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Malta’s iGaming industry is braced for a high-stakes battle as it gears up to defend its operators against player reimbursement claims from other countries.

The collective worth of these claims, seeking to recover losses from alleged illegal online gambling, is projected to reach hundreds of millions of euros.

Despite foreign court orders instructing them to do so, some MGA-licensed operators, including 888 and Flutter, have reportedly refused to refund players.

The companies contend that these judgments are devoid of a legal foundation, asserting that their actions are within the purview of EU law.

Malta’s government has stood firmly behind these operators and is actively preparing to introduce legislative amendments aimed at blocking the enforcement of foreign court rulings against MGA-licensed companies with a presence in Malta.

Several foreign law firms representing gamblers are particularly incensed about Malta’s proposals, which they argue could contravene EU law.

Some background

In recent years, operators have been confronted with a multitude of lawsuits from players seeking reimbursement for historical losses incurred through alleged illegal online gambling.

The majority of these claims stem from Germany and Austria.

While the specific legal circumstances may differ (more details below), the primary argument put forward in these cases is that the absence of a valid licence renders the contract between the operator and the player null and void.

Consequently, players assert that the funds they lost while gambling should be returned.

There has been a notable upsurge in these cases over the last year, largely attributable to the involvement of legal tech and litigation financing firms.

These entities provide the technology to process player claims, thus enabling them to file collective claims against operators in return for a portion of the awarded compensation.

Dr Benedikt M. Quarch, a lawyer and co-founder of legal tech company RightNow, suggest the total value of these claims reaches a substantial amount in the three-digit millions.

German litigation limbo

In June, iGaming NEXT first reported about the rising number of player lawsuits in the German courts to recoup losses that pre-date Germany’s regulated gambling market.

The vast majority of these cases concern funds deposited in online casinos before 1 July  2021, at which point these games were only regulated in the state of Schleswig-Holstein.

Although not all German courts follow that argument, several courts have ordered operators to reimburse funds to players, with thousands of settlements pending.

“Given that these companies are licensed by the MGA, the judgments need to be enforced in Malta. This is also where the operator is based and where the funds should be located.”
Dr Marlon Borg, partner at DF Advocates

Several higher regional courts have also rendered similar judgments.

In an effort to circumvent additional court rulings and maintain confidentiality, some operators have proactively reimbursed losses and opted for out-of-court settlements.

These settlements are often accompanied by non-disclosure agreements, to keep these disputes out of the headlines and away from public scrutiny.

Nevertheless, these cases are likely to continue in German courts for a considerable period in the absence of a definitive federal ruling, at least according to Quarch.

Austria’s supreme court ruling

In Austria, the situation presents some notable distinctions. Casinos Austria, the state-supported gambling company, has maintained a monopoly on casino gambling since 2016.

Austria’s supreme court has ruled that other companies operate unlawfully because they contravene a federal gambling monopoly and therefore must reimburse losses.

According to the Financial Times, more than 2,500 gamblers have been repaid losses totalling €75.8m following court judgments and out-of-court settlements, while €34m in payouts has been withheld.

Operators argue that the state-sanctioned gambling monopoly in Austria contradicts the principles of EU market freedoms and should not be enforced, in accordance with the principle of the supremacy of EU law.

Another point of contention arises from the fact that, in numerous instances, Austrian courts have mandated operators to reimburse players for their entire losses, even in the case of poker, where operators solely collect a rake and do not retain the losses themselves.

No funds in Malta

Lawyers involved in the cases have identified both 888 and Flutter (primarily via PokerStars) as the main operators refusing to reimburse the funds.

“Given that these companies are licensed by the MGA, the judgments need to be enforced in Malta,” said Dr Marlon Borg, partner at DF Advocates, a Maltese law firm representing the local interests in some cases. “This is also where the operator is based and where the funds should be located,” he told iGaming NEXT.

“In the case of 888, we have received information that 888 holds assets in Gibraltar but has no funds in Malta. A garnishee order has been issued against 888 and communicated to all banks and payment service providers in Malta.

“However, they have all confirmed that they don’t hold any funds on behalf of the company in Malta. Based on this, we have initiated bankruptcy proceedings with a creditor’s liquidation lawsuit, arguing that if they lack the funds, they are essentially bankrupt.”

A garnishee order is a common form of enforcing a judgement debt against a creditor to recover money.

888, meanwhile, stressed the “lawsuits are procedurally incorrect” and in violation of EU law, Borg said.

Malta’s draft law

In response to the rising number of foreign lawsuits, Malta’s Economy Ministry proposed to amend its gaming regulations by adding a provision that would prevent Maltese courts from awarding damages to plaintiffs who sued gaming businesses for offering their services abroad.

The draft law, known as Bill 55, has completed its initial reading in the Maltese Parliament at the end of April and is currently undergoing the parliamentary process.

