This article was first published by Breeding & Racing magazine in 2013.

 

Summary of AI court case judgment

January 2013

Renée Geelen

 

Everyone in the Australian racing industry will have heard of the widely publicised Artificial Insemination (AI) court case, and pretty much everyone has an opinion on whether the introduction of AI would be a great or terrible thing for themselves.  Most people probably have an opinion on the wider effects on the Australian industry too.  The case allowed all those opinions to be aired and tested in court and ultimately, for the discussion on AI to be resolved in an Australian context.

B&R’s editor-at-large Renee Geelen worked as a consultant to the Australian Stud Book and Thoroughbred Breeders Australia during the proceedings, and thus has a good knowledge of the case between ex-bookmaker and retired Sydney Turf Club chairman Bruce McHugh and various racing authorities.  Those authorities were the Australian Jockey Club and Victoria Racing Club (as joint proprietors of the Australian Stud Book), the Australian Racing Board and Racing Information Services Australia (RISA).

The scene was set in May 2009 when Bruce McHugh wrote to the Australian Stud Book requesting they set up a parallel register for AI bred racehorses.  When this was refused due to the international ban on AI in Thoroughbreds, the Australian Stud Book received a Statement of Claim in November 2009.  Over the next year, there was a period of discovery where both sides had access to documentation and put together their arguments.  In May 2010, RISA was excused from participation by agreement from both parties during mediation with all parties.  Thoroughbred Breeders Australia was successful in their submission to join the case in July 2010 and became the fifth respondent. In November 2010 the official notification of action against was received and in February 2011, the AJC merged with the Sydney Turf Club to form the Australian Turf Club which so the ATC was added to the case as a respondent (as new part-owner of the Australian Stud Book).   The case was heard in September 2011 over a six week period with final summations heard on 19 December 2011.  A year to the day later, the judgment was handed down on 19 December 2012 in favour of the respondents.

There were 14 lay witnesses for McHugh’s team, plus a veterinary and an economist, while the respondents team was represented by 11 lay witnesses, and they also had a vet and an economist to discuss the wider issues.

McHugh challenged the ban on AI in Thoroughbreds by arguing that the exclusion of AI bred horses from the Australian Stud Book, and subsequently from the register permitting thoroughbreds to race, was contrary to section 45 of the Competition and Consumer Act 2010 and further that the ban is a restraint of trade under common law.  While the court did not make any judgment on the use of AI, the majority of the hearing was filled with the arguments on the merits and downsides of AI, both as a technology and in terms of the wider impact of a rule change on the current industry.

The case was presided over by the Honourable Justice Robertson and his 1611 paragraph judgment started with an outline of the history of the discussion and ban on AI in the international world of racing over 100 paragraphs starting with the first evidence of a ban in 1949 in Australia as a way of ensuring the correct pedigrees in an era before bloodtyping or DNA.  At this point, each country was responsible for their own Stud Book rules.  In 1976 the International Stud Book Committee was established and the ban on AI was formalised internationally.  However, all parties decided to keep the subject under review, particularly in relation to the new technology of bloodtyping.  The wording of Article 12 of the Federation Agreement was finally agreed in 1982 and this defines the Thoroughbred as being naturally conceived and born for all countries that are signatories to the International Agreement.

The evidence by witnesses for both sides takes up a large portion of the judgment (1071 paragraphs) but is best summed up in Judge Robertson’s findings (70 paragraphs).  Among the outline of the size of the Australian industry are some interesting facts:

– Australia has more racecourses than any other single country (367);

– There were 360 tracks and 2,694 race meetings with 19,281 flat races. The prize money was $427,245,771 and total returns to owners was $481,322,903.

– Australia has the second or third largest number of races behind the USA and Japan;

– Australia offers the third largest amount of prize money in the world ($421,095,890);

– Australia has the second highest foal crop (16,112 in 2009) behind USA (31,224) in the world;

– Of the more than 450 registered studs in Australia, 324 stand only one stallion.  The largest stud (Darley) stood 18 stallions in 2009.  Stallion fees ranged from $400 to $176,000.

– The average price for the 4,831 yearlings sold at auction in 2009 was $53,009 with the median $21,000.

One of the key arguments for McHugh was that AI would reduce costs for broodmare owners.  Judge Robertson found that there was no evidence to suggest that both agistment and transport costs would definitely be cheaper under AI, but that it was reasonable to expect that the broodmare owner would have more options and some of these options may be cheaper.  However, it was found that veterinary costs would be similar for both natural cover and the use of fresh semen, slightly higher for the use of chilled semen and much higher for the use of frozen semen.  In addition, it was found that the use of fresh semen had similar fertility rates to natural service (at 70-75%), chilled semen had lower fertility rates at 60-70% and frozen semen was much lower at around 50%.  This means that the opportunity cost of having a mare not in foal each season also needed to be considered.

