Submissions
1206 The applicant submitted that the ASB organisation administered rules which governed, inter alia, eligibility for inclusion of a foal in the ASB.
1207 The ARB administered the ARR, which were the rules governing the racing of thoroughbred horses in Australia. The ARR applied to all thoroughbred horse races conducted in Australia by virtue of rules ARR 2, 6 and 7 respectively. Pursuant to ARR 14, subject to limited exceptions having no present relevance, only horses which have been registered with the Registrar of Racehorses may be entered in a thoroughbred horse race conducted in Australia. ARR 15A prevented a horse being registered with the Registrar of Racehorses unless the horse had been accepted for inclusion as a foal in the ASB, accepted for inclusion in the Non-Thoroughbred Register or included in the stud book of a non-Australian turf authority.
1208 The core restrictions provided that no horse which had been produced as a result of any form of artificial insemination, that is, other than from a "natural" covering, was eligible for entry in the ASB or the non-thoroughbred Register.
1209 Although there was no prohibition as such on the production of thoroughbreds by means of artificial insemination, the practical and commercial effect of the combination of the two sets of rules was that breeders were effectively prevented from producing thoroughbreds to race or to sell, because the progeny of any such process would not be eligible to be entered in any of the 19,000 or so races conducted in Australia under the auspices of the ARR.
1210 The rules of racing or stud book rules of most other racing jurisdictions contained similar core restrictions upon the registration of thoroughbreds bred by any form of AI.
1211 The applicant put his case under s 45 in three ways, each of which involved s 45(2)(b): the ASB Provisions were said to be in contravention; the ARR Provisions, together with the ASB Provisions, were deemed to be in contravention by operation of s 45(4); and the Combined Provisions were said to be in contravention. It will be recalled that, in certain circumstances, s 45(4) allows more than one contract, arrangement or understanding or proposed contract, arrangement or understanding, to which the corporation is a party, to be brought to account. I return to this below.
1212 The applicant submitted that it was clear that AI breeding services and direct breeding services were functionally equivalent. The product market should be defined as that for thoroughbred horses, whether conceived by natural cover or AI. The same conclusion was arrived at by reference to the 96% of Australian horses produced annually which, the applicant submitted, would be unaffected by any overseas continuation of the ban on AI.
1213 As to the breeding market, there was no relevant difference between the expert economists as to the product/functional dimension of the breeding market if matters such as "bundled" services provided by the studs were taken into consideration.
1214 The current restrictions operated in respect of both sides of the market, that is, stallion services and mare services.
1215 As to the geographic dimension, the areas of closest competition for the direct breeding services provided by particular stallions and studs were the State or region where they were located. There was nothing to suggest that the take-up of AI breeding services would vary depending on the locations of the prospective parties to the transactions, although AI would be likely to confer a greater choice-set on those who presently had limited opportunities because of distance. It followed that the geographic market for those breeding services was potentially Australia wide.
1216 As to the acquisition market, the product/functional dimension was thoroughbred horses, whether conceived by natural cover or artificial breeding.
1217 The geographic dimension was an Australia-wide market for the acquisition of thoroughbred racehorses, acknowledging that there may be regional submarkets for the sale and acquisition of thoroughbreds within Australia and that thoroughbreds were also bought and sold internationally in transactions involving Australia.
1218 The applicant submitted that the ASB rules constituted a contract, arrangement or understanding, the parties to which were the ATC and the VRC, as well as every breeder that submits a "mare return" and every stallion owner that submits a "stallion declaration of service", both of which are obligatory. All owners of thoroughbreds recorded in the ASB will be party to the agreement and in the case of the ARR, the persons mentioned in paragraph 32B of the Third Further Amended Statement of Claim would be parties to the agreement.
1219 The applicant next submitted that the ARR Provisions, together with the ASB Provisions, were a contravention, the parties to the relevant contract, arrangement or understanding being those set out in paragraphs 32B and 32C of the Third Further Amended Statement of Claim.
1220 The Joint Proprietors conducted race meetings and must therefore be taken to be subject to the "taking part" terms of ARR 2 and would thereby be subject to the jurisdiction of the ARB and the relevant PRA and be party to an agreement with them in terms of the ARR, and therefore the ARR Provisions together with the ASB Provisions.
1221 Since the Joint Proprietors (at least) are parties to both the ARR and the ASB rules, the effect of s 45(4) was that the ARR Provisions, together with the ASB Provisions, were deemed to have the relevant anticompetitive effect.
1222 The ARR derived their force and effect from contract, rather than from statute.
1223 As to the Combined Provisions, the applicant submitted that they were similar in effect to the ASB Provisions and the ARR Provisions (combined) and were constituted by a contract, arrangement or understanding between the persons referred to in paragraph 36 of the Third Further Amended Statement of Claim by reason of the ARB having adopted the provisions of Article 12 of the Federation Agreement as well as its Preamble. The evidence of the understanding, involving the first, second, third and sixth respondents, took the form of the express stipulations in the two sets of rules and the repeated statements of those respondents that they conducted themselves in accordance with that understanding or an understanding to like effect. It was submitted that it was also relevant that the "introduction" to the Federation Agreement required the ARB, as a signatory to it, to include provisions to the effect of Article 12 within its own Rules of Racing. The ARR sought to comply with an obligation by including ARR 15A, leaving it to the ASB Rules to satisfy the provisions of Article 12. This was said to support the proposition that there was an overarching arrangement or understanding to which the ARB and the Joint Proprietors were parties.
1224 The parties to the Combined Provisions included, at least, breeding market participants because each mare and stallion owner agreed to be bound by each of the ASB rules and the ARR, but also because of the "taking part" provisions in each of those sets of rules and a similar provision within the Federation Agreement itself.
1225 The applicant submitted that the relevant principles in relation to substantial lessening of competition were that he bore the onus to demonstrate that, in a future with the conduct, there is to be a real chance of competition being substantially lessened as a result of the conduct in either of the markets alleged, as compared with the case if the conduct had ceased. The judgment required by the word "substantially" was whether the effect of the conduct is "meaningful or relevant to the competitive process". It is a qualitative judgement, and has regard to the degree of lessening, not the proportion of that lessening to competition in the total market. It followed, the applicant submitted, that there was no requirement that the effect be quantified or that the persons who testified that their ability to compete is affected be representative.
