraph 28 of our submissions which elaborates that point. So as to the so-called common sense economics, it seemed to have two limbs to it. The first is, well, either we pass on the fee in whole or in part, and that means a higher price. Higher prices are bad for consumers and that is damage to competition. That was one limb of the argument. The other limb seemed to be if we do not pass on, we have less of the revenue otherwise available to use in our business and that is a damage to competition.

Our proposition, which is extremely short, is that those logical syllogisms collapse on multiple levels. As to the first, if they pass on, which they have not yet done, and if there is a higher price, prices often increase in consequence of new impost. That is not of itself damage to competition. What would be significant is if there was some comparative inability between Betfair and another trader to respond by passing on. It would be the comparative position and whether the fees somehow attack that. That case has not been advanced. As to the second, the mere fact that they then have less revenue available for other purposes is an arithmetic consequence of their basic proposition and does not tell you anything about competitive behaviour.

Your Honours, I have dealt with or sought to deal with proposition seven. Fox v Robbins was another case where the fee was differentially imposed in respect to a common activity. The common activity in Fox v Robbins was the licensing of a business and it is not hard to see why imposing a differential cost in respect to the common activity attracted the breach of section 92. It is not the present case. Your Honours, on the last page of our document the remaining points, in a sense, save perhaps for nine, are really alternative matters. Our primary argument I have put and if it is correct, the Court need not go further, but can I put our submissions on them.

Proposition eight takes up a point I started this morning, which is that the equation of gross revenue with commission fails to achieve the objective of a fair fee raising from those benefiting from the use of the product for a number of reasons. One is that commission does not capture fairly the full range of benefits Betfair obtains from the use of the information. The first benefit within Betfair’s business I have mentioned is the over-round which goes to the layers and it is because the layers make that profit that they are happy to wager with Betfair and, in turn, help Betfair expand its business.

As to the other matters, could I ask your Honours to go to one document, which usefully points them out. Volume 5 at page 2015 what your Honours have is some accounts for Betfair from September 2009 shortly before the trial. In the revenue column, exchange revenue is the revenue through the operation of the betting exchange across all events. So the figure there of some 35 million includes New South Wales Racing and includes other events. Betfair’s concept of revenue stops there. According to Betfair’s case, when they put to you the differential between them and TAB, they are speaking about only exchange revenue and they are speaking about a slice of it, that is, you only look at the direct revenue on New South Wales Racing, you do not look at anything else within that exchange revenue.

Let us come down to the next item, which is the premium charge. That amount is not insignificant. It is forecast to be $1 million in 2010. It had risen from half a million dollars in the previous year. That point is noted on page 2017 at line 25. Your Honours do not need to bother about the detail of how the premium charge is calculated, but it is an extra means of getting money out of people by reference to their behaviour on various Betfair markets, including bets on New South Wales racing.

If your Honours would keep that open and go to page 176 of volume 1, Mr Twaits agreed, between lines 20 to 30, that part of the set of integers which created the liability for the premium charge included bets and winnings on New South Wales races. At page 177 at about line 25, when pressed a little about why this premium charge was not accounted for in the statement of claim, he made an admission:

my position is that we should be paying. If we are paying on gross revenue, we should be paying on both commission and premium charge – a relevant proportion of the premium charge.

The exercise of apportionment was one which Betfair did not identify how it would be done but in principle we see a concession that we have now got a line of revenue not captured by commission. If your Honours then go back to the accounts at 2015 – and there are only about three more I need to mention – the next line is something called tote revenue. It is also a substantial amount, $2.8 million. In fact, as often happens in competitive marketplaces when business models adjust, as we saw, for instance, in the airline industry, Betfair now, as well as operating a betting exchange, is in the business of a totalizator.

What it does is act as agent for the Tasmanian TAB. What happens, if you go on the Betfair website, is you can either bet through the exchange or you can place a bet directly into a tote. So here we have got an example of the rich competition which is continuing to unfold in this market. Now, the irony, of course, is that to that extent Betfair on its own case is a high-margin operator. The Tasmanian tote will have a higher margin than a betting exchange and the profits on that are distributed 50-50 between Betfair and the Tasmanian tote.

What this immediately reveals is that in terms of use of race field information, when a person goes on the screen and sees the name and number of the horses they can choose between the betting exchange or the tote, and a form of cross-selling emerges. Your Honours, Mr Twaits agreed there was cross-selling between these two activities at pages 190 to 191 and at the risk of descending too far into the mire of the complexities of gross revenue, your Honours will see at the bottom of 190 that if you are a happy Betfair customer you can earn something called Betfair points, which are points you get for using different Betfair products, a bit like frequent flyer points, their value drops over time, and you can get those points and accumulate them across different products, whether the tote or the TAB, and what he agreed at 191, lines 1 to 15, is that cross-selling was going on between these various products.

As well as all of that, in the accounts one sees a line for “Other Revenue”. I will not ask your Honours to go to it, but Mr Twaits explained that at pages 184 to 188. He had a dispute whether that revenue was related to the race field information or not, but there were arguments it properly was. At that point in the accounts you have a figure called “Gross Revenue”. There is then “G.S.T.” and then “Net Revenue”. Then one starts to see various costs above and below the line. That is the sort of exploration of costs that Betfair never engaged in.

Then, if your Honours drop down under “Marketing Costs” there is “Client Interest” of $810,000. Betfair keeps the interest on the trust account; that is page 131. Some of that client interest is referable to people who, wishing to place bets on New South Wales Racing, have had to put their money into Betfair’s hands. Betfair keeps the interest. Some part of that would need to be brought to account as well.

Finally, on this document, if your Honours go down to the bottom line, Betfair is making losses at present and the reason it is making losses is that it is a business seeking to build over four or five years a massive increase in turnover up to some seven or $800 million, and so this is the point it is in on its lifecycle.

Now, that leads us to this proposition. What Betfair has done in the end is they have not even looked at the revenue account. They have taken a narrow artificial slice of it. Nor have they in any way looked at the capital account because the essence of their model, quite rightly, is to try and build customer loyalty and in that sense, the information is of use to them.

Before your Honours leave that document, could you just note on page 2009 of the book, at about line 15, the second-last bullet point. It is evidence that Betfair is losing volume, as it calls it – that is back-bet turnover – to Tabcorp because Tabcorp is offering significant rebates. So the proposition that Tabcorp is just the high-margin trader at 15 per cent or so and Betfair is the low margin at 2.5 per cent again conceals the richness and diversity of competition. The various businesses are competing on various aspects, including price, and Betfair is sometimes winning and sometimes losing that competition.

Your Honours, why have I done that, and are there findings from the trial judge. There are no findings from the trial judge because he took a view about this point that it was a mere pleading point. Your Honours will see at volume 6 at paragraph 131, his Honour was dealing with the type of argument I have just been putting and said that was just not useful because Betfair made a simple allegation that revenue equals commission and so that is the beginning and the end of the matter.

Our point, of course, was one of substance. You cannot artificially define “revenue” in a way that does not fully account for the benefits they obtained from use of the information and so we had done enough through this evidence to show that their concept of revenue would not treat people equally.

Your Honours, to conclude that point, could I ask you to go to the supplementary materials. It is a separate volume, volume 1 of 2, to page 252. What we provided to the trial judge was a document summarising the types of material I have just been to, and indicating that if one took a fair reflection of revenue you would end up with a very different position to that Betfair propounded and, in effect, they had not fully grappled with these issues, and it is a reason why revenue would be an inapposite measure. We do not ask your Honours to make findings on the document. We are simply indicating we had done enough to show gross revenue had significant problems attached to it in the manner that Betfair had propounded it.

Your Honours, the other aspect of this point, which is dealt with in our written submissions at paragraph 21, are the difficulties with calculation on revenue. The primary reference is to Mr Twaits at page 168 of volume 1. He went from 168 through to 170 and the point was he agreed that there would be 12 steps involved in trying to accurately calculate even Betfair’s commission and at 170, line 25, he could not identify a single document which allowed that to be conveniently done. So our short submission is that the descent into the mire of gross revenue will be unrewarding in terms of finding it to be a self-evident metric of equality that Betfair would have it.

Your Honours, as we frame proposition eight, taking up the question of your Honour Justice Kiefel yesterday, if one were to frame the exercise under section 92 as a single test of whether our measure was bad because it produced anti-competitive effects which then attracted the label protectionist and in circumstances where there was an available alternative measure which could be seen to produce a significantly less burden to interstate trade and thus be dealt with under a proportionality exercise, framed in those terms Betfair failed on this case because of these manifest problems with gross revenue.

Your Honours, there are two documents in the records of Racing New South Wales which indicate objectively these advantages of turnover over revenue. The first is in volume 3 at page 886. This is a document relatively early on, it is May 2007, at least a year before the proposal came in. What it indicates is that, at page 886, consideration was given to arguments put on both sides as to whether one would adopt turnover or revenue and there were competing submissions. Page 887 indicated that a disadvantage of revenue was it simply would not produce enough money for the racing bodies and apart from that revenue consideration, your Honours see at 888 there was an identification of four benefits of turnover, “less susceptible to manipulation”. It is:

more definitive and our receipts will not be affected by the outcome of the race or the betting activities of the operator therefore allowing a greater degree of certainty in revenue budgeting.

That is a fairly strong point, your Honours. If one is setting a budget and you have to depend upon the revenue which your customers may make or not make from your product, it becomes rather uncertain. There is a third matter advanced and then the fourth matter is the:

method is simpler and will require fewer resources to administer.

I trust I have done enough this morning to show the complexity and difficulty with gross revenue. So there are some objective considerations against revenue. Then in volume 4 at page 1660 – this is in November 2008, so it is some 18 months later and, of course, the new board came into Racing New South Wales so they were reconsidering the matter - two exercises were done. The first at the top of 1660 was to assume - - -

FRENCH CJ: Now, whose document is this? It is Racing New South Wales about the Victorian announcement, is it?

MR GLEESON: This is the chief executive’s report of Racing New South Wales. So two things are considered. The first is how much revenue will the racing body raise and assumptions are made of different percentage reductions in the turnover of TAB. So far from it being this is a measure to stop TAB losing turnover, the revenue raising body is quite correctly saying assuming turnover is won by others, how will our measure pay out? Then the second thing the document does from about line 25 is to identify non-financial reasons for a turnover fee, and they go over the page and they bear a similarity but they develop in more detail the arguments of the earlier document. They are the objective reasons why revenue was not shown to impose a less onerous burden. Your Honours, I dealt with or sought to deal with proposition nine. Can I come to proposition ten.

KIEFEL J: Just in relation to proposition nine, can I ask you this? In the context of a national market, if you have an impost or other measure which is shown to have an adverse effect upon competitive behaviour in that market, would it follow that the freedom of trade between the States has been affected? We are talking about a market without boundaries, internal boundaries.

MR GLEESON: Yes. Provided one has crossed the hurdle of substantive – substantially effect, then - - -

KIEFEL J: Yes, that is assumed.

MR GLEESON: That is probably the position that the Court has enunciated in Betfair v WA.

KIEFEL J: It has opened it up in Betfair, at least, in relation to the geographical markets and in that sense, then, the purpose of protectionism assumes less importance?

MR GLEESON: Your Honours, we would still caution that the origins of the section in seeing there being some differential treatment between the interstate trade and the local trade should not be completely discarded. It may be that the two will align fairly readily and fairly often, but in a case, for instance, such as this where, in a sense, Betfair could have mounted different sorts of cases, one sort of case would not have focussed closely on TAB but just would have said, “In this national market I am a competitor. I am engaged in some interstate trade, a fair bit of it, and this fee is going to substantially hamper my ability to compete vis-à-vis everyone else in the market, do not do any further.” That would be closer, perhaps, to the way your Honour had framed it.

KIEFEL J: Perhaps that points out the difficulty that it may not be possible to deal with this entirely in the abstract whilst accepting the general proposition, that the section must require one to focus as well upon interstate context effects.

MR GLEESON: Yes. We would offer that, depending on the particular type of case, in this type of case which was constructed as a case of there is one local trader you need to look at and there is one interstate trader and there is the relevant difference we are trying to seize upon, that that may not neatly fit within a broader reformulation of the whole doctrine. It is, in a sense, an old-fashioned version of so-called protection but we say one that falls into the individual rights and heresy. Your Honours, with proposition 10 and purpose there is a short answer and a longer answer. The short answer is paragraph 10a, that the purpose case which was run at trial by Mr Bennett was correctly rejected by the trial judge as unavailable in law – the case run at trial by counsel for Betfair.

In volume 6 at paragraphs 207 and 208 his Honour identified that there were two ways you could understand the purpose case being made. The first was what you might call the full-blooded purpose case. If you had a subjective intent to relevantly discriminate, your measure is bad, irrespective of whether it in fact - - -

GUMMOW J: Who is the “you”?

