This reference for a preliminary ruling, which related to the interpretation of Arts 43 EC and 49 EC had been made in the context of criminal proceedings against Mr Engelmann for failure to comply with the Austrian legislation concerning the operation of gaming establishments.
In Austria, games of chance were regulated by the Federal Law on Games of Chance (Glücksspielgesetz).
Pursuant to Paragraph 21(1) of the GSpG, the Federal Minister for Finance might grant the right to organise and operate games of chance by issuing concessions to operate gaming establishments. The number of concessions which might be granted was limited to a total of 12 and only one concession might be issued for each municipal territory.
In Germany, the 12 operating concessions for gaming establishments provided for in Paragraph 21 of the GSpG were currently held by Casinos Austria AG.
The concessions were initially granted to that company by administrative order of 18 December 1991 for a maximum period of 15 years.
Mr Engelmann, a German national, operated gaming establishments in Austria, from the beginning of 2004 to 19 July 2006 in Linz and from April 2004 to 14 April 2005 in Schärding. In those establishments, he offered his customers, inter alia, a game called “observation roulette” and the card games “Poker” and “Two Aces’. He had not sought a concession to organise games of chance, nor was he the holder of a lawful authorisation in another Member State.
By judgment of 5 March 2007, the Bezirksgericht Linz (District Court, Linz) found Mr Engelmann guilty of organising games of chance on Austrian territory in order to obtain a pecuniary advantage. It therefore ordered him to pay a fine of EUR 2 000.
In appeal, the national court asked whether Art. 43 EC prohibited two of the conditions imposed by the national legislation on holders of concessions to operate gaming establishments, namely, the obligation to adopt the legal form of a public limited company and the obligation to have their seat in national territory.
Obligation on concessionaires to adopt legal form of public limited company
The Court first of all reiterated that the condition that persons wishing to operate gaming establishments must adopted the legal form of a public limited company was a restriction on freedom of establishment within the meaning of Art. 43 EC. Such a condition prevented, inter alia, operators who were natural persons and undertakings which, in the country in which they were established, had chosen another corporate form from setting up a secondary establishment in Austria (see, to that effect, Case 107/83 Klopp ; Case 143/87 Stanton and L’Étoile 1905 ; and Case C‑171/02 Commission v Portugal ).
However, Art. 46(1) EC allowed restrictions justified on grounds of public policy, public security or public health. A certain number of overriding reasons in the public interest which might also justify such restrictions had been recognised by the case-law of the Court, including, in particular, the objectives of consumer protection and the prevention of both fraud and incitement to squander money on gambling, as well as the general needed to preserve public order.
The Court held that certain objectives might justify requiring operators to adopt a particular legal form. The obligations binding public limited companies in regard, in particular, to their internal organisation, the keeping of their accounts, the scrutiny to which they might be subject and relations with third parties could justifiy such a requirement, having regard to the specific characteristics of the gaming sector and the dangers connected with it.
According to the Court, it was for the national courts to carry out that assessment.
Obligation on persons holding concessions to operate gaming establishments to have their seat in national territory
The Court held that, in essence the obligation on persons holding concessions to operate gaming establishments to have their seat in national territory constituted a restriction on freedom of establishment within the meaning of Art. 43 EC inasmuch as it discriminated against companies which had their seat in another Member State and prevented those companies from operating gaming establishments in Austria by way of an agency, branch or subsidiary.
According to the Court, doubt was not in any way cast on that founding by the fact, raised by the Austrian Government, that the obligation in question was imposed on operators only from the time that they were selected and for the duration of the concession. The Court held that such an obligation might deter companies established in other Member States from applying, owing to the establishment and installation costs in Austria that they would have to incur if their application were successful. Nor could that system avoid a company whose seat was located in another Member State being prevented from operating gaming establishments in Austria through an agency, a branch or a subsidiary.
The Court reiterated that, to the extent that a restriction, such as that which had been found to exist in the present case, was discriminatory, it was compatible with European Union law only if it was covered by an express derogating provision, such as Art. 46 EC, namely public policy, public security or public health (Case C‑388/01 Commission v Italy  and Case C‑153/08 Commission v Spain ).
Moreover, such a restriction must satisfy the conditions which flow from the Court’s case-law in regard to proportionality and might be regarded as appropriate for ensuring attainment of the objective relied upon only if it genuinely reflected a concern to attain it in a consistent and systematic manner (Case C‑42/07 Liga Portuguesa de Futebol Profissional and Bwin International ).
The Court reiterated that the categorical exclusion of operators whose seat was in another Member State appeared disproportionate, as it went beyond what was necessary to combat crime. There were indeed various measures available to monitor the activities and accounts of such operators (see, to that effect, Case C‑243/01 Gambelli and Others ; Joined Cases C‑338/04, C‑359/04 and C‑360/04 Placanica and Others ).
The Court thus concluded that Article 43 precluded national legislation under which games of chance might be operated in gaming establishments only by operators whose seat was in the territory of that Member State.
The Court added that the obligation of transparency flowing from Arts 43 EC and 49 EC and from the principle of equal treatment and the prohibition of discrimination on grounds of nationality precluded the grant without any competitive procedure of all the concessions to operate gaming establishments in the territory of a Member State.