1226 The applicant submitted it was not a defence to a claim of a contravention of s 45 that the impugned conduct promoted efficiency or that the anti-competitive effects of the conduct were balanced by pro-competitive effects elsewhere. It followed that the so-called "competitive benefits of the natural cover provisions" identified by Mr Houston could not be relied on by the respondents. The international position of the Australian racing industry and the "mystique and skill of the sport" said to be derived from the natural cover provisions had to be disregarded in so far as they were relied on to support those arguments. Likewise it was not open to the ASB respondents to argue that the restrictions could be justified as reducing various kinds of oversupply. Nor was it an answer that removal of the restrictions may eliminate less efficient competitors.
1227 The applicant submitted that the conduct had all of the features of a system of private regulation: Re Media Council (No. 2) (1987) 88 FLR 1. In a market that was competitive, no such restrictions would be found or they would long since have disappeared after the introduction of effective integrity measures in the 1980s. Participants would have the choice of using different methods of production and embracing new techniques as they appeared.
1228 The future without the restrictions would involve the ASB Rules being amended such that AI-bred horses of thoroughbred parentage were recorded in a separate register maintained by the ASB; all the requirements in the ASB rules, apart from those relating to AI breeding, would apply to those horses in that separate register; AI-bred horses of thoroughbred parentage/pedigree were distinguishable from thoroughbreds produced by direct cover; the ARR were amended such that horses in that separate register were permitted to race in the same races as thoroughbreds in Australia; and the ASB would remain an approved stud book. This future was said to be far more probable than the various versions of alternative counterfactuals upon which the respondents' evidence proceeded. In the medium to longer term, the applicant submitted, it could be expected that other jurisdictions would seek to establish their own separate registers for AI-bred horses or they would change their own rules to permit AI-bred horses to race, whether by their own action or by court decree. It was reasonable to contemplate that, having regard to the significance of Australia's place in thoroughbred racing, the impetus for change could come from commercial and political considerations. However it was just as likely to follow in due time from a declaration by the Federal Court that the impugned provisions contravened s 45 and/or were in restraint of trade and were therefore unlawful.
1229 The applicant described the substantial lessening of competition in the breeding market under the headings: reduced agistment costs; reduced transportation costs; reduced incidence of disease and injury; reduced stallion service fees; veterinarian fees associated with breeding; increased choice; increase in quality; increased productivity of thoroughbreds; pregnancy rates per cycle and foal rates; and reduced market power of studs.
1230 The applicant submitted that the evidence of the impacts of the use and deregulation of the standardbred industry, the reduction in costs of breeding thoroughbreds enabling breeders to compete more efficiently, the reduction of the risk of injury and transfer of disease between thoroughbreds in the breeding season, the improvements in productivity and reproductive efficiency of thoroughbreds, the broadening of the choice-set for stallion and mare owners, the increasing number of high-quality foals produced and the demand for AI, established that, in a counterfactual world where only Australia had permitted the use of AI in the breeding of thoroughbreds, there would be a number of significant pro-competitive outcomes. The impugned provisions clearly constrained a future state of rivalry from emerging. Considered qualitatively, the evidence therefore supported the proposition that, in a future with the impugned provisions there was a real chance of competition being substantially lessened in the breeding market as a result of the impugned provisions, as compared with the case if the conduct were to cease in Australia only. The relevant time in the future is a "reasonable horizon" from now, that is, some years to some decades from now.
1231 The applicant also addressed the question whether the applicant's witnesses were an unrepresentative sample. He submitted that there was no requirement that the effect on competition in the relevant market be quantified or that the persons who testified that their ability to compete is affected be representative. In any event, there was no reason to think that the breeders called by the applicant were anything other than a representative sample. Given that there were about 8,500 Australian thoroughbred breeders in 2008, that would indicate that the average number of broodmares owned by each breeder was about three. In any event, a number of the breeders called by the applicant had substantial breeding operations, such as Mr McFarlane, Mr Hartnell and Mr Baxter.
1232 Turning to substantial lessening of competition in the acquisition market, the applicant submitted the increase in competition in the breeding market expected from a relaxation of the AI restrictions would have important flow-on effects in the acquisition market, leading to an increase in competition in the latter market.
1233 It was submitted that if AI were permitted in Australia there was likely to be an increase in the number of high-quality yearlings put up for sale, which reduction in the degree of differentiation was likely to toughen competition in the acquisition market. Prices were likely to be lower for high-quality yearlings as a result of an increase in efficiency in the breeding market caused by a reduction in the costs incurred by breeders. A wider range of breeders was likely to have access to the major auction sales. Given the increased choice available to breeders, it was likely that the dominance of the larger studs in terms of yearling sales would decline as a result. There would also be significant demand for AI-bred thoroughbreds in the thoroughbred acquisition market. International and domestic purchasers seeking to breed or race in Australia only would be likely to purchase AI-bred thoroughbreds. Also, if AI were available in Australia only, those international and domestic purchasers seeking to retain the option to breed or race overseas with yearlings purchased in Australia would continue to purchase naturally covered thoroughbreds from Australian sales.
1234 The applicant submitted that the Joint Proprietors gave effect to the ASB provisions by conducting random inspections of studs to ensure compliance with the ASB rules, by refusing to establish a register for thoroughbred horses produced by AI breeding and by deciding to maintain the current rules.
1235 The applicant submitted that the ARB gave effect to the ASB Provisions: it had steadfastly maintained that the ASB rules should not be materially amended to remove the ASB Provisions. In addition, by maintaining ARR 14 and 15A, the ARB was effectively allowing the continuation of the ASB Provisions by "delegating" to the Joint Proprietors the power to decide which horses were to be registered. It was not necessary for the ARB to be a party to the ASB rules in order to be found to be giving effect to it. Further, the applicant submitted, that by continuing to maintain ARR 15A, the ARB had aided or abetted the Joint Proprietors' contravention of s 45. Were it not for the existence of ARR 15A, the ASB Provisions would have no or little practical effect. The ARR incorporated by reference the ASB Provisions. In addition, the combined effect of the ARB being a signatory to the preamble, the introduction and Article 12 of the Federation Agreement is that it must include provisions to the effect of Article 12 in its own rules of racing.