MR GLEESON: I am sorry, your Honour, the decision-maker.

GUMMOW J: Exercisees have administrative power?

MR GLEESON: We reject this whole approach. The case being run though was if the body exercising the administrative power subjectively thought this race fields fee would hurt Betfair and shore up the revenues of TAB, then the exercise of power is bad – under section 92, this was the first argument, and what his Honour was rejecting, quite correctly, what his Honour said was that that sort of case is just not available in law and his Honour found that at paragraph 237. We agree with his Honour that there was no room for using the intention of a decision-maker to find a contravention directly of section 92.

What his Honour then said was there were two perhaps other ways in which intention might be relied upon. The second way, your Honours see in the second half of paragraph 208, was an administrative law case that if you had an improper purpose you might be the subject of some form of judicial review. His Honour correctly put that case to the side in paragraphs 210 and 211 by saying they were not running that.

So having done that his Honour said well the only possible role for intention might be the sort of case referred to in 212, which is what we heard something on yesterday from Mr Young that in a Campomar sense you might treat an intention as a piece of evidence that makes it more likely that what you achieved matched your intention.

Now, your Honours, could your Honours note the last sentence of 212, which is important? The trial judge held that the Campomar principle had no application in this case for the correct reason that there was “no relevant forensic endeavour for this doctrine to assist”. That was a reference back to his findings around paragraphs 168 to 169 that they had not advanced a relevant case about effect on interstate trade or competition, therefore nothing for the inference to advance. To the extent Mr Young is trying to urge you to draw a Campomar inference we would answer on a number of levels, but the first answer is that his Honour got this absolutely correct. That is our short answer to purpose and your Honours should not spend any time on it.

The slightly longer answer is this. What his Honour did then proceed to do between paragraphs 214 all the way through to 236 is to, as it were, if he were wrong, if you could contravene section 92 by wicked thoughts, he would then investigate whether there was a protectionist intent evident on our documents. We appealed these findings to the Full Court and the Full Court found it unnecessary to deal with it because the case was disposed of in any event, and in one sense that might be an attractive and convenient route for this Court as well.

However, we have in our notice of contention – and I do press this – that what his Honour did was to make not only unnecessary findings, because, on his view of the law he should not have gone there, but findings which were wrong. I can show your Honours by reference to a couple of documents that something went wrong in the fact-finding process. I can do it this way. The two key documents his Honour relied upon, the first commenced at paragraph 218, and that is a board report in June 2008 and it is a document that is of some relevance in Sportsbet as well, and I will come to that in one moment.

Secondly, at 222 he relied upon something that occurred in November 2007. The structure of his Honour’s reasoning on this November 2007 document, which we say displayed a significant factual error, is this. He starts by saying there were some minutes of a meeting in which:

The Chairman tabled a report he had prepared on the leakage of NSW totalizator turnover to interstate TAB’s [sic].

I emphasise interstate TABs, not to Betfair or corporate bookmakers –

The paper highlighted the fact that some TABs were paying inducements/rebates to selected punters which is responsible for much of this leakage.

It is another indication of how careful one needs to be with references to leakage, because here we are talking about leakage from the New South Wales TAB to interstate TABs. Then:

The Board agreed with the Chairman’s suggestion –

Your Honours will find that minute at volume 3, page 1016. His Honour then, at paragraph 223, made a finding that:

a document was tabled. That document was in evidence and part of it read as follows –

He then set out a quote from the document. Even looking at the quote, it is fairly difficult to see what is the so-called protectionist intent. The author of the document says, “We want to ensure all competitors pay a fair price; introduce a fee on turnover on bookmakers and betting exchanges who wish to publish race fields. It should be the same irrespective of betting model”. That appears to be non-discriminatory. His Honour perhaps thought that the heading “Stemming the leakage” somehow infected that document. Where this all went wrong is that the document itself is at page 1036 and the short point is it is not the document tabled at the meeting and it is not our document; it is a document by Tabcorp.

HEYDON J: I do not think it is at 1036.

MR GLEESON: Page 1036?

HEYDON J: That begins with the words “Victoria & New South Wales”. Is it some pages after that?

MR GLEESON: That is the commencement of the document and the relevant page is 1068. What this document is is a submission by Tabcorp giving its view of the world. The relevant paragraph that his Honour has quoted, paragraph 3, is not the view of Mr V’landys, it is not the view of Racing New South Wales, it is a view of Tabcorp. What has gone wrong is that this document was not the document tabled at the meeting and it is clear it is not the document because it is not our document and it does not deal with the subject matter in the minute. It is the whole document with all sorts of views of Tabcorp about how they would like the world to play out. So what his Honour has then done is on the assumption that it is our document at paragraph 225 has said:

Betfair’s argument was that these documents showed that the respondents’ concern to introduce the fee was to prevent revenue leakage to Betfair –

That was not Betfair’s argument because Betfair never asked his Honour to find this was our document. That is apparent from the Betfair written submissions at trial. I will just give the reference - supplementary materials volume 1, page 92. Betfair correctly describe it as TAB’s document. So on the assumption that this is our document and it is part of Betfair’s case that it shows our purpose, his Honour then in paragraph 226 says:

that there are indications in RNSW’s documents, including those set out above, that the fee would apply to all operators equally . . . Other matters too, are relevant. The fact is that RNSW had a very significant commercial interest in the revenues of the TAB as a result of the terms of the RDA. Given that about $200 million per year flowed to the industry from the revenues of the TAB I find it difficult, indeed impossible, to accept that the -

subjective purpose was the one we are contending for, namely treat people equally and his Honour thought –

So long as the RDA remains in place, such a view of things is surreal.

I will not trespass on what has been dealt with in the Sportsbet appeal, but what his Honour seems to have done is to say because of the view I form about your economic linkage under the RDA it is just impossible for any decision-maker to be seeking to achieve a non-protectionist outcome.

That form of reasoning we would completely reject and we would reject it, amongst other reasons, because of the statutory framework. Your Honour Justice Gummow asked yesterday about the framework governing my clients. We have provided the two Acts - the Thoroughbred Racing Act 1996. While it is clear from section 5 the respondent:

is not subject to direction or control by or on behalf of the Government –

section 6 indicates it is to consist of a broad range of industry representatives. Importantly, section 11 contains a:

duty of each voting member of Racing NSW to act in the public interest –

and the public interest would include observing the Constitution of Australia –

and in the interests of the horse racing industry as a whole -

and you must put that interest ahead of other interests. The primary statutory duty of all the members of the Board is to do their very best in a public interest “and in the interests of the horse racing industry as a whole.” That will require them to take into account the interests of everyone involved in the industry, including TAB, including other betting operators, including horse owners, jockeys, stewards and the like. I should also add in that framework the functions in section 13 strongly confirm that duty, especially paragraph (c).

Likewise, the powers in section 14, and in section 28 any profits go to the consolidated fund, which, under the Interpretation Act, section 21, is the consolidated revenue of New South Wales and, importantly, under 29 there is a reporting obligation in respect of all work, including financial statements, and it is tabled before both Houses of Parliament. So there is a significant degree of public accountability and reporting imposed upon Racing New South Wales.

We have provided the Harness Racing Act 2002 (NSW). It achieves the same result by a slightly different mechanism. The relevant functions are in section 9 and a statutory trust is created in section 10. There are reporting obligations in section 13, again to Parliament. Our proposition is that to start from a premise because of a lawful arrangement with the TAB you are people who can never behave in a non-discriminatory fashion, is an unsafe one in law. Then if your Honours see the balance of the reasoning at paragraph 227, his Honour says there are two possible inferences. One is you were seeking a fee which would make you disinterested in the identity of the successful wagering operator. That is what we contended for, and the second is, you were:

of the view that the fee would limit revenue leakage away from the TAB and thereby protect its revenues –

There is nothing in that document, even it being TAB’s document, to explain how is this supposed to happen. How is the fee meant to stop punters, if they wish, moving custom to TAB? So that the central issue we have been grasping in terms of likely effect is not in any way plugged by drawing this material. Then your Honours see in 228 that the reason he drew the adverse inference is essentially the commercial relationship. He comes back to that in 229(a). Your Honours will see in the last two sentences of 229(a) there is a significant missing step in the argument:

The short fact is that leakage of revenue from the TAB to interstate operators represents a significant budgetary concern for RNSW.

True –

It was entirely in RNSW’s interests to prevent that leakage –

does not follow. The true nature of this measure is that it renders the racing body indifferent to who wins the battle for the revenue. Your Honours then see paragraph (b), he regards it as open, which it was not, and then (c), the error comes back. He finds that all the board members read their papers and all except the Chairman voted for the fee:

In the absence of any statement by them as to their intentions . . . I draw the inference that they acted on Mr V’landy’s report in light of their own certain knowledge –

So the error as to whose report it is has led to an adverse inference being drawn against all the board members and that, we submit, is wrong. Then as to 230, a Jones v Dunkel inference is drawn against the regulator for not coming and giving evidence. There is a simple reason we did not burden the Court with 10 or 15 board members, which is that their subjective evidence about this measure was irrelevant, as his Honour correctly found at paragraph 237. Your Honours, I have gone through that one in a little detail, but that is one of the two critical documents from which it is said that this inference should be drawn and we ask the Court to overturn that finding. I can deal more briefly with the other document because you have seen part of it yesterday. The earlier document which is referred to at paragraph 218 and following is in volume 3 at page 1183.

FRENCH CJ: Sorry, 118?

MR GLEESON: It starts at page 1159 then it goes all the way through to 1186. What his Honour did and Mr Young did a little of this yesterday, was to take you to a couple of parts of the document and not read the document in its full context. Your Honours will see at 1159, point 25, the regulation has now been passed and the in principle decision can now be implemented. At 1160 there is a correct factual recognition that there have been changes in the competitive environment, and third point:

It is reasonable to expect those . . . and the resultant pressure on [TAB] to continue –

In the fourth bullet point:

The current financial dependence on a single wagering operator – NSW TAB – creates a material exposure for the NSW racing industry, giving rise to . . . imperatives to supplement and diversity the industry’s revenue streams.

That, we submit, is a perfectly proper recognition of the interests of the respondents in securing funding for the industry as a whole. It has nothing to do with trying to protect in some way TAB from fair competition. There is then a reference to the growth of the interstate operators and the point is made that they exploit the product without paying a fee.

On 1161, just above the heading “Proposed ‘race fields’ model”, and this is of some importance in reading the document, the document contains some prognostications about what might happen in the future depending upon actions of other people, including wagering operators, with an assumption that events may well turn out significantly different. There is then a recognition in the middle of the page about the fee will be applied equally to everyone. Then there is a document over the page that I will leave for this appeal. My short point is the whole context of the document is what should we do as responsible regulators to ensure our funding is secure, not what can we do to protect TAB and hurt other people.

If your Honours go to page 1166, under the heading “Wagering operators’ actions” there is a correct acceptance that the new entrants are likely to continue to gain market share. At 1167, the first bullet point, when the fee is introduced:

it is reasonable to expect that Racing NSW’s aggregate revenue is should not be substantially impacted by NSW TAB losing turnover . . . to corporate bookmakers –

So the assumption is if TAB does lose turnover, what will be our position as a revenue raising body in response to it? Not, what can we do to stop that occurring? Now, Mr Young read to you, just below line 20, that it would impose additional costs. Well, that is obviously true. He read, on page 1168, that that might place pressure on some people and promote consolidation. That is true as a possibility. What one needs to read on is that:

It is also reasonable to expect wagering operators to consider actions to mitigate the impact of those costs –

And the next paragraph, the additional impact is extremely difficult to quantify. Now, that sets the context in which the whole of the ensuing discussion follows. If your Honours go to 1171, the purposes for the race field fee are there set out and they are perfectly proper purposes. None of it is to do with protecting TAB’s revenue, and that continues over the page. The bullet point at the top of the page says while the competitive dynamics of the wagering market make the additional impact difficult to quantify, here are some assumptions about how our fees might vary in different scenarios.

If your Honours go forward, penultimately, to page 1181, there is a prognostication of steps that Tabcorp might take to mitigate the impact of the fees. This is a world away from a regulator who is simply in a cosy blind relationship with one industry participant. This is the regulator actively considering Tabcorp might do a whole lot of things which then need to be factored into account.

Then we come to the corporate bookmakers section at the bottom of 1182. Mr Young read the first point and then when he came to 1183, dropped down immediately to the bottom, whereas one needs to read the context, about line 6, the action that the wagering operators may take “may include, for example”. So here are some discussions of things they might do. They might go offshore, they might revenue target revenue margins, they might increase the revenue margin, that is a possibility. Your Honours see at the bottom of that page, although there is some prognostication as to what might occur:

it is questionable whether such an increase would, of itself, result in a material reversion of bets from the corporate bookmakers to TAB.

