Full Federal Court on Restraints of Trade, Thoroughbreds and Artificial Insemination

restraint of trade

McHugh v Australian Jockey Club Limited [2014] FCAFC 45 is an interesting Full Federal Court decision concerning an alleged restraint of trade said to be constituted by a prohibition on the breeding of thoroughbred horses by artificial insemination.  Perram J provides a helpful summary of the key principles relating to restraint of trade.

Background

The appellant wished to breed thoroughbred horses by artificial insemination.

As Perram J explained, the modern thoroughbred horse is descended from three stallions – Godolphin Arabian, Darley Arabian and Byerley Turk.  Since 1878 the Australian Stud Book (ASB) has been published as a record of broodmares and foals with accepted thoroughbred pedigrees.

In 1949 the proprietors of the ASB issued a booklet entitled ‘Outline of Stud Book Procedure governing Returns of Eligible Brood Mares to the Australian Stud Book’ which contained the following stipulation:

Artificial Insemination

A foal is not eligible for Australian Stud Book inclusion unless it is begotten by natural service, although it is permitted to reinforce at once the natural service by artificial insemination with semen from the stallion performing the natural service on the mare that has just been covered.”

[emphasis in original]

The Court accepted evidence that this prohibition against breeding by artificial insemination had first appeared in an earlier booklet in 1947.

The appellant contended that the prohibition now contained in certain rules of the current ASB, is void as a restraint of trade and contrary to public policy.

The respondents included the current owners of the ASB, namely the Australian Jockey Club Limited, the Victorian Racing Club Limited and the Australian Turf Club Limited.  The other respondents were Thoroughbred Breeders Australia Limited and Australian Racing Board Limited.

Since 1980 a rule adopted by the Australian Racing Board has prevented horses in Australia from being entered or running in any thoroughbred race unless they are registered; only horses appearing in the ASB can be registered.

The appellant lost at first instance and also on appeal.

Legal principles

Perram J summarised the key principles relating to restraint of trade, which were not in dispute:

(a)   at common law all interferences with individual liberty of action in trading and all restraints of trade themselves, if there is nothing more, are contrary to public policy and therefore void [fn 1]

(b)   such a restraint will nevertheless be valid if:

(i) it affords no more protection than is reasonably necessary to protect the interests of the party in whose favour it is imposed [fn 2]; and

(ii) it is reasonable having regard to the interests of the public [fn 3]

(c)   reasonableness in those contexts is to be judged at the date the restraint was first imposed [fn 4];

(d)   the onus of showing that the restraint is no more than reasonably necessary to protect the interests of the party having the benefit of the restraint is on that party [fn 5];

(e)   the onus of showing that a contract in restraint of trade is injurious to the public lies on the party making that allegation [fn 6];

(f)    what is to be proved in both cases are facts, but the question of whether those facts make good the proposition that the restraint is reasonable is a question of law [fn 7];

(g)   in assessing what is reasonable the Court may take into account future probabilities that could have been foreseen [fn 8]; and

(h)   in assessing what is reasonable, facts occurring after the restraint’s inception may, but need not, throw light on circumstances existing at the relevant date [fn 9].

The decision

In light of the principles above the respondents bore the onus of proving that in 1947 there were circumstances from which it could be inferred that the prohibition on entry of foals bred by means of artificial insemination in the ASB was reasonably necessary to protect a legitimate interest (at [5]).

However the appellant conceded at trial that the proprietors of the ASB had a legitimate interest to protect in or about 1947 because at that time there was no effective test to detect fraud or mistaken identity in relation to the recording of new-born foals in the ASB.

Nonetheless, the appellant attacked the restraint of trade on the basis that the duration of the protection was not reasonable.

The appellant contended that the respondents had the onus of proving that as at 1947 it could not have been foreseen that matters such as blood typing and DNA testing would evolve to a point where they would provide a reliable means of verifying pedigree (at [8]).

Perram J accepted that the respondents carried the onus of proving that in 1947 there was no future foreseeable probability of a method for verifying pedigree (at [17]).  However this was not the same as an absence of evidence of such probability – to be discharged the onus required evidence that no such probabilities were countenanced in 1947.

The evidence adduced at trial was that blood typing first appeared in around 1972 and DNA testing during the 1980s, so that it could be inferred that nothing was contemplated in 1947 regarding these methods of identification.  Nor were there any other relevant future technological developments contemplated in 1947.  The Court rejected the appellant’s argument that as at 1947 it was always to be expected that technology would develop a method for reliably verifying pedigree.

The Court found that there was sufficient evidence for the respondents to discharge their onus, and the restraint of trade was held valid.

Interestingly this was despite Perram J commenting (in relation to a respondent’s notice of contention) that the effect of the artificial insemination prohibition in the ASB is to place a very significant limitation on the ability to trade:  no horses bred by means of artificial insemination may be entered in thoroughbred races (at [40]).

However Perram J went on to say that for the purposes of the application of the restraint of trade doctrine, the restraint was first relevantly imposed in 1947 (at [44]).  At that time it could not be said that the restraint was invalid.

The appeal was dismissed with the result that the prohibition on artificial insemination continues in effect.

Comment

This case provides a good illustration in restraint of trade matters of the importance of:

  • adducing sufficient evidence of the factual matrix (including foreseeable future probabilities, if necessary) as at the date the restraint is said to be first imposed;
  • if necessary adducing evidence of relevant facts occurring after the date the restraint is first imposed, in order to shed light on the circumstances prevailing at the date of the restraint;
  • appreciating that the party asserting the validity of the restraint bears the onus of proving such facts to show the reasonableness of the restraint when it is first imposed.

Footnotes

1. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company Ltd [1894] AC 535 at 565 per Lord Macnaghten.
2. Nordenfelt at 565; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315-316 per Gibbs J.
3. Nordenfelt at 565; Amoco at 315.
4. Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 at 285-286 per Gummow J; Sheppard J agreeing at 245.
5. Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 at 319 per Lord Hodson; Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 700, 707-708 per Lord Atkinson and Lord Parker.  There are judgments of individual Justices of the High Court to similar effect:  see Lindner v Murdock’s Garage (1950) 83 CLR 628 at 646 per McTiernan J and 653 per Kitto J; Amoco at 317 per Gibbs J.
6. Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at  700, 707-708; Esso Petroleum at 319.
7. Esso Petroleum at 319; Amoco at 317.
8. Adamson at 285-286.
9. Amoco at 318.