1236 For the same reasons and on the same basis, the applicant alleged that both the ARB and the Joint Proprietors continued to give effect to the Combined Provisions.
1237 The ASB respondents submitted that the claim failed in respect of them, as well as in respect of the ARB, because: there was no consensus to which the ASB respondents, or the ARB, were party which engaged s 45: rather, the ASB respondents unilaterally imposed the ASB Provisions and, independently, the relevant racing authorities imposed the ARR Provisions; even if there was a relevant consensus which attracted s 45, the provisions would exist regardless of the alleged consensus because they were unilaterally imposed by the ASB respondents in the case of the ASB Provisions and by the relevant racing authorities in the case of the ARR Provisions and the alleged consensus was not and could not be causative of any alleged lessening of competition; there was no causal nexus in any event between the alleged conduct of the ASB respondents because an alternative register for AI produced horses could be established by the applicant; the applicant had failed to establish his pleaded market; if the counterfactual involved the world without the provisions, the applicant had misconceived and/or failed to prove any relevant counterfactual; the evidence adduced by the applicant did not establish any likely lessening of competition in any relevant market and in terms had not established this to a standard of substantiality; and the likely effect of removal of the rules was a lessening of competition in any relevant market arising from a reduction in international participation in all levels of Australian thoroughbred breeding, racing and acquisition and the likely increase in costs, and reduction in options, for breeders within Australia.
1238 The ASB respondents submitted that a thoroughbred race was, and always had been, a contest to determine which owner had the fastest horse, bred by direct cover, and possessing solely thoroughbred bloodlines. The notion of what qualified as a thoroughbred horse was conventional, defined by the norms of regulatory bodies which governed the breeding, supply and racing of horses. A foal conceived as a result of the provision of direct breeding services differed materially from a foal produced through the use of artificial breeding. It was submitted that as a matter of pedigree, international classification and practice, a horse of thoroughbred lineage bred by artificial breeding would not be classified as a thoroughbred. Further, the thoroughbred is an international breed.
1239 The ASB respondents submitted that the challenged provisions were quintessentially rules of a sport, namely a contest to determine the best naturally bred horse with specified bloodlines. In defining the sporting activity of thoroughbred horse racing, the provisions also confined that activity. There was a crucial distinction between direct cover as a method of manufacture (such as handmade tennis racquets) as opposed to a brand of manufacture (such as Slazenger tennis racquets) in respect of which one person enjoys a monopoly.
1240 Artificial breeding differed materially from natural breeding and expanded the potential to reproduce. In relation to artificial insemination itself, it permitted many more mares to be inseminated in any one breeding season than did the natural cover process.
1241 The respondents submitted that the standardbred analogy did not assist the applicant. Standardbred was a description of a certain kind and quality of performance by a horse, as opposed to its pedigree.
1242 Further, all restrictions on the number of covers by AI now having been removed globally, the evidence disclosed significant patterns of decline in standardbred breeding and racing over recent decades, including: a decline in attendance at trotting races and in the allure of the sport; there had been a significant increase in the total number of covers by AI performed by the most popular stallions and in the number of stallions covering in excess of 150 mares; there had been a significant decline in the number of local services; there had been an overall decline in the number of standardbreds produced; there had been a decline in the number of services to live foals and mares served to live foals; there had been an increasing level of service fees, alongside a steadily increasing price of yearlings correlated to increasing prizemoney.
1243 Further, most commercial standardbred horses were not available for direct cover and their owners sold their semen only; this commercial constraint was a function of a physical constraint in that switching between the two methods of conception can cause difficulties for the horse; there had been little adoption of the use of frozen semen in standardbred breeding; and any standardbred mare owner who wished to use the services of a shuttle stallion by way of direct cover was now not able to do so.
1244 Returning to s 45, the ASB respondents submitted that the relevant ASB rules were not dependent on any contract, arrangement or understanding (consensus) between breeders and owners as corporations any of which supplied or acquired, or were likely to supply or acquire, thoroughbred breeding services. The rules existed before and independently of "any person taking part in any matter coming within these Rules". Even if there was a contract, arrangement or understanding with breeders or owners constituted by the ASB rules, the rules would remain even if there were no consensus. The existence of the ASB Provisions was not and never had been conditional upon thoroughbred breeders agreeing to the existence of those rules. Representations to the Australian Stud Book in relation to what it should do were attempts to persuade an entity which has a legal entitlement to do what it wishes, subject to its own constitution and its own duties to the Joint Proprietors as companies. The rules reserved to the Joint Proprietors the right to decide what should or should not be included in the ASB and to reject any horse. Reference was made to Buckley v Tutty (1971) 125 CLR 353 (Buckley) at 375. No consensus had been proved between breeders and the Joint Proprietors by which the rules existed as they did: it was insufficient to point to vertical arrangements with individuals, as in Meyers v Casey (1913) 17 CLR 90 (Meyers). Standard terms did not mean that those who signed up to them had a consensual arrangement with all other signatories as to each term. No consensus existed in relation to the Combined Provisions: contrasting reference was made to the facts in News Limited v Australian Rugby Football League Ltd (1996) 64 FCR 410. Any alleged consensus was not causative of any alleged effect on competition. It was submitted that s 45 was directed at stopping things which were happening because of the consensus between relevant parties participating in a relevant market. If there was any effect, the effect was not attributable to the character of the provisions as part of a consensus. In any event there was no provision of a consensual arrangement to which a horse breeder or owner was a party which caused any relevant effect in any relevant market. The manner in which the s 45(4) case was alleged was misconceived as the ASB Provisions and the ARR Provisions were not correctly aggregated under that section. The section was not directed at quite distinct rules, promulgated by quite distinct entities, at quite distinct points in time. The section calibrated the cumulative effects of related contracts.
1245 The ASB respondents also submitted that there was no causal connection between the ASB respondents' conduct and the alleged effects. Further, there was no restriction of choice, or relevant market distortion, related in any way to the ASB respondents which fettered the applicant's choice or conduct. This was the third register point, in relation to which the applicant accepted that there was nothing preventing him from establishing himself a register of horses bred by AI from thoroughbreds. The applicant agreed that the ASB respondents need not set up such a register and that he could do that himself, the best opportunity being with Harness Racing Australia. There could not be a lessening of competition by reason of the failure of the ASB Provisions to provide for a third register.