This is a world away from saying that is what we intend this fee to do. He then says:

Even if such a reversion was to occur, the turnover impact . . . would effectively mean that Racing NSW would not receive a material benefit –

At the middle of the page the document says the:

Competition . . . may limit the ability of corporate bookmakers to achieve higher revenue margins.

There might be financial pressure, and at the end of that bullet point it actually says that what we might actually see is even more robust competition. Really, the document comes to a head with that last bullet point on 1184 that a possible outcome is that:

wagering operators are likely to seek to maintain aggregate profitability [by increasing] turnover while maintaining or increasing margins. This is likely to lead to the operators to aggressively pursuing additional turnover . . . or becoming even more determined in their efforts to attract turnover from . . . TABs).

So one prognostication is that this fee will in fact promote, actively promote competition in the market for turnover. Finally, your Honours will see with Betfair – Mr Young read you that section – in essence, legally, our case stands or falls on whether the last paragraph of that document is a correct appreciation of the law. We submit it is.

GUMMOW J: On that subject, Mr Gleeson, could you take a minute to look at paragraph 51 of Victoria’s submissions? Just going through it, how do you say your case falls outside that structure?

MR GLEESON: As to (a)(i), “the conditions in their terms” did not draw any “distinction between interstate and intrastate trade”, they simply said - - -

GUMMOW J: So it is quite unlike Fox v Robbins?

MR GLEESON: Unlike Fox v Robbins. As to (ii), there was no relevant difference propounded by Betfair through its inquiry into revenue for the reasons I sought to put this morning and as to (iii), there was no objective intention to achieve either such effect. The documents I have just been to are supportive of that and therefore they fail at (a), if they got past (a).

GUMMOW J: Yes. What I wanted to ask you about is this expression “burden”. In Cole v Whitfield at 392 to 393 the Court spoke in terms of difficulty and the impossibility imposed upon the out of state competitor. They seem rather strong words when things like inspection fees, for example, have been struck down in the past. What I am asking you is, I suppose, what is wrapped up in this notion of difficulty?

MR GLEESON: We are not putting that there needs to be a test of difficulty or impossibility satisfied in each case. In some cases that will be evident, but what is more significant, particularly in a case like the present, would be to see whether the burden evidenced by the competitive disadvantage or competitive advantage is real, substantial and likely to be continuing. So there is an evaluative judgment - - -

GUMMOW J: In response to Justice Hayne, I think.

MR GLEESON: Yes. There is some evaluative judgment involved in that and, as the Full Court said, there will be questions of fact and degree, but it certainly requires a close attention to the likely effects in the real world of competition, as illustrated by, one would expect, a solid body of evidence and a firm conclusion being able to be reached.

GUMMOW J: Then as to (c).

MR GLEESON: As to (c) - - -

GUMMOW J: You would not get to (c).

MR GLEESON: That is our final alternative position. If that be treated as a separate requirement – it may be treated as part of the one requirement, but that is really our last proposition, namely, that the purpose of a fair fee raising from everyone who benefits commercially from the industry is a proper one. To levy the burden by reference to turnover is an appropriate measure, particularly given the only suggested alternative collapses under the weight of the problems I referred to this morning.

In relation to harness racing his Honour, at paragraphs 233 to 234, drew a similar conclusion from what we would describe as a fairly slim source of materials. The two documents his Honour is referring to are at volume 3, page 1143 and 1195. Our submission is that those conclusions should not have been drawn based on a fair reading of the whole of those documents.

Your Honours, the only matter I have not addressed orally was in proposition eleven we had give a reference to Wilcox Mofflin v New South Wales [1952] HCA 17; 85 CLR 488 at 521 to 522. In the judgment of Justices Dixon,

McTiernan and Fullagar at those pages there is a helpful discussion, we would submit, of conceptually how this type of case would need to work where one is attacking an executive measure which is made under force of an empowering instrument. On 522 the Court said, near the middle:

Unless upon the face of the statute some purpose appears of authorizing some impairment of the freedom of inter-State commerce, the wide terms of the authority should not be read as attempting to do so.

So in that case the statute was not struck down. Then the Court went on to examine how one might read down the statute to ensure it was conformable with the guarantee. Unless your Honours have questions, that is what I wish to put in Betfair.

FRENCH CJ: Yes. Thank you, Mr Gleeson. Yes, Mr Walker.

MR WALKER: May it please the Court. Your Honours, the two matters which - - -

FRENCH CJ: Sorry. Do we have an outline from you, Mr Walker?

MR WALKER: Yes, I am sorry, your Honour, it is coming. Your Honours, the two major matters that I wish to concentrate on and address are those respectively numbered 3 and those that follow, and 7 and 8. They may be described as the burden-sharing approach, and the difficulty of the attack on the validity of the statutory provisions, which is perhaps the main mark of distinction between Sportsbet and Betfair. But before doing so, as your Honours will have seen by your first glance at paragraph 1 of our written outline, we do wish to mark as precisely as we may in a manner that I do not really wish to elaborate beyond that writing, the degree to which perhaps sometimes only comment, but from time to time, substantive argument in address yesterday by my friend, was going back to a state of affairs that had been controversial enough at trial but which had also led to issues between the parties on appeal in the Full Court, which as your Honours have seen from the way in which that was dealt with in the Full Court’s reasons, included passages of concession during argument by counsel for Sportsbet about what was and what was not available in relation to the extent to which his Honour had gone in finding against us nefarious, even deceptive, conduct by way of an appearance given to a matter, especially in relation to the deed of release.

Your Honours will have noticed, I think I am right in saying, that the deed of release was not mentioned at all by my learned friend in the argument yesterday. Avoiding mentioning the deed of release, however, does not avoid the vice of seeking to resuscitate, perhaps in transformed shape, the argument that there were a set of arrangements or understandings, deceptive or otherwise, by which the regulators, the race clubs, query TAB, were involved in something which had a nefarious, that is in breach of section 92, effect notwithstanding an appearance.

I do not, as I say, wish to elaborate the matter so far as the particulars are concerned beyond what we have set out in paragraph 1 of the written outline and little will be served in taking your Honours to the materials that we fully cited in that. What matters, in our submission, is that apart from seeking to revive an allegation of, as it were, nefarious combination, which is outside the notice of appeal, outside the grant of special leave, and contrary to a concession below, there has been as well a substantive extension of the matter by reason of inserting the notion that everything proceeded as it did because there was, either as well as, or even if there were not the combination, there was this statutory requirement.

That is new. It certainly is not something that was presented as such in the Full Court of the Federal Court. We have drawn to attention in point 1c.ii. in our written outline in the first of our comments about the matter that there is, and remains, some obscurity about what is meant by a statutory requirement. We think, with respect, this was part of the – partly, at least – justified criticism of our reference to the RDA or the deed of release as being private or commercial contractual arrangements. The point, with respect, is well made against us, at least as to the RDA, that it is a contract between non-government entities which is required by statute as a fact. Its content is not dictated by statute but it is, as it were, a factum upon which certain things depend.

GUMMOW J: The privacy or otherwise would be irrelevant to your points 3 and 4, would it not?

MR WALKER: Quite so. So I do not want to say anything further about the unfortunate - - -

GUMMOW J: There seems to have been some rhetorical embellishment which has come back to bite you.

MR WALKER: Exactly. I was about to say the epithet “private” was an unfortunate one and I take responsibility for it and would ask that it be seen as surplusage. That is I could defend it as private in the sense that the entities are not governmental, but that would be trivial. My friend’s point about it - the contemplation, at least, of the RDA in the statutory regulatory scheme is a good one but it does not answer the point we were making which is that this is part of the contract. It is not delegated legislation, nor for that matter is it administrative conduct.

The other point we wish to make about this new found statutory obligation as opposed to merely statutory background, we make in item 1d.ii. Having made the factual answer in 1 which really gives weight to the fact that this is a new point not available and does not seem to have found any reflection in the special leave application, the grant of special leave or the notice of appeal, d.ii. in any event points out that the premise upon which it is based, namely, the effect of clause 15 of the totalizator regulation, simply does not do the work required of it. That is all I want to say about item 1. It is a matter, as it were, of clearing the decks and ensuring that to the extent we can, we state to the Court what we understand the issue joined in this Court is, including by reference to that which is properly available, given the course of argument below.

Could I next turn to the first of the main matters I wish to concentrate on in address which might be called “sharing the burden”. In this case, that is, Sportsbet, the point is made in a number of different ways, in writing and in address against us yesterday, that the effect of the so-called inseparable or inseverable package which includes events over quite a period of time, culminating, it must be, in the deed of release, that the effect of all of that is to have spared intrastate traders – treating TAB relevantly as intrastate, although it is clearly also interstate – and to treat those intrastate dealers differently, hence in a discriminating fashion, to the detriment of the interstate trader – whether that can be generalised sufficiently that interstate trade is a matter for argument – namely, Sportsbet.

In our submission, it is of significance that so far as authority is called in aid for the suggestion that that is a breach of section 92, in truth of the three referred to, the two Australian ones very strongly favour the position we take, by which, of course, I am referring to Boardman v Duddington and Bath v Alston Holdings, bookends, as it were, for the way in which things, we say, ought to be analysed, and the third, the United States decision of West Lynn Creamery v Healy of which there was some discussion during my friend’s address yesterday, can, in our submission, quite plainly be distinguished again in a way that lends support rather than any detraction to our position.

As to all three cases, there is obviously enough a need to grapple with, perhaps clear away, the different language that they use to describe the kind of governmental intervention which all three of them were considering. Some of the words involved are “equalising”, which is almost as a reflex said by reason of Bath v Alston Holdings to be not possible – we submit that cannot be true for reasons I am about to put – or “subsidy”, which equally obviously and almost by reflex will ordinarily, if awarded in a discriminatory fashion to domestic or local participants in a national market, will quite readily be seen as being as simple as a Fox v Robbins case, namely, overt discrimination and, with respect to a matter, namely, the money which is the sinews of commerce, which is likely to indicate a breach of section 92.

But, in our submission, a proper understanding of the endeavour that was carried through in this case, by dint of obviously related but not entirely concerted action, it can be see that there is neither a discriminatory failure to impose a burden on an out-of-State trader or out-of-State trade, nor is there anything in the nature of a subsidy. Is that a convenient time?

FRENCH CJ: Yes, Court will adjourn until 2.15.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.20 PM:

FRENCH CJ: Yes, Mr Walker.

MR WALKER: Your Honours, could I turn now to the first of the two main points, as we wish to elaborate it slightly. We have submitted in paragraph 3 of our outline for address that this is a case that raises a spectacle that, in our submission, has not been seen for a very long time in section 92 litigation, including before Cole v Whitfield, but it is not unknown, and it was in Cole v Whitfield regarded as having produced a line of authorities which could be said to include decisions that “created protectionism in reverse”, and I am there quoting from Cole v Whitfield [1988] HCA 18; 165 CLR 360 at 403, about point 2 on the page. The matter falls out in that exploded version of the doctrine in a way which, in our submission - - -

GUMMOW J: Sorry, where you reading from, page 403?

MR WALKER: Top of page 403, about point 2 on the page, your Honour:

Yet the Court held that the duty could not be levied upon a certification of registration in respect of a vehicle used or intended to be used exclusively in the course of, or for the purpose of, interstate trade. The doctrine created protectionism in reverse.

Or picking it up at the foot of the previous page:

Instead of placing interstate trade on an equal footing with intrastate trade, the doctrine –

that is the one they are denouncing –

keeps interstate trade on a privileged or preferred footing, immune from burdens to which other trade is subject.

GUMMOW J: What is the point that is being made?

MR WALKER: By their Honours in that passage?

GUMMOW J: Yes.

MR WALKER: That is what is said to be a consequence, in itself undesirable, of the doctrine of criterion of operation or criterion of liability, the discussion of which had commenced in the middle of page 400, criticisms being expressed from about an inch down on page 401 and following. So this was said to be a consequence, as it were, a self-evident demonstration that something had gone wrong in the course of doctrine and the self-evident nature, in our submission, has resonance today because there are consequences of or direct attributes of the argument against us which, in our submission, fall to be analysed in the following way.

By dint of the arrangements which predated the race field information fee scheme, money was being paid and had been paid by people who may be called for all relevant purposes intrastate traders in New South Wales in a way that was not reflected by any correlative payment proportional or exactly reflective on the part of those who may usefully be called interstate traders. To give some of them their names without purporting to describe the whole of the group of intrastate or interstate traders, there is the TAB and licensed oncourse bookmakers, on the one hand, intrastate, and there would be Betfair, Sportsbet, on the other hand, interstate traders.