One of the proposed amendments states that “as a principle of public policy”, no action can be taken against a licence holder, current or former officers, key persons of a licence holder, in relation to the provision or receipt of gaming services if such action contradicts or undermines the legality of gaming services provided in or from Malta under a valid licence issued by the MGA.

Furthermore, the court is required to reject the recognition and enforcement of any foreign judgment related to an action described in this particular provision.

A matter of public policy

Malta has fought many battles with the EU over the regulation of iGaming in Europe.

The island’s Economy Ministry stated that the government remains strongly committed to protecting the status of the Maltese gaming sector and its licence certificate.

In a statement sent to iGaming NEXT, the Ministry emphasised that Malta’s regulatory standards in this field are “exceptional” and uphold the fundamental freedoms granted to individuals and establishments within the EU, including the freedom of establishment and the freedom to provide services.

“In the absence of harmonisation of regulation of this service, the government has given regulated operators the necessary assurance against unfounded challenges, as a matter of public order for the country. The bill is solely intended to enshrine this approach in law,” said the Ministry.

Strong criticism

The draft law has faced sharp criticism from both German and Austrian lawyers.

In a strongly worded letter written to European Commissioner for Justice Didier Reynders and to Economy Commissioner Paolo Gentiloni, Quarch and fellow layer Karim Weber from Austria described the bill as an “attempt by the government of the Republic of Malta to blatantly undermine European Rule of Law by blocking the fundamental rights of EU citizens and residents.”

In conversation with iGaming NEXT, Quarch further stated that Malta’s draft bill clearly goes against the principle of separation of powers.

Malta, he said, referred to the Recast Brussels Regulation, which states that cases can be appealed should the judgment be contrary to public policy.

“If the law is passed, Malta would most likely have the EU as an opponent. If the law is withdrawn, it would be an admission that it is not correct.”
Dr Benedikt M. Quarch, lawyer and co-founder of RightNow

However, he emphasised, it is up to the courts to decide whether decisions from EU countries can be recognised and enforced.

Moreover, the government of Malta has no authority to intervene in the independent arm of the judiciary to determine what constitutes public policy.

Should Malta go ahead with the law, the lawyers also wrote in their letter: “This will set a very dangerous precedent not only for any action to be taken or not against Maltese gaming companies, but for any EU member state judgment to be enforced in the Maltese state.”

DF Advocates partner Marlon Borg said he was “shocked” by the bill that had been presented.

“We have seen a number of judgments from the ECJ, which hold that the legislative can never instruct the judiciary whether to accept or not certain claims being put forward,” he added.

Is there an alternative?

While there is a consensus within Maltese iGaming circles that Malta should safeguard the industry, others have suggested to iGaming NEXT that Malta has taken the wrong stance on this issue.

Some believe Malta’s defence should have been based on the fact that since the bets were facilitated in Malta, any player lawsuits should also have been heard in Malta.

888 stands firm on EU principles

888, meanwhile, told iGaming NEXT that it has taken “extensive independent advice from lawyers and experts both inside and outside of Austria” who agree that the position adopted by the Austrian Courts is contrary to the fundamental EU principle of freedom to provide services. 

“Like many other international leading gambling operators, the group services Austrian customers via a licence issued by the Malta Gaming Authority. 

“This position is based on the fundamental EU principle of freedom to provide services. While the Austrian Courts have challenged this, the group continues to contest the compatibility of the Austrian licensing regime with EU law,” 888 said.

“The Malta Gaming Authority concurs with this view and therefore takes the position that gaming service providers licensed by it are able to offer their services in Austria entirely legally on the basis of their freedom to provide services within the internal market, insofar as they remain compliant with the Maltese regulatory and legal framework,” the company stressed.

Lastly, 888 expressed absolute confidence in its “legal and regulatory position”.

What’s next?

German lawyer Quarch said that the European Parliament will also bring the issue to the attention of the European Commission later this week.

Germany’s gambling regulator (GGL) is also looking into the matter.

Quarch pointed out that the GGL did not issue permits to Curaçao-licensed operators on purpose because judgments cannot be enforced there. This could hint at potential wider implications for Malta as an iGaming-focused business hub.

In any case, he says, Malta is in a tricky situation: “If the law is passed, Malta would most likely have the EU as an opponent. If the law is withdrawn, it would be an admission that it is not correct.”

While it is not yet known when the bill will be tabled again in Malta’s parliament, Quarch hinted that delays could work in their favour.

“The Maltese government should be well aware that it is not compatible with European law. However, what they gain from it is time,” he told iGaming NEXT.

“It can easily take 18 months, if it goes quickly, or three years, if it proceeds normally, for the ECJ to make a decision. That is certainly a long time during which assets can be moved.”

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