In a decision handed down on 17 October 2014, the High Court refused to grant special leave to appeal in respect of a challenge to the legality of the rule prohibiting the use of artificial insemination (AI) in the production of thoroughbred horses in Australia.

The High Court decision – which follows the respondents’ comprehensive victory on both the competition case and restraint of trade case at first instance, and 3-0 in the Full Federal Court – endorses the Federal Court’s findings that the rule is not a restraint of trade, despite it having been first introduced in perpetuity more than 60 years ago, and even though one of the original justifications for the rule (that is, the correct identification of thoroughbred progeny) may no longer apply due to scientific developments in blood typing and DNA testing.

The High Court’s decision formally brings to an end the Applicant’s challenge to the rule. The result is being welcomed by Australia’s pre-eminent jockey clubs, which had already been successful in obtaining a Court finding that the rule does not have the effect of substantially lessening competition (within the meaning of Australia’s competition laws) because, among other things, the rule has pro-competitive effects by contributing to the interest of those who participate in the sport of thoroughbred racing. The findings of the Australian Courts have significant global implications because the rules that are the subject of the case apply internationally and the Australian proceedings were seen as a test case in global thoroughbred breeding and racing circles.

Johnson Winter & Slattery acted for the jockey clubs (the Australian Turf Club and the Victoria Racing Club) throughout the proceedings.  

Background

The Applicant first commenced proceedings in late 2009 seeking to overturn the exclusion of thoroughbreds bred by AI from the Australian Stud Book (ASB) and from the register permitting thoroughbreds to race. The Applicant challenged the provisions on two bases, first as contrary to section 45 of the Competition and Consumer Act 2010 (Cth) (the Act) and, second, as being in restraint of trade. The practical and commercial effect of the combination of the two sets of rules is that breeders are effectively prevented from producing thoroughbreds by AI to race or to sell, because the progeny of such a process would not be eligible to be entered in certain races conducted in Australia and overseas.

In a hearing that extended over many weeks between September and December 2011, some 30 witnesses, not only from Australia but also from overseas including France, Ireland, the United Kingdom, New Zealand and Hong Kong, gave evidence.

At the hearing, the Applicant argued that AI would have pro-competitive effects because it would lead to a reduction in breeding costs, a reduced incidence of injury and disease and increased choice, quality and productivity of thoroughbreds.

The Respondents disputed this, but significantly argued that the rule needed to be assessed:  

  • first, in its international context – that is, thoroughbred horse breeding, acquisition and racing operate in an international milieu and there would be disastrous consequences for thoroughbred breeding and racing in Australia if AI were allowed; and
  • second, as a rule of sport – that is, thoroughbred racing and breeding have international appeal which transcends national boundaries. Tampering with the rules runs the risk of destroying or damaging that appeal and goodwill. The natural cover provisions are necessary to preserve the integrity of the sport of thoroughbred racing and the welfare of its Australian participants.

The judge at first instance

In a lengthy judgment handed down in December 2012, the trial judge held that the Applicant’s section 45 action failed for a number of reasons, including that the trial judge was not persuaded on the evidence that the impugned provisions have the effect of substantially lessening competition. He found that the Applicant did not establish: that there were likely to be meaningful changes in the decisions made by mare and/or stallion owners as a result of the removal of the rules; that breeding costs would be lower with AI; or that owners of high quality stallions would expand output.

The judge further agreed with the Respondents that the international consequences of removing the rule would be dire:

  • Australian thoroughbred racing would cease to be a participant in the international thoroughbred racing community;
  • foreign horses would not come to Australia and there would be a lack of interest overseas in Australian races;
  • Australia would be isolated in relation to its thoroughbred racing and that in turn would have consequences for international demand;
  • there would be no international demand for thoroughbred horses bred by AI; and
  • the absence over time of thoroughbred horses bred by natural cover from rankings by virtue of success in black type races would mean that international demand for those horses would wane.

The trial judge also accepted that the Court must consider whether a rule of sport has offsetting, pro-competitive benefits. He accepted that there needs to be some deference by the Court to the organisations involved in prescribing the rules, in the limited sense that it is those organisations which have to make the judgment from time to time as to what is in the best interests of the sport in terms of its appeal. The trial judge concluded that the evidence shows that the impugned provisions do contribute to the nature and quality of the sport and are an attribute of it and they have pro-competitive effects in that they contribute to the interest of those who participate in the sport whether as breeders, owners, punters or other spectators.

In relation to the restraint of trade case, the trial judge found that the action failed because it was not established that the restraint was unreasonable at the time it was first introduced in 1947, which is when the validity of a restraint is tested.

The Full Court’s decision

The appeal concerned only the alleged restraint of trade case and, in particular, the issue of whether the trial judge reversed the onus of proof as it applied to the question of reasonableness of the alleged restraints.

Whilst the Applicant accepted that in 1947 the rule was a reasonable response to the problem of the correct identification of thoroughbred parentage, he sought to characterise the prohibition on the inclusion in the ASB of foals bred by AI as perpetualin operation. He attacked its reasonableness, therefore, not on the basis that it did not address a legitimate concern which the ASB respondents were entitled to protect but rather that the duration of the protection which had been put in place to protect that admittedly legitimate concern was not shown to be reasonable. 

The Applicant submitted that the ASB Respondents bore the onus of proving ‘that future development(s) in technology could not be foreseen’ because it was they who bore the onus of proving the reasonableness of the restraint under the accepted doctrine.

The Full Court rejected the Applicant’s submission that the possibility that any given scientific problem might be resolved itself was inherently foreseeable. Perram J (with whom White J agreed) said:

It may well be that a prohibition on breeding throughoubreds by [AI] should be limited in its duration when current tangible scientific developments suggest that a solution to the problem of paternity testing might soon be at hand … But to say that the paternity problem in 1947 was foreseeably soluble for no more reason than that it was a scientific problem and hence likely, at some indeterminate point in the future, to yield to the forces of progress unleashed by the Renaissance raises nothing more than … an improbable and extravagant contingency.” (At [27])

The result of the Court’s finding is that a rule first introduced in perpetuity more than 60 years ago is still reasonable.

High Court’s decision on Special Leave

The High Court’s decision, in effect, endorses the Full Federal Court’s findings. The Court was not satisfied that an appeal would have sufficient prospects of success in circumstances where there was no dispute between the parties that the reasonableness of an alleged restraint of trade had to be judged at the time it was introduced, having regard to what were then foreseeable developments.