I stress that the gentlemen’s agreement, so called, had had the effect, accidentally or otherwise in a market that had become well and truly national with substitutability having competing products with different business models as my learned friend, Mr Gleeson, has pointed out - I stress that the gentlemen’s agreement had seen the incidence of a contribution for the use of the invaluable and indispensable information limited to those who were intrastate traders, relevantly, in relation to race fields in their Territory. Now, that may be more than an accident; it may be a view of federation or of legislative competence that may not have any continued currency, but historically that was the position.

What was proposed has been couched in various ways in the documentation that your Honours have been sufficiently taken to that I may refer to generally in ways that opprobriously or otherwise characterise the out-of-State or interstate traders using the information for their profit as free riders, no doubt an expression intended to excite sympathy for those who wished to strip them of that character, political sympathy that is.

In our submission, though, shorn of any force of the metaphor, the situation, which it is common ground surely, obtained in this case was that before what I am going to call generally the scheme which is impugned came into effect those in New South Wales paid and those outside did not.

CRENNAN J: When in paragraph 3 of your outline you talk about the imposition of anti-protectionist measures, do you mean anti-reverse protectionist measures?

MR WALKER: I actually mean that far from protecting industry, a burden was imposed on the local trader which had no corresponding equivalent on their interstate competitors. I do not suggest that any government has, in fact, been, in ideological terms, anti-protectionist. I simply mean that it is the reverse of protectionism. Far from being protectionist, that which pre-existed the impugned scheme was that which imposed a burden, a cost I should say - - -

CRENNAN J: Only on the intrastate traders?

MR WALKER: Only on the domestic traders. Now, that is not an unfamiliar history in section 92, particularly in earlier years, but it is a matter that needs to be observed at the outset. The starting position in relation to the comparisons that underlie or drive the notion of discrimination and impart or otherwise the character of protectionism, the starting position was that the domestic traders paid a cost that the interstate traders did not. We are therefore talking about, when I say trading in a State that imposes anti-protectionist measures in item 3, I am talking about the state of affairs immediately before the impugned scheme comes into effect.

GUMMOW J: How do you fit this particular structure into that territory?

MR WALKER: The position in this case was that the New South Wales traders paid the fees, the others did not. I have dubbed that anti-protectionist, that situation, in that the domestic trade, that which is ordinarily the object of protectionism, was in fact being burdened rather than benefited by the comparative treatment.

GUMMOW J: It would pay if your opponent’s arguments were accepted.

MR WALKER: I am so sorry, your Honour?

GUMMOW J: On the face of it, both sides pay.

MR WALKER: No, I am talking about the situation before the impugned scheme came into effect.

GUMMOW J: I see.

MR WALKER: I stress, in 3 I am talking about the situation before the impugned scheme comes into effect. At that point, consideration, still treating it as if it were a unitary hold, the scheme, I am going to come back to unravel it later, still treating it as a unitary whole, at the point the scheme, assuming there really was one, was proposed, it can be seen from what happened that if you put all the integers together, as the appellant seeks to do, at most this can be said against us. The out-of-State traders were now to be subject to a fee for use of the information. The intrastate traders were to be subject by the same legal means and in the same legal terms to the same fee for the use of the same information. Further, the imposition of the fee by means of the same statutory scheme and conduct there under was in terms which were, relevantly, equal, that is, no distinction was observed or observable between the treatment meted out to the out-of-State traders, subject for the first time to such a fee, or the intrastate traders who were already subject to fees or payments for that information.

FRENCH CJ: Can I just ask you, is it a premise of 3 that the burden upon – that is the pre - - -

MR WALKER: Pre-scheme if you like.

FRENCH CJ: The burden upon the intrastate traders listed as part of the arrangements in this case conferred a competitive advantage on Sportsbet and interstate traders?

MR WALKER: As we understand the argument against us it appears as if that character is being given to the state of affairs immediately pre-scheme, that is, domestic traders suffer a burden by paying a cost, interstate traders do not and that is an advantage for them in the market in which they both compete.

FRENCH CJ: The question which you say is raised seems to rest upon the assumption that there is a competitive advantage created. I am just wondering whether you accept that.

MR WALKER: We do not share that assumption.

FRENCH CJ: No.

MR WALKER: We attribute it, I hope not in a travesty, we attribute it, however, to our opponents. We submit, in truth, that is the way in which a competitive advantage is taken or, if you like, by the taking of an advantage a disadvantage suffered when their case is properly understood. It is true that before the impugned scheme came into effect the domestic traders suffered a burden or cost that the out-of-State traders did not. That is true.

CRENNAN J: Which led to a competitive disadvantage.

MR WALKER: Quite so. The impugned scheme, again treating it as if it could all be combined into one unitary whole, has the effect at the end of the long period, including the deed of release being accomplished, has the effect that the same people remain subject to the new fee, the scheme fee, that is, out of state and in state, and they remain subject to it as equally and as indifferently to their place of origin or character of trade, intra or interstate, as before.

But the final steps in the scheme which the appellant impugns by reason of the, in particular, payment made under the deed of release to TAB and the foregoing or abolition of stand fees for bookmakers with respect to the racing clubs, is said in substance or in effect to bring about a position whereby there has been a disturbance of that equality in a way so as to reveal breach of section 92. That is said to be borne out by the absolute abolition of the stand fees and the, it is said, equivalent allowance by way of a compromise sum, an amount in view of damages, so to speak, under the deed of release.

However, the case by now, which is bearing a character very different from the way in which it was argued at trial or indeed at the beginning of the appeal below, positively embraces that from TAB’s point of view the situation under the RDA to which you have been taken and the advent of the impugned scheme, obviously meant that under the scheme TAB is being asked to pay, indeed required to pay as a condition of not trading illegally, money for something which it had already paid for and though my learned friend suggested some subtle variations as between whether there was a breach of the RDA or simply an entitlement not to have to pay anything further, he submitted and we accept, with respect, that for present purposes it matters not.

Now Sportsbet’s case is that by reason of the RDA and by reason of the inclusion in the consideration for which TAB had paid so much of the provision of the racing field information, it was to be expected or inevitable, Full Court, a universal expectation that something would be done to avoid the double payment, what was characterised in negotiations as being a possible breach of the RDA. Now, it is of significance in analysing the case in that way to observe that though it has formally - - -

FRENCH CJ: We are still all ears, Mr Walker.

MR WALKER: But I may be struck dumb, your Honour.

FRENCH CJ: Yes, carry on.

MR WALKER: It is significant to this analysis to observe that at trial and on appeal various versions were attempted of an argument that the deed of release was not what it appeared to be. As I noted before the adjournment, in its largest form that was conceded in argument before the Full Court of the Federal Court not to have been maintainable given the way in which the issues were joined and the hearing held at first instance. So that is now by the way.

There is, therefore, nothing in the nature of any veneer of impropriety that overlays the analysis which says that here was a pre-existing disadvantage suffered by the domestic trader with, if one must, the corresponding or correlative advantage that follows from that for their competitors. There was then a determination on and a promulgation of a scheme by which all competitors were treated equally as to the imposition of a fee to pay for the information that all used as the heart of the business in a national market.

Finally, there was the removal of the pre-existing obligations by way of, first of all, the lifting of the stand fees, not a matter of contract but a matter of local regulation, and then finally the somewhat belated compromise by way of deed of release so as to effect a part return of money assessed by reference to the extra cost which was now being borne under the scheme fees to TAB.

We have drawn to attention in our written submission, by the way, your Honours, and we have noted again in our outline in a way I do not need to dwell on, that if it matters, it probably does not, there was not an exact refund, so to speak, that is, there was not an exact payment of money under the deed of release to affect everything that could be said to be called into question by way of double payment for the use of the information by dint of the fact that only the New South Wales operations turnover was counted in the amount for the deed of release sum. It is not perhaps a decisive matter but it certainly casts some light on the neatness of which it is said against us, so adverse light, on the supposed neatness with which the deed of release simply reversed the imposition of the fee. It does not simply reverse the imposition of the fee outside New South Wales.

CRENNAN J: I was going to say, whether it matters or not, was it correct that under the RDA the fees in respect of which the double payment point is raised were calculated by reference to gross revenue rather than by reference to turnover?

MR WALKER: No.

CRENNAN J: I thought that was a point possibly raised by Mr Young.

MR WALKER: There are some calculations of certain fees by reference to a number of measures in the RDA, but there are no fees calculated for use of the racing information by reference to any so-called metric. It is part of the consideration on one side of the obligations in the way in which clauses 6 and 8 were drawn to your attention yesterday. So the answer to your Honour’s question is no. I would go further in response and that is to say that however the fees had been calculated under the RDA, in the absence of any case as to subsidy, that is, as a mismatch between the RDA and what was then agreed to be paid under the deed of release, in the absence of any allegation or suggestion that there had been, as it were, excessive recognition of the fact that the information was already promised to the TAB in return for what it had already paid, then the point goes nowhere. That brings me to the point in relation to section 92.

It can be seen, therefore, that the impugned scheme does nothing to impose any disadvantage on the out-of-State trader unless, or except to the extent that it be proper to regard as a disadvantage, the removal of domestic traders disadvantage and, in our submission, orthodox learning about section 92 simply prevents that latter being regarded as proper. To put it another way, if the state of affairs – to make the example more stark, simply posit legislation in question – were that New South Wales had imposed by statute burdens, monetary and non-monetary, on certain kinds of traders which were not imposed on interstate traders, so that the incidence was of the charge or burden was such that interstate traders could freely enter that part of the market in New South Wales without being burdened, then no one would say that which plainly affects, some might say, interferes with competition is a breach of section 92, so a State may impose discriminately a burden on its domestic traders.

In our submission, it would be a most extraordinary distortion of principle, moving completely away from the words of section 92 and from the doctrine one finds in Cole v Whitfield, to suggest that the simple repeal by New South Wales in such a case of that domestically burdensome legislation could in any way raise a question about a breach of section 92, and yet it would manifestly be the political act by which a disadvantage suffered by the New South Wales domestic traders, which of course can be seen as a correlative advantage enjoyed by their competitors, would have been removed. Depending upon the language chosen, there again would be an effect on or an interference with the pre-existing state of competition in the market. Yet, in the example I have given, what would have been brought about would have been equality. All would have been subject to the same charge, that is, none, in that example.

FRENCH CJ: Are you going to be looking at the effect of the threshold at some stage?

MR WALKER: I am happy to deal with it immediately. As we have drawn to attention in our written submissions and as has not been contested against us in argument, the fact is that the way in which the thresholds operate, first of all for thoroughbred racing, shows that there is about the same proportion of those below and above the thresholds inside and outside the State. It is quite impossible to say that there is any discriminatory element of inequality introduced by such a scheme, including by observance of how it operates in practice. This then is not a case of a law equal in treatment according to its facial terms which by reference to the state of the market as it obtained at the time the law was introduced must be regarded as having an intended operation unequally between domestic and interstate traders. That is not this case.

For harness racing the superficial considerable disparity is explained, as we have pointed out in our written submissions, by the fact that for harness racing there is a local or domestic huge dominance of the TAB which is, of course, removed from the threshold question altogether. So we, in this case, have the impugned scheme, if I can continue to call it that, imposing in terms which are equal on their face and which it cannot be argued factually strike or affected a state of the market which show that in truth there was an unequal discrimination against the interests of the out-of-State traders.

Now, to continue the hypothetical example, in a case where the disadvantage to the domestic traders takes the form of a requirement to bear a cost considered necessary by the local Parliament for industrial assistance, as in this case, it cannot possibly be that section 92 has the effect that all one could do is to repeal, that is to give up the intended industrial assistance. As I say, one version of the argument against us surely would say that in any event that would be to remove a pre-existing disadvantage suffered by domestic traders and thus breach section 92, which would be absurd.

Rather, in our submission, bearing in mind the nature of section 92 as understood in Cole v Whitfield it must be no infringement but rather a serving of the so-called national unifying propensities of the section, certainly its effect on a national market in relation to the State boundaries of territories governed by different polities, different Parliaments, certainly it must be in accordance with that approach to the section to permit New South Wales in the example I have given to expand the incidence of its burden so as now to capture both the out-of-State traders as well as the in-State traders.

That, of course, has an equalising effect, but it is not an equalising effect of the prohibited kind identified in Bath v Alston where there was on the face of the statute a refusal or prohibition on the possible dispensation from the incidence of the tax by reference to the out-of-State source of tobacco. No such element is present in these laws at all. By these laws I mean sections 33, 33A, 33B and regulation clauses 16, 17 and 20. I will come back to unravel that further in a moment.

It is for those reasons, in our submission, that it can be said that the appellant’s case here is one that says there may not be in combination the removal of a local disadvantage by imposing the same burden on the interstate trader and, in particular, there cannot be that brought about by the sequence of imposing a new burden uniformly on everyone and removing the old domestic burden only from the domestic players.