1246 The ASB respondents submitted that the applicant's alleged markets were not established. To the extent that there could be said to be a market for the breeding, supply or racing of thoroughbred horses, this was only so as a matter of convention and was so by definition. Artificially bred horses of thoroughbred ancestry could not be described as actual or potential competitors in a market for thoroughbred breeding. Also it was not appropriate from an economic analysis to identify as the relevant product market a product which had the effect of changing the rules of the very sport from the appeal of which the putative provider of a different product sought to profit.
1247 It was submitted that where a sphere of activity had its appeal and interest as a result of the rules of sport or contest then, unless it appeared that those rules did not contribute to the very nature and appeal of the activity, the sphere of activity should be taken as it was found and a market limited to thoroughbred horses conventionally defined as having relevant bloodlines and being bred by direct cover. The applicant wanted the Court to in effect order that the activity change: from the present contest to one which did not involve the feature of thoroughbred horses bred by direct cover. It was for the applicant to persuade the Court as a matter of fact that that part of the contest was irrelevant to the appeal and that the market was not as defined by the rules. There was no basis for the applicant to take only part of the contest away, the applicant accepting the rules insofar as they defined the contest as involving horses with thoroughbred lines. The applicant had not presented evidence to support a factual conclusion that the market should be defined otherwise than by reference to the rules of sport which defined it and which had generated the product: that was the market which existed and a market could not be changed by first including AI horses and then examining the competition question.
1248 Dr Williams conceded that horses bred by direct and artificial means were unlikely to be close substitutes for each other in any counterfactual world. This was fatal to the competition case, there being no competition in the requisite sense.
1249 Assuming there was any basis for considering a counterfactual world in which the ASB Provisions did not exist, the ASB respondents submitted that, in any event, the applicant had failed to establish any such relevant counterfactual. The evidence did not support a counterfactual consisting of the worldwide use of AI. A counterfactual which involved the ASB operating a separate register for the recording of artificially bred horses of thoroughbred parentage was not available to the applicant as it was not alleged and relief to that effect was not sought. Further, the Australian Stud Book did not want to operate any such register and it was the applicant's evidence that any person could operate that register and Harness Racing Australia was best placed to do so. The applicant's case was that the challenged provisions have not always been bad but had become so: he could not urge upon the Court a counterfactual world at all times absent the challenged provisions.
1250 On the assumption that the overseas rule did not change, the evidence did not support a conclusion on the balance of probabilities that there would be any, or any significant, likely suppliers of AI horse semen or demand therefor even if there was supply, in an Australia only AI world. The commercial risk for a stallion owner of supplying AI semen with lower sale prices for progeny produced thereby was a disincentive for a stallion owner to proceed down that route. The commercial risk of refusing to supply direct cover was obvious as the stallion owner would deprive itself of the market most likely to be lucrative. Further the disincentive for a mare owner to switch to AI breeding was clear, namely a potentially lower value AI-bred horse. There was no commercial logic in a mare owner using its one chance each year to produce a valuable horse to produce a likely lower value horse. The commercial downsides outweighed any cost savings of AI. The evidence did not support a conclusion that AI breeding services were a close substitute.
1251 As to the applicant's economic evidence, it was submitted that Dr Williams' evidence proceeded on the basis of three fundamental methodological errors. First, he had not adopted the correct focus of enquiry which was the productive activities of the clubs which generated the impugned conduct: indeed he had not grasped that none of the ASB respondents participated in any of the relevant markets. He had reached the unstated conclusion or assumption that the rules had been implemented or sustained as a result of the pressure from the larger studs. Second, Dr Williams posited a distinction between rules of sport directed at equalising the competition, on the one hand, and rules directed at determining who could participate in a sport on the other hand, but this was not a principled economic distinction. It also suffered the logical confusion of positing the relevant "who" as being a horse, rather than its owner. However any breeder may produce a horse eligible to register for racing. Third, in assessing the competitive benefits and detriments of removing the rule, Dr Williams first assumed away the restrictions and then attributed any lessening of competition to the introduction of competition into the market. This approach begged the question. It was also submitted that Dr Williams conceded that artificial and direct breeding services were not close or strong constraints for each other and that if yearlings produced by AI were not accepted into races outside Australia they would clearly not be good substitutes for each other.
1252 The ASB respondents submitted that the Court could not be satisfied on the balance of probabilities that the rest of the world would change to AI thoroughbred racing or breeding.
1253 The ASB respondents submitted that in a counterfactual world in which the challenged provisions were revoked and corresponding international rules were not revoked, the resulting asymmetry was likely to lessen competition within either Australian or geographically more broadly defined markets for thoroughbred horse breeding, acquisition and racing. This detrimental effect would not be offset by any of the putative competitive benefits upon which the applicant relied. First, the ASB would no longer qualify as an approved stud book for the purposes of the Federation Agreement. Second, Australian thoroughbred races may be downgraded by IRPAC. Third, Australia would cease to be a participant within the international thoroughbred breeding and racing community. Other breeding and racing nations would not have any incentive to protect or promote the interests of Australia since nations compete amongst themselves for black type listings and prestige. Fourth, Australia would be ineligible to have horses recorded in the world thoroughbred rankings. Fifth, Australia would lose any support from international buyers because Australian-bred thoroughbreds would have value only in Australia, which risk would remain even if AI-bred horses were separately registered. Sixth, fewer or no shuttle horses would visit Australia and fewer or no shuttle horses would be exported from Australia to overseas. The entire industry would be isolated.
1254 In contrast, the putative competitive benefits upon which the applicant sought to rely were illusory or nugatory at best.
1255 First, as to increased options or choice for breeders and owners of thoroughbred horses, the choice sets arising from artificial breeding were not as simple as the addition of one option to existing options but would involve the loss of certain options. No existing Australian stallion owner gave evidence that they would or could offer AI services. This was not surprising in light of the commercial risk for a stallion owner of supplying AI semen with lower sale prices for progeny thereby produced. The stallion owner would deprive itself of the more lucrative market.
