Can states use local government powers to ban federally regulated activities?

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States Cannot Use Local Government Powers to Ban Federally Regulated Activities

The Kedah state government is seeking to appeal a decision by the Court of Appeal, which ruled that the state acted unconstitutionally by refusing to renew premises licenses for lottery businesses. The core of the legal dispute centres on whether a state can, through its local government powers, effectively prohibit an activity that is federally regulated and licensed. Lottery operators have been unable to establish physical outlets in Kedah since 2023, despite possessing federal business licenses for their operations.
Constitutional Authority Over Lotteries and Local Government

The Federal Constitution delineates specific areas of legislative power. "Betting and lotteries" fall under the purview of the federal government's law-making authority. Conversely, matters related to "local government," which includes the regulation of business premises, are assigned to state governments. The legal challenge hinges on the principle that a local authority's power to regulate premises cannot be used as a mechanism to prohibit an activity that is already under federal licensing.
Prohibition Through Non-Renewal of Premises Licenses

In this instance, the Kedah state government's decision not to renew premises licenses for lottery businesses was not based on genuine defects in the premises themselves, such as issues with planning, zoning, safety, or public health. Instead, the refusal stemmed from the state's disapproval of the lottery activity itself. This blanket refusal effectively prohibits a federally licensed activity, thereby encroaching upon federal authority.
Violation of Federal Supremacy and Executive Authority

The Court of Appeal's majority decision found that the Kedah government's actions violated Article 81 of the Federal Constitution. This article mandates that state governments must exercise their executive authority in a manner that does not impede or obstruct the federal government's exercise of its own federal authority. By using its licensing powers to ban a federally regulated business, Kedah was deemed to be obstructing federal authority.
Dissenting Opinion on Policy Matters

A dissenting opinion from one judge in the Court of Appeal argued that the non-renewal of business premises licenses falls within the scope of state law-making powers. This judge viewed the Kedah government's decision as a policy matter, which she contended is not subject to judicial review. This perspective suggests that the state's prerogative to set policy should not be overridden by the courts, even if it impacts federally licensed activities.

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Can states use local government powers to ban federally regulated activities?

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