That must be the proposition for which the appellant’s case stands. In our submission, for the reasons we have identified more elaborately in our written submission, that stands against principle and, in particular, a principle against the fettering by one parliament of the liberty to repeal or amend its legislation by a future parliament of the same polity. It is also, in our submission, utterly contrary to see that as being a breach of section 92, again assuming there is something that you can call simply one impugned scheme. To that end, if I could go back very briefly to passages your Honours are all very familiar with in Cole v Whitfield [1988] HCA 18; 165 CLR 360, at the foot of page 399 to the top of page 400 in particular, in relation to:

The concept of discrimination . . . necessarily embraces factual discrimination as well as legal operation.

We would draw to attention, given the passages that follow, that that is not to exclude legal operation but rather to say is not a sole criterion. Their Honours continue –

A law will discriminate against interstate trade or commerce if the law on its face subjects that trade or commerce to a disability or disadvantage –

which plainly is not true of the impugned package here –

or if the factual operation of the law produces such a result.

For the reasons we have elaborated in writing and where we also adopt what Mr Gleeson has said in the accompanying Betfair case, that is certainly not true factually here. In relation to the notion of legal operation, could I draw to attention the well-known passage on page 401 commencing the paragraph, “The doctrine is highly artificial.” About an inch and a half down as an extra observation their Honours say:

What is more, the first limb of the doctrine as enunciated looks to the legal operation of the law rather than to its practical operation or its economic consequences.

That is not a passage which, in our submission, can be read as eliminating, somehow absurdly removing an examination of the legal operation of a law from an inquiry as to whether the law is an infringement of section 92. Rather, it is to observe that legal operation will not and cannot stand alone.

FRENCH CJ: We might just adjourn briefly, I think, Mr Walker, until we get this problem sorted out. The Court will adjourn briefly.

AT 2.52 PM SHORT ADJOURNMENT

UPON RESUMING AT 2.57 PM:

FRENCH CJ: Yes, Mr Walker.

MR WALKER: Your Honours, at page 401 in Cole v Whitfield in the paragraph commencing “The doctrine is highly artificial” the point I was making is that the observation halfway down that paragraph is certainly not suggesting that the legal operation of a law has become irrelevant, let alone forbidden, in an analysis for the purposes of section 92. Rather than that, it has to be seated in and also compared with what is there called “practical operation” or “economic consequences”.

It is in that light, in our submission, that one comes to consider the sequence of legislative and administrative and regulatory events in this case in order to compare it with what, in our submission, remains a most instructive form of analysis for this kind of case. This kind of case is a case where a previous disadvantage suffered domestically by traders is to be eliminated upon the introduction of a scheme whereby both inter and intrastate traders equally share a burden. That is Boardman v Duddington [1959] HCA 64; (1959) 104 CLR 456.

GUMMOW J: We have been taken to that before, Mr Walker.

MR WALKER: I do not want to do it at any great length at all. I want, in fact, first of all to go to the passage that Mr Young took you to at page 469 of the reasons of Chief Justice Dixon. It is not enough, with respect, to say of his Honour’s opening words that that places it in some kind of historical cupboard locked away from current resort.

To observe that the legislation in that case affected in no way the legal operation of the relevant taxing Act is not to have fallen into error, particularly in a case where there was no economic consequence or practical operation material that was called in aid by those challenging the legislation in question.

In our submission, if one posits, if one were asked for a law to be invalidated under section 92, one thing you are doing for certain is saying there is something about its legal operation revealing its character which produces an infringement of section 92. It cannot be a proposition that is advanced ignoring or, worse, deliberately not examining the legal operation of a law.

That paragraph on page 469 over the top of page 470, particularly the analysis at the top of page 470, is one which applies in this case as well. All that is being done is the removal by dint of the deed of release or the abolition of the stand fees of a previous obligation not borne by the interstate trader in return for benefits that the interstate trader either got for free or did not use at all – that is, the liberty to stand at a meeting – upon the promulgation of a scheme whereby all of them, inter and intrastate traders, became subject to a uniformly and equally expressed burden.

That, in our submission, entirely fits the situation that the Court found no difficulty with in Boardman v Duddington. Now, as a matter of stare decisis, it is said against us that it is wrong for us to rely on this because it is before Cole v Whitfield, or at least that is my unkind way of summarising the argument against us, because it is not said that there is anything in Cole v Whitfield, except perhaps the passage to which I have drawn attention, which could cast an adverse light on the reasoning followed in Boardman v Duddington.

Once one puts aside the spectre of legal operation as being a proscribed consideration in section 92 analysis, as one must, then, in our submission, there cannot be seen anything in Cole v Whitfield that cuts across the cases, of which Boardman v Duddington is the relevant and more recent one, by which the equalising of a burden, including the removal of a former burden on the domestic players, is seen as presenting no infringement of section 92 at all and, with respect, once one sees the relevant absolute freedom of the relevant trade as requiring that there not be discrimination of a protectionist kind, then it is easy to see why the scheme promulgated in this case was held by the Full Court not to present any such infringement at all. That is because, first of all, there is no discrimination and, second, it is because in its effect, far from being protectionist, it simply removes a former anti-protectionist regime.

In relation to West Lynn Creamery [1994] USSC 26; 512 US 186, may I simply add this one further comment. My learned friend drew to attention the emphatic way in which the argument was rejected, that is, the argument to the effect that one could do in combination what one could do separately by components, and we have no brief to argue against the proposition that there may be by combination of otherwise innocuous elements in a legislative scheme an infringement of our Constitution, we do not need the United States decision to that effect, but here there is, with respect, no such phenomenon. There is no combination of otherwise innocuous elements which can be said to produce, in particular, discrimination, let alone protectionism.

It leaves only the question that is drawn to attention, in effect, by the passage at the end of Sir Owen Dixon’s reasons in Boardman v Duddington as to whether there might be the possibility in such a case of in fact a hidden or real subsidy being granted to the domestic industry and as a matter of principle, nothing could be more plain as a potential infringement of section 92 - - -

CRENNAN J: That was never argued though, was it?

MR WALKER: Quite – than a straight subsidy. So there is an explanation obviously enough of the United States case. It is a matter that was raised in Boardman v Duddington as a possibility in schemes other than those that their Honours were looking at in that case and it is and of course remains a possibility for any scheme by which, for example, a subsidy is given to local traders with respect to race field information being a subsidy not made available to interstate traders. No such case is raised here. No allegation of that kind has been made and, in our submission, those principles are simply of no application here.

Could I very briefly respectfully adopt some argument that came from my friend, Mr Gleeson, this morning in relation to the proposition that the various extrinsic materials that talked about the need to prevent or ameliorate the situation called revenue leakage somehow either gave the game away in relation to a motive or purpose of some people, if not legislators, or in some other way contributed to making out an infringement of section 92. Apart from what we have written on the subject and what has already been said on the subject, could we simply emphasis this. The whole point of the scheme, so far as one can call it a scheme, was that there could be as much leakage or loss of business from New South Wales traders to interstate traders without the racing industry in New South Wales thereby suffering. That was the whole point.

It was because the gentlemen’s agreement would necessarily relatively impoverish the industry whose events were most popular for out-of-State betting that the so-called revenue leakage in question arises. It is not a revenue leakage from a domestic trader to an interstate trader. That was the concern of the scheme. It was the revenue leakage that came from the fact that only the domestic trader was being levied and if the interstate trader could be levied as well, we would be disinterested, indifferent to, neutral concerning who was doing the business so long as the levies were coming.

In our submission that is exactly what the political material to which your attention was drawn – this is point 6 in our written outline – the second reading speech, contrary not only the trial judge but I fear also to the Full Court, does not go further than seeking to deal with the free riders’ point. In particular, there is not a word in the second reading speech – we have given the references in point 6 – not a word in the second reading speech to suggest there was a concern about New South Wales traders, bookmakers or totalizators, losing their business in competition with interstate traders with the same or different business models but not paying the fee. Rather, the concern was with the fact that money was being made by out-of-State traders from use of information when they were not contributing one dollar to the generation of the spectacles about which the information was so valuable.

Your Honours, finally can I come to that which is distinctive about this case compared to Betfair, and that is that there is a wholesale attack on the statutory setting of the impugned scheme claimed in the relief sought in this Court. The first declaration sought against us is that both sections 33 and 33A of the Racing Administration Act be invalid. That is hand in hand with the whole of Part 3 of the regulation being invalid. In our submission, there are oddities about that claim at both levels, Act and regulation.

When one goes to section 33 of the Act, apart from the reference to approval it is in terms unexceptionable in relation to section 92, that is it does nothing of a discriminatory kind and, therefore, threatens no protectionism. However, I have excluded from that observation the reference to approval because we accept that an untrammelled discretion which might, according to the tenor of its grant, be exercised so as to exclude out-of-State traders so as to favour in-State traders would, of course, if that were the proper interpretation of the grant of power, either threaten or be either ex facie or, in practical operation, an infringement of section 92. That is, of course, not this case.

This is as far from an untrammelled discretion as one could really imagine. First of all in section 33A itself, the second of the two provisions which are sought to be invalidated, nothing appears which gives the slightest suggestion of any discrimination either on its face or in practical operation. I stress this is not a case where it was said the market was composed in such a way that the apparently uniform application of condition to pay a fee, 33A(2)(a), would in fact bite in such a disparate way as to show impractical operation and infringement of section 92.

Similarly, under 33A(2)(b) “such other conditions” in the statute that discretion is made, subject to prescription to which I will come. I am not quite sure why nothing in the submissions against us explains why section 33B escapes the proposed invalidation, but it is important for us to draw it to attention. One sees that the discretion whether to approve is framed and set about with restrictions to be imposed by regulation in a way which, in our submission, removes any concern about the form of section 33 threatening any infringement of section 92.

We then go to the regulation. Your Honours are very familiar with clause 16. Again, just within the terms of clause 16 no discrimination against interstate trade or in favour of intrastate trade can be seen in its terms. Clause 17 picks up the possibility created under paragraph 33A(2)(b) of the Act, to which I have drawn attention and there are conditions there permitted which very much lend substance to the integrity, probity and policing or monitoring aspects of the scheme, to which reference has already been made. You have already been shown the approvals, which pick up most of those possibilities.

Finally, clause 20 of the regulation, which is the one they sought to be invalidated, is one which in section 92 terms surely causes an eyebrow to be raised about the endeavour on the part of the appellant because apart from those matters which go to propriety or fitness, including licensing, it is clear - see 20(d) and 20(c) - that there is a forbidding of matters being taken into account which, though they may not be comprehensive of section 92 infringement, are certainly evocative of those which would be the crudest or most obvious ways in which to infringe section 92.

FRENCH CJ: That would preclude a fee structure imposed by reference to location?

MR WALKER: Yes. Your Honours, to bring this back to earth directly so far as this appeal is concerned, all this has to be done through the lens of section 109 because of the territorial location of Sportsbet, and section 49 of the Northern Territory (Self-Government) Act being the reflex of section 92 in relevant respects. In our submission, the comments I have just made about this statute and the regulation, and the difficulties of seeing section 92 infringement directly by them are doubled or increased with respect to seeing an inconsistency between those laws and section 49 of the Self-Government Act within the meaning of section 109 of the Constitution, that is, only such inconsistency that could and then only pro tanto invalidate those provisions.

There is no pro tanto invalidation sought in any of the forms of declaration claimed against us and none, with respect, has been proposed and it would be, in our submission, unwieldy to the point of being unworkable to suggest that the pro tanto effect would be supplied by some phrase such as “to the extent that it authorised the particular fee condition of a particular approval” and, in our submission, that is enough, with respect, to show that the declarations sought cannot be made.

We have drawn to attention that what we have called the alleged relief measures, the deed of release for getting rid of the stand fees, are really what the complaint is about. It is those that are said to be part of the inseparable or inseverable package, the, in our submission, spuriously unitary scheme which is impugned by the appeal. The first thing to be said is that they are not legislative and they cast no light on the proper meaning or operation of the statute or the regulation.

The second thing is that there has been a grossly inadequate joinder of interested parties if they themselves were in some way not identified to be impugned, that is, to be the subject of direct relief in terms aimed against, for example, giving effect to the deed of release as being some form of, I do not know, illegality by reason of infringement of section 92. None of these things were pleaded. They have not been the subject of argument, but the non-joinder of the parties to the agreement, in our submission, for the purposes of impugning its operation, as the case really is, ought to be regarded as fatal. May it please the Court.

FRENCH CJ: Thank you, Mr Walker. Mr Solicitor-General for New South Wales.

MR SEXTON: If the Court pleases. Your Honours, I propose to deal with the subjects on the first page of our outline of argument and my learned friend, Mr Kirk, will deal with the matters on pages 2 and 3. Your Honours, can I go to the first of those subjects which is the challenge that has been made to the legislation in Sportsbet and my learned friend, Mr Walker, has just made submissions about. The submissions that we make are made on the assumption, which we of course ultimately reject, that the approvals and/or the conditions constitute protection as discrimination, but in those circumstances we would say that the relevant provisions of the Racing Administration Act and the Racing Administration Regulations to which Mr Walker has just taken your Honours are unaffected.