1256 Second, the evidence did not establish that there would be any reduction in costs. The use of fresh semen entailed materially identical costs. Any reduction in costs therefore must be predicated upon the use of chilled or frozen semen. The reduced efficacy of those modes of insemination had to be factored in as an offsetting cost. Frozen semen was not as fertile as fresh semen and the costs of freezing semen are high. The semen of at least 30% of stallions did not freeze acceptably. The fertility rates per cycle for AI were 70 to 80% for fresh semen; 50 to 70% for chilled semen and 50 to 60% for frozen semen. Costs involved in using AI could sometimes exceed those involved in direct cover, overall costs would depend upon a number of variables, and it was not possible to state that the use of AI would necessarily be cheaper than the costs involved in natural cover. Savings on costs of transport and agistment may be offset by increased veterinary costs. Agistment and transport fees were to some extent transferred as opposed to removed. It was counterintuitive to suggest that the service fees charged for direct breeding services would be reduced by reason of the availability of AI breeding services: if the demand for AI semen of a smaller number of higher quality stallions occurred the price of that semen was unlikely to fall. The attraction of any direct breeding stallion would still depend on its inherent quality as a stallion. If the applicant contended that breeders would have greater access to the sperm of particular stallions and the demand for that sperm would at least match its greater availability, that was likely to have an inflationary effect on the price of that sperm. The price of the service was ultimately related to the perceived price at which its progeny might be sold, which was dependent on its pedigree and perceived prospects of success, not on costs of production.
1257 Third, the competitive benefits and costs savings arising from reduced incidence of disease and injury were nugatory.
1258 Fourth, any increased quality of thoroughbred horses, on the bases that geographic constraints would be reduced and mare owners would prefer to use the semen of stallions of higher quality, if such benefits materialised, would result in Australian thoroughbreds being excluded from competitive events by reason of an unfair advantage.
1259 Fifth, rather than the market power of major studs being reduced, the likely effect of amending the rules would be to increase the concentration of the number and volume of services provided by stallions within the larger stud farms. The introduction of artificial breeding would increase concentration within the stallion services market as opposed to reducing it.
1260 Sixth, the applicant's contention that there would be increased productivity of thoroughbreds on the basis that if AI breeding were introduced there would be more semen available to inseminate mares or more occasions on which any one sire's semen could be used to inseminate mares, was not established. Chilled and frozen semen had reduced fertility rates. Further the applicant assumed that stallion owners would participate, either at all or to any significant extent in AI. He further assumed that there was a rational economic basis for higher production, which economic analysis defeated.
1261 Demand in the racing market was capped due to heavy external regulation of the racing industry and a finite prize pool. The number of thoroughbred races run and the pool of prize money available across those races was determined by customer willingness to support race meets and punter willingness to bet on races. More fundamentally, the thoroughbred breeding, acquisition and racing industries were currently characterised by various kinds of oversupply. The breeders' evidence was not only unpersuasive but it was not on its face representative of any broad section or subsections of the breeder community and no attempt had been made to demonstrate that it was so representative. The breeders who did give evidence comprised the "competitive fringe". Dr Williams conceded that he had no idea whether the breeder evidence was representative of breeders more generally.
1262 Finally, the applicant could not on any view have established any substantial lessening of competition. The applicant did not seek to prove the kinds of matters which Dr Williams identified as necessary to establish substantial lessening of competition.
1263 Turning lastly to the worldwide AI counterfactual, the ASB respondents submitted that there was no evidence, and the Court could not safely infer, that long entrenched regulatory practices in overseas jurisdictions would change should Australia permit artificial breeding. The evidence was to the opposite effect. Even if a worldwide AI counterfactual could be considered, the increase in concentration of demand for a smaller number of stallions owned by larger studs would not suggest an increase in competition but rather a lessening of competition.
1264 The third respondent, the ARB, submitted that there was not an incorporation by reference in the ARRs of all the rules of the ASB. Rather, it was pointedly a stipulation of the fact of inclusion in the ASB. What got to be included in the ASB, from time to time, depended among other things upon a discretion of those in charge of it. More to the point, at their discretion, they might alter the criteria. For example, the non-thoroughbred lists could be promoted to thoroughbreds, switching from one list to the other, by reference to the numbers of crosses since the "flaw" in their pedigree. If the Joint Proprietors changed from the number eight, for the crosses that followed after a flaw, to nine or seven, that was something which would potentially affect the inclusion of a horse in the ASB, and that fact would operate indifferently under the ARR. In short, that example illustrated that the criteria for inclusion in the ASB were not governed by the ARR at all. This was the making of a rule then accepting that the content which was thereby promulgated may alter from time to time according to the uncontrolled discretion of another party. There was in the ARR a plain acceptance that whatever led to inclusion in the ASB, no doubt in the confidence that it was for a thoroughbred as understood by those in the industry whatever it was, that would be the relevant fact. If and when that were to change, no doubt those who make the ARR could reconsider.
1265 Far less was it participation by contract, understanding, arrangement or consensus, between the first, second and sixth respondents and those who made the rules for the ASB as to what the rules in the ASB will be. The third respondent accepted the outcome of their promulgation but did not participate by consensus in it. Even more obviously, participants in the industry such as jockeys, trainers, strappers, owners, breeders, auctioneers, stable hands, or whoever else one might be supposed, such as punters, were not involved by way of contract, arrangement or understanding with any element of the imposition by those who run the stud book of the prohibition of AI entry. It was for those reasons that the prohibition which was complained against and had been given effect to, simply failed to make the connection with s 45: it was not the giving effect to of any relevant contract, arrangement or understanding among people who included participants in the relevant markets.
1266 The third respondent submitted that ARR did not constitute a contract, arrangement or understanding because they were instead a statutory instrument, at least in New South Wales, Queensland, Western Australia, Tasmania, the Northern Territory and the Australian Capital Territory. The ARR might be said, at most, to evidence an arrangement or understanding formed between the ARB and the PRAs to the effect that each of the PRAs is to adopt, as part of their local rules of racing, the provisions of the ARR. But if such an arrangement or understanding did exist, none of the parties to it would be a corporation that acquires or supplies goods or services in either the thoroughbred breeding market or the thoroughbred acquisition market, as pleaded. Section 45 would not be engaged.