McHugh’s team submitted that stallion service fees would be reduced under AI, but Judge Robertson could not find a basis on which to conclude if this was probable or not, finding that the decision would be something for each individual stallion owner to consider into order to maximise their own profit (AI or not).  He did find that the use of AI increases the choices for broodmare owners, but that this does not automatically translate into an increase in competition in the marketplace.  In particular, Judge Robertson found that there would not be a reduction in market power of the studs if AI were permitted.  He found that the larger studs compete between themselves, that fees are not set by reference to the cost of production but rather to maintain the profitability for the stallion owner.  Just having more services available from smaller studs under AI does not establish any reduction in market power by the larger studs.  In particular, the whole idea of Thoroughbred breeding is quality not quantity, in which case market share would remain with the quality stallions.  Further, McHugh’s team stated that the major studs benefit from the current status as they can bundle together stallion services with broodmare services, including agistment.  However, Judge Robertson found that there was sufficient competitive pressure from broodmare and walk-on properties in the current environment that this argument was not valid. Adding to this conclusion, Judge Robertson stated that there is competition between the major studs, and this is further shown by the fluctuation in the group of big studs with the names and owners of the largest studs changing over time, even in a reasonably short seven year period.

One of the major points of discussion during the case was the impact of a change in the AI rules in Australia on the international aspects of the industry.  Judge Robertson found that while racing and breeding is international, only a relatively few Thoroughbreds directly participate internationally with 1,833 exported horses and 603 imported horses in 2009. (As horses from several different crops as exported each year, this translates into an average of 6% of the foal crop being exported valued annually at approximately $180million per annum).

The McHugh team argued that if AI ban was found to be contrary to section 45 and thus was allowed for use in Australia, the rest of the world would soon follow and thus the international impact would be small.  The respondents argued that it was not this simple, that the ISBC would not recognise the Australian Stud Book as a signatory if we repealed Article 12 and our status on the global stage would be severely reduced.  Judge Robertson found that McHugh’s team did not provide strong enough evidence to prove that other jurisdictions would voluntarily follow suit; and further that the Australian Court could not assess the law in foreign countries and thus any prospect of success could not be automatically concluded in favour of a change.

On the issue of international recognition, Judge Robertson found that if the Australian Stud Book was forced by the courts to make a change to include AI bred horses, it would not immediately and automatically lose international status.  However, Judge Robertson found that the ISBC would ultimately decide that the Australian Stud Book would no longer be an approved stud book and it would just be a matter of timing as to when the loss of approved status would occur.  He also found that a further consequence of allowing AI bred horses to race alongside Thoroughbreds would be a complete loss of Australia’s black type from the global cataloguing standards.  Therefore, Australian racing would cease to be part of the international community and this isolation would have long ranging consequences for all players in the industry.

Another consideration was the impact on the domestic market, and Judge Robertson found that the introduction of AI would have little impact as prices paid for horses are determined by available prizemoney, rather than cost of production.  Domestic buyers would not pay a different price for AI bred or naturally bred horses if they were allowed to compete together for the same prizemoney.  Judge Robertson also found that both the domestic markets for service fees and for the sale of Thoroughbreds were national (not state based) due to the relatively small cost of transport compared to the prices paid (for both service fees and horses).

But in the end, this case was decided on legal arguments, not the scientific or economic discussions.

Firstly there is the question of whether the rule defining the Thoroughbred, although based on out-dated reasoning, is an attribute of the sport. Judge Robertson found that since McHugh’s team accepted that the Thoroughbred is defined by horses of particular bloodlines, it is “conceptually difficult” for them not to accept that the Thoroughbred is defined by horses of particular bloodlines bred in a particular way.   McHugh’s team, however, stated that there was a logical distinction because the method of conception had nothing to do with the performance of the horse and thus had no bearing on the nature of the sport.  Judge Robertson disagreed, finding that the core of racing is defined by reference to every horse’s breeding, so the method of conception is a key part of the nature of the sport.  Further, Judge Robertson said that the current ban on AI has “pro-competitive effects” as it contributes to the interest of those who play the game.  Judge Robertson found that if the ban on AI was over-turned, even without considering the international flow-on effects, that the demand for horses would diminish and competition would be reduced.

Therefore, the action based on the current rules being contrary to section 45 of the Competition and Consumer Act 2010 failed because:

  • McHugh’s team did not provide enough evidence that the current rules lead to substantial lessening of competition,
  • the legal definitions of a contract in relation to the rules of a sport and,
  • that McHugh agreed he did not need the Proprietors of the Australian Stud Book to establish his own register for AI horses.

 

As to the ‘restraint of trade’ argument in common law,  “the law requires an applicant to establish that the restraint was unreasonable at the time it was imposed” and Judge Robertson found that McHugh’s team could not do this ‘given his acceptance of the reasonableness of the alleged restraints when they were imposed many decades ago to prevent the attribution of incorrect paternity to a thoroughbred horse.’

Because the judgment was handed down a few days before Christmas, the typical ten day period for McHugh’s team to notify the court if they wanted to appeal the decision was extended by Judge Robertson until 31 January 2013.  This day passed without any further public action from McHugh.  This story is yet to be completely concluded as McHugh’s barrister retired over the Christmas break and there is a slight possibility that this could lead to an extension of the appeal notification period.

Whether McHugh appeals in the near future or not, this case most likely puts the AI argument to bed in Australia for the time being.

Ultimately, this case was not about the introduction of technology to our industry, but about the authority that the industry has to set their own rules.  AI, and other technologies, will (and should) always be open as points for discussion.  Whatever opinion you, the reader, holds on AI, Australia is part of a global industry and this type of change needs to be agreed by all 69 signatories to the International Agreement on Breeding and Racing.