We say that for one or all of three reasons and the first of those is that as a matter of ordinary construction it can be, we would say, presumed that the Parliament in enacting the provisions in the Act and including the regulation power in section 33A(2), it can be presumed that the Parliament did not intend to authorise any breach of section 92. Because section 49 of the Northern Territory legislation essentially applies section 92 to trade between the Territory and the States, the presumed intention not to authorise unconstitutional action in breach of section 92 is, we would say, co-extensive with the limitation arising from section 49, so that if the turnover conditions and/or the approvals were found to be in breach of section 49, they would be beyond the grant of statutory power.

Sportsbet’s challenge does not depend on anything specific to it as a Northern Territory operator. This means that if a breach of section 49 were established there would also be effectively a breach of section 92 so that the statutory powers would not have authorised the action. In other words, whilst this case is technically a section 109 case it is also substantively a section 92 case.

This type of approach appears to have been adopted by four members of the Court in a case concerning the intercourse limb of section 49 of the Northern Territory legislation, AMS v AIF (1999) 199 CLR 160. I do not know if I need to take your Honours to it. It was a grant of discretion to the State Family Court in Western Australia by Western Australian legislation and it was a discretion to make an order about the place of residence of a child. The grant was effectively read down so as to avoid any conflict with section 49 of the Northern Territory legislation, so the grant of discretion was held to be invalid to the extent that it authorised any contravention of that guarantee. Really, that can be seen at the judgment of Chief Justice Gleeson, Justices McHugh and Gummow at paragraphs 37 and 38 and Justice Kirby at paragraph 158.

We would say here that the statutory grant of a discretion to the racing authorities to grant approvals would not be taken to authorise any contravention of section 92 or section 49. That view is reinforced, we would say, by clause 16 of the regulation which indicates that the granting of approvals and the imposition of conditions are subject to section 92 of the Constitution. It is a note to the clause, but that can be taken into account in construing it under section 34 of the Interpretation Act (NSW).

The second basis on which we would say that the legislation would be unaffected relates to section 31 of the Interpretation Act. I am just taking this out of order in the first matter, your Honours. Section 31 of the Interpretation Act (NSW), we say, would ensure that the legislative provisions remain valid on their face but were simply unable to authorise the particular approvals in this case. We say that because, by attempting to authorise what would be invalid approvals, the provisions would exceed the legislative power of the New South Wales Parliament.

There is not a great deal of authority on the interaction between section 109 and the sort of reading down provision that is set out in section 31 of the Interpretation Act (NSW) and we were not able to find any authority in this Court on the question. It was raised in argument in APLA but not really considered in the judgment. The closest authority is a New South Wales case of Peters v The Attorney-General (1988) 16 NSWLR 24 and the relevant passage is in that of Justice Mahoney at page 30. I just wanted to read two sentences from that to your Honours. He is looking at the Listening Devices Act (NSW) and the question of inconsistency with the Customs Act (Cth) and he says there in that passage on page 30 at about letter E:

To the extent that the Listening Devices Act would authorise a member of the Australian Federal Police to do what is forbidden by a Federal Act the Listening Devices Act would be inconsistent with the Federal Act and, by virtue of the Constitution, s 109, would be ineffective . . . The limitation which is imposed by s 109 is, for the purposes of s 31, a limitation upon the legislative power of the New South Wales Parliament. Consequently, the Listening Devices Act is to be construed as operating subject to the qualification that it does not authorise what, under the Federal Act, is proscribed.

GUMMOW J: Well, that may not be correct.

FRENCH CJ: There is a temporal element, is there not, to 109 invalidity?

MR SEXTON: Yes, your Honour.

FRENCH CJ: In the sense that the invalidity of the State law operates only to the extent that there is an inconsistency with the Commonwealth law which depends on the subsistence of the Commonwealth law which may come into existence after the State law has been enacted.

MR SEXTON: Well, Justice Mahoney deals with that question just in the next couple of sentence, your Honour. He says that that is quite so, but nevertheless in his view the same principle would still apply.

HAYNE J: Is there anything else that suggests that 109 is to be read as a limit on State legislative power?

MR SEXTON: Well, I said, your Honour, that there is not a great deal of authority on this, but as a matter of principle it seems to us that section 109 would operate in a way that would make the relevant State legislation inoperative to the extent of the inconsistency and that that would enable the reading down that is envisaged by provisions like section 31 of the Interpretation Act (NSW). As Mr Kirk reminds me, this is a view that Justice Perram took at first instance in this case at paragraph 59 of his judgment.

HAYNE J: In which judgment, Sportsbet or Betfair?

MR SEXTON: In Sportsbet, your Honour.

HAYNE J: Sportsbet.

MR SEXTON: Can I say one more thing about Peters, which is that arguably Justice McHugh, with whom Justice Kirby agreed, took the same approach, but it is not spelt out in the same way as Justice Mahoney in those judgments, and the same approach was, however, taken in Sportodds v New South Wales, a decision of the Full Federal Court [2003] FCAFC 237; (2003) 133 FCR 63, and at paragraph 25, the court there assumed that this would be the way in which section 109 would work. In that case, it was section 31 of the Interpretation Act (NSW), but, your Honours, those States and the Commonwealth have similar provisions, of course.

The third ground, which may in a sense be very similar to the first, is that by the operation of section 109, the statutory provisions would be rendered inoperative insofar as they attempted to authorise the approvals in question if those approvals were held to be in contravention of section 92. Section 109, of course, only produces invalidity to the extent of the inconsistency and the statutory provisions would only be invalid to the extent that they had authorised the invalid approvals or conditions. But again, on their face, those provisions, we would say, would be unaffected and only the approvals would need to be the subject of declarations of invalidity, but that third approach is very similar perhaps. It certainly was the same in results, but similar perhaps in methodology as well to the first of those approaches.

Your Honours, moving to the second topic, which is the so-called business model question in relation to the Betfair Case – the first topic only related to Sportsbet and the second topic only relates to Betfair – we have said in our written submissions that any regulatory measure affecting a series of market participants would be likely to have different practical effects on different individual traders, so that to look at the effect on one interstate trader in contrast to one or more local traders is, we would say, not the relevant inquiry.

There is also a requirement that the regulatory measure can be characterised as protectionist, but Betfair’s argument in essence is that the levy imposes a greater business cost on it per revenue dollar, as really compared to the TAB, and this approach requires no inquiry into the effect of the levy on other intrastate operators, or rather interstate operators.

It is natural that a flat rate fee will have a proportionately greater impact on a low-margin operator than a high-margin operator. Betfair argues that it either has to increase its commission rate, and therefore its margin – expressed as a percentage of back-bet turnover – so that it will be less competitive on price with the TAB than previously, or, in the alternative, to absorb the levy before profit, which the TAB could also do but according to Betfair it would be absorbing a proportionately lower additional cost.

It is true that Betfair has a choice as to how it responds to a new business cost, so does the TAB and all the other participants in the national market that are offering wagers on New South Wales races. Betfair has so far made a choice to absorb the cost without increasing its commissions and so, it seems, has the TAB. If all the participants increased their commission rate so as to maintain their net margin, there would no change in the relative competitive positions of the operators. It may be that there would be an overall fall in demand because of the increase in price, although this assumes some elasticity of demand in the market in question, and there is no evidence on that issue in this case.

We have given the example in our written submissions of a new Commonwealth levy on retail sales of wine at, say, 20 per cent of sale price. Retailers would need to make a choice as to how much, if any, of the levy to pass on to consumers. To the extent the levy was not passed on, it would represent a cut in net profit. A higher margin operator might well have more ability to absorb the new levy than a lower margin operator, but there is obviously nothing protectionist, we would say, about that kind of

exercise. Many Government charges and levies are set on a flat basis. The Commonwealth, for example, imposes excise taxes generally on a flat basis by reference to the amount or value of the commodity in question, and there are many other examples that could be given at the State and Territory level.

Betfair’s argument in many ways is a contention that it has a constitutional right to maintain its pre-existing profit without increasing its commission rate. The fact that it is based in Tasmania rather than New South Wales is, we would say, simply irrelevant in the context of a levy that is imposed equally on interstate and intrastate operators. As the Full Court noted, it is necessary to look at the competitive effects of the measure in question, in particular to assess whether it created any competitive advantage for local traders and/or any competitive disadvantage for interstate traders. The Full Court considered that Betfair had not established any effect on competition that was not competitively neutral, described Betfair’s argument of course as an arithmetical point, pointed out that this was hardly sufficient to show that the levy disadvantaged interstate operators some of whom may use the same low margin business model as Betfair and some who may not.

We have already noted that there are low and high margin operators both inside and outside New South Wales. Local bookmakers operate largely on low margins and interstate totalizators largely operate on higher margins. Accordingly, the mere fact of a difference in the impact of the levy as between one interstate operator, in this case Betfair, and one local operator, in this case the TAB, cannot establish that the measure is protectionist in character. Your Honours, I will ask Mr Kirk to deal with those remaining matters on the outline of argument.

FRENCH CJ: Yes, Mr Kirk.

MR KIRK: Thank you, your Honour. Can I indicate that much of what I propose to say will be at a level of principle and thus relevant to both Betfair and Sportsbet although some of the topics I will address are obviously more directed to one than the other. As my learned leader said I will start from topic 3 in our outline of submissions which is obviously directed to the Betfair Case.

FRENCH CJ: Nobody is contending that restrictions based on Betfair by Tasmania are binding on other State governments. Is that a metaphor?

MR KIRK: It is. It seems to us, with respect, to be part of Betfair’s case and let me seek to explain why, this being the third topic, of course. It seems to be very much part of Betfair’s case that they say their particular model involves only charging or that is only charging commission on the net winnings in the market, that there is some difference in the model involved between back bet and lay bets and that they are capped by Tasmania.

Now, as my learned friend, Mr Gleeson, showed this morning and we would respectfully adopt his submissions, none of those aspects - net winnings in a market or a particular rate of commission or even only charging on net winnings in a market, as opposed to, for example, back-bet turnover - none of that is inherent in being a betting exchange. It is not inherent in the model.

What it comes down to for Betfair is that Tasmania has said as part of these rather iterative conditions on their licence that the commission shall be capped at 5 per cent in a range of 2 to 5 per cent and it will be imposed on the net winnings in the market. That is really a complaint about the burdens Tasmania has imposed on its own domestic operator.

That appears, thus, to be part of Betfair’s case and thus it is that we say, topic 3, the fact that Tasmania has chosen in some respects to hobble its domestic operator cannot work to restrict the legislative freedom of other States, such as New South Wales, to impose further burdens, otherwise there would be the obvious effect that whichever State got in first to impose a regulatory regime would, in effect, in a sense cover the field. No one else could impose burdens, even when the trader comes into that State because that might be to render them uncompetitive. A particular interesting example here is payments to Tasmania.

Part of the original complaint of Betfair, at first instance, though it has evaporated over time - it still finds some resonance in the written submissions of Betfair - is that of its revenue, its gross revenue, when the New South Wales scheme was first introduced it was only getting, I think, 1.6 per cent. That is part of its complaint. It only had 1.6 per cent left to run its business, but that manifest in significant part Tasmania’s application of the gentlemen’s agreement to Betfair because as his Honour Justice Perram explained at first instance at paragraph 317 Tasmania imposed a 20 per cent product fee of gross revenue and a 15 per cent tax, of which two-thirds was paid to the racing industry.

So 35 per cent of gross revenue from Betfair was going to Tasmania and 30 per cent of – that is to say six-sevenths of it, 30 per cent out of 35 per cent – was going to the Tasmanian racing industry. Now, in fact, as his Honour noted in the final paragraph of his judgment, paragraph 335, even by the end of the hearing that had been ameliorated somewhat by Tasmania and I think it has been ameliorated since.

That was a manifestation of the gentleman’s agreement. If that was in some way such as to restrict the legislative freedom of New South Wales it would be entrenching the gentlemen’s agreements, the very thing of which Betfair was so critical when we were here last time in Betfair v Western Australia.

So, in our respectful submission, when one dismisses the particular aspects to which Betfair points, low commission capped at 5 per cent, only charging off net winnings in a market, charging in a particular way, that is, at most really a complaint about Tasmanian law, not a complaint about what is inherent in its business model. That then leads to the arithmetic proposition which is the heart of its case and that leads me to topic 4 about differential treatment of two traders and here I am developing what my learned leader has said.