1267 As to the Combined Provisions, the mere fact of the ARB's adoption of Article 12 would not establish any meeting of minds between the ARB and, say, every thoroughbred breeder in Australia as to the ineligibility to race of horses produced by artificial breeding. Nor did it establish an agreement in some other terms between the ARB and the Joint Proprietors. The rules governing the ASB had excluded foals produced by AI long before the Federation Agreement was made and the impetus for the inclusion of ARR 15A appeared not to have been Article 12 but the introduction of a non-stud book register. Thus there was no predetermined design having its origins in Australia's adoption of Article 12. The ARB accepted the outcome of the promulgation of the ASB rules: the ARB did not participate by consensus in it. Even if there had been some consensus reached between the Joint Proprietors and the ARB or its predecessor bodies concerning the implementation of Article 12, it was difficult to understand why, and how, racing clubs, racehorse owners, breeders and any other person taking part in matters falling within the scope of the ARR should be regarded as parties to that consensus. If the only parties to the arrangement or understanding were the Joint Proprietors and the ARB, then the applicant's claim focused on the thoroughbred breeding market and the thoroughbred acquisition market could not succeed. This was because the Joint Proprietors and the ARB did not supply or acquire goods or services in those markets. The third respondent submitted that there was nothing that sensibly answered a contract, arrangement or understanding which combined the ARR and the ASB: it could not be said that they were produced by the same people or that the people involved in the one were necessary for the production of the other or that the people involved in the one consulted the people involved in the other before making their own rules.
1268 The third respondent said the applicant did not attack the validity of ARR 14 and 15A. The case against the ARB involved the ARR incorporating the ASB Provisions so that the ARB should be seen as giving effect to those provisions and thus acting in contravention of s 45.
1269 The third respondent submitted that whatever the reasons were, the game was defined by reference to the eligible participants in terms of the livestock and the applicant's complete failure to explain how the thoroughbred criterion could be kept but that the AI criterion should be rejected was telling as to why there was no anti-competitive effect at all. Once the applicant embraced the artificiality that the runners had to be descended from a defined and named list of bloodstock that was an end to any principled reason for saying that that genetic artificial restriction had to be able to be achieved by any method of reproduction. To contend that some, but not the whole, and not the bulk, of these artificial criteria should be tinkered with by a court was, the third respondent submitted, absurd. The third respondent asked rhetorically why a court would be interested in AI and not be interested in the notion that the horse must have descended from a particular named group of long-dead horses. The applicant's case was that it was entry into the highly artificial world of the stud book for thoroughbreds that he sought to have altered as to its criteria, by elimination of the AI prohibition.
1270 As to the applicant's case on market definition, the third respondent submitted the applicant had not proved that thoroughbreds and AI-produced horses of thoroughbred ancestry were sufficiently close substitutes that a hypothetical monopolist of thoroughbred natural cover services would not be able to increase service fees in a non-transitory way by a similar percentage. The applicant had thus failed to discharge the onus on him of establishing that natural cover services and AI services were such close substitutes that they should be regarded as products supplied within the one market. For it clearly to be shown that AI-produced and naturally produced horses of thoroughbred ancestry were good substitutes, the applicant had to establish that AI-produced horses would be permitted to race overseas, a state of affairs which would necessarily entail either an amendment to Article 12 of the Federation Agreement or non-compliance with that provision by every racing jurisdiction in the world.
1271 As to substantial lessening of competition, the applicant's two fundamental propositions were, first, that as a consequence of the impugned provisions, the cost of mating a broodmare with a stallion and producing a foal was higher than it otherwise would be if AI were deployed; and, secondly, that by reason of the impugned provisions, the range of stallions with which a broodmare owner may choose to mate his or her mare was constrained by geography, thus insulating stallion owners from competition from more remote providers of stallion services.
1272 As to the first of these, the third respondent submitted that Dr McKinnon's evidence suggested that the savings were not real and there was no evidence of the number or proportion of broodmare owners who would choose to employ AI such as to ground a substantial lessening of competition consequential upon the denial of choice to those broodmare owners for whom AI would cost less than natural cover.
1273 As to the alleged constraint by geography, there was insufficient information upon which to conclude that a constraint similar to that referred to by the owners and advisers who did give evidence, affected most or many mare owners. The evidence suggested that the witnesses were not representative and the evidence did not point entirely in one direction. Data on transport costs relative to service fees was not adduced. The applicant did not sufficiently establish that the availability of AI would assist broodmare owners in overcoming that constraint. The applicant's case did not adequately establish that the availability of AI would cause a reduction in service fees, including the price of semen collected for AI purposes. An increased demand for services from better-quality Australian stallions would culminate in higher service fees: the evidence of any increased international competition was an insufficient counterweight.
1274 Turning to substantiality, Dr Williams did not address the substantiality or otherwise of any lessening of competition that might be attributed to the provisions impugned in the proceedings. Dr Williams did indicate that facts that would be relevant to any assessment of such substantiality included: the number and the identity of broodmare owners who would enjoy cost savings as a consequence of using AI; the number of stallion owners who would proffer AI services if AI-produced horses were permitted to race against thoroughbreds only in Australia; and the magnitude of any cost differential between using AI services and using natural cover services. The applicant did not adduce evidence on any of those matters and Dr Williams was not in a position to express an opinion on them.
1275 The fifth respondent, the TBA, adopted the submissions of the other respondents in relation to the proper approach to a claim for breach of s 45, particularly in relation to the absence of a relevant contract, arrangement or understanding and how the relevant markets should be defined. Its submissions were directed towards the subsequent factual enquiry, the question whether the thoroughbred definition rule, reflecting Article 12 of the Federation Agreement, substantially lessened competition.
1276 The TBA submitted that the question whether sporting rules are good or bad should be left in the first instance to market forces. Many decisions to adopt particular sporting rules will have adverse economic consequences for some traders or potential traders in one of the markets or submarkets associated with that sport. This was not itself anti-competitive. The rules, as a coherent whole, were what created the market for those products in the first place and thereby created the rivalrous behaviour at issue. When assessing whether a particular rule can be said substantially to lessen competition, it was important to consider the structural context in which rules were promulgated, including the international dimension of the sport. There was a margin of appreciation for sporting rules within which the Court could not conclude that the rules substantially lessened competition.