To develop what Mr Sexton has said, it cannot be sufficient, in our respectful submission, simply to make a comparison between one interstate trader and one local establishing a differential burden and then claim that that supposed discrimination is sufficient to establish a contravention. In that regard, we would enumerate the following propositions. First, it is uncontroversial, I think, that this Court has clearly rejected the view that section 92 was a guarantee of the right of individuals to engage in free trade across the borders.

Secondly, all laws discriminate in some way. They regulate or burden particular behaviour or transactions thus burdening those who previously engaged in such behaviour or transactions or who wished to do so. It is for that very reason that the equal protection clause in the United States Constitution is so far reaching. Examples of this, regulatory laws which preclude competition would include if one regulates misleading conduct one is imposing a greater practical burden on those whose business model depended upon misleading conduct.

If one regulates labelling or branding that may impose a greater practical burden on those who use the banned type of labelling or branding compared to those who did not. If one imposes a licensing requirement with a fit and proper element there will be competitors excluded from the market who previously would have been able to compete. If one imposes a tax or a levy some will be more capable of paying it than others.

That leads to the third proposition. In a market of any complexity and size an interstate complainant will always be able to identify a local who does not suffer the same practical burden as it does but, in our submission, merely because one interstate trade is disadvantaged, vis-à-vis one local, does not establish that competition with them within the market is distorted in such a way as to favour interstate trade over local trade viewed as a whole.

Put another way, if one claims that the practical effect of a measure is to favour interstate trade that needs to be established. One cannot merely choose to market participants focusing on just one metric of competition without having regard, or some regard, to the broader market. That is what Betfair failed to do. That Betfair’s argument is redolent of the individual rights theory is illustrated by what my learned friend, Mr Young, said yesterday at page 41 of the transcript, lines 1745 to 1750. He said:

If you demonstrate an adverse impact on interstate trade or commerce by demonstration an adverse impact upon a substantial interstate trader, that is sufficient.

In other words, one revives the individual rights theory but adding to it one qualification, it only operates to protect substantial operators - small business can be excluded – but if you are a substantial operator and you can demonstrate an adverse impact upon yourself by the law or the measure that is sufficient.

We do not submit that a law which in fact only burdens one trader cannot contravene section 92. Castlemaine Tooheys is an illustration of that and I will come back to that in a moment, if I may. What we do submit is that whether a measure imposes a discriminatory burden of a protectionist kind involves consideration of whether the nature and extent of the discriminatory burden is such as to warrant characterisation of that measure as protectionist. This raises issues of fact and degree. Your Honours may recognise the language I am picking up there. I will not take your Honours to it. It is from page 408 of Cole.

That requires more than simply saying, “I am an interstate trader and I am more burdened than the local is”. As for Castlemaine Tooheys, in our submission, the law there, taking account of all the circumstances and the market, did warrant characterisation as protectionist. The key features there were there were three dominant participants in the market, and only three, Coopers, South Australia Brewing and CUB. Although the Court did not focus on market issues quite in the same way as we may now, following Betfair v Western Australia, it is tolerably plain that the relevant market was South Australian beer. I would refer your Honours, for example, to page 438 in the special case, page 464 in the main judgment.

In that market there was one new challenger, Bond Group, and that challenger was having significant success in shaking up the market and the legal measures imposed were eminently successful in targeting and ending the success of the challenger – as my learned friend, Mr Gleeson, pointed out this morning, reducing the projected market share from 10 per cent back down to 1 per cent. Furthermore, the explanation given on environmental grounds did not withstand scrutiny.

Taking all of that together, it was not a contravention simply because the Bond Group was an interstate trader. It is because in that case to burden the interstate challenger in this small, settled, cosy market was to burden interstate trade and the law was targeted to that end when one viewed it in all the circumstances. In other words, the law there was directed to precluding competition and did preclude competition from the new interstate trader where that trader was a significant competitive force in a market of limited size and based on an explanation which was ill based. That was enough to warrant characterisation as protectionist.

In contrast, we submit, a measure is less likely to be protectionist if the market is geographically broad, competitive, diverse and with a significant number of participants, as in this market, and I will come back to that. To use a phrase from Cole again, at 409, one might consider whether the law imposes a burden which so disadvantages interstate trade as to raise a protective barrier around the local trade.

As for Betfair v Western Australia, in our submission, that was similar to Castlemaine Tooheys. It was a new type of business. It was only engaged in by one operator which was an interstate operator. It was a new model and that model was specifically targeted by Western Australia. To pick up on some of the submissions of yesterday, does that require it to be shown by a challenger that the interstate trader cannot compete profitably and/or at all given the burden?

In our respectful submission, that is neither necessary nor sufficient and we do not understand the Full Court to have said to the contrary. It is not sufficient because a competitor may not be able to compete for a wide range of reasons; they may be a poor competitor, they may have local regulatory burdens of the kind Tasmania imposed here. It is not necessary because the fact that a trader from interstate can still compete to some extent, although the finger has been placed on the scales so as to hold it back, cannot mean that there has not been a contravention of section 92.

What is necessary, in our submission, is that the challenger must show that the measure – when they are seeking to show practical affect, they must show the measure is likely to have some material significant effect in precluding without necessarily eliminating competition by interstate traders against local traders. Sometimes that is obvious, Fox, Bath, but where that depends upon the claimed practical effects upon a particular model involving issues of economic complexity, as here, that needs to be proved by evidence and questions of facts and degree, to state the obvious, picking up Cole will arise.

GUMMOW J: Yes, but facts and degree against what criterion?

MR KIRK: Against the criteria of whether it precludes competition by a particular set of actual or potential traders.

GUMMOW J: What do you mean by “preclude”?

MR KIRK: Burden in some significant or material way, not necessarily cease. “Preclude” of course I am picking up from Betfair v Western Australia, but by that I am not meaning to suggest that the trader can no longer trade.

FRENCH CJ: Does that mean there are certain competitive options that are restricted or prevented from being resorted to in some way?

MR KIRK: It is a question of looking at all the circumstances to see what types of burdens are imposed by this law, who does it affect and how does it affect them? If the person it affects, or the complainant, is of the significance of the Bond group in Castlemaine Tooheys and with the circumstances I have outlined, that may well lead to the a conclusion that this should be characterised as protectionist. But where you have a large national diverse, significant, complex market such as here with numerous participants, simply to pick two and compare them cannot establish that the discrimination, the protection is precluding or burdening trade by interstaters, actual or potential, more than trade by locals.

FRENCH CJ: There has been a reference to market in two different contexts, I think, in some of the submissions that we have had. There is the notion of a national market and then the notion of a State-based market and, I suppose, one question, if one is looking at a protectionist or anti-competitive effect, is whether there are barriers to entry put around a State-based market which tends to fragment the national market.

MR KIRK: Could I deal with, in light of that question, topic 5 which is the role of anti-competitive effects, because here I want to perhaps differ a little from what my learned friend, Mr Gleeson, put. Mr Gleeson appeared at one stage, although he may have pulled back from it, with great respect, to suggest that protectionism is a synonym for anti-competitive effects and that anti-competitive effects, at least if substantial, may be enough to establish a contravention of section 92 although - - -

CRENNAN J: Well, to be fair I think I put that to him, so that is what happened.

MR KIRK: That may be so. Can I seek to deal with it? Mr Gleeson did then say, I think, in response to your Honour that there needed to be an effect on interstate trade. Could I put that a little differently. It is not as though there needs to be an effect on interstate trade as though that was the tail on the dog. The effect on interstate trade, is, to mix my metaphors, the foundation of the argument. One only needs to start with the text of section 92 – cutting out the historical words:

trade, commerce, and intercourse among the States . . . shall be absolutely free.

The necessary focus is trade or commerce crossing State borders, that is the foundation, not the afterthought. Now, the Court in Betfair v Western Australia, of course, brought out perhaps a bit more clearly, with great respect, that section 92 operates in markets and that protectionism precludes competition and that one must take account of effects on the demand side, on the consumer side, in effect, recognising that protectionist measures distort the market to the detriment of local consumers in the regulating State. That is consistent with Cole – I will not take your Honours to it, but Cole uses somewhat similar language at pages 392 to 393, see also page 409.

Competitive effects are thus central, but it is not sufficient. It cannot be sufficient simply to say this law has some detrimental effects on the competition and stop there. As I sought to put a few minutes ago, every law which regulates burdens competition in some particular way, burdens some particular people within the market in a particular way. What is necessary is to identify that the relevant type of anti-competitive effect is one of a particular subset. It is anti-competitive effects which burdens actual or potential interstate traders.

KIEFEL J: Are you not redefining the market then?

MR KIRK: No, because I accept, of course, as your Honour put to, I think, Mr Gleeson this morning, that this may well be operating in a national market, as indeed we are here, but within that national market there are classes, groups of traders and section 92 is directed to preventing the State with its potential parochial concerns, that was referred to in the joint judgment in Betfair v Western Australia, from benefiting its little group to the detriment of everyone else. That is the relevant focus, in our respectful submission. So to establish anti-competitive effects is a start but far from being enough. To put that another way and to pick up on what your Honour Justice Kiefel asked my learned friend, Mr Gleeson, this morning about how protectionism fits into the Cole v Whitfield formula, discriminatory burden - - -

KIEFEL J: It is more a question of whether or not it is the conclusion when you are looking at a national market, that protectionism is just a conclusion of a substantial anti-competitive effect where burdening takes effect and the obvious comparison here is how the freedom of trade is viewed in European context.

MR KIRK: Yes, which has its own complexities, of course, as your Honour well appreciates.

KIEFEL J: Yes and no.

MR KIRK: That leads very much to a focus in the European Union context to this notion of proportionality which is applied with varying degrees of rigour, as your Honour well appreciates, the margin of appreciation and so forth. They have very - - -

KIEFEL J: I do not think proportionality is necessarily brought in at this level.

MR KIRK: No, and I respectfully agree with your Honour. To come back to the Cole v Whitfield formula and whether protectionism is just a label of conclusion, we respectfully submit not and it ties back to what I was saying about does the measure warrant characterisation as protectionist? Put another way, it plays two roles that notion of protectionism, we would respectfully submit. First, it identifies the type of discrimination. Every law discriminates. The type of discrimination that is forbidden is the one I have identified, to benefit your locals over actual or potential interstate competitors. Further, we respectfully suggest, picking up on the language of Cole at page 408, it carries with it a notion of materiality such as to warrant characterisation as protectionist where they are often the incidental effects which may be a bit more on interstaters than locals, but that may not warrant that categorisation.

Can I, in the light of those submissions, just make a couple of points about this particular market to give some references to your Honour following what my learned leader said. The evidence on this market is rather thin, but here are some references for your Honours. According to the 2007/8 racing facts book there were some 651 bookmakers operating nationally; see Betfair appeal book 5 at page 1857. According to his Honour, in Betfair there were some 270 bookmakers operating in New South Wales; see his Honour’s judgment at paragraph 303.

FRENCH CJ: When you say “this particular market”, what market are you speaking of?

MR KIRK: The national wagering market. The bookmakers operating locally tend to be low margin. Betfair’s pleading was that they had a return of 3 to 6 per cent, although that was not admitted and not proved. There is a BCG Consulting report to Racing New South Wales at volume 4, page 1341, which appears to suggest that New South Wales bookmakers have a similar rate to Northern Territory bookmakers of commission said to be, I think earlier in the report, about 5 to 6 per cent. There are off course totalizators operating in each State, although Queensland, South Australia and Northern Territory have joined together to form Unitab.

The totalizators tend to be higher margin. Mr Twaits indicated in cross-examination that Tasmania TOTE’s takeout rate was approximately 18 per cent; see page 118 at volume 1 in Betfair. The BCG report at page 1161 also suggested that Australian TABs tend to have average takeout rates of 16 per cent. It is not in dispute. The only current betting exchange is Betfair. That said Betfair itself markets TOTE Tasmanian products, as Mr Gleeson remarked this morning. That is a national complex, diverse market with innumerable participants.

Whichever way New South Wales had gone, there would have been differential effects on people locally and interstate. If New South Wales had gone for a model which tended to burden high margin operators more than low margin, there would have been other interstate traders who could have complained; in particular, the other TABs. There was no way to proceed which would have kept everyone happy or where no argument would not have been available for some differential effect.

I will skip over topic 6 relating to purpose for reasons of time and turn to issue 7 which is to make a few brief points about the purpose of the race fields legislation, here developing what my learned friend, Mr Walker, said this afternoon. Sportsbet went to the Minister’s second reading speech to refer to the free rider reference. Sportsbet also referred to what his Honour Justice Perram said at paragraphs 44 to 46 in Sportsbet where his Honour suggested that that purpose of addressing free riders was protectionist. Can I make three points about this issue.

First, Justice Perram’s view or conclusion it was protectionist, found at page 2717 to 2718, was based upon his Honour’s view as to Bath v Alston Holdings expressly and that was an erroneous view, as the Full Court found. Secondly, with great respect, his Honour was contradictory on the issue. My learned friend, Mr Young, did not refer your Honours to paragraph 147, I do not think, at page 2752 of Sportsbet volume 8 where, albeit with a degree of hesitation, in the last sentence his Honour said:

It follows that, at least at a high level of generality, I am prepared to accept that seeking to catch the free riders may be a legitimate object.

I will not take your Honours to it but could I also refer your Honours to Justice Perram’s discussion at paragraphs 29 to 30 on page 2713 where his Honour discusses, with great respect, accurately, the breakdown of the gentleman’s agreement and the imbalances that were arising because of the development of internet and phone betting.

Thirdly, Sportsbet itself is somewhat contradictory on this issue. As we understood Mr Young’s submissions yesterday, Sportsbet accepted the legitimacy of New South Wales requiring Sportsbet and other interstate wagering operators to make payments to the New South Wales racing industry - see transcript page 57, lines 2480 to 2500.

Mr Young did so in response to a question from your Honour Justice Gummow about the need for regulation here. That is, in our respectful submission, namely Sportsbet’s acceptance, is to accept the legitimacy of addressing the free rider problem. They may not like the label for the reasons Mr Walker articulated but there appears to be an acceptance of the issue.

My learned friend, Mr Young, made some remarks about all the free riders being interstate. Well, indeed – and that is no coincidence, it reflects the gentleman’s agreement. The gentleman’s agreement was you tax. You burden. You levy locals in relation to all wagering. You do not tax or levy the outsiders. New South Wales changed its policy because, as Justice Perram discussed, that was breaking down in light of phone and internet betting.

That leads me to topic 6, the adjustment of existing burdens. I will not repeat what my learned friend, Mr Walker, has said but can I just add a few comments about - - -

FRENCH CJ: It is topic 8, I think.

MR KIRK: I am sorry, topic 8.

FRENCH CJ: You should never go backwards, Mr Kirk, it is very demoralising.

MR KIRK: I am pleased to hear I am that far advanced. Thank you. Topic 8, to develop a little what my learned friend, Mr Walker, said, to suggest that one cannot, a State or its entities, remove existing burdens when introducing a new scheme, has amongst other faults the effect of preferencing interstate trade, as my learned friend said, that being one of the very problems the Court in Cole at pages 402 to 403 indicated it was seeking to address with its new approach to section 92.

To develop what Mr Walker said, it is entirely consistent, in our respectful submission, with section 92 that a State can burden its locals. The State can choose to discriminate against local traders. It has never been held to the contrary, it reflects the language, it is illustrated in Norman where part of the Court’s answer to the challenge put was that this may disadvantage some growers in New South Wales, but New South Wales can do that.

Though it is perfectly permissible and constitutional, it is also a market distortion for parallel reasons to why protectionism is a market distortion, namely, it picks a particular set of traders – this time locals instead of interstaters – and burdens that set of traders, tying their hand behind their back. That is to the detriment of consumers in the local market because they are not getting the benefit of full and effective competition between all sets of traders without that distinction. The effect of Sportsbet’s argument is to seek to perpetuate or entrench in some way that market distortion. That, in our respectful submission, cannot be required by section 92.

His Honour’s view to the contrary, that is, Justice Perram’s view to the contrary, was, as I have already put in our submission, a misunderstanding of Bath v Alston to the effect that a State could not level the playing field, to use words his Honour used, by increasing the level of burden imposed on interstate operators; see, for example, paragraph 134 of his Honour’s judgment. That is effectively reiterated by Sportsbet here.

Before turning to Bath, can I note that that is inconsistent with Norman. As the Court noted in Norman – I will not take your Honours to it, but it is [1990] HCA 50; 171 CLR 182, relevantly at 194 – with that marketing scheme, barley in New South Wales, reflecting what had been common place, the Barley Board had been exempting interstate operators. The scheme applied to everyone on its face, but to accommodate the then prevailing view the board would give exemptions to anyone who wanted to engage in interstate trade. That was an administrative practice. The Board changed its practice a few months after Cole v Whitfield was handed down. That is explained at page 194. In so doing and in changing its administrative practice to cease giving exemptions, it was doing precisely what his Honour Justice Perram thought could not be done, levelling the playing field up to apply the scheme to interstate operators. As to Bath itself, may I briefly take the Court to a couple of passages, noting - - -

HAYNE J: Before you do that, the distinction which runs throughout much of your submission is a distinction between local operators and interstate operators. How are you identifying them? By the place in which they conduct their business or are situated or by reference to the kind of business they are undertaking? Because to speak of a local operator seems to leave aside from consideration, well, local operator in what market, doing what in that market? How are you using these terms?

MR KIRK: A little loosely, I think, is the honest answer.

GUMMOW J: It is more difficult, Mr Kirk, because cases like Norman and Cole v Whitfield involve commodities.

MR KIRK: This involves services.

GUMMOW J: Yes, and intangibles.

MR KIRK: Yes, quite right, with great respect, and it is the sort of thing, to state the obvious, which can be done readily anywhere. It does not take much to move a business hither or - - -

HAYNE J: A bookmaker on a stand at the course is taking a bet over the phone or over the net.

MR KIRK: Yes, indeed, and the punter may have no idea where the person or operator is situated. The question your Honour has asked me is, with great respect, a very large question. It raises an issue as to how to apply section 92 in the internet age. I do not currently think I have all the answers as to quite how one does it. One will need to do it in some way, however, in that one cannot move away from the text of section 92, which does talk about trade among the States.

The fact that the trade can be moved readily may give a particular character of the issue but there will still be some trade which is in fact interstate and some which is in fact not interstate, based upon locality. There is nothing inherently interstate about, for example, Betfair’s model. In other words, it is not as though they are, by their very nature, something which exists in the interstate ether. They could confine, if they chose to, the wagers they took to wagers from people within Tasmania. They could confine them to wagers from interstate.

HAYNE J: Hard to do it on the net.

MR KIRK: That raises a factual issue. There are, I believe, some ways of seeking to do that, but I do not claim expertise in that area. It raises a large issue which has not been the subject of evidence here as to quite how one might restrict trades in that way. It has always been assumed, for example, I think perhaps with some degree of complaint from Racing New South Wales, but it has been assumed that the TAB should be treated as a local operator, Betfair should treated as an interstate operator where even treating the TAB as a local operator raises a large question.

HAYNE J: I thought that the hypothesis for much of the argument was that there is a single national market for betting products.

MR KIRK: Yes, but that does not mean that there are not participants operating from different places who might have a character of local or interstaters, and that is the premise on which section 92 jurisprudence has proceeded to date, and it is the premise on which this case has been run.

GUMMOW J: Just look at Cole v Whitfield for a minute, 165 CLR at 409, which throws up the problem I think. Cole v Whitfield actually was thrashed out in a couple of pages at the end after a lot of preliminaries. At 409 the Court says at about point 3:

whether the burden which the regulation imposes on interstate trade in crayfish goes beyond the prescription of a reasonable standard . . . and, if so, whether the substantial effect of that regulation is to impose a burden which so disadvantages interstate trade in crayfish as to raise a protective barrier around Tasmanian trade in crayfish. The latter questions are questions of fact and degree –

It is rather difficult to translate that to this case. However, that is one point and another point is this expression “raising a protective barrier”. Do you accept that as applying a criterion?

FRENCH CJ: Perhaps supplementary to that, can one equate racing fields information for New South Wales with Tasmanian crayfish?

MR KIRK: Your Honour Justice Gummow’s first point was – I did not get a proper note of that – it was difficult to?

GUMMOW J: Protective barrier as to the consequences of a burden which is sufficient to engage the constitutional operation.

MR KIRK: Yes. Your Honour asked if that was a criterion we accepted. That is actually one of the sentences I quoted earlier omitting the fish bits. It is an accurate statement of conclusion, in our respectful submission, but we would not seek to substitute that as a test, a criterion. It illustrates what I was seeking to put to your Honours earlier about the type of discrimination that is prohibited by section 92, namely, one which warrants characterisation as burdening the particular set of traders.

To pick up on your Honour the Chief Justice’s question, which indeed is a development of his Honour Justice Hayne’s difficult question, although, as I have said, there are difficulties – and as some of your Honours noted in Betfair v Western Australia, there are difficulties in applying section 92 to the internet. At least at the moment, it is far from logically impossible because servers are located in a particular place, electronic transmissions take place and it is thus possible to locate businesses, just as in earlier cases about television or radio, for example, TCN Channel Nine.

You have electronic signals, intangibles moving across State borders, but section 92 was seen as capable of applying to that. It is, thus, still possible to apply section 92 with this notion of location built into it. But one effect of the internet age is to – to state the obvious, in a sense – lower barriers to entry to markets which can participate - can take place in whole or part on the internet. One sees argument about that in the retail sector. One sees it profoundly illustrated in this market, where the whole market has been shaken up because of the internet and the telephone, leading to this very legislative change.

CRENNAN J: Did you mean barriers at the borders?

MR KIRK: No, I actually meant barriers to entry are lowered in many industries by the internet because it becomes – if you can compete on the internet it is not that expensive to set up a website and to start competing. That makes national markets, where the internet is relevant, more competitive. It is, in a sense, doing some of the work of section 92 for us in a new way.

HAYNE J: But the application of 92 to a case of barriers to entry – see Castlemaine Tooheys, see Betfair v Western Australia - is one thing. This is said to be, I think, radically different. It is said not to be a barrier to entry.

MR KIRK: No, it is said to be - - -

HAYNE J: It is said to be a burden on participation because there is a burden on a participant is I think the way at the highest level of abstraction that the argument is put. Now, if that is the argument, where are you meeting it? Are you meeting it at the level of saying, look, the only relevant engagement of 92 is at the barrier to entry level or are you meeting it at a lower level of joinder, or where?

MR KIRK: No. I am certainly not seeking to limit the operation of section 92 to barriers to entry or barriers at the border. As Mr Gleeson I think said this morning, and I would respectfully agree, one of the very points made in Cole v Whitfield is that we have had the five traditional types of protectionism but it is not limited to that and I am not seeking to limit it by using market or economic language either. One always comes back to this core notion but that involves this characterisation exercise of which I have spoken.

To come directly then to your Honour Justice Hayne’s point, how do we seek to meet the case? We say that Betfair, relevantly, has not established that this measure in this market warrants characterisation as protectionist. It happens to be interstate. It happens to be low margin. TAB happens to be local and higher margin. That is a simplification, obviously. That is not sufficient in this market to establish the characterisation of exercise. They have not established that the group of interstate traders compromising interstate trade, actual or potential, had been significantly burdened.

Put another way, the interstate element is happenstance. It is not material to the characterisation exercise. I have a few more minutes, your Honour. Is that a convenient time?

FRENCH CJ: Yes. I anticipate that on the time allocations that were suggested that we are likely to be finished by about 3.30 tomorrow afternoon at the outside, but if there is any prospect of departure from that we would appreciate if the parties would let us know tomorrow morning. The other matter I wanted to mention was the question of the confidentiality orders. I do not know that we have had responses from all relevant parties to those.

MR YOUNG: May I make our response. There are no materials in the appeal books that we seek to maintain confidentiality over. I think that is the same position as the control bodies.

FRENCH CJ: Thank you, Mr Young. Yes.

MR GLEESON: The control body position is the same in both matters.....

FRENCH CJ: And Mr Walker. Very well. Mr Sheahan. Yes.

MR SHEAHAN: Your Honour, I think my clients have an interest in the matter and we would seek to maintain the orders that were made by Justice Heydon by consent.....

FRENCH CJ: Perhaps you had better come forward and just make a brief submission on that point.

MR SHEAHAN: Your Honours, my clients have claims for confidentiality arising in this context. Documents were sought by a compulsory process from us by our trade rivals, Betfair and Sportsbet. We make claims for confidentiality in respect of those elements of material that we produced that would disclose our cost structure, certain provisions of our contracting arrangements that limited our ability to compete and Justice Perram considered these claims at first instance in a series of judgments having looked at the individual documents and concluded that the claims for confidentiality were justified.

There was evidence to support them, extensive evidence. When it came to the High Court, we reached agreement with the other parties that those arrangements that had been the subject of Justice Perram’s orders should be continued for the purposes of this proceeding. Those orders do not restrict the ability of the Court to give a judgment freely in this matter because, as your Honours will have noted, there has not been, I think either in any of the written submissions or oral submissions, any reference to anything that is the subject of the TAB confidentiality order.

FRENCH CJ: The information to which you are referring, is that appearing under the heading “Tabcorp Confidential Information” in the consent orders?

MR SHEAHAN: It is.

FRENCH CJ: Yes, all right. Thank you. We will adjourn then until 10 o’clock tomorrow morning.

AT 4.21 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 1 SEPTEMBER 2011