1277 For a number of reasons, the thoroughbred definition rule was relevant to the popularity of thoroughbred racing. First, the international character of the sport was a major part of its appeal and the comparability of races and thoroughbreds around the world was a crucial driver of demand in the relevant markets. Second, the uniqueness of thoroughbreds and the diversity of bloodlines were crucial to the appeal of the sport. Third, thoroughbred racing was promoted by what the applicant described as the theatre, a major part of which was the tradition of the sport. As well as tradition, the breeding of horses was a major part of the spectacle, including commentary on whether a horse was the result of a particularly good match. In the competition enquiry, the Court was not concerned to second-guess these reasons, but rather to ask whether the rule in question was adopted or maintained in a competitive environment.
1278 The TBA submitted that in light of the evidence of actual and potential competition, the Court should conclude that if the many participants in the thoroughbred breeding or acquisition markets had participated in the adoption or maintenance of the thoroughbred definition rule, then that was conduct in a competitive environment subject to the usual market forces that operated on people who adopted such rules and as such it could not be said to lessen competition in those markets.
1279 The TBA then referred to the practical limitations on artificial insemination. Taken together, it was submitted that the Court could not conclude that the introduction of AI would reduce the cost base of any significant number of mare owners, or enable any greater degree of rivalrous behaviour. The Court could not conclude that the present ban lessened competition, and certainly could not conclude that any lessening of competition would (or might be) "substantial". Reference was made to Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 at [88]-[89] per Buchanan J and, in the alternative, at [235] per Yates J.
1280 The TBA then submitted that there were several important international elements to the thoroughbred breeding and racing industry. There was demand in Australia for foreign thoroughbreds and there was a strong international demand for Australian thoroughbreds. There was an international set of rules for thoroughbred racing that included the thoroughbred definition rule and the rules set out in the Blue Book for ranking horses and grading races.
1281 The Court should not accept the applicant's primary contention that the ASB would retain its status as an approved stud book if AI were permitted. At the level of the Federation Agreement, Article 12 could not be dismissed as an article that participating countries were free to accept or reject as suited them. If AI horses were recorded in a separate register and permitted to race against thoroughbreds recorded in the ASB's thoroughbred register, the position would be no better. The Blue Book provided the regime for grading races between thoroughbreds and the lists of races and horse rankings were all for thoroughbreds. Mr Romanet gave a detailed explanation for why the grading of races would be interfered with if thoroughbred horses raced against AI horses. The Blue Book expressly invoked the Federation Agreement. The situation would only change if Article 12 were amended to permit AI horses but it was clear that there was little appetite for such a change internationally. There was no reason to expect other major racing jurisdictions to accommodate Australia if Australia departed from Article 12 and the concept of thoroughbred used in the Blue Book.
1282 The loss of international interest and involvement in the Australian industry would drastically reduce the level of competition in Australian races. In any case there was very likely to be a significant depression in international demand and a significant depression in international participation in the Australian markets and thus a significant reduction in competition, reducing the level of rivalrous behaviour in the Australian markets put forward by the applicant. The TBA submitted that the applicant had the onus of proving that one of his counterfactual worlds would come to pass but he had failed to discharge that onus.
1283 The TBA submitted that the Court could not conclude that economic incentive would limit the output of stallions to the present level. Thus, for a number of reasons, the introduction of AI imposed a real prospect of reduction in diversity of thoroughbred horses. This would reduce the level of rivalrous behaviour and it would also pose a serious risk of reducing the appeal of the sport generally, given the importance of diversity to that appeal. Reduction in appeal would lead to reduced demand, reduced participation and thereby reduced competition in the relevant markets.
1284 Looking to the future, closely linked with the concern about diversity, the TBA submitted, was the likelihood that allowing AI would concentrate market power in the hands of the owners of high quality stallions. The output of the top-performing stallions was likely to increase in that the top-performing stallions were likely to be more sought after if AI was permitted. In the standardbred industry, the use of AI had led to a greater concentration of mares to a smaller number of stallions. Alabar, the largest standardbred stud in Australia, had increased in scale and its output doubled in the year after restrictions were lifted. There had been consolidation among the studs in the standardbred industry and the smaller studs had converted into semen stations. Major studs accounted for the vast majority of the most prolific stallions. The top stallion owners would benefit from AI.
1285 The TBA submitted the Court should reject the applicant's submissions that there was a present position of market dominance which AI might reduce. Only two of the major studs were heavily represented in the list of studs with shuttle stallions and those two were international enterprises. The other five of the so-called seven studs were not significantly represented. It was also a misconception that AI would lead to a significant influx of imported semen from the northern hemisphere. The contention should be rejected that the major studs benefitted from the existing ban because they were able to entrench their position by bundling stallion services with the broodmare care services and the agistment fees. The fifth respondent also criticised the concept of "the seven major studs" and the suggestion that the major studs had been increasing their dominance over the last 10 years. In fact, it was submitted, the evidence indicated a high level of competition between studs. Studs competed aggressively in the promotion of their respective stallions. In summary, there was not a present position of market dominance and the Court could not conclude that the present ban on AI protected the major studs. It was the major studs which would have the most to gain in the short term from the removal of the ban on AI and they would then acquire a level of market dominance that they did not have at present.
1286 In reply, the applicant submitted that the respondents' attack on the consensual nature of the contract, arrangement or understandings alleged failed. The core provisions were contained in the various rules. The parties were identified by the language of the rules themselves or evidenced by conduct. The ARR operated at a level which was independent of the various statutory schemes on which the third respondent relied.
1287 The ASB Rules, and their predecessors, had always operated on the basis of consensus between the Joint Proprietors and those submitting returns. Rule i of the ASB Rules was in similar terms to the rule considered in Meyers (above). Reference was made to Clarke v Earl of Dunraven & Mount-Earl (The Satanita) [1897] AC 59 (The Satanita), to Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd (unreported, New South Wales Court of Appeal, 23 December 1988) and to Raguz v Sullivan (2000) 50 NSWLR 236 (Raguz) at [66]-[79] which considered both those cases.
1288 The applicant submitted that s 45 involved a three stage enquiry: identifying the contract, arrangement or understanding and the relevant parties; identifying the provision of the contract, arrangement or understanding; and considering the effect of the provision, rather than the effect of any contract, arrangement or understanding. It was not the contract, arrangement or understanding that had to have the effect, nor the underlying rules, it was the provision that had to have the effect. Persons can be a party to a contract, arrangement or understanding and thereby to the relevant provisions by coming and going in an industry such as the present where the content of those provisions was made up by sets of rules or by some parts of rules.
1289 As to there being no causal nexus because an alternative register for AI-bred thoroughbreds could be established by the applicant, the applicant submitted that in order to contravene s 45 it was not necessary that conduct precluded competitive activity altogether. "Lessening" included preventing or hindering competition. While it may be relatively straightforward to establish such a register, it would have no value unless recognised by the ARB for the purposes of the Rules of Racing. This appeared to be beyond the power of the ASB to achieve. Accordingly the argument that there was no causal nexus must fail.
1290 As to the ARR, the applicant submitted that the ARB makes the ARR and only the ARB can rescind or alter the ARR. The ARB does not refer to the PRAs in respect of any of these activities, functions or obligations. The PRAs' powers were now derived from ARR 7, which expressly denied the power to make new Rules, other than Local Rules, or to rescind or alter the ARR. The fact that there is a statutory overlay did not prevent the coexistence of contractual relations, much less the existence of any arrangement or understanding. There was nothing in a statute to indicate a statutory intention to displace any aspect of the way in which the ARR had previously operated.
1291 The applicant also submitted the pleaded market had been established to the requisite level of certainty. The applicant submitted that sterile arguments about whether a market can be defined by reference to "conventional definitions" of thoroughbreds and rules which are said to define a sport, ceased to have any relevance once the restrictions constituted by the impugned provisions were inoperative.
1292 As to the counterfactual, the applicant submitted that the evidence of Mr Ford, that keeping a separate register would not put the ASB's approved status in jeopardy, meant that the applicant's counterfactual was the most probable outcome of the ASB Provisions being held to be unenforceable. The third respondent would be likely to amend the ARR to recognise such a register. The respondents' counterfactual was contrary to the weight of the evidence as well as being counterintuitive and had been advanced strategically to avoid confronting the inevitability of a separate register regime.
1293 The applicant submitted that he had always said that there were at least two possible courses open to the respondents: the establishment of a third register for AI-bred horses (with the ARB amending the ARR to recognise that register), or the ARB amending its rules to replace the reference to the requirement of registration in the ASB with some other criterion. The applicant's case had always been that the most likely outcome would be that the third register would be established, if not by the ASB, by some other entity and that register would be recognised for the purposes of ARR 15A. However these were matters out of the applicant's hands. If the relief sought were granted it would be a matter for the respondents to determine how to comply.
1294 As a matter of commercial reality, the applicant submitted, the evidence established that the impugned rules, by denying choice, substantially lessened competition at present and were likely to do so in the future. The respondents' arguments about "concentration" effectively assumed that significant demand would emerge. Such demand would be meaningful and relevant to the competitive process.
1295 The applicant submitted that it was incorrect to say that his case did not involve an attack on ARR 14 or 15A. The Amended Application sought relief in relation to the ARR by virtue of s 45 but not under the doctrine of restraint of trade. The restraint of trade case involved the ARR provisions insofar as they formed part of the Combined Provisions and have effect in combination with the ASB Provisions. The applicant referred to paragraphs 38 and 39 of the Third Further Amended Statement of Claim.
1296 The applicant relied on "provisions" of those contracts, arrangements or understandings. The provisions challenged were: the ASB Provisions which were said to form part of a contract, arrangement or understanding constituted by the ASB Rules; the Combined Provisions which were said to pick up the ASB Provisions and the ARR Provisions; and the ASB Provisions and ARR Provisions together by operation of s 45(4). The ASB Provisions and the ARR Provisions were primarily contractual in nature, whereas the Combined Provisions were provisions of ("matters forming part of") an arrangement or understanding, evidenced in part by the ASB and ARR Provisions.
1297 As to the likely demand for AI, the applicant submitted the Court should not conclude that demand for AI would be limited to the witnesses called in the applicant's case or that interest was confined to some limited class of breeders in Australia. The applicant drew attention to some 26 further non-exhaustive references in the documentary evidence, between 1976 and 2009, to interest in or demand for AI. The applicant submitted that it would be surprising if there were not other breeders who would be likely to make use of AI if the rules were changed but who were reluctant to express their preferences publicly or in writing to the Australian Stud Book. The assumption on which the relevant respondents' increased concentration argument was based was consistent only with, in the view of those respondents, the likelihood of significant if not considerable demand for AI.
1298 As to the rules of sport, the applicant maintained the validity of the "traditional distinction" between rules that go to performance, and in that sense define a sport, and those that exclude certain persons according to criteria which have nothing to do with performance. The point was not that stipulating that the game of tennis could be played only with one manufacturer's racquets conferred a monopoly on that manufacturer. Rather the point was, it was submitted, that "dictating the identity, or the mode, of manufacture can only be a valid rule of a sport if those matters are relevant to performance of the sport, that is they affect the sport generally, not just a particular competition or contest." In the analogy there was nothing to indicate that a racquet made by hand would make any relevant difference to performance of the game, for example by giving one player an unfair advantage. In the present case there was nothing about the mode of conception of a thoroughbred that affected their performance in racing, yet those conceived by one method were excluded entirely from a sport and its dependent industry which had many of the features of a natural monopoly.
1299 The applicant maintained his submissions against the argument that the removal of the ban on AI may result in a greater concentration of mares bred to a smaller number of stallions.
1300 The applicant also maintained the utility of the analogy with the standardbred experience, particularly the multiple changes in that industry would lead to increased competition as a result of the introduction of AI and deregulation of its use.
1301 The applicant submitted that the plain meaning of the language of s 45(4) indicated that the subsection was intended to apply to the Combined Provisions. There was no ambiguity in the wording. The ASB respondents cited no authority for the proposition that the Combined Provisions were not correctly aggregated under that section.
1302 The applicant took issue with the respondents' characterisation of the evidence of both the applicant and the witnesses called by the applicant.
1303 The applicant also submitted in reply there was not a "real chance" that the harmful effects contended for by the respondents in an Australia-only counterfactual would be experienced.
1304 The applicant also took issue in reply with the respondents' assertion that the use of fresh semen within AI entailed materially identical costs. He submitted that the ASB respondents misunderstood the significance of the fertility rates per cycle for AI. The applicant also contended that the respondents misconstrued the evidence given by Dr